UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended |
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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.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Zip Code) |
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(Address of principal executive offices) |
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Registrant's telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on which registered |
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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.
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).
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:
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Large accelerated filer |
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Non-accelerated filer |
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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
As of August 27, 2021, there were
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), including disruptions to our business, sales, supply chain and financial results, the level of consumer spending on our merchandise and in general, the timing of the re-opening and 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, the timing and amount of any share repurchases by us, risks related to doing business internationally, the increasing scope of our non-U.S. operations, 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, our ability to obtain from suppliers products that are in-demand on a timely basis and effectively manage disruptions in product supply or distribution, unfavorable trends in fuel costs, foreign exchange rates, foreign labor and material costs, a disruption in shipping or increase in cost of our imported products, and other factors affecting the cost of products, our dependence on third-party vendors and licensors for the products we sell, the effects of the British decision to exit the European Union and other sources of market weakness in the U.K. and the Republic of Ireland, the effectiveness of our omnichannel initiatives, our ability to staff our stores, costs associated with changes in minimum wage and overtime requirements, wage pressure in the U.S. and the U.K., and other inflationary pressures, the evolving regulatory landscape related to our use of social media, the establishment and protection of our intellectual property, weakness in the consumer economy and retail industry, competition and fashion trends in our markets, including trends with respect to the popularity of casual and dress footwear, weakness in shopping mall traffic, any failure to increase sales at our existing stores, given our high fixed expense cost structure, and in our e-commerce businesses, risks related to the potential for terrorist events, changes in buying patterns by significant wholesale customers, changes in consumer preferences, our ability to continue to complete and integrate acquisitions, expand our business and diversify our product base, impairment of goodwill in connection with acquisitions, payment related risks that could increase our operating cost, expose us to fraud or theft, subject us to potential liability and disrupt our business, retained liabilities associated with divestitures of businesses including potential liabilities under leases as the prior tenant or as a guarantor of certain 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 the 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 to realize anticipated cost savings, including rent savings, our ability to realize any anticipated tax benefits, our ability to achieve expected digital gains and gain market 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, unexpected changes to the market for our shares or for the retail sector in general, costs and reputational harm as a result of disruptions in our business or information technology systems either by security breaches and incidents or by potential problems associated with the implementation of new or upgraded systems, uncertainty regarding the expected phase out of the London Interbank Offered Rate ("LIBOR"), the cost and outcome of litigation, investigations and environmental matters that involve us, and the impact of actions initiated by activist shareholders.
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, 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)
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Assets |
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July 31, 2021 |
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January 30, 2021 |
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August 1, 2020 |
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Current Assets: |
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Cash and cash equivalents |
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$ |
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$ |
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$ |
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Accounts receivable, net of allowances of $ |
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$ |
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Inventories |
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Prepaids and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right of use assets |
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Goodwill |
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Other intangibles |
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Deferred income taxes |
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Other noncurrent assets |
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Total Assets |
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Liabilities and Equity |
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Current Liabilities: |
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Accounts payable |
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Current portion - long-term debt |
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— |
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— |
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Current portion - operating lease liabilities |
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Other accrued liabilities |
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Total current liabilities |
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Long-term debt |
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Long-term operating lease liabilities |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingent liabilities |
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Equity |
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Non-redeemable preferred stock |
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Common equity: |
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Common stock, $ |
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Authorized: |
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Issued common stock |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
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Treasury shares, at cost ( |
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Total equity |
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Total Liabilities and Equity |
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$ |
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$ |
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$ |
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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)
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Three Months Ended |
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Six Months Ended |
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July 31, 2021 |
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August 1, 2020 |
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July 31, 2021 |
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August 1, 2020 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross margin |
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Selling and administrative expenses |
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Goodwill impairment |
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Asset impairments and other, net |
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Operating income (loss) |
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( |
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( |
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Other components of net periodic benefit cost (income) |
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( |
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( |
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Interest expense (net of interest income of $ |
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Earnings (loss) from continuing operations before income taxes |
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( |
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( |
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Income tax expense (benefit) |
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( |
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( |
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Earnings (loss) from continuing operations |
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( |
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( |
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Gain (loss) from discontinued operations, net of tax |
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( |
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( |
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Net Earnings (Loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Basic earnings (loss) per common share: |
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Continuing operations |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Discontinued operations |
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( |
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( |
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Net earnings (loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Diluted earnings (loss) per common share: |
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Continuing operations |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Discontinued operations |
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( |
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( |
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Net earnings (loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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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)
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Three Months Ended |
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Six Months Ended |
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July 31, 2021 |
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August 1, 2020 |
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July 31, 2021 |
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August 1, 2020 |
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Net earnings (loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Other comprehensive income (loss): |
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Postretirement liability adjustments, net of tax |
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( |
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( |
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( |
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Foreign currency translation adjustments |
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( |
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Total other comprehensive income (loss) |
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( |
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Comprehensive Income (Loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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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)
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Six Months Ended |
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July 31, 2021 |
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August 1, 2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net earnings (loss) |
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$ |
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$ |
( |
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Adjustments to reconcile net earnings (loss) to net cash provided by |
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operating activities: |
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Depreciation and amortization |
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Deferred income taxes |
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( |
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Impairment of intangible assets |
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Impairment of long-lived assets |
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Restricted stock expense |
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Other |
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Changes in working capital and other assets and liabilities, net of acquisitions/dispositions: |
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Accounts receivable |
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( |
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Inventories |
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( |
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( |
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Prepaids and other current assets |
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( |
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Accounts payable |
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Other accrued liabilities |
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Other assets and liabilities |
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( |
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Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Capital expenditures |
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( |
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( |
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Proceeds from asset sales |
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Other |
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Net cash used in investing activities |
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( |
) |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Borrowings under revolving credit facility |
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Payments on revolving credit facility |
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( |
) |
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( |
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Restricted shares withheld for taxes |
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( |
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( |
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Change in overdraft balances |
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( |
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( |
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Other |
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( |
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( |
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Net cash provided by (used in) financing activities |
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( |
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Effect of foreign exchange rate fluctuations on cash |
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Net Increase in Cash and Cash Equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental information: |
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Interest paid |
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$ |
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$ |
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Income taxes paid (refunded) |
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( |
) |
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Cash paid for amounts included in measurement of operating lease liabilities |
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Operating leased assets obtained in exchange for new operating lease liabilities |
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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)
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Non- Redeemable Preferred Stock |
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Common Stock |
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Additional Paid-In Capital |
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Retained Earnings |
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Accumulated Other Comprehensive Loss |
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Treasury Shares |
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Total Equity |
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Balance February 1, 2020 |
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$ |
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$ |
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$ |
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|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Employee and non-employee share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance May 2, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Employee and non-employee restricted stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Restricted stock issuance |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Restricted shares withheld for taxes |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Other |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance August 1, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- Redeemable Preferred Stock |
|
|
Common Stock |
|
|
Additional Paid-In Capital |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Loss |
|
|
Treasury Shares |
|
|
Total Equity |
|
|||||||
|
Balance January 30, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Employee and non-employee share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Balance May 1, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
Net earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Employee and non-employee restricted stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Restricted stock issuance |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Restricted shares withheld for taxes |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Other |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance July 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
8
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1
Summary of Significant Accounting Policies
Basis of Presentation
The Condensed Consolidated Financial Statements and Notes contained in this report are unaudited but reflect all adjustments, including normal recurring adjustments, necessary for a fair presentation of the results for the interim periods of the fiscal year ending January 29, 2022 ("Fiscal 2022") and of the fiscal year ended January 30, 2021 ("Fiscal 2021"). 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, 2021 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, which are contained in our Annual Report on Form 10-K as filed with the SEC on March 31, 2021.
