What Abercrombie & Fitch Co. (NYSE:ANF) has been doing to promote their brand as exclusive is, to put it mildly, not cool. In their pursuit to attract the Queen Bees and Homecoming Kings, the elite of teen consumers, their strategy is to dissuade fully half (and possibly more) of their addressable market from buying their product.
So not cool
CEO Michael Jeffries has been the mastermind behind the publicly stated corporate strategy and has been quite public about his exclusionary policies — “Candidly, we go after the cool kids. We go after the attractive all-American kid with a great attitude and a lot of friends. A lot of people don’t belong [in our clothes], and they can’t belong. Are we exclusionary? Absolutely.”
They can’t fit them either as the company’s women’s clothing line goes no higher than a size 10 when 12 is what the average American woman wears. They don’t offer extra large sizes to women. This blatant “No fat chicks” or unattractive people policy is part of the corporate culture as CEO Jeffries has made it clear they do not hire unattractive people.
Wow.
I’ve written about the eccentricities of Jeffries before and the story just keeps getting weirder. It’s not just the 40-page manual for his private Gulfstream staff from a mandate to wear boxer shorts and flip flops to the required, “No problem,” in answer to all requests, a manual that came to light after a fifty-something pilot filed suit claiming he was fired in favor of a younger pilot.
Their diversity and inclusion team statement reads,” (To) provide perspective on how to attract a more diverse customer, associate, and shareholder.” As long as they’re not fat, old, or ugly. You shareholders should be all right because Jeffries can’t see you.
How Jeffries has managed to get the board to drink his “Cool-Aid” is a mystery. How he has persuaded them to further award him a pay package that makes him the top CEO in terms of pay to average worker salary (worth 1,640 employees) in all of CEOdom is baffling and yet he also makes the list in terms of worst performance compared to compensation. No wonder the company gets the worst corporate governance risk rating of 10.
Jeffries’ prepster frat boy mentality, frankly an insult to frat boys, may have helped the company when they were transitioning from a sporting goods company to a youth retailer, but should now be an embarrassment to the board. They would have to pony up a “pretty” penny to get rid of him with an airtight $100 million golden parachute. In the past, private equity had been interested in the company but Jeffries is one heavy albatross.
At one point the company claimed they’d be willing to pay the “Sitch” of Jersey Shore a million dollars to stop wearing their brand. Their controversial homoerotic advertising and lawsuit by a former young model over abuse during a photo shoot only make this company more of a liability.
There is the matter of the furor two years ago over padded push up bikinis for tweens as well as thongs. Jeffries’ response to the fracas: “People said we were cynical, that we were sexualizing little girls. But you know what? I still think those are cute underwear for little girls. And I think anybody who gets on a bandwagon about thongs for little girls is crazy. Just crazy!”
Call me crazy but if Jeffries doesn’t belong in that same pantheon as ousted execs Groupon Inc (NASDAQ:GRPN)‘s Andrew Mason, J.C. Penney Company, Inc. (NYSE:JCP)‘s Ron Johnson, and Chesapeake Energy Corporation (NYSE:CHK)‘s Aubrey McClendon as one of the worst CEOs, I don’t know who does.
Cooler companies
To be fair, the company touched a 52-week high on May 9 of $54.09 and the trailing P/E has come down to 18.76, just below the industry average of 18.9 from its 30.82 P/E last October. It offers a 1.60% yield and the PEG at .73 would indicate it’s undervalued.
The apparel retailer is competing in an extremely crowded space against The Gap Inc. (NYSE:GPS), Urban Outfitters, Inc. (NASDAQ:URBN), Limited Brands, Inc. (NYSE:LTD), and The Buckle, Inc. (NYSE:BKE), to name only a few. These are not retailers that turn away your fat, ugly, and older masses.
Urban Outfitters has a founder/CEO in Richard Hayne and he made the list of most valuable CEOs, at number 3, just behind Warren Buffett at number 1. Urban Outfitters was also included on Jim Cramer’s index of “cool” stocks. It has a forward P/E of 19.37 and analysts expect 15.38% five-year growth yoy. However, Urban Outfitters has had some recent PR stumbles of its own like Hayne characterizing its typical customer as angst ridden and homeless, as detailed by fellow Fool Caroline Bennett.
Specialty retailer Buckle may be an even better buy than Urban Outfitters, Inc. (NASDAQ:URBN) with surprise special dividends that have yielded up to 10%, as well as superior customer service, in-house alterations and fitting service, and a long-time management team with CEO Dennis Nelson joining the company in 1970 and Chairman Daniel Hirschfeld, son of founder David Hirschfeld, since 1965.
It also has strong insider ownership with Hirschfeld holding 36% and Nelson holding 4% of shares. With no long-term debt, a forward P/E of 14.96, and a regular yield of 1.60%, you’d be crazy not to prefer The Buckle, Inc. (NYSE:BKE). It also sells several hundred “cool” brands like Fossil, Ed Hardy, and Billabong.
As for Limited Brands, Inc. (NYSE:LTD), its most well known brand is Victoria’s Secret, whose very popular Pink line brings in college age women and younger. It has a forward P/E of 14.80 and the highest yield of 2.30%. It also has a beta of exactly 1.
Trying too hard is uncool
Trying too hard and being mean in a quest for the acceptance of “cool kids” never works, or didn’t your momma teach you that, Mr. Jeffries? Abercrombie & Fitch Co. (NYSE:ANF) is not in a good place and neither should investors be. Shop at The Buckle or L Brands instead. Enjoy a cup of yield with a clear conscience instead of Jeffries’ Cool-Aid.
The article Has Abercrombie Finally Lost its Cool? originally appeared on Fool.com and is written by AnnaLisa Kraft.
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