Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 29, 2022
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 1-6140
DILLARD’S, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
71-0388071
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS 72201
(Address of principal executive offices)
(Zip Code)
(501) 376-5200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock
DDS
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
CLASS A COMMON STOCK as of November 26, 2022 13,138,681
CLASS B COMMON STOCK as of November 26, 2022 3,986,233
Index
Page
Number
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of October 29, 2022, January 29, 2022 and October 30, 2021
3
Condensed Consolidated Statements of Income for the Three and Nine Months Ended October 29, 2022 and October 30, 2021
4
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended October 29, 2022 and October 30, 2021
5
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended October 29, 2022 and October 30, 2021
6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 29, 2022 and October 30, 2021
8
Notes to Condensed Consolidated Financial Statements
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
28
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Legal Proceedings
29
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
30
Item 6.
Exhibits
31
SIGNATURES
32
2
Item 1. Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
October 29,
January 29,
October 30,
2022
2021
Assets
Current assets:
Cash and cash equivalents
$
532,708
716,759
619,721
Accounts receivable
40,476
39,777
28,472
Short-term investments
197,971
—
Merchandise inventories
1,644,793
1,080,178
1,525,860
Federal and state income taxes
99,764
Other current assets
99,471
77,937
102,981
Total current assets
2,515,419
1,914,651
2,376,798
Property and equipment (net of accumulated depreciation and amortization of $2,647,231, $2,517,915 and $2,586,059, respectively)
1,146,064
1,190,151
1,218,840
Operating lease assets
36,663
42,941
41,189
Deferred income taxes
30,841
28,931
34,809
Other assets
63,646
68,883
68,560
Total assets
3,792,633
3,245,557
3,740,196
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable and accrued expenses
1,293,699
886,233
1,285,786
Current portion of long-term debt
44,800
Current portion of finance lease liabilities
180
Current portion of operating lease liabilities
10,332
11,712
11,432
7,418
23,441
Total current liabilities
1,356,249
966,186
1,297,398
Long-term debt
321,327
321,247
365,982
Operating lease liabilities
26,232
30,969
29,293
Other liabilities
279,471
275,937
283,323
Subordinated debentures
200,000
Commitments and contingencies
Stockholders’ equity:
Common stock
1,240
Additional paid-in capital
958,974
956,653
955,198
Accumulated other comprehensive loss
(22,254)
(22,798)
(33,350)
Retained earnings
5,619,813
5,027,922
5,002,074
Less treasury stock, at cost
(4,948,419)
(4,511,799)
(4,360,962)
Total stockholders’ equity
1,609,354
1,451,218
1,564,200
Total liabilities and stockholders’ equity
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
Three Months Ended
Nine Months Ended
Net sales
1,544,142
1,480,999
4,744,430
4,379,920
Service charges and other income
28,930
30,913
89,311
90,959
1,573,072
1,511,912
4,833,741
4,470,879
Cost of sales
855,677
796,276
2,658,331
2,497,575
Selling, general and administrative expenses
413,838
393,191
1,215,943
1,095,673
Depreciation and amortization
46,665
50,188
140,793
146,639
Rentals
5,272
4,947
15,667
15,157
Interest and debt expense, net
6,957
10,550
27,108
32,856
Other expense
1,936
2,134
5,808
9,232
Gain on disposal of assets
(2)
(4)
(7,240)
(24,686)
Income before income taxes
242,729
254,630
777,331
698,433
Income taxes
54,820
57,300
174,880
157,200
Net income
187,909
197,330
602,451
541,233
Earnings per share:
Basic and diluted
10.96
9.81
34.05
25.76
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other comprehensive income:
Amortization of retirement plan and other retiree benefit adjustments (net of tax of $58, $168, $174 and $505, respectively)
181
528
544
1,585
Comprehensive income
188,090
197,858
602,995
542,818
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Thousands, Except Share and Per Share Data)
Three Months Ended October 29, 2022
Accumulated
Additional
Other
Common
Paid-in
Comprehensive
Retained
Treasury
Stock
Capital
Loss
Earnings
Total
Balance, July 30, 2022
(22,435)
5,435,331
(4,924,109)
1,449,001
Other comprehensive income
Purchase of 98,983 shares of treasury stock
(24,310)
Cash dividends declared:
Common stock, $0.20 per share
(3,427)
Balance, October 29, 2022
Three Months Ended October 30, 2021
Balance, July 31, 2021
(33,878)
4,808,737
(4,121,718)
1,609,579
Purchase of 1,230,705 shares of treasury stock
(239,244)
(3,993)
Balance, October 30, 2021
Nine Months Ended October 29, 2022
Balance, January 29, 2022
Issuance of 9,000 shares under equity plans
2,321
Purchase of 1,708,918 shares of treasury stock
(436,620)
Common stock, $0.60 per share
(10,560)
Nine Months Ended October 30, 2021
Balance, January 30, 2021
954,131
(34,935)
4,471,269
(3,950,697)
1,441,008
1,067
Purchase of 2,590,065 shares of treasury stock
(410,265)
Common stock, $0.50 per share
(10,428)
7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and other deferred cost
141,978
148,319
Proceeds from insurance
2,902
Loss on early extinguishment of debt
2,830
Accrued interest on short-term investments
(1,155)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable
(699)
8,221
Increase in merchandise inventories
(564,615)
(438,097)
Increase in other current assets
(18,416)
(49,214)
Increase in other assets
(213)
(2,492)
Increase in trade accounts payable and accrued expenses and other liabilities
425,248
528,087
(Decrease) increase in income taxes
(18,918)
10,980
Net cash provided by operating activities
558,421
728,083
Investing activities:
Purchase of property and equipment and capitalized software
(94,771)
(79,748)
Proceeds from disposal of assets
8,095
4,886
3,801
Purchase of short-term investments
(196,816)
Distribution from joint venture
1,475
Net cash used in investing activities
(278,606)
(45,179)
Financing activities:
Principal payments on long-term debt and finance lease liabilities
(515)
Issuance cost of line of credit
(3,008)
Cash dividends paid
(11,013)
(9,734)
Purchase of treasury stock
(452,853)
Net cash used in financing activities
(463,866)
(423,522)
(Decrease) increase in cash and cash equivalents
(184,051)
259,382
Cash and cash equivalents, beginning of period
360,339
Cash and cash equivalents, end of period
Non-cash transactions:
Accrued capital expenditures
8,757
7,168
Stock awards
Lease assets obtained in exchange for new operating lease liabilities
3,392
4,536
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of Dillard’s, Inc. (the “Company”) have been prepared in accordance with the rules of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended October 29, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending January 28, 2023 due to, among other factors, the seasonal nature of the business.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022 filed with the SEC on March 29, 2022.
