Dillard's (DDS)

Department store chain Dillard’s (NYSE:DDS) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 2.7% year on year to $1.49 billion. Its GAAP profit of $8.31 per share was 34.7% above analysts’ consensus estimates.

Company Overview

With stores located largely in the Southern and Western US, Dillard’s (NYSE:DDS) is a department store chain that sells clothing, cosmetics, accessories, and home goods.

Department stores emerged in the 19th century to provide customers with a wide variety of merchandise under one roof, offering a convenient and luxurious shopping experience. They played an important role in the history of American retail and urbanization, and prior to department stores, retailers tended to sell narrow specialty and niche items. But what was once new is now old, and department stores are somewhat considered a relic of the past. They are being attacked from multiple angles–stagnant foot traffic at malls where they’ve served as anchors; more nimble off-price and fast-fashion retailers; and e-commerce-first competitors not burdened by large physical footprints.

Department store competitors include Macy’s (NYSE:M), Kohl’s (NYSE:KSS), and Nordstrom (NYSE:JWN).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $6.63 billion in revenue over the past 12 months, Dillard's is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Dillard's struggled to increase demand as its $6.63 billion of sales for the trailing 12 months was close to its revenue six years ago (we compare to 2019 to normalize for COVID-19 impacts). This was mainly because it didn’t open many new stores and observed lower sales at existing, established locations.

This quarter, Dillard's reported modest year-on-year revenue growth of 2.7% but beat Wall Street’s estimates by 3.1%.

Looking ahead, sell-side analysts expect revenue to decline by 1.7% over the next 12 months, a slight deceleration versus the last six years. This projection is underwhelming and suggests its products will see some demand headwinds.

Number of Stores

A retailer’s store count influences how much it can sell and how quickly revenue can grow.

Dillard's listed 272 locations in the latest quarter and has kept its store count flat over the last two years while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Dillard’s demand has been shrinking over the last two years as its same-store sales have averaged 1.8% annual declines. This performance isn’t ideal, and we’d be concerned if Dillard's starts opening new stores to artificially boost revenue growth.

In the latest quarter, Dillard’s same-store sales rose 3% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Dillard's has good unit economics for a retailer, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 40.6% gross margin over the last two years. Said differently, Dillard's paid its suppliers $59.41 for every $100 in revenue.

In Q3, Dillard's produced a 44.2% gross profit margin, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Dillard’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 11.7% over the last two years. This profitability was solid for a consumer retail business and shows it’s an efficient company that manages its expenses well. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Dillard’s operating margin might fluctuated slightly but has generally stayed the same over the last year, highlighting the consistency of its expense base.

In Q3, Dillard's generated an operating margin profit margin of 14.7%, up 3.4 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, and administrative overhead.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Dillard's has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer retail sector, averaging 10.9% over the last two years.

Taking a step back, we can see that Dillard’s margin expanded by 1.8 percentage points over the last year. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

Dillard’s free cash flow clocked in at $156.1 million in Q3, equivalent to a 10.5% margin. This cash profitability was in line with the comparable period last year and its two-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Dillard's hasn’t been the highest-quality company lately because of its poor top-line performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 53%, splendid for a consumer retail business.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Dillard's is a profitable, well-capitalized company with $1.33 billion of cash and $548.6 million of debt on its balance sheet. This $785.8 million net cash position is 8.3% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see Dillard's beat analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 4.8% to $635 immediately following the results.

Updated: December 4, 2025 at 9:42 PM EST

Are you wondering whether to buy Dillard's or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Dillard's isn’t a terrible business, but it doesn’t pass our quality test. First off, its revenue has declined over the last three years. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its shrinking same-store sales tell us it will need to change its strategy to succeed. On top of that, its projected EPS for the next year is lacking.

Dillard’s P/E ratio based on the next 12 months is 23.8x. This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $561.33 on the company (compared to the current share price of $681.61), implying they don’t see much short-term potential in Dillard's.