Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Just in time for back-to-school, Journeys store chain operator Genesco
So what: The retailer enjoyed strong shoe and hat sales in the second quarter, helping contract the size of its quarterly loss from year-ago numbers. In the red $0.14 last year, Genesco lost just $0.02 this past quarter -- and $0.22 profit if you give pro forma numbers any weight. Adding to the good news, Genesco characterized back-to-school trends as "quite positive" and upped its estimate for this year's earnings total to about $3.38 per share -- 15% better than previously forecast.
Now what: Now I realize this works out to just 16 times earnings for the current fiscal year, which makes the stock look rather attractive at the 15% long-term growth rate Wall Street is positing. Remember, though, that Genesco's earnings estimate is just as "pro forma" as the profits it said it would have made last quarter ... but for all the charges it took. When you consider that even taking pro forma numbers at face value still only gives the stock about a 1.0 PEG ratio (i.e., fairly valued), I can't give this stock an unqualified endorsement.
That said, free cash flow looks good. Growth looks good. With a price that's arguably fair, I can't say investors are wrong to be bidding these shares up, either.
Bears versus bulls -- who will carry the day at Genesco? Add it to your watchlist and find out.
