GENESCO INC. This section discusses management's view of the financial condition, results of
operations and cash flows of the Company. This section should be read in
conjunction with the information contained in our Annual Report on Form 10-K for
the fiscal year ended
Summary of Results of Operations
Our net sales increased 92.9% to
Significant Developments COVID-19 Update
In
• OnMarch 18, 2020 , we temporarily closed our North American retail stores. • OnMarch 19, 2020 , we borrowed$150.0 million under our Credit Facility as a precautionary measure to ensure funds were available to meet our obligations for a substantial period of time in response to the COVID-19 pandemic that caused public health officials to recommend precautions that would mitigate the spread of the virus, including "stay-at-home" orders and similar mandates and warning the public against congregating in heavily populated areas such as malls and shopping centers. We paid down the$150.0 million onSeptember 10, 2020 . • OnMarch 19, 2020 , Schuh entered into an Amendment and Restatement Agreement (the "U.K. A&R Agreement") with Lloyds Bank which amended and restated the Amendment and Restatement Agreement datedApril 26, 2017 . TheU.K. A&R Agreement included only a Facility C revolving credit agreement of £19.0 million, bore interest at LIBOR plus 2.2% per annum and expired inSeptember 2020 . InMarch 2020 , we borrowed £19.0 million as a precautionary measure in response to the COVID-19 pandemic. TheU.K. A&R Agreement was replaced with the Facility Letter inOctober 2020 and the outstanding borrowings in the amount of £19.0 million were repaid. • OnMarch 23, 2020 , we temporarily closed our stores in theU.K. and the ROI. • OnMarch 26, 2020 , we temporarily closed ourU.K. e-commerce business. EffectiveApril 3, 2020 , ourU.K. -based Schuh business announced that it had reopened its e-commerce operations in compliance with government health and safety practices. • OnMarch 27, 2020 , we announced that we were adjusting our operational needs, including a significant reduction of expense, capital and planned inventory receipts. As part of these measures, we made the decision to temporarily reduce compensation for the executive team and select employees and reduced the cash compensation for our Board of Directors. In addition, we furloughed all of our full-time store employees inNorth America and our store and distribution center employees in theU.K. We also furloughed employees and reduced headcount in our corporate offices, call centers and distribution centers. In the aggregate, these actions resulted in a temporary reduction of our workforce by 90%. 17
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• During a portion of the first and second quarters of Fiscal 2021, we
extended payment terms with suppliers, managed inventory by reducing future
receipts and reduced planned capital expenditures by over 50%. For new
receipts as of August 1, 2020 , we have restored contractual payment terms
with suppliers.
• On June 5, 2020 , we entered into a Second Amendment to our Credit Facility
to, among other things, increase the Total Commitments (as defined in the
Credit Facility) for the revolving loans from $275.0 million to $332.5
million , establish a First-in, Last-out ("FILO") tranche of indebtedness of
$17.5 million , for $350.0 million of total capacity.
• On June 25, 2020 , our Board of Directors considered the Company's financial
results to date and that more than 90% of the Company's stores were expected
to be reopened by June 30, 2020 , and decided to restore going forward a
portion of the compensation of the executive team and select employees whose
compensation had been reduced on March 27, 2020 . In addition, the cash
compensation of our Board of Directors, which had also been reduced on March
27, 2020 was partially restored.
• In October 2020 , our Board of Directors restored going forward the remaining
portion of the compensation of the executive team and select employees whose
compensation had been reduced on March 27, 2020 as well as the compensation
of the Board of Directors.
• On October 9, 2020 , Schuh entered into the Facility Letter with Lloyds under
the U.K.'s Coronavirus Large Business Interruption Loan Scheme pursuant to
which Lloyds made available a RCF of £19.0 million for the purpose of
refinancing Schuh's existing indebtedness with Lloyds. The RCF expires in
October 2023 and bears interest at 2.5% over the Bank of England Base
Rate . As of May 1, 2021 , we have borrowed $11.1 million or £8.0 million
under the Facility Letter.
• During the fourth quarter of Fiscal 2021, another lockdown in the U.K. and
the ROI disrupted the Schuh Group business with stores closed for
approximately 80% of possible days in the first quarter of Fiscal 2022.
• In December 2020 , the Company returned the compensation to select employees
other than the executive team whose compensation had been reduced on March
27, 2020 .
• As of May 27, 2021 , all stores in the U.K. and ROI had re-opened and only
stores in Ontario and Nova Scotia, Canada remain closed. These stores are
currently expected to re-open in mid-June this year.
As of
As a result of the economic and business impact of the COVID-19 pandemic, we revised certain accounting estimates and judgments as discussed in the following paragraphs. Given the ongoing and evolving economic and business impact of the COVID-19 pandemic, we may be required to further revise certain accounting estimates and judgments such as, but not limited to, those related to the valuation of inventory, goodwill, long-lived assets and deferred tax assets, which could have a material adverse effect on our financial position and results of operations.
