10-Q 1 dds-20240504x10q.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 May 4, 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)

(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 June 1, 2024     12,247,445

CLASS B COMMON STOCK as of June 1, 2024       3,986,233

Index

DILLARD’S, INC.

Page

Number

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets as of May 4, 2024, February 3, 2024 and April 29, 2023

3

Condensed Consolidated Statements of Income for the Three Months Ended May 4, 2024 and April 29, 2023

4

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended May 4, 2024 and April 29, 2023

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended May 4, 2024 and April 29, 2023

6

Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 4, 2024 and April 29, 2023

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

23

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

25

Item 5.

Other Information

25

Item 6.

Exhibits

26

SIGNATURES

27

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DILLARD’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands)

    

May 4,

    

February 3,

    

April 29,

    

2024

2024

2023

    

Assets

 

  

 

  

 

  

 

Current assets:

 

  

 

  

 

  

 

Cash and cash equivalents

$

817,825

$

808,287

$

848,316

Restricted cash

8,418

Accounts receivable

 

49,251

 

60,547

 

59,050

Short-term investments

347,164

148,036

98,364

Merchandise inventories

 

1,387,684

 

1,093,999

 

1,410,017

Other current assets

 

106,241

 

97,341

 

79,030

Total current assets

 

2,708,165

 

2,208,210

 

2,503,195

Property and equipment (net of accumulated depreciation of $2,682,449, $2,638,167 and $2,623,182, respectively)

 

1,062,993

 

1,074,304

 

1,108,691

Operating lease assets

 

41,909

 

42,681

 

32,869

Deferred income taxes

 

64,017

 

63,951

 

41,801

Other assets

 

60,072

 

59,760

 

62,473

Total assets

$

3,937,156

$

3,448,906

$

3,749,029

Liabilities and stockholders’ equity

 

  

 

  

 

  

Current liabilities:

 

  

 

  

 

  

Trade accounts payable and accrued expenses

$

1,031,325

$

782,545

$

1,099,669

Current portion of operating lease liabilities

11,596

11,252

9,086

Federal and state income taxes

 

87,369

 

33,959

 

82,032

Total current liabilities

 

1,130,290

 

827,756

 

1,190,787

Long-term debt

 

321,487

 

321,461

 

321,381

Operating lease liabilities

 

30,297

 

31,728

 

23,691

Other liabilities

 

380,090

 

370,893

 

330,036

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

 

967,348

 

967,348

 

962,839

Accumulated other comprehensive loss

 

(85,264)

 

(87,208)

 

(64,378)

Retained earnings

 

6,224,268

 

6,048,288

 

5,846,802

Less treasury stock, at cost

 

(5,232,600)

 

(5,232,600)

 

(5,063,369)

Total stockholders’ equity

 

1,874,992

 

1,697,068

 

1,683,134

Total liabilities and stockholders’ equity

$

3,937,156

$

3,448,906

$

3,749,029

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

May 4,

    

April 29,

2024

2023

    

Net sales

$

1,549,051

$

1,583,948

Service charges and other income

 

23,758

 

29,959

 

1,572,809

 

1,613,907

Cost of sales

 

857,825

 

891,261

Selling, general and administrative expenses

 

426,674

 

406,375

Depreciation and amortization

 

46,119

 

45,747

Rentals

 

5,024

 

4,381

Interest and debt (income) expense, net

 

(3,532)

 

123

Other expense

 

6,158

 

4,698

Gain on disposal of assets

 

(267)

 

(1,793)

Income before income taxes

 

234,808

 

263,115

Income taxes

 

54,770

 

61,620

Net income

$

180,038

$

201,495

Earnings per share:

 

  

 

  

Basic and diluted

$

11.09

$

11.85

See notes to condensed consolidated financial statements.

