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Dillard's dilemma: Sales up, stock down

Despite a strong fourth quarter, the retail chain has lost favor with some investors after two of its rivals merged.

By MARK ALBRIGHT
Published March 11, 2005


Dillard's Inc. topped analysts' forecasts in the first quarter thanks to improved profit margins and the sale of its credit card business to GE Consumer Finance.

The Little Rock, Ark., department store chain's stock, however, slipped despite the improved performance.

Analysts said Dillard's, tightly-controlled by the heirs of its founding family, lost its steam with investors when Federated Department Stores Inc. agreed two weeks ago to buy rival May Department Stores.

That creates a new national department store giant with 950 stores that likely will operate under the Macy's and Bloomingdale's labels.

Dillard's, which has 330 stores in 29 states, stayed clear of a bidding war and stuck to the less glamorous basics. The company continued to tighten its inventory and focused on making its merchandise mix more appealing to younger and more upscale customers.

Sales of lingerie and accessories beat the company sales trends, while sales of juniors apparel, home decor and furniture fell below the company average.

Net income doubled to $108.6-million, or $1.31 a share, from $51.2-million, or 61 cents a share, in the same quarter a year ago. Overall sales were flat at $2.3-billion.

The department store chain reported improved sales and less discounting during the quarter ended Jan. 29 that included the 2004 holiday season. Sales in stores open more than a year, a sign of a retailer's staying power with customers, rose 1 percent.

"They had a good fourth quarter," Ivan Feinseth, an analyst with Matrix USA, told Bloomberg News.

The company's decisions to close and sell some unprofitable stores, pay down debt and buy back stock all improved the company's bottom line. Over the past year the company's long-term debt has dropped by $1-billion to $1.6-billion.

Dillard's shares hit a 52-week high of $27.93 a share in mid January when speculation peaked that Dillard's and Saks Inc. could be prospective buyers or sellers in the May deal. Dillard's stock closed Thursday at $23.67, down 8 cents.

Analysts have cast doubts about where traditional middle market department stores such as Dillard's fit in the future.

"They don't have a cost advantage to compete with the discounters and they don't have enough exclusive product to compete with the high end," Feinseth said.

Dillard's sold the Phoenix, Ariz.-based Dillard National Bank, which manages the company's credit card business, to GE Capital in November for $1.1-billion plus the assumption of $400-million in uncollected account balances. The company reported as revenues an $53.7-million after-tax gain on the sale that is equal to 64 cents per diluted share.

Excluding all the one-time extras, the core business generated earnings of 76 cents a share. A consensus of analysts was expecting 73 cents.

Mark Albright can be reached at albright@sptimes.com or 727 893-8252.

[Last modified March 11, 2005, 01:23:21]


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