Nike said Thursday that it immediately plans to sell off its Cole Haan and Umbro brands over the next year to keep the focus on its flagship Nike products, as well as other brands such as Jordan, Converse and Hurley. “Divesting of Umbro and Cole Haan will allow us to focus our resources on the highest-potential opportunities for Nike, to continue to drive sustainable, profitable growth for our shareholders,” Mark Parker, Nike’s chief executive, said.
Nike is ... looking at its business to understand where to invest and prioritize. It is now time to seek a buyer for Umbro and Cole Haan to further focus, company spokesperson told Reuters. Paul Swinand, an analyst at Morningstar, said he expected Umbro and Cole Haan to be picked up by sportswear rivals, rather than by private equity firms, published ‘The Telegraph’.
"Nike is very adept at managing its portfolio of businesses," says Rob McIver, co-portfolio manager of the Jensen Quality Growth Fund. He notes that Nike's eponymous brand "is clearly where the growth is. Cole Haan and Umbro are solid, but they don't have the same sort of growth profile that Nike does, especially in the emerging markets, which have…the greatest growth prospects." He said of Nike's move, "To me, it's a mild positive. (It says) Nike doesn't need side brands and they get better returns from the core Nike brand."
In the same vein, Morningstar analyst Paul Swinand added it was likely the Cole Haan and Umbro brands would be picked up by Nike rivals rather than by private equity, reported Reuters. He said Cole Haan would make a good fit for a company like Wolverine World Wide Inc (WWW.N).
Janney Montgomery Scott analyst Eric Tracy says the subdued reaction by Nike's stock reflects some downward pressure the consumer discretionary group as a whole is feeling Thursday, as he sees the divestitures as a positive for the company. "Cole Haan and Umbro [account for about] $700 million in sales with low-single digit operating margins; compare that to the Nike brand, with 18% operating margin and $24 billion in sales."
"Nike is best positioned to benefit from those events, to catalyze revenue over the near term, and also set the stage for longer-term international growth. We view pullbacks such as today as nice buying opportunities,” Tracy concluded.