Dil­lard’s stock falls af­ter loss

CEO blames ‘sig­nif­i­cant mark­downs’ for weak sec­ond quar­ter.

Northwest Arkansas Democrat-Gazette - - FRONT PAGE - ROB­BIE NEISWANGER

Shares of Dil­lard’s Inc. stock tum­bled nearly 16 per­cent dur­ing Thurs­day trad­ing af­ter the Lit­tle Rock-based re­tailer re­ported a net loss of $17.1 mil­lion, or 58 cents per share, for the sec­ond quar­ter.

The loss came a year af­ter Dil­lard’s re­ported $12.1 mil­lion in net in­come, or 35 cents per share. To­tal rev­enue also fell 1.7 per­cent to $1.46 bil­lion dur­ing the 13-week pe­riod, but beat an­a­lyst es­ti­mates of $1.44 bil­lion ac­cord­ing to Ya­hoo Fi­nance.

Dil­lard’s stock dipped as much as 18 per­cent be­fore clos­ing trad­ing at $61.70 Thurs­day, down $11.64. The stock had climbed 35 per­cent over the past four weeks since clos­ing at $54.02 on July 10.

“Sig­nif­i­cant mark­downs led to a dis­ap­point­ing loss as we dealt with in­ven­tory, which was up 2 per­cent at quar­ter end,” Dil­lard’s Chief Ex­ec­u­tive Of­fi­cer Wil­liam Dil­lard said in a news re­lease.

The com­pany’s same-store sales de­creased 1 per­cent dur­ing the sec­ond quar­ter com­pared with the same pe­riod a year ago. To­tal mer­chan­dise sales, which ex­clude its con­struc­tion busi­ness CDI Con­trac­tors LLC, also de­creased 1 per­cent to $1.38 bil­lion.

Dil­lard’s re­ported sales in­creased slightly in women’s ap­parel and were “con­sis­tent with the com­pany trend” in ju­niors and chil­dren’s ap­parel, women’s ac­ces­sories and lin­gerie and men’s ap­parel and ac­ces­sories. Sales were slightly be­low trend in shoes and “be­low trend per­for­mances” were re­ported in cos­met­ics and home and fur­ni­ture, ac­cord­ing to the com­pany.

“It was prob­a­bly a very stren­u­ous quar­ter for top man­age­ment,” said Bob Wil­liams, se­nior vice pres­i­dent and man­ag­ing di­rec­tor of Sim­mons First In­vest­ment Group Inc. in Lit­tle Rock. “The mix of mer­chan­dise sales growth was kind of what you would ex­pect given a weak econ­omy and con­tin­u­ing low con­sumer con­fi­dence. But the amount of sales was bad enough that they had to re­sort to so many pro­mo­tions and mark­downs that it led to a loss of this mag­ni­tude.”

Ken Perkins, pres­i­dent of re­search firm Re­tail Met­rics, said the in­flux in in­ven­tory and sub­se­quent deep dis­count­ing that Dil­lard’s ex­pe­ri­enced in the quar­ter of­ten is linked to lower traf­fic.

“Your on­line sales aren’t grow­ing that much and you’re not gen­er­at­ing enough traf­fic into stores,” Perkins said. “Then typ­i­cally with ap­parel and sea­sonal ap­parel, you have some mer­chan­dise misses in terms of fash­ion that typ­i­cally don’t gain trac­tion and end up hav­ing to be marked down.”

Dil­lard’s re­ported its net in­come loss the same day Macy’s re­ported prof­its of $116 mil­lion, or 38 cents per share, dur­ing the sec­ond quar­ter. But same-store sales also de­clined 2.8 per­cent, which was the 10th-straight quar­ter of de­clines. Sales at stores open at least 12 months fell 0.4 per­cent at Kohl’s, which also re­ported sec­ond quar­ter earn­ings Thurs­day.

Shares fell for both Macy’s and Kohl’s, al­though Perkins be­lieved there were signs of some “sta­bi­liza­tion in traf­fic trends. Wil­liams pointed to

an­other met­ric as one “bright light” for Dil­lard’s.

“Their rate of de­cline in same-store sales closed,” Wil­liams said. “Last quar­ter, same­store sales were down 4 per­cent. This quar­ter only down 1 per­cent and that seems to have been across the board on re­tail­ers.”

Dil­lard’s an­nounced in a sep­a­rate news re­lease that it had “amended and ex­tended into a new $800 mil­lion se­nior un­se­cured re­volv­ing credit fa­cil­ity con­sis­tent with the com­pany’s liq­uid­ity needs.”

The credit is avail­able to Dil­lard’s for gen­eral cor­po­rate pur­poses, in­clud­ing work­ing cap­i­tal fi­nanc­ing, is­su­ing let­ters of credit, cap­i­tal ex­pen­di­tures and the re­pay­ment of ex­ist­ing debt and share re­pur­chases, ac­cord­ing to the news re­lease.

A $200 mil­lion ex­pan­sion op­tion re­mains in place and

the new ma­tu­rity date is Aug. 9, 2022.

The earn­ings re­port came 10 days af­ter Snow Park Cap­i­tal Part­ners said it plans to press for changes at the com­pany, be­liev­ing there are ways Dil­lard’s can add value to share­hold­ers through its real es­tate hold­ings. Jef­fery Pierce, who is man­ag­ing di­rec­tor of the New York-based ac­tivist in­vestor fund, said ear­lier this month that he hopes to en­gage Dil­lard’s man­age­ment with ideas — like leas­ing or re­pur­pos­ing store space for other re­tail ten­ants — that could un­lock value.

Dil­lard’s op­er­ates 268 lo­ca­tions and 25 clear­ance cen­ters in 29 states.

“The ques­tion re­mains to be seen, ul­ti­mately, whether man­age­ment de­cides to meet with these folks and whether they de­cide to pur­sue some of the strate­gies they’re rec­om­mend­ing,” Wil­liams said.

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