Dillard's 2003 Annual Report Download - page 3

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To Our Shareholders
William Dillard, II
Chairman of the Board and Chief
Executive Officer
Alex Dillard
President
Alex Dillard
We were disappointed with our results for 2003. We reduced
our operating expenses by $66 million, our depreciation and
rental expense by almost $15 million and our interest expense
by $8.7 million. However, we also experienced a 4% sales
decline and a 160 basis point reduction in gross margin. This
resulted in a large profit decline in 2003.
To improve our sales and margins, we have introduced sev-
eral new brands that we believe will broaden Dillard’s appeal
to the customer seeking better and more upscale merchandise.
We plan to continue the review of our merchandise offering to
add other appropriate brands and to reduce or eliminate
brands that are not performing with satisfactory sales and
gross margins.
We remain committed to differentiating Dillard’s from our
competition. In 2003, we increased the storewide penetration
of our exclusive brands from 18.2% of sales to 20.9%. We
intend to continue to expand the exclusive brand merchandise
offering where appropriate.
Furthermore, we will fine-tune our merchandise mix by
store location to meet the differing needs of the local demo-
graphic in our ongoing effort to set ourselves apart as the
favorite hometown store with a national appeal.
We plan to continue our review of expenses and, where
possible, eliminate or reduce those that do not negatively
impact our customer service. We have continued to invest in
the development of our associates to better service the cus-
tomer and we believe this is another way to distinguish
Dillard’s from the competition.
We were pleased with the improvement in our balance
sheet. We strengthened our financial position in 2003 by com-
mitting available cash resources to paying $261 million in debt,
capping a five-year debt reduction of approximately $1.4 bil-
lion. We reinforced our liquidity by amending and extending
our revolving line of credit to $1 billion with a maturity of
December 2008. We remain financially flexible and firmly com-
mitted to further strengthening our overall financial position.
During the year, we further improved our base of store
locations. We entered the quad-city area of Iowa for the first
time with the opening of our Davenport store in July. We
opened new Dillard’s stores in the established markets of
Cleveland, Ohio, Richmond, Virginia (2) and Houston,
Texas. In Richmond and Houston, we repositioned the
Dillard’s franchise by opening new locations and closing less-
promising ones. During 2003, we closed nine under-perform-
ing locations in our continuing effort to prune our store base.
Our store ownership percentage is 78% - one of the highest
ownership percentages in our market sector.
This is an exciting time to be in fashion apparel and home
retailing and we continue to position ourselves to capitalize on
the needs of confident customers who are focused on fashion,
service and value. We will build on the strength of the
Dillard’s franchise and proudly continue our 65-year legacy of
distinctive merchandising and service. Our team remains com-
mitted to this plan and we thank you, our shareholders, for
your continued support.
William Dillard, II