Credit Suisse Maintains Neutral on Dillard's (DDS) as Sales Growth Remains Primary Challenge

Credit Suisse maintains a Neutral rating and $105 price target on Dillard's Inc. (NYSE: DDS) following a "disappointing" 1Q. Analyst Michael Exstein believes that the primary issue for DDS is a lack of revenue growth.

Exstein commented on DDS, saying, "Dillard's reported disappointing 1Q results, and the primary issue for the company remains a lack of revenue growth. Comps and retail revenues declined for the second time in two years. Without revenue growth, maintaining operating margins will be challenging as SG&A dollars have begun to rise. SG&A dollars have increased year-over-year for five quarters in a row, and we believe this will continue given that the company already made strides in controlling expenses as a key component of the turnaround that began in '08. The bright spot of the quarter was strong retail gross margins, the highest in recent history, but without revenue growth to support growing SG&A dollars, operating margins will continue to be under pressure."

Exstein also added, "Retail gross margin improved 52 bps year-over-year to 40.2%. While this is the highest gross margin level seen since at least 1992 in any quarter, gross profit dollars declined by $22mn from last year. Consolidated gross margin (including CDI) was down 50 bps year-over-year at 39.0% due to increased lower-margin CDI revenue. SG&A dollars increased $9.9mn, or 20 bps as a % of sales, driven by higher payroll expenses and partially offset by lower insurance and advertising expenses."

For an analyst ratings summary and ratings history on Dillard's Inc. click here. For more ratings news on Dillard's Inc. click here.

Shares of Dillard's Inc. closed at $124.20 yesterday.

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