Dillard’s, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended October 30, 2021. The request metadata labels this “2020 Q3,” but the filing is for fiscal 2021 Q3 and compares against the quarter ended October 31, 2020.
Business context and results
Dillard’s operates department stores and a general contracting construction business. At quarter-end it operated 280 stores, including 30 clearance centers, plus an internet store. Management described the quarter as the company’s third consecutive record quarterly performance, with strong consumer demand and fewer markdowns.
| Metric | Three months ended Oct. 30, 2021 | Three months ended Oct. 31, 2020 | Nine months ended Oct. 30, 2021 | Nine months ended Oct. 31, 2020 |
|---|---|---|---|---|
| Net sales | $1,481.0 million | $1,024.9 million | $4,379.9 million | $2,730.6 million |
| Net income (loss) | $197.3 million | $31.9 million | $541.2 million | $(138.7) million |
| Diluted EPS | $9.81 | $1.43 | $25.76 | $(6.05) |
| Gross margin, consolidated | 46.2% | 35.7% | 43.0% | 27.2% |
| Retail gross margin | 46.7% | 36.6% | 43.7% | 28.0% |
| SG&A as a share of net sales | 26.5% | 31.0% | 25.0% | 32.1% |
Financial position, cash flow and capital allocation
- At October 30, 2021, cash and cash equivalents were $619.7 million; working capital was $1,079.4 million. Merchandise inventory was $1,525.9 million, approximately 1% below the prior-year quarter-end.
- Total debt, excluding lease liabilities, was $566.0 million: $366.0 million of long-term debt and $200.0 million of subordinated debentures. No revolver borrowings were outstanding; $779.9 million of the $800 million secured facility was available after $20.1 million of letters of credit. The facility matures April 28, 2026.
- Operating cash flow for the nine months was $728.1 million, versus cash used of $62.9 million a year earlier. Investing activities used $45.2 million, including $79.7 million of capital expenditures; financing activities used $423.5 million, including $410.3 million of share repurchases.
- The company repurchased 2.6 million shares for $410.3 million in the nine-month period. At October 30, $262.9 million remained authorized under the May 2021 repurchase plan.
- On November 18, 2021, the board declared a $15-per-share special dividend, payable December 15 to holders of record November 29. Management expected to fund it from operating cash flows.
Material changes and unusual items
- Third-quarter comparable retail sales rose 48% year over year and 12% versus Q3 2019. Retail net sales increased approximately 47% year over year. For the nine months, retail sales rose approximately 63% versus 2020 and 4% versus the comparable 2019 period; the filing does not provide a comparable-sales figure for the nine-month 2020 comparison because of store closures and channel interdependence.
- Retail gross margin improved amid stronger demand, better inventory management and lower markdowns. SG&A increased in dollars but declined as a percentage of sales; management attributed the higher expense largely to payroll and related taxes, compared with pandemic-related furloughs and lower payroll in 2020.
- The nine-month 2021 results included a $24.7 million gain, primarily from sales of three store properties. The prior-year quarter included a $32.4 million CARES Act tax benefit; the prior-year nine-month period included a $64.6 million benefit from NOL carrybacks. The 2021 nine-month results also included a $2.8 million charge for write-off of deferred financing fees after the credit agreement amendment.
- Construction-segment net sales declined 31% in the quarter and 9% for the nine months year over year. Remaining construction contract performance obligations were $84.2 million, expected to be earned over the next nine to eighteen months.
Outlook, risks and contingencies
- Management expected the fiscal 2021 federal and state effective tax rate to be approximately 20%–21%, subject to results differing from expectations. The estimate included an expected federal tax benefit related to the portion of the special dividend payable to the company’s Investment and Employee Stock Ownership Plan.
- The filing gives no specific sales or earnings guidance. Management cautioned that quarterly results are not necessarily indicative of full-year results because of seasonality, with a significant portion of sales and income typically in the holiday quarter.
- COVID-19 effects remain uncertain. Supply-chain constraints, shipping delays and higher transportation costs could affect merchandise availability and costs; management said it could not quantify their fiscal 2021 effects. Tight labor markets and possible costs or staffing impacts from the proposed OSHA vaccination-or-testing standard were also identified.
- Other stated risks include changes in consumer demand, inflation and broader economic conditions, competition, labor availability and costs, credit availability, store traffic, and LIBOR transition. The company planned to work with lenders on a replacement reference rate.
- Management did not expect pending ordinary-course legal matters to have a material adverse effect. The filing reports no material changes to previously disclosed risk factors and no material changes in market-risk disclosures. Disclosure controls were reported effective, with no material quarter changes to internal control over financial reporting.
Important facts for investors to verify
- Confirm the reporting-period discrepancy in the request metadata: this filing covers Q3 2021, not Q3 2020.
- Assess how sustainable unusually strong demand and retail gross margins are, particularly as inventory costs, markdowns and supply-chain disruptions evolve.
- Review liquidity after the special dividend and continued share repurchases, including the company’s cash balance, debt obligations and revolver availability.
- Separate underlying operating performance from property-sale gains and the prior-year CARES Act tax benefits when comparing periods.
- Monitor holiday-quarter seasonality, labor availability and costs, and the Wells Fargo Alliance, which expires in fiscal 2024.