DDS - Dillard's

[Cardboard]

Thanks for the suggestion!

I looked up their financials which were not bad at all for a retailer to my great surprise: sales trend, balance sheet and cheap. I also shopped there before and thought it was fine but, I am old. LOL!

Anyway, bought some calls and already the stock is up over $2.50 since I bought...

Cardboard

[Gregmal]

Took more off a hair under $70. Locking in like 17 years worth of returns compounding 2% bonds. In 3 days.

[Stuart D]

By my rough estimates, in less than 1 year DDS will have bought back all shares not owned by Blackrock, Capital International, Dimensional Fund, LSV Asset management and Vanguard.

What happens then? @Gregmal, you were saying these funds will be forced to sell because of the float. Is that done automatically as per an index fund algorithm? or would DDS start calling them up (firm by firm) and asking to buy back shares.

Thanks again for posting, this has been a fun one to follow and learn.

[SHDL]

By my rough estimates, in less than 1 year DDS will have bought back all shares not owned by Blackrock, Capital International, Dimensional Fund, LSV Asset management and Vanguard.

What happens then? @Gregmal, you were saying these funds will be forced to sell because of the float. Is that done automatically as per an index fund algorithm? or would DDS start calling them up (firm by firm) and asking to buy back shares.

Thanks again for posting, this has been a fun one to follow and learn.

Let me see if I can help since I was the guy who made the comment about index funds.

The selling by index funds (at least those that use a float-adjusted weighting methodology) is supposed to be automatic and instantaneous.  So each time Dillard’s repurchases some shares, those index funds are supposed to sell some DDS shares in response to the shrinking float.  Whether this happens through a block transaction between the two parties I cannot say.

In practice though there can be a time lag between the share repurchases and the selling by the index funds, and I imagine that could lead to some interesting short term price action.  IIRC something like that happened during the 2008 VW infinity squeeze.

[writser]

The selling by index funds (at least those that use a float-adjusted weighting methodology) is supposed to be automatic and instantaneous.  So each time Dillard’s repurchases some shares, those index funds are supposed to sell some DDS shares in response to the shrinking float.  Whether this happens through a block transaction between the two parties I cannot say.

Do you have a source for this? Index funds simply track the index and as far as I know the free float adjustment in the index only happens during the quarterly reviews. At the very least that is the case for the FTSE indices which Vanguard is using (page 27+) and I'm 99.9% sure that that is the case for other indices too.

In March, September, and December, shares outstanding and free float will be updated to reflect the following:
• Changes greater than 1% for cumulative shares in issue changes
• Changes greater than 3 percentage points for cumulative free float changes*
*A constituent with a free float of 15% or below will not be subject to the 3 percentage points threshold and will instead be updated if the change is greater than 1 percentage point. For example, Company B with a free float of 8% would trigger a change if its free float moved to above 9% or below 7%.

The March, September, and December updates will be triggered by vendor changes and confirmed appropriately with the cut-off for new information occurring on the Friday five weeks prior to the review implementation.

Outside of the quarterly update cycle, shares and free float will be updated with at least two days’ notice if occasioned by primary or secondary offerings IF:
• There is a USD 1bn investable market cap change related to a primary/secondary offering measured by multiplying the change to index shares by the subscription price;
OR
There is a resultant 5% change in index shares related to a primary or secondary offerings AND a USD 250m investable market cap change measured by multiplying the change to index shares by
the subscription price. These changes will be implemented after the close on the day that the subscription period closes, assuming two days notice can be provided; if two days’ notice cannot be
provided prior to the end of the subscription period, the change will still proceed with two days’ notice and will be implemented at the earliest opportunity.

In principle an index simply represents a basket of stocks and it doesn't change overnight.

Your method doesn't make sense either. It would require all index funds to rebalance all their portfolios daily. A company like DDS isn't even required to disclose on a daily basis how many shares they bought back. How is Vanguard supposed to know how many shares they have to sell every day? Call them daily and hope they pick up the phone? And if an employee exercises stock options, should DDS call Vanguard to say: "hey, you have to buy 10 extra shares for your VT fund today?". Nah.

[SHDL]

writser,

Here’s a source for the S&P indexes:

https://us.spindices.com/documents/index-policies/methodology-sp-float-adjustment.pdf

If you go to p. 10 it says:

“Changes in [Investable Weight Factors] resulting from certain corporate actions which exceed five percentage points are implemented as soon as possible or weekly depending on index methodology; changes of less than five percentage points are implemented at the next annual review.”

My reading of this is that “certain corporate actions” includes share buybacks and that by “as soon as possible” they mean “as soon as the relevant numbers are disclosed.”  The latter is one of the things I was alluding to when I said these adjustments can be delayed in practice.

As I understand, the trade off here is between what you mentioned (i.e., they don’t really know what the float is on a daily basis and they don’t want to rebalance too frequently either) and the desire to keep the float adjustments in line with what they know. 

[Gregmal]

Reduced much of my dollar value exposure and rolled into short dated slightly OTM calls. $70's for instance are a couple bucks. They seem mispriced given that the squeeze largely depends on numbers from 10Q which gets released by tomorrow. The squeeze play is on, and out there, so if it gains traction, it'll happen very soon.

[peridotcapital]

Why would DDS disclose their buyback activity during the first 4-5 weeks of Q3 in their Q2 10-Q filing?

[oscarazocar]

The 10-Q shows the number of shares outstanding on the filing date on the cover page, so by comparing that to number of shares outstanding at quarter end, you can back into the share buyback number so far in the current quarter.

[writser]

The 10-Q shows the number of shares outstanding on the filing date on the cover page, so by comparing that to number of shares outstanding at quarter end, you can back into the share buyback number so far in the current quarter.

This. Not 100% waterproof in all cases but DDS has no options, RSU's and does not issue shares so yeah, you can pretty much work it out.