Abercrombie & Fitch CEO faces an uprising

Shareholders roar with approval as an activist fund calls for Michael Jeffries' ouster, sending the stock up.

By InvestorPlace Dec 4, 2013 12:51PM

A shopper leaves the Abercrombie & Fitch UK Flagship Store on Savile Row in London, England (© Gareth Cattermole/Getty Images)By Kyle Woodley

"Off with his head!" So proclaimed activist fund Engaged Capital on Tuesday, asking for the ouster of Abercrombie & Fitch (ANF) CEO Michael Jeffries.

Investors roared with approval, sending the stock 6% higher in hopes of something that might turn around the struggling retailer. The stock was unchanged Wednesday.

If you already hold Abercrombie shares, you likely agree with the sentiment.

Michael Jeffries, who took over in 1988 to put a spark into Abercrombie & Fitch, has led the teen-focused retailer on a roller-coaster ride ever since ANF hit the markets in September 1996. Abercrombie, which priced at $16, reached as high as $84 and change during its pre-crisis heyday.

However, the stock currently sits at $36 -- a far cry from its high-water mark. More importantly, that represents a 50%-plus drop for Abercrombie stock since 2011 against a broader market that has climbed 34% in that time.

Engaged Capital, which currently sits on 400,000 shares of ANF, wrote a letter to the Abercrombie & Fitch board calling for Jeffries’ ouster. The letter claimed that the retailer’s "perennial underperformance is a result of failure of leadership" and that Jeffries should be booted when his contract expires Feb. 1.

The proof is more or less in the pudding.

Abercrombie & Fitch's stock has been halved in two years and is down 25% year-to-date. Meanwhile, Jeffries' headline-making ability has been relegated to his bizarre and often polarizing public remarks.

Most notably, Jeffries came under fire when comments from a 2006 Salon interview were dredged up by Business Insider. Jeffries said they "want to market to cool, good-looking people. We don’t market to anyone other than that." The renewed media outrage caused ANF to backpedal and begin offering plus sizes.

Jeffries also made other inflammatory comments, including:

“Are we exclusionary? Absolutely. Those companies that are in trouble are trying to target everybody: young, old, fat, skinny. But then you become totally vanilla.”


“You don’t alienate anybody, but you don’t excite anybody, either.”

Couple that warm demeanor with flat-out awful performance, and you’ve got a recipe for a coup.

ANF tanked in August after the company badly missed second-quarter earnings expectations. Abercrombie & Fitch earnings fell 20% to 16 cents per share, well short of Zacks estimates of 28 cents, and that sent Abercrombie stock into a fitting 20% tailspin.

Then, at the beginning of November, the retailer announced that its same-store sales dropped by 14%, marking the seventh consecutive period in which Abercrombie & Fitch comps were in the red. That news was coupled with a cut in full-year earnings guidance, and the announcement that ANF would be closing its Gilly Hicks lingerie stores. All that conspired to cause another dip.

Later that same month, Abercrombie & Fitch also reported a Q3 earnings miss.

ANF has hardly been the only teen retailing casualty. Rivals Aeropostale (ARO) and American Eagle (AEO) are similarly poor this year, at -25% and -20% returns YTD, respectively.

But while none of the three seem to have answers about how to bounce off the mat, only one of them has a CEO that openly appears to do more harm than good.

Booting Michael Jeffries won’t necessarily save ANF stock, and it certainly doesn’t provide an immediate fix to its woeful sales. But it’s definitely a better option than keeping him.

The bottom line is that the Abercrombie CEO is out of touch with the modern consumer and lacks basic PR skills -- a dangerous combination in the fickle world of teen retail.

More From InvestorPlace

Kyle Woodley is the Deputy Managing Editor of InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.

Dec 4, 2013 4:56PM
This is the epitome of US marketing strategy.  Tell a bunch of teenagers they have to pay three times as much as something is worth in order to be part of the "in" crowd and then tell them that only good looking, skinny kids need make the purchase.  Tell them this while dad has been laid off from his good job and mom's job only pays minimum wage.  Then wonder why those same teenagers aren't buying your product.  A failure of leadership?  No, it is the price of greed.  When you impoverish enough of the middle class through the theft of jobs and wealth, they can no longer afford to buy your product.
Dec 4, 2013 4:56PM
What???? 75.00 for a T-Shirt is no longer cool?!?

Remember County Seat, Chess King or Merry-Go-Round...NO? They come and go all the time
Dec 4, 2013 4:42PM

Yesterday's hip and cool is today's boring.  AF's illusion could only last so long.


Its a far, far cry from when AF was an elite outdoor store.

Dec 4, 2013 4:31PM

....................what the CEO stated is correct.............


He knows the retailers demographics, however he should not have made that public proclamation. It made A&F look exclusionary.....


Now the chain is hung with a PR disaster that continues to plaque the brand. They are headed in the same direction as Sears.....unrecoverable!

Dec 4, 2013 5:16PM
I went into the store once and I was met but a twig of a girl who was about 20 something but looked 12. She said "Sir we do not carry anything that will fit you!" I am about 5' 10" and 220. I said ok thank you and I left. I was actually their to buy something for my teenage son. So business 101 do assume!!  Be courteous and listen to what your costumer is requesting. My impression is that the store is filled with clothes that appeal to a select crowd fortunate to be small and it stunk like each clerk had a motion sensor perfume dispensors (all different smells) that went off as they moved around the store! Music was good! So no wonder all the burger flippers (jobs for kids) want $15.00 an hour. They need it to afford the crap in that store!!!! Hey life is funny and certainly not fair! So at least we can all do is learn to laugh. It's good for the soul!
Dec 4, 2013 5:50PM
Maybe there's just no more market for $50 boxers, $75 ripped jeans or $50 sexually suggestive haltertops in little girls' sizes???
Dec 4, 2013 4:24PM
i think what he said is stupid. as a business owner i want everyones money. just just the cool kids. it's a business and there are more fat kids than skinny kids. alianating any customer is dumb business
Dec 4, 2013 4:19PM
Hey! Even fat, ugly, uncool people want to wear cute clothes, too...

Too bad A&F clothes are just ORDINARY!

Dec 4, 2013 5:55PM
well i'm sure he'll still get his multi-million dollar golden parachute for driving the company into the ground.
Dec 4, 2013 6:19PM

Went in once.  I don't look like their targeted crowd - but happily my wife certainly does.  But I guess my looks rather posioned things.  Wasn't until I waved a credit card around over my head saying "paying customer here" that someone came over.  The item my wife wanted was on a mannequin and was the last one they had.  But they could not take it off to sell it to us because "well we won't have one to show off for sale then, will we?"

It was the last time we went in.

Dec 4, 2013 3:33PM
Everything he said is absolutely correct - the problem is you just can't say things like that.  Now the cool hot kids feel bad shopping there because they will offend their fat friends
Dec 4, 2013 5:27PM
Dec 4, 2013 3:18PM
just too gay.....you cant go full flaming
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