Genesco Inc. is feeling pretty good about the business these days, so much so that the company has gone ahead and increased full year sales and earnings estimates once again. The strength of the fashion athletics business at Journeys and better-than expected contributions from the recently-acquired Hat World business is prompting the retailer/wholesaler to push expectations higher for the year.
With the inclusion of the Hat World business in the numbers, GCO had estimated earnings for 2004 to be in the range of $1.52 to $1.59 per share. A stronger-than expected first quarter, coupled a generally more positive outlook on the overall business, Genesco is now estimating that earnings will be in the $1.74 to $1.80, which includes a nine cents per share charge for store closing expenses, on sales of $1.1 billion.
The increased outlook is approximately 14% higher than previous estimates at its mid-point and represents a 35% to 40% increase in diluted earnings per share versus last year.
Journeys' same store sales increased 9% in the quarter, driven by a 9% gain in footwear unit comps and a “moderation” of the decline in average selling prices, which were off 3% in the period. ASP was down 8% in the fourth quarter. Gross margin improved by 270 basis points and operating margin increased 250 basis points, both due to decreased markdowns in Q1. Journeys comps are forecast to be up in the 3% to 5% range for the balance of the year.
Fashion athletic footwear represented 49% of sales in the Q1 period versus 39% in the year-ago quarter. Converse, Phat Farm, Saucony and adidas were all cited as key brands. Journeys is expanding the Nike “Indy” collection to 85 doors by June and now has AF 1s in 35 doors.
Genesco president and CEO Hal Pennington made it clear that they see the athletic business purely from a fashion standpoint and are not going after any performance product. He said the fashion athletic business stronger than expected and delivered margins comparable to the brown shoe business. Sandals with an athletic influence were stronger than comfort sandals.
Skate brands are also performing well here, with Pennington describing the sell through of core product as “terrific”. Core brands such as Adio, DVS, Globe, and Osiris are also authenticating other skate product in the store that GCO is sourcing directly from the factory.
Journeys womens fashion business was also up, pushing GM higher. The 41 Kids doors comped up 22% for the period, with footwear unit comps jumping 19%.
Comparable store sales for the Underground Station Group declined 3% for the quarter on top of a 2% decline in Q1 last year and are expected to be flat to down a bit for the balance of the year.
Underground Station stores same-store sales declined 2% versus a 7% increase last year and the Jarman stores comped down 4%. The CEO pointed to a lack of “fresh, compelling fashion trends” and 5% decrease in ASP for the decline. He sees the trend continuing through Q2 since Underground is up against a 9% in the year-ago period.
On the plus side, footwear unit comps for the Underground stores were up 2.7% in the period and operating margin increased due to a 160 basis point gross margin improvement.
The Hat World business, which was acquired on April 1, was said to have “outperformed plan in both sales and operating margin”. Hat World comps increased 23% for the first quarter and 20% for the month of April on top of a 20% gain in April last year.
GCO said the core MLB business was very strong, particularly with Yankees, Red Sox, and Cubs product. Pennington also said the MLB and NBA fashion product was “highly productive”. He pointed to a “surge in demand” for trucker hats, calling out Von Dutch, and also highlighted higher prices for relaxed, fitted styles.
Management said they could grow the store base by the planned 400 to 500 stores with the current management team, but may need to add more capacity on the DC side. They see 50 to 60 stores this year and “maybe up to 60 stores” next year.
GCO borrowed $100 million in term debt to help finance the cash plus debt deal.
Second quarter earnings are forecast in the six cents to nine cents per share range on sales between $244 million and $248 million.
>>> Hmm
Increased ASP on fashion product
Sure is nice to NOT hear about how Shox is going to save someones business in the back half…
