To The Moon

$Dillard's(DDS)$ announced that its board of directors declared a quarterly cash dividend of $0.20 per share. of the Company's Class A and Class B common stock. The dividend will be paid on January 30, 2023 to shareholders of record as of December 30, 2022.

The Company also announced that its Board of Directors declared a special dividend of $15.00 per share on the Company's Class A and Class B common stock. The dividend follows the Company's continued strong financial results for the first three quarters of 2022.

In a joint statement, William DillardII, Dillard's Chief Executive Officer, and Alex Dillard, President, noted, "We are pleased with the Board's decision to once again pay a special dividend. Returning value to all shareholders is a real reward for us. Our employees, who represent the majority of our shareholders, have worked hard this year to deliver a productive year that has allowed us to pay this special dividend."

The special dividend of $15.00 per share will be paid on January 9, 2023 to shareholders of record as of December 15, 2022.

I can't help but wonder just how much this company is making? Why is it willing to pay such a big dividend to its shareholders? Here's a look at Diller's Department Store.

Stable performance and financial excellence

According to Bank of America Global Research, Dillard's is a regional department stores' with shops in 29 Southern and Midwestern states, including 20 clearance centres, and operates an online shop at dillards.com. totaling 47.3 million square feet on October 29, 2022. dillard's offers a wide selection of merchandise from domestic and Dillard's shops offer fashion apparel for women, men and children; as well as accessories, cosmetics, home furnishings and other consumer products.

The company was founded in 1938 by William Dillard and is still run by the Dillard family today. at the end of the 20th century Dillard's was the third largest department stores' chain in the United States. William Dillard retired in 1998 and was succeeded by his eldest son, William T. Dillard II, as Chief Executive Officer and his second son, Alex Dillard, as President. His daughters, Drue Corbusier and Denise Mahaffy, and third son, Mike Dillard, serve as vice presidents.

So far this year, although the company's share price has been volatile during this period, it is up 48% this year, significantly outperforming its peers and the S&P 500, and currently has a market capitalisation of $6.2 billion.

According to DDS' earnings report, net income for the third quarter ended October 29, 2022 was $187.9 million on net sales of $1.54 billion, or $10.96 per basic and diluted share, compared to net income of $197.3 million, or $9.81 per basic and diluted share, for the third quarter ended October 30, 2021. Comparable shop sales increased 3%.

As of the third quarter, the Company held cash and cash equivalents of $530 million and current liabilities of $1.3 billion. Consolidated gross margin for the 13 weeks ended October 29, 2022 was 44.6 percent of sales compared to 46.2 percent in the third quarter last year. Retail gross margin was 45.7 per cent, compared to 46.7 per cent in the third quarter last year. The Company achieved a gross margin in excess of 40% for the seventh consecutive quarter. Inventory at October 29, 2022 increased by 8% compared to October 30, 2021 and was essentially at industry levels.

Notably, during the third quarter, the Company closed shops at Sikes Senter in Wichita Falls, Texas and East Hills Mall in St. Joseph, Missouri. The Company will open a newly remodeled replacement building at Westgate Mall in Amarillo, Texas. Included in net income for the 39 weeks ended October 29, 2022 is a pre-tax gain of $7.2 million ($5.6 million after tax or $0.32 per share) primarily related to the sale of shop properties. Net income for the prior year 39-week period ended October 30, 2021 included a pre-tax gain of $24.7 million ($19.2 million after tax or $0.91 per share) primarily related to the sale of three shop properties.

On the sector front, US retail sales rose 1.3% in October from a year ago, stronger than the market's previous estimate of 1%. It should be noted that retail sales are unadjusted for inflation and given that the US CPI rose 0.4% in October from a year earlier, this suggests that the sector did pick up compared to September. However, the US retail sector has not had a good year due to high inflation and Target, which recently reported earnings, has warned that the company will underperform during the US holiday shopping season, echoing the pessimistic statement in Walmart's earnings report.

Summary

The company has a very good return on capital employed, Return on capital employed = EBIT ÷ (total assets - current liabilities), 0.49 = US$1.2bn / (US$3.8bn - US$1.4bn) (based on the last twelve months to October 2022). This gives DDS a ROCE of 49%, which is well above the average return of 13% for companies in the retail sector.

DDS has been paying dividends to shareholders for the past 24 consecutive years and has even increased its dividend in each of the past 11 years. Dillard's performance has been outstanding as it has continued to consolidate its position as a retail leader over the past two years, growing by an impressive +571% including dividends.

It is easy to see why the company has chosen to pay a high dividend, apart from the fact that most of the dividend beneficiaries are its own family members, but also because the company has no other investment plans for the time being, even as it is cutting some of its less than stellar performing shops, and will probably do a privatisation later. I think this is a company that Warren Buffett would appreciate, with a very mature business, low debt, a smooth management transition despite being a family business, and a high dividend. As for whether retail investors want to get involved, assess for yourself~