UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ | |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended January 28, 2017
☐ | |
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.) |
535 Marriott Drive | 37214 | ||
Nashville, | Tennessee | (Zip Code) | |
(Address of principal executive offices) | |||
Registrant’s telephone number, including area code: (615) (615) 367-7000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of Exchange on which Registered |
Common Stock, $1.00 par value | GCO | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act:
Employees’ Subordinated Convertible Preferred Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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 reports) and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer; an accelerated filer; a non-accelerated filer; or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” andfiler,” “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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes
State the aggregate market value of the voting and non-voting common stockequity held by nonaffiliatesnon-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of the registrantsuch common equity, as of July 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter was approximately
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: As of March 10, 2017,
Documents Incorporated by Reference
Certain portions of registrant’s Definitive Proxy Statement for its 2024 Annual Meeting of Shareholders (which is expected to be filed with the Securities and Exchange Commission within 120 days after the end of the proxy statement for the June 22, 2017 annual meeting of shareholdersregistrant’s fiscal year ended February 3, 2024) are incorporated by reference into Part III by reference.of this Annual Report on Form 10-K..
TABLE OF CONTENTS
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Item 1A. | 12 | ||
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Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 81 | |
Item 10. | 81 | ||
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Item 16. | 86 | ||
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Cautionary Notice Regarding Forward-Looking Statements
This Annual Report on Form 10-K (this "report") includes 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 report 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, adjustments to projections reflected in forward-looking statements, including those resulting from weakness in store, e-commerce and shopping mall traffic, restrictions on operations imposed by government entities and/or landlords, changes in public safety and health requirements and limitations on our ability to adequately staff and operate stores. Differences from expectations could also result from store closures and effects on the business as a result of civil disturbances; the level of consumer spending on our merchandise and interest in our brands and in general; the level and timing of promotional activity necessary to maintain inventories at appropriate levels; our ability to pass on price increases to our customers; 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 pandemics or geopolitical events, including shipping disruptions in the Red Sea; 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; our ability to renew our license agreements; impacts of the Russia-Ukraine war and the Israel-Hamas war, and other sources of market weakness in the U.K. and the Republic of Ireland; the effectiveness of our omni-channel initiatives; costs associated with changes in minimum wage and overtime requirements; wage pressure in the U.S. and the U.K.; labor shortages; the effects of inflation; 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; 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; risks related to public health and safety events; changes in buying patterns by significant wholesale customers; changes in consumer preferences; our ability to continue to complete and integrate acquisitions; our ability to 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 secure allocations to refine product assortments to address consumer demand; the ability to renew leases in existing stores and control or lower occupancy costs, to open or close stores in the number and on the planned schedule, and to conduct required remodeling or refurbishment on schedule and at expected expense levels; our ability to realize anticipated cost savings, including rent savings; the timing and amount of any share repurchases by us; our ability to make our occupancy costs more variable; 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; our ability to meet our sustainability, stewardship, emission and diversity, equity and inclusion related ESG projections, goals and commitments; 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; our ability to realize any anticipated tax benefits in both the amount and timeframe anticipated; and the cost and outcome of litigation, investigations, environmental matters and other disputes that involve us. For a full discussion of risk factors, see Item 1A, "Risk Factors".
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PART I
ITEM 1,1. BUSINESS
General
Genesco Inc. ("Genesco" or the “Company”), incorporated in 1934 in the State of Tennessee, is a leading retailer and wholesaler of branded footwear, apparel and accessories with net sales for Fiscal 20172024 of $2.87$2.3 billion. During Fiscal 2017, the Company2024, we operated fivefour reportable business segments (not including corporate): (i) Journeys Group, comprised of the Journeys®, Journeys Kidz Shi by Journeys,® and Little Burgundy acquired in the fourth quarter of Fiscal 2016, and Underground by Journeys® retail footwear chains and e-commerce operations and catalog;operations; (ii) Schuh Group, comprised of the Schuh retail footwear chain and e-commerce operations; (iii) Lids Sports Group, comprised of (a) headwear and accessory stores under the Lids
Fiscal 2013 | Fiscal 2014 | Fiscal 2015 | Fiscal 2016 | Fiscal 2017 | ||||||||||
| Retail Stores and Leased Departments | ||||||||||||||
| Beginning of year | 2,387 | 2,459 | 2,568 | 2,824 | 2,852 | |||||||||
| Opened during year | 104 | 183 | 273 | 81 | 81 | |||||||||
| Acquired during year | 33 | 15 | 56 | 37 | — | |||||||||
| Closed during year | (65 | ) | (89 | ) | (73 | ) | (90 | ) | (139 | ) | ||||
| End of year | 2,459 | 2,568 | 2,824 | 2,852 | 2,794 | |||||||||
At February 3, 2024, we operated 1,341 retail footwear and accessory stores located primarily throughout the United States and in Puerto Rico, including 77 footwear stores in Canada and 122 footwear stores in the United Kingdom ("U.K.") and the Republic of Ireland ("ROI"). We plan to open a total of approximately 14 new retail stores and to close approximately 52 retail stores in Fiscal 2025.
The following table sets forth certain additional information concerning our retail footwear and accessory stores during the five most recent fiscal years:
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| Fiscal |
|
| Fiscal |
|
| Fiscal |
|
| Fiscal |
|
| Fiscal |
| |||||
Retail Stores |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning of year |
|
| 1,512 |
|
|
| 1,480 |
|
|
| 1,460 |
|
|
| 1,425 |
|
|
| 1,410 |
|
Opened during year |
|
| 12 |
|
|
| 13 |
|
|
| 6 |
|
|
| 28 |
|
|
| 32 |
|
Closed during year |
|
| (44 | ) |
|
| (33 | ) |
|
| (41 | ) |
|
| (43 | ) |
|
| (101 | ) |
End of year |
|
| 1,480 |
|
|
| 1,460 |
|
|
| 1,425 |
|
|
| 1,410 |
|
|
| 1,341 |
|
Shorthand references to fiscal years (e.g., “Fiscal 2017”2024”) refer to the fiscal year ended on the Saturday nearest January 31
Strategy
Across our company, we aspire to create and adversely fromcurate leading footwear brands that represent style, innovation and self-expression and to be the expectations reflecteddestination for our consumers' favorite fashion footwear. Each of our businesses has a strong strategic position grounded in these statements. For a discussion of somedeep and ever-evolving understanding of the factors that may leadcustomers it serves. We strive to different results, see Item 1A, “Risk Factors”build enduring relationships with our target customers, based upon unparalleled consumer and Item 7, “Management’s Discussionmarket insights. We seek to excite and Analysisconstantly exceed customer expectations by delivering distinctive experiences and products, using our deep direct-to-consumer expertise across digital and physical channels. The strength of Financial Condition and Results of Operations.”
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accelerating our transformation and leveraging synergies to drive growth and sustainable profitability, 1) accelerate digital to grow direct-to-consumer, 2) maximize the relationship between physical and digital channels, 3) build deeper consumer insights to strengthen customer relationships and brand equity, 4) intensify product innovation and trend insight efforts, 5) reshape the cost base to reinvest for future growth, and 6) pursue synergistic acquisitions that add growth and create shareholder value. We anticipate continuing to optimize our store footprint in the future, concentrating on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Copies of the charters of each of the Company’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee,locations that we believe will be most productive, as well as closing certain stores, perhaps reducing the Company’s Corporate Governance Guidelinesoverall square footage and Codestore count from current levels, but improving productivity in our existing locations and investing in technology and infrastructure to support omni-channel and digital retailing.
We have made acquisitions, including the acquisitions of Ethics alongthe Schuh Group in June 2011, Little Burgundy in December 2015 and Togast in January 2020. We expect to concentrate our efforts on opportunities to leverage our direct-to-consumer capabilities to grow our branded platform and leverage its strategies at the appropriate time going forward.
More generally, we attempt to develop strategies to mitigate the risks we view as material, including those discussed under the caption “Forward Looking Statements,” above, and those discussed in Item 1A, "Risk Factors". Among the most important of these factors are those related to consumer demand. Conditions in the economy can affect demand, resulting in changes in sales and, as prices are adjusted to drive sales and manage inventories, in gross margins. Because fashion trends influencing many of our target customers can change rapidly, we believe that our ability to react quickly to those changes has been important to our success. Even when we succeed in aligning our merchandise offerings with position descriptionsconsumer preferences, those preferences may affect results by, for example, driving sales of products with lower average selling prices or products which are more widely available in the Company's boardmarketplace and thus more subject to competitive pressures than our typical offering. Moreover, economic factors, such as inflation, the collateral effects of directors (the "Boardthe COVID-19 pandemic, supply chain disruptions and increased logistics costs, and any future economic contraction and changes in tax policies, may reduce the consumer’s disposable income or his or her willingness to purchase discretionary items, and thus may reduce demand for our merchandise, regardless of Directors" orour skill in detecting and responding to fashion trends. We believe our experience and discipline in merchandising and the "Board")buying power associated with our relative size and Board committeesimportance in the industry segments in which we compete are also available free of charge through the website. The information provided on the Company’s website is not part of this report,important factors in our ability to mitigate risks associated with changing customer preferences and is therefore not incorporated by reference unless such information is otherwise specifically incorporated elsewhereother changes in this report.
Segments
Journeys Group
The Journeys Group segment, including Journeys, Journeys Kidz, Shi by Journeys, Little Burgundy and Underground by Journeys retail stores, e-commerce operations and catalog, accounted for approximately 44%59% of the Company’sour net sales in Fiscal 2017. The Company believes that the Journeys Group’s distinctive store formats, its mix of well-known brands and new product introductions, and its experienced management team provide significant competitive advantages for the Journeys Group. For Fiscal 2017, same store sales decreased 5%, comparable direct sales increased 12% and comparable sales, including both store and direct sales, decreased 4% from Fiscal 2016. Earnings from operations attributable to Journeys Group were $85.9 million in Fiscal 2017, with an operating margin of 6.9%.
At February 3, 2024, Journeys Group added 27 net newoperated 1,063 stores, including 808 Journeys stores, 222 Journeys Kidz stores and plans to open approximately 10 net new33 Little Burgundy stores in Fiscal 2018.
Schuh Group
The Schuh Group segment, including e-commerce operations, accounted for approximately 13%21% of the Company’sour net sales in Fiscal 2017. For Fiscal 2017, same store sales decreased 2%, comparable direct sales increased 6% and comparable sales, including both store and direct sales, decreased 1%. Earnings from operations attributable to2024. Schuh Group was $20.5 million in Fiscal 2017, with an operating margin of 5.5%.
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include both street-level and mall locations in the U.K. and the ROI. Schuh Group's e-commerce websites are schuh.co.uk, schuh.ie and schuh.eu. In Fiscal 2024, Schuh Group closed a net of zero stores.
Johnston & Murphy Group
The Johnston & Murphy Group segment, including retail stores, e-commerce and catalog operations and wholesale distribution, accounted for approximately 10%14% of the Company’sour net sales in Fiscal 2017. Same store2024. All sales for Johnston & Murphy retail operations increased 1%, comparable direct sales increased 8% and comparable sales, including both store and direct sales, increased 2% for Fiscal 2017. Earnings from operations attributable to Johnston & Murphy Group was $19.7 million in Fiscal 2017, with an operating margin of 6.8%. The majority of Johnston & Murphy Group's retail and wholesale salesbusinesses are of the Genesco-owned Johnston & Murphy brand, and all of the group’s retail sales are of Johnston & Murphy branded products.
Johnston & Murphy Retail Operations. At January 28, 2017,February 3, 2024, Johnston & Murphy operated 177156 retail shops and factory stores throughoutprimarily in the United States and in Canada averaging approximately 1,9001,950 square feet and selling footwear, apparel and accessories primarily for men in the 3525 to 55 year age group, targeting businessgroup. Johnston & Murphy retail shops are located primarily in higher-end malls and professional customers.airports nationwide and sell a broad range of men’s casual and dress footwear, apparel and accessories. Women’s footwear and accessories are sold in select Johnston & Murphy locations. Johnston & Murphy retail shops are located primarily in better malls and airports nationwide andWe also sell a broad range of men’s dress and casual footwear, apparel and accessories. The Company also sells Johnston & Murphy products directly to consumers through anjohnstonmurphy.com and johnstonmurphy.ca e-commerce website and a direct mail catalog. Retail prices for Johnston & Murphy footwear generally range from $100 to $275.websites. Footwear accounted for 64%55% of Johnston & Murphy retail sales in Fiscal 2017,2024, with the balance consisting primarily of apparel and accessories. Johnston & Murphy Group added fourclosed a net newof two shops and factory stores, including one factory store in Canada, in Fiscal 2017 and plans to open approximately four net new shops and factory stores in Fiscal 2018.
Johnston & Murphy Wholesale Operations. Johnston & Murphy men’s and boy's footwear, apparel and accessories, along with women's footwear and accessories are sold at wholesale, primarily to better department andstores, independent specialty stores.stores and e-commerce retailers. Johnston & Murphy’s wholesale customers offer the brand’s footwear for dress, dress casual, and casual occasions, with the majority of styles offered in these channels selling from $100 to $195. Additionally,
Genesco Brands Group
The Genesco Brands Group segment accounted for 6% of our net sales in Fiscal 2024. Genesco Brands Group designs and sources licensed footwear under the Company offersLevi's, Dockers and G.H. Bassbrand names, among others. The Levi's brand license and the TraskG.H. Bass brand license were entered into concurrently with men'sthe Togast acquisition. We design and women'ssource Levi's branded footwear and leather accessories offered primarilymarket it to men, women and children through better independentdepartment and specialty stores and off-price retailers and department stores, anacross the country as well as e-commerce website and catalog.retailers. Suggested retail prices for TraskLevi's footwear generally range from $195$35 to $495.
Manufacturing and Sourcing
We rely on independent third-party manufacturers for production of itsour footwear products sold at wholesale. The Company sourcesJohnston & Murphy Group and Genesco Brands Group. We source footwear and accessory products from foreign manufacturers located in Bangladesh, Brazil, Canada, China, Dominican Republic, El Salvador, France, Germany, Hong Kong, India, Indonesia, Italy, Mexico, Pakistan, Portugal, Peru, Romania, Taiwan, TunisiaSpain, Turkey and Vietnam. The Company’s retail operationsOur Journeys Group and Schuh Group businesses sell primarily branded products from third parties who source primarily overseas.
Competition
Competition is intense in the footwear, headwear, sports apparel and accessory industries. The Company’sOur retail footwear, headwear, sports apparel and accessory competitors range from small, locally owned stores to regional and national department stores, discount stores, specialty chains, our vendors with their own direct-to-consumer channels and online retailers. The CompanyWe also competescompete with hundreds of footwear wholesale operations
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in the United States and throughout the world, most of which are relatively small, specialized operations, but some of which are large, more diversified companies. Some of the Company’sour competitors have resources that are not available to the Company. The Company’sus. Our success depends upon itsour ability to remain competitive with respect to the key factors of style, price, quality, comfort, brand loyalty, customer service, store location and atmosphere, technology, infrastructure and speed of delivery to support e-commerce and the ability to offer distinctiverelevant products.
Licenses
We own our Johnston & Murphy
® brand andWholesale Backlog
Most of the orders in the Company’sour wholesale divisions are for delivery within 150 days. BecauseHistorically, most of the Company’sour business ishas been at-once, and as a result, the backlog at any one time ishas not necessarily been indicative of future sales. As of February 25, 2017, the Company’sMarch 2, 2024, our wholesale operations had a backlog of orders, including unconfirmed customer purchase orders, amounting to approximately $34.9$49.0 million, compared to approximately $32.8$72.7 million onas of February 27, 2016.25, 2023. The decline is primarily due to the planned decline in value channel orders for the Genesco Brands Group business driven by the Levi's license. The backlog is somewhat seasonal, reaching a peak in the spring.Spring.
Environmental, Social and Governance ("ESG") Initiatives
As a leading retailer and wholesaler of branded footwear, apparel and accessories, we strive to make a positive impact on our industry, our communities and our planet by committing to transparent, socially conscious, and sustainable business practices. We believe that our ESG practices should serve all of our stakeholders, including shareholders, employees, customers and business partners.
During Fiscal 2024, we completed our second measurements or baselines for our greenhouse gas emissions. We issued our initial corporate sustainability report in Fiscal 2023 and have followed up with subsequent ESG infographic updates, all of which can be found at www.genesco.com. Our website address is provided as an inactive textual reference only. The Company maintains in-stock programsinformation provided on our website is not a part of this report, and therefore is not incorporated herein by reference.
Environmental
We are committed to reducing our impact on the environment by focusing on sustainability initiatives in our operations and throughout our supply chain and product lifecycle. To this end, in Fiscal 2022, we joined the Leather Working Group ("LWG"). The LWG is a not-for-profit organization responsible for selected product linesthe world's leading environmental certification for the leather
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manufacturing industry. As a member of the LWG, we apply holistic practices in the supply chain for leather manufacturing for our third-party manufacturers.
We also monitor chemicals and substances in our supply chain for compliance with anticipated high volume sales.
Human Capital
Our Employees
We had approximately 27,20018,000 employees at January 28, 2017,as of February 3, 2024 with approximately 150 of whom were14,000 employed in corporate staff departmentsthe United States and Canada, and approximately 4,000 in the U.K. and the balance in operations. Retail stores employROI. The majority of our workforce consists of retail-based, customer-facing employees with approximately 70% part-time and 30% full-time as of February 3, 2024.
We consider our employees to be core to our success. Our values include treating our customers and each other with integrity, trust and respect, and creating an unrivaled home for talent to grow and succeed.
Workplace Health & Safety
We conduct health and safety training with our retail and distribution employees to build knowledge and awareness of workplace conditions and hazards according to local, regional and national standards.
Benefits and Compensation
We offer a substantial numbercomprehensive benefits package designed to meet the diverse needs of part-timeour employees and approximately 19,775their families. This package includes many benefits dedicated to our employees’ physical and mental health and well-being as well as benefits designed to help employees build wealth and prepare for the future.
We also provide valuable benefits and protections based on the unique needs and interests of each individual employee such as domestic partner benefits, parental leave, adoption benefits, family building benefits, paid time for community service, financial assistance with emergencies, scholarship opportunities, matching gift contributions and a generous product discount.
Our compensation programs are designed to attract, retain and motivate employees. We provide short-term and long-term incentives to encourage and reward superior performance and also drive long-term shareholder value. We engage a nationally recognized outside compensation consulting firm to independently evaluate the effectiveness of our executive compensation programs and to provide benchmarking against our peers within the industry.
Diversity, Equity and Inclusion
We are committed to our diversity, equity, and inclusion ("DEI") efforts to continually strengthen our talent and to make a meaningful difference for our employees, our customers, and our communities.
We have enhanced our commitment to DEI by building on our solid foundation. Through our DEI Council and defined vision, we are focusing our attention on areas where we can make the most impact – our talent, our business practices and our communities. We have identified opportunities that will advance our DEI efforts across our portfolio of brands, including expanded training and development programs, pay equity studies, the launch of Business Resource Groups and ongoing engagement through communication and events.
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Employee Engagement
We conduct annual employee engagement surveys as well as other targeted surveys with various segments of our workforce to measure important aspects of the Company’semployee experience. The survey measures employee sentiment on a variety of topics including leadership, management, alignment, involvement, respect in the workplace, learning and development, social connection and work life balance, among others. The survey creates the opportunity to establish two-way communication and gives employees were part-time ata direct voice in influencing change. Our results indicate high participation rates and strong engagement scores. We remain committed to listening to and learning from our employees.
Training and Development
We provide employees with the opportunity to grow their careers and be rewarded for their contributions. We have a strong promote from within culture and target training and development that is relevant to an employee’s current role as well as future roles to which they aspire.
Social Capital
We are committed to responsible sourcing practices in our supply chain. We depend on third-party vendors to produce the products we sell but strive to work only with those vendors who share our commitment to responsible practices, especially in their relationships with employees and their stewardship of the environment. Our supply chain and ethical practices policies are among the ways we seek to implement this commitment. During Fiscal 2024, we published our inaugural Vendor Code of Conduct policy.
In 2021, we published a comprehensive human rights policy with its commitment to respecting human rights and belief in fundamental standards that support our commitment to treat our employees, customers and business partners with integrity, trust and respect. Our human rights policy addresses our internal business ethics and code of conduct policies and principles embedded in our business operations, and is guided by the United Nations Guiding Principles on Business and Human Rights, the UN Universal Declaration of Human Rights, and the Organization for Economic Cooperation and Development (OECD) Guidelines for Multi National Enterprises.
Information Security and Cybersecurity
As part of our retail and wholesale activities, marketing campaigns, customer relationship efforts and use of some third-party partners, we may handle and process certain non-public personal information that customers provide to purchase products, enroll in promotional or marketing programs, register on websites, or otherwise communicate to us in the course of providing support. This may include phone numbers, email addresses, physical addresses, contact preferences, personal information stored on electronic devices, and certain payment related information, including credit and debit card data. We have removed the transmission, processing, and storage of credit card data from our environment in North America through the use of hardware based end-to-end encryption along with tokenization.
We gather and retain information about our employees only as necessary to fulfill our responsibilities as an employer. We may share information about such persons with benefit and/or employee services vendors that assist with certain aspects of our human resources offering.
We maintain controls and safeguards to mitigate the risks to our systems and to protect this information and have made significant investments to improve our information security and privacy posture and keep pace with the ever changing and evolving risks to our systems and our information. For example, we have implemented hardware based end-to-end encryption with tokenization, multi-factor authentication protocols, next generation firewalls, comprehensive cloud email security and endpoint protection,
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detection, and response software, conducted continuous risk assessments, and established data security breach preparedness and response plans. We also promote security awareness with our employees and require all endpoint users to successfully complete our annual security awareness training.
In addition to information security, we must comply with increasingly complex and demanding regulatory standards enacted to protect the privacy of business and personal data in the United States, Europe and other jurisdictions. For example, the European Union adopted the General Data Protection Regulation (the “GDPR”), which went into effect on May 25, 2018; and California enacted the California Consumer Privacy Act (the "CCPA") which went into effect on January 28, 2017.
We have implemented processes and systems to allow for the expedient response and resolution of data subject access requests in accordance with existing privacy laws and regulations that are applicable to our business, including GDPR and CCPA.
Community
Building better communities is part of our everyday values. Our community outreach initiatives support underserved communities including our unique signature community outreach programs Cold Feet, Warm Shoes, the Make a Difference Charity Golf Tournament benefitting United Way, Journeys' Attitude That Cares and Schuh’s Purpose Pillar program. In addition, the Company and our employees engage through community sponsorship and leadership, including actively supporting Nashville’s Pride Month and the Nashville Pride Parade, Can’d Aid and the United Way of Greater Nashville’s annual campaign, among other initiatives.
Governance
We have corporate governance mechanisms in place, along with internal controls over our financial reporting framework. We also have Enterprise Risk Management and Ethics and Compliance program frameworks, with annual updates provided to committees of our board of directors ("Board of Directors" or "Board") and our Board. To drive our ESG efforts, we have established an ESG/sustainability management and oversight framework under the direction of our Senior Vice President, Corporate Secretary and General Counsel. A subcommittee of the Nominating and Governance Committee of our Board oversees our ESG efforts.
Our commitment to diversity and inclusion is reflected in our Board, which is comprised of 67% of members who are diverse in either gender and/or ethnicity as of February 3, 2024. We are committed to efforts to expand our Board’s diversity.
Seasonality
Our business is seasonal with the Company'sour investment in inventory and accounts receivableworking capital normally reaching peaks in the spring and fall of each year and a significant portion of the Company'sour net sales and operating earningsincome generated during the fourth quarter.
Environmental Matters
Our former manufacturing operations and the sites of those operations as well as the sites of itsour current operations are subject to numerous federal, state, and local laws and regulations relating to human health and safety and the environment. These laws and regulations address and regulate, among other matters, wastewater discharge, air quality and the generation, handling, storage, treatment, disposal, and transportation of solid and hazardous wastes and releases of hazardous substances into the environment. In addition, third parties and governmental agencies in some cases have the power under such laws and regulations to require
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remediation of environmental conditions and, in the case of governmental agencies, to impose fines and penalties. Several of the facilities owned by the Companyus (currently or in the past) are located in industrial areas and have historically been used for extensive periods for industrial operations such as tanning, dyeing, and manufacturing. Some of these operations used materials and generated wastes that would be considered regulated substances under current environmental laws and regulations. The CompanyWe are currently is involved in certain administrative and judicial environmental proceedings relating to the Company’sour former facilities. See Item 3, "Legal Proceedings" and Note 1315 to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data".
Available Information
We file reports with the Securities and Exchange Commission (“SEC”), including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and other reports from time to time. We are an electronic filer and the SEC maintains an internet site at http://www.sec.gov that contains the reports, proxy and information statements, and other information filed electronically. Our website address, which is provided as an inactive textual reference only, is http://www.genesco.com. We make available free of charge through the website Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Copies of the charters of each of our Audit Committee, Compensation Committee, Nominating and Governance Committee as well as our Corporate Governance Guidelines and Code of Ethics along with position descriptions for our Board of Directors and Board committees are also available free of charge through the website. The information provided on our website is not part of this Annual Report on Form 10-K and is therefore not incorporated by reference unless such information is otherwise specifically incorporated elsewhere in this Annual Report on Form 10-K.
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ITEM 1A,1A. RISK FACTORS
Our business is subject to significant risks.a variety of risks which might have material impact. You should carefully consider the risks and uncertainties described below and the other information in this Annual Report on Form 10-K, including our Consolidated Financial Statements and the notes to those statements. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we do not presently know about or that we currently consider immaterial may also affect our business operations and financial performance. If any of the events described below actually occur, our business, financial condition, cash flows or results of operations could be adversely affected in a material way. This could cause the trading price of our stock to decline, perhaps significantly, and you may lose part or all of your investment.
Competitive, Demand-Related and Reputational Risks
Consumer spending is affected by poor and/or volatile economic conditions and other factors can affect consumer spending and may significantly harm our business, affecting our financial condition, liquidity, and results of operations.
The success of our business depends to a significant extent upon the level of consumer spending in general and on our product category.categories. A number of factors may affect the level of consumer spending on merchandise that we offer, including, among other things:
Adverse economic conditions and any related decrease in consumer demand for discretionary items could have a material adverse effect on our business, results of operations and financial condition. The merchandise we sell generally consists of discretionary items. Reduced consumer confidence and spending may result in reduced demand for discretionary items and may force us to take inventory markdowns, decreasing sales and making expense leverage difficult to achieve. In addition, inflationary cost pressure on the products we sell might limit our ability to pass on cost increases resulting in gross margin impact or reduced demand. Demand can also be influenced by other factors beyond our control. For example, sales in the Lids Sports Group segment have historically been affected by developments in team sports, and could be adversely impacted by player strikes or other interruptions, as well as by the performance and reputation of certain teams and players.
Moreover, while the Company believeswe believe that itsour operating cash flows and its borrowing capacity under committed lines of credit will be more than adequate for itsour anticipated cash requirements, if the economy were to experience a renewed downturn, or if one or more of the Company’sour revolving credit banks were to fail to honor its commitments under the Company’sour credit lines the Companyor if we were unable to draw on our credit lines for any reason, we could be required to modify itsour operations for decreased cash flow or to seek alternative sources of liquidity, and such alternative sources might not be available to the Company.
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A failure to increase sales at our existing stores, given our high fixed expense cost structure, and in our e-commerce businesses or an inability to reduce costs may adversely affect our results of operations which adversely impacts our stock price.
A number of factors have historically affected, and will continue to affect, our comparable sales results and gross margin, including:
Our comparable sales have fluctuated in the past, including the composition of our comparable sales between store and digital, and we believe such fluctuations may continue. The unpredictability of our comparable sales may cause our revenue and results of operations to vary from quarter to quarter, and an unanticipated change in revenues or operating income may cause our stock price to fluctuate significantly.
Failure to protect our reputation could have a material adverse effect on our brand names.
Our success depends in part on the value and strength of the names of our business units. These names are integral to our businesses as well as to the implementation of our strategies for expanding our businesses. Maintaining, promoting, and positioning our brands will depend largely on the success of our marketing and merchandising efforts and our ability to provide high quality merchandise and a consistent, high quality customer experience. Our brands could be adversely affected if we fail to achieve these objectives or if our public image or reputation were to be tarnished by negative publicity or if adverse information concerning us is posted on social media platforms or similar mediums. Failure to comply, or accusation of failure to comply, with ethical, social, health, product, labor, data privacy, and environmental standards could also jeopardize our reputation and potentially lead to various adverse consumer and employee actions. Any of these events could result in decreased revenue or otherwise adversely affect our business.
Our business involves a degree of risk related to fashion risk.
The majority of our businesses serve a fashion-conscious customer base and depend upon the ability of our buyers and merchandisers to react to fashion trends, to purchase inventory that reflects such trends, and to manage our inventories appropriately in view of the potential for sudden changes in fashion, consumer taste, or other drivers of demand, including the performance and popularity of individual sports teams and athletes.demand. Failure to execute any of these activities successfully could result in adverse consequences, including lower sales, product margins, operating income and cash flows.
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Our business and results of operations are subject to a broad range of uncertainties arising out of world and domestic events.
The industry in which we operate. These uncertainties may include a global economic slowdown, changes inoperate is subject to rapidly changing consumer
In assessing our response to a varietyanticipated changing consumer preferences and trends, we frequently must make decisions about product designs and marketing expenditures months in advance of factors, including but not limited to national security and anti-terrorism concerns and concerns about climate change. Any future events arising asthe time when actual consumer acceptance can be determined. As a result, we may not be successful in responding to shifting consumer preferences and trends with new products. If we fail to identify and interpret changing consumer preferences and trends, or are not successful in responding to these changes with the timely development or sourcing of terrorist activityproducts, we could experience excess inventories and higher than normal markdowns, returns, order cancellations or other world events mayan inability to profitably sell our products.
Our failure to appropriately address emerging environmental, social and governance matters could have a material adverse impact on our reputation and, as a result, our business.
