LITTLE ROCK, Ark. — Shares of Dillard’s Inc. rose more than 35 percent Monday, the first trading day after it reported sharply higher earnings on Friday, but two investment firms critical of the company’s management benefited less from the uptick than they would have a few months ago.

This story first appeared in the May 19, 2009 issue of WWD. Subscribe Today.

At the firm’s annual meeting at its corporate offices here on Saturday, Dillard’s shareholders reelected the four directors installed last year to avoid a proxy fight with activist investors — even after those investors, Barington Capital and The Clinton Group, substantially reduced their holdings in the department store chain, according to filings with the Securities and Exchange Commission.

The annual meeting was short, uneventful and decidedly upbeat. Rather than dwelling on the firm’s $241 million net loss in “extremely challenging” fiscal 2008, president Alex Dillard’s presentation focused on the surprisingly strong first-quarter results unveiled after the market closed on Friday.

While the bottom-line results were eye-catching — net income nearly tripled to $7.7 million despite a 12 percent decline in net sales and a 13 percent slide in same-store sales — director Peter Johnson commented the real story was on the balance sheet. The company has reduced debt by $210 million in the past year and made operating expense cuts that could save as much as $200 million in the current fiscal year.

Comparing the just-concluded quarter to the year-ago period, the cost of sales dropped 12.4 percent to $979.6 million; selling, general and administrative expenses were down 13.9 percent to $414.3, and interest expense dropped 16.7 percent to $18.4 million. All metrics dropped as a percentage of sales as well, although those declines all were under 1 percent.

Inventories were pared 18.4 percent to $1.65 billion, 111.8 percent of sales, compared to $2.02 billion, or 120.5 percent of sales, a year ago.

Dillard’s closed 21 stores in fiscal 2008, and Alex Dillard said still more underperforming stores could be sacrificed. The company currently operates 306 department stores and nine clearance centers in 29 states, although earlier this month it revealed plans to close the location in Tullahoma, Tenn.

On Monday, as retail stocks and the major indices moved strongly upward, Dillard’s shares climbed $2.67, or 35.6 percent, to end the day at $10.18, their first close at or above $10 since Oct. 10 and more than four times the 52-week low of $2.50 reached on Nov. 21. The corresponding high of $19.25 was hit last May 19.

Johnson and Alex Dillard were among the eight Class B directors reelected directly by the family of the late company founder, William T. Dillard, under a dual-class structure that itself was the subject of criticism from dissident shareholders. The other six are William Dillard 2nd, chief executive officer; Mike Dillard and Drue Matheny (formerly Corbusier), both executive vice presidents; James Freeman, chief financial officer; Warren Stephens, ceo of Stephens Inc. investment bank, and Dallas investor Robert Connor. William, Alex and Mike Dillard are brothers and Matheny is their sister.

The directors chosen last year in a deal with disgruntled Class A investors — specifically Barington Capital and The Clinton Group, both of New York — are James A. Haslam 3rd, ceo of Pilot Travel Centers; R. Brad Martin, chairman of RBM Venture Co. and the former ceo of Saks Inc.; Frank R. Mori, co-ceo of Takihyo Inc., and Nick White, ceo of White & Associates of Rogers, Ark.

In an SEC filing on Friday, Barington Capital revealed it had sold most of its Dillard’s stock between Dec. 31 and March 31. The Form 13F-HR declared only 1,634 shares of Dillard’s stock valued at approximately $9,000 as of March 31, compared with 828,445 shares valued at $3.3 million at the end of 2008.

The Clinton Group also disposed of some 530,000 shares of Dillard’s stock during the first quarter, declaring less than 1.1 million shares as of March 31 on its Form 13F-HR filed in April.

As recently as mid-December, Barington and the Clinton Group were continuing to make demands on Dillard’s management — specifically that it release details relating to the Dillard family and CDI Contractors, a Little Rock construction company now wholly owned by Dillard’s Inc.

Shareholders also approved the issuance of an additional 1 million shares of common stock to be used for stock bonuses under an existing incentive plan. The only two proposals on the shareholder ballot were both approved by what the company called “substantial majorities.”