Genesco, Inc., the parent of Journeys, reaffirmed its guidance for the year after reporting that first-quarter earnings surpassed Wall Street estimates.
First Quarter Fiscal 2023 Financial Summary
- Net sales of $521 million, a decrease of 3 percent from last year and an increase of 5 percent over Q1FY20 with 90 fewer stores compared with three years ago;
- Gross margin increased 50 basis points over last year;
- GAAP operating income decreased 47 percent from last year and down 9 percent over Q1FY20;
- Non-GAAP operating income decreased 50 percent from last year and increased 14 percent over Q1FY20;
- E-commerce sales decreased 29 percent from last year and increased 74 percent from Q1FY20;
- E-commerce sales represented 19 percent of retail sales this year versus 25 percent of retail sales last year and 11 percent of retail sales in Q1FY20;
- GAAP EPS from continuing operations was $0.37 versus $0.60 last year and $0.36 in Q1FY20;
- Non-GAAP EPS from continuing operations was $0.441 vs. $0.79 last year and $0.33 in Q1FY20; and
- Sequential retail sales improvement in April and May to date compared with last year.
Mimi E. Vaughn, Genesco board chair, president and chief executive officer, said, “We are very pleased with our start to fiscal 2023, particularly our ability to exceed profitability expectations. While the year-ago period posed a difficult comparison due to government stimulus-fueled consumer spending, especially for our Journeys business, our top and bottom-line performance on a multi-year basis underscore the success of our footwear-focused strategy and our conviction that our company is fundamentally stronger than prior to the pandemic. Importantly, our business accelerated sequentially in April and thus far in May versus last year as inventory levels improved. Our work on increasing digital penetration, improving store economics, and growing branded sales has put us in a great position to drive profitable growth across all channels. We believe these results are a good indication of the positive things to come as we move into the back-to-school and holiday selling seasons.”
Thomas A. George, Genesco chief financial officer, commented, “Our first quarter results were highlighted by strong full priced selling as we continue to experience healthy demand for our merchandise offerings. While sales would have been higher if not for inventory shortfalls, we are pleased that our top-line grew 5 percent versus the same pre-pandemic period three years ago with 90 fewer stores and adjusted operating income increased 14 percent. This combined with share repurchases, allowed us to achieve a 33 percent increase in adjusted EPS compared with pre-pandemic levels with the more efficient use of capital to drive these results. With this first-quarter performance and updated outlook for the remainder of the year, we are reaffirming our expectations for adjusted earnings per share for Fiscal 2023 to range between $7.00 and $7.75. We still believe somewhere close to the middle of the range is where we will land.
First Quarter Review
Net sales for the first quarter of Fiscal 2023 decreased 3 percent to $521 million from $539 million in the first quarter of Fiscal 2022 and increased 5 percent from $496 million in the first quarter of Fiscal 2020, prior to the pandemic. The sales decrease compared to last year was driven by decreased comparable direct sales, partially offset by increased sales in the wholesale and store channels. The store channel increase was led by our Schuh business as its stores were only open 19 percent of possible days in the first quarter last year. As a result of store closures in response to the pandemic, the company has not included first-quarter comparable sales for this year or last year except for comparable direct sales, as it said that overall sales are a more meaningful metric for these periods. Comparable direct sales for the first quarter of Fiscal 2023 were down 26 percent compared to an increase of 43 percent for the first quarter of Fiscal 2022.
The overall sales decrease of 3 percent for the first quarter this year compared to the first quarter of Fiscal 2022 was led by Journeys where sales were down 16 percent, as Journeys was the biggest beneficiary of government stimulus in the first quarter last year and experienced a lack of inventory in the first quarter this year due to the impact of supply chain disruptions. The sales decrease in Journeys was partially offset by sales increases of 28 percent at Schuh, 46 percent at Johnston & Murphy and 5 percent at Licensed Brands.
First-quarter gross margin this year was 48.3 percent, up 50 basis points, compared with 47.8 percent last year and down 110 basis points compared with 49.4 percent in Fiscal 2020. The increase, as a percentage of sales, as compared to Fiscal 2022, is due primarily to lower shipping and warehouse expenses as a result of lower e-commerce penetration, increased full-priced selling and price increases partially offset by the channel mix impact of increased wholesale sales and increased freight and logistics costs.
