UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May ~~4, 2019~~2, 2020

o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 1-6140

DILLARD’S, INC.

(Exact name of registrant as specified in its charter)



DELAWARE		71-0388071
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS72201

(Address of principal executive offices)

(Zip Code)

~~(501)~~ (501) 376-5200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock	DDS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

xý Yes o☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

xý Yes o☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filerx	ý	Accelerated filer¨	☐
Non-accelerated filer ¨	☐
Smaller reporting company¨	☐	Emerging growth company¨	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o☐ Yes xý No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

CLASS A COMMON STOCK as of ~~June 1, 2019 21,729,377~~May 30, 2020 19,219,626

CLASS B COMMON STOCK as of ~~June 1, 2019~~May 30, 2020 4,010,401

~~Table of Contents~~

Index

DILLARD’S, INC.



		Page
		Number
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of May 2, 2020, February 1, 2020 and May 4, 2019 ~~February 2, 2019 and May 5, 2018~~	4

	Condensed Consolidated Statements of ~~Income~~Operations for the Three Months Ended May ~~4, 2019~~2, 2020 and May ~~5, 2018~~4, 2019	5

	Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended May ~~4, 2019~~2, 2020 and May ~~5, 2018~~4, 2019	6

	Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended May ~~4, 2019~~2, 2020 and May ~~5, 2018~~4, 2019	7

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended May ~~4, 2019~~2, 2020 and May ~~5, 2018~~4, 2019	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1918

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

~~Item 4.~~	~~Controls and Procedures~~	27

~~PART II. OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~	28

Item ~~1A.~~4.	~~Risk Factors~~Controls and Procedures	28

PART II. OTHER INFORMATION

Item 2.1.	~~Unregistered Sales of Equity Securities and Use of Proceeds~~Legal Proceedings	29

Item 6.1A.	~~Exhibits~~Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

~~SIGNATURES~~Item 6.	Exhibits	31

SIGNATURES		32

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DILLARD’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands)



	May 2, 2020			February 1, 2020			May 4, 2019
Assets
Current assets:
Cash and cash equivalents	$	69,994		$	277,077		$	139,802
Restricted cash	—			—			8,683
Accounts receivable	44,964			46,160			47,863
Merchandise inventories	1,570,313			1,465,007			1,832,581
Federal and state income taxes	39,176			—			—
Other current assets	55,223			59,838			66,015

Total current assets	1,779,670			1,848,082			2,094,944

Property and equipment (net of accumulated depreciation and amortization of $2,385,686, $2,336,728 and $2,259,145 respectively)	1,434,601			1,458,176			1,551,844
Operating lease assets	47,852			47,924			52,782
Deferred income taxes	4,908			—			—
Other assets	75,314			76,075			79,418

Total assets	$	3,342,345		$	3,430,257		$	3,778,988

Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable and accrued expenses	$	1,055,891		$	892,789		$	1,134,258
Current portion of finance lease liabilities	1,109			1,219			1,022
Current portion of operating lease liabilities	14,880			14,654			15,105
Federal and state income taxes	—			22,158			28,961

Total current liabilities	1,071,880			930,820			1,179,346

Long-term debt	365,743			365,709			365,603
Finance lease liabilities	528			695			1,636
Operating lease liabilities	33,353			32,683			36,934
Other liabilities	274,435			273,601			240,971
Deferred income taxes	—			3,490			17,590
Subordinated debentures	200,000			200,000			200,000
Commitments and contingencies
Stockholders’ equity:
Common stock	1,239			1,239			1,239
Additional paid-in capital	951,726			951,726			948,835
Accumulated other comprehensive loss	(30,628		)	(31,059		)	(12,809		)
Retained earnings	4,391,039			4,556,494			4,533,973
Less treasury stock, at cost	(3,916,970		)	(3,855,141		)	(3,734,330		)

Total stockholders’ equity	1,396,406			1,623,259			1,736,908

Total liabilities and stockholders’ equity	$	3,342,345		$	3,430,257		$	3,778,988

May 4,
2019 February 2,
2019 May 5,
2018
Assets

Current assets:

Cash and cash equivalents $ 139,802
$ 123,509
$ 164,081
Restricted cash 8,683
—
1,910
Accounts receivable 47,863
49,853
43,069
Merchandise inventories 1,832,581
1,528,417
1,780,783
Other current assets 66,015
68,753
55,540

Total current assets 2,094,944
1,770,532
2,045,383

Property and equipment (net of accumulated depreciation and amortization of $2,259,145, $2,227,860 and $2,583,199, respectively) 1,551,844
1,586,733
1,662,852
Operating lease assets 52,782
—
—
Other assets 79,418
74,104
73,228

Total assets $ 3,778,988
$ 3,431,369
$ 3,781,463

Liabilities and stockholders’ equity

Current liabilities:

Trade accounts payable and accrued expenses $ 1,134,258
$ 921,205
$ 1,052,310
Current portion of long-term debt —
—
160,941
Current portion of finance lease liabilities 1,022
1,214
1,133
Current portion of operating lease liabilities

15,105
—
—
Federal and state income taxes 28,961
11,116
63,905

Total current liabilities 1,179,346
933,535
1,278,289

Long-term debt 365,603
365,569
365,464
Finance lease liabilities 1,636
1,666
2,587
Operating lease liabilities 36,934
—
—
Other liabilities 240,971
238,731
240,478
Deferred income taxes 17,590
13,487
12,559
Subordinated debentures 200,000
200,000
200,000
Commitments and contingencies

Stockholders’ equity:

Common stock 1,239
1,239
1,239
Additional paid-in capital 948,835
948,835
946,147
Accumulated other comprehensive loss (12,809 ) (12,809 ) (17,886 )
Retained earnings 4,533,973
4,458,006
4,376,408
Less treasury stock, at cost (3,734,330 ) (3,716,890 ) (3,623,822 )

Total stockholders’ equity 1,736,908
1,678,381
1,682,086

Total liabilities and stockholders’ equity $ 3,778,988
$ 3,431,369
$ 3,781,463

See notes to condensed consolidated financial statements.

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

(Unaudited)

(In Thousands, Except Per Share Data)


	Three Months Ended					Three Months Ended
	May 4, 2019			May 5, 2018		May 2, 2020			May 4, 2019
Net sales	$	1,465,441		$	1,458,262	$	786,655		$	1,465,441
Service charges and other income	32,494			33,158		34,921			32,494

	1,497,935			1,491,420		821,576			1,497,935

Cost of sales	927,767			903,741		688,469			927,767
Selling, general and administrative expenses	405,160			405,870		290,446			405,160
Depreciation and amortization	52,364			56,003		50,901			52,364
Rentals	6,118			6,549		5,550			6,118
Interest and debt expense, net	11,237			14,022		12,270			11,237
Other expense	1,917			1,915		2,104			1,917
(Gain) loss on disposal of assets	(7,400		)	82
Gain on disposal of assets						(19		)	(7,400		)

Income before income taxes	100,772			103,238
Income taxes	22,170			22,690
(Loss) income before income taxes						(228,145		)	100,772
Income taxes (benefit)						(66,170		)	22,170

Net income	78,602			80,548
Net (loss) income						$	(161,975	)	$	78,602

Earnings per share:
(Loss) earnings per share:
Basic and diluted	$	2.99		$	2.89	$	(6.94	)	$	2.99

See notes to condensed consolidated financial statements.

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(In Thousands)

Three Months Ended
May 4,
2019 May 5,
2018
Net income $ 78,602
$ 80,548
Other comprehensive income:

Amortization of retirement plan and other retiree benefit adjustments (net of tax of $0 and $32, respectively) —
100

Comprehensive income $ 78,602
$ 80,648



	Three Months Ended
	May 2, 2020			May 4, 2019
Net (loss) income	$	(161,975	)	$	78,602
Other comprehensive income:
Amortization of retirement plan and other retiree benefit adjustments (net of tax of $138 and $0, respectively)	431			—

Comprehensive (loss) income	$	(161,544	)	$	78,602

See notes to condensed consolidated financial statements.

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(In Thousands, Except Share and Per Share Data)



	Three Months Ended May 2, 2020
					Accumulated Other Comprehensive Loss
	Common Stock		Additional Paid-in Capital					Retained Earnings			Treasury Stock
	Common Stock		Additional Paid-in Capital					Retained Earnings			Treasury Stock			Total
Balance, February 1, 2020	$	1,239	$	951,726	$	(31,059	)	$	4,556,494		$	(3,855,141	)	$	1,623,259
Net loss	—		—		—			(161,975		)	—			(161,975		)
Other comprehensive income	—		—		431			—			—			431
Purchase of 998,742 shares of treasury stock	—		—		—			—			(61,829		)	(61,829		)
Cash dividends declared:
Common stock, $0.15 per share	—		—		—			(3,480		)	—			(3,480		)
Balance, May 2, 2020	$	1,239	$	951,726	$	(30,628	)	$	4,391,039		$	(3,916,970	)	$	1,396,406


																	Three Months Ended May 4, 2019
					Accumulated Other Comprehensive Loss																Accumulated Other Comprehensive Loss
	Common Stock		Additional Paid-in Capital					Retained Earnings			Treasury Stock						Common Stock		Additional Paid-in Capital					Retained Earnings			Treasury Stock
														Accumulated Other Comprehensive Loss																Accumulated Other Comprehensive Loss
Balance, February 2, 2019	1,239		948,835		(12,809		)	4,458,006			(3,716,890		)				$	1,239	$	948,835	$	(12,809	)	$	4,458,006		$	(3,716,890	)
Net income	—		—		—			78,602			—						—		—		—			78,602			—
Purchase of 246,158 shares of treasury stock	—		—		—			—			(17,440		)	(17,440		)	—		—		—			—			(17,440		)	(17,440		)
Cash dividends declared:
Common stock, $0.10 per share	—		—		—			(2,635		)	—			(2,635		)	—		—		—			(2,635		)	—			(2,635		)
Balance, May 4, 2019	$	1,239	$	948,835	$	(12,809	)	$	4,533,973		$	(3,734,330	)	$	1,736,908		$	1,239	$	948,835	$	(12,809	)	$	4,533,973		$	(3,734,330	)	$	1,736,908

Accumulated
Other
Comprehensive
Loss

Common Stock
Additional
Paid-in
Capital

Retained
Earnings

Treasury
Stock

Total
Balance, February 3, 2018 1,239
946,147
(15,444 ) 4,365,219
(3,589,006 ) 1,708,155
Net income —
—
—
80,548
—
80,548
Cumulative effect adjustment related to ASU 2016-16 and 2018-02 —
—
(2,542 ) (66,574 ) —
(69,116 )
Other comprehensive income —
—
100
—
—
100
Purchase of 478,403 shares of treasury stock —
—
—
—
(34,816 ) (34,816 )
Cash dividends declared:
Common stock, $0.10 per share —
—
—
(2,785 ) —
(2,785 )
Balance, May 5, 2018 $ 1,239
$ 946,147
$ (17,886 ) $ 4,376,408
$ (3,623,822 ) $ 1,682,086

See notes to condensed consolidated financial statements.

DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)



	Three Months Ended
	May 2, 2020			May 4, 2019
Operating activities:
Net (loss) income	$	(161,975	)	$	78,602
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization of property and other deferred cost	51,381			52,533
Gain on disposal of assets	(19		)	(7,400		)
Changes in operating assets and liabilities:
Decrease in accounts receivable	1,196			1,990
Increase in merchandise inventories	(105,306		)	(304,164		)
Decrease in other current assets	4,615			2,738
Decrease (increase) in other assets	1,162			(2,149		)
Increase in trade accounts payable and accrued expenses and other liabilities	161,463			204,259
(Decrease) increase in income taxes	(63,642		)	21,948

Net cash (used in) provided by operating activities	(111,125		)	48,357

Investing activities:
Purchases of property and equipment and capitalized software	(20,230		)	(18,739		)
Proceeds from disposal of assets	111			13,437
Distribution from joint venture	215			215

Net cash used in investing activities	(19,904		)	(5,087		)

Financing activities:
Principal payments on long-term debt and finance lease liabilities	(277		)	(222		)
Issuance cost of line of credit	(2,920		)	—
Cash dividends paid	(3,705		)	(2,632		)
Purchase of treasury stock	(69,152		)	(15,440		)

Net cash used in financing activities	(76,054		)	(18,294		)

(Decrease) increase in cash, cash equivalents and restricted cash	(207,083		)	24,976
Cash, cash equivalents and restricted cash, beginning of period	277,077			123,509

Cash, cash equivalents and restricted cash, end of period	$	69,994		$	148,485

Non-cash transactions:
Accrued capital expenditures	$	8,314		$	6,657
Accrued purchases of treasury stock	—			2,000
Lease assets obtained in exchange for new operating lease liabilities	3,972			—

Three Months Ended
May 4,
2019 May 5,
2018
Operating activities:

Net income $ 78,602
$ 80,548
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of property and other deferred cost 52,533
56,471
(Gain) loss on disposal of assets (7,400 ) 82
Changes in operating assets and liabilities:

Decrease (increase) in accounts receivable 1,990
(4,632 )
Increase in merchandise inventories (304,164 ) (317,222 )
Decrease (increase) in other current assets 2,738
(5,181 )
Increase in other assets (2,149 ) (1,352 )
Increase in trade accounts payable and accrued expenses and other liabilities 204,259
224,352
Increase in income taxes 21,948
22,325

Net cash provided by operating activities 48,357
55,391

Investing activities:

Purchases of property and equipment (18,739 ) (39,191 )
Proceeds from disposal of assets 13,437
1,918
Distribution from joint venture 215
765

Net cash used in investing activities (5,087 ) (36,508 )

Financing activities:

Principal payments on long-term debt and capital lease obligations (222 ) (267 )
Cash dividends paid (2,632 ) (2,837 )
Purchase of treasury stock (15,440 ) (36,816 )

Net cash used in financing activities (18,294 ) (39,920 )

Increase (decrease) in cash, cash equivalents and restricted cash 24,976
(21,037 )
Cash, cash equivalents and restricted cash, beginning of period 123,509
187,028

Cash, cash equivalents and restricted cash, end of period $ 148,485
$ 165,991

Non-cash transactions:

Accrued capital expenditures $ 6,657
$ 8,117
Accrued purchases of treasury stock 2,000
—

See notes to condensed consolidated financial statements.

DILLARD’S, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements of Dillard’s, Inc. (the “Company”) have been prepared in accordance with the rules of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended May ~~4, 2019~~2, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending ~~February 1, 2020~~January 30, 2021 due to, among other factors, the seasonal nature of the business.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February ~~2, 2019~~1, 2020 filed with the SEC on March ~~29, 2019.~~31, 2020.

Restricted Cash - Restricted cash consists of cash proceeds from the sale of property held in escrow for the acquisition of replacement property under like-kind exchange agreements. The escrow accounts are administered by an intermediary. Pursuant to the like-kind exchange agreements, the cash remains restricted for a maximum of 180 days from the date of the property sale pending the acquisition of replacement property.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows.


(in thousands)	May 4, 2019		May 5, 2018		May 2, 2020		May 4, 2019
Cash and cash equivalents	$	139,802	$	164,081	$	69,994	$	139,802
Restricted cash	8,683		1,910		—		8,683
Total cash, cash equivalents and restricted cash	$	148,485	$	165,991	$	69,994	$	148,485

COVID-19

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States and the world. The effects of the COVID-19 pandemic has had and continues to have a significant impact on the Company's business, results of operations and financial position. At present, the COVID-19 pandemic has had a significant negative effect on the Company's liquidity and net sales. Due to heightened uncertainty relating to the impacts of COVID-19 on the Company’s business operations, including the duration and impact on overall customer demand, our liquidity and net sales may be further impacted if we are unable to appropriately manage our inventory levels and expenses.

The Company began closing stores on March 19, 2020 as mandated by state and local governments, and by April 9, 2020, all 285 store locations were temporarily closed. At the peak of store closures, approximately 90% of Dillard's 38,000 associates were furloughed. The Company began re-opening stores on May 5, 2020, and by June 2, 2020, all stores had been re-opened.

As part of the Company's liquidity strategy during the COVID-19 pandemic, in March 2020, the Company borrowed $779 million under the credit agreement, which was repaid concurrent with the execution of the amended credit agreement. At May 2, 2020, no borrowings were outstanding, and letters of credit totaling $21.0 million were issued under the amended credit agreement leaving unutilized availability under the facility of $779.0 million. See Note 7, Revolving Credit Agreement, for additional information.

We assess the impairment of long-lived assets, primarily fixed assets and operating lease assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We evaluated the effects of the COVID-19 pandemic on our business and determined that as of May 2, 2020, the carrying values of our property and equipment and operating lease assets were recoverable. Accordingly, no impairment charge was recorded for the quarter ended May 2, 2020. We will continue to monitor these factors and the impact of the COVID-19 pandemic on future periods and continue to assess these assets for impairment as needed.

~~Reclassifications~~—Certain items have been reclassified from their prior year classifications to conform to the current year presentation. These reclassifications had no effect on net income or stockholders' equity as previously reported.

Note 2. Accounting Standards

Recently ~~Adopted Accounting Pronouncements~~

~~Leases: Amendments to the FASB Accounting Standards Codification~~

~~In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02,~~ ~~Leases (Topic 842): Amendments to the FASB Accounting Standards Codification,~~ to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Under these amendments, lessees are required to recognize lease assets and lease liabilities for leases classified as operating leases under Accounting Standards Codification 840, ~~Leases~~ ~~("ASC 840"). Subsequent to the issuance of ASU No. 2016-02, the FASB issued additional amendments related to ASU No. 2016-02: (1) ASU No. 2018-01,~~ ~~Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842;~~ ~~(2) ASU No. 2018-10:~~ ~~Codification Improvements to Topic 842, Leases;~~ ~~and (3) ASU No. 2018-11,~~ ~~Leases (Topic 842): Targeted Improvements.~~ ~~We refer to this ASU and related amendments as the "new standard" or "ASU No. 2016-02." We adopted the requirements of the new standard as of February 3, 2019. See Note 13,~~ ~~Leases.~~

~~Recently~~ Issued Accounting Pronouncements

~~Defined Benefit Plans: Changes to~~Simplifying the ~~Disclosure Requirements~~Accounting for ~~Defined Benefit Plans~~Income Taxes

In ~~August 2018,~~December 2019, the FASB issued ASU No. ~~2018-14,~~ ~~Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)~~2019-12, Income Taxes (Topic 740): ~~Disclosure Framework - Changes~~Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the ~~Disclosure Requirements~~general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for ~~Defined Benefit Plans, to improve the effectiveness~~other areas of ~~disclosures in the notes to financial statements for employers that sponsor defined benefit pension plans.~~Topic 740 by clarifying and amending existing guidance. The amendments within ASU No. ~~2018-14 is~~2019-12 are effective for financial statements issued for fiscal years, ~~ending~~and interim periods within those fiscal years, beginning after December 15, 2020, and early adoption is permitted. The Company is currently assessing the impact of this update on its ~~notes to~~consolidated financial statements.

~~Note 3. Significant Accounting Policies Updates~~

~~Operating Leases~~—The Company leases retail stores, office space and equipment under operating leases. The Company records right-of-use assets and operating lease liabilities for operating leases with lease terms exceeding twelve months. The right-of-use assets are adjusted for lease incentives, including construction allowances, and prepaid rent. The Company recognizes minimum rent expense on a straight-line basis over the lease term. Many leases contain contingent rent provisions. Contingent rent is expensed as incurred.

~~The lease term used for lease evaluation includes renewal option periods only in instances in which the exercise of the option period is reasonably certain.~~

Note 4.3. Business Segments

The Company operates in ~~two~~2 reportable segments: the operation of retail department stores (“retail operations”) and a general contracting construction company (“construction”).

For the Company’s retail operations, the Company determined its operating segments on a store by store basis. Each store’s operating performance has been aggregated into ~~one~~1 reportable segment. The Company’s operating segments are aggregated for financial reporting purposes because they are similar in each of the following areas: economic characteristics, class of consumer, nature of products and distribution methods. Revenues from external customers are derived from merchandise sales, and the Company does not rely on any major customers as a source of revenue. Across all stores, the Company operates ~~one~~1 store format under the Dillard’s name where each store offers the same general mix of merchandise with similar categories and similar customers. The Company believes that disaggregating its operating segments would not provide meaningful additional information.

The following table summarizes the percentage of net sales by segment and major product line:



	Three Months Ended
	May 2, 2020		May 4, 2019
Retail operations segment
Cosmetics	15	%	14	%
Ladies’ apparel	22		24
Ladies’ accessories and lingerie	14		14
Juniors’ and children’s apparel	10		11
Men’s apparel and accessories	16		16
Shoes	15		15
Home and furniture	3		3
	95		97
Construction segment	5		3
Total	100	%	100	%

Three Months Ended
May 4, 2019 May 5, 2018
Retail operations segment

Cosmetics 14 % 14 %
Ladies’ apparel 24
24
Ladies’ accessories and lingerie 14
14
Juniors’ and children’s apparel 11
10
Men’s apparel and accessories 16
16
Shoes 15
16
Home and furniture 3
3
97
97
Construction segment 3
3
Total 100 %
100 %

The following tables summarize certain segment information, including the reconciliation of those items to the Company’s consolidated operations:



(in thousands of dollars)	Retail Operations			Construction			Consolidated
Three Months Ended May 2, 2020:
Net sales from external customers	$	751,027		$	35,628		$	786,655
Gross profit	96,034			2,152			98,186
Depreciation and amortization	50,732			169			50,901
Interest and debt expense (income), net	12,291			(21		)	12,270
(Loss) income before income taxes	(228,667		)	522			(228,145		)
Total assets	3,299,363			42,982			3,342,345

Three Months Ended May 4, 2019:
Net sales from external customers	$	1,420,522		$	44,919		$	1,465,441
Gross profit	536,371			1,303			537,674
Depreciation and amortization	52,194			170			52,364
Interest and debt expense (income), net	11,264			(27		)	11,237
Income before income taxes	100,728			44			100,772
Total assets	3,731,040			47,948			3,778,988

(in thousands of dollars)
Retail
Operations

Construction
Consolidated
Three Months Ended May 4, 2019:

Net sales from external customers $ 1,420,522
$ 44,919

$ 1,465,441
Gross profit 536,371
1,303

537,674
Depreciation and amortization 52,194
170

52,364
Interest and debt expense (income), net 11,264
(27 )
11,237
Income before income taxes 100,728
44

100,772
Total assets 3,731,040
47,948

3,778,988

Three Months Ended May 5, 2018:

Net sales from external customers $ 1,411,344
$ 46,918

$ 1,458,262
Gross profit 552,865
1,656

554,521
Depreciation and amortization 55,844
159

56,003
Interest and debt expense (income), net 14,030
(8 )
14,022
Income before income taxes 103,404
(166 )
103,238
Total assets 3,742,719
38,744

3,781,463

Intersegment construction revenues of ~~$8.4~~$11.4 million and ~~$5.4~~$8.4 million for the three months ended May ~~4, 2019~~2, 2020 and May ~~5, 2018,~~4, 2019, respectively, were eliminated during consolidation and have been excluded from net sales for the respective periods.

