Genesco Inc. — Q1 Fiscal 2025 10-Q
Reporting period: Three months ended May 4, 2024; comparative quarter ended April 29, 2023. Genesco operates footwear and accessories retail, e-commerce and wholesale businesses, including Journeys, Schuh, Johnston & Murphy and Genesco Brands. It operated 1,321 stores at quarter-end. Results are unaudited, and interim performance is not necessarily indicative of the full year.
Financial performance
| Metric | Q1 FY2025 | Q1 FY2024 |
|---|---|---|
| Net sales | $457.6 million | $483.3 million |
| Gross margin | $216.3 million; 47.3% | $228.8 million; 47.3% |
| Operating loss | $32.1 million; 7.0% of sales | $23.0 million; 4.8% of sales |
| Net loss | $24.3 million | $18.9 million |
| Diluted loss per share | $2.23 | $1.60 |
| Cash used in operating activities | $33.7 million | $60.4 million |
| Capital expenditures | $6.4 million | $17.2 million |
Cash was $19.2 million at May 4, 2024, versus $35.2 million at February 3, 2024. Revolver borrowings were $59.4 million, up from $34.7 million at fiscal year-end; excess credit-facility availability was $200.1 million. Current liabilities were $308.2 million, including $125.5 million of current operating lease liabilities. Total operating lease liabilities were $471.1 million. The company said it was compliant with its credit agreements and expects cash, operating cash flows and available credit to support liquidity needs in FY2025 and the foreseeable future.
Changes and drivers
- Sales declined 5.3%. Total comparable sales fell 5%, with same-store sales down 7% and comparable e-commerce sales up 3%. Management cited declines in store sales across retail businesses, lower wholesale sales and net store closings. A $2.5 million favorable foreign-exchange effect and about $9.2 million of sales shifted into this quarter from the prior-year 53-week calendar partly offset the decline.
- Gross margin as a percentage of sales was flat: lower markdowns at Journeys and a greater direct-to-consumer mix were offset by Schuh product mix pressure and a $1.6 million Genesco Brands inventory provision related to a distribution-model transition.
- Selling and administrative expense fell 1.5% in dollars to $247.8 million, reflecting cost savings and store closures, but rose to 54.2% of sales from 52.0% as lower revenue pressured expense leverage.
- Operating performance weakened across most segments. Journeys sales fell 4.7% and its operating loss widened to $18.8 million; Schuh sales fell 0.8% (4% in local currency) and its loss widened to $5.9 million; Johnston & Murphy sales fell 4.1% and operating income declined to $2.4 million; Genesco Brands sales fell 24.9% and it recorded a $1.0 million operating loss.
- Net interest expense decreased to $0.9 million from $1.7 million, primarily due to lower average borrowings. The effective tax rate rose to 26.7% from 23.7%, reflecting a higher U.K. statutory rate and more foreign losses without a recognized tax benefit.
Cash, capital and outlook
Operating cash use improved by $26.7 million year over year, mainly due to working-capital timing and cash-flow changes in receivables and other assets and liabilities; cash flow remained negative. The company expects FY2025 capital expenditures of approximately $52–$57 million, about 61% for new stores and remodels and 39% for technology and warehouse enhancements. It closed 17 Journeys stores in the quarter and is evaluating up to 50 Journeys closures for FY2025. No specific full-year sales or earnings guidance is stated in the supplied filing text.
Management described consumers as cautious and focused on key footwear items and brands amid inflation and a choppy consumer environment. It cited pressure on Journeys’ core assortment, a challenging U.K. market and unseasonable spring weather, and a repositioning of Genesco Brands toward a more focused license portfolio. The company has an outstanding expected tax refund recorded in non-current prepaid income taxes; the IRS is auditing the related periods, extending the anticipated timing. Management believes the technical merits of the tax positions are sound but does not specify a receipt date.
Risks, contingencies and unusual items
- Risks highlighted include consumer and retail weakness, promotional and inventory needs, supply and shipping disruption (including Red Sea disruption), inflation and wage pressure, foreign exchange, tariffs, competition and fashion trends, store traffic and lease costs, and execution of digital and cost-saving initiatives.
- Q1 pretax results included the $1.6 million distribution-model transition inventory provision and $0.6 million of severance and asset impairment charges. The prior-year quarter included $0.3 million of asset impairment charges.
- Environmental contingency accruals were $2.0 million at May 4, 2024. The company does not expect the identified legacy environmental obligations to materially affect consolidated financial condition or results, while noting legal proceedings carry inherent uncertainty. A Samsung inventory commitment relates to inventory with $7.8 million historical cost; management said it had appropriately accounted for any difference between fair value and cost.
- The filing reports effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether sales trends and comparable-store performance improve, particularly at Journeys and Schuh, and whether planned Journeys closures proceed.
- Whether expense reductions and inventory discipline can offset sales deleverage and support operating margins.
- Progress and costs associated with Genesco Brands’ distribution-model transition and refined license portfolio.
- Timing and outcome of the IRS audit and the remaining tax refund; the filing does not provide a clear expected receipt date.
- Seasonal working-capital needs, cash usage, revolver borrowings and execution of the $52–$57 million capital-spending plan.