Company Notes Progress on Strategic Plan and
Driving Shareholder Value; Highlights Commitment to Executing
Mission
Macellum is Not Aligned with Other Shareholders
and is Attempting to Gain Control of the Board without Paying a
Premium
Macellum Has Rejected Every Attempt the Board
Has Made to Reach a Constructive Outcome and Avoid a Prolonged
Proxy Contest
Mr. Duskin Does Not Bring Retail Operating
Experience to Citi Trends and His Track Record Contradicts His
Claim that He Can Drive Meaningful, Positive Change
Citi Trends, Inc. (NASDAQ:CTRN) today issued an open letter to
its shareholders regarding Macellum SPV III, LP’s (“Macellum”)
notice of its nomination of four individuals to stand for election
to the Citi Trends Board of Directors at the Company’s 2019 Annual
Meeting of Shareholders (“2019 Annual Meeting”).1
The Board's recommendation regarding director nominees will be
made in the Company's definitive proxy materials, which will be
filed with the Securities and Exchange Commission and mailed to all
shareholders eligible to vote at the 2019 Annual Meeting. The date
of the Company’s 2019 Annual Meeting has not yet been announced.
Shareholders are not required to take any action at this time.
Dear Shareholders:
Following Macellum’s recent nomination of
Board candidates, we are taking this opportunity to present the
facts regarding Citi Trends’ plan to drive value, describe the
Board’s attempts to reach a constructive resolution and avoid a
prolonged proxy contest with Macellum, and correct the
misinformation Macellum has put into the market.
CITI TRENDS IS MAKING PROGRESS ON
ITS STRATEGIC PLAN, AND WE ARE DELIVERING RESULTS
Citi Trends is executing on a strategic plan
focused on growing our business by being the leader in providing
value-priced urban fashions to our customers.
During fiscal 2018, we made significant
progress on a number of strategic initiatives, including completing
the roll-out of our store-level merchandise planning system,
successfully opening 19 new stores, relocating or expanding eight
stores and closing six stores. Over the last 10 years, we have
completed 100 opportunistic store relocations and expansions, and
we will continue to evaluate and optimize our store footprint.
We have many other exciting projects and
initiatives underway that are expected to unlock value in 2019 and
beyond. This includes our efforts to better allocate merchandise on
a store-by-store basis, our initiatives to reduce freight costs and
other expenses, our enhanced warehouse packing system that will
drive efficiencies, and the implementation of a markdown
optimization system.
Importantly, we are delivering results. In
2018, the Company reported comparable store sales increases in
every quarter and delivered a full year comparable store sales
increase of 1.6%. This increase was on top of a 4.5% increase the
previous year. Additionally, the Company tightly managed its
expenses, leading to an increase in adjusted earnings per diluted
share of 59% in 2018 following a 13.2% increase in 2017.
We also continued to execute our capital
return program in 2018 by returning $45 million to our shareholders
in the form of share repurchases and dividends. Since the
initiation of the program in 2015, we have returned $94 million to
our shareholders.
We remain focused on achieving our goal of
reaching $4.00 of earnings per share within the next five years
through a combination of merchandising, planning and allocation
enhancements, cost-reduction initiatives and the return of excess
capital to our shareholders.
WE ARE EXECUTING ON OUR
MISSION
At Citi Trends, we are focused on our mission
of delivering value-priced urban fashion apparel and accessories
for the entire family. We provide our customers with a specialty
store feel, while maintaining merchandise offerings that appeal to
the fashion preferences of value-conscious consumers at prices that
are 20% to 70% below regular retail prices available in department
stores and specialty stores.
Our stores are typically located in
neighborhood shopping centers that are convenient to low and
moderate income customers. As of March 15, 2019, we operated 562
stores in both urban and rural markets in 32 states.
We are also proud of the jobs we provide to
our diverse group of valued associates who are often from the same
communities we serve. We are committed to treating all of our
associates with dignity and respect, providing them with valuable
training and promoting from within the Company so they have
opportunities to develop their careers.
MACELLUM HAS A RELATIVELY SMALL
OWNERSHIP STAKE, IS NOT ALIGNED WITH OTHER SHAREHOLDERS AND IS
ATTEMPTING TO GAIN BOARD CONTROL WITHOUT PAYING A PREMIUM
Despite the Company’s positive momentum,
Macellum has provided its notice of intent to nominate at least
three individuals to stand for election at the Company’s 2019
Annual Meeting. This effort is being led by Macellum’s founder,
Jonathan Duskin, who ran a proxy fight two years ago leading to him
joining the Company’s Board.
We believe Macellum’s actions are a clear
attempt to take control of Citi Trends’ Board, despite only holding
approximately 3.8% of the outstanding shares of the Company.
Consistent with his tactics in his previous proxy fight against
Citi Trends in 2017, Mr. Duskin has nominated more individuals than
are currently up for election. We believe he has taken this path in
an attempt to ensure he has maximum potential to gain control of
the Board.
It is worth noting that Macellum has sold
approximately 38,000 shares since May 2018, while no other Citi
Trends director has sold any shares during that same period. We
believe Macellum selling your Company’s shares underscores the fact
that Mr. Duskin’s interests are not aligned with those of other
shareholders and our efforts to drive long-term sustainable growth
at Citi Trends.
MACELLUM HAS REJECTED EVERY
OVERTURE FOR A CONSTRUCTIVE OUTCOME
In order to preclude Mr. Duskin from waging
yet another costly and distracting proxy contest, the Citi Trends
Board has held numerous discussions over the last few weeks with
Mr. Duskin regarding board composition and the Board’s commitment
to regular refreshment.
The Board has attempted to reach a
resolution that benefits all shareholders, but Mr. Duskin has
refused our offers. In fact, the Board had agreed to consider
nominating one of Macellum’s nominees, Peter R. Sachse, who most
recently served as Chief Growth Officer of Macy’s, Inc., to the
Board. However, Macellum declined our offer. A key negotiating
point of Mr. Duskin has been to be compensated for the fees his
firm incurred as a result of his proxy contest of two years ago.
Additionally, he has insisted that two current Citi Trends
directors resign in time periods of his choosing as part of any
resolution, instead of a smooth and thoughtful transition process.
Again, we believe this demonstrates that he is focused on gaining
control of the Board in the near-term and prioritizing Macellum’s
financial interests over generating value for Citi Trends
shareholders.
As part of the Board’s annual review process,
Mr. Duskin indicated that he believes the Board is meeting or
exceeding expectations. It makes it difficult to trust Mr. Duskin
when he says one thing but does another. We believe his nomination
of his own candidates illustrates that his goal is to gain control
of the Board, rather than enhance the quality of the Citi Trends
Board to benefit all shareholders.
MR. DUSKIN DOES NOT BRING ANY
RETAIL OPERATING EXPERIENCE TO CITI TRENDS AND HAS VOTED FOR ALL
INITIATIVES BROUGHT BEFORE THE BOARD
Macellum claims that it is “deeply concerned
by the Board's lack of urgency in addressing many of the issues
facing the Company … notwithstanding Mr. Duskin's considerable
efforts to drive change for the past two years.”2 In reality,
Mr. Duskin does not bring any retail operating experience to Citi
Trends. Instead, Mr. Duskin has been focused on financial
tactics to drive value for his firm, such as simply spending more
money on share buybacks without regard to the Company’s capital
allocation priorities.
Further, since joining the Citi Trends
Board, Mr. Duskin has also voted for every initiative brought
before the Board. Mr. Duskin has served as a member of every
standing committee of the Board, and currently serves as a member
of the Audit Committee and Compensation Committee, which has
provided him the opportunity to participate in all board
decisions.
During his tenure, the Board has found Mr.
Duskin’s short-term focus to have inhibited and slowed the Board’s
ability to have productive discussions regarding initiatives to
drive long-term value for the Company and our shareholders.
MR. DUSKIN’S TRACK RECORD
CONTRADICTS HIS CLAIM THAT HE CAN DRIVE MEANINGFUL, POSITIVE
CHANGE
Mr. Duskin has a track record of being
involved in companies that have declared bankruptcy, liquidated or
experienced significant declines in share price.
Mr. Duskin’s board experience includes
serving on the boards of Wet Seal, Inc., Whitehall Jewelers, Inc.,
Furniture.com Inc. and Plvtz (the holding company of Levitz
Furniture). Both Wet Seal and Whitehall filed for bankruptcy, and
KB Toys and Plvtz were liquidated while Mr. Duskin's fund was an
owner and while he served as a director. Mr. Duskin was ousted as a
board member by shareholders at Wet Seal in 2012 with 63% of the
outstanding shares voting against him.
Mr. Duskin’s poor track record is also
evident at Christopher & Banks Corporation, where he was
elected as a Board member in 2016 following a proxy contest. The
Company continues to report disappointing results, including
reporting decreasing comparable sales and declining earnings in
each of the two full fiscal years since his appointment to the
Board3. Further, Christopher & Banks’ stock price has declined
drastically by 83% and more than $50 million in market cap has been
eroded since Mr. Duskin joined the Board4. In addition, Christopher
& Banks stock has been trading below $1.00 since August 6,
2018.
CITI TRENDS HAS A BOARD WITH
OPERATIONAL AND STRATEGIC EXPERTISE THAT IS DRIVING VALUE FOR
SHAREHOLDERS; WE BELIEVE GIVING CONTROL OF OUR BOARD TO MACELLUM
WILL HINDER OUR MOMENTUM
The Citi Trends Board, excluding Mr. Duskin,
comprises six highly qualified directors, five of whom are
independent, and all of whom are actively engaged in the execution
of the Company’s plan. Four new directors, two of whom are
women, were added to the Board in the past four years and the Board
has reduced the average tenure of its independent board members to
approximately six and a half years. These directors, other than
Mr. Duskin, have a wide range of relevant and critical experiences,
including in the areas of finance, merchandising, retail
operations, distribution, marketing and advertising.
The Board and management team are executing
our value-creation plan and making necessary adjustments to our
merchandise and operations to deliver stronger results and enhanced
value for our shareholders in the short- and long-term. The Citi
Trends Board believes letting a 3.8% shareholder, who we believe
solely has short-term interests, control 57% of the Board would be
destructive to the Company’s future.
We appreciate the interest and support of all
Citi Trends shareholders. We remain open to constructive
suggestions and look forward to continuing to engage with
shareholders as we work to drive sustainable, long-term value.
Sincerely,
The Citi Trends Board of Directors
About Citi Trends
Citi Trends, Inc. is a value-priced retailer of urban fashion
apparel and accessories for the entire family. The Company operates
562 stores located in 32 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 repurchase authorizations, 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, although not all
forward-looking statements contain such language. 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 U.S. Securities and Exchange Commission (the
“SEC”), including those set forth under the heading “Item 1A. Risk
Factors” in the Company’s Annual Report on Form 10-K for the fiscal
year ended February 3, 2018. 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 and the ability to
anticipate and respond to fashion trends. Any forward-looking
statements by the Company 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 SEC, 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 shareholders in connection with the matters to be
considered at Citi Trends’ 2019 Annual Meeting. Citi Trends intends
to file a proxy statement with the SEC in connection with any such
solicitation of proxies from Citi Trends shareholders. INVESTORS
AND SHAREHOLDERS ARE STRONGLY ENCOURAGED TO READ ANY SUCH PROXY
STATEMENT AND ACCOMPANYING PROXY CARD AND OTHER DOCUMENTS FILED
WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME
AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION. Detailed
information regarding the identity of potential participants, and
their direct or indirect interests, by security holdings or
otherwise, will be set forth in the proxy statement and other
materials to be filed with the SEC in connection with Citi Trends’
2019 Annual Meeting. Information regarding the direct and indirect
beneficial ownership of Citi Trends’ directors and executive
officers in Citi Trends securities is included in their SEC filings
on Forms 3, 4 and 5, and additional information can also be found
in Citi Trends’ Annual Report on Form 10-K for the year ended
February 3, 2018, filed with the SEC on April 18, 2018 and its
Quarterly Reports on Form 10-Q for the first three quarters of the
fiscal year ended February 2, 2019 filed on June 11, 2018,
September 6, 2018 and December 10, 2018, respectively. Shareholders
will be able to obtain any 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.
1 Macellum has nominated more individuals than are up for
election at the 2019 Annual Meeting and has indicated that it will
withdraw one nominee in the event there are not additional
vacancies beyond the three Class II directors whose terms serving
on the Board expire at the 2019 Annual Meeting.2 Macellum March 18,
2019 Open Letter to Stockholders.3 Comparable sales decreased 2.5%
in fiscal year 2017 and decreased 2.6% in fiscal year 2018; Net
loss totaled $22.0 million, or ($0.59) per share, for fiscal 2017
and $32.8 million, or ($0.88) per share, for fiscal 2018.
(Christopher & Banks Earnings Press Releases)4 As of June 30,
2016, the date Mr. Duskin joined the Christopher & Banks Board,
to March 27, 2019.
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Bruce SmithPresident and Chief Executive Officer(912)
443-2075Media:Andy Brimmer / Greg Klassen / Jill KaryJoele
Frank, Wilkinson Brimmer Katcher(212)
355-4449Investors:Bruce Goldfarb / Chuck Garske / Teresa
HuangOkapi Partners LLC(212) 297-0720
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