Selling and administrative expenses for the first quarter this year increased 230 basis points as a percentage of sales as compared with last year and decreased 90 basis points compared with Fiscal 2020. Adjusted selling and administrative expense for the first quarter this year increased 220 basis points as a percentage of sales compared with last year and decreased 120 basis points compared with Fiscal 2020. The increase as compared to Fiscal 2022 is due in large part to one-time benefits for rent credits and government tax relief in the first quarter of Fiscal 2022. In addition, increased selling salaries were partially offset by decreased performance-based compensation expenses.
Genesco’s GAAP operating income for the first quarter was $8.2 million, or 1.6 percent of sales this year, compared with $15.5 million, or 2.9 percent of sales in the first quarter last year, and $9.1 million, or 1.8 percent of sales in the first quarter of Fiscal 2020. Adjusted for the Excluded Items in all periods, operating income for the first quarter was $9.5 million this year compared to $18.8 million last year and $8.4 million in the first quarter of Fiscal 2020. Adjusted operating margin was 1.8 percent of sales in the first quarter of Fiscal 2023, 3.5 percent in the first quarter of last year, and 1.7 percent in the first quarter of Fiscal 2020.
The effective tax rate for the quarter was 36.7 percent in Fiscal 2023 compared to 40.1 percent in the first quarter last year and 30.7 percent in the first quarter of Fiscal 2020. The adjusted tax rate, reflecting Excluded Items, was 34.7 percent in the first quarter of Fiscal 2023 compared to 35.7 percent in the first quarter of last year and 31.3 percent in the first quarter of Fiscal 2020. The lower adjusted tax rate for Q1 this year as compared to Q1 last year reflects a reduction in the number of foreign losses for which we are unable to recognize a tax benefit.
GAAP earnings from continuing operations were $5.0 million in the first quarter of Fiscal 2023, compared to $8.9 million in the first quarter last year and $6.5 million in the first quarter of Fiscal 2020. Adjusted for the Excluded Items in all periods, first-quarter earnings from continuing operations were $5.9 million, or $0.44 per share, in Fiscal 2023, compared to $11.6 million, or $0.79 per share, in the first quarter of last year and $5.9 million, or $0.33 per share, in the first quarter of Fiscal 2020.
Revenues were in line with Wall Street’s consensus target of $521 million. Adjusted EPS of 44 cents was well above Wall Street’s consensus estimate calling for a loss of 9 cents.
Cash, Borrowings and Inventory
Cash and cash equivalents at April 30, 2022, were $200.6 million, compared with $258.0 million at May 1, 2021. Total debt at the end of the first quarter of Fiscal 2023 was $14.7 million compared with $44.2 million at the end of last year’s first quarter. Inventories increased 33 percent in the first quarter of Fiscal 2023 on a year-over-year basis and increased 9 percent versus the first quarter of Fiscal 2020.
Capital Expenditures and Store Activity
For the first quarter, capital expenditures, excluding its new headquarters building, were $11 million related primarily to digital and omnichannel initiatives. Depreciation and amortization were $11 million. During the quarter, the company opened four stores and closed 15. The company ended the quarter with 1,414 stores compared with 1,444 stores at the end of the first quarter last year, or a decrease of 2 percent. Square footage was down 2 percent on a year-over-year basis.
The company repurchased 102,895 shares during the first quarter of Fiscal 2023 at a cost of $6.5 million or an average of $63.17 per share. The company currently has $100.3 million remaining on its expanded share repurchase authorization announced in February 2022.
Fiscal 2023 Outlook
The company reaffirmed its Fiscal 2023 full-year EPS guidance.
- Sales to be up 1 percent to 3 percent, compared to FY22, incorporating the impact of the lower exchange rates with a stronger U.S. dollar; and
- Adjusted diluted earnings per share from continuing operations in the range of $7.00 to $7.75, with an expectation that earnings per share for the year will be near the mid-point of the range.
Photo courtesy Genesco/Journeys