GCO

Genesco Inc. 10-Q Summary: Quarter Ended May 1, 2010

Business Context and Reporting Period

This is a quarterly report (Form 10-Q) for Genesco Inc., a leading retailer of branded footwear, headwear, and licensed sports apparel. The reporting period covers the three months ended May 1, 2010 (Fiscal 2011 Q1). The company operates five reportable segments: Journeys Group, Underground Station Group, Lids Sports Group, Johnston & Murphy Group, and Licensed Brands. As of May 1, 2010, the company operated 2,267 retail stores.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 8.2% year-over-year, driven by a 21.4% surge in the Lids Sports Group (due to the Sports Fan-Attic acquisition and strong comparable store sales), a 13.2% increase in Johnston & Murphy, and a 2.9% increase in Journeys Group.
• Profitability Turnaround: The company reported a net profit of $8.6 million compared to a net loss of $5.8 million in the prior year. This improvement was aided by the absence of a $5.1 million loss on early debt retirement recorded in Q1 2009.
• Debt Elimination: Long-term debt was reduced to zero following the conversion of $56.4 million in 4 1/8% debentures to common stock in the prior fiscal year. Interest expense dropped 89.1% to $0.2 million.
• Restructuring Charges: The company recorded $2.4 million in restructuring and other charges (primarily asset impairments) in Q1 2010, compared to $5.0 million in Q1 2009.
• Liquidity: Cash and cash equivalents increased significantly from $16.7 million to $105.4 million, bolstered by strong operating cash flows and the absence of debt repayments.

Outlook, Risks, and Unusual Items

• Capital Expenditures: Total capital expenditures for Fiscal 2011 are projected at approximately $44.9 million, focused on opening new stores (approx. 12 Journeys, 45 Lids Sports) and renovations. Management intends to be selective with new locations due to economic uncertainty.
• Subsequent Events: In May 2010, the company acquired Brand Innovators Inc. Additionally, flood damage to four Nashville-based stores is estimated to result in a $0.9 million asset write-off charge in Q2 2011.
• Environmental Contingencies: The company maintains a $16.0 million accrual for environmental remediation (primarily related to former tannery sites in New York and Michigan). These are classified under discontinued operations.
• Risk Factors: Key risks include consumer economic weakness, credit availability for customers, fashion trend volatility, and potential impairment of assets if market value deteriorates relative to book value.
• Stock Repurchases: The board increased the repurchase authorization to $35.0 million in February 2010. Only 1,700 shares were repurchased in Q1 2010.

Investor Verification Checklist

• Debt Status: Confirm the complete absence of long-term debt and the terms of the revolving credit facility (currently $181.1 million available).
• Environmental Reserves: Review the $16.0 million provision for discontinued operations related to environmental matters and monitor for changes in remediation estimates.
• Acquisition Integration: Assess the performance contribution of the Sports Fan-Attic acquisition (Lids Sports Group) and the subsequent Brand Innovators acquisition.
• Comparable Store Sales: Verify the sustainability of the 10% comparable store sales increase in the Lids Sports Group and the 2% increase in Journeys Group.
• Inventory Levels: Monitor inventory balances ($295.5 million) relative to sales trends to ensure markdown risks remain controlled.