NEW YORK (TheStreet) - Abercrombie & Fitch (ANF) could be getting rid of its controversial CEO if one investor has his way.
Shares of the teen retailer, which has stores under both the Abercrombie and Hollister brands, were surging 6.5% to $36.24 on Tuesday after Engaged Capital, owner of 400,000 shares of company stock, told Abercrombie that in order to "reverse years of underperformance" the board must agree to replace CEO Mike Jeffries.
"The board needs to come to the same conclusion that everyone else already has -- it is time for new leadership at ANF," said a Dec. 3 letter written by Glenn Welling, managing member of Engaged Capital. "We urge the board to immediately commence a CEO search for candidates with relevant retail apparel and turnaround experience."
Engaged Capital said the company, based in New Albany, Ohio, is suffering from the same forlorn outlook as many other mall-based retailers. But it has substantial opportunity but only if by "enacting much needed changes and correcting certain missteps."
On the strategic side, the company still maintains brand appeal both domestically and internationally and has a "highly profitable" direct-to-consumer business as well as significant cash flow generation potential.Most importantly though, removing Jeffries would free up the possibility of a sale of the company. "A sale of the company to a private equity buyer may represent the best option for shareholders. However, as we have learned through discussions with industry insiders and private equity firms, Mr. Jeffries' presence represents a major stumbling block to a transaction," the letter said. Engaged Capital also noted that the recent media frenzy surrounding past controversial comments made by Jeffries as well as the apparent intrusion of his private life into company business have caused unnecessary controversy, "no doubt damaging the company's public profile, employee morale, and likely sales," the letter says. The investor noted that with the Feb. 1, 2014, expiration of Jeffries' employment contract "the board has an important opportunity to set a new direction for the company and reverse the years of disappointment to which ANF shareholders have grown accustomed."
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV