Dillard's (DDS) comparable store sales growth is expected to weaken quarter-on-quarter on tough compares ahead and persistent macro headwinds, UBS said in a Monday research note.
Dillard's Q1 comp sales benefitted from the rollout of premium and niche brands that have differentiated the company from its department store peers, however, the company will lap tougher compares in upcoming quarters, which are anticipated to sequentially slow the company's growth rate, UBS said.
Noting that retail gross margin rose 30 basis points in Q1 from a year earlier, UBS said it doubts Dillard's gross margin can expand much going forward due to balanced inventory versus retail sales growth as well as potential freight cost pressures.
"While we believe Dillard's is adept to drive modest long-term sales growth, we see very limited EPS growth potential given share loss against Off-Price retailers and elevated SG&A," UBS analysts said.
UBS reiterated its sell rating along with a $465 price target on the company's stock.
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