SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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☐ | 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, ARKANSAS72201 (Address of principal executive offices) (Zip Code) (501) 376-5200 (Registrant’s telephone number, including area code)(I.R.S. Employer(501)
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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
☒ Yes
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
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 25, 2017 24,474,583
CLASS B COMMON STOCK as of November 25, 2017 4,010,401
DILLARD’S, INC.
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| Condensed Consolidated Balance Sheets as of | ||
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2
Item 1. Financial Statements
DILLARD’S, INC.
(Unaudited)
(In Thousands)
October 28, 2017 | January 28, 2017 | October 29, 2016 | ||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 114,858 | $ | 346,985 | $ | 80,482 | ||||||
Accounts receivable | 34,951 | 48,230 | 42,467 | |||||||||
Merchandise inventories | 1,957,258 | 1,406,403 | 1,901,991 | |||||||||
Federal and state income taxes | 10,777 | — | 4,284 | |||||||||
Other current assets | 52,926 | 36,303 | 61,243 | |||||||||
Total current assets | 2,170,770 | 1,837,921 | 2,090,467 | |||||||||
Property and equipment (net of accumulated depreciation and amortization of $2,624,883, $2,478,490 and $2,553,315, respectively) | 1,711,863 | 1,790,267 | 1,825,225 | |||||||||
Other assets | 252,701 | 259,948 | 268,536 | |||||||||
Total assets | $ | 4,135,334 | $ | 3,888,136 | $ | 4,184,228 | ||||||
Liabilities and stockholders’ equity | ||||||||||||
Current liabilities: | ||||||||||||
Trade accounts payable and accrued expenses | $ | 1,277,658 | $ | 839,305 | $ | 1,123,087 | ||||||
Current portion of long-term debt | 248,097 | 87,201 | — | |||||||||
Current portion of capital lease obligations | 1,082 | 3,281 | 3,258 | |||||||||
Other short-term borrowings | — | — | 17,000 | |||||||||
Federal and state income taxes | — | 46,730 | — | |||||||||
Total current liabilities | 1,526,837 | 976,517 | 1,143,345 | |||||||||
Long-term debt | 365,394 | 526,106 | 613,245 | |||||||||
Capital lease obligations | 3,167 | 3,988 | 4,249 | |||||||||
Other liabilities | 238,943 | 238,424 | 243,296 | |||||||||
Deferred income taxes | 210,346 | 225,684 | 243,888 | |||||||||
Subordinated debentures | 200,000 | 200,000 | 200,000 | |||||||||
Commitments and contingencies | ||||||||||||
Stockholders’ equity: | ||||||||||||
Common stock | 1,238 | 1,238 | 1,238 | |||||||||
Additional paid-in capital | 944,401 | 943,467 | 941,709 | |||||||||
Accumulated other comprehensive loss | (11,137 | ) | (11,137 | ) | (16,559 | ) | ||||||
Retained earnings | 4,210,507 | 4,153,844 | 4,099,256 | |||||||||
Less treasury stock, at cost | (3,554,362 | ) | (3,369,995 | ) | (3,289,439 | ) | ||||||
Total stockholders’ equity | 1,590,647 | 1,717,417 | 1,736,205 | |||||||||
Total liabilities and stockholders’ equity | $ | 4,135,334 | $ | 3,888,136 | $ | 4,184,228 |
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| April 29, |
| January 28, |
| April 30, |
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| | 2023 | | 2023 | | 2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents | | $ | 848,316 | | $ | 650,336 | | $ | 862,173 | |
Restricted cash | | | 8,418 | | | 9,995 | | | — | |
Accounts receivable | |
| 59,050 | |
| 56,952 | |
| 30,920 | |
Short-term investments | | | 98,364 | | | 148,902 | | | — | |
Merchandise inventories | |
| 1,410,017 | |
| 1,120,208 | |
| 1,364,975 | |
Other current assets | |
| 79,030 | |
| 85,453 | |
| 96,193 | |
| | | | | | | | | | |
Total current assets | |
| 2,503,195 | |
| 2,071,846 | |
| 2,354,261 | |
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Property and equipment (net of accumulated depreciation of $2,623,182, $2,584,708 and $2,554,485, respectively) | |
| 1,108,691 | |
| 1,118,379 | |
| 1,170,265 | |
Operating lease assets | |
| 32,869 | |
| 33,821 | |
| 39,743 | |
Deferred income taxes | |
| 41,801 | |
| 42,278 | |
| 29,115 | |
Other assets | |
| 62,473 | |
| 62,826 | |
| 65,424 | |
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Total assets | | $ | 3,749,029 | | $ | 3,329,150 | | $ | 3,658,808 | |
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Liabilities and stockholders’ equity | |
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Current liabilities: | |
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Trade accounts payable and accrued expenses | | $ | 1,099,669 | | $ | 828,484 | | $ | 1,163,293 | |
Current portion of long-term debt | |
| — | |
| — | |
| 44,800 | |
Current portion of operating lease liabilities | | | 9,086 | | | 9,702 | | | 11,344 | |
Federal and state income taxes | |
| 82,032 | |
| 20,775 | |
| 99,288 | |
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Total current liabilities | |
| 1,190,787 | |
| 858,961 | |
| 1,318,725 | |
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Long-term debt | |
| 321,381 | |
| 321,354 | |
| 321,274 | |
Operating lease liabilities | |
| 23,691 | |
| 24,164 | |
| 28,512 | |
Other liabilities | |
| 330,036 | |
| 326,033 | |
| 277,964 | |
Subordinated debentures | |
| 200,000 | |
| 200,000 | |
| 200,000 | |
Commitments and contingencies | |
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Stockholders’ equity: | |
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Common stock | |
| 1,240 | |
| 1,240 | |
| 1,240 | |
Additional paid-in capital | |
| 962,839 | |
| 962,839 | |
| 956,653 | |
Accumulated other comprehensive loss | |
| (64,378) | |
| (65,722) | |
| (22,617) | |
Retained earnings | |
| 5,846,802 | |
| 5,648,700 | |
| 5,275,371 | |
Less treasury stock, at cost | |
| (5,063,369) | |
| (4,948,419) | |
| (4,698,314) | |
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Total stockholders’ equity | |
| 1,683,134 | |
| 1,598,638 | |
| 1,512,333 | |
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Total liabilities and stockholders’ equity | | $ | 3,749,029 | | $ | 3,329,150 | | $ | 3,658,808 | |
See notes to condensed consolidated financial statements.
3
(Unaudited)
(In Thousands, Except Per Share Data)
Three Months Ended | Nine Months Ended | |||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | |||||||||||||
Net sales | $ | 1,354,920 | $ | 1,365,609 | $ | 4,200,241 | $ | 4,321,296 | ||||||||
Service charges and other income | 41,899 | 40,886 | 113,262 | 112,746 | ||||||||||||
1,396,819 | 1,406,495 | 4,313,503 | 4,434,042 | |||||||||||||
Cost of sales | 890,076 | 878,865 | 2,767,215 | 2,810,803 | ||||||||||||
Selling, general and administrative expenses | 411,164 | 410,563 | 1,211,314 | 1,204,051 | ||||||||||||
Depreciation and amortization | 57,040 | 60,681 | 176,919 | 181,933 | ||||||||||||
Rentals | 6,263 | 5,668 | 18,921 | 17,538 | ||||||||||||
Interest and debt expense, net | 14,980 | 15,619 | 46,460 | 47,312 | ||||||||||||
Loss on early extinguishment of debt | 797 | — | 797 | — | ||||||||||||
(Gain) loss on disposal of assets | (4,813 | ) | 23 | (4,855 | ) | (853 | ) | |||||||||
Income before income taxes and income on and equity in earnings of joint ventures | 21,312 | 35,076 | 96,732 | 173,258 | ||||||||||||
Income taxes | 6,785 | 12,290 | 33,005 | 60,980 | ||||||||||||
Income on and equity in earnings of joint ventures | 12 | 12 | 34 | 34 | ||||||||||||
Net income | 14,539 | 22,798 | 63,761 | 112,312 | ||||||||||||
Retained earnings at beginning of period | 4,198,855 | 4,078,824 | 4,153,844 | 3,994,211 | ||||||||||||
Cash dividends declared | (2,887 | ) | (2,366 | ) | (7,098 | ) | (7,267 | ) | ||||||||
Retained earnings at end of period | $ | 4,210,507 | $ | 4,099,256 | $ | 4,210,507 | $ | 4,099,256 | ||||||||
Earnings per share: | ||||||||||||||||
Basic and diluted | $ | 0.50 | $ | 0.67 | $ | 2.14 | $ | 3.24 | ||||||||
Cash dividends declared per common share | $ | 0.10 | $ | 0.07 | $ | 0.24 | $ | 0.21 |
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| Three Months Ended | | ||||
| | April 29, |
| April 30, | | ||
| | 2023 | | 2022 |
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Net sales | | $ | 1,583,948 | | $ | 1,611,668 | |
Service charges and other income | |
| 29,959 | |
| 31,114 | |
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| 1,613,907 | |
| 1,642,782 | |
| | | | | | | |
Cost of sales | |
| 891,261 | |
| 861,437 | |
Selling, general and administrative expenses | |
| 406,375 | |
| 400,773 | |
Depreciation and amortization | |
| 45,747 | |
| 46,209 | |
Rentals | |
| 4,381 | |
| 5,079 | |
Interest and debt expense, net | |
| 123 | |
| 10,562 | |
Other expense | |
| 4,698 | |
| 1,936 | |
Gain on disposal of assets | |
| (1,793) | |
| (7,237) | |
| | | | | | | |
Income before income taxes | |
| 263,115 | |
| 324,023 | |
Income taxes | |
| 61,620 | |
| 72,930 | |
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Net income | | $ | 201,495 | | $ | 251,093 | |
| | | | | | | |
Earnings per share: | |
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Basic and diluted | | $ | 11.85 | | $ | 13.68 | |
See notes to condensed consolidated financial statements.
