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): November 30, 2012 (November 30, 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 November 30, 2012, Genesco Inc. issued a press release announcing its fiscal third 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 November 30, 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 exhibits are furnished herewith:
Exhibit Number | Description | ||
99.1 | Press Release dated November 30, 2012, issued by Genesco Inc. | ||
99.2 | Genesco Inc. Third Quarter Ended October 27, 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: November 30, 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 November 30, 2012 | |||
99.2 | Genesco Inc. Third Quarter Ended October 27, 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 THIRD QUARTER FISCAL 2013 RESULTS
--Third Quarter Comparable Store Sales Increase 4%--
--Company Raises Fiscal 2013 Outlook--
NASHVILLE, Tenn., Nov. 30, 2012 --- Genesco Inc. (NYSE:GCO) today reported earnings from continuing operations for the third quarter ended October 27, 2012, of $41.0 million, or $1.71 per diluted share, compared to earnings from continuing operations of $26.2 million, or $1.09 per diluted share, for the third quarter ended October 29, 2011. Fiscal 2013 third quarter results reflect pretax items of $3.4 million, or $0.13 per diluted share after tax, including compensation expense related to deferred purchase price payments in connection with the acquisition of Schuh Group Limited in June 2011, asset impairments and other legal matters, decreased by tax rate adjustments of $0.40 per diluted share. 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 third quarter results reflect pretax items of $3.4 million, or $0.12 per diluted share after tax, including compensation expense related to deferred purchase price payments in connection with the acquisition of Schuh Group Limited in June 2011, acquisition expenses and other legal matters.
Adjusted for the items described above in both periods, earnings from continuing operations were $34.5 million, or $1.44 per diluted share, for the third quarter of Fiscal 2013, compared to earnings from continuing operations of $29.1 million, or $1.21 per diluted share, for the third 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. Since the compensation expense is a non-cash charge until the deferred purchase price is actually paid, the Company believes that earnings including such expense may not be fully reflective of the Company's ongoing results or indicative of its prospects. 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 third quarter of Fiscal 2013 increased 7.8% to $664.5 million from $616.5 million in the third quarter of Fiscal 2012. Comparable store sales in the third quarter of Fiscal 2013 increased by 4% for the Company, with an 8% increase in the Journeys Group, a 5% decrease in the Lids Sports Group, a 9% increase in the Schuh Group, and a 6% increase in Johnston & Murphy Group.
Robert J. Dennis, chairman, president and chief executive officer of Genesco, said, “Our third quarter results were highlighted by strong earnings growth as we were able to meaningfully leverage expenses on a mid single digit comparable store sales gain.
“The fourth quarter got off to a slow start with November comparable store sales down 4% compared with a 12% increase in November last year. We estimate that Hurricane Sandy reduced
Exhibit 99.1
November comparable store sales by approximately 1% to 2%. For the long Thanksgiving weekend, U.S. comparable store sales increased by low single digits.”
Dennis also discussed the Company's updated outlook. "Based on our third quarter performance and our view of current trends in the marketplace, we are raising our Fiscal 2013 guidance. We now expect full year adjusted diluted earnings per share to be in the range of $5.00 to $5.08, an increase from our previous guidance range of $4.88 to $5.00. This new outlook represents an increase of 22% to 24% 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 projected to total approximately $1.5 million to $2.5 million pretax, or $0.04 to $0.07 per share, after tax, in Fiscal 2013. In addition, this guidance does not reflect compensation expense associated with the Schuh deferred purchase price as described above, totaling approximately $12.0 million, or $0.50 per diluted share, for the full year. This guidance assumes comparable store sales in the 4% 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, “Our teams have done a good job managing their businesses through the first nine months of Fiscal 2013. Collectively they have the Company on pace to deliver another year of solid sales and earnings per share growth. We look to continue the progress we have made profitably expanding our top-line, and have recently adopted updated 5-year targets for annual sales of $3.5 billion and operating margins of at least 9.5% by Fiscal 2017.”
