The activist fight at Citi Trends Inc. has heated up as the retailer on Monday expanded its capital return program on the same day Macellum Capital Management mailed its definitive proxy and letter to shareholders.
The chain’s expanded capital program now includes a 33.3 percent increase in its quarterly dividend to 8 cents from 6 cents. It also includes a new share repurchase program of up to $25 million, a board decision to maintain a minimum cash balance of $80 million and a commitment to return excess cash to the retailer’s stockholders through additional dividends and buybacks.
Ed Anderson, executive chairman, said the actions demonstrate the board’s commitment to return excess capital to stockholders while maintaining financial flexibility to grow the company’s business. “Just as with the successful completion of a $15 million repurchase program and the institution of a regularly quarterly dividend in 2015, these decisions have been informed by the board’s extensive stockholder engagement and in-depth evaluations of the company’s balance sheet and strategic initiatives,” Anderson said.
Citi Trends said the increase to the quarterly dividend would begin with the second quarter dividend that is to be paid to stockholders in June. The repurchase program has no time limit, and the retailer said it expects to fund the share repurchases from cash on hand.
Macellum last month sent a letter to the retailer’s board that it had nominated four director candidates for election at the firm’s 2017 annual meeting of shareholders on May 24. The nominees include Macellum’s chief executive officer, Jonathan Duskin, and three others with c-level experience in the retail sector. Macellum said at the time that it is concerned with the retailer’s “prolonged” underperformance, board oversight and corporate governance issues. Since then, Macellum has elected to nominate just two candidates for board seats.
Macellum said on Monday that it has mailed its definitive proxy statement and is now urging for the election of Duskin and Paul Metcalf. Metcalf is the owner of retail consulting firm BEL Retail Advisors, and is the former chief merchandising officer at Burlington Stores Inc. and former chief merchandising offer at TJX Cos. for women’s apparel and general merchandise manager for men’s apparel.
The activist investor said in its letter that the stock price has dropped 67 percent since Anderson’s appointment to chairman in May 2006 until March 8, 2017, the day before Macellum said it was taking an activist position and was nominating directors to stand for board election. Shares of Citi Trends in May 2006 had a monthly low of $43.52 and a high of $56.45. The shares closed on Friday at $16.64.
Macellum also has a web site it named fixcititrends.com in connection with its proxy fight. The site includes all publicly filed investor materials, as well as a draft settlement agreement prepared by Citi Trends. Macellum took issue with the draft agreement, stating that it indicated the board’s refusal to commit to the appointment of new directors or even consider having one incumbent board member step down.
Citi Trends said, “For several years, Citi Trends’ board and management team have been working diligently to enhance value while transitioning the company’s business. Our total stockholder returns have consistently outperformed our peers on a 1-, 3- and 5-year basis, and together with today’s capital return announcement, we have clear evidence our plan is working and of the board’s commitment to act in the best interests of all stockholders.”
The retailer also said it has “sought to avoid a disruptive contested election.” The company also said it tried several settlement proposals, but that each one was rejected because Macellum insisted instead that its own chief executive officer be named a board member.