Genesco Inc. is looking forward to putting the failed merger with The Finish Line behind them and fully concentrating on their business that has struggled for the last few quarters. The good news is that their three sport- or lifestyle-oriented businesses will see easier comps against last year as the current fiscal year progresses and they will have a few extra dollars in their pockets thanks to the negotiated settlement with The Finish Line and their bankers, UBS Securities LLC and UBS Investments LLC…
The Journeys Group, which has taken a pretty good hit from the Heelys implosion, will start to see easier anniversary numbers as they move into the second quarter, which was the beginning of the slump that plagued the brand and the retailers that supported it in the prior year. Management said that the brand was expected to be the number one vendor in terms of dollar commitment for the back half of the year and instead it turned out to be the biggest problem. Hat World will also see easier comps against last year, due to the tougher business last year in the urban stores and the transition to the new MLB cap from New Era. This time last year, the retailer was selling through old inventory while it waited for the launch of the new product. On the urban front, the company has been closing under-performing stores and hopes to be turning the corner in that end of the business. As for Underground Station, the urban format that has seen the most turmoil in the Genesco business, this year will be the first full year that the business will anniversary against a full year without Nike in the mix. Considering that the Station business comped down in negative 20s for the first three quarters of last year when comping against the Nike business, this year should prove to be an easier one.
Genesco Q4 sales declined 2.1% to $467.0 million from $476.9 million in the prior-year quarter. The company said that comp store sales decreased 5% in total, but they estimated that the extra week in the prior-year period added about $25 million in sales. Without the extra week in the prior year, total sales would have increased about 3%.
Journeys posted a 3.2% decline in sales in Q4 to approximately $226.8 million from $234.3 million in the year-ago quarter, but would have increased 2% when adjusting for the extra week in the prior year. Comps for the Journeys Group were down 7% versus a 6% comp sales gain in the 2006 Q4 period. Genesco, Inc. President and COO Bob Dennis said that the “combination of a tough retail environment, the lack of a fashion driver in footwear and the continued effect of Heelys over-distribution” affected the Group during the quarter.
GCO said revenue from Heelys was down $13.5 million for the quarter and Group gross margins were down, due primarily to heavier markdown reserves against the Heelys inventory that still needs to be cleared. The good news is that the retailer wont take any of the markdown margin hit into the new year.
Management said that women's casual shoes performed well in the quarter, with “particular strength” in Converse, UGG and Crocs. On the men's side, they called out Vans, Nike and DC Shoes. GCO expects the Journeys business to remain challenging through the first half of fiscal 2009 and then improve significantly in the second half of the year as they comp against the weaker Heelys business in the third and fourth quarters of fiscal 2008. Pacific Sunwears exit from the footwear category is also expected to benefit Journeys.
While GCO expects to see some pain in skate shoes as PacSun sells off inventory, the long term impact is seen as positive.
Journeys Kidz posted a 3% comp store sales decline for the fourth quarter, compared to an 8% comp sales increase in the prior-year quarter, again primarily due to the Heelys weakness. GCO opened 42 Journeys Kidz stores, ending the year with 115 stores in operation.
Looking ahead, management expects Journeys Kidz comps to be up in the low-single-digits for the year.
Shi by Journeys, which is the companys womens concept, was also hampered by the weak retail environment. Management said they were “especially successful with boots and other closed top footwear” and were pleased with the gross margins and the high multiples they are getting from Shi customers.
Mr. Dennis said they see an opportunity to layer on a higher-priced line as they recognize they were walking consumers looking for better goods. Average selling prices were about $40, but that was driven by boot sales later in the year. First half ASP was in the high $30s.
GCO opened 35 Shi by Journeys stores in fiscal 2008 and ended the year with 47 Shi stores.
Genesco expects to open 65 new Journeys Group stores in fiscal 2009. They expect to open about 28 Journeys stores and close three, open 24 Journeys Kidz stores and open about 13 Shi by Journeys stores. They are forecasting low-single-digit comp gains for the fiscal year.
Hat World jettisoned a number of weak stores in the urban market last year but weakness still continued in the fashion MLB and NCAA categories. Hat World Group sales rose 5.0% to $121.8 million from $115.9 million in the prior-year period. Adjusting for the extra week in the prior year, sales were up 10% for the quarter. Comp sales for the quarter declined 4% on top of a 1% decline in the prior-year quarter.
Management said that Major League Baseball remains its largest product category and core MLB product continues to be a significant part of the business. Action brands such as DC, Fox and Hurley were said to be “strong once again.” GCO expects the comparisons against last year to remain easier until April 1 and then will need to anniversary against normal MLB cap sales.
Operating earnings were down 9.2% to $17.3 million, or 14.2% of sales, in the fourth quarter, compared to $19.0 million, or 16.4% of sales, in the prior year period. Gross margin improved 100 basis points in the quarter.
During fiscal 2008, GCO opened a total of 98 new Hat World Group stores, ending the year with 862 stores. They expect to open 40 new Hat World stores this year, while closing 13 others. Comps are seen up in the low-single-digits this fiscal year.
The Underground Station Group, which still includes some Jarman stores, saw total net sales fall 12.9% to $42.9 million in the fourth quarter from $49.2 million in prior year quarter, but would have declined 7% when adjusting for the extra week in the prior year. Same-store sales were down 5% for the period on top of a 15% decrease in the prior-year quarter, “again reflecting the general retail environment and the ongoing challenges in the urban market.” Management said weakness in one of its major boot brands also hurt the quarterly comp. On the positive side, GCO said they saw improvement in the comp trend during the quarter, a trend which has continued into the current quarter.
GCO continues to focus on the womens business at Station. Women's footwear made up about 42% of Group footwear sales in Q4 compared with 35% in the year-ago period. The kids business was also said to be strong, accounting for 9% of Q4 footwear sales.
Operating income for the Station Group fell 40.2% to $2.3 million, or 5.3% of sales, compared to $3.8 million, or 7.8% of sales, in Q4 last year. Underground Station Group's gross margin was down about 60 basis points.
GCO ended the fiscal year with 192 stores in the Underground Station Group, closing 33 stores in the Group during the year. They will not open any new Underground stores in fiscal 2009, but expect to close about six Jarman and 22 Underground Station stores.
They expect Station comps to be up in the mid- to high-single-digits for the current year, which would be a significant reversal of fortunes given the negative 16% comp in fiscal 2008.