Nature of Operations
Genesco Inc. and its subsidiaries (collectively the "Company", "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, schuh.co.uk, schuh.ie, schuh.eu, johnstonmurphy.com, johnstonmurphy.ca and littleburgundyshoes.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 July 31, 2021, we operated
During the three and six months ended July 31, 2021 and August 1, 2020, we operated
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 $
Retail occupancy costs recorded in selling and administrative expense were $
Advertising Costs
Advertising costs were $
Vendor Allowances
Vendor reimbursements of cooperative advertising costs recognized as a reduction of selling and administrative expenses were $
9
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 2
COVID-19
In March 2020, the World Health Organization categorized the outbreak of COVID-19 as a pandemic. To help control the spread of the virus and protect the health and safety of our employees and customers, we temporarily closed or modified operating models and hours of our retail stores in North America, the U.K. and the ROI beginning in March 2020 both in response to governmental requirements including “stay-at-home” orders and similar mandates and voluntarily, beyond the requirements of local government authorities. A portion of our store fleet remained closed during Fiscal 2021 and the first six months of Fiscal 2022. As of August 31, 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 since then. This prompted us to update our impairment analyses of our retail store portfolios and related lease right-of-use assets. For certain lower-performing stores, we compared the carrying value of store assets to undiscounted cash flows with updated assumptions on near-term profitability.
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 and July 31, 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 $
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. 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 first quarter of Fiscal 2021, we have withheld certain contractual rent payments generally correlating with time periods when our stores were closed and/or correlating with sales declines from Fiscal 2020. We continue to recognize rent expense in accordance with the contractual terms. We are working with landlords in various markets seeking commercially reasonable lease concessions given the current environment, and while a number of agreements have been reached, some 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, we qualified for certain employer payroll tax credits as well
10
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 2
COVID-19, Continued
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, 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 $
Savings from the government program in the U.K. have provided property tax relief for the quarters ended May 1, 2021 and July 31, 2021 of approximately $
The COVID-19 pandemic continues to evolve. The emergence of variants from the original strain, its economic impact and actions taken in response thereto, including, without limitation, the timing and availability of effective medical treatments and the ongoing rollout and acceptance of vaccines in response to the COVID-19 pandemic, may result in prolonged or recurring periods of store closures and modified operating schedules and may result in changes in customer behaviors, including a potential reduction in consumer discretionary spending in our stores 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 economy have and are likely to continue to impact the financial viability of our suppliers, and other business partners, which have interrupted and may continue to interrupt, our supply chain, limit our ability to collect receivables and require other changes to our operations. These and other factors have and may continue to adversely impact our net sales, gross margin, operating income and earnings per share financial measures.
Note 3
Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by segment were as follows:
|
(In thousands) |
|
Journeys Group |
|
|
Licensed Brands Group |
|
|
Total Goodwill |
|
|||
|
Balance, January 30, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Effect of foreign currency exchange rates |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Balance, July 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Other intangibles by major classes were as follows:
|
|
|
Trademarks (1) |
|
Customer Lists |
|
|
Other |
|
|
Total |
|
||||||||||||||||||||
|
(In thousands) |
|
July 31, 2021 |
|
|
Jan. 30, 2021 |
|
July 31, 2021 |
|
|
Jan. 30, 2021 |
|
|
July 31, 2021 |
|
|
Jan. 30, 2021 |
|
|
July 31, 2021 |
|
|
Jan. 30, 2021 |
|
||||||||
|
Gross other intangibles |
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Accumulated amortization |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net Other Intangibles |
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1) Includes a $
Note 4
Asset Impairments and Other Charges
We recorded pretax charges of $
11
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 4
Asset Impairments and Other Charges, Continued
pretax charges of $
Note 5
Inventories
|
(In thousands) |
|
July 31, 2021 |
|
|
January 30, 2021 |
|
||
|
Wholesale finished goods |
|
$ |
|
|
|
$ |
|
|
|
Retail merchandise |
|
|
|
|
|
|
|
|
|
Total Inventories |
|
$ |
|
|
|
$ |
|
|
Note 6
Fair Value
Fair Value of Financial Instruments
The carrying amounts and fair values of our financial instruments at July 31, 2021 and January 30, 2021 are as follows:
|
Fair Values |
|
|
|
|||||||||||||
|
(In thousands) |
|
July 31, 2021 |
|
|
January 30, 2021 |
|
||||||||||
|
|
|
Carrying Amount |
|
|
Fair Value |
|
|
Carrying Amount |
|
|
Fair Value |
|
||||
|
U.S. Revolver Borrowings |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
UK Revolver Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2021, we have $
Note 7
Earnings Per Share
Weighted-average number of shares used to calculate earnings per share are as follows:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
(Shares in thousands) |
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
||||
|
Weighted-average number of shares - basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the loss from continuing operations in the three months and six months ended August 1, 2020, share-based awards are excluded from the diluted earnings per share calculation for those periods because they would be antidilutive.
