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Table of Contents

 

 

 

 

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended May 1, 2021

 

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. 1-3083

Genesco Inc.

(Exact name of registrant as specified in its charter)

 

Tennessee

 

62-0211340

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

Genesco Park,

1415 Murfreesboro Pike

 

37217-2895

Nashville,

Tennessee

 

(Zip Code)

(Address of principal executive offices)

 

 

 

Registrant's telephone number, including area code: (615367-7000

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

GCO

New York Stock Exchange

 

 

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.    Yes      No  

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).    Yes      No  

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:

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

 

 

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      No  

As of May 28, 2021, there were 14,955,924 shares of the registrant's common stock outstanding.

 

 

 


Table of Contents

 

 

INDEX

 

 

 

Part I. Financial Information

 

Item 1. Financial Statements (unaudited):

 

Condensed Consolidated Balance Sheets – May 1, 2021, January 30, 2021 and May 2, 2020

4

Condensed Consolidated Statements of Operations - Three Months ended May 1, 2021 and May 2, 2020

5

Condensed Consolidated Statements of Comprehensive Income - Three Months ended May 1, 2021 and May 2, 2020

6

Condensed Consolidated Statements of Cash Flows – Three Months ended May 1, 2021 and May 2, 2020

7

Condensed Consolidated Statements of Equity - Three Months ended May 1, 2021 and May 2, 2020

8

Notes to Condensed Consolidated Financial Statements (unaudited)

9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3. Quantitative and Qualitative Disclosures about Market Risk

23

Item 4. Controls and Procedures

23

Part II. Other Information

24

Item 1. Legal Proceedings

24

Item 1A. Risk Factors

24

Item 6. Exhibits

25

Signature

26

 

 

 

2


Table of Contents

 

 

cautionary notice regarding forward-looking statements

Statements in this Quarterly Report on Form 10-Q include certain forward-looking statements, which include statements regarding our intent, belief or expectations and all statements other than those made solely with respect to historical fact. Actual results 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, risks related to the ongoing novel coronavirus ("COVID-19") pandemic and emergence of variants from the original strain, as well as the timing and availability of effective medical treatments and the ongoing rollout of vaccines in response to the COVID-19 pandemic, (including the public’s acceptance of vaccines), including disruptions to our business, sales, supply chain and financial results, the level of consumer spending on our merchandise and in general, the timing of the re-opening and potentially reclosing of our stores, the timing of in-person back-to-work and back-to-school and sales with respect thereto, the consumer impact of the reduction of government stimulus and tax relief programs, the level and timing of promotional activity necessary to protect our reputation and maintain inventories at appropriate levels, the timing and amount of any share repurchases by us, risks related to doing business internationally, the increasing scope of our non-U.S. operations, 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, unfavorable trends in fuel costs, foreign exchange rates, foreign labor and material costs, a disruption in shipping or increase in cost of our imported products, and other factors affecting the cost of products, our dependence on third-party vendors and licensors for the products we sell, the effects of the British decision to exit the European Union and other sources of market weakness in the U.K. and the Republic of Ireland (“ROI”), 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., and other inflationary pressures, the evolving regulatory landscape related to our use of social media, the establishment and protection of our intellectual property, weakness in the consumer economy and retail industry, competition and fashion trends in our markets, including trends with respect to the popularity of casual and dress footwear, weakness in shopping mall traffic, any failure to increase sales at our existing stores, given our high fixed expense cost structure, and in our e-commerce businesses, risks related to the potential for terrorist events, changes in buying patterns by significant wholesale customers, changes in consumer preferences, our ability to continue to complete and integrate acquisitions, expand our business and diversify our product base, impairment of goodwill in connection with acquisitions, payment related risks that could increase our operating cost, expose us to fraud or theft, subject us to potential liability and disrupt our business, 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, to renew leases in existing stores, to control or lower occupancy costs, and to conduct required remodeling or refurbishment on schedule and at expected expense levels, our ability to realize anticipated cost savings, including rent savings, our ability to realize any anticipated tax benefits, our ability to achieve expected digital gains and gain market share, 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"), the cost and outcome of litigation, investigations and environmental matters that involve us, and the impact of actions initiated by activist shareholders.

