Children's Place, Inc. (the) · NASDAQ:PLCE
Children's Place, Inc. (the) — Proxy Contest (April 2015)
62 slides from Children's Place, Inc. (the)'s proxy contest presentation, Apr 27, 2015
Slide 1: Shareholders For Change at The Children's Place
Shareholders For Change at The Children’s Place April 2015
Slide 2: Important Disclosures
Important Disclosures THIS PRESENTATION IS FOR DISCUSSION AND GENERAL INFORMATIONAL PURPOSES ONLY. IT DOES NOT HAVE REGARD TO THE SPECIFIC INVESTMENT OBJECTIVE, FINANCIAL SITUATION, SUITABILITY, OR THE PARTICULAR NEED OF ANY SPECIFIC PERSON WHO MAY RECEIVE THIS PRESENTATION, AND SHOULD NOT BE TAKEN
Slide 3: Table of Contents
Table of Contents I. Executive Summary II. The Chairman and Current Board Inherited a Strong Company III. We Believe Management Has Executed Poorly Under the Board’s Watch IV. Weak Board Oversight and Governance, in Our View V. Our Vision VI. Time for Change 3
Slide 4: I. Executive Summary
I. Executive Summary Macellum BARINGTON CAPITAL MANAGEMENT BARINGTON CAPITAL GROUP
Slide 5: Executive Summary
Executive Summary • The stock price of The Children’s Place has underperformed the market and its peers, due to what we believe to be poor management as well as inadequate board oversight and governance. • The Chairman and the Board of Directors (the “Board”) inherited a strong company with good pro
Slide 6: Executive Summary – Stock Price Performance
Executive Summary – Stock Price Performance • Due to years of what we believe to be mismanagement and weak Board oversight, the stock has materially underperformed its peers and the market as a whole: 1 Year 3 Years 5 Years CEO Tenure (3/10/14 - 3/9/15) (3/12/12 - 3/9/15) (3/10/10 - 3/9/15) (1/4/10
Slide 7: Executive Summary – Management Performance
Executive Summary – Management Performance • The Board appointed Jane Elfers as CEO in January 2010. Since that time, operating performance has deteriorated and the stock price has significantly trailed peers and the overall market. In fact, Ms. Elfers has overseen: — Sales per square foot has falle
Slide 8: Executive Summary – Poor Board Oversight
Executive Summary – Poor Board Oversight • We believe the Board is failing to represent its constituents. — Excessive executive compensation, in our opinion. Despite poor performance, the Board has awarded Ms. Elfers: — $42.6 million of total compensation from 2011 to 2014. — 43% higher than the CEO
Slide 9: Executive Summary – It's Time for Change
Executive Summary – It’s Time for Change • We believe it’s time for change on the Board. • Shareholders should not wait any longer to see if the Company will meet its own modest expectations, in our view. • Our nominees have a vision to: — Improve sales and margins. — Improve inventory management. —
Slide 10: Executive Summary – Our Nominees
Executive Summary – Our Nominees • We believe that our nominees are truly independent and have the boardroom experience, business and leadership skills and shareholder perspective necessary to help the Company realize its value potential and ensure that shareholder interests are represented in the b
Slide 11: II. The Chairman and Current Board Inherited a Strong Company
II. The Chairman and Current Board Inherited a Strong Company 11
Slide 12: The Current Board Members Joined The Children's Place Between 2008 and 2014
The Current Board Members Joined The Children’s Place Between 2008 and 2014 • The Board inherited a strong company that has not seen an increase in EBITDA since 2009. EBITDA Change From Board Member Year Joined the Board Year Joined to 2014 Norman S. Matthews 2009 -26% Jane T. Elfers 2010 -26% Josep
Slide 13: The Board Inherited a Strong Company
The Board Inherited a Strong Company • Leading market position in the children’s apparel market. • Direct sourcing infrastructure that allows the Company to offer high quality products at great value to its customers. • Significant growth opportunities in e-commerce and international markets. • Supe
Slide 14: The Independent Directors Have Very Little Ownership
The Independent Directors Have Very Little Ownership • The current independent directors own only 0.7% of the Company. • Shareholders for Change at The Children’s Place beneficially owns 2.1% of the Company. Ownership of Independent Directors Shares Owned % of Company Norman Matthews 81,678 0.4% Jos
Slide 15: Ms. Elfers Has Steadily Sold Much of the Stock She Has Been Awarded
Ms. Elfers Has Steadily Sold Much of the Stock She Has Been Awarded • Between 2010-2015, Ms. Elfers has been awarded 702,340 restricted shares as part of her total compensation: TOTAL SHARES AWARDED 4-Jan-10 93,255 28-Mar-11 100,725 30-Mar-12 96,768 20-Apr-12 100,000 28-Mar-13 93,167 20-Mar-14 107,3
