Editor's note: This is an excerpt from retail sector head Brian McGough's morning research. Click here for more information on options available to Hedgeye subscribers.
- "The Board of Directors of American Apparel, Inc. today voted to replace Dov Charney as Chairman and notified him of its intent to terminate his employment as President and CEO for cause. It is expected that the termination will be effective following a 30-day cure period required under the terms of Mr. Charney's employment agreement."
- "'We take no joy in this, but the Board felt it was the right thing to do,' Mr. Mayer said. 'Dov Charney created American Apparel, but the Company has grown much larger than any one individual and we are confident that its greatest days are still ahead.'"
Key Takeaway: While it comes as no surprise that Charney was pushed out due to issues with his personal conduct and poor judgment, we find it hard to believe that this had absolutely nothing to do with the company’s performance.
If this was a $100 stock, or even a $10 stock (and probably even a $5 stock) the Board would tolerate a lot more than if it were trading at $0.64.
The key takeaway from where we sit is that Charney owns 27% of this company and the board, acting in the best interest of its shareholders, made the decision to disconnect the founder from the company. One other situation comes to mind. Chip Wilson at LULU who also owns 27%.