4
(Unaudited)
(In Thousands)
Three Months Ended | Nine Months Ended | |||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | |||||||||||||
Net income | $ | 14,539 | $ | 22,798 | $ | 63,761 | $ | 112,312 | ||||||||
Other comprehensive income: | ||||||||||||||||
Amortization of retirement plan and other retiree benefit adjustments (net of tax of $0, $114, $0 and $344, respectively) | — | 187 | — | 559 | ||||||||||||
Comprehensive income | $ | 14,539 | $ | 22,985 | $ | 63,761 | $ | 112,871 |
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| | Three Months Ended |
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| | April 29, | | April 30, | | ||
|
| 2023 |
| 2022 |
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Net income | | $ | 201,495 | | $ | 251,093 | |
Other comprehensive income: |
| |
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Amortization of retirement plan and other retiree benefit adjustments (net of tax of $117 and $58, respectively) |
| | 1,344 |
| | 181 |
|
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Comprehensive income | | $ | 202,839 | | $ | 251,274 | |
See notes to condensed consolidated financial statements.
5
(Unaudited)
(In Thousands)
Nine Months Ended | ||||||||
October 28, 2017 | October 29, 2016 | |||||||
Operating activities: | ||||||||
Net income | $ | 63,761 | $ | 112,312 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization of property and other deferred cost | 178,528 | 183,549 | ||||||
Loss (gain) on disposal of assets | 1,006 | (853 | ) | |||||
Gain from insurance proceeds | (5,861 | ) | — | |||||
Loss on early extinguishment of debt | 797 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Decrease in accounts receivable | 13,279 | 4,671 | ||||||
Increase in merchandise inventories | (550,855 | ) | (529,212 | ) | ||||
Increase in other current assets | (15,704 | ) | (13,198 | ) | ||||
Decrease in other assets | 4,451 | 6,626 | ||||||
Increase in trade accounts payable and accrued expenses and other liabilities | 434,743 | 433,797 | ||||||
Decrease in income taxes | (68,643 | ) | (71,787 | ) | ||||
Net cash provided by operating activities | 55,502 | 125,905 | ||||||
Investing activities: | ||||||||
Purchases of property and equipment | (106,272 | ) | (73,374 | ) | ||||
Proceeds from disposal of assets | 11,670 | 1,049 | ||||||
Proceeds from insurance | 4,935 | — | ||||||
Investment in joint venture | — | (20,000 | ) | |||||
Distribution from joint venture | 2,065 | — | ||||||
Net cash used in investing activities | (87,602 | ) | (92,325 | ) | ||||
Financing activities: | ||||||||
Principal payments on long-term debt and capital lease obligations | (3,020 | ) | (3,046 | ) | ||||
Issuance cost of line of credit | (1,115 | ) | — | |||||
Increase in short-term borrowings | — | 17,000 | ||||||
Cash dividends paid | (6,523 | ) | (7,414 | ) | ||||
Purchase of treasury stock | (189,369 | ) | (162,507 | ) | ||||
Net cash used in financing activities | (200,027 | ) | (155,967 | ) | ||||
Decrease in cash and cash equivalents | (232,127 | ) | (122,387 | ) | ||||
Cash and cash equivalents, beginning of period | 346,985 | 202,869 | ||||||
Cash and cash equivalents, end of period | $ | 114,858 | $ | 80,482 | ||||
Non-cash transactions: | ||||||||
Accrued capital expenditures | $ | 8,748 | $ | 7,500 | ||||
Accrued purchases of treasury stock | 1,000 | 3,110 | ||||||
Stock awards | 934 | 913 | ||||||
Insurance recoveries | — | 2,761 |
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| | Three Months Ended April 29, 2023 | ||||||||||||||||
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| Accumulated |
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| | | | Additional | | Other | | | | | | | ||||||
| | Common | | Paid-in | | Comprehensive | | Retained | | Treasury | | | ||||||
| | Stock | | Capital | | Loss | | Earnings | | Stock | | Total | ||||||
Balance, January 28, 2023 | | $ | 1,240 | | $ | 962,839 | | $ | (65,722) | | $ | 5,648,700 | | $ | (4,948,419) | | $ | 1,598,638 |
Net income | |
| — | |
| — | |
| — | |
| 201,495 | |
| — | |
| 201,495 |
Other comprehensive income | |
| — | |
| — | |
| 1,344 | |
| — | |
| — | |
| 1,344 |
Purchase of 357,154 shares of treasury stock (including excise tax) | |
| — | |
| — | |
| — | |
| — | |
| (114,950) | |
| (114,950) |
Cash dividends declared: | |
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Common stock, $0.20 per share | |
| — | |
| — | |
| — | |
| (3,393) | |
| — | |
| (3,393) |
Balance, April 29, 2023 | | $ | 1,240 | | $ | 962,839 | | $ | (64,378) | | $ | 5,846,802 | | $ | (5,063,369) | | $ | 1,683,134 |
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| | Three Months Ended April 30, 2022 | ||||||||||||||||
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| Accumulated |
| |
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| | ||||||
| | | | Additional | | Other | | | | | | | ||||||
| | Common | | Paid-in | | Comprehensive | | Retained | | Treasury | | | ||||||
| | Stock | | Capital | | Loss | | Earnings | | Stock | | Total | ||||||
Balance, January 29, 2022 | | $ | 1,240 | | $ | 956,653 | | $ | (22,798) | | $ | 5,027,922 | | $ | (4,511,799) | | $ | 1,451,218 |
Net income | |
| — | |
| — | |
| — | |
| 251,093 | |
| — | |
| 251,093 |
Other comprehensive income | |
| — | |
| — | |
| 181 | |
| — | |
| — | |
| 181 |
Purchase of 735,117 shares of treasury stock | |
| — | |
| — | |
| — | |
| — | |
| (186,515) | |
| (186,515) |
Cash dividends declared: | |
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| |
|
| |
|
| |
| |
Common stock, $0.20 per share | |
| — | |
| — | |
| — | |
| (3,644) | |
| — | |
| (3,644) |
Balance, April 30, 2022 | | $ | 1,240 | | $ | 956,653 | | $ | (22,617) | | $ | 5,275,371 | | $ | (4,698,314) | | $ | 1,512,333 |
See notes to condensed consolidated financial statements.
6
DILLARD’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
| | | | | | | |
|
| Three Months Ended |
| ||||
| | April 29, |
| April 30, |
| ||
| | 2023 | | 2022 |
| ||
Operating activities: |
| |
|
| |
| |
Net income | | $ | 201,495 | | $ | 251,093 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
|
| |
Depreciation and amortization of property and other deferred costs | |
| 46,155 | |
| 46,606 | |
Gain on disposal of assets | |
| (1,793) | |
| (7,237) | |
Accrued interest on short-term investments | | | (1,881) | | | — | |
Changes in operating assets and liabilities: | |
|
| |
|
| |
(Increase) decrease in accounts receivable | |
| (2,098) | |
| 8,857 | |
Increase in merchandise inventories | |
| (289,809) | |
| (284,797) | |
Decrease (increase) in other current assets | |
| 7,163 | |
| (18,468) | |
Increase in other assets | |
| (380) | |
| (447) | |
Increase in trade accounts payable and accrued expenses and other liabilities | |
| 261,600 | |
| 293,551 | |
Increase in income taxes payable | |
| 60,496 | |
| 76,024 | |
| | | | | | | |
Net cash provided by operating activities | |
| 280,948 | |
| 365,182 | |
| | | | | | | |
Investing activities: | |
|
| |
|
| |
Purchase of property and equipment and capitalized software | |
| (32,348) | |
| (27,312) | |
Proceeds from disposal of assets | |
| 1,887 | |
| 8,090 | |
Proceeds from insurance | |
| — | |
| 4,438 | |
Purchase of short-term investments | | | (97,543) | | | — | |
Proceeds from maturities of short-term investments | | | 149,962 | | | — | |
| | | | | | | |
Net cash provided by (used in) investing activities | |
| 21,958 | |
| (14,784) | |
| | | | | | | |
Financing activities: | |
|
| |
|
| |
Cash dividends paid | |
| (3,425) | |
| (3,879) | |
Purchase of treasury stock | |
| (103,078) | |
| (201,105) | |
| | | | | | | |
Net cash used in financing activities | |
| (106,503) | |
| (204,984) | |
| | | | | | | |
Increase in cash, cash equivalents and restricted cash | |
| 196,403 | |
| 145,414 | |
Cash, cash equivalents and restricted cash, beginning of period | |
| 660,331 | |
| 716,759 | |
| | | | | | | |
Cash, cash equivalents and restricted cash, end of period | | $ | 856,734 | | $ | 862,173 | |
| | | | | | | |
Non-cash transactions: | |
|
| |
|
| |
Accrued capital expenditures | | $ | 8,608 | | $ | 6,667 | |
Accrued purchases of treasury stock | | | 11,872 | | | 1,643 | |
Lease assets obtained in exchange for new operating lease liabilities | |
| 1,807 | |
| — | |
See notes to condensed consolidated financial statements.
7
(Unaudited)
Note 1.
Basis of PresentationThe 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 28, 2017April 29, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending February 3, 20182024 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 28, 20172023 filed with the SEC on March 24, 2017.27, 2023.
