Genesco Inc. Momentum Accelerates in Fiscal First Quarter

Earnings from continuing operations reached $15.0 million, or 63 cents per share, up from $8.6 million, or 36 cents per share, in the prior-year quarter. Excluding non-recurring items, profits climbed 54.3 percent to $15.7 million, or 67 cents, exceeding Wall Street’s consensus estimate of 48 cents a share. Net sales grew 20.0 percent to $481.5 million. Excluding sales of $25 million from acquisitions completed over the past 12 months, sales increased 14 percent. Comps increased 14 percent for the quarter on top of 5 percent comp growth reported last year.  Consolidated May comps advanced 12 percent through May 21.

Journeys Group revenues climbed 14.7 percent to $208.7 million with comps ahead 15 percent. Operating earnings surged 93.6 percent to $16.3 million. Comp gains of 14 percent were seen at both Journeys stores and Journeys Kidz.  Shi by Journeys comps were up 21 percent.  E-commerce in the segment grew 29 percent. Through May 21, Journeys Group comps rose 13 percent in May and e-commerce was up 39 percent.

On a conference call with analysts, Bob Dennis, Genesco’s chairman, president and CEO, said the company believes the limited distribution of its branded product assortment within the mall continues to drive traffic into its Journeys stores.

“We saw it in men’s and women’s casuals for the fall/winter season, and that trend continued as we repositioned our stores for the spring/summer selling season with strength in casual, canvas, sandals, and skate brands,” said Dennis. “We believe our casual offering and core skate assortment has become even more distinct within the mall, as many of the athletic retailers continue to dedicate more space and resources to capturing share of the lightweight running and basketball categories, which have been performing well for them.”

He expects these trends, which are likewise driving the performance at Journeys Kidz and Shi, will continue to drive strong performance during back-to-school and the holiday season.

Lids Sports Group sales jumped 41.4 percent to $169.7 million. Operating earnings climbed 48.8 percent to $14.0 million. Overall comps increased 16 percent and were up about 9 percent in the month-to-date through May 21. E-commerce comps surged 42 percent for the quarter, and 45 percent month-to-date.

Much of the Groups earnings growth was driven by Lids headwear stores, where sales were up 19 percent. Dennis said Lids headwear stores are running much stronger than planned for the year, driven primarily by new product introductions. The Lids Locker Room and Clubhouse businesses lost money in the quarter due to the seasonality of the businesses, but management said both showed gross margin expansion as anticipated from increasing scale and buying synergies from being integrated into the larger Lids Sports Group.

Dennis said the team sports business “is still in its integration phase, so we are not yet realizing its full potential.” Lids Team Sports now has 117 reps across the U.S., up from 30 two years ago, and is one of Nike’s largest team dealers. Said Dennis, “This is a large and highly fragmented market that we believe will benefit from scale economies, and we continue to be excited by the potential we see.”

Lids.com,’s 42 percent quarterly comp increase was fueled by a much greater selection of merchandise, as weve transitioned the website to include a full range of licensed merchandise beyond just hats.

Underground Station Group revenues were down 1.0 percent to $25.1 million in Q1, while operating profits improved to $1.1 million from $649,000 in Q1 last year.  The profit line was aided by a 6 percent comp and the closing of 18 underperforming locations over the past year.  Month-to-date comps are up 9 percent.

Johnston & Murphy Group first quarter revenues climbed 7.9 percent to $48.1 million while operating earnings climbed 40.6 percent to $2.9 million. The segment boasted a 10 percent comp on top of a 10 percent comp a year ago, along with a 6 percent gain in wholesale revenues. Licensed Brands-primarily Dockers Footwear- saw sales inch up 2.9 percent to $29.0 million; operating earnings were down 27.1 percent to $3.3 million.
Overall company gross margins dipped 50 basis points to 51.4 percent of sales, reflecting lower-margin wholesale sales increasing as a percent of overall sales. The retail businesses in aggregate had a small increase in gross margin. SG&A was reduced by 180 basis points as the sales gain leveraged rent, depreciation and compensation.

Based on first quarter results, Genesco now expects full-year EPS in the range of $2.90 to $2.97 per share, which represents a 17 percent to 20 percent increase over last year’s earnings, up from previous guidance range of $2.78 to $2.85 per share. The guidance assumes comp gains of 5 percent to 6 percent for the year.

The company estimates that the loss of the full 2011-2012 NFL season could result in a reduction of up to $5.5 million in pretax earnings in the Lids Sports Group, reducing EPS by up to 14 cents a share.

Dennis also said that since the pace of the business has been better than expected over the past several quarters, Genesco is currently tracking ahead of its 5-year growth plans calling for $2.3 billion in revenues and 8 percent operating margins by fiscal 2015. Said Dennis, “Given our strong start and some of the positive dynamics that are driving our current performance, we have reasons to be somewhat optimistic.”