Genesco (NYSE:GCO), owner of brands like Journeys and Schuh, has proven its place in post-pandemic retail. The company’s brand position and omnichannel offering have it set up to outperform many of its mall-based competitors but there is a problem for the market. While the Q1 results are good, the guidance is only in-line with the Marketbeat.com consensus estimates which means the news is already priced into the stock. The stock offers a value trading at only 6.87X its earnings but that may not be enough to support the share price. The stock does not pay a dividend where other successful names in retail do, and the sell-side is a wild card that could cap gains in the near to mid-term if not longer.
The 3 analysts rating the stock have it pegged at a weak Buy but the last commentary came out in early January so take that with a grain of salt. The Marketbeat.com consensus price target is about 22% above the current action and a bullish factor but there are caveats to be aware of. The primary is that this target is old and consistent with the post-pandemic top in price action. The second is that institutional activity, while net bullish over the past year, turned decidedly bearish in Q2 2022. The net of activity is still on the small side but a powerful force in the market nonetheless. If the bias of activity doesn’t turn price action will most likely wallow in the $50 to $60 range, if the Q2 activity becomes a trend price action could move down to set a new low.
Genesco Pops On Surprise Profit
Genesco only had an OK quarter but there is one jewel to be aware of. The company produced $520.79 million for a decline of 3.3% versus last year but posted a surprise profit on the bottom line. The revenue was driven by a 16% decline in the core Journey’s brand offset by a 28% increase at Schuh and a 46% increase at Johnston & Murphy. eCommerce, a pillar of the company’s growth strategy, fell by 29% but this is against last year’s record-setting pop and sales in this channel are still up 74% versus the pre-pandemic level. As a percentage of sales, eCommerce declined from last year’s 25% of the net to 19% but is up 800 basis points from the prepandemic level.
Moving down to the margin, the news is very mixed indeed. The company posted a 50 basis point improvement in the gross margin but this was offset by an increase in operating expenses. Operating expenses increased by 200 basis points to put the squeeze on operating income which fell about 50% YOY depending on which comparison you look at. The bottom line is that margins were mixed and YOY earnings fell but margins came in well above the consensus and produced $0.37 in GAAP and $0.44 in adjusted EPS or $0.53 better than expected.
Turning to the guidance, the guidance is positive but tepid in light of the Q1 earnings strength. The company merely reiterated the FY guidance for revenue while upping the range for EPS to $7.00 to $7.75. This is good at face value but only bracketing the consensus of $7.41. In our view, the guidance is not only tepid but there is a downside risk in that consumer spending may be sluggish over the summer and into the fall.
The Technical Outlook: Genesco Capped At The Short-Term EMA
Shares of Genesco popped on the earnings beat and guidance but the action was capped at the short-term 30-day EMA. The move created a bearish-looking doji candle confirming a new downtrend and resistance near the $57.50 level. If the market follows through on this move, we see this stock retesting the recent lows and possibly moving lower. If, however, the price action stabilizes near the current level Genesco stock will most likely enter a trading range that could dominate it for the next quarter or two.
