Genesco, Inc. (GCO) Chair, President & CEO Mimi Vaughn told investors on the company’s quarterly conference call that Schuh Group, the company’s UK-based shoe chain that it acquired in June 2011, had an “especially challenging quarter” in Q2 in what continues to be a challenging overall UK retail environment.
Schuh Group sales for the fiscal 2026 second quarter ended August 2 inched up 1.6 percent year-over-year (y/y) to $126.6 million, compared to $124.6 million in Q2 last year. A favorable exchange rate in the UK reportedly helped offset an overall smaller store base.
Comparable store sales declined 4 percent y/y on top of a 2 percent comp sales decline in Q2 last year.
The Schuh Group is the second largest of the four segments within Genesco, Inc.’s business, trailing only the Journeys Group in size.
Vaughn said sales started off slowly across the industry at the beginning of summer, with fewer reasons to shop, and Schuh saw major store traffic and comp declines in May and June. She said the UK customer remains “cautious and quite selective,” putting pressure on the footwear category with purchases of only “must-have” items.
“In response to this softness, footwear retailers became more promotional to spur consumer demand,” she explained. “To maintain share and right-size inventories in this sluggish and highly competitive market, Schuh was considerably more promotional, which pressured gross margins [for the quarter].
Asked for more detail on the sequential comp shift within the quarter, Vaughn said, “So we were coming off of a couple of positive quarters of Schuh comps really as a result of our strategic efforts to target a customer very similar to the Journeys customer, with a range of initiatives that we’ve been implementing. We were surprised at how much traffic fell off. The UK customer just really stopped shopping in May and June for footwear. And so that was demonstrated by much lower traffic into our stores.”
Vaughn added that the team at Schuh responded quickly.
“We are in a moment in time when the customer, when there’s a need to come out and shop or a reason, they come out and shop. And we took advantage of that in July and then into August,” she commented. “Comps have improved. But some of that has been through attracting the customer through more promotional activity, certainly, in the second quarter. In the third quarter, we have lifted off on that, but the market itself is quite promotional.”
Vaughn said when the market was flat in May and June, competition responded quickly, and that created the [promotional] dynamic in the market.
“We did a lot to clean up inventory, but we are just still looking to see whether or not what the competition does for the back part of the year,” she said. She added that they expect that it’s just going to continue to be volatile in the UK market through the back part of the year.
It was reportedly a tougher sandal season in the UK than in the U.S. She noted that while many of the same brands and styles at GCO’s Journeys Group are resonating, there is less interest in the rest of the assortment.
“We took action on inventory [at Schuh], which was in a better position by the end of the quarter,” she noted.
Traffic reportedly picked up in July, and with much higher store conversion and transaction sizes, together with improved online sales, Schuh’s comps turned positive with late summer purchases and the lead-up to back-to-school shopping. This improvement has reportedly continued into August and back-to-school, but Vaughn cautioned that they expect it will remain volatile.
“Looking ahead, the team has implemented a number of initiatives, including several from the Journeys playbook, to improve the trend in the near term,” the CGO chief shared. “The most immediate of these are to bring in more newness and in-depth – and in-demand products, leveraging the enhanced brand partnerships and improved product access Schuh has gained.” She also said driving traffic to the stores through the CRM, marketing and loyalty initiatives is underway, while eliminating non-accretive discounting and aggressively focusing on store customer conversion with the recently launched ATV program.
Vaughn said that the company anticipates a lull between back-to-school and the holiday season, when there’s usually a trough in consumer response.
She also said the company “absolutely” has moved into action to address the back part of the year for Schuh.
“We are working on bringing in even a stronger assortment for the back part of the year,” she shared. “We’ve placed a lot of our buys, but the Schuh market works – the UK market works – a little bit differently [than the U.S.], where we can pick up product. And so we’ll be working with our vendor partners to ensure that we can pick up product.”
Vaughn emphasized that Schuh is a full-price retailer, and the company does not want to discount product.
“We want to have must-have product that we can sell,” Vaughn said. “And, so we do our all to make sure that we don’t have to get dragged into the promotional activity that our competitors trigger off. We will be focused on finishing the execution through back-to-school.”
Vaughn said Schuh will focus on the product assortment, which will be the best antidote to what’s happening in the market for the second half of the year.
“We’re focused on store execution. We are really eliminating any discounting that is not accretive. And I think that’s the outlook for the market. We expect it to continue to be choppy,” she concluded.
Profitability and Expenses
The more promotional environment at Schuh, as well as the impact of higher tariffs and product liquidations at Genesco Brands Group in connection with the exit of licenses, was said to be partially offset by margin expansion at J&M and Journeys. This resulted in a 100 basis-point decline for GCO’s overall gross margin to 45.8 percent of sales.
GCO consolidated gross margin is now expected to decline 50 basis points to 60 basis points for the full year, compared to a previous estimate of down 20 basis points to 30 basis points, reflecting the first half deleverage, some additional margin pressure at Schuh in the third quarter, and the impact of the new round of higher tariffs.
In SG&A margins, favorable leverage at Journeys was said to be partially offset by Schuh’s deleverage on their store comps decrease, as well as an increase in brand awareness marketing across all of GCO banners.
SG&A is now expected to leverage 80 to 100 basis points as a percentage of sales, versus the company’s prior expectation of 50 to 70 basis points, reflecting leverage on the positive comp growth and benefits from our ongoing cost initiatives and store optimization efforts.
Schuh Group posted a $6.1 million operating loss in Q2, representing an operating margin of negative 2.8 percent of sales in Q2, compared to operating income of $1.4 million, or 0.7 percent of sales, in Q2 last year.
“We continue to invest in the Journeys 4.0 remodel program, new stores, store refreshes at Schuh and J&M and digital investments and expect our capital expenditures to be $55 million to $65 million,” Vaughn stated.
Outlook
GCO expects its third-quarter assumptions to be largely aligned with its full-year guidance assumptions. The strong back-to-school shopping period, which accelerated into August, is expected to drive a total sales increase of 3 percent to 4 percent for the overall GCO business. The company expects approximately 50 to 70 basis points of gross margin deleverage, following the 100 basis points of deleverage achieved in the first half. This reportedly reflects the continued pressure at Schuh and lower margins in the Genesco Brands Group, driven by higher tariffs and clearance of product as GCO works to complete the exit of certain licenses.
Image courtesy Schuh Group/Genesco, Inc.