12
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 8
Long-Term Debt
|
(In thousands) |
|
July 31, 2021 |
|
|
January 30, 2021 |
|
||
|
U.S. revolver borrowings |
|
$ |
|
|
|
$ |
|
|
|
U.K. revolver borrowings |
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
|
|
|
|
|
|
|
Current portion |
|
|
|
|
|
|
|
|
|
Total Noncurrent Portion of Long-Term Debt |
|
$ |
|
|
|
$ |
|
|
We were in compliance with all the relevant terms and conditions of the Credit Facility and Facility Letter as of July 31, 2021.
During the second quarter of Fiscal 2022, we paid off the $
Note 9
Legal Proceedings
Environmental Matters
New York State Environmental Matters
In August 1997, the New York State Department of Environmental Conservation (“NYSDEC”) and the Company 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 to the site of a knitting mill operated by a former subsidiary of ours from 1965 to 1969. The United States Environmental Protection Agency (“EPA”), which assumed primary regulatory responsibility for the site from NYSDEC, issued a Record of Decision 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, operation and maintenance activities and to reimburse EPA's future oversight cost, involving future costs to us estimated to be between $
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
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 $
In April 2015, we received from EPA a Notice of Potential Liability and Demand for Costs (the "Notice") pursuant to CERCLA regarding the site in Gloversville, New York of a former leather tannery operated by us and by other, unrelated parties. The Notice demanded payment of approximately $
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 the facility site designed to bring the site into compliance with applicable regulatory standards. The Work Plan's implementation is substantially complete and we expect, based on our present understanding of the condition of the site, that our future obligations with respect to the site will be limited to periodic monitoring and that future costs related to the site should not have a material effect on our financial condition or results of operations.
Accrual for Environmental Contingencies
Related to all outstanding environmental contingencies, we had accrued $
In addition to the matters specifically described in this Note, we are a party to other legal and regulatory proceedings and claims arising in the ordinary course of our business. While management does not believe that our liability with respect to any of these other matters is likely to have a material effect on our financial statements, legal proceedings are subject to inherent uncertainties and unfavorable rulings could have a material adverse impact on our financial statements.
Note 10
Commitments
As part of our Togast 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 July 31, 2021, the inventory owned by Samsung had a historical cost of $
14
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 11
Business Segment Information
|
Three Months Ended July 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Journeys Group |
|
|
Schuh Group |
|
|
Johnston & Murphy Group |
|
|
Licensed Brands |
|
|
Corporate & Other |
|
|
Consolidated |
|
||||||
|
Sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Intercompany sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net sales to external customers |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Segment operating income (loss) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Asset impairments and other (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Other components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Total assets (2) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Asset impairments and other includes a $
(2) Of our $
15
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 11
Business Segment Information, Continued
|
Three Months Ended August 1, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Journeys Group |
|
|
Schuh Group |
|
|
Johnston & Murphy Group |
|
|
Licensed Brands |
|
|
Corporate & Other |
|
|
Consolidated |
|
||||||
|
Sales |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Intercompany sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net sales to external customers |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Segment operating income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Asset impairments and other (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Operating income (loss) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other components of net periodic benefit income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Total assets (2) |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Asset impairments and other includes a $
(2) Of our $
|
Six Months Ended July 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Journeys Group |
|
|
Schuh Group |
|
|
Johnston & Murphy Group |
|
|
Licensed Brands |
|
|
Corporate & Other |
|
|
Consolidated |
|
||||||
|
Sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Intercompany sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net sales to external customers |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Segment operating income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Asset impairments and other(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Operating income (loss) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Other components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Depreciation and amortization |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Asset impairments and other includes an $
16
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 11
Business Segment Information, Continued
|
Six Months Ended August 1, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Journeys Group |
|
|
Schuh Group |
|
|
Johnston & Murphy Group |
|
|
Licensed Brands |
|
|
Corporate & Other |
|
|
Consolidated |
|
||||||
|
Sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Intercompany sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net sales to external customers |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Segment operating loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Goodwill impairment(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Asset impairments and other(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Operating loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other components of net periodic benefit income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Depreciation and amortization |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Goodwill impairment of $
(2) Asset impairments and other includes a $
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, 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 41.9% to $555.2 million for the second quarter of Fiscal 2022 compared to $391.2 million for the second quarter of Fiscal 2021. This sales increase was driven by increased store sales resulting from the reopening of stores that were closed during the second quarter of Fiscal 2021 due to the COVID-19 pandemic, increased wholesale sales and the favorable impact of foreign exchange rates, partially offset by a 23% decrease in digital comparable sales. Stores were open approximately 97% of possible days in the second quarter of Fiscal 2022 as compared to 69% in the second quarter of Fiscal 2021. We have not disclosed comparable sales for the second quarter of Fiscal 2022 or Fiscal 2021, as we believe that overall sales is a more meaningful metric during these periods due to the impact of the COVID-19 pandemic and our policy of removing any store closed for seven consecutive days from comparable sales. See below, under the heading “Comparable Sales”, for our definition of comparable sales.
Journeys Group sales increased 25%, Schuh Group sales increased 48%, Johnston & Murphy Group sales increased 154% and Licensed Brands sales increased 122% during the second quarter of Fiscal 2022 compared to the same quarter of Fiscal 2021. Gross margin as a percentage of net sales increased to 49.1% during the second quarter of Fiscal 2022, compared to 42.7% for the second quarter of Fiscal 2021. This reflects increased gross margin as a percentage of net sales in all of our business units primarily due to fewer markdowns at Journeys Group, Schuh Group and Johnston & Murphy retail and lower shipping and warehouse expense, partially offset by a shift in the mix of our businesses. The lower shipping and warehouse expense in the second quarter 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 as a percentage of net sales decreased to 45.5% of net sales during the second quarter of Fiscal 2022 from 47.9% for the second quarter of Fiscal 2021, reflecting decreased expenses as a percentage of net sales in all of our operating business units. The decrease as a percentage of net sales in expenses this year was primarily due 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. Operating margin was 2.3% for the second quarter of Fiscal 2022 compared to (5.6)% in the second quarter of Fiscal 2021, reflecting increased operating margin in all of our operating business units as a result of the increased gross margin as a percentage of net sales and decreased expenses as a percentage of net sales.
Significant Developments
COVID-19 Update
In March 2020, the World Health Organization categorized the outbreak of COVID-19 as a pandemic. As a result, and in consideration of the health and well-being of our employees, customers and communities, and in support of efforts to contain the spread of the virus, we have taken several precautionary measures and adjusted our operational needs, including:
|
|
• |
On March 18, 2020, we temporarily closed our North American retail stores. |
|
|
• |
On March 19, 2020, we borrowed $150.0 million under our Credit Facility as a precautionary measure to ensure funds were available to meet our obligations for a substantial period of time in response to the COVID-19 pandemic that caused public health officials to recommend precautions that would mitigate the spread of the virus, including “stay-at-home” orders and similar mandates and warning the public against congregating in heavily populated areas such as malls and shopping centers. We paid down the $150.0 million on September 10, 2020. |
|
|
• |
On March 19, 2020, Schuh entered into an Amendment and Restatement Agreement (the “U.K. A&R Agreement”) with Lloyds Bank which amended and restated the Amendment and Restatement Agreement dated April 26, 2017. The U.K. A&R Agreement included only a Facility C revolving credit agreement of £19.0 million, bore interest at LIBOR plus 2.2% per annum and expired in September 2020. In March 2020, we borrowed £19.0 million as a precautionary measure in response to the COVID-19 pandemic. The U.K. A&R Agreement was replaced with the Facility Letter in October 2020 and the outstanding borrowings in the amount of £19.0 million were repaid. |
|
|
• |
On March 23, 2020, we temporarily closed our stores in the U.K. and the ROI. |
|
|
• |
On March 26, 2020, we temporarily closed our U.K. e-commerce business. Effective April 3, 2020, our U.K.-based Schuh business announced that it had reopened its e-commerce operations in compliance with government health and safety practices. |
|
|
• |
On March 27, 2020, we announced that we were adjusting our operational needs, including a significant reduction of expense, capital and planned inventory receipts. As part of these measures, we made the decision to temporarily reduce compensation for the executive team and select employees and reduced the cash compensation for our Board of Directors. In addition, we furloughed all of our full-time store employees in North America and our store and distribution center employees in the U.K. We also furloughed employees |
18
|
|
and reduced headcount in our corporate offices, call centers and distribution centers. In the aggregate, these actions resulted in a temporary reduction of our workforce by 90%. |
|
|
• |
During a portion of the first and second quarters of Fiscal 2021, we extended payment terms with suppliers, managed inventory by reducing future receipts and reduced planned capital expenditures by over 50%. For new receipts as of August 1, 2020, we have restored contractual payment terms with suppliers. |
|
|
• |
On June 5, 2020, we entered into a Second Amendment to our Credit Facility to, among other things, increase the Total Commitments (as defined in the Credit Facility) for the revolving loans from $275.0 million to $332.5 million, establish a First-in, Last-out (“FILO”) tranche of indebtedness of $17.5 million, for $350.0 million of total capacity. |
|
|
• |
On June 25, 2020, our Board of Directors considered the Company’s financial results to date and that more than 90% of the Company’s stores were expected to be reopened by June 30, 2020, and decided to restore going forward a portion of the compensation of the executive team and select employees whose compensation had been reduced on March 27, 2020. In addition, the cash compensation of our Board of Directors, which had also been reduced on March 27, 2020 was partially restored. |
|
|
• |
In October 2020, our Board of Directors restored going forward the remaining portion of the compensation of the executive team and select employees whose compensation had been reduced on March 27, 2020 as well as the compensation of the Board of Directors. |
|
|
• |
On October 9, 2020, Schuh entered into the Facility Letter with Lloyds under the U.K.'s Coronavirus Large Business Interruption Loan Scheme pursuant to which Lloyds made available a revolving credit facility (“RCF”) of £19.0 million for the purpose of refinancing Schuh's existing indebtedness with Lloyds. The RCF expires in October 2023 and bears interest at 2.5% over the Bank of England Base Rate. As of July 31, 2021, we have borrowed $4.2 million or £3.0 million under the Facility Letter. |
|
|
• |
During the fourth quarter of Fiscal 2021, another lockdown in the U.K. and the ROI disrupted the Schuh Group business with stores closed for approximately 80% of possible days in the first quarter of Fiscal 2022. All Schuh Group stores had re-opened as of the end of the second quarter of Fiscal 2022. |
|
|
• |
During the fourth quarter of Fiscal 2021, a second lockdown in several provinces in Canada disrupted business in some of the Journeys, Little Burgundy and Johnston & Murphy stores. All impacted stores in Canada had re-opened as of the end of the second quarter of Fiscal 2022. |
|
|
• |
In December 2020, the Company returned the compensation to select employees other than the executive team whose compensation had been reduced on March 27, 2020. |
|
|
• |
On June 7, 2021 we paid off the $17.5 million FILO loan. |
As of August 31, 2021, we are operating in substantially all of our 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 recommended for customers to wear masks. In most of the Schuh stores, it is required for both employees and customers to wear masks. In Johnston & Murphy shops and factory stores, it is recommended for employees and customers to wear masks.
As a result of the economic and business impact of the COVID-19 pandemic, we revised certain accounting estimates and judgments as discussed in the following paragraphs. Given the ongoing and evolving economic and business impact of the COVID-19 pandemic, we may be required to further revise certain accounting estimates and judgments such as, but not limited to, those related to the valuation of inventory, goodwill, long-lived assets and deferred tax assets, which could have a material adverse effect on our financial position and results of operations.
Since the first quarter of Fiscal 2021, we have withheld certain contractual rent payments generally correlating with time periods when our stores were closed and/or correlating with sales declines from Fiscal 2020. We continue to recognize rent expense in accordance with the contractual terms. We have been working with landlords in various markets seeking commercially reasonable lease concessions given the current environment, and while a number of agreements have been reached, some 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 and July 31, 2021, we have recognized approximately $6.1 million and $2.5 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, 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, $5.0 million and $2.5 million, respectively, on our Condensed Consolidated Statements of Operations. 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 1, 2021 and July 31, 2021 of approximately $4.7 million and $3.8 million, respectively. Other government relief programs in the U.K., ROI and Canada provided savings for the quarters ended May 1, 2021 and July 31, 2021 of approximately $3.2 million and $1.2 million, respectively.
Asset Impairment and Other Charges
We recorded pretax charges of $7.1 million in the second quarter of Fiscal 2022, including $6.2 million for professional fees related to actions of an activist shareholder and $1.4 million for retail store asset impairments, partially offset by a $0.6 million insurance gain.
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. 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. There have been no other significant changes in our definition of significant accounting policies or critical accounting estimates since the end of Fiscal 2021.
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-titled performance indicators used by other companies.
