<span style="color: #9e9e9e;">Genesco Inc. returned to profitability in the third quarter as its Journeys chain was able to return to positive in-store comps in September and October on strong conversion rates and hot demand for casual styles.

In the quarter ended October 31, Journey Group’s sales fell 10.5 percent to $317.7 million. Same-store sales were down 6 percent compared to a 4 percent gain a year ago. Operating earnings at the Journeys segment fell 17.0 percent to $24.0 million.

On a conference call with analysts, Mimi Vaughn, Genesco’s president and CEO, said Journeys’ results are influenced heavily by back-to-school. As a result, August’s comps fell double-digits as more than two-thirds of elementary, middle and high school students began the school year virtually.

Journeys saw an inflection point in early September as comparisons began to ease and growth accelerated significantly over the remainder of the month and remained strong in October as late back-to-school demand arrived.

“While we were not able to fully make up for the lost volume in August, we were encouraged that store comps were nicely positive in both September and October and e-commerce growth was even stronger than earlier in the quarter,” said Vaughn.

Comfort continued to be the fashion choice during the pandemic, and Journeys’ offering of casual products resonated strongly with consumers.

“While teens always have a big complement of fashion athletic footwear in their closets, when fashion swings toward nonathletic, or what we call casual footwear, Journeys is especially well-positioned among its competition to deliver this assortment,” said Vaughn.

She added, “This spring, a range of comfortable sandals and other casual products sold through well. This fall, our consumers’ appetite for boots began early and more robustly in the season than we have seen in many years. While the casual part of Journeys’ assortment has been gaining ground over fashion athletic all year, Q3 delivered the largest quarterly growth so far. These gains have been especially pronounced in women’s and kids’ as we’ve seen throughout the year.”

Asked further about the casual trend in the Q&A session, Vaughn said retro athletic has been “a terrific cycle because there are lots of brands that have fantastic silhouettes in their portfolios that they’ve been able to pull out.” However, the strong toward casual occurred earlier in the year that was marked by particular strength in sandals.

Vaughn said, “The pandemic steered everybody toward comfort, and our teams found lots of nice product within the casual side of our assortment. We saw that not only in the summer, but we saw early boot sales in the fall. And, so, the combination of sandals and boots has put our casual as a percentage of our overall business at a much higher level. And so will that stick? We’ll see. But typically, our teen consumers jump on a trend, stay on that trend for a bit, and we typically have a fairly good sense as to opportunity and upside. And we see that we’ve got some nice upside in that casual trend. Journeys and Schuh are both uniquely positioned among the competition out there. We’re in a great position where we can offer both fashion athletic and casual, and we will move toward whatever brands are most popular with our kids.”

Schuh Benefits From Online Shift And Lower Promotions
Schuh Group, it’s U.K. footwear chain, saw a 1 percent same-store gain in the quarter. Overall sales were up 3.1 percent to 90.0 million. Operating earnings rose 54.9 percent to $6.8 million.

Schuh benefited from its strong online capabilities with the U.K. seeing a strong shift in back-to-school purchases being made online. E-commerce generated almost 45 percent of Schuh’s sales in the quarter despite most stores being open. Schuh was also able to significantly reduce its promotional activity due to less competitive discounting pressure and more scarcity in the supply of the brands the chain carries. Said Vaughn, “Like Journeys, Schuh’s casual assortment gained ground over its fashion athletic assortment with boot sales driving a good portion of the pickup.”

In its other segments, Johnston & Murphy Group’s sales were down 45.5 percent to $39.7 million. Same-store sales were off 43 percent. The segment showed an operating loss of $11.1 million against earnings of $3.7 million. J&M is particularly being impacted by soft demand for dress footwear. Vaughn said, “Its customer has fewer reasons to shop with many continuing to work from home and most large social gatherings and events postponed or canceled.”

Traffic at J&M was down over 50 percent for the quarter and some of J&M’s airport and street locations have yet to reopen. A bright spot was boot sales which began selling earlier in the season. The chain is planning to significantly expand its casual offering to include casual athletic, leisure, rugged outdoor, and performance in the coming year.

