Abercrombie & Fitch is keeping controversial Chief Executive Mike Jeffries on board for at least another year after his current contract expires in February, ignoring recent calls for the struggling teen apparel company to cut him loose.
The retailer said the new agreement, which will take effect Feb. 2, “employs a more simplified, performance-based compensation structure that is designed to align incentives closely with the success of the company and the interests of the shareholders.”
In short, Jeffries’ pay is to be more dependent on the success of the company, which last month reported dismal earnings for the third quarter ended Nov. 2.
In addition to the seventh straight quarter of same-store sales declines, the company said it suffered a net loss of $15.6 million, or 20 cents a share, compared with a profit of $84 million, or $1.02 a share, during the same quarter a year earlier.
Jeffries has come under fire this year for comments about the exclusivity of the Abercrombie brand. Many disgruntled consumers also blame him for the brand's dearth of plus-size options – a situation the company has said it will rectify online next year.
Abercrombie is also operating in the teen-apparel category, which is struggling to recapture fickle and cash-poor young patrons. Last week, a gauge from Thomson Reuters showed November same-store sales for the category rising 0.3% year over year, missing estimates of a 0.8% increase.
Last week, Newport Beach-based activist investor Engaged Capital, which it said owns about 400,000 shares of Abercrombie stock, wrote a public letter urging the retailer to ditch Jeffries.
“Investors have endured poor performance due to poor leadership,” wrote Engaged managing member Glenn W. Welling. “The Company’s management team has a reputation for habitually under-estimating and under-executing on the changes needed to remain competitive in the fast moving teen apparel market.”
Abercrombie’s new contract with Jeffries is the “result of an extensive review by the Board and detailed discussion with shareholders over several months,” Craig Stapleton, lead independent director of the Abercrombie board, said in a statement.
The agreement, filed with the Securities and Exchange Commission, calls for an annual review of Jeffries’ $1.5-million annual base salary. Jeffries can earn up to 300% the base salary in bonuses.
He is also eligible to receive $6 million each year in long-term incentive awards -- a target amount that can be increased by the company’s compensation committee.
A continued perk: Jeffries may keep using the Abercrombie corporate jet for personal travel of up to $200,000 in value. The company said it made the allowance “for security purposes.”
The contract can be terminated by either Jeffries or the company with 12 months of written notice after Feb. 1, 2015.
Abercrombie said it will also pump up its succession plan, starting to groom internal candidates, and recruit brand presidents for its Abercrombie & Fitch, abercrombie kids and Hollister brands.
The move may help resolve what RBC Capital Markets analyst Howard Tubin called “one of the major issues” facing Abercrombie: “a sameness in the merchandise offering.” Creating another layer of leadership may spark more creativity in the individual brands, analysts said.
But, Tubin warned in a note to clients, “hiring 'yes men' or 'yes women' will not bring anything beneficial to the company.”
“These leaders must challenge Mr. Jeffries and Mr. Jeffries must accept and implement input from these new executives,” he said.
Jeffries helped take Abercrombie from 36 domestic stores and $50 million in sales in 1992 to more than 1,000 stores globally and more than $4 billion in sales currently, according to the company.
“We are taking aggressive action to manage through the challenging teen retail environment by increasing our speed to market and enhancing our brand engagement,” he said in a statement. We are also focused on completing the restructuring of our cost base and ensuring we are properly organized to execute against our long-term plan.”
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