Genesco, Inc. (GCO), the parent company of the Journeys, Schuh and Johnston & Murphy businesses, saw its fortunes deteriorate sharply in the third quarter from the euphoria surrounding the company’s second quarter and back-to-school performance. The weakness in some areas of the third quarter business, notably the Schuh business in the UK, was called out on the company’s Q3 conference call with analysts on Thursday, December 4.

Genesco’s Board Chair, President and CEO Mimi Vaughn told participants joining the presentation that there were some factors causing GCO to moderate its view on the remainder of the year in spite of the company’s momentum at the time.

“We have materially changed our sales and margin projections for Schuh to reflect the ongoing difficult UK market and performance,” Vaughn shared on the August call. “We have also moderated the growth assumptions for our other businesses based on the lower footwear consumer traffic and spending patterns we’ve recently witnessed on non-peak shopping days.”

Consequently, GCO shares fell nearly 31 percent on Thursday to close at 24.38 for the day.

Revenues for the quarter were said to be in-line with Wall Street expectations but Adjusted EPS fell short of estimates.

“We delivered solid performance versus last year in this important back-to-school quarter led by Journeys, which achieved 6 percent comp growth, and more than a 50 percent increase in operating income,” Vaughn explained. “This significant improvement in profitability was partially offset by the anticipated exit of licenses in Genesco Brands Group, the impact of tariffs, and more than expected gross margin pressure at Schuh as the UK market faced heightened promotional activity.”

She noted that, against this backdrop, GCO delivered its fifth consecutive quarter of positive comp sales growth overall and third quarter results within company expectations, albeit at the lower end. She said this reflected both the strength and resilience of the GCO portfolio in a dynamic consumer environment.

Third Quarter Revenue Summary
Net sales for the third quarter of fiscal 2026 increased 3 percent to $616 million, compared to $596 million in the third quarter of fiscal 2025. The net sales increase reportedly reflects a 5 percent increase in same-store sales, an increase in wholesale sales and a favorable foreign exchange impact, partially offset by the impact of net store closings and a 3 percent decrease in e-commerce comparable sales, which faced tougher comparisons against last year’s double-digit gains.

The overall 3 percent sales increase in the third quarter of fiscal 2026 was reportedly driven by 4 percent growth at Journeys, 2 percent at Schuh, 3 percent at Johnston & Murphy, and 3 percent at Genesco Brands. On a constant-currency basis, Schuh sales were down 1 percent in the third quarter this year.

The CEO said the consumer environment continues to reflect customers shopping when there’s a reason and pulling back when there’s isn’t.  She said this pattern became much more pronounced for the category during back-to-school this year, which is factoring into GCO’s view of the fourth quarter.

“In the third quarter, demand was even stronger than we expected during the heart of back-to-school, and then traffic and purchase intent softened considerably and more than we expected in the weeks following with an especially challenging October,” Vaughn detailed. She said they saw the same pattern in the first few weeks of November.

“Encouragingly, as we move through November with colder weather and as we approach the holidays, overall performance picked up,” Vaughn shared. “Early results from Black Friday and Cyber Monday were positive, reaffirming we have the right brands and styles to satisfy what this discriminating customer is looking for.”

Third Quarter Comparable Sales by Segment

Third Quarter Performance by Segment

Journeys Group
Vaughn said the Journeys Group continues executing against its strategic plan to accelerate growth, delivering its fifth consecutive quarter of positive comp growth along with almost 200 basis points of operating margin expansion. Notably, Journeys’ mid-single-digit comp was said to come on top of double-digit comps for the third quarter last year, and at a time when footwear industry trends have been challenging.

“These results underscore the meaningful market share gains we’ve captured this year as the next wave of Journeys’ transformative initiatives gained meaningful traction,” she said.

August led the Q3 growth trends for Journeys with a record back-to-school and strong double-digit comp growth on top of double-digit gains last year.

“When the customer came out to shop for back-to-school, Journeys was a key destination,” Vaughn said. “Store performance remained robust with Q3 store comps tracking in line with the first half of the year driven by higher conversion and transaction size and contribution from our 4.0 store remodels.”