Restricted Cash - Restricted cash consists of cash proceeds from the sale of property held in escrow for the acquisition of replacement property under like-kind exchange agreements. The escrow accounts are administered by an intermediary. Pursuant to the like-kind exchange agreements, the cash remains restricted for a maximum of 180 days from the date of the property sale pending the acquisition of replacement property.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows.
| | | | | | |
| | April 29, |
| April 30, | ||
(in thousands of dollars) | | 2023 | | 2022 | ||
Cash and cash equivalents | | $ | 848,316 | | $ | 862,173 |
Restricted cash | | | 8,418 | | | — |
Total cash, cash equivalents and restricted cash | | $ | 856,734 | | $ | 862,173 |
Note 2. Accounting Standards
Recently Adopted Accounting Pronouncements
There have been no recently adopted accounting pronouncements, except as noted below, that had a material impact on the Company’s 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, Liabilities – Supplier Finance Programs (Subtopic 405-50):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. This ASU was adopted for the fiscal period beginning January 29, 2023 and did not have a material impact on the Company’s condensed consolidated financial statements.
8
Under the terms of the Company’s supplier finance program, participating suppliers have the option of payment in advance of an invoice due date, which is paid by certain administering banks, on the basis of invoices that the Company has confirmed as valid and approved. The Company agrees to pay the administering bank the stated amount of confirmed invoices from its designated suppliers on the original due dates of the invoices. The Company’s suppliers are not required to participate in the supplier finance program. The early payment transactions between the Company’s supplier and the administering bank are subject to an agreement between those parties, and the Company does not participate in any financial aspect of the agreement between the Company’s supplier and the administering bank. The Company has not pledged assets or any other security for the committed payment to the administering bank. The Company or the administering bank may terminate the agreement upon at least 30 days’ notice.
The amount of obligations confirmed under the program that remain unpaid by the Company were $1.4 million, $1.8 million and $0.9 million as of April 29, 2023, January 28, 2023 and April 30, 2022, respectively. These obligations are presented within trade accounts payable and accrued expenses in our condensed consolidated balance sheets.
Recently Issued Accounting Pronouncements
Management has considered all recent accounting pronouncements and believes there is no accounting guidance issued but not yet effective that would be material to the Company’s condensed consolidated financial statements.
Note 2.3. 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 segment, the Company determined its operating segments on a store by store basis. Each store’s operating performance has been aggregated into
one reportableThe following table summarizes the percentage of net sales by segment and major product line:
| | | | | |
| | Three Months Ended | | ||
| | April 29, | | April 30, | |
| | 2023 |
| 2022 | |
Retail operations segment: | |
| |
| |
Cosmetics |
| 15 | % | 14 | % |
Ladies’ apparel |
| 23 |
| 23 |
|
Ladies’ accessories and lingerie |
| 12 |
| 13 |
|
Juniors’ and children’s apparel |
| 10 |
| 11 |
|
Men’s apparel and accessories |
| 18 |
| 19 |
|
Shoes |
| 15 |
| 15 |
|
Home and furniture |
| 3 |
| 3 |
|
|
| 96 |
| 98 |
|
Construction segment |
| 4 |
| 2 |
|
Total |
| 100 | % | 100 | % |
9
The following tables summarize certain segment information, including the reconciliation of those items to the Company’s consolidated operations:
(in thousands of dollars) | Retail Operations | Construction | Consolidated | |||||||||
Three Months Ended October 28, 2017: | ||||||||||||
Net sales from external customers | $ | 1,313,150 | $ | 41,770 | $ | 1,354,920 | ||||||
Gross profit | 463,034 | 1,810 | 464,844 | |||||||||
Depreciation and amortization | 56,878 | 162 | 57,040 | |||||||||
Interest and debt expense (income), net | 14,988 | (8 | ) | 14,980 | ||||||||
Income before income taxes and income on and equity in earnings of joint ventures | 21,073 | 239 | 21,312 | |||||||||
Income on and equity in earnings of joint ventures | 12 | — | 12 | |||||||||
Total assets | 4,097,385 | 37,949 | 4,135,334 | |||||||||
Three Months Ended October 29, 2016: | ||||||||||||
Net sales from external customers | $ | 1,322,641 | $ | 42,968 | $ | 1,365,609 | ||||||
Gross profit | 484,441 | 2,303 | 486,744 | |||||||||
Depreciation and amortization | 60,513 | 168 | 60,681 | |||||||||
Interest and debt expense (income), net | 15,637 | (18 | ) | 15,619 | ||||||||
Income before income taxes and income on and equity in earnings of joint ventures | 34,333 | 743 | 35,076 | |||||||||
Income on and equity in earnings of joint ventures | 12 | — | 12 | |||||||||
Total assets | 4,130,023 | 54,205 | 4,184,228 | |||||||||
Nine Months Ended October 28, 2017: | ||||||||||||
Net sales from external customers | $ | 4,083,223 | $ | 117,018 | $ | 4,200,241 | ||||||
Gross profit | 1,428,025 | 5,001 | 1,433,026 | |||||||||
Depreciation and amortization | 176,422 | 497 | 176,919 | |||||||||
Interest and debt expense (income), net | 46,508 | (48 | ) | 46,460 | ||||||||
Income before income taxes and income on and equity in earnings of joint ventures | 95,750 | 982 | 96,732 | |||||||||
Income on and equity in earnings of joint ventures | 34 | — | 34 | |||||||||
Total assets | 4,097,385 | 37,949 | 4,135,334 | |||||||||
Nine Months Ended October 29, 2016: | ||||||||||||
Net sales from external customers | $ | 4,175,439 | $ | 145,857 | $ | 4,321,296 | ||||||
Gross profit | 1,503,895 | 6,598 | 1,510,493 | |||||||||
Depreciation and amortization | 181,421 | 512 | 181,933 | |||||||||
Interest and debt expense (income), net | 47,360 | (48 | ) | 47,312 | ||||||||
Income before income taxes and income on and equity in earnings of joint ventures | 171,032 | 2,226 | 173,258 | |||||||||
Income on and equity in earnings of joint ventures | 34 | — | 34 | |||||||||
Total assets | 4,130,023 | 54,205 | 4,184,228 |
| | | | | | | | | |
|
| Retail |
| | |
| | | |
(in thousands of dollars) | | Operations | | Construction | | Consolidated | |||
Three Months Ended April 29, 2023 | |
|
| |
|
| |
|
|
Net sales from external customers | | $ | 1,514,933 | | $ | 69,015 | | $ | 1,583,948 |
Gross margin | |
| 690,389 | |
| 2,298 | |
| 692,687 |
Depreciation and amortization | |
| 45,687 | |
| 60 | |
| 45,747 |
Interest and debt expense (income), net | |
| 228 | |
| (105) | |
| 123 |
Income before income taxes | |
| 262,823 | |
| 292 | |
| 263,115 |
Total assets | |
| 3,686,633 | |
| 62,396 | |
| 3,749,029 |
| | | | | | | | | |
Three Months Ended April 30, 2022 | |
|
| |
|
| |
|
|
Net sales from external customers | | $ | 1,580,799 | | $ | 30,869 | | $ | 1,611,668 |
Gross margin | |
| 748,444 | |
| 1,787 | |
| 750,231 |
Depreciation and amortization | |
| 46,151 | |
| 58 | |
| 46,209 |
Interest and debt expense (income), net | |
| 10,569 | |
| (7) | |
| 10,562 |
Income (loss) before income taxes | |
| 324,142 | |
| (119) | |
| 324,023 |
Total assets | |
| 3,617,164 | |
| 41,644 | |
| 3,658,808 |
Intersegment construction revenues of $14.0$10.4 million and $22.4$10.0 million for the three months ended October 28, 2017April 29, 2023 and October 29, 2016, respectively, and $35.6 million and $55.5 million for the nine months ended October 28, 2017 and October 29, 2016,April 30, 2022, 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 customer loyalty program liability and a portion of the gift card liability are 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:
| | | | | | | | | | | | |
Retail | | | | | | | | | | | | |
| | April 29, | | January 28, | | April 30, | | January 29, | ||||
(in thousands of dollars) |
| 2023 |
| 2023 |
| 2022 |
| 2022 | ||||
Contract liabilities | | $ | 76,011 | | $ | 83,909 | | $ | 71,779 | | $ | 80,421 |
During the three months ended April 29, 2023 and April 30, 2022, the Company recorded $24.3 million and $25.2 million, respectively, in revenue that was previously included in the retail operations contract liability balances of $83.9 million and $80.4 million at January 28, 2023 and January 29, 2022, 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,
10
respectively, in the condensed consolidated balance sheets. The amounts included in the condensed consolidated balance sheets are as follows:
| | | | | | | | | | | | |
Construction |
| | |
| | |
| | |
| | |
| | April 29, | | January 28, | | April 30, | | January 29, | ||||
(in thousands of dollars) | | 2023 | | 2023 | | 2022 | | 2022 | ||||
Accounts receivable | | $ | 48,334 | | $ | 44,286 | | $ | 20,895 | | $ | 25,912 |
Costs and estimated earnings in excess of billings on uncompleted contracts | |
| 1,473 | |
| 798 | |
| 3,342 | |
| 2,847 |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| 10,095 | |
| 10,909 | |
| 7,511 | |
| 6,298 |
During the three months ended April 29, 2023 and April 30, 2022, the Company recorded $9.5 million and $5.8 million, respectively, in revenue that was previously included in billings in excess of costs and estimated earnings on uncompleted contracts of $10.9 million and $6.3 million at January 28, 2023 and January 29, 2022, respectively.
The remaining performance obligations related to executed construction contracts totaled $201.8 million, $189.1 million and $96.1 million at April 29, 2023, January 28, 2023 and April 30, 2022, respectively.
