Analysts See Upside to Genesco Guidance

After Genesco Inc. far exceeded second-quarter expectations, the company is positioned for an equally bright end to the year, according to market experts.

“Genesco is poised to deliver double-digit earnings growth over the next few years,” said Mitch Kummetz, analyst at R.W. Baird & Co.

 “There is opportunity to improve the operating margin at Journeys, driven by comparable-store gains coupled with a lower leverage point on fixed costs from the negotiation of better rents,” Kummetz said. “Opportunity for sales growth at Lids Sports [will be] driven by new doors.”

Susquehanna Financial analyst Christopher Svezia noted that the company’s guidance is conservative and is based on a cautious macro outlook rather than its own business. He added, “Genesco [will probably continue beating expectations] through the back half.”

On a conference call with analysts last Wednesday, Genesco Chairman, President and CEO Robert Dennis said the firm is banking on opportunities for further store expansion into Canada for the Lids Sports, Journeys and Johnston & Murphy businesses.

Dennis also said the Schuh Group has continued to perform above expectations, thanks to strong fashion trends.

“One of the benefits of the economic slowdown in the U.K. has been the increased availability of attractive retail locations,” he said. “Schuh … remains on schedule to open a total of 17 stores this year. The average Schuh store sales are roughly four times the average Journeys store, so 17 new stores represent significant growth for us. Our success for the first year with Schuh in demonstrating the close relationships we have with our vendors is something that can be leveraged on an international scale.” 

Overall, Genesco is upbeat on the back half. Dennis said the firm’s strong back-to-school performance means its merchandise mix is in good shape heading into the holiday season.

Genesco earned a net income of $10.5 million, or 43 cents a share, in the period ended July 28. That compared with a net loss of $392,000, or 2 cents, in the same quarter a year ago.

Revenue increased 15.5 percent to $543.5 million. Comp-store sales advanced 6 percent at the Journeys Group; 2 percent at the Lids Sports Group; and 2 percent at Johnston & Murphy Retail.

The firm raised its guidance for the year, with earnings per share expected to come in between $4.88 and $5, representing a year-over-year increase of 19 percent to 22 percent. Comps are expected to improve 4 percent.

Genesco ended the quarter with $47.2 million in cash and cash equivalents, and $95 million in long-term debt.

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