Dillard's, Inc. announced the net loss for the 13 weeks ended November 1, 2003 was $15.8 million, 19 cents per diluted share, compared to a net loss of $5.1 million 6 cents per diluted share fro the year-ago period.
During the 13 weeks ended November 1, 2003, the Company recorded $1.7 million ($1.1 million after-tax, or $0.01 per basic and fully diluted share) for asset impairment related to one store.
Sales for the 13 weeks ended November 1, 2003 were $1.765 billion compared to sales for the 13 weeks ended November 2, 2002 of $1.794 billion, a decrease of 2%. Sales in comparable stores for the 13-week period decreased 2%. Management believes unseasonably warm temperatures hindered the Company's third quarter sales, particularly
in October.
Income from joint ventures is included in total revenues. The
Company sold its interest in two mall joint ventures during the fourth
and first quarters of 2002 and 2003, respectively. As a result of
these sales, income from joint ventures decreased approximately $3.8
million during the third quarter of 2003 compared to the third quarter
of 2002. Also included in revenues for the thirteen weeks ended
November 2, 2002 is a charge of $2.2 million related to the
amortization of the beneficial interests originally recognized on
off-balance-sheet financing. (See Debt/Interest Expense below).
Sales for the 39 weeks ended November 1, 2003 were $5.300 billion
compared to sales for the 39 weeks ended November 2, 2002 of $5.523
billion, a decrease of 4%. Sales in comparable stores for the 39-week
period decreased 4%.
Gross margin for the 13 weeks ended November 1, 2003 declined 160
basis points of sales. Management attributes the decline to sales
pressure during the third quarter and the Company's resulting efforts
to maintain effective control of inventory levels with increased
markdown activity. Management believes competition among industry
peers, partially driven by unseasonably warm fall temperatures,
further necessitated its aggressive posture with regard to markdown
activity, as customer response to cooler-weather merchandise was
hampered during the third quarter.
Inventory position at November 1, 2003 in comparable stores was
down 50 basis points compared to inventory position at November 2,
2002. Having entered the third quarter of 2003 with comparable
inventory position up 260 basis points and firmly committed to
continued inventory management during the period, management is
pleased with the overall level and quality of the Company's ending
inventory at November 1, 2003.
During the fourth quarter, Dillard's will continue to focus its
efforts on inventory control, keeping abreast of sales trends and
customer response to its merchandise mix during the important holiday
selling season. Management is hopeful that its improved merchandise
mix, which includes expanded and enhanced assortments of Dillard's
exclusive brands, will be well received in a holiday selling
environment hopefully bolstered by improving consumer confidence.
As a matter of policy, the Company does not provide guidance
regarding sales or gross margin performance. In an effort to improve
its competitive position and merchandise mix, Dillard's has launched
specific merchandise initiatives. Dillard's will continue the
execution of these initiatives with management's ongoing confidence in
their appropriateness based upon current industry factors and the
Company's current position. The initiatives include:
-- Increasing the penetration of Dillard's exclusive brand
merchandise and building Dillard's brands as national
destination brands.
-- Evaluating performance of national "branded" vendor sources,
de-emphasizing or replacing under-performers with more
promising brands. Based upon continued disappointing
performance of certain of the Company's largest national
vendor sources, the Company has recently taken notable steps
to reduce its exposure to certain over-distributed national
brands.
-- Following the "Product-first" buying philosophy through
considering specific customer needs first, seeking the best
source for that need and creating more market-right
assortments with less duplication among merchandise lines.
-- Executing the purchasing model encouraging vendors to provide
more margin support at time of purchase, hopefully reducing
the amount of margin assistance at end of the season. The
Company treats such vendor allowances as a reduction of
inventoriable product cost regardless of when received.
Dillard's management reiterates their strong belief that
merchandise differentiation by the Company is crucial to its future
success in the marketplace. The Company will continue to build its
exclusive brands as a means to deliver fashion to its customers at
compelling prices – in an effort to set Dillard's apart from its peers
as the store of choice for exclusive destination brands. At the same
time, the Company will seek differentiation by considering new and
unique presentations of assortments from national vendor sources,
seeking to build exclusive relationships with promising vendors and
designers where appropriate.
Advertising, selling, administrative and general (“SG&A”) expenses
declined $22.6 million to $517.2 million for the 13 weeks ended
November 1, 2003 from $539.8 million for the comparable period ended
November 2, 2002. The improvement in
SG&A expenses was driven by savings in payroll ($10.4 million),
advertising ($7.2 million) and bad debt expense related to the
Company's proprietary credit card ($3.7 million). The Company achieved
savings in most other expense categories, as well.
