10-K 1 dds-20240203x10k.htm 10-K
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

    

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 3, 2024

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    .

Commission file number 1-6140

DILLARD’S, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

71-0388071

State or other jurisdiction
of incorporation or organization

(I.R.S. Employer
Identification No.)

1600 Cantrell Road, Little Rock, Arkansas 72201

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (501376-5200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Class A Common Stock

DDS

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes     No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes     No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes     No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Smaller reporting company

Non-accelerated filer

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes     No 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of July 29, 2023 was $2,680,990,001.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of March 2, 2024:

CLASS A COMMON STOCK, $0.01 par value

12,243,845

CLASS B COMMON STOCK, $0.01 par value

3,986,233

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held May 18, 2024 (the “Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.

Table of Contents

Item No.

 

Page No.

PART I

 

1.

Business

1

1A.

Risk Factors

4

1B.

Unresolved Staff Comments

13

1C.

Cybersecurity

13

2.

Properties

15

3.

Legal Proceedings

16

4.

Mine Safety Disclosures

16

PART II

 

5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

18

7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

7A.

Quantitative and Qualitative Disclosures about Market Risk

37

8.

Financial Statements and Supplementary Data

37

9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

38

9A.

Controls and Procedures

38

9B.

Other Information

38

9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

38

PART III

 

10.

Directors, Executive Officers and Corporate Governance

39

11.

Executive Compensation

39

12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

40

13.

Certain Relationships and Related Transactions, and Director Independence

40

14.

Principal Accountant Fees and Services

40

PART IV

15.

Exhibits and Financial Statement Schedules

41

16.

Form 10-K Summary

44

PART I

ITEM 1.   BUSINESS.

Dillard’s, Inc. (“Dillard’s”, the “Company”, “we”, “us”, “our” or “Registrant”) ranks among the nation’s largest fashion apparel, cosmetics and home furnishing retailers. The Company, originally founded in 1938 by William T. Dillard, was incorporated in Delaware in 1964. As of February 3, 2024, we operated 273 Dillard’s stores, including 28 clearance centers, and an Internet store at dillards.com offering a wide selection of merchandise including fashion apparel for women, men and children, accessories, cosmetics, home furnishings and other consumer goods. The Company also operates a general contracting construction company, CDI Contractors, LLC (“CDI”), a portion of whose business includes constructing and remodeling stores for the Company.

The following table summarizes the percentage of net sales by segment and major product line:

Percentage of Net Sales

 

    

Fiscal 2023

Fiscal 2022

Fiscal 2021

 

Retail operations segment:

Cosmetics

 

16

%  

15

%  

14

%

Ladies' apparel

 

20

 

21

 

21

Ladies' accessories and lingerie

 

14

 

14

 

15

Juniors' and children's apparel

 

9

 

9

 

10

Men's apparel and accessories

 

19

 

20

 

19

Shoes

 

14

 

15

 

15

Home and furniture

 

4

 

4

 

4

 

96

 

98

 

98

Construction segment

 

4

 

2

 

2

Total

 

100

%  

100

%  

100

%

Additional information regarding our business, results of operations and financial condition, including information pertaining to our reporting segments, can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 hereof and in Note 2 in the “Notes to Consolidated Financial Statements” in Item 8 hereof.

Customers may visit us in person at any of our retail stores located primarily in shopping malls and open-air centers throughout the southwest, southeast and midwest regions of the United States. Our customers may also visit us online at our e-Commerce site, dillards.com, gaining company-wide access to in-store merchandise selections across 30 states as well as in our fulfillment and distribution centers. Customers also have the option to buy online and pickup in store or have their orders shipped directly to their desired location. Dillards.com also serves as a key customer engagement tool with continually updated style and trend content to both educate and inspire our customers.

Our retail merchandise business is conducted under highly competitive conditions. Although we are a large regional department store, we have numerous competitors at the national and local level that compete with our individual stores, including specialty, off-price, discount and Internet retailers. Competition is characterized by many factors including location, reputation, merchandise assortment, advertising, price, quality, operating efficiency, service and credit availability. We believe that our stores are in a strong competitive position with regard to each of these factors. Other retailers may compete for customers on some or all of these factors, or on other factors, and may be perceived by some potential customers as being better aligned with their particular preferences.

Our merchandise selections include, but are not limited to, our lines of exclusive brand merchandise such as Antonio Melani, Gianni Bini, GB, Roundtree & Yorke and Daniel Cremieux. Our exclusive brands/private label merchandise program provides benefits for Dillard’s and our customers. Our customers receive fashionable, higher quality product often at a savings compared to national brands. Our private label merchandise program allows us to ensure the Company’s high standards are achieved, while minimizing costs and differentiating our merchandise offerings from other retailers.

1

We have made a significant investment in our trademark and license portfolio, in terms of design function, advertising, quality control and quick response to market trends in a quality manufacturing environment. Dillard’s trademark registrations are maintained for as long as Dillard’s holds the exclusive right to use the trademarks on the listed products.

Our merchandising, sales promotion and store operating support functions are conducted primarily at our corporate headquarters. Our back office sales support functions, such as accounting, product development, store planning and information technology, are also centralized.

We have developed a knowledge of each of our trade areas and customer bases for our stores. This knowledge is enhanced through regular store visits by senior management and merchandising personnel and through the use of online merchandise information and is supported by our regional merchandising offices. We will continue to use existing technology and research to edit merchandise assortments by store to meet the specific preference, taste and size requirements of each local operating area.

Wells Fargo Bank, N.A. (“Wells Fargo”) owns and manages Dillard’s private label credit cards, including credit cards co-branded with American Express (collectively “private label cards”) under a long-term marketing and servicing alliance (“Wells Fargo Alliance”). Under the Wells Fargo Alliance, Wells Fargo establishes and owns private label card accounts for our customers, retains the benefits and risks associated with the ownership of the accounts, provides key customer service functions, including new account openings, transaction authorization, billing adjustments and customer inquiries, receives the finance charge income and incurs the bad debts associated with those accounts. Pursuant to the Wells Fargo Alliance, we receive on-going cash compensation from Wells Fargo based upon the portfolio’s earnings. The compensation received from the portfolio is determined monthly and has no recourse provisions. We participate in the marketing of the private label cards, which includes the cost of customer reward programs.

We seek to expand the number and use of the private label cards by, among other things, providing incentives to sales associates to open new credit accounts, which generally can be opened while a customer is visiting one of our stores or online. Customers who open accounts are rewarded with discounts on future purchases. Private label card customers are sometimes offered advance notice of sale events. Wells Fargo administers the loyalty program that rewards customers for private label card usage.

In January 2024, the Company announced that it entered into a new agreement with Citibank, N.A. (“Citi”) to provide a credit card program for Dillard’s customers, replacing the existing Wells Fargo Alliance. The Dillard’s credit card program offered by Citi will include a new co-branded Mastercard Incorporated card (“Mastercard”) as well as a private label credit card. The new co-branded Mastercard will replace the existing co-branded card. Additionally, Citi will provide customer service functions and support certain Dillard’s marketing and loyalty program activities related to the new program. The companies expect to launch the new program in late summer 2024 for new Dillard’s credit applicants. The transfer of existing accounts to Citi is expected in the fall of 2024. The term of the agreement is 10 years with automatic extensions for successive two-year terms unless the agreement is terminated by a party in accordance with the terms and conditions of the agreement.

Our earnings depend to a significant extent on the results of operations for the last quarter of our fiscal year. Due to holiday buying patterns, sales for that period average approximately one-third of annual sales. Additionally, working capital requirements fluctuate during the year, increasing during the second half of the year in anticipation of the holiday season.

We purchase merchandise from many sources and do not believe that we are dependent on any one supplier. We have no long-term purchase commitments or arrangements with any of our suppliers, but we consider our relationships to be strong and mutually beneficial.

Our fiscal year ends on the Saturday nearest January 31 of each year. Fiscal year 2023 ended on February 3, 2024 and contained 53 weeks, and fiscal years 2022 and 2021 ended on January 28, 2023 and January 29, 2022, respectively, and each contained 52 weeks.

2

Human Capital

As of December 25, 2023, the Company employed approximately 29,600 associates. Approximately 20,200 were full-time associates (greater than 35 hours per week), 7,100 were part-time associates (20-35 hours per week) and 2,300 were limited status associates (less than 20 hours per week).1 None of our associates are represented by a union.

As a department store chain, the Company employs a wide range of associates, including sales associates, management professionals, maintenance professionals, call center associates, distribution center associates, buyers, advertising and back office personnel. Given the breadth of our employee base, we tailor our human capital management efforts with a view to specific associate populations.

Of the Company’s full-time associates, approximately 86% work in the retail stores. We focus on attracting and retaining excellent associates at the store level by providing compensation and benefits packages that are competitive within the applicable market.

Training and talent development. The Company develops talent by investing in both formalized classroom training, specialized training for our sales management team, ongoing mentorship programs and on-the-job experience. We seek to create an engaged workforce through open door policies and promotion opportunities. The Company’s philosophy is to develop talent and promote from within our organization, thus providing a better customer service model due to a deeper understanding of the overall business and our customers’ expectations. Career paths and opportunities for promotion are discussed with associates from the first day of training and on an ongoing basis. As of December 25, 2023, approximately 73% of the salaried managers at our stores were promoted from hourly store positions.

Diversity and inclusion. The Company has a diverse customer base and seeks to achieve that same diversity in its workforce. As of December 25, 2023, approximately 74% of our store associates were women, and approximately 55% of our store associates were non-white.

In its efforts to promote diversity within our store positions, the Company has developed and made available to store level hiring managers a Diversity and Inclusion training curriculum. In addition, in order to ensure that all qualified candidates are aware of store promotion opportunities, each store posts promotion opportunities for supervisory positions.

Available Information

The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K (this “Annual Report”) and should not be considered to be a part of this Annual Report. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statements of changes in beneficial ownership of securities on Form 4 and Form 5 and amendments to those reports filed or furnished with the SEC pursuant to Sections 13(a), 15(d) or 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as applicable, are available free of charge (as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC) on the Dillard’s, Inc. investor relations website: investor.dillards.com. Copies may also be obtained through the SEC’s EDGAR website: sec.gov.

We have adopted a Code of Conduct and Corporate Governance Guidelines, as required by the listing standards of the New York Stock Exchange and the rules of the SEC. We have posted on our investor relations website our Code of Conduct, Corporate Governance Guidelines, Social Accountability Policy, our most recent Social Accountability Report, our most recent report on climate change mitigation efforts and committee charters for the Audit Committee of the Board of Directors and the Stock Option and Executive Compensation Committee of the Board of Directors.

Our corporate offices are located at 1600 Cantrell Road, Little Rock, Arkansas 72201, telephone: 501-376-5200.

1 For purposes of this section, all figures are based on calendar year 2023.

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ITEM 1A.   RISK FACTORS.

The risks described in this Item 1A, Risk Factors, of this Annual Report could materially and adversely affect our business, financial condition and results of operations.

The Company cautions that forward-looking statements, as such term is defined in the Private Securities Litigation Reform Act of 1995, contained in this Annual Report are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. Forward-looking statements of the Company involve risks and uncertainties and are subject to change based on various important factors. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions.

Risks Related to Retail Operations

The retail merchandise business is highly competitive, and that competition could lower our revenues, margins and market share.

We conduct our retail merchandise business under highly competitive conditions. Competition is characterized by many factors including location, reputation, fashion, merchandise assortment, advertising, operating efficiency, price, quality, customer service and credit availability. We have numerous competitors nationally, locally and on the Internet, including conventional department stores, specialty retailers, off-price and discount stores, boutiques, mass merchants, and Internet and mail-order retailers. Although we are a large regional department store, some of our competitors are larger than us with greater financial resources and, as a result, may be able to devote greater resources to sourcing, promoting and selling their products. Additionally, we compete in certain markets with a substantial number of retailers that specialize in one or more types of merchandise that we sell. Also, online retail shopping continues to rapidly evolve, and we continue to expect competition in the e-commerce market to intensify in the future as the Internet facilitates competitive entry and comparison shopping. We anticipate that intense competition will continue from both existing competitors and new entrants. If we are unable to maintain our competitive position, we could experience downward pressure on prices, lower demand for products, reduced margins, the inability to take advantage of new business opportunities and the loss of market share.

Our business is seasonal, and fluctuations in our revenues during the last quarter of our fiscal year can have a disproportionate effect on our results of operations.

Our business, like many other retailers, is subject to seasonal influences, with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season. Our fiscal fourth-quarter results may fluctuate significantly, based on many factors, including holiday spending patterns and weather conditions, and any such fluctuation could have a disproportionate effect on our results of operations for the entire fiscal year. Because of the seasonality of our business, our operating results vary considerably from quarter to quarter, and results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

A shutdown of, or disruption in, any of the Company’s distribution or fulfillment centers would have an adverse effect on the Company’s business and operations.

