Edgar Filing: DILLARDS INC

Document

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 October 29, 2016

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, ARKANSAS 72201

(Address of principal executive offices)

(Zip Code)

(501) 376-5200

(Registrant’s telephone number, including area code)

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.

x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

x Yes o No

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



Large accelerated filer x		Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨

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

o Yes x 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 November 26, 2016 29,386,967

CLASS B COMMON STOCK as of November 26, 2016 4,010,401

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Index

DILLARD’S, INC.



		Page
		Number
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of October 29, 2016, January 30, 2016 and October 31, 2015	3

	Condensed Consolidated Statements of Income and Retained Earnings for the Three and Nine Months Ended October 29, 2016 and October 31, 2015	4

	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended October 29, 2016 and October 31, 2015	5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 29, 2016 and October 31, 2015	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 6.	Exhibits	26

SIGNATURES		27

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DILLARD’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands)



	October 29, 2016			January 30, 2016			October 31, 2015
Assets
Current assets:
Cash and cash equivalents	$	80,482		$	202,869		$	100,110
Accounts receivable	42,467			47,138			47,114
Merchandise inventories	1,901,991			1,374,505			1,933,472
Federal and state income taxes	4,284			—			—
Other current assets	61,243			44,371			70,175

Total current assets	2,090,467			1,668,883			2,150,871

Property and equipment (net of accumulated depreciation and amortization of $2,553,315, $2,385,012 and $2,493,815, respectively)	1,825,225			1,939,832			1,976,614
Other assets	268,536			255,186			250,915

Total assets	$	4,184,228		$	3,863,901		$	4,378,400

Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable and accrued expenses	$	1,123,087		$	691,310		$	1,094,718
Current portion of capital lease obligations	3,258			3,284			3,263
Other short-term borrowings	17,000			—			126,000
Federal and state income taxes	—			56,622			16,567

Total current liabilities	1,143,345			751,216			1,240,548

Long-term debt	613,245			613,061			613,000
Capital lease obligations	4,249			7,269			7,507
Other liabilities	243,296			238,980			252,359
Deferred income taxes	243,888			258,070			247,831
Subordinated debentures	200,000			200,000			200,000
Commitments and contingencies
Stockholders’ equity:
Common stock	1,238			1,238			1,238
Additional paid-in capital	941,709			940,796			938,922
Accumulated other comprehensive loss	(16,559		)	(17,118		)	(29,314		)
Retained earnings	4,099,256			3,994,211			3,912,626
Less treasury stock, at cost	(3,289,439		)	(3,123,822		)	(3,006,317		)

Total stockholders’ equity	1,736,205			1,795,305			1,817,155


Total liabilities and stockholders’ equity	$	4,184,228		$	3,863,901		$	4,378,400

See notes to condensed consolidated financial statements.

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DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

(Unaudited)

(In Thousands, Except Per Share Data)



	Three Months Ended						Nine Months Ended
	October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015
Net sales	$	1,365,609		$	1,434,654		$	4,321,296		$	4,521,925
Service charges and other income	40,886			38,200			112,746			115,191

	1,406,495			1,472,854			4,434,042			4,637,116

Cost of sales	878,865			912,920			2,810,803			2,893,670
Selling, general and administrative expenses	410,563			412,715			1,204,051			1,220,553
Depreciation and amortization	60,681			65,600			181,933			187,253
Rentals	5,668			5,804			17,538			17,280
Interest and debt expense, net	15,619			14,872			47,312			44,864
Loss (gain) on disposal of assets	23			(9,400		)	(853		)	(9,495		)

Income before income taxes and income on and equity in earnings of joint ventures	35,076			70,343			173,258			282,991
Income taxes	12,290			24,970			60,980			98,660
Income on and equity in earnings of joint ventures	12			371			34			934

Net income	22,798			45,744			112,312			185,265

Retained earnings at beginning of period	4,078,824			3,869,549			3,994,211			3,734,891
Cash dividends declared	(2,366		)	(2,667		)	(7,267		)	(7,530		)

Retained earnings at end of period	$	4,099,256		$	3,912,626		$	4,099,256		$	3,912,626

Earnings per share:
Basic and diluted	$	0.67		$	1.19		$	3.24		$	4.65

Cash dividends declared per common share	$	0.07		$	0.07		$	0.21		$	0.19

See notes to condensed consolidated financial statements.

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DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In Thousands)



	Three Months Ended				Nine Months Ended
	October 29, 2016		October 31, 2015		October 29, 2016		October 31, 2015
Net income	$	22,798	$	45,744	$	112,312	$	185,265
Other comprehensive income:
Amortization of retirement plan and other retiree benefit adjustments (net of tax of $114, $352, $344 and $1,057, respectively)	187		572		559		1,715

Comprehensive income	$	22,985	$	46,316	$	112,871	$	186,980

See notes to condensed consolidated financial statements.

