By Thomas J. Ryan

<span style="color: #999797;">Genesco Inc.’s business was devastated by COVID-19-related store closures but online sales have accelerated to more than 300 percent growth in May, and sales at its flagship Journeys chain that have reopened are comping “nicely positive.”

On a conference call with analysts, Mimi Vaughn, Genesco’s president and CEO said that not surprisingly as Journey stores have reopened starting in early May, double-digit traffic declines have been seen. However, the declines have been offset by significantly higher conversion and transaction size.

“Women’s and kids’ sales have been especially robust, and we’ve seen families shopping together to satisfy pent-up demand,” said Vaughn. “All in all, we’re very encouraged by Journeys store performance since reopening. We’ve always known the Journeys customer enjoys the store experience and the exceptional service they receive in person.”

Vaughn said Journeys benefited from aggressive efforts to open stores with safety protocols starting on May 1. She said, “Sales have benefited from this first-mover advantage.”

As of June 6, Genesco is currently operating in close to 1,000 locations, including more than 900 Journeys, more than 80 Johnston & Murphy, and a few Schuh locations. More than 70 percent of its stores are now open in North America, and two-thirds of its fleet is open in total. The company anticipates reopening close to 85 percent of all stores by the end of June.

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Online Growth Expands To Triple-Digits Amid Pandemic
The star amid the pandemic has been online with sales expanding 64 percent in the first quarter ended May 2.

With all North American stores closed beginning March 18 and all UK stores closed on March 25, Genesco shifted resources to focus on e-commerce as well as to preserve liquidity and financial flexibility.

Online advertising was increased more than previously planned, and social and other digital campaigns were revised to reflect “comfort, creativity and at-home messaging” while intentionally featuring lifestyle supporting social distancing. Said Vaughn, “User-generated content, positive messaging and creative campaigns reflecting quarantines resonated especially well with our teen and youth customers”

She also believes past investments that have more than doubled its e-commerce business over the last five years helped accelerate the shift to online. These investments included an enhanced mobile experience, improved navigation and check-out on the website, and adding dedicated e-commerce fulfillment centers.

Close to 90 percent of Journey’s e-commerce traffic came from mobile with a 65 percent conversion increase in the quarter. Genesco saw a brief slowdown in digital sales from mid-to-late March as consumers stocked up on food and other necessities to weather prolonged home confinement, but online comps accelerated to triple-digit gains for the month of April. Said Vaughn, “There have been days when e-commerce sales alone have been higher than last year’s stores plus e-commerce sales combined.”

New customers also represented nearly 50 percent of online traffic in Q1, and May’s online sales only accelerated further to a 300-percent-plus comp increase although stores were reopening.

Vaughn noted that May is typically a low volume month for Genesco and benefited from a number of special factors including pent-up demand, less competition while competitors’ stores remained closed, more free time as consumers are home during the week with kids out of school, and stimulus money and enhanced unemployment benefits boosting consumer spending power. But the pandemic is expected to make online a bigger portion of the business going forward.

“It’s a little bit too early to tell definitively how e-commerce will settle out,” said Vaughn. “We do expect that it’s going to moderate from our plus hundreds of percent level, but the consumer really liked the experience.”

Q1 Revenues Slump 44 Percent
In the first quarter, sales fell 43.8 percent to $279 million, driven by the closures in the back-half of the quarter as well as lower wholesale sales and lower exchange rates that were only partially offset by the 64 percent digital growth.

Gross margins were down 640 basis points to 43.0 percent. The erosion was due primarily to higher shipping and warehouse expenses in all divisions driven by the increase in penetration of e-commerce and an increase in inventory reserves at Journeys, higher penetration of sale product at Schuh and more markdowns at Johnston & Murphy.

SG&A expense increased as a percentage of sales due to lower sales as a result of COVID-19, but expense in dollars decreased 20 percent compared to the same period last year. Proactive steps taken at the onset of the global pandemic and lower bonus expense drove the reduction in expenses. The company reduced selling salaries, occupancy and compensation expenses along with many other non-essential expenses compared to the previous year.

Genesco’s GAAP operating loss for the first quarter was $156.0 million compared with an operating income of $9.1 million. Due to the significant decline in its stock price and market capitalization resulting from the outbreak of COVID-19, an impairment charge of $79.3 million pretax, or $5.62 per share, was recorded. The charge included full impairment of goodwill from its acquisition of Schuh Group. A $5.3 million non-cash trademark impairment and $3.0 million for retail store asset impairments were also taken for the latest first quarter.

Adjusted for the excluded items in both periods, the operating loss was $69.5 million this year compared with an operating income of $8.4 million.

The GAAP loss from continuing operations was $134.6 million in the latest quarter compared to earnings of $6.5 million in the first quarter last year. Excluding non-recurring items in both periods, the loss from continuing operations was $51.4 million, or $3.65, compared to earnings of $5.9 million, or 33 cents, last year.

Inventories Climb 6 Percent
Inventories at the quarter’s close increased 6 percent on a year-over-year basis.

Vaughn said Genesco’s merchant team reduced “any seasonal product they could” given the shorter spring/summer selling season, pushed orders for core product for later delivery when they would more likely be needed and canceled select fall/winter merchandise that would likely no longer be required. She said, “This was a very complicated undertaking, and our genuine thanks go out to our team and our fantastic vendor and factory partners who have not only extended us additional payment terms but also, as they always have over the years, worked collaboratively and productively with us to adjust inventory levels to the reduced demand.”

The 6 percent inventory increase reflects higher inventory levels at Journeys, “representing fresh products that should sell through as stores reopen,” said Vaughn. At the end of May, inventory was down 10 percent, thanks to the demand seen since stores have reopened and May’s strong e-commerce results.

In response to COVID-19, Genesco took a number of actions to preserve its liquidity including borrowing $208 million on its existing lines of credit, extending payment terms with suppliers, managing inventory by reducing future receipts by over $300 million at cost, and reduced planned capital expenditures by over 50 percent. The company also furloughed or reduced its workforce by 90 percent across stores, corporate offices, call centers, and distribution centers; implemented salary reductions for the executive team and select employees; reduced cash compensation of its board; and suspended certain employee benefits including 401K matching. Lending under its ABL lending facility was increased from $275 million to up to $350 million of borrowing capacity

Vaughn also said the company has had “productive conversations” with its landlord partners regarding rent relief while stores were closed, along with discussions about rent structures as stores reopen “given our need for more flexibility due to the significant uncertainty ahead.”

As of May 2, Genesco’s cash was at $238.6 million compared with $156.7 million a year ago. Total debt at the end of the first quarter of Fiscal 2021 was $222.7 million compared with $73.7 million at the end of last year’s first quarter. Total unused availability as of May 2, 2020 was $52.0 million

Due to the continued uncertainty in the overall economy, the company did not provide guidance.

Photo courtesy Journeys