UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to |
Commission File No.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Zip Code) |
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(Address of principal executive offices) |
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Registrant's telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer; an accelerated filer; a non-accelerated filer; a smaller reporting company; or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes
As of May 29, 2020,
INDEX
2
cautionary notice regarding forward-looking statements
Statements in this Quarterly Report on Form 10-Q include certain forward-looking statements, including those regarding the performance outlook for the Company and our individual businesses (including, without limitation, sales, expenses, margins and earnings) and all other statements not addressing solely historical facts or present conditions. Words such as "may," "will," "should," "likely," "anticipate," "expect," "intend," "plan," "project," "believe," "estimate" and similar expressions can be used to identify these forward-looking statements. Actual results, including those regarding our performance outlook for Fiscal 2021 and beyond, could differ materially from those reflected by the forward-looking statements in this Quarterly Report on Form 10-Q and a number of factors may adversely affect the forward-looking statements and our future results, liquidity, capital resources or prospects. These include, but are not limited to, risks related to public health and safety issues, including, for example, the novel coronavirus disease ("COVID-19") outbreak which began in 2019, our ability to reopen stores, operate stores safely and ensure the safety of customers and employees, whether there is a second wave or periods of increases in the number of COVID-19 cases in locations in which we operate, restrictions on operations imposed by government entities and landlords, changes in public safety and health requirements, our ability to adequately staff our stores, limitations on our ability to provide adequate personal protective equipment to our employees, our ability to maintain social distancing requirements, stores closures and effect on our business as a result of civil disturbances, the level and timing of promotional activity necessary to maintain inventories at appropriate levels, our ability to recognize deferred tax assets, the timing and amount of any share repurchases by us, the imposition of tariffs on products imported by us or our vendors as well as the ability and costs to move production of products in response to tariffs, our ability to obtain from suppliers products that are in-demand on a timely basis and effectively manage disruptions in product supply or distribution, including disruptions as a result of COVID-19, unfavorable trends in fuel costs, foreign exchange rates, foreign labor and material costs, and other factors affecting the cost of products, the effects of the British decision to exit the European Union and other sources of weakness in the U.K. market, the effectiveness of our omnichannel initiatives, costs associated with changes in minimum wage and overtime requirements, wage pressure in the U.S. and the U.K., weakness in the consumer economy and retail industry, competition and fashion trends in our markets, closure of our stores due to COVID-19 and weakness in traffic at shopping malls and at our stores that are open, risks related to the potential for terrorist events, changes in buying patterns by significant wholesale customers, our ability to continue to complete and integrate acquisitions, expand our business and diversify our product base, retained liabilities associated with divestitures of businesses including potential liabilities under leases as the prior tenant or as a guarantor of certain leases, and changes in the timing of holidays or in the onset of seasonal weather affecting period-to-period sales comparisons. Additional factors that could cause differences from expectations include the ability to open additional retail stores and to renew leases in existing stores and control or lower occupancy costs, and to conduct required remodeling or refurbishment on schedule and at expected expense levels, our ability to eliminate stranded costs associated with dispositions, our ability to realize anticipated cost savings, including rent savings, deterioration in the performance of individual businesses or of our market value relative to our book value, resulting in impairments of fixed assets, operating lease right of use assets or intangible assets or other adverse financial consequences and the timing and amount of such impairments or other consequences, unexpected changes to the market for our shares or for the retail sector in general, costs and reputational harm as a result of disruptions in our business or information technology systems either by security breaches and incidents or by potential problems associated with the implementation of new or upgraded systems, uncertainty regarding the expected phase out of the London Interbank Offered Rate ("LIBOR"), and the cost and outcome of litigation, investigations and environmental matters that involve us.
Readers are cautioned not to place undue reliance on forward-looking statements as such statements speak only as of the date they were made and involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth in our description of risk factors in Item 1A contained in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020, and Item 1A in Part II of this Quarterly Report on Form 10-Q, which should be read in conjunction with the forward-looking statements in this Quarterly Report on Form 10-Q. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.
The events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. As a result, our actual results may differ materially from the results contemplated by these forward-looking statements.
We maintain a website at www.genesco.com where investors and other interested parties may obtain, free of charge, press releases and other information as well as gain access to our periodic filings with the Securities and Exchange Commission (“SEC”). The information contained on this website should not be considered to be a part of this or any other report filed with or furnished to the SEC.