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DILLARD’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)



	Nine Months Ended
	October 29, 2016			October 31, 2015
Operating activities:
Net income	$	112,312		$	185,265
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and other deferred cost	183,549			188,847
Gain on disposal of assets	(853		)	(9,495		)
Changes in operating assets and liabilities:
Decrease in accounts receivable	4,671			9,396
Increase in merchandise inventories	(529,212		)	(558,992		)
Increase in other current assets	(13,198		)	(22,893		)
Decrease in other assets	6,626			1,172
Increase in trade accounts payable and accrued expenses and other liabilities	433,797			373,972
Decrease in income taxes	(71,787		)	(83,981		)

Net cash provided by operating activities	125,905			83,291

Investing activities:
Purchases of property and equipment	(73,374		)	(141,929		)
Proceeds from disposal of assets	1,049			19,422
Investment in joint venture	(20,000		)	—
Decrease in restricted cash	—			7,346

Net cash used in investing activities	(92,325		)	(115,161		)

Financing activities:
Principal payments on long-term debt and capital lease obligations	(3,046		)	(5,081		)
Issuance cost of line of credit	—			(2,863		)
Increase in short-term borrowings	17,000			126,000
Cash dividends paid	(7,414		)	(7,334		)
Purchase of treasury stock	(162,507		)	(382,494		)

Net cash used in financing activities	(155,967		)	(271,772		)

Decrease in cash and cash equivalents	(122,387		)	(303,642		)
Cash and cash equivalents, beginning of period	202,869			403,752

Cash and cash equivalents, end of period	$	80,482		$	100,110

Non-cash transactions:
Accrued capital expenditures	$	7,500		$	5,797
Accrued purchases of treasury stock	3,110			—
Stock awards	913			929
Insurance recoveries	2,761			—
Capital lease transactions	—			9,093

See notes to condensed consolidated financial statements.

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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 and nine months ended October 29, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending January 28, 2017 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 January 30, 2016 filed with the SEC on March 23, 2016.

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. Business Segments

The Company operates in two 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 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 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.

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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 October 29, 2016:
Net sales from external customers	$	1,322,641	$	42,968		$	1,365,609
Gross profit	484,441		2,303			486,744
Depreciation and amortization	60,513		168			60,681
Interest and debt expense (income), net	15,637		(18		)	15,619
Income before income taxes and income on and equity in earnings of joint ventures	34,333		743			35,076
Income on and equity in earnings of joint ventures	12		—			12
Total assets	4,130,023		54,205			4,184,228

Three Months Ended October 31, 2015:
Net sales from external customers	$	1,381,821	$	52,833		$	1,434,654
Gross profit	520,033		1,701			521,734
Depreciation and amortization	65,437		163			65,600
Interest and debt expense (income), net	14,887		(15		)	14,872
Income before income taxes and income on and equity in earnings of joint ventures	69,734		609			70,343
Income on and equity in earnings of joint ventures	371		—			371
Total assets	4,318,160		60,240			4,378,400

Nine Months Ended October 29, 2016:
Net sales from external customers	$	4,175,439	$	145,857		$	4,321,296
Gross profit	1,503,895		6,598			1,510,493
Depreciation and amortization	181,421		512			181,933
Interest and debt expense (income), net	47,360		(48		)	47,312
Income before income taxes and income on and equity in earnings of joint ventures	171,032		2,226			173,258
Income on and equity in earnings of joint ventures	34		—			34
Total assets	4,130,023		54,205			4,184,228

Nine Months Ended October 31, 2015:
Net sales from external customers	$	4,367,890	$	154,035		$	4,521,925
Gross profit	1,622,672		5,583			1,628,255
Depreciation and amortization	186,915		338			187,253
Interest and debt expense (income), net	44,908		(44		)	44,864
Income before income taxes and income on and equity in earnings of joint ventures	280,934		2,057			282,991
Income on and equity in earnings of joint ventures	934		—			934
Total assets	4,318,160		60,240			4,378,400

Intersegment construction revenues of $22.4 million and $22.9 million for the three months ended October 29, 2016 and October 31, 2015, respectively, and $55.5 million and $65.4 million for the nine months ended October 29, 2016 and October 31, 2015, respectively, were eliminated during consolidation and have been excluded from net sales for the respective periods.

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Note 3. Earnings Per Share Data

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



	Three Months Ended				Nine Months Ended
	October 29, 2016		October 31, 2015		October 29, 2016		October 31, 2015
Net income	$	22,798	$	45,744	$	112,312	$	185,265

Weighted average shares of common stock outstanding	33,962		38,341		34,717		39,876

Basic and diluted earnings per share	$	0.67	$	1.19	$	3.24	$	4.65

The Company maintains a capital structure in which common stock is the only equity security issued and outstanding, and there were no shares of preferred stock, stock options, other dilutive securities or potentially dilutive securities issued or outstanding during the three and nine months ended October 29, 2016 and October 31, 2015.

Note 4. 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 October 29, 2016, letters of credit totaling $26.4 million were issued under the Company’s revolving credit facility.

Note 5. 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 and $3.3 million to the Pension Plan during the three and nine months ended October 29, 2016 and expects to make additional contributions to the Pension Plan of approximately $1.1 million during the remainder of fiscal 2016.

