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): December 2, 2016 (December 2, 2016)
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 December 2, 2016, Genesco Inc. issued a press release announcing results of operations for the fiscal third quarter ended October 29, 2016. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
On December 2, 2016, 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 2017’s previously announced earnings expectations and the adjusted results for the prior period announced last year, the Company believes that disclosure of the non-GAAP 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 December 2, 2016, issued by Genesco Inc. | |
99.2 | Genesco Inc. Third Fiscal Quarter Ended October 29, 2016 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: December 2, 2016 | 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 December 2, 2016 | |||
99.2 | Genesco Inc. Third Fiscal Quarter Ended October 29, 2016 Chief Financial Officer’s Commentary | |||
Exhibit 99.1
Financial Contact: Mimi E. Vaughn (615) 367-7386
Media Contact: Claire S. McCall (615) 367-8283
GENESCO REPORTS THIRD QUARTER FISCAL 2017 RESULTS
NASHVILLE, Tenn., Dec. 2, 2016 --- Genesco Inc. (NYSE:GCO) today reported earnings from continuing operations for the third quarter ended October 29, 2016, of $25.9 million, or $1.30 per diluted share, compared to earnings from continuing operations of $32.9 million, or $1.43 per diluted share, for the third quarter ended October 31, 2015. Fiscal 2017 third quarter results reflect pretax items of $0.6 million, or $0.02 per diluted share after tax, for asset impairment charges, offset by $0.8 million, or $0.04 per diluted share, from a lower than normal tax rate due to the release of tax reserves and other items. Fiscal 2016 third quarter results reflect pretax items of $0.2 million, or $0.00 per diluted share after tax, for network intrusion expenses and asset impairment charges, offset by $0.7 million, or $0.03 per diluted share, from a lower than normal tax rate due to the release of valuation allowances.
Adjusted for the items described above in both periods, earnings from continuing operations were $25.5 million, or $1.28 per diluted share, for the third quarter of Fiscal 2017, compared to earnings from continuing operations of $32.2 million, or $1.40 per diluted share, for the third quarter of Fiscal 2016. For consistency with Fiscal 2017'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 third quarter of Fiscal 2017 decreased 8% to $711 million from $774 million in the third quarter of Fiscal 2016, reflecting the sale of the Lids Team Sports business in the fourth quarter of last year and a decrease of approximately 3% in sales from businesses operated during both periods. Consolidated third quarter 2017 comparable sales, including same store sales and comparable e-commerce and catalog sales, decreased 3%, with an 8% decrease in the Journeys Group, a 2% increase in the Lids Sports Group, flat comparable sales in the Schuh Group, and a 1% increase in the Johnston & Murphy Group. Comparable sales for the Company reflected a 4% decrease in same store sales and a 7% increase in e-commerce sales.
Robert J. Dennis, chairman, president and chief executive officer of Genesco, said, “Consolidated comparable sales for the third quarter came in ahead of our expectations, thanks to better than expected sales at the Lids Sports Group and Schuh Group. Our top-line performance, effective management of selling costs, and share repurchases made during the quarter allowed us to deliver earnings per share ahead of expectations. We were able to offset some of the bottom line pressure caused by negative expense leverage on lower sales versus last year through gross margin expansion, primarily a significant increase in the Lids Sports Group.
“Fourth quarter consolidated comparable sales were -2% through November 29, 2016. The strong positive impact of the World Series on the Lids Sports Group’s sales has offset weaker comps in the rest of our businesses so far during the quarter. While we expect the Cubs’ victory to continue to drive sales through the balance of the quarter, it will have less impact than the gains immediately following the Series.
Exhibit 99.1
“Our outlook going forward takes into account the better than expected third quarter performance and positive effect of the World Series win. This is offset, primarily by expectations for a more challenging fourth quarter at Journeys due to unseasonably warmer weather that has hurt sales and the continued impact of the fashion shift that began to affect Journeys’ sales in the second quarter. Thus, we are reiterating expectations for adjusted diluted earnings per share for the fiscal year ending January 28, 2017, in the range of $3.80 to $4.00.” Consistent with previous guidance, these expectations do not include expected non-cash asset impairments and other charges, net of the gain on a litigation settlement and gain on the sale of Lids Team Sports, estimated in the range of a $1.8 million pretax gain to a $0.8 million pretax charge, or $(0.06) to $0.03 per share after tax, for the full fiscal year. This guidance assumes a comparable sales decrease in the 2% to 3% range for the full year. A reconciliation of the adjusted financial measures cited in the guidance to their corresponding measures as reported pursuant to U.S. Generally Accepted Accounting Principles is included in Schedule B to this press release.
Dennis concluded, “While the headwinds for Journeys are likely to continue in the near term, we have made purchase commitments for spring product that reflect the shift in fashion, which we believe should reverse the negative trend. Beyond that, we remain confident in the strategic positioning of all our retail businesses and believe that the Company’s long-term competitive advantages will drive improved profitability and greater shareholder value.”
