Genesco Inc. reported a second-quarter loss that came in slightly below internal expectations while sharply reducing its guidance for the year due to soft sales at Lids and overall weak traffic at malls.

The loss from continuing operations for the second quarter ended July 29, 2017, of $3.9 million, or 20 cents per diluted share, compared to earnings from continuing operations of $14.5 million, or 72 cents per diluted share, for the second quarter ended July 30, 2016.

Fiscal 2018 second quarter results reflect the negative impact from new accounting guidelines for share-based payments totaling $2.2 million, or 11 cents per diluted share after-tax, and a pre-tax charge of $0.3 million, or 1 cent per diluted share after-tax in acquisition transition expenses, partially offset by after-tax gain of $0.5 million, or 2 cents per diluted share from income tax matters. Fiscal 2017 second quarter results reflect a pretax gain of $10.4 million, or 34 cents per diluted share after tax, including an $8.9 million gain on network intrusion expenses as a result of a litigation settlement, and a $2.5 million gain on the sale of Lids Team Sports, partially offset by $1 million for asset impairment charges, plus an after-tax gain of $0.9 million, or 4 cents per diluted share from income tax matters.

Adjusted for the items described above in both periods, the loss from continuing operations was $2 million, or 10 cents per diluted share, for the second quarter of Fiscal 2018, compared to earnings from continuing operations of $6.9 million, or 34 cents per diluted share, for the second quarter of Fiscal 2017. That represents a decline of 71 percent. Wall Street was expecting a loss of 8 cents a share.

Net sales for the second quarter of Fiscal 2018 decreased 1.4 percent to $617 million from $626 million in the second quarter of Fiscal 2017. Without the sale in December of the SureGrip business and the impact of foreign exchange, revenue would have been flat. Consolidated second quarter 2018 comparable sales, including same store sales and comparable e-commerce and catalog sales, were flat, with a 1 percent increase in the Journeys Group, a 2 percent decrease in the Lids Sports Group, a 3 percent increase in the Schuh Group, and a 1 percent decrease in the Johnston & Murphy Group. Comparable sales for the company included a 2 percent decrease in same store sales and a 30 percent increase in e-commerce sales.

Robert J. Dennis, chairman, president and chief executive officer of Genesco, said, “The second quarter was a bit more challenging than we expected, as positive momentum at Journeys was offset by increasing headwinds at Lids. Journeys comps improved significantly, as we emerged from the latest fashion cycle. We also continued to experience a more dramatic shift in consumer shopping away from stores to digital across our divisions which pressured profitability, as we deleveraged our fixed expenses on negative store comps. As a result of the overall flat comp and these factors, combined with gross margin headwinds, primarily from higher e-commerce sales, product mix shifts, and increased promotional activity, earnings were considerably lower than last year and slightly below our internal forecasts.

“The positive sales trends we experienced at Journeys and Schuh during the second quarter accelerated nicely during August in the important back-to-school selling period, and we believe that both businesses are in stronger merchandise positions heading into the holiday season compared with a year ago. Unfortunately, current trends at Lids continue to run well below our expectations which will make it more difficult to lap the tough comparisons we face beginning in October from last year’s Cubs World Series win. In addition, we have adopted a more conservative outlook for store-based sales given the anemic level of mall traffic year-to-date and the more pronounced shift in consumer spending away from stores to online. Therefore, we now expect adjusted diluted earnings per share for the year in the range of $3.35 to $3.65, compared to our previously issued guidance range of $3.90 to $4.05, a wider range than usual given some of the opportunities and challenges in our business.”

These expectations do not include expected non-cash asset impairments and other charges, estimated in the range of $4.7 million to $5.8 million pretax, or 16 to 20 cents per share after tax, for the full fiscal year. They also do not include certain tax effects related to equity grants pursuant to the newly effective ASU 2016-09, estimated at 11 cents per share after tax. This guidance assumes comparable sales in the range of -1 percent to 1 percent for the full year.

Dennis concluded, “While we are disappointed with our reduced outlook, we believe we have established new ranges for sales and earnings that better reflect the current operating environment. I believe that our approach to managing the business strikes the right balance between protecting near-term profitability and executing our long range plans, and we expect our concepts to emerge from the ongoing retail transformation in even stronger strategic positions.”

Photo courtesy Lids