Citi Trends Agrees with ISS Recommendation of Director Barbara Levy

Staff Report From Savannah CEO

Monday, May 15th, 2017

Citi Trends, Inc. issued the following statement in response to a May 11, 2017 report from Institutional Stockholder Services relating to the election of directors to Citi Trends’ Board of Directors at the Company’s May 24, 2017 Annual Meeting of Stockholders. Citi Trends urges stockholders to vote on the BLUE proxy card “FOR” the reelection of its highly-qualified and experienced director nominees: Barbara Levy, Lawrence E. Hyatt and R. Edward Anderson.

“While we strongly disagree with ISS’ failure to recommend the full slate of Citi Trends’ highly-qualified Director nominees, we are pleased ISS recognizes the importance of Barbara Levy’s Board membership to Citi Trends’ future growth plans and continued success. Independent of ISS’ recommendations, we are confident stockholders will reach the conclusion that Citi Trends’ nominees have the experience and expertise necessary to continue successfully driving value at the Company, as evidenced by the strong results the Board has overseen in a very difficult retail environment.

We believe the two nominees proposed by Macellum Advisors GP, LLC and certain affiliated entities (collectively, “Macellum”) – Jonathan Duskin and Paul Metcalf – are ill-suited and poorly equipped to serve on the Company’s Board. Macellum and its dissident nominees have offered no new ideas or strategic direction for the Company. If successful in its activist campaign, Macellum would supplant two of your qualified and experienced directors - one of whom serves as your Executive Chairman - with individuals that either have a history of significant value destruction as a board member of retail companies, or no public director experience whatsoever.

Compared to Executive Chairman Ed Anderson and Lawrence Hyatt, the two highly qualified directors Macellum seeks to replace, Macellum’s candidates do not have the qualifications necessary to deliver superior returns for Citi Trends stockholders. Mr. Duskin has NO retail operating experience, NO understanding of urban fashion market and has repeatedly destroyed stockholder value as a Director. Every company where Mr. Duskin has served as a director has gone bankrupt, been liquidated, or experienced a significant loss in stockholder value. Paul Metcalf, Macellum's other nominee, has NO public board experience, extremely limited public company management experience and NO experience focused on the urban fashion market.

In contrast, Mr. Anderson, Mr. Hyatt and Ms. Levy provide important perspective, expertise, and guidance to our management team, which will benefit all Citi Trends stockholders. Unlike the dissident nominees, the Company’s incumbent Directors possess the business experience and shareholder representation and perspective necessary to act in the best interests of all Citi Trends stockholders:

  • Mr. Anderson has in-depth knowledge of Citi Trends and its target customers, attained from his tenure of more than 11 years as CEO and 15 years as a director. In addition, Mr. Anderson has more than three decades of relevant executive management experience and a distinguished career of leadership in other companies in our industry.

  • Mr. Hyatt, a former public company CFO, has advised companies in a range of sectors and has particular knowledge of the retail industry from his senior executive roles at Cracker Barrel and Cole National Corporation and service on your Board. Mr. Hyatt currently serves as the chairman of the Audit Committee.

  • Ms. Levy is a recently installed independent director, and as an accomplished merchandising executive in the off-price retail industry, she brings a relevant and valuable perspective to the Board. Ms. Levy’s significant experience devising product strategies and ensuring alignment between the overall merchandising function and a company’s strategic direction provides her with a unique understanding of how to enhance Citi Trends’ competitiveness.

In its report, ISS said:

  • The company's ability to rebound its share price and recover some operational footing following its 2011 trough levels should not go without credit; and,

  • Citi Trends' recent gains are correlated with and seem attributable, in part, to a positive earnings surprise announced Mar. 10, 2017 as well as the company's $0.02 dividend increase and $25 million share buyback authorization announced Apr. 10, 2017.

It is encouraging that ISS notes the recent actions taken by Citi Trends’ Board to enhance stockholder value, and the resulting positive reaction shown by investors. However, this makes it all the more puzzling that ISS simultaneously faults the Company for failing to turn its back on its core customer. The report criticizes the Board for what it sees as a “[failure] to exercise a potentially lucrative option to recalibrate” and for not electing a “different set of strategy and merchandising choices to re-position and protect or expand the off-price side of the business” following the collapse of the urban branded apparel phenomenon. This suggested course of action and the inappropriate ‘peer’ comparisons made by ISS call into question the foundation of the report’s business analysis. It also highlights an apparent lack of understanding of Citi Trends’ unique, underserved core shopping base, predominately lower income African-Americans.

Even if the Board concluded it was prudent to fundamentally change Citi Trends identity – which it did not – there are also a number of structural, financial and operational hurdles to overcome in transforming the Company to that extent. Real estate leases, for example, are long-term commitments that have been carefully selected based on the specific demographics of our customer base.

We are disappointed that the ISS recommendation appears to be based on the assertion that, in the difficult aftermath of the branded urban apparel implosion, Citi Trends should have moved away from the geographic markets and unique customer base it serves, despite representing key anchors of the brand DNA. We do not believe that a different market environment warrants a completely different company altogether. This unrealistic and unwise recommendation - that the Board should have abandoned its customer base in an attempt to emulate Burlington or TJX - has been advanced throughout this campaign by Macellum, and it is the same sort of misguided analysis of our business that we fear Mr. Duskin will bring to the Citi Trends Board. Given Mr. Duskin’s extremely poor track record described above, we do not believe this fear is unwarranted.”

As the Annual Meeting date is rapidly approaching, Citi Trends strongly urges stockholders to protect the value in their investment by voting today “FOR” ALL of our experienced and highly qualified director nominees on the BLUE proxy card: Barbara Levy, Lawrence E. Hyatt, and R. Edward Anderson.

Your vote is extremely important, no matter how many or how few shares you own. We urge you to vote today by telephone, online or by signing and dating the enclosed BLUE proxy card and returning it in the postage-paid envelope. If you have previously returned a White proxy card you received from Macellum, you have every right to change your vote by using the BLUE proxy card to support the Citi Trends Board. Only your latest dated validly executed proxy card will count. Please do not send back any White proxy cards, even to vote against the Macellum nominees, as doing so may cancel out any votes “FOR” the Citi Trends Board.