Slide 16: III. We Believe Management Has Executed Poorly Under the Board's Watch
III. We Believe Management Has Executed Poorly Under the Board’s Watch 16
Slide 17: Key Operating Metrics Have Deteriorated under the Current Board and Management
Key Operating Metrics Have Deteriorated under the Current Board and Management 2010 2014 CHANGE Average Sales Per Store $1,587,000 $1,316,000 17% DECLINE Sales per Sq. Ft $318 $280 12% DECLINE Gross Margin 39.4% 35.3% 410 bps DECLINE EBITDA Margin 12.2% 8.6% 355 bps DECLINE Inventory Turns 4.9x 3.7x
Slide 18: We Believe Merchandising Missteps have Pressured Sales
We Believe Merchandising Missteps have Pressured Sales • We believe negative same-store sales growth has been primarily due to a number of poor merchandising decisions by the Company’s current management. — One of these numerous missteps, in our view, was emphasizing higher priced items. — On the No
Slide 19: CEO Appears to Have Failed to Deliver on a Promise of Improved Inventory Management
CEO Appears to Have Failed to Deliver on a Promise of Improved Inventory Management • Inventory turnover has fallen from 4.9x in 2010 to 3.7x in 2014. — Ironically, Ms. Elfers specifically targeted improvement of inventory turnover as one of her five key initiatives during her first earnings call in
Slide 20: Planning and Allocation Appears to be Another Area of Weakness
Planning and Allocation Appears to be Another Area of Weakness • We believe there have been long delays in implementing a planning and allocation process: — Unsuccessful effort to reengineer the Company’s planning and allocation processes since March 2010 when Ms. Elfers stated on an investor confer
Slide 21: We Believe Missteps Have Pressured Gross Margins
We Believe Missteps Have Pressured Gross Margins • Gross margins have declined by 480 basis points since 2009 due to what we believe is poor merchandising and poor inventory management. — Despite an increase in AURs, mentioned earlier, the Company’s gross margins nonetheless declined, apparently due
Slide 22: Management Turnover Has Been High
Management Turnover Has Been High • We believe that constant executive turnover has also been a contributor to the Company’s disappointing financial and share price performance. • Shortly after Ms. Elfers was appointed to the CEO position in 2010, she made a number of management changes. − On the Ma
Slide 23: We Believe Capital Allocation Has Been Poor
We Believe Capital Allocation Has Been Poor • Capital expenditures have totaled $399 million since Ms. Elfers has been CEO under the oversight of the current Board. • Capital spending has exceeded depreciation and amortization by $89 million over the past five years. Nonetheless, EBITDA has continue
Slide 24: IV. Weak Board Oversight and Governance, in Our View
IV. Weak Board Oversight and Governance, in Our View 24
Slide 25: We Believe the CEO Has Been Excessively Compensated for Poor Performance
We Believe the CEO Has Been Excessively Compensated for Poor Performance • The Board appears to have a lack of concern over sustained deterioration in EBITDA and weak stock price performance, particularly when compared to the peer group and Carter’s. • Despite the Company’s poor operating results an
Slide 26: We Believe the Company's Peer Group is Inappropriate
We Believe the Company’s Peer Group is Inappropriate • The Company uses a peer group that has a median market capitalization of greater than $2 billion, or almost double The Children’s Place’s market capitalization. Market Capitalization versus Peers ($ Billions) 2.50 2.00 1.50 1.00 0.50 - Proxy Pee
Slide 27: Ms. Elfers' Compensation is Particularly Excessive Compared to Carter's CEO
We Believe Ms. Elfers’ Compensation is Particularly Excessive When Compared to That of the Carter’s CEO 27
Slide 28: Ms. Elfers's "Golden Parachute" is Excessive
Ms. Elfers’s “Golden Parachute” is Excessive — Ms. Elfers’s “Golden Parachute” is excessive relative to peers which have a much larger market cap. Ms. Elfers's "Golden Parachute" v. Peers $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $- Median Peers Ms. Elfers Source: Per SEC Filings, t
Slide 29: Shareholders Have Not Been Supportive of Executive Compensation
Shareholders Have Not Been Supportive of Executive Compensation Advisory vote on executive Advisory vote on executive compensation - 2013 compensation - 2014 Percent of voting shareholders Percent of voting shareholders For For 17% Against Against 39% 61% 83% Source: SEC Filings; Barington analysis.
