Genesco Reports Third Quarter Fiscal 2008 Results

NASHVILLE, Tenn., Nov. 29 /PRNewswire/ -- Genesco Inc. today reported earnings of $5.6 million before discontinued operations, or $0.23 per diluted share, for the third quarter ended November 3, 2007. Results for the quarter included $6.2 million pretax, or approximately $0.16 per diluted share, in litigation and other expenses related to the Company's proposed merger with a subsidiary of The Finish Line Inc., retail store asset impairment charges and costs related to the previously announced decision to close certain underperforming stores, primarily in the Underground Station Group. For the third quarter ended October 28, 2006, earnings before discontinued operations were $16.0 million, or $0.62 per diluted share. Results for the quarter last year include $1.1 million pretax, or approximately $0.02 per share, of retail store asset impairment charges. Net sales for the third quarter of fiscal 2008 increased 2.3% to $372 million, compared to $364 million for the third quarter of fiscal 2007.

Genesco Chairman and Chief Executive Officer Hal N. Pennington said, "Our third quarter results continued to reflect generally challenging economic conditions and a difficult retail environment, especially in footwear.

"Net sales in the Journeys Group were approximately $183 million in the third quarter, and same store sales declined 3%. The benefit we expected from the shift in sales tax holidays and the onset of the back to school season from the second quarter last year to the third quarter this year was more than offset by the general weakness of the retail footwear climate and significant underperformance by one line of shoes that performed very strongly for the Journeys Group in the third quarter last year. While there remains some uncertainty in the marketplace, we believe Journeys is well positioned for the holiday selling season.

"Net sales in the Hat World Group increased 13% to approximately $88 million, and same store sales rose 2% in the third quarter. Hat World's core business, particularly Major League Baseball products, performed well during the quarter, as did branded action product. However, Hat World sacrificed some gross margin in connection with a program designed to adjust MLB fashion inventory levels. We completed that program during the third quarter and expect it to benefit future performance.

"Net sales for the Underground Station Group, which includes the remaining Jarman stores, were $27 million, and same store sales declined 19%. Same store sales again reflected the weak urban market, a difficult Nike comparison, especially during the early part of the quarter, and an ongoing transition into the chain's new merchandising strategy. While the general retail environment and the urban market remain challenging, we expect Underground Station to benefit from new merchandising strategies in the holiday season and from easier comparisons with last year, especially since Nike sales were less meaningful in the fourth quarter last year.

"Johnston & Murphy Group's net sales increased 4% to approximately $46 million in the third quarter. Same store sales for the shops were up 3% and operating margin for the Johnston & Murphy Group increased 220 basis points to 9.4%, reflecting the continuing strength of the brand.

"Third quarter sales of Licensed Brands increased 26% to approximately $29 million, and operating margin increased 380 basis points to 14% reflecting the continuing strength of Dockers Footwear, sales of which increased approximately 9%, and additional sales related to the introduction of a line of footwear sourced for limited distribution under a new license arrangement. Even in a very challenging retail environment our target consumers are continuing to respond very positively to the product styling, comfort and value found in Dockers Footwear, and our retail customers are very happy with the performance. We believe we are poised for continued success."

This release contains forward-looking statements, including those regarding the performance outlook for the Company and its individual businesses, and all other statements not addressing solely historical facts or present conditions. Actual results could vary materially from the expectations reflected in these statements. A number of factors could cause differences. These include uncertainty regarding the effect and timing of the Company's proposed merger with a subsidiary of The Finish Line, Inc. and litigation and investigations in connection with the merger, weakness in consumer demand for products sold by the Company, fashion trends that affect the sales or product margins of the Company's retail product offerings, changes in the timing of holidays or in the onset of seasonal weather affecting period-to-period sales comparisons, changes in buying patterns by significant wholesale customers, disruptions in product supply or distribution, further unfavorable trends in foreign exchange rates, foreign labor and materials costs, and other factors affecting the cost of products, and competition in the Company's markets. Additional factors that could affect the Company's prospects and cause differences from expectations include the ability to open, staff and support additional retail stores on schedule and at acceptable expense levels and to renew leases in existing stores on schedule and at acceptable expense levels, the ability to negotiate acceptable lease terminations and otherwise to execute the store closing plan referred to in this release on schedule and at expected expense levels, variations from expected pension-related charges caused by conditions in the financial markets, and the outcome of litigation and environmental matters involving the Company. Additional factors are cited in the "Risk Factors," "Legal Proceedings" and "Management Discussion and Analysis of Results of Operations and Financial Condition" sections of, and elsewhere, in our SEC filings, copies of which may be obtained by contacting the investor relations department of Genesco via our website http://www.genesco.com/. Many of the factors that will determine the outcome of the subject matter of this release are beyond Genesco's ability to control or predict. Genesco undertakes no obligation to release publicly the results of any revisions to these forward looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Forward-looking statements reflect the expectations of the Company at the time they are made. The Company disclaims any obligation to update such statements.