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



	Three Months Ended				Nine Months Ended
	October 29, 2016		October 31, 2015		October 29, 2016		October 31, 2015
Components of net periodic benefit costs:
Service cost	$	983	$	983	$	2,950	$	2,949
Interest cost	1,920		1,684		5,759		5,052
Net actuarial loss	301		924		903		2,772
Net periodic benefit costs	$	3,204	$	3,591	$	9,612	$	10,773

Net periodic benefit costs are included in selling, general and administrative expenses.

Note 6. Revolving Credit Agreement

At October 29, 2016, the Company maintained a $1.0 billion unsecured revolving credit facility (“credit agreement”). The credit agreement matures on May 13, 2020 and is available to the Company for working capital needs and general corporate purposes. The Company pays a variable rate of interest on borrowings under the credit agreement and a commitment fee to the participating banks based on the Company's debt rating. The rate of interest on borrowings is LIBOR plus 1.375%, and the commitment fee for unused borrowings is 0.20% per annum.

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At October 29, 2016, $17.0 million in borrowings were outstanding, and letters of credit totaling $26.4 million were issued under the credit agreement leaving unutilized availability under the facility of approximately $956.6 million. The weighted average interest rate under the credit agreement for the borrowings outstanding at October 29, 2016 was 1.88%.

To be in compliance with the financial covenants of the credit agreement, the Company's total leverage ratio cannot exceed 4.0 to 1.0, and the coverage ratio cannot be less than 2.5 to 1.0. At October 29, 2016, the Company was in compliance with all financial covenants related to the credit agreement.

Note 7. Stock Repurchase Programs

The Company’s Board of Directors has authorized the Company to repurchase the Company’s Class A Common Stock under open-ended stock plans. These authorizations permit 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. On February 25, 2016, the Company’s Board of Directors authorized the Company to repurchase $500 million of the Company’s Class A Common Stock under an open-ended stock repurchase plan. The authorization has no expiration date.

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



	Three Months Ended				Nine Months Ended
	October 29, 2016		October 31, 2015		October 29, 2016		October 31, 2015
Cost of shares repurchased	$	53.1	$	174.6	$	165.6	$	382.5
Number of shares repurchased	0.9		1.9		2.5		3.7
Average price per share	$	61.64	$	92.45	$	67.13	$	102.52

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. As of October 29, 2016, $334.4 million of authorization remained under the Company's stock repurchase plan.

Note 8. Income Taxes

During the three months ended October 29, 2016, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes partially offset by tax benefits recognized for federal tax credits. During the three months ended October 31, 2015, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes.

During the nine months ended October 29, 2016, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes partially offset by tax benefits recognized for federal tax credits. During the nine months ended October 31, 2015, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes.

Note 9. Reclassifications from Accumulated Other Comprehensive Loss (“AOCL”)

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



	Amount Reclassified from AOCL
	Three Months Ended				Nine Months Ended				Affected Line Item in the Statement Where Net Income Is Presented
Details about AOCL Components	October 29, 2016		October 31, 2015		October 29, 2016		October 31, 2015
Defined benefit pension plan items
Amortization of actuarial losses	$	301	$	924	$	903	$	2,772	Total before tax (1)
	114		352		344		1,057		Income tax expense
	$	187	$	572	$	559	$	1,715	Total net of tax

_______________________________

(1) These items are included in the computation of net periodic pension cost. See Note 5, Benefit Plans, for additional information.

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Note 10. 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						Nine Months Ended
	October 29, 2016			October 31, 2015			October 29, 2016			October 31, 2015
Beginning balance	$	16,746		$	29,886		$	17,118		$	31,029

Other comprehensive income before reclassifications	—			—			—			—
Amounts reclassified from AOCL	(187		)	(572		)	(559		)	(1,715		)
Net other comprehensive income	(187		)	(572		)	(559		)	(1,715		)

Ending balance	$	16,559		$	29,314		$	16,559		$	29,314

Note 11. 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 or dealer quotes.

The fair value of the Company’s cash and cash equivalents and accounts receivable approximates their carrying values at October 29, 2016 due to the short-term maturities of these instruments. The fair value of the Company’s long-term debt at October 29, 2016 was approximately $692 million. The carrying value of the Company’s long-term debt at October 29, 2016 was $613.2 million. The fair value of the Company’s subordinated debentures at October 29, 2016 was approximately $210 million. The carrying value of the Company’s subordinated debentures at October 29, 2016 was $200.0 million.

Note 12. Recently Issued Accounting Standards

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

This update was amended by ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date for the Company from the first quarter of fiscal 2017 to the first quarter of fiscal 2018 with early adoption permitted.

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This ASU clarifies the implementation guidance on principal versus agent considerations, as it assists in the determination of whether the entity controls the good or service before it is transferred to the customer.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. This ASU clarifies two aspects of Topic 606, including identifying performance obligations and the licensing implementation guidance, while retaining the principles for those areas.

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In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. This ASU clarifies three aspects of Topic 606, including the objective of the collectibility criterion, the measurement date for noncash consideration and the requirements for a completed contract. The ASU also includes a practical expedient for contract modifications. Additionally, the amendments allow an entity to exclude amounts collected from customers for all sales taxes from the transaction price.

The Company is currently assessing the impact of these updates on its consolidated financial statements.

