Genesco Inc. raised its fiscal 2027 profit expectations after stronger margins, expense discipline and improving performance at two of its most important footwear businesses helped the company deliver a substantially smaller second-quarter adjusted loss. The Nashville-based retailer said Thursday that adjusted diluted earnings per share for the full year are now expected to finish at the high end of its existing $2.00-to-$2.40 range, compared with its previous assumption around the midpoint of that range.

The improved earnings view came even as Genesco lowered its expectations for sales, creating a notable divergence between the retailer’s top-line and bottom-line outlooks. Comparable sales for fiscal 2027 are now expected to be approximately flat, versus the previous forecast for growth of 1% to 2%. Total sales are expected to fall approximately 2% from fiscal 2026, compared with the earlier projection for sales ranging from flat to down 1%. Management attributed much of the revision to greater pressure at its UK-based Schuh business during the second half of the year.

For the quarter ended August 1, Genesco generated net sales of $529.9 million, approximately 3% below the $546.0 million reported in the comparable period a year earlier. The decline reflected store closures, lower licensed-product sales, reduced promotional activity at Schuh, unfavorable currency effects and weakness in digital sales. Those pressures were partly offset by a 1% increase in same-store sales and additional revenue from enlarged stores.

Comparable sales across Genesco fell 1% from the prior-year quarter. The underlying channel performance was mixed: comparable physical-store sales increased 1%, while comparable e-commerce sales dropped 6%. The digital decline was influenced particularly by Schuh, where management has deliberately reduced discounting as part of an effort to rebuild a more profitable full-price sales model.

Journeys, Genesco’s largest business, remained one of the strongest indicators of progress. Comparable sales increased 2% during the quarter, marking the eighth consecutive quarter of positive total comparable-sales growth for the youth-oriented footwear retailer. Journeys’ reported sales were approximately flat from a year earlier as positive comparable performance was offset by the smaller store base created through Genesco’s continuing store-optimization program.

Management also pointed to encouraging momentum after the quarter ended. Chief Executive Officer Mimi Vaughn said the third quarter had begun positively, with Journeys accelerating to a mid-single-digit comparable-sales increase in August during the important back-to-school period. That growth came on top of strong gains in the previous two years, adding weight to management’s argument that the Journeys recovery is becoming more durable rather than simply reflecting easy comparisons.

The performance at Johnston & Murphy was another favorable component of the quarter. Comparable sales for the brand increased 4%, while total sales rose about 5% from a year earlier. For the first six months of fiscal 2027, Johnston & Murphy generated $153.9 million of sales, up from $145.6 million in the prior-year period. The segment also showed a substantial improvement in profitability over that six-month period, contributing to Genesco’s broader earnings recovery.

Schuh remained the principal counterweight. Comparable sales at the UK footwear retailer declined 9% in the second quarter and total sales dropped about 10%. Genesco has been intentionally pulling back from heavy promotional activity at Schuh in an effort to restore full-price selling and improve product margins, but that strategy is producing near-term pressure on revenue and digital traffic. The weaker-than-expected trajectory at Schuh was the main reason management reduced its full-year comparable-sales assumptions.

Genesco Brands also contracted sharply, with quarterly sales down 21%, or approximately $7 million, from a year earlier. The company has been transitioning away from certain licensed businesses, making part of the revenue decline structural rather than an indication of deteriorating demand across the entire portfolio. Management has consistently framed license exits, store closures and Schuh’s reduction in discounting as strategic actions intended to improve the longer-term quality of earnings.

The most important feature of the second-quarter report was the improvement in profitability despite lower consolidated revenue. Genesco’s adjusted gross margin increased 140 basis points from a year earlier to 47.2%. Management attributed the improvement primarily to less promotional activity and greater full-price selling at Schuh, favorable changes in sales mix, benefits from license exits, pricing actions and measures intended to mitigate tariff-related costs.

On a reported basis, gross margin climbed much more sharply, reaching 51.4% from 45.8% a year earlier. That increase included benefits from tariff refunds that Genesco excluded from its adjusted results. The company received $22.5 million of tariff refunds, including interest, during the quarter in connection with its branded businesses. Genesco said no additional tariff refunds are incorporated into its full-year guidance, making the adjusted figures more representative of the underlying assumptions supporting the higher earnings outlook.

Adjusted selling and administrative expenses declined by almost $6 million from the prior-year quarter. Because revenue also fell, adjusted SG&A increased slightly as a percentage of sales to 48.8% from 48.4%. Genesco said increased occupancy and performance-based compensation expenses were partly offset by reductions in selling salaries and marketing spending. Excluding performance-based compensation, adjusted expenses increased only about 10 basis points as a percentage of sales despite the lower revenue base.

The combination of stronger merchandise margins and tighter spending materially reduced the operating deficit. Genesco reported an adjusted operating loss of $8.3 million for the quarter, compared with a $14.3 million loss a year earlier. Adjusted operating margin improved to negative 1.6% from negative 2.6%. On a GAAP basis, which included tariff-refund benefits and other items, the company recorded operating income of $3.6 million, or 0.7% of sales, compared with an operating loss of $14.4 million in the prior-year quarter.