Note 3.4. 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).
Three Months Ended | Nine Months Ended | |||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | |||||||||||||
Net income | $ | 14,539 | $ | 22,798 | $ | 63,761 | $ | 112,312 | ||||||||
Weighted average shares of common stock outstanding | 28,934 | 33,962 | 29,851 | 34,717 | ||||||||||||
Basic and diluted earnings per share | $ | 0.50 | $ | 0.67 | $ | 2.14 | $ | 3.24 |
| | | | | | |
| | Three Months Ended | ||||
|
| April 29, |
| April 30, | ||
| | 2023 | | 2022 | ||
Net income | | $ | 201,495 | | $ | 251,093 |
| | | | | | |
Weighted average shares of common stock outstanding | |
| 17,004 | |
| 18,351 |
| | | | | | |
Basic and diluted earnings per share | | $ | 11.85 | | $ | 13.68 |
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 28, 2017April 29, 2023 and October 29, 2016.
Note 4.5. 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 onmaterially affect the Company’s financial position, cash flows or results of operations.
At
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 pensionPension expense is determined 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.
11
The Company contributed $1.2 million and $4.0$1.6 million to the Pension Plan during the three and nine months ended October 28, 2017, respectively,April 29, 2023 and expects to make additional contributions to the Pension Plan of approximately $1.2$5.2 million during the remainder of fiscal 2017.
The components of net periodic benefit costs are as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | |||||||||||||
Components of net periodic benefit costs: | ||||||||||||||||
Service cost | $ | 874 | $ | 983 | $ | 2,620 | $ | 2,950 | ||||||||
Interest cost | 1,807 | 1,920 | 5,422 | 5,759 | ||||||||||||
Net actuarial loss | — | 301 | — | 903 | ||||||||||||
Net periodic benefit costs | $ | 2,681 | $ | 3,204 | $ | 8,042 | $ | 9,612 |
| | | | | | |
| | Three Months Ended | ||||
|
| April 29, |
| April 30, | ||
(in thousands of dollars) | | 2023 | | 2022 | ||
Components of net periodic benefit costs: | | | | | | |
Service cost | | $ | 1,262 | | $ | 1,019 |
Interest cost | |
| 3,237 | |
| 1,697 |
Net actuarial loss | |
| 1,461 | |
| 239 |
Net periodic benefit costs | | $ | 5,960 | | $ | 2,955 |
The service cost component of net periodic benefit costs areis included in selling, general and administrative expenses.
Note 6.7. Revolving Credit Agreement
The Company amended and extended its senior unsecured revolvingmaintains a credit facility (the "new (“credit agreement"agreement”) replacing the Company's previous credit agreement. The new credit agreement is available to the Company 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 new credit agreement, which is secured by certain deposit accounts of the Company and certain inventory of certain subsidiaries, provides a borrowing capacity of $800 million, subject to certain limitations as outlined in the credit agreement, with a $200 million expansion option and matures on August 9, 2022. Theoption.
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
At October 28, 2017,April 29, 2023, no borrowings were outstanding, and letters of credit totaling
Note 7.8. Stock Repurchase Program
In May 2021, the Company’s Board of Directors authorizedapproved 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’s Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $500 million of its Class A Common Stock (“February 2022 Stock Plan”).
12
The following is a summary of share repurchase activity for the periods indicated (in thousands, except per share data):
| | | | | | |
|
| Three Months Ended | ||||
| | April 29, |
| April 30, | ||
| | 2023 | | 2022 | ||
Cost of shares repurchased | | $ | 113,810 | | $ | 186,515 |
Number of shares repurchased | |
| 357 | |
| 735 |
Average price per share | | $ | 318.66 | | $ | 253.72 |
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 April 29, 2023, the Company had completed the authorized purchases under the May 2021 Stock Plan, and $61.6 million of authorization remained under the February 2022 Stock Plan.
Subsequent to the end of the quarter ended April 29, 2023, the Company completed the remaining authorized purchases under the February 2022 Stock Plan, and in May 2023, the Company’s Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to $500 million of its Class A Common Stock under an open-ended stock plan.plan (“May 2023 Stock Plan”). The authorizationMay 2023 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, as amended, or through privately negotiated transactions. The authorization has no expiration date.
Three Months Ended | Nine Months Ended | |||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | |||||||||||||
Cost of shares repurchased | $ | 23.7 | $ | 53.1 | $ | 184.4 | $ | 165.6 | ||||||||
Number of shares repurchased | 0.4 | 0.9 | 3.5 | 2.5 | ||||||||||||
Average price per share | $ | 55.35 | $ | 61.64 | $ | 52.48 | $ | 67.13 |
Note 8.9. Income Taxes
During the three and nine months ended October 28, 2017,April 29, 2023 and April 30, 2022, income tax expense differed from what would be computed using the statutory federal income tax rate primarily due to the effecteffects of state and local income taxes offset by tax benefits recognized for federal tax credits. During the three and nine months ended October 28, 2017, tax benefits recognized for federal tax credits includes tax benefits related to legislation enacted on September 29, 2017 providing an employee retention credit to employers impacted by the recent hurricanes.
Amount Reclassified from AOCL | ||||||||||||||||||
Three Months Ended | Nine Months Ended | Affected Line Item in the Statement Where Net Income Is Presented | ||||||||||||||||
Details about AOCL Components | October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | ||||||||||||||
Defined benefit pension plan items | ||||||||||||||||||
Amortization of actuarial losses | $ | — | $ | 301 | $ | — | $ | 903 | Total before tax (1) | |||||||||
— | 114 | — | 344 | Income tax expense | ||||||||||||||
$ | — | $ | 187 | $ | — | $ | 559 | Total net of tax |
taxes.
Defined Benefit Pension Plan Items | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | |||||||||||||
Beginning balance | $ | 11,137 | $ | 16,746 | $ | 11,137 | $ | 17,118 | ||||||||
Other comprehensive income before reclassifications | — | — | — | — | ||||||||||||
Amounts reclassified from AOCL | — | (187 | ) | — | (559 | ) | ||||||||||
Net other comprehensive income | — | (187 | ) | — | (559 | ) | ||||||||||
Ending balance | $ | 11,137 | $ | 16,559 | $ | 11,137 | $ | 16,559 |
Note 11.10. Gain on Disposal of Assets
During the three months ended October 28, 2017,April 29, 2023, the Company receivedrecorded proceeds of $11.6$1.9 million primarily from the sale of aone store property, insurance recovery on a previously damaged full-line store location and sale of equipment, resulting in a gain of $4.8$1.8 million that was recorded in gain on disposal of assets.
During the ninethree months ended October 28, 2017,April 30, 2022, the Company receivedrecorded proceeds of $16.6$8.1 million primarily from the sale of twoone store properties, insurance recovery on a previously damaged full-line store location and sale of equipment,property, resulting in a gain of $4.9$7.2 million that was recorded in gain on disposal of assets.
Note 12.11. 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 long-term debt and subordinated debentures isare based on market prices.
The fair value of the Company’s cash and cash equivalents, restricted cash and trade accounts receivable approximates their carrying values at October 28, 2017April 29, 2023 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 valuevalues of the Company’s long-term debt (including current portion) at October 28, 2017 wasApril 29, 2023 were approximately $669$330 million. The carrying valuevalues of the Company’s long-term debt (including current portion) at October 28, 2017 was $613.5April 29, 2023 were approximately $321 million. The fair valuevalues of the Company’s subordinated debentures at October 28, 2017 wasApril 29, 2023 were approximately $204$206 million. The carrying valuevalues of the Company’s subordinated debentures at October 28, 2017 wasApril 29, 2023 were $200 million.
13
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 28, 2017.
The Company recorded a 1% decline in sales during the third quarter of 2017 compared to the third quarter of 2016 largely due to hurricanes Harvey and Irma affecting Texas and Florida, which are the Company's two largest states by sales. DuringCompany’s results for the three months ended October 28, 2017, comparable storeApril 29, 2023 reflected a good performance, marking the Company’s second-highest first quarter net income performance following last year’s highest first quarter net income performance. Management noted a decline in customer activity in the back half of the first quarter which resulted in a retail sales decline of 4% for the period.
Retail gross margin for the three months ended April 29, 2023 declined 1% over last year's third quarter. Gross marginto 45.6% of sales from retail operationsa record 47.3% for the prior year first quarter as a result of increased markdowns and decreased 137 basis points of net sales.markups. Inventory increased 3% at April 29, 2023 compared to April 30, 2022. Selling, general and administrative (“SG&A”) expenses ("SG&A") from retail operationsfor the three months ended April 29, 2023 increased 24 basis pointsto $406.4 million (25.7% of net sales. Thesales) compared to $400.8 million (24.9% of sales) for the prior year first quarter.
For the three months ended April 29, 2023, the Company reported consolidated net income of $14.5$201.5 million ($0.5011.85 per share) for the current year third quarter compared to consolidated net income of $22.8$251.1 million ($0.6713.68 per share) for the prior year thirdfirst quarter.
Cash flows provided by operating activities were $280.9 million for the three months ended April 29, 2023. The Company repurchased approximately 0.4 million shares of its outstanding Class A Common Stock for $113.8 million under its stock repurchase plan during the three months ended April 29, 2023. The Company repurchased approximately 0.7 million shares of its outstanding Class A Common Stock for $186.5 million under its stock repurchase plans during the three months ended April 30, 2022. At April 29, 2023, $61.6 million of authorization remained under the Company’s open stock repurchase plan.
