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Sandals and Golf Shoes Drive Casual Gains at Genesco

The arrival of government stimulus in the U.S. and sustained digital spending in the U.K. helped drive Genesco to sales growth on both a year-over-year and two-year basis.

The strong sales performance translated to non-GAAP earnings per share of $0.79, well above Zacks Equity Research’s expected loss of $0.57 per share.

In a Nutshell: Genesco’s Journeys Group drove much of the company’s first-quarter success. The business—consisting of 829 U.S. Journeys stores, 47 Canadian Journeys stores, 230 Journey Kidz stores and 37 Little Burgundy stores—accounted for 70 percent of the company’s sales in the period. This represented a 10-point jump from a year ago and a five-point increase compared to 2019.

Speaking with investors Thursday, Mimi Vaughn, Genesco’s board chair, president and CEO, attributed Genesco’s gains in part to increased consumer spending following the arrival of government stimulus, as well as “much higher” conversion rates and increased transaction size. Despite improved store traffic, e-commerce sales came in at more than double pre-pandemic levels, largely thanks to new website visitors, which generated nearly 50 percent of Journeys’ first-quarter online revenue, Vaughn said. Fashion athletic shoes, though up compared to last year, were outpaced by growth in casual footwear. Sandals, in particular, got off to a good start this season, Vaughn added.

Genesco’s Schuh business—up compared to last year, but down versus pre-pandemic levels—“delivered a commendable performance under very difficult circumstances,” Vaugh said. With its 123 stores open for less than 20 percent of the possible operating days, digital sales climbed more than 70 percent on top of last year’s 90 percent growth, bringing e-commerce to more than 80 percent of the U.K. retailer’s total revenue. Many of the trends driving business at Schuh mirrored those at Journeys, but with more of a fashion athletic tilt, Vaughn noted.

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Schuh contracted compared to the rest of Genesco’s business, making up just 13 percent of the company’s total sales. This compared to 17 percent and 16 percent last year and the year before, respectively.

The company’s Johnston & Murphy brand also decreased as a share of total net sales, falling from 14 percent and 15 percent in fiscal 2021 and fiscal 2020, respectively, to 9 percent this most recent quarter. Like Schuh, it saw total sales improve versus last year and decline compared to 2019.

Newly developed casual styles led the way at Johnston & Murphy, which has traditionally focused more on dress footwear. Moving forward, however, Vaughn said 90 percent of the brand’s new product development is focused on expanding its casual offering. The CEO also highlighted continued gains in golf shoes and apparel. As the U.S. begins its “return-to-office phase,” Vaughn said Genesco is expecting the brand’s recovery to accelerate.

In general, Genesco has seen momentum from the fourth quarter continue into the first quarter, Vaughn said. Though the company anticipates benefits from government stimulus and pent-up demand will ebb at some point, a more normalized back-to-school season and a return to the office offer opportunities for gains in the future. Child tax credit payments, scheduled to begin arriving in mid-July, could further boost not only these sales, but business all the way into the holiday season, Vaughn added.

As of May 1, cash and cash equivalents totaled $258 million, compared with $238.6 million a year ago. Total debt was $44.2 million, down from $222.7 million a year earlier—a result of increased borrowings at the beginning of the pandemic. Inventories decreased 23 percent on a year-over-year basis and 18 percent versus two years ago.

Net Sales: Genesco saw sales increase 93 percent year-over-year to $539 million in the quarter ended May 1. Compared to the same period in 2019, net sales rose 9 percent.

Overall sales rose across each of the company’s divisions compared to last year, including by 123 percent at Journeys, 46 percent at Schuh and 26 percent at Johnston & Murphy. Versus two years ago, sales climbed 16 percent at Journeys, but declined 11 percent and 35 percent at Schuh and Johnston & Murphy, respectively.

Earnings: The company’s GAAP operating income totaled $15.5 million in the first quarter, or 2.9 percent of sales. This compared with an operating loss of $156 million last year and an operating income of $9.1 million two years ago.

GAAP earnings from continuing operations came in at $8.9 million, compared to a loss of $134.6 million last year and earnings of $6.5 million two years ago. Adjusted for excluded items, first quarter earnings from continuing operations totaled $11.6 million, or $0.79 per share. This represented an improvement from last year’s loss of $51.4 million, or $3.65 per share, and earnings of $5.9 million, or $0.33 per share two years ago.

CEO’s Take: “The pace of our recovery only reinforces our belief that the path we were on prior to the pandemic now is the right path forward,” Vaughn said. “What we’re most excited about is we see opportunities to solidify the digital gains we made and capitalize on the ongoing industry consolidation to further expand our market share. Covid-19 has provided us the real opportunity to transform our business at a faster pace, and our results demonstrate that’s what we’re accomplishing.”