StockTalk:
TMF Interview With Venator Group VP
of Investor Relations Juris Pagrabs
With Yi-Hsin Chang ( TMF Puck)
October 28, 1998
Venator Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: Z)") else Response.Write("(NYSE: Z)") end if %>, formerly Woolworth Corp., is a specialty retailer that operates athletic footwear and apparel stores Foot Locker and Champs Sports, as well as other stores such as Kinney, Afterthoughts, and the San Francisco Music Box Co. The company recently ended its all-stock bid to acquire Sports Authority <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSA)") else Response.Write("(NYSE: TSA)") end if %> due to the roughly 63% drop in Venator's stock price between May (when the deal was announced) and September (when the deal was called off). Venator is also realigning operations by closing 467 Kinney stores and 103 Footquarters stores, and slashing inventory at its Foot Locker and Champs Sports stores.
TMF: I understand that "Venator" is Latin for "sportsman" or "hunter." Does this mean that your primary focus is athletic footwear and apparel and not so much your other businesses?
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"At this point, we have no plans for any type of spinoff."
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Pagrabs: I don't think that's true. While the Woolworth name has served us well for many years, we felt that it no longer reflected what we actually are today, which is a high performance global retailer. As you accurately said, "Venator" was inspired by the classical word for sportsman and really describes the spirit of our company, which is a worldwide chain keeping pace with our customers in an active pursuit of life, and that would encompass all of our retail concepts.
TMF: Along those lines, what's your strategy going forward? Do you see yourself as a diversified specialty retailer, or do you think you'll shift toward athletic footwear and apparel?
Pagrabs: Well, certainly our core business is athletic footwear and apparel -- the Foot Locker chain, Ladies as well as Kids, and Champs. In addition to that, we currently operate the Northern Group of stores, Afterthoughts, San Francisco Music Box, and Colorado, and we will continue to focus on those particular formats as we go forward.
TMF: What's the status of the inventory reduction program at Foot Locker and Champs?
Pagrabs: We began a rather aggressive inventory reduction program in mid-September, which, as of today, is basically complete. As you know, we launched [Nike] Tuned Air in our stores on October 9 and thought it was appropriate to take down the sale prior to that launch. Incidentally, the Tuned Air launch has been a big success -- certainly well-received by our customers, and we're delighted in that that particular shoe is $125, which indicates to us that the customer is still willing to pay for a high-performance shoe.
TMF: Are most of the stores that you intended to close closed, or is that still in process?
Pagrabs: As we indicated with the announcement of Kinney and Footquarters, we basically have completed the last major restructuring move for the company. We had indicated from the beginning of this turnaround strategy that we expected our retail concepts to perform at certain operating standards, that being a 10% return on sales and a 10% return on invested capital after tax. So as we move forward, if our concepts aren't showing progress toward those levels, then we do need to ask the question whether or not we should continue to support those concepts.
TMF: You had to call off the merger with Sports Authority in September. Do you still have your eye on acquiring Sports Authority some time down the line or some other competitor?
Pagrabs: I'd have to say, first of all, it's our company policy not to comment on mergers and acquisitions. But we'll certainly keep all our options open as we go forward.
TMF: Do you have any plans to spin off Foot Locker as you tried to do in 1996?
Pagrabs: I should start by saying that we never had any plans to spin off Foot Locker. The 1996 time frame that you're referring to, I believe, was a result of a proxy proposal that had been submitted by Greenway Partners, which was turned down by the shareholder vote. At this point, we have no plans for any type of spinoff.
TMF: Switching gears, do you expect the athletic footwear market to pick up anytime soon, or will discounting be the norm for the near term?
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"Actually the athletic footwear business has seemed to have turned around of late."
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Pagrabs: No, actually the athletic footwear business has seemed to have turned around of late. We're seeing signs where the business is getting better and that's encouraging. The apparel side of the business continues to be soft.
TMF: What's your opinion of the so-called "brown shoe" phenomenon? Does your market research show that teenagers now indeed prefer brown shoes to sneakers?
Pagrabs: I think the "brown shoe" phenomenon was actually overdone, so to speak. Certainly, we are selling more brown shoes today than we did a year ago, but certainly not to the level that I think everybody had expected. The white athletic shoe is definitely on the verge of coming back. We see signs of that daily.
TMF: Have you shifted any of your product lines to include more brown shoes, for instance?
Pagrabs: As you know, we've always done a base business in brown shoes. That business tends to be very seasonal. Certainly, you'll sell more brown shoes in the fall and winter than you'll do in the spring or summer, and we're planning our inventories accordingly.
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"The white athletic shoe is definitely on the verge of coming back. We see signs of that daily."
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TMF: What do you say when people point out that Venator has gone from being a household name and a Dow Jones Industrial Average component as Woolworth, to a stock trading under $10 a share?
Pagrabs: I certainly don't like the fact that the stock is under $10. I can tell you that I believe that the stock is undervalued at today's price. And as far as being a household name, I would suspect as long as we continue to do the things that we believe are correct that over time Venator Group will also be a household name.
TMF: You mentioned the turnaround of the athletic footwear market. Do you think the stock will also turn around once people see that that business is picking up?
Pagrabs: I think the investment community is certainly looking for an indication that that, in fact, is true. I'll just leave it at that.
TMF: Thank you for your time.
Pagrabs: Thank you.
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