The Company is in the process of repositioning its advertising
efforts, seeking the most appropriate media to reach new and existing
Dillard's customers. Savings achieved in advertising expense during
the quarter ended November 1, 2003 resulted from reduction in
newspaper advertising. Dillard's will consider reallocation of funds
saved in newspaper advertising to other media more appropriately
matched to its customers' lifestyles. This reallocation includes
expansion of advertising efforts in fashion magazines, regional
magazines, billboards, broadcast, the Internet and alternative uses of
newspaper circulation, such as insertion of preprinted material.
Management is pleased with the progress regarding the quality of
its accounts receivable portfolio and with the resulting reduction in
bad debt expense during the thirteen weeks ended November 1, 2003. The
Company has improved the scoring matrix used to manage its existing
portfolio, incorporating a credit bureau bankruptcy score with its own
custom credit bureau risk score. This has allowed the company to more
accurately identify accounts that will likely become delinquent.
As a result of the Company's continuing efforts to reduce debt,
interest and debt expense declined to $37.3 million during the third
quarter of 2003 from $42.6 million for the third quarter of 2002.
Interest and debt expense for the 13 weeks ended November 1, 2003
includes $4.1 million received from the Internal Revenue Service as a
result of the Company's filing of an interest netting claim related to
previously settled tax years. Included in interest and debt expense
for the 13 weeks ended November 2, 2002 is a pretax gain of $1.7
million related to the early extinguishment of debt. (See below.)
On Monday, November 3, 2003, the Company retired the remaining
$130.0 million 6.13% notes maturing Saturday, November 1, 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
November 2, 2002, as a result of adopting SFAS No. 145, the Company
has reclassified a pretax gain of $1.7 million (after-tax $1.1 million
or $0.01 per basic and fully diluted share) to interest and debt
expense from extraordinary gain on early extinguishment of debt.
The Company utilizes securitizations of its credit card receivable
portfolio as a financing vehicle. At November 1, 2003 and November 2,
2002, all financing associated with the securitizations of the
Company's credit card portfolio was recorded on the balance sheet,
with $400 million in related financing recorded in long-term debt.
Prior to the quarter ended November 2, 2002, the Company accounted for
these transactions as off-balance-sheet financing. In early May 2002,
the Company amended its conduit financing agreement and as such future
transfers of accounts receivable did not qualify for sale treatment.
Based upon the expected average life of the credit card receivables,
the final $160 million of $400 million of accounts receivable
securitization were brought back onto the balance sheet at November 2,
2002. Accordingly, during the thirteen weeks ended November 2, 2002,
the Company took a charge to its income statement of $2.2 million
related to the amortization of the beneficial interests recognized
upfront on the off-balance-sheet financing.
At November 1, 2003 and November 2, 2002, the Company had $20.5
million and $285 million outstanding, respectively, in short-term
borrowings under its accounts receivable conduit facilities related to
its seasonal financing needs. Remaining available short-term
borrowings under these conduit facilities at November 1, 2003 were
$479.5 million. Management plans to meet peak borrowing demand in the
fourth quarter of 2003 with additional borrowings under these accounts
receivable conduit facilities. This peak demand is expected to be less
than $400 million, compared to the peak of $465 million during the
fall season of 2002.
Dillard's, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In Millions, Except Per Share Data)
Thirteen-Week Period Ended
------------------------------------
November 1, 2003 November 2, 2002
------------------------------------
% of % of
Amount Net Amount Net
Sales Sales
----------- ------ --------- ------
(Unaudited) (Unaudited)
Net sales $1,764.5 - $1,794.2 -
Total revenues 1,820.4 103.2 % 1,857.6 103.5 %
Cost of sales 1,200.0 68.0 1,191.4 66.4
Advertising, selling,
administrative and general
expenses 517.2 29.3 539.8 30.1
Depreciation and amortization 74.2 4.2 76.9 4.3
Rentals 14.7 0.9 14.9 0.8
Interest and debt expense 37.3 2.1 42.6 2.3
Asset impairment and store
closing charges 1.7 0.1 - (0.0)
----------- ---------
Total costs and expenses 1,845.1 1,865.6
----------- ---------
Loss before income taxes (24.7) (1.4) (8.0) (0.4)
Income tax benefit (8.9) (2.9)
----------- ------ --------- ------
Net loss $(15.8) (0.9)% $(5.1) (0.3)%
=========== ====== ========= ======
Basic and diluted loss per
share: $( 0.19) $(0.06)
