On Thursday, UBS maintained its Sell rating on Dillard's Inc. (NYSE: NYSE:DDS) with a steady price target of $192.00. The firm highlighted that Dillard's first-quarter comparable sales improved sequentially and exceeded expectations, noting a 300 basis points increase quarter-over-quarter and a 200 basis points beat over the consensus. Additionally, Dillard's reported a year-over-year positive change in gross margin for the first quarter, marking a shift after seven quarters of decline.
Despite these positive indicators, UBS pointed out that selling, general and administrative (SG&A) expenses grew at a mid-single-digit percentage range, up from a low-single-digit percentage rate in fiscal year 2023. This acceleration in expense growth indicates a potential for ongoing operating margin and earnings pressures. The firm suggested that these factors could limit any significant improvement in investor sentiment, even though Dillard's earnings per share (EPS) for the first quarter surpassed analyst predictions.
The report from UBS comes after Dillard's demonstrated some signs of recovery in its quarterly performance. The positive inflection in gross margin and the beat on quarterly EPS provide a contrast to the retailer's previous pattern of contracting margins. However, the increased rate of SG&A expense growth presents a challenge to the company's profitability.
Dillard's performance in the first quarter indicates a mixed financial landscape for the company. While the improvement in comparable sales and gross margin offers a glimpse of potential progress, the concerns raised by UBS regarding expense growth and its impact on operating margins underline the complexities faced by the retailer in the current economic environment.
InvestingPro Insights
As Dillard's Inc. (NYSE: DDS) navigates its financial landscape, real-time data and insights from InvestingPro can offer a deeper understanding of the company's current position. With a market capitalization of $7.16 billion and a P/E ratio of 9.98, Dillard's appears to be trading at a value that reflects its earnings. The company also boasts a robust gross profit margin of 41.36% over the last twelve months as of Q4 2024, suggesting efficient control over its cost of goods sold relative to sales.
InvestingPro Tips for Dillard's highlight the company's financial prudence, as it holds more cash than debt and has maintained dividend payments for an impressive 54 consecutive years. Moreover, the company has raised its dividend for 10 consecutive years, with a notable dividend growth of 32.91% over the last twelve months as of Q4 2024. This consistent return to shareholders underscores Dillard's commitment to its investors and may be a point of interest for those seeking income-generating stocks.
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