The retail operations segment gives rise to contract liabilities through the loyalty program and through the issuances of gift cards. The loyalty program liability and a portion of the gift card liability is included in trade accounts payable and accrued expenses, and a portion of the gift card liability is included in other liabilities on the condensed consolidated balance sheets. Our retail operations segment contract liabilities are as follows:



Retail
(in thousands of dollars)	May 2, 2020		February 1, 2020		May 4, 2019		February 2, 2019
Contract liabilities	$	67,107	$	75,229	$	64,934	$	72,852

Retail
(in thousands of dollars) May 4,
2019 February 2,
2019 May 5,
2018 February 3,
2018
Contract liabilities $ 64,934
$ 72,852
$ 61,356
$ 73,059

During the three months ended May ~~4, 2019~~2, 2020 and May ~~5, 2018,~~4, 2019, the Company recorded ~~$24.8~~$18.9 million and ~~$26.6~~$24.8 million, respectively, in revenue that was previously included in the retail operations contract liability balances of ~~$72.9~~$75.2 million and ~~$73.1~~$72.9 million, at February ~~2, 2019~~1, 2020 and February ~~3, 2018,~~2, 2019, respectively.

Construction contracts give rise to accounts receivable, contract assets and contract liabilities. We record accounts receivable based on amounts ~~billed~~expected to be collected from customers. We also record costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) and billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) in other current assets and trade accounts payable and accrued expenses in the condensed consolidated balance sheets, respectively. The amounts included in the condensed consolidated balance sheets are as follows:



Construction
(in thousands of dollars)	May 2, 2020		February 1, 2020		May 4, 2019		February 2, 2019
Accounts receivable	$	33,736	$	28,522	$	32,320	$	31,867
Costs and estimated earnings in excess of billings on uncompleted contracts	894		2,179		829		1,165
Billings in excess of costs and estimated earnings on uncompleted contracts	9,603		5,737		6,768		7,414

Construction
(in thousands of dollars) May 4,
2019 February 2,
2019 May 5,
2018 February 3,
2018
Accounts receivable $ 32,320
$ 31,867
$ 26,782
$ 20,136
Costs and estimated earnings in excess of billings on uncompleted contracts 829
1,165
861
1,213
Billings in excess of costs and estimated earnings on uncompleted contracts 6,768
7,414
4,665
5,503

During the three months ended May ~~4, 2019~~2, 2020 and May ~~5, 2018,~~4, 2019, the Company recorded ~~$6.6~~$4.2 million and ~~$4.0~~$6.6 million, respectively, in revenue that was previously included in billings in excess of costs and estimated earnings on uncompleted contracts of ~~$7.4~~$5.7 million and ~~$5.5~~$7.4 million at February ~~2, 2019~~1, 2020 and February ~~3, 2018,~~2, 2019, respectively.

The remaining performance obligations related to executed construction contracts totaled ~~$123.4~~$145.4 million, ~~$143.9~~$156.5 million and ~~$230.2~~$123.4 million at May ~~4, 2019,~~2, 2020, February ~~2, 2019~~1, 2020 and May ~~5, 2018,~~4, 2019, respectively.

Note 5.4. (Loss) Earnings Per Share Data

The following table sets forth the computation of basic and diluted (loss) earnings per share for the periods indicated (in thousands, except per share data).

Three Months Ended
May 4,
2019 May 5,
2018
Net income $ 78,602
$ 80,548

Weighted average shares of common stock outstanding 26,315
27,849

Basic and diluted earnings per share $ 2.99
$ 2.89



	Three Months Ended
	May 2, 2020			May 4, 2019
Net (loss) income	$	(161,975	)	$	78,602

Weighted average shares of common stock outstanding	23,354			26,315

Basic and diluted (loss) earnings per share	$	(6.94	)	$	2.99

The Company maintains a capital structure in which common stock is the only equity security issued and outstanding, and there were no0 shares of preferred stock, stock options, other dilutive securities or potentially dilutive securities issued or outstanding during the three months ended May ~~4, 2019~~2, 2020 and May ~~5, 2018.~~

4, 2019.

Note 6.5. Commitments and Contingencies

Various legal proceedings, in the form of lawsuits and claims, which occur in the normal course of business, are pending against the Company and its subsidiaries. In the opinion of management, disposition of these matters, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s financial position, cash flows or results of operations.

At May ~~4, 2019~~2, 2020, letters of credit totaling ~~$21.8~~$21.0 million were issued under the Company’s revolving credit facility. See Note 7, Revolving Credit Agreement, for additional information.

Note 7.6. Benefit Plans

The Company has an unfunded, nonqualified defined benefit plan (“Pension Plan”) for its officers. The Pension Plan is noncontributory and provides benefits based on years of service and compensation during employment. The Company determines pension expense using an actuarial cost method to estimate the total benefits ultimately payable to officers and allocates this cost to service periods. The actuarial assumptions used to calculate pension costs are reviewed annually. The Company contributed $1.4 million to the Pension Plan during the three months ended May ~~4, 2019~~2, 2020 and expects to make additional contributions to the Pension Plan of approximately ~~$4.0~~$4.1 million during the remainder of fiscal ~~2019~~2020.

The components of net periodic benefit costs are as follows (in thousands):


	Three Months Ended				Three Months Ended
	May 4, 2019		May 5, 2018		May 2, 2020		May 4, 2019
Components of net periodic benefit costs:
Service cost	$	905	$	922	$	1,090	$	905
Interest cost	1,917		1,783		1,536		1,917
Net actuarial loss	—		132		569		—
Net periodic benefit costs	$	2,822	$	2,837	$	3,195	$	2,822

The service cost component of net periodic benefit costs is included in selling, general and administrative expenses, and the interest cost and net actuarial loss components are included in other expense.

Note 8.7. Revolving Credit Agreement

At ~~May 4, 2019~~,In April 2020, the Company ~~maintained an unsecured revolving~~amended its credit ~~facility that~~agreement (the "amended credit agreement"). After giving effect to the amendment, the amended credit agreement became secured by certain deposit accounts of the Company and certain inventory of certain subsidiaries. The amended credit agreement provides a borrowing capacity of ~~$800~~$800 million with a $200 million expansion option and matures on August 9, ~~2022 (“credit agreement”).~~2022. The amended credit agreement is available to the Company for general corporate purposes including, among other uses, working capital financing, the issuance of letters of credit, capital expenditures and, subject to certain restrictions, the repayment of existing indebtedness and share repurchases. The Company pays a variable rate of interest on borrowings under the amended credit agreement and a commitment fee to the participating ~~banks based on the Company's debt rating.~~banks. The rate of interest on borrowings is LIBOR plus ~~1.375%~~1.750%, and the commitment fee for unused borrowings is ~~0.20%~~0.30% per annum. As long as availability exceeds $100 million and no event of default occurs and is continuing, there are no financial covenant requirements under the amended credit agreement.

Concurrent with the signing of the amended credit facility, the Company repaid the $779 million borrowed on March 25, 2020 under the previous agreement. Additionally, the Company paid $2.9 million in issuance costs related to the amended credit agreement, which were recorded in other assets on the condensed consolidated balance sheets.

At May ~~4, 2019, no~~2, 2020, 0 borrowings were outstanding, and letters of credit totaling ~~$21.8~~$21.0 million were issued under the amended credit agreement leaving unutilized availability under the facility of ~~$778.2~~$779.0 million.

To be in compliance with the financial covenants of the credit agreement, the Company's total leverage ratio cannot exceed 3.5 to 1.0, and the coverage ratio cannot be less than 2.5 to 1.0, as defined in the credit agreement. At May 4, 2019, the Company was in compliance with all financial covenants related to the credit agreement.

Note 9.8. Stock Repurchase Program

~~The~~In March 2018, the Company's Board of Directors ~~has~~ authorized the Company to repurchase up to $500 million of the Company’s Class A Common Stock pursuant to an open-ended stock repurchase ~~plans. These authorizations permit~~plan (the "March 2018 Plan"). The March 2018 Plan authorization permits the Company to repurchase its Class A Common Stock in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934 or through privately negotiated transactions. The ~~authorizations have~~March 2018 plan has no expiration date.

The following is a summary of share repurchase activity for the periods indicated (in thousands, except per share data):



	Three Months Ended
	May 2, 2020		May 4, 2019
Cost of shares repurchased	$	61,829	$	17,440
Number of shares repurchased	999		246
Average price per share	$	61.91	$	70.85

Three Months Ended
May 4,
2019 May 5,
2018
Cost of shares repurchased $ 17,440
$ 34,816
Number of shares repurchased 246
478
Average price per share $ 70.85
$ 72.77

All repurchases of the Company’s Class A Common Stock above were made at the market price at the trade date. Accordingly, all amounts paid to reacquire these shares were allocated to treasury stock. ~~In March 2018, the Company's Board of Directors authorized a $500 million stock repurchase plan (the "March 2018 Plan").~~ As of May ~~4, 2019, $389.5~~2, 2020, $206.9 million of authorization remained under the March 2018 Plan.

Note ~~10.~~9. Income Taxes

The Company expects to be in a net operating loss position for the fiscal year. The Coronavirus Aid, Relief and Economic Security (“CARES”) Act, signed into law on March 27, 2020, allows for net operating loss carryback to years in which the statutory federal tax rate was 35%. During the three months ended May 2, 2020, income tax benefit differed from what would be computed using the current statutory federal tax rate of 21% primarily due to the recognition of a net tax benefit of $14.8 million related to the carryback provision of the CARES Act. This net tax benefit was comprised of tax expense of $25.2 million for the remeasurement of beginning deferred tax assets and liabilities and tax benefit of $40.0 million for the impact of the net operating loss carryback. Income tax benefit for the quarter also included the effects of federal tax credits and state and local income taxes.

During the three months ended May 4, 2019, ~~and May 5, 2018,~~ income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the ~~effect~~effects of federal tax credits and state and local income ~~taxes partially offset by tax benefits recognized for federal tax credits.~~taxes.

