10-Q 1 dds-20221029x10q.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 October 29, 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 November 26, 2022     13,138,681

CLASS B COMMON STOCK as of November 26, 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 October 29, 2022, January 29, 2022 and October 30, 2021

3

Condensed Consolidated Statements of Income for the Three and Nine Months Ended October 29, 2022 and October 30, 2021

4

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended October 29, 2022 and October 30, 2021

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended October 29, 2022 and October 30, 2021

6

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 29, 2022 and October 30, 2021

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 6.

Exhibits

31

SIGNATURES

32

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DILLARD’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands)

    

October 29,

    

January 29,

    

October 30,

2022

2022

2021

Assets

 

  

 

  

 

  

Current assets:

 

  

 

  

 

  

Cash and cash equivalents

$

532,708

$

716,759

$

619,721

Accounts receivable

 

40,476

 

39,777

 

28,472

Short-term investments

197,971

Merchandise inventories

 

1,644,793

 

1,080,178

 

1,525,860

Federal and state income taxes

 

 

 

99,764

Other current assets

 

99,471

 

77,937

 

102,981

Total current assets

 

2,515,419

 

1,914,651

 

2,376,798

Property and equipment (net of accumulated depreciation and amortization of $2,647,231, $2,517,915 and $2,586,059, respectively)

 

1,146,064

 

1,190,151

 

1,218,840

Operating lease assets

 

36,663

 

42,941

 

41,189

Deferred income taxes

 

30,841

 

28,931

 

34,809

Other assets

 

63,646

 

68,883

 

68,560

Total assets

$

3,792,633

$

3,245,557

$

3,740,196

Liabilities and stockholders’ equity

 

  

 

  

 

  

Current liabilities:

 

  

 

  

 

  

Trade accounts payable and accrued expenses

$

1,293,699

$

886,233

$

1,285,786

Current portion of long-term debt

 

44,800

 

44,800

 

Current portion of finance lease liabilities

 

 

 

180

Current portion of operating lease liabilities

10,332

11,712

11,432

Federal and state income taxes

 

7,418

 

23,441

 

Total current liabilities

 

1,356,249

 

966,186

 

1,297,398

Long-term debt

 

321,327

 

321,247

 

365,982

Operating lease liabilities

 

26,232

 

30,969

 

29,293

Other liabilities

 

279,471

 

275,937

 

283,323

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

 

958,974

 

956,653

 

955,198

Accumulated other comprehensive loss

 

(22,254)

 

(22,798)

 

(33,350)

Retained earnings

 

5,619,813

 

5,027,922

 

5,002,074

Less treasury stock, at cost

 

(4,948,419)

 

(4,511,799)

 

(4,360,962)

Total stockholders’ equity

 

1,609,354

 

1,451,218

 

1,564,200

Total liabilities and stockholders’ equity

$

3,792,633

$

3,245,557

$

3,740,196

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

    

Nine Months Ended

October 29,

    

October 30,

October 29,

    

October 30,

2022

2021

2022

2021

Net sales

$

1,544,142

$

1,480,999

$

4,744,430

$

4,379,920

Service charges and other income

 

28,930

 

30,913

 

89,311

 

90,959

 

1,573,072

 

1,511,912

 

4,833,741

 

4,470,879

Cost of sales

 

855,677

 

796,276

 

2,658,331

 

2,497,575

Selling, general and administrative expenses

 

413,838

 

393,191

 

1,215,943

 

1,095,673

Depreciation and amortization

 

46,665

 

50,188

 

140,793

 

146,639

Rentals

 

5,272

 

4,947

 

15,667

 

15,157

Interest and debt expense, net

 

6,957

 

10,550

 

27,108

 

32,856

Other expense

 

1,936

 

2,134

 

5,808

 

9,232

Gain on disposal of assets

 

(2)

 

(4)

 

(7,240)

 

(24,686)

Income before income taxes

 

242,729

 

254,630

 

777,331

 

698,433

Income taxes

 

54,820

 

57,300

 

174,880

 

157,200

Net income

$

187,909

$

197,330

$

602,451

$

541,233

Earnings per share:

 

  

 

  

 

  

 

  

Basic and diluted

$

10.96

$

9.81

$

34.05

$

25.76

See notes to condensed consolidated financial statements.