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 December 2, 2016 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 level and timing of promotional activity necessary to maintain inventories at appropriate levels; the timing and amount of non-cash asset impairments related to retail store fixed assets and intangible assets of acquired businesses; the effectiveness of the Company's omnichannel initiatives; costs associated with changes in minimum wage and overtime requirements; the level of chargebacks from credit card users for fraudulent purchases or other reasons; weakness in the consumer economy and retail industry; competition in the Company's markets; fashion trends that affect the sales or product margins of the Company's retail product offerings; weakness in shopping mall traffic and challenges to the viability of malls where the Company operates stores, related to planned closings of department stores or other factors; changes in buying patterns by significant wholesale customers; bankruptcies or deterioration in financial condition of significant wholesale customers or the inability of wholesale customers or consumers to obtain credit; disruptions in product supply or distribution; unfavorable trends in fuel costs, foreign exchange rates, foreign labor and material costs, and other factors affecting the cost of products; the effects of the British decision to exit the European Union, including potential effects on consumer demand, currency exchange rates, and the supply chain; the Company's ability to continue to complete and integrate acquisitions, expand its business and diversify its product base; changes in the timing of holidays or in the onset of seasonal weather affecting period-to-period sales comparisons; and the
Exhibit 99.1
performance of athletic teams, the participants in major sporting events such as the Super Bowl and World Series, developments with respect to certain individual athletes, and other sports-related events or changes that may affect period-to-period comparisons in the Company's Lids Sports Group retail businesses. Additional factors that could affect the Company's prospects and cause differences from expectations include the ability to build, open, staff and support additional retail stores and to renew leases in existing stores and control occupancy costs, and to conduct required remodeling or refurbishment on schedule and at expected expense levels; deterioration in the performance of individual businesses or of the Company's market value relative to its book value, resulting in impairments of fixed assets or intangible assets or other adverse financial consequences; unexpected changes to the market for the Company's shares; variations from expected pension-related charges caused by conditions in the financial markets; disruptions in the Company’s information technology systems either by security breaches and incidents or by potential problems associated with the implementation of new or upgraded systems; and the cost and outcome of litigation, investigations and environmental matters involving the Company. Additional factors are cited in the "Risk Factors," "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of, and elsewhere in, our SEC filings, copies of which may be obtained from the SEC website, www.sec.gov, or by contacting the investor relations department of Genesco via our website, www.genesco.com. Many of the factors that will determine the outcome of the subject matter of this release are beyond Genesco's ability to control or predict. Genesco undertakes no obligation to release publicly the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Forward-looking statements reflect the expectations of the Company at the time they are made. The Company disclaims any obligation to update such statements.
About Genesco Inc.
Genesco Inc., a Nashville-based specialty retailer, sells footwear, headwear, sports apparel and accessories in more than 2,800 retail stores and leased departments throughout the U.S., Canada, the United Kingdom, the Republic of Ireland and Germany, principally under the names Journeys, Journeys Kidz, Shi by Journeys, Schuh, Schuh Kids, Little Burgundy, Lids, Locker Room by Lids, Lids Clubhouse, Johnston & Murphy, and on internet websites www.journeys.com, www.journeyskidz.com, www.shibyjourneys.com, www.schuh.co.uk, www.littleburgundyshoes.com, www.johnstonmurphy.com, www.lids.com, www.lids.ca, www.lidslockerroom.com, www.lidsclubhouse.com, http://shop.neweracap.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. In addition, Genesco sells wholesale footwear under its Johnston & Murphy brand, the Trask brand, the licensed Dockers brand, G.H. Bass & Co., SureGrip, and other brands. For more information on Genesco and its operating divisions, please visit www.genesco.com.
Exhibit 99.1
GENESCO INC. | |||||||||||||||
Consolidated Earnings Summary | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
October 29, | October 31, | October 29, | October 31, | ||||||||||||
In Thousands | 2016 | 2015 | 2016 | 2015 | |||||||||||
Net sales | $ | 710,822 | $ | 773,898 | $ | 1,985,172 | $ | 2,090,020 | |||||||
Cost of sales | 355,187 | 400,012 | 985,103 | 1,069,710 | |||||||||||
Selling and administrative expenses* | 314,698 | 321,685 | 925,603 | 935,540 | |||||||||||
Asset impairments and other, net | 589 | 151 | (3,799 | ) | 3,970 | ||||||||||
Earnings from operations | 40,348 | 52,050 | 78,265 | 80,800 | |||||||||||
Gain on sale of Lids Team Sports | — | — | (2,485 | ) | — | ||||||||||
Interest expense, net | 1,488 | 1,330 | 3,931 | 2,903 | |||||||||||
Earnings from continuing operations | |||||||||||||||
before income taxes | 38,860 | 50,720 | 76,819 | 77,897 | |||||||||||
Income tax expense | 12,912 | 17,865 | 25,803 | 27,504 | |||||||||||
Earnings from continuing operations | 25,948 | 32,855 | 51,016 | 50,393 | |||||||||||
Provision for discontinued operations | (53 | ) | (348 | ) | (133 | ) | (488 | ) | |||||||
Net Earnings | $ | 25,895 | $ | 32,507 | $ | 50,883 | $ | 49,905 | |||||||
*Includes $1.5 million in deferred payments related to the Schuh acquisition in the first nine months ended October 31, 2015.
