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Flash Player 9 or higher is required to view the chart Click here to download Flash Player now See all Bulls Reasons Bulls: Reasons To Buy Large cost cuts and strong debt structure combat grim retail environment 0% agree Large cost cuts and strong debt structure combat grim retail environment Although DDS sales and profits have been pummeled by the slow-down in consumer demand for its mid-to-high-end goods during this recession, DDS has implemented large cost-saving measures such as closing 20 under-performing stores in 2008 and cutting 500 jobs, or 0.8% of its... read more View or Edit Reason 0 votes 0% agree Add your own Bulls Reason See all Bears Reasons Bears: Reasons To Sell DDS top management targeted for weak performance 0% agree DDS top management targeted for weak performance October 2008 sales at DDS decreased by 9% to $406 million when compared to the same four-week period last fiscal year, and same-store sales were down a whopping 8% during October. In addition to its weak performance, activist shareholders have raised concern over CEO William... read more View or Edit Reason 0 votes 0% agree Add your own Bears Reason Send the authors a comment or suggestion We have new baby products that should be in your stores. Where do I get ahold of the merchandize... more [Dismiss] [Done] departmentstoresdooney&bourke [Dismiss] [Done] See All Suggestions

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Dillard’s (NYSE:DDS) operates a chain of department stores across the U.S., with 324 stores open nationwide as of November 2008.^[1] Since the U.S. recession began at the end of 2007, Dillard's has fared worse than lower-priced department stores like Kohl's (KSS) and discounters like Target (TGT) in the face of falling consumer spending due to its higher prices and reliance on aspirational shopping. Dillard's targets middle- and upper-class consumers with premium-priced branded and private label clothing, cosmetics, accessories and home goods. Dillard's $7.2 billion of sales in 2007 place it well behind its national department store competitors J.C. Penney (JCP) and Macy's Inc. (M).^[2]

Since the beginning of the U.S. recession, retailers have suffered from declining consumer spending, and Dillard's has been no exception.^[3] Dillard's net sales fell 5.6%^[2] and same store sales declined 5.0% in 2007^[4] and results worsened in fiscal 2008 as Dillard's reported a 9% decline in same store sales in the third quarter of FY08.^[1] Dillard's offers its own exclusive and private label brands alongside merchandise from branded manufacturers, which represented approximately 25% of total sales in 2007.^[5] These brands can drive higher profit margins, so Dillard's is introducing new lines to grow the penetration of these private label products. Growing these brands is key to Dillard's competitiveness with its larger competitors, such as Macy's Inc. (M) ($26.3 billion in 2007 revenues)^[6] and J.C. Penney (JCP) ($19.8 billion).^[7]

[edit] Company Overview

[edit] Business Financials

Dillard’s operates mall-based department stores and an e-commerce site in the United States that sell high-priced branded and private label merchandise. The company received $7.2 billion of total revenues in 2007, a 5.6% decrease from 2006.^[2]

• Dillard's revenues hovered about $7.5 billion from 2003-2005, before slightly increasing in 2006 and then falling 5.6% in 2007.^[2]
• Dillard's has not made any considerable expansion efforts, maintaining its store base between 326 and 330 stores between 2003 and 2007.^[2]
• In the first three quarters of 2008, Dillard's has closed 2 stores on net and plans on shutting down 21 stores to save costs.^[1]

Dillard's stores and e-commerce site carry a variety of clothing, accessories and home goods. The company's merchandise offerings include products from premium branded manufacturers, such as Guess? (GES) and Polo Ralph Lauren (RL), in addition to exclusive and private label brands that Dillard's wholly owns or co-owns with outside partners, such as the Roundtree & Yorke and Antonio Melani brands. These brands represented 24.2% of Dillard's net sales in 2007.^[5] Dillard's primary customers are women, typically in the middle- and upper-class. Consequently Dillard's bestselling product segment in 2007 was Women's clothing and accessories, which accounted for 37% of total sales (52% if Cosmetics sales are included).^[8]

Dillard's net sales fell 5.6% in 2007, as the U.S. recession depressed discretionary consumer spending.^[2]

Dillard's largest product category in 2007 was Women's clothing and accessories not including Cosmetics sales), representing 37% of net sales for the year.^[8]

[edit] Divestment of Credit Card Business

Dillard's issues a private credit card, which can only be used at Dillard’s. The company sold its private credit card business to GE Consumer Finance (“GE”) for $1.1 billion in 2004 ^[9]. In connection with the agreement, Dillard’s and General Electric Company (GE) entered into a long-term marketing and servicing partnership whereby GE owns the outstanding account and any new accounts opened by Dillard's customers. In return, Dillard’s receives ongoing payments from GE for charges made to these credit cards. The sale of this unit allows Dillard’s to continue serving its customers with the private credit card while utilizing GE's operational and marketing capabilities.

