VIC — Clifton Robbins (Blue Harbour)

High Growth Value Retailer from the Value Investing Congress

By Travis Johnson, Stock Gumshoe, September 16, 2013

Blue Harbour advocates a “private equity approach to the public markets”, focusing on backing the right management teams and “thinking like an owner.” He advocates collaborative work with companies and boards (they’re not doing proxies or fighting, they’re looking for people who want help) — this has improved because directors are now much more aware, after the financial crisis, that the big problem was a lack of corporate oversight and accountability. So the companies are listening, and that’s not going to change.

He focuses on small and mid-cap companies. What would you do to unlock value if you owned the whole company?

Private equity mindset:

Cost basis is the key, prime determinant of returns. Have a long-term focus, 2-3 years. How many levers are there to unlock value? Only back management teams we respect as smart, flexible and determined to win.

They look for opportunities in business strategies, with de-consolidation of conglomerates particularly, and also for oportunities in the capital structure with MLP or REIT conversions or spinoffs, share buybacks, special dividends, sale/leasebacks, etc. — he thinks the latter is particularly key after the financial crisis.

Current core:

Akamai
Allscripts
Brocade
CACI
Chico’s
Employers
Globe Specialty Metals
Jack in the Box
Progressive Waste

Today’s focus: Chico’s (CHS). $2.6 billion market cap, $300 million in net cash. 1,427 stores, room for 50% growth. Blue Harbour filed a 13D last week and owns a large chunk.

Chico’s, White House/Black Market, Soma and Boston Proper are all growing (BP was a recent acquisition). Soma is exploding and is a huge opportunity.

I owned Chico’s as a compelling growth stock many, many years ago (for a while it was the best performing stock in the US for a 10-year period) — and they had a horrific downturn from that when the growth slowed down and they had some fashion missteps. But now Chico’s is, we’re told, a growth stock that’s trading as a value stock.

CHS has been taking share from competitors like Talbots, Christopher & Banks, Coldwater Creek, etc., and he thinks they can also become much more efficient — they have a good real estate strategy (smaller stores, better gross margin). They have very loyal customers, in a compelling demographic — 90%+ of their sales are to customers who are in their loyalty programs.

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