10-K 1 f10k_012905.htm DILLARD'S, INC.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K


(Mark One)
|X|      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934
For the fiscal year ended January 29, 2005
                                                                  OR
|_|      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES
         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                           (IRS Employer
             of incorporation or organization)                      Identification Number)

                            1600 CANTRELL ROAD, LITTLE ROCK, ARKANSAS 72201
                                  (Address of principal executive office)
                                                (Zip Code)

                                               (501) 376-5200
                          (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
        Title of each Class                                       Name of each exchange on which registered
        Class A Common Stock                                               New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
         None
Indicate by checkmark  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.  Yes  |X|  No |_|
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained  herein,  and will not be contained,  to the best of Registrant's  knowledge,  in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K.  |_|
Indicated by checkmark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
 Yes |X|  No |_|
State the aggregate  market value of the voting and non-voting  common equity held by  non-affiliates  of the
Registrant as of July 31, 2004:  $1,771,477,069.
Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of
February 26, 2005:

              CLASS A COMMON STOCK, $.01 par value                   79,194,675
              CLASS B COMMON STOCK, $.01 par value                    4,010,929


                                     DOCUMENTS INCORPORATED BY REFERENCE

Portions  of the Proxy  Statement  for the  Annual  Meeting  of  Stockholders  to be held May 21,  2005
(the  "Proxy  Statement")  are  incorporated by reference into Part III.

Table of Contents
PART I
Item No. Page No.
1. Business. 4

2. Properties. 4

3. Legal Proceedings. 4

4. Submission of Matters to a Vote of Security Holders. 5

PART II

5. Market for Registrant's Common Equity, and Related Matters and Issuer Purchases of 6
Equity Securities.

6. Selected Financial Data. 7

7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 10

7A. Quantitative and Qualitative Disclosures about Market Risk. 24

8. Financial Statements and Supplementary Data. 24

9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 24

9A. Controls and Procedures. 24

9B. Other Information. 25
PART III

10. Directors and Executive Officers of the Registrant. 26

11. Executive Compensation. 27

12. Security Ownership of Certain Beneficial Owners and Management and Related 27
Stockholder Matters.

13. Certain Relationships and Related Transactions. 27

14. Principal Accountant Fees and Services. 27

PART IV

15. Exhibits and Financial Statement Schedule. 27

PART I
ITEM 1. BUSINESS.

General

Dillard's, Inc. (the "Company", "we", "us", "our" or "Registrant") is an outgrowth of a department store originally founded in 1938
by William Dillard. The Company was incorporated in Delaware in 1964. The Company operates retail department stores located
primarily in the Southwest, Southeast and Midwest.

We conduct our retail merchandise business under highly competitive conditions. Although we are a large regional department store,
we have numerous competitors at the national and local level that compete with our individual stores, including specialty,
off-price, discount, internet, and mail-order retailers. Competition is characterized by many factors including location,
reputation, assortment, advertising, price, quality, service and credit availability. We believe that our stores are in a strong
competitive position with regard to each of these factors. The Company's earnings depend to a significant extent on the results of
operations for the last quarter of its fiscal year. Due to holiday buying patterns, sales for that period average approximately
one-third of annual sales.

The Company's fiscal year ends on the Saturday nearest January 31 of each year. Fiscal years 2004, 2003 and 2002 ended on January
29, 2005, January 31, 2004 and February 1, 2003, respectively. Fiscal years 2004, 2003 and 2002 included 52 weeks.

For additional information with respect to our business, reference is made to information contained under the headings "Net sales,"
"Net income," "Total assets" and "Number of employees-average," under item 6 hereof.

The Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports are available free of charge on the Dillard's, Inc. web site:

www.dillards.com

The information contained on the Company's web site is not incorporated by reference into this Form 10-K and should not be
considered to be a part of this Form 10-K. These reports are available on the Company's web site as soon as reasonably practicable
after such material is electronically filed with or furnished to the Securities and Exchange Commission.

The Company's corporate offices are located at 1600 Cantrell Road, Little Rock, Arkansas 72201, telephone:501-376-5200.

ITEM 2. PROPERTIES.

All of our stores are owned or leased from third parties. Our third-party store leases typically provide for rental payments based
on a percentage of net sales with a guaranteed minimum annual rent. In general, the Company pays the cost of insurance, maintenance
and any increase in real estate taxes related to the leases. At January 29, 2005, there were 329 stores in operation with gross
square footage approximating 56.3 million feet. The Company owned a total of 264 stores with 45.0 million square feet. The Company
leased 65 stores from third parties, which totaled 11.3 million square feet. In addition, we have seven regional distribution
facilities of which we own six and lease one from a third party. Our principal executive offices are approximately 300,000 square
feet located in Little Rock, Arkansas. Additional information is contained in Notes 1, 3, 13 and 14 of "Notes to Consolidated
Financial Statements," in Item 8 hereof, and reference is made to information contained under the heading "Number of stores," under
item 6 hereof.

ITEM 3. LEGAL PROCEEDINGS.

On July 29, 2002, a Class Action Complaint (followed on December 13, 2004 by a Second Amended Class Action Complaint) was filed in
the United States District Court for the Southern District of Ohio against the Company, the Mercantile Stores Pension Plan (the
"Plan") and the Mercantile Stores Pension Committee (the "Committee") on behalf of a putative class of former Plan participants. The
complaint alleges that certain actions by the Plan and the Committee

violated the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), as a result of amendments made to the Plan
that allegedly were either improper and/or ineffective and as a result of certain payments made to certain beneficiaries of the
Plan that allegedly were improperly calculated and/or discriminatory on account of age. The Second Amended Complaint does not
specify any liquidated amount of damages sought and seeks recalculation of certain benefits paid to putative class members.
No trial date has been set.

From time to time, we are involved in other litigation relating to claims arising out of our operations in the normal course of
business. Such issues may relate to litigation with customers, employment related lawsuits, class action lawsuits, purported class
action lawsuits and actions brought by governmental authorities. As of April 2, 2005, we are not a party to any legal proceedings
that, individually or in the aggregate, are reasonably expected to have a material adverse effect on our business, results of
operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an
unfavorable resolution of one or more of these matters could have a material adverse effect on our business, results of operations,
financial condition or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted to a vote of security holders during the fourth quarter of the year ended January 29, 2005.

Executive Officers of the Company

The following table lists the names and ages of all Executive Officers of the Registrant, the nature of any family relationship
between them and all positions and offices with the Registrant presently held by each person named. All of the Executive Officers
listed below have been in managerial positions with the registrant for more than five years.

Name Age Position & Office Family Relationship

William Dillard, II 60 Director; Chief Executive Officer None

Alex Dillard 55 Director; President Brother of William Dillard, II

Mike Dillard 53 Director; Executive Vice President Brother of William Dillard, II

Joseph P. Brennan 60 Vice President None

G. Kent Burnett 60 Vice President None

Drue Corbusier 58 Director; Executive Vice President Sister of William Dillard, II

James I. Freeman 55 Director; Senior Vice President; Chief None
Financial Officer

Gaston Lemoine 61 Vice President None

Steven K. Nelson 47 Vice President None

Robin Sanderford 58 Vice President None

Paul J. Schroeder 56 Vice President None

Burt Squires 55 Vice President None

                                                            PART II

ITEM 5.      MARKET FOR REGISTRANT'S COMMON EQUITY, AND RELATED
              MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Company's Class A Common Stock trades on the New York Stock Exchange under the Ticker Symbol "DDS".  No public market currently
exists for the Class B Common Stock.

The high and low sales prices of the Company's Class A Common Stock, and dividends declared on each class of common stock, for each
quarter of fiscal 2004 and 2003 are presented in the table below:

                                                                                                  Dividends
                                   2004                             2003                          per Share     
                           High             Low             High             Low             2004            2003
First                    $19.16           $16.57          $15.10           $12.49           $0.04           $0.04
Second                    23.76            15.54           15.08            12.77            0.04            0.04
Third                     23.14            18.64           16.92            13.98            0.04            0.04
Fourth                    27.54            20.13           17.86            14.46            0.04            0.04 


While the Company  expects to continue  its cash  dividend  policy  during  fiscal 2005,  all  subsequent  dividends  will be reviewed
quarterly and declared by the board of directors.

As of February 26, 2005,  there were 4,567 record holders of the Company's  Class A Common Stock and 8 record holders of the Company's
Class B Common Stock.

In May 2000, the Company  announced that the Board of Directors  authorized the repurchase of up to $200 million of its Class A Common
Stock.  The plan has no expiration date and remaining  availability  pursuant to our share  repurchase  program is $16.1 million as of
January 29, 2005.  There were no issuer purchases of equity securities during the fourth quarter of 2004.

ITEM 6.  SELECTED FINANCIAL DATA.

The selected financial data set forth should be read in conjunction with the Company's  consolidated  audited financial statements and
notes thereto and the other information contained elsewhere in this report.


(Dollars in thousands of dollars, except per share data)
                                                     2004             2003             2002             2001            2000*
-------------------------------------------------------------------------------------------------------------------------------------
Net sales                                           $7,528,572       $7,598,934       $7,910,996       $8,154,911      $8,566,560
  Percent change                                           -1%              -4%              -3%              -5%             -1%
Cost of sales                                        5,017,765        5,170,173        5,254,134        5,507,702       5,802,147
  Percent of sales                                       66.6%            68.0%            66.4%            67.5%           67.8%
Interest and debt expense                              139,056          181,065          189,779          192,344         169,609
Income before taxes                                    184,551           15,994          204,261          120,963         183,531
Income taxes                                            66,885            6,650           72,335           49,165          59,390
Income before cumulative effect of
  accounting change                                    117,666            9,344          131,926           71,798         124,141
Cumulative effect of accounting change                       -                -        (530,331)(1)             -       (129,991)(2)
Net income (loss)                                      117,666            9,344        (398,405)           71,798         (5,850)
Per Diluted Common Share
  Income before cumulative effect of
    accounting change                                     1.41             0.11             1.55             0.85            1.36
  Cumulative effect of accounting change                     -                -           (6.22)                -          (1.42)
  Net income (loss)                                       1.41             0.11           (4.67)             0.85          (0.06)
  Dividends                                               0.16             0.16             0.16             0.16            0.16
  Book value                                             27.94            26.79            26.71            31.81           30.94
Average number of shares
  outstanding                                       83,739,431       83,899,974       85,316,200       84,486,747      91,199,184
Accounts receivable (3) (4)                              9,651        1,232,456        1,387,835        1,112,325       1,011,481
Merchandise inventories                              1,733,033        1,632,377        1,594,308        1,561,863       1,616,186
Property and equipment                               3,180,756        3,197,469        3,370,502        3,455,715       3,508,331
Total assets                                         5,691,581        6,411,097        6,675,932        7,074,559       7,199,309
Long-term debt (3) (4)                               1,322,824        1,855,065        2,193,006        2,124,577       2,374,124
Capitalized lease obligations                           20,182           17,711           18,600           20,459          22,453
Deferred income taxes                                  509,589          617,236          645,020          643,965         638,648
Guaranteed Preferred Beneficial Interests
  in the Company's Subordinated Debentures             200,000          200,000          531,579          531,579         531,579
Stockholders' equity                                 2,324,697        2,237,097        2,264,196        2,668,397       2,629,820
Number of employees - average                           53,035           53,598           55,208           57,257          58,796
Gross square footage (in thousands)                     56,300           56,000           56,700           56,800          56,500
Number of stores
  Opened                                                     8                5                4                6               4
  Acquired                                                   0                0                0                4               0
  Closed                                                     7               10                9                9               9
Total - end of year                                        329              328              333              338             337

* 53 Weeks

(1) During fiscal 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets". See Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 3 to the
Consolidated Financial Statements.

(2) During fiscal 2000, the Company changed its method of accounting for inventories under the retail method.

(3) The Company had $300 million in off-balance-sheet debt and accounts receivable for the fiscal years ended 2001, and 2000,
respectively. See Note 16 to the Consolidated Financial Statements.

(4) During fiscal 2004, the Company sold its private label credit card business to GE Consumer Finance for $1.1 billion, which
includes the assumption of $400 million of long-term securitization liabilities.

The items below are included in the Selected Financial Data.

2004

The items below amount to a net $64.5 million pretax gain ($42.1 million after tax or $0.50 per diluted share).

o a pretax gain of $83.9 million ($53.7 million after tax or $0.64 per diluted share) pertaining to the Company's sale of it
private label credit card business to GE Consumer Finance (see Note 2 of the Notes to Consolidated Financial Statements).

o a $19.4 million pretax charge ($11.6 million after tax or $0.14 per diluted share) for asset impairment and store closing
charges related to certain stores (see Note 14 of the Notes to Consolidated Financial Statements).

2003

The items below amount to a net $18.6 million pretax charge ($12.8 million after tax or $0.15 per diluted share).

o a $43.7 million pretax charge ($28.9 million after tax or $0.34 per diluted share) for asset impairment and store closing
charges related to certain stores (see Note 14 of the Notes to Consolidated Financial Statements).

o a call premium resulting in additional interest expense of $15.6 million ($10.0 million after tax or $0.12 per diluted
share) associated with a $125.9 million call of debt.

o a pretax gain of $15.6 million ($10.0 million after tax or $0.12 per diluted share) pertaining to the Company's sale of
its interest in Sunrise Mall and its associated center in Brownsville, Texas (see Note 1 of the Notes to Consolidated
Financial Statements).

o a pretax gain of $12.3 million ($7.9 million after tax or $0.09 per diluted share) recorded due to the resolution of
certain liabilities originally recorded in conjunction with the purchase of Mercantile Stores Company, Inc.

o an $8.7 million pretax gain ($5.6 million after tax or $0.07 per diluted share) related to the sale of certain store
properties.

o $4.1 million ($2.6 million after tax or $0.03 per diluted share) received from the Internal Revenue Service as a result of
the Company's filing of an interest-netting claim related to previously settled tax years.

2002

The items below amount to a net $3.0 million pretax gain ($1.8 million after tax or $0.02 per diluted share).

o a pretax gain of $64.3 million ($41.1 million after tax or $0.48 per diluted share) pertaining to the Company's sale of its
interest in FlatIron Crossing, a Broomfield, Colorado shopping center (see Note 1 of the Notes to Consolidated Financial
Statements).

o a pretax asset impairment and store closing charge of $52.2 million ($33.4 million after tax or $0.39 per diluted share)
related to certain stores (see Note 14 of the Notes to Consolidated Financial Statements).

o a call premium resulting in additional interest expense of $11.6 million ($7.4 million after tax or $0.09 per diluted
share) associated with a $143.0 million call of debt.

o a pretax charge of $5.4 million ($3.5 million after tax or $0.04 per diluted share) on the amortization of
off-balance-sheet accounts receivable securitization (see Note 16 of the Notes to Consolidated Financial Statements).

o a pretax gain of $4.8 million ($3.0 million after tax or $0.04 per diluted share) on the early extinguishment of debt.

o a pretax gain of $3.1 million ($2.0 million after tax or $0.02 per diluted share) from an investee partnership of the
Company who received an unusual distribution in the settlement of a receivable.

2001

The items below amount to a net $5.6 million pretax gain ($3.6 million after tax or $0.04 per diluted share).

o a pretax asset impairment and store closing charge of $3.8 million ($2.4 million after tax or $0.03 per diluted share)
related to certain stores.

o a pretax gain of $9.4 million ($6.0 million after tax or $0.07 per diluted share) on the early extinguishment of debt.

2000

The items below amount to a net $38.2 million pretax gain ($21.3 million after tax or $0.23 per diluted share).

o a pretax asset impairment and store closing charge of $51.4 million ($36.0 million after tax or $0.40 per diluted share)
related to certain stores.

o a pretax gain of $42.7 million ($27.3 million after tax or $0.30 per diluted share) on the early extinguishment of debt.

o a pretax gain of $46.9 million ($30.0 million after tax or $0.33 per diluted share) on the Company's change in its method
of accounting for inventories under the retail inventory method.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

EXECUTIVE OVERVIEW

Dillard's, Inc. operates 329 retail department stores in 29 states. Our stores are located in suburban shopping malls and offer a
broad selection of fashion apparel and home furnishings. We offer an appealing and attractive assortment of merchandise to our
customers at a fair price. We offer national brand merchandise as well as our exclusive brand merchandise. We seek to enhance our
income by maximizing the sale of this merchandise to our customers. We do this by promoting and advertising our merchandise and by
making our stores an attractive and convenient place for our customers to shop.

Fundamentally, our business model is to offer the customer a compelling price/value relationship through the combination of high
quality products and services at a competitive price. We seek to deliver a high level of profitability and cash flow by:

o maximizing the effectiveness of our pricing and brand awareness;

o minimizing costs through leveraging our centralized overhead expense structure;

o sourcing;

o reinvesting operating cash flows into store growth, and distribution initiatives, and improving product quality in our
exclusive brands;

o returning profits to shareholders through dividends, share repurchases and increased share price; and

o continuing to offer access to credit services and financial products to our customers through our long-term marketing and
servicing alliance with GE Consumer Finance ("GE").

