Genesco, parent company behind Journeys, Schuh and Johnston & Murphy, missed Wall Street estimates for both earnings and revenue in the first quarter but the company feels confident strong digital growth will allow it to bounce back.
In a Nutshell: As of June 9, Genesco said it had reopened approximately 1,000 of its 1,479 stores that were closed since mid-March to curb COVID-19—including 900 Journeys locations.
Quarterly net sales dropped more than 40 percent but Genesco said strong e-commerce sales have helped to offset the impact. Digital sales generated triple-digit gains in April and exceeded that mark in May.
“Today, approximately 1,000 stores are open and we are pleased with the initial results we’ve experienced thus far, especially at Journeys where sales in the stores that have reopened are comping nicely positive to last year’s volumes for the same period,” Genesco CEO and president Mimi E. Vaughn said in a statement. “That said, there continues to be a good deal of uncertainty about near-term trends and therefore we are planning sales conservatively and managing expenses and inventory accordingly.”
To this end, Genesco extended payment terms with suppliers in Q1 and reduced its future inventory receipts to end the quarter with inventories up only 6 percent year-over-year, despite the total shutdown.
Genesco also borrowed $208 million from existing lines of credit to maintain liquidity, lowered capital expenditures by more than half and furloughed or reduced its workforce by 90 percent across the company. It also trimmed quarterly expenses by 20 percent.
Future store reopenings will depend on a few factors, Genesco said, including state and local government approval and enhanced health and safety measures for both consumers and employees.
The company expects to have close to 85 percent of its store fleet open by the end of June.
Sales: Net sales fell by 44 percent in the quarter to $279 million, below the Wall Street estimate of $306.47 million. Wholesale revenue was also down, the company said, though digital comps grew by 64 percent.
Gross margin fell by 640 basis points to 43 percent, compared with 49.4 percent last year, driven by higher e-commerce overhead as well as increased penetration of sales product at Schuh and Johnston & Murphy.
Earnings: A non-GAAP operating loss of $69.5 million led to a loss per share of $3.65, below the estimated loss of $2.52 Wall Street expected.
In last year’s comparable quarter, Genesco reported adjusted operating income of $8.4 million. Adjusted operating margin fell to negative 24.9 percent compared to 1.7 percent last year.
CEO’s Take: “Despite the challenges we faced from the decision in mid-March to temporarily close all of our stores, we were able to stay actively engaged with existing and new customers as we successfully leveraged the multi-year investments we’ve made advancing our digital commerce capabilities,” Vaughn said.