10-Q 1 dds-20220430x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

  

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

For the quarterly period ended April 30, 2022

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)

(501) 376-5200

(Registrant’s telephone number, including area code)

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

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

Non-accelerated filer 

 

Smaller reporting company

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

CLASS A COMMON STOCK as of May 28, 2022     13,537,031

CLASS B COMMON STOCK as of May 28, 2022       3,986,233

Index

DILLARD’S, INC.

Page

Number

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets as of April 30, 2022, January 29, 2022 and May 1, 2021

3

Condensed Consolidated Statements of Income for the Three Months Ended April 30, 2022 and May 1, 2021

4

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended April 30, 2022 and May 1, 2021

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended April 30, 2022 and May 1, 2021

6

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2022 and May 1, 2021

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 6.

Exhibits

27

SIGNATURES

28

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DILLARD’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands)

    

April 30,

    

January 29,

    

May 1,

2022

2022

2021

Assets

 

  

 

  

 

  

Current assets:

 

  

 

  

 

  

Cash and cash equivalents

$

862,173

$

716,759

$

615,920

Accounts receivable

 

30,920

 

39,777

 

33,941

Merchandise inventories

 

1,364,975

 

1,080,178

 

1,306,508

Federal and state income taxes

 

 

 

73,461

Other current assets

 

96,193

 

77,937

 

79,004

Total current assets

 

2,354,261

 

1,914,651

 

2,108,834

Property and equipment (net of accumulated depreciation and amortization of $2,554,485, $2,517,915 and $2,488,446, respectively)

 

1,170,265

 

1,190,151

 

1,257,254

Operating lease assets

 

39,743

 

42,941

 

47,716

Deferred income taxes

 

29,115

 

28,931

 

24,815

Other assets

 

65,424

 

68,883

 

69,041

Total assets

$

3,658,808

$

3,245,557

$

3,507,660

Liabilities and stockholders’ equity

 

  

 

  

 

  

Current liabilities:

 

  

 

  

 

  

Trade accounts payable and accrued expenses

$

1,163,293

$

886,233

$

1,075,534

Current portion of long-term debt

 

44,800

 

44,800

 

Current portion of finance lease liabilities

 

 

 

527

Current portion of operating lease liabilities

11,344

11,712

12,960

Federal and state income taxes

 

99,288

 

23,441

 

Total current liabilities

 

1,318,725

 

966,186

 

1,089,021

Long-term debt

 

321,274

 

321,247

 

365,884

Operating lease liabilities

 

28,512

 

30,969

 

34,536

Other liabilities

 

277,964

 

275,937

 

280,522

Subordinated debentures

 

200,000

 

200,000

 

200,000

Commitments and contingencies

 

  

 

  

 

  

Stockholders’ equity:

 

  

 

  

 

  

Common stock

 

1,240

 

1,240

 

1,240

Additional paid-in capital

 

956,653

 

956,653

 

954,131

Accumulated other comprehensive loss

 

(22,617)

 

(22,798)

 

(34,406)

Retained earnings

 

5,275,371

 

5,027,922

 

4,626,243

Less treasury stock, at cost

 

(4,698,314)

 

(4,511,799)

 

(4,009,511)

Total stockholders’ equity

 

1,512,333

 

1,451,218

 

1,537,697

Total liabilities and stockholders’ equity

$

3,658,808

$

3,245,557

$

3,507,660

See notes to condensed consolidated financial statements.

3

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In Thousands, Except Per Share Data)

    

Three Months Ended

April 30,

    

May 1,

2022

2021

Net sales

$

1,611,668

$

1,328,543

Service charges and other income

 

31,114

 

28,992

 

1,642,782

 

1,357,535

Cost of sales

 

861,437

 

774,089

Selling, general and administrative expenses

 

400,773

 

336,614

Depreciation and amortization

 

46,209

 

46,408

Rentals

 

5,079

 

5,111

Interest and debt expense, net

 

10,562

 

11,535

Other expense

 

1,936

 

4,964

Gain on disposal of assets

 

(7,237)

 

(24,673)

Income before income taxes

 

324,023

 

203,487

Income taxes

 

72,930

 

45,240

Net income

$

251,093

$

158,247

Earnings per share:

 

  

 

  

Basic and diluted

$

13.68

$

7.25

See notes to condensed consolidated financial statements.