Subsequent to the end of the quarter ended April 29, 2023, the Company purchased $23.7completed the remaining authorized purchases under its previous stock repurchase plan, and in May 2023, the Company’s Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to $500 million of its Class A Common Stock under its $500 million stock repurchase plan. an open-ended plan (“May 2023 Stock Plan”).
As of October 28, 2017, authorization of $69.5 million remained under the plan.
The Company currently operates 268 Dillard's locations, 25maintained 274 Dillard’s stores, including 27 clearance centers, and onean internet store.store as of April 29, 2023.
14
Key Performance Indicators
We use a number of key indicators of financial condition and operating performance to evaluate our business, including the following:
Three Months Ended | ||||||||
October 28, 2017 | October 29, 2016 | |||||||
Net sales (in millions) | $ | 1,354.9 | $ | 1,365.6 | ||||
Retail stores sales trend | (1 | )% | (4 | )% | ||||
Comparable retail stores sales trend | (1 | )% | (4 | )% | ||||
Gross profit (in millions) | $ | 464.8 | $ | 486.7 | ||||
Gross profit as a percentage of net sales | 34.3 | % | 35.6 | % | ||||
Retail gross profit as a percentage of net sales | 35.3 | % | 36.6 | % | ||||
Selling, general and administrative expenses as a percentage of net sales | 30.3 | % | 30.1 | % | ||||
Cash flow from operations (in millions) | $ | 55.5 | $ | 125.9 | ||||
Total retail store count at end of period | 293 | 294 | ||||||
Retail sales per square foot | $ | 27 | $ | 27 | ||||
Retail store inventory trend | 3 | % | (2 | )% | ||||
Annualized retail merchandise inventory turnover | 2.0 | 2.1 |
| | | | | | | | |
|
| Three Months Ended | | | ||||
| | April 29, |
| April 30, |
| | ||
| | 2023 | | 2022 | |
| ||
Net sales (in millions) | | $ | 1,583.9 | | $ | 1,611.7 | | |
Retail stores sales trend | |
| (4) | % |
| 22 | % | |
Comparable retail stores sales trend | |
| (4) | % |
| 23 | % | |
Gross margin (in millions) | | $ | 692.7 | | $ | 750.2 | | |
Gross margin as a percentage of net sales | |
| 43.7 | % |
| 46.5 | % | |
Retail gross margin as a percentage of retail net sales | |
| 45.6 | % |
| 47.3 | % | |
Selling, general and administrative expenses as a percentage of net sales | |
| 25.7 | % |
| 24.9 | % | |
Cash flow provided by operations (in millions) | | $ | 280.9 | | $ | 365.2 | | |
Total retail store count at end of period | |
| 274 | |
| 280 | | |
Retail sales per square foot | | $ | 33 | | $ | 34 | | |
Retail store inventory trend | |
| 3 | % |
| 4 | % | |
Annualized retail merchandise inventory turnover | |
| 2.5 | |
| 2.7 | | |
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 theSales 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-termCost 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.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),15
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,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 creditOther expense. Other expense includes the interest cost and net actuarial loss components of debt.
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 insured assets.
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.
16
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):
Three Months Ended | Nine Months Ended | |||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | |||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Service charges and other income | 3.1 | 3.0 | 2.7 | 2.6 | ||||||||
103.1 | 103.0 | 102.7 | 102.6 | |||||||||
Cost of sales | 65.7 | 64.4 | 65.9 | 65.0 | ||||||||
Selling, general and administrative expenses | 30.3 | 30.1 | 28.8 | 27.9 | ||||||||
Depreciation and amortization | 4.2 | 4.4 | 4.2 | 4.2 | ||||||||
Rentals | 0.5 | 0.4 | 0.5 | 0.4 | ||||||||
Interest and debt expense, net | 1.1 | 1.1 | 1.1 | 1.1 | ||||||||
Loss on early extinguishment of debt | 0.1 | — | — | — | ||||||||
Gain on disposal of assets | (0.4 | ) | — | (0.1 | ) | — | ||||||
Income before income taxes and income on and equity in earnings of joint ventures | 1.6 | 2.6 | 2.3 | 4.0 | ||||||||
Income taxes | 0.5 | 0.9 | 0.8 | 1.4 | ||||||||
Income on and equity in earnings of joint ventures | — | — | — | — | ||||||||
Net income | 1.1 | % | 1.7 | % | 1.5 | % | 2.6 | % |
| | | | | |
|
| Three Months Ended | | ||
| | April 29, |
| April 30, |
|
| | 2023 | | 2022 | |
Net sales |
| 100.0 | % | 100.0 | % |
Service charges and other income |
| 1.9 |
| 1.9 |
|
| | | | | |
|
| 101.9 |
| 101.9 |
|
| | | | | |
Cost of sales |
| 56.3 |
| 53.5 |
|
Selling, general and administrative expenses |
| 25.7 |
| 24.9 |
|
Depreciation and amortization |
| 2.9 |
| 2.9 |
|
Rentals |
| 0.3 |
| 0.3 |
|
Interest and debt expense, net |
| 0.0 |
| 0.7 |
|
Other expense |
| 0.3 |
| 0.1 |
|
Gain on disposal of assets |
| (0.1) |
| (0.4) |
|
| | | | | |
Income before income taxes | | 16.6 | | 20.1 | |
Income taxes |
| 3.9 |
| 4.5 |
|
| | | | | |
Net income |
| 12.7 | % | 15.6 | % |
Net Sales
Three Months Ended | ||||||||||||
(in thousands of dollars) | October 28, 2017 | October 29, 2016 | $ Change | |||||||||
Net sales: | ||||||||||||
Retail operations segment | $ | 1,313,150 | $ | 1,322,641 | $ | (9,491 | ) | |||||
Construction segment | 41,770 | 42,968 | (1,198 | ) | ||||||||
Total net sales | $ | 1,354,920 | $ | 1,365,609 | $ | (10,689 | ) |
| | | | | | | | | |
|
| Three Months Ended |
| | | ||||
| | April 29, | | April 30, | | | | ||
(in thousands of dollars) | | 2023 | | 2022 | | $ Change | |||
Net sales: |
| |
|
| |
|
| |
|
Retail operations segment | | $ | 1,514,933 | | $ | 1,580,799 | | $ | (65,866) |
Construction segment | |
| 69,015 | |
| 30,869 | |
| 38,146 |
Total net sales | | $ | 1,583,948 | | $ | 1,611,668 | | $ | (27,720) |
The percent change in the Company’s sales by segment and product category in the Company’s sales for the three months ended
% Change 2017-2016 | % of Net Sales | |||||
Retail operations segment | ||||||
Cosmetics | (6.9 | )% | 14 | % | ||
Ladies’ apparel | 2.6 | 24 | ||||
Ladies’ accessories and lingerie | 1.0 | 13 | ||||
Juniors’ and children’s apparel | 0.8 | 10 | ||||
Men’s apparel and accessories | (0.3 | ) | 17 | |||
Shoes | (2.4 | ) | 16 | |||
Home and furniture | (1.2 | ) | 3 | |||
97 | ||||||
Construction segment | (2.8 | ) | 3 | |||
Total | 100 | % |
| | | | | |
|
| % Change |
| % of |
|
| | 2023 - 2022 | | Net Sales |
|
Retail operations segment |
|
|
|
| |
Cosmetics |
| 5.7 | % | 15 | % |
Ladies’ apparel |
| (2.6) |
| 23 | |
Ladies’ accessories and lingerie |
| (10.2) |
| 12 | |
Juniors’ and children’s apparel |
| (9.7) |
| 10 | |
Men’s apparel and accessories |
| (7.3) |
| 18 | |
Shoes |
| (1.8) |
| 15 | |
Home and furniture |
| (5.3) |
| 3 | |
|
| | | 96 | |
Construction segment |
| 123.6 |
| 4 | |
Total | | |
| 100 | % |
Net sales from the retail operations segment decreased $9.5$65.9 million, or approximately 4%, and sales in comparable stores decreased approximately 4% during the three months ended October 28, 2017April 29, 2023 compared to the three months ended
17
April 30, 2022. Sales in ladies’ accessories and lingerie, juniors’ and children’s apparel, men’s apparel and accessories and home and furniture decreased significantly, while sales in ladies’ apparel and shoes decreased moderately. Sales in cosmetics increased significantly.
The number of sales transactions decreased by 9% for the three months ended April 29, 2023 compared to the three months ended October 29, 2016, decreasing 1% in both total and comparable stores. Sales of cosmetics decreased significantly over the third quarter last year. Sales of shoes decreased moderately, while sales of home and furniture decreased slightly. Sales of ladies' apparel increased moderately, while sales of ladies' accessories and lingerie and juniors' and children's apparel increased slightly. Sales of men's apparel and accessories remained essentially flat.
We recorded a return asset of $13.9 million and $14.7 million and an allowance for sales returns of $5.8$27.8 million and $5.7$30.3 million as of October 28, 2017April 29, 2023 and October 29, 2016,April 30, 2022, respectively.
During the three months ended October 28, 2017,April 29, 2023, net sales from the construction segment decreased $1.2increased $38.1 million, or 2.8%approximately 124%, compared to the three months ended October 29, 2016April 30, 2022, due to a decreasean increase in construction projects.activity. The backlog of awardedremaining performance obligations related to executed construction contracts at October 28, 2017 totaled $196.3$201.8 million decreasingas of April 29, 2023, increasing approximately 17%7% from January 28, 20172023 and decreasingincreasing approximately 30%110% from October 29, 2016.April 30, 2022, respectively. We expect the backlogthese remaining performance obligations to be earned over the next nine to twenty-foureighteen months.
