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Dillard's Inc. (NYSE:DDS), a leading fashion apparel, cosmetics and home furnishings retailer, posted strong third-quarter 2011 earnings of 48 cents per share, outpacing the Zacks Consensus Estimate of 38 cents per share and prior-year quarter earnings of 22 cents per share.

On a reported basis, including one-time items, Dillard's reported earnings of 50 cents per share compared with the prior-year quarter's earnings of 22 cents per share. The quarterly earnings topped estimates on the back of strong same store sales growth and improved margins.

Dillard's top line (including CDI Contractors, construction, LLC or CDI) inched up 2.9% to $1,382.6.0 million for the third quarter of 2011 from $1,344.1 million in the year-ago quarter. Merchandise sales, excluding CDI, came in at $1,362.0 million compared with $1,315.0 million in the year-ago quarter. Comparable same-store sales growth was 5.0%. The company’s total revenue (including other income) of $1,416.0 outpaced the Zacks Consensus Estimate of $1,398.0 million.

Gross margin from retail operations (which excludes CDI) remains consistent at 36.8% for the third quarter of fiscal 2011. However, consolidated gross margin (which includes CDI) picked up 20 basis points in the quarter under review.

Dillard's advertising, selling, administrative and general expenses increased $6.3 million to $404.8 million from $398.5 million in the prior-year quarter. The expenses climbed mainly due to rise in selling payroll, supplies and services purchased, partially offset by abridged net advertising and utility expenditures. However, as a percentage of net sales, these expenses improved 30 basis points to 29.3% from the prior-period level of 29.6%.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $131.3 million compared with $167.1 million in the year-ago period. Long-term debt and capital leases (including current portion) were $704.0 million while shareholders' equity was $1832.4 million versus $760.9 million and $2,116.6 million, respectively, in the prior-year period. Year-to-date, net cash provided by operating activities came in at $135.6 million.

In the third quarter of fiscal 2011, Dillard’s paid $5.7 million to repurchase its 6.625% notes maturing on January 13, 2018.

During the quarter, the company repurchased approximately 2.9 million Class A shares worth $123.7 million under its ongoing $250.0 million share repurchase program announced during the second quarter of fiscal 2011. Dillard’s has approximately $126.3 million remaining under its current share repurchase program.

Store Update

In the quarter, Dillard announced closure of operation at its Virginia Centre Commons in Glen Allen, Virginia. At the end of the third quarter, the company operated 288 stores, 16 clearance centers across 29 states along with an internet store.

Based in Little Rock, Arkansas, Dillard's Inc. is a large departmental store chain, featuring fashion apparel and home furnishings in the United States. Macy's Inc. (NYSE:M), which competes with Dillard's, reported third-quarter 2011 earnings of 32 cents per share.

Dillard's shares maintain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Our long-term recommendation on the stock remains ‘Outperform’.

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