UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to |
Commission File No. 1-3083
Genesco Inc.Inc.
(Exact name of registrant as specified in its charter)
Tennessee |
| 62-0211340 | |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) | |
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Nashville, | Tennessee |
| (Zip Code) |
(Address of principal executive offices) |
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Registrant's telephone number, including area code: (615) (615) 367-7000
Former address: 1415 Murfreesboro Pike, Nashville, Tennessee37217-2895
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $1.00 par value | GCO | New York Stock Exchange |
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer; an accelerated filer; a non-accelerated filer; a smaller reporting company; or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer |
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| Accelerated filer |
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Non-accelerated filer |
| ☐ |
| Smaller reporting company | ☐ |
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Emerging growth company |
| ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
As of May 28, 2021,27, 2022, there were 14,955,92413,728,784 shares of the registrant's common stock outstanding.
INDEX
INDEX
2
cautionary notice regarding forward-looking statements
Statements in this Quarterly Report on Form 10-Q include certain forward-looking statements, which include statements regarding our intent, belief or expectations and all statements other than those made solely with respect to historical fact. Actual results could differ materially from those reflected by the forward-looking statements in this Quarterly Report on Form 10-Q and a number of factors may adversely affect the forward-looking statements and our future results, liquidity, capital resources or prospects. These include, but are not limited to, risks related to public health and safety issues, including, for example, risks related to the ongoing novel coronavirus ("COVID-19") pandemic and emergence of variants from the original strain, as well as the timing and availability of effective medical treatments and the ongoing rollout of vaccines in response to the COVID-19 pandemic, (including the public’s acceptance of vaccines), includingpandemic; disruptions to our business, sales, supply chain and financial results,results; the level of consumer spending on our merchandise and interest in our brands and in general, the timing of the re-opening and potentially reclosing of our stores, the timing of in-person back-to-work and back-to-school and sales with respect thereto, the consumer impact of the reduction of government stimulus and tax relief programs, the level and timing of promotional activity necessary to protect our reputation and maintain inventories at appropriate levels,levels; our ability to pass on price increases to our customers; the timing and amount of any share repurchases by us,us; risks related to doing business internationally, including the increasing scopemanufacturing of a portion of our non-U.S. operations,products in China; the imposition of tariffs on products imported by us or our vendors as well as the ability and costs to move production of products in response to tariffs,tariffs; our ability to obtain from suppliers products that are in-demand on a timely basis and effectively manage disruptions in product supply or distribution,distribution; unfavorable trends in fuel costs, foreign exchange rates, foreign labor and material costs,costs; a disruption in shipping or increase in cost of our imported products, and other factors affecting the cost of products,products; our dependence on third-party vendors and licensors for the products we sell,sell; the effects of the British decision to exitwithdrawal of the United Kingdom ("U.K.") from the European Union ("Brexit") and other sources of market weakness in the U.K. and the Republic of Ireland (“ROI”(the “ROI”),; the effectiveness of our omnichannel initiatives,initiatives; costs associated with changes in minimum wage and overtime requirements,requirements; wage pressure in the U.S. and the U.K.,; labor shortages; the effects of inflation, including our ability to pass increased cost on to consumers; effects resulting from wars and other inflationary pressures,military operations; the evolving regulatory landscape related to our use of social media,media; the establishment and protection of our intellectual property,property; weakness in the consumer economy and retail industry,industry; competition and fashion trends in our markets, including trends with respect to the popularity of casual and dress footwear,footwear; weakness in shopping mall traffic,traffic; any failure to increase sales at our existing stores, given our high fixed expense cost structure, and in our e-commerce businesses,businesses; risks related to the potential for terrorist events,events; changes in buying patterns by significant wholesale customers,customers; changes in consumer preferences,preferences; our ability to continue to complete and integrate acquisitions,acquisitions; our ability to expand our business and diversify our product base,base; impairment of goodwill in connection with acquisitions,acquisitions; payment related risks that could increase our operating cost, expose us to fraud or theft, subject us to potential liability and disrupt our business,business; retained liabilities associated with divestitures of businesses including potential liabilities under leases as the prior tenant or as a guarantor of certain leases,leases; and changes in the timing of holidays or in the onset of seasonal weather affecting period-to-period sales comparisons. Additional factors that could cause differences from expectations include theour ability to open additional retail stores, to renew leases in existing stores, to control or lower occupancy costs, and to conduct required remodeling or refurbishment on schedule and at expected expense levels, our ability tolevels; realize anticipated cost savings, including rent savings, our ability tosavings; realize any anticipated tax benefits, our ability toand achieve expected digital gains and gain market share,share; deterioration in the performance of individual businesses or of our market value relative to our book value, resulting in impairments of fixed assets, operating lease right of use assets or intangible assets or other adverse financial consequences and the timing and amount of such impairments or other consequences,consequences; unexpected changes to the market for our shares or for the retail sector in general,general; costs and reputational harm as a result of disruptions in our business or information technology systems either by security breaches and incidents or by potential problems associated with the implementation of new or upgraded systems, uncertainty regarding the expected phase out of the London Interbank Offered Rate ("LIBOR"),and the cost and outcome of litigation, investigations and environmental matters that involve us, and the impactus. For a full discussion of actions initiated by activist shareholders.risk factors, see Item 1A, "Risk Factors".
Readers are cautioned not to place undue reliance on forward-looking statements as such statements speak only as of the date they were made and involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth in our description of risk factors in Item 1A contained in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021, and Item 1A in Part II of this Quarterly Report on Form 10-Q,29, 2022, which should be read in conjunction with the forward-looking statements in this Quarterly Report on Form 10-Q. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.
The events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. As a result, our actual results may differ materially from the results contemplated by these forward-looking statements.
We maintain a website at www.genesco.com where investors and other interested parties may obtain, free of charge, press releases and other information as well as gain access to our periodic filings with the Securities and Exchange Commission (“SEC”). The information contained on this website should not be considered to be a part of this or any other report filed with or furnished to the SEC.
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Genesco Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
Assets |
| May 1, 2021 |
|
| January 30, 2021 |
|
| May 2, 2020 |
|
| April 30, 2022 |
|
| January 29, 2022 |
|
| May 1, 2021 |
| ||||||
Current Assets: |
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 258,044 |
|
| $ | 215,091 |
|
| $ | 238,574 |
|
| $ | 200,623 |
|
| $ | 320,525 |
|
| $ | 258,044 |
|
Accounts receivable, net of allowances of $4,474 at May 1, 2021, |
|
|
|
|
|
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|
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|
|
|
| ||||||||||||
$5,015 at January 30, 2021 and $5,090 at May 2, 2020 |
|
| 45,891 |
|
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| 31,410 |
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| 55,259 |
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Accounts receivable, net of allowances of $5,074 at April 30, 2022, |
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$4,656 at January 29, 2022 and $4,474 at May 1, 2021 |
|
| 48,868 |
|
|
| 39,509 |
|
|
| 45,891 |
| ||||||||||||
Inventories |
|
| 301,017 |
|
|
| 290,966 |
|
|
| 391,803 |
|
|
| 401,479 |
|
|
| 278,200 |
|
|
| 301,017 |
|
Prepaids and other current assets |
|
| 117,467 |
|
|
| 130,128 |
|
|
| 49,372 |
|
|
| 74,609 |
|
|
| 71,564 |
|
|
| 117,467 |
|
Total current assets |
|
| 722,419 |
|
|
| 667,595 |
|
|
| 735,008 |
|
|
| 725,579 |
|
|
| 709,798 |
|
|
| 722,419 |
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Property and equipment, net |
|
| 208,759 |
|
|
| 207,842 |
|
|
| 227,058 |
|
|
| 219,421 |
|
|
| 216,308 |
|
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| 208,759 |
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Operating lease right of use assets |
|
| 639,575 |
|
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| 621,727 |
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| 692,489 |
|
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| 508,986 |
|
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| 543,789 |
|
|
| 639,575 |
|
Goodwill |
|
| 38,944 |
|
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| 38,550 |
|
|
| 37,497 |
|
|
| 38,487 |
|
|
| 38,556 |
|
|
| 38,944 |
|
Other intangibles |
|
| 31,112 |
|
|
| 30,929 |
|
|
| 29,082 |
|
|
| 28,298 |
|
|
| 29,855 |
|
|
| 31,112 |
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Deferred income taxes |
|
| — |
|
|
| — |
|
|
| 14,568 |
|
|
| 4,269 |
|
|
| 1,466 |
|
|
| 0 |
|
Other noncurrent assets |
|
| 21,558 |
|
|
| 20,725 |
|
|
| 19,366 |
|
|
| 23,402 |
|
|
| 22,327 |
|
|
| 21,558 |
|
Total Assets |
|
| 1,662,367 |
|
|
| 1,587,368 |
|
|
| 1,755,068 |
|
|
| 1,548,442 |
|
|
| 1,562,099 |
|
|
| 1,662,367 |
|
Liabilities and Equity |
|
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Current Liabilities: |
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Accounts payable |
|
| 164,975 |
|
|
| 150,437 |
|
|
| 175,232 |
|
|
| 243,224 |
|
|
| 152,484 |
|
|
| 164,975 |
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Current portion – long-term debt |
|
| — |
|
|
| — |
|
|
| 23,741 |
| ||||||||||||
Current portion - operating lease liabilities |
|
| 158,295 |
|
|
| 173,505 |
|
|
| 164,723 |
|
|
| 137,770 |
|
|
| 145,088 |
|
|
| 158,295 |
|
Other accrued liabilities |
|
| 112,648 |
|
|
| 78,991 |
|
|
| 66,328 |
|
|
| 83,882 |
|
|
| 134,156 |
|
|
| 112,648 |
|
Total current liabilities |
|
| 435,918 |
|
|
| 402,933 |
|
|
| 430,024 |
|
|
| 464,876 |
|
|
| 431,728 |
|
|
| 435,918 |
|
Long-term debt |
|
| 44,169 |
|
|
| 32,986 |
|
|
| 198,939 |
|
|
| 14,712 |
|
|
| 15,679 |
|
|
| 44,169 |
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Long-term operating lease liabilities |
|
| 555,204 |
|
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| 527,549 |
|
|
| 615,400 |
|
|
| 430,606 |
|
|
| 471,878 |
|
|
| 555,204 |
|
Other long-term liabilities |
|
| 48,068 |
|
|
| 57,141 |
|
|
| 34,883 |
|
|
| 37,910 |
|
|
| 40,346 |
|
|
| 48,068 |
|
Total liabilities |
|
| 1,083,359 |
|
|
| 1,020,609 |
|
|
| 1,279,246 |
|
|
| 948,104 |
|
|
| 959,631 |
|
|
| 1,083,359 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
|
|
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|
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|
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Equity |
|
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|
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|
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|
|
|
|
|
|
|
|
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Non-redeemable preferred stock |
|
| 828 |
|
|
| 1,009 |
|
|
| 1,009 |
|
|
| 818 |
|
|
| 827 |
|
|
| 828 |
|
Common equity: |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Common stock, $1 par value: |
|
|
|
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|
|
|
|
|
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| ||||||||||||
Common stock, $1 par value: |
|
|
|
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|
|
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| |||||||||||||||
Authorized: 80,000,000 shares |
|
|
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|
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|
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| |||
Issued common stock |
|
| 15,444 |
|
|
| 15,438 |
|
|
| 15,171 |
|
|
| 14,217 |
|
|
| 14,256 |
|
|
| 15,444 |
|
Additional paid-in capital |
|
| 284,396 |
|
|
| 282,308 |
|
|
| 276,307 |
|
|
| 294,628 |
|
|
| 291,444 |
|
|
| 284,396 |
|
Retained earnings |
|
| 329,798 |
|
|
| 320,920 |
|
|
| 243,795 |
|
|
| 348,757 |
|
|
| 350,206 |
|
|
| 329,798 |
|
Accumulated other comprehensive loss |
|
| (33,601 | ) |
|
| (35,059 | ) |
|
| (42,603 | ) |
|
| (40,225 | ) |
|
| (36,408 | ) |
|
| (33,601 | ) |
Treasury shares, at cost (488,464 shares) |
|
| (17,857 | ) |
|
| (17,857 | ) |
|
| (17,857 | ) | ||||||||||||
Treasury shares, at cost (488,464 shares) |
|
| (17,857 | ) |
|
| (17,857 | ) |
|
| (17,857 | ) | ||||||||||||
Total equity |
|
| 579,008 |
|
|
| 566,759 |
|
|
| 475,822 |
|
|
| 600,338 |
|
|
| 602,468 |
|
|
| 579,008 |
|
Total Liabilities and Equity |
| $ | 1,662,367 |
|
| $ | 1,587,368 |
|
| $ | 1,755,068 |
|
| $ | 1,548,442 |
|
| $ | 1,562,099 |
|
| $ | 1,662,367 |
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
4
Genesco Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
|
| Three Months Ended |
|
| Three Months Ended |
|
| ||||||||||
|
| May 1, 2021 |
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| May 2, 2020 |
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| April 30, 2022 |
|
| May 1, 2021 |
|
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Net sales |
| $ | 538,695 |
|
| $ | 279,232 |
|
| $ | 520,748 |
|
| $ | 538,695 |
|
|
Cost of sales |
|
| 281,033 |
|
|
| 159,088 |
|
|
| 269,304 |
|
|
| 281,033 |
|
|
Gross margin |
|
| 257,662 |
|
|
| 120,144 |
|
|
| 251,444 |
|
|
| 257,662 |
|
|
Selling and administrative expenses |
|
| 239,465 |
|
|
| 189,042 |
|
|
| 243,481 |
|
|
| 239,465 |
|
|
Goodwill impairment |
|
| 0 |
|
|
| 79,259 |
| |||||||||
Asset impairments and other, net |
|
| 2,670 |
|
|
| 7,861 |
|
|
| (283 | ) |
|
| 2,670 |
|
|
Operating income (loss) |
|
| 15,527 |
|
|
| (156,018 | ) | |||||||||
Other components net periodic benefit income |
|
| (39 | ) |
|
| (124 | ) | |||||||||
Interest expense (net of interest income of $0.1 million and $0.2 million for the three months ended May 1, 2021 and May 2, 2020, respectively) |
|
| 729 |
|
|
| 856 |
| |||||||||
Earnings (loss) from continuing operations before income taxes |
|
| 14,837 |
|
|
| (156,750 | ) | |||||||||
Income tax expense (benefit) |
|
| 5,943 |
|
|
| (22,126 | ) | |||||||||
Earnings (loss) from continuing operations |
|
| 8,894 |
|
|
| (134,624 | ) | |||||||||
Operating income |
|
| 8,246 |
|
|
| 15,527 |
|
| ||||||||
Other components of net periodic benefit cost (income) |
|
| 98 |
|
|
| (39 | ) |
| ||||||||
Interest expense (net of interest income of $0.1 million for each of the three months ended April 30, 2022 and May 1, 2021) |
|
| 297 |
|
|
| 729 |
|
| ||||||||
Earnings from continuing operations before income taxes |
|
| 7,851 |
|
|
| 14,837 |
|
| ||||||||
Income tax expense |
|
| 2,882 |
|
|
| 5,943 |
|
| ||||||||
Earnings from continuing operations |
|
| 4,969 |
|
|
| 8,894 |
|
| ||||||||
Loss from discontinued operations, net of tax |
|
| (16 | ) |
|
| (153 | ) |
|
| (22 | ) |
|
| (16 | ) |
|
Net Earnings (Loss) |
| $ | 8,878 |
|
| $ | (134,777 | ) | |||||||||
Net Earnings |
| $ | 4,947 |
|
| $ | 8,878 |
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Basic earnings (loss) per common share: |
|
|
|
|
|
|
|
| |||||||||
Basic earnings per common share: |
|
|
|
|
|
|
| ||||||||||
Continuing operations |
| $ | 0.62 |
|
| $ | (9.54 | ) |
| $ | 0.38 |
|
| $ | 0.62 |
|
|
Discontinued operations |
|
| 0.00 |
|
|
| (0.01 | ) |
|
| 0.00 |
|
|
| 0.00 |
|
|
Net earnings (loss) |
| $ | 0.62 |
|
| $ | (9.55 | ) | |||||||||
Net earnings |
| $ | 0.38 |
|
| $ | 0.62 |
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Diluted earnings (loss) per common share: |
|
|
|
|
|
|
|
| |||||||||
Diluted earnings per common share: |
|
|
|
|
|
|
| ||||||||||
Continuing operations |
| $ | 0.60 |
|
| $ | (9.54 | ) |
| $ | 0.37 |
|
| $ | 0.60 |
|
|
Discontinued operations |
|
| 0.00 |
|
|
| (0.01 | ) |
|
| 0.00 |
|
|
| 0.00 |
|
|
Net earnings (loss) |
| $ | 0.60 |
|
| $ | (9.55 | ) | |||||||||
Net earnings |
| $ | 0.37 |
|
| $ | 0.60 |
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Basic |
|
| 14,287 |
|
|
| 14,110 |
|
|
| 12,961 |
|
|
| 14,287 |
|
|
Diluted |
|
| 14,702 |
|
|
| 14,110 |
|
|
| 13,369 |
|
|
| 14,702 |
|
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
5
Genesco Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
|
| Three Months Ended |
| ||||||||||||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| Three Months Ended |
|
| |||||||
Net earnings (loss) |
| $ | 8,878 |
|
| $ | (134,777 | ) | |||||||||
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| ||||||||||
Net earnings |
| $ | 4,947 |
|
| $ | 8,878 |
|
| ||||||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Postretirement liability adjustments, net of tax |
|
| (44 | ) |
|
| (120 | ) |
|
| 50 |
|
|
| (44 | ) |
|
Foreign currency translation adjustments |
|
| 1,502 |
|
|
| (10,815 | ) |
|
| (3,867 | ) |
|
| 1,502 |
|
|
Total other comprehensive income (loss) |
|
| 1,458 |
|
|
| (10,935 | ) |
|
| (3,817 | ) |
|
| 1,458 |
|
|
Comprehensive Income (Loss) |
| $ | 10,336 |
|
| $ | (145,712 | ) | |||||||||
Comprehensive Income |
| $ | 1,130 |
|
| $ | 10,336 |
|
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
6
Genesco Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| April 30, 2022 |
|
| May 1, 2021 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net earnings (loss) |
| $ | 8,878 |
|
| $ | (134,777 | ) | ||||||||
Adjustments to reconcile net earnings (loss) to net cash provided by |
|
|
|
|
|
|
|
| ||||||||
Net earnings |
| $ | 4,947 |
|
| $ | 8,878 |
| ||||||||
Adjustments to reconcile net earnings to net cash provided by (used in) |
|
|
|
|
|
| ||||||||||
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 10,889 |
|
|
| 12,423 |
|
|
| 10,551 |
|
|
| 10,889 |
|
Deferred income taxes |
|
| (10,054 | ) |
|
| 4,905 |
|
|
| (2,820 | ) |
|
| (10,054 | ) |
Impairment of intangible assets |
|
| 0 |
|
|
| 84,519 |
| ||||||||
Impairment of long-lived assets |
|
| 414 |
|
|
| 3,042 |
|
|
| 413 |
|
|
| 414 |
|
Restricted stock expense |
|
| 1,912 |
|
|
| 2,191 |
| ||||||||
Share-based compensation expense |
|
| 3,239 |
|
|
| 1,912 |
| ||||||||
Other |
|
| 149 |
|
|
| 2,792 |
|
|
| 499 |
|
|
| 149 |
|
Changes in working capital and other assets and liabilities, net of acquisitions/dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accounts receivable |
|
| (14,186 | ) |
|
| (28,775 | ) |
|
| (9,977 | ) |
|
| (14,186 | ) |
Inventories |
|
| (9,031 | ) |
|
| (30,708 | ) |
|
| (126,674 | ) |
|
| (9,031 | ) |
Prepaids and other current assets |
|
| 12,719 |
|
|
| (17,619 | ) |
|
| (3,490 | ) |
|
| 12,719 |
|
Accounts payable |
|
| 14,784 |
|
|
| 58,061 |
|
|
| 92,061 |
|
|
| 14,784 |
|
Other accrued liabilities |
|
| 33,832 |
|
|
| (15,949 | ) |
|
| (44,194 | ) |
|
| 33,832 |
|
Other assets and liabilities |
|
| (6,120 | ) |
|
| 32,110 |
|
|
| (16,622 | ) |
|
| (6,120 | ) |
Net cash provided by (used in) operating activities |
|
| 44,186 |
|
|
| (27,785 | ) |
|
| (92,067 | ) |
|
| 44,186 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Capital expenditures |
|
| (12,102 | ) |
|
| (6,742 | ) |
|
| (15,397 | ) |
|
| (12,102 | ) |
Proceeds from asset sales |
|
| 0 |
|
|
| 100 |
| ||||||||
Net cash used in investing activities |
|
| (12,102 | ) |
|
| (6,642 | ) |
|
| (15,397 | ) |
|
| (12,102 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Borrowings under revolving credit facility |
|
| 15,736 |
|
|
| 214,571 |
|
|
| 2,609 |
|
|
| 15,736 |
|
Payments on revolving credit facility |
|
| (4,678 | ) |
|
| (6,239 | ) |
|
| (2,609 | ) |
|
| (4,678 | ) |
Shares repurchased related to share repurchase plan |
|
| (11,280 | ) |
|
| 0 |
| ||||||||
Change in overdraft balances |
|
| (533 | ) |
|
| (17,078 | ) |
|
| 0 |
|
|
| (533 | ) |
Other |
|
| (35 | ) |
|
| (48 | ) |
|
| (2 | ) |
|
| (35 | ) |
Net cash provided by financing activities |
|
| 10,490 |
|
|
| 191,206 |
| ||||||||
Net cash provided by (used in) financing activities |
|
| (11,282 | ) |
|
| 10,490 |
| ||||||||
Effect of foreign exchange rate fluctuations on cash |
|
| 379 |
|
|
| 377 |
|
|
| (1,156 | ) |
|
| 379 |
|
Net Increase in Cash and Cash Equivalents |
|
| 42,953 |
|
|
| 157,156 |
| ||||||||
Net increase (decrease) in cash and cash equivalents |
|
| (119,902 | ) |
|
| 42,953 |
| ||||||||
Cash and cash equivalents at beginning of period |
|
| 215,091 |
|
|
| 81,418 |
|
|
| 320,525 |
|
|
| 215,091 |
|
Cash and cash equivalents at end of period |
| $ | 258,044 |
|
| $ | 238,574 |
|
| $ | 200,623 |
|
| $ | 258,044 |
|
Supplemental information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest paid |
| $ | 538 |
|
| $ | 535 |
|
| $ | 327 |
|
| $ | 538 |
|
Income taxes paid, net of refunds |
|
| 127 |
|
|
| 508 |
| ||||||||
Income taxes paid |
|
| 225 |
|
|
| 127 |
| ||||||||
Cash paid for amounts included in measurement of operating lease liabilities |
|
| 45,532 |
|
|
| 13,040 |
|
|
| 57,278 |
|
|
| 45,532 |
|
Operating leased assets obtained in exchange for new operating lease liabilities |
|
| 54,247 |
|
|
| 8,349 |
| ||||||||
Operating lease assets obtained in exchange for new operating lease liabilities |
|
| 13,935 |
|
|
| 54,247 |
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
7
Genesco Inc. and Subsidiaries
Condensed Consolidated Statements of Equity
(In thousands)
|
| Non- Redeemable Preferred Stock |
|
| Common Stock |
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Treasury Shares |
|
| Total Equity |
| ||||||||||||||||||||||||||||
Balance February 1, 2020 |
| $ | 1,009 |
|
| $ | 15,186 |
|
| $ | 274,101 |
|
| $ | 378,572 |
|
| $ | (31,668 | ) |
| $ | (17,857 | ) |
| $ | 619,343 |
| |||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (134,777 | ) |
|
| — |
|
|
| — |
|
|
| (134,777 | ) | |||||||||||||||||||||
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,935 | ) |
|
| — |
|
|
| (10,935 | ) | |||||||||||||||||||||
Employee and non-employee share-based compensation |
|
| — |
|
|
| — |
|
|
| 2,191 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,191 |
| |||||||||||||||||||||
Other |
|
| — |
|
|
| (15 | ) |
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||
Balance May 2, 2020 |
| $ | 1,009 |
|
| $ | 15,171 |
|
| $ | 276,307 |
|
| $ | 243,795 |
|
| $ | (42,603 | ) |
| $ | (17,857 | ) |
| $ | 475,822 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Non- Redeemable Preferred Stock |
|
| Common Stock |
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Treasury Shares |
|
| Total Equity |
| Non- |
| Common |
| Additional |
| Retained |
| Accumulated |
| Treasury |
| Total |
| ||||||||||||||
Balance January 30, 2021 |
| $ | 1,009 |
|
| $ | 15,438 |
|
| $ | 282,308 |
|
| $ | 320,920 |
|
| $ | (35,059 | ) |
| $ | (17,857 | ) |
| $ | 566,759 |
| $ | 1,009 |
| $ | 15,438 |
| $ | 282,308 |
| $ | 320,920 |
| $ | (35,059 | ) | $ | (17,857 | ) | $ | 566,759 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,878 |
|
|
| — |
|
|
| — |
|
|
| 8,878 |
|
| — |
| — |
| — |
| 8,878 |
| — |
| — |
| 8,878 |
| ||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,458 |
|
|
| — |
|
|
| 1,458 |
|
| — |
| — |
| — |
| — |
| 1,458 |
| — |
| 1,458 |
| ||||||
Employee and non-employee share-based compensation |
|
| — |
|
|
| — |
|
|
| 1,912 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,912 |
| |||||||||||||||||||||
Share-based compensation expense |
| — |
| — |
| 1,912 |
| — |
| — |
| — |
| 1,912 |
| ||||||||||||||||||||||||||||||||||
Other |
|
| (181 | ) |
|
| 6 |
|
|
| 176 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
| (181 | ) |
| 6 |
| 176 |
| — |
| — |
| — |
| 1 |
| |||||
Balance May 1, 2021 |
| $ | 828 |
|
| $ | 15,444 |
|
| $ | 284,396 |
|
| $ | 329,798 |
|
| $ | (33,601 | ) |
| $ | (17,857 | ) |
| $ | 579,008 |
| $ | 828 |
| $ | 15,444 |
| $ | 284,396 |
| $ | 329,798 |
| $ | (33,601 | ) | $ | (17,857 | ) | $ | 579,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
| Non- |
| Common |
| Additional |
| Retained |
| Accumulated |
| Treasury |
| Total |
| |||||||||||||||||||||||||||||||||||
Balance January 29, 2022 | $ | 827 |
| $ | 14,256 |
| $ | 291,444 |
| $ | 350,206 |
| $ | (36,408 | ) | $ | (17,857 | ) | $ | 602,468 |
| ||||||||||||||||||||||||||||
Net earnings |
| — |
| — |
| — |
| 4,947 |
| — |
| — |
| 4,947 |
| ||||||||||||||||||||||||||||||||||
Other comprehensive loss |
| — |
| — |
| — |
| — |
| (3,817 | ) |
| — |
| (3,817 | ) | |||||||||||||||||||||||||||||||||
Share-based compensation expense |
| — |
| — |
| 3,239 |
| — |
| — |
| — |
| 3,239 |
| ||||||||||||||||||||||||||||||||||
Restricted stock issuance |
| — |
| 78 |
| (78 | ) |
| — |
| — |
| — |
| — |
| |||||||||||||||||||||||||||||||||
Shares repurchased |
| — |
| (104 | ) |
| — |
| (6,396 | ) |
| — |
| — |
| (6,500 | ) | ||||||||||||||||||||||||||||||||
Other |
| (9 | ) |
| (13 | ) |
| 23 |
| — |
| — |
| — |
| 1 |
| ||||||||||||||||||||||||||||||||
Balance April 30, 2022 | $ | 818 |
| $ | 14,217 |
| $ | 294,628 |
| $ | 348,757 |
| $ | (40,225 | ) | $ | (17,857 | ) | $ | 600,338 |
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
8
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1
Summary of Significant Accounting Policies
Basis of Presentation
The Condensed Consolidated Financial Statements and Notes contained in this report are unaudited but reflect all adjustments, including normal recurring adjustments, necessary for a fair presentation of the results for the interim periods of the fiscal year ending January 29, 202228, 2023 ("Fiscal 2022"2023") and of the fiscal year ended January 30, 202129, 2022 ("Fiscal 2021"2022"). All subsidiaries are consolidated in the Condensed Consolidated Financial Statements. All significant intercompany transactions and accounts have been eliminated. The results of operations for any interim period are not necessarily indicative of results for the full year. The Condensed Consolidated Financial Statements and the related Notes have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. The Condensed Consolidated Balance Sheet as of January 30, 202129, 2022 has been derived from the audited financial statements at that date. These Condensed Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and Notes for Fiscal 2021,2022, which are contained in our Annual Report on Form 10-K as filed with the SEC on March 31, 2021.23, 2022.
Nature of Operations
Genesco Inc. and its subsidiaries (collectively the "Company", "Genesco," "we", "our", or "us") business includes the sourcing and design, marketing and distribution of footwear and accessories through retail stores in the U.S., Puerto Rico and Canada primarily under the Journeys®, Journeys Kidz®, Little Burgundy® and Johnston & Murphy® banners and under the Schuh® banner in the United Kingdom (“U.K.”) and the Republic of Ireland (“ROI”); through catalogs and e-commerce websites including the following: journeys.com, journeyskidz.com, journeys.ca, littleburgundyshoes.com, schuh.co.uk, schuh.ie, schuh.eu, johnstonmurphy.com, johnstonmurphy.ca, nashvillewarehouse.com and littleburgundyshoes.comdockersshoes.com and at wholesale, primarily under our Johnston & Murphy brand, the licensed Levi's® brand, the licensed Dockers® brand, the licensed G.H. Bass® brand and other brands that we license for footwear. At May 1, 2021,April 30, 2022, we operated 1,4441,414 retail stores in the U.S., Puerto Rico, Canada, the U.K. and the ROI.
During the three months ended April 30, 2022 and May 1, 2021, and May 2, 2020, we operated 4 reportable business segments (not including corporate): (i) Journeys Group, comprised of the Journeys, Journeys Kidz and Little Burgundy retail footwear chains and e-commerce operations; (ii) Schuh Group, comprised of the Schuh retail footwear chain and e-commerce operations; (iii) Johnston & Murphy Group, comprised of Johnston & Murphy retail operations, e-commerce operations and wholesale distribution of products under the Johnston & Murphy brand; and (iv) Licensed Brands, comprised of the licensed Dockers, Levi's, and G.H. Bass brands, as well as other brands we license for footwear.
Cash and Cash Equivalents
There were cash equivalents of $95.0 million as of April 30, 2022. There were 0 cash equivalents as of January 29, 2022 or May 1, 2021. Our $95.0 million of cash equivalents at April 30, 2022 were invested in institutional money market funds which invest exclusively in highly rated, short-term securities that are issued, guaranteed or collateralized by the U.S. government or by U.S. government agencies and instrumentalities. Due to their short-term nature, the carrying amounts reported in the Condensed Consolidated Balance Sheets approximate the fair value of cash and cash equivalents.
Selling and Administrative Expenses
Wholesale costs of distribution are included in selling and administrative expenses on the Condensed Consolidated Statements of Operations in the amount of $3.6$2.7 million and $2.4$3.6 million for the first quarters of Fiscal 20222023 and Fiscal 2021,2022, respectively.
Retail occupancy costs recorded in selling and administrative expense were $70.8$78.5 million and $77.2$70.8 million for the first quarters of Fiscal 20222023 and Fiscal 2021,2022, respectively.
Advertising Costs
Advertising costs were $21.1$22.1 million and $14.5$21.1 million for the first quarters of Fiscal 20222023 and Fiscal 2021,2022, respectively.
9
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1
Summary of Significant Accounting Policies, Continued
Vendor Allowances
Vendor reimbursements of cooperative advertising costs recognized as a reduction of selling and administrative expenses were $3.0$3.2 million and $1.8$3.0 million for the first quarters of Fiscal 20222023 and Fiscal 2021,2022, respectively. During the first quarterthree months of each of Fiscal 20222023 and Fiscal 2021,2022, our cooperative advertising reimbursements received were not in excess of the costs incurred.
New Accounting Pronouncements
COVID-19 Pandemic
In December 2019, the Financial Accounting Standards Board issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes”. This guidance aims to simplify the accounting for income taxes by removing certain exceptions to the general principles within the current guidanceThe COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and by clarifying and amending the current guidance. The guidance is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2020. We adopted ASU No. 2019-12 in the first quarter of Fiscal 2022. This guidance did not have a material impact on our Condensed Consolidated Financial Statements.
9
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 2
COVID-19
In March 2020, the World Health Organization categorized the outbreak of COVID-19 as a pandemic. To help control the spread of the virus and protect the health and safety of our employees and customers, we temporarily closed or modified operating models and hours of our retail stores in North America, the U.K. and the ROI beginning in March 2020 both in response to governmental requirements including “stay-at-home” orders and similar mandates and voluntarily, beyond the requirements of local government authorities. A portion of our store fleet remained closed during Fiscal 2021 and the first quarter of Fiscal 2022.
Changes made in our operations, including temporary closures, combined with reduced customer traffic due to concerns over COVID-19, resulted in a material impact onvolatility which may negatively affect our business since then. This prompted us to update our impairment analyses of our retail store portfolios and related lease right-of-use assets. For certain lower-performing stores, we compared the carrying value of store assets to undiscounted cash flows with updated assumptions on near-term profitability.operations. As a result, we recorded a $3.0 million, $1.7 million, $6.4 million, $2.7 millionif the pandemic persists or worsens, our accounting estimates and $0.4 million asset impairment charge within asset impairmentsassumptions could be impacted in subsequent interim reports and other, net on our Condensed Consolidated Statements of Operations during the quarters ended May 2, 2020, August 1, 2020, October 31, 2020, January 30, 2021upon final determination at year-end, and May 1, 2021, respectively.
We evaluated our goodwill and indefinite-lived intangible assets for indicators of impairment at the end of each quarter of Fiscal 2021 and the quarter ended May 1, 2021. During the first quarter of Fiscal 2021,it is reasonably possible such evaluation caused us to determine that, when considering the impact of COVID-19, indicators of impairment existed relating to the goodwill associated with Schuh Group and certain other trademarks. Therefore, we updated the goodwill impairment analysis for Schuh Group, and as a result, recorded a goodwill impairment charge of $79.3 million during the quarter ended May 2, 2020. In addition, we updated our impairment analysis for other intangible assets and, as a result, recorded a trademark impairment charge of $5.3 million during the quarter ended May 2, 2020. There were 0 impairment indicators for the quarters ended August 1, 2020, October 31, 2020, January 30, 2021 or May 1, 2021.changes could be significant.
We evaluated our remaining tangible assets, particularly accounts receivable and inventory. Our wholesale businesses sell primarily to independent retailers and department stores across the United States. Receivables arising from these sales are not collateralized. Customer credit risk is affected by conditions or occurrences within the economy and the retail industry, such as COVID-19, as well as by customer specific factors. We establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.New Accounting Pronouncements
We also record reserves for obsolete and slow-moving inventory and for estimated shrinkage between physical inventory counts. We recorded incremental inventory reserve provisions as a result of excess inventory due to the impact of COVID-19 on retail traffic and demand for certain products. Currently, our remaining closed stores are located primarily in Canada. Depending on the pace of reopening our remaining closed stores as well as future customer behavior, among other factors, we may incur additional inventory reserve provisions.
Since the first quarter of Fiscal 2021, we have withheld certain contractual rent payments generally correlating with time periods when our stores were closed and/or correlating with sales declines from Fiscal 2020. We continue to recognize rent expense in accordance with the contractual terms. We are working with landlords in various markets seeking commercially reasonable lease concessions given the current environment, and while some agreements have been reached, a number of negotiations remain ongoing. In cases where the agreements do not result in a substantial increase in the rights of the lessor or the obligation of the lessee such that the total cash flows of the modified lease are substantially the same or less than the total cash flows of the existing lease, wecurrently have not reevaluated the contract terms. For these lease agreements, we have recognized a reduction in variable rent expense in the period that the concession was granted.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, provided employer payroll tax credits for wages paid to employees who were unable to work during the COVID-19 pandemic and options to defer payroll tax payments. Based on our evaluation of the CARES Act, we qualified for certain employer payroll tax credits as well as the deferral of payroll and other tax payments in the future, which were treated as government subsidies to offset related operating expenses. During the first quarter of Fiscal 2022 and Fiscal 2021, qualified payroll tax credits reduced our selling and administrative expenses by approximately $0.7 million and $7.0 million, respectively, on our Condensed Consolidated Statements of Operations. We have deferred additional qualified payroll and other tax payments as permitted by the CARES Act. Savings from the government program in the U.K. have provided property tax relief for the first quarter of Fiscal 2022 and Fiscal 2021 of approximately $4.7 million and $1.6 million, respectively.
10
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 2
COVID-19, Continuedany new accounting pronouncements pending adoption.
The COVID-19 pandemic remains a rapidly evolving situation especially in Canada, the U.K. and the ROI. The continuation of the COVID-19 pandemic and emergence of variants from the original strain, its economic impact and actions taken in response thereto, including, without limitation, the timing and availability of effective medical treatments and the ongoing rollout and acceptance of vaccines in response to the COVID-19 pandemic, may result in prolonged or recurring periods of store closures and modified operating schedules and may result in changes in customer behaviors, including a potential reduction in consumer discretionary spending in our stores. These may lead to increased asset recovery and valuation risks, such as impairment of our store and other assets and an inability to realize deferred tax assets due to sustaining losses in certain jurisdictions. The uncertainties in the global economy have and are likely to continue to impact the financial viability of our suppliers, and other business partners, which have interrupted and may continue to interrupt, our supply chain, limit our ability to collect receivables and require other changes to our operations. These and other factors have and may continue to adversely impact our net revenues, gross margins, operating income and earnings per share financial measures.
Note 32
Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by segment were as follows:
(In thousands) |
| Journeys Group |
|
| Licensed Brands Group |
|
| Total Goodwill |
| |||
Balance, January 30, 2021 |
| $ | 10,082 |
|
| $ | 28,468 |
|
| $ | 38,550 |
|
Effect of foreign currency exchange rates |
|
| 395 |
|
|
| (1 | ) |
|
| 394 |
|
Balance, May 1, 2021 |
| $ | 10,477 |
|
| $ | 28,467 |
|
| $ | 38,944 |
|
(In thousands) |
| Journeys |
|
| Licensed |
|
| Total |
| |||
Balance, January 29, 2022 |
| $ | 10,087 |
|
| $ | 28,469 |
|
| $ | 38,556 |
|
Effect of foreign currency exchange rates |
|
| (65 | ) |
|
| (4 | ) |
|
| (69 | ) |
Balance, April 30, 2022 |
| $ | 10,022 |
|
| $ | 28,465 |
|
| $ | 38,487 |
|
Other intangibles by major classes were as follows:
|
| Trademarks (1) |
| Customer Lists(2) |
|
| Other(3) |
|
| Total |
|
| Trademarks |
| Customer Lists |
|
| Other |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||||
(In thousands) |
| May 1, 2021 |
|
| Jan. 30, 2021 |
| May 1, 2021 |
|
| Jan. 30, 2021 |
|
| May 1, 2021 |
|
| Jan. 30, 2021 |
|
| May 1, 2021 |
|
| Jan. 30, 2021 |
|
| Apr. 30, 2022 |
|
| Jan. 29, |
| Apr. 30, 2022 |
|
| Jan. 29, |
|
| Apr. 30, 2022 |
|
| Jan. 29, |
|
| Apr. 30, 2022 |
|
| Jan. 29, |
| ||||||||||||||||
Gross other intangibles |
| $ | 26,768 |
|
| $ | 26,443 |
| $ | 6,632 |
|
| $ | 6,617 |
|
| $ | 400 |
|
| $ | 400 |
|
| $ | 33,800 |
|
| $ | 33,460 |
|
| $ | 24,521 |
|
| $ | 25,935 |
| $ | 6,498 |
|
| $ | 6,586 |
|
| $ | 400 |
|
| $ | 400 |
|
| $ | 31,419 |
|
| $ | 32,921 |
|
Accumulated amortization |
|
| 0 |
|
|
| 0 |
|
| (2,288 | ) |
|
| (2,131 | ) |
|
| (400 | ) |
|
| (400 | ) |
|
| (2,688 | ) |
|
| (2,531 | ) |
|
| 0 |
|
|
| 0 |
| (2,721 | ) |
|
| (2,666 | ) |
|
| (400 | ) |
|
| (400 | ) |
|
| (3,121 | ) |
|
| (3,066 | ) | |
Net Other Intangibles |
| $ | 26,768 |
|
| $ | 26,443 |
| $ | 4,344 |
|
| $ | 4,486 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 31,112 |
|
| $ | 30,929 |
|
| $ | 24,521 |
|
| $ | 25,935 |
| $ | 3,777 |
|
| $ | 3,920 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 28,298 |
|
| $ | 29,855 |
|
(1) Includes a $23.3 million trademark at May 1, 2021 related to Schuh Group and $3.5 million trademark related to Journeys Group.
(2) Includes $5.1 million for the Togast acquisition.
(3)Includes backlog for Togast acquisition.
Note 43
Asset Impairments and Other Charges
We recorded a pretax gain of $0.3 million in the first quarter of Fiscal 2023, including a gain of $0.7 million for the pension plan termination, partially offset by $0.4 million for retail store asset impairments.
We recorded pretax charges of $2.7$2.7 million in the first quarter of Fiscal 2022, including $2.3$2.3 million for professional fees related to actions of an activist shareholder and $0.4 million$0.4 for retail store asset impairments. We recorded a pretax charge
10
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 4
Inventories and Other Current Accrued Liabilities
Inventory
(In thousands) |
| April 30, 2022 |
|
| January 29, 2022 |
| ||
Wholesale finished goods |
| $ | 40,078 |
|
| $ | 28,432 |
|
Retail merchandise |
|
| 361,401 |
|
|
| 249,768 |
|
Total Inventories |
| $ | 401,479 |
|
| $ | 278,200 |
|
Other Current Accrued Liabilities
(In thousands) | April 30, 2022 |
| January 29, 2022 |
| ||
Accrued employee compensation(1) | $ | 16,887 |
| $ | 60,575 |
|
Accrued other taxes |
| 14,918 |
|
| 17,631 |
|
Accrued income taxes |
| 1,640 |
|
| 2,385 |
|
Provision for discontinued operations |
| 486 |
|
| 491 |
|
Other accrued liabilities |
| 49,951 |
|
| 53,074 |
|
Total Other Current Accrued Liabilities | $ | 83,882 |
| $ | 134,156 |
|
(1) The accrual for performance-based incentive compensation of $7.9$48.1 million as of January 29, 2022 was paid in the first quarter of Fiscal 2021, including $5.3 million for trademark impairments and $3.0 million for retail store asset impairments, partially offset by a $0.4 million gain for the release of an earnout related to the Togast acquisition.2023.
11
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 5
Inventories
(In thousands) |
| May 1, 2021 |
|
| January 30, 2021 |
| ||
Wholesale finished goods |
| $ | 11,411 |
|
| $ | 27,851 |
|
Retail merchandise |
|
| 289,606 |
|
|
| 263,115 |
|
Total Inventories |
| $ | 301,017 |
|
| $ | 290,966 |
|
Note 6
Fair Value
Fair Value of Financial Instruments
The carrying amounts and fair values of our financial instruments at May 1, 2021April 30, 2022 and January 30, 202129, 2022 are as follows:
Fair Values |
|
|
|
|
|
| ||||||||||||||||||||||||||
(In thousands) |
| May 1, 2021 |
|
| January 30, 2021 |
|
| April 30, 2022 |
| January 29, 2022 |
| |||||||||||||||||||||
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||||||
U.S. Revolver Borrowings |
| $ | 33,114 |
|
| $ | 33,635 |
|
| $ | 32,986 |
|
| $ | 33,612 |
|
| $ | 14,712 |
|
| $ | 14,679 |
|
| $ | 15,679 |
|
| $ | 15,679 |
|
UK Revolver Borrowings |
|
| 11,055 |
|
|
| 11,105 |
|
|
| 0 |
|
|
| 0 |
|
Debt fair values were determined using a discounted cash flow analysis based on current market interest rates for similar types of financial instruments and would be classified in Level 2 within the fair value hierarchy.
As of May 1, 2021,April 30, 2022, we have $4.6$3.5 million of long-lived assets held and used which were measured using Level 3 inputs within the fair value hierarchy. As of April 30, 2022, we have $11.1 million of investments held and used which were measured using Level 1 inputs within the fair value hierarchy.
11
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 76
Earnings Per Share
Weighted-average number of shares used to calculate earnings per share are as follows:
|
| Three Months Ended |
|
| Three Months Ended |
|
| ||||||||||
(Shares in thousands) |
| May 1, 2021 |
|
| May 2, 2020 |
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| ||||
Weighted-average number of shares - basic |
|
| 14,287 |
|
|
| 14,110 |
|
|
| 12,961 |
|
|
| 14,287 |
|
|
Common stock equivalents |
|
| 415 |
|
|
| 0 |
|
|
| 408 |
|
|
| 415 |
|
|
Weighted-average number of shares - diluted |
|
| 14,702 |
|
|
| 14,110 |
|
|
| 13,369 |
|
|
| 14,702 |
|
|
DueWe repurchased 102,895 shares during the first quarter of Fiscal 2023 at a cost of $6.5 million, or $63.17 per share. We accrued $4.8 million of share repurchases in the fourth quarter of Fiscal 2022 due to timing of the loss from continuing operations incash settlement and it is included on the Condensed Consolidated Statements of Cash Flows for the three months ended May 2, 2020, share-based awards are excluded fromApril 30, 2022. We have $100.3 million remaining as of April 30, 2022 under our expanded share repurchase authorization announced in February 2022. We did 0t repurchase any shares during the diluted earningsfirst quarter of Fiscal 2022. During the second quarter of Fiscal 2023, through June 8, 2022, we have repurchased 175,000 shares at a cost of $10.1 million, or $57.94 per share calculation for that period because they would be antidilutive.share.
Note 87
Long-Term Debt
(In thousands) |
| May 1, 2021 |
|
| January 30, 2021 |
|
| April 30, 2022 |
|
| January 29, 2022 |
| ||||
U.S. revolver borrowings |
| $ | 33,114 |
|
| $ | 32,986 |
|
| $ | 14,712 |
|
| $ | 15,679 |
|
U.K. revolver borrowings |
|
| 11,055 |
|
|
| 0 |
| ||||||||
Total long-term debt |
|
| 44,169 |
|
|
| 32,986 |
|
|
| 14,712 |
|
|
| 15,679 |
|
Current portion |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Total Noncurrent Portion of Long-Term Debt |
| $ | 44,169 |
|
| $ | 32,986 |
|
| $ | 14,712 |
|
| $ | 15,679 |
|
We were in compliance with all the relevant terms and conditions of the Credit Facility and Facility Letter as of May 1, 2021.April 30, 2022.
During the second quarter of Fiscal 2022, we paid off the $17.5 million first-in, last-out tranche of the Credit Facility that is included in U.S. revolver borrowings as of May 1, 2021.
12
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 98
Legal Proceedings
Environmental Matters
New York State Environmental Matters
In August 1997, the New York State Department of Environmental Conservation (“NYSDEC”)The Company has legacy obligations including environmental monitoring and the Companyreporting costs related to: (i) a 2016 Consent Judgment entered into a consent order whereby we assumed responsibility for conducting a remedial investigation and feasibility study and implementing an interim remedial measure with regard tothe United States Environmental Protection Agency involving the site of a knitting mill operated by a former subsidiary of ours from 1965 to 1969. The United States Environmental Protection Agency (“EPA”), which assumed primary regulatory responsibility for the site from NYSDEC, issued a Record of Decision1969 in September 2007. The Record of Decision specified a remedy of a combination of groundwater extraction and treatment and in-situ chemical oxidation.
In September 2015, the EPA adopted an amendment to the Record of Decision eliminating the separate ground-water extraction and treatment systems and the use of in-situ oxidation from the remedy adopted in the Record of Decision. The amendment provides for the continued operation and maintenance of the existing wellhead treatment systems on wells operated by the Village of Garden City, New York (the "Village"). It also requires us to perform certain ongoing monitoring, operationYork; and maintenance activities and to reimburse EPA's future oversight cost, involving future costs to us estimated to be between $1.7 million and $2.0 million, and to reimburse EPA for approximately $1.25 million of interim oversight costs. On August 15, 2016, the Court entered(ii) a 2010 Consent Judgment implementing the remedy provided for by the amendment.
The Village additionally asserted that we are liable for the costs associated with enhanced treatment required by the impact of the groundwater plume from the site on 2 public water supply wells, including historical total costs ranging from approximately $1.8 million to in excess of $2.5 million, and future operation and maintenance costs which the Village estimated at $126,400 annually while the enhanced treatment continues. On December 14, 2007, the Village filed a complaint (the "Village Lawsuit") against us and the owner of the property under the Resource Conservation and Recovery Act (“RCRA”), the Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) as well as a number of state law theories in the U.S. District Court for the Eastern District of New York, seeking an injunction requiring the defendants to remediate contamination from the site and to establish their liability for future costs that may be incurred in connection with it.
In June 2016 we reached an agreementDecree with the Village providing for the VillageMichigan Department of Natural Resources and Environment relating to continue to operate and maintain the well head treatment systemsour former Volunteer Leather Company facility in accordance with the Record of Decision and to release its claims against us asserted in the Village Lawsuit in exchange for a lump-sum payment of $10.0 million by us. On August 25, 2016, the Village Lawsuit was dismissed with prejudice. The cost of the settlement with the Village and the estimated costs associated with our compliance with the Consent Judgment were covered by our existing provision for the site. The settlement with the Village didWhitehall, Michigan. We do not have, and we expect that the Consent Judgmentfuture obligations related to either of these sites will not have a material effect on our financial condition or results of operations.
In April 2015, we received from EPA a Notice of Potential Liability and Demand for Costs (the "Notice") pursuant to CERCLA regarding the site in Gloversville, New York of a former leather tannery operated by us and by other, unrelated parties. The Notice demanded payment of approximately $2.2 million of response costs claimed by EPA to have been incurred to conduct assessments and removal activities at the site. In February 2017, we entered into a settlement agreement with EPA resolving their claim for past response costs in exchange for a payment by us of $1.5 million which was paid in May 2017. Our environmental insurance carrier has reimbursed us for 75% of the settlement amount, subject to a $500,000 self-insured retention. We do not expect any additional cost related to the matter.
Whitehall Environmental Matters
We have performed sampling and analysis of soil, sediments, surface water, groundwater and waste management areas at our former Volunteer Leather Company facility in Whitehall, Michigan.
In October 2010, we entered into a Consent Decree with the Michigan Department of Natural Resources and Environment providing for implementation of a remedial Work Plan for the facility site designed to bring the site into compliance with applicable regulatory standards. The Work Plan's implementation is substantially complete and we expect, based on our present understanding of the condition of the site, that our future obligations with respect to the site will be limited to periodic monitoring and that future costs related to the site should not have a material effect on our financial condition or results of operations.
13
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 9
Legal Proceedings, Continued
Accrual for Environmental Contingencies
Related to all outstanding environmental contingencies, we had accrued $1.4$1.4 million as of each of April 30, 2022, January 29, 2022 and May 1, 2021, $1.5 million as of January 30, 2021 and $1.5 million as of May 2, 2020.2021. All such provisions reflect our estimates of the most likely cost (undiscounted, including both current and noncurrent portions) of resolving the contingencies, based on facts and circumstances as of the time they were made. There is no assurance that relevant facts and circumstances will not change, necessitating future changes to the provisions. Such contingent liabilities are included in the liability arising from provision for discontinued operations on the accompanying Condensed Consolidated Balance Sheets because it relatesthey relate to former facilities operated by us. We have made pretax accruals for certain of these contingencies which were not material for the first quartersthree months of Fiscal 2022 and2023 or Fiscal 2021.2022. These charges are included in loss from discontinued operations, net in the Condensed Consolidated Statements of Operations and represent changes in estimates.
In addition to the matters specifically described in this Note, we are a party to other legal and regulatory proceedings and claims arising in the ordinary course of our business. While management does not believe that our liability with respect to any of these other matters is likely to have a material effect on our financial statements, legal proceedings are subject to inherent uncertainties, and unfavorable rulings could have a material adverse impact on our financial statements.
12
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 109
Commitments
As part of our TogastLicensed Brands business, we have a commitment to Samsung C&T America, Inc. (“Samsung”) related to the ultimate sale and valuation of related inventories owned by Samsung. If the product is sold below Samsung’s cost, we are committedrequired to pay to Samsung for the difference between the sales price and its cost. At May 1, 2021,April 30, 2022, the related inventory owned by Samsung had a historical cost of $16.6$16.7 million. As of May 1, 2021, we believe that we have appropriately accounted for any differences between the fair value of the Samsung inventory and Samsung’s historical cost.
14
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1110
Business Segment Information
Three Months Ended May 1, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Three Months Ended April 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
(In thousands) |
| Journeys Group |
|
| Schuh Group |
|
| Johnston & Murphy Group |
|
| Licensed Brands |
|
| Corporate & Other |
|
| Consolidated |
|
| Journeys |
|
| Schuh |
|
| Johnston |
|
| Licensed |
|
| Corporate |
|
| Consolidated |
| ||||||||||||
Sales |
| $ | 376,548 |
|
| $ | 68,711 |
|
| $ | 48,762 |
|
| $ | 44,832 |
|
| $ | 0 |
|
| $ | 538,853 |
|
| $ | 314,445 |
|
| $ | 88,159 |
|
| $ | 71,016 |
|
| $ | 47,900 |
|
| $ | 0 |
|
| $ | 521,520 |
|
Intercompany sales |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (158 | ) |
|
| — |
|
|
| (158 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (772 | ) |
|
| 0 |
|
|
| (772 | ) |
Net sales to external customers |
| $ | 376,548 |
|
| $ | 68,711 |
|
| $ | 48,762 |
|
| $ | 44,674 |
|
| $ | — |
|
| $ | 538,695 |
|
| $ | 314,445 |
|
| $ | 88,159 |
|
| $ | 71,016 |
|
| $ | 47,128 |
|
| $ | 0 |
|
| $ | 520,748 |
|
Segment operating income (loss) |
| $ | 33,124 |
|
| $ | (3,847 | ) |
| $ | (3,180 | ) |
| $ | 2,561 |
|
| $ | (10,461 | ) |
| $ | 18,197 |
|
| $ | 14,930 |
|
| $ | (2,746 | ) |
| $ | 550 |
|
| $ | 3,793 |
|
| $ | (8,564 | ) |
| $ | 7,963 |
|
Asset impairments and other (1) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (2,670 | ) |
|
| (2,670 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 283 |
|
|
| 283 |
|
Operating income (loss) |
|
| 33,124 |
|
|
| (3,847 | ) |
|
| (3,180 | ) |
|
| 2,561 |
|
|
| (13,131 | ) |
|
| 15,527 |
|
|
| 14,930 |
|
|
| (2,746 | ) |
|
| 550 |
|
|
| 3,793 |
|
|
| (8,281 | ) |
|
| 8,246 |
|
Other components of net periodic benefit income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 39 |
|
|
| 39 |
| ||||||||||||||||||||||||
Interest expense |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (869 | ) |
|
| (869 | ) | ||||||||||||||||||||||||
Interest income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 140 |
|
|
| 140 |
| ||||||||||||||||||||||||
Other components of net periodic benefit cost |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (98 | ) |
|
| (98 | ) | ||||||||||||||||||||||||
Interest expense, net |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (297 | ) |
|
| (297 | ) | ||||||||||||||||||||||||
Earnings (loss) from continuing operations before income taxes |
| $ | 33,124 |
|
| $ | (3,847 | ) |
| $ | (3,180 | ) |
| $ | 2,561 |
|
| $ | (13,821 | ) |
| $ | 14,837 |
|
| $ | 14,930 |
|
| $ | (2,746 | ) |
| $ | 550 |
|
| $ | 3,793 |
|
| $ | (8,676 | ) |
| $ | 7,851 |
|
Total assets (2) |
| $ | 765,228 |
|
| $ | 244,918 |
|
| $ | 146,736 |
|
| $ | 63,505 |
|
| $ | 441,980 |
|
| $ | 1,662,367 |
|
| $ | 766,780 |
|
| $ | 195,591 |
|
| $ | 146,914 |
|
| $ | 72,114 |
|
| $ | 367,043 |
|
| $ | 1,548,442 |
|
Depreciation and amortization |
|
| 7,282 |
|
|
| 1,868 |
|
|
| 1,121 |
|
|
| 284 |
|
|
| 334 |
|
|
| 10,889 |
|
|
| 7,238 |
|
|
| 1,590 |
|
|
| 1,122 |
|
|
| 261 |
|
|
| 340 |
|
|
| 10,551 |
|
Capital expenditures |
|
| 8,850 |
|
|
| 698 |
|
|
| 1,559 |
|
|
| 265 |
|
|
| 730 |
|
|
| 12,102 |
|
|
| 6,568 |
|
|
| 2,118 |
|
|
| 1,906 |
|
|
| 279 |
|
|
| 4,526 |
|
|
| 15,397 |
|
(1)(1) Asset impairments and other includes a $2.3$0.3 million charge for professional fees related togain which includes a $0.7 million gain on the actionstermination of an activist shareholder andthe pension plan, partially offset by a $0.4$0.4 million charge for retail store asset impairments, which includes $0.2$0.2 million in Journeys Group $0.1and $0.2 million infor Schuh Group and $0.1 million in Johnston & Murphy GroupGroup.
(2)(2) Of our $848.3$728.4 million of long-lived assets, $135.4$96.9 million and $34.0$23.4 million relate to long-lived assets in the U.K. and Canada, respectively.
1513
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1110
Business Segment Information, Continued
Three Months Ended May 2, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Three Months Ended May 1, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
(In thousands) |
| Journeys Group |
|
| Schuh Group |
|
| Johnston & Murphy Group |
|
| Licensed Brands |
|
| Corporate & Other |
|
| Consolidated |
|
| Journeys |
|
| Schuh |
|
| Johnston |
|
| Licensed |
|
| Corporate |
|
| Consolidated |
| ||||||||||||
Sales |
| $ | 168,925 |
|
|
| 47,165 |
|
| $ | 38,849 |
|
| $ | 24,681 |
|
| $ | 0 |
|
| $ | 279,620 |
|
| $ | 376,548 |
|
| $ | 68,711 |
|
| $ | 48,762 |
|
| $ | 44,832 |
|
| $ | 0 |
|
| $ | 538,853 |
|
Intercompany sales |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (388 | ) |
|
| — |
|
|
| (388 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (158 | ) |
|
| 0 |
|
|
| (158 | ) |
Net sales to external customers |
| $ | 168,925 |
|
| $ | 47,165 |
|
| $ | 38,849 |
|
| $ | 24,293 |
|
| $ | — |
|
| $ | 279,232 |
|
| $ | 376,548 |
|
| $ | 68,711 |
|
| $ | 48,762 |
|
| $ | 44,674 |
|
| $ | 0 |
|
| $ | 538,695 |
|
Segment operating income (loss) |
| $ | (37,083 | ) |
| $ | (15,086 | ) |
| $ | (9,584 | ) |
| $ | (2,501 | ) |
| $ | (4,644 | ) |
| $ | (68,898 | ) |
| $ | 33,124 |
|
| $ | (3,847 | ) |
| $ | (3,180 | ) |
| $ | 2,561 |
|
| $ | (10,461 | ) |
| $ | 18,197 |
|
Goodwill impairment (1) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (79,259 | ) |
|
| (79,259 | ) | ||||||||||||||||||||||||
Asset impairments and other |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (7,861 | ) |
|
| (7,861 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (2,670 | ) |
|
| (2,670 | ) |
Operating income (loss) |
|
| (37,083 | ) |
|
| (15,086 | ) |
|
| (9,584 | ) |
|
| (2,501 | ) |
|
| (91,764 | ) |
|
| (156,018 | ) |
|
| 33,124 |
|
|
| (3,847 | ) |
|
| (3,180 | ) |
|
| 2,561 |
|
|
| (13,131 | ) |
|
| 15,527 |
|
Other components of net periodic benefit cost |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 124 |
|
|
| 124 |
| ||||||||||||||||||||||||
Interest expense |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,049 | ) |
|
| (1,049 | ) | ||||||||||||||||||||||||
Interest income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 193 |
|
|
| 193 |
| ||||||||||||||||||||||||
Other components of net periodic benefit income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 39 |
|
|
| 39 |
| ||||||||||||||||||||||||
Interest expense, net |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (729 | ) |
|
| (729 | ) | ||||||||||||||||||||||||
Earnings (loss) from continuing operations before income taxes |
| $ | (37,083 | ) |
| $ | (15,086 | ) |
| $ | (9,584 | ) |
| $ | (2,501 | ) |
| $ | (92,496 | ) |
| $ | (156,750 | ) |
| $ | 33,124 |
|
| $ | (3,847 | ) |
| $ | (3,180 | ) |
| $ | 2,561 |
|
| $ | (13,821 | ) |
| $ | 14,837 |
|
Total assets (3) |
| $ | 912,387 |
|
|
| 253,171 |
|
| $ | 187,704 |
|
| $ | 78,234 |
|
| $ | 323,572 |
|
| $ | 1,755,068 |
| ||||||||||||||||||||||||
Total assets (2) |
| $ | 765,228 |
|
| $ | 244,918 |
|
| $ | 146,736 |
|
| $ | 63,505 |
|
| $ | 441,980 |
|
| $ | 1,662,367 |
| ||||||||||||||||||||||||
Depreciation and amortization |
|
| 7,453 |
|
|
| 2,639 |
|
|
| 1,476 |
|
|
| 467 |
|
|
| 388 |
|
|
| 12,423 |
|
|
| 7,282 |
|
|
| 1,868 |
|
|
| 1,121 |
|
|
| 284 |
|
|
| 334 |
|
|
| 10,889 |
|
Capital expenditures |
|
| 3,192 |
|
|
| 1,693 |
|
|
| 1,677 |
|
|
| (28 | ) |
|
| 208 |
|
|
| 6,742 |
|
|
| 8,850 |
|
|
| 698 |
|
|
| 1,559 |
|
|
| 265 |
|
|
| 730 |
|
|
| 12,102 |
|
(1) Goodwill impairment of $79.3 million is related to Schuh Group.
(2) Asset impairments and other includes a $3.0$2.3 million charge for professional fees related to the actions of an activist shareholder and a $0.4 million charge for retail store asset impairments, which includes $1.2$0.2 million in Journeys Group, $0.1 million in the Johnston & Murphy Group $1.2and $0.1 million in Schuh Group and $0.6 million in Journeys Group, and a $5.3 million trademark impairment, which includes $4.9 million in Journeys Group and $0.4 million in Johnston & Murphy Group.
(3)(2) Of our $919.5$848.3 million of long-lived assets, $152.9$135.4 million and $40.8$34.0 million relate to long-lived assets in the U.K. and Canada, respectively.
1614
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This section discusses management’s view of the financial condition, results of operations and cash flows of the Company. This section should be read in conjunction with the information contained in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021,29, 2022, including the Risk Factors section, and information contained elsewhere in this Quarterly Report on Form 10-Q, including the condensed consolidated financial statementsCondensed Consolidated Financial Statements and notes to those financial statements. The results of operations for any interim period may not necessarily be indicative of the results that may be expected for any future interim period or the entire fiscal year.
Summary of Results of Operations
Our net sales increased 92.9%decreased 3.3% to $520.7 million for the first quarter of Fiscal 2023 compared to $538.7 million for the first quarter of Fiscal 2022 compared to $279.2 million for the first quarter of Fiscal 2021. This2022. The sales increasedecrease was driven by decreased comparable direct sales, partially offset by increased store sales resulting from the reopening of stores that were closed in the back half of the first quarter of Fiscal 2021wholesale and store channels and a difficult comparison due to the COVID-19 pandemic, digital comparable growth of 43% and increased wholesale sales. StoresU.S. government stimulus-fueled consumer spending last year. The store channel increase was led by our Schuh Group business as its stores were only open approximately 90%19% of possible days in the first quarter of Fiscal 2022 as compared to 50%last year. Journeys Group sales decreased 16% in the first quarter this year, as Journeys was the beneficiary of Fiscal 2021. We have not disclosed comparable sales forgovernment stimulus-fueled consumer spending in the first quarter of Fiscal 2022, as we believe that overall sales is a more meaningful metric during this period due to the impact of the COVID-19 pandemic. See below, under the heading “Comparable Sales”, for our definition of comparable sales.
Journeys Group sales increased 123%,last year, while Schuh Group sales increased 46%28%, Johnston & Murphy Group sales increased 26%46% and Licensed Brands sales increased 84%5% during the first quarter of Fiscal 20222023 compared to the same quarter of Fiscal 2021. 2022.
Gross margin as a percentage of net sales increased to 47.8%48.3% during the first quarter of Fiscal 2022,2023, compared to 43.0%47.8% for the first quarter last year.of Fiscal 2022. This reflects increased gross margin as a percentage of net sales in all of our operating business units except Johnston & Murphy Group, primarily due to fewer markdowns at Journeys Group, lower shipping and warehouse expense a higher mix of full price product at Schuh Group and the mix of our businesses. The lower shipping and warehouse expense in the first quarter this year is a result of reduced e-commerce penetration in Fiscal 2022 as well as the ability to leverage fixed warehouse expenses as a result of higher revenue. lower e-commerce penetration, increased full-price selling and price increases partially offset by the channel mix impact of increased wholesale sales and increased freight and logistics costs as a result of supply chain challenges.
Selling and administrative expenses as a percentage of net sales decreasedincreased to 44.5%46.8% of net sales during the first quarter of Fiscal 20222023 from 67.7%44.5% for the first quarter of Fiscal 2021,2022, reflecting increased expenses as a percentage of net sales at Journeys Group and Schuh Group, partially offset by decreased expenses as a percentage of net sales in all of our operating business units.at Johnston & Murphy Group and Licensed Brands. The decreaseoverall increase in expenses this year was primarilyas a percentage of net sales is due to greater leverage of fixed expensesmore normalized occupancy expense as a result of the significant increaseone-time benefits for rent credits and government tax relief to the COVID-19 pandemic in revenuethe U.K. in the first quarter last year, as well as reduced occupancyincreased selling salaries and compensation expense, partially offset by increased performance baseddecreased performance-based compensation expense. The reduction in occupancy expense is driven in part by rent abatement agreements with landlords and government relief programs and rent reductions.
Operating margin was 2.9%1.6% for the first quarter of Fiscal 20222023 compared to (55.9)% in the first quarter of Fiscal 2021, reflecting increased operating margin in all of our operating business units as a result of the increased gross margin as a percentage of net sales and decreased expenses as a percentage of net sales.
Significant Developments
COVID-19 Update
In March 2020, the World Health Organization categorized the outbreak of COVID-19 as a pandemic. As a result, and in consideration of the health and well-being of our employees, customers and communities, and in support of efforts to contain the spread of the virus, we have taken several precautionary measures and adjusted our operational needs, including:
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17
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As of May 27, 2021, we were operating in 96% of our locations, including approximately 1,100 Journeys, 160 Johnston & Murphy and 123 Schuh locations. All store locations are operating under enhanced measures to ensure the health and safety of employees and customers, including providing hand sanitizer in multiple locations throughout each store for customer and employee use, enhanced cleaning and sanitation protocols, reconfigured sales floors to promote physical distancing and modified employee and customer interactions to limit contact. In Journeys stores, it is recommended for employees and customers to wear masks. In most of the Schuh stores and all of the Johnston & Murphy shops and factory stores, employees and customers are still required to wear masks.
As a result of the economic and business impact of the COVID-19 pandemic, we revised certain accounting estimates and judgments as discussed in the following paragraphs. Given the ongoing and evolving economic and business impact of the COVID-19 pandemic, we may be required to further revise certain accounting estimates and judgments such as, but not limited to, those related to the valuation of inventory, goodwill, long-lived assets and deferred tax assets, which could have a material adverse effect on our financial position and results of operations.
Since the first quarter of Fiscal 2021, we have withheld certain contractual rent payments generally correlating with time periods when our stores were closed and/or correlating with sales declines from Fiscal 2020. We continue to recognize rent expense in accordance with the contractual terms. We have been working with landlords in various markets seeking commercially reasonable lease concessions given the current environment, and while some agreements have been reached, a number of negotiations remain ongoing. In cases where the agreements do not result in a substantial increase in the rights of the lessor or the obligation of the lessee such that the total cash flows of the modified lease are substantially the same or less than the total cash flows of the existing lease, we have not reevaluated the contract terms. For these lease agreements, we have recognized a reduction in variable rent expense in the period that the concession was granted. During the quarter ended May 1, 2021, we have recognized approximately $6.1 million in rent savings.
On March 27, 2020, the U.S. government enacted the CARES Act, which among other things, provided employer payroll tax credits for wages paid to employees who were unable to work during the COVID-19 pandemic and options to defer payroll tax payments. Based on our evaluation of the CARES Act, we qualified for certain employer payroll tax credits as well as the deferral of payroll and other tax payments in the future, which were treated as government subsidies to offset related operating expenses. During the first quarter of Fiscal 2022 and Fiscal 2021, qualified payroll tax credits reduced our selling and administrative expenses by approximately $0.7 million and $7.0 million, respectively, on our Condensed Consolidated Statements of Operations. We intend to defer qualified payroll and other tax payments as permitted by the CARES Act. Savings from the government program in the U.K. have provided property tax relief for the first quarter of Fiscal 2022 and Fiscal 2021 of approximately $4.7 million and $1.6 million, respectively.
Asset Impairment and Other Charges
We recorded pretax charges of $2.7 million2.9% in the first quarter of Fiscal 2022, including $2.3 millionreflecting decreased operating margin in Journeys Group, partially offset by improved operating margins in all our other operating business units. The decrease in operating margin for professional fees relatedthe first quarter this year compared to the actionsfirst quarter last year was driven by more normalized expenses as a percentage of an activist shareholdernet sales.
Significant Developments
COVID-19
We closely monitored, and $0.4 million forwill continue to closely monitor, the impact of the COVID-19 pandemic on all facets of our business, including the impact on our employees, customers, suppliers, vendors, business partners and supply chain networks. Although we believe our sales were affected in the first quarter of Fiscal 2023 by the global and domestic supply chain challenges, primarily in the form of lower merchandise in-stock levels in our Journeys retail store asset impairments.stores but also in our Johnston & Murphy stores, we have seen some improvement in our in-stock levels by the end of our first quarter of Fiscal 2023. These supply chain challenges remain ongoing and there can be no assurance that we will continue to experience improvements in our in-stock levels or that in-stock levels will reach the optimal levels to satisfy demand.
18
Critical Accounting Estimates
We discuss our critical accounting estimates in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations", in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.29, 2022. We describe our significant accounting policies in Note 1, "Summary of Significant Accounting Policies", of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.29, 2022. There have been no other significant changes in our definition of significant accounting policies or critical accounting estimates since the end of Fiscal 2021.2022.
Key Performance Indicators
In assessing the performance of our business, we consider a variety of performance and financial measures. The key performance indicators we use to evaluate the financial condition and operating performance of our business are comparable sales, net sales, gross margin, operating income (loss)
15
and operating margin. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the U.S. GAAP financial measures presented herein. These measures may not be comparable to similarly-titled performance indicators used by other companies.
Comparable Sales
We consider comparable sales to be an important indicator of our current performance, and investors may find it useful as such. Comparable sales results are important to achieve leveraging of our costs, including occupancy, selling salaries, depreciation, etc. Comparable sales also have a direct impact on our total net revenue, cash and working capital. We define "comparable sales" as sales from stores open longer than one year, beginning with the first day a store has comparable sales (which we refer to in this report as "same store sales"), and sales from websites operated longer than one year and direct mail catalog sales (which we refer to in this report as "comparable direct sales"). Temporarily closed stores are excluded from the comparable sales calculation if closed for more than seven days. Expanded stores are excluded from the comparable sales calculation until the first day an expanded store has comparable prior year sales. Current year foreign exchange rates are applied to both current year and prior year comparable sales to achieve a consistent basis for comparison. We have not disclosed comparable sales for the first quarterthree months of Fiscal 2022,2023, as we believe that overall sales areis a more meaningful metric during this period due to the impact of the COVID-19 pandemic.pandemic and related extensive store closures during the first quarter of Fiscal 2022.
Results of Operations – First Quarter of Fiscal 20222023 Compared to First Quarter of Fiscal 20212022
Our net sales in the first quarter of Fiscal 2022 increased 92.9%2023 decreased 3.3% to $538.7$520.7 million compared to $279.2$538.7 million in the first quarter of Fiscal 2021,2022. The sales decrease was driven by decreased comparable direct sales, partially offset by increased store sales resulting from the reopening of stores that were closed in the back half of the first quarter of Fiscal 2021wholesale and store channels and a difficult comparison due to the COVID-19 pandemic, digital comparable growth of 43% and increased wholesale sales. StoresU.S. government stimulus-fueled consumer spending last year. The store channel increase was led by our Schuh Group business as its stores were only open approximately 90%19% of possible days in the first quarter of Fiscal 2022 as compared to 50%versus 100% of possible days in the first quarter of Fiscal 2021.2023.
Gross margin increased 114.5%decreased 2.4% to $251.4 million in the first quarter of Fiscal 2023 from $257.7 million in the first quarter of Fiscal 2022 from $120.1 million in the first quarter of Fiscal 2021 andbut increased as a percentage of net sales from 43.0%47.8% to 47.8%48.3%, reflecting increased gross margin as a percentage of net sales in all of our operating business units except Johnston & Murphy Group, primarily due to fewer markdowns at Journeys Group, lower shipping and warehouse expense a higher mix of full price product at Schuh Group and the mix of our businesses. The lower shipping and warehouse expense in the first quarter this year is a result of reduced e-commerce penetration in Fiscal 2022 as well as the ability to leverage fixed warehouse expenses as a result of higher revenue.lower e-commerce penetration, increased full-price selling and price increases, partially offset by the channel mix impact of increased wholesale sales and increased freight and logistics costs as a result of supply chain challenges.
Selling and administrative expenses in the first quarter of Fiscal 20222023 increased 26.7% but decreased1.7% and increased as a percentage of net sales from 67.7%44.5% to 44.5%46.8%, reflecting increased expenses as a percentage of net sales at Journeys Group and Schuh Group, partially offset by decreased expenses as a percentage of net sales in all of our operating business units.at Johnston & Murphy Group and Licensed Brands. The decreaseoverall increase in expenses in Fiscal 2022 was primarilyas a percentage of net sales is due to greater leverage of fixed expensesmore normalized occupancy expense as a result of the significant increaseone-time benefits for rent credits and government tax relief related to the COVID-19 pandemic in revenuethe U.K. in the first quarter last year, as well as reduced occupancyincreased selling salaries and compensation expense, partially offset by increased performance baseddecreased performance-based compensation expense. The reduction in occupancy expense is driven in part by rent abatement agreements with landlords and government relief programs and rent reductions. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs.
