By Albert Lin
Abercrombie & Fitch has removed embattled CEO Mike Jeffries from his role as Chairman, but Jeffries will remain on the board and continue to run the company as CEO. Former Sears, Roebuck and Co. Chairman and CEO Arthur Martinez has been installed as Chairman, effective immediately.
Jeffries had been Chairman since 1996. His contract had been due to expire on Feb. 1, but it was extended in December for at least two years at a base salary of $1.5 million. Jeffries can earn up to $4.5 million in bonuses, is eligible for at least $6 million annually in long-term incentive awards, and can continue to use the company’s corporate jet for personal travel, up to $200,000. Either side can terminate the contract after Feb. 1, 2015, with 12 months’ written notice.
“I have strongly supported the significant corporate-governance enhancements the company has made in the past few years, and I am thrilled by the announcements we are making today,” the 69-year-old Jeffries said in Abercrombie’s announcement. “Arthur Martinez brings extensive sector expertise, deep boardroom experience, and valuable perspectives to the new role of non-executive Chairman. I am confident that he is the right choice to lead the board of Abercrombie & Fitch as we execute against our strategic plans and move in to the next phase of the company’s growth.”
The Columbus Dispatch termed the move by the Ohio-based retailer “unexpected.” It came after shareholder Engaged Capital LLC called on Abercrombie to replace Jeffries or sell itself to a private-equity buyer. “Abercrombie’s future success will be dependent on the company’s ability to adapt to a fast-changing retail environment, carefully manage expenses, and efficiently allocate capital,” Engaged wrote in a December letter to the Abercrombie board. “Unfortunately, these are not areas where Mr. Jeffries has demonstrated expertise or competency.”
Jeffries, of course, has come under fire for his personal comments and practices, ranging from saying that plus-size women “don’t belong in our clothes” to the peculiar requirements for his flight staff. During his tenure, the company has had to defend multiple lawsuits alleging discrimination in its hiring practices. It has also been criticized for overly sexual advertising and racially insensitive products. And its grand plans to expand internationally have fizzled.
Reuters reported that Abercrombie stock rose 2 percent in premarket trading following the announcement. Less than three weeks ago the company raised its earnings forecast after higher-than-expected sales in the fourth quarter. This came despite the company’s reporting seven straight quarters of declines in same-store sales, and the company’s stock price dropping 31.5 percent (from $48.01 to $32.91) in calendar year 2013.
Abercrombie also announced that it has added two new directors, Zale Corporation Chairman Terry Burman and Warnaco Chairman Charles R. Perrin, to its board.