Presentation of Financial Statements - Going Concern

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. This ASU is effective for reporting periods ending after December 15, 2016, and we plan to adopt this ASU for the annual period ending on January 28, 2017. We do not believe the adoption of this guidance will have a material impact on the Company's consolidated financial statements.

Balance Sheet Classification of Deferred Taxes

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, to simplify the presentation of deferred taxes in the balance sheet. Under this amendment, entities will no longer be required to separate deferred income tax liabilities and assets into current and noncurrent amounts in the balance sheet. Rather, the amendment requires deferred tax liabilities and assets be classified as noncurrent in the balance sheet. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and early adoption is permitted as of the beginning of an interim or annual reporting period. The Company elected to adopt the accounting standard in the beginning of the fourth quarter of fiscal 2015. The prior period in our consolidated financial statements was retrospectively adjusted.

Simplifying the Presentation of Debt Issuance Costs

In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, to amend Accounting Standards Codification ("ASC") Topic 835. The amendment adds the requirement for an entity to present debt issuance costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset and to report amortization of the debt issuance costs as interest expense. ASU No. 2015-03 requires retrospective application and represents a change in accounting principle. The Company adopted ASU No. 2015-03 during the first quarter of fiscal 2016, using retrospective application as permitted. Prior period amounts in our condensed consolidated financial statements have been reclassified to conform with current presentation. As a result, the Company reclassified $1.7 million and $1.8 million of debt issuance costs from other assets to reduce long-term debt on our condensed consolidated balance sheets at January 30, 2016 and October 31, 2015, respectively.

Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements

In August 2015, the FASB issued ASU No. 2015-15, Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, to provide authoritative guidance related to line-of-credit arrangements, which were not addressed in ASU No. 2015-03. An entity may defer and present debt issuance costs related to line-of-credit arrangements as an asset. Subsequently, the debt issuance costs may be amortized as interest expense ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company adopted ASU No. 2015-15 at the beginning of the first quarter of fiscal 2016. The adoption of this guidance had no impact on the Company's consolidated financial statements.

Simplifying the Measurement of Inventory

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, to simplify the measurement of inventory using the first-in, first out (FIFO) or average cost methods. Under this amendment, inventory under the FIFO or average cost methods should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This update will be effective for the Company beginning in the first quarter of fiscal 2017. Approximately 96% of the Company's merchandise inventories are valued using the retail inventory method, which is

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outside the scope of this ASU. The remaining 4% of the Company's merchandise inventories are valued at the lower of cost or market using the average cost or specific identified cost methods, and the Company is evaluating the effect of this update on these inventory values. The adoption of this guidance is not expected to have a significant impact on the Company's consolidated financial statements.

Leases: Amendments to the FASB Accounting Standards Codification

In February 2016, the FASB issued 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 ASC 840. ASU No. 2016-02 is effective for financial statements issued for fiscal years beginning after December 15, 2018, and early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to reduce the diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments within ASU No. 2016-15 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

Intra-Entity Transfers of Assets Other Than Inventory

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, as part of its initiative to reduce complexity in accounting standards. Under these amendments, an entity is required to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments within ASU No. 2016-16 are effective for financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

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 January 30, 2016.

EXECUTIVE OVERVIEW

The Company's third quarter performance of fiscal 2016 continued to reflect the current challenges facing department store retailers, as our sales decline continued to weigh heavily on profitability. During the three months ended October 29, 2016, comparable store sales declined 4% over last year's third quarter. Gross margin from retail operations decreased 100 basis points of net sales primarily due to increased markdowns. Selling, general and administrative expenses ("SG&A") from retail operations increased 115 basis points of net sales while SG&A decreased $2.4 million. Net income decreased $22.9 million to $22.8 million ($0.67 per share) for the current year third quarter from $45.7 million ($1.19 per share) for the prior year third quarter.

During the three months ended October 29, 2016, the Company purchased $53.1 million of Class A Common Stock under its $500 million stock repurchase plan (including the accrual of $3.1 million of share repurchases that had not settled as of October 29, 2016). As of October 29, 2016, authorization of $334.4 million remained under the plan.

As of October 29, 2016, the Company had working capital of $947.1 million, cash and cash equivalents of $80.5 million and $830.2 million of total debt outstanding, excluding capital lease obligations. Cash flows from operating activities were $125.9 million for the nine months ended October 29, 2016.

The Company currently operates 271 Dillard's locations, 23 clearance centers and one internet store.

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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
	October 29, 2016			October 31, 2015
Net sales (in millions)	$	1,365.6		$	1,434.7
Retail stores sales trend	(4		)%	(3		)%
Comparable retail stores sales trend	(4		)%	(4		)%
Gross profit (in millions)	$	486.7		$	521.7
Gross profit as a percentage of net sales	35.6		%	36.4		%
Retail gross profit as a percentage of net sales	36.6		%	37.6		%
Selling, general and administrative expenses as a percentage of net sales	30.1		%	28.8		%
Cash flow from operations (in millions)*	$	125.9		$	83.3
Total retail store count at end of period**	294			297
Retail sales per square foot	$	27		$	28
Comparable retail store inventory trend	(1		)%	6		%
Annualized retail merchandise inventory turnover	2.1			2.1

*Cash flow from operations data is for the nine months ended October 29, 2016 and October 31, 2015.