Comparable Sales
We consider comparable sales to be an important indicator of our current performance, and investors may find it useful as such. Comparable sales results are important to achieve leveraging of our costs, including occupancy, selling salaries, depreciation, etc. Comparable sales also have a direct impact on our total net revenue, cash and working capital. We define "comparable sales" as sales from stores open longer than one year, beginning with the first day a store has comparable sales (which we refer to in this report as "same store sales"), and sales from websites operated longer than one year and direct mail catalog sales (which we refer to in this report as "comparable direct sales"). Temporarily closed stores are excluded from the comparable sales calculation if closed for more than seven days. Expanded stores are excluded from the comparable sales calculation until the first day an expanded store has comparable prior year sales. Current year foreign exchange rates are applied to both current year and prior year comparable sales to achieve a consistent basis for comparison. We have not disclosed comparable sales for the second quarter and six months of Fiscal 2022, as we believe that overall sales are a more meaningful metric during these periods due to the impact of the COVID-19 pandemic and related extended store closures.
Results of Operations – Second Quarter of Fiscal 2022 Compared to Second Quarter of Fiscal 2021
Our net sales in the second quarter of Fiscal 2022 increased 41.9% to $555.2 million compared to $391.2 million in the second quarter of Fiscal 2021. This sales increase was driven by increased store sales resulting from the reopening of stores that were closed during the second quarter of Fiscal 2021 due to the COVID-19 pandemic, increased wholesale sales and the favorable impact of foreign exchange rates, partially offset by a 23% decrease in digital comparable sales. Stores were open approximately 97% of possible days in the second quarter of Fiscal 2022 as compared to 69% in the second quarter of Fiscal 2021.
Gross margin increased 63.2% to $272.5 million in the second quarter of Fiscal 2022 from $167.0 million in the second quarter of Fiscal 2021 and increased as a percentage of net sales from 42.7% to 49.1%, reflecting increased gross margin as a percentage of net sales in all of our operating business units primarily due to fewer markdowns at Journeys Group, Schuh Group and Johnston & Murphy retail and lower shipping and warehouse expense, partially offset by a shift in the mix of our businesses. The lower shipping and warehouse expense in the second quarter of Fiscal 2022 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 second quarter of Fiscal 2022 increased 34.9% but decreased as a percentage of net sales from 47.9% to 45.5%, reflecting decreased expenses as a percentage of net sales in all of our operating business units. The decrease in expenses as a percentage of net sales in Fiscal 2022 was primarily due 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. 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 second quarter of Fiscal 2022 were $12.2 million compared to a loss from continuing operations before income taxes (“pretax loss”) of $23.7 million for the second quarter of Fiscal 2021. Pretax earnings for the second quarter of Fiscal 2022 included asset impairments and other charges of $7.1 million for professional fees related
20
to the actions of an activist shareholder and retail store asset impairments, partially offset by an insurance gain. The pretax loss for the second quarter of Fiscal 2021 included asset impairments and other charges of $1.7 million for retail store asset impairments.
We recorded an effective income tax rate of 11.1% and 20.3% in the second quarter of Fiscal 2022 and Fiscal 2021, respectively. The tax rate for the second quarter of Fiscal 2022 is lower than Fiscal 2021 primarily due to the reduction of foreign losses in the second quarter of Fiscal 2022 for which we are unable to recognize a tax benefit and an additional tax benefit from the vesting of restricted stock.
Net earnings for the second quarter of Fiscal 2022 were $10.9 million, or $0.75 diluted earnings per share compared to a net loss of $19.0 million, or $1.34 diluted loss per share for the second quarter of Fiscal 2021.
Journeys Group
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
% Change |
|
|||
|
|
|
(dollars in thousands) |
|
|
|
|
|
|||||
|
Net sales |
|
$ |
346,275 |
|
|
$ |
276,631 |
|
|
|
25.2 |
% |
|
Operating income |
|
$ |
30,368 |
|
|
$ |
10,160 |
|
|
|
198.9 |
% |
|
Operating margin |
|
|
8.8 |
% |
|
|
3.7 |
% |
|
|
|
|
Net sales from Journeys Group increased 25.2% to $346.3 million for the second quarter of Fiscal 2022, compared to $276.6 million for the second quarter of Fiscal 2021, primarily due to increased store sales, resulting from the reopening of stores that were closed during the second quarter of Fiscal 2021 due to the COVID-19 pandemic, partially offset by decreased digital comparable sales. Journeys Group operated 1,142 stores at the end of the second quarter of Fiscal 2022, including 230 Journeys Kidz stores, 47 Journeys stores in Canada and 37 Little Burgundy stores in Canada, compared to 1,169 stores at the end of the second quarter of last year, including 232 Journeys Kidz stores, 47 Journeys stores in Canada and 38 Little Burgundy stores in Canada.
Journeys Group had operating income of $30.4 million for the second quarter of Fiscal 2022 compared to $10.2 million for the second quarter of Fiscal 2021. The increase of $20.2 million in operating income for Journeys Group was due to (i) increased net sales, (ii) increased gross margin as a percentage of net sales, reflecting decreased markdowns and (iii) decreased selling and administrative expenses as a percentage of net sales due to decreased occupancy expense and freight expense, partially offset by increased selling salaries, marketing expense and performance-based compensation expense.
Schuh Group
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
% Change |
|
|||
|
|
|
(dollars in thousands) |
|
|
|
|
|
|||||
|
Net sales |
|
$ |
106,079 |
|
|
$ |
71,732 |
|
|
|
47.9 |
% |
|
Operating income (loss) |
|
$ |
3,623 |
|
|
$ |
(6,838 |
) |
|
NM |
|
|
|
Operating margin |
|
|
3.4 |
% |
|
|
(9.5 |
)% |
|
|
|
|
Net sales from Schuh Group increased 47.9% to $106.1 million for the second quarter of Fiscal 2022 compared to $71.7 million for the second quarter of Fiscal 2021, primarily due to increased store sales, resulting from the reopening of stores that were closed during the second quarter of Fiscal 2021 due to the COVID-19 pandemic and the favorable impact of $10.8 million due to changes in foreign exchange rates, partially offset by decreased digital comparable sales. Stores were open almost all of the possible operating days during the second quarter of Fiscal 2022 compared to 48% of possible operating days during the second quarter of Fiscal 2021 as government mandated lockdowns that began during the fourth quarter of Fiscal 2021, were lifted throughout May 2021. Schuh Group operated 123 stores at the end of the second quarter of Fiscal 2022, compared to 127 stores at the end of the second quarter of Fiscal 2021.
Schuh Group had operating income of $3.6 million for the second quarter of Fiscal 2022 compared to an operating loss of $6.8 million for the second quarter of Fiscal 2021. The increase in operating income this year reflects (i) increased net sales, (ii) increased gross margin as a percentage of net sales, reflecting less promotional activity and decreased shipping and warehouse expense and (iii) decreased selling and administrative expenses as a percentage of net sales, reflecting greater leverage of fixed expenses as a result of the increased revenue, partially offset by increased performance-based compensation expense, selling salaries and marketing expenses. In addition, operating income included a favorable impact of $0.3 million due to changes in foreign exchange rates compared to last year.
21
Johnston & Murphy Group
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
% Change |
|
|||
|
|
|
(dollars in thousands) |
|
|
|
|
|
|||||
|
Net sales |
|
$ |
61,159 |
|
|
$ |
24,097 |
|
|
|
153.8 |
% |
|
Operating income (loss) |
|
$ |
3,951 |
|
|
$ |
(18,243 |
) |
|
NM |
|
|
|
Operating margin |
|
|
6.5 |
% |
|
|
(75.7 |
)% |
|
|
|
|
Johnston & Murphy Group net sales increased 153.8% to $61.2 million for the second quarter of Fiscal 2022 from $24.1 million for the second quarter of Fiscal 2021, primarily due to increased store sales, resulting from the reopening of stores closed during the second quarter of Fiscal 2021 due to the COVID-19 pandemic, and increased digital comparable sales and increased wholesale sales. With an increase in social events and gatherings, more customers returned to in-person shopping and retail traffic improved. Retail operations accounted for 81.1% of Johnston & Murphy Group's sales in the second quarter of Fiscal 2022, up from 79.4% in the second quarter of Fiscal 2021. The store count for Johnston & Murphy retail operations at the end of the second quarter of Fiscal 2022 was 174 stores, including eight stores in Canada, compared to 180 stores, including eight stores in Canada, at the end of the second quarter of Fiscal 2021.
Johnston & Murphy Group operating income of $4.0 million for the second quarter of Fiscal 2022 improved $22.2 million compared to an operating loss of $18.2 million in the second 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, 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 the increased revenue, partially offset by increased selling salaries and performance-based compensation expense.
Licensed Brands
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
% Change |
|
|||
|
|
|
(dollars in thousands) |
|
|
|
|
|
|||||
|
Net sales |
|
$ |
41,670 |
|
|
$ |
18,757 |
|
|
|
122.2 |
% |
|
Operating income (loss) |
|
$ |
991 |
|
|
$ |
(1,222 |
) |
|
NM |
|
|
|
Operating margin |
|
|
2.4 |
% |
|
|
(6.5 |
)% |
|
|
|
|
Licensed Brands' net sales increased 122.2% to $41.7 million for the second quarter of Fiscal 2022, from $18.8 million for the second quarter of Fiscal 2021, reflecting primarily the growth of the Levi’s footwear business as well as increased sales in all of our other licensed brands.
Licensed Brands' operating income was $1.0 million for the second quarter of Fiscal 2022 compared to an operating loss of $1.2 million in the second quarter of Fiscal 2021. The $2.2 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 and (iii) decreased selling and administrative expenses as a percentage of net sales reflecting decreased compensation, shipping, bad debt, and credit card expenses, partially offset by increased royalty and performance-based compensation expense.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for the second quarter of Fiscal 2022 was $26.0 million compared to $5.9 million for the second quarter of Fiscal 2021. Corporate expense in the second quarter of Fiscal 2022 included a $7.1 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. Corporate expense in the second quarter of Fiscal 2021 included a $1.7 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. In the second quarter of Fiscal 2021, corporate salaries were reduced in response to the COVID-19 pandemic. As a result, corporate salaries increased in the second quarter of Fiscal 2022 and contributed to the increased corporate expenses in the second quarter of Fiscal 2022.
Net interest expense decreased to $0.6 million for the second quarter of Fiscal 2022 compared to net interest expense of $1.9 million for the second quarter of Fiscal 2021 primarily reflecting decreased average borrowings in the second quarter this year.
22
Results of Operations – Six Months of Fiscal 2022 Compared to Six Months of Fiscal 2021
Our net sales in the first six months of Fiscal 2022 increased 63.2% to $1.1 billion compared to $670.4 million in the first six months of Fiscal 2021, driven by increased store sales resulting from the reopening of stores that were closed during the first six months of Fiscal 2021 due to the COVID-19 pandemic, increased wholesale sales, the favorable impact of foreign exchange rates and a 3% digital comparable sales growth. Stores were open approximately 93% of possible days in the first six months of Fiscal 2022 as compared to 59% in the first six months of Fiscal 2021.
Gross margin increased 84.6% to $530.2 million in the first six months of Fiscal 2022 from $287.1 million in the first six months of Fiscal 2021 and increased as a percentage of net sales from 42.8% to 48.5%, reflecting increased gross margin as a percentage of net sales in all of 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 six 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 six months of Fiscal 2022 increased 30.7% but decreased as a percentage of net sales from 56.1% to 45.0%, reflecting decreased expenses as a percentage of net sales in all of 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 as well as 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 U.K. government property tax relief and benefits from our ongoing lease initiative. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs.
Pretax earnings for the first six months of Fiscal 2022 were $27.1 million compared to a pretax loss of $180.5 million for the first six months of Fiscal 2021. Pretax earnings for the first six months of Fiscal 2022 included asset impairments and other charges of $9.7 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 six months of Fiscal 2021 included a goodwill impairment charge of $79.3 million and asset impairments and other charges of $9.6 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 27.0% and 14.9% in the first six months of Fiscal 2022 and Fiscal 2021, respectively. The tax rate for the first six months 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. Additionally, the tax rate for the first six 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.
Net earnings for the first six months of Fiscal 2022 were $19.8 million, or $1.35 diluted earnings per share, compared to a net loss of $153.8 million, or $10.87 diluted loss per share for the first six months of Fiscal 2021.
