Little Rock-based Dillard’s reported deep losses of $162 million for the quarter ending May 2. The losses were not unexpected as much of the retail industry was closed during the quarter because of social distancing and stay-at-home orders to combat the COVID-19 threat.
Dillard’s posted net income of $78.6 million in the same quarter last year.
“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 re-open 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’s CEO William Dillard II said in the earnings report posted after markets closed Thursday (May 14).
Dillard’s reported net sales revenue of $786 million, down from $1.465 billion in the year-ago period. Total revenue which includes service charges and other income was $821.6 million, down from $1.497 billion a year ago.
Net losses per share of $6.94 cents was down from earnings of $2.99 a year ago. Wall Street expected average earnings of 8 cents per share with a low estimate on the street at losses of $3.79. Dillard’s shares (NYSE: DDS) closed Thursday at $23.08, down 3.95%. But in after-hours trading, shares rebounded to $24.69 up nearly 7%.
Dillard’s also said given the uncertainty surrounding COVID-19 and its economic effects the related financial impact to fiscal 2020 cannot be reasonably estimated at this time.
As the COVID-19 pandemic progressed, Dillard’s began closing stores on March 19 as mandated by state and local governments. By April 9, all 285 store locations were temporarily closed. On May 5, the company re-opened 45 Dillard’s stores in select markets where allowed. The company re-opened an additional 80 Dillard’s stores on May 12. Currently, these stores are operating with reduced hours.
Including 24 clearance centers, the company has re-opened 149 locations to date. Additionally, the company plans to re-open 116 Dillard’s stores and 5 clearance centers next week. Once these additional locations are opened, the retailer will have a total of 241 Dillard’s stores and 29 clearance centers open.
While stores were closed, Dillard’s expenses continued as benefits were paid to more 38,000 employees who were furloughed. Payroll expenses in the quarter were $168 million, compared to $257 million a year ago.
Beginning in early April, the Dillard’s CEO chose to forego his salary. On April 17, the company executed a temporary 20% salary reduction for all salaried associates. The reduction is still in effect with an expected duration through the payroll period ended May 30. The company may consider an extension of the salary reduction based upon financial conditions.
Dillard’s also worked to shore up its liquidity during these challenging times with an $800 million senior unsecured revolving credit facility. The amended credit is secured by the inventory of certain assets. A $200 million expansion option remains in place and the maturity date is Aug. 9, 2022. The retailer must keep $100 million in liquidity at all times to not trigger a default.
Dillard’s repaid a $779 million loan borrowed on March 25 under the previous agreement. The company said it took a number of actions in the troubled quarter to enhance its liquidity during the pandemic including:
• Extended vendor payment terms
• Canceled, suspended and significantly delayed merchandise shipments
• Reduced merchandise purchases during the quarter by 33%
• Reviewed and reduced discretionary operating and capital expenditures
* Reduced payroll expense
* Took extraordinary measures to clear inventory
Dillard’s said as the pandemic progressed, reduced consumer demand combined with mandatory store closures necessitated extraordinary measures to address excess inventory. The company began aggressively discounting merchandise to clear product beginning March 24 by offering an additional 40% off permanently marked down merchandise through April 1.
This was immediately followed by an additional 50% off permanently marked down merchandise which was in effect most of April and extended through May 12th.
Utilizing the ship-from-store capabilities of dillards.com, the company was able to generate sales from closed store locations where allowed. In part as a result of these actions, inventory at May 2 decreased 14% compared to the prior year.
Dillard’s significantly reduced merchandise purchases as the pandemic progressed in March and April, producing a 33% decline in purchases for the first quarter compared to the prior-year first quarter.
Jan Kniffen, a retail consultant with J. Rogers Kniffen Worldwide, said Dillard’s and Macy’s have the wherewithal to survive this unprecedented crisis. He expected losses to be staggering and gradually moderate over the next couple of quarters. He said it could take nine quarters for retail to return to normalized profits.