Earnings from continuing operations before income taxes (“pretax earnings”) for the first quarter of Fiscal 20222023 were $14.8$7.9 million compared to a loss from continuing operations before income taxes (“pretax loss”) of $(156.8)$14.8 million for the first quarter of Fiscal 2021.2022. Pretax earnings for the first quarter of Fiscal 2023 included an asset impairment and other gain of $0.3 million for a gain on the termination of the pension plan, partially offset by retail store asset impairments. Pretax earnings for the first quarter of Fiscal 2022 included asset impairments and other charges of $2.7 million for professional fees related to the actions of an activist shareholder and retail store asset impairments. The pretax loss for the first quarter of Fiscal 2021 included a goodwill impairment charge of $79.3 million and asset impairments and other charges of $7.9 million for retail store and intangible asset impairments, partially offset by the release of an earn-out related to the Togast acquisition.
We recorded an effective income tax rate of 40.1%36.7% and 14.1%40.1% in the first quarter of Fiscal 20222023 and Fiscal 2021,2022, respectively. The tax rate for the first quarter of Fiscal 20222023 is higherlower than Fiscal 2021 primarily due to2022, reflecting a reduction in the inabilityamount of foreign losses for which we are unable to recognize a tax benefit for certain foreign losses and a higher mix of earnings in jurisdictions where we generate taxable income. Additionally, the tax rate for the first quarter of Fiscal 2021 was unusually low due primarily to the non-deductibility of the Schuh Group goodwill impairment charge as well as the inability to recognize a tax benefit for certain foreign losses.
19
Net earnings for the first quarter of Fiscal 20222023 were $4.9 million, or $0.37 diluted earnings per share compared to $8.9 million, or $0.60 diluted earnings per share, compared to a net loss of $(134.8) million, or ($9.55) diluted loss per share for the first quarter of Fiscal 2021.2022.
16
Journeys Group
|
| Three Months Ended |
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|
| Three Months Ended |
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|
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| |||||||||||
|
| May 1, 2021 |
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| May 2, 2020 |
|
| % Change |
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| % |
| ||||||
|
| (dollars in thousands) |
|
|
|
|
|
| (dollars in thousands) |
|
|
|
| |||||||||||
Net sales |
| $ | 376,548 |
|
| $ | 168,925 |
|
|
| 122.9 | % |
| $ | 314,445 |
|
| $ | 376,548 |
|
|
| (16.5 | )% |
Operating income (loss) |
| $ | 33,124 |
|
| $ | (37,083 | ) |
| NM |
| |||||||||||||
Operating income |
| $ | 14,930 |
|
| $ | 33,124 |
|
|
| (54.9 | )% | ||||||||||||
Operating margin |
|
| 8.8 | % |
|
| (22.0 | )% |
|
|
|
|
|
| 4.7 | % |
|
| 8.8 | % |
|
|
|
Net sales from Journeys Group increased 122.9%decreased 16.5% to $314.4 million for the first quarter of Fiscal 2023, compared to $376.5 million for the first quarter of Fiscal 2022, comparedprimarily due to $168.9 million fordecreased store sales and decreased digital comparable growth. Journeys was the beneficiary of government stimulus-fueled consumer spending in the first quarter of Fiscal 2021, primarily2022 and experienced a lack of inventory in the first quarter this year to fill demand due to increased store sales, resulting from the reopeningimpact of supply chain disruptions. Journeys Group operated 1,130 stores that were closed inat the back halfend of the first quarter of Fiscal 2021 due2023, including 229 Journeys Kidz stores, 47 Journeys stores in Canada and 36 Little Burgundy stores in Canada, compared to the COVID-19 pandemic, and increased digital comparable sales. Journeys Group operated 1,143 stores at the end of the first quarter of Fiscal 2022,last year, including 230 Journeys Kidz stores, 47 Journeys stores in Canada and 37 Little Burgundy stores in Canada, compared to 1,171 stores at the end of the first quarter of last year, including 233 Journeys Kidz stores, 46 Journeys stores in Canada and 39 Little Burgundy stores in Canada.
Journeys Group had operating income of $14.9 million for the first quarter of Fiscal 2023 compared to $33.1 million for the first quarter of Fiscal 2022 compared to a loss2022. The decrease of $(37.1) million for the first quarter of Fiscal 2021. The increase of $70.2 million54.9% in operating income for Journeys Group was due to (i) decreased net sales and (ii) increased selling and administrative expenses as a percentage of net sales reflecting the deleverage of expenses, especially occupancy and selling salaries, as a result of decreased revenue in the first quarter this year, partially offset by decreased performance-based compensation expense. Gross margin increased as a percentage of net sales in the first quarter of Fiscal 2023 compared to the first quarter of Fiscal 2022, reflecting lower shipping and warehouse expense.
Schuh Group
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| Three Months Ended |
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| ||||||
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| % |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 88,159 |
|
| $ | 68,711 |
|
|
| 28.3 | % |
Operating loss |
| $ | (2,746 | ) |
| $ | (3,847 | ) |
|
| 28.6 | % |
Operating margin |
|
| (3.1 | )% |
|
| (5.6 | )% |
|
|
|
Net sales from Schuh Group increased 28.3% to $88.2 million for the first quarter of Fiscal 2023 compared to $68.7 million for the first quarter of Fiscal 2022, primarily due to increased store sales as Schuh stores were only open 19% of possible days in the first quarter of Fiscal 2022 versus 100% of possible days in the first quarter of Fiscal 2023, partially offset by decreased digital comparable sales and an unfavorable impact of $4.7 million due to changes in foreign exchange rates. Schuh stores benefitted from pent up demand as the U.K. economy further re-opened this year and more people resumed normal pre-pandemic activities. Schuh Group operated 122 stores at the end of the first quarter of Fiscal 2023, compared to 123 stores at the end of the first quarter of Fiscal 2022.
Schuh Group had an operating loss of $2.7 million for the first quarter of Fiscal 2023 compared to an operating loss of $3.8 million for the first quarter of Fiscal 2022. The smaller loss this year reflects (i) increased net sales and (ii) increased gross margin as a percentage of net sales, reflecting decreased markdowns and decreased shipping and warehouse expense and (iii) decreased sellingless promotional activity in the first quarter of Fiscal 2023. Selling and administrative expenses increased as a percentage of net sales for the first quarter of Fiscal 2023 compared to the first quarter of Fiscal 2022, reflecting more normalized occupancy expense due to greater leverage of fixed expensesthe one-time benefits for rent credits and government property tax relief and other government relief related to the COVID-19 pandemic in the U.K. in the first quarter last year, as a result of thewell as increased revenue,selling salaries, partially offset by decreased marketing expense.
Johnston & Murphy Group
|
| Three Months Ended |
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|
|
| ||||||
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| % |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 71,016 |
|
| $ | 48,762 |
|
|
| 45.6 | % |
Operating income (loss) |
| $ | 550 |
|
| $ | (3,180 | ) |
| NM |
| |
Operating margin |
|
| 0.8 | % |
|
| (6.5 | )% |
|
|
|
Johnston & Murphy Group net sales increased performance based compensation expense.
Schuh Group
|
| Three Months Ended |
|
|
|
|
| |||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| % Change |
| |||
|
| (dollars in thousands) |
|
|
|
|
| |||||
Net sales |
| $ | 68,711 |
|
| $ | 47,165 |
|
|
| 45.7 | % |
Operating loss |
| $ | (3,847 | ) |
| $ | (15,086 | ) |
|
| 74.5 | % |
Operating margin |
|
| (5.6 | )% |
|
| (32.0 | )% |
|
|
|
|
Net sales from Schuh Group increased 45.7%45.6% to $68.7$71.0 million for the first quarter of Fiscal 2022 compared to $47.2 million for the first quarter of Fiscal 2021, primarily due to increased digital comparable sales and the favorable impact of $6.6 million due to changes in foreign exchange rates, partially offset by decreased store sales. Stores were open for less than 20% of the possible operating days during the first quarter of Fiscal 2022 due to government mandated lockdowns that began during the fourth quarter of Fiscal 2021 and were lifted throughout April and May 2021. Schuh Group operated 123 stores at the end of the first quarter of Fiscal 2022, compared to 127 stores at the end of the first quarter of last year.
Schuh Group had an operating loss of $3.8 million for the first quarter of Fiscal 2022 compared to an operating loss of $15.1 million for the first quarter of Fiscal 2021. The decrease in operating loss this year reflects (i) increased net sales, (ii) increased gross margin as a percentage of net sales, reflecting a higher mix of full price product, partially offset by increased shipping and warehouse expense and (iii) decreased selling and administrative expenses as a percentage of net sales, reflecting decreased occupancy expense primarily as a result of rent abatement agreements with our landlords and savings2023 from the government program in the U.K. providing property tax relief, grant income from the U.K. and ROI governments and reduced expenses and greater leverage of fixed expenses as a result of the increased revenue, partially offset by increased marketing expenses. In addition, the operating loss included an unfavorable impact of $0.2 million due to changes in foreign exchange rates compared to last year.
Johnston & Murphy Group
|
| Three Months Ended |
|
|
|
|
| |||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| % Change |
| |||
|
| (dollars in thousands) |
|
|
|
|
| |||||
Net sales |
| $ | 48,762 |
|
| $ | 38,849 |
|
|
| 25.5 | % |
Operating loss |
| $ | (3,180 | ) |
| $ | (9,584 | ) |
|
| 66.8 | % |
Operating margin |
|
| (6.5 | )% |
|
| (24.7 | )% |
|
|
|
|
20
Johnston & Murphy Group net sales increased 25.5% to $48.8 million for the first quarter of Fiscal 2022, from $38.8 million for the first quarter of Fiscal 2021, primarily due to increased store sales, resultingwholesale sales and e-commerce sales, despite lower in-stock inventory levels this year.
17
Johnston & Murphy has repositioned its brand to offer more casual and comfortable footwear and apparel in this post-pandemic environment, which in addition to recovery from the reopening of stores closed in the back half of the first quarter of Fiscal 2021 due to the COVID-19 pandemic, and increased digital comparable sales and increased wholesale sales.has fueled top line growth. Retail operations accounted for 74.5%70.5% of Johnston & Murphy Group's sales in the first quarter of Fiscal 2022, up2023, down from 71.9%74.5% in the first quarter of last year.Fiscal 2022. The store count for Johnston & Murphy retail operations at the end of the first quarter of Fiscal 20222023 was 178162 stores, including eightseven stores in Canada, compared to 181178 stores, including eight stores in Canada, at the end of the first quarter of Fiscal 2021.2022.
Johnston & Murphy Group had an operating lossincome of $3.2$0.6 million for the first quarter of Fiscal 20222023 improved $3.7 million compared to an operating loss of $9.6$3.2 million forin the first quarter of Fiscal 2021.2022. The decrease in the lossincrease was primarily due to (i) increased net sales (ii) increased gross margin as a percentage of net sales reflecting decreased shipping and warehouse expense and a higher mix of retail product and (iii)(ii) decreased selling and administrative expenses as a percentage of net sales due to reduced expenses and greater leverage of fixed expenses as a result of revenue growth, partially offset by increased bad debt expense. Gross margin as a percentage of net sales decreased for the first quarter of Fiscal 2023 compared to the first quarter of Fiscal 2022 reflecting increased revenue.airfreight costs and the channel mix of more wholesale sales, partially offset by price increases, decreased retail markdowns and decreased shipping and warehouse expense.
Licensed Brands
|
| Three Months Ended |
|
|
|
|
|
| Three Months Ended |
|
|
|
| |||||||||||
|
| May 1, 2021 |
|
| May 2, 2020 |
|
| % Change |
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| % |
| ||||||
|
| (dollars in thousands) |
|
|
|
|
|
| (dollars in thousands) |
|
|
|
| |||||||||||
Net sales |
| $ | 44,674 |
|
| $ | 24,293 |
|
|
| 83.9 | % |
| $ | 47,128 |
|
| $ | 44,674 |
|
|
| 5.5 | % |
Operating income (loss) |
| $ | 2,561 |
|
| $ | (2,501 | ) |
| NM |
| |||||||||||||
Operating income |
| $ | 3,793 |
|
| $ | 2,561 |
|
|
| 48.1 | % | ||||||||||||
Operating margin |
|
| 5.7 | % |
|
| (10.3 | )% |
|
|
|
|
|
| 8.0 | % |
|
| 5.7 | % |
|
|
|
Licensed Brands' net sales increased 83.9%5.5% to $47.1 million for the first quarter of Fiscal 2023, from $44.7 million for the first quarter of Fiscal 2022, from $24.3primarily reflecting the growth in the portfolio as a result of the selling, product and sourcing capabilities gained through an acquisition in late Fiscal 2020.
Licensed Brands' operating income was $3.8 million for the first quarter of Fiscal 2021, reflecting increased sales in all of our licensed brands as customers began to recover from the pandemic and we were able to drive more orders.
