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By Aditi Shrivastava and Devika Krishna Kumar
Jan 28 Teen apparel retailer Abercrombie & Fitch
Co stripped Chief Executive Mike Jeffries of his
chairman duties, bowing to investor pressure to reduce his
control over the struggling company.
Shares of the company rose nearly 7 percent on Tuesday after
A&F also abandoned a "poison pill" aimed at blocking hostile
buyout bids and named three new board members.
The moves comes nearly two months after the company extended
Jeffries' contract by a year, ignoring shareholder Engaged
Capital LLC's call to replace the CEO.
"It seems like it's a political and respectful way of
approaching a CEO issue without saying we're gonna throw you to
the curb," said Nomura Equity Research analyst Simeon Siegel.
Jeffries, who has been CEO for nearly 22 years, has faced
criticism for failing to stop the once-edgy retailer from ceding
market share to "fast fashion" chains such as Forever 21 and
Inditex's Zara over the past couple of years.
Analysts have raised concerns about A&F's ability to boost
sales, saying management was more focused on marketing and
cutting costs than on improving merchandise in a bid to bring
teen shoppers back into its stores.
"Today's announcements ... come as no surprise given the
poor performance of the company under Mike Jeffries," Topeka
Capital analyst Dorothy Lakner said.
Shares of the company, which is set to post its
eighth-straight decline in quarterly same-store sales, have lost
about a quarter of their value in the last 12 months.
"While a good first step, we believe these reactive changes
alone will not be sufficient to put the company back on a course
towards creating shareholder value," said Engaged Capital's
chief investment officer Glenn Welling.
Jeffries, 69, was hired as A&F's CEO in 1992 to revamp the
ailing sports brand, after it was acquired in 1988 by Limited
Brands - now known as L Brands Inc.
The CEO revamped the company to "sizzle with sex" by
introducing racy catalogs and advertising aimed at making the
more than century-old brand a must-have for teenagers.
He had also stirred controversy in the process by suggesting
the company's clothes were made for "cool" and "attractive" kids
and not for "fat" people.
However, the high prices that company charged soon led to
its shoppers opting for trendier and cheaper clothes at "fast
"Separating the chairman and CEO functions addresses recent
shareholder concerns over leadership and also brings fresh
perspective going forward," Jefferies analyst Randal Konik said.
Last November, the company said it would expand its women's
tops collection, offer larger sizes and more colors, and start
selling shoes, in a bid to win back teen shoppers.
In December, it said it would hire presidents for its
Abercrombie & Fitch, abercrombie kids, and Hollister brands to
help with succession planning.
The company said on Tuesday that Jeffries, who has served as
chairman since 1998, would be replaced by Arthur Martinez, who
was appointed non-executive chairman and added to the company's
New Albany, Ohio-based A&F also appointed two independent
directors, Terry Burman and Charles Perrin, increasing the
number of board members by three to 12.
Martinez serves as a director of several companies and is
the current chairman of HSN Inc.
Burman is currently the chairman of Zale Corp and
serves on the board of Tuesday Morning Corp. He was
also CEO of jewelry chain Signet Jewelers Ltd.
Perrin, who is a former CEO of Avon Products Inc,
currently serves on the board of Campbell Soup Co.
A&F also said it would drop a plan that triggers the issue
of new shares, designed to dilute the holding of any shareholder
that raises their stake above a certain threshold.
The shareholder rights plan, commonly known as a "poison
pill", was adopted in 1998 and was set to mature in 2018.
"We think the termination of the shareholder rights plan
better opens A&F up to the potential for a leveraged buyout,"
Engaged Capital, which owns less than 1 percent of A&F's
stock, had also said that the company should sell itself if it
did not replace Jeffries.
Rival American Eagle Outfitters Inc, which is also
struggling with fickle teen shoppers, said last week that Chief
Executive Robert Hanson would leave the company.
A&F shares were trading up 5 percent at $36.45 in afternoon
trading on the New York Stock Exchange.
(Additional reporting by Siddharth Cavale; Editing by Saumyadeb
Chakrabarty and Savio D'Souza)