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Genesco Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
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Assets |
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May 2, 2020 |
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February 1, 2020 |
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May 4, 2019 |
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Current Assets: |
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Cash and cash equivalents |
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$ |
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$ |
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$ |
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Accounts receivable, net of allowances of $ |
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$ |
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Inventories |
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Prepaids and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right of use assets |
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Goodwill |
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Other intangibles |
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Deferred income taxes |
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Other noncurrent assets |
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Total Assets |
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Liabilities and Equity |
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Current Liabilities: |
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Accounts payable |
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Accrued employee compensation |
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Current portion – long-term debt |
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— |
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Current portion - operating lease liabilities |
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Other accrued liabilities |
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Provision for discontinued operations |
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Total current liabilities |
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Long-term debt |
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Long-term operating lease liabilities |
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Other long-term liabilities |
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Provision for discontinued operations |
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Total liabilities |
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Commitments and contingent liabilities |
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Equity: |
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Non-redeemable preferred stock |
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Common equity: |
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Common stock, $ |
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Authorized: |
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Issued common stock |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
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Treasury shares, at cost ( |
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Total equity |
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Total Liabilities and Equity |
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$ |
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$ |
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$ |
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
4
Genesco Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
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Three Months Ended |
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May 2, 2020 |
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May 4, 2019 |
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Net sales |
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$ |
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$ |
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Cost of sales |
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Gross margin |
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Selling and administrative expenses |
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Goodwill impairment |
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Asset impairments and other, net |
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Operating income (loss) |
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Other components net periodic benefit cost |
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( |
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Interest expense, net: |
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Interest expense |
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Interest income |
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( |
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Total interest expense, net |
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( |
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Earnings (loss) from continuing operations before |
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income taxes |
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Income tax expense (benefit) |
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( |
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Earnings (loss) from continuing operations |
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( |
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Loss from discontinued operations, net of tax |
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( |
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Net Earnings (Loss) |
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$ |
( |
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$ |
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Basic earnings (loss) per common share: |
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Continuing operations |
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$ |
( |
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$ |
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Discontinued operations |
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( |
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( |
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Net earnings (loss) |
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$ |
( |
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$ |
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Diluted earnings (loss) per common share: |
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Continuing operations |
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$ |
( |
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$ |
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Discontinued operations |
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( |
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Net earnings (loss) |
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$ |
( |
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$ |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
5
Genesco Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
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Three Months Ended |
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May 2, 2020 |
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May 4, 2019 |
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Net earnings (loss) |
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$ |
( |
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$ |
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Other comprehensive income (loss): |
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Pension liability adjustments, net of tax |
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Postretirement liability adjustments, net of tax |
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( |
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( |
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Foreign currency translation adjustments |
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( |
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Total other comprehensive income (loss) |
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( |
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Comprehensive income (loss) |
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$ |
( |
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$ |
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
6
Genesco Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
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Three Months Ended |
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May 2, 2020 |
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May 4, 2019 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net earnings (loss) |
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$ |
( |
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$ |
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Adjustments to reconcile net earnings (loss) to net cash provided by |
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(used in) operating activities: |
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Depreciation and amortization |
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Amortization of deferred note expense and debt discount |
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Deferred income taxes |
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( |
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Provision for accounts receivable |
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Impairment of intangible assets |
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Impairment of long-lived assets |
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Restricted stock expense |
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Other |
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Effect on cash from changes in working capital and other assets and liabilities, net of acquisitions: |
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Accounts receivable |
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( |
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( |
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Inventories |
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( |
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( |
