Genesco Inc. (GCO) sells footwear, headwear, sports apparel, and accessories. The company has four reportable segments, including Journeys Group, which includes Journeys, Journeys Kidz, and Little Burgundy retail footwear chains. The company also sells through e-commerce and a catalog.
Its Schuh Group includes its Schuh retail footwear chain. The Johnston & Murphy Group includes Johnston & Murphy retail operations under the Johnston & Murphy and H.S. Trask brands. Licensed Brands, includes Dockers Footwear, under a license from Levi Strauss & Company.
COVID negatively impacted the company in 2020 as most of its stores were situated within shopping malls and forced to close. But many retail locations reopened as people started getting vaccinated this year. People started returning to malls, especially for back-to-school shopping, over the past couple of months.
This has led to a year-to-date return of 101% so far for the company. Strong financial results were especially evident in the company’s second-quarter earnings report. Revenue accelerated even further than pre-pandemic levels. GCO produced record earnings per share that were beyond management’s expectations.
Revenue was driven by full-price selling and strong expense management. This helped set a new quarterly profit record in its footwear businesses. Results also reflect the company’s efforts to accelerate online sales and enhance its store and omnichannel offerings. Management has created and curated leading footwear brands so that GCO can be a leading destination for top fashion footwear.
In terms of performance, revenue increased 15%, while adjusted operating income rose 346% over the same quarter two years ago. GCO had a record Q2 EPS of $1.5, which compares favorably to a loss of $1.23 last year and an EPS of $0.15 two years ago. The company saw strong digital results as digital revenue increased 97% compared to two years ago.
In fact, GCO has doubled its e-commerce business in two years. The increased spending was boosted by government stimulus and pent-up demand that led to an increase in footwear purchasing for the quarter. It wasn’t just footwear, though. The company saw solid results across the board.
Its Journeys retail brand achieved record revenue and operating profit in the quarter. This was the third consecutive quarter with record profitability. The Journeys brand was able to navigate global supply chain disruptions and secure a supply of the brands and styles that customers wanted the most.
The brand also benefits from the current fashion cycle, which has shifted to casual products, which plays right into the brand’s wheelhouse. In addition, sales were driven by on-trend merchandise assortments and consumer engagement through social influencers for the women’s and kids’ segments.
The Schuh footwear business was also able to rebound due to pent-up demand. The segment is taking advantage of the pandemic-led market disruption to target weakened competitors’ customers. This includes geo-targeting where competitors’ physical locations have closed. These efforts led to an increase in new online customers.
The momentum in all categories is expected to continue throughout the fiscal year. GCO has an overall grade of A, translating into a Strong Buy rating in our POWR Ratings system. The company has a Value Grade of A, which isn’t surprising as the stock has a trailing P/E of 7.13 and a forward P/E of 14.53. Its price-to-sales ratio of 0.4 is also well below the industry average.
GCO also has a Quality Grade of A due to a rock-solid balance sheet. Its cash balance of $304 million as of the end of the most recent quarter was up from the previous quarter and compares favorably to no short-term debt. Management is also quite efficient, with a return on equity of 19.9.
We also provide Growth, Momentum, Stability, and Sentiment grades for CGO, which you can find here. GCO is ranked #1 in the A-rated Fashion & Luxury industry. For more top stocks in this highly rated industry, click here.
Compared to other stocks in this industry, GCO certainly deserves that number #1 rank. For instance, another footwear company, Crocs, Inc. (CROX), has an overall grade of C, translating into a Neutral rating in our POWR Ratings system. Not only is its overall rating lower, but its Value Grade of F is well below GCO’s Value Grade of A.
Steven Madden, Ltd. (SHOO) is another footwear company with an overall grade of C and a Neutral rating in the POWR Ratings system. SHOO’s Value Grade of C is well below GCO’s Value Grade of A. The stock has a much higher trailing P/E of 43.60 and is ranked #40 in the industry, compared to GCO’s #1 rank.
GCO is just one of the stocks in my POWR Value portfolio. That’s where I combine my many years of investing experience with the Top 10 Value Stocks strategy, which has +38.63% annual returns, to bring investors the best value stocks for today’s market.
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GCO shares were trading at $59.90 per share on Friday afternoon, up $2.17 (+3.76%). Year-to-date, GCO has gained 99.07%, versus a 17.28% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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