Genesco Inc.’s comps, including both stores and direct (e-commerce), jumped 10 percent for the quarter-to-date period ended Jan. 3. However, due to gross margin and foreign exchange pressures as well as a disappointing performance by Lids shops inside Macy’s, it wasn’t able to lift its guidance.
On Tuesday after the updated was released, shares eased $3.04, or 3.8 percent, to $76.82.
Companywide store comps grew 9 percent while direct comps expanded 25 percent. Its EPS guidance in the range of $4.75 to $4.85 for the year ending Jan. 31 was maintained.
At ICR Xchange, Robert Dennis, president and CEO, described the quarter as a ”breakout quarter” for comps, with a particularly strong performance by Journeys. But four factors prevented any EPS benefit.
First, gross margins were “down somewhat,” particularly impacted by efforts to right-size inventory levels at Lids. Second, its U.K. business, Schuh is seeing a more promotional environment in the teen footwear space than Journeys in the U.S. Second, currency translations in the U.K. and Canada worked against operating earnings. Third, Lids newer in-store shop at Macy’s were a “little bit slower” than expected, and two Lids Locker Room acquisitions performed better last year, particularly due to the success of some sports teams in those regions.
Finally, a high concentration of Locker Room stores are in Seattle, which faces a tough comparisons against the Seahawk’s Super Bowl win. Said Dennis, “Obviously, we are pretty pleased that they are still in the mix, given that we have that exposure.”
The star performer in the first two months of the quarter was Journeys Group, with store and digital comps ahead 15 percent. Store comps were up 14 percent and direct comps jumped 39 percent.
Dennis said the core Journeys chain benefited from “exceptionally narrow and deep” assortments, which supported sell-throughs and gross margins. Said Dennis, “We saw strong demand in the business across many of the categories, both athletic and casual, including boots.”
Journeys is “pretty much built out in the US” but still has untapped expansion opportunities in Canada.
Journeys Kidz has been particularly encouraging this year and is tracking to end the year with a mid-single digit comp gain. Said Dennis, “After several years of strong comp, we think we really are the specialty retailer in the mall that owns the kids space, as Stride Rite retreats from their retail position.”
Journeys.com benefited from a new order management system and site upgrade last year. Journeys also “doubled down” on catalog mailings, which drive store traffic and direct sales. It’s also seeing a benefit from the rollout of “endless aisle of inventory,” or being able to fill orders from stores as well as distribution centers.
At Lids Sports Group, comps expanded 6 percent, climbing 5 percent at the store level and 23 percent direct. For the core Lids cap stores, Dennis said the snapbacks category has finally recovered, with normalized margins and healthy inventory turns. He added, “Competition is back to where it ought to be, which is marginal. And so, these stores are now operating as they had before.”
Given its dominant share, expansion is limited and it doesn’t expect more than low-to mid-single digit comps gains going forward. But he added the stores are “extraordinarily profitable with terrific margins. And these did very nicely in Q4.”
The Lids Locker Room business was up low-single digits, and still has expansion potential. Dennis said Locker Room remains “a prime business for omnichannel retailing” through online deliveries to the “displaced fan.” Seventy-percent of its online orders are shipped outside the zip code of the home team.
Lids Clubhouse Stores, which operate fan shops for major sports franchises such as the New York Yankees or colleges such as Ohio State, continues to perform well. Said Dennis, “We are very pleased with what's going on there.”
Lids has 190 in-store fan stores inside Macy’s. The majority opened in the third quarter and Dennis said it’s been “bit of a challenge” to get all of them “up to speed.” Encouragingly, stores tested a year ago are comping up double-digits. Said Dennis, “We have confidence that, as we get these businesses and the assortments squared up, and we get the customers aware that Macy's is back in the licensed sports business, that this is a great opportunity for us.”
Lids’ strong e-commerce business is expected to further benefit from being able fulfill orders from stores this year. Lids.com will also seen an upgrade of the front-end of its website with new capabilities as well as a warehouse consolidation expected to speed order turnaround. Combined with its rapid expansion at Macy’s and “some challenges within the Locker Room business,” Genesco plans to slow Lids growth this year.
“Our aim is to really focus on execution and on improvement of operating margins,” said Dennis. “So when you think about Lids for this year, think a little less about the heady topline growth that we've delivered in the last four years, and think about the opportunities we are creating for margin expansion.”
Schuh's comps grew 6 percent in the first two months of the fourth quarter with store comps ahead 2 percent and direct comps climbing 27 percent. Dennis said several brands that “really worked” for Journeys in the U.S. “weren't anywhere near as robust in the UK. And so our assortment was a little less productive.” Black Friday was also accepted as a tradition for “really the first big year” in the U.K. and this led to sales shifting to the promotional November period, pulling down Schuh’s margins. On the bright side, Schuh still has expansion potential, opening 13 stores last year with more expansion planned for the U.K. and the northern part of Europe.
Johnson & Murphy Group's comps were up 3 percent with stores up 3 percent and direct ahead 2 percent.
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