There is an increased focus from investors, customers, employees, business includingpartners and other stakeholders concerning ESG matters. The expectations related to ESG matters are rapidly evolving, and from time to time, we have announced and will announce certain ESG initiatives and goals. Our ESG efforts may not be perceived to be effective or we could be criticized for the demand forscope of such initiatives or goals. In addition, we could fail to timely meet or accurately report our progress on such initiatives and goals. As a result, we could suffer negative publicity and our reputation could be adversely impacted, which in turn could have a negative impact on investor perception and our products' acceptance by consumers. This may also impact our ability to sourceattract and retain talent to compete in the marketplace.
There is also uncertainty in the markets in which we operate regarding potential policies related to issues surrounding global environmental sustainability. Changes in the legal or regulatory environment affecting responsible sourcing, supply chain transparency, or environmental protection, among others, including regulations to limit carbon dioxide and other greenhouse gas emissions, to discourage the use of plastic or to limit or to impose additional costs on commercial water use may result in increased compliance costs for us and our business partners.
Our results may be adversely affected by declines in consumer traffic in malls.
The majority of our stores are located within shopping malls and depend to varying degrees on consumer traffic in the malls to generate sales. Declines in mall traffic, whether caused by a shift in consumer shopping preferences or by other factors, may negatively impact our ability to maintain or grow our sales in existing stores, which could have an adverse effect on our financial condition or results of operations.
Our results of operations are subject to seasonal and quarterly fluctuations.
Our business is seasonal, with a significant portion of our net sales and operating income generated during the fourth quarter, which includes the holiday shopping season. Because of this seasonality, we have limited ability to compensate for shortfalls in fourth quarter sales or earnings by changes in our operations or strategies in other quarters. Adverse events outside of our control, such as supply chain interruptions, including shipping disruptions in the Red Sea, increased labor costs and labor availability, decreased consumer traffic or deteriorating economic conditions could result in lower than expected sales during the holiday shopping season or other periods in which we typically experience higher net sales, which could materially adversely impact our
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financial condition and results of operations. Our quarterly results of operations also may fluctuate significantly based on other factors such as:
Changes in the retail industry could have a material adverse effect on our business or financial condition.
In recent years, the retail industry has experienced consolidation, store closures, bankruptcies and other ownership changes. In the future, retailers in the U.S. and in foreign markets may further consolidate, undergo restructurings or reorganizations, or realign their affiliations, any of which could decrease the number of stores that carry our products or our licensees’ products or increase the ownership concentration within the retail industry. Changing shopping patterns, including the rapid expansion of online retail shopping, have adversely affected customer traffic in mall and consequentlyoutlet centers. We expect competition in the e-commerce market will continue to intensify. Growth in e-commerce could result in financial difficulties, including store closures, bankruptcies or liquidations for our brick-and-mortar stores and those of our wholesale customers who fail to compete effectively in the e-commerce market. We cannot control the success of individual malls, and an increase in store closures by other retailers may lead to reduced foot traffic, mall vacancies and mall bankruptcies. A continuation or worsening of these trends could cause financial difficulties for one or more of our segments, which, in turn, could substantially increase our credit risk and have a material adverse effect on our results of operations, financial condition and financial condition.
Our performance dependsfuture success will be determined, in part, on general economic conditions affecting all countries in which we do business. The British decisionour ability to exitmanage the European Union could impact consumer demand, currency rates and supply chain. We are dependent on foreign manufacturers for the products we sell, and our inventory is subject to cost and availability of foreign materials and labor. In addition to the other risks disclosed herein, demand for our product offering in our non-U.S. operations is also subject to local market conditions. As a result, there can be no assurance that Schuh's or our Canadian operations' future performance will not be adversely affected by economic conditions in their markets.
Our business is intensely competitive and increased or new competition could have a material adverse effect on us.
The retail footwear headwear, sports apparel and accessory markets are intensely competitive. We currently compete against a diverse group of retailers, including other regional and national specialty stores, department and discount stores, small independents and e-commerce retailers, as well as our own vendors who are increasingly selling direct-to-consumers, which sell products similar to and often identical to those we sell. Our branded businesses, selling footwear at wholesale, also face intense competition, both from other branded wholesale vendors and from private label initiatives of their retailer customers. A number of different competitive factors could have a material adverse effect on our business, results of operations and financial condition, including:
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Investments and Infrastructure Risks
We face a number of social mediarisks in opening new stores and renewing leases on existing stores.
We may adversely impactopen new stores, both in regional malls, where most of the operational experience of our reputation or subject us to fines orU.S. businesses lies, and in other penalties.
Additionally, the results we expect to achieve during each fiscal quarter are dependent upon opening new stores and renewing leases on existing stores on schedule and at expected costs. If we fall behind in our new store openings, we will lose expected sales and earnings between the planned opening date and the collectionactual opening and retentionmay further complicate the logistics of customer data and employee information. We also rely on third parties to process credit card transactions, perform online e-commerce and social media activities and retain data relating to the Company’s financial position and results of operations, strategic initiativesopening stores, possibly resulting in additional delays, seasonally inappropriate product assortments, and other important information. Despite the
Any acquisitions we make or new businesses we launch, as well as any dispositions of assets or businesses, involve a degree of risk.
Acquisitions have been a component of the Company’sour growth strategy in recent years, and we expect that we may continue to engage in acquisitions or launch new businesses to grow our revenues and meet our other strategic objectives. If any future acquisitions are not successfully integrated with our business, our ongoing operations could be adversely affected. Additionally, acquisitions or new businesses may not achieve desired profitability objectives or result in any anticipated successful expansion of the businesses or concepts, causing lower than expected earnings and cash flow and potentially requiring impairment of goodwill and other intangibles. Although we review and analyze assets or companies we acquire, such reviews are subject to uncertainties and may not reveal all potential risks. Additionally, although we attempt to obtain protective contractual provisions, such as representations, warranties and indemnities, in connection with acquisitions, we cannot offer assurance that we can obtain such provisions in our acquisitions or that they will fully protect us from unforeseen costs of, or liabilities associated with, the acquisitions. We may also incur significant costs and diversion of management time and attention in connection with pursuing possible acquisitions even if the acquisition is not ultimately consummated.
Additionally, we have in the past and may decide toin the future divest assets or businesses that are no longer material to our core business.businesses. Following any such divestitures, we may retain or incur liabilities or costs relating to our previous ownership of the assets or business that we sell. Any required payments on retained liabilities or indemnification obligations with respect to past or future asset or business divestitures could have a material adverse effect on our business or results of operations. Dispositions may also involve our continued financial involvement in the divested business, such as through transition services agreements and guarantees. Under these arrangements,
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performance by the divested businesses or conditions outside our control could adversely affect our business and results of operations.
Further, acquisitions and dispositions are often structured such that the purchase price paid or received by us, as applicable, is subject to post-closing adjustments, whether as a result of net working capital adjustments, contingent payments (i.e.,
Goodwill recorded with acquisitions is subject to open new stores, both in regional malls,impairment which could reduce the Company'sprofitability.
In connection with acquisitions, we record goodwill on our Consolidated Balance Sheets. This asset is not amortized but is subject to an impairment test at least annually, where mostwe have the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill is impaired. If after such assessment we conclude that the asset is impaired, we are required to determine the fair value of the operational experienceasset using a quantitative impairment test that is based on projected future cash flows from the acquired business discounted at a rate commensurate with the risk we consider to be inherent in our current business model. We perform the impairment test annually at the beginning of our U.S.fourth quarter, or more frequently if events or circumstances indicate that the value of the asset might be impaired.
Deterioration in our equity market value, whether related to our operating performance or to disruptions in the equity markets or deterioration in the operating performance of the business unit with which goodwill is associated could cause us to recognize the impairment of some or all of the $9.6 million of goodwill on our Consolidated Balance Sheets at February 3, 2024, resulting in the reduction of net assets and a corresponding non-cash charge to earnings in the amount of the impairment.
Technology, Data Security and Privacy Risks
The operation of our business is heavily dependent on our information systems.
We depend on a variety of information technology systems for the efficient functioning of our business (including multiple e-commerce websites) and security of information. Much information essential to our business is maintained electronically, including competitively sensitive information and potentially sensitive personal information about customers and employees.
Despite our preventative efforts, our IT systems and websites may from time to time be vulnerable to damage or interruption from events such as difficulties in replacing or integrating the systems of acquired businesses, lies,computer viruses, security breaches and power outages.
Our insurance policies may not provide coverage for security breaches and similar incidents or may have coverage limits which may not be adequate to reimburse us for losses caused by security breaches. We also rely on certain hardware and software vendors, including cloud-service providers, to maintain and periodically upgrade many of these systems so that they can continue to support our business. The software programs supporting many of our systems are licensed to us by independent software companies. The inability of our employees and developers or our inability to continue to maintain and upgrade these information systems and software programs could disrupt or reduce the efficiency of our operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations or leave us vulnerable to security breaches.
We also rely heavily on our information technology staff. If we cannot meet our staffing needs in other venues including outlet centers, major city street locations, airports and tourist destinations. We cannot offer assurances thatthis area, we willmay not be able to openfulfill our technology initiatives or to provide maintenance on existing systems.
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We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability and potentially disrupt our business.
As a retailer who accepts payments using a variety of methods, including installment payment methods, PayPal, and gift cards, we are subject to rules, regulations, contractual obligations and compliance requirements, including payment network rules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers. The regulatory environment related to information security and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs or accelerate these costs with additional legal and financial exposure for noncompliance. For these payment methods, we pay interchange and other fees, which can increase over time and raise our operating costs. We rely on third parties to provide payment processing services. If these companies become unable to provide these services to us, or if their systems are compromised, it could disrupt our business.
The payment methods that we offer also subject us to potential fraud and theft by persons who seek to obtain unauthorized access to or exploit any weaknesses that may exist in the payment systems. We completed the implementation of Europay, Mastercard and Visa ("EMV") technology and received certification in Fiscal 2018; however future upgrades to our Company's systems could expose us to the fraudulent use of credit cards and increased costs, including possible fines and restrictions on our Company's ability to accept payments by credit or debit cards, if we were not to receive recertification. Because we accept debit and credit cards for payment, we are also subject to industry data protection standards and protocols, such as many stores asthe Payment Card Industry Data Security Standards (“PCI DSS”), issued by the Payment Card Industry Security Standards Council. Additionally, we have planned, that any new store will achieve similar operating resultsimplemented technology in our stores to thoseallow for the acceptance of EMV credit transactions and point-to-point encryption. Complying with PCI DSS standards and implementing related procedures, technology and information security measures require significant resources and ongoing attention. However, even if we comply with PCI DSS standards and offer EMV and point-to-point encryption technology in our stores, we may be vulnerable to, and unable to detect and appropriately respond to, data security breaches and data loss, including cybersecurity attacks or other breach of cardholder data.
In addition, the Payment Card Industry (“PCI”) is controlled by a limited number of vendors who have the ability to impose changes in the PCI’s fee structure and operational requirements on us without negotiation. Such changes in fees and operational requirements may result in our failure to comply with PCI DSS, and cause us to incur significant unanticipated expenses.
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A privacy breach, through a cybersecurity incident or otherwise, or failure to comply with privacy laws could materially adversely affect our business.
As part of normal operations, we and our third-party vendors and partners, receive and maintain confidential and personally identifiable information (“PII”) about our customers and employees, and confidential financial, intellectual property, and other information. We regard the protection of our existing storescustomer, employee, and company information as critical. The regulatory environment surrounding information security and privacy is very demanding, with the frequent imposition of new and changing requirements some of which involve significant costs to implement and significant penalties if not followed properly. Despite our efforts and technology to secure our computer network and systems, a cybersecurity breach, whether targeted, random, or inadvertent, and whether at the hands of cyber criminals, hackers, rogue employees or other persons, may occur and could go undetected for a period of time, resulting in a material disruption of our computer network, a loss of information valuable to our business, including without limitation customer or employee PII, and/or theft. A similar cybersecurity breach to the computer networks and systems of our third-party vendors and partners, including those that new stores opened in markets inare cloud-based, over which we operate willhave no control, may occur, and could lead to a material disruption of our computer network and/or the areas of our business that are dependent on the support, services and other products provided by our third-party vendors and partners. Our computer networks and our business may be adversely affected by such a breach of our third-party vendors and partners, which could result in a decrease in our e-commerce sales and/or a loss of information valuable to our business, including, without limitation, PII of customers or employees. Such a cyber-incident could result in any of the following:
Any of the above risks, individually or in aggregate, could materially damage our reputation and result in lost sales, governmental and payment card industry fines, and/or class action and other lawsuits. Although we carry cybersecurity insurance, in the event of a cyber-incident, that insurance may not be extensive enough or adequate in scope of coverage or amount to reimburse us for damages we may incur. Further, a significant breach of federal, state, provincial, local or international privacy laws could have a material adverse effect on our reputation.
Data protection requirements are constantly evolving and these requirements could adversely affect our business and operating results.
We have access to collect or maintain information about our customers, and the revenuesprotection of that data is critical to our business. The regulatory environment surrounding information security and profitabilityprivacy continues to evolve and new laws are increasingly giving customers the right to control how their personal data is used. One such law is the European Union's General Data Protection Regulation ("GDPR"). Our failure to comply with the obligations of our existing stores. The success of our planned expansion will be dependent upon numerous factors, many of which are beyond our control,GDPR and similar U.S. federal and state laws, including the following:
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The utilization, expansion and management of machine learning and other types of artificial intelligence in our stock.
We have been increasing our utilization of machine learning and other types of artificial intelligence (collectively, “AI”) in our business and we anticipate that as technology advances, we may expand our application of AI, including generative AI. AI may become more important to our operations over time as we increase reliance on AI throughout our operations and administration. The rapid evolution of AI technology and potential regulation of AI may require that we expend significant resources to develop, test and maintain our implementation of AI. Our business is seasonal, with a significant portion ofcompetitors may incorporate AI into their businesses faster or more successfully than us, which could impair our net sales and operating income generated during the fourth quarter, which includes the holiday shopping season. Because of this seasonality, we have limited ability to compensate for shortfallscompete effectively and adversely affect our results of operations. Additionally, if the information generated through our use of AI is or is deemed to be deficient, inaccurate or biased, our business, financial condition, and results of operations may be adversely affected.
Operational, Supply Chain and Third-Party Risks
Increased operating costs, including wage increases resulting from potential increases in fourth quarter salesthe minimum wage or earnings bycompetitive pressures, could have an adverse effect on our results.
Increased operating costs, including wage increases resulting from potential increases in the minimum wage or wage increases reflecting competition in relevant labor markets, store occupancy costs, distribution center costs and other expense items, including healthcare costs, may reduce our operating margin, and make it more difficult to identify new store locations that we believe will meet our investment return requirements. In addition, other employment and healthcare law changes may increase the cost of provided retirement and healthcare benefits expenses. Increases in our operations or strategies in other quarters. A significant shortfall in results for the fourth quarter of any yearoverall employment costs could have a material adverse effect on our annualthe Company’s business, results of operations and on the market price of our stock. Our quarterly results of operations also may fluctuate significantly based on such factors as:
If we lose key members of management or are unable to attract and retain the talent required for our business, our operating results could suffer.
Our performance depends largely on the efforts and abilities of members of our management team. Our executives have substantial experience and expertise in our business and have made significant contributions to our growth and success. The unexpected future loss of services of one or more key members of our management team could have an adverse effect on our business. In addition, future performance will depend upon our ability to attract, retain and motivate qualified employees, including store personnel and field management. If we are unable to do so, our ability to meet our operating goals may be compromised. Finally, our stores are decentralized, are managed through a network of geographically dispersed management personnel and historically experience a high degree of turnover. If we are for any reason unable to maintain appropriate controls on store operations due to turnover or other reasons, including the ability to control losses resulting from inventory and cash shrinkage, our sales and operating margins may be adversely affected. There can be no assurance that we will be able to attract and retain the personnel we need in the future.
The loss of, or disruption in, one of our distribution centers and other factors affecting the distribution of merchandise, including freight cost, could materially adversely affect our business.
Each of our divisions uses a single distribution center to handle all or a significant amount of its merchandise. Most of our operations’ inventory is shipped directly from suppliers to our operations' distribution centers, where the inventory is then processed, sorted and shipped to our stores, to our wholesale customers or to our e-commerce customers. We depend on the orderly operation of this receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective management of the distribution centers. Although we believe that our receiving and distribution processes are efficient and well positioned to support our current business and potential expansions, we cannot offer assurance that we have anticipated all of the changing demands that our expanding operations, particularly our e-commerce operations, will impose on our receiving and distribution system, or that events beyond our control, such as disruptions in operations due to fire or other catastrophic
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events, labor disagreements or shortages or shipping problems (whether in our own or in our third party vendors’ or carriers’ businesses), will not result in delays in the delivery of merchandise to our stores or to our wholesale customers or e-commerce/retail customers. In addition, to the extent we need to add capacity to distribution centers by either leasing or building new distribution centers or adding capacity at existing centers or make changes in our distribution processes to improve efficiency and maximize capacity, we cannot assure that these changes will not result in unanticipated delays or interruptions in distribution. We depend upon third-parties for shipment of a significant amount of merchandise. Interruptions in the services provided by third-parties may occasionally result from damage or destruction to our distribution centers; weather-related events; natural disasters; pandemics; trade policy changes or restrictions; tariffs or import-related taxes; third-party labor disruptions; shipping capacity constraints; third-party contract disputes; military conflicts; acts of terrorism; or other factors beyond our control. An interruption in service by third-parties for any reason could cause temporary disruptions in our business, a loss of sales and profits, and other material adverse effects.
Our freight costs are impacted by changes in fuel prices, surcharges and other factors which can affect cost both on inbound freight from vendors to our distribution centers and outbound freight from our distribution centers to our stores and customers. Increases in freight costs, including in connection with increased fuel prices, may increase our cost of goods sold and our selling and administrative expenses.
An increase in the cost or a disruption in the flow of our imported products could adversely affect our business.
Merchandise originally manufactured and imported from overseas makes up a large proportion of our total inventory. A disruption in the shipping of our imported merchandise or an increase in the cost of those products may significantly decrease our sales and profits. We may be unable to meet customer demands or pass on price increases to our customers. In addition, if imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet demand. Products from alternative sources may also be of lesser quality or more expensive than those we currently import. Risks associated with our reliance on imported products include:
Some of the inventory we sell is imported from China, which has historically been subject to efforts to increase duty rates or to impose restrictions on imports of certain products.
If we or our suppliers or licensees are unable to source raw materials or finished goods from the countries where we or they wish to purchase them, either because of a regulatory change or for any other reason, or if the cost of doing so should increase, it could have a material adverse effect on our sales and earnings.
A small portion of the products we buy abroad is priced in foreign currencies and, therefore, we are affected by fluctuating currency exchange rates. We may not be able to effectively protect ourselves in the future against currency rate fluctuations.
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Even dollar-denominated foreign purchases may be affected by currency fluctuations to reflect appreciation in the local currency against the dollar in the price of the products that they provide. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information about our foreign currency exchange rate exposure and any hedging activities.
We are dependent on third-party vendors and licensors for the merchandise we sell.
We do not manufacture the merchandise we sell, and our Genesco Brands Group business is dependent on third-party licenses. Accordingly, our product supply is subject to impairmentour ability to renew our license agreements or identify new licenses and the ability and willingness of third-party suppliers to deliver merchandise we order on time and in the quantities and of the quality we need. In addition, a material portion of our retail footwear sales consists of products marketed under brands belonging to unaffiliated vendors, which have fashion significance to our customers. If those vendors were to decide not to sell to us or to limit the availability of their products to us, or if they become unable because of economic conditions, pandemics, work stoppages, labor shortages, strikes, political unrest and civil disturbances, raw materials supply disruptions, or any other reason to supply us with products, we could be unable to offer our customers the products they wish to buy and could lose their business. Additionally, manufacturers are required to remain in compliance with certain wage, labor and environment-related laws, regulations and policies. Delayed compliance or failure to comply with such laws, regulations and policies by our vendors could adversely affect our ability to obtain products generally or at favorable costs, affecting our overall ability to maintain and manage inventory levels.
The manufacture of our products and our distributing operations are subject to the risks of doing business abroad, including in China, which could affect our ability to obtain products from foreign suppliers or control the costs of our products.
We have been diversifying our sourcing base to ensure that we are not too concentrated in any single country. As we source some product in China, the possibility of adverse changes in trade or political relations with China, political instability, increases in labor costs, the occurrence of prolonged adverse weather conditions or a natural disaster such as an earthquake or typhoon, or the outbreak of COVID-19 or other infectious diseases in China could severely interfere with the manufacturing and/or shipment of our products and would have a material adverse effect on our operations. Our ability to source products from China may be adversely affected by changes in Chinese laws and regulations (or the interpretation thereof), including those relating to taxation, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters. Policy changes in China could adversely affect our interests through, among other factors: changes in laws and regulations, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises. In addition, electrical shortages, labor shortages or work stoppages may extend the production time necessary to produce our orders. There may be circumstances in the future where we may have to incur higher freight charges to expedite the delivery of product to our customers which could negatively affect our gross profit if we are unable to pass on those charges to our customers.
Legal, Regulatory, Global and Other External Risks
The impact of climate change, extreme weather, infectious disease outbreaks, and other unexpected events could result in an interruption to our business, as well as to the operations of our third-party partners, and have a material adverse impact on our business.
The operations of our retail stores, corporate offices, distribution centers, digital operations and supply chain, as well as the operations of our third-party partners, including vendors and manufacturers, are vulnerable to disruption from climate change, natural disasters, pandemics and other infectious disease outbreaks and other unexpected events. In addition to impacts on global operations, these events could result in the potential loss of customers and revenues due to mandatory or voluntary store closures, delay or cancellation of merchandise deliveries, reduced consumer confidence or changes in consumers’ discretionary spending habits.
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These events could reduce the availability or quality of the materials used to manufacture our merchandise, which could cause delays in responding to consumer demand resulting in the potential loss of customers and revenues or we may incur increased costs to meet demand and may not be able to pass all or a portion of higher costs on to our customers, which could adversely affect our gross margin and results of our operations.
In addition, historically, our operations have been seasonal, and extreme weather conditions, including natural disasters, unseasonable weather or changes in weather patterns, may diminish demand for our seasonal merchandise and could also influence consumer preferences and fashion trends, consumer traffic and shopping habits. In addition, we may incur costs that exceed our applicable insurance coverage for any necessary repairs to property damage or business disruption resulting from climate or weather conditions.
Establishing and protecting our intellectual property is critical to our business.
Our ability to remain competitive is dependent upon our continued ability to secure and protect trademarks, patents and other intellectual property rights in the U.S. and internationally for all of our businesses. We rely on a combination of trade secret, patent, trademark, copyright and other laws, license agreements and other contractual provisions and technical measures to protect our intellectual property rights; however, some countries do not protect intellectual property rights to the same extent as the U.S.
Our business could be significantly harmed if we are not able to protect our intellectual property, or if a court found us to be infringing on others’ intellectual property rights. Any future intellectual property lawsuits or threatened lawsuits in which we are involved, either as a plaintiff or as a defendant, could cost us a significant amount of time and money and distract management’s attention from operating our business. If we do not prevail on any intellectual property claims, then we may have to change our manufacturing processes, products or trade names, any of which could reduce our profitability.
Our business and results of operations are subject to a broad range of uncertainties arising out of world and domestic events.
Our business and results of operations may experience a material adverse impact due to uncertainties arising out of world and domestic events, which may impact not only consumer demand, but also our ability to obtain the Company'sprofitability.
Legislative or regulatory initiatives related to climate change could have a material adverse effect on our business.
Greenhouse gases may have an adverse effect on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disaster. Such events could have a negative effect on our business. Concern over climate change may result in new or additional legislative and regulatory requirements to reduce or mitigate the effects of climate change on the environment, which could result in future tax, transportation cost, and utility increases. These risks could have a material adverse effect on our business.
The scope of our non-U.S. operations exposes our performance to risks including foreign, political, legal and economic conditions and exchange rate fluctuations.
Our performance depends in part on general economic conditions affecting all countries in which we do business. Although the U.K. and the European Union (“E.U.”) entered into the E.U.-U.K. Trade and Cooperation Agreement on December 30, 2020, uncertainty remains about the impact on our business in the Company’s market value, whether related toU.K. and the Company’s operating performance or to disruptions in the equity markets or deterioration in the operating performance of the business unit with which goodwill is associated, could require the Company to recognize the impairment of some orROI, including impact on tariffs, shipping costs, consumer demand and currency fluctuations.
23
In addition, across all of our markets, we could be adversely impacted by changes in trade policies, labor, tax or other laws and regulations, intellectual property rights and supply chain logistics. We are also dependent on foreign manufacturers for the $271.2 million of goodwill on its Consolidated Balance Sheets at January 28, 2017, resulting in the reduction of net assetsproducts we sell, and a corresponding non-cash charge to earnings in the amount of the impairment.
As we expand our international operations, we also increase our exposure to exchange rate fluctuations. Sales from stores outside the U.S. are denominated in the currency of the country in which these operations or stores are located and changes in foreign exchange rates affect the translation of the sales and earnings of these businesses into U.S. dollars for financial reporting purposes. Additionally, inventory purchase agreements may also be denominated in the currency of the country where the vendor resides.
If the U.S. dollar strengthens relative to foreign currencies, our revenues and profits are reduced when converted into U.S. dollars and our margins may be negatively impacted by the increase in product costs. Although we typically have sought to mitigate the negative impacts of foreign currency exchange rate fluctuations through price increases and further actions to reduce costs, we may not be able to fully offset the impact, if at all.
The imposition of tariffs on our products could adversely affect our business.
Tax and trade policies, tariffs and regulations affecting trade between the United States and other countries could have a material adverse effect on our business, results of operations and liquidity. We source a significant portion of our merchandise from manufacturers located outside the U.S., including from China. Existing and potential future tariffs on certain imported products could result in an impairment testincrease in prices for those products. In addition, tariffs could also increase the costs of our U.S. suppliers, causing those suppliers to also increase the costs of their products. If we are unable to pass along increased costs to our customers, our gross margins could be adversely affected. Alternatively, tariffs may cause us to shift production to other countries, resulting in significant costs and disruption to our business.
Our ability to source our merchandise profitably or at least annually,all could be hurt if new trade restrictions are imposed, existing trade restrictions become more burdensome or disruptions occur at our suppliers or at the ports.
Trade restrictions, including increased tariffs, safeguards or quotas, on footwear, apparel and accessories could increase the cost or reduce the supply of merchandise available to us. We source footwear and accessory products from foreign manufacturers located in Brazil, Canada, China, Hong Kong, India, Italy, Mexico, Pakistan, Portugal, Peru, Spain, Turkey and Vietnam. Our retail operations, excluding Johnston & Murphy, sell primarily branded products from third parties who source primarily overseas. The investments we are making to develop our sourcing capabilities may not be successful and may, in turn, have an adverse impact on our financial position and results of operations.
There are quotas and trade restrictions on certain categories of goods and apparel from China and countries that are not subject to the World Trade Organization Agreement, which consistscould have a significant impact on our sourcing patterns in the future. In addition, political uncertainty in the United States may result in significant changes to U.S. trade policies, treaties and tariffs, including trade policies and tariffs regarding China. These developments, or the perception that any of eitherthem could occur, may have a qualitative assessmentmaterial adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade. Any of these factors could depress economic activity, restrict our sourcing from suppliers and have a reporting unit level,material adverse effect on our business, financial condition and results of operations. We cannot predict whether any of the countries in which our merchandise is currently or may be manufactured in the future will be subject to additional trade restrictions imposed by the U.S. and foreign governments, nor can we predict the likelihood, type or effect of any such restrictions. Trade restrictions, including increased tariffs or quotas, embargoes, safeguards and customs restrictions against items we source from foreign manufacturers could increase the cost, delay shipping or reduce the supply of products available to us or may require us to modify our current business practices, any of which could hurt our profitability.
24
We rely on our suppliers to manufacture and ship the products they produce for us in a two-step impairment testtimely and cost-effective manner. We also rely on the free flow of goods through open and operational ports worldwide. Labor disputes and other disruptions at various ports or at our suppliers could increase costs for us and delay our receipt of merchandise, particularly if necessary,these disputes result in work slowdowns, lockouts, strikes or other disruptions.
We are subject to regulatory proceedings and litigation and to regulatory changes that is basedcould have an adverse effect on projected futureour financial condition and results of operations.
We are party to certain lawsuits, governmental investigations, and regulatory proceedings, including the proceedings arising out of alleged environmental contamination relating to historical operations of the Company and various suits involving current operations as disclosed in Item 3, "Legal Proceedings" and Note 15 to the Consolidated Financial Statements. If these or similar matters are resolved against us, or if we incur significant costs to pursue claims against third parties, our results of operations, our cash flows, or our financial condition could be adversely affected. The costs of prosecuting or defending such lawsuits and responding to such investigations and regulatory proceedings may be substantial and their potential to distract management from day-to-day business is significant. Moreover, with retail operations in the acquired business discounted at a rate commensurate withUnited States, Puerto Rico, Canada, the riskU.K., and the Company considersROI, we are subject to be inherent in its current business model. The Company performs the impairment test annually at the beginning of its fourth quarter, or more frequently if events or circumstances indicate that the value of the asset might be impaired.
Actions of activist shareholders have caused, and could cause us in the future to incur substantial costs, divert management’s attention and resources, and have an adverse effect on our business.
Our shareholders may from time to time engage in proxy solicitations, advance shareholders proposals or otherwise attempt to affect changes or acquire control over the Company. Activist shareholder activities could adversely affect our business because responding to proxy contests and reacting to other actions by activist shareholders can be costly and time-consuming, disrupt our operations and divert the attention of management and our employees. For example, we have retained, and may in the future, retain the services of various professionals to advise us on activist shareholder matters, including legal, financial and communication advisors, the costs of which may negatively impact our future financial results. In addition, perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist shareholders initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, customers, and employees, and cause our stock price to experience periods of volatility or stagnation.
Financial Risks
Our indebtedness is subject to floating interest rates.
