- Journeys' Comps and Income Growth: Journeys drove 6% comp growth, contributing over 50% increase in operating income.
- Full-Year Adjusted EPS Outlook: Genesco revised full-year adjusted EPS to $0.95, reflecting a 34% tax rate and lower SG&A leverage (140 bps improvement YoY).
- Gross Margin Pressure: Q3 gross margin declined 100 bps to 46.8%, impacted by Schuh margin pressure, product liquidations, and tariff costs.
- Journeys' 4.0 Remodel and Nike Launch: Journeys expects mid-single-digit comp growth in Q4 despite flat-to-down sales outlook, aided by store remodels and Nike introductions in select locations.
Segment Performance
Journeys is expected to deliver mid-single-digit comp growth and almost double operating income for the year. The company has introduced Nike in Journeys, which has started in a limited number of doors, and expects to expand it further. Genesco's CEO, Mimi Eckel Vaughn, notes that the consumer is selective but the company has the right strategies, teams, and brand portfolio to navigate the environment.
Gross Margin Pressures
Gross margin declined due to pressure at Schuh and tariff impacts. The decline was also affected by a one-time hit from liquidating Levi's product, which won't recur. The company sees opportunities to improve margins by addressing these issues. At Schuh, a couple of hundred basis points of margin pressure is expected, but actions like right-sizing inventory and strengthening the assortment will help.
Outlook and Valuation
The company updated its outlook for the full year, expecting adjusted EPS of approximately $0.95, reflecting a higher tax rate of 34%. The revised outlook considers greater pressure on Schuh's sales and margins, more conservative sales assumptions, and lower SG&A. Analysts estimate next year's revenue growth at 0.3%. With a P/E Ratio of 6046.18 and an EV/EBITDA of 26.26, the stock appears to be priced for high expectations. The P/S Ratio is 0.1, indicating a relatively low revenue multiple.
Marketing and Cost Management
The company is investing in brand marketing, including the Live On Loud campaign and Peyton Manning partnership, which have performed well. The goal is to build awareness and attract new customers. Over 140 basis points of expense leverage was achieved despite increased marketing spend. The company aims to continue funding brand investments while managing costs.