Nike’s Plan to Sell Umbro Continues Mixed Record on Deals
Nike Inc. (NKE), the world’s largest athletic-shoe maker, is selling the Umbro and Cole Haan brands after failing to turn the acquisitions into growth machines.
The transactions are expected to be completed within a year, the Beaverton, Oregon-based company said today in a statement. Nike acquired Umbro, the U.K.-based soccer-apparel and footwear brand, in 2008 for $567 million.
Nike, led by Chief Executive Officer Mark Parker, is selling Umbro and Cole Haan to focus on its biggest brands. Umbro’s sales in the fiscal year ended May 31, 2011, were little changed at $224 million, and Nike wrote down the value of the unit by $240.7 million in 2009. Umbro wasn’t profitable, according to Chris Svezia, an analyst for Susquehanna Financial Group in New York.
“They really haven’t done the best job on execution with acquisitions,” Svezia said today in a telephone interview. “Nike bought Umbro at the peak of the market, they’ve already taken a writedown, it’s not a profitable business, so why bother keep throwing money at it? They are looking to cut their losses and move on.”
Nike declined 0.1 percent to $108.18 at the close in New York. The shares have gained 12 percent this year.
The maker of Air Jordans also said today it will sell Cole Haan, a chain of dress-shoe stores acquired in 1988. While that unit increased revenue 12 percent to $518 million in 2011, sales were little changed in the quarter ended Feb. 29 as the company’s total sales advanced 15 percent. Cole Haan and Umbro both posted net losses in the quarter, according to Eric Tracy, an analyst for Janney Montgomery Scott in Washington.
Selling Other Assets
Nike’s plan to sell Cole Haan and Umbro continues what has been subpar performance in acquisitions, Svezia said. Nike sold the Starter apparel brand in 2007 to Iconix Brand Group Inc. (ICON) for $60 million as it underperformed other parts of Nike, three years after purchasing the label for $43 million.
The company acquired Canstar Sports Inc., maker of the popular Bauer hockey brand, in 1995 for $395 million. After sluggish growth, it sold Bauer in 2008 to a private-equity firm, Kohlberg & Co., for $200 million. Kohlberg boosted sales, added a few small acquisitions and cashed out its investment in March 2011 with an initial public offering.
The one bright spot has been Converse, which grew sales 15 percent to $1.12 billion in 2011. Nike bought Converse in 2003 for $331 million.
Umbro appeared to be a good fit for Nike because it gave it more customers in Europe as it tried to reach its goal of surpassing Adidas AG (ADS) as the world’s largest soccer company. Umbro also had a long-standing deal with the England national soccer team to supply its uniforms. In a statement announcing the deal, Parker touted the new relationship as a “dynamic alignment” that would make Nike the world leader in soccer.
The Umbro acquisition took a wrong turn, about a month after it was announced, when the England national soccer team failed to qualify for the 2008 European Championships finals, causing a decline in sales. Umbro has the sponsorship through 2018. Nike declined to comment on the future of its relationship with England. Nike has moved the sponsorship deal with Manchester City, champion of the English Premier League, from Umbro to the parent company, beginning in 2013.
From there, Nike never figured out how to make Umbro into more than a middle-tier brand, according to Matt Powell, an analyst for SportsOneSource in Scarborough, Maine. Retailers continued to discount its offerings, which made it difficult to make it profitable. Umbro and Nike also competed against each other because they had many overlapping products, he said.
“It’s been problematic from the very first day,” Powell said in a telephone interview.
Nike declined to make an executive available for an interview. In today’s statement, Parker said selling Umbro and Cole Haan “will allow us to focus our resources on the highest-potential opportunities for Nike.”
The two units combined to account for 3.6 percent of Nike’s $20.9 billion revenue in 2011.
“It’s smart for a brand to pare out the things that don’t work and devote more energy to the things that do,” Powell said.
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