New Businesses Accelerate Genesco’s Growth

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NEW YORK — With an international retail operation now firmly tucked under its arm, Genesco Inc. is ramping up its five-year plan.

The firm aims for group revenue to reach $3 billion, and operating margin to hit 9 percent, by 2016. The previous target was for $2.3 billion in revenue and an 8 percent margin.

Speaking to analysts on a conference call last week, Genesco Chairman, President and CEO Robert Dennis said, “The Schuh acquisition and several Lids Sports acquisitions give us a significantly higher starting point for the new plan, [as] the organic growth rate … is roughly the same.”

Overall, acquisitions contributed 15 percent of Genesco’s sales growth in the second quarter ended July 30.

“We continue to be very excited about our recent acquisition of Schuh. They delivered a solid result for the six-week period we owned the company in the quarter, and their sales momentum also continued into August. We now anticipate opening six Schuh stores in fiscal 2012 and we plan to accelerate store expansion next year,” Dennis added.

Mitch Kummetz, analyst at R.W. Baird & Co, said the company is off to a good start for the third quarter, reporting a 12 percent comparable-store sales increase in August. “Its updated long-term targets … imply annual earnings growth of around 20 percent from fiscal 2012 to fiscal 2016,” he added.

But Scott Krasik, analyst at BB&T Capital Markets, cautioned: “While all of Genesco’s businesses are doing well and guidance appears to offer further potential upside, current expectations are high and any hiccup in the business could be a potential negative for the stock.”

Management said it is bracing for what could be a difficult back half, as the macroeconomic environment is not conducive to consumer spending in both the U.S. and U.K.

“We do see areas where we can balance this caution with a slightly more aggressive approach to our growth strategy,” said Dennis. “This includes taking advantage of some favorable real estate opportunities in the U.K. that have recently surfaced in order to extend Schuh’s footprint. And we will also continue to selectively add stores in Canada and pursue tuck-in acquisitions for our Lids Locker Room and Clubhouse businesses.”

Genesco’s second-quarter performance was driven by its two largest businesses, the Journeys and Lids Sports groups, which were up 15 percent and 12 percent, respectively. The Internet and catalog businesses logged an aggregate comps increase of 40 percent.

For the period ended July 30, revenue surged 29 percent to $471 million, from $364 million, thanks to a comps increase of 14 percent. The company lost $392,000, or 2 cents a share, compared with a loss of $3.2 million, or 14 cents, a year earlier, due to accounting for expenses related to the acquisition of Schuh Group Ltd. in June.

Genesco also raised its full-year EPS guidance to between $3.35 and $3.42, from between $2.90 and $2.97. Full-year comps are expected to be 7 percent to 9 percent, while gross margin will be down slightly. The firm is planning capital expenditures totaling $63 million.

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