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 endedJanuary 30, 2021 . Due to the significant impact of COVID-19 on prior year figures, the information that follows will include certain comparisons to 2019 to provide additional context.
EXECUTIVE OVERVIEW
InMarch 2020 , theWorld Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to impactthe United States and global economies. The COVID-19 pandemic has had and may continue to have a significant impact on the Company's business, results of operations and financial position. The Company began closing stores onMarch 19, 2020 as mandated by state and local governments, and byApril 9, 2020 , all of the Company's brick-and-mortar store locations were temporarily closed to the public. Our eCommerce capabilities allowed us to use our closed store locations (with limited staffing) to fill orders from our Internet store. During the month endedMay 30, 2020 (fiscal May), we re-opened most of our full-line stores, and byJune 2, 2020 all Dillard's store locations had been re-opened. Following our re-opening, a very small number of our locations were temporarily closed to in-store shopping due to government mandate. All stores are currently open and are operating at reduced hours from fiscal 2019 operating hours. While the availability of vaccinations has led to re-openings across the country and the easing of restrictions, the continuing financial impact of COVID-19 to fiscal 2021 cannot be reasonably estimated at this time. The Company's results for the three months endedOctober 30, 2021 improved significantly compared to the three months endedOctober 31, 2020 , marking a third sequential record quarterly performance. The strong consumer demand that began in the first quarter continued through the second and third quarters, leading to a 48% increase in comparable retail sales for the third quarter of 2021 compared to the third quarter of 2020 and a 12% increase compared to the third quarter of 2019. Retail gross margin increased significantly to 46.7% during the three months endedOctober 30, 2021 compared to 36.6% during the three months endedOctober 31, 2020 . The Company attributes this improvement to continued strong consumer demand combined with better inventory management which led to decreased markdowns compared to the prior year third quarter. Accordingly, the Company reduced inventory by approximately 1% compared to the prior year third quarter. Selling, general and administrative expenses ("SG&A") increased to$393.2 million (26.5% of sales) compared to$318.2 million (31.0% of sales) for the prior year third quarter primarily due to decreases in payroll expense in the prior year third quarter as store traffic, while recovering, was not to pre-pandemic levels. Increased retail sales during the third quarter of 2021 compared to the third quarter of 2020 provided support for these increased expenses as SG&A declined 450 basis points of sales. The Company reported net income of$197.3 million ($9.81 per share) compared to net income of$31.9 million ($1.43 per share) for the prior year third quarter. Included in net income for the quarter endedOctober 31, 2020 is a net tax benefit of$32.4 million ($1.46 per share) related to The Coronavirus Aid, Relief and Economic Security ("CARES") Act, signed into law onMarch 27, 2020 , which allowed for net operating loss carryback to years in which the federal income tax rate was 35%. Also included in net income for the quarter is a pretax loss of$2.2 million ($1.4 million after tax or$0.06 per share) primarily related to the sale of a store property. During the three months endedOctober 30, 2021 , the Company repurchased 1.2 million shares of its outstanding Class A Common Stock for$239.2 million under its stock repurchase plans authorized by the Company's Board of Directors inMarch 2018 (the "March 2018 Plan") andMay 2021 (the "May 2021 Plan"). As ofOctober 30, 2021 , the Company had completed the authorized purchases under theMarch 2018 Plan, and$262.9 million of authorization remained under theMay 2021 Plan. As ofOctober 30, 2021 , the Company had working capital of$1,079.4 million (including cash and cash equivalents of$619.7 million ) and$566.0 million of total debt outstanding, excluding finance lease liabilities and operating lease liabilities, with no scheduled maturities until the end of fiscal 2022. Cash flows provided by operating activities were$728.1 million for the nine months endedOctober 30, 2021 . OnNovember 18, 2021 , the Company announced that its Board of Directors declared a special dividend of$15.00 per share. The dividend is payable on the Class A and Class B Common Stock of the Company onDecember 15, 2021 to shareholders of record as ofNovember 29, 2021 .
