Abercrombie & Fitch rejects calls for CEO’s exit, re-signs him
Abercrombie & Fitch Co. is keeping controversial Chief Executive Mike Jeffries on board for at least a year after his current contract expires in February, ignoring recent calls for the struggling teen apparel company to cut him loose.
Under a new agreement, Jeffries will get a compensation package that will pay a base salary of $1.5 million a year, along with long-term incentive awards that could be worth as much as $6 million and annual bonuses of as much as $4.5 million. And the Abercrombie corporate jet is still at Jeffries’ disposal for as much as $200,000 in personal travel.
The contract comes just one week after activist investor Engaged Capital, which owns 1% of the retailer, wrote a public letter urging Abercrombie to let Jeffries go. The Newport Beach firm blames Jeffries for seven straight quarters of same-store sales declines, and a $15.7-million loss during the third quarter. The company’s stock is down 25% this year.
Abercrombie shares Monday fell 77 cents to $34.10.
“Investors have endured poor performance due to poor leadership,” wrote Engaged founder 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.”
Analysts say that Abercrombie & Fitch has lost touch with current trends in recent years, and has fallen behind popular fashion outlets such as Hennes & Mauritz (H&M) and Forever 21. An overall weakness in the teen apparel category has also hurt companies including American Eagle Outfitters Inc. and Aeropostale Inc.
Jeffries, 69, has also proved to be quite controversial since becoming CEO in 1992. He’s been attacked for pushing the company’s advertising campaign in a risque direction, featuring images of shirtless men with rippling abs and scantily clad young women. The chain doesn’t carry plus-sized clothing, with Jeffries saying in a 7-year-old interview with Salon magazine that Abercrombie goes only “after the attractive all-American kid with a great attitude and a lot of friends. A lot of people don’t belong [in our clothes], and they can’t belong.”
He later said he regretted that his words were “interpreted in a manner that has caused offense.”
The CEO made headlines last year after a lawsuit against him included as evidence the company’s Aircraft Standards manual for flight attendants on the corporate jet. In it, Jeffries ordered the Gulfstream G550 be staffed with clean-shaven men who had to wear Abercrombie polo shirts, boxer briefs, flip flops and the brand’s cologne.
Beyond the rehashed contract, Abercrombie did agree to one big change for its management. The company said that it will pump up its succession plan by starting to groom internal candidates and that it plans to recruit individual 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 extra layers of leadership beneath Jeffries 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.
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