Genesco Inc.’s (GCO Quick QuoteGCO - Free Report) shares plunged nearly 32.8% after it posted mixed second-quarter fiscal 2017 numbers, with earnings outpacing the Zacks Consensus Estimate, while sales missed the same.

Quarterly adjusted earnings of this retailer and wholesaler of branded footwear, headwear and accessories, came in at 34 cents per share that surpassed the Zacks Consensus Estimate of 26 cents but dropped 5.6% year over year.

On a reported basis, including one-time items, the company’s earnings per share from continuing operations were 72 cents, compared with 32 cents recorded in the year-ago quarter.

Quarter in Detail

Net sales of the company dropped 4.6% to $626 million and also missed the Zacks Consensus Estimate of $641 million. The year-over-year decline in the top line was due to the sale of the Lids Team Sports business in the fourth quarter of fiscal 2016.

Genesco reported a 1% drop in consolidated comparable-store sales (comps). The company recorded a 2% decrease in store comps, while comps via the eCommerce platform slipped 1%.

Comps were particularly challenging for the month of July, primarily due to the fashion rotation at Journeys Group. As a result, there was a shift from the key fashion trends, which had earlier led to the segment’s solid sales. This was partly compensated by the persistent success of Johnston & Murphy and the development noticed at the Lids Sports Group business, coupled with share buybacks made last year.  

On a segmental basis, the company recorded a 4% drop in comps at the Journeys Group, flat comps at the Lids Sports Group and a 1% decline in the Schuh Group, partly offset by a 3% comps rise at Johnston & Murphy Group.

Gross profit dipped 1.7% to $314.8 million while the gross margin expanded 150 basis points (bps) to 50.3%.

Adjusted operating income of $20 million in the reported quarter rose from the year-ago figure of $12.5 million. Also, the operating margin increased 130 bps to 3.2%.

Financials

Genesco ended the quarter with approximately $41.5 million of cash and cash equivalents, $125.0 million of long-term debt (excluding current maturities), and $886.9 million of shareholders’ equity. As of Jul 30, 2016, inventories totaled $663.7 million compared with $734.8 million as of Aug 1, 2015.

Outlook

Considering the challenges at Schuh Group and fashion misses at Journeys Group due to its fashion rotation, and comps trends, Genesco lowered its outlook for fiscal 2017.

Management now anticipates adjusted earnings for fiscal 2017 in the band of $3.80–$4.00 a share. This excludes estimated non-cash asset impairment and other charges including the gain on a litigation settlement and gain on the sale of Lids Team Sports in the reported quarter, anticipated in the band of $1.2 million pretax gain to a $3.0 million pretax charge, or a decline of 4 cents to 9 cents per share after tax, for fiscal 2017.

Also, this guidance reflects expectations of a low single-digit decline in comps. Moreover, the third quarter has witnessed a difficult start, primarily due to fashion misses at Journeys Group and challenges faced by the Schuh Group. For the third quarter through Aug 27, comps declined 5% year over year.

Zacks Rank

Currently, Genesco carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same industry include The Children's Place, Inc. (PLCE Quick QuotePLCE - Free Report) , Tilly’s Inc. (TLYS Quick QuoteTLYS - Free Report) and Urban Outfitters Inc. (URBN Quick QuoteURBN - Free Report) , all sporting a Zacks Rank #1 (Strong Buy).

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