Mates spending the weekend within the shopping center
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Enterprise: Genesco is a retailer and wholesaler of branded footwear, attire and equipment that operates by way of 4 enterprise segments: (i) Journeys Group, comprised of retail footwear chains and e-commerce operations; (ii) Schuh Group, which incorporates the Schuh retail footwear chain and e-commerce operations; (iii) Johnston & Murphy Group, which encompasses the Johnston & Murphy retail operations, e-commerce operations and wholesale distribution of merchandise below the J&M model and (iv) Licensed Manufacturers, comprised of licensed manufacturers like Dockers and Levi’s, in addition to different manufacturers licensed for footwear. As of September 6, 2019, the corporate operated roughly 1,490 retail shops in the US, Canada, the UK, and the Republic of Eire primarily below the Journeys, Journeys Kidz, Schuh, Schuh Youngsters, Little Burgundy, and Johnston & Murphy names.
Inventory Market Worth: $742.9M ($49.66 per share)
Proportion Possession: 5.59%
Common Value: $42.79
Activist Commentary: Legion is an activist investor whose companions are Chris Kiper, beforehand of Shamrock Activist Worth Fund, and Ted White, beforehand of European activist fund Knight Vinke. Legion prefers to do their activist work behind the scenes with resorting to a proxy battle if amicable discussions don’t go effectively. They’ve vital expertise with client retail firms.
Legion despatched a letter to the corporate nominating a slate of the next seven director candidates for election to the corporate’s eight-person board on the 2021 Annual Assembly: (i) Marjorie L. Bowen, a non-public investor and former board member at Genesco with a 20-year profession in funding banking at Houlihan Lokey; (ii) Thomas M. Kibarian, a contract advisor to personal fairness corporations that put money into mid-cap retail and client wholesale companies and former CEO at Backyard Ridge (n/okay/a At House Group Inc. (HOME)), a house décor retailer; (iii) Margenett Moore-Roberts, chief inclusion & range officer at IPG DXTRA, a worldwide collective of selling providers and company manufacturers and a division of The Interpublic Group of Firms, Inc. (IPG); (iv) Daybreak H. Robertson, CEO of On Campus Advertising and marketing, LLC, a premier ecommerce web site for school college students and their households; (v) Patricia M. Ross, former govt advisor at Apple, Inc. (AAPL); (vi) Georgina L. Russell, former portfolio supervisor at Willett Advisors, LLC, an funding administration firm and (vii) Hobart P. Sichel, former CMO and EVP of Burlington Shops, Inc. (BURL), a nationwide off-price division retailer retailer.
Legion beforehand filed a 13D on the corporate on January 16, 2018, and their thesis was that the corporate ought to monetize sure enterprise segments and return capital to shareholders. On April 25, 2018, Legion and the corporate entered right into a cooperation settlement pursuant to which the corporate added two new administrators: Marjorie L. Bowen and Joshua E. Schechter to the Board. On December 14, 2018, the corporate introduced the sale of Lids Sports activities Group and that they’d be growing its share repurchases. On August 31, 2018, Legion bought under 5% and by March 31, 2019 was out of the funding utterly. In consequence, Bowen and Schechter weren’t re-nominated for election on the 2019 annual assembly.
Legion makes some superb factors about enhancing shareholder worth, comparable to de-conglomerizing and reducing overhead. Between promoting Schuh, Johnston & Murphy and potential related actual property, the corporate may make as a lot as $270 million. Even earlier than gross sales, the corporate has a wholesome steadiness sheet, so proceeds from these gross sales might be used to purchase again shares and proceed to lower the float. This would depart Journeys because the core enterprise, which may proceed to develop and generate vital money circulation. Legion believes that if its plan is adopted, the corporate may have EPS of $7.50 by 2023 and double the inventory worth of right this moment. Nevertheless, these are the identical or comparable plans Legion had for the corporate in 2018, most of which didn’t get applied after Legion’s underwhelming activist marketing campaign the place it settled for 2 non-Legion administrators for one yr whereas it bought down its place.
This time, Legion is nominating seven people to the board out of eight potential seats. They said that they don’t seem to be seeking to exchange Mimi Vaughn as a director or as CEO and that Legion intends to vote for her and their nominees are ready to accomplice together with her as a way to implement a strategic plan for Genesco. That is very refreshing, but when they’ve a lot confidence in her as CEO, why not give her a bit of extra time to implement a plan – she was simply named CEO in July of 2020. Furthermore, in case you have confidence within the CEO and consider you possibly can work together with her, why would you want seven of eight administrators on the board?
The corporate may be underperforming its friends and the market, and there might need been errors made by administration. Legion’s plan simply could treatment a lot of that, however there’s nothing that this board or administration group has finished that justifies changing a majority of the board. Whereas Legion’s plan is as soon as once more sturdy, there is no such thing as a cause to assume that they’ve any extra dedication to this marketing campaign than they did in 2018. For one factor, identical to final time, they don’t seem to be nominating a Legion principal to the board. Whereas activists don’t at all times embrace one in every of their folks on board slates, it’s uncommon that one will not be included in a seven-person slate. Together with a Legion nominee would sign a long-term dedication, and that is much more necessary after their 2018 marketing campaign the place they began promoting 4 months after getting non-Legion administrators on the board.
Legion is a considerate, skilled investor with a great plan that the corporate ought to strongly take into account. Nevertheless, implementing that plan shouldn’t take greater than two or three new administrators, notably if one in every of them was a Legion principal who could be round to see it by way of.
It isn’t extraordinary for activists to focus on an organization a number of occasions, however typically that doesn’t work out effectively for them. In a examine we performed in 2019, we checked out 14 such conditions and within the first marketing campaign the activist averaged a 46.5% return versus a 6.3% return for the S&P 500. The second time round – the activist averaged simply 16.8% versus 28.6% for the S&P 500.
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.