Contrasts Relevant Skills and Experience of
Directors with those of Macellum submitted nominees
Highlights Macellum’s Distorted Financial
Analyses, Misleading Comparisons and False Assumptions
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 second 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
April 25, 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.
As you may know, Macellum Advisors GP, LLC, and certain
affiliated entities (collectively, “Macellum”), has nominated two
individuals in opposition to two of the Company’s three incumbent
director nominees. Macellum, which owns 3.92% of the Company’s
outstanding common stock, has attempted to solicit your vote
through a campaign replete with distorted analyses, misleading
statements, and a number of unfounded allegations that are simply
not borne out by the truth.
Most recently, Macellum made baseless and speculative comments
about former Citi Trends CEO Mr. Mazzola’s recent departure to
pursue a new opportunity. The firm questioned whether or not the
decision resulted from “frustration” with the current Board and Mr.
Anderson, and in doing so erroneously downplayed Mr. Mazzola’s new
role at, and the size of, the company he joined. Mr. Mazzola
publicly set the record straight, stating “my departure was not
acrimonious and that I unequivocally support the Citi Trends board
and management team."
Citi Trends stockholders should ignore Macellum’s attempts to
distort the facts. The motivations behind publically making these
reckless assumptions, which Mr. Mazzola definitively dismissed,
become even more suspect when you consider that Macellum did not
once reach out to Mr. Mazzola in an effort to better understand the
nature of the transition.
In another distortion of the facts, Macellum claimed that the
“The Board Had No Intention of Settling with Us” when in fact the
Board made five attempts to
settle with Macellum and agreed to appoint two qualified
independent and mutually agreed upon individuals from a list of
names provided by Macellum. It was Macellum that was not interested
in settling because it demanded that Duskin be put on our board –
making it clear that this proxy contest is all about him – not
creating stockholder value.
Against this backdrop, we ask that you fully consider the facts
and ignore the fake narrative advanced by Macellum in determining
how to cast your vote.
DESPITE DRAMATIC CHANGES IN FASHION
PREFERENCE, YOUR BOARD HAS DELIVERED SUPERIOR TOTAL RETURNS
Citi Trends has evolved through three distinct phases as a
company since its initial public offering on May 17, 2005 – first,
the rise of urban brands, followed by the decline of urban brands,
and finally, positioning itself as an urban fashion, off-price
retailer with offerings in both apparel and non-apparel.
Success with Urban Brands
Originally, the Company executed a highly successful strategy
that capitalized on the popularity of urban apparel brands.
Merchandise decisions were informed by, and the Company’s product
assortment reflected, the considerable demand for brands like
RocaWear and Apple Bottoms. Fueled by robust urban brand sales,
Citi Trends generated a Total Stockholder Return (TSR) of 76% from
the IPO through the end of 2009.
Urban Brands’ Decline
A sudden and rapid decline in the fashion relevance of these
urban brands with Citi Trends’ core customer base brought about a
new period in the Company’s corporate history. From January 2010 to
December 2011, Citi Trends experienced a significant downturn in
its business. As urban brands had comprised nearly 50% of our
merchandise offerings at that time, the swift shift in consumer
sentiment negatively impacted a number of the Company’s financial
metrics. The industry wide decline of urban brands, which had
previously driven the rapid growth of Citi Trends and many other
specialty apparel retailers, led to a Company TSR of negative -68%
for this two year period.
Citi Trends’ Decisive and Successful Pivot
Faced with the challenge of quickly and effectively adapting to
the changing external environment, your Board took decisive action
to both de-emphasize branded apparel and expand complementary
product lines. This began the current, third phase of the Company’s
history in January 2012. While many retail peers and urban apparel
brands succumbed to the economic trends and shifting fashion tastes
of the day, your Board successfully brought about key merchandising
changes that continue to bear fruit. Had your Board not acted
decisively, Citi Trends may have met a similar fate as retailers
and brands that did not alter course, such as Payless (bankrupt in
2017), PacSun (bankrupt in 2016) and Aeropostale (bankrupt in
2016).
The Company’s new positioning as an urban fashion, off-price
retailer with offerings in both apparel and non-apparel has
generated significant momentum. Under the leadership of Executive
Chairman and incumbent director nominee Mr. Anderson, Citi Trends
rejuvenated its comparable store sales, gross margins and EBITDA
levels. This has led to the best period yet for our stockholders,
with the Company generating a TSR of over 99% from the
beginning of 2012 until present.
CITI TRENDS IN 2005 VS. 2017: DIFFERENT
BUSINESS, MERCHANDISE AND STRATEGY
Your Board has proactively managed out of a declining business,
and its new strategy is driving substantially improved performance.