Note ~~11.~~10. Reclassifications from Accumulated Other Comprehensive Loss (“AOCL”)

Reclassifications from AOCL are summarized as follows (in thousands):


	Amount Reclassified from AOCL					Amount Reclassified from AOCL
	Three Months Ended				Affected Line Item in the Statement Where Net Income Is Presented	Three Months Ended				Affected Line Item in the Statement Where Net Income Is Presented
Details about AOCL Components	May 4, 2019		May 5, 2018			May 2, 2020		May 4, 2019
Defined benefit pension plan items
Amortization of actuarial losses	$	—	$	132	Total before tax (1)	$	569	$	—	Total before tax (1)
	—		32		Income tax expense	138		—		Income tax expense
	$	—	$	100	Total net of tax	$	431	$	—	Total net of tax

For fiscal year 2019, there ~~is no~~was 0 amortization of the net loss in AOCL as the net loss did not exceed 10% of the projected benefit obligation.

(1)This item is included in the computation of net periodic pension cost. See Note 7, 6, Benefit Plans, for additional information.

Note ~~12.~~11. Changes in Accumulated Other Comprehensive Loss

Changes in AOCL by component (net of tax) are summarized as follows (in thousands):



	Defined Benefit Pension Plan Items
	Three Months Ended
	May 2, 2020			May 4, 2019
Beginning balance	$	31,059		$	12,809

Amounts reclassified from AOCL	(431		)	—

Ending balance	$	30,628		$	12,809

Defined Benefit Pension Plan Items
Three Months Ended
May 4, 2019 May 5, 2018
Beginning balance $ 12,809
$ 15,444

Amounts reclassified from AOCL —
(100 )
Reclassification due to the adoption of ASU No. 2018-02 —
2,542

Ending balance $ 12,809
$ 17,886

Note ~~13.~~12. Leases

We adopted the requirements of ASU No. 2016-02 as of February 3, 2019, utilizing the optional effective date transition method allowing the application of the new standard at the adoption date with comparative periods presented in accordance with ASC 840, ~~Leases. At adoption, we made the following practical expedient policy elections:~~

~~We applied the new standard using the package of practical expedients permitted under the transition guidance, which allowed us to not reassess:~~

◦~~Whether any expired or existing contracts are or contain leases;~~


◦	~~Lease classification for any expired or existing leases, which allowed us to carry forward the historical lease classifications; and~~

◦~~Indirect costs for any existing leases.~~

~~We elected the practical expedient that allowed us to use hindsight in determining the lease term.~~

~~We elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements.~~

We elected the accounting policy to not recognize a right-of-use asset and operating lease liability for leases with an initial term of twelve months or less. The Company records lease expense for short term leases on a straight-line basis over the lease term in rentals on the condensed consolidated statements of income.

~~Lease components (e.g. fixed rent payments) are accounted for separately from non-lease components (e.g. common area maintenance costs).~~

The Company leases retail stores, office space and equipment under operating ~~leases.The majority~~leases. As of ~~these operating leases were impacted by the adoption of the new standard. At adoption, we recorded right-of-use operating lease assets~~May 2, 2020 and ~~operating lease liabilities totaling $57.0 million and $56.2 million, respectively. As of~~ May 4, 2019 right-of-use operating lease assets, which are recorded in operating lease assets in the condensed consolidated balance sheets, totaled $47.9 million and $52.8 million, respectively, and operating lease liabilities, which are recorded in current portion of operating lease liabilities and operating lease liabilities, totaled $48.2 million and $52.0 million. The impact of the adoption of the new standard was immaterial to our condensed consolidated statements of income, condensed consolidated statements of cash flows and condensed consolidated statements of stockholders' equity.million, respectively.

In determining our operating lease assets and operating lease liabilities, we ~~applied~~apply an incremental borrowing rate to the minimum lease payments within each lease agreement. ASU No. 2016-02 requires the use of the rate implicit in the lease whenever that rate is readily determinable; furthermore, if the implicit rate is not readily determinable, a lessee may use its incremental borrowing rate. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a ~~collaterlized~~collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. To estimate our specific incremental borrowing rates that align with applicable lease terms, we ~~utilized~~utilize a model consistent with the credit quality of our outstanding debt instruments.

Renewal options from two to 20 years exist on the majority of leased properties. The Company has sole discretion in exercising the lease renewal options. We do not recognize operating lease assets or operating lease liabilities for renewal periods unless it has been determined that we are reasonably certain of renewing the lease at inception. The depreciable life of operating lease assets and related leasehold improvements is limited by the expected lease term.

Contingent rentals on certain leases are based on a percentage of annual sales in excess of specified amounts. Other contingent rentals are based entirely on a percentage of sales. The Company's operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following table summarizes the Company's operating and finance leases:



(in thousands of dollars)	Classification - Condensed Consolidated Balance Sheets	May 2, 2020		February 1, 2020		May 4, 2019
Assets
Finance lease assets	Property and equipment, net ^(a)	$	564	$	670	$	987
Operating lease assets	Operating lease assets	47,852		47,924		52,782
Total leased assets		$	48,416	$	48,594	$	53,769

Liabilities
Current
Finance	Current portion of finance lease liabilities	$	1,109	$	1,219	$	1,022
Operating	Current portion of operating lease liabilities	14,880		14,654		15,105
Noncurrent
Finance	Finance lease liabilities	528		695		1,636
Operating	Operating lease liabilities	33,353		32,683		36,934
Total lease liabilities		$	49,870	$	49,251	$	54,697

(in thousands of dollars) Classification - Condensed Consolidated Balance Sheets May 4, 2019
February 2, 2019^(a)

May 5, 2018^(a)
Assets
Finance lease assets
Property and equipment, net ^(b)
$ 987
$ 1,093
$ 2,211
Operating lease assets Operating lease assets 52,782
—
—
Total leased assets $ 53,769

$ 1,093

$ 2,211

Liabilities
Current
     Finance Current portion of finance lease liabilities $ 1,022
$ 1,214
$ 1,133
     Operating Current portion of operating lease liabilities 15,105
—
—
Noncurrent
     Finance Finance lease liabilities 1,636
1,666
2,587
     Operating Operating lease liabilities 36,934
—
—
Total lease liabilities $ 54,697

$ 2,880

$ 3,720

^(a)~~The Company adopted and applied ASU No. 2016-02,~~ ~~Leases (Topic 842): Amendments to the FASB Accounting Standards Codification~~ ~~and related amendments on February 3, 2019. The prior periods are presented under ASC 840,~~ ~~Leases.~~

^(b) Finance ~~leases~~lease assets are recorded net of accumulated amortization of ~~$13.6~~$14.0 million, ~~$13.5~~$13.9 million and ~~$21.4~~$13.6 million as of May 2, 2020, February 1, 2020 and May 4, 2019, ~~February 2, 2019 and May 5, 2018,~~ respectively.

~~Lease Cost~~



Lease Cost		Three Months Ended
(in thousands of dollars)	Classification - Condensed Consolidated Statements of Operations	May 2, 2020		May 4, 2019
Operating lease cost ^(a)	Rentals	$	5,550	$	6,118
Finance lease cost
Amortization of leased assets	Depreciation and amortization	106		106
Interest on lease liabilities	Interest and debt expense, net	79		135
Net lease cost		$	5,735	$	6,359

Three Months Ended
(in thousands of dollars) Classification - Condensed Consolidated Statements of Income May 4, 2019 May 5, 2018
Operating lease cost ^(a)
Rentals $ 6,118
$ 6,549
Finance lease cost
Amortization of leased assets Depreciation and amortization 106
878
Interest on lease liabilities Interest and debt expense, net 135
90
Net lease cost $ 6,359
$ 7,517

^(a)Includes short term lease costs of $0.5 million and $0.7 million for the three months ended May 2, 2020 and May 4, 2019, respectively, and variable lease costs of $0.3 million and $0.4 ~~million.~~million for the three months ended May 2, 2020 and May 4, 2019, respectively.

Maturities of Lease Liabilities



(in thousands of dollars) Fiscal Year	Operating Leases			Finance Leases			Total
2020 (excluding the three months ended May 2, 2020)	$	13,275		$	1,071		$	14,346
2021	14,048			726			14,774
2022	7,696			—			7,696
2023	4,406			—			4,406
2024	3,649			—			3,649
After 2024	15,916			—			15,916
Total minimum lease payments	58,990			1,797			60,787
Less amount representing interest	(10,757		)	(160		)	(10,917		)
Present value of lease liabilities	$	48,233		$	1,637		$	49,870

(in thousands of dollars)
Fiscal Year
Operating
Leases

Finance
Leases
Total
2019 (excluding the three months ended May 4, 2019) $ 12,914
$ 1,071
$ 13,985
2020 15,557
1,428
16,985
2021 11,196
726
11,922
2022 4,869
—
4,869
2023 3,357
—
3,357
After 2023 15,017
—
15,017
Total minimum lease payments 62,910
3,225
66,135
Less amount representing interest (10,871 ) (567 ) (11,438 )
Present value of lease liabilities $ 52,039

$ 2,658
$ 54,697

Lease Term and Discount Rate



	May ~~4, 2019~~2, 2020
Weighted-average remaining lease term
Operating leases	~~5.7~~6.2 years
Finance leases	~~2.4~~1.5 years
Weighted-average discount rate
Operating leases	6.6	%
Finance leases	~~17.8~~14	%

Other Information



	Three Months Ended
(in thousands of dollars)	May 2, 2020		May 4, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	4,720	$	5,046
Operating cash flows from finance leases	79		135
Financing cash flows from finance leases	277		222

Lease assets obtained in exchange for new operating lease liabilities	$	3,972	$	—

Three Months Ended
(in thousands of dollars) May 4, 2019
Cash paid for amounts included in the measurement of lease liabilities
     Operating cash flows from operating leases $ 5,046
     Operating cash flows from finance leases 135
     Financing cash flows from finance leases 222

The Company adopted ASU No. 2016-02 on February 3, 2019 as noted above, and as required, the following disclosure is provided for periods prior to adoption. The future minimum rental commitments as of February 2, 2019 for all non-cancelable leases for buildings and equipment were as follows:

(in thousands of dollars)
Fiscal Year
Operating
Leases

Finance
Leases
2019 $ 19,847
$ 1,428
2020 15,423
1,077
2021 10,691
726
2022 4,896
—
2023 3,378
—
After 2023 14,532
—
Total minimum lease payments $ 68,767
3,231
Less amount representing interest
(351 )
Present value of net minimum lease payments (of which $1,214 is currently payable)
$ 2,880

Note ~~14. (Gain) Loss~~13. Gain on Disposal of Assets

During the three months ended May 4, 2019, the Company received proceeds of $13.4 million primarily from the sale of two store properties, resulting in a gain of $7.4 million that was recorded in ~~(gain) loss~~gain on disposal of assets.

During the three months ended May 5, 2018, the Company received proceeds of $1.9 million primarily from the sale of a store property, resulting in a loss of $0.1 million that was recorded in (gain) loss on disposal of assets.

Note ~~15.~~14. Fair Value Disclosures

The estimated fair values of financial instruments presented herein have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of amounts the Company could realize in a current market exchange.