Journeys product offering is said to remain diversified across athletic, casual and canvas as the company strives to represent all brands in demand by the youth consumer. “While we saw growth from both athletic and casual brands in Q3, athletic was the more dominant category with low-profile and running-inspired styles resonating,” Vaughn added. “We are currently seeing our customer gravitating to athletic styles on a more year-round basis. Boot sales were also positive in Q3, but driven by specific brands.”

Schuh Group
Vaughn said the UK retail environment remains “very challenging,” with the UK footwear customer currently focused either on must-have items with much less interest in the rest of the assortment or is looking for a deal to spur a purchase. “As a result, Schuh’s overall comps took a step back for the quarter as gains in store conversion and average transaction size were not enough to offset the traffic declines,” she explained.

“We increased our promotional activity even more than expected during the quarter, both to match our competitors’ promotional stance and to motivate demand as well as to manage inventories appropriately. We are taking proactive steps to strengthen the business and position Schuh for renewed growth,” she said..

“In the near term in Q4, we’re focused on course-correcting through several actions, including assortment updates, our past, present and future holiday campaign, targeted social marketing, AI-driven e-commerce content and stronger in-store conversion via the new ATV program,” the CEO suggested. “Even with these steps, we still expect headwinds in a challenged UK marketplace that we will have to navigate through.”

Journeys Global Retail Group Launch
Going forward, Genesco has created the Journeys Global Retail Group under Andy Gray’s leadership, uniting Journeys, Schuh and Little Burgundy.

“These three banners are the destination retailers for the young style-led female across their respective markets;” Vaughn asserted. “We see clear opportunities bringing these retail businesses together as we strengthen market positioning with this customer and drive greater growth serving her in collaboration with our brand partners.”

This new structure is expected to facilitate further progress as the company shifts its attention with even greater urgency to improving Schuh’s performance.

“Into next year, the newly formed Journeys Global Retail Group is working to unlock greater product access and growth,” Vaughn continued. “Through this and by leveraging other elements of the Journeys playbook, we are implementing a holistic plan to dramatically improve operating performance. This ranges from sharpening Schuh’s customer value proposition to building Schuh brand awareness and also includes fleet optimization.”

Johnston & Murphy Group
Johnston & Murphy Group saw overall Q3 sales increased year-over-year, reflecting growth in the wholesale channel. The decline in overall comps was said to be driven in large part by softer e-commerce trends as the company shifted spend from performance marketing early in the quarter to brand awareness including the launch of new brand ambassador, Peyton Manning, in early October. Gross margins were said to be pressured due to channel mix with a greater percentage of wholesale sales as well as tariff headwinds in the wholesale channel ahead of price increases.

While noting it was still early, Vaughn the Peyton Manning campaign generated strong media coverage and immediate double-digit traffic gains, which translated into improved comp trends and new customer acquisition.

Vaughn explained the work at J&M during the quarter, where the company introduced newness across both footwear and apparel.  She said this was supported by increased innovation like the XC+ footwear collection, updated fabric and design details, and redesigned programs like the Quarter Zip offering.

“While we were pleased overall with the performance of these new introductions, especially in apparel and accessories, we have work to do to drive more robust sales across the balance of the assortment,” the CEO admitted. “Accelerating brand awareness and acquiring new customers have been J&M’s other areas of focus, and we made major strides here with the Peyton Manning launch in October.”

Genesco Brands Group
Vaughn continued, “And finally, we’re investing in J&M store remodels and new store openings with impactful results. And now early in Q4, we have inflected to a net store increase to drive growth going forward. Rounding out the branded business, the impact of tariffs, which affects this business the most, and the continued liquidation of licenses we’re exiting, substantially pressured both Genesco Brands Group gross margins and our overall performance during the quarter.

“We look forward to completing the [Levi’s brand] liquidation by the end of the year and moving past this headwind.