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 November 30, 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 contingent bonus potentially payable to Schuh management in three 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, potentially including fixed assets in retail stores and intangible assets of acquired businesses; 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
Exhibit 99.1
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 2,440 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 | Nine Months Ended | ||||||||||||||
Oct. 27, | Oct. 29, | Oct. 27, | Oct. 29, | ||||||||||||
In Thousands | 2012 | 2011* | 2012 | 2011* | |||||||||||
Net sales | $ | 664,458 | $ | 616,525 | $ | 1,808,124 | $ | 1,568,618 | |||||||
Cost of sales | 330,110 | 306,068 | 894,090 | 775,604 | |||||||||||
Selling and administrative expenses** | 281,613 | 264,200 | 807,798 | 717,990 | |||||||||||
Asset impairments and other, net | 357 | 345 | 896 | 1,936 | |||||||||||
Earnings from operations** | 52,378 | 45,912 | 105,340 | 73,088 | |||||||||||
Interest expense, net | 1,301 | 1,869 | 3,625 | 3,464 | |||||||||||
Earnings from continuing operations | |||||||||||||||
before income taxes | 51,077 | 44,043 | 101,715 | 69,624 | |||||||||||
Income tax expense | 10,108 | 17,882 | 29,394 | 28,138 | |||||||||||
Earnings from continuing operations | 40,969 | 26,161 | 72,321 | 41,486 | |||||||||||
Provision for discontinued operations | (94 | ) | (73 | ) | (312 | ) | (997 | ) | |||||||
Net Earnings | $ | 40,875 | $ | 26,088 | $ | 72,009 | $ | 40,489 | |||||||
*Certain shipping and warehouse expenses have been reclassed from selling and administrative expenses to cost of sales in Fiscal 2012 to conform to the current year presentation.
**Includes $3.0 million and $8.9 million, respectively, in deferred payments related to the Schuh acquisition for the three and nine months ended October 27, 2012. Includes $3.1 million and $10.9 million, respectively, of deferred payments related to the Schuh acquisition and acquisition related expenses for the three and nine months ended October 29, 2011.
Earnings Per Share Information | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
Oct. 27, | Oct. 29, | Oct. 27, | Oct. 29, | ||||||||||||
In Thousands (except per share amounts) | 2012 | 2011 | 2012 | 2011 | |||||||||||
Preferred dividend requirements | $ | 33 | $ | 49 | $ | 114 | $ | 147 | |||||||
Average common shares - Basic EPS | 23,584 | 23,407 | 23,653 | 23,158 | |||||||||||
Basic earnings per share: | |||||||||||||||
Before discontinued operations | $ | 1.74 | $ | 1.12 | $ | 3.05 | $ | 1.79 | |||||||
Net earnings | $ | 1.73 | $ | 1.11 | $ | 3.04 | $ | 1.74 | |||||||
Average common and common | |||||||||||||||
equivalent shares - Diluted EPS | 23,996 | 23,976 | 24,121 | 23,728 | |||||||||||
Diluted earnings per share: | |||||||||||||||
Before discontinued operations | $ | 1.71 | $ | 1.09 | $ | 3.00 | $ | 1.74 | |||||||
Net earnings | $ | 1.70 | $ | 1.09 | $ | 2.98 | $ | 1.70 | |||||||
GENESCO INC. | |||||||||||||||
Consolidated Earnings Summary | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
Oct. 27, | Oct. 29, | Oct. 27, | Oct. 29, | ||||||||||||
In Thousands | 2012 | 2011 | 2012 | 2011 | |||||||||||
Sales: | |||||||||||||||
Journeys Group | $ | 300,718 | $ | 274,158 | $ | 773,997 | $ | 703,368 | |||||||
Schuh Group | 92,250 | 78,212 | 243,718 | 112,185 | |||||||||||
Lids Sports Group | 185,737 | 185,547 | 550,752 | 532,746 | |||||||||||
Johnston & Murphy Group | 53,079 | 48,146 | 152,771 | 141,768 | |||||||||||
