ATTENTION
CHARMING SHOPPES, INC. SHAREHOLDERS
Vote
the enclosed WHITE proxy card
FOR
The
Charming Shoppes Full Value Committee’s Director Nominees
April 23,
2008
Dear
Fellow Shareholders:
IT
IS TIME FOR A CHANGE!
The
existing Charming Shoppes Board has overseen a dramatic deterioration and
precipitous decline in both the Company’s operating and stock
performance. It is becoming increasingly clear to us, and we hope to
you, that this Board will say and do anything to entrench itself and senior
management. First, the Company filed a baseless lawsuit aimed at
deterring our proxy contest and blocking the democratic
process. Then, the Company unsuccessfully attempted to subpoena 17
third parties, including a number of its largest shareholders. Now,
the Charming Shoppes Board is engaging in a “spin” campaign littered with
misleading propaganda, half-truths, scapegoats and disinformation. Do
not be misled!
All the
carefully spun “home-cooked” numbers in the world can’t hide the fact that over
the last 12 years since Ms. Dorrit Bern, the Company’s current Chairman,
President and CEO, became Chief Executive Officer of the Company, Charming
Shoppes’ stock price has decreased approximately 7% despite more than $1 billion
reinvested in the business through capital expenditures and
acquisitions. Despite such substantial destruction of shareholder
value, Ms. Bern and her hand-picked directors have the audacity to pat
themselves on the back and tell us that Charming Shoppes has “benefited
immensely” from their leadership. It is time for a reality
check!
THE
CURRENT BOARD IS ONLY TELLING YOU WHAT IT WANTS YOU TO HEAR!
This
Board would have you believe that it has “managed successfully” and positioned
the Company for “sustainable and profitable growth.” Do not be
fooled. This Board cannot conceal the plain truth about the Company’s
disastrous performance. Consider the following:
THEY SAY: The
Company’s share price outperformed the S&P 500 Index for fiscal years 2003
through 2006.
WHAT THEY DON’T WANT YOU TO
HEAR: The Company is talking about the stock performance
between 2003 and 2006 when we are now in April 2008 and the stock price is
reaching a multi-year low. Here are some relevant metrics the Company
would like you to overlook:
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In
the last year alone the Company’s stock price has sunk almost 65%, more
than double that of the S&P Retail
Index.
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On
April 20, 2007, the Company’s share price closed at
$12.30. Yesterday, the Company’s share price closed at
$4.31.
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THEY SAY: The
Company has streamlined its business operations and reduced capital expenditures
over the last year.
WHAT THEY DON’T WANT YOU TO
HEAR: The Company is taking credit for adopting and
implementing a few of the initiatives that were first proposed by a member of
the Committee in a letter to the Board last year. Yet, the Company states
in its latest investor presentation that the “dissidents have not proposed any
new ideas.” Here is
yet another idea for the Company in addition to the litany of ideas we have
already proposed:
Charming
Shoppes should change its focus from Growth to Return on Capital. For
years, the Company has focused on growth for the sake of growth, creating an
unfocused and underperforming Company that includes 7 retail concepts and 10
catalog businesses.
Among
other things, the Committee wants to review why Charming Shoppes has subpar
return on capital and why its EBITDA margins are so much lower than its peers.
Unlike what the Company tells you, the Committee doesn’t intend to put
the Company into debt or engage in short-term financial reengineering
that could damage the Company over the long term. Make no mistake about it – our
incentives are 100% aligned with all shareholders of the Company. In its latest
presentation, the Company says that the dissident strategies “will disrupt
Charming Shoppes’ plan to build long-term value for its shareholders”. We find
this statement pretty ironic coming from a Board and senior management team that
have overseen such destruction of shareholder value. Such a statement
also highlights the existing Board’s complete misunderstanding of a basic
financial concept, namely the importance of return on capital.
THEY SAY: EBITDA
margins are growing at Lane Bryant and Catherine Plus Sizes.
WHAT THEY DON’T WANT YOU TO
HEAR: The Company’s EBITDA margins are consistently the lowest
among its peers1
despite several advantages that should benefit the Company’s margins relative to
its peers. That the Company’s margins are significantly lower than
its peers even though they include earnings from the Company’s credit card and
bank business is indicative of just how poor the Company’s core retail operating
performance has been. We believe that this is due to poor
merchandising decisions, execution missteps and overblown corporate
expenses.
THEY SAY: The Board
and senior management team continue to focus on the Company’s core
brands.
WHAT THEY DON’T WANT YOU TO
HEAR: Over the past three years, the Board has been
focused on non-core initiatives, such as the Crosstown Traders acquisition, the
launch of Petite Sophisticate, the purchase of new receivables for its in-house
credit card business and other new growth initiatives, rather than on optimizing
its core brands and assets. Ask yourself how Figi’s, a food catalog,
relates to the core business of a women’s apparel retailer. We also
do not understand why the Company continues to own and manage a proprietary
credit card and bank business when almost every other retailer in America that
offers credit cards has either sold such business or outsourced
it. Could it be that the Company keeps the profitable credit
card business so it can mask how poorly its core retail businesses have been
performing?
