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01/11 16:19
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call and Q&A provide a generally positive outlook. Adjusted operating income and EPS have improved year-over-year, and free cash flow has increased. Journeys and the 4.0 stores show strong performance, and the introduction of Nike is promising. Despite some margin pressures and inventory increases, the strategic initiatives such as brand diversification and marketing shifts are positive. The sentiment in the Q&A is mostly optimistic, with robust sales expected during peak periods. The lack of specific guidance is a minor concern but doesn't outweigh the positive indicators.
Total Revenue $616 million, up 3% compared to last year. Driven by overall comparable sales growth of 3%, reflecting positive 6% comps at Journeys and 2% lower comps at Schuh and J&M.
Gross Margin 46.8%, down 100 basis points from last year. The decline was due to product liquidations in Genesco Brands Group, tariff cost increases ahead of price adjustment, margin pressure at Schuh due to the promotional environment in the U.K., and higher wholesale mix at Johnston & Murphy.
Adjusted Operating Income $12.9 million, above last year's $10.3 million. Growth was driven by the sales increase and expense leverage, partially offset by gross margin pressure.
Adjusted Diluted Earnings Per Share $0.79 compared to $0.61 in the same period last year. Growth was driven by sales increase and expense leverage, partially offset by gross margin pressure.
Free Cash Flow Improved nearly $5 million year-over-year.
Inventory Up 7% compared to last year. This was due to strong sell-through of key new styles in the third quarter last year, which left tighter inventory levels heading into the holiday season.
SG&A Expense 44.7% of sales, leveraging 140 basis points year-over-year. Improvement reflects broad-based cost reduction efforts, with nearly every SG&A line showing leverage.
Journeys' Life on Loud campaign: Launched in September, surpassed 70 million social views, aimed at driving new customer growth and traffic.
Johnston & Murphy's Peyton Manning partnership: Generated double-digit traffic increase following the campaign's debut online and in stores in early October.
Journeys' Nike launch: Introduced premium styles in November, adding newness and excitement to the product offering.
Journeys 4.0 store format: Continued rollout with over 80 stores expected by year-end, delivering more than a 25% sales lift.
Journeys Global Retail Group formation: United Journeys, Schuh, and Little Burgundy under one leadership to strengthen market positioning and drive growth.
Schuh's U.K. market challenges: Faced traffic declines and heightened promotional activity, leading to a step back in overall comps.
Expense leverage: Achieved broad-based cost reductions, particularly in rent and freight expenses, while increasing marketing investments.
Inventory management: Clean inventory with proactive steps to rightsize Schuh's inventory.
Journeys' strategic growth plan: Focused on product elevation, brand investment, customer experience, and team engagement to expand market share.
Schuh's performance improvement plan: Includes assortment updates, targeted marketing, and leveraging Journeys' playbook for growth.
Schuh's Performance in the U.K.: The U.K. retail environment remains very challenging, with customers focusing on must-have items or looking for deals. Schuh's overall comps declined due to traffic decreases, despite gains in store conversion and transaction size. Increased promotional activity to match competitors and manage inventories pressured margins. Schuh is expected to face continued headwinds in the challenging U.K. market.
Tariff Costs: Tariff cost increases ahead of price adjustments significantly pressured gross margins, particularly in the wholesale channel of Johnston & Murphy and Genesco Brands Group. This issue is expected to persist.
Consumer Spending Volatility: The consumer environment reflects selective shopping behavior, with customers pulling back on non-peak shopping days and conserving on footwear purchases. This pattern has led to softer traffic and purchase intent, especially in October and early November.
E-commerce Performance: E-commerce comps declined 3% due to tougher comparisons against last year's double-digit gains, particularly affecting Johnston & Murphy.
License Exits in Genesco Brands Group: The wind-down of licenses, including Levi's, caused meaningful one-time headwinds, pressuring gross margins and overall performance. This liquidation is expected to be completed by year-end.
Inventory Management: Inventory levels increased by 7% year-over-year, partly due to strong sell-through of key styles last year. Schuh is taking actions to rightsize inventory, but this remains a challenge.
Gross Margin Pressure: Gross margins declined by 100 basis points year-over-year, driven by product liquidations, tariff costs, promotional activity at Schuh, and a higher wholesale mix at Johnston & Murphy.
Full Year Adjusted Earnings Per Share (EPS): Expected to be approximately $0.95, reflecting a higher tax rate of 34%. At the previously assumed tax rate of 29%, adjusted EPS would be above $1.
Total Revenue Growth: Projected to grow about 2% for the full year.
Comparable Sales Growth: Expected to grow about 3% for the full year, with mid-single-digit comp growth at Journeys.
Gross Margin: Expected to decline approximately 100 basis points year-over-year, primarily due to margin pressure at Schuh.
SG&A Expenses: Expected to leverage about 100 basis points as a percent of sales, driven by cost actions and store optimization efforts.
Capital Expenditures: Projected to be between $55 million to $65 million, focusing on Journeys 4.0 remodel program, new and refreshed stores, and digital investments.
Free Cash Flow: Expected to remain positive for the full year.
Journeys Performance: Mid-single-digit comp growth expected for the full year, with operating income projected to almost double.
Schuh Performance: Sales and margin projections materially lowered due to the challenging U.K. consumer environment. Headwinds expected to persist into Q4.
Branded Businesses: Expected to see gross margin rate benefits from price increases and lapping the license exits, though tariff pressures will persist.
Share Repurchase Program: We did not repurchase any shares in the quarter, but as a reminder, we did repurchase approximately 600,000 shares in the first quarter, approximately 5% of shares outstanding, leaving $29.8 million remaining under our current share repurchase authorization.
The earnings call and Q&A provide a generally positive outlook. Adjusted operating income and EPS have improved year-over-year, and free cash flow has increased. Journeys and the 4.0 stores show strong performance, and the introduction of Nike is promising. Despite some margin pressures and inventory increases, the strategic initiatives such as brand diversification and marketing shifts are positive. The sentiment in the Q&A is mostly optimistic, with robust sales expected during peak periods. The lack of specific guidance is a minor concern but doesn't outweigh the positive indicators.
The earnings call reveals mixed signals: strong sales growth and strategic store remodels at Journeys, but declining margins and increased losses. The Q&A highlights positive momentum at Journeys but uncertain performance at Schuh and a lack of clear guidance for the U.K. market. The reiterated EPS guidance and market volatility suggest a balanced outlook. Despite positive developments, such as the Wrangler partnership, the lack of strong catalysts and increased expenses lead to a neutral sentiment, with stock price likely remaining stable in the short term.
The earnings call presents mixed signals: strong financial metrics with a 4% revenue increase and 5% comparable sales growth are offset by declining margins and a significant negative free cash flow. The Q&A reveals positive impacts from new brand relationships but also highlights management's evasiveness on key metrics. The share repurchase program is a positive indicator, but tariff uncertainty and competitive pressures pose risks. Overall, these factors suggest a neutral stock price movement, with no clear catalyst for a significant upward or downward shift.
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