Genesco Inc. reported a second quarter loss before discontinued operations of $2.9 million, or 13 cents per diluted share. Earnings before discontinued operations were $5.9 million, or $0.24 per diluted share. Net sales for the second quarter of fiscal 2008 increased 8% to $328 million, compared to $304 million for the second quarter of fiscal 2007.
Results for the quarter included $5.5 million pretax, or approximately $0.13 per diluted share, in expenses related to the Company's proposed merger with a subsidiary of The Finish Line Inc., retail store asset impairment charges and costs related to the previously announced decision to close certain underperforming stores, primarily in the Underground Station Group.
Genesco Chairman and Chief Executive Officer Hal N. Pennington said, “Our second quarter results were affected by the combination of a later start to back-to-school, later sales tax holidays in Texas and Florida and a generally challenging retail environment, especially in footwear. While back-to-school season is still in progress, we are encouraged by the improving trend in sales for the third quarter to date.
“Net sales in the Journeys Group increased 8% to approximately $148 million in the second quarter, while same store sales declined 7%. The shift in sales tax holidays in Texas and Florida from the second quarter last year to the third quarter this year had an especially pronounced effect on the Journeys Group, since approximately 16% of Journeys stores are located in those two states. Journeys' same store sales in Texas and Florida decreased 13% and 20%, respectively, in the quarter. We expect the Journeys business for the balance of the year to benefit from the later back-to-school and tax holiday sales and from more pronounced competitive merchandising advantages in the fall and holiday seasons, and are pleased with the week-to-week improvement in comparable sales thus far in the quarter: Journeys Group's same store sales have improved from a 10% decline in the first week in August, to a 3% increase in the second week, to a 9% increase for the week most recently ended, for a 1% increase for the month to date.
“Net sales in the Hat World Group increased 15% to approximately $90 million, while same store sales declined 2% in the second quarter, primarily due to fewer store-wide promotions compared to last year, ongoing challenges in the urban market and the back-to-school and tax holiday shift. Hat World's core business, particularly Major League Baseball products, performed well during the quarter and the Canadian business remains strong across the board. Through the third week of fiscal August, same store sales for the Hat World Group increased 4%.
“Net sales for the Underground Station Group, which includes the remaining Jarman stores, were $25 million, and same store sales declined 23%, in line with our expectations for the quarter. Same store sales again reflected the weak urban market, a difficult Nike comparison, and continued softness in the athletic category. Additionally, the tax holiday shift exacerbated the comparison, as 21% of Underground Station stores are located in Texas and Florida. For the first three weeks of August, same store sales in the Underground Station Group declined 20%. We expect Underground Station to benefit in the second half from new merchandising strategies for the fall and from easier comparisons with last year, as Nike's significance to last year's sales progressively diminishes and overall comparisons moderate.
“Johnston & Murphy Group's net sales increased 9% to approximately $46 million in the second quarter. Wholesale sales rose 18%, same store sales for the shops were up 5% and operating margin increased 200 basis points to 7.9%, reflecting continuing strength across Johnston & Murphy's product lines. For the first three weeks of August, same store sales increased 7%.
“Second quarter sales of Licensed Brands increased 18% to approximately $19 million, and operating margin increased 370 basis points to 12%. The Dockers Footwear product continued to perform well in the volume moderate channel and its business with the specialty shoe chains was strong.”
The Company said that because of its merger agreement with a subsidiary of The Finish Line, Inc., it does not expect to issue specific guidance with respect to sales and earnings expectations for the balance of the year.
GENESCO INC.
Consolidated Earnings SummaryThree Months Ended Six Months EndedAugust 4, July 29, August 4, July 29,In Thousands 2007 2006 2007 2006
Net sales $327,977 $304,301 $662,628 $619,319Cost of sales 164,358 150,911 327,165 304,560Selling and administrativeexpenses 166,059 140,619 325,132 282,485Restructuring and other, net 158 480 6,753 589
Earnings (loss) from operations (2,598) 12,291 3,578 31,685Interest expense, net 3,000 2,160 5,402 4,074
Earnings (loss) before incometaxes from continuing operations (5,598) 10,131 (1,824) 27,611
Income tax expense (benefit) (2,658) 4,187 (1,087) 11,001
Earnings (loss) from continuingoperations (2,940) 5,944 (737) 16,610
Provision for discontinuedoperations (1,225) - (1,225) (189)
Net Earnings (Loss) $(4,165) $5,944 $(1,962) $16,421
Earnings Per Share Information
Three Months Ended Six Months EndedIn Thousands (except per August 4, July 29, August 4, July 29,share amounts) 2007 2006 2007 2006
Preferred dividend requirements $54 $64 $118 $128
Average common shares - Basic EPS 22,415 22,988 22,403 23,015
Basic earnings (loss) per share:Before discontinued operations ($0.13) $0.26 ($0.04) $0.72Net earnings (loss) ($0.19) $0.26 ($0.09) $0.71
Average common and commonequivalent shares - Diluted EPS 22,415 27,340 22,403 27,388
Diluted earnings (loss) per share:Before discontinued operations ($0.13) $0.24 ($0.04) $0.65Net earnings (loss) ($0.19) $0.24 ($0.09) $0.64
