Genesco Inc. was able to overcome tough comparisons to a strong third quarter last year, and challenges from hurricanes and rising gas prices this year, to deliver a solid top-line effort in the quarter ended October 29. The company saw balanced sales growth across each of its specialty retail divisions, but saw flat comps and profits coming out of its Hat World unit. The bottom line got a two cent per share pre-tax lift from the settlement of California class action suit, but also saw a penny per share pre-tax impact related to uninsured property damage from the hurricanes during the quarter.

The athletic business at retail appears to be strong and growing as the company moves into the fourth quarter.

The Journeys business saw comps rise 5% for the quarter on top of a 7% increase in the year-ago period. Footwear unit and dollar comps both increased 5% in Q3 on continued strength in fashion athletic and skate. The same-store sandals biz did moderate in the quarter, but was stronger than last year despite the moderating temperatures that caused boot sales to pick up. Average selling prices dipped 1% for the period after declining 3.5% in Q2.

adidas, Puma, Converse, and Asics were again called out as key athletic performers, while Etnies, Globe, and Vans were cited on the skate side of the business. During the quarter, Journeys added the eS line from Sole Technology. Athletic, which made up 56% of Q3 sales at Journeys versus 53% of sales in third quarter last year, was projected to remain strong into fourth quarter. Gross margins were said to be “up substantially” on better IMU’s and lower markdowns.

Journeys Kids posted an 18% increase in total sales to more than $700 million for the period, with comp store sales increasing 16% for the quarter. Footwear unit comps were up 14% and average selling prices rose 2% for the period. Sales per square foot in the Kidz stores were pegged at $465 per s/f, up from a $446 per square foot in Q2.

Based on continued healthy comp sales growth and strong acceptance of the concept, GCO will accelerate the expansion of stores to 25 new stores next year, compared to 11 new stores this year, with a potential for 200 Kidz stores throughout the U.S. Kidz towers will be in all Journeys stores by Christmas.

GCO management opened up a bit about the rumored new concept for women. The new format, which is called “Shi by Journey’s”, is expected to address the current Journeys female consumer in her early- to mid-twenties and evolve with her as she matures. The first Shi store opened in Nashville last week. All of the initial product merchandising will be done by Journeys women’s buyers and merchandisers. The product mix will include athletic, but will emphasize Euro style rather than skate.

The Underground Station Group, which includes both Underground Station and 54 remaining Jarman stores, posted a 9% comp store sales gain for the quarter. Total Underground Station store sales were up 24% for the quarter on an 11% increase in stores and a 13% increase in comps for the period. Jarman store comps were down 5% for the quarter.

Underground Station saw footwear unit comps improve 7% and average selling prices increase 6% for the quarter. Fashion athletic was 43% of sales in Q3, up from 36% of sales in the year-ago period. Puma, adidas, Nike, Diesel, Madden, and 310 Motoring were all called out as key brands at Underground station.

Men’s represents 59% of the business at Underground Station, but women’s was said to be growing at a faster rate. Apparel and accessories now make up about 18% of the mix.

Operating margin was up 300 BPS to 5.1% of sales, driven by “better gross margins and improved expense leverage.”

Hat World had tough comparisons against the Red Sox numbers from last year, but still managed to eke out a 1% comp store sales gain on top of the 12% increase posted in Q3 last year. The gain was said to be “in line” with expectations. Gross margins were up slightly on improved shrinkage results, but operating margin declined 70 basis points to 11.1% of sales for the period.

The NFL business was said to be “off to a strong start” and the NBA and NHL showed good year-over-year improvement, according to management.

GCO will add 96 Hat World doors this year, to bring its total to 642, and is estimating the division will generate a low-single-digit comp store sales increase for the remainder of the year.

>>> GCO is uniquely positioned to take advantage of the blurring of the lines in the footwear market…

Genesco Inc.
Third Quarter Results
(in $ millions)  2005 2004 Change
Total Sales $316.3 $288.4 9.7%
Journeys $153.1 $138.0 11.0%
Station/Jarman $38.4 $34.3 12.0%
Hat World  $68.3 $59.5 14.9%
Pretax Profit $29.1 $23.2 25.3%
Journeys $21.6 $17.8 20.9%
Station/Jarman $2.0 $0.7 173%
Hat World  $7.6 $7.6 flat
Net Income  $16.1 $11.9 35.2%
Diluted EPS  61¢ 47¢ 29.8%