Dillard's, Inc. Reports Record Fourth Quarter and Fiscal Year Results

Dillard's, Inc. Reports Record Fourth Quarter and Fiscal Year Results

LITTLE ROCK, Ark.--(BUSINESS WIRE)-- Dillard's, Inc. (DDS-NYSE) (the "Company" or "Dillard's") announced operating results for the 14 and 53 weeks ended February 2, 2013. The Company follows the retail 4-5-4 reporting calendar, which included an extra week in the fourth quarter of fiscal 2012. This release contains certain forward-looking statements. Please refer to the Company's cautionary statements regarding forward-looking information included below under "Forward-Looking Information".

Highlights of the Company's performance included:

  • A 30% increase in fourth quarter earnings per share compared to the prior year (excluding certain items described below)

  • A 3% increase in comparable store sales for the fourth quarter based upon comparable weeks, marking the Company's 10th consecutive quarterly comparable sales increase

  • Fourth quarter merchandise gross margin improvement of 40 basis points of sales

  • Cash flow from operations for the fiscal year of $522.7 million compared to $501.1 million for the prior year which made possible these actions for shareholders during the fourth quarter:

    • Payment of a special dividend of $5.00 per share on December 21, 2012

    • Repurchase of $23.4 million of Class A Common Stock


Fourth Quarter Results

Dillard's reported net income for the 14 weeks ended February 2, 2013 of $161.4 million, or $3.36 per share. Included in net income is a net after-tax credit totaling $23.9 million ($0.50 per share) comprised of the following items:

  • a $6.8 million after-tax gain ($0.14 per share) related to the sale of a former retail store location

  • after-tax asset impairment and store closing charges of $1.1 million ($0.02 per share)

  • approximately $18.1 million ($0.38 per share) in tax benefit due to a one-time deduction related to dividends paid to the Dillard's, Inc. Investment and Employee Stock Ownership Plan

Excluding these items, Dillard's would have reported $137.6 million ($2.87 per share) for the 14 weeks ended February 2, 2013, marking a record-setting fourth quarter earnings per share performance and a 30% improvement over the prior year adjusted fourth quarter earnings per share.

Dillard's reported net income for the prior year fourth quarter, the 13 weeks ended January 28, 2012, of $141.5 million, or $2.77 per share. Included in net income for the prior year fourth quarter is a net after-tax credit totaling $28.7 million ($0.56 per share) related to the settlement of a lawsuit. Excluding this credit, the Company would have recorded net income of $112.8 million ($2.21 per share) for the prior year fourth quarter.

Dillard's Chief Executive Officer, William T. Dillard, II, stated, "We are pleased to report a strong finish to a very successful year at Dillard's. Our positive sales performance and gross margin expansion combined with expense control drove strong cash flow throughout the year. As a result, we were pleased to return cash to shareholders in the form of a $5.00 special dividend during the fourth quarter. Additionally, we purchased $185.5 million of Class A Common Stock during the year. As we mark our 75th year at Dillard's this month, we are proud of our progress and excited about the future."

Fiscal Year Results

Dillard's reported net income for the 53 weeks ended February 2, 2013 of $336.0 million, or $6.87 per share. Included in net income is a net after-tax credit totaling $26.7 million ($0.55 per share) comprised of the following items:

  • after-tax gains of $7.4 million ($0.15 per share) related to the sale of three former retail store locations

  • after-tax asset impairment and store closing charges of $1.0 million ($0.02 per share)

  • approximately $1.7 million ($0.03 per share) in tax benefit due to the reversal of a valuation allowance related to a deferred tax asset consisting of a capital loss carryforward

  • approximately $18.6 million ($0.38 per share) in tax benefit due to a one-time deduction related to dividends paid to the Dillard's, Inc. Investment and Employee Stock Ownership Plan

Excluding these items, Dillard's would have reported $309.3 million ($6.32 per share) for the 53 weeks ended February 2, 2013, marking a record-setting fiscal year earnings per share performance and a 50% improvement over prior year adjusted earnings per share.

Dillard's reported net income for the prior year 52-week period ended January 28, 2012, of $463.9 million, or $8.52 per share. Included in net income for the prior year 52-week period is a net after-tax credit totaling $234.5 million ($4.31 per share) comprised of the following items:

  • approximately $201.6 million ($3.70 per share) in tax benefit due to the reversal of a valuation allowance related to a deferred tax asset consisting of a capital loss carryforward

  • a $28.7 million after-tax gain ($0.53 per share) related to the settlement of a lawsuit

  • a $0.9 million after-tax gain ($0.02 per share) related to the sale of two former retail store locations

  • a $2.7 million after-tax gain ($0.05 per share) related to a distribution from a mall joint venture

  • a $1.4 million after-tax gain ($0.03 per share) relating to the sale of an interest in a mall joint venture

  • asset impairment and store closing charges of $0.8 million after-tax ($0.01 per share)

Excluding this net after-tax credit, the Company would have recorded net income of $229.4 million ($4.21 per share) for the prior year 52-week period.

