- Genesco Inc. said Tuesday that it is putting the mall-based hat seller Lids up for sale, according to a press release.
- Genesco — which also operates Journeys, Schuh and Johnston & Murphy brands — said in a press release that it had begun a formal process exploring the sale of Lids after concluding it was "in the best interest of the company and shareholders" to focus on its shoe businesses. Genesco Chairman James Bradford added in a statement that Lids was undervalued (presumably by the stock market) as a part of Genesco and that its sale "would generate capital that the company can deploy productively to further enhance shareholder value."
- Last month, activist investors Legion Partners Asset Management and 4010 Capital bought a significant stake in Genesco. Officials with the retailer said in a release at the time that they had "engaged in various discussions" with Legion Partners and "expect to continue a constructive dialogue." Chris Kiper, a managing director with Legion Partners, told Retail Dive in an email, "We are disappointed that the board did not initiate a more thorough comprehensive review of all strategic alternatives." He added that a possible sale of Lids "in our view does not go far enough to resolving the significant underperformance issues at the company."
As CL King analyst Steve Marotta described it, Genesco responded "congenially" to the activist investors that bought a stake in the retailer in January, with a statement welcoming dialogue.
Shortly after the activists bought into Genesco, the retailer announced it had appointed a new chief operating officer and a new head of Johnston & Murphy. And now, less than a month after the activists purchased their stake, Genesco is looking to sell a major asset that could bring cash to its shareholders. This, Marotta wrote in a note Wednesday, was likely "a direct result of the recent activist filing." Even so, it apparently won't satisfy the activists, if Kiper's response is any indication.
Genesco's short-term plan is simple: sell the hat retailer and focus on shoes. But, as Marotta notes, " the pool of buyers appears relatively limited." If the retailer can find a buyer for Lids, which has more than 1,000 locations worldwide, it could bring in around $250 million, according to Marotta.
Not helping in the pursuit of a buyer: Lids had a horrendous holiday season. Comparable sales at the hat seller fell 14% during the holiday period, dragging down Genesco's overall comps metric, according to a Jan. 8 press release announcing quarter-to-date sales. While Lids sales plummeted, comps at Journeys rose 10%, Schuh comps were up 1 % and Johnston & Murphy comps were up 5%. Comps at the company as a whole rose 1%. CEO Robert Dennis noted in a release that "Lids' challenges expanded."
That followed a third quarter where Dennis said Journeys had a better-than-expected performance but "Lids was worse," according to a Seeking Alpha Transcript of the retailer's Q3 conference call. During the call Dennis attributed Lids' troubles — along with the much-discussed traffic declines at malls — partly to performance in its sister industry: sports.
"The MLB lineup while it was a strong combination of the Yankees, Dodgers, Astros and Cubs did not match last year's lineup which included very strong games from the Cubs and the Toronto Blue Jays. And overall baseball for the quarter was down," Dennis said in the December call, adding that NCAA gear was also down because of "less favorable performance" of key schools.
"But finally and most importantly, the well publicized challenges facing the NFL have meaningfully dampened demand for NFL licensed merchandise during the heart of football season," Dennis added. "This NFL impact was the single biggest factor weighing on Q3 sales."
Genesco has tried to help the ailing retail brand through media spending, product additions, a new order management system (that added click-to-brick capabilities) and in-store only events and offers like free customization, according to Dennis.