Dillard’s Inc. opened 2021 with a stock price of $64. Its closing price on Wednesday was $184.04, a 186% increase.
The soaring stock price hasn’t surprised retail watchers because the Little Rock department store chain is in position to have strong earnings in its second fiscal quarter, which ends on Saturday, and in its third quarter. Other retailers are also forecast to see jumps in revenue. The National Retail Federation anticipates that retail sales will grow by 10.5% to 13.5%, reaching more than $4.44 trillion this year, reflecting an environment in which customers have money to spend and want to shop.
“Investors are just excited about the opportunity for Dillard’s,” said analyst Jen Redding of Wedbush Securities of Los Angeles, which covers Dillard’s. “Consumers are getting out again.”
Some of that consumer spending money comes from government stimulus programs. Enhanced child tax credit payments of up to $300 a per child per month started hitting many parents’ checking accounts this month. “So I think it justifies the stock price for now,” Redding said. “Right now, [Dillard’s is] firing on all cylinders.”
The government stimulus money comes at a time when Dillard’s has improved its inventory management and its gross margins are high, she said.
Still, “everything comes to an end,” Redding said. “But I don’t think there’s anything necessarily fundamentally new or different about Dillard’s that’s driving this change” in the stock price, which hit a record high of $193 during the trading day on June 25.
Ken Perkins, president of Retail Metrics LLC, a retail research firm in Swampscott, Massachusetts, said Dillard’s stock price climb is part of the trend of investors returning to retailers and other industries as the economy reopens. Among those industries are cruise lines and airlines. “The market in general is pretty pricey,” he said.
What could hurt Dillard’s and other retailers, however, is the resurgence of COVID-19 and the rise of vacancies in malls.
“The Delta variant is of concern,” NRF’s chief economist, Jack Kleinhenz, told Arkansas Business. “We know that that can be a real detriment. And then if you impose restrictions on people or reduce people’s mobility, that could certainly be a speed bump.”
In addition, mall-based retailers, such as Dillard’s, may struggle in the face of mall vacancies, which hit an all-time high in the first quarter at 11.4%, Perkins said, citing Moody’s Analytics. “More vacancies mean less traffic,” he said.
As of May 13, Dillard’s operated 250 Dillard’s locations, 31 clearance centers and an internet store.
With the proliferation of retailers closing locations or filing for bankruptcy in the last year, malls are having trouble filling spaces. Perkins said malls are attracting tenants such as gyms, health care facilities and condos.
“Does that bring more traffic to stores like Dillard’s?” Perkins said. “The jury’s still out. We don’t have enough data to show that.”
Another sign of the changing mall landscape came last week. The trade group the International Council of Shopping Centers is moving away from the shopping center name without changing its initials, announcing that it will be called Innovating Commerce Serving Communities. The new name reflects “the organization’s role in promoting and elevating the marketplaces and spaces where consumers shop, dine, work, play and gather,” according to its news release.
Meanwhile, online shopping continues to grow. In the first half of this year, the average monthly growth rate for online sales for retailers was nearly 20%, faster than overall retail sales, Kleinhenz said.
For the year, online sales are expected to increase between 18% and 23%, up to $11.3 trillion.
“The bottom line is that consumers are going to continue to be resilient,” Kleinhenz said.
Wedbush said Dillard’s “performed flawlessly” at the beginning of the current fiscal year, “delivering record first-quarter margins and first-quarter earnings.”
Sales for the first quarter, which ended April 30, were $1.32 billion, better than the consensus forecast of $1.2 billion, Wedbush said in a May 14 research note on Dillard’s.
“Impressively, total retail sales [which excludes its construction segment, CDI] were only 9% behind” first-quarter numbers from the same period in 2019, Wedbush said.
The department store chain reported $158.2 million in profit, or $7.25 per share, compared with a loss of $162 million for the first quarter last year.
Redding said that Dillard’s has the right amount of inventory on hand — neither too many nor too few items. Its inventory management meant it didn’t have as many markdowns, resulting in an improved gross margin, she said. Inventory fell 17% compared with 2020, “setting the company up for continued margin improvements,” Wedbush said in its report.
“We haven’t seen them this healthy before,” Redding said.
Back-to-school sales are expected to be strong this year. The NRF said families with children in elementary school through high school plan to spend about $850 on school items, about $60 more than last year.
Parents also will be buying school clothes for kids who have grown since the pandemic forced schools to adopt online learning in March 2020. When states have their tax-free sales holidays in early August, “that’s when we’re going to see a big boom in revenue,” Redding said.
She said that as long as there isn’t a national emergency with a variant of COVID, people will return to the mall and retailers should have “a great third quarter.”
Dillard’s Inc. (DDS)