Our business depends on the orderly operation of the process of receiving and distributing merchandise, which relies on adherence to shipping schedules and effective management of distribution or fulfillment centers. Although we believe that our receiving and distribution process is efficient and that we have appropriate contingency plans, unforeseen disruptions in operations due to fire, severe weather conditions, natural disasters or other catastrophic events, labor disagreements or other shipping problems may result in the loss of inventory and/or delays in the delivery of merchandise to our stores and customers.

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Current store locations may become less desirable, and desirable new locations may not be available for a reasonable price, if at all, either of which could adversely affect our results of operations.

In order to generate customer traffic and for convenience of our customers, we attempt to locate our stores in desirable locations within shopping malls and open air centers. Our stores benefit from the abilities that our Company, other anchor tenants and other area attractions have to generate consumer traffic. Adverse changes in the development of new shopping malls in the United States, the availability or cost of appropriate locations within existing or new shopping malls, competition with other retailers for prominent locations, the success of individual shopping malls and the success or failure of other anchor tenants, the continued proper management and development of existing malls, or the continued popularity of shopping malls may continue to impact our ability to maintain or grow our sales in our existing stores, as well as our ability to open new stores, which could have an adverse effect on our financial condition or results of operations.

Ownership and leasing of significant amounts of real estate exposes us to possible liabilities and losses.

We own the land and building, or lease the land and/or the building, for all of our stores. Accordingly, we are subject to all of the risks associated with owning and leasing real estate. In particular, the value of our real estate assets could decrease, and their operating costs could increase, because of changes in the investment climate for real estate, demographic trends and supply or demand for the use of the store, which may result from competition from similar stores in the area. Additionally, we are subject to potential liability for environmental conditions on the property that we own or lease.

Furthermore, we are subject to risks related to poor management of shopping malls, including those malls that may be in financial distress or are currently under receivership. Some malls may be unable or unwilling to refinance debt maturities in the current credit market, leading to further risks related to temporary or new management by financial institutions or others. Such successors may be unable to effectively manage the shopping malls in which we operate.

If an existing owned store is not profitable, and we decide to close it, we may be required to record an impairment charge and/or exit costs associated with the disposal of the store. We generally cannot cancel our leases. If an existing or future store is not profitable, and we decide to close it, we may be committed to perform certain obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as each of the leases expires, we may be unable to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close stores in desirable locations. We may not be able to close an unprofitable owned store due to an existing operating covenant which may cause us to operate the location at a loss and prevent us from finding a more desirable location. We have approximately 71 stores along the Gulf and Atlantic coasts that are covered by third-party insurance but are self-insured for property and merchandise losses related to “named storms.” As a result, the repair and replacement costs will be borne by us for damage to any of these stores from “named storms,” which could have an adverse effect on our financial condition or results of operations.

Variations in the amount of vendor allowances received could adversely impact our operating results.

We receive vendor allowances for advertising, payroll and margin maintenance that are a strategic part of our operations. A reduction in the amount of cooperative advertising allowances would likely cause us to consider other methods of advertising as well as the volume and frequency of our product advertising, which could increase/decrease our expenditures and/or revenue. Decreased payroll reimbursements would either cause payroll costs to rise, negatively impacting operating income, or cause us to reduce the number of employees, which may cause a decline in sales. A decline in the amount of margin maintenance allowances would either increase cost of sales, which would negatively impact gross margin and operating income, or cause us to reduce merchandise purchases, which may cause a decline in sales.

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A decrease in cash flows from our operations and constraints to accessing other financing sources could limit our ability to fund our operations, capital projects, interest and debt repayments, stock repurchases and dividends.

Our business depends upon our operations to generate strong cash flow and to some extent upon the availability of financing sources to supply capital to fund our general operating activities, capital projects, interest and debt repayments, stock repurchases and dividends. Our inability to continue to generate sufficient cash flows to support these activities or the lack of available financing in adequate amounts and on appropriate terms when needed could adversely affect our financial performance including our earnings per share.

Our profitability may be adversely impacted by weather conditions.

Our merchandise assortments reflect assumptions regarding expected weather patterns and our profitability depends on our ability to timely deliver seasonally appropriate inventory. Unexpected or unseasonable weather conditions could render a portion of our inventory incompatible with consumer needs. For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could render a portion of the Company’s inventory incompatible with those unseasonable conditions. Additionally, extreme weather or natural disasters, particularly in the areas in which our stores are located, could also severely hinder our ability to timely deliver seasonally appropriate merchandise. For example, frequent or unusually heavy snowfall, ice storms, rainstorms, hurricanes or other extreme weather conditions over a prolonged period could make it difficult for the Company’s customers to travel to its stores and thereby reduce the Company’s sales and profitability. A reduction in the demand for or supply of our seasonal merchandise or reduced sales due to reduced customer traffic in our stores could have an adverse effect on our inventory levels, gross margins and results of operations.

Natural disasters, climate change, war, acts of violence, acts of terrorism, other armed conflicts, and public health issues may adversely impact our business.

The occurrence of, or threat of, a natural disaster, climate change, war (including the ongoing conflict in Ukraine and the resulting sanctions imposed on Russia by the U.S. and other countries as well as other conflicts in the Middle East), acts of violence, acts of terrorism, other armed conflicts, and public health issues could disrupt our operations, disrupt international trade and supply chain efficiencies, suppliers or customers, or result in political or economic instability. If commercial transportation is curtailed or substantially delayed, our business may be adversely impacted, as we may have difficulty shipping merchandise to our distribution centers, fulfillment centers, stores or directly to customers. In addition, concern about climate change and greenhouse gases may result in new or additional legal, legislative and/or regulatory requirements to reduce or mitigate the effects of climate change on the environment. Any such new requirements could increase our operating costs for things like energy or packaging, as well as our product supply chain and distribution costs.

As a result of the occurrence of, or threat of, a natural disaster, climate change, war, acts of violence or acts of terrorism, other armed conflicts, and public health issues in the United States, we may be required to suspend operations in some or all of our stores, which could have a material adverse impact on our business, financial condition and results of operations.

Risks Related to Consumer Demand

Changes in economic, financial and political conditions, and the resulting impact on consumer confidence and consumer spending, could have an adverse effect on our business and results of operations.

The retail merchandise business is highly sensitive to changes in overall economic and political conditions that impact consumer confidence and spending. Various economic conditions affect the level of disposable income consumers have available to spend on the merchandise we offer, including unemployment rates, inflation, interest rates, taxation, energy costs, the availability of consumer credit, the price of gasoline, consumer confidence in future economic conditions and general business conditions. Due to the Company’s concentration of stores in energy producing regions, volatile conditions in these regions could adversely affect the Company’s sales. Consumer purchases of discretionary items and other retail products generally decline during recessionary periods, and also may decline at other times when

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changes in consumer spending patterns affect us unfavorably. In addition, any significant decreases in shopping mall traffic could also have an adverse effect on our results of operations.

Our business is dependent upon our ability to accurately predict rapidly changing fashion trends, customer preferences and other fashion-related factors.

Our sales and operating results depend in part on our ability to effectively predict and quickly respond to changes in fashion trends and customer preferences. We continuously assess emerging styles and trends and focus on developing a merchandise assortment to meet customer preferences at competitive prices. Even with these efforts, we cannot be certain that we will be able to successfully meet constantly changing fashion trends and customer preferences. If we are unable to successfully predict or respond to changing styles or preferences, we may be faced with lower sales, increased inventories, additional markdowns or promotional sales to dispose of excess or slow-moving inventory and lower gross margins, all of which would have an adverse effect on our business, financial condition and results of operations.

Risks Related to our Brand and Product Offerings

Our failure to protect our reputation could have an adverse effect on our business.

We offer our customers quality products at competitive prices and a high level of customer service, resulting in a well-recognized brand and customer loyalty. As discussed in the immediately preceding risk factor, our brand and customer loyalty depend, in part, on our ability to predict or respond to changes in fashion trends and consumer preferences in a timely manner. Failure to respond rapidly to changing trends could diminish brand and customer loyalty and impact our reputation with customers.

Additionally, the value of our reputation is based, in part, on subjective perceptions of the quality of our merchandise selections. Isolated incidents involving us or persons currently or formerly associated with us (including employees, celebrities, social media influencers, brand affiliates and partners or others who speak publicly about our brand or our products, whether authorized or not) or our merchandise that erode trust or confidence could adversely affect our reputation and our business, particularly if the incidents result in significant adverse publicity or governmental investigation or inquiry. Similarly, information posted about us, including our lines of exclusive brand merchandise, on the Internet, including social media platforms that allow individuals access to a wide audience of consumers and other interested persons, may adversely affect our reputation, even if the information is inaccurate.

Any significant damage to our brand or reputation could negatively impact sales, diminish customer trust and generate negative sentiment, any of which would harm our business and results of operation.

Risks associated with our private label merchandise program could adversely affect our business.

Our merchandise selections include our lines of exclusive brand merchandise, such as Antonio Melani, Gianni Bini, GB, Roundtree & Yorke and Daniel Cremieux. We expect to grow our private label merchandise program and have invested in our development and procurement resources and marketing efforts related to these exclusive brand offerings. The expansion of our private label merchandise subjects us to certain additional risks. These include, among others, risks related to: our failure to comply with government and industry safety standards; our ability to successfully protect our trademark and license portfolio and our other proprietary rights in our exclusive brands/private label merchandise program; and risks associated with overseas sourcing and manufacturing. In addition, damage to the reputation of our private label trade names may generate negative customer sentiment. Our failure to adequately address some or all of these risks could have a material adverse effect on our business, results of operations and financial condition.

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Risks Related to Material Sourcing and Supply

Fluctuations in the price of merchandise, raw materials, fuel and labor or their reduced availability could increase our cost of goods and negatively impact our financial results.

Fluctuations in the price and availability of fuel, labor and raw materials as a result of inflation and other factors, combined with the inability to mitigate or to pass cost increases on to our customers or to change our merchandise mix as a result of such cost increases, could have an adverse impact on our profitability. Vendors and other suppliers of the Company may experience similar fluctuations, which may subject us to the effects of their price increases. For example, we have experienced significant inflation causing increases in fuel, materials and shipping costs. We may or may not be able to pass such costs along to our customers. Even when successful, attempts to pass such costs along to our customers might cause a decline in our sales volume. Additionally, any decrease in the availability of raw materials could impair our ability and the ability of our branded vendors to meet purchasing requirements in a timely manner. A decrease in domestic transportation capacity could impair our ability and the ability of our branded vendors to timely deliver merchandise to our distribution centers and stores. Both the increased cost and lower availability of merchandise, raw materials, fuel and labor may also have an adverse impact on our cash and working capital needs.

Third party suppliers on whom we rely to obtain materials and provide production facilities and other third parties with whom we do business may experience financial difficulties due to current and future economic conditions, which may subject them to insolvency risk or may result in their inability or unwillingness to perform the obligations they owe us.

Our suppliers may experience financial difficulties due to a downturn in the industry or in other macroeconomic environments. Our suppliers’ cash and working capital needs can be adversely impacted by the increased cost and lower availability of merchandise, raw materials, fuel and labor as a result of inflation and other factors. Current and future economic conditions may prevent our suppliers from obtaining financing on favorable terms, which could impact their ability to supply us with merchandise on a timely basis.

We are also party to contractual and business relationships with various other parties, including vendors and service providers, pursuant to which such parties owe performance, payment and other obligations to us. In some cases, we depend upon such third parties to provide essential products, services or other benefits, such as advertising, software development and support, logistics and other goods and services necessary to operate our business. Economic, industry and market conditions could result in increased risks to us associated with the potential financial distress of such third parties.

If any of the third parties with which we do business become subject to insolvency, bankruptcy, receivership or similar proceedings, our rights and benefits in relation to, contractual and business relationships with such third parties could be terminated, modified in a manner adverse to us or otherwise materially impaired. There can be no assurances that we would be able to arrange for alternate or replacement contractual or business relationships on terms as favorable as our existing ones, if at all. Any inability on our part to do so could negatively affect our cash flows, financial condition and results of operations.

The Company and third-party suppliers on whom we rely source a significant portion of the merchandise we sell from foreign countries, which exposes us to certain risks that include political and economic conditions and supply chain disruptions.

Political discourse in the United States continues to focus on ways to discourage corporations in the United States from outsourcing manufacturing and production activities to foreign jurisdictions. Since 2018, the United States has imposed additional tariffs on certain items sourced from foreign countries, including China, and has modified, withdrawn from and renegotiated some of its trade agreements with foreign countries. While recent tariffs and modifications to trade agreements have not resulted in a material impact on our cash flows, financial condition and results of operations, any additional actions, if ultimately enacted, could negatively impact our ability and the ability of our third-party vendors and suppliers to source products from foreign jurisdictions and could lead to an increase in the cost of goods and adversely affect our profitability.

