UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 23, 2012 (May 23, 2012)
GENESCO INC.
(Exact Name of Registrant as Specified in Charter)
| Tennessee | 1-3083 | 62-0211340 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) | ||
| 1415 Murfreesboro Road Nashville, Tennessee |
37217-2895 | |||
| (Address of Principal Executive Offices) | (Zip Code) | |||
(615) 367-7000
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On May 23, 2012, Genesco Inc. issued a press release announcing its fiscal first quarter earnings and other results of operations. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
On May 23, 2012, Genesco Inc. also posted on its website, www.genesco.com, commentary by its chief financial officer on the quarterly results. A copy of the commentary is furnished as Exhibit 99.2 to this Current Report on Form 8-K.
In addition to disclosing financial results calculated in accordance with United States generally accepted accounting principles (GAAP), the press release and commentary furnished herewith contain non-GAAP financial measures, including adjusted selling, general and administrative expense, operating earnings, pretax earnings, earnings from continuing operations and earnings per share from continuing operations, as discussed in the text of the release and commentary and as detailed on the reconciliation schedule attached to the press release and commentary. For consistency and ease of comparison with Fiscal 2013’s previously announced earnings expectations and the adjusted results for the prior period announced last year, neither of which reflected the adjustments, the Company believes that disclosure of the non-GAAP expense and earnings measures will be useful to investors.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
| (d) | Exhibits |
The following exhibit is furnished herewith:
| Exhibit Number | Description | |
| 99.1 | Press Release, dated May 23, 2012, issued by Genesco Inc. | |
| 99.2 | Genesco Inc. First Quarter Ended April 28, 2012 Chief Financial Officer’s Commentary | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| GENESCO INC. | ||||
| Date: May 23, 2012 | By: | /s/ Roger G. Sisson | ||
| Name: | Roger G. Sisson | |||
| Title: | Senior Vice President, Secretary | |||
| and General Counsel | ||||
EXHIBIT INDEX
| No. |
Exhibit | |
| 99.1 | Press Release dated May 23, 2012 | |
| 99.2 | Genesco Inc. First Quarter Ended April 28, 2012 Chief Financial Officer’s Commentary | |
Exhibit 99.1
| Financial Contact: |
James S. Gulmi (615) 367-8325 | |
| Media Contact: |
Claire S. McCall (615) 367-8283 |
GENESCO REPORTS FIRST QUARTER FISCAL 2013 RESULTS
—First Quarter Comparable Store Sales Increased 9%—
— Company Raises Fiscal 2013 Outlook —
NASHVILLE, Tenn., May 23, 2012 — Genesco Inc. (NYSE:GCO) today reported earnings from continuing operations for the first quarter ended April 28, 2012, of $20.8 million, or $0.86 per diluted share, compared to earnings from continuing operations of $15.0 million, or $0.63 per diluted share, for the first quarter ended April 30, 2011. Fiscal 2013 first quarter results reflect pretax items of $3.1 million, or $0.12 per diluted share after tax, primarily including compensation expense related to deferred purchase price payments in connection with the acquisition of Schuh Group Limited in June 2011, decreased by a tax rate adjustment reflecting the tax treatment of the deferred purchase price. As previously announced, because the obligation to pay the deferred purchase price for Schuh is contingent upon the continued employment of the payees, U.S. Generally Accepted Accounting Principles require that it be treated as compensation expense. Fiscal 2012 first quarter results also reflect pretax items totaling $1.2 million, or $0.04 per diluted share after tax, related to asset impairments and other expenses.
Adjusted for the items described above in both periods, earnings from continuing operations were $23.8 million, or $0.98 per diluted share, for the first quarter of Fiscal 2013, compared to earnings from continuing operations of $15.7 million, or $0.67 per diluted share, for the first quarter of Fiscal 2012. For consistency with Fiscal 2013’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. Additionally, the Company believes that the presentation of earnings from continuing operations before the compensation expense associated with the Schuh deferred purchase price will enable investors to understand the effect attributable to incorporating a continuing employment condition into the obligation to pay deferred purchase price. 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 first quarter of Fiscal 2013 increased 25% to $600 million from $482 million in the first quarter of Fiscal 2012, reflecting the addition of sales from Schuh and a comparable store sales increase of 9%. The Lids Sports Group’s comparable store sales increased by 4%, the Journeys Group increased by 12%, and Johnston & Murphy Retail increased by 4%.
