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Dillard’s Reports Flat Q2 Comps. Is that a Problem?

Dillard’s Inc. beat Wall Street’s second quarter estimates, but comparable store sales were flat, and that could be a sign for the months ahead that consumers have already started to shift their shopping behavior.

In a Nutshell: Shares of Dillard’s rose nearly 15 percent shortly after noon time trading on the retailer’s second quarter earnings results, which saw the stock trade up $32.00 to the $285.83 range. That also drove up trading of retail stocks, with department stores—Macy’s rose 5.5 percent to $19.31, Nordstrom up 4.7 percent to $24.17, Kohl’s up 4.4 percent to $19.31—posting the highest gains in mid-day trading Thursday.

But Dillard’s comparable store sales were essentially flat for the quarter, lower in comparison to the year-ago gain after consumers headed back to stores to update their closets. What could be of greater concern is the sequential decline in comps from 23 percent in the first quarter. Last quarter, the company said inventory rose 4 percent and that “positive customer response to the company’s merchandise assortment combined with inventory management” drove lower first-quarter markdowns.

From what Dillard’s said about sales in the quarter, it would appear that female shoppers might be losing some interest in shopping. More clarity on whether this is a trend won’t be known until results from the third quarter are reported.

First quarter sales were strong in men’s apparel and accessories, women’s apparel and juniors’ and children’s apparel. In the second quarter, men’s apparel, and accessories and cosmetics drove the strongest sales.

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Women’s apparel was the weakest category in the quarter. That might not change anytime soon. How so? When there is an economic slowdown, women tend to gravitate toward smaller items for a more affordable pick-me-up. That tends to bode well for accessories, whether in small leather goods, a scarf or other item—a category Dillard’s said performed well along with cosmetics, suggesting that this recession-minded behavioral shift is already underway.

The company said it’s closing stores in Sikes Senter in Wichita Falls, Tex. and at East Hills Mall in St. Joseph, Mo., during the third quarter. It’s planning to open a new store at The Empire Mall in Sioux Falls, S.D. in Fall 2023.

Net Sales: Sales for the quarter ended July 30 rose 1 percent to $1.59 billion from $1.57 billion.

Dillard’s said total retail sales rose 1 percent for the 13-week period ended July 30, with comparable store sales coming in flat.

For the six months, net sales grew 10 percent to $3.20 billion from $2.9 billion.

Earnings: Net income for the quarter declined 12 percent to $163.4 million, or $9.30 a diluted share, from $185.7 million, or $8.81, a year ago.

Wall Street expected earnings per share (EPS) of $3.47 on revenues of $1.54 billion. And while that compares favorably with its EPS of $9.30, Dillard’s executed a $225.8 million share repurchase in the quarter, buying 875,000 shares.

For the six months, net income rose 21 percent to $414.5 million, or $23.07 a diluted share, from $343.9. million, or $16.03, from the year-ago period.

CEO’s Take: “Business softened in the quarter as we lapped the strong second quarter in our history,” CEO William T. Dillard, II said.