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Table of Contents

 

 

 

 

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended May 2, 2020

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from              to             

Commission File No. 1-3083

Genesco Inc.

(Exact name of registrant as specified in its charter)

 

Tennessee

 

62-0211340

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

Genesco Park,

1415 Murfreesboro Pike

 

37217-2895

Nashville,

Tennessee

 

(Zip Code)

(Address of principal executive offices)

 

 

 

Registrant's telephone number, including area code: (615367-7000

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

GCO

New York Stock Exchange

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer; an accelerated filer; a non-accelerated filer; a smaller reporting company; or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes      No  

As of May 29, 2020, 14,681,969 shares of the registrant's common stock were outstanding.

 

 

 


Table of Contents

 

INDEX

 

 

 

Part I. Financial Information

 

Item 1. Financial Statements (unaudited):

 

Condensed Consolidated Balance Sheets – May 2, 2020, February 1, 2020 and May 4, 2019

4

Condensed Consolidated Statements of Operations - Three Months ended May 2, 2020 and May 4, 2019

5

Condensed Consolidated Statements of Comprehensive Income - Three Months ended May 2, 2020 and May 4, 2019

6

Condensed Consolidated Statements of Cash Flows - Three Months ended May 2, 2020 and May 4, 2019

7

Condensed Consolidated Statements of Equity - Three Months ended May 2, 2020 and May 4, 2019

8

Notes to Condensed Consolidated Financial Statements (unaudited)

9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3. Quantitative and Qualitative Disclosures about Market Risk

26

Item 4. Controls and Procedures

26

Part II. Other Information

27

Item 1. Legal Proceedings

27

Item 1A. Risk Factors

27

Item 6. Exhibits

29

Signature

30

 

 

 

2


Table of Contents

 

cautionary notice regarding forward-looking statements

Statements in this Quarterly Report on Form 10-Q include certain forward-looking statements, including those regarding the performance outlook for the Company and our individual businesses (including, without limitation, sales, expenses, margins and earnings) and all other statements not addressing solely historical facts or present conditions. Words such as "may," "will," "should," "likely," "anticipate," "expect," "intend," "plan," "project," "believe," "estimate" and similar expressions can be used to identify these forward-looking statements. Actual results, including those regarding our performance outlook for Fiscal 2021 and beyond, could differ materially from those reflected by the forward-looking statements in this Quarterly Report on Form 10-Q and a number of factors may adversely affect the forward-looking statements and our future results, liquidity, capital resources or prospects. These include, but are not limited to, risks related to public health and safety issues, including, for example, the novel coronavirus disease ("COVID-19") outbreak which began in 2019, our ability to reopen stores, operate stores safely and ensure the safety of customers and employees, whether there is a second wave or periods of increases in the number of COVID-19 cases in locations in which we operate, restrictions on operations imposed by government entities and landlords, changes in public safety and health requirements, our ability to adequately staff our stores, limitations on our ability to provide adequate personal protective equipment to our employees, our ability to maintain social distancing requirements, stores closures and effect on our business as a result of civil disturbances, the level and timing of promotional activity necessary to maintain inventories at appropriate levels, our ability to recognize deferred tax assets, the timing and amount of any share repurchases by us, the imposition of tariffs on products imported by us or our vendors as well as the ability and costs to move production of products in response to tariffs, our ability to obtain from suppliers products that are in-demand on a timely basis and effectively manage disruptions in product supply or distribution, including disruptions as a result of COVID-19, 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 and other sources of weakness in the U.K. market, the effectiveness of our omnichannel initiatives, costs associated with changes in minimum wage and overtime requirements, wage pressure in the U.S. and the U.K., weakness in the consumer economy and retail industry, competition and fashion trends in our markets, closure of our stores due to COVID-19 and weakness in traffic at shopping malls and at our stores that are open, risks related to the potential for terrorist events, changes in buying patterns by significant wholesale customers, our ability to continue to complete and integrate acquisitions, expand our business and diversify our product base, retained liabilities associated with divestitures of businesses including potential liabilities under leases as the prior tenant or as a guarantor of certain leases, and changes in the timing of holidays or in the onset of seasonal weather affecting period-to-period sales comparisons. Additional factors that could cause differences from expectations include the ability to open additional retail stores and to renew leases in existing stores and control or lower occupancy costs, and to conduct required remodeling or refurbishment on schedule and at expected expense levels, our ability to eliminate stranded costs associated with dispositions, our ability to realize anticipated cost savings, including rent savings, deterioration in the performance of individual businesses or of our market value relative to our book value, resulting in impairments of fixed assets, operating lease right of use assets or intangible assets or other adverse financial consequences and the timing and amount of such impairments or other consequences, unexpected changes to the market for our shares or for the retail sector in general, costs and reputational harm as a result of disruptions in our business or information technology systems either by security breaches and incidents or by potential problems associated with the implementation of new or upgraded systems, uncertainty regarding the expected phase out of the London Interbank Offered Rate ("LIBOR"), and the cost and outcome of litigation, investigations and environmental matters that involve us.