4

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In Thousands)

Three Months Ended

 

May 4,

April 29,

    

2024

    

2023

    

Net income

$

180,038

$

201,495

Other comprehensive income:

 

  

 

  

 

Amortization of retirement plan and other retiree benefit adjustments (net of tax of $239 and $117, respectively)

 

1,944

 

1,344

 

Comprehensive income

$

181,982

$

202,839

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 May 4, 2024

    

    

    

Accumulated 

    

    

    

Additional 

Other 

Common 

Paid-in 

Comprehensive

Retained 

Treasury 

Stock

Capital

 Loss

Earnings

Stock

Total

Balance, February 3, 2024

$

1,240

$

967,348

$

(87,208)

$

6,048,288

$

(5,232,600)

$

1,697,068

Net income

 

 

 

 

180,038

 

 

180,038

Other comprehensive income

 

 

 

1,944

 

 

 

1,944

Cash dividends declared:

 

  

 

  

 

  

 

  

 

  

 

Common stock, $0.25 per share

 

 

 

 

(4,058)

 

 

(4,058)

Balance, May 4, 2024

$

1,240

$

967,348

$

(85,264)

$

6,224,268

$

(5,232,600)

$

1,874,992

Three Months Ended April 29, 2023

    

    

    

Accumulated 

    

    

    

Additional 

Other 

Common 

Paid-in 

Comprehensive

Retained 

Treasury 

Stock

Capital

 Loss

Earnings

Stock

Total

Balance, January 28, 2023

$

1,240

$

962,839

$

(65,722)

$

5,648,700

$

(4,948,419)

$

1,598,638

Net income

 

 

 

 

201,495

 

 

201,495

Other comprehensive income

 

 

 

1,344

 

 

 

1,344

Purchase of 357,154 shares of treasury stock (including excise tax)

 

 

 

 

 

(114,950)

 

(114,950)

Cash dividends declared:

 

  

 

  

 

  

 

  

 

  

 

Common stock, $0.20 per share

 

 

 

 

(3,393)

 

 

(3,393)

Balance, April 29, 2023

$

1,240

$

962,839

$

(64,378)

$

5,846,802

$

(5,063,369)

$

1,683,134

See notes to condensed consolidated financial statements.

6

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

    

Three Months Ended

 

May 4,

    

April 29,

 

2024

2023

    

Operating activities:

 

  

 

  

Net income

$

180,038

$

201,495

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

 

  

 

  

Depreciation and amortization of property and other deferred costs

 

46,516

 

46,155

Gain on disposal of assets

 

(267)

 

(1,793)

Accrued interest on short-term investments

(3,196)

(1,881)

Changes in operating assets and liabilities:

 

  

 

  

Decrease (increase) in accounts receivable

 

11,296

 

(2,098)

Increase in merchandise inventories

 

(293,685)

 

(289,809)

(Increase) decrease in other current assets

 

(9,887)

 

7,163

Increase in other assets

 

(186)

 

(380)

Increase in trade accounts payable and accrued expenses and other liabilities

 

259,484

 

261,600

Increase in income taxes payable

 

54,265

 

60,496

Net cash provided by operating activities

 

244,378

 

280,948

Investing activities:

 

  

 

  

Purchase of property and equipment and capitalized software

 

(35,175)

 

(32,348)

Proceeds from disposal of assets

 

323

 

1,887

Purchase of short-term investments

(245,932)

(97,543)

Proceeds from maturities of short-term investments

50,000

149,962

Net cash (used in) provided by investing activities

 

(230,784)

 

21,958

Financing activities:

 

  

 

  

Cash dividends paid

 

(4,056)

 

(3,425)

Purchase of treasury stock

 

 

(103,078)

Net cash used in financing activities

 

(4,056)

 

(106,503)

Increase in cash and cash equivalents and restricted cash

 

9,538

 

196,403

Cash and cash equivalents and restricted cash, beginning of period

 

808,287

 

660,331

Cash and cash equivalents and restricted cash, end of period

$

817,825

$

856,734

Non-cash transactions:

 

  

 

  

Accrued capital expenditures

$

6,405

$

8,608

Accrued purchases of treasury stock and excise taxes

11,872

Lease assets obtained in exchange for new operating lease liabilities

 

2,152

 

1,807

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 May 4, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending February 1, 2025 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 February 3, 2024 filed with the SEC on March 29, 2024.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows.

