There is nothing worse than seeing a company with a great product and potential under weak leadership that fails to understand Wall Street. Ultimately, a CEO’s job is to create shareholder value and do what’s in the best interest of shareholders. In this article, I am looking at seven CEOs who are doing such an abysmal job that they should not survive to see 2018 in the C-suite.
You will notice that many of my suggestions are also company founders, which reduces the likelihood of their actual stepping down. These are companies that are poised for activism, however, where activist investors can acquire a large stake and demand change at the top.
It does not matter if that change is a new CEO or a new president. With these seven companies, something big needs to change.
CEOs That Need to Go: James Park, Fitbit (FIT)
One-Year Performance: -77.2%
What’s so frustrating about James Park is that he is so good when it comes to creating wearables that consumers want. Fitbit Inc (NYSE:FIT) has successfully stood next to the likes of Apple Inc. (NASDAQ:AAPL), and has thrived over the past year.
The problem is that Fitbit stock has fallen almost 80% in the past year. Fitbit stock trades at 12 times its projected earnings earnings, a multiple that does not reflect a company that has grown many times over during the past three years. Even this year, Fitbit will finish with 26% growth in sales.
Park just doesn’t understand how to manage Wall Street. A couple quarters ago, Fitbit stock crashed 20% despite beating top and bottom line expectations and raising the full-year outlook. It fell because Fitbit gave poor third-quarter guidance, something it did not have to do. That’s proof that Park needs some help when it comes to managing Wall Street.
Perhaps the biggest mistake came in the past three months, when Park decided to go into the holiday season without a new smart wearable. It is clear that Fitbit needs some help. It still needs Park on the strategy side, but a new leader to manage Wall Street and investors.
CEOs That Need to Go: Gary Friedman, Restoration Hardware (RH)
One-Year Performance: -71.2%
Just look at what’s happened at Restoration Hardware Holdings Inc (NYSE:RH) over the past two years. This is a company that managed to grow comparable sales north of 20% for three consecutive years, but once it got close to $2 billion in full-year sales, and a stock price near $100, Friedman made a costly mistake.
He upped long-term guidance to revenue of $5 billion and planned this expansion program to create super stores that were five to seven times larger than existing stores. It has failed miserably.
Friedman needs some help. He has done well with big box retail and catalogs, but it is time to embrace e-commerce the consolidation of products. Like Park, Friedman has done well with the business, making RH one of the true great brands with high-end consumers.
Restoration Hardware is stuck, however, and RH stock is now under $30 per share.
CEOs That Need to Go: John Chen, BlackBerry (BBRY)
One-Year Performance: -11.8%
If BlackBerry Ltd (NASDAQ:BBRY) were to fire John Chen, they would officially become the Cleveland Browns of technology. BBRY is already close to it.
However, that’s what is needed. Chen has not lived up to expectations, and the BlackBerry brand has likely died even more under his watch. That’s not to say he has not tried. Chen launched an Android BlackBerry phone to gain exposure to a larger user base, and was the brains behind the company’s software and services business.
Unfortunately, hardware is still a failure, and BBRY has already started to discontinue certain services and software. It is just not going to work, and honestly, I doubt anything will.
CEOs That Need to Go: John Idol, Michael Kors (KORS)
One-Year Performance: 17.5%
Michael Kors Holding Ltd (NYSE:KORS), both the company and person, were smart to make John Idol the CEO. Often times, these creative people don’t have the business and Wall Street angle that’s needed to appease shareholders. Michael Kors, the person, figured that out and now operates where he is best, as the Chief Creative Officer.
Problem is that Idol is very much a fashion person as well, with previous stays at Anne Klein and Ralph Lauren among other places. Idol has been great, but with growth and KORS stock stalling, investors need someone who can figure out how to create shareholder value from the big profits that Michael Kors creates.
John Idol was on our list earlier this year, and the reason then still stands now:
“Under the overzealous guidance of CEO John Idol, KORS has gone back from whence it came, suffering in recent years from the same issue that proved to be Coach’s downfall — brand dilution.”
Sure, KORS stock is up over the past year, but it’s hard not to achieve a gain when the value of your stock lost 46% in the previous year.
CEOs That Need to Go: John Milligan, Gilead Sciences (GILD)
One-Year Performance: -27.3%
Milligan has been at Gilead Sciences, Inc. (NASDAQ:GILD) for three decades, and has been instrumental in many of its biggest developmental programs and acquisitions.
However, GILD stock has declined 27% over the past year and trades at an earnings multiple of less than seven. Despite all of Gilead’s growth, it has failed to support the stock multiples of its big biotech peers.
Given the losses and the inability to create shareholder value with dividends and buybacks, there is a good chance investors will conclude that it is time for a change at the top.
CEOs That Need to Go: Steve Ells, Chipotle (CMG)
One-Year Performance: -38.3%
Chipotle Mexican Grill, Inc. (NYSE:CMG) was a seemingly unstoppable powerhouse before the E. coli outbreak last year. Steve Ells deserves a lot of the credit for its performance, both good and bad.
Ells, like John Idol before him, was on our previous list:
“It’s not only its intangible brand name that Chipotle has damaged, it’s the very tangible same-store sales. CMG recently alerted investors that the company was bracing for a same-store sales slump of nearly 15% in the fourth quarter — the first year-over-year decline in the company’s history.”
With that said, Steve Ells is not going anywhere. It wouldn’t make sense right now. With Bill Ackman now a near-10% owner of CMG, however, I am quite confident that his time as the CEO and chairman will be coming to an end, among other changes.
Then, investors might start getting excited about CMG stock once more.
CEOs That Need to Go: Brian Cornell, Target (TGT)
One-Year Performance: -9.4%
Target may still be dealing with the fallout of its account hack scandal, but if so, that itself is an issue. This is a company that lacks growth, and has lost about 10% of its value over the past year. Meanwhile, WMT has rallied almost 20% in the same span, with accelerated growth.
That said, one thing Target does not need is to lose ground to the much larger Walmart. It needs to keep chipping away at the giant. The fact that Target has been unable to do so is a sign that it needs a change in leadership.
Much like Chipotle, that does not necessarily mean getting rid of Brian Cornell, but at least splitting his role as CEO and chairman.
As of this writing, Brian Nichols did not hold a position in any of the aforementioned securities.