Genesco Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended January 30, 2021 (52 weeks). This annual filing covers the year, not only the fourth quarter. Genesco operates footwear retail, e-commerce and wholesale businesses, principally Journeys, Schuh, Johnston & Murphy and Licensed Brands.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $1.787 billion | $2.197 billion |
| Gross margin | $804.5 million; 45.0% | $1.063 billion; 48.4% |
| Operating income (loss) | $(107.2) million; (6.0)% margin | $83.3 million; 3.8% margin |
| Pretax income (loss) | $(111.7) million | $82.4 million |
| Net income (loss) | $(56.4) million; diluted loss per share $(3.97) | $61.4 million; diluted EPS $3.92 |
| Operating cash flow | $157.7 million | $117.2 million |
| Cash and cash equivalents | $215.1 million | $81.4 million |
| Long-term debt | $33.0 million | $14.4 million |
Operating cash flow benefited from inventory reduction, changes in accounts payable and reduced rent payments. Capital expenditures were $24.1 million. Year-end inventory was $291.0 million, down from $365.3 million. The company reported $350 million of total U.S. credit-facility capacity, with $147.1 million of excess availability; the separate Schuh facility had £19 million available and was undrawn. Operating lease liabilities totaled $701.1 million, against $801.0 million of undiscounted future lease payments.
Material changes and segment results
- Sales declined 18.7%, primarily due to COVID-19 store closures, reduced store traffic and pressure at Johnston & Murphy. Stores were open about 76% of possible days; digital comparable sales grew 74%. The company did not report comparable sales, saying total sales were more meaningful during the pandemic.
- Journeys sales fell 15.9% to $1.228 billion; operating income fell 33.1% to $76.9 million. Journeys was the only segment with operating income.
- Schuh sales fell 18.2% to $305.9 million and the segment recorded an $11.6 million operating loss, versus $4.7 million of income.
- Johnston & Murphy sales fell 49.2% to $152.9 million; operating results swung to a $47.6 million loss from $17.7 million of income.
- Licensed Brands sales rose 61.2% to $99.7 million, largely following the Togast acquisition, but the segment recorded a $5.4 million operating loss.
- Gross margin pressure reflected higher shipping and warehouse costs from e-commerce growth, inventory reserves and markdowns at Johnston & Murphy, and promotions at Schuh. Lower Journeys markdowns partly offset the declines.
Outlook, risks and unusual items
- Management said liquidity from cash, operating cash flow and available credit was expected to support near-term needs. It expected significant cash inflows in FY2022 from CARES Act tax-loss carrybacks, including a $107.2 million tax receivable recorded at year-end and a $46.4 million tax benefit.
- FY2022 capital expenditures were estimated at $35–$40 million, primarily for technology, software and warehouse enhancements. The estimate excludes about $16 million, net of tenant allowance, for the planned headquarters building. The company planned approximately 15 store openings and 35 closures.
- COVID-19 led to temporary store closures, furloughs and cost reductions; as of January 30, 2021, essentially all U.K. and ROI stores remained closed. Management highlighted continued uncertainty around reopening, consumer demand, supply chains, rent negotiations and asset values.
- FY2021 included a non-cash $79.3 million goodwill impairment, which fully impaired Schuh Group goodwill, plus $13.8 million of retail-store asset impairments and $5.3 million of trademark impairment. The company also recorded approximately $34 million of rent savings and $13.8 million of U.S. payroll-tax credits; U.K. property-tax relief was approximately $13.3 million.
- At year-end, $26.9 million of rent remained accrued while negotiations continued. The company deferred $9.5 million of U.S. payroll taxes, repayable in 2021 and 2022. A $22.8 million Samsung-owned inventory commitment related to Togast could require payment for any shortfall if products sell below Samsung’s cost.
- Other material risks include discretionary consumer demand and mall traffic, fashion and inventory execution, reliance on third-party suppliers and imported goods, tariffs and freight costs, competition and e-commerce execution, foreign exchange, cybersecurity, floating-rate debt and LIBOR transition, and environmental and other legal proceedings. Environmental contingencies accrued were $1.5 million.
- The independent auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective.
Key facts for investors to verify
- Whether post-pandemic store traffic and digital growth can restore sales and margins, particularly at Schuh and Johnston & Murphy.
- Whether FY2022 cash generation and the expected tax refund materialize, and how much liquidity remains after inventory rebuilding and rent payments.
- Progress and cash cost of landlord negotiations, including settlement of accrued rent and the realization of disclosed rent savings.
- Whether impairment assumptions and deferred-tax-asset valuations remain supportable as operating conditions evolve.
- Changes in debt usage, facility availability, covenant headroom and lease obligations; also track the Togast inventory commitment and environmental contingencies.