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 October |
☐ | 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
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 |
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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 November 26, 2021,25, 2022, there were 14,607,16012,609,875 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), includingCOVID-19; 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 potential 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 costscost of our imported products, and other factors affecting the costscost 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"), impacts of the Russia-Ukraine war, and other sources of market weakness in the U.K. and the Republic of Ireland (the “ROI”); the effectiveness of our omnichannel initiatives, our ability to staff our stores, distribution centers and call centers,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, payment-relatedacquisitions; 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 changes to U.S. tax laws impacting our tax liabilities, our ability toin both the amount and timeframe anticipated, and 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; our ability to meet our sustainability, stewardship, emission and diversity, equity and inclusion related ESG projections, goals and commitments; 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 |
| October 30, 2021 |
|
| January 30, 2021 |
|
| October 31, 2020 |
|
| October 29, 2022 |
|
| January 29, 2022 |
|
| October 30, 2021 |
| ||||||
Current Assets: |
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|
|
|
|
|
|
|
|
|
|
|
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|
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Cash and cash equivalents |
| $ | 282,764 |
|
| $ | 215,091 |
|
| $ | 115,061 |
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Accounts receivable, net of allowances of $4,947 at October 30, 2021, |
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$5,015 at January 30, 2021 and $5,142 at October 31, 2020 |
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| 36,991 |
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| 31,410 |
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| 35,592 |
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Cash |
| $ | 32,113 |
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| $ | 320,525 |
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| $ | 282,764 |
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Accounts receivable, net of allowances of $5,910 at October 29, 2022, |
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$4,656 at January 29, 2022 and $4,947 at October 30, 2021 |
|
| 48,670 |
|
|
| 39,509 |
|
|
| 36,991 |
| ||||||||||||
Inventories |
|
| 339,198 |
|
|
| 290,966 |
|
|
| 370,699 |
|
|
| 563,490 |
|
|
| 278,200 |
|
|
| 339,198 |
|
Prepaids and other current assets |
|
| 85,476 |
|
|
| 130,128 |
|
|
| 62,606 |
|
|
| 37,575 |
|
|
| 71,564 |
|
|
| 85,476 |
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Total current assets |
|
| 744,429 |
|
|
| 667,595 |
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| 583,958 |
|
|
| 681,848 |
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| 709,798 |
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| 744,429 |
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Property and equipment, net |
|
| 207,489 |
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| 207,842 |
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| 210,834 |
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| 221,207 |
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| 216,308 |
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|
| 207,489 |
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Operating lease right of use assets |
|
| 573,842 |
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| 621,727 |
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| 640,078 |
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| 483,403 |
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| 543,789 |
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| 573,842 |
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Non-current prepaid income taxes |
|
| 52,319 |
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|
| — |
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|
| — |
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Goodwill |
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| 38,864 |
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| 38,550 |
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| 38,129 |
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| 37,903 |
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| 38,556 |
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|
| 38,864 |
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Other intangibles |
|
| 30,592 |
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| 30,929 |
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| 29,664 |
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| 26,208 |
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| 29,855 |
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| 30,592 |
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Deferred income taxes |
|
| 0 |
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| 0 |
|
|
| 12,790 |
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| 12,168 |
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|
| 1,466 |
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|
| — |
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Other noncurrent assets |
|
| 21,593 |
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| 20,725 |
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|
| 21,047 |
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| 21,937 |
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| 22,327 |
|
|
| 21,593 |
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Total Assets |
|
| 1,616,809 |
|
|
| 1,587,368 |
|
|
| 1,536,500 |
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| 1,536,993 |
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|
| 1,562,099 |
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| 1,616,809 |
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Liabilities and Equity |
|
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Current Liabilities: |
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Accounts payable |
|
| 196,024 |
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| 150,437 |
|
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| 151,978 |
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| 223,404 |
|
|
| 152,484 |
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|
| 196,024 |
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Current portion - long-term debt |
|
| 3,484 |
|
|
| — |
|
|
| — |
| ||||||||||||
Current portion - operating lease liabilities |
|
| 144,453 |
|
|
| 173,505 |
|
|
| 196,603 |
|
|
| 136,294 |
|
|
| 145,088 |
|
|
| 144,453 |
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Other accrued liabilities |
|
| 133,569 |
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|
| 78,991 |
|
|
| 84,061 |
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|
| 82,193 |
|
|
| 134,156 |
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|
| 133,569 |
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Total current liabilities |
|
| 474,046 |
|
|
| 402,933 |
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| 432,642 |
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| 445,375 |
|
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| 431,728 |
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|
| 474,046 |
|
Long-term debt |
|
| 15,610 |
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|
| 32,986 |
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| 32,850 |
|
|
| 85,904 |
|
|
| 15,679 |
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|
| 15,610 |
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Long-term operating lease liabilities |
|
| 490,330 |
|
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| 527,549 |
|
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| 560,082 |
|
|
| 413,096 |
|
|
| 471,878 |
|
|
| 490,330 |
|
Other long-term liabilities |
|
| 44,399 |
|
|
| 57,141 |
|
|
| 40,954 |
|
|
| 33,275 |
|
|
| 40,346 |
|
|
| 44,399 |
|
Total liabilities |
|
| 1,024,385 |
|
|
| 1,020,609 |
|
|
| 1,066,528 |
|
|
| 977,650 |
|
|
| 959,631 |
|
|
| 1,024,385 |
|
Commitments and contingent liabilities |
|
|
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Equity |
|
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|
|
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|
|
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|
|
|
|
|
|
|
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|
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Non-redeemable preferred stock |
|
| 827 |
|
|
| 1,009 |
|
|
| 1,009 |
|
|
| 817 |
|
|
| 827 |
|
|
| 827 |
|
Common equity: |
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|
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|
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|
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|
|
|
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Common stock, $1 par value: |
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Common stock, $1 par value: |
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Authorized: 80,000,000 shares |
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|
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|
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|
|
|
|
|
|
|
| |||
Issued common stock |
|
| 15,071 |
|
|
| 15,438 |
|
|
| 15,479 |
|
|
| 13,101 |
|
|
| 14,256 |
|
|
| 15,071 |
|
Additional paid-in capital |
|
| 288,813 |
|
|
| 282,308 |
|
|
| 280,340 |
|
|
| 301,692 |
|
|
| 291,444 |
|
|
| 288,813 |
|
Retained earnings |
|
| 339,447 |
|
|
| 320,920 |
|
|
| 231,001 |
|
|
| 307,921 |
|
|
| 350,206 |
|
|
| 339,447 |
|
Accumulated other comprehensive loss |
|
| (33,877 | ) |
|
| (35,059 | ) |
|
| (40,000 | ) |
|
| (46,331 | ) |
|
| (36,408 | ) |
|
| (33,877 | ) |
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 |
|
| 592,424 |
|
|
| 566,759 |
|
|
| 469,972 |
|
|
| 559,343 |
|
|
| 602,468 |
|
|
| 592,424 |
|
Total Liabilities and Equity |
| $ | 1,616,809 |
|
| $ | 1,587,368 |
|
| $ | 1,536,500 |
|
| $ | 1,536,993 |
|
| $ | 1,562,099 |
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| $ | 1,616,809 |
|
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 |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
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|
| October 30, 2021 |
|
| October 31, 2020 |
|
| October 30, 2021 |
|
| October 31, 2020 |
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| October 29, 2022 |
|
| October 30, 2021 |
|
| October 29, 2022 |
|
| October 30, 2021 |
| ||||||||
Net sales |
| $ | 600,546 |
|
| $ | 479,280 |
|
| $ | 1,694,424 |
|
| $ | 1,149,729 |
|
| $ | 603,788 |
|
| $ | 600,546 |
|
| $ | 1,659,868 |
|
| $ | 1,694,424 |
|
Cost of sales |
|
| 305,345 |
|
|
| 253,776 |
|
|
| 869,039 |
|
|
| 637,081 |
|
|
| 309,981 |
|
|
| 305,345 |
|
|
| 860,303 |
|
|
| 869,039 |
|
Gross margin |
|
| 295,201 |
|
|
| 225,504 |
|
|
| 825,385 |
|
|
| 512,648 |
|
|
| 293,807 |
|
|
| 295,201 |
|
|
| 799,565 |
|
|
| 825,385 |
|
Selling and administrative expenses |
|
| 251,131 |
|
|
| 210,961 |
|
|
| 743,147 |
|
|
| 587,264 |
|
|
| 267,734 |
|
|
| 251,131 |
|
|
| 756,318 |
|
|
| 743,147 |
|
Goodwill impairment |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 79,259 |
| ||||||||||||||||
Asset impairments and other, net |
|
| 314 |
|
|
| 6,359 |
|
|
| 10,054 |
|
|
| 15,953 |
|
|
| — |
|
|
| 314 |
|
|
| (154 | ) |
|
| 10,054 |
|
Operating income (loss) |
|
| 43,756 |
|
|
| 8,184 |
|
|
| 72,184 |
|
|
| (169,828 | ) | ||||||||||||||||
Other components of net periodic benefit cost (income) |
|
| 55 |
|
|
| (182 | ) |
|
| 72 |
|
|
| (488 | ) | ||||||||||||||||
Interest expense (net of interest income of $0.2 million, $0.0 million, $0.4 million and $0.3 million for the three and nine months ended Oct. 30, 2021 and Oct. 31, 2020, respectively) |
|
| 585 |
|
|
| 1,404 |
|
|
| 1,931 |
|
|
| 4,178 |
| ||||||||||||||||
Earnings (loss) from continuing operations before income taxes |
|
| 43,116 |
|
|
| 6,962 |
|
|
| 70,181 |
|
|
| (173,518 | ) | ||||||||||||||||
Income tax expense (benefit) |
|
| 10,135 |
|
|
| (514 | ) |
|
| 17,432 |
|
|
| (27,446 | ) | ||||||||||||||||
Earnings (loss) from continuing operations |
|
| 32,981 |
|
|
| 7,476 |
|
|
| 52,749 |
|
|
| (146,072 | ) | ||||||||||||||||
Operating income |
|
| 26,073 |
|
|
| 43,756 |
|
|
| 43,401 |
|
|
| 72,184 |
| ||||||||||||||||
Other components of net periodic benefit cost |
|
| 50 |
|
|
| 55 |
|
|
| 198 |
|
|
| 72 |
| ||||||||||||||||
Interest expense, net |
|
| 906 |
|
|
| 585 |
|
|
| 1,608 |
|
|
| 1,931 |
| ||||||||||||||||
Earnings from continuing operations before income taxes |
|
| 25,117 |
|
|
| 43,116 |
|
|
| 41,595 |
|
|
| 70,181 |
| ||||||||||||||||
Income tax expense |
|
| 4,693 |
|
|
| 10,135 |
|
|
| 8,551 |
|
|
| 17,432 |
| ||||||||||||||||
Earnings from continuing operations |
|
| 20,424 |
|
|
| 32,981 |
|
|
| 33,044 |
|
|
| 52,749 |
| ||||||||||||||||
Loss from discontinued operations, net of tax |
|
| (86 | ) |
|
| (10 | ) |
|
| (39 | ) |
|
| (275 | ) |
|
| (48 | ) |
|
| (86 | ) |
|
| (78 | ) |
|
| (39 | ) |
Net Earnings (Loss) |
| $ | 32,895 |
|
| $ | 7,466 |
|
| $ | 52,710 |
|
| $ | (146,347 | ) | ||||||||||||||||
Net Earnings |
| $ | 20,376 |
|
| $ | 32,895 |
|
| $ | 32,966 |
|
| $ | 52,710 |
| ||||||||||||||||
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Basic earnings (loss) per common share: |
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Basic earnings per common share: |
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Continuing operations |
| $ | 2.30 |
|
