Activist Barington lays out demands in fight with Chico's

By Svea Herbst-Bayliss
BOSTON, June 2 (Reuters) - Activist investor Barington
Capital turned up the heat on apparel chain Chico's FAS CHS.N
on Thursday with specific demands to cut costs, boost revenue
and buy back more shares one week after mounting a fight to win
two board seats.
The New York-based hedge fund, which owns a 1.5 percent
stake in the retailer, said it wants Chico's to slash selling,
general and administrative costs by $100 million, improve
merchandising and grow its Soma intimate apparel brand by 200 to
300 stores over the next five years.
It also warned the company against making new acquisitions
and urged it to keep buying back stock now that the share price
has fallen.
After weeks of private discussions, Barington went public
with its demands to ratchet up pressure on a company it thinks
can perform better.
"Chico's could more than double its earnings per share in
three years, which we estimate could translate to a stock price
of approximately $25 to $27 per share," Barington's founder,
James Mitarotonda, wrote to Chico's board chairman, David
Walker, in a letter attached to a public filing.
Shares of Chico's, which caters to older women, have fallen
33 percent over the last 12 months while the S&P 500 apparel
retail index has dropped 0.2 percent in the same period. The
stock closed at $11 on Wednesday.
Barington nominated Mitarotonda, who started his career at
Bloomingdale's and has made successful retail investments
before, plus former Macy's M.N executive Janet Grove as
directors. Chico's nominated retail executives Bonnie Brooks,
vice chairman of Hudson's Bay Company HBC.TO , and Bill Simon.
Chico's last year hired Shelley Broader as its chief
executive, and Mitarotonda criticized the current board for her
generous pay. Broader's pay package is almost twice as large as
what some rival CEOs earn, Mitarotonda wrote, complaining that
the bulk of the $13.5 million package is not tied to performance
goals.
Chico's plans shareholder-friendly changes by proposing that
directors be elected every year, and Broader disclosed more cost
cuts when the company reported earnings last week.
Mitarotonda took aim at Chico's board nominees saying
Brooks might have a conflict since she works for a competitor.
While Broader may like having friends in the board room,
Mitarotonda wrote, "It is more important that she be surrounded
with experienced directors that are solely focused on creating
long-term value for shareholders and will not feel constrained
to challenge the CEO if necessary."