Why Dillard's, Inc. Stock Jumped 17% in November

Image Source: Dillard's.

What happened

Shares ofDillard's, Inc.(NYSE: DDS) were climbing last month, up 17% according to S&P Global Market Intelligenceas the company reported third-quarter results and rode a bullish wave in the department store sector. The chart below tells the tale.

DDS data by YCharts

So what

Dillard's surged despite reporting weak results in its third-quarter report. Comparable sales dipped 4%, and overall revenue fell 4.5% to $1.41 billion, edging out expectations of $1.4 billion. On the bottom line, earnings per share compressed from $1.03 to $0.67, missing estimates at $0.77.

CEO William Dillard II summed up the quarter, saying, "Our sales decline continued to weigh heavily on profitability during the third quarter. As we work through this tough time, we are focused on improving customer experience through attracting and maintaining premium brands while providing exceptional service."

Dillard's stock rose as a number of department store chains likeKohl'sandNordstromreported better-than-expected results, and that was enough to turn industry sentiment bullish heading into the holiday season, as even stocks likeJ.C. Penney, which had a weak quarter, still rose.

Now what

Dillard's has been spending aggressively on share buybacks, reducing its outstanding stock by 13% in the past year. That's helped prop up declining earnings per share, but the company may be better off using that money to invest in the business rather than returning it to shareholders. Dillard's had net income of just $22.8 million in the previous quarter, but repurchased $53.1 million of stock, a trend that is simply not sustainable, especially since it only has $80 million in cash on its balance sheet.

The holiday quarter is a big one for department stores, but I'd consider selling Dillard's after last month's gain as the sales slide is going to be hard to reverse and the company is throwing away much-needed cash on buybacks.

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