Given changes in the retail environment, the branded urban apparel
market and Citi Trends’ business model, it is far less relevant to
compare our business today to that of ten years ago. As such,
Macellum’s insistence on gauging Citi Trends’ current success
solely in relation to its financial results from prior to the 2012
turnaround and strategic shift is curious. The firm’s allegations
of ‘cherry picking’ the timing of our comparisons for the sake of
performance is patently false: as outlined above, the Company’s
initial success, broader industry downturn, and subsequent
transformation provide natural delineations of three distinct
phases in the Company’s history.
Macellum has attempted to advance a self-serving, false
narrative that misrepresents the Company’s financial position and
neglects the transformative action undertaken by your Board. We can
only conclude that this line of attack from Macellum is either
disingenuous or indicative of the firm’s troubling ignorance of
Citi Trends’ new positioning, merchandise categories, and product
margins.
Regardless of the true motivation behind Macellum’s factually
inaccurate depiction of Citi Trends’ history, the reality is that
the 2012 transformation has enabled the Company to survive, evolve
and outperform its peers over the subsequent five years. The
merchandising strategy responsible for this success was designed,
implemented and currently overseen by your Board. Do not let
Macellum’s nominees disrupt this process, vote FOR ALL
of the Citi Trends Director nominees on the BLUE proxy card today.
YOUR BOARD HAS A TRACK RECORD OF RETURNING
CAPITAL TO STOCKHOLDERS AND ANNOUNCED PLANS TO RETURN $30 MILLION
OVER THE NEXT 12 MONTHS
As part of the successful strategic pivot orchestrated in 2012,
the Board’s focus on cutting capital expenditures and conserving
cash successfully restored the Company’s profitability, growth and
stability to levels that warranted a prudent return to Company
stockholders. Thus, in 2015, your Board announced and successfully
completed a $15 million repurchase program and instituted a regular
quarterly dividend.
This year, your Board announced an expanded capital return
program, which aims to return approximately $30 million to
stockholders over next 12 months, in the form of a 33% quarterly
dividend increase and a new share repurchase program of up to $25
million. These actions are a continuation of the 2015 decision to
return cash to stockholders and a consequence of the Board’s
ongoing disciplined and responsible fiscal stewardship,
not Macellum’s recently
launched and unfocused dissident campaign. The Board’s actions are
a result of the Company’s strategic plan being on the right
track.
The fact that your Board authorized a buyback and quarterly
dividend in 2015, well before this contested election, refutes
Macellum’s false claim that “the Board was previously resistant to
returning capital to stockholders until we came along.” In reality,
your Board regularly evaluates the Company’s balance sheet, in
which share repurchases and dividend programs are weighed against a
bevy of other operational and structural considerations that would
necessitate liquidity. Having generated a cumulative total of
$145.3 million of cash flow from operations and $74.9 million of
free cash flow after capital expenditures from 2012-2016 as part of
its strategic turnaround, we are committed to thoughtfully and
appropriately returning excess capital to stockholders while
maintaining the financial flexibility required to grow our
business.
Macellum, on the other hand, does not appear to have reached a
definitive conclusion regarding how they wish to critique our 2017
capital return program. In their most recent public communication,
Macellum questions the timing of the program while simultaneously
criticizing the dollar amount of the program as too low AND
attempting to take credit for the announcement. Unfortunately, the
inconsistent, haphazard nature of Macellum’s attacks are not
limited to this single domain.
MACELLUM’S DISTORTED FINANCIAL ANALYSES AND
COMPARISONS FAIL TO CAPTURE THE TURNAROUND THAT THE BOARD HAS
ENGINEERED
Macellum’s three separate attempts at defining a peer group and
time periods to measure our results demonstrate a lack of
understanding of the business and the industry. The firm’s
misleading claims regarding our stock price and operating
performance are based on distorted comparisons rather than truly
representative peers of the Company.
One of the various irrelevant peer groups that Macellum attempts
to compare Citi Trends with is the S&P 500 Retailing Index,
which includes 32 of the world’s largest integrated retailers that
have an average market cap of $40 billion. Rather than comparing
Citi Trends to companies like Amazon and Best Buy, a more relevant
benchmark would be the S&P 600 Retailing Index, which is
comprised of 42, mostly brick and mortar, retailers that have an
average market cap of $900 million.
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 25,000% larger than ours. In
addition to the immense size disparity, almost 50% of Macellum’s
further revised peer group consists of non-apparel retailers like
Big Lots and Ollie’s or premium/luxury companies such as Kate Spade
and lululemon.