Robert J. Dennis, chairman, president and chief executive officer of Genesco, said, “Our first quarter results reflect the continuation of the positive sales trends that have characterized our business for the past several quarters. The combination of favorable fashion trends, excellent execution, and the strong strategic positions of our businesses has helped us maintain momentum even in the face of tougher comparisons. The strength in sales once again drove improved expense leverage and profitability above expectations.”
Dennis also discussed the Company’s updated outlook. “Based on first quarter performance and current visibility, we are raising our guidance. We now expect adjusted Fiscal 2013 diluted earnings per share to be in the range of $4.70 to $4.82, an increase from our previous guidance range of $4.58 to $4.70. The new outlook represents an increase of 15% to 18% over last year’s adjusted earnings per share of $4.09. Consistent with previous guidance, these expectations do not include expected non-cash asset impairments and other charges, which are estimated in the range of $1.4 million to $2.5 million pretax, or $0.04 to $0.06 per share, after tax, in Fiscal 2013. They also do not reflect compensation expense associated with the Schuh deferred purchase price as described above, which is currently estimated at approximately $12.0 million, or $0.49 per diluted share, for the full year. The revised guidance assumes a comparable sales increase of 3% to 4% 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 are very pleased with our start to Fiscal 2013. Our sales and merchandising strategies are continuing to generate strong results. At the same time, initiatives aimed at further enhancing our ecommerce capabilities and expanding our retail footprint in both the U.S. and abroad are progressing well. We remain optimistic about the Company’s prospects and are pleased with our progress toward our near-term and long-term goals.”
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 May 23, 2012 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, earnings and operating margins), 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 in four years based on the achievement of certain performance objectives; the costs of responding to and liability in connection with the network intrusion announced in December 2010; the timing and amount of non-cash asset impairments; 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 maintain reductions in occupancy costs achieved in recent lease negotiations, 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 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 2,380 retail stores 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, Lids, Lids Locker Room, Johnston & Murphy, and on internet websites www.journeys.com, www.journeyskidz.com, www.shibyjourneys.com, www.undergroundbyjourneys.com, www.schuh.co.uk, www.johnstonmurphy.com, www.lids.com, www.lids.ca, www.lidslockerroom.com, www.lidsteamsports.com, www.lidsclubhouse.com, www.suregripfootwear.com and www.dockersshoes.com. The Company’s Lids Sports Group division operates the Lids headwear stores and the lids.com website, the Lids Locker Room 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 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 | ||||||||
| April 28, | April 30, | |||||||
| In Thousands |
2012 | 2011 | ||||||
| Net sales |
$ | 600,144 | $ | 481,502 | ||||
| Cost of sales |
290,841 | 233,960 | ||||||
| Selling and administrative expenses |
273,161 | 220,773 | ||||||
| Asset impairments and other, net |
135 | 1,244 | ||||||
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|
|
|
|||||
| Earnings from operations |
36,007 | 25,525 | ||||||
| Interest expense, net |
1,117 | 514 | ||||||
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|
|||||
| Earnings from continuing operations before income taxes |
34,890 | 25,011 | ||||||
| Income tax expense |
14,099 | 10,036 | ||||||
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|
|||||
| Earnings from continuing operations |
20,791 | 14,975 | ||||||
| Provision for discontinued operations, net |
(177 | ) | (182 | ) | ||||
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|||||
| Net Earnings |
$ | 20,614 | $ | 14,793 | ||||
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Earnings Per Share Information
| Three Months Ended | ||||||||
| April 28, | April 30, | |||||||
| In Thousands (except per share amounts) |
2012 | 2011 | ||||||
| Preferred dividend requirements |
$ | 46 | $ | 49 | ||||
| Average common shares—Basic EPS |
23,597 | 22,940 | ||||||
| Basic earnings per share: |
||||||||
| Before discontinued operations |
$ | 0.88 | $ | 0.65 | ||||
| Net earnings |
$ | 0.87 | $ | 0.64 | ||||
| Average common and common equivalent shares—Diluted EPS |
24,231 | 23,564 | ||||||
| Diluted earnings per share: |
||||||||
| Before discontinued operations |
$ | 0.86 | $ | 0.63 | ||||
| Net earnings |
$ | 0.85 | $ | 0.63 | ||||
GENESCO INC.
