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By Carolyn Austin

Dillards (NYSE: DDS) reported strong improvements in net income and earnings per share today on slightly lower revenues. The department store chain reported earnings per share of $0.70, beating analysts expectations of about $0.51 per share, an increase of almost eight times last year’s EPS of $0.09 for the same quarter.

Net income soared to $0.68 per share compared to $0.10 for the year-ago period. Same store sales increased 2 percent for the same period. Revenues dropped from $1,473 (mil) to $1.454 (mil

The company has significantly improved its gross margins, inventory management, operating expense, as well as debt reduction and cash position. In addition, the company is on track to complete its stock repurchase program of 2 million shares.

Dillards plans to open two new stores this year and close one.

Dillard’s Chief Executive Officer, William T. Dillard, II, stated,

We are encouraged by our solid first quarter performance as we report good results in our key operational areas including inventory management and cost control. Notably, we achieved strong cash flow which enabled us to confidently execute our share repurchase program, underscoring our commitment to our shareholders and to the Company.

The stock moved over 5 percent before the open to $27.15, a gain of about $1.43.

Comments: This is definitely a success story for Dillards. The company has delivered solid performance for the quarter and is on track to deliver future solid results. Insiders have been quite active for the last two years buying up the stock. On the other hand, the stock has gained significantly since March and is trading at about 25 times earnings.

The stock, which has a relatively high beta, has traded as low as $7.10 and as high as $31.22 in the past 12 months. The company may achieve additional operating improvements in the future, but any improvements are likely to be marginal by comparison. And revenue actually dropped for the quarter. Again, high valuations in this sector are a red flag and retail can be risky in an uncertain economic environment. Stochastic is moving into overbought territory. Better to make this a short-term trade if you are considering buying DDS.

Disclosure: No position in DDS.