Dillard’s, Inc. (NYSE:DDS) (the "Company" or "Dillard’s") conducted its annual meeting of stockholders today in Little Rock, Arkansas with Dillard's Chairman of the Board and Chief Executive Officer, William T. Dillard, II, presiding.
Mr. Dillard announced a quorum of stockholders and referred the audience to the voting items in the Proxy Statement and, with the assistance of Corporate Secretary, Dean Worley, noted that all Directors were elected by an overwhelming majority. Mr. Dillard and Mr. Worley also noted that Proposal 2, Ratification of the Selection of the Company’s Independent Registered Public Accountants, and Proposal 3, Advisory Vote on Executive Compensation, were overwhelmingly approved.
Moving to a discussion of Company performance, Mr. Dillard noted that the first quarter began in a "reasonably normal" manner in February, but became "total chaos" by the end of April. He then introduced the Company’s President, Alex Dillard, to provide more details of that performance.
Mr. Alex Dillard began by noting that the first quarter was the worst quarter in Dillard’s history. He attributed the poor performance to the COVID-19 pandemic, which caused reduced traffic and significant sales declines. Notably, beginning the weekend of March 13th, 14th and 15th, sales declined by approximately 50%. He further added that beginning March 19th, the Company was forced by government mandate to close a number of stores and that all stores were eventually closed by April 9th.
Mr. Alex Dillard further shared that management’s view on the mandatory store closures was different than other retailers, as the Company had fought store by store to stay open. He explained that, while heavily criticized for it at the time, management was trying to generate enough cash to pay its associates, as their ongoing wellbeing was uncertain until the passage of the CARES Act. He emphasized that the Company was clearly not staying open to maximize profits, noting that "nothing could be further from the truth as evidenced by our $162 million loss" for the first quarter.
Mr. Alex Dillard stated that while the Company’s retail stores were closed, they were utilized to fill online orders from dillards.com with very limited staff. He noted that online orders approximately doubled while the stores were closed and that half of the Company’s online orders were filled from retail store inventory.
Regarding the Company’s inventory management during the quarter, Mr. Alex Dillard commented that the Company executed aggressive promotions on dillards.com to move marked-down (clearance) merchandise. The Company began offering an extra 40% off of clearance merchandise beginning on March 24th followed by an extra 50% off which remained through April. He added that, beginning the week of March 15th after the dramatic sales drop noted above, the Company began delaying merchandise receipts and cancelling orders where possible. These actions resulted in a decline in merchandise receipts of 72% the last week of March followed by an 84% decline in April. He noted that most of the April receipts were private label merchandise which has notably longer lead times. He added that the ultimate results of these actions on the quarter were that merchandise purchases were down 33% and inventory was down 14% compared to the 2019 first quarter.
Regarding the Company’s retail gross margin performance for the quarter, which was 12.8% of sales compared to 37.8% for the first quarter of 2019, Mr. Alex Dillard explained two factors that significantly affected gross margin:
- The aforementioned aggressive promotional measures on the Company’s clearance merchandise; and
- Additional markdowns on aging regular priced merchandise in light of store closures and rapidly declining sales. He added that the Company’s use of the retail inventory method of inventory valuation results in an immediate reduction in inventory valuation and a dollar-for-dollar drop in gross margin.
Moving on to good news, Mr. Alex Dillard pointed to recent store re-openings. He pointed out that beginning May 5th and 6th Dillard’s opened 45 Dillard’s and 15 clearance centers and an additional 80 Dillard’s stores and nine clearance centers beginning May 12th and 13th. He added that the Company plans to open 115 Dillard’s stores and five clearance centers next week. This concluded Mr. Alex Dillard’s remarks.
William T. Dillard, II then declared the voting closed and adjourned the meeting.
Julie Johnson Guymon