By Eric Smith
The successful back-to-school and holiday seasons that Journeys posted last year carried over into the first quarter, propelling parent Genesco Inc. to a revenue and earnings beat and prompting the company to expect full-year earnings at the high end of guidance.
The company on Friday reported upbeat results from Q1—its “first quarter as a footwear-focused company following the recent sale of the Lids Sports Group,” as Chairman, President and CEO Bob Dennis phrased it.
Journeys posted comparable same store and direct sales growth of 7 percent in the first quarter, up from 6 percent in the first quarter of fiscal 2019 to lead Genesco’s portfolio, which also includes Schuh (2 percent growth) and Johnston & Murphy (flat).
Companywide, net sales for the first quarter of fiscal 2020 totaled $496 million, up 2 percent from the first quarter of fiscal 2019 and ahead of Wall Street’s estimates by $16.3 million. Excluding the effect of lower exchange rates, net sales would have increased 3 percent.
Comparable sales increased 5 percent, with stores up 4 percent and direct up 15 percent. Direct-to-consumer sales were 11 percent of total retail sales for the quarter, compared to 10 percent last year.
“Our overall performance was fueled by the continued strength of our Journeys business, as the momentum from the successful back-to-school and holiday seasons carried over into the new year,” Dennis said. “The combination of strong consolidated comparable sales, which included positive store and digital comps, higher gross margins and the benefits from our recent cost reduction efforts drove earnings per share well ahead of our projection and up meaningfully compared with last year.”
Genesco indeed reported a decisive earnings beat. GAAP earnings from continuing operations were $6.5 million, or 36 cents per share, in the first quarter of fiscal 2020; analysts had expected just 2 cents per GAAP earnings per share.
Adjusted for excluded items, first-quarter earnings from continuing operations were $5.9 million, or 33 cents earnings per share, 30 cents better than analysts had estimated.
The company has pivoted to footwear after selling the struggling Lids Sports Group to FanzzLids Holdings for $101 million. Genesco completed that sale in February, about a year after announcing it was exploring a divestiture.
Journeys’ performance wasn’t the only bright spot for Genesco in the first quarter. The company’s gross margin grew 40 basis points to 49.4 percent, reflecting decreased markdowns for Journeys Group and a higher mix of retail in Johnston & Murphy Group, partially offset by increased promotions at Schuh Group, the company said.
And Genesco reduced costs in Q1 by 30 basis points, to 47.7 percent from 48 percent, primarily due to strong leverage from rent and contributions from selling salaries and other expenses, partially offset by increased bonus expense.
Genesco maintained its guidance but now calls for hitting the high end of that range, Dennis said. For the fiscal year, the company expects comparable sales to be up 1 percent to 2 percent, and adjusted diluted earnings per share from continuing operations in the range of $3.35 to $3.75 with an expectation that earnings for the year will be near the higher end of the range.
“Based on our better-than-expected first quarter performance, coupled with the repurchase of more shares than originally planned, we now view the higher end of our EPS range of $3.35 to $3.75 as the likely outcome for the year, compared with our previous view of something closer to the mid-point,” he said. “Overall consolidated comps in the second quarter to date continue to be positive, with Journeys leading the way. We are now, however, more cautious about Johnston & Murphy and Schuh going forward given their performance to date.”
Dennis also acknowledged the potential for a challenging macro-economic environment in both the U.S. and U.K., which meant keeping guidance intact even after the stellar start to fiscal 2020.
“Looking further ahead, we believe the work we’ve done sharpening our focus on operating footwear retail businesses and owning brands will fuel improved profitability and increased shareholder value over the long-term,” he said
Shares of Genesco closed the day up $4.72, or 11.7 percent, to $44.98.
Genesco is a Nashville, TN-based specialty retailer that sells footwear and accessories in more than 1,500 retail stores throughout the U.S., Canada, the United Kingdom, the Republic of Ireland and Germany, principally under the names Journeys, Journeys Kidz, Shi by Journeys, Schuh, Schuh Kids, Little Burgundy and Johnston & Murphy.
Photo courtesy Genesco