The consumer retail sector is extremely competitive. Many different retail establishments compete for our customers' business.
These include other department stores, specialty retailers, discounters, internet and mail order retailers. We also attempt to
enhance our income by managing our operating costs without sacrificing service to our customers.

Items of note for the year ended January 29, 2005 include the following:

o The sale of substantially all of the assets of our private label credit card business and the establishment of a long-term
marketing and servicing alliance with GE. The sale generated total proceeds of $1.1 billion, consisting of the assumption
by GE of $400 million of securitized debt and net cash proceeds of approximately $688 million and resulted in significantly
strengthened financial position and liquidity. The financial impact of the transaction on Dillard's ongoing financial
results will be determined by the effects of the Company's use of proceeds as well as the effect of income generated under
the long-term marketing and servicing alliance. Dillard's expects to use net proceeds to reduce debt outstanding, to
repurchase its common stock and for general corporate purposes.

o The elimination of debt of $988 million, partially in conjunction with the sale of the credit card business.

o Gross profit improvement of 140 basis points of sales compared to the year ended January 31, 2004.

o Decrease in interest and debt expense of $42 million compared to the year ended January 31, 2004.

o Cash and cash equivalents of $498 million as of January 29, 2005.

Trends and uncertainties

We have identified the following key uncertainties whose fluctuations may have a material effect on our operating results.

     o   Cash flow - Cash from  operating  activities is a primary  source of liquidity  that is adversely  affected when the industry
         faces market driven  challenges  and new and existing  competitors  seek areas of growth to expand their  businesses.  If our
         customers do not purchase our merchandise  offerings in sufficient  quantities,  we respond by taking  markdowns.  If we have
         to reduce our prices, the cost of goods sold on our income statement will correspondingly rise, thus reducing our income.
     o   Success of brand - The success of our exclusive brand merchandise is dependent upon customer fashion preferences.
     o   Store  growth - Our growth is  dependent  on a number of factors  which could  prevent  the  opening of new  stores,  such as
         identifying suitable markets and locations.
     o   Sourcing - Store merchandise is dependent upon adequate and stable  availability of materials and production  facilities from
         which the Company sources its merchandise.

Legal Proceedings

On July 29, 2002, a Class Action  Complaint  (followed on December 13, 2004 by a Second  Amended Class Action  Complaint) was filed in
the United States  District  Court for the Southern  District of Ohio against the Company,  the  Mercantile  Stores  Pension Plan (the
"Plan") and the Mercantile Stores Pension Committee (the "Committee") on behalf of a putative class of former Plan  participants.  The
complaint  alleges that certain actions by the Plan and the Committee  violated the Employee  Retirement  Income Security Act of 1974,
as amended,  ("ERISA") as a result of amendments  made to the Plan that allegedly were either  improper  and/or  ineffective  and as a
result of certain payments made to certain  beneficiaries of the Plan that allegedly were improperly  calculated and/or discriminatory
on account of age. The Second Amended  Complaint does not specify any liquidated  amount of damages sought and seeks  recalculation of
certain benefits paid to putative class members. No trial date has been set.

The Company is defending the litigation  vigorously  and has named the Plan's  actuarial  firm as a cross  defendant.  While it is not
feasible to predict or  determine  the  ultimate  outcome of the pending  litigation,  management  believes  after  consultation  with
counsel, that its outcome, after consideration of the provisions recorded in the Company's  consolidated  financial statements,  would
not have a material  adverse effect upon its consolidated  cash flow or financial  position.  However,  it is possible that an adverse
outcome could have an adverse effect on the Company's consolidated net income in a particular quarterly or annual period.

2005 Estimates

A summary of estimates on key financial measures for fiscal 2005, on a generally  accepted  accounting  principles  ("GAAP") basis, is
shown below.  There have been no changes in the estimates  for 2005 since the Company  released its fourth  quarter  earnings on March
10, 2005.

      (In millions of dollars)                          2005                2004 
                                                    Estimated              Actual

Depreciation and amortization                            $310                $302
Rental expense                                             55                  55
Interest and debt expense                                 103                 139
Capital  expenditures                                     335                 285

General

Net Sales. Net sales include sales of comparable  stores,  non-comparable  stores and lease income on leased  departments.  Comparable
store sales include  sales for those stores which were in operation for a full period in both the current month

and the corresponding month for the prior year. Non-comparable store sales include 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 in the
current fiscal year and sales in the previous fiscal year for stores that were closed in the current fiscal year.

Service Charges, Interest and Other Income. Service Charges, Interest and Other Income include interest and service charges, net of
service charge write-offs, related to the Company's proprietary credit card sales. Other income relates to joint ventures accounted
for by the equity method, rental income, shipping and handling fees and gains (losses) on the sale of property and equipment and
joint ventures. Other income also includes income generated through the long-term marketing and servicing alliance between the
Company and GE and the resulting gain on the sale of its credit card business to GE.

Cost of Sales. Cost of sales includes the cost of merchandise sold net of purchase discounts, bankcard fees, freight to the
distribution centers, employee and promotional discounts, non-specific vendor allowances and direct payroll for salon personnel.

Advertising, selling, administrative and general expenses. Advertising, selling, administrative and general expenses include
buying, occupancy, selling, distribution, warehousing, store and corporate expenses (including payroll and employee benefits),
insurance, employment taxes, advertising, management information systems, legal, bad debt costs 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.

Rentals. Rentals include expenses for store leases and data processing equipment rentals.

Interest and debt expense. Interest and debt expense includes interest relating to the Company's unsecured notes, mortgage notes,
credit card receivables financing, the Guaranteed Beneficial Interests in the Company's subordinated debentures, gains and losses on
note repurchases, amortization of financing costs, call premiums and interest on capital lease obligations.

Asset impairment and store closing charges. Asset impairment and store closing charges consist of write-downs to fair value of
under-performing properties and exit costs associated with the closure of certain stores. Exit costs include future rent, taxes
and common area maintenance expenses from the time the stores are closed.

Cumulative effect of accounting change. Effective February 3, 2002, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 changes the accounting for goodwill from an amortization
method to an "impairment only" approach. Under SFAS No. 142, goodwill is no longer amortized but reviewed for impairment annually
or more frequently if certain indicators arise. The Company tested goodwill for impairment as of the adoption date using the
two-step process prescribed in SFAS No. 142. The Company identified its reporting units under SFAS No. 142 at the store unit
level. The fair value of these reporting units was estimated using the expected discounted future cash flows and market values of
related businesses, where appropriate. The cumulative effect of the accounting change as of February 3, 2002 was to decrease net
income for fiscal year 2002 by $530 million or $6.22 per diluted share.

Critical Accounting Policies and Estimates

The Company's accounting policies are more fully described in Note 1 of Notes to Consolidated Financial Statements. As disclosed in
Note 1 of Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions about
future events that affect the amounts reported in the consolidated financial statements and accompanying notes. Since future events
and their effects cannot be determined with absolute certainty, actual results will differ from those estimates. The Company
evaluates its estimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and
on various other factors that are believed to be reasonable under the circumstances. Actual results will differ from these under
different assumptions or conditions.

Management of the Company believes the following critical accounting policies, among others, affect its more significant judgments
and estimates used in preparation of the Consolidated Financial Statements.

Merchandise inventory. Approximately 97% of the inventories are valued at lower of cost or market using the retail last-in,
first-out ("LIFO") inventory method. Under the retail inventory method ("RIM"), the valuation of inventories at cost and the
resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of inventories. RIM is an
averaging method that is widely used in the retail industry due to its practicality. Additionally, it is recognized that the use of
RIM will result in valuing inventories at the lower of cost or market if markdowns are currently taken as a reduction of the retail
value of inventories. Inherent in the RIM calculation are certain significant management judgments including, among others,
merchandise markon, markups, and markdowns, which significantly impact the ending inventory valuation at cost as well as the
resulting gross margins. Management believes that the Company's RIM provides an inventory valuation which results in a carrying
value at the lower of cost or market. The remaining 3% of the inventories are valued at lower of cost or market using the specific
identified cost method.

Allowance for doubtful accounts. In 2004, the Company sold substantially all of its accounts receivable to GE and no longer
maintains an allowance for doubtful accounts.

Prior to the sale, the accounts receivable from the Company's private label credit card sales were subject to credit losses. The
Company maintained allowances for uncollectible accounts for estimated losses resulting from the inability of its customers to make
required payments. The adequacy of the allowance was based on historical experience with similar customers including write-off
trends, current aging information and year-end balances. Bankruptcies and recoveries used in the allowance calculation were
projected based on qualitative factors such as current and expected consumer and economic trends.

Merchandise vendor allowances. The Company receives concessions from its merchandise vendors through a variety of programs and
arrangements, including co-operative advertising, payroll reimbursements and markdown reimbursement programs. Co-operative
advertising allowances are reported as a reduction of advertising expense in the period in which the advertising occurred. Payroll
reimbursements are reported as a reduction of payroll expense in the period in which the reimbursement occurred. All other
merchandise vendor allowances are recognized as a reduction of cost purchases when received. Accordingly, a reduction or increase
in vendor concessions has an inverse impact on cost of sales and/or selling and administrative expenses.

Insurance accruals. The Company's consolidated balance sheets include liabilities with respect to self-insured workers' compensation
and general liability claims. The Company estimates the required liability of such claims, utilizing an actuarial method, based upon
various assumptions, which include, but are not limited to, our historical loss experience, projected loss development factors,
actual payroll and other data. The required liability is also subject to adjustment in the future based upon the changes in claims
experience, including changes in the number of incidents (frequency) and changes in the ultimate cost per incident (severity).

Finite-lived assets. The Company evaluates the fair value and future benefits of finite-lived assets whenever events and changes in
circumstances suggest. The Company performs an analysis of the anticipated undiscounted future net cash flows of the related
finite-lived assets. If the carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced
to its fair value. Various factors including future sales growth and profit margins are included in this analysis. To the extent
these future projections or the Company's strategies change, the conclusion regarding impairment may differ from the current
estimates.

Goodwill. The Company evaluates goodwill annually and whenever events and changes in circumstances suggest that the carrying amount
may not be recoverable from its estimated future cash flows. To the extent these future projections or our strategies change, the
conclusion regarding impairment may differ from the current estimates.

Income taxes. Temporary differences arising from differing treatment of income and expense items for tax and financial reporting
purposes result in deferred tax assets and liabilities that are recorded on the balance sheet. These balances, as well as income
tax expense, are determined through management's estimations, interpretation of tax law for multiple jurisdictions and tax planning.
If the Company's actual results differ from estimated results due to changes in tax laws,


new store  locations or tax planning,  the Company's  effective tax rate and tax balances could be affected.  As such these
estimates  may require  adjustment in the future as additional facts become known or as circumstances change.

The  Company's  income tax returns are  periodically  audited by various  state and local  jurisdictions.  Additionally,  the Internal
Revenue  Service audits the Company's  federal  income tax return  annually.  The Company  reserves for tax  contingencies  when it is
probable that a liability has been incurred and the  contingent  amount is  reasonably  estimable.  These  reserves are based upon the
Company's  best  estimation  of the  potential  exposures  associated  with the timing and amount of deductions as well as various tax
filing positions.  Due to the complexity of these examination  issues, for which reserves have been recorded,  it may be several years
before the final resolution is achieved.

Discount  rate. The discount rate that the Company  utilizes for  determining  future  pension  obligations is based on the Moody's AA
corporate bond index. The indices selected reflect the weighted average  remaining period of benefit  payments.  The discount rate had
decreased  to 5.5% as of January 29, 2005 from 6.00% as of January 31,  2004.  A further 50 basis point  change in the  discount  rate
would generate an experience gain or loss of approximately $9 million.

Results of Operations

The following table sets forth the results of operations and percentage of net sales, for the periods indicated:




(in millions of dollars)                                                  For the years ended
                                             -------------------------    -------------------------    ------------------------
                                                 January 29, 2005             January 31, 2004             February 1, 2003
                                             -------------------------    -------------------------    ------------------------
                                                            % of                         % of                        % of
                                               Amount     Net Sales         Amount     Net Sales         Amount     Net Sales
                                             -------------------------    -------------------------    ------------------------

Net sales                                       $7,528.6        100.0 %      $7,598.9          100 %      $7,911.0       100.0 %
Cost of sales                                    5,017.8         66.6         5,170.2           68         5,254.1        66.4
                                             -------------------------    -------------------------    ------------------------

Gross profit                                     2,510.8         33.4         2,428.7           32         2,656.9        33.6

Advertising, selling, administrative
  and general expenses                           2,098.8         27.9         2,097.9         27.6         2,164.0        27.3
Depreciation and amortization                      301.9          4.0           290.7          3.8           301.4         3.8
Rentals                                             54.8          0.7            64.1          0.8            68.1         0.9
Interest and debt expense                          139.1          1.8           181.1          2.4           189.8         2.4
Asset impairment and store closing
charges                                             19.4          0.3            43.7          0.6            52.2         0.7
                                             -------------------------    -------------------------    ------------------------

     Total operating expenses                    2,614.0         34.7         2,677.5         35.2         2,775.5        35.1
Service charges, interest and other
  income                                           287.7          3.8           264.8          3.4          322.9          4.1
                                              -----------------------    -------------------------    ------------------------

Income  before income taxes                        184.5          2.5            16.0          0.2           204.3         2.6
Income taxes                                        66.9          0.9             6.7          0.1            72.4         0.9
                                             -------------------------    -------------------------    ------------------------

Income  before cumulative effect
  of accounting change                             117.6          1.6             9.3          0.1           131.9         1.7
Cumulative effect of accounting change                 -            -               -            -         (530.3)        (6.7)
                                             -------------------------    -------------------------    ------------------------

Net income (loss)                                 $117.6          1.6 %          $9.3          0.1 %       ($398.4)       (5.0)%
                                             =========================    =========================    ========================

Sales
The percent change by category in the Company's sales for the past two years is as follows:

                                                            Percent Change
                                                                              
                                                         Fiscal         Fiscal
                                                       2004-2003      2003-2002
                                                                              
Cosmetics                                                    1.3          (1.1)
Women's and Juniors' Clothing                               (2.4)         (4.8)
Children's Clothing                                         (2.7)         (8.9)
Men's Clothing and Accessories                              (3.2)         (5.8)
Shoes, Accessories and Lingerie                              4.0          (0.8)
Home                                                        (2.0)         (4.3)
                                                                              

The percent change by region in the Company's sales for the past two years is as follows:

                                                            Percent Change
                                                                                
                                                         Fiscal         Fiscal
                                                       2004-2003      2003-2002
                                                                                
Southeastern                                                 0.2          (4.2)
Midwestern                                                  (2.1)         (4.6)
Southwestern                                                 1.5          (0.7)



Sales decreased 1% for the 52-week  period ended  January 29, 2005  compared to the 52-week  period ended  January 31, 2004 on both a
total and  comparable  store basis.  Sales were strongest and increased in cosmetics and shoes,  accessories  and lingerie while sales
declined in the remaining  merchandising  categories.  Sales in the Western and Eastern  regions  increased in fiscal 2004 while sales
declined in the Central region.  Dillard's  continues to focus on improvement in its merchandise  mix. The Company's  efforts to drive
differentiation  by offering more  upscale,  more  fashion-forward  and  younger-focused  product  choices are key  strategies in this
process.  The Company seeks to provide such  merchandise  from both national and exclusive  brand sources.  Under-performing  lines of
product from both  national and  exclusive  sources will continue to be  eliminated  and replaced  with more  promising  brands in the
Company's  ongoing  efforts to improve its  merchandise  mix. In addition,  utilizing the Company's  existing  information  technology
capabilities,  the Company will continue to tailor these  assortments to the local  demographics.  During the fiscal years 2004,  2003
and 2002, sales of exclusive brand merchandise as a percent of total sales were 23.1%, 20.9% and 18.2%, respectively.

Sales decreased 4% for the 52-week period ended January 31, 2004 compared to the 52-week period ended February 1, 2003 on both a
total and comparable store basis.  Sales declined in all merchandising categories with the largest declines in children's, men's
clothing and accessories and women and juniors' clothing.  Sales in the home categories were in line with the average sales
performance while sales in accessories, shoes, lingerie and cosmetics were strongest and exceeded the Company's average sales
performance for the period.

Cost of Sales
Cost of sales as a  percentage  of sales  decreased  to 66.6%  during 2004  compared  with 68.0% for 2003.  The  increase of 140 basis
points in gross margin  during  fiscal 2004 was due to the  Company's  successful  efforts to improve its  merchandise  mix and reduce
markdown  activity.  The lower level of markdown  activity  decreased  cost of sales by 50 basis points of sales.  Improved  levels of
markups were  responsible  for a decrease in cost of sales of 90 basis points of sales.  All product  categories  had increased  gross
margins during 2004 except for the home category.  Gross margins were notably  higher in men's and children's  categories  with margin
improvement well above the average margin improvement for the year.

Inventory in  comparable  stores at January 29, 2005  increased 1% compared to January 31, 2004.  Overall  inventory  increased 6% due
primarily  to an increase of $86 million relating to inventory in-transit.

