Genesco reported net sales for the second quarter increased by 8% to $353 million from $328 million a year ago. Comparable store sales increased 4%. Excluding special items, continuing earnings were $3.6 million, or 18 cents per share, in the quarter against break-even results a year ago. The company also slightly raised its FY09 EPS outlook.
Genesco Inc. reported a loss from continuing operations of $4.9 million, or 27 cents per diluted share, for the second quarter ended August 2, 2008. These results reflect $6.4 million, or 36 cents a share, of income tax liability primarily related to an increase in the value of stock received in the settlement of litigation with The Finish Line Inc. that could not be recognized as income for accounting purposes.
Adjusting for the listed items in both periods, earnings from continuing operations were $3.6 million, or 18 cents per diluted share, in the second quarter this year, compared to breakeven earnings and earnings per share in the same period last year. Because of the magnitude of the income tax effect of the settlement shares and for consistency with first quarter disclosures and with the company’s previously announced earnings expectations, which excluded the listed items, the company believes the disclosure of adjusted earnings before discontinued operations on this basis will be useful to investors. A reconciliation of the adjusted financial measures to their corresponding measures as reported pursuant to U.S. Generally Accepted Accounting Principles is included on Schedule B to this press release.
As part of its March 2008 litigation settlement with The Finish Line, the company received shares of Finish Line common stock, which it agreed to distribute to the company’s shareholders. The shares appreciated in value by approximately $23 million before the distribution occurred. Because of differences between U.S. Generally Accepted Accounting Principles and the tax law in their respective treatment of this appreciation, the company recorded a tax liability on the appreciation, which could not be recognized as income for accounting purposes. Consequently, the company’s effective tax rate for the second quarter of Fiscal 2009 was 295%, compared to 47% for the same quarter last year.
The company also recorded an after-tax charge of $5.4 million, or 29 cents per share, to discontinued operations for an environmental liability relating to settlement negotiations with the Environmental Protection Agency concerning the site of a factory in New York, which the company operated in the late 1960s.
Genesco president and CEO Robert J. Dennis said, “Our solid second quarter operating results reflect the ongoing success of our merchandising strategies and excellent execution across the board from our team. Given our positive momentum, strong positioning in the marketplace and easier comparisons, which continue through the second half of the year, we are optimistic about our prospects for the balance of the year, although we remain mindful of the uncertain economic environment. Accordingly, we have modestly raised our expectations for the balance of the year.”
Second Quarter Business Unit Performance
“Net sales in the Journeys Group grew 9% from the prior year period to $161 million. Same store sales for the Journeys Group were up 2% for the quarter and same store sales in the Journeys stores were up 2%, compared to a 7% decline last year. Footwear unit comps in Journeys rose 2% and average selling price increased 2% in the quarter. The solid results were driven by continued strength in Journeys skate business, modestly offset by weakness in women’s casual footwear.
“Net sales in the Hat World Group increased 13% from the prior year period to approximately $102 million and same store sales increased 7% in the second quarter, with urban stores up 9% and non-urban stores up 6%. Core and fashion Major League Baseball performed well and action brands were also very strong. Hat World once again generated meaningful operating margin expansion in the quarter.
“Net sales for the Underground Station Group, which includes the remaining Jarman stores, were $24 million for the second quarter. Same store sales increased 9% from the prior year period and footwear unit comps rose 13%, reflecting Underground Station’s continued progress with its new merchandising strategies. In addition, operating margin improved once again, reflecting increased leverage from the strong comparable sales increase.
“Johnston & Murphy Group’s net sales were approximately $44 million, with wholesale sales down 9% from the prior year period and same store sales for the Johnston & Murphy shops declined 3% from the prior year period. Johnston & Murphy’s results reflect a challenging economic environment and a difficult comparison from the previous year. The brand remains strong, and management will continue to focus on driving dollars per transaction and carefully managing inventories and controlling expenses.
“Second quarter sales of Licensed Brands increased 16% from the prior year period to approximately $22 million. The Dockers® Footwear business remains solid across all of its channels of distribution, with particular strength in the specialty shoe retail chains.”
Fiscal 2009 Outlook
The company said it has raised its previously announced earnings per share outlook for the current fiscal year. The Company now expects earnings per share in the range of $2.15 to $2.20 for the full fiscal year (excluding merger-related expenses, asset impairment charges, and other items reflected on Schedule C to this announcement). The company had previously forecast earnings in the range of $2.09 to $2.19 a share.
Consolidated Earnings Summary
Three Months Ended Six Months Ended
August 2, August 4, August 2, August 4,
In Thousands 2008 2007 2008 2007
Net sales $353,138 $327,977 $710,073 $662,628
Cost of sales 171,814 164,358 347,354 327,165
Selling and administrative
expenses 173,420 166,059 353,466 325,132
Restructuring and other, net 3,261 158 (198,577) 6,753
Earnings (loss) from operations 4,643 (2,598) 207,830 3,578
Interest expense, net 2,114 3,000 4,317 5,402
Earnings (loss) before income
taxes from continuing operations 2,529 (5,598) 203,513 (1,824)
Income tax expense (benefit) 7,458 (2,658) 78,550 (1,087)
Earnings (loss) from continuing
operations (4,929) (2,940) 124,963 (737)
Provision for discontinued
operations (5,361) (1,225) (5,454) (1,225)
Net Earnings (Loss) $(10,290) $(4,165) $119,509 $(1,962)