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Dillard’s Strong Q4 Fueled by Children’s Apparel Sales

Dillard’s saw sales within its retail operation increase 37 percent during its fourth quarter to $2.08 billion on net income of $321.2 million.

In a Nutshell: The Little Rock, Ark.-based department store, which doesn’t host earnings calls, indicated that sales of cosmetics and juniors’ and children’s apparel “significantly outperformed” the retailer’s other categories on a two-year basis. This mirrored the company’s third quarter report, which highlighted men’s apparel alongside juniors’ and children’s apparel as standout performers.

Dillard’s will open a new 160,000-square-foot store at University Place in Orem, Utah, in mid-March, replacing its 200,000-square-foot store in the same market’s Provo Towne Centre. The company also will replace a leased building at Westgate Mall in Amarillo, Texas with a newly remodeled store in the fall.

Currently, Dillard’s operates approximately 250 stores and 30 clearance centers across 29 states, alongside e-commerce. The company operated 47.7 million square feet as of Jan. 29.

At the end of the quarter, inventory decreased 1 percent to $1.08 billion, compared to $1.09 billion a year ago.

Retail gross margin for the fourth quarter improved approximately 950 basis points to 41.4 percent of sales compared to 31.9 percent of sales for the prior year fourth quarter. Versus 2019, retail gross margin improved roughly 1120 basis points from 30.2 percent.

Dillard’s management attributes the improvement in gross margin to continued strong consumer demand and improved inventory management, leading to decreased markdowns during the holidays.

Dillard’s bought back $150.8 million (approximately 615,000 shares) in stock in the quarter as part of its $500 million share repurchasing plan. Authorization of $112 million in buybacks remains under the plan, first adopted in May 2021.

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The department store ended the quarter and the year with $716.8 million in cash and cash equivalents, compared to $360.3 million to end 2020. Dillard’s has no borrowings under an $800 million credit facility set to mature April 28, 2026.

The department store is expected to host its annual stockholders meeting in May. The retailer has not announced sales or earnings guidance for 2022, instead laying out estimates of financial metrics including depreciation and amortization, rental costs, interest and debt expenses and capital expenditures.

In 2021, Dillard’s had $23 million in rental costs, and expects the same for 2022. The company projects slight decreases this year in depreciation and amortization ($199 million to an estimated $190 million), as well as interest and debt expense ($43 million to an expected $42 million).

But Dillard’s does anticipate a surge in capital expenditures from $104 million in 2021 to an estimated $150 million in 2022.

Credit agency Fitch Ratings upgraded the department store’s default rating to “BBB-” from “BB+” with a “stable” rating outlook.

Fitch expects revenue in 2022 to trend in the low-to-mid-$6 billion range, given longer term secular challenges in the department store space are offset by growth in Dillard’s digital platform.

“Fitch believes the company improved its positioning somewhat in the years prior to the pandemic given better in-store execution and some focus on its digital platform,” the agency said. “Dillard’s has also seen some merchandise brand wins due to its focus on a non-promotional strategy, which is a differentiating factor within its peer group. However, Dillard’s smaller scale and regional footprint relative to other apparel and accessories players is expected to remain a structural disadvantage and as such is a limiting factor to the rating.”

Net sales: Net sales for the 13 weeks ended Jan. 29, 2022 were $2.11 billion, up 34 percent from the 2020 fourth quarter’s $1.57 billion in sales.

Total retail sales, which excludes the operations of the company’s construction business, CDI Contractors, LLC (CDI), increased 37 percent to $2.08 billion from $1.52 billion in the year-ago period. Sales in comparable stores for the period also increased 37 percent.

On a two-year basis, comparable retail sales increased 12 percent for the fourth quarter of 2021.

For the full year, total retail sales increased 53 percent to $6.38 billion, from $4.16 billion in 2020. The company is not reporting comparable store sales data for the fiscal year due to Covid-related store closures in the first and second quarters of 2020.

Compared to the fiscal year 2019, annual total retail sales increased 6 percent from $6.01 billion. Full-year comparable store retail sales on a two-year basis increased 8 percent.

Net income: Dillard’s reported net income for the fourth quarter was $321.2 million, or $16.61 per share, compared to net income of $67 million, or $3.05 per share, for the prior year period. The recent quarter includes a net tax benefit of $18 million (93 cents per share) after the retailer granted a one-time special dividend of $15 per share to shareholders in December.

For 2021, the department store took in a net income of $862.5 million compared to a net loss of $71.7 million in 2020.

CEO’s Take: “We ended fiscal 2021 on a very strong note with a fourth consecutive record quarter,” Dillard’s CEO William T. Dillard II said in a statement. “Our fiscal year net income of $41.88 per share exceeds any annual performance in our history. Importantly, during the year, we returned $866 million to our shareholders through dividends and share buybacks, while still ending the year with $717 million in cash.”