Genesco Reports Second Quarter Fiscal 2015 Results

August 28, 2014 at 7:34 AM EDT
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NASHVILLE, Tenn., Aug. 28, 2014 /PRNewswire/ -- Genesco Inc. (NYSE: GCO) today reported earnings from continuing operations for the second quarter ended August 2, 2014, of $4.8 million, or $0.20 per diluted share, compared to earnings from continuing operations of $8.5 million, or $0.36 per diluted share, for the second quarter ended August 3, 2013. Fiscal 2015 second quarter results reflect expenses of $3.6 million, or $0.14 per diluted share after tax, including $2.2 million related to deferred purchase price payments in connection with the acquisition of Schuh Group Limited; and $1.4 million in network intrusion expenses, asset impairment charges and other legal matters.  Fiscal 2014 second quarter results reflected expenses of $6.6 million, or $0.20 per diluted share after tax, including $5.9 million associated with a change in accounting for bonus awards, $2.8 million related to deferred purchase price payments in connection with the acquisition of Schuh Group Limited, and $1.2 million for other legal matters, network intrusion expenses and impairment charges, partially offset by a net gain of $3.3 million on the termination of the lease of a New York City Journeys store location.

Adjusted for the items described above in both periods, earnings from continuing operations were $8.0 million, or $0.34 per diluted share, for the second quarter of Fiscal 2015, compared to earnings from continuing operations of $13.2 million, or $0.56 per diluted share, for the second quarter of Fiscal 2014.  For consistency with Fiscal 2015'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 2015 increased 7.1% to $615 million from $575 million in the second quarter of Fiscal 2014. Consolidated second quarter 2015 comparable sales, including same store sales and comparable e-commerce and catalog sales, increased 2%, with a 5% increase in the Journeys Group, a 2% decrease in the Lids Sports Group, a 1% increase in the Schuh Group, and a 2% increase in the Johnston & Murphy Group.

Robert J. Dennis, chairman, president and chief executive officer of Genesco, said, "We are disappointed with our second quarter earnings performance. Solid comparable sales gains and a strong topline performance in our direct businesses were not enough to offset a sales and gross margin shortfall versus plan at the Lids Sports Group. The third quarter is off to a solid start, with consolidated comparable sales for the Company up 4% through August 23, 2014."

Dennis also discussed the Company's updated outlook. "Based on our second quarter performance and slightly lower expectations for the balance of the year at Lids, we now expect adjusted Fiscal 2015 diluted earnings per share in the range of $5.10 to $5.20, or from flat to a 2% increase over Fiscal 2014's adjusted earnings per share of $5.09, down from our previously issued guidance of $5.40 to $5.55. Consistent with our previous guidance, these expectations do not include non-cash asset impairments and other charges, partially offset by a gain on a lease termination in the first quarter this year, which we estimate will be in the range of $3.2 million to $3.7 million pretax, or $0.08 to $0.10 per share, after tax, in Fiscal 2015. These expectations also do not reflect a $5.7 million, or $0.15 per diluted share, change in the first quarter related to the change in accounting for bonus awards.  Finally, the expected earnings per share do not reflect compensation expense associated with the Schuh deferred purchase price as described above, which is currently estimated at approximately $7.4 million, or $0.31 per diluted share, for the full year. This guidance assumes a comparable sales increase in the low single digit range for the full fiscal 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, "We continue to believe our longer-term future is compelling based on the strength of our brands and the numerous omnichannel initiatives that are helping fortify their 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 28, 2014 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 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 reflected in forward-looking statements, including the amount of required accruals related to the earn-out bonus potentially payable to Schuh management based on the achievement of certain performance objectives; the timing and amount of non-cash asset impairments related to retail store fixed assets or to intangible assets of acquired businesses; the effectiveness of our omnichannel initiatives, weakness in the consumer economy; competition in the Company's markets; inability of customers to obtain credit; fashion trends that affect the sales or product margins of the Company's retail product offerings; changes in buying patterns by significant wholesale customers; bankruptcies or deterioration in financial condition of significant wholesale customers; 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 Company's ability to continue to complete and integrate acquisitions, expand its business and diversify its product base; and changes in the timing of holidays or in the onset of seasonal weather affecting period-to-period sales comparisons. 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; 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 2,670 retail stores and leased departments throughout the U.S., Canada, the United Kingdom and the Republic of Ireland, principally under the names Journeys, Journeys Kidz, Shi by Journeys, Underground by Journeys, Schuh, Schuh Kids, Lids, Locker Room by Lids, Lids Clubhouse, Johnston & Murphy, and on internet websites www.journeys.com, www.journeyskidz.com, www.shibyjourneys.com, www.schuh.co.uk, www.johnstonmurphy.com, www.lids.com, www.lids.ca, www.lidslockerroom.com, www.lidsteamsports.com, www.lidsclubhouse.com, www.trask.com, www.suregripfootwear.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, and the Lids Team Sports team dealer business.   In addition, Genesco sells wholesale footwear under its Johnston & Murphy brand, the Trask brand, the licensed Dockers brand, SureGrip, 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 