During the fiscal quarter ended July 30, 2022, the Company began purchasing short-term investments. Short-term investments are securities with original maturities of greater than three months but less than twelve months and are comprised of U.S. Treasury Bills. The Company determines the classification of these securities as trading, available for sale or held to maturity at the time of purchase and re-evaluates these determinations at each balance sheet date. Our short-term investments are classified as held-to-maturity for the period presented as we have the positive intent and ability to hold these investments to maturity. Our held-to-maturity investments are stated at amortized cost, which approximated fair value, and are periodically assessed for other-than-temporary impairment.
Note 2. Accounting Standards
Recently Issued Accounting Pronouncements
Except as noted below, the Company has considered all recent accounting pronouncements and Management believes there is no accounting guidance issued but not yet effective that would be relevant to the Company’s current condensed consolidated financial statements.
Disclosure of Supplier Finance Program Obligations
In September 2022, the Financial Accounting Standards Board issued accounting standards update ("ASU") No. 2022-04, Disclosure of Supplier Finance Program Obligations. The ASU is intended to enhance the transparency of the use of supplier finance programs by requiring that the buyers in those programs provide additional disclosures about the program’s nature and potential magnitude, including a rollforward of the obligations and activity during the period. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2022, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. The amendments in the update should be applied retrospectively, except for the amendment on rollforward information, which should be applied prospectively. The Company is currently assessing the impact of this ASU on our condensed consolidated financial statements.
Note 3. Business Segments
The Company operates in two reportable segments: the operation of retail department stores (“retail operations”) and a general contracting construction company (“construction”).
For the Company’s retail operations, the Company determined its operating segments on a store by store basis. Each store’s operating performance has been aggregated into one reportable segment. The Company’s operating segments are
aggregated for financial reporting purposes because they are similar in each of the following areas: economic characteristics, class of consumer, nature of products and distribution methods. Revenues from external customers are derived from merchandise sales, and the Company does not rely on any major customers as a source of revenue. Across all stores, the Company operates one store format under the Dillard’s name where each store offers the same general mix of merchandise with similar categories and similar customers. The Company believes that disaggregating its operating segments would not provide meaningful additional information.
The following table summarizes the percentage of net sales by segment and major product line:
Retail operations segment
Cosmetics
14
%
13
Ladies’ apparel
21
22
23
Ladies’ accessories and lingerie
15
Juniors’ and children’s apparel
10
11
Men’s apparel and accessories
20
19
Shoes
Home and furniture
97
99
98
Construction segment
1
100
The following tables summarize certain segment information, including the reconciliation of those items to the Company’s consolidated operations:
Retail
(in thousands of dollars)
Operations
Construction
Consolidated
Net sales from external customers
1,499,072
45,070
Gross margin
685,643
2,822
688,465
46,614
51
Interest and debt expense (income), net
6,984
(27)
241,863
866
3,737,746
54,887
1,460,184
20,815
682,317
2,406
684,723
50,122
66
10,557
(7)
254,152
478
3,703,257
36,939
4,632,529
111,901
2,079,008
7,091
2,086,099
140,628
165
27,154
(46)
775,965
1,366
4,296,316
83,604
1,876,558
5,787
1,882,345
146,441
198
32,889
(33)
697,140
1,293
Intersegment construction revenues of $10.7 million and $12.0 million for the three months ended October 29, 2022 and October 30, 2021, respectively, and $32.4 million and $28.6 million for the nine months ended October 29, 2022 and October 30, 2021, respectively, were eliminated during consolidation and have been excluded from net sales for the respective periods.
The retail operations segment gives rise to contract liabilities through the customer loyalty program associated with Dillard’s private label cards and through the issuances of gift cards. The loyalty program liability and a portion of the gift card liability is included in trade accounts payable and accrued expenses, and a portion of the gift card liability is included in other liabilities on the condensed consolidated balance sheets. Our retail operations segment contract liabilities are as follows:
January 30,
Contract liabilities
67,109
80,421
59,718
68,021
During the nine months ended October 29, 2022 and October 30, 2021, the Company recorded $44.8 million and $35.4 million, respectively, in revenue that was previously included in the retail operations contract liability balances of $80.4 million and $68.0 million at January 29, 2022 and January 30, 2021, respectively.
Construction contracts give rise to accounts receivable, contract assets and contract liabilities. We record accounts receivable based on amounts expected to be collected from customers. We also record costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) and billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) in other current assets and trade accounts payable and accrued expenses in the condensed consolidated balance sheets, respectively. The amounts included in the condensed consolidated balance sheets are as follows:
31,111
25,912
18,586
25,094
Costs and estimated earnings in excess of billings on uncompleted contracts
3,512
2,847
2,333
450
Billings in excess of costs and estimated earnings on uncompleted contracts
9,969
6,298
6,521
4,685
During the nine months ended October 29, 2022 and October 30, 2021, the Company recorded $5.7 million and $4.1 million, respectively, in revenue that was previously included in billings in excess of costs and estimated earnings on uncompleted contracts of $6.3 million and $4.7 million at January 29, 2022 and January 30, 2021, respectively.
The remaining performance obligations related to executed construction contracts totaled $232.7 million, $93.9 million and $84.2 million at October 29, 2022, January 29, 2022 and October 30, 2021, respectively.
Note 4. Earnings Per Share Data
The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data).
