Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Abercrombie & Fitch Co. Clips CEO's Wings

Maybe the board of directors of Abercrombie & Fitch (NYSE: ANF  ) didn't want to admit publicly it agreed with activist shareholder Engaged Capital that company Chairman and CEO Michael Jeffries operated the teen retailer as his own personal fiefdom, but ever since it seemingly snubbed the hedge fund operator by doing the exact opposite of what it suggested, the board has been actively reducing his control.

Engaged said Jeffries doesn't have the acumen to lead the company, that other than its Hollister brand, Abercrombie was an also-ran in teen fashion. It was falling behind troubled rivals like American Eagle Outfitters, let alone better situated peers Aeropostale and Urban Outfitters, and comments he made years ago that came back to haunt him and the retailer last year were an unnecessary distraction that only served to hurt the brand. It was a situation the PE firm said meant Jeffries had to go, or, alternatively, it should seek a leveraged buyout. 

Because it took Ambercrombie's board less than a week to respond, and do so emphatically by reupping Jeffries' contract even though it didn't expire for months, it was widely viewed as the board sticking its thumb in Engaged Capital's eye. 

Yet ever since then, the board has been chipping away at Jeffries' power by adopting more shareholder-friendly governance policies, including just yesterday when it announced it would be adding three more independent directors to the board while separating the positions of chairman and CEO. It also said it would eliminate its shareholder rights plan, a so-called "poison pill" defense that entrenches management by dramatically diluting the shares of any investor that acquires more than the threshold allows.

Naturally, Jeffries says he's "thrilled" by the moves, but one can't really be happy about ceding power and control. He is likely feeling the heat for the underperformance the teen retailer is experiencing even though much of the rest of the marketplace is wobbling as well. For three straight quarters now, Abercrombie & Fitch has witnessed sales decline, and in fact the falloff is accelerating. Revenues were down 12% in the third quarter to $1 billion, a far more dramatic drop from the previous two periods and putting them back where they were in 2011.

That's worse than even American Eagle, whose sales fell 5% in the third quarter, even if it was somewhat better than the 15% plunge experienced by Aeropostale. And not many people are expecting Christmas to lift spirits, let alone sales, for the soon-to-be-reported quarter. Despite being a time when customers usually launch retailers back into the black, analysts anticipate Abercrombie's revenues falling another 8.5% on average, with the most pessimistic among them forecasting a 15% drop.

So let's just say the board of directors of Abercrombie & Fitch is being political, judiciously clipping his wings to limit how far Jeffries can fly. No, they haven't completely incapacitated him, but the shareholder-friendly actions indicate they'd like him to stay grounded.

I believe I can fly
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2815139, ~/Articles/ArticleHandler.aspx, 8/28/2015 11:34:16 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


Today's Market

updated Moments ago Sponsored by:
DOW 16,612.27 -42.50 -0.26%
S&P 500 1,988.55 0.89 0.04%
NASD 4,820.12 7.41 0.15%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 11:18 AM
ANF $19.66 Up +1.00 +5.36%
Abercrombie & Fitc… CAPS Rating: *