Genesco, Inc. lowered its guidance for the year after October sales weakened, driving a shortfall in third-quarter results. In the quarter, Journey’s same-store and direct sales fell 8 percent.
Third Quarter Fiscal 2024 Financial Summary
- Net sales of $579 million decreased 4 percent compared to Q3FY23;
- Comps down 4 percent, with stores down 7 percent and direct up 8 percent;
- E-commerce sales represented 21 percent of retail sales compared to 18 percent last year;
- GAAP EPS from continuing operations was $0.60 vs. $1.66 last year; and
- Non-GAAP EPS from continuing operations was $0.571 vs. $1.65 last year.
Mimi E. Vaughn, Genesco’s board chair, president and chief executive officer, said, “Following a good Back-to-School season, demand in October softened in an ongoing challenging operating environment, along with a delayed start to the fall selling season. Disruptions related to the implementation of a new ERP system for our branded businesses added to the pressure, all leading to results that were below our expectations. Despite these headwinds, we were pleased to see sales trends within our Journeys business continue to sequentially improve, and Schuh and Johnston & Murphy deliver record third-quarter sales. In the meantime, we continued to inject Journeys’ product assortment with more of the newness and must-have items our customer desires while also executing on our cost reduction and store closure plans.”
Vaughn continued, “Fourth quarter-to-date, I’m pleased to say our total comps are currently running positive, and we experienced a strong start to the holiday season. However, as consumer shopping behavior remains choppy, we plan to increase our promotional activity, especially at Journeys, for the remainder of the holiday season to be more competitive and drive sales in this environment. Our revised Fiscal 2024 outlook reflects this, partially offset by a somewhat more conservative view for our other businesses.
“Looking ahead, I have confidence that our strategic initiatives and specific efforts to elevate Journeys in the marketplace will help us continue to drive progress in the near term while positioning us even more strongly to create value for the longer term.”
Third Quarter Review
Consolidated net sales for the third quarter of Fiscal 2024 of $579 million decreased 4 percent to $604 million in the third quarter of Fiscal 2023. The sales decrease compared to last year was driven by decreased store sales in Journeys Group and decreased wholesale sales in Genesco Brands Group, partially offset by an 8 percent increase in e-commerce comparable sales and a favorable foreign exchange impact.
Total Genesco comparable sales were down 4 percent in the quarter against a 3 percent gain a year ago. By concept,
- Journeys Group same-store and direct sales were down 8 percent versus sales growth of 1 percent a year ago.
- Schuh Group’s sales were up 5 percent versus a 3 percent increase a year ago.
- Johnston & Murphy Group’s sales improved 1 percent versus a 20 percent increase a year ago.
Same-store store sales were down 7 percent in the quarter against an increase of 2 percent a year ago. Comparable direct sales were up 8 percent against a gain of 6 percent a year ago.
The overall sales decrease of 4 percent for the third quarter of Fiscal 2024 compared to the third quarter of Fiscal 2023 was driven by a decrease of 8 percent at Journeys and a 22 percent or $8 million decrease at Genesco Brands, partially offset by an increase of 13 percent at Schuh and an increase of 2 percent at Johnston & Murphy. On a constant-currency basis, Schuh had record third-quarter sales, up 5 percent.
Third quarter gross margin this year was 48.1 percent, down 60 basis points compared with 48.7 percent last year. The decrease as a percentage of sales compared to Fiscal 2023 is due primarily to increased promotional activity at Journeys, including introductory coupons for their new loyalty program, more normalized markdowns and closeouts at Johnston & Murphy and increased shipping and warehouse expenses in all retail businesses, reflecting increased warehouse costs and higher e-commerce penetration, partially offset by improved margins at Schuh and Genesco Brands.
Selling and administrative expense for the third quarter this year increased 190 basis points as a percentage of sales compared with last year. Adjusted selling and administrative expense for the third quarter this year also increased 190 basis points as a percentage of sales compared with last year. The increase as a percentage of sales compared to Fiscal 2023 reflects the deleverage of expenses, especially compensation, marketing and depreciation expenses, as a result of decreased revenue in the third quarter of Fiscal 2024. In absolute dollars, selling and administrative expenses were flat for the third quarter this year compared to last year.
Genesco’s GAAP operating income for the third quarter was $10.9 million, or 1.9 percent of sales this year, compared with $26.1 million, or 4.3 percent of sales in the third quarter last year. Adjusted for the Excluded Items in all periods, operating income for the third quarter was $11.0 million this year compared to $26.3 million last year. Adjusted operating margin was 1.9 percent of sales in the third quarter of Fiscal 2024 and 4.4 percent in the third quarter of last year.
The effective tax rate for the quarter was 22.5 percent in Fiscal 2024 compared to 18.7 percent in the third quarter last year. The adjusted tax rate, reflecting Excluded Items, was 27.8 percent in Fiscal 2024 compared to 19.6 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 primarily reflects that we are no longer subject to a valuation allowance in certain jurisdictions.
GAAP earnings from continuing operations were $6.6 million in the third quarter of Fiscal 2024 compared to $20.4 million in the third quarter last year. Adjusted for the Excluded Items in all periods, third-quarter earnings from continuing operations were $6.2 million, or $0.57 per share, in Fiscal 2024, compared to $20.4 million, or $1.65 per share, in the third quarter last year.
Cash, Borrowings and Inventory
Cash as of October 28, 2023 was $21.7 million, compared with $32.1 million as of October 29, 2022. Total debt at the end of the third quarter of Fiscal 2024 was $128.2 million compared with $89.4 million at the end of last year’s third quarter. Inventories decreased 8 percent on a year-over-year basis reflecting decreased inventory for Journeys and Johnston & Murphy, partially offset by an increase at Schuh.
Capital Expenditures and Store Activity
For the third quarter this year, capital expenditures were $15 million, related primarily to retail stores and digital and omnichannel initiatives. Depreciation and amortization was $12 million. During the quarter, the company opened five stores and closed 20 stores. The company ended the quarter with 1,360 stores compared with 1,404 stores at the end of the third quarter last year, or a decrease of 3 percent. Square footage was down 1 percent on a year-over-year basis.
The company did not repurchase any shares during the third quarter of Fiscal 2024. The company has $52.1 million remaining on its expanded share repurchase authorization announced in June 2023.
Store Closing and Cost Savings Update
- The company remains on track to close approximately 100 Journeys stores in Fiscal 2024
- The company continues to anticipate up to $40 million in cost reductions by the end of Fiscal 2025
Revised Fiscal 2024 EPS Outlook
For Fiscal 2024, the company:
- Now expects sales to be down 1 percent to 2 percent, or down 2 percent to 3 percent excluding the 53rd week this year, compared to Fiscal 2023 (prior guidance, down 2 percent to 4 percent, or down 3 percent to 5 percent excluding the 53rd week);
- Now expects adjusted diluted earnings per share from continuing operations in the range of $1.50 to $2.00, with an expectation that EPS will be near the mid-point of the range (prior guidance, $2.00 to $2.50, with an expectation that EPS will be near the mid-point of the range); and
- Guidance assumes no further share repurchases and a tax rate of 24 percent.
Photo courtesy Journey’s