With signs of maturation coming from its core Journeys concept, Genesco Inc. said much of its growth in the future will come from acquisitions of smaller niche retailers. As an example, President and CEO Bob Dennis, speaking at ICR XChange, cited the company's potential to build Sports Fanatic, a 37-unit chain acquired in November, into a national chain.
He said Sports Fanatic, which sells fan merchandise, fits Genesco's strategy of focusing on “protected niches,” or businesses where it would be difficult for others to replicate the model. Dennis noted that about 6 or 7 other chains focus on fan apparel with about 30 to 40 stores in the U.S. But much like Genesco did after acquiring Hat World, he expects Sports Fanatic will significantly benefit from being rolled into Genesco.
“We try to find business that are niche oriented and probably a little smaller so they benefit from being part of Genesco's infrastructure,” said Dennis. “The businesses are too small to get to efficient operating margins on their own.”
For instance, he noted that Sports Fanatic, which is being incorporated into the Hat World division, currently does all direct store delivery and will be installing replenishment capabilities with Hat World's help. The company also doesn't have e-commerce, which has become “a very important part of Hat World.” It's only started in-store embroidery, a sizeable business for Hat World. Hat World also shares a number of vendors and that should lead to better service and discounts for Sports Fanatic. Finally, tapping into Genesco's POS systems, HR support, and real estate clout should also benefit the fan chain.
“When you run the economics of that it really blooms the economics of that business and then provides a terrific platform for growing it down the road,' said Dennis.
Dennis talked about Genesco's opportunities around Sports Fanatic and other similar acquisitions while reiterating the company's 5-year growth plan that calls for slower top-line growth with 50 store openings planned a year. That's down from 70 openings in 2009, 110 in 2008 and 220 in 2007, largely due to slowed growth at Journeys. Journeys' expansion is particularly limited by the lack of new malls being developed.
Hat World remains its one larger concept seeing strong expansion, with 40 stores expected to open annually over the next five years. Shi by Journeys hasn't yet met internal performance targets for a fuller rollout. The underperforming Underground Station concept is expected to see flat sales growth.
EPS is expected to grow 15% to 20% a year over the next five years. With a focus on expense control, Dennis expects this will be led by bringing operating margins back to around 8% it had been before its failed merger with The Finish Line and the recession. The margin is currently is around 5%.
Genesco also indicated that same store sales for the quarter-to-date period through Jan. 9 were up 1% versus a 4% decline in the year-ago period. Dennis said about half of Hat World's 7% comp gain was attributable to the Yankees winning the World Series. Journeys Group's comps were down 2% but Journeys Kidz performed well, said Dennis. Comps were flat at Underground Station and inched up 1% at Johnston & Murphy Group.
Sales for the company's e-commerce and catalog businesses increased 24% in the quarter-to-date period. Dennis said while some of the gain reflected a consumer shift to online buying inclement weather that shifted customers from brick & mortars to online, but he also noted that the company has been aggressive in buying key words for searches and with social media for the Journeys chain. Said Dennis, “It's a very profitable part of the business so we're excited with the results.”
The company also remains comfortable with its previously announced Q409 EPS expectation of $1.07 to $1.13 per diluted share.
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