Dillard’s Inc. (NYSE: DDS) management received some advice from two hedge funds looking to boost the company’s share price earlier this week. James Mitarotonda’s Barington Capital and Michael Popson’s Clinton Group disclosed a letter to the board of directors suggesting that the company better manage its inventory, close under performing stores, and sell properties or sell and lease back some stores. The move follows a 52 percent drop in the company’s share price since it began making changes last summer. Shareholders are hoping that the company will heed the advice and work to turn itself around with the help of two great activists.

“Given the Company’s poor share price performance over the past six months, we are convinced that Dillard’s is an undervalued asset with tremendous opportunity for improvement,” the pair said in their letter. “Unfortunately, it appears to us that you have not only ignored our letters but have also done little to improve the Company on your own initiative, as Dillard’s financial results have gone from bad to worse since our initial communication in June 2007.”

The activist hedge funds made a series of specific proposals to the company. First, they suggested initiatives aimed at improving cost containment, inventory management and the company’s merchandising strategy. Secondly, they encouraged measures to enhance the value of the company’s real estate properties, including the conversion of certain properties into higher and better uses, the closure of underperforming stores and the sale/leaseback of owned properties. Thirdly, they suggested a boad evaluation of the company’s management team and executive compensation. And finally, they encouraged the company to improve its record in corporate governance by removing the dual class share structure, terminating the poison pill, and separating the chairman and chief executive positions.

“Dillard’s can and must deliver considerably better financial and share price performance,” said the hedge funds. “As significant stockholders of the Company, we are committed to taking all actions necessary to enhance shareholder value.”

In the end, it will be interesting to see if the company listens this time around given their failures when ignoring the hedge funds last time. The pair of hedge funds are known for their activist involvements, so they may take future actions in order to attempt to overtake the board. Unfortunately, there is a poison pill in place that would make this extremely difficult; however, it would be an expensive and annoying process for the company who may just decide to listen if such a threat surfaced. Combined, these factors make DDS a stock worth watching!

Related Companies
Macy’s Inc. (M)
The Bon-Ton Stores, Inc. (BONT)
Gottschalks Inc. (GOT)