Nine Months Ended | ||||||||||||
(in thousands of dollars) | October 28, 2017 | October 29, 2016 | $ Change | |||||||||
Net sales: | ||||||||||||
Retail operations segment | $ | 4,083,223 | $ | 4,175,439 | $ | (92,216 | ) | |||||
Construction segment | 117,018 | 145,857 | (28,839 | ) | ||||||||
Total net sales | $ | 4,200,241 | $ | 4,321,296 | $ | (121,055 | ) |
% Change 2017-2016 | % of Net Sales | |||||
Retail operations segment | ||||||
Cosmetics | (7.4 | )% | 14 | % | ||
Ladies’ apparel | 1.2 | 24 | ||||
Ladies’ accessories and lingerie | (2.6 | ) | 14 | |||
Juniors’ and children’s apparel | (0.6 | ) | 9 | |||
Men’s apparel and accessories | (2.0 | ) | 17 | |||
Shoes | (2.8 | ) | 16 | |||
Home and furniture | (5.2 | ) | 3 | |||
97 | ||||||
Construction segment | (19.8 | ) | 3 | |||
Total | 100 | % |
Service Charges and Other Income
Three Months Ended | Nine Months Ended | Three Months | Nine Months | |||||||||||||||||||||
(in thousands of dollars) | October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | $ Change 2017-2016 | $ Change 2017-2016 | ||||||||||||||||||
Service charges and other income: | ||||||||||||||||||||||||
Retail operations segment | ||||||||||||||||||||||||
Income from Wells Fargo Alliance and former Synchrony Alliance | $ | 28,181 | $ | 27,711 | $ | 73,901 | $ | 75,603 | $ | 470 | $ | (1,702 | ) | |||||||||||
Shipping and handling income | 7,268 | 6,309 | 21,919 | 19,366 | 959 | 2,553 | ||||||||||||||||||
Leased department income | 1,307 | 1,659 | 4,280 | 5,111 | (352 | ) | (831 | ) | ||||||||||||||||
Other | 4,583 | 4,987 | 11,720 | 12,091 | (404 | ) | (371 | ) | ||||||||||||||||
41,339 | 40,666 | 111,820 | 112,171 | 673 | (351 | ) | ||||||||||||||||||
Construction segment | 560 | 220 | 1,442 | 575 | 340 | 867 | ||||||||||||||||||
Total service charges and other income | $ | 41,899 | $ | 40,886 | $ | 113,262 | $ | 112,746 | $ | 1,013 | $ | 516 |
| | | | | | | | | |
| | | | | | | | Three | |
|
| Three Months Ended |
| Months | |||||
| | April 29, | | April 30, | | $ Change | |||
(in thousands of dollars) | | 2023 |
| 2022 | | 2023-2022 | |||
Service charges and other income: | |
| | |
| | |
| |
Retail operations segment | |
| | |
| | |
| |
Income from Wells Fargo Alliance | | $ | 16,859 | | $ | 17,174 | | $ | (315) |
Shipping and handling income | |
| 9,971 | |
| 10,222 | |
| (251) |
Other | |
| 3,053 | |
| 3,654 | |
| (601) |
| |
| 29,883 | |
| 31,050 | |
| (1,167) |
Construction segment | |
| 76 | |
| 64 | |
| 12 |
Total service charges and other income | | $ | 29,959 | | $ | 31,114 | | $ | (1,155) |
Gross Margin
| | | | | | | | | | | | |
|
| April 29, |
| April 30, |
| | |
| |
| ||
(in thousands of dollars) | | 2023 | | 2022 | | $ Change | | % Change | | |||
Gross margin: | |
| | |
| | |
| | |
|
|
Three months ended |
| |
|
| |
|
| |
|
|
| |
Retail operations segment | | $ | 690,389 | | $ | 748,444 | | $ | (58,055) |
| (7.8) | % |
Construction segment | |
| 2,298 | |
| 1,787 | |
| 511 |
| 28.6 | |
Total gross margin | | $ | 692,687 | | $ | 750,231 | | $ | (57,544) |
| (7.7) | % |
| | | | | |
|
| Three Months Ended |
| ||
| | April 29, | | April 30, |
|
| | 2023 |
| 2022 | |
Gross margin as a percentage of segment net sales: | |
| |
|
|
Retail operations segment |
| 45.6 | % | 47.3 | % |
Construction segment |
| 3.3 |
| 5.8 | |
Total gross margin as a percentage of net sales |
| 43.7 |
| 46.5 | |
Gross margin, as a percentage of incomesales, decreased to 43.7% from the Wells Fargo Alliance. Income from the alliance increased46.5% during the three months ended October 28, 2017 primarily due to a sales tax settlement from the former Synchrony Alliance.
(in thousands of dollars) | October 28, 2017 | October 29, 2016 | $ Change | % Change | |||||||||||
Gross profit: | |||||||||||||||
Three months ended | |||||||||||||||
Retail operations segment | $ | 463,034 | $ | 484,441 | $ | (21,407 | ) | (4.4 | )% | ||||||
Construction segment | 1,810 | 2,303 | (493 | ) | (21.4 | ) | |||||||||
Total gross profit | $ | 464,844 | $ | 486,744 | $ | (21,900 | ) | (4.5 | )% | ||||||
Nine months ended | |||||||||||||||
Retail operations segment | $ | 1,428,025 | $ | 1,503,895 | $ | (75,870 | ) | (5.0 | )% | ||||||
Construction segment | 5,001 | 6,598 | (1,597 | ) | (24.2 | ) | |||||||||
Total gross profit | $ | 1,433,026 | $ | 1,510,493 | $ | (77,467 | ) | (5.1 | )% |
Three Months Ended | Nine Months Ended | |||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | |||||||||
Gross profit as a percentage of segment net sales: | ||||||||||||
Retail operations segment | 35.3 | % | 36.6 | % | 35.0 | % | 36.0 | % | ||||
Construction segment | 4.3 | 5.4 | 4.3 | 4.5 | ||||||||
Total gross profit as a percentage of net sales | 34.3 | 35.6 | 34.1 | 35.0 |
Gross margin declinedfrom retail operations, as a percentage of sales, decreased to 45.6% from 47.3% during the three months ended April 29, 2023 compared to the three months ended April 30, 2022, respectively, as a result of increased markdowns and decreased markups. Gross margin decreased moderately in ladies'men’s apparel ladies'and accessories,
18
juniors’ and children’s apparel, home and furniture and ladies’ accessories and lingerie, and juniors' and children's apparel, while decliningdecreasing slightly in homeshoes and furniture.ladies’ apparel. Gross margin increased slightly in men's apparel and accessories, while remaining essentially flat in cosmetics and shoes.
Total inventory increased 3% as of net sales during the nine months ended October 28, 2017April 29, 2023 compared to the nine months ended October 29, 2016 primarily due to higher markdowns. Gross margin declined moderately in ladies' apparel and ladies' accessories and lingerie. Gross margin declined slightly in juniors' and children's apparel, while remaining essentially flat in cosmetics, shoes, men's apparel and accessories and home and furniture.
We source a significant portion of our private label and exclusive brand merchandise from countries that have been impacted by the COVID-19 virus. Additionally, many of our branded merchandise vendors also source a significant portion of their merchandise from these same countries. This issue negatively impacted our supply chain during fiscal 2022 and prior, resulting in shipping delays as well as increased shipping costs. Additionally, disruptions in the global transportation network, including slowdowns in our U.S. ports, caused delays in processing imported merchandise, thereby resulting in untimely deliveries of merchandise. These issues have improved and the negative impact on the Company’s operations and financial results has diminished. Management continues to monitor these issues closely.
Inflation and rising interest costs continue to be a concern for management. The extent to which our business will be affected by inflation and rising interest costs depends on our customers’ continuing ability and willingness to accept price increases.
Gross margin from construction decreased 250 basis points of segment net sales.
Selling, General and Administrative Expenses (“SG&A”)
(in thousands of dollars) | October 28, 2017 | October 29, 2016 | $ Change | % Change | |||||||||||
SG&A: | |||||||||||||||
Three months ended | |||||||||||||||
Retail operations segment | $ | 409,211 | $ | 408,943 | $ | 268 | 0.1 | % | |||||||
Construction segment | 1,953 | 1,620 | 333 | 20.6 | |||||||||||
Total SG&A | $ | 411,164 | $ | 410,563 | $ | 601 | 0.1 | % | |||||||
Nine months ended | |||||||||||||||
Retail operations segment | $ | 1,206,354 | $ | 1,199,597 | $ | 6,757 | 0.6 | % | |||||||
Construction segment | 4,960 | 4,454 | 506 | 11.4 | |||||||||||
Total SG&A | $ | 1,211,314 | $ | 1,204,051 | $ | 7,263 | 0.6 | % |
Three Months Ended | Nine Months Ended | |||||||||||
October 28, 2017 | October 29, 2016 | October 28, 2017 | October 29, 2016 | |||||||||
SG&A as a percentage of segment net sales: | ||||||||||||
Retail operations segment | 31.2 | % | 30.9 | % | 29.5 | % | 28.7 | % | ||||
Construction segment | 4.7 | 3.8 | 4.2 | 3.1 | ||||||||
Total SG&A as a percentage of net sales | 30.3 | 30.1 | 28.8 | 27.9 |
| | | | | | | | | | | | |
|
| April 29, |
| April 30, |
| | |
| |
| ||
(in thousands of dollars) | | 2023 | | 2022 | | $ Change | | % Change | | |||
SG&A: | | | | | | | | | | | |
|
Three months ended |
| |
|
| |
|
| |
|
|
| |
Retail operations segment | | $ | 404,303 | | $ | 398,869 | | $ | 5,434 |
| 1.4 | % |
Construction segment | |
| 2,072 | |
| 1,904 | |
| 168 |
| 8.8 | |
Total SG&A | | $ | 406,375 | | $ | 400,773 | | $ | 5,602 |
| 1.4 | % |
| | | | |
| Three Months Ended |
| ||
| April 29, | | April 30, |
|
| 2023 |
| 2022 | |
SG&A as a percentage of segment net sales: | | | |
|
Retail operations segment | 26.7 | % | 25.2 | % |
Construction segment | 3.0 |
| 6.2 | |
Total SG&A as a percentage of net sales | 25.7 |
| 24.9 | |
SG&A increased 98 basis pointsto 25.7% of net sales during the ninethree months ended October 28, 2017 compared toApril 29, 2023 from 24.9% of sales during the ninethree months ended October 29, 2016.April 30, 2022, an increase of $5.6 million. SG&A from retail operations increased 81 basis pointsto 26.7% of net sales during the nine months ended October 28, 2017 compared to the nine months ended October 29, 2016 primarily due to increases in services purchased ($6.7 million) and selling payroll ($6.6 million) partially offset by decreases in communications expense ($3.0 million) and advertising ($2.9 million).