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 January 30, 2021, 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


Table of Contents

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

 

Genesco Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

 

Assets

 

May 1, 2021

 

 

January 30, 2021

 

 

May 2, 2020

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

258,044

 

 

$

215,091

 

 

$

238,574

 

Accounts receivable, net of allowances of $4,474 at May 1, 2021,

 

 

 

 

 

 

 

 

 

 

 

 

   $5,015 at January 30, 2021 and $5,090 at May 2, 2020

 

 

45,891

 

 

 

31,410

 

 

 

55,259

 

Inventories

 

 

301,017

 

 

 

290,966

 

 

 

391,803

 

Prepaids and other current assets

 

 

117,467

 

 

 

130,128

 

 

 

49,372

 

Total current assets

 

 

722,419

 

 

 

667,595

 

 

 

735,008

 

Property and equipment, net

 

 

208,759

 

 

 

207,842

 

 

 

227,058

 

Operating lease right of use assets

 

 

639,575

 

 

 

621,727

 

 

 

692,489

 

Goodwill

 

 

38,944

 

 

 

38,550

 

 

 

37,497

 

Other intangibles

 

 

31,112

 

 

 

30,929

 

 

 

29,082

 

Deferred income taxes

 

 

 

 

 

 

 

 

14,568

 

Other noncurrent assets

 

 

21,558

 

 

 

20,725

 

 

 

19,366

 

Total Assets

 

 

1,662,367

 

 

 

1,587,368

 

 

 

1,755,068

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

164,975

 

 

 

150,437

 

 

 

175,232

 

Current portion – long-term debt

 

 

 

 

 

 

 

 

23,741

 

Current portion - operating lease liabilities

 

 

158,295

 

 

 

173,505

 

 

 

164,723

 

Other accrued liabilities

 

 

112,648

 

 

 

78,991

 

 

 

66,328

 

Total current liabilities

 

 

435,918

 

 

 

402,933

 

 

 

430,024

 

Long-term debt

 

 

44,169

 

 

 

32,986

 

 

 

198,939

 

Long-term operating lease liabilities

 

 

555,204

 

 

 

527,549

 

 

 

615,400

 

Other long-term liabilities

 

 

48,068

 

 

 

57,141

 

 

 

34,883

 

Total liabilities

 

 

1,083,359

 

 

 

1,020,609

 

 

 

1,279,246

 

Commitments and contingent liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Non-redeemable preferred stock

 

 

828

 

 

 

1,009

 

 

 

1,009

 

Common equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $1 par value:

 

 

 

 

 

 

 

 

 

 

 

 

Authorized: 80,000,000 shares

 

 

 

 

 

 

 

 

 

 

 

 

Issued common stock

 

 

15,444

 

 

 

15,438

 

 

 

15,171

 

Additional paid-in capital

 

 

284,396

 

 

 

282,308

 

 

 

276,307

 

Retained earnings

 

 

329,798

 

 

 

320,920

 

 

 

243,795

 

Accumulated other comprehensive loss

 

 

(33,601

)

 

 

(35,059

)

 

 

(42,603

)

Treasury shares, at cost (488,464 shares)

 

 

(17,857

)

 

 

(17,857

)

 

 

(17,857

)

Total equity

 

 

579,008

 

 

 

566,759

 

 

 

475,822

 

Total Liabilities and Equity

 

$

1,662,367

 

 

$

1,587,368

 

 

$

1,755,068

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

4


Table of Contents

 

Genesco Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

 

 

 

 

Three Months Ended

 

 

 

May 1, 2021

 

 

May 2, 2020

 

Net sales

 

$

538,695

 

 

$

279,232

 

Cost of sales

 

 

281,033

 

 

 

159,088

 

Gross margin

 

 

257,662

 

 

 

120,144

 

Selling and administrative expenses

 

 

239,465

 

 

 

189,042

 

Goodwill impairment

 

 