Consolidated Earnings Summary
| Three Months Ended | ||||||||
| April 28, | April 30, | |||||||
| In Thousands |
2012 | 2011 | ||||||
| Sales: |
||||||||
| Journeys Group |
$ | 263,840 | $ | 234,517 | ||||
| Schuh Group |
70,312 | — | ||||||
| Lids Sports Group |
183,136 | 169,676 | ||||||
| Johnston & Murphy Group |
51,413 | 48,051 | ||||||
| Licensed Brands |
31,266 | 28,950 | ||||||
| Corporate and Other |
177 | 308 | ||||||
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| Net Sales |
$ | 600,144 | $ | 481,502 | ||||
|
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| Operating Income (Loss): |
||||||||
| Journeys Group |
$ | 25,282 | $ | 17,458 | ||||
| Schuh Group(1) |
(2,951 | ) | — | |||||
| Lids Sports Group |
19,168 | 14,004 | ||||||
| Johnston & Murphy Group |
4,009 | 2,895 | ||||||
| Licensed Brands |
3,365 | 3,304 | ||||||
| Corporate and Other(2) |
(12,866 | ) | (12,136 | ) | ||||
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|||||
| Earnings from operations |
36,007 | 25,525 | ||||||
| Interest, net |
1,117 | 514 | ||||||
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|
|
|
|||||
| Earnings from continuing operations before income taxes |
34,890 | 25,011 | ||||||
| Income tax expense |
14,099 | 10,036 | ||||||
|
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|
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|
|||||
| Earnings from continuing operations |
20,791 | 14,975 | ||||||
| Provision for discontinued operations, net |
(177 | ) | (182 | ) | ||||
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|||||
| Net Earnings |
$ | 20,614 | $ | 14,793 | ||||
|
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| (1) | Includes $3.0 million in deferred payments related to the Schuh acquisition for the three months ended April 28, 2012. |
| (2) | Includes a $0.1 million charge in the first quarter of Fiscal 2013 primarily for network intrusion expenses. Includes a $1.2 million charge in the first quarter of Fiscal 2012 which includes $0.7 million in asset impairments, $0.4 million for network intrusion expenses and $0.1 million for other legal matters. |
GENESCO INC.
Consolidated Balance Sheet
| April 28, | April 30, | |||||||
| In Thousands |
2012 | 2011 | ||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 54,824 | $ | 56,760 | ||||
| Accounts receivable |
47,733 | 43,858 | ||||||
| Inventories |
445,245 | 371,802 | ||||||
| Other current assets |
65,761 | 53,855 | ||||||
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| Total current assets |
613,563 | 526,275 | ||||||
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| Property and equipment |
228,161 | 196,065 | ||||||
| Other non-current assets |
418,649 | 249,404 | ||||||
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| Total Assets |
$ | 1,260,373 | $ | 971,744 | ||||
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| Liabilities and Equity |
||||||||
| Accounts payable |
$ | 153,436 | $ | 127,434 | ||||
| Current portion long-term debt |
10,290 | — | ||||||
| Other current liabilities |
135,509 | 99,315 | ||||||
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| Total current liabilities |
299,235 | 226,749 | ||||||
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| Long-term debt |
25,372 | — | ||||||
| Other long-term liabilities |
183,996 | 100,953 | ||||||
| Equity |
751,770 | 644,042 | ||||||
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| Total Liabilities and Equity |
$ | 1,260,373 | $ | 971,744 | ||||
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GENESCO INC.
