Dive Brief:

• Dillard's on Thursday reported first quarter net income of $66.3 million or $2.12 per share, down from $77.4 million or $2.17 per share in the prior-year period, beating analyst expectations from Retail Metrics analysts for earnings of $2.02 per share. 

• Total merchandise sales in the quarter fell 4% to $1.39 billion, from $1.45 billion in 2016; Q1 net sales were $1.42 billion, down from $1.5 billion a year ago. Q1 inventory rose 4% year over year, the company said.

• Q1 same-store sales fell 4%, more or less in line with the Retail Metrics forecast for a 4.4% decline. Sales of women's apparel outperformed other merchandise categories during the first quarter, followed by the juniors and children's apparel, the company said, while sales of cosmetics, home and furniture and women's accessories and lingerie were weaker. Sales were strongest in the Western region followed by the Eastern and Central regions.

Dive Insight:

Dillard’s posted a relatively sunny performance considering the fierce headwinds in the department store space. In his statement Thursday, Dillard’s CEO William T. Dillard, II emphasized the company’s return to shareholders. "While our sales decline weighed heavily on our operating results, we remained active in returning cash to shareholders through $93 million of share repurchase and dividends,” he said. “We still ended the quarter with $302 million of cash largely due to better cash management.”

The company is among the 114 chains in the Retail Metrics first quarter 2017 Retail Earnings Index, which together are projected to report a 5.2% year-over-year earnings drop. Last month, in a report on the outlook in retail, Moody's Investors Service noted that department stores are unlikely to be as stable as other retailers, and listed Dillard's, along with Macy's, Kohl's and Neiman Marcus, as contributors to overall retail underperformance project for this year, according to a report emailed to Retail Dive. 

“This would represent the worst quarterly earnings performance for our index since a 7.1% YOY decline registered in the fourth quarter of 2013,” Retail Metrics president Ken Perkins said in a note emailed to Retail Dive Wednesday.

“It would be the second worst quarter since the Great Recession and the third quarterly earnings decline in the last six quarters," he said. "Virtually any way you look the first quarter numbers they harken back to results comparable to the Great Recession, which further magnifies the structural changes underway and the dilemma retailers are facing. The question immediately arises what would retail earnings look like if the economy were in recession? One shutters to think.”