Earnings Per Share Information | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
October 29, | October 31, | October 29, | October 31, | ||||||||||||
In Thousands (except per share amounts) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Average common shares - Basic EPS | 19,912 | 22,834 | 20,307 | 23,308 | |||||||||||
Basic earnings per share: | |||||||||||||||
From continuing operations | $ | 1.30 | $ | 1.44 | $ | 2.51 | $ | 2.16 | |||||||
Net earnings | $ | 1.30 | $ | 1.42 | $ | 2.51 | $ | 2.14 | |||||||
Average common and common | |||||||||||||||
equivalent shares - Diluted EPS | 19,962 | 22,917 | 20,399 | 23,436 | |||||||||||
Diluted earnings per share: | |||||||||||||||
From continuing operations | $ | 1.30 | $ | 1.43 | $ | 2.50 | $ | 2.15 | |||||||
Net earnings | $ | 1.30 | $ | 1.42 | $ | 2.49 | $ | 2.13 | |||||||
Exhibit 99.1
GENESCO INC. | |||||||||||||||
Consolidated Earnings Summary | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
October 29, | October 31, | October 29, | October 31, | ||||||||||||
In Thousands | 2016 | 2015 | 2016 | 2015 | |||||||||||
Sales: | |||||||||||||||
Journeys Group | $ | 314,159 | $ | 321,996 | $ | 860,514 | $ | 847,805 | |||||||
Schuh Group | 90,087 | 101,644 | 262,717 | 283,410 | |||||||||||
Lids Sports Group | 200,279 | 246,967 | 568,567 | 675,514 | |||||||||||
Johnston & Murphy Group | 72,115 | 70,416 | 207,241 | 197,600 | |||||||||||
Licensed Brands | 34,058 | 32,599 | 85,624 | 85,118 | |||||||||||
Corporate and Other | 124 | 276 | 509 | 573 | |||||||||||
Net Sales | $ | 710,822 | $ | 773,898 | $ | 1,985,172 | $ | 2,090,020 | |||||||
Operating Income (Loss): | |||||||||||||||
Journeys Group | $ | 25,656 | $ | 38,944 | $ | 49,757 | $ | 72,594 | |||||||
Schuh Group (1) | 6,615 | 8,649 | 9,647 | 10,880 | |||||||||||
Lids Sports Group | 8,173 | 4,704 | 21,342 | 6,900 | |||||||||||
Johnston & Murphy Group | 4,922 | 4,637 | 12,019 | 9,460 | |||||||||||
Licensed Brands | 2,689 | 3,345 | 4,776 | 7,526 | |||||||||||
Corporate and Other (2) | (7,707 | ) | (8,229 | ) | (19,276 | ) | (26,560 | ) | |||||||
Earnings from operations | 40,348 | 52,050 | 78,265 | 80,800 | |||||||||||
Gain on sale of Lids Team Sports | — | — | (2,485 | ) | — | ||||||||||
Interest, net | 1,488 | 1,330 | 3,931 | 2,903 | |||||||||||
Earnings from continuing operations | |||||||||||||||
before income taxes | 38,860 | 50,720 | 76,819 | 77,897 | |||||||||||
Income tax expense | 12,912 | 17,865 | 25,803 | 27,504 | |||||||||||
Earnings from continuing operations | 25,948 | 32,855 | 51,016 | 50,393 | |||||||||||
Provision for discontinued operations | (53 | ) | (348 | ) | (133 | ) | (488 | ) | |||||||
Net Earnings | $ | 25,895 | $ | 32,507 | $ | 50,883 | $ | 49,905 | |||||||
(1)Includes $1.5 million in deferred payments related to the Schuh acquisition in the first nine months ended October 31, 2015.
(2)Includes a $0.6 million charge in the third quarter of Fiscal 2017 for asset impairments. Includes a $3.8 million gain for the first nine months of Fiscal 2017 which includes an $8.9 million gain for network intrusion expenses as a result of a litigation settlement, partially offset by $5.0 million for asset impairments and $0.1 million for other legal matters.
Includes a $0.2 million charge in the third quarter of Fiscal 2016 which includes $0.1 million for asset impairments and $0.1 million for network intrusion expenses. Includes a $4.0 million charge for the first nine months of Fiscal 2016 which includes $2.1 million for network intrusion expenses, $1.8 million for asset impairments and $0.1 million for other legal matters.
Exhibit 99.1
GENESCO INC. | |||||||
Consolidated Balance Sheet | |||||||
October 29, | October 31, | ||||||
In Thousands | 2016 | 2015 | |||||
Assets | |||||||
Cash and cash equivalents | $ | 30,520 | $ | 28,148 | |||
Accounts receivable | 55,109 | 82,136 | |||||
Inventories | 719,975 | 779,895 | |||||
Other current assets | 88,969 | 96,912 | |||||
Total current assets | 894,573 | 987,091 | |||||
Property and equipment | 321,780 | 322,069 | |||||
Goodwill and other intangibles | 355,512 | 390,733 | |||||
Other non-current assets | 24,559 | 43,447 | |||||
Total Assets | $ | 1,596,424 | $ | 1,743,340 | |||
Liabilities and Equity | |||||||
Accounts payable | $ | 247,282 | $ | 270,951 | |||
Current portion long-term debt | 12,172 | 15,437 | |||||
Other current liabilities | 112,826 | 148,220 | |||||