1 Peer
group consisting of Chico’s, Christopher & Banks, Dress Barn, Ann Taylor,
Debs Shop and Cato Corp.
A
CLOSER LOOK AT CROSSTOWN TRADERS
The
acquisition of Crosstown Traders, a non-core catalog business, is a perfect
example of this Board’s track record of poor capital allocation, failure to
focus on core assets and improper oversight of the Company’s
operations.
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The
Company acquired Crosstown Traders, a non-core asset, for approximately
$261 million only to see Crosstown Traders’ revenue decline 11% (despite the addition of Lane Bryant
Catalog) and an EBITDA loss of $2
million.
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The Company recently wrote down the value of
Crosstown Traders by $98.2 million, or almost 40% of the purchase
price.
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The Company has finally now admitted in an
investor presentation filed last week that the integration of Crosstown
Traders “took longer than expected” and that there were “execution
missteps” in the consolidation of its apparel catalog
titles.
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Ask yourself how this bungled
acquisition positioned the Company for sustainable and profitable
growth! Was it really prudent or
necessary to pay more than $260 million, or 8.9x EBITDA, to acquire the
infrastructure to run the Lane Bryant catalog when the Company could have
instead generated free cash flow by licensing out the Lane Bryant name to a
catalog-focused company?
The Company is finally acknowledging
the need to sell non-core assets by exploring strategic alternatives for its
8 non-core misses
apparel catalogs. We have been urging the Board to explore
non-core asset sales all along. We are
concerned, however, that the Company may not be conducting a full competitive
process to maximize the value of these assets and may instead, urgently sell these
assets before the annual meeting at too low a price just to be able to say that
they have taken some actions. We
also find it curious that the Company has not announced that it is exploring
strategic alternatives for its non-core apparel catalogs other than a
brief mention tucked away
in its recent investor presentation.
THE
CURRENT BOARD CONTINUES TO BLAME EVERYONE AND EVERYTHING FOR THE COMPANY’S
DREADFUL PERFORMANCE EXCEPT ITSELF!
IT
IS TIME FOR ACCOUNTABILITY
Enough is
enough! How many scapegoats will this Board continue to blame for its
execution missteps and the Company’s poor performance? For the
past five years, managers at the senior divisional level of the Company have
been made to take the fall for the operational miscues of this Board and senior
executive team. What else could explain why there have been so many
management changes at the senior divisional level over the past 5 years, yet no
changes in the senior executive team?
Now, this
Board is blaming the current economic environment for the Company’s disastrous
performance. Ask yourself whether the current economic downturn is
responsible for Lane Bryant’s approximately 10% decline in consolidated
comparable same store sales over the last 6 years. Also ask
whether the current economic downturn is responsible for the poor integration
and execution missteps with Crosstown Traders. We do not understand
why this Board has continued to give senior executives a free
pass. Who or what will they blame next as the operating performance
of the Company continues to deteriorate? Please
sign, date and return the enclosed WHITE proxy card today.
YOU
HAVE THE OPPORTUNITY TO PROTECT YOUR INVESTMENT
Our
nominees, if elected, will work with the Board to re-evaluate senior
management’s plan. They will appropriately represent the
shareholder’s best interests.
If
elected, our nominees will ask the tough questions and work tirelessly with the
other members of the Board to:
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Focus
senior management on improving the underperforming retail
operations;
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Focus
on merchandise improvements to appeal to the Company’s core customer
base;
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Explore
the sale of non-core assets to simplify the business and improve the
Company’s balance sheet; and
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Buy
back a significant amount of shares with cash flow from operations and
cash raised through asset sales. We have no intention to push
the Company into debt.
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DON’T
RISK YOUR INVESTMENT ON THE CURRENT BOARD’S IRRESPONSIBLE OVERSIGHT
We urge
all shareholders to elect our experienced director nominees on the enclosed
WHITE proxy card today. Vote today for much needed change at Charming
Shoppes by signing, dating and returning the enclosed WHITE proxy card
today. We urge shareholders to discard any proxy materials you
receive from Charming Shoppes and to vote only the enclosed WHITE proxy
card.
If you
have already voted management’s gold proxy card, you have every right to change
your vote by executing the enclosed WHITE proxy card – only the latest dated
proxy card you return will be counted.
Your vote
is very important, regardless of how many or how few shares you
own. If you have any questions, or need assistance in voting your
shares, please call our proxy solicitors, D.F. King & Co., Inc. toll-free at
(800) 735-3107.
We thank
you for your consideration and look forward to the responsibility of
representing our collective interests to maximize value for all Charming Shoppes
stockholders.
Thank you
for your support,
The
Charming Shoppes Full Value Committee