Retail Units Operated—Three Months Ended April 28, 2012
| Balance | Acquisi- | Balance | Balance | |||||||||||||||||||||||||||||
| 01/29/11 | Open | tions | Close | 01/28/12 | Open | Close | 04/28/12 | |||||||||||||||||||||||||
| Journeys Group |
1,168 | 18 | 0 | 32 | 1,154 | 9 | 9 | 1,154 | ||||||||||||||||||||||||
| Journeys |
813 | 14 | 0 | 15 | 812 | 6 | 4 | 814 | ||||||||||||||||||||||||
| Underground by Journeys |
151 | 0 | 0 | 14 | 137 | 0 | 2 | 135 | ||||||||||||||||||||||||
| Journeys Kidz |
149 | 4 | 0 | 1 | 152 | 2 | 2 | 152 | ||||||||||||||||||||||||
| Shi by Journeys |
55 | 0 | 0 | 2 | 53 | 1 | 1 | 53 | ||||||||||||||||||||||||
| Schuh Group |
0 | 6 | 75 | 3 | 78 | 1 | 0 | 79 | ||||||||||||||||||||||||
| Schuh UK |
0 | 6 | 51 | 1 | 56 | 1 | 0 | 57 | ||||||||||||||||||||||||
| Schuh ROI |
0 | 0 | 8 | 0 | 8 | 0 | 0 | 8 | ||||||||||||||||||||||||
| Schuh Concessions |
0 | 0 | 16 | 2 | 14 | 0 | 0 | 14 | ||||||||||||||||||||||||
| Lids Sports Group |
985 | 40 | 10 | 33 | 1,002 | 6 | 7 | 1,001 | ||||||||||||||||||||||||
| Johnston & Murphy Group |
156 | 6 | 0 | 9 | 153 | 0 | 1 | 152 | ||||||||||||||||||||||||
| Shops |
111 | 1 | 0 | 9 | 103 | 0 | 1 | 102 | ||||||||||||||||||||||||
| Factory Outlets |
45 | 5 | 0 | 0 | 50 | 0 | 0 | 50 | ||||||||||||||||||||||||
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| Total Retail Units |
2,309 | 70 | 85 | 77 | 2,387 | 16 | 17 | 2,386 | ||||||||||||||||||||||||
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Constant Store Sales
| Three Months Ended | ||||||||
| April 28, | April 30, | |||||||
| 2012 | 2011 | |||||||
| Journeys Group |
12 | % | 14 | % | ||||
| Lids Sports Group |
4 | % | 16 | % | ||||
| Johnston & Murphy Group |
4 | % | 10 | % | ||||
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|||||
| Total Constant Store Sales |
9 | % | 14 | % | ||||
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Schedule B
Genesco Inc.
Adjustments to Reported Earnings from Continuing Operations
Three Months Ended April 28, 2012 and April 30, 2011
| In Thousands (except per share amounts) | 3 mos April 2012 |
Impact on Diluted EPS |
3 mos April 2011 |
Impact on Diluted EPS |
||||||||||||
| Earnings from continuing operations, as reported |
$ | 20,791 | $ | 0.86 | $ | 14,975 | $ | 0.63 | ||||||||
| Adjustments: (1) |
||||||||||||||||
| Impairment charges |
29 | — | 451 | 0.02 | ||||||||||||
| Deferred payment—Schuh acquisition |
2,955 | 0.12 | — | — | ||||||||||||
| Other legal matters |
— | — | 60 | — | ||||||||||||
| Network intrusion expenses |
56 | — | 241 | 0.02 | ||||||||||||
| (Lower) higher effective tax rate |
(12 | ) | — | 13 | — | |||||||||||
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| Adjusted earnings from continuing operations (2) |
$ | 23,819 | $ | 0.98 | $ | 15,740 | $ | 0.67 | ||||||||
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| (1) | All adjustments are net of tax where applicable. The tax rate for the first quarter of Fiscal 2013 is 37.0% excluding a FIN 48 discrete item of $0.1 million. The tax rate for the first quarter of Fiscal 2012 is 39.65% excluding a FIN 48 discrete item of $0.1 million. |
| (2) | Reflects 24.2 million share count for Fiscal 2013 and 23.6 million share count for Fiscal 2012 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.
Schuh Group
Adjustments to Reported Operating Income (Loss)
Three Months Ended April 28, 2012 and April 30, 2011
| In Thousands | 3 mos April 2012 |
3 mos April 2011 |
||||||
| Operating income (loss) |
$ | (2,951 | ) | $ | — | |||
| Adjustments: |
||||||||
| Deferred payment—Schuh acquisition |
2,955 | — | ||||||
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|||||
| Adjusted operating income (loss) |
$ | 4 | $ | — | ||||
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Schedule B
Genesco Inc.
Adjustments to Forecasted Earnings from Continuing Operations
Fiscal Year Ending February 2, 2013
| In Thousands (except per share amounts) | High Guidance Fiscal 2013 |
Low Guidance Fiscal 2013 |
||||||||||||||
| Forecasted earnings from continuing operations |
$ | 104,243 | $ | 4.27 | $ | 101,351 | $ | 4.15 | ||||||||
| Adjustments: (1) |
||||||||||||||||
| Impairment |
1,360 | 0.06 | 1,360 | 0.06 | ||||||||||||
| Deferred payment—Schuh acquisition |
11,844 | 0.49 | 11,844 | 0.49 | ||||||||||||
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| Adjusted forecasted earnings from continuing operations (2) |
$ | 117,447 | $ | 4.82 | $ | 114,555 | $ | 4.70 | ||||||||
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| (1) | All adjustments are net of tax where applicable. The forecasted tax rate for Fiscal 2013 is 37% excluding a FIN 48 discrete item of $0.4 million. |
| (2) | Reflects 24.3 million share count for Fiscal 2013 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.
Exhibit 99.2
GENESCO INC.
CHIEF FINANCIAL OFFICER’S COMMENTARY
FISCAL YEAR 2013 FIRST QUARTER ENDED APRIL 28, 2012
Consolidated Results
Sales
First quarter net sales increased 25% to $600 million from $482 million in the first quarter of fiscal 2012. Same store sales increased 9%. Excluding sales of $70 million in the quarter from our Schuh U.K. acquisition in June 2011, sales growth in the quarter was 10%.
Direct (catalog and e-commerce) sales for the first quarter increased 8% on a comparable basis. Total direct sales, including Schuh U.K. e-commerce sales, increased 67% and represented about 5% of consolidated net sales for the quarter.
Through May 19, fiscal May same store sales increased 7% and direct sales increased 5% on a comparable basis.
Gross Margin
First quarter gross margin was 51.5% this year compared with 51.4% last year.
SG&A
Selling and administrative expense for the first quarter decreased by 40 basis points to 45.5% of sales from 45.9% for the same period last year, reflecting the leveraging primarily of occupancy expenses and selling salaries in the quarter, partially offset by higher bonus accruals. Included in expenses this quarter is $3.0 million, or $0.12 per diluted share, in amortization of deferred purchase price in the Schuh U.K. acquisition. These payments, totaling £25 million, are due in June 2014 and 2015 if the noteholders remain employed until the payment dates. As we have discussed before, because of the retention feature, U.S. GAAP requires these deferred purchase price payments to be expensed as compensation. This is a non-cash expense until the payment conditions are satisfied. Without this expense, SG&A as a percent of sales fell to 45.0% from 45.9% last year, or a 90 basis point improvement in leverage. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure is provided in the schedule at the end of this document.
Also included in this year’s SG&A expense, but not eliminated from the adjusted number, is $2.5 million, or $0.08 per share, related to a contingent bonus payment provided for in the Schuh U.K. acquisition. The purchase agreement calls for a further payment of up to £25 million to members of the Schuh U.K. management group after four years if they have achieved certain earnings targets above the planned earnings on which we based our purchase price calculation. As we have discussed previously, there will be quarterly accruals for a portion of this payment, reflecting an estimate of the probability, based on Schuh U.K.’s performance, that it will be earned.
Asset Impairments and Other
“Asset Impairment and Other” charges were $0.1 million in the first quarter this year compared to $1.2 million last year.
