GCO

Business Context and Reporting Period

Company: Genesco Inc.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal Year ended January 29, 2000
Business Overview: Genesco is a leading retailer and wholesaler of branded footwear. As of January 29, 2000, the company operated 679 retail stores and leased departments across the U.S. and Puerto Rico. The company operates six reportable segments: Journeys, Jarman, Johnston & Murphy, Licensed Brands (Dockers and Nautica), Other Retail (being phased out), and Leather.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 4.4% to $573.7 million. Excluding divested businesses, comparable sales grew 18.4%.
• Earnings Decline: Net earnings dropped 51% to $25.9 million. This decrease is primarily due to the absence of a $23.8 million tax benefit recorded in Fiscal 1999 (reversal of valuation reserves) and a $2.4 million restructuring gain in Fiscal 1999 related to the Boot Divestiture.
• Segment Performance:
  • Journeys: Net sales surged 34.6% and operating income rose 36.9% due to store openings and a 13% comparable store sales increase.
  • Other Retail: Sales plummeted 84.3% and the segment reported an operating loss of $0.5 million following the closure of Jarman Leased departments.
  • Johnston & Murphy: Sales increased 12.8% with operating income up 12.6%.
• Divestitures: The company completed the transition of Jarman Leased departments and exited the western boot business (Boot Divestiture) in prior periods, with residual impacts in Fiscal 2000.

Guidance, Outlook, and Risks

• Expansion Plans: Genesco plans to open approximately 160 new retail stores and leased departments in Fiscal 2001, including up to 100 Journeys stores and 41 Jarman stores.
• Capital Expenditures: Total capital expenditures for Fiscal 2001 are expected to be approximately $29.8 million, primarily for retail expansion and system improvements.
• Share Repurchases: The board has authorized the repurchase of up to 6.8 million shares. As of January 29, 2000, 5.8 million shares had been repurchased for $51.8 million. An additional 1.0 million shares were authorized in February 2000.
• Legal and Environmental Risks:
  • New York Environmental Proceedings: The company is a defendant in a civil action regarding hazardous material disposal with estimated remediation costs of $12.0 million. Management does not expect a material effect on financial condition.
  • Whitehall, Michigan: Ongoing environmental sampling and litigation regarding the Volunteer Leather facility. A remedial action plan is pending approval.
  • Whitehall Accident: A lawsuit filed by the estate of a deceased truck driver following a toxic vapor incident at the tannery. Liability is currently unpredictable.
• Liquidity: The company expects cash on hand and operating cash flows to fund capital expenditures through Fiscal 2001. A $65 million revolving credit facility is available, with $55.2 million available after letters of credit.

Investor Verification Checklist

• Tax Benefit Sustainability: Verify the sustainability of earnings without the one-time $23.8 million tax benefit recorded in Fiscal 1999.
• Store Opening Execution: Monitor the ability to open the planned 160 new stores in Fiscal 2001 on schedule and within budget.
• Environmental Liabilities: Track the outcome of the New York State environmental mediation and the Whitehall, Michigan remediation plan approval.
• Licensed Brand Renewals: Review the status of the Dockers license (expires June 2001) and Nautica license (expires January 2002) regarding renewal options and sales requirements.
• Debt Structure: Confirm the terms of the $103.5 million 5.5% convertible subordinated notes due 2005 and any potential conversion activity.