| $ | 0.52 |
|
| $ | 3.69 |
|
| $ | (10.29 | ) |
| $ | 1.68 |
|
| $ | 2.30 |
|
| $ | 2.61 |
|
| $ | 3.69 |
|
Discontinued operations |
|
| 0.00 |
|
|
| 0.00 |
|
|
| (0.01 | ) |
|
| (0.02 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.01 | ) |
Net earnings (loss) |
| $ | 2.30 |
|
| $ | 0.52 |
|
| $ | 3.68 |
|
| $ | (10.31 | ) | ||||||||||||||||
Net earnings |
| $ | 1.68 |
|
| $ | 2.30 |
|
| $ | 2.61 |
|
| $ | 3.68 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Continuing operations |
| $ | 2.26 |
|
| $ | 0.52 |
|
| $ | 3.60 |
|
| $ | (10.29 | ) |
| $ | 1.66 |
|
| $ | 2.26 |
|
| $ | 2.56 |
|
| $ | 3.60 |
|
Discontinued operations |
|
| (0.01 | ) |
|
| 0.00 |
|
|
| 0.00 |
|
|
| (0.02 | ) |
|
| (0.01 | ) |
|
| (0.01 | ) |
|
| — |
|
|
| — |
|
Net earnings (loss) |
| $ | 2.25 |
|
| $ | 0.52 |
|
| $ | 3.60 |
|
| $ | (10.31 | ) | ||||||||||||||||
Net earnings |
| $ | 1.65 |
|
| $ | 2.25 |
|
| $ | 2.56 |
|
| $ | 3.60 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 14,314 |
|
|
| 14,283 |
|
|
| 14,313 |
|
|
| 14,191 |
|
|
| 12,138 |
|
|
| 14,314 |
|
|
| 12,637 |
|
|
| 14,313 |
|
Diluted |
|
| 14,616 |
|
|
| 14,362 |
|
|
| 14,643 |
|
|
| 14,191 |
|
|
| 12,326 |
|
|
| 14,616 |
|
|
| 12,901 |
|
|
| 14,643 |
|
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 |
|
| Nine Months Ended |
| ||||||||||||||||||||||||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||
Net earnings (loss) |
| $ | 32,895 |
|
| $ | 7,466 |
|
| $ | 52,710 |
|
| $ | (146,347 | ) | ||||||||||||||||
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| October 29, 2022 |
|
| October 30, 2021 |
| ||||||||||||||||||||
Net earnings |
| $ | 20,376 |
|
| $ | 32,895 |
|
| $ | 32,966 |
|
| $ | 52,710 |
| ||||||||||||||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Postretirement liability adjustments, net of tax |
|
| 21 |
|
|
| (157 | ) |
|
| (2 | ) |
|
| (433 | ) |
|
| 13 |
|
|
| 21 |
|
|
| 76 |
|
|
| (2 | ) |
Foreign currency translation adjustments |
|
| (470 | ) |
|
| (283 | ) |
|
| 1,184 |
|
|
| (7,899 | ) |
|
| (4,420 | ) |
|
| (470 | ) |
|
| (9,999 | ) |
|
| 1,184 |
|
Total other comprehensive income (loss) |
|
| (449 | ) |
|
| (440 | ) |
|
| 1,182 |
|
|
| (8,332 | ) |
|
| (4,407 | ) |
|
| (449 | ) |
|
| (9,923 | ) |
|
| 1,182 |
|
Comprehensive Income (Loss) |
| $ | 32,446 |
|
| $ | 7,026 |
|
| $ | 53,892 |
|
| $ | (154,679 | ) | ||||||||||||||||
Comprehensive Income |
| $ | 15,969 |
|
| $ | 32,446 |
|
| $ | 23,043 |
|
| $ | 53,892 |
|
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)
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| October 29, 2022 |
|
| October 30, 2021 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net earnings (loss) |
| $ | 52,710 |
|
| $ | (146,347 | ) | ||||||||
Adjustments to reconcile net earnings (loss) to net cash provided by |
|
|
|
|
|
|
|
| ||||||||
Net earnings |
| $ | 32,966 |
|
| $ | 52,710 |
| ||||||||
Adjustments to reconcile net earnings to net cash provided by (used in) |
|
|
|
|
|
| ||||||||||
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 32,258 |
|
|
| 35,553 |
|
|
| 31,901 |
|
|
| 32,258 |
|
Deferred income taxes |
|
| (11,101 | ) |
|
| 6,827 |
|
|
| (10,728 | ) |
|
| (11,101 | ) |
Impairment of intangible assets |
|
| 0 |
|
|
| 84,519 |
| ||||||||
Impairment of long-lived assets |
|
| 2,049 |
|
|
| 11,141 |
|
|
| 542 |
|
|
| 2,049 |
|
Restricted stock expense |
|
| 6,476 |
|
|
| 6,532 |
| ||||||||
Share-based compensation expense |
|
| 10,464 |
|
|
| 6,476 |
| ||||||||
Other |
|
| 1,103 |
|
|
| 3,975 |
|
|
| 999 |
|
|
| 1,103 |
|
Changes in working capital and other assets and liabilities, net of acquisitions/dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accounts receivable |
|
| (5,458 | ) |
|
| (9,130 | ) |
|
| (10,224 | ) |
|
| (5,458 | ) |
Inventories |
|
| (48,131 | ) |
|
| (6,902 | ) |
|
| (293,904 | ) |
|
| (48,131 | ) |
Prepaids and other current assets |
|
| 44,711 |
|
|
| (30,626 | ) |
|
| 33,133 |
|
|
| 44,711 |
|
Accounts payable |
|
| 46,314 |
|
|
| 32,428 |
|
|
| 70,312 |
|
|
| 46,314 |
|
Other accrued liabilities |
|
| 53,515 |
|
|
| 613 |
|
|
| (45,194 | ) |
|
| 53,515 |
|
Other assets and liabilities |
|
| (22,332 | ) |
|
| 62,719 |
|
|
| (64,237 | ) |
|
| (22,332 | ) |
Net cash provided by operating activities |
|
| 152,114 |
|
|
| 51,302 |
| ||||||||
Net cash provided by (used in) operating activities |
|
| (243,970 | ) |
|
| 152,114 |
| ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Capital expenditures |
|
| (34,507 | ) |
|
| (18,157 | ) |
|
| (39,845 | ) |
|
| (34,507 | ) |
Acquisitions, net of cash acquired |
|
| 0 |
|
|
| (75 | ) | ||||||||
Proceeds from asset sales |
|
| 12 |
|
|
| 100 |
|
|
| — |
|
|
| 12 |
|
Other |
|
| 74 |
|
|
| 0 |
|
|
| — |
|
|
| 74 |
|
Net cash used in investing activities |
|
| (34,421 | ) |
|
| (18,132 | ) |
|
| (39,845 | ) |
|
| (34,421 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Borrowings under revolving credit facility |
|
| 25,279 |
|
|
| 218,307 |
|
|
| 212,086 |
|
|
| 25,279 |
|
Payments on revolving credit facility |
|
| (42,935 | ) |
|
| (201,569 | ) |
|
| (136,375 | ) |
|
| (42,935 | ) |
Shares repurchased related to share repurchase plan |
|
| (28,474 | ) |
|
| 0 |
|
|
| (77,470 | ) |
|
| (28,474 | ) |
Restricted shares withheld for taxes |
|
| (4,076 | ) |
|
| (1,224 | ) | ||||||||
Shares repurchased related to taxes for share-based awards |
|
| (3,942 | ) |
|
| (4,076 | ) | ||||||||
Change in overdraft balances |
|
| (459 | ) |
|
| (15,970 | ) |
|
| 4,052 |
|
|
| (459 | ) |
Other |
|
| (35 | ) |
|
| (1,301 | ) |
|
| 2 |
|
|
| (35 | ) |
Net cash used in financing activities |
|
| (50,700 | ) |
|
| (1,757 | ) |
|
| (1,647 | ) |
|
| (50,700 | ) |
Effect of foreign exchange rate fluctuations on cash |
|
| 680 |
|
|
| 2,230 |
|
|
| (2,950 | ) |
|
| 680 |
|
Net increase in cash and cash equivalents |
|
| 67,673 |
|
|
| 33,643 |
| ||||||||
Cash and cash equivalents at beginning of period |
|
| 215,091 |
|
|
| 81,418 |
| ||||||||
Cash and cash equivalents at end of period |
| $ | 282,764 |
|
| $ | 115,061 |
| ||||||||
Net increase (decrease) in cash |
|
| (288,412 | ) |
|
| 67,673 |
| ||||||||
Cash at beginning of period |
|
| 320,525 |
|
|
| 215,091 |
| ||||||||
Cash at end of period |
| $ | 32,113 |
|
| $ | 282,764 |
| ||||||||
Supplemental information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest paid |
| $ | 1,714 |
|
| $ | 3,560 |
|
| $ | 1,276 |
|
| $ | 1,714 |
|
Income taxes paid (refunded) |
|
| (20,916 | ) |
|
| 4,256 |
|
|
| 33,941 |
|
|
| (20,916 | ) |
Cash paid for amounts included in measurement of operating lease liabilities |
|
| 152,240 |
|
|
| 78,777 |
|
|
| 135,116 |
|
|
| 152,240 |
|
Operating lease assets obtained in exchange for new operating lease liabilities |
|
| 68,773 |
|
|
| 24,999 |
|
|
| 71,598 |
|
|
| 68,773 |
|
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 |
| |||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,036 | ) |
|
| — |
|
|
| — |
|
|
| (19,036 | ) | |||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,043 |
|
|
| — |
|
|
| 3,043 |
| |||||||||||||||||||||
Employee and non-employee restricted stock |
|
| — |
|
|
| — |
|
|
| 2,258 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,258 |
| |||||||||||||||||||||
Restricted stock issuance |
|
| — |
|
|
| 461 |
|
|
| (461 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||
Restricted shares withheld for taxes |
|
| — |
|
|
| (64 | ) |
|
| 64 |
|
|
| (1,223 | ) |
|
| — |
|
|
| — |
|
|
| (1,223 | ) | |||||||||||||||||||||
Other |
|
| — |
|
|
| (86 | ) |
|
| 86 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||
Balance August 1, 2020 |
|
| 1,009 |
|
|
| 15,482 |
|
|
| 278,254 |
|
|
| 223,536 |
|
|
| (39,560 | ) |
|
| (17,857 | ) |
|
| 460,864 |
| |||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,466 |
|
|
| — |
|
|
| — |
|
|
| 7,466 |
| |||||||||||||||||||||
Employee and non-employee restricted stock |
|
| — |
|
|
| — |
|
|
| 2,083 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,083 |
| |||||||||||||||||||||
Restricted shares withheld for taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) | |||||||||||||||||||||
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (440 | ) |
|
| — |
|
|
| (440 | ) | |||||||||||||||||||||
Other |
|
| — |
|
|
| (3 | ) |
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||
Balance October 31, 2020 |
| $ | 1,009 |
|
| $ | 15,479 |
|
| $ | 280,340 |
|
| $ | 231,001 |
|
| $ | (40,000 | ) |
| $ | (17,857 | ) |
| $ | 469,972 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| 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 |
| ||||
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,937 |
|
|
| — |
|
|
| — |
|
|
| 10,937 |
|
| — |
| — |
| — |
| 10,937 |
| — |
| — |
| 10,937 |
| ||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 173 |
|
|
| — |
|
|
| 173 |
|
| — |
| — |
| — |
| — |
| 173 |
| — |
| 173 |
| ||||||
Employee and non-employee restricted stock |
|
| — |
|
|
| — |
|
|
| 2,055 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,055 |
| |||||||||||||||||||||
Share-based compensation expense |
| — |
| — |
| 2,055 |
| — |
| — |
| — |
| 2,055 |
| ||||||||||||||||||||||||||||||||||
Restricted stock issuance |
|
| — |
|
|
| 219 |
|
|
| (219 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
| 219 |
| (219 | ) |
| — |
| — |
| — |
| — |
| |||||
Restricted shares withheld for taxes |
|
| — |
|
|
| (64 | ) |
|
| 64 |
|
|
| (4,076 | ) |
|
| — |
|
|
| — |
|
|
| (4,076 | ) |
| — |
| (64 | ) |
| 64 |
| (4,076 | ) |
| — |
| — |
| (4,076 | ) | ||||
Other |
|
| — |
|
|
| (2 | ) |
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
| (2 | ) |
| 2 |
| — |
| — |
| — |
| — |
| |||||
Balance July 31, 2021 |
|
| 828 |
|
|
| 15,597 |
|
|
| 286,298 |
|
|
| 336,659 |
|
|
| (33,428 | ) |
|
| (17,857 | ) |
|
| 588,097 |
|
| 828 |
| 15,597 |
| 286,298 |
| 336,659 |
| (33,428 | ) |
| (17,857 | ) |
| 588,097 |
| ||||
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32,895 |
|
|
| — |
|
|
| — |
|
|
| 32,895 |
|
| — |
| — |
| — |
| 32,895 |
| — |
| — |
| 32,895 |
| ||||||
Share-based compensation expense |
| — |
| — |
| 2,509 |
| — |
| — |
| — |
| 2,509 |
| ||||||||||||||||||||||||||||||||||
Shares repurchased |
| — |
| (522 | ) |
| — |
| (30,107 | ) |
| — |
| — |
| (30,629 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (449 | ) |
|
| — |
|
|
| (449 | ) |
| — |
| — |
| — |
| — |
| (449 | ) |
| — |
| (449 | ) | |||||
Employee and non-employee restricted stock |
|
| — |
|
|
| — |
|
|
| 2,509 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,509 |
| |||||||||||||||||||||
Other |
| (1 | ) |
| (4 | ) |
| 6 |
| — |
| — |
| — |
| 1 |
| ||||||||||||||||||||||||||||||||
Balance October 30, 2021 | $ | 827 |
| $ | 15,071 |
| $ | 288,813 |
| $ | 339,447 |
| $ | (33,877 | ) | $ | (17,857 | ) | $ | 592,424 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
| 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 |
|
| — |
|
|
| (522 | ) |
|
| — |
|
|
| (30,107 | ) |
|
| — |
|
|
| — |
|
|
| (30,629 | ) |
| — |
| (104 | ) |
| — |
| (6,396 | ) |
| — |
| — |
| (6,500 | ) | ||||
Other |
|
| (1 | ) |
|
| (4 | ) |
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
| (9 | ) |
| (13 | ) |
| 23 |
| — |
| — |
| — |
| 1 |
| ||||
Balance October 30, 2021 |
| $ | 827 |
|
| $ | 15,071 |
|
| $ | 288,813 |
|
| $ | 339,447 |
|
| $ | (33,877 | ) |
| $ | (17,857 | ) |
| $ | 592,424 |
| |||||||||||||||||||||
Balance April 30, 2022 |
| 818 |
| 14,217 |
| 294,628 |
| 348,757 |
| (40,225 | ) |
| (17,857 | ) |
| 600,338 |
| ||||||||||||||||||||||||||||||||
Net earnings |
| — |
| — |
| — |
| 7,643 |
| — |
| — |
| 7,643 |
| ||||||||||||||||||||||||||||||||||
Other comprehensive loss |
| — |
| — |
| — |
| — |
| (1,699 | ) |
| — |
| (1,699 | ) | |||||||||||||||||||||||||||||||||
Share-based compensation expense |
| — |
| — |
| 3,549 |
| — |
| — |
| — |
| 3,549 |
| ||||||||||||||||||||||||||||||||||
Restricted stock issuance |
| — |
| 239 |
| (239 | ) |
| — |
| — |
| — |
| — |
| |||||||||||||||||||||||||||||||||
Shares repurchased |
| — |
| (826 | ) |
| — |
| (44,596 | ) |
| — |
| — |
| (45,422 | ) | ||||||||||||||||||||||||||||||||
Restricted shares withheld for taxes |
| — |
| (72 | ) |
| 72 |
| (3,875 | ) |
| — |
| — |
| (3,875 | ) | ||||||||||||||||||||||||||||||||
Other |
| — |
| (1 | ) |
| — |
| — |
| — |
| — |
| (1 | ) | |||||||||||||||||||||||||||||||||
Balance July 30, 2022 |
| 818 |
| 13,557 |
| 298,010 |
| 307,929 |
| (41,924 | ) |
| (17,857 | ) |
| 560,533 |
| ||||||||||||||||||||||||||||||||
Net earnings |
| — |
| — |
| — |
| 20,376 |
| — |
| — |
| 20,376 |
| ||||||||||||||||||||||||||||||||||
Other comprehensive loss |
| — |
| — |
| — |
| — |
| (4,407 | ) |
| — |
| (4,407 | ) | |||||||||||||||||||||||||||||||||
Share-based compensation expense |
| — |
| — |
| 3,676 |
| — |
| — |
| — |
| 3,676 |
| ||||||||||||||||||||||||||||||||||
Restricted shares withheld for taxes |
| — |
| (2 | ) |
| 2 |
| (67 | ) |
| — |
| — |
| (67 | ) | ||||||||||||||||||||||||||||||||
Shares repurchased |
| — |
| (451 | ) |
| — |
| (20,317 | ) |
| — |
| — |
| (20,768 | ) | ||||||||||||||||||||||||||||||||
Other |
| (1 | ) |
| (3 | ) |
| 4 |
| — |
| — |
| — |
| — |
|
8
Balance October 29, 2022 | $ | 817 |
| $ | 13,101 |
| $ | 301,692 |
| $ | 307,921 |
| $ | (46,331 | ) | $ | (17,857 | ) | $ | 559,343 |
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
89
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, nashvilleshoewarehouse.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 October 30, 2021,29, 2022, we operated 1,4341,404 retail stores in the U.S., Puerto Rico, Canada, the U.K. and the ROI.
During the three and nine months ended October 29, 2022 and October 30, 2021, and October 31, 2020, we operated 4four 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.
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 $2.7$3.7 million and $3.1$2.7 million for the third quarters of Fiscal 20222023 and Fiscal 2021,2022, respectively, and $9.9$9.5 million and $7.7$9.9 million for the first nine months of Fiscal 20222023 and Fiscal 2021,2022, respectively.
Retail occupancy costs recorded in selling and administrative expense were $75.0$77.5 million and $68.6$75.0 million for the third quarters of Fiscal 20222023 and Fiscal 2021,2022, respectively, and $220.9$231.8 million and $217.4$220.9 million for the first nine months of Fiscal 20222023 and Fiscal 2021,2022, respectively. Fiscal 2022 included COVID-related rent credits and government property tax relief.
Advertising Costs
Advertising costs were $27.0$31.3 million and $19.4$27.0 million for the third quarters of Fiscal 20222023 and Fiscal 2021,2022, respectively, and $71.6$81.4 million and $48.0$71.6 million for the first nine months of Fiscal 20222023 and Fiscal 2021,2022, respectively.
Vendor Allowances
Vendor reimbursements of cooperative advertising costs recognized as a reduction of selling and administrative expenses were $2.3$5.0 million and $0.8$2.3 million for the third quarters of Fiscal 20222023 and Fiscal 2021,2022, respectively, and $7.7$11.7 million and $3.5$7.7 million for the first nine months of Fiscal 20222023 and Fiscal 2021,2022, respectively. During the first nine months of each of Fiscal 20222023 and Fiscal 2021,2022, our cooperative advertising reimbursements received were not in excess of the costs incurred.
910
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1
Summary of Significant Accounting Policies, Continued
New Accounting Pronouncements
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 guidance 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.
Note 2Taxes
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 nine months of Fiscal 2022. As of October 30, 2021, we are operating in substantially all locations.
Changes made in our operations, including temporary closures, combined with reduced customer traffic due to concerns over COVID-19, resulted in a material impact on our business. 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.
We evaluated our goodwill and indefinite-lived intangible assets for indicators of impairment at the end of each quarter of Fiscal 2021 and the quarters ended May 1, 2021, July 31, 2021 and October 30, 2021 of Fiscal 2022. During the first quarter of Fiscal 2021, 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, May 1, 2021, July 31, 2021 or October 30, 2021.
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.
We also record reserves for obsolete and slow-moving inventory and for estimated shrinkage between physical inventory counts. During the initial phases of the COVID-19 pandemic, 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. Depending on future customer behavior, among other factors, we may incur additional inventory reserve provisions.
Since the firstfourth 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 expenseimplemented tax strategies allowed under the 5-year carryback provisions 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 a number of agreements have been reached, a small 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.
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 which we qualified for certain employer payrollbelieved would generate approximately $55 million of net tax creditsrefunds. We received approximately $26 million of such net tax refunds in Fiscal 2022 and anticipated receipt of the remaining outstanding net tax refund in Fiscal 2023. However, in the third quarter of Fiscal 2023, we were notified the IRS would conduct an audit of the periods related to the outstanding net tax refund. While we do not believe any uncertainty with the technical merits of the positions generating the net tax refunds exists, we do anticipate the timing of the net tax refund will be extended as well
10
Genesco Inc. and Subsidiaries
Notesthe audit process. Accordingly, we have adjusted the presentation of the outstanding refund to non-current prepaid income taxes on the Condensed Consolidated Financial Statements (unaudited)Balance Sheets for Fiscal 2023.
Note 2
COVID-19 ContinuedPandemic
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 quarters ended May 2, 2020, August 1, 2020, October 31, 2020, May 1, 2021 and July 31, 2021, qualified payroll tax credits under the CARES Act and other foreign subsidy programs reduced our selling and administrative expenses by approximately $7.0 million, $3.8 million, $1.8 million, $5.0 million and $2.5 million, respectively, on our Condensed Consolidated Statements of Operations. We did 0t have any material qualified payroll tax credits for the quarter ended October 30, 2021. We intend to continue 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 quarters ended May 2, 2020, August 1, 2020, October 31, 2020, May 1, 2021, July 31, 2021 and October 30, 2021 of approximately $1.6 million, $3.9 million, $3.9 million, $4.0 million, $3.1 million and $1.4 million, respectively. Other government relief programs in the U.K., ROI and Canada provided savings for the quarters ended May 1, 2021, July 31, 2021 and October 30, 2021 of approximately $3.2 million, $1.2 million and $0.8 million, respectively.
The COVID-19 pandemic continues to evolve. The emergence of variants fromhas created significant public health concerns as well as economic disruption, uncertainty, and volatility which may negatively affect our business operations. As a result, if the original strain, its economic impactpandemic persists or worsens, our accounting estimates and actions takenassumptions could be impacted in response thereto, including, without limitation, the timingsubsequent interim reports and availability of effective medical treatmentsupon final determination at year-end, 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 init is reasonably possible such changes in customer behaviors, including a potential reduction in consumer discretionary spending in our stores and online. 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 economycould be significant.
New Accounting Pronouncements
We do not currently 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 sales, gross margin, operating income and earnings per share financial measures.any new accounting pronouncements pending adoption.
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 |
|
| Journeys |
|
| Licensed |
|
| Total |
| ||||||
Balance, January 30, 2021 |
| $ | 10,082 |
|
| $ | 28,468 |
|
| $ | 38,550 |
| ||||||||||||
Balance, January 29, 2022 |
| $ | 10,087 |
|
| $ | 28,469 |
|
| $ | 38,556 |
| ||||||||||||
Effect of foreign currency exchange rates |
|
| 314 |
|
|
| 0 |
|
|
| 314 |
|
|
| (637 | ) |
|
| (16 | ) |
|
| (653 | ) |
Balance, October 30, 2021 |
| $ | 10,396 |
|
| $ | 28,468 |
|
| $ | 38,864 |
| ||||||||||||
Balance, October 29, 2022 |
| $ | 9,450 |
|
| $ | 28,453 |
|
| $ | 37,903 |
|
Other intangibles by major classes were as follows:
|
| Trademarks |
| Customer Lists |
|
| Other |
|
| Total |
| ||||||||||||||||||||
(In thousands) |
| Oct. 29, 2022 |
|
| Jan. 29, |
| Oct. 29, 2022 |
|
| Jan. 29, |
|
| Oct. 29, 2022 |
|
| Jan. 29, |
|
| Oct. 29, 2022 |
|
| Jan. 29, |
| ||||||||
Gross other intangibles |
| $ | 22,713 |
|
| $ | 25,935 |
| $ | 6,393 |
|
| $ | 6,586 |
|
| $ | 400 |
|
| $ | 400 |
|
| $ | 29,506 |
|
| $ | 32,921 |
|
Accumulated amortization |
|
| — |
|
|
| — |
|
| (2,898 | ) |
|
| (2,666 | ) |
|
| (400 | ) |
|
| (400 | ) |
|
| (3,298 | ) |
|
| (3,066 | ) |
Net Other Intangibles |
| $ | 22,713 |
|
| $ | 25,935 |
| $ | 3,495 |
|
| $ | 3,920 |
|
| $ | — |
|
| $ | — |
|
| $ | 26,208 |
|
| $ | 29,855 |
|
11
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
| Trademarks |
| Customer Lists |
|
| Other |
|
| Total |
| ||||||||||||||||||||
(In thousands) |
| Oct. 30, 2021 |
|
| Jan. 30, 2021 |
| Oct. 30, 2021 |
|
| Jan. 30, 2021 |
|
| Oct. 30, 2021 |
|
| Jan. 30, 2021 |
|
| Oct. 30, 2021 |
|
| Jan. 30, 2021 |
| ||||||||
Gross other intangibles |
| $ | 26,530 |
|
| $ | 26,443 |
| $ | 6,619 |
|
| $ | 6,617 |
|
| $ | 400 |
|
| $ | 400 |
|
| $ | 33,549 |
|
| $ | 33,460 |
|
Accumulated amortization |
|
| 0 |
|
|
| 0 |
|
| (2,557 | ) |
|
| (2,131 | ) |
|
| (400 | ) |
|
| (400 | ) |
|
| (2,957 | ) |
|
| (2,531 | ) |
Net Other Intangibles |
| $ | 26,530 |
|
| $ | 26,443 |
| $ | 4,062 |
|
| $ | 4,486 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 30,592 |
|
| $ | 30,929 |
|
Note 43
Asset Impairments and Other Charges
Asset impairment and other charges for the first nine months ended October 29, 2022 are not considered material.
We recorded pretax charges of $0.3$0.3 million in the third quarter of Fiscal 2022, including $0.1$0.1 million for professional fees related to actions of an activist shareholder and $0.2 million$0.2 for retail store asset impairments.
11
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 4
Asset Impairments and Other Charges, Continued
We recorded pretax charges of $10.1$10.1 million in the first nine months of Fiscal 2022, including $8.6$8.6 million for professional fees related to actions of an activist shareholder and $2.0$2.0 million for retail store asset impairments, partially offset by a $0.6$0.6 million insurance gain. We recorded pretax charges of $6.4 million in the third quarter of Fiscal 2021 for retail store asset impairments. We recorded pretax charges of $16.0 million in the first nine months of Fiscal 2021, including $5.3 million for trademark impairments and $11.1 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.
Note 54
Inventories
(In thousands) |
| October 30, 2021 |
|
| January 30, 2021 |
| ||
Wholesale finished goods |
| $ | 13,589 |
|
| $ | 27,851 |
|
Retail merchandise |
|
| 325,609 |
|
|
| 263,115 |
|
Total Inventories |
| $ | 339,198 |
|
| $ | 290,966 |
|
Inventories
(In thousands) |
| October 29, 2022 |
|
| January 29, 2022 |
| ||
Wholesale finished goods |
| $ | 71,425 |
|
| $ | 28,432 |
|
Retail merchandise |
|
| 492,065 |
|
|
| 249,768 |
|
Total Inventories |
| $ | 563,490 |
|
| $ | 278,200 |
|
Note 65
Fair Value
Fair Value of Financial Instruments
The carrying amounts and fair values of our financial instruments at October 30, 202129, 2022 and January 30, 202129, 2022 are as follows:
Fair Values |
|
|
|
|
|
| ||||||||||||||||||||||||||
(In thousands) |
| October 30, 2021 |
|
| January 30, 2021 |
|
| October 29, 2022 |
| January 29, 2022 |
| |||||||||||||||||||||
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||||||
U.S. Revolver Borrowings |
| $ | 15,610 |
|
| $ | 15,708 |
|
| $ | 32,986 |
|
| $ | 33,612 |
|
| $ | 85,904 |
|
| $ | 85,716 |
|
| $ | 15,679 |
|
| $ | 15,679 |
|
U.K. Revolver Borrowings |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,484 |
|
|
| 3,413 |
|
|
| — |
|
|
| — |
|
AsDebt fair values were determined using a discounted cash flow analysis based on current market interest rates for similar types of October 30, 2021, we have $0.2 million of long-lived assets heldfinancial instruments and used which were measured usingwould be classified in Level 3 inputs2 within the fair value hierarchy.
As of October 30, 2021,29, 2022, we have $11.7$10.5 million of investments held and used which were measured using Level 1 inputs within the fair value hierarchy.
12
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 |
|
| Nine Months Ended |
| ||||||||||
(Shares in thousands) |
| October 30, 2021 |
|
| October 31, 2020 |
|
| October 30, 2021 |
|
| October 31, 2020 |
| ||||
Weighted-average number of shares - basic |
|
| 14,314 |
|
|
| 14,283 |
|
|
| 14,313 |
|
|
| 14,191 |
|
Common stock equivalents |
|
| 302 |
|
|
| 79 |
|
|
| 330 |
|
|
| 0 |
|
Weighted-average number of shares - diluted |
|
| 14,616 |
|
|
| 14,362 |
|
|
| 14,643 |
|
|
| 14,191 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
(Shares in thousands) |
| October 29, 2022 |
|
| October 30, 2021 |
|
| October 29, 2022 |
|
| October 30, 2021 |
| ||||
Weighted-average number of shares - basic |
|
| 12,138 |
|
|
| 14,314 |
|
|
| 12,637 |
|
|
| 14,313 |
|
Common stock equivalents |
|
| 188 |
|
|
| 302 |
|
|
| 264 |
|
|
| 330 |
|
Weighted-average number of shares - diluted |
|
| 12,326 |
|
|
| 14,616 |
|
|
| 12,901 |
|
|
| 14,643 |
|
DueWe repurchased 451,343 shares during the third quarter of Fiscal 2023 at a cost of $20.8 million, or $46.01 per share and repurchased 1,380,272 shares during the first nine months of Fiscal 2023 at a cost of $72.7 million, or $52.66 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 which are included on the Condensed Consolidated Statements of Cash Flows for the nine months ended October 31, 2020, share-based awards are excluded from the diluted earnings per29, 2022. We have $34.1 million remaining as of October 29, 2022 under our expanded share calculation for that period because they would be antidilutive.
repurchase authorization announced in February 2022. We repurchased 521,693 shares during the third quarter and first nine months of Fiscal 2022 at a cost of $30.6$30.6 million, or $58.71$58.71 per share. We accrued $2.1$2.1 million for share repurchases as of October 30, 2021 which is included in other accrued liabilities on2021. During the Condensed Consolidated Balance Sheets. We have $59.0 million remaining as of October 30, 2021 under our current $100.0 million share repurchase authorization. We did 0t repurchase any shares during the thirdfourth quarter or first nine months of Fiscal 2021.2023, through December 7, 2022, we have not repurchased any shares.
12
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 87
Long-Term Debt
(In thousands) |
| October 30, 2021 |
|
| January 30, 2021 |
|
| October 29, 2022 |
|
| January 29, 2022 |
| ||||
U.S. revolver borrowings |
| $ | 15,610 |
|
| $ | 32,986 |
|
| $ | 85,904 |
|
| $ | 15,679 |
|
U.K. revolver borrowings |
|
| 0 |
|
|
| 0 |
|
|
| 3,484 |
|
|
| — |
|
Total long-term debt |
|
| 15,610 |
|
|
| 32,986 |
|
|
| 89,388 |
|
|
| 15,679 |
|
Current portion |
|
| 0 |
|
|
| 0 |
|
|
| 3,484 |
|
|
| — |
|
Total Noncurrent Portion of Long-Term Debt |
| $ | 15,610 |
|
| $ | 32,986 |
|
| $ | 85,904 |
|
| $ | 15,679 |
|
The revolver borrowings outstanding under the Credit Facility as of October 29, 2022 included $72.2 million U.S. revolver borrowings and $13.7 million (£11.8 million) related to Genesco (UK) Limited. In addition, revolver borrowings outstanding under Schuh's Facility Letter were $3.5 million (£3.0 million). We were in compliance with all the relevant terms and conditions of the Credit Facility and Facility Letter as of October 30, 2021.29, 2022. Excess availability under the Credit Facility was $237.0 million at October 29, 2022.
On November 2, 2022, Schuh entered into a facility agreement (the "Facility Agreement") with Lloyds Bank PLC ("Lloyds") for a £19.0 million revolving credit facility. The Facility Agreement expires November 2, 2025, with options to request two one-year extensions to this termination date subject to lender approval, and bears interest at 2.35% over the Bank of England Base Rate. This Facility Agreement replaces Schuh's Facility Letter that would have expired in October 2023. The Facility Agreement includes certain financial covenants specific to Schuh. Following certain customary events of default outlined in the Facility Agreement, payment of outstanding amounts due may be accelerated or the commitments may be terminated. The Facility Agreement is secured by charges over all of the assets of Schuh, and Schuh's subsidiary, Schuh (ROI) Limited. Pursuant to a Guarantee in favor of Lloyds in its capacity as security trustee, Genesco Inc. has guaranteed the obligations of Schuh under the Facility Agreement and certain existing ancillary facilities on an unsecured basis.
During the second quarter of Fiscal 2022, we paid off the $17.5 million First-in, Last-out tranche of our Credit Facility.
13
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 (“the 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 the EPA's future oversight costs, involving future costs to us estimated to be between $1.7 million and $2.0 million, and to reimburse the EPA for approximately $1.25 million of interim oversight costs. On August 15, 2016, the Court entered(ii) a 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 agreement with the Village providing for the Village to continue to operate and maintain the well head treatment systems 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 did not have, and we expect that the Consent Judgment will not have, a material effect on our financial condition or results of operations.
In April 2015, we received from the 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 the EPA to have been incurred to conduct assessments and removal activities at the site. In February 2017, we entered into a settlement agreement with the 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.
13
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 9
Legal Proceedings, Continued
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 therelating to our former Volunteer Leather Company facility site designed to bring the site into compliance with applicable regulatory standards. The Work Plan's implementation is substantially complete, and wein Whitehall, Michigan. We do not 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 noteither of these sites will have a material effect on our consolidated financial condition or results of operations.
Accrual for Environmental Contingencies
Related to all outstanding environmental contingencies, we had accrued $1.4$1.4 million as of each of October 29, 2022, January 29, 2022 and October 30, 2021, $1.5 million as of January 30, 2021 and $1.4 million as of October 31, 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 nine 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 condensed consolidated financial statements, legal proceedings are subject to inherent uncertainties, and unfavorable rulings could have a material adverse impact on our condensed consolidated financial statements.
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 inventories owned by Samsung. If product is sold below Samsung’s cost, we are required to pay to Samsung the difference between the sales price and its cost. At October 30, 2021,29, 2022, the inventory owned by Samsung had a historical cost of $6.9$19.8 million. As of October 29, 2022, 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 October 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Three Months Ended October 29, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
(In thousands) |
| Journeys Group |
|
| Schuh Group |
|
| Johnston & Murphy Group |
|
| Licensed Brands |
|
| Corporate & Other |
|
| Consolidated |
| Journeys |
| Schuh |
| Johnston |
| Licensed |
| Corporate |
| Consolidated |
| ||||||||||||
Sales |
| $ | 379,927 |
|
| $ | 119,791 |
|
| $ | 66,835 |
|
| $ | 34,154 |
|
| $ | 0 |
|
| $ | 600,707 |
| $ | 380,619 |
| $ | 104,809 |
| $ | 79,614 |
| $ | 40,661 |
| $ | — |
| $ | 605,703 |
|
Intercompany sales |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (161 | ) |
|
| — |
|
|
| (161 | ) |
| — |
| — |
| — |
| (1,915 | ) |
| — |
| (1,915 | ) | ||||
Net sales to external customers |
| $ | 379,927 |
|
| $ | 119,791 |
|
| $ | 66,835 |
|
| $ | 33,993 |
|
| $ | — |
|
| $ | 600,546 |
|
| 380,619 |
| 104,809 |
| 79,614 |
| 38,746 |
| — |
| 603,788 |
| |||||
Segment operating income (loss) |
| $ | 43,403 |
|
| $ | 9,701 |
|
| $ | 1,641 |
|
| $ | (132 | ) |
| $ | (10,543 | ) |
| $ | 44,070 |
| ||||||||||||||||||
Asset impairments and other (1) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (314 | ) |
|
| (314 | ) | ||||||||||||||||||
Operating income (loss) |
|
| 43,403 |
|
|
| 9,701 |
|
|
| 1,641 |
|
|
| (132 | ) |
|
| (10,857 | ) |
|
| 43,756 |
|
| 27,083 |
| 5,912 |
| 3,494 |
| (1,927 | ) |
| (8,489 | ) |
| 26,073 |
| |||
Other components of net periodic benefit cost |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (55 | ) |
|
| (55 | ) |
| — |
| — |
| — |
|
| — |
|
| (50 | ) |
| (50 | ) | ||
Interest expense |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (754 | ) |
|
| (754 | ) | ||||||||||||||||||
Interest income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 169 |
|
|
| 169 |
| ||||||||||||||||||
Interest expense, net |
| — |
| — |
| — |
|
| — |
|
| (906 | ) |
| (906 | ) | ||||||||||||||||||||||||||
Earnings (loss) from continuing operations before income taxes |
| $ | 43,403 |
|
| $ | 9,701 |
|
| $ | 1,641 |
|
| $ | (132 | ) |
| $ | (11,497 | ) |
| $ | 43,116 |
| $ | 27,083 |
| $ | 5,912 |
| $ | 3,494 |
| $ | (1,927 | ) | $ | (9,445 | ) | $ | 25,117 |
|
Total assets (2) |
| $ | 760,370 |
|
| $ | 229,347 |
|
| $ | 131,378 |
|
| $ | 53,310 |
|
| $ | 442,404 |
|
| $ | 1,616,809 |
| ||||||||||||||||||
Total assets (1) | $ | 841,021 |
| $ | 206,996 |
| $ | 193,039 |
| $ | 72,586 |
| $ | 223,351 |
| $ | 1,536,993 |
| ||||||||||||||||||||||||
Depreciation and amortization |
|
| 7,160 |
|
|
| 1,675 |
|
|
| 1,148 |
|
|
| 266 |
|
|
| 375 |
|
|
| 10,624 |
|
| 6,849 |
| 1,485 |
| 1,092 |
| 214 |
| 1,032 |
| 10,672 |
| |||||
Capital expenditures |
|
| 4,645 |
|
|
| 718 |
|
|
| 1,104 |
|
|
| 270 |
|
|
| 8,225 |
|
|
| 14,962 |
|
| 4,638 |
| 2,405 |
| 1,719 |
| 370 |
| 1,708 |
| 10,840 |
|
(1)(1) Of our $704.6 million of long-lived assets, $89.3 million and $18.5 million relate to long-lived assets in the U.K. and Canada, respectively.
Three Months Ended October 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(In thousands) | Journeys |
| Schuh |
| Johnston |
| Licensed |
| Corporate |
| Consolidated |
| ||||||
Sales | $ | 379,927 |
| $ | 119,791 |
| $ | 66,835 |
| $ | 34,154 |
| $ | — |
| $ | 600,707 |
|
Intercompany sales |
| — |
|
| — |
|
| — |
|
| (161 | ) |
| — |
|
| (161 | ) |
Net sales to external customers |
| 379,927 |
|
| 119,791 |
|
| 66,835 |
|
| 33,993 |
|
| — |
|
| 600,546 |
|
Segment operating income (loss) |
| 43,403 |
|
| 9,701 |
|
| 1,641 |
|
| (132 | ) |
| (10,543 | ) |
| 44,070 |
|
Asset impairments and other (1) |
| — |
|
| — |
|
| — |
|
| — |
|
| (314 | ) |
| (314 | ) |
Operating income (loss) |
| 43,403 |
|
| 9,701 |
|
| 1,641 |
|
| (132 | ) |
| (10,857 | ) |
| 43,756 |
|
Other components of net periodic benefit cost |
| — |
|
| — |
|
| — |
|
| — |
|
| (55 | ) |
| (55 | ) |
Interest expense, net |
| — |
|
| — |
|
| — |
|
| — |
|
| (585 | ) |
| (585 | ) |
Earnings (loss) from continuing operations before income taxes | $ | 43,403 |
| $ | 9,701 |
| $ | 1,641 |
| $ | (132 | ) | $ | (11,497 | ) | $ | 43,116 |
|
Total assets (2) | $ | 760,370 |
| $ | 229,347 |
| $ | 131,378 |
| $ | 53,310 |
| $ | 442,404 |
| $ | 1,616,809 |
|
Depreciation and amortization |
| 7,160 |
|
| 1,675 |
|
| 1,148 |
|
| 266 |
|
| 375 |
|
| 10,624 |
|
Capital expenditures |
| 4,645 |
|
| 718 |
|
| 1,104 |
|
| 270 |
|
| 8,225 |
|
| 14,962 |
|
(1) Asset impairments and other includes a $0.1$0.1 million charge for professional fees related to the actions of an activist shareholder and a $0.2$0.2 million charge for retail store asset impairments, which includes $0.2$0.2 million in Journeys Group.
(2)(2) Of our $781.3$781.3 million of long-lived assets, $120.3$120.3 million and $29.1$29.1 million relate to long-lived assets in the U.K. and Canada, respectively.
15
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1110
Business Segment Information, Continued
Three Months Ended October 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
| Journeys Group |
|
| Schuh Group |
|
| Johnston & Murphy Group |
|
| Licensed Brands |
|
| Corporate & Other |
|
| Consolidated |
| ||||||
Sales |
| $ | 317,682 |
|
|
| 90,021 |
|
| $ | 39,655 |
|
| $ | 32,586 |
|
| $ | 0 |
|
| $ | 479,944 |
|
Intercompany sales |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (664 | ) |
|
| — |
|
|
| (664 | ) |
Net sales to external customers |
| $ | 317,682 |
|
| $ | 90,021 |
|
| $ | 39,655 |
|
| $ | 31,922 |
|
| $ | — |
|
| $ | 479,280 |
|
Segment operating income (loss) |
| $ | 24,035 |
|
| $ | 6,766 |
|
| $ | (11,137 | ) |
| $ | 792 |
|
| $ | (5,913 | ) |
| $ | 14,543 |
|
Asset impairments and other (1) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (6,359 | ) |
|
| (6,359 | ) |
Operating income (loss) |
|
| 24,035 |
|
|
| 6,766 |
|
|
| (11,137 | ) |
|
| 792 |
|
|
| (12,272 | ) |
|
| 8,184 |
|
Other components of net periodic benefit income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 182 |
|
|
| 182 |
|
Interest expense |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,415 | ) |
|
| (1,415 | ) |
Interest income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 11 |
|
|
| 11 |
|
Earnings (loss) from continuing operations before income taxes |
| $ | 24,035 |
|
| $ | 6,766 |
|
| $ | (11,137 | ) |
| $ | 792 |
|
| $ | (13,494 | ) |
| $ | 6,962 |
|
Total assets (2) |
| $ | 838,730 |
|
|
| 241,332 |
|
| $ | 185,580 |
|
| $ | 57,487 |
|
| $ | 213,371 |
|
| $ | 1,536,500 |
|
Depreciation and amortization |
|
| 7,238 |
|
|
| 2,120 |
|
|
| 1,381 |
|
|
| 243 |
|
|
| 361 |
|
|
| 11,343 |
|
Capital expenditures |
|
| 5,801 |
|
|
| 574 |
|
|
| 788 |
|
|
| 123 |
|
|
| 229 |
|
|
| 7,515 |
|
Nine Months Ended October 29, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Journeys |
| Schuh |
| Johnston |
| Licensed |
| Corporate |
| Consolidated |
| ||||||
Sales | $ | 1,016,396 |
| $ | 294,486 |
| $ | 225,448 |
| $ | 126,442 |
| $ | — |
| $ | 1,662,772 |
|
Intercompany sales |
| — |
|
| — |
|
| — |
|
| (2,904 | ) |
| — |
|
| (2,904 | ) |
Net sales to external customers(1) |
| 1,016,396 |
|
| 294,486 |
|
| 225,448 |
|
| 123,538 |
|
| — |
|
| 1,659,868 |
|
Segment operating income (loss) |
| 51,235 |
|
| 5,260 |
|
| 7,256 |
|
| 2,551 |
|
| (23,055 | ) |
| 43,247 |
|
Asset impairments and other(2) |
| — |
|
| — |
|
| — |
|
| — |
|
| 154 |
|
| 154 |
|
Operating income (loss) |
| 51,235 |
|
| 5,260 |
|
| 7,256 |
|
| 2,551 |
|
| (22,901 | ) |
| 43,401 |
|
Other components of net periodic benefit cost |
| — |
|
| — |
|
| — |
|
| — |
|
| (198 | ) |
| (198 | ) |
Interest expense, net |
| — |
|
| — |
|
| — |
|
| — |
|
| (1,608 | ) |
| (1,608 | ) |
Earnings (loss) from continuing | $ | 51,235 |
| $ | 5,260 |
| $ | 7,256 |
| $ | 2,551 |
| $ | (24,707 | ) | $ | 41,595 |
|
Depreciation and amortization | $ | 21,060 |
| $ | 4,607 |
| $ | 3,271 |
| $ | 692 |
| $ | 2,271 |
| $ | 31,901 |
|
Capital expenditures |
| 15,539 |
|
| 6,278 |
|
| 5,528 |
|
| 1,033 |
|
| 11,467 |
|
| 39,845 |
|
(1)(1) Net sales in North America and in the United Kingdom, which includes the Republic of Ireland, accounted for 82% and 18%, respectively, of our net sales for the nine months ended October 29, 2022.
(2) Asset impairments and other includes a $6.4$0.5 million charge for retail store asset impairments, which includes $4.6$0.2 million in the Johnston & MurphyJourneys Group, $1.0$0.2 million in Schuh Group and $0.8$0.1 million in Journeys Group.Licensed Brands, partially offset by a $0.7 million gain on the termination of the pension plan.
(2) Of our $850.9 million of long-lived assets, $139.4 million
Nine Months Ended October 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Journeys |
| Schuh |
| Johnston |
| Licensed |
| Corporate |
| Consolidated |
| ||||||
Sales | $ | 1,102,750 |
| $ | 294,581 |
| $ | 176,756 |
| $ | 120,952 |
| $ | — |
| $ | 1,695,039 |
|
Intercompany sales |
| — |
|
| — |
|
| — |
|
| (615 | ) |
| — |
|
| (615 | ) |
Net sales to external customers(1) |
| 1,102,750 |
|
| 294,581 |
|
| 176,756 |
|
| 120,337 |
|
| — |
| $ | 1,694,424 |
|
Segment operating income (loss) |
| 106,895 |
|
| 9,477 |
|
| 2,412 |
|
| 3,420 |
|
| (39,966 | ) | $ | 82,238 |
|
Asset impairments and other(2) |
| — |
|
| — |
|
| — |
|
| — |
|
| (10,054 | ) |
| (10,054 | ) |
Operating income (loss) |
| 106,895 |
|
| 9,477 |
|
| 2,412 |
|
| 3,420 |
|
| (50,020 | ) |
| 72,184 |
|
Other components of net periodic benefit cost |
| — |
|
| — |
|
| — |
|
| — |
|
| (72 | ) |
| (72 | ) |
Interest expense |
| — |
|
| — |
|
| — |
|
| — |
|
| (1,931 | ) |
| (1,931 | ) |
Earnings (loss) from continuing | $ | 106,895 |
| $ | 9,477 |
| $ | 2,412 |
| $ | 3,420 |
| $ | (52,023 | ) | $ | 70,181 |
|
Depreciation and amortization | $ | 21,549 |
| $ | 5,356 |
| $ | 3,460 |
| $ | 820 |
| $ | 1,073 |
| $ | 32,258 |
|
Capital expenditures |
| 18,418 |
|
| 1,945 |
|
| 3,666 |
|
| 750 |
|
| 9,728 |
|
| 34,507 |
|
16
Genesco Inc. and $37.1 million relateSubsidiaries
Notes to long-lived assetsCondensed Consolidated Financial Statements (unaudited)
(1) Net sales in North America and in the U.K.United Kingdom, which includes the Republic of Ireland, accounted for 83% and Canada, respectively.17%, respectively, of our net sales for the nine months ended October 30, 2021.