Operating Income
Genesco’s operating income was $36.0 million in the first quarter compared with $25.5 million in the first quarter last year. Operating income this year included the asset impairment and other charges of $0.1 million and $3.0 million of Schuh U.K.’s acquisition-related deferred purchase price payments discussed above. Last year, operating income included $1.2 million of asset impairment and other charges. Excluding these items from both periods, operating income was $39.1 million for the first quarter this year compared with $26.8 million last year. This represents a 46% increase in operating income. Adjusted operating margin was 6.5% of sales this quarter compared with 5.6% last year. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure is provided in the schedule at the end of this document.
Interest Expense
Net interest expense for the quarter was $1.1 million, compared with $0.5 million for the same period last year, reflecting interest on the additional debt assumed in connection with the Schuh U.K. acquisition.
Pretax Earnings – Total GCO
Pretax earnings for the quarter were $34.9 million, including the approximately $3.1 million of asset impairment and other charges and the amortization of the deferred purchase price associated with the Schuh U.K. acquisition discussed above. Last year, first quarter pretax earnings were $25.0 million, which reflected approximately $1.2 million of asset impairment and other charges. Excluding these items from both years’ results, pretax earnings for the quarter were $38.0 million this year compared to $26.3 million last year. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure is provided in the schedule at the end of this document.
Earnings From Continuing Operations
Earnings before discontinued operations were $20.8 million, or $.86 per diluted share, in the first quarter this year, compared to earnings of $15.0 million, or $.63 per diluted share, in the first quarter last year. Excluding the items discussed above and adjusting for this year’s lower tax rate, earnings from continuing operations were $23.8 million, or $.98 per diluted share in this year’s first quarter, compared with $15.7 million, or $0.67 per diluted share in last year’s first quarter. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure is provided in the schedule at the end of this document.
Segment Results
Lids Sports Group
Lids Sports Group’s sales for the first quarter increased 8%, to $183 million, compared to $170 million in the first quarter last year.
Same store sales for the quarter increased 4% this year on top of a 16% increase in the same quarter a year ago. E-commerce sales for the Group increased 2% in the quarter compared with an increase of 42% last year. Through May 19, May same store sales increased 5% and e-commerce sales decreased 4%.
The Group’s gross margin as a percent of sales increased 140 basis points compared to last year. SG&A expense as a percent of sales was down 90 basis points due to strong expense leverage, primarily of rent expense and selling salaries.
The Group’s operating income for the first quarter improved to $19.2 million, or 10.5% of sales, from $14.0 million, or 8.3% of sales, last year in the quarter.
Journeys Group
Journeys Group’s sales for the quarter increased 13% to $264 million from $235 million for the first quarter last year. Direct sales on a comparable basis increased 5% compared with 29% in the first quarter last year. Same store sales increased 12% compared with 14% in last year’s first quarter. Through May 19, May same store sales increased 10% and e-commerce and catalog sales increased 4%.
Average selling prices for footwear in Journeys stores open for at least 12 months increased 9% in the quarter.
Gross margin for the Journeys Group was up 50 basis points in the quarter. This was due in part to lower markdowns.
The Journeys Group’s SG&A expense decreased as a percent of sales by 160 basis points, due primarily to the leveraging of rent expense, depreciation, and selling salaries.
The Journeys Group’s operating income for the quarter improved to $25.3 million from $17.5 million last year. Operating margin was 9.6% compared with 7.4% last year.
Schuh U.K.
Schuh U.K.’s performance exceeded our expectations for the quarter. Sales were $70 million. The operating loss was ($3.0) million, which included the $3.0 million amortization of the deferred purchase price referred to above. Excluding that amount, but including the contingent acquisition bonus accrual of approximately $2.5 million, or about 3.5% of sales, operating income was essentially zero.
Johnston & Murphy Group
Johnston & Murphy Group’s first quarter sales increased 7%, to $51 million, compared to $48 million in the first quarter last year.
Johnston & Murphy’s wholesale sales increased 14% during the quarter. Same store sales for the Johnston & Murphy retail stores increased 4% on top of a 10% increase last year. E-commerce and catalog sales increased 20% in the quarter. Through May 19, May same store sales were flat and e-commerce and catalog sales increased 17%.
