Dillard’s Faces Sales Slowdown

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As usual. Dillard’s was the first of all major retailers to eport second quarter sales and earnings results. Comparable sales were flat with last year, and net income decreased from $185.7 million last year to $163.4 million this year. Since the company bought back $225 million of stock during the second quarter (compared to a buy-back of $171 million last year), it resulted in fully diluted earnings that were up to $9.30 vs. $8.81 last year. Operating expenses in the quarter were $401.3 million compared to $365.9 million last year. This indicates that operating expenses were 25.3% of sales, while they were 23.3% of sales last year

This year we are seeing a slowdown in company sales growth after strong gains in 2021. In the second quarter ending July 30, sales were $1,589 million, essentially unchanged from the previous year when they were $1,570 million. Looking to the second half, this trend may continue. After all, Dillard’s 3^rd quarter 2021 comparable sales were up +48% and 4^th quarter sales were up +12%. Even with solid results, Dillard’s will likely struggle to maintain that momentum of sales. In addition, it is likely that the intense heat slowed sales in the second quarter and may slow sales in the third quarter.

While Dillard’s generally tightly controls its inventory, in the second quarter of 2022 it did end the period with 7% more goods than last year. This is due to the slowdown of sales growth and may reduce the company’s buying power for the important back-to-school period now underway.

All of this suggests that sales for the rest of the year will be flattish although the environment may improve and generate stronger activity. Reports that some ports are no longer clogged and that truckers are moving merchandise more quickly suggest that the current, costly surcharges may disappear. Similarly, the news that gas prices and airline fares are declining was positive news for investors as well and may suggest a deceleration of inflationary pressures that customers will certainly appreciate.

The slowdown of inflationary pressures may convince the Federal Reserve not to raise interest rates and maybe actually reduce the forthcoming increase in September.

CEO William T. Dillard commented, “Business softened in the quarter, as we lapped the strongest quarter in our history. Our first half performance was far better than last year’s with net income up +21%, earnings per share up +44%, and gross margin up 240 basis points. We repurchased $412 million of stock during the half versus $171 million last year.”

POSTSCRIPT: Overall, I would say that Dillard’s second quarter was very good given the current market. It is likely that the company will continue to report solid sales and earnings in the second half of the year. With inflationary pressures abating, it is likely that the holiday season will be strong – albeit promotional.