Dillard’s, Inc. (DDS) in Little Rock, Ark., operates large retail stores in the Southeast, Southwest and Midwest regions of the United States. Its stores offer products such as fashion apparel, accessories, cosmetics and home furnishings. In comparison, Nordstrom, Inc. (JWN) in Seattle, Washington, is a fashion retailer that offers apparel, footwear, beauty, accessories and homeware for women, men, young adults and children. It offers various channels and a range of private label brands and products.
The resurgence of COVID-19 cases has proven to be a major hurdle for department stores as supply chains and operations have been disrupted. However, many retailers have boosted their online presence to take advantage of the online shopping trend. While online sales are helping many retailers, increased sales at physical stores as the economy reopens should help them thrive in the months ahead. As stores incorporate data analytics into management to streamline operations and improve supply chain efficiency, there is further growth potential in the sector. According to a report by ReportLinker, the global department store industry is set to grow at a pace CAGR of 3.7% through 2027. Therefore, DDS and JWN should benefit.
Over the past six months, shares of DDS have gained 56.5% in price, while JWN has posted negative returns. Additionally, DDS’ 157.8% gains over the past nine months compare to JWN’s negative returns. Additionally, DDS is the clear winner with gains of 238.2% over JWN’s negative returns in terms of past year performance.
But which of these two stocks is a better buy now? Let’s find out.
On November 18, 2021, DDS announced that the Board of Directors had declared a special dividend of $15 per share on the company’s Class A and Class B common stock. The dividend follows the company’s recent record financial performance. The special dividend was to be paid on December 15, 2021 to shareholders of record as of November 29, 2021.
A law firm investigation allegations of securities violations and breach of fiduciary duty claims against JWN over concerns that the stock price fell more than 23% during prolonged trading. The company is alleged to have reported earnings below analysts’ expectations as labor costs weighed on earnings and sales and its Nordstrom Rack business struggled to return to pre-war levels. pandemic.
Recent financial results
DDS revenue increased 44.5% year-on-year to $1.48 billion for the fiscal third quarter ended October 30, 2021. The company’s net income increased 518.5% year-on-year for reach $197.30 million. Additionally, its EPS was $9.81, up 586% year-over-year.
JWN’s revenue increased 43.8% year-on-year to $3.64 billion for its fiscal third quarter, ended October 30, 2021. The company’s net income increased 20.8% year-on-year to reach $64 million. Additionally, its EPS came in at $0.39, up 14.7% year-over-year.
Expected financial performance
Analysts expect DDS revenue to grow 47% in the current year, but decline 3.7% next year. The company’s EPS is expected to increase 1,489.6% in the current year, but decline 50.3% next year.
By comparison, JWN’s revenue is expected to grow 36.7% in the current year and 3.7% next year. Its EPS is expected to grow 128.2% in the current year and 65.3% next year.
JWN’s revenue over the last 12 months is 2.29 times greater than that generated by DDS. However, DDS is more profitable, with gross and net profit margins of 41.17% and 10%, respectively, compared to 35.40% and 0.08% for JWN.
Moreover, the respective ROE, ROA and ROTC of 41.31%, 15.01% and 25.33% of DDS are higher than the 3.60%, 2.33% and 4.10% of JWN.
In non-GAAP forward P/E terms, JWN is currently trading at 16.98x, 132.9% higher than DDS’ 7.29x. And JWN’s 7.36x front EV/EBITDA is 78.6% better than DDS’s 4.12x.
So, DDS is relatively affordable here.
DDS has an overall rating of B, which is equivalent to a buy in our own POWR Rankings system. In contrast, JWN has an overall C rating, which translates to Neutral. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.
DDS has an A rating for value, consistent with its forward EV/EBIT of 4.29x, 61.3% below the industry average of 12.72x. However, JWN has a B rating for value.
DDS has an A rating for quality. This is warranted given DDS’ 12-month ROTC of 25.33%, which is 236.7% higher than the industry average of 7.52%. In comparison, JWN has a quality rating of B.
Among 65 A-rated shares Fashion & Luxury industry, DDS is ranked #13. In comparison, JWN is ranked #49.
Beyond what I said above, we also rated stocks for growth, momentum, stability and sentiment. Click here to view all DDS ratings. Also get all JWN ratings here.
Due to the reopening of the economy, department stores are expected to benefit from their online sales and growth in physical store sales. Thus, DDS and JWS should win. However, we believe it is better to bet on DDS due to its lower valuation and higher profit margin.
Our research shows that the odds of success increase when investing in stocks with an overall buy or strong buy rating. See all the other top-rated stocks in the fashion and luxury sector here.
DDS shares were trading at $269.26 per share on Wednesday afternoon, up $6.30 (+2.40%). Year-to-date, the DDS has gained 9.89%, compared to a -3.92% rise in the benchmark S&P 500 over the same period.
About the Author: Nimesh Jaiswal
At Nimesh Jaiswal His passionate interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving the price of a stock is the key approach he follows while advising investors in his articles. Following…