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Other trade restrictions imposed by the United States Government, including increased tariffs or quotas, embargoes, safeguards, and customs restrictions against apparel items, as well as United States or foreign labor strikes, work stoppages, or boycotts, could increase the cost or reduce the supply of merchandise available to us or may require us to modify our current business practices, any of which could adversely affect our profitability. For example, beginning in fiscal 2020, the United States Government took significant steps to address the forced labor concerns in the Xinjiang Uyghur Autonomous Region of China (“Xinjiang Region”), including withhold release orders (“WROs”) issued by United States Customs and Border Protection (“CBP”). The WROs allow CBP to detain and deny entry of imports suspected of containing cotton from Xinjiang, regardless of the origin of the finished products. This affected global supply chains, including our own supply chains for cotton-containing products. In late fiscal 2021, the United States Government enacted the Uyghur Forced Labor Prevention Act (“UFLPA”), which presumes goods produced in the Xinjiang Region, or with labor linked to specified Chinese government-sponsored labor programs, were produced using forced labor and prohibits importation of such goods into the United States absent clear and convincing evidence proving otherwise. Compliance with UFLPA could lead to an increase in the cost of goods and adversely affect our profitability.

Our timely receipt of merchandise in the United States is dependent on an efficient global supply chain. Disruptions in the supply chain could adversely impact our ability to obtain adequate inventory on a timely basis and result in lost sales, increased costs and an overall decrease in our profits. For example, many disruptions in the global transportation network have occurred recently, including attacks on shipping vessels in the Red Sea and Suez Canal, drought conditions which have lowered the water levels of the Panama Canal, increased shipping costs resulting from increased demand for shipping capacity and the increased cost of fuel. In addition, the potential for strikes related to labor negotiations at the East Coast and Gulf Coast ports may cause additional supply chain disruptions in 2024. The California ports of Los Angeles and Long Beach, which together have handled a significant portion of United States merchandise imports, have experienced delays in processing imported merchandise, thereby resulting in untimely deliveries of merchandise and additional freight costs.

Moreover, our third-party suppliers in foreign jurisdictions are subject to political and economic uncertainty. As a result, we are subject to risks and uncertainties associated with changing economic and political conditions in foreign countries where our suppliers are located, including increased import duties, tariffs, trade restrictions and quotas; human rights concerns; working conditions and other labor rights and conditions; the environmental impact in foreign countries where merchandise is produced and raw materials or products are sourced; adverse foreign government regulations; wars, fears of war, terrorist attacks and organizing activities; inflation and adverse fluctuations of foreign currencies; and political unrest. We cannot predict when, or the extent to which, the countries in which our products are manufactured will experience any of the foregoing events. Any event causing a disruption or delay of imports from foreign locations would likely increase the cost or reduce the supply of merchandise available to us and would adversely affect our operating results.

Failure by third party suppliers to comply with our supplier compliance programs or applicable laws could have a material adverse effect on our business.

All of our suppliers must comply with our supplier compliance programs and applicable laws, including consumer and product safety laws, but we do not control our vendors or their labor and business practices. The violation of labor or other laws by one or more of our vendors could have an adverse effect on our business. Additionally, although we diversify our sourcing and production, the failure of any supplier to produce and deliver our goods on time, to meet our quality standards and adhere to our product safety requirements or to meet the requirements of our supplier compliance program or applicable laws, could impact our ability to flow merchandise to our stores or directly to consumers in the right quantities at the right time, which could adversely affect our profitability and could result in damage to our reputation and translate into sales losses.

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Risks Related to our Long-Term Marketing and Servicing Alliance

Reductions in the income and cash flow from our long-term marketing and servicing alliance related to the private label credit cards could impact operating results and cash flows.

Wells Fargo currently owns and manages the private label credit cards under the Wells Fargo Alliance. The Wells Fargo Alliance provides for certain payments to be made by Wells Fargo to the Company, including the Company’s share of earnings under this alliance. The income and cash flow that the Company receives from the Wells Fargo Alliance is dependent upon a number of factors including the level of sales on Wells Fargo accounts, the level of balances carried on the Wells Fargo accounts by Wells Fargo customers, payment rates on Wells Fargo accounts, finance charge rates and other fees on Wells Fargo accounts, the level of credit losses for the Wells Fargo accounts, Wells Fargo’s ability to extend credit to our customers as well as the cost of customer rewards programs, all of which can vary based on changes in federal and state banking and consumer protection laws and from a variety of economic, legal, social and other factors that we cannot control. If the income or cash flow that the Company receives from the Wells Fargo Alliance or from the new agreement with Citi (discussed below) decreases, our operating results and cash flows could be adversely affected.

Credit card operations are subject to numerous federal and state laws that impose disclosure and other requirements upon the origination, servicing, and enforcement of credit accounts, and limitations on the amount of finance charges and fees that may be charged by a credit card provider, such as the Consumer Financial Protection Bureau’s recent amendment to Regulation Z to limit the dollar amounts credit card companies can charge for late fees, which we expect could have a material adverse effect on the income and cash flows from our private label credit card program. Wells Fargo and Citi may be subject to regulations that may adversely impact its operation of the private label credit card. To the extent that such limitations or regulations materially limit the availability of credit or increase the cost of credit to the cardholders or negatively impact provisions which affect our earnings associated with the private label credit card, our results of operations could be adversely affected. In addition, changes in credit card use, payment patterns, or default rates could be affected by a variety of economic, legal, social, or other factors over which we have no control and cannot predict with certainty. Such changes could also negatively impact Wells Fargo’s ability to facilitate consumer credit or increase the cost of credit to the cardholders.

In January 2024, the Company announced that it entered into a new agreement with Citi to provide a credit card program for Dillard’s customers, replacing the existing Wells Fargo Alliance. The Dillard’s credit card program offered by Citi will include a new co-branded Mastercard as well as a private label credit card. The new co-branded Mastercard will replace the existing co-branded card. Additionally, Citi will provide customer service functions and support certain Dillard’s marketing and loyalty program activities related to the new program. The companies expect to launch the new program in late summer 2024 for new Dillard’s credit applicants. The transfer of existing accounts to Citi is expected in the fall of 2024. The term of the agreement is 10 years with automatic extensions for successive two-year terms unless the agreement is terminated by a party in accordance with the terms and conditions of the agreement.

While future cash flows under the new program are difficult to predict, the Company expects income from the new program to initially be less than historical earnings from the Wells Fargo Alliance. The extent to which future cash flows will vary over the term of the new program from historical cash flows cannot be reasonably estimated at this time. The income and cash flow that the Company will receive from the new program with Citi will depend on the same factors that impact the Wells Fargo Alliance as discussed above. Any material decrease could adversely affect our operating results and cash flows. 

We are subject to customer payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability and potentially disrupt our business operations.

We accept payments using a variety of methods, including cash, checks, debit cards, credit cards (including the private label credit cards), gift cards and other alternative payment channels. As a result, we are subject to rules, regulations, contractual obligations and compliance requirements, including payment network rules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers. The

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payment methods that we offer also subject us to potential fraud and theft by persons who seek to obtain unauthorized access to or exploit any weaknesses that may exist in the payment systems.

The regulatory environment related to information security and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs or accelerate these costs. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which could increase over time and raise our operating costs. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, and other forms of electronic payment. If these companies become unable to provide these services to us, or if their systems are compromised, it could disrupt our business.

Risks Related to Information Technology and Information Security Risks

A significant disruption in our information technology systems and network and our inability to adequately maintain and update those systems could materially adversely affect our operations and financial condition.

Our operations are largely dependent upon the integrity, security and consistent operation of various systems and data centers, including the point-of-sale systems in the stores, our Internet website, data centers that process transactions, communication systems and various software applications used throughout our Company to order merchandise, track inventory flow, process transactions and generate performance and financial reports.

Our information technology systems are also subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyberattacks and ransomware attacks, usage errors by our employees and other items discussed previously in Item 1A, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and acts of war or terrorism. We rely on third-party service providers to provide hardware, software and services necessary to operate our information technology systems. Outages, failures, viruses, attacks, catastrophic events, acts of war or terrorism, and usage errors by third-party service providers (or their vendors) could also affect our information technology systems. If our information technology systems are damaged or cease to function properly, we may have to make a significant investment to repair or replace them, and we may suffer loss of critical data and interruptions or delays in our operations in the interim, which could adversely affect our business and operating results.

Additionally, to keep pace with changing technology, we must continuously provide for the design and implementation of new information technology systems and enhancements of our existing systems. We could encounter difficulties in developing new systems or maintaining and upgrading existing systems. Such difficulties could lead to significant expenses or to losses due to disruption in our business.

Any failure to maintain the security of the information related to our Company, customers, employees and vendors or the information technology systems on which we rely for our operations could adversely affect our operations, damage our reputation, result in litigation or other legal actions against us, increase our operating costs and materially adversely affect our business and operating results.

We receive and store certain personal information about our employees and our customers, including information permitting cashless payments, both in our stores and through our online operations at dillards.com. In addition, our operations depend upon the secure transmission of confidential information over public networks. Further, our ability to supply merchandise to and operate our stores, process transactions and generate performance and financial reports are largely dependent on the security and integrity of our information technology network.

We, like other companies, face a risk of unauthorized access to devices and technology assets, as well as computer viruses, worms, bot attacks, ransomware and other destructive or disruptive software and attempts to misappropriate customer or employee information and cause system failures and disruptions. Such events can result in theft, alteration, deletion or encryption of data, or disruption of services provided by the devices and assets, as well as demands to pay a third party to regain access to encrypted files and prevent publication of stolen data. In addition, employee error, malfeasance or security lapses could result in exposure of confidential information or otherwise adversely disrupt or affect our operations. We rely on third-party service providers to provide hardware, software and services necessary to

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operate our information technology systems, and the same issues could occur at those third parties and have an effect on our operational technology or data. Such attacks, if successful, have the potential for creating a loss of sales, business disruption, reputational impact, litigation, liability to consumers, regulatory investigations, or otherwise adversely affect our ability to operate our business.

We have a longstanding Information Security program committed to regular risk assessment and risk mitigation practices surrounding the protection of confidential data and our information technology systems and network. Our security controls include network segmentation, firewalls, identity and access controls, endpoint protection solutions, as well as specific measures like point-to-point encryption and tokenization solutions for payment card data. We also maintain data breach preparedness plans, conduct exercises to test response plans, and employ other methods to protect our data and networks, and promote security awareness. Our Senior Management and Board of Directors exercise oversight of our security measures through various methods, including participation in response preparedness discussions and discussions regarding assessments, expenditures related to security and security controls.

It is possible that unauthorized persons might defeat our security measures, those of third-party service providers or vendors, and obtain personal information of customers, employees or others, or compromise our information technology systems. A breach, whether in our information technology systems or those of our third-party service providers or vendors, resulting in personal information being obtained by or exposed to unauthorized persons, could adversely affect our operations, results of operations, financial condition and liquidity, and could result in litigation against us or the imposition of penalties. Our reputation and our ability to attract new customers could be adversely impacted if we fail, or are perceived to have failed, to properly prevent and respond to these incidents. In addition, a security breach could require that we expend significant additional resources related to our information security systems and could result in a disruption of our operations, particularly our online sales operations. A ransomware attack may also result in exposure to business interruption and lost sales, ransom payments, costs associated with recovery of data and replacement of systems, exposure to customer and employee litigation from disclosure of confidential information, fines and penalties.

A security breach also could result in a violation attributable to the Company of applicable privacy and other laws, and subject us to litigation by private customers, business partners, or securities litigation and regulatory investigations and proceedings, any of which could result in our exposure to civil or criminal liability. The regulatory environment surrounding information security, cybersecurity, and privacy is increasingly demanding, with new and changing requirements, such as the California Consumer Privacy Act. Security breaches, cyber incidents or allegations that we used personal information in violation of applicable privacy and other laws could result in significant legal and financial exposure.

Legal and Compliance Risks

Litigation with customers, employees and others could harm our reputation and impact operating results.

In the ordinary course of business, we may be involved in lawsuits and regulatory actions. We are impacted by trends in litigation, including, but not limited to, class-action allegations brought under various consumer protection, employment and privacy and information security laws. Additionally, we may be subject to employment-related claims alleging discrimination, harassment, wrongful termination and wage issues, including those relating to overtime compensation. We are susceptible to claims filed by customers alleging responsibility for injury suffered during a visit to a store or from product defects and to lawsuits filed by patent holders alleging patent infringement. We are also subject to claims filed under our employee stock ownership plan alleging failure to properly manage the plan. These types of claims, as well as other types of lawsuits to which we are subject from time to time, can distract management’s attention from core business operations and impact operating results, particularly if a lawsuit results in an unfavorable outcome.

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Risks Related to Construction Operations

The cost-to-cost method of accounting that we use to recognize contract revenues for our construction segment may result in material adjustments, which could result in a credit or a charge against our earnings.

