Skechers, Genesco might be merged
A reported private equity buyout that would merge Skechers USA Inc. and Genesco Inc. would bring several prominent consumer footwear brands under one corporate roof and generate significant cost savings, analysts said.
But analysts disagreed on whether those savings would be passed along to consumers.
Women’s Wear Daily reported Monday that the two companies would be bought separately by private equity firm Kohlberg Kravis Roberts & Co. and then be combined into one company. Skechers shares surged 9.5%, while Genesco stock rose 3.2%.
Spokespersons for Kohlberg Kravis Roberts and Genesco declined to comment, and calls to Skechers were not returned.
Manhattan Beach-based Skechers markets a variety of men’s, women’s and children’s casual footwear, and has built consumer awareness through advertisements that feature celebrities such as singer Ashlee Simpson. Skechers distributes its wares through department and specialty stores and more than 130 company-owned retail stores in such venues as New York’s Times Square and Universal CityWalk in Los Angeles.
Genesco operates footwear makers Johnson & Murphy, Dockers and the casual Underground Station, along with headwear, apparel and accessories lines.
“There’s a lot of synergy there,” said Frederick Schmitt, a principal with Sage Group, a Los Angeles investment bank that specializes in retail, apparel and consumer products. Both companies are large retailers with many stores, meaning “there’s a lot of cost savings to be achieved by a combined entity,” he said.
Lower prices from vendors, for example, might translate into lower prices for consumers, Schmitt said.
But Jeff Mintz, a research analyst with Los Angeles-based Wedbush Morgan Securities, was skeptical that a merger would benefit consumers. Skechers’ strong balance sheet may be fueling the proposed deal, he said. Wall Street is probably undervaluing the business, Mintz added, making it an appealing target for private equity.
“This is definitely not a distress sale,” he said.
The deal presents an opportunity for Kohlberg Kravis Roberts to tap Skechers’ cash reserves, reducing the amount of capital that the equity firm would have to put up to get a return on its investment, Mintz said.
The company listed $177 million in cash and short-term investments as of the end of its first quarter March 31. Skechers’ first-quarter profit increased 44% to $23.9 million, or 51 cents a share, from $16.6 million, or 38 cents a share, a year earlier. Revenue rose 24%, to $344.9 million from $277.6 million.
Genesco has had a bumpier ride in recent months. The Nashville-based company last week announced that it was closing or converting as many as 57 underperforming stores after lowering its previously announced earnings outlook for the first quarter. In April, Genesco rejected a $1.2-billion takeover offer from Foot Locker Inc.
Skechers shares jumped $2.97 to $34.11, while Genesco climbed $1.60 to $51.47. The Women’s Wear Daily report did not disclose possible takeover prices.
