Dillard's (Dillard's (DDS)) shares edged lower on Thursday despite the department store chain reporting first-quarter results that handily beat Wall Street estimates. The company credited strength across multiple merchandise categories and improved margins for the performance, while also noting continued customer demand and inventory discipline.

For the quarter, Dillard's reported earnings per share of $16.04, crushing the analyst consensus of $10.37. Revenue came in at $1.568 billion, slightly above the $1.555 billion Street view. But a big chunk of that earnings beat came from a one-time item: a $104.1 million pre-tax gain from a favorable settlement of a payment card interchange fee lawsuit, which added $5.10 per share after tax.

Excluding that gain, earnings would still have been around $10.94 per share, still above estimates but less dramatic. That might explain why the stock didn't rally – investors often discount one-time gains when valuing a company.

Total retail sales rose 3%, and comparable store sales also increased 3%. The company saw significant growth in home and furniture, ladies' accessories, lingerie, and shoes. Men's apparel and accessories, juniors' and children's apparel, and ladies' apparel posted moderate gains, while cosmetics rose slightly.

Margins improved too. Consolidated gross margin came in at 44.5%, up from 43.9% a year ago. Retail gross margin was 45.8% of sales, compared to 45.5% last year.

On the cost side, operating expenses increased to $444 million, or 28.3% of sales, from $421.7 million, or 27.6% of sales, in the prior-year quarter. Ending inventory rose 3% year over year, suggesting the company is managing stock levels carefully.

Dillard's balance sheet remains strong. As of May 2, 2026, the company had cash and equivalents of $1.157 billion, up from $900.5 million a year ago. Long-term debt fell to $225.7 million from $321.6 million.

Looking ahead, Dillard's expects depreciation and amortization expense of about $175 million in 2026, down from $179 million in 2025. Rental expense is seen at $18 million, versus $19 million last year. Capital expenditures are expected to jump to $130 million from $93 million, signaling investment in the business.

CEO William T. Dillard, II said, "We continue to focus on motivating our customer with newness in our merchandise assortment."

At the time of publication on Thursday, Dillard's shares were down 0.57% at $529.89.