Our construction segment recognizes contract revenues based on the cost-to-cost method. Under this method, estimated contract revenues are measured based on the ratio of costs incurred to total estimated contract costs. Estimated contract losses are recognized in full when determined. Total contract revenues and cost estimates are reviewed and revised at a minimum on a quarterly basis as the work progresses and as change orders are approved. Adjustments are reflected in contract revenues in the period when these estimates are revised. To the extent that these adjustments result in an increase, a reduction or an elimination of previously reported contract profit, we are required to recognize a credit or a charge against current earnings, which could be material.

Risks Related to Employees

The Company depends on its ability to attract and retain quality employees, and failure to do so could adversely affect our ability to execute our business strategy and our operating results.

The Company’s business is dependent upon attracting and retaining quality employees. The Company has a large number of employees, many of whom are in positions with historically high rates of turnover. The Company’s ability to meet its labor needs while controlling the costs associated with hiring and training new employees is subject to external factors such as unemployment levels, changing demographics, prevailing wage rates and current or future minimum wage and healthcare reform legislation. In addition, as a complex enterprise operating in a highly competitive and challenging business environment, the Company is highly dependent upon management personnel to develop and effectively execute successful business strategies and tactics. Any circumstances that adversely impact the Company’s ability to attract, train, develop and retain quality employees throughout the organization could adversely affect the Company’s business and results of operations.

Increases in employee wages and the cost of employee benefits could impact the Company’s financial results and cash flows.

The Company’s expenses relating to employee wages and health benefits are significant. Increases in employee wages, including the minimum wage, or unfavorable changes in the cost of healthcare benefits could impact the Company’s financial results and cash flows. Healthcare costs have risen significantly in recent years, and recent legislative and private sector initiatives regarding healthcare reform have resulted and could continue to result in significant changes to the U.S. healthcare system. Due to the breadth and complexity of the U.S. healthcare system, and uncertainty regarding legislative or regulatory changes, the Company is not able to fully determine the impact that future healthcare reform will have on our company sponsored medical plans.

ITEM 1B.   UNRESOLVED STAFF COMMENTS.

None.

ITEM 1C.   CYBERSECURITY.

Risk Management and Strategy. The Company has developed an information security program to assess, identify, and manage material risks from cybersecurity threats. The program includes policies and procedures that identify how security measures and controls are developed, implemented, and maintained. An internal cyber risk assessment is conducted annually. The risk assessment is used by management to consider implementing and augmenting cybersecurity controls where feasible and appropriate with the intent of mitigating cybersecurity risk exposure. The Company employs a broad array of cybersecurity tools and controls to manage exposure to cybersecurity risks.

In addition, the Company retains third-party security firms in different capacities to provide some of these controls or monitor cybersecurity threats to our technology systems. For example, third parties are used to conduct independent

13

assessments, such as vulnerability scans and penetration testing, and to confirm PCI DSS compliance. Additionally, third parties are also used to monitor security alert systems.

The Company engages with a number of service providers in connection with normal business operations. The Company uses a variety of processes to address cybersecurity threats related to third-party service providers, including, where appropriate, pre-acquisition diligence, and imposition of contractual data security and privacy obligations. In addition, the Company is a member of an industry cybersecurity intelligence and risk sharing organization and participates in other information sharing groups and trade organizations to stay abreast of ongoing cyber risks, cyber incidents, and newly disclosed vulnerabilities and attack vectors.

The Company utilizes multiple training methodologies to ensure associate awareness of cybersecurity risks and practices. Associates are required to undergo security awareness training when hired and annually thereafter. In addition, the Company conducts tabletop exercises and other readiness exercises to enhance incident response preparedness. Disaster recovery plans have been put in place, and are tested, to prepare for potential disruptions in technology on which we rely.

The Company has an Information Technology Governance, Risk, and Compliance function to address information technology risks, including cybersecurity risks. Additionally, a working committee of management meets periodically to review, assess, and manage material risks from cybersecurity threats.

The Company has written cybersecurity incident response plans that are reviewed, and updated if necessary, at least annually. The plans identify cross-functional incident response teams which are comprised of representatives from management, including the Chief Information Security Officer (CISO) and General Counsel. The plans provide for notification to the Executive Committee of the Board of Directors and the full Board of Directors, as appropriate, of any actual or suspected significant cybersecurity incidents and require regular updates to these parties during the investigation of such incidents.

The Company is unaware of any risks from cybersecurity threats, including those from publicly disclosed incidents with respect to other companies, that have materially affected, or are reasonably likely to materially affect the Company, including strategies, results of operations, or financial condition.

Governance. The CISO, who reports to the Chief Information Officer (CIO), is the management position with primary responsibility for the development, operation, and maintenance of our information security program. The CISO has been with the Company for 40 years, is a certified CISSP, CRISC, and CIPM and oversees a team of experienced individuals.

In addition to the working committee meetings described above, the CISO and CIO meet regularly with the Company’s President and with other members of senior management to review the current state of the cybersecurity program and emerging threats to the Company.

Oversight of the information security program sits with the Company’s President and ultimately with the full Board of Directors. The full Board of Directors is briefed as appropriate but not less than annually on cybersecurity risks and the Company’s efforts to mitigate exposure from those risks.

Cyber threats are constantly evolving, and those threats and the means for obtaining access to information systems are becoming increasingly sophisticated. Cyber threats can come from unauthorized access, computer hackers, computer viruses, malicious code, ransomware, phishing, organized cyber-attacks and other security problems and system disruptions. The Company faces numerous attempts to access the information stored in its information systems. If successful, cyber incidents could expose the Company to loss or misuse of confidential information, including customer information, or disruptions of business operations. In addition, third-party service providers can experience breaches of their systems and products that impact the security of the Company’s information technology systems and proprietary or confidential information. The Company (or third parties it relies on) may not be able to fully, continuously, and effectively implement security controls as intended. We utilize a risk-based approach and judgment to determine the security controls to implement and it is possible we may not implement appropriate controls if we do not recognize or

14

underestimate exposure to a particular cybersecurity risk, or if the control is not feasible or may have an adverse impact on operations. In addition, cybersecurity controls, no matter how well designed or implemented, may only mitigate and not fully eliminate risks. Events, when detected by security tools or third parties, may not always be immediately understood or acted upon.

ITEM 2.   PROPERTIES.

All of our stores are owned by us or leased from third parties. At February 3, 2024, we operated 273 stores in 29 states totaling approximately 46.7 million square feet of which we owned approximately 43.0 million square feet. Our third-party store leases typically provide for rental payments based on a percentage of net sales with a guaranteed minimum annual rent. In general, the Company pays the cost of insurance, maintenance and real estate taxes related to the leases.

The following table summarizes by state of operation the number of retail stores we operate and the corresponding owned and leased footprint at February 3, 2024:

    

    

    

    

    

Partially

Owned

Owned

Building

and

Number

Owned

Leased

on Leased

Partially

Location

of Stores

Stores

Stores

Land

Leased

Alabama

 

9

 

9

 

 

 

Arkansas

 

8

 

8

 

 

 

Arizona

 

14

 

13

 

 

1

 

California

 

3

 

3

 

 

 

Colorado

 

8

 

8

 

 

 

Florida

 

40

 

37

 

1

 

2

 

Georgia

 

12

 

9

 

3

 

 

Iowa

 

3

 

3

 

 

 

Idaho

 

2

 

2

 

 

 

Illinois

 

3

 

3

 

 

 

Indiana

 

3

 

3

 

 

 

Kansas

 

5

 

3

 

 

2

 

Kentucky

 

6

 

5

 

1

 

 

Louisiana

 

14

 

13

 

1

 

 

Missouri

 

8

 

6

 

1

 

1

 

Mississippi

 

6

 

4

 

1

 

1

 

Montana

 

2

 

2

 

 

 

North Carolina

 

13

 

13

 

 

 

Nebraska

 

2

 

2

 

 

 

New Mexico

 

5

 

3

 

2

 

 

Nevada

 

5

 

5

 

 

 

Ohio

 

12

 

10

 

2

 

 

Oklahoma

 

7

 

6

 

1

 

 

South Carolina

 

7

 

7

 

 

 

Tennessee

 

10

 

9

 

1

 

 

Texas

 

55

 

49

 

5

 

 

1

Utah

 

5

 

5

 

 

 

Virginia

 

5

 

5

 

 

 

Wyoming

 

1

 

1

 

 

 

Total

 

273

 

246

 

19

 

7

 

1

15

At February 3, 2024, we operated the following additional facilities:

    

    

    

Owned /

Facility

Location

Square Feet

Leased

Distribution Centers:

 

Mabelvale, Arkansas

 

400,000

 

Owned

 

Gilbert, Arizona

 

295,000

 

Owned

 

Valdosta, Georgia

 

370,000

 

Owned

 

Olathe, Kansas

 

500,000

 

Owned

 

Salisbury, North Carolina

 

355,000

 

Owned

 

Ft. Worth, Texas

 

700,000

 

Owned

Internet Fulfillment Center

 

Maumelle, Arkansas

 

850,000

 

Owned

Dillard's Executive Offices

 

Little Rock, Arkansas

 

333,000

 

Owned

CDI Contractors, LLC Executive Office

 

Little Rock, Arkansas

 

25,000

 

Owned

CDI Storage Facilities

 

Maumelle, Arkansas

 

66,000

 

Owned

Total

 

3,894,000

 

  

Additional property information is contained in Notes 1, 12, 13 and 14 in the “Notes to Consolidated Financial Statements,” in Item 8 hereof.

ITEM 3.   LEGAL PROCEEDINGS.

From time to time, the Company is involved in litigation relating to claims arising out of the Company’s operations in the normal course of business. This may include litigation with customers, employment related lawsuits, class action lawsuits, purported class action lawsuits and actions brought by governmental authorities. As of March 29, 2024, neither the Company nor any of its subsidiaries is a party to, nor is any of their property the subject of, any material legal proceedings.

ITEM 4.   MINE SAFETY DISCLOSURES.

Not applicable.

16

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

The following table lists the names and ages of all executive officers of the Company, the nature of any family relationship between them and the Company’s CEO and all positions and offices with the Company presently held by each person named. Each is elected to serve a one-year term. There are no other persons chosen to become executive officers.

    

    

Held Present

    

Name

Age

Position & Office

Office Since

Family Relationship to CEO

William Dillard, II

 

79

 

Director; Chief Executive Officer

 

1998

 

Not applicable

Alex Dillard

 

74

 

Director; President

 

1998

 

Brother of William Dillard, II

Mike Dillard

 

72

 

Director; Executive Vice President

 

1984

 

Brother of William Dillard, II

Drue Matheny

 

77

 

Director; Executive Vice President

 

1998

 

Sister of William Dillard, II

William Dillard, III

 

53

 

Director; Senior Vice President

 

2015

 

Son of William Dillard, II

Denise Mahaffy

 

66

 

Director; Senior Vice President

 

2015

 

Sister of William Dillard, II

Chris B. Johnson

 

52

 

Senior Vice President; Co-Principal Financial Officer

 

2015

 

None

Phillip R. Watts

 

61

 

Senior Vice President; Co-Principal Financial Officer and Principal Accounting Officer

 

2015

 

None

Tony Bolte (1)

 

65

 

Senior Vice President

 

2021

 

None

Dean L. Worley

 

58

 

Vice President; General Counsel

 

2012

 

None

Brant Musgrave

 

51

 

Vice President

 

2014

 

None

Mike Litchford

 

58

 

Vice President

 

2016

 

None

Tom Bolin

 

61

 

Vice President

 

2016

 

None

Annemarie Jazic

 

40

 

Vice President

 

2017

 

Niece of William Dillard, II

Alexandra Lucie

 

40

 

Vice President

 

2017

 

Niece of William Dillard, II

James D. Stockman

 

67

 

Vice President

 

2017

 

None

(1)Mr. Bolte served as Vice President of Logistics from 2007 to 2017. In 2017, he was promoted to Vice President of Information Technology and Logistics. In 2021, he was promoted to Senior Vice President of Information Technology and Logistics.

17

PART II

ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market and Dividend Information for Common Stock

The Company’s Class A Common Stock trades on the New York Stock Exchange under the Ticker Symbol “DDS”. No public market currently exists for the Company’s Class B Common Stock.

While the Company currently expects to continue paying quarterly cash dividends during fiscal 2024, all prospective dividends are subject to and conditional upon the review and approval of and declaration by the Board of Directors.

Stockholders

As of March 2, 2024, there were 2,157 holders of record of the Company’s Class A Common Stock and 4 holders of record of the Company’s Class B Common Stock.

Repurchase of Common Stock

    

    

    

(c) Total Number of Shares   

    

(d) Approximate Dollar Value of  

Purchased as Part

Shares that May

(a) Total Number 

of Publicly

Yet Be Purchased 

of Shares 

(b) Average Price 

Announced Plans 

Under the Plans 

Period

Purchased

Paid per Share

or Programs

or Programs

October 29, 2023 through November 25, 2023

52,042

$

310.55

52,042

$

393,996,507

November 26, 2023 through December 30, 2023

393,996,507

December 31, 2023 through February 3, 2024

393,996,507

Total

52,042

$

310.55

52,042

$

393,996,507

In May 2023, the Company’s Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $500 million of its Class A Common Stock under an open-ended plan (“May 2023 Stock Plan”).

