Dillard’s ended its second quarter with more than $1.2 billion in cash and short-term investments after paying off $96 million of debt, while $37.2 million of tariff refunds helped lift retail gross margin by 260 basis points and contributed to stronger earnings.
The department store operator finished the period with approximately $763.1 million of cash and cash equivalents and $497.7 million of short-term investments, giving it roughly $1.26 billion of combined liquidity in those categories.
The balance sheet remained strong even after Dillard’s paid off $96 million of debt during the period. Long-term debt stood at approximately $145.7 million at August 1, compared with $225.6 million a year earlier, while the current portion of long-term debt was $80 million.
The quarter also included $37.2 million of refunds associated with International Emergency Economic Powers Act tariffs. The refunds contributed $28.4 million after tax, equivalent to $1.82 per share, and provided a significant boost to quarterly profitability.
Dillard’s said the refunds increased retail gross margin by approximately 260 basis points. Retail gross margin reached 40.9% of sales, compared with 38.1% during the prior-year quarter. Consolidated gross margin increased to 39.7% from 36.6%. The company does not expect additional significant IEEPA tariff refunds.
Even excluding the tariff benefit, Dillard’s reported some underlying margin improvement across portions of the business. Adjusted for the refunds, retail gross margin increased moderately in ladies’ apparel and slightly in cosmetics and home and furniture. Margins were flat in juniors’ and children’s apparel, while men’s apparel and accessories and shoes declined slightly.
Net income increased to $97.7 million, or $6.25 per share, from $72.8 million, or $4.66 per share, in the prior-year period. The latest quarter’s net income included the tariff refund benefit, while the prior-year quarter included a $4.8 million pretax gain primarily related to the sale of three properties.
The earnings increase came despite relatively modest sales growth. Total retail sales increased 1% to $1.455 billion from $1.447 billion, while comparable-store sales also increased 1%. Consolidated net sales, which include CDI Contractors, were $1.508 billion compared with $1.514 billion a year earlier.
Sales trends varied across merchandise categories. Ladies’ accessories and lingerie increased significantly, while home and furniture increased moderately. Shoes, men’s apparel and accessories, and cosmetics posted slight gains. Juniors’ and children’s apparel and ladies’ apparel declined moderately.
Operating expenses increased during the quarter. Selling, general and administrative expenses reached $443.6 million, or 29.4% of sales, compared with $434.2 million, or 28.7% of sales, a year earlier. Dillard’s attributed the increase primarily to higher payroll and payroll-related expenses.
The first-half results were also affected by another significant one-time item. Dillard’s recognized a $104.1 million pretax gain, net of legal fees, from the favorable settlement of a long-standing payment card interchange-fee lawsuit. The settlement contributed $79.6 million after tax, or $5.10 per share.
For the first 26 weeks of the year, net income increased to $348.2 million, or $22.30 per share, from $236.7 million, or $15.08 per share. Total retail and comparable-store sales both increased 2%, while retail gross margin reached 43.4% compared with 41.8% a year earlier.
Dillard’s currently operates 272 stores, including 28 clearance centers, across 30 states. Its physical portfolio totals approximately 46.1 million square feet, in addition to its online business.
KEY QUOTES:
“Our 1% sales increase points to a somewhat resilient consumer. Retail gross margin of 40.9%, boosted by tariff rebates, helped grow cash flow and the bottom line. We ended the quarter with over $1.2 billion in cash and short-term investments after paying off $96 million in debt.”
William T. Dillard II, CEO of Dillard’s