The fair value of the Company’s long-term debt and subordinated debentures is based on market prices and is categorized as Level 1 in the fair value hierarchy.

The fair value of the Company’s cash, cash equivalents ~~restricted cash~~ and accounts receivable approximates their carrying values at May ~~4, 2019~~2, 2020 due to the short-term maturities of these instruments. The fair value of the Company’s long-term debt at May ~~4, 2019~~2, 2020 was approximately ~~$393~~$309 million. The carrying value of the Company’s long-term debt at May ~~4, 2019~~2, 2020 was ~~$365.6~~$365.7 million. The fair value of the Company’s subordinated debentures at May ~~4, 2019~~2, 2020 was approximately ~~$214~~$131 million. The carrying value of the Company’s subordinated debentures at May ~~4, 2019~~2, 2020 was $200.0 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and the footnotes thereto included elsewhere in this report, as well as the financial and other information included in our Annual Report on Form 10-K for the year ended February ~~2, 2019.~~1, 2020.

EXECUTIVE OVERVIEW

~~Despite~~In March 2020, the ~~increase in~~World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States and the world. The effects of the COVID-19 pandemic has had and continues to have a significant impact on the Company's business, results of operations and financial position. The Company began closing stores on March 19, 2020 as mandated by state and local governments, and by April 9, 2020, all 285 store locations were temporarily closed.

During the three months ended May 2, 2020, total retail sales decreased 47%. Due to the temporary closure of the Company's brick-and-mortar stores as well as the interdependence between in-store and online sales, the ~~Company's performance in the first quarter of fiscal 2019 was disappointing as~~Company reported no comparable store sales ~~were essentially flat over last year's~~data for the three months ended May 2, 2020. Retail gross margins decreased significantly to 12.8% during the three months ended May 2, 2020 compared to 37.8% during the three months ended May 4, 2019, primarily due to markdowns. The Company was able to reduce inventory by 14% compared to the prior year first quarter by reducing purchases 33% through the cancellation, delay and ~~markdowns weighed heavily on gross margin. Gross margin from retail operations decreased 141 basis points~~suspension of ~~net sales.~~merchandise orders and by taking aggressive markdowns. Selling, general and administrative expenses decreased to $290.4 million compared to $405.2 million from ~~retail operations decreased 23 basis points~~the prior year first quarter primarily due to decreases in payroll expense associated with the furlough of ~~net sales.~~store associates, support facility functions and corporate employees. At the peak of store closures, approximately 90% of Dillard's 38,000 associates were furloughed. Payroll expense for the 13 weeks ended May 2, 2020 was $168.5 million compared to $257.5 million for the 13 weeks ended May 4, 2019, a decline of 35%. The Company reported a consolidated net loss of $162.0 million ($6.94 per share) compared to net income of $78.6 million ($2.99 per share) for the ~~current year first quarter compared to consolidated net income of $80.5 million ($2.89 per share) for the~~ prior year first quarter.

The Company expects to be in a net operating loss position for fiscal year 2020. The Coronavirus Aid, Relief and Economic Security (“CARES”) Act, signed into law on March 27, 2020, allows for net operating loss carryback to years in which the tax rate was 35%. Included in net loss for the quarter ended May 2, 2020 is a net tax benefit of $14.8 million ($0.63 per share) related to this provision.

Included in net income for the quarter ended May 4, 2019 iswas a pretax gain ~~on disposal of assets~~ of $7.4 million ($5.8 million after tax or $0.22 per share)~~. The gain on disposal of assets includes~~ related to the sale of two ~~store properties.~~stores.

During the three months ended May ~~4, 2019,~~2, 2020, the Company purchased ~~$17.4~~$61.8 million of its outstanding Class A Common Stock under its stock repurchase plan authorized by the Company's Board of Directors in March 2018 (the "March 2018 Plan"). As of May ~~4, 2019,~~2, 2020, authorization of ~~$389.5~~$206.9 million remained under the ~~plan.~~March 2018 Plan.

As of May ~~4, 2019,~~2, 2020, the Company had working capital of ~~$915.6~~$707.8 million (including cash and cash equivalents of $70.0 million) and ~~restricted cash of $148.5 million and $565.6~~$565.7 million of total debt outstanding, excluding finance lease liabilities and operating lease liabilities. Cash flows ~~provided by~~used in operating activities were ~~$48.4~~$111.1 million for the three months ended May ~~4, 2019.~~2, 2020.

The Company ~~operated 289~~maintained 285 Dillard's ~~locations,~~stores, including 2830 clearance centers, and one internet store at May ~~4, 2019.~~2, 2020.

On February 25, 2020, the Company provided estimates for certain financial statement items, including depreciation and amortization, rentals, interest and debt expense, net and capital expenditures, for the fiscal year ending January 30, 2021 based upon current conditions at that time, which did not include the impact of COVID-19. Due to heightened uncertainty relating to the impacts of COVID-19 on the Company’s business operations, including the duration and impact on overall customer demand, the Company previously withdrew its 2020 guidance.

During the four weeks ended May 30, 2020 (fiscal May), we re-opened most of our full-line stores: 45 stores on May 5th, 80 stores on May 12th, 115 stores on May 19th and 20th and 8 stores on May 26th. All of these stores have been operating at reduced hours. Sales performance in these stores since re-opening and through May 30th was approximately 68% of prior year sales on corresponding days. As of June 2, 2020, all Dillard’s stores had been re-opened.

Key Performance Indicators

We use a number of key indicators of financial condition and operating performance to evaluate our business, including the following:


	Three Months Ended						Three Months Ended
	May 4, 2019			May 5, 2018			May 2, 2020			May 4, 2019
Net sales (in millions)	$	1,465.4		$	1,458.3		$	786.7		$	1,465.4
Retail stores sales trend	1		%	2		%	(47		)%	1		%
Comparable retail stores sales trend	—		%	2		%
Gross profit (in millions)	$	537.7		$	554.5		$	98.2		$	537.7
Gross profit as a percentage of net sales	36.7		%	38.0		%	12.5		%	36.7		%
Retail gross profit as a percentage of net sales	37.8		%	39.2		%	12.8		%	37.8		%
Selling, general and administrative expenses as a percentage of net sales	27.6		%	27.8		%	36.9		%	27.6		%
Cash flow provided by operations (in millions)	$	48.4		$	55.4
Cash flow (used in) provided by operations (in millions)							$	(111.1	)	$	48.4
Total retail store count at end of period	289			292			285			289
Retail sales per square foot	$	30		$	29		$	16		$	30
Retail store inventory trend	3		%	4		%	(14		)%	3		%
Annualized retail merchandise inventory turnover	2.1			2.1			1.6			2.1

General

Net sales. Net sales includes merchandise sales of comparable and non-comparable stores and revenue recognized on contracts of CDI Contractors, LLC (“CDI”), the Company’s general contracting construction company. Comparable store sales includes sales for those stores which were in operation for a full period in both the current quarter and the corresponding quarter for the prior ~~year.~~year, including our internet store. Comparable store sales excludes changes in the allowance for sales returns. Non-comparable store

sales includes: sales in the current fiscal year from stores opened during the previous fiscal year before they are considered comparable stores; sales from new stores opened during the current fiscal year; sales in the previous fiscal year for stores closed during the current or previous fiscal year that are no longer considered comparable stores; sales in clearance centers; and changes in the allowance for sales returns.

Sales occur as a result of interaction with customers across multiple points of contact, creating an interdependence between in-store and online sales. Online orders are fulfilled from both fulfillment centers and retail stores. Additionally, online customers have the ability to buy online and pick up in-store. Retail in-store customers have the ability to purchase items that may be ordered and fulfilled from either a fulfillment center or another retail store location. Online customers may return orders via mail, or customers may return orders placed online to retail store locations. Customers who earn reward points under the private label credit card program may earn and redeem rewards through in-store or online purchases.

Service charges and other income. Service charges and other income includes income generated through the long-term private label card alliance with Wells Fargo Bank, N.A. (“Wells Fargo Alliance”). Other income includes rental income, shipping and handling fees, gift card breakage and lease income on leased departments.

Cost of sales. Cost of sales includes the cost of merchandise sold (net of purchase discounts, non-specific margin maintenance allowances and merchandise margin maintenance allowances), bankcard fees, freight to the distribution centers, employee and promotional discounts, shipping to customers and direct payroll for salon personnel. Cost of sales also includes CDI contract costs, which comprise all direct material and labor costs, subcontract costs and those indirect costs related to contract performance, such as indirect labor, employee benefits and insurance program costs.

Selling, general and administrative expenses. Selling, general and administrative expenses include buying, occupancy, selling, distribution, warehousing, store and corporate expenses (including payroll and employee benefits), insurance, employment taxes, advertising, management information systems, legal and other corporate level expenses. Buying expenses consist of payroll, employee benefits and travel for design, buying and merchandising personnel.

Depreciation and amortization.Depreciation and amortization expenses include depreciation and amortization on property and equipment.

Rentals.Rentals includes expenses for store leases, including contingent rent, office space and data processing and other equipment rentals.

Interest and debt expense, net. Interest and debt expense includes interest, net of interest income and capitalized interest, relating to the Company’s unsecured notes, subordinated debentures and borrowings under the Company’s credit facility. Interest and debt expense also includes gains and losses on note repurchases, if any, amortization of financing costs and interest on finance lease liabilities.

Other expense. Other expense includes the interest cost and net actuarial loss components of net periodic benefit costs related to the Company's unfunded, nonqualified defined benefit plan and charges related to the write-off of deferred financing fees, if any.

~~(Gain) loss~~Gain on disposal of assets. ~~(Gain) loss~~ Gain on disposal of assets includes the net gain or loss on the sale or disposal of property and equipment, as well as gains from insurance proceeds in excess of the cost basis of insured assets, if any.

LIBOR

The use of LIBOR is expected to be phased out by the end of 2021. At this time, there is no definitive information regarding the future utilization of LIBOR beyond 2021 or of any particular replacement rate. Going forward, we intend to work with our lenders to use a suitable alternative reference rate for the amended credit agreement, the Wells Fargo Alliance and any other applicable agreements. We will continue to monitor, assess and plan for the phase out of LIBOR.

