Dillard's, Inc. reported sales for the 13 weeks ended August 2, 2003 were $1.7 billion compared to sales for the 13 weeks ended August 3, 2002 of $1.8 billion, a decrease of 5%. Sales in comparable stores for the 13-week period decreased 5%.
Sales for the 26 weeks ended August 2, 2003 were $3.5 billion compared to sales for the 26 weeks ended August 3, 2002 of $3.7 billion, a decrease of 5%. Sales in comparable stores for the 26-week period decreased 5%.
Net loss for the 13 weeks ended August 2, 2003 was $50.4 million ($0.60 per basic and fully diluted share) compared to net income of $6.7 million ($0.08 per basic and fully diluted share) for the 13 weeks ended August 3, 2002.
During the 13 weeks ended August 2, 2003, the Company recorded $17.1 million ($10.9 million after-tax, or $0.13 per basic and fully diluted share) for asset impairment and store closing charges related to certain stores. Additionally, during the second quarter of 2003, the Company recorded a call premium resulting in additional interest expense of $15.6 million ($10.0 million after-tax or $0.12 per basic and fully diluted share) associated with a $125.9 million call of debt.
During the 13 weeks ended August 3, 2002, the Company recorded a pre-tax net gain of $0.9 million ($0.6 million after-tax, or $.01 per basic and fully diluted share) which consisted of asset impairment and store closing charges related to six stores offset by forgiveness of a lease obligation from the sale of a closed store. Additionally, during the second quarter of 2002, the Company recorded additional interest expense of $9.1 million ($5.8 million after-tax or $0.07 per fully diluted share) resulting from the early retirement of debt. During the second quarter of 2002, an investee partnership of the Company received an unusual distribution in the settlement of a receivable. As a result, the Company received a non-recurring distribution and recognized a gain of $3.1 million ($2 million after-tax or $.02 per fully diluted share). During the 13 weeks ended August 3, 2002, the Company amortized accounts receivable securitization gains and took a charge to its income statement of $3.2 million ($2 million after-tax or $.02 per fully diluted share).
Dillard's senior management noted second quarter operating results were pressured by a comparable store sales decline of 5% and corresponding pressure on gross margin as the Company responded with aggressive markdown activity to control inventory levels.
Gross Margin for the 13 weeks ended August 2, 2003 declined 300 basis points of sales. Management attributes the decline to continuing sales pressure experienced during the quarter, which necessitated Dillard's aggressive response to control inventory levels with increased markdown activity. Having entered the second quarter of 2003 with a year over year inventory increase of 5%, and after realizing a comparable store sales decline of 5% during the second quarter, the Company managed inventory at August 2, 2003 to an increase of 3% compared to inventory at August 3, 2002.
Advertising, selling, administrative and general (“SG&A”) expenses declined $23.2 million to $507.8 million for the 13 weeks ended August 2, 2003 from $531.0 million for the comparable period ended August 3, 2002. The decline was primarily driven by significant savings in payroll and advertising partially offset by increases in utilities and bad debt expense. Payroll and advertising expenses declined $11.7 and $11.7 million, respectively, while utilities and bad debt expense increased $1.3 million and $2.7 million, respectively, during the second quarter of 2003. The Company experienced small savings in most other expense categories during the 13-weeks ended August 2, 2003.
During the 13 weeks ended August 2, 2003, interest expense increased to $59.4 million from $55.9 million during the 13 weeks ended August 3, 2002. During the 13 weeks ended August 2, 2003, the Company called the remaining $125.9 million of its 6.39% notes due August 1, 2013. These notes were subject to mandatory repricing on August 1, 2003. A call premium of $15.6 million related to this early retirement is included in interest expense for the 13 weeks ended August 2, 2003.
