Genesco CEO Sees Special Circumstances Leading to Solid Back Half

For the year, Genesco is anticipating earnings of $1.70 to $1.80, which is down from $1.84 a year ago. Wall Street's consensus estimate calls for flat EPS of 43 cents in Q309 and EPS to rise to $1.14 in the fourth quarter from $1.06 per share in Q4 last year. At the conference, Dennis said investors are most surprised that the company is predicting low-single digit comp gains in Q4.

Dennis first noted that Q4 comps are facing comp declines of 5% in both 2009 and 2008 quarters. The 2008 drop reflected over-distribution of Heelys. Dennis said that assuming flat comps occurred in 2008 with a better assortment, Genesco's coming fourth quarter is facing a comp decline of 10% in the year-ago period.

Among opportunities for core banners, Journeys comps are expected to benefit from a “solid overall assortment” in the back half, with particularly strength expected in boots. Sales should also benefit from a new POS system with a swivel screen that allows sales associates to look up product or sizes online for customers that may not be in the store. Associates can also find sizes in other stores instead of having to call to each one. Finally, Journeys “walked a lot of customers” last year because of long waits. But new systems have been able to significantly reduce transactions times, especially around issues such as handling credit cards. Said Dennis, “We expect we'll be walking much fewer customers in the future.”

Hat World is expected to benefit form a “solid MLB lineup” versus the prior year. Particularly boding well is that the Yankees “are pretty much a lock” to make the playoffs. He noted that “strong teams that haven't been there for awhile” are typically best sellers. An ideal World Series from a sales standpoint, he said, is the Yankees versus the Dodgers. Dennis also noted that many of Hat World's competitors are either going out of business or “can't stay fresh” with merchandise due to liquidity issues.

Finally, the back-half is expected to benefit from cost savings across several areas. Rent expenses had been growing at a 3% clip over the last five years but has been running flat in the first half. A total of 140 stores were renewed in the first half at an average rent reduction of 10%. Depreciation is also running down this year due to fewer stores as well as landlords renewing stores with “only a minor paint job and some new carpeting” rather than a complete rebuild typical  prior to the downturn.

Wages at the store level are down 4% on a square foot basis in the first half as hours and average pay have gone down. The pay cuts reflect lower commission due to weaker sales as well as the “unemployment situation that favors employment in the mall.” Lastly,  store opening costs are also down significantly due to fewer store openings and that reduces rent charges and pre-opening training costs. Dennis also notes that outside of Hat World, the other concepts take time to reach maturity and new stores haven't been opening as well as historically in this climate.