They're Growing Again: Analysts Bullish on Holiday Sales As Dillard's Extends Sales Streak

by Mark Friedman  on Monday, Oct. 21, 2013 12:00 am  

Retail experts think Dillard’s Inc. of Little Rock can extend its current streak of 12 straight quarters of positive same-store sales as it heads into the holiday season.

"The things they had to do to get themselves back on track were done beautifully," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment banking firm in New York. "They got their course under control. They’re executing beautifully, which means more sales and more margins. And they’re growing again."

Dillard’s, which has 281 stores and 17 clearance centers in 29 states, will start construction on two stores later this year, according to its filings with the Securities & Exchange Commission. An 180,000-SF location will be built in Sarasota, Fla., and a 200,000-SF store is going up in Las Vegas. Both are expected to open during the company’s third quarter next year. They are the first new locations for Dillard’s since 2010.

“We believe [Dillard’s] has a sustainable strategy that should continue to deliver further improvements,” Credit Suisse analyst Michael Exstein wrote in his Aug. 14 research note. Although Exstein said he was concerned about the company’s rising inventory, he kept the rating on its stock at outperform.

Meanwhile, Dillard’s is preparing for the holiday season.

“I can tell you that our team has been working year-round on setting the stores for Christmas,” Julie Bull, the spokeswoman for Dillard’s, said last week in an email to Arkansas Business. She declined, however, to comment on Dillard’s holiday forecast.

But the National Retail Federation of Washington, D.C., expects retailers will have good cheer this holiday season. U.S. sales in November and December are projected to be $602.1 billion, which will be up 3.9 percent over the same period in 2012, according to an Oct. 3 NRF news release. In 2012, holiday season sales were up 3.5 percent over the previous year.

“Our forecast is a realistic look at where we are right now in this economy — balancing continued uncertainty in Washington and an economy that has been teetering on incremental growth for years,” NRF President and CEO Matthew Shay said in the news release.

IBISWorld Inc. of Los Angeles, which conducts research for various industries, said in an August report that the department store sector should see its revenue climb 2.2 percent in 2013. In 2012, department stores reported a 1.2 percent revenue increase.

And the sector is expected to generate continued growth through 2018, the report said. “Armed with deeper pockets, consumers will likely increase spending on high-end discretionary items,” IBISWorld said.

Davidowitz said Dillard’s has been fortunate because it appeals to the top 10 percent of Americans who account for a high percentage of the spending in the country. He said Dillard’s has the right merchandise mix and the right price points to attract those customers. “Those people don’t want to overpay either,” Davidowitz said.

Sales Numbers

Dillard’s, which is celebrating its 75th year in business, struggled for most of the 2000s. In November 2008, its stock price dropped to $2.50 at one point during the month.

But the company’s stock price rebounded and then soared. It closed at an all-time high of $93.69 on May 21. The price has declined since then, however, and was around $75 last week.

One of the key areas in which Dillard’s saw a turnaround was its same-store sales, a key industry comparison of sales at stores open at least a year. Between August 2008 and January 2010, when Dillard’s was reporting sales figures on a monthly basis, Dillard’s had 18 straight months of same-store sales declines.

In 2008, the company started its turnaround by closing underperforming stores, slashing expenses and improving merchandise. The moves improved the company’s books. Since the quarter that ended Oct. 30, 2010, Dillard’s has reported positive same-store sales numbers.

“It was a great turnaround, one of the best,” Davidowitz said.

Dillard’s sales for its first two quarters that ended Aug. 3 were $3.03 billion, which was down less than 1 percent from the same period a year earlier, in part because it closed three stores during that time. Its net income, though, was $153.7 million, up 22 percent from the same period in 2012.

While Dillard’s improved during the past couple of years, other department stores struggled. “Weak consumer confidence and low disposable income deterred households from making discretionary purchases during the recession, causing demand and sales to fall substantially for traditional department stores,” IBISWorld said in its report on department stores.

What’s Selling

The ladies’ accessories and lingerie category was the hot seller for Dillard’s in its six-month period than ended Aug. 3. Sales were up 7.9 percent over the same period in 2012. But the category only accounted for 15 percent of net sales. Meanwhile, ladies’ apparel, which accounted for 24 percent of Dillard’s net sales in the first six months of the year, saw sales fall 2.5 percent in its first two quarters of 2013 compared with the same time last year.

Davidowitz said he’s not surprised or worried about sales of ladies’ apparel being off at Dillard’s because that category has been sluggish nationally.

Still, for Dillard’s six-month period that ended Aug. 3, the number of sales transactions fell 3 percent compared with the same period a year earlier. But the average dollar value per transaction increased 3 percent.

Davidowitz said those numbers tell him that Dillard’s has the right merchandise mix, meaning the category doesn’t need to be promoted as strongly. “If you promote more, here’s what happens: You sell more units, [but] you get low margins,” he said. “You have higher labor costs, because you have more and more transactions.”

One area that was a concern for the analyst Exstein, though, was Dillard’s rising level of inventory. “We are cautious of the elevated inventory level for the second straight quarter in spite of gross margin improvement,” he wrote. “Total inventories grew 7.1 percent.”

As a result, Exstein said he was lowering his projection for Dillard’s third-quarter earnings per share from $1.10 to $1.05.

Dillard’s Inc. Same-store Sales

For Quarter Ending Percent Increase
Oct. 30, 2010 1
Jan. 29, 2011 7
April 30, 2011 2
July 30, 2011 6
Oct. 29, 2011 5
Jan. 28, 2012 3
April 28, 2012 5
July 28, 2012 3
Oct. 27, 2012 5
Feb. 2, 2013 3
May 4, 2013 1
Aug. 3, 2013 1

Source: Dillard’s Inc. filing with the Securities & Exchange Commission

Christmas Merchandise

Dillard’s Bull said in her email to Arkansas Business that the company is going to promote “new ideas in gift giving with a rich tradition of service” for the holiday season.

Some of the products that will be highlighted include UR gloves, which allow wearers to use touchscreen devices without removing their gloves, she said. Infinity scarves will also be advertised as a gift idea for women, and Dillard’s “will have a wide assortment in both knits and wovens,” Bull said. Boots and handbags also will be featured as potential gifts, she said.

Davidowitz said he thinks Dillard’s is going to do well this holiday season. “They’ll have to manage the holiday well in terms of inventory flow and getting it going early,” he said. “But I think given Dillard’s record, they should be able to do that.”



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