By Thomas J. Ryan
Genesco Inc. said its core Journeys chain saw a strong sales recovery as stores began re-opening at the start of the second quarter with the comfort trend favoring its fashion athletic mix, but delays in back-to-school selling impacted revenues in the latter part of the quarter and have created significant uncertainty about prospects for the current quarter.
Overall, Journeys Group’s revenues slid 12.2 percent in the second quarter to $276.6 million. Operating income fell 10.3 percent to $10.2 million.
On a conference call with analysts, Mimi Vaughn, Genesco’s president and CEO, said Journeys was well-positioned as the quarter began with on-trend product, pent up demand and government stimulus efforts combining to revive sales.
“Comfort became the fashion choice of the pandemic, and Journeys’ fashion athletic assortment fits the bill,” said Vaughn. “On top of that, Journeys’ spring and summer offerings, which included a range of comfortable sandals and other more casual products, resonated strongly, especially with women and kids.”
While Journeys’ store traffic was down double-digits in the first two months of the quarter, robust conversion and higher transaction size drove comps in open Journeys stores to positive double-digit levels as a teen consumer, less affected by the virus, showed up in stores with stimulus money in their pockets and high intent to purchase full-price footwear.
The strength of store sales, plus nearly triple-digit online growth, drove Journeys’ total sales up double-digits year-over-year for June to build on May’s gains, even as stores were still opening. In early July, however, traffic began to moderate in North America as the number of new COVID-19 cases spiked, initially in Florida, Texas, Arizona, and California, and then across much of the country.
Around mid-July, weekly traffic and sales volumes typically begin to accelerate as back-to-school selling gets underway, but a “meaningful fall off” was seen this year due to late school openings. Journeys’ store comps fell into double-digit negative territory for July with the month representing almost half of Journeys’ second-quarter sales last year.
Extended Back-To-School Selling Season Expected
Elaborating on the back-to-school impact on Journeys in the current quarter, Vaughn noted that some back-to-school surveys estimate that up to two-thirds of U.S. elementary, middle and high school students will attend school only virtually to start with while some students will follow some form of a hybrid model. For those going back-to-school in person, Labor Day is one week later this year, and many schools have delayed start dates for up to several weeks.
Vaughn said Journeys will not only be impacted by the later starts but teen’s “appetite” for footwear, apparel and accessories may change for those learning virtually at home initially.
“We’ve already gone through what is typically the BTS peak in the last week of July and the first half of August, so we saw a meaningful drop in Journeys’ traffic and sales versus last year due to the shift,” said Vaughn. “We have, however, also seen significantly better results in the last two weeks and would expect this trend to continue as comparisons further ease.”
“Nicely positive” comps for this period were generated in some states seeing students head back in person. She added, “When all is said and done is done, we believe the BTS selling season will be prolonged, extending several more weeks into September for the delayed start and potentially longer if virtual learners then shift to in-person. Journeys, as the go-to place for BTS footwear, is ready to serve its customers with an exceptional assortment and excellent service whenever BTS finally arrives.”
Companywide Sales Sink 19.6 Percent
Companywide, sales decreased 19.6 percent to $391.2 million. A 144 percent gain in e-commerce wasn’t able to offset stores only being open about 70 percent of days in the period. At other segments sales were down 22 percent at Schuh and 64 percent at Johnston & Murphy, while sales were up 62 percent at Licensed Brands due to the Togast acquisition.
Gross margin in the quarter was down 590 basis points to 42.7 percent due primarily to higher shipping and warehouse expenses in all divisions, driven by the increase in penetration of e-commerce, as well as significant inventory reserves taken at Johnston & Murphy, and increased promotional activity at Schuh.
Adjusted SG&A expense for the quarter increased 40 basis points as a percentage of sales due to lower sales as a result of COVID-19. On a dollar basis, expenses decreased 19 percent driven by disciplined expense management, including reduced selling salaries, occupancy and compensation expense along with lower travel, advertising and bonus expenses.
Genesco reported a GAAP loss from continuing operations of $18.9 million, or $1.34 a share, compared to earnings from continuing operations per diluted share of $577 million, or 4 cents, a year ago. On an adjusted basis excluding non-recurring items in both periods, the loss from continuing operations was $17.4 million, or $1.23, compared to earnings from continuing operations of $2.4 million, or 15 cents, last year. The loss was ahead of Wall Street’s consensus target calling for a loss of $1.85.
Cash and cash equivalents at August 1 were $299.1 million, compared with $58.0 million at August 3, 2019. Cash increased $60.6 million during the quarter, driven primarily by operating activities generating $74.4 million, partially offset by a use of cash in financing activities of $12 million, capital expenditures and other activities.
Total debt at the end of the quarter was $210.9 million compared with $75.1 million at the end of last year’s second quarter. Total unused availability as of August 1 was $63.4 million.
Inventories decreased 18 percent in the second quarter of Fiscal 2021 on a year-over-year basis. Inventories were down 22 percent at Journeys. Mel Tucker, CFO, said on the call, “We have been chasing inventory at Journeys and are working to bring inventory back in line with sales.”
Currently, Genesco is operating in 96 percent of its locations, including approximately 1,130 Journeys, 160 Johnston & Murphy, and 125 Schuh locations.
Photos courtesy Journeys