Genesco Beats Street in Q3

NEW YORK — Analysts are upbeat on Genesco Inc.’s sales momentum after the firm crushed estimates in the third quarter.

And while the Nashville-based firm is looking forward to rounding out the back half, it is also keeping the longer-term bottom line in close view.

Genesco said cost pressures arising out of the labor and capacity issues in China will most likely impact wholesale business Johnston & Murphy and license brands next year.

“There are cost increases that need to be absorbed. In our belief, it starts at the factory and then it works its way through the wholesaler. The retailer’s the one that has the most ability to push back because I don’t think the consumer will take increases,” Robert Dennis, chairman, president and CEO of Genesco, said on a conference call with analysts last Tuesday.

“Certainly when you’re vertical you’ve got nowhere to go. Johnston & Murphy is the one that’s going to be absorbing a lot of it, only to the extent that they can push it back on the factory. With Journeys [and Lids, they have] a lot more room to push back,” he said. “We sit on both ends of it.”

On the positive side, Genesco is seeing sales increases across the board. The Lids Sports Group’s comparable-store sales surged 13 percent, while the Journeys Group’s increased by 9 percent. Johnston & Murphy Retail advanced by 7 percent, led by strong casual sales. Underground Station inched up 3 percent.

“Importantly, month-to-date comp trends accelerated to 11 percent, from 9 percent, in the third quarter, pointing to sustainable momentum,” Susquehanna Financial Group analyst Christopher Svezia wrote in a research note.

And Mitch Kummetz, analyst at Robert W. Baird & Co., said he “continues to believe that Genesco’s stock is undervalued relative to [the firm’s] longer-term prospects, including an 8 percent sales growth.”

Genesco’s third-quarter income surged by half, thanks to a 19 percent year-over-year increase in net sales, which was in turn driven by a same-store sales increase of 9 percent.

Acquisitions also paid off, as revenue from the five companies that Genesco bought over the past 12 months totaled $26 million, bringing group sales for the quarter to $465 million. Genesco topped estimates by 13 cents, earning 72 cents a share in the third quarter. Its shares closed 7 percent higher last Tuesday as analysts were looking for EPS of 59 cents.

The firm’s net income for the period ended Oct. 30 was $16.9 million, up 48 percent from $11.4 million, in the third quarter of 2009.

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