Geez, we wish ShopHQ and it rowdy shareholders would stop going back and forth with each other. There were a flurry of filings with the Securities and Exchange Commission Tuesday.
First, ShopHQ management lodged more responses to The Clinton Group, the dissidents shareholders who are trying to oust Keith Stewart and his cohorts.
We’re putting the full link here and will also post some of ShopHQ’s (i.e. ValueVision’s) comments.
LIKE YOU, VALUEVISION’S BOARD AND MANAGEMENT TEAM ARE HEAVILY INVESTED IN VALUEVISION’S SUCCESS
The interests of the Board and management team are closely aligned with shareholders’ interests. Collectively, your Board and management team are the second largest shareholder of ValueVision, with an ownership of 12.6% of the Company’s outstanding common stock. Specifically:
• ValueVision’s Chief Executive Officer, Keith Stewart, personally beneficially owns 5.3% of the Company’s common stock. Mr. Stewart purchased approximately 1.6 million of these shares in the open market with his personal funds; and
• ValueVision’s other directors and officers beneficially own 7.3% of the Company’s common stock.
When your Board appointed Keith Stewart as CEO in January 2009, ValueVision was on the brink of bankruptcy. Mr. Stewart’s initial mandate as CEO was to form a new vision for the Company and to lead the turnaround of ValueVision. Since Mr. Stewart’s appointment as CEO, ValueVision’s share price has increased by 848%. In addition, ValueVision’s share price has increased 169% since August 2012, when Mr. Stewart announced that the Company had returned to growth.
The ValueVision Board and management team, with their collective 12.6% ownership position, are strongly incentivized to continue executing on ValueVision’s winning strategy to drive further shareholder value creation.
In contrast, despite a sustained campaign to give its nominees control of ValueVision’s Board, Clinton has dramatically decreased its holdings in ValueVision shares.
VALUEVISION HAS A PROVEN TRACK RECORD OF SUCCESS ALONG WITH THE RIGHT STRATEGY AND TEAM TO SUBSTANTIALLY GROW SHAREHOLDER VALUE
An engaged and growing customer base of over 1.4 million shoppers – an increase of approximately 22% year-over-year – is a part of ValueVision’s foundation for long-term, sustainable growth. ValueVision’s management team, working closely with the Board, has implemented meaningful changes over the past five years that are yielding results and that we believe will deliver great value in the future. Specifically, we have focused on four key growth strategies:
1. Broaden and diversify our compelling mix of merchandising to attract customers and drive repeat purchases;
2. Expand and enhance our TV distribution platform to reach more potential viewers and to convert a greater number into active customers;
3. Be a “Watch & Shop” anytime, anywhere experience, with multiple customer touch-points, including online and mobile; and
4. Optimize our customer experience across the business to support the growth and maintenance of an expanding customer base.
ValueVision shareholders have benefited from our efforts, including the transformation of a consistently (and substantially) cash-flow-negative business into a growing enterprise with eight quarters of consecutive increases in sales and positive Adjusted EBTIDA. Through our successful implementation of the Company’s strategy, ValueVision’s Board and management team have:
• Grown the customer base to over 1.4 million today vs. 754,000 in 2008;
• Launched the ShopHQ multichannel shopping destination brand;
• Reduced the average selling price by 54% since 2008 to reach a broader customer demographic;
• Developed secure and convenient Internet and mobile access, leading the industry in Internet sales penetration;
• Dramatically improved the customer experience, service and satisfaction levels, as evidenced by a 54 NPS rating in 2013 vs. 36 NPS in 2011;
• Streamlined companywide operations by reducing return rates to 22% in 2013 from 31% in 2008, reducing transaction costs per unit by 49% since 2008 and reducing TV distribution cost per household by 38% since 2008;
• Improved the quality and reach of the Company’s TV distribution footprint while significantly reducing its cost, delivering annual rate savings of $55 million; and
• Enhanced the strength and flexibility of ValueVision’s balance sheet by repaying $53 million in preferred stock obligations, replacing high-interest debt obligations with a $75 million, cost effective credit facility with PNC bank, resulting in lower interest expense and stronger balance sheet condition.
These successful initiatives confirm, in our view, that we have the right Board – with its deep experience and significant skills in areas critical to our business – to continue to oversee the development and implementation of the Company’s strategy. In addition, ValueVision’s management team, headed by Mr. Stewart, is made up of world-class leadership with extensive, relevant industry experience. We believe we have the right team in place to continue executing our strategy and create even greater shareholder value.
CLINTON’S TRACK RECORD IN A NUMBER OF ITS RETAIL AND ECOMMERCE INITIATIVES, ALONG WITH RECENT COMMERCIAL FAILURES AT CERTAIN COMPANIES WHERE ITS NOMINEES HAVE SERVED AS STEWARDS, THREATEN SHAREHOLDER VALUE
In contrast to the performance of your Board and management team, we believe the recent track record of Clinton and three of its nominees in retail and eCommerce should raise serious questions and concerns for shareholders.
