Dillard's (DDS) Surges Despite Industry Woes: Time To Hold?

Clothing retailer, Dillard’s Inc. (NYSE:DDS) has been a valuable pick driven by its constant efforts to capitalize on growth opportunities in brick-and-mortar stores and e-commerce business. Further, the company’s focus on increasing productivity, enhancing domestic operations and boosting shareholder value remain noteworthy.

While shares of this Zacks Rank #3 (Hold) stock has dipped 9.8% year to date, it has outperformed the industry’s fall of 28.1%. Currently, the industry is placed at the top 38% of the Zacks classified industries (100 out of 256).

Further, the stock is supported by a Value Score of B and long-term earnings growth rate of 2.6%, which justify its growth prospects.

Factors Aiding Performance

Dillard’s enjoys a niche position among fashion apparel, cosmetics and home furnishing retailers. We expect the company’s strategy of offering fashion-forward and trendy products, store remodels and omni-channel initiatives to act as a catalyst for attracting more customers, consequently leading to overall growth.

Driven by efforts to uphold growth at the brick-and-mortar stores, the company is likely to gain from better brand relations, focus on in-trend categories, store remodels and rewarding store personnel. Alongside, it focuses on enhancing merchandise assortments and effective inventory management to boost growth across e-commerce business. We expect the company’s top and bottom lines to gain from focus on increasing productivity at existing stores, developing a leading omni-channel platform along with enhancing domestic operations in the years ahead.

Moreover, the company’s strong balance sheet and cash flow provide the financial flexibility to take up shareholder-friendly moves as well as engage in store and online business expansion. Notably, the company recently approved a quarterly dividend hike of 42.9% to 10 cents per share compared with the previous payout of 7 cents. The new dividend will be paid on Class A and Class B common stock on Oct 30, to shareholders of record as on Sep 29, 2017.

Possible Deterrents

However, the company has been plagued with the persistent challenging trends in the apparel retail segment. Dillard’s reported dismal second-quarter fiscal 2017 results, wherein it reported a loss that was wider than the year-ago period as well as the Zacks Consensus Estimate. Moreover, the bottom line has lagged the Zacks Consensus Estimate in six of the trailing eight quarters.

The unimpressive history can be widely attributed to the challenging trends in the apparel retail segment arising out of the changing preference of customers from offline to online. Persistence of these trends remains a threat.

Still Interested in Retail? Check These Trending Stocks

Meanwhile, investors may consider better-ranked stocks in the retail sector like Abercrombie & Fitch Co. (NYSE:ANF) , Zumiez Inc. (NASDAQ:ZUMZ) and Canada Goose Holdings Inc. (NYSE:GOOS) . While Abercrombie and Zumiez sport a Zacks Rank #1 (Strong Buy), Canada Goose carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie has improved 16.8% year to date. Moreover, the stock has a long-term growth rate of 14%.

Zumiez has witnessed positive estimate revisions in the last 30 days. The stock has a long-term growth rate of 15% and has grown 37.3% in the last three months.

Canada Goose, with long-term earnings per share growth rate of 34.1%, has surged 23.1% year to date.

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