Abercrombie Opts Not to Lose Its Head

Not that it's any big surprise, but the Abercrombie & Fitch  board rejected the advice of one shareholder and will keep CEO Michael Jeffries on the job after his current contract expires in February.

Last week, Engaged Capital launched a somewhat quixotic campaign to oust the CEO on the grounds that he lacks the acumen to lead the teen retailer. While the board ignored the recommendation, it did alter his compensation plan a bit, providing no retention or sign-on bonuses, eliminating the formula for semiannual equity grants contained in the 2008 employment agreement, and calling for an annual review of his $1.5 million salary. It also reportedly aligned his compensation more closely to the performance of the company.

Like rats abandoning a sinking ship
Shares were down more than 2% after the closing bell, suggesting that while no one expected the hedge fund to be successful, investors were kinda hoping maybe the board would react anyway. After all, U.S. sales plunged 18% in the third quarter to $675 million, as same-store sales plummeted 14% from the year-ago period. That put it on par with another troubled, mall-based teen clothier, Aeropostale , which saw sales and comps both tumble15% year over year. 

Teen fashion is obviously volatile, subject to changing whims even more than adult fashion trends. But with more than one in five teens still unemployed, retailers have to be on point and execute flawlessly. Even American Eagle Outfitters  reported last week that sales were down 6% and comps down 5% in the third quarter.

Loose lips sink ships
So as much as Aeropostale finds itself out of the loop when it comes to style, Abercrombie has the added woe of trying to make amends for its CEO's loose lips. His old comments about his real target demographic forced the retailer to offer a mea culpa to overweight kids everywhere, and go so far as to say larger-size clothes will soon appear in its stores.

That's not likely to assuage bruised feels. It comes off appearing desperate rather than sincere, an olive branch that is necessary because the cool kids don't want to shop at its stores anymore either.

Teen retail as a whole is off, but pockets of success suggest there's a return to basic fashion sense. The Gap said its numbers rose 3% in the third quarter and were up 5% on a constant currency basis, with earnings 14% higher from the year-ago period. Urban Outfitters did even better, with total revenue up 12%, including a 30% increase at its Free People division and a 13% rise at Anthropologie.

Going down with the ship
In addition to the changes Abercrombie made to Jeffries' contract, the retailer also said it was bringing on three new brand presidents to head up its Abercrombie & Fitch, abercrombie kids, and Hollister stores, which it says will also assist in succession planning.

The board may want to look like it's engaging shareholders, but this also appears to be just more lip service offered for appearances' sake rather than a real commitment to change. We'll just have to wait to see if Engage Capital chooses to take this fight further.

The article Abercrombie Opts Not to Lose Its Head originally appeared on Fool.com.

Fool contributor Rich Duprey owns shares of Abercrombie & Fitch Co.. The Motley Fool recommends Urban Outfitters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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