Activist hedge funds Barington Capital Group and Macellum Advisors GP have begun agitating for change at The Children’s Place Inc.
The two hedge funds together beneficially own over 2 percent of the outstanding common stock of the company, which was acquired over the course of the past year. Barington has had particular experience in the retail and apparel sectors via past stakes in Collective Brands, Dillard’s, Nautica, Payless ShoeSource, Steve Madden, The Jones Group and Warnaco.
Barington and Macellum sent a letter to Norman S. Matthews, chairman of The Children’s Place, on Wednesday. In the letter, the two urge the company to make changes, including, but not necessarily limited to, the possibility of a sale. They also noted their lack of confidence in the current management team.
While the children’s retail chain represents an “attractive investment opportunity at its current trading valuation,” the hedge funds noted that the retailer trades at a “model valuation of 6.0x enterprise value to EBITDA.” The discounted valuation, they suggest, is due to deteriorating operating performance since 2010 under the leadership of the current chief executive officer, Jane Elfers. They said in their letter that EBITDA has declined 26 percent to $156.1 million for the 12 months ended Nov. 1, from $210.7 million for the fiscal year ended January 2011, the time period under which Elfers was ceo.
The funds also contend there has been ineffective board oversight in addressing the deteriorating operating and financial performance. And while company executives have received generous compensation, given the poor results, the pay hasn’t exactly aligned with performance, they charged in their letter to Matthews.
Specifically, the hedge funds are pushing for new independent directors to provide a fresh perspective in evaluating performance, noting that there have been mistakes made in merchandising, inventory management and poor capital allocation on store expansion, to name a few issues they raised.
The two are also pushing Children’s Place to explore opportunities in connection with a sale of the company, and requested an opportunity to meet with Matthews to discuss their views on how to improve operations.
Robert Vill, group vice president for finance at Secaucus, N.J.-based Children’s Place, could not be immediately reached for comment.