What's Wrong With Dillard's?

Jun.27.12 | About: Dillard's Inc. (DDS)

Just last month, Dillard's (NYSE:DDS) announced record earnings, and the shares immediately jumped to over $72 a share. At the time it looked like the shares were headed to the $80's by the end of the year. Now suddenly the stock has dropped almost $10 a share to $62.42. So what's wrong?

Chart forDillard

Compared to the Dow, and other "Mall stores" such as Macy's (NYSE:M), JC Penney (NYSE:JCP) and Ann Taylor (NYSE:ANN), Dillard's is outperforming all of them. And the fundamentals are still very good. The P/E is only 6.88 which is exceptional. According to Yahoo Finance, most of the shares are owned by institutions. This suggests that the "Big Money" likes the company. Here are the top holders:

Top Institutional Holders
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Holder Shares % Out Value* Reported
SMITH (DONALD) & COMPANY INC. 3,626,897 8.09 228,567,048 Mar 30, 2012
DIMENSIONAL FUND ADVISORS LP 3,547,285 7.91 223,549,900 Mar 30, 2012
SOUTHEASTERN ASSET MANAGEMENT, INC. 2,553,600 5.70 160,927,872 Mar 30, 2012
VANGUARD GROUP, INC. (THE) 2,152,498 4.80 135,650,423 Mar 30, 2012
ACADIAN ASSET MANAGEMENT 2,015,213 4.49 126,998,723 Mar 30, 2012
Evercore Trust Company, N.A. 11,407,761 25.44 718,917,098 Mar 30, 2012
LSV ASSET MANAGEMENT 1,258,960 2.81 79,339,659 Mar 30, 2012
DEUTSCHE BANK AKTIENGESELLSCHAFT 1,127,912 2.52 71,081,014 Mar 30, 2012
American Century Companies, Inc. 878,122 1.96 55,339,248 Mar 30, 2012
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Top Mutual Fund Holders
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Holder Shares % Out Value* Reported
LONGLEAF PARTNERS SMALL-CAP FUND 2,526,000 5.63 159,188,520 Mar 30, 2012
DFA U.S. SMALL CAP VALUE SERIES 1,542,434 3.44 68,252,704 Jan 30, 2012
VANGUARD SELECTED VALUE FUND 1,121,927 2.50 49,645,269 Jan 30, 2012
VANGUARD SMALL-CAP INDEX FUND 520,221 1.16 32,784,327 Mar 30, 2012
VANGUARD STRATEGIC EQUITY FUND 458,920 1.02 28,921,138 Mar 30, 2012
DWS Investment Tr-DWS Core Equity Fd 454,475 1.01 29,340,906 Apr 29, 2012
Advanced Series Tr-AST/First Trust Capital Appreciation Targ 435,280 0.97 27,431,345 Mar 30, 2012
Blackrock Large Cap Ser Fds-Master Large Cap Core Port 420,000 0.94 26,468,400 Mar 30, 2012
VANGUARD TOTAL STOCK MARKET INDEX FUND 405,235 0.90 25,537,909 Mar 30, 2012
DFA Tax Managed U.S. Targeted Value Port 401,591 0.90 17,770,401 Jan 30, 2012
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The moving averages for the company look excellent. The 50-day MA is still ten dollars above the 200-day MA. There are no technical signals to explain what is going on. Some analysts might say that this is due to the fear of an economic slowdown, or problems in Europe, however the Dow and NASDAQ are both up today, yet Dillard's is down almost $3.

Chart forDillard

The only thing that I can find is a lot of chatter around the internet about shorting the stock. There are posts about the stores being empty, and that the price will be heading down to the $50's. There is no fundamental reason for this, but when a lot of shorts "attack" a stock they can get the weak retail investors to sell, which brings the price down. On May 31, according to Barron's, the short interest was 15%, which is actually down 20%. In December the short position was over 21%.

The company has been buying back its stock, so this may be an opportunity for Dillard's to get some shares for a lesser sum, which should act like a safety net for the price. I discussed the benefits of a company doing a buyback in another article a few months ago. But if the stock goes below the 200 day MA of $55, it could slide back down into the $40's. For some investors this will be a good time to buy. But if there is a big slowdown, many investors will get out of the retail sector. So I would proceed with caution.

Disclosure: I am long DDS.

Additional disclosure: If the stock drops below $57 in the next 72 hours, I may buy more shares, or sell my current shares, depending on the circumstances at the time.