The Company's live conference call on November 29, 2007, at 7:30 a.m. (Central time) may be accessed through the Company's internet website, http://www.genesco.com/. To listen live, please go to the website at least 15 minutes early to register, download and install any necessary software.

Genesco Inc., a Nashville-based specialty retailer, sells footwear, headwear and accessories in more than 2,150 retail stores in the United States and Canada, principally under the names Journeys, Journeys Kidz, Shi by Journeys, Johnston & Murphy, Underground Station, Hatworld, Lids, Hat Shack, Hat Zone, Head Quarters and Cap Connection, and on internet websites http://www.journeys.com/, http://www.journeyskidz.com/, http://www.shibyjourneys.com/, http://www.undergroundstation.com/, http://www.johnstonmurphy.com/, http://www.lids.com/ and http://www.lidskids.com/. The Company also sells footwear at wholesale under its Johnston & Murphy brand and under the licensed Dockers brand. Additional information on Genesco and its operating divisions may be accessed at its website http://www.genesco.com/.

GENESCO INC. Consolidated Earnings Summary Three Months Ended Nine Months Ended November 3, October 28, November 3, October 28, In Thousands 2007 2006 2007 2006 Net sales $372,496 $364,298 $1,035,124 $ 983,617 Cost of sales 184,445 182,844 511,610 487,404 Selling and administrative expenses 174,194 150,992 499,326 433,477 Restructuring and other, net 56 1,083 6,809 1,672 Earnings from operations 13,801 29,379 17,379 61,064 Interest expense, net 3,504 2,948 8,906 7,022 Earnings before income taxes from continuing operations 10,297 26,431 8,473 54,042 Income tax expense 4,687 10,456 3,600 21,457 Earnings from continuing operations 5,610 15,975 4,873 32,585 Provision for discontinued operations (10) (98) (1,235) (287) Net Earnings $5,600 $15,877 $3,638 $32,298 Earnings Per Share Information Three Months Ended Nine Months Ended In Thousands (except November 3, October 28, November 3, October 28, per share amounts) 2007 2006 2007 2006 Preferred dividend requirements $49 $64 $167 $192 Average common shares - Basic EPS 22,454 22,284 22,420 22,771 Basic earnings per share: Before discontinued operations $0.25 $0.71 $0.21 $1.42 Net earnings $0.25 $0.71 $0.15 $1.41 Average common and common equivalent shares - Diluted EPS 26,918 26,624 22,994 27,111 Diluted earnings per share: Before discontinued operations $0.23 $0.62 $0.20 $1.26 Net earnings $0.23 $0.62 $0.15 $1.25 GENESCO INC. Consolidated Earnings Summary Three Months Ended Nine Months Ended November 3, October 28, November 3, October 28, In Thousands 2007 2006 2007 2006 Sales: Journeys Group $182,587 $184,391 $486,599 $462,560 Underground Station Group 26,792 34,981 81,122 105,854 Hat World Group 87,815 77,503 257,119 226,697 Johnston & Murphy Group 46,403 44,467 138,354 130,414 Licensed Brands 28,769 22,844 71,357 57,759 Corporate and Other 130 112 573 333 Net Sales $372,496 $364,298 $1,035,124 $983,617 Operating Income (Loss): Journeys Group $15,336 $25,260 $27,136 $46,346 Underground Station Group (2,930) (631) (9,991) 27 Hat World Group 4,639 7,710 14,709 22,334 Johnston & Murphy Group 4,377 3,193 12,459 8,500 Licensed Brands 4,019 2,326 9,193 5,390 Corporate and Other* (11,640) (8,479) (36,127) (21,533) Earnings from operations 13,801 29,379 17,379 61,064 Interest, net 3,504 2,948 8,906 7,022 Earnings before income taxes from continuing operations 10,297 26,431 8,473 54,042 