Dillard’s, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended April 29, 2023, compared with the three months ended April 30, 2022. The filing covers 2023, notwithstanding the request metadata’s “2022 Q1” label. Results are unaudited, and the company cautions that this seasonally affected quarter is not necessarily indicative of full-year performance.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $1,583.9 million | $1,611.7 million | Down 1.7% |
| Service charges and other income | $30.0 million | $31.1 million | Down $1.2 million |
| Gross margin | $692.7 million; 43.7% of net sales | $750.2 million; 46.5% | Down $57.5 million; margin down 2.8 percentage points |
| SG&A | $406.4 million; 25.7% of net sales | $400.8 million; 24.9% | Up $5.6 million |
| Income before taxes | $263.1 million | $324.0 million | Down 18.8% |
| Net income | $201.5 million | $251.1 million | Down 19.8% |
| Diluted EPS | $11.85 | $13.68 | Down 13.4% |
| Operating cash flow | $280.9 million | $365.2 million | Down $84.2 million |
Management described the quarter as a good performance and the company’s second-highest first-quarter net income, following the prior-year record. Retail sales and comparable retail sales each declined 4%. Transactions fell 9%, partly offset by a 5% increase in average dollars per transaction. Retail gross margin declined to 45.6% from 47.3%, principally due to increased markdowns and decreased markups. Inventory was up 3% year over year; annualized retail inventory turnover was 2.5 versus 2.7.
Cash, debt and capital allocation
- At April 29, 2023, cash and cash equivalents were $848.3 million, restricted cash was $8.4 million, and short-term investments were $98.4 million. Working capital was $1,312.4 million.
- Total debt was $521.4 million, excluding operating lease liabilities: $321.4 million of long-term debt and $200.0 million of subordinated debentures. No revolving-credit borrowings were outstanding; $780.7 million of facility availability remained after $19.3 million of letters of credit.
- Operating cash flow was $280.9 million. Capital expenditures were $32.3 million. Financing cash outflows included $103.1 million of treasury-stock purchases and $3.4 million of dividends paid.
- The company repurchased 357,154 shares for $113.8 million during the quarter, at an average $318.66 per share. It completed the prior authorization after quarter-end; in May 2023, the board approved a new $500 million repurchase program.
Material changes and notable items
- Retail operations sales declined $65.9 million, while construction-segment sales rose $38.1 million to $69.0 million. Construction gross margin was 3.3% of segment sales, down from 5.8%.
- Net interest and debt expense fell to $0.1 million from $10.6 million, primarily because interest income increased to $10.0 million from $0.5 million and average debt declined following a note maturity. Other expense rose $2.8 million, largely due to higher pension expense.
- Asset-disposal gains were $1.8 million, compared with $7.2 million in the prior-year quarter. The 2023 gain primarily related to a store property sale.
- The company closed three locations during the quarter and opened a 100,000-square-foot expansion in Lincoln, Nebraska. It operated 274 stores, including 27 clearance centers, plus an internet store, at quarter-end.
Outlook, risks and contingencies
The company expects its fiscal 2023 federal and state effective tax rate to be approximately 23%; it did not provide specific sales or earnings guidance in the supplied filing text. Management said inflation and rising interest costs remain concerns, with effects dependent in part on customers’ ability and willingness to accept price increases. Supply-chain disruptions have improved and their negative effects have diminished, though management continues to monitor them. The company expects to fund fiscal 2023 operations with cash on hand, operating cash flow and, if needed, its credit facility. Construction contract remaining performance obligations were $201.8 million and are expected to be earned over the next nine to eighteen months.
Key disclosed risks include retail and macroeconomic conditions, inflation, interest rates, consumer spending and credit availability, competition, labor availability and costs, merchandise sourcing and supply-chain disruption, cybersecurity and systems risks, and the transition away from LIBOR. The company reported no legal proceedings expected to have a material adverse effect and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether retail sales trends, markdowns and gross-margin pressure improve in subsequent quarters; first-quarter results are seasonal.
- Whether the 3% inventory increase is consistent with demand and inventory-turnover trends.
- Cash generation and liquidity after share repurchases, capital spending and the new $500 million authorization.
- The sustainability of higher interest income and the company’s debt and LIBOR-to-SOFR transition arrangements.
- Execution and margins for the construction segment, including conversion of its $201.8 million remaining performance obligations.