Genesco, Inc. shares got a nice bump on Thursday after reporting mostly weaker sales for the fiscal second quarter, but the owner of the Journeys, Schuh and Johnston & Murphy retail businesses and marketer of the Johnston & Murphy, Levi’s, Dockers and G.H. Bass footwear brands beat Wall Street estimates and reiterated its guidance for the year as company Board Chair, President and CEO Mimi Vaughn called out improving trends at the Journeys Group as the Schuh and Johnston & Murphy businesses continued to outperform.

GCO shares were up nearly 17.6 percent to close at $34.28 a share on Thursday.

Consolidated net sales for the second quarter decreased 2.3 percent to $523.0 million, compared to $535.3  million in the second quarter last year. The sales decrease compared to last year was said to be driven by decreased store sales in Journeys Group and decreased wholesale sales, partially offset by a 14 percent increase in e-commerce comparable sales, strong store performance at Schuh and Johnston & Murphy and a favorable foreign exchange impact.

Consolidated comp store sales were down 2 percent in the quarter on top of a 2 percent decline in Q2 last year. Same-store sales were down 6 percent for the period on top of a 2 percent decline in Q2 last year but comparable direct sales jumped 14 percent in the quarter, easily offsetting a 3 percent decline in the prior-year period.

“As we expected, the operating environment remained challenging in the second quarter. However, relative to earlier this year, we were encouraged to see some improvement in the trend within our Journeys business as the quarter progressed, leading us to deliver results ahead of our prior expectations. In the meantime, Schuh and Johnston & Murphy continue to outperform, each delivering another quarter of record sales despite the challenging backdrop, and we continued to make progress on our plans to close roughly 100 Journeys stores and reduce costs by $40 million. Moving forward, I remain confident that we are implementing the right strategic initiatives to weather the current environment, including specific actions to elevate and accelerate Journeys performance and evolve it for the longer term to drive value in an even stronger competitive position.”

Journeys Group sales were down 10.6 percent for the quarter to $287.3 million, compared to $321,3 million in the prior-year period. Comp-store sales were down 11 percent for the quarter on top of an 8 percent comp decline in the prior-year period. Journeys Group was 54.9 percent of total company sales in the quarter, compared to 60.0 percent in the prior-year quarter.

  • Journeys Group posted a $14.9 million operating loss in the second quarter, compared to a $9.2 million operating profit in the prior-year comparable period.

Schuh Group sales increased 21.0 percent year-over-year to $122.8 million in the second quarter. On a constant-currency basis, Schuh sales were up 17 percent for the second quarter. Comp-store sales increased 17 percent in Q2 on top of a 9 percent comp sales gain in the prior-year period. Schuh Group was 23.5 percent of total company sales in the quarter, compared to 19.0 percent in the prior-year quarter.

  • Schuh Group posted an $8.4 million operating profit in the second quarter, a four-fold increase from the $2.1 million operating profit in the prior-year comparable period.

Johnston & Murphy Group sales grew 4.0 percent YoY to $77.8 million in fiscal Q2. Comp-store sales increased 12 percent in the quarter on top of a 17 percent comp-sales increase in the prior-year period. Johnston & Murphy Group was 14.9 percent of total company sales in the quarter, compared to 14.0 percent in the prior-year quarter.

  • Johnston & Murphy Group saw operating profits contract for the period, posting an operating profit of $2.7 million in the second quarter, compared to an operating profit of $3.2 million in the prior-year period.

Genesco Brands Group, which includes sales of Levi’s, Dockers and G.H. Bass footwear to retailers, declined 6.6 percent to $35.2 million in the quarter. Genesco Brands Group was 6.7 percent of total company sales in the quarter, compared to 7.0 percent in the prior-year quarter.

  • Genesco Brands Group nearly tripled its operating profit for the period, with second-quarter operating profits up 170 percent to $1.9 million, compared to $685,000 in the prior-year period.

Consolidated second-quarter gross margin was 47.7 percent of sales, up 20 basis points compared with 47.5 percent in Q2 last year. The increase as a percentage of sales compared to Fiscal 2023 was attributed primarily to increased markdowns at Journeys offset by improved margins in all the remaining businesses.

Selling and administrative expense for the second quarter this year increased by 380 basis points as a percentage of sales compared with Q2 last year. Adjusted selling and administrative expenses for the second quarter this year increased 400 basis points as a percentage of sales compared with Q2 last year. The increase as a percentage of sales compared to Fiscal 2023 reflects the deleverage of expenses due to decreased revenue in the second quarter of Fiscal 2024. The increase in expense was primarily related to a prior year reversal of performance-based compensation expense, along with increased compensation expense and higher IT expenses to drive technology initiatives in the second quarter this year.

Genesco’s GAAP operating loss for the second quarter was $38.6 million, or negative 7.4 percent of sales this year, compared with operating income of $9.1 million, or 1.7 percent of sales in the second quarter last year. Adjusted for Excluded Items in all periods, the operating loss for the second quarter was $10.0 million in Q2 this year compared to operating income of $10.0 million in Q2 last year. Adjusted operating margin was negative 1.9 percent of sales in the second quarter and 1.9 percent in the second quarter last year.

The effective tax rate for the quarter was 23.1 percent compared to 11.3 percent in the second quarter last year. The adjusted tax rate, reflecting Excluded Items, was 23.4 percent in Fiscal 2024 compared to 19.5 percent in the second quarter last year. The higher adjusted tax rate for the second quarter this year compared to last year’s second quarter reflects that we are no longer subject to valuation allowance in certain jurisdictions.

GAAP loss from continuing operations was $31.6 million in the second quarter compared to earnings from continuing operations of $7.7 million in the second quarter last year. Adjusted for the Excluded Items in all periods, the second quarter loss from continuing operations was $9.6 million, or a loss of 85 cents per share, in Q2, compared to earnings from continuing operations of $7.7 million, or 59 cents per share, in the second quarter last year.

Balance Sheet
Cash and Cash Equivalents were $37.4 million at quarter-end, compared with $44.9 million as of July 30, 2022. Total debt at the end of the second quarter was $131.5 million compared with $48.9 million at the end of last year’s second quarter.

Inventories decreased 3 percent on a year-over-year basis at quarter-end, primarily reflecting a decrease in Journeys inventory, partially offset by increased inventory for the Johnston & Murphy and Schuh businesses to support higher levels of sales. Genesco Brands’ inventories were flat.

Store Closing and Cost Savings Update
Genesco expects to close approximately 100 Journeys stores in Fiscal 2024

The company anticipates up to $40 million in cost reductions by the end of Fiscal 2025, with approximately $20 million realized in Fiscal 2024.

Outlook
“Thus far in the third quarter, sales trends for the back-to-school season improved a little further with consumers shopping when there is a reason and much closer to need,” explained Vaughn in a morning release. “Given the ongoing lack of visibility into consumer demand patterns in the near-term and other pressures, we are maintaining our cautious view and reiterating our outlook for Fiscal 2024.”

Genesco now expects full-year sales to be down 2 percent to 4 percent, or down 3 percent to 5 percent excluding the 53rd week this year, compared to Fiscal 2023.

The company continues to expect adjusted diluted earnings per share from continuing operations in the range of $2.00 to $2.50, with an expectation that EPS will be near the mid-point of the range.

Guidance assumes no further share repurchases and a tax rate of 24 percent.

Photo courtesy Genesco, Inc.