The May 2023 Stock Plan permits the Company to repurchase its Class A Common Stock in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act or through privately negotiated transactions. The May 2023 Stock Plan has no expiration date.

All repurchases of the Company’s Class A Common Stock in fiscal 2023 were made at the market price at the trade date, and all amounts paid to reacquire these shares were allocated to treasury stock. As of February 3, 2024, $394.0 million of authorization remained under the May 2023 Stock Plan.

Reference is made to the discussion in Note 9 in the “Notes to Consolidated Financial Statements” in Item 8 of this Annual Report, which information is incorporated by reference herein.

18

Securities Authorized for Issuance under Equity Compensation Plans

The information concerning the Company’s equity compensation plans is incorporated herein by reference from Item 12 of this Annual Report under the heading “Equity Compensation Plan Information”.

Company Performance

The graph below compares the cumulative total returns on the Company’s Class A Common Stock, the Standard & Poor’s 500 Index and the Dow Jones U.S. Apparel Retailers Index for each of the last five fiscal years. The cumulative total return assumes $100 invested in the Company’s Class A Common Stock and each of the indices at market close on February 1, 2019 (the last trading day prior to the start of fiscal 2019) and assumes reinvestment of dividends.

The table below the graph shows the dollar value of the respective $100 investments, with the assumptions noted above, in each of the Company’s Class A Common Stock, the Standard & Poor’s 500 Index and the Dow Jones U.S. Apparel Retailers Index as of the last day of each of the Company’s last five fiscal years.

Graphic

    

2019

    

2020

    

2021

    

2022

    

2023

Dillard's, Inc.

$

93.24

$

137.03

$

410.71

$

652.70

$

709.75

S&P 500

 

121.56

 

142.53

 

172.46

 

161.03

 

199.42

DJ US Apparel Retailers

 

112.99

 

120.80

 

132.11

 

145.96

 

167.94

19

ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

At February 3, 2024, Dillard’s, Inc. operates 273 retail department stores spanning 29 states and an Internet store at dillards.com. The Company also operates a general contracting construction company, CDI, a portion of whose business includes constructing and remodeling stores for the Company, which is a reportable segment separate from our retail operations.

In accordance with the National Retail Federation fiscal reporting calendar and our bylaws, the fiscal 2023 reporting period presented and discussed below ended February 3, 2024 and contained 53 weeks. The fiscal 2022 and 2021 reporting periods presented and discussed below ended January 28, 2023 and January 29, 2022, respectively, and each contained 52 weeks. For comparability purposes, where noted, some of the information discussed below is based upon comparison of the 52 weeks ended January 27, 2024 to the 52 weeks ended January 28, 2023.

A discussion regarding results of operations and analysis of financial condition for the year ended January 28, 2023 as compared to the year ended January 29, 2022 is included in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended January 28, 2023.

EXECUTIVE OVERVIEW

Fiscal 2023

We achieved respectable results in fiscal 2023 considering the weak consumer environment. We ended the year in a strong financial position with $956.3 million of cash and cash equivalents and short-term investments after returning $620.0 million to stockholders through dividends and share repurchases. We continued to focus on inventory control during fiscal 2023, and we ended the year with an inventory decrease of 2% compared to fiscal 2022.

Total retail sales for the 53 weeks ended February 3, 2024 and 52 weeks ended January 28, 2023 were $6.480 billion and $6.702 billion, respectively. Total retail sales decreased 5% for the 52-week period ended January 27, 2024 compared to the 52-week period ended January 28, 2023. Sales in comparable stores for the same period decreased 4%.

Consolidated gross margin for fiscal 2023 was 40.3% of sales compared to 42.0% of sales for fiscal 2022. Retail gross margin for fiscal 2023 was 41.8% of sales compared to 43.0% of sales for fiscal 2022.

Consolidated selling, general and administrative expenses (“operating expenses”) for fiscal 2023 were $1,717.4 million (25.4% of sales) compared to $1,674.3 million (24.4% of sales) for fiscal 2022. The increase in operating expenses is primarily due to increased payroll and payroll-related expenses and the additional week of operations in the 2023 fiscal year.

We reported net income for fiscal 2023 of $738.8 million, or $44.73 per share, compared to $891.6 million, or $50.81 per share, for fiscal 2022. Included in net income for fiscal 2023 is a pretax gain of $6.1 million ($4.7 million after tax or $0.28 per share) primarily related to the sale of two store properties. Also included in net income for fiscal 2023 are two tax-related benefits:

a federal income tax benefit of $21.1 million ($1.28 per share) due to a deduction related to that portion of the special dividend of $20.00 per share that was paid to the Dillard's, Inc. Investment and Employee Stock Ownership Plan during the year, and
a net $9.8 million ($0.59 per share) income tax benefit due to the release of valuation allowances primarily related to state net operating loss carryforwards.

Included in net income for the prior year (fiscal 2022) is a pretax gain of $21.0 million ($16.4 million after tax or $0.94 per share) primarily related to the sale of three store properties. Also included in net income for fiscal 2022 are two tax-related benefits:

20

a federal income tax benefit of $16.3 million ($0.93 per share) due to a deduction related to that portion of the special dividend of $15.00 per share that was paid to the Dillard's, Inc. Investment and Employee Stock Ownership Plan during the year, and
a net $13.7 million ($0.78 per share) income tax benefit due to the release of valuation allowances primarily related to state net operating loss carryforwards.

Cash flow from operations was $883.6 million for fiscal 2023 and $948.4 million for fiscal 2022. During fiscal 2023, we returned $620.0 million of cash to stockholders in the form of dividends ($338.6 million) and share repurchases ($281.4 million). At February 3, 2024, authorization of $394.0 million remained under the share repurchase program.

At February 3, 2024, we had working capital of $1,380.5 million (including cash and cash equivalents and short-term investments totaling $956.3 million) and total debt outstanding of $521.5 million excluding operating lease liabilities.

Key Performance Indicators

We use a number of key indicators of financial condition and operating performance to evaluate our business, including the following:

    

Fiscal 2023

    

Fiscal 2022

    

Fiscal 2021

 

Net sales (in millions)

$

6,752.1

$

6,871.1

$

6,493.0

Gross margin (in millions)

$

2,720.9

$

2,887.5

$

2,745.3

Gross margin as a percentage of net sales

 

40.3

%  

 

42.0

%  

 

42.3

%

Retail gross margin as a percentage of retail net sales

 

41.8

%  

 

43.0

%  

 

42.9

%

Selling, general and administrative expenses as a percentage of net sales

 

25.4

%  

 

24.4

%  

 

23.7

%

Cash flow provided by operations (in millions)

$

883.6

$

948.4

$

1,280.0

Total retail store count at end of period

 

273

 

277

 

280

Retail sales per square foot

$

143

$

146

$

138

Retail stores sales trend

 

(5)

%  

**

 

5

%  

 

53

%

Comparable retail store sales trend

 

(4)

%  

**

 

5

%  

 

*

Retail store inventory trend

 

(2)

%  

 

4

%  

 

(1)

%

Retail merchandise inventory turnover

 

2.8

 

2.9

 

2.9

*

The Company reported no comparable store sales data for the fiscal year due to the temporary COVID-19-related closures of its brick-and-mortar stores during the first and second quarters of fiscal 2020 as well as the interdependence between in-store and online sales.

**

Based upon the 52 weeks ended January 27, 2024 and the 52 weeks ended January 28, 2023.

Trends and Uncertainties

Fluctuations in the following key trends and uncertainties may have a material effect on our operating results.

Cash flow—Cash from operating activities is a primary source of our liquidity that is adversely affected when the retail industry faces economic challenges. Furthermore, operating cash flow can be negatively affected by competitive factors.
Pricing—If our customers do not purchase our merchandise offerings in sufficient quantities, we respond by taking markdowns. If we have to reduce our retail selling prices, the gross margin on our consolidated statement of operations will correspondingly decrease, thus reducing our net income and cash flow.

21

Success of brand—The success of our exclusive brand merchandise as well as merchandise we source from national vendors is dependent upon customer fashion preferences and how well we can predict and anticipate trends.
Sourcing—Our store merchandise selection is dependent upon our ability to acquire appealing products from a number of sources. Our ability to attract and retain compelling vendors as well as in-house design talent, the adequacy and stable availability of materials and production facilities from which we source our merchandise and the speed at which we can respond to customer trends and preferences all have a significant impact on our merchandise mix and, thus, our ability to sell merchandise at profitable prices.
Store growth—Our ability to open new stores is dependent upon a number of factors, such as the identification of suitable markets and locations and the availability of shopping developments, especially in a weak economic environment. Store growth can be further hindered by mall attrition and subsequent closure of underperforming properties.

At present, a number of economic and geopolitical factors are affecting the U.S. and world economies (including countries from which we source some of our merchandise): inflation and interest rate increases, fluctuating gas prices, uncertainty around shipping costs and shipping capacity and increased U.S. wages in a tight labor market. The extent to which our business will be affected by these factors depends on our customer’s continuing ability and willingness to accept price increases. Accordingly, the related financial impact to fiscal 2024 from these factors cannot be reasonably estimated at this time.

Seasonality and Inflation

Our business, like many other retailers, is subject to seasonal influences, with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season. Because of the seasonality of our business, results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

The Company was affected by inflation during fiscal 2023 and 2022. Our business will likely be affected by inflation in fiscal 2024, the extent of which depends on our customers’ continuing ability and willingness to accept price increases.

2024 Guidance

A summary of management’s estimates of certain financial measures for fiscal 2024 is shown below:

    

Fiscal 2024

    

Fiscal 2023

(in millions of dollars)

Estimated

Actual

Depreciation and amortization

$

185

$

180

Rentals

 

22

 

22

Interest and debt (income) expense, net

 

(8)

 

(5)

Capital expenditures

 

125

 

133

General

Net sales. Net sales includes merchandise sales of comparable and non-comparable stores and revenue recognized on contracts of CDI Contractors, LLC (“CDI”), the Company’s general contracting construction company. Comparable store sales includes sales for those stores which were in operation for a full period in both the most recently completed quarter and the corresponding quarter for the prior fiscal year, including our internet store. Comparable store sales excludes changes in the allowance for sales returns. Non-comparable store sales includes: sales in the current fiscal year from stores opened during the previous fiscal year before they are considered comparable stores; sales from new stores opened during the current fiscal year; sales in the previous fiscal year for stores closed during the current or previous

22

fiscal year that are no longer considered comparable stores; sales in clearance centers; and changes in the allowance for sales returns.

Sales occur as a result of interaction with customers across multiple points of contact, creating an interdependence between in-store and online sales. Online orders are fulfilled from both fulfillment centers and retail stores. Additionally, online customers have the ability to buy online and pick up in-store. Retail in-store customers have the ability to purchase items that may be ordered and fulfilled from either a fulfillment center or another retail store location. Online customers may return orders via mail, or customers may return orders placed online to retail store locations. Customers who earn reward points under the private label credit card program may earn and redeem rewards through in-store or online purchases.

Service charges and other income. Service charges and other income includes income generated through the marketing and servicing alliance with Wells Fargo Bank, N.A. (“Wells Fargo Alliance”). Other income includes rental income, shipping and handling fees and gift card breakage.

Cost of sales. Cost of sales includes the cost of merchandise sold (net of purchase discounts, non-specific margin maintenance allowances and merchandise margin maintenance allowances), bankcard fees, freight to the distribution centers, employee and promotional discounts, shipping to customers and direct payroll for salon personnel. Cost of sales also includes CDI contract costs, which comprise all direct material and labor costs, subcontract costs and those indirect costs related to contract performance, such as indirect labor, employee benefits and insurance program costs.

Selling, general and administrative expenses. Selling, general and administrative expenses include buying, occupancy, selling, distribution, warehousing, store and corporate expenses (including payroll and employee benefits), insurance, employment taxes, advertising, management information systems, legal and other corporate level expenses. Buying expenses consist of payroll, employee benefits and travel for design, buying and merchandising personnel.

Depreciation and amortization. Depreciation and amortization expenses include depreciation and amortization on property and equipment.

Rentals. Rentals includes expenses for store leases, including contingent rent, data processing and other equipment rentals and office space leases.

Interest and debt (income) expense, net. Interest and debt (income) expense includes interest, net of interest income from demand deposits and short-term investments and capitalized interest, relating to the Company’s unsecured notes, subordinated debentures and commitment fees and borrowings, if any, under the Company’s credit agreement. Interest and debt expense also includes the amortization of financing costs and interest on finance lease obligations, if any.

Other expense. Other expense includes the interest cost and net actuarial loss components of net periodic benefit costs related to the Company’s unfunded, nonqualified defined benefit plan and charges related to the write off of certain deferred financing fees in connection with the amendment and extension of the Company’s secured revolving credit facility, if any.

