Shares of Chico's FAS (CHS) are lower in morning trading after the specialty retailer of women's clothing received a letter from Barington Capital, urging the company to cut costs and buy back more shares. This morning, Chico's responded to "inaccurate" statements from the activist. Chico's operates under the Chico's, White House Black Market and Soma brand names.
BARINGTON TAKES SHOTS: Activist investor Barington Capital issued a letter to Chico's board on Thursday, demanding the retailer cut costs, increase revenue and buy back more shares. The fund, which owns a 1.5% stake in Chico's, said in the letter that Chico's has "significantly underperformed its own self-selected peers" and said it has "serious concerns" with respect to the company's performance. In order to unlock its value potential, Barington wants Chico's to cut its SG&A costs by "at least" $100M, improve execution, merchandising and store productivity at each of its brands and grow the Soma brand by 200 to 300 stores over the next five years. Barington also cautioned the company not to buy any new businesses, "particularly given the company's poor track record" with Boston Proper, and urged it to repurchase stock to help the company "meaningfully improve" its earnings per share. Barington believes that if the company implements these measures, Chico's could "more than double" its earnings per share in three years, translating to a stock price of $25-$27 per share. Last week, Barington mounted a proxy fight to nominate two directors to serve on the company's board, arguing that the company's expenses are too high relative to its peers. Barington has nominated founder James Mitarotonda and former Macy's (M) executive Janet Grove as directors, while Chico's has nominated Hudson's Bay Vice Chairman Bonnie Brooks and Bill Simon. Chico's last year named Shelley Broader as its CEO, and Barington has criticized her compensation package and has recommended that the board "more closely tie" Broader's pay to the company's performance beginning in 2017.
CHICO'S FIRES BACK: Chico's fired back at Barington's letter, commenting that the retailer takes issue with the activist investor for taking credit for the progress being made at the company, adding that Barington's claims "are completely unfounded." Chico's noted that its improvements began following the appointment of a new Chief Financial Officer in 2015 and accelerated when Broader joined the company as Chief Executive Officer in December, well ahead of Barington's review. Chico's also said that it is "committed" to more disciplined store growth than what Barington has recommended for Soma. The company added that Broader's compensation is "in line" with peers and is directly tied to performance.
PRICE ACTION: Shares of Chico's FAS are down 1.8% to $11.22 in morning trading. Shares are down more than 33% over the last 12 months.
Comments
Log in or sign up to join the conversation.