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Dillard's(DDS) - 2024 Q4 - Annual Report
Dillard'sDillard's(US:DDS)2024-03-29 19:25

PART I ITEM 1. BUSINESS Dillard's is a major fashion retailer with 273 stores and an online presence, complemented by a construction segment - Dillard's operates 273 Dillard's stores, including 28 clearance centers, and an Internet store at dillards.com as of February 3, 202410 - The Company also operates a general contracting construction company, CDI Contractors, LLC, which constructs and remodels stores for the Company10 Percentage of Net Sales by Segment and Major Product Line | | Fiscal 2023 (%) | Fiscal 2022 (%) | Fiscal 2021 (%) | |---|---|---|---| | Retail operations segment: | | | | | Cosmetics | 16 | 15 | 14 | | Ladies' apparel | 20 | 21 | 21 | | Ladies' accessories and lingerie | 14 | 14 | 15 | | Juniors' and children's apparel | 9 | 9 | 10 | | Men's apparel and accessories | 19 | 20 | 19 | | Shoes | 14 | 15 | 15 | | Home and furniture | 4 | 4 | 4 | | | 96 | 98 | 98 | | Construction segment | 4 | 2 | 2 | | Total | 100 | 100 | 100 | - The retail merchandise business is highly competitive, with numerous national, local, and Internet competitors, characterized by factors such as location, reputation, merchandise assortment, advertising, price, quality, operating efficiency, service, and credit availability13 - Dillard's offers exclusive brand merchandise (e.g., Antonio Melani, Gianni Bini, GB, Roundtree & Yorke, Daniel Cremieux) to provide fashionable, higher-quality products at savings compared to national brands, while differentiating its merchandise offerings14 - In January 2024, Dillard's announced a new 10-year agreement with Citibank, N.A. to provide a credit card program, including a new co-branded Mastercard and private label credit card, replacing the Wells Fargo Alliance. The new program is expected to launch in late summer 202421 - Approximately one-third of Dillard's annual sales and a significant portion of earnings depend on the last quarter of the fiscal year due to holiday buying patterns22 - As of December 25, 2023, Dillard's employed approximately 29,600 associates, with 86% of full-time associates working in retail stores. The Company emphasizes internal talent development, with 73% of salaried store managers promoted from hourly positions, and promotes diversity, with 74% of store associates being women and 55% non-white26282930 ITEM 1A. RISK FACTORS Dillard's faces risks including intense competition, seasonality, economic shifts, supply chain issues, and changing fashion - The retail merchandise business is highly competitive, with numerous national, local, and Internet competitors, which could lead to downward pressure on prices, reduced margins, and loss of market share38 - The business is seasonal, with a significant portion of sales and income realized in the last quarter, making results susceptible to holiday spending patterns and weather conditions39 - Changes in economic, financial, and political conditions, including unemployment, inflation, interest rates, and energy costs, significantly impact consumer confidence and spending on discretionary items, potentially harming Dillard's business51 - Failure to protect Dillard's reputation, respond to changing fashion trends, or manage negative publicity (including social media) could diminish brand loyalty and impact sales555657 - Reliance on foreign sourcing exposes Dillard's to risks from political/economic conditions, trade restrictions (e.g., tariffs, UFLPA), and global supply chain disruptions (e.g., Red Sea attacks, Panama Canal drought, port strikes)63656667 - Income from the private label credit card program (Wells Fargo, now Citi) depends on sales, account balances, payment rates, finance charges, credit losses, and regulatory changes, with the new Citi program expected to initially yield less income6972 - Dillard's operations depend on the integrity and security of IT systems (POS, e-commerce, data centers), which are vulnerable to damage or interruption from power outages, cyberattacks, and human error. A breach could lead to loss of sales, business disruption, reputational damage, litigation, and increased operating costs7778808385 - Dillard's ability to attract and retain quality employees is crucial, especially given high turnover and a tight labor market; increases in employee wages and healthcare