SLOW SALES DRAG DOWN DILLARD’S NET 31.3 PERCENT

Byline: Thomas J. Ryan / With contributions from Don Yaeger / Arnold J. Karr

NEW YORK — Stung by sluggish sales trends, Dillard’s Inc. reported profits slumped 31.3 percent, missing Wall Street’s target by 11 cents a share.
Analysts said the firm was not promotional enough early on this spring and then needed heavy markdowns to clear inventories. But they also said Dillard’s sales performance clearly lagged its top competitors, Federated and May, and the firm is struggling to find ways to get its top line growing.
“They were perplexed in coming up with a good reason for why their sales fell apart,” said PaineWebber’s Jeff Edelman. “Whether it was fashion or execution, they were really perplexed.”
The third-largest department store operator, based in Little Rock, Ark., earned $46 million, or 48 cents a share, down from $67 million, or 63 cents, a year ago. Wall Street’s consensus estimate was 59 cents a share.
Sales decreased 1.7 percent to $2.08 billion from $2.12 billion. Same-store sales declined 2 percent
On a conference call, Dillard’s management provided little explanation as to why sales lagged, except to note that some unnamed key vendors underperformed during the period. Juniors was the weakest department — “horrible,” according to the company — though accessories and, in fact, apparel overall also disappointed. Positive same-store performance came from cosmetics, shoes and furniture.
After the annual stockholders meeting, held at corporate headquarters in Little Rock on Saturday, William Dillard 2nd, chief executive officer, said the women’s apparel business was down in the first quarter. Such a decline usually occurs when Easter is late, he noted. However, the men’s business was said to be running better than women’s.
Dillard officials told analysts it planned to continue to work on clearing inventories, which at the quarter’s end were down 4.5 percent to $2.4 billion versus the year-ago period. Management also said it planned to tweak its merchandise mix, including removing some of the unidentified weak brands, but offered no grand strategy to turn around sales.
“They didn’t have a good explanation for some of the sales issues and I think a lot of it has to do with responding rapidly to changes that occur in the market place,” said Wayne Hood, at Prudential Securities.
Analysts seemed to agree that Dillard’s top competitors are doing a better job of bringing in new, fresh product and selling it to the customer more quickly. Dillard’s focus on being less promotional is undermining sales, they said. Dillard’s 2 percent comp decline compared with a 2.9 percent first-quarter gain at Federated and flat same-store sales at May. Federated beat first-quarter estimates by four cents and May matched estimates.
Edelman said Dillard clearly botched the handling of this year’s tricky calendar, with Easter falling on April 23 versus April 4 last year. “I think they were really outdone by their competition with the calendar shift,” said Edelman. “They had a worse sales gain in March probably because they were not as promotional, but when it came to the Easter business, they were beaten again.”
Hood noted that while with the exception of Federated, sales at most department stores fell below plan during the first quarter due to the Easter calendar shift and inclement weather in the Northeast and Midwest. But the degree to which Dillard’s saw significant markdown pressure indicated to Hood that Dillard’s needs more coordinated markdown policies.
“Unlike others in industry that let their suppliers influence decision-making on merchandise and when markdowns should be taken, Dillard’s seems to do less of that,” said Hood. “It was very clear to us, at least in our mind, that they should have taken the first markdowns earlier and perhaps even taken them deeper the first time.”
Edelman also said Dillard’s needs to be more assertive in making sure the vendors are bringing trend-right items to the stores.
“If they don’t have the right fashion and they allow their vendors to assort everything for them, then they are at the mercy of their vendors,” said Edelman. He also said Dillard’s needs to do a better job at speeding up inventory turns and more efficiently managing the business.
“They’re managing a retail operation as if they were in 1990 instead of 2000,” Edelman said. “The competitive lay of the land has changed and they obviously have not.”
The 1998 acquisition of Mercantile Stores, which expanded the presence of Dillard’s in the Midwest and South, also has proven to be a continued drag on the company. “The company had difficulty achieving earnings growth during the Nineties and that problem was compounded by the acquisition of Mercantile, which led to integration difficulties,” said Bernard Sosnick, at Fahnestock & Co.
The 1999 policy of closing underperforming stores in order to enhance the company’s bottom line and stock price will continue this year, Dillard said following Saturday’s meeting. Additional store closings are expected this year — but the total will probably be less than half a dozen, he said.
Last year, the firm closed stores in Baton Rouge, La.; Cleveland; El Paso; Huntsville, Ala.; Pensacola, Fla.; Toledo, Ohio; and Tucson, Ariz.
As part of its strategy to cut capital expenditures from a planned $300 million to $200 million, Dillard’s this year will open only six units: in Broomfield, Colo.; Brownsville, Tex.; Clovis, N.M.; McAllen, Tex.; Oxford, Ala.; and West Palm Beach, Fla. In 1999, 10 new stores were built.
Steep markdowns late in the quarter caused gross margins to erode to 33.5 percent of sales from 34.3 percent. Selling, general and administrative increased to 25.8 percent of sales from 25.1 percent.
Dillard said its board of directors has authorized the acquisition of an additional $200 million of its stock. The firm said it had repurchased $250 million worth of its stock under a stock buyback program begun in September 1999. It bought 13.8 million shares at an average price of $18.05 each.
Shareholders were told that the firm’s number one market — with 62 stores — is Texas. “We do about 20 percent of our volume there,” said William Dillard. The company’s second largest market, entered in the early Nineties, is Florida, with 46 stores. Best business volume so far this year is coming from stores in the Mountain States, the ceo said.
On Wall Street, Dillard’s closed at 14 7/16, down 7/16, on Monday.
Dillard’s was among the last of the major retailers to report first-quarter results and was among a majority that felt effects from the late Easter, unseasonably wintry weather or both. Among the other department stores posting first-quarter results in the last week:

JACOBSON’S
Jacobson Stores’ net income moved ahead 5.4 percent on marginally higher sales as renovated Florida stores and centralized buying helped to support its profitability.
Net income for the quarter ended April 29 hit $2.8 million, or 48 cents a share, compared with $2.6 million, or 46 cents a share, in the year-ago period.
Net sales were $115.2 million, a 1.1 percent improvement over the $114.0 million mark of the first quarter of 1999. With the same stores in operation in the quarters of both this year and last, same-store sales were also up 1.1 percent.
P. Gerald Mills, chairman, president and chief executive officer, noted in a statement that the company’s strongest sales increases in Florida were generated by recently renovated stores in the Jacksonville, Naples and Sarasota markets.
“Companywide, gross profit rate improved significantly as a result of lower markdowns in the quarter,” he said. “Jacobson’s clearly is benefiting from an integrated national buying organization, enabling us to respond faster and more decisively to seasonal merchandise changes.”
Mills added that emphasis on gift-giving was strengthening Jacobson’s day-to-day regular-priced business and “reinforcing Jacobson’s points of difference as a specialty store.”
The company, based in Jackson, Mich., this past quarter announced plans for two new stores to open in the fall of 2001. One will be its first in the Cincinnati/Dayton market and the second the company’s third in the Orlando area. At quarter’s end, Jacobson’s operated a total of 24 stores in Florida, Indiana, Kansas, Kentucky, Michigan and Ohio.
The company’s shares closed down 3/16, to 5 7/16, in Nasdaq trading Monday.

BON-TON
Unseasonably cool weather and resultant deep markdowns caused operating losses to more than double at The Bon-Ton Stores, the 72-unit department store group based in York, Pa.
Net losses for the first quarter ended April 29 escalated to $5.1 million, or 34 cents a diluted share, versus $2.9 million, or 19 cents, in the 1999 period. The prior-year loss includes a charge of $378,000 for loss on early extinguishment of debt. The loss from operations was $5.9 million in the 2000 quarter and $2.1 million in the 1999 period.
Net sales in the period increased 6.8 percent to $152.1 million from $142.4 million in the 1999 quarter. Comparable-store sales dropped 1 percent.
Lamenting a season that failed to meet expectations, Michael Gleim, vice chairman and chief operating officer, said in a statement, “Unseasonably cool weather impacted our apparel sales and this sales shortfall was coupled with a higher-than-expected cost of clearing seasonal merchandise.”
Bon-Ton shares closed down 1/16, at 2 5/16, on the Nasdaq Monday.

ELDER-BEERMAN
Charges for store closings pulled Elder-Beerman Stores Corp. into the red during the first quarter.
The regional operator of 62 department stores, based in Dayton, Ohio, reported a net loss of $3.1 million, or 21 cents a share, during the first quarter ended April 29. During the 1999 quarter, a $216,000 loss for the discontinued Bee-Gee Shoe operation resulted in a net loss of $188,000, or 1 cent a share.
The most recent quarter includes onetime charges to reflect the closing of two underperforming stores. Without these items, the net loss would have been reduced to $51,000, less than a penny a share.
Net sales in the quarter were $141.6 million, 1.4 percent above the $139.7 million reported in the prior-year quarter. Including financing and leased departments, total revenues hit $148.9 million, also 1.4 percent above the 1999 quarter.
“We achieved our earnings expectations with improved gross margin and disciplined expense control,” said Frederick Mershad, chairman and chief executive, in a statement. “While we continue to evaluate strategic options, we are also focused on initiatives to strengthen the business and improve shareholder value for any possible outcome of our evaluation process.”
During the quarter, Elder-Beerman, faced with mounting pressures from dissident stockholders, announced it would close two underperforming stores, open two new concept stores and roll out centralized cash wrap service centers in new and some existing stores. A $300 million revolving credit facility with Citibank N.A. was renewed. Elder-Beerman closed at 4 5/16, down 1/8, in Nasdaq trading Monday.