4

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In Thousands)

Three Months Ended

April 30,

May 1,

    

2022

    

2021

Net income

$

251,093

$

158,247

Other comprehensive income:

 

  

 

  

Amortization of retirement plan and other retiree benefit adjustments (net of tax of $58 and $168, respectively)

 

181

 

529

Comprehensive income

$

251,274

$

158,776

See notes to condensed consolidated financial statements.

5

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In Thousands, Except Share and Per Share Data)

Three Months Ended April 30, 2022

    

    

    

Accumulated

    

    

    

Additional

Other

Common

Paid-in

Comprehensive

Retained

Treasury

Stock

Capital

Loss

Earnings

Stock

Total

Balance, January 29, 2022

$

1,240

$

956,653

$

(22,798)

$

5,027,922

$

(4,511,799)

$

1,451,218

Net income

 

 

 

 

251,093

 

 

251,093

Other comprehensive income

 

 

 

181

 

 

 

181

Purchase of 735,117 shares of treasury stock

 

 

 

 

 

(186,515)

 

(186,515)

Cash dividends declared:

 

  

 

  

 

  

 

  

 

  

 

  

Common stock, $0.20 per share

 

 

 

 

(3,644)

 

 

(3,644)

Balance, April 30, 2022

$

1,240

$

956,653

$

(22,617)

$

5,275,371

$

(4,698,314)

$

1,512,333

Three Months Ended May 1, 2021

    

    

    

Accumulated 

    

    

    

Additional 

Other 

Common 

Paid-in 

Comprehensive

Retained 

Treasury 

Stock

Capital

 Loss

Earnings

Stock

Total

Balance, January 30, 2021

$

1,240

$

954,131

$

(34,935)

$

4,471,269

$

(3,950,697)

$

1,441,008

Net income

 

 

 

 

158,247

 

 

158,247

Other comprehensive income

 

 

 

529

 

 

 

529

Purchase of 624,893 shares of treasury stock

 

 

 

 

 

(58,814)

 

(58,814)

Cash dividends declared:

 

  

 

  

 

  

 

  

 

  

 

  

Common stock, $0.15 per share

 

 

 

 

(3,273)

 

 

(3,273)

Balance, May 1, 2021

$

1,240

$

954,131

$

(34,406)

$

4,626,243

$

(4,009,511)

$

1,537,697

See notes to condensed consolidated financial statements.

6

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

    

Three Months Ended

April 30,

    

May 1,

2022

2021

Operating activities:

 

  

 

  

Net income

$

251,093

$

158,247

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Depreciation and amortization of property and other deferred cost

 

46,606

 

47,241

Gain on disposal of assets

 

(7,237)

 

(24,673)

Proceeds from insurance

 

 

1,755

Loss on early extinguishment of debt

 

 

2,830

Changes in operating assets and liabilities:

 

  

 

  

Decrease in accounts receivable

 

8,857

 

2,752

Increase in merchandise inventories

 

(284,797)

 

(218,745)

Increase in other current assets

 

(18,468)

 

(23,113)

Increase in other assets

 

(447)

 

(461)

Increase in trade accounts payable and accrued expenses and other liabilities

 

293,551

 

311,416

Increase in income taxes

 

76,024

 

45,164

Net cash provided by operating activities

 

365,182

 

302,413

Investing activities:

 

  

 

  

Purchase of property and equipment and capitalized software

 

(27,312)

 

(16,850)

Proceeds from disposal of assets

 

8,090

 

29,276

Proceeds from insurance

 

4,438

 

1,757

Net cash (used in) provided by investing activities

 

(14,784)

 

14,183

Financing activities:

 

  

 

  

Principal payments on long-term debt and finance lease liabilities

 

 

(168)

Issuance cost of line of credit

 

 

(2,733)

Cash dividends paid

 

(3,879)

 

(3,300)

Purchase of treasury stock

 

(201,105)

 

(54,814)

Net cash used in financing activities

 

(204,984)

 

(61,015)

Increase in cash and cash equivalents

 

145,414

 

255,581

Cash and cash equivalents, beginning of period

 

716,759

 

360,339

Cash and cash equivalents, end of period

$

862,173

$

615,920

Non-cash transactions:

 

  

 

  

Accrued capital expenditures

$

6,667

$

8,808

Accrued purchase of treasury stock

1,643

4,000

Lease assets obtained in exchange for new operating lease liabilities

 

 

3,815

See notes to condensed consolidated financial statements.

