Genesco Inc. reported sales net income gained 69 percent in the third quarter. Net sales increased 25 percent from last year and grew 12 percent over the third quarter two years ago. Results were well ahead of Wall Street’s targets.
GAAP earnings from continuing operations per diluted share of $2.26 for the three months ended October 30, 2021, compared to $0.52 in the third quarter last year and $1.31 per diluted share two years ago. Adjusted for the excluded items in all periods, the company reported third-quarter earnings from continuing operations per diluted share of $2.36, compared to $0.85 last year and $1.33 per diluted share two years ago. EPS was well ahead of Wall Street’s consensus target of $1.29.
Revenue of $600.54 million topped Wall Street’s consensus target of $576 million.
Mimi E. Vaughn, Genesco board chair, president and CEO, said, “Building off a very strong first half of Fiscal 2022, our excellent results this quarter were fueled by an outstanding back-to-school season in the United States and the United Kingdom, reinforcing Journeys’ and Schuh’s positions as the leading destinations for teen and youth fashion footwear. We were especially pleased with the performance of our stores, as sales in our current fleet were up for the first time since prior to the pandemic. The improvement in traffic trends bolsters our view that teens like to shop in person, making our stores strategic assets that work in tandem with our digital capabilities, serving our customers whenever and wherever they choose to engage with our brands. Turning to the current quarter, we have been very pleased with our results to date, as sales tracked nicely ahead of pre-pandemic levels in November, and we are now into the all-important holiday selling season. Given the recovery and confidence we have in our business, we are returning to giving guidance. We expect adjusted earnings for Fiscal 2022 to be between $6.40 and $6.90 per share with an expectation that earnings will be near the mid-point of the range, an increase of 45 percent over pre-pandemic Fiscal 2020.
“We entered the pandemic in a position of strength, are navigating the pandemic well, and believe we will enter the post-pandemic phase even stronger. Our exceptional year-to-date results highlight the great execution by our teams, our strong vendor relationships, close consumer connections, and the strategic advantages enabled through our footwear-focused strategy. Our opportunity to unlock value in Genesco is to further accelerate the digital and omnichannel growth in our retail business and to meaningfully grow our branded side.”
Thomas A. George, Genesco’s CFO, commented, “Our third-quarter results exceeded our expectations and were well above pre-pandemic levels. Strong sales growth, solid gross margins, and well-managed expenses fueled a 69 percent increase in operating income versus the third quarter Fiscal 2020 two years ago, helping deliver record third-quarter adjusted EPS of $2.36 compared to $1.33 in Fiscal 2020.”
Store Re-Opening Update
As of October 30, 2021, the company is operating substantially in all locations.
Third Quarter Review
Net sales for the third quarter of Fiscal 2022 increased 25 percent to $601 million from $479 million in the third quarter of Fiscal 2021 and increased 12 percent from $537 million in the third quarter of Fiscal 2020. The sales increase from Fiscal 2020, reflecting strong back-to-school sales, was driven by a 79 percent increase in e-commerce sales, increased wholesale sales, like-for-like store sales slightly above Fiscal 2020 levels, and the positive impact of changes in foreign exchange rates. Although the company has disclosed comparable sales for the third quarter Fiscal 2022, it believes that overall sales are a more meaningful metric during this period due to the impact of COVID-19.
Overall sales for the third quarter this year compared to the third quarter of Fiscal 2021 were up 20 percent at Journeys, up 33 percent at Schuh, up 69 percent at Johnston & Murphy and up 6 percent at Licensed Brands. Overall sales compared to the third quarter of Fiscal 2020 were up 7 percent at Journeys, up 29 percent at Schuh and up 103 percent at Licensed Brands, partially offset by an 8 percent decrease in Johnston & Murphy sales.
Third-quarter gross margin this year was 49.2 percent, up 210 basis points, compared with 47.1 percent last year and flat compared with the third quarter of Fiscal 2020 at 49.2 percent. Although the increased e-commerce and wholesale mix, as well as freight and logistics, cost increases put pressure on the Fiscal 2020 gross margin comparison, this was mitigated by fewer markdowns at Journeys and Johnston & Murphy.
