Are Urban Outfitters' best days behind it?

Shares tanked when CEO Glen Senk announced his departure, but he's part of the problem.

By InvestorPlace Jan 13, 2012 2:07PM

Image: Shopping (© imagewerks/Getty Images/Getty Images)By Jonathan Berr

The abrupt departure of Urban Outfitters' (URBN) CEO Glen Senk sent shares of the Philadelphia retailer reeling. Investors wondered if the ultra-cool parent of its namesake stores, Anthropologie and Free People would be able to recapture its lost mojo. While the stock recovered some of its lost ground, that's a question with no easy answer.

Urban Outfitters is a mess because in the words of Senk, the company has "a fashion issue." That's corporate-speak for the public thinks our clothes are ugly.

Investors didn't think the company's finances were much prettier. During the third quarter, inventories of unsold clothes soared a whopping 27%, and gross margins declined to 35% from 41% a year earlier. Net income in the nine months ended Oct. 31 fell about 27% to $145.9 million. In the past six months, the stock has shed 22% and now trades around $25.

Senk, the first openly gay CEO of a Fortune 1000 company, was until recently considered to be a retailing genius who could do no wrong. As Knowledge@Wharton noted in 2010, he took pride in creating a corporate culture where top managers were willing to listen to the views of underlings who might disagree with them.

"When you are the CEO, everyone wants to 'yes' you; no one wants to give you bad news," said Senk in an interview with the website run by the Wharton School of the University of Pennsylvania. "But I have to pull [the bad news] out of them. I need to know what I'm doing wrong."

Ironically, under Senk's leadership Urban Outfitters was accused of stealing designs. Pop star Miley Cyrus even urged her followers on Twitter to boycott the chain for allegedly improperly copying the work of an independent jewelry designer. Urban Outfitters denied wrongdoing.

In another case, Urban Outfitters removed the word "Navajo" from the names of more than 20 products after the Navajo Nation complained that the goods weren't representative of the tribe's culture and sent the company a cease-and-desist letter.

If these issues bothered the company's board, it had a funny way of showing it. Senk was awarded restricted stock valued at $26.9 million in 2010, according to the latest proxy statement. The company vaguely said that it made three performance stock awards to Senk in fiscal 2010, but made no awards in fiscal 2011 "in recognition of the previous awards made to him."

Nonetheless, Senk's total compensation for 2011 was more than $2.5 million. To make matters worse, his domestic partner, Keith Johnson, was also employed at Urban Outfitters and collected a salary of $136,319 in fiscal 2011.

Senk had vowed to turn around Urban Outfitters by hiring David McCreight as the chief executive of its Anthropologie Group and Charles Kessler as the chief merchandising officer for the Urban Outfitters brand. Now, Senk is staying on board to assist with the transition to a new CEO. Given his recent track record, Urban Outfitters should have politely declined his offer.

Of course, Senk has landed a new job as CEO of upscale jeweler David Yurman, effective Feb. 27. He'll get an ownership stake in the closely held company.

Some people have all the luck.

Find out how lucky your favorite Dow CEOs have gotten on the Dow Leaderboard.

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Jan 13, 2012 5:30PM

Urban Outfitters clothes are ugly. Anthropolgie wins hands down. However, you have to watch the quality of the items. Shop the sales only. The prices are very high for garments produced mostly in China.

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