Genesco Earnings Beat Estimate

Zacks

Genesco Inc. (GCO), a retailer and wholesaler of branded footwear, apparel, and accessories, posted first-quarter fiscal 2014 earnings of 94 cents per share, ahead of the Zacks Consensus Estimate of 84 cents. The better-than-expected results were mainly driven by strength at the company’s direct channel and better expense management, which offset the slightly soft retail traffic. However, quarterly earnings declined 4.1% from 98 cents reported in the year-ago quarter.

On a reported basis, the company’s earnings from continuing operations came in at 78 cents per share compared with 86 cents per share in the year-ago quarter.

The Quarter in Detail

Net sales dipped 1.5% year over year to $591.4 million and fell short of the Zacks Consensus Estimate of $607 million owing to a 4% decline in comparable-store sales (comps) for the quarter. This decline in comps mainly came from a soft start in February, on account of delayed federal tax refunds. However, the company’s comps improved through the rest of the quarter despite a colder-than-usual weather.

On a segmental basis, the company witnessed a 6% dip in Lids Sports Group's comps, a 2% decline in Journeys Group’s comps and an 11% downside in Schuh Group comps, offset by an increase of 7% in Johnston & Murphy Group’s comps.

Selling and administrative expenses reflected a 2.0% decline compared to the year-ago quarter, taking the aggregate to $265.0 million. Moreover, as a percentage of sales, selling and administrative expenses improved, contracting 30 basis points to 44.8% compared with 45.1% in the first quarter of fiscal 2013.

Consequently, operating income declined 10.3% in the quarter to $32.3 million compared with $36.0 million in the previous year. Operating margin contracted 50 basis points to 5.5% from 6.0% reported in the prior-year quarter.

Financials

Genesco ended the first quarter of fiscal 2014 with $39.7 million of cash and cash equivalents, $47.7 million of long-term debt and $817.9 million of shareholders equity. As of May 4, 2013, inventories totaled $509.1 million compared with $445.2 million as of Apr 28, 2012.

Stores Update

In the reported quarter, Genesco opened about 18 new retail outlets and shuttered nearly 19 stores. Additionally, the company acquired a total of 33 retail units since Jan 28, 2012. Consequently, the company’s store base expanded to a total of 2,458 stores as of May 4, 2013, compared with 2,387 as of Jan 28, 2012.

Outlook Retained

Encouraged by the company’s first-quarter performance and future visibility, management reiterated its earnings guidance of $5.57 – $5.67 for fiscal 2014, reflecting a 10% to 12% increase from $5.06 per share reported in fiscal 2013. The company’s guidance is based on a comparable sales growth in the low single digit range for the fiscal year.

Moreover, the company remains well-positioned for a sustainable earnings and sales growth over the long term on the back of the company’s incremental investments in e-commerce infrastructure and its selective store opening strategy. Over the longer term, the company remains on track to achieve its 5-year target of $3.5 billion in sales and 9.5% in operating margin by fiscal 2017.

Other Stocks to Consider

Genesco currently holds a Zacks Rank #3 (Hold). Other stocks worth considering in the apparel-shoe space are New York & Co. Inc. (NWY), Gap Inc. (GPS) and Lululemon Athletica Inc. (LULU). Of these, New York & Co. has a Zacks Rank #1 (Strong Buy), while Gap and Lululemon carry a Zacks Rank #2 (Buy).
 

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