Overview:
We will examine the reasons why Dillard’s stock is attractive and why value investors including, David Einhorn, have been buying.
Dillard’s (NYSE: DDS ) encompasses numerous value metrics I require in an undervalued situation. Dillard’s has ample liquidity, low debt, positive earnings, low p/e, strong balance sheet, a large stock buyback program, strong cash flows, and temporarily out of favor with investors.
Next, I will review various option strategies that will reduce risk and enhance returns in the position.
I will use valuation metrics to show the stock is undervalued and then utilize option strategies to show how best to initiate a position that limits risk, and enhances the total return.
The company:
Dillard’s, Inc. ranks among the nation’s largest fashion apparel, cosmetics and home furnishings retailers with annual sales exceeding $6.5 billion. The Company focuses on delivering style, service, and value to its shoppers by offering compelling apparel, cosmetics and home selections complemented by exceptional customer care. Dillard’s stores offer a broad selection of merchandise and feature products from both national and exclusive brand sources. The Company operates 271 Dillard’s locations and 23 clearance centers spanning 29 states plus an Internet store at www.dillards.com. (Source: Dillard’s website:)
Recent Earnings and Sales:
Net sales for the 52 weeks ended:
January 28, 2017 were $6.257B
Total merchandise sales for the 52 week period ended January 28, 2017, were $6.07B
Sales in comparable stores for the period also decreased 5%.
During the year, the Company purchased $246.2 million of Class A Common Stock under its share repurchase authorization.
Share repurchases were accomplished entirely from available cash and operating cash flow
Dillard’s Chief Executive Officer, William T. Dillard
“Our operating results reflect another quarter of mall traffic declines from continued retail industry challenges. In response, we are ramping up our efforts to bring more distinctive brand and service experiences to Dillard’s, both in store and online. Our strong balance sheet provides us support in these challenging times, and during the year we returned $256 million to shareholders.”
(data provided from Dillard’s Feb 21 results).
