Genesco Reports Second Quarter Fiscal 2018 Results

08/31/17

NASHVILLE, Tenn., Aug. 31, 2017 /PRNewswire/ -- Genesco Inc. (NYSE: GCO) today reported a loss from continuing operations for the second quarter ended July 29, 2017, of $3.9 million, or ($0.20) per diluted share, compared to earnings from continuing operations of $14.5 million, or $0.72 per diluted share, for the second quarter ended July 30, 2016.  Fiscal 2018 second quarter results reflect the negative impact from new accounting guidelines for share-based payments totaling $2.2 million, or $0.11 per diluted share after-tax, and a pre-tax charge of $0.3 million, or $0.01 per diluted share after-tax in acquisition transition expenses, partially offset by after-tax gain of $0.5 million, or $0.02 per diluted share from income tax matters.  Fiscal 2017 second quarter results reflect a pretax gain of $10.4 million, or $0.34 per diluted share after tax, including an $8.9 million gain on network intrusion expenses as a result of a litigation settlement, and a $2.5 million gain on the sale of Lids Team Sports, partially offset by $1.0 million for asset impairment charges, plus an after-tax gain of $0.9 million, or $0.04 per diluted share from income tax matters.

Adjusted for the items described above in both periods, the loss from continuing operations was $2.0 million, or ($0.10) per diluted share, for the second quarter of Fiscal 2018, compared to earnings from continuing operations of $6.9 million, or $0.34 per diluted share, for the second quarter of Fiscal 2017.  For consistency with Fiscal 2018's previously announced earnings expectations and with previously reported adjusted results for the prior year period, the Company believes that the disclosure of the results from continuing operations adjusted for these items will be useful to investors. A reconciliation of earnings and earnings per share from continuing operations in accordance with U.S. Generally Accepted Accounting Principles with the adjusted earnings and earnings per share numbers presented in this paragraph is set forth on Schedule B to this press release.

Net sales for the second quarter of Fiscal 2018 decreased 1.4% to $617 million from $626 million in the second quarter of Fiscal 2017.  Without the sale in December of the SureGrip business and the impact of foreign exchange, revenue would have been flat. Consolidated second quarter 2018 comparable sales, including same store sales and comparable e-commerce and catalog sales, were flat, with a 1% increase in the Journeys Group, a 2% decrease in the Lids Sports Group, a 3% increase in the Schuh Group, and a 1% decrease in the Johnston & Murphy Group. Comparable sales for the Company included a 2% decrease in same store sales and a 30% increase in e-commerce sales.

Robert J. Dennis, chairman, president and chief executive officer of Genesco, said, "The second quarter was a bit more challenging than we expected, as positive momentum at Journeys was offset by increasing headwinds at Lids. Journeys comps improved significantly, as we emerged from the latest fashion cycle. We also continued to experience a more dramatic shift in consumer shopping away from stores to digital across our divisions which pressured profitability, as we deleveraged our fixed expenses on negative store comps.  As a result of the overall flat comp and these factors, combined with gross margin headwinds, primarily from higher e-commerce sales, product mix shifts, and increased promotional activity, earnings were considerably lower than last year and slightly below our internal forecasts.

"The positive sales trends we experienced at Journeys and Schuh during the second quarter accelerated nicely during August in the important back-to-school selling period, and we believe that both businesses are in stronger merchandise positions heading into the holiday season compared with a year ago.  Unfortunately, current trends at Lids continue to run well below our expectations which will make it more difficult to lap the tough comparisons we face beginning in October from last year's Cubs World Series win. In addition, we have adopted a more conservative outlook for store-based sales given the anemic level of mall traffic year-to-date and the more pronounced shift in consumer spending away from stores to online. Therefore, we now expect adjusted diluted earnings per share for the year in the range of $3.35 to $3.65, compared to our previously issued guidance range of $3.90 to $4.05, a wider range than usual given some of the opportunities and challenges in our business."  These expectations do not include expected non-cash asset impairments and other charges, estimated in the range of $4.7 million to $5.8 million pretax, or $0.16 to $0.20 per share after tax, for the full fiscal year.  They also do not include certain tax effects related to equity grants pursuant to the newly effective ASU 2016-09, estimated at $0.11 per share after tax. This guidance assumes comparable sales in the range of -1% to 1% for the full year.    A reconciliation of the adjusted financial measures cited in the guidance to their corresponding measures as reported pursuant to U.S. Generally Accepted Accounting Principles is included in Schedule B to this press release.

Dennis concluded, "While we are disappointed with our reduced outlook, we believe we have established new ranges for sales and earnings that better reflect the current operating environment. I believe that our approach to managing the business strikes the right balance between protecting near-term profitability and executing our long range plans, and we expect our concepts to emerge from the ongoing retail transformation in even stronger strategic positions."

Conference Call and Management Commentary
The Company has posted detailed financial commentary in writing on its website, www.genesco.com, in the investor relations section. The Company's live conference call on August 31, 2017 at 7:30 a.m. (Central time), may be accessed through the Company's internet website, www.genesco.com. To listen live, please go to the website at least 15 minutes early to register, download and install any necessary software.

Cautionary Note Concerning Forward-Looking Statements
This release contains forward-looking statements, including those regarding the performance outlook for the Company and its individual businesses (including, without limitation, sales, expenses, margins, growth and earnings) and all other statements not addressing solely historical facts or present conditions. Actual results could vary materially from the expectations reflected in these statements. A number of factors could cause differences.  These include adjustments to estimates and projections reflected in forward-looking statements, including the level and timing of promotional activity necessary to maintain inventories at appropriate levels;  the timing and amount of non-cash asset impairments related to retail store fixed assets and intangible assets of acquired businesses, especially in view of the Company's recent market valuation; the effectiveness of the Company's omnichannel initiatives; costs associated with changes in minimum wage and overtime requirements; the level of chargebacks from credit card users for fraudulent purchases or other reasons; weakness in the consumer economy and retail industry; effects on local consumer demand or on the national economy related to Hurricane Harvey; competition in the Company's markets, including online; fashion trends that affect the sales or product margins of the Company's retail product offerings; weakness in shopping mall traffic and challenges to the viability of malls where the Company operates stores, including weakness related to planned closings of anchor and department stores and other stores or other factors; the imposition of tariffs on imported products; changes in buying patterns by significant wholesale customers; bankruptcies or deterioration in financial condition of significant wholesale customers or the inability of wholesale customers or consumers to obtain credit; disruptions in product supply or distribution; unfavorable trends in fuel costs, foreign exchange rates, foreign labor and material costs, and other factors affecting the cost of products; the effects of the British decision to exit the European Union, including potential effects on consumer demand, currency exchange rates, and the supply chain; the Company's ability to continue to complete and integrate acquisitions, expand its business and diversify its product base; changes in the timing of holidays or in the onset of seasonal weather affecting period-to-period sales comparisons; and the performance of athletic teams, the participants in major sporting events such as the Super Bowl and World Series, developments with respect to certain individual athletes, and other sports-related events or changes that may affect period-to-period comparisons in the Company's Lids Sports Group retail businesses. Additional factors that could affect the Company's prospects and cause differences from expectations include the ability to build, open, staff and support additional retail stores and to renew leases in existing stores and control occupancy costs, and to conduct required remodeling or refurbishment on schedule and at expected expense levels; deterioration in the performance of individual businesses or of the Company's market value relative to its book value, resulting in impairments of fixed assets or intangible assets or other adverse financial consequences; unexpected changes to the market for the Company's shares; variations from expected pension-related charges caused by conditions in the financial markets; disruptions in the Company's information technology systems either by security breaches and incidents or by potential problems associated with the implementation of new or upgraded systems;  and the cost and outcome of litigation, investigations and environmental matters involving the Company. Additional factors are cited in the "Risk Factors," "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of, and elsewhere in, our SEC filings, copies of which may be obtained from the SEC website, www.sec.gov, or by contacting the investor relations department of Genesco via our website, www.genesco.com. Many of the factors that will determine the outcome of the subject matter of this release are beyond Genesco's ability to control or predict. Genesco undertakes no obligation to release publicly the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Forward-looking statements reflect the expectations of the Company at the time they are made. The Company disclaims any obligation to update such statements.

About Genesco Inc.
Genesco Inc., a Nashville-based specialty retailer, sells footwear, headwear, sports apparel and accessories in more than 2,740 retail stores and leased departments throughout the U.S., Canada, the United Kingdom, the Republic of Ireland and Germany, principally under the names Journeys, Journeys Kidz, Shi by Journeys, Schuh, Schuh Kids, Little Burgundy, Lids, Locker Room by Lids, Lids Clubhouse, Johnston & Murphy, and on internet websites www.journeys.com, www.journeyskidz.com, www.journeys.ca, www.shibyjourneys.com, www.schuh.co.uk, www.littleburgundyshoes.com, www.johnstonmurphy.com, www.lids.com, www.lids.ca, www.lidslockerroom.com, www.lidsclubhouse.com, www.neweracap.com, www.trask.com, and www.dockersshoes.com.  The Company's Lids Sports Group division operates the Lids headwear stores, the Locker Room by Lids and other team sports fan shops and single team clubhouse stores.   In addition, Genesco sells wholesale footwear under its Johnston & Murphy brand, the Trask brand, the licensed Dockers brand, G.H. Bass & Co., and other brands. For more information on Genesco and its operating divisions, please visit www.genesco.com.

 

GENESCO INC.













Consolidated Earnings Summary












Three Months Ended 


Six Months Ended 





Jul. 29,


Jul. 30


Jul. 29,


Jul. 30



In Thousands


2017


2016


2017


2016



Net sales


$  616,506


$  625,557


$ 1,259,874


$  1,274,350



Cost of sales


309,999


310,820


634,454


629,916



Selling and administrative expenses

308,459


302,662


624,459


610,905



Asset impairments and other, net

58


(7,945)


177


(4,388)



Earnings (loss) from operations

(2,010)


20,020


784


37,917



Gain on sale of Lids Team Sports

-


(2,485)


-


(2,485)



Interest expense, net

1,249


1,306


2,426


2,443



Earnings (loss) from continuing operations










    before income taxes

(3,259)


21,199


(1,642)


37,959














Income tax expense

616


6,695


1,236


12,891



Earnings (loss) from continuing operations

(3,875)


14,504


(2,878)


25,068














Provision for discontinued operations

(73)


74


(185)


(80)



Net Earnings (Loss)

$     (3,948)


$    14,578


$       (3,063)


$        24,988


 

 

 


Earnings Per Share Information












Three Months Ended 


Six Months Ended 





Jul. 29,


Jul. 30


Jul. 29,


Jul. 30



In Thousands (except per share amounts)

2017


2016


2017


2016














Average common shares - Basic EPS

19,152


20,195


19,171


20,505














Basic earnings (loss) per share:










     Before discontinued operations

$(0.20)


$0.72


$(0.15)


$1.22



     Net earnings (loss)

$(0.21)


$0.72


$(0.16)


$1.22














Average common and common










    equivalent shares - Diluted EPS

19,152


20,244


19,171


20,617














Diluted earnings (loss) per share:










     Before discontinued operations

$(0.20)


$0.72


$(0.15)


$1.22



     Net earnings (loss)

$(0.21)


$0.72


$(0.16)


$1.21













 

 

GENESCO INC.













Consolidated Earnings Summary












Three Months Ended 


Six Months Ended 





Jul. 29,


Jul. 30


Jul. 29,


Jul. 30



In Thousands


2017


2016


2017


2016



Sales:











    Journeys Group

$  258,953


$  252,134


$    543,072


$      546,355



    Schuh Group


97,625


96,960


174,081


172,630



    Lids Sports Group

180,230


188,912


357,131


368,288



    Johnston & Murphy Group

64,860


65,151


137,653


135,126



    Licensed Brands

14,697


22,100


47,707


51,566



    Corporate and Other

141


300


230


385



    Net Sales


$  616,506


$  625,557


$ 1,259,874


$  1,274,350



Operating Income (Loss):










    Journeys Group (1)

$     (2,194)


$      4,481


$         5,278


$        24,101



    Schuh Group


4,538


5,693


3,851


3,032



    Lids Sports Group

3,040


7,132


1,254


13,169



    Johnston & Murphy Group

1,547


2,255


5,367


7,097



    Licensed Brands

(1,051)


234


1,224


2,087



    Corporate and Other (2)

(7,890)


225


(16,190)


(11,569)



   Earnings (loss) from operations

(2,010)


20,020


784


37,917



  Gain on sale of Lids Team Sports

-


(2,485)


-


(2,485)



   Interest, net


1,249


1,306


2,426


2,443



Earnings (loss) from continuing operations










    before income taxes

(3,259)


21,199


(1,642)


37,959



Income tax expense

616


6,695


1,236


12,891



Earnings (loss) from continuing operations

(3,875)


14,504


(2,878)


25,068














Provision for discontinued operations

(73)


74


(185)


(80)



Net Earnings (Loss)

$     (3,948)


$    14,578


$       (3,063)


$        24,988



(1) Includes a $0.3 million charge for acquisition transition expenses.


(2) Includes a $0.1 million charge and a $0.2 million charge in the second quarter and first six months of Fiscal 2018,

respectively, for asset impairments.


Includes a $7.9 million gain in the second quarter of Fiscal 2017 which includes an $8.9 million gain for network

intrusion expenses as a result of a litigation settlement, partially offset by $1.0 million for asset impairments. Includes a 

$4.4 million gain for the first six months of Fiscal 2017 which includes an $8.9 million gain for network intrusion expenses

as a result of a litigation settlement, partially offset by $4.4 million for asset impairments and $0.1 million for other legal matters.

 

 

GENESCO INC.
























Consolidated Balance Sheet



























Jul. 29,


Jul. 30,



In Thousands






2017


2016



Assets











Cash and cash equivalents





$       43,520


$        41,466



Accounts receivable





39,411


46,469



Inventories






670,104


663,708



Other current assets





83,578


69,382



Total current assets





836,613


821,025



Property and equipment





362,304


321,231



Goodwill and other intangibles





364,488


366,186



Other non-current assets





34,108


70,216



Total Assets






$ 1,597,513


$  1,578,658



Liabilities and  Equity










Accounts payable





$    242,729


$      269,371



Current portion long-term debt





2,051


10,620



Other current liabilities





106,252


127,714



Total current liabilities





351,032


407,705



Long-term debt






188,823


124,981



Pension liability





5,989


9,487



Deferred rent and other long-term liabilities





134,772


149,566



Equity






916,897


886,919



Total Liabilities and Equity





$ 1,597,513


$  1,578,658


 

 


GENESCO INC.







































Retail Units Operated - Six Months Ended July 29, 2017













Balance






Balance






Balance





01/30/16


Open


Close


01/28/17


Open


Close


07/29/17



Journeys Group


1,222


51


24


1,249


26


28


1,247



Schuh Group


125


7


4


128


3


0


131



Lids Sports Group*


1,332


15


107


1,240


9


61


1,188



Johnston & Murphy Group


173


8


4


177


2


0


179



Total Retail Units


2,852


81


139


2,794


40


89


2,745


 

 


Retail Units Operated - Three Months Ended July 29, 2017







Balance






Balance





04/29/17


Open


Close


07/29/17



Journeys Group


1,250


13


16


1,247



Schuh Group


129


2


0


131



Lids Sports Group*


1,199


4


15


1,188



Johnston & Murphy Group


178


1


0


179



Total Retail Units


2,756


20


31


2,745



* Includes 124 Locker Room by Lids in Macy's stores as of July 29, 2017.

 

 


Comparable Sales (including same store and comparable direct sales)




Three Months Ended


       Six Months Ended





Jul. 29,


Jul. 30,


Jul. 29,


Jul. 30,





2017


2016


2017


2016



Journeys Group


1%


-4%


-2%


-1%



Schuh Group


3%


-1%


6%


-3%



Lids Sports Group


-2%


0%


-1%


1%



Johnston & Murphy Group


-1%


3%


-2%


4%



Total Comparable Sales


0%


-1%


0%


0%


 

 

Schedule B




Genesco Inc.

Adjustments to Reported Earnings (Loss) from Continuing Operations

Three Months Ended July 29, 2017 and July 30, 2016





















 Three Months Ended 



 July 29, 2017 


 July 30, 2016 




 Net of 

 Per Share 



 Net of 

 Per Share 

In Thousands (except per share amounts)


 Pretax 

 Tax 

 Amounts 


 Pretax 

 Tax 

 Amounts 

Earnings (loss) from continuing operations, as reported



$     (3,875)

$        (0.20)



$      14,504

$     0.72










Pretax adjustments:









Impairment charges


$            58

44

-


$       1,018

665

0.03

Acquisition transition expenses


288

199

0.01


-

-

-

Sale of Lids Team Sports


-

-

-


(2,485)

(1,602)

(0.08)

Network intrusion expenses


-

-

-


(8,963)

(5,777)

(0.29)

Total adjustments


$          346

243

0.01


$     (10,430)

(6,714)

(0.34)










Tax impact for share-based awards



2,167

0.11



-

-

Resolution of income tax matters



(520)

(0.02)



(872)

(0.04)

Adjusted earnings (loss) from continuing operations (1) and (2)

$     (1,985)

$        (0.10)



$       6,918

$     0.34



(1)

The adjusted tax rate for the second quarter of Fiscal 2018 is 32.9% excluding a FIN 48 discrete item of less than $0.1 million. 
The adjusted tax rate for the second quarter of Fiscal 2017 is 35.0% excluding a FIN 48 discrete item of $0.1 million.



(2)

EPS reflects 19.2 and 20.2 million share count for Fiscal 2018 and 2017, which includes common stock equivalents in 2017,
but not 2018 due to loss.


The Company believes that disclosure of earnings and earnings per share from continuing operations adjusted for the items not reflected in the
previously announced expectations will be meaningful to investors, especially in light of the impact of such items on the results.

 

 

Genesco Inc.

Adjustments to Reported Operating Income (Loss)

Three Months Ended July 29, 2017 and July 30, 2016








 Three Months Ended July 29, 2017 



 Operating 


Adj Operating

In Thousands 


 Inc (Loss) 

 Other Adj 

 Inc (Loss) 

Journeys Group


$      (2,194)

$         288

$       (1,906)

Schuh Group


4,538

-

4,538

Lids Sports Group


3,040

-

3,040

Johnston & Murphy Group


1,547

-

1,547

Licensed Brands


(1,051)

-

(1,051)

Corporate and Other


(7,890)

58

(7,832)

Total Operating Income (Loss)


$      (2,010)

$         346

$       (1,664)













 Three Months Ended July 30, 2016 



 Operating 


Adj Operating

In Thousands 


 Income 

 Other Adj 

Income

Journeys Group


$       4,481

$           -

$        4,481

Schuh Group


5,693

-

5,693

Lids Sports Group


7,132

-

7,132

Johnston & Murphy Group


2,255

-

2,255

Licensed Brands


234

-

234

Corporate and Other


225

(7,945)

(7,720)

Total Operating Income


$      20,020

$     (7,945)

$      12,075

 

 

Schedule B




Genesco Inc.

Adjustments to Reported Earnings (Loss) from Continuing Operations

Six Months Ended July 29, 2017 and July 30, 2016





















 Six Months Ended 



 July 29, 2017 


 July 30, 2016 




 Net of 

 Per Share 



 Net of 

 Per Share 

In Thousands (except per share amounts)


 Pretax 

 Tax 

 Amounts 


 Pretax 

 Tax 

 Amounts 

Earnings (loss) from continuing operations, as reported



$   (2,878)

$          (0.15)



$      25,068

$        1.22










Pretax adjustments:









Impairment charges


$        177

122

-


$       4,453

2,870

0.14

Acquisition transition expenses


288

199

0.01


-

-

-

Sale of Lids Team Sports


-

-

-


(2,485)

(1,602)

(0.08)

Other legal matters


-

-

-


90

57

-

Network intrusion expenses


-

-

-


(8,931)

(5,756)

(0.28)

Total adjustments


$        465

321

0.01


$      (6,873)

(4,431)

(0.22)










Tax impact for share-based awards



2,167

0.11



-

-

Resolution of income tax matters



(496)

(0.02)



(766)

(0.04)

Adjusted earnings (loss) from continuing operations (1) and (2)

$      (886)

$          (0.05)



$      19,871

$        0.96


(1)

The adjusted tax rate for the first six months of Fiscal 2018 is 31.1% excluding a FIN 48 discrete item of $0.1 million.  The adjusted tax rate for the first six months of Fiscal 2017 is 35.6% excluding a FIN 48 discrete item of $0.2 million.


(2)

EPS reflects 19.2 and 20.6 million share count for Fiscal 2018 and 2017, which includes common stock equivalents in 2017, but not 2018 due to loss.


The Company believes that disclosure of earnings and earnings per share from continuing operations adjusted for the items not reflected in the previously
announced expectations will be meaningful to investors, especially in light of the impact of such items on the results.

 

 

Genesco Inc.

Adjustments to Reported Operating Income 

Six Months Ended July 29, 2017 and July 30, 2016








 Six Months Ended July 29, 2017 



 Operating 


Adj Operating

In Thousands 


 Income 

 Other Adj 

Income

Journeys Group


$      5,278

$       288

$         5,566

Schuh Group


3,851

-

3,851

Lids Sports Group


1,254

-

1,254

Johnston & Murphy Group


5,367

-

5,367

Licensed Brands


1,224

-

1,224

Corporate and Other


(16,190)

177

(16,013)

Total Operating Income


$        784

$       465

$         1,249













 Six Months Ended July 30, 2016 



 Operating 


Adj Operating

In Thousands 


 Income 

 Other Adj 

Income

Journeys Group


$    24,101

$         -

$       24,101

Schuh Group


3,032

-

3,032

Lids Sports Group


13,169

-

13,169

Johnston & Murphy Group


7,097

-

7,097

Licensed Brands


2,087

-

2,087

Corporate and Other


(11,569)

(4,388)

(15,957)

Total Operating Income


$    37,917

$   (4,388)

$       33,529

 

 

Schedule B




Genesco Inc.

Adjustments to Forecasted Earnings from Continuing Operations

Fiscal Year Ending February 3, 2018







In Thousands (except per share amounts)


High Guidance

Low Guidance



Fiscal 2018

Fiscal 2018

Forecasted earnings from continuing operations 


$     65,152

$       3.38

$   58,629

$       3.04







Adjustments:  (1)






Asset impairment and other charges


3,061

0.16

3,774

0.20

Tax impact for share-based awards


2,167

0.11

2,167

0.11







Adjusted forecasted earnings from continuing operations (2)

$     70,380

$       3.65

$   64,570

$       3.35



(1) All adjustments are net of tax where applicable.  The forecasted tax rate for Fiscal 2018 is approximately 35.2%.


(2) EPS reflects 19.3 million share count for Fiscal 2018 which includes common stock equivalents.


This reconciliation reflects estimates and current expectations of future results. Actual results may vary materially from these expectations and estimates, for reasons including those included in the discussion of forward-looking statements elsewhere in this release. The Company disclaims any obligation to update such expectations and estimates.

 

 

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SOURCE Genesco Inc.

Financial Contact: Mimi Vaughn, (615) 367-7386; Media Contact: Claire S. McCall, (615) 367-8283