Highlights Board’s Successful Response to
Customers’ Preference Shift from Urban Brands to Unbranded, Fast
Fashions
Refutes Macellum’s Multiple, Inconsistent
Attempts to Utilize Unsuitable Peer Groups for the Purposes of
Distorted Financial Comparisons
Recommends Stockholders Vote on the BLUE Proxy
Card “FOR” each of Citi Trends’ Highly Qualified and Experienced
Directors
Citi Trends, Inc. (“Citi Trends” or the “Company”) (NASDAQ:CTRN)
announced today that it has sent a third letter to stockholders in
connection with the Company's Annual Meeting of Stockholders, to be
held on May 24, 2017. The Citi Trends Board of Directors
unanimously recommends that stockholders vote the BLUE proxy card
today FOR each of the Company’s three highly qualified and
experienced director nominees: Barbara Levy, Lawrence E. Hyatt and
R. Edward Anderson.
The full text of the letter follows:
VOTE FOR
ALL OF THE CITI TRENDS DIRECTOR
NOMINEESON THE BLUE PROXY CARD
TODAY
May 1, 2017
Dear Fellow Stockholders:
Your vote at this year's Annual Meeting of Stockholders on May
24th is critically important. Citi Trends has the right Directors
and strategic initiatives in place to drive sustained growth,
profitability and value for all stockholders. As such, we urge you
to protect the value of your investment by voting today by
telephone, online or by signing and dating the enclosed
BLUE proxy card “FOR”
ALL THREE of Citi Trends’ highly qualified incumbent director
nominees: Barbara Levy, Lawrence E. Hyatt, and your Executive
Chairman, R. Edward Anderson.
This year's meeting is particularly significant as Macellum
Advisors GP, LLC and certain affiliated entities (collectively,
“Macellum”), which began accumulating its position in November 2016
and now owns 3.92% of Citi Trends’ outstanding common stock, has
nominated two individuals in opposition to two of the Company’s
three incumbent director nominees. Macellum, who has consistently
displayed a fundamental lack of understanding regarding our
customer, our merchandise offerings and our peers, is seeking to
supplant two of your qualified and experienced directors, one of
whom serves as your Executive Chairman, with individuals that
either have a history of value destruction as a board member of
retail companies, or no public director experience whatsoever. We
are writing to you today to ensure this lack of sophistication
and/or willful false narrative does not influence your vote.
Macellum is led by its Portfolio Manager Jonathan Duskin, an
individual whose historic engagements with retail companies has
resulted in serious value destruction and is directly at odds with
the “retail expert” title with which he has anointed himself.
Considering Mr. Duskin’s poor track record with companies in the
retail industry, a number of which filed for BANKRUPTCY during or
immediately following his service on the board, it is not
surprising that he has put forth a deeply flawed analysis of Citi
Trends’ business and repeatedly demonstrated an inaccurate
understanding of our peers within the specialty retail sector.
MACELLUM HAS ADVANCED A FALSE, INCOMPLETE
NARRATIVE REGARDING CITI TRENDS AND ITS HISTORIC RELATIONSHIP WITH
URBAN BRANDS
Over the course of this ill-advised and unnecessary proxy
contest that Macellum has launched - the Board made five attempts to settle and agreed to
appoint two qualified independent individuals from a list of names
provided by Macellum – the firm has erroneously suggested that the
Board actively elected to forgo the higher sales and profits made
possible by the urban brands popular in the first decade of the
2000s. Macellum claims that somehow, through either poor judgement
or mismanagement, Citi Trends deliberately ‘walked away’ from the
opportunity afforded by these urban brands.
This is fundamentally not true – Citi
Trends did not walk away from urban brands, the customer walked
away from urban brands.
Even prior to its successful IPO in 2005, offering current urban
fashions at compelling prices has always been at the heart of Citi
Trends’ merchandising strategy. This apparel category has always
included both brands as well as unbranded, or private label,
merchandise. The precise distribution of branded vs unbranded
apparel that Citi Trends carries in its stores has always varied
over time as customers’ fashion preferences changed.
The period of 2002-2009 witnessed the swift rise of a new
branded phenomenon that was unlike anything else to previously
occur within the urban fashion space. These brands - including
Rocawear, Apple Bottoms, and Baby Phat - were either owned by or
heavily associated with successful hip-hop artists and other
celebrities, and became immensely popular with Citi Trends’ core
base of African-American consumers. The sales of these urban
brands, combined with sales of other branded merchandise, surged to
represent nearly 50% of our total sales by the end of the 2002-2009
timeframe.
However, in 2010-2011, the retail landscape shifted such that
these urban brands lost their fashion relevance with our customers.
