Genesco, Inc. reported a steeper loss than expected in the first quarter ended April 29 as Journeys same-store sales fell 14 percent, offsetting double-digit gains at Schuh and Johnston & Murphy. Genesco reduced its outlook for the year and is initiating cost-containment initiatives.
The adjusted loss of $1.59 compares to Wall Street;’s consensus estimate calling for a loss of $1.01. Revenues of $483 million were in line with Wall Street;’s consensus estimate of $484 million.
First Quarter Fiscal 2024 Financial Summary
- Net sales of $483 million decreased 7 percent compared to Q1FY23
- Excluding the impact of lower exchange rates, net sales decreased 6 percent compared to Q1FY23
- Comps down 5 percent, with stores down 8 percent and direct up 7 percent
- E-commerce sales represented 21 percent of retail sales compared to 19 percent last year
- GAAP EPS from continuing operations was ($1.60) vs. $0.37 last year
- Non-GAAP EPS from continuing operations was ($1.59) vs. $0.44 last year
- Repurchased $9.2 million of stock during Q1FY24, with $25.0 million remaining on the current authorization
Mimi E. Vaughn, Genesco’s Board chair, president and chief executive officer, said, “Following a positive end to the holiday season, the first quarter proved considerably more challenging than we anticipated. Consumer demand at Journeys dropped off significantly early in the quarter and did not improve as we changed seasons in the latter part of March and into April, offsetting another quarter of record sales at Schuh and Johnston & Murphy. In response, we are taking swift actions to mitigate the consumer shift in the marketplace, including closing more underperforming Journeys stores, reducing our cost base further, and working to quickly refine our product assortment. However, given the ongoing uncertainty around near-term consumer behavior, we are taking a much more conservative view and revising our outlook for the remainder of Fiscal 2024.”
She continued, “Despite the difficulties in the current environment, we remain excited about our future prospects and the strength of our competitive positioning. Having navigated multiple adverse retail cycles, our team has demonstrated a track record of success, the resilience of our business, and the ability to rebound and come out ahead. As the leading destination for teen fashion footwear, and key partner to our brands, I feel confident that our footwear-focused strategy and the strategic initiatives we are implementing will position Journeys to emerge from this period in an even stronger competitive position.”
First Quarter Review
Net sales for the first quarter of Fiscal 2024 of $483 million decreased 7 percent compared to $521 million in the first quarter of Fiscal 2023. The sales decrease compared to last year was driven by decreased store sales in Journeys Group, decreased wholesale sales and foreign exchange pressure, partially offset by a 5 percent increase in e-commerce sales and strong store performance at Schuh and Johnston & Murphy. Excluding the impact of lower exchange rates, net sales decreased 6 percent for the first quarter of Fiscal 2024 compared to the first quarter of Fiscal 2023. As a result of store closures in response to the COVID-19 pandemic during the first quarter of Fiscal 2022, the company did not include comparable sales for the first quarter of Fiscal 2023, except for comparable direct sales, as it felt that overall sales was a more meaningful metric last year.
Comps were down 5 percent in the first quarter, with stores down 8 percent and direct up 7 percent. By concept, same-store sales were down 14 percent at Journeys while expanding 13 percent at Schuh Group and 18 percent at Johnston & Murphy Group.
The overall sales decrease of 7 percent for the first quarter of Fiscal 2024 compared to the first quarter of Fiscal 2023 was driven by a decrease of 13 percent at Journeys and a 25 percent or $12 million decrease at Genesco Brands, partially offset by an increase of 6 percent at Schuh and an increase of 16 percent at Johnston & Murphy. On a constant currency basis, Schuh sales were up 13 percent for the first quarter this year.
First quarter gross margin this year was 47.3 percent, down 100 basis points compared with 48.3 percent last year. The decrease as a percentage of sales compared to Fiscal 2023 is due primarily to a more normalized promotional environment and increased markdowns at Journeys, which offset improved margins in the remaining businesses.
