By Zacks Equity Research

Shares of Dillard's (DDS) have hit new 52-week highs since the company posted solid second-quarter results on Aug. 8 that included a 29% earnings surprise.

Since its quarterly report, shares of this Zacks No. 1 Rank ("strong buy") company have escalated 12.5% to hit another 52-week high on Sept. 14. Moreover, with a robust stock growth (year-to-date return of 79.6%), strong results and a history of beating quarterly earnings estimates, this stock offers an attractive investment opportunity.

The rank driver

Better-than-expected​ quarterly earnings, healthy comparable-store sales, effective cost management and shareholder-friendly​ moves are the primary rank drivers for this stock.

Dillard's, which competes with Kohl's (KSS) and Macy’s (M), posted second-quarter earnings of 63 cents, significantly outpacing the Zacks Consensus Estimate of 49 cents and more than double the prior-year quarter earnings of 30 cents.

Revenue jumped 3.2% to $1.49 billion from $1.44 billion a year earlier. Merchandise sales, excluding CDI, came in at $1.46 billion, compared with $1.43 billion. Total revenue (including other income) of $1.53 billion surpassed the Zacks Consensus Estimate of $1.47 billion.

The robust performance was backed by healthy comparable-store sales growth and improved margins. Management's cost-cutting initiatives, including restructuring and inventory management, is helping to abridge costs and boost profitability.

The company benefits from its improvements in inventory management, which is focused on conservative purchasing and efficiently matching the timing of receipts with demand, which ultimately results in reduced markdowns.

Further, Dillard's healthy balance sheet and adequate cash flows allow it to enhance shareholder value through share repurchases. During the recently concluded quarter, the company bought back nearly 2.1 million shares worth $134.6 million and had authorization worth almost $115.4 million remaining under its share repurchase program.

Earnings estimates revisions

The company's estimates for fiscal 2012 and 2013 each witnessed a surge of 25 cents in the last 60 days. The Zacks Consensus Estimate for fiscal 2012 added about 4.3% to $6 per share in the past two months, reflecting a year-over-year growth of 42.5%. The Zacks Consensus Estimate for fiscal 2013 is up 4% to $6.50 per share over the same period, representing an 8.3% year-over-year jump.

Valuation

Dillard’s currently trades at 13.2 times forward earnings, at par with the peer group average. The trailing 12-month ROE is 13.1%, significantly higher than the peer group average of 9.4%, indicating that the company reinvests its earnings more efficiently than its peer group. Moreover, the price-to-sales ratio reflects a discount of 1.7% to the peer group, with shares trading at a multiple of 0.58.

About the company

Headquartered in Little Rock, Ark., Dillard's is a large department store chain, featuring fashion apparel and home furnishings. The company’s primary product categories are: women’s and junior’s apparel; shoes; accessories and lingerie; men’s clothing and accessories; cosmetics; home; and children’s clothing. Its merchandise mix consists of both branded and private-label items. At the end of the second quarter, Dillard’s operated 304 stores including 16 clearance centers and one Internet store across 29 states, all under the Dillard’s brand name. The company was founded in 1938.

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