Legion Partners Asset Management LLC, representing itself and other shareholders that own approximately 5.6% of the outstanding common shares of Genesco Inc., wants to hold the current Board accountable for what it calls “years of chronic underperformance” by nominating its own new members. Genesco is a footwear and accessories retailer operating more than 1,475 stores in the U.S., Canada, the UK and the Republic of Ireland under banners including Journeys, Schuh, Little Burgundy and Johnston & Murphy.
Legion Partners issued a letter to shareholders in connection with its nomination of seven independent individuals for election to the company’s Board of Directors at the 2021 Annual Meeting of Shareholders. The nominations include Marjorie L. Bowen, Thomas M. Kibarian, Margenett Moore-Roberts, Dawn H. Robertson, Patricia M. Ross, Georgina L. Russell and Hobart P. Sichel.
“Unfortunately, we believe that the Board has failed to build on the momentum we helped establish and the company is now on a concerning, downward trajectory that could result in the permanent impairment of value,” said Legion Partners, a top five shareholder of Genesco, in a release.
A high-level overview of the issues detailed in the letter from Legion Partners includes:
Advertisement
- The Board has presided over years of financial underperformance. Over various time horizons, Genesco has dramatically underperformed its peers as well as the Russell 2000 Index, the S&P 1500 Footwear Index and the S&P 500 Index.
- The Board has overseen deteriorating operating performance. Over the past several years, Genesco’s operating performance and returns on invested capital have steadily declined due to the incumbents’ collective inability to help management achieve better execution and deliver enhanced margins.
- The Board has consistently misallocated capital. The letter contends that a major contributor to Genesco’s poor performance is the company’s commitment to a conglomerate holding company structure and private-equity investing model.
- The Board has embraced a bloated cost structure. Genesco has maintained an excessive corporate cost structure. Its SG&A as a percentage of revenue is higher than the vast majority of its peers and the peer group median.
- The board’s executive compensation program is not properly aligned with performance. Despite Genesco’s poor operating and share price performance, the company’s executive compensation appears to serve leaders far more than employees or shareholders. The ratio of the annual total compensation of the CEO to the median employee increased to 1,441:1 in 2020, implying a 143% increase from 593:1 just two years ago.
- The Board lacks sufficient ownership perspectives and fresh thinking. Despite receiving approximately $8 million in compensation since fiscal year 2012, the company’s directors have purchased just about $300,000 in shares.
In the upcoming weeks, Legion Partners’ nominees intend to release more of their analysis and then share a comprehensive strategic plan for “transforming Genesco into a stronger, more focused company that can deliver near-term and long-term value,” the company said.