 

 

 

79,259

 

Asset impairments and other, net

 

 

2,670

 

 

 

7,861

 

Operating income (loss)

 

 

15,527

 

 

 

(156,018

)

Other components net periodic benefit income

 

 

(39

)

 

 

(124

)

Interest expense (net of interest income of $0.1 million and $0.2 million

for the three months ended May 1, 2021 and May 2, 2020, respectively)

 

 

729

 

 

 

856

 

Earnings (loss) from continuing operations before income taxes

 

 

14,837

 

 

 

(156,750

)

Income tax expense (benefit)

 

 

5,943

 

 

 

(22,126

)

Earnings (loss) from continuing operations

 

 

8,894

 

 

 

(134,624

)

Loss from discontinued operations, net of tax

 

 

(16

)

 

 

(153

)

Net Earnings (Loss)

 

$

8,878

 

 

$

(134,777

)

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share:

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.62

 

 

$

(9.54

)

Discontinued operations

 

 

0.00

 

 

 

(0.01

)

Net earnings (loss)

 

$

0.62

 

 

$

(9.55

)

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share:

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.60

 

 

$

(9.54

)

Discontinued operations

 

 

0.00

 

 

 

(0.01

)

Net earnings (loss)

 

$

0.60

 

 

$

(9.55

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

  Basic

 

 

14,287

 

 

 

14,110

 

       Diluted

 

 

14,702

 

 

 

14,110

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

5


Table of Contents

 

Genesco Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

 

 

 

 

Three Months Ended

 

 

 

May 1, 2021

 

 

May 2, 2020

 

Net earnings (loss)

 

$

8,878

 

 

$

(134,777

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Postretirement liability adjustments, net of tax

 

 

(44

)

 

 

(120

)

Foreign currency translation adjustments

 

 

1,502

 

 

 

(10,815

)

Total other comprehensive income (loss)

 

 

1,458

 

 

 

(10,935

)

Comprehensive Income (Loss)

 

$

10,336

 

 

$

(145,712

)

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

6


Table of Contents

 

 

Genesco Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

 

Three Months Ended

 

 

 

May 1, 2021

 

 

May 2, 2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

8,878

 

 

$

(134,777

)

Adjustments to reconcile net earnings (loss) to net cash provided by

 

 

 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

10,889

 

 

 

12,423

 

Deferred income taxes

 

 

(10,054

)

 

 

4,905

 

Impairment of intangible assets

 

 

 

 

 

84,519

 

Impairment of long-lived assets

 

 

414

 

 

 

3,042

 

Restricted stock expense

 

 

1,912

 

 

 

2,191

 

Other

 

 

149

 

 

 

2,792

 

Changes in working capital and other assets and liabilities, net of

   acquisitions/dispositions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(14,186

)

 

 

(28,775

)

Inventories

 

 

(9,031

)

 

 

(30,708

)

Prepaids and other current assets

 

 

12,719

 

 

 

(17,619

)

Accounts payable

 

 

14,784

 

 

 

58,061

 

Other accrued liabilities

 

 

33,832

 

 

 

(15,949

)

Other assets and liabilities

 

 

(6,120

)

 

 

32,110

 

Net cash provided by (used in) operating activities

 

 

44,186

 

 

 

(27,785

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(12,102

)

 

 

(6,742

)

Proceeds from asset sales

 

 

 

 

 

100

 

Net cash used in investing activities

 

 

(12,102

)

 

 

(6,642

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

15,736

 

 

 

214,571

 

Payments on revolving credit facility

 

 

(4,678

)

 

 

(6,239

)

Change in overdraft balances

 

 

(533

)

 

 

(17,078

)

Other

 

 

(35

)

 

 

(48

)

Net cash provided by financing activities

 

 

10,490

 

 

 

191,206

 

Effect of foreign exchange rate fluctuations on cash

 

 

379

 

 

 

377

 

Net Increase in Cash and Cash Equivalents

 

 

42,953

 

 

 

157,156

 

Cash and cash equivalents at beginning of period

 

 

215,091

 

 

