Analysts: Planned Divestiture Good For Nike

Analysts on Thursday applauded Nike Inc.’s plans to divest the Cole Haan and Umbro brands from its portfolio.

After the Beaverton, Ore.-based athletic giant said it would sell both brands by May 31, 2013, to accelerate growth of its core brands, Kate McShane, analyst at Citi Investment Research, said, “This focus should enable the company to invest resources on the highest potential opportunities, such as Nike, Jordan, Converse and Hurley.”

Christopher Svezia, analyst at Susquehanna Financial, said the decision to let go of the brands was logical.

“Cole Haan has been a solid business, but it’s the square peg in a round hole. It doesn’t fit between Hurley, Jordan and Converse,” said Svezia.

He added, “When they acquired the Umbro business, the logic was to really dominate soccer, but over time the Nike brand was able to be a multi-channel, multi-tiered business for them making Umbro obsolete. Plus they brought it at the peak of the market. Today, revenues are down and it’s not profitable.”

Paul Swinand, analyst at Morningstar Inc., agreed. “The Nike brand is killing it in soccer. Why do they need Umbro? Investing in Umbro is hurting Nike,” he said.

Nike acquired Cole Haan in 1988 and Umbro in 2008. As of Nike’s last fiscal year (which ended last May), Cole Haan generated $518 million in revenues, which is the same figure analysts believe the brand will sell for. Umbro’s revenues totaled $224 million in 2011.

Analysts also said potential acquirers of Cole Haan span from private equity shops to strategic players that have publicly said they are looking for deals.

“Potential acquirers could include Wolverine World Wide Inc. and VF Corp., given both track records and stated interest in acquiring companies,” said McShane, adding the potential size of the deal falls squarely into both firms’ criteria.

The path for Umbro is less clear. Swinand called the brand “the oddball,” while Svezia said, “It’s a bit of a head scratch at this point.”

Umbro also needs work in establishing better brand presence, and could be worth less than one time its revenue.

Camilo Lyon, analyst at Canaccord Genuity, and Citi’s McShane, both think Dick’s Sporting Goods could potentially be interested in acquiring the brand, given its recent investment into UK retailer JJB Sports. “They definitely have the flexibility to make it a private brand as they did with Top-Flite,” said Lyon. McShane added, “Umbro has an extremely rich heritage and a strong presence in the world of soccer [plus] the brand currently has an exclusive license with Dick’s.”

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