Weighted average shares of common stock outstanding
17,139
20,109
17,691
21,009
Basic and diluted earnings per share
The Company maintains a capital structure in which common stock is the only equity security issued and outstanding, and there were no shares of preferred stock, stock options, other dilutive securities or potentially dilutive securities issued or outstanding during the three and nine months ended October 29, 2022 and October 30, 2021.
Note 5. Commitments and Contingencies
Various legal proceedings, in the form of lawsuits and claims, which occur in the normal course of business, are pending against the Company and its subsidiaries. In the opinion of management, disposition of these matters, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s financial position, cash flows or results of operations.
At October 29, 2022, letters of credit totaling $19.3 million were issued under the Company’s revolving credit facility. See Note 7, Revolving Credit Agreement, for additional information.
12
Note 6. Benefit Plans
The Company has an unfunded, nonqualified defined benefit plan (“Pension Plan”) for its officers. The Pension Plan is noncontributory and provides benefits based on years of service and compensation during employment. The Company determines pension expense using an actuarial cost method to estimate the total benefits ultimately payable to officers and allocates this cost to service periods. The actuarial assumptions used to calculate pension costs are reviewed annually. The Company contributed $1.5 million and $4.6 million to the Pension Plan during the three and nine months ended October 29, 2022, respectively, and expects to make additional contributions to the Pension Plan of approximately $1.7 million during the remainder of fiscal 2022.
The components of net periodic benefit costs are as follows (in thousands):
Components of net periodic benefit costs:
Service cost
1,019
3,057
3,201
Interest cost
1,696
1,438
5,089
4,312
Net actuarial loss
240
696
719
2,090
Net periodic benefit costs
2,955
8,865
9,603
The service cost component of net periodic benefit costs is included in selling, general and administrative expenses, and the interest cost and net actuarial loss components are included in other expense.
Note 7. Revolving Credit Agreement
The Company maintains a credit facility (“credit agreement”) for general corporate purposes including, among other uses, working capital financing, the issuance of letters of credit, capital expenditures and, subject to certain restrictions, the repayment of existing indebtedness and share repurchases. The credit agreement provides a borrowing capacity of $800 million, subject to certain limitations as outlined in the credit agreement, with a $200 million expansion option.
In April 2021, the Company amended the credit agreement (the "2021 amendment"). Pursuant to the 2021 amendment, the Company pays a variable rate of interest on borrowings under the credit agreement and a commitment fee to the participating banks. The rate of interest on borrowings is LIBOR plus 1.75% if average quarterly availability is less than 50% of the total commitment, as defined in the 2021 amended credit agreement ("total commitment"), and the rate of interest on borrowings is LIBOR plus 1.50% if average quarterly availability is greater than or equal to 50% of the total commitment. The commitment fee for unused borrowings is 0.30% per annum if average borrowings are less than 35% of the total commitment and 0.25% if average borrowings are greater than or equal to 35% of the total commitment. As long as availability exceeds $80 million and certain events of default have not occurred and are not continuing, there are no financial covenant requirements under the credit agreement. The credit agreement, as amended by the 2021 amendment, matures on April 28, 2026.
At October 29, 2022, no borrowings were outstanding, and letters of credit totaling $19.3 million were issued under the credit agreement leaving unutilized availability under the facility of $780.7 million.
Note 8. Stock Repurchase Programs
In March 2018, the Company announced that its Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $500 million of its Class A Common Stock ("March 2018 Stock Plan"). In May 2021, the Company announced that its Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $500 million of its Class A Common Stock ("May 2021 Stock Plan"). In February 2022, the Company announced that its Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $500 million of its Class A Common Stock under an open-ended plan (“February 2022 Stock Plan”).
The February 2022 Stock Plan permits the Company to repurchase its Class A Common Stock in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934 or through privately negotiated transactions.
The following is a summary of share repurchase activity for the periods indicated (in thousands, except per share data):
Cost of shares repurchased
24,310
239,244
436,620
410,265
Number of shares repurchased
1,231
1,709
2,590
Average price per share
245.60
194.40
255.49
158.40
All repurchases of the Company’s Class A Common Stock above were made at the market price at the trade date, and all amounts paid to reacquire these shares were allocated to treasury stock. As of October 29, 2022, the Company had completed the authorized purchases under the March 2018 Stock Plan and the May 2021 Stock Plan, and $175.4 million of authorization remained under the February 2022 Stock Plan.
Note 9. Income Taxes
During the three and nine months ended October 29, 2022 and October 30, 2021, income tax expense differed from what would be computed using the statutory federal income tax rate primarily due to the effects of state and local income taxes.
Note 10. Gain on Disposal of Assets
During the nine months ended October 29, 2022, the Company recorded proceeds of $8.1 million primarily from the sale of one store property, resulting in a gain of $7.2 million that was recorded in gain on disposal of assets.
During the nine months ended October 30, 2021, the Company recorded proceeds of $29.3 million primarily from the sale of three store properties, resulting in a gain of $24.7 million that was recorded in gain on disposal of assets.
Note 11. Fair Value Disclosures
The estimated fair values of financial instruments presented herein have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of amounts the Company could realize in a current market exchange.
The fair value of the Company’s cash and cash equivalents and accounts receivable approximates their carrying values at October 29, 2022 due to the short-term maturities of these instruments. The Company’s short-term investments are recorded at amortized cost, which is consistent with the Company’s held-to-maturity classification. The fair value of the Company’s long-term debt at October 29, 2022 was approximately $370 million. The carrying value of the Company’s long-term debt at October 29, 2022 was $366.1 million. The fair value of the Company’s subordinated debentures at October 29, 2022 was approximately $205 million. The carrying value of the Company’s subordinated debentures at October 29, 2022 was $200 million.
The fair value of the Company’s long-term debt and subordinated debentures is based on market prices and is categorized as Level 1 in the fair value hierarchy.