7

DILLARD’S, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements of Dillard’s, Inc. (the “Company”) have been prepared in accordance with the rules of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended April 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending January 28, 2023 due to, among other factors, the seasonal nature of the business.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022 filed with the SEC on March 29, 2022.

Note 2. Accounting Standards

Recently Issued Accounting Pronouncements

Management believes there is no accounting guidance issued but not yet effective that would be relevant to the Company’s current financial statements.

Note 3. Business Segments

The Company operates in two reportable segments: the operation of retail department stores (“retail operations”) and a general contracting construction company (“construction”).

For the Company’s retail operations, the Company determined its operating segments on a store by store basis. Each store’s operating performance has been aggregated into one reportable segment. The Company’s operating segments are aggregated for financial reporting purposes because they are similar in each of the following areas: economic characteristics, class of consumer, nature of products and distribution methods. Revenues from external customers are derived from merchandise sales, and the Company does not rely on any major customers as a source of revenue. Across all stores, the Company operates one store format under the Dillard’s name where each store offers the same general mix of merchandise with similar categories and similar customers. The Company believes that disaggregating its operating segments would not provide meaningful additional information.

8

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

    

Three Months Ended

 

April 30,

May 1,

2022

    

2021

 

Retail operations segment

  

  

 

Cosmetics

14

%  

14

%

Ladies’ apparel

 

23

 

23

Ladies’ accessories and lingerie

 

13

 

15

Juniors’ and children’s apparel

 

11

 

11

Men’s apparel and accessories

 

19

 

17

Shoes

 

15

 

15

Home and furniture

 

3

 

3

 

98

 

98

Construction segment

 

2

 

2

Total

100

%  

100

%

The following tables summarize certain segment information, including the reconciliation of those items to the Company’s consolidated operations:

    

Retail 

    

    

(in thousands of dollars)

Operations

Construction

Consolidated

Three Months Ended April 30, 2022

 

  

 

  

 

  

Net sales from external customers

$

1,580,799

$

30,869

$

1,611,668

Gross margin

 

748,444

 

1,787

 

750,231

Depreciation and amortization

 

46,151

 

58

 

46,209

Interest and debt expense (income), net

 

10,569

 

(7)

 

10,562

Income (loss) before income taxes

 

324,142

 

(119)

 

324,023

Total assets

 

3,617,164

 

41,644

 

3,658,808

Three Months Ended May 1, 2021

 

  

 

  

 

  

Net sales from external customers

$

1,296,736

$

31,807

$

1,328,543

Gross margin

 

553,001

 

1,453

 

554,454

Depreciation and amortization

 

46,338

 

70

 

46,408

Interest and debt expense (income), net

 

11,550

 

(15)

 

11,535

Income before income taxes

 

203,198

 

289

 

203,487

Total assets

 

3,460,352

 

47,308

 

3,507,660

Intersegment construction revenues of $10.0 million and $4.3 million for the three months ended April 30, 2022 and May 1, 2021, respectively, were eliminated during consolidation and have been excluded from net sales for the respective periods.

The retail operations segment gives rise to contract liabilities through the customer loyalty program associated with Dillard’s private label cards and through the issuances of gift cards. The loyalty program liability and a portion of the gift card liability is included in trade accounts payable and accrued expenses, and a portion of the gift card liability is included in other liabilities on the condensed consolidated balance sheets. Our retail operations segment contract liabilities are as follows:

Retail

April 30,

January 29,

May 1,

January 30,

(in thousands of dollars)

    

2022

    

2022

    

2021

    

2021

Contract liabilities

$

71,779

$

80,421

$

61,367

$

68,021

9

During the three months ended April 30, 2022 and May 1, 2021, the Company recorded $25.2 million and $18.1 million, respectively, in revenue that was previously included in the retail operations contract liability balances of $80.4 million and $68.0 million at January 29, 2022 and January 30, 2021, respectively.