Gross margin decreased by about 110 basis points for the quarter due in part to a change in sales mix. SG&A expense as a percent of sales decreased by 290 basis points. Operating income increased to $4.0 million, compared with $2.9 million in the first quarter last year. Operating margin increased to 7.8% from 6.0% last year.
Licensed Brands
Licensed Brands’ sales increased 8% to $31 million in the first quarter, compared to $29 million in the first quarter last year. Gross margin was down 90 basis points due primarily to increased manufacturing costs out of China.
SG&A expense as a percent of sales, which included increased bonus accruals, was down 20 basis points.
Operating income for the quarter was $3.4 million, or 10.8% of sales, compared with $3.3 million, or 11.4% of sales, in the first quarter last year.
Balance Sheet
Cash
Cash at the end of the first quarter was $55 million compared with $57 million at the same time last year. We ended the quarter with $36 million in debt compared with none last year. All of the debt represents the remaining amount of U.K. debt assumed in connection with the Schuh U.K. acquisition. Since the June 2011 acquisition, we have paid down $12 million of the U.K. debt assumed.
Inventory
Inventories increased 20% in the first quarter on a year-over-year basis on a 25% sales increase.
Equity
Equity was $752 million at quarter-end, compared with $644 million at the end of last year’s first quarter.
Capital Expenditures
For the first quarter, capital expenditures were $14.1 million and depreciation was $14.4 million. During the first quarter, we opened 16 new stores and closed 17 stores. We ended the quarter with 2,386 stores compared with 2,291 stores in the first quarter last year, or an increase of 4.1%. Square footage increased 11.6% on a year-over-year basis. Excluding the Schuh U.K. acquisition, square footage increased 2.5% year-over-year. The store count as of April 28, 2012 included:
| 891 | Lids stores (including 84 stores in Canada) |
| 70 | Lids Locker Room stores (including 1 store in Canada) |
| 40 | Lids clubhouse stores |
| 814 | Journeys stores (including 18 in Canada) |
| 152 | Journeys Kidz stores |
| 53 | Shï by Journeys stores |
| 135 | Underground by Journeys stores |
| 79 | Schuh stores and concessions |
| 152 | Johnston & Murphy stores and factory stores |
| 2,386 | TOTAL STORES |
For fiscal 2013, we are forecasting capital expenditures to be $92 million and depreciation of about $59 million. Our store opening and closing plans by chain are as follows:
| Company |
New | Conversions | Close | |||||||||
| Journeys Group |
39 | 38 | ||||||||||
| Journeys stores (U.S.) |
15 | 10 | ||||||||||
| Journeys stores (Canada) |
12 | 0 | ||||||||||
| Journeys Kidz stores |
9 | 3 | ||||||||||
| Shï by Journeys |
3 | 3 | ||||||||||
| Underground by Journeys |
0 | 22 | ||||||||||
| Johnston & Murphy Group |
13 | 3 | ||||||||||
| Schuh Group |
16 | 0 | ||||||||||
| Concessions |
0 | 0 | ||||||||||
| Schuh stores |
16 | 0 | ||||||||||
| Lids Sports Group |
48 | 0 | 10 | |||||||||
| Lids hat stores (U.S.) |
16 | 10 | 10 | |||||||||
| Lids hat stores (Canada) |
14 | 0 | ||||||||||
| Lids Locker Room (U.S.) |
10 | (9 | ) | 0 | ||||||||
| Lids Clubhouse |
7 | (1 | ) | 0 | ||||||||
| Lids Locker Room Canada |
1 | 0 | ||||||||||
| Total Openings and Closings |
116 | 0 | 51 | |||||||||
As always, we plan to be selective in opening new stores only where the economics create value for our shareholders. Therefore, store openings could vary from this forecast depending on opportunities in the real estate market.
Cautionary Note Concerning Forward-Looking Statements
This presentation contains forward-looking statements, including those regarding the performance outlook for the Company and its individual businesses (including, without limitation, sales, earnings and operating margins), 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 in four years based on the achievement of certain performance objectives; the costs of responding to and liability in connection with the network intrusion announced in December 2010; the timing and amount of non-cash asset impairments; 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 maintain reductions in occupancy costs achieved in recent lease negotiations, 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 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 presentation 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.