NEW YORK — Higher markdown activity and softer sales deeply cut into the bottom line at Dillard’s Inc.

On Tuesday, the retailer posted first-quarter earnings for the three months ended April 30 that declined 29.4 percent from year-ago results. Net income dropped to $38 million, or 46 cents a share, compared with $53.8 million, or 64 cents, in the same year-ago quarter. Sales fell by 2.8 percent to $1.8 billion from $1.85 billion, while comps fell by the same percentage, the company said.

Dillard’s said in its earnings report that sales during the quarter in the company’s Eastern and Western regions were above trend, but slightly below trend in the Central region. “Net sales of lingerie, accessories and shoes significantly exceeded the company’s average sales trend, while performance of women’s apparel and furniture was significantly below trend,” the company said.

During the quarter, gross margin fell by 90 basis points as a percentage of sales, driven primarily by higher levels of markdowns. A company spokeswoman said Dillard’s is still in the early stages of its transition toward more upscale and contemporary fashion merchandise.

Over the past few months, Dillard’s has been mentioned as a possible acquisition target by analysts and investors in the banking community because the retailer owns 78 percent of its stores and prime retail space is hard to come by. Last March, Robert Drbul, analyst at Lehman Brothers, said the real estate value of Dillard’s is in the range of $60 to $80 a square foot, which “would place a total value on the owned real estate of approximately $3 billion.”

More recently, financial professionals in the retail sector said Dillard’s has expressed interest in making acquisitions itself. It was said the retailer expressed interest in both Carson Pirie Scott and in several of the Southern California sites owned by May Department Stores. The expectation is that May might divest some of its stores in the Southern California market in order to proceed with its merger with Federated Department Stores.

The spokeswoman for Dillard’s declined comment Tuesday “as a matter of policy” regarding the retailer as an acquisition target or an acquirer of stores, either Carson’s or the Southern California sites.

Dillard’s in March opened three stores — in St. John’s Town Center in Jacksonville, Fla.; Imperial Valley Mall in El Centro, Calif., and Perimeter Mall in Atlanta — and replaced one at Crestview Hills Town Center in Crestview Hills, Ky. It also closed one store in March, at River Falls Mall in Clarksville, Ind. Dillard’s closed three other stores in April: Westgate Shopping Center in Cleveland, Harding Mall in Nashville and Harper’s Station Home Store in Cincinnati.

This story first appeared in the May 25, 2005 issue of WWD. Subscribe Today.

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