May 4,

    

April 29,

(in thousands of dollars)

2024

2023

Cash and cash equivalents

$

817,825

$

848,316

Restricted cash

8,418

Total cash and cash equivalents and restricted cash

$

817,825

$

856,734

Note 2. Accounting Standards

Recently Adopted Accounting Pronouncements

There have been no recently adopted accounting pronouncements that had a material impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

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

Improvements to Reportable Segment Disclosures

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The update modifies the disclosure/presentation requirements of reportable segments. The amendments in the update require the disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit and loss. The amendments also require disclosure of all other segment items by reportable segment and a description of its composition. Additionally, the amendments require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements and accompanying notes.

8

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The update requires increased transparency in tax disclosures, specifically by expanding requirements for rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that this ASU will have on its income tax disclosures.

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 segment, the Company determined its operating segments on a store by store basis. Each store’s operating performance has been aggregated into one reportable segment for financial reporting purposes because stores 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 retail operations segment would not provide meaningful additional information.

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

Three Months Ended

May 4,

April 29,

2024

    

2023

 

Retail operations segment:

  

  

 

Cosmetics

16

%  

15

%

Ladies’ apparel

23

 

23

Ladies’ accessories and lingerie

 

12

 

12

Juniors’ and children’s apparel

 

10

 

10

Men’s apparel and accessories

 

17

 

18

Shoes

 

15

 

15

Home and furniture

 

3

 

3

 

96

 

96

Construction segment

 

4

 

4

Total

100

%  

100

%

9

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 May 4, 2024

 

  

 

  

 

  

Net sales from external customers

$

1,492,643

$

56,408

$

1,549,051

Gross margin

 

689,185

 

2,041

 

691,226

Depreciation and amortization

 

46,051

 

68

 

46,119

Interest and debt (income) expense, net

 

(3,288)

 

(244)

 

(3,532)

Income (loss) before income taxes

 

235,206

 

(398)

 

234,808

Total assets

 

3,863,603

 

73,553

 

3,937,156

Three Months Ended April 29, 2023

 

  

 

  

 

  

Net sales from external customers

$

1,514,933

$

69,015

$

1,583,948

Gross margin

 

690,389

 

2,298

 

692,687

Depreciation and amortization

 

45,687

 

60

 

45,747

Interest and debt expense (income), net

 

228

 

(105)

 

123

Income before income taxes

 

262,823

 

292

 

263,115

Total assets

 

3,686,633

 

62,396

 

3,749,029

Intersegment construction revenues of $9.4 million and $10.4 million for the three months ended May 4, 2024 and April 29, 2023, 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 customer loyalty program liability and a portion of the gift card liability are 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

May 4,

February 3,

April 29,

January 28,

     

(in thousands of dollars)

    

2024

    

2024

    

2023

    

2023

Contract liabilities

$

75,075

$

85,227

$

76,011

$

83,909

During the three months ended May 4, 2024 and April 29, 2023, the Company recorded $25.0 million and $24.3 million, respectively, in revenue that was previously included in the retail operations contract liability balances of $85.2 million and $83.9 million at February 3, 2024 and January 28, 2023, respectively.

10

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, respectively, in the condensed consolidated balance sheets. The amounts included in the condensed consolidated balance sheets are as follows:

Construction

    

    

    

    

    

May 4,

February 3,

April 29,

January 28,

     

(in thousands of dollars)

2024

2024

2023

2023

Accounts receivable

$

39,773

$

47,240

$

48,334

$

44,286

Costs and estimated earnings in excess of billings on uncompleted contracts

 

16,707

 

1,695

 

1,473

 

798

Billings in excess of costs and estimated earnings on uncompleted contracts

 

7,426

 

6,307

 

10,095

 

10,909

During the three months ended May 4, 2024 and April 29, 2023, the Company recorded $5.1 million and $9.5 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 $10.9 million at February 3, 2024 and January 28, 2023, respectively.

