Genesco exploring sale of a key division
Genesco Inc. wants to focus its resources on its footwear business.
The company announced it is exploring the sale of its Lids Sports Group division. Lids operates the Lids headwear stores, Locker Room by Lids and other team sports fan shops and single team clubhouse stores
The company said its board has concluded through a strategic review process that it is in the best interest of the company and its shareholders to focus on its footwear businesses, which it believes “is the optimal platform to deliver enhanced shareholder value over the long term.”
The board has established a special committee, of four independent directors, to oversee the Lids Sports Group sale process. It has retained PJ Solomon to advise the special committee and the board in this matter.
“The Lids Sports Group has been an important part of Genesco, and we still see significant potential for the business,” said James W. Bradford, the company’s lead independent director and chairman of the special committee. “We believe, however, that it is in the best long-term interests of the company and its shareholders to focus on building upon our core footwear platform, in which the businesses share common strategic characteristics and where we believe we can generate greater operating efficiencies and synergies.”
Bradford went on to say that the company believes Lids Sports Group is undervalued as part of Genesco and that its sale “would generate capital that the company can deploy productively to further enhance shareholder value.”
In its release, Genesco said there is no assurance that the process to explore the sale of the Lids Sports Group business will result in any transaction or the adoption of any other strategic alternative.
Genesco Inc., a Nashville-based specialty retailer, sells footwear, headwear, sports apparel and accessories in more than 2,725 retail stores and leased departments throughout the U.S., Canada, the United Kingdom, the Republic of Irelandand Germany, principally under the names Journeys, Journeys Kidz, Shi by Journeys, Schuh, Schuh Kids, Little Burgundy, Lids, Locker Room by Lids, Lids Clubhouse, Johnston & Murphy, and on Internet websites.
Under Armour Q4 tops estimates amid global growth; North American sales fall
Under Armour released fourth quarter results that show it still has a ways to go in reviving its business here at home.
The athletic goods giant reported a net loss of $87.9 million, or 20 cents a share, in the quarter ended Dec. 31, compared with net income of $103 million, or 23 cents per share, in the year-ago period. The results included a one-time charge of $39 million due to the new U.S. tax law and restructuring charges. Excluding one-time items, the company met Street estimates that it would break even for the quarter.
Total revenue rose 5% to $1.37 billion, better than the $1.31 billion analysts were expecting. Direct-to-consumer revenue was up 11% to $575 million.
Sales in international markets surged 47% and represented 23% of total sales. Sales in North America, however, continued to decline and were down 4%.
For the full year, sales increased 3% to $5 billion. North America revenue fell 5%.
Neil Saunders, managing director of GlobalData Retail, commented that while Under Armour’s overseas growth is to be applauded, the brand is reliant on its North American operation to drive performance on both the top and bottom lines. As to why Under Armour is lagging domestically, Saunders cited several factors, including that its expansion into retailers like Kohl’s has weakened exclusivity and made the brand feel commoditized and ubiquitous.
“Consumers are unsure of what it (Under Armour) stands for, what it specializes in, and why they should use it,” Saunders said. “For many, it has become something of an also-ran.” (For more, click here.)
Under Armour has been working to transform its business amid fierce competition by such rivals as Nike and Adidas and online players. The company said on Tuesday it would expand its restructuring efforts, including closing facilities and terminating leases, resulting in a pre-tax charge between $110 million and $130 million this year.
“2017 was a catalyst for us to begin strategically transforming Under Armour into an operationally excellent company,” stated CEO Kevin Plank. “Our fourth quarter and full year results demonstrate that the tough decisions we’re making are generating the stability necessary to create a more consistent and predictable path to deliver long-term value to our shareholders.”
Analysis: Under Armour has lost its way in U.S.; needs to rethink strategy
Although Under Armour’s results are better than the last quarter, they still show signs of a company in difficulty. This is most evident in terms of disparities in regional revenue growth and the losses posted to the bottom line.
There is some comfort to be taken in the 4.6% revenue growth, which represents a marked improvement on last quarter’s 4.5% decline. However, this headline figure is driven entirely by international operations, where sales rose by 46.5%.
While overseas growth is to be applauded, it carries investment costs and also accounts for just 25% of group revenue. As such, Under Armour is reliant on its North American operation to drive performance on both the top and bottom lines. Unfortunately, the North American division had a lamentable quarter and is the main source of Under Armour’s woes.
North American revenue fell by 4.5% over the prior year. Admittedly this is better than the 12.1% dip posted last quarter, but it also coincided with a period of robust consumer spending growth. As such, we believe there has been little improvement in Under Armour’s relative underperformance. On top of this, the region made an operating loss of almost $44 million; something that compares unfavorably to the $157 million profit posted in the prior year.
So what went wrong in North America? There are a few specific things we would highlight.
The first of these is the brand seems to have lost power. Compared to last year, Under Armour was firmly off the radar for holiday gifting. Far fewer people thought of or requested the brand for gifts, and consequently fewer people bought into it. In our view, Under Armour has spent too much time trying to expand its footprint and product coverage, and too little time building connections with customers.
We would also call Under Armour out on customer experience. Customer service at some of its own stores leaves a lot to be desired. Meanwhile, expansion into retailers like Kohl’s has weakened exclusivity and made the brand feel commoditized and ubiquitous.
These actions show in our consumer data, which reveals Under Armour has lost its way. Consumers are unsure of what it stands for, what it specializes in, and why they should use it. For many, it has become something of an also-ran. These shallow roots are dangerous: they leave Under Armour vulnerable to competition and the vagaries of changing market conditions.
A brand like Lululemon is an interesting counterpoint to Under Armour. It has a very clear sense of identity, and its approach is more disciplined and focused. This has helped it to maintain price integrity and remain a destination of choice for many consumers. While we do not believe that Under Armour should simply emulate Lulu, we do think it can learn some lessons from its playbook.
Looking ahead, it is clear that 2018 will not be a year when growth resumes. Indeed, the company has penciled in a further full-year revenue decline in North America. Operating profit will also be weak thanks to restructuring and impairment costs.
For all of this, Under Armour still has potential; but it needs to use the year ahead to regroup and rethink its strategy. The company that once believed it could challenge Nike has come down to earth with a bump. Humble reflection is now the order of the day.