Cost of sales as a percentage of sales increased to 68.0% during 2003 compared with 66.4% for 2002. The decline of 160 basis points
in gross margin during fiscal 2003 was due to competitive pressures in the Company's retail sector and the resulting effort to
maintain a competitive position with increased markdown activity. The higher level of markdown activity increased cost of sales by
3.7% of sales. Improved levels of markups partially offset this promotional activity during fiscal 2003. The increased markup
percentage was responsible for a decrease in cost of sales of 2.1% of sales. All product categories had decreased gross margins
during 2003 except cosmetics, which increased 10 basis points from 2002.

Expenses

2004 Compared to 2003

Advertising, selling, administrative and general ("SG&A") expenses increased to 27.9% of sales for fiscal 2004 compared to 27.6% for
fiscal 2003. On a dollar basis, SG&A expenses were up slightly over the prior year. SG&A expenses in fiscal 2003 include a $12.3
million pretax credit recorded due to the resolution of certain liabilities originally recorded in conjunction with the purchase of
Mercantile Stores Company, Inc. that were deemed not necessary based upon current information. For fiscal 2004, savings in bad
debts of $25.9 million (as a result of the sale of the Company's credit card business in November 2004 and decreased bad debt
write-offs throughout the year), services purchased of $11.3 million and communications of $4.0 million were offset by increases in
incentive payroll of $8.6 million, insurance of $8.6 million and advertising of $16.9 million. The reduction in services purchased
and communications was partially due to the sale of the credit card business in November 2004 and costs reductions throughout the
year. Services purchased includes marketing, collection fees and merchandise handling costs. Communications includes telephone,
postage and data line expenses. As a result of the Company's improved performance, incentive compensation to store managers,
merchants and management significantly increased during the year ended January 29, 2005. Also during the year, Dillard's increased
its provision for workers' compensation self-insurance to reflect an expected increase in future medical costs. Dillard's increased
its advertising expenditures during the year as it continued to evaluate new media outlets better suited to meet its customers'
lifestyles than those outlets traditionally employed. Due to the sale of the credit card business, bad debt expense will be
non-recurring in fiscal 2005.

Depreciation and amortization as a percentage of sales increased to 4.0% for fiscal 2004 compared to 3.8% for fiscal 2003. This
increase is due to higher capital expenditures in 2004 and the addition of capital leases for data processing equipment in 2004
which have shorter useful lives.

Rental expenses experienced a decline due to a lower number of leased stores in fiscal 2004 compared to the prior year and lower
data processing equipment rent. Leased stores declined from 71 stores at January 31, 2004 to 65 stores at January 29, 2005
resulting in lower rent expense of $6.6 million. Lower data processing equipment rent of $2.7 million was due to a certain number
of 2004 leases qualifying for capital lease treatment. A review of the Company's lease accounting policies resulted in a charge of
$821,000 for straight-line rent during fiscal 2004.

Interest and debt expense as a percentage of sales decreased to 1.8% for fiscal 2004 compared to 2.4% for fiscal 2003 primarily as a
result of lower debt levels. Interest expense declined $42.0 million in fiscal 2004. Average debt outstanding declined
approximately $602 million in fiscal 2004. The debt reduction was due primarily to the assumption by GE of $400 million in accounts
receivable securitization debt and the payoff of seasonal borrowings in conjunction with the sale of the Company's private label
credit card business to GE. The Company also redeemed the $331.6 million Preferred Securities and had maturities of outstanding
notes of $163.4 million during fiscal 2004. Interest expense for fiscal 2003 includes a credit of $4.1 million received from the
Internal Revenue Service as a result of the Company's filing of an interest netting claim related to previously settled tax years.
A call premium of $15.6 million related to the early retirement of debt is also included in interest expense for fiscal 2003.

During fiscal 2004, the Company recorded a pre tax charge of $19.4 million for asset impairment and store closing costs. The charge
includes a write down to fair value for certain under-performing properties. The charge consists of a write down for a joint
venture in the amount of $7.6 million, a write down of goodwill on one store to be closed of $1.2 million, an accrual for future
rent, property tax and utility payments on three stores to be closed of $3.1 million and a write down of property and equipment in
the amount of $7.5 million. The Company does not expect to incur significant



additional  exit  costs upon the  closing of these properties during fiscal 2005.  A breakdown of the asset impairment and
store closing charges for fiscal 2004 is as follows:

                                                                   Number of      Impairment
(in thousands of dollars)                                         Locations        Amount  
Stores closed during fiscal 2004                                         3          $2,928
Stores to close during fiscal 2005                                       4           4,052
Store impaired based on cash flows                                       1             703
Non-operating facilities                                                 2           4,170
Joint Venture                                                            1           7,564
   Total                                                                 9         $19,417


2003 Compared to 2002

Advertising,  selling,  administrative and general ("SG&A") expenses increased to 27.6% of sales for fiscal 2003 compared to 27.3% for
fiscal 2002. The percentage  increase is primarily due to a lack of sales  leverage as SG&A expenses  decreased  $66.1 million in 2003
compared  to 2002.  On a dollar  basis  significant  decreases  were noted in  payroll,  advertising  and bad debt  expense.  Payroll,
advertising  and bad debt expense  declined $37.0 million,  $8.6 million and $9.5 million,  respectively.  The decrease in payroll was
caused  primarily by a reduction in incentive  based sales payroll  which is directly  tied to the decrease in sales during 2003.  The
decline in advertising  expense  resulted  primarily from a reduction in newspaper  advertising as the Company  considers  which media
more appropriately  matches its customers'  lifestyles.  Improvement in the quality of accounts receivable through lower delinquencies
as well as a reduction in outstanding  accounts  receivable  contributed  to the lower bad debt expense.  SG&A expenses in fiscal 2003
include a $12.3 million pretax credit recorded due to the resolution of certain  liabilities  originally  recorded in conjunction with
the purchase of Mercantile Stores Company, Inc.

Depreciation  and  amortization  as a  percentage  of sales  remained  flat  during  fiscal  2003  principally  due to  lower  capital
expenditures in fiscal 2003 combined with a lack of sales leverage from the 4% decline in comparable store sales during the year.

Interest  and debt  expense as a  percentage  of sales was  unchanged  from  fiscal  2002 as a result of the  Company's  lack of sales
leverage.  Interest  expense declined $9.0 million due to the Company's  continuing  focus on reducing its  out-standing  debt levels.
Average debt outstanding  declined  approximately  $226 million in fiscal 2003.  Interest expense for fiscal 2003 includes a credit of
$4.1 million  received from the Internal  Revenue Service as a result of the Company's  filing of an interest netting claim related to
previously  settled  tax years.  A call  premium of $15.6  million  related to the early  retirement  of debt is  included in interest
expense for fiscal 2003  compared to a call premium of $11.6  million  related to the early  retirement  of debt for fiscal 2002.  The
Company has retired all the  remaining  debt  associated  with the call  premiums in fiscal 2003 and 2002 and did not have any similar
call premiums in fiscal 2004.  Also included in interest  expense for the fiscal 2002 is a pretax gain of $4.8 million  related to the
early  extinguishment  of debt.  The  Company  retired  $272  million  in  long-term  debt and issued  $50  million in new  short-term
borrowings during 2003.

During fiscal 2003, the Company  recorded a pre tax charge of $44 million for asset  impairment  and store closing  costs.  The charge
includes  a write  down to fair  value for  certain  under-performing  properties.  The  charge  consists  of a write down for a joint
venture in the  amount of $5.5  million,  a write down of  goodwill  on two  stores to be closed of $2.5  million  and a write down of
property and equipment in the amount of $35.7 million.  A breakdown of the asset  impairment and store closing charges for fiscal 2003
is as follows:

                                                               Number of      Impairment
(in thousands of dollars)                                      Locations        Amount  
Stores closed during fiscal 2003                                       3          $3,809
Stores to close during fiscal 2004                                     4          17,115
Store impaired based on cash flows                                     1           1,293
Non-operating facilities                                               7          16,030
Joint Venture                                                          1           5,480
   Total                                                              16         $43,727



Service Charges, Interest and Other Income

(in millions of dollars)                                                           Dollar Change               Percent Change       
                                             2004       2003        2002       2004-2003     2003-2002     2004-2003     2003-2002
Joint venture income                          $  8.7     $  8.1       $ 19.5        $  0.6       $(11.4)          7.4%        -58.5%
Gain on sale of joint venture and
  property and equipment                         2.9       24.3         65.4        (21.4)        (41.1)        -88.1         -62.8
Gain on sale of credit card business            83.9          -            -          83.9             -            -             -
Service charge income                          141.2      207.9        225.7        (66.7)        (17.8)        -32.1          -7.9
Income from GE marketing and
 servicing alliance                             14.2          -            -          14.2             -            -             -
Other                                           36.8       24.4         12.3          12.4          12.1         50.8          98.4
   Total                                     $ 287.7    $ 264.7      $ 322.9        $ 23.0       $(58.2)          8.7%        -18.0%
Average accounts receivable (1)             $1,101.2   $1,231.4     $1,330.9      $(130.2)       $(99.5)        -10.6%         -7.5%


(1) Average receivables for 2004 includes only the first nine months prior to the sale

2004 Compared to 2003

The Company  completed its sale of its credit card business to GE and entered into a ten year  marketing  and servicing  alliance.  GE
will own the accounts  and balances  generated  during the term of the  alliance and will provide all key customer  service  functions
supported by ongoing credit  marketing  efforts.  Included in other income in fiscal 2004 is a gain of $83.9 million  relating to this
sale.  Also included is the income from the marketing  and  servicing  alliance  since the inception of the agreement of $14.2 million
offset by a  reduction  in service  charge  income  due to the sale of the credit  card  business  during the fourth  quarter of 2004.
Service charge income  decreased  $66.7 million due to the decrease noted above and an average  decrease of $135 million in the amount
of outstanding  accounts  receivable during 2004, prior to the sale,  compared to 2003. Included in the gain on sale of joint ventures
and property and  equipment in fiscal 2003 is a gain of $15.6 million  relating to the sale of the Company's  interest in Sunrise Mall
and its  associated  center in  Brownsville,  Texas.  Due to the sale of the credit  card  business,  service  charge  income  will be
non-recurring in fiscal 2005; however, income from the marketing and servicing alliance will be expected for the full fiscal year.

2003 Compared to 2002

Included in other  income in fiscal 2003 is a gain of $15.6  million  relating to the sale of the  Company's  interest in Sunrise Mall
and its associated  center in  Brownsville,  Texas.  Included in other income in fiscal 2002 is a $64.3 million gain pertaining to the
Company's  sale of its interest in the FlatIron  Crossing  joint  venture  located in  Broomfield,  Colorado.  Service  charge  income
decreased due to a $99 million  decrease in the average amount of outstanding  accounts  receivable  during 2003 compared to 2002. The
decrease in accounts  receivable was due to a 140 basis point decline in sales  penetration on the Company's  proprietary  credit card
coupled with a 4% decline in overall  retail sales during fiscal 2003 compared to the prior year.  Sales on the Company's  proprietary
credit cards as a percent of total sales were 26.8%,  28.2% and 28.8% for fiscal 2003, 2002 and 2001,  respectively.  Also included in
other  income are  realized  gains on the sale of property  and  equipment of $8.7 million and $1.1 million for fiscal 2003 and fiscal
2002,  respectively.  Earnings  from joint  ventures  declined due to the Company's  sale of FlatIron  Crossing in fiscal 2002 and the
sale of Sunrise Mall in the first quarter of fiscal 2003.

Income Taxes
The Company's  actual  federal and state income tax rate  (exclusive  of the effect of  nondeductible  goodwill  write off) was 36% in
fiscal 2004, 2003 and 2002.

LIQUIDITY AND CAPITAL RESOURCES

Financial Position Summary

                                                                                                Dollar        Percent
(in thousands of dollars)                                         2004              2003        Change         Change    
Cash and cash equivalents                                       $ 498,248         $ 160,873       337,375        209.7
Short-term debt                                                         -            50,000       (50,000)           -
Current portion of long-term debt                                  91,629           166,041       (74,412)       -44.8
Current portion of Guaranteed Beneficial Interests                      -           331,579      (331,579)           -
Long-term debt                                                  1,322,824         1,855,065      (532,241)       -28.7
Guaranteed Beneficial Interests                                   200,000           200,000             -           -
Stockholders' equity                                            2,324,697         2,237,097        87,600          3.9

Current ratio                                                       2.19%             2.26%
Debt to capitalization                                              41.0%             53.8%                           



The Company's current priorities for its use of cash are:

     o   Investment in high-return capital projects, in particular in investments in technology to improve merchandising and
         distribution, reduce costs, to improve efficiencies or to help the Company better serve its customers;
     o   Strategic investments to enhance the value of existing properties;
     o   Construction of new stores;
     o   Dividend payments to shareholders;
     o   Debt reduction; and
     o   Stock repurchase plan.

 Cash flows for the three fiscal years ended were as follows:

(in thousands of dollars)                                                                           Percent Change
                                                      2004            2003            2002        2004-2003     2003-2002
Operating Activities                              $ 554,061       $ 432,106       $ 356,942           28.2          21.1
Investing Activities                                414,212        (161,076)       (164,973)             *         (2.4)
Financing Activities                               (630,898)       (252,513)       (202,573)         149.8          24.7
   Total Cash Provided (Used)                     $ 337,375        $ 18,517       $ (10,604)                            

* percent change calculation is not meaningful

Operating Activities

The primary  source of the  Company's  liquidity is cash flows from  operations.  Retail sales are the key  operating  cash  component
providing  96.3% and 96.6% of total  revenues over the past two years.  Operating  cash inflows also include  finance  charges paid on
Company  receivables  prior to the sale,  revenue and  reimbursements  from the long-term  marketing  and  servicing  alliance with GE
subsequent  to the sale and cash  distributions  from joint  ventures.  Operating  cash  outflows  include  payments  to  vendors  for
inventory, services and supplies, payments to employees, and payments of interest and taxes.

Net cash flows from  operations were $554.1 million for 2004 and were adequate to fund the Company's  operations for the year.  During
2004, the operating cash flows of the Company  increased due to increased net income and a reduction in accounts  receivable  balances
prior to the sale of the credit card business.  Adding to the increased cash flow,  accounts  payable and accrued  expenses  increased
$295 million in fiscal 2004 compared to a $5 million increase in accounts  payable and accrued  expenses in the prior year.  Partially
offsetting  this increase were increases in inventory,  other current  assets,  decreases in deferred income taxes and the gain on the
sale of the credit card business.

Investing Activities

Cash inflows from investing activities generally include proceeds from sales of property and equipment and joint ventures.
Investment cash outflows generally include payments for capital expenditures such as property and equipment.

Capital expenditures were $285 million for 2004. These expenditures consist primarily of the construction of new stores, remodeling
of existing stores and investments in technology. During 2004, the Company opened three new stores: Coastal Grand in Myrtle Beach,
South Carolina; Jordan Creek Town Center in West Des Moines, Iowa; and South Park Mall in Moline, Illinois and five replacement stores:
Colonial University Village in Auburn, Alabama; The Shoppes at East Chase in Montgomery, Alabama; Eastern Shore in Spanish Fort,
Alabama; Greenbrier Mall in Chesapeake, Virginia and Yuma Palms in Yuma, Arizona. These eight stores totaled approximately
1.1 million square feet of retail space. In addition, the Company completed a major expansion on one store totaling 26,000 square feet
of retail space. The Company closed seven store locations, including five for the replacement stores, during the year totaling
approximately 819,000 square feet of retail space. Capital expenditures for 2005 are expected to be approximately $335 million.
The Company plans to open nine new stores in fiscal 2005 totaling 1,085,000 square feet, net of replaced square footage.
Historically, the Company has financed such capital expenditures with cash flow from operations. The Company expects that it will
continue to finance capital expenditures in this manner during fiscal 2005.

During 2004, the company recorded a gain on the sale of property and equipment of $2.9 million and received proceeds of $11.3
million.

During 2004, investing cash flows were positively impacted by the net proceeds of $688 million received from the sale of the credit
card business to GE (see Note 2 of the Notes to Consolidated Financial Statements).

During 2003, the Company recorded a gain of $15.6 million and received proceeds of $34.6 million from the sale of its interest in
Sunrise Mall and its associated center in Brownsville, Texas. During 2003, the company recorded a gain on the sale of property and
equipment of $8.7 million and received proceeds of $31.8 million.

Financing Activities

Historically, cash inflows from financing activities generally included borrowing under the Company's accounts receivable conduit
facilities, the issuance of new mortgage notes or long-term debt and funds from stock option exercises. As a result of the sale of
its credit card business, the Company's need for liquidity has been reduced and the Company's accounts receivable conduit facilities
were terminated. The Company's primary source of available borrowings is its $1 billion revolving credit facility. Financing cash
outflows generally include the repayment of borrowings under the Company's accounts receivable conduit facilities (prior to the sale
and termination), the repayment of mortgage notes or long-term debt, the payment of dividends and the purchase of treasury stock.