 

81,418

 

Cash and cash equivalents at end of period

 

$

258,044

 

 

$

238,574

 

Supplemental information:

 

 

 

 

 

 

 

 

Interest paid

 

$

538

 

 

$

535

 

Income taxes paid, net of refunds

 

 

127

 

 

 

508

 

Cash paid for amounts included in measurement of operating lease liabilities

 

 

45,532

 

 

 

13,040

 

Operating leased assets obtained in exchange for new operating lease liabilities

 

 

54,247

 

 

 

8,349

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

7


Table of Contents

 

Genesco Inc. and Subsidiaries

Condensed Consolidated Statements of Equity

(In thousands)

 

 

 

Non-

Redeemable

Preferred

Stock

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Treasury

Shares

 

 

Total

Equity

 

Balance February 1, 2020

 

$

1,009

 

 

$

15,186

 

 

$

274,101

 

 

$

378,572

 

 

$

(31,668

)

 

$

(17,857

)

 

$

619,343

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(134,777

)

 

 

 

 

 

 

 

 

(134,777

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,935

)

 

 

 

 

 

(10,935

)

Employee and non-employee share-based compensation

 

 

 

 

 

 

 

 

2,191

 

 

 

 

 

 

 

 

 

 

 

 

2,191

 

Other

 

 

 

 

 

(15

)

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance May 2, 2020

 

$

1,009

 

 

$

15,171

 

 

$

276,307

 

 

$

243,795

 

 

$

(42,603

)

 

$

(17,857

)

 

$

475,822

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

Redeemable

Preferred

Stock

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Treasury

Shares

 

 

Total

Equity

 

Balance January 30, 2021

 

$

1,009

 

 

$

15,438

 

 

$

282,308

 

 

$

320,920

 

 

$

(35,059

)

 

$

(17,857

)

 

$

566,759

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

8,878

 

 

 

 

 

 

 

 

 

8,878

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,458

 

 

 

 

 

 

1,458

 

Employee and non-employee share-based compensation

 

 

 

 

 

 

 

 

1,912

 

 

 

 

 

 

 

 

 

 

 

 

1,912

 

Other

 

 

(181

)

 

 

6

 

 

 

176

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Balance May 1, 2021

 

$

828

 

 

$

15,444

 

 

$

284,396

 

 

$

329,798

 

 

$

(33,601

)

 

$

(17,857

)

 

$

579,008

 

 

 

 

 

 

 

 

 

 

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

8


Table of Contents

 

 

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, including normal recurring adjustments, necessary for a fair presentation of the results for the interim periods of the fiscal year ending January 29, 2022 ("Fiscal 2022") and of the fiscal year ended January 30, 2021 ("Fiscal 2021"). 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. The Condensed Consolidated Financial Statements and the related Notes have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. The Condensed Consolidated Balance Sheet as of January 30, 2021 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 2021, which are contained in our Annual Report on Form 10-K as filed with the SEC on March 31, 2021.

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 (“U.K.”) 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, johnstonmurphy.ca and littleburgundyshoes.com and at wholesale, primarily under our Johnston & Murphy brand, the licensed Levi's® brand, the licensed Dockers® brand, the licensed G.H. Bass® brand and other brands that we license for footwear.  At May 1, 2021, we operated 1,444 retail stores in the U.S., Puerto Rico, Canada, the U.K. and the ROI.

During the three months ended May 1, 2021 and May 2, 2020, we operated four reportable business segments (not including corporate): (i) Journeys Group, comprised of the Journeys, Journeys Kidz and Little Burgundy retail footwear chains and e-commerce operations; (ii) Schuh Group, comprised of the Schuh retail footwear chain and e-commerce operations; (iii) Johnston & Murphy Group, comprised of Johnston & Murphy retail operations, e-commerce operations and wholesale distribution of products under the Johnston & Murphy brand; and (iv) Licensed Brands, comprised of the licensed Dockers, Levi's, and G.H. Bass brands, as well as other brands we license for footwear.

