DDS Stock: Is it Time to Dump Dillard’s, Inc.?
Dillard’s Stock Looks Good at Current Lows
Specialty retailer and the fashion department stores chain Dillard’s, Inc. (NYSE:DDS) crashed Monday morning after missing on the Street’s revenue and earnings estimates. After seeing similar reports from peers earlier this month and last month, the market would have been a fool to expect anything otherwise. DDS stock hit its 52-week lows on Monday, but I strongly believe that the sell-off is short-lived.
Dillard’s reported $1.4 billion in revenue and $45.7 billion in earnings, which, although down from the same quarter last year, is still a pretty solid number. Yet again, the shoe segment was a winner for the company, while the cosmetics and children’s segments also posted strong growth. Men’s apparel and women’s accessories dragged down results, but the most damage came from the home and furniture segment.
Additionally, Dillard’s retail segment saw growth in margins, but the construction business caused a dent in the total figure. The construction business inherently has very low margins, as opposed to Dillard’s retail business. The company has been facing investor activism to consider spinning off its construction business and it makes sense now why the company needs to consider this demand.
Here’s What the Market Is Missing on DDS Stock
Now, a growing argument against brick-and-mortar retailers has been the rise of online retail, with Amazon.com, Inc. having taken the top spot. However, this is not entirely true. For a specialty retailer like Dillard’s, the threat is not as great as it is for stores like Best Buy and Target. The reason is that despite the ease of online purchases, people still like to try on their shoes and test out cosmetics before finalizing their purchase.
Even if e-commerce takes over the world, certain segments of brick-and-mortar stores will still thrive. The argument will make more sense to you when you factor in Amazon’s latest venture into the brick-and-mortar market with its first ever physical bookstore.
DDS stock, which has now fallen under its three-year lows, was one of the few investments that recovered really fast from the last recession to make its all-time highs earlier this year. In the last three years, during which DDS stock witnessed its best rally, the stock has always found support over $75.00 and now appears to be in the oversold territory.
Chart courtesy of www.StockCharts.com
The last few weeks have been particularly difficult for the retail sector. Retail stock investors are sweating over their tanking investments. Seemingly, retail stocks are headed down the same path as the biotechs. Dillard’s peers, like Macy’s, Nordstrom, and JCPenney, all lost on the market by either missing out on targets or cutting their future guidance.
While retailers may be citing the warm weather, courtesy of El Nino, as the reason for their troubles, the reality goes far beyond that. Retailers are facing a decline in consumer spending, as the threat of an interest rate hikes is starting to feel more like reality than fantasy. Consumers are acting more cautious with their money as they head into the new year. The bitter truth is that the overall slowdown in the economy, is spilling over from the retail sector and affecting almost all other market sectors in the U.S.
The Bottom Line on DDS Stock
Fundamentally, among all its peers, Dillard’s is one department store chain that boasts solid earnings-per-share (EPS) numbers, cheaper price multiples, and a clean balance sheet, with an attractive cash position and little debt. DDS stock has a strong history of dividends and management has stepped them up twice in the last five years.
In a nutshell, Dillard’s is a wonderful business and I see a strong rebound in DDS stock to be very likely at current lows.