Aug. 2,

Aug. 3,

Aug. 2,

Aug. 3,


In Thousands

2014

2013

2014

2013


Net sales

$  615,474

$  574,746

$ 1,244,299

$  1,166,134


Cost of sales

313,729

291,938

626,610

584,889


Selling and administrative expenses*

290,239

274,420

583,576

545,804


Asset impairments and other, net

1,422

(7,140)

311

(5,811)


Earnings from operations

10,084

15,528

33,802

41,252


Interest expense, net

782

1,140

1,483

2,179


Earnings from continuing operations









    before income taxes

9,302

14,388

32,319

39,073














Income tax expense

4,534

5,923

13,453

16,099


Earnings from continuing operations

4,768

8,465

18,866

22,974














Provision for discontinued operations

(74)

(125)

(199)

(224)


Net Earnings 

$      4,694

$      8,340

$       18,667

$        22,750













*

Includes $2.2 million and $5.3 million in deferred payments related to the Schuh acquisition in the second quarter and first

six months ended August 2, 2014, respectively, and $2.8 million and $5.7 million for the second quarter and first six months 

ended August 3, 2013, respectively.

 

 

Earnings Per Share Information









Three Months Ended 

Six Months Ended 



Aug. 2,

Aug. 3,

Aug. 2,

Aug. 3,

In Thousands (except per share amounts)

2014

2013

2014

2013

Preferred dividend requirements

$               -

$               -

$                  -

$                33












Average common shares - Basic EPS

23,496

23,274

23,432

23,284












Basic earnings per share:








     Before discontinued operations

$0.20

$0.36

$0.81

$0.99

     Net earnings 

$0.20

$0.36

$0.80

$0.98












Average common and common








    equivalent shares - Diluted EPS

23,622

23,523

23,657

23,627












Diluted earnings per share:








     Before discontinued operations

$0.20

$0.36

$0.80

$0.97

     Net earnings 

$0.20

$0.35

$0.79

$0.96











 

 

GENESCO INC.













Consolidated Earnings Summary










Three Months Ended 

Six Months Ended 




Aug. 2,

Aug. 3,

Aug. 2,

Aug. 3,


In Thousands

2014

2013

2014

2013


Sales:










    Journeys Group

$  236,838

$  222,471

$    498,961

$      479,614


    Schuh Group

99,770

82,109

181,046

150,432


    Lids Sports Group

199,317

192,456

388,583

370,361


    Johnston & Murphy Group

54,995

53,258

118,392

111,683


    Licensed Brands

24,292

23,869

56,754

53,224


    Corporate and Other

262

583

563

820


    Net Sales

$  615,474

$  574,746

$ 1,244,299

$  1,166,134


Operating Income (Loss):









    Journeys Group

$      6,820

$      1,717

$       26,497

$        23,930


    Schuh Group (1)

(197)

(1,433)

(5,338)

(6,076)


    Lids Sports Group

8,474

12,725

16,611

23,521


    Johnston & Murphy Group

(424)

1,751

4,072

5,599


    Licensed Brands

1,873

1,471

5,394

4,392


    Corporate and Other (2)

(6,462)