Licensed Brands | 32,450 | 30,259 | 85,972 | 77,727 | |||||||||||
Corporate and Other | 224 | 203 | 914 | 824 | |||||||||||
Net Sales | $ | 664,458 | $ | 616,525 | $ | 1,808,124 | $ | 1,568,618 | |||||||
Operating Income (Loss): | |||||||||||||||
Journeys Group | $ | 37,073 | $ | 28,238 | $ | 64,420 | $ | 41,821 | |||||||
Schuh Group (1) | 2,709 | 4,417 | (787 | ) | 4,340 | ||||||||||
Lids Sports Group | 18,573 | 18,892 | 58,312 | 51,002 | |||||||||||
Johnston & Murphy Group | 3,158 | 2,979 | 8,981 | 8,029 | |||||||||||
Licensed Brands | 3,724 | 3,700 | 8,516 | 7,998 | |||||||||||
Corporate and Other (2) | (12,859 | ) | (12,314 | ) | (34,102 | ) | (40,102 | ) | |||||||
Earnings from operations | 52,378 | 45,912 | 105,340 | 73,088 | |||||||||||
Interest, net | 1,301 | 1,869 | 3,625 | 3,464 | |||||||||||
Earnings from continuing operations | |||||||||||||||
before income taxes | 51,077 | 44,043 | 101,715 | 69,624 | |||||||||||
Income tax expense | 10,108 | 17,882 | 29,394 | 28,138 | |||||||||||
Earnings from continuing operations | 40,969 | 26,161 | 72,321 | 41,486 | |||||||||||
Provision for discontinued operations | (94 | ) | (73 | ) | (312 | ) | (997 | ) | |||||||
Net Earnings | $ | 40,875 | $ | 26,088 | $ | 72,009 | $ | 40,489 | |||||||
(1)Includes $3.0 million and $8.9 million in deferred payments related to the Schuh acquisition in the third quarter and nine months ended October 27, 2012, respectively, and $2.9 million and $4.3 million for the third quarter and nine months ended October 29, 2011, respectively.
(2)Includes a $0.4 million charge in the third quarter of Fiscal 2013 which includes $0.3 million for asset impairments and $0.1 million for other legal matters and includes a $0.9 million charge in the nine months of Fiscal 2013 which includes $0.7 million for asset impairments, $0.1 million for network intrusion expenses and $0.1 million for other legal matters. Includes a $0.3 million charge in the third quarter of Fiscal 2012 which includes $0.2 million for other legal matters and $0.1 million for network intrusion expenses and includes $1.9 million of other charges in the nine months of Fiscal 2012 which includes $1.1 million for asset impairments, $0.5 million for network intrusion expenses and $0.3 million for other legal matters. The third quarter and nine months of Fiscal 2012 also included $0.2 million and $6.6 million, respectively, of acquisition related expenses.
GENESCO INC. | |||||||
Consolidated Balance Sheet | |||||||
Oct. 27, | Recast Oct. 29, | ||||||
In Thousands | 2012 | 2011 (1) | |||||
Assets | |||||||
Cash and cash equivalents | $ | 39,890 | $ | 36,073 | |||
Accounts receivable | 61,006 | 61,393 | |||||
Inventories | 600,251 | 544,099 | |||||
Other current assets | 65,629 | 76,124 | |||||
Total current assets | 766,776 | 717,689 | |||||
Property and equipment | 239,499 | 229,525 | |||||
Other non-current assets | 427,123 | 412,532 | |||||
Total Assets | $ | 1,433,398 | $ | 1,359,746 | |||
Liabilities and Equity | |||||||
Accounts payable | $ | 219,826 | $ | 243,594 | |||
Other current liabilities | 169,109 | 146,017 | |||||
Total current liabilities | 388,935 | 389,611 | |||||
Long-term debt | 86,296 | 142,648 | |||||
Other long-term liabilities | 182,277 | 147,190 | |||||
Equity | 775,890 | 680,297 | |||||
Total Liabilities and Equity | $ | 1,433,398 | $ | 1,359,746 | |||
(1) Certain previously reported October 29, 2011 balances have been recast to reflect the effects of finalizing the allocation of
the Schuh purchase price.