4

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In Thousands)

    

Three Months Ended

Nine Months Ended

October 29,

October 30,

October 29,

October 30,

2022

    

2021

    

2022

    

2021

Net income

$

187,909

$

197,330

$

602,451

$

541,233

Other comprehensive income:

 

  

 

  

 

  

 

  

Amortization of retirement plan and other retiree benefit adjustments (net of tax of $58, $168, $174 and $505, respectively)

 

181

 

528

 

544

 

1,585

Comprehensive income

$

188,090

$

197,858

$

602,995

$

542,818

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 October 29, 2022

    

    

    

Accumulated 

    

    

    

Additional 

Other 

Common 

Paid-in 

Comprehensive

Retained 

Treasury 

Stock

Capital

 Loss

Earnings

Stock

Total

Balance, July 30, 2022

$

1,240

$

958,974

$

(22,435)

$

5,435,331

$

(4,924,109)

$

1,449,001

Net income

 

 

 

 

187,909

 

 

187,909

Other comprehensive income

 

 

 

181

 

 

 

181

Purchase of 98,983 shares of treasury stock

 

 

 

 

 

(24,310)

 

(24,310)

Cash dividends declared:

 

  

 

  

 

  

 

  

 

  

 

Common stock, $0.20 per share

 

 

 

 

(3,427)

 

 

(3,427)

Balance, October 29, 2022

$

1,240

$

958,974

$

(22,254)

$

5,619,813

$

(4,948,419)

$

1,609,354

Three Months Ended October 30, 2021

    

    

    

Accumulated 

    

    

    

Additional 

Other 

Common 

Paid-in 

Comprehensive

Retained 

Treasury 

Stock

Capital

 Loss

Earnings

Stock

Total

Balance, July 31, 2021

$

1,240

$

955,198

$

(33,878)

$

4,808,737

$

(4,121,718)

$

1,609,579

Net income

 

 

 

 

197,330

 

 

197,330

Other comprehensive income

 

 

 

528

 

 

 

528

Purchase of 1,230,705 shares of treasury stock

 

 

 

 

 

(239,244)

 

(239,244)

Cash dividends declared:

 

  

 

  

 

  

 

  

 

  

 

Common stock, $0.20 per share

 

 

 

 

(3,993)

 

 

(3,993)

Balance, October 30, 2021

$

1,240

$

955,198

$

(33,350)

$

5,002,074

$

(4,360,962)

$

1,564,200

Nine Months Ended October 29, 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

 

 

 

 

602,451

 

 

602,451

Other comprehensive income

 

 

 

544

 

 

 

544

Issuance of 9,000 shares under equity plans

 

 

2,321

 

 

 

 

2,321

Purchase of 1,708,918 shares of treasury stock

 

 

 

 

 

(436,620)

 

(436,620)

Cash dividends declared:

 

  

 

  

 

  

 

  

 

  

 

  

Common stock, $0.60 per share

 

 

 

 

(10,560)

 

 

(10,560)

Balance, October 29, 2022

$

1,240

$

958,974

$

(22,254)

$

5,619,813

$

(4,948,419)

$

1,609,354

6

Nine Months Ended October 30, 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

 

 

 

 

541,233

 

 

541,233

Other comprehensive income

 

 

 

1,585

 

 

 

1,585

Issuance of 9,000 shares under equity plans

 

 

1,067

 

 

 

 

1,067

Purchase of 2,590,065 shares of treasury stock

 

 

 

 

 

(410,265)

 

(410,265)

Cash dividends declared:

 

  

 

  

 

  

 

  

 

  

 

  

Common stock, $0.50 per share

 

 

 

 

(10,428)

 

 

(10,428)

Balance, October 30, 2021

$

1,240

$

955,198

$

(33,350)

$

5,002,074

$

(4,360,962)

$

1,564,200

See notes to condensed consolidated financial statements.