Total current liabilities | 372,280 | 434,608 | |||||
Long-term debt | 214,076 | 199,327 | |||||
Pension liability | 9,283 | 21,441 | |||||
Deferred rent and other long-term liabilities | 135,052 | 157,601 | |||||
Equity | 865,733 | 930,363 | |||||
Total Liabilities and Equity | $ | 1,596,424 | $ | 1,743,340 | |||
Exhibit 99.1
GENESCO INC. | ||||||||||||||||||||||||
Retail Units Operated - Nine Months Ended October 29, 2016 | ||||||||||||||||||||||||
Balance | Acqui- | Balance | Balance | |||||||||||||||||||||
1/31/2015 | sitions | Open | Close | 1/30/2016 | Open | Close | 10/29/2016 | |||||||||||||||||
Journeys Group | 1,182 | 37 | 29 | 26 | 1,222 | 32 | 17 | 1,237 | ||||||||||||||||
Journeys | 834 | — | 13 | 5 | 842 | 13 | 8 | 847 | ||||||||||||||||
Underground by Journeys | 110 | — | — | 12 | 98 | — | 2 | 96 | ||||||||||||||||
Journeys Kidz | 189 | — | 16 | 5 | 200 | 19 | 1 | 218 | ||||||||||||||||
Shi by Journeys | 49 | — | — | 3 | 46 | — | 6 | 40 | ||||||||||||||||
Little Burgundy | — | 37 | — | 1 | 36 | — | — | 36 | ||||||||||||||||
Schuh Group | 108 | — | 17 | — | 125 | 5 | 4 | 126 | ||||||||||||||||
Lids Sports Group* | 1,364 | — | 27 | 59 | 1,332 | 13 | 78 | 1,267 | ||||||||||||||||
Johnston & Murphy Group | 170 | — | 8 | 5 | 173 | 6 | 3 | 176 | ||||||||||||||||
Shops | 105 | — | 3 | 5 | 103 | 4 | 2 | 105 | ||||||||||||||||
Factory Outlets | 65 | — | 5 | — | 70 | 2 | 1 | 71 | ||||||||||||||||
Total Retail Units | 2,824 | 37 | 81 | 90 | 2,852 | 56 | 102 | 2,806 | ||||||||||||||||
Retail Units Operated - Three Months Ended October 29, 2016 | |||||||||||||||
Balance | Acqui- | Balance | |||||||||||||
7/30/2016 | sitions | Open | Close | 10/29/2016 | |||||||||||
Journeys Group | 1,230 | — | 15 | 8 | 1,237 | ||||||||||
Journeys | 846 | — | 4 | 3 | 847 | ||||||||||
Underground by Journeys | 96 | — | — | — | 96 | ||||||||||
Journeys Kidz | 208 | — | 11 | 1 | 218 | ||||||||||
Shi by Journeys | 44 | — | — | 4 | 40 | ||||||||||
Little Burgundy | 36 | — | — | — | 36 | ||||||||||
Schuh Group | 126 | — | 1 | 1 | 126 | ||||||||||
Lids Sports Group* | 1,275 | — | 6 | 14 | 1,267 | ||||||||||
Johnston & Murphy Group | 174 | — | 2 | — | 176 | ||||||||||
Shops | 104 | — | 1 | — | 105 | ||||||||||
Factory Outlets | 70 | — | 1 | — | 71 | ||||||||||
Total Retail Units | 2,805 | — | 24 | 23 | 2,806 | ||||||||||
*Includes 151 Locker Room by Lids in Macy's stores as of October 29, 2016.
Comparable Sales (including same store and comparable direct sales) | |||||||||||
Three Months Ended | Nine Months Ended | ||||||||||
October 29, | October 31, | October 29, | October 31, | ||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
Journeys Group | (8 | )% | 6 | % | (4 | )% | 5 | % | |||
Schuh Group | — | % | 2 | % | (2 | )% | 5 | % | |||
Lids Sports Group | 2 | % | 12 | % | 1 | % | 8 | % | |||
Johnston & Murphy Group | 1 | % | 5 | % | 3 | % | 6 | % | |||
Total Comparable Sales | (3 | )% | 7 | % | (1 | )% | 6 | % | |||
Exhibit 99.1
Schedule B
Genesco Inc. | ||||||||||||||||||
Adjustments to Reported Earnings from Continuing Operations | ||||||||||||||||||
Three Months Ended October 29, 2016 and October 31, 2015 | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||
October 29, 2016 | October 31, 2015 | |||||||||||||||||
Net of | Per Share | Net of | Per share | |||||||||||||||
In Thousands (except per share amounts) | Pretax | Tax | Amounts | Pretax | Tax | Amounts | ||||||||||||
Earnings from continuing operations, as reported | $ | 25,948 | $ | 1.30 | $ | 32,855 | $ | 1.43 | ||||||||||
Pretax adjustments: | ||||||||||||||||||
Impairment charges | $ | 579 | 383 | 0.02 | $ | 82 | 48 | — | ||||||||||
Network intrusion expenses | 10 | 6 | — | 69 | 39 | — | ||||||||||||
Total adjustments | $ | 589 | 389 | 0.02 | $ | 151 | 87 | — | ||||||||||
Resolution of income tax matters and other items | (789 | ) | (0.04 | ) | (749 | ) | (0.03 | ) | ||||||||||
Adjusted earnings from continuing operations (1) & (2) | $ | 25,548 | $ | 1.28 | $ | 32,193 | $ | 1.40 | ||||||||||
(1) The adjusted tax rate for the third quarter of Fiscal 2017 is 35.2% excluding a FIN 48 discrete item of less than $0.1 million. The adjusted tax rate for the third quarter of Fiscal 2016 is 36.7% excluding a FIN 48 discrete item of less than $0.1 million.
(2) EPS reflects 20.0 and 22.9 million share count for Fiscal 2017 and 2016, 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.
