Dillard’s, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three and six months ended August 1, 2020, compared with periods ended August 3, 2019. Although the request metadata says 2019 Q2, the filing itself is for fiscal 2020’s second quarter. Dillard’s operates department stores and a construction business.
Financial performance and position
| Metric | Three months ended August 1, 2020 | Six months ended August 1, 2020 |
|---|---|---|
| Net sales | $919.0 million, down 35.6% year over year | $1,705.7 million, down 41.0% year over year |
| Gross profit / margin | $279.2 million / 30.4%; retail margin 31.1% | $377.4 million / 22.1%; retail margin 22.7% |
| SG&A | $267.1 million; 29.1% of sales | $557.5 million; 32.7% of sales |
| Net income (loss) | $(8.6) million; $(0.37) per share | $(170.5) million; $(7.33) per share |
| Operating cash flow | Not reported separately for the quarter | $(294.5) million |
For the quarter, lower markdowns lifted retail gross margin versus the prior-year quarter, while sales fell sharply. For the first half, markdowns associated with the pandemic contributed to a significant year-over-year decline in retail margin. SG&A dollars fell as payroll and other costs were reduced, but SG&A as a share of sales increased.
At August 1, cash and cash equivalents were $82.9 million, working capital was $714.8 million, and inventory was $1.283 billion, down 20% year over year. Total debt was $795.4 million, excluding lease liabilities: $229.6 million of short-term revolver borrowings, $365.8 million of long-term debt, and $200.0 million of subordinated debentures. The amended $800 million credit facility had $447.0 million of unused availability after borrowings and letters of credit; its weighted-average borrowing rate was 2.75%. The facility matures August 9, 2022.
Changes and notable items
- All 285 stores were temporarily closed by April 9, 2020. All but one had reopened by June 2, with reduced hours. Reopened-store sales through August 1 were approximately 72% of prior-year sales on corresponding days. The company reported no comparable-store sales for the quarter because closures and the relationship between online and store sales made the comparison unsuitable.
- Operating cash use increased from $18.6 million in the prior-year first half to $294.5 million. Cash declined by $194.2 million during the current first half.
- Inventory reduction and expense controls supported liquidity: purchases were reduced 62% in the second quarter, and the company canceled, suspended, or delayed merchandise orders. Most extended vendor payment terms had returned to standard terms by August 1.
- The company repurchased $76.1 million of Class A shares in the first half, including $14.3 million in the quarter; $192.6 million remained authorized. It also declared $0.30 per share in dividends for the first half.
- The CARES Act net operating loss carryback generated tax benefits of $17.4 million for the quarter and $32.1 million for the first half. Management expects a net operating loss for fiscal 2020.
- Prior-year comparisons included gains on property disposals of $4.9 million in the quarter and $12.3 million in the first half; there were no comparable material gains in 2020.
- The company permanently closed three stores during the first half. It reported no impairment charge for property and equipment or operating lease assets as of August 1.
Outlook, risks, and contingencies
The company withdrew its fiscal 2020 guidance because of uncertainty about COVID-19, customer demand, and business operations. It expects to fund operations with cash on hand, operating cash flows, and the credit facility; it provided no replacement earnings or sales forecast. Management expects approximately $2.7 million of additional pension-plan contributions during the rest of fiscal 2020.
Management said the pandemic has significantly harmed liquidity and sales, and warned that further effects could depend on the duration of the crisis, customer demand, inventory management, and expense control. Other identified risks include supply-chain disruption, reduced consumer spending, store restrictions, competition, and uncertainty around the future replacement of LIBOR. The Wells Fargo private-label card alliance contributed $35.5 million of income in the first half, down from $42.3 million; the company said it could not quantify the pandemic’s impact on that income. Management did not expect pending ordinary-course legal matters to have a material adverse effect.
Important facts for investors to verify
- Whether store and online sales recover from the reported 72% of prior-year reopened-store sales, and whether comparable-sales reporting resumes.
- Whether operating cash burn moderates and cash, revolver availability, and debt remain adequate as business conditions evolve.
- Whether inventory reductions and lower markdowns can support margins without constraining product availability or future sales.
- Whether the CARES Act tax benefits, expected full-year loss, and related tax assumptions develop as reported.
- Whether share repurchases and dividends continue despite cash use and pandemic-related liquidity uncertainty.