7

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

    

Nine Months Ended

October 29,

    

October 30,

2022

2021

Operating activities:

 

  

 

  

Net income

$

602,451

$

541,233

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

 

  

 

  

Depreciation and amortization of property and other deferred cost

 

141,978

 

148,319

Gain on disposal of assets

 

(7,240)

 

(24,686)

Proceeds from insurance

 

 

2,902

Loss on early extinguishment of debt

 

 

2,830

Accrued interest on short-term investments

(1,155)

Changes in operating assets and liabilities:

 

  

 

  

(Increase) decrease in accounts receivable

 

(699)

 

8,221

Increase in merchandise inventories

 

(564,615)

 

(438,097)

Increase in other current assets

 

(18,416)

 

(49,214)

Increase in other assets

 

(213)

 

(2,492)

Increase in trade accounts payable and accrued expenses and other liabilities

 

425,248

 

528,087

(Decrease) increase in income taxes

 

(18,918)

 

10,980

Net cash provided by operating activities

 

558,421

 

728,083

Investing activities:

 

  

 

  

Purchase of property and equipment and capitalized software

 

(94,771)

 

(79,748)

Proceeds from disposal of assets

 

8,095

 

29,293

Proceeds from insurance

 

4,886

 

3,801

Purchase of short-term investments

(196,816)

Distribution from joint venture

 

 

1,475

Net cash used in investing activities

 

(278,606)

 

(45,179)

Financing activities:

 

  

 

  

Principal payments on long-term debt and finance lease liabilities

 

 

(515)

Issuance cost of line of credit

 

 

(3,008)

Cash dividends paid

 

(11,013)

 

(9,734)

Purchase of treasury stock

 

(452,853)

 

(410,265)

Net cash used in financing activities

 

(463,866)

 

(423,522)

(Decrease) increase in cash and cash equivalents

 

(184,051)

 

259,382

Cash and cash equivalents, beginning of period

 

716,759

 

360,339

Cash and cash equivalents, end of period

$

532,708

$

619,721

Non-cash transactions:

 

  

 

  

Accrued capital expenditures

$

8,757

$

7,168

Stock awards

 

2,321

 

1,067

Lease assets obtained in exchange for new operating lease liabilities

 

3,392

 

4,536

See notes to condensed consolidated financial statements.

8

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 and nine months ended October 29, 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.

During the fiscal quarter ended July 30, 2022, the Company began purchasing short-term investments. Short-term investments are securities with original maturities of greater than three months but less than twelve months and are comprised of U.S. Treasury Bills. The Company determines the classification of these securities as trading, available for sale or held to maturity at the time of purchase and re-evaluates these determinations at each balance sheet date. Our short-term investments are classified as held-to-maturity for the period presented as we have the positive intent and ability to hold these investments to maturity. Our held-to-maturity investments are stated at amortized cost, which approximated fair value, and are periodically assessed for other-than-temporary impairment.

Note 2. Accounting Standards

Recently Issued Accounting Pronouncements

Except as noted below, the Company has considered all recent accounting pronouncements and Management believes there is no accounting guidance issued but not yet effective that would be relevant to the Company’s current condensed consolidated financial statements.

Disclosure of Supplier Finance Program Obligations

In September 2022, the Financial Accounting Standards Board issued accounting standards update ("ASU") No. 2022-04, Disclosure of Supplier Finance Program Obligations. The ASU is intended to enhance the transparency of the use of supplier finance programs by requiring that the buyers in those programs provide additional disclosures about the program’s nature and potential magnitude, including a rollforward of the obligations and activity during the period. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2022, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. The amendments in the update should be applied retrospectively, except for the amendment on rollforward information, which should be applied prospectively. The Company is currently assessing the impact of this ASU on our condensed consolidated 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

9

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.

