DILLARD'S, INC. The following discussion should be read in conjunction with the condensed
consolidated financial statements and the footnotes thereto included elsewhere
in this report, as well as the financial and other information included in our
Annual Report on Form 10-K for the year ended
EXECUTIVE OVERVIEW
The Company's results for the three months ended
Retail gross margin increased significantly to a record high of 47.3% during the
three months ended
Selling, general and administrative expenses ("SG&A") increased to
The Company reported net income of
Cash flows provided by operating activities were
As of
The Company maintained 280 Dillard's stores, including 29 clearance centers, and
an internet store as of
At present, a number of economic and geopolitical factors are affecting the
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Key Performance Indicators
We use a number of key indicators of financial condition and operating performance to evaluate our business, including the following:
Three Months Ended
April 30, May 1,
2022 2021
Net sales (in millions) $ 1,611.7 $ 1,328.5
Retail stores sales trend 22 % 73 %
Comparable retail stores sales trend 23 % *
Gross margin (in millions) $ 750.2 $ 554.5
Gross margin as a percentage of net sales 46.5 % 41.7 %
Retail gross margin as a percentage of retail net sales 47.3 % 42.6 %
Selling, general and administrative expenses as a
percentage of net sales 24.9 % 25.3 %
Cash flow provided by operations (in millions) $ 365.2 $ 302.4
Total retail store count at end of period 280 281
Retail sales per square foot $ 34 $ 28
Retail store inventory trend 4 % (17) %
Annualized retail merchandise inventory turnover 2.7 2.5
* The Company reported no comparable store sales data for the three months ended
General
Net sales. Net sales includes merchandise sales of comparable and non-comparable
stores and revenue recognized on contracts of
Sales occur as a result of interaction with customers across multiple points of contact, creating an interdependence between in-store and online sales. Online orders are fulfilled from both fulfillment centers and retail stores. Additionally, online customers have the ability to buy online and pick up in-store. Retail in-store customers have the ability to purchase items that may be ordered and fulfilled from either a fulfillment center or another retail store location. Online customers may return orders via mail, or customers may return orders placed online to retail store locations. Customers who earn reward points under the private label credit card program may earn and redeem rewards through in-store or online purchases.
Service charges and other income. Service charges and other income includes
income generated through the long-term marketing and servicing alliance with
Cost of sales. Cost of sales includes the cost of merchandise sold (net of purchase discounts, non-specific margin maintenance allowances and merchandise margin maintenance allowances), bankcard fees, freight to the distribution centers, employee and promotional discounts, shipping to customers and direct payroll for salon personnel. Cost of sales also includes CDI contract costs, which comprise all direct material and labor costs, subcontract costs and those indirect costs related to contract performance, such as indirect labor, employee benefits and insurance program costs.
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Selling, general and administrative expenses. Selling, general and administrative expenses include buying, occupancy, selling, distribution, warehousing, store and corporate expenses (including payroll and employee benefits), insurance, employment taxes, advertising, management information systems, legal and other corporate level expenses. Buying expenses consist of payroll, employee benefits and travel for design, buying and merchandising personnel.
Depreciation and amortization. Depreciation and amortization expenses include depreciation and amortization on property and equipment.
Rentals. Rentals includes expenses for store leases, including contingent rent, data processing and other equipment rentals and office space leases.
Interest and debt expense, net. Interest and debt expense includes interest, net of interest income and capitalized interest, relating to the Company's unsecured notes, subordinated debentures and commitment fees and borrowings, if any, under the Company's credit agreement. Interest and debt expense also includes the amortization of financing costs and interest on finance lease obligations.
Other expense. Other expense includes the interest cost and net actuarial loss components of net periodic benefit costs related to the Company's unfunded, nonqualified defined benefit plan and charges related to the write off of certain deferred financing fees in connection with the amendment and extension of the Company's secured revolving credit facility, if any.
Gain on disposal of assets. Gain on disposal of assets includes the net gain or loss on the sale or disposal of property and equipment, as well as gains from insurance proceeds in excess of the cost basis of insured assets, if any.
LIBOR
On
Seasonality
Our business, like many other retailers, is subject to seasonal influences, with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season. Because of the seasonality of our business, results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.