Note 12. Subsequent Event
On November 17, 2022, the Company announced that its Board of Directors declared a special dividend of $15.00 per share. The dividend is payable on the Class A and Class B Common Stock of the Company on January 9, 2023 to shareholders of record as of December 15, 2022.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the condensed consolidated financial statements and the footnotes thereto included elsewhere in this report, as well as the financial and other information included in our Annual Report on Form 10-K for the year ended January 29, 2022.
EXECUTIVE OVERVIEW
Excluding the unprecedented performance for the three months ended October 30, 2021, the Company’s results for the three months ended October 29, 2022 were notably better than historical third quarter performances.
Comparable retail store sales increased 3% for the three months ended October 29, 2022 compared to the prior year third quarter. Retail gross margin declined 100 basis point of sales to 45.7% compared to the prior year record high third quarter gross margin of 46.7%, marking the Company’s seventh consecutive quarter of gross margin exceeding 40%. The Company continued its efforts to control inventory during the quarter. Inventory increased 8% at October 29, 2022 compared to October 30, 2021, primarily as a result of rising inflation throughout the Company’s supply chain.
Selling, general and administrative (“SG&A”) expenses for the three months ended October 29, 2022 increased to $413.8 million (26.8% of sales) compared to $393.2 million (26.5% of sales) for the prior year third quarter. The increase in SG&A expenses is primarily due to increased payroll and payroll-related expenses in the current highly competitive wage environment which began in 2021 and has continued throughout 2022.
For the three months ended October 29, 2022, the Company reported net income of $187.9 million ($10.96 per share) compared to net income of $197.3 million ($9.81 per share) for the prior year third quarter.
Cash flows provided by operating activities were $558.4 million for the nine months ended October 29, 2022. The Company repurchased approximately 99,000 shares of its outstanding Class A Common Stock for $24.3 million under its stock repurchase plan during the three months ended October 29, 2022. The Company repurchased approximately 1.7 million shares of its outstanding Class A Common Stock for $436.6 million under its stock repurchase plans during the nine months ended October 29, 2022. At October 29, 2022, $175.4 million of authorization remained under the Company’s open stock repurchase plan.
As of October 29, 2022, the Company had working capital of $1,159.2 million (including cash and cash equivalents and short-term investments of $532.7 million and $198.0 million, respectively) and $566.1 million of total debt outstanding, excluding operating lease liabilities, and including one scheduled debt maturity of $44.8 million at the end of fiscal 2022.
The Company maintained 277 Dillard’s stores, including 28 clearance centers, and an internet store as of October 29, 2022.
At present, a number of economic and geopolitical factors are affecting the U.S. and world economies (including countries from which we source some of our merchandise): fluctuating gas prices (in part due to the war in Ukraine and the resulting sanctions imposed on Russia by the U.S. and other countries), inflation and interest rate increases, uncertainty around shipping costs and shipping capacity, U.S. port slowdowns, increasing U.S. wages in a tight labor market as well as some continuing effects from the COVID-19 pandemic. The extent to which our business will be affected by these factors depends on our customer’s ability and willingness to accept price increases and our ability to receive merchandise timely. Accordingly, the related financial impact to fiscal 2022 from these factors cannot be reasonably estimated at this time.
Key Performance Indicators
We use a number of key indicators of financial condition and operating performance to evaluate our business, including the following:
Net sales (in millions)
1,544.1
1,481.0
Retail stores sales trend
47
Comparable retail stores sales trend
48
Gross margin (in millions)
688.5
684.7
Gross margin as a percentage of net sales
44.6
46.2
Retail gross margin as a percentage of retail net sales
45.7
46.7
Selling, general and administrative expenses as a percentage of net sales
26.8
26.5
Cash flow provided by operations (in millions)*
558.4
728.1
Total retail store count at end of period
277
280
Retail sales per square foot
33
Retail store inventory trend
(1)
Annualized retail merchandise inventory turnover
2.4
2.5
* Cash flow from operations data is for the nine months ended October 29, 2022 and October 30, 2021.
General
Net sales. Net sales includes merchandise sales of comparable and non-comparable stores and revenue recognized on contracts of CDI Contractors, LLC (“CDI”), the Company’s general contracting construction company. Comparable store sales includes sales for those stores which were in operation for a full period in both the most recently completed quarter and the corresponding quarter for the prior fiscal year, including our internet store. Comparable store sales excludes changes in the allowance for sales returns. Non-comparable store sales includes: sales in the current fiscal year from stores opened during the previous fiscal year before they are considered comparable stores; sales from new stores opened during the current fiscal year; sales in the previous fiscal year for stores closed during the current or previous fiscal year that are no longer considered comparable stores; sales in clearance centers; and changes in the allowance for sales returns.
Sales occur as a result of interaction with customers across multiple points of contact, creating an interdependence between in-store and online sales. Online orders are fulfilled from both fulfillment centers and retail stores. Additionally, online customers have the ability to buy online and pick up in-store. Retail in-store customers have the ability to purchase items that may be ordered and fulfilled from either a fulfillment center or another retail store location. Online customers may return orders via mail, or customers may return orders placed online to retail store locations. Customers who earn reward points under the private label credit card program may earn and redeem rewards through in-store or online purchases.
Service charges and other income. Service charges and other income includes income generated through the long-term marketing and servicing alliance with Wells Fargo Bank, N.A. (“Wells Fargo Alliance”). Other income includes rental income, shipping and handling fees and gift card breakage.
Cost of sales. Cost of sales includes the cost of merchandise sold (net of purchase discounts, non-specific margin maintenance allowances and merchandise margin maintenance allowances), bankcard fees, freight to the distribution centers, employee and promotional discounts, shipping to customers and direct payroll for salon personnel. Cost of sales also includes CDI contract costs, which comprise all direct material and labor costs, subcontract costs and those indirect costs related to contract performance, such as indirect labor, employee benefits and insurance program costs.
17
Selling, general and administrative expenses. Selling, general and administrative expenses include buying, occupancy, selling, distribution, warehousing, store and corporate expenses (including payroll and employee benefits), insurance, employment taxes, advertising, management information systems, legal and other corporate level expenses. Buying expenses consist of payroll, employee benefits and travel for design, buying and merchandising personnel.