Readers are cautioned not to place undue reliance on forward-looking statements as such statements speak only as of the date they were made and involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth in our description of risk factors in Item 1A contained in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020, and Item 1A in Part II of this Quarterly Report on Form 10-Q, which should be read in conjunction with the forward-looking statements in this Quarterly Report on Form 10-Q. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.

The events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. As a result, our actual results may differ materially from the results contemplated by these forward-looking statements.

We maintain a website at www.genesco.com where investors and other interested parties may obtain, free of charge, press releases and other information as well as gain access to our periodic filings with the Securities and Exchange Commission (“SEC”). The information contained on this website should not be considered to be a part of this or any other report filed with or furnished to the SEC.

3


Table of Contents

 

                                                PART I - FINANCIAL INFORMATION

                                                Item 1. Financial Statements (unaudited)

 

Genesco Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

 

Assets

 

May 2,

2020

 

 

February 1,

2020

 

 

May 4,

2019

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

238,574

 

 

$

81,418

 

 

$

156,655

 

Accounts receivable, net of allowances of $5,090 at May 2, 2020,

 

 

 

 

 

 

 

 

 

 

 

 

$2,940 at Feb. 1, 2020 and $2,874 at May 4, 2019

 

 

55,259

 

 

 

29,195

 

 

 

33,275

 

Inventories

 

 

391,803

 

 

 

365,269

 

 

 

367,998

 

Prepaids and other current assets

 

 

49,372

 

 

 

32,301

 

 

 

43,116

 

Total current assets

 

 

735,008

 

 

 

508,183

 

 

 

601,044

 

Property and equipment, net

 

 

227,058

 

 

 

238,320

 

 

 

271,320

 

Operating lease right of use assets

 

 

692,489

 

 

 

735,044

 

 

 

769,922

 

Goodwill

 

 

37,497

 

 

 

122,184

 

 

 

93,455

 

Other intangibles

 

 

29,082

 

 

 

36,364

 

 

 

31,168

 

Deferred income taxes

 

 

14,568

 

 

 

19,475

 

 

 

24,043

 

Other noncurrent assets

 

 

19,366

 

 

 

20,908

 

 

 

25,121

 

Total Assets

 

 

1,755,068

 

 

 

1,680,478

 

 

 

1,816,073

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

175,232

 

 

 

135,784

 

 

 

121,655

 

Accrued employee compensation

 

 

10,919

 

 

 

31,579

 

 

 

31,701

 

Current portion – long-term debt

 

 

23,741

 

 

 

 

 

 

13,914

 

Current portion - operating lease liabilities

 

 

164,723

 

 

 

142,695

 

 

 

138,758

 

Other accrued liabilities

 

 

54,926

 

 

 

51,382

 

 

 

57,352

 

Provision for discontinued operations

 

 

483

 

 

 

495

 

 

 

484

 

Total current liabilities

 

 

430,024

 

 

 

361,935

 

 

 

363,864

 

Long-term debt

 

 

198,939

 

 

 

14,393

 

 

 

59,762

 

Long-term operating lease liabilities

 

 

615,400

 

 

 

647,949

 

 

 

690,432

 

Other long-term liabilities

 

 

33,202

 

 

 

35,177

 

 

 

37,178

 