**Total retail store count includes our retail store in Chesterfield, Missouri that has been temporarily closed due to water damage. We plan to re-open the store in fiscal 2017.

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. 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.

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”) and former private label card alliance with Synchrony Financial ("Synchrony 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 and non-specific margin maintenance allowances), bankcard fees, freight to the distribution centers, employee and promotional discounts, 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.

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Rentals. Rentals includes expenses for store leases, including contingent rent, 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 capital lease obligations.

Gain on disposal of assets. Gain on disposal of assets includes the net gain or loss on the sale or disposal of property and equipment.

Income on and equity in earnings of joint ventures. Income on and equity in earnings of joint ventures includes the Company’s portion of the income or loss of the Company’s unconsolidated joint ventures.

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				Nine Months Ended
	October 29, 2016		October 31, 2015		October 29, 2016		October 31, 2015
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Service charges and other income	3.0		2.7		2.6		2.5

	103.0		102.7		102.6		102.5

Cost of sales	64.4		63.6		65.0		64.0
Selling, general and administrative expenses	30.1		28.8		27.9		27.0
Depreciation and amortization	4.4		4.6		4.2		4.1
Rentals	0.4		0.4		0.4		0.4
Interest and debt expense, net	1.1		1.0		1.1		1.0
Loss (gain) on disposal of assets	—		(0.7	)	—		(0.2	)

Income before income taxes and income on and equity in earnings of joint ventures	2.6		4.9		4.0		6.3
Income taxes	0.9		1.7		1.4		2.2
Income on and equity in earnings of joint ventures	—		—		—		—

Net income	1.7	%	3.2	%	2.6	%	4.1	%

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Net Sales



	Three Months Ended
(in thousands of dollars)	October 29, 2016		October 31, 2015		$ Change
Net sales:
Retail operations segment	$	1,322,641	$	1,381,821	$	(59,180	)
Construction segment	42,968		52,833		(9,865		)
Total net sales	$	1,365,609	$	1,434,654	$	(69,045	)

The percent change in the Company’s sales by segment and product category for the three months ended October 29, 2016 compared to the three months ended October 31, 2015 as well as the sales percentage by segment and product category to total net sales for the three months ended October 29, 2016 are as follows:



	% Change 2016-2015		% of Net Sales
Retail operations segment
Cosmetics	(6.3	)%	15	%
Ladies’ apparel	(2.5	)	23
Ladies’ accessories and lingerie	(6.3	)	13
Juniors’ and children’s apparel	(2.3	)	10
Men’s apparel and accessories	(3.2	)	17
Shoes	(6.0	)	16
Home and furniture	(1.5	)	3
			97
Construction segment	(18.7	)	3
Total			100	%

Net sales from the retail operations segment decreased $59.2 million during the three months ended October 29, 2016 compared to the three months ended October 31, 2015, decreasing 4% in both total and comparable stores. Sales of ladies' accessories and lingerie, cosmetics and shoes decreased significantly over the third quarter last year. Sales of ladies' apparel, men's apparel and accessories, juniors' and children's apparel and home and furniture decreased moderately.

The number of sales transactions decreased 6% for the three months ended October 29, 2016 compared to the three months ended October 31, 2015 while the average dollars per sales transaction increased 1%. We recorded an allowance for sales returns of $5.7 million and $5.8 million as of October 29, 2016 and October 31, 2015, respectively.

During the three months ended October 29, 2016, net sales from the construction segment decreased $9.9 million or 18.7% compared to the three months ended October 31, 2015 due to a decrease in construction projects. The backlog of awarded construction contracts at October 29, 2016 totaled $278.3 million, increasing approximately 66% from January 30, 2016 and increasing approximately 27% from October 31, 2015. We expect the backlog to be earned over the next nine to twenty-four months.



	Nine Months Ended
(in thousands of dollars)	October 29, 2016		October 31, 2015		$ Change
Net sales:
Retail operations segment	$	4,175,439	$	4,367,890	$	(192,451	)
Construction segment	145,857		154,035		(8,178		)
Total net sales	$	4,321,296	$	4,521,925	$	(200,629	)

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The percent change in the Company’s sales by segment and product category for the nine months ended October 29, 2016 compared to the nine months ended October 31, 2015 as well as the sales percentage by segment and product category to total net sales for the nine months ended October 29, 2016 are as follows:



	% Change 2016-2015		% of Net Sales
Retail operations segment
Cosmetics	(4.9	)%	14	%
Ladies’ apparel	(3.5	)	24
Ladies’ accessories and lingerie	(6.9	)	14
Juniors’ and children’s apparel	(4.5	)	9
Men’s apparel and accessories	(3.5	)	17
Shoes	(3.4	)	16
Home and furniture	(6.7	)	3
			97
Construction segment	(5.3	)	3
Total			100	%

Net sales from the retail operations segment decreased $192.5 million during the nine months ended October 29, 2016 compared to the nine months ended October 31, 2015, decreasing 4% in total and 5% in comparable stores. Sales of ladies' accessories and lingerie, cosmetics and home and furniture decreased significantly over the prior year period. Sales of ladies' apparel, juniors' and children's apparel, men's apparel and accessories and shoes decreased moderately over the prior year period.

