Dillard’s, a department store operator that has survived the tumultuous retail landscape over the past decade, has defied the odds by delivering remarkable market gains without any revenue growth. While many department store chains have struggled or gone out of business, Dillard’s has seen its stock soar.
Since hitting rock bottom during the Great Recession in 2009, Dillard’s stock has grown a staggering 132 times on a total return basis. What makes this achievement even more impressive is the fact that the company has not increased its top line at all over this period.
In 2008, Dillard’s reported an adjusted net loss of over $100 million, with merchandise sales totaling $6.74 billion, representing a 6% decline from the previous year. Fast forward to the present, and the company’s sales in fiscal 2022 were roughly on par with 2008 levels at $6.7 billion. However, despite stagnant sales, Dillard’s managed to generate an astonishing $845 million in adjusted net profit last year.
This remarkable improvement in profitability can be attributed to two key factors: inventory management and cost-cutting measures. Dillard’s has become much more careful about managing its inventory, reducing it by 39% since 2008. In addition, the company has aggressively cut costs, even willing to sacrifice some revenue by reducing store operating hours. Such measures have resulted in a significant improvement in gross margin, which has exceeded 40% in each of the past two years.
Although Dillard’s profitability improvement has not been a smooth upward trajectory over the years, the company has experienced periods of margin compression and falling earnings. However, it has consistently capitalized on its volatile share price through an aggressive share repurchase program, reducing its share count by 78% since early 2009. This has had a positive impact on earnings per share (EPS) and the share price, giving a significant boost to shareholders.
In terms of returns to shareholders, Dillard’s has recently started returning excess cash through special dividends. In late 2021 and again in late 2022, the company paid special dividends of $15 per share, adding to shareholders’ total returns.
While companies with strong revenue growth usually deliver substantial gains for shareholders, Dillard’s performance proves that companies with margin expansion potential can offer phenomenal upside even without revenue growth. The market’s skepticism of the company’s turnaround allowed Dillard’s to rapidly reduce its share count, bolstering future EPS growth.
Looking ahead, Dillard’s may face challenges in continuing to outperform the market. However, investors who can identify companies with significant margin expansion potential and attractive share prices could potentially achieve spectacular returns.
In conclusion, Dillard’s impressive stock performance despite no revenue growth is a testament to the company’s focus on inventory management, cost-cutting measures, and aggressive share repurchases. While most department store stocks have struggled, Dillard’s has shown that it is possible to achieve substantial gains without increasing sales. Investors looking for similar success stories should keep an eye out for companies with margin expansion potential and undervalued shares.
