Dillard’s, Inc. — Form 10-K Summary
Period: Fiscal 2019, the 52 weeks ended February 1, 2020. The filing also reports fourth-quarter results and significant subsequent COVID-19 developments. The request metadata’s “2018 Q4” does not match the filing’s stated annual reporting period.
Business context and reporting period
Dillard’s operates department stores and an online store, plus CDI, a general contracting subsidiary. At year-end it had 285 stores in 29 states, including 28 clearance centers. Fiscal 2018 also comprised 52 weeks. Retail operations generated $6.012 billion of fiscal 2019 net sales; construction generated $191.4 million.
Key financial metrics
| Metric | Fiscal 2019 | Fiscal 2018 |
|---|---|---|
| Net sales | $6.204 billion | $6.356 billion |
| Gross profit | $1.968 billion; 31.7% of sales | $2.065 billion; 32.5% of sales |
| SG&A | $1.691 billion; 27.3% of sales | $1.691 billion; 26.6% of sales |
| Net income | $111.1 million | $170.3 million |
| Diluted EPS | $4.38 | $6.23 |
| Operating cash flow | $365.1 million | $367.3 million |
| Cash and cash equivalents at year-end | $277.1 million | $123.5 million |
| Merchandise inventory at year-end | $1.465 billion | $1.528 billion |
Year-end working capital was $917.3 million. Long-term debt was $365.7 million and subordinated debentures were $200.0 million; total debt excluding finance and operating lease liabilities was $565.7 million. The $800 million revolving facility had no borrowings outstanding at year-end, with $779.4 million available after letters of credit. No scheduled debt maturities were due in fiscal 2020 or 2021. The annual dividend was $0.50 per share.
Material changes versus the prior comparable period
- Net sales fell 2.4%; comparable retail sales declined 1%, and retail operations sales decreased 2%.
- Gross margin contracted: consolidated gross profit declined 76 basis points as a share of sales, while retail gross margin fell 99 basis points.
- SG&A was nearly unchanged in dollars but increased 65 basis points as a share of sales, primarily because of sales deleverage.
- Net income fell about 35%, and diluted EPS declined from $6.23 to $4.38.
- Cash from operations was broadly stable. Inventory declined 4%, and the store count decreased by six, to 285.
- Interest and debt expense declined to $46.2 million from $52.5 million, principally due to a debt maturity and lower short-term revolver borrowings.
Outlook, commentary, risks, and unusual items
- COVID-19: The company withdrew its fiscal 2020 guidance, citing uncertainty over the pandemic’s duration and effect on customer demand. By March 27, 2020, approximately 200 stores had temporarily closed; the online store remained open. Management said the financial impact could be material but could not be reasonably estimated.
- Liquidity response: On March 25, 2020, the company borrowed approximately $779 million from its revolving facility to increase cash and financial flexibility. It retained an option to expand the facility by $200 million. This borrowing occurred after the February 1, 2020 balance-sheet date.
- Fiscal 2019 unusual items: A $20.3 million pretax gain, primarily from selling six store properties, and $5.1 million of tax benefits contributed to reported earnings. Fiscal 2018 included $2.9 million of tax benefits. Fiscal 2019 net income and EPS should be considered in light of these items.
- Other risks: Management highlighted retail competition and markdown pressure, changing fashion preferences, sourcing and supply-chain disruptions, foreign tariffs, weather and mall traffic, cybersecurity and privacy, labor costs, and dependence on income from the Wells Fargo private-label card alliance. Alliance income was about $91 million in fiscal 2019, down from $94 million.
- Pension and contingencies: The unfunded officer pension liability was $223.7 million, up from $193.9 million, primarily reflecting a lower discount rate. The company expected a fiscal 2020 pension contribution of approximately $5.5 million. Management said pending ordinary-course legal matters were not expected to materially affect results.
- Capital allocation: Fiscal 2019 share repurchases totaled $138.3 million for 2.2 million shares; $268.7 million remained under the repurchase authorization at year-end. The company said future dividends remained subject to Board approval.
Important facts for investors to verify
- How the COVID-related store closures, demand changes, and supply-chain disruptions affected subsequent-period sales, cash flow, and liquidity.
- The impact of the $779 million revolver draw on debt, interest expense, covenant headroom, and available borrowing capacity after February 1, 2020.
- Underlying earnings and margins excluding the property-sale gain and tax benefits.
- Whether inventory levels and markdowns support gross-margin recovery as sales conditions change.
- The status of store expansion and closure plans, pension funding, and the Wells Fargo alliance, which expires in fiscal 2024.