Income tax expense 4,687 10,456 3,600 21,457 Earnings from continuing operations 5,610 15,975 4,873 32,585 Provision for discontinued operations (10) (98) (1,235) (287) Net Earnings $5,600 $15,877 $3,638 $32,298 *Includes $0.1 million of other charges in the third quarter of Fiscal 2008 for asset impairments and includes $6.8 million of other charges in the first nine months of Fiscal 2008 of which $6.8 million is asset impairments related to underperforming stores, primarily in the Underground Station Group, and $0.3 million for lease terminations offset by $0.3 million in excise tax refunds. Includes $1.1 million and $1.7 million of other charges in the third quarter and nine months of Fiscal 2007, respectively, for asset impairments and lease terminations. The third quarter and nine months of Fiscal 2008 also includes $6.1 million and $11.6 million, respectively, in expenses related to the Company's proposed merger with a subsidiary of The Finish Line Inc. GENESCO INC. Consolidated Balance Sheet November 3, October 28, In Thousands 2007 2006 Assets Cash and cash equivalents $17,980 $18,638 Accounts receivable 29,213 24,401 Inventories 395,965 344,309 Other current assets 52,716 33,122 Total current assets 495,874 420,470 Property and equipment 250,020 213,974 Other non-current assets 171,524 158,111 Total Assets $917,418 $792,555 Liabilities and Shareholders' Equity Accounts payable $138,844 $135,614 Other current liabilities 62,068 62,862 Total current liabilities 200,912 198,476 Long-term debt 215,220 158,250 Other long-term liabilities 89,767 78,722 Shareholders' equity 411,519 357,107 Total Liabilities and Shareholders' Equity $917,418 $792,555 GENESCO INC. Retail Units Operated - Nine Months Ended November 3, 2007 Balance Acquisitions Open Conv Close 01/28/06 Journeys Group 761 96 0 4 Journeys 710 61 0 3 Journeys Kidz 50 24 0 1 Shi by Journeys 1 11 0 0 Underground Station Group 229 11 0 17 Underground Station 180 11 3 1 Jarman Retail 49 0 (3) 16 Hat World Group 641 49 104 0 9 Johnston & Murphy Group 142 13 0 7 Shops 107 7 0 5 Factory Outlets 35 6 0 2 Total Retail Units 1,773 49 224 0 37 Balance Balance 02/03/07 Open Conv Close 11/03/07 Journeys Group 853 94 0 2 945 Journeys 768 36 0 2 802 Journeys Kidz 73 30 0 0 103 Shi by Journeys 12 28 0 0 40 Underground Station Group 223 2 0 10 215 Underground Station 193 2 2 4 193 Jarman Retail 30 0 (2) 6 22 Hat World Group 785 82 0 11 856 Johnston & Murphy Group 148 10 0 2 156 Shops 109 7 0 1 115 Factory Outlets 39 3 0 1 41 Total Retail Units 2,009 188 0 25 2,172 Retail Units Operated - Three Months Ended November 3, 2007 Balance Balance 08/04/07 Open Conv Close 11/03/07 Journeys Group 909 36 0 0 945 Journeys 789 13 0 0 802 Journeys Kidz 91 12 0 0 103 Shi by Journeys 29 11 0 0 40 Underground Station Group 219 1 0 5 215 Underground Station 193 1 1 2 193 Jarman Retail 26 0 (1) 3 22 Hat World Group 829 31 0 4 856 Johnston & Murphy Group 154 4 0 2 156 Shops 113 3 0 1 115 Factory Outlets 41 1 0 1 41 Total Retail Units 2,111 72 0 11 2,172 Constant Store Sales Three Months Ended Nine Months Ended November 3, October 28, November 3, October 28, 2007 2006 2007 2006 Journeys Group -3% 9% -2% 5% Underground Station Group -19% -11% -21% -7% Underground Station -20% -11% -22% -6% Jarman Retail -9% -10% -12% -10% Hat World Group 2% -1% -1% 0% Johnston & Murphy Group 2% 6% 3% 2% Shops 3% 7% 4% 2% Factory Outlets -2% 3% 3% -1% Total Constant Store Sales -3% 4% -4% 2%