Gain on disposal of assets. Gain on disposal of assets includes the net gain or loss on the sale or disposal of property and equipment, as well as gains from insurance proceeds in excess of the cost basis of insured assets, if any.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are also described in Note 1 in the “Notes to Consolidated Financial Statements” in Item 8 hereof. As disclosed in that note, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company evaluates its estimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on various other factors that are believed to be reasonable under

23

the circumstances. Since future events and their effects cannot be determined with absolute certainty, actual results could differ from those estimates.

Management of the Company believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in preparation of the Company’s consolidated financial statements.

Merchandise inventory. All of the Company’s inventories are valued at the lower of cost or market using the last-in, first-out (“LIFO”) inventory method. Approximately 96% of the Company’s inventories are valued using the LIFO retail inventory method. Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost to retail ratio to the retail value of inventories. The retail inventory method is an averaging method that is widely used in the retail industry due to its practicality. Inherent in the retail inventory method calculation are certain significant management judgments including, among others, merchandise markon, markups and markdowns, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins. During periods of deflation, inventory values on the first-in, first-out (“FIFO”) retail inventory method may be lower than the LIFO retail inventory method. Additionally, inventory values at LIFO cost may be in excess of net realizable value. At February 3, 2024 and January 28, 2023, merchandise inventories valued at LIFO, including adjustments as necessary to record inventory at the lower of cost or market, approximated the cost of such inventories using the FIFO retail inventory method. The application of the LIFO retail inventory method did not result in the recognition of any LIFO charges or credits affecting cost of sales for fiscal 2023, 2022 or 2021. A 1% change in the dollar amount of markdowns would have impacted net income by approximately $8 million for fiscal 2023.

The Company regularly records a provision for estimated shrinkage, thereby reducing the carrying value of merchandise inventory. Complete physical inventories of the Company’s stores and warehouses are generally performed no less frequently than annually, with the recorded amount of merchandise inventory being adjusted to coincide with these physical counts. The differences between the estimated amounts of shrinkage and the actual amounts realized during the past three years have not been material.

Revenue recognition. The Company’s retail operations segment recognizes revenue upon the sale of merchandise to its customers, net of anticipated returns of merchandise. The asset and liability for sales returns are based on historical evidence of our return rate. We recorded an allowance for sales returns of $21.9 million and $23.1 million and return assets of $12.8 million and $13.3 million as of February 3, 2024 and January 28, 2023, respectively. The return asset and the allowance for sales returns are recorded in the consolidated balance sheets in other current assets and trade accounts payable and accrued expenses, respectively. Adjustments to earnings resulting from revisions to estimates on our sales return provision were not material for fiscal 2023, 2022 and 2021.

The Company’s share of income under the Wells Fargo Alliance involving the Dillard’s branded private label credit cards is included as a component of service charges and other income. The Company recognized income of $67.2 million, $67.8 million and $74.8 million from the alliance in fiscal 2023, 2022 and 2021, respectively. The Company participates in the marketing of the private label credit cards, which includes the cost of customer reward programs. Through the reward programs, customers earn points that are redeemable for discounts on future purchases. The Company defers a portion of its net sales upon the sale of merchandise to its customer reward program members that is recognized in net sales when the reward is redeemed or expired at a future date.

Revenues from CDI construction contracts are generally measured based on the ratio of costs incurred to total estimated contract costs (the “cost-to-cost method”). Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations based on stand-alone selling prices. Construction contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of our contract modifications are for goods and services that are not distinct from the existing contracts; therefore, the modifications are accounted for as if they were part of the existing contract. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation for which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. The length of each contract varies but is typically nine to eighteen months. The progress towards completion is determined by relating the actual costs of work

24

performed to date to the current estimated total costs of the respective contracts. Estimated contract losses are recognized in full when determined.

Construction contracts give rise to accounts receivable, contract assets and contract liabilities. We record accounts receivable based on amounts billed to customers. We also record costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) and billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) in other current assets and trade accounts payable and accrued expenses, respectively, on the consolidated balance sheets.

Vendor allowances. The Company receives concessions from vendors through a variety of programs and arrangements, including cooperative advertising, payroll reimbursements and margin maintenance programs.

Cooperative advertising allowances are reported as a reduction of advertising expense in the period in which the advertising occurred. If vendor advertising allowances were substantially reduced or eliminated, the Company would likely consider other methods of advertising as well as the volume and frequency of our product advertising, which could increase or decrease our expenditures. We are not able to assess the impact of vendor advertising allowances on creating additional revenues, as such allowances do not directly generate revenues for our stores.

Payroll reimbursements are reported as a reduction of payroll expense in the period in which the reimbursement occurred.

Amounts of margin maintenance allowances are recorded only when an agreement has been reached with the vendor and the collection of the concession is deemed probable. All such merchandise margin maintenance allowances are recognized as a reduction of cost purchases. Under the retail inventory method, a portion of these allowances reduces cost of goods sold and a portion reduces the carrying value of merchandise inventory.

Insurance accruals. The Company’s consolidated balance sheets include liabilities with respect to claims for self-insured workers’ compensation (with a self-insured retention of $4 million per claim) and general liability (with a self-insured retention of $2 million per claim). The Company’s retentions are insured through a wholly-owned captive insurance subsidiary. The Company estimates the required liability of such claims, utilizing an actuarial method, based upon various assumptions, which include, but are not limited to, our historical loss experience, projected loss development factors, actual payroll and other data. The required liability is also subject to adjustment in the future based upon the changes in claims experience, including changes in the number of incidents (frequency) and changes in the ultimate cost per incident (severity). As of February 3, 2024 and January 28, 2023, insurance accruals of $41.0 million and $42.5 million, respectively, were recorded in trade accounts payable and accrued expenses and other liabilities. A 10% change in our self-insurance reserve would have affected net income by approximately $3 million for fiscal 2023.

Long-lived assets. The Company’s judgment regarding the existence of impairment indicators is based on market and operational performance. We assess the impairment of long-lived assets, primarily fixed assets and operating lease assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following:

Significant changes in the manner of our use of assets or the strategy for the overall business;
Significant negative industry or economic trends;
A current-period operating or cash flow loss combined with a history of operating or cash flow losses; and
Store closings.

The Company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying value of the related asset exceeds the fair value, the carrying value is reduced to its fair value. Various factors including future sales growth, profit margins and real estate values are included in this analysis. To the

25

extent these future projections, the Company’s strategies or market conditions change, the conclusion regarding impairment may differ from the current estimates.

Income taxes. Temporary differences arising from differing treatment of income and expense items for tax and financial reporting purposes result in deferred tax assets and liabilities that are recorded on the balance sheet. These balances, as well as income tax expense, are determined through management’s estimations, interpretation of tax law for multiple jurisdictions and tax planning. If the Company’s actual results differ from estimated results due to changes in tax laws, changes in store locations, settlements of tax audits or tax planning, the Company’s effective tax rate and tax balances could be affected.

As such, these estimates may require adjustment in the future as additional information becomes available or as circumstances change. Changes in the Company’s assumptions and judgments can materially affect amounts recognized in the consolidated balance sheets and statements of operations.

The total amount of unrecognized tax benefits as of February 3, 2024 was $8.1 million, of which, $6.0 million would, if recognized, affect the Company’s effective tax rate. The total amount of unrecognized tax benefits as of January 28, 2023 was $7.0 million, of which $5.3 million would, if recognized, affect the Company’s effective tax rate. The Company does not expect a significant change in unrecognized tax benefits in the next twelve months. The Company classifies accrued interest expense and penalties relating to income tax in the consolidated financial statements as income tax expense. The total amounts of interest and penalties were not material.

The fiscal tax years that remain subject to examination for the federal tax jurisdiction are 2015, 2016 and 2019 and forward. At this time, the Company does not expect the results from any income tax audit to have a material impact on the Company’s consolidated financial statements.

Pension obligations.  The discount rate that the Company utilizes for determining future pension obligations is based on the FTSE Above Median Pension yield curve on its annual measurement date as of the end of each fiscal year and is matched to the future expected cash flows of the benefit plans by semi-annual periods. The discount rate increased to 5.1% as of February 3, 2024 from 4.8% as of January 28, 2023. We believe that these assumptions have been appropriate and that, based on these assumptions, the pension liability of $316.5 million is appropriately stated as of February 3, 2024; however, actual results may differ materially from those estimated and could have a material impact on our consolidated financial statements. A further 50 basis point change in the discount rate would increase or decrease the pension liability by approximately $16 million. The Company expects to make a contribution to the pension plan of approximately $7.1 million in fiscal 2024. The Company expects pension expense to be approximately $31.0 million in fiscal 2024.

26

RESULTS OF OPERATIONS

The following table sets forth the results of operations and percentage of net sales, for the periods indicated (percentages may not foot due to rounding):

For the years ended

February 3, 2024

January 28, 2023

January 29, 2022

Amount

    

% of Net Sales

    

Amount

    

% of Net Sales

    

Amount

    

% of Net Sales

Net sales

$

6,752,053

100.0

%  

$

6,871,081

100.0

%  

$

6,492,993

100.0

%

Service charges and other income

122,367

 

1.8

 

125,134

 

1.8

 

131,274

 

2.0

 

6,874,420

 

101.8

 

6,996,215

 

101.8

 

6,624,267

 

102.0

 

Cost of sales

4,031,108

 

59.7

 

3,983,598

 

58.0

 

3,747,665

 

57.7

 

Selling, general and administrative expenses

1,717,415

 

25.4

 

1,674,317

 

24.4

 

1,536,554

 

23.7

 

Depreciation and amortization

179,573

 

2.7

 

188,440

 

2.7

 

199,321

 

3.1

 

Rentals

21,569

 

0.3

 

23,169

 

0.3

 

22,594

 

0.3

 

Interest and debt (income) expense, net

(4,600)

 

(0.1)

 

30,527

 

0.4

 

43,092

 

0.7

 

Other expense

18,791

 

0.3

 

7,744

 

0.1

 

11,366

 

0.2

 

Gain on disposal of assets

(6,053)

 

(0.1)

 

(21,047)

 

(0.3)

 

(24,688)

 

(0.4)

 

Income before income taxes

916,617

13.6

1,109,467

16.1

1,088,363

16.8

Income taxes

177,770

 

2.6

 

217,830

 

3.2

 

225,890

 

3.5

 

Net income

$

738,847

10.9

%  

$

891,637

13.0

%  

$

862,473

13.3

%

Sales

(in thousands of dollars)

    

Fiscal 2023

    

Fiscal 2022

    

Fiscal 2021

Net sales:

 

  

 

  

 

  

Retail operations segment

$

6,479,580

$

6,701,972

$

6,374,753

Construction segment

 

272,473

 

169,109

 

118,240

Total net sales

$

6,752,053

$

6,871,081

$

6,492,993

The percent change by segment and product category in the Company’s sales for the past two years is as follows:

    

Percent Change

 

    

Fiscal 2023 - 2022

Fiscal 2023 - 2022*

    

Fiscal 2022 - 2021

 

Retail operations segment

 

  

 

  

Cosmetics

 

4.3

%  

3.0

%  

7.5

%

Ladies’ apparel

 

(4.1)

(5.6)

 

5.7

Ladies’ accessories and lingerie

 

(6.4)

(7.7)

 

(0.8)

Juniors’ and children’s apparel

 

(7.3)

(8.7)

 

3.0

Men’s apparel and accessories

 

(4.4)

(5.8)

 

9.7

Shoes

 

(3.4)

(4.6)

 

5.0

Home and furniture

 

(1.0)

(2.4)

 

(0.8)

Construction segment

 

61.1

61.1

 

43.0

*

Based upon the 52 weeks ended January 27, 2024 and 52 weeks ended January 28, 2023.

27

2023 Compared to 2022

Net sales from the retail operations segment decreased $222.4 million during the 53-week period ended February 3, 2024 compared to the 52-week period ended January 28, 2023, decreasing 3% in total store sales. Sales in comparable stores decreased 4% for the 52-week period ended January 27, 2024 compared to the 52-week period ended January 28, 2023. During the same 52-week periods, sales of juniors’ and children’s apparel, ladies’ accessories and lingerie, men’s apparel and accessories, ladies’ apparel and shoes decreased significantly, while sales of home and furniture decreased moderately. Sales of cosmetics increased moderately.

The number of sales transactions during the 53-week period ended February 3, 2024 decreased 6% over the 52-week period ended January 28, 2023, while the average dollars per sales transaction increased 3%.

Net sales from the construction segment increased $103.4 million or 61% during fiscal 2023 compared to fiscal 2022 due to an increase in construction activity. The remaining performance obligations related to executed construction contracts totaled $163.7 million, decreasing approximately 13% from January 28, 2023.

Exclusive Brand Merchandise

Sales penetration of exclusive brand merchandise for fiscal 2023, 2022 and 2021 was 23.5%, 23.8% and 22.7% of total net sales, respectively.

