Genesco Sees Continued Strength at Journeys Formats; Urban Formats Hurt Q4…

Genesco Inc., which has seen its Journeys format at ground zero for three of the biggest trends over the last year, may be starting to see some issues with two of its other key formats. While Journeys has been riding the fashion athletic wave from the beginning, establishing its position in the mall long before much of their competition, and has been able to capitalize on Crocs and Heelys in a bigger way as well, the Underground Station and Lids formats are starting to see the challenges of the urban market.

The company, which opened 224 new stores in 2006, representing a 13% increase in doors and a 14% expansion in square footage, is now starting to focus on non-mall locations as well. Newer formats such as Journeys Kidz and Shi by Journeys are proving to be nice additions to the family, with Kidz expanding to 73 doors and Shi turning in a profitable effort in its first full year of operation. Both were cited as examples of how GCO can use existing infrastructure to profitably roll our new concepts.

Journeys posted a 21.6% increase in sales in Q4 to approximately $234.3 million from $192.6 million in the year-ago quarter. Comps were up 6% on top of a 10% comp sales gain in the 2005 Q4 period. Footwear unit comp sales were up 12% on top of a 12% unit gain last year, but average selling prices dipped another two percent. Strength in athletic was led by skate. Management called out Vans, Heely’s and DC Shoes as key performers. They also pointed to the kid’s towers in the Journeys stores, highlighting increased comps and average selling prices. The Journeys catalog and eCommerce business also experienced strong growth, increasing 29% for the quarter.

Operating income was up 20.6% in the period to $37.5 million, or 16.0% of sales, compared to $31.1 million, or 16.1% of sales, in the fiscal fourth quarter.

Journeys ended the year with 768 doors after opening 61 new stores for the year. They also expanded “size-constrained” mall stores with a 77% increase in square footage on average. Management sees adding another 50 to 60 doors this year.

Journeys Kidz sales jumped 59% to more than $15 million for the quarter, with comp store sales increasing 8% on top of a 12% comp gain in Q4 of the prior year. Footwear unit comps were up 12% for the period. GCO added six new stores in the quarter for a total of 73 stores at year-end. Full year sales were up 50% to $42 million, reflecting a 9% comp sales gain in addition to the new stores. Management said they will accelerate their growth plan here to add 40 additional stores this year. They see an opportunity to open 250 to 300 Journeys Kidz stores nationwide.

Shi by Journeys expanded by two stores in Q4 for a total of 12 doors at year-end. GCO appears to be encouraged enough by this concept to accelerate growth to 50 stores by the end of the current fiscal year, with plans for up to 500 stores over time.

Hat World saw weakness in the urban market result in a 1% decline in comp store sales for the fourth quarter. Total sales were up 18.6% for the quarter to $115.9 million from $97.7 million in the prior year period. The 113 core urban stores saw an 8% decline in comps in Q4, while comps for the rest of the chain inched up about one percent for the period.

Trying to anniversary the Steelers Super Bowl run with Colts product, or trading out Texas for Florida as NCAA champs didn’t help either.

Operating earnings were up 7.0% to $19.0 million, or 16.4% of sales, in the fourth quarter, compared to $17.7 million, or 18.2% of sales, in the prior year period.

Full year Hat World comps were down one percent versus a 4% gain in the prior year.

The retailer added 104 new stores during the year, bringing total door count to 785 stores at year-end. Management said they are expanding their long-term forecast for total stores to between 1,200 and 1,300 doors versus previous estimates for 800 to 1,000 stores, excluding the new Lids Kidz concept. Management also said that they will add 15 new Lids Kidz stores this year to the three store test in Indiana.

The Underground Station Group, which still includes some Jarman stores, saw total net sales decrease 6.9% to $49.2 million from $53.6 million in prior year quarter. Same-store sales fell 15% for the period versus a 4% gain in the fourth quarter last year. The stores were hurt by the loss of Nike as a vendor, but the men’s and women’s rugged casual business was also soft in Q4. Management said they will continue to shift the assortment here away from athletic to more casual footwear.

Operating income for the Station group fell 45.4% to $3.8 million, or 7.8% of sales, compared to $7.0 million, or 12.2% of sales in Q4 last year.