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(Reuters) - Clothing retailer Urban Outfitters Inc (URBN.O), grappling with piled-up inventory and declining gross margins, said Chief Executive Glen Senk resigned in a surprise move that sent the company's shares tumbling 15 percent in after-hours trading.
Urban Outfitters named its chairman and co-founder, Richard Hayne, as Senk's replacement, but some analysts expressed reservations over the move.
"We have low confidence that Dick Hayne will be the right leader to usher in the new 'big company' era Urban needs to embrace," Macquarie analyst Liz Dunn wrote in a note.
Dunn, who kept her "underperform" rating on the stock, said the company's business may continue to be weak through spring as the management change would likely disrupt efforts to improve its fashions.
Urban Outfitters, which operates the Anthropologie, Free People and Terrain stores apart from its namesake chain, has been criticized for unattractive merchandise -- especially at its Anthropologie unit -- which led to a build-up in inventory. At the end of October, total inventory had grown by more than a quarter compared with the year-ago period.
Deep discounts offered to clear slow-moving products hurt the retailer's gross margins which dropped to 35 percent in the latest reported quarter from 41 percent a year ago.
"Urban has been struggling with a lot of issues for over a year now, and then just when it looked like they were improving, investors have to deal with a forced management change," Rahul Sharma, managing director of investment management firm Neev Capital, told Reuters.
Senk, a company veteran of more than 17 years who became CEO in 2007, plans to pursue another opportunity, but will stay with Urban Outfitters for some time to help with the transition.
The new CEO, 64-year-old Hayne, co-founded the Philadelphia-based company in 1970 and has been its chairman since 1976.
Stifel Nicolaus analyst Richard Jaffe said he believes Hayne is well-qualified, but questioned the co-founder's long-term commitment to the position, given his age and recent limited workload.
Under Senk, Urban Outfitters shares rose more than 50 percent from May 2007 till early last year, after which the merchandising issues and inventory pile-up brought down the stock price. Overall, the shares were unchanged at the end of Senk's reign.
The CEO change at Urban comes after it appointed a new management team at its Anthropologie division which has been reporting disappointing same-store sales since last year.
In November, former Under Armour (UA.N) president David McCreight took over as the head of Anthropologie, which sells casual apparel and accessories, shoes, home furnishings and gifts and decorative items to women aged 28 to 45.
Ex-Coach Inc (COH.N) executive Charles Kessler was named the merchandising chief for Urban's namesake brand in October.
Stifel's Jaffe kept his "buy" rating and $32 target price on the stock, citing the management changes at Anthropologie and the Urban brand and the company's cash flow generation ability.
Shares of Urban, which had lost about 18 percent of their value over the past year through Tuesday, were down 15 percent at $24.99 after the bell. They closed at $29.41 on Tuesday on the Nasdaq.
Reporting by Mihir Dalal in Bangalore, additional reporting by Dhanya Skariachan in New York; Editing by Supriya Kurane and Matthew Lewis