Dillard’s, Inc. Form 10-K Summary
Period clarification: The supplied filing is the annual report for fiscal 2022, the 52 weeks ended January 28, 2023, filed March 27, 2023. It is not a fiscal 2021 or standalone fourth-quarter filing; the text does not provide a separate Q4 results breakdown.
Business context
Dillard’s operates department stores and an online store, alongside its construction subsidiary, CDI Contractors. At January 28, 2023, it operated 277 stores, including 28 clearance centers, in 29 states. Retail operations generated 98% of net sales; construction generated 2%.
Financial performance
| Metric | Fiscal 2022 | Fiscal 2021 |
|---|---|---|
| Net sales | $6.871 billion | $6.493 billion |
| Gross margin | $2.887 billion; 42.0% of sales | $2.745 billion; 42.3% of sales |
| Net income | $891.6 million | $862.5 million |
| Diluted earnings per share | $50.81 | $41.88 |
| Cash flow from operations | $948.4 million | $1.280 billion |
| Capital expenditures | $120.1 million | $104.4 million |
- Retail sales and comparable-store sales each increased 5%. Retail transactions fell 3%, while average dollars per transaction rose 8%.
- Retail gross margin improved to 43.0% from 42.9%; consolidated gross margin declined 30 basis points, reflecting the construction segment’s lower margin and mix.
- SG&A rose 9.0% to $1.674 billion and increased to 24.4% of sales from 23.7%, primarily due to higher payroll and related costs. Payroll and related taxes increased 9.2% to $1.139 billion.
- Net income increased about 3.4%, while net margin eased to 13.0% from 13.3%. Interest and debt expense declined to $30.5 million from $43.1 million, primarily because of higher interest income.
- Construction sales rose 43% to $169.1 million. Executed construction contracts had $189.1 million of remaining performance obligations at year-end, about 101% above the prior year.
Liquidity, debt and capital allocation
- Working capital was $1.213 billion. Cash, restricted cash and short-term investments totaled $809.2 million, including $650.3 million of cash, $10.0 million restricted cash and $148.9 million of short-term investments.
- Total debt, excluding operating lease liabilities, was $521.4 million: $321.4 million of unsecured notes and $200 million of 7.5% subordinated debentures. No revolver borrowings were outstanding; the $800 million facility had $729.4 million of unused availability after letters of credit.
- Operating cash flow declined 25.9% to $948.4 million, primarily due to working-capital movements, including lower accounts payable and accrued expenses and lower income taxes payable. Cash and restricted cash decreased $56.4 million during the year.
- The company returned approximately $708 million to shareholders: $271.3 million in dividends and $436.6 million in share repurchases. The fiscal-year dividends included a special $15-per-share dividend. $175.4 million remained authorized under the February 2022 repurchase plan.
- Merchandise inventory increased 4%; inventory turnover was 2.9 times, unchanged from fiscal 2021.
Outlook, commentary and risks
- Fiscal 2023 estimates include depreciation and amortization of $180 million, rentals of $22 million, net interest and debt income of $11 million, and capital expenditures of $150 million. Management expected an effective federal and state tax rate of approximately 23%.
- Management said inflation, higher interest rates, wages, fuel and shipping costs could affect results; the fiscal 2023 impact was not reasonably estimable and depends partly on customers’ willingness and ability to accept price increases. Supply-chain disruptions had begun to ease.
- Management expected to fund fiscal 2023 operations from cash on hand and operating cash flow, with the revolver available if needed. The company expected to continue quarterly dividends, subject to Board approval.
- Key exposures include intense retail and e-commerce competition, seasonal and fashion-sensitive demand, inventory markdowns, labor costs and availability, supply-chain and import risks, weather and economic conditions, cybersecurity, and reliance on Wells Fargo credit-card alliance income. That alliance expires in November 2024.
- Unusual items included a $21.0 million pretax gain, primarily from selling three store properties; a $13.7 million tax benefit from releasing valuation allowances; and tax benefits related to dividends paid to the company’s Investment and Employee Stock Ownership Plan. Fiscal 2021 also included a $24.7 million property-sale gain and related ESOP dividend tax benefit.
- The unfunded officer pension obligation was $273.1 million, up from $226.3 million, with the increase primarily reflecting an actuarial loss. Management expected a $6.8 million fiscal 2023 contribution; the discount rate was a significant estimate and a critical audit matter.
- No material legal proceedings were reported as of March 27, 2023. Management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended reporting period: the source is fiscal 2022, not fiscal 2021 Q4, and does not give standalone Q4 figures.
- Assess whether sales and margins can hold up against higher wages, inflation, interest rates and potential markdowns.
- Review cash-flow sustainability after the year’s substantial dividends and repurchases, and the company’s planned fiscal 2023 capital spending.
- Evaluate the $273.1 million pension obligation and sensitivity to actuarial assumptions, as well as the $521.4 million debt balance and maturities beginning in fiscal 2026.
- Monitor renewal or replacement of the Wells Fargo alliance before its November 2024 expiration and the related contribution to income.