Genesco (NYSE:GCO) Misses Q3 Sales Targets, Stock Drops 12.2%

Jabin Bastian /
2023/12/01 7:11 am EST

Footwear, apparel, and accessories retailer Genesco (NYSE:GCO) fell short of analysts' expectations in Q3 FY2024, with revenue down 4.1% year on year to $579.3 million. It made a non-GAAP profit of $0.57 per share, down from its profit of $1.65 per share in the same quarter last year.

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Genesco (GCO) Q3 FY2024 Highlights:

  • Revenue: $579.3 million vs analyst estimates of $588.6 million (1.6% miss)
  • EPS (non-GAAP): $0.57 vs analyst expectations of $0.84 (31.6% miss)
  • Fiscal year 2024 EPS meaningfully lowered ($1.75 at the midpoint from $2.25 previous, Consensus $2.31)
  • Gross Margin (GAAP): 48.1%, down from 48.7% in the same quarter last year
  • Same-Store Sales were down 4% year on year (miss vs. expectations of down ~2% year on year)
  • Store Locations: 1,360 at quarter end, decreasing by 44 over the last 12 months

Mimi E. Vaughn, Genesco’s Board Chair, President and Chief Executive Officer, said, “Following a good Back-to-School season, demand in October softened in an ongoing challenging operating environment, along with a delayed start to the fall selling season. Disruptions related to implementation of a new ERP system for our branded businesses added to the pressure, all leading to results that were below our expectations. Despite these headwinds, we were pleased to see sales trends within our Journeys business continue to sequentially improve, and Schuh and Johnston & Murphy deliver record third-quarter sales. In the meantime, we continued to inject Journeys’ product assortment with more of the newness and must-have items our customer desires, while also executing on our cost reduction and store closure plans.”

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

Footwear Retailer

Footwear sales–like their apparel counterparts–are driven by seasons, trends, and innovation more so than absolute need and similarly face the bigger-picture secular trend of e-commerce penetration. Footwear plays a part in societal belonging, personal expression, and occasion, and retailers selling shoes recognize this. Therefore, they aim to balance selection, competitive prices, and the latest trends to attract consumers. Unlike their apparel counterparts, footwear retailers most sell popular third-party brands (as opposed to their own exclusive brands), which could mean less exclusivity of product but more nimbleness to pivot to what’s hot.

Sales Growth

Genesco is a small retailer, which sometimes brings disadvantages compared to larger competitors that benefit from economies of scale.

As you can see below, the company's annualized revenue growth rate of 1.3% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was weak as its store count dropped.

Genesco Total Revenue

This quarter, Genesco reported a rather uninspiring 4.1% year-on-year revenue decline, missing Wall Street's expectations. Looking ahead, analysts expect sales to grow 1.6% over the next 12 months.

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Number of Stores

When a retailer like Genesco is shuttering stores, it usually means that brick-and-mortar demand is less than supply, and the company is responding by closing underperforming locations and possibly shifting sales online. Since last year, Genesco's store count shrank by 44 locations, or 3.1%, to 1,360 total retail locations in the most recently reported quarter.

Genesco Operating Retail Locations

Taking a step back, the company has generally closed its stores over the last two years, averaging a 2.1% annual decline in its physical footprint. A smaller store base means that the company must rely on higher foot traffic and sales per customer at its remaining stores as well as e-commerce sales to fuel revenue growth.

Same-Store Sales

A company's same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.

Genesco's demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 3.3% year on year. The company has been reducing its store count as fewer locations sometimes lead to higher same-store sales, but that hasn't been the case here.

Genesco Year On Year Same Store Sales Growth

In the latest quarter, Genesco's same-store sales fell 4% year on year. This decline was a reversal from the 2% year-on-year increase it posted 12 months ago. We'll be keeping a close eye on the company to see if this turns into a longer-term trend.

Key Takeaways from Genesco's Q3 Results

With a market capitalization of $430 million, Genesco is among smaller companies, but its more than $21.69 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.

We struggled to find many strong positives in these results. Same-store sales, revenue, EPS all missed. Management blamed "a challenging operating environment" and a delayed ERP system implementation internally for the weakness. Consumer demand remains "choppy" and Genesco plans to increase promotions to bring in shoppers, which will likely lead to weaker gross margins. The most worrisome aspect of the quarter was that the company's full-year earnings forecast was lowered drastically and underwhelmed. Overall, this was a mediocre quarter for Genesco. The company is down 12.2% on the results and currently trades at $32.85 per share.

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