Dillard’s, Inc. — Form 10-Q Summary
Reporting period: Quarter ended May 1, 2021. The request metadata labels this “2020 Q1,” but the filing is for the first quarter of fiscal 2021 and compares results with the quarter ended May 2, 2020.
Business context and results
Dillard’s operates department stores and a general contracting construction business. At quarter-end it operated 281 stores, including 31 clearance centers, and an internet store. Results rebounded from the prior-year quarter, when COVID-19 forced temporary store closures; management cautions that the quarter is not necessarily indicative of full-year results.
| Metric | Quarter ended May 1, 2021 | Prior-year quarter |
|---|---|---|
| Net sales | $1,328.5 million | $786.7 million |
| Gross profit | $554.5 million; 41.7% of net sales | $98.2 million; 12.5% |
| Retail gross margin | 42.6% | 12.8% |
| SG&A | $336.6 million; 25.3% of net sales | $290.4 million; 36.9% |
| Net income (loss) | $158.2 million; $7.25 per diluted share | $(162.0) million; $(6.94) per share |
| Operating cash flow | $302.4 million | $(111.1) million |
Liquidity, debt and capital
- Cash and cash equivalents were $615.9 million; working capital was $1,019.8 million.
- Total debt was $565.9 million, excluding finance and operating lease liabilities: $365.9 million of long-term debt and $200.0 million of subordinated debentures. No scheduled debt maturities were due until the end of fiscal 2022.
- The amended secured revolving facility has $800 million of capacity plus a $200 million expansion option and matures April 28, 2026. No borrowings were outstanding; $20.1 million of letters of credit left $779.9 million of availability.
- Capital expenditures were $16.9 million. The company repurchased 624,893 shares for $58.8 million and declared dividends of $0.15 per share.
Material changes and unusual items
- Retail sales rose about 73% year over year, but the comparison is heavily affected by prior-year store closures. Retail sales remained about 9% below the first quarter of fiscal 2019; comparable retail sales were down about 6% versus that period.
- Retail margin recovery reflected fewer markdowns, better inventory management and customer demand. Inventory was down about 17% year over year. A 1% change in markdowns would have affected quarterly net income by approximately $2 million.
- SG&A dollars increased, mainly due to higher payroll as stores reopened, but declined as a percentage of sales. Service charges and other income fell $5.9 million, including lower Wells Fargo Alliance income and shipping and handling income.
- A $24.7 million pretax gain ($19.2 million after tax, or $0.88 per share) primarily reflected sales of three store properties. The company also recorded a $2.8 million loss on early extinguishment of debt related to its credit-facility amendment.
- The prior-year loss included a $14.8 million CARES Act tax benefit from net operating loss carrybacks.
Outlook, risks and contingencies
- Management expects a fiscal 2021 federal and state effective tax rate of approximately 22% to 23%, subject to actual results.
- No specific sales or earnings forecast was provided. Management expects to fund operations from cash, operating cash flows and the credit facility, while noting that COVID-19’s continuing effects cannot be reasonably estimated.
- All stores were open at filing time but operated at reduced hours versus fiscal 2019. Planned store openings were announced for Grand Junction, Colorado, in fall 2021 and Orem, Utah, in spring 2022.
- Key uncertainties include consumer demand, inventory and markdown management, COVID-19 and possible restrictions, supply-chain conditions, competition, consumer credit availability, and the transition away from LIBOR.
- Management said routine legal proceedings were not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported. Disclosure controls were assessed as effective.
- After quarter-end, the board authorized a new open-ended share repurchase program of up to $500 million; the company said it intended to use the remaining authorization under the prior plan first.
Important facts for investors to verify
- How much of the sales and profit rebound reflects reopening and an unusually weak comparison period, versus sustained demand; note sales remained below fiscal 2019.
- Whether retail gross margins and inventory discipline can persist, given the earnings sensitivity to markdowns.
- Cash-flow quality: operating cash flow benefited from increases in trade payables and accrued expenses as well as stronger earnings.
- The sustainability of liquidity and planned repurchases alongside debt, lease obligations, store investment and pension contributions.
- COVID-19 impacts, Wells Fargo Alliance income, construction-contract obligations and progress on the announced store openings.