Depreciation and amortization. Depreciation and amortization expenses include depreciation and amortization on property and equipment.
Rentals. Rentals includes expenses for store leases, including contingent rent, data processing and other equipment rentals and office space leases.
Interest and debt expense, net. Interest and debt expense includes interest, net of interest income from demand deposits and short-term investments and capitalized interest, relating to the Company’s unsecured notes, subordinated debentures and commitment fees and borrowings, if any, under the Company’s credit agreement. Interest and debt expense also includes the amortization of financing costs and interest on finance lease obligations.
Other expense. Other expense includes the interest cost and net actuarial loss components of net periodic benefit costs related to the Company’s unfunded, nonqualified defined benefit plan and charges related to the write off of certain deferred financing fees in connection with the amendment and extension of the Company's secured revolving credit facility, if any.
Gain on disposal of assets. Gain on disposal of assets includes the net gain or loss on the sale or disposal of property and equipment, as well as gains from insurance proceeds in excess of the cost basis of insured assets, if any.
LIBOR
On March 5, 2021, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative: (a) immediately after December 31, 2021, in the case of the 1-week and 2-month U.S. dollar settings; and (b) immediately after June 30, 2023, in the case of the remaining U.S. dollar settings. The 2021 amendment to our credit agreement included an approach to replace LIBOR with a SOFR-based rate. We have not yet transitioned to a SOFR-based rate and will continue to monitor, assess and plan for the replacement of LIBOR with an alternative rate. We also intend to work with the Wells Fargo Alliance and any other applicable agreements to determine a suitable alternative reference rate.
Seasonality
Our business, like many other retailers, is subject to seasonal influences, with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season. Because of the seasonality of our business, results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.
18
RESULTS OF OPERATIONS
The following table sets forth the results of operations as a percentage of net sales for the periods indicated (percentages may not foot due to rounding):
100.0
1.9
2.1
101.9
102.1
55.4
53.8
56.0
57.0
25.6
25.0
3.0
3.4
3.3
0.3
0.5
0.7
0.6
0.8
0.1
0.2
(0.2)
(0.6)
15.7
17.2
16.4
15.9
3.6
3.9
3.7
12.2
13.3
12.7
12.4
Net Sales
$ Change
Net sales:
38,888
24,255
Total net sales
63,143
The percent change in the Company’s sales by segment and product category for the three months ended October 29, 2022 compared to the three months ended October 30, 2021 as well as the sales percentage by segment and product category to total net sales for the three months ended October 29, 2022 are as follows:
% Change
% of
2022 - 2021
7.5
(1.6)
(6.3)
6.1
4.4
5.0
116.5
Net sales from the retail operations segment increased $38.9 million, or approximately 3%, and sales in comparable stores increased approximately 3% during the three months ended October 29, 2022 compared to the three months ended
October 30, 2021. Sales in cosmetics, men’s apparel and accessories and home and furniture increased significantly, while sales in shoes and ladies’ apparel increased moderately. Sales in ladies’ accessories and lingerie decreased moderately, while sales in juniors’ and children’s apparel decreased significantly.
For the three months ended October 29, 2022 compared to the three months ended October 30, 2021, the number of sales transactions decreased by 5%, while the average dollars per sales transaction increased by 8%.
We recorded a return asset of $13.8 million and $11.0 million and an allowance for sales returns of $27.3 million and $22.3 million as of October 29, 2022 and October 30, 2021, respectively.
During the three months ended October 29, 2022, net sales from the construction segment increased $24.3 million, or approximately 117%, compared to the three months ended October 30, 2021, due to an increase in construction activity. The remaining performance obligations related to executed construction contracts totaled $232.7 million as of October 29, 2022, increasing approximately 148% from January 29, 2022 and increasing approximately 176% from October 30, 2021, respectively. We expect these remaining performance obligations to be earned over the next nine to eighteen months.
336,213
28,297
364,510
The percent change in the Company’s sales by segment and product category for the nine months ended October 29, 2022 compared to the nine months ended October 30, 2021 as well as the sales percentage by segment and product category to total net sales for the nine months ended October 29, 2022 are as follows:
8.7
6.9
5.3
14.9
9.0
4.2
33.8
Net sales from the retail operations segment increased $336.2 million, or approximately 8%, and sales in comparable stores increased approximately 8% during the nine months ended October 29, 2022 compared to the nine months ended October 30, 2021. Sales in men’s apparel and accessories, shoes, cosmetics, ladies’ apparel and juniors’ and children’s apparel increased significantly. Sales in home and furniture increased moderately, while sales in ladies’ accessories and lingerie increased slightly.
For the nine months ended October 29, 2022 compared to the nine months ended October 30, 2021, the number of sales transactions decreased by 1%, while the average dollars per sales transaction increased by 9%.
During the nine months ended October 29, 2022, net sales from the construction segment increased $28.3 million, or approximately 34%, compared to the nine months ended October 30, 2021, due to an increase in construction activity.
Service Charges and Other Income
Three
Nine
Months
2022-2021
Service charges and other income:
Income from Wells Fargo Alliance
16,761
18,701
50,310
54,143
(1,940)
(3,833)
Shipping and handling income
9,533
9,672
29,603
28,376
(139)
1,227
2,665
9,204
7,869
(75)
1,335
28,884
31,038
89,117
90,388
(2,154)
(1,271)
46
(125)
194
571
171
(377)
Total service charges and other income
(1,983)
(1,648)
Gross Margin
Gross margin:
Three months ended
3,326
416
17.3
Total gross margin
3,742
Nine months ended
202,450
10.8
1,304
22.5
203,754
Gross margin as a percentage of segment net sales:
44.9
43.7
6.3
11.6
Total gross margin as a percentage of net sales
44.0
43.0
Gross margin, as a percentage of sales, decreased to 44.6% from 46.2% during the three months ended October 29, 2022 compared to the three months ended October 30, 2021, respectively.
