Dillard’s 4Q profits beat Wall Street views, CEO cites retail industry challenges

Arkansas department store operator Dillard’s Inc. reported after the close of market on Monday (Feb. 25) that fourth-quarter profits fell below year-ago results that were fueled by the corporate tax cut package approved by Congress at the end of 2017.

For the period ended Feb. 2, 2019, Dillard’s reported net income of $85.1 million, or $3.22 per share, down 46% from net income of $157.6 million, or $5.55 per share, for the same period in the fourth quarter of 2019.

Included in net income for the prior year fourth quarter results is an estimated tax benefit of approximately $77.4 million, or $2.73 per share, related to the Tax Cuts and Jobs Act of 2017, company officials said. Fourth quarter net sales were $2.011 billion in the fourth quarter of 2018, slightly down from $2.061 billion for the same period of 2017.

Wall Street analysts had expected the Arkansas upscale retailer to report fourth-quarter profits of $2.76 per share on revenue of $2.08 billion, according to Thomson Reuters. In early pre-market trading Tuesday on the New York Stock Exchange, Dillard’s shares were trending upward 1.4%, or 92 cents at $66.47. Over the past 52 weeks, Dillard’s shares have traded at a high of $98.75 and a low of $55.73 over the past 52 weeks.

For the full-year, Dillard’s reported net income of $170.3 million, or $6.23 per share, compared to net income of $221.3 million, or $7.51 per share, for the same period of 2017. Those 52-week financials include a one-time take of $2.9 million, 11 cents per share, in tax benefits related to additional federal tax credits.

Dillard’s also saw a pretax gain on disposal of assets of $4.9 million. As noted, the prior fiscal year includes the $77.4 million related to the Tax Cuts and Jobs Act of 2017.

Yearly revenue rose to $6.36 billion, up 1.6% from $6.26 billion the previous year. Those net sales included Dillard’s construction subsidiary CDI Contractors, the Little Rock-based construction manager of the $26 million Phase II project for the Little Rock Technology Park Authority.

“Our operating results reflect another quarter of mall traffic declines from continued retail industry challenges,” said Dillard’s CEO William Dillard. “In response, we are ramping up our efforts to bring more distinctive brand and service experiences to Dillard’s, both in-store and online. Our strong balance sheet provides us support in these challenging times, and during the year we returned $256 million to shareholders.”

Overall, Dillard’s total merchandise sales in 2018 were $6.12 billion, comparable to $6.10 billion in the same period a year ago. Total merchandise and sale stores sales, which do not include CDI results, both rose by 2%. In the fourth quarter, total merchandise sales increased 1% and sales in comparable stores increased by 2%.

Company officials said sales trends for the fourth quarter were strongest in home and furniture followed by cosmetics and men’s clothing and accessories. Sales were strongest in the Eastern region followed by the Western and Central regions, respectively.

In the fourth quarter, gross margin from retail operations declined 69 basis points of sales to 30.3% primarily due to increased markdowns, compared to 31.0% for the three-month period a year ago. Retail operating expenses decreased 32 basis points of sales in the fourth quarter, compared with a year ago. Those costs, which include selling, general and administrative expenses, were $455.1 million or 23.2% of sales, compared with $476.9 million or 23.6% of sales, in the fourth quarter of 2018.

In the fourth quarter, Dillard’s purchased $36 million or 600,000 million shares of the retailer’s Class A common stock under the company’s $500 million share buyback program. For the year, Dillard’s has purchased $127.9 million, or 1.8 million shares of Class A Common Stock on the open market. Total shares outstanding of Class A and Class B Common Stock at the end of the fiscal year were 26.3 million and 28.1 million, respectively. Nearly $406.9 million remains under the company’s stock buyback plan.

During the fourth quarter of 2018, Dillard’s closed its West Town Center clearance location in Cincinnati, Ohio, a (115,000 square feet department store. Dillard’s has also announced the upcoming closure of its 186,000 square foot- Southern Park Mall location in Boardman, Ohio, during the first quarter of 2019. Dillard’s now operates 265 department store locations and 26 clearance centers spanning 29 states.