Dillard's Trims Inventory, Turns Profit

Don Hogsett, August 21, 2006

Putting behind the $6.0 million in store closing costs that dogged the bottom line a year ago, pocketing $13.5 million from the sale of its interest in a shopping mall, and another $6.5 million as its share of the Visa/MasterCard antitrust settlement, and saving cash by cutting stockpiles, Dillard's Inc. extended its recent turnaround. The retailer recorded a second-quarter profit of $15.7 million, and reversed a year-before loss of $12.3 million.

The two big one-time gains, along with an income-tax benefit of $10.3 million, more than offset a $21.7 million charge to settle litigation.

Sales were virtually flat, dipping by 0.2% to $1.69 billion. Same-store sales edged off by 0.2%.

On an operational basis, average gross margin improved by 110 basis points, or 1.1 percentage points, to 33.5% from 32.4% last year. But acting as a drag, operating costs climbed higher by 170 basis points, or 1.7 percentage points, to 30.3% of sales from 28.6% during the same period a year ago.

In a lift to the bottom line, Dillard's pared its interest costs by 9.6%, to $24.6 million from $27.2 million, generating a cash savings of $2.6 million. In another big savings, inventories were whittled down by 2.9%, to $1.9 billion, yielding a savings of $56.4 million.

Dillard's Inc.

Qtr. 7/29 (x000) 2006 2005 % change
a. Second-quarter results include an income-tax benefit of $10.3 million, compared with a prior-year tax benefit of $7.1 million. The second quarter of 2005 included a $6.0 million asset impairment and store closing charge.
b. Earnings in the first six months of 2005 were reduced by a $6.4 million asset impairment and store closing charge.
Sales $1,687,700 $1,691,900 -0.2
Oper. income (EBIT) 115,600 99,800 15.8
Net income 15,007a (12,300)a
Per share (diluted) 0.20 (0.15)
Average gross margin 33.5% 32.4%
SG&A expenses 30.3% 28.6%
Six months
Sales 3,525,200 3,494,900 0.9
Oper. income (EBIT) 320,700 270,900 18.4
Net income 77,100b 25,700b 200.0
Per share (diluted) 0.97 0.31 212.9
Average gross margin 34.7% 33.8%
SG&A expenses 28.5% 28.1%

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