Gross margin from retail operations, as a percentage of sales, decreased to 45.7% from 46.7% during the three months ended October 29, 2022 compared to the three months ended October 30, 2021, respectively. Gross margin decreased significantly in home and furniture, while decreasing moderately in ladies’ accessories and lingerie and men’s apparel and accessories. Gross margin remained flat in ladies’ apparel and juniors’ and children’s apparel. Gross margin increased slightly in cosmetics and shoes.
Gross margin, as a percentage of sales, increased to 44.0% from 43.0% during the nine months ended October 29, 2022 compared to the nine months ended October 30, 2021, respectively.
Gross margin from retail operations, as a percentage of sales, increased to 44.9% from 43.7% during the nine months ended October 29, 2022 compared to the nine months ended October 30, 2021, respectively. Management attributes the improvement in gross margin to positive customer response to the company’s merchandise assortment combined with continued inventory management leading to decreased markdowns in the first nine months of 2022. Gross margin increased moderately in men’s apparel and accessories and ladies’ apparel, while increasing slightly in juniors’ and children’s apparel and cosmetics. Gross margin remained flat in shoes. Gross margin decreased slightly in ladies’ accessories and lingerie, while decreasing moderately in home and furniture.
Total inventory increased 8% as of October 29, 2022 compared to October 30, 2021, primarily as a result of rising inflation throughout the Company’s supply chain. A 1% change in the dollar amount of markdowns would have impacted net income by approximately $1 million and $5 million for the three and nine months ended October 29, 2022, respectively.
We source a significant portion of our private label and exclusive brand merchandise from countries that continue to be impacted by the COVID-19 virus. Additionally, many of our branded merchandise vendors may also source a significant portion of their merchandise from these same countries. This issue continues to negatively impact our supply chain, resulting in shipping delays as well as increased shipping costs.
Additionally, disruptions continue in the global transportation network, and it is unclear when these issues will be resolved. The California ports of Los Angeles and Long Beach, which together handle a significant portion of United States merchandise imports, have experienced delays in processing imported merchandise, thereby resulting in untimely deliveries of merchandise. While these ports are currently operating with few delays, further shipping delays may occur if the ongoing west coast port labor contract negotiations fail or if the ongoing labor contract negotiations related to United States railroads, which move goods out of these ports, fail.
At present, while monitoring all of these situations closely, management is unable to quantify the effects of these factors on the Company's results of operations and inventory position for fiscal 2022.
Selling, General and Administrative Expenses (“SG&A”)
SG&A:
411,888
391,463
20,425
5.2
1,950
1,728
222
12.8
Total SG&A
20,647
1,210,208
1,090,818
119,390
10.9
5,735
4,855
880
18.1
120,270
11.0
SG&A as a percentage of segment net sales:
27.5
26.1
25.4
4.3
8.3
5.1
5.8
Total SG&A as a percentage of net sales
SG&A increased to 26.8% of sales during the three months ended October 29, 2022 compared to 26.5% of sales during the three months ended October 30, 2021, an increase of $20.6 million. SG&A from retail operations increased to
27.5% of sales for the three months ended October 29, 2022 compared to 26.8% of sales for the three months ended October 30, 2021, an increase of $20.4 million.
SG&A increased to 25.6% of sales during the nine months ended October 29, 2022 compared to 25.0% of sales during the nine months ended October 30, 2021, an increase of $120.3 million. SG&A from retail operations increased to 26.1% of sales for the nine months ended October 29, 2022 compared to 25.4% of sales for the nine months ended October 30, 2021, an increase of $119.4 million.
The dollar increase in operating expenses in both the three and nine-month periods is primarily due to increased payroll and payroll-related expenses in the current highly competitive wage environment. Payroll expense and related payroll taxes for the three months ended October 29, 2022 was $276.3 million compared to $261.5 million for the three months ended October 30, 2021, increasing $14.8 million. Payroll expense and related payroll taxes for the nine months ended October 29, 2022 was $821.3 million compared to $733.5 million for the nine months ended October 30, 2021, increasing $87.8 million. The Company remains focused on hiring, developing and retaining talented associates.
Interest and Debt Expense, Net
Interest and debt expense (income), net:
(3,573)
(33.8)
(20)
285.7
Total interest and debt expense, net
(3,593)
(34.1)
(5,735)
(17.4)
(13)
39.4
(5,748)
(17.5)
Net interest and debt expense decreased $3.6 million and $5.7 million during the three and nine months ended October 29, 2022 compared to the three and nine months ended October 30, 2021, respectively. The net decrease is primarily due to an increase in interest income from increasing rates on cash and cash equivalent balances and the purchases of short-term investments in the current year that did not occur in the prior period.
Interest income was $3.8 million and $0.5 million for the three months ended October 29, 2022 and October 30, 2021, respectively. Interest income was $5.8 million and $1.1 million for the nine months ended October 29, 2022 and October 30, 2021, respectively.
Other Expense
Other expense:
(198)
(9.3)
Total other expense
(3,424)
(37.1)
Other expense decreased $3.4 million during the nine months ended October 29, 2022 compared to the nine months ended October 30, 2021 primarily due to the write-off of certain deferred financing fees in connection with the amendment and extension of the Company’s secured revolving credit facility during the first quarter of fiscal 2021.
Gain on Disposal of Assets
(Gain) loss on disposal of assets:
Total gain on disposal of assets
(7,243)
(24,683)
17,440
(3)
17,446
Income Taxes
The Company’s estimated federal and state effective income tax rate was approximately 22.6% and 22.5% for the three months ended October 29, 2022 and October 30, 2021, respectively. During the three months ended October 29, 2022 and October 30, 2021, income tax expense differed from what would be computed using the statutory federal income tax rate primarily due to the effects of state and local income taxes.
The Company’s estimated federal and state effective income tax rate was approximately 22.5% for the nine months ended October 29, 2022 and October 30, 2021. During the nine months ended October 29, 2022 and October 30, 2021, income tax expense differed from what would be computed using the statutory federal income tax rate primarily due to the effects of state and local income taxes.
