Genesco Expects to Overcome Challenges Ahead

Continued momentum in casual footwear should help Genesco Inc. weather the economic challenges in the first half and in Europe, said analysts.

Scott Krasik, analyst at BB&T Capital Markets, said, “Despite current negative trends, Genesco’s [comparable-store sales] issues are not company specific beyond the slowing of snapback hats at Lids. Genesco typically needs a 2 percent to 3 percent consolidated comp increase in order to leverage expenses, [which] can happen given the favorable trends in casual footwear that are expected to continue this year.”

Genesco executives sounded a more cautious tone on the year, given the near-term economic challenges both here and in Europe.

“Starting out with a negative comp in February, we’re all hopeful, as the tax refunds begin to kick in, in March, we’ll see some pickup there,” Jim Gulmi, SVP of finance and CFO, told analysts on a conference call. “We’re not sure exactly what the [payroll] tax impact might be. We’re really in uncharted territory right now. All we can say is that it’s going to be a challenging first quarter.”

Robert Dennis, chairman, president and CEO of Genesco, noted that the payroll tax increase provides headwinds to Journeys and Lids beyond just this month.

“We expect continued challenges during the first half of fiscal 2014 for Lids, but we remain confident in our ability to deliver full-year [earnings per share] growth of 10 percent to 12 percent over 2013 levels on top-line growth of roughly 4 percent to 5 percent, with gains over last year expected to be weighted to the back half,” he added.

But a bright spot for the firm is Schuh, which accelerated its store opening schedule last year to take advantage of the business’ momentum and attractive real estate opportunities in the U.K.

“Schuh’s success comes despite challenging market conditions in the U.K. and gives us confidence that accelerating Schuh’s store growth now will position us for additional gains when the economy eventually recovers,” said Dennis.

Genesco’s fourth-quarter net income was dented by deferred payments and other expenses related to the Schuh acquisition, coming in at $38.5 million, or $1.62 a share, compared with $41.5 million, or $1.72.

Net sales for the period advanced 10 percent, to $797 million, from $723 million last year. Comps rose 7 percent at the Schuh Group, and 2 percent at the Johnston & Murphy Group. But they fell 10 percent at the Lids Sports Group and 1 percent at the Journeys Group.

For the full year, net income was $110.5 million, or $4.60 a share, compared with $82 million, or $3.43, a year ago.

Genesco expects full-year 2014 EPS to come in between $5.57 and $5.67 — or a 10 percent to 12 percent increase over fiscal 2013. The guidance assumes comp sales increases in the low single-digit range.

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