This sudden decline in demand was rapid and the effect on our
sales, gross margins and profitability was significant. It
necessitated a significant strategy change to proactively manage
out of this declining business, which your Board successfully
designed and implemented. Today, many of those same urban brands
that were previously immensely popular no longer exist, and to the
extent that those brands are still available, they now generate
only negligible sales in our stores, as well as broadly across the
retail sector. Citi Trends will continue to sell every piece of
urban brand apparel that its customers will buy, but the sales
declines of the urban brands reflect the drastic shift in customer
preference that occurred.
Macellum has also erroneously suggested that as urban brands
declined, Citi Trends should have simply shifted to feature other
brands. Again, this underlines Macellum’s superficial, poor
understanding of our business and our customers. National
department store brands, like those sold at TJX and Burlington, are
not resonating with our customers. Beginning in 2012 and continuing
to the present, we have extensively tested department store brands.
Very few sell. Our customer, particularly our ladies customer, has
moved away from brand driven fashion to unbranded, fast fashion.
Even though we are primarily in an unbranded cycle, especially for
ladies, we still sell brands which work for our customer and for
which we have access. Today’s mix of urban fashions at CTRN is
about 20% branded and 80% unbranded or private label. Macellum's
views on the fashion preferences of our customers reflects, we
believe, a fundamental lack of understanding of our business and
target market.
Do not allow Macellum’s ignorance of the
history of branded urban apparel and the current tastes of the
Company’s core customer destroy the value of your investment. Vote
FOR ALL Citi Trends Directors on the BLUE card
today.
MACELLUM CONTINUES TO UTILIZE UNSUITABLE
PEER GROUPS FOR THE PURPOSES OF DISTORTED FINANCIAL
COMPARISONS
Macellum has hand selected TJX, Ross Stores and Burlington to
compare with Citi Trends, even though these three companies have
more diversified business models, broader geographic coverage and
sales figures that are on average 2,400% larger than ours. These
off-price retailers are not only significantly bigger (in an
industry where scale is critical), but they also offer
substantially more merchandise and target a much broader and more
diverse customer base that has an average income approximately
double that of our customer.
This tremendous disparity in scale is critical when
understanding these are not useful comparisons for Citi Trends. The
larger size allows for significant leverage advantages, expanded
merchandise buyer networks and increased purchasing power. The
following table makes clear the stark differences in many important
metrics between the retailers. While Citi Trends may compete with
these companies for certain customers in a limited number of
product categories, this does not make TJX, Ross Stores or
Burlington representative peers that are suitable for comparison
sake.
TJX ROSS
BURLINGTON CTRN Demographics All Ethnic
Groups All Ethnic Groups All Ethnic Groups 70% African American
Average Annual
$77,000 $77,000 $64,000 $20 – $40,000
Household Income
Customer Preferences
Premium and Moderate Premium and Moderate Premium and Moderate
Fashion Forward Urban
National Department National Department National Department Apparel
Store Brands Store Brands Store Brands
Store Size (Square
Feet) 28,200 27,200 76,000 13,000
Total Gross Square
Footage 106.9 Million 42.5 Million 45 Million 7.1 Million
Real Estate Locations Suburban Power Suburban Power
Suburban Power Lower Income Centers Centers Centers Strip Centers
Annual Sales $33.2 Billion $12.9 Billion $5.6 Billion
$0.7 Billion
Annual Capital Expenditures $1,024.7
Million $297.9 Million $187.5 Million $23.9 Million
Selected Brands
Ralph Lauren, Michael
Michael Kors, Perry
Michael Kors, Perry
Jordan, Levi's, Enyce,
Kors, Nike, Under Ellis, Nike, Under Ellis, Timberland, Trukfit,
Parrish, Armour, Nautica, Armour, Nautica, Calvin Cuisinart
Rocawear, Hello Kitty Carter's Klein, Carter's
The magnitude and diversity of the merchandise offerings and
customer demographics at TJX, Ross Stores and Burlington
significantly buffered their results from being negatively impacted
by the urban brand decline described above to the same degree it
did for Citi Trends. TJX previously established an urban division,
AJ Wright, which closely resembled Citi Trends in its product mix
and customer demographic, but at approximately twice the size.
Despite all of the resources of a $33 billion retailer, TJX could
not save that division following the implosion of urban brand
demand, and AJ Wright was shuttered in December 2010.
In evaluating our performance, Macellum’s conclusion that the
Company “has not taken full advantage of the significant
opportunities to increase its profitability” is demonstrably false.
In addition to making distorted comparisons in an attempt to
illustrate its claim, Macellum conveniently omits that seismic
shifts in the apparel industry created tremendous obstacles to the
Company’s survival.
If the 99% TSR generated by Citi Trends’
since 2012 is characterized by Macellum as a company that “has not
taken full advantage of the significant opportunities to increase
its profitability”, we are curious as to how they would describe
the 2015 bankruptcy at The Wet Seal, where Mr. Duskin had served as
a director.
MACELLUM WOULD REPLACE TWO OF YOUR QUALIFIED
DIRECTORS WITH INDIVIDUALS WHO WOULD ADD NO INCREMENTAL VALUE TO
OUR BOARD
Macellum has launched a proxy fight to replace two of your
talented Directors, notwithstanding Citi Trends’ track record of
delivering strong results in a very difficult retail environment,
our plans to drive future value and the experience and expertise of
our Board.
As our turnaround progressed, we have refreshed your Board with
new, independent directors. The current Board is comprised of
highly qualified individuals with compelling backgrounds in retail
merchandising, operations and finance. Macellum’s nominees offer no
relevant experience, skills or perspectives – let alone the
perspective of a long-term, significant stockholder – that are not
already well-represented in the boardroom.
While investors may at times adopt the view that appointing a
stockholder nominee to the Board is a "harmless" addition, we do
not feel that is the case here. Based on Mr. Duskin’s poor history
as a retail company director, it was definitively concluded that
his appointment to serve on your Board would represent a
disconcerting development for Citi Trends and its stockholders.
Consider the following details of Mr. Duskin’s board
experience:
- Christopher & Banks: As a current
Board member, a seat which he gained following a settlement after a
threatened proxy contest in March 2016, Mr. Duskin has overseen a
nearly 50% DECLINE in the company’s stock price. During this
time, Christopher & Banks has missed EPS and revenue
projections on multiple occasions.
- The Wet Seal: Mr. Duskin joined the
Board in 2006 and served until a substantial majority of
stockholders voted in favor of his removal – but not before the
company’s stock price DROPPED
76% versus the S&P 600 Retailing Index during Mr. Duskin’s
tenure.
- Whitehall Jewelers Inc.: Mr. Duskin was
added to the board in 2006 and resigned weeks before the company
filed for BANKRUPTCY in 2008.
- KB Toys: Mr. Duskin was appointed a
director in 2005 and served until KB Toys filed for
BANKRUPTCY in 2008.
- PLVTZ, Inc.: Mr. Duskin joined the
board of PLVTZ, Inc., parent company of Levitz Home Furnishings, in
2005 – PLVTZ filed for BANKRUPTCY in 2007.
Your Board believes that Mr. Duskin’s track record of board
service for retail companies disqualifies him for service on the
Citi Trends Board.
Macellum’s second nominee, Paul Metcalf, has extremely limited
public company management experience, no experience within the
urban fashion market and, most relevant given the position he
seeks, no previous public company board experience. In addition,
despite the fact that the Board already had significant and
relevant executive-level merchandising experience with John Lupo
and Ed Anderson, it decided as recently as August 2016 to add
Barbara Levy to the Board to further strengthen the Board’s
merchandising expertise, based on her 40 years of retail
merchandising experience, including 14 years in off-price retail
apparel. After considering Mr. Metcalf’s background and
qualifications, Citi Trends believes that he would not be additive
to the Board.
Consider the credentials and expertise of the two highly
qualified directors, Executive Chairman Ed Anderson and Lawrence
Hyatt, which Macellum seeks to replace:
- Mr. Anderson has in-depth knowledge of
Citi Trends and its target customers, attained from his tenure of
more than 11 years as CEO and 15 years as a director. In addition,
Mr. Anderson has more than three decades of relevant executive
management experience and a distinguished career of leadership in
other companies in our industry.
- Mr. Hyatt, a former public company CFO,
has advised companies in a range of sectors and has particular
knowledge of the retail industry from his senior executive roles at
Cracker Barrel and Cole National Corporation and service on your
Board. Mr. Hyatt currently serves as the chairman of the Audit
Committee.
The question then for stockholders is clear: Do the two nominees
proposed by Macellum possess significant and relevant experience
that would be valuable to the Board, and is that experience
superior to the two members of the Board they propose to
replace?
We believe that by any objective measure the answer to both
questions is a clear and convincing "NO."
PROTECT THE VALUE OF YOUR INVESTMENT IN CITI
TRENDS:VOTE THE BLUE PROXY CARD
TODAY
Your Board is committed to acting in the best interests of all
Citi Trends stockholders. The current Board, under the leadership
of Executive Chairman Ed Anderson, is well aligned on the current
business strategy and believes that it would be detrimental to
stockholder value to replace two of your qualified incumbent
Directors with Macellum’s candidates.
We believe Citi Trends stockholders can protect the value of
their investment by voting today “FOR” ALL of our
experienced and highly qualified director nominees on the
BLUE proxy card: Barbara
Levy, Lawrence E. Hyatt, and R. Edward Anderson.
Your vote is extremely important, no matter how many or how few
shares you own. We urge you to vote today by telephone, online or
by signing and dating the enclosed BLUE proxy card and returning it in the
postage-paid envelope. If you have previously returned a White
proxy card you received from Macellum, you have every right to
change your vote by using the BLUE proxy card to support the Citi Trends
Board. Only your latest dated validly executed proxy card will
count. Please do not send back any White proxy cards, even to vote
against the Macellum nominees, as doing so may cancel out any votes
“FOR” the Citi Trends Board.
If you have any questions or need assistance voting, please call
Okapi Partners LLC, our proxy solicitor, at (212) 297-0720 or
toll-free at (877) 566-1922.
We are extremely honored to serve on behalf of you, our
stockholders. Your Board and management team are committed to
acting responsibly and to maximizing the value of your investment.
Thank you for your continued support.
Very truly yours,
The Citi Trends Board
About Citi Trends
Citi Trends, Inc. is a value-priced retailer of urban fashion
apparel and accessories for the entire family. The Company operates
538 stores located in 31 states. Citi Trends' website address is
www.cititrends.com. CTRN-G
Forward-Looking
Statements
All statements other than historical facts contained in this
news release, including statements regarding our future financial
results and position, business policy and plans, objectives of
management for future operations and our intentions and ability to
pay dividends and complete any share repurchases, are
forward-looking statements that are subject to material risks and
uncertainties. The words "believe," "may," "could," "plans,"
"estimate," "continue," "anticipate," "intend," "expect" and
similar expressions, as they relate to Citi Trends, are intended to
identify forward-looking statements. Investors are cautioned that
any such forward-looking statements are not guarantees of future
performance or results and are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified.
Actual results or developments may differ materially from those
included in the forward-looking statements as a result of various
factors which are discussed in Citi Trends filings with the
Securities and Exchange Commission. These risks and uncertainties
include, but are not limited to, uncertainties relating to economic
conditions, growth risks, consumer spending patterns, competition
within the industry, competition in our markets, the ability to
anticipate and respond to fashion trends and the outcome of our
current proxy fight and any other actions of activist stockholders.
Any forward-looking statements by the Company with respect to the
Company’s intention to declare and pay dividends, repurchase shares
pursuant to the share repurchase program, or otherwise, are
intended to speak only as of the date such statements are made.
Except as required by applicable law, including the securities laws
of the United States and the rules and regulations of the
Securities and Exchange Commission, Citi Trends does not undertake
to publicly update any forward-looking statements in this news
release or with respect to matters described herein, whether as a
result of any new information, future events or otherwise.
Important Additional
Information
Citi Trends, its directors and certain of its executive officers
may be deemed to be participants in the solicitation of proxies
from Citi Trends stockholders in connection with the matters to be
considered at Citi Trends' 2017 Annual Meeting to be held on May
24, 2017. On April 3, 2017, Citi Trends filed a definitive proxy
statement (the “Proxy Statement”) with the U.S. Securities and
Exchange Commission (the "SEC") in connection with any such
solicitation of proxies from Citi Trends stockholders. INVESTORS
AND STOCKHOLDERS ARE STRONGLY ENCOURAGED TO READ THE PROXY
STATEMENT AND ACCOMPANYING BLUE PROXY CARD WITH RESPECT TO THE 2017
ANNUAL MEETING, AND OTHER DOCUMENTS FILED WITH THE SEC, CAREFULLY
AND IN THEIR ENTIRETY AS THEY CONTAIN IMPORTANT INFORMATION.
Detailed information regarding the identity of potential
participants, and their direct or indirect interests, by security
holdings or otherwise, is set forth in the Proxy Statement and
other materials to be filed with the SEC in connection with Citi
Trends' 2017 Annual Meeting. Stockholders may obtain the Proxy
Statement, any amendments or supplements to the Proxy Statement and
other documents filed by Citi Trends with the SEC for no charge at
the SEC's website at www.sec.gov. Copies will also be available at
no charge at the Investor Relations section of our corporate
website at www.cititrends.com.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170501005572/en/
Media:ICRPhil Denning,
646-277-1258phil.denning@icrinc.comorInvestors:Okapi
PartnersBruce Goldfarb, Chuck Garske and Teresa Huang,
212-297-0720
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