Genesco Looks to Strong Athletics and Headwear Hook-ups for Improved Outlook…

Genesco is starting to give the market an idea just how important the Hat World acquisition was for the company as they work on new formats to develop locations that pair a Lids store with an Underground Station store while continuing to expand the concept of multiple Lids stores in specific malls. Continued strength in athletics in the Station stores, coupled with expanding athletics at Journeys, contributed to solid gains in sales and earnings for the first quarter ended April 30.

At Journeys, the 7% comp store sales gain came on top of a 9% increase in Q1 last year. Athletics represented 52% of total sales versus 49% in the year-ago period and was fairly evenly split between men’s and women’s. adidas, Puma, and Asics were called out as key performers here. Management does see the athletic growth percentages flattening out in the segment as brown shoes start to strengthen. They said that the brown shoe pick-up seems to be centered on the Fusion or Euro Casual/Euro Athletic product, highlighted by brands like Diesel, Steve Madden, and Skechers. Boardsport footwear continued to perform “very well”, with Etnies, Adio, Globe, and DVS called out as posting solid gains for the period. The women’s fashion and casual businesses were “strong across the board.”

Average selling prices were down for the period, but unit sales were up 11% for the quarter. Gross margins rose 130 basis points and operating margins improved 270 basis points to 10.5% of sales.

Total sales at Journeys Kidz were up 28% during the quarter to roughly $7 million. Same-store sales jumped 22% for the period on top of a 22% gain in Q1 last year, driven by strength across all categories. Sales per square foot increased to $433/sf, compared to $316/sf in the year-ago period.

GCO opened their first Journeys store in Manhattan in May, bowing an 11,000 store at the corner of 34th street and Broadway, across from Macy’s.

Hat World, which was only under the Genesco umbrella for one month in the year-ago quarter, continues to impress. The 7% comp store sales gain comes on top of a 23% comp sales increase in Q1 last year. Major League Baseball has been the big driver here, helped by tonal black-on-black and white-on-white looks that are dominating trends. In branded, management said beer brands and surf-inspired headwear continues to perform. They also said that headwear with performance fabric is an emerging trend, with Nike and Under Armour called out as key players.

Management said that Hat World generates operating margins in the 13% to 14% range and, combined with moderate comp increases and aggressive store openings, will have a meaningful impact on expanding GCO’s overall operating margin.

GCO plans to open 90 new headwear stores this year, or a 16% increase in store count.

The company will expand their multiple location strategy in more malls this year. They have five Lids stores in Mall of America and have two stores in four others. The new Lids stores appear to hit the ground running, with new stores delivering about what a mature store delivers.

GCO also pointed to a successful launch of a new co-location format in Brooklyn, where they have a Lids store sharing a location with an Underground Station store, as a possible model for the future.

The Underground Station Group, which still includes about 61 Jarman stores, saw its fortunes rise on the strength of athletic footwear and increased average selling prices. The Underground Station stores comped up 11%, with a 7% increase in ASP’s boosting sales beyond the 6% gain in footwear unit volumes, while Jarman comps rose 4% for the period and total sales fell 25% on reduced store count.

GCO said fashion athletic continued to increase as a percentage of sales to 40% of sales in the quarter versus 35% of sales last year. Athletic was driven by Converse, Puma, adidas, Reebok, K-Swiss, and Fila, as well as an expanded Nike offering. Non-footwear product is also performing well, with apparel and accessories making up 16% of sales in the quarter.

Station operating margins improved 120 basis points to 5.8% of sales, due to a 50 basis point gain in gross margin and increased expense leverage.

Genesco revised its current year guidance upward, with EPS ranging from $2.21 to $2.24 per share on sales between $1.27 billion and $1.28 billion.

>>> Headwear and footwear hook-ups? What a novel idea. Someone else is kicking themselves right now…