Seasonality

Our business, like many other retailers, is subject to seasonal influences, with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season. Because of the seasonality of our business, results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

RESULTS OF OPERATIONS

The following table sets forth the results of operations as a percentage of net sales for the periods indicated (percentages may not foot due to rounding):


	Three Months Ended				Three Months Ended
	May 4, 2019		May 5, 2018		May 2, 2020		May 4, 2019
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Service charges and other income	2.2		2.3		4.4		2.2

	102.2		102.3		104.4		102.2

Cost of sales	63.3		62.0		87.5		63.3
Selling, general and administrative expenses	27.6		27.8		36.9		27.6
Depreciation and amortization	3.6		3.8		6.5		3.6
Rentals	0.4		0.4		0.7		0.4
Interest and debt expense, net	0.8		1.0		1.6		0.8
Other expense	0.1		0.1		0.3		0.1
(Gain) loss on disposal of assets	(0.5	)	—
Gain on disposal of assets					—		(0.5	)

Income before income taxes	6.9		7.1
Income taxes	1.5		1.6
(Loss) income before income taxes					(29.0	)	6.9
Income taxes (benefit)					(8.4	)	1.5

Net income	5.4	%	5.5	%
Net (loss) income					(20.6	)%	5.4	%

Net Sales


	Three Months Ended							Three Months Ended
(in thousands of dollars)	May 4, 2019		May 5, 2018		$ Change			May 2, 2020		May 4, 2019		$ Change
Net sales:
Retail operations segment	$	1,420,522	$	1,411,344	$	9,178		$	751,027	$	1,420,522	$	(669,495	)
Construction segment	44,919		46,918		(1,999		)	35,628		44,919		(9,291		)
Total net sales	$	1,465,441	$	1,458,262	$	7,179		$	786,655	$	1,465,441	$	(678,786	)

The percent change in the Company’s sales by segment and product category for the three months ended May ~~4, 2019~~2, 2020 compared to the three months ended May ~~5, 2018~~4, 2019 as well as the sales percentage by segment and product category to total net sales for the three months ended May ~~4, 2019~~2, 2020 are as follows:


	% Change 2019 - 2018		% of Net Sales		% Change 2020 - 2019		% of Net Sales
Retail operations segment
Cosmetics	(3.2	)%	14	%	(40.2	)%	15	%
Ladies’ apparel	0.1		24		(52.2	)	22
Ladies’ accessories and lingerie	0.1		14		(45.8	)	14
Juniors’ and children’s apparel	6.8		11		(50.3	)	10
Men’s apparel and accessories	2.7		16		(46.7	)	16
Shoes	(1.7	)	15		(46.1	)	15
Home and furniture	5.6		3		(40.1	)	3
			97				95
Construction segment	(4.3	)	3		(20.7	)	5
Total			100	%			100	%

Net sales from the retail operations segment ~~increased $9.2 million~~decreased 47% during the three months ended May 2, 2020 compared to the three months ended May 4, 2019 ~~compared~~primarily due to the ~~three months ended May 5, 2018, increasing 1%~~impact of the COVID-19 pandemic. The Company reported no comparable store sales data for the quarter due to the temporary closure of its brick-and-mortar stores as well as the interdependence between in-store and online sales. Sales in ~~total while remaining flat in comparable stores. Sales of juniors' and children's apparel and home and furniture increased~~all product categories decreased significantly over the first quarter last year. Sales of men's apparel and accessories increased moderately, while sales of ladies' apparel and ladies' accessories and lingerie remained relatively flat. Sales of shoes and cosmetics decreased moderately.

~~The number of sales transactions and the average dollars per sales transactions remained relatively flat for the three months ended May 4, 2019 compared to the three months ended May 5, 2018.~~

We recorded a return asset of ~~$11.9~~$8.2 million and ~~$11.7~~$11.9 million and an allowance for sales returns of ~~$20.1~~$12.4 million and ~~$20.0~~$20.1 million as of May ~~4, 2019~~2, 2020 and May ~~5, 2018,~~4, 2019, respectively.

During the three months ended May ~~4, 2019,~~2, 2020, net sales from the construction segment decreased ~~$2.0~~$9.3 million or ~~4.3%~~20.7% compared to the three months ended May ~~5, 2018~~4, 2019 due to a decrease in construction activity. The ~~backlog of awarded~~remaining performance obligations related to executed construction contracts attotaled $145.4 million as of May 2, 2020, decreasing approximately 7% from February 1, 2020 and increasing approximately 18% from May 4, 2019, ~~totaled $345.6 million, increasing approximately 3% from February 2, 2019 and increasing approximately 13% from May 5, 2018.~~respectively. We expect the backlog to be earned over the next nine to ~~twenty-four~~eighteen months.

Service Charges and Other Income


	Three Months Ended				Three Months			Three Months Ended				Three Months
(in thousands of dollars)	May 4, 2019		May 5, 2018		$ Change 2019-2018			May 2, 2020		May 4, 2019		$ Change 2020-2019
Service charges and other income:
Retail operations segment
Income from Wells Fargo Alliance	$	21,146	$	21,844	$	(698	)	$	20,800	$	21,146	$	(346	)
Shipping and handling income	6,077		6,965		(888		)	11,567		6,077		5,490
Leased department income	1,123		1,219		(96		)	372		1,123		(751		)
Other	3,350		2,873		477			1,748		3,350		(1,602		)
	31,696		32,901		(1,205		)	34,487		31,696		2,791
Construction segment	798		257		541			434		798		(364		)
Total service charges and other income	$	32,494	$	33,158	$	(664	)	$	34,921	$	32,494	$	2,427

Service charges and other income is composed primarily of income from the Wells Fargo Alliance. Income from the alliance ~~decreased~~remained relatively flat during the three months ended May 2, 2020 compared to the three months ended May 4, 2019. Shipping and handling income increased during the three months ended May 2, 2020 compared to the three months ended May 4, 2019 primarily due to the increase in online orders and ship-from-store capabilities from closed store locations.

Gross Profit



(in thousands of dollars)	May 2, 2020		May 4, 2019		$ Change			% Change
Gross profit:
Three months ended
Retail operations segment	$	96,034	$	536,371	$	(440,337	)	(82.1	)%
Construction segment	2,152		1,303		849			65.2
Total gross profit	$	98,186	$	537,674	$	(439,488	)	(81.7	)%



	Three Months Ended
	May 2, 2020		May 4, 2019
Gross profit as a percentage of segment net sales:
Retail operations segment	12.8	%	37.8	%
Construction segment	6.0		2.9
Total gross profit as a percentage of net sales	12.5		36.7

Gross profit, as a percentage of sales, decreased to 12.5% from 36.7% during the three months ended May 2, 2020 compared to the three months ended May ~~5, 2018 primarily due~~4, 2019.

Gross profit from retail operations, as a percentage of sales, decreased to an

~~increase in funding costs. Shipping and handling income decreased~~12.8% from 37.8% during the three months ended May 2, 2020 compared to the three months ended May 4, 2019 ~~compared to the three months ended May 5, 2018 primarily due to an increase in online orders qualifying for free shipping.~~

~~Gross Profit~~

(in thousands of dollars) May 4, 2019 May 5, 2018 $ Change % Change
Gross profit:

Three months ended

Retail operations segment $ 536,371
$ 552,865
$ (16,494 ) (3.0 )%
Construction segment 1,303
1,656
(353 ) (21.3 )
Total gross profit $ 537,674
$ 554,521
$ (16,847 ) (3.0 )%

Three Months Ended
May 4, 2019 May 5, 2018
Gross profit as a percentage of segment net sales:

Retail operations segment 37.8 % 39.2 %
Construction segment 2.9
3.5
Total gross profit as a percentage of net sales 36.7
38.0

~~Gross profit decreased by $16.8 million and 134 basis points of net sales during the three months ended May 4, 2019 compared to the three months ended May 5, 2018.~~

~~Gross profit from retail operations decreased 141 basis points of net sales during the three months ended May 4, 2019 compared to the three months ended May 5, 2018~~ primarily due to increased ~~markdowns.~~markdowns taken as a result of the impact of the COVID-19 pandemic. Gross margin ~~declined slightly in men's apparel and accessories and declined moderately in ladies' apparel and ladies' accessories and lingerie. Gross margin declined~~decreased significantly in ~~home and furniture, while remaining essentially flat in juniors' and children's apparel and cosmetics. Gross margin increased slightly in shoes.~~all product categories except cosmetics which declined moderately.

Gross profit from the construction segment ~~decreased 63~~increased 314 basis points of construction sales for the three months ended May ~~4, 2019~~2, 2020 compared to the three months ended May ~~5, 2018.~~4, 2019, respectively.

Inventory ~~increased 3%~~decreased 14% in total as of May ~~4, 2019~~2, 2020 compared to May ~~5, 2018.~~4, 2019. A 1% change in the dollar amount of markdowns would have impacted the net ~~income~~loss by approximately $2 million for the three months ended May ~~4, 2019.~~2, 2020.

Selling, General and Administrative Expenses (“SG&A”)


(in thousands of dollars)	May 4, 2019		May 5, 2018		$ Change			% Change		May 2, 2020		May 4, 2019		$ Change			% Change
SG&A:
Three months ended
Retail operations segment	$	403,292	$	403,970	$	(678	)	(0.2	)%	$	288,557	$	403,292	$	(114,735	)	(28.4	)%
Construction segment	1,868		1,900		(32		)	(1.7	)	1,889		1,868		21			1.1
Total SG&A	$	405,160	$	405,870	$	(710	)	(0.2	)%	$	290,446	$	405,160	$	(114,714	)	(28.3	)%


	Three Months Ended				Three Months Ended
	May 4, 2019		May 5, 2018		May 2, 2020		May 4, 2019
SG&A as a percentage of segment net sales:
Retail operations segment	28.4	%	28.6	%	38.4	%	28.4	%
Construction segment	4.2		4.0		5.3		4.2
Total SG&A as a percentage of net sales	27.6		27.8		36.9		27.6

SG&A decreased ~~18 basis points~~by $114.7 million and increased as a percentage of net sales to 36.9% from 27.6% during the three months ended May 2, 2020 compared to the three months ended May 4, 2019. SG&A from retail operations increased to 38.4% from 28.4% of net sales during the three months ended May ~~4, 2019~~2, 2020 compared to the three months ended May ~~5, 2018.~~4, 2019. The decrease in SG&A ~~from retail operations decreased 23 basis points of net sales during the three months ended May 4,~~

~~2019 compared to the three months ended May 5, 2018 mainly due~~dollars was primarily attributable to decreases in ~~advertising ($1.9 million), supplies ($1.0 million)~~payroll expense. The Company furloughed store associates as stores closed due to the COVID-19 pandemic. Additionally, furlough actions were implemented in certain corporate and ~~services purchased ($0.6 million) partially offset~~support facility functions. At the peak of store closures, approximately 90% of Dillard's 38,000 associates were furloughed. The Company was able to reduce payroll expense by ~~increases in payroll ($3.5 million).~~$4.2 million through the employee retention credit available under the CARES Act.

Depreciation and Amortization


(in thousands of dollars)	May 4, 2019		May 5, 2018		$ Change			% Change		May 2, 2020		May 4, 2019		$ Change			% Change
Depreciation and amortization:
Three months ended
Retail operations segment	$	52,194	$	55,844	$	(3,650	)	(6.5	)%	$	50,732	$	52,194	$	(1,462	)	(2.8	)%
Construction segment	170		159		11			6.9		169		170		(1		)	(0.6	)
Total depreciation and amortization	$	52,364	$	56,003	$	(3,639	)	(6.5	)%	$	50,901	$	52,364	$	(1,463	)	(2.8	)%

Depreciation and amortization expense decreased $3.6 million during the three months ended May 4, 2019 compared to the three months ended May 5, 2018, primarily due to the timing and composition of capital expenditures.