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RESULTS OF OPERATIONS
The following table sets forth the results of operations as a percentage of net sales for the periods indicated (percentages may not foot due to rounding):
Three Months Ended
April 30, May 1,
2022 2021
Net sales 100.0 % 100.0 %
Service charges and other income 1.9 2.2
101.9 102.2
Cost of sales 53.5 58.3
Selling, general and administrative expenses 24.9 25.3 Depreciation and amortization
2.9 3.5
Rentals 0.3 0.4
Interest and debt expense, net 0.7 0.9
Other expense 0.1 0.4
Gain on disposal of assets (0.4) (1.9)
Income before income taxes 20.1 15.3
Income taxes 4.5 3.4
Net income 15.6 % 11.9 %
Net Sales
Three Months Ended
April 30, May 1,
(in thousands of dollars) 2022 2021 $ Change
Net sales:
Retail operations segment $ 1,580,799 $ 1,296,736 $ 284,063
Construction segment 30,869 31,807 (938)
Total net sales $ 1,611,668 $ 1,328,543 $ 283,125 The percent change in the Company's sales by segment and product category for
the three months ended
% Change % of
2022 - 2021 Net Sales
Retail operations segment
Cosmetics 14.8 % 14 %
Ladies' apparel 26.3 23
Ladies' accessories and lingerie 7.4 13
Juniors' and children's apparel 26.8 11
Men's apparel and accessories 33.1 19
Shoes 22.3 15
Home and furniture 11.7 3
98
Construction segment (2.9) 2
Total 100 %
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Net sales from the retail operations segment increased
For the three months ended
We recorded a return asset of
During the three months ended
Service Charges and Other Income
Three
Three Months Ended Months
April 30, May 1, $ Change
(in thousands of dollars) 2022 2021 2022-2021
Service charges and other income:
Retail operations segment
Income from Wells Fargo Alliance $ 17,174 $ 17,707 $ (533)
Shipping and handling income 10,222 8,480 1,742
Other 3,654 2,427 1,227
31,050 28,614 2,436
Construction segment 64 378 (314)
Total service charges and other income
Shipping and handling income increased
Gross Margin
April 30, May 1,
(in thousands of dollars) 2022 2021 $ Change % Change
Gross margin:
Three months ended
Retail operations segment $ 748,444 $ 553,001 $ 195,443 35.3 %
Construction segment 1,787 1,453 334 23.0
Total gross margin $ 750,231 $ 554,454 $ 195,777 35.3 %
Three Months Ended
April 30, May 1,
2022 2021Gross margin as a percentage of segment net sales: Retail operations segment
47.3 % 42.6 %
Construction segment 5.8 4.6
Total gross margin as a percentage of net sales 46.5 41.7
Gross margin, as a percentage of sales, increased to 46.5% from 41.7% during the
three months ended
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Gross margin from retail operations, as a percentage of sales, increased to
47.3% from 42.6% during the three months ended
Inventory increased 4% in total as of
We source a significant portion of our private label and exclusive brand merchandise from countries that continue to be impacted by the COVID-19 virus. Additionally, many of our branded merchandise vendors may also source a significant portion of their merchandise from these same countries. Manufacturing capacity in those countries has been significantly impacted by the pandemic and in some countries the pandemic continues to negatively impact our supply chain, resulting in shipping delays as well as increased shipping costs.
Additionally, disruptions continue in the global transportation network, and it
is unclear when these issues will be resolved. The
At present, while monitoring all of these situations closely, management is unable to quantify the effects of these factors on the Company's results of operations and inventory position for fiscal 2022.
Selling, General and Administrative Expenses ("SG&A")
April 30, May 1,
(in thousands of dollars) 2022 2021 $ Change % Change
SG&A:
Three months ended
Retail operations segment $ 398,869 $ 335,143 $ 63,726 19.0 %
Construction segment 1,904 1,471 433 29.4
Total SG&A $ 400,773 $ 336,614 $ 64,159 19.1 %
Three Months Ended
April 30, May 1,
2022 2021
SG&A as a percentage of segment net sales:
Retail operations segment 25.2 % 25.8 %
Construction segment 6.2 4.6
Total SG&A as a percentage of net sales 24.9 25.3
SG&A decreased to 24.9% of sales during the three months ended
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Payroll expense and related payroll taxes for the three months ended
Other Expense
April 30, May 1,
(in thousands of dollars) 2022 2021 $ Change % Change
Other expense:
Three months ended
Retail operations segment $ 1,936 $ 4,964 $ (3,028) (61.0) %
Construction segment - - - -
Total other expense $ 1,936 $ 4,964 $ (3,028) (61.0) %
Other expense decreased
Gain on Disposal of Assets
April 30, May 1,
(in thousands of dollars) 2022 2021 $ Change
(Gain) loss on disposal of assets:
Three months ended
Retail operations segment $ (7,240) $ (24,673) $ 17,433
Construction segment 3 - 3
Total gain on disposal of assets
During the three months ended
During the three months ended
Income Taxes
The Company's estimated federal and state effective income tax rate was
approximately 22.5% and 22.2% for the three months ended
The Company expects the fiscal 2022 federal and state effective income tax rate to approximate 22%. This rate may change if results of operations for fiscal 2022 differ from management's current expectations. Changes in the Company's assumptions and judgments can materially affect amounts recognized in the condensed consolidated financial statements.
