Dillard's strong apparel sales stoke Q1 revenue and margins

Dive Brief:

Dillard’s on Thursday reported that total retail sales (excluding the company’s construction business) rose 22% to $1.6 billion, with store comps up 23% year over year.
Retail gross margin expanded to 47.3% of sales, a record high, from 42.6% a year ago, per a company press release. The strongest categories were men’s apparel and accessories, women’s apparel and juniors apparel.
Net income rose 59% year over year to $251.1 million, the company said.

Dive Insight:

Department stores in recent months have enjoyed a recovery from what has been a couple of tough years in retail, but most continue to struggle against a sector-wide decline decades in the making.

Dillard's consistently runs ahead of that pack, however.

"Our customer responded well to our merchandise in the first quarter," CEO William Dillard said in a statement.

The company on Thursday said it repurchased $186.5 million of its stock (about 735,000 shares), sustaining an overall pace of buying back 10% of outstanding shares annually, according to estimates from Zachary Warring, equity analyst at CFRA Research. William Dillard said the company ended the quarter with $862 million in cash after the share repurchases.

"[Dillard's] continues to repurchase shares aggressively and maintains a squeaky-clean balance sheet with strong cash flow," Warring said in emailed comments. "We like [its] clean balance sheet, small store portfolio (southern U.S.), and capital return to shareholders. We see [Dillard's] operating at an efficient level and management executing well, while other retailers struggle."

But the company can't fully escape the reality of department stores. Dillard's "likely benefited from pent-up demand in dressy categories and low promotional activity," according to emailed comments Thursday from UBS analysts led by Mauricio Serna. But higher inflation could impede sales growth in the second half of the year, they also said.

"We believe a combination of sales slowdown, cost inflation and higher promotions ... will pressure [Dillard's] margins," Serna said.