The Company operated 280 Dillard’s stores, including 30 clearance centers, and an Internet store at
18 -------------------------------------------------------------------------------- Table of Contents We source a significant portion of our private label and exclusive brand merchandise from countries that have experienced widespread transmission of the COVID-19 virus. Additionally, many of our branded merchandise vendors may also source a significant portion of their merchandise from these same countries. Manufacturing capacity in those countries has been significantly impacted by the pandemic and in some countries the pandemic continues to negatively impact our supply chain with shipping delays as well as increased shipping costs. Additionally, disruptions in the global transportation network, which began in fiscal 2020, have continued throughout fiscal 2021, and it is unclear when these issues will be resolved. TheCalifornia ports ofLos Angeles andLong Beach , which together handle a significant portion ofUnited States merchandise imports including our own imports, have experienced and are continuing to experience delays in processing imported merchandise, thereby resulting in untimely deliveries of merchandise. At present, while monitoring the situation closely, management is unable to quantify the effects of these factors on the Company's results of operations and inventory position for fiscal 2021. With regard to operational staffing, management is particularly focused on the existing tight labor market, seeking to hire permanent and seasonal talent across multiple functions. In addition to existing labor market pressures, theOccupational Safety and Health Administration ("OSHA") issued an Emergency Temporary Standard ("ETS") onNovember 5, 2021 requiring all employers with 100 or more employees to mandate COVID-19 vaccination or testing effectiveJanuary 4, 2022 . Implementation of the ETS has been suspended pending further developments in litigation filed againstOSHA . The Company continues to monitor the status of the litigation and the potential impact of the ETS on retaining and hiring employees and additional costs that may be incurred if this standard goes into effect. Key Performance Indicators
We use a number of key financial condition and operational performance indicators to assess our business, including the following:
Three months ended
October 30, October 31,
2021 2020
Net sales (in millions) $ 1,481.0 $ 1,024.9
Retail stores sales trend 47 % (25) %
Comparable retail stores sales trend 48 % (24) %
Gross profit (in millions) $ 684.7 $ 366.2
Gross profit as a percentage of net sales 46.2 % 35.7 %
Retail gross profit as a percentage of net sales 46.7 % 36.6 %
Selling, general and administrative expenses as a percentage of net sales
26.5 % 31.0 % Cash flow provided by (used in) operations (in millions)*$ 728.1 $ (62.9) Total retail store count at end of period 280 282 Retail sales per square foot $ 31 $ 21 Retail store inventory trend (1) % (22) % Annualized retail merchandise inventory turnover 2.5 1.8
* Cash flow from operating data is for the nine month period ended
and
General Net sales. Net sales includes merchandise sales of comparable and non-comparable stores and revenue recognized on contracts ofCDI Contractors, LLC ("CDI"), the Company's general contracting construction company. Comparable store sales includes sales for those stores which were in operation for a full period in both the most recently completed quarter and the corresponding quarter for the prior fiscal year, including our internet store. Comparable store sales excludes changes in the allowance for sales returns. Non-comparable store sales includes: sales in the current fiscal year from stores opened during the previous fiscal year before they are considered comparable stores; sales from new stores opened during the current fiscal year; sales in the previous fiscal year for stores closed during the current or previous fiscal year that are no longer considered comparable stores; sales in clearance centers; and changes in the allowance for sales returns. 19 -------------------------------------------------------------------------------- Table of Contents Sales occur as a result of interaction with customers across multiple points of contact, creating an interdependence between in-store and online sales. Online orders are fulfilled from both fulfillment centers and retail stores. Additionally, online customers have the ability to buy online and pick up in-store. Retail in-store customers have the ability to purchase items that may be ordered and fulfilled from either a fulfillment center or another retail store location. Online customers may return orders via mail, or customers may return orders placed online to retail store locations. Customerswho earn reward points under the private label credit card program may earn and redeem rewards through in-store or online purchases. Service charges and other income. Service charges and other income includes income generated through the long-term marketing and servicing alliance withWells Fargo Bank, N.A. ("Wells Fargo Alliance "). Other income includes rental income, shipping and handling fees, gift card breakage and lease income on leased departments. Cost of sales. Cost of sales includes the cost of merchandise sold (net of purchase discounts, non-specific margin maintenance allowances and merchandise margin maintenance allowances), bankcard fees, freight to the distribution centers, employee and promotional discounts, shipping to customers and direct payroll for salon personnel. Cost of sales also includes CDI contract costs, which comprise all direct material and labor costs, subcontract costs and those indirect costs related to contract performance, such as indirect labor, employee benefits and insurance program costs. Selling, general and administrative expenses. Selling, general and administrative expenses include buying, occupancy, selling, distribution, warehousing, store and corporate expenses (including payroll and employee benefits), insurance, employment taxes, advertising, management information systems, legal and other corporate level expenses. Buying expenses consist of payroll, employee benefits and travel for design, buying and merchandising personnel.
Depreciation and amortization. Depreciation charges include depreciation and amortization of property, plant and equipment.
Rentals. Rents include expenses related to store leases, including contingent rents, rentals of computer and other equipment, and office leases.
Interest and debt expense, net. Interest and debt expense includes interest, net of interest income and capitalized interest, relating to the Company's unsecured notes, subordinated debentures and borrowings under the Company's credit agreement. Interest and debt expense also includes the amortization of financing costs and interest on finance lease obligations.
Other expenses. Other charges include interest charges and actuarial loss components net of net periodic benefit costs related to the Company’s unfunded and non-eligible defined benefit plan and charges related to the write-off of deferred financing costs, optionally.
