Business Segments

9 Months Ended

Nov. 02, 2019

The Company operates in two reportable segments: the operation of retail department stores (“retail operations”) and a general contracting construction company (“construction”).

For the Company’s retail operations, the Company determined its operating segments on a store by store basis. Each store’s operating performance has been aggregated into one reportable segment. The Company’s operating segments are aggregated for financial reporting purposes because they are similar in each of the following areas: economic characteristics, class of consumer, nature of products and distribution methods. Revenues from external customers are derived from merchandise sales, and the Company does not rely on any major customers as a source of revenue. Across all stores, the Company operates one store format under the Dillard’s name where each store offers the same general mix of merchandise with similar categories and similar customers. The Company believes that disaggregating its operating segments would not provide meaningful additional information.

The following table summarizes the percentage of net sales by segment and major product line:



	Three Months Ended				Nine Months Ended
	November 2, 2019		November 3, 2018		November 2, 2019		November 3, 2018
Retail operations segment
Cosmetics	14	%	13	%	13	%	14	%
Ladies’ apparel	23		23		24		24
Ladies’ accessories and lingerie	14		13		15		14
Juniors’ and children’s apparel	10		10		10		9
Men’s apparel and accessories	17		17		17		17
Shoes	15		16		15		15
Home and furniture	3		3		3		3
	96		95		97		96
Construction segment	4		5		3		4
Total	100	%	100	%	100	%	100	%

The following tables summarize certain segment information, including the reconciliation of those items to the Company’s consolidated operations:



(in thousands of dollars)	Retail Operations		Construction			Consolidated
Three Months Ended November 2, 2019:
Net sales from external customers	$	1,334,205	$	54,105		$	1,388,310
Gross profit	460,549		979			461,528
Depreciation and amortization	55,963		180			56,143
Interest and debt expense (income), net	11,562		(26		)	11,536
Income before income taxes	2,223		679			2,902
Total assets	3,753,211		46,852			3,800,063

Three Months Ended November 3 2018:
Net sales from external customers	$	1,341,845	$	77,368		$	1,419,213
Gross profit	461,476		2,800			464,276
Depreciation and amortization	55,605		157			55,762
Interest and debt expense (income), net	12,117		(13		)	12,104
Income before income taxes	3,463		1,312			4,775
Total assets	3,918,065		68,536			3,986,601

Nine Months Ended November 2, 2019:
Net sales from external customers	$	4,132,890	$	147,724		$	4,280,614
Gross profit	1,392,057		1,994			1,394,051
Depreciation and amortization	162,364		526			162,890
Interest and debt expense (income), net	35,104		(83		)	35,021
Income (loss) before income taxes	52,023		(500		)	51,523
Total assets	3,753,211		46,852			3,800,063

Nine Months Ended November 3, 2018
Net sales from external customers	$	4,161,992	$	183,506		$	4,345,498
Gross profit	1,463,251		6,392			1,469,643
Depreciation and amortization	167,513		473			167,986
Interest and debt expense (income), net	40,480		(33		)	40,447
Income before income taxes	102,385		1,800			104,185
Total assets	3,918,065		68,536			3,986,601

Intersegment construction revenues of $8.2 million and $9.3 million for the three months ended November 2, 2019 and November 3, 2018, respectively, and $22.8 million and $21.4 million for the nine months ended November 2, 2019 and November 3, 2018, respectively, were eliminated during consolidation and have been excluded from net sales for the respective periods.

The retail operations segment gives rise to contract liabilities through the loyalty program and through the issuances of gift cards. The loyalty program liability and a portion of the gift card liability is included in trade accounts payable and accrued expenses, and a portion of the gift card liability is included in other liabilities on the condensed consolidated balance sheets. Our retail operations segment contract liabilities are as follows:



Retail
(in thousands of dollars)	November 2, 2019		February 2, 2019		November 3, 2018		February 3, 2018
Contract liabilities	$	60,742	$	72,852	$	56,704	$	73,059

During the nine months ended November 2, 2019 and November 3, 2018, the Company recorded $45.2 million and $47.1 million, respectively, in revenue that was previously included in the retail operations contract liability balances of $72.9 million and $73.1 million, at February 2, 2019 and February 3, 2018, respectively.

Construction contracts give rise to accounts receivable, contract assets and contract liabilities. We record accounts receivable based on amounts billed to customers. We also record costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) and billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) in other current assets and trade accounts payable and accrued expenses in the condensed consolidated balance sheets, respectively. The amounts included in the condensed consolidated balance sheets are as follows:



Construction
(in thousands of dollars)	November 2, 2019		February 2, 2019		November 3, 2018		February 3, 2018
Accounts receivable	$	33,154	$	31,867	$	51,603	$	20,136
Costs and estimated earnings in excess of billings on uncompleted contracts	2,479		1,165		1,823		1,213
Billings in excess of costs and estimated earnings on uncompleted contracts	6,800		7,414		6,774		5,503

During the nine months ended November 2, 2019 and November 3, 2018, the Company recorded $7.1 million and $4.8 million, respectively, in revenue that was previously included in billings in excess of costs and estimated earnings on uncompleted contracts of $7.4 million and $5.5 million at February 2, 2019 and February 3, 2018, respectively.

The remaining performance obligations related to executed construction contracts totaled $71.9 million, $143.9 million and $318.6 million at November 2, 2019, February 2, 2019 and November 3, 2018, respectively.