Genesco Inc. (NYSE:GCO), the diversified footwear and accessories retailer, has faced a challenging consumer environment in recent quarters, with its top and bottom-line results reflecting the ongoing volatility. However, the company remains optimistic about its turnaround potential, as it executes on strategic initiatives to revitalize its key Journeys brand and drive growth across its portfolio.

Financials

For the fiscal year ended February 3, 2024, Genesco reported annual net income of -$16,827,000, annual revenue of $2,324,624,000, annual operating cash flow of $94,796,000, and annual free cash flow of $34,493,000. The company's performance in the first quarter of fiscal 2025, ended May 4, 2024, provides a glimpse into the challenges and opportunities it is navigating.

In the first quarter, Genesco's net sales decreased 5.3% to $457.6 million, compared to $483.3 million in the same period last year. This decline was driven by a 5% decrease in total comparable sales, with same-store sales down 7% and e-commerce sales up 3%. The company's Journeys Group, Schuh Group, and Johnston & Murphy Group all experienced sales decreases, while the Genesco Brands Group saw a 25% drop in sales as the company streamlined and repositioned this business segment.

Gross margin for the quarter was flat at 47.3% of net sales, as improved margins in the Journeys and Johnston & Murphy groups were offset by declines in the Schuh Group and Genesco Brands Group. Selling and administrative expenses increased as a percentage of net sales, from 52.0% to 54.2%, reflecting the deleverage of fixed costs on lower sales.

The company's operating loss for the quarter was $32.1 million, compared to a loss of $23.0 million in the prior-year period. The net loss for the quarter was $24.3 million, or $2.23 per diluted share, compared to a net loss of $18.9 million, or $1.60 per diluted share, in the same quarter last year.

Business Overview

Despite the challenging start to the year, Genesco remains optimistic about its long-term prospects. The company is focused on executing a turnaround strategy for its Journeys brand, which accounts for a significant portion of its business. Journeys' sales decreased 4.7% in the first quarter, with the brand facing pressure on its core product assortment, including boots and vulcanized shoes. However, Genesco is working to diversify Journeys' product mix, leaning into both athletic and casual styles across a broader range of brands.

The company has also made changes to Journeys' leadership team, bringing in a new president, Andy Gray, and establishing a new strategy and transformation role to oversee the brand's ongoing evolution. Genesco is confident that these strategic initiatives, combined with enhanced digital capabilities and a focus on building the Journeys brand, will unlock the brand's potential and drive improved performance in the back half of fiscal 2025 and into fiscal 2026.

Elsewhere in the business, Genesco's Schuh Group, which operates in the U.K. and Ireland, faced a challenging macro environment and unseasonable weather in the first quarter, leading to a 0.8% decline in sales. The Johnston & Murphy Group, the company's branded business, also experienced a 4.1% sales decrease, as it contended with strong multi-year comparisons and a slower start to the spring selling season.

The Genesco Brands Group, which includes the company's licensed brands, saw a 24.9% drop in sales as the company streamlined its portfolio of licenses to focus on key brands and channels. This strategic repositioning is expected to result in lower sales in the short term but improved profitability going forward.

Outlook

Looking ahead, Genesco is maintaining a cautious outlook for the second quarter, with expectations for a low single-digit sales decline and continued pressure on margins. However, the company remains confident in its ability to drive meaningful improvements in the back half of the fiscal year, as new product introductions and strategic initiatives take hold.

For the full fiscal year 2025, Genesco is reiterating its guidance for total sales to decrease 2% to 3%, or 1% to 2% when excluding the 53rd week in the prior year. The company expects gross margins to be flat to up 10 basis points for the year, with SG&A expenses expected to be flat to deleverage by up to 20 basis points as a percentage of sales.

Liquidity

Genesco's balance sheet and liquidity position remain strong, with the company ending the first quarter in a net debt position of approximately $40 million and ample availability under its revolving credit facility. The company continues to focus on cost savings initiatives, targeting a $45 million to $50 million reduction in the annualized run rate by the end of fiscal 2025.

Conclusion

In conclusion, Genesco is navigating a challenging consumer environment, but the company remains optimistic about its long-term prospects. The turnaround strategy for the Journeys brand, combined with strategic initiatives across the business, are expected to position the company for improved performance in the back half of fiscal 2025 and into the next fiscal year. Investors will want to closely monitor the company's progress as it executes on its plans to drive growth and profitability.