Genesco Inc. managed to show a 8.2 percent increase in fourth-quarter earnings before charges as expense leverage helped offset a steep comp decline at Lids and a modest one at Journeys. But the footwear chain spooked Wall Street by indicating that February comps were down 9 percent.
Along with the challenges the Lids chain continues to have dealing with the popularity of the snapbacks category, Genesco management said on a conference call with analysts that Februarys drop reflects two significant economic factors: the IRS delay in processing federal tax refunds and the increase in payroll tax withholding as a result of the fiscal cliff resolution at the end of last year.
On the call, Bob Dennis, chairman, president and CEO, said both Lids and Journeys in recent years have received sales boost following the first wave of tax refunds in late January and early February, which shifted this year deeper into February. He added that the company saw improvement through the month as refunds were delivered with the final week of February coming in only slightly negative. Added Dennis, We expect a brief tailwind in March as the IRS catches up to last year’s disbursements.
However, the permanent new payroll tax increase provides headwinds to Journeys and Lids beyond just this month and its hard to determine its impact, along with the impact of higher gas prices in the sequester. He also expects continuing challenges during the first half for Lids. Regardless, he projected full-year EPS growth of 10 percent to 12 percent this year on top-line growth of roughly 4 percent to 5 percent, with gains over last year expected to be weighted to the back half. Comps are expected to increased in the low-single digits.
Genesco also continued to feel the fallout from the 2010 breach of Genescos computer system. Unidentified hackers inserted malicious software designed to capture card information as it was processed through the network. Net earnings from continuing operations slid 6.7 percent in the quarter, to $38.7 million, or $1.63 per diluted share after $15.4 million of expenses related to the 2010 network intrusion. Charges in the latest period also included $3.2 million of expenses related to deferred payouts from its acquisition of Schuh Group Limited.
Adjusted for non-recurring items in both periods, earnings from continuing operations rose 8.2 percent in the latest quarter to $51.4 million, or $2.16 per diluted share, from $47.5 million, or $1.97, a year ago.
Sales in the quarter increased 10.2 percent to $797 million, with an extra week in the three months accounting for approximately half the increase. Comps decreased 2 percent on a 14-week basis, with a 1 percent decrease in the Journeys Group, a 10 percent decrease in the Lids Sports Group, a 7 percent increase in the Schuh Group, and a 2 percent increase in the Johnston & Murphy Group.
Lids Groups revenues rose 6.1 percent to $240.5 million; operating income slid 12.3 percent to $27.5 million. About 1.5 of Lids 10 percent comp drop reflected the decline in NHL sales due to the strike although those sales have seen a nice recovery in January with the strikes end. Another 0.5 percent of the decline reflects the fact that San Francisco Giants won the MLB World Series, with Lids having less exposure to that team than 2011s winner, the St. Louis Cardinals. But the largest impact continues to be the Snapback trend. Versus the fitted hats the chain specializes in, Snapbacks are more easily merchandised and many other stores are selling the item.
Dennis said he expects that like all fashion trends, Snapback demand will moderate in time and with our market leading position and a proactive merchandising approach we feel good about our ability to capitalize on the next trend. Some newer programs supporting the fitted category have been positive.
February comps for the Lids Group were down 11 percent but the divisions comps improved over the course of the month and were roughly flat in the last week of the month.
The Lids Locker Room and Clubhouse stores continue to expand. Twelve new Lids Locker Room stores and one new Clubhouse were added in the quarter, bringing its store count for these concepts to 90 and 54, respectively. It plans to open as many as 35 Lids Locker Rooms and 15 Clubhouse stores in 2013.
Journeys Group’s sales grew 6.5 percent to $337.5 million; operating earnings improved 4.6 percent to $42.5 million. Journeys 1 percent quarterly comps dip reflected particular weakness in the 14th week and was attributed to tax refund delay. The rate of increase of ASPs continued to moderate in the quarter as the price increases from vendors that began in the back half of last year was anniversaried.
February comps for the Journeys Group came in at minus 8 percent, reflecting the delay in tax refunds, as well as later than usual introductions of new products that likely shifted some of February sales into March due to logistical issues.
Among younger chains in the group, Shi by Journeys and Journeys Kidz businesses were up 6 percent and 7 percent respectively for the year. Plans call for as many as 20 new Kidz stores in 2013.
At Schuh Group, revenues in the quarter gained 26.7 percent to $126.8 million; operating earnings increased 17.5 percent to $8.7 million. Fourteen stores opened in the quarter, and 12 are expected in the current year along with three new Schuh kids locations. February comps for Schuh were minus 11 percent against a year-ago gain of 15 percent, with the decline blamed on the U.K.s challenging economy and more wintry weather this year versus last year.
At Johnston & Murphy, revenues grew to $69.1 million from $60.0 million; operating earning reached $6.8 million against $5.7 million. Its Licensed Brand group, largely Dockers, saw a 14.2 percent quarterly sales gain, to $22.5 million; operating income improved 6.2 percent to $1.5 million.
Overall, operating earnings on an adjusted basis rose 10 percent in the quarter and was flat at 10.3 percent of sales versus the prior year. Eighty basis points of expense leverage made up for an 80 basis point reduction in gross margin for the quarter, reflecting heavier promotions at Lids and changes in the sales mix in other divisions.
For 2012, earnings from continuing operations grew 33.7 percent to $111.0 million, or $4.62 per diluted share. Adjusted to exclude the charges, earnings climbed 24.9 percent to $121.8 million, or $5.06. Revenues grew 13.7 percent to $2.6 billion. Comps were up 3 percent. By Group, gains of 6 percent were seen at Journeys, 9 percent at Schuh, and 4 percent at Johnston & Murphy. Lids was down 3 percent.