Service Charges and Other Income

(in thousands of dollars)

Fiscal 2023

    

Fiscal 2022

    

Fiscal 2021

Service charges and other income:

  

  

  

Retail operations segment

  

  

  

Income from Wells Fargo Alliance

$

67,227

$

67,768

$

74,780

Shipping and handling income

 

40,134

 

42,505

 

41,850

Other

 

14,719

 

14,553

 

13,923

 

122,080

 

124,826

 

130,553

Construction segment

 

287

 

308

 

721

Total service charges and other income

$

122,367

$

125,134

$

131,274

Service charges and other income is composed primarily of income from the Wells Fargo Alliance. In January 2024, the Company announced that it entered into a new agreement with Citi to provide a credit card program for Dillard’s customers, replacing the existing Wells Fargo Alliance. While future cash flows under this new program are difficult to predict, the Company expects income from the new program to initially be less than historical earnings from the Wells Fargo Alliance. The extent to which future cash flows will vary over the term of the new program from historical cash flows cannot be reasonably estimated at this time.

Gross Margin

(in thousands of dollars)

    

Fiscal 2023

    

Fiscal 2022

    

Fiscal 2021

Gross margin:

  

  

  

Retail operations segment

$

2,709,071

$

2,878,910

 

$

2,736,762

Construction segment

 

11,874

 

8,573

 

 

8,566

Total gross margin

$

2,720,945

$

2,887,483

 

$

2,745,328

Gross margin as a percentage of segment net sales:

Retail operations segment

41.8

%  

43.0

%  

42.9

%  

Construction segment

4.4

 

5.1

 

 

7.2

 

Total gross margin as a percentage of net sales

40.3

 

42.0

 

 

42.3

 

28

2023 Compared to 2022

Gross margin as a percentage of net sales decreased 170 basis points of sales during fiscal 2023 compared to fiscal 2022. Gross margin from retail operations decreased 120 basis points of segment net sales during the same periods. During fiscal 2023, gross margin decreased moderately in men’s apparel and accessories and juniors’ and children’s apparel, while decreasing slightly in shoes. Gross margin was essentially flat in ladies’ apparel, ladies’ accessories and lingerie and cosmetics. Gross margin increased moderately in home and furniture. Retail store inventory decreased 2% at February 3, 2024 compared to January 28, 2023.

Inflation and rising interest costs, and the related impact on consumer sentiment, continue to be a concern for management. The extent to which our business will be affected by inflation and rising interest costs depends on our customers’ continuing ability and willingness to accept price increases.

Gross margin from the construction segment decreased 70 basis points of segment net sales during fiscal 2023 compared to fiscal 2022.

Selling, General and Administrative Expenses (“SG&A”)

    

    

    

(in thousands of dollars)

Fiscal 2023

    

Fiscal 2022

    

Fiscal 2021

  

SG&A:

Retail operations segment

$

1,707,793

$

1,666,492

$

1,529,787

Construction segment

 

9,622

 

7,825

 

6,767

Total SG&A

$

1,717,415

$

1,674,317

$

1,536,554

SG&A as a percentage of segment net sales:

Retail operations segment

26.4

%  

24.9

%  

24.0

%  

Construction segment

3.5

 

4.6

 

 

5.7

 

Total SG&A as a percentage of net sales

25.4

 

24.4

 

 

23.7

 

2023 Compared to 2022

SG&A increased $43.1 million and 100 basis points of sales during the 53 weeks ended February 3, 2024 compared to the 52 weeks ended January 28, 2023. The increase in operating expenses is primarily due to increased payroll and payroll-related expenses and the additional week of operations in the 2023 fiscal year.

Payroll and payroll-related expenses for fiscal 2023 were $1,217.3 million compared to $1,172.7 million for fiscal 2022, an increase of 3.8%. The Company remains focused on hiring, developing and retaining talented associates within the existing tight labor market.

Depreciation and Amortization

    

    

    

(in thousands of dollars)

Fiscal 2023

    

Fiscal 2022

    

Fiscal 2021

Depreciation and amortization:

Retail operations segment

$

179,315

$

188,227

$

199,061

Construction segment

 

258

 

213

 

260

Total depreciation and amortization

$

179,573

$

188,440

$

199,321

2023 Compared to 2022

Depreciation and amortization expense decreased $8.9 million during fiscal 2023 compared to fiscal 2022, primarily due to the timing and composition of capital expenditures.

29

Interest and Debt (Income) Expense, Net

(in thousands of dollars)

    

Fiscal 2023

    

Fiscal 2022

    

Fiscal 2021

Interest and debt (income) expense, net:

  

  

  

Retail operations segment

$

(3,927)

$

30,614

$

43,131

Construction segment

 

(673)

 

(87)

 

(39)

Total interest and debt (income) expense, net

$

(4,600)

$

30,527

$

43,092

2023 Compared to 2022

Net interest and debt (income) expense improved $35.1 million in fiscal 2023 compared to fiscal 2022 primarily due to an increase in interest income. Total weighted average debt outstanding during fiscal 2023 decreased $41.4 million compared to fiscal 2022 primarily due to a note maturity at the end of fiscal 2022.

Other Expense

(in thousands of dollars)

    

Fiscal 2023

    

Fiscal 2022

    

Fiscal 2021

Other expense:

Retail operations segment

$

18,791

$

7,744

$

11,366

Construction segment

 

 

 

Total other expense

$

18,791

$

7,744

$

11,366

2023 Compared to 2022

Other expense increased $11.0 million in fiscal 2023 compared to fiscal 2022 primarily due to an increase in the interest cost and the amortization of the net actuarial loss related to the Company’s pension plan.

Gain on Disposal of Assets

(in thousands of dollars)

    

Fiscal 2023

    

Fiscal 2022

    

Fiscal 2021

Gain on disposal of assets:

 

  

 

  

 

  

Retail operations segment

$

(6,030)

$

(21,046)

$

(24,682)

Construction segment

 

(23)

 

(1)

 

(6)

Total gain on disposal of assets

$

(6,053)

$

(21,047)

$

(24,688)

Fiscal 2023

During fiscal 2023, the Company received proceeds of $6.3 million primarily from the sale of two store properties, resulting in a gain of $6.1 million that was recorded in gain on disposal of assets.

Fiscal 2022

During fiscal 2022, the Company received proceeds of $25.1 million primarily from the sale of three store properties, resulting in a gain of $21.0 million that was recorded in gain on disposal of assets.

Income Taxes

The Company’s estimated federal and state effective income tax rate was 19.4% in fiscal 2023, 19.6% in fiscal 2022 and 20.8% in fiscal 2021. The Company expects the fiscal 2024 federal and state effective income tax rate to approximate 23%.

30

Fiscal 2023

During fiscal 2023, income taxes included federal and state tax benefits of $27.2 million due to the deduction related to that portion of the Company’s dividends that were paid to the Dillard’s, Inc. Investment and Employee Stock Ownership Plan, including the special dividend of $20.00 per share paid on January 8, 2024. Income taxes also included a net $9.8 million income tax benefit due to the release of valuation allowances primarily related to increases in the expected future utilization of state net operating loss carryforwards.

On August 16, 2022, the Inflation Reduction Act of 2022 ("the Act") was signed into law. The Act includes, among other provisions, a new 15% corporate alternative minimum tax (“CAMT”), effective January 1, 2023, which has no impact on the Company’s consolidated financial results for the year ended February 3, 2024.

Fiscal 2022

During fiscal 2022, income taxes included federal and state tax benefits of $19.3 million due to the deduction related to that portion of the Company’s dividends that were paid to the Dillard’s, Inc. Investment and Employee Stock Ownership Plan, including the special dividend of $15.00 per share paid on January 9, 2023. Income taxes also included a net $13.7 million income tax benefit due to the release of valuation allowances primarily related to increases in the expected future utilization of state net operating loss carryforwards.

31

LIQUIDITY AND CAPITAL RESOURCES

The Company’s current non-operating priorities for its use of cash are strategic investments to enhance the value of existing properties, stock repurchases and dividend payments to stockholders.

Cash flows for the Company’s most recent three fiscal years were as follows:

Percent Change

(in thousands of dollars)

Fiscal 2023

    

Fiscal 2022

Fiscal 2021

2023 - 2022

2022 - 2021

Operating activities

$

883,590

$

948,391

$

1,280,020

(6.8)

%

(25.9)

%

Investing activities

 

(115,594)

 

(235,853)

 

(69,788)

 

(51.0)

 

(238.0)

 

Financing activities

 

(620,040)

 

(768,966)

 

(853,812)

 

19.4

9.9

 

Total cash provided (used)

$

147,956

$

(56,428)

$

356,420

Operating Activities

The primary source of the Company’s liquidity is, and historically has been, cash flows from operations. Due to the seasonality of the Company’s business, we have historically realized a significant portion of the cash flows from operating activities during the second half of the fiscal year. Retail operations sales are the key operating cash component, providing 94.3%, 95.8% and 96.2% of total revenues in fiscal 2023, 2022 and 2021, respectively.

Net cash flows from operations decreased $64.8 million during fiscal 2023 compared to fiscal 2022 primarily due to reduced sales and lower margins.

Operating cash inflows also include the Company’s income and reimbursements from the Wells Fargo Alliance and cash distributions from joint ventures (excluding returns of investments), if any. Operating cash outflows include payments to vendors for inventory, services and supplies, payments to employees and payments of interest and taxes.

Wells Fargo owns and manages the Dillard’s private label cards under the Wells Fargo Alliance. Under the Wells Fargo Alliance, Wells Fargo establishes and owns private label card accounts for our customers, retains the benefits and risks associated with the ownership of the accounts, provides key customer service functions, including new account openings, transaction authorization, billing adjustments and customer inquiries, receives the finance charge income and incurs the bad debts associated with those accounts.

Pursuant to the Wells Fargo Alliance, we receive on-going cash compensation from Wells Fargo based upon the portfolio’s earnings. The compensation received from the portfolio is determined monthly and has no recourse provisions. The amount the Company receives is dependent on the level of sales on Wells Fargo accounts, the level of balances carried on Wells Fargo accounts by Wells Fargo customers, payment rates on Wells Fargo accounts, finance charge rates and other fees on Wells Fargo accounts, the level of credit losses for the Wells Fargo accounts as well as Wells Fargo’s ability to extend credit to our customers. We participate in the marketing of the private label cards, which includes the cost of customer reward programs.

The Company recognized income of $67.2 million, $67.8 million and $74.8 million from the Wells Fargo Alliance during fiscal 2023, 2022 and 2021, respectively.

In January 2024, the Company announced that it entered into a new agreement with Citi to provide a credit card program for Dillard’s customers, replacing the existing Wells Fargo Alliance. The Dillard’s credit card program offered by Citi will include a new co-branded Mastercard as well as a private label credit card. The new co-branded Mastercard will replace the existing co-branded card. Additionally, Citi will provide customer service functions and support certain Dillard’s marketing and loyalty program activities related to the new program. The companies expect to launch the new program in late summer 2024 for new Dillard’s credit applicants. The transfer of existing accounts to Citi is expected in the fall of 2024. The term of the agreement is 10 years with automatic extensions for successive two-year terms unless the agreement is terminated by a party in accordance with the terms and conditions of the agreement.

32

 While future cash flows under the new program are difficult to predict, the Company expects income from the new program to initially be less than historical earnings from the Wells Fargo Alliance. The extent to which future cash flows will vary over the term of the new program from historical cash flows cannot be reasonably estimated at this time. The income and cash flow that the Company will receive from the new program with Citi will depend on the same factors that impact the Wells Fargo Alliance as discussed above. Any material decrease could adversely affect our operating results and cash flows.

At February 3, 2024, the Company had purchase obligations of $1,227.1 million outstanding for merchandise and store construction commitments, all of which are expected to be paid during fiscal 2024.

Investing Activities

Cash inflows from investing activities generally include proceeds from sales of property and equipment and maturities of short-term investments. Cash outflows from investing activities generally include payments for capital expenditures such as property and equipment and purchases of short-term investments.

Cash used in investing activities decreased $120.3 million during fiscal 2023 compared to fiscal 2022 primarily due to the increase in proceeds from the maturities of certain short-term investments.

Capital expenditures increased $12.8 million for fiscal 2023 compared to fiscal 2022. During fiscal 2023, the Company opened a 100,000 square foot expansion at Gateway Mall in Lincoln, Nebraska. In March 2024, the Company opened a new 140,000 square foot location at The Empire Mall in Sioux Falls, South Dakota, which marked the Company’s 30th state of operation. During fiscal 2022, the Company opened: (1) a new store at University Place in Orem, Utah (160,000 square feet), which replaced a store at Provo Towne Centre (200,000 square feet) in the same market and (2) a newly remodeled owned facility at Westgate Mall in Amarillo, Texas, which replaced a leased building at that same location where the Company operates a dual-anchor format.

