Upon news of Men's Wearhouse (NYSE:TLRD) shedding its founder and former CEO as chairman of the board, shares sank, and opinions flew of a misguided board of directors. For who could lead the company better than its creator and 3.5% stakeholder? Well, on Tuesday, we got a little more color from the company's management regarding the firing of George Zimmer. There's no question that Zimmer created a magnificent company, more than 1,000 stores strong, and it delivered plenty of value to shareholders over the years. Even though it's been a painful divorce, perhaps Men's Wearhouse (and Zimmer, for that matter) is better off.
Not a good look
It was a very unceremonious departure for the longtime face of Men's Wearhouse. Zimmer, who'd been out of the CEO position for two years, was abruptly released last week, with the company's management issuing a vague statement regarding Zimmer's future with the company.
Zimmer released his own statement quickly thereafter, saying he'd feared where the company was headed, and management's response was to let him go.
Zimmer's departure has sparked voices of disdain for Men's Wearhouse, and support for its founder. For days following his firing, the stock sank.
But now that the company has issued a more detailed statement that specifically identifies the reasons why Zimmer was let go, it may be a good thing in the end.
Shareholder vs. shareholders
The board argued that Zimmer refused to accept that Men's Wearhouse is a public company that needs to take into consideration all shareholders, not just its founder. Zimmer argued over pay, strategy, and the potential to take the company private. By the sound of it (admittedly a limited point of view, coming from management), Zimmer was throwing up roadblocks at every crossroad. A large stakeholder advocating change in a company is not rare by any means, but Zimmer's action sounded less like an activist investor's calculated move, and more like a hissy fit.
The road ahead
The company is taking a short-term hit in firing its beloved star founder. Men's Wearhouse's Facebook page is riddled with complaints and threats to move to competitor Jos. A. Bank. In a way, this says something about the strength of the company's brand. More than the prices, the selection, or the quality of the products, a large portion of the company's customers seem loyal to a long-running tagline from a commercial.
Men's Wearhouse management was right to shed its subsidiary, K&G -- a store selling discontinued brand-name goods. The chain represented a third of the company's overall square footage, and poor same-store sales were keeping the company chained down. Zimmer wanted K&G to stay, but the numbers just didn't support his thesis.
The company has a strong balance sheet and a growing core brand -- even if a now gone celebrity spokesman anchored it.
Bottom line: The way I see it, current investors should not be selling based on Zimmer's departure.