Genesco experienced a slowdown in its recovery in July because of an uptick in Covid-19 cases in the U.S. But it expects the back-to-school period to last until late September, or even later, and the holiday season, generally considered to run from late November to early January, to start earlier.
In the second quarter ended on Aug. 1, Genesco posted a 20 percent year-over-year decrease in sales to $391.2 million, because of store closures resulting from the Covid-19 related lockdown, a later start to back-to-school, lower comparable store sales and diminished wholesale revenues. These were partially offset by 144 percent growth in comparable online sales, against a 20 percent increase a year earlier. Digital sales increased to 32 percent of the group’s retail business from 10 percent last year
E-commerce sales tripled at Schuh and Journeys, but Johnston & Murphy (J&M) grew at a lower rate than the other two banners. The group said that it has doubled e-commerce over the last five years, and aims to further accelerate growth to double the business again over a shorter period. Genesco claims that its online business is profitable.
“You can push the pedal on marketing expense to the point where you’re not getting a return, and you’re just building market share, but not necessarily profitable market share. And we’ve always kept in mind the need for the balance to build profitable e-commerce volume, and so we started in a position of profitability,” said Mimi Vaughn, chairwoman and chief executive president during a conference call.
Genesco did not provide same-store sales for the period, but at as of Sept. 3 the group was operating 96 percent of its locations, including approximately 1,130 Journeys, 160 J&M and 125 Schuh units.
Overall sales were down by 12 percent to $276.6 million at Journeys, by 22 percent to $71.7 million at Schuh, and by 64 percent to $24.1 million at J&M. Meanwhile, sales were up by 62 percent to $18.8 million for licensed brands, thanks to the acquisition of Togast, a designer, producer and vendor of licensed footwear operating out of New York.
In the second quarter, gross margin was 42.7 percent, down from 48.6 percent last year. The decrease was due primarily to higher shipping and warehouse expenses in all divisions, but also to the increase in penetration of e-commerce, significant inventory reserves taken at J&M and increased promotional activity at Schuh.
Of the 5.90 percentage-point decline in gross margin, increased shipping to fulfill direct sales contributed 1.90 percentage points and impacted all divisions.
J&M’s gross margin rate declined by 33.80 percentage points, because of the inventory write-down, while Schuh’s gross margin rate decreased by 11.90 percentage points and Journeys’ by 1.20 percentage points.
Regarding inventories, Genesco chose not to liquidate, but rather to carry them through to the following year, because it claims they are “good quality” products and the write-down booked is sufficient to cover the expected loss.
Genesco stressed that J&M, which is a premium footwear and apparel retailer, is rapidly accelerating the transition of its assortment to a more casual focus for future seasons. It noted that casual and casual-athletic styles already represented 60 percent of J&M’s footwear sales last year.
The operating loss for the second quarter was $22.0 million compared with a $3.0 million profit the previous year. On an adjusted basis, the operating loss was $20.9 against a profit of $4.7 million. Journeys posted an operating profit of $10.2 million, Schuh an operating loss of $6.8 million and J&M a loss of $18.2 million.
The loss from continuing operations was $18.9 million compared with earnings of $0.8 million. The adjusted loss from continuing operations was $17.4 million, or $1.23 per share, against earnings of $2.5 million a year earlier. During the quarter, the group posted an operating cash flow of $74 million.
Because of continued uncertainty in the overall economy over the Covid-19 pandemic, the group did not provide any forward-looking guidance.
But, Genesco believes that the back-to-school selling season will be prolonged, extending by several more weeks into September for the delayed starts in the U.S. and potentially longer if children studying from home return to school. It noted that some surveys estimate that up to two-thirds of U.S. elementary, middle and high school students will attend school only virtually at the start of the school year because of the pandemic.
Genesco pointed out that the typical peak for back-to-school sales is the last week of July and the first half of August, but this year Journeys suffered a meaningful drop in traffic and sales because of the delayed restart. But the banner has registered significantly better results in the last two weeks of August and expects the trend to continue as comparisons became more favorable.
The group indicated that there is a strong correlation between sales and the states that have decided that students can return to school.
Genesco stressed that many observers expect the marketing campaign for the holiday season to start in October and it anticipates that e-commerce volume will be larger this year than ever before. “I think a lot of retailers are going to be trying to induce customers to get their shopping earlier,” Vaughn said.
She added that there is a “lot of evidence that the U.S. consumer has been saving, and not spending. So we think that there will be income available for holiday spending.”
Vaughn reckons that if back-to-school is less robust than usual, it may leave some pent-up demand for the holiday season. The company is planning conservatively, “but we also know that fourth quarter is an opportunity for us to really do some business,” she stressed.