Dillard’s, Inc. — Form 10-K Summary
Business context and reporting period
This filing covers fiscal 2013, ended February 1, 2014, not a standalone “2012 Q4” period. Fiscal 2013 had 52 weeks; fiscal 2012, ended February 2, 2013, had 53 weeks, which affects year-over-year comparisons. Dillard’s operated 296 department stores in 29 states and an online store, alongside its construction subsidiary, CDI.
Financial and operating highlights
| Metric | Fiscal 2013 | Fiscal 2012 |
|---|---|---|
| Net sales | $6.532 billion | $6.593 billion |
| Gross profit / gross margin | $2.308 billion / 35.3% | $2.346 billion / 35.6% |
| Net income / diluted EPS | $323.7 million / $7.10 | $336.0 million / $6.87 |
| Cash from operations | $501.8 million | $522.7 million |
| Capital expenditures | $94.9 million | $136.6 million |
| SG&A as a share of sales | 25.0% | 25.4% |
- Comparable retail sales rose 1% on a 52-week comparable basis, although reported total net sales fell about 1%. Retail sales transactions declined 4%, while average transaction size increased 3%.
- Retail gross margin was 35.7%, down 40 basis points; management attributed the decline mainly to heavier markdowns following sales below expectations. Comparable-store inventory increased 5% at year-end.
- Working capital was $881.8 million, including cash and equivalents of $237.1 million. Long-term debt was $614.8 million and subordinated debentures were $200.0 million; capital lease obligations were $7.5 million. No revolver borrowings were outstanding, and reported unused facility availability was approximately $873 million.
- The company repurchased $301.6 million of stock, approximately 3.9 million shares, during fiscal 2013. Annual dividends were $0.22 per share; fiscal 2012’s $5.20 included a special dividend.
- Fourth-quarter 2013 net sales were $2.034 billion, net income was $119.1 million, and diluted EPS was $2.71, versus $2.106 billion, $161.4 million, and $3.36 in fourth-quarter 2012. Fiscal 2012 included an additional week.
Material changes and unusual items
- Net income decreased from fiscal 2012 despite higher diluted EPS, reflecting the lower average diluted share count following substantial repurchases. Fiscal 2012 also included tax benefits, including a $18.1 million one-time ESOP-related benefit.
- Fiscal 2013 results included an $11.7 million pretax gain on sale of the Acumen Brands investment, a $5.4 million impairment charge, and a $1.5 million pension-related gain.
- Operating cash flow declined $20.9 million year over year, principally from working-capital changes, including inventory increases and lower accrued expenses. Cash and equivalents increased to $237.1 million from $124.1 million.
- The store count declined by six, with no openings reported. Construction-segment revenue decreased 11%; awarded contract backlog was $196.5 million at year-end.
Outlook, management commentary, and risks
- For fiscal 2014, management estimated depreciation and amortization of $260 million, rentals of $26 million, net interest and debt expense of $61 million, and capital expenditures of $150 million. It expected an effective tax rate of approximately 35% and peak revolver borrowings not to exceed $250 million. No specific sales or earnings guidance was provided.
- Planned fiscal 2014 capital spending primarily supports store construction and remodeling; two new locations were expected to open in the third quarter.
- The GE proprietary-card marketing and servicing alliance was due to expire in late fiscal 2014. Dillard’s was evaluating future ownership and management options; a failure to renew or replace the arrangement could reduce card-related income and sales.
- Key risks include intense retail and e-commerce competition, discretionary-spending weakness, fashion and markdown execution, inventory exposure, supplier and import disruptions, seasonal and severe weather, real-estate and store-closure costs, cybersecurity and systems outages, employee-benefit costs, and fluctuations in vendor allowances. Approximately 75 coastal stores were self-insured for named-storm property and merchandise losses.
- Management reported no legal proceedings expected to have a material adverse effect. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Confirm the correct comparison period: this is a fiscal-year 10-K, and fiscal 2012 had 53 weeks; assess comparable sales on the disclosed 52-week basis.
- Track whether markdowns ease and inventory growth converts into sales without further gross-margin pressure.
- Review the outcome and economics of the GE card alliance’s expiration, renewal, or replacement.
- Assess the planned $150 million fiscal 2014 capital program and continued share repurchases against cash generation and liquidity needs.
- Reconcile the fiscal 2013 reported earnings with the disclosed investment gain, impairment, and pension adjustment; distinguish recurring performance from these items.