Friday, May 28, 2010

Genesco beats expectations, will buy competitor

Nashville-based Genesco Inc. said Thursday it beat expectations for a profitable quarter, improved its outlook for the year and will buy a competitor to continue expansion of its sports clothing and ball cap stores.
The latest acquisition, Sports Avenue, based in Rock Island, Ill., operates 46 retail stores across the country and makes $42 million in annual revenues. The purchase price was not disclosed. The deal will close later this year.

"Genesco has held up reasonably well in a tough environment,'' Mitch Kummetz of Robert Baird & Co. said in a note to investors. "We now believe that the company is poised to deliver double-digit earnings growth over the next few years."

Genesco's stock gained 93 cents a share in Wall Street trading after all the news. It closed at $29.91 per share on a day in which the Dow Jones industrial average gained nearly 284.54 points overall as investors' mood brightened over European debt prospects.

Kummetz said Genesco has managed to hammer out more favorable rental agreements from its retail landlords during the U.S. recession and has boosted profit margins in part by slimming down on its number of stores and improving sales. It also reported it had $105 million in cash on hand and no debt.

Genesco reported profits of $8.6 million, or 36 cents per share, during its fiscal first quarter ending May 1, compared with a loss of $5.7 million, or 31 cents per share, during the same quarter a year ago. That included a pre-tax charge of $2.4 million, or 6 cents share, in the first quarter compared with a pre-tax charge of $11 million, or 47 cents per share, a year ago.

The company now expects to make a profit of $2.10 per share to $2.20 per share for the year.

One of Genesco's most profitable lines of business is the sports hats and clothing business, which the company calls Lids Sports Group.

The company is growing that segment incrementally through acquisitions such as Sports Avenue, according to Christopher Svezia, who covers Genesco as an analyst for Susquehanna Financial Group, based in Philadelphia.

"We like what we heard,'' Svezia said Thursday, attributing much of the Nashville-based chain's profit growth to cost savings, but some to an increase in consumer demand. "I don't know if the consumer is back 100 percent, but you definitely see improvements from six or nine months ago."

Contact business reporter Naomi Snyder at 615-259-8284 or

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