During fiscal 2004, the Company repurchased $40.6 million of its outstanding unsecured notes prior to their related maturity dates.
Interest rates on the repurchased securities ranged from 6.30% to 8.20%. Maturity dates ranged from 2008 to 2028. The Company also
redeemed the $331.6 million Preferred Securities. Notes in the amount of $163.4 million matured and were repaid during fiscal 2004.

During 2004, the Company reduced its net level of outstanding debt and capital leases by $983 million. The decrease in total debt is
due to the sale of the Company's private label credit card business to GE and through scheduled debt maturities and repurchases of
notes prior to their related maturity dates. GE assumed $400 million of the Company's securitized public debt as part of the sale.
Concurrent with the sale of the credit card business, the Company repaid all of its short-term securitized borrowings and terminated
its short-term borrowing facilities. Maturities of long-term debt over the next five years are $92 million, $98 million, $201
million, $198 million and $25 million, respectively.

Revolving Credit Agreement
The Company's primary source of liquidity is the availability of funds under its $1 billion revolving credit facility ("credit
facility"). Borrowings under the credit facility accrue interest at JPMorgan's Base Rate or LIBOR plus 1.50% (currently 4.09%)
subject to certain availability thresholds as defined in the credit facility. Availability for borrowings and letter of credit

obligations under the credit facility is limited to 75% of the inventory of certain Company subsidiaries (approximately $878 million
at January 29, 2005). There are no financial covenant requirements under the credit facility provided availability exceeds $100
million. The credit facility expires on December 12, 2008. At January 29, 2005, letters of credit totaling $69.7 million were
issued under this facility leaving unutilized availability under the facility of $808 million. The Company borrowed $100 million on
its revolving credit facility during 2004 in connection with the redemption of the $331.6 million Preferred Securities on February
2, 2004. The Company had no outstanding borrowings at January 29, 2005.

Long-term Debt
At January 29, 2005, the Company had $1.4 billion of unsecured notes and mortgage notes outstanding. The unsecured notes bear
interest at rates ranging from 6.30% to 9.50% with due dates from 2005 through 2028. The mortgage notes bear interest at rates
ranging from 7.25% to 10.12% with due dates through 2013.

Stock Repurchase
In May 2000, the Company announced that the Board of Directors authorized the repurchase of up to $200 million of its Class A Common
Stock. During fiscal 2004, the Company repurchased approximately $40.4 million of Class A Common Stock, representing 2.0 million
shares at an average price of $20.19 per share. Approximately $16 million in share repurchase authorization remained under this
open-ended plan at January 29, 2005.

Guaranteed Beneficial Interests in the Company's Subordinated Debentures
Prior to February 2, 2004, Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures included $331.6
million liquidation amount of LIBOR plus 1.56% Preferred Securities, due January 29, 2009 (the "Preferred Securities") by Horatio
Finance V.O.F., a wholly owned subsidiary of the Company. The Company redeemed the $331.6 million Preferred Securities on February
2, 2004.

The Company has $200 million liquidation amount of 7.5% Capital Securities, due August 1, 2038 representing the beneficial
ownership interest in the assets of Dillard's Capital Trust I, a consolidated entity of the Company.

Fiscal 2005
The sale of the Company's credit card business significantly strengthened its liquidity and financial position. The Company had
cash on hand of $498 million as of January 29, 2005 and reduced outstanding debt by $988 million during fiscal 2004. During fiscal
2005, the Company expects to finance its capital expenditures and its working capital requirements including required debt
repayments and stock repurchases, if any, from cash flows generated from operations. As a result of the Company's sale of its
credit card business, the Company does not currently expect to utilize funds through its $1 billion revolving credit agreement.
Management believes that cash on hand and cash generated from operations will be sufficient to cover its reasonably foreseeable
working capital, capital expenditures, debt service requirements and stock repurchase. Depending on conditions in the capital
markets and other factors, the Company will from time to time consider possible capital market transactions, the proceeds of which
could be used to refinance current indebtedness or other corporate purposes.

Off-Balance-Sheet Arrangements

The Company has not created, and is not party to, any special-purpose or off-balance-sheet entities for the purpose of raising
capital, incurring debt or operating the Company's business. The Company is a guarantor on a $54.3 million loan for a joint venture
as of January 29, 2005. At January 29, 2005, the joint venture had $36.5 million outstanding on the loan. The Company does not
have any additional arrangements or relationships with entities that are not consolidated into the financial statements that are
reasonably likely to materially affect the Company's liquidity or the availability of capital resources.




Contractual Obligations and Commercial Commitments
To facilitate an understanding of the Company's contractual obligations and commercial commitments, the following data is provided:

                                                      PAYMENTS DUE BY PERIOD
                                                    Less than                                    More than
(in thousands of dollars)              Total          1 year       1-3 years      3-5 years       5 years    
Contractual obligations
Long-term debt (1)                   $1,414,453          $91,629      $299,114       $222,799       $800,911
Guaranteed beneficial interests
  in the Company's
  subordinated  debentures              200,000                -             -              -        200,000
Capital lease obligations                25,108            4,926         7,324          2,225         10,633
Defined benefit plan payments            55,657            3,604         9,572         10,167         32,314
Purchase Obligations (2)              1,803,730        1,803,730             -              -              -
Operating leases                        222,069           47,399        78,328         41,538         54,804  
Total contractual cash               $3,721,017       $1,951,288      $394,338       $276,729     $1,098,662  
    obligations


(1)  Does not include an estimate of future interest payments having a weighted average rate of 7.2%.

(2)  The  Company's  purchase  obligations  principally  consist  of  purchase  orders  for  merchandise  and  store  construction
     commitments.  Amounts  committed  under open purchase  order for  merchandise  inventory  represent  $1.7 billion of the purchase
     obligations,  of which a significant  portion are cancelable without penalty prior to a date that precedes the vendor's scheduled
     shipment date.

                                             AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
(in thousands of dollars)            Total
                                     Amounts                                                   After 5
                                    Committed     Within 1 year    2-3 years      4-5 years      years   
Other commercial
  commitments
$1 billion line of credit,
  none outstanding (1)                   $-             $-              $-            $-             $-
Standby letters of credit                 59,425           59,425       -              -             -
Import letters of credit                  10,244           10,244       -              -             -    
Total commercial commitments             $69,669          $69,669       $-            $-             $-   



(1)  Availability  under the credit facility is limited to 75% of the inventory of certain Company  subsidiaries  (approximately  $878
     million at January 29, 2005) and has been reduced by outstanding letters of credit of $69.7 million.

Other long-term  commitments  consist of liabilities  incurred  relating to the Company's  defined benefit plans.  The Company expects
pension  expense to be  approximately  $8.9  million in fiscal 2005 with a liability  of $91  million.  The Company  expects to make a
contribution to the pension plan of approximately $3.6 million in fiscal 2005.

The Company is a  guarantor  on a $54.3  million  loan for a joint  venture as of January 29,  2005.  At January 29,  2005,  the joint
venture had $36.5 million  outstanding on the loan.  The loan is  collateralized  by a mall in Yuma,  Arizona with a book value of $55
million at January 29, 2005.  The timing and amount of payments under the guarantee,  if any,  cannot be reasonably  predicted and are
therefore excluded from the tables above.

New Accounting Pronouncements

In November 2004, the Financial  Accounting  Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No.
151,  "Inventory  Costs an  amendment  of ARB No. 43,  Chapter 4" ("SFAS No.  151").  SFAS No. 151 amends the  guidance in ARB No. 43,
Chapter 4, "Inventory  Pricing," to clarify the accounting for abnormal

amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. The adoption of the of SFAS No. 151 is not expected to have
a material effect on the Company's financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29, Accounting
for Nonmonetary Transactions" ("SFAS No. 153"). SFAS No. 153 eliminates from fair value measurement for nonmonetary exchanges of
similar productive assets in paragraph 21 (b) of APB Opinion No. 29, and replaces it with an exception for exchanges that do not
have commercial substance. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. The Company does not expect
SFAS No. 153 to have a material impact on our consolidated financial position, results of operations or cash flows.

In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123-R"). SFAS No. 123-R
requires all forms of share-based payment to employees, including employee stock options, be treated as compensation and recognized
in the income statement based on their estimated fair values. This statement will be effective for fiscal periods beginning after
June 15, 2005 which will be the Company's third quarter of fiscal 2005.

The Company currently accounts for stock options under APB No. 25 using the intrinsic value method in accounting for its employee
stock options. No stock-based compensation costs were reflected in net income, as no options under those plans had an exercise price
less than the market value of the underlying common stock on the date of grant.

Under the adoption of SFAS No. 123-R, the Company will be required to expense stock options over the vesting period in its statement
of operations. In addition, the Company will need to recognize expense over the remaining vesting period associated with unvested
options outstanding as of June 15, 2005. Based on the stock options outstanding as of January 29, 2005, the stock-based employee
compensation expense, net of related tax effects, will be approximately $0.7 million in fiscal 2005. The Company has not yet
determined the method of adoption or the effect of adopting SFAS 123-R, and it has not determined whether the adoption will result
in amounts that are similar to the current pro forma disclosures under SFAS 123.

Forward-Looking Information
The foregoing contains certain "forward-looking statements" within the definition of federal securities laws. Statements in the
Management's Discussion and Analysis of Financial Condition and Results of Operations include certain "forward-looking statements,"
including (without limitation) statements with respect to anticipated future operating and financial performance, growth and
acquisition opportunities, financing requirements and other similar forecasts and statements of expectation. Words such as
"expects," "anticipates," "plans" and "believes," and variations of these words and similar expressions, are intended to identify
these forward-looking statements. Statements made regarding the Company's merchandise strategies, funding of cyclical working
capital needs, store opening schedule and estimates of depreciation and amortization, rental expense, interest and debt expense and
capital expenditures for fiscal year 2005 are forward-looking statements. The Company cautions that forward-looking statements, as
such term is defined in the Private Securities Litigation Reform Act of 1995, contained in this report are based on estimates,
projections, beliefs and assumptions of 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 (without limitation) include 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; the impact of competitive pressures in the department store
industry and other retail channels including specialty, off-price, discount, internet, and mail-order retailers; trends in personal
bankruptcies and charge-off trends in the credit card receivables portfolio; changes in consumer spending patterns and debt levels;
adequate and stable availability of materials and production facilities from which the Company sources its merchandise; changes in
operating expenses, including employee wages, commission structures and related benefits; possible future acquisitions of store
properties from other department store operators and 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; 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.

The table below provides information about the Company's obligations that are sensitive to changes in interest rates. The table
presents maturities of the Company's long-term debt and Guaranteed Beneficial Interests in the Company's Subordinated Debentures
along with the related weighted-average interest rates by expected maturity dates.

(in thousands of dollars)

Expected Maturity Date 2005 2006 2007 2008 2009 Thereafter Total Fair Value
(fiscal year)
Long-term debt (including $91,629 $98,479 $200,635 $198,146 $24,653 $800,911 $1,414,453 $1,467,024
receivables financing
facilities)
Average interest rate 6.9% 7.4% 6.9% 6.5% 9.4% 7.4% 7.2%
Guaranteed Beneficial
Interests in the Company's
Subordinated Debentures $- $- $- $- $- $200,000 $200,000 $ 199,120
Average interest rate -% -% -% -% -% 7.5% 7.5%

During the year ended January 29, 2005, the Company repurchased $40.6 million of its outstanding unsecured notes prior to their
related maturity dates. Interest rates on the repurchased securities ranged from 6.3% to 8.2%. Maturity dates ranged from 2008 to
2028.

The Company is exposed to market risk from changes in the interest rates under its $1 billion revolving credit facility. Outstanding
balances under this facility bear interest at a variable rate based on JPMorgan's Base Rate or LIBOR plus 1.50%. The Company
borrowed $100 million on its revolving credit facility during 2004 in connection with the redemption of the $331.6 million Preferred
Securities on February 2, 2004. The Company had no outstanding borrowings at January 29, 2005 other than the utilization for
unfunded letters of credit.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements of the Company and notes thereto are included in this report beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

The Company maintains "disclosure controls and procedures," as such term is defined in Rules 13a-15e and 15d-15e of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that are designed to ensure that information required to be disclosed in the
Company's reports, pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosures.
In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no
matter how well-designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and
management


necessarily  was required to apply its judgment in  evaluating  the  cost-benefit  relationship  of possible  controls and
procedures.

As of January 29, 2005, the Company carried out an evaluation,  with the  participation  of Company's  management,  including  William
Dillard,  II,  Chairman of the Board of Directors and Chief  Executive  Officer  (principal  executive  officer) and James I. Freeman,
Senior  Vice-President and Chief Financial Officer (principal  financial officer),  of the effectiveness of the Company's  "disclosure
controls and  procedures"  pursuant to  Securities  Exchange Act Rule  13a-15.  Based on their  evaluation,  the  principal  executive
officer and principal  financial officer  concluded that the Company's  disclosure  controls and procedures are effective.  There were
no significant  changes in the Company's  internal  controls over financial  reporting that occurred during the year ended January 29,
2005 to which this report  relates that have  materially  affected,  or are  reasonably  likely to  materially  affect,  the Company's
internal control over financial reporting.

Management's  report on internal control over financial  reporting and the attestation  report of Deloitte & Touche LLP, the Company's
independent  registered  public  accounting  firm,  on  management's  assessment  of internal  control  over  financial  reporting  is
incorporated herein by reference from pages F-2 and F-3 of this report.

William  Dillard,  II,  Chairman of the Board of Directors and Chief Executive  Officer,  has certified to the New York Stock Exchange
that he is not aware of any  violations  by the Company of the  exchange's  corporate  governance  listing  standards.  Attached as an
exhibit to this annual  report is the  certification  of Mr.  Dillard  required  under Section 302 of the  Sarbanes-Oxley  Act of 2002
regarding the quality of the Company's public disclosures.

ITEM 9B.  OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

A. Directors of the Registrant

Information regarding directors of the Registrant is incorporated herein by reference under the heading "Nominees for
Election as Directors" and under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement.

B. Executive Officers of the Registrant

Information regarding executive officers of the Registrant is incorporated herein by reference to Part 1 of this report
under the heading "Executive Officers of the Company." Reference additionally is made to the information under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement, which information is incorporated herein
by reference.

The Company's Board of Directors has adopted a Company Code of Conduct that applies to all Company employees including the Company's
Directors, CEO and senior financial officers. The current version of such Code of Conduct is available free of charge on Dillard's,
Inc. web site, www.dillards.com , and is available in print to any shareholder who requests copies by contacting Julie J. Bull,
Director of Investor Relations, at the Company's principal executive offices set forth above.

ITEM 11. EXECUTIVE COMPENSATION.

Information regarding executive compensation and compensation of directors is incorporated herein by reference to the information
beginning under the heading "Compensation of Directors and Executive Officers" and concluding under the heading "Compensation of
Directors" in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Equity Compensation Plan Information

Weighted average Number of securities
Number of securities to be available for future
issued upon exercise of exercise prices of issuance under equity
outstanding options outstanding options compensation plans

Equity compensation plans
approved by shareholders 3,845,009 $24.91 11,141,656
Total 3,845,009 $24.91 11,141,656

Additional Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference
to the information under the heading "Principal Holders of Voting Securities" and under the heading "Security Ownership of
Management" and continuing through footnote 12 in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information regarding certain relationships and related transactions is incorporated herein by reference to the information under
the heading "Certain Relationships and Transactions" in the Proxy Statement.




ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Information  regarding  principal  accountant  fees and services is  incorporated  herein by reference  to the  information  under the
heading "Independent Accountant Fees" in the Proxy Statement.

                                                    PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.

(a)(1) and (2) Financial Statements and Financial Statement Schedule

An "Index to Financial  Statements" and "Financial  Statement  Schedule" has been filed as a part of this Report beginning on page F-1
hereof.

(a)(3)  Exhibits and Management Compensatory Plans

An "Exhibit Index" has been filed as a part of this Report beginning on page E-1 hereof and is herein incorporated by reference.



                                                   SIGNATURES

              Pursuant to the  requirements  of Section 13 or 15(d) 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.            /s/ James I. Freeman
Registrant                 James I. Freeman, Senior Vice President and
                           Chief Financial Officer
Date: April 14, 2005      (Principal Financial and Accounting Officer)





              Pursuant  to the  requirements  of the  Securities  Exchange  Act of 1934,  this  report  has been  signed  below by the
              following persons on behalf of the Registrant and in the capacity and on the date indicated.


