Abercrombie & Fitch shareholder Engaged Capital has urged the teen apparel retailer to replace CEO Michael Jeffries when his contract expires in February.

The investor, which owns 400,000 shares in Abercrombie & Fitch, said the expiration of Jeffries' contract is an opportunity to set a "new direction" for the company. 

Continuing on the present course under the leadership of Jeffries would "further cement the loss of shareholder confidence", Engaged Capital noted. 

Last month, Abercrombie & Fitch swung to a third-quarter loss on a double-digit drop in sales and costs linked to the restructuring of its Gilly Hicks business.

In a letter, Engaged Capital principal and chief investment officer, Glenn Welling, said: "Investors in Abercrombie have endured poor performance due to poor leadership for far too long. The board needs to come to the same conclusion that everyone else already has - it is time for new leadership at Abercrombie & Fitch."

Engaged Capital added the renewal of Jeffries' employment contract would be a "direct contradiction" to what shareholders want and the company needs.

"Abercrombie & Fitch's future success will be dependent on the company's ability to adapt to a fast changing retail environment, carefully manage expenses, and efficiently allocate capital," Welling added. 

"We urge the board to immediately commence a CEO search for candidates with relevant retail apparel and turnaround experience or consider a sale of the company."