Dillard's faces a decline in Q2 sales, primarily due to reduced clothing purchases by women.
Dillard's Q2 Sales Up Slightly as Store Comps Remain Flat; Retail Gross Margin Contracts, Operating Expenses Increase
Dillard's has announced a 1% increase in its Q2 total retail sales, which exclude sales from its construction business, to $1.55 billion. Comparable store sales, however, remained flat. The company's weakest performing category was ladies apparel, while cosmetics and men's apparel and accessories showed stronger results.
Retail gross margin for Dillard's contracted by 20 basis points to 41.5%, while retail operating expenses climbed to $399.5 million, or 25.7% of sales, due mainly to higher payroll expenses. This marks an increase from $364.2 million or 23.7% of sales last year. Consequently, overall company net income fell by 12% to $163.4 million.
Dillard's plans to close two stores in the third quarter, located in Sikes Senter, Wichita Falls, Texas, and East Hills Mall, St. Joseph, Missouri. In a positive development, the retailer will open a new store in fall 2023 at The Empire Mall in Sioux Falls, South Dakota, marking the company's first entry into that state. Dillard's currently operates 250 stores and 29 clearance centers in 29 states.
Analyst Perspectives on Dillard's Q2 Performance
Dillard's Q2 results represent a return to more typical performance after a streak of sales and profit growth. "Business softened in the quarter as we lapped the strongest second quarter in our history," said CEO William Dillard in a statement.
Some analysts see potential for further sales declines in the second half of the year, as sales in women's apparel, a category that accounts for 21% of retail sales, showed weakness. Despite this, Dillard's has historically stood out among department store competitors with its appealing merchandising and customer service, and significant sales gains last year that are difficult to replicate.
Increasing inventory levels may force markdowns and further challenge Dillard's at a time of slower discretionary spending, according to analysts. Rising operational costs and increased competition from online retailers also present ongoing industry challenges for the retailer.
Relevant Context and Analyst Forecasts
In the first quarter ended May 3, 2025, Dillard's reported sales of $1.5289 billion and revenue of $1.547 billion, slightly lower than sales and revenue figures from the previous year. Despite the year-over-year decline, Dillard’s exceeded analyst expectations for Q1 earnings per share (EPS), which predicted $9.10 EPS.
Looking ahead, analysts have revised their expectations for Q2 2026, with Telsey Advisory Group reducing its Q2 EPS forecast for Dillard’s to $3.30, down from a prior estimate of $3.41, while maintaining a “Market Perform” rating and a $450 target price. This suggests that analysts expect a decrease in profitability in future quarters compared to the strong Q1 2025 results.
- The increase in Dillard's Q2 total retail sales, despite the flat comparable store sales, indicates a slight recovery in the retail industry, especially with concerns about business performance during the pandemic.
- AI could potentially help Dillard's in managing inventory levels more effectively, reducing the risk of markdowns and improving profitability, especially considering the ongoing challenges posed by slower discretionary spending and increased competition from online retailers.
- To maintain its competitive edge in the retail industry, Dillard's might consider implementing a strategic research and development plan that focuses on enhancing its online presence, offering personalized customer experiences, and integrating AI technology to streamline operations.
- As Dillard's continues to face financial challenges in the retail sector during the pandemic, policymakers might consider providing incentives or relief measures to help businesses like Dillard's stabilize and recover.
- In the future, TV marketing may play a crucial role in helping retailers like Dillard's regain consumer trust and drive sales, especially by featuring appealing merchandise, promoting customer service initiatives, and showcasing exclusive offers to attract customers back to their stores.
