Retailers have gotten off to a slow start this month, but one of my favorites has been Genesco (GCO).
Genesco is one of the leading shoe retailers in the country, selling primarily through malls via stores branded Journeys, Shi by Journeys, Underground Station and Johnston & Murphy. It wholesales and distributes footwear to other dealers under the Johnston & Murphy label and under a Dockers license.
The company also sells headware through stores branded with the names Hatworld, Lids, Hat Shack, Hat Zone, Cap Connection and Head Quarters.
GCO has surprised investors over the past half year with strong growth. It beat earnings expectations for the first quarter by 13 cents and lifted expectations for its next fiscal year, saying it expected to earn $1.70 to $1.80 vs. the $1.59 consensus. Unlike most retailers, it is still showing year-over-year growth at most of its branded stores.
Journeys is focused on trendy skate shoes and non-athletic apparel aimed at teens and young adults. It sells mostly popular brands like Puma, Converse, DC, Etnies and Vans shoes in a lively atmosphere. Journeys, Journeys Kidz and a women-oriented variant called Shi, together account for 45% of company sales. Most appear in malls, going toe to toe with companies like Zumiez (ZUMZ) and Urban Outfitters (URBN).
American malls posted a collective 6.5% decline in same-store sales for the year, as consumers veered toward big boxes like Wal-Mart (WMT) and Target (TGT), so it’s nice to see Journeys has bucked the trend. Analysts believe the company will handily survive the downturn while many of its competitors flee, presumably on foot.
GCO’s other mall presence is its hats and caps. Accounting for 26% of net sales, the group surprised Wall Street with strong same-store sales for the year, up 2%. The group has strong market share, accounting for a whopping 20% of industry sales. Meanwhile, the Johnston & Murphy brand and Dockers license account for the remaining 18% of sales.
We’re talking about a fairly small company with a $480 million market cap, but it’s very profitable with a 36% return on equity. Management has done a good job of under-promising and over-delivering, as it has posted earnings surprises of 55% to 400% over the past five quarters. The forward price/earnings multiple is around 10, which is cheap for a company growing in the double digits.
GCO is a solid hold so long as it remains above the trendline shown on the chart above.
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