(Gain) loss on disposal of assets. (Gain) loss 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 OnMarch 5, 2021 , theU.K. Financial Conduct Authority , which regulates LIBOR, announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative: (a) immediately afterDecember 31, 2021 , in the case of the 1-week and 2-monthU.S. dollar settings; and (b) immediately afterJune 30, 2023 , in the case of the remainingU.S. dollar settings. Going forward, we intend to work with our lenders to use a suitable alternative reference rate for the 2021 amended credit agreement, theWells Fargo Alliance and any other applicable agreements. We will continue to monitor, assess and plan for the phase out of LIBOR.
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.
20
-------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS
The following table presents the results of operations as a percentage of net sales for the periods indicated (percentages may not add due to rounding):
Three Months Ended Nine Months Ended
October 30, October 31, October 30, October 31,
2021 2020 2021 2020
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Service charges and other income 2.1 2.7 2.1 3.2
102.1 102.7 102.1 103.2
Cost of sales 53.8 64.3 57.0 72.8
Selling, general and administrative expenses 26.5 31.0 25.0
32.1
Depreciation and amortization 3.4 5.2 3.3 5.7 Rentals 0.3 0.5 0.3 0.6 Interest and debt expense, net 0.7 1.2 0.8 1.4 Other expense 0.1 0.2 0.2 0.2 (Gain) loss on disposal of assets - 0.2 (0.6)
0.1
Income (loss) before income taxes 17.2 - 15.9 (9.6)
Income taxes (benefit) 3.9 (3.1) 3.6 (4.5)
Net income (loss) 13.3 % 3.1 % 12.4 % (5.1) %
Net Sales
Three Months Ended
October 30, October 31,
(in thousands of dollars) 2021 2020 $ Change
Net sales:
Retail operations segment $ 1,460,184 $ 994,588 $ 465,596
Construction segment 20,815 30,311 (9,496)
Total net sales $ 1,480,999 $ 1,024,899 $ 456,100
The percent change in the Company's sales by segment and product category for
the three months ended October 30, 2021 compared to the three months ended
October 31, 2020 as well as the sales percentage by segment and product category
to total net sales for the three months ended October 30, 2021 are as follows:
% Change % of
2021 - 2020 Net Sales
Retail operations segment
Cosmetics 31.6 % 13 %
Ladies' apparel 61.2 22
Ladies' accessories and lingerie 29.1 14
Juniors' and children's apparel 65.0 11
Men's apparel and accessories 60.5 20
Shoes 44.4 16
Home and furniture 8.1 3
99
Construction segment (31.3) 1
Total 100 %
21
-------------------------------------------------------------------------------- Table of Contents Net sales from the retail operations segment increased$466 million , or approximately 47%, and sales in comparable stores increased approximately 48%, during the three months endedOctober 30, 2021 compared to the three months endedOctober 31, 2020 , primarily due to the impact of the COVID-19 pandemic. Sales in all product categories increased significantly over the third quarter last year. Compared to the third quarter of fiscal 2019, net sales from the retail operations segment for the three months endedOctober 30, 2021 andNovember 2, 2019 were$1,460.2 million and$1,334.2 million , respectively, increasing$126.0 million or approximately 9% while sales in comparable stores increased approximately 12%. We recorded a return asset of$11.0 million and$7.5 million and an allowance for sales returns of$22.3 million and$12.5 million as ofOctober 30, 2021 andOctober 31, 2020 , respectively. During the three months endedOctober 30, 2021 , net sales from the construction segment decreased$9.5 million , or approximately 31%, compared to the three months endedOctober 31, 2020 due to a decrease in construction activity. The remaining performance obligations related to executed construction contracts totaled$84.2 million as ofOctober 30, 2021 , increasing approximately 10% fromJanuary 30, 2021 and decreasing approximately 13% fromOctober 31, 2020 , respectively. We expect these remaining performance obligations to be earned over the next nine to eighteen months. Nine Months Ended October 30, October 31, (in thousands of dollars) 2021 2020 $ Change Net sales: Retail operations segment$ 4,296,316 $ 2,638,831 $ 1,657,485 Construction segment 83,604 91,767 (8,163) Total net sales$ 4,379,920 $ 2,730,598 $ 1,649,322 The percent change in the Company's sales by segment and product category for the nine months endedOctober 30, 2021 compared to the nine months endedOctober 31, 2020 as well as the sales percentage by segment and product category to total net sales for the nine months endedOctober 30, 2021 are as follows: % Change % of 2021 - 2020 Net Sales Retail operations segment Cosmetics 48.9 % 13 % Ladies' apparel 79.3 23 Ladies' accessories and lingerie 53.6 15 Juniors' and children's apparel 69.6 10 Men's apparel and accessories 69.9 19 Shoes 61.5 15 Home and furniture 22.3 3 98 Construction segment (8.9) 2 Total 100 % Net sales from the retail operations segment increased$1,657.5 million , or approximately 63%, during the nine months endedOctober 30, 2021 compared to the nine months endedOctober 31, 2020 primarily due to the impact of the COVID-19 pandemic. The Company reported no comparable store sales data for the period due to the temporary closure of its brick-and-mortar stores during a portion of the first nine months of 2020 as well as the interdependence between in-store and online sales. Sales in all product categories increased significantly over the first nine months of fiscal 2020. Compared to the first nine months of fiscal 2019, net sales from the retail operations segment for the nine months endedOctober 30, 2021 andNovember 2, 2019 were$4,296.3 million and$4,132.9 million , respectively, increasing$163.4 million or approximately 4% while sales in comparable stores increased approximately 7%. 22 -------------------------------------------------------------------------------- Table of Contents During the nine months endedOctober 30, 2021 , net sales from the construction segment decreased$8.2 million , or approximately 9%, compared to the nine months endedOctober 31, 2020 due to a decrease in construction activity.
