Citi Trends, Inc. · NASDAQ:CTRN
Citi Trends — Proxy Contest (April 2017)
44 slides from Citi Trends's proxy contest presentation, Apr 27, 2017
Slide 1: Forward-looking statements
All statements other than historical facts contained in this presentation, 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 repurc
Slide 2: Agenda
1. Executive Summary 2. We Successfully Transformed Our Strategy in Response to Changes in Our Business 3. Citi Trends Has Delivered Superior Returns Under Our Current Strategic Plan 4. Our Management and Board are Committed to Excellent Corporate Governance 5. Macellum’s Proposals and Nominees Woul
Slide 3: Executive summary: strategic pivot since 2012 improved performance
Citi Trends began a strategic pivot in 2012 which, under Ed Anderson’s leadership, has dramatically improved our performance over the last five years •Our business model now is no longer comparable to what it was ten years ago. Significant changes in the retail environment and the branded urban appa
Slide 4: Total Stockholder Return Relative to Peers and Index
150.0% 130.0% 110.0% 90.0% Total Stockholder Return Relative to Peers and Index(1) Citi TrendsProxy Peer MedianS&P 600 Retailing 3-Year 5-Year Citi Trends 7.4% 50.3% Proxy Peer Median(2) (52.4%) (34.3%) S&P 600 Retailing (14.7%) 25.1% 70.0% 50.0% 30.0% 10.0% (10.0%) (30.0%) (50.0%) Mar-12Sep-12Mar-1
Slide 5: Cash generation and returning capital to stockholders
•When we began our strategic pivot, we focused on cutting capital expenditures and conserving cash •From 2012 to 2016, as a result, we generated $145.3 million of cash from operations and produced $74.9 million in free cash flow after capital expenditures. When conditions permitted, we re-launched a
Slide 6: Engagement with Macellum and settlement offers
•Citi Trends has long been committed to ongoing, constructive dialogue with its stockholders •When we were first approached by Macellum this February, we took this same open, collaborative approach. Macellum demanded the Board add two new directors, including its own CEO •The current Board is compri
Slide 7: Agenda
1. Executive Summary 2. We Successfully Transformed Our Strategy in Response to Changes in Our Business 3. Citi Trends Has Delivered Superior Returns Under Our Current Strategic Plan 4. Our Management and Board are Committed to Excellent Corporate Governance 5. Macellum’s Proposals and Nominees Woul
Slide 8: Citi Trends at a glance
•Leading retailer of off-price, urban fashion apparel with $700 million in sales •Shopping environment and merchandise tailored to a large, core customer base focused on trend setting fashions with a greater propensity to purchase apparel –70% African American –$20k to $40k in median household incom
Slide 9: Three distinct phases since IPO
Citi Trends has evolved through three distinct phases as a company since its initial public offering on May 18, 2005 IPO – December 2009 January 2010 – December 2011 January 2012 – Present Urban Apparel Retailer Focused on Urban Brands • Ed Anderson as CEO • Successful IPO in May 2005 • Rapid growth
Slide 10: Original strategy: value-priced urban branded apparel
•Formanyyears,CitiTrendsexecutedahighlysuccessfulstrategy basedon providing value-priced urban branded apparel to its core base of lower income African American consumers –Citi Trends was capitalizing on the growth of key urban brands such as Roca Wear, Apple Bottoms, Dereon, South Pole and Baby Pha
Slide 11: Urban brands lost fashion relevance
Beginning in mid-2010 and accelerating into 2011, the major urban brands became more mainstream and lost their fashion relevance with African American consumers Citi Trends Urban Brand Sales Trend ($mm)Citi Trends 2010 Top 5 Urban Brand Sales ($mm) $284$276$267 46%43% 41% $207 33% $173$163$154 26%24
Slide 12: Comp sales, gross margin and adjusted EBITDA decline
Citi Trends Quarterly Comp Store Sales 10% 1% (1%) (4%) (7%) (6%)(5%) (4%) Citi Trends Annual Gross MarginCiti Trends Annual Adjusted EBITDA 38.4% $51,979 34.4% 34.8% $13,478 $20,338 201020112012 201020112012
Slide 13: Board response: non-branded strategy and non-apparel emphasis
•Our Board reacted decisively and successfully to this change in the external environment –In 2012 Ed Anderson returned as CEO and Jason Mazzola was hired as Chief Merchant –Citi Trends implemented two key changes in merchandise strategy: o Within apparel, the Company shifted to a non-branded strate
Slide 14: Accessories and home sales growth
Our strategy to grow sales of the non-apparel categories of accessories (including footwear) and home products has contributed positively to revenue growth and diversification Accessories & Home ($ in millions) $300 $250 $200 $150 $134 $166 $181 $219 $232 $250 70% 60% 50% 40% $100 $50 $0 21% 25%29%