Slide 30: Leading Proxy Advisors Have Not Been Supportive of Executive Compensation
Leading Proxy Advisors Have Not Been Supportive of Executive Compensation • In 2014, leading proxy advisory firm ISS stated as follows regarding the advisory vote on executive compensation: “A vote AGAINST this proposal is warranted. While CEO pay is substantially lowered in connection with the elim
Slide 31: Historical Failure to Set and Keep a Long-Term Incentive Plan
Historical Failure to Set and Keep a Long-Term Incentive Plan Shows Low Standards and Lack of Conviction • The Board awarded Ms. Elfers excessive compensation based on short-term Targets until it yielded to pressure from shareholders to adopt a long-term incentive plan starting in 2013. • In 2013, t
Slide 32: Board Has Rewarded Poor Performance by Reducing the Company's Target by 30% Since 2011
We Believe the Board Has Rewarded Poor Performance by Reducing the Company’s Target by 30% Since 2011 • Despite consistent reductions in Target Adjusted Operating Income, management missed its original Target in 2011, 2012 and 2013. • After the Company underperformed in the first quarter in 2013, th
Slide 33: While The Children's Place Has Set Declining Targets, Carter's Has Set Increasing Targets
While The Children’s Place Has Set Declining Targets, Carter’s Has Set Increasing Targets • The Board of The Children’s Place set the Company’s final Target lower than the previous year’s actual results by 9% in 2013 and by 14% in 2014. • The Board justified its Targets by stating that the industry
Slide 34: Targets Are Consistently Inadequate
Targets Are Consistently Inadequate • The Company’s Peer Group is setting increasing targets as well. • Management’s initial EPS Guidance in both 2014 and 2015 has been significantly worse than peers: Initial Guidance: EPS Growth Year-Over-Year 2014 2015 Peer Mean 3.6% Peer Mean 13.6% Peer Median 6.
Slide 35: We Believe Targets Are Consistently Inadequate
We Believe Targets Are Consistently Inadequate • Guidance for 2015 is another example of what we believe to be insufficient expectations. We are concerned that the Company has not developed compelling enough initiatives to achieve reasonable earnings growth. • Same Store Sales Growth – guidance for
Slide 36: V. Our Vision
V. Our Vision Macellum . BARINGTON CAPITAL MANAGEMENT BARINGTON CAPITAL GROUP
Slide 37: Our Vision: Operating Improvements
Our Vision: Operating Improvements • We believe reinvigorated sales growth, increased margins, increased free cash flow generation through better inventory management and reduced capital expenditures, and aggressive share repurchases can deliver more than a doubling of the Company’s adjusted EPS fro
Slide 38: Our Vision: Operating Improvements (continued)
Our Vision: Operating Improvements (continued) — Gross margins • We believe better merchandising efforts would improve the Company’s gross margins. • We believe the Company needs to deliver quality and value while avoiding excessive markdowns. • We believe higher inventory turnover would also be sup
Slide 39: Our Vision: Improve Capital Allocation
Our Vision: Improve Capital Allocation • The Children’s Place is a relatively mature retailer in North America and, in our view, needs to allocate capital resources accordingly. • We believe inventory turns should be improved. — We believe that returning inventory turnover to 4.9x would generate $65
Slide 40: Our Vision: Explore Opportunities for a Sale Transaction
Our Vision: Explore Opportunities for a Sale Transaction • Given the current management team’s history of what we believe to be poor execution, we lack confidence in its ability to successfully bring The Children’s Place back to its historical metrics of profitability and working capital efficiency.
