Genesco, Inc.’s third-quarter results were slightly above Wall Street’s consensus estimates but the parent of Journeys reduced its guidance for the year due to a “sluggish start” in November and the impact of the inflationary environment.

Adjusted EPS of $1.65 topped the analyst estimate of $1.62. Revenue for the quarter came in at $604 million versus the consensus estimate of $593.73 million.

Mimi E. Vaughn, Genesco board chair, president and chief executive officer, said, “We are pleased that our third quarter results were largely in line with our expectations given the ongoing macroeconomic volatility. Journeys sales accelerated nicely in August and early September following a slower start to back-to-school, as our team successfully captured the demand that spiked when consumers had a reason to buy, behavior U.S. consumers have increasingly displayed in the current inflationary environment. Schuh and Johnston & Murphy’s sustained strength helped elevate constant currency sales above a very strong period a year ago. While we did a good job growing top-line and protecting gross margins during back-to-school, a sluggish start to November combined with higher industry-wide promotional activity and cost pressures has led us to adopt a more conservative view on the balance of this year. Sales have since re-accelerated with the start of the holiday season. Despite the current headwinds, I feel confident that the strong strategic positions of each of our businesses and the work we are doing to advance our footwear-focused strategy have the company well situated to continue delivering increased shareholder value over the longer term.”

Thomas A. George, Genesco’s CFO, commented, “The third quarter was highlighted by 4 percent constant-currency revenue growth despite having 2 percent fewer stores compared to the prior year period. Importantly, we achieved better-than-expected gross margins as our trend-right merchandise offerings fueled solid full-priced selling. While we were pleased with our top-line performance, wage increases and other cost pressures weighed on SG&A, leading to deleveraging in the quarter. Third-quarter adjusted earnings per share of $1.65 was slightly better than our expectations, down from a record $2.36 last year, but up from $1.33 in Fiscal 2020 driven by our aggressive share repurchase activity since the start of the pandemic. Based on our performance fourth quarter-to-date combined with a more cautious view of the near-term operating environment, we now expect adjusted earnings per share for Fiscal 2023 to range between $5.50 to $5.90. We believe somewhere close to the middle of the range is where we will land.”

Third Quarter Review
Net sales for the third quarter of Fiscal 2023 increased 1 percent to $604 million from $601 million in the third quarter of Fiscal 2022 and increased 12 percent from $537 million in the third quarter of Fiscal 2020, prior to the pandemic. The sales increase compared to last year was driven by increased wholesale sales and a total comparable sales increase of 3 percent, partially offset by foreign exchange pressure in the Schuh business resulting from the strengthening dollar. E-commerce sales increased almost 75 percent above pre-pandemic levels. Excluding the impact of lower exchange rates, net sales increased 4 percent for the third quarter of Fiscal 2023 compared to the third quarter of Fiscal 2022 despite having 30 fewer stores.

Overall Genesco’s same-store sales were up 3 percent against a 21 percent gain in the year-ago period. By segment, comps at Journeys were up 1 percent versus a 15 percent climb last year. Schuh Group’s comps were up 3 percent versus a 23 percent increase the prior year. Johnston & Murphy comps were up 20 percent versus a 77 percent surge in the year-ago period.

Overall comparable store sales at its stores were up 2 percent against a 25 percent gain in the prior year. Comparable direct or online sales were up 6 percent against a 7 percent gain last year.

Overall sales for the third quarter this year compared to the third quarter of Fiscal 2022 were flat at Journeys, up 19 percent at Johnston & Murphy and up 14 percent at Licensed Brands, partially offset by a 13 percent decrease at Schuh. On a constant-currency basis, Schuh sales were up 4 percent for the third quarter this year.

Third quarter gross margin this year was 48.7 percent, down 50 basis points compared with 49.2 percent for both last year and Fiscal 2020. The decrease as a percentage of sales as compared to Fiscal 2022 is due primarily to a more normalized promotional environment for all divisions, except Johnston & Murphy where inventory reserve comparisons created a reduction in margins and better than anticipated loyalty program sign-ups at Schuh as new members used their sign-up incentives.