The remaining performance obligations related to executed construction contracts totaled $187.0 million, $163.7 million and $201.8 million at May 4, 2024, February 3, 2024 and April 29, 2023, respectively.

Note 4. Earnings Per Share

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

    

May 4,

    

April 29,

2024

2023

Net income

$

180,038

$

201,495

Weighted average shares of common stock outstanding

 

16,230

 

17,004

Basic and diluted earnings per share

$

11.09

$

11.85

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 May 4, 2024 and April 29, 2023.

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 materially affect the Company’s financial position, cash flows or results of operations.

At May 4, 2024, letters of credit totaling $25.8 million were issued under the Company’s revolving credit facility. See Note 7, Revolving Credit Agreement, for additional information.

11

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. Pension expense is determined 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 $1.8 million to the Pension Plan during the three months ended May 4, 2024 and expects to make additional contributions to the Pension Plan of approximately $5.6 million during the remainder of fiscal 2024.

The components of net periodic benefit costs are as follows:

    

Three Months Ended

May 4,

    

April 29,

    

(in thousands of dollars)

2024

2023

Components of net periodic benefit costs:

Service cost

$

1,589

$

1,262

Interest cost

 

3,975

 

3,237

Net actuarial loss

 

2,183

 

1,461

Net periodic benefit costs

$

7,747

$

5,960

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

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, which is secured by certain deposit accounts of the Company and certain inventory of certain subsidiaries, 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, as defined in the 2023 amendment, 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.

At May 4, 2024, no borrowings were outstanding, and letters of credit totaling $25.8 million were issued under the credit agreement leaving unutilized availability under the facility of $774.2 million.

Note 8. Stock Repurchase Programs

In February 2022, 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 (“February 2022 Stock Plan”). 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 (“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

12

of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or through privately negotiated transactions. The May 2023 Stock Plan has no expiration date.

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

    

Three Months Ended

    

May 4,

    

April 29,

2024

2023

   

Cost of shares repurchased

$

$

113,810

Number of shares repurchased

 

 

357

Average price per share

$

$

318.66

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 May 4, 2024, the Company had completed the authorized purchases under the February 2022 Stock Plan, and $394.0 million of authorization remained under the May 2023 Stock Plan.

Note 9. Income Taxes

During the three months ended May 4, 2024 and April 29, 2023, 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. Gain on Disposal of Assets

During the three months ended April 29, 2023, the Company recorded proceeds of $1.9 million primarily from the sale of one store property, resulting in a gain of $1.8 million that was recorded in gain on disposal of assets.

Note 11. 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 are based on market prices and are categorized as Level 1 in the fair value hierarchy.

The fair value of the Company’s cash and cash equivalents and trade accounts receivable approximates their carrying values at May 4, 2024 due to the short-term maturities of these instruments. The Company’s short-term investments are recorded at amortized cost, which is consistent with the Company’s held-to-maturity classification. The fair value of the Company’s long-term debt at May 4, 2024 was approximately $334 million. The carrying value of the Company’s long-term debt at May 4, 2024 was approximately $321 million. The fair value of the Company’s subordinated debentures at May 4, 2024 was approximately $206 million. The carrying value of the Company’s subordinated debentures at May 4, 2024 was $200 million.

13

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 fiscal year ended February 3, 2024.

EXECUTIVE OVERVIEW

The Company noted a continued challenging consumer environment during the three months ended May 4, 2024 with comparable retail sales declining 2%. However, retail gross margin was 46.2% of sales (compared to 45.6% of sales for the three months ended April 29, 2023) leading to a profitable first quarter of 2024. Management attributes the strong gross margin performance to its focus on producing profitable sales by offering interesting product combined with inventory control.

