NEW YORK, March 15, 2017 /PRNewswire/ -- Macellum SPV III,
LP, Macellum Advisors GP, LLC, and certain of their affiliates
(collectively, "Macellum"), a large stockholder of Citi Trends,
Inc. (NASDAQ: CTRN) (the "Company" or "Citi Trends"), today set the
record straight regarding its discussions with the Company to avoid
a contested election at the Company's upcoming annual meeting of
stockholders (the "Annual Meeting"). Macellum has nominated four
highly qualified nominees for election to the Board at the Annual
Meeting - Jonathan Duskin,
Dyan Jozwick, Lana Cain Krauter and Paul Metcalf.
What Citi Trends fails to tell you about its "so-called"
settlement agreement and discussions to date is:
- The Board refused to commit to the appointment of any new
directors to the Board, including Macellum's nominees.
Rather, the Company would only "consider" the addition of up
to two new independent candidates on a best efforts basis and,
despite having detailed information on the background and
qualifications of Macellum's nominees, would not agree to appoint
any Macellum nominees.
- The Board was unwilling to consider anything other than an
expansion of the Board. Given the Board's long tenure (an
average tenure of over 9 years, excluding Barbara Levy who was added to the Board in
August 2016) and the Company's
prolonged underperformance (as detailed in Macellum's March 9th letter), Macellum is
disappointed that the Board was unwilling to substitute new highly
qualified independent Directors for those that have not been able
to deliver value to stockholders.
- Despite no assurances that any Macellum nominees would be
appointed to the Board, the Company demanded that Macellum agree to
a non-market, two year standstill. Macellum was willing
to agree to a two year standstill if the Board would commit to the
achievement of meaningful performance targets, such as hitting a
stock price target, a metric that Macellum believes stockholders
care most about. Instead, the Company would only agree to a
$40 million Adjusted EBITDA target –
a target below the Company's 2015 Adjusted EBITDA level of
$43 million and well below the
Company's historic highs.
- The Board would not consider the addition of a direct
stockholder representative to the Board, Jonathan Duskin, the Principal of Macellum.
Macellum believes that having a stockholder representative on the
Board is imperative to focusing the Board on enhancing stockholder
value. In Macellum's view, only a stockholder, with capital at
risk, will bring a sense of urgency to address the Company's
financial and stock price underperformance.
Macellum also expressed its concern with the Company's fourth
quarter 2016 financial results, noting the following:
- Quarter-to-date same-store sales declined 7%. Macellum
worries that the Company will struggle to sell their winter
merchandise with inventories ending Q4 2016 only down 1.7% and will
not have enough spring inventory to deliver to their customers as
tax refunds are issued.
- Gross margins deteriorated once again from 38.4% in Q4
2015 to 38.1% in Q4 2016. This was the fourth consecutive
quarter that gross margins declined for the Company.
- Upside to analyst expectations was driven by a lower tax
rate as well as a one-time insurance settlement reducing operating
expenses, rather than improved operational performance. The
Company did not disclose the magnitude of the insurance settlement
gain and, while Macellum is encouraged to see a lower tax rate, it
certainly does not speak to improved operational performance the
Board should be driving.
- The Ladies business continued to decline. For
2016, same-store sales to this critical customer segment declined
3.5%. Also, while the fourth quarter increased 3%, this was on top
of an 8% decline the prior year. Moreover, since 2010, total Ladies
same-store sales have declined an estimated 37%.
- Average unit selling prices (AUS) declined again. AUS
declined again by 7% in Q4 2016. In total, the AUS is down
23% since 2010. It seems clear that lower prices are not
stimulating sufficient demand.
- For the year, operating results declined again.
Operating income declined to $18.9
million in fiscal 2016 from $24.2
million in fiscal 2015. Earnings per share (EPS) also
declined to $0.91 compared to
$1.03 in 2015. If the tax rate
and share count were the same as the prior year, EPS would have
been $0.82 this year.
Macellum has made significant efforts to work constructively
with management and the Board to avoid a contested election at the
Annual Meeting, including holding back its open letter to
stockholders and not publicly announcing its nomination of
directors for almost 2 weeks. In response, Macellum believes the
Company's purported settlement offer was designed to give the
illusion of change, but would not effectively reconstitute the
Board in a manner that optimally benefits stockholders. In light of
the Company's continued underperformance (as noted above), Macellum
believes the Board must be refreshed with new, independent
directors that will bring much needed accountability, a stockholder
perspective and valuable retail, merchandising and strategic
experience to the Board.
Investor Contact:
Jonathan
Duskin
Macellum Capital Management, LLC
(212)-956-3008
jduskin@macellumcap.com
John Ferguson
Saratoga Proxy Consulting LLC
(212) 257-1311 or (888) 368-0379
info@saratogaproxy.com
A link to Macellum's March
9th open letter to stockholders can be found
here: March 9th Letter
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/macellum-comments-on-settlement-discussions-with-citi-trends-inc-and-q4-2016-earnings-report-300423900.html
SOURCE Macellum Capital Management, LLC