Genesco Inc. reported that, adjusted for special items both periods, earnings from continuing operations vaulted 189% in the 2010 first quarter to $10.1 million, or 42 cents a share. Comps grew 5% in the quarter and are running ahead 3% in May through May 22.
At Journeys Group, sales increased 1.7% to $181.9 million. Comps increased by 2% versus a 3% gain last year. Direct sales increased 13% and represented 2% of sales. Journeys' operating income improved 65.4% to $9.1 million from $5.5 million in Q1 last year, driven by an increased gross margin due to fewer markdowns as well as expense leverage. Comp footwear ASPs for the Journeys stores were down 1.4% due to lower ASPs in athletics, offset by increases in men's and women's casual. May comps for the Journeys Group are running up 5% through May 22.
On a conference call with analysts, Bob Dennis, chairman, president and CEO, said that although comps were “not yet as strong as we would like to see,” its core skate business “remains solid” and some fashion trends are starting to work in Journeys' favor.
“While we are not yet ready to say that there is a clear and dramatic consumer move from white to brown footwear, we are definitely seeing it drift in that direction,” said Dennis. “And we also see an increased blurring of what is an athletic style as opposed to an athletic-influenced casual shoe. For example, we have noticed significant developments in textured uppers on vulcanized soles after a strong, but evolving performance for more basic vulcanized styles. And much of this is from vendors not traditionally thought of as athletic. Importantly, we think that the direction of the trend may be moving toward casual assortments that are beyond the core competency of the mall-based athletic retailers. That could be a significant catalyst for us in the fall if we are right and we end up with true product advantages, something we have lacked for some time now at Journeys.”
On the downside, tests of toning “reinforces our belief that it is not the breakout event for us that it has been for others.” As such, he said the more relevant comparison for benchmarking Journeys' performance is the eight largest teen-oriented apparel retailers in the mall. Dennis said Journeys has been keeping pace with this group, “which is good given our lack of overall product advantages over this period.”
Journeys Kidz showed “nice improvement year-over-year with solid performance across the merchandise assortment,” according to Dennis. Shi by Journeys, the retailer’s women’s-oriented format, saw comps up 6% in Q1 and ahead 12% for Q2 through May 22. The gains have been driven by strong performance across its casual offerings. A reduction in its athletic assortment in favor of more casual SKUs, much of it in first-cost product, has led to solid gross margin improvements. Journeys' direct business was up 13% in the first quarter.
Lids Sports Group sales increased 21.4% to $120 million. Excluding Sports Fan-Attic, acquired in November, sales increased 16%. Comps increased 10% on top of 7% last year. Direct sales increased 17% and represented 4% of total sales. May comps are running up 5% through May 22. Operating earnings climbed 50% to $9.8 million although gross margin was lower due to Sports Fan-Attic and lower gross margin at Lids Team Sports, its wholesale business. Gross margin increased at Lids hat stores.
The hat stores saw “excellent increases” in MLB, NCAA and the NHL merchandise. In-store embroidery operations also delivered solid gains.
Genesco also announced last week that it reached an agreement to acquire Sports Avenue, which operates 46 sports licensing stores across the U.S. and 13 ecommerce sites. It had revenues of approximately $42 million for its most recent fiscal year. About a third of the stores are broadly assorted while two-thirds are operated under license for specific teams and universities, including the New York Yankees, the New York Mets, St. Louis Cardinals, Kansas University and Old Miss. Terms of the acquisition were not disclosed.
Sports Avenue will become part of Lids Locker Room, which also includes its 37 Sports Fan-Attic stores as well as seven Lids Locker Room stores. Said Dennis, “Every addition of scale to the Locker Room business allows us to leverage our infrastructure, our inventory position and our overall clout in the marketplace. We hope to continue to find acquisitions like this one down the road.”
Genesco also during the quarter acquired Brand Athletics, a West Coast team dealer. That will expand its Lids Team Sports sub-segment from 30 states to 43 states and also leverages existing resources. The brand also has the exclusive rights to market Nike Golf to colleges and high schools nationwide, Dennis noted.
At Underground Station, sales were down 2% to $26 million, reflecting a flat comp and an 8% reduction in store count to 163 stores.
Underground Station earned $765,000 compared with a loss last year of $450,000, driven by a 260 basis point gross margin improvement due to an improved initial mark on and lower markdowns. May comps for Underground Station are running at negative 13% month-to-date.
Although Underground Station notched its first first-quarter profit since April 2006, Dennis said the business is “clearly challenged by a customer base severely impacted by ongoing unemployment issues.”
With the better-than-expected first quarter, Genesco raised its annual guidance to $2.10 and $2.20, up from its previous guidance of $2 to $2.10. Comps are expected to rise 2% to 3%.