Genesco Inc said that due to adverse fashion shifts at Journeys and poor trading conditions at Schuh, its U.K. chain, it’s lowering its EPS outlook for the year.
The company reduced its guidance while reporting earnings from continuing operations for the second quarter ended July 30, 2016, of $14.5 million, or 72 cents per diluted share, compared to earnings from continuing operations of $7.6 million, or 32 cents per diluted share, for the second quarter ended August 1, 2015.
Fiscal 2017 second quarter results reflect a pretax gain of $10.4 million, or 38 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 $1.0 million for asset impairment charges. Fiscal 2016 second quarter results reflect pretax items of $1.8 million, or 4 cents per share after tax, including $0.6 million of expenses related to deferred purchase price payments in connection with the acquisition of Schuh Group Limited, which was required to be expensed as compensation because the payment was contingent upon the payees continued employment; and $1.2 million for asset impairment charges and network intrusion expenses.
Adjusted for the items described above in both periods, earnings from continuing operations were $6.9 million, or 34 cents per diluted share, for the second quarter of Fiscal 2017, compared to earnings from continuing operations of $8.5 million, or 36 cents per diluted share, for the second quarter of Fiscal 2016. Results exceeded Wall Street’s consensus target of 26 cents a share.
Net sales for the second quarter of Fiscal 2017 decreased 4.6 percent to $626 million from $656 million in the second quarter of Fiscal 2016, reflecting the divestiture of the Lids Team Sports business in the fourth quarter of Fiscal 2016. Consolidated second quarter Fiscal 2017 comparable sales, including same store sales and comparable e-commerce and catalog sales, decreased one percent, with a 4 percent decrease in the Journeys Group, flat comps at Lids Sports Group, a one percent decrease in the Schuh Group, and a 3 percent increase in the Johnston & Murphy Group. Comparable sales for the Company reflected a 2 percent decrease in same store sales and a one percent decrease in e-commerce sales.
Robert J. Dennis, Genesco chairman, president and chief executive officer, said, “Our comparable sales were challenged during the second quarter particularly in July with the emergence of a fashion rotation at Journeys. We experienced a sudden shift away from many of the core styles that have fueled Journeys’ strong performances in recent years. We were able to offset the effect this headwind had on our bottom line through a meaningful improvement in Lids Sports Group and continued strength at Johnston & Murphy combined with share repurchases over the past year.”
“The third quarter is off to a difficult start driven largely by the impact of the fashion shift at Journeys during the height of the back-to-school season and challenges at Schuh. Comparable sales for the third quarter through Saturday, August 27, 2016, are down (5 percent) from the same period last year.
“Based on our comparable sales trend and expectations for sustained challenges due to the fashion rotation at Journeys and conditions at Schuh, we are lowering our full year outlook. We now expect adjusted diluted earnings per share for the fiscal year ending January 28, 2017, in the range of $3.80 to $4.00, compared to our previously issued guidance range of $4.80 to $4.90.” These expectations do not include expected non-cash asset impairments and other charges including the gain on a litigation settlement and gain on the sale of Lids Team Sports in the second quarter this year, estimated in the range of a $1.2 million pretax gain to a $3.0 million pretax charge, or $(0.04) to $0.09 per share after tax, for the full fiscal year. This guidance assumes a comparable sales decrease in the low single digit range for the full year. A reconciliation of the adjusted financial measures cited in the guidance to their corresponding measures as reported pursuant to U.S. Generally Accepted Accounting Principles is included in Schedule B to this press release.
Dennis concluded, “While we are disappointed with our reduced outlook, we are confident that the Journeys’ team will be able to leverage their experience and strong vendor relationships to ensure Journeys emerges from this current cycle with leading, trend right merchandise assortments.”
Photos courtesy Genesco