(in thousands of dollars) | October 28, 2017 | October 29, 2016 | $ Change | % Change | |||||||||||
Depreciation and amortization: | |||||||||||||||
Three months ended | |||||||||||||||
Retail operations segment | $ | 56,878 | $ | 60,513 | $ | (3,635 | ) | (6.0 | )% | ||||||
Construction segment | 162 | 168 | (6 | ) | (3.6 | ) | |||||||||
Total depreciation and amortization | $ | 57,040 | $ | 60,681 | $ | (3,641 | ) | (6.0 | )% | ||||||
Nine months ended | |||||||||||||||
Retail operations segment | $ | 176,422 | $ | 181,421 | $ | (4,999 | ) | (2.8 | )% | ||||||
Construction segment | 497 | 512 | (15 | ) | (2.9 | ) | |||||||||
Total depreciation and amortization | $ | 176,919 | $ | 181,933 | $ | (5,014 | ) | (2.8 | )% |
19
Interest and Debt Expense, Net
| | | | | | | | | | | | | |
|
| April 29, |
| April 30, |
| | |
| |
|
| ||
(in thousands of dollars) | | 2023 | | 2022 | | $ Change | | % Change | |
| |||
Interest and debt expense (income), net: | |
| | |
| | |
| | |
|
| |
Three months ended |
| |
|
| |
|
| |
|
|
| |
|
Retail operations segment | | $ | 228 | | $ | 10,569 | | $ | (10,341) |
| (97.8) | % | |
Construction segment | |
| (105) | |
| (7) | |
| (98) |
| 1,400.0 | | |
Total interest and debt expense, net | | $ | 123 | | $ | 10,562 | | $ | (10,439) |
| (98.8) | % | |
Net interest and debt expense decreased $10.4 million during the three months ended April 29, 2023 compared to the three months ended October 29, 2016 decreased $3.6 million and $5.0 million, respectively, due to the timing and composition of capital expenditures.
(in thousands of dollars) | October 28, 2017 | October 29, 2016 | $ Change | % Change | |||||||||||
Interest and debt expense (income), net: | |||||||||||||||
Three months ended | |||||||||||||||
Retail operations segment | $ | 14,988 | $ | 15,637 | $ | (649 | ) | (4.2 | )% | ||||||
Construction segment | (8 | ) | (18 | ) | 10 | 55.6 | |||||||||
Total interest and debt expense, net | $ | 14,980 | $ | 15,619 | $ | (639 | ) | (4.1 | )% | ||||||
Nine months ended | |||||||||||||||
Retail operations segment | $ | 46,508 | $ | 47,360 | $ | (852 | ) | (1.8 | )% | ||||||
Construction segment | (48 | ) | (48 | ) | — | — | |||||||||
Total interest and debt expense, net | $ | 46,460 | $ | 47,312 | $ | (852 | ) | (1.8 | )% |
Interest income was $10.0 million and nine$0.5 million for the three months ending Octoberended April 29, 2016,2023 and April 30, 2022, respectively.
Other Expense
| | | | | | | | | | | | | |
|
| April 29, |
| April 30, |
| | |
| |
|
| ||
(in thousands of dollars) | | 2023 | | 2022 | | $ Change | | % Change | |
| |||
Other expense: | | | | | | | | | | | |
| |
Three months ended |
| |
|
| |
|
| |
|
|
| |
|
Retail operations segment | | $ | 4,698 | | $ | 1,936 | | $ | 2,762 |
| 142.7 | % | |
Construction segment | |
| — | |
| — | |
| — |
| — | | |
Total other expense | | $ | 4,698 | | $ | 1,936 | | $ | 2,762 |
| 142.7 | % | |
Other expense increased $2.8 million during the three months ended April 29, 2023 compared to the three months ended April 30, 2022 due to an increase in pension expense.
Gain on Early ExtinguishmentDisposal of Debt
(in thousands of dollars) | October 28, 2017 | October 29, 2016 | $ Change | % Change | |||||||||||
Loss on early extinguishment of debt: | |||||||||||||||
Three months ended | |||||||||||||||
Retail operations segment | $ | 797 | $ | — | $ | 797 | — | % | |||||||
Construction segment | — | — | — | — | |||||||||||
Total loss on early extinguishment of debt | $ | 797 | $ | — | $ | 797 | — | % | |||||||
Nine months ended | |||||||||||||||
Retail operations segment | $ | 797 | $ | — | $ | 797 | — | % | |||||||
Construction segment | — | — | — | — | |||||||||||
Total loss on early extinguishment of debt | $ | 797 | $ | — | $ | 797 | — | % |
| | | | | | | | | | |
|
| April 29, |
| April 30, |
| | |
| ||
(in thousands of dollars) | | 2023 | | 2022 | | | $ Change | | ||
(Gain) loss on disposal of assets: | | | | | | | |
| | |
Three months ended |
| |
|
| |
|
| |
|
|
Retail operations segment | | $ | (1,793) | | $ | (7,240) | | $ | 5,447 | |
Construction segment | |
| — | |
| 3 | |
| (3) | |
Total gain on disposal of assets | | $ | (1,793) | | $ | (7,237) | | $ | 5,444 | |
During the three months ended October 28, 2017, we recorded charges totaling $0.8 million due to the write-off of certain deferred financing fees in connection with the amendment and extension of the Company's senior unsecured revolving credit facility.
(in thousands of dollars) | October 28, 2017 | October 29, 2016 | $ Change | % Change | |||||||||||
(Gain) loss on disposal of assets: | |||||||||||||||
Three months ended | |||||||||||||||
Retail operations segment | $ | (4,813 | ) | $ | 28 | $ | (4,841 | ) | (17,289.3 | )% | |||||
Construction segment | — | (5 | ) | 5 | 100.0 | ||||||||||
Total (gain) loss on disposal of assets | $ | (4,813 | ) | $ | 23 | $ | (4,836 | ) | (21,026.1 | )% | |||||
Nine months ended | |||||||||||||||
Retail operations segment | $ | (4,850 | ) | $ | (838 | ) | $ | (4,012 | ) | (478.8 | )% | ||||
Construction segment | (5 | ) | (15 | ) | 10 | 66.7 | |||||||||
Total gain on disposal of assets | $ | (4,855 | ) | $ | (853 | ) | $ | (4,002 | ) | (469.2 | )% |
During the three months ended April 30, 2022, the Company recorded proceeds of $8.1 million primarily from the sale of equipment.
Income Taxes
The Company’s estimated federal and state effective income tax rate inclusive of income on and equity in earnings of joint ventures, was approximately 31.8%23.4% and 35.0%22.5% for the three months ended October 28, 2017April 29, 2023 and October 29, 2016,April 30, 2022, respectively. During the three months ended October 28, 2017,April 29, 2023 and April 30, 2022, income tax expense differed from what would be computed using the statutory federal income tax rate primarily due to the effecteffects of state and local income taxes offset by tax benefits recognized for federal tax credits. During the three months ended October 29, 2016, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effecttaxes.
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The Company expects the fiscal 20172023 federal and state effective income tax rate to approximate 34%23%. This rate may change if results of operations for fiscal 20172023 differ from management’s current expectations or if additional tax legislation is passed.expectations. Changes in the Company’s assumptions and judgments can materially affect amounts recognized in the condensed consolidated balance sheets and statements of income.
FINANCIAL CONDITION
A summary of net cash flows for the ninethree months ended
Nine Months Ended | ||||||||||||
(in thousands of dollars) | October 28, 2017 | October 29, 2016 | $ Change | |||||||||
Operating Activities | $ | 55,502 | $ | 125,905 | $ | (70,403 | ) | |||||
Investing Activities | (87,602 | ) | (92,325 | ) | 4,723 | |||||||
Financing Activities | (200,027 | ) | (155,967 | ) | (44,060 | ) | ||||||
Total Cash Used | $ | (232,127 | ) | $ | (122,387 | ) | $ | (109,740 | ) |
| | | | | | | | | |
|
| Three Months Ended |
| | | ||||
| | April 29, | | April 30, | | | | ||
(in thousands of dollars) | | 2023 |
| 2022 | | $ Change | |||
Operating Activities | | $ | 280,948 | | $ | 365,182 | | $ | (84,234) |
Investing Activities |
| | 21,958 |
| | (14,784) |
| | 36,742 |
Financing Activities |
| | (106,503) |
| | (204,984) |
| | 98,481 |
Total Increase in Cash and Cash Equivalents and Restricted Cash | | $ | 196,403 | | $ | 145,414 | | $ | 50,989 |
Net cash flows from operations decreased $70.4$84.2 million during the ninethree months ended October 28, 2017April 29, 2023 compared to the ninethree months ended October 29, 2016.April 30, 2022. This decreasereduction was primarily attributable todue a decrease in gross profitnet income and changes in working capital items, primarily increasesnotably changes in inventory.
