Investor Group Wants Meeting with Dillard's, Seeks to Improve Profits

A group of Dillard's Inc. shareholders is requesting to meet with management of the Little Rock retail chain, seeking to find ways to "maximize shareholder value."
Barington Capital Group LP on Thursday said it represents a group of investors that owns more than 3.2 percent of Dillard's shares. It said it has been unable to reach Dillard's CEO, William Dillard II, by telephone.
In a letter to Dillard, the group said it believes Dillard's shares are undervalued and that it is convinced it can help the company improve shareholder value.
"As we have not been able to reach you by telephone, we are writing to request to meet with you and members of your management team," the group said in the letter. "We would like to discuss a number of measures that we believe will increase the company's profitability to levels achieved by its peers and better utilize the company's substantial asset base. These include initiatives that would augment the company's existing operating strategy in areas such as merchandising, inventory management and cost containment, as well as measures to unlock the value of the company's real estate portfolio."
The full text of the letter is reprinted below.
In the letter, New York City-based Barington also cites experience working to improve shareholder value with companies such as Syms, Warnaco, Pep Boys, Stride Rite, Steven Madden, Payless ShoeSource, Nautica and Maxwell Shoe.
Shares of Dillard's (NYSE: DDS) were trading up more than 8 percent at $36.84 on Thursday after closing at $33.93 on Wednesday. The stock has traded between $28.35 and $40.56 during the past 52 weeks.

Improvement in 2006
Since 2003, Dillard's shares have been gradually climbing.
That year, shares stayed below $20, even hitting a low of $12.13 on March 12, 2003.
But last year saw share prices on the rebound. It hit $36.09 on Nov. 16, then its highest since 1998, when it was selling for more than $40 a share. As of the end of 2006, Dillard’s stock price had risen about 40 percent since the beginning of the year. By comparison, Arkansas’ other major retailer, Wal-Mart Stores Inc., saw barely more than 1 percent in increased market value.
Analysts tied Dillard’s stock appreciation to a strategy of targeting a more upscale customer and redesigning its stores. The strategy appeared successful: For the fiscal year 2006, Dillard’s same-store sales were up 2 percent, according to the International Council of Shopping Centers. But all department stores saw an increase of same-store sales of 3.6 percent during fiscal year 2006. Still, it was the retailer’s best showing in three years.

Now in the 30s
This year hasn't seemed so kind.
So far in 2007, Dillard's stock has ranged from $31.70 to a high of $39.60 per share, which it reached on May 21.
Monthly same-same store sales have been on the decline except in March, when Dillard's reported a 6 percent increase. So far this year, Dillard's reported same-store sales drops of 3 percent in January, 9 percent for February, 14 percent for April (a month that was tough on most retailers, however) and 2 percent for May.
Meanwhile, first-quarter profits, reported in May, were down 30 percent from the same quarter last year.

Tight Control
Dillard's management is notoriously tight-lipped about its plans, rarely talking to the media or investors. And the firm does not provide quarterly guidance to shareholders.
Control of the company remains tightly held by members of the Dillard family, who control the company's board of directors through ownership of class B shares. The family gets to elect eight directors, while owners of class A shares get to elect four, making the company's board of directors impenetrable to much outside influence.

The Letter from Barington Capital Group to Dillard's
June 27, 2007

William T. Dillard, II
Chairman of the Board and Chief
Executive Officer
Dillard's, Inc.
1600 Cantrell Road
Little Rock, Arkansas 72201

Dear Mr. Dillard:
Barington Capital Group, L.P. represents a group of investors that owns over 3.2% of the outstanding common stock of Dillard's, Inc. We have invested in Dillard's, whose shares we believe are undervalued, as we are convinced that we can assist the Company in dramatically improving shareholder value.
As we have not been able to reach you by telephone, we are writing to request to meet with you and members of your management team. We would like to discuss a number of measures that we believe will increase the Company's profitability to levels achieved by its peers and better utilize the Company's substantial asset base. These include initiatives that would augment the Company's existing operating strategy in areas such as merchandising, inventory management and cost containment, as well as measures to unlock the value of the Company's real estate portfolio.
We have substantial experience helping improve shareholder value as an investor in a number of retail, apparel and footwear companies including Syms, Warnaco, Pep Boys, Stride Rite, Steven Madden, Payless ShoeSource, Nautica and Maxwell Shoe. We hope that we can work together with you to maximize shareholder value at Dillard's.
We look forward to meeting with you.

Sincerely,

/s/ James A. Mitarotonda

James A. Mitarotonda

More on Mitarotonda
Dillard's Shareholder Makes Waves, Aims for Turnarounds [Arkansasbusiness.com]