Genesco Inc. shares took a nosedive in early-morning trading on the heels of a third-quarter profit miss that evidenced the ongoing tug-and-pull dynamics between its Journeys and Lids businesses.
As of 11:15 a.m. ET, the firm’s stock remained down more than 21 percent at $24.57.
Genesco posted a net loss of $164.8 million, or $8.55 per diluted share, compared with net income of $25.9 million, or $1.30 per diluted share, in the same period last year. On an adjusted basis, net income was $19.7 million, or $1.02 per diluted share, significantly missing analysts’ bets for diluted earnings per share of $1.12.
Nevertheless, the company’s net sales during the period edged up 1 percent to $717 million, handily topping forecasts for sales of $706.6 million. Consolidated comparable sales, including same-store sales and comparable e-commerce and catalog sales, increased 1 percent, with a 4 percent gain in the Journeys Group, a 4 percent increase in the Schuh Group, a 6 percent decrease in the Lids Sports Group and a 1 percent decline in the Johnston & Murphy Group. (Comparable sales for the company included a 2 percent drop in same-store sales and a 24 percent increase in e-commerce sales.)
Referencing an ongoing pattern — in which a strong performance at teen mall staple Journeys is somewhat offset by a weak performance by hat seller Lids — Genesco chairman, president and CEO Robert Dennis described the third-quarter results as “the tale of two businesses.”
“Journeys built on its momentum following its emergence from the recent fashion shift in its markets and posted a solid comp gain,” Dennis said. “Meanwhile, Lids, after a tough second quarter, faced additional challenges that pressured its performance. The dramatic shift in consumer shopping behavior away from stores to digital continued across all of our divisions, although we did see bright spots in both store traffic and store purchases during back-to-school in more than one of our concepts. The combination of these factors, with gross margin headwinds in many of our businesses, the deleverage resulting from negative store comps and higher expenses from our omnichannel initiatives, led to earnings below last year’s level but slightly ahead of our internal forecasts.”
In light of Lids’ ongoing decline, Dennis said the company has adopted a more “conservative” full-year outlook looking ahead. Genesco now expects adjusted diluted EPS to range from $3.05 to $3.35 compared with previous guidance range of $3.35 to $3.65, given Lids’ challenges. The new guidance assumes comparable sales in the range of plus or minus 1 percent for the full year.
Still, Dennis said top-line results for the firm’s footwear businesses for the fourth quarter to date, including sales and e-commerce bookings over Black Friday Weekend and Cyber Monday, accelerated over the third quarter, and he is “now more optimistic about Journeys’ fourth-quarter prospects.”
“While we are very disappointed with our reduced outlook, in addition to successfully executing our holiday plans, we continue to focus on taking the necessary steps toward meeting the challenges in this changing retail environment and strengthening our strategic positioning for sustained growth,” Genesco’s chief noted. “These steps include initiatives aimed at reducing our real estate risk and rent expense, enhancing our in-store experience and driving traffic to our stores, building further our omnichannel and digital capabilities, strengthening the equity of our retail brands and managing capital spending as we look toward next year.”