Construction contracts give rise to accounts receivable, contract assets and contract liabilities. We record accounts receivable based on amounts expected to be collected from 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 in the condensed consolidated balance sheets, respectively. The amounts included in the condensed consolidated balance sheets are as follows:

Construction

    

    

    

    

April 30,

January 29,

May 1,

January 30,

(in thousands of dollars)

2022

2022

2021

2021

Accounts receivable

$

20,895

$

25,912

$

24,064

$

25,094

Costs and estimated earnings in excess of billings on uncompleted contracts

 

3,342

 

2,847

 

1,195

 

450

Billings in excess of costs and estimated earnings on uncompleted contracts

 

7,511

 

6,298

 

4,941

 

4,685

During the three months ended April 30, 2022 and May 1, 2021, the Company recorded $5.8 million and $3.7 million, respectively, in revenue that was previously included in billings in excess of costs and estimated earnings on uncompleted contracts of $6.3 million and $4.7 million at January 29, 2022 and January 30, 2021, respectively.

The remaining performance obligations related to executed construction contracts totaled $96.1 million, $93.9 million and $54.4 million at April 30, 2022, January 29, 2022 and May 1, 2021, respectively.

Note 4. Earnings Per Share Data

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data).

Three Months Ended

    

April 30,

    

May 1,

2022

2021

Net income

$

251,093

$

158,247

Weighted average shares of common stock outstanding

 

18,351

 

21,837

Basic and diluted earnings per share

$

13.68

$

7.25

The Company maintains a capital structure in which common stock is the only equity security issued and outstanding, and there were no shares of preferred stock, stock options, other dilutive securities or potentially dilutive securities issued or outstanding during the three months ended April 30, 2022 and May 1, 2021.

Note 5. Commitments and Contingencies

Various legal proceedings, in the form of lawsuits and claims, which occur in the normal course of business, are pending against the Company and its subsidiaries. In the opinion of management, disposition of these matters, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s financial position, cash flows or results of operations.

At April 30, 2022, letters of credit totaling $19.3 million were issued under the Company’s revolving credit facility. See Note 7, Revolving Credit Agreement, for additional information.

10

Note 6. Benefit Plans

The Company has an unfunded, nonqualified defined benefit plan (“Pension Plan”) for its officers. The Pension Plan is noncontributory and provides benefits based on years of service and compensation during employment. The Company determines pension expense using an actuarial cost method to estimate the total benefits ultimately payable to officers and allocates this cost to service periods. The actuarial assumptions used to calculate pension costs are reviewed annually. The Company contributed $1.6 million to the Pension Plan during the three months ended April 30, 2022 and expects to make additional contributions to the Pension Plan of approximately $4.8 million during the remainder of fiscal 2022.

The components of net periodic benefit costs are as follows (in thousands):

Three Months Ended

    

April 30,

    

May 1,

2022

2021

Components of net periodic benefit costs:

Service cost

$

1,019

$

1,067

Interest cost

 

1,697

 

1,437

Net actuarial loss

 

239

 

697

Net periodic benefit costs

$

2,955

$

3,201

The service cost component of net periodic benefit costs is included in selling, general and administrative expenses, and the interest cost and net actuarial loss components are included in other expense.

Note 7. Revolving Credit Agreement

The Company maintains a 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 provides a borrowing capacity of $800 million, subject to certain limitations as outlined in the credit agreement, with a $200 million expansion option.

In April 2021, the Company amended the credit agreement (the "2021 amendment"). Pursuant to the 2021 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 LIBOR plus 1.75% if average quarterly availability is less than 50% of the total commitment, as defined in the 2021 amended credit agreement ("total commitment"), and the rate of interest on borrowings is LIBOR 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 2021 amendment, matures on April 28, 2026.

At April 30, 2022, no borrowings were outstanding, and letters of credit totaling $19.3 million were issued under the credit agreement leaving unutilized availability under the facility of $780.7 million.

Note 8. Stock Repurchase Programs

In March 2018, the Company announced that its Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $500 million of its Class A Common Stock ("March 2018 Stock Plan"). In May 2021, the Company announced that its Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $500 million of its Class A Common Stock ("May 2021 Stock Plan"). In February 2022, the Company announced that its 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 (“February 2022 Stock Plan”). The February 2022 Stock Plan permits the Company to repurchase its Class A Common Stock in the open market,

11

pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934 or through privately negotiated transactions.