Slide 41: VI. Time For Change
VI. Time For Change Macellum BARINGTON CAPITAL MANAGEMENT BARINGTON CAPITAL GROUP
Slide 42: Time For Change
Time For Change • We extensively highlighted issues that we believe have plagued the Company and Board for multiple years. • We have proposed a road map to recovery. • The Company appears to have put up barriers to prevent shareholders from having all the facts before making a decision. — Rather tha
Slide 43: Time For Change
Time For Change • The Board doesn’t appear to have high enough expectations. The Board has set declining Adjusted Operating Income targets over the last three years. • The Independent Board Members’ stock ownership is low, and CEO selling of common stock is persistent. • Shareholders cannot afford t
Slide 44: Time For Change – Our Nominees
Time For Change – Our Nominees • We believe that our nominees are truly independent and have the boardroom experience, business and leadership skills and shareholder perspective necessary to help the Company realize its value potential and ensure that shareholder interests are represented in the boa
Slide 45: Time For Change – Robert Mettler
Time For Change – Robert Mettler • Robert L. Mettler, 74, was President of Special Projects of Macy’s, Inc. from February 2008 until his retirement in January 2009. He previously served as Chairman and Chief Executive Officer of Macy’s West, a division of Macy’s, Inc., from 2002 to 2008 and as Presi
Slide 46: Time For Change – Seth Johnson
Time For Change – Seth Johnson • Seth R. Johnson, 61, has over 30 years of apparel retail experience. • Mr. Johnson has served as a director of Tilly’s, Inc. since 2011, where he also serves as Chairperson of the Audit Committee and previously served as a member of the advisory committee to the boar
Slide 47: About Macellum Advisors GP, LLC
About Macellum Advisors GP, LLC • Macellum Advisors GP, LLC was formed in July 2009 by Jonathan Duskin. Macellum and its partners, through their in-depth sector knowledge, are dedicated to identifying investment opportunities in the consumer and retail sector. Mr. Duskin has focused on the consumer
Slide 48: About Barington Capital Group, L.P.
About Barington Capital Group, L.P. • Barington Capital Group, L.P. is an investment firm that, through its affiliates, manages a value-oriented, activist investment fund that was established by James A. Mitarotonda in January 2000. The Firm invests in undervalued publicly traded companies that Bari
Slide 49: Barington Has a Record of Helping Improve Value as a Long-term Shareholder
Barington Has a Record of Helping Improve Value as a Long-term Shareholder “I do think [Mitarotonda] was very helpful in challenging the Dillard’s board and the Dillard’s way…He’s helped the Dillard’s company, the Dillard’s family….If you have a company that’s not doing well and it has not done well
Slide 50: Barington Has a Record of Helping Improve Value as a Long-term Shareholder (cont.)
Barington Has a Record of Helping Improve Value as a Long-term Shareholder (cont.) “Barington’s successes include plastics company A. Schulman, Inc., whose board of directors, which was firmly entrenched thanks to a plurality voting system and staggered elections, sat idle as its North American divi
Slide 51: Case Study: The Warnaco Group, Inc.
