Genesco Inc. — Q1 Fiscal 2022 Form 10-Q
Reporting period: Three months ended May 1, 2021; filed June 10, 2021. Genesco sells footwear and accessories through retail, e-commerce and wholesale channels, including Journeys, Schuh, Johnston & Murphy and licensed brands. It operated 1,444 stores at quarter-end. Results are compared with the quarter ended May 2, 2020, when COVID-19 closures severely affected operations.
Financial performance and liquidity
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $538.7 million | $279.2 million |
| Gross margin | $257.7 million; 47.8% | $120.1 million; 43.0% |
| Operating income (loss) | $15.5 million; 2.9% margin | $(156.0) million; (55.9)% margin |
| Net earnings (loss) | $8.9 million; $0.60 diluted EPS | $(134.8) million; $(9.55) diluted EPS |
| Operating cash flow | $44.2 million | $(27.8) million |
| Capital expenditures | $12.1 million | $6.7 million |
Sales increased 92.9%, reflecting more open stores, 43% digital comparable growth and higher wholesale sales. Stores were open about 90% of possible days versus 50% a year earlier. The company did not report comparable sales, citing pandemic-related comparability issues. Gross margin improved with fewer markdowns, lower shipping and warehouse expense, a higher full-price mix at Schuh and business mix. Selling and administrative expense rose in dollars but fell to 44.5% of sales from 67.7%, largely through fixed-cost leverage and lower occupancy expense.
Segment sales and operating results: Journeys sales were $376.5 million and operating income $33.1 million; Schuh sales were $68.7 million and operating loss $3.8 million; Johnston & Murphy sales were $48.8 million and operating loss $3.2 million; Licensed Brands sales were $44.7 million and operating income $2.6 million. All segments improved from the pandemic-affected prior-year quarter.
At May 1, 2021, cash was $258.0 million, total debt $44.2 million and total current assets and liabilities were $722.4 million and $435.9 million, respectively. Debt comprised $33.1 million of U.S. revolver borrowings and $11.1 million under Schuh’s U.K. facility. Long-term operating lease liabilities were $555.2 million, in addition to current lease liabilities of $158.3 million. The company reported compliance with credit-facility requirements. It subsequently repaid the $17.5 million FILO tranche during Q2.
Cash increased $43.0 million during the quarter. Operating cash flow improved by $72.0 million year over year, while investing used $12.1 million and financing provided $10.5 million. Management said cash, operating cash flow and available facilities were sufficient for near-term liquidity needs.
Material changes and unusual items
- The prior-year quarter included a $79.3 million Schuh goodwill impairment and $7.9 million of asset impairment and other charges. Q1 FY2022 included $2.7 million of charges: $2.3 million of activist-shareholder-related professional fees and $0.4 million of store impairments.
- Q1 FY2022 effective tax rate was 40.1%, versus 14.1% in Q1 FY2021. The current rate reflected foreign losses for which no tax benefit was recognized and a higher mix of earnings in taxable jurisdictions; the prior-year rate was affected by the nondeductible Schuh impairment.
- COVID-related government assistance and rent concessions affected expenses. Payroll tax credits reduced selling and administrative expenses by $0.7 million versus $7.0 million a year earlier; U.K. property-tax relief was approximately $4.7 million versus $1.6 million. The company reported approximately $6.1 million in rent savings for the quarter.
- Operating cash flow comparisons also reflected working-capital timing, including accrued compensation and sales taxes, supplier payment patterns, rent payments and prepaid income taxes.
Outlook, risks and contingencies
No earnings or sales guidance is provided in the supplied filing text. Management expected FY2022 capital expenditures of approximately $35–$40 million, primarily for technology, software and warehouse enhancements; this excludes approximately $16 million, net of tenant allowance, for the new headquarters. Management expected approximately $60 million of net tax refunds in FY2022 under CARES Act carryback provisions.
As of May 27, 2021, all U.K. and ROI stores had reopened; stores in Ontario and Nova Scotia remained closed and were expected to reopen in mid-June. Management emphasized uncertainty from COVID-19 and variants, consumer demand, store closures and reopening, supplier and shipping disruption, inflation and wage costs, foreign exchange, retail competition and execution of digital and omnichannel initiatives. These factors could affect sales, margins, liquidity and asset valuations.
Activist shareholder activity created additional expense and could divert management resources or disrupt operations. Environmental contingencies accrued were $1.4 million at May 1, 2021. The company also disclosed ordinary-course legal matters and a Togast inventory commitment: Samsung-owned inventory had historical cost of $16.6 million, with Genesco responsible for any shortfall if products sell below Samsung’s cost; management believed the exposure was appropriately accounted for.
Key facts for investors to verify
- Whether sales and margins remain strong after accounting for store reopening effects and the unusually weak prior-year comparison.
- How much of operating performance depends on temporary rent relief, government support and other pandemic-related benefits.
- Progress on reopening remaining stores, demand trends, inventory levels and supply-chain availability.
- Cash generation, debt repayment and access to revolving facilities, alongside substantial lease liabilities and planned capital spending.
- Realization and timing of the expected $60 million tax refunds, and potential costs or business effects from activist shareholder actions.