Dive Brief:

• Dillard's on Thursday reported net retail sales (not including its construction business) fell 47% in the first quarter to $751 million. The company swung to a loss of $162 million, from net income of $78.6 million a year ago, as gross margin contracted from 37.8% last year to 12.8%.

• The retailer has reopened 149 locations (including 24 clearance centers), and plans to reopen 116 Dillard's stores and five clearance centers next week. That will be the majority of its fleet of 255 full-line stores and 30 clearance centers in 29 states. Sales at the 45 stores reopened May 5 with reduced hours are at about 56% of last year's, the company said. 

• Some 65% of Dillard's 38,000 associates remain on furlough, down from 90% "at the peak of store closures," according to a company press release.

Dive Insight:

Dillard's was slow to close some stores as the pandemic ramped up in the U.S. and now is being assertive in reopening the ones it did.

But the disease outbreak has slammed the business, according to CEO William Dillard, who hasn't taken his salary since early April. "The mall business in general and department stores, specifically, have been particularly hard hit," he said in a statement. "While our balance sheet was already strong, we took decisive, sometimes difficult, actions to preserve liquidity and ensure our long-term viability. As we re-open stores, we see positive things happening. We believe people are ready to get out and shop. We are hoping this is the start of better times."

Along with furloughs and the CEO salary cut, those actions include entering into an amendment of its $800 million senior unsecured revolving credit facility (with no financial covenants as long as availability exceeds $100 million and there's no default); cutting salaries by 20% through May 30 and possibly beyond; extending vendor payment terms; canceling, suspending and "significantly" delaying merchandise shipments; cutting​ discretionary operating and capital expenditures; and taking "​extraordinary measures to clear inventory."

Indeed, despite the drop-off in sales, the retailer was able to rein in inventory by 14%. That was accomplished through aggressive discounts of 40% from March 24 to April 1, then 50% off permanently marked down merchandise in effect most of April and through May 12, plus a 33% scale-back in merchandise buying, per the release. As store continue to reopen, "consumer behavior will dictate merchandise purchasing decisions with the continual goal of aligning purchases with sales," the company said.

While the retailer said that even closed stores were fulfilling e-commerce orders, its performance in the quarter suggests that its online business may not stack up to rivals, even with those heavy promotions, according to emailed comments from Wedbush analysts led by Jen Redding. "As customer behavior evolves and customers being cautious to walk into a mall in the post-COVID-19 era, we see [Dillard's] online channel as a weak link of the business compared to its peers," she said.

And the relatively swift reopening may not be all that helpful, she also said. "While it may take some time to see the pent-up demand realize, we think Dillard's re-opening didn't receive satisfying response from the customers, even with the on-going incremental promotions," she wrote, noting discounts of 25% to 40% on women's apparel, 30% to 40% off shoes, 20% to 30% off handbags, 40% off children's apparel and "100 welcome back dollars with $80 purchase."

"Should these deals be removed, the performance could be even worse," Redding warned.

Because it owns so much of its real estate, the Southern department store doesn't have nearly the rent obligations that other retailers do, so has less need to tussle with landlords. The company owns 90% of its retail store square footage and all of its corporate headquarters, distribution and fulfillment facilities. Another strength is its low long-term leverage, with a $45 million payment due January 2023.

Still, while the retailer didn't report store comps due to the pandemic-induced closures, its results imply a 44% comparable decrease in the first group to reopen, according to Wedbush research. That's "despite historical increases in markdowns," those analysts said, adding that it's difficult to see a recovery in the department stores sector more generally into the second quarter "and beyond."