GENESCO INC. | ||||||||||||||||||||||||||
Retail Units Operated - Nine Months Ended October 27, 2012 | ||||||||||||||||||||||||||
Balance | Acquisi- | Balance | Acquisi- | Balance | ||||||||||||||||||||||
1/29/2011 | tions | Open | Close | 1/28/2012 | tions | Open | Close | 10/27/2012 | ||||||||||||||||||
Journeys Group | 1,168 | — | 18 | 32 | 1,154 | — | 23 | 20 | 1,157 | |||||||||||||||||
Journeys | 813 | — | 14 | 15 | 812 | — | 16 | 10 | 818 | |||||||||||||||||
Underground by Journeys | 151 | — | — | 14 | 137 | — | — | 4 | 133 | |||||||||||||||||
Journeys Kidz | 149 | — | 4 | 1 | 152 | — | 6 | 3 | 155 | |||||||||||||||||
Shi by Journeys | 55 | — | — | 2 | 53 | — | 1 | 3 | 51 | |||||||||||||||||
Schuh Group | — | 75 | 6 | 3 | 78 | — | 12 | 2 | 88 | |||||||||||||||||
Schuh UK | — | 51 | 6 | 1 | 56 | — | 11 | 1 | 66 | |||||||||||||||||
Schuh ROI | — | 8 | — | — | 8 | — | 1 | — | 9 | |||||||||||||||||
Schuh Concessions | — | 16 | — | 2 | 14 | — | — | 1 | 13 | |||||||||||||||||
Lids Sports Group | 985 | 10 | 40 | 33 | 1,002 | 20 | 41 | 16 | 1,047 | |||||||||||||||||
Johnston & Murphy Group | 156 | — | 6 | 9 | 153 | — | 5 | 2 | 156 | |||||||||||||||||
Shops | 111 | — | 1 | 9 | 103 | — | 3 | 2 | 104 | |||||||||||||||||
Factory Outlets | 45 | — | 5 | — | 50 | — | 2 | — | 52 | |||||||||||||||||
Total Retail Units | 2,309 | 85 | 70 | 77 | 2,387 | 20 | 81 | 40 | 2,448 | |||||||||||||||||
Retail Units Operated - Three Months Ended October 27, 2012 | ||||||||||||||
Balance | Acquisi- | Balance | ||||||||||||
7/28/2012 | tions | Open | Close | 10/27/2012 | ||||||||||
Journeys Group | 1,147 | — | 11 | 1 | 1,157 | |||||||||
Journeys | 810 | — | 8 | — | 818 | |||||||||
Underground by Journeys | 133 | — | — | — | 133 | |||||||||
Journeys Kidz | 152 | — | 3 | — | 155 | |||||||||
Shi by Journeys | 52 | — | — | 1 | 51 | |||||||||
Schuh Group | 83 | — | 7 | 2 | 88 | |||||||||
Schuh UK | 61 | — | 6 | 1 | 66 | |||||||||
Schuh ROI | 8 | — | 1 | — | 9 | |||||||||
Schuh Concessions | 14 | — | — | 1 | 13 | |||||||||
Lids Sports Group | 1,021 | 8 | 23 | 5 | 1,047 | |||||||||
Johnston & Murphy Group | 153 | — | 3 | — | 156 | |||||||||
Shops | 103 | — | 1 | — | 104 | |||||||||
Factory Outlets | 50 | — | 2 | — | 52 | |||||||||
Total Retail Units | 2,404 | 8 | 44 | 8 | 2,448 | |||||||||
Constant Store Sales | |||||||||||
Three Months Ended | Nine Months Ended | ||||||||||
Oct. 27, | Oct. 29, | Oct. 27, | Oct. 29, | ||||||||
2012 | 2011 | 2012 | 2011 | ||||||||
Journeys Group | 8 | % | 15 | % | 9 | % | 15 | % | |||
Schuh Group | 9 | % | — | 9 | % | — | |||||
Lids Sports Group | (5 | )% | 8 | % | — | 12 | % | ||||
Johnston & Murphy Group | 6 | % | 7 | % | 4 | % | 11 | % | |||
Total Constant Store Sales | 4 | % | 12 | % | 6 | % | 13 | % | |||
Schedule B
Genesco Inc. | ||||||||||||
Adjustments to Reported Earnings from Continuing Operations | ||||||||||||
Three Months Ended October 27, 2012 and October 29, 2011 | ||||||||||||
