With shares of Dillard's (DDS) bouncing around the lows of 2014, some investors may be tempted to buy the stock, but the company faces several challenges that will be hard to overcome.

Some analysts rate Dillard's a "buy" because the stock is cheap. In fact, analysts point out that the stock trades at an 18% discount to the department store sector. But I believe it deserves to trade at a discount: Dillard's faces a mountain of problems.

First, the company has slowing same-store sales. Back in fiscal 2011, it was increasing same store sales between 3% and 4% a year. Now, same-store sales figures are in the 1% to -1% range. Between 2011 and 2015, revenue from shoes, accessories and handbags have slowed due to increased competition and lack of exciting fashion trends. Those lines account for almost a third of Dillard's revenue and any weakness really hurts top line growth.

Second, higher expenses are limiting margin expansion. Over the last five years, the company has worked hard to cut costs and expand margins. Management boosted margins by 600 basis points. But now, its unlikely the company will be able to increase margins much more than they already have. Investors need more than just incremental improvements to drive the stock higher. Increased employment costs will most likely begin to weigh on the company this holiday season, as well.

Third, the West Coast port strike earlier this year increased inventory levels across the entire industry. Late container shipments left department stores with inventories intended for other seasons, and they are keen to unload lots of merchandise at discounted prices, this holiday season. Dillard's, for example, is stuck with about 5% more inventory than planned. Although it is a manageable amount, at some point the goods will have to hit the discount rack. Other department stores are in a similar bind. Look for a very promotional holiday season, this year.

Fourth, revenue is expected to remain flat, while the company uses its strong cash flow to buy back stock. Dillard's has been taking money that could have been used to upgrade its e-commerce infrastructure for share repurchases. As an example, it doesn't offer free shipping for online purchases and does not operate an omni-channel strategy. How can a major department store not offer customers free shipping or in-store pick up?

Dillard's faces several headwinds that will keep a lid on stock performance. For investors who are tempted to buy the Dillard's because of the low valuation, I would resist the temptation.