/s/ Robert C. Connor                /s/ Drue Corbusier
Robert C. Connor                     Drue Corbusier
Director                             Executive Vice President and Director

/s/ Will D. Davis                   /s/ William Dillard, II
Will D. Davis                        William Dillard, II
Director                             Chairman of the Board and
                                     Chief Executive Officer
                                     (Principal Executive Officer)

/s/ Alex Dillard                    /s/ Mike Dillard
Alex Dillard                         Mike Dillard
President and Director               Executive Vice President
                                     and Director


/s/ James I. Freeman                /s/ John Paul Hammerschmidt
James I. Freeman                     John Paul Hammerschmidt
Senior Vice President and Chief      Director
Financial Officer and Director


/s/ Peter R. Johnson                /s/ Warren A. Stephens
Peter R. Johnson                     Warren A. Stephens
Director                             Director

/s/ William H. Sutton               /s/ J.C. Watts, Jr.
William H. Sutton                    J.C. Watts, Jr.
Director                             Director


Date:    April 14, 2005


                                                                 F-21

                                    INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
                                                   DILLARD'S, INC. AND SUBSIDIARIES
                                                     Year Ended January 29, 2005


                                                                                                        Page

        Report of Independent Registered Public Accounting Firm                                          F-2

        Management's Report on Internal Control over Financial Reporting                                 F-3

        Report of Independent Registered Public Accounting Firm                                          F-4

        Consolidated Balance Sheets - January 29, 2005 and January 31, 2004.                             F-6
        Consolidated  Statements of Operations - Fiscal years ended January 29, 2005,  January
        31, 2004 and February 1, 2003.                                                                   F-7
        Consolidated  Statements of  Stockholders'  Equity and  Comprehensive  Income (Loss) -
        Fiscal years ended January 29, 2005, January 31, 2004 and February 1, 2003.                      F-8
        Consolidated  Statements of Cash Flows - Fiscal years ended January 29, 2005,  January
        31, 2004 and February 1, 2003.                                                                   F-9
        Notes to  Consolidated  Financial  Statements - Fiscal  years ended  January 29, 2005,
        January 31, 2004 and February 1, 2003.                                                          F-10

        Schedule II - Valuation and Qualifying Accounts                                                 F-26

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Dillard's, Inc.
Little Rock, Arkansas

We have audited the accompanying consolidated balance sheets of Dillard's, Inc. and subsidiaries (the Company)as of January 29, 2005
and January 31, 2004, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss),
and cash flows for each of the three years in the period ended January 29, 2005. Our audits also included the financial statement
schedule of Dillard's, Inc. and subsidiaries, listed in item 15. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position
of Dillard's, Inc. and subsidiaries as of January 29, 2005 and January 31, 2004, and the results of their operations and their cash
flows for each of the three years in the period ended January 29, 2005, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of the Company's internal control over financial reporting as of January 29, 2005, based on the criteria established
in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated April 13, 2005 expressed an unqualified opinion on management's assessment of the effectiveness of the
Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal
control over financial reporting.

As discussed in Notes 1 and 3 to the consolidated financial statements, the Company changed its method of accounting for goodwill
and other intangible assets in 2002 to conform to Statement of Financial Accounting Standards No. 142.

/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP

Dallas, Texas
April 13, 2005

F-2

Management's Report on Internal Control over Financial Reporting

The financial statements, financial analysis and all other information in this Annual Report on Form 10-K were prepared by
management, who is responsible for their integrity and objectivity and for establishing and maintaining adequate internal controls
over financial reporting.

The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. The Company's internal control over financial reporting includes those policies and procedures that:

i. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of assets of the Company;

ii. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the Company; and

iii. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or dispositions of the
Company's assets that could have a material effect on the financial statements.

There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurances with
respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal controls may
vary over time.

Management assessed the design and effectiveness of the Company's internal control over financial reporting as of January 29, 2005.
In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") in Internal Control - Integrated Framework. Based on management's assessment using those criteria, it believes
that, as of January 29, 2005, the Company's internal control over financial reporting is effective.

Deloitte & Touche LLP, an independent registered public accounting firm, has audited the financial statements of the Company for the
fiscal years ended January 29, 2005, January 31, 2004 and February 1, 2003 and has attested to management's assertion regarding the
effectiveness of the Company's internal control over financial reporting as of January 29, 2005. Their report is presented on the
following page. The independent registered public accountants and internal auditors advise management of the results of their
audits and make recommendations to improve the system of internal controls. Management evaluates the audit recommendations and
takes appropriate action.

F-3





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of
Dillard's, Inc.

Little Rock, Arkansas


We have  audited  management's  assessment,  included in the  accompanying  Management's  Report on Internal  Control  over  Financial
Reporting,  that Dillard's,  Inc. and subsidiaries (the "Company")  maintained  effective internal control over financial reporting as
of January 29, 2005, based on criteria  established in Internal  Control - Integrated  Framework issued by the Committee of Sponsoring
Organizations of the Treadway  Commission.  The Company's  management is responsible for maintaining  effective  internal control over
financial  reporting and for its assessment of the effectiveness of internal control over financial  reporting.  Our responsibility is
to  express an opinion  on  management's  assessment  and an opinion on the  effectiveness  of the  Company's  internal  control  over
financial reporting based on our audit.


We conducted our audit in accordance  with the standards of the Public  Company  Accounting  Oversight  Board (United  States).  Those
standards  require that we plan and perform the audit to obtain  reasonable  assurance about whether  effective  internal control over
financial  reporting was maintained in all material  respects.  Our audit included obtaining an understanding of internal control over
financial reporting,  evaluating  management's  assessment,  testing and evaluating the design and operating effectiveness of internal
control,  and performing such other procedures as we considered  necessary in the circumstances.  We believe that our audit provides a
reasonable basis for our opinions.


A company's internal control over financial  reporting is a process designed by, or under the supervision of, the company's  principal
executive  and  principal  financial  officers,  or persons  performing  similar  functions,  and effected by the  company's  board of
directors,  management,  and other personnel to provide reasonable  assurance regarding the reliability of financial reporting and the
preparation of financial  statements for external purposes in accordance with generally accepted  accounting  principles.  A company's
internal  control over financial  reporting  includes those  policies and  procedures  that (1) pertain to the  maintenance of records
that, in reasonable  detail,  accurately  and fairly  reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide reasonable  assurance that transactions are recorded as necessary to permit preparation of financial  statements in accordance
with generally  accepted  accounting  principles,  and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;  and (3) provide reasonable  assurance regarding  prevention or timely
detection  of  unauthorized  acquisition,  use,  or  disposition  of the  company's  assets  that could have a material  effect on the
financial statements.

Because of the inherent limitations of internal control over financial  reporting,  including the possibility of collusion or improper
management  override of controls,  material  misstatements  due to error or fraud may not be prevented or detected on a timely  basis.
Also,  projections  of any evaluation of the  effectiveness  of the internal  control over  financial  reporting to future periods are
subject to the risk that the controls may become  inadequate  because of changes in conditions,  or that the degree of compliance with
the policies or procedures may deteriorate.


In our opinion,  management's  assessment  that the Company  maintained  effective  internal  control over  financial  reporting as of
January 29, 2005,  is fairly  stated,  in all material  respects,  based on the criteria  established  in Internal  Control--Integrated
Framework  issued by the  Committee  of  Sponsoring  Organizations  of the  Treadway  Commission.  Also in our  opinion,  the  Company
maintained,  in all material  respects,  effective  internal  control over  financial  reporting as of January 29, 2005,  based on the
criteria  established in Internal  Control--Integrated  Framework  issued by the Committee of Sponsoring  Organizations of the Treadway
Commission.

We have also audited,  in  accordance  with the standards of the Public  Company  Accounting  Oversight  Board  (United  States),  the
consolidated  financial  statements and financial  statement schedule as of and for the year ended January 29, 2005 of the Company and
our report dated April 13, 2005 expressed an unqualified opinion on those financial statements and financial statement schedule
and included an explanatory paragraph relating to the Company's change in accounting for goodwill and intangible assets in 2002
to conform to Statement of Financial Accounting Standards No. 142.


/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP
Dallas, Texas
April 13, 2005

F-5



Consolidated Balance Sheets
Dollars in Thousands

Assets                                                                    January 29, 2005    January 31, 2004
Current Assets:
   Cash and cash equivalents                                                      $498,248            $160,873
   Accounts receivable (net of allowance for
    doubtful accounts of $0 and $40,967)                                             9,651           1,191,489
   Merchandise inventories                                                       1,733,033           1,632,377
   Other current assets                                                             52,559              38,952
    Total current assets                                                         2,293,491           3,023,691
Property and Equipment:
   Land and land improvements                                                      102,098             100,726
   Buildings and leasehold improvements                                          2,755,565           2,685,628
   Furniture, fixtures and equipment                                             2,143,464           2,192,029
   Buildings under construction                                                     96,767              40,636
   Buildings and equipment under capital leases                                     60,724              51,493
   Less accumulated depreciation and amortization                              (1,977,862)         (1,873,043)
                                                                                 3,180,756           3,197,469
Goodwill                                                                            35,495              36,731
Other Assets                                                                       181,839             153,206
Total Assets                                                                    $5,691,581          $6,411,097

Liabilities and Stockholders' Equity                                                                          
Current Liabilities:
   Trade accounts payable and accrued expenses                                    $820,242            $679,854
   Current portion of long-term debt                                                91,629             166,041
   Current portion of capital lease obligations                                      4,926               2,126
   Federal and state income taxes including current deferred taxes                 128,436             106,487
   Current portion of Guaranteed Beneficial Interest
     in the Company's Subordinated Debentures                                            -             331,579
   Other short-term borrowings                                                           -              50,000
     Total current liabilities                                                   1,045,233           1,336,087
Long-term Debt                                                                   1,322,824           1,855,065
Capital Lease Obligations                                                           20,182              17,711
Other Liabilities                                                                  269,056             147,901
Deferred Income Taxes                                                              509,589             617,236
Operating Leases and Commitments                                                                              
   Guaranteed Preferred Beneficial Interests in the
   Company's Subordinated Debentures                                               200,000             200,000
Stockholders' Equity:
   Common stock, Class A - 114,581,524 and 112,866,918 shares
      issued; 79,194,675 and 79,480,069 shares outstanding                           1,146               1,129
   Common stock, Class B (convertible)-- 4,010,929 shares
      issued and outstanding                                                            40                  40
   Additional paid-in capital                                                      739,620             713,974
   Accumulated other comprehensive loss                                           (13,333)            (11,281)
   Retained earnings                                                             2,305,993           2,201,623
   Less treasury stock, at cost, Class A--35,386,849 and
     33,386,849 shares                                                           (708,769)           (668,388)
    Total stockholders' equity                                                   2,324,697           2,237,097
Total Liabilities and Stockholders' Equity                                      $5,691,581          $6,411,097


See notes to consolidated financial statements.

F-6




Consolidated Statements of Operations
Dollars in Thousands, Except Per Share Data
                                                                                           Years Ended                             .
                                                                   January 29, 2005         January 31, 2004       February 1, 2003

Net Sales                                                                $7,528,572               $7,598,934             $7,910,996
Service Charges, Interest and Other Income                                  287,699                  264,734                322,943
                                                                          7,816,271                7,863,668              8,233,939
Costs and Expenses:
   Cost of sales                                                          5,017,765                5,170,173              5,254,134
   Advertising, selling, administrative and general expenses              2,098,791                2,097,947              2,164,033
   Depreciation and amortization                                            301,917                  290,661                301,407
   Rentals                                                                   54,774                   64,101                 68,101
   Interest and debt expense                                                139,056                  181,065                189,779
  Asset impairment and store closing charges                                19,417                   43,727                 52,224
     Total costs and expenses                                             7,631,720                7,847,674              8,029,678
Income Before Income Taxes                                                  184,551                   15,994                204,261
Income Taxes                                                                 66,885                    6,650                 72,335
Income before cumulative effect of accounting change                        117,666                    9,344                131,926
Cumulative effect of accounting change, net of tax benefit
   of $0                                                                         --                       --              (530,331)
Net Income (Loss)                                                          $117,666                   $9,344             $(398,405)
Basic Earnings Per Common Share:
   Income before cumulative effect of accounting change                       $1.41                    $0.11                  $1.56
   Cumulative effect of accounting change                                        --                       --                 (6.27)
   Net Income (Loss)                                                          $1.41                    $0.11               $ (4.71)
Diluted Earnings Per Common Share:                                                                                                 
   Income before cumulative effect of accounting change                       $1.41                    $0.11                  $1.55
   Cumulative effect of accounting change                                        --                       --                 (6.22)
   Net Income (Loss)                                                          $1.41                    $0.11               $ (4.67)
See notes to consolidated financial statements.

F-7


Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
Dollars in Thousands, Except Per Share Data
                                                                                  Accumulated
                                                                    Additional       Other
                                                Common Stock         Paid-in       Comprehen-      Retained      Treasury
                                            ClassA      Class B      Capital       sive Loss       Earnings        Stock          Total  
Balance, February 2, 2002                       $1,118        $40      $699,104             $--    $2,617,608     $(649,473)    $2,668,397
   Net loss                                         __         __            __              __     (398,405)             __     (398,405)
   Minimum pension liability
     adjustment, net of tax of $2,529               __         __            __         (4,496)            __             __       (4,496)
     Total comprehensive loss                                                                                                    (402,901)
    Issuance of 869,985 shares under
      stock  option, employee savings
      and stock bonus plans                          9         __        12,220              __            __             __        12,229
   Cash dividends declared:
    Common stock, $.16 per share                    --         --            --              --      (13,529)             --      (13,529)
Balance, February 1, 2003                        1,127         40       711,324         (4,496)     2,205,674      (649,473)     2,264,196
   Net income                                       __         __            __              __         9,344             __         9,344
   Minimum pension liability
     adjustment, net of tax of $3,817               __         __            __         (6,785)            __             __       (6,785)
    Total comprehensive income                                                                                                       2,559
   Issuance of 189,413 shares under
     stock  option, employee savings
     and stock bonus plans                           2         __         2,650              __            __             __         2,652
   Purchase of 1,456,076 shares of
      treasury stock                                __         __            __              __            __       (18,915)      (18,915)
   Cash dividends declared:
    Common stock, $.16 per share                    --         --            --              --      (13,395)             --      (13,395)
Balance, January 31, 2004                        1,129         40       713,974        (11,281)     2,201,623      (668,388)     2,237,097
   Net income                                       __         __            __                       117,666             __       117,666
   Minimum pension liability
    adjustment, net of tax of $1,154                __         __            __         (2,052)            __             __       (2,052)
     Total comprehensive income                                                                                                    115,614
   Issuance of 1,714,606 shares under
    stock  option, employee savings
    and stock bonus plans                           17         __        25,646              __            __             __        25,663
   Purchase of 2,000,000 shares of
    treasury stock                                  __         __            __              __            __       (40,381)      (40,381)
   Cash dividends declared:
    Common stock, $.16 per share                    --         --            --              --      (13,296)             --      (13,296)
Balance, January 29, 2005                       $1,146        $40      $739,620       $(13,333)    $2,305,993     $(708,769)  $2,324,697

See notes to consolidated financial statements.

F-8



Consolidated Statements of Cash Flows
Dollars in Thousands
                                                                                                Years Ended                        .
                                                                           January 29, 2005   January 31, 2004     February 1, 2003
Operating Activities:
Net income (loss)                                                                  $117,666             $9,344           $(398,405)
   Adjustments to reconcile net income (loss) to
    net cash provided by operating activities:
   Depreciation and amortization of property and deferred financing                 305,536            297,201              305,545
   Deferred income taxes                                                          (122,036)             13,623               24,878
   Loss on early extinguishments of debt                                                 __                 __                6,834
   Asset impairment and store closing charges                                        19,417             43,727               52,224
   Gain on sale of credit card business                                            (83,867)                 __                   __
   Gain on sale of joint venture                                                         __           (15,624)             (64,295)
   Gain on sale of property and equipment                                           (2,933)            (8,699)              (1,103)
   Provision for loan losses                                                         12,835             35,244               36,574
   Cumulative effect of accounting change, net of taxes                                  __                 __              530,331
   Changes in operating assets and liabilities:
     Decrease in accounts receivable                                                166,899            110,936                  286
     Increase in merchandise inventories                                          (100,656)           (38,069)             (32,445)
     (Increase) decrease in other current assets                                   (13,607)             16,121             (30,760)
     (Increase) decrease in other assets                                           (39,816)           (37,048)               31,559
     Increase (decrease) in trade accounts payable
      and accrued expenses, other liabilities and income taxes                      294,623              5,350            (104,281)
 Net cash provided by operating activities                                          554,061            432,106              356,942
Investing Activities:
   Purchase of property and equipment                                             (285,331)          (227,421)            (233,268)
   Proceeds from sale of property and equipment                                      11,330             31,766                   --
   Net cash from sale of credit card business                                       688,213                 __                   __
   Proceeds from sale of joint venture                                                   --             34,579               68,295
Net cash provided by (used in) investing activities                                 414,212          (161,076)            (164,973)
Financing Activities:
   Principal payments on long-term debt and capital lease obligations             (212,163)          (272,702)            (340,081)
   (Decrease) increase in short-term borrowings and capital lease
     obligations                                                                   (50,000)             51,369                   --
   Cash dividends paid                                                             (13,296)           (13,395)             (13,529)
   Proceeds from issuance of common stock                                            16,521              1,130               11,037
   Purchase of treasury stock                                                      (40,381)           (18,915)                   --
   Retirement of Guaranteed Beneficial Interest in the Company's
     Debentures                                                                   (331,579)                 --                   --
   Proceeds from receivable financing, net                                               --                 --              100,000
   Proceeds from long-term borrowings                                                    --                 --               40,000
Net cash used in financing activities                                             (630,898)          (252,513)            (202,573)
Increase (decrease) in Cash and Cash Equivalents                                    337,375             18,517             (10,604)
Cash and Cash Equivalents, Beginning of Year                                        160,873            142,356              152,960
Cash and Cash Equivalents, End of Year                                             $498,248           $160,873             $142,356


Non-cash transactions:
  Tax benefit from exercise of stock options                                         $9,142               $256               $4,985
  Capital lease transactions                                                         10,781                 --                   --

See notes to consolidated financial statements.

