A bullish write up:
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Stock of the Day
Sep 28, 1998
Genesco: Has The Other Shoe Dropped?
When it comes to footwear, Genesco (NYSE:GCO - news) likes to keep it casual. That's perfect, too, because consumers --
at least right now -- are clamoring for anything that goes well with their khakis. Experts call it the brown-shoe phenomenon.
Genesco, then, would seem to be well positioned in the current environment -- an environment that has seen consumers
abandon athletic shoes for the more casual brown shoe. The trend, however, has not been Genesco's friend.
Take a look at Genesco's stock. Its stock price, which traded as high as $18.88 during the last 52 weeks, is now trades at just
$6.19, a hop, skip and jump above its 52-week low. You can't blame it on analysts either. They absolutely love the stock. Of
the eight analysts who follow the company all of them have strong buys on the company.
So what gives? It would appear that short-term cautiousness from the company's CEO, which dovetails with the general
slowdown seen in most other footwear makers, is creating a little uneasiness with the stock.
In August, Ben Harris, CEO, issued a report suggesting that the company's third quarter wouldn't be as strong as the company
had forecasted. "While earnings for the first half of the year were ahead of our plan, we now expect that the weakness in Jarman
(retail stores aimed at men 25 to 45) may prevent third-quarter earnings from exceeding last year's 35 cents per share," Harris
said. Investors were looking for the company to earn 43 cents per share. As a result, shares of Genesco plunged on the news.
But despite the short-term outlook for Genesco, Ben Harris also pointed out that he was still content with full-year estimates.
"Given the strength of our branded wholesale businesses, the growth at Journeys, and our expectation that Jarman's business
will improve by the fourth quarter, we remain reasonably confident that we can achieve earnings at or near the consensus
estimate of $1.21 per share," Harris said. Moreover, Harris predicted a full turnaround by the beginning of next year.
That was enough to bring some of the analysts who follow the company out of the woodwork. The poor, short-term outlook for
Genesco gave some analysts the chance to recommend the stock. "It is our opinion that the stock is oversold," said John
Lawrence, analyst from Morgan Keegan & Co.
Indeed, for a company that did over a half billion in revenues last year, and had solid earnings to boot, perhaps the selling in
Genesco has been overdone. At Genesco's current price of $6.19, the stock is trading at 13 times trailing earnings; 5.25 times
this year's earnings; and just 7.2 times next year's estimated earnings.
Other analysts -- not necessarily because of the stock's low price -- are coming out with buy recommendations as well. Two
weeks ago, at the 28th Annual NationsBanc Montgomery Securities Investment Conference, Susan Silverstein, a retail analyst
at Montgomery, said that Genesco looked poised to exploit the “demographic theme” that caters to teens, ethic groups, and
baby boomers. These groups, she said, favor brand names and like to spend disposable income. Genesco's diversified base of
footwear retail and wholesale franchises, should be well positioned to take advantage of this niche, she said.
Chains that should be able to take advantage of the demographic themes Silverstein pointed out would include Genesco's
Journeys (footwear for teens), Jarman (retail stores aimed at men 25 to 45), and Johnston & Murphy (dress and casual
footwear for men 25 to 54).
There's no doubt shoe makers are currently struggling, but when they begin to take a turn for the better Genesco seems
positioned to reap a nice share of the business. And at current levels, with the stock having already taken its medicine for
missing its third-quarter number -- something that may or may not come to pass -- Genesco share prices probably already
reflect all of the bad news. That, in fact, might explain why all of the analysts following the stock believe it warrants a strong-buy
rating. |
