Genesco Inc. has joined a growing list of publicly traded firms attracting activist shareholder interest in the current retail climate.
In a filing with the U.S. Securities and Exchange Commission on Tuesday, investment firms Legion Partners Asset Management LLC and 4010 Capital LLC disclosed their intent to drive change at Genesco, which has seen some unevenness in recent months.
Legion Partners and 4010 Capital — which now hold roughly a combined 5.3 percent stake in Genesco — said they purchased shares in the firm based on the belief that they were “undervalued and represented an attractive investment opportunity.” (Legion partners holds the lion’s share of the stake at 5.1 percent.)
“[Legion Partners and 4010 Capital] believe that the current market price of [Genesco] shares does not reflect the issuer’s intrinsic value,” the filing states. “In [Legion Partners’ and 4010 Capital’s] view, one of the key areas that does not appear to be well understood or fully appreciated by the market is the opportunity for [Genesco] to monetize certain segments of its business and return a significant amount of capital to shareholders.”
The investment firms further added that “such transactions have become even more actionable” given the recent changes to federal tax law, which is expected to be a boon to major corporations. (Walmart, Target and others have addressed their initial plans for new tax kickbacks.)
“[We] are highly focused on collaborating with [Genesco’s] management and board of directors to significantly improve returns on invested capital,” the companies said, noting that they may seek to nominate new members for Genesco’s board.
Genesco — which has seen its stock take a beating in recent months as growth at teen mall staple Journeys continues to be offset by its struggling Lids business — responded to the 4010 Capital and Legion Partners filing late Tuesday afternoon.
“Genesco welcomes open communication with all its shareholders and values constructive input and suggestions that may advance its goal of enhancing shareholder value,” the company said. “We have engaged in various discussions with representatives of Legion Partners and expect to continue a constructive dialog.”
The company followed that statement today with news that it has promoted 14-year company veteran Mimi Eckel Vaughn to COO effective immediately after a replacement for Vaughn’s previous role as CFO is named.
When the company reported earnings in December, its stock tanked more than 21 percent after it posted a net loss of $164.8 million, or $8.55 per diluted share, compared with net income of $25.9 million, or $1.30 per diluted share, in the same period last year. On an adjusted basis, net income was $19.7 million, or $1.02 per diluted share, significantly missing analysts’ bets for diluted EPS of $1.12.
As of 2 p.m. ET today, Genesco shares were up nearly 4 percent to $35.50.
“We believe that the most likely path to enhance shareholder value would be the sale of Lids Sports Group, though we concede that the field of potential buyers is pretty narrow. Over the near term, we are favorably disposed to the stock. One, the largest issues at Lids (NFL) will be a di minimis portion of revenue in the coming quarters. Two, Journeys has nice momentum coming out of Q4, which we expect will continue in 1H19. Three, an “activist premium” should buttress the share price in the foreseeable future.
Ugg parent Deckers Brands and Saks 5th Avenue parent Hudson’s Bay Co. were among the fashion players to attract activist investor activity in recent months.