The Company expects the fiscal 2022 federal and state effective income tax rate to approximate 21%. This rate includes an expected federal income tax benefit due to a deduction related to that portion of the special dividend of
24
$15.00 per share to be paid to the Dillard’s, Inc. Investment and Employee Stock Ownership Plan. This rate may change if results of operations for fiscal 2022 differ from management’s current expectations. Changes in the Company’s assumptions and judgments can materially affect amounts recognized in the condensed consolidated financial statements.
FINANCIAL CONDITION
A summary of net cash flows for the nine months ended October 29, 2022 and October 30, 2021 follows:
Operating Activities
(169,662)
Investing Activities
(233,427)
Financing Activities
(40,344)
Total (Decrease) Increase in Cash and Cash Equivalents
(443,433)
Net cash flows from operations decreased $169.7 million during the nine months ended October 29, 2022 compared to the nine months ended October 30, 2021. This decrease was primarily due to changes in working capital items, notably increases in merchandise inventories and trade accounts payable and accrued expenses and other liabilities.
Wells Fargo owns and manages the Dillard’s private label cards under the Wells Fargo Alliance. The Company recognized income of $50.3 million and $54.1 million from the Wells Fargo Alliance during the nine months ended October 29, 2022 and October 30, 2021, respectively.
During the nine months ended October 30, 2021, the Company received proceeds from insurance of $2.9 million for claims filed for merchandise losses related to storm damage incurred at two stores.
Capital expenditures were $94.8 million and $79.7 million for the nine months ended October 29, 2022 and October 30, 2021, respectively. The capital expenditures were primarily related to equipment purchases, the continued construction of new stores and the remodeling of existing stores. During the nine months ended October 29, 2022, the Company opened a new store at University Place in Orem, Utah (160,000 square feet). In November 2022, the Company opened its newly remodeled owned facility at Westgate Mall in Amarillo, Texas, which replaces a leased building at that same location where the Company operates a dual-anchor format. The Company also plans to open a new store at The Empire Mall in Sioux Falls, South Dakota in the fall of 2023, which will mark the Company’s 30th state of operation.
During the nine months ended October 29, 2022, the Company received cash proceeds of $8.1 million and recorded a related gain of $7.2 million, primarily from the sale of a 200,000 square foot location at Provo Towne Centre in Provo, Utah, which closed during the second quarter of fiscal 2022. During the first quarter of fiscal 2022, the Company closed its leased clearance center at University Square Mall in Tampa, Florida (80,000 square feet). During the third quarter of fiscal 2022, the Company closed its owned location at the East Hills Mall in St. Joseph, Missouri (100,000 square feet) and its leased location at the Sikes Senter in Wichita Falls, Texas (150,000 square feet). There were no material costs associated or expected with any of these store closures. We remain committed to closing under-performing stores where appropriate and may incur future closing costs related to such stores when they close.
During the nine months ended October 30, 2021, the Company received cash proceeds of $29.3 million and recorded a related gain of $24.7 million, primarily from the sale of three store properties.
During the nine months ended October 29, 2022, the Company received proceeds from insurance of $4.9 million primarily from life insurance proceeds related to one policy. During the nine months ended October 30, 2021, the Company received proceeds from insurance of $3.8 million for claims filed for building losses related to storm damage incurred at two stores.
25
During the nine months ended October 29, 2022, the Company purchased certain treasury bills for $196.8 million that are classified as short-term investments.
The Company had cash and cash equivalents of $532.7 million as of October 29, 2022. The Company maintains a credit facility (“credit agreement”) for general corporate purposes including, among other uses, working capital financing, the issuance of letters of credit, capital expenditures and, subject to certain restrictions, the repayment of existing indebtedness and share repurchases. The credit agreement provides a borrowing capacity of $800 million, subject to certain limitations as outlined in the credit agreement, with a $200 million expansion option.
In April 2021, the Company amended the credit agreement (the “2021 amendment”). See Note 7, Revolving Credit Agreement, in the “Notes to Condensed Consolidated Financial Statements,” in Part I, Item 1 hereof for additional information. During the nine months ended October 30, 2021, the Company paid $3.0 million in issuance costs related to the 2021 amendment, which were recorded in other assets on the condensed consolidated balance sheet, and the Company recognized a loss on the early extinguishment of debt of $2.8 million for the write-off of certain remaining deferred financing fees related to the previous agreement. This charge was recorded in other expense on the condensed consolidated statement of income.
At October 29, 2022, no borrowings were outstanding, and letters of credit totaling $19.3 million were issued under the credit agreement leaving unutilized availability of $780.7 million.
During the nine months ended October 29, 2022, the Company repurchased 1.7 million shares of Class A Common Stock at an average price of $255.49 per share for $436.6 million under its stock repurchase plans, and the Company paid $16.2 million for share repurchases that had not yet settled but were accrued at January 29, 2022. During the nine months ended October 30, 2021, the Company repurchased 2.6 million shares of Class A Common Stock at an average price of $158.40 per share for $410.3 million under its stock repurchase plans. As of October 29, 2022, $175.4 million of authorization remained under the Company’s open stock repurchase plan. The ultimate disposition of the repurchased stock has not been determined. See Note 8, Stock Repurchase Programs, in the “Notes to Condensed Consolidated Financial Statements,” in Part I, Item 1 hereof for additional information.
On August 16, 2022, the Inflation Reduction Act of 2022 ("the Act") was signed into law. Under the Act share repurchases after December 31, 2022 will be subject to a 1% excise tax. This excise tax and the remaining corporate tax changes included in the Act are not expected to have a material impact on the Company's financial statements.
The Company expects to finance its operations during fiscal 2022 from cash on hand, cash flows generated from operations and, if necessary, utilization of the credit facility. Depending upon our actual and anticipated sources and uses of liquidity, the Company will from time to time consider other possible financing transactions, the proceeds of which could be used to fund working capital or for other corporate purposes.
On November 17, 2022, the Company announced that its Board of Directors declared a special dividend of $15.00 per share. The dividend is payable on the Class A and Class B Common Stock of the Company on January 9, 2023 to shareholders of record as of December 15, 2022. The Company expects to fund the dividend from cash flows from operations.
