Genesco Inc. used the addition of Hat World to keep it from posting a pre-tax loss again in the second quarter this year and looked to Journeys and Hat World to keep the top line positive for the quarter. Excluding Hat World, which was acquired in early April, Genesco would have seen sales increase 4.7% for the quarter to $188.0 million and would have posted a $425,000 pre-tax loss for the period.
The company was clearly relieved with the “solid” performance at Journeys for the quarter, despite missing comp sales guidance. The shift in the tax-free holiday weekends were blamed here for the miss. Sales werent helped either by average selling prices that declined 2.0% for the period.
Athletic made up 52% of sales in the quarter at Journeys versus 43% in Q2 last year. GCO called out adidas, Saucony, K-Swiss, New Balance, and Nike as strong brands for the period and said the board sport brands also did well. SEW sees a real shift in the business here as only adidas repeats from last years Q2 call-out list which also included Converse, Diesel, Puma, and Timberland. The company expects continued strength in Athletic, especially in fashion athletic and retro and said they were pleased with early BTS results.
Mens was 50% of sales, Womens was 39%, and accessories delivered the balance of 11% of sales. Gross margin was down slightly, but “on plan”.
Underground Station reported a same-store sales decline of 11% for the period compared to a 9% increase last year. Jarman comps were down 9% to give the combined group a 10% decrease for the period. The average selling price was down 1.0%. GCO sees a better outlook for Underground in the back half since they are up against a 7.0% negative comp in Q3.
Fashion Athletic was 39% of sales in this years Q2 versus just 27% in the year-ago period. Management said they expect to see Athletic increase in the back half of the year, a real probability since Athletic was only 17% of Underground sales in Q3 last year. Nike, which is only in 85 of the 142 Underground doors, joined Converse, Puma, and Fila as key contributors. They said they will add a new Nike boot package for Fall.
The $1.5 million pre-tax loss was against a pre-tax profit of $231,000 in Q2 last year, due primarily to aggressive markdowns and de-leveraging of expenses. GM was down on “higher markdowns and change in mix”. GCO will convert 14 more Jarman stores to Underground Station in H2 and remains committed to closing or converting remaining 34 Jarman units.
Hat World total sales were up 30% in the quarter, reflecting “robust demand” for core sports product and “ongoing strength” in the fashion and branded businesses. The newest Genesco division saw strong trends in the MLB business and also pointed to demand for trucker hats that “remains high”.
Management said they moved away from “jersey hook-ups” to simple single-color styles and feel they are insulated from the decline in licensed apparel, saying it is jersey focused, not headwear focused. “Fashion Licensed” headwear only represents 20% of total sales at Hat World.
In the other businesses, Johnston & Murphy sales were essentially flat at $39.4 million, while pre-tax profits surged over 600% to $1.3 million. Dockers also delivered $1.3 million in pre-tax profit against a $263,000 loss in Q2 last year. Dockers sales were up 20.3% to $14.2 million in the period.
Genesco now expects sales for the year of approximately $1.1 billion and earnings per share to range from $1.89 to $1.92, including previously announced charges of approximately eight to nine cents per share associated with the planned closing of Jarman and other underperforming stores in fiscal 2005.
Third quarter EPS is seen in the range of 33 cents to 35 cents per share on sales of $282 million to $284 million. The guidance would represent a 17% to 21% decline in EPS from last years 42 cents per share. Journeys comps are forecast to be up 3% to 5% versus a 1% decline last year, Underground is seen as flat to down low-singles, and Hat World is estimated to be up 3% to 5% for the period.
