Shortly after Genesco, Inc. reported its disappointing
second quarter results last Thursday, The Finish Line, Inc., which is in the process of acquiring its rival, came out with an announcement of their own that signaled their own disappointment. FINL said that, “Consistent with its responsibilities to The Finish Line's shareholders,” they were “evaluating options in accordance with the terms of the merger agreement.” What those options may be left many industry watchers speculating heading into the holiday weekend, but most agreed the results were not a deal breaker.
GCO Chairman and CEO Hal Pennington was adamant that the decline in comp sales and 13 cents per share loss for the period, versus previous guidance of EPS in the 30 cents to 31 cents per share range, did not constitute a “material change in Genescos business.” Pennington noted that the soft business was due in large part to a shift in the timing of tax-free weekends in Florida and Texas, a later start for back-to-school, and a general softness in the retail market. The company took the extraordinary step of detailing the improving weekly sales trend through August to highlight a strengthening business as the season progresses.
Through the end of the previous week, total comps at Genesco were running flat for the month, with Journeys Group up 1%, Hat World Group up 4%, Underground Station Group down 20%, and Johnston & Murphy up 7% for the month-to-date period. But the devil is in the details as week one saw the Journeys Group still hung over from the weak July period, producing a 10% decline in comps, while week two comped up 3% and week three grew 9% on a comp store basis. Pennington said the other divisions saw a similar pattern.
Journeys Group comps were off 0.2% in May, down 2.1% in June and fell 12.7% in July, netting a 7% comp store sales decline at Journeys stores. Footwear unit comps were down 4%, resulting in a 5% decline in footwear average selling prices. Non-footwear product sales grew to 12% of overall sales, compared to 10% of sales in the year-ago period.
Highlighting the Florida/Texas issue, Pennington pointed out that 20% of Journeys sales were generated out of the two states in Q2. The retailers Texas stores comped down 13% for the quarter, while the Florida stores comped down 20% for the period. However, the month-to-date August period has seen Texas comps jump 29% through the first three weeks, while the Florida stores posted a 26% comp gain for the period.
Still, it wasnt all about a shifting calendar in Q2, as the retailer also noted that womens product comp sales were down 15%, while mens sales comped down 4% for the quarter. They speculated that strength in flip-flops, canvas shoes and Crocs drove ASPs down and affected sales results. They also called out Heelys as a disappointment, pointing to broader distribution and some new, lower price-point offerings as the reason for the softness in the brand.
Journeys Kidz sales totaled $11 million in the second quarter, reflecting a 39% increase from the year-ago period. Comp sales were down 5% and footwear unit comps were flat. Pennington said 38% of Q2 sales were located in Florida and Texas so the tax-free weekend shift hurt more there. They saw a strong rebound in August.
Hat World Group same-store sales declined about 2% for the second quarter, with comps in the urban stores falling 9% for the period. The rest of the chain comped down “less than 1%” for the quarter.
Pennington said the core Hat World business improved during the quarter as MLB on-field hats sales came in “very strong” and MLB relaxed-fit hats showed “good momentum.” The core NCAA business was called out as positive as was a growing action sports headwear business that closely tracks the growth of the skate brands in footwear.
Underground Station Group comps were down 23% for the quarter, as the retailer continues to deal with a weaker urban business, ongoing softness in athletic, and the loss of Nike product since last years quarter.
GCO now expects to close or convert this year 31 to 38 of the 57 under-performing Underground Station and Hat World stores slated for such action. That is up from original plans for 23 stores this year. The balance will be closed or converted next year. They plan to open two Station stores this year and close 22 to 28 stores. They will close 12 to 13 Jarman stores and convert two others to Station stores. Four Hat World stores will be closed.
>>> Was the announcement by The Finish Line a signal that the business was weaker than expected or just an opportunity to maybe swing a new price. If the business keeps improving in Q3, the point may be lost…
