Can Dillard's (DDS) Retain Its Earnings Beat Trend In Q3?

Dillard’s, Inc. (NYSE:DDS) is expected to release its third-quarter fiscal 2018 results on Nov 8.

The company has an impressive earnings surprise history, having outpaced estimates in five of the trailing six quarters. Also, it delivered an average four-quarter beat of 63.1%.

The Zacks Consensus Estimate for third-quarter earnings is pegged at 53 cents, mirroring an improvement of 29.3% from the year-ago quarter. Notably, the consensus mark was revised downward in the last seven days.

Let’s see how things are shaping up prior to the upcoming earnings release.

Factors at Play

Dillard’s consistent efforts to capitalize on growth opportunities in its brick-and-mortar stores and e-commerce business are encouraging. Additionally, its focus on increasing productivity, enhancing domestic operations and developing omni-channel platform is expected to strengthen the customer base.

Further, the company is anticipated to benefit from enhancement of brand relations, focus on in-trend categories and store remodeling efforts. With regard to e-commerce, it has been undertaking strategies like enhancing merchandise assortments and effective inventory management to boost growth. All these initiatives are likely to aid the company’s top- and bottom-line performance.

Meanwhile, Dillard’s comparable store sales (comps) growth as well as strength across its men's apparel and accessories, and juniors' and children's apparel categories is providing a boost to the top line. Also, this leading departmental store chain continues benefiting from its niche market position, offering a broad array of merchandise in its stores featuring products from both national and exclusive brands.

However, Dillard’s soft cash flows have resulted in lesser share buybacks. This, in turn, affected the company’s profitability in the last reported quarter. Apparently, the company incurred loss of 10 cents per share. Dillard’s used net cash of $15.4 million in operations and reported soft free cash flows in the fiscal second quarter. It bought back only 39,400 shares for $3.1 million, under the $500-million repurchase program. Moreover, persistence of the challenging trends in the retail apparel space due to changing customer preferences remains a threat to the company’s profitability.

The Zacks Consensus Estimate for quarterly revenues stands at $1,459 million, implying a decrease 0.4% from the prior-year quarter's actual figure.

Year to date, shares of Dillard’s have gained 21.9%, underperforming the industry’s 37.4% rally.

Zacks Model

Our proven model indicates that chances of Dillard’s beating the Zacks Consensus Estimate are high as it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Dillard’s has an Earnings ESP of +2.86% and a Zacks Rank #3.

Other Stocks With Favorable Combination

Here are some other companies that you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Nordstrom, Inc. (NYSE:JWN) has an Earnings ESP of +16.90% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

With a Zacks Rank #2, Fastenal Company (NASDAQ:FAST) has an Earnings ESP of +0.80%.

American Eagle Outfitters, Inc. (NYSE:AEO) has an Earnings ESP of +2.95% and a Zacks Rank #3.

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