(Adds statement from Engaged Capital; updates share movement)
By Maria Ajit Thomas
Dec 9 Struggling teen apparel retailer
Abercrombie & Fitch Co said it will extend Chief
Executive Mike Jeffries' contract by at least a year after it
expires in February, days after a shareholder urged the company
to replace him.
Abercrombie shares fell as much as 4 percent in early trade
on Monday. Shares of the company, which has reported seven
straight quarters of declines in same-store sales, had lost 27
percent of their value this year up to Friday's close.
Engaged Capital LLC, which owns less than 1 percent of the
company's shares, last week urged the retailer to replace
Jeffries or sell itself.
"The ideal scenario that investors were hoping for was that
Mike Jeffries would be replaced when his contract expired,"
Morningstar Inc analyst Bridget Weishaar told Reuters, but said
this was unlikely, given the board's support.
Abercrombie instead announced plans to hire brand presidents
for its Abercrombie & Fitch, abercrombie kids, and Hollister
brands to help with its succession planning.
"This gives them a chance to introduce at least three new
very senior leaders to the organization ... so they have some
options in the future when the CEO position is vacated,"
Engaged Capital, a young activist investment firm led by
former Relational Investors Managing Director Glenn Welling,
said in its letter to the board that there appeared to be no
qualified successor within the company to replace 69-year-old
"This decision appears to be made without any substantive
discussion with shareholders - a rushed response, less than one
week after receiving our letter," Welling said in a statement.
Engaged Capital said it was considering all options
available to it as a shareholder.
Jeffries, who has been CEO for 16 years, has been criticized
for Abercrombie's recent dismal performance.
The company and rivals Aeropostale Inc and American
Eagle Outfitters Inc are struggling to win back teens,
who are increasingly shopping at "fast fashion" chains such as
Inditex's Zara, which offer more fashionable clothing
at cheaper prices.
Abercrombie said last month it would expand sizes, colors
and fits for all styles by spring to attract more customers.
Jeffries made headlines in 2006 when he said Abercrombie's
clothes were made for "cool" and "attractive" kids and not for
The company said on Monday that the new agreement with its
CEO has a more simplified compensation structure that is more
tied to performance-based targets.
Jeffries' new contract, which can be terminated by either
party after Feb. 1 2015, eliminates semi-annual equity grants
contained in his previous 2008 agreement and replaces it with
long-term incentive awards each year with a target value of $6
Abercrombie also said Leslee Herro will retire as executive
vice president of merchandise planning and inventory management
in the spring of 2014.
The company's shares were trading down 3 percent at $33.92
on the New York Stock Exchange.
(Reporting by Maria Ajit Thomas and Siddharth Cavale in
Bangalore; Editing by Sriraj Kalluvila)