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.”

And:

“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.

Tags: AEOANFARO
17Comments
Dec 4, 2013 4:56PM
avatar
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
avatar
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
avatar

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
avatar

....................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
avatar
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
avatar
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
avatar
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
avatar
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
avatar
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
avatar

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
avatar
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
avatar
just too gay.....you cant go full flaming
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
265
265 rated 2
429
429 rated 3
612
612 rated 4
499
499 rated 5
525
525 rated 6
701
701 rated 7
533
533 rated 8
337
337 rated 9
131
131 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
COPCONOCOPHILLIPS9
TAT&T Inc9
DVNDEVON ENERGY CORPORATION9
EOGEOG RESOURCES Inc9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.