Slumping Dillard's Eyed by Investors

New York —An affiliate of hedge fund Barington Capital Group will nominate four people for seats on the 12-member board of directors of $7.2 billion regional department store chain Dillard's.

The candidates will be:

• James Mitarotonda, 53, chairman, president and ceo of Barington, and a director of A. Schulman, Inc.; The Pep Boys; and Griffon Corporation.
• Charles Elson, 48, the Edgar S. Woolard, Jr. Professor of Corporate Governance and the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, and a director of AutoZone and HealthSouth Corporation.
• Nick White, 63, a 27-year veteran executive of Wal-Mart Stores and a director of The Pep Boys.
• Eric Salus, 54, a former senior exec at Federated Department Stores, where he was president of Macy's Home Store; and a director of Ashworth, Inc. and Oneida Ltd.

Barington leads an investor team that owns 5.3% of outstanding shares of Dillard's and has pressed for changes in strategy at the 328-store retailer since last August.

Barington said that if elected, its nominees “intend to work constructively with the other members of the Dillard's board (who are elected by members of the Dillard family by virtue of their control of the company's Class B common stock) to seek to improve the company's operations, profitability, corporate governance and share price performance.”

Barington pointed out that “Dillard's stock price has fallen by approximately 54% from June 30, 2007 through the close of trading on March 18, 2008, erasing more than $1.6 billion in shareholder value.”

In its retort to the letter, the retailer noted that dividends are one way in which Dillard's has in the past and continues to enhance shareholder value. Dillard's said it has in the past year alone “returned more than $124 million to shareholders through dividends and share repurchases.” Along with fourth-quarter and full-year results, the company announced its latest cash dividend, of $0.04 per share.

Dillard's reported sharply reduced profit for 2007, with net income of $53.8 million down 78.1% from $245.6 million in the prior year.

The fourth quarter was little help, with net income of $47.3 million down 69.5% from $155.0 million in the year-ago period.

“We simply did not achieve the level of sales necessary to produce more acceptable results,” said William Dillard II, ceo of the 326-store Southeastern chain. “Moving forward, we will execute further improvements to our merchandise mix while working to effectively respond to potentially challenging macro-economic conditions.”

To date, non-merchandising solutions have included store closures and stock buybacks. Management said it closed nine stores in 2007, and has already announced the closure of three stores and a distribution center in 2008. The company repurchased $111.6 million of its Class A common shares during fiscal 2007.

Sales of $7.2 billion for the year ended Feb. 2, 2008 were down 5.6% from $7.6 billion in fiscal 2006. Comparable-store sales for the year were not stated, but Dillard's said fourth-quarter comps fell 5%.