Service charges and other income
Three Months Ended Nine Months Ended Three Months Nine Months
October 30, October 31, October 30, October 31, $ Change 2021 $ Change
(in thousands of dollars) 2021 2020 2021 2020 - 2020 2021-2020
Service charges and other income:
Retail operations segment
Income from Wells Fargo Alliance $ 18,701
$ 2,185 Shipping and handling income 9,672 7,917 28,376 28,140 1,755 236 Leased department income 1 212 4 1,075 (211) (1,071) Other 2,664 2,562 7,865 6,600 102 1,265 31,038 27,163 90,388 87,773 3,875 2,615 Construction segment (125) 50 571 500 (175) 71 Total service charges and other income$ 30,913 $ 27,213 $ 90,959 $ 88,273 $ 3,700 $ 2,686 Service charges and other income is composed primarily of income from theWells Fargo Alliance . Income from the alliance increased$2.2 million during the three months endedOctober 30, 2021 compared to the three months endedOctober 31, 2020 primarily due to decreases in credit losses. Income from the alliance increased$2.2 million during the nine months endedOctober 30, 2021 compared to the nine months endedOctober 31, 2020 primarily due to decreases in credit losses. Shipping and handling income increased during the three and nine months endedOctober 30, 2021 compared to the three and nine months endedOctober 31, 2020 , respectively, due to an increase in online shopping. The smaller increase for the nine-month period compared to the three-month period was primarily due to an increase in online orders in the first quarter of 2020 as customer shopping patterns shifted to dillards.com as COVID-19 infection levels increased and brick-and-mortar stores were temporarily closed. Compared to the third quarter of fiscal 2019, shipping and handling income for the three months endedOctober 30, 2021 andNovember 2, 2019 was$9.7 million and$6.7 million , respectively, increasing$3.0 million or 45.0%. Shipping and handling income for the nine months endedOctober 30, 2021 andNovember 2, 2019 was$28.4 million and$18.9 million , respectively, increasing$9.5 million or 50.1%. Leased department income consisted primarily of commissions from a principal licensed department of an upscale women's apparel vendor located in certain stores. By the end ofJuly 2020 , our agreement with this principal licensed department had been terminated. We expect future leased department income to be minimal. Gross Profit October 30, October 31, (in thousands of dollars) 2021 2020 $ Change % Change Gross profit: Three months ended Retail operations segment$ 682,317 $ 364,232 $ 318,085 87.3 % Construction segment 2,406 1,983 423 21.3 Total gross profit$ 684,723 $ 366,215 $ 318,508 87.0 % Nine months ended Retail operations segment$ 1,876,558 $ 737,673 $ 1,138,885 154.4 % Construction segment 5,787 5,925 (138) (2.3) Total gross profit$ 1,882,345 $ 743,598 $ 1,138,747 153.1 % 23
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Table of Contents
Three Months Ended Nine Months Ended
October 30, October 31, October 30, October 31,
2021 2020 2021 2020
Gross profit as a percentage of segment
net sales:
Retail operations segment 46.7 % 36.6 % 43.7 % 28.0 %
Construction segment 11.6 6.5 6.9
6.5
Total gross profit as a percentage of net sales 46.2 35.7 43.0 27.2
Gross margin, as a percentage of sales, increased to 46.2% from 35.7% in the three months ended
Gross profit from retail operations, as a percentage of sales, increased to 46.7% from 36.6% during the three months endedOctober 30, 2021 compared to the three months endedOctober 31, 2020 , respectively, primarily due to increased markdowns taken during the third quarter of fiscal 2020 as a result of the impact of the COVID-19 pandemic as well as better inventory management and stronger customer demand leading to decreased markdowns in the third quarter of fiscal 2021. Gross margin increased significantly in all product categories except cosmetics which increased moderately. Compared to the third quarter of fiscal 2019, gross profit from retail operations, as a percentage of sales, increased 1,221 basis points of sales to 46.7% during the three months endedOctober 30, 2021 compared to 34.5% during the three months endedNovember 2, 2019 primarily due to better inventory management and customer demand leading to decreased markdowns in the third quarter of fiscal 2021. Gross profit, as a percentage of sales, increased to 43.0% from 27.2% during the nine months endedOctober 30, 2021 compared to the nine months endedOctober 31, 2020 , respectively. Gross profit from retail operations, as a percentage of sales, increased to 43.7% from 28.0% during the nine months endedOctober 30, 2021 compared to the nine months endedOctober 31, 2020 , respectively, primarily due to increased markdowns taken during the first nine months of fiscal 2020 as a result of the impact of the COVID-19 pandemic as well as better inventory management and customer demand leading to decreased markdowns in the first nine months of fiscal 2021. Gross margin increased significantly in all product categories except cosmetics which increased moderately. Compared to the first nine months of fiscal 2019, gross profit from retail operations, as a percentage of sales, increased 1000 basis points of sales to 43.7% during the nine months endedOctober 30, 2021 compared to 33.7% during the nine months endedNovember 2, 2019 primarily due to better inventory management and customer demand leading to decreased markdowns in the first nine months of fiscal 2021. Inventory decreased 1% in total as ofOctober 30, 2021 compared toOctober 31, 2020 . A 1% change in the dollar amount of markdowns would have impacted net income by approximately$1 million and$5 million for the three and nine months endedOctober 30, 2021 , respectively.
