Dillard's Inc. narrows loss

Don Hogsett, August 30, 2004

With sales falling 2.9 percent after Hurricane Charley shuttered 14 stores for at least one day, Dillard's Inc. recorded a $26 million second quarter loss, improving on a year-ago loss of $50.4 million, despite stronger margins, lower costs and lower interest expense.

Hampered by the closings, the department store chain reported a sales decline of 2.9 percent, to $1.67 billion from $1.72 billion a year ago. Same-store sales declined 3 percent.

Despite the storm-based interruption, Dillard's managed to improve a number of key performance metrics. Average gross margin widened 30 basis points, or three-tenths of a percentage point, to 31.4 percent from 31.1 percent.

Margins, the retailer said, were assisted by "improved levels of markups partially offset by higher levels of markdowns, as the company worked to maintain control over inventory levels in a period of declining sales."

Operating costs were whittled 1.5 percent, to $500.1 million from $507.8 million last year, generating a cash savings of $7.7 million. But measured as a percentage of eroding sales, costs inched up 40 basis points, or four-tenths of a percentage point, to 29.9 percent from 29.5 percent a year ago.

Interest expense was cut 36.9 percent, to $37.5 million from $59.4 million, yielding a savings of $21.9 million, and taking some of the pressure off the bottom line. Last year's interest expense included a $15.6 million call premium as the retailer paid down $125.9 million in debt.

Dillard's Inc.

Qtr. 7/31 (x000) 2004 2003 % chg
Sales $1,671,400 $1,721,500 -2.9
Oper. Income (EBIT) 84,200 86,200 -2.3
Net income (26,000)a (50,400)a
Per share (diluted) (0.31) (0.60)
Average gross margin 31.4% 31.1%
SG&A expenses 29.9% 29.5%
Six months 2004 2003 % chg
Sales 3,525,800 3,535,400 -0.3
Oper. Income (EBIT) 298,700 255,800 16.8
Net income 27,700b (26,000)b
Per share (diluted) 0.33 (0.31)
Average gross margin 33.8% 32.2%
SG&A expenses 28.6% 28.8%
a-Earnings in the second quarter include an income tax benefit of $14.6 million, compared with a prior-year tax benefit of $28.3 million. Prior year results include a $17.1 million asset impairment and store closing charge.
b-Six month results include a $4.7 million asset impairment and store closing charge, compared with a year-before charge of $17.1 million; an income tax payment of $15.6 million versus a year-before tax benefit of $14.6 million.

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