Journeys Group
|
|
|
Six Months Ended |
|
|
|
|
|
|||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
% Change |
|
|||
|
|
|
(dollars in thousands) |
|
|
|
|
|
|||||
|
Net sales |
|
$ |
722,823 |
|
|
$ |
445,556 |
|
|
|
62.2 |
% |
|
Operating income (loss) |
|
$ |
63,492 |
|
|
$ |
(26,923 |
) |
|
NM |
|
|
|
Operating margin |
|
|
8.8 |
% |
|
|
(6.0 |
)% |
|
|
|
|
Net sales from Journeys Group increased 62.2% to $722.8 million for the first six months of Fiscal 2022, compared to $445.6 million for the first six months of Fiscal 2021, primarily due to increased store sales, resulting from the reopening of stores that were closed during the first six months of Fiscal 2021 due to the COVID-19 pandemic, partially offset by decreased digital comparable sales.
Journeys Group had operating income of $63.5 million for the first six months of Fiscal 2022 compared to a loss of $26.9 million for the first six months of Fiscal 2021. The increase of $90.4 million in operating income for Journeys Group was due to (i) increased net sales, (ii) increased gross margin as a percentage of net sales, reflecting decreased markdowns 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 the increased revenue, with the main driver being decreased occupancy expense, partially offset by increased performance-based compensation expense.
23
Schuh Group
|
|
|
Six Months Ended |
|
|
|
|
|
|||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
% Change |
|
|||
|
|
|
(dollars in thousands) |
|
|
|
|
|
|||||
|
Net sales |
|
$ |
174,790 |
|
|
$ |
118,897 |
|
|
|
47.0 |
% |
|
Operating loss |
|
$ |
(224 |
) |
|
$ |
(21,924 |
) |
|
|
99.0 |
% |
|
Operating margin |
|
|
(0.1 |
)% |
|
|
(18.4 |
)% |
|
|
|
|
Net sales from Schuh Group increased 47.0% to $174.8 million for the first six months of Fiscal 2022 compared to $118.9 million for the first six months of Fiscal 2021 primarily due to increased store sales, resulting from the reopening of stores that were closed during the first six months of Fiscal 2021 due to the COVID-19 pandemic, the favorable impact of $17.4 million due to changes in foreign exchange rates and increased digital comparable sales. Stores were open almost 60% of the possible operating days during the first six months of Fiscal 2022 compared to 49% of possible operating days during the first six months of Fiscal 2021.
Schuh Group had an operating loss of $0.2 million for the first six months of Fiscal 2022 compared to an operating loss of $21.9 million for the first six months of Fiscal 2021. The decrease in operating loss this year reflects (i) increased net sales, (ii) increased gross margin as a percentage of net sales, reflecting less promotional activity and decreased shipping and warehouse expense and (iii) decreased selling and administrative expenses as a percentage of net sales, reflecting decreased occupancy expense primarily as a result of rent abatement agreements with our landlords and savings from the government program in the U.K. providing property tax relief, grant income from the U.K. and ROI governments, reduced expenses and greater leverage of fixed expenses as a result of the increased net sales, partially offset by increased marketing and performance-based compensation expense.
Johnston & Murphy Group
|
|
|
Six Months Ended |
|
|
|
|
|
|||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
% Change |
|
|||
|
|
|
(dollars in thousands) |
|
|
|
|
|
|||||
|
Net sales |
|
$ |
109,921 |
|
|
$ |
62,946 |
|
|
|
74.6 |
% |
|
Operating income (loss) |
|
$ |
771 |
|
|
$ |
(27,827 |
) |
|
NM |
|
|
|
Operating margin |
|
|
0.7 |
% |
|
|
(44.2 |
)% |
|
|
|
|
Johnston & Murphy Group net sales increased 74.6% to $109.9 million for the first six months of Fiscal 2022 from $62.9 million for the first six months of Fiscal 2021, primarily due to increased store sales, resulting from the reopening of stores closed during the first six months of Fiscal 2021 due to the COVID-19 pandemic, and increased wholesale sales and digital comparable sales. Retail operations accounted for 78.2% of Johnston & Murphy Group's sales in the first six months of Fiscal 2022, up from 74.8% in the first six months of last year.
Johnston & Murphy Group had operating income of $0.8 million for the first six months of Fiscal 2022 compared to an operating loss of $27.8 million for the first six months of Fiscal 2021. The increase of $28.6 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 the increased net sales, partially offset by increased performance-based compensation expense.
Licensed Brands
|
|
|
Six Months Ended |
|
|
|
|
|
|||||
|
|
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
% Change |
|
|||
|
|
|
(dollars in thousands) |
|
|
|
|
|
|||||
|
Net sales |
|
$ |
86,344 |
|
|
$ |
43,050 |
|
|
|
100.6 |
% |
|
Operating income (loss) |
|
$ |
3,552 |
|
|
$ |
(3,723 |
) |
|
NM |
|
|
|
Operating margin |
|
|
4.1 |
% |
|
|
(8.6 |
)% |
|
|
|
|
Licensed Brands' net sales increased 100.6% to $86.3 million for the first six months of Fiscal 2022, from $43.1 million for the first six months of Fiscal 2021, reflecting primarily the growth of the Levi’s footwear business as well as increased sales in all of our other licensed brands as customers began to recover from the COVID-19 pandemic and we were able to drive more orders.
Licensed Brands' operating income was $3.6 million for the first six months of Fiscal 2022 compared to an operating loss of $3.7 million in the first six months of Fiscal 2021. The $7.3 million increase in operating income was primarily due to (i) increased net sales, (ii) increased gross
24
margin as a percentage of net sales as the prior year gross margin was impacted by pre-Togast acquisition royalty and commission cost and (iii) decreased selling and administrative expenses as a percentage of net sales reflecting decreased bad debt, compensation and shipping expenses, partially offset by increased royalty and performance-based compensation expense.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for the first six months of Fiscal 2022 was $39.2 million compared to $18.4 million for first six months of Fiscal 2021. Corporate expense in the first six months of Fiscal 2022 included a $9.7 million charge in asset impairment and other charges for professional fees related to the actions of an activist shareholder and retail store asset impairments, partially offset by an insurance gain. Corporate expense in the first six months of Fiscal 2021 included a $9.6 million charge in asset impairment and other charges for retail store and intangible asset impairments, partially offset by the release of an earnout related to the Togast acquisition. The corporate expense increase, excluding asset impairment and other charges, reflected increased performance-based compensation expense.
Additionally, the first six months of Fiscal 2021 included a goodwill impairment charge of $79.3 million.
Net interest expense decreased to $1.3 million for the first six months of Fiscal 2022 compared to net interest expense of $2.8 million for the first six months of Fiscal 2021 primarily reflecting decreased average borrowings in the first six months this year.