Slide 15: Transactions, units sold, gross margin and markdown trends
Our new merchandising strategies have been a vital factor in driving significant increases in total customer transactions and units sold, as well as improving gross margins significantly due to reduced markdowns Customer Transactions & Total Units Sold (mm) Gross Margin and Markdown Trends 84.8 87.6
Slide 16: Managing store payroll and corporate expenses
•We have effectively managed our cost structure despite a generally sluggish retail environment for apparel and significant wage cost pressures from minimum wage legislation and wage increases implemented by other retailers, including much larger companies •We have maintained store-level labor expen
Slide 17: Cost savings initiatives
•Continuous focus on improvement and process optimization to help offset store wage pressure •Over 80 ongoing or executed cost saving initiatives since 2011 YearInitiativeDescriptionDollar Savings 2013Revision to Store-Level Opening/Closing POS Procedures • Improved POS system and reduced paperwork
Slide 18: Gross margin vs proxy peers
Gross Margin 426 Citi Trends 362 bps increase since 2012 182 284 362 - - Proxy Peer Mean 214 bps decrease since 2012 (27) (97) (138) (214)
Slide 19: Adjusted EBITDA margin vs proxy peers
Adjusted EBITDA Margin Citi Trends 212 bps increase since 2012 157 315 212 37 - - Proxy Peer Mean 324 bps decrease since 2012 (31) (137) (198) (324)
Slide 20: Inventory turns vs proxy peers
Inventory Turns Citi Trends 0.2x turns increase since 2012 0.3x 0.2x 0.2x 0.0x Proxy Peer Mean 0.5x turns decrease since 2012 0.0x (0.1x) (0.4x) (0.4x) (0.5x) (0.6x) 20122013201420152016 NOTE: CTRN 2017 proxy peers (approved by Board in August 2016) include FIVE, BKE, CATO, CBK, DEST, DXLG, BOOT, HI
Slide 21: Go-forward growth initiatives
•Increase sales of ladies apparel –Active initiative to upgrade fashion content of ladies apparel in order to become a fashion destination for the Company’s core women customers –In August 2016, hired Brian Lattman as the new Merchandise Manager for the ladies apparel business with 25 years of appar
Slide 22: Capital return program
•In2015webeganreturningexcesscashtostockholders,initiatingaregular dividend and completing a $15 million share buyback •In2017weenhancedourcapitalreturnprogram–whileensuringadequate reserves to fund growth initiatives and meet other contingencies – by –Increasing the regular dividend 33% –Initiating
Slide 23: 2012 proxy peers total stockholder return and sector bankruptcies
CTRN 2012 Proxy Peers Total Stockholder Return (3/8/2012 - 3/8/2017) Body Central Declared Bankruptcy in 2015 The Wet Seal Declared Bankruptcy in 2015 PacSunDeclared Bankruptcy in 2016 bebe stores(92.0%) Stage Stores (82.0%) New York & Company (31.5%) Destination XL Group(1) (24.6%) The Finish Line
Slide 24: Agenda
1. Executive Summary 2. We Successfully Transformed Our Strategy in Response to Changes in Our Business 3. Citi Trends Has Delivered Superior Returns Under Our Current Strategic Plan 4. Our Management and Board are Committed to Excellent Corporate Governance 5. Macellum’s Proposals and Nominees Woul
Slide 25: Total Stockholder Return Relative to Peers and Index
150.0% 130.0% 110.0% 90.0% Total Stockholder Return Relative to Peers and Index(1) Citi TrendsProxy Peer MedianS&P 600 Retailing 3-Year 5-Year Citi Trends 7.4% 50.3% Proxy Peer Median(2) (52.4%) (34.3%) S&P 600 Retailing (14.7%) 25.1% 70.0% 50.0% 30.0% 10.0% (10.0%) (30.0%) (50.0%) Mar-12Sep-12Mar-1
Slide 26: Macellum compares us to the S&P Retailing Index
Macellum compares us to the S&P 500 Retailing Index We believe the S&P 600 Retailing Index is a more relevant benchmark •32 large-cap companies •Average mkt cap(1): ~$38 billion •Includes the largest global internet retailers and massive integrated retailers •43 small-cap companies •Average mkt cap(
Slide 27: Macellum compares us to TJX, Ross Stores and Burlington
Macellum compares us to TJX, Ross Stores and Burlington We believe our current proxy peers are a more relevant benchmark •Substantially larger than us: on average, ~10,000% larger than our mkt cap, ~2,400% larger than our sales, ~825% larger than our store square footage(1) •Small-cap specialty reta
Slide 28: Macellum's revised peer group vs our proxy peers
We don't compete for customers with premium/luxury companies like Kate Spade, Lululemon and L Brands (Victoria’s Secret / Bath and Body Works), or with non-apparel retailers like Big Lots and Ollie’s. Nor are we anywhere near the size of Macellum's third attempt at a "peer group". Macellum’s Second
Slide 29: Agenda
1. Executive Summary 2. We Successfully Transformed Our Strategy in Response to Changes in Our Business 3. Citi Trends Has Delivered Superior Returns Under Our Current Strategic Plan 4. Our Management and Board are Committed to Excellent Corporate Governance 5. Macellum’s Proposals and Nominees Woul
