Apparel purchases weren’t top of mind for Dillard’s Inc. shoppers.
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The department store retailer’s second-quarter earnings report represented its first earnings miss in 13 quarters. Impacting sales were weak performances in men’s apparel, accessories and shoes. Dillard’s didn’t say how the women’s fashion categories fared—which for the first half featured a number of new collaborations and limited edition capsules—other than noting it saw moderate gross margin decreases in the second quarter.
Dillard’s has tried upping its assortment mix by introducing The Coterie Shop, a concept to elevate the fashion style of four entrepreneurs by featuring luxury special occasion and casual dressing pieces from Abbey Glass, Buru, Crosby by Mollie Burch and Fanm Mon. The concept, available online, is also featured in Dillard’s locations across 12 states. Dillard’s operates a total of 273 doors, including 28 clearance centers, across 30 states. Opening price points range from $118 to $368, although a few items are now marked down.
The retailer also included a number of limited editions capsule collections—The Style Bungalow for Antonio Melani, Caelynn Bell for Gianni Bini, M.G. Style for Antonio Melani, and Dannijo for Gianni Bini, among others—for its women’s and girls’ fashion offerings. Another limited edition option included The Broke Brooke for Edgehill, Dillard’s first influencer collaboration focused on children’s wear. And the department store retailer also rolled out Katherine Mason for Kinesis, a collaboration with fitness and fashion expert Katherine Mason for athleisure and performance pieces.
For the quarter ended Aug. 3, net income fell 43.3 percent to $74.5 million, or $4.59 a diluted share, from $131.5 million, or $7.98 a year ago. Total revenue, including service charges and other income, was down 9.1 percent to $1.51 billion from $1.6 billion. Net sales, which include the operations of the construction business CDI Contractors LLC, declined 4.9 percent to $1.49 billion from $1.57 billion in the same year-ago quarter. Retail sales for the quarter, (excluding CDI) were down 4.9 percent to $1.43 billion from $1.5 billion.
For the six months, net income fell 23.6 percent to $254.5 million, or $15.68, from $333.0 million, or $19.89, a year ago. Total revenues were down 3.9 percent to $3.09 billion from $3.21 billion. Net sales fell 3.6 percent to $3.04 billion from $3.15 billion. Retail sales for the first half fell 3.1 percent to $2.92 billion from $3.01 billion.
A closer look at the retail operations shows a 5 percent decline in comparable store sales. Consolidated gross margin for the same 13-week period fell to 39.1 percent of sales versus 40.4 percent a year ago. In comparison, the retailer managed to increase its retail gross margin in the first quarter despite a comparable-store decrease of 2 percent.
“The retail gross margin performance was essentially flat compared to the prior year second quarter in men’s apparel and accessories and decreased slightly in cosmetics and juniors’ and children’s apparel,” the company said. “Moderate gross margin decreases were noted in shoes, ladies’ accessories and lingerie, home and furniture, and ladies’ apparel.”
Dillard’s said that inventory levels were “essentially unchanged” at the end of the quarter versus year-ago levels. Dillard’s has made inventory control a priority for several years now.
“We are disappointed with our weak performance in the second quarter. While the consumer environment remained challenged, our expenses were up, squeezing our profitability,” the retailer’s CEO William T. Dillard, II, said. “We are working to address this. We ended the quarter with over $1 billion in cash and short-term investments.”
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A look at the balance sheet showed consolidated operating expenses of $433.6 million for the quarter, or 29.1 percent of sales, versus $412.6 million or 26.3 percent of sales, in the year ago quarter. The company said the increase was due primarily to increased payroll expenses and that it is working to “better align expenses to sales performance.”
Dana Telsey, chief investment officer at Telsey Advisory Group, said the $4.59 in earnings per share for the quarter was “well below” the consensus forecast of $5.97. “Better-than-expected expense deleverage was not enough to offset greater gross margin pressure and a weaker topline,” she said.
UBS retail analyst Mauricio Serna has a “Sell” rating on shares of Dillard’s.
“We think structural market share losses against other retail channels with more appealing value propositions should pressure Dillard’s sales and margins,” he said. Serna added that despite relatively lean inventories. “we believe higher markdowns should incrementally pressure Dillard’s gross margin.”
Serna doesn’t think Dillard’s position is strong enough to gain share in the brick-and-mortar space. “We model higher online sales, but believe this growth will not offset declining store revenues,” he said.
Overall, Serna said the UBS outlook for department stores includes an expectation that the channel’s share loss will continue due a a “lack of a compelling value-for-money proposition to compete against other channels like online pureplay, off-price, and brands’ own stores and websites.”
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