In campaigns where Clinton attempted to obtain or obtained a board seat, the target’s median total shareholder return underperformed the Russell 2000 by 6.8% after 500 or fewer trading days post activist campaign announcement. In campaigns where Clinton was successful in gaining a board seat, the target’s median total shareholder return was even worse, underperforming the Russell 2000 by 13.2% after 500 or fewer trading days post activist campaign announcement.1
Clinton Group’s poor performance at retailers such as The Wet Seal, Inc. (“Wet Seal”) demonstrates a severe lack of understanding of the basics of retail strategy, in our view. As noted by a Wet Seal analyst:
“Noted activist investor, Clinton Group, accumulated a 7% position in WTSL and began agitating for change in spring 2012…We believe the proxy battle distracted management from running the business resulting in comps accelerating to the downside.” – Jeremy Hamblin & Peter Mahon, Dougherty & Company, August 12, 2013
In reality, following the appointment of Clinton’s nominees to the Wet Seal Board, the Company’s stock price declined by 72%, as of June 9, 2014, resulting in $206 million in shareholder value destruction. Are you willing to risk the same at your company, and to your investment?
Clinton has compared ValueVision to “other eCommerce companies” and says it has a multi-platform “retail theater” strategy in mind as the secret ingredient of superior value creation. ValueVision shareholders, however, should know that three of Clinton’s nominees, Thomas Beers, Fred Siegel and Mark Bozek, appear to have a lackluster recent track record in eCommerce retail and their production of “retail theater” appears to have never made it to the stage.
In 2012, Mr. Bozek announced the launch of eVine, after raising money from investors and enlisting fellow Clinton nominees, Thomas Beers and Fred Siegel, among others, as advisors. Two years later eVine, described in the media as a “web-only shopping platform” has a website that does not appear to sell anything.
Shareholders should ask themselves: Is a vote for the Clinton nominees a vote for experimenting with the same strategy at ValueVision, only using your money? If Clinton succeeds in getting its nominees elected, they will have the ability to use your company, at your expense, as a testing ground to see if they can get it right.
THIS TRACK RECORD IN RETAIL AND ECOMMERCE MAY BE THE REASON CLINTON CONTINUES TO MAKE INACCURATE STATEMENTS TO SHAREHOLDERS ABOUT VALUEVISION
• In Our View, Clinton Continues to Misunderstand or Misrepresent ValueVision’s Programming and Merchandising Strategy and Has Failed to Offer New or Unique Merchandising Ideas
THE FACTS: ValueVision continues to broaden its product mix from the Jewelry & Watch category toward other product areas that appeal to a larger consumer base, including Fashion & Accessories, Beauty, Health & Fitness, and Home & Consumer Electronics. Since 2008, we have invested in our core and emerging product categories while shifting the merchandise mix of Jewelry & Watch from 56% of total sales to 43% of total sales in 2013.
At the same time, we have invested in our emerging categories of Fashion & Accessories, Beauty, Health & Fitness, and Home & Consumer Electronics, which typically attract more new customers and increase purchase frequency. We have always been open to new ideas and value-creating strategies and we now offer greater product diversity and a broader assortment to our customers than at any other time in the Company’s history.
• Clinton Continues to Make Inaccurate Claims About ValueVision’s Proprietary Brands
THE FACTS: ValueVision has developed a growing selection of proprietary brands, including Home brands Cozelle Linens, North Shore Linens, Cook’s Tradition Cookware, Cook’s Companion and Grand Suites; Fashion brands Kate and Mallory, OSO Casuals, Geneology, Addressing Woman, Glitterscape and Affinity for Knits; and Jewelry brands Gem Treasures, NYC II, Adair, Gems En Vogue II, Brilliante, Portofino, Diamond Treasures, Toscana, Dine Spirit, Gem Insider and Passage to Israel.
Clinton’s claim that ValueVision has just two proprietary brands is false. We believe this inability to get the facts straight calls into question the accuracy of other claims Clinton makes about proprietary brands at QVC and HSN. ValueVision’s successful proprietary brand strategy is a value driver with revenue from proprietary brands growing 67% in the last two fiscal years, increasing from 17% of our product mix in fiscal 2011 to 25% in fiscal 2013.
• Clinton Dismisses the Company’s Value-Enhancing EBITDA Improvements Since 2012 as Solely Attributable to “Essentially Inevitable” Reduced Cable and Satellite Fees
THE FACTS: ValueVision’s EBITDA improvement has been driven by a number of factors, including broader product mix, improved channel positioning, more compelling programming as well as the closely negotiated and important management achievement of reducing cable and satellite fees. ValueVision’s customer base has grown by 132% since 2008 and customers now purchase 35% more frequently. Since the second quarter of 2012, ValueVision’s revenue has grown nearly three times faster than the competition.