NEW YORK, March 18, 2019 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"), announced today that it has
nominated four highly qualified director candidates for election to
the Company's Board of Directors (the "Board") at the Company's
2019 Annual Meeting of Stockholders: Theresa R. Backes, Paul
Metcalf, Peter R. Sachse and
Kenneth D. Seipel. Macellum, who
successfully won a proxy contest at the 2017 annual meeting of
stockholders which resulted in the appointment of Jonathan Duskin to the Board, also released a
letter to the stockholders of the Company outlining the key reasons
for why the Board needs to be further reconstituted and expressing
its disappointment in the Board's apparent decision to use
stockholder money to defend their seats again.
The full text of the letter can be found below:
March 18, 2019
Dear Fellow Stockholders:
Macellum Advisors GP, LLC, together with its affiliates
(collectively, "Macellum" or "we"), is a large, long-term
stockholder of Citi Trends, Inc. ("Citi Trends" or the "Company"),
beneficially owning approximately 3.8% of the outstanding common
stock of the Company. We previously undertook a successful
proxy contest at the 2017 annual meeting of stockholders, resulting
in the appointment of Jonathan
Duskin to the Company's Board of Directors (the
"Board"). Following that election, Mr. Duskin joined the
Board with every intention of putting the contest behind us and
looking to work collaboratively with the other members of the
Board. Unfortunately, as a single director on the Board,
little has changed over the past two years — the Company continues
to underperform and the Board has failed to deliver value to
stockholders. Notwithstanding Mr. Duskin's considerable
efforts to drive change for the past two years, Macellum is deeply
concerned by the Board's lack of urgency in addressing many of the
issues facing the Company. Accordingly, two weeks ago,
Macellum nominated four highly qualified directors for election at
the 2019 annual meeting of stockholders (the "2019 Annual
Meeting"): Theresa R. Backes,
Paul Metcalf, Peter R. Sachse, and Kenneth D. Seipel. Macellum did not
initially disclose its nomination in an effort to work
collaboratively with the Board to refresh the Board. However,
following yet another quarter of deteriorating results and the
apparent unwillingness by the Board to hold themselves accountable,
Macellum has been forced to make its intensions known publicly now.
Macellum is deeply disappointed that the Company seems
prepared to waste stockholder resources on yet another proxy
contest rather than reconstitute the Board in a meaningful
way.
Citi Trends' Underperformance
Over a one-year period, Citi Trends' stock has delivered a
negative 27% return to stockholders. This represents an
underperformance to the S&P 500 Retailing Index by 28%, the
S&P 500 Index by 35%, the Russell 2000 Index by 26% and
off-price peers (BURL, ROST, and TJX) by 46%.
Moreover, in the 14 years since the Company went public, the
stock is up 36% vs an increase in the S&P 500 of 212%, there
has been scant improvement in the stock price from $18.63 in the almost two years since Macellum's
2017 campaign and no increase in the stock price over the last 10
years. Most recently, there has been a 46% decline in the
stock price from the levels the stock achieved just 6 months
ago.
Declining Operating Performance
Against the backdrop of the best environment on record for the
Company's core customer, Citi Trends continues to experience poor
operating performance. Worst yet, the operating declines
appear to be accelerating. We note the following recent
results:
- In fiscal 2018, the Company had no growth in EBIT, despite
spending a significant amount in capital expenditures in the last
two years. Almost all the gains in earnings per share were related
to a decline in the tax rate and lower share count.
- In Q4 of 2018, the Company experienced a 9% decline in Q4
EBIT.
- Gross margins are showing a concerning trend dropping 20bps in
2018 on top of 75bps in the prior two years combined, culminating
with a 75bp drop in Q4 2018, which appears to have rendered a three
year process to roll out a costly planning and allocation system
fruitless.
- The Company experienced an 8% decline in same store sales in Q1
2019 quarter to date.
- The Company issued Q1 guidance that calls for a 3% drop in same
store sales and a 10% decline in earnings (assuming a constant tax
rate to last year and an estimate of year ending shares).
- 2019 guidance calls for only 4.5% growth in earnings (assuming
a constant tax rate and the completion of the share
repurchase).
- At 3.2x the estimated EBITDA based on guidance, Citi Trends is
accorded one of the lowest valuations in the industry. The
price-to-earnings multiple has contracted 41% since the Company
lost the proxy contest in 2017.
Meaningful Change to the Board is Necessary to Preserve and
Restore Stockholder Value
We do not believe the current Board has demonstrated an ability
to act quickly and critically despite the Company's prolonged
underperformance. Rather than accept the loss of the 2017
proxy contest as an indictment of their performance and lack of
investor confidence in any long term growth strategy, the Board has
largely continued with the status quo. We believe this Board
is not aligned with stockholders, with some directors serving over
a decade and non-executive members owning approximately 0.7% of the
outstanding stock while never having made any open market
purchases. Given the Company's dismal performance, we believe
more meaningful change must occur at the Board level to turnaround
the Company. We have nominated four highly qualified
individuals with considerable credibility, decades of valuable and
relevant business and financial experience, and a commitment to
stockholders' interests that we believe will allow them to make
informed decisions to explore and identify opportunities to unlock
value at Citi Trends.
Our nominees are:
Theresa Backes – Ms.
Backes has served as the Chief Operating Officer and Managing
Director of IPP (Independent Pet Partners), LLC, which operates
nearly 150 independent Premium and Natural Pet Wellness Centers
across the United States, since
August 2017. From November 2015
until August 2017, Ms. Backes served
as Chief Operating Officer of Kriser's Natural Pet, a retailer of
natural pet food. Previously, from October 2007 until January
2014, Ms. Backes worked at Francesca's Holdings Corporation,
a U.S. women's specialty value retailer, initially serving as Chief
Operating Officer and later becoming President and Chief Operating
Officer in January 2013. During the
three years Ms. Backes was at Francesca's Holdings as a public
company, revenues grew 152% and the stock was accorded an average
price to earnings ratio of 35x. At the time, Francesca's was
known for delivering best in class fashion to their female customer
at industry leading inventory turns - something Citi Trends
desperately needs help with.
Paul Metcalf – Mr.
Metcalf is widely known for his success as Chief Merchandising
Officer and Executive Vice President of Burlington Stores, Inc., an
off-price department store retailer. During his tenure from
April 2012 to March 2015 at Burlington Stores, as both a
private and public company, he drove meaningful improvements in
sales and profitability and, as a public company, the stock
increased 216% during his tenure. From October 2006 to December
2011, Mr. Metcalf served in several executive positions at
TJX Companies, Inc., a discount retailer of apparel and home
fashions, including Senior Vice President, Chief Merchandising
Officer - Women's Apparel from October
2008 to December 2011, and
from October 2006 to October 2009, Mr. Metcalf was the General
Merchandise Manager, Men's Apparel. Mr. Metcalf is currently
the owner and principal of BEL Retail Advisors, a business
consulting firm that specializes in retail development and
strategy, which he founded in May
2015.
Peter Sachse – Mr.
Sachse spent 34 years in various positions at Macy's, Inc.,
including as the Chief Growth Officer from February 2016 until January 2017, Chief of Innovation and Business
Development from February 2015 to
February 2016, Chief Stores Officer
from February 2012 to February 2015, Chief Marketing Officer from
February 2009 to February 2012 (a title which he also held from
June 2003 to May 2007), and President of Corporate Marketing
from May 2007 to February 2009.
In addition, and perhaps most relevant, Mr. Sachse was involved in
launching Macy's successful off-price concept Back Stage. Mr.
Sachse also previously served as a director of XO Group Inc., a
media and technology company that provides content, tools, products
and services for couples who are planning weddings, creating a
home, and starting a family, and as a director of Charitybuzz Inc.,
a for-profit internet company that raises funds for nonprofit
organizations through online charity auctions with celebrities and
brands.
Ken Seipel – Mr.
Seipel is currently the CEO of West Marine Inc., the world's
largest retailer of boating supplies, since January 2019.
From March 2013 to March 2017, Mr. Seipel served as Chief Executive
Officer of Gabriel Brothers Inc., an off-priced retailer selling
designer brands and fashions for up to 70% off department and
specialty store prices. During his tenure at Gabriel
Brothers, Mr. Seipel conducted a meaningful turnaround of the
business which ultimately resulted in a successful sale of the
company to another private equity fund at an attractive valuation.
From March 2011 until February 2013, Mr. Seipel served as President and
Chief Operating Officer of Wet Seal Inc. Prior to that, Mr. Seipel
served as the President and Chief Merchandise/Marketing Officer of
Pamida Discount Stores LLC, a regional discount chain of department
stores with more than 175 locations in the United States, from 2009 until
2011.
We continue to desire to avoid a contested election at the 2019
Annual Meeting and call upon the Board to engage with us in good
faith to refresh the Board in a meaningful way. Stockholder
resources should not be squandered on another proxy fight.
Stockholders sent a message to the Board loud and clear 2 years ago
that change was warranted. Given the continued
underperformance of this Company – immediate and more meaningful
change is needed to preserve and restore value for all
stockholders.
Sincerely,
Jonathan Duskin
Macellum Advisors GP, LLC
CERTAIN INFORMATION CONCERNING THE PARTICIPANTS
Macellum SPV III, LP, a Delaware limited partnership, together with
the other participants named herein (collectively, "Macellum"),
intends to file a preliminary proxy statement and accompanying
White proxy card with the Securities and Exchange Commission
("SEC") to be used to solicit votes for the election of its slate
of highly qualified director nominees at the 2019 annual meeting of
stockholders of Citi Trends, Inc., a Delaware corporation (the "Company").
MACELLUM STRONGLY ADVISES ALL STOCKHOLDERS OF THE COMPANY TO
READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS AS THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. SUCH
PROXY MATERIALS WILL BE AVAILABLE AT NO CHARGE ON THE SEC'S WEB
SITE AT HTTP://WWW.SEC.GOV. IN ADDITION, THE PARTICIPANTS IN THIS
PROXY SOLICITATION WILL PROVIDE COPIES OF THE PROXY STATEMENT
WITHOUT CHARGE, WHEN AVAILABLE, UPON REQUEST. REQUESTS FOR COPIES
SHOULD BE DIRECTED TO THE PARTICIPANTS' PROXY SOLICITOR.
The "Participants" in the proxy solicitation are Macellum SPV
III, LP, a Delaware limited
partnership ("Macellum SPV"), Macellum Management, LP, a
Delaware limited partnership
("Macellum Management"), Macellum Advisors GP, LLC, a Delaware limited liability company ("Macellum
GP"), Jonathan Duskin, Theresa R. Backes, Paul
Metcalf, Peter R. Sachse, and
Kenneth D. Seipel. As of the
date hereof, Macellum GP and its affiliates beneficially own, in
the aggregate, 494,019 shares of common stock, $0.01 par value per share, of the Company (the
"Common Stock"), including 2,397 shares of restricted stock awarded
to Mr. Duskin in his capacity as a director of the Company, which
will vest on June 6, 2019, provided
Mr. Duskin is a director of the Company at such time, representing
approximately 3.8% of the outstanding shares of Common Stock. As of
the date hereof, Macellum SPV directly owns 489,010 shares of
Common Stock. As of the date hereof, Macellum GP, as the general
partner of Macellum SPV, may be deemed to beneficially own the
489,010 shares of Common Stock beneficially owned directly by
Macellum SPV. As of the date hereof, Macellum Management, as the
investment manager of Macellum SPV, may be deemed to beneficially
own the 489,010 shares of Common Stock beneficially owned directly
by Macellum SPV. As of the date hereof, Mr. Duskin beneficially
owns directly 5,009 shares of Common Stock, including 2,397 shares
of restricted stock awarded to him in his capacity as a director of
the Company, which will vest on June 6,
2019, provided Mr. Duskin is a director of the Company at
such time, and, as the sole member of Macellum GP, may be deemed to
beneficially own the 489,010 shares of Common Stock beneficially
owned directly by Macellum SPV. As of the date hereof, neither Ms.
Backes nor Messrs. Metcalf, Sachse or Seipel beneficially own any
shares of the Common Stock.
Investor Contact:
Jonathan Duskin
Macellum Management, LP
(212)-956-3008
Jduskin@macellumcap.com
John Ferguson
Saratoga Proxy Consulting LLC
(212) 257-1311 or (888) 368-0379
Info@saratogaproxy.com
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SOURCE Macellum Advisors GP, LLC