Dillard's Profits Tumble 29.4 Percent

Don Hogsett, Alex Lemonde-Gray, May 30, 2005

Little Rock, Ark. — Hurt by sliding sales and stepped-up markdown activity, which more than offset deep cuts in costs and interest expense, first quarter profits at Dillard's Inc. tumbled 29.4 percent, to $38 million from $53.8 million.

Sales were mixed by trading area, but overall sales declined 2.8 percent, to $1.8 billion from $1.9 billion last year. Same-store sales declined 3 percent. Sales in the eastern and western region were above trend during the opener, but missed plan in the central region, the retailer said. The company reported that sales of lingerie, accessories and shoes “significantly exceeded” the average sales trend, while women's apparel and furniture were “significantly below trend.”

With sales trailing off, the company cut prices to move the goods, putting margins under pressure and taking a bite out of the bottom line. Average gross margin thinned 90 basis points, or nine-tenths of a percentage point, to 35.1 percent from 36 percent. Hurt by the shortfall in sales and markdown pressure, gross margin dollars slipped 5.1 percent, to $632.7 million from $666.9 million last year.

Helping to prop up earnings, Dillard's continued to hack away at costs, and operating expenses were reduced 2.5 percent, to $497.3 million from $509.8 million, generating a cash savings of $12.5 million. But when measured as a percentage of falling sales, costs edged up slightly, 10 basis points, or one-tenth of a percentage point, to 27.6 percent from 27.5 percent. The retailer said savings “were driven primarily by decreases in bad debt expense, payroll and communication costs as a result of the company's sale of its credit card business in November of 2004.”

In another big boost to the bottom line, Dillard's pared its interest expense almost a third, or 31.1 percent, on lower debt levels, to $26.6 million from $38 million a year ago, yielding a savings of $11.8 million. Long-term debt was whittled 26.4 percent, to $1.62 billion from $2.2 billion last year.

Acting as a drag, merchandise stockpiles rose 5.3 percent, to $2.1 billion from $2 billion last year, “primarily due to an increase relating to inventory in transit,” the retailer said.

Dillard's Inc.

Qtr. 4/30 (x000) 2005 2004 % change
a. First quarter results include asset impairment and store closing charges of $400,000, compared with $4.7 million during the same period a year ago.
Sales $1,803,000 $1,854,400 -2.8
Oper. Income (EBIT) 86,000 126,700 -32.1
Net income 38,000a 53,800a -29.4
Per share (diluted) 0.46 0.64 -28.1
Average gross margin 35.1% 36.0%
SG&A expenses 27.6% 27.5%

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