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Genesco, Inc. (GCO)
F2Q09 Earnings Call
August 28, 2008 8:30 am ET
Robert J. Dennis - President, Chief Executive Officer, Chief Operating Officer, and Director
Hal N. Pennington - Chairman
James S. Gulmi - Chief Financial Officer and Senior Vice President - Finance
Scott Krasik - C.L. King & Associates
Analyst for Jeffrey Klinefelter - Piper Jaffray & Co.
John Shanley - Susquehanna Financial Group
Jillian Caruthers - Johnson Rice & Company
Mitch Kummetz - Robert W. Baird & Co., Inc.
Sam Poser - Sterne, Agee & Leach
Adam Kamora - Interest Capital
David Turner - BB&T Capital Markets
Previous Statements by GCO
» Genesco Inc. F4Q09 (Qtr End 01/31/09) Earnings Call Transcript
» Genesco Inc. F3Q09 (Qtr End 10/31/08) Earnings Call Transcript
» Genesco Inc. F1Q09 (Qtr End 05/03/08) Earnings Call Transcript
Robert J. Dennis
Participating with me on the call are Hal Pennington, our Chairman, and Jim Gulmi, our Chief Financial Officer.
As always, we will make some forward-looking statements in this call. They reflect our expectations as of today but actual results could be materially different. We refer you to our earnings release and to our recent SEC filings including the 10Q for the first quarter for some of the factors that could cause differences from our expectations. And for those listening to the replay of this call on the Internet, some of these factors can be read on the opening screen.
We were pleased with our results for the second quarter especially in light of the challenging consumer environment. Net sales increased approximately 8% to $353 million. Total company same-store sales increased 4%. Through Monday, August 25, the last day for which we have reliable data, third quarter to date comps were positive 7%. We remind you that this represents a little more than three weeks of sales and we have a long way to go in the quarter.
We are reporting diluted EPS from continuing operations of negative $0.27 per share for the quarter on a GAAP basis. This includes the tax anomaly we discussed in the press release and other items we break out on the schedule to the release which amount to $0.45 per share. Before those items on a basis consistent with our annual guidance and the pro forma disclosure we gave last quarter, EPS from continuing operations was $0.18 per share. We also effectively managed inventories. Year-over-year inventories were down 6% at quarter end.
Journeys, Hat World and Underground Station all posted nice comp gains in the quarter. In fact, after a solid comp performance in the first quarter of this year same-store sales in all three divisions accelerated in the second quarter. Moreover, each of these divisions achieved operating margin expansion during the quarter.
We are benefiting from the ongoing success of our merchandising strategies. In addition our year-over-year performance is benefiting from several offsets from last year that set up easier comparisons and these remain in play in the back half of the year. While we realize that we are only three weeks into the third quarter, we are pleased with the positive comps in Journeys, Hat World and Underground Station.
Johnston & Murphy’s business like a number of premium retailers was negatively impacted by the economic climate. However we are confident in the long-term strength and direction of the brand. Meanwhile the Dockers footwear business continues to perform extremely well with strong sales gains.
Now to look at individual businesses beginning with Journeys. The overall comp increase for the Journeys group was 2% for the quarter. This comp momentum has continued so far into August. Through last Monday, third quarter to date comps in the Journeys group were up 9% despite the loss of the Florida tax-free period in early August. Journeys Direct which includes both the Internet and catalog businesses was up 7% in the second quarter.
Turning to the Journeys stores alone, second quarter comps were up 2% compared to a 7% decline last year in the second quarter. Again through Monday, August to date comps were up 9%. Overall for the quarter footwear unit comps increased 2% and average selling price increased 2%. If you exclude Heelys from this year and last year, Journeys overall average footwear selling price was up 4% for the quarter. Note that in the back half of last year Heelys sales were off 60% from the previous year and the realized gross margin was well below Journeys normal range, so the Heelys comparison for the balance of this year should benefit Journeys. The solid comp results were driven by ongoing strength in Journeys skate business modestly offset by weakness in the women’s casual business. Men’s footwear made up about 56% of Journeys footwear sales for the quarter, and women’s and kids’ footwear represented about 44%.
We opened three new Journeys stores during the quarter and we remain on track to open 28 this fiscal year to end the year with a total of 831 stores. We also expanded 19 Journeys stores in the first half and plan to expand 14 more stores during the year.
We expect that the same categories and brands that were strong in Q2 will continue to drive our business through the remainder of back-to-school and we feel we are appropriately merchandised in inventory to take advantage of these trends.
In Journeys Kidz comps decreased 2% in the quarter compared to a 5% decline last year. This is a significant improvement from the first quarter when Kidz comps were down 8% and it reflects easier Heelys comparison. Kidz have had the same positive start that we have seen with the group going into third quarter. August to date through last Monday Kidz is camping up 6% an early reflection of the anniversary of Heelys and the continued strong trends in the skate category. In the second quarter footwear unit comps were down 3% and ASPs increased 2%. Excluding Heelys, overall footwear ASPs were up 7%. As with Journeys Kidz anniversaried the difficult Heelys comparison in the first half and easier comparisons should be in play in the back half. We opened five new Journeys Kidz stores during the quarter and expect to have 145 stores in operation by the end of fiscal 2009.