Shares of Charming Shoppes Inc. rose 3 percent Wednesday after Dorrit Bern resigned as chairman, chief executive officer and president amid a push by activist investors to boost profitability.
This story first appeared in the July 10, 2008 issue of WWD. Subscribe Today.
Charming Shoppes is the leader in women’s plus-sized apparel, which is the fastest-growing segment of women’s apparel retailing, with 2,400 doors. The demographic trends are in the company’s favor because the number of obese women in the U.S. expected to rise significantly, but the retailer has been struggling with disappointing sales and profit losses for the last two years.
Bern has been under pressure from institutional investors critical of the company’s performance. For the first quarter, earnings improved, but comp-store sales were worse than expected in every division, with consolidated sales down 13 percent. Charming Shoppes in the fourth-quarter posted a $128.7 million loss or $1.10 a diluted share, excluding a one-time gain from an eminent domain settlement. Charming Shoppes’ share price declined 60 percent last year.
Retail sources speculated that Bern was pushed out. She could not be reached for comment.
Despite a sharp stock market downturn Wednesday, shares of Charming Shoppes gained 14 cents, or 3 percent, to close at $4.84 in over-the-counter trading. The company was one of the few specialty retailers to log an increase.
“I feel positively about what the board’s doing to unlock shareholder value,” said Robert Frankfurt, president of Myca Partners Inc., an investment firm that pressed for change at Charming Shoppes.
Myca Partners, along with Crescendo Partners, formed a Charming Shoppes Full Value Committee and took their case to shareholders and the press. The company fired back in a federal lawsuit, alleging the investors filed misleading documents with the Securities and Exchange Commission. Ultimately Charming Shoppes cut a deal and agreed to support the nominations of a pair of retail veterans to the board.
Bern will be leaving with an estimated $7 million to $8 million package. Charming Shoppes said it expects to take an after-tax charge, related to the terms Bern’s employment agreement, in the range of $5 million to $6 million, or 4 to 5 cents a diluted share.
Bern joined Charming Shoppes as chairman, president and ceo in August 1995 and is a respected retail veteran whose name surfaced as a possible successor to Paul Pressler, former ceo of Gap Inc., during the search of a new leader in 2007. Before Charming Shoppes, she was vice president of women’s apparel and group vice president of women’s apparel and home furnishings for Sears, Roebuck and Co. Bern and her team have been credited with tripling Charming Shoppes’ revenue from $1 billion in 1995 to $3 billion in fiscal 2008.
Alan Rosskamm, chairman of the board of Charming Shoppes, will serve as interim ceo.
“We [Dorrit and the board] came to a mutual agreement that this was the appropriate time for a change,” he said. “Dorrit built a fabulous platform. I was on the search committee that hired her. We hired her when the company was really in desperate straits, when the company was only Fashion Bug.”
As Bern’s exit was made public, LuAnn Via, group divisional president of Charming Shoppes’ Lane Bryant and Cacique units, was being named president and chief executive officer of Payless ShoeSource Inc.
The exits set off other executive moves, with Brian Woolf, former chairman and ceo of Caché Inc. replacing Via. Thomas Reinckens, president of Caché, is taking over for Woolf.
Rosskamm said the board has formed a committee to search for a new ceo and will be interviewing search firms on Monday. A firm will be chosen next week.
“We’re looking for another great retail leader, a merchant with marketing instincts and leadership talents to run a multibrand business,” Rosskamm said. “We are pursuing the search with a high sense of urgency, but by no means any sense of panic. I’m an interim, but I’m not a lame duck.
“One of the keys to [turning the company around] is the need to recruit strong leaders for each of the brands,” he said. “An important announcement today is the hiring of Brian Woolf, who has had a 37-year career in apparel business.”
Scott Krasik, a retail analyst at CL King, said Charming Shoppes has a lot of upside. “As we begin to cycle against the current [economic] downturn, the company will be an established multichannel operator that has by far the largest database of plus-sized women customers in this country.”
Another analyst said Charming Shoppes units were in need of updating. “You walk into a store and see a lot of things on sale, a mismatch of merchandise,” said the analyst, who asked not to be identified. “The store presentation isn’t what it needs to be. Maybe there was too much focus on growth and adding new stores and brands and not enough focus on executing at the store level.”
Rosskamm said, “Overall, we need to be fashion-right for our customers. We have the right trends in the store, but planned our inventory a little more basic and have not been meeting our consumers’ needs.”
Standard & Poor’s on Wednesday upgraded Charming Shoppes’ stock, saying, “We believe the new board will seek to maximize shareholder value, partly with its new ceo search. We think management will likely consider new strategies, including closing underperforming stores and streamlining apparel catalogue operations.”