ShopHQ CEO Keith Stewart had a bad day Wednesday.
That’s what happens when a dissident shareholder group files a letter with the Securities & Exchange Commission calling for your board to replace you because of your skunky performance. In fact, those stockholders want you gone so badly that they offer to invest $25 million in the company once you are gone.
The shareholders, Clinton Group Inc., own 5 percent of ShopHQ, whose corporate name is ValueVision Media Inc. Clinton Group sent a letter to ShopHQ Chairman Randy Ronald blasting Stewart’s performance of head of the home shopping network.
Here is the full text of the letter, which is a real scorcher in regard to Stewart.
The letter initially complimented for its wide cable and satellite distribution. That was the good news. Then came the bad news from the shareholders.
Despite cable and satellite distribution that is nearly as good as that of HSN, the Company’s enterprise value is about one-tenth that of HSN.
We do not believe the asset is the problem.
Instead, as we have said, we believe that the Company has exploited that asset poorly and has dramatically under-performed its direct rivals, to say nothing of the Company’s potential. When Keith Stewart, the Company’s Chief Executive Officer, joined the Company, he declared that he was “going to change” the Company’s “business model” and its “poor execution.” Neither has happened.
Instead, Mr. Stewart missed nearly every long-term projection and metric he offered during his tenure. As we noted, for example, his publicly stated goal was to create a company with more than $1 billion in revenue with 8-12% EBITDA margins by now. He missed both targets by a country mile.
In the meantime, as we have discussed with you, we believe the Company has fallen further behind its competitors in terms of market share (of both revenue and gross profit dollars) and has failed to return to pre-recession levels of revenue, unlike most retailers, eCommerce companies and both of its home shopping network rivals.
This performance gap has been caused, in our view, by a failure to innovate and differentiate the Company from its peers and repeated failures to hit customer count, penetration rate, distribution cost, operating expense and profit targets over the past four years.
Mr. Stewart and his management team, many of whom we understand work from home, 1000 miles or more from the Company’s headquarters at least two days per week, have in our view abjectly failed to build significant proprietary brands, expand product assortments sufficiently, diversify the program schedule, optimize the product mix and retain key successful vendors.
Recently, the Company – which refers to itself as a “multi-channel retailer” – was ranked dead last among such companies for its mobile website.
Ouch! And we thought our bosses were tough.
But the beat went on. Here are more excerpts from the letter:
Since January 2010 when Mr. Stewart declared that “executed correctly, the [home-shopping business] is the most profitable form of retailing,” the Company has lost $100 million and has reported just a single profitable quarter.
HSN, during that same period, has earned $400 million. And although Mr. Stewart proclaimed that he “fully expect[ed] to double our business over [a] three-to-five year period,” in March 2010, the three-year growth has turned out to be just 11%.
Mr. Stewart has a record of overpromising and under-delivering. On nine separate occasions since 2009, as we indicated during our presentation to you, Mr. Stewart has stood before shareholders and proclaimed the “turnaround” of the Company was well underway or complete.* Sadly, for shareholders, the stock has underperformed the Russell 2000 and HSN since every one of those nine declarations.
That is not to say that Mr. Stewart has not done some good and important work for the Company. The Company was in bad shape when Mr. Stewart arrived and he rightly gets credit for keeping ValueVision afloat. But he has not hit his own targets, optimized the operations or maximized the returns to shareholders. And now, he has no discernable strategy to lift the Company from its distant, third-place (and shrinking) market position.
Accordingly, as we have said to you, we believe the Board should replace Mr. Stewart to enhance operational performance and to pursue a new strategic path. We advocate this not because we are ungrateful to Mr. Stewart for his past stewardship of the Company, but rather because gratefulness has no place in picking the future leader of ValueVision.
The Board’s obligation, it seems to us, is to ensure the Company has the right leader for the future: a leader with entrepreneurial energy; strategic vision; a track record of operational excellence and exceptional performance; and credibility with investors, vendors and employees. We do not believe that person is Mr. Stewart.
The Clinton Group apparently has someone in mind to replace Stewart. Damn, who is it?
From the letter again:
We also are in a position to recommend to the Board several experienced executives with deep, relevant domain expertise and impeccable reputations to serve as Board members to augment the existing Board.
These individuals bring expertise in areas as critical as merchandising, marketing, television production and entertainment, eCommerce and finance. Several of them are iconic leaders in the convergence of media, eCommerce and entertainment and several are well known to the Company’s other shareholders.
That said, with the existing Board’s approval and subject to the completion of due diligence, we would be prepared to put our capital where our mouth is. We would be pleased to make a fresh, primary, minority investment in the Company of at least $25 million at a substantial premium to the stock price if the Board would accept our recommendation and replace Mr. Stewart and upgrade the Board significantly.
ShopHQ shot back later in the day, and here is most of its response:
We are disappointed that Clinton has decided to publish its letter, especially in light of our continuing dialogue. ValueVision has a long record of engaging with shareholders, and members of the Company’s Boar of Directors and management team have engaged in numerous discussions with Clinton since early September, when Clinton first contacted ValueVision.
During the course of these discussions, the Board made clear that it fully supports ValueVision’s management team and its successfulexecution of the Company’s strategy of building sustained growth through customer engagement. Importantly, the Board and management team are confident about the future trajectory of the business.
Since the appointment of Keith Stewart as CEO in January 2009, substantial shareholder value has been created, as demonstrated by an over 940% increase in ValueVision’s share price, from $0.52 to $5.42 as
of yesterday’s market close, as a result of the successful implementation of the Company’s turnaround strategy.
During the same time period, the Russell 2000 Index increased by approximately 150%. ValueVision’s management team, working closely with the Board of Directors, has streamlined operations, improved the quality of the Company’s TV distribution footprint and significantly enhanced the stability and flexibility of its balance sheet, resulting in stronger financial performance.
In addition, ValueVision’s diversification of merchandise and investment in customer centric programs has resulted in an 11% increase in rolling 12 month customer counts and a 10% increase in year to date sales, as of the second quarter of 2013.
Clinton has failed to recognize or acknowledge that the major elements of ValueVision’s turnaround have been addressed and that the Company has delivered improved performance in a number of important financial and operating metrics. Moreover, Clinton has failed to provide any concrete suggestions or recommendations to improve ValueVision’s business and strategy going forward.
ValueVision’s Board and management team remain committed to enhancing value for all shareholders and welcome input from shareholders toward that goal. We will take the time necessary to thoroughly evaluate the Clinton letter while continuing to focus on the successful execution of ValueVision’s business plan to enhance our operating and financial performance.
So there, Clinton Group!