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Prepaids and other current assets |
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( |
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Accounts payable |
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( |
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Other accrued liabilities |
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( |
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( |
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Other assets and liabilities |
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Net cash used in operating activities |
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( |
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( |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Capital expenditures |
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( |
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( |
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Proceeds from sale of businesses |
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Proceeds from asset sales |
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Net cash provided by (used in) investing activities |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Payments of long-term debt |
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( |
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Borrowings under revolving credit facility |
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Payments on revolving credit facility |
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( |
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( |
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Share repurchases related to share repurchase program |
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( |
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Change in overdraft balances |
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( |
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( |
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Other |
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( |
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Net cash provided by (used in) financing activities |
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( |
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Effect of foreign exchange rate fluctuations on cash |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
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( |
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Cash and cash equivalents at beginning of period |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
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$ |
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$ |
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Supplemental Cash Flow Information: |
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Interest paid |
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$ |
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$ |
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Income taxes paid |
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Cash paid for amounts included in measurement of operating lease liabilities |
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Operating leased assets obtained in exchange for new operating lease liabilities |
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
7
Genesco Inc. and Subsidiaries
Condensed Consolidated Statements of Equity
(In thousands)
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Non- Redeemable Preferred Stock |
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Common Stock |
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Additional Paid-In Capital |
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Retained Earnings |
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Accumulated Other Comprehensive Loss |
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Treasury Shares |
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Total Equity |
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Balance February 2, 2019 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Cumulative adjustment from ASC 842, net of tax |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Net earnings |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive earnings |
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— |
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— |
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— |
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— |
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— |
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Employee and non-employee share-based compensation |
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— |
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— |
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— |
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— |
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— |
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Shares repurchased |
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— |
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( |
) |
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— |
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( |
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— |
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— |
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( |
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Other |
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( |
) |
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Balance May 4, 2019 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance February 1, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Employee and non-employee share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance May 2, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
8
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1
Summary of Significant Accounting Policies
Basis of Presentation
The Condensed Consolidated Financial Statements and Notes contained in this report are unaudited but reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results for the interim periods of the fiscal year ending January 30, 2021 ("Fiscal 2021") and of the fiscal year ended February 1, 2020 ("Fiscal 2020"). All subsidiaries are consolidated in the Condensed Consolidated Financial Statements. All significant intercompany transactions and accounts have been eliminated. The results of operations for any interim period are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") have been condensed or omitted. The Condensed Consolidated Balance Sheet as of February 1, 2020 has been derived from the audited financial statements at that date. These Condensed Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and notes for Fiscal 2020, which are contained in our Annual Report on Form 10-K as filed with the SEC on April 1, 2020.
Nature of Operations
Genesco Inc. and its subsidiaries (collectively the "Company", "we", "our", or "us") business includes the sourcing and design, marketing and distribution of footwear and accessories through retail stores in the U.S., Puerto Rico and Canada primarily under the Journeys, Journeys Kidz, Little Burgundy and Johnston & Murphy banners and under the Schuh banner in the United Kingdom and the Republic of Ireland (“ROI”); through catalogs and e-commerce websites including the following: journeys.com, journeyskidz.com, journeys.ca, schuh.co.uk, schuh.ie, schuh.eu, johnstonmurphy.com, trask.com and littleburgundyshoes.com and at wholesale, primarily under our Johnston & Murphy brand, the Trask brand, the licensed Dockers brand, the licensed Levi's brand, the licensed Bass brand and other brands that we license for footwear. At May 2, 2020, we operated
During the three months ended May 2, 2020 and May 4, 2019, we operated
Cash and Cash Equivalents
Our foreign subsidiaries held cash of approximately $
There were $
At May 2, 2020, February 1, 2020 and May 4, 2019, outstanding checks drawn on zero-balance accounts at certain domestic banks exceeded book cash balances at those banks by approximately $
Concentration of Credit Risk and Allowances on Accounts Receivable
Our footwear wholesale businesses sell primarily to department stores and independent retailers across the United States. Receivables arising from these sales are not collateralized. Customer credit risk is affected by conditions or occurrences within the economy and the retail industry as well as by customer-specific factors. In the footwear wholesale businesses, one customer accounted for
Selling and Administrative Expenses
Wholesale costs of distribution are included in selling and administrative expenses on the Condensed Consolidated Statements of Operations in the amount of $
Retail occupancy costs recorded in selling and administrative expense were $
9
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1
Summary of Significant Accounting Policies, Continued
Advertising Costs
Advertising costs were $
Vendor Allowances
Vendor reimbursements of cooperative advertising costs recognized as a reduction of selling and administrative expenses were $
Foreign Currency Translation
The functional currency of our foreign operations is the applicable local currency. The translation of the applicable foreign currency into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date. Income and expense accounts are translated at monthly average exchange rates. The unearned gains and losses resulting from such translation are included as a separate component of accumulated other comprehensive loss within shareholders' equity. Gains and losses from certain foreign currency transactions are reported as an item of income and resulted in net income of $(
New Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-13 guidance related to the disclosure requirements for fair value measurement. This guidance added, modified and removed certain disclosure requirements related to assets and liabilities recorded at fair value. This guidance is effective for public business entities for fiscal years and interim periods within those years, beginning after December 15, 2019, and early adoption is permitted. We adopted this guidance in the first quarter of Fiscal 2021 and it had no impact to our results of operations, financial position or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. We adopted ASU No. 2016-13 in the first quarter of Fiscal 2021. This guidance did not have a material impact on our Condensed Consolidated Financial Statements.
