While first-quarter results amid the coronavirus pandemic saw Dillard’s Inc. swing to the red, early signs from reopened stores showed some positive sales trends.
In a Nutshell: The retailer believes it’s got what it takes to survive the pandemic.
“Management believes Dillard’s is uniquely positioned, among U.S. department store retailers, to weather the COVID-19 pandemic because of its strong balance sheet and available liquidity,” the retailer said, citing its ownership of 90 percent of store square footage, and 100 percent ownership of corporate headquarters, distribution and fulfillment facilities. In addition, store rent obligations are manageable compared to the industry and it has a low long-term debt position, with the next payment of $45 million due in January 2023.
Dillard’s said it also extended vendor payment terms to help with liquidity. And it canceled, suspended or “significantly delayed” shipments of goods, with 33 percent fewer merchandise purchases during March and April.
“As stores reopen, management’s insight into consumer behavior will dictate merchandise purchasing decisions with the continual goal of aligning purchases with sales,” Dillard’s said.
By April 9, all Dillard’s stores were temporarily closed in line with mandates to curb the coronavirus pandemic, although the company has reopened 45 departments stores where restrictions have eased. An additional 80 locations were reopened on May 12. When added to the 24 clearance centers that opened again, the department store operator has reopened 149 doors to date, with plans to reopen 116 Dillard’s stores and five clearance centers next week, bringing the total to 241 stores and 29 clearance centers. After next week, it would still need to open another 14 department stores and another clearance center.
“While management is making no assumptions of future performance based upon only nine days of data, the 45 stores that opened on May 5 have produced sales of approximately 56 percent of last year’s performance while operating at reduced hours,” Dillard’s said.
The company furloughed 90 percent of its associates at the peak of store closures, and even though some stores have reopened, about 65 percent of store associates remain temporarily laid off. In addition to a temporary 20 percent salary reduction for salaried reductions, CEO William T. Dillard has also chosen to forego his salary. The salary reductions are expected to continue through the payroll period ending May 30, but could be extended based on financial conditions, the retailer said.
Net Sales: For the three months ended May 2, the company saw net sales fall 46.3 percent to $786.7 million from $1.47 billion last year. Because of the temporary store closures for part of the quarter, Dillard’s elected not to report comparable store sales data.
Retail gross margin for the quarter was 12. 8 percent, versus 37.8 percent in the year-ago quarter. “As the pandemic progressed, reduced consumer demand combined with mandatory store closures necessitated extraordinary measures to address excess inventory,” Dillard’s said, noting that it “began to aggressively discount merchandise to clear product beginning March 24th by offering an additional 40 percent permanently marked down merchandise through April 1.” That markdown was followed by an additional 50 percent off permanently marked down merchandise that remained in effect for most of April and extended through May. Using ship-from-store capabilities, Dillard’s said it was able to generate sales from closed store locations where allowed.
Earnings: The company posted a net loss of $162 million, or $6.94 cents a diluted share, against net income of $78.6 million, or $2.99, in the year-ago quarter.
The company declined to provide any guidance on what the financial impact might be on fiscal 2020 results from the COVID-19 pandemic, citing “uncertainty” surrounding the outbreak and its economic effects.
CEO’s Take: “COVID-19 has impacted every aspect of our business. The mall business in general and department stores, specifically, have been particularly hard hit. While our balance sheet was already strong, we took decisive, sometimes difficult, actions to preserve liquidity and ensure our long-term viability. As we reopen stores, we see positive things happening. We believe people are ready to get out and shop. We are hoping this is the start of better times,” Dillard said.