Impact on | Impact on | |||||||||||
3 mos | Diluted | 3 mos | Diluted | |||||||||
In Thousands (except per share amounts) | Oct 2012 | EPS | Oct 2011 | EPS | ||||||||
Earnings from continuing operations, as reported | $ | 40,969 | $ | 1.71 | $ | 26,161 | $ | 1.09 | ||||
Adjustments: (1) | ||||||||||||
Impairment charges | 179 | 0.01 | 32 | — | ||||||||
Acquisition expenses | — | — | 206 | 0.01 | ||||||||
Deferred payment - Schuh acquisition | 2,971 | 0.12 | 2,882 | 0.12 | ||||||||
Other legal matters | 46 | — | 120 | — | ||||||||
Network intrusion expenses | — | — | 68 | — | ||||||||
Lower effective tax rate (2) | (9,694 | ) | (0.40 | ) | (355 | ) | (0.01 | ) | ||||
Adjusted earnings from continuing operations (3) | $ | 34,471 | $ | 1.44 | $ | 29,114 | $ | 1.21 | ||||
(1) All adjustments are net of tax where applicable. The tax rate for the third quarter of Fiscal 2013 is 36.6% excluding a FIN 48 discrete item of less than $0.1 million. The tax rate for the third quarter of Fiscal 2012 is 38.4% excluding a FIN 48 discrete item of $0.1 million.
(2) Includes a net benefit of $9.3 million recognized in connection with the resolution of various previously uncertain tax positions.
(3) Reflects 24.0 million share count for both Fiscal 2013 and 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 | ||||||
Three Months Ended October 27, 2012 and October 29, 2011 | ||||||
3 mos | 3 mos | |||||
In Thousands | Oct 2012 | Oct 2011 | ||||
Operating income | $ | 2,709 | $ | 4,417 | ||
Adjustments: | ||||||
Deferred payment - Schuh acquisition | 2,971 | 2,882 | ||||
Adjusted operating income | $ | 5,680 | $ | 7,299 | ||
Schedule B
Genesco Inc. | ||||||||||||
Adjustments to Reported Earnings from Continuing Operations | ||||||||||||
Nine Months Ended October 27, 2012 and October 29, 2011 | ||||||||||||
Impact on | Impact on | |||||||||||
9 mos | Diluted | 9 mos | Diluted | |||||||||
In Thousands (except per share amounts) | Oct 2012 | EPS | Oct 2011 | EPS | ||||||||
Earnings from continuing operations, as reported | $ | 72,321 | $ | 3.00 | $ | 41,486 | $ | 1.74 | ||||
Adjustments: (1) | ||||||||||||
Impairment charges | 456 | 0.02 | 674 | 0.03 | ||||||||
Acquisition expenses | — | — | 5,628 | 0.24 | ||||||||
Deferred payment - Schuh acquisition | 8,854 | 0.37 | 4,301 | 0.18 | ||||||||
Other legal matters | 46 | — | 180 | 0.01 | ||||||||
Network intrusion expenses | 65 | — | 329 | 0.01 | ||||||||
Lower effective tax rate | (11,347 | ) | (0.47 | ) | (2,551 | ) | (0.11 | ) | ||||
Adjusted earnings from continuing operations (2) | $ | 70,395 | $ | 2.92 | $ | 50,047 | $ | 2.10 | ||||
(1) All adjustments are net of tax where applicable. The tax rate for the first nine months of Fiscal 2013 is 36.6% excluding a FIN 48 discrete item of $0.3 million. The tax rate for the first nine months of Fiscal 2012 is 38.9% excluding a FIN 48 discrete item of $0.3 million.