GAAP selling and administrative expense for the third quarter this year decreased 220 basis points as a percentage of sales compared with last year and decreased 240 basis points compared with the third quarter of Fiscal 2020. Adjusted selling and administrative expense for the third quarter this year decreased 250 basis points as a percentage of sales compared with last year and decreased 260 basis points compared with the third quarter of Fiscal 2020. The decrease from Fiscal 2020 is due primarily to reduced occupancy expense, along with selling salaries and depreciation, partially offset by increased marketing expenses. The reduction in occupancy expense is driven in part by rent abatement agreements with landlords and savings from government programs in Canada and the U.K.
Genesco’s GAAP operating income for the third quarter was $43.8 million, or 7.3 percent of sales this year, compared with $8.2 million, or 1.7 percent of sales last year, and $25.9 million, or 4.8 percent of sales in the third quarter of Fiscal 2020. Adjusted for the Excluded Items in all periods, operating income for the third quarter was $45.2 million this year compared to $13.9 million last year and $26.7 million in the third quarter of Fiscal 2020. Adjusted operating margin was 7.5 percent of sales in the third quarter of Fiscal 2022, 2.9 percent last year and 5.0 percent in the third quarter of Fiscal 2020.
The effective tax rate for the quarter was 23.5 percent in Fiscal 2022 compared to -7.4 percent last year and 25.4 percent in the third quarter of Fiscal 2020. The adjusted effective tax rate, reflecting Excluded Items, was 22.7 percent in the third quarter of Fiscal 2022 compared to 4.4 percent last year and 26.2 percent in the third quarter of Fiscal 2020. The higher adjusted effective tax rate for this year as compared to last year reflects the inability to recognize a tax benefit for certain foreign losses and a higher mix of earnings in jurisdictions where the company generates taxable income.
GAAP earnings from continuing operations were $33.0 million in the third quarter of Fiscal 2022, compared to $7.5 million in the third quarter last year and $19.0 million in the third quarter of Fiscal 2020.
Adjusted for the Excluded Items in all periods, third-quarter earnings from continuing operations were $34.5 million, or $2.36 per share, in Fiscal 2022, compared to $12.1 million, or $0.85 per share, last year and $19.4 million, or $1.33 per share, in the third quarter of Fiscal 2020.
Cash, Borrowings and Inventory
Cash and cash equivalents as of October 30, 2021, were $282.8 million, compared with $115.1 million as of October 31, 2020. Total debt at the end of the third quarter of Fiscal 2022 was $15.6 million compared with $32.9 million at the end of last year’s third quarter. Inventories decreased 8 percent in the third quarter of Fiscal 2022 on a year-over-year basis and decreased 28 percent versus the third quarter of Fiscal 2020.
Capital Expenditures and Store Activity
For the third quarter, capital expenditures were $15 million, related primarily to the new headquarters building and digital and omnichannel initiatives. Depreciation and amortization were $10 million. During the quarter, the company closed five stores. The company ended the quarter with 1,434 stores compared with 1,476 stores at the end of the third quarter last year, or a decrease of 3 percent. Square footage was down 3 percent on a year-over-year basis.
The company repurchased 521,693 shares during the third quarter of Fiscal 2022 at a cost of $30.6 million or an average of $58.71 per share. The company currently has $59 million remaining on the $100 million board authorization from September 2019.
Fiscal 2022 Outlook
For Fiscal 2022, the company expects:
- Sales to be up 9 percent to 11 percent, compared to Fiscal 2020; and
- Adjusted diluted earnings per share from continuing operations in the range of $6.40 to $6.90, which represents growth of approximately 45 percent at the mid-point compared to Fiscal 2020, with an expectation that earnings per share for the year will be near the mid-point of the range.
Genesco has not provided guidance due to uncertainties created by the pandemic.
Photo courtesy Genesco/Johnston & Murphy