Wells Fargo Bank, N.A. ("Wells Fargo") owns and manages the Dillard’s private label credit cards under the Wells Fargo Alliance. Under the Wells Fargo Alliance, Wells Fargo establishes and owns private label card accounts for our customers, retains the benefits and risks associated with the ownership of the accounts, provides key customer service functions, including new account openings, transaction authorization, billing adjustments and customer inquiries, receives the finance charge income and incurs the bad debts associated with those accounts.
Capital expenditures were $32.3 million and $27.3 million for the three months ended April 29, 2016,2023 and April 30, 2022, respectively.
During the three months ended April 29, 2023, the Company received cash proceeds of $11.7$1.9 million forand recorded a related gain of $1.8 million, primarily from the sale of an 85,000 square foot location at Sunland Park Mall in El Paso, Texas. The Company also closed (1) an owned locationslocation at Santa Rosa Mall in OhioMary Esther, Florida (115,000 square feet) and Texas (70,000, (2) a leased location at Conestoga Mall in Grand Island, Nebraska (80,000 square feet) and the sale of equipment resulting in a net loss of $1.0 million. Additionally, the Company received insurance proceeds of $4.9 million from the recovery of a previously damaged full-line store location. The Company recorded a gain of $5.9 million as a result of the final insurance settlement for the damaged store.
During the three months ended April 30, 2022, the Company received cash proceeds of $8.1 million and recorded a related gain of $7.2 million, primarily from the sale of one store property.
During the three months ended April 30, 2022, the Company received life insurance proceeds of $4.4 million related to one policy.
During the three months ended April 29, 2023, the Company purchased certain treasury bills for $97.5 million that are classified as short-term investments and received proceeds of $150.0 million related to short-term investment maturities.
The Company had cash on handand cash equivalents and restricted cash of $114.9$856.7 million as of October 28, 2017. In August 2017, theApril 29, 2023. The Company amended and extended its senior unsecured revolvingmaintains a credit facility (the "new (“credit agreement"agreement”) replacing the Company's previous credit agreement. The new credit agreement provides borrowing capacity of $800 million with a $200 million expansion option and matures on August 9, 2022. As part of our overall liquidity management strategy, the credit facility is available 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 ratecredit agreement is secured by certain deposit accounts of interest on borrowings is LIBOR plus 1.375%,the Company and the commitment fee for unused borrowings is 0.20% per annum. To becertain inventory of certain subsidiaries and provides a borrowing capacity of $800 million, subject
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to certain limitations as outlined in compliance with the financial covenants of the credit agreement, the Company's total leverage ratio cannot exceed 3.5 to 1.0, and the Company's coverage ratio cannot be less than 2.5 to 1.0, as definedwith a $200 million expansion option. See Note 7, Revolving Credit Agreement, in the credit agreement.“Notes to Condensed Consolidated Financial Statements,” in Part I, Item 1 hereof for additional information. At October 28, 2017, the Company was in compliance with all financial covenants related to the credit agreement.
During the ninethree months ended October 28, 2017,April 29, 2023, the Company repurchased 3.50.4 million shares of Class A Common Stock at an average price of $52.48$318.66 per share for $184.4 million. Additionally,$113.8 million (including the accrual of $10.7 million of share repurchases that had not settled as of April 29, 2023) under its stock repurchase plans. During the three months ended April 30, 2022, the Company repurchased 0.7 million shares of Class A Common Stock at an average price of $253.72 per share for $186.5 million (including the accrual of $1.6 million of share repurchases that had not settled as of April 30, 2022) under its stock repurchase plans, and the Company paid $6.0$16.2 million for share repurchases that had not yet settled but were accrued at January 28, 2017. During the nine months ended October 29, 2016, the Company repurchased 2.5 million shares2022. As of Class A Common Stock at an average price of $67.13 per share for $165.6 million. At October 28, 2017, $69.5April 29, 2023, $61.6 million of authorization remained under the Company'sCompany’s open stock repurchase plan. The ultimate disposition of the repurchased stock has not been determined.
Subsequent to the end of the quarter ended April 29, 2023, the Company completed the remaining authorized purchases under its previous stock repurchase program, and in May 2023, the Company’s Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to $500 million of its Class A Common Stock under an open-ended plan.
On August 16, 2022, the Inflation Reduction Act of 2022 ("the Act") was signed into law. Under the Act, the Company’s share repurchases after December 31, 2022 are subject to a 1% excise tax. At April 29, 2023, the Company had accrued $1.1 million of excise tax related to its share repurchase program as an additional cost of treasury shares.
The Company expects to finance its capital expenditures, working capital requirements and stock repurchasesoperations during fiscal 2023 from cash on hand, cash flows generated from operations and, if necessary, utilization of the credit facility. Depending on conditions in the capital marketsupon our actual and other factors,anticipated sources and uses of liquidity, the Company maywill from time to time consider other possible financing transactions, the proceeds of which could be used to refinance current indebtednessfund working capital or for other corporate purposes.
There have been no material changes in the information set forth under caption “Contractual Obligations and Commercial“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 28, 2017.
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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company evaluates its estimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Since future events and their effects cannot be determined with absolute certainty, actual results could differ from those estimates. For further information on our critical accounting policies and estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the notes to our audited financial statements included in our Annual Report on Form 10-K for the year ended January 28, 2023. As of April 29, 2023, there have been no material changes to these critical accounting policies and estimates.
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NEW ACCOUNTING STANDARDS
For information with respect to new accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see Note 13,
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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,” "hope," “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 20172023 and beyond, statements concerning the opening of new stores or the closing of existing stores, 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 regarding the expected phase out of LIBOR, statements regarding the impacts of inflation and rising interest rates in fiscal 2023 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) general retail industry conditions and macro-economic conditions;conditions including inflation, rising interest rates, bank failures, failure of the U.S. government to timely raise the debt ceiling, economic recession and changes in traffic at malls and shopping centers; economic and weather conditions for regions in which the Company'sCompany’s stores are located and the effect of these factors on the buying patterns of the Company'sCompany’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 confidence, spending patterns, debt levels and their ability to meet credit obligations; high levels of unemployment; changes in tax legislation;legislation (including the Inflation Reduction Act of 2022); changes in legislation and governmental regulations affecting such matters as the cost of employee benefits or credit card income;income, such as the Consumer Financial Protection Bureau’s recent proposal to amend Regulation Z to limit the dollar amounts credit card companies can charge for late fees, adequate and stable availability and pricing of materials, production facilities and labor from which the Company sources its merchandise at acceptable pricing;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'sCompany’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; COVID-19 and other epidemic, pandemic or other public health issues;issues and their effects on public health, our supply chain, the health and well-being of our employees and customers and the retail industry in general; potential disruption of international trade and supply chain efficiencies; worldglobal 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 filingsnature, and other risks and uncertainties, including those detailed from time to time in our periodic reports filed with the Securities and Exchange Commission, including itsSEC, particularly those set forth under the caption “Item 1A, Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2017, contain other information on factors that may affect financial results or cause actual results to differ materially from forward-looking statements.
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 Aboutabout Market Risk” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2017.2023.
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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 28, 2017April 29, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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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 November 30, 2017,June 2, 2023, 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 28, 2017.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) | Purchases of Equity Securities |
Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities | ||||||||||||||
Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||
July 30, 2017 through August 26, 2017 | 70,905 | $ | 56.42 | 70,905 | $ | 89,185,315 | ||||||||
August 27, 2017 through September 30, 2017 | 168,293 | 57.79 | 168,293 | 79,459,124 | ||||||||||
October 1, 2017 through October 28, 2017 | 189,482 | 52.77 | 189,482 | 69,459,732 | ||||||||||
Total | 428,680 | $ | 55.35 | 428,680 | $ | 69,459,732 |
| | | | | | | | | | |
| | | | | | | | | | |
|
| |
| | |
| (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 | | or Programs | ||
January 29, 2023 through February 25, 2023 | | 75,001 | | $ | 346.77 | | 75,001 | | $ | 149,394,213 |
February 26, 2023 through April 1, 2023 | | 106,486 | | | 331.82 | | 106,486 | | | 114,059,786 |
April 2, 2023 through April 29, 2023 | | 175,667 | | | 298.68 | | 175,667 | | | 61,592,000 |
Total | | 357,154 | | $ | 318.66 | | 357,154 | | $ | 61,592,000 |
In February 2016,2022, the Company’s Board of Directors authorizedapproved a stock repurchase program authorizing the Company to repurchase of up to $500 million of its Class A Common Stock (“February 2022 Stock Plan”). During the three months ended April 29, 2023, the Company repurchased 0.4 million shares totaling $113.8 million under its stock repurchase plan. As of April 29, 2023, $61.6 million of authorization remained under the February 2022 Stock Plan.
Subsequent to the end of the quarter ended April 29, 2023, the Company completed the remaining authorized purchases under the February 2022 Stock Plan, and in May 2023, the Company’s Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to $500 million of its Class A Common Stock under an open-ended stock repurchase plan. This repurchase plan (“May 2023 Stock Plan”). The May 2023 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, as amended, or through privately negotiated transactions. The repurchase plan has no expiration date.
Reference is made to the discussion in Note 7,
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Item 6. Exhibits
Number | Description | |
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31.1 | | |
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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 |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DILLARD’S, INC. | ||
| | (Registrant) | |
| | | |
| | ||
Date: | June 2, 2023 | ||
/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 |
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