The following is a summary of share repurchase activity for the periods indicated (in thousands, except per share data):

    

Three Months Ended

April 30,

    

May 1,

2022

2021

Cost of shares repurchased

$

186,515

$

58,814

Number of shares repurchased

 

735

 

625

Average price per share

$

253.72

$

94.12

All repurchases of the Company’s Class A Common Stock above 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 April 30, 2022, the Company had completed the authorized purchases under the March 2018 Stock Plan and the May 2021 Stock Plan, and $425.5 million of authorization remained under the February 2022 Stock Plan.

Note 9. Income Taxes

During the three months ended April 30, 2022 and May 1, 2021, income tax expense differed from what would be computed using the statutory federal income tax rate primarily due to the effects of state and local income taxes.

Note 10. Leases

The Company leases retail stores, office space and equipment under operating leases. As of April 30, 2022, January 29, 2022, and May 1, 2021, right-of-use operating lease assets, which are recorded in operating lease assets in the condensed consolidated balance sheets, totaled $39.7 million, $42.9 million and $47.7 million, respectively, and operating lease liabilities, which are recorded in current portion of operating lease liabilities and operating lease liabilities, totaled $39.9 million, $42.7 million and $47.5 million, respectively.

In determining our operating lease assets and operating lease liabilities, we apply an incremental borrowing rate to the minimum lease payments within each lease agreement. GAAP requires the use of the rate implicit in the lease whenever that rate is readily determinable; furthermore, if the implicit rate is not readily determinable, a lessee may use its incremental borrowing rate. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. To estimate our specific incremental borrowing rates that align with applicable lease terms, we utilize a model consistent with the credit quality of our outstanding debt instruments.

Renewal options of five to 10 years exist on the majority of leased properties. The Company has sole discretion in exercising the lease renewal options. We do not recognize operating lease assets or operating lease liabilities at lease inception for renewal periods unless we are reasonably certain of exercising the renewal options. The depreciable life of operating lease assets and related leasehold improvements is limited by the expected lease term.

Contingent rentals on certain leases are based on a percentage of annual sales in excess of specified amounts. Other contingent rentals are based entirely on a percentage of sales. The Company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

12

The following table summarizes the Company’s operating and finance leases:

    

    

April 30,

    

January 29,

    

May 1,

(in thousands of dollars)

Classification - Condensed Consolidated Balance Sheets

2022

2022

2021

Assets

Finance lease assets

 

Property and equipment, net (a)

$

$

$

185

Operating lease assets

 

Operating lease assets

 

39,743

 

42,941

 

47,716

Total leased assets

$

39,743

$

42,941

$

47,901

Liabilities

 

  

 

  

 

  

 

  

Current

 

  

 

  

 

  

 

  

Finance

 

Current portion of finance lease liabilities

$

$

$

527

Operating

 

Current portion of operating lease liabilities

 

11,344

 

11,712

 

12,960

Noncurrent

 

  

 

  

 

  

 

  

Finance

 

Finance lease liabilities

 

 

 

Operating

 

Operating lease liabilities

 

28,512

 

30,969

 

34,536

Total lease liabilities

 

  

$

39,856

$

42,681

$

48,023

(a)Finance lease assets are recorded net of accumulated amortization of $14.4 million as of May 1, 2021.

    

    

Lease Cost

    

Three Months Ended

(in thousands of dollars)

Classification - Condensed Consolidated Statements of Income

April 30, 2022

May 1, 2021

Operating lease cost (a)

 

Rentals

$

5,079

$

5,111

Finance lease cost

 

  

 

  

 

  

Amortization of leased assets

 

Depreciation and amortization

 

 

62

Interest on lease liabilities

 

Interest and debt expense, net

 

 

14

Net lease cost

 

  

$

5,079

$

5,187

(a)Includes short term lease costs of $1.2 million and $0.4 million for the three months ended April 30, 2022 and May 1, 2021, respectively, and variable lease costs, including contingent rent, of $0.3 million and $0.4 million for the three months ended April 30, 2022 and May 1, 2021, respectively.