Selling and administrative expenses for the third quarter 2022 increased 250 basis points as a percentage of sales compared with last year and increased by 10 basis points compared with Fiscal 2020. Adjusted selling and administrative expense for the third quarter 2022 increased 270 basis points as a percentage of sales compared with last year and increased by 10 basis points compared with Fiscal 2020. The increase, as compared to Fiscal 2022, is due in large part to one-time benefits for rent credits and government relief in the third quarter of last year. Excluding these one-time benefits last year, deleverage in marketing expenses, compensation expenses and selling salaries more than offset leverage from decreased occupancy and performance-based compensation expenses.

Genesco’s GAAP operating income for the third quarter was $26.1 million, or 4.3 percent of sales this year, compared with $43.8 million, or 7.3 percent of sales in the third quarter last year, and $25.9 million, or 4.8 percent of sales in the third quarter of Fiscal 2020. Adjusted for the Excluded Items in all periods, operating income for the third quarter was $26.3 million this year compared to $45.2 million last year and $26.7 million in the third quarter of Fiscal 2020. Adjusted operating margin was 4.4 percent of sales in the third quarter of Fiscal 2023, 7.5 percent in the third quarter of last year and 5.0 percent in the third quarter of Fiscal 2020.

The effective tax rate for the quarter was 18.7 percent in Fiscal 2023 compared to 23.5 percent in the third quarter of last year and 25.4 percent in the third quarter of Fiscal 2020. The adjusted tax rate, reflecting Excluded Items, was 19.6 percent in the third quarter of Fiscal 2023 compared to 22.7 percent in the third quarter of last year and 26.2 percent in the third quarter of Fiscal 2020. The lower adjusted tax rate for the third quarter this year as compared to the third quarter last year reflects a reduction in the effective tax rate the company expects for jurisdictions in which it is profitable.

GAAP earnings from continuing operations were $20.4 million in the third quarter of Fiscal 2023, compared to $33.0 million in the third quarter of last year and $19.0 million in the third quarter of Fiscal 2020. Adjusted for the Excluded Items in all periods, third-quarter earnings from continuing operations were $20.4 million, or $1.65 per share, in Fiscal 2023, compared to $34.5 million, or $2.36 per share, in the third quarter of last year and $19.4 million, or $1.33 per share, in the third quarter of Fiscal 2020.

Cash, Borrowings and Inventory
Cash at October 29, 2022 was $32.1 million, compared with $282.8 million at October 30, 2021. Total debt at the end of the third quarter of Fiscal 2023 was $89.4 million compared with $15.6 million at the end of last year’s third quarter. The $324 million decrease in net cash position over the past 12 months enabled us to reinvest in our business for growth by replenishing inventory totaling $207 million and returning significant capital to shareholders totaling $127 million. Inventories increased 66 percent in the third quarter of Fiscal 2023 on a year-over-year basis, as outsized stimulus demand and supply chain limitations resulted in extremely low inventory last year. Inventories increased 19 percent this year when compared to the third quarter of Fiscal 2020, prior to the pandemic. `

Capital Expenditures and Store Activity
For the third quarter, capital expenditures were $11 million, related primarily to investments in retail stores and digital and omnichannel initiatives. Depreciation and amortization were $11 million. During the quarter, the company opened three stores and closed eleven stores. The company ended the quarter with 1,404 stores compared with 1,434 stores at the end of the third quarter last year, or a decrease of 2 percent. Square footage was down 2 percent on a year-over-year basis.

Share Repurchases
The company repurchased 451,343 shares during the third quarter of Fiscal 2023 at a cost of $20.8 million or an average of $46.01 per share. It currently has $34.1 million remaining on its expanded share repurchase authorization announced in February 2022.

Fiscal 2023 Outlook
The company revised its Fiscal 2023 full-year guidance as follows:

  • Sales are expected to be down 1 percent to 2 percent, compared to Fiscal 2022, versus prior guidance of down 3 percent to flat; and
  • Adjusted diluted earnings per share from continuing operations in the range of $5.50 to $5.90 with an expectation that adjusted diluted earnings per share for the year will be near the mid-point of the range versus the prior expectation of near the mid-point of $6.25 to $7.00.

Photo courtesy Genesco/Johnston & Murphy