F-9

Notes to Consolidated Financial Statements

1. Description of Business and Summary of Significant Accounting Policies
Description of Business - Dillard's, Inc. (the "Company") operates retail department stores located primarily in the Southeastern,
Southwestern and Midwestern areas of the United States. The Company's fiscal year ends on the Saturday nearest January 31 of each
year. Fiscal years 2004, 2003 and 2002 ended on January 29, 2005, January 31, 2004 and February 1, 2003, respectively. Fiscal
years 2004, 2003 and 2002 included 52 weeks.

Consolidation - The accompanying consolidated financial statements include the accounts of Dillard's, Inc. and its wholly owned
subsidiaries. Intercompany accounts and transactions are eliminated in consolidation. Investments in and advances to joint ventures
in which the Company has a 50% ownership interest are accounted for by the equity method.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates include inventories, sales return, allowance for doubtful accounts prior
to November 1, 2004, self-insured accruals, future cash flows for impairment analysis, pension discount rate and lives of long-lived
assets. Actual results could differ from those estimates.

Cash Equivalents - The Company considers all highly liquid investments with an original maturity of three months or less when
purchased to be cash equivalents. The Company considers receivables from charge card companies as cash equivalents.

Accounts Receivable - In November 2004, the Company sold substantially all of its accounts receivable to GE Consumer Finance ("GE")
and no longer maintains an allowance for doubtful accounts.

Prior to November 2004, customer accounts receivable on the Company's proprietary credit card were classified as current assets and
include some which are due after one year, consistent with industry practice. Proprietary credit card receivables were shown net of
an allowance for uncollectible accounts. The Company calculated the allowance for uncollectible accounts using a model that analyzes
factors such as bankruptcy filings, delinquency rates, historical charge-off patterns, recovery rates and other portfolio data. The
calculation was then reviewed by management to assess whether, based on recent economic events, additional analyses were required to
appropriately estimate losses inherent in the portfolio. The Company charged off an account automatically when a customer has failed
to make a required payment in each of the six billing cycles following a missed payment. The Company also provided for the
estimated uncollectible portion of the finance charge revenue based upon our historical collection experience as part of the
allowance for doubtful accounts. This allowance represented amounts of credit card receivable balances (including billed but
uncollected finance charges) which management estimated will ultimately not be collected. Finance charge revenue was recorded until
an account is charged off, at which time uncollected finance charge revenue was recorded as a reduction of credit revenues.

Historically, the Company utilized credit card securitizations as part of its overall funding strategy. The transfers were
accounted for under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for Transfer and
Servicing of Financial Assets and Liabilities". All financing through these facilities are recorded on the balance sheet as of
January 31, 2004 (see Note 16).

In November 2004, the Company either repaid or transferred to GE all of its debt securitized by credit card receivables.

Significant Group Concentrations of Credit Risk - The Company granted credit to customers throughout North America. There were no
Metropolitan Statistical Areas that comprised 10% of the Company's managed credit card receivables at January 29, 2005 and January
31, 2004. As of November 1, 2004, GE owns all accounts and balances generated through sales on the Company's private label card.

F-10

Merchandise Inventories - The retail last-in, first-out ("LIFO") inventory method is used to value merchandise inventories. At
January 29, 2005 and January 31, 2004, the LIFO cost of merchandise was approximately equal to the first-in, first-out ("FIFO") cost
of merchandise.

Property and Equipment - Property and equipment owned by the Company is stated at cost, which includes related interest costs
incurred during periods of construction, less accumulated depreciation and amortization. Capitalized interest was $4.5 million, $2.6
million and $2.5 million in fiscal 2004, 2003 and 2002, respectively. For financial reporting purposes, depreciation is computed by
the straight-line method over estimated useful lives:

----------------------------------------------------------------------------------------------------
Buildings and leasehold improvements 20 - 40 years
Furniture, fixtures and equipment 3 - 10 years
----------------------------------------------------------------------------------------------------

Properties leased by the Company under lease agreements which are determined to be capital leases are stated at an amount equal to
the present value of the minimum lease payments during the lease term, less accumulated amortization. The properties under capital
leases and leasehold improvements under operating leases are amortized on the straight-line method over the shorter of their useful
lives or the related lease terms. The provision for amortization of leased properties is included in depreciation and amortization
expense.

Included in property and equipment as of January 29, 2005 are assets held for sale in the amount of $7.7 million. During fiscal
2004, 2003 and 2002, the Company realized gains on the sale of property and equipment of $2.9 million, $8.7 million and $1.1
million, respectively.

Depreciation expense on property and equipment was $302 million, $291 million and $301 million for fiscal 2004, 2003 and 2002,
respectively.

Long-Lived Assets Excluding Goodwill - The Company follows SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. In the
evaluation of the fair value and future benefits of long-lived assets, the Company performs an analysis of the anticipated
undiscounted future net cash flows of the related long-lived assets. This analysis is performed at the store unit level. If the
carrying value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair value which is
based on expected discounted future cash flows. Various factors including future sales growth and profit margins are included in
this analysis. Management believes at this time that the carrying value and useful lives continue to be appropriate, after
recognizing the impairment charges recorded in 2004, 2003 and 2002, as disclosed in Note 14.

Goodwill - The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," effective February 3, 2002. It changes the
accounting for goodwill from an amortization method to an "impairment only" approach. Under SFAS No. 142, goodwill is no longer
amortized but reviewed for impairment annually or more frequently if certain indicators arise. The Company tested goodwill for
impairment as of the adoption date using the two-step process prescribed in SFAS No. 142. The Company identified its reporting
units under SFAS No. 142 at the store unit level. The fair value of these reporting units was estimated using the expected
discounted future cash flows and market values of related businesses, where appropriate. Prior to the adoption of SFAS No. 142,
goodwill, which represents the cost in excess of fair value of net assets acquired, was amortized on the straight-line basis over 40
years. Accumulated goodwill amortization was $55.6 million at February 2, 2002. Management believes at this time that the carrying
value continues to be appropriate, recognizing the impairment charge recorded in fiscal 2004, 2003 and 2002, as disclosed in
Note 3.

Other Assets - Other assets include investments in joint ventures accounted for by the equity method. These joint ventures, which
consist of malls and a general contracting company that constructs Dillard's stores and other commercial buildings, had carrying
values of $116 million and $97 million at January 29, 2005 and January 31, 2004, respectively. The malls are located in Yuma,
Arizona; Toledo, Ohio; Denver, Colorado and one currently under construction in Bonita Springs, Florida. Earnings from joint
ventures were $8.7 million, $8.1 million and $19.5 million for fiscal 2004, 2003 and 2002, respectively. The Company also recorded
a $15.6 million pretax gain for the year ended January 31, 2004 from the sale of its interest in Sunrise Mall and its associated
center in Brownsville, Texas for $80.7 million including the assumption of the $40.0 million mortgage note. The Company recorded a
pretax gain of $64.3 million pertaining to

F-11

the Company's sale of its interest in FlatIron Crossing, a Broomfield, Colorado shopping center, for the year ended
February 1, 2003. The gains on the sale were recorded in Service Charges, Interest and Other Income.

Vendor Allowances - The Company receives concessions from its vendors through a variety of programs and arrangements, including
co-operative advertising and markdown reimbursement programs. Co-operative advertising allowances are reported as a reduction of
advertising expense in the period in which the advertising occurred. Payroll reimbursements are reported as a reduction of payroll
expense in the period in which the reimbursement occurred. All other vendor allowances are recognized as a reduction of cost
purchases. Accordingly, a reduction or increase in vendor concessions has an inverse impact on cost of sales and/or selling and
administrative expenses.

Insurance Accruals - The Company's consolidated balance sheets include liabilities with respect to self-insured workers'
compensation and general liability claims. The Company estimates the required liability of such claims, utilizing an actuarial
method, based upon various assumptions, which include, but are not limited to, our historical loss experience, projected loss
development factors, actual payroll and other data. The required liability is also subject to adjustment in the future based upon
the changes in claims experience, including changes in the number of incidents (frequency) and changes in the ultimate cost per
incident (severity).

Operating Leases - The Company leases retail stores and office space under operating leases. Most leases contain construction
allowance reimbursements by landlords, rent holidays, rent escalation clauses and/or contingent rent provisions. The Company
recognizes the related rental expense on a straight-line basis over the lease term and records the difference between the amounts
charged to expense and the rent paid as a deferred rent liability.

To account for construction allowance reimbursements from landlords and rent holidays, the Company records a deferred rent liability
included in trade accounts payable and accrued expenses and other liabilities on the consolidated balance sheets and amortizes the
deferred rent over the lease term, as a reduction to rent expense on the consolidated income statements. For leases containing rent
escalation clauses, the Company records minimum rent expense on a straight-line basis over the lease term on the consolidated income
statement. The lease term used for lease evaluation includes renewal option periods only in instances in which the exercise of the
option period can be reasonably assured and failure to exercise such options would result in an economic penalty.

Revenue Recognition - The Company recognizes revenue at the "point of sale." Revenue associated with gift cards is recognized upon
redemption of the gift card. Prior to the sale of its credit card business to GE, finance charge revenue earned on customer
accounts, serviced by the Company under its proprietary credit card program, was recognized in the period in which it was earned.
Beginning November 1, 2004, the Company's share of income earned under the long-term marketing and servicing alliance is included as
a component of Service Charges, Interest and Other Income. Allowance for sales returns are recorded as a component of net sales in
the period in which the related sales are recorded.

Advertising - Advertising and promotional costs, which include newspaper, television, radio and other media advertising, are
expensed as incurred and were $246 million, $229 million and $253 million for fiscal years 2004, 2003 and 2002, respectively.

Income Taxes - In accordance with SFAS No. 109, "Accounting for Income Taxes," deferred income taxes reflect the future tax
consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts at year-end.

Shipping and Handling - In accordance with Emerging Issues Task Force ("EITF") 00-10, "Accounting for Shipping and Handling Fees and
Costs," the Company records shipping and handling reimbursements in Service Charges, Interest and Other Income. The Company records
shipping and handling costs in Advertising, Selling, Administrative and General Expenses.

Comprehensive Income (Loss) - Accumulated other comprehensive loss consists only of the minimum pension liability, which is
calculated annually in the fourth quarter.

Stock-Based Compensation - The Company periodically grants stock options to employees. Pursuant to Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," the Company accounts for stock-based employee compensation
arrangements using the intrinsic value method. No compensation expense has been recorded in

F-12

the consolidated financial statements with respect to option grants. The Company has adopted the disclosure only provisions of
Financial Accounting Standards Board Statement No. 123, "Accounting for Stock Based Compensation," as amended by Financial Accounting
Standards Board Statement No. 148, "Accounting forStock Based Compensation - Transition and Disclosure, an Amendment of FASB
Statement No. 123". If compensation cost for the Company's stock option plans had been determined in accordance with the fair
value method prescribed by SFAS No. 123, the Company's income before accounting change would have been:

(in thousands of dollars, except per share data) Fiscal 2004 Fiscal 2003 Fiscal 2002
Income before cumulative effect of accounting change
As reported $117,666 $9,344 $131,926
Deduct: Total stock-based employee compensation
expense determined under fair value based method, net
of taxes (1,825) (2,732) (9,261)
Pro forma $115,841 $6,612 $122,665

Basic earnings per share:
As reported $1.41 $0.11 $1.56
Pro forma 1.39 0.08 1.45
Diluted earnings per share:
As reported $1.41 $0.11 $1.55
Pro forma 1.38 0.08 1.44

Segment Reporting - The Company operates in a single operating segment-- the operation of retail department stores. Revenues from
customers are derived from merchandise sales and service charges and interest on the Company's proprietary credit card prior to
November 1, 2004.

The Company does not rely on any major customers as a source of revenue.

New Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an Amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS No.
151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. The adoption of the of SFAS No. 151 is not expected to have a material effect on
the Company's financial position, results of operations or cash flows.

In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123-R"). SFAS No. 123-R
requires all forms of share-based payments to employees, including employee stock options, be treated as compensation and recognized
in the income statement based on their estimated fair values. This statement will be effective for fiscal periods beginning after
June 15, 2005 which will be the Company's third quarter of fiscal 2005.

F-13

2. Disposition of Credit Card Receivables
On November 1, 2004, the Company completed the sale of substantially all of the assets of its private label credit card business to
GE. The purchase price of approximately $1.1 billion includes the assumption of $400 million of securitization liabilities, the
purchase of owned accounts receivable and other assets. Net cash proceeds received by the Company were $688 million. The Company
recorded a pretax gain of $83.9 million as a result of the sale. The gain is recorded in Service Charges, Interest and Other Income
on the Consolidated Statement of Operations.

As part of the transaction, the Company and GE have entered into a long-term marketing and servicing alliance with an initial term
of 10 years, with an option to renew. GE will own the accounts and balances generated during the term of the alliance and will
provide all key customer service functions supported by ongoing credit marketing efforts.

3. Goodwill
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," effective February 3, 2002. It changes the accounting for
goodwill from an amortization method to an "impairment only" approach. Under SFAS No. 142, goodwill is no longer amortized but
reviewed for impairment annually or more frequently if certain indicators arise. The Company tested goodwill for impairment as of
the adoption date using the two-step process prescribed in SFAS No. 142. The Company identified its reporting units under SFAS No.
142 at the store unit level. The fair value of these reporting units was estimated using the expected discounted future cash flows
and market values of related businesses, where appropriate.

Related to the 1998 acquisition of Mercantile Stores Company Inc., the Company had $570 million in goodwill recorded in its
consolidated balance sheet at the beginning of 2002. The Company completed the required impairment tests of goodwill in the second
quarter of 2002 and determined that $530 million of goodwill was impaired under the fair value test. This impairment was the result
of sequential periods of declining profits in certain of these reporting units. In accordance with SFAS No. 142, the impairment loss
for goodwill was reflected as a cumulative effect of a change in accounting principle in fiscal 2002. The Company tests the
realizability of goodwill as of the end of each fiscal year or when circumstances deem necessary.

The changes in the carrying amount of goodwill for the years ended January 29, 2005 and January 31, 2004 are as follows (in
thousands):

Goodwill balance at February 1, 2003 $39,214
Goodwill written off in fiscal 2003 ( 2,483)
Goodwill balance at January 31, 2004 36,731
Goodwill written off in fiscal 2004 (1,236)
Goodwill balance at January 29, 2005 $35,495

4. Revolving Credit Agreement
At January 29, 2005, the Company maintained a $1 billion revolving credit facility with JPMorgan Chase Bank ("JPMorgan").
Borrowings under the credit agreement accrue interest at JPMorgan's Base Rate or LIBOR plus 1.50% (currently 4.09%) subject to
certain availability thresholds as defined in the credit agreement. Availability for borrowings and letter of credit obligations
under the credit agreement is limited to 75% of the inventory of certain Company subsidiaries (approximately $878 million at January
29, 2005). There are no financial covenant requirements under the credit agreement provided availability exceeds $100 million. The
credit agreement expires on December 12, 2008. The Company pays an annual commitment fee of 0.375% of the committed amount less
outstanding borrowings and letters of credit to the banks. The Company borrowed $100 million on its revolving credit facility
during 2004 in connection with the redemption of the $331.6 million Preferred Securities on February 2, 2004. There were no funds
borrowed under the revolving credit facility during fiscal 2003.

F-14




5. Long-term Debt
Long-term debt consists of the following:

(in thousands of dollars)                            January 29, 2005    January 31, 2004  
Unsecured notes
   at rates ranging from
   6.30% to 9.50%,
   due 2005 through 2028                                   $1,357,391          $1,561,353
Receivable financing facilities
   at rates ranging from 1.4% to
   3.8%                                                             -             400,000
Mortgage notes, payable
   monthly or quarterly
   (some with balloon payments)
   through 2013 and bearing
   interest at rates ranging from
   7.25% to 10.12%                                             57,062              59,753   
                                                            1,414,453           2,021,106
Current portion                                              (91,629)           (166,041)   
                                                           $1,322,824          $1,855,065   

Building,  land,  and land  improvements  with a carrying value of $50.5 million at January 29, 2005 were pledged as
collateral on the mortgage notes.  Maturities of long-term debt over the next five years are $92 million,  $98 million,
$201 million,  $198 million and $25 million.  Outstanding letters of credit aggregated $69.7 million at January 29, 2005.

