Key Dillard's Metrics
As it has consistently done for the past seven quarters, Dillard's put up another strong (more like relatively strong here) quarter that portends well for its traditional competitors' (Macy’s and Nordstrom) quarters as well. Recall that Nordstrom had reaffirmed its 2022 financial outlook when it announced the forthcoming departure of CFO Anne Bramman. Additionally, this week Ralph Lauren, Capri, and Tapestry all reported Q3 results and each of their commentaries about the U.S. consumer and the holidays were encouraging.
- Dillard’s October-end quarterly comps increased +3%, gross margins only came down 100 basis points, and inventory levels were nicely in-line with sales and at 160 days (compared to 187 days in 3Q19).
- Compared to 3Q19, sales are up 15% (on a comparable basis) and trailing-twelve-month (TTM) EBITDA and free cash flow are $2.342B/$794M versus $257M /$227M. (Yes, TTM EBITDA is up $1.9B from 3Q19.)
- The substantial increase in Dillard’s profitability has come from improving its average unit retail through introducing elevated product, removing less effective discounts/promotions, and turning inventory faster which resulted in less clearance. Given that the current marketplace is flooded with excess inventory resulting in high clearance levels across retail for apparel and soft home, it’s impressive that Dillards could still drive sales higher while only increasing its clearance levels to the tune of 160 bps in gross margin.
- Like its other department store peers, traffic is substantially down this year versus last year’s pandemic re-opening wave and because international travel has taken off. Placer.ai shows Dillard’s traffic trend improving for back-to-school and back-to-college; we expect that improvement to again happen into the holiday season.
- Clienteling, salesmanship, and service levels (reflected in the inventory levels and higher SG&A spend for wages) have also improved as is demonstrated by the substantial increase in the conversion rate.
- Over the next twelve months, it's a fair chance that TTM sales, EBITDA, and FCF all improve at a low- to mid-single-digit rate.