CEO's Gone Wild
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In case you haven't heard of the 40-page flight manual for the Abercrombie & Fitch (NYSE: ANF) corporate jet and its rock-star like demands for the actor/model flight attendants when CEO Michael Jeffries or his guests travel, allow me to list some of its highlights:
- Flips flops are required
- Boxer shorts required
- Sunglasses must be worn
- Must “spritz” the company’s cologne on themselves
- Handle silver with black gloves
- Serve with white gloves
- Answer all passenger requests with “No problem.”
This manual is part of the evidence in a suit filed in 2010 by corporate jet pilot, Michael Stephen Bustin, then 53 years old, in a discrimination case against Abercrombie in which he claims he was fired and a younger pilot hired in his place. The Abercrombie board had already demanded that Jeffries limit his use of the corporate jet effective 2011 to $200,000 per year.
All this comes on top of years of controversial homoerotic ad campaigns by the company and an additional lawsuit by a former salesperson/model for $1 million against the company claiming he was a victim of "abuse" during an Abercrombie photo shoot. There is also concern over possible undue influence wielded by Jeffries' live-in partner, Matthew Smith, over company issues through an entity called the Jeffries Family Office.
Shareholders can tolerate a certain amount of eccentricity in a CEO (Steve Jobs and his reputed brusqueness with employees, Sir Richard Branson’s daredevil antics, or Whole Foods’ CEO John Mackey’s web postings in 2007 trashing Wild Oats even as he was aiming to acquire them) as long as the company makes profits.
Unfortunately for Jeffries, Abercrombie’s performance has been, simply put, abysmal compared to its peers. Private equity had been interested in buying out the company in the past, but CEO Jeffries’ $100 million golden parachute (presumably “spritzed” with Abercrombie cologne and wrapped with white gloves) has deterred possible PE suitors. The stock is down 53.42% over the last 52 weeks. With a 30.82 P/E and a 2.20% yield the company is still making some money, but $137 million in debt compared to $332 million in total cash aren’t likely to attract private equity again soon.
To be fair, Jeffries is responsible for turning a sporting equipment company into a prepster retail phenomenon over his tenure as CEO, but with his company reporting a negative 51% quarterly earnings growth rate its looks like his mojo isn’t working anymore.
Getting rid of Jeffries would be pricey, unless he pushed the weird envelope all the way to a felony conviction (at which point he would only receive $11 million). The stock's performance is also reaching the level where surely some legal shareholder boutique firms may start piling on as they have with Zynga. The best thing to do is to stay away from the stock.
There’s no dearth of youth retailers whose CEO’s are happy to run their business and avoid the limelight while still creating “buzz” about their stores. Many of these pay nice dividends like Buckle (NYSE: BKE), with its yield of 1.80% and frequent special dividends. My take is that Buckle is also special for more than the dividends and can be likened to Nordstrom's for its exceptional customer service, including their "Get Fitted" service, which is a free one hour consultation with a personal shopper at the stores.
CEO Dennis Nelson has been with the company for more than 30 years. The company has a strong recruitment and retainment strategy, offering college job events and promote-from-within policies for these new ‘Teammates” until at the store manager level they receive a percentage of the store’s net profits. This leads to keeping the best performing and most loyal sales associates.
Urban Outfitters (NASDAQ: URBN) is also a name to consider. It was started in 1970 for a Wharton School of Business entrepreneurship assignment in Philadelphia as Free People, a store for cheap clothes and dorm furnishings. The company is still headquartered there, and one of the two founders, Richard Hayne, is back at the helm as CEO (by the way he got an “A” on the assignment). Urban is up 51% over 52 weeks.
Urban Outfitters manufactures and designs much of its inventory, but like Buckle offers many of the most fashion forward independent and brand name designers at its 430 stores and five websites. It has a P/E of 29.66, but a forward P/E of 19.41.
Urban Outfitters has taken that online ball and run with it. Its online presence was mentioned in a Morgan Stanley note as a strong sales driver, responsible for 20% of their sales, a remarkable result for retailers that have both brick-and-mortars and e-commerce. The web sites are very engaging and attractive, superior to most retailers’, with informative blogs as well. With plans to implement a second distribution center to quicken shipping turnaround, online sales should add even more to EPS in the future. Urban Outfitters has an institutional hold of 78.40%, insiders own 23.97%, and shares held short at 6.50% (down from 11.00% in midsummer).
Which of these would you rather own? A company that could use a Chief Weirdness Officer to keep its CEO in line, or two retailers that have CEO’s that are improving and growing the business while keeping a low profile for themselves?
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of The Buckle. Motley Fool newsletter services recommend The Buckle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.