GAAP earnings from continuing operations were $3.5 million, compared with an $18.5 million loss a year earlier. Reported diluted earnings were $0.32 per share, reversing a $1.79-per-share loss in the prior-year period. After excluding tariff refunds and costs related to matters including the proxy contest, legal expenses, technology transformation and restructuring, Genesco posted an adjusted loss from continuing operations of $8.8 million, or $0.83 per share. That compared with an adjusted loss of $11.7 million, or $1.14 per share, a year earlier.

The adjusted loss was also narrower than market expectations heading into the report. Benzinga, citing its consensus data, reported an analyst estimate for a loss of $1.37 per share and revenue expectations of approximately $527.3 million. Genesco’s $0.83 adjusted loss and $529.9 million of sales therefore both came in better than those figures. Shares rose more than 3% following the results in early Thursday trading, reflecting the market’s focus on the stronger earnings trajectory and improved guidance.

For the full fiscal year, management now expects operating income to land at the high end of its previously issued $34 million-to-$40 million range, compared with its earlier assumption around the midpoint. The outlook reflects the stronger-than-expected second quarter, including better gross margins and expense management, partially offset by the reduced sales expectations for Schuh.

The guidance shift illustrates how Genesco’s current investment case is becoming less dependent on revenue growth alone. With comparable sales now projected to be flat for the year, achieving earnings near the top of the company’s range will require continued margin recapture, disciplined inventory management and realization of planned cost savings. The company is effectively expecting greater profit productivity from a smaller or largely unchanged revenue base.

Cost reduction is an important component of that strategy. Genesco earlier announced a program tied to its information-technology transformation, automation initiatives, operating efficiencies and spending optimization. The company expects those measures to generate $40 million to $50 million of savings through fiscal 2029, with as much as $20 million expected to be realized in the current fiscal year. Management has said the program is designed both to structurally reduce costs and create capacity to continue investing in growth initiatives.

Balance-sheet trends provided additional flexibility. Genesco ended the quarter with $57.1 million of cash, compared with $41.0 million a year earlier, while total debt fell to $15.8 million from $71.0 million. The reduction in borrowing lowers financial risk as the company works through its portfolio changes and store-optimization program. Inventory, however, increased 8% year over year to approximately $539.7 million, primarily because of higher inventory at Journeys. That buildup makes demand during the back-to-school and holiday periods an important factor for second-half margin performance.

Genesco continued to reduce its physical retail footprint. The company opened three stores and closed 25 during the second quarter, ending the period with 1,186 stores, about 5% fewer than a year earlier. Square footage was also down approximately 5%. Journeys ended the quarter with 924 stores, Schuh with 109 and Johnston & Murphy with 153. Capital expenditures totaled approximately $17 million, largely for retail-store remodeling, indicating that Genesco is simultaneously closing less productive locations and investing in selected remaining stores.

Capital returns also resumed after the quarter. Genesco did not repurchase shares during the second quarter, but it bought 317,503 shares during the third quarter through August 31. The company had $18.8 million remaining under its expanded repurchase authorization at that point. Full-year guidance incorporates those completed repurchases but assumes no additional buybacks, meaning further repurchase activity could alter the eventual share count used in calculating per-share earnings.

The tax outlook adds another technical consideration for investors comparing quarterly and full-year earnings. Genesco expects a fiscal 2027 tax rate of approximately 30%, although because of valuation allowances the adjusted tax rate for the third quarter is expected to be only about 7% to 8%, with later adjustments bringing the full-year rate toward the projected level. The company said changes in U.S. income-tax law also influenced the difference between current-quarter and prior-year tax rates.

For the remainder of fiscal 2027, the central earnings question is whether Journeys and Johnston & Murphy can continue generating enough sales and margin improvement to offset Schuh’s weakness and the planned contraction in licensed and store-based revenue. Journeys is particularly important because it accounted for roughly 59% of Genesco’s first-half sales, making even relatively modest changes in comparable performance consequential for consolidated results.

The August acceleration at Journeys offers an encouraging early indicator, but Genesco still faces a retail environment characterized by uneven discretionary spending, promotional competition and sensitivity to product trends. Its strategy of relying more heavily on full-price selling can support margin recovery, but it also carries the risk that lower discounting reduces traffic or slows inventory turnover if consumer demand softens.

The second-quarter numbers nonetheless show measurable operating progress. Genesco produced better adjusted gross margin, narrowed its operating loss, improved adjusted earnings per share and sharply reduced debt while Journeys extended its positive comparable-sales streak and Johnston & Murphy posted another quarter of growth. Those improvements were strong enough for management to raise its earnings expectations even while lowering revenue assumptions.

That combination will define investor expectations for the second half. Rather than requiring an immediate return to broad-based sales growth, Genesco is betting that a more productive store portfolio, higher-quality full-price sales, improved merchandise economics and structural cost reductions can drive earnings higher first. If Journeys’ back-to-school acceleration persists and Johnston & Murphy maintains its momentum, the company may have greater room to absorb Schuh’s weakness. If those trends fade, however, the reduced full-year sales outlook leaves less top-line cushion for delivering profit at the high end of management’s range.