Dillard’s, Inc. — Form 10-Q Summary
Reporting period: Quarter ended July 30, 2022, with six-month comparisons to July 31, 2021. The request metadata says “2021 Q2,” but the supplied filing is for the second quarter of 2022. Unaudited interim results are seasonal and are not necessarily indicative of full-year results.
Business context and performance
Dillard’s operates department stores and a general contracting construction business. At quarter-end it had 279 stores, including 29 clearance centers, and an internet store. Retail operations account for about 98% of sales.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $1,588.6 million | $1,570.4 million | $3,200.3 million | $2,898.9 million |
| Net income | $163.4 million | $185.7 million | $414.5 million | $343.9 million |
| Diluted EPS | $9.30 | $8.81 | $23.07 | $16.03 |
| Gross margin as % of net sales | 40.8% | 41.0% | 43.7% | 41.3% |
| SG&A as % of net sales | 25.3% | 23.3% | 25.1% | 24.2% |
| Cash from operating activities | Not presented quarterly | $279.1 million | $492.3 million |
Financial position and material changes
- Quarterly sales increased about 1.2% year over year, while net income declined about 12%. EPS rose as the weighted-average share count fell following substantial repurchases. Management noted the comparison was against the strongest second quarter in company history. Comparable retail sales were flat; transactions fell 8% while average transaction value rose 8%.
- For the first six months, sales rose about 10.4% and net income about 20.5%. Retail gross margin improved to 44.5% from 42.1%, which management attributed to merchandise response and inventory management that reduced markdowns.
- Q2 retail gross margin eased 20 basis points to 41.5%. SG&A rose 9.7% to $401.3 million, primarily from higher payroll and related costs amid a competitive wage environment. Six-month payroll expense and related taxes increased $72.9 million.
- Operating cash flow fell $213.3 million year over year, mainly due to working-capital movements, including higher inventory and lower payables/accruals. Inventory was $1.193 billion, up 7% year over year.
- Cash and cash equivalents were $492.9 million, with $74.0 million of short-term U.S. Treasury investments; working capital was $984.1 million. Total debt, excluding operating leases, was $566.1 million, including $44.8 million due at fiscal year-end. The $800 million revolving facility had no borrowings and $780.5 million of unused availability after letters of credit.
- During the first half, the company repurchased 1.61 million shares for $412.3 million and paid $7.5 million in dividends. $199.7 million remained under the February 2022 repurchase authorization.
Outlook, risks, and unusual items
- No full-year sales or earnings guidance is provided. Management expects a fiscal 2022 effective federal and state tax rate of about 22%, subject to results differing from expectations. The company expects to fund operations with cash, operating cash flow and, if needed, its credit facility.
- Management cited inflation, interest-rate and fuel-price changes, labor and wage pressures, shipping costs and capacity, port delays, supply-chain disruption, COVID-19 effects, and the war in Ukraine. The financial impact of these factors could not be reasonably estimated. Seasonal sales concentration in the holiday quarter adds uncertainty.
- Six-month proceeds from the sale of one store property produced a $7.2 million gain, versus a $24.7 million gain from property sales in the prior-year period. These gains affect year-over-year earnings comparisons.
- The company opened a Utah store, announced a remodeled Amarillo facility and plans a Sioux Falls store expected in fall 2023. Several underperforming stores closed or were scheduled to close; management reported no material related costs expected for the closures described.
- Routine legal matters were not expected to have a material adverse effect. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether sales and margins remain resilient as inflation, wage costs and supply-chain pressures evolve.
- Inventory levels, markdown exposure and the sustainability of first-half gross-margin improvement.
- Operating cash generation and working-capital trends, given the year-over-year decline in cash flow.
- The pace and funding of share repurchases, remaining authorization and the effect of buybacks on per-share results.
- Execution of construction contracts, including $215.9 million of remaining performance obligations expected to be earned over the next 9–18 months.