CEO Profile: William T. Dillard II of Dillard's Inc.

Just a few years ago, Dillard’s Inc. CEO William Dillard II was being blamed for ruining the Little Rock retail chain that his father built. Now he’s being praised for saving it.

The outlook for the retailer looked grim in November 2008, when its stock price dropped to $2.50 at one point during the month.

Since then, though, the company’s stock price has soared. It briefly exceeded $64 a share on March 12, stratosphere the company hasn’t visited in decades.

One of the key areas in which Dillard’s saw a turnaround was its same-store sales, a key comparison of sales at stores open at least a year. Between August 2008 and January 2010, Dillard’s had 18 straight months of same-store sales declines.

But since 2010, Dillard’s same-store sales have improved. For the fiscal year that ended Jan. 28, Dillard’s same-store sales were up 4 percent.

Dillard’s management has done a “tremendous job” managing the company, Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment banking firm in New York, told Arkansas Business in November. “I think they improved in every area.”

 

Early Years

The late William Dillard founded the company in 1938 in Nashville (Howard County). William Dillard II, who is now 67, started working part time for the retailer while he was still in school.

He was appointed to the board of directors in 1967 and has been involved in almost every aspect of Dillard’s operation.

In 1977, Dillard became president and chief operating officer, positions he held until 1998, when he was promoted to chief executive officer. Sales peaked at $8.7 billion the next year and began a long downward slide.

After his father died in 2002, William Dillard II became the chairman of the board of directors. He also is on the board of directors of Acxiom Corp. of Little Rock and Barnes & Noble Inc. of New York.

Meanwhile, Dillard’s sales continued to fall.

 

Sales Fall

As the Great Recession took hold, the company seemed to be in a freefall. Sales in 2009 were just shy of $6.1 billion, off more than 15 percent from 2007’s total of $7.2 billion.

In 2008, activist shareholders blamed Dillard for the company’s decline. “The performance of the Company over the past ten years has been atrocious,” said James Mitarotonda, chairman and CEO of Barington Capital Group LP of New York, and George Hall, chairman and CEO of the Clinton Group Inc. of New York. The remarks came in a 2008 letter that attempted to persuade directors to replace the family as top executives.

The board, though, is controlled by the Dillard family under a dual-class stock arrangement. Class A stock is traded on the New York Stock Exchange, but holders of the Class B shares, owned almost exclusively by Dillard and his family members, have the right to choose eight of the 12 corporate directors.

Still, the public criticism might have had an impact. At Dillard’s May 2008 shareholders’ meeting, Dillard unveiled his plan to get the company back on track. He called for closing underperforming stores, slashing expenses and improving merchandise.

“I wish we would have saw this coming 18 months ago, instead of nine months ago,” Dillard said of the recession at the meeting in May 2008. “Fortunately, we have started this.”

But dark days for the company were still ahead.

In 2008, Dillard’s was named one of the worst-performing stocks on the S&P 500 in the last 10 years, according to a report by Schaeffer’s Investment Research.

The Dillard family “is overpaid and under-qualified for the positions they hold and can be readily replaced with more talented retailers,” Mitarotonda and Hall said in an Oct. 27, 2008, letter.

 

Turnaround

The strategy that Dillard put in place in 2008 seemed to be working by the end of 2009.

For the fiscal year that ended Jan. 30, 2010, Dillard’s reported a net income of $68.5 million. The year before, Dillard’s had a loss of $241.1 million.

“Dillard’s was in freefall. I think we can say they’re no longer in freefall,” Davidowitz, the retail analyst, said in May 2010.

Praise also was coming from analysts. “Dillard’s has responded appropriately to its challenges by focusing on expense discipline, debt reduction, and store closings,” analyst Michael Exstein of Credit Suisse wrote in a March 2010 report.

Dillard’s success continued into 2011. For the fiscal year that ended Jan. 28, Dillard’s reported revenue of $6.4 billion compared with $6.25 billion a year earlier. It was the first annual sales increase since 2006. Its net income jumped 158.3 percent to $463.9 million for the fiscal year that ended Jan. 28 over the previous year.

“We are pleased with our progress in 2011 where we delivered a record setting performance,” Dillard said in a Feb. 23 news release. “In 2012, we will remain focused on creating a clearly distinctive shopping experience at Dillard’s in merchandise selection as well as in customer service.”

Personal Stake

Dillard’s has not yet released executive compensation data for 2011. In 2010, William Dillard II’s base pay rose to $850,000, up from $810,000 a year earlier. Even though he received a cash bonus of $2.6 million in 2010, Dillard’s total compensation, including pension results and stock awards, fell to $4.1 million in 2010 compared with $4.5 million in 2009. Dillard’s pension value fell $824,000 in 2010.

Dillard owns more than 2 million shares of Dillard’s. The value of those shares was $69.66 million as of March 13. Each share currently pays an annual dividend of 20 cents.

Davidowitz, the retail consultant, said in Novem-ber that he thought Dillard’s was going to continue to improve, but not at the pace seen in 2010 and 2011.

“That’s going to be the problem,” he said. “But the bottom line is Dillard’s is performing beautifully.”

Family Ties

For William Dillard II, going to work at Dillard’s Inc. of Little Rock is like going to a family reunion.

At the retail chain, which his father, the late William Dillard, founded in 1938, are:

President Alex Dillard, William Dillard II’s brother. Alex Dillard saw his base pay increase 11.1 percent to $800,000 in 2010, and his total compensation was $4.8 million, an increase of 8.9 percent over 2009.

Mike Dillard, executive vice president and brother of William and Alex. He received a salary of $630,000 in 2010. His total compensation was $2.5 million in 2010.

EVP Drue Matheny, sister of the Dillards and formerly known as Drue Corbusier. She received a salary of $600,000 in 2010 and total compensation of $2.5 million, down from $3.1 million in 2009. Her pension value fell from $1.9 million in 2009 to $512,000 in 2010.

Vice President Denise Mahaffy, another Dillard sister. She received a salary and bonus of $520,000 in 2010. The company also contributed $45,600 to her benefits plan.

William Dillard III, a vice president and son of William II. He received a salary and bonus increase of 43 percent to $500,000 in 2010. The company also contributed $49,600 to his benefit plan.