[edit] Trends and Forces

[edit] Dillard's Struggling in Recession Due to High Prices

Dillard's performance in FY08 during the recession has placed the company in the middle of the ranks of department stores. Stores with higher-priced goods that target upper-class customers and aspirational middle-class shoppers have been struggling as shoppers cut back on their spending by trading down to lower-priced merchandise. As such a store, Dillard's has experienced significant declines in sales, with net sales decreasing 5% in the first nine months of FY08 and same store sales dropping 9% in the third quarter of FY08 alone.^[1] Lower-priced stores, such as Kohl's (KSS) have fared better than Dillard's as shoppers trade down and look for deals. Kohl's net sales actually grew 1.5% in the first nine months of FY08. Dillard's is performing more effectively than luxury department stores, such as Nordstrom (JWN) and Saks (SKS), which have experienced worse drops in same store sales than Dillard's, at 11.1%^[10] and 11.5%^[11] in Q3 FY08, respectively.

In December 2008 the National Bureau of Economic Research reported that the U.S. economy had been in a recession since December 2007.^[3] The recession was spurred by the 2008 Financial Crisis and has resulted in a significant decline in consumer spending, which has hurt retail sales. In November 2008, total retail sales fell 5.5% in the U.S., a poor sign heading into the holiday shopping season.^[12] Dillard's business suffered in 2007 and has dipped further in 2008 as a result of the economic conditions, with same store sales falling 5% in the 2007^[4] and 9% in the third quarter of FY08 alone.^[1]

[edit] Growing Dillard's Exclusive and Private Brands

In 2007 exclusive and private label merchandise accounted for 24.2% of Dillard's sales,^[5], a figure Dillard's plans on increasing in 2008 by adding new exclusive brands such as Pink Twill, a line of activewear (athletic and exercise apparel) designed for young women, a product segment previously underdeveloped in Dillard's merchandise offerings.^[13]

Department stores are increasingly seeking to distinguish themselves and earn higher profit margins by offering exclusive brands and private label brands. Exclusive brands are brands marketed under the wholesaler's name that are sold only in a particular chain; one exclusive brand at Dillard's is the Antonio Melani line that can only be purchased online or at Dillard's stores. Private label brands are produced by wholesalers, but sold under the brand name of the retailer. Exclusive brands such as Gianni Bini and Roundtree & Yourke, can help draw customers into Kohl's stores, as the products can only be found at Dillard's. Dillard's own private label products are typically priced lower than branded merchandise, but have a higher profit margin for Dillard's as the retailer is able to receive the good at a lower cost by avoiding branded manufacturers.^[14]

[edit] Department Store Migration to Off-Mall Locations

At the end of 2007, all of Dillard's 326 stores were located in malls,^[2] as Dillard's is lagging behind its competitors with regards to a growing emphasis on off-mall store locations. For example, Kohl's (KSS) is a leader in the off-mall trend, operating 865 of its 929 stores in off-mall locations at the end of 2007.^[15] J.C. Penney (JCP) operated 1,067 stores at the end of FY07, only 88 of which were off-mall,^[16] but, JCP is trying to catch up to companies such as Kohl's, as 42 of their 50 new stores in 2007 were off-mall and over 90% of their new stores in 2008 are off-mall.^[16][17] As Dillard's is far behind its competitors with regards to this trend, it is positioned to lose market share from its competitors as consumers continue to shop more often in off-mall locations, refraining from frequenting malls and subsequently avoiding Dillard's stores.

Since the 2000's began, consumers have shifted their shopping habits to strip-malls and shopping centers rather than traditional malls. Department stores are traditionally attached to malls, but have begun moving out into shopping centers and other "off-mall" locations to follow the changing customer's shopping patterns. Off-mall stores are cheaper to operate than traditional mall-based department stores, due to smaller real estate costs and less in-store employees, and offer consumers convenience by serving as a one stop shop. Dillard's is positioned to lose from this trend as none of their stores are in off-mall locations.

[edit] Competition

Dillard's is one of the smallest national department store retailers, with $7.2 billion of net sales in 2007^[2] and 324 stores at the end of November 2008.^[1] It competes primarily against other department stores, but also is facing increasing competition from discounters and mass merchandisers like Target (TGT) and Wal-Mart (WMT) as these companies grow their clothing and home goods categories.

Dillard's primary competitors are moderate- and higher-priced department stores, J.C. Penney (JCP), Macy's Inc. (M) and Sears Holdings (SHLD).

Department stores:

• J.C. Penney (JCP) is significantly larger than Dillard's, with far greater 2007 sales and stores than Dillard's ($19.8 billion; 1,067).^[7] J.C. Penney's prices are comparable to Dillard's but JCP carries less prominent brand name merchandise. JCP relies more heavily on its own exclusive and private label products than Dillard's, which represented 49% of total sales in 2007.^[18] Almost all of J.C. Penney's stores are located in malls, but the company is moving to an off-mall model with over 90% of new stores being opened in off-mall locations.^[16]

• Macy's Inc. (M) is far larger than Dillard's in terms of sales ($26.3 billion in FY07) and stores (853 at end of FY07).^[6] Macy's carries a very comparable variety of branded merchandise as Dillard's, with extensive offerings from Polo Ralph Lauren (RL), Calvin Klein, Kenneth Cole Productions (KCP) and other fashion brands. Consequently, only 19% of Macy's sales in FY07 were from private label merchandise.^[19] Macy's is a mall-based department store chain, with no announced plans to engage in the off-mall trend.

