Tags: cautious | Dillards | sales | DDS

Cautious Dillards Adding Sales, Not Stores

By    |   Thursday, 02 February 2012 08:13 AM

Dillards (DDS) is a cautious retailer trying to sustain revenue growth without revving up expenses. The company has been increasing sales volume without adding new stores to its chain, which is focused on markets in the Midwest, Southeast and Southwest regions of the United States.

The Little Rock, Ark. retailer reported better comparable-store sales during the important late-year shopping season. The company said its comparable-store sales grew 4 percent in December and 3 percent in November, compared to the same months in 2010.

Dillards also is returning more cash to shareholders. In May 2011, the company increased its quarterly dividend to 5 cents from 4 cents and announced a plan to repurchase up to $250 million of its stock.

However, Wall Street has a neutral view of the company's prospects in the highly competitive industry. All of the stock analysts following Dillards in late January had hold ratings. In the second half of 2011, analysts at both Standard & Poor's and investment firm Sterne Agee lowered their ratings on Dillards shares to hold from buy.

Two Moody's Investors Services analysts upgraded the corporate family credit rating of Dillard's to B1 from B2 in September. Margaret Taylor, vice president and senior credit officer, and Kendra M. Smith, managing director of corporate finance, reported that their upgrade "reflects Dillards increasing sales and operating income . . . The rating outlook is stable."

The Moody's analysts said in their Sept. 8 report that Dillards had several creditworthy qualities, including "very good liquidity, factors that would support a higher credit rating. However, Dillards' rating is constrained by its history of inconsistent operating performance," which includes "a prolonged decline in comparable store sales from 2000 to 2009."

Net income more than quadrupled, year over year, to $322 million in the nine months ended Oct. 29. Net sales rose to $4.39 billion in the nine-month period, up 4.8 percent from the prior comparable period.

Bumpy ride

The bottom line has been bumpy in recent years, though, as Dillards has closed stores, cut inventory expenses and taken other right-sizing actions to recover from the recent recession.

Net sales rose in the fiscal year ended in January 2011 after dropping annually in each of the previous three consecutive years. Dillards incurred a $241 million net loss in the fiscal year ended in January 2009 and earned barely enough net income in the subsequent two years to offset the loss.

Dillards will report next on Feb. 22.

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