Borrowings under our credit facility bear interest at varying rates and expose us to interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness referred to above would increase even if the principal amount borrowed remained the same, and our net income and cash flows will correspondingly decrease. Additionally, in connection with the ICE Benchmark Administration’s announced phase-out of LIBOR, we amended our credit facility to, among other things, replace LIBOR with the Secured Overnight Financing Rate (“SOFR”), the Sterling Overnight Index Average (“SONIA”) and the Euro Interbank Offered Rate (“EURIBOR”). It is unclear, however, whether SOFR, SONIA or EURIBOR will retain market acceptance as a LIBOR replacement tool, and we may need to renegotiate our credit facility if other LIBOR alternatives are established and become more widely adopted.
25
Changes in our effective income tax rate could adversely affect our net earnings and liquidity.
A number of factors influence our effective income tax rate, including changes in several key economic assumptions,tax law, tax treaties, interpretation of existing laws, including interest rates, ratesthe Tax Cuts and Jobs Act of return2017 (the "Act"), and our ability to sustain our reporting positions on plan assets,examination. Changes in any of those factors could change our effective tax rate, which could adversely affect our net earnings and liquidity. In addition, our operations outside of the United States may cause greater volatility in our effective tax rate.
We continue to expect the United States Treasury and the Internal Revenue Service to issue regulations and other actuarial assumptions including participant mortality estimates. Changes in these factors also affectguidance that could have a material impact on our plan funding, cash flow and shareholders’ equity. In addition, the funding of our pension plan may be subject to changes caused by legislative or regulatory actions.
ITEM 1B,1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2, PROPERTIES
Cybersecurity is one of our most critical risks. For many activities important to our business, we depend on the New York State Departmentconfidentiality, integrity and availability of Environmental Conservation (“NYSDEC”)information systems and data, some of which are provided or managed by third parties. We have strategically integrated cybersecurity risk management into our broader enterprise risk management function to promote a company-wide culture of cybersecurity risk management.
Management is responsible for the day-to-day handling of risks facing the Company, entered intowhile the Board of Directors, as a consent order whereby the Company assumed responsibility for conducting a remedial investigationwhole and feasibility study (“RIFS”) and implementing an interim remedial measure (“IRM”)through its committees, oversees risk management, including cybersecurity risks. The Board has delegated certain risk management responsibilities with regardrespect to cybersecurity to the site of a knitting mill operated by a former subsidiaryAudit Committee.
On behalf of the Company from 1965Board, the Audit Committee provides oversight of our management of cybersecurity risk. The Audit Committee regularly reviews our cybersecurity risks, incidents, audits, assessments, crisis readiness, awareness activities and compliance with cybersecurity and privacy laws and regulations. Our Vice President, Information Security and Privacy jointly with our Senior Vice President, Chief Strategy and Digital Officer brief the Audit Committee quarterly, and more often, if necessary, on active and emerging cybersecurity threats and efforts to 1969. The United States Environmental Protection Agency (“EPA”), which assumed primary regulatory responsibility forstrengthen our defenses against these threats.
Our Information Security and Privacy teams reduce first and third-party risk by maintaining a proactive security posture aligned with current threats, detecting cybersecurity events and responding quickly, and building procedures to rapidly recover. These teams are managed by the site from NYSDEC, issued a Record of Decision in September 2007. The Record of Decision specified a remedy of a combination of groundwater extractionVice President, Information Security and treatment and in-situ chemical oxidation.
Internal and third-party risks are reviewed, monitored, and managed by our Cybersecurity and Privacy teams, audited by an Internal Audit team and various external experts, and tracked within an Enterprise Risk Management framework. We regularly engage third-party experts to assess the separate ground-water extractioneffectiveness of our cybersecurity programs. Biennially, an external independent consultancy team conducts an assessment of our cybersecurity program using the inputs from accepted Cybersecurity Frameworks. Targeted assessments are conducted regularly by internal and treatmentthird-party experts to ensure compliance with specific federal and state laws and regulations. We continue to participate in the VISA TIP program and AMEX STEP program around our PCI DSS compliance.
26
Our processes for identifying and managing first and third-party risks from cybersecurity threats include:
•Continuous monitoring of our systems and the usenetwork for cybersecurity events;
•Regular testing of in-situ oxidation from the remedy adopted in the Record of Decision. The amendment providesour Security Incident Response Plan, Business Continuity plans, and Disaster Recovery plans;
•Required annual security training for the continued operation and maintenance of the existing wellhead treatment systems on wells operated by the Village of Garden City, New York (the "Village"). It also requires the Companyour employees with access to perform certain ongoing monitoring, operation and maintenance activities and to reimburse EPA's future oversight cost, involving future costs to the Company estimated at $1.7 million to $2.0 million, and to reimburse EPA for approximately $1.25 million of interim oversight costs. On August 15, 2016, the Court entered a Consent Judgment implementing the remedy provided for by the amendment.
External managed security services providers and industry-leading security tools continuously monitor our systems and network for cybersecurity threats. Our cybersecurity teams evaluate the Eastern District of New York, seeking an injunction requiring the defendantsescalated threats, and if necessary, take steps to remediate contaminationcontain and recover from the site and to establish their liability for future costs that may be incurred in connection with it.
No risks from cybersecurity threats or previous cybersecurity incidents have materially affected our business strategy, results of operations, or financial condition. However, there can be no assurance that our controls and procedures in place to monitor and mitigate the Company assertedrisks of cyber threats will be sufficient and/or timely and that we will not suffer material losses or consequences in the Village Lawsuitfuture. Additionally, while we have in exchange forplace insurance coverage designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all insured losses or all types of claims that may arise.
ITEM 2. PROPERTIES
At February 3, 2024, we operated 1,341 retail footwear and accessory stores throughout the United States, Puerto Rico, Canada, the U.K. and the ROI. New shopping center store leases in the United States, Puerto Rico and Canada typically have initial terms of approximately 10 years. New store leases in the U.K. and the ROI typically have initial terms of between 10 and 15 years. We have leases with fixed base rental payments, rental payments based on a lump-sum paymentpercentage of $10.0 million by the Company. On August 25, 2016, the Village Lawsuit was dismissedretail sales over contractual amounts and others with prejudice. The costpredetermined fixed escalations of the settlement withminimum rental payments based on a defined consumer price index or percentage.
The general location, use and approximate size of our principal properties are set forth below:
Location | Owned/ | Segment | Use | Approximate | |||
Lebanon, TN | Owned | Journeys Group | Distribution warehouse and administrative offices | 563,000 | |||
Bathgate, Scotland | Owned | Schuh Group | Distribution warehouse | 244,644 | |||
Chapel Hill, TN | Owned | Genesco Brands Group | Distribution warehouse | 182,000 | |||
Fayetteville, TN | Owned | Johnston & Murphy Group | Distribution warehouse | 178,500 | |||
Fayetteville, TN | Leased | Johnston & Murphy Group | Distribution warehouse | 91,580 | |||
Deans Industrial Estate, Livingston, Scotland | Owned | Schuh Group | Distribution warehouse and administrative offices | 106,813 | |||
Northwest Business Park, Ballycoolin, Dublin | Leased | Schuh Group | Distribution warehouse and administrative offices | 49,460 | |||
Nashville, TN | Leased | Various | Corporate headquarters | 182,078 | |||
We believe that all leases of properties that are material to our operations may be renewed, or that alternative properties are available, on terms not materially less favorable to us than existing leases.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, we are subject to legal and/or administrative proceedings incidental to our business. It is the Village and the estimated costs associated with the Company's compliance with the Consent Judgment were covered by the Company's existing provision for the site. The settlement with the Village did not have, and the Company expectsopinion of management that the Consent Judgmentoutcome of pending legal and/or administrative proceedings will not have a material effect on itsour financial condition orposition and results of operations.
Further information with respect to the site willthis item may be limited to periodic monitoring and that future costs relatedfound in Note 15 to the site should not have a material effect on its financial condition or results of operations.
ITEM 4,4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 4A,4A. INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
The officers of the Company are generally elected at the first meeting of the Board of Directors following the annual meeting of shareholders and hold office until their successors have been chosen and qualified or until their earlier death, resignation or removal. The name, age and office of each of the Company’s executive officers and certain information relating to the business experience of each are set forth below:
Mimi Eckel Vaughn, 57, Board Chair,President and Chief Executive Officer.
Parag D. Desai,
Thomas A. George, 68, Senior Vice President – Finance and Chief Financial Officer.Mr. George joined the Company in December 2020 as interim senior vice president of finance and chief financial officer. He was named as permanent senior vice-president - finance and chief financial officer in October 2021. Mr. George has 40 years of experience, including 30 years as chief financial officer of public and private companies. Prior to joining Genesco, he was chief financial officer of Deckers Outdoor Corporation d/b/a Deckers Brands, a global footwear company, for nine years and prior to that was chief financial officer of Oakley, a global eyewear brand. He has served in this same capacity at companies in the technology and medical device industries.
Scott E. Becker, 56, Senior Vice President - General Counsel and Corporate Secretary. In October 2019, Mr. Becker joined the Company as senior vice president, general counsel, and corporate secretary. Prior to joining the Company, Mr. Becker served in a variety of roles with increasing responsibility for Nissan Group of North America and Latin America since 2006. Since 2009, he was a senior vice president with responsibilities for Nissan’s legal, government affairs, finance, strategy and administration.
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From 2006 to 2009, he served as Nissan’s general counsel, corporate secretary and vice president, legal and government affairs. Prior to joining Nissan, Mr. Becker served in various legal roles at Sears Holdings Corporation. Mr. Becker began his legal career with several Chicago area law firms.
Daniel E. Ewoldsen, 54, Senior Vice President. Mr. Ewoldsen is a 20-year Johnston & Murphy veteran. He joined Johnston & Murphy in 2003 as vice president store operations and was later promoted to vice president store and consumer sales in 2006. He was named executive vice president, Johnston & Murphy Retail and E-Commerce in 2013, president of Johnston & Murphy Group in February 2018 and named senior vice president of Genesco in July 2019. Prior to joining Genesco, Mr. Ewoldsen was with Wilsons Leather from 1996 to 2002 serving in roles with increasing responsibilities, including vice president of stores for the El Portal division.
Andrew I. Gray, 46, Senior Vice President. Mr. Gray joined the Company in January 2024 as senior vice president and president of the Journeys Group. Prior to joining Genesco, he served over two decades in several senior leadership positions at Foot Locker. Mr. Gray most recently served as executive vice president, global president of Foot Locker, Kids Foot Locker, Champs Sports and Sidestep, a position he held from June 2022 until his departure from the company in January 2023. Previously, Mr. Gray served as executive vice president, chief commercial officer from July 2020 to June 2022, chief merchandising officer from October 2017 to July 2020, general manager of Foot Locker and Lady Foot Locker North America from February 2016 to October 2017, and as vice president and general merchandise manager of Foot Locker Europe from July 2013 to February 2016. During his time at Foot Locker, he developed a multi-dimensional skill set spanning merchandising, general management, retail and digital, consumer insight, brand building and global leadership.
Brently G. Baxter, 58, Vice President and Chief Accounting Officer.
Matthew N. Johnson,
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PART II
ITEM 5,5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
Market Information
Our stock is listedtraded on the New York Stock Exchange (Symbol: GCO). The following table sets forth forunder the periods indicated the high and low sales prices of the common stock as shown in the New York Stock Exchange Composite Transactions listed in the Wall Street Journal.
| High | Low | ||||||
| 1st Quarter | $ | 74.74 | $ | 65.59 | |||
| 2nd Quarter | 70.47 | 61.07 | |||||
| 3rd Quarter | 65.78 | 54.03 | |||||
| 4th Quarter | 66.16 | 50.64 | |||||
| High | Low | ||||||
| 1st Quarter | $ | 72.63 | $ | 60.81 | |||
| 2nd Quarter | 69.94 | 57.23 | |||||
| 3rd Quarter | 74.21 | 47.66 | |||||
| 4th Quarter | 72.00 | 51.91 | |||||
There were approximately 2,4001,350 common shareholders of record on March 10, 2017.
We have not paid cash dividends in respectto our holders of itsour Common Stock since 1973. The Company’s1973 and we do not currently anticipate paying cash dividends in the foreseeable future. Our ability to pay cash dividends in respectto our holders of its common stock is subject to various restrictions. See Notes 6 and 8Note 10 to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Sources of Liquidity” for information regarding restrictions on dividends and redemptionsredemption of capital stock.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
ISSUER PURCHASES OF EQUITY SECURITIES |
| |||||||||||
Period | (a) Total |
| (b) Average |
| (c) Total |
| (d) Maximum |
| ||||
November 2023 |
|
|
|
|
|
|
|
| ||||
10-29-23 to 11-25-23 |
| — |
| $ | — |
|
| — |
| $ | 52,109 |
|
|
|
|
|
|
|
|
| |||||
December 2023 |
|
|
|
|
|
|
|
| ||||
11-26-23 to 12-30-23 |
| — |
| $ | — |
|
| — |
| $ | 52,109 |
|
|
|
|
|
|
|
|
| |||||
January 2024 |
|
|
|
|
|
|
|
| ||||
12-31-23 to 2-3-24 |
| — |
| $ | — |
|
| — |
| $ | 52,109 |
|
|
|
|
|
|
|
|
| |||||
Total |
| — |
| $ | — |
|
| — |
| $ | 52,109 |
|
|
|
|
|
|
|
|
|
| ||||
(1) In February 2022, a $100.0 million share repurchase program was approved by the Board of Directors and announced in February 2022, and in June 2023, the Board of Directors approved an additional $50.0 million for share repurchases. We expect to implement the balance of the repurchase program through purchases made from time to time either in the open market or through private transactions, in accordance with the regulations of the SEC and other applicable legal requirements. |
| |||||||||||
Equity Compensation Plan Information
Refer to Part III, Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" included elsewhere in this report.
ITEM 6, SELECTED6. RESERVED
30
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL DATA
| In Thousands except per common share data, Financial Statistics and Other Data (End of Year) | Fiscal Year End | ||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Results of Operations Data | |||||||||||||||||||
| Net sales | $ | 2,868,341 | $ | 3,022,234 | $ | 2,859,844 | $ | 2,624,972 | $ | 2,604,817 | |||||||||
| Depreciation and amortization | 75,768 | 79,011 | 74,326 | 67,135 | 63,697 | ||||||||||||||
| Earnings from operations | 141,960 | 151,251 | 167,266 | 163,435 | 169,863 | ||||||||||||||
| Earnings from continuing operations before income taxes | 151,414 | 151,533 | 156,989 | 158,860 | 164,832 | ||||||||||||||
| Earnings from continuing operations | 97,859 | 95,381 | 99,373 | 92,982 | 112,897 | ||||||||||||||
| Provision for discontinued operations, net | (428 | ) | (812 | ) | (1,648 | ) | (329 | ) | (462 | ) | |||||||||
| Net earnings | $ | 97,431 | $ | 94,569 | $ | 97,725 | $ | 92,653 | $ | 112,435 | |||||||||
| Per Common Share Data | |||||||||||||||||||
| Earnings from continuing operations | |||||||||||||||||||
| Basic | $ | 4.87 | $ | 4.17 | $ | 4.23 | $ | 3.99 | $ | 4.78 | |||||||||
| Diluted | 4.85 | 4.15 | 4.19 | 3.94 | 4.69 | ||||||||||||||
| Discontinued operations | |||||||||||||||||||
| Basic | (0.02 | ) | (0.04 | ) | (0.07 | ) | (0.01 | ) | (0.02 | ) | |||||||||
| Diluted | (0.02 | ) | (0.04 | ) | (0.07 | ) | (0.02 | ) | (0.01 | ) | |||||||||
| Net earnings | |||||||||||||||||||
| Basic | 4.85 | 4.13 | 4.16 | 3.98 | 4.76 | ||||||||||||||
| Diluted | 4.83 | 4.11 | 4.12 | 3.92 | 4.68 | ||||||||||||||
| Balance Sheet and Cash Flow Data | |||||||||||||||||||
| Total assets | $ | 1,448,906 | $ | 1,541,190 | $ | 1,582,890 | $ | 1,438,987 | $ | 1,325,976 | |||||||||
| Long-term debt | 82,905 | 111,765 | 28,958 | 33,433 | 50,586 | ||||||||||||||
| Non-redeemable preferred stock | 1,060 | 1,077 | 1,274 | 1,305 | 3,924 | ||||||||||||||
| Common equity | 919,993 | 954,079 | 995,533 | 914,885 | 817,936 | ||||||||||||||
| Capital expenditures | 93,970 | 100,652 | 103,111 | 98,456 | 71,737 | ||||||||||||||
| Financial Statistics | |||||||||||||||||||
| Earnings from operations as a percent of net sales | 4.9 | % | 5.0 | % | 5.8 | % | 6.2 | % | 6.5 | % | |||||||||
| Book value per share (common equity divided by common shares outstanding) | $ | 46.31 | $ | 43.70 | $ | 41.43 | $ | 38.25 | $ | 34.09 | |||||||||
| Working capital (in thousands) | $ | 428,781 | $ | 476,469 | $ | 441,742 | $ | 451,297 | $ | 407,073 | |||||||||
| Current ratio | 2.4 | 2.5 | 2.1 | 2.5 | 2.5 | ||||||||||||||
| Percent long-term debt to total capitalization | 8.2 | % | 10.5 | % | 2.8 | % | 3.5 | % | 5.8 | % | |||||||||
| Other Data (End of Year) | |||||||||||||||||||
| Number of retail outlets* | 2,794 | 2,852 | 2,824 | 2,568 | 2,459 | ||||||||||||||
| Number of employees | 27,200 | 27,500 | 27,325 | 22,250 | 22,700 | ||||||||||||||
This Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Sources of Liquidity” for a description of limitations on the Company’s ability to pay dividends.
Summary of Results of Operations
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 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 U.S. GAAP financial measures presented herein. These measures may not be comparable to similarly-titled performance indicators used by other companies.
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 Fiscal 2023,
31
as we believe that overall sales was a more meaningful metric in Fiscal 2023 due to the impact of the COVID-19 pandemic and related extended store closures that occurred in the first quarter of Fiscal 2022.
Results of Operations—Fiscal 2024 Compared to Fiscal 2023
Our net sales for Fiscal 2024 decreased 2.5% to $2.32 billion from $2.38 billion in Fiscal 2023. Included in Fiscal 2024 was a 53rd week compared to a 52-week in Fiscal 2023. Excluding the 53rd week, net sales decreased 3.6% for Fiscal 2024. The decrease in net sales was driven by decreased store sales at Journeys Group and decreased wholesale sales, partially offset by an 8% increase in e-commerce comparable sales for the total Company, strong store performance at Schuh and Johnston & Murphy and an $8.7 million favorable foreign exchange impact on sales due to changes in foreign exchange rates. Inflationary pressures and economic uncertainty continue to impact the discretionary spending behavior of our consumers. The shopping behavior of our Journeys consumer, in particular, has shifted toward shopping almost exclusively for key footwear items, putting more pressure on our core product assortment. Journeys Group sales decreased 8% and Genesco Brands Group sales decreased 9%, while Schuh Group Lids Sports Groupsales increased 11% and Johnston & Murphy Group partially offset bysales increased 8% for Fiscal 2024 compared to Fiscal 2023. Schuh's sales increased 8% on a local currency basis for Fiscal 2024. Total comparable sales decreased 4% for Fiscal 2024, with same store sales down 7% and comparable direct sales up 8%.
Gross margin decreased 3.3% to $1.10 billion in Fiscal 2024 from $1.14 billion in Fiscal 2023 and decreased as a percentage of net sales from 47.6% in Fiscal 2023 to 47.3% in Fiscal 2024, reflecting decreased gross margin as a percentage of net sales in Journeys Group, partially offset by an increase in gross margin as a percentage of net sales in all of our other operating business units. The overall decrease in gross margin as a percentage of net sales reflects increased promotional activity at Journeys and LicensedJohnston & Murphy and increased shipping and warehouse expense at Johnston & Murphy, primarily reflecting increased warehouse costs. All of these decreases to gross margin are partially offset by a more elevated product mix at Schuh as well as reduced duties and freight from the new ROI-based distribution center, decreased air freight at Johnston & Murphy and easing of freight and logistics pressures, favorable changes in product mix and increased prices at Genesco Brands.
Selling and administrative expenses increased as a percentage of net sales from 42.5%43.7% in Fiscal 20162023 to 44.5%46.5% in Fiscal 2017,2024, reflecting increased expenses as a percentage of net sales in Journeys Group, Lids Sports Group, Licensed Brands and Corporate, partially offset by decreasedall of our operating business units. The overall increase in expenses as a percentage of net sales in SchuhFiscal 2024 reflects the deleverage of expenses, especially compensation expense, selling salaries, marketing and occupancy expenses as a result of decreased revenue in Fiscal 2024. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs.
The loss from continuing operations before income taxes (“pretax loss") for Fiscal 2024 was $21.8 million, compared to earnings from continuing operations before income taxes ("pretax earnings") of $90.1 million for Fiscal 2023. The pretax loss for Fiscal 2024 included a non-cash goodwill impairment charge of $28.5 million and asset impairment and other charges of $1.8 million which included $1.1 million for severance and $1.0 million for asset impairments, partially offset by a $0.3 million insurance gain. Pretax earnings for Fiscal 2023 included an asset impairment and other charge of $0.9 million which included $1.6 million for asset impairments, partially offset by a $0.7 million gain on the termination of the pension plan.
The net loss for Fiscal 2024 was $16.8 million, or $1.50 diluted loss per share compared to net earnings of $71.9 million, or $5.66 diluted earnings per share for Fiscal 2023. The net loss for Fiscal 2024 includes a $9.4 million ($7.2 million, net of tax) gain from insurance proceeds related to legacy environmental matters. The effective income tax rate was (8.5%) for Fiscal 2024 compared to 19.8% for Fiscal 2023. The effective tax rate for Fiscal 2024 was lower compared to Fiscal 2023, reflecting the impact of recording a valuation allowance against certain tax attributes that we no longer believe it is more-likely-than-not we will realize the benefit, partially offset by accrued interest related to a IRS refund that is due to the Company.See Item 8, Note 11, "Income Taxes", to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information.
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Journeys Group
|
| Fiscal Year Ended |
|
| % |
| ||||||
|
| 2024 |
|
| 2023 |
|
| Change |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 1,363,835 |
|
| $ | 1,482,203 |
|
|
| (8.0 | )% |
Operating income |
| $ | 11,072 |
|
| $ | 94,404 |
|
|
| (88.3 | )% |
Operating margin |
|
| 0.8 | % |
|
| 6.4 | % |
|
|
| |
Net sales from Journeys Group decreased 8.0% to $1.4 billion for Fiscal 2024 compared to $1.5 billion for Fiscal 2023, primarily due to a total comparable sales decrease of 9% driven by decreased store sales, partially offset by increased digital comparable sales. In addition, there was a 3% decrease in the average number of Journeys stores for Fiscal 2024. We believe the Journeys consumer continues to be pressured by inflation and Johnston & Murphy Group. Earnings from operationshas chosen to conserve discretionary spending and primarily shop when the consumer has a key footwear item to purchase and take advantage of the abundance of discounted athletic product elsewhere in the market. The shift in the consumer's shopping behavior to shop almost exclusively for key footwear items in an environment with a general lack of innovation in footwear, has put pressure on our core product assortment. Highlights for Journeys in Fiscal 2024 were the launches of its All Access loyalty program and buy-online-pick-up-in-store in North America to encouraging results.
The store count for Journeys Group was 1,063 stores at the end of Fiscal 2024, including 222 Journeys Kidz stores, 39 Journeys stores in Canada and 33 Little Burgundy stores in Canada, compared to 1,130 stores at the end of Fiscal 2023, including 233 Journeys Kidz stores, 45 Journeys stores in Canada and 34 Little Burgundy stores in Canada.
Journeys Group operating income for Fiscal 2024 decreased 88.3% to $11.1 million, compared to $94.4 million for Fiscal 2023. The decrease in operating income was primarily due to (i) decreased net sales, (ii) decreased gross margin as a percentage of net sales, from 5.0%primarily reflecting increased promotional activity and (iii) increased selling and administrative expenses as a percentage of net sales reflecting the deleverage of expenses, especially occupancy expense, selling salaries, depreciation and compensation expenses as a result of decreased revenue in Fiscal 20162024.
Schuh Group
|
| Fiscal Year Ended |
|
| % |
| ||||||
|
| 2024 |
|
| 2023 |
|
| Change |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 480,164 |
|
| $ | 432,002 |
|
|
| 11.1 | % |
Operating income |
| $ | 21,435 |
|
| $ | 17,601 |
|
|
| 21.8 | % |
Operating margin |
|
| 4.5 | % |
|
| 4.1 | % |
|
|
| |
Net sales from the Schuh Group increased 11.1% to 4.9%$480.2 million for Fiscal 2024 compared to $432.0 million for Fiscal 2023, primarily due to increased total comparable sales of 6% driven by increased e-commerce and store sales and a favorable impact of $11.8 million in sales due to changes in foreign exchange rates. Schuh's sales increased 8% on a local currency basis for Fiscal 2017,2024. Our efforts to strengthen Schuh's value proposition has differentiated the business from competitors, grabbing the attention of new customers and enhancing our brand relationships. Schuh's loyalty program, Schuh Club, has been key to strengthening Schuh's market position. Schuh Group operated 122 stores at the end of Fiscal 2024 and Fiscal 2023.
Schuh Group operating income for Fiscal 2024 was $21.4 million compared to $17.6 million for Fiscal 2023. The 21.8% increase in operating income this year reflects (i) increased net sales and (ii) increased gross margin as a percentage of net sales, reflecting decreased earningsan elevated product mix and reduced duties and freight as a result of the new ROI-based distribution center. In addition, operating income included a favorable impact of $1.3 million due to changes in Journeys Groupforeign exchange rates compared to last year. Selling and Licensed Brands,
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administrative expenses increased as a percentage of net sales reflecting increased selling salaries, marketing expense and performance-based compensation expense, partially offset by improved earningsdecreased occupancy expense.
Johnston & Murphy Group
|
| Fiscal Year Ended |
|
| % |
| ||||||
|
| 2024 |
|
| 2023 |
|
| Change |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 339,446 |
|
| $ | 314,759 |
|
|
| 7.8 | % |
Operating income |
| $ | 16,314 |
|
| $ | 14,364 |
|
|
| 13.6 | % |
Operating margin |
|
| 4.8 | % |
|
| 4.6 | % |
|
|
| |
Johnston & Murphy Group net sales increased 7.8% to $339.4 million for Fiscal 2024 from $314.8 million for Fiscal 2023 primarily due to increased total comparable sales of 9% driven by increased store and e-commerce sales, partially offset by decreased wholesale sales. Compelling product and strong sales of non-footwear items contributed to the increase in sales for Fiscal 2024. Johnston & Murphy has repositioned its brand to a multi-category lifestyle brand, offering more casual and comfortable footwear and apparel, and it continues to resonate well with its consumers' more casual preferences. Retail operations accounted for 78.3% of Johnston & Murphy Group's sales in Fiscal 2024, up from 76.0% in Fiscal 2023. The store count for Johnston & Murphy retail operations at the end of Fiscal 2024 was 156 Johnston & Murphy shops and factory stores, including five stores in Canada, compared to 158 Johnston & Murphy shops and factory stores, including six stores in Canada, at the end of Fiscal 2023.
Johnston & Murphy Group operating income for Fiscal 2024 increased 13.6% to $16.3 million compared to $14.4 million in Fiscal 2023. The increase was primarily due to (i) increased net sales and (ii) increased gross margin as a percentage of net sales reflecting a decrease in air freight, partially offset by increased retail markdowns, warehouse costs and increased inventory reserves. Selling and administrative expenses increased as a percentage of net sales in Fiscal 2024 compared to Fiscal 2023 reflecting increased marketing expense, professional fees and compensation expense, partially offset by decreased performance-based compensation expense and occupancy expense.
Genesco Brands Group
|
| Fiscal Year Ended |
|
| % |
| ||||||
|
| 2024 |
|
| 2023 |
|
| Change |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 141,179 |
|
| $ | 155,924 |
|
|
| (9.5 | )% |
Operating loss |
| $ | (8 | ) |
| $ | (678 | ) |
|
| 98.8 | % |
Operating margin |
|
| (0.0 | )% |
|
| (0.4 | )% |
|
|
| |
Net sales for Genesco Brands Group decreased 9.5% to $141.2 million for Fiscal 2024 from $155.9 million for Fiscal 2023, primarily due to higher sell-in in the first half of the prior year as retailers were replenishing inventory due to supply chain constraints as well as an intentional strategy to pull back value channel sales.
The operating loss for Genesco Brands Group in Fiscal 2024 was basically break even compared to an operating loss of $0.7 million in Fiscal 2023. The improvement in the operating loss was primarily due to increased gross margin as a percentage of net sales reflecting the easing of freight and logistics pressures, favorable changes in product mix and increased prices. Selling and administrative expenses increased as a percentage of net sales reflecting deleverage of expenses as a result of decreased revenue in Fiscal 2024 as well as increased performance-based compensation expense.
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Corporate, Interest Expenses and Other Charges
Corporate and other expense for Fiscal 2024 was $62.3 million compared to $32.5 million for Fiscal 2023. Corporate and other expense in Fiscal 2024 included non-cash impairment charges of $28.5 million related to goodwill and a $1.8 million charge in asset impairment and other charges which included $1.1 million in severance and $1.0 million for asset impairments, partially offset by a $0.3 million insurance gain. Corporate and other expense in Fiscal 2023 included $1.6 million for asset impairments, partially offset by a $0.7 million gain on the termination of our pension plan.
Net interest expense increased $4.9 million to $7.8 million in Fiscal 2024 from $2.9 million in Fiscal 2023 primarily reflecting increased average borrowings and higher interest rates.
Liquidity and Capital Resources
Working Capital
Our business is seasonal, with our investment in inventory and accounts receivable normally reaching peaks in the spring and fall of each year. Historically, cash flow from operations has been generated principally in Schuh Group, Lids Sports Groupthe fourth quarter of each fiscal year.