Maturities of Lease Liabilities

(in thousands of dollars)

    

Operating

    

Finance

    

Fiscal Year

Leases

Leases

Total

2022 (excluding the three months ended April 30, 2022)

$

10,317

$

$

10,317

2023

 

10,959

 

 

10,959

2024

 

6,289

 

 

6,289

2025

 

5,507

 

 

5,507

2026

 

3,809

 

 

3,809

After 2026

 

10,748

 

 

10,748

Total minimum lease payments

 

47,629

 

 

47,629

Less amount representing interest

 

(7,773)

 

 

(7,773)

Present value of lease liabilities

$

39,856

$

$

39,856

13

Lease Term and Discount Rate

    

April 30,

2022

Weighted-average remaining lease term

 

  

Operating leases

 

5.8

years

Weighted-average discount rate

 

  

Operating leases

 

6.1

%

Other Information

    

Three Months Ended

April 30,

    

May 1,

(in thousands of dollars)

2022

2021

Cash paid for amounts included in the measurement of lease liabilities

 

  

 

  

Operating cash flows from operating leases

$

3,485

$

4,244

Operating cash flows from finance leases

 

 

14

Financing cash flows from finance leases

168

Note 11. Gain on Disposal of Assets

During the three months ended April 30, 2022, the Company recorded proceeds of $8.1 million primarily from the sale of one store property, resulting in a gain of $7.2 million that was recorded in gain on disposal of assets.

During the three months ended May 1, 2021, the Company recorded proceeds of $29.3 million primarily from the sale of three store properties, resulting in a gain of $24.7 million that was recorded in gain on disposal of assets.

Note 12. Fair Value Disclosures

The estimated fair values of financial instruments presented herein have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of amounts the Company could realize in a current market exchange.

The fair value of the Company’s long-term debt and subordinated debentures is based on market prices and is categorized as Level 1 in the fair value hierarchy.

The fair value of the Company’s cash and cash equivalents and accounts receivable approximates their carrying values at April 30, 2022 due to the short-term maturities of these instruments. The fair value of the Company’s long-term debt at April 30, 2022 was approximately $398 million. The carrying value of the Company’s long-term debt at April 30, 2022 was $366.1 million. The fair value of the Company’s subordinated debentures at April 30, 2022 was approximately $218 million. The carrying value of the Company’s subordinated debentures at April 30, 2022 was $200 million.

14

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the condensed consolidated financial statements and the footnotes thereto included elsewhere in this report, as well as the financial and other information included in our Annual Report on Form 10-K for the year ended January 29, 2022.

EXECUTIVE OVERVIEW

The Company’s results for the three months ended April 30, 2022 improved significantly compared to the three months ended May 1, 2021. Positive customer response to the Company’s merchandise selections led to a 23% increase in comparable store sales compared to the prior year first quarter.

Retail gross margin increased significantly to a record high of 47.3% during the three months ended April 30, 2022 compared to 42.6% during the three months ended May 1, 2021. As a result of the robust sales momentum throughout the quarter, the Company experienced strong sell through of its merchandise with notably less promotional and markdown activity compared to the prior year first quarter. The Company continued its efforts to control inventory during the quarter. Inventory increased 4% at April 30, 2022 compared to May 1, 2021 following a 17% decrease in the prior year first quarter.

Selling, general and administrative expenses (“SG&A”) increased to $400.8 million (24.9% of sales) compared to $336.6 million (25.3% of sales) for the prior year first quarter. Increased retail sales during the first quarter of 2022 compared to the first quarter of 2021 provided leverage for these increased expenses as SG&A from retail operations improved 60 basis points of sales. The dollar increase in SG&A expense is primarily due to inflationary wage pressure in a highly competitive employment environment.

The Company reported net income of $251.1 million ($13.68 per share) compared to net income of $158.2 million ($7.25 per share) for the prior year first quarter. Included in net income for the three months ended April 30, 2022 is a pretax gain on disposal of assets of $7.2 million ($5.6 million after tax or $0.31 per share) primarily related to the sale of a store property. Included in net income for the three months ended May 1, 2021 is a pretax gain on disposal of assets of $24.7 million ($19.2 million after tax or $0.88 per share) primarily related to the sale of three store properties.

Cash flows provided by operating activities were $365.2 million for the three months ended April 30, 2022. The Company repurchased 0.7 million shares of its outstanding Class A Common Stock for $186.5 million under its stock repurchase plans during the three months ended April 30, 2022. At April 30, 2022, $425.5 million of authorization remained under the Company’s open stock repurchase plan.

