's up guys and welcome back to wall street millennial on this channel. We cover cover everything related to stocks and investing one of the most notable trends in the market over the recent years is a so called pandemic round trip companies that benefited from the pandemic. Saw their share prices skyrocket just to give up some if not all of these gains as the feds started increasing interest rates companies previously thought to be bulletproof. Like amazon have seen their share prices almost cut in half since their recent highs.

However there has been one unlikely pandemic beneficiary. That has been able to hold on to its gains against all odds dillards is a big box department store with about 300 locations. Mostly concentrated in the southern united states with growing competition from e commerce. Most analysts wrote the company off as a dinosaur that eventually suffered the same fate as sears and jcpenney.

The pandemic appeared to be the final nail in the coffin as the retailer was forced to close its locations and its sales fell to almost zero the conventional wisdom on wall street was that the coronavirus would accelerate the pre existing shift from brick and mortar to e commerce big box retailers like dillard's would go bankrupt. But sometimes the conventional wisdom is shockingly wrong. Dillard saw its business boom and today has increased tenfold from its pandemic lows over the past five years. This 80 year old retailer.

Has crushed amazon with its stock returning 300 compared to the ecommerce giant's 125 percent gain in this video or podcast. If you're listening on spotify or apple podcast. We'll look at how dillard's is eating amazon's lunch against all odds before we dive into the video a quick word from today's sponsor finimize venomize is an app that helps you become a smarter investor in 10 minutes per day delivering all the insights and tools you need to make smarter financial decisions run by former employees of investment banks like goldman sachs and hsbc fandomize publishes short and engaging stories that help you understand the biggest financial opportunities and invest like a pro you can save hours of research. Time by opening finimize you can find everything from under the radar tech.

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When he borrowed eight thousand dollars from his father to start a department store in arkansas. The store focused on selling high end clothing throughout the 1900s they grew by acquiring underperforming department stores mostly in the southern parts of the united states with texas becoming their largest market. They would revitalize the stores and rebrand them as dillards. Which became a household name in the deep south.

The key to dillard's success was vertical integration. A large part of tesla's success today comes from bringing as much of the manufacturing process as possible in house this reduces their dependence on suppliers. And allows them to own more of the value. The alerts pursued a similar strategy in the late 1980s.

They created their own construction subsidiary called cdi contractors. They used cdi contractors to build and renovate their own stores. Without having to rely on external contractors. The alerts had complete control of the process this allowed them to build new stores and renovate the stores they acquired at a very quick pace they carry expensive name brand clothes.

Mostly catering towards women just about every clothing retailer has a problem with excess inventory for any given item. You don't know exactly how many you'll be able to sell and eventually it'll go out of style so you invariably will have unsold clothes piling up on the shelves lower end fast fashion retailers implement massive discounts to liquidate unsold inventory. But for higher end retailers like dillard's they don't want to discount the items too much because this would hurt their image as a high class establishment to solve this problem some super luxury brands burn their unsold inventory to keep supply artificially scarce others will sell at discount retailers like tj maxx. Which then sell them at much cheaper prices.

But dillard's had a better idea they own their own specialized clearance stores. Generally located in low income neighborhoods any clothes that they can't sell in the main stores. They then ship to the clearance stores to sell for discounts of sixty to eighty percent. Most of the clearance stores are located far away from regular stores thus they can avoid cannibalization.

Because dillard's keeps this whole process in house. They keep all the associated revenue. Which is a big advantage despite. These.

Advantages dealers also have some major problems as the years went by their department stores became older and older also their interior design was lacking with old fashioned hardwood floors disorderly shelves and generally dingy store design this vlog from youtubers sergio secrets shows shoes sprawled out across the floor at a dillards in texas. This is not the quality that most shoppers expect from what's supposed to be a high end retailer from 2015 through 2019. Their sales were stagnant as their old fashioned store designs had trouble attracting new customers from its peak in 2015. Dillard's stock price went on consistent downtrend.

