Genesco Inc. (GCO) recently acquired UK-based Schuh Group Ltd., a specialty retailer of casual and athletic footwear, for £125 million. The purchase price was broken into three tranches plus a possible management bonus contingent upon performance worth up to another £25 million.
From this deal, Genesco and Schuh will derive merchandising synergies as both operate in the same vertical. Both companies target teenagers and young adults. So the same basic product trends are in place for both companies.
This cross-Atlantic merger will widen the merged entity’s footprint adding many more customers to its present base. Both companies will track trends in the east and west. Moreover, with continued globalization in footwear, especially among teenagers, trend migration to both continents will be beneficial for Genesco and Schuh.
Scotland-based Schuh operates 59 stores in the United Kingdom and Republic of Ireland, 16 concessions in Republic apparel stores and one of UK’s largest online shoe websites.
Schuh’s already established retail presence in the United Kingdom will help Genesco to grow in that market. According to Genesco management, Schuh’s business is compelling, with attractive store economics and strong growth prospects, which made it a lucrative acquisition target. Schuh’s breadth of branded assortment is almost twice the offerings of its closest competitor.
On the other hand, through this transaction Schuh will also have access to Genesco’s capital to accelerate its store growth and achieve its targeted 100–120 openings.
Genesco anticipates the transaction to be accretive to its current fiscal year’s earnings per share excluding any merger and integration costs and compensation liabilities toward Schuh management.
Specialty retailer, Genesco, sells footwear, headwear, sports apparel and accessories in more than 2,285 retail stores throughout the U.S. and Canada principally under the names Journeys, Journeys Kidz, Shi by Journeys, Lids and Lids Locker Room, Johnston & Murphy, and Underground Station. Its major competitors include Finish Line Inc. (FINL) and Cato Corp. (CATO).
Genesco currently retains a Zacks #1 Rank, which translates into a short-term Strong-Buy rating. We also maintain our long-term Outperform recommendation on the stock.
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