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Genesco Footwear unit comps in Journeys up by 2%

Aug '08
Genesco Inc reported a loss from continuing operations of $4.9 million, or $0.27 per diluted share, for the second quarter ended August 2, 2008. These results reflect $6.4 million, or $0.36 per diluted share, of income tax liability primarily related to an increase in the value of stock received in the settlement of litigation with The Finish Line Inc. that could not be recognized as income for accounting purposes.

Earnings before income taxes from continuing operations for the quarter were $2.5 million, including fixed asset impairments, store-closing costs and litigation settlement expenses totaling $3.6 million pre-tax, or $0.09 per diluted share.

In the second quarter last year, the Company reported a loss from continuing operations of $2.9 million, or $0.13 per diluted share. Last year's results reflected a loss before income taxes from continuing operations of $5.6 million, including charges of $5.5 million, or $0.13 per diluted share, primarily consisting of merger-related expenses, fixed asset impairments and store closing costs.

Adjusting for the listed items in both periods, earnings from continuing operations were $3.6 million, or $0.18 per diluted share, in the second quarter this year, compared to breakeven earnings and earnings per share in the same period last year.

Because of the magnitude of the income tax effect of the settlement shares and for consistency with first quarter disclosures and with the Company's previously announced earnings expectations, which excluded the listed items, the Company believes the disclosure of adjusted earnings before discontinued operations on this basis will be useful to investors.

As part of its March 2008 litigation settlement with The Finish Line, the Company received shares of Finish Line common stock, which it agreed to distribute to the Company's shareholders. The shares appreciated in value by approximately $23 million before the distribution occurred. Because of differences between U.S.

Generally Accepted Accounting Principles and the tax law in their respective treatment of this appreciation, the Company recorded a tax liability on the appreciation, which could not be recognized as income for accounting purposes. Consequently, the Company's effective tax rate for the second quarter of Fiscal 2009 was 295%, compared to 47% for the same quarter last year.

The Company also recorded an after-tax charge of $5.4 million, or $0.29 per share, to discontinued operations for an environmental liability relating to settlement negotiations with the Environmental Protection Agency concerning the site of a factory in New York, which the Company operated in the late 1960s.

Net sales for the second quarter of fiscal 2009 increased by 8% to $353 million, compared to net sales for the second quarter of the previous year of $328 million. Comparable store sales for the Company increased 4%.

Genesco President and Chief Executive Officer Robert J. Dennis said, "Our solid second quarter operating results reflect the ongoing success of our merchandising strategies and excellent execution across the board from our team. Given our positive momentum, strong positioning in the marketplace and easier comparisons, which continue through the second half of the year, we are optimistic about our prospects for the balance of the year, although we remain mindful of the uncertain economic environment. Accordingly, we have modestly raised our expectations for the balance of the year."

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