Why Dillard's Stock Rocketed 18% at the Open Today

What happened

Shares of retailer Dillard’s (DDS 10.45%) rose dramatically at the open on Aug. 11, gaining as much as 18% in early trading. A half hour or so into the day, the stock had pulled back a little, but was still higher by a sizable 13%. The big story was the company’s second-quarter 2022 earning update, which hit the market before the open today.

So what

Dillard’s reported retail sales of $1.55 billion in the second quarter, up slightly from nearly $1.54 billion in the same quarter of 2021. Same-store sales were flat. However, management noted that the second quarter of 2021 was the strongest in the company’s history, so this was a solid showing. On the bottom line, Dillard’s posted earnings per share of $9.30 compared with $8.81 last year, a healthy increase helped along by sizable share buybacks. To put a number on that, in the second quarter of 2021, Dillard’s average share count was 21.1 million shares; it fell to 17.6 million shares this quarter.

The big gain today is likely related to three things. First, the broader market was in rally mode this morning. Second, Dillard’s results were solid, given the tough comparison. And third, the retailer also happened to beat Wall Street consensus on both the top and bottom lines. Investors like to see that, but it is notable that the analyst call was for earnings of $3.47 per share. Thus, this was a very sizable beat. No wonder investors were in a positive mood.

Now what

Clearly, Dillard’s business is holding up fairly well, and that’s a good thing. However, management made a point of saying that “business softened in the quarter,” which is something investors need to watch closely given the broader concerns of an economic contraction (there have already been two consecutive quarters of negative GDP growth, which is the unofficial mark of a recession). Still, given the big beat on earnings, it is hard to fault investors for taking a glass-half-full view today.

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