NEW YORK, May 22, 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") that has
nominated two highly qualified candidates, Jonathan Duskin and Paul
Metcalf, for election at the Company's upcoming annual
meeting of stockholders, reiterated the facts stockholders should
consider when voting their proxies, addressed certain
misperceptions dispensed by the Company regarding Macellum and its
nominees and expressed its strong view that the election of both
Macellum nominees on the WHITE proxy card is necessary to
maximize stockholder value.
Macellum sees tremendous value in Citi Trends and believes the
stock could more than double with proper oversight by truly
independent and experienced directors with relevant experience and
a dedication to stockholder interests. We believe this value
can only be unlocked with meaningful change to the Board. We
urge stockholders to vote the WHITE proxy card for both Mr.
Duskin and Mr. Metcalf.
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DO NOT BE MISLED BY THE MISREPRESENTATIONS AND
DISTORTIONS OF THE TRUTH CITI TRENDS HAS MADE THROUGHOUT THIS
ELECTION CONTEST
FACT: Macellum Was Never Offered a Realistic
Settlement
- Macellum never sought a proxy contest. We attempted to
negotiate behind the scenes and even privately made nominations on
the last day of the advanced notice period to preserve our rights
as stockholders.
- After the unexpected exit of Citi Trends CEO Jason Mazzola, Macellum asked to speak with the
Company's lead independent director John
Lupo, who has sat on the Board since 2003. Our request was
rejected by Chairman Anderson, who indicated to us that he was the
only director we could speak to.
- Citi Trends insists that they offered to appoint two new
directors as part of a negotiated settlement. As you can see from
the following excerpt from the Company's draft settlement
agreement, the Board refused to commit to the appointment of any
new directors, including Macellum's nominees:
"Board Composition.
Promptly following the date of this Agreement, the Board shall
in good faith consider as promptly as reasonably practicable up
to two directors to be nominated by the Board for election to the
Board (hereinafter, each a "New Designee" and collectively the "New
Designees"). The New Designees shall be selected at the
Board's sole discretion, upon the recommendation of the
Company's Nominating and Corporate Governance Committee (the "NCG
Committee"), from a reasonable list of individuals provided by
Macellum."
- The full version of the agreement can be viewed at
www.fixcititrends.com.
- Despite no assurances that any Macellum nominees would be
appointed, the Company demanded that Macellum agree to a two year
standstill as part of a settlement. Macellum was willing to agree
to a two year standstill if the Board would commit to the
achievement of meaningful performance targets.
- Unfortunately, and as further evidence of the Board's inability
to set effective targets, the Company would only agree to an
inadequate target of $40 million in
Adjusted EBITDA – a target below the Company's 2015 Adjusted EBITDA
level of $43 million.
- It would be irresponsible for Macellum to leave the appointment
of any of our nominees in the "Board's sole discretion" or agree
not to nominate directors in the future if the Company had
declining EBITDA. While we made best efforts to work constructively
with Citi Trends to avoid an election contest, we believe the Board
was merely going through the motions for the purpose of telling
shareholders that they tried to settle.
- Rather than engaging in meaningful settlement discussions, the
Board chose to spend up to $2.6
million of stockholders' cash, or 14% of last year's EBIT,
on this proxy contest.
FACT: The Board lacks diversity, independence
and appropriate skill sets and have woefully low share
ownership
- Chairman Anderson has demonstrated little ability to refresh
the Board with individuals who possess the skills and diversity we
believe are needed for an off-price, apparel retailer serving
African American customers.
- No Citi Trends director currently sits on another public
company board, or on any board related to Citi Trends' business,
which severely limits the value they can bring to the executives
and stockholders.
- 4 of the 5 independent directors have never been merchants and
in our opinion would struggle to bring value to assessing and
addressing the merchandising challenges the Company faces. The 5th
has not worked in a retail store environment for over 10
years.
- The last two directors added to the Board had pre-existing
relationships with Citi Trends or management:
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- Laurens Goff worked for
Hampshire Equity Partners, the buyout firm that brought the Company
public in 2005.
- Barbara Levy worked at Ideeli
with former CEO Jason Mazzola.
- Despite their long tenure, the independent directors own only
0.68% of the outstanding shares.
- Lawrence Hyatt owns 0.20% of the
outstanding shares despite serving on the Board for 11 years.