Cash flow changes: |
| Fiscal Year Ended |
| |||||||||
(in thousands) |
| February 3, 2024 |
|
| January 28, 2023 |
|
| Increase |
| |||
Net cash provided by (used in) operating activities |
| $ | 94,796 |
| $ | (164,884 | ) |
| $ | 259,680 |
| |
Net cash used in investing activities |
|
| (60,001 | ) |
|
| (59,934 | ) |
|
| (67 | ) |
Net cash used in financing activities |
|
| (47,579 | ) |
|
| (45,530 | ) |
|
| (2,049 | ) |
Effect of foreign exchange rate fluctuations on cash |
|
| (51 | ) |
|
| (2,187 | ) |
|
| 2,136 |
|
Net decrease in cash |
| $ | (12,835 | ) | $ | (272,535 | ) |
| $ | 259,700 |
| |
Reasons for the major variances in cash provided by (used in) the table above are as follows:
Cash provided by operating activities was $259.7 million higher in Fiscal 2024 compared to Fiscal 2023, reflecting primarily the following factors:
Cash used in investing activities was flat for Fiscal 2024 compared to Fiscal 2023 as the increased capital expenditures for investments in retail stores and omni-channel was offset by decreased capital expenditures for the new corporate headquarters building.
Cash used in financing activities was $2.0 million higher in Fiscal 2024 as compared to Fiscal 2023 primarily reflecting decreased revolver borrowings in Fiscal 2024, partially offset by decreased share repurchases this year.
35
Sources of SureGrip Footwear
We have three principal sources of liquidity: cash flow from operations, cash on hand and our credit facilities discussed in Item 8, Note 8, "Long-Term Debt", to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
On December 25, 2016,January 28, 2022, we entered into a Third Amendment (the "Third Amendment") to our Fourth Amended and Restated Credit Agreement dated as of January 31, 2018 between us, certain of our subsidiaries, the Company completedlenders party thereto and Bank of America, N.A. as agent (as amended, the sale"Credit Facility" or the "Credit Agreement") to, among other things, extend the maturity date to January 28, 2027 and remove the $17.5 million first in-last out term loan. The Total Commitments (as defined in the Credit Agreement) for revolving loans is $332.5 million. As of February 3, 2024 we have $32.9 million in U.S. revolver borrowings and $1.8 million (C$2.4 million) related to GCO Canada ULC. We had outstanding letters of credit of $6.9 million under the Credit Facility at February 3, 2024. These letters of credit support lease and insurance indemnifications.
On November 2, 2022, Schuh entered into a facility agreement (the "Facility Agreement") with Lloyds Bank PLC (“Lloyds”) for a £19.0 million revolving credit facility. The Facility Agreement expires November 2, 2025, with options to request two one-year extensions to this termination date subject to lender approval, and bears interest at 2.35% over the Bank of England Base Rate. This Facility Agreement replaced Schuh's Facility Letter that would have expired in October 2023. The Facility Agreement includes certain financial covenants specific to Schuh. Following certain customary events of default outlined in the Facility Agreement, payment of outstanding amounts due may be accelerated or the commitments may be terminated. The Facility Agreement is secured by charges over all of the assets of Schuh, and Schuh's subsidiary, Schuh (ROI) Limited. Pursuant to a Guarantee in favor of Lloyds in its capacity as security trustee, Genesco Inc. has guaranteed the obligations of Schuh under the Facility Agreement and certain existing ancillary facilities on an unsecured basis. As of February 3, 2024, we did not have any borrowings under the Schuh Facility Agreement.
We were in compliance with all the stockrelevant terms and conditions of the Company's subsidiary, Keuka Footwear, Inc.,Credit Facility and Facility Agreement as of February 3, 2024.
We believe that operatescash on hand, cash provided by operations and borrowings under our amended Credit Facility and the SureGrip occupational, slip-resistant footwear business, operated within the Licensed Brands Group,Schuh Facility Agreement will be sufficient to Shoes for Crews, LLC. The Company recognized a gain on the sale,support our liquidity needs in Fiscal 2017, estimated at $12.3 million, net2025 and the foreseeable future.
In the fourth quarter of transaction-related expenses beforeFiscal 2021, we implemented tax and subject to post-closing working capital adjustments.
36
Contractual Obligations
The following table sets forth aggregate contractual obligations as of $2.4 million on the sale of Lids Team Sports related to final working capital adjustments. The sale of Lids Team Sports is not a strategic shift that will have a major effect on operations and financial results, and therefore this business has not been presented as a discontinued operation in the Company's Consolidated Financial Statements.
(in thousands) |
|
|
| |||||||||
Contractual Obligations |
| Total |
|
| Current |
|
| Long-Term |
| |||
Long-Term Debt Obligations |
| $ | 34,682 |
|
| $ | — |
|
| $ | 34,682 |
|
Operating Lease Obligations(1) |
|
| 566,926 |
|
|
| 152,087 |
|
|
| 414,839 |
|
Purchase Obligations(2) |
|
| 8,495 |
|
|
| 8,495 |
|
|
| — |
|
Other Long-Term Liabilities |
|
| 539 |
|
|
| 153 |
|
|
| 386 |
|
Total Contractual Obligations |
| $ | 610,642 |
|
| $ | 160,735 |
|
| $ | 449,907 |
|
(1) Operating lease obligations excludes $10.5 million for the write-off of an indemnification asset related to formerly uncertain tax positions taken by Schuh at the time of the Company's acquisition of Schuh, which were favorably resolved during the third quarter of Fiscal 2015.
(2) As a result of the bonus awardsTogast acquisition, we also have a commitment to Samsung C&T America, Inc. (“Samsung”) related to the ultimate sale and valuation of related inventories owned by Samsung. If the product is sold below Samsung’s cost, we are committed to Samsung for the difference between the sales price and its cost.
We issue inventory purchase orders in the ordinary course of business, which represent authorizations to purchase that are cancelable by their terms. We do not consider purchase orders to be firm inventory commitments. If we choose to cancel a purchase order, we may be obligated to reimburse the vendor for unrecoverable outlays incurred prior to cancellation.
Capital Expenditures
Capital expenditures were subject$60.3 million and $59.9 million for Fiscal 2024 and 2023, respectively. The $0.4 million increase in Fiscal 2024 capital expenditures as compared to service conditions that resultedFiscal 2023 is primarily due to increases for new stores, renovations and computer hardware, software and warehouse enhancements to drive traffic and omni-channel initiatives, almost offset by decreased capital expenditures for our new corporate headquarters.
We expect total capital expenditures for Fiscal 2025 to be approximately $52-$57 million of which approximately 59% is for new stores and renovations and 41% is for computer hardware, software and warehouse enhancements for initiatives to drive traffic and omni-channel initiatives and other projects. We do not currently have any longer term capital expenditures or other cash requirements other than as set forth in recognitionthe contractual obligations table. We also do not currently have any off-balance sheet arrangements.
Common Stock Repurchases
We repurchased 1,261,295 shares during Fiscal 2024 at a cost of expense over$32.0 million or an average of $25.39 per share. We were operating under a $100.0 million repurchase authorization from February 2022. In June 2023, we announced an additional $50.0 million share repurchase authorization. As of February 3, 2024, we have $52.1 million remaining under the periodexpanded share repurchase authorization. We repurchased 1,380,272 shares during Fiscal 2023 at a cost of service by the respective employee.$72.7 million or an average of $52.66 per share. We repurchased 1,360,909 shares during Fiscal 2022 at a cost of $82.8 million or an average of $60.88 per share. During the first quarter of Fiscal 2015,2025, through March 27, 2024, we did not repurchase any shares.
Environmental and Other Contingencies
We are subject to certain loss contingencies related to environmental proceedings and other legal matters, including those disclosed in Item 8, Note 15, "Legal Proceedings", to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
37
Financial Market Risk
The following discusses our exposure to financial market risk.
Outstanding Debt – We have $34.7 million of outstanding U.S. revolver borrowings, which includes $1.8 million (C$2.4 million) related to GCO Canada ULC, at a weighted average interest rate of 7.79% as of February 3, 2024. A 100 basis point increase in interest rates would increase annual interest expense by $0.3 million on the Company amended the plan$34.7 million revolver borrowings.
Cash – Our cash balances are held in our bank accounts and not invested at this time. We did not have significant exposure to remove the future service requirement for the payment of the retained bonuses.changing interest rates on invested cash at February 3, 2024. As a result, we consider the bonus expenseinterest rate risk implicit in these investments at February 3, 2024 to be low. We did not hold any cash equivalents at February 3, 2024.
Summary – Based on our overall market interest rate exposure at February 3, 2024, we believe that the effect, if any, of reasonably possible near-term changes in interest rates on our consolidated financial position, results of operations or cash flows for Fiscal 2025 would have been deferred undernot be material.
Accounts Receivable – Our accounts receivable balance at February 3, 2024 is concentrated in our wholesale businesses, which sell primarily to department stores and independent retailers across the previous plan termsUnited States. In the wholesale businesses, one customer accounted for 18%, one customer accounted for 16%, one customer accounted for 11% and one customer accounted for 10% of our total trade receivables balance, while no other customer accounted for more than 8% of our total trade receivables balance as of February 3, 2024. We monitor the credit quality of our customers and establish an allowance for doubtful accounts based upon factors surrounding credit risk of specific customers, historical trends and other information, as well as customer specific factors; however, credit risk is now recognized in the first year of service. The Company recorded a $5.7 million charge to earnings in the first quarter of Fiscal 2015 in connection with the amendment related to bonus amounts previously deferred to future years.
Foreign Currency Exchange Risk – We are exposed to translation risk because certain of primarily small retail chainsour foreign operations utilize the local currency as their functional currency and one small wholesale business for a total purchase pricethose financial results must be translated into United States dollars. As currency exchange rates fluctuate, translation of $34.9 million. The stores acquired in Fiscal 2015 are operated withinour financial statements of foreign businesses into United States dollars affects the Lids Sports Group. The wholesale business acquired in Fiscal 2015 was operated within Lids Team Sports, which was sold on January 19, 2016.
New Accounting Policies
Descriptions of recently issued accounting pronouncements, if any, and the accounting pronouncements adopted by us during Fiscal 2024 are included in Note 12, "New Accounting Pronouncements", to the Consolidated Financial Statements the Company values its inventories at the lower of cost or market.
Critical Accounting Estimates
Inventory Valuation
In itsour footwear wholesale operations and itsour Schuh Group segment, cost for inventory that we own is determined using the first-in, first-out ("FIFO") method. MarketNet realizable value is determined using a system of analysis which evaluates inventory at the stock number level based on factors such as inventory turn, average selling price, inventory level, and selling prices reflected in future orders for footwear wholesale. The Company provides reservesWe provide a valuation allowance when the inventory has not been marked down to marketnet realizable value based on current selling prices or when the inventory is not turning and is not expected to turn at levels satisfactory to the Company.
In itsour retail operations, other than the Schuh Group and Lids Sports Group segments, the Company employssegment, we employ the retail inventory method, applying average cost-to-retail ratios to the retail value of inventories. Under the retail inventory method, valuing inventory at the lower of cost or market is achieved as markdowns are taken or accrued as a reduction of the retail value of inventories.
38
Inherent in the retail inventory method are subjective judgments and estimates, including merchandise mark-on, markups, markdowns and shrinkage. These judgments and estimates, coupled with the fact that the retail inventory method is an averaging process, could produce a range of cost figures. To reduce the risk of inaccuracy and to ensure consistent presentation, the Company employswe employ the retail inventory method in multiple subclasses of inventory with similar gross margins, and analyzesanalyze markdown requirements at the stock number level based on factors such as inventory turn, average selling price and inventory age. In addition, the Company accrueswe accrue markdowns as necessary. These additional markdown accruals reflect all of the above factors as well as current agreements to return products to vendors and vendor agreements to provide markdown support. In addition to markdown provisions, the Company maintains provisionsallowances, we maintain reserves for shrinkage and damaged goods based on historical rates.
Inherent in the analysis of both wholesale and retail inventory valuation are subjective judgments about current market conditions, fashion trends and overall economic conditions. Failure to make appropriate conclusions regarding these factors may result in an overstatement or understatement of inventory value. A change of 10% from the recorded provisionsamounts for markdowns, shrinkage and damaged goods would have changed inventory by $1.6$0.7 million at January 28, 2017.
Impairment of Long-Lived Assets
We periodically assess the Consolidated Financial Statements, the Company periodically assesses the realizabilityrecoverability of itsour long-lived assets, other than goodwill, and evaluatesevaluate such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Asset impairment is determined to exist if estimated future cash flows, undiscounted and without interest charges, are less than the carrying amount. Inherent in the analysis of
We annually assess our goodwill and indefinite lived trademarks for impairment test involves performing a qualitativeand on an interim basis if indicators of impairment are present. Our annual assessment on a reporting unit level, based on current circumstances. Ifdate of goodwill and indefinite lived trade names is the resultsfirst day of the fourth quarter.
In accordance with ASC 350, "Intangibles - Goodwill and Other" ("ASC 350") we have the option first to assess qualitative assessmentfactors to determine whether events and circumstances indicate that it is more likely than not that goodwill is impaired. If, after such assessment, we conclude that the asset is not impaired, no further action is required. However, if we conclude otherwise, we are required to determine the fair value of the asset using a reporting unit is greater than its carrying amount, a two-stepquantitative impairment test. The quantitative impairment test will not be performed. However, if the results of the qualitative assessment indicate that it is more likely than not thatfor goodwill compares the fair value of aeach reporting unit is less than its carrying amount, then a two-step impairment test is performed. Alternatively,with the Company may elect to bypass the qualitative assessment and proceed directly to the two-step impairment test, on a reporting unit level. The first step is a comparison of the fair value and carrying value of the businessreporting unit with which the goodwill is associated. The Company estimatesIf the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded for the amount, if any, in which the carrying value exceeds the reporting unit's fair value. We estimate fair value using the best information available, and computescompute the fair value derived by ana combination of the market and income approach. The market approach utilizing discounted cash flow projections.is based on observed market data of comparable companies to determine fair value. The income approach usesutilizes a projection of a reporting unit’s estimated operating results and cash flows that isare discounted using a weighted-average cost of capital that reflects current market conditions. A key assumption in the Company’sour fair value estimate is the weighted average cost of capital utilized for discounting itsour cash flow projections in itsour income approach. The Company believes the rate it used in its annual test, which was completed at the beginning of the fourth quarter, was consistent with the risks inherent in its business and with industry discount rates. The projection uses management’sour best estimates of economic and market conditions over the projected period including growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements.
The quantitative impairment test and other intangible assets impairment test fromfor indefinite lived trademarks compares the last dayfair value of the fiscal year to the first day of the fourth fiscal quarter. This voluntary change is preferable under the circumstances as it alignstrademark with the Company's five-year strategic planning cycle that is completed in early October. This voluntary change in accounting principle was not made to delay, accelerate or avoid an impairment charge. This change is not applied retrospectively as it is impracticable to do so because retrospective application would require the application of significant estimates and assumptions with the use of hindsight. Accordingly, the change will be applied prospectively.
39
trademark owner would realize from owning that asset instead of having to pay rent or a royalty for the use of it. Key assumptions in our fair value estimate are the selected royalty rate and discount rate. Other significant estimates and assumptions include terminal value growth rates and future profitability expectations.
Revenue Recognition
In accordance with ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASC 606"), revenue shall be recognized upon satisfaction of all contractual performance obligations and transfer of control to the customer. Revenue is measured as the amount of consideration we expect to be entitled to in exchange for corresponding goods. Substantially all of our sales are single performance obligation arrangements for retail sale transactions for which the assets and liabilitiestransaction price is equivalent to the stated price of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value of goodwill is less than the recorded goodwill, the Company would record an impairment charge for the difference.
A provision for estimated returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Estimated returns are based on historical returns and claims. Actual amounts of markdowns have not differed materially from estimates. Actual returns and claims in any future period may differ from historical experience.
Income Taxes
As part of the process of preparing our Consolidated Financial Statements, the Company iswe are required to estimate itsour income taxes in each of the tax jurisdictions in which it operates.we operate. This process involves estimating actual current tax obligations together with assessing temporary differences resulting from differing treatment of certain items for tax and accounting purposes, such as depreciation of property and equipment and valuation of inventories. These temporary differences result in deferred tax assets and liabilities, which are included within theour Consolidated Balance Sheets. The CompanyWe then assessesassess the likelihood that itsour deferred tax assets will be recovered from future taxable income. Actual results could differ from this assessment if adequate taxable income is not generated in future periods. To the extent the Company believesit is more likely than not that recoverysome portion or all of ana deferred asset is at risk,will not be realized, valuation allowances are established. To the extent valuation allowances are established or increased in a period, the Company includeswe include an expense within the tax provision in theour Consolidated Statements of Operations. These deferred tax valuation allowances may be released in future years when management considerswe consider that it is more likely than not that some portion or all of the deferred tax assets will be realized. In making such a determination, managementwe will need to periodically evaluate whether or not all available evidence, such as future taxable income and reversal of temporary differences, tax planning strategies, and recent results of operations, provides sufficient positive evidence to offset any other potential negative evidence that may exist at such time. In the event the deferred tax valuation allowance is released, the Companywe would record an income tax benefit for thea portion or all of the deferred tax valuation allowance released. At January 28, 2017, the CompanyFebruary 3, 2024, we had a deferred tax valuation allowance of $4.3$44.0 million.
40
Income tax reserves for uncertain tax positions are determined using the methodology required by the Income Tax Topic of the Accounting Standards Codification (“Codification”ASC”) Income Tax Topic, ("ASC 740"). This methodology requires companies to assess each income tax position taken using a two steptwo-step process. A determination is first made as to whether it is more likely than not that the position will be sustained, based upon the technical merits, upon examination by the taxing authorities. If the tax position is expected to meet the more likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50% likely to be realized upon ultimate settlement of the respective tax position. Uncertain tax positions require determinations and estimated liabilities to be made based on provisions of the tax law which may be subject to change or varying interpretation. If the Company’sour determinations and estimates prove to be inaccurate, the resulting adjustments could be material to itsour future financial results. See Item 8, Note 911, "Income Taxes", to the Company’s Consolidated Financial Statements for additional information regarding income taxes.
| Fiscal Year Ended | % Change | |||||||||
| 2017 | 2016 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 1,251,646 | $ | 1,251,637 | — | % | ||||
| Earnings from operations | $ | 85,875 | $ | 126,248 | (32.0 | )% | ||||
| Operating margin | 6.9 | % | 10.1 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2017 | 2016 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 372,872 | $ | 405,674 | (8.1 | )% | ||||
| Earnings from operations | $ | 20,530 | $ | 19,124 | 7.4 | % | ||||
| Operating margin | 5.5 | % | 4.7 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2017 | 2016 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 847,510 | $ | 975,504 | (13.1 | )% | ||||
| Earnings from operations | $ | 41,563 | $ | 17,040 | 143.9 | % | ||||
| Operating margin | 4.9 | % | 1.7 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2017 | 2016 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 289,324 | $ | 278,681 | 3.8 | % | ||||
| Earnings from operations | $ | 19,682 | $ | 17,761 | 10.8 | % | ||||
| Operating margin | 6.8 | % | 6.4 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2017 | 2016 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 106,372 | $ | 109,826 | (3.1 | )% | ||||
| Earnings from operations | $ | 4,566 | $ | 9,236 | (50.6 | )% | ||||
| Operating margin | 4.3 | % | 8.4 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2016 | 2015 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 1,251,637 | $ | 1,179,476 | 6.1 | % | ||||
| Earnings from operations | $ | 126,248 | $ | 114,784 | 10.0 | % | ||||
| Operating margin | 10.1 | % | 9.7 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2016 | 2015 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 405,674 | $ | 406,947 | (0.3 | )% | ||||
| Earnings from operations | $ | 19,124 | $ | 10,110 | 89.2 | % | ||||
| Operating margin | 4.7 | % | 2.5 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2016 | 2015 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 975,504 | $ | 902,661 | 8.1 | % | ||||
| Earnings from operations | $ | 17,040 | $ | 48,970 | (65.2 | )% | ||||
| Operating margin | 1.7 | % | 5.4 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2016 | 2015 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 278,681 | $ | 259,675 | 7.3 | % | ||||
| Earnings from operations | $ | 17,761 | $ | 14,856 | 19.6 | % | ||||
| Operating margin | 6.4 | % | 5.7 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2016 | 2015 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 109,826 | $ | 110,115 | (0.3 | )% | ||||
| Earnings from operations | $ | 9,236 | $ | 10,459 | (11.7 | )% | ||||
| Operating margin | 8.4 | % | 9.5 | % | ||||||
| Jan. 28, 2017 | Jan. 30, 2016 | Jan. 31, 2015 | |||||||||
| (dollars in millions) | |||||||||||
| Cash and cash equivalents | $ | 48.3 | $ | 133.3 | $ | 112.9 | |||||
| Working capital | $ | 428.8 | $ | 476.5 | $ | 441.7 | |||||
| Long-term debt (includes current maturities) | $ | 82.9 | $ | 111.8 | $ | 29.0 | |||||
Leases
We recognize lease assets and corresponding lease liabilities for all operating leases on the Consolidated Balance Sheets as described under ASU No. 2016-02, “Leases (Topic 842).” We evaluate renewal options and break options at lease inception and on an ongoing basis, and include renewal options and break options that we are reasonably certain to exercise in our expected lease terms for calculations of the right-of-use assets and liabilities. Approximately 3% of our leases contain renewal options. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the reasonably certain lease term. As most of our leases do not provide a determinable implicit rate, we estimate our collateralized incremental borrowing rate based upon a synthetic credit rating and yield curve analysis at the lease commencement or modification date in determining the present value of lease payments. For lease payments in foreign currencies, the incremental borrowing rate is adjusted to be reflective of the risk associated with the respective currency. See Item 8, "Financial Statements and Supplementary Data".
| (in thousands) | Payments Due by Period | ||||||||||||||||||
| Contractual Obligations | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | ||||||||||||||
| Long-Term Debt Obligations | $ | 82,905 | $ | 9,175 | $ | 51,445 | $ | 22,285 | $ | — | |||||||||
| Operating Lease Obligations | 1,379,877 | 245,160 | 407,086 | 325,619 | 402,012 | ||||||||||||||
Purchase Obligations(1) | 646,603 | 646,603 | — | — | — | ||||||||||||||
Long-Term Obligations – Schuh(2) | 615 | 268 | 221 | 126 | — | ||||||||||||||
| Other Long-Term Liabilities | 1,077 | 177 | 353 | 353 | 194 | ||||||||||||||
Total Contractual Obligations(3) | $ | 2,111,077 | $ | 901,383 | $ | 459,105 | $ | 348,383 | $ | 402,206 | |||||||||
| (in thousands) | Amount of Commitment Expiration Per Period | ||||||||||||||||||
| Commercial Commitments | Total Amounts Committed | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | ||||||||||||||
| Letters of Credit | $ | 11,203 | $ | 11,203 | $ | — | $ | — | $ | — | |||||||||
| Total Commercial Commitments | $ | 11,203 | $ | 11,203 | $ | — | $ | — | $ | — | |||||||||
ITEM 7A,7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We incorporate by reference the information regarding market risk appearing under the heading “Financial Market Risk” in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
41
ITEM 8,8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page | |
43 | |
Report of Independent Registered Public Accounting Firm on the Financial Statements (PCAOB ID: 42) | 44 |
46 | |
47 | |
48 | |
49 | |
50 | |
51 |
42
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Genesco Inc.
Opinion on Internal Control over Financial Reporting
We have audited Genesco Inc. and Subsidiaries'Subsidiaries’ internal control over financial reporting as of January 28, 2017,February 3, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)framework) (the COSO criteria). In our opinion, Genesco Inc. and Subsidiaries'Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of February 3, 2024, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Genesco Inc. and Subsidiaries as of February 3, 2024 and January 28, 2023, the related consolidated statements of operations, comprehensive income (loss), cash flows, and equity for each of the three fiscal years in the period ended February 3, 2024, and the related notes and financial statement schedule listed in the Index at Item 15, and our report dated March 27, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Nashville, Tennessee
March 27, 2024
43
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Genesco Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Genesco Inc. (the Company) as of February 3, 2024 and January 28, 2023, the related consolidated statements of operations, comprehensive income (loss), cash flows and equity for each of the three fiscal years in the period ended February 3, 2024, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the "consolidated financial statements"). In our opinion, Genesco Inc. and Subsidiaries maintained,the consolidated financial statements present fairly, in all material respects, effective internal control overthe financial reporting asposition of the Company at February 3, 2024 and January 28, 2017, based on2023, and the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Genesco Inc. and Subsidiaries as of January 28, 2017 and January 30, 2016, and the related consolidated statements of operations, comprehensive income, cash flows, and equity for each of the three fiscal years in the period ended January 28, 2017, and our report dated March 29, 2017 expressed an unqualified opinion thereon. Our audits also included the financial statement schedule listed in the Index at Item 15.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
44
Valuation of Genesco Brands Group Goodwill | ||
Description of the Matter | During the fiscal year ended February 3, 2024, the Company recorded $28.5 million of impairment expense related to the goodwill associated with the Genesco Brands Group. As discussed in Notes 1 and 3 to the consolidated financial statements, goodwill at the reporting unit level is qualitatively or quantitatively tested for impairment at least annually, at the beginning of the Company’s fourth fiscal quarter, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The quantitative evaluation of goodwill impairment involves the comparison of the fair value of the reporting unit to the carrying value of the reporting unit. | |
Auditing the Company’s annual goodwill impairment analysis was complex and highly judgmental due to the significant estimation required by management in determining the fair value of the Togast reporting unit. In particular, the fair value estimates under the income approach are sensitive to significant assumptions required to develop prospective financial information related to growth rates in sales, costs, and estimates of future expected changes in operating margins. Other significant assumptions relate to estimating the weighted average cost of capital utilized for discounting cash flow estimates and terminal period growth rates. These significant assumptions are affected by expectations about future market or economic conditions. Management also uses a market approach that considers valuations of comparable companies as an input in the determination of the value of the reporting unit. | ||
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s Genesco Brands goodwill impairment review process, including controls over management’s review of the significant assumptions described above. For example, we tested controls over management’s identification of the Togast reporting unit and management’s review of the significant assumptions utilized within the fair value model, including the development of the prospective financial information and determination of the weighted average cost of capital. | |
To test the estimated fair value of the Togast reporting unit, we performed audit procedures that included, among others, involvement of our valuation specialists to assess the Company’s model, valuation methodology, and significant assumptions discussed above. Specifically, we compared significant assumptions used by management to current industry economic trends. As part of this assessment, we also compared the development of the weighted average cost of capital to rates for hypothetical market participants based on the capital structure of the Company and its related peer group. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the significant assumptions. We also evaluated the reasonableness of the market comparable companies that management used in its market approach. |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2001.