Slide 30: Independent director expertise
Independent DirectorExpertise Barbara Levy Joined the Board Aug. 2016 Retail industry veteran with extensive retail merchandising off-price apparel experience Laurens M. Goff Joined the Board Nov. 2013 Strategic and transactional expertise in the Consumer & Specialty Retail sector • 40 years’ retail
Slide 31: Board skills and experience matrix
Public CompanyRetail / Apparel Experience CTRN Has NameTitleTenureAgeBoard Experience Edward Senior Mgt Experience Merchandising / Off-Price Strategic Leadership Finance / Accounting Outperformed Peers During Tenure(1) AndersonChairman1667 John Lupo Lead Independent Director 1470 1056 Director 444 D
Slide 32: Stockholder support and CEO compensation structure
Stockholder MeetingISS Rec.GL Rec.Stockholder Support % 2016ForFor99.1% 2015ForFor99.0% 2014ForFor99.1% CEO Compensation Structure Aligned with Shareholder Value(1) CTRNProxy Peer Mean(2) Base Salary, 34% Performance-and Equity-based, 66% (3) Base Salary, 50% Performance-and Equity-based, 50%(3) 1.B
Slide 33: CEO compensation and total stockholder returns vs peers
CEO Compensation FY 2014-2016 Avg.(1) CEO and Chairman Compensation FY 2014-2016 Avg.(1) Total Stockholder Returns FY 2014 – 2016 ($ millions)($ millions) Avg. Median FRAN CATO BKE SSI BOOT NWY DXLG DEST CTRN FIVE $2.5 $2.4 $1.9 $1.9 $1.8 $1.6 $4.1 $4.1 $4.0 $4.9 FRAN SSI CATO BKE NWY BOOT DXLG CTRN
Slide 34: Agenda
1. Executive Summary 2. We Successfully Transformed Our Strategy in Response to Changes in Our Business 3. Citi Trends Has Delivered Superior Returns Under Our Current Strategic Plan 4. Our Management and Board are Committed to Excellent Corporate Governance 5. Macellum’s Proposals and Nominees Woul
Slide 35: Macellum criticizes vs the reality
Macellum Criticizes…The Reality is… Operating performance Stockholder returns Capital allocation Board composition •Changes in the branded urban apparel market and our business model make it less relevant to compare our business today to ten years ago •Our new strategy has delivered years of profita
Slide 36: Macellum's board nominees lack relevant experience
Jonathan Duskin x x Liquidated in 2009 Macellum’s Board Nominees NO retail operating experience NO understanding of the off-price or urban fashion market Has repeatedly destroyed stockholder value as a Director - Elected to Christopher & Banks board as a result of a proxy contest – stockholders have
Slide 37: Christopher & Banks performance after Duskin joined board
20.0% Christopher & BanksS&P 600 Retailing 49.1% lost in one year 10.0% 1 0.0% (10.0%) (20.0%) (30.0%) (40.0%) (50.0%) 3/10/2016: CBK settled with Macellum and agreed to nominate four new directors including Mr. Duskin 2 8/30/2016: CBK Q2 2016 Earnings Announcement – missed both revenue and EPS proj
Slide 38: Agenda
1. Executive Summary 2. We Successfully Transformed Our Strategy in Response to Changes in Our Business 3. Citi Trends Has Delivered Superior Returns Under Our Current Strategic Plan 4. Our Management and Board are Committed to Excellent Corporate Governance 5. Macellum’s Proposals and Nominees Woul
Slide 39: Constructive engagement and settlement offers
•Citi Trends has long been committed to ongoing, constructive dialogue with its stockholders •When we were first approached by Macellum this February, we took this same open, collaborative approach. Macellum demanded the Board add two new directors, including its own CEO •Over the past two months we
Slide 40: Citi Trends' slate vs Macellum's slate
Citi Trends’ SlateMacellum’s Slate Edward Anderson Lawrence Hyatt Barbara Levy Jonathan Duskin Paul Metcalf Strategic Vision for CTRN Proven strategic plan with a track record of driving growth and superior stockholder returns No value creation proposition has been articulated that’s additive to ste
Slide 41: Vote for all three of your Board's nominees
Citi Trends began a strategic pivot in 2012 which, under Ed Anderson’s leadership, has dramatically improved our performance over the last five years •Significant changes in the retail environment and the branded urban apparel market forced significant strategic adaptation on our part •Amid a diffic
Slide 42: Appendix
($000s)20122013201420152016
Slide 43: Appendix: Adjusted EBITDA Reconciliation
Appendix: Adjusted EBITDA Reconciliation (8000s) 2012 2013 2014-2015 2016 Net Sales ‘$654,653 $622,204 $670,840 $683,791 $695,175 Net Income (62,225) $464. $8,966 $15,527 $13,331 Plus: Interest Expense 212 194 200 242 159 Income Tax Expense 25168) (754) 144 8,787 6,020 Depreciation 23,950 21,974 20,
Slide 44: Important Additional Information
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, 20