E Dillard's - Is The Worst Over Yet?

Valuation Alignment

Management cited that the 45 stores opened on May 5 are only producing 56% of their last year's performance due to reduced operating hours. The company is still carrying several incremental promotions on most of the products without which we believe the outlook would be much grim. We expect Q2 2020 to be another washout quarter with 42% sales degrowth and EPS of ($7.46) on aggressive discounting expected to drive sales. We expect the company to post 2020E EPS of ($11.1) boosted by some recovery in the second half of the year.

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We expect 2021 sales to grow by 25% and EBIT margin expansion of 600 bps, however, we do not expect the company to be profitable through 2021E and expect the EPS of ($1.20) per share. DDS has traded at an average 1 Year Fwd multiple of ~5x and we base our valuations at 3x 2021E EBITDA as we expect the company to underperform the department stores industry. Based on the EBITDA of $225m 2021E EBITDA, we value the shares at 3x 21E EBITDA and assign a target price of $17.7. Initiate with SELL.

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Comments

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Edward Simon 2 months ago Member's comment

It will be interesting to see what happens to retail department stores. The common wisdom is that they will fail. But as people leave their screens and help to re-open the economy some stores may find "new" traffic.

Michele Grant 2 months ago Member's comment

I think it will be a long time before we see pre-pandemic levels of foot traffic at retail stores. Just because people CAN go out, doesn't mean all will. Many will still be too afraid to shop anywhere but online.

Alpha Stockman 2 months ago Member's comment

Sounds like #DIllards wouldn't have done great even had we been spared the pandemic.

PennyWiser 2 months ago Author's comment

I reckon the department store industry was struggling from competition with online channels like Amazon as well as discount retailers. The pandemic just aggravated the situation to a grinding halt. It would, in a way, be quite helpful for the industry I believe. As the industry would be looking to make several changes, with #Macy's closing several non-profitable stores and so on.

Angry Old Lady 2 months ago Member's comment

Wait a minute, you think the pandemic was good for the retail industry? #Macy's ($M) can close non-profitable stores when there's no pandemic going on.

PennyWiser 2 months ago Author's comment

That was not the context out of it. The pandemic has brought the world on their heels as well as the department stores who has been one of the hardest hit and the pandemic has claimed several casualties in terms of JC Penney and J Crew. I believe a somewhat silver lining every crisis gives is an opportunity to structurally change and just think the ones that will come out of the storm would be much leaner and hopefully more fitter to compete in the space. But that goes without saying that it has wreaked absolute havoc on the people, economy and the department store industry in general.