(703)

(13,434)

(10,114)


   Earnings from operations

10,084

15,528

33,802

41,252


   Interest, net

782

1,140

1,483

2,179


Earnings from continuing operations









    before income taxes

9,302

14,388

32,319

39,073


Income tax expense

4,534

5,923

13,453

16,099


Earnings from continuing operations

4,768

8,465

18,866

22,974














Provision for discontinued operations

(74)

(125)

(199)

(224)


Net Earnings 

$      4,694

$      8,340

$       18,667

$        22,750














(1) Includes $2.2 million and $5.3 million in deferred payments related to the Schuh acquisition in the second quarter and first

six months ended August 2, 2014, respectively, and $2.8 million and $5.7 million for the second quarter and first six months 

ended August 3, 2013, respectively.





















(2) Includes a $1.4 million charge in the second quarter of Fiscal 2015 which includes $0.6 million for network intrusion

expenses, $0.4 million for asset impairments and $0.6 million for other legal matters, partially offset by a $0.2 million gain 

for a lease termination.  Includes a $0.3 million charge for the first six months of Fiscal 2015 which includes a $3.3 million 

gain on a lease termination, partially offset by $1.8 million for network intrusion expenses, $1.2 million for asset impairments

and $0.6 million for other legal matters.  Includes $7.1 million income in the second quarter of Fiscal 2014 which includes an 

$8.3 million gain on a lease termination, partially offset by a $0.5 million charge for other legal matters, a $0.5 million charge

for network intrusion expenses and a $0.2 million charge for asset impairments.  Includes $5.8 million income for the first 

six months of Fiscal 2014 which includes an $8.3 million gain on a lease termination, partially offset by $1.4 million for asset

impairments, $0.6 million for network intrusion expenses and $0.5 million for other legal matters.



 

 

GENESCO INC.























Consolidated Balance Sheet

























Aug. 2,

Aug. 3,

In Thousands




2014

2013

Assets









Cash and cash equivalents



$       59,303

$        46,027

Accounts receivable



54,142

50,188

Inventories




669,388

628,074

Other current assets



96,414

84,943

Total current assets



879,247

809,232

Property and equipment



296,407

244,589

Other non-current assets



405,183

403,528

Total Assets




$ 1,580,837

$  1,457,349

Liabilities and  Equity








Accounts payable



$    237,777

$      244,752

Current portion long-term debt



29,284

5,313

Other current liabilities



172,991

134,717

Total current liabilities



440,052

384,782

Long-term debt




47,083

67,813

Other long-term liabilities



148,411

171,562

Equity




945,291

833,192

Total Liabilities and Equity



$ 1,580,837

$  1,457,349











GENESCO INC.



















