Provision for discontinued operations

 

 

1,681

 

 

 

1,681

 

 

 

1,911

 

Total liabilities

 

 

1,279,246

 

 

 

1,061,135

 

 

 

1,153,147

 

Commitments and contingent liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Non-redeemable preferred stock

 

 

1,009

 

 

 

1,009

 

 

 

1,012

 

Common equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $1 par value:

 

 

 

 

 

 

 

 

 

 

 

 

Authorized: 80,000,000 shares

 

 

 

 

 

 

 

 

 

 

 

 

Issued common stock

 

 

15,171

 

 

 

15,186

 

 

 

17,753

 

Additional paid-in capital

 

 

276,307

 

 

 

274,101

 

 

 

266,455

 

Retained earnings

 

 

243,795

 

 

 

378,572

 

 

 

432,531

 

Accumulated other comprehensive loss

 

 

(42,603

)

 

 

(31,668

)

 

 

(36,968

)

Treasury shares, at cost (488,464 shares)

 

 

(17,857

)

 

 

(17,857

)

 

 

(17,857

)

Total equity

 

 

475,822

 

 

 

619,343

 

 

 

662,926

 

Total Liabilities and Equity

 

$

1,755,068

 

 

$

1,680,478

 

 

$

1,816,073

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

4


Table of Contents

 

Genesco Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

 

 

 

 

Three Months Ended

 

 

 

May 2, 2020

 

 

May 4, 2019

 

Net sales

 

$

279,232

 

 

$

495,651

 

Cost of sales

 

 

159,088

 

 

 

250,743

 

Gross margin

 

 

120,144

 

 

 

244,908

 

Selling and administrative expenses

 

 

189,042

 

 

 

236,555

 

Goodwill impairment

 

 

79,259

 

 

 

 

Asset impairments and other, net

 

 

7,861

 

 

 

(731

)

Operating income (loss)

 

 

(156,018

)

 

 

9,084

 

Other components net periodic benefit cost

 

 

(124

)

 

 

(86

)

Interest expense, net:

 

 

 

 

 

 

 

 

Interest expense

 

 

1,049

 

 

 

848

 

Interest income

 

 

(193

)

 

 

(1,014

)

Total interest expense, net

 

 

856

 

 

 

(166

)

Earnings (loss) from continuing operations before

 

 

 

 

 

 

 

 

income taxes

 

 

(156,750

)

 

 

9,336

 

Income tax expense (benefit)

 

 

(22,126

)

 

 

2,866

 

Earnings (loss) from continuing operations

 

 

(134,624

)

 

 

6,470

 

Loss from discontinued operations, net of tax

 

 

(153

)

 

 

(124

)

Net Earnings (Loss)

 

$

(134,777

)

 

$

6,346

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share:

 

 

 

 

 

 

 

 

Continuing operations

 

$

(9.54

)

 

$

0.37

 

Discontinued operations

 

 

(0.01

)

 

 

(0.01

)

Net earnings (loss)

 

$

(9.55

)

 

$

0.36

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share:

 

 

 

 

 

 

 

 

Continuing operations

 

$

(9.54

)

 

$

0.36

 

Discontinued operations

 

 

(0.01

)

 

 

0.00

 

Net earnings (loss)

 

$

(9.55

)

 

$

0.36

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

  Basic

 

 

14,110

 

 

 

17,645

 

       Diluted

 

 

14,110

 

 

 

17,850

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

5


Table of Contents

 

Genesco Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

 

 

 

 

Three Months Ended

 

 

 

May 2, 2020

 

 

May 4, 2019

 

Net earnings (loss)

 

$

(134,777

)

 

$

6,346

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Pension liability adjustments, net of tax

 

 

 

 

 

55

 

Postretirement liability adjustments, net of tax

 

 

(120

)

 

 

(167

)

Foreign currency translation adjustments

 

 

(10,815

)

 

 

1,080

 

Total other comprehensive income (loss)

 

 

(10,935

)

 

 

968

 

Comprehensive income (loss)

 

$

(145,712

)

 

$

7,314

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

6


Table of Contents

 

 

Genesco Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

 

Three Months Ended

 

 

 

May 2, 2020

 

 

May 4, 2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

(134,777

)

 

$

6,346

 

Adjustments to reconcile net earnings (loss) to net cash provided by

 

 

 

 

 

 

 

 

(used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

12,423

 

 

 

12,803

 

Amortization of deferred note expense and debt discount

 

 

130

 

 

 

109

 

Deferred income taxes

 

 

4,905

 

 

 

(2,026

)

Provision for accounts receivable

 

 

2,468

 

 

 

61

 

Impairment of intangible assets

 

 

84,519

 

 

 

 

Impairment of long-lived assets

 

 

3,042

 

 

 

307

 

Restricted stock expense

 

 

2,191

 

 

 

2,239

 

Other

 

 

194

 

 

 

640

 

Effect on cash from changes in working capital and other

   assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(28,775

)

 

 

(3,699

)

Inventories

 

 

(30,708

)

 

 

(1,607

)

Prepaids and other current assets

 

 

(17,619

)

 

 

4,156

 

Accounts payable

 

 

58,061

 

 

 

(32,805

)

Other accrued liabilities

 

 

(15,949

)

 

 

(22,288

)

Other assets and liabilities

 

 

32,110

 

 

 

1,028

 

Net cash used in operating activities

 

 

(27,785

)

 

 

(34,736

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(6,742

)

 

 

(6,741

)

Proceeds from sale of businesses

 

 

 

 

 

105,848

 

Proceeds from asset sales

 

 

100

 

 

 

30

 

Net cash provided by (used in) investing activities

 

 

(6,642

)

 

 

99,137

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payments of long-term debt

 

 

 

 

 

(407

)

Borrowings under revolving credit facility

 

 

214,571

 

 

 

28,357

 

Payments on revolving credit facility

 

 

(6,239

)

 

 

(19,119

)

Share repurchases related to share repurchase program

 

 

 

 

 

(80,064

)

Change in overdraft balances

 

 

(17,078

)

 

 

(4,038

)

Other

 

 

(48

)

 

 

 

Net cash provided by (used in) financing activities

 

 

191,206

 

 

 

(75,271

)

Effect of foreign exchange rate fluctuations on cash

 

 

377

 

 

 

170

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

157,156

 

 

 

(10,700

)

Cash and cash equivalents at beginning of period

 

 

81,418

 

 

 

167,355

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

238,574

 

 

$

156,655

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

Interest paid

 

$

535

 

 

$

691

 

Income taxes paid

 

 

508

 

 

 

267

 

Cash paid for amounts included in measurement of operating lease liabilities

 

 

13,040

 

 

 

45,877

 

Operating leased assets obtained in exchange for new operating lease liabilities

 

 

8,349

 

 

 

13,632

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

7


Table of Contents

 

Genesco Inc. and Subsidiaries

Condensed Consolidated Statements of Equity

(In thousands)

 

 

 

Non-

Redeemable

Preferred

Stock

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Treasury

Shares

 

 

Total

Equity

 

Balance February 2, 2019

 

$

1,060

 

 

$

19,591

 

 

$

264,138

 

 

$

508,555

 

 

$

(37,936

)

 

$

(17,857

)

 

$

737,551

 

Cumulative adjustment from ASC 842, net of tax

 

 

 

 

 

 

 

 

 

 

 

(4,208

)

 

 

 

 

 

 

 

 

(4,208

)

Net earnings

 

 

 

 

 

 

 

 

 

 

 

6,346

 

 

 

 

 

 

 

 

 

6,346

 

Other comprehensive earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

968

 

 

 

 

 

 

968

 

Employee and non-employee share-based compensation

 

 

 

 

 

 

 

 

2,239

 

 

 

 

 

 

 

 

 

 

 

 

2,239

 

Shares repurchased

 

 

 

 

 

(1,809

)

 

 

 

 

 

(78,162

)

 

 

 

 

 

 

 

 

(79,971

)

Other

 

 

(48

)

 

 

(29

)

 

 

78

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Balance May 4, 2019

 

$

1,012

 

 

$

17,753

 

 

$

266,455

 

 

$

432,531

 

 

$

(36,968

)

 

$

(17,857

)

 

$

662,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance February 1, 2020

 

$

1,009

 

 

$

15,186

 

 

$

274,101

 

 

$

378,572

 

 

$

(31,668

)

 

$

(17,857

)

 

$

619,343

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(134,777

)

 

 

 

 

 

 

 

 

(134,777

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,935

)

 

 

 

 

 

(10,935

)

Employee and non-employee share-based compensation

 

 

 

 

 

 

 

 

2,191

 

 

 

 

 

 

 

 

 

 

 

 

2,191

 

Other

 

 

 

 

 

(15

)

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance May 2, 2020

 

$

1,009

 

 

$

15,171

 

 

$

276,307

 

 

$

243,795

 

 

$

(42,603

)

 

$

(17,857

)

 

$

475,822

 

 

 

 

 

 

 

 

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

8


Table of Contents

 

Genesco Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Note 1

Summary of Significant Accounting Policies

Basis of Presentation

The Condensed Consolidated Financial Statements and Notes contained in this report are unaudited but reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results for the interim periods of the fiscal year ending January 30, 2021 ("Fiscal 2021") and of the fiscal year ended February 1, 2020 ("Fiscal 2020"). All subsidiaries are consolidated in the Condensed Consolidated Financial Statements. All significant intercompany transactions and accounts have been eliminated.  The results of operations for any interim period are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") have been condensed or omitted. The Condensed Consolidated Balance Sheet as of February 1, 2020 has been derived from the audited financial statements at that date. These Condensed Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and notes for Fiscal 2020, which are contained in our Annual Report on Form 10-K as filed with the SEC on April 1, 2020.

Nature of Operations

Genesco Inc. and its subsidiaries (collectively the "Company", "we", "our", or "us") business includes the sourcing and design, marketing and distribution of footwear and accessories through retail stores in the U.S., Puerto Rico and Canada primarily under the Journeys, Journeys Kidz, Little Burgundy and Johnston & Murphy banners and under the Schuh banner in the United Kingdom and the Republic of Ireland (“ROI”); through catalogs and e-commerce websites including the following: journeys.com, journeyskidz.com, journeys.ca, schuh.co.uk, schuh.ie, schuh.eu, johnstonmurphy.com, trask.com and littleburgundyshoes.com and at wholesale, primarily under our Johnston & Murphy brand, the Trask brand, the licensed Dockers brand, the licensed Levi's brand, the licensed Bass brand and other brands that we license for footwear.  At May 2, 2020, we operated 1,479 retail stores in the U.S., Puerto Rico, Canada, the United Kingdom and the Republic of Ireland.

During the three months ended May 2, 2020 and May 4, 2019, we operated four reportable business segments (not including corporate): (i) Journeys Group, comprised of the Journeys, Journeys Kidz and Little Burgundy retail footwear chains, e-commerce and catalog operations; (ii) Schuh Group, comprised of the Schuh retail footwear chain and e-commerce operations; (iii) Johnston & Murphy Group, comprised of Johnston & Murphy retail operations, e-commerce operations, catalog, Trask e-commerce operations and wholesale distribution of products under the Johnston & Murphy® and H.S. Trask® brands; and (iv) Licensed Brands, comprised of the licensed Dockers®, Levi's®, and Bass® brands, as well as other brands we license for footwear.

Cash and Cash Equivalents

Our foreign subsidiaries held cash of approximately $26.4 million, $8.9 million and $7.7 million as of May 2, 2020, February 1, 2020 and May 4, 2019, respectively, which is included in cash and cash equivalents on the Condensed Consolidated Balance Sheets.

There were $205.1 million, $59.6 million and $133.2 million in cash equivalents at May 2, 2020, February 1, 2020 and May 4, 2019, respectively.

At May 2, 2020, February 1, 2020 and May 4, 2019, outstanding checks drawn on zero-balance accounts at certain domestic banks exceeded book cash balances at those banks by approximately $0.0 million, $17.1 million and $25.6 million, respectively. These amounts are included in accounts payable in the Condensed Consolidated Balance Sheets.

Concentration of Credit Risk and Allowances on Accounts Receivable

Our footwear wholesale businesses sell primarily to department stores and independent retailers across the United States. Receivables arising from these sales are not collateralized. Customer credit risk is affected by conditions or occurrences within the economy and the retail industry as well as by customer-specific factors. In the footwear wholesale businesses, one customer accounted for 17%, one customer accounted for 10%, two customers each accounted for 8% and no other customer accounted for more than 6% of our total trade receivables balance as of May 2, 2020.

Selling and Administrative Expenses

Wholesale costs of distribution are included in selling and administrative expenses on the Condensed Consolidated Statements of Operations in the amount of $2.4 million and $1.4 million for the first quarters of Fiscal 2021 and Fiscal 2020, respectively.

Retail occupancy costs recorded in selling and administrative expense were $77.2 million and $83.2 million for the first quarters of Fiscal 2021 and Fiscal 2020, respectively.

9


Table of Contents

 

Genesco Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Note 1

Summary of Significant Accounting Policies, Continued

Advertising Costs

Advertising costs were $14.5 million and $13.7 million for the first quarters of Fiscal 2021 and Fiscal 2020, respectively.

Vendor Allowances

Vendor reimbursements of cooperative advertising costs recognized as a reduction of selling and administrative expenses were $1.8 million and $1.9 million for the first quarters of Fiscal 2021 and Fiscal 2020, respectively. During the first three months of Fiscal 2021 and Fiscal 2020, our cooperative advertising reimbursements received were not in excess of the costs incurred.

Foreign Currency Translation

The functional currency of our foreign operations is the applicable local currency. The translation of the applicable foreign currency into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date. Income and expense accounts are translated at monthly average exchange rates. The unearned gains and losses resulting from such translation are included as a separate component of accumulated other comprehensive loss within shareholders' equity. Gains and losses from certain foreign currency transactions are reported as an item of income and resulted in net income of $(0.1) million for the first quarter of Fiscal 2021 and a net loss of $0.3 million for the first quarter of Fiscal 2020.

New Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-13 guidance related to the disclosure requirements for fair value measurement.  This guidance added, modified and removed certain disclosure requirements related to assets and liabilities recorded at fair value.  This guidance is effective for public business entities for fiscal years and interim periods within those years, beginning after December 15, 2019, and early adoption is permitted.  We adopted this guidance in the first quarter of Fiscal 2021 and it had no impact to our results of operations, financial position or cash flows.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. We adopted ASU No. 2016-13 in the first quarter of Fiscal 2021. This guidance did not have a material impact on our Condensed Consolidated Financial Statements.

 

Note 2

COVID-19

 

In March 2020, the World Health Organization categorized the outbreak of COVID-19 as a pandemic. To help control the spread of the virus and protect the health and safety of our employees and customers, we began temporarily closing or modifying operating models and hours of our retail stores in North America, the United Kingdom and Republic of Ireland both in response to governmental requirements including “stay-at-home” orders and similar mandates and voluntarily, beyond the requirements of local government authorities, during the first quarter of Fiscal 2021.

 

Changes made in our operations, including temporary closures, combined with reduced customer traffic due to concerns over the virus, resulted in material reductions in revenues and operating income during the first quarter of Fiscal 2021. This prompted us to update our impairment analyses of our retail store portfolios and related lease right-of-use assets. For certain lower-performing stores, we compared the carrying value of store assets to undiscounted cash flows with updated assumptions on near-term profitability. As a result, we recorded a $3.0 million asset impairment charge within asset impairments and other, net on our Condensed Consolidated Statements of Operations during the first quarter ended May 2, 2020.

 

We also evaluated our goodwill and indefinite-lived intangible assets at the end of our first quarter ended May 2, 2020. Our most recently completed goodwill impairment analyses for Schuh Group as of the first day of the fourth quarter of Fiscal 2020 indicated $8.2 million of excess fair value over its carrying value. Therefore, considering the impact of COVID-19, we updated the goodwill impairment analysis for Schuh Group, and as a result, recorded a goodwill impairment charge of $79.3 million.  In addition, we updated our impairment analysis for other intangible assets considering the impact of COVID-19 and, as a result, recorded a trademark impairment charge of $5.3 million.

