Genesco Inc. — Form 10-Q Summary
Reporting period: Second quarter and six months ended July 30, 2022 (fiscal 2023), compared with the periods ended July 31, 2021. Genesco designs, sources, markets and sells footwear and accessories through retail, e-commerce and wholesale channels. It operated 1,412 stores at quarter-end.
Financial performance and liquidity
| Metric | Three months | Six months |
|---|---|---|
| Net sales | $535.3 million, down 3.6% | $1,056.1 million, down 3.5% |
| Gross margin | $254.3 million; 47.5% of sales, versus 49.1% | $505.8 million; 47.9% of sales, versus 48.5% |
| Operating income | $9.1 million, versus $12.9 million | $17.3 million, versus $28.4 million |
| Net earnings | $7.6 million; diluted EPS $0.59 | $12.6 million; diluted EPS $0.95 |
Six-month operating cash flow was negative $224.2 million, compared with positive $125.8 million a year earlier. Capital expenditures were $29.0 million. Cash declined to $44.9 million from $320.5 million at fiscal year-end. The company attributed the cash outflow principally to inventory rebuilding, payment of prior-year incentive compensation and income taxes. Inventory was $507.2 million, up from $278.2 million at January 29, 2022.
Revolver borrowings were $48.9 million at quarter-end, up from $15.7 million at fiscal year-end. Operating lease liabilities totaled $549.0 million, including current and long-term amounts. Genesco said it was in compliance with its credit facilities and expects cash, operating cash flow and available borrowing capacity to meet foreseeable liquidity needs. It expects year-end cash to return to a more normalized level.
Material changes and business segments
- Journeys: Second-quarter sales fell 7.2% and operating income fell 69.6% to $9.2 million; comparable sales declined 8%. Management cited the prior-year stimulus comparison, a more promotional environment and expense deleverage.
- Schuh: Second-quarter sales fell 4.3%, including a $14.3 million adverse foreign-exchange effect, despite 9% comparable-sales growth. Operating income declined to $2.1 million, partly reflecting the expiration of prior-year U.K. rent, tax and other government relief.
- Johnston & Murphy: Second-quarter sales rose 22.3%, including 17% comparable-sales growth, but operating income declined 18.7% to $3.2 million, mainly due to freight and logistics costs and a difficult inventory-reserve comparison. The brand’s shift toward casual products supported sales.
- Licensed Brands: Second-quarter sales decreased 9.6% as the company reduced Levi’s exposure to the value channel; operating income fell 30.9% to $0.7 million.
For the six months, Johnston & Murphy sales rose 32.7% and operating income increased to $3.8 million; Licensed Brands operating income rose to $4.5 million despite slightly lower sales. Schuh reported a $0.7 million operating loss, while Journeys operating income fell to $24.2 million.
Outlook, commentary and risks
- No specific full-year sales or earnings guidance is stated in the provided filing text. Fiscal 2023 capital expenditures are expected to be approximately $50–$55 million, excluding about $10 million for the new headquarters building ($8 million net of tenant allowances).
- Management cited markdowns, freight and logistics costs, foreign-exchange pressure, inflation and wage pressure, labor availability, supply-chain disruption, and softer consumer spending as risks to performance. Results are seasonal, with working-capital needs typically peaking in summer and fall and operating cash flow historically strongest in the fourth quarter.
- Six-month results included a $0.2 million net gain in asset impairment and other items, including a pension-plan termination gain partly offset by impairments. The prior-year period included $9.7 million of charges, primarily activist-shareholder professional fees and store impairments, partly offset by an insurance gain.
- The company repurchased 928,929 shares in the first six months for $51.9 million and had $54.9 million remaining under its authorization at July 30. It expected to receive the remaining balance of approximately $55 million in CARES Act-related tax refunds during fiscal 2023, after receiving approximately $26 million in fiscal 2022.
- Environmental contingencies were accrued at $1.4 million; management did not expect the identified site obligations to materially affect financial condition or results. A separate Licensed Brands commitment relates to Samsung-owned inventory with a historical cost of $23.9 million.
Most important facts for investors to verify
- Whether elevated inventory converts to sales without substantial markdowns, and how that affects operating cash flow and margins.
- Whether consumer demand, foreign-exchange movements, and freight and labor costs continue to pressure sales and profitability.
- Availability and terms of revolver capacity, given the sharp cash decline and increased borrowings, alongside substantial lease obligations.
- Whether management’s expected cash normalization, tax-refund receipts and capital-spending plans materialize.
- Future pace and price of share repurchases, and potential exposure under the Samsung inventory commitment and environmental matters.