Retail Units Operated - Six Months Ended August 2, 2014















Balance

Acquisi-




Balance

Acquisi-




Balance





02/02/13

tions

Open

Close

02/01/14

tions

Open

Close

08/02/14



Journeys Group

1,157

0

39

28

1,168

0

12

8

1,172



    Journeys

820

0

20

13

827

0

5

3

829



    Underground by Journeys

130

0

0

13

117

0

0

2

115



    Journeys Kidz

156

0

19

1

174

0

7

2

179



    Shi by Journeys

51

0

0

1

50

0

0

1

49



Schuh Group

92

0

29

22

99

0

4

4

99



     Schuh UK*

70

0

29

9

90

0

4

4

90



     Schuh ROI

9

0

0

0

9

0

0

0

9



     Schuh Concessions*

13

0

0

13

0

0

0

0

0



Lids Sports Group**

1,053

15

102

37

1,133

19

101

20

1,233



Johnston & Murphy Group

157

0

13

2

168

0

6

4

170



    Shops

102

0

6

2

106

0

2

2

106



    Factory Outlets

55

0

7

0

62

0

4

2

64



Total Retail Units

2,459

15

183

89

2,568

19

123

36

2,674



Permanent Units*

2,446

15

173

69

2,565

19

123

33

2,674



Retail Units Operated - Three Months Ended August 2, 2014








Balance

Acquisi-




Balance





05/03/14

tions

Open

Close

08/02/14



Journeys Group

1,172

0

5

5

1,172



    Journeys

828

0

3

2

829



    Underground by Journeys

117

0

0

2

115



    Journeys Kidz

178

0

2

1

179



    Shi by Journeys

49

0

0

0

49



Schuh Group

100

0

2

3

99



     Schuh UK

91

0

2

3

90



     Schuh ROI

9

0

0

0

9



Lids Sports Group**

1,134

19

82

2

1,233



Johnston & Murphy Group

167

0

5

2

170



    Shops

105

0

2

1

106



    Factory Outlets

62

0

3

1

64



Total Retail Units

2,573

19

94

12

2,674



Permanent Units*

2,571

19

94

10

2,674


















* Excludes Schuh Concessions and temporary "pop-up" locations.







**Includes 95 Locker Room by Lids in Macy's stores as of August 2, 2014.





 

Comparable Sales (including same store and comparable direct sales)




          Three Months Ended

 Six Months Ended





Aug. 2,

Aug. 3,

Aug. 2,

Aug. 3,





2014

2013

2014

2013



Journeys Group

5%

-1%

3%

-1%



Schuh Group

1%

-7%

0%

-9%



Lids Sports Group

-2%

-3%

-1%

-4%



Johnston & Murphy Group

2%

7%

1%

7%



Total Comparable Sales

2%

-2%

1%

-3%

 

Schedule B

Genesco Inc.

Adjustments to Reported Earnings from Continuing Operations

Three Months Ended August 2, 2014 and August 3, 2013











 Three 

 Impact on 

 Three 

 Impact on 



 Months 

  Diluted 

 Months 

 Diluted 

In Thousands (except per share amounts)

 Jul 2014 

 EPS 

 Jul 2013 

 EPS 

Earnings from continuing operations, as reported

$      4,768

$        0.20

$       8,465

$   0.36









Adjustments:  (1)






Impairment charges

260

0.01

133

0.01

Deferred payment - Schuh acquisition

2,227

0.09

2,851

0.12

Gain on lease termination

(113)

-

(2,077)

(0.09)

Change in accounting for bonus awards

-

-

3,698

0.16

Other legal matters

386

0.02

315

0.01

Network intrusion expenses

360

0.02

271

0.01

Higher (lower) effective tax rate

129

-

(466)

(0.02)









Adjusted earnings from continuing operations (2)

$      8,017

$        0.34

$      13,190

$   0.56

















(1) All adjustments are net of tax where applicable.  The tax rate for the second quarter of Fiscal 2015 is 37.9% excluding a FIN 48 discrete item of less than $0.1 million. The tax rate for the second quarter of Fiscal 2014 is 36.9% excluding a FIN 48 discrete item of less than $0.1 million.










(2) EPS reflects 23.6 and 23.5 million share count for Fiscal 2015 and 2014, respectively, which includes common stock equivalents in both years.









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 

Three Months Ended August 2, 2014 and August 3, 2013









 Three Months Ended August 2, 2014 



 Operating 

 Bonus Adj 

Adj Operating

In Thousands 

 Income 

 and Other 

Income

Journeys Group

$      6,820

$           -

$       6,820

Schuh Group*

(197)

2,227

2,030

Lids Sports Group

8,474

-

8,474

Johnston & Murphy Group

(424)

-

(424)

Licensed Brands

1,873

-

1,873

Corporate and Other

(6,462)

1,422

(5,040)

Total Operating Income

$     10,084

$      3,649

$      13,733







*Schuh Group adjustments include $2.2 million in deferred purchase price payments.









 Three Months Ended August 3, 2013 



 Operating 

 Bonus Adj 

Adj Operating

In Thousands 

 Income 

 and Other 

Income

Journeys Group

$      1,717

$      4,642

$       6,359

Schuh Group*

(1,433)

4,224

2,791

Lids Sports Group

12,725

(37)

12,688

Johnston & Murphy Group

1,751

9

1,760

Licensed Brands

1,471

2

1,473

Corporate and Other

(703)

(2,284)

(2,987)

Total Operating Income

$     15,528

$      6,556

$      22,084







*Schuh Group adjustments include $2.8 million in deferred purchase price payments.