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FINANCIAL CONDITION
A summary of net cash flows for the three months ended April 30, 2022 and May 1,
2021 follows:
Three Months Ended
April 30, May 1,
(in thousands of dollars) 2022 2021 $ Change
Operating Activities $ 365,182 $ 302,413 $ 62,769
Investing Activities (14,784) 14,183 (28,967)
Financing Activities (204,984) (61,015) (143,969)
Total Increase in Cash and Cash Equivalents
Net cash flows from operations increased
Wells Fargo owns and manages the Dillard's private label cards under the
During the three months ended
Capital expenditures were
During the three months ended
During the three months ended
During the three months ended
The Company had cash on hand of
In
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financing fees related to the previous agreement. This charge was recorded in other expense on the condensed consolidated statement of income.
At
During the three months ended
The Company expects to finance its operations during fiscal 2022 from cash on hand, cash flows generated from operations and, if necessary, utilization of the credit facility. Depending upon our actual and anticipated sources and uses of liquidity, the Company will from time to time consider other possible financing transactions, the proceeds of which could be used to fund working capital or for other corporate purposes.
There have been no material changes in the information set forth under caption
"Commercial Commitments" in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, in the Company's Annual Report on
Form 10-K for the fiscal year ended
OFF-BALANCE-SHEET ARRANGEMENTS
The Company has not created, and is not party to, any special-purpose entities or off-balance-sheet arrangements for the purpose of raising capital, incurring debt or operating the Company's business. The Company does not have any off-balance-sheet arrangements or relationships that are reasonably likely to materially affect the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or the availability of capital resources.
NEW ACCOUNTING STANDARDS
For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 2, Accounting Standards, in the "Notes to Condensed Consolidated Financial Statements," in Part I, Item I hereof.
FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements. The following are or may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (a) statements including words such as "may," "will," "could," "should," "believe," "expect," "future," "potential," "anticipate," "intend," "plan," "estimate," "continue," or the negative or other variations thereof; (b) statements regarding matters that are not historical facts; and (c) statements about the Company's future occurrences, plans and objectives, including statements regarding management's expectations and forecasts for the remainder of fiscal 2022 and beyond, statements concerning the opening of new stores or the closing of existing stores, statements regarding our competitive position, statements concerning capital expenditures and sources of liquidity, statements regarding the expected impact of the COVID-19 pandemic and related government responses, including the CARES Act and other subsequently-enacted COVID-19 stimulus packages, statements concerning share repurchases, statements concerning pension contributions, statements concerning changes in loss trends, settlements and other costs related to our self-insurance programs, statements regarding the expected phase out of LIBOR, statements concerning expectations regarding the payment of dividends,
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statements regarding the impacts of inflation in fiscal 2022 and statements
concerning estimated taxes. The Company cautions that forward-looking statements
contained in this report are based on estimates, projections, beliefs and
assumptions of management and information available to management at the time of
such statements and are not guarantees of future performance. The Company
disclaims any obligation to update or revise any forward-looking statements
based on the occurrence of future events, the receipt of new information, or
otherwise. Forward-looking statements of the Company involve risks and
uncertainties and are subject to change based on various important factors.
Actual future performance, outcomes and results may differ materially from those
expressed in forward-looking statements made by the Company and its management
as a result of a number of risks, uncertainties and assumptions. Representative
examples of those factors include (without limitation) the COVID-19 pandemic and
its effects on public health, our supply chain, the health and well-being of our
employees and customers, and the retail industry in general; other general
retail industry conditions and macro-economic conditions including inflation and
changes in traffic at malls and shopping centers; economic and weather
conditions for regions in which the Company's stores are located and the effect
of these factors on the buying patterns of the Company's customers, including
the effect of changes in prices and availability of oil and natural gas; the
availability of and interest rates on consumer credit; the impact of competitive
pressures in the department store industry and other retail channels including
specialty, off-price, discount and Internet retailers; changes in the Company's
ability to meet labor needs amid nationwide labor shortages and an intense
competition for talent; changes in consumer spending patterns, debt levels and
their ability to meet credit obligations; high levels of unemployment; changes
in tax legislation; changes in legislation, affecting such matters as the cost
of employee benefits or credit card income; adequate and stable availability and
pricing of materials, production facilities and labor from which the Company
sources its merchandise; changes in operating expenses, including employee
wages, commission structures and related benefits; system failures or data
security breaches; possible future acquisitions of store properties from other
department store operators; the continued availability of financing in amounts
and at the terms necessary to support the Company's future business;
fluctuations in LIBOR and other base borrowing rates; the elimination of LIBOR;
potential disruption from terrorist activity and the effect on ongoing consumer
confidence; other epidemic, pandemic or public health issues; potential
disruption of international trade and supply chain efficiencies; any
government-ordered restrictions on the movement of the general public or the
mandated or voluntary closing of retail stores in response to the COVID-19
pandemic; global conflicts (including the recent conflict in
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