Genesco Inc. — Form 10-Q Summary
Reporting period: Quarter ended July 31, 2021 (fiscal 2022 second quarter); comparisons are with the quarter ended August 1, 2020. Year-to-date figures cover the first six months of each fiscal year. Genesco operates footwear and accessories retail, e-commerce and wholesale businesses, with 1,439 stores at July 31, 2021.
Key financial results
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Net sales | $555.2 million | $391.2 million | $1,093.9 million | $670.4 million |
| Gross margin | $272.5 million; 49.1% | $167.0 million; 42.7% | $530.2 million; 48.5% | $287.1 million; 42.8% |
| Operating income (loss) | $12.9 million | $(22.0) million | $28.4 million | $(178.0) million |
| Net earnings (loss) | $10.9 million | $(19.0) million | $19.8 million | $(153.8) million |
| Diluted EPS | $0.75 | $(1.34) | $1.35 | $(10.87) |
- Second-quarter sales rose 41.9%; six-month sales increased 63.2%. Store reopenings, increased wholesale sales and favorable foreign exchange contributed. Stores were open approximately 97% of possible days in Q2 versus 69% a year earlier, and 93% versus 59% for the six-month period.
- Digital comparable sales fell 23% in Q2 but grew 3% for the six months. The company did not report overall comparable sales, citing pandemic-related disruptions and store closures.
- Q2 selling and administrative expense was $252.6 million, or 45.5% of sales, compared with 47.9% a year earlier. The improvement in expense ratio reflected lower occupancy costs and higher sales leverage, partly offset by performance-based compensation.
- Net cash provided by operating activities was $125.8 million for the six months, versus $46.6 million a year earlier. Capital expenditures were $19.5 million; investing cash use was $19.5 million. Cash increased $88.9 million to $304.0 million.
- Debt was $20.0 million at July 31, 2021: $15.9 million under the U.S. revolver and $4.2 million under the U.K. facility. The company paid off its $17.5 million FILO tranche during Q2 and reported compliance with facility terms. Operating lease liabilities totaled approximately $681.4 million, including current and long-term portions.
Changes and segment performance
- Results improved sharply against pandemic-affected prior-year periods. The prior-year six-month loss included a $79.3 million Schuh goodwill impairment; prior-year charges also included store and trademark impairments.
- All four operating segments reported higher Q2 sales and improved operating results. Journeys generated $30.4 million of operating income; Schuh $3.6 million; Johnston & Murphy $4.0 million; and Licensed Brands $1.0 million.
- Year-to-date, Journeys reported $63.5 million operating income, Schuh a $0.2 million operating loss, Johnston & Murphy $0.8 million income and Licensed Brands $3.6 million income.
Outlook, commentary and risks
- Management did not provide a clear full-year earnings or sales forecast in the filing. Fiscal 2022 capital expenditures were expected to be approximately $35–$40 million, with about 71% for technology, warehouse and omnichannel initiatives; this excludes approximately $11 million, net of tenant allowance, for a new corporate headquarters.
- Management expected approximately $55 million of tax refunds from CARES Act carryback provisions; about $32 million had been received by the end of Q2, with the balance expected during the remainder of FY2022 and potentially into FY2023. Management stated that cash, operating cash flow and available credit facilities should support near-term liquidity.
- Q2 included $7.1 million of asset-impairment and other charges, including $6.2 million of professional fees related to activist shareholder actions and $1.4 million of store impairments, partly offset by a $0.6 million insurance gain. Six-month charges were $9.7 million, including $8.5 million of activist-related fees.
- Reported results also benefited from government assistance and rent relief. In Q2, payroll and other foreign subsidies reduced selling and administrative expense by approximately $2.5 million; U.K. property-tax relief was approximately $3.8 million and other U.K., Ireland and Canada relief approximately $1.2 million. The company reported $2.5 million of Q2 rent savings from abatements and temporary relief.
- Key uncertainties include COVID-19 variants, potential store closures and changing consumer demand; supply-chain and shipping disruption and cost inflation; labor and wage pressures; foreign-exchange and international-market risks; promotional and inventory exposure; and the ability to sustain sales and digital performance. Management noted ongoing landlord concession negotiations and potential future inventory reserves or asset impairments.
- Environmental contingencies accrued were $1.4 million. The company also disclosed a Samsung inventory commitment tied to resale values; the inventory’s historical cost was $7.8 million, and management believed any difference between fair value and cost was appropriately accounted for. Other legal matters were described as ordinary-course proceedings; unfavorable outcomes could still be material.
Important facts for investors to verify
- Whether sales, gross margin and profitability remain strong as store reopening comparisons become less favorable, especially given Q2 digital comparable-sales decline.
- Whether supply-chain availability, freight costs, labor costs and inventory levels affect margins or require additional reserves.
- Progress in receiving the remaining anticipated tax refunds and the company’s cash, borrowing and covenant position.
- Actual capital spending versus the $35–$40 million estimate and the cost and timing of the headquarters project.
- Future activist-related costs, lease concessions and any additional impairments or legal/environmental liabilities.