For the three months ended May 4, 2024, the Company reported net income of $180.0 million ($11.09 per share) compared to net income of $201.5 million ($11.85 per share) for the prior year first quarter. Included in net income for the three months ended April 29, 2023 is a pretax gain of $1.8 million ($1.4 million after tax or $0.08 per share) primarily related to the sale of a store property.

Selling, general and administrative (“SG&A”) expenses for the three months ended May 4, 2024 increased to $426.7 million (27.5% of sales) from $406.4 million (25.7% of sales) for the prior year first quarter. The increase of $20.3 million is primarily the result of increased payroll expenses.

Net cash provided by operating activities was $244.4 million for the three months ended May 4, 2024 compared to $280.9 million for the prior year first quarter.

As of May 4, 2024, the Company had working capital of $1,577.9 million (including cash and cash equivalents of $817.8 million and short-term investments of $347.2 million) and $521.5 million of total debt outstanding, including $321.5 million of long-term debt and $200.0 million of subordinated debentures.

The Company operated 274 Dillard’s stores, including 29 clearance centers, and an internet store as of May 4, 2024.

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

May 4,

    

April 29,

    

2024

2023

    

Net sales (in millions)

$

1,549.1

$

1,583.9

Retail stores sales trend

 

(1)

%  

 

(4)

%  

Comparable retail stores sales trend

 

(2)

%  

 

(4)

%  

Gross margin (in millions)

$

691.2

$

692.7

Gross margin as a percentage of net sales

 

44.6

%  

 

43.7

%  

Retail gross margin as a percentage of retail net sales

 

46.2

%  

 

45.6

%  

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

 

27.5

%  

 

25.7

%  

Cash flow provided by operations (in millions)

$

244.4

$

280.9

Total retail store count at end of period

 

274

 

274

Retail sales per square foot

$

33

$

33

Retail store inventory trend

 

(2)

%  

 

3

%  

Annualized retail merchandise inventory turnover

 

2.5

 

2.5

14

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 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.

15

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.

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

May 4,

    

April 29,

    

2024

2023

Net sales

 

100.0

%  

100.0

%  

Service charges and other income

 

1.5

 

1.9

 

 

101.5

 

101.9

 

Cost of sales

 

55.4

 

56.3

 

Selling, general and administrative expenses

 

27.5

 

25.7

 

Depreciation and amortization

 

3.0

 

2.9

 

Rentals

 

0.3

 

0.3

 

Interest and debt (income) expense, net

 

(0.2)

 

0.0

 

Other expense

 

0.4

 

0.3

 

Gain on disposal of assets

 

0.0

 

(0.1)

 

Income before income taxes

15.2

16.6

Income taxes

 

3.5

 

3.9

 

Net income

 

11.6

%  

12.7

%  

Net Sales

    

Three Months Ended

    

May 4,

April 29,

(in thousands of dollars)

2024

2023

$ Change

Net sales:

 

  

 

  

 

  

Retail operations segment

$

1,492,643

$

1,514,933

$

(22,290)

Construction segment

 

56,408

 

69,015

 

(12,607)

Total net sales

$

1,549,051

$

1,583,948

$

(34,897)

16

The percent change by segment and product category in the Company’s sales for the three months ended May 4, 2024 compared to the three months ended April 29, 2023 as well as the sales percentage by segment and product category to total net sales for the three months ended May 4, 2024 are as follows: 

    

% Change

    

% of

 

2024 - 2023

Net Sales

 

Retail operations segment

 

  

 

  

Cosmetics

 

4.6

%  

16

%

Ladies’ apparel

 

(1.0)

 

23

Ladies’ accessories and lingerie

 

(0.5)

 

12

Juniors’ and children’s apparel

 

(3.8)

 