Management is monitoring persistent supply chain issues, particularly with regards to shipping delays and disruptions to the global transportation network.
24
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Selling, General and Administrative Expenses ("SG&A")
October 30, October 31,
(in thousands of dollars) 2021 2020 $ Change % Change
SG&A:
Three months ended
Retail operations segment $ 391,463 $ 316,738 $ 74,725 23.6 %
Construction segment 1,728 1,480 248 16.8
Total SG&A $ 393,191 $ 318,218 $ 74,973 23.6 %
Nine months ended
Retail operations segment $ 1,090,818 $ 871,096 $ 219,722 25.2 %
Construction segment 4,855 4,630 225 4.9
Total SG&A $ 1,095,673 $ 875,726 $ 219,947 25.1 %
Three Months Ended Nine Months Ended
October 30, October 31, October 30, October 31,
2021 2020 2021 2020
SG&A as a percentage of segment net sales:
Retail operations segment 26.8 % 31.8 % 25.4 % 33.0 %
Construction segment 8.3 4.9 5.8 5.0
Total SG&A as a percentage of net sales 26.5 31.0 25.0 32.1
SG&A decreased to 26.5% of sales during the three months ended October 30, 2021
compared to 31.0% of sales during the three months ended October 31, 2020 , while
increasing $75.0 million . SG&A from retail operations decreased to 26.8% of
sales for the three months ended October 30, 2021 compared to 31.8% of sales for
the three months ended October 31, 2020 , while increasing $74.7 million . The
increase in SG&A dollars was primarily due to increases in payroll expense and
related payroll taxes.
SG&A decreased to 25.0% of sales during the nine months ended October 30, 2021
compared to 32.1% of sales during the nine months ended October 31, 2020 , while
increasing $219.9 million . SG&A from retail operations decreased to 25.4% of
sales for the nine months ended October 30, 2021 compared to 33.0% of sales for
the nine months ended October 31, 2020 , while increasing $219.7 million . The
increase in SG&A dollars was primarily due to increases in payroll expense and
related payroll taxes.
Payroll expense and related payroll taxes for the three months ended October 30,
2021 was $261.5 million compared to $207.5 million for the three months ended
October 31, 2020 , increasing $53.9 million . Payroll expense and related payroll
taxes for the nine months ended October 30, 2021 was $733.5 million compared to
$560.1 million for the nine months ended October 31, 2020 , increasing $173.4
million . During the first nine months of fiscal 2020, the Company (a) furloughed
store associates as stores temporarily closed due to the COVID-19 pandemic and
furloughed associates in certain corporate and support facility functions and
(b) reduced payroll expense and related payroll taxes and benefits by $6.1
million through the employee retention credit available under the CARES Act.
Compared to the third quarter of fiscal 2019, SG&A from retail operations for
the three months ended October 30, 2021 and November 2, 2019 were $391.5 million
(26.8% of sales) and $416.7 million (31.2% of sales), respectively, decreasing
$25.2 million . SG&A from retail operations for the nine months ended October 30,
2021 was $1,090.8 million (25.4% of sales) compared to $1,227.6 million (29.7%
of sales) for the nine months ended November 2, 2019 , decreasing $136.8 million
primarily due to decreases in payroll expense and related payroll taxes. The
Company continues to operate with reduced operating hours and fewer associates.
With regard to operational staffing, management is particularly focused on the
existing tight labor market, seeking to hire permanent and seasonal talent
across multiple functions.
25
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Depreciation and Amortization
October 30, October 31,
(in thousands of dollars) 2021 2020 $ Change % Change
Depreciation and amortization:
Three months ended
Retail operations segment $ 50,122 $ 53,290 $ (3,168) (5.9) %
Construction segment 66 87 (21) (24.1)
Total depreciation and amortization $ 50,188 $ 53,377 $ (3,189) (6.0) %
Nine months ended
Retail operations segment $ 146,441 $ 154,806 $ (8,365) (5.4) %
Construction segment 198 423 (225) (53.2)
Total depreciation and amortization $ 146,639 $ 155,229
Depreciation and amortization expense decreased$3.2 million and$8.6 million during the three and nine months endedOctober 30, 2021 compared to the three and nine months endedOctober 31, 2020 primarily due to the timing and composition of capital expenditures.