(2) Reflects 24.1 million share count for Fiscal 2013 and 23.7 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) | ||||||
Nine Months Ended October 27, 2012 and October 29, 2011 | ||||||
9 mos | 9 mos | |||||
In Thousands | Oct 2012 | Oct 2011 | ||||
Operating income (loss) | $ | (787 | ) | $ | 4,340 | |
Adjustments: | ||||||
Deferred payment - Schuh acquisition | 8,854 | 4,301 | ||||
Adjusted operating income | $ | 8,067 | $ | 8,641 | ||
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 | Low Guidance | ||||||||||
Fiscal 2013 | Fiscal 2013 | |||||||||||
Forecasted earnings from continuing operations | $ | 120,562 | $ | 5.01 | $ | 118,849 | $ | 4.93 | ||||
Adjustments: (1) | ||||||||||||
Impairment | 1,000 | 0.04 | 1,000 | 0.04 | ||||||||
Deferred payment - Schuh acquisition | 11,965 | 0.50 | 11,965 | 0.50 | ||||||||
Lower effective tax rate | (11,347 | ) | (0.47 | ) | (11,347 | ) | (0.47 | ) | ||||
Adjusted forecasted earnings from continuing operations (2) | $ | 122,180 | $ | 5.08 | $ | 120,467 | $ | 5.00 | ||||
(1) All adjustments are net of tax where applicable. The forecasted tax rate for Fiscal 2013 is approximately
37% excluding a FIN 48 discrete item of $0.4 million.
(2) Reflects 24.1 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
THIRD QUARTER ENDED OCTOBER 27, 2012
Consolidated Results
Sales
Fiscal 2013 third quarter net sales increased 8% to $664 million from $617 million in the third quarter of fiscal 2012. Same store sales increased 4%.
Direct (catalog and e-commerce) sales for the third quarter increased 11% and represented almost 6% of consolidated retail sales.
November same store sales decreased 4% and direct sales increased 10% on a comparable basis.
Gross Margin
Third quarter gross margin was 50.3% this year compared with 50.4% last year.
SG&A
Selling and administrative expense for the third quarter decreased to 42.4% of sales from 42.9% for the same period last year, reflecting the leveraging primarily of occupancy expenses and selling salaries in the quarter. Included in expenses this quarter is $3.0 million, or $0.12 per diluted share, in expense related to deferred purchase price in the Schuh acquisition. The deferred purchase price payments, totaling £25 million, are due in June 2014 and 2015 if the payees 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. Last year, expenses in the quarter included $3.1 million or $0.12 per diluted share of deferred purchase price and acquisition expenses. Excluding these items from both periods, SG&A as a percent of sales fell to 41.9% from 42.4% last year, or a 50 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 third quarter SG&A expense, but not eliminated from the adjusted expense, is $4.2 million or $0.13 per diluted share this year and $1.7 million or $0.05 per diluted share last year related to a contingent bonus payment provided for in the Schuh acquisition. The purchase agreement calls for a further payment of up to £25 million to members of the Schuh management group after four years if they have achieved certain earnings targets above the planned earnings on which we based our acquisition valuation. 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's performance, that it will be earned.
Asset Impairments and Other
Asset Impairments and Other charges for the third quarter were $0.4 million compared to $0.3 million last year.
Exhibit 99.2
Operating Income
Genesco's operating income for the third quarter was $52.4 million this year compared with $45.9 million last year. Operating income this year included the asset impairment and other charges of $0.4 million and the $3.0 million expense for the Schuh acquisition-related deferred purchase price discussed above. Last year, operating income included $0.3 million of asset impairment and other charges and $3.1 million in deferred purchase price and acquisition expenses. Excluding these items from both periods, operating income for the third quarter was $55.7 million this year compared with $49.3 million last year. Adjusted operating margin was 8.4% of sales this quarter compared with 8.0% 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 $1.3 million, compared with $1.9 million for the same period last year.
