Genesco, the parent of footwear retailers Journeys, Johnston & Murphy and Schuh, said that its net sales for the period—during which the pandemic closed 70 percent of stores—declined 20 percent to $391 million. This dip still beat Wall Street forecasts for sales of $369 million, and was aided by the company’s 144 percent e-commerce growth.
In a Nutshell: Journeys Group largely held down the fort for Genesco, seeing the smallest sales losses across all divisions at 12 percent. While Journeys generated 65 percent of Genesco’s sales in the second quarter of last year, that number increased to 71 percent in this year’s quarter. The retailer also generated a positive operating income for the quarter. Johnston & Murphy, on the other hand, had the biggest falloff from the pandemic, dropping from 14 percent of total sales to 6 percent year over year a demand for dressy footwear dipped in tandem with the rise of remote white-collar work.
Mimi Vaughn, board chair, president and CEO of Genesco, said in an earnings call that Journeys was positioned well with the right product at accessible price points “for a teen customer excited and anxious to shop.” Upon opening in the second quarter, comparable sales at Journeys stores leapt by double digits right out of the gate, she said.
“Comfort became the fashion choice of the pandemic, and Journeys’ fashion athletic assortment fits the bill,” Vaughn said. “On top of that, Journeys’ spring/summer offering, which included a range of comfortable sandals and other more casual product, resonated strongly, especially with women and kids. While store traffic was down double digits in the first two months of the quarter, robust conversion and higher transaction size drove comps in open Journeys stores to positive double-digit levels as the team consumer, less affected by the virus, showed up in our stores with stimulus money in their pockets and a high intent to purchase full-priced footwear.”
With students starting school later, Vaughn said the Genesco companies saw a “meaningful” falloff in year-over-year store traffic and did not see the big bump in demand they typically expect in late July, which pushed Journeys store comps into double-digit negative territory for the month. With July representing almost 50 percent of Journeys’ second quarter, this trend a little more than offset the strong store results in May and June.
Vaughn noted that Johnston & Murphy customers had fewer reasons to buy with many working from home and most social gatherings and events postponed or canceled, leading to the brand’s significant decline in total sales share at Genesco.
Amid the poor performance of Johnston & Murphy, Genesco is winding down the Trask brand, which sold casual dress shoes.
Inventories decreased 18 percent on a year-over-year basis in the second quarter to $365.2 million, from $444.7 million last year. Journeys cut inventories 22 percent and Schuh slashed stock by 20 percent. The company’s Licensed Brands division, which includes Dockers, Levi’s and Bass products, gained 26 percent. Overall, Genesco, also cut its excess inventory 42.3 percent to $2.5 million.
Second-quarter gross margin was 42.7 percent, down 590 basis points, compared with 48.6 percent last year. The decrease as a percentage of sales to 5.3 percent is due primarily to higher shipping and warehouse expense in all divisions driven by the increase in penetration of e-commerce, significant inventory reserves taken at Johnston & Murphy, and increased promotional activity at Schuh.
Currently, Genesco is operating in 96 percent of its 1,476 locations, including approximately 1,130 Journeys, 160 Johnston & Murphy, and 125 Schuh locations.
Due to the continued uncertainty in the overall economy driven by Covid-19, Genesco is not providing a full-year fiscal outlook.
Cash and cash equivalents as of Aug. 1, were $299.1 million, compared with $58 million at August 3, 2019. Cash increased $60.6 million during the second quarter driven primarily by operating activities that generated $74.4 million, partially offset by a use of cash in financing activities of $12 million, capital expenditures and other activities.
Total debt at the end of the second quarter was $210.9 million, compared with $75.1 million at the end of last year’s second quarter. Total unused credit availability as of Aug. 1, was $63.4 million.
Capital expenditures were $4 million during the quarter, primarily related to digital and omnichannel initiatives and store projects already in progress. During the quarter, the company opened three new stores and closed six stores.
Adjusted selling and administrative expenses for the second quarter increased 40 basis points as a percentage of net sales due to lower sales as a result of Covid-19. Total expenses decreased 19 percent compared to the same period last year driven by disciplined expense management, including reduced selling salaries, occupancy and compensation expense along with lower travel, advertising and bonus expenses.
Net Sales: Net sales for the second quarter of fiscal 2021 decreased 20 percent to $391 million from $487 million in the second quarter of fiscal 2020. This sales decrease was driven by store closures, a later start to back-to-school, lower store comps and lower wholesale sales, partially offset by digital comp growth of 144 percent.
As a result of the store closures and gradual reopening of stores in response to Covid-19, the company has not included second-quarter comparable sales, except for comparable direct sales, as it believes that overall sales are a more meaningful metric during this period.
Overall sales were down 12 percent for Journeys to $276.6 million, 22 percent at Schuh to $71.7 million, and 64 percent at Johnston & Murphy to $24.1 million, while sales were up 62 percent at Licensed Brands to $18.7 million due to its acquisition of footwear licensee Togast in January.
Net Earnings: Genesco saw net losses of $19 million in the second quarter at a $1.34 loss per share, down from the $577,000 net income generated in the same period last year. Operating losses for the second quarter reached $22 million, compared with operating income of $3 million.
Adjusted second-quarter losses amounted to $17.4 million, or a $1.23 per share loss, compared to adjusted earnings of $2.5 million, or a 15 cents per share in the same year-ago period. The losses are still an improvement over the expectations, with Wall Street expecting Genesco to see a loss of $1.85 per share.
Adjusted operating loss for the second quarter was $20.9 million compared with operating income of $4.7 million last year.
CEO’s Take: Vaughn indicated that back-to-school season sales have been soft for the company so far, echoing the sentiments of the CEOs at both footwear rival Caleres and footwear retailer Shoe Carnival, which expect the important shopping season stretch further into the third quarter than usual.
“Towards the end of the second quarter and to begin the third quarter, our business in North America was significantly impacted by the changes in back-to-school timing brought on by the pandemic,” Vaughn said in a statement. “This includes schools in several areas of the country starting later than last year and many others not returning to in-person learning. As such we believe the back-to-school selling season will extend deeper into the third quarter which has limited visibility as we head into the back half. I am incredibly proud of how our teams have responded to the unprecedented challenges we’ve faced thus far in Fiscal 2021. This, along with the strong strategic positioning of our businesses and current liquidity, gives me confidence that we will successfully weather this storm and emerge strong to take advantage of the many opportunities on the other side.”