Licensed Brands' operating income was $2.6 million for the first quarter of Fiscal 20222023 compared to an operating loss of $2.5$2.6 million in the first quarter of Fiscal 2021.2022. The $5.1 million48.1% increase in operating income was primarily due to (i) increased net sales, (ii) increased gross margin as a percentage of net sales as the priorincreased freight and logistics costs were more than offset by fewer closeout sales as compared to last year gross margin was impacted by pre-acquisition royalty and commission cost and (iii) decreased selling and administrative expenses as a percentage of net sales reflecting decreased bad debt, compensation and shippingleverage of expenses as a result of a favorable sales mix, partially offset by increased royalty and performance based compensation expenses. bad debt expense.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for the first quarter of Fiscal 20222023 was $13.1$8.3 million compared to $12.5$13.1 million for the first quarter of Fiscal 2021.2022. Corporate expense in the first quarter of Fiscal 2023 included a gain of $0.3 million in asset impairment and other charges from a gain on the termination of the pension plan, partially offset by retail store asset impairments. Corporate expense in the first quarter of Fiscal 2022 included a $2.7 million charge in asset impairment and other charges for professional fees related to the actions of an activist shareholder and retail store asset impairments. Corporate expense in the first quarter of Fiscal 2021 included a $7.9 million charge in asset impairment and other charges for retail store and intangible asset impairments, partially offset by the release of an earnout related to the Togast acquisition. The corporate expense increase,decrease, excluding asset impairment and other charges, primarily reflected increased performance baseddecreased performance-based compensation expense among other things.expense.
Net interest expense decreased to $0.3 million for the first quarter of Fiscal 2023 compared to net interest expense of $0.7 million for the first quarter of Fiscal 2022 compared to net interest expense of $0.9 million for the first quarter of Fiscal 2021 primarily reflecting decreased average borrowings in the first quarter this year.
18
Liquidity and Capital Resources
The impacts of the COVID-19 pandemic have adversely affected our results of operations. In response to the business disruption caused by the COVID-19 pandemic, we have taken actions described above in the “COVID-19 Update” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
21
Working Capital
Our business is seasonal, with our investment in inventory and accounts receivable normally reaching peaks in the spring and fall of each year. Historically, cash flows from operations typically have been generated principally in the fourth quarter of each fiscal year.
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||
Cash flow changes: |
| May 1, 2021 |
|
| May 2, 2020 |
|
| Increase (Decrease) |
|
| April 30, 2022 |
|
| May 1, 2021 |
|
| Increase |
| ||||||
(in millions) |
|
|
|
|
|
| ||||||||||||||||||
Net cash provided by (used in) operating activities |
| $ | 44.2 |
|
| $ | (27.8 | ) |
| $ | 72.0 |
|
| $ | (92.1 | ) |
| $ | 44.2 |
|
| $ | (136.3 | ) |
Net cash used in investing activities |
|
| (12.1 | ) |
|
| (6.6 | ) |
|
| (5.5 | ) |
|
| (15.4 | ) |
|
| (12.1 | ) |
|
| (3.3 | ) |
Net cash provided by financing activities |
|
| 10.5 |
|
|
| 191.2 |
|
|
| (180.7 | ) | ||||||||||||
Net cash provided by (used in) financing activities |
|
| (11.3 | ) |
|
| 10.5 |
|
|
| (21.8 | ) | ||||||||||||
Effect of foreign exchange rate fluctuations on cash |
|
| 0.4 |
|
|
| 0.4 |
|
|
| 0.0 |
|
|
| (1.1 | ) |
|
| 0.4 |
|
|
| (1.5 | ) |
Increase in cash and cash equivalents |
| $ | 43.0 |
|
| $ | 157.2 |
|
| $ | (114.2 | ) | ||||||||||||
Net increase (decrease) in cash and cash equivalents |
| $ | (119.9 | ) |
| $ | 43.0 |
|
| $ | (162.9 | ) |
Reasons for the major variances in cash provided by (used in)used in the table above are as follows:
Cash provided byused in operating activities was $72.0$136.3 million higher for the first quarterthree months of Fiscal 20222023 compared to the first quarterthree months of Fiscal 2021,2022, reflecting primarily the following factors:
|
|
• |
|
|
|
|
|
• a $38.2$78.0 million decrease in cash flow from changes in other assets andaccrued liabilities, primarily reflecting rent payments madethe payment of Fiscal 2022 performance-based compensation accruals in the first
quarter three months of Fiscal 2022 versus2023 and much lower performance-based compensation accruals for the first three months of Fiscal 2023 compared to Fiscal 2022; and
Cash used in investing activities was $5.5$3.3 million higher for the first quarterthree months of Fiscal 20222023 as compared to the first quarterthree months of Fiscal 20212022 reflecting increased capital expenditures primarily related to digital and omnichannel initiatives.the new headquarters building.
Cash provided byused in financing activities was $180.7$21.8 million lowerhigher for the first quarterthree months of Fiscal 20222023 as compared to the first quarterthree months of Fiscal 20212022 reflecting lower revolvershare repurchases this year and the payment of Fiscal 2022 share repurchase accruals in the first three months of Fiscal 2023 along with decreased borrowings this year compared to the same period last year.
Sources of Liquidity and Future Capital Needs
We have three principal sources of liquidity: cash flow from operations, cash and cash equivalents on hand and our credit facilities discussed in Item 8, Note 9, "Long-Term Debt", to our Consolidated Financial Statements included in our Annual Report on Form 10-K for Fiscal 2021.2022.
As of May 1, 2021,April 30, 2022, we have borrowed $33.1$14.7 million (£11.7 million) under our Credit FacilityFacility. We were in compliance with all the relevant terms and $11.1 million (£8.0 million) under the Schuh Facility Letter.
During the second quarter of Fiscal 2022, we paid off the $17.5 million first-in, last-out trancheconditions of the Credit Facility that is included in U.S. revolver borrowingsand Facility Letter as of May 1, 2021.April 30, 2022.
As we manage through the impacts of the COVID-19 pandemic in Fiscal 2022, we have access to our existing cash, as well as our available credit facilities to meet short-term liquidity needs. We believe that cash on hand, cash provided by operations and borrowings under our amended Credit Facility and the Schuh Facility Letter will be sufficient to support our near-term liquidity. liquidity needs in Fiscal 2023 and the foreseeable future.
During the remainder of Fiscal 2023, we expect our primary cash requirements to be directed towards funding operating activities, including the acquisition of inventory, and other working capital obligations including those related to taxes. Given the continued uncertainty and the potential impact on consumer spending from the COVID-19 pandemic and recent geopolitical events, we believe it is prudent to maintain higher than usual cash balances to support potential disruptions in cash flow. While the timing and amount of any common stock repurchases will depend on a variety of factors including price, corporate and regulatory requirements, capital availability and other market conditions, we will also consider returning cash to our shareholders through opportunistic share repurchases pursuant to our repurchase authorization described in more detail below.
19
In the fourth quarter of Fiscal 2021, we implemented tax mechanismsstrategies allowed under the 5-year carryback provisions in the CARES Act which we believe willbelieved would generate approximately $60$55 million of net tax refunds. We received approximately $26 million of such refunds in Fiscal 2022. We expect to receive the balance in Fiscal 2023.
We were in compliance with all the relevant terms and conditions of the Credit Facility and Facility Letter as of May 1, 2021.
Contractual Obligations
Our contractual obligations at May 1, 2021 increased approximately 4%April 30, 2022 decreased 7% compared to January 30, 202129, 2022, primarily due to increaseddecreased operating lease obligations related to the new Corporate Headquarters building during the first quarter of Fiscal 2022 and increased long-term debt, partially offset by decreasedincreased purchase obligations.
22
We do not currently have any longer-term capital expenditures or other cash requirements other than as set forth above and in the contractual obligations table as disclosed in Item 7 of our Fiscal 20212022 Form 10-K. We also do not currently have any off-balance sheet arrangements.
Capital Expenditures
Total capital expenditures in Fiscal 20222023 are expected to be approximately $35$50 million to $40$55 million of which approximately 78%56% is for new stores and remodels and 44% is for computer hardware, software and warehouse enhancements for initiatives to drive traffic and omni-channel capabilities. Planned capital expenditures excludes approximately $16$11 million, or $9 million net of tenant allowance,allowances, for the new Corporate Headquarterscorporate headquarters building.
Common Stock Repurchases
We repurchased 102,895 shares during the first quarter of Fiscal 2023 at a cost of $6.5 million, or $63.17 per share. There were $4.8 million share repurchases accrued in the fourth quarter of Fiscal 2022 included on the Condensed Consolidated Statements of Cash Flows for the three months ended April 30, 2022. We have $100.3 million remaining as of April 30, 2022 under our expanded share repurchase authorization announced in February 2022. We did not repurchase any shares during the first quarter of Fiscal 2022. During the second quarter of Fiscal 2023, through June 8, 2022, we have repurchased 175,000 shares at a cost of $10.1 million, or Fiscal 2021. We have $89.7 million remaining as of May 1, 2021 under our current $100.0 million share repurchase authorization. $57.94 per share.
Environmental and Other Contingencies
We are subject to certain loss contingencies related to environmental proceedings and other legal matters, including those disclosed in Item 1, Note 8, "Legal Proceedings", to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
New Accounting Pronouncements
Descriptions of the recently issued accounting pronouncements, if any, and the accounting pronouncements adopted by us during the first quarter of Fiscal 20222023 are included in Note 1 to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
20
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We incorporate by reference the information regarding market risk appearing in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Financial Market Risk” in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.29, 2022. There have been no material changes to our exposure to market risks from those disclosed in the Form 10-K.
Item 4. Controls and Procedures
Evaluation of disclosure controlsDisclosure Controls and procedures.Procedures
We have established disclosure controls and procedures designed to ensure that information required to be disclosed by us, including our consolidated subsidiaries, in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is made known to the officers who certify our financial reports and to other members of senior management. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired objectives.
Based on their evaluation as of May 1, 2021,April 30, 2022, the principal executive officer and principal financial officer of the Company have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within time periods specified in SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting.Reporting
There were no changes in our internal control over financial reporting that occurred during our first quarter of Fiscal 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
2321
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We incorporate by reference the information regarding legal proceedings in Item 1, Note 8, “Legal Proceedings”, to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
You should carefully consider the risk factor below and the risk factors discussed in Part I, “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended January 30, 2021,29, 2022, and in the Quarterly Report on Form 10-Q for the quarter ended May 1, 2021April 30, 2022 (the “Quarterly Report”), which could materially affect our business, financial condition or future results. The risks described in this report, in our Annual Report and the Quarterly Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Actions of activist shareholders have caused,
Repurchases (shown in thousands except share and could continue to cause, us to incur substantial costs, divert management’s attention and resources, and have an adverse effect on our business.per share amounts):
ISSUER PURCHASES OF EQUITY SECURITIES |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Period |
| (a) Total |
|
| (b) Average |
|
| (c) Total |
|
| (d) Maximum |
| ||||
February 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
1-30-22 to 2-26-22(1) |
|
| 102,895 |
|
| $ | 63.17 |
|
|
| 102,895 |
|
| $ | 100,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
March 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
2-27-22 to 3-26-22 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
April 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
3-27-22 to 4-30-22 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
|
| 102,895 |
|
| $ | 63.17 |
|
|
| 102,895 |
|
| $ | 100,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(1) Share repurchases were made pursuant to a $100.0 million share repurchase program approved by the Board of Directors in September 2019. In February 2022, the Board of Directors approved an additional $100.0 million be added to the prior authorization. We expect to implement the balance of the repurchase program through purchases made from time to time either in the open market or through private transactions, in accordance with the regulations of the SEC and other applicable legal requirements. |
|
Our shareholders may from time to time engage in proxy solicitations, advance shareholders proposals or otherwise attempt to affect changes or acquire control over the Company. For example, on May 24, 2021, a shareholder filed a revised preliminary proxy statement containing proposed opposition to our preliminarily filed proxy statement on May 21, 2021, including a proposal to elect four new directors to our Board of Directors. Activist shareholder activities could adversely affect our business because responding to proxy contests and reacting to other actions by activist shareholders can be costly and time-consuming, disrupt our operations and divert the attention of management and our employees. For example, we have retained, and may in the future, retain the services of various professionals to advise us on activist shareholder matters, including legal, financial and communication advisors, the costs of which may negatively impact our future financial results. In addition, perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist shareholders initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, customers, and employees, and cause our stock price to experience periods of volatility or stagnation.
2422
Item 6. Exhibits
Exhibit Index |
|
|
|
|
|
(31.1) | ||
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| |
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|
|
(31.2) |
| |
|
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|
(32.1) |
| |
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(32.2) |
| |
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|
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101.INS |
| Inline XBRL Instance Document (The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.) |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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|
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
2523
SIGNATURE
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
| |||||||
| |||||||||
Genesco Inc. | |||||||||
| By: |
| |||||||
| /s/ Thomas A. George | ||||||||
|
|
| Thomas A. George | ||||||
|
|
| Senior Vice President - Finance and
|
Date: June 10, 20219, 2022
2624