Net Sales - Fourth Quarter

Net sales for the 14 weeks ended February 2, 2013 were $2.106 billion and $1.970 billion for the 13 weeks ended January 28, 2012. Net sales include the operations of the Company's construction business, CDI Contractors, LLC ("CDI").

Total merchandise sales (which exclude CDI) for the 14-week period ended February 2, 2013 were $2.087 billion and $1.946 billion for the 13-week period ended January 28, 2012. Total merchandise sales increased 7% for the 14-week period compared to the 13-week period. Based upon comparable weeks, total sales increased 2% and sales in comparable stores increased 3% for the fourth quarter.

Sales trends were strongest in ladies accessories and lingerie and men's apparel and accessories. Sales were weakest in the home and furniture category. Sales trends were strongest in the Central region, followed by the Eastern and Western regions, respectively.

Net Sales - Fiscal Year

Net sales for the 53 weeks ended February 2, 2013 were $6.593 billion and 6.264 billion for the 52 weeks ended January 28, 2012.

Total merchandise sales for the 53-week period ended February 2, 2013 were $6.489 billion and $6.194 billion for the 52-week period ended January 28, 2012. Total merchandise sales increased 5% for the 53-week period compared to the 52-week period. Based upon comparable weeks, total sales increased 3% and sales in comparable stores increased 4% for the fiscal year.

Gross Margin/Inventory

Gross margin from retail operations (which excludes CDI) improved 40 basis points of sales to 34.6% for the 14 weeks ended February 2, 2013 compared to 34.2% for the prior year fourth quarter. Consolidated gross margin for the 14 weeks ended February 2, 2013 improved 50 basis points of sales to 34.4% from 33.9% during the prior year fourth quarter.

Gross margin from retail operations improved 30 basis points of sales to 36.1% for the 53 weeks ended February 2, 2013 compared to 35.8% for the prior year 52-week period ended January 28, 2012. Consolidated gross margin for the 53 weeks ended February 2, 2013 was 35.6% compared to 35.4% during the prior fiscal year.

Inventory in comparable stores decreased 1% at February 2, 2013 compared to January 28, 2012.

Dillard's credits its consistent success in both sales and gross margin performance to effective execution of its merchandise strategy which the Company believes sets Dillard's apart from its peer group. Key initiatives within the strategy include:

  • Presenting limited distribution, high profile brands not typically found in department stores along with well known, highly regarded national brands

  • Developing and offering fashionable, nationally recognized exclusive brands which are revered by customers for their styling as well as their quality

  • Equipping sales associates, beauty advisors and merchandise specialists with comprehensive product knowledge and customer service tools to exceed the expectations of the Dillard's customer

  • Presenting merchandise in edited, limited assortments and in engaging formats which encourage interaction with sales associates and expedite the sale

  • Flowing merchandise receipts to stores in shorter and more frequent intervals and pinpointing replenishment based upon immediate feedback from improvements in data analysis and logistical response

Advertising, Selling, Administrative and General Expenses

Advertising, selling, administrative and general expenses ("operating expenses") were $474.9 million (22.5% of sales) and $440.8 million (22.4%), respectively, during the 14 weeks ended February 2, 2013 and the 13 weeks ended January 28, 2012. The increase in expenses is primarily due to the additional week of operations during the 2012 reporting period. On a normalized basis for the 13-week periods, increases in selling payroll and related payroll taxes were partially offset by savings in advertising and services purchased.

Operating expenses declined 60 basis points of sales during the 53 weeks ended February 2, 2013 compared to the 52 weeks ended January 28, 2012. Operating expenses were $1,671.5 million (25.4% of sales) and $1,630.9 million (26.0%), respectively, for the 2012 and 2011 fiscal years.

Share Repurchase

During the 13 weeks ended February 2, 2013, Dillard's repurchased approximately $23.4 million of Class A Common Stock (294,000 shares) at an average price of $79.69. During the fiscal year, the Company repurchased approximately $185.5 million (2.8 million shares) at an average price of $65.82. At February 2, 2013, $92.0 million of authorization remained under the Company's share repurchase program.

Total shares outstanding (Class A and Class B Common Stock) at February 2, 2013 and January 28, 2012 were 47.8 million and 49.4 million, respectively.

Debt Maturities

During the year ended February 2, 2013, the Company made principal payments on long-term debt of $76.8 million consisting of the scheduled maturities of $55.4 million unsecured note (7.85%), a $20.4 million term loan (5.93%) and a $1.0 million mortgage note (9.25%). The Company has no note maturities until January of 2018.

Revolving Line of Credit

The Company maintains a $1.0 billion revolving credit facility ("credit agreement") secured by the inventory of certain subsidiaries. No borrowings were outstanding under the credit agreement at February 2, 2013. Availability under the credit agreement at February 2, 2013 was $871.5 million. Letters of credit totaling $52.5 million were issued under the credit agreement at February 2, 2013 leaving unutilized availability of approximately $819 million.

Stock Options

During the fiscal year ended February 2, 2013, all stock options previously outstanding under the Company's stock option plans were exercised. There are no outstanding stock options at February 2, 2013.