CASE STUDY The Warnaco Group, Inc. (NYSE: WRC) Designer and manufacturer of intimate apparel, sportswear and swimwear worldwide Situation Overview • Market cap of approximately $850 million. • The Company had outstanding brands such as Speedo, Calvin Klein and Chaps, as well as underperforming intim
Slide 52: Case Study: The Warnaco Group, Inc. – Continued
CASE STUDY The Warnaco Group, Inc. – Continued Active Strategy • In September 2006, Barington met with Warnaco’s management team to discuss measures to improve shareholder value and improve execution in light of the Company’s past operating disappointments. Among other things, Barington made specifi
Slide 53: Case Study: Warnaco Stock Performance
CASE STUDY The Warnaco Group, Inc. – Continued Stock performance of Warnaco versus the S&P 500 and Russell 2000 Indices (starting at initial purchase date) 180% 155% 130% 105% 80% 55% 30% 5% -20% Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 WRC S&P 500 Russell 2000 See Important Di
Slide 54: Case Study: Dillard's, Inc.
CASE STUDY Dillard’s, Inc. (NYSE: DDS) A regional department store operator Situation Overview • Market cap of approximately $2.4 billion. • Company traded at a discount to its tangible book value of $33 per share and held a substantial portfolio of owned real estate (approximately 75% of its locati
Slide 55: Case Study: Dillard's, Inc. – Continued
CASE STUDY Dillard’s, Inc. – Continued Active Strategy • In June and August 2007, Barington issued press releases disclosing its desire to meet with the management of Dillard’s to discuss ways to maximize shareholder value, as Barington was unable reach the CEO by telephone to schedule a meeting. •
Slide 56: Case Study: Dillard's Stock Performance
CASE STUDY Dillard’s, Inc. – Continued Stock performance of Dillard’s versus the S&P 500 and Russell 2000 Indices (starting at initial purchase date)1 150% 125% 100% 75% 50% 25% 0% -25% -50% -75% -100% May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 Jan-12 Sep-12 DDS S&P 500 Russell 2000 See Import
Slide 57: Case Study: Steven Madden, Ltd.
CASE STUDY Steven Madden, Ltd. (Nasdaq: SHOO) Designer, manufacturer, distributor and retailer of designer footwear Situation Overview • Market cap of approximately $250 million. • Strong fashion brand poorly managed by an under-qualified management team while Steven Madden was serving a prison term
Slide 58: Case Study: Steven Madden, Ltd. – Continued
CASE STUDY Steven Madden, Ltd. – Continued Active Strategy • As a result of management’s refusal to meet, Barington engaged in public letter-based dialogue with the Company. • Filed Schedule 13D to make specific recommendations regarding management, cost cutting, corporate governance, stock buybacks
Slide 59: Case Study: Steve Madden Stock Performance
CASE STUDY Steven Madden, Ltd. – Continued Stock performance of Steve Madden versus the S&P 500 and Russell 2000 Indices (starting at initial purchase date) 60% 50% 40% 30% 20% 10% 0% -10% -20% 3/18/2004 5/31/2004 8/31/2004 11/30/2004 2/28/2005 5/31/2005 8/31/2005 11/30/2005 SHOO S&P 500 Russell 200
Slide 60: Case Study: Nautica Enterprises, Inc.
CASE STUDY Nautica Enterprises, Inc. (formerly Nasdaq: NAUT) Designer, marketer and distributor of branded apparel and consumer products Situation Overview • Market cap of approximately $360 million. • Strong free cash flow generation. • Company traded at modest premium to net tangible assets, exclu
Slide 61: Case Study: Nautica Enterprises, Inc. – Continued
CASE STUDY Nautica Enterprises, Inc. – Continued Active Strategy • Barington recommended that the Company improve brand management and reduce operating costs, including executive compensation; also encouraged the Company to explore strategic alternatives. • In June 2003, Barington filed a preliminar
Slide 62: Case Study: Nautica Stock Performance
CASE STUDY Nautica Enterprises, Inc. – Continued Stock performance of Nautica versus the S&P 500 and Russell 2000 Indices (starting at initial purchase date) 60% 50% 40% 30% 20% 10% 0% -10% 4/17/2003 4/30/2003 5/30/2003 6/30/2003 7/31/2003 8/29/2003 NAUT S&P 500 Russell 2000 See Important Disclosure