After the acquisition in June of Schuh, the highly profitable British retailer of young fashion footwear, Genesco has started considering furthering its expansion in Europe, which it sees as a region offering growth opportunities.
Genesco, the American retail group operating Journeys and other formats, bought Schuh for £125 million (€144.8m-$19.8m), less £29.5 million (€34.2m-$46.7m) in outstanding credit facilities, which remain in place for Schuh. The deal marked Genesco's first acquisition outside North America.
The company's priority in the region is to build on its newly purchased British business. The group will open six Schuh stores in the fiscal year ending in January and will accelerate the store expansion next year. Genesco's target is to almost double the number of Schuh stores over the next five years, with an emphasis on southern England. At the end of July, Schuh had 59 standalone stores in the U.K. and Ireland with an average size of 4,600 square feet, and 16 concessions in Republic fashion stores. Schuh also runs one of the largest online shoe websites in the U.K.
Genesco's chairman and chief executive, Bob Dennis, said the company is now “beginning to go through the thought process about the rest of Europe as it did about the U.K., which led to the purchase of Schuh. It has to decide what are the most appropriate markets to enter and whether to do so starting from scratch or with a partner, which could mean another acquisition.
In the meantime, Genesco booked higher than expected revenues for the second quarter ended on July 30. Thus, it upgraded its guidance for the full year and released a five-year annual sales target of $3 billion, with an operating margin of 9 percent.
Quarterly sales rose by 29 percent to $470.6 million. Excluding acquisitions, organic growth reached 14 percent. The footwear retailer Journeys Group boosted sales by 16 percent to $177.3 million lifted by a 15 percent rise in comparable store sales. Journeys and Journeys Kidz both booked a 15 percent rise in same store sales and Shi by Journeys a 31 percent surge. The group's e-commerce boosted sales by 53 percent. In August, comparable store sales were up by 14 percent for Journeys Group. The group's network rose to 1,013 stores at the end of July from 1,011 three months earlier. The number of Journeys stores doubled in Canada to six and the retailer anticipates four to seven openings in the country by the end of the year.
Schuh contributed $34.0 million to Genesco's revenues during the quarter. Among other businesses, sales rose by 2 percent to $17.4 million for Underground Station, surged by 34 percent for Lids Sports, grew by 17 percent to $45.6 million for Johnston & Murphy, and dropped by 14 percent to $18.5 million for licensed brands.
Genesco said it was enjoying a strong back-to-school period with overall comparable store sales up by 12 percent and e-commerce up by 21 percent, on a homogenous basis, in August. The trend is expected to moderate during the rest of the third quarter. Same-store sales are seen rising by 3-4 percent in the second half of the year, with Journeys' comparable sales increasing by 6-7 percent in the third quarter and growing by 2-3 percent in the final quarter.
The consolidated gross margin slipped to 50.4 percent from 50.7 percent due to some seasonal factors related to the Schuh and Lids businesses. The net loss narrowed to $0.4 million from $3.2 million, or $0.02 per diluted share from $0.14. Earnings from continuing operations reached $0.4 million compared with a loss of $2.4 million a year ago.
Based on the results and the Schuh acquisition, Genesco raised its full-year guidance for diluted earnings per share to $3.35 to $3.42, representing a 35-38 percent increase from last year. The previous guidance range was $2.90-2.97. The forecast does not include expected non-cash asset impairments and other charges, which are projected to total $0.08-0.10 per share. It does not reflect acquisition expenses for Schuh, totaling approximately $13.8 million, or $0.54 per diluted share, for the full year. This guidance assumes comparable store sales growth of 7-9 percent for the full fiscal year. Financial analysts expect the group's full-year sales to top $2.2 billion and reported net profits to approach $80 million.