Proxy fight brewing at Charming Shoppes

January 15, 2008 6:53:11 PM PST
A shareholder group, unhappy with the performance of Charming Shoppes Inc., on Tuesday set the stage for a proxy fight at the women's apparel retailer to gain some control over the direction of the business.

The group, which includes New York hedge funds Crescendo Partners II and III, nominated three directors to the Bensalem retailer's board for election at its upcoming annual shareholders meeting. The shareholders collectively own 9.3 million shares, or a 7.9 percent ownership stake.

Charming Shoppes, owner of apparel stores including Lane Bryant, Petite Sophisticate and Fashion Bug, has been under fire from the group for its lagging stock price, a business strategy that seemed to lack focus and investment of capital in areas that it said hasn't paid off.

The stock has fallen to nearly a five-year low. Shares were up 9 cents to $4.44 on Tuesday.

Charming Shoppes has been hurt by a slowdown in consumer spending as the housing market remains in turmoil, food and gas prices stay high and credit problems continue.

Earlier this month, the company said December sales at stores open at least a year fell 7 percent on lower traffic and "lackluster" consumer spending. The company also said it expected a wider loss in the fourth quarter than previously predicted.

In a letter to the Charming Shoppes' board, the shareholder group said its three directors will seek to implement a restructuring plan to refocus the business on the retailer's core customer - moderate to middle-class, plus-size women. It believes current management has gone astray.

"We believe the current board of directors and senior management are responsible and must be held accountable for a flawed business strategy and poor execution," the letter said.

In a statement, Charming Shoppes said its board is willing to continue talking with the group "as long as they are constructive" but will not be "distracted ... by the threat of a proxy contest from a dissident shareholder group."

The group is seeking to sell Charming Shoppes' operations that aren't central to the main business, such as those in real estate, credit cards and catalogs. It also wants the retailer to slow down on store expansion and fix problems at existing stores, improve merchandise, cut overhead expenses and buy back a large amount of its own stock with money from cash flow and sale of assets.

The shareholders also said that in spite of a flagging share price, CEO Dorrit Bern got $8.3 million in total compensation in 2007.

They also said she got a new three-year employment contract with a 24 percent increase in salary and bonus plus a "substantial" increase in stock and options received annually.

The group includes Eric Rosenfeld, the head of Crescendo Partners, an activist investment firm that introduced a slate of director nominees at casual-dining chain O'Charley's Inc. last month.

Its nominees are Michael Appel, a managing director of Quest Turnaround Advisors, Arnaud Ajdler, a managing director of Crescendo Partners II LP and Robert Frankfurt, the president of Myca Partners.