On Thursday, CFRA downgraded shares of Dillard's Inc. (NYSE:DDS) from Buy to Hold and slashed the price target to $372 from $500. The adjustment follows Dillard's second-quarter earnings, which fell short of consensus estimates. The company reported normalized earnings per share (EPS) of $4.59, compared to $7.96 in the same quarter last year, missing estimates by $1.29. Revenue also missed expectations at $1.51 billion versus the anticipated $1.60 billion.
The downgrade reflects a revised 12-month price target based on a 12.0 times forward price-to-earnings (P/E) multiple on the fiscal year 2025 (ending January) EPS estimate. This multiple is slightly above Dillard's three-year average forward P/E of 11.8 times. CFRA's new EPS estimates for fiscal years 2025 and 2026 are $31.00 and $34.00, respectively, marking a decrease from previous projections.
Dillard's performance in the second quarter showed a year-over-year decline in total retail and comparable store sales by 3%. Retail gross margin also experienced a slight compression, dropping 30 basis points to 42.7%. A significant factor in the earnings miss was an increase in operating expenses, which rose 230 basis points year-over-year to 28.3% of sales. Despite these challenges, inventory levels remained stable compared to the previous year.
CFRA maintains that Dillard's is the leading operator within the department store sector. However, the firm suggests that the stock's current valuation is now fair, taking into account the recent quarter's underperformance and the downward revision of full-year earnings estimates.
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