Genesco Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended April 30, 2022; comparison period ended May 1, 2021. Genesco sells footwear and accessories through retail, e-commerce and wholesale channels. It operated 1,414 stores at quarter-end.
Financial results and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Net sales | $520.7 million | $538.7 million |
| Gross profit / margin | $251.4 million / 48.3% | $257.7 million / 47.8% |
| Operating income / margin | $8.2 million / 1.6% | $15.5 million / 2.9% |
| Continuing-operations earnings before tax | $7.9 million | $14.8 million |
| Net earnings | $4.9 million | $8.9 million |
| Diluted EPS | $0.37 | $0.60 |
| Operating cash flow | $(92.1) million | $44.2 million |
Cash and cash equivalents were $200.6 million at April 30, 2022, down from $320.5 million at January 29, 2022. Inventory was $401.5 million, up from $278.2 million at fiscal year-end. Long-term debt was $14.7 million; the company reported compliance with its credit facilities. Current assets were $725.6 million and current liabilities were $464.9 million. Capital expenditures were $15.4 million. The filing notes that operating cash flow is typically seasonally negative early in the year.
Changes and segment performance
- Sales declined 3.3%, reflecting weaker comparable direct sales and a difficult comparison with prior-year U.S. stimulus-supported spending. Gross margin rate improved 0.5 percentage point, but higher selling and administrative expense as a share of sales (46.8% versus 44.5%) contributed to lower operating margin and earnings.
- Journeys: Sales fell 16.5% to $314.4 million and operating income fell 54.9% to $14.9 million. Management cited prior-year stimulus-related demand and current inventory shortages.
- Schuh: Sales rose 28.3% to $88.2 million; operating loss narrowed to $2.7 million from $3.8 million. Prior-year stores were open only 19% of possible days.
- Johnston & Murphy: Sales increased 45.6% to $71.0 million; the segment returned to $0.6 million operating income from a $3.2 million loss.
- Licensed Brands: Sales rose 5.5% to $47.1 million and operating income increased 48.1% to $3.8 million.
Management attributed gross-margin improvement mainly to increased full-price selling, price increases and lower shipping and warehouse expense, partly offset by freight and logistics costs and wholesale channel mix. Higher selling salaries and more normalized occupancy costs weighed on expenses; prior-year UK rent credits and government relief also made the comparison less favorable.
Outlook, risks and unusual items
- Management expects FY2023 capital expenditures of approximately $50–$55 million, excluding about $11 million for the new headquarters building (approximately $9 million net of tenant allowances). Spending is planned for stores, remodels, technology and warehouse enhancements.
- The company expects cash, operating cash flow and available credit to support FY2023 and foreseeable liquidity needs. It expects the remaining balance of approximately $29 million in CARES Act-related tax refunds in FY2023, after receiving approximately $26 million in FY2022.
- Supply-chain disruption affected product availability, particularly at Journeys and Johnston & Murphy; management reported some improvement by quarter-end but cautioned that availability may not continue to improve. Other cited risks include consumer spending, inflation and passing on cost increases, freight, labor, foreign exchange, geopolitical events and COVID-19 uncertainty.
- Q1 included a $0.3 million net gain in asset impairments and other items, including a $0.7 million pension-plan termination gain partly offset by store impairments. The prior-year quarter included $2.7 million of charges, including activist-shareholder-related professional fees.
- Genesco repurchased 102,895 shares for $6.5 million during Q1 and had $100.3 million remaining under its expanded authorization at quarter-end. It reported additional repurchases of 175,000 shares for $10.1 million through June 8, 2022.
- Environmental contingencies were accrued at $1.4 million; management did not expect the specified legacy matters to materially affect results. A Licensed Brands commitment relates to $16.7 million of Samsung-owned inventory: Genesco may owe the difference if products sell below Samsung’s cost. The company also noted ordinary-course legal matters and stated unfavorable rulings could have a material impact.
Important facts for investors to verify
- Whether inventory rebuilding translates into improved in-stock levels and sales without excess inventory or markdown pressure.
- Whether gross-margin gains can persist as freight, logistics, labor and other costs evolve, and whether expense growth moderates.
- Cash conversion and liquidity through the seasonal cycle, including the timing of tax refunds and working-capital needs.
- Execution and returns on planned capital spending, and the pace and price of share repurchases.
- Potential exposure under the Samsung inventory commitment and changes in environmental or other legal contingencies.