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

    

Three Months Ended

    

Nine Months Ended

 

October 29,

October 30,

October 29,

October 30,

2022

    

2021

2022

    

2021

 

Retail operations segment

  

  

  

  

 

Cosmetics

 

14

%  

13

%

13

%  

13

%

Ladies’ apparel

 

21

 

22

 

23

 

23

Ladies’ accessories and lingerie

 

13

 

14

 

14

 

15

Juniors’ and children’s apparel

 

10

 

11

 

10

 

10

Men’s apparel and accessories

 

20

 

20

 

20

 

19

Shoes

 

16

 

16

 

15

 

15

Home and furniture

 

3

 

3

 

3

 

3

 

97

 

99

 

98

 

98

Construction segment

 

3

 

1

 

2

 

2

Total

 

100

%  

100

%

100

%  

100

%

10

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 October 29, 2022

 

  

 

  

 

  

Net sales from external customers

$

1,499,072

$

45,070

$

1,544,142

Gross margin

 

685,643

 

2,822

 

688,465

Depreciation and amortization

 

46,614

 

51

 

46,665

Interest and debt expense (income), net

 

6,984

 

(27)

 

6,957

Income before income taxes

 

241,863

 

866

 

242,729

Total assets

 

3,737,746

 

54,887

 

3,792,633

Three Months Ended October 30, 2021

 

  

 

  

 

  

Net sales from external customers

$

1,460,184

$

20,815

$

1,480,999

Gross margin

 

682,317

 

2,406

 

684,723

Depreciation and amortization

 

50,122

 

66

 

50,188

Interest and debt expense (income), net

 

10,557

 

(7)

 

10,550

Income before income taxes

 

254,152

 

478

 

254,630

Total assets

 

3,703,257

 

36,939

 

3,740,196

Nine Months Ended October 29, 2022

 

  

 

  

 

  

Net sales from external customers

$

4,632,529

$

111,901

$

4,744,430

Gross margin

 

2,079,008

 

7,091

 

2,086,099

Depreciation and amortization

 

140,628

 

165

 

140,793

Interest and debt expense (income), net

 

27,154

 

(46)

 

27,108

Income before income taxes

 

775,965

 

1,366

 

777,331

Total assets

 

3,737,746

 

54,887

 

3,792,633

Nine Months Ended October 30, 2021

 

  

 

  

 

  

Net sales from external customers

$

4,296,316

$

83,604

$

4,379,920

Gross margin

 

1,876,558

 

5,787

 

1,882,345

Depreciation and amortization

 

146,441

 

198

 

146,639

Interest and debt expense (income), net

 

32,889

 

(33)

 

32,856

Income before income taxes

 

697,140

 

1,293

 

698,433

Total assets

 

3,703,257

 

36,939

 

3,740,196

Intersegment construction revenues of $10.7 million and $12.0 million for the three months ended October 29, 2022 and October 30, 2021, respectively, and $32.4 million and $28.6 million for the nine months ended October 29, 2022 and October 30, 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

October 29,

January 29,

October 30,

January 30,

(in thousands of dollars)

    

2022

    

2022

    

2021

    

2021

Contract liabilities

$

67,109

$

80,421

$

59,718

$

68,021

11

During the nine months ended October 29, 2022 and October 30, 2021, the Company recorded $44.8 million and $35.4 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

    

    

    

    

October 29,

January 29,

October 30,

January 30,

(in thousands of dollars)

2022

2022

2021

2021

Accounts receivable

$

31,111

$

25,912

$

18,586

$

25,094

Costs and estimated earnings in excess of billings on uncompleted contracts

 

3,512

 

2,847

 

2,333

 

450

Billings in excess of costs and estimated earnings on uncompleted contracts

 

9,969

 

6,298

 

6,521

 

4,685

During the nine months ended October 29, 2022 and October 30, 2021, the Company recorded $5.7 million and $4.1 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 $232.7 million, $93.9 million and $84.2 million at October 29, 2022, January 29, 2022 and October 30, 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).