Interest and debt expense consists of the following:

                                                      Fiscal           Fiscal          Fiscal
(in thousands of dollars)                               2004             2003            2002
Long-term debt:
   Interest                                         $121,648         $144,276        $154,698
   Call premium                                            -           15,568          11,395
   Loss on early retirement
   of long-term debt                                       -                -           6,839
   Amortization of
     debt expense                                      4,027            6,985           4,088
                                                     125,675          166,829         177,020
Interest on capital
   lease obligations                                   2,372            2,202           2,354
Interest on receivable financing                      11,009           12,034          10,405
                                                    $139,056         $181,065        $189,779

Interest paid during fiscal 2004, 2003 and 2002 was approximately $145.4 million, $186.9 million and $158.6 million,
respectively.

F-15



6. Trade Accounts Payable and Accrued Expenses
Trade accounts payable and accrued expenses consist of the following:

(in thousands of dollars)                      January 29, 2005    January 31, 2004
Trade accounts payable                                 $597,046            $457,485
Accrued expenses:
    Taxes, other than income                             70,290              76,263
    Salaries, wages,
     and employee benefits                               55,099              44,661
    Liability to customers                               51,974              47,340
    Interest                                             31,877              39,789
    Rent                                                  9,563               9,949
    Other                                                 4,393               4,367
                                                       $820,242            $679,854

7. Income Taxes
The provision for federal and state income taxes is summarized as follows:

                                                    Fiscal         Fiscal       Fiscal
(in thousands of dollars)                             2004           2003         2002
Current:
   Federal                                        $156,137       $(5,293)      $45,428
   State                                            32,784        (1,680)        2,029
                                                   188,921        (6,973)       47,457
Deferred:
   Federal                                        (92,359)         12,046       23,570
   State                                          (29,677)          1,577        1,308
                                                 (122,036)         13,623       24,878
                                                   $66,885         $6,650      $72,335

A  reconciliation  between  the  Company's  income tax  provision  and income taxes using the federal statutory
income tax rate is presented below:

                                                    Fiscal         Fiscal       Fiscal
(in thousands of dollars)                             2004           2003         2002
Income tax at the
   statutory federal rate                          $64,593         $5,598      $71,493
State income taxes,
   net of federal benefit                            1,834            122        2,008
Nondeductible
   goodwill write off                                  433            869            -
Other                                                   25             61      (1,166)
                                                   $66,885         $6,650      $72,335


Deferred  income taxes reflect the net tax effects of temporary  differences  between the carrying  amounts of assets and  liabilities
for financial  reporting  purposes and the amounts used for income tax purposes.  The  Company's  actual  federal and state income tax
rate (exclusive of the effect of  non-deductible  goodwill  write-off) was 36% in fiscal 2004, 2003 and 2002.  Significant  components
of the Company's deferred tax assets and liabilities as of January 29, 2005 and January 31, 2004 are as follows:

F-16



(in thousands of dollars)                     January 29, 2005     January 31, 2004  
Property and equipment
   bases and depreciation
   differences                                        $504,253             $505,581
State income taxes                                      64,903               68,021
Joint venture basis differences                         23,997               24,849
Differences between
   book and tax bases of inventory                      46,001               49,095
Other                                                   12,604              112,550   
   Total deferred tax liabilities                      651,758              760,096   
Accruals not currently deductible                     (63,410)             (45,813)
NOL carryforwards                                     (82,058)             (79,324)
State income taxes                                    (12,625)             (12,558)   
   Total deferred tax assets                         (158,093)            (137,695)
State NOL valuation allowance                           53,148               47,603   
   Net deferred tax assets                           (104,945)             (90,092)   
   Net deferred tax liabilities                       $546,813             $670,004   


At January 29, 2005, the Company had $1.8 million of federal rehabilitation credit carryovers that could be utilized to reduce the
tax liabilities of future years.  These credit carryovers will expire between 2005 and 2007.

At January 29, 2005,  the Company had a deferred tax asset  related to state net operating  loss  carryovers of $82 million that could
be utilized to reduce the tax  liabilities  of future  years.  These  carryovers  will expire  between 2005 and 2025. A portion of the
deferred  asset  attributable  to state net  operating  loss  carryovers  was reduced by a valuation  allowance of $53 million for the
losses of various members of the affiliated group in states that require separate company filings.

Deferred tax assets and liabilities are presented as follows in the accompanying consolidated balance sheets:

(in thousands of dollars)                     January 29, 2005     January 31, 2004   
Net deferred tax liabilities-noncurrent               $509,589             $617,236   
Net deferred tax liabilities-current                    37,224               52,768   
   Net deferred tax liabilities                       $546,813             $670,004   


The  Company's  income tax returns are  periodically  audited by various  state and local  jurisdictions.  Additionally,  the Internal
Revenue  Service audits the Company's  federal  income tax return  annually.  The Company  reserves for tax  contingencies  when it is
probable that a liability has been incurred and the  contingent  amount is  reasonably  estimable.  These  reserves are based upon the
Company's  best  estimates of the  potential  exposures  associated  with the timing and amount of  deductions  as well as various tax
filing positions.  Due to the complexity of these examination  issues, for which reserves have been recorded,  it may be several years
before the final resolution is achieved.

Income taxes paid during fiscal 2004, 2003 and 2002 were approximately $36.2, $0 and $0 million, respectively.

8. Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures
Guaranteed Preferred Beneficial  Interests in the Company's  Subordinated  Debentures are comprised of $200 million liquidation amount
of 7.5% Capital Securities,  due August 1, 2038 (the "Capital  Securities")  representing  beneficial ownership interest in the assets
of Dillard's Capital Trust I, a consolidated entity of the Company.

Holders of the Capital Securities are entitled to receive  cumulative cash  distributions,  payable  quarterly,  at the annual rate of
7.5% of the liquidation  amount of $25 per Capital  Security.  The  subordinated  debentures are the sole assets of the Trust, and the
Capital  Securities are subject to mandatory  redemption  upon repayment of the  subordinated  debentures.  The Company's  obligations
under the  debentures and related  agreements,  taken  together,  provides a full and  unconditional  guarantee of payments due on the
Capital Securities.

F-17



Prior to February 2, 2004,  Guaranteed Preferred Beneficial  Interests in the Company's  Subordinated  Debentures also included $331.6
million  liquidation  amount of LIBOR plus 1.56% Preferred  Securities,  due January 29, 2009 (the "Preferred  Securities") by Horatio
Finance V.O.F.,  a wholly owned  subsidiary of the Company.  Holders of the Preferred  Securities  were entitled to receive  quarterly
dividends at LIBOR plus 1.56%.  The Company redeemed the $331.6 million Preferred Securities on February 2, 2004.

9. Benefit Plans
The  Company  has a  retirement  plan with a  401(k)-salary  deferral  feature for  eligible  employees.  Under the terms of the plan,
eligible  employees  may  contribute  up to 20% of  eligible  pay.  Eligible  employees  with one year of service  may elect to make a
contribution  of up to 5% of eligible  pay which will be matched  100% only if invested in the  Company's  common  stock.  The Company
contributions  are used to  purchase  Class A Common  Stock of the  Company  for the  account of the  employee.  The terms of the plan
provide a six-year  graduated-vesting  schedule for the Company  contribution portion of the plan. The Company incurred expense of $11
million, $12 million and $14 million for fiscal 2004, 2003 and 2002, respectively, for the plan.

The Company has a nonqualified  defined benefit plan for certain  officers.  The plan is  noncontributory  and provides benefits based
on years of service and  compensation  during  employment.  Pension  expense is  determined  using various  actuarial  cost methods to
estimate the total  benefits  ultimately  payable and  allocates  this cost to service  periods.  The pension  plan is  unfunded.  The
actuarial  assumptions  used to calculate  pension costs are reviewed  annually.  The Company  expects to make a  contribution  to the
pension plan of  approximately  $3.6 million in fiscal 2005.  The Company  uses  January 31 as the  measurement  date for  determining
pension plan obligations.

The accumulated benefit obligations  ("ABO"),  change in projected benefit obligation ("PBO"),  change in plan assets,  funded status,
and reconciliation to amounts recognized in the consolidated balance sheets are as follows:

(in thousands of dollars)                                          January 29, 2005        January 31, 2004
Change in projected benefit obligation:
  PBO at beginning of year                                                  $77,983                 $64,360
    Service cost                                                              1,770                     993
    Interest cost                                                             4,578                   4,235
    Actuarial loss                                                            7,300                  11,674
    Benefits paid                                                           (3,369)                 (3,279)
  PBO at end of year                                                        $88,262                 $77,983
  ABO at end of year                                                        $85,682                 $75,286


                                                                   January 29, 2005        January 31, 2004
Change in plan assets:
  Fair value of plan assets at beginning of year                              $   -                   $   -
    Employer contribution                                                     3,369                   3,279
    Benefits paid                                                           (3,369)                 (3,279)
Fair value of plan assets at end of year                                      $   -                   $   -
  Funded status (PBO less plan assets)                                      $88,262                 $77,983
    Unamortized prior service costs                                         (5,108)                 (5,734)
    Unrecognized net actuarial loss                                        (23,413)                (17,259)
    Intangible asset                                                          5,108                   5,734
    Unrecognized net loss                                                    20,833                  15,056
Accrued benefit cost                                                        $85,682                 $75,780
ABO in excess of plan assets                                                $85,682                 $75,286
Amounts recognized in the balance sheets:
    Accrued benefit liability                                               $59,741                 $54,990
    Intangible asset                                                          5,108                   5,734
    Accumulated other comprehensive loss                                     20,833                  15,056
Net amount recognized                                                       $85,682                 $75,780

F-18




Accrued  benefit  liability  is included  in other  liabilities.  Intangible  asset is included  in other  assets.  Accumulated  other
comprehensive loss, net of tax benefit, is included in stockholders' equity.

The discount rate that the Company  utilizes for  determining  future  pension  obligations  is based on the Moody's AA corporate bond
index. The indices selected reflect the weighted average  remaining period of benefit  payments.  The discount rate determined on this
basis had decreased to 5.5% as of January 29, 2005 from 6.00% as of January 31, 2004.  Weighted average assumptions are as follows:

                                                      Fiscal 2004             Fiscal 2003        Fiscal 2002
Discount rate-net periodic pension cost                     6.00%                   6.75%              7.25%
Discount rate-benefit obligations                           5.50%                   6.00%              6.75%
Rate of compensation increases                              2.50%                   2.50%              2.50%


The components of net periodic benefit costs are as follows:

(in thousands of dollars)                             Fiscal 2004             Fiscal 2003        Fiscal 2002
Components of net periodic benefit costs:
  Service cost                                             $1,770                   $ 993             $1,416
  Interest cost                                             4,578                   4,235              3,592
  Net actuarial gain (loss)                                 1,146                     130              (156)
  Amortization of prior service cost                          627                     627                  - 
  Net periodic benefit costs                               $8,121                  $5,985             $4,852

The estimated future benefits payments for the nonqualified benefit plan are as follows:

(in thousands of dollars)                                              
Fiscal Year
2005                                                           $  3,604
2006                                                              4,731
2007                                                              4,841
2008                                                              4,804
2009                                                              5,363
2010-2014                                                        32,314
Total payments for next ten fiscal years                        $55,657


10. Stockholders' Equity
Capital stock is comprised of the following:

                                  Par            Shares
Type                              Value          Authorized
Preferred (5% cumulative)         $100           5,000
Additional preferred              $ .01          10,000,000
Class A, common                   $ .01          289,000,000
Class B, common                   $ .01          11,000,000

Holders of Class A are  empowered as a class to elect  one-third  of the members of the Board of Directors  and the holders of Class B
are  empowered as a class to elect  two-thirds  of the members of the Board of  Directors.  Shares of Class B are  convertible  at the
option of any holder thereof into shares of Class A at the rate of one share of Class B for one share of Class A.

On March 2, 2002,  the  Company  adopted a  shareholder  rights  plan under  which the Board of  Directors  declared a dividend of one
preferred share purchase right for each  outstanding  share of the Company's  Common Stock,  which includes both the Company's Class A
and Class B Common Stock,  payable on March 18, 2002 to the  shareholders of

F-19


record on that date.  Each right,  which is not presently exercisable,  entitles the holder to purchase one one-thousandth of a share
of Series A Junior  Participating  Preferred Stock for $70 per one  one-thousandth  of a share of Preferred  Stock,  subject to adjustment.  In the event that any person acquires 15% or more of
the  outstanding  shares of common  stock,  each  holder of a right  (other  than the  acquiring  person or group) will be entitled to
receive,  upon payment of the exercise  price,  shares of Class A common stock having a market value of two times the exercise  price.
The rights will expire, unless extended, redeemed or exchanged by the Company, on March 2, 2012.

Share Repurchase Program

In May 2000, the Company announced that the Board of Directors authorized the repurchase of up to $200 million of its Class A Common
Stock. During fiscal 2004 and fiscal 2003, the Company repurchased approximately $40.4 million and $18.9 million of Class A Common
Stock, representing 2.0 million and 1.5 million shares at an average price of $20.19 and $12.99 per share, respectively.
Approximately $16 million in share repurchase authorization remained under this open-ended plan at January 29, 2005.

11. Earnings per Share
In accordance with SFAS No. 128,  "Earnings Per Share," basic earnings per share has been computed based upon the weighted  average of
Class A and Class B common shares outstanding. Diluted earnings per share gives effect to outstanding stock options.
Earnings per common share has been computed as follows:

                                                       Fiscal 2004           Fiscal 2003            Fiscal 2002         
(in thousands of dollars, except per share data)       Basic     Diluted    Basic   Diluted         Basic      Diluted  
Earnings before cumulative effect of
  accounting change                                 $117,666    $117,666   $9,344    $9,344      $131,926     $131,926
Cumulative effect of accounting change                                 -                  -     (530,331)    (530,331)  
Net earnings (loss) available for
  per-share calculation                             $117,666    $117,666   $9,344    $9,344    $(398,405)   $(398,405)  
Average shares of common
  stock outstanding                                   83,205      83,205   83,643    83,643        84,513       84,513
Stock options                                              -         534        -       257             -          803
Total average equivalent shares                       83,205      83,739   83,643    83,900        84,513       85,316  

Per Share of Common Stock:                                                                                                                                                                                                    
Earnings before cumulative effect of
  accounting change                                    $1.41       $1.41    $0.11     $0.11        $ 1.56       $ 1.55
Cumulative effect of accounting change                     -           -        -         -        (6.27)       (6.22)   
Net income (loss)                                      $1.41       $1.41    $0.11     $0.11       $(4.71)      $(4.67)   


Total stock options  outstanding were 3,845,009,  7,870,739 and 9,669,755 at January 29, 2005,  January 31, 2004 and February 1, 2003,
respectively.  Of these,  options to purchase  1,438,271,  7,343,073  and 8,974,174  shares of Class A Common Stock at prices  ranging
from $29.99 to $40.22,  $18.13 to $40.22,  $18.13 to $40.22 per share were  outstanding in fiscal 2004,  2003 and 2002,  respectively,
but were not included in the  computation of diluted  earnings per share because the exercise price of the options exceeds the average
market price and would have been antidilutive.

12. Stock Options
The Company has various  stock option  plans that  provide for the  granting of options to purchase  shares of Class A Common Stock to
certain key  employees of the Company.  Exercise and vesting terms for options  granted  under the plans are  determined at each grant
date.  All options  were granted at not less than fair market value at dates of grant.  At the end of fiscal 2004,  11,141,656  shares
were  available for grant under the plans and  14,986,665  shares of Class A Common Stock were  reserved for issuance  under the stock
option plans.  Stock option transactions are summarized as follows:

F-20-



                                              Fiscal 2004                     Fiscal 2003                    Fiscal 2002          .
                                                           Weighted                       Weighted                        Weighted
                                                            Average                        Average                         Average
Fixed Options                              Shares    Exercise Price        Shares   Exercise Price         Shares   Exercise Price
Outstanding, beginning of year          7,870,739            $22.45     9,669,755           $24.72     10,708,646           $24.58
Granted                                         -                 -             -                -      2,312,375            24.02
Exercised                             (2,657,215)             16.00     (122,375)            10.44    (2,150,111)            20.62
Forfeited                             (1,368,515)             28.09   (1,676,641)            35.27    (1,201,155)            31.53
Outstanding, end of year                3,845,009            $24.91     7,870,739           $22.45      9,669,755           $24.72
Options exercisable at year-end         2,486,134            $27.24     5,823,459           $23.56      6,793,960           $26.63
Weighted-average fair value of
options granted during the year                $-                              $-                           $6.91


The following table summarizes information about stock options outstanding at January 29, 2005:

                               Options Outstanding                                         Options Exercisable            .
                                             Weighted-Average                                                              
Range of                      Options                Remaining            Weighted-Average      Options      Weighted-Average
Exercise Prices           Outstanding      Contractual Life (Yrs.)      Exercise Price      Exercisable     Exercise Price 
$10.44 - $15.74               606,141                     1.04                $10.63          267,866                $10.83
$18.13 - $25.13             2,537,868                     2.84                 24.11        1,517,268                 24.17
$28.19 - $40.22               701,000                     0.32                 40.15          701,000                 40.15
                            3,845,009                     2.10                $24.91        2,486,134                $27.24


SFAS No. 123,  "Accounting for Stock-Based  Compensation,"  permits compensation expense to be measured based on the fair value of the
equity  instrument  awarded.  In  accordance  with  Accounting  Principles  Board  Opinion  No. 25,  "Accounting  for Stock  Issued to
Employees," the Company uses the intrinsic value method of accounting for stock options.  No compensation  cost has been recognized in
the consolidated statements of operations for the Company's stock option plans.