Store Information

During the fourth quarter of 2012, the Company announced the upcoming closure of its Cache Valley Mall location in Logan, Utah (94,000 square feet). The store is expected to close during the first quarter of 2013.

At February 2, 2013, the Company operated 284 Dillard's locations and 18 clearance centers spanning 29 states and an Internet store at www.dillards.com. Total square footage at February 2, 2013 was 52.3 million.

Dillard's, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

(In Millions, Except Per Share Data)

14 Weeks Ended

13 Weeks Ended

February 2, 2013

January 28, 2012

% of

% of

Amount

Net Sales

Amount

Net

Sales

Net sales

$

2,106.3

100.0.

%

$

1,970.0

100.0.

%

Service charges and other income

47.8

2.3

41.7

2.1

2,154.1

102.3

2,011.7

102.1

Cost of sales

1,382.8

65.6

1,302.6

66.1

Advertising, selling, administrative and general expenses

474.9

22.5

440.8

22.4

Depreciation and amortization

65.6

3.1

64.8

3.3

Rentals

10.3

0.5

13.3

0.7

Interest and debt expense, net

17.5

0.8

17.6

0.9

Gain on litigation settlement

-

-

44.5

2.3

Gain on disposal of assets

10.2

0.5

0.1

0.0

Asset impairment and store closing charges

1.5

0.1

-

-

Income before income taxes and income

on and equity in losses of joint ventures

211.7

10.1

217.2

11.0

Income taxes

50.5

76.1

Income on and equity in losses of joint ventures

0.2

0.0

0.4

0.0

Net income

$

161.4

7.7

%

$

141.5

7.2

%

Basic earnings per share

$

3.38

$

2.82

Diluted earnings per share

$

3.36

$

2.77

Basic weighted average shares

47.7

50.2

Diluted weighted average shares

48.0

51.1

Dillard's, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

(In Millions, Except Per Share Data)

53 Weeks Ended

52 Weeks Ended

February 2, 2013

January 28, 2012

% of

% of

Amount

Net Sales

Amount

Net

Sales

Net sales

$

6,593.2

100.0.

%

$

6,263.6

100.0.

%

Service charges and other income

158.4

2.4

141.9

2.3

6,751.6

102.4

6,405.5

102.3

Cost of sales

4,247.1

64.4

4,047.3

64.6

Advertising, selling, administrative and general expenses

1,671.5

25.4

1,630.9

26.0

Depreciation and amortization

259.6

3.9

257.7

4.1

Rentals

34.8

0.5

48.1

0.8

Interest and debt expense, net

69.6

1.1

72.1

1.2

Gain on litigation settlement

-

-

44.5

0.7

Gain on disposal of assets

12.4

0.2

4.0

0.0

Asset impairment and store closing charges

1.6

0.0

1.2

0.0

Income before income taxes and income

on and equity in losses of joint ventures

479.8

7.3

396.7

6.3

Income taxes (benefit)

145.1

(62.5

)

Income on and equity in losses of joint ventures

1.3

0.0

4.7

0.1

Net income

$

336.0

5.1

%

$

463.9

7.4

%

Basic earnings per share

$

6.98

$

8.67

Diluted earnings per share

$

6.87

$

8.52

Basic weighted average shares

48.1

53.5

Diluted weighted average shares

48.9

54.4

Dillard's, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In Millions)

February 2,

January 28,

2013

2012

Assets

Current Assets:

Cash and cash equivalents

$

124.1

$

224.3

Accounts receivable

31.5

28.7

Merchandise inventories

1,294.6

1,304.1

Other current assets

41.8

34.6

Total current assets

1,492.0

1,591.7

Property and equipment, net

2,287.0

2,440.3

Other assets

269.7

274.1

Total Assets

$

4,048.7

$

4,306.1

Liabilities and Stockholders' Equity

Current Liabilities:

Trade accounts payable and accrued expenses

$

653.8

$

655.7

Current portion of long-term debt and capital leases1.7

79.1

Federal and state income taxes including current

deferred taxes

111.6

135.6

Total current liabilities

767.1

870.4

Long-term debt and capital leases

622.3

623.9

Other liabilities

233.4

245.2

Deferred income taxes

255.7

314.6

Subordinated debentures

200.0

200.0

Stockholders' equity

1,970.2

2,052.0

Total Liabilities and Stockholders' Equity

$

4,048.7

$

4,306.1

Dillard's, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In Millions)

53 Weeks

Ended

February 2,


2013

52 Weeks

Ended

January 28,

2012

Operating activities:

Net income

$

336.0

$

463.9

Adjustments to reconcile net income to

net cash provided by operating activities:

Depreciation and amortization of property and deferred

financing cost

261.5

259.6

Deferred income taxes

(61.7

)

(9.5

)

Gain on disposal of assets

(12.4

)

(4.0

)

Asset impairment and store closing charges

1.6

1.2

Excess tax benefits from share-based compensation

(49.9

)

(10.2

)

Gain on repurchase of debt

-

(0.2

)

Changes in operating assets and liabilities: