Barington Capital Starts a Proxy Fight at Retailer Chico's--2nd Update
May 24 2016 - 9:00AM
Dow Jones News
By Suzanne Kapner and David Benoit
Activist investor Barington Capital Group LP has launched a
fight for board seats at apparel chain Chico's FAS Inc.
Barington is nominating two directors to serve on the company's
nine-person board, confirming a report by The Wall Street Journal
on Monday night. The nominees are former high-ranking Macy's Inc.
executive Janet Grove and Barington Chief Executive James
Mitarotonda.
The activist fund, which owns a 1.4% stake in Chico's, isn't
agitating for a leadership change or sale of the business. Instead,
it is arguing that the company's expenses are too high relative to
its peers and its centralized structure is inefficient.
People familiar with the situation said Chico's has been
cooperating with Barington and already has begun addressing some of
the activist's concerns. The retailer separately has been seeking
new members to strengthen its board, they said.
Chico's, meanwhile, said Tuesday that it had nominated Bonnie
Brooks, vice chairman of Hudson's Bay Co., and Bill Simon, former
head of Wal-Mart Stores Inc.'s U.S. operations, to the board.
Chico's recruited Shelley Broader away from Wal-Mart to be its
CEO in December. Ms. Broader, who ran Wal-Mart's Europe, Middle
East and Africa region, previously held executive roles at crafts
chain Michaels Stores and grocer Delhaize Group.
In April, she realigned Chico's marketing and digital functions
by placing more decision making at the brand level in a move
expected to save $14 million a year. While Barington supported that
reorganization, it believes more significant cost cuts are
necessary, the people said.
In a news release Tuesday morning, Barington said Chico's is
"significantly undervalued and could more than double its earnings
per share if more effectively managed." Barington said it owns
about 1.4% of Chico's shares outstanding.
Chico's stock price has dropped 36% during the past 12 months to
$10.90, compared with a 4.7% decline in S&P 500 apparel retail
sub industry index. The company has a market value of $1.45 billion
as of Monday's close.
Apparel retailers ranging from the Gap Inc. to department stores
like Macy's have been struggling as shoppers make more of their
purchases online and allocate more of their disposable income to
dining out and travel.
Chico's is one of the few brands that targets older women, which
analysts say is an under served group.
In addition to its namesake stores, its brands include White
House Black Market and lingerie label Soma. The company operated
more than 1,500 stores and employed 22,700 people as of Jan.
30.
Revenue fell to $2.64 billion last fiscal year, as sales at
stores open at least a year declined 1.5%. The company's profit
tumbled to $1.9 million, weighed down by more than $100 million in
charges largely tied to the closing of another chain of stores
called Boston Proper.
According to people familiar with her strategy, Ms. Broader
plans to improve the company's financial performance through cost
cutting and more effective marketing; by making more use of data in
decision making; and by better integrating the online and offline
operations.
In early 2015, Chico's held talks with buyout firm Sycamore
Partners, according to people familiar with the matter. Sycamore
dropped its pursuit after failing to line up financing for the
deal, these people said.
Barington has had success in the retail space before, including
a proxy fight last year at Children's Place Inc. that led to one
seat for Barington and a say in selecting a second director.
This year, the fund settled a pending dispute with Avon Products
Inc., helping to appoint a new director at the beauty-products
company. In 2013, it kick started the battle over Darden
Restaurants Inc., calling for that conglomerate to break up.
The fund's founder, Mr. Mitarotonda, started his business career
at department store giant Bloomingdale's and has long invested in
retail companies, often seeking board representations.
Chico's previously had reached out to Ms. Grove about joining
its board, but those conversations didn't lead to her being
nominated, a person familiar with the matter said.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and David
Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
May 24, 2016 09:45 ET (13:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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