Fueled by full-price selling and a recovery in in-store shopping, Genesco, Inc. reported fourth-quarter earnings that came in easily ahead of Wall Street’s targets. For the year, double-digit sales growth and record profitability were seen for its footwear companies, led by Journeys.
In the quarter ended January 29, sales ran up 14.3 percent to $727.7 million, slightly ahead of Wall Street’s consensus target of $726.57 million. Sales increased 7 percent on a pre-pandemic, two-year basis from the 2019 fourth quarter.
The sales increase from the 2019 fourth quarter reflected strong holiday sales, driven by increased wholesale sales, a 36 percent increase in e-commerce sales, and the positive impact of changes in foreign exchange rates, partially offset by a 4 percent decrease in store sales as supply chain challenges created inventory shortfalls.
“We concluded an outstanding year with a very strong fourth quarter that far exceeded our expectations,” said Mimi Vaughn, Genesco board chair, president and CEO. “Our holiday performance was fueled by unprecedented levels of full-price selling and strong in-store sales while our digital channel held on to most of last year’s record gains. “
By concept, Journeys’ comps grew 1 percent year over year after climbing 2 percent in the 2019 fourth quarter. Schuh Group’s comps were down 2 percent after posting a 35 percent gain in the 2020 fourth quarter. Johnson & Murphy Group’s comps were up 38 percent after declining 35 percent in the year-ago quarter.
Overall same-store sales, including stores and direct (online), were up 3 percent against a 1 percent gain in the 2020 fourth quarter.
At stores, same-store sales were up 10 percent against a decline of 10 percent posted in the 2020 fourth quarter. Comparable direct sales were down 12 percent against a gain of 55 percent in the year-ago quarter.
Overall sales for the fourth quarter this year compared to the 2020 fourth quarter were up 2 percent at Journeys, up 33 percent at Schuh, up 51 percent at Johnston & Murphy and ahead 98 percent at Licensed Brands (Dockers footwear). Overall sales, compared to the 2019 fourth quarter, were up 2 percent at Journeys, up 15 percent at Schuh and up 263 percent at Licensed Brands, partially offset by a 12 percent decrease in Johnston & Murphy sales.
Gross fourth-quarter gross margin this year was 48.9 percent, up 310 basis points year over year and up 200 basis points compared with the 2019 fourth quarter. The increase over the 2019 fourth quarter is due primarily to increased full-price selling and price increases at Journeys, Schuh and Johnston & Murphy retail, partially offset by the mix impact of its e-commerce and wholesale businesses and increased logistics costs.
GAAP selling and administrative expense for the quarter increased 430 basis points as a percent of sales over last year and increased 140 basis points compared with the 2019 fourth quarter. Adjusted selling and administrative expense for the quarter increased 410 basis points as a percent of sales compared with last year and increased 170 basis points compared with the 2019 fourth quarter. The increase from the 2019 fourth quarter is due primarily to increased marketing expenses and performance-based compensation expense, partially offset by reduced occupancy expense. The year-ago quarter’s selling and administrative expenses benefitted from significant one-time COVID-19 rent relief.
Genesco’s GAAP operating income for the quarter was $83.4 million, or 11.5 percent of sales this year, compared with $62.6 million, or 9.8 percent of sales last year, and $45.3 million, or 6.7 percent of sales in the 2019 fourth quarter. Adjusted to exclude non-recurring items in all periods, operating income reached $66.4 million this year compared to $64.7 million last year and $59.3 million in the 2019 fourth quarter. Adjusted operating margin was 9.1 percent of sales in the latest quarter, 10.2 percent last year and 8.8 percent in the 2019 fourth quarter.
GAAP earnings from continuing operations were $62.2 million in the latest quarter compared to $90.0 million in the fourth quarter last year and $35.5 million in the 2019 fourth quarter. Adjusted for the excluded Items in all periods, fourth-quarter earnings from continuing operations were $49.1 million, or $3.48 per share, in fiscal 2022, compared to $40.0 million, or $2.76, last year and $44.1 million, or $3.09, in the 2019 fourth quarter. Adjusted earnings of $3.48 per share were well ahead of Wall Street’s consensus target of $2.64
For the full year, sales increased 36 percent to $2.4 billion from $1.8 billion last year and increased 10 percent from $2.2 billion in 2019. The sales growth was in line with Genesco’s guidance for growth in the range of 9 percent to 11 percent compared to 2019.
The sales increase on a two-year basis was driven by a 77 percent increase in e-commerce sales, increased wholesale sales and the positive impact of changes in foreign exchange rates, partially offset by a 4 percent decrease in store sales.
The decrease in-store sales in the latest full year was impacted by Schuh stores open 79 percent of days in Fiscal 2022 as the COVID-19 pandemic continued to impact store openings in the UK in the first part of this year and supply chain challenges impacting all of its retail banners in the latter part of this year. Comparable direct sales decreased 2 percent in the latest year compared to a 74 percent increase in the 2020 fourth quarter and an 18 percent increase in the 2019 fourth quarter.
GAAP earnings from continuing operations were $114.9 million in the latest year, compared to a loss from continuing operations of $56.0 million last year and earnings from continuing operations of $61.8 million in 2019. Adjusted to exclude non-recurring items, earnings from continuing operations were $110.6 million, or $7.62 per share, in the latest year compared to a loss from continuing operations of $16.7 million, or $1.18, last year and earnings from continuing operations of $71.8 million, or $4.58 per share, in 2019.
Adjusted diluted earnings per share from continuing operations of $7.62 per share topped Genesco’s guidance in the range of $6.40 to $6.90.
Vaughn said, “Fiscal 2023 has gotten off to a strong start compared with last year, however, we expect this trend to moderate in the near-term as we anniversary last year’s March stimulus payments and first-half sales revert to more normalized, pre-pandemic patterns. That said, we believe we can deliver another year of solid top-line growth on top of a very strong Fiscal 2022 driven by a strong second half as inventory levels improve and recent price actions provide an additional tailwind.”
Inventories decreased 4 percent in the latest quarter on a year-over-year basis and decreased 24 percent on a two-year basis.
Thomas George, Genesco’s CFO, said, “Our strong finish helped drive record annual operating income for our footwear businesses, a 66 percent increase in full-year adjusted EPS compared to Fiscal 2020 two years ago, and $240 million in operating cash flow, putting us in a great position to further invest in our business and continue returning value to shareholders. We are excited about the year ahead and the momentum of our business.”
For the current year, Genesco expects adjusted earnings per share to range between $7.00 and $7.75 per share with its best current expectation near the midpoint of that range, at $7.375. That compares with $7.62 the prior year. Sales for 2022 are projected to expand 2 percent to 4 percent year over year.
George said, “We expect the back half will be much stronger than the first half with the greatest pressure in the first quarter.”
Photo courtesy Genesco/Journey’s