Why Dillard's Rallied Today

Key Points

• Dillard's trounced analyst estimates in the second quarter.

• The department store had low expectations coming in, but managed to post a decent quarter while conveying optimism for Q3.

• Dillard's operates in a differentiated manner compared with your average department store.

• 10 stocks we like better than Dillard's ›

Shares of department store company Dillard's (NYSE: DDS) rallied on Thursday, up 5.4% as of 2 p.m. ET.

Dillard's reported second-quarter earnings that, while certainly not eye-opening from a growth perspective, nevertheless beat analyst expectations by a fair amount. Given low expectations, perhaps due to tariff-related fears, Dillard's surged and now trades at all-time highs.

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Dillard's goes about its business

In the second quarter, Dillard's saw revenue rise 1.4% on a 1% rise in same-store sales relative to the year-ago quarter. While margins came down slightly and net income declined by 2.3%, earnings per share of $4.66 was actually up 1.5%, thanks to the company's consistent share repurchases over the past year, which retired 3.7% of shares outstanding relative to last year. The EPS figure also handily beat analyst expectations by over 10%.

As an added bonus, CEO William T. Dillard noted the company was seeing stronger sales trends in July, perhaps fueling optimism for the current quarter.

Dillard's has fared better than other department stores due to its unique approach. The company has pursued slower growth, but usually opts to buy its real estate rather than lease it. As a result of not having a lot of rent expenses, Dillard's can often price its merchandise competitively while still generating profits.

Image source: Getty Images.

Dillard's is a rare department store stock worth paying attention to

The own-versus-lease strategy as well as heavy inside ownership not only by the Dillard family, who are also executives, but also the employee stock fund, which together own over 50% of shares, separates Dillard's from most large department stores. Apparently, the closely held, modest, and differentiated strategy is working, as the stock has far outperformed peers.

Even after today's surge, shares trade at a relatively modest 14.5 times earnings, which isn't demanding for a company generating consistent profits and having a solid net cash position on the balance sheet.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.