Selling and administrative expense for the first quarter this year increased 520 basis points as a percentage of sales compared with last year. Adjusted selling and administrative expense for the first quarter this year increased 550 basis points as a percentage of sales compared with last year. The increase as a percentage of sales compared to Fiscal 2023 reflects the deleverage of expenses, especially compensation expense, selling salaries and occupancy expense as a result of decreased revenue in the first quarter of Fiscal 2024.
Genesco’s GAAP operating loss for the first quarter was ($23.0) million, or (4.8) percent of sales this year, compared with operating income of $8.2 million, or 1.6 percent of sales in the first quarter last year. Adjusted for the Excluded Items in all periods, the operating loss for the first quarter was ($22.7) million this year compared to operating income of $9.5 million last year. Adjusted operating margin was (4.7) percent of sales in the first quarter of Fiscal 2024 and 1.8 percent in the first quarter last year.
The effective tax rate for the quarter was 23.7 percent in Fiscal 2024 compared to 36.7 percent in the first quarter last year. The adjusted tax rate, reflecting Excluded Items, was 23.3 percent in Fiscal 2024 compared to 34.7 percent in the first quarter last year. The lower adjusted tax rate for the first quarter this year compared to the first quarter last year reflects a reduction in the amount of foreign losses for which we are unable to recognize a tax benefit.
GAAP loss from continuing operations was ($18.9) million in the first quarter of Fiscal 2024 compared to earnings from continuing operations of $5.0 million in the first quarter last year. Adjusted for the Excluded Items in all periods, the first quarter loss from continuing operations was ($18.7) million, or ($1.59) per share, in Fiscal 2024, compared to earnings from continuing operations of $5.9 million, or $0.44 per share, in the first quarter last year.
Cash, Borrowings And Inventory
Cash as of April 29, 2023 was $31.8 million, compared with $200.6 million as of April 30, 2022. Total debt at the end of the first quarter of Fiscal 2024 was $118.2 million compared with $14.7 million at the end of last year’s first quarter. The past twelve months the company utilized cash and borrowing to replenish low inventory levels by $172.2 million and return capital to shareholders with share repurchases totaling $75.4 million. Inventories increased 17 percent on a year-over-year basis, primarily for the Johnston & Murphy and Schuh businesses to fuel growth, while Journey’s inventories were flat.
Capital Expenditures and Store Activity
For the first quarter this year, capital expenditures were $17 million, related primarily to retail stores and digital and omnichannel initiatives. Depreciation and amortization was $11 million. During the quarter, the company opened 12 stores and closed 26 stores. The company ended the quarter with 1,396 stores compared with 1,414 stores at the end of the first quarter last year, or a decrease of 1 percent. Square footage was essentially flat on a year-over-year basis.
The company repurchased 255,000 shares during the first quarter of Fiscal 2024 at a cost of $9.2 million or an average of $35.96 per share. The company currently has $25.0 million remaining on its expanded share repurchase authorization announced in February 2022.
Store Closing and Cost Savings Update
The company now expects to close more than 100 Journeys stores in Fiscal 2024, versus prior expectations to close 60 stores
The company now anticipates up to $40 million in cost reductions, versus $20 million to $25 million prior, with $20 million realized in Fiscal 2024
Revised Fiscal 2024 Outlook
For Fiscal 2024, the company now expects:
- Sales to be down 4 percent to 5 percent, or down 5 percent to 6 percent excluding the 53rd week this year, compared to Fiscal 23. (Previously, sales were flat to up 2 percent, or down 1 percent to up 1 percent, excluding the 53rd week.)
- Adjusted diluted earnings per share from continuing operations in the range of $2.00 to $2.50. (Adjusted diluted earnings per share from continuing operations in the range of $5.10 to $5.90, with an expectation that earnings per share for the year will be near the mid-point of the range.)
- Guidance assumes no further share repurchases and a tax rate of 25 percent