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 have been
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. During the quarter ended
On
Asset Impairment and Other Charges
We recorded pretax charges of
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Table of Contents Critical Accounting Estimates
We discuss our critical accounting estimates in Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations", in our Annual
Report on Form 10-K for the fiscal year ended
Key Performance Indicators
In assessing the performance of our business, we consider a variety of
performance and financial measures. The key performance indicators we use to
evaluate the financial condition and operating performance of our business are
comparable sales, net sales, gross margin, operating income (loss) and operating
margin. These key performance indicators should not be considered superior to,
as a substitute for or as an alternative to, and should be considered in
conjunction with, the
Comparable Sales
We consider comparable sales to be an important indicator of our current performance, and investors may find it useful as such. Comparable sales results are important to achieve leveraging of our costs, including occupancy, selling salaries, depreciation, etc. Comparable sales also have a direct impact on our total net revenue, cash and working capital. We define "comparable sales" as sales from stores open longer than one year, beginning with the first day a store has comparable sales (which we refer to in this report as "same store sales"), and sales from websites operated longer than one year and direct mail catalog sales (which we refer to in this report as "comparable direct sales"). Temporarily closed stores are excluded from the comparable sales calculation if closed for more than seven days. Expanded stores are excluded from the comparable sales calculation until the first day an expanded store has comparable prior year sales. Current year foreign exchange rates are applied to both current year and prior year comparable sales to achieve a consistent basis for comparison. We have not disclosed comparable sales for the first quarter of Fiscal 2022, as we believe that overall sales are a more meaningful metric during this period due to the impact of the COVID-19 pandemic.
Results of Operations - First Quarter of Fiscal 2022 Compared to First Quarter of Fiscal 2021
Our net sales in the first quarter of Fiscal 2022 increased 92.9% to
Gross margin increased 114.5% to
Selling and administrative expenses in the first quarter of Fiscal 2022 increased 26.7% but decreased as a percentage of net sales from 67.7% to 44.5%, reflecting decreased expenses as a percentage of net sales in all of our operating business units. The decrease in expenses in Fiscal 2022 was primarily due to greater leverage of fixed expenses as a result of the significant increase in revenue as well as reduced occupancy expense, partially offset by increased performance based compensation expense. The reduction in occupancy expense is driven in part by rent abatement agreements with landlords and government relief programs and rent reductions. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs.
Earnings from continuing operations before income taxes ("pretax earnings") for
the first quarter of Fiscal 2022 were
We recorded an effective income tax rate of 40.1% and 14.1% in the first quarter
of Fiscal 2022 and Fiscal 2021, respectively. The tax rate for the first quarter
of Fiscal 2022 is higher than Fiscal 2021 primarily due to the inability to
recognize a tax benefit for certain foreign losses and a higher mix of earnings
in jurisdictions where we generate taxable income. Additionally, the tax rate
for the first quarter of Fiscal 2021 was unusually low due primarily to the
non-deductibility of the
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Net earnings for the first quarter of Fiscal 2022 were
Journeys Group Three Months Ended % May 1, 2021 May 2, 2020 Change (dollars in thousands) Net sales$ 376,548 $ 168,925 122.9 %
Operating income (loss)
8.8 % (22.0 )%
Net sales from
Schuh Group Three Months Ended % May 1, 2021 May 2, 2020 Change (dollars in thousands) Net sales$ 68,711 $ 47,165 45.7 % Operating loss$ (3,847 ) $ (15,086 ) 74.5 % Operating margin (5.6 )% (32.0 )%
Net sales from
Three Months Ended
%
May 1, 2021 May 2, 2020 Change
(dollars in thousands)
Net sales $ 48,762 $ 38,849 25.5 %
Operating loss $ (3,180 ) $ (9,584 ) 66.8 %
Operating margin (6.5 )% (24.7 )%
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Licensed Brands
Three Months Ended
%
May 1, 2021 May 2, 2020 Change
(dollars in thousands)
Net sales $ 44,674 $ 24,293 83.9 %
Operating income (loss) $ 2,561 $ (2,501 ) NM
Operating margin 5.7 % (10.3 )%
Licensed Brands' net sales increased 83.9% to
Licensed Brands' operating income was
Corporate, Interest Expenses and Other Charges
Corporate and other expense for the first quarter of Fiscal 2022 was
Net interest expense decreased to
Liquidity and Capital Resources
The impacts of the COVID-19 pandemic have adversely affected our results of operations. In response to the business disruption caused by the COVID-19 pandemic, we have taken actions described above in the "COVID-19 Update" section of Management's Discussion and Analysis of Financial Condition and Results of Operations.
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