There have been no material changes in the information set forth under caption “Commercial Commitments” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022.
OFF-BALANCE-SHEET ARRANGEMENTS
The Company has not created, and is not party to, any special-purpose entities or off-balance-sheet arrangements for the purpose of raising capital, incurring debt or operating the Company’s business. The Company does not have any off-balance-sheet arrangements or relationships that are reasonably likely to materially affect the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or the availability of capital resources.
26
NEW ACCOUNTING STANDARDS
For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 2, Accounting Standards, in the “Notes to Condensed Consolidated Financial Statements,” in Part I, Item 1 hereof.
FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements. The following are or may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (a) statements including words such as “may,” “will,” “could,” “should,” “believe,” “expect,” “future,” “potential,” “anticipate,” “intend,” “plan,” “estimate,” “continue,” or the negative or other variations thereof; (b) statements regarding matters that are not historical facts; and (c) statements about the Company’s future occurrences, plans and objectives, including statements regarding management’s expectations and forecasts for the remainder of fiscal 2022 and beyond, statements concerning the opening of new stores or the closing of existing stores, statements regarding our competitive position, statements concerning capital expenditures and sources of liquidity, statements regarding the expected impact of the COVID-19 pandemic and related government responses, statements concerning share repurchases, statements concerning pension contributions, statements concerning changes in loss trends, settlements and other costs related to our self-insurance programs, statements regarding the expected phase out of LIBOR, statements concerning expectations regarding the payment of dividends, statements regarding the impacts of supply chain disruptions and inflation in fiscal 2022 and statements concerning estimated taxes. The Company cautions that forward-looking statements contained in this report are based on estimates, projections, beliefs and assumptions of management and information available to management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information or otherwise. Forward-looking statements of the Company involve risks and uncertainties and are subject to change based on various important factors. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of those factors include (without limitation) the COVID-19 pandemic and its effects on public health, our supply chain, the health and well-being of our employees and customers and the retail industry in general; other general retail industry conditions and macro-economic conditions including inflation and changes in traffic at malls and shopping centers; economic and weather conditions for regions in which the Company’s stores are located and the effect of these factors on the buying patterns of the Company’s customers, including the effect of changes in prices and availability of oil and natural gas; the availability of and interest rates on consumer credit; the impact of competitive pressures in the department store industry and other retail channels including specialty, off-price, discount and Internet retailers; changes in the Company’s ability to meet labor needs amid nationwide labor shortages and an intense competition for talent; changes in consumer spending patterns, debt levels and their ability to meet credit obligations; high levels of unemployment; changes in tax legislation (including the Inflation Reduction Act of 2022); changes in legislation, affecting such matters as the cost of employee benefits or credit card income; adequate and stable availability and pricing of materials, production facilities and labor from which the Company sources its merchandise; changes in operating expenses, including employee wages, commission structures and related benefits; system failures or data security breaches; possible future acquisitions of store properties from other department store operators; the continued availability of financing in amounts and at the terms necessary to support the Company’s future business; fluctuations in LIBOR and other base borrowing rates; the elimination of LIBOR; potential disruption from terrorist activity and the effect on ongoing consumer confidence; other epidemic, pandemic or public health issues; potential disruption of international trade and supply chain efficiencies; any government-ordered restrictions on the movement of the general public or the mandated or voluntary closing of retail stores in response to the COVID-19 pandemic; global conflicts (including the recent conflict in Ukraine) and the possible impact on consumer spending patterns and other economic and demographic changes of similar or dissimilar nature. The Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended January 29, 2022, contain other information on factors that may affect financial results or cause actual results to differ materially from forward-looking statements.
27
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in the information set forth under caption “Item 7A-Quantitative and Qualitative Disclosures about Market Risk” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022.
Item 4. Controls and Procedures.
The Company has established and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). The Company’s management, with the participation of our Principal Executive Officer and Co-Principal Financial Officers, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the fiscal quarter covered by this quarterly report, and based on that evaluation, the Company’s Principal Executive Officer and Co-Principal Financial Officers have concluded that these disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended October 29, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 1. Legal Proceedings.
From time to time, the Company is involved in litigation relating to claims arising out of the Company’s operations in the normal course of business. This may include litigation with customers, employment related lawsuits, class action lawsuits, purported class action lawsuits and actions brought by governmental authorities. As of December 2, 2022, the Company is not a party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows.
Item 1A. Risk Factors.
There have been no material changes in the information set forth under caption “Item 1A-Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
(c) Total Number of Shares
(d) Approximate Dollar Value of
Purchased as Part
Shares that May
(a) Total Number
of Publicly
Yet Be Purchased
of Shares
(b) Average Price
Announced Plans
Under the Plans
Period
Purchased
Paid per Share
or Programs
July 31, 2022 through August 27, 2022
87,978
239.55
178,636,907
August 28, 2022 through October 1, 2022
2,331
302.83
177,931,017
October 2, 2022 through October 29, 2022
8,674
291.54
175,402,174
98,983
In February 2022, the Company’s Board of Directors authorized the repurchase of up to $500 million of the Company’s Class A Common Stock under an open-ended stock repurchase plan (“February 2022 Stock Plan”). During the three months ended October 29, 2022, the Company repurchased 0.1 million shares totaling $24.3 million under its stock repurchase plan. As of October 29, 2022, $175.4 million of authorization remained under the February 2022 Stock Plan.
Reference is made to the discussion in Note 8, Stock Repurchase Programs, in the “Notes to Condensed Consolidated Financial Statements” in Part I, Item 1 of this Quarterly Report on Form 10-Q, which information is incorporated by reference herein.
Item 6. Exhibits.
Description
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Co-Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3
32.1
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32.2
Certification of Co-Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32.3
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date:
December 2, 2022
/s/ Phillip R. Watts
Phillip R. Watts
Senior Vice President, Co-Principal Financial Officer and Principal Accounting Officer
/s/ Chris B. Johnson
Chris B. Johnson
Senior Vice President and Co-Principal Financial Officer