Legion Partners Asset Management LLC, an activist investor, has nominated seven directors to sit on its Board of Genesco Inc., the parent of Journeys, according to the letter made public in a filing on Monday.
Genesco is the parent of Journeys, Johnson & Murphy, the Schuch sneaker chain in the U.K., and the Little Burgundy chain in Canada. It manufactures Dockers’ mens’ casual and dress footwear and Bass footwear under license. It also owns the Trask footwear brand.
Legion, run by Christopher Kiper, has urged Genesco to consider selling non-core assets and repurchase stock. It has accumulated a 5.6 percent stake in Genesco.
With Legion’s board nominees, “Genesco will be able to produce $7.50 in earnings per share (“EPS”) by fiscal 2023 and see its stock double from current levels,” Kiper and Legion Managing Director Ted White wrote in a letter to Genesco shareholders. They also said they wish to keep Genesco’s CEO, Mimi Vaughn, saying their nominees want to partner with her and “draw on her institutional knowledge to implement a strategic plan.”
Legion blamed Genesco’s “poor performance” on its plan to operate as “a retail conglomerate holding company and think of itself as a private equity investment platform,” the letter said, citing its decision to enter the Lids hat business, buy a European footwear retailer and spend $34 million on a licensing business.
Legion had previously launched campaigns at other retailers, including Bed Bath & Beyond, and this year partnered with other activists to seek to take control of department store Kohl’s Board.
Genesco, in response, said its Board and Nominating and Governance Committee would review the proposed Legion nominees and present the Board’s recommendation regarding director nominees in the company’s definitive proxy materials.
In response to Legion’s nominations, Genesco issued the following statement:
“While we disagree with many of Legion’s assertions and are surprised that they are seeking to replace a majority of Genesco’s eight-member Board after not responding to our repeated requests for their input and ideas or sharing their proposed candidates in advance, we value all feedback from shareholders and will continue to seek to have a constructive dialogue with Legion like we would with any shareholder.
“We will review the letter from Legion, along with their proposed director candidates, and respond in due course. Genesco’s Board and recently appointed management team are committed to acting in the best interests of all shareholders and executing on our plans to drive meaningful growth and shareholder value creation.”
Genesco also defended its execution. The lengthy statement read, “Our footwear-focused strategy has successfully delivered a strong performance both before and throughout the pandemic, including 11 consecutive quarters of positive comps prior to the pandemic and 50 percent growth in EPS in fiscal 2020. Under our new CEO, Mimi Vaughn, just prior to the pandemic and its impact on our business and the retail industry generally, we set forth a comprehensive five-year plan focused on six strategic growth pillars aimed at accelerating Genesco’s transformation and capitalizing on significant synergies across our businesses – including our shared technology platforms – to further drive growth and profitability. Our successes despite the difficulties of the past year have reinforced our view that we have the right plan in place, and the Board has been actively involved in working with our management team to implement and adjust our strategy as we respond to accelerating changes across our industry.
“In response to the pandemic, our team rose to the challenge and moved quickly to close and reopen Genesco’s fleet of nearly 1,500 retail locations and drive record conversion rates to partially offset the impact of reduced foot traffic, all while making the safety of our customers and employees the highest priority. Our deliberate investments in our digital capabilities prior to the pandemic enabled Genesco to capitalize on the accelerated shift to online shopping, resulting in record digital revenues of $450 million in fiscal 2021, an increase of almost 75 percent year-over-year, while also fueling record profitability for this channel.
“Executing the company’s current strategy produced positive results in fiscal 2021, including sequential improvement in revenue and gross margin in every quarter since Q1 fiscal 2021. In light of the pandemic, we were pleased to end the 2021 fiscal year with strong fourth-quarter performance, including a total company operating margin of nearly 10 percent and record operating income at Journeys. We also successfully reduced our full-year operating expenses, inclusive of rent abatements, by nearly 16 percent compared to fiscal 2020 while generating cash flows over $130 million, ensuring sufficient liquidity. We are now entering fiscal 2022 with a very healthy balance sheet, and we continue to make changes to our cost base and allocate capital expenditures to enable increased investment in growth and enhance our ROIC.
“Genesco’s share price has increased significantly as a result of the execution of our footwear-focused strategy and strategic growth plans under Ms. Vaughn and over the past year, reflecting tangible measures put in place during the pandemic. Since Ms. Vaughn became CEO in February 2020, Genesco’s share price has increased approximately 24 percent, and over the past year, Genesco’s share price has increased over 150 percent, reflecting strong momentum coming out of the pandemic and heading into fiscal 2022.
“These successes were overseen by Genesco’s experienced Board and management team, with a focus on preserving capital, reducing expenses and increasing liquidity. While we are still in the early stages of our five-year growth plan under the leadership of Ms. Vaughn, Genesco is already performing strongly, and we believe we are on a clear path to drive growth and sustained profitability. Genesco’s Board and management team will continue to review and refine our strategies for seizing the opportunities ahead for the benefit of all shareholders.
“Our highly engaged, independent Board believes that diversity and new perspectives are important and regularly evaluates Board composition to make sure it reflects the mix of skills and expertise the company needs at the time. As part of our ongoing refreshment program, two of our eight directors were appointed in the last 18 months, we appointed a new lead director in the last two years, and three tenured directors have either retired or stepped down over the last three years. We are committed to continuing this Board refreshment process to meet the strategic needs of Genesco as we execute our strategy and position the company to succeed in an increasingly digital retail environment.”
Photo courtesy Genesco/Journeys