Liquidity and Capital Resources
The impacts of the COVID-19 pandemic have adversely affected our results of operations. In response to the business disruption caused by the COVID-19 pandemic, we have taken actions described above in the “COVID-19 Update” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Working Capital
Our business is seasonal, with our investment in inventory and accounts receivable normally reaching peaks in the spring and fall of each year. Historically, cash flows from operations typically have been generated principally in the fourth quarter of each fiscal year.
|
|
|
Six Months Ended |
|
|||||||||||
|
Cash flow changes: |
|
July 31, 2021 |
|
|
August 1, 2020 |
|
|
Increase (Decrease) |
|
|||||
|
(in millions) |
|
|
|
|||||||||||
|
Net cash provided by operating activities |
|
$ |
125.8 |
|
|
$ |
46.6 |
|
|
$ |
79.2 |
|
||
|
Net cash used in investing activities |
|
|
(19.5 |
) |
|
|
(10.5 |
) |
|
|
(9.0 |
) |
||
|
Net cash provided by (used in) financing activities |
|
|
(18.1 |
) |
|
|
179.2 |
|
|
|
(197.3 |
) |
||
|
Effect of foreign exchange rate fluctuations on cash |
|
|
0.7 |
|
|
|
2.4 |
|
|
|
(1.7 |
) |
||
|
Increase in cash and cash equivalents |
|
$ |
88.9 |
|
|
$ |
217.7 |
|
|
$ |
(128.8 |
) |
||
Reasons for the major variances in cash provided by (used in) the table above are as follows:
Cash provided by operating activities was $79.2 million higher for the first six months of Fiscal 2022 compared to the first six months of Fiscal 2021, reflecting primarily the following factors:
|
• |
an $89.1 million increase in cash flow from increased earnings in the first six months of Fiscal 2022, net of intangible impairment in the first quarter of Fiscal 2021; |
|
• |
a $65.1 million increase in cash flow from changes in prepaids and other current assets primarily reflecting decreased prepaid income taxes, in part due to the receipt of an income tax refund; |
|
• |
a $52.5 million increase in cash flow from changes in other accrued liabilities primarily reflecting increased performance-based compensation accruals in the first six months of Fiscal 2022 compared to payments of Fiscal 2020 performance-based compensation accruals in the first six months of Fiscal 2021; partially offset by |
• a $77.0 million decrease in cash flow from changes in other assets and liabilities primarily reflecting rent payments made in the first
six months of Fiscal 2022 versus rent payments being held in the first six months of Fiscal 2021;
|
|
|
• |
a $33.5 million decrease in cash flow from changes in inventory primarily reflecting increased inventory growth in all of our business segments in the first half of Fiscal 2022; and |
• a $19.0 million decrease in cash flow from changes in accounts payable primarily reflecting changes in buying patterns and longer payment terms in the first six months of Fiscal 2021.
|
|
Cash used in investing activities was $9.0 million higher for the first six months of Fiscal 2022 as compared to the first six months of Fiscal 2021 reflecting increased capital expenditures primarily related to digital and omnichannel initiatives.
25
Cash provided by financing activities was $197.3 million lower for the first six months of Fiscal 2022 as compared to the first six months of Fiscal 2021 reflecting lower revolver borrowings this year.
Sources of Liquidity and Future Capital Needs
We have three principal sources of liquidity: cash flow from operations, cash and cash equivalents on hand and our credit facilities discussed in Item 8, Note 9, "Long-Term Debt", to our Consolidated Financial Statements included in our Annual Report on Form 10-K for Fiscal 2021.
As of July 31, 2021, we have borrowed $15.8 million (£11.4 million) under our Credit Facility and $4.2 million (£3.0 million) under the Schuh Facility Letter. We were in compliance with all the relevant terms and conditions of the Credit Facility and Facility Letter as of July 31, 2021.
During the second quarter of Fiscal 2022, we paid off the $17.5 million FILO loan of our Credit Facility.
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 will generate approximately $55 million of net tax refunds. Through the end of the second quarter of Fiscal 2022, we have received approximately $32 million of such refunds and expect to receive the balance over the remainder of Fiscal 2022 which may extend into 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 in the first quarter of Fiscal 2023.
As we manage through the impacts of the COVID-19 pandemic in Fiscal 2022, we have access to our existing cash, as well as our available credit facilities to meet short-term liquidity needs. We believe that cash on hand, cash provided by operations and borrowings under our amended Credit Facility and the Schuh Facility Letter will be sufficient to support our near-term liquidity
Contractual Obligations
Our contractual obligations at July 31, 2021 decreased approximately 4% compared to January 30, 2021 primarily due to decreased purchase obligations and long-term debt.
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 2021 Form 10-K. We also do not currently have any off-balance sheet arrangements.
Capital Expenditures
Total capital expenditures in Fiscal 2022 are expected to be approximately $35 million to $40 million of which approximately 71% is for computer hardware, software and warehouse enhancements for initiatives to drive traffic and omni-channel capabilities. Planned capital expenditures excludes approximately $11 million, net of tenant allowance, for the new Corporate Headquarters building.
Common Stock Repurchases
We did not repurchase any shares during the second quarter of Fiscal 2022 or Fiscal 2021. We have $89.7 million remaining as of July 31, 2021 under our current $100.0 million share repurchase authorization.
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, "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 second quarter of Fiscal 2022 are included in Note 1 to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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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. 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 July 31, 2021, 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 second quarter of Fiscal 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We incorporate by reference the information regarding legal proceedings in Item 1, Note 9, “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, and in the Quarterly Report on Form 10-Q for the quarter ended May 1, 2021 (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):
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ISSUER PURCHASES OF EQUITY SECURITIES |
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Period |
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(a) Total Number of Shares Purchased |
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(b) Average Price Paid per Share |
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(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
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(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
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May 2021 |
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5-2-21 to 5-29-21 |
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— |
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$ |
— |
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— |
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$ |
— |
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June 2021 |
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5-30-21 to 6-26-21 |
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— |
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$ |
— |
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— |
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$ |
— |
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July 2021 |
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6-27-21 to 7-31-21 (1) |
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64,535 |
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$ |
63.16 |
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— |
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$ |
— |
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(1) These shares represent shares withheld from vested restricted stock to satisfy the minimum withholding requirement for federal and state taxes. |
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Item 6. Exhibits
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Exhibit Index |
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(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 |
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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 |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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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. |
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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 Interim Chief Financial Officer |
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Date: September 9, 2021
30