Last week, Engaged Capital, an investor in Abercrombie & Fitch, issued a letter urging the company to replace controversy-causing CEO Mike Jeffries when his contract expires in February of 2014.
The teen clothing brand hasn’t wasted any time responding: It announced Monday that it has extended Jeffries’s contract until February 2015.
In its letter, Engaged Capital pointed to A&F’s lagging sales and argued pretty effectively that allowing Jeffries to remain in a leadership position would be detrimental to the company’s future growth. That’s on top of the fact that Jeffries has been a bit of a loose cannon, having made a few unpopular public statements (to put it lightly), like that Abercrombie’s clothes are only for “cool, good-looking” people.
When the letter was unveiled Wednesday, shares in Abercrombie went up 7.3%, indicating that Jeffries’s ousting was a popular idea among investors. Likewise, shares went down more than 2% late Monday morning when A&F announced its new agreement with the businessman.
According to a release, the new agreement will offer Jeffries a “performance-based compensation structure that is designed to align incentives closely with the success of the company and the interests of shareholders.”
Craig Stapleton, lead independent director of A&F’s board, added, “Mike is a visionary in this industry and has been responsible for reinventing, creating and evolving today’s Abercrombie & Fitch and Hollister brands. Under his direction, Abercrombie & Fitch has grown from just 36 domestic stores and $50 million in sales in 1992 to having a global presence and over $4 billion in sales today. Mike and his team have developed a long-term plan that builds upon past successes, while targeting the specific challenges that the company faces today. We believe he is the right person to embark on this plan, which we believe will deliver substantial and sustainable value.”
Part of the new agreement involves plans for Jeffries’s succession. In that vein, the company plans to create new president positions to oversee its separate brands — Abercrombie & Fitch, Abercrombie (the kids line) and Hollister, creating a potential pool from which to find Jeffries’s replacement.
“I am honored to lead Abercrombie & Fitch forward, augment the best team in the industry, and capitalize on the value of our iconic brands,” said Jeffries. “We are taking aggressive action to manage through the challenging teen retail environment by increasing our speed to market and enhancing our brand engagement.”
While Jeffries’s contract renewal won’t likely be a very popular decision, the people who shop at the store won’t really know the difference. It will be interesting to see if and how A&F lures back in the teen shoppers who’ve abandoned it for H&M and other fast-fashion chains.