Exhibit 99.1
Schedule B
Genesco Inc. | |||||||||
Adjustments to Reported Operating Income | |||||||||
Three Months Ended October 29, 2016 and October 31, 2015 | |||||||||
Three Months Ended October 29, 2016 | |||||||||
Operating | Adj Operating | ||||||||
In Thousands | Income | Other Adj | Income | ||||||
Journeys Group | $ | 25,656 | $ | — | $ | 25,656 | |||
Schuh Group | 6,615 | — | 6,615 | ||||||
Lids Sports Group | 8,173 | — | 8,173 | ||||||
Johnston & Murphy Group | 4,922 | — | 4,922 | ||||||
Licensed Brands | 2,689 | — | 2,689 | ||||||
Corporate and Other | (7,707 | ) | 589 | (7,118 | ) | ||||
Total Operating Income | $ | 40,348 | $ | 589 | $ | 40,937 | |||
Three Months Ended October 31, 2015 | |||||||||
Operating | Adj Operating | ||||||||
In Thousands | Income | Other Adj | Income | ||||||
Journeys Group | $ | 38,944 | $ | — | $ | 38,944 | |||
Schuh Group | 8,649 | — | 8,649 | ||||||
Lids Sports Group | 4,704 | — | 4,704 | ||||||
Johnston & Murphy Group | 4,637 | — | 4,637 | ||||||
Licensed Brands | 3,345 | — | 3,345 | ||||||
Corporate and Other | (8,229 | ) | 151 | (8,078 | ) | ||||
Total Operating Income | $ | 52,050 | $ | 151 | $ | 52,201 | |||
Exhibit 99.1
Schedule B
Genesco Inc. | ||||||||||||||||||
Adjustments to Reported Earnings from Continuing Operations | ||||||||||||||||||
Nine Months Ended October 29, 2016 and October 31, 2015 | ||||||||||||||||||
Nine Months Ended | ||||||||||||||||||
October 29, 2016 | October 31, 2015 | |||||||||||||||||
Net of | Per Share | Net of | Per share | |||||||||||||||
In Thousands (except per share amounts) | Pretax | Tax | Amounts | Pretax | Tax | Amounts | ||||||||||||
Earnings from continuing operations, as reported | $ | 51,016 | $ | 2.50 | $ | 50,393 | $ | 2.15 | ||||||||||
Pretax adjustments: | ||||||||||||||||||
Impairment charges | $ | 5,032 | 3,253 | 0.16 | $ | 1,779 | 1,129 | 0.05 | ||||||||||
Deferred payment - Schuh acquisition | — | — | — | 1,490 | 1,490 | 0.06 | ||||||||||||
Sale of Lids Team Sports | (2,485 | ) | (1,602 | ) | (0.08 | ) | — | — | — | |||||||||
Other legal matters | 90 | 57 | — | 118 | 75 | — | ||||||||||||
Network intrusion expenses | (8,921 | ) | (5,750 | ) | (0.28 | ) | 2,073 | 1,316 | 0.06 | |||||||||
Total adjustments | $ | (6,284 | ) | (4,042 | ) | (0.20 | ) | $ | 5,460 | 4,010 | 0.17 | |||||||
Resolution of income tax matters and other items | (1,555 | ) | (0.07 | ) | (1,561 | ) | (0.07 | ) | ||||||||||
Adjusted earnings from continuing operations (1) & (2) | $ | 45,419 | $ | 2.23 | $ | 52,842 | $ | 2.25 | ||||||||||
(1) The adjusted tax rate for the first nine months of Fiscal 2017 is 35.4% excluding a FIN 48 discrete item of $0.2 million. The adjusted tax rate for the first nine months of Fiscal 2016 is 36.5% excluding a FIN 48 discrete item of less than $0.1 million.
(2) EPS reflects 20.4 and 23.4 million share count for Fiscal 2017 and 2016, 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.
Exhibit 99.1
Schedule B
Genesco Inc. | |||||||||
Adjustments to Reported Operating Income | |||||||||
Nine Months Ended October 29, 2016 and October 31, 2015 | |||||||||
Nine Months Ended October 29, 2016 | |||||||||
Operating | Adj Operating | ||||||||
In Thousands | Income | Other Adj | Income | ||||||
Journeys Group | $ | 49,757 | $ | — | $ | 49,757 | |||
Schuh Group | 9,647 | — | 9,647 | ||||||
Lids Sports Group | 21,342 | — | 21,342 | ||||||
Johnston & Murphy Group | 12,019 | — | 12,019 | ||||||
Licensed Brands | 4,776 | — | 4,776 | ||||||
Corporate and Other | (19,276 | ) | (3,799 | ) | (23,075 | ) | |||
Total Operating Income | $ | 78,265 | $ | (3,799 | ) | $ | 74,466 | ||
Nine Months Ended October 31, 2015 | |||||||||
Operating | Adj Operating | ||||||||
In Thousands | Income | Other Adj | Income | ||||||
Journeys Group | $ | 72,594 | $ | — | $ | 72,594 | |||
Schuh Group* | 10,880 | 1,490 | 12,370 | ||||||
Lids Sports Group | 6,900 | — | 6,900 | ||||||
Johnston & Murphy Group | 9,460 | — | 9,460 | ||||||
Licensed Brands | 7,526 | — | 7,526 | ||||||
Corporate and Other | (26,560 | ) | 3,970 | (22,590 | ) | ||||
Total Operating Income | $ | 80,800 | $ | 5,460 | $ | 86,260 | |||
*Schuh Group adjustments include $1.5 million in deferred purchase price payments.
Exhibit 99.1
Schedule B
Genesco Inc. | ||||||||||||
Adjustments to Forecasted Earnings from Continuing Operations | ||||||||||||
Fiscal Year Ending January 28, 2017 | ||||||||||||
In Thousands (except per share amounts) | High Guidance | Low Guidance | ||||||||||
Fiscal 2017 | Fiscal 2017 | |||||||||||
Forecasted earnings from continuing operations | $ | 81,747 | $ | 4.06 | $ | 75,998 | $ | 3.77 | ||||
Adjustments: (1) | ||||||||||||
Gain on sale of Lids Team Sports | (1,593 | ) | (0.08 | ) | (1,593 | ) | (0.08 | ) | ||||
Pension settlement | 962 | 0.05 | 1,923 | 0.10 | ||||||||
Asset impairment and other charges* | (553 | ) | (0.03 | ) | 169 | 0.01 | ||||||
Adjusted forecasted earnings from continuing operations (2) | $ | 80,563 | $ | 4.00 | $ | 76,497 | $ | 3.80 | ||||
*Includes a $9.0 million litigation settlement gain in the second quarter this year.
(1) All adjustments are net of tax where applicable. The forecasted tax rate for Fiscal 2017 is approximately 35.9%.
(2) EPS reflects 20.2 million share count for Fiscal 2017 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 2017
THIRD QUARTER ENDED OCTOBER 29, 2016
Consolidated Results
Third Quarter
Sales
Third quarter net sales decreased 8.2% to $711 million in Fiscal 2017 from $774 million in Fiscal 2016 reflecting the sale of the Lids Team Sports business in the fourth quarter of last year and a decrease of approximately 3% in sales from businesses operated during both periods. Comparable sales for Genesco and each of its business segments, including both same store sales and comparable sales from the Company’s direct (e-commerce and catalog) businesses for the quarter, were as follows:
Comparable Sales | ||
3rd Qtr | 3rd Qtr | |
Same Store and Comparable Direct Sales: | FY17 | FY16 |
Journeys Group | (8)% | 6% |
Schuh Group | 0% | 2% |
Lids Sports Group | 2% | 12% |
Johnston & Murphy Group | 1% | 5% |
Total Genesco | (3)% | 7% |
The Company’s same store sales decreased 4% and comparable direct sales increased 7% for the third quarter of Fiscal 2017 compared to a 6% increase and 25% increase, respectively, in the same period last year.
Combined comparable sales for the fourth quarter through November 29, 2016 decreased 2%.
Gross Margin
Third quarter gross margin was 50.0% this year compared with 48.3% last year, primarily due to higher gross margin in Lids Sports Group, reflecting the sale of Lids Team Sports and a lower level of promotions in the retail business, and to a lesser extent, higher gross margin in Johnston & Murphy Group, partially offset by decreased gross margin in the other businesses.
SG&A
Selling and administrative expense for the third quarter this year was 44.3% compared to 41.6% of sales last year. The increase in expenses as a percentage of sales reflects increased expenses in all of the Company’s business segments. In addition, last year’s third quarter expenses included Lids Team Sports which operated at a lower level of expense than the retail businesses.
Exhibit 99.2
Asset Impairment and Other Items
The asset impairment and other charge of $0.6 million for the third quarter of Fiscal 2017 included only asset impairments. The previous year’s third quarter asset impairment and other charge of $0.2 million included asset impairments of $0.1 million and network intrusion expenses of $0.1 million. The asset impairment and other charge are referred to as “Excluded Items” in the discussion below.
Operating Income
Genesco’s operating income for the third quarter was $40.3 million this year compared with $52.1 million last year. Adjusted for the Excluded Items in both periods, operating income for the third quarter was $40.9 million this year compared with $52.2 million last year. Adjusted operating margin was 5.8% of sales in the third quarter of Fiscal 2017 and 6.7% last year. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure is posted on the company’s website in conjunction with this document.
Interest Expense
Net interest expense for the quarter was $1.5 million, compared with $1.3 million for the same period last year. Net interest expense increased in the third quarter of Fiscal 2017 primarily because of increased revolver borrowings compared to the previous year as a result of the Little Burgundy acquisition in the fourth quarter of Fiscal 2016.
Pretax Earnings
Pretax earnings for the quarter were $38.9 million in Fiscal 2017 and $50.7 million last year. Adjusted for the Excluded Items in both years, pretax earnings for the quarter were $39.4 million in Fiscal 2017 compared to $50.9 million last year. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure is posted on the company’s website in conjunction with this document.
Taxes
The effective tax rate for the quarter was 33.2% in Fiscal 2017 compared to 35.2% last year. The adjusted tax rate, reflecting the exclusion of the Excluded Items, was 35.2% in Fiscal 2017 compared to 36.7% last year. The lower adjusted tax rate for this year was due to the work opportunity tax credit in Fiscal 2017 which was in place earlier this year than it was in Fiscal 2016 and changes in the U.K. tax rate.
Earnings From Continuing Operations After Taxes
Earnings from continuing operations were $25.9 million, or $1.30 per diluted share, in the third quarter of Fiscal 2017, compared to earnings of $32.9 million, or $1.43 per diluted share, in the third quarter last year. Adjusted for the Excluded Items in both periods, third quarter earnings from continuing operations were $25.5 million, or $1.28 per diluted share in Fiscal 2017, compared with $32.2 million, or $1.40 per diluted share, last year. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure is posted on the company’s website in conjunction with this document.
Exhibit 99.2
Segment Results
Lids Sports Group
Lids Sports Group’s sales for the third quarter decreased 18.9% to $200 million from $247 million last year. Almost all of the decline in sales is due to the sale of the Lids Team Sports business, which was sold in the fourth quarter last year. The rest is due to closed stores.
Comparable sales, including both same store and comparable direct sales, increased 2% this year compared to a 12% increase last year. Combined comparable sales for the fourth quarter through November 29, 2016 increased 15%.
The Group’s gross margin as a percent of sales increased 790 basis points with about one-half of the improvement due to the sale of Lids Team Sports which had lower margins. The remaining improvement in retail was driven mostly by decreased promotional activity but also by decreased shipping and warehouse expense.