Profitability and Expenses
Gross margin for the third quarter this year was 46.8 percent compared to 47.8 percent last year. The 100-basis point decrease in gross margin as a percentage of sales compared to Fiscal 2025 is due primarily to lower margins at Genesco Brands Group related to ongoing tariff pressure and the exit of licenses, as well as increased promotional activity at Schuh, partially offset by lower shipping and warehouse costs for Journeys and Schuh.

Selling and administrative expenses for the third quarter this year decreased by 44.7 percentage points, or 140 basis points, as a percentage of sales, from 46.1 percent last year, reflecting its cost-savings initiatives, primarily decreased occupancy, freight, and performance-based compensation expenses.

Genesco’s GAAP operating income for the third quarter was $8.6 million, or 1.4 percent of sales this year, compared with $10.2 million, or 1.7 percent of sales in the third quarter last year. Adjusted for the Excluded Items in the third quarters of both Fiscal 2026 and 2025, operating income for the third quarter was $12.9 million this year compared to $10.3 million last year. Adjusted operating margin was 2.1 percent of sales in the third quarter of Fiscal 2026 compared to 1.7 percent in the third quarter last year.

The effective tax rate for the quarter was 28.1 percent in Fiscal 2026 compared to 311.5 percent in the third quarter last year. The adjusted tax rate, reflecting Excluded Items, was 28.9 percent in Fiscal 2026 compared to 27.1 percent in the third quarter last year. The higher adjusted tax rate for the third quarter this year, compared to the third quarter last year, reflects a higher expected tax rate for Fiscal 2026 versus Fiscal 2025 due to the impact of the valuation allowance in certain jurisdictions and additional global minimum tax under the Organization for Economic Cooperation and Development’s Pillar Two framework. The divergence between the effective tax rate and the adjusted tax rate is due to income tax law changes under the One Big Beautiful Bill Act (OBBBA) in Fiscal 2026 and recording a $26.3 million U.S. valuation allowance in the third quarter of Fiscal 2025, both of which we have excluded from the adjusted tax rate in Fiscal 2026 and 2025.

GAAP earnings from continuing operations were $5.4 million in the third quarter of Fiscal 2026 compared to a loss from continuing operations of $18.8 million in the third quarter last year. Adjusted for the Excluded Items, third quarter earnings from continuing operations were $8.4 million, or $0.79 per share, in Fiscal 2026, compared to $6.6 million, or $0.61 per share, in the third quarter last year.

Cash, Borrowings and Inventory
Cash, as of November 1, 2025, was $27.0 million, compared with $33.6 million as of November 2, 2024. Total debt at the end of the third quarter of Fiscal 2026 was $89.5 million compared with $100.1 million at the end of last year’s third quarter. Inventories increased 7 percent year-over-year, reflecting higher inventory at Journeys, Schuh, and Johnston & Murphy, partially offset by lower inventory at Genesco Brands.

Capital Expenditures and Store Activity
In the third quarter this year, capital expenditures totaled $18 million, primarily related to retail stores and other initiatives. Depreciation and amortization were $13 million. During the quarter, the company opened 4 stores and closed 12. The company ended the quarter with 1,245 stores, down from 1,302 at the end of the third quarter last year, a 4 percent decrease. Square footage was down 3 percent year-over-year.

Share Repurchases
The company did not repurchase any shares during the third quarter of Fiscal 2026. GCO currently has $29.8 million remaining on its expanded share repurchase authorization announced in June 2023.

Fiscal 2026 Outlook
For fiscal 2026, while the company expects sales and operating income growth to last year. Genesco revised its outlook and lowered guidance as follows:

  • Now expects total sales to be up about 2 percent and comparable sales to be up about 3 percent compared to fiscal 2025, down from prior guidance for total sales to be up 3 percent to 4 percent and comparable sales up 4 percent to 5 percent.
  • Now expects adjusted diluted earnings per share from continuing operations to be around 95 cents a share, down from its prior expectation of $1.30 to $1.70.
  • Guidance assumes no further share repurchases and a tax rate of 34 percent, excluding the tax impact of OBBBA, up from prior guidance of 29 percent.

Image courtesy Journeys/Genesco, Inc.