Genesco Raises Full Year Guidance Despite Flat Third Quarter Earnings…

Genesco Inc. posted strong results for the fiscal third quarter ended October 28, driven by “excellent performances” at Journeys and Journeys Kidz, Johnston & Murphy, and Dockers. The company expects that the Underground Station business will remain challenging in the fourth quarter. Management said it was confident that the strength seen in the other businesses will continue in the Holiday selling season, supporting the decision to increase earnings guidance for the full fiscal year, despite posting flat earnings results for the third quarter when excluding discontinued operations.

Net sales at Journeys Group increased 20% to approximately $184 million, with same-store sales growing 9% and footwear unit comps increasing 18% in the third quarter. Average selling prices were down 6% for the period, “due to the strength in sandals.” Management said that Athletic was 61% of sales, up from 56%, driven by the skate category. They called out Vans, Heelys, Converse, and Etnies as key performers in skate, while the sandals gain was driven by Crocs, Reef, and Rainbow.

Journeys Kidz again reported strong growth, with sales up 55% and comparable store sales up 9%. Management said they “remain pleased” with the performance of Shi by Journeys.

Gross margins at Journeys were down “due to higher markdowns,” resulting in a 90 basis points decline in operating margin.

Square footage grew by 14% for the Group, which ended the quarter with 751 stores. They expect to open 50 Journeys next year, as well as 40 Journeys Kidz and 35 Shi by Journeys stores.

Fourth quarter comps are expected to be up in the low- to mid-single-digits at the Journeys Group.

Net sales at Hat World Group increased 13% to approximately $78 million in Q3, reflecting a 1% decline in comp store sales for the period. Management said the decline was due primarily to “weakness in Hat World stores serving the urban markets,” exemplified by a 6% decline in comps at the 106 stores designated as “Urban.” The balance of the chain was said to have flat comps for the period. Fourth quarter comps are expected to be “flat to slightly positive.” NCAA was the weakest category for the business, but NFL showed strength as did Quiksilver, Nike, and Under Armour.

Management said they were focused on new store growth versus comp sales growth at Hat World Group.

Hat World now operates 718 stores, up 16% from last year, and is on track to open 101 new stores this fiscal year, representing a 14% increase in the store base versus last year.

Net sales for the Underground Station Group, which includes the remaining Jarman stores, declined 9% to $35 million for the quarter, with same-store sales declining 11% for the period.

Same-store sales at Underground Station fell 11%, primarily due to continued weakness in men's athletic and “urban markets in general,” a trend that will no doubt be exasperated by the loss of the Nike brand from the stores after BTS. The men’s business was down 10%, while women’s was up 6% for the period. Women's non-athletic was up 15% for the quarter. Average selling prices were down 7% and unit sales were off by 1% in Q3.

Underground took heavier markdowns in the quarter, resulting in a decrease in operating margin.

Management said their fourth quarter expectations “do not reflect an improvement in the Underground Station business.” Fourth quarter comps are planned down in the high-singles. They said that longer term, the group is “working to improve its women's product offering and non-footwear assortment,” but management also said they see a “lack of meaningful fashion direction” in the business.

Genesco said that it is raising its diluted EPS guidance for the fiscal year and now expects to see $2.55 to $2.57 per share on sales of approximately $1.45 billion. For the fourth quarter, GCO expects sales of approximately $467 million to $470 million and reiterated its previous estimates for fourth quarter earnings in the range of $1.29 to $1.31 per diluted share.

The changing fortunes in the licensed headwear business at Hat World mirrors the trends seen in the weekly POS data compiled by SportScanINFO. Fiscal third quarter retail sales of licensed headwear was down in the mid-single-digits, with the biggest declines coming out of athletic/urban specialty and mid-tier department stores. Sporting goods, which tends to be a more fan-based business, was still posting gains in the low-teens. Based on the SportScanINFO data, the NFL and MLB businesses were essentially flat, but the college side was down in double-digits.