Watch out for Dillard’s, Inc. (DDS): Macy’s, Inc. (M), Nordstrom, Inc. (JWN)

Recently it announced a $800 million share repurchase program, which will be largely funded out of its $1.3 billion cash on hand.

Which stock should I buy?:

• Out of the above three, I would put Dillard’s on my watchlist, mainly due to its phenomenal financial performance leading to a $5 special dividend in FY12. It has had one of the most impressive runs since 2009, going from just $3 to almost $90, before falling to $80 as of this writing.
• As seen above, although Macy’s, Inc. (NYSE:M) is the largest in sales, but it has a relatively flat EBITDA growth rate. Looking at Dillard’s, the company’s EBITDA margins have soared post the economic recession in 2008-2009, reaching 11.9%, marginally below its peers.
• Furthermore, from table 3, Dillard’s stands out on the dividend payout ratio and 5-yr. PEG rate. It still remains a relatively cheaper stock vs. Macy’s and Nordstrom, Inc. (NYSE:JWN), with a forward P/E of 10.4, further strengthened by modest margins and a lower debt level.
• However a word of caution, Dillard’s could have trouble in repeating its 2012 success. Most of the companies within the departmental space benefitted from the recent turmoil in J.C. Penney. However, the company has recently-announced that it will turnaround and bring back its sales. It plans to increase its fashion-oriented brands, thereby moving ahead of Dillard’s and giving tough competition to Macy’s, Inc. (NYSE:M) and Nordstrom, Inc. (NYSE:JWN) in the upscale retailer space.
• Further, the economic condition is still volatile with the customer still being frugal. Consumer confidence was volatile in the last three months, moving from 65.1 in Dec 2012 to 58.6 in January 2013 (due to the lingering concerns regarding the fiscal cliff and 2% payroll tax hike which will have a significant impact on the disposable income) to 69.5 in February 2013 (consumers are less worried about the increasing gasoline prices and employment situation).

The article Watch out for Dillard’s originally appeared on Fool.com.

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