Genesco Seeks Buyer, Urban Renewal
NEW YORK – Genesco Thursday rejected a sweetened takeover offer from Foot Locker but said it would pursue strategic alternatives, including a possible sale.
The Nashville, Tennessee-based footwear and apparel firm also reported sharply lower net income for the first quarter, with much of the reduction attributable to problems with its urban area stores and a closure program announced for them two weeks ago.
Genesco confirmed that its board on May 24 received a $51.00-a-share cash takeover offer from Foot Locker, but had rejected it following consultation with Goldman Sachs & Co, its financial advisor. Foot Locker subsequently withdrew its proposal, which would have valued the company at about $1.33 billion, and declined to participate in any upcoming talks about a sale of the company. FL’s first offer, made in April, was for $46.00 a share, or about $1.2 billion.
Genesco was reported to be in talks about a possible takeover with private equity firm KKR but hasn’t commented on that possibility. In Thursday’s announcement, it said that it “undertakes no obligation” to discuss the progress of the search for strategic alternatives until the completion of the initiative.
During the first quarter ended 5 May, the company registered net income of $2.2 million, or $0.10 a diluted share, off 79% from the $10.5 million, or $0.40, reported during the 2006 period. Adding back the $0.15 a share in charges related to its decision to close 57 underperforming stores in urban markets, EPS would have been $0.25, $0.01 below the consensus estimate of analysts.
The $0.10 result fell within the updated guidance of $0.09 to $0.12 provided by Genesco two weeks ago.
Net sales gained 6.2% to $334.7 million from $315 million a year ago. Same-store sales fell 2%.
“During the first quarter, the Journeys Group posted solid sales growth and the positive momentum in the Johnston & Murphy and Dockers Footwear businesses continued,” said Hal Pennington, chairman and chief executive officer. “Hat World’s business improved consistently throughout the quarter, with the successful transition to the new Major League Baseball on-field hat.
“However,” he added, “the challenges in the urban market were once again a negative factor in our overall results for the quarter.”
That downturn was most evident in the Underground Station Group, in which most of the store closures will take place. Its sales fell 25.4% during the quarter, to $29.8 million, and declined 22% on a same-store basis. It swung to an operating loss of $2.2 million versus a $2.4 million profit in the year-ago quarter.
“The weak urban market, ongoing softness in the athletic category and a tough Nike comparison negatively affected sales comparisons during the quarter,” the CEO commented. “We expect improvements at Underground Station in the latter part of the year, as we continue to re-merchandise the stores towards more women’s and casual products, as the absence of Nike products becomes a less significant factor in the year-over-year comparisons, and as overall comparisons moderate as we mark the anniversary of the onset of the urban market downturn.”
He noted that the company’s officials “remain confident” in the Underground Station concept and that the closures, which also include numerous Jarman stores, will allow it to rebound.
Sales were up at its other groups – Journeys, Hat World, Johnston & Murphy and Licensed Brands – but operating income declined at Journeys and Hat World while advancing at J&M and Licensed Brands.
However, with $6.6 million in pre-tax asset impairment and other charges, corporate operating income slid to $6.2 million from $19.4 million in last year’s quarter, a 68.2% reversal.
The company ended the quarter with 2,068 stores in operation
