Genesco Trims Outlook, Q3 Profit Slips

Journeys Genesco store
Journeys store
Courtesy of company

A heavy promotional environment and rocky retail conditions in the third quarter led to lower comparable-store sales for Genesco Inc.

However, the Nashville, Tenn.-based company still managed to beat analysts’ expectations for both quarterly revenues and adjusted earnings from continuing operations per share.

For the third quarter ended Nov. 2, Genesco reported a net profit of $27.8 million, or $1.18 a share, down from $42.2 million, or $1.76, in the prior corresponding period. Excluding one-off items, quarterly earnings from continuing operations were $33.8 million, or $1.43 a share, beating analysts’ consensus forecast of $1.33.

Net sales for the period increased 0.3 percent to $666.3 million, from $664.5 million in the third quarter of fiscal 2012. Analysts polled by Yahoo Finance had expected $662.6 million.

The firm also clipped its full-year guidance based on the results, cutting its adjusted diluted earnings per share expectations for fiscal 2014 to between $5.10 and $5.20, from its prior view of $5.20 to $5.30.

In a call with investors, Genesco CEO Robert Dennis cited the sluggish start to the quarter and increasing pressure from deep discounting across the sector as key drivers behind the downgrade. He said same-store sales are expected to decline for the full year, but are seen in the low single digits for the fourth quarter. “Comparable sales for the fourth quarter to date through Tuesday, Dec. 3, were flat,” Dennis said. “Because the retail environment remains somewhat choppy and the calendar shift makes meaningful comparisons difficult, we are adopting a slightly more cautious outlook for the balance of the year.”

Looking ahead, Dennis said, “The fourth quarter of this year is unusually tricky to analyze and forecast given the shift of Thanksgiving, the early start to the Black Friday weekend, and retail’s promotional environment that looked to pull traffic ahead of Thanksgiving.”
 
He added that although the competitive environment in the U.S. has been reasonable, “because of the short holiday selling season, we recognize that the promotional atmosphere could easily change, adding to the uncertainty.”

Regarding the recent performance of the firm’s Journeys chain, Dennis said, “There is a general trend toward casual gaining share over athletic. … What is more compelling and has more newness and more excitement is on that side of the store.”

He noted that while November sales and Black Friday weekend numbers were disappointing, the company has tried to avoid the drastic promotional measures adopted by its competitors.

Companywide, same-store sales decreased 1 percent in the third quarter, compared with a 5 percent gain in the prior corresponding period.

Sales from Journeys Group declined to $281 million, down from $301 million year-on-year, while Lids Sports Group posted sales of $199 million, up from $186 million a year ago.

Dennis said he expects Genesco’s annual sales to hit $3.9 billion and operating margins to be approximately 9 percent to 9.5 percent by fiscal 2018.