Shares in Genesco - the U.S.-based owner of Journeys, Johnston & Murphy, and other retail banners - took a 9 percent dive after the company reported on weak results for its Schuh Group subsidiary in the U.K. The British retailer's revenues dipped by 7.0 percent to $80.3 million in Genesco's first quarter ended on May 5, generating an operating loss of $5.6 million, nearly ten times higher than the $687,000 loss recorded in the year-ago period. The chain's comparable store sales fell by 13 percent, in contrast with a gain of 10 percent recorded in the same period last year.
Genesco said that the weak demand for footwear and apparel that drove a very promotional holiday season in the U.K. late last year persisted into the New Year. In addition, the unseasonably cold weather experienced this past winter in the U.K. significantly diminished demand for spring merchandise in March and April. Genesco also noted that Schuh's performance was impeded by some product constraints as certain vendors decided to pursue a “scarcity model,” limiting shipments of some top-selling styles in the country.
The management said that Schuh's team is working hard to navigate these headwinds and the chain's performance has become much less negative in the second quarter so far. However, it added that while year-on-year comparisons become easier going forward and the weather has gotten warmer, the U.K retail environment remains affected by tepid consumer spending, particularly on footwear and apparel.
Despite Schuh's poor performance, Genesco's total sales surpassed Wall Street's expectations, thanks to continued strength in its U.S. retail business. Total revenues for the three months inched up by 0.2 percent to $645 million, but were off by 1 percent in constant currencies, with a 2 percent decrease in same-store sales and a 10 percent increase in e-commerce.
At Journeys, comparable sales were up by 6 percent, while Johnston & Murphy recorded a 7 percent gain. However, the Lids Sports Group continued to struggle, with comparable sales down by 7 percent.
Overall, the company's gross margin improved by 0.3 percentage points to 49.9 percent, primarily reflecting better channel and brand mix and increased full-price selling at Journeys and Johnston & Murphy, partially offset by less full-price selling in the company's other business segments and increased shipping and warehousing expenses.
The group posted a net loss of $2.3 million for the quarter, compared with profits of $885 million for the same period a year ago, as selling, general, and administrative expenses increased by 0.8 percentage points.
The management said it was pleased with the start to the second quarter, as the arrival of warmer weather helped accelerate demand for seasonal product and comparable sales in each one of its businesses. While it remains cautious about Schuh's near-term prospects, it is encouraged by the signs of improvement in its other major businesses. For the current year, Genesco expects comparable sales to be flat or up by 2 percent at the most.