Nashville, Tennessee
March 27, 2024
45
Genesco Inc.
and Subsidiaries
Consolidated Balance Sheets
In Thousands, except share amounts
| As of Fiscal Year End | |||||||
| Assets | January 28, 2017 | January 30, 2016 | |||||
| Current Assets: | |||||||
| Cash and cash equivalents | $ | 48,301 | $ | 133,288 | |||
| Accounts receivable, net of allowances of $3,073 at January 28, | |||||||
| 2017 and $2,960 at January 30, 2016 | 43,525 | 47,265 | |||||
| Inventories | 563,677 | 529,758 | |||||
| Deferred income taxes | 21,194 | 28,965 | |||||
| Prepaids and other current assets | 61,470 | 60,810 | |||||
| Total current assets | 738,167 | 800,086 | |||||
| Property and equipment: | |||||||
| Land | 7,773 | 8,038 | |||||
| Buildings and building equipment | 52,673 | 51,768 | |||||
| Computer hardware, software and equipment | 179,926 | 183,985 | |||||
| Furniture and fixtures | 211,833 | 209,337 | |||||
| Construction in progress | 33,660 | 16,190 | |||||
| Improvements to leased property | 366,186 | 359,591 | |||||
| Property and equipment, at cost | 852,051 | 828,909 | |||||
| Accumulated depreciation | (521,440 | ) | (505,581 | ) | |||
| Property and equipment, net | 330,611 | 323,328 | |||||
| Deferred income taxes | 85 | 959 | |||||
| Goodwill | 271,222 | 281,385 | |||||
| Trademarks, net of accumulated amortization of $5,574 at | |||||||
| January 28, 2017 and $5,039 at January 30, 2016 | 84,327 | 86,740 | |||||
| Other intangibles, net of accumulated amortization of $16,200 at | |||||||
| January 28, 2017 and $15,947 at January 30, 2016 | 2,392 | 3,569 | |||||
| Other noncurrent assets | 22,102 | 45,123 | |||||
| Total Assets | $ | 1,448,906 | $ | 1,541,190 | |||
| As of Fiscal Year End | |||||||
| Liabilities and Equity | January 28, 2017 | January 30, 2016 | |||||
| Current Liabilities: | |||||||
| Accounts payable | $ | 170,751 | $ | 154,241 | |||
| Accrued employee compensation | 31,128 | 23,666 | |||||
| Accrued other taxes | 23,101 | 24,508 | |||||
| Accrued income taxes | 7,568 | 16,349 | |||||
| Current portion – long-term debt | 9,175 | 14,182 | |||||
| Other accrued liabilities | 64,333 | 79,282 | |||||
| Provision for discontinued operations | 3,330 | 11,389 | |||||
| Total current liabilities | 309,386 | 323,617 | |||||
| Long-term debt | 73,730 | 97,583 | |||||
| Pension liability | 6,265 | 9,957 | |||||
| Deferred rent and other long-term liabilities | 135,291 | 149,020 | |||||
| Provision for discontinued operations | 1,713 | 4,230 | |||||
| Total liabilities | 526,385 | 584,407 | |||||
| Commitments and contingent liabilities | |||||||
| Equity | |||||||
| Non-redeemable preferred stock | 1,060 | 1,077 | |||||
| Common equity: | |||||||
| Common stock, $1 par value: | |||||||
| Authorized: 80,000,000 shares | |||||||
| Issued/Outstanding: | |||||||
| January 28, 2017 – 20,354,272/19,865,808 | |||||||
| January 30, 2016 – 22,322,799/21,834,335 | 20,354 | 22,323 | |||||
| Additional paid-in capital | 237,677 | 224,004 | |||||
| Retained earnings | 731,111 | 768,222 | |||||
| Accumulated other comprehensive loss | (51,292 | ) | (42,613 | ) | |||
| Treasury shares, at cost (488,464 shares) | (17,857 | ) | (17,857 | ) | |||
| Total Genesco equity | 921,053 | 955,156 | |||||
| Noncontrolling interest – non-redeemable | 1,468 | 1,627 | |||||
| Total equity | 922,521 | 956,783 | |||||
| Total Liabilities and Equity | $ | 1,448,906 | $ | 1,541,190 | |||
| As of Fiscal Year End |
| |||||
Assets | February 3, 2024 |
|
| January 28, 2023 |
| ||
Current Assets: |
|
| |||||
Cash | $ | 35,155 |
|
| $ | 47,990 |
|
Accounts receivable, net of allowances of $4,266 at February 3, 2024 and $3,710 at January 28, 2023 |
| 53,618 |
|
|
| 40,818 |
|
Inventories |
| 378,967 |
|
|
| 458,017 |
|
Prepaids and other current assets |
| 39,611 |
|
|
| 25,844 |
|
Total current assets |
| 507,351 |
|
|
| 572,669 |
|
Property and equipment, net |
| 240,266 |
|
|
| 233,733 |
|
Operating lease right of use asset |
| 436,896 |
|
|
| 470,991 |
|
Goodwill |
| 9,565 |
|
|
| 38,123 |
|
Other intangibles |
| 27,250 |
|
|
| 27,430 |
|
Non-current prepaid income taxes |
| 56,839 |
|
|
| 54,111 |
|
Deferred income taxes |
| 26,230 |
|
|
| 28,563 |
|
Other noncurrent assets |
| 25,493 |
|
|
| 30,806 |
|
Total Assets | $ | 1,329,890 |
|
| $ | 1,456,426 |
|
Liabilities and Equity |
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
| ||
Accounts payable | $ | 114,621 |
|
| $ | 144,998 |
|
Current portion - operating lease liability |
| 129,189 |
|
|
| 134,458 |
|
Other accrued liabilities |
| 75,727 |
|
|
| 81,327 |
|
Total current liabilities |
| 319,537 |
|
|
| 360,783 |
|
Long-term debt |
| 34,682 |
|
|
| 44,858 |
|
Long-term operating lease liability |
| 359,073 |
|
|
| 401,113 |
|
Other long-term liabilities |
| 45,396 |
|
|
| 42,706 |
|
Total liabilities |
| 758,688 |
|
|
| 849,460 |
|
Commitments and contingent liabilities |
|
|
|
|
| ||
Equity |
|
|
|
|
| ||
Non-redeemable preferred stock |
| 813 |
|
|
| 815 |
|
Common equity: |
|
|
|
|
| ||
Common stock, $1 par value: |
|
|
|
|
| ||
Authorized: 80,000,000 shares |
|
|
|
|
| ||
Issued common stock |
| 11,961 |
|
|
| 13,089 |
|
Additional paid-in capital |
| 319,143 |
|
|
| 305,260 |
|
Retained earnings |
| 296,766 |
|
|
| 346,870 |
|
Accumulated other comprehensive loss |
| (39,624 | ) |
|
| (41,211 | ) |
Treasury shares, at cost (488,464 shares) |
| (17,857 | ) |
|
| (17,857 | ) |
Total equity |
| 571,202 |
|
|
| 606,966 |
|
Total Liabilities and Equity | $ | 1,329,890 |
|
| $ | 1,456,426 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
46
Genesco Inc.
and Subsidiaries
Consolidated Statements of Operations
In Thousands, except per share amounts
| Fiscal Year | ||||||||||
| 2017 | 2016 | 2015 | ||||||||
| Net sales | $ | 2,868,341 | $ | 3,022,234 | $ | 2,859,844 | ||||
| Cost of sales | 1,450,815 | 1,578,768 | 1,459,433 | |||||||
| Selling and administrative expenses | 1,276,368 | 1,284,322 | 1,230,864 | |||||||
| Asset impairments and other, net | (802 | ) | 7,893 | 2,281 | ||||||
| Earnings from operations | 141,960 | 151,251 | 167,266 | |||||||
| Gain on sale of SureGrip Footwear | (12,297 | ) | — | — | ||||||
| Gain on sale of Lids Team Sports | (2,404 | ) | (4,685 | ) | — | |||||
| Indemnification asset write-off | — | — | 7,050 | |||||||
| Interest expense, net: | ||||||||||
| Interest expense | 5,294 | 4,414 | 3,337 | |||||||
| Interest income | (47 | ) | (11 | ) | (110 | ) | ||||
| Total interest expense, net | 5,247 | 4,403 | 3,227 | |||||||
| Earnings from continuing operations before income taxes | 151,414 | 151,533 | 156,989 | |||||||
| Income tax expense | 53,555 | 56,152 | 57,616 | |||||||
| Earnings from continuing operations | 97,859 | 95,381 | 99,373 | |||||||
| Provision for discontinued operations, net | (428 | ) | (812 | ) | (1,648 | ) | ||||
| Net Earnings | $ | 97,431 | $ | 94,569 | $ | 97,725 | ||||
| Basic earnings per common share: | ||||||||||
| Continuing operations | $ | 4.87 | $ | 4.17 | $ | 4.23 | ||||
| Discontinued operations | (0.02 | ) | (0.04 | ) | (0.07 | ) | ||||
| Net earnings | $ | 4.85 | $ | 4.13 | $ | 4.16 | ||||
| Diluted earnings per common share: | ||||||||||
| Continuing operations | $ | 4.85 | $ | 4.15 | $ | 4.19 | ||||
| Discontinued operations | (0.02 | ) | (0.04 | ) | (0.07 | ) | ||||
| Net earnings | $ | 4.83 | $ | 4.11 | $ | 4.12 | ||||
|
| Fiscal Year |
| |||||||||
|
| 2024 |
|
| 2023 |
|
| 2022 |
| |||
Net sales |
| $ | 2,324,624 |
|
| $ | 2,384,888 |
|
| $ | 2,422,084 |
|
Cost of sales |
|
| 1,225,804 |
|
|
| 1,248,698 |
|
|
| 1,240,948 |
|
Gross margin |
|
| 1,098,820 |
|
|
| 1,136,190 |
|
|
| 1,181,136 |
|
Selling and administrative expenses |
|
| 1,082,040 |
|
|
| 1,042,094 |
|
|
| 1,033,625 |
|
Goodwill impairment |
|
| 28,453 |
|
|
| — |
|
|
| — |
|
Asset impairments and other, net |
|
| 1,787 |
|
|
| 855 |
|
|
| (8,056 | ) |
Operating income (loss) |
|
| (13,460 | ) |
|
| 93,241 |
|
|
| 155,567 |
|
Other components of net periodic benefit cost |
|
| 537 |
|
|
| 248 |
|
|
| 128 |
|
Interest expense (net of interest income of $0.4 million, $0.3 million and $0.6 million for Fiscal 2024, 2023 and 2022, respectively) |
|
| 7,777 |
|
|
| 2,920 |
|
|
| 2,448 |
|
Earnings (loss) from continuing operations before income taxes |
|
| (21,774 | ) |
|
| 90,073 |
|
|
| 152,991 |
|
Income tax expense |
|
| 1,854 |
|
|
| 17,831 |
|
|
| 38,044 |
|
Earnings (loss) from continuing operations |
|
| (23,628 | ) |
|
| 72,242 |
|
|
| 114,947 |
|
Gain (Loss) from discontinued operations, net of tax |
|
| 6,801 |
|
|
| (327 | ) |
|
| (97 | ) |
Net Earnings (Loss) |
| $ | (16,827 | ) |
| $ | 71,915 |
|
| $ | 114,850 |
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings (loss) per common share: |
|
|
|
|
|
|
|
|
| |||
Continuing operations |
| $ | (2.10 | ) |
| $ | 5.80 |
|
| $ | 8.11 |
|
Discontinued operations |
|
| 0.60 |
|
|
| (0.03 | ) |
|
| 0.00 |
|
Net earnings (loss) |
| $ | (1.50 | ) |
| $ | 5.77 |
|
| $ | 8.11 |
|
|
|
|
|
|
|
|
|
|
| |||
Diluted earnings (loss) per common share: |
|
|
|
|
|
|
|
|
| |||
Continuing operations |
| $ | (2.10 | ) |
| $ | 5.69 |
|
| $ | 7.92 |
|
Discontinued operations |
|
| 0.60 |
|
|
| (0.03 | ) |
|
| 0.00 |
|
Net earnings (loss) |
| $ | (1.50 | ) |
| $ | 5.66 |
|
| $ | 7.92 |
|
|
|
|
|
|
|
|
|
|
| |||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
| |||
Basic |
|
| 11,243 |
|
|
| 12,457 |
|
|
| 14,170 |
|
Diluted |
|
| 11,243 |
|
|
| 12,707 |
|
|
| 14,509 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
47
Genesco Inc.
and Subsidiaries
Consolidated Statements of Comprehensive Income
In Thousands, except as noted
| Fiscal Year | |||||||||
| 2017 | 2016 | 2015 | |||||||
| Net earnings | $ | 97,431 | $ | 94,569 | $ | 97,725 | |||
| Other comprehensive income (loss): | |||||||||
| Pension liability adjustment net of tax of $2.4 million, | |||||||||
| $6.3 million and $4.0 million for 2017, 2016 and | |||||||||
| 2015, respectively | 3,618 | 9,756 | (6,343 | ) | |||||
| Postretirement liability adjustment net of tax of $0.4 | |||||||||
| million for all periods | (674 | ) | 666 | (644 | ) | ||||
| Foreign currency translation adjustments | (11,623 | ) | (12,459 | ) | (16,822 | ) | |||
| Total other comprehensive loss | (8,679 | ) | (2,037 | ) | (23,809 | ) | |||
| Comprehensive Income | $ | 88,752 | $ | 92,532 | $ | 73,916 | |||
|
| Fiscal Year |
| |||||||||
|
| 2024 |
|
| 2023 |
|
| 2022 |
| |||
Net earnings (loss) |
| $ | (16,827 | ) |
| $ | 71,915 |
|
| $ | 114,850 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
| |||
Postretirement liability adjustment net of tax of $0.0 million, $0.1 million and $0.3 million for 2024, 2023 and 2022, respectively |
|
| 99 |
|
|
| 340 |
|
|
| (735 | ) |
Foreign currency translation adjustments |
|
| 1,488 |
|
|
| (5,143 | ) |
|
| (613 | ) |
Total other comprehensive income (loss) |
|
| 1,587 |
|
|
| (4,803 | ) |
|
| (1,348 | ) |
Comprehensive Income (Loss) |
| $ | (15,240 | ) |
| $ | 67,112 |
|
| $ | 113,502 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
48
Genesco Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
In Thousands
| Fiscal Year | |||||||||
| 2017 | 2016 | 2015 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||
| Net earnings | $ | 97,431 | $ | 94,569 | $ | 97,725 | |||
| Adjustments to reconcile net earnings to net cash | |||||||||
| provided by operating activities: | |||||||||
| Depreciation and amortization | 75,768 | 79,011 | 74,326 | ||||||
| Amortization of deferred note expense and debt discount | 839 | 820 | 692 | ||||||
| Deferred income taxes | 5,394 | (2,125 | ) | 5,212 | |||||
| Provision for accounts receivable | 442 | 637 | 390 | ||||||
| Indemnification asset write-off | — | — | 7,050 | ||||||
| Impairment of long-lived assets | 6,409 | 3,125 | 1,890 | ||||||
| Restricted stock expense | 13,481 | 13,758 | 13,392 | ||||||
| Provision for discontinued operations | 701 | 1,333 | 2,711 | ||||||
| Gain on sale of Lids Team Sports | (2,404 | ) | (4,685 | ) | — | ||||
| Gain on sale of SureGrip Footwear | (12,297 | ) | — | — | |||||
| Loss on pension buyout | 2,456 | — | — | ||||||
| Tax benefit of stock options and restricted stock | (313 | ) | (150 | ) | (3,061 | ) | |||
| Other | 1,599 | 3,708 | 894 | ||||||
| Effect on cash from changes in working capital and other | |||||||||
| assets and liabilities, net of acquisitions/dispositions: | |||||||||
| Accounts receivable | 1,362 | (6,669 | ) | (1,325 | ) | ||||
| Inventories | (45,396 | ) | 27,827 | (30,955 | ) | ||||
| Prepaids and other current assets | (2,258 | ) | (8,879 | ) | 179 | ||||
| Accounts payable | 24,527 | 2,505 | 27,646 | ||||||
| Other accrued liabilities | (16,302 | ) | (70,890 | ) | 52,694 | ||||
| Other assets and liabilities | 10,062 | 11,223 | (59,696 | ) | |||||
| Net cash provided by operating activities | 161,501 | 145,118 | 189,764 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||
| Capital expenditures | (93,970 | ) | (100,652 | ) | (103,111 | ) | |||
| Acquisitions, net of cash acquired | (22 | ) | (35,063 | ) | (34,918 | ) | |||
| Proceeds from asset sales and sale of businesses | 23,053 | 59,915 | 336 | ||||||
| Net cash used in investing activities | (70,939 | ) | (75,800 | ) | (137,693 | ) | |||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||
| Payments of long-term debt | (6,591 | ) | (24,920 | ) | (31,583 | ) | |||
| Proceeds from issuance of long-term debt | — | 27,417 | 26,253 | ||||||
| Borrowings under revolving credit facility | 340,920 | 401,276 | 280,950 | ||||||
| Payments on revolving credit facility | (357,685 | ) | (311,067 | ) | (280,950 | ) | |||
| Tax benefit of stock options and restricted stock | 313 | 150 | 3,061 | ||||||
| Shares repurchased | (140,499 | ) | (137,648 | ) | (4,635 | ) | |||
| Change in overdraft balances | (8,349 | ) | (600 | ) | 3,489 | ||||
| Additions to deferred note cost | — | (655 | ) | — | |||||
| Exercise of stock options | 1,018 | 1,442 | 2,009 | ||||||
| Other | (3,594 | ) | (2,950 | ) | (43 | ) | |||
| Net cash used in financing activities | (174,467 | ) | (47,555 | ) | (1,449 | ) | |||
| Effect of foreign exchange rate fluctuations on cash | (1,082 | ) | (1,342 | ) | 2,798 | ||||
| Net Increase (Decrease) in Cash and Cash Equivalents | (84,987 | ) | 20,421 | 53,420 | |||||
| Cash and cash equivalents at beginning of period | 133,288 | 112,867 | 59,447 | ||||||
| Cash and cash equivalents at end of period | $ | 48,301 | $ | 133,288 | $ | 112,867 | |||
| Net cash paid for: | |||||||||
| Interest | $ | 4,263 | $ | 3,408 | $ | 2,632 | |||
| Income taxes | 52,384 | 58,940 | 42,816 | ||||||
| Fiscal Year |
| |||||||
| 2024 |
| 2023 |
| 2022 |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| |||
Net earnings (loss) | $ | (16,827 | ) | $ | 71,915 |
| $ | 114,850 |
|
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating |
|
|
|
|
|
| |||
Depreciation and amortization |
| 49,441 |
|
| 42,818 |
|
| 42,969 |
|
Deferred income taxes |
| 3,452 |
|
| (26,394 | ) |
| (18,710 | ) |
Goodwill impairment |
| 28,453 |
|
| — |
|
| — |
|
Impairment of long-lived assets |
| 958 |
|
| 1,550 |
|
| 2,049 |
|
Share-based compensation expense |
| 14,014 |
|
| 14,017 |
|
| 9,132 |
|
Provision for discontinued operations |
| 514 |
|
| 440 |
|
| 132 |
|
Loss (gain) on sale of assets |
| 128 |
|
| 159 |
|
| (19,140 | ) |
Other |
| 1,000 |
|
| 225 |
|
| 766 |
|
Changes in working capital and other assets and liabilities, net of |
|
|
|
|
|
| |||
Accounts receivable |
| (13,287 | ) |
| (1,082 | ) |
| (8,280 | ) |
Inventories |
| 80,352 |
|
| (183,583 | ) |
| 10,829 |
|
Prepaids and other current assets |
| (13,659 | ) |
| 45,386 |
|
| 58,388 |
|
Accounts payable |
| (27,665 | ) |
| (11,839 | ) |
| 3,763 |
|
Other accrued liabilities |
| (2,011 | ) |
| (49,276 | ) |
| 50,927 |
|
Other assets and liabilities |
| (10,067 | ) |
| (69,220 | ) |
| (7,805 | ) |
Net cash provided by (used in) operating activities |
| 94,796 |
|
| (164,884 | ) |
| 239,870 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
| |||
Capital expenditures |
| (60,303 | ) |
| (59,934 | ) |
| (53,905 | ) |
Other investing activities |
| 215 |
|
| — |
|
| 74 |
|
Acquisitions, net of cash acquired |
| — |
|
| — |
|
| (80 | ) |
Proceeds from asset sales |
| 87 |
|
| 0 |
|
| 20,013 |
|
Net cash used in investing activities |
| (60,001 | ) |
| (59,934 | ) |
| (33,898 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
| |||
Borrowings under revolving credit facility |
| 477,841 |
|
| 338,818 |
|
| 29,283 |
|
Payments on revolving credit facility |
| (488,438 | ) |
| (308,768 | ) |
| (46,516 | ) |
Shares repurchased related to share repurchase plan |
| (32,027 | ) |
| (77,470 | ) |
| (78,068 | ) |
Shares repurchased related to taxes for share-based awards |
| (2,249 | ) |
| (3,942 | ) |
| (4,076 | ) |
Change in overdraft balances |
| (2,694 | ) |
| 5,976 |
|
| (516 | ) |
Additions to deferred financing costs |
| (12 | ) |
| (144 | ) |
| (1,276 | ) |
Net cash used in financing activities |
| (47,579 | ) |
| (45,530 | ) |
| (101,169 | ) |
Effect of foreign exchange rate fluctuations on cash |
| (51 | ) |
| (2,187 | ) |
| 631 |
|
Net Increase (Decrease) in Cash |
| (12,835 | ) |
| (272,535 | ) |
| 105,434 |
|
Cash at beginning of year |
| 47,990 |
|
| 320,525 |
|
| 215,091 |
|
Cash at end of year | $ | 35,155 |
| $ | 47,990 |
| $ | 320,525 |
|
Supplemental information: |
|
|
|
|
|
| |||
Interest paid | $ | 7,841 |
| $ | 2,742 |
| $ | 2,331 |
|
Income taxes paid (refunded) |
| 5,888 |
|
| 50,562 |
|
| (178 | ) |
Cash paid for amounts included in measurement of operating lease liabilities |
| 187,129 |
|
| 180,042 |
|
| 193,661 |
|
Operating leased assets obtained in exchange for new operating lease liabilities |
| 128,017 |
|
| 93,068 |
|
| 80,378 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
49
Genesco Inc.
and Subsidiaries
Consolidated Statements of Equity
| In Thousands | Non-Redeemable Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Shares | Non Controlling Interest Non-Redeemable | Total Equity | |||||||||||||||||||||||
| Balance February 1, 2014 | $ | 1,305 | $ | 24,408 | $ | 190,568 | $ | 734,533 | $ | (16,767 | ) | $ | (17,857 | ) | $ | 1,933 | $ | 918,123 | |||||||||||||
| Net earnings | — | — | — | 97,725 | — | — | — | 97,725 | |||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (23,809 | ) | — | — | (23,809 | ) | |||||||||||||||||||||
| Exercise of stock options | — | 69 | 1,749 | — | — | — | — | 1,818 | |||||||||||||||||||||||
| Issue shares – Employee Stock Purchase Plan | — | 3 | 188 | — | — | — | — | 191 | |||||||||||||||||||||||
| Employee and non-employee restricted stock | — | — | 13,392 | — | — | — | — | 13,392 | |||||||||||||||||||||||
| Restricted stock issuance | — | 202 | (202 | ) | — | — | — | — | — | ||||||||||||||||||||||
| Restricted shares withheld for taxes | — | (88 | ) | 88 | (7,125 | ) | — | — | — | (7,125 | ) | ||||||||||||||||||||
| Tax benefit of stock options and | |||||||||||||||||||||||||||||||
| restricted stock exercised | — | — | 3,061 | — | — | — | — | 3,061 | |||||||||||||||||||||||
| Shares repurchased | — | (65 | ) | — | (4,570 | ) | — | — | — | (4,635 | ) | ||||||||||||||||||||
| Other | (31 | ) | (14 | ) | 44 | — | — | — | — | (1 | ) | ||||||||||||||||||||
| Noncontrolling interest – gain | — | — | — | — | — | — | 37 | 37 | |||||||||||||||||||||||
| Balance January 31, 2015 | 1,274 | 24,515 | 208,888 | 820,563 | (40,576 | ) | (17,857 | ) | 1,970 | 998,777 | |||||||||||||||||||||
| Net earnings | — | — | — | 94,569 | — | — | — | 94,569 | |||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (2,037 | ) | — | — | (2,037 | ) | |||||||||||||||||||||
| Exercise of stock options | — | 35 | 1,273 | — | — | — | — | 1,308 | |||||||||||||||||||||||
| Issue shares – Employee Stock Purchase Plan | — | 3 | 131 | — | — | — | — | 134 | |||||||||||||||||||||||
| Employee and non-employee restricted stock | — | — | 13,758 | — | — | — | — | 13,758 | |||||||||||||||||||||||
| Restricted stock issuance | — | 239 | (239 | ) | — | — | — | — | — | ||||||||||||||||||||||
| Restricted shares withheld for taxes | — | (66 | ) | 66 | (4,408 | ) | — | — | — | (4,408 | ) | ||||||||||||||||||||
| Tax benefit of stock options and | |||||||||||||||||||||||||||||||
| restricted stock exercised | — | — | (90 | ) | — | — | — | — | (90 | ) | |||||||||||||||||||||
| Shares repurchased | — | (2,383 | ) | — | (142,502 | ) | — | — | — | (144,885 | ) | ||||||||||||||||||||
| Other | (197 | ) | (20 | ) | 217 | — | — | — | — | — | |||||||||||||||||||||
| Noncontrolling interest – loss | — | — | — | — | — | — | (343 | ) | (343 | ) | |||||||||||||||||||||
| Balance January 30, 2016 | 1,077 | 22,323 | 224,004 | 768,222 | (42,613 | ) | (17,857 | ) | 1,627 | 956,783 | |||||||||||||||||||||
| Net earnings | — | — | 97,431 | — | — | — | 97,431 | ||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (8,679 | ) | — | — | (8,679 | ) | |||||||||||||||||||||
| Exercise of stock options | — | 27 | 991 | — | — | — | — | 1,018 | |||||||||||||||||||||||
| Employee and non-employee restricted stock | — | — | 13,481 | — | — | — | — | 13,481 | |||||||||||||||||||||||
| Restricted stock issuance | — | 236 | (236 | ) | — | — | — | — | — | ||||||||||||||||||||||
| Restricted shares withheld for taxes | — | (56 | ) | 56 | (3,435 | ) | — | — | — | (3,435 | ) | ||||||||||||||||||||
| Tax benefit of stock options and | |||||||||||||||||||||||||||||||
| restricted stock exercised | — | — | (657 | ) | — | — | — | — | (657 | ) | |||||||||||||||||||||
| Shares repurchased | — | (2,156 | ) | — | (131,107 | ) | — | — | — | (133,263 | ) | ||||||||||||||||||||
| Other | (17 | ) | (20 | ) | 38 | — | — | — | — | 1 | |||||||||||||||||||||
| Noncontrolling interest – loss | — | — | — | — | — | — | (159 | ) | (159 | ) | |||||||||||||||||||||
| Balance January 28, 2017 | $ | 1,060 | $ | 20,354 | $ | 237,677 | $ | 731,111 | $ | (51,292 | ) | $ | (17,857 | ) | $ | 1,468 | $ | 922,521 | |||||||||||||
In Thousands
| Non- |
| Common |
| Additional |
| Retained |
| Accumulated |
| Treasury |
| Total |
| |||||||
Balance January 30, 2021 | $ | 1,009 |
| $ | 15,438 |
| $ | 282,308 |
| $ | 320,920 |
| $ | (35,059 | ) | $ | (17,857 | ) | $ | 566,759 |
|
Net earnings |
| — |
|
| — |
|
| — |
|
| 114,850 |
|
| — |
|
| — |
|
| 114,850 |
|
Other comprehensive loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (1,348 | ) |
| — |
|
| (1,348 | ) |
Share-based compensation expense |
| — |
|
| — |
|
| 9,132 |
|
| — |
|
| — |
|
| — |
|
| 9,132 |
|
Restricted stock issuance |
| — |
|
| 244 |
|
| (244 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
Restricted shares withheld for taxes |
| — |
|
| (65 | ) |
| 65 |
|
| (4,076 | ) |
| — |
|
| — |
|
| (4,076 | ) |
Shares repurchased |
| — |
|
| (1,361 | ) |
| — |
|
| (81,488 | ) |
| — |
|
| — |
|
| (82,849 | ) |
Other |
| (182 | ) |
| — |
|
| 183 |
|
| — |
|
| (1 | ) |
| — |
|
| — |
|
Balance January 29, 2022 |
| 827 |
|
| 14,256 |
|
| 291,444 |
|
| 350,206 |
|
| (36,408 | ) |
| (17,857 | ) |
| 602,468 |
|
Net earnings |
| — |
|
| — |
|
| — |
|
| 71,915 |
|
| — |
|
| — |
|
| 71,915 |
|
Other comprehensive loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (4,803 | ) |
| — |
|
| (4,803 | ) |
Share-based compensation expense |
| — |
|
| — |
|
| 14,017 |
|
| — |
|
| — |
|
| — |
|
| 14,017 |
|
Restricted stock issuance |
| — |
|
| 316 |
|
| (316 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
Restricted shares withheld for taxes |
| — |
|
| (73 | ) |
| 73 |
|
| (3,942 | ) |
| — |
|
| — |
|
| (3,942 | ) |
Shares repurchased |
| — |
|
| (1,380 | ) |
| — |
|
| (71,309 | ) |
| — |
|
| — |
|
| (72,689 | ) |
Other |
| (12 | ) |
| (30 | ) |
| 42 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Balance January 28, 2023 |
| 815 |
|
| 13,089 |
|
| 305,260 |
|
| 346,870 |
|
| (41,211 | ) |
| (17,857 | ) |
| 606,966 |
|
Net loss |
| — |
|
| — |
|
| — |
|
| (16,827 | ) |
| — |
|
| — |
|
| (16,827 | ) |
Other comprehensive income |
| — |
|
| — |
|
| — |
|
| — |
|
| 1,587 |
|
| — |
|
| 1,587 |
|
Share-based compensation expense |
| — |
|
| — |
|
| 14,014 |
|
| — |
|
| — |
|
| — |
|
| 14,014 |
|
Restricted stock issuance |
| — |
|
| 296 |
|
| (296 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
Restricted shares withheld for taxes |
| — |
|
| (86 | ) |
| 86 |
|
| (2,249 | ) |
| — |
|
| — |
|
| (2,249 | ) |
Shares repurchased, including excise tax |
| — |
|
| (1,261 | ) |
| — |
|
| (31,028 | ) |
| — |
|
| — |
|
| (32,289 | ) |
Other |
| (2 | ) |
| (77 | ) |
| 79 |
|
| — |
|
| — |
|
| — |
|
| — |
|
Balance February 3, 2024 | $ | 813 |
| $ | 11,961 |
| $ | 319,143 |
| $ | 296,766 |
| $ | (39,624 | ) | $ | (17,857 | ) | $ | 571,202 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
50
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
Nature of Operations
Genesco Inc. and its subsidiaries (collectively the "Company") business includes the sourcing and design, marketing and distribution of footwear, apparel and accessories through retail stores in the U.S., Puerto Rico and Canada primarily under the Journeys®, Journeys Kidz Shi by Journeys,®, Little Burgundy Underground by Journeys® and Johnston & Murphy® banners and under the Schuh banner in the United Kingdom,U.K. and the Republic of IrelandROI; through catalogs and Germany; through e-commerce websites including the following: journeys.com, journeyskidz.com, journeys.ca, shibyjourneys.com, schuh.co.uk, schuh.ie, schuh.eu, littleburgundyshoes.com, johnstonmurphy.com, johnstonmurphy.ca, nashvilleshoewarehouse.com and trask.com and catalogs,dockersshoes.com and at wholesale, primarily under the Company'sour Johnston & Murphy brand, the Trasklicensed Dockers® brand, the licensed DockersLevi's® brand, the licensed G.H. Bass® brand and other brands that the Company licenseswe license for footwear. The Company's business also includes Lids Sports Group, which operates headwear and accessory stores in the U.S. and Canada primarily under the Lids banner; the Lids Locker Room and Lids Clubhouse businesses, consisting of sports-oriented fan shops featuring a broad array of licensed merchandise such as apparel, hats and accessories, sports decor and novelty products, operating under various trade names; licensed team merchandise departments in Macy's department storesAt February 3, 2024, we operated under the name of Locker Room by Lids
During Fiscal 2017, the Company2024, we operated fivefour reportable business segments (not including corporate): (i) Journeys Group, comprised of the Journeys, Journeys Kidz Shi by Journeys,and Little Burgundy and Underground by Journeys retail footwear chains and e-commerce operations and catalog;operations; (ii) Schuh Group, comprised of the Schuh retail footwear chain and e-commerce operations; (iii) Lids Sports Group, comprised as described in the preceding paragraph (An athletic team dealer business operating as Lids Team Sports was sold in the fourth quarter of Fiscal 2016.); (iv) Johnston & Murphy Group, comprised of Johnston & Murphy retail operations, e-commerce and catalog operations and wholesale distribution of products under the Johnston & Murphy
Principles of Consolidation
All subsidiaries are consolidated in the consolidated financial statements.our Consolidated Financial Statements. All significant intercompany transactions and accounts have been eliminated.
