Dillard’s, Inc. — Form 10-Q Summary
Reporting-period note: The request metadata says 2021 Q3, but the supplied filing is for the quarter ended October 29, 2022, with comparisons to October 30, 2021. The filing was signed December 2, 2022. Amounts below are in U.S. dollars.
Business context and reporting period
Dillard’s operates department stores and a general contracting construction business. At quarter-end, it operated 277 stores, including 28 clearance centers, and an internet store. The results are unaudited; management cautions that quarterly results are seasonal and are not necessarily indicative of full-year performance.
Financial results and liquidity
| Metric | Three months ended Oct. 29, 2022 | Three months ended Oct. 30, 2021 | Nine months ended Oct. 29, 2022 | Nine months ended Oct. 30, 2021 |
|---|---|---|---|---|
| Net sales | $1,544.1 million | $1,481.0 million | $4,744.4 million | $4,379.9 million |
| Net income | $187.9 million | $197.3 million | $602.5 million | $541.2 million |
| Diluted EPS | $10.96 | $9.81 | $34.05 | $25.76 |
| Gross margin as % of net sales | 44.6% | 46.2% | 44.0% | 43.0% |
| SG&A as % of net sales | 26.8% | 26.5% | 25.6% | 25.0% |
| Operating cash flow | Not presented by quarter | $558.4 million | $728.1 million |
Quarterly net sales increased about 4%, while net income declined about 5%. For the nine-month period, net sales rose about 8% and net income about 11%. Higher EPS despite lower quarterly net income reflects a smaller weighted-average share count following substantial repurchases. Quarterly comparable retail sales rose 3%; nine-month comparable sales rose 8%.
At October 29, 2022, cash and cash equivalents were $532.7 million and short-term U.S. Treasury bill investments were $198.0 million. Working capital was $1,159.2 million. Merchandise inventory was $1,644.8 million, up 8% year over year. Nine-month operating cash flow fell $169.7 million year over year, primarily due to working-capital changes, including inventory growth.
Total debt was $566.1 million, excluding operating lease liabilities, including $44.8 million scheduled to mature at fiscal year-end. No revolving-credit borrowings were outstanding; $780.7 million of the $800 million facility was available after letters of credit. The facility matures April 2026. Nine-month capital expenditures were $94.8 million. The company repurchased 1.7 million shares for $436.6 million during the nine months and had $175.4 million of repurchase authorization remaining.
Material changes and management commentary
- Retail gross margin declined to 45.7% in the quarter from 46.7% a year earlier, though it increased to 44.9% for the nine months from 43.7%. Management attributed the nine-month improvement to customer response to merchandise and inventory management that reduced markdowns.
- Quarterly SG&A rose 5.3% to $413.8 million, mainly due to higher payroll and related costs in a competitive labor market. Nine-month payroll expense and related payroll taxes increased $87.8 million.
- Retail transactions declined 5% in the quarter, while average transaction value rose 8%. Nine-month transactions declined 1%, while average transaction value increased 9%.
- Construction-segment sales increased 117% in the quarter and 34% for the nine months. Executed construction contracts had $232.7 million of remaining performance obligations, expected to be earned over the next nine to eighteen months.
- Interest and debt expense declined, largely because higher interest rates and short-term investments increased interest income. The nine-month gain on asset disposals was $7.2 million, versus $24.7 million a year earlier, reflecting fewer property sales.
Outlook, risks, contingencies, and unusual items
- No specific full-year sales or earnings guidance is provided. Management expects the fiscal 2022 federal and state effective tax rate to approximate 21%, subject to results and assumptions.
- Management cited inflation, changing fuel prices, higher interest rates and wages, shipping costs and capacity, port and rail disruptions, geopolitical events including the war in Ukraine, and continuing pandemic-related supply-chain effects. The financial impact on fiscal 2022 could not be reasonably estimated.
- On November 17, 2022, the board declared a special dividend of $15 per share, payable January 9, 2023 to holders of record December 15, 2022. The company expects to fund it from operating cash flows.
- During the first nine months, Dillard’s opened a new store in Orem, Utah, and closed three locations. Management reported no material costs associated with or expected from those closures. A remodeled Amarillo, Texas facility opened in November; a Sioux Falls, South Dakota store was planned for fall 2023.
- Management stated that ordinary-course legal proceedings are not expected to have a material adverse effect. It reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the period mismatch: the provided filing covers Q3 2022, not Q3 2021.
- Track whether inventory growth and supply-chain inflation affect markdowns, gross margin, and cash conversion.
- Assess the funding and liquidity effects of the $15-per-share special dividend alongside ongoing buybacks and capital spending.
- Review debt maturities, the revolving facility’s availability and terms, and the planned transition from LIBOR to a SOFR-based rate.
- Monitor construction backlog conversion, retail transaction trends, labor costs, and management’s estimate of the full-year tax rate.