Jun 3, 2016
Activist Barington lays out demands in fight with Chico's
Jun 3, 2016
Activist investor Barington Capital turned up the heat on apparel chain Chico's FAS on Thursday with specific demands to cut costs, boost revenue and buy back more shares one week after mounting a fight to win two board seats.
The New York-based hedge fund, which owns a 1.5 percent stake in the retailer, said it wants Chico's to slash selling, general and administrative costs by $100 million, improve merchandising and grow its Soma intimate apparel brand by 200 to 300 stores over the next five years.
It also warned the company against making new acquisitions and urged it to keep buying back stock now that the share price has fallen.
In response, Chico's said that many of the suggestions are already being considered and that its leaders have the skills and expertise to "fully realize the value of the Company."
After weeks of private discussions, Barington went public with its demands to ratchet up pressure on a company it thinks can perform better.
"Chico's could more than double its earnings per share in three years, which we estimate could translate to a stock price of approximately $25 to $27 per share," Barington's founder, James Mitarotonda, wrote to Chico's board chairman, David Walker, in a letter attached to a public filing.
Shares of Chico's, which caters to older women, have fallen 33 percent over the last 12 months while the S&P 500 apparel retail index has dropped 0.2 percent in the same period.
Chico's shares on Thursday were up 3.8 percent at $11.42.
Barington nominated Mitarotonda, who started his career at Bloomingdale's and has made successful retail investments before, plus former Macy's executive Janet Grove as directors. Chico's nominated retail executives Bonnie Brooks, vice chairman of Hudson's Bay Company, and Bill Simon.
Chico's last year hired Shelley Broader as its chief executive, and Mitarotonda criticized the current board for her generous pay. Broader's pay package is almost twice as large as what some rival CEOs earn, Mitarotonda wrote, complaining that the bulk of the $13.5 million package is not tied to performance goals.
Chico's plans shareholder-friendly changes by proposing that directors be elected every year, and Broader disclosed more cost cuts when the company reported earnings last week.
"We recognize Mr. Mitarotonda's interest in serving on the Board. However, Chico's FAS already has a catalyst for change with Ms. Broader, and with her new team and our new Board candidates," the company said in a statement.
Mitarotonda took aim at the company's board nominees saying Brooks might have a conflict because she works for a competitor.
While Broader may like having friends in the board room, Mitarotonda wrote, "It is more important that she be surrounded with experienced directors that are solely focused on creating long-term value for shareholders and will not feel constrained to challenge the CEO if necessary."
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