As of April 30, 2022, the Company had working capital of $1,035.5 million (including cash and cash equivalents of $862.2 million) and $566.1 million of total debt outstanding, excluding operating lease liabilities, and including one scheduled debt maturity of $44.8 million at the end of fiscal 2022.

The Company maintained 280 Dillard’s stores, including 29 clearance centers, and an internet store as of April 30, 2022.

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): rising gas prices (in part due to the war in Ukraine and the resulting sanctions imposed on Russia by the U.S. and other countries), increased shipping costs with reduced shipping capacity, U.S. port slowdowns, increasing U.S. wages in a tight labor market as well as some continuing effects from the COVID-19 pandemic. The extent to which our business will be affected by these factors depends on our customer’s ability and willingness to accept price increases and our ability to receive merchandise timely. Accordingly, the related financial impact to fiscal 2022 from these factors cannot be reasonably estimated at this time.

15

Key Performance Indicators

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

    

Three Months Ended

 

April 30,

    

May 1,

 

2022

2021

 

Net sales (in millions)

$

1,611.7

$

1,328.5

Retail stores sales trend

 

22

%  

 

73

%

Comparable retail stores sales trend

 

23

%  

 

*

Gross margin (in millions)

$

750.2

$

554.5

Gross margin as a percentage of net sales

 

46.5

%  

 

41.7

%

Retail gross margin as a percentage of retail net sales

 

47.3

%  

 

42.6

%

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

 

24.9

%  

 

25.3

%

Cash flow provided by operations (in millions)

$

365.2

$

302.4

Total retail store count at end of period

 

280

 

281

Retail sales per square foot

$

34

$

28

Retail store inventory trend

 

4

%  

 

(17)

%

Annualized retail merchandise inventory turnover

 

2.7

 

2.5

* The Company reported no comparable store sales data for the three months ended May 1, 2021 due to the temporary COVID-19-related closures of its brick-and-mortar stores during the first quarter of fiscal 2020 as well as the interdependence between in-store and online sales.

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 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 long-term 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.

16

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 expense, net. Interest and debt expense includes interest, net of interest income 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.

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.

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. The 2021 amendment to our credit agreement included an approach to replace LIBOR with a SOFR-based rate. We have not yet transitioned to a SOFR-based rate and will continue to monitor, assess and plan for the replacement of LIBOR with an alternative rate. We also intend to work with the Wells Fargo Alliance and any other applicable agreements to determine a suitable alternative reference rate.

Seasonality

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.

17

RESULTS OF OPERATIONS

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

Three Months Ended

 

    

April 30,

    

May 1,

 

2022

2021

 

Net sales

100.0

%  

100.0

%

Service charges and other income

 

1.9

 

2.2

 

101.9

 

102.2

Cost of sales

 

53.5

 

58.3

Selling, general and administrative expenses

 

24.9

 

25.3

Depreciation and amortization

 

2.9

 

3.5

Rentals

 

0.3

 

0.4

Interest and debt expense, net

 

0.7

 

0.9

Other expense

 

0.1

 

0.4

Gain on disposal of assets

 

(0.4)

 

(1.9)

Income before income taxes

 

20.1

 

15.3

Income taxes

 

4.5

 

3.4

Net income

15.6

%  

11.9

%

Net Sales

    

Three Months Ended

    

April 30,

May 1,

(in thousands of dollars)

2022

2021

$ Change

Net sales:

 

  

 

  

 

  

Retail operations segment

$

1,580,799

$

1,296,736

$

284,063

Construction segment

 

30,869

 

31,807

 

(938)

Total net sales

$

1,611,668

$

1,328,543

$

283,125

The percent change in the Company’s sales by segment and product category for the three months ended April 30, 2022 compared to the three months ended May 1, 2021 as well as the sales percentage by segment and product category to total net sales for the three months ended April 30, 2022 are as follows:

    

% Change

    

% of

 

2022 - 2021

Net Sales

 

Retail operations segment

 

  

 

  

Cosmetics

 

14.8

%  

14

%

Ladies’ apparel

 

26.3

 

23

Ladies’ accessories and lingerie

 

7.4

 

13

Juniors’ and children’s apparel

 

26.8

 

11

Men’s apparel and accessories

 

33.1

 

19

Shoes

 

22.3

 

15