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Genesco Shares Fall on Dismal Q2 Earnings and Fiscal Outlook

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Shares of Genesco Inc. (GCO - Free Report) plunged 7.6% during yesterday’s trade after the company reported dismal second-quarter fiscal 2015 earnings and lowered its earnings forecast for fiscal 2015.

The company’s adjusted earnings declined 39.3% year over year in the second-quarter to 34 cents per share from continuing operations, and also came below the Zacks Consensus Estimate of 55 cents per share. The fall in bottom line was mainly due to lower-than-expected sales and gross margin at the Lids Sports Group segment, offset by strong comps gains and top-line growth in its direct businesses.

On a reported basis, the company’s earnings from continuing operations came in at 20 cents per share compared with 36 cents per share reported in the year-ago quarter.

Net sales for the quarter increased 7.1% year over year to $615 million and marginally surpassed the Zacks Consensus Estimate of $614 million. The growth in top line was mainly driven by improved consolidated comparable-store sales (comps) performance which includes same store sales and comparable e-Commerce and catalog sales.

The company reported a 2% rise in comps. On segment basis, the company witnessed an increase of 5% in Journeys Group, 1% increase in Schuh Group and 2% rise in Johnston & Murphy Group’s comps, while Lids Sports Group's comps declined 2%.

Gross profit for the quarter increased 6.7% to $301.8 million from $282.8 million. However, gross margin contracted 20 basis points (bps) to 49%.

Adjusted operating income declined 38% in the quarter to $13.7 million from $22.1 million in the comparable year-ago quarter. Adjusted operating margin declined 160 bps to 2.2% from 3.8% reported in the prior-year quarter. The decline was primarily attributable to lower gross margin and increased selling and administrative expenses as a percentage of sales.


Genesco ended the quarter with $59.3 million of cash and cash equivalents, $47.1 million of long-term debt (excluding current maturities) and $945.3 million of shareholders’ equity. As of Aug 2, 2014, inventories totaled $669.4 million compared with $628.1 million as of Aug 3, 2013.


Considering its dismal second-quarter results and its lowered forecast for the Lids segment for the rest of the year, the company trimmed its earnings guidance for fiscal 2015. The company now expects earnings in the range of $5.10 to $5.20 per share versus $5.40 and $5.55 projected earlier, which represents a flat to 2% rise compared with $5.09 per share reported in fiscal 2014.

Other Stocks to Consider

Genesco currently holds a Zacks Rank #3 (Hold). Better-ranked stocks in the apparel-shoe space include Citi Trends Inc. , Abercrombie & Fitch Co. (ANF - Free Report) and Foot Locker Inc. (FL - Free Report) . While Citi Trends and Abercrombie & Fitch sport a Zacks Rank #1 (Strong Buy), Foot Locker has a Zacks Rank #2 (Buy).

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