Dillard's Q2 Earnings Beat on Higher Margins & Tariff Refunds

Shares of the Zacks Rank #3 (Hold) company have risen 13.9% in the past three months compared with the industry's 25.9% rally.

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Dillard’s Records Mixed Sales Trends Across Categories

DDS generated total retail sales of $1.455 billion in the fiscal second quarter compared with $1.447 billion in the prior-year quarter. Comparable store sales increased 1% for the same period. Our model had anticipated comps to rise 0.7% for the fiscal second quarter.

Sales growth varied across merchandise categories. Ladies’ accessories and lingerie posted significant increases, while home and furniture delivered moderate growth. Shoes, men’s apparel and accessories, and cosmetics recorded slight increases, whereas juniors’ and children’s apparel and ladies’ apparel declined moderately. 

The company continued operating its store network of 272 Dillard’s locations, including 28 clearance centers, across 30 states, along with its internet store.

DDS Sees Margin Gains Drive Profit Growth

Dillard’s posted net income of $97.7 million, up from $72.8 million in the year-ago quarter. The company benefited from a retail gross margin of 40.9% of sales compared with 38.1% in the prior-year period.

The retail gross margin included a positive impact of 260 basis points (bps) from $37.2 million in refunds related to International Emergency Economic Powers Act tariffs. Management does not expect additional significant IEEPA tariff refunds.

The company’s consolidated gross margin improved to 39.7% of sales from 36.6% a year ago. The improvement helped offset higher operating expenses in the period. Our model anticipated a 20-bps expansion in the consolidated gross margin to 36.8%.

DDS Manages Higher Operating Expenses

Dillard’s reported operating expenses (SG&A) of $443.6 million compared with $434.2 million in the year-ago quarter. As a percentage of sales, operating expenses increased 70 bps year over year to 29.4% from 28.7% in the year-ago quarter.

The increase was primarily driven by higher payroll and payroll-related expenses. Despite the cost pressure, stronger merchandise margins supported profitability and helped the company expand net income.

We had expected a 130-bps increase in operating expenses, as a percentage of sales.

Dillard’s Expands Cash Position & Reduces Debt

DDS ended the quarter with cash and cash equivalents of $763.1 million, and short-term investments of $497.7 million. The company also reported merchandise inventories of $1.28 billion, up from $1.22 billion a year ago.

The company paid off $96 million in debt in the first half of fiscal 2026. Long-term debt stood at $145.7 million at the end of the quarter compared with $225.6 million in the prior-year period.

Stockholders’ equity increased to $2.12 billion from $1.92 billion a year ago. The stronger balance sheet provides additional financial flexibility as the company continues its operations and capital investments.

DDS Maintains FY26 Financial Outlook

Dillard’s maintained its fiscal 2026 outlook for certain financial statement items. The company expects depreciation and amortization of $175 million, rentals of $18 million, and net interest and debt income of $9 million for the 52 weeks ending Jan. 30, 2027.

Capital expenditure is projected to be $120 million for fiscal 2026, whereas it reported $93 million in fiscal 2025. The company continues to evaluate spending plans based on current operating conditions.

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