10

Men’s apparel and accessories

 

(4.6)

 

17

Shoes

 

(3.6)

 

15

Home and furniture

 

(0.7)

 

3

 

96

Construction segment

 

(18.3)

 

4

Total

 

100

%

Net sales from the retail operations segment decreased $22.3 million, or approximately 1%, and sales in comparable stores decreased approximately 2% during the three months ended May 4, 2024 compared to the three months ended April 29, 2023. Sales in men’s apparel and accessories decreased significantly, while sales in juniors’ and children’s apparel and shoes decreased moderately. Sales in ladies’ apparel and home and furniture decreased slightly, while sales in ladies’ accessories and lingerie remained essentially flat. Sales in cosmetics increased significantly.

The number of sales transactions decreased by 5% for the three months ended May 4, 2024 compared to the three months ended April 29, 2023, while the average dollars per sales transaction increased by 4%.

We recorded a return asset of $13.5 million and $13.9 million and an allowance for sales returns of $27.2 million and $27.8 million as of May 4, 2024 and April 29, 2023, respectively.

During the three months ended May 4, 2024, net sales from the construction segment decreased $12.6 million, or approximately 18%, compared to the three months ended April 29, 2023, due to a decrease in construction activity. The remaining performance obligations related to executed construction contracts totaled $187.0 million as of May 4, 2024, increasing approximately 14% from February 3, 2024 and decreasing approximately 7% from April 29, 2023, respectively. We expect these remaining performance obligations to be satisfied over the next nine to eighteen months.

Service Charges and Other Income

Three

    

Three Months Ended

    

 Months

May 4,

April 29,

$ Change

(in thousands of dollars)

2024

    

2023

2024 - 2023

Service charges and other income:

  

  

  

Retail operations segment

  

  

  

Income from Wells Fargo Alliance

$

11,635

$

16,859

$

(5,224)

Shipping and handling income

 

8,968

 

9,971

 

(1,003)

Other

 

3,056

 

3,053

 

3

 

23,659

 

29,883

 

(6,224)

Construction segment

 

99

 

76

 

23

Total service charges and other income

$

23,758

$

29,959

$

(6,201)

Service charges and other income is composed primarily of income from the Wells Fargo Alliance. Income from the alliance decreased $5.2 million partially due to increases in credit losses.

17

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. 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

    

May 4,

    

April 29,

    

    

 

(in thousands of dollars)

2024

2023

$ Change

% Change

Gross margin:

  

  

  

  

 

Three months ended

 

  

 

  

 

  

 

  

Retail operations segment

$

689,185

$

690,389

$

(1,204)

 

(0.2)

%

Construction segment

 

2,041

 

2,298

 

(257)

 

(11.2)

Total gross margin

$

691,226

$

692,687

$

(1,461)

 

(0.2)

%

    

Three Months Ended

 

May 4,

April 29,

 

2024

    

2023

Gross margin as a percentage of segment net sales:

  

  

 

Retail operations segment

 

46.2

%  

45.6

%

Construction segment

 

3.6

 

3.3

Total gross margin as a percentage of net sales

 

44.6

 

43.7

Gross margin, as a percentage of sales, increased to 44.6% from 43.7% during the three months ended May 4, 2024 compared to the three months ended April 29, 2023.

Gross margin from retail operations, as a percentage of sales, increased to 46.2% from 45.6% during the three months ended May 4, 2024 compared to the three months ended April 29, 2023. Gross margin increased moderately in home and furniture and ladies’ accessories and lingerie, while increasing slightly in men’s apparel and accessories, ladies’ apparel and juniors’ and children’s apparel. Gross margin remained essentially flat in shoes and cosmetics.

Total inventory decreased 2% at May 4, 2024 compared to April 29, 2023. A 1% change in the dollar amount of markdowns would have impacted net income by approximately $1 million for the three months ended May 4, 2024.

Inflation and rising interest costs 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.

18

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