Activist Legion Seeks to Replace Majority of Genesco Board

(Bloomberg) -- Legion Partners Asset Management is seeking control of Genesco Inc.’s board to force the specialty retailer to improve its performance by selling non-core assets, increasing margins and buying back shares.

The activist investor, which owns a 5.6% stake in Genesco, said in a letter to shareholders Monday that it has nominated seven directors to the company’s eight-member board.

It isn’t seeking to replace Mimi Vaughn as chief executive officer or on the board. Legion said its nominees were prepared to work with Vaughn, drawing on her experience to take the company in a new direction.

Legion said electing its nominees and fully implementing its strategic plan would generate $7.50 a share in earnings by 2023 and double Genesco’s stock price. Genesco rose 0.8% to $49.07 at 9:47 a.m. in New York on Monday, giving the company a market value of about $734 million.

In a previous push in 2018, the Los Angeles-based investment firm reached a settlement with the company to appoint two new directors and launch a strategic review. Legion sold its position in the company in early 2019 before building a new stake earlier this year.

It said Monday it believed Genesco failed to build on that foundation and is on a downward trajectory.

“Allowing a majority of the company’s directors to remain in place has resulted in an entrenched board that has been either unable or unwilling to implement accretive initiatives that support enduring value creation,” Legion’s Christopher Kiper and Ted White said in the letter, a copy of which was reviewed by Bloomberg.

‘Long Overdue’

“With an average director tenure of more than 10 years and a history of underperformance for the decade leading up to the pandemic in 2020, we believe that wholesale change in the boardroom is long overdue,” they said.

Genesco confirmed it had received the nominations and said in a statement it would review them and make its recommendations in due course. It said it believed it had delivered a strong performance before and throughout the pandemic, including 50% growth of its earnings per share in fiscal 2020.

“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,” the company said.

Legion argues though that Genesco’s chronic underperformance is the result of bloated cost structure, a failed conglomerate structure, misaligned compensation and years of missteps and mismanagement. Legion highlighted a $16 million expansion of Genesco’s new headquarters in Nashville, Tennessee as an example.

The specialty retailer sells footwear and accessories at 1,475 retail stores in the U.S., Canada, the U.K. and Ireland, according to its website. Its brands include Journeys, Kidz, Little Burgundy, Shuh, and Johnston and Murphy.

Kiper and White argue that a major contributor to Genesco’s poor performance is its “ill conceived plan to operate as a retail conglomerate holding company and think of itself as a private equity platform.”

The pair outlined a series missteps over the years that they say raise concerns about the company’s capital allocation, including a misguided purchase of its Lids hat business in 2004 for $283 million that it sold in 2019 for $101 million. Genesco’s Shuh business, which it purchased in 2011 as part of a push into Europe, is likely worth less than 20% of the original purchase price, they said.

Legion’s nominees include Marjorie Bowen, who previously served a one-year term on the Genesco during the period it sold Lids and studied other strategic alternatives. The remainder of the slate consists of Tom Kibarian, Margenett Moore-Roberts, Dawn Robertson, Patricia Ross, Georgina Russell and Hobart Sichel.

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