By Eric Smith
Weakness at Lids Sports Group sent shares of Genesco Inc. tumbling 9 percent Tuesday, overshadowing an otherwise decent Q1 performance that saw the parent company of a variety of retail brands beat Wall Street estimates on income and revenue.
While Genesco reported a loss in the first quarter, the results were actually 1 cent better than analysts’ consensus estimates and the company reiterated guidance for the year. Genesco for the quarter ended May 5 reported a GAAP loss from continuing operations per diluted share of 12 cents a share, compared to earnings per diluted share of 5 cents in the first quarter last year.
Adjusted for the excluded Items in both periods, the company reported a first-quarter loss from continuing operations per diluted share of 6 cents, compared to earnings per diluted share of 6 cents last year. Analysts’ consensus forecasts had called for a 7-cent-a-share loss.
Net sales for the first quarter of Fiscal 2019 increased to $645 million from $643 million in the first quarter of Fiscal 2018. Excluding the impact of exchange rates, sales would have decreased 1 percent. Comparable sales were down 1 percent, with stores down 2 percent and direct up 10 percent. Direct-to-consumer sales grew to 11 percent of total retail sales for the quarter, compared to 10 percent last year.
Lids didn’t fare as well as the overall company. Lids sales declined 10.3 percent to $158.7 million, and the division posted a loss of $5.4 million. Lids’ comps dropped 7 percent but showed improvement over versus the fourth quarter. Journeys, another one of the company’s retail assets, saw “significantly” improved profitability as comps rose 6 percent.
“Lids, like our other businesses, is subject to fashion cycles and headwear is currently between trends, which we believe is a major driver of the lower traffic we’ve experienced,” President and CEO Robert Dennis said on Tuesday’s earnings call with analysts. “Lids, as a category leader, is positioned for the type of strong resurgence that Journeys has been enjoying once a new fashion driver emerges. So we don’t know the specific timing of when this will occur; history points to a rebound. Our long history with Lids at stores shows almost a decade and a half of four-wall profit in the teens and 20s, demonstrating tremendous ability to cycle through trends successfully.”
Genesco announced in February that the company had initiated a formal process to explore the sale of Lids Sports Group. The company’s board of directors concluded through a strategic review process that it is in the best interest of the company and the company’s shareholders to focus on the company’s industry-leading footwear businesses, which the company believes is the optimal platform to deliver enhanced shareholder value over the long term.
The company wouldn’t comment on the progress of the sale during Tuesday’s earnings call, but plenty of questions about Lids’ performance arose during the Q&A session. And Dennis outlined some of the strategic initiatives underway at Lids—and elsewhere in the company’s portfolio—to drive growth.
- Improve the customer experience. “Lids’ efforts here are focused first on building the customer data platform that will allow them to have a single view of their customers behavior preferences and transactions across all channels and devices to present personalized content, messages and offers through their marketing channel,” Dennis said.
- Enhance the in-store experience and drive traffic to brick-and-mortar locations. “An exciting example of the work we have done here is the May product launch of the Lids Color Prism Pack in Major League Baseball and NBA collections,” Dennis said.
- Build out omni-channel and digital capabilities.
- Strengthen the equity of retail brands.
“In all these initiatives, the name of the game is continuous improvement as competitors and technology keep raising the bar, especially on the digital side,” Dennis said. “And for each of these initiatives, category scale is important and therefore represents competitive advantage.”
The moves might not be enough to, according to Sam Poser of Susquehanna Financial Group LLLP, who wrote in his note to investors: “While Lids came in better than guidance, we continue to believe the Lids business is structurally disadvantaged and will suffer continued share loss to Fanatics.”
For Fiscal 2019, the company is reiterating the company’s previously established full year guidance and still expects: comparable sales to be flat to up 2 percent and adjusted diluted earnings per share in the range of $3.05 to $3.45.2.
Photo courtesy Genesco