Overheard On Wall Street: Kohl’s, Genesco, Athletic Shoe Sales

Kohl's
A Kohl's location in Jersey City, N.J.
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Kohl’s Corp. worried investors with a lower-than-expected Q4 earnings pre-announcement while market watchers found upside to an executive departure at Genesco Inc.’s Lids Sports Group. And, as has been the trend, athletic shoe sales advanced in January.

Read on for the buzz.

Kohl’s Corp.

In an earnings preannouncement on Feb. 4, Kohl’s said its fourth quarter comparable sales increased 0.4 percent and total sales increased 0.8 percent.

Analysts were disappointed with the report while Kohl’s Chairman and CEO Kevin Mansell said that sales were “very volatile and less than planned in the quarter.”

“We experienced a very strong holiday selling season from the week of Thanksgiving through Christmas,” Mansell said. “These results were offset by a very slow start to the quarter in early November and a weaker-than-expected January as soft demand for cold-weather goods led to lower store traffic in these more discretionary shopping periods.”

Footwear and home goods, the company said its strongest categories while accessories were the weakest. Online-generated orders and online sales each grew approximately 30 percent during the quarter, Mansell said.

In response to the pre-announcement, Cowen and Co. analyst Oliver Chen said he is becoming increasing cautious about the department store space.

“We’re more concerned following Kohl’s pre-announcement that the accelerating shift to e-commerce is deteriorating retailer gross margins at a faster [rate] than expected,” Chen wrote Thursday. “Traditional retailers’ business models are not built to handle such high volumes of e-commerce sales. We continue to believe retailers can maintain share versus Amazon and other e-commerce pure plays by employing omnichannel convenience tactics (i.e. buy-online, pickup in store or ship-from-store), but we expect sales growth will come at the expense of gross margin pressure and continuing EBIT margin erosion.”

Genesco Inc.

Genesco announced Tuesday that Kenneth Kocher, the company’s SVP and president of the Lids Sports Group division, resigned from both posts. Kocher, the company said, is expected to remain with Genesco in a consulting capacity for up to six months.

“We are a bit perplexed as to the timing of [Kocher’s] departure and whether it was spurred by the company or the individual,” CL King & Associates analyst Steve Marotta wrote in a Feb. 3 note. “Nevertheless, given the recent guidance update, combined with the expectation that Lids Sports Group ended the fiscal year with clean inventory levels, we believe a pathway to operating margin growth (and concurrent earnings-per-share growth) is clear.”

Analysts had cheered Genesco’s efforts to realign its Lids Sports Group business in recent months. In mid-January, the firm sought to “sharpen” the division by selling Lids Team Sports, which sells athletic apparel and equipment to schools and youth sport programs, to sporting-goods marketer and distributor BSN Sports.

“The departure of Kocher will likely be positive, creating a more empowered team and better sales and margin results,” Sterne Agee CRT analyst Sam Poser wrote. “Based on our conversation with the company, the decision of Kocher’s departure did not come easy, but was necessary. We believe the Lids Sports Group merchants are talented, but may not have been properly empowered. Lids is on the right track to return to high-single-digit operating margins, through cleaning up its inventory, which is likely to be down over 15 percent as of the end of 4Q16, and through the divestiture of Lids Team Sports. It appears as if Kocher’s departure was the last part of the cleanup at Lids.”

Athletic Footwear Sales

Citi Research analyst Kate McShane posted her monthly Sole Patrol report, which revealed that U.S. athletic footwear point-of-sales increased 6.7 percent year-over-year in January. It was a deceleration, however, compared to the 12.8 percent growth seen in December, a rise likely driven by holiday shopping.

By category, casual athletic sales climbed 20 percent year-over-year in January, compared with 23.3 percent growth last January (2015) and 32.7 percent growth in December (2015). Running category sales growth declined 3.6 percent while basketball sales rose 1.5 percent.

(McShane uses data from SportScan in her report).