Which saw its value cut in half by the end of 2019 investors viewed. It as too old fashioned and that would eventually become irrelevant as consumers shift to online purchases. And then the pandemic hit governments around the world put in place stay at home orders and various other restrictions making it almost impossible to run a physical retail operation. This would be disastrous for dillards.

Which had only a very limited ecommerce operation. Fearing the detrimental effect lockdown orders would have on their sales dillards initially refused to shut down. Many of its locations. This location in the houston area kept its doors open for a week after the local government ordered all retailers to shut down.

They kicked out a local reporter. Who came to investigate dillards was one of the only major retailers to defy government orders and refuse to shut. Down a changeorg petition. Asking them to close their doors got.

13 000. Signatures. As people fear that they would help the virus to spread even. Though.

The stores were technically open. Most customers were scared of catching covet in the first few weeks of the pandemic so they eventually caved in and closed the stores in april. Fortunately. Their stores were mostly located in the deep south and states run by republican governors.

These states relax their coronavirus related restrictions much faster than their democrat controlled counterparts and by mid summer. They were more or less back to business as usual. And dillard's also had some other key advantages namely. They had very little debt and they owned almost all the real estate that their stores were located in this meant that they had almost no interest or rent payments to make and greatly reduced the chances that they'd go bankrupt.

Many other retailers were not so lucky as their sales volume declined retailers like gap were pushed to the brink of default as they didn't have enough cash to pay their rent additionally their customer base is skewed towards elderly shoppers who aren't as tech savvy. This limited market share losses to ecommerce players. And things would get even better as the government rolled out massive stimulus programs consumers had more disposable income than ever to splurge on clothes their sales quickly rebounded to roughly pre pandemic levels by mid 2021 given that revenue recovered to 2019 levels. You'd expect the share price to also increase back to that level as well.

But not only did the share price recover it more than tripled to make fresh all time highs. So what happened consumers had so much stimulus money that they could afford to purchase items at or near list price. So dillard's greatly reduced the discounts that they offered and their average selling price surged. This allowed both their gross and net margins to explode to 44 and 14 respectively.

Incredibly good numbers for the retail industry. So while their revenue. Only matched pre pandemic levels their net income more than quadrupled in addition to strengthening fundamentals. There were also technical drivers supporting the share price for the entirety of its 84 year existence.

The dillard family. Has controlled the company. The current ceo. William.

Thomas. Dillard. Ii. Is a son of founder.

William. Thomas. Dillard. The grandson.

William thomas. Dillard. Iii. Has a position of corporate.

Vice president. Multiple other family members also hold executive positions at the company. The dillard family. Owns.

Roughly 35 percent of the outstanding shares in aggregate. And they very rarely sell the company matches employee 401k contributions with dillard stock. Because of this. Another huge proportion of the shares are owned by regular employees that leaves only about 25 percent of the stock available to the general public.

A number which has declined substantially over time as they repurchase their own shares. The low free float of shares has made it vulnerable to short squeezes. So was the outlook for dillard stock now many investors are attracted to its low price to earnings ratio of 46. Making it a deep value play.

But the high earnings that we've seen over the past 12 months are almost certainly unsustainable as people's stimulus money runs out. They'll have to start using more discounts again and profits will decline back to more normal levels. This will especially be true if we fall into a recession. As many economists are not predicting the meteoric rise in dillard's share price is a combination of many factors.

It was probably undervalued pre covet as fears around e commerce and the death of the mall were over hyped secondly. They were a huge beneficiary of covet stimulus and thirdly. The free flow is small allowing a small increase in buying pressure to cause massive upward pressure on the price. Given that they own their own real estate and have almost no debt.

Dillards is here to stay as one of the biggest retailers in the deep south. But the temporary explosion in their profits is likely coming to an end alright guys that wraps it up for this video. What do you think about dillards. Do you think they can maintain their momentum let us know in the comments section below also don't forget to click the link in the description below to get your seven day free trial and 40 off your finimi subscription as always thank you so much for watching.

And we'll see you in the next one wall street millennial signing out.