Are Today’s Pullbacks in Retail and Media Stocks Like Dillard’s and iHeartMedia a Buying Opportunity in a Cooling Market?

In a market increasingly shaped by AI-driven disruptions, the recent pullbacks in retail and media stocks like Dillard’s (DDS) and iHeartMedia (IHRT) have sparked debate among value investors. While both sectors face headwinds—retailers grapple with margin pressures and shifting consumer habits, and media companies navigate declining ad revenue—these companies’ strategic responses to AI and disciplined capital allocation suggest their current valuations may offer compelling opportunities for long-term investors.

Dillard’s: A Retailer Balancing AI-Driven Efficiency and Margin Resilience

Dillard’s Q2 2025 results underscore its ability to adapt to a cooling retail market. The company reported a 1.6% year-over-year sales increase to $1.514 billion, driven by a 1% rise in comparable store sales, while inventory growth slowed to just 2% year-over-year—a marked improvement from the 6% increase in Q1 2025 [1]. Share repurchases of $9.8 million in Q2 further bolstered earnings per share (EPS), which rose to $4.66, surpassing estimates by 23% [3].

Despite these gains, Dillard’s faces margin compression, particularly in ladies’ apparel, where gross margins fell to 38.1% from 39.1% [4]. However, its disciplined approach to inventory and cost management—operating expenses at 28.7% of sales—positions it to weather sector-wide challenges [2]. With a trailing EV/EBITDA of 8.2x as of August 2025 [2], Dillard’s trades at a discount to the retail sector’s average multiple of 9.3x [5], suggesting undervaluation relative to peers.

AI adoption in retail, such as AI-driven personalization and supply-chain optimization, is reshaping the sector. While Dillard’s has not yet seen transformative ROI from these tools, its focus on operational efficiency and shareholder returns aligns with value investing principles. The company’s $1.01 billion cash balance and $165.2 million remaining buyback authorization [3] further reinforce its financial flexibility, making it a candidate for investors seeking undervalued, cash-rich retailers.

iHeartMedia: Navigating AI-Driven Media Transformation

iHeartMedia’s Q2 2025 performance highlights its pivot toward digital and AI-enabled growth. The company’s Digital Audio Group, including podcasts, saw a 13% revenue increase to $324 million, with podcast revenue surging 28% to $134 million [1]. This segment’s 31.4% EBITDA margin [3] contrasts sharply with the 9.3% decline in its Multiplatform Group’s revenue, driven by traditional radio.

Despite these mixed results, iHeartMedia’s stock has surged 24.5% post-earnings [5], trading at a 81.7% discount to its estimated fair value [6]. Its adjusted EBITDA of $156 million in Q2 2025 [1] and projected $180–$220 million for Q3 [3] suggest improving operational leverage. However, the company’s weak financial health—negative shareholder equity and a beta of 1.87 [6]—introduces volatility risks.

AI is reshaping media’s value proposition, with iHeartMedia leveraging programmatic advertising and AI-driven ad tech to enhance digital offerings [3]. While its EV/EBITDA is not explicitly stated, the media sector’s average multiple of 16.56x [7] implies iHeartMedia’s current valuation is significantly undervalued. For value investors, the company’s focus on high-growth digital segments and cost-saving initiatives (projected $150 million in 2025 savings [1]) could justify its risk profile.

Valuation Trends and Sector-Wide Implications

The retail and media sectors are experiencing divergent valuation dynamics. Retailers like Dillard’s benefit from improved inventory discipline and EBITDA growth, while media companies like iHeartMedia are capitalizing on AI-driven digital transformation. The average EV/EBITDA for the retail sector in Q1 2025 ranged between 7x and 10.3x [8], with Dillard’s 8.2x multiple [2] suggesting it is attractively priced. In contrast, the media sector’s 16.56x multiple [7] highlights the premium investors are willing to pay for digital innovation, making iHeartMedia’s current discount even more compelling.

However, both sectors face AI-related risks. Retailers must contend with margin pressures from AI-driven competition, while media companies risk overvaluation in AI-native stocks. For value investors, the key lies in identifying companies that balance AI adoption with disciplined capital allocation, as seen in Dillard’s buybacks and iHeartMedia’s cost-cutting.

Conclusion: A Calculated Bet on Resilience

The pullbacks in Dillard’s and iHeartMedia reflect broader sector challenges but also highlight their strategic responses to AI-driven shifts. Dillard’s disciplined inventory management and shareholder returns position it as a defensive play in a volatile retail market, while iHeartMedia’s pivot to digital audio offers growth potential in a high-margin segment. Both stocks trade at discounts to sector averages, aligning with value investing principles of buying undervalued assets with strong fundamentals.

For investors willing to tolerate short-term volatility, these pullbacks may represent opportunities to capitalize on long-term resilience. As AI continues to reshape retail and media, the companies that adapt without sacrificing profitability—like Dillard’s and iHeartMedia—could outperform in a cooling market.

Source:
[1] Dillard's Q2 Earnings Beat Estimates, Comparable Store Sales Rise [https://www.nasdaq.com/articles/dillards-q2-earnings-beat-estimates-comparable-store-sales-rise-1]
[2] Dillard's, Inc. Reports Second Quarter and Year-to-Date Results [https://investor.dillards.com/news-releases/news-release-details/dillards-inc-reports-second-quarter-and-year-date-results-2]
[3] iHeartMedia, Inc. Reports Results for 2025 Second Quarter [https://investors.iheartmedia.com/news/news-details/2025/iHeartMedia-Inc--Reports-Results-for-2025-Second-Quarter/default.aspx]
[4] Dillard's, Inc. Reports Second Quarter and Year-to-Date Qerlsb3h12vn.html]
[5] Dillard's Q2 Outperformance: Strategic Differentiation and Valuation Appeal in a Struggling Retail Sector [https://www.ainvest.com/news/dillard-q2-outperformance-strategic-differentiation-valuation-appeal-struggling-retail-sector-2508/]
[6] iHeartMedia (Nasdaq:IHRT) - Stock Analysis [https://simplywall.st/stocks/us/media/nasdaq-ihrt/iheartmedia]
[7] Enterprise Value Multiples by Sector (US) [https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/vebitda.html]
[8] Manufacturing EBITDA & Valuation Multiples – 2025 Report [https://firstpagesage.com/business/manufacturing-ebitda-valuation-multiples/]