Genesco saw a softening business in the urban markets impact results at its Underground Station and Hat World units in the second quarter, but strength at the Journeys division and GCO’s wholesale businesses offset the weakness elsewhere. While the company posted a solid revenue gain for Q2 and upped its store opening plans for both Shi by
Journeys and Hat World, management also moved to lower guidance for the full fiscal year.

Journeys Group comp store sales rose 5% for the first quarter on top
of a 6% increase last year, while footwear unit comps increased 8% in
the period. Average selling prices were off 1% for the quarter. Management
said that board sport shoes, sandals, and women’s casual
shoes continued to perform well. Those trends were expected to continue
through back-to-school. Athletic sales were said to be “strong,”
increasing 17% for the quarter, driven by skate footwear, which was
the largest athletic category. Athletic sales were 58% of sales, up
from 56% in the year-ago period. GCO called out Vans and Heely’s
and as key performers and also said that Nike Dunks were now in all
stores and “performing well.” Sandal sales were said to be strong,
with both units and ASP up for the period, and Crocs sales were described
as “meaningful.”.

There were 736 Journeys stores at quarter-end versus 670 stores last
year and six more than the end of Q1. The company said they are on
plan to open a total of 60 Journeys stores this year and close one
store. Square footage was up 14% for the period.

Journeys Kidz saw total sales grow 51% in the quarter, while samestore
sales were up 12% on top of a 14% comp gain last year. Management
said they opened remain on track to open a total of 25 Kidz
stores in fiscal 2007 and still believe that the chain can grow to more
than 250 stores in the U.S. Sales were pegged at $457/sf.

Shi by Journeys, which is the new format focusing on women, was
said to have “performed well during the quarter.” GCO added three
more Shi by Journeys stores in Q2 for a total of six stores in operation
at the end of the quarter. GCO plans to accelerate store openings to
14 doors for the year, compared to initial plans for 12 stores.

Net sales for the Underground Station Group, which includes the
remaining Jarman stores, were were down 4% to $31 million for the
period. Comp store sales declined 6% in the quarter versus a 9% increase
last year, with Underground Station comps declining 5% for the
period versus a 12% comp increase in Q2 last year. The decline this
year was said to be due primarily to weakening demand in men’s athletic
business and overall softness in the urban market. Station continued
to generate gains in women’s footwear, as well as apparel, accessories
and children’s shoes, categories they hope to bolster to offset
the weakness in atheltic and the loss of Nike product. Management
did say they received the full complement of Nike product on
order for the period. Gross margins were down on higher markdowns.

Jarman stores comped down 11% for the period, compared to a 1%
gain in Q2 last year. Management said they expected that the Underground
Station business will remain challenging in the near-term, but
also said a growing emphasis on women’s and non-footwear categories
should improve the chain’s “competitive position in the future.”

Hat World posted flat comp stores sales for the quarter versus a 4%
gain in Q2 last year, with strength in fashion-oriented MLB and
branded action brands offsetting softer NCAA and other branded categories
like beer and trucker hats.

Urban doors, which were estimated at
20% of chain volume, comped negative for
the period, while non-urban stores posted
a comparable store increase. Hat World
saw “more promotional activity” in Q2.

Management said that Hat World generated
an 11% operating margin for the
quarter, lending support to their strategy
of growing the unit’s highly profitable sales
by opening stores. Hat World added 96
stores last year and expects to add 103
stores this year, up from plans to open 85
to 90 doors. They will close seven stores.

GCO said that “a solid merchandise position,
a promising NFL season, a number of
big market MLB teams in the pennant race
and an expanded private label and embroidery
program” would all benefit HW in H2.

GCO reversed its optimism at the end of
Q1 and revised guidance downward, now
estimating diluted EPS of approximately
$2.50 to $2.54 per share on 1% comp
sales growth for the year. Total sales are
now estimated at $1.45 billion for the
year, compared to previous estimates of
$1.46 billion. Journey’s group comps are
seen up in low-singles, while Hat World
sales are expected to be flat and Underground
Station comps are expected to be
down low-singles for the year.


>>> If the athletic business at Underground
is challenged now, what happens
when they sell the last of the
Nike product…