Genesco Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended January 29, 2022 (52 weeks). This is an annual report, not a standalone fourth-quarter filing. Genesco operates footwear retail and wholesale businesses, including Journeys, Schuh, Johnston & Murphy, and Licensed Brands.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $2.422 billion | $1.787 billion |
| Gross margin | $1.181 billion; 48.8% | $804.5 million; 45.0% |
| Operating income (loss) | $155.6 million; 6.4% margin | $(107.2) million; (6.0)% margin |
| Pretax earnings (loss) | $153.0 million | $(111.7) million |
| Net earnings (loss) | $114.9 million; $7.92 diluted EPS | $(56.4) million; $(3.97) diluted EPS |
| Operating cash flow | $239.9 million | $157.7 million |
| Capital expenditures | $53.9 million | $24.1 million |
- Sales rose 35.6% year over year as stores reopened and wholesale sales improved. Stores were open about 96% of possible days, versus 76% in FY2021. Digital comparable sales declined 2%; the company did not report overall comparable sales because pandemic-related closures made comparisons less meaningful.
- Gross margin improvement reflected more full-price selling, lower inventory reserves at Johnston & Murphy, and lower shipping and warehouse expense. Selling and administrative expense declined to 42.7% of sales from 45.6%, largely from improved fixed-cost and occupancy leverage.
- Sales remained approximately 10% above FY2020’s $2.197 billion. Segment sales increased year over year: Journeys 28%, Schuh 38%, Johnston & Murphy 65%, and Licensed Brands 70%.
- Cash and equivalents were $320.5 million, versus $215.1 million a year earlier. Debt was $15.7 million, down from $33.0 million; cash exceeded debt by about $304.8 million, before lease liabilities. Current assets were $709.8 million and current liabilities $431.7 million.
- Operating lease liabilities totaled $617.0 million on the balance sheet; undiscounted operating lease commitments were $711.9 million. The credit facility had $332.5 million of commitments, a January 2027 maturity, and $165.3 million of excess availability at year-end. Genesco reported covenant compliance.
Material changes and unusual items
- FY2021 included a $79.3 million goodwill impairment and $18.7 million of asset impairment and other charges. FY2022 instead recorded an $8.1 million pretax net gain in asset impairments and other, including an $18.1 million warehouse-sale gain, partly offset by $8.6 million in activist-related professional fees and $2.0 million in store impairments.
- FY2022 operating cash flow benefited from changes in prepaid and other current assets, including income tax refunds, and higher accrued compensation. The company had received $26 million of expected CARES Act-related tax refunds and anticipated the balance in FY2023.
- Genesco repurchased 1.36 million shares for $82.8 million in FY2022. In February 2022, it expanded its repurchase authorization by $100 million; $100.3 million remained under the expanded authorization as of March 23, 2022. No common-stock cash dividend was anticipated in the foreseeable future.
- FY2022 benefited from government support, including payroll tax credits and property-tax relief. The company said it did not expect government stimulus benefits to recur.
Outlook, commentary and risks
- No quantified FY2023 sales or earnings guidance is provided in the filing. Management expected a more normalized promotional environment to reduce gross margins, lower performance-based compensation expense, higher occupancy expense, and increased freight and logistics costs in the second half of FY2023.
- Management expected FY2023 capital expenditures of approximately $55 million, excluding about $11 million for the new headquarters, and planned approximately 41 store openings and 46 closures.
- A $54 million performance-based compensation accrual was recorded in FY2022; approximately $48 million was expected to be paid in FY2023’s first quarter. The remaining amount is subject to service requirements and future performance.
- Supply-chain disruption, freight inflation, labor shortages and wage pressure, inflation’s effect on discretionary spending, fashion and promotional risks, mall traffic, and reliance on third-party vendors are prominent risks. Wholesale backlog rose to approximately $167.7 million from $64.6 million, but included unconfirmed orders and was considered more vulnerable to cancellation.
- Other risks include foreign-exchange and geopolitical exposure, customer concentration in wholesale receivables (three customers represented 58% in total), cybersecurity and privacy matters, environmental proceedings, and possible impairment of assets. Management stated pending legal matters were not expected to materially affect results; environmental contingencies accrued were $1.4 million.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also assessed disclosure controls and internal controls as effective.
Important facts for investors to verify
- Whether FY2023 sales and margins can hold up as pandemic-related reopening benefits and government support fade, and promotions and freight costs rise.
- How much of operating cash flow reflects sustainable earnings versus timing of tax refunds, compensation accruals, and working-capital movements.
- Whether the elevated wholesale backlog converts to shipments and cash collection, particularly given cancellation risk and customer concentration.
- The future cost of leases, planned capital spending, share repurchases, and the $48 million expected FY2023 compensation payment.
- Progress on supply-chain normalization and the assumptions supporting the Schuh trademark valuation, a critical audit matter.