Dillard’s Surprises Department Store Sector By Posting A Profit

A department store reported a profitable Q3 this week. Really.

The beleaguered sector, which has produced bankruptcies more than success stories, was redeemed by Dillard’s as it rode impressive cost controls and inventory management to post a profit. According to a statement from Dillard’s CEO William T. Dillard II, the 285-store chain achieved a 249-basis-point gross margin improvement for Q3, with ending inventory down 22 percent. Additionally, the company cut expenses by $100 million.

Dillard’s has been a bright spot in the department store space. Even though its comp sales were off 24 percent year over year, it posted $31 million in net income. The chain was buoyed recently when it was disclosed that Berkshire Hathaway’s Ted Wechsler bought more than a million shares of the company’s outstanding stock, which spiked the stock price and set off a “what’s he thinking” round of speculation among analysts.

“No department store is terribly strong right now,” said Matt Frankel in The Motley Fool. “But I would put Dillard’s, I mean, obviously in a category above, like, JCPenney, which is already bankrupt. But even above Macy’s or some of the other ones, Dillard’s seems to be doing better than all of its peers. So I’m thinking maybe they’re thinking it might be like a ‘last man standing’ type of play.”

One of the things that has helped Dillard’s is real estate. The retailer owns 244 of its stores, giving it the advantage of appreciation rather than degradation of its store assets. Like its strategies in other areas, Dillard’s focuses on controlling expenses along with driving revenue, which is how it achieved profitability as its competitors have struggled and even filed for bankruptcy.

Those competitors will start to report their Q3 earnings next week. Macy’s will report on Thursday (Nov. 19); it is expected to show a similar decline in comp store sales, but it will be surprising if it’s able to show the cost controls and profits that Dillard’s has achieved. Analysts have been brutal not only in their earnings previews for Macy’s, but also in their assessment of its prospects for survival.

“Most Macy’s stores anchor shopping malls,” noted Investor Place. “Many shopping malls have died, while others are on life support. Macy’s doesn’t sell food, unless you consider high-end chocolate and packaged ground coffee to be food. The stores shut when the pandemic hit and have only gradually reopened. Even those that have more fully reopened aren’t doing much business. Macy’s lost $11.53 per share during the first quarter of the pandemic and another $1.38 in the second quarter. It’s expected to lose another 81 cents per share this quarter.”