Thanks to the ongoing strength of its U.S. footwear businesses, Genesco has recorded its highest comparable sales increase in more than two years and significantly improved its profitability. However, total sales were down from the year-ago quarter due to a calendar shift that moved an important back-to-school sales week out of the third quarter into the second quarter. While Journeys and Johnston & Murphy delivered strong performances both in-store and online, sales trends were still negative at the U.K.-based Schuh Group as well as at the Lids Sports Group, which Genesco has decided to sell.
The company's Schuh Group subsidiary in the U.K. saw revenues decline by 4 percent to $95.6 million in Genesco's third quarter, ended on Nov. 3, with its operating income dropping by 40.4 percent to $4.2 million. The chain's comparable store sales fell by 4 percent, in contrast with a gain of 4 percent registered in the same period last year.
Genesco said that the chain's continued negative comparable sales results reflect a still challenging selling environment for footwear and apparel in the U.K., with a very price-conscious consumer motivated to purchase mainly items that are on sale. Full-priced selling has been limited to a handful of specific products that are in high demand. In response, Schuh has stepped up its promotional activity to help drive traffic to its stores and its website to liquidate inventories.
In addition, certain vendors' decisions to pursue a scarcity model, limiting the supply of some top-selling styles, continued to impact Schuh's business. Although retail sales were in general good in the summer, they were concentrated on basic categories like food and drink, while many downtown fashion retailers struggled with a sluggish demand for footwear and apparel amid heavy discounting.
In addition, a sharp slowdown in consumer spending in the autumn, coinciding with the lack of progress in the Brexit negotiations with the European Union, coupled with a transitory pickup in inflation, cooled retail sales and put even more pressure on the already struggling footwear and apparel category. As a result, Genesco anticipates a challenging and promotional holiday season in the U.K. The management said that Black Friday results have already validated this expectation.
Overall, Genesco's total sales declined by 0.5 percent to $713.1 million, with a 4 percent increase in same-store sales and a 9 percent increase in e-commerce.
At the company's Journeys chain in the U.S., comparable sales were up by 9 percent, while Johnston & Murphy recorded a 10 percent gain.
However, the Lids Sports Group continued to struggle, with comparable sales down by 2 percent. On Dec. 14, Genesco announced that it has entered into a definitive agreement for the sale of Lids for $100 million in cash to FanzzLids Holdings, a company controlled by affiliates of Ames Watson Capital. Ames Watson is the owner of Fanzz, a specialty retailer of officially licensed sports apparel. The transaction is currently expected to be completed at the end of Genesco's current fiscal year. The group expects that the cash proceeds will be used to repurchase shares of the company's common stock.
Genesco's gross margin inched up by 0.1 percentage points to 49.5 percent in the quarter. The group recorded a net income of $14.4 million, compared with a net loss of $164.8 million for the same period a year ago.
Looking forward, Genesco expects comparable sales for the full year to be up by 2 to 3 percent.