Mall Anchor Stocks Could Break March Lows

Dillard's, Inc. (DDS) reports second quarter 2020 earnings after Thursday's closing bell, with analysts expecting a major loss of $4.68 per share on just $959.0 million in revenue. The brick-and-mortar retailer charged higher despite posting an even larger first quarter loss in May, with bottom fishers also ignoring a 46.3% year-over-year revenue decline. The stock was removed from the S&P MidCap 400 in June because it longer met mid-cap criteria, striking another blow against the once popular mall anchor.

Key Takeaways

  • Dillard's market capitalization has shrunk to just over $600 million.
  • Wall Street is highly bearish on the long-term outlook, with no analysts posting "Buy" ratings.
  • Long-term technicals warn that Dillard's stock could eventually drop into the single digits.

The earnings release will provide the first look at the battered group's second quarter performance, with Macy's, Inc. (M), Kohl's Corporation (KSS), and Nordstrom, Inc. (JWN) set to report in the next few weeks. Price action has been downright terrible in the past three months, with these issues hovering dangerously close to March's multi-year lows. Of course, their problems began well before the pandemic, with formerly loyal customers abandoning shopping malls in favor of e-commerce and big-box superstores.

UBS downgraded Macy's and Kohl's shares to "Sell" in July, adding to group pressure. Wall Street consensus now rates Dillard's stock as a "Moderate Sell," based upon zero "Buy," one "Hold," and two "Sell" recommendations. The low number of analysts covering the stock highlights the fall from grace, with the current market cap of $623 million dropping below the threshold at many investment houses. Price targets currently range from a low of $19 to a Street-high $26, while the stock will open Thursday's session about $1 above the high target.  

A price target is an analyst's projection of a security's future price. Price targets can pertain to all types of securities, from complex investment products to stocks and bonds. When setting a stock's price target, an analyst is trying to determine what the stock is worth and where the price will be in 12 or 18 months. Ultimately, price targets depend on the valuation of the company that's issuing the stock.

Dillard’s Long-Term Chart (1993 – 2020)

Chart showing the share price performance of Dillard's, Inc. (DDS) 

Dillard's stock broke out above the 1993 high in the low $50s in 2012 and entered a strong uptrend that posted an all-time high at $144.21 in 2015. The e-commerce boom then hit, taking market share from brick-and-mortar retailers at a rapid pace. The stock responded with a steep decline that initially found support at the .618 retracement of the six-year uptrend. Price action slid sideways into 2017 and broke down, undercutting the 200-month exponential moving average (EMA) before bouncing into 2018.

The uptick stalled at a three-year high in the mid-$90s in May 2018, giving way to a pullback that found support at the prior low in the summer of 2019. Bulls took control into year end, but the stock made little progress, setting the stage for a February 2020 breakdown that establishes heavy resistance in the low $50s. Sadly for bulls, a bounce into the second quarter faded quickly, yielding dead price action perilously close to first quarter support.

The selloff cut through the .786 Fibonacci retracement of the multi-year uptrend, while the bounce tested that level and reversed on heavy volume in June. This is extremely bearish because that harmonic zone marks the last major support level, ahead of a 100% retracement into the prior low. Looking back, the stock bottomed out at $2.50 after the 2008 economic collapse, marking the starting point of the Fibonacci grid and current stomach-churning downside target.

Fibonacci retracement levels are horizontal lines that indicate where support and resistance are likely to occur. They are based on Fibonacci numbers. Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced. The Fibonacci retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. While not officially a Fibonacci ratio, 50% is also used.

The Bottom Line

Dillard's reports second quarter 2020 earnings on Thursday evening after failing to recover from the first quarter selloff. This sets up a dangerously bearish scenario, with a sell-the-news reaction raising the odds for a breakdown into the single digits.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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