- The non-employee directors pay themselves a cash retainer of
$84,000 annually. This is in line
with the median cash compensation for directors of large cap
companies, according to the 2016 Fred Cook Director Compensation
Report, and more in cash compensation than directors of TJX, ROST
& BURL.
FACT: The Board has failed to recruit and
retain qualified senior executives and should not be entrusted to
hire the next CEO
- The Board has a history of failing to identify and recruit
qualified CEOs, as demonstrated by the hiring of former CEO,
R. David Alexander.
- The Board's inability to retain former CEO, Jason Mazzola, as well as plan for CEO
succession has been extremely detrimental to the continuity of
company leadership.
- Qualified CEO candidates may be reluctant to consider the
opportunity. Given former CEO Jason
Mazzola's departure for a substantially lesser role, we fear
highly qualified candidates will suspect their ability to create
value under Chairman Anderson's influence is limited.
- We are concerned this finance heavy Board could make
Bruce Smith, acting CEO, COO and
CFO, the permanent CEO. Mr. Smith has been with Citi Trends for 10
years and part of the blame for the Company's historically poor
results rests on his shoulders. Stockholders must not give Mr.
Anderson another opportunity to promote another unqualified
internal executive.
- Given the Board's poor history of identifying talent, we are
concerned with their comfort in new Chief Merchant Brian Lattman.
Mr. Lattman was hastily promoted in the wake of Mr. Mazzola's
departure and has NO off-price retail experience. His last retail
store experience was prior to 2005 with his family's business that
had $113 million in revenues when it
filed for bankruptcy.
FACT: The Board has admitted its
self-inflicted mistakes that caused the significant decline in
results
- Under Chairman Anderson's leadership, Citi Trends has
experienced tremendous value destruction in the one area of apparel
retail that has seen significant growth.
- Numerous important metrics have declined for over 10 years.
Sales per square foot, EBIT margins, inventory turns, return on
capital and adjusted EBTIDA dollars, as outlined on page 7 of our
April 26th presentation,
have all deteriorated meaningfully.
- The Board failed to recognize fashion trends by shifting away
from urban brands. It now wants credit for making a purported
"strategic pivot" when, in its own words, the blame was due to
"self-inflicted mistakes."
FACT: Duskin and Metcalf are exceptionally
qualified
- Among his many qualifications, stockholders have to look no
further than Mr. Duskin's latest activist campaign involving The
Children's Place. The Children's Place added 2 directors as part of
their settlement with Macellum. Since the beginning of this
campaign, the stock is up 82% and earnings have more than doubled
in 2 years.
- Mr. Metcalf was instrumental in orchestrating the remarkable
turnaround in merchandising at Burlington Stores. Burlington faced many of the same challenges
that Citi Trends faces today. During this turnaround, Burlington had multiple quarters of positive
same-store sales gains and margin improvement that drove the stock
to increase from $16, at the time of
the IPO, to over $60 at the time of
Mr. Metcalf's departure. Further, Mr. Metcalf made sustainable,
long term, changes that survived his tenure and the stock now rests
at $94.
- Messrs. Duskin and Metcalf would bring a level of analysis,
rigor and energy that we believe is lacking on the Board. Bringing
the science of retail and analysis of information that will enable
us to test, measure and move is not dramatic change. It is retail
101.
FACT: We do not want to bring back urban
brands
- Our belief is that customers want nationally recognized brands
at off-price values. We are not advocating, as the Board suggests,
that the Company go back to selling "urban brands" like Fubu,
Rock-a-wear and Baby Phat.
- We believe Citi Trends' customer is an aspirational, fashion
sensitive shopper and wants to buy the prevailing trends at
close-out prices.
- Although the customer is largely African American, we do not
believe the customer is only interested in buying fashion
manufactured by African American designers.
We believe the election of both Mr. Metcalf and Mr. Duskin and
the removal of Chairman Anderson represent the best opportunity for
significant value creation at the Company. Without the
removal of Mr. Anderson, we are concerned that the Board will
struggle to incorporate new perspectives and support views that
differ from those of Mr. Anderson.
VOTE THE WHITE PROXY CARD TODAY TO ELECT BOTH
OF OUR HIGHLY-QUALIFIED NOMINEES — JONATHAN DUSKIN AND PAUL METCALF
— TO THE BOARD AT THE COMPANY'S UPCOMING ANNUAL MEETING
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
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SOURCE Macellum Capital Management, LLC