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Dillard's Doldrums

By LouAnn Lofton (TMF Bling)
August 20, 2003
Department store chain Dillard's (NYSE: DDS) reported ugly second-quarter results today. Total and same-store sales both fell, and the retailer recorded a whopping net loss. In recent years, department stores have struggled to remain relevant with shoppers, and Dillard's unfashionable results provide more evidence of those troubles.

Sales dropped 5% to $1.7 billion. Same-store sales were also off 5%. Gross margins were pressured by summer inventory markdowns, and fell to 31% from 34%. Dillard's said it ended the quarter with more summer goods than it had hoped, which means that the markdowns for them will continue into the current quarter and will affect margins again.

The company's net loss for the quarter was $50.4 million, or $0.60 a share. That compares to a profit of $6.7 million, or $0.08 in the year-earlier period. Included in that net loss were two charges: $10.9 million to account for asset impairment and store closing costs and $10 million related to a call premium for early retirement of some debt.

Not counting those charges, Dillard's lost $0.35 a share, which is nearly double the expected loss of $0.18 a share. The market reacted to the news by sending shares 13% lower, although the stock recovered a bit in afternoon trading and was down at around just 5%.

Dillard's has been trying to stave off the competition from specialty stores and discounters by closing underperforming stores and remodeling existing ones, as well as opening new stores in select locations. It closed three locations during the second quarter, and has plans to open three before fiscal 2003 ends in January 2004. Its square footage shrank during the quarter from 56.6 million to 55.9 million, and it ended the period with 329 stores.

Despite Dillard's bargain-basement P/E of 13, investors would do themselves a favor to pass this one by. Even when compared to its already-troubled department store peers, Dillard's fundamentals aren't at all appealing.
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