During fiscal 2023, the Company received cash proceeds of $6.3 million and recorded a related gain of $6.1 million, primarily from the sale of two store properties: (1) an 85,000 square foot location at Sunland Park Mall in El Paso, Texas and (2) a 240,000 square foot location at MacArthur Center in Norfolk, Virginia.

During fiscal 2023, the Company also closed (1) an owned location at Santa Rosa Mall in Mary Esther, Florida (115,000 square feet), (2) a leased location at Conestoga Mall in Grand Island, Nebraska (80,000 square feet) and (3) an owned clearance center at Metrocenter Mall in Phoenix, Arizona (90,000 square feet). There were no material costs associated or expected with any of these store closures. We remain committed to closing under-performing stores where appropriate and may incur future closing costs related to such stores when they close.

During fiscal 2022, the Company received cash proceeds of $25.1 million and recorded a related gain of $21.0 million, primarily from the sale of three store properties: (1) a 200,000 square foot location at Provo Towne Centre in Provo, Utah; (2) a 75,000 square foot non-operating store property at Frontier Mall in Cheyenne, Wyoming and (3) a 90,000 square foot clearance center at Metrocenter Mall in Phoenix, Arizona.

During fiscal 2022, the Company also closed (1) a leased clearance center at University Square Mall in Tampa, Florida (80,000 square feet), (2) an owned clearance center at East Hills Mall in St. Joseph, Missouri (100,000 square feet) and (3) a leased location at Sikes Senter in Wichita Falls, Texas (150,000 square feet).

During fiscal 2022, the Company received proceeds from insurance of $0.5 million for a claim filed for building losses related to storm damage incurred at one store.

During fiscal 2023, the Company received proceeds from life insurance of $4.5 million related to two policies. During fiscal 2022, the Company received proceeds from life insurance of $4.4 million related to one policy.

33

During fiscal 2023 and 2022, the Company purchased certain treasury bills for $295.4 million and $245.7 million, respectively, that are classified as short-term investments. During fiscal 2023 and 2022, the Company received proceeds of $301.9 million and $100.0 million, respectively, related to maturities of its short-term investments.

Financing Activities

Our primary source of cash inflows from financing activities is generally borrowings from our $800 million senior secured revolving credit facility. Financing cash outflows generally include the repayment of borrowings under the revolving credit facility, the repayment of long-term debt, finance lease obligations, the payment of dividends and the purchase of treasury stock.

Cash used in financing activities decreased to $620.0 million in fiscal 2023 from $769.0 million in fiscal 2022, primarily due to decreases in treasury stock purchases during 2023.

Stock Repurchase.   In March 2018, the Company’s Board of Directors authorized the Company to repurchase up to $500 million of the Company’s Class A Common Stock under an open-ended plan (“March 2018 Stock Plan”). In May 2021, the Company’s Board of Directors authorized the Company to repurchase up to $500 million of the Company’s Class A Common Stock under an open-ended plan (“May 2021 Stock Plan”). In February 2022, the Company’s Board of Directors authorized the Company to repurchase up to $500 million of the Company’s Class A Common Stock under an open-ended plan (“February 2022 Stock Plan”). In May 2023, the Company’s Board of Directors authorized the Company to repurchase up to $500 million of the Company’s Class A Common Stock under an open-ended plan (“May 2023 Stock Plan”). As of February 3, 2024, the Company had completed the authorized purchases under the March 2018 Stock Plan, the May 2021 Stock Plan, the February 2022 Stock Plan and $394.0 million of authorization remained under the May 2023 Stock Plan.

During fiscal 2023, the Company repurchased 0.9 million shares of Class A Common Stock for $281.4 million at an average price of $306.66 per share. During fiscal 2022, the Company repurchased 1.7 million shares of Class A Common Stock for $436.6 million at an average price of $255.49 per share, and the Company paid $16.2 million for share repurchases that had not yet settled but were accrued at January 29, 2022. The ultimate disposition of the repurchased stock has not been determined.

On August 16, 2022, the Inflation Reduction Act of 2022 ("the Act") was signed into law. Under the Act share repurchases after December 31, 2022 are subject to a 1% excise tax. At February 3, 2024, the Company had accrued $2.8 million of excise tax related to its share repurchase program.

Revolving Credit Agreement.   The Company maintains a revolving credit facility (“credit agreement”) for general corporate purposes including, among other uses, working capital financing, the issuance of letters of credit, capital expenditures and, subject to certain restrictions, the repayment of existing indebtedness and share repurchases. The credit agreement is secured by certain deposit accounts of the Company and certain inventory of certain subsidiaries and provides a borrowing capacity of $800 million, subject to certain limitations as outlined in the credit agreement, with a $200 million expansion option.

Effective July 1, 2023, the Company amended the credit agreement (the "2023 amendment") to reflect the changes necessary for the phaseout of LIBOR. Pursuant to the 2023 amendment, the Company pays a variable rate of interest on borrowings under the credit agreement and a commitment fee to the participating banks. The rate of interest on borrowings is Adjusted Daily Simple SOFR, as defined in the 2023 amendment, plus 1.75% if average quarterly availability is less than 50% of the total commitment, as defined in the 2023 amendment ("total commitment"), and the rate of interest on borrowings is Adjusted Daily Simple SOFR plus 1.50% if average quarterly availability is greater than or equal to 50% of the total commitment. The commitment fee for unused borrowings is 0.30% per annum if average borrowings are less than 35% of the total commitment and 0.25% if average borrowings are greater than or equal to 35% of the total commitment. As long as availability exceeds $80 million and certain events of default have not occurred and are not continuing, there are no financial covenant requirements under the credit agreement. The credit agreement, as amended by the 2023 amendment, matures on April 28, 2026.

34

No borrowings were outstanding at February 3, 2024. Letters of credit totaling $19.3 million were issued under the credit agreement leaving unutilized availability under the facility of $734.7 million at February 3, 2024. The Company had no borrowings during fiscal 2023, 2022 and 2021.

Long-term Debt.   At February 3, 2024, the Company had $321.5 million of long-term debt, comprised of unsecured notes. The unsecured notes bear interest at rates ranging from 7.000% to 7.750% with due dates from fiscal 2026 through fiscal 2028.

Long-term debt maturities over the next five years are (in millions):

Fiscal Year

    

Long-Term Debt
Maturities

2024

$

2025

 

2026

 

96.0

2027

 

80.0

2028

 

145.8

During fiscal 2022, the Company decreased its net level of outstanding debt by $44.8 million related to the maturity of 7.875% Notes.

During fiscal 2024, the Company expects to accrue interest expense of $23.8 million on its long-term debt.

Subordinated Debentures.   As of February 3, 2024, the Company had $200 million outstanding of its 7.5% subordinated debentures due August 1, 2038. All of these subordinated debentures were held by Dillard’s Capital Trust I, a 100% owned, unconsolidated finance subsidiary of the Company. The Company has the right to defer the payment of interest on the subordinated debentures at any time for a period not to exceed 20 consecutive quarters; however, the Company has no present intention of exercising this right to defer interest payments.

During fiscal 2024, the Company expects to accrue interest expense of $15.0 million on its subordinated debentures.

Dividends. During fiscal 2023 and 2022, in addition to our typical quarterly dividends, the Board of Directors declared a special dividend of $20.00 per share and $15.00 per share, respectively, that was paid on the Class A Common Stock and Class B Common Stock of the Company.

Fiscal 2024 Outlook

The Company expects to finance its operations during fiscal 2024 from cash on hand, cash flows generated from operations and, if necessary, utilization of our revolving credit facility. Depending upon our actual and anticipated sources and uses of liquidity, the Company will from time to time consider other possible financing transactions, the proceeds of which could be used to fund working capital or for other corporate purposes.

LIBOR

On March 5, 2021, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative: (a) immediately after December 31, 2021, in the case of the 1-week and 2-month U.S. dollar settings; and (b) immediately after June 30, 2023, in the case of the remaining U.S. dollar settings.

During fiscal 2023, the Company amended its revolving credit agreement and its credit card program agreement to replace LIBOR with Secured Overnight Financing Rates (SOFR). For additional information, see Note 3 in the “Notes to Consolidated Financial Statements” in Item 8 hereof.

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OFF-BALANCE-SHEET ARRANGEMENTS

The Company has not created, and is not party to, any special-purpose entities or off-balance-sheet arrangements for the purpose of raising capital, incurring debt or operating the Company’s business. The Company does not have any off-balance-sheet arrangements or relationships that are reasonably likely to materially affect the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or the availability of capital resources.

COMMERCIAL COMMITMENTS

AMOUNT OF COMMITMENT EXPIRATION PER PERIOD

(in thousands of dollars)

    

Total Amounts

    

    

    

    

After

Other Commercial Commitments

Committed

Within 1 year

2 - 3 years

4 - 5 years

5 years

$800 million line of credit, none outstanding (1)

$

$

$

$

$

Standby letters of credit

 

19,333

 

19,033

 

300

 

 

Import letters of credit

 

 

 

 

 

Total commercial commitments

$

19,333

$

19,033

$

300

$

$

(1)At February 3, 2024, letters of credit totaling $19.3 million were issued under the credit agreement.

NEW ACCOUNTING PRONOUNCEMENTS

For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1 in the “Notes to Consolidated Financial Statements” in Item 8 hereof.

FORWARD-LOOKING INFORMATION

This report contains certain forward-looking statements. The following are or may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (a) statements including words such as “may,” “will,” “could,” “should,” “believe,” “expect,” “future,” “potential,” “anticipate,” “intend,” “plan,” “estimate,” “continue,” or the negative or other variations thereof; (b) statements regarding matters that are not historical facts; and (c) statements about the Company’s future occurrences, plans and objectives, including those statements included under the headings “2024 Guidance” and “Fiscal 2024 Outlook” included in this Management’s Discussion and Analysis and other statements regarding management’s expectations and forecasts for the remainder of fiscal 2024 and beyond, statements regarding the launch of our new credit program and transfer of existing accounts to Citi, statements concerning the opening of new stores or the closing of existing stores, statements regarding our competitive position, statements concerning capital expenditures and sources of liquidity, statements concerning share repurchases, statements concerning pension contributions, statements concerning changes in loss trends, settlements and other costs related to our self-insurance programs, statements concerning expectations regarding the payment of dividends, statements regarding the impacts of inflation and rising interest rates in fiscal 2024 and statements concerning estimated taxes. The Company cautions that forward-looking statements contained in this report are based on estimates, projections, beliefs and assumptions of management and information available to management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. Forward-looking statements of the Company involve risks and uncertainties and are subject to change based on various important factors. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of those factors include (without limitation) general retail industry conditions and macro-economic conditions including inflation, rising interest rates, a potential U.S. Federal government shutdown, economic recession and changes in traffic at malls and shopping centers; economic and weather conditions for regions in which the Company’s stores are located and the effect of these factors on the buying patterns of the Company’s customers, including the effect of changes in prices and availability of oil and natural gas; the availability of and interest rates on consumer credit; the impact of competitive pressures in the department store industry and other retail channels including

36

specialty, off-price, discount and Internet retailers; changes in the Company’s ability to meet labor needs amid nationwide labor shortages and an intense competition for talent; changes in consumer spending patterns, debt levels and their ability to meet credit obligations; high levels of unemployment; changes in tax legislation (including the Inflation Reduction Act of 2022); changes in legislation and government regulations, affecting such matters as the cost of employee benefits or credit card income, such as the Consumer Financial Protection Bureau’s recent amendment to Regulation Z to limit the dollar amounts credit card companies can charge for late fees; adequate and stable availability and pricing of materials, production facilities and labor from which the Company sources its merchandise; changes in operating expenses, including employee wages, commission structures and related benefits; system failures or data security breaches; possible future acquisitions of store properties from other department store operators; the continued availability of financing in amounts and at the terms necessary to support the Company’s future business; fluctuations in SOFR and other base borrowing rates; potential disruption from terrorist activity and the effect on ongoing consumer confidence; other epidemic, pandemic or public health issues and their effects on public health, our supply chain, the health and well-being of our employees and customers and the retail industry in general; potential disruption of international trade and supply chain efficiencies; global conflicts (including the ongoing conflicts in the Middle East and Ukraine) and the possible impact on consumer spending patterns and other economic and demographic changes of similar or dissimilar nature, and other risks and uncertainties, including those detailed from time to time in our periodic reports filed with the SEC, particularly those set forth under the caption “Item 1A, Risk Factors” in this Annual Report.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The table below provides information about the Company’s obligations that are sensitive to changes in interest rates. The table presents maturities of the Company’s long-term debt and subordinated debentures along with the related weighted-average interest rates by expected maturity dates.

    

Expected Maturity Date

(fiscal year)

(in thousands of dollars)

2024

    

2025

    

2026

    

2027

    

2028

    

Thereafter

    

Total

    

Fair Value

Long-term debt

$

$

$

96,000

$

80,000

$

145,825

$