Genesco Inc. — Form 10-K Summary
Reporting period: Fiscal 2015, the 52 weeks ended January 31, 2015. Although the request references 2014 Q4, this filing is an annual report; selected fourth-quarter figures are noted below. Genesco operates footwear, headwear and sports merchandise retail, e-commerce and wholesale businesses, with 2,824 stores and leased departments at year-end.
Financial performance and position
| Metric | Fiscal 2015 | Fiscal 2014 |
|---|---|---|
| Net sales | $2.860 billion | $2.625 billion |
| Gross margin | 49.0% | 49.5% |
| Operating earnings | $167.3 million; 5.8% margin | $163.4 million; 6.2% margin |
| Continuing earnings | $99.4 million; $4.19 diluted EPS | $93.0 million; $3.94 diluted EPS |
| Net earnings | $97.7 million; $4.12 diluted EPS | $92.7 million; $3.92 diluted EPS |
| Cash from operations | $189.8 million | $140.0 million |
| Capital expenditures | $103.1 million | $98.5 million |
| Cash and cash equivalents | $112.9 million | $59.4 million |
| Long-term debt, including current maturities | $29.2 million | $33.7 million |
| Working capital / current ratio | $441.7 million / 2.1 | $451.3 million / 2.5 |
Fourth-quarter Fiscal 2015 sales were $892.6 million versus $792.5 million; net earnings were $50.4 million versus $42.2 million, and diluted EPS was $2.12 versus $1.79.
Cash flow improved substantially, while year-end inventory rose $31.0 million, partly reflecting Lids and Johnston & Murphy inventory, store growth, slower-than-expected holiday sales and higher wholesale inventory. The $400 million revolving credit facility had no borrowings outstanding at year-end; letters of credit were $14.8 million and reported excess availability was $367.0 million. The company was compliant with its UK term-loan covenants.
Material changes and segment performance
- Sales increased 8.9%; operating earnings rose modestly, but operating margin fell 0.4 percentage points as gross margin declined and selling and administrative expense remained high.
- Journeys sales increased 9.0% and operating earnings 17.9%, supported by 8% comparable sales growth.
- Schuh sales increased 11.6%; operating earnings rose to $10.1 million from $3.1 million. Results included $7.3 million of deferred purchase-price compensation expense.
- Lids sales increased 9.9%, but operating earnings declined 23.2% to $49.0 million. Promotional activity, shipping and warehouse costs, sales mix, and expenses supporting growth pressured results.
- Johnston & Murphy sales increased 5.6%, while operating earnings declined 15.8% to $14.9 million, reflecting markdowns, logistics, advertising, occupancy and selling costs.
- Licensed Brands sales were nearly flat; operating earnings declined 1.5%. Dockers footwear unit sales fell 6%.
Outlook, unusual items and risks
- Management expected Fiscal 2016 capital expenditures of approximately $133 million, including about $111 million for retail expansion and renovations and $13.7 million for new systems. Plans included approximately 116 store openings and 34 closures across the company.
- Management expected cash, operating cash flow and credit availability to cover Fiscal 2016 working capital and capital needs. It also expected approximately $71 million of Schuh earn-out, deferred purchase-price and other acquisition-related payments, and approximately $10.5 million of discontinued-operations costs over the next 12 months.
- Fiscal 2015 included a $7.1 million write-off of a Schuh-related indemnification asset and a $5.7 million charge from changing the EVA incentive plan. A favorable resolution of related uncertain tax positions helped reduce the effective tax rate to 36.7% from 41.5%.
- The pension liability increased to $22.2 million from $9.2 million, mainly reflecting a lower discount rate and a mortality-table update. Management expected Fiscal 2016 pension expense to increase by approximately $1.8 million.
- Environmental provisions were $14.1 million at year-end. A New York remediation matter includes disputed claims; the Village of Garden City alleged future costs could exceed $41 million over 70 years, an estimate Genesco considers unreasonable. The filing also describes ongoing payment-card intrusion claims and employment litigation, with several employment matters settled or subject to settlement.
- Key risks include discretionary consumer demand, fashion and inventory exposure, intense retail and online competition, supplier and import disruption, foreign exchange, labor and occupancy cost inflation, seasonal volatility, cyber and information-system incidents, distribution-center concentration, acquisition integration, goodwill impairment and litigation or environmental liabilities.
- Genesco reported no cash dividends on common stock since 1973. Dividend and other restricted payments are subject to credit-agreement conditions.
Important facts for investors to verify
- Whether Lids can restore margins after the substantial operating-income decline despite sales and store growth.
- Whether inventory, particularly Lids and wholesale inventory, converts to sales without elevated markdowns.
- Whether planned Fiscal 2016 store openings, renovations and systems spending produce expected returns while meeting the sizeable Schuh and discontinued-operations cash commitments.
- Potential changes to environmental reserves and outcomes of the Garden City and payment-card intrusion matters.
- Whether pension assumptions, foreign-currency movements and the Schuh tax-related items materially affect future earnings and cash flow.