Dillard's 2004 Annual Report Download - page 2

TO OUR SHAREHOLDERS
Reflection on 2004 and our performance at Dillard’s
brings to mind both exciting accomplishments and
disappointments. During the year, we dramatically improved
our merchandise mix and this progress was evident in a 140
basis point gross margin increase for the year (based upon
sales). This improvement combined with a gain on the sale
of our private label credit card business and declining
interest expense contributed to a substantial increase in net
income to $117.7 million from $9.3 million for the prior year.
However, we were disappointed with a 1% sales decline for
the year. We can do better. Merchandise differentiation with
special emphasis on becoming a more upscale retailer is
crucial to our success. Accordingly, we are driving change in
every area of the store in order to strengthen our competitive
position.
People buy fashion because they want to feel good
about themselves. In 2004, we gave them even more reasons
to choose Dillard's as their partner to make this desire a
reality. We increased our emphasis on nationally known
contemporary and better lines, reflective of America's
renewed excitement over trend-right better fashions.
Additionally, we expanded our better exclusive brand lines
like Antonio Melani, Gianni Bini, and Daniel Cremieux.
There is room in America’s marketplace for a national
retailer focused on more upscale and more fashion forward
assortments. We are well positioned to become the premier
retailer in this niche. We will continue on our path to offer
selections edited to our customers’ multi-faceted lifestyles,
and we recognize it’s not about age – it’s about attitude. In
this effort, we are de-emphasizing or replacing under-
performing lines of product, from both national and
exclusive brand sources, with more promising brands.
Furthermore, utilizing our existing information technology
capabilities, we are tailoring these assortments to the local
demographics, reflecting not only each specific market’s
culture and fashion attitude but also each store’s specific
sizing and style needs.
On November 1, 2004, we sold substantially all the
assets of our credit card business to G.E. Consumer Finance.
Our credit card portfolio was strong and we are tremendously
pleased with this transaction, not only from the proceeds
received but also by the ongoing possibilities and
opportunities it presents to Dillard’s. G.E. Consumer Finance
is a solid, established leader in consumer finance. Their
expertise in credit marketing is well known and we are
excited about the innovative products and services they will
bring to Dillard’s shoppers. They are a valued partner in our
continuing drive for excellence in customer service.
In 2004, we greatly strengthened our financial position.
We reduced our debt to $1.64 billion from $2.62 billion
(including Guaranteed Preferred Beneficial Interests in the
Company’s Subordinated Debentures). Proceeds from the
transaction with G.E. Consumer Finance and our strong
operating cash flow during the year made this
accomplishment possible. We reduced our interest expense
for the year by $42 million as a result of dramatically lower
debt levels. At year end, our cash and cash equivalents were
$498.2 million.
In 2004, we opened eight new Dillard’s stores in
excellent locations, five of which were replacement stores.
As we continued to focus on store productivity, we closed
four under-performing locations and redirected the
associated resources to more promising projects. As a result
of our store opening and closing activity in 2004, we increased
our percentage of store ownership to an industry leading 80%.
We are truly energized by the changes occurring in
retail development. We find the progressive ‘lifestyle centers’
particularly compelling and we believe they are an ideal
complement to our more upscale approach to retailing.
These centers feature not only great shopping, but also fine
dining and entertainment choices, often in beautiful open air
or village-themed settings. Our new Dillard’s locations at
Yuma Palms in Yuma, Arizona and The Shoppes at East
Chase in Montgomery, Alabama are located in these
remarkable new venues. In 2005, we will open nine new
Dillard’s stores in promising new locations. Of these, six will
be in innovative lifestyle venues such as St. Johns Town
Center in Jacksonville, Florida and The Shops at La Cantera
in Garland, Texas. The remaining three new stores will be in
exceptional centers including Perimeter Mall in Atlanta,
Georgia, one of Atlanta’s premier shopping destinations.
The landscape of fashion apparel retailing is rapidly
changing and commentary regarding the future of our sector
abounds. At Dillard’s, we are embracing change and we are
excited about our future. In the midst of all that changes,
one thing remains constant – the customer’s desire to feel
good about themselves. With the continued support of our
associates and our shareholders, Dillard’s will be their
preferred destination retailer for fashions to meet their
desires time and time again.
William Dillard, II
Chairman of the Board and Chief
Executive Officer
Alex Dillard
President