Interest and Debt Expense, Net


(in thousands of dollars)	May 4, 2019			May 5, 2018			$ Change			% Change		May 2, 2020			May 4, 2019			$ Change		% Change
Interest and debt expense (income), net:
Three months ended
Retail operations segment	$	11,264		$	14,030		$	(2,766	)	(19.7	)%	$	12,291		$	11,264		$	1,027	9.1	%
Construction segment	(27		)	(8		)	(19		)	(237.5	)	(21		)	(27		)	6		22.2
Total interest and debt expense, net	$	11,237		$	14,022		$	(2,785	)	(19.9	)%	$	12,270		$	11,237		$	1,033	9.2	%

Net interest and debt expense ~~decreased $2.8~~increased $1.0 million and total weighted average debt increased by $237.9 million during the three months ended May ~~4, 2019~~2, 2020 compared to the three months ended May ~~5, 2018,~~4, 2019 primarily due to ~~lower average debt levels. Total weighted average debt decreased by $133.6~~an increase in short term borrowings under the credit facility. The Company borrowed $779 million ~~during~~under the ~~three months ended May 4, 2019 compared to~~credit facility on March 25, 2020 and repaid the ~~three months ended May 5, 2018 primarily due to a note maturity.~~full amount on April 30, 2020 concurrent with the execution of the amended credit agreement.

~~(Gain) Loss~~Gain on Disposal of Assets


(in thousands of dollars)	May 4, 2019			May 5, 2018		May 2, 2020			May 4, 2019			$ Change
(Gain) loss on disposal of assets:
Gain on disposal of assets:
Three months ended
Retail operations segment	$	(7,400	)	$	82	$	(18	)	$	(7,400	)	$	7,382
Construction segment	—			—		(1		)	—			(1		)
Total (gain) loss on disposal of assets	$	(7,400	)	$	82
Total gain on disposal of assets						$	(19	)	$	(7,400	)	$	7,381

During the three months ended May 4, 2019, the Company ~~recorded a gain~~received proceeds of ~~$7.4~~$13.4 million primarily from the sale of two store ~~locations~~properties, resulting in ~~Boardman, Ohio and Boynton Beach, Florida.~~a gain of $7.4 million.

Income Taxes

The Company expects to be in a net operating loss position for the fiscal year. The CARES Act, signed into law on March 27, 2020, allows for net operating loss carryback to years in which the statutory federal tax rate was 35%. The Company’s estimated federal and state effective income tax rate was approximately 29.0% and 22.0% for the three months ended May 2, 2020 and May 4, 2019, respectively. During the three months ended May 2, 2020, income tax benefit differed from what would be computed using the current statutory federal tax rate of 21% primarily due to the recognition of a net tax benefit of $14.8 million related to the carryback provision of the CARES Act. This net tax benefit was comprised of tax expense of $25.2 million for the remeasurement of beginning deferred tax assets and ~~May 5, 2018.~~ liabilities and tax benefit of $40.0 million for the impact of the net operating loss carryback. Income tax benefit for the quarter also included the effects of federal tax credits and state and local income taxes.

~~The~~Due to uncertainty relating to the impacts of COVID-19 on the Company’s business operations, the Company ~~expects the~~is not providing an expected fiscal ~~2019~~2020 federal and state effective income tax rate to approximate 21% to 22%. This rate may change if results of operations for fiscal 2019 differ from management’s current expectations. Changes in the Company’s assumptions and judgments can materially affect amounts recognized in the condensed consolidated balance sheets and statements of income.rate.

FINANCIAL CONDITION

A summary of net cash flows for the three months ended May 2, 2020 and May 4, 2019 ~~and~~ ~~May 5, 2018~~ follows:


	Three Months Ended									Three Months Ended
(in thousands of dollars)	May 4, 2019			May 5, 2018			$ Change			May 2, 2020			May 4, 2019			$ Change
Operating Activities	$	48,357		$	55,391		$	(7,034	)	$	(111,125	)	$	48,357		$	(159,482	)
Investing Activities	(5,087		)	(36,508		)	31,421			(19,904		)	(5,087		)	(14,817		)
Financing Activities	(18,294		)	(39,920		)	21,626			(76,054		)	(18,294		)	(57,760		)
Total Cash Provided By (Used)	$	24,976		$	(21,037	)	$	46,013
Total (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash										$	(207,083	)	$	24,976		$	(232,059	)

Net cash flows from operations decreased ~~$7.0~~$159.5 million during the three months ended May ~~4, 2019~~2, 2020 compared to the three months ended May ~~5, 2018. This decrease was~~4, 2019 primarily ~~attributable~~due to significant decreases in net income, primarily due to decreases in sales, partially offset by changes in working capital.

The Company took a number of actions to enhance liquidity during the ~~net change in accounts payable and merchandise inventories.~~first quarter as the COVID-19 pandemic progressed, including the following:


▪	Extended vendor payment terms


▪	Canceled, suspended and significantly delayed merchandise shipments


▪	Reduced merchandise purchases during the quarter by 33%


▪	Reviewed and reduced discretionary operating and capital expenditures


▪	Reduced payroll expense


▪	Executed aggressive promotional markdowns to clear inventory

Wells Fargo owns and manages the Dillard's private label cards under the Wells Fargo Alliance. Under the Wells Fargo Alliance, Wells Fargo establishes and owns private label card accounts for our customers, retains the benefits and risks associated with the ownership of the accounts, provides key customer service functions, including new account openings, transaction authorization, billing adjustments and customer inquiries, receives the finance charge income and incurs the bad debts associated with those accounts.

Pursuant to the Wells Fargo Alliance, we receive on-going cash compensation from Wells Fargo based upon the portfolio's earnings. The compensation received from the portfolio is determined monthly and has no recourse provisions. The amount the Company receives is dependent on the level of sales on Wells Fargo accounts, the level of balances carried on Wells Fargo accounts by Wells Fargo customers, payment rates on Wells Fargo accounts, finance charge rates and other fees on Wells Fargo accounts, the level of credit losses for the Wells Fargo accounts as well as Wells Fargo's ability to extend credit to our customers. We participate in the marketing of the private label cards, which includes the cost of customer reward programs. The Wells Fargo Alliance expires in fiscal 2024.

The Company received income of ~~approximately $21~~$20.8 million and ~~$22~~$21.1 million from the Wells Fargo Alliance during the three months ended May 2, 2020 and May 4, 2019, respectively. The Company is unable to quantify the impact of the COVID-19 pandemic on the portfolio's earnings and ~~May 5, 2018, respectively.~~ the on-going cash compensation from the Wells Fargo Alliance.

Capital expenditures were ~~$18.7~~$20.2 million and ~~$39.2~~$18.7 million for the three months ended May ~~4, 2019~~2, 2020 and May ~~5, 2018,~~4, 2019, respectively. The capital expenditures were primarily related to equipment purchases and the remodeling of existing stores during the current year. ~~Capital expenditures for fiscal 2019 are expected to be approximately $140 million compared to actual expenditures of $137 million during fiscal 2018.~~

During the three months ended May 4, 2019, the Company received cash proceeds of $13.4 million and recorded a related gain of $7.4 million for the sale of two store locations in Boardman, Ohio and Boynton Beach, Florida. The proceeds from the Boardman, Ohio store ~~sale are being~~were held in escrow for the acquisition of replacement property under like-kind exchange agreements. The escrow accounts ~~are~~were administered by an intermediary. Pursuant to the like-kind exchange agreements, the cash iswas restricted for a maximum of 180 days from the date of the property sale pending the acquisition of replacement property. As of May 4, 2019, the acquisition of replacement property had not yet occurred; therefore, the proceeds were classified as restricted cash on the condensed consolidated balance sheets.

During the ~~three months ended May 5, 2018,~~first quarter of 2020, the Company ~~received cash proceeds~~opened an 85,000 square foot expansion at Columbia Mall in Columbia, Missouri (dual-anchor location totaling 185,000 square feet). During the second quarter of ~~$1.9 million from~~2020, the ~~sale~~Company plans to replace a 100,000 square foot leased facility at Richland Fashion Mall in Waco, Texas with a 125,000 square foot owned facility (dual-anchor location totaling 190,000 square feet).

The Company has announced upcoming store closures at Central Mall in Lawton, Oklahoma (100,000 square feet); Crossroads Center in Waterloo, Iowa (150,000 square feet); and North Plains Mall in Clovis, New Mexico (62,000 square feet). The Company expects to close the locations during the second quarter of a location classified as an asset held for sale. These proceeds were being held in escrow for the acquisition of replacement property under like-kind exchange agreements. As of May 5, 2018, the acquisition of replacement property had not yet occurred; therefore, the proceeds were classified as restricted cash on the condensed consolidated balance sheets.

~~Subsequent to May 4, 2019, we closed the Boardman, Ohio (186,000 square feet) and the Muskogee, Oklahoma (70,000 square feet) store locations.~~2020 with minimal closing costs. We remain committed to closing under-performing stores where appropriate and may incur future closing costs related to such stores when they close.

The Company had cash on hand of ~~$139.8~~$70.0 million as of May ~~4, 2019.~~2, 2020. As part of our overall liquidity management strategy and for peak working capital requirements, the Company ~~maintains~~maintained an unsecured ~~revolving~~ credit facility that ~~provides~~provided a borrowing capacity of $800 million with a $200 million expansion option ("credit agreement")~~. The~~ until the credit agreement was amended in April 2020 (the "amended credit agreement"). After giving effect to the amendment, the amended credit agreement became secured by certain deposit accounts of the Company and certain inventory of certain subsidiaries. The amended credit agreement is

available to the Company for general corporate purposes including, among other uses, working capital financing, the issuance of letters of credit, capital expenditures and, subject to certain restrictions, the repayment of existing indebtedness and share repurchases. The rate of interest on borrowings under the amended credit agreement is LIBOR plus ~~1.375%~~1.75%, and the commitment fee for unused borrowings is ~~0.20%~~0.30% per annum. ~~To be~~So long as availability exceeds $100 million and no event of default occurs and is continuing, there are no financial covenant requirements under the amended credit agreement. The Company paid $2.9 million in ~~compliance with~~issuance costs related to the ~~financial covenants~~amended credit agreement, which were recorded in other assets on the condensed consolidated balance sheets.

As part of the Company's liquidity strategy during the COVID-19 pandemic, in March 2020, the Company borrowed $779 million under the credit agreement, which was repaid concurrent with the ~~Company's total leverage ratio cannot exceed 3.5 to 1.0, and~~execution of the ~~Company's coverage ratio cannot be less than 2.5 to 1.0, as defined in the~~amended credit agreement. At May ~~4, 2019, the Company was in compliance with all financial covenants related to the credit agreement.~~

~~At May 4, 2019,~~2, 2020, no borrowings were outstanding, and letters of credit totaling ~~$21.8~~$21.0 million were issued under the amended credit agreement leaving unutilized availability under the facility of ~~$778.2~~$779.0 million.