Note 2
COVID-19
In March 2020, the World Health Organization categorized the outbreak of COVID-19 as a pandemic. To help control the spread of the virus and protect the health and safety of our employees and customers, we began temporarily closing or modifying operating models and hours of our retail stores in North America, the United Kingdom and Republic of Ireland both in response to governmental requirements including “stay-at-home” orders and similar mandates and voluntarily, beyond the requirements of local government authorities, during the first quarter of Fiscal 2021.
Changes made in our operations, including temporary closures, combined with reduced customer traffic due to concerns over the virus, resulted in material reductions in revenues and operating income during the first quarter of Fiscal 2021. This prompted us to update our impairment analyses of our retail store portfolios and related lease right-of-use assets. For certain lower-performing stores, we compared the carrying value of store assets to undiscounted cash flows with updated assumptions on near-term profitability. As a result, we recorded a $
We also evaluated our goodwill and indefinite-lived intangible assets at the end of our first quarter ended May 2, 2020. Our most recently completed goodwill impairment analyses for Schuh Group as of the first day of the fourth quarter of Fiscal 2020 indicated $
10
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 2
COVID-19, Continued
We also evaluated our remaining tangible assets, particularly accounts receivable and inventory. Our wholesale businesses sell primarily to independent retailers and department stores across the United States. Receivables arising from these sales are not collateralized. Customer credit risk is affected by conditions or occurrences within the economy and the retail industry, such as COVID-19, as well as by customer specific factors. We establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. As a result of the impact of COVID-19, in the first quarter of Fiscal 2021, we recorded an additional allowance for doubtful accounts of $
We also record reserves for obsolete and slow-moving inventory and for estimated shrinkage between physical inventory counts. During the first quarter of Fiscal 2021, we recorded approximately $
During the first quarter of Fiscal 2021, we withheld rent payments generally correlating with the time period our stores were closed. We continued to recognize rent expense in accordance with the contractual terms. While we are having ongoing conversations with landlords in various markets in seeking commercially reasonable lease concessions given the current environment, we have not yet confirmed significant concessions for the remainder of the year.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic and options to defer payroll tax payments. Based on our preliminary evaluation of the CARES Act, we qualify for certain employer payroll tax credits as well as the deferral of payroll and other tax payments in the future, which will be treated as government subsidies to offset related operating expenses. During the first quarter ended May 2, 2020, qualified payroll tax credits reduced our selling and administrative expenses by approximately $
We recorded our income tax expense, deferred tax assets and related liabilities based on our best estimates. As part of this process, we assessed the likelihood of realizing the benefits of our deferred tax assets. As of the end of our first quarter of Fiscal 2021, based on available evidence, we recorded additional valuation allowance adjustments in our UK jurisdiction of $
The COVID-19 pandemic remains a rapidly evolving situation. The continuation of the COVID-19 pandemic, its economic impact and actions taken in response thereto may result in prolonged periods of store closures and modified operating schedules and may result in changes in customer behaviors, including a potential reduction in consumer discretionary spending in our stores. These may lead to increased asset recovery and valuation risks, such as impairment of our store and other assets and an inability to realize deferred tax assets due to sustaining losses in certain jurisdictions. The uncertainties in the global economy will likely impact the financial viability of our suppliers, and other business partners, which may interrupt our supply chain, limit our ability to collect receivables and require other changes to our operations. These and other factors have and will continue to adversely impact our net revenues, operating income and earnings per share financial measures.
11
Genesco Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 3
Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by segment were as follows:
|
(In thousands) |
|
Schuh Group |
|
|
Journeys Group |
|
|
Licensed Brands Group |
|||