Touting high-single digit to double-digit comp gains across its chains, Genesco Inc. reported earnings soared 54.1 percent in the third quarter. The company also raised its full-year earnings estimate to a range of $3.64 to $3.69 a share from its increased August forecast of $3.35 to $3.42 a share, representing a 33 percent gain over 2010.
Signaling continued momentum, GCO indicated that comps in the first three weeks of the current month through Nov. 19 were up 11 percent. “While we do not expect to maintain comparable sales at this level for the balance of the quarter, we are optimistic about our ability to meaningfully expand our top and bottom line over the same period a year ago,” said Bob Dennis, company chairman, president and CEO, on a conference call with analysts.
Excluding charges primarily related to legal matters and network intrusion expenses this year as well as asset impairments in the prior year, earnings on an adjusted basis reached $1.21 a share, up from 77 cents a year ago and ahead of Wall Street's average estimate of 96 cents a share. Sales jumped 32.6 percent to $616.5 million with companywide comparable-store sales ahead 12 percent.
Lids Sports Group sales advanced 21.5 percent to $185.5 million, driven by an 8 percent comp gain and the acquisition of 48 Sports Avenue stores late in the third quarter last year, which contributed to an 11 percent square footage increase over the past 12 months. Lids operating earnings jumped 54.8 percent to $18.9 million, with operating margins improving to 10.2 percent from 8.0 percent a year ago. November comps were up 9 percent for Lids Sports Group through Nov. 19. Lids Sports Group ended Q3 with an even 1,000 stores, including 6 fan shops acquired in the quarter, up from 974 last year.
Dennis said the drivers of the Lids hat store business haven't changed since the first half of the year. The NFL business remains “good” and has not been impacted by that league's temporary strike. Dennis also indicated that Lids hats stores business hasn't been impacted by the NBA lockout and he described NBA merchandise as a “relatively small” part of the business.” He added, “Therefore, we aren't too concerned if more games get cancelled or the entire season is lost.”
Lids Locker Room “had a very strong quarter,” with the MLB playoffs and the start of the NFL and college football seasons making the beginning of the third quarter the most significant part of the year for this business, said Dennis. Genesco ended the quarter with 76 Lids Locker Room and 42 Clubhouse locations.
The Lids Team Sports business “continues to improve” as Genesco integrates the three businesses – Anaconda Sports, Brand Athletics and Impact Sports – acquired in the last few years. The integration included relocating a large portion of the production process to Indianapolis. Said Dennis, “We are making headway, bringing innovation to the industry and our scale, along with better systems and processes, and access to key products position us well to drive share gains in this very fragmented market.”
Journeys Group sales rose 16.4 percent to $251.5 million in the third quarter. Operating income jumped 32.1 percent to $18.9 million. Operating margins improved 140 basis points to 11.3 percent. The Group's 15 percent comp gain in Q3 was driven by a 15 percent comp increase at the Journeys stores, a 12 percent increase at Journeys Kidz and a 25 percent comp increase at Shi by Journeys. The Group's e-commerce business was up 47 percent. November comps for Journeys Group were up 15 percent through Nov. 19.
Dennis said the Journeys chain continues to benefit from strength in casual footwear. “The strong back-to-school season generally bodes well for holiday and we are well-positioned for what we expect to be another strong boot season,” he said.
Schuh Group, the 75-unit U.K. teen footwear chain acquired in June, delivered operating earnings of $4.4 million on revenues of $78.2 million. Dennis said Schuh outperformed internal projections during the quarter. Added Dennis, “It is still early but the initial benefits from coordinating our vendor relationships and sharing best practices have been fruitful, and we expect this will only get better.”
Johnston & Murphy's sales increased 6.1 percent to $48.1 million on a 7 percent comp gain, driven by the combination of strength in casual footwear and the continued growth in non-footwear sales.
Journeys Group operating income improved to $3.0 million from $1.5 million a year ago. Comps in November through Nov. 19 were up 9 percent.
Underground Station Group revenues were up 4.5 percent to $22.7 million on a 14 percent same-store sales increase. The Q3 operating loss was $139,000, an improvement over the $1.4 million loss a year ago, due to efforts to close money-losing stores. The current-month's comps for were down 1 percent through Nov. 19.
Licensed Brands saw sales increase 5.5 percent to $30.3 million, although Dockers was down in Q3 due to several key customers focusing strategically on private label product. Operating profits grew 7.6 percent to $3.7 million.
Consolidated gross margin was 50.6 percent of sales compared with last year's adjusted gross margin of 51.1 percent. The decrease was due partially to the addition of Schuh with a slightly lower gross margin than total Genesco in the quarter. Adjusting for $2.9 million in deferred purchase price expenses, related to the recent Schuh acquisition, SG&A as a percentage of sales was 42.6 percent compared with an adjusted percent of 44.7 percent last year due to improved sales leverage.
Looking ahead, Genesco officials said its new full-year guidance assumes Q4 EPS in the range of $1.53 to $1.58, which compares to $1.33 earned in the year-ago quarter. Excluding sales from Schuh, sales this year are now expected to increase about 14 percent. Operating margin is expected to improve about 100 to 120 basis points for the full year from leveraging expenses with a slight decrease in gross margin.
Looking further ahead, Genesco expects EPS growth of 12 percent to 15 percent in its fiscal year ended January 2013. Comps are expected to rise in the low-single digits.
“We believe many of the same positive fashion trends that have fueled our recent results will continue and we are planning accordingly,” said Dennis regarding next year. “However, unlike fiscal 2012, we will be up against tougher comparisons.”