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: REFUSED SETTLEMENT OFFERS,
DEMANDED MR. DUSKIN’S APPOINTMENT TO BOARD
Macellum has attempted to portray itself as amenable to a
constructive settlement outcome, but the truth is that the firm has
rejected every offer provided by the Company that would have
allowed for potential Board appointments for two individuals
provided by Macellum after a routine vetting process. Instead, Mr.
Duskin insisted that any settlement must include him being
appointed to the Board.
Citi Trends has sought to avoid a disruptive contested election
process by acting reasonably and providing Macellum with numerous
proposed settlement offers over the past couple of months that,
following appropriate interviews and vetting, could have led to
Board appointments for two individuals provided by Macellum prior
to the annual meeting. Macellum rejected each of these offers
because it insisted that any settlement must include Mr. Duskin as
a Board member. These half-hearted negotiations clearly highlight
where Mr. Duskin’s true interests lie: he has prioritized serving
as a member of your Board above and beyond any other concern, such
as enhancing value for Citi Trends’ stockholders or avoiding a
costly, disruptive proxy contest.
This attempt by Macellum to suggest that the Board does not
value constructive conversations with stockholder or investor
feedback is at odds with the facts. In reality, your Board reaches
out to and engages with its stockholders on various topics,
including corporate governance, compensation, performance, strategy
and other matters. The recent decisions to appoint a lead
independent director, implement a clawback and anti-hedging
policies and propose the majority voting requirement for directors
in uncontested elections at the upcoming annual meeting were
informed by our stockholders’ view on the Company’s policies and
practices and your Board’s commitment to good corporate
governance.
While naming Mr. Duskin a Director may
have allowed Citi Trends to avoid a costly and protracted campaign
with Macellum, your Board considered Mr. Duskin’s poor history as a
retail company director and his track record of value destruction,
which rendered him unqualified to help oversee your
investment.
MACELLUM WOULD REPLACE TWO OF YOUR QUALIFIED
DIRECTORS WITH INDIVIDUALS WHO WOULD ADD NO INCREMENTAL VALUE TO
OUR BOARD
Despite claiming to be a “retail expert”, Mr. Duskin has no
retail operating experience whatsoever. Furthermore, relevant to
Citi Trends, he has no understanding of the off-price or urban
fashion market. Most importantly, he has repeatedly destroyed
stockholder value as a Director
- Elected to Christopher & Banks
board as a result of a proxy contest – stockholders have lost
almost 40% since Mr. Duskin joined the board
- Resigned from Whitehall Jewelers board
weeks prior to the company’s declaring bankruptcy
- At least two private retail companies,
KB Toys and Plvtz (holding company of Levitz Furniture) were
liquidated while Mr. Duskin's fund was owner and he served as
director
Do not let Citi Trends become yet another
case study in illustrating Mr. Duskin’s propensity to destroy value
at companies where he serves as a director. Vote FOR ALL
Citi Trends Directors on the BLUE card today.
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. Citi Trends has
reviewed Mr. Metcalf’s background and qualifications and does not
believe he would be a valuable addition to your Board.
CITI TRENDS: RIGHT LEADERSHIP AND RIGHT
STRATEGY IN PLACE TO INCREASE STOCKHOLDER VALUE
Together, Macellum’s nominees have yet to articulate a strategic
view regarding how to create stockholder value at Citi Trends.
Compare and contrast this with your Board, who has delivered
superior 3- and 5-year TSR as compared to our peers and our sector
benchmark, all amid a difficult environment for small-cap specialty
apparel retailers.
As our turnaround progressed, we have refreshed your Board with
new, highly-qualified independent directors. 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.
Your Company has a strong, deep management team, led by acting
CEO Bruce Smith and newly-appointed General Merchandise Managers
Brian Lattman and Christina Short. Both Mr. Lattman and Ms. Short
have enjoyed successful careers in relevant sectors of specialty
retail, and they will play key roles in advancing our strategic
initiatives to increase sales of ladies apparel, enhance
merchandise planning, expand non-apparel categories and open new
stores with high returns on capital.
Your Company’s strategy is working but it
requires careful stewardship by a highly qualified Board and
management team – stewardship that is now at risk.
PROTECT THE VALUE OF YOUR INVESTMENT IN CITI
TRENDS:VOTE THE BLUE PROXY CARD
TODAY
Don’t allow Macellum’s nominees to replace your talented
directors. Both incumbent nominees played pivotal roles in the
design and implementation of the turnaround plan, and as Executive
Chairman, Mr. Anderson’s intimate knowledge of the Company’s
operations make him an invaluable participant in the process to
select a permanent CEO. Your Board members possess superb skillsets
in retail operations (including merchandising / off-price
experience), strategic leadership, as well as finance / accounting:
all domains that are highly relevant to Citi Trends and the
industry in which we operate.
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.
On behalf of the Board, 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/20170425005663/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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