Dillard's Inc. (DDS Quick QuoteDDS - Free Report) stock has been trending up the charts in the past six months, recording growth of 33.6%. This growth comfortably outpaces the broader Retail-Wholesale sector’s return of 26.6% and the Zacks Retail - Regional Department Stores industry‘s growth of 7.1% in the same period. DDS’ shares also surpassed the S&P 500 index’s appreciation of 13.1% in the six-month time frame.

DDS’ Strategies Aid the Rally

Dillard’s is benefiting from its efforts to capture growth opportunities in brick-and-mortar stores and the e-commerce business. On the storefront, the company is gaining from initiatives to enhance brand relations, focus on in-trend categories, store remodels and increased rewards to store personnel. 

Regarding its e-commerce strategies, it has been enhancing its merchandise offerings. We expect it to gain from its focus on increasing productivity at existing stores, developing a leading omnichannel platform and enhancing domestic operations in the years ahead.

The company has created a niche for itself through a stringent focus on offering fashionable products to its customers and adding value through exceptional customer care service. We believe that its strategy of providing fashion-forward and trendy products attracts more customers, and, in turn, boosts sales and profits.

Dillard’s has carved a niche in the department store industry through a series of merchandising initiatives. The aforementioned strengths are likely to keep aiding the company’s performance.

DDS Price Performance

Image Source: Zacks Investment Research

Hurdles in Dillard’s Growth Path

A challenging retail environment, owing to the cautious buying behavior of consumers, is concerning. This has been affecting the company’s sales and comparable-store sales (comps). Margins have also been soft for a while.

We note that the company’s men’s apparel and accessories, and juniors’ and children’s apparel were the weakest categories in the most recent quarter. Our model expects an 8.5% decline in comps for the fourth quarter and a 4.7% decline for fiscal 2024.

DDS Stock’s Valuation

Dillard’s stock is trading at a premium valuation relative to the industry. Going by the price/earnings ratio, the stock is currently trading at 16.34 on a forward 12-month basis, higher than 10.11 for the industry. Also, the stock is trading above its five-year median of 12.46.

Conclusion

Dillard’s robust strategies, including its robust merchandising efforts and omnichannel endeavors, position it well for long-term growth.  However, investors may remain cautious about macroeconomic uncertainties and a pricey valuation for the stock.

For existing investors, holding on to the stock seems to be a prudent choice as its Zacks Rank #3 (Hold) supports our thesis.

Key Picks

We have highlighted three better-ranked stocks, namely Boot Barn (BOOT Quick QuoteBOOT - Free Report) , Deckers (DECK Quick QuoteDECK - Free Report) and Genesco (GCO Quick QuoteGCO - Free Report) . 

Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn’s current financial-year sales indicates growth of 14.9% from the year-ago figure. The company has a trailing four-quarter earnings surprise of 7.2%, on average. 

Deckers, a footwear and accessories dealer, currently sports a Zacks Rank of 1. DECK delivered an average earnings surprise of 36.8% in the trailing four quarters.

The Zacks Consensus Estimate for Deckers’ current financial-year sales implies growth of 15.3% from the year-ago figure.

Genesco, a leading footwear and accessories retailer, currently sports a Zacks Rank of 1. GCO delivered an average earnings surprise of 36.9% in the last four quarters. 

The consensus estimate for Genesco’s current financial-year sales indicates growth of 2% from the year-ago figure.