The fair value of each option  grant is  estimated  on the date of each grant using the  Black-Scholes  option-pricing  model with the
following weighted-average assumptions:

                                                   Fiscal 2004             Fiscal 2003           Fiscal 2002 
Risk-free interest rate                                      -                       -                 1.96%
Expected option life (years)                                 -                       -                 3.1
Expected volatility                                          -                       -                 41.6%
Expected dividend yield                                      -                       -                 0.67%

The fair values  generated by the  Black-Scholes  model may not be indicative of the future  benefit,  if any, that may be received by
the option holder.

13. Leases and Commitments
Rental expense consists of the following:

                                               Fiscal              Fiscal            Fiscal
(in thousands of dollars)                        2004                2003              2002
Operating leases:
  Buildings:
   Minimum rentals                            $33,266             $38,087           $40,862
   Contingent rentals                           6,941               8,732            10,433
  Equipment                                    14,567              17,282            16,806
                                              $54,774             $64,101           $68,101

F-21



Contingent  rentals on certain  leases are based on a  percentage  of annual sales in excess of specified  amounts.  Other  contingent
rentals are based entirely on a percentage of sales.

The future minimum rental commitments as of January 29, 2005 for all noncancelable leases for buildings and equipment are as follows:

(in thousands of dollars)                                 Operating             Capital
Fiscal Year                                               Leases                Leases
2005                                                     $  47,399            $  6,809
2006                                                        45,083               6,425
2007                                                        33,245               4,046
2008                                                        24,058               2,798
2009                                                        17,480               1,801
After 2009                                                  54,804              17,451
Total minimum lease payments                              $222,069              39,330
Less amount representing interest                                              (14,222)
Present value of net minimum
lease payments (of which
$4,926 is currently payable)                                                   $25,108   


Renewal  options from three to 25 years exist on the majority of leased  properties.  At January 29, 2005, the Company is committed to
incur costs of approximately $106 million to acquire, complete and furnish certain stores and equipment.

The Company is a  guarantor  on a $54.3  million  loan for a joint  venture as of January 29,  2005.  At January 29,  2005,  the joint
venture had $36.5 million  outstanding on the loan.  The loan is  collateralized  by a mall in Yuma,  Arizona with a book value of $55
million at January 29, 2005.

On July 29, 2002, a Class Action  Complaint  (followed on December 13, 2004 by a Second  Amended Class Action  Complaint) was filed in
the United States  District  Court for the Southern  District of Ohio against the Company,  the  Mercantile  Stores  Pension Plan (the
"Plan") and the Mercantile Stores Pension Committee (the "Committee") on behalf of a putative class of former Plan  participants.  The
complaint  alleges that certain actions by the Plan and the Committee  violated the Employee  Retirement  Income Security Act of 1974,
as amended  ("ERISA"),  as a result of amendments  made to the Plan that allegedly were either  improper  and/or  ineffective and as a
result of certain payments made to certain  beneficiaries of the Plan that allegedly were improperly  calculated and/or discriminatory
on account of age. The Second Amended  Complaint does not specify any liquidated  amount of damages sought and seeks  recalculation of
certain benefits paid to putative class members.  No trial date has been set.

The Company is defending the litigation  vigorously  and has named the Plan's  actuarial  firm as a cross  defendant.  While it is not
feasible to predict or  determine  the  ultimate  outcome of the pending  litigation,  management  believes  after  consultation  with
counsel, that its outcome, after consideration of the provisions recorded in the Company's  consolidated  financial statements,  would
not have a material  adverse effect upon its consolidated  cash flow or financial  position.  However,  it is possible that an adverse
outcome could have an adverse effect on the Company's consolidated net income in a particular quarterly or annual period.

Various  other 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 is not expected to materially
affect the Company's financial position, cash flows or results of operations.


14. Asset Impairment and Store Closing Charges
In the evaluation of the fair value and future  benefits of long-lived  assets,  the Company  performs an analysis of the  anticipated
undiscounted  future net cash flows of the  related  long-lived  assets.  If the  carrying  value of the  related  asset  exceeds  the
undiscounted  cash flows,  the Company reduces the carrying value to its fair value,  which is generally  calculated  using discounted
cash flows.  During fiscal 2004, the Company  recorded a pretax charge of $19.4 million for asset  impairment and store closing costs.
The charge  includes a write down to fair value for certain  under-performing

F-22

properties. The charge consists of a write down for a joint venture in the amount of $7.6 million, a write down of goodwill on one
store to be closed in fiscal 2005 of $1.2 million, an accrual for future rent, property tax and utility payments on three stores
(two closed in fiscal 2004 and one to be closed in fiscal 2005) of $3.1 million and a write down of property and equipment in the
amount of $7.5 million. The Company does not expect to incur significant additional exit costs upon the closing of these
properties during fiscal 2005. During fiscal 2003, the Company recorded a pre-tax charge of $43.7 million for asset impairment and
store closing costs. The charge includes a write down to fair value for certain under-performing properties. The charge consists
of a write down to a joint venture in the amount of $5.5 million, a write down of goodwill on two stores closed in fiscal 2004 of
$2.5 million and a write down of property and equipment in the amount of $35.7 million. During fiscal 2002, the Company recorded a
pre-tax charge of $52.2 million for asset impairment and store closing costs. The charge includes a write down to fair value for certain
under-performing properties in the amount of $55.8 million and exit costs to close four such properties in the amount of $4.4 million,
all of which were closed during fiscal 2003, partially offset by the forgiveness of a lease obligation of $8.0 million in connection
with the sale of a closed owned store in Memphis, Tennessee in satisfaction of that obligation.

Following is a summary of the activity in the 2004 reserve established for asset impairment and store closing charges:

Balance,
beginning Balance,
(in thousands) of year Charges Cash Payments end of year
Rent, property taxes and utilities $- $3,080 $175 $2,905

15. Fair Value Disclosures
The estimated fair values of financial instruments which are 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 trade accounts receivable is determined by discounting the estimated future cash flows at current market rates,
after consideration of credit risks and servicing costs using historical rates. The fair value of the Company's long-term debt and
Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures is based on market prices or dealer quotes (for
publicly traded unsecured notes) and on discounted future cash flows using current interest rates for financial instruments with
similar characteristics and maturity (for bank notes and mortgage notes).

The fair value of the Company's cash and cash equivalents and trade accounts receivable approximates their carrying values at
January 29, 2005 and January 31, 2004 due to the short-term maturities of these instruments. The fair value of the Company's
long-term debt at January 29, 2005 and January 31, 2004 was $1.47 billion and $2.06 billion, respectively. The carrying value of the
Company's long-term debt at January 29, 2005 and January 31, 2004 was $1.41 billion and $2.02 billion, respectively. The fair value
of the Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures at January 29, 2005 and January 31, 2004
was $199 million and $526 million, respectively. The carrying value of the Guaranteed Preferred Beneficial Interests in the
Company's Subordinated Debentures at January 29, 2005 and January 31, 2004 was $200 million and $532 million, respectively.

16. Securitizations of Assets
Prior to November 1, 2004, the Company transferred credit card receivable balances to Dillards Credit Card Master Trust ("Trust") in
exchange for certificates representing undivided interests in such receivables. The Trust securitized balances by issuing
certificates representing undivided interests in the Trust's receivables to outside investors. In each securitization, the Company
retained certain subordinated interests that serve as a credit enhancement to outside investors and exposed the Trust assets to
possible credit losses on receivables sold to outside investors. The investors and the Trust had no recourse against the Company
beyond Trust assets. In order to maintain the committed level of securitized assets, the Trust reinvested cash collections on
securitized accounts in additional balances. The Company also received annual servicing fees as compensation for servicing the
outstanding balances.

All borrowings under the Company's receivable financing conduit were recorded on the balance sheet. The Company had $400 million of
long-term debt outstanding under this agreement on the consolidated balance sheet as of January 31, 2004. Prior to May 2002, the
Company accounted for securitizations of credit card receivables as sales of receivables,

F-23


thus off balance sheet.  Since May 2002, future  transfers no longer meet sale  treatment,  and interest paid to outside  investors is
recorded in interest  expense instead of other revenue.  Accordingly,  as a result of this decision,  the Company  recorded an income
statement charge of $5.4 million related to the amortization of the beneficial  interests  recognized up front on the  off-balance-sheet
financing for the twelve months ended February 1, 2003.  This charge was included in Service Charges, Interest and Other Income.


At January 31,  2004 the Company had $50.0  million  outstanding  in  short-term  borrowings  under its  accounts  receivable  conduit
facilities related to seasonal financing needs.

The Company's  receivable  financing  conduits were  terminated and amounts  outstanding  were repaid  concurrent with the sale of the
Company's private label credit card business to GE on November 1, 2004.

17. Quarterly Results of Operations (unaudited)

                                                                       Fiscal 2004, Three Months Ended                   .
(in thousands of dollars, except per share data)              May 1           July 31         October 30        January 29
Net sales                                                $1,854,395        $1,671,380         $1,698,897        $2,303,900
Gross profit                                                666,895           525,534            557,999           760,379
Net income (loss)                                            53,762          (26,029)           (18,688)           108,621
Diluted earnings per share:
Net income (loss)                                             0.64             (0.31)             (0.23)              1.30


                                                                       Fiscal 2003, Three Months Ended                   .
(in thousands of dollars, except per share data)              May 3          August 2         November 1        January 31
Net sales                                                $1,813,911        $1,721,485         $1,764,484        $2,299,054
Gross profit                                                601,939           535,067            564,431           727,324
Net income (loss)                                            24,349          (50,346)           (15,835)            51,176
Diluted earnings per share:
Net income (loss)                                             0.29             (0.60)             (0.19)              0.61

Total of quarterly earnings per common share may not equal the annual amount because net income per common share is calculated
independently for each quarter.

Quarterly information for fiscal 2004 and fiscal 2003 includes the following items:

First Quarter
2004

o    a $4.7 million pretax charge ($3.0 million after tax or $0.04 per diluted share) for asset  impairment and store closing  charges
     related to certain stores.

2003

o    a pretax gain of $15.6 million  ($10.0  million  after tax or $0.12 per diluted  share)  pertaining to the Company's  sale of its
     interest in Sunrise Mall and its associated center in Brownsville, Texas.

o    a pretax gain of $12.3  million ($7.9 million  after tax or $0.09 per diluted  share)  recorded due to the  resolution of certain
     liabilities originally recorded in conjunction with the purchase of Mercantile Stores Company, Inc.

Second Quarter
2003

o    a call premium  resulting in additional  interest  expense of $15.6 million  ($10.0 million after tax or $0.12 per diluted share)
     associated with a $125.9 million call of debt.

F-24


o    a $17.1 million  pretax  charge ($10.9  million  after tax, or $0.13 per diluted  share) for asset  impairment  and store closing
     charges related to certain stores.

Third Quarter
2003

o    a $1.7 million  charge  ($1.1  million  after tax or $0.01 per diluted  share) for asset  impairment  and store  closing  charges
     related to certain stores.

o    $4.1 million ($2.6 million after tax or $0.03 per diluted share)  received from the Internal  Revenue  Service as a result of the
     Company's filing of an interest-netting claim related to previously settled tax years.


Fourth Quarter
2004
o    a pretax gain of $83.9 million ($53.7  million after tax or $0.64 per diluted share) related to the sale of the Company's  credit
     card business to GE Consumer Finance (see Note 2 of the Notes to Consolidated Financial Statements).

o    a $14.7  million  pretax  charge ($8.6  million  after tax or $0.10 per diluted  share) for asset  impairment  and store  closing
     charges related to certain stores (see Note 14 of the Notes to Consolidated Financial Statements).

2003

o    a pretax asset  impairment  and store  closing  charge of $25.0  million  ($16.8  million  after tax or $0.20 per diluted  share)
     related to certain stores.

o    an $8.5 million gain ($5.5 million after tax or $0.07 per diluted share) related to the sale of three store properties.

F-25




                                           SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                                   DILLARD'S, INC. AND SUBSIDIARIES
                                                    (DOLLAR AMOUNTS IN THOUSANDS)

            Column A                  Column B        Column C        Column D          Column E        Column F

                                                          Additions

                                     Balance at      Charged to      Charged to                        Balance at
                                    Beginning of      Costs and         Other                            End of
           Description                 Period         Expenses        Accounts       Deductions (1)    Period (2)

Allowance for losses on accounts receivable:

Year Ended January 29, 2005                $40,967        $14,704            $   -           $55,671         $   0

Year Ended January 31, 2004                 49,755         83,030                -            91,818        40,967

Year Ended February 1, 2003                 37,385         98,787                -            86,417        49,755


(1)      Accounts written off and charged to allowance for losses on accounts receivable (net of recoveries).
(2)      On November 1, 2004, the Company sold  substantially  all the assets of its private label credit card business.  As a result,
         the Company no longer maintains an allowance for doubtful accounts.

F-26





                                                            Exhibit Index




Number
                                                             Description

*3(a)          Restated  Certificate of Incorporation  (Exhibit 3 to Form 10-Q for the quarter ended August 1, 1992 in
               1-6140).

*3(b)          By-Laws as currently in effect (Exhibit 3.1 to Form 8-K dated as of March 2, 2002 in 1-6140).

*4(a)          Indenture between the Registrant and Chemical Bank,  Trustee,  dated as of October 1, 1985 (Exhibit (4)
               in 2-85556).

*4(b)          Indenture between the Registrant and Chemical Bank,  Trustee,  dated as of October 1, 1986 (Exhibit (4)
               in 33-8859).

*4(c)          Indenture between Registrant and Chemical bank, dated as of April 15, 1987 (Exhibit 4.3 in 33-13534).

*4(d)          Indenture  between  Registrant and Chemical bank,  Trustee,  dated as of May 15, 1988, as  supplemented
               (Exhibit 4 in 33-21671,  Exhibit 4.2 in 33-25114  and Exhibit 4(c) to Current  Report on Form 8-K dated
               September 26, 1990 in 1-6140).

*4(e)          Rights Agreement between Dillard's,  Inc. and Registrar and Transfer Company,  as Rights Agent (Exhibit
               4.1 to Form 8-K dated as of March 2, 2002 in 1-6140).

**10(a)        Retirement  Contract of William  Dillard dated March 8, 1997 (Exhibit 10(a) to Form 10-K for the fiscal
               year ended February 1, 1997 in 1-6140).

**10(b)        1998  Incentive  and  Nonqualified  Stock Option Plan  (Exhibit  10(b) to Form 10-K for the fiscal year
               ended January 30, 1999 in 1-6140).

**10(c)        Amended and Restated  Corporate  Officers  Non-Qualified  Pension Plan (Exhibit 10 to Form 10-Q for the
               quarter ended May 2, 2003 in 1-6140).

**10(d)        Senior  Management  Cash Bonus Plan  (Exhibit  10(d) to Form 10-K for the fiscal year ended January 28,
               1995 in 1-6140).

**10(e)        2000  Incentive  and  Nonqualified  Stock Option Plan  (Exhibit  10(e) to Form 10-K for the fiscal year
               ended February 3, 2001 in 1-6140).

*10(f)         Amended and Restated Credit  Agreement among  Dillard's,  Inc. and JPMorgan Chase Bank and Fleet Retail
               Group, Inc. (Exhibit 10 to Form 10-Q for the quarter ended November 1, 2003 in 1-6140).

*10(g)         Purchase,  Sale and Servicing  Transfer  Agreement among GE Capital Consumer Card Co., General Electric
               Capital  Corporation,  Dillards,  Inc. and Dillard  National  Bank (Exhibit 2.1 to Form 8-K dated as of
               August 12, 2004 in 1-6140).

*10(h)         Private Label Credit Card Program  Agreement  between  Dillards,  Inc. and GE Capital Consumer Card Co.
               (Exhibit 10.1 to Form 8-K dated as of August 12, 2004 in 1-6140).

12             Statement re:  Computation of Ratio of Earnings to Fixed Charges.

*18            Letter  re:  Change in  Accounting  Principles  (Exhibit  18 to Form  10-K for the  fiscal  year  ended
               February 3, 2001 in 1-6140).

E-1




21             Subsidiaries of Registrant.

23             Consent of Independent Registered Public Accounting Firm.


31(a)          Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31(b)          Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32(a)          Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
               (18 U.S.C. 1350).

32(b)          Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
               (18 U.S.C. 1350).


*Incorporated by reference as indicated.
**A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant
   to Item 14(c) of Form 10-K.

E-2