Michael Jeffries’ current contract as chairman and chief executive officer of Abercrombie & Fitch Co. to be his last.

This story first appeared in the December 4, 2013 issue of WWD. Subscribe Today.

Engaged Capital urged the board to “immediately commence a ceo search for candidates with relevant retail apparel and turnaround experience.” While giving credit to Jeffries, 69, for much of A&F’s success, it said the presence of the controversial ceo “represents a major stumbling block to a transaction,” such as a sale that “may represent the best option for shareholders.”

Jeffries’ employment agreement at A&F, signed at the end of 2008, expires on Feb. 1. Engaged said it owns 400,000 shares of the company’s stock, or about 0.5 percent of those outstanding.

The shareholder initiative lifted shares of A&F $1.97, or 5.8 percent, to $35.99 Tuesday, the largest percentage gain among the U.S. equities tracked by WWD.

In a nine-page letter signed by Glenn Welling, chief investment officer of Engaged, the firm said it invested in A&F “because we believed that ANF was deeply undervalued despite owning two of the strongest brands in teen apparel.”

Discussions with management, the board and industry observers, coupled with its own research and analysis, “have led us to the conclusion that ANF’s perennial underperformance is a result of a failure of leadership,” the letter said.

Responding to the letter, the company said, “The Abercrombie & Fitch board and management team are committed to creating value, and we welcome input from all shareholders. The company has had extensive discussions with many of its shareholders, including Engaged Capital, over the past several months. We look forward to continuing our dialogue with shareholders as we execute on our long-term plan.”

Engaged gave Jeffries credit for reinventing the A&F brand and for building a company that led its teen peers — American Eagle Outfitters Inc., Aéropostale Inc. and Urban Outfitters Inc. — in gross margin, international sales, direct-to-consumer sales and Facebook likes. But it noted that returns to shareholders lagged other teen stores and members of its peer group.

Engaged also pointed out that, when talk about a possible buyout of Aéropostale began to swirl, several analysts identified A&F as a more attractive takeover candidate.

“We agree,” Engaged said.

It quoted CNBC’s Jim Cramer as saying, “This used to be the hottest teen brand in the world. Yet, under Jeffries’ recent leadership, Abercrombie & Fitch has become practically irrelevant.”