Activist investor Ralph Whitworth has pressed Abercrombie & Fitch Co. (ANF:US) to cut back store openings overseas and spending, prompting the teen retailer to hire Goldman Sachs Group Inc. (GS:US) to advise on talks with him, said a person with knowledge of the matter.
Whitworth has told the company it could be worth $50 a share if spending came in line with its rivals, said this person, who asked not to be named because the talks are private. Whitworth’s Relational Investors LLC owned 3.8 percent of Abercrombie’s shares as of June 30, according to data (ANF:US) compiled by Bloomberg.
The two sides have met a couple times and Abercrombie has asked Whitworth for another meeting, said this person. In response to Whitworth’s complaints, Abercrombie has slowed the building of new stores in Ireland and other countries, the person said. The investor isn’t pressing the retailer to shop itself around to private-equity firms or other retailers, though he could do so later, said this person.
An official for Relational declined to comment. Joseph Teklits, a spokesman for Abercrombie who works for ICR Inc., declined to comment.
CNBC reported earlier that Abercrombie hired Goldman Sachs amid pressure from Whitworth, 56. Abercrombie climbed (ANF:US) 5.4 percent to $37.92 at the close in New York yesterday, the biggest gain since Aug. 15. The New Albany, Ohio-based company’s shares have lost (ANF:US) 22 percent this year.
Relational typically tries to engage the management of companies it invests in and may start a proxy fight if it is rebuffed, John Kernan, an analyst at Cowen & Co., said in May, after the firm disclosed a 2.5 percent stake in Abercrombie.
“Abercrombie’s depressed valuation and very low levels of profitability in their domestic business is probably attracting activist investors, as well as what we see as some low-hanging fruit in improving the inventory management in the domestic business,” Kernan said in a telephone interview yesterday. An activist “could accelerate some well-needed changes in a strategic direction.”
Michael DuVally, a spokesman for Goldman Sachs, declined to comment.
Abercrombie’s U.S. revenue has slipped 2.5 percent this year, and the retailer said in August it is bracing for overall same-store sales to decline 10 percent in the second half. The company is run by 68-year-old Chief Executive Officer Mike Jeffries, who reinvented the company as a teen retailer in 1992.
Whitworth has complained about the CEO’s compensation, saying it is excessive given the under-performance of the shares over the past few years, said the person familiar with the situation.
Jeffries, referred to as Abercrombie’s “brand visionary and chief creative talent” in a May regulatory filing, had a salary of about $4.9 million last year, excluding the value of certain stock options, according to the filing.
Including those awards, triggered if the company’s share price reached a certain level, the annual payout would be valued at about $48 million, the filing shows. Jeffries’s personal use of the company’s aircraft was capped at $200,000 a year as part of an agreement entered on April 12, 2010, the proxy shows. Jeffries was given a lump-sum cash payment of $4 million for the concession.
Whitworth has also told Abercrombie that its selling, general and administrative expenses are higher than rivals, the person said, without providing specifics.
Abercrombie traded at an 8.9 percent discount (ANF:US) to the Standard & Poor’s 500 Retailing Index on a price-to-earnings basis as of Sept. 11, down from more than double the index’s valuation in April 2010. Rival American Eagle Outfitters Inc. (AEO:US), which has seen same-store sales soar this year, traded at a 3.7 percent premium to the index.
Relational had 3.16 million shares of Abercrombie as of June 30, data compiled by Bloomberg show. Activist investor Daniel Loeb’s Third Point LLC exited its position in Abercrombie in the second quarter, selling 1.85 million shares, the data show.
To contact the reporters on this story: Jeffrey McCracken in New York at firstname.lastname@example.org; Sapna Maheshwari in New York at email@example.com
To contact the editor responsible for this story: Jeffrey McCracken at firstname.lastname@example.org