 

10


Table of Contents

 

Genesco Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Note 2

COVID-19, Continued

 

We also evaluated our remaining tangible assets, particularly accounts receivable and inventory. Our wholesale businesses sell primarily to independent retailers and department stores across the United States. Receivables arising from these sales are not collateralized. Customer credit risk is affected by conditions or occurrences within the economy and the retail industry, such as COVID-19, as well as by customer specific factors. We establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. As a result of the impact of COVID-19, in the first quarter of Fiscal 2021, we recorded an additional allowance for doubtful accounts of $2.4 million.

 

We also record reserves for obsolete and slow-moving inventory and for estimated shrinkage between physical inventory counts. During the first quarter of Fiscal 2021, we recorded approximately $1.8 million of inventory reserves as a result of excess inventory due to the temporary closure of our retail stores. Depending on the pace of reopening our stores as well as future customer behavior, among other factors, we may incur additional inventory reserves during Fiscal 2021.

 

During the first quarter of Fiscal 2021, we withheld rent payments generally correlating with the time period our stores were closed. We continued to recognize rent expense in accordance with the contractual terms.  While we are having ongoing conversations with landlords in various markets in seeking commercially reasonable lease concessions given the current environment, we have not yet confirmed significant concessions for the remainder of the year.

 

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic and options to defer payroll tax payments. Based on our preliminary evaluation of the CARES Act, we qualify for certain employer payroll tax credits as well as the deferral of payroll and other tax payments in the future, which will be treated as government subsidies to offset related operating expenses. During the first quarter ended May 2, 2020, qualified payroll tax credits reduced our selling and administrative expenses by approximately $7.0 million on our Condensed Consolidated Statements of Operations as a result of relief from the CARES Act and other foreign governmental packages. We expect to record additional payroll tax credits from the U.S. and other governments primarily in the second quarter of Fiscal 2021 to offset qualified wages paid to our employees. We intend to defer qualified payroll and other tax payments as permitted by the CARES Act.

 

We recorded our income tax expense, deferred tax assets and related liabilities based on our best estimates. As part of this process, we assessed the likelihood of realizing the benefits of our deferred tax assets. As of the end of our first quarter of Fiscal 2021, based on available evidence, we recorded additional valuation allowance adjustments in our UK jurisdiction of $2.0 million. Further, we excluded the UK tax jurisdiction from our estimate of the annual effective tax rate for Fiscal 2021 as we do not expect to record any tax benefit from the losses anticipated for Fiscal 2021.  We will continue to monitor the realizability of our deferred tax assets, particularly in certain foreign jurisdictions where the COVID-19 pandemic has started to create significant net operating losses. Our ability to recover these deferred tax assets depends on several factors, including our results of operations and our ability to project future taxable income in those jurisdictions. If we determine that some portion of the tax benefit will not be realized, we would record a valuation allowance, which would increase our income tax expense. Total deferred tax assets as of the end of our first quarter ended May 2, 2020 were approximately $14.6 million, of which approximately $0.9 million related to foreign jurisdictions.

 

The COVID-19 pandemic remains a rapidly evolving situation. The continuation of the COVID-19 pandemic, its economic impact and actions taken in response thereto may result in prolonged periods of store closures and modified operating schedules and may result in changes in customer behaviors, including a potential reduction in consumer discretionary spending in our stores. These may lead to increased asset recovery and valuation risks, such as impairment of our store and other assets and an inability to realize deferred tax assets due to sustaining losses in certain jurisdictions. The uncertainties in the global economy will likely impact the financial viability of our suppliers, and other business partners, which may interrupt our supply chain, limit our ability to collect receivables and require other changes to our operations. These and other factors have and will continue to adversely impact our net revenues, operating income and earnings per share financial measures.

11


Table of Contents

 

Genesco Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

 

Note 3

Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by segment were as follows:

 

(In thousands)

 

Schuh Group

 

 

Journeys

Group

 

 

Licensed

Brands

Group

 

 

Total

Goodwill

 

Balance, February 1, 2020

 

$

84,069

 

 

$

9,730

 

 

$

28,385

 

 

$

122,184

 

Change in opening balance sheet

 

 

 

 

 

 

 

 

3

 

 

 

3