Dillard's rebounds in 2Q

Don Hogsett, September 9, 2002

Building margins, slashing costs, paying down debt and working off its stockpiles, department store retailer Dillard's Inc. climbed back on track with a second-quarter profit before one-time items of 12.5 million, recovering from a year-ago loss of $20.6 million.

But tugging at the bottom line was a $5.8 million charge stemming from the early retirement of debt, leaving the retailer with a net profit of $6.7 million.

Stunted by store closings, Dillard's sales dipped slightly, by 0.6 percent, to $1.82 billion from $1.83 billion last year. Same-store sales were flat.

Home remained the weakest of all of Dillard's merchandise categories during the second quarter, with same-store sales declining by 7.0 percent. Almost as bad was men's clothing, with same-store sales falling off by 4.0 percent. Cosmetics slipped by 2.0 percent. The strongest categories were children's clothing, up by 4.0 percent, followed by womens' and juniors' with a 3.0 percent increase.

Helping to fuel the earnings recovery, Dillard's boosted its average gross margin by 180 basis points, or 1.8 percentage points, to 34.1 percent from 32.3 percent a year ago. Despite the slightly lower level of sales, gross margin dollars increased by 5.2 percent, to $620.7 million from $589.9 million a year ago. The company credited an improved merchandise mix, a stronger competitive position and increased penetration of its private-brand merchandise as it replaces "underperforming branded vendors with Dillard's private brands."

At the same time, Dillard's hacked away at overhead, reducing its expenses by 1.3 percent, or $6.9 million, to $531.0 million from $537.9 million last year. As a percentage of lower sales, expenses were pared by 20 basis points, to 29.2 percent from 29.4 percent.

As the retailer paid down long-term debt, it whittled down its interest expense by 8.0 percent, to $46.9 million from $51.0 million last year, generating a cash savings of $4.1 million.

Dillard's retired $210.1 million of long-term debt in advance of its scheduled maturity dates during the period. Additionally, the retailer improved its cash position to $118.5 million from $53.2 million the preceding year.

Dillard's Inc.

Qtr. 8/3 (x000) 2002 2001 % change
a-Second-quarter results include a $900,000 pre-tax net gain for asset impairment and store-closing charges, compared with a prior-year charge of $2.0 million. Accounting for the second-quarter gain, Dillard's recorded a $7.1 million charge for asset impairment and the closing of six stores and received forgiveness of a lease obligation of $8 million in connection with the sale of a closed store in Memphis, TN; a $5.8 million loss on the early retirement of debt, compared with a prior-year gain of $2.0 million; and a tax liability of $7.0 million, compared with a prior-year tax benefit of $12.7 million. Excluding one-time items, the retailer recorded net income of $12.5 million, recovering from a year-before loss of $20.6 million.
b-Six-month results include the $900,000 pre-tax gain from asset impairment and store closing costs, compared with a prior-year charge of $2.0 million; a $5.5 million loss on the early retirement of debt. Compared with a $5.1 million gain the year before; and a $530.3 million non-cash charge stemming from a change in accounting. Excluding the one-time items, Dillard's recorded a six-month profit of $70.3 million, up from $5.3 million a year ago.
Sales $1,818,000 $1,828,300 -0.6
Oper. income (EBIT) 65,500 19,700 232.5
Net income 6,700a (18,600)a
Per share (diluted) 0.08 (0.22)
Average gross margin 34.1% 32.3%
SG&A expenses 29.2% 29.4%
Six months
Sales 3,728,000 3,748,600 -0.5
Oper. income (EBIT) 201,100 112,600 78.6
Net income (465,500)b 10,400b
Per share (diluted) (5.52) 0.12
Average gross margin 35.0% 33.5%
SG&A expenses 28.2% 28.8%

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