January 10, 2012 / 10:10 PM / in 6 years

Urban Outfitters CEO resignation sends stock plunging

(Reuters) - Clothing retailer Urban Outfitters Inc (URBN.O), which has been struggling with falling same-store sales, said its Chief Executive Glen Senk resigned in a move that sent its stock tumbling 15 percent.

The company named its Chairman and co-founder Richard Hayne as Senk’s replacement, but some analysts expressed doubt if Hayne was the right person for the job.

“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.

“At the very least, this management change suggests business could continue to be weak through the spring,” Dunn said, keeping her “underperform” rating on the stock.

Senk, a more-than-17-year company veteran who became CEO in 2007, plans to pursue another opportunity, but will stay with Urban 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.

Urban Outfitters, which operates the Anthropologie, Free People and Terrain stores apart from its namesake chain, has been criticized for its unattractive merchandise that led to a build-up in inventory. At October-end, total inventory grew by more than a quarter.

The company offered deep discounts to clear its slow-moving products, which hurt its margins. Gross margins for the latest reported quarter dropped to 35 percent 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.

    The CEO change at Urban comes after it appointed a new management team at its Anthropologie division which had been reporting weak comparable-store net sales for the past four quarters.

    In November, former Under Armour (UA.N) President David McCreight took over as the head of Anthropologie, and 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 recently strengthened management team and the company’s cash flow generation ability.

    Shares of the company, which have lost about 18 percent of their value over the past year, were down 15 percent at $24.89 after the bell. They closed at $29.41 on Tuesday on the Nasdaq.

    Additional reporting by Dhanya Skariachan in New York; Editing by Supriya Kurane

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