• Sears Holdings (SHLD) is the largest department store company in North America, operating both Sears and Kmart stores. SHLD received over $50.7 billion in net sales in 2007, ending the year with 3,847 store locations in the U.S. and Canada.^[20] SHLD's stores focus more heavily on home goods and appliances than clothing, a major point of differentiation between Dillard's and SHLD. SHLD's stores are traditionally mall-based, but the company has been opening off-mall locations to investigate the off-mall trend.

(*)- data not released

 Dillard's

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	Select All  |  Select None Companies Macy's Inc. (M) Sears Holdings (SHLD) J.C. Penney (JCP) Bon-Ton Stores (BONT) Cost Plus (CPWM) Gottschalks (GOT) Saks (SKS) TJX Companies (TJX) Kohl's (KSS) Dillard's (DDS) Cancel

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Company	Data From	Comparable Sales Growth	Number of Stores	Sales per Store	Net Income
Dillard's (DDS)	2006	(1%)[23]	328[24]	$23.3M[24]	$246M[24]
J.C. Penney (JCP)	2007	0%[25]	1.07K[25]	$18.6[26]	$1.11B[27]
Macy's Inc. (M)	2007	(1.3%)[28]	853[29]	$30.8[30]	$893M[30]
Saks (SKS)	2007	4.9%[31]	103[32]	$28.5M[33]	$53.7M[33]
Sears Holdings (SHLD)	2006	(3.7%)[34]	3.79K[34]	$14M[35]	$1.49B[34]

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[edit] Notes

1. ↑ ^{1.0 1.1 1.2 1.3 1.4 1.5 1.6} Dillard's (DDS) Third Quarter Fiscal 2008 Press Release
2. ↑ ^{2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9} Dillard's (DDS) 10-K 2007, Selected Financial Data, p. 13
3. ↑ ^{3.0 3.1} WSJ.com, "NBER Makes It Official: Recession Started in December 2007", December 1, 2008
4. ↑ ^{4.0 4.1} Dillard's (DDS) 10-K 2007, Sales, p. 21
5. ↑ ^{5.0 5.1 5.2} Dillard's (DDS) 10-K 2007, Sales p. 22
6. ↑ ^{6.0 6.1 6.2} Macy's (M) 10-K 2007, Selected Financial Data, p. 20
7. ↑ ^{7.0 7.1 7.2} JC Penney (JCP) Annual Report 2007, 2007 Financial Highlights, pg. 21
8. ↑ ^{8.0 8.1} Dillard's (DDS) 10-K 2007, General, p. 4
9. ↑ Dillard’s 2006 10K, Item 1, pg. 2
10. ↑ Nordstrom (JWN) Third Quarter Fiscal 2008 Press Release
11. ↑ Saks (SKS) Third Quarter Fiscal 2008 Press Release
12. ↑ WSJ.com, Retail Sales November 2008
13. ↑ Dillard's (DDS) Press Release, Dillard's Announces Launch of Pink Twill
14. ↑ Tuck Business School at Dartmouth, Faculty Opinion: Private-Label Products in the Manufacturin-Retailer Power Balance
15. ↑ Kohl's (KSS) 10-K 2007, Properties, p. 13
16. ↑ ^{16.0 16.1 16.2} JC Penney (JCP) 10-K 2007, Store Growth and Renovations p.21
17. ↑ ^{17.0 17.1} JC Penney (JCP) Third Quarter Fiscal 2008 Press Release
18. ↑ JC Penney (JCP) 10-K 2007, Net Sales, p.25
19. ↑ Macy's (M) 10-K 2007, Results of Operations, p. 23
20. ↑ ^{20.0 20.1} Sears Holdings (SHLD) Annual Report 2007, Results of Operations, p. 24
21. ↑ Macy's (M) Third Quarter Fiscal 2008 Press Release
22. ↑ Sears Holdings (SHLD) Third Quarter Fiscal 2008 Press Release
23. ↑ DDS,2006,10-K,Item-6,Page-17
24. ↑ ^{24.0 24.1 24.2} DDS,2006,10-K,Item-6,Page-9
25. ↑ ^{25.0 25.1} Sec.gov
26. ↑ JCP 2007 10-K
27. ↑ Google Finance
28. ↑ M 2008 10-K
29. ↑ M,2007,10-K,Item-2,Page-10
30. ↑ ^{30.0 30.1} M 2007 10-K
31. ↑ SKS,2007,10-K,Item-7,Page-24
32. ↑ SKS,2007,10-K,Item-1,Page-1
33. ↑ ^{33.0 33.1} SKS,2007,10-K,Item-6,Page-19
34. ↑ ^{34.0 34.1 34.2} SHLD,2006,10-K,Item-6,Page-18
35. ↑ SHLD,2006,10-K,Item-8,Page-55