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 $3.6 million and $2.4 million for the first quarters of Fiscal 2022 and Fiscal 2021, respectively.

Retail occupancy costs recorded in selling and administrative expense were $70.8 million and $77.2 million for the first quarters of Fiscal 2022 and Fiscal 2021, respectively.

 

Advertising Costs

Advertising costs were $21.1 million and $14.5 million for the first quarters of Fiscal 2022 and Fiscal 2021, respectively.

Vendor Allowances

Vendor reimbursements of cooperative advertising costs recognized as a reduction of selling and administrative expenses were $3.0 million and $1.8 million for the first quarters of Fiscal 2022 and Fiscal 2021, respectively.  During the first quarter of each of Fiscal 2022 and Fiscal 2021, our cooperative advertising reimbursements received were not in excess of the costs incurred.

New Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes”.  This guidance aims to simplify the accounting for income taxes by removing certain exceptions to the general principles within the current guidance and by clarifying and amending the current guidance. The guidance is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2020.  We adopted ASU No. 2019-12 in the first quarter of Fiscal 2022.  This guidance did not have a material impact on our Condensed Consolidated Financial Statements.

  

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Table of Contents

 

Genesco Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

 

 

 

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 temporarily closed or modified operating models and hours of our retail stores in North America, the U.K. and the ROI beginning in March 2020 both in response to governmental requirements including “stay-at-home” orders and similar mandates and voluntarily, beyond the requirements of local government authorities. A portion of our store fleet remained closed during Fiscal 2021 and the first quarter of Fiscal 2022.

 

Changes made in our operations, including temporary closures, combined with reduced customer traffic due to concerns over COVID-19, resulted in a material impact on our business since then. 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 $3.0 million, $1.7 million, $6.4 million, $2.7 million and $0.4 million asset impairment charge within asset impairments and other, net on our Condensed Consolidated Statements of Operations during the quarters ended May 2, 2020, August 1, 2020, October 31, 2020, January 30, 2021 and May 1, 2021, respectively.

 

We evaluated our goodwill and indefinite-lived intangible assets for indicators of impairment at the end of each quarter of Fiscal 2021 and the quarter ended May 1, 2021. During the first quarter of Fiscal 2021, such evaluation caused us to determine that, when considering the impact of COVID-19, indicators of impairment existed relating to the goodwill associated with Schuh Group and certain other trademarks.  Therefore, we updated the goodwill impairment analysis for Schuh Group, and as a result, recorded a goodwill impairment charge of $79.3 million during the quarter ended May 2, 2020.  In addition, we updated our impairment analysis for other intangible assets and, as a result, recorded a trademark impairment charge of $5.3 million during the quarter ended May 2, 2020.  There were no impairment indicators for the quarters ended August 1, 2020, October 31, 2020, January 30, 2021 or May 1, 2021.

 

We 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.

 

We also record reserves for obsolete and slow-moving inventory and for estimated shrinkage between physical inventory counts. We recorded incremental inventory reserve provisions as a result of excess inventory due to the impact of COVID-19 on retail traffic and demand for certain products. Currently, our remaining closed stores are located primarily in Canada. Depending on the pace of reopening our remaining closed stores as well as future customer behavior, among other factors, we may incur additional inventory reserve provisions.

 

Since the first quarter of Fiscal 2021, we have withheld certain contractual rent payments generally correlating with time periods when our stores were closed and/or correlating with sales declines from Fiscal 2020. We continue to recognize rent expense in accordance with the contractual terms.  We are working with landlords in various markets seeking commercially reasonable lease concessions given the current environment, and while some agreements have been reached, a number of negotiations remain ongoing.  In cases where the agreements do not result in a substantial increase in the rights of the lessor or the obligation of the lessee such that the total cash flows of the modified lease are substantially the same or less than the total cash flows of the existing lease, we have not reevaluated the contract terms.  For these lease agreements, we have recognized a reduction in variable rent expense in the period that the concession was granted.