Interest and borrowing costs, net
October 30, October 31, (in thousands of dollars) 2021 2020 $ Change % Change Interest and debt expense (income), net: Three months ended Retail operations segment$ 10,557 $ 12,167 $ (1,610) (13.2) % Construction segment (7) (5) (2) (40.0) Total interest and debt expense, net$ 10,550 $ 12,162 $ (1,612) (13.3) % Nine months ended Retail operations segment$ 32,889 $ 37,343 $ (4,454) (11.9) % Construction segment (33) (38) 5 13.2 Total interest and debt expense, net$ 32,856 $ 37,305 $ (4,449) (11.9) % Net interest and debt expense decreased$1.6 million and$4.4 million during the three and nine months endedOctober 30, 2021 compared to the three and nine months endedOctober 31, 2020 , respectively, primarily due to a decrease of short-term borrowings under the credit facility. Total weighted average debt decreased by$75.7 million and$186.1 million during the three and nine months endedOctober 30, 2021 compared to the three and nine months endedOctober 31, 2020 , respectively, primarily due to a decrease of short-term borrowings under the credit facility. 26 --------------------------------------------------------------------------------
Table of Contents
Other Expense
October 30, October 31,
(in thousands of dollars) 2021 2020 $ Change % Change
Other expense:
Three months ended
Retail operations segment $ 2,134 $ 2,105 $ 29 1.4 %
Construction segment - - - -
Total other expense $ 2,134 $ 2,105 $ 29 1.4 %
Nine months ended
Retail operations segment $ 9,232 $ 6,313 $ 2,919 46.2 %
Construction segment - - - -
Total other expense $ 9,232 $ 6,313 $ 2,919 46.2 %
Other expense increased $2.9 million during the nine months ended October 30,
2021 compared to the nine months ended October 31, 2020 primarily due to the
write-off of certain deferred financing fees in connection with the amendment
and extension of the Company's secured revolving credit facility.
(Gain) Loss on disposal of assets
October 30 , October
31,
(in thousands of dollars) 2021
2020 $ Change
(Gain) loss on disposal of assets:
Three months ended
Retail operations segment $ (4) $
2 234
Construction segment - (13) 13
Total (gain) loss on disposal of assets $ (4) $ 2,221 $ (2,225)
Nine months ended
Retail operations segment $ (24,683) $ 2,261 $ (26,944)
Construction segment (3) (26) 23
Total (gain) loss on disposal of assets
During the nine months endedOctober 30, 2021 , the Company recorded proceeds of$29.3 million primarily from the sale of three store properties, resulting in a gain of$24.7 million that was recorded in (gain) loss on disposal of assets. During the three and nine months endedOctober 31, 2020 , the Company recorded proceeds of$1.5 million primarily from the sale of one store property, resulting in a loss of$2.2 million that was recorded in (gain) loss on disposal of assets. Income Taxes The Company's estimated federal and state effective income tax rate was approximately 22.5% for the three and nine months endedOctober 30, 2021 . During the three and nine months endedOctober 30, 2021 , income tax expense differed from what would be computed using the statutory federal income tax rate primarily due to the effects of state and local income taxes. The Company was in a net operating loss position for the fiscal year endedJanuary 30, 2021 . The CARES Act, signed into law onMarch 27, 2020 , allows for net operating loss carryback to years in which the statutory federal income tax rate was 35% rather than the current 21%. The Company's estimated federal and state effective income tax rate was approximately 46.9% for the nine months endedOctober 31, 2020 . During the three and nine months endedOctober 31, 2020 , income tax benefit differed from what would be computed using the current statutory federal income tax rate of 21% primarily due to the recognition of a net tax benefit of$32.4 million and$64.6 million , respectively, related to the rate differential in the carryback year. Income tax benefit for the three and nine months also included the effects of state and local income taxes. 27 -------------------------------------------------------------------------------- Table of Contents The Company expects the fiscal 2021 federal and state effective income tax rate to approximate 20% to 21%. This rate includes an expected federal income tax benefit due to a one-time deduction related to that portion of the special dividend of$15 per share to be paid to theDillard's, Inc. Investment and Employee Stock Ownership Plan. This rate may change if results of operations for fiscal 2021 differ from management's current expectations. Changes in the Company's assumptions and judgments can materially affect amounts recognized in the condensed consolidated financial statements.
