Dillard’s, Inc. — Form 10-Q Summary
Period: Fiscal first quarter ended April 30, 2022, compared with the three months ended May 1, 2021. The request metadata says “2021 Q1,” but the filing covers 2022 Q1. Amounts below are in millions of dollars unless otherwise noted.
Business context and results
Dillard’s operates department stores and a general contracting construction business. At quarter-end it had 280 stores, including 29 clearance centers, and an internet store. Management attributed the quarter’s stronger results to customer response to merchandise and lower markdown activity.
- Net sales were $1,611.7, up $283.1 (about 21%); retail sales rose about 22% and comparable retail sales increased 23%. Construction sales declined about 3%.
- Gross margin was $750.2, up 35%; gross margin was 46.5% of net sales versus 41.7% a year earlier. Retail gross margin reached 47.3%, compared with 42.6%.
- SG&A increased to $400.8 from $336.6, but declined to 24.9% of sales from 25.3%. Management cited wage and payroll pressure in a competitive labor market.
- Income before taxes was $324.0 versus $203.5; net income was $251.1 versus $158.2. Basic and diluted EPS was $13.68 versus $7.25. The share repurchases noted below also reduced weighted-average shares.
- Net income included a $7.2 pretax gain on a store-property disposal, compared with a $24.7 million gain in the prior-year quarter. Excluding these gains, reported earnings comparisons would differ.
Cash flow, liquidity and capital
- Operating cash flow was $365.2, up from $302.4. Capital expenditures were $27.3 versus $16.9; investing cash flow was a $14.8 outflow, compared with a $14.2 inflow.
- Cash increased $145.4 during the quarter to $862.2. Working capital was $1,035.5.
- Total debt outstanding, excluding operating lease liabilities, was $566.1, including $200.0 of subordinated debentures; $44.8 of long-term debt was scheduled to mature at fiscal year-end. No revolving-credit borrowings were outstanding. The $800 million facility had $780.7 of unused availability after letters of credit.
- The company repurchased 735,117 shares for $186.5 at an average $253.72 per share and paid $3.9 in dividends. $425.5 remained authorized under the February 2022 repurchase plan.
- Merchandise inventory was $1,365.0, approximately 4% above the prior-year level. Accounts payable and accrued expenses rose to $1,163.3 from $1,075.5 a year earlier.
Changes, outlook and risks
- Sales growth, stronger gross margin and higher operating cash flow were the main improvements versus the prior-year quarter. The prior-year period included larger property-sale gains and a $2.8 million debt-extinguishment loss.
- Management expects a fiscal 2022 effective income tax rate of approximately 22%, subject to actual results. It provided no specific full-year sales or earnings guidance and cautioned that quarterly results are seasonal and not necessarily indicative of the year.
- Management expects to fund fiscal 2022 operations with cash on hand, operating cash flow and, if necessary, its credit facility. It expects approximately $4.8 million of additional pension-plan contributions during the rest of fiscal 2022.
- Risks highlighted include inflation and higher fuel, freight and labor costs; supply-chain and port delays; merchandise availability and delivery timing; COVID-19 effects; and the war in Ukraine and related sanctions. Management said the fiscal-year financial effects of these factors could not be reasonably estimated.
- The company opened a 160,000-square-foot store in Orem, Utah, and reported store closures or planned closures; it stated no material costs were associated with or expected from those closures. Legal matters in the ordinary course were not expected to have a material adverse effect.
- The revolving facility references a SOFR-based replacement approach for LIBOR. The company had not yet transitioned and said it would continue to monitor and plan for replacement.
Important facts for investors to verify
- Whether sales and unusually strong retail margins persist as inflation, freight costs and merchandise availability evolve.
- Inventory composition, aging and markdown exposure, especially given the year-over-year inventory increase and supply-chain uncertainty.
- Cash-flow durability and the effect of working-capital movements, including inventory and payables, on future operating cash flow.
- Debt maturity timing and terms, and any subsequent changes to revolving-credit availability or the LIBOR transition.
- Future share repurchases, share count and capital returns relative to liquidity needs and store investment.
- The extent to which earnings comparisons depend on property-disposal gains and other nonrecurring items.