Schuh is accelerating its expansion plans to take advantage of real estate opportunities stemming from the economic recession hitting the U.K. Benefiting from the financial firepower of the American group Genesco, which took it over in June 2011, the British retailer plans to open 16 stores in the U.K. in the full financial year ending in January 2013. The new target is twice Schuh's initial forecast and is its most ambitious store opening program since its founding in Edinburgh in 1981.
The new openings will be concentrated in southern England, where the Scottish-based group is under-represented. The openings will be in line with its current mix of mall and high street locations. Schuh had 79 stores and concessions at the end of April compared with 78 at the end of January. The group had 57 stores in the U.K. and eight in Ireland, plus 14 concessions.
In a conference call, Genesco's chairman and chief executive, Robert Dennis, said that the economic situation prompted Schuh to be more aggressive in its expansion as location opportunities arise. He added that Schuh continued to beat expectations in the first quarter ended on April 28 and he remained upbeat about the retailer's prospects despite the economic slowdown in the U.K.
In the past fiscal year, which ended in January, Schuh opened six stores under Genesco's ownership. Dennis stressed that Schuh's stores are extremely well run and that the tie-up with Genesco is enabling the Scottish group to access collections exclusively produced for the group's biggest American chain, Journeys, and differentiate its offer from competitors. The company noted that the fashion trends driving Journeys and Schuh are similar.
Genesco posted a 24.6 percent increase in sales to $600.1 million in the first quarter, to which Schuh contributed $70.3 million. Excluding Schuh, revenues were up by 10.0 percent. The top line was lifted by a 9.0 percent increase in comparable store sales. At the start of the second quarter, same-store sales were up by 7.0 percent in the three-week period running to May 19.
Journeys increased sales by 12.5 percent to $263.8 million, supported by a 12.0 percent rise in constant store sales. The chain had 1,154 stores at the end of the quarter, including 135 shops previously run under the Underground Station banner and rebranded Underground by Journeys. At the beginning of the second quarter, Journeys' same-store sales were up by 10.0 percent.
Journeys will continue its expansion in Canada, where it increased the store network by five units to 18 at the end of the quarter and plans seven more openings this year. Next year, it also plans to broaden its product range even if it not all its stores have the capacity to stock additional products. The whole collection will be available on the internet and in the group's larger stores.
But thanks to digital support, the full collection will be accessible through smaller stores. Dennis explained that all Journeys stores are equipped with screens allowing customers to view its products even if they are not stocked in the shop. Teenagers are also using their mobile phone handsets to choose their models on the label's website before visiting a store. The two phenomena are an opportunity to increase the product offer, and the company is learning how to rapidly fulfill orders in stores that do not carry the required product, Dennis added.
In the first quarter, Journeys' online revenues were up by 5.0 percent thanks to higher volumes. The wider merchandise offering is expected to underpin future ecommerce sales. The group is currently working on logistics improvement to support the initiative.
The group noted that mobile phones represent about 30 percent of visits on the journeys.com website. Mobile phone traffic is growing rapidly but the bulk of the visits are to obtain information rather than make purchases.
Johnston & Murphy, Genesco's premium brand and retailer of footwear, accessories and apparel, increased sales by 7.0 percent to $51.4 million, supported by a 4.0 percent increase in comparable store sales. At the beginning of the second quarter, same-store sales were flat. Genesco stressed that store sales are sensitive to the evolution of the stock market. The Dow Jones index of the New York Stock Exchange has been on a downward trend since the beginning of May. The group remains confident about the brand's performance, noting that the direct business, which includes online sales, continued to be strong in May. Johnston & Murphy is scheduled to increase its retail network by 13 units this year, including six outlets.
The brand increased its wholesale revenues by 14.0 percent in the first quarter and e-commerce surged by 20.0 percent. Johnston & Murphy plans to continue to expand internationally. In the first quarter, it signed a distribution agreement for Latin America. The group was already present in Canada, Mexico, Japan and India.
The group's licensed brands business boosted sales by 8.0 percent to $31.3 million. Since 1991, Genesco has exclusive rights to use the Dockers label for footwear in the U.S. It also has a footwear license with the American brand Keuka. The group noted that several key wholesale accounts are moving back toward branded products after having favored private labels for several seasons.
The group's gross margin inched up to 51.5 percent from 51.4 percent a year earlier. Earnings from operations rose to $36.0 million from $25.5 million thanks to an improvement at all operating units. Journeys rose to $25.3 million from $17.5 million, Lids to $19.2 million from $14.0 million, Johnston & Murphy to $4.0 million from $2.9 million, and licensed brands to $3.4 million from $3.3 million.
Schuh booked an operating loss of $3.0 million. No figure was given for the previous year. But Schuh was roughly at break-even in the quarter because the operating loss included a $2.5 million bonus charge related to the acquisition of the Scottish group. Genesco is having to pay a higher acquisition premium because Schuh is performing better than expected.
The group had set conservative assumptions about sales growth for Schuh, estimating that comparable sales would rise by a low-single-digit rate. Dennis admitted that the forecast is being beaten by “a healthy margin.”
The group said that first-quarter results were higher than expected and upgraded its full-year guidance. Genesco anticipates diluted earnings per share for the year ending in January 2013 to be $4.70-4.82, compared with a previous guidance of $4.58-4.70. The new outlook represents an increase of 15-18 percent over last year's adjusted earnings per share of $4.09.
The guidance does not include non-cash asset impairments and other charges, which are estimated in the range of $1.4-2.5 million before tax, or $0.04-0.06 per share after tax. It does not include the expense associated with the Schuh deferred purchase price, currently estimated at approximately $12.0 million, or $0.49 per diluted share, for the full year. The new guidance assumes a top line growing by 12-13 percent for the full year. Comparable sales are expected to increase by 3-4 percent for the full year.