FINANCIAL CONDITION
A summary of the net cash flows for the nine months ended
Nine months ended
October 30, October 31, (in thousands of dollars) 2021 2020 $ Change Operating Activities$ 728,083 $ (62,938) $ 791,021 Investing Activities (45,179) (50,352) 5,173 Financing Activities (423,522) (102,663) (320,859) Total Increase (Decrease) in Cash and Cash Equivalents $
259,382
Net cash flows from operations increased$791.0 million during the nine months endedOctober 30, 2021 compared to the nine months endedOctober 31, 2020 due to significant increases in net income, primarily due to increases in gross profit, and changes in working capital. Compared to the first nine months of fiscal 2019, net cash flows provided by operations were$728.1 million for the nine months endedOctober 30, 2021 and$23.0 million for the nine months endedNovember 2, 2019 , an increase of$705.1 million . Wells Fargo owns and manages the Dillard's private label cards under theWells Fargo Alliance . Under theWells 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. Pursuant to theWells Fargo Alliance , we receive ongoing cash compensation from Wells Fargo based upon the portfolio's earnings. The compensation received from the portfolio is determined monthly and has no recourse provisions. The amount the Company receives is dependent on the level of sales on Wells Fargo accounts, the level of balances carried on Wells Fargo accounts by Wells Fargo customers, payment rates on Wells Fargo accounts, finance charge rates and other fees on Wells Fargo accounts, the level of credit losses for the Wells Fargo accounts as well as Wells Fargo's ability to extend credit to our customers. We participate in the marketing of the private label cards, which includes the cost of customer reward programs.The Wells Fargo Alliance expires in fiscal 2024. The Company received income of$54.1 million and$52.0 million from theWells Fargo Alliance during the nine months endedOctober 30, 2021 andOctober 31, 2020 , respectively. The Company cannot reasonably predict whether there will be any ongoing impact or the magnitude of any such impact of the COVID-19 pandemic on the portfolio's future earnings and the ongoing cash compensation from theWells Fargo Alliance . During the nine months endedOctober 30, 2021 andOctober 31, 2020 , the Company received proceeds from insurance of$2.9 million and$8.7 million , respectively, for claims filed for merchandise losses related to storm damage incurred at two stores. Capital expenditures were$79.7 million and$52.1 million for the nine months endedOctober 30, 2021 andOctober 31, 2020 , respectively. The capital expenditures were primarily related to equipment purchases and the continued construction of two new stores during the current year. During the nine months endedOctober 30, 2021 , the Company opened a new store atMesa Mall inGrand Junction, Colorado (100,000 square feet). The Company has also announced plans to open a new store atUniversity Place inOrem, Utah in the Spring of 2022 (160,000 square feet). Both opportunities arose from peer closures at those centers. During the nine months endedOctober 30, 2021 , the Company received cash proceeds of$29.3 million and recorded a related gain of$24.7 million , primarily from the sale of three store properties: (1) a 120,000 square foot location atCortana Mall inBaton Rouge, Louisiana , which was permanently closed and sold; (2) a 200,000 square foot location atParadise Valley Mall inPhoenix, Arizona , which was sold during our first fiscal quarter and closed during our second fiscal quarter and (3) a 28 -------------------------------------------------------------------------------- Table of Contents non-operating store property inKnoxville, Tennessee . The Company also closed its leased clearance center atValle Vista Mall inHarlingen, Texas (100,000 square feet) during the third quarter. There were no material costs associated or expected with any of these store closures. We remain committed to closing under-performing stores where appropriate and may incur future closing costs related to such stores when they close. During the nine months endedOctober 31, 2020 , the Company received cash proceeds of$1.5 million and recorded a loss of$2.2 million , primarily for the sale of one store property inSlidell, Louisiana . During the nine months endedOctober 30, 2021 , the Company received proceeds from insurance of$3.8 million for claims filed for building losses related to storm damage incurred at two stores. The Company had cash on hand of$619.7 million as ofOctober 30, 2021 . During the first quarter of fiscal 2020 and as part of our overall liquidity management strategy and for peak working capital requirements, the Company maintained an unsecured credit facility that provided a borrowing capacity of$800 million with a$200 million expansion option ("credit agreement"). As part of the Company's liquidity strategy during the COVID-19 pandemic, inMarch 2020 , the Company borrowed$779 million under the credit agreement. The credit agreement was amended inApril 2020 and became secured by certain deposit accounts of the Company and certain inventory of certain subsidiaries (the "2020 amended credit agreement"). The borrowings of$779 million were repaid concurrent with the execution of the 2020 amended credit agreement. During the nine months endedOctober 31, 2020 , the Company paid$3.2 million in issuance costs related to the 2020 amended credit agreement, which were recorded in other assets on the condensed consolidated balance sheet. InApril 2021 , the Company further amended its secured credit agreement (the "2021 amended credit agreement"). See Note 7, Revolving Credit Agreement, in the "Notes to Condensed Consolidated Financial Statements," in Part I, Item I hereof for additional information. During the nine months endedOctober 30, 2021 , the Company paid$3.0 million in issuance costs related to the 2021 amended credit agreement, which were recorded in other assets on the condensed consolidated balance sheet, and the Company recognized a loss on the early extinguishment of debt of$2.8 million for the write-off of certain remaining deferred financing fees related to the 2020 amended credit agreement. This charge was recorded in other expense on the condensed consolidated statement of operations.
