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Genesco Talks Store Openings and Casualization

Journeys and Schuh parent Genesco saw sales increase 14 percent to $727.7 million on net income of $62.1 million. The strong fourth quarter is a major win for the company, which underwent a contentious board battle last summer that ended with all nine of its directors being retained.

The footwear seller’s stock increased nearly 12 percent on the earnings report.

In a Nutshell: Genesco nearly achieved 2019’s brick-and-mortar revenue levels in 2021 despite having 55 fewer stores.

The footwear company, which also operates retailers like Journeys Kidz and Little Burgundy, as well as the Johnston & Murphy brand, also saw fourth quarter store revenues jump 20 percent on a year-over-year basis in the fourth quarter, despite operating 57 fewer locations.

After closing nine net stores in the fourth quarter, Genesco projects five net closures in 2022. Across all its brands, the Nashville company anticipates 41 store openings and 46 closures.

Mimi E. Vaughn, Genesco board chair, president and CEO, said in an earnings call that Journeys will open 30 off-mall stores in 2022 after the retailer successfully piloted select locations in 2021. Vaughn said the brand was “very pleased” with early sales at the pilot stores.

“Tools like our new real estate analytics platform will allow us to optimize our site selection as we build out this footprint,” Vaughn said. On top of its retail real estate, Genesco is opening a new distribution center for Schuh in Ireland in 2022.

Inventories decreased 4 percent in the fourth quarter to $278.2 million from last year’s $291 million. Johnston & Murphy pulled overall inventory levels down significantly, with the brand’s totals dropping 28 percent year over year. But given that the premium dress shoes brand saw a 51 percent sales boost in the fourth quarter, Genesco has shown to be very efficient in what products it is getting out to the Johnston & Murphy consumer.

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On a two-year basis, inventories across all banners decreased 24 percent from $365.3 million and the end of 2019.

Fourth quarter gross margin was 48.9 percent of sales, up 310 basis points (3.1 percentage points), compared with 45.8 percent last year and up 200 basis points (2 percentage points) on a two-year basis at 46.9 percent. The increase is due primarily to more full-price selling and price increases at the Journeys, Schuh and Johnston & Murphy retail businesses, partially offset by the mix impact of Genesco’s e-commerce and wholesale businesses and increased logistics costs.

For the full-year, gross margin was 48.8 percent of sales, up 380 basis points (3.8 percentage points), compared with 45 percent last year and up 40 basis points (0.4 percentage points) compared with 2019’s 48.4 percent.

Cash and cash equivalents as of Jan. 29, 2022, were $320.5 million, with total debt at the end of the fourth quarter now at $15.7 million. Overall, Genesco generated $240 million in operating cash flow in 2021.

For the fourth quarter, capital expenditures were $19 million, related primarily to the company’s new headquarters building and digital and omnichannel initiatives. Capital expenditures were $54 million throughout 2021.

Genesco outlined its guidance for 2023, indicating that sales are expected to bump between 2 percent and 4 percent.

Additionally, adjusted diluted earnings are expected to range between $7.00 to $7.75 per share, with an expectation it will be near the mid-point of the range. Annual gross margin is expected to decline 40 to 50 basis points, with capital expenditures reaching an estimated $55 million.

For the first quarter, Genesco says it expects a “small loss,” but forecasts that the back half of the year will be stronger than the first half due to an improvement in inventory levels and the tailwind added by recent pricing actions.

Net Sales: Genesco’s fourth quarter net sales increased 14 percent to $727.7 million from $636.8 million in last year’s period, and jumped 7 percent from $677.6 million on a two-year basis.

Total comparable sales increased 3 percent, while brick-and-mortar same-store sales jumping 10 percent. Comparable direct sales, reflecting the company’s online businesses, declined 12 percent in the quarter.

Across individual Genesco banners, sales for the holiday period were up 2 percent at Journeys to $473.7 million and up 33 percent at Schuh to $129 million. The Johnston & Murphy brand soared 51 percent to $76.1 million and its Licensed Brands division skyrocketed 98 percent to $48.9 million. Licensed Brands includes sales of Levi’s, Dockers, Bass and other partner labels.

For the full year, Genesco reeled in $2.42 billion, coming in 36 percent above the $1.79 billion in 2020. On a two-year basis, sales increased 10 percent above the $2.2 billion total in 2019.

Genesco didn’t break out total comparable sales growth for 2021 due to the extended store closures in 2020, but indicated that comparable direct sales decreased 2 percent.

Journeys saw full-year sales jump 28 percent to $1.58 billion, while Schuh increased sales 38 percent to $423.6 million. Johnston & Murphy saw sales increase 65 percent to $252.8 million and Licensed Brands had the biggest segment bump at 70 percent to $169.2 million.

Net Earnings: Genesco reported net income of $62.1 million in the quarter on diluted earnings per share of $4.41, down from the year-ago period’s net income of $89.9 million on diluted earnings per share of $6.20.

Genesco’s operating income for the holiday quarter was $83.4 million, or 11.5 percent of sales, compared with $62.6 million, or 9.8 percent of sales last year.

Fourth quarter adjusted net income was $49.1 million on $3.48 per share, compared to $40 million on $2.76 per share in the 2020 period. The adjustments excluded a gain on the sale of a distribution warehouse and expenses related to the company’s new headquarters building, and excluded charges for fees related to its shareholder activist and retail store asset impairments.

In 2021, Genesco reported net income of $114.9 million in the quarter on diluted earnings per share of $7.92, marking a major turnaround from the year-ago period’s net loss of $56.4 million on diluted losses of $3.94 per share.

Operating income throughout the year $155.6 million, or 6.4 percent of sales, up from the $107.2 million operating loss in 2020.

Full-year adjusted net income was $110.6 million on $7.62 per share, compared to a loss of $16.7 million on a $1.18 per share loss. The adjustments excluded the same impairments that were omitted in the fourth quarter.

CEO’s Take: Vaughn noted the company’s use of consumer insights to dictate product development for Genesco banners, particularly as the company further pivots Johnston & Murphy to more casual footwear.

“We have made tremendous progress reimagining the brand, highlighting proprietary innovation involving performance, advanced cushioning and breathability technologies in both footwear and apparel in growing Johnston & Murphy into its position as the number seven casual brand in the premium channel,” Vaughn said. “In addition, we will leverage our Togast capabilities and talent in connection with our new Starter and Etonic licenses, which have shown strong pre-sale demand.”