CHS Chicos FAS Inc

By Suzanne Kapner and David Benoit 

Activist investor Barington Capital Group LP has launched a fight for board seats at apparel chain Chico's FAS Inc.

Barington is nominating two directors to serve on the company's nine-person board, confirming a report by The Wall Street Journal on Monday night. The nominees are former high-ranking Macy's Inc. executive Janet Grove and Barington Chief Executive James Mitarotonda.

The activist fund, which owns a 1.4% stake in Chico's, isn't agitating for a leadership change or sale of the business. Instead, it is arguing that the company's expenses are too high relative to its peers and its centralized structure is inefficient.

People familiar with the situation said Chico's has been cooperating with Barington and already has begun addressing some of the activist's concerns. The retailer separately has been seeking new members to strengthen its board, they said.

Chico's recruited Shelley Broader away from Wal-Mart Stores Inc. to be its CEO in December. Ms. Broader, who ran Wal-Mart's Europe, Middle East and Africa region, previously held executive roles at crafts chain Michaels Stores and grocer Delhaize Group.

In April, she realigned Chico's marketing and digital functions by placing more decision making at the brand level in a move expected to save $14 million a year. While Barington supported that reorganization, it believes more significant cost cuts are necessary, the people said.

In a news release Tuesday morning, Barington said Chico's is "significantly undervalued and could more than double its earnings per share if more effectively managed." Barington said it owns about 1.4% of Chico's shares outstanding.

Chico's stock price has dropped 36% during the past 12 months to $10.90, compared with a 4.7% decline in S&P 500 apparel retail sub industry index. The company has a market value of $1.45 billion as of Monday's close.

Apparel retailers ranging from the Gap Inc. to department stores like Macy's have been struggling as shoppers make more of their purchases online and allocate more of their disposable income to dining out and travel.

Chico's is one of the few brands that targets older women, which analysts say is an under served group.

In addition to its namesake stores, its brands include White House Black Market and lingerie label Soma. The company operated more than 1,500 stores and employed 22,700 people as of Jan. 30.

Revenue fell to $2.64 billion last fiscal year, as sales at stores open at least a year declined 1.5%. The company's profit tumbled to $1.9 million, weighed down by more than $100 million in charges largely tied to the closing of another chain of stores called Boston Proper.

According to people familiar with her strategy, Ms. Broader plans to improve the company's financial performance through cost cutting and more effective marketing; by making more use of data in decision making; and by better integrating the online and offline operations.

In early 2015, Chico's held talks with buyout firm Sycamore Partners, according to people familiar with the matter. Sycamore dropped its pursuit after failing to line up financing for the deal, these people said.

Barington has had success in the retail space before, including a proxy fight last year at Children's Place Inc. that led to one seat for Barington and a say in selecting a second director.

This year, the fund settled a pending dispute with Avon Products Inc., helping to appoint a new director at the beauty-products company. In 2013, it kick started the battle over Darden Restaurants Inc., calling for that conglomerate to break up.

The fund's founder, Mr. Mitarotonda, started his business career at department store giant Bloomingdale's and has long invested in retail companies, often seeking board representations.

Chico's previously had reached out to Ms. Grove about joining its board, but those conversations didn't lead to her being nominated, a person familiar with the matter said.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

May 24, 2016 07:59 ET (11:59 GMT)

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