Genesco Inc. GCO posted third-straight quarter of positive earnings surprise streak, as it reported third-quarter fiscal 2017 numbers. As a result, shares rose 2.8% on Dec 2, 2016. Notably, Genesco has gained 14.4% year to date, outperforming the Zacks-categorized Retail–Apparel/Shoe industry, which fell 5.6% over the same time frame.
This retailer of branded footwear, headwear and accessories posted adjusted quarterly earnings of $1.28 per share that outperformed the Zacks Consensus Estimate of 91 cents. Improvement in gross margin, particularly, at the Lids Sports Group business and share repurchase activity provided cushion to the bottom line.
However, what came as a drawback was that quarterly earnings dropped 8.6% year over year. Further we observed that net sales also declined and fell short of expectations.
On a reported basis, including one-time items, the company’s earnings per share from continuing operations were $1.30 compared with $1.43 recorded in the year-ago quarter.
Quarter in Detail
Net sales of the company dropped 8.2% to $710.8 million and also missed the Zacks Consensus Estimate of $714.3 million. The year-over-year decline in the top line was due to the sale of the Lids Team Sports business in fourth-quarter fiscal 2016. Excluding the Lids Team Sports business from the previous year, total revenues declined 3% due to a 3% decrease in consolidated comparable-store sales (comps), somewhat compensated by a 4% rise in wholesale revenues.
Genesco reported a 3% fall in consolidated comps. Further, it recorded 4% growth in store comps, but comps via the eCommerce platform rose 7%.
Comps came ahead of the company’s projections, primarily due to the better-than-expected revenues at the Schuh Group and Lids Sports Group businesses.
On a segmental basis, the company recorded an 8% decline in comps at the Journeys Group and flat comps at the Schuh Group. However, the company posted positive comps of 2% at the Lids Sports Group and 1% at Johnston & Murphy Group.
Gross profit was down 4.9% to $355.6 million, while gross margin expanded 170 basis points (bps) to 50%. The upside was due to the development recorded at Lids and Johnston & Murphy businesses.
Selling and administrative expenses were down 2.2% to $314.7 million. However, as a percentage of sales, the same expanded 270 bps to 44.3%.
Adjusted operating income of $40.9 million in the reported quarter fell 21.6% from the year-ago figure of $52.2 million. Also, the operating margin contracted 90 bps to 5.8%.
Financials
Genesco ended the quarter with approximately $30.5 million of cash and cash equivalents, $214.1 million of long-term debt (excluding current maturities), and $865.7 million of shareholders’ equity. As of Oct 29, 2016, inventories totaled $720 million compared with $779.9 million as of Oct 31, 2015.
During the fiscal third quarter, Genesco incurred $25 million as capital expenditure. For fiscal 2017, management anticipates capital expenditure in the band of $110–$120 million, which includes investment in the Journeys distribution center.
Further, the company has bought back 747,000 shares worth $40 million. The company still has $40 million at its disposal under its share repurchase authorization of $100 million.
Outlook
Based on the better-than-expected earnings performance and favorable impact of the World Series win, offset by expected challenging environment at the Journeys Group in the fourth-quarter fiscal 2017 on account of unfavorable weather and the continued impact of the fashion shift, management reiterated its earnings guidance. Management continues to anticipate adjusted earnings a share for fiscal 2017 ending on Jan 28, in the band of $3.80–$4.00.
Further, the company has trimmed its sales projection, based on the challenges at Journeys and Schuh Groups.
For fiscal 2017, sales are projected to decline in the band of 5–6%, due to lower comps, currency headwind and sale of the Lids Team Sports business. Management expects comps to decline in the range of 2–3%.
GENESCO INC Price, Consensus and EPS Surprise
GENESCO INC Price, Consensus and EPS Surprise | GENESCO INC Quote
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