Fiscal Year
Our fiscal year ends on the Saturday closest to January 31. AsThis reporting schedule is followed by many national retail companies and typically results in a result,52-week fiscal year, but occasionally will contain an additional week resulting in a 53-week fiscal year. The periods presented in these financial statements each consisted of 52 weeks, except for Fiscal 2017, 2016 and 2015 were 52-week years with 364 days.2024, which consisted of 53 weeks. Fiscal 20172024 ended on February 3, 2024, Fiscal 2023 ended on January 28, 2017,2023 and Fiscal 20162022 ended on January 30, 2016 and Fiscal 2015 ended on January 31, 2015.29, 2022.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash
Our foreign subsidiaries held cash of approximately $23.2 million and $35.9 million as of February 3, 2024 and January 28, 2023, respectively, which is included in cash on the Consolidated Balance Sheets. Based upon evaluation of our worldwide operations and specific plans to remit foreign earnings back to the U.S., we can no longer assert that earnings from certain
51
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
foreign operations will be indefinitely reinvested and have recorded U.S. taxes in accordance with applicable U.S. tax rules and regulations.
The majority of payments due from banks for customer credit cards are classified as cash, as they generally settle within 24-48 hours.
At February 3, 2024 and January 28, 2023, outstanding checks drawn on zero-balance accounts at certain domestic banks exceeded book cash balances at those banks by approximately $3.3 million and $6.0 million, respectively. These amounts are included in accounts payable in our Consolidated Balance Sheets.
Concentration of Credit Risk and Allowances on Accounts Receivable
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 judgments includeoccurrences within the following key financial areas:economy and the retail industry as well as by customer specific factors. In the wholesale businesses, one customer accounted for 18%, one customer accounted for 16%, one customer accounted for 11% and one customer accounted for 10% of our total trade receivables balance, while no other customer accounted for more than 8% of our total trade receivables balance as of February 3, 2024.
We establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information, as well as customer specific factors. We also establish allowances for sales returns, customer deductions and co-op advertising based on specific circumstances, historical trends and projected probable outcomes.
Inventory Valuation
In itsour footwear wholesale operations and itsour Schuh Group segment, cost for inventory that we own is determined using the FIFOfirst-in, first-out ("FIFO") method. MarketNet realizable value is determined using a system of analysis which evaluates inventory at the stock number level based on factors such as inventory turn, average selling price, inventory level, and selling prices reflected in future orders for footwear wholesale. The Company provides reservesWe provide a valuation allowance when the inventory has not been marked down to marketnet realizable value based on current selling prices or when the inventory is not turning and is not expected to turn at levels satisfactory to the Company.
In itsour retail operations, other than the Schuh Group and Lids Sports Group segments, the Company employssegment, we employ the retail inventory method, applying average cost-to-retail ratios to the retail value of inventories. Under the retail inventory method, valuing inventory at the lower of cost or market is achieved as markdowns are taken or accrued as a reduction of the retail value of inventories.
Inherent in the retail inventory method are subjective judgments and estimates, including merchandise mark-on, markups, markdowns and shrinkage. These judgments and estimates, coupled with the
52
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
current agreements to return
Inherent in the analysis of both wholesale and retail inventory valuation are subjective judgments about current market conditions, fashion trends and overall economic conditions. Failure to make appropriate conclusions regarding these factors may result in an overstatement or understatement of inventory value.
Property and Equipment
Property and equipment are recorded at cost and depreciated or amortized over the estimated useful life of related assets. Depreciation and amortization expense are computed principally by the straight-line method over the following estimated useful lives:
Buildings and building equipment | 20-45 years |
Computer hardware, software and equipment | 3-10 years |
Furniture and fixtures | 10 years |
Depreciation expense related to property and equipment was approximately $48.9 million, $42.3 million and $42.4 million for Fiscal 2024, 2023 and 2022, respectively.
Leases
We recognize lease assets and corresponding lease liabilities for all operating leases on the Consolidated Balance Sheets as described under ASC 842. We evaluate renewal options and break options at lease inception and on an ongoing basis and include renewal options and break options that we are reasonably certain to exercise in our expected lease terms for calculations of the right-of-use assets and liabilities. Approximately 3% of our leases contain renewal options. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the reasonably certain lease term. As most of our leases do not provide a determinable implicit rate, we estimate our collateralized incremental borrowing rate based upon a synthetic credit rating and yield curve analysis at the lease commencement or modification date in determining the present value of lease payments. For lease payments in foreign currencies, the incremental borrowing rate is adjusted to be reflective of the risk associated with the respective currency. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment, if any, of operating lease assets. We test right-of-use assets for impairment in the same manner as long-lived assets.
Net lease costs are included within selling and administrative expenses on the Consolidated Statements of Operations.
Asset Retirement Obligations
An asset retirement obligation represents a legal obligation associated with the retirement of a tangible long-lived asset that is incurred upon the acquisition, construction, development, or normal operation of that long-lived asset. Our asset retirement obligations are primarily associated with leasehold improvements that we are contractually obligated to remove at the end of a lease to comply with the lease agreement. We recognize asset retirement obligations at the inception of a lease with such
53
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
conditions if a reasonable estimate of fair value can be made. Asset retirement obligations are recorded in other long-term liabilities in our Consolidated Balance Sheets and are subsequently adjusted for changes in estimated asset retirement obligations. The associated estimated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and depreciated over its useful life.
Our Consolidated Balance Sheets include asset retirement obligations related to leases of $11.0 million and $10.8 million as of February 3, 2024 and January 28, 2023, respectively.
Impairment of Long-Lived Assets
We periodically assessesassess the realizability of itsour long-lived assets, other than goodwill, and evaluatesevaluate such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Asset impairment is determined to exist if estimated future cash flows, undiscounted and without interest charges, are less than the carrying amount. Inherent in the analysis of impairment are subjective judgments about future cash flows. Failure to make appropriate conclusions regarding these judgments may result in an overstatement or understatement of the value of long-lived assets. See also Notes 3
We annually assess our goodwill and 5.
In accordance with ASC 350, we have the option first to assess qualitative assessmentfactors to determine whether events and circumstances indicate that it is more likely than not that goodwill is impaired. If, after such assessment, we conclude that the asset is not impaired, no further action is required. However, if we conclude otherwise, we are required to determine the fair value of the asset using a reporting unit is greater than its carrying amount, a two-stepquantitative impairment test. The quantitative impairment test will not be performed. However, if the results of the qualitative assessment indicate that it is more likely than not thatfor goodwill compares the fair value of aeach reporting unit is less than its carrying amount, then a two-step impairment test is performed. Alternatively,with the Company may elect to bypass the qualitative assessment and proceed directly to the two-step impairment test, on a reporting unit level. The first step is a comparison of the fair value and carrying value of the businessreporting unit with which the goodwill is associated. The Company estimatesIf the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded for the amount, if any, in which the carrying value exceeds the reporting unit's fair value. We estimate fair value using the best information available, and computescompute the fair value derived by ana combination of the market and income approach. The market approach utilizing discounted cash flow projections.is based on observed market data of comparable companies to determine fair value. The income approach usesutilizes a projection of a reporting unit’s estimated operating results and cash flows that isare discounted using a weighted-average cost of capital that reflects current market conditions. A key assumption in the Company’sour fair value estimate is the weighted average cost of capital utilized for discounting itsour cash flow projections in itsour income approach. The Company believes the rate it used in its latest annual test, which was completed at the beginning of the fourth quarter, was consistent with the risks inherent in its business and with industry discount rates. The projection uses management’sour best estimates of economic and market conditions over the projected period including growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements.
Fair Value
The Fair Value Measurements and other intangible assets impairment test from the last dayDisclosures Topic of the fiscal yearCodification defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. This Topic defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the first day ofprincipal or most advantageous market for the fourth fiscal quarter. This voluntary change is preferable under the circumstances as it aligns with the Company's five-year strategic planning cycle that is completedasset or liability in early October. This voluntary change in accounting principle was not made to delay, accelerate or avoid an impairment charge. This change is not applied retrospectively as it is impracticable to do so because retrospective application would require the application of significant estimates and assumptions with the use of hindsight. Accordingly, the change will be applied prospectively.orderly transaction between
54
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
market participants on the carryingmeasurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the reporting unitassets or liabilities.
A financial asset or liability’s classification within the hierarchy is higher than itsdetermined based on the lowest level input that is significant to the fair value theremeasurement.
Revenue Recognition
Revenue is an indication that impairment may existrecognized upon satisfaction of all contractual performance obligations and transfer of control to the second step must be performed to measurecustomer. Revenue is measured as the amount of impairment loss.consideration we expect to be entitled to in exchange for corresponding goods. The amountmajority of impairmentour sales are single performance obligation arrangements for retail sale transactions for which the transaction price is determined by comparing the implied fair value of reporting
A provision for estimated returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Estimated returns are based on historical returns and claims. Actual amounts of markdowns have not differed materially from estimates. Actual returns and claims in any future period may differ from historical experience.
Our Consolidated Balance Sheets include an accrued liability for gift cards of $5.6 million and $6.0 million as of February 3, 2024 and January 28, 2023, respectively. Gift card breakage recognized as revenue was $1.1 million, $1.0 million and $1.0 million for Fiscal 2024, 2023 and 2022, respectively. During Fiscal 2024, we recognized $3.7 million of gift card redemptions and gift card breakage revenue that were included in eachthe gift card liability as of the tax jurisdictions in which it operates. This process involves estimating actual current tax obligations together with assessing temporary differences resulting from differing treatment of certain items for tax and accounting purposes, such as depreciation of propertyJanuary 28, 2023.
55
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
| In thousands | January 28, 2017 | January 30, 2016 | |||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
| U.S. Revolver Borrowings | $ | 49,879 | $ | 50,396 | $ | 58,344 | $ | 58,480 | |||||||
| UK Term Loans | 19,230 | 19,541 | 28,603 | 28,901 | |||||||||||
| UK Revolver Borrowings | 13,796 | 13,956 | 24,818 | 24,630 | |||||||||||
Cost of Sales
For the Company’sour retail operations, the cost of sales includes actual product cost, the cost of transportation to the Company’sour warehouses from suppliers, the cost of transportation from our warehouses to the stores and the cost of transportation from the Company’sour warehouses to the stores.customer. Additionally, the cost of itsour distribution facilities allocated to itsour retail operations is included in cost of sales.
For the Company’sour wholesale operations, the cost of sales includes the actual product cost and the cost of transportation to the Company’s warehouses from suppliers.
Selling and Administrative Expenses
Selling and administrative expenses include all operating costs of the Company excluding (i) those related to the transportation of products from the supplier to the warehouse, (ii) for itsour retail operations, those related to the transportation of products from the warehouse to the store and from the warehouse to the customer and (iii) costs of itsour distribution facilities which are allocated to itsour retail operations. Wholesale and unallocated retail costs
We record buying, merchandising and occupancy costs in selling and administrative expense. Because the Company doeswe do not include these costs in cost of sales, the Company’sour gross margin may not be comparable to other retailers that include these costs in the calculation of gross margin. Retail occupancy costs recorded in selling and administrative expense were $450.9$309.8 million, $432.9$307.5 million and $413.6$299.6 million for Fiscal 2017, 20162024, 2023 and 2015,2022, respectively.
Shipping and Handling Costs
Shipping and handling costs related to inventory purchased from suppliers are included in the cost of inventory and are charged to cost of sales in the period that the inventory is sold. All other shipping and handling costs are charged to cost of sales in the period incurred except for wholesale and unallocated retail costs of distribution and shipping costs for product shipped from stores, which are included in selling and administrative expenses on thein our Consolidated Statements of Operations.
Advertising Costs
Advertising costs are predominantly expensed as incurred. Advertising costs were
$Consideration to Resellers
In itsour wholesale businesses, the Company doeswe do not have any written buy-down programs with retailers, but the Company haswe have provided certain retailers with markdown allowances for obsolete and slow movingslow-moving products that are in the retailer’s inventory. The Company estimatesWe estimate these allowances and providesprovide for
56
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Cooperative Advertising
Cooperative advertising funds are made available to most of the Company’sour wholesale footwear customers. In order for retailers to receive reimbursement under such programs, the retailer must meet
Vendor Allowances
From time to time, the Company negotiateswe negotiate allowances from itsour vendors for markdowns taken or expected to be taken. These markdowns are typically negotiated on specific merchandise and for specific amounts. These specific allowances are recognized as a reduction in cost of sales in the period in which the markdowns are taken. Markdown allowances not attached to specific inventory on hand or already sold are applied to concurrent or future purchases from each respective vendor.
We receive support from some of itsour vendors in the form of reimbursements for cooperative advertising and catalog costs for the launch and promotion of certain products. The reimbursements are agreed upon with vendors and represent specific, incremental, identifiable costs incurred by the Company in sellingus to sell the vendor’s specific products. Such costs and the related reimbursements are accumulated and monitored on an individual vendor basis, pursuant to the respective cooperative advertising agreements with vendors. Such cooperative advertising reimbursements are recorded as a reduction of selling and administrative expenses in the same period in which the associated expense is
Vendor reimbursements of cooperative advertising costs recognized as a reduction of selling and administrative expenses were
$Share-Based Compensation
We have a share-based compensation plan, the Genesco Inc. Amended and Restated 2020 Equity Incentive Plan (the "2020 Plan"), which became effective June 25, 2020 and amended and restated June 22, 2023. Under the 2020 Plan, we may grant non-qualified stock options, restricted stock awards ("RSAs"), restricted stock units ("RSUs") and performance-based share units ("PSUs") and other stock-based awards to our key employees, non-employee directors and consultants. Outstanding PSUs are subject to performance conditions that include either total Company performance metrics or business unit performance metrics along with a requirement that a recipient's service with the Company continue through the end of the performance period. The fair value of RSAs, RSUs and PSUs is determined based on the closing price of our common stock on the date of grant. Forfeitures for these awards are recognized as they occur. Compensation expense for RSAs, RSUs and PSUs, net of forfeitures, is recognized on a straight-line basis over the requisite service period. For PSUs, at the end of each reporting period compensation expense is updated for our expected performance level against the performance goals, which involves judgment as to the achievement of certain performance metrics.
57
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Foreign Currency Translation
The functional currency of the Company'sour 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 a net (gain) loss of $(1.2) million, $2.7 million and $2.4 millionwere not material for Fiscal 2017, 20162024, 2023 and 2015, respectively.2022.
Commitments
As a result of managementthe Togast acquisition, we have a commitment to Samsung C&T America, Inc. (“Samsung”) related to the ultimate sale and non-employee directors. The Company recognizes compensation expensevaluation of related inventories owned by Samsung. If the product is sold below Samsung’s cost, we are committed to Samsung for share-based payments based onthe difference between the sales price and its cost. At February 3, 2024, the related inventory owned by Samsung had a historical cost of $8.5 million. As of February 3, 2024, we believe that we have appropriately accounted for any differences between the fair value of the awards as required by the Compensation - Stock Compensation Topic of the Codification. The Company has not granted any stock options since the first quarter of Fiscal 2008.
Note 1
| Foreign Currency Translation | Unrecognized Pension/Postretirement Benefit Costs | Total Accumulated Other Comprehensive Income (Loss) | ||||||||
| (In thousands) | ||||||||||
| Balance January 30, 2016 | $ | (28,706 | ) | $ | (13,907 | ) | $ | (42,613 | ) | |
| Other comprehensive income (loss) before reclassifications: | ||||||||||
| Foreign currency translation adjustment | (13,412 | ) | — | (13,412 | ) | |||||
| Gain on intra-entity foreign currency transactions | ||||||||||
| (long-term investment nature) | 1,789 | — | 1,789 | |||||||
| Net actuarial gain | — | 3,949 | 3,949 | |||||||
| Amounts reclassified from AOCI: | ||||||||||
| Amortization of net actuarial loss (1) | — | 935 | 935 | |||||||
| Income tax expense | — | 1,940 | 1,940 | |||||||
| Current period other comprehensive income (loss), net of tax | (11,623 | ) | 2,944 | (8,679 | ) | |||||
| Balance January 28, 2017 | $ | (40,329 | ) | $ | (10,963 | ) | $ | (51,292 | ) | |
New Accounting Principles
New Accounting Pronouncements Not Yet Adopted
In January 2017,November 2023, the FASB issued ASU 2017-04, “Intangibles2023-07, "Segment Reporting (Topic 280) - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”Improvements to Reportable Segment Disclosures." The amendment in this ASU 2017-04 simplifies the measurement of goodwill by eliminating the second step from the goodwill impairment test, which requires the comparison of the implied fair value of goodwill with the current carrying amount of goodwill. Instead, under theis intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments in this guidance, an entity shall perform a goodwill impairment test by comparing the fair value of each reporting unit with its carrying amount and an impairment charge is to be recorded for the amount, if any, in which the carrying value exceeds the reporting unit’s fair value. This guidance should be applied prospectively and is effective for public business entities thatASU are United States Securities and Exchange Commission filers for fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017.
In February 2016,December 2023, the FASB issued ASU 2016-02, "Leases".2023-09, “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures.” The standard's core principle isASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in this ASU are required to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information. The standard is effectivebe adopted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, which would be the beginning of our Fiscal 2020 or February 2019.2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. The Company isWe are currently assessingevaluating the impact theof adoption of ASU 2016-02 will have on itsour Consolidated Financial Statements and related disclosures disclosures.
58
Genesco Inc.
and is expecting a material impact because the Company is partySubsidiaries
Notes to a significant number of lease contracts.
Note 3
Goodwill and related disclosures.
Goodwill
The changes in the balance sheet as a deduction from the carrying amount of goodwill by segment were as follows:
(In thousands) |
| Journeys |
|
| Genesco |
|
| Total |
| |||
Balance, January 28, 2023 |
| $ | 9,662 |
|
| $ | 28,461 |
|
| $ | 38,123 |
|
Impairment |
|
| — |
|
|
| (28,453 | ) |
|
| (28,453 | ) |
Effect of foreign currency exchange rates |
|
| (97 | ) |
|
| (8 | ) |
|
| (105 | ) |
Balance, February 3, 2024 |
| $ | 9,565 |
|
| $ | — |
|
| $ | 9,565 |
|
Goodwill Valuation (Genesco Brands Group)
As required under ASC 350, "Intangibles - Goodwill and Other," we annually assess our goodwill and indefinite lived trade names for impairment and on an interim basis if indicators of impairment are present. Our annual assessment date of goodwill and indefinite lived trade names is the debt. ASU 2015-15 allowsfirst day of the fourth quarter. In accordance with ASC 350, when indicators of impairment are present on an entityinterim basis, we must assess whether it is “more likely than not” (i.e., a greater than 50% chance) that an impairment has occurred.
Due to present debt issuance costs associateda dispute during the second quarter of Fiscal 2024 with a revolving lineGenesco Brands Group licensor regarding renewal of credittheir current license in the normal course which was resolved in Fiscal 2025, and based on the requirements of ASC 350, we identified indicators of impairment in the second quarter of Fiscal 2024 and determined that it was "more likely than not" that an impairment had occurred and performed a full valuation of our Togast reporting unit. Consistent with our Fiscal 2023 annual assessment, our analyses included preparing an income approach and a market approach model. The fair value estimates under the income approach are sensitive to significant assumptions required to develop prospective financial information related to growth rates in sales, costs, and estimates of future expected changes in operating margins. Other significant assumptions relate to estimating the weighted average cost of capital utilized for discounting cash flow estimates and terminal period growth rates. These significant assumptions are affected by expectations about future market or economic conditions. The market approach model considers valuations of comparable companies as an input in the determination of the value of the reporting unit.
Based upon the results of these analyses, we concluded the goodwill attributed to Togast was fully impaired. As a result, we recorded a non-cash impairment charge of $28.5 million in the second quarter of Fiscal 2024.
59
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Goodwill and measurement guidance for debt issuance costs are not affected by ASU 2015-03 or ASU 2015-15. These ASU's are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, with early adoption permitted. ASU 2015-03 required the Company to reclassify its deferred financing costs associated with its long-term debt from other noncurrent assets to long-term debt on a retrospective basis. The Company adopted these ASUs in the first quarter of Fiscal 2017. The $0.3 million in deferred financing costs related to the Company's term loans were reclassified to long-term debt from noncurrent assets as of January 30, 2016.
Other intangibles by major classes were as follows:
|
| Trademarks(1) |
|
| Customer Lists(2) |
|
| Other(3) |
|
| Total |
| ||||||||||||||||||||
(In thousands) |
| Feb. 3, |
|
| Jan. 28, |
|
| Feb. 3, |
|
| Jan. 28, |
|
| Feb. 3, |
|
| Jan. 28, |
|
| Feb. 3, |
|
| Jan. 28, |
| ||||||||
Gross other intangibles |
| $ | 24,464 |
|
| $ | 24,077 |
|
| $ | 6,501 |
|
| $ | 6,475 |
|
| $ | 400 |
|
| $ | 400 |
|
| $ | 31,365 |
|
| $ | 30,952 |
|
Accumulated amortization |
|
| — |
|
|
| — |
|
|
| (3,715 | ) |
|
| (3,122 | ) |
|
| (400 | ) |
|
| (400 | ) |
|
| (4,115 | ) |
|
| (3,522 | ) |
Other Intangibles, net |
| $ | 24,464 |
|
| $ | 24,077 |
|
| $ | 2,786 |
|
| $ | 3,353 |
|
| $ | — |
|
| $ | — |
|
| $ | 27,250 |
|
| $ | 27,430 |
|
(1)
| Leases | Customer Lists | Other* | Total | |||||||||||||||||||||
| In thousands | Jan. 28, 2017 | Jan. 30, 2016 | Jan. 28, 2017 | Jan. 30, 2016 | Jan. 28, 2017 | Jan. 30, 2016 | Jan. 28, 2017 | Jan. 30, 2016 | ||||||||||||||||
| Gross other intangibles | $ | 14,625 | $ | 14,841 | $ | 1,958 | $ | 2,622 | $ | 2,009 | $ | 2,053 | $ | 18,592 | $ | 19,516 | ||||||||
| Accumulated amortization | (12,938 | ) | (12,637 | ) | (1,956 | ) | (2,264 | ) | (1,306 | ) | (1,046 | ) | (16,200 | ) | (15,947 | ) | ||||||||
| Net Other Intangibles | $ | 1,687 | $ | 2,204 | $ | 2 | $ | 358 | $ | 703 | $ | 1,007 | $ | 2,392 | $ | 3,569 | ||||||||
The amortization of intangibles including trademarks, was
Note 3
Asset Impairments and Other Charges and Discontinued Operations
Asset impairment charges are reflected as a reduction of the net carrying value of property and equipment and operating lease right of use assets, in asset impairment and other, net in the accompanying Consolidated Statements of Operations.
We recorded a pretax charge to earnings of $1.8 million in Fiscal 2024, including $1.1 million for severance and $1.0 million for asset impairments, partially offset by a $0.3 million insurance gain.
We recorded a pretax charge to earnings of $0.9 million in Fiscal 2023, including $1.6 million for asset impairments, partially offset by a $0.7 million gain on the termination of our pension plan.
We recorded a pretax gain to earnings of
$Note 5
Inventories
(In thousands) | February 3, 2024 |
|
| January 28, 2023 |
| ||
Wholesale finished goods | $ | 57,678 |
|
| $ | 84,209 |
|
Retail merchandise |
| 321,289 |
|
|
| 373,808 |
|
Total Inventories | $ | 378,967 |
|
| $ | 458,017 |
|
60
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 3
Property and Equipment and Other ChargesCurrent Accrued Liabilities
(In thousands) | February 3, 2024 |
| January 28, 2023 |
| ||
Land | $ | 7,092 |
| $ | 7,046 |
|
Buildings and building equipment |
| 75,775 |
|
| 73,707 |
|
Computer hardware, software and equipment |
| 204,525 |
|
| 158,152 |
|
Furniture and fixtures |
| 129,509 |
|
| 128,163 |
|
Construction in progress |
| 4,613 |
|
| 36,256 |
|
Improvements to leased property |
| 346,827 |
|
| 340,533 |
|
Property and equipment, at cost |
| 768,341 |
|
| 743,857 |
|
Accumulated depreciation |
| (528,075 | ) |
| (510,124 | ) |
Total Property and Equipment, net | $ | 240,266 |
| $ | 233,733 |
|
(In thousands) | February 3, 2024 |
| January 28, 2023 |
| ||
Accrued employee compensation | $ | 19,906 |
| $ | 15,715 |
|
Accrued other taxes |
| 9,050 |
|
| 11,551 |
|
Accrued income taxes |
| 1,242 |
|
| 2,296 |
|
Provision for discontinued operations |
| 549 |
|
| 536 |
|
Other accrued liabilities |
| 44,980 |
|
| 51,229 |
|
Total Other Current Accrued Liabilities | $ | 75,727 |
| $ | 81,327 |
|
Note 7
Fair Value
The carrying amounts and Discontinued Operations, Continuedfair values of our financial instruments at February 3, 2024 and January 28, 2023 are:
(In thousands) |
| February 3, 2024 |
|
| January 28, 2023 |
| ||||||||||
|
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||
U.S. revolver borrowings |
| $ | 34,682 |
|
| $ | 34,638 |
|
| $ | 30,000 |
|
| $ | 30,219 |
|
U.K. revolver borrowings |
|
| — |
|
|
| — |
|
|
| 14,858 |
|
|
| 14,864 |
|
| Accrued Provision for Discontinued Operations | |||
| In thousands | Facility Shutdown Costs | ||
| Balance February 1, 2014 | $ | 11,375 | |
| Additional provision Fiscal 2015 | 2,711 | ||
| Charges and adjustments, net | 673 | ||
| Balance January 31, 2015 | 14,759 | ||
| Additional provision Fiscal 2016 | 1,333 | ||
| Charges and adjustments, net | (473 | ) | |
| Balance January 30, 2016 | 15,619 | ||
| Additional provision Fiscal 2017 | 701 | ||
| Charges and adjustments, net | (11,277 | ) | |
| Balance January 28, 2017* | 5,043 | ||
| Current provision for discontinued operations | 3,330 | ||
Total Noncurrent Provision for Discontinued Operations | $ | 1,713 | |
Debt fair values were determined using a
| In thousands | January 28, 2017 | January 30, 2016 | |||||
| Raw materials | $ | 389 | $ | 469 | |||
| Wholesale finished goods | 61,575 | 58,773 | |||||
| Retail merchandise | 501,713 | 470,516 | |||||
| Total Inventories | $ | 563,677 | $ | 529,758 | |||
Carrying amounts reported on the lowest level input that is significantour Consolidated Balance Sheets for cash, receivables and accounts payable approximate fair value due to the fair value measurement.
Long-Lived Assets Held and Used | Level 1 | Level 2 | Level 3 | Impairment Charges | |||||||||||||||
| Measured as of April 30, 2016 | $ | 694 | $ | — | $ | — | $ | 694 | $ | 3,436 | |||||||||
| Measured as of July 30, 2016 | 618 | — | — | 618 | 1,017 | ||||||||||||||
| Measured as of October 29, 2016 | 480 | — | — | 480 | 579 | ||||||||||||||
| Measured as of January 28, 2017 | 206 | — | — | 206 | 1,377 | ||||||||||||||
| Total Asset Impairment Fiscal 2017 | $ | 6,409 | |||||||||||||||||
As of the Codification, the Company recorded
As of these long-lived assets. Discount rate and growth rate assumptions are derived from current economic conditions, expectationsFebruary 3, 2024, we have $6.3 million of management and projected trends of current operating results. As a result, the Company has determined that the majority of the inputs used to value its long-lived assetsinvestments held and used are unobservablewhich were measured using Level 1 inputs that fall within Level 3 of the fair value hierarchy.
61
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 6
Long-Term Debt
| In thousands | January 28, 2017 | January 30, 2016 | |||||
| U.S. Revolver borrowings | $ | 49,879 | $ | 58,344 | |||
| UK term loans | 19,345 | 28,896 | |||||
| UK revolver borrowings | 13,796 | 24,818 | |||||
| Deferred note expense on term loans | (115 | ) | (293 | ) | |||
| Total long-term debt | 82,905 | 111,765 | |||||
| Current portion | 9,175 | 14,182 | |||||
| Total Noncurrent Portion of Long-Term Debt | $ | 73,730 | $ | 97,583 | |||
Credit Facility at
On January 28, 2017, which includes $20.1 million (£16.0 million) related to Genesco (UK) Limited and $29.8 million (C$39.1 million) related to GCO Canada, and had
The Credit Facility provides revolving credit incontinues to be secured by certain assets of the aggregate principal amountCompany and certain subsidiaries of
Deferred financing costs incurred in Fiscal 2022 of
$The Credit Facility is a revolving credit facility in the aggregate principal amount of
$We are secured by a perfected first priority lien and security interest in all tangible and intangible assets and excludes real estate and leaseholds of the Company and certain subsidiaries of the Company, including a pledge of
62
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 6
Long-Term Debt, Continued
The Credit Facility also permits the Companyus to incur senior debt in an amount up to
In addition, the Credit Facility contains certain covenants that, among other things, restrict additional indebtedness, liens and encumbrances, loans and investments, acquisitions, dividends and other restricted payments, transactions with affiliates, asset dispositions, mergers and consolidations, prepayments or material amendments of other indebtednessto certain material documents and other matters
The Credit Facility also contains cash dominion provisions that applydoes not require us to comply with any financial covenants unless Excess Availability, as defined in the event thatCredit Agreement, is less than the Company’sgreater of $22.5 million or 10% of the loan cap. If and during such time as Excess Availability is less than the greater of
The Credit Facility contains customary events of default, including, without limitation, payment defaults, breacheswhich if any of representationsthem occurs, would permit or require the principal of and warranties, covenant defaults, cross-defaults to certain other material indebtedness in excess of specified amounts and to agreements which would have a material adverse effect if breached, certain events of bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts and change in control.
We were in compliance with all the relevant terms and conditions of the Credit Facility as of February 3, 2024.
