Dillard's is one of the largest fashion apparel and home furnishings retailer in the United States. The company offers a broad selection of merchandise including apparel, footwear, cosmetics, and home products. Dillard's stores are primarily located in the Southwest, Southeast, and Midwest region of the US. Dillard's wide range of private and designer brands provides customers with an expansive range of apparel, thereby strengthening its position in the upscale retail market. However, rising consolidation in the retail discounters and departmental stores market may affect the company's market share. In this paper I will outline the financial trends identified in the past 2-3 years for Dillard's, calculate the three key financial ratios listed in the financial data retrieved for the company, and describe several financial recommendations that could be helpful to the company. Along with identifying those three major factors, I will summarize a recent article about Dillard's and its past and current earnings.
There were several financial trends that were identified in Dillard's financial statements. One financial trend was that the company recorded revenues of $7528.6 million during the fiscal year ended January 2005, a decreased of 0.9% from fiscal 2004. The operating profit of the company during fiscal 2005 was $55.4 million, as compared to an operating loss of $23.9 million during fiscal 2004. Another financial trend was that the net profit was $117.7 million during fiscal year 2005; as compared to a net profit of $9.3 million during fiscal 2004. According to the financial statement, the increase in net income was primarily attributable to a pre-tax gain of $83.9 million related to the company's sale of assets of its credit card subsidiary to GE Company Finance (MarketLine, 2005).
The three financial ratios that I decided to calculate were the current ratio, debt ratio, and the debt/equity ratio.
The current ratio is calculated by taking the current assets and dividing it by the current liabilities.
Current ratio = Current Assets/Current Liabilities
2005 - 2,561,689.00 / 1,608,387 = 1.56
2004 - 3, 309,357 / 2,116,073 = 1.59
The debt ratio is the ratio of total liabilities to the total of liabilities and owners' equity.
Debt ratio = Total liabilities/Total liabilities and Owners' Equity
2005 - 3,366,800.00 / 3,366,800.00 + 2,242,060.00 = 60%
2004 - 4,174,000.00 / 4,174,000.00 + 2,207,459.00 = 65%
The debt/equity ratio is the ratio of total liabilities to total owners' equity. Thus, a debt ratio of 50% would be the same as a debt/equity ratio of 1 (or 1:1).
Debt/equity ratio = Total liabilities / Total owners' equity
2005 - 3,366,800.00 / 2,242,060.00 = 1.5%
2004 - 4,174,000.00 / 2,207,459.00 = 1.9%
One of Dillard's weaknesses is that is has a weak investment strategy. During fiscal 2004, Dillard's reported a return on assets of 1.87 (against industry average of 8.65), return on investments of 2.41 (against industry average of 13.18) and return on equity of 5.20 (against industry average of 20.89). In comparison, its competitors reported significantly higher returns. For example, Neiman Marcus reported return of assets of 8.89, return on investments of 12.26 and return on equity of 16.22, during 2004. In order for Dillard's to increase these numbers, I would recommend that this company develop a better investment management strategy. A fortune 500 company like Dillard's has to successfully manage its funds so it can positively impact the company's ability to profitably operate and finance its growth plans.
Another weakness is that Dillard's has one of the lowest operating margins in the retail industry. During fiscal 2004, the company reported an operating margin of 2.36, verses the industry average of 6.55. For example, Kohl's, one of Dillard's competitors, reported a higher operating margin of 10.57. Dillard's has to incur lower operating expenses and this in turn will reflect upon the company's inefficient cost management strategy.
One article I located was titled "Dillard's, Inc. Reports September Sales Results; Reports Hurricane Impact." This article discusses how the 2005 hurricane season affected the company's sales record in the month of September. Dillard's Inc. reported that sales for the five weeks ending October 1, 2005 were $670,219,000 compared to sales for the five weeks ending October 2, 2004 of $688,838,000. Total sales declined 3% for the five-week period. Sales in comparable stores declined 1% for the five-week period. The company notes that 20 Gulf state area stores were closed for varying amounts of time beginning Sunday, August 28, 2005 in anticipation of Hurricane Katrina. The company also notes that 24 Gulf state area stores were closed for varying amounts of time beginning on September 21, 2005 in anticipation of Hurricane Rita. Dillard's examined the effect of Hurricane Katrina and Rita (2005) and Hurricane Frances, Ivan and Jeanne (2004) on its September sales results. Excluding the effect of the hurricanes, management believes sales in both total and comparable stores for the five weeks ended October 1, 2005 declined 2% (2005 Business Wire).
In conclusion, Dillard's has had its ups and downs in over the past 2 years. We have seen revenues go up and down, sales decreasing because of the hurricane season, and several stores opening and closing due to many reasons. The company recorded revenues of $7528.6 million during the fiscal year ended January 2005, a decrease of 0.9% over 2004. Reflection on 2004 and the performance at Dillard's bring to mind both exciting accomplishments and disappointments. During the year, the company dramatically improved their merchandise mix, which combined with a gain on the sale of their private label credit card business and declining interest expense contributed to a substantial increase in net income to $117.7 million from $9.3 million for the prior year. However, there was a 1% sales decline for the year (MarketLine, 2005). Also in 2004, Dillard's greatly strengthened their financial position and opened eight new Dillard's stores. Overall, the company has continue to grow and expand across the United States and the landscape of fashion apparel retailing is rapidly changing and Dillard's is embracing each change to meet each customers desires and needs.
Business Wire, October 6, 2005. "Dillard's Inc. Reports September Sales Results; Reports Hurricane Impact." Retrived March 29, 2006 from the Business & Company Resource Center at http://galenet.galegroup.com.
MarketLine Business Information Center, 2005. http://dbic.datamonitor.comezproxy.apollolibrary.com. Retrieved March 29, 2006 from UOP library.