On Jul 2, Zacks Investment Research downgraded Genesco Inc. GCO to a Zacks Rank #5 (Strong Sell). Disappointing first-quarter fiscal 2016 results and a tempered outlook for fiscal 2016 led to the downgrade. The stock has plunged 14% year-to-date.
Why the Downgrade?
This Nashville, TN-based company had a soft start to fiscal 2016 as both top and bottom lines for the first quarter fell short of the Zacks Consensus Estimate.
The company’s adjusted earnings per share from continuing operations declined 37% year over year to 51 cents and also came below the Zacks Consensus Estimate of 68 cents. The fall was mainly due to lower gross margin and expenses associated with the e-commerce business.
We note that Genesco has underperformed the Zacks Consensus Estimate by an average of 19.6% over the past four quarters, delivering a negative surprise in every quarter.
Though Genesco’s sales increased 5.1% year over year to $661 million, it missed the Zacks Consensus Estimate of $664 million.
Further, the ongoing challenges in the Lids Sports Group segment coupled with negative foreign currency translations and supply chain uncertainties due to increased backlog from the West Coast port disruptions led the company to lower its guidance for fiscal 2016.
Management hinted that the Lids Sports Group's turnaround would result in further gross margin pressure and additional expenses than originally expected. The company now expects fiscal 2016 adjusted earnings in the range of $4.70 to $4.80 per share, down from the previous forecast of $5.10 to $5.20 per share.
This footwear retailer witnessed sharp downward estimate revisions following the lower-than-expected results and a subdued outlook thereafter. It seems that analysts have become less constructive on the stock's future performance. This is evident from the Zacks Consensus Estimate for fiscal 2016 that tumbled 7.9% to $4.76 in the past 60 days. For fiscal 2017, the Zacks Consensus Estimate slid 7% to $5.43 over the same time frame.
Stocks with Favorable Zacks Rank
Better-ranked stocks in the same industry include American Eagle Outfitters, Inc. AEO, Boot Barn Holdings Inc. BOOT and Express Inc. EXPR. All three stocks carry a Zacks Rank #1 (Strong Buy).
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