U.K. Facility Agreement
On November 2, 2022, Schuh entered into the Facility Agreement with Lloyds for a £19.0 million revolving credit facility. The Facility Agreement expires November 2, 2025, with options to request twoone-year extensions to this termination date subject to lender approval, and bears interest at 2.35% over the Bank of England Base Rate. This Facility Agreement replaced Schuh's Facility Letter that would have expired in October 2023. The Facility Agreement includes certain financial covenants at January 28, 2017.specific to Schuh. Following certain customary events of default outlined in the Facility Agreement, payment of outstanding amounts due may be accelerated or the commitments may be terminated. The UK Credit Facilities areFacility Agreement is secured by a pledgecharges over all of all the assets of Schuh, and Schuh's subsidiary, Schuh (ROI) Limited. Pursuant to a Guarantee in favor of Lloyds in its subsidiaries.capacity as security trustee, Genesco Inc. has guaranteed the obligations of Schuh under the Facility Agreement and certain existing ancillary facilities on an unsecured basis.
We were in compliance with all the relevant terms and conditions of the Facility Agreement as of February 3, 2024.
The revolver borrowings outstanding under the Credit Facility at February 3, 2024 included $32.9 million U.S. revolver borrowings and $1.8 million (C$2.4 million) related to GCO Canada ULC. We had outstanding letters of credit of $6.9 million under the Credit Facility at February 3, 2024. These letters of credit support lease and insurance indemnifications.
63
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 7
Leases
We lease our office space and all of itsour retail store locations, certain distribution centerstransportation equipment and transportationother equipment under various noncancelable operating leases. The leases have varying terms and expire at various dates through 2030.2037. The store leases in the United States, Puerto Rico and Canada typically have initial terms of approximately
Under ASC 842, for store, office and equipment leases beginning in Fiscal 2020 and later, we have elected to not separate fixed lease components and non-lease components. Accordingly, we include fixed rental payments, common area maintenance costs, promotional advertising costs and other fixed costs in our measurement of lease liabilities.
Our leases do not provide an implicit rate, so the incremental borrowing rate, based on the information available at commencement or modification date, is used in determining the present value of lease payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. For operating leases that commenced prior to the date of continuing operations was:adoption of the new lease accounting guidance, we used the incremental borrowing rate that corresponded to the initial lease term as of the date of adoption.
Net lease costs are included within selling and administrative expenses on the Consolidated Statements of Operations. The table below presents the components of lease cost for operating leases for the years ended February 3, 2024, January 28, 2023 and January 29, 2022.
(In thousands) |
| Fiscal 2024 |
| Fiscal 2023 |
| Fiscal 2022 |
| |||
Operating lease cost |
| $ | 164,355 |
| $ | 166,617 |
| $ | 174,127 |
|
Variable lease cost |
|
| 14,582 |
|
| 16,966 |
|
| 21,540 |
|
Less: Sublease income |
|
| (173 | ) |
| (314 | ) |
| (246 | ) |
Net Lease Cost |
| $ | 178,764 |
| $ | 183,269 |
| $ | 195,421 |
|
64
| In thousands | 2017 | 2016 | 2015 | ||||||||
| Minimum rentals | $ | 264,129 | $ | 255,083 | $ | 250,077 | |||||
| Contingent rentals | 9,957 | 11,044 | 9,217 | ||||||||
| Sublease rentals | (1,863 | ) | (825 | ) | (852 | ) | |||||
| Total Rental Expense | $ | 272,223 | $ | 265,302 | $ | 258,442 | |||||
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 9
Leases, Continued
| Fiscal Years | In thousands | ||
| 2018 | $ | 245,159 | |
| 2019 | 215,230 | ||
| 2020 | 191,857 | ||
| 2021 | 172,763 | ||
| 2022 | 152,855 | ||
| Later years | 402,013 | ||
| Total Minimum Rental Commitments | $ | 1,379,877 | |
The following table reconciles the maturities of the minimum rentals, the related rental expense is recognized on a straight-line basis and the cumulative expense recognized on the straight-line basis in excess of the cumulative payments is included in deferred rent and other long-termundiscounted cash flows to our operating lease liabilities recorded on the Consolidated Balance Sheets. The Company occasionally receives reimbursements from landlordsSheets at February 3, 2024:
Fiscal Years |
| (In thousands) |
| |
2025 |
| $ | 152,087 |
|
2026 |
|
| 125,851 |
|
2027 |
|
| 94,128 |
|
2028 |
|
| 57,240 |
|
2029 |
|
| 35,180 |
|
Thereafter |
|
| 102,440 |
|
Total undiscounted future minimum lease payments |
|
| 566,926 |
|
Less: Amounts representing interest |
|
| (78,663 | ) |
Total Present Value of Operating Lease Liabilities |
| $ | 488,263 |
|
Our weighted-average remaining lease term and weighted-average discount rate for operating leases as of February 3, 2024 and January 28, 2023 are:
|
| February 3, 2024 | January 28, 2023 |
Weighted-average remaining lease term (years) |
| 5.5 years | 5.5 years |
Weighted-average discount rate |
| 5.3% | 5.1% |
As of February 3, 2024, we have additional operating leases that have not yet commenced with estimated right of use liabilities of $10.5 million. These leases will commence in Fiscal 2025 with lease terms of 1 to be used towards construction of the store the Company intends to lease.
COVID-19 related lease concessions decreased our contractual rent expense over the initial lease term. Tenant allowances of
Note 10
Equity
Non-Redeemable Preferred Stock
|
|
| Number of Shares |
| Amounts in Thousands |
| |||||||||||||||
|
|
| As of Fiscal Year End |
| As of Fiscal Year End |
| |||||||||||||||
Class | Shares Authorized |
| 2024 |
| 2023 |
| 2022 |
| 2024 |
| 2023 |
| 2022 |
| |||||||
Employees’ Subordinated Convertible Preferred |
| 5,000,000 |
|
| 27,845 |
|
| 27,935 |
|
| 28,325 |
| $ | 836 |
| $ | 838 |
| $ | 850 |
|
Stated Value of Issued Shares |
|
|
|
|
|
|
|
|
| 836 |
|
| 838 |
|
| 850 |
| ||||
Employees’ Preferred Stock Purchase Accounts |
|
|
|
|
|
|
|
|
| (23 | ) |
| (23 | ) |
| (23 | ) | ||||
Total Non-Redeemable Preferred Stock |
|
|
|
|
|
|
|
| $ | 813 |
| $ | 815 |
| $ | 827 |
| ||||
65
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 8
Equity,
Employees’ Subordinated Convertible Preferred Stock
Shares Authorized | Number of Shares | Amounts in Thousands | ||||||||||||||||||||
| Class | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||
| Employees’ Subordinated Convertible Preferred | 5,000,000 | 37,646 | 38,196 | 44,836 | 1,129 | 1,146 | 1,345 | |||||||||||||||
| Stated Value of Issued Shares | 1,129 | 1,146 | 1,345 | |||||||||||||||||||
| Employees’ Preferred Stock Purchase Accounts | (69 | ) | (69 | ) | (71 | ) | ||||||||||||||||
| Total Non-Redeemable Preferred Stock | $ | 1,060 | $ | 1,077 | $ | 1,274 | ||||||||||||||||
Stated and liquidation values are 88 times the average quarterly per share dividend paid on common stock for the previous eight quarters (if any), but in no event less than $30 per share. Each share of this issue of preferred stock is convertible into one share of common stock and has one vote per share.
Subordinated Serial Preferred Stock:
Our charter permits the Board of Directors to issue Subordinated Serial Preferred Stock (3,000,000(3,000,000 shares, in aggregate, are authorized) in as many series, each with as many shares and such rights and preferences as the boardBoard may designate. The Company hasWe have shares authorized for $2.30$2.30 Series 1, $4.75$4.75 Series 3, $4.75$4.75 Series 4, Series 6 and $1.50$1.50 Subordinated Cumulative Preferred stocks in amounts of 64,368 shares, 40,449 shares, 53,764 shares, 800,000 shares and 5,000,000 shares, respectively. All of these preferred stocks were mandatorily redeemed by the Companyus in Fiscal 2014. As a result, there are no outstanding shares for any preferred issues of stock other than Employees' Subordinated Convertible Preferred stock shown in the table above.
| In thousands | Non-Redeemable Employees’ Preferred Stock | Employees’ Preferred Stock Purchase Accounts | Total Non-Redeemable Preferred Stock | |||||||||
| Balance February 2, 2014 | $ | 1,382 | $ | (77 | ) | $ | 1,305 | |||||
| Other stock conversions | (37 | ) | 6 | (31 | ) | |||||||
| Balance January 31, 2015 | 1,345 | (71 | ) | 1,274 | ||||||||
| Other stock conversions | (199 | ) | 2 | (197 | ) | |||||||
| Balance January 30, 2016 | 1,146 | (69 | ) | 1,077 | ||||||||
| Other stock conversions | (17 | ) | — | (17 | ) | |||||||
| Balance January 28, 2017 | $ | 1,129 | $ | (69 | ) | $ | 1,060 | |||||
Common Stock:
Common stock-
$1 par value. Authorized: 80,000,000 shares; issued: February 3, 2024 – 11,960,793 shares; January 28,For the year ended January 31, 2017,
For the year ended January 30, 2016,
For the year ended January 29, 2022, shares of common stock were issued as follows: 229,363 restricted shares as part of the 2020 Plan; 14,936 shares to directors in exchange for their services; 64,535 shares withheld for taxes on restricted stock vested in Fiscal 2022; 6,885 shares of restricted stock forfeited in Fiscal 2022; and 6,100 shares were issued in miscellaneous conversions of Employees’ Subordinated Convertible Preferred Stock. In addition, we repurchased and retired 1,360,909 shares of common stock at an average weighted market price of $60.88 for a total of $82.8 million.
66
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 8
Equity, Continued
Restrictions on Dividends and Redemptions of Capital Stock:
Our charter provides that no dividends may be paid and no shares of capital stock acquired for value if there are dividend or redemption arrearages on any senior or equally ranked stock. We do not pay dividends and therefore, there are no redemption arrearages. Exchanges of subordinated serial preferred stock for common stock or other stock junior to such exchanged stock are permitted.
Note 8
Common Stock | Employees’ Preferred Stock | ||||
| Issued at February 1, 2014 | 24,407,724 | 46,069 | |||
| Exercise of options | 68,616 | — | |||
| Issue restricted stock | 185,416 | — | |||
| Issue shares—Employee Stock Purchase Plan | 2,688 | — | |||
| Shares repurchased | (64,709 | ) | — | ||
| Other | (84,373 | ) | (1,233 | ) | |
| Issued at January 31, 2015 | 24,515,362 | 44,836 | |||
| Exercise of options | 35,542 | — | |||
| Issue restricted stock | 219,404 | — | |||
| Issue shares—Employee Stock Purchase Plan | 2,470 | — | |||
| Shares repurchased | (2,383,384 | ) | — | ||
| Other | (66,595 | ) | (6,640 | ) | |
| Issued at January 30, 2016 | 22,322,799 | 38,196 | |||
| Exercise of options | 26,696 | — | |||
| Issue restricted stock | 236,364 | — | |||
| Shares repurchased | (2,155,869 | ) | — | ||
| Other | (75,718 | ) | (550 | ) | |
| Issued at January 28, 2017 | 20,354,272 | 37,646 | |||
| Less shares repurchased and held in treasury | 488,464 | — | |||
| Outstanding at January 28, 2017 | 19,865,808 | 37,646 | |||
Income Taxes
The components of earnings (loss) from continuing operations before income taxes is comprised of the following:
|
| Fiscal Year |
| |||||||||
(In thousands) |
| 2024 |
|
| 2023 |
|
| 2022 |
| |||
United States |
| $ | (43,859 | ) |
| $ | 68,326 |
|
| $ | 130,517 |
|
Foreign |
|
| 22,085 |
|
|
| 21,747 |
|
|
| 22,474 |
|
Total Earnings (Loss) from Continuing Operations before Income Taxes |
| $ | (21,774 | ) |
| $ | 90,073 |
|
| $ | 152,991 |
|
| In thousands | 2017 | 2016 | 2015 | ||||||||
| United States | $ | 129,819 | $ | 136,178 | $ | 150,682 | |||||
| Foreign | 21,595 | 15,355 | 6,307 | ||||||||
| Total Earnings from Continuing Operations before Income Taxes | $ | 151,414 | $ | 151,533 | $ | 156,989 | |||||
Income tax expense from continuing operations is comprised of the following:
|
| Fiscal Year |
| |||||||||
(In thousands) |
| 2024 |
|
| 2023 |
|
| 2022 |
| |||
Current |
|
|
|
|
|
|
|
|
| |||
U.S. federal |
| $ | (3,672 | ) |
| $ | 39,095 |
|
| $ | 48,770 |
|
International |
|
| 3,419 |
|
|
| 2,984 |
|
|
| 3,555 |
|
State |
|
| 744 |
|
|
| 3,805 |
|
|
| 3,798 |
|
Total Current Income Tax Expense |
|
| 491 |
|
|
| 45,884 |
|
|
| 56,123 |
|
Deferred |
|
|
|
|
|
|
|
|
| |||
U.S. federal |
|
| (5,060 | ) |
|
| (25,704 | ) |
|
| (22,542 | ) |
International |
|
| 1,074 |
|
|
| 748 |
|
|
| 54 |
|
State |
|
| 7,438 |
|
|
| (1,438 | ) |
|
| 3,778 |
|
Total Deferred Income Tax Expense (Benefit) |
|
| 3,452 |
|
|
| (26,394 | ) |
|
| (18,710 | ) |
Net Interest Related to Income Taxes |
|
|
|
|
|
|
|
|
| |||
U.S. federal |
|
| (2,728 | ) |
|
| (1,662 | ) |
|
| 583 |
|
International |
|
| — |
|
|
| — |
|
|
| — |
|
State |
|
| 66 |
|
|
| 3 |
|
|
| 48 |
|
Total Net Interest Related to Income Taxes |
|
| (2,662 | ) |
|
| (1,659 | ) |
|
| 631 |
|
Tax Expense Recognized for Unrecognized Tax Benefits (“UTBS”) in the Statement of Operations |
|
|
|
|
|
|
|
|
| |||
U.S. federal |
|
| — |
|
|
| — |
|
|
| — |
|
International |
|
| — |
|
|
| — |
|
|
| — |
|
State |
|
| 573 |
|
|
| — |
|
|
| — |
|
Total Tax Expense Recognized for UTBS in the Statement of Operations |
|
| 573 |
|
|
| — |
|
|
| — |
|
Total Income Tax Expense – Continuing Operations |
| $ | 1,854 |
|
| $ | 17,831 |
|
| $ | 38,044 |
|
67
| In thousands | 2017 | 2016 | 2015 | ||||||||
| Current | |||||||||||
| U.S. federal | $ | 36,998 | $ | 46,515 | $ | 43,146 | |||||
| International | 5,245 | 3,542 | 292 | ||||||||
| State | 5,918 | 8,220 | 8,966 | ||||||||
| Total Current Income Tax Expense | 48,161 | 58,277 | 52,404 | ||||||||
| Deferred | |||||||||||
| U.S. federal | 2,980 | (1,249 | ) | 4,422 | |||||||
| International | 1,182 | 868 | 636 | ||||||||
| State | 1,232 | (1,744 | ) | 154 | |||||||
| Total Deferred Income Tax Expense (Benefit) | 5,394 | (2,125 | ) | 5,212 | |||||||
| Total Income Tax Expense – Continuing Operations | $ | 53,555 | $ | 56,152 | $ | 57,616 | |||||
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 9
Income Taxes, Continued
Reconciliation of the United States federal statutory rate to our effective tax rate from continuing operations is as follows:
|
| Fiscal Year |
| |||||||||
|
| 2024 |
|
| 2023 |
|
| 2022 |
| |||
U. S. federal statutory rate of tax |
|
| 21.00 | % |
|
| 21.00 | % |
|
| 21.00 | % |
State taxes (net of federal tax benefit) |
|
| (0.92 | ) |
|
| 2.08 |
|
|
| 3.94 |
|
Foreign rate differential |
|
| 0.76 |
|
|
| (0.02 | ) |
|
| (0.11 | ) |
Change in valuation allowance |
|
| (33.57 | ) |
|
| (1.12 | ) |
|
| 1.58 |
|
Uncertain tax position |
|
| (2.63 | ) |
|
| — |
|
|
| — |
|
Credits |
|
| 4.54 |
|
|
| (1.18 | ) |
|
| (0.55 | ) |
Global intangible low-tax income |
|
| (2.34 | ) |
|
| — |
|
|
| — |
|
Permanent items |
|
| (4.50 | ) |
|
| 0.64 |
|
|
| (0.05 | ) |
IRS interest |
|
| 9.90 |
|
|
| (1.46 | ) |
|
| — |
|
Other |
|
| (0.75 | ) |
|
| (0.14 | ) |
|
| (0.94 | ) |
Effective Tax Rate |
|
| (8.51 | )% |
|
| 19.80 | % |
|
| 24.87 | % |
We are subject to a tax on global intangible low-tax income (“GILTI”). GILTI taxes foreign income in excess of deemed return on tangible assets of a foreign corporation and we elected to treat this tax as a period cost. The impact from GILTI was not material for Fiscal 2024, 2023 or 2022.
We have a $56.8 million non-current prepaid income tax receivable on our Consolidated Balance Sheets as of February 3, 2024. This receivable relates to the remaining uncollected portion of our $107.2 million carryback of our Fiscal 2021 federal tax losses to prior tax periods under the CARES Act. The Internal Revenue Service ("IRS") is currently auditing the refund claim under the requirements of the Joint Committee on Taxation refund review process. We expect the examination process to extend for more than 12 months. We concluded that all positions in the refund claim met the more-likely-than-not standard based on the technical merits of the position and we recorded the benefit under the requirements of ASC 740. In addition, we recorded a $0.2 million unrecognized tax benefit related to the claim. It is possible the IRS could challenge our interpretation of the technical merits of the positions and the actual amount of the tax benefit may differ from the original refund claim.
68
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 11
Income Taxes, Continued
Deferred tax assets and liabilities are comprised of the following:
(In thousands) | February 3, 2024 |
|
| January 28, 2023 |
| ||
Pensions | $ | 348 |
|
| $ | 502 |
|
Lease obligation |
| 127,220 |
|
|
| 139,486 |
|
Book over tax depreciation |
| 12,976 |
|
|
| 16,430 |
|
Expense accruals |
| 10,054 |
|
|
| 9,471 |
|
Uniform capitalization costs |
| 7,515 |
|
|
| 8,381 |
|
Provisions for discontinued operations and restructurings |
| 561 |
|
|
| 662 |
|
IRC Section 163 interest limitation |
| 1,049 |
|
|
| — |
|
Inventory valuation |
| 1,235 |
|
|
| 706 |
|
Tax net operating loss and credit carryforwards |
| 24,164 |
|
|
| 23,146 |
|
Allowances for bad debts and notes |
| 915 |
|
|
| 760 |
|
Deferred compensation and restricted stock |
| 2,773 |
|
|
| 3,012 |
|
Identified intangibles |
| 5,987 |
|
|
| 1,162 |
|
Other |
| 33 |
|
|
| 33 |
|
Gross deferred tax assets |
| 194,830 |
|
|
| 203,751 |
|
Deferred tax asset valuation allowance |
| (43,961 | ) |
|
| (36,482 | ) |
Deferred tax asset net of valuation allowance |
| 150,869 |
|
|
| 167,269 |
|
Identified intangibles |
| (5,318 | ) |
|
| (6,288 | ) |
Prepaids |
| — |
|
|
| (2,045 | ) |
Right of use asset |
| (119,658 | ) |
|
| (132,050 | ) |
Tax over book depreciation |
| (2,736 | ) |
|
| — |
|
Other |
| (555 | ) |
|
| (832 | ) |
Gross deferred tax liabilities |
| (128,267 | ) |
|
| (141,215 | ) |
Net Deferred Tax Assets | $ | 22,602 |
|
| $ | 26,054 |
|
| January 28, | January 30, | ||||||
| In thousands | 2017 | 2016 | |||||
| Identified intangibles | $ | (31,079 | ) | $ | (29,763 | ) | |
| Prepaids | (3,274 | ) | (3,390 | ) | |||
| Convertible bonds | (1,196 | ) | (1,799 | ) | |||
| Tax over book depreciation | (3,014 | ) | — | ||||
| Total deferred tax liabilities | (38,563 | ) | (34,952 | ) | |||
| Options | — | 101 | |||||
| Deferred rent | 5,488 | 5,119 | |||||
| Pensions | 3,396 | 4,409 | |||||
| Expense accruals | 10,413 | 9,577 | |||||
| Uniform capitalization costs | 16,361 | 14,644 | |||||
| Book over tax depreciation | — | 9,778 | |||||
| Provisions for discontinued operations and restructurings | 2,179 | 6,111 | |||||
| Inventory valuation | 3,728 | 3,954 | |||||
| Tax net operating loss and credit carryforwards | 2,450 | 2,493 | |||||
| Allowances for bad debts and notes | 491 | 378 | |||||
| Deferred compensation and restricted stock | 7,147 | 6,706 | |||||
| Other | 4,458 | 3,825 | |||||
| Gross deferred tax assets | 56,111 | 67,095 | |||||
| Deferred tax asset valuation allowance | (4,305 | ) | (3,352 | ) | |||
| Deferred tax asset net of valuation allowance | 51,806 | 63,743 | |||||
| Net Deferred Tax Assets | $ | 13,243 | $ | 28,791 | |||
The deferred tax balances have been classified in theour Consolidated Balance Sheets as follows:
|
| As of Fiscal Year Ended |
| |||||
(In thousands) |
| 2024 |
|
| 2023 |
| ||
Net non-current asset |
| $ | 26,230 |
|
| $ | 28,563 |
|
Net non-current liability |
|
| (3,628 | ) |
|
| (2,509 | ) |
Net Deferred Tax Assets |
| $ | 22,602 |
|
| $ | 26,054 |
|
| 2017 | 2016 | ||||||
| Net current asset | $ | 21,194 | $ | 28,965 | |||
| Net non-current asset | 85 | 959 | |||||
| Net non-current liability | (8,036 | ) | (1,133 | ) | |||
| Net Deferred Tax Assets | $ | 13,243 | $ | 28,791 | |||
| 2017 | 2016 | 2015 | ||||||
| U. S. federal statutory rate of tax | 35.00 | % | 35.00 | % | 35.00 | % | ||
| State taxes (net of federal tax benefit) | 3.46 | 2.82 | 3.80 | |||||
| Foreign rate differential | (2.93 | ) | (2.60 | ) | (1.56 | ) | ||
| Change in valuation allowance | 0.88 | (0.58 | ) | 0.57 | ||||
| Permanent items | 1.11 | 2.19 | 2.13 | |||||
| Uncertain federal, state and foreign tax positions | (0.90 | ) | 1.23 | (3.06 | ) | |||
| Other | (1.25 | ) | (1.00 | ) | (0.18 | ) | ||
| Effective Tax Rate | 35.37 | % | 37.06 | % | 36.70 | % | ||
As of February 3, 2024 and January 28, 2017, January 30, 2016 and January 31, 2015, the Company had a federal net operating loss carryforward, which was assumed in one of the prior year acquisitions, of
As of each of February 3, 2024 and January 31, 2015, the Company28, 2023, we had state tax credits of $0.4$0.6 million. We provided a valuation allowance against these attributes of $0.6 million $0.6 millionas of each of February 3, 2024 and
As of February 3, 2024 and January 28, 2017, January 30, 2016 and January 31, 2015, the Company2023, we had foreign net operating loss carryforwards of $7.3$41.4 million
69
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 11
Income Taxes, Continued
As of January 28, 2017, the Company hasFebruary 3, 2024, we have provided a total valuation allowance of approximately
As of January 28, 2017, the Company has notFebruary 3, 2024, we have provided for withholding or United States federal incomeless than $0.1 million of deferred taxes on approximately
As of February 3, 2024, foreign tax credit carryforwards of approximately $3.8 million were not consideredavailable to be indefinitely reinvested, the relatedreduce possible future U.S. tax liability may be reduced by foreign income taxes paid on those earnings. The determinationand expire from 2028 to 2031. As a result of the amount of unrecognized deferred tax liability related to these temporary differences is not practicable at this time as this could be significantly impacted by the source location and amount of the distribution, the underlying tax rate already paid on the earnings, foreign withholding taxes and the opportunity to useAct, we may no longer utilize certain U.S. foreign tax credits.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for Fiscal 2017, 2016 and 2015.benefits.
|
| Fiscal Year |
| |||||||||
(In thousands) |
| 2024 |
|
| 2023 |
|
| 2022 |
| |||
Unrecognized Tax Benefit – Beginning of Period |
| $ | 178 |
|
| $ | 178 |
|
| $ | 178 |
|
Gross Increases – Tax Positions in a Current Period |
|
| 573 |
|
|
| — |
|
|
| — |
|
Settlements |
|
| — |
|
|
| — |
|
|
| — |
|
Lapse of Statutes of Limitations |
|
| — |
|
|
| — |
|
|
| — |
|
Unrecognized Tax Benefit – End of Period |
| $ | 751 |
|
| $ | 178 |
|
| $ | 178 |
|
| In thousands | 2017 | 2016 | 2015 | ||||||||
| Unrecognized Tax Benefit – Beginning of Period | $ | 14,639 | $ | 3,997 | $ | 10,960 | |||||
| Gross Increases (Decreases) – Tax Positions in a Prior Period | (7,585 | ) | 9,328 | 231 | |||||||
| Gross Increases (Decreases) – Tax Positions in a Current Period | 491 | 1,403 | (287 | ) | |||||||
| Settlements | (742 | ) | — | — | |||||||
| Lapse of Statutes of Limitations | (1,181 | ) | (89 | ) | (6,907 | ) | |||||
| Unrecognized Tax Benefit – End of Period | $ | 5,622 | $ | 14,639 | $ | 3,997 | |||||
The amount of unrecognized tax benefits as of January 28, 2017, January 30, 2016 and January 31, 2015 which would impact the annual effective tax rate if recognized were
We recognize interest expense and penalties related to the above unrecognized tax benefits within income tax expense on the Consolidated Statements of Operations. Related to the uncertain tax benefits noted above, the CompanyOperations and it was not material for Fiscal 2024, 2023 or 2022. We recorded interest and penalties of approximately
We file income tax returns in federal and in many state and local jurisdictions as well as foreign jurisdictions. With few exceptions, the Company'sour state and local income tax returns for fiscal years ended February 1, 2014January 30, 2021 and beyond remain subject to examination. In addition, the Company haswe have subsidiaries in various foreign jurisdictions that have statutes of limitation generally ranging from
70
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 11
Income Taxes, Continued
The Organization for Economic Co-operation and Development has issued Pillar Two model rules introducing a new global minimum tax of 15% intended to be effective for our tax periods ending February 1, 2025 and forward. While the U.S. has not yet adopted the Pillar Two rules, various other governments around the world are enacting similar legislation. As currently designed, Pillar Two will ultimately apply to our worldwide operations. There remains uncertainty as to the final Pillar Two model rules. We are continuing to evaluate the Pillar Two rules and their potential impact on future periods, but we do not expect the rules to have a material impact on our effective tax rate.