The number of sales transactions decreased 6% for the nine months ended October 29, 2016 compared to the nine months ended October 31, 2015 while the average dollars per sales transaction increased 2%.

During the nine months ended October 29, 2016, net sales from the construction segment decreased $8.2 million or 5.3% compared to the nine months ended October 31, 2015 due to a decrease in construction activity.

Service Charges and Other Income



	Three Months Ended				Nine Months Ended				Three Months			Nine Months
(in thousands of dollars)	October 29, 2016		October 31, 2015		October 29, 2016		October 31, 2015		$ Change 2016-2015			$ Change 2016-2015
Service charges and other income:
Retail operations segment
Income from Wells Fargo Alliance and former Synchrony Alliance	$	27,711	$	27,448	$	75,603	$	78,176	$	263		$	(2,573	)
Shipping and handling income	6,309		5,420		19,366		17,219		889			2,147
Leased department income	1,659		1,570		5,111		4,983		89			128
Other	4,987		3,344		12,091		14,076		1,643			(1,985		)
	40,666		37,782		112,171		114,454		2,884			(2,283		)
Construction segment	220		418		575		737		(198		)	(162		)
Total service charges and other income	$	40,886	$	38,200	$	112,746	$	115,191	$	2,686		$	(2,445	)

Service charges and other income is composed primarily of income from the Wells Fargo Alliance and former Synchrony Alliance. Income from the alliances decreased during the nine months ended October 29, 2016 compared to the nine months ended October 31, 2015 primarily due to a decrease in income from the former Synchrony Alliance.

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Gross Profit



(in thousands of dollars)	October 29, 2016		October 31, 2015		$ Change			% Change
Gross profit:
Three months ended
Retail operations segment	$	484,441	$	520,033	$	(35,592	)	(6.8	)%
Construction segment	2,303		1,701		602			35.4
Total gross profit	$	486,744	$	521,734	$	(34,990	)	(6.7	)%

Nine months ended
Retail operations segment	$	1,503,895	$	1,622,672	$	(118,777	)	(7.3	)%
Construction segment	6,598		5,583		1,015			18.2
Total gross profit	$	1,510,493	$	1,628,255	$	(117,762	)	(7.2	)%



	Three Months Ended				Nine Months Ended
	October 29, 2016		October 31, 2015		October 29, 2016		October 31, 2015
Gross profit as a percentage of segment net sales:
Retail operations segment	36.6	%	37.6	%	36.0	%	37.2	%
Construction segment	5.4		3.2		4.5		3.6
Total gross profit as a percentage of net sales	35.6		36.4		35.0		36.0

Gross profit declined 73 basis points of net sales and 106 basis points of net sales during the three and nine months ended October 29, 2016 compared to the three and nine months ended October 31, 2015, respectively.

Gross profit from retail operations declined 100 basis points of net sales during the three months ended October 29, 2016 compared to the three months ended October 31, 2015 primarily due to higher markdowns. Gross margin declined moderately in men's apparel and accessories and home and furniture. Gross margin declined slightly in ladies' accessories and lingerie. Gross margin remained essentially flat in ladies' apparel, shoes, cosmetics and juniors' and children's apparel.

Gross profit from retail operations declined 113 basis points of net sales during the nine months ended October 29, 2016 compared to the nine months ended October 31, 2015 primarily due to higher markdowns. Gross margin declined moderately in ladies' accessories and lingerie, men’s apparel and accessories and home and furniture. Gross margin declined slightly in juniors’ and children’s apparel, while remaining essentially flat in cosmetics, shoes and ladies' apparel.

Gross profit from the construction segment increased 214 basis points and 90 basis points of construction sales for the three and nine months ended October 29, 2016, respectively.

Inventory decreased 2% in total and 1% in comparable stores as of October 29, 2016 compared to October 31, 2015. A 1% change in the dollar amount of markdowns would have impacted net income by approximately $2 million and $7 million for the three and nine months ended October 29, 2016, respectively.

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



(in thousands of dollars)	October 29, 2016		October 31, 2015		$ Change			% Change
SG&A:
Three months ended
Retail operations segment	$	408,943	$	411,362	$	(2,419	)	(0.6	)%
Construction segment	1,620		1,353		267			19.7
Total SG&A	$	410,563	$	412,715	$	(2,152	)	(0.5	)%

Nine months ended
Retail operations segment	$	1,199,597	$	1,216,621	$	(17,024	)	(1.4	)%
Construction segment	4,454		3,932		522			13.3
Total SG&A	$	1,204,051	$	1,220,553	$	(16,502	)	(1.4	)%



	Three Months Ended				Nine Months Ended
	October 29, 2016		October 31, 2015		October 29, 2016		October 31, 2015
SG&A as a percentage of segment net sales:
Retail operations segment	30.9	%	29.8	%	28.7	%	27.9	%
Construction segment	3.8		2.6		3.1		2.6
Total SG&A as a percentage of net sales	30.1		28.8		27.9		27.0

SG&A increased 129 basis points of net sales during the three months ended October 29, 2016 compared to the three months ended October 31, 2015 while total SG&A decreased $2.2 million. SG&A from retail operations increased 115 basis points of net sales during the three months ended October 29, 2016 compared to the three months ended October 31, 2015 while total SG&A from retail operations decreased by $2.4 million. This decrease was primarily due to a decrease of $4.6 million in several expense categories, primarily advertising expense ($1.6 million) and services purchased ($1.3 million), which were partially offset by increases in payroll expense ($2.3 million) and insurance expense ($0.8 million).

