Genesco Narrows Q2 Loss, Raises Full-Year Outlook

Genesco Inc. reported earnings from continuing operations for the second quarter ended July 30, 2011, of $0.4 million, or 1 cent per share, compared to a loss from continuing operations of $2.4 million, or 10 cents, a year ago.

The fiscal 2012 second quarter results reflect pretax charges of $0.4 million, or 1 cent per diluted share after tax, related primarily to fixed asset impairments.  Additionally, they reflect pretax compensation expense of $1.4 million, or 6 cents per diluted share, related to deferred purchase price payments in connection with the acquisition of Schuh Group Limited in June 2011, and pretax charges of $6.4 million, or 23 cents per diluted share after tax, in costs incurred in connection with the acquisition.

As previously announced, because the obligation to pay the deferred purchase price for Schuh is contingent upon the continued employment of the payees, U.S. Generally Accepted Accounting Principles require that it be treated as compensation expense.  The fiscal 2011 second quarter loss included pretax charges of $3.2 million, or 8 cents per diluted share, related to fixed asset impairments, purchase price accounting adjustments and other expense.

Excluding the listed items from both periods, fiscal 2012 second quarter earnings from continuing operations were $5.2 million, or 22 cents per diluted share, compared to a loss of $0.5 million, or 2 cents per diluted share, in the second quarter of fiscal 2011.  For consistency with fiscal 2012's previously announced earnings expectations and with previously reported adjusted results for the prior year period, the company believes that the disclosure of the results from continuing operations adjusted for these items will be useful to investors.  Additionally, the company believes that presentation of earnings from continuing operations before the compensation expense associated with the Schuh deferred purchase price will enable investors to understand the effect attributable to incorporating a continuing employment condition into the obligation to pay deferred purchase price and that, since the compensation expense is a non-cash charge until the deferred purchase price is actually paid, earnings including such expense may not be fully reflective of the company's ongoing results or indicative of its prospects.

Net sales for the second quarter of fiscal 2012 increased 29 percent to $471 million, from $364 million in the second quarter of fiscal 2011.  Comparable store sales in the second quarter of fiscal 2012 increased by 14 percent, with the Lids Sports Group up 12 percent, the Journeys Group up 15 percent, the Johnston & Murphy Group up 17 percent, and the Underground Station Group up 10 percent.

Robert J. Dennis, chairman, president and chief executive officer of Genesco, said, “Our second quarter operating results represent a significant improvement from a year ago. The combination of 14 percent organic growth and contributions from acquisitions allowed us to better leverage expenses and achieve much higher profitability in our seasonally slowest period.  We are pleased with the recent strength of our business and believe we are well positioned for continued sales and earnings gains as we move further into our key selling period.

“The Back-to-School season has been very good for us through August with comparable store sales up 12 percent. While we expect this trend to moderate as we proceed through the third quarter, this is an encouraging start to the second half of the year.”

Dennis also discussed the company's updated outlook. “Based on our acquisition of Schuh, our second quarter performance and current visibility, we are raising our fiscal 2012 guidance. We now expect full year diluted earnings per share to be in the range of $3.35 to $3.42, which represents a 35 percent to 38 percent increase over last year's earnings, up from our previous guidance range of $2.90 to $2.97. Consistent with previous guidance, these expectations do not include expected non-cash asset impairments and other charges, which are projected to total approximately $3 million to $4 million pretax, or $0.08 to $0.10 per share, after tax, in fiscal 2012. They also do not reflect Schuh acquisition expenses and compensation expense associated with the Schuh deferred purchase price as described above, totaling approximately $13.8 million, or $0.54 per diluted share, for the full year.  This guidance assumes comparable store sales of 7 percent to 9 percent for the full fiscal year.”

Dennis concluded, “Our strong operating performance over the past twelve months reflects the successful execution of our strategic plan. We've advanced Journeys' leadership position through compelling merchandise assortments and added an exciting new growth vehicle with our recent acquisition of Schuh. At the same time, our ongoing consolidation of the licensed sports merchandise and team sports markets has helped further strengthen our Lids Sports Group platform. While there is a possibility for some macroeconomic headwinds in the near-term, we are more optimistic than ever about the long-term potential of our business, evidenced by our new 5-year targets for $3 billion in revenue and operating margins of at least 9 percent by fiscal 2016.”