Pretax Earnings - Total GCO
Pretax earnings for the quarter were $51.1 million, including the approximately $3.4 million of asset impairment and other charges and the Schuh deferred purchase price expense discussed above. Last year, third quarter pretax earnings were $44.0 million, which reflected approximately $3.4 million of asset impairments and other charges and deferred purchase price and acquisition expenses. Excluding these items from both years' results, pretax earnings for the quarter were $54.4 million this year compared to $47.5 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.
Taxes
The effective tax rate for the quarter was 19.8% this year, compared to 40.6% last year. The lower rate in the quarter was due primarily to the recognition of a net benefit of $9.3 million, or $.39 per diluted share, in connection with the resolution of various previously uncertain tax positions.
Earnings From Continuing Operations After Taxes
Earnings from continuing operations were $41.0 million, or $1.71 per diluted share, in the third quarter this year, compared to earnings of $26.2 million, or $1.09 per diluted share, in the third quarter last year. Excluding the items discussed above and adjusting for this year's lower tax rate, third quarter earnings from continuing operations were $34.5 million or $1.44 per diluted share this year compared with $29.1 million or $1.21 per diluted share 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.
Segment Results
Lids Sports Group
Lids Sports Group's sales for the third quarter were essentially flat with last year at $186 million.
Same store sales for the quarter decreased (5%) this year compared to an 8% increase last year. E-commerce sales for the Group increased 13% compared with an increase of 12% last year.
Exhibit 99.2
The Group's gross margin as a percent of sales decreased 40 basis points compared to last year. This was primarily due to lower wholesale gross margins. SG&A expense as a percent of sales was down 20 basis points due to expense leverage, primarily of bonus compensation.
The Group's third quarter operating income was $18.6 million, or 10.0% of sales, down from $18.9 million, or 10.2% of sales, last year.
November same store sales decreased 8% and e-commerce sales increased 40%.
Journeys Group
Journeys Group's sales for the quarter increased 10% to $301 million from $274 million last year. Direct sales on a comparable basis increased 6% compared with a 46% increase in the third quarter last year. Same store sales increased 8% compared with 15% in last year's third quarter.
Average selling prices for footwear in Journeys stores open for at least 12 months increased 6% in the quarter.
Gross margin for the Journeys Group increased by about 50 basis points in the quarter. This was due primarily to product mix and lower markdowns.
The Journeys Group's SG&A expense decreased as a percent of sales by 150 basis points, due primarily to the leveraging of rent expense and other store-related expenses.
The Journeys Group's operating income for the quarter improved to $37.1 million compared to $28.2 million last year. Operating margin increased by 200 basis points to 12.3% compared with 10.3% last year.
November same store sales decreased 2% and e-commerce and catalog sales increased 2%.
Schuh
Schuh's third quarter performance again exceeded our expectations. Sales were $92 million, an increase of 18% over last year. Same store sales increased 9%. E-commerce sales represented 14% of Schuh's sales for the quarter and increased 12% from the third quarter last year.
Schuh's gross margin was up 20 basis points in the quarter. Expenses, excluding the deferred purchase price expense, as a percent of sales increased by 330 basis points due to the contingent bonus accrual adding 240 points to SG&A this year versus last year. Rent expense leveraged nicely in the third quarter but was more than offset by additional annual bonus accruals.
Operating income was $2.7 million, which included $3.0 million of expense related to deferred purchase price discussed above. This compares with operating income of $4.4 million last year, including $2.9 million of deferred purchase price expense. Excluding that amount, but including the contingent acquisition bonus accrual of approximately $4.2 million or about 5% of sales this year and $1.7 million or about 2% of sales last year, operating income was $5.7 million or about 6.2% of sales compared with $7.3 million or 9.3% of sales last year.
November same store sales were flat and e-commerce sales increased 6%.
Exhibit 99.2
Johnston & Murphy Group
Johnston & Murphy Group's third quarter sales increased 10%, to $53 million, compared to $48 million in the third quarter last year.
Johnston & Murphy's wholesale sales increased 16% during the quarter. Same store sales for the Johnston & Murphy retail stores increased 6% on top of a 7% increase last year. E-commerce and catalog sales increased 15% in the quarter.
Johnston & Murphy's gross margin decreased by about 130 basis points for the quarter due primarily to changes in the wholesale/retail sales mix. SG&A expense as a percent of sales dropped by 120 basis points due primarily to changes in the wholesale/retail sales mix and leveraging of rent expense. Operating income was $3.2 million, compared with $3.0 million in the third quarter last year. Operating margin was 5.9%, down from 6.2% last year.
November same store sales decreased 3% and e-commerce and catalog sales decreased 3%.
Licensed Brands
Licensed Brands' sales increased 7% to $32 million in the third quarter, compared to $30 million in the third quarter last year. Gross margin was up 130 basis points, due primarily to the sales mix.
SG&A expense as a percent of sales was up about 210 basis points due to higher bonus accruals and advertising expense.
Operating income for the quarter was $3.7 million, or 11.5% of sales, compared with $3.7 million, or 12.2% of sales last year.
Balance Sheet
Cash
Cash at the end of the third quarter was $40 million compared with $36 million last year. We ended the quarter with $92 million in debt, compared with $148 million last year. This debt includes the term debt assumed in connection with the Schuh acquisition of which about $28 million remains outstanding.
Inventory
Inventories increased 10% in the third quarter on a year-over-year basis. Sales in the quarter increased by 8%. We believe inventories are well positioned for the Holiday selling season.
Equity
Equity was $776 million at quarter-end, compared with $680 million at the end of last year's third quarter. During the quarter, we used approximately $9 million of cash to purchase 144,713 shares of Genesco stock at an average price of $59.40 per share. For the year-to-date, we have purchased 491,111 shares at a total cost of $29.4 million or $59.91 per share.
Capital Expenditures
For the third quarter, capital expenditures were $20.4 million and depreciation was $14.8 million. During the quarter, we opened 44 new stores, acquired 8 stores, and closed 8 stores. We ended the quarter with 2,448
Exhibit 99.2
stores compared with 2,387 stores at the end of the third quarter last year, or an increase of 3%. Square footage increased 5% on a year-over-year basis. The store count as of October 27, 2012 included:
910 | Lids stores (including 96 stores in Canada) | |
82 | Lids Locker Room stores | |
55 | Lids Clubhouse stores | |
818 | Journeys stores (including 21 stores in Canada) | |
155 | Journeys Kidz stores | |
51 | Shï by Journeys stores | |
133 | Underground by Journeys stores | |
88 | Schuh stores and concessions (including three Kids stores) | |
156 | Johnston & Murphy stores and factory stores (including three stores in Canada) | |
2,448 | TOTAL STORES | |
For fiscal 2013, we are forecasting capital expenditures of about $81 million and depreciation of about $59 million. Our store opening and closing plans by chain are as follows:
Company | New | Acquisitions | Conversions | Close |
Journeys Group | 36 | 24 | ||
Journeys stores (U.S.) | 14 | 10 | ||
Journeys stores (Canada) | 11 | — | ||
Journeys Kidz stores | 10 | 3 | ||
Shï by Journeys | 1 | 3 | ||
Underground by Journeys | — | 8 | ||
Johnston & Murphy Group | 10 | 4 | ||
Schuh Group | 16 | 2 | ||
Concessions | — | 1 | ||
Schuh stores | 16 | 1 | ||
Lids Sports Group | 50 | 32 | — | 23 |
Lids hat stores (U.S.) | 21 | 11 | 18 | |
Lids hat stores (Canada) | 15 | 1 | 1 | — |
Lids Locker Room (U.S.) | 7 | 19 | (10) | 2 |
Lids Clubhouse | 7 | 12 | (1) | 3 |
Lids Locker Room (Canada) | — | (1) | — | |
Total Openings and Closings | 112 | 32 | — | 53 |
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 contingent bonus potentially payable to Schuh management in three 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
Exhibit 99.2
timing and amount of non-cash asset impairments, potentially including fixed assets in retail stores and intangible assets of acquired businesses; 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.