During the three months ended May 2, 2020, the Company repurchased 1.0 million shares of Class A Common Stock at an average price of $61.91 per share for $61.8 million under the Company's March 2018 Plan. Additionally, the Company paid $7.3 million for share repurchases that had not yet settled but were accrued at February 1, 2020. During the three months ended May 4, 2019, the Company repurchased 0.2 million shares of Class A Common Stock at an average price of $70.85 per share for $17.4 million (including the accrual of $2.0 million of share repurchases that had not settled as of May 4, 2019) under the Company's March 2018 Plan. During the three months ended May 5, 2018, the Company repurchased 0.5 million shares of Class A Common Stock at an average price of $72.77 per share for $34.8 million. Additionally, the Company paid $2.0 million for share repurchases that had not yet settled but were accrued at February 3, 2018. At May ~~4, 2019, $389.5~~2, 2020, $206.9 million of authorization remained under the March 2018 Plan. The ultimate disposition of the repurchased stock has not been determined.

The COVID-19 pandemic has had a significant negative effect on the Company's liquidity and net sales. Due to heightened uncertainty relating to the impacts of COVID-19 on the Company’s business operations, including the duration and impact on overall customer demand, our liquidity and net sales may be further impacted if we are unable to appropriately manage our inventory levels and expenses.

~~During fiscal 2019, the~~The Company expects to finance its ~~capital expenditures, working capital requirements and stock repurchases~~operations during fiscal 2020 from cash on hand, cash flows generated from operations and utilization of the credit facility. Depending ~~on conditions in the capital markets~~upon our actual and ~~other factors,~~anticipated sources and uses of liquidity, the Company ~~may~~will from time to time consider other possible financing transactions, the proceeds of which could be used to ~~refinance current indebtedness~~fund working capital or for other corporate purposes.

There have been no material changes in the information set forth under caption “Contractual Obligations and Commercial Commitments” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s Annual Report on Form 10-K for the fiscal year ended February ~~2, 2019.~~1, 2020.

OFF-BALANCE-SHEET ARRANGEMENTS

The Company has not created, and is not party to, any special-purpose entities or off-balance-sheet arrangements for the purpose of raising capital, incurring debt or operating the Company’s business. The Company does not have any off-balance-sheet arrangements or relationships that are reasonably likely to materially affect the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or the availability of capital resources.

NEW ACCOUNTING STANDARDS

For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 2, Accounting Standards, in the "Notes to Condensed Consolidated Financial Statements," in Part I, Item I hereof.

FORWARD-LOOKING INFORMATION

This report contains certain forward-looking statements. The following are or may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995: (a) statements including words such as “may,” “will,” “could,” “should,” “believe,” “expect,” “future,” “potential,” “anticipate,” “intend,” “plan,” “estimate,” “continue,” or the negative or other variations thereof; (b) statements regarding matters that are not historical facts; and (c) statements about the Company’s future occurrences, plans and objectives, including statements regarding management’s expectations and forecasts for the remainder of fiscal ~~2019~~2020 and beyond, statements concerning the opening of new stores or the closing of existing stores, statements concerning capital expenditures and sources of liquidity, statements concerning share repurchases, statements concerning pension contributions, statements regarding the expected phase out of LIBOR and statements concerning estimated taxes. The Company cautions that forward-looking statements contained in this report are based on estimates, projections, beliefs and assumptions of management and information available to management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise. Forward-looking statements of the Company involve risks and uncertainties and are subject to change based on various important factors. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of those factors include (without limitation) the COVID-19 pandemic and its effects on public health, our supply chain, the health and well-being of our employees and customers, and the retail industry in general; other general retail industry conditions and macro-economic conditions; economic and weather conditions for regions in which the ~~Company's~~Company’s stores are located and the effect of these factors on the buying patterns of the ~~Company's~~Company’s customers, including the effect of changes in prices and availability of oil and natural gas; the availability of consumer credit; the impact of competitive pressures in the department store industry and other retail channels including specialty, off-price, discount and Internet retailers; changes in consumer ~~confidence,~~ spending patterns, debt levels and their ability to meet credit obligations; ~~high levels of unemployment;~~ changes in tax legislation; changes in legislation, affecting such matters as the cost of employee benefits or credit card income; adequate and stable availability and pricing of materials, production facilities and labor from which the Company sources its ~~merchandise at acceptable pricing;~~merchandise; changes in operating expenses, including employee wages, commission structures and related benefits; system failures or data security breaches; possible future acquisitions of store properties from other department store operators; the continued availability of financing in amounts and at the terms necessary to support the ~~Company's~~Company’s future business; fluctuations in LIBOR and other base borrowing rates; the ~~potential impact on the Company's debt obligations~~elimination of ~~developments regarding LIBOR, including the potential phasing out of this metric;~~LIBOR; potential disruption from terrorist activity and the effect on ongoing consumer confidence; other epidemic, pandemic or ~~other~~ public health issues; potential disruption of international trade and supply chain efficiencies; any government-ordered restrictions on the movement of the general public or the mandated or voluntary closing of retail stores in response to the COVID-19 pandemic; world conflict and the possible impact on consumer spending patterns and other economic and demographic changes of similar or dissimilar nature.The Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended February ~~2, 2019,~~1, 2020, contain other information on factors that may affect financial results or cause actual results to differ materially from forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the information set forth under caption “Item 7A-Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the fiscal year ended February ~~2, 2019.~~1, 2020.

Item 4. Controls and Procedures

The Company has established and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). The Company’s management, with the participation of our Principal Executive Officer and Co-Principal Financial Officers, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the fiscal quarter covered by this quarterly report, and based on that evaluation, the Company’s Principal Executive Officer and Co-Principal Financial Officers have concluded that these disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended May ~~4, 2019~~2, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company is involved in litigation relating to claims arising out of the Company’s operations in the normal course of business. This may include litigation with customers, employment related lawsuits, class action lawsuits, purported class action lawsuits and actions brought by governmental authorities. As of June ~~7, 2019,~~5, 2020, the Company is not a party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows.

Item 1A. Risk Factors

~~There have been no material changes~~ "Item 1A, Risk Factors" in ~~the information set forth under caption “Item 1A-Risk Factors” in the Company’s~~our Annual Report on Form 10-K for the ~~fiscal~~ year ended February 1, 2020, as filed with the Securities Exchange Commission on March 31, 2020 includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors disclosed in our Annual Report on Form 10-K. The effects of the events and circumstances described in the following risk factor may have the additional effect of heightening many of the risks noted in our Annual Report on Form 10-K. Otherwise, except as presented below, there have been no material changes to the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended February 1, 2020, as filed with the Securities Exchange Commission on March 31, 2020.

The COVID-19 pandemic and its effects on public health, our supply chain, the health and well-being of our employees and customers, and the retail industry in general, has had, and could continue to have, a material adverse effect on our business, financial condition and results of operations.

In December 2019, a strain of coronavirus, now known as COVID-19, was reported to have surfaced in Wuhan, China. Since that time, the virus has rapidly spread to other countries around the world, including the United States. In response to the pandemic, national and local governments, including those in the regions in which we operate, have taken various measures to attempt to slow the spread of the virus, including travel bans; prohibitions on group events and large gatherings; extended shutdowns of schools, government offices and certain businesses; curfews and recommendations to practice “social distancing.” Accordingly, the Company began closing its stores on March 19, 2020, and all 285 store locations were temporarily closed by April 9, 2020.

The Company has reopened all stores as of June 2, ~~2019.~~2020. Stores are operating at reduced hours and implementing certain safety measures to ensure the safety of our customers and associates, which may have the effect of discouraging shopping or limiting the occupancy of our stores. These measures, and any additional measures that have been and may continue to be taken in response to the COVID-19 pandemic, have substantially decreased and may continue to decrease, the number of customers that visit our stores and the shopping malls in which our stores are located, which has had, and will likely continue to have a material adverse effect on our business, financial condition and results of operations. At this time, it is unclear how long these measures may remain in place, what additional measures may be imposed, or when our operations will be restored to the levels that existed prior to the COVID-19 pandemic.

In addition, our business depends on consumer discretionary spending, and as such, our results are particularly sensitive to economic conditions and consumer confidence. COVID-19 has significantly impacted economic conditions, resulting in, among other things, unprecedented increases in the number of people seeking jobless benefits and a significant decline in global financial markets. As a result, even when all of our store locations are fully operational, there can be no guarantee that our revenue will return to its pre-COVID-19 levels.

The Company sources a significant portion of its private label and exclusive brand merchandise from countries that have experienced widespread transmission of the virus, including China. Additionally, many of the Company’s branded merchandise vendors may also source a significant portion of their merchandise from these same countries. Manufacturing capacity in those countries has been materially impacted by the pandemic, which has negatively impacted our supply chain. If this continues, we cannot guarantee that we will be able to locate alternative sources of supply for our merchandise on acceptable terms, or at all. If we are unable to adequately source our merchandise or purchase appropriate amounts of merchandise from branded vendors, our business and results of operations may be materially and adversely affected.

Additionally, in the event that the Company were to experience widespread transmission of the virus at one or more of the Company’s stores or other facilities, the Company could suffer reputational harm or other potential liability. Further, the Company’s business operations may be materially and adversely affected if a significant number of the Company’s employees are impacted by the virus

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

													Issuer Purchases of Equity Securities
Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs		(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
February 3, 2019 through March 2, 2019	—	$	—	—	$	406,931,596
March 3, 2019 through April 6, 2019	7,446	72.84		7,446	406,389,258
April 7, 2019 through May 4, 2019	238,712	70.79		238,712	389,491,650
February 2, 2020 through February 29, 2020							819,099	$	64.50	819,099	$	215,851,601
March 1, 2020 through April 4, 2020							179,643	50.10		179,643	206,852,235
April 5, 2020 through May 2, 2020							—	—		—	206,852,235
Total	246,158	$	70.85	246,158	$	389,491,650	998,742	$	61.91	998,742	$	206,852,235

In March 2018, the Company's Board of Directors authorized the repurchase of up to $500 million of the Company's Class A Common Stock under an open-ended stock repurchase plan ("March 2018 Plan"). This repurchase plan permits the Company to repurchase its Class A Common Stock in the open market, pursuant to preset trading plans meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934 or through privately negotiated transactions. The ~~repurchase plan~~March 2018 Plan has no expiration date.

During the three months ended May ~~4, 2019,~~2, 2020, the Company repurchased ~~0.2~~1.0 million shares totaling ~~$17.4~~$61.8 million. As of May ~~4, 2019, $389.5~~2, 2020, $206.9 million of authorization remained under the March 2018 Plan. Reference is made to the discussion in Note 9, 8, Stock Repurchase Program, in the “Notes to Condensed Consolidated Financial Statements” in Part I of this Quarterly Report on Form 10-Q, which information is incorporated by reference herein.

Item 6. Exhibits



Number		Description

~~31.1~~10.1		Amendment No. 2 to Credit Agreement between Dillard's, Inc., Dillard's Store Services, Inc. and JPMorgan Chase Bank, N.A. as agent for a syndicate of lenders (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on May 4, 2020).

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Co-Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.3		Certification of Co-Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32.2		Certification of Co-Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32.3		Certification of Co-Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		DILLARD’S, INC.
		(Registrant)


Date:	June ~~7, 2019~~5, 2020	/s/ Phillip R. Watts
		Phillip R. Watts
		Senior Vice President, Co-Principal Financial Officer and Principal Accounting Officer

		/s/ Chris B. Johnson
		Chris B. Johnson
		Senior Vice President and Co-Principal Financial Officer

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