CHARMING
SHOPPES, INC.
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(Name
of Registrant as Specified in Its Charter)
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CRESCENDO
PARTNERS II, L.P., SERIES Q
CRESCENDO
INVESTMENTS II, LLC
CRESCENDO
PARTNERS III, L.P.
CRESCENDO
INVESTMENTS III, LLC
ERIC
S. ROSENFELD
MYCA
PARTNERS INC.
MYCA
MASTER FUND, LTD.
ROBERT
FRANKFURT
ARNAUD
AJDLER
MICHAEL
APPEL
CHARMING
SHOPPES FULL VALUE COMMITTEE
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(Name
of Persons(s) Filing Proxy Statement, if Other Than the
Registrant)
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(3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is
calculated and state how it was
determined):
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Exploring
the sale of non-core assets (i.e., real estate, credit card operations,
catalog business) in order to simplify the business and focus
management
on improving its underperforming retail
operations;
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Slowing
store expansion to focus management on fixing the current mix
of
businesses and increasing free cash flow by reducing capital
expenditures;
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Focusing
on merchandise improvements to appeal to the Company’s core customer
base;
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Streamlining
operations and reducing overhead expenses;
and
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Buying
back a significant amount of shares with cash flow from operations
and
cash raised through asset sales.
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Over
the last eleven quarters since the fiscal year ended January
29, 2005, the
Board has approved $346 million of capital expenditures and the
$262
million acquisition of Crosstown Traders in June 2005 for a total
of $608
million. To give a sense of perspective, Charming Shoppes’
current market capitalization is $508 million. The return on
this incremental capital is well below the Company’s cost of capital
leading to a significant loss of shareholder value evidenced
by a 46%
decline in the Company’s stock price during that period of time compared
to a 21% gain in the S&P 500
Index.
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Since
acquiring Crosstown Traders in preparation for taking the Lane
Bryant
catalog in-house, the direct-to-consumer division has experienced
a steady
deterioration in revenues and profits. Alternatively, the
Company could have focused on improving its retail and internet
presence
at its core brands and could have generated significant free
cash flow by
licensing out the Lane Bryant Catalog brand to an entrenched
catalog
company.
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Charming
Shoppes has spent considerable capital to own and build non-
core assets
rather than embrace outsourcing and the sale of non-core
assets.
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The
Company has acquired credit card portfolios whereas most retailers
have
sold similar portfolios realizing that they could not compete
with large
financial institutions and they would be better off focusing
on their core
retail operations.
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Stagnant
same-store sales over the last six years despite a solid retail
environment and an overall increase in the number of plus-size
women in
the United States.
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Fiscal
year 2007 EBITDA margins more than 450 basis points lower than
that of its
most applicable peer group.
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Declining
revenues and operating losses at Crosstown Traders following
a poorly
conceived and executed integration plan and management
turnover.
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Twelve
presidents for four operating divisions over the last sixteen
quarters
highlights the instability of the division
leadership.
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Twenty-two
operating facilities in the US and Hong Kong limit operating
efficiency
and synergies between brands.
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Senior
leadership consistently chases new growth initiatives, such as
the
Crosstown Traders acquisition, Lane Bryant catalog, Lane Bryant
Outlet,
Petite Sophisticate, Petite Sophisticate Outlet, and Figure Magazine,
instead of optimizing its core
brands.
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Poor
merchandising and store-level marketing that is confusing the
Company’s
target audience and is resulting in heavy dependence on couponing
and
discounting, which lower merchandising margins. A companywide
brand and product strategy is needed to effectively target the
diverse
segments of plus-size women across varied ages, races, fashion
tastes, and
economic strata.
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Incentives
tied to pretax profit rather than free cash flow or stock price
motivate
management to focus on growth and ownership of additional assets
vs.
maximizing free cash flow and return on
capital.
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Compensation
of top five listed senior executives totals $45.1 million over
the last
three fiscal years despite lower free cash flow and a 46% decline
in share
price.
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Despite
this negative share performance, Ms. Bern received $8.3 million
of total
compensation in fiscal year 2007 and was recently rewarded with
a new
three-year employment agreement which includes a 24% increase
in salary
and target bonus and a substantial increase in the number of
shares and
options received annually.
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