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Boots a Bright Spot in Genesco’s Return to Profitability

Despite a weak back-to-school season, Genesco, the parent company of footwear retailers Journeys, Johnston & Murphy and Schuh, returned to profitability in the third quarter of the fiscal year 2021.

“Thanks to our competitive strengths, we’ve navigated well through extraordinary market conditions this year, including back-to-school and back-to-work uncertainty and we’ll continue to navigate through this unusual holiday season,” Mimi Vaughn, Genesco president and CEO, said on a call with investors Friday. “As conditions normalize and we make further progress on our strategic initiatives, I am confident we’ll emerge strong and be well positioned with more than enough liquidity to take advantage of the many opportunities the pandemic has presented.”

Genesco, like many in the footwear industry, felt the impact of the delayed back-to-school season, beginning in July. And while the company did see the selling season extend through September and into October, Vaugh said, back-to-school sales still ended up negative compared to 2019.

Brick-and-mortar stores, however, remained open for about 95 percent of the third quarter, compared to about 70 percent during the second quarter, Vaughn reported. “While we continue to face traffic levels that are down well into the double-digits, our store teams are driving record levels of consumer conversion that helps to materially offset this headwind,” she added.

Meanwhile, Genesco’s e-commerce business experienced strong gains in both traffic and conversion, driven by an almost 40 percent increase in new website visitors and nearly 60 percent jump in new customer purchases, Vaughn said. Overall, digital sales grew 62 percent in the quarter compared to the same period last year.

These gains in digital sales, combined with the weaker back-to-school season and store closures, resulted in total revenue declining 11 percent year-over-year to $479 million, Vaughn said. “This result was better than we expected due mainly to stronger sales at Journeys and represents a meaningful improvement from last quarter’s 20 percent decline,” she added.

The company’s gross margin for the quarter, 47.1 percent, came in 210 basis points below the same period last year, due primarily to lower margins at Johnston & Murphy and a mix shift among Genesco’s businesses, Vaughn said. Still this drop improved sequentially from the second quarter, when the company posted a 42.7 percent gross margin.

Thanks to cost-cutting actions early in the outbreak and one-time benefits such as rent abatements, total expenses at Genesco fell a little more than revenue, Vaughn added.

These improvements in sales and gross margin, combined with the increased profitability of Genesco’s e-commerce channel, swung the company back into the positive for the quarter, Vaughn said, with net earnings of $7.5 million. Though well below last year’s $18.9 million, numbers represented a marked improvement from Genesco’s second-quarter $19 million net loss.

Looking to the current quarter, Vaughn said Genesco’s sales moderated in November but remained in line with expectations with an even heavier mix of digital versus store sales, Vaughn said.

“The lion’s share of the holiday season remains ahead of us,” Vaugh said. “Whenever and however the consumer decides to shop, we believe we’re set up well to meet the demand, thanks to investments we’ve made in technology to drive growth across e-commerce and in our stores.”

Brand-by-brand performance

Genesco’s largest brand Journeys—representing 66.3 percent of third-quarter net sales—got off to a difficult start due to the prolonged uncertainty around when and how the most recent school year would begin. Same-store sales remained down double-digits in August, Vaughn said, then hit an inflection point in early September as comparisons began to ease, accelerated significantly through the rest of the month, and remained strong in October. Overall, Dave Slater, Genesco’s vice president of financial planning and analysis, said Journeys’ third-quarter comparable sales declined 6 percent year over year, while store traffic “was down well into double-digits.”

“Comfort continued to be the fashion choice of the pandemic and Journeys offering of casual product resonated strongly with consumers,” Vaughn said. This season, she added, “consumers’ appetite for boots began early and more robustly in the season than we have seen in many years.”

In the U.K., Vaughn said back-to-school at Genesco’s Schuh brand unfolded similarly to previous years as schools started on time and most students resumed in-person learning. Even with most stores open, e-commerce generated nearly 45 percent of Schuh’s sales, she said. Like Journeys, Vaughn said Schuh’s casual selection “gained ground over its fashion athletic assortment with boot sales driving a good portion of the pickup.” Year-on-year, Schuh’s comparable sales rose 1 percent during the quarter.

Despite quarter-on-quarter improvement, Genesco’s Johnston & Murphy brand continued to a face a tough environment with many continuing to work from home and most large social gatherings and events postponed or canceled. As with Journeys and Schuh, boot sales, which began to sell earlier in the season, stood out as a bright spot during the quarter. Overall, comparable sales dropped 43 percent in the third quarter compared to the same period last year.

Though the brand is historically known for its dressier footwear, Vaughn said the team began work years ago “to evolve Johnston & Murphy into a full lifestyle brand with a range of footwear and apparel offerings from dressier to more casual.” During Genesco’s last fiscal year, she noted that casual and casual athletic represented about 60 percent of the brand’s footwear, and apparel and accessories drove 40 percent of total sales.

In the coming year, however, Vaughn said the brand “has focused 90 percent of new product development on the expansion of its casual offering to include casual athletic, leisure, rugged outdoor and performance.”

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