SG&A increased 87 basis points of net sales during the nine months ended October 29, 2016 compared to the nine months ended October 31, 2015 while total SG&A decreased $16.5 million. SG&A from retail operations increased 88 basis points of net sales during the nine months ended October 29, 2016 compared to the nine months ended October 31, 2015 while total SG&A from retail operations decreased by $17.0 million. This decrease was primarily due to a decrease in advertising expense ($6.3 million), services purchased ($5.8 million), supplies ($5.4 million) and utilities expense ($3.6 million) partially offset by an increase in insurance expense ($4.3 million).

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Depreciation and Amortization



(in thousands of dollars)	October 29, 2016		October 31, 2015		$ Change			% Change
Depreciation and amortization:
Three months ended
Retail operations segment	$	60,513	$	65,437	$	(4,924	)	(7.5	)%
Construction segment	168		163		5			3.1
Total depreciation and amortization	$	60,681	$	65,600	$	(4,919	)	(7.5	)%

Nine months ended
Retail operations segment	$	181,421	$	186,915	$	(5,494	)	(2.9	)%
Construction segment	512		338		174			51.5
Total depreciation and amortization	$	181,933	$	187,253	$	(5,320	)	(2.8	)%

Depreciation and amortization expense for the three and nine months ended October 29, 2016 compared to the three and nine months ended October 31, 2015 decreased $4.9 million and $5.3 million, respectively, due to the timing and composition of capital expenditures.

Interest and Debt Expense, Net



(in thousands of dollars)	October 29, 2016			October 31, 2015			$ Change			% Change
Interest and debt expense (income), net:
Three months ended
Retail operations segment	$	15,637		$	14,887		$	750		5.0	%
Construction segment	(18		)	(15		)	(3		)	(20.0	)
Total interest and debt expense, net	$	15,619		$	14,872		$	747		5.0	%

Nine months ended
Retail operations segment	$	47,360		$	44,908		$	2,452		5.5	%
Construction segment	(48		)	(44		)	(4		)	(9.1	)
Total interest and debt expense, net	$	47,312		$	44,864		$	2,448		5.5	%

The increase in net interest and debt expense for the three and nine months ended October 29, 2016 compared to the three and nine months ended October 31, 2015 was primarily attributable to a decrease in capitalized interest. Total weighted average debt decreased by $17.6 million during the three months ended October 29, 2016 and increased $9.4 million for the nine months ended October 29, 2016 compared to the three and nine months ended October 31, 2015, respectively.

Income Taxes

The Company’s estimated federal and state effective income tax rate, inclusive of income on and equity in earnings of joint ventures, was approximately 35.0% and 35.3% for the three months ended October 29, 2016 and October 31, 2015, respectively. During the three months ended October 29, 2016, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes partially offset by tax benefits recognized for federal tax credits. During the three months ended October 31, 2015, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes.

The Company’s estimated federal and state effective income tax rate, inclusive of income on and equity in earnings of joint ventures, was approximately 35.2% and 34.7% for the nine months ended October 29, 2016 and October 31, 2015, respectively. During the nine months ended October 29, 2016, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes partially offset by tax benefits recognized for federal tax credits. During the nine months ended October 31, 2015, income tax expense differed from what would be computed using the statutory federal tax rate primarily due to the effect of state and local income taxes.

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The Company expects the fiscal 2016 federal and state effective income tax rate to approximate 35%. This rate may change if results of operations for fiscal 2016 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.

FINANCIAL CONDITION

A summary of net cash flows for the nine months ended October 29, 2016 and October 31, 2015 follows:



	Nine Months Ended
(in thousands of dollars)	October 29, 2016			October 31, 2015			$ Change
Operating Activities	$	125,905		$	83,291		$	42,614
Investing Activities	(92,325		)	(115,161		)	22,836
Financing Activities	(155,967		)	(271,772		)	115,805
Total Cash Used	$	(122,387	)	$	(303,642	)	$	181,255

Net cash flows from operations increased $42.6 million during the nine months ended October 29, 2016 compared to the nine months ended October 31, 2015. This increase was primarily attributable to an increase of $112.2 million related to changes in working capital items, primarily due to increases in accounts payable and accrued expenses as well as changes in merchandise inventories, income taxes and other current assets. This increase in cash flow from operations was partially offset by a decrease in gross profit.

