Citi Trends Tries to Fend Off Directors Linked With Failed Retailers

This is part of a series of stories that comprise TheStreet's Blue Chip Studio, which will illuminate issues related to corporate board performance, activism, dealmakers and personalities revealed by analysis of data generated by BoardEx, a business unit of TheStreet.

Citi Trends (CTRN) , which operates a chain of discount clothing stores, is trying to fend off a bid by Macellum Advisors to install a slate of directors who have an extensive history of failed retail experience.

Macellum, which owns about 4% of Citi Trends' shares, proposed in February that the retailer add two independent directors, stating a strong preference for Macellum CEO Jonathan Duskin. Citi Trends rejected the offer after the board "determined that changing the board as Mr. Duskin had proposed was not in the best interest of Citi Trends and its stockholders," the company stated.

In response, Macellum submitted on March 9 a proposal to nominate Duskin, 49, and three other director candidates: Dyan Jozwick, 59, Lana Cain Krauter, 65, and Paul Metcalf, 56, to Citi Trends' board as well.

Duskin's work history includes stints at Lehman Brothers, until 2002, SAC Capital and Prentice Capital Management. Lehman Brothers declared bankruptcy in 2008, and SAC Capital has since become Point72 Asset Management. Duskin is a former director at Wet Seal Inc. and Whitehall Jewelers, both of which have filed for bankruptcy, and of KB Toys, which went out of business in 2009.

The other nominees' experience spans retailers including Kitson, dELiA*s, Sears  (SHLD) , Bebe Stores, J.C. Penney  (JCP) , Burlington Stores  (BURL) and TJX Cos.  (TJX) .

Boutique retail chain Kitson has shut down operations and teen retailer dELiA*s has filed for Chapter 11. Sears has already closed hundreds of stores and J.C. Penney just announced that it would shutter up to 140 stores. Off-price retailers Burlington Stores and TJX Cos., however, have been reporting consistently positive same-store sales. Shares have risen about 73% and 3%, respectively, over the past 12 months.

"We have nominated four highly qualified individuals with considerable credibility, decades of valuable and relevant business and financial experience, and a commitment to stockholder's interests that we believe will allow them to make informed decisions to explore and identify opportunities to unlock value at Citi Trends," Macellum said in a letter to shareholders on Thursday.

Citi Trends, which operates 537 stores in 31 states, mainly in the Southeast, and features brands including Dickies work clothes and Rocawear, had told Macellum that it was willing to "work together constructively" to evaluate the merits of adding two mutually agreed upon independent directors.

"It is disappointing that Mr. Duskin rejected multiple opportunities by the company to resolve this matter constructively and chose instead to pursue a costly contested election process," Citi Trends said in a statement.

Calls and emails to Citi Trends' media representative and CEO Jason Mazzola were not returned by the time of publication.

Still, Duskin said he was trying to be "as constructive as possible," working with the company weeks before taking his campaign public. He told TheStreet that he has "served on a lot of boards and been very successful."

According to BoardEx, a business unit of TheStreet, Duskin currently sits on Christopher & Banks' (CBK) board of directors, and went through a similar process to secure the position. In the summer of 2015, Macellum had accumulated 5.1% of the outstanding shares of Christopher & Banks. After yearlong talks, Duskin was elected to the board in June 2016. Since then, CBK shares have declined approximately 41%, although Christopher & Banks former CEO LuAnn Via was ousted in January.

To be sure, Duskin did lead a campaign and reached an agreement with Children's Place (PLCE) in May 2015. The children's specialty retailer appointed Macellum nominee Robert Mettler as an independent member of its board. Since Mettler was added, shares have risen about 78%.

At Wet Seal, Duskin served as a director from 2006 to 2012, when he and three other members resigned amid pressure from investment adviser Clinton Group. The firm held a 6.87% stake in Wet Seal at the time. Duskin noted that Wet Seal went bankrupt after Macellum diluted its stake and he exited the board in 2012; the teen fashion retailer first filed for Chapter 11 in 2015 and again in 2017.

Duskin left Whitehall Jeweler's board of directors in May 2008, two months before the company filed for bankruptcy protection. "We did the best we could, but it didn't work," Duskin said.

Citi Trends' recommendations regarding director nominees will be put forth in the company's proxy materials, and will be voted on at the 2017 annual shareholder meeting, which is scheduled for May 24. Currently, three of the seven directors sitting on Citi Trends' board are overtenured, having been in their position for more than a decade, according to BoardEx data.

"[Citi Trends] is in desperate need of outside, independent shareholder representation, they are lacking in experience and lacking in alignment with the shareholders," Duskin said. "It's cronyism."

The three Citi Trends directors who have been on the board for more than 10 years are Ed Anderson, with a 15.3 year-tenure, Larry Hyatt (10.3 years) and John Lupo (13.8 years), BoardEx data show.

Shares of CTRN have gained 2.65% year-to-date.

This story has been updated with additional comments from Duskin.

More from Corporate Governance

MiMedx Shares Plummet as CEO and COO Resign Amid Investigation

MiMedx Shares Plummet as CEO and COO Resign Amid Investigation

Justice Department Gives Disney-Fox Deal a Thumbs Up -- With Conditions

Justice Department Gives Disney-Fox Deal a Thumbs Up -- With Conditions

Intel CEO Brian Krzanich's Ouster Proves CEOs Aren't Above the Rules

Intel CEO Brian Krzanich's Ouster Proves CEOs Aren't Above the Rules

Intel's Board Exhibited Good Governance in Leadership Change

Intel's Board Exhibited Good Governance in Leadership Change

Zoom CEO Eric Yuan Leads Glassdoor's List of Top 100 CEOs

Zoom CEO Eric Yuan Leads Glassdoor's List of Top 100 CEOs