benefit costs are significant expenses that could negatively impact the Company's financial results and cash flows8990 ITEM 1B. UNRESOLVED STAFF COMMENTS There are no unresolved staff comments regarding Dillard's financial reports - No unresolved staff comments91 ITEM 1C. CYBERSECURITY Dillard's manages cybersecurity risks via a comprehensive program led by its CISO and overseen by the Board - Dillard's has an information security program with annual internal cyber risk assessments, cybersecurity controls, and third-party security firms for vulnerability scans, penetration testing, and PCI DSS compliance9294 - The Company addresses third-party cybersecurity risks through pre-acquisition diligence and contractual obligations, participates in industry intelligence sharing, and conducts mandatory annual security awareness training and incident response exercises for associates9596 - The CISO, a certified professional with 40 years at Dillard's, leads the information security program, reporting to the CIO and regularly meeting with senior management, with ultimate oversight from the Board of Directors100101102 - Dillard's acknowledges the constant evolution and sophistication of cyber threats and the inherent limitations of security controls, which may only mitigate, not fully eliminate, risks103105 ITEM 2. PROPERTIES Dillard's operates 273 stores (46.7M sq ft, mostly owned) across 29 states, alongside distribution and executive facilities - As of February 3, 2024, Dillard's operated 273 stores in 29 states, totaling approximately 46.7 million square feet, with approximately 43.0 million square feet owned106 Retail Store Count and Footprint by State (February 3, 2024) | Location | Number of Stores | Owned Stores | Leased Stores | Owned Building on Leased Land | Partially Owned and Partially Leased | |---|---|---|---|---|---| | Alabama | 9 | 9 | — | — | — | | Arkansas | 8 | 8 | — | — | — | | Arizona | 14 | 13 | — | 1 | — | | California | 3 | 3 | — | — | — | | Colorado | 8 | 8 | — | — | — | | Florida | 40 | 37 | 1 | 2 | — | | Georgia | 12 | 9 | 3 | — | — | | Iowa | 3 | 3 | — | — | — | | Idaho | 2 | 2 | — | — | — | | Illinois | 3 | 3 | — | — | — | | Indiana | 3 | 3 | — | — | — | | Kansas | 5 | 3 | — | 2 | — | | Kentucky | 6 | 5 | 1 | — | — | | Louisiana | 14 | 13 | 1 | — | — | | Missouri | 8 | 6 | 1 | 1 | — | | Mississippi | 6 | 4 | 1 | 1 | — | | Montana | 2 | 2 | — | — | — | | North Carolina | 13 | 13 | — | — | — | | Nebraska | 2 | 2 | — | — | — | | New Mexico | 5 | 3 | 2 | — | — | | Nevada | 5 | 5 | — | — | — | | Ohio | 12 | 10 | 2 | — | — | | Oklahoma | 7 | 6 | 1 | — | — | | South Carolina | 7 | 7 | — | — | — | | Tennessee | 10 | 9 | 1 | — | — | | Texas | 55 | 49 | 5 | — | 1 | | Utah | 5 | 5 | — | — | — | | Virginia | 5 | 5 | — | — | — | | Wyoming | 1 | 1 | — | — | — | | Total | 273 | 246 | 19 | 7 | 1 | Additional Facilities (February 3, 2024) | Facility | Location | Square Feet | Owned / Leased | |---|---|---|---| | Distribution Centers: | Mabelvale, Arkansas | 400,000 | Owned | | | Gilbert, Arizona | 295,000 | Owned | | | Valdosta, Georgia | 370,000 | Owned | | | Olathe, Kansas | 500,000 | Owned | | | Salisbury, North Carolina | 355,000 | Owned | | | Ft. Worth, Texas | 700,000 | Owned | | Internet Fulfillment Center | Maumelle, Arkansas | 850,000 | Owned | | Dillard's Executive Offices | Little Rock, Arkansas | 333,000 | Owned | | CDI Contractors, LLC Executive Office | Little Rock, Arkansas | 25,000 | Owned | | CDI Storage Facilities | Maumelle, Arkansas | 66,000 | Owned | | Total | | 3,894,000 | | ITEM 3. LEGAL PROCEEDINGS As of March 29, 2024, Dillard's and its subsidiaries are not party to any material legal proceedings, though they are involved in routine litigation arising from normal business operations - As of March 29, 2024, Dillard's and its subsidiaries are not involved in any material legal proceedings109 ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to Dillard's operations - Mine Safety Disclosures are not applicable to Dillard's110 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Dillard's Class A Common Stock trades on NYSE, with a $500 million repurchase program, outperforming market indices - Dillard's Class A Common Stock trades on the NYSE (DDS); no public market exists for Class B Common Stock. The Company expects to continue paying quarterly cash dividends in fiscal 2024, subject to Board approval115116 - As of March 2, 2024, there were 2,157 holders of record for Class A Common Stock and 4 for Class B Common Stock117 - In May 2023, Dillard's Board approved a $500 million stock repurchase program for Class A Common Stock. As of February 3, 2024, $394.0 million of authorization remained under the May 2023 Stock Plan118120 Common Stock Repurchase Activity (Fiscal 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($) | |---|---|---|---|---| | October 29, 2023 through November 25, 2023 | 52,042 | $310.55 | 52,042 | $393,996,507 | | November 26, 2023 through December 30, 2023 | — | — | — | $393,996,507 | | December 31, 2023 through February 3, 2024 | — | — | — | $393,996,507 | | Total | 52,042 | $310.55 | 52,042 | $393,996,507 | - Share repurchases after December 31, 2022, are subject to a 1% excise tax under the Inflation Reduction Act of 2022; $2.8 million was accrued as of February 3, 2024238 Securities Available for Future Issuance Under Equity Compensation Plans (February 3, 2024) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise prices of outstanding options, warrants and rights (b) ($) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |---|---|---|---| | Equity compensation plans approved by stockholders* | — | $— | 8,212,875 | | Equity compensation plans not approved by stockholders | — | — | — | | Total | — | $— | 8,212,875 | Cumulative Total Return ($100 Investment) | | 2019 ($) | 2020 ($) | 2021 ($) | 2022 ($) | 2023 ($) | |---|---|---|---|---|---| | Dillard's, Inc. | $93.24 | $137.03 | $410.71 | $652.70 | $709.75 | | S&P 500 | 121.56 | 142.53 | 172.46 | 161.03 | 199.42 | | DJ US Apparel Retailers | 112.99 | 120.80 | 132.11 | 145.96 | 167.94 | ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Dillard's fiscal 2023 net income was $738.8 million, a decrease driven by lower retail sales and gross margin, despite construction segment growth - Dillard's ended fiscal 2023 with $956.3 million in cash and short-term investments after returning $620.0 million to stockholders128 - Total retail sales decreased 5% and comparable store sales decreased 4% for the 52-week period ended January 27, 2024, compared to the prior year129 Fiscal Year Net Income and EPS | Metric | Fiscal 2023 ($) | Fiscal 2022 ($) | |---|---|---| | Net Income | $738.8 million | $891.6 million | | EPS | $44.73 | $50.81 | Key Performance Indicators (Fiscal 2021-2023) | Indicator | Fiscal 2023 | Fiscal 2022 | Fiscal 2021 | |---|---|---|---| | Net sales (millions $) | $6,752.1 | $6,871.1 | $6,493.0 | | Gross margin (millions $) | $2,720.9 | $2,887.5 | $2,745.3 | | Gross margin as a percentage of net sales (%) | 40.3 % | 42.0 % | 42.3 % | | Retail gross margin as a percentage of retail net sales (%) | 41.8 % | 43.0 % | 42.9 % | | Selling, general and administrative expenses as a percentage of net sales (%) | 25.4 % | 24.4 % | 23.7 % | | Cash flow provided by operations (millions $) | $883.6 | $948.4 | $1,280.0 | | Total retail store count at end of period | 273 | 277 | 280 | | Retail sales per square foot ($/sq ft) | $143 | $146 | $138 | | Retail stores sales trend (%) | (5)% ** | 5 % | 53 % | | Comparable retail store sales trend (%) | (4)% ** | 5 % | * | | Retail store inventory trend (%) | (2)% | 4 % | (1)% | | Retail merchandise inventory turnover | 2.8 | 2.9 | 2.9 | - Economic and geopolitical factors like inflation, interest rate increases, fluctuating gas prices, shipping costs, and a tight labor market are affecting the U.S. and world economies, with an unestimable financial impact for fiscal 2024145 Fiscal 2024 Estimated Financial Measures | (in millions of dollars) | Fiscal 2024 Estimated ($ millions) | Fiscal 2023 Actual ($ millions) | |---|---|---| | Depreciation and amortization | $185 | $180 | | Rentals | 22 | 22 | | Interest and debt (income) expense, net | (8) | (5) | | Capital expenditures | 125 | 133 | Consolidated Statements of Income (Fiscal 2021-2023) | | February 3, 2024 (Amount $) | February 3, 2024 (% of Net Sales) | January 28, 2023 (Amount $) | January 28, 2023 (% of Net Sales) | January 29, 2022 (Amount $) | January 29, 2022 (% of Net Sales) | |---|---|---|---|---|---|---| | Net sales | $6,752,053 | 100.0 % | $6,871,081 | 100.0 % | $6,492,993 | 100.0 % | | Service charges and other income | 122,367 | 1.8 | 125,134 | 1.8 | 131,274 | 2.0 | | Cost of sales | 4,031,108 | 59.7 | 3,983,598 | 58.0 | 3,747,665 | 57.7 | | Selling, general