After successfully fomenting change at Kohl’s, an activist investor is hoping for victory in its latest board battle following a similar attempt in 2018—but scintillating new revelations might dampen its chances.
In the latest update in a struggle that started in April, Legion Partners Asset Management wants to replace four of Genesco’s 11 board members—Matthew C. Diamond, Thurgood Marshall, Jr., Joanna Barsh and Kevin P. McDermott—with its own quorum of nominees, including three women.
Marjorie L. Bowen already sits on the boards of Sequential Brands, which is facing bankruptcy questions, and Centric Brands, the Zac Posen owner that exited Chapter 11 in October. Former Yahoo vice president Margenett Moore-Roberts has established a career helping companies leverage diversity and inclusion for business transformation. Meanwhile, Dawn H. Robertson is an adjunct Fashion Institute of Technology professor and former CEO of Stein Mart, which was purchased out of its August bankruptcy for a digital rebirth. Hobart P. Sichel, a New York University marketing professor, previously spent eight years as Burlington’s chief marketing officer.
However, in its June 7 proxy filing, Genesco pointed out that none of Legion’s nominees have specific footwear experience or operated an e-commerce business of the shoe maker’s size. Plus, it added, Legion’s nominees have been involved in eight combined bankruptcies and two have “apparent deep ties” to the hedge fund, which has proposed their names in “multiple” other activist campains.
Meanwhile, Legion, which says its 5.9 percent Genesco stake makes it a top five shareholder, claims the owner of brands including Schuh, Journeys and Johnston & Murphy has underperformed for years. It also attacked the board’s alleged history of poor capital allocation stemming from its “ill-conceived plan to operate as a retail conglomerate holding company and think of itself as a private equity investment platform.” What’s more, Legion took aim at the Nashville company’s excessive corporate structure, where its adjusted selling, general and administrative expenses at 37.7 percent of sales significantly lag the peer median average of 30.5 percent.
Legion claims its board nominees would not disrupt Genesco’s momentum, and in a presentation reiterated that the shoe maker’s performance was not in line with competitors. Moreover, Legion alleges that the Little Burgundy owner has failed to develop significant digital capabilities, and disputes the idea that management has a “credible plan for 6 percent operating margin.” It remains unconvinced that Genesco has a firm grasp on how to build thriving footwear brands.
Genesco clapped back Monday afternoon by refuting many of Legion’s “mischaracterizations.” In a letter to Legion dated May 19, Genesco wrote that its board and management made “good faith” overtures toward the investor over the course of seven weeks—to little avail. The footwear firm also claims Legion sought to replace the majority of its board (more than the four names it’s currently proposing), refused to disclose its board nominees to Genesco before sharing them with media, and subsequently unleashed “specious attacks” that “caused unnecessary disruption, damage and expense.”
In a particularly damning disclosure, Genesco claimed it discovered earlier in May that Legion had “submitted false and misleading nomination materials with respect to criminal charges brought against a Legion nominee for second degree assault against a minor just last year.” What’s more, it’s “extremely troubled” by both Legion’s attempts to “trivialize” the significance of the charges and the “associated restraining orders” against the unnamed nominee, who the investor continued to claim “still had the qualifications to serve on Genesco’s Board.”
In a June 23 Securities and Exchange Commission filing, Genesco pointed to “11 consecutive quarters of total comparable sales growth” between Q2 of fiscal year 2018 and Q4 of fiscal year 2020 as evidence of its strong pre-pandemic growth.
“Genesco’s business is anchored upon a robust, direct-to-consumer model, which is driven by leading retail brands and a growing digital platform,” it said, adding that it “has taken every possible action to engage with Legion constructively, but at every turn Legion has refused to collaborate or share any business plans, strategic ideas, or how their nominees support a compelling vision for Genesco’s future.”
Genesco, which will hold its annual shareholders meeting on July 20, is on a five-year plan to drive growth, and in the past two years has appointed five new directors and a new lead director.
A spokeswoman for the footwear company did not immediately return a request for comment.