After Aggressive Steps, Dillard's Shows Signs of Rebirth

by Mark Friedman  on Monday, May. 17, 2010 12:00 am  

After years of being one of the worst-performing department store chains in the United States, Dillard's Inc. of Little Rock is showing signs of rebirth.

Since trading at $2.50 on Nov. 21, 2008, the lowest the company's stock price has been in decades, shares of Dillard's were selling for just under $27 last week. They had reached as high as $31 in late April.

And thanks to a strong fourth quarter, during which it netted $79.5 million, Dillard's net income for the fiscal year that ended Jan. 30 was $68.5 million. Dillard's reported a loss of $241.1 million a year earlier.

"Dillard's was in freefall," Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm in New York, said last week. "I think we can say they're no longer in freefall."

In August 2008, Davidowitz wondered if Dillard's would be around in five years because of its poor performance coupled with the recession. Now he has praise for Dillard's managers for cutting costs and closing underperforming stores in a successful attempt to improve the company's bottom line.

"Management has started to take the most aggressive steps I've seen them take," Davidowitz said. "And I think these are positive steps."

Still, Dillard's has to sell merchandise, he said.

Same-store sales - year-over-year comparisons of sales at stores open at least a year and a key indicator of a retailer's heath - were off 10 percent at Dillard's for the year that ended Jan. 30. In the previous year, same-store sales were off 7 percent.

"We expect Dillard's sales to remain weak [in its current fiscal year], but systems, localized merchandise, and cost-cutting initiatives will drive improved profitability," Bill Dreher Jr., an analyst who covers Dillard's for Deutsche Bank, wrote in a March 1 research report on the company.

In November, Dreher upgraded his recommendation on Dillard's from hold to buy.

"Dillard's has responded appropriately to its challenges by focusing on expense discipline, debt reduction, and store closings," analyst Michael Exstein of Credit Suisse wrote in a March 1 report titled "Showing Margin Progress, But No Sales Improvement in Sight."

Exstein wrote that, without improvement in sales, "we think the operating margin will be pressured anew in 2010."



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