Nine Months Ended October 30, 2021 |
|
|
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|
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|
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|
|
|
(In thousands) |
| Journeys Group |
|
| Schuh Group |
|
| Johnston & Murphy Group |
|
| Licensed Brands |
|
| Corporate & Other |
|
| Consolidated |
| ||||||
Sales |
| $ | 1,102,750 |
|
| $ | 294,581 |
|
| $ | 176,756 |
|
| $ | 120,952 |
|
| $ | 0 |
|
| $ | 1,695,039 |
|
Intercompany sales |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (615 | ) |
|
| — |
|
|
| (615 | ) |
Net sales to external customers |
| $ | 1,102,750 |
|
| $ | 294,581 |
|
| $ | 176,756 |
|
| $ | 120,337 |
|
| $ | — |
|
| $ | 1,694,424 |
|
Segment operating income (loss) |
| $ | 106,895 |
|
| $ | 9,477 |
|
| $ | 2,412 |
|
| $ | 3,420 |
|
| $ | (39,966 | ) |
| $ | 82,238 |
|
Asset impairments and other(1) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (10,054 | ) |
|
| (10,054 | ) |
Operating income (loss) |
|
| 106,895 |
|
|
| 9,477 |
|
|
| 2,412 |
|
|
| 3,420 |
|
|
| (50,020 | ) |
|
| 72,184 |
|
Other components of net periodic benefit cost |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (72 | ) |
|
| (72 | ) |
Interest expense |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (2,375 | ) |
|
| (2,375 | ) |
Interest income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 444 |
|
|
| 444 |
|
Earnings (loss) from continuing operations before income taxes |
| $ | 106,895 |
|
| $ | 9,477 |
|
| $ | 2,412 |
|
| $ | 3,420 |
|
| $ | (52,023 | ) |
| $ | 70,181 |
|
Depreciation and amortization |
| $ | 21,549 |
|
| $ | 5,356 |
|
| $ | 3,460 |
|
| $ | 820 |
|
| $ | 1,073 |
|
| $ | 32,258 |
|
Capital expenditures |
|
| 18,418 |
|
|
| 1,945 |
|
|
| 3,666 |
|
|
| 750 |
|
|
| 9,728 |
|
|
| 34,507 |
|
(1)(2) Asset impairments and other includes an $8.6$8.6 million charge for professional fees related to the actions of an activist shareholder and a $2.0$2.0 million charge for retail store asset impairments, which includes $0.2$1.0 million in Johnston & MurphyJourneys Group, $0.8$0.8 million in Schuh Group and $1.0$0.2 million in Journeysthe Johnston & Murphy Group, partially offset by a $0.6$0.6 million insurance gain.
1617
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 11
Business Segment Information, Continued
Nine Months Ended October 31, 2020 |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
| Journeys Group |
|
| Schuh Group |
|
| Johnston & Murphy Group |
|
| Licensed Brands |
|
| Corporate & Other |
|
| Consolidated |
| ||||||
Sales |
| $ | 763,238 |
|
| $ | 208,918 |
|
| $ | 102,601 |
|
| $ | 76,381 |
|
| $ | 0 |
|
| $ | 1,151,138 |
|
Intercompany sales |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,409 | ) |
|
| — |
|
|
| (1,409 | ) |
Net sales to external customers |
| $ | 763,238 |
|
| $ | 208,918 |
|
| $ | 102,601 |
|
| $ | 74,972 |
|
| $ | — |
|
| $ | 1,149,729 |
|
Segment operating loss |
| $ | (2,888 | ) |
| $ | (15,158 | ) |
| $ | (38,964 | ) |
| $ | (2,931 | ) |
| $ | (14,675 | ) |
| $ | (74,616 | ) |
Goodwill impairment(1) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (79,259 | ) |
|
| (79,259 | ) |
Asset impairments and other(2) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (15,953 | ) |
|
| (15,953 | ) |
Operating loss |
|
| (2,888 | ) |
|
| (15,158 | ) |
|
| (38,964 | ) |
|
| (2,931 | ) |
|
| (109,887 | ) |
|
| (169,828 | ) |
Other components of net periodic benefit income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 488 |
|
|
| 488 |
|
Interest expense |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (4,429 | ) |
|
| (4,429 | ) |
Interest income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 251 |
|
|
| 251 |
|
Earnings (loss) from continuing operations before income taxes |
| $ | (2,888 | ) |
| $ | (15,158 | ) |
| $ | (38,964 | ) |
| $ | (2,931 | ) |
| $ | (113,577 | ) |
| $ | (173,518 | ) |
Depreciation and amortization |
| $ | 21,962 |
|
| $ | 7,077 |
|
| $ | 4,309 |
|
| $ | 1,066 |
|
| $ | 1,139 |
|
| $ | 35,553 |
|
Capital expenditures |
|
| 11,653 |
|
|
| 2,412 |
|
|
| 3,356 |
|
|
| 198 |
|
|
| 538 |
|
|
| 18,157 |
|
(1) Goodwill impairment of $79.3 million is related to Schuh Group.
(2)Asset impairments and other includes an $11.1 million charge for retail store asset impairments, which includes $5.8 million in Johnston & Murphy, $2.5 million in Schuh Group and $2.8 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.
17
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 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 25.3%1% to $603.8 million for the third quarter of Fiscal 2023 compared to $600.5 million for the third quarter of Fiscal 2022 compared2022. The sales increase was driven by increased wholesale sales and a total comparable sales increase of 3%, partially offset by the unfavorable impact of $21.1 million in sales due primarily to $479.3 millionforeign exchange pressure on the Schuh business from the strengthening dollar. Johnston & Murphy Group sales increased 19% and Licensed Brands sales increased 14%, while Journeys Group sales were flat and Schuh Group sales decreased 13% for the third quarter of Fiscal 2021. This sales increase was driven by increased store sales resulting from strong back-to-school sales in the U.S. and U.K., a 7% increase in digital comparable sales, increased wholesale sales and the favorable impact of foreign exchange rates. Stores were open approximately 99% of possible days in2023 compared to the third quarter of Fiscal 2022 as compared to 95% in2022. Without the third quarterimpact of Fiscal 2021. Although we have disclosed comparableforeign exchange, Schuh's sales increased 4% on a local currency basis for the third quarter of Fiscal 2022 and Fiscal 2021, we believe that overall sales is a more meaningful metric during these periods due to the impact of the COVID-19 pandemic. See below, under the heading “Comparable Sales”, for our definition of comparable sales.2023.
Journeys Group sales increased 20%, Schuh Group sales increased 33%, Johnston & Murphy Group sales increased 69% and Licensed Brands sales increased 6% during the third quarter of Fiscal 2022 compared to the same quarter of Fiscal 2021. Gross margin as a percentage of net sales increaseddecreased to 49.2%48.7% during the third quarter of Fiscal 2022,2023, compared to 47.1%49.2% for the third quarter of Fiscal 2021.2022. This reflects increaseddecreased gross margin as a percentage of net sales in all of our operating business units due primarily due to fewer markdowns ata more normalized promotional environment for all retail divisions, except Johnston & Murphy retail, improved initial margins at Journeys Group, less promotional activitywhere a decrease in inventory reserves last year as the brand began to recover from the pandemic make a difficult comparison this year, and increased freight expense as well as better than anticipated loyalty program sign-ups at Schuh Group and slightly lower shipping and warehouse expense in all our retail business units, partially offset by a shift in the mix of our businesses and excessas new members used their sign-up incentives, which should provide long-term growth. Altogether, freight and logistics costs relatedput approximately $3.3 million of pressure on total gross margin comparison of the third quarter of Fiscal 2023 to supply chain challenges in Licensed Brands and Johnston & Murphy Group. the third quarter of Fiscal 2022.
Selling and administrative expenses as a percentage of net sales decreasedincreased to 41.8%44.3% of net sales during the third quarter of Fiscal 20222023 from 44.0%41.8% for the third quarter of Fiscal 2021,2022, reflecting decreasedincreased expenses as a percentage of net sales at Journeys Group, Schuh Group and Johnston & Murphy Group,Licensed Brands, partially offset by increaseddecreased expenses as a percentage of net sales at Schuh Group and Licensed Brands.Johnston & Murphy Group. The overall decreaseincrease in expenses as a percentage of net sales is due in large part to greater leverage of fixed expenses as a result of revenue growthone-time benefits for rent credits and government relief in the third quarter last year. Excluding these one-time benefits last year, deleverage in marketing expenses, compensation expense and toselling salaries more than offset leverage from decreased occupancy expense, partially offset by increasedand performance-based compensation marketing expenses and less savings from the government program in the U.K. providing property tax relief. In Fiscal 2021, we did not record any performance-based compensation expense. expenses.
Operating margin was 7.3%4.3% for the third quarter of Fiscal 20222023 compared to 1.7%7.3% in the third quarter of Fiscal 2021,2022, reflecting increaseddecreased operating margin in all our operating business units, except Licensed Brands, as a result ofJohnston & Murphy Group. The decrease in operating margin for the increasedthird quarter this year compared to the third quarter last year was driven by decreased gross margin as a percentage of net sales, in all business unitsreflecting the more normalized promotional environment and overall decreasedincreased freight expense, and increased expenses as a percentage of net sales.
Significant Developments
COVID-19 Update
In March 2020,sales, reflecting the World Health Organization categorized the outbreak of COVID-19 as a pandemic. As a result,one-time benefits for rent credits 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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18
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As of October 30, 2021, we are operating substantially all 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 required for employees and optional for customers to wear masks. As a result of new government mandatesrelief in the U.K., all Schuh stores are once again requiring masks for employees and customers. In Johnston & Murphy shops and factory stores, it is optional for employees and customers to wear masks. prior year.
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 a number of agreements have been reached, a small 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 quarters ended May 1, 2021, July 31, 2021 and October 30, 2021, we have recognized approximately $6.1 million, $2.5 million and $4.8 million, respectively, in rent savings which are related to abatements and temporary rent relief.
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 quarters ended May 2, 2020, August 1, 2020, October 31, 2020, May 1, 2021 and July 31, 2021, qualified payroll tax credits under the CARES Act and other foreign subsidy programs reduced our selling and administrative expenses by approximately $7.0 million, $3.8 million, $1.8 million, $5.0 million and $2.5 million, respectively, on our Condensed Consolidated Statements of Operations. We did not have any material qualified payroll tax credits for the quarter ended October 30, 2021. We intend to continue to defer qualified payroll and other tax payments as permitted by the CARES Act.
19
Savings from the government program in the U.K. have provided property tax relief for the quarters ended May 2, 2020, August 1, 2020, October 31, 2020, May 1, 2021, July 31, 2021 and October 30, 2021 of approximately $1.6 million, $3.9 million, $3.9 million, $4.0 million, $3.1 million and $1.4 million, respectively. Other government relief programs in the U.K., ROI and Canada provided savings for the quarters ended May 1, 2021, July 31, 2021 and October 30, 2021 of approximately $3.2 million, $1.2 million and $0.8 million, respectively.
During the third quarter this year, supply chain challenges have caused increased freight and logistics costs. These costs increased our cost of sales by approximately $4.1 million on our Condensed Consolidated Statements of Operations for the quarter ended October 30, 2021.
Asset Impairment and Other Charges
We recorded pretax charges of $0.3 million in the third quarter of Fiscal 2022, including $0.2 million for retail store asset impairments and $0.1 million for professional fees related to actions of an activist shareholder.
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) 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-titledsimilarly titled performance indicators used by other companies.
18
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 second and third quarters of Fiscal 2023 but did not disclose comparable sales for the first quarter and first nine months of Fiscal 2022, as we believe that overall sales are a more meaningful metric during this period2023 due to the impact of the COVID-19 pandemic and related extendedextensive store closures.closures during the first quarter of Fiscal 2022. We believe that overall sales is a more meaningful metric during the first quarter and first nine months of Fiscal 2023.
Results of Operations – Third Quarter of Fiscal 20222023 Compared to Third Quarter of Fiscal 20212022
Our net sales inincreased 1% to $603.8 million for the third quarter of Fiscal 2022 increased 25.3%2023 compared to $600.5 million for the third quarter of Fiscal 2022. The sales increase was driven by increased wholesale sales and a total comparable sales increase of 3%, partially offset by the unfavorable impact of $21.1 million in sales due primarily to foreign exchange pressure on the Schuh business from the strengthening dollar. Johnston & Murphy Group sales increased 19% and Licensed Brands sales increased 14%, while Journeys Group sales were flat and Schuh Group sales decreased 13% for the third quarter of Fiscal 2023 compared to $479.3the third quarter of Fiscal 2022. Without the impact of foreign exchange, Schuh's sales increased 4% on a local currency basis for the third quarter of Fiscal 2023.
Gross margin decreased 0.5% to $293.8 million in the third quarter of Fiscal 2021. This sales increase was driven by increased store sales resulting2023 from strong back-to-school sales, a 7% increase in digital comparable sales, increased wholesale sales and the favorable impact of foreign exchange rates. Stores were open approximately 99% of possible days in the third quarter of Fiscal 2022 as compared to 95% in the third quarter of Fiscal 2021.
Gross margin increased 30.9% to $295.2 million in the third quarter of Fiscal 2022 and decreased as a percentage of net sales from $225.549.2% to 48.7%. This reflects decreased gross margin as a percentage of net sales in all of our operating business units due primarily to a more normalized promotional environment for all retail divisions, except Johnston & Murphy where a decrease in inventory reserves last year as the brand began to recover from the pandemic make a difficult comparison this year, and increased freight expense, as well as better than anticipated loyalty program sign-ups at Schuh as new members used their sign-up incentives, which should provide long-term growth. Altogether, freight and logistics costs put approximately $3.3 million of pressure on total gross margin comparison of the third quarter of Fiscal 2023 to the third quarter of Fiscal 2022.
Selling and administrative expenses in the third quarter of Fiscal 20212023 increased 6.6% and increased as a percentage of net sales from 47.1%41.8% to 49.2%44.3%, reflecting increased expenses as a percentage of net sales at Journeys Group, Schuh Group and Licensed Brands, partially offset by decreased expenses as a percentage of net sales at Johnston & Murphy Group. The overall increase in expenses as a percentage of net sales is due in large part to one-time benefits for rent credits and government relief in the third quarter last year. Excluding these one-time benefits last year, deleverage in marketing expenses, compensation expense and selling salaries more than offset leverage from decreased occupancy and performance-based compensation expenses. 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 third quarter of Fiscal 2023 were $25.1 million compared to $43.1 million for the third quarter of Fiscal 2022. Pretax earnings for the third quarter of Fiscal 2022 included asset impairments and other charges of $0.3 million for professional fees related to the actions of an activist shareholder and retail store asset impairments.
We recorded an effective income tax rate of 18.7% and 23.5% in the third quarter of Fiscal 2023 and Fiscal 2022, respectively. The lower tax rate for the third quarter this year compared to the third quarter last year reflects a reduction in the effective tax rate that we expect for jurisdictions in which we are profitable.
Net earnings for the third quarter of Fiscal 2023 were $20.4 million, or $1.65 diluted earnings per share compared to $32.9 million, or $2.25 diluted earnings per share, for the third quarter of Fiscal 2022.
Journeys Group
|
| Three Months Ended |
|
|
|
| ||||||
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| % |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 380,619 |
|
| $ | 379,927 |
|
|
| 0.2 | % |
Operating income |
| $ | 27,083 |
|
| $ | 43,403 |
|
|
| (37.6 | )% |
Operating margin |
|
| 7.1 | % |
|
| 11.4 | % |
|
|
|
19
Net sales from Journeys Group increased 0.2% to $380.6 million for the third quarter of Fiscal 2023, compared to $379.9 million for the third quarter of Fiscal 2022 primarily due to a total comparable sales increase of 1% driven by increased e-commerce sales, while the average number of stores decreased 1% for the third quarter this year. Journeys Group operated 1,123 stores at the end of the third quarter of Fiscal 2023, including 230 Journeys Kidz stores, 45 Journeys stores in Canada and 35 Little Burgundy stores in Canada, compared to 1,137 stores at the end of the third quarter of last year, including 229 Journeys Kidz stores, 47 Journeys stores in Canada and 37 Little Burgundy stores in Canada.
Journeys Group had operating income of $27.1 million for the third quarter of Fiscal 2023 compared to $43.4 million for the third quarter of Fiscal 2022. The decrease of 37.6% in operating income for Journeys Group was due to (i) decreased gross margin as a percentage of net sales reflecting increased markdowns with a return to a more normalized promotional environment and (ii) increased selling and administrative expenses as a percentage of net sales reflecting the deleverage of expenses, especially marketing and selling salaries as sales were effectively flat for the third quarter this year compared to the third quarter last year, as well as one-time benefits for rent credits in the third quarter last year.
Schuh Group
|
| Three Months Ended |
|
|
|
| ||||||
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| % |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 104,809 |
|
| $ | 119,791 |
|
|
| (12.5 | )% |
Operating income |
| $ | 5,912 |
|
| $ | 9,701 |
|
|
| (39.1 | )% |
Operating margin |
|
| 5.6 | % |
|
| 8.1 | % |
|
|
|
Net sales from Schuh Group decreased 12.5% to $104.8 million for the third quarter of Fiscal 2023 compared to $119.8 million for the third quarter of Fiscal 2022, primarily due to an unfavorable impact of $19.7 million due to changes in foreign exchange rates, partially offset by increased total comparable sales of 3% driven by increased comparable store sales. Without the impact of foreign exchange, Schuh's sales increased 4% on a local currency basis for the third quarter of Fiscal 2023. Schuh Group operated 122 stores at the end of the third quarter of Fiscal 2023, compared to 123 stores at the end of the third quarter of Fiscal 2022.
Schuh Group had operating income of $5.9 million for the third quarter of Fiscal 2023 compared to $9.7 million for the third quarter of Fiscal 2022. The 39.1% decrease in operating income for Schuh Group reflects (i) decreased gross margin as a percentage of net sales reflecting a return to a more normalized promotional environment and better than anticipated loyalty program sign-ups as new members used their sign-up incentives, which should provide long-term growth and (ii) increased selling and administrative expenses as a percentage of net sales for the third quarter of Fiscal 2023 compared to the third quarter of Fiscal 2022, reflecting more normalized operating expenses due to the 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 third quarter last year. Excluding these one-time benefits last year, decreased occupancy and marketing expenses more than offset deleverage in selling salaries and professional fees. In addition, operating income included an unfavorable impact of $1.1 million due to changes in foreign exchange rates compared to last year.
Johnston & Murphy Group
|
| Three Months Ended |
|
|
|
| ||||||
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| % |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 79,614 |
|
| $ | 66,835 |
|
|
| 19.1 | % |
Operating income |
| $ | 3,494 |
|
| $ | 1,641 |
|
|
| 112.9 | % |
Operating margin |
|
| 4.4 | % |
|
| 2.5 | % |
|
|
|
Johnston & Murphy Group net sales increased 19.1% to $79.6 million for the third quarter of Fiscal 2023 from $66.8 million for the third quarter of Fiscal 2022, primarily due to a 20% increase in comparable sales and increased wholesale sales. 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 pandemic, has fueled top line growth. Retail operations accounted for 72.9% of Johnston & Murphy Group's sales in the third quarter of Fiscal 2023, down from 75.4% in the third quarter of Fiscal 2022. The store count for Johnston & Murphy retail operations at the end of the third quarter of Fiscal 2023 was 159 stores, including six stores in Canada, compared to 174 stores, including eight stores in Canada, at the end of the third quarter of Fiscal 2022.
20
Johnston & Murphy Group operating income of $3.5 million for the third quarter of Fiscal 2023 increased 112.9% compared to $1.6 million in the third quarter of Fiscal 2022. The increase was primarily due to (i) increased net sales and (ii) decreased selling and administrative expenses due to greater leverage of expenses as a result of revenue growth, partially offset by increased marketing expense. Gross margin decreased as a percentage of net sales as increased freight and logistics costs as well as a difficult comparison to last year with the decrease in inventory reserves as the brand began to recover from the pandemic, more than offset otherwise increased gross margin.
Licensed Brands
|
| Three Months Ended |
|
|
|
| ||||||
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| % |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 38,746 |
|
| $ | 33,993 |
|
|
| 14.0 | % |
Operating loss |
| $ | (1,927 | ) |
| $ | (132 | ) |
| NM |
| |
Operating margin |
|
| (5.0 | )% |
|
| (0.4 | )% |
|
|
|
Licensed Brands' net sales increased 14.0% to $38.7 million for the third quarter of Fiscal 2023 from $34.0 million for the third quarter of Fiscal 2022 primarily reflecting an increase in sales of Dockers footwear.
Licensed Brands' operating loss was $1.9 million for the third quarter of Fiscal 2023 compared to a loss of $0.1 million in the third quarter of Fiscal 2022. The increase in operating loss was primarily due to (i) decreased gross margin as a percentage of net sales driven by increased freight and logistics costs more than offsetting a favorable sales mix and (ii) increased selling and administrative expenses as a percentage of net sales reflecting deleverage of expenses as a result of the change in sales mix, partially offset by decreased performance-based compensation expense.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for the third quarter of Fiscal 2023 was $8.5 million compared to $10.9 million for the third quarter of Fiscal 2022. Corporate expense in the third quarter of Fiscal 2022 included a $0.3 million charge in asset impairment and other charges for professional fees related to the actions of an activist shareholder and retail store asset impairments. The corporate expense decrease, excluding asset impairment and other charges, primarily reflected decreased performance-based compensation expense.
Net interest expense increased 54.9% to $0.9 million for the third quarter of Fiscal 2023 compared to net interest expense of $0.6 million for the third quarter of Fiscal 2022 primarily reflecting increased average borrowings in the third quarter this year along with increased interest rates this year.
Results of Operations – Nine Months of Fiscal 2023 Compared to Nine Months of Fiscal 2022
Our net sales in the first nine months of Fiscal 2023 decreased 2.0% to $1.660 billion compared to $1.694 billion in the first nine months of Fiscal 2022. The sales decrease was driven by an unfavorable impact of $41.5 million in sales due primarily to foreign exchange pressure on the Schuh business from the strengthening dollar and decreased comparable direct sales, partially offset by increased sales in the wholesale channel.
Gross margin decreased 3.1% to $799.6 million in the first nine months of Fiscal 2023 from $825.4 million in the first nine months of Fiscal 2022 and decreased as a percentage of net sales from 48.7% to 48.2%, reflecting decreased gross margin as a percentage of net sales in Journeys Group, Johnston & Murphy Group and Licensed Brands, partially offset by increased gross margin as a percentage of net sales in all our operating business unitsSchuh Group. The overall decrease in gross margin as a percentage of net sales is primarily due to fewerincreased markdowns atin our Journeys business and increased freight and logistics costs as well as the decrease in inventory reserves in the Johnston & Murphy retail, improved initial margins at Journeys Group, less promotional activity at Schuh Group and slightlybusiness last year making for difficult comparisons this year, partially offset by lower shipping and warehouse expense in allas a result of our retail business units, partially offset by a shift in the mix of our businesses and excesslower e-commerce penetration. Altogether, freight and logistics costs relatedput approximately $14.7 million of pressure on total gross margin comparison of the first nine months of Fiscal 2023 to supply chain challenges in Licensed Brands and Johnston & Murphy Group.the first nine months of Fiscal 2022.
Selling and administrative expenses in the third quarterfirst nine months of Fiscal 20222023 increased 19.0% but decreased1.8% and increased as a percentage of net sales from 44.0%43.9% to 41.8%45.6%, reflecting decreasedincreased expenses as a percentage of net sales at Journeys Group, Schuh Group and Johnston & Murphy Group,Licensed Brands, partially offset by increaseddecreased expenses as a percentage of net sales at Schuh Group and Licensed Brands.Johnston & Murphy Group. The overall decreaseincrease in expenses as a percentage of net sales is due to greater leverage of fixed expensesmore normalized occupancy expense as a result of revenue growththe one-time benefits for rent credits and government tax relief related to the COVID-19 pandemic in the third quarter,U.K. in the first nine months last year, as well as increased selling salaries and to decreased occupancy expense,compensation and marketing expenses, partially offset by increased performance-based compensation, marketing expenses and less savings from the government program in the U.K. providing property tax relief. In Fiscal 2021, we did not record anydecreased performance-based compensation expense. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs.
2021
Earnings from continuing operations before income taxes (“pretax earnings”) for the third quarter of Fiscal 2022 were $43.1 million compared to $7.0 million for the third quarter of Fiscal 2021. Pretax earnings for the third quarter of Fiscal 2022 included asset impairments and other charges of $0.3 million for retail store asset impairments and professional fees related to the actions of an activist shareholder. Pretax earnings for the third quarter of Fiscal 2021 included asset impairments and other charges of $6.4 million for retail store asset impairments.
We recorded an effective income tax rate of 23.5% and -7.4% in the third quarter of Fiscal 2022 and Fiscal 2021, respectively. The tax rate for the third quarter of Fiscal 2022 is higher than Fiscal 2021 primarily due to the inability to recognize a tax benefit for certain foreign losses and a higher mix of earnings in jurisdictions where we generate taxable income.
Net earnings for the third quarter of Fiscal 2022 were $32.9 million, or $2.25 diluted earnings per share compared to $7.5 million, or $0.52 diluted earnings per share, for the third quarter of Fiscal 2021.
Journeys Group
|
| Three Months Ended |
|
|
|
|
| |||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| % Change |
| |||
|
| (dollars in thousands) |
|
|
|
|
| |||||
Net sales |
| $ | 379,927 |
|
| $ | 317,682 |
|
|
| 19.6 | % |
Operating income |
| $ | 43,403 |
|
| $ | 24,035 |
|
|
| 80.6 | % |
Operating margin |
|
| 11.4 | % |
|
| 7.6 | % |
|
|
|
|
Net sales from Journeys Group increased 19.6% to $379.9 million for the third quarter of Fiscal 2022, compared to $317.7 million for the third quarter of Fiscal 2021, primarily due to higher store comparable sales, reflecting strong back-to-school sales, partially offset by decreased digital comparable growth. Total comparable sales for Journeys Group increased 15% for the third quarter this year. Journeys Group operated 1,137 stores at the end of the third quarter of Fiscal 2022, including 229 Journeys Kidz stores, 47 Journeys stores in Canada and 37 Little Burgundy stores in Canada, compared to 1,168 stores at the end of the third quarter of last year, including 235 Journeys Kidz stores, 47 Journeys stores in Canada and 38 Little Burgundy stores in Canada.
Journeys Group had operating income of $43.4 million for the third quarter of Fiscal 2022 compared to $24.0 million for the third quarter of Fiscal 2021. The increase of 80.6% in operating income for Journeys Group was due to (i) increased net sales, (ii) increased gross margin as a percentage of net sales, reflecting improved initial margins and decreased markdowns and (iii) decreased selling and administrative expenses as a percentage of net sales primarily due to decreased occupancy, freight and depreciation expenses.
Schuh Group
|
| Three Months Ended |
|
|
|
|
| |||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| % Change |
| |||
|
| (dollars in thousands) |
|
|
|
|
| |||||
Net sales |
| $ | 119,791 |
|
| $ | 90,021 |
|
|
| 33.1 | % |
Operating income |
| $ | 9,701 |
|
| $ | 6,766 |
|
|
| 43.4 | % |
Operating margin |
|
| 8.1 | % |
|
| 7.5 | % |
|
|
|
|
Net sales from Schuh Group increased 33.1% to $119.8 million for the third quarter of Fiscal 2022 compared to $90.0 million for the third quarter of Fiscal 2021, primarily due to increased store sales and digital comparable sales, resulting from strong back-to-school sales, and the favorable impact of $5.8 million due to changes in foreign exchange rates. Total comparable sales for Schuh Group increased 23% for the third quarter this year. Schuh Group operated 123 stores at the end of the third quarter of Fiscal 2022, compared to 127 stores at the end of the third quarter of Fiscal 2021.
Schuh Group had operating income of $9.7 million for the third quarter of Fiscal 2022 compared to $6.8 million for the third quarter of Fiscal 2021. The increase of 43.4% in operating income this year reflects (i) increased net sales and (ii) increased gross margin as a percentage of net sales, reflecting less promotional activity and decreased shipping and warehouse expense. In addition, operating income included a favorable impact of $0.4 million due to changes in foreign exchange rates compared to last year. Selling and administrative expenses increased as a percentage of net sales, reflecting increased occupancy expense and marketing expense, partially offset by decreased selling salaries, depreciation expense and compensation expense. The increase in occupancy expense for the third quarter this year primarily reflects less savings from the government program in the U.K. providing property tax relief compared to the savings in the third quarter last year as well as fewer abatements in the third quarter this year compared to last year.
21
Johnston & Murphy Group
|
| Three Months Ended |
|
|
|
|
| |||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| % Change |
| |||
|
| (dollars in thousands) |
|
|
|
|
| |||||
Net sales |
| $ | 66,835 |
|
| $ | 39,655 |
|
|
| 68.5 | % |
Operating income (loss) |
| $ | 1,641 |
|
| $ | (11,137 | ) |
| NM |
| |
Operating margin |
|
| 2.5 | % |
|
| (28.1 | )% |
|
|
|
|
Johnston & Murphy Group net sales increased 68.5% to $66.8 million for the third quarter of Fiscal 2022 from $39.7 million for the third quarter of Fiscal 2021, primarily due to increased store sales, increased digital comparable sales and increased wholesale sales. With an increase in social events and gatherings and more people returning to work in person, more customers have returned to in-person shopping and retail traffic has continued to improve in the third quarter this year. Total comparable sales for Johnston & Murphy retail increased 77% for the third quarter this year. Retail operations accounted for 75.4% of Johnston & Murphy Group's sales in the third quarter of Fiscal 2022, up from 69.7% in the third quarter of Fiscal 2021. The store count for Johnston & Murphy retail operations at the end of the third quarter of Fiscal 2022 was 174 stores, including eight stores in Canada, compared to 181 stores, including eight stores in Canada, at the end of the third quarter of Fiscal 2021.
Johnston & Murphy Group operating income of $1.6 million for the third quarter of Fiscal 2022 improved $12.8 million compared to an operating loss of $11.1 million in the third quarter of Fiscal 2021. The increase was primarily due to (i) increased net sales, (ii) increased gross margin as a percentage of net sales reflecting decreased retail markdowns, less closeouts at wholesale, a higher mix of retail product and decreased shipping and warehouse expense and (iii) decreased selling and administrative expenses as a percentage of net sales due to greater leverage of fixed expenses as a result of revenue growth, and to decreased occupancy expense, partially offset by increased performance-based compensation expense and freight expense.
Licensed Brands
|
| Three Months Ended |
|
|
|
|
| |||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| % Change |
| |||
|
| (dollars in thousands) |
|
|
|
|
| |||||
Net sales |
| $ | 33,993 |
|
| $ | 31,922 |
|
|
| 6.5 | % |
Operating income (loss) |
| $ | (132 | ) |
| $ | 792 |
|
| NM |
| |
Operating margin |
|
| (0.4 | )% |
|
| 2.5 | % |
|
|
|
|
Licensed Brands' net sales increased 6.5% to $34.0 million for the third quarter of Fiscal 2022, from $31.9 million for the third quarter of Fiscal 2021, reflecting primarily the growth of the Levi’s footwear business.
Licensed Brands' had an operating loss of $0.1 million for the third quarter of Fiscal 2022 compared to operating income of $0.8 million in the third quarter of Fiscal 2021. The $0.9 million decrease in operating income was primarily due to increased selling and administrative expenses as a percentage of net sales reflecting increased expenses, particularly bad debt, compensation, and marketing expenses, partially offset by lower warehouse expense for the third quarter this year. In addition, while gross margin as a percentage of net sales increased for the third quarter this year primarily due to less pre-acquisition royalty and commission cost in legacy Togast product sales, excess freight and logistics costs related to supply chain challenges negatively impacted gross margin.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for the third quarter of Fiscal 2022 was $10.9 million compared to $12.3 million for the third quarter of Fiscal 2021. Corporate expense in the third quarter of Fiscal 2022 included a $0.3 million charge in asset impairment and other charges for retail store asset impairments and professional fees related to the actions of an activist shareholder. Corporate expense in the third quarter of Fiscal 2021 included a $6.4 million charge in asset impairment and other charges for retail store asset impairments. The corporate expense increase, excluding asset impairment and other charges, primarily reflected increased performance-based compensation expense and expenses related to the new headquarters building.
Net interest expense decreased to $0.6 million for the third quarter of Fiscal 2022 compared to net interest expense of $1.4 million for the third quarter of Fiscal 2021 primarily reflecting decreased average borrowings in the third quarter this year.
22
Results of Operations – Nine Months of Fiscal 2022 Compared to Nine Months of Fiscal 2021
Our net sales in the first nine months of Fiscal 2022 increased 47.4% to $1.7 billion compared to $1.1 billion in the first nine months of Fiscal 2021, driven by increased store sales resulting from the reopening of stores that were closed during the first nine months of Fiscal 2021 due to the COVID-19 pandemic, increased wholesale sales, the favorable impact of foreign exchange rates and a 4% digital comparable sales growth. Stores were open approximately 95% of possible days in the first nine months of Fiscal 2022 as compared to 71% in the first nine months of Fiscal 2021.
Gross margin increased 61.0% to $825.4 million in the first nine months of Fiscal 2022 from $512.6 million in the first nine months of Fiscal 2021 and increased as a percentage of net sales from 44.6% to 48.7%, reflecting increased gross margin as a percentage of net sales in all our operating business units primarily due to fewer markdowns at Journeys Group, Schuh Group and Johnston & Murphy retail and lower shipping and warehouse expense. The lower shipping and warehouse expense in the first nine months this year is a result of reduced e-commerce penetration in Fiscal 2022 as a larger percentage of retail stores were open in Fiscal 2022 compared to Fiscal 2021.
Selling and administrative expenses in the first nine months of Fiscal 2022 increased 26.5% but decreased as a percentage of net sales from 51.1% to 43.9%, reflecting decreased expenses as a percentage of net sales in all our operating business units. The decrease as a percentage of net sales in expenses in Fiscal 2022 was primarily due to greater leverage of fixed expenses as a result of the significant increase in revenue and to reduced occupancy expense, partially offset by increased performance-based compensation expense. In Fiscal 2021, we did not record any performance-based compensation expense. The reduction in occupancy expense is driven in part by benefits from our ongoing lease initiative and was partially offset by increased percentage rent as a result of increased sales. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs.
Pretax earnings for the first nine months of Fiscal 20222023 were $70.2$41.6 million compared to a pretax loss of $173.5$70.2 million for the first nine months of Fiscal 2021.2022. Pretax earnings for the first nine months of Fiscal 2023 included an asset impairment and other gain of $0.2 million for a gain on the termination of the pension plan, partially offset by asset impairments. Pretax earnings for the first nine months of Fiscal 2022 included asset impairments and other charges of $10.1 million for professional fees related to the actions of an activist shareholder and retail store asset impairments, partially offset by an insurance gain. The pretax loss for the first nine months of Fiscal 2021 included a goodwill impairment charge of $79.3 million and asset impairments and other charges of $16.0 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 24.8%20.6% and 15.8%24.8% in the first nine months of Fiscal 20222023 and Fiscal 2021,2022, respectively. The tax rate for the first nine months of Fiscal 20222023 is higherlower than Fiscal 2021 primarily due to 2022, reflecting a reduction in the inabilityeffective tax rate we expect for jurisdictions in which we are profitable combined with the impact of foreign activity for which we have historically been 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 nine months 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. The tax rate for the first nine months of Fiscal 2022 and Fiscal 2021 was also impacted by $1.7 million tax benefit and $1.1 million tax expense, respectively, due to the impact of ASU 2016-09 related to the vesting of restricted stock.benefit.
Net earnings for the first nine months of Fiscal 20222023 were $33.0 million, or $2.56 diluted earnings per share compared to $52.7 million, or $3.60 diluted earnings per share, compared to a net loss of $146.3 million, or $10.31 diluted loss per share, for the first nine months of Fiscal 2021.2022.
Journeys Group
|
| Nine Months Ended |
|
|
|
|
|
| Nine Months Ended |
|
|
|
| |||||||||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| % Change |
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| % |
| ||||||
|
| (dollars in thousands) |
|
|
|
|
|
| (dollars in thousands) |
|
|
|
| |||||||||||
Net sales |
| $ | 1,102,750 |
|
| $ | 763,238 |
|
|
| 44.5 | % |
| $ | 1,016,396 |
|
| $ | 1,102,750 |
|
|
| (7.8 | )% |
Operating income (loss) |
| $ | 106,895 |
|
| $ | (2,888 | ) |
| NM |
| |||||||||||||
Operating income |
| $ | 51,235 |
|
| $ | 106,895 |
|
|
| (52.1 | )% | ||||||||||||
Operating margin |
|
| 9.7 | % |
|
| (0.4 | )% |
|
|
|
|
|
| 5.0 | % |
|
| 9.7 | % |
|
|
|
Net sales from Journeys Group increased 44.5%decreased 7.8% to $1.0 billion for the first nine months of Fiscal 2023, compared to $1.1 billion for the first nine months of Fiscal 2022, comparedprimarily due to $763.2decreased store sales and decreased digital comparable sales. We believe the Journeys consumer benefitted most from the government stimulus in the first nine months of Fiscal 2022 and is currently more affected by the U.S. macro-economic environment than customers of our other North American businesses.
Journeys Group had operating income of $51.2 million for the first nine months of Fiscal 2021, primarily due2023 compared to increased store sales, resulting from the reopening of stores that were closed during the first nine months of Fiscal 2021 due to the COVID-19 pandemic, partially offset by decreased digital comparable sales.
Journeys Group had operating income of $106.9 million for the first nine months of Fiscal 2022 compared to a loss2022. The decrease of $2.9 million for the first nine months of Fiscal 2021. The increase of $109.8 million52.1% in operating income for Journeys Group was due to (i) increaseddecreased net sales, (ii) increaseddecreased gross margin as a percentage of net sales reflecting increased markdowns with a return to a more normalized promotional environment and lower initial mark-ons, partially offset by lower shipping and warehouse expense and (iii) increased selling and administrative expenses as a percentage of net sales reflecting the deleverage of expenses, especially selling salaries, occupancy and marketing expenses as a result of decreased markdownsrevenue in the first nine months this year, partially offset by decreased performance-based compensation expense.
Schuh Group
|
| Nine Months Ended |
|
|
|
| ||||||
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| % |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 294,486 |
|
| $ | 294,581 |
|
|
| (0.0 | )% |
Operating income |
| $ | 5,260 |
|
| $ | 9,477 |
|
|
| (44.5 | )% |
Operating margin |
|
| 1.8 | % |
|
| 3.2 | % |
|
|
|
Net sales from Schuh Group were effectively flat at $294.5 million for the first nine months of Fiscal 2023 compared to $294.6 million for the first nine months of Fiscal 2022. Store sales increased as Schuh stores were only open 73% of possible days in the first nine months of Fiscal 2022 versus 100% of possible days in the first nine months of Fiscal 2023, offset by an unfavorable impact of $38.7 million due to changes in foreign exchange rates and decreased digital comparable sales. 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 had operating income of $5.3 million for the first nine months of Fiscal 2023 compared to $9.5 million for the first nine months of Fiscal 2022. The decrease of 44.5% in operating income for Schuh Group reflects increased selling and administrative expenses as a percentage of net sales for the first nine months of Fiscal 2023 compared to the first nine months of Fiscal 2022, reflecting more normalized operating expenses due to the 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 nine months last year. Excluding these one-time benefits last year, decreased occupancy, marketing and performance-based compensation expenses more than offset the deleverage in selling salaries. In addition, operating income included an unfavorable impact of $1.3 million due to changes in foreign exchange rates compared to last year. Gross margin increased as a percentage of net sales, reflecting decreased shipping and warehouse expense as well as improved initial marginsdriven by lower e-commerce penetration.
22
Johnston & Murphy Group
|
| Nine Months Ended |
|
|
|
| ||||||
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| % |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 225,448 |
|
| $ | 176,756 |
|
|
| 27.5 | % |
Operating income |
| $ | 7,256 |
|
| $ | 2,412 |
|
|
| 200.8 | % |
Operating margin |
|
| 3.2 | % |
|
| 1.4 | % |
|
|
|
Johnston & Murphy Group net sales increased 27.5% to $225.4 million for the first nine months of Fiscal 2023 from $176.8 million for the first nine months of Fiscal 2022, primarily due to increased wholesale sales, store sales and (iii)e-commerce sales. 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 pandemic, has fueled top line growth. Retail operations accounted for 73.0% of Johnston & Murphy Group's sales in the first nine months of Fiscal 2023, down from 77.1% in the first nine months of Fiscal 2022.
Johnston & Murphy Group operating income increased to $7.3 million for the first nine months of Fiscal 2023 compared to $2.4 million in the first nine months of Fiscal 2022. The increase of 200.8% was primarily due to (i) increased net sales and (ii) decreased selling and administrative expenses as a percentage of net sales due to greater leverage of fixed expenses as a result of revenue growth, and to decreasedespecially occupancy expense, selling salaries and compensation, partially offset by increased performance-based compensationmarketing expense.
23
Schuh GroupLicensed Brands
|
| Nine Months Ended |
|
|
|
|
|
| Nine Months Ended |
|
|
|
| |||||||||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| % Change |
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| % |
| ||||||
|
| (dollars in thousands) |
|
|
|
|
|
| (dollars in thousands) |
|
|
|
| |||||||||||
Net sales |
| $ | 294,581 |
|
| $ | 208,918 |
|
|
| 41.0 | % |
| $ | 123,538 |
|
| $ | 120,337 |
|
|
| 2.7 | % |
Operating income (loss) |
| $ | 9,477 |
|
| $ | (15,158 | ) |
| NM |
| |||||||||||||
Operating income |
| $ | 2,551 |
|
| $ | 3,420 |
|
|
| (25.4 | )% | ||||||||||||
Operating margin |
|
| 3.2 | % |
|
| (7.3 | )% |
|
|
|
|
|
| 2.1 | % |
|
| 2.8 | % |
|
|
|
NetLicensed Brands' net sales increased 2.7% to $123.5 million for the first nine months of Fiscal 2023, from Schuh Group increased 41.0% to $294.6$120.3 million for the first nine months of Fiscal 2022 comparedprimarily reflecting an increase in sales of private label and Dockers footwear, partially offset by repositioning the distribution of the mix of the Levi's brand to $208.9rely less on the value channel.
Licensed Brands' operating income was $2.6 million for the first nine months of Fiscal 2021 primarily due2023 compared to increased store sales, resulting from the reopening of stores that were closed during$3.4 million in the first nine months of Fiscal 2021 due to the COVID-19 pandemic, the favorable impact of $23.2 million due to changes in foreign exchange rates and increased digital comparable sales. Stores were open almost 73% of the possible operating days during the first nine months of Fiscal 2022 compared to 65% of possible operating days during the first nine months of Fiscal 2021.
Schuh Group had operating income of $9.5 million for the first nine months of Fiscal 2022 compared to an operating loss of $15.2 million for the first nine months of Fiscal 2021.2022. The $24.6 million increase25.4% decrease in operating income this year reflectswas primarily due to (i) increased net sales, (ii) increaseda decrease in gross margin as a percentage of net sales reflecting less promotional activitydue to increased freight and decreased shippinglogistics costs partially offset by favorable changes in sales mix and warehouse expense and (iii) decreased(ii) increased selling and administrative expenses as a percentage of net sales reflecting decreased occupancy expense primarily as a resultdeleverage of rent abatement agreements with our landlords, grant income from the U.K. and ROI governments, reduced expenses and greater leverage of fixed expenses as a result of revenue growth,changes in sales mix, partially offset by increased marketing and performance-based compensation expense.