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During the nine months endedOctober 30, 2021 , the Company repurchased 2.6 million shares of Class A Common Stock at an average price of$158.40 per share for$410.3 million under its stock repurchase plans. During the nine months endedOctober 31, 2020 , theCompany (a) repurchased 2.2 million shares of Class A Common Stock at an average price of$42.83 per share for$95.6 million under its stock repurchase plan and (b) paid$7.3 million for share repurchases that had not yet settled but were accrued atFebruary 1, 2020 . As ofOctober 30, 2021 , the Company had completed the authorized purchases under theMarch 2018 Plan, and$262.9 million of authorization remained under theMay 2021 Plan. The ultimate disposition of the repurchased stock has not been determined. See Note 8, Stock Repurchase Programs, in the "Notes to Condensed Consolidated Financial Statements," in Part I, Item I hereof for additional information. The COVID-19 pandemic has had and may continue to have a significant impact on the Company's business, results of operations and financial position. Because there is still significant uncertainty around the effects of the COVID-19 pandemic on the Company's business operations, our profitability and liquidity may be further impacted if we are unable to appropriately manage our inventory levels and expenses relative to any change in consumer demand. The Company expects to finance its operations during fiscal 2021 from cash on hand, cash flows generated from operations and, if necessary, through the utilization of the credit facility. Depending upon our actual and anticipated sources and uses of liquidity, the Company will from time to time consider other possible financing transactions, the proceeds of which could be used to fund working capital or for other corporate purposes. OnNovember 18, 2021 , the Company announced that its Board of Directors declared a special dividend of$15.00 per share. The dividend is payable on the Class A and Class B Common Stock of the Company onDecember 15, 2021 to shareholders of record as ofNovember 29, 2021 . The Company expects to fund the dividend from cash flows from operations. There have been no material changes in the information set forth under caption "Commercial Commitments" in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in the Company's Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 . 29 -------------------------------------------------------------------------------- Table of Contents 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.
NEW ACCOUNTING STANDARDS
For more information on the new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see note 2, Accounting standards, in the “Notes to the condensed consolidated financial statements”, in the Section I, Article I hereof.
FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements. The following are or may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (a) statements including words such as "may," "will," "could," "should," "believe," "expect," "future," "potential," "anticipate," "intend," "plan," "estimate," "continue," or the negative or other variations thereof; (b) statements regarding matters that are not historical facts; and (c) statements about the Company's future occurrences, plans and objectives, including statements regarding management's expectations and forecasts for the remainder of fiscal 2021 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, including the CARES Act and other subsequently-enacted COVID-19 stimulus packages, statements concerning share repurchases, statements concerning pension contributions, statements regarding the expected phase out of LIBOR and statements concerning estimated taxes. The Company cautions that forward-looking statements contained in this report are based on estimates, projections, beliefs and assumptions of management and information available to management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. Forward-looking statements of the Company involve risks and uncertainties and are subject to change based on various important factors. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of those factors include (without limitation) the COVID-19 pandemic and its effects on public health, our supply chain, the health and well-being of our employees and customers, and the retail industry in general; other general retail industry conditions and macro-economic conditions including inflation and changes in traffic at malls and shopping centers; economic and weather conditions for regions in which the Company's stores are located and the effect of these factors on the buying patterns of the Company's customers, including the effect of changes in prices and availability of oil and natural gas; the availability of consumer credit; the impact of competitive pressures in the department store industry and other retail channels including specialty, off-price, discount and Internet retailers; changes in the Company's ability to meet labor needs amid nationwide labor shortages and an intense competition for talent, changes in consumer spending patterns, debt levels and their ability to meet credit obligations; changes in tax legislation; changes in legislation, affecting such matters as the cost of employee benefits or credit card income; adequate and stable availability and pricing of materials, production facilities and labor from which the Company sources its merchandise; changes in operating expenses, including employee wages, commission structures and related benefits; system failures or data security breaches; possible future acquisitions of store properties from other department store operators; the continued availability of financing in amounts and at the terms necessary to support the Company's future business; fluctuations in LIBOR and other base borrowing rates; the elimination of LIBOR; potential disruption from terrorist activity and the effect on ongoing consumer confidence; other epidemic, pandemic or public health issues; potential disruption of international trade and supply chain efficiencies; any government-ordered restrictions on the movement of the general public or the mandated or voluntary closing of retail stores in response to the COVID-19 pandemic; world conflict and the possible impact on consumer spending patterns and other economic and demographic changes of similar or dissimilar nature. The Company's filings with theSecurities and Exchange Commission , including its Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 , contain other information on factors that may affect financial results or cause actual results to differ materially from forward-looking statements. 30
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