Note 10
Other Postretirement Benefit Plans Continued
We provide health care benefits for early retirees that meet certain age and years of service criteria and life insurance benefits for certain retirees not covered by collective bargaining agreements.retirees. Under the health care plan, early retirees are eligible for benefits until age
As of December 31, 2018, the early retiree medical plan was frozen to new entrants. The grandfathered group of employees as of December 31, 2018 were those that had reached age 45 and Funded Status
The measurement date of the assets and liabilities for the defined benefit pension plan and postretirement medical and life insurance plans is the month-end date that is closest to the Company'sour fiscal year end.
| Pension Benefits | Other Benefits | ||||||||||||||
| In thousands | 2017 | 2016 | 2017 | 2016 | |||||||||||
| Benefit obligation at beginning of year | $ | 100,290 | $ | 125,764 | $ | 6,826 | $ | 6,886 | |||||||
| Service cost | 550 | 450 | 704 | 821 | |||||||||||
| Interest cost | 4,118 | 4,263 | 286 | 245 | |||||||||||
| Plan participants’ contributions | — | — | 158 | 124 | |||||||||||
| Plan settlements | (13,862 | ) | — | — | — | ||||||||||
| Curtailment gain | — | — | — | (755 | ) | ||||||||||
| Benefits paid | (8,308 | ) | (8,841 | ) | (257 | ) | (341 | ) | |||||||
| Actuarial (gain) loss | 4,159 | (21,346 | ) | 1,226 | (154 | ) | |||||||||
| Benefit Obligation at End of Year | $ | 86,947 | $ | 100,290 | $ | 8,943 | $ | 6,826 | |||||||
| Pension Benefits | Other Benefits | ||||||||||||||
| In thousands | 2017 | 2016 | 2017 | 2016 | |||||||||||
| Fair value of plan assets at beginning of year | $ | 90,333 | $ | 103,580 | $ | — | $ | — | |||||||
| Actual gain (loss) on plan assets | 12,531 | (4,406 | ) | — | — | ||||||||||
| Plan settlements | (13,874 | ) | — | — | — | ||||||||||
| Employer contributions | — | — | 99 | 217 | |||||||||||
| Plan participants’ contributions | — | — | 158 | 124 | |||||||||||
| Benefits paid | (8,308 | ) | (8,841 | ) | (257 | ) | (341 | ) | |||||||
| Fair Value of Plan Assets at End of Year | $ | 80,682 | $ | 90,333 | — | — | |||||||||
| Funded Status at End of Year | $ | (6,265 | ) | $ | (9,957 | ) | $ | (8,943 | ) | $ | (6,826 | ) | |||
Our Consolidated Balance Sheets consist of:
| Pension Benefits | Other Benefits | ||||||||||||||
| In thousands | 2017 | 2016 | 2017 | 2016 | |||||||||||
| Current liabilities | $ | — | $ | — | $ | (343 | ) | $ | (274 | ) | |||||
| Noncurrent liabilities | (6,265 | ) | (9,957 | ) | (8,600 | ) | (6,552 | ) | |||||||
| Net Amount Recognized | $ | (6,265 | ) | $ | (9,957 | ) | $ | (8,943 | ) | $ | (6,826 | ) | |||
| Pension Benefits | Other Benefits | ||||||||||||||
| In thousands | 2017 | 2016 | 2017 | 2016 | |||||||||||
| Net loss | $ | 15,430 | $ | 21,415 | $ | 2,518 | $ | 1,417 | |||||||
| Total Recognized in Accumulated Other Comprehensive Loss | $ | 15,430 | $ | 21,415 | $ | 2,518 | $ | 1,417 | |||||||
| In thousands | January 28, 2017 | January 30, 2016 | |||||
| Projected benefit obligation | $ | 86,947 | $ | 100,290 | |||
| Accumulated benefit obligation | 86,947 | 100,290 | |||||
| Fair value of plan assets | 80,682 | 90,333 | |||||
| Pension Benefits | Other Benefits | ||||||||||||||||||||||
| In thousands | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||
| Service cost | $ | 550 | $ | 450 | $ | 450 | $ | 704 | $ | 821 | $ | 526 | |||||||||||
| Interest cost | 4,118 | 4,263 | 4,664 | 286 | 245 | 226 | |||||||||||||||||
| Expected return on plan assets | (5,641 | ) | (5,785 | ) | (6,069 | ) | — | — | — | ||||||||||||||
| Settlement loss recognized | 2,456 | — | — | — | — | — | |||||||||||||||||
| Amortization: | |||||||||||||||||||||||
| Prior service cost | — | — | — | — | — | — | |||||||||||||||||
| Losses | 810 | 4,948 | 3,546 | 125 | 189 | 102 | |||||||||||||||||
| Net amortization | $ | 810 | $ | 4,948 | $ | 3,546 | $ | 125 | $ | 189 | $ | 102 | |||||||||||
| Net Periodic Benefit Cost | $ | 2,293 | $ | 3,876 | $ | 2,591 | $ | 1,115 | $ | 1,255 | $ | 854 | |||||||||||
| Pension Benefits | Other Benefits | ||||||
| In thousands | 2017 | 2017 | |||||
| Net (gain) loss | $ | (2,729 | ) | $ | 1,226 | ||
| Amortization of net actuarial loss | (3,256 | ) | (125 | ) | |||
| Total Recognized in Other Comprehensive Income | $ | (5,985 | ) | $ | 1,101 | ||
| Total Recognized in Net Periodic Benefit Cost and Other Comprehensive Income | $ | (3,692 | ) | $ | 2,216 | ||
| Pension Benefits | Other Benefits | ||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||
| Discount rate | 3.95 | % | 4.30 | % | 3.98 | % | 4.04 | % | |||
| Rate of compensation increase | NA | NA | — | — | |||||||
| Pension Benefits | Other Benefits | ||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||
| Discount rate | 4.30 | % | 3.55 | % | 4.40 | % | 4.04 | % | 3.31 | % | 4.40 | % | |||||
| Expected long-term rate of return on plan assets | 6.35 | % | 6.35 | % | 6.75 | % | — | — | — | ||||||||
| Rate of compensation increase | NA | NA | NA | — | — | — | |||||||||||
| 2017 | 2016 | ||||
| Health care cost trend rate assumed for next year | 8.0 | % | 7.5 | % | |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5 | % | 5 | % | |
| Year that the rate reaches the ultimate trend rate | 2027 | 2021 | |||
| In thousands | 1% Increase in Rates | 1% Decrease in Rates | |||||
| Aggregated service and interest cost | $ | 142 | $ | 237 | |||
| Accumulated postretirement benefit obligation | $ | 1,427 | $ | 1,169 | |||
| Plan Assets | |||||
| January 28, 2017 | January 30, 2016 | ||||
| Asset Category | |||||
| Equity securities | 65 | % | 64 | % | |
| Debt securities | 35 | % | 36 | % | |
| Total | 100 | % | 100 | % | |
| January 28, 2017 (In thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
| Equity Securities: | |||||||||||||||
| International securities | $ | 10,367 | $ | — | $ | — | $ | 10,367 | |||||||
| U.S. securities | 42,041 | — | — | 42,041 | |||||||||||
| Fixed Income Securities | 27,987 | — | — | 27,987 | |||||||||||
| Other: | |||||||||||||||
| Cash Equivalents | 426 | — | — | 426 | |||||||||||
| Other (includes receivables and payables) | (139 | ) | — | — | (139 | ) | |||||||||
| Total Pension Plan Assets | $ | 80,682 | $ | — | $ | — | $ | 80,682 | |||||||
| January 30, 2016 (In thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
| Equity Securities: | |||||||||||||||
| International securities | $ | 11,464 | $ | — | $ | — | $ | 11,464 | |||||||
| U.S. securities | 46,012 | — | — | 46,012 | |||||||||||
| Fixed Income Securities | 32,573 | — | — | 32,573 | |||||||||||
| Other: | |||||||||||||||
| Cash Equivalents | 291 | — | — | 291 | |||||||||||
| Other (includes receivables and payables) | (7 | ) | — | — | (7 | ) | |||||||||
| Total Pension Plan Assets | $ | 90,333 | $ | — | $ | — | $ | 90,333 | |||||||
| Estimated future payments | Pension Benefits ($ in millions) | Other Benefits ($ in millions) | |||||
| 2017 | $ | 7.3 | $ | 0.3 | |||
| 2018 | 7.2 | 0.4 | |||||
| 2019 | 7.0 | 0.4 | |||||
| 2020 | 6.8 | 0.4 | |||||
| 2021 | 6.6 | 0.5 | |||||
| 2022 – 2026 | 30.0 | 2.4 | |||||
Section 401(k) Savings Plan
We have a Section 401(k) Savings Plan available to all employees in the U.S, including retail employees who have completed
Since January 1, 2005, the Company has matched
71
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 11
Earnings Per Share
For the Year Ended January 28, 2017 | For the Year Ended January 30, 2016 | For the Year Ended January 31, 2015 | ||||||||||||||||||||||||||||||
(In thousands, except per share amounts) | Income (Numerator) | Shares (Denominator) | Per-Share Amount | Income (Numerator) | Shares (Denominator) | Per-Share Amount | Income (Numerator) | Shares (Denominator) | Per-Share Amount | |||||||||||||||||||||||
| Earnings from continuing operations | $ | 97,859 | $ | 95,381 | $ | 99,373 | ||||||||||||||||||||||||||
| Basic EPS from continuing operations | ||||||||||||||||||||||||||||||||
| Income from continuing operations available to common shareholders | 97,859 | 20,076 | $ | 4.87 | 95,381 | 22,880 | $ | 4.17 | 99,373 | 23,507 | $ | 4.23 | ||||||||||||||||||||
| Effect of Dilutive Securities from continuing operations | ||||||||||||||||||||||||||||||||
| Options and restricted stock | 58 | 76 | 155 | |||||||||||||||||||||||||||||
Employees’ preferred stock(1) | 38 | 44 | 46 | |||||||||||||||||||||||||||||
| Diluted EPS from continuing operations | ||||||||||||||||||||||||||||||||
| Income from continuing operations available to common shareholders plus assumed conversions | $ | 97,859 | 20,172 | $ | 4.85 | $ | 95,381 | 23,000 | $ | 4.15 | $ | 99,373 | 23,708 | $ | 4.19 | |||||||||||||||||
Basic earnings per share becauseexcludes dilution and is computed by dividing earnings available to common shareholders by the impactweighted average number of doing so was dilutive.
Weighted-average number of shares used for earnings per share is as follows:
|
| Fiscal Year |
| |||||||||
(Shares in thousands) |
| 2024 |
|
| 2023 |
|
| 2022 |
| |||
Weighted-average number of shares - basic |
|
| 11,243 |
|
|
| 12,457 |
|
|
| 14,170 |
|
Common stock equivalents |
|
| — |
|
|
| 250 |
|
|
| 339 |
|
Weighted-average number of shares - diluted |
|
| 11,243 |
|
|
| 12,707 |
|
|
| 14,509 |
|
Common stock equivalents are excluded in Fiscal 2024 due to the Company's Board-approved share repurchase program. The Companyloss from continuing operations.
We repurchased
Note 12
Share-Based Compensation Plans
We have a share-based compensation plans, as of January 28, 2017, are described below. The Company recognizes compensation expense for share-based payments based onplan, the fair value of the awards as required by the Compensation – Stock Compensation Topic of the Codification.
Stock Options and Cash Incentive Plans
Under both plans,the 2009 and 2020 Plans, the exercise price of each stock option equals the market price of the Company’sour stock on the date of grant, and an option’s maximum term is
72
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12
Share-Based Compensation Plans, Continued
In addition, we established the 2020 Restricted Cash Incentive Program (the “Program”) in Fiscal 2021 to attract and retain executive officers and key employees. Officers and employees of stock option activitythe Company or its subsidiaries during Fiscal 2021 were eligible to receive grants under the Program. Total cash of $2.7 million was granted in June 2020 under this Program. Cash granted under the Program will primarily vest 25% per year over four years. The compensation paid under the Program is taxable and changessubject to applicable tax withholding requirements. Compensation expense recognized in selling and administrative expenses in the accompanying Consolidated Statements of Operations for this cash grant was $0.5 million, $0.6 million and $0.7 million for Fiscal 2017, 20162024, Fiscal 2023 and 2015 is presented below:
| Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value (in thousands)(1) | ||||||||||
| Outstanding, February 1, 2014 | 130,854 | $ | 31.67 | ||||||||||
| Granted | — | — | |||||||||||
| Exercised | (68,616 | ) | 26.49 | ||||||||||
| Forfeited | — | — | |||||||||||
| Outstanding, January 31, 2015 | 62,238 | $ | 37.38 | ||||||||||
| Granted | — | — | |||||||||||
| Exercised | (35,542 | ) | 36.81 | ||||||||||
| Forfeited | — | — | |||||||||||
| Outstanding, January 30, 2016 | 26,696 | $ | 38.13 | ||||||||||
| Granted | — | — | |||||||||||
| Exercised | (26,696 | ) | 38.13 | ||||||||||
| Forfeited | — | — | |||||||||||
| Outstanding, January 28, 2017 | — | $ | — | — | $ | — | |||||||
| Exercisable, January 28, 2017 | — | $ | — | — | $ | — | |||||||
Restricted Stock Incentive Plans
Director Restricted Stock
The 20092020 Plan permits grants to non-employee directors on such terms as the Board of Directors may approve. Restricted stock awards were made to independent directors on the date of the annual meeting of shareholders in each of Fiscal 2017, 20162024, 2023 and 2015.2022. The shares granted in each award vested on the earlier of the first anniversary of the grant date and the date of the next annual meeting of shareholders, subject to the director's continued service through that date.
The Board of Directors also approved a grant of 760 additional shares ingrants for Fiscal 2017 to two newly elected directors on the annual meeting date in2024 and Fiscal 2017 on the same terms as the Fiscal 2017 grant to all
We recognized
$Employee Restricted Stock
Under the 20092020 Plan, the Companywe issued
Additionally, we issued 2,523 restricted stock units878, 846 and 919 RSUs in Fiscal 2024, 2023 and 2022, respectively, to certain employees at no cost that vest over three years.years. The fair value of employee restricted stockRSAs and RSUs is charged against income as compensation costexpense over the vesting period. Compensation costexpense recognized in selling and administrative expenses in the accompanying Consolidated Statements of Operations for these shares was
73
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12
Share-Based Compensation Plans, Continued
A summary of the status of the Company’sour nonvested shares of its employee restricted stockour RSAs as of January 28, 2017February 3, 2024 is presented below:
Nonvested Restricted Stock Awards |
| Shares |
|
| Weighted- |
| ||
Nonvested at January 30, 2021 |
|
| 666,090 |
|
| $ | 27.98 |
|
Granted |
|
| 228,444 |
|
|
| 63.40 |
|
Vested |
|
| (162,205 | ) |
|
| 30.47 |
|
Withheld for federal taxes |
|
| (64,535 | ) |
|
| 30.36 |
|
Forfeited |
|
| (6,885 | ) |
|
| 34.89 |
|
Nonvested at January 29, 2022 |
|
| 660,909 |
|
|
| 39.46 |
|
Granted |
|
| 299,068 |
|
|
| 57.91 |
|
Vested |
|
| (166,638 | ) |
|
| 38.03 |
|
Withheld for federal taxes |
|
| (73,137 | ) |
|
| 37.74 |
|
Forfeited |
|
| (31,057 | ) |
|
| 42.86 |
|
Nonvested at January 28, 2023 |
|
| 689,145 |
|
|
| 47.85 |
|
Granted |
|
| 256,866 |
|
|
| 36.21 |
|
Vested |
|
| (210,757 | ) |
|
| 46.10 |
|
Withheld for federal taxes |
|
| (86,179 | ) |
|
| 44.87 |
|
Forfeited |
|
| (76,633 | ) |
|
| 45.32 |
|
Nonvested at February 3, 2024 |
|
| 572,442 |
|
| $ | 44.06 |
|
| Nonvested Restricted Shares | Shares | Weighted-Average Grant-Date Fair Value | ||||
| Nonvested at February 1, 2014 | 581,274 | $ | 52.21 | |||
| Granted | 185,416 | 80.85 | ||||
| Vested | (177,694 | ) | 44.77 | |||
| Withheld for federal taxes | (88,003 | ) | 45.27 | |||
| Forfeited | (13,999 | ) | 65.71 | |||
| Nonvested at January 31, 2015 | 486,994 | 66.70 | ||||
| Granted | 219,404 | 66.43 | ||||
| Vested | (141,795 | ) | 60.08 | |||
| Withheld for federal taxes | (65,783 | ) | 60.62 | |||
| Forfeited | (27,221 | ) | 69.31 | |||
| Nonvested at January 30, 2016 | 471,599 | 69.26 | ||||
| Granted | 236,364 | 65.99 | ||||
| Vested | (125,347 | ) | 67.23 | |||
| Withheld for federal taxes | (55,563 | ) | 67.52 | |||
| Forfeited | (43,051 | ) | 70.60 | |||
| Nonvested at January 28, 2017 | 484,002 | $ | 68.27 | |||
As of January 28, 2017, there was
Performance-Based Share Units
In Fiscal 2024, we granted 96,866 PSUs (assuming target level achievement) to certain members of senior management. The actual number of shares that will be issued will be based on actual performance and can range from 0% and 200% of the shares granted. Performance conditions include both total Company and business unit performance metrics along with a requirement that a recipient's service with the Company continue through the end of the performance period. Compensation expense for PSUs, net of forfeitures, is recognized on a straight-line basis over the requisite service period and is updated for our expected performance level against performance goals at the end of each reporting period, which involves judgment as to the achievement of those goals. If performance goals are achieved, the PSUs will be issued based on the achievement level and will cliff vest in full at the end of the three-year performance period. Any portion of the PSUs that are not earned by the end of the three year period will be forfeited. Under the 2020 Plan,
The weighted average grant date fair value of the 96,866 PSUs granted for Fiscal 2024 was $37.22 per share. There were the last7,612 PSUs forfeited during Fiscal 2024 at a weighted average grant date fair value of $37.22 per share. PSUs outstanding as of February 3, 2024 were 89,254 shares, issued under the ESPP. Under the ESPP, the Company was authorized to issue up to
74
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 14
Share-Based Compensation Plans, Continued
As of February 3, 2024, we had $0.7 million of total unrecognized compensation expense related to non-vested PSUs discussed above. That cost is expected to be recognized over a weighted average period of 2.0 years. There were no modifications to PSUs in Fiscal 2024.
Note 13
Legal Proceedings
Environmental Matters
The Company has legacy obligations including environmental monitoring and the Companyreporting costs related to: (i) a 2016 consent judgment entered into a consent order wherebywith the Company assumed responsibility for conducting a remedial investigation and feasibility study (“RIFS”) and implementing an interim remedial measure (“IRM”) with regard toUnited States Environmental Protection Agency involving the site of a knitting mill operated by a former subsidiary of the Companyours from 1965 to 1969. The United States Environmental Protection Agency (“EPA”), which assumed primary regulatory responsibility for the site from NYSDEC, issued a Record of Decision1969 in September 2007. The Record of Decision specified a remedy of a combination of groundwater extraction and treatment and in-situ chemical oxidation.
During the fourth quarter of Fiscal 2024, we received insurance proceeds totaling $9.4 million ($7.2 million, net of tax) related to legacy environmental matters discussed above. The insurance proceeds are included in gain (loss) from discontinued operations, net of tax on the Consolidated Statements of Operations in Fiscal 2024.
Accrual for Environmental Contingencies
Related to all outstanding environmental contingencies, the Companywe had accrued $4.4 $2.0 million as of February 3, 2024, $1.7 million as of January 28, 2017, $14.52023 and $1.4 million as of January 30, 2016 and $14.1 million as of January 31, 2015.29, 2022. All such provisions reflect the Company'sour estimates of the most likely cost (undiscounted, including both current and noncurrent portions) of resolving the contingencies, based on facts and circumstances as of the time they were made. The Company paid $10.0 million of the accrued total at January 30, 2016 in August 2016. There is no assurance that relevant facts and circumstances will not change, necessitating future changes to the provisions. Such contingent liabilities are included in the liability arising from provision for discontinued operations on the accompanying Condensed Consolidated Balance Sheets because it relates to former facilities operated by the Company. The Company hasus. We have made pretax accruals for certain of these contingencies, including approximately $0.6$0.5 million in Fiscal 2017, $0.82024, $0.4 million in Fiscal 20162023 and $2.8$0.2 million in Fiscal 2015.2022. These charges are included in provision forgain (loss) from discontinued operations, net in the Consolidated Statements of Operations and represent changes in estimates.
75
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 13
Legal Proceedings, Continued
Guarantee Related to Discontinued Operations
As part of the Lids Sports Group sales transaction, the purchaser has agreed to indemnify and hold us harmless in connection with continuing obligations and any guarantees of ours in place as of February 22, 2017, a former employee2, 2019 in respect of a subsidiarypost-closing or assumed liabilities or obligations of the Lids Sports Group business. The purchaser has agreed to use commercially reasonable efforts to have any guarantees by, or continuing obligations of, the Company filed a putative class and collective action,
In addition to the matters specifically described in this Note, the Company iswe are a party to other legal and regulatory proceedings and claims arising in the ordinary course of itsour business. While management does not believe that the Company'sour liability with respect to any of these other matters is likely to have a material effect on itsour financial statements, legal proceedings are subject to inherent uncertainties and unfavorable rulings could have a material adverse impact on the Company'sour financial statements.
Note 14
Business Segment Information
The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
Our reportable segments are based on management's organization of the segments in order to make operating decisions and assess performance along types of products sold. Journeys Group Schuh Group and Lids SportsSchuh Group sell primarily branded products from other companies while Johnston & Murphy Group and LicensedGenesco Brands Group sell primarily the Company'sour owned and licensed
Corporate assets include cash, domestic prepaid rent expense, prepaid income taxes, deferred income taxes, deferred note expense on revolver debt, and corporate fixed assets. The Company charges allocated retail costsassets, corporate operating lease right of distribution to each segment. The Company doesuse assets and miscellaneous investments. We do not allocate certain costs to each segment in order to make decisions and assess performance. These costs include corporate overhead, bank fees, interest expense, interest income, goodwill impairment, asset impairment charges and other, including severance, insurance gains, a gain on the termination of the pension plan, a gain on the sale of a distribution warehouse, major litigation and major lease terminations.
76
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 14
Business Segment Information, Continued
Fiscal 2024 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(In thousands) | Journeys |
| Schuh |
| Johnston |
| Genesco Brands Group |
| Corporate |
| Consolidated |
| ||||||
Sales | $ | 1,363,835 |
| $ | 480,164 |
| $ | 339,460 |
| $ | 145,224 |
| $ | — |
| $ | 2,328,683 |
|
Intercompany sales |
| — |
|
| — |
|
| (14 | ) |
| (4,045 | ) |
| — |
|
| (4,059 | ) |
Net sales to external customers(1) |
| 1,363,835 |
|
| 480,164 |
|
| 339,446 |
|
| 141,179 |
|
| — |
|
| 2,324,624 |
|
Segment operating income (loss) |
| 11,072 |
|
| 21,435 |
|
| 16,314 |
|
| (8 | ) |
| (32,033 | ) |
| 16,780 |
|
Goodwill impairment(2) |
| — |
|
| — |
|
| — |
|
| — |
|
| 28,453 |
|
| 28,453 |
|
Asset impairments and other(3) |
| — |
|
| — |
|
| — |
|
| — |
|
| 1,787 |
|
| 1,787 |
|
Operating income (loss) |
| 11,072 |
|
| 21,435 |
|
| 16,314 |
|
| (8 | ) |
| (62,273 | ) |
| (13,460 | ) |
Other components of net periodic benefit cost |
| — |
|
| — |
|
| — |
|
| — |
|
| 537 |
|
| 537 |
|
Interest expense,net |
| — |
|
| — |
|
| — |
|
| — |
|
| 7,777 |
|
| 7,777 |
|
Earnings (loss) from continuing operations before income taxes | $ | 11,072 |
| $ | 21,435 |
| $ | 16,314 |
| $ | (8 | ) | $ | (70,587 | ) | $ | (21,774 | ) |
Total assets at fiscal year end(4) | $ | 659,150 |
| $ | 200,482 |
| $ | 165,217 |
| $ | 59,630 |
| $ | 245,411 |
| $ | 1,329,890 |
|
Depreciation and amortization |
| 32,419 |
|
| 6,636 |
|
| 5,113 |
|
| 984 |
|
| 4,289 |
|
| 49,441 |
|
Capital expenditures |
| 38,093 |
|
| 12,183 |
|
| 6,785 |
|
| 2,214 |
|
| 1,028 |
|
| 60,303 |
|
| Fiscal 2017 | |||||||||||||||||||||||||||
Journeys Group | Schuh Group | Lids Sports Group | Johnston & Murphy Group | Licensed Brands | Corporate & Other | Consolidated | |||||||||||||||||||||
| In thousands | |||||||||||||||||||||||||||
| Sales | $ | 1,251,646 | $ | 372,872 | $ | 847,510 | $ | 289,324 | $ | 107,210 | $ | 617 | $ | 2,869,179 | |||||||||||||
| Intercompany sales | — | — | — | — | (838 | ) | — | (838 | ) | ||||||||||||||||||
| Net sales to external customers | $ | 1,251,646 | $ | 372,872 | $ | 847,510 | $ | 289,324 | $ | 106,372 | $ | 617 | $ | 2,868,341 | |||||||||||||
| Segment operating income (loss) | $ | 85,875 | $ | 20,530 | $ | 41,563 | $ | 19,682 | $ | 4,566 | $ | (31,058 | ) | $ | 141,158 | ||||||||||||
| Asset Impairments and other* | — | — | — | — | — | 802 | 802 | ||||||||||||||||||||
| Earnings (loss) from operations | 85,875 | 20,530 | 41,563 | 19,682 | 4,566 | (30,256 | ) | 141,960 | |||||||||||||||||||
| Gain on sale of SureGrip Footwear | — | — | — | — | — | 12,297 | 12,297 | ||||||||||||||||||||
| Gain on sale of Lids Team Sports | — | — | — | — | — | 2,404 | 2,404 | ||||||||||||||||||||
| Interest expense | — | — | — | — | — | (5,294 | ) | (5,294 | ) | ||||||||||||||||||
| Interest income | — | — | — | — | — | 47 | 47 | ||||||||||||||||||||
Earnings (loss) from continuing operations before income taxes | $ | 85,875 | $ | 20,530 | $ | 41,563 | $ | 19,682 | $ | 4,566 | $ | (20,802 | ) | $ | 151,414 | ||||||||||||
| Total assets** | $ | 404,773 | $ | 214,886 | $ | 519,912 | $ | 126,559 | $ | 40,357 | $ | 142,419 | $ | 1,448,906 | |||||||||||||
| Depreciation and amortization | 24,235 | 14,003 | 26,533 | 5,987 | 995 | 4,015 | 75,768 | ||||||||||||||||||||
| Capital expenditures | 50,259 | 11,236 | 21,123 | 9,221 | 760 | 1,371 | 93,970 | ||||||||||||||||||||
77
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 16
Business Segment Information, Continued
Fiscal 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(In thousands) | Journeys |
| Schuh |
| Johnston |
| Genesco Brands Group |
| Corporate |
| Consolidated |
| ||||||
Sales | $ | 1,482,203 |
| $ | 432,002 |
| $ | 314,759 |
| $ | 158,684 |
| $ | — |
| $ | 2,387,648 |
|
Intercompany sales |
| — |
|
| — |
|
| — |
|
| (2,760 | ) |
| — |
|
| (2,760 | ) |
Net sales to external customers(1) |
| 1,482,203 |
|
| 432,002 |
|
| 314,759 |
|
| 155,924 |
|
| — |
|
| 2,384,888 |
|
Segment operating income (loss) |
| 94,404 |
|
| 17,601 |
|
| 14,364 |
|
| (678 | ) |
| (31,595 | ) |
| 94,096 |
|
Asset impairments and other(2) |
| — |
|
| — |
|
| — |
|
| — |
|
| 855 |
|
| 855 |
|
Operating income (loss) |
| 94,404 |
|
| 17,601 |
|
| 14,364 |
|
| (678 | ) |
| (32,450 | ) |
| 93,241 |
|
Other components of net periodic benefit cost |
| — |
|
| — |
|
| — |
|
| — |
|
| 248 |
|
| 248 |
|
Interest expense, net |
| — |
|
| — |
|
| — |
|
| — |
|
| 2,920 |
|
| 2,920 |
|
Earnings (loss) from continuing operations before income taxes | $ | 94,404 |
| $ | 17,601 |
| $ | 14,364 |
| $ | (678 | ) | $ | (35,618 | ) | $ | 90,073 |
|
Total assets at fiscal year end(3) | $ | 732,124 |
| $ | 198,813 |
| $ | 194,417 |
| $ | 74,526 |
| $ | 256,546 |
| $ | 1,456,426 |
|
Depreciation and amortization |
| 28,107 |
|
| 6,134 |
|
| 4,352 |
|
| 898 |
|
| 3,327 |
|
| 42,818 |
|
Capital expenditures |
| 27,237 |
|
| 10,330 |
|
| 8,154 |
|
| 1,429 |
|
| 12,784 |
|
| 59,934 |
|
78
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 14
Business Segment Information, Continued
Fiscal 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(In thousands) | Journeys |
| Schuh |
| Johnston |
| Genesco Brands Group |
| Corporate |
| Consolidated |
| ||||||
Sales | $ | 1,576,475 |
| $ | 423,560 |
| $ | 252,855 |
| $ | 170,619 |
| $ | — |
| $ | 2,423,509 |
|
Intercompany sales |
| — |
|
| — |
|
| — |
|
| (1,425 | ) |
| — |
|
| (1,425 | ) |
Net sales to external customers(1) |
| 1,576,475 |
|
| 423,560 |
|
| 252,855 |
|
| 169,194 |
|
| — |
|
| 2,422,084 |
|
Segment operating income (loss) |
| 165,336 |
|
| 19,257 |
|
| 7,029 |
|
| 6,583 |
|
| (50,694 | ) |
| 147,511 |
|
Asset impairments and other(2) |
| — |
|
| — |
|
| — |
|
| — |
|
| (8,056 | ) |
| (8,056 | ) |
Operating income (loss) |
| 165,336 |
|
| 19,257 |
|
| 7,029 |
|
| 6,583 |
|
| (42,638 | ) |
| 155,567 |
|
Other components of net periodic benefit cost |
| — |
|
| — |
|
| — |
|
| — |
|
| 128 |
|
| 128 |
|
Interest expense, net |
| — |
|
| — |
|
| — |
|
| — |
|
| 2,448 |
|
| 2,448 |
|
Earnings (loss) from continuing operations before income taxes | $ | 165,336 |
| $ | 19,257 |
| $ | 7,029 |
| $ | 6,583 |
| $ | (45,214 | ) | $ | 152,991 |
|
Total assets at fiscal year end(3) | $ | 678,680 |
| $ | 207,495 |
| $ | 128,187 |
| $ | 67,658 |
| $ | 480,079 |
| $ | 1,562,099 |
|
Depreciation and amortization |
| 28,903 |
|
| 6,942 |
|
| 4,612 |
|
| 1,081 |
|
| 1,431 |
|
| 42,969 |
|
Capital expenditures |
| 22,438 |
|
| 3,062 |
|
| 4,647 |
|
| 1,071 |
|
| 22,687 |
|
| 53,905 |
|
| Fiscal 2016 | |||||||||||||||||||||||||||
Journeys Group | Schuh Group | Lids Sports Group | Johnston & Murphy Group | Licensed Brands | Corporate & Other | Consolidated | |||||||||||||||||||||
| In thousands | |||||||||||||||||||||||||||
| Sales | $ | 1,251,637 | $ | 405,674 | $ | 976,372 | $ | 278,681 | $ | 110,655 | $ | 912 | $ | 3,023,931 | |||||||||||||
| Intercompany sales | — | — | (868 | ) | — | (829 | ) | — | (1,697 | ) | |||||||||||||||||
| Net sales to external customers | $ | 1,251,637 | $ | 405,674 | $ | 975,504 | $ | 278,681 | $ | 109,826 | $ | 912 | $ | 3,022,234 | |||||||||||||
| Segment operating income (loss) | $ | 126,248 | $ | 19,124 | $ | 17,040 | $ | 17,761 | $ | 9,236 | $ | (30,265 | ) | $ | 159,144 | ||||||||||||
| Asset Impairments and other* | — | — | — | — | — | (7,893 | ) | (7,893 | ) | ||||||||||||||||||
| Earnings (loss) from operations | 126,248 | 19,124 | 17,040 | 17,761 | 9,236 | (38,158 | ) | 151,251 | |||||||||||||||||||
| Gain on sale of Lids Team Sports | — | — | — | — | — | 4,685 | 4,685 | ||||||||||||||||||||
| Interest expense | — | — | — | — | — | (4,414 | ) | (4,414 | ