12:04 PM EDT, 08/16/2024 (MT Newswires) -- Dillard's (DDS) delivered "disappointing" Q2 results and the company's ongoing earnings declines will likely pressure its stock price, UBS said in a report emailed Friday.

"We think structural market share losses against other retail channels with more appealing value propositions should pressure DDS' sales and margins," the note said. "Importantly, we believe the market is underappreciating the impact on DDS' earnings from this factor."

UBS cut Dillard's price target to $194 from $202, while keeping the company's sell rating.

The investment firm said it expects a 17% drop in the company's five-year EPS compound annual growth rate and believes that the declining earnings will take the share price toward the new $194 price target.

The company's latest results showed that comp sales growth deteriorated by 300 basis points quarter on quarter leading to a 5% drop year on year in Q2, the note said, adding that Dillard's retail gross margin fell 130 basis points year on year.

UBS also said that the company is seeing a persistence of expense deleverage.

"DDS highlighted payroll expenses as the key reason Q2 SG&A dollars were up 6% y/y. While DDS said it is working to better align expenses to sales performance, we anticipate the impact of fixed costs and lower credit income to drive further deleverage going forward."

Price: 349.14, Change: +0.25, Percent Change: +0.07