The Company has adopted SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS No. 145”). SFAS No. 145 rescinds SFAS No. 4 and 64, which required gains and losses from extinguishments of debt to be classified as extraordinary items. For the 13 weeks ended August 3, 2002, as a result of adopting SFAS No. 145, the Company has reclassified $9.1 million (after-tax $5.8 million or $0.07 per basic and fully diluted share) to interest and debt expense from extraordinary loss on early extinguishment of debt. Included in the $9.1 million reclassified loss is a call premium of $11.6 million related to the call of $143 million 6.31% notes, partially offset by a gain on early extinguishment of debt during the second quarter of 2002.
The Company utilizes securitizations of its credit card receivable portfolio as a financing vehicle. The Company has historically accounted for these transactions as off-balance-sheet financing. However, in early May 2002, the Company amended its conduit financing agreement in a manner that prevented future transfers of accounts receivable from qualifying as a sale and thus receiving off-balance-sheet treatment. As a result of this decision, the Company records all financing through this facility on the balance sheet at August 2, 2003 of which $400 million is classified in long-term debt. During the 13 weeks ended August 3, 2002, the Company placed $240 million of debt and the related asset on its balance sheet and took a charge to its income statement of $3.2 million. The charge was related to the amortization of the beneficial interests recognized upfront on the off-balance-sheet financing. The Company had $160 million of off-balance-sheet financing associated with its securitizations at August 3, 2002.
During the 13 weeks ended August 2, 2003, Dillard's repurchased $3.8 million, or approximately 300,000 shares, of its Class A Common Stock under the existing $200 million share repurchase program. The program was authorized by the Company's board of directors in May of 2000. Approximately $56 million in share repurchase authorization remained under this open-ended plan at August 2, 2003. At August 2, 2003, the Company had 83.3 million shares of its Class A Common Stock and Class B shares outstanding.
Sales performance by month for the second quarter occurred as follows:
Total Comparable
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May -7% -7%
June -7% -6%
July -1% -1%
Quarter 2 -5% -5%
Sales were strongest in the cosmetics and accessories, shoes and lingerie during the second quarter of 2003, with those areas performing above the Company average trend for the period. Sales in the women's and juniors' categories were in line with the total Company sales performance. Sales were weakest in the home, men's and children's areas, with sales in children's trending significantly below the average Company performance for the period.
During the second quarter of 2003, sales were strongest in the western region. Sales in the west were stronger than the average Company sales performance for the period. Sales were in line with the Company trend in the east and slightly below trend in the central region.
The Company continues to work diligently to build penetration and recognition of its exclusive brand merchandise as a means to provide superior price and value choices to its customers. Penetrations of exclusive brand merchandise as a percent of sales for 26-week periods ended August 2, 2003 and August 3, 2002 are as follows:
26 Weeks 26 Weeks
Ended Ended
August 2, August 3,
2003 2002
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In merchandise categories in which
exclusive brands are presented 22.3% 19.2%
Storewide (all categories) 18.8% 16.2%
Dillard's, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Amounts in Millions, Except Per Share Data)
Thirteen-Week Period Ended
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August 2, 2003 August 3, 2002
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% of % of
Net Net
Amount Sales Amount Sales
----------- ------ --------- ------
(Unaudited) (Unaudited)
Net sales $1,721.5 - $1,818.0 -
Total revenues 1,780.4 103.4% 1,885.7 103.7%
Cost of sales 1,186.4 68.9 1,197.3 65.9
Advertising, selling,
administrative and general
expenses 507.8 29.5 531.0 29.2
Depreciation and amortization 74.6 4.3 76.9 4.2
Rentals 13.8 0.8 15.0 0.8
Interest and debt expense 59.4 3.5 55.9 3.1
Asset impairment and store
closing charges 17.1 1.0 (0.9) (0.1)
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Total costs and expenses 1,859.1 1,875.2
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(Loss) income before income
taxes (78.7) (4.6) 10.5 0.6
Income taxes (benefit) (28.3) 3.8
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Net (loss) income $(50.4) (2.9)% $6.7 0.4%
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Basic and diluted earnings
(loss) per share: $(0.60) $0.08