 

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, provided employer payroll tax credits for wages paid to employees who were unable to work during the COVID-19 pandemic and options to defer payroll tax payments. Based on our evaluation of the CARES Act, we qualified for certain employer payroll tax credits as well as the deferral of payroll and other tax payments in the future, which were treated as government subsidies to offset related operating expenses. During the first quarter of Fiscal 2022 and Fiscal 2021, qualified payroll tax credits reduced our selling and administrative expenses by approximately $0.7 million and $7.0 million, respectively, on our Condensed Consolidated Statements of Operations. We have deferred additional qualified payroll and other tax payments as permitted by the CARES Act.  Savings from the government program in the U.K. have provided property tax relief for the first quarter of Fiscal 2022 and Fiscal 2021 of approximately $4.7 million and $1.6 million, respectively.

 

 

 

 

 

 

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Table of Contents

 

Genesco Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

 

 

Note 2

COVID-19, Continued

 

The COVID-19 pandemic remains a rapidly evolving situation especially in Canada, the U.K. and the ROI. The continuation of the COVID-19 pandemic and emergence of variants from the original strain, its economic impact and actions taken in response thereto, including, without limitation, the timing and availability of effective medical treatments and the ongoing rollout and acceptance of vaccines in response to the COVID-19 pandemic, may result in prolonged or recurring 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 have and are likely to continue to impact the financial viability of our suppliers, and other business partners, which have interrupted and may continue to interrupt, our supply chain, limit our ability to collect receivables and require other changes to our operations. These and other factors have and may continue to adversely impact our net revenues, gross margins, operating income and earnings per share financial measures.

Note 3

Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by segment were as follows:

 

(In thousands)

 

Journeys

Group

 

 

Licensed

Brands

Group

 

 

Total

Goodwill

 

Balance, January 30, 2021

 

$

10,082

 

 

$

28,468

 

 

$

38,550

 

Effect of foreign currency exchange rates

 

 

395

 

 

 

(1

)

 

 

394

 

Balance, May 1, 2021

 

$

10,477

 

 

$

28,467

 

 

$

38,944

 

 

  

 

Other intangibles by major classes were as follows:

 

 

 

Trademarks (1)

 

Customer Lists(2)

 

 

Other(3)

 

 

Total

 

(In thousands)

 

May 1, 2021

 

 

Jan. 30,

2021

 

May 1, 2021

 

 

Jan. 30,

2021

 

 

May 1, 2021

 

 

Jan. 30,

2021

 

 

May 1, 2021

 

 

Jan. 30,

2021

 

Gross other intangibles

 

$

26,768

 

 

$

26,443

 

$

6,632

 

 

$

6,617

 

 

$

400

 

 

$

400

 

 

$

33,800

 

 

$

33,460

 

Accumulated amortization

 

 

 

 

 

 

 

(2,288

)

 

 

(2,131

)

 

 

(400

)

 

 

(400

)

 

 

(2,688

)

 

 

(2,531

)

Net Other Intangibles

 

$

26,768

 

 

$

26,443

 

$

4,344

 

 

$

4,486

 

 

$

 

 

$

 

 

$

31,112

 

 

$

30,929

 

 

(1) Includes a $23.3 million trademark at May 1, 2021 related to Schuh Group and $3.5 million trademark related to Journeys Group.

(2) Includes $5.1 million for the Togast acquisition.

(3) Includes backlog for Togast acquisition.

 

Note 4

Asset Impairments and Other Charges

We recorded pretax charges of $2.7 million in the first quarter of Fiscal 2022, including $2.3 million for professional fees related to actions of an activist shareholder and $0.4 million for retail store asset impairments. We recorded a pretax charge of $7.9 million in the first quarter of Fiscal 2021, including $5.3 million for trademark impairments and $3.0 million for retail store asset impairments, partially offset by a $0.4 million gain for the release of an earnout related to the Togast acquisition.

 

11


Table of Contents

 

Genesco Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

 

 

Note 5

Inventories

 

(In thousands)

 

May 1, 2021

 

 

January 30, 2021

 

Wholesale finished goods

 

$

11,411

 

 

$

27,851

 

Retail merchandise

 

 

289,606

 

 

 

263,115