Johnston & Murphy Group
|
| Nine Months Ended |
|
|
|
|
| |||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| % Change |
| |||
|
| (dollars in thousands) |
|
|
|
|
| |||||
Net sales |
| $ | 176,756 |
|
| $ | 102,601 |
|
|
| 72.3 | % |
Operating income (loss) |
| $ | 2,412 |
|
| $ | (38,964 | ) |
| NM |
| |
Operating margin |
|
| 1.4 | % |
|
| (38.0 | )% |
|
|
|
|
Johnston & Murphy Group net sales increased 72.3% to $176.8 million for the first nine months of Fiscal 2022 from $102.6 million for the first nine months of Fiscal 2021, primarily due to increased store sales, resulting from the reopening of stores closed during the first nine months of Fiscal 2021 due to the COVID-19 pandemic, and increased wholesale sales and digital comparable sales. Retail operations accounted for 77.1% of Johnston & Murphy Group's sales in the first nine months of Fiscal 2022, up from 72.8% in the first nine months of last year.
Johnston & Murphy Group had operating income of $2.4 million for the first nine months of Fiscal 2022 compared to an operating loss of $39.0 million for the first nine months of Fiscal 2021. The increase of $41.4 million of operating income was primarily due to (i) increased net sales, (ii) increased gross margin as a percentage of net sales, reflecting decreased retail markdowns, decreased inventory reserves, decreased shipping and warehouse expense and a higher mix of retail product and (iii) decreased selling and administrative expenses as a percentage of net sales due to reduced expenses, especially occupancy expense, and greater leverage of fixed expenses as a result of revenue growth, partially offset by increased performance-based compensation expense.
Licensed Brands
|
| Nine Months Ended |
|
|
|
|
| |||||
|
| October 30, 2021 |
|
| October 31, 2020 |
|
| % Change |
| |||
|
| (dollars in thousands) |
|
|
|
|
| |||||
Net sales |
| $ | 120,337 |
|
| $ | 74,972 |
|
|
| 60.5 | % |
Operating income (loss) |
| $ | 3,420 |
|
| $ | (2,931 | ) |
| NM |
| |
Operating margin |
|
| 2.8 | % |
|
| (3.9 | )% |
|
|
|
|
Licensed Brands' net sales increased 60.5% to $120.3 million for the first nine months of Fiscal 2022, from $75.0 million for the first nine months of Fiscal 2021, reflecting primarily the growth of the Levi’s footwear business as well as increased sales in our other licensed brands as customers began to recover from the COVID-19 pandemic and order volumes from our wholesale customers improved.
Licensed Brands' operating income was $3.4 million for the first nine months of Fiscal 2022 compared to an operating loss of $2.9 million in the first nine months of Fiscal 2021. The $6.4 million increase in operating income was primarily due to (i) increased net sales, (ii) increased gross margin as a percentage of net sales as the prior year gross margin was impacted by pre-Togast acquisition royalty and commission cost
24
and (iii) decreased selling and administrative expenses as a percentage of net sales reflecting decreased bad debt expense and shipping and compensation expenses, partially offset by increased royalty and performance-based compensation expense. While gross margin increased for the first nine months this year, excess freight and logistics costs related to supply chain challenges negatively impacted gross margin.expenses.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for the first nine months of Fiscal 20222023 was $50.0$22.9 million compared to $30.6$50.0 million for the first nine months of Fiscal 2021.2022. Corporate expense in the first nine months of Fiscal 2023 included a gain of $0.2 million in asset impairment and other charges from a gain on the termination of the pension plan, partially offset by asset impairments. Corporate expense in the first nine months of Fiscal 2022 included a $10.1 million charge in asset impairment and other charges for professional fees related to the actions of an activist shareholder and retail store asset impairments, partially offset by an insurance gain. CorporateThe corporate expense indecrease, excluding asset impairment and other charges, primarily reflected decreased performance-based compensation expense.
Net interest expense decreased to $1.6 million for the first nine months of Fiscal 2021 included a $16.0 million charge in asset impairment and other charges for retail store and intangible asset impairments, partially offset by the release of an earnout related2023 compared to the Togast acquisition. The corporate expense increase, excluding asset impairment and other charges, reflected increased performance-based compensation expense and expenses related to the new headquarters building.
Additionally, the first nine months of Fiscal 2021 included a goodwill impairment charge of $79.3 million.
Netnet interest expense decreased toof $1.9 million for the first nine months of Fiscal 2022 compared to net interest expense of $4.2 million for the first nine months of Fiscal 2021 primarily reflecting decreased average borrowings in the first nine months this year.2022.
23
Liquidity and Capital Resources
The impacts of the COVID-19 pandemic, including the related supply chain challenges, 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.
Working Capital
Our business is seasonal, with our investment in inventory and accounts receivableworking capital normally reaching peaks in the springsummer and fall of each year.year in anticipation of the back-to-school and holiday selling seasons. Historically, cash flows from operations typically have been generated principally in the fourth quarter of each fiscal year.
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
Cash flow changes: |
| October 30, 2021 |
|
| October 31, 2020 |
|
| Increase (Decrease) |
|
| October 29, 2022 |
|
| October 30, 2021 |
|
| Increase |
| ||||||
(in millions) |
|
|
| |||||||||||||||||||||
Net cash provided by operating activities |
| $ | 152.1 |
|
| $ | 51.3 |
|
| $ | 100.8 |
| ||||||||||||
(in thousands) |
|
|
| |||||||||||||||||||||
Net cash provided by (used in) operating activities |
| $ | (243,970 | ) |
| $ | 152,114 |
|
| $ | (396,084 | ) | ||||||||||||
Net cash used in investing activities |
|
| (34.4 | ) |
|
| (18.1 | ) |
|
| (16.3 | ) |
|
| (39,845 | ) |
|
| (34,421 | ) |
|
| (5,424 | ) |
Net cash used in financing activities |
|
| (50.7 | ) |
|
| (1.8 | ) |
|
| (48.9 | ) |
|
| (1,647 | ) |
|
| (50,700 | ) |
|
| 49,053 |
|
Effect of foreign exchange rate fluctuations on cash |
|
| 0.7 |
|
|
| 2.2 |
|
|
| (1.5 | ) |
|
| (2,950 | ) |
|
| 680 |
|
|
| (3,630 | ) |
Increase in cash and cash equivalents |
| $ | 67.7 |
|
| $ | 33.6 |
|
| $ | 34.1 |
| ||||||||||||
Net increase (decrease) in cash and cash equivalents |
| $ | (288,412 | ) |
| $ | 67,673 |
|
| $ | (356,085 | ) |
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 $100.8$396.1 million higher for the first nine months of Fiscal 20222023 compared to the first nine months of Fiscal 2021,2022, reflecting primarily the following factors:
|
|
|
|
|
|
•
• an $85.1 million decrease in cash flow from changes in other assets and liabilities primarily reflecting rent payments made in the first
nine months of Fiscal 2022 versus rent payments being held in the first nine months of Fiscal 2021; and
|
|
Cash used in investing activities was $16.3$5.4 million higher for the first nine months of Fiscal 20222023 as compared to the first nine months of Fiscal 20212022 reflecting increased capital expenditures primarily related to the new headquarters building andinvestments in retail stores, partially offset by decreased capital expenditures for digital and omni-channelomnichannel initiatives.
25
Cash used in financing activities was $48.9$49.1 million higherlower for the first nine months of Fiscal 20222023 as compared to the first nine months of Fiscal 20212022 reflecting increased borrowings this year compared to the same period last year, partially offset by share repurchases this year.and the payment of Fiscal 2022 share repurchase accruals of $77.5 million in the first nine months of Fiscal 2023 compared to share repurchases of $28.5 million in the first nine months of Fiscal 2022.
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 October 30, 2021,29, 2022, we have borrowed $15.6$85.9 million under our Credit Facility, which includes $72.2 million in U.S. revolver borrowings and $13.7 million (£11.411.8 million) in Genesco (UK) Limited. In addition, we borrowed $3.5 million (£3.0 million) under our Credit Facility.Schuh Facility Letter. We were in compliance with all the relevant terms and conditions of the Credit Facility and Facility Letter as of October 30, 2021.29, 2022.
On November 2, 2022, Schuh entered into a facility agreement (the "Facility Agreement") with Lloyds Bank PLC ("Lloyds") for a £19.0 million revolving credit facility. The Facility Agreement expires November 2, 2025, with options to request two one-year extensions to this termination date subject to lender approval, and bears interest at 2.35% over the Bank of England Base Rate. This Facility Agreement replaces Schuh's Facility Letter that would have expired in October 2023.
24
We believe that cash on hand, cash provided by operations and borrowings under our amended Credit Facility and the new Schuh Facility Agreement will be sufficient to support our liquidity needs in Fiscal 2023 and the foreseeable future.
During the second quarterremainder of Fiscal 2022,2023, we paid offexpect our primary cash requirements to be directed towards funding operating activities. We expect our end of year cash balance to return to a more normalized level. While the $17.5 million FILO loantiming 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 Credit Facility.shareholders through opportunistic share repurchases pursuant to our repurchase authorization described in more detail below.
In the fourth quarter of Fiscal 2021, we implemented tax strategies allowed under the 5-year carryback provisions in the CARES Act which we believe willbelieved would generate approximately $55 million of net tax refunds. Through the end of the third quarter of Fiscal 2022, we haveWe received approximately $26 million of such net tax refunds and expect to receive the balance over the remainder ofin Fiscal 2022 which may extend intoand anticipated receipt of the remaining outstanding net tax refund in Fiscal 2023.
Our performance-based compensation plans are designed to be self-funded by our improved operating results on a year-over-year basis. If the improvement in our operating results continues for the remainder of Fiscal 2022, we may be required to pay larger than normal performance-based compensation However, in the firstthird quarter of Fiscal 2023.
As2023, we manage throughwere notified the impactsIRS would conduct an audit of the COVID-19 pandemic in Fiscal 2022,periods related to the outstanding net tax refund. While we do not believe any uncertainty with the technical merits of the positions generating the net tax refunds exists, we do anticipate the timing of the net tax refund will be extended as a result of the audit process. Accordingly, we have accessadjusted the presentation of the outstanding refund to our existing cash, as well as our available credit facilities to meet short-term liquidity needs. We believe that cashnon-current prepaid income taxes on hand, cash provided by operations and borrowings under our Credit Facility and the Schuh Facility Letter will be sufficient to support our near-term liquidityCondensed Consolidated Balance Sheets for Fiscal 2023.
Contractual Obligations
Our contractual obligations at October 30, 202129, 2022 decreased approximately 11% compared to January 30, 2021,29, 2022, primarily due to decreased operating lease obligations, partially offset by increased long-term debt and purchase obligations and long-term debt.obligations.
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 83%54% is for new stores and remodels and 46% is for computer hardware, software and warehouse enhancements for initiatives to drive traffic and omni-channel capabilities. Planned capital expenditures excludes approximately $13$11 million, or $9 million net of tenant allowance,allowances, for the new corporate headquarters building. In January of Fiscal 2022, as part of our continuing efforts to optimize our distribution center footprint, we sold a distribution warehouse for $20 million.
Common Stock Repurchases
We repurchased 451,343 shares during the third quarter of Fiscal 2023 at a cost of $20.8 million, or $46.01 per share and repurchased 1,380,272 shares during the first nine months of Fiscal 2023 at a cost of $72.7 million, or $52.66 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 nine months ended October 29, 2022. We have $34.1 million remaining as of October 29, 2022 under our expanded share repurchase authorization announced in February 2022. We repurchased 521,693 shares during the third quarter and first nine months of Fiscal 2022 at a cost of $30.6 million, or $58.71 per share. We accrued $2.1 million for share repurchases as of October 30, 2021 which is included in other accrued liabilities onDuring the Condensed Consolidated Balance Sheets. We have $59.0 million remaining as of October 30, 2021 under our current $100.0 million share repurchase authorization. We did not repurchase any shares during the thirdfourth quarter or first nine months of Fiscal 2021.2023, through December 7, 2022, we have not repurchased any shares.
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 9,8, "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 third quarter of Fiscal 20222023 are included in Note 1 to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
2625
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 Controls and 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 October 30, 2021,29, 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
There were no changes in our internal control over financial reporting that occurred during our third quarter of Fiscal 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
2726
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We incorporate by reference the information regarding legal proceedings in Item 1, Note 9,8, “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 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, 2021October 29, 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
Repurchases (shown in thousands except share and per share amounts):
ISSUER PURCHASES OF EQUITY SECURITIES |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
| (a) Total Number of Shares Purchased |
|
| (b) Average Price Paid per Share |
|
| (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
| ||||
August 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8-1-21 to 8-28-21 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8-29-21 to 9-25-21 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9-26-21 to 10-30-21(1) |
|
| 521,693 |
|
| $ | 58.71 |
|
|
| 521,693 |
|
| $ | 59,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| 521,693 |
|
| $ | 58.71 |
|
|
| 521,693 |
|
| $ | 59,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Share repurchases were made pursuant to a $100.0 million share repurchase program approved by the Board of Directors in September 2019. 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. |
|
ISSUER PURCHASES OF EQUITY SECURITIES |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Period |
| (a) Total |
|
| (b) Average |
|
| (c) Total |
|
| (d) Maximum |
| ||||
August 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
7-31-22 to 8-27-22 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 54,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
September 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
8-28-22 to 9-24-22(1) |
|
| 431,343 |
|
| $ | 46.24 |
|
|
| 431,343 |
|
| $ | 34,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
October 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
9-25-22 to 10-29-22 (1) |
|
| 20,000 |
|
| $ | 41.20 |
|
|
| 20,000 |
|
| $ | 34,137 |
|
9-25-22 to 10-29-22 (2) |
|
| 1,518 |
|
| $ | 41.79 |
|
|
| — |
|
|
| — |
|
Total |
|
| 452,861 |
|
| $ | 46.00 |
|
|
| 451,343 |
|
| $ | 34,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(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. |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(2) These shares represent shares withheld from vested restricted stock to satisfy the minimum withholding requirement for federal and state taxes. |
|
2827
Item 6. Exhibits
Exhibit Index |
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(3.1)
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(3.3) | ||
(3.4) | Restated Charter of Genesco Inc., as amended, redlined for amendments effective June 23, 2022. | |
(31.1) |
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(31.2) |
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(32.1) |
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(32.2) |
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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.) |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
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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) |
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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.
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Genesco Inc. | |||||||||
| By: |
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| /s/ Thomas A. George | ||||||||
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| Thomas A. George | ||||||
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| Senior Vice President - Finance and Chief Financial Officer |
Date: December 9, 20218, 2022
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