Synchrony Financial ("Synchrony") previously owned and managed Dillard’s private label credit cards under the Synchrony Alliance that expired in November 2014. Following that scheduled expiration, Wells Fargo Bank, N.A. ("Wells Fargo") purchased the Dillard's private label card portfolio from Synchrony and began managing 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 earned on the portfolio is determined monthly and has no recourse provisions. The amount the Company recognizes 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, Wells Fargo's ability to extend credit to our customers as well as the cost of customer rewards programs. We participate in the marketing of the private label cards, which includes the cost of customer reward programs. We accept payments on the private label cards in our stores as a convenience to customers who prefer to pay in person rather than by paying online or mailing their payments to Wells Fargo. The Wells Fargo Alliance expires in fiscal 2024.

The Company received income of approximately $75.6 million and $78.2 million from the Wells Fargo Alliance and former Synchrony Alliance during the nine months ended October 29, 2016 and October 31, 2015, respectively.

Capital expenditures were $73.4 million and $141.9 million for the nine months ended October 29, 2016 and October 31, 2015, respectively. The decline in capital expenditures was primarily related to the construction of new stores during the comparable prior year period. Capital expenditures for fiscal 2016 are expected to be approximately $100 million compared to actual expenditures of $166 million during fiscal 2015.

Changes in restricted cash balances are reflected as an investment activity in the accompanying condensed consolidated statements of cash flows. During the nine months ended October 31, 2015, payments of $7.3 million were made from restricted cash for like-kind property.

We opened a replacement store in Four Seasons Town Centre in Greensboro, North Carolina (210,000 square feet) in October 2016. We closed the Aiken store in Aiken, South Carolina (105,000 square feet) in May 2016, the South Towne clearance center in Sandy, Utah (100,000 square feet) in July 2016 and the Six Flags clearance center in Arlington, Texas (85,000 square feet) in August 2016. We remain committed to closing under-performing stores where appropriate and may incur future closing costs related to these stores when they close.

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During the three months ended October 29, 2016, we temporarily closed our full-line store in Chesterfield, Missouri due to water damage. Property and merchandise losses are covered by insurance, and no material loss to the financial statements is expected. We plan to reopen the store in fiscal 2017.

During the three months ended October 29, 2016, the Company invested $20.0 million in an existing open air center joint venture located in Bonita Springs, Florida. The investment was funded using cash on hand. The joint venture used these funds in the refinancing of its debt.

The Company had cash on hand of $80.5 million as of October 29, 2016. As part of our overall liquidity management strategy and for peak working capital requirements, the Company maintains a $1.0 billion unsecured credit facility. The credit facility is available for working capital needs and general corporate purposes. The rate of interest on borrowings is LIBOR plus 1.375%, and the commitment fee for unused borrowings is 0.20% per annum. To be in compliance with the financial covenants of the credit agreement, the Company's total leverage ratio cannot exceed 4.0 to 1.0, and the Company's coverage ratio cannot be less than 2.5 to 1.0. At October 29, 2016, the Company was in compliance with all financial covenants related to the credit agreement.

During the nine months ended October 29, 2016, the Company repurchased 2.5 million shares of Class A Common Stock at an average price of $67.13 per share for $165.6 million (including the accrual of $3.1 million of share repurchases that had not settled as of October 29, 2016). During the nine months ended October 31, 2015, the Company repurchased 3.7 million shares of its Common Stock at an average price of $102.52 for $382.5 million. At October 29, 2016, $334.4 million of authorization remained under the Company's stock repurchase plan. The ultimate disposition of the repurchased stock has not been determined.

During fiscal 2016, the Company expects to finance its capital expenditures, working capital requirements and stock repurchases from cash on hand, cash flows generated from operations and utilization of the credit facility. Depending on conditions in the capital markets and other factors, the Company may from time to time consider other possible financing transactions, the proceeds of which could be used to refinance current indebtedness 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 January 30, 2016.

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.

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NEW ACCOUNTING STANDARDS

For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 12 to the accompanying interim condensed financial statements.

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 2016 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 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) general retail industry conditions and macro-economic conditions; economic and weather conditions for regions in which the Company’s stores are located and the effect of these factors on the buying patterns of the 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 spending patterns, debt levels and their ability to meet credit obligations; changes in legislation, affecting such matters as the cost of employee benefits or credit card income; adequate and stable availability of materials, production facilities and labor from which the Company sources its merchandise at acceptable pricing; 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 future business; fluctuations in LIBOR and other base borrowing rates; potential disruption from terrorist activity and the effect on ongoing consumer confidence; epidemic, pandemic or other public health issues; potential disruption of international trade and supply chain efficiencies; 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 January 30, 2016, 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 January 30, 2016.

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 October 29, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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 December 1, 2016, 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 in the information set forth under caption “Item 1A-Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2016.

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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
July 31, 2016 through August 27, 2016	111,238	$	65.99	111,238	$	380,152,415
August 28, 2016 through October 1, 2016	485,732	59.25		485,732	351,371,436
October 2, 2016 through October 29, 2016	264,656	64.19		264,656	334,382,937
Total	861,626	$	61.64	861,626	$	334,382,937

In February 2016, 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. 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 has no expiration date.

During the three months ended October 29, 2016, the Company repurchased 0.9 million shares totaling $53.1 million. Reference is made to the discussion in Note 7, Stock Repurchase Programs, 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.

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Item 6. Exhibits



Number		Description

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

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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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:	December 1, 2016	/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