Business Segments

3 Months Ended

May 02, 2020

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
	May 2, 2020		May 4, 2019
Retail operations segment
Cosmetics	15	%	14	%
Ladies’ apparel	22		24
Ladies’ accessories and lingerie	14		14
Juniors’ and children’s apparel	10		11
Men’s apparel and accessories	16		16
Shoes	15		15
Home and furniture	3		3
	95		97
Construction segment	5		3
Total	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 May 2, 2020:
Net sales from external customers	$	751,027		$	35,628		$	786,655
Gross profit	96,034			2,152			98,186
Depreciation and amortization	50,732			169			50,901
Interest and debt expense (income), net	12,291			(21		)	12,270
(Loss) income before income taxes	(228,667		)	522			(228,145		)
Total assets	3,299,363			42,982			3,342,345

Three Months Ended May 4, 2019:
Net sales from external customers	$	1,420,522		$	44,919		$	1,465,441
Gross profit	536,371			1,303			537,674
Depreciation and amortization	52,194			170			52,364
Interest and debt expense (income), net	11,264			(27		)	11,237
Income before income taxes	100,728			44			100,772
Total assets	3,731,040			47,948			3,778,988

Intersegment construction revenues of $11.4 million and $8.4 million for the three months ended May 2, 2020 and May 4, 2019, 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)	May 2, 2020		February 1, 2020		May 4, 2019		February 2, 2019
Contract liabilities	$	67,107	$	75,229	$	64,934	$	72,852

During the three months ended May 2, 2020 and May 4, 2019, the Company recorded $18.9 million and $24.8 million, respectively, in revenue that was previously included in the retail operations contract liability balances of $75.2 million and $72.9 million, at February 1, 2020 and February 2, 2019, respectively.

Construction contracts give rise to accounts receivable, contract assets and contract liabilities. We record accounts receivable based on amounts expected to be collected from 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)	May 2, 2020		February 1, 2020		May 4, 2019		February 2, 2019
Accounts receivable	$	33,736	$	28,522	$	32,320	$	31,867
Costs and estimated earnings in excess of billings on uncompleted contracts	894		2,179		829		1,165
Billings in excess of costs and estimated earnings on uncompleted contracts	9,603		5,737		6,768		7,414

During the three months ended May 2, 2020 and May 4, 2019, the Company recorded $4.2 million and $6.6 million, respectively, in revenue that was previously included in billings in excess of costs and estimated earnings on uncompleted contracts of $5.7 million and $7.4 million at February 1, 2020 and February 2, 2019, respectively.

The remaining performance obligations related to executed construction contracts totaled $145.4 million, $156.5 million and $123.4 million at May 2, 2020, February 1, 2020 and May 4, 2019, respectively.