and administrative expenses | 1,717,415 | 25.4 | 1,674,317 | 24.4 | 1,536,554 | 23.7 | | Depreciation and amortization | 179,573 | 2.7 | 188,440 | 2.7 | 199,321 | 3.1 | | Rentals | 21,569 | 0.3 | 23,169 | 0.3 | 22,594 | 0.3 | | Interest and debt (income) expense, net | (4,600) | (0.1) | 30,527 | 0.4 | 43,092 | 0.7 | | Other expense | 18,791 | 0.3 | 7,744 | 0.1 | 11,366 | 0.2 | | Gain on disposal of assets | (6,053) | (0.1) | (21,047) | (0.3) | (24,688) | (0.4) | | Income before income taxes | 916,617 | 13.6 | 1,109,467 | 16.1 | 1,088,363 | 16.8 | | Income taxes | 177,770 | 2.6 | 217,830 | 3.2 | 225,890 | 3.5 | | Net income | $738,847 | 10.9 % | $891,637 | 13.0 % | $862,473 | 13.3 % | - Retail operations segment net sales decreased $222.4 million (3%) in fiscal 2023, with comparable store sales down 4%. Construction segment net sales increased $103.4 million (61%) due to increased activity187189 - Consolidated gross margin decreased 170 basis points to 40.3% in fiscal 2023, with retail gross margin down 120 basis points to 41.8%193 - SG&A increased $43.1 million (100 basis points of sales) in fiscal 2023, primarily due to increased payroll and payroll-related expenses ($1,217.3 million, up 3.8%)197198 - Net interest and debt (income) expense improved by $35.1 million in fiscal 2023, primarily due to an increase in interest income202 - The effective income tax rate was 19.4% in fiscal 2023, compared to 19.6% in fiscal 2022, benefiting from ESOP dividend deductions ($27.2 million) and release of valuation allowances ($9.8 million)208209 Cash Flows (Fiscal 2021-2023) | (in thousands of dollars) | Fiscal 2023 ($ thousands) | Fiscal 2022 ($ thousands) | Fiscal 2021 ($ thousands) | Percent Change 2023 - 2022 (%) | Percent Change 2022 - 2021 (%) | |---|---|---|---|---|---| | Operating activities | $883,590 | $948,391 | $1,280,020 | (6.8)% | (25.9)% | | Investing activities | (115,594) | (235,853) | (69,788) | (51.0) | (238.0) | | Financing activities | (620,040) | (768,966) | (853,812) | 19.4 | 9.9 | | Total cash provided (used) | $147,956 | $(56,428) | $356,420 | | | - Primary liquidity source is cash flows from operations, which decreased $64.8 million to $883.6 million in fiscal 2023 due to reduced sales and lower margins215216 - The Company maintains an $800 million revolving credit facility (amended in 2023 to replace LIBOR with SOFR) with $734.7 million unutilized availability as of February 3, 2024239240242 - As of February 3, 2024, Dillard's had $321.5 million in long-term debt (unsecured notes) and $200 million in 7.5% subordinated debentures outstanding243245 - Dillard's has no special-purpose entities or off-balance-sheet arrangements for capital raising or debt, and no relationships that are reasonably likely to materially affect its financial condition or results251 Commercial Commitments (February 3, 2024) | Other Commercial Commitments | Total Amounts Committed ($) | Within 1 year ($) | 2 - 3 years ($) | 4 - 5 years ($) | After 5 years ($) | |---|---|---|---|---|---| | $800 million line of credit, none outstanding (1) | $— | $— | $— | $— | $— | | Standby letters of credit | 19,333 | 19,033 | 300 | — | — | | Import letters of credit | — | — | — | — | — | | Total commercial commitments | $19,333 | $19,033 | $300 | $— | $— | - Dillard's adopted ASU No. 2022-04 (Supplier Finance Programs) in fiscal 2023, with confirmed obligations of $1.6 million as of February 3, 2024, and no material impact on financial statements. The Company is evaluating ASU No. 2023-07 (Segment Reporting) and ASU No. 2023-09 (Income Tax Disclosures), effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively363366368370371 - Forward-looking statements are based on management estimates and are subject to risks and uncertainties, including general retail conditions, macroeconomic factors (inflation, interest rates), consumer behavior, competition, labor issues, tax and regulatory changes, supply chain disruptions, and global conflicts254256 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Dillard's faces market risk from variable interest rates on its revolving credit facility, while long-term debt has fixed rates - Dillard's is exposed to market risk from changes in interest rates under its $800 million revolving credit agreement, which uses Adjusted Daily Simple SOFR258 Long-Term Debt and Subordinated Debentures Maturities and Interest Rates (February 3, 2024) | (in thousands of dollars) | 2024 ($ thousands) | 2025 ($ thousands) | 2026 ($ thousands) | 2027 ($ thousands) | 2028 ($ thousands) | Thereafter ($ thousands) | Total ($ thousands) | Fair Value ($ thousands) | |---|---|---|---|---|---|---|---|---| | Long-term debt | $— | $— | $96,000 | $80,000 | $145,825 | $— | $321,825 | $339,394 | | Average fixed interest rate (%) | — | — | 7.8 | 7.8 | 7.0 | — | 7.4 | | | Subordinated debentures | $— | $— | $— | $— | $— | $200,000 | $200,000 | $205,440 | | Average interest rate (%) | — | — | — | — | — | 7.5 | 7.5 | | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of Dillard's, Inc. and its subsidiaries, along with accompanying notes, are incorporated by reference and begin on page F-1 - The consolidated financial statements and notes are included in the report starting on page F-1259 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in or disagreements with accountants on accounting and financial disclosure for Dillard's - No changes in or disagreements with accountants on accounting and financial disclosure261 ITEM 9A. CONTROLS AND PROCEDURES Dillard's management concluded that disclosure controls and internal control over financial reporting were effective as of February 3, 2024, with no material changes during the quarter - Dillard's disclosure controls and procedures were evaluated and deemed effective as of February 3, 2024262 - Management concluded that Dillard's internal control over financial reporting was effective as of February 3, 2024, based on the 2013 COSO framework, and KPMG LLP audited and reported on its effectiveness263264 - No material changes in internal control over financial reporting occurred during the three months ended February 3, 2024265 ITEM 9B. OTHER INFORMATION During the three months ended February 3, 2024, none of Dillard's directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended February 3, 2024266 ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS This item is not applicable to Dillard's - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable267 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Director and executive officer information is incorporated by reference, and the Board maintains a Code of Conduct for all personnel - Information on directors and executive officers is incorporated by reference from the Proxy Statement and Part I of this report269270 - The Board has a Code of Conduct for all employees and Board members; waivers require Board approval and public disclosure271 ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation for Dillard's is incorporated by reference from the Proxy Statement - Executive compensation information is incorporated by reference from the Proxy Statement272 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Dillard's has 8.2 million securities available for future issuance under equity compensation plans, with further ownership details incorporated by reference Equity Compensation Plan Information (February 3, 2024) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise prices of outstanding options, warrants and rights (b) ($) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |---|---|---|---| | Equity compensation plans approved by stockholders* | — | $— | 8,212,875 | | Equity compensation plans not approved by stockholders | — | — | — | | Total | — | $— | 8,212,875 | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information on certain relationships, related transactions, and director independence for Dillard's is incorporated by reference from the Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement276 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information regarding principal accountant fees and services for Dillard's is incorporated by reference from the Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the Proxy Statement277 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES This item provides an index of financial statements and identifies exhibits incorporated by reference or filed with the report - An 'Index of Financial Statements' is filed as part of this report beginning on page F-1279 - The 'Exhibit Index' beginning on page 42 identifies exhibits incorporated by reference or filed with this report280 ITEM 16. FORM 10-K SUMMARY This report does not contain a Form 10-K Summary - This report does not contain a Form 10-K Summary286