Dillard's Woes May Just Encourage Hedge-Fund Critics Barington Capital and Clinton Group
The latest dismal results at Dillard's are likely to intensify a struggle over the company's family-based leadership.
The Barington Capital Group and Clinton Group, hedge funds owning more than five percent of Dillard's class A stock, launched a proxy fight in March demanding management changes. At the time, the funds announced their intention to nominate four candidates to the Dillards's board in a letter to the company.
Barington has long been critical of a Dillard's store-expansion plan that hasn't paid off financially. The fund insists that the company has to modernize its governance, professionalize management and improve the existing store base. Barington seems particularly interested in the value of Dillard's real estate. Dillard's owns about 86 percent of its store base, which Barington regards as an undervalued asset today -- and, perhaps, as a sales opportunity when the economy improves.
Barington stated that it was determined to unlock "vast value potential," adding that it lacked confidence in a Dillard's board composed of directors with an average tenure of almost 20 years. Barington complained that Dillard's stock price had fallen by 54 percent from June 30, 2007 through the close of trading on March 18, 2008, negating more than $1.6 billion in shareholder value. Then the stock was at $16.61. On Wednesday, it plummeted to $3.28 soon after the markets opened before stabilizing.
In October, Barington and Clinton sent a letter sent to Dillard's class B directors demanding that Dillard family members be ousted from any managerial positions with the company, saying poor performance and inexperience would have made them candidates for firing a any other firm. The hedge funds also complained that chairman and CEO William Dillard II had an average three-year compensation of about $5.3 million, which they declared was 54 percent above the median paid to CEOs at peer companies.
Three Dillard's directors -- Robert Conner, Peter Johnson and Warren Stephens -- subsequently issued a statement rejecting the Barington/Clinton demands, arguing that the company had "an appropriate strategy" for dealing with a sagging economy they insist is the cause of the company's problems.
Dillard's has developed a cost-cutting plan that slashes capital expenditures and aims to close 21 underperforming stores. In its latest shot at curtailing losses, Dillard's said last week that it would lay off 500 of its 60,000 sales associates.
But Dillard's didn't announce any executive changes. So after posting a $56 million loss and a nine percent decline in comparable store sales in the latest quarter, it's hard to see how its action to date will pacify Barington and Clinton.