Licensed Brands sales grew 91 percent to $31.9 million due to the acquisition of Togast. The segment also includes Dockers, Levi’s and Bass footwear. The Licensed Brand segment showed an operating profit of $792,000 against an operating loss of $27,000 a year earlier.

Companywide, sales decreased 10.8 percent to $479 million, ahead of Wall Street’s consensus estimate called for sales of $456.4 million due to above-plan sales at Journeys.

Same-store sales declined 11 percent due to lower back-to-school revenue, continued pressure at J&M and the impact from store closures during the quarter. Same-store sales fell 9 percent. Stores were open for about 95 percent of the possible days in the quarter compared to about 70 percent during the second quarter.

E-commerce Sales Surge 62 Percent
E-commerce comp growth of 62 percent companywide was offset by a decline in store revenue of 22 percent driven by a store comp decline of 18 percent. Digital sales increased to 21 percent of sales from 11 percent last year.

“While we continue to face traffic levels that are down well into the double-digits, our store teams are driving record levels of consumer conversion that helps to materially offset this headwind,” said Vaughn. “Our businesses online, on the other hand, experienced strong gains in both traffic and conversion. We’ve said before, our e-commerce sales were nicely profitable prior to the pandemic and as we reap the benefits of the many investments we’ve made, e-comm is driving even greater profitability.”

Vaughn also highlighted new customers representing almost 40 percent of site visitors driving an almost 60 percent increase in new customer purchases.

Adjusted for the excluded items in both periods, earnings were down 37.6 percent in the quarter, to  $12.1 million, or 85 cents, but well above Wall Street’s consensus estimate calling for an adjusted loss of 14 cents. The quarter also marked a recovery from a loss of $1.23 shown in the second quarter.

GAAP earnings from continuing operations were $7.5 million, or 52 cents, compared to $19.0 million, or $1.31, a year ago.

Gross margins were down 210 basis points to 47.1 percent. The decline was due primarily to lower margins at J&M and a mix shift among its businesses, although the drop improved sequentially from the second quarter due to less promotional activity as Schuh and increased Journeys’ gross margins.

Adjusted SG&A expense decreased 10 basis points as a percent sales. On a dollar basis, expenses decreased 11 percent primarily due to cost-cutting actions early in the outbreak. The reduction was driven by rent abatement agreements with landlords and savings from the government program in the UK to provide property tax relief as well as reduced selling salaries and bonus expense. On an adjusted basis, operating income fell 47.9 percent to $13.9 million.

Inventories were down more than 20 percent allowing for fresh receipts of holiday merchandise. Inventories declined 28 percent at Journeys, 8 percent on a currency-neutral basis at Schuh and 3 percent at J&M.

Modest Outlook For Holiday Quarter
Looking ahead, sales moderated in the month of November against robust comparisons, although trends improved “quite a bit around mid-month, providing the business with good momentum heading into Black Friday,” said Vaughn.

For the Black Friday weekend itself, as expected, traffic was more subdued than usual and overall November was in line with expectations with an even heavier mix of digital versus store sales.

For the fourth quarter, Genesco is not providing specific guidance due to uncertainties created by the pandemic, but officials predicted the sales decline in the quarter could be slightly more than the third-quarter decline. Gross margin declines are expected to be similar to the third quarter while SG&A in Q4 should benefit from ongoing cost reduction efforts and rent abatements.

Vaughn said Genesco is already facing headwinds from the re-closure of stores in North America and the UK due to spikes in COVID-19 cases globally. More than 10 percent of the possible operating days in the month of November were closed with the biggest impact on Schuh locations in England and Ireland.

Said Vaughn, “We believe we have the right assortments and are ready for this holiday season. That said, consumer demand has been very different this year due to the pandemic and its impact on consumer behavior and the economy which has caused us to take a conservative approach to our outlook.”

Photos courtesy Journeys