Dillard’s on Thursday said its Q2 total retail sales (net sales excluding its construction business) rose 1% to $1.55 billion, while store comps were flat. Ladies apparel was the weakest category, while cosmetics and men’s apparel and accessories were stronger.
Retail gross margin contracted 20 basis points to 41.5%. Retail operating expenses were $399.5 million or 25.7% of sales, up from $364.2 million or 23.7% of sales a year ago, due mainly to higher payroll expenses, per a company press release. Overall company net income fell 12% to $163.4 million.
The department store plans to close two stores in the third quarter, in Sikes Senter in Wichita Falls, Texas, and East Hills Mall in St. Joseph, Missouri. With a new store opening in fall 2023 at The Empire Mall in Sioux Falls, Dillard’s will operate in South Dakota for the first time. The company runs 250 stores and 29 clearance centers in 29 states.
Dillard’s drifted back to earth in the second quarter, after posting a series of sales and profit surges recently.
“Business softened in the quarter as we lapped the strongest second quarter in our history,” CEO William Dillard said in a statement. “Our first half performance was far better than last year’s with net income up 21%, earnings per share up 44% and gross margin up 240 basis points.”
Some observers see things getting worse for the regional department store. The softness it cited in women’s apparel was likely a year over year sales decline, given that the category represents 21% of retail sales, according to UBS analysts led by Mauricio Serna.
”This weakness comes as a surprise given [Dillard’s] leverage to on-trend categories like dressy,” Serna said in emailed comments. “This reinforces our view [that] sales will weaken in [the second half of the year].”
Rising inventory levels are poised to force markdowns and challenge Dillard’s further at a time of slower discretionary spending, according to GlobalData Managing Director Neil Saunders. The retailer has stood out among department store rivals with appealing merchandising and customer service, and significant sales gains last year that are difficult to beat, Saunders said.
“That said, Dillard’s was also up against a similarly tough prior year number during its first quarter and managed to punch out much stronger growth rates than it is currently,” he said in emailed comments. “As such, we believe Dillard’s results reflect the wider slowdown in retail spending and a clear end to the post-pandemic consumer boom.”