Dillard's beats expectations despite steep declines

Dive Brief:

Dillard's on Thursday reported that third quarter net sales, including its construction business, CDI Contractors, dropped 2% to $1.39 billion from $1.42 billion a year ago. Merchandise sales alone fell 1% to $1.33 billion, according to a company press release.
Comparable sales in the quarter were flat compared to a 2% increase in the year-ago period, with strength mostly in the Eastern region, followed by the Western and Central regions, in order, the company said. That beat analyst expectations recorded by Wells Fargo analysts for a 2% decline.
Reported net income fell more than 25% to $5.5 million from $7.4 million in the year-ago period, the company said. That nevertheless beat expectations, according to comments from Retail Metrics emailed to Retail Dive.

Dive Insight:

This looks like a bleak quarter for Dillard's, but the department store managed to beat expectations, and CEO William Dillard noted the "substantial improvement over the second quarter."

Margins also shaped up in that time, with retail gross margin expanding by 13 basis points, compared to a 319-basis point decline last quarter. And the flat comps bested the second quarter's 2% decline. Retail Metrics President Ken Perkins singled out the retailer's quarter-over-quarter profit growth.

The company has struggled with a department store model that is falling out of favor, and a neither high nor low market position, in between luxury players like Neiman Marcus or Nordstrom, and discounters like J.C. Penney or Kohl's. Its customer base is aging, but the company has done little to appeal to a younger crowd, analysts say.

Still, its stores and private labels attract fierce loyalty where it operates. And it's also a rarity among traditional retailers in adding more square footage than it's closing. Dillard's upcoming plans include the closure of a clearance center in Arizona. But it's expanding two stores in Texas and one in Missouri, maintaining a footprint of about 48.9 million square feet, of which it owns approximately 44.3 million square feet outright.