Genesco (NYSE:GCO) Exceeds Q1 Expectations

Footwear, apparel, and accessories retailer Genesco (NYSE:GCO) announced better-than-expected results in Q1 CY2024, with revenue down 5.3% year on year to $457.6 million. It made a non-GAAP loss of $2.10 per share, down from its loss of $1.59 per share in the same quarter last year.

Is now the time to buy Genesco? Find out by accessing our full research report, it's free.

Mimi E. Vaughn, Genesco’s Board Chair, President and Chief Executive Officer, said, “Against continued headwinds in the operating environment, we executed to our strategic plan to deliver top and bottom-line results that were ahead of our expectations, led by our Journeys business. With new Journeys leadership in place, I am encouraged by the traction we are seeing thus far, as we work to dramatically accelerate the improvement, elevate our product assortments and enhance the experience for our consumers. In the meantime, our efforts to reduce costs and optimize our store portfolio are resulting in a leaner, more productive operating model, which will provide a nice profit tailwind as our sales improve.”

Spanning a broad range of styles, brands, and prices, Genesco (NYSE:GCO) sells footwear, apparel, and accessories through multiple brands and banners.

Footwear

Before the advent of the internet, styles changed, but consumers mainly bought shoes by visiting local brick-and-mortar shoe, department, and specialty stores. Today, not only do styles change more frequently as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some footwear companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Sales Growth

A company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones demonstrate sustained growth over multiple years. Genesco struggled to generate demand over the last five years as its sales were flat. This is a tough starting point for our quality assessment.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Genesco's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.2% annually.

We can better understand the company's revenue dynamics by analyzing its same-store sales, which show how much revenue its established locations generate. Over the last two years, Genesco's same-store sales averaged 1.8% year-on-year declines. This number doesn't suprise us as it's in line with its revenue growth.

This quarter, Genesco's revenue fell 5.3% year on year to $457.6 million but beat Wall Street's estimates by 2.7%. Looking ahead, Wall Street expects revenue to decline 2.4% over the next 12 months.

Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefitting from the rise of AI, available to you FREE via this link.

Operating Margin

Genesco was profitable over the last two years but held back by its large expense base. It demonstrated lousy profitability for a consumer discretionary business, producing an average operating margin of 1.5%.

In Q1, Genesco generated an operating profit margin of negative 7%, down 2.3 percentage points year on year. Looking ahead, Wall Street expects Genesco to become more profitable. Analysts are expecting the company’s trailing 12 month operating margin of 0.3% to rise to 2% in the coming year.

Key Takeaways from Genesco's Q1 Results

We were impressed by Genesco's optimistic full-year earnings forecast, which blew past analysts' expectations. We were also excited its revenue and EPS outperformed Wall Street's estimates. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock is flat after reporting and currently trades at $27.10 per share.

So should you invest in Genesco right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.