Dillard's Moving in Right Direction

Little Rock, Ark. —Getting a lift from rising sales, stronger margins, lower costs and cuts in interest expense, Dillard's Inc. began steering toward an earnings turnaround, slashing its third quarter loss more than 85 percent, to $2.7 million from $18.7 million last year.

Helping to fuel the improvement, overall and same-store sales rose 1.7 percent, to $1.73 billion from $1.7 billion during the same period a year ago.

But the sales gain didn't come out of home goods, a big disappointment, the retailer said. Acting as a drag on the top line were decorative home products, furniture and children's apparel, all of which came in “significantly below trend.” Strongest were accessories, lingerie, shoes and juniors' apparel, which “significantly exceeded the company's average sales trend.”

In another lift to the bottom line, average gross margin widened 80 basis points, or eight-tenths of a percentage point, to 33.6 percent from 32.8 percent the year before, helped by a lower level of markdowns. Gross margin dollars improved 3.9 percent, to $580,000 from $558,000 last year. Assessing the margin improvement, the retailer said ongoing efforts to improve its merchandise mix spurred same-store sales growth, plumping margins.

Operating costs were whittled 130 basis points, or 1.3 percentage points, to 29.4 percent of sales from 30.7 percent the preceding year. Measured in dollars, costs were cut 2.6 percent, to $507 million from $521 million, generating a savings of $14 million. Savings were driven, the retailer said, by decreases in bad debt expense, payroll and communication and advertising costs, resulting mainly from the sale of it credit card business in 2004.