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Dillard's sales slowdown results in $19M 2Q loss

Little Rock, AR — Hurt by weakening sales, higher markdowns, higher costs and a $2 million pre-tax charge for shutting down two under-performing stores, Dillard's Inc. recorded a worse-than-expected second-quarter loss of $19 million, compared with a modest year-before profit of $6 million.

Excluding one-time items, the retailer posted a per-share loss — the performance yardstick Wall Street watches — of 22 cents, more than three times the size of the 6 cents a share loss analysts had been expecting.

Also contributing to the weak second quarter was a poor performance by Dillard's home store, where sales declined by 8 percent, making it the weakest of all the retailer's merchandise categories.

Nicked by a continued weak retail environment, sales and same-store sales both declined by 0.8 percent, to $1.83 billion from $1.84 billion last year. And with markdowns accelerating in a more promotional environment, average gross margin thinned by 90 basis points, to 32.3 percent from 33.4 percent the prior year. Gross margin dollars declined by 4.1 percent, to $590 million from $615 million last year.

Putting further pressure on the bottom line, overhead grew by 100 basis points, to 29.4 percent of sales from 28.4 percent a year ago. Measured in real dollars, costs increased by 3.1 percent, or $16 million.

Adding up the costs of shutting down two money-losing stores, the retailer posted a $2 million pre-tax charge, offset by a $2 million gain on the early retirement of debt and an income-tax benefit of $12 million. The retailer said it plans to shutter two more underperforming units by the end of the year.

Chairman and ceo Bill Dillard commented, "We are clearly disappointed with our overall operating results for the second quarter." But he was cheered, he added, by an improving trend moving into July, the closing month of the quarter, when the department store chain saw improvement in sales, margins and operating expense leverage. "We are cautiously optimistic that we are now beginning to see the benefits of our hard work over the past few months to manage our inventory better with a smarter buying philosophy and acceleration of markdowns. Additionally, we are pleased with our accomplishments on the balance sheet — as we accomplished further inventory reduction and debt repayment during the quarter."

Beefing up the balance sheet, Dillard's pared its stockpiles by 5.9 percent, to $1.83 billion from $1.95 billion last year. And long-term debt and capital leases were reduced by 19.2 percent, to $22.2 billion from $27.4 billion a year ago. The lower level of debt produced a decline of 15.8 percent in interest expense during the period, to $48 million from $57 million a year ago, a cash savings of $9 million.

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