Shares of Dillard’s Inc. fell more than 6 percent Monday after the department store operator reported the fiercely promotional climate led to declines in earnings, margins and even net sales during the fourth quarter.

This story first appeared in the February 25, 2014 issue of WWD. Subscribe Today.

In the 13 weeks ended Feb. 1, the Little Rock, Ark.-based department store operator’s net income declined 26.2 percent to $119.1 million, or $2.71 a diluted share, from $161.4 million, or $3.36, in the 14-week quarter of 2012. Excluding a series of special items in both periods, profits fell 14 percent to $118.3 million, or $2.69 a share, from $137.6 million, or $2.87 a share, in the prior-year quarter.

Revenues slid 3.5 percent to $2.08 billion from $2.15 billion with sales down 3.4 percent to $2.03 billion from $2.11 billion.

Analysts, on average, expected earnings per share, excluding special items, of $3 on revenues of $2.09 billion.

Comparable-store sales, adjusted to eliminate the effect of the 14th week during the prior-year quarter, rose 2 percent, and Dillard’s said that merchandise sales were up 1 percent on that basis.

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Gross margin from retail operations, excluding Dillard’s CDI Contractors LLC construction business, fell to 32.8 percent of sales from 34.6 percent in the final quarter of 2012.

Shares Monday fell 6.4 percent to $83.60 as the S&P 500 Retailing Industry Group rose 0.7 percent, retaking the 900 level and resting at 902.66 at the end of trading Monday.

“Although it was a profitable fourth quarter, we are disappointed in our gross margin performance, as lower-than-anticipated sales necessitated heavier markdowns,” said William Dillard 2nd, chief executive officer. “We are pleased with our expense control, as well as with our strong cash flow for the year.”

The company reduced cost of sales 0.8 percent to $1.37 billion in the quarter and selling, general and administrative costs declined 7.5 percent to $439.2 million.

The company said women’s accessories, lingerie and shoes were its strongest merchandise categories during the holiday quarter, and that sales were best in the Central region, followed by the Eastern and Western regions, respectively.

For the full year, net income declined 3.7 percent to $323.7 million, or $7.10 a diluted share, from $336 million, or $6.87, in the prior year. Excluding gains in both periods, net income would have risen 2.8 percent to $318.6 million, or $6.99 a share, from $309.8 million, or $6.33. Sales fell 0.9 percent to $6.53 billion while overall revenues dropped the same percentage to $6.69 billion. Adjusted to eliminate the effect of the extra week in the prior year, both retail sales and same-store sales rose 1 percent.

The company repurchased 3.9 million shares last year, at a total cost of $301.6 million and an average price of $78.30 a share. However, no shares were repurchased during the fourth quarter, leaving the amount left under the buyback authorization at $290.4 million.

The firm, which operates 278 department stores and 17 clearance centers in 29 states, ended the year with inventories of $1.35 billion, 3.9 percent above their year-ago level, and cash and cash equivalents of $237.1 million, 91.1 percent above the $124.1 million available at the end of fiscal 2012.

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