LITTLE ROCK, Ark. — A surprisingly blunt William Dillard II capped a 15-minute annual meeting Saturday when he said a “shockingly bad” fourth quarter dashed hopes for a reasonable 2002 fiscal year at Dillard’s Inc.

The department store chain based here is known for sharing as little information as possible with the public, but the shareholder meeting was perfunctory even by the company’s standards. Dillard, who is chairman and chief executive officer, commented on a few slides containing already released 2002 numbers and adjourned the gathering, but filled in a few gaps in a session with reporters after the meeting.

The company’s push toward private label merchandise and store-directed merchandising has been hurt by the numerous difficulties facing the retail industry, Dillard said, but the 333-store chain still isn’t doing everything it should to right itself after three consecutive years of declining sales. “Our supply chain relative to our competitors is too expensive,” Dillard said.

The company’s selling, general and administrative expense percentage jumped to 27.3 percent in 2002, up from 26.9 percent in 2001 and 25.9 percent in 2000.

Competitors continue to chip away at Dillard’s, he said. Along with Wal-Mart and other discounters, rapidly growing Kohl’s, a direct competitor for department store customers, creates a “new equation,” Dillard said. “When Kohl’s comes to town we lose a point or two of business.”

Dillard’s is continuing to adjust, though. “We just think it was right now to disinvest rather than to invest,” Dillard said. “We’re cutting expenses, we’re closing stores.” The company closed five stores in 2002.

Women’s and junior clothing continued to account for the largest segment of sales, increasing slightly to 30.8 percent in 2002. Private label sales increased to 18.2 percent for the year, a leap from 15.4 percent in 2001. The company’s plans to increase margins and decrease vendor dependence hinge on such penetration.

Dillard did note that inventory levels in the first quarter have “been a problem,” but did not elaborate. Most retailers have reported higher inventory recently, but Dillard’s has been largely successful at controlling merchandise ownership in the past two years.

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