Schedule B


Genesco Inc.


Adjustments to Reported Earnings from Continuing Operations


Six Months Ended August 2, 2014 and August 3, 2013













 Six 

 Impact on 

 Six 

 Impact on 




 Months 

Diluted 

Months 

 Diluted 


In Thousands (except per share amounts)

 Jul 2014 

 EPS 

 Jul 2013 

 EPS 


Earnings from continuing operations, as reported

$     18,866

$        0.80

$      22,974

$   0.97











Adjustments:  (1)







Impairment charges

779

0.03

893

0.04


Deferred payment - Schuh acquisition

5,329

0.22

5,702

0.24


Gain on lease termination

(2,104)

(0.09)

(2,077)

(0.09)


Change in accounting for bonus awards

3,575

0.15

7,815

0.33


Other legal matters

399

0.02

302

0.01


Network intrusion expenses

1,121

0.05

360

0.02


Higher (lower) effective tax rate

(654)

(0.03)

(532)

(0.02)











Adjusted earnings from continuing operations (2)

$     27,311

$        1.15

$      35,437

$   1.50




















(1) All adjustments are net of tax where applicable.  The tax rate for the first six months of Fiscal 2015 is 37.3% excluding a 

    FIN 48 discrete item of less than $0.1 million.  The tax rate for the first six months of Fiscal 2014 is 37.0% excluding a 

    FIN 48 discrete item of less than $0.1 million.  
















(2) EPS reflects 23.7 and 23.6 million share count for Fiscal 2015 and 2014, respectively, which includes common stock 

     equivalents in both years.
















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 August 2, 2014 and August 3, 2013









 Six Months Ended August 2, 2014 



 Operating 

 Bonus Adj 

Adj Operating

In Thousands 

 Income 

 and Other 

Income

Journeys Group

$     26,497

$      4,919

$      31,416

Schuh Group*

(5,338)

5,329

(9)

Lids Sports Group

16,611

-

16,611

Johnston & Murphy Group

4,072

25

4,097

Licensed Brands

5,394

-

5,394

Corporate and Other

(13,434)

1,046

(12,388)

Total Operating Income

$     33,802

$    11,319

$      45,121







*Schuh Group adjustments include $5.3 million in deferred purchase price payments.









 Six Months Ended August 3, 2013 



 Operating 

 Bonus Adj 

Adj Operating

In Thousands 

 Income 

 and Other 

Income

Journeys Group

$     23,930

$      6,060

$      29,990

Schuh Group*

(6,076)

8,692

2,616

Lids Sports Group

23,521

1,676

25,197

Johnston & Murphy Group

5,599

13

5,612

Licensed Brands

4,392

(4)

4,388

Corporate and Other

(10,114)

843

(9,271)

Total Operating Income

$     41,252

$    17,280

$      58,532







*Schuh Group adjustments include $5.7 million in deferred purchase price payments.






 

Schedule B

Genesco Inc.

Adjustments to Forecasted Earnings from Continuing Operations

Fiscal Year Ending January 31, 2015








In Thousands (except per share amounts)

High Guidance

Low Guidance



Fiscal 2015

Fiscal 2015

Forecasted earnings from continuing operations 

$    110,174

$       4.66

$ 107,491

$       4.54








Adjustments:  (1)





Asset impairment and other charges

1,983

0.08

2,296

0.10

Change in accounting for bonus awards

3,575

0.15

3,575

0.15

Deferred payment - Schuh acquisition

7,380

0.31

7,380

0.31








Adjusted forecasted earnings from continuing operations (2)

$    123,112

$       5.20

$ 120,742

$       5.10








(1) All adjustments are net of tax where applicable.  The forecasted tax rate for Fiscal 2015 is approximately 37.3% 

    excluding a FIN 48 discrete item of $0.1 million.












(2) EPS reflects 23.7 million share count for Fiscal 2015 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.  




SOURCE Genesco Inc.

Financial Contact: James S. Gulmi, (615) 367-8325; or Media Contact: Claire S. McCall, (615) 367-8283

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