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Genesco Inc. (GCO - Snapshot Report), a retailer and wholesaler of branded footwear, apparel, and accessories, posted third-quarter fiscal 2014 adjusted earnings of $1.43 per share, ahead of the Zacks Consensus Estimate of $1.37. However, quarterly earnings declined by a penny from the year-ago quarter.

On a reported basis, the company’s earnings from continuing operations came in at $1.18 per share compared with $1.76 per share in the year-ago quarter.

The Quarter in Detail

Net sales improved by a marginal 0.3% year over year to $666.3 million and was above the Zacks Consensus Estimate of $663 million. Top-line results during the quarter were impacted by a 1% decline in comparable-store sales (comps). Though on the negative side, the company’s comps reflected a meager improvement compared with the recent quarters, driven by healthier comparisons at the U.S.-based retail businesses through the third quarter.

On a segmental basis, the company witnessed a 2% decline in Journeys Group’s comps and a 10% downside in Schuh Group comps, offset by an increase of 5% in Lids Sports Group's comps and 7% rise in Johnston & Murphy Group’s comps.

Selling and administrative expenses reflected a 1.4% increase compared to the year-ago quarter, taking the aggregate to $283.7 million. Moreover, as a percentage of sales, selling and administrative expenses expanded 50 basis points to 42.6% compared with 42.1% in the third quarter of fiscal 2013.

Consequently, operating income declined 13.3% in the quarter to $47.0 million compared with $54.2 million in the previous year. Operating margin contracted 110 basis points to 7.1% from 8.2% reported in the prior-year quarter.

Financials

Genesco ended the third quarter of fiscal 2014 with $32.3 million of cash and cash equivalents, $92.4 million of long-term debt and $861.6 million of shareholders’ equity. As of Nov 2, 2013, inventories totaled $694.3 million compared with $600.3 million as of Oct 27, 2012.

Stores Update

In the reported quarter, Genesco opened about 62 new retail outlets and shuttered nearly 13 stores. Consequently, the company’s store base expanded to a total of 2,537 stores as of Nov 2, 2013, compared with 2,488 as of Aug 3, 2013. Permanent store locations, excluding Schuh Concessions, which are expected to close this year and temporary "pop-up" locations, were 2,532 at the end of the third quarter of fiscal 2014.

Outlook Retained

Genesco projects fiscal 2014 adjusted earnings to be in the range of $5.10 – $5.20 per share, versus $5.06 per share reported in the year-ago quarter. The Zacks Consensus Earnings Estimate of $5.20 per share is in sync with the upper-end of the company’s guidance. The company’s guidance is based on a comparable sales decline in the low single digit range for the fiscal year and a low single digit gain in the fourth quarter.

Moreover, the company remains well-positioned for a sustainable earnings and sales growth given the smooth progress on its long-term strategic initiatives. Following a recent review of the company’s 5-year plan, it now expects to reach yearly sales of $3.9 billion with about 9% – 9.5% in operating margin by fiscal 2018.

Other Stocks to Consider

Genesco currently holds a Zacks Rank #4 (Sell). Better-ranked stocks in the apparel-shoe space are Citi Trends Inc. (CTRN - Analyst Report), Deckers Outdoor Corp. (DECK - Analyst Report) and Nike Inc. (NKE - Analyst Report), all of which carry a Zacks Rank #2 (Buy).

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