SG&A expense as a percent of sales increased 570 basis points, due to the sale of Lids Team Sports which had lower SG&A expense. SG&A expense in the remaining retail businesses was not able to leverage due to increased store-related expenses, primarily credit card expenses and freight from the stores to customers, and increased bonus expense in non-store related expenses.
The Group’s third quarter operating earnings for Fiscal 2017 were $8.2 million, or 4.1% of sales, up from earnings of $4.7 million, or 1.9% of sales, last year.
Journeys Group
Journeys Group’s sales for the quarter decreased 2.4% to $314 million from $322 million last year, including the acquisition of Little Burgundy in the fourth quarter of Fiscal 2016.
Combined comparable sales decreased 8% for the third quarter of Fiscal 2017 compared with a 6% increase last year. Combined comparable sales for the fourth quarter through November 29, 2016 decreased 12%.
Gross margin for the Journeys Group decreased 120 basis points in the quarter due primarily to higher markdowns.
The Journeys Group’s SG&A expense increased 270 basis points as a percent of sales for the third quarter, reflecting increased store related expenses, primarily increased occupancy and advertising expenses and credit card expenses.
The Journeys Group’s operating income for the third quarter of Fiscal 2017 was $25.7 million, or 8.2% of sales, compared to $38.9 million, or 12.1% of sales, last year.
Schuh Group
Schuh Group’s sales in the third quarter were $90 million, compared to $102 million last year, a decrease of 11.4%. Schuh Group’s sales were impacted by declines in exchange rates which decreased sales $16.0 million in the third quarter this year compared to the same period last year. Total comparable sales were flat compared to a 2% increase last year. Combined comparable sales for the fourth quarter through November 29, 2016 decreased 6%.
Exhibit 99.2
Schuh Group’s gross margin decreased 110 basis points in the quarter due primarily to changes in sales mix and more promotional activity. Schuh Group’s SG&A expense increased 20 basis points reflecting increased store related expenses, primarily increased occupancy, and bonus expenses, mostly offset by foreign exchange gains.
Schuh Group’s operating income for the third quarter of Fiscal 2017 was $6.6 million, or 7.3% of sales compared with $8.6 million, or 8.5% of sales last year. Schuh Group’s operating income was negatively impacted by $1.5 million due to the decline in foreign exchange rates.
Johnston & Murphy Group
Johnston & Murphy Group’s third quarter sales increased 2.4%, to $72 million, compared to $70 million in the third quarter last year.
Johnston & Murphy Group’s wholesale sales increased 3% for the quarter. Combined comparable sales increased 1% for the third quarter of Fiscal 2017 compared to 5% last year. Combined comparable sales for the fourth quarter through November 29, 2016 were flat.
Johnston & Murphy’s gross margin for the Group increased 100 basis points in the quarter primarily due to lower markdowns and lower expense to deliver product. SG&A expense as a percent of sales increased 80 basis points, due to increased store-related expenses, primarily occupancy and advertising expenses.
The Group’s operating income for the third quarter of Fiscal 2017 was $4.9 million or 6.8% of sales, compared to $4.6 million, or 6.6% of sales last year.
Licensed Brands
Licensed Brands’ sales increased 4.5% to $34 million in the third quarter of Fiscal 2017, compared to $33 million in the third quarter last year. Gross margin was down 150 basis points reflecting lower initial margins.
SG&A expense as a percent of sales was up 80 basis points primarily due to increased freight expenses and shipping and warehouse expenses.
Operating income for the third quarter of Fiscal 2017 was $2.7 million or 7.9% of sales, compared with $3.3 million, or 10.3% of sales, last year.
Corporate
Corporate expense was $7.7 million or 1.1% of sales for the third quarter of Fiscal 2017, compared with $8.2 million or 1.1% of sales, last year. Adjusted for the applicable Excluded Items, corporate expenses were $7.1 million this year compared to $8.1 million last year, primarily due to decreased bonus accruals and decreased foreign exchange losses. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is posted on the Company’s website in conjunction with this document.
Balance Sheet
Cash
Cash at the end of the third quarter was $31 million compared with $28 million last year. We ended the quarter with $40 million in U.K. debt, compared with $66 million in U.K. debt last year. Domestic
Exhibit 99.2
revolver borrowings were $186 million at the end of the third quarter this year compared to $149 million for the third quarter last year. The domestic revolver borrowings included $19 million related to Genesco (UK) Limited, $36 million related to GCO Canada and $131 million in U.S. dollar borrowings at the end of the third quarter of Fiscal 2017.
We repurchased 747,000 shares in the third quarter of Fiscal 2017 for a cost of $39.8 million at an average price of $53.34. We repurchased 1,708,000 shares in the third quarter of Fiscal 2016 at a cost of $101.5 million at an average price of $59.45. We currently have $40 million remaining under the most recent buyback authorization.
Inventory
Inventories decreased 8% in the third quarter of Fiscal 2017 on a year-over-year basis. Retail inventory per square foot decreased 6%.
Capital Expenditures and Store Count
For the third quarter, capital expenditures were $25 million and depreciation and amortization was $19 million. During the quarter, we opened 24 new stores and closed 23 stores. Excluding Locker Room by Lids in Macy’s stores, we ended the quarter with 2,655 stores compared with 2,630 stores at the end of the third quarter last year, or an increase of 1%. Square footage increased 2% on a year-over-year basis, including the Macy’s locations and increased 3% excluding them. The store count as of October 29, 2016 included:
Lids stores (including 112 stores in Canada) | 898 |
Lids Locker Room Stores (including 36 stores in Canada) | 191 |
Lids Clubhouse stores | 27 |
Journeys stores (including 42 stores in Canada) | 847 |
Little Burgundy | 36 |
Journeys Kidz stores | 218 |
Shï by Journeys stores | 40 |
Underground by Journeys stores | 96 |
Schuh Stores | 126 |
Johnston & Murphy Stores and Factory stores (including 7 stores in Canada) | 176 |
Total Stores | 2,655 |
Locker Room by Lids in Macy’s stores | 151 |
Total Stores and Macy’s Locations | 2,806 |
Exhibit 99.2
For Fiscal 2017, we are forecasting capital expenditures in the range of $110 to $120 million and depreciation and amortization of about $76 million. Projected square footage growth is expected to be flat for Fiscal 2017. Our current store openings and closing plans by chain are as follows:
Actual Jan 2016 | Projected New | Projected Closings | Projected Jan 2017 | ||||||||
Journeys Group | 1,222 | 59 | (22) | 1,259 | |||||||
Journeys stores (U.S.) | 803 | 15 | (10) | 808 | |||||||
Journeys stores (Canada) | 39 | 6 | 0 | 45 | |||||||
Little Burgundy | 36 | 0 | 0 | 36 | |||||||
Journeys Kidz stores | 200 | 38 | (2) | 236 | |||||||
Shï by Journeys | 46 | 0 | (6) | 40 | |||||||
Underground by Journeys | 98 | 0 | (4) | 94 | |||||||
Johnston & Murphy Group | 173 | 9 | (3) | 179 | |||||||
Schuh Group | 125 | 7 | (4) | 128 | |||||||
Lids Sports Group | 1,332 | 16 | (99) | 1,249 | |||||||
Lids hat stores (U.S.) | 806 | 6 | (36) | 776 | |||||||
Lids hat stores (Canada) | 113 | 4 | (5) | 112 | |||||||
Locker Room stores (U.S.) | 161 | 2 | (14) | 149 | |||||||
Locker Room stores (Canada) | 38 | 0 | (3) | 35 | |||||||
Clubhouse stores | 29 | 1 | (4) | 26 | |||||||
Locker Room by Lids (Macy’s) | 185 | 3 | (37) | 151 | |||||||
Total Stores | 2,852 | 91 | (128) | 2,815 | |||||||
Comparable Sales Assumptions in Fiscal 2017 Guidance
Our guidance for Fiscal 2017 assumes comparable sales (including both same store sales and comparable direct sales) for each retail segment by quarter as follows:
Actual | Actual | Actual | Guidance | ||
Q1 | Q2 | Q3 | Q4 | FY17 | |
Journeys Group | 1% | (4)% | (8)% | (9) - (8)% | (5) - (4)% |
Lids Sports Group | 2% | 0% | 2% | 4 - 5% | 2 - 3% |
Schuh Group | (5)% | (1)% | 0% | (1) - 0% | (2) - (1)% |
Johnston & Murphy Group | 6% | 3% | 1% | (1) - 0% | 1 - 2% |
Total Genesco | 1% | (1)% | (3)% | (3) - (2)% | (3) - (2)% |
Exhibit 99.2
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, 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 level and timing of promotional activity necessary to maintain inventories at appropriate levels; the timing and amount of non-cash asset impairments related to retail store fixed assets and intangible assets of acquired businesses; the effectiveness of the Company’s omnichannel initiatives; costs associated with changes in minimum wage and overtime requirements; the level of chargebacks from credit card issuers for fraudulent purchases or other reasons; weakness in the consumer economy and retail industry; competition in the Company's markets; fashion trends that affect the sales or product margins of the Company's retail product offerings; weakness in shopping mall traffic and challenges to the viability of malls where the Company operates stores, related to planned closings of department stores or other factors; changes in buying patterns by significant wholesale customers; bankruptcies or deterioration in financial condition of significant wholesale customers or the inability of wholesale customers or consumers to obtain credit; disruptions in product supply or distribution; unfavorable trends in fuel costs, foreign exchange rates, foreign labor and material costs, and other factors affecting the cost of products; the effects of the British decision to exit the European Union, including potential effects on consumer demand, currency exchange rates and the supply chain; the Company's ability to continue to complete and integrate acquisitions, expand its business and diversify its product base; changes in the timing of holidays or in the onset of seasonal weather affecting period-to-period sales comparisons; and the performance of athletic teams, the participants in major sporting events such as the Super Bowl and World Series, developments with respect to certain individual athletes, and other sports-related events or changes that may affect period-to-period comparisons in the Company’s Lids Sports Group retail businesses. Additional factors that could affect the Company's prospects and cause differences from expectations include the ability to build, open, staff and support additional retail stores and to renew leases in existing stores and control occupancy costs, and to conduct required remodeling or refurbishment on schedule and at expected expense levels; deterioration in the performance of individual businesses or of the Company's market value relative to its book value, resulting in impairments of fixed assets or intangible assets or other adverse financial consequences; unexpected changes to the market for the Company's shares; variations from expected pension-related charges caused by conditions in the financial markets; disruptions in the Company’s information technology systems either by security breaches and incidents or by potential problems associated with the implementation of new or upgraded systems; and the cost and outcome of litigation, investigations and environmental matters involving the Company. Additional factors are cited in the "Risk Factors," "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of, and elsewhere in, our SEC filings, copies of which may be obtained from the SEC website, www.sec.gov, or by contacting the investor relations department of Genesco via our website, www.genesco.com. Many of the factors that will determine the outcome of the subject matter of this 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.