NEW YORK, March 15, 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"), today set the record straight regarding its discussions with the Company to avoid a contested election at the Company's upcoming annual meeting of stockholders (the "Annual Meeting"). Macellum has nominated four highly qualified nominees for election to the Board at the Annual Meeting - Jonathan Duskin, Dyan Jozwick, Lana Cain Krauter and Paul Metcalf.
What Citi Trends fails to tell you about its "so-called" settlement agreement and discussions to date is:
- The Board refused to commit to the appointment of any new directors to the Board, including Macellum's nominees. Rather, the Company would only "consider" the addition of up to two new independent candidates on a best efforts basis and, despite having detailed information on the background and qualifications of Macellum's nominees, would not agree to appoint any Macellum nominees.
- The Board was unwilling to consider anything other than an expansion of the Board. Given the Board's long tenure (an average tenure of over 9 years, excluding Barbara Levy who was added to the Board in August 2016) and the Company's prolonged underperformance (as detailed in Macellum's March 9th letter), Macellum is disappointed that the Board was unwilling to substitute new highly qualified independent Directors for those that have not been able to deliver value to stockholders.
- Despite no assurances that any Macellum nominees would be appointed to the Board, the Company demanded that Macellum agree to a non-market, two year standstill. Macellum was willing to agree to a two year standstill if the Board would commit to the achievement of meaningful performance targets, such as hitting a stock price target, a metric that Macellum believes stockholders care most about. Instead, the Company would only agree to a $40 million Adjusted EBITDA target – a target below the Company's 2015 Adjusted EBITDA level of $43 million and well below the Company's historic highs.
- The Board would not consider the addition of a direct stockholder representative to the Board, Jonathan Duskin, the Principal of Macellum. Macellum believes that having a stockholder representative on the Board is imperative to focusing the Board on enhancing stockholder value. In Macellum's view, only a stockholder, with capital at risk, will bring a sense of urgency to address the Company's financial and stock price underperformance.
Macellum also expressed its concern with the Company's fourth quarter 2016 financial results, noting the following:
- Quarter-to-date same-store sales declined 7%. Macellum worries that the Company will struggle to sell their winter merchandise with inventories ending Q4 2016 only down 1.7% and will not have enough spring inventory to deliver to their customers as tax refunds are issued.
- Gross margins deteriorated once again from 38.4% in Q4 2015 to 38.1% in Q4 2016. This was the fourth consecutive quarter that gross margins declined for the Company.
- Upside to analyst expectations was driven by a lower tax rate as well as a one-time insurance settlement reducing operating expenses, rather than improved operational performance. The Company did not disclose the magnitude of the insurance settlement gain and, while Macellum is encouraged to see a lower tax rate, it certainly does not speak to improved operational performance the Board should be driving.
- The Ladies business continued to decline. For 2016, same-store sales to this critical customer segment declined 3.5%. Also, while the fourth quarter increased 3%, this was on top of an 8% decline the prior year. Moreover, since 2010, total Ladies same-store sales have declined an estimated 37%.
- Average unit selling prices (AUS) declined again. AUS declined again by 7% in Q4 2016. In total, the AUS is down 23% since 2010. It seems clear that lower prices are not stimulating sufficient demand.
- For the year, operating results declined again. Operating income declined to $18.9 million in fiscal 2016 from $24.2 million in fiscal 2015. Earnings per share (EPS) also declined to $0.91 compared to $1.03 in 2015. If the tax rate and share count were the same as the prior year, EPS would have been $0.82 this year.
Macellum has made significant efforts to work constructively with management and the Board to avoid a contested election at the Annual Meeting, including holding back its open letter to stockholders and not publicly announcing its nomination of directors for almost 2 weeks. In response, Macellum believes the Company's purported settlement offer was designed to give the illusion of change, but would not effectively reconstitute the Board in a manner that optimally benefits stockholders. In light of the Company's continued underperformance (as noted above), Macellum believes the Board must be refreshed with new, independent directors that will bring much needed accountability, a stockholder perspective and valuable retail, merchandising and strategic experience to the Board.
Macellum Capital Management, LLC
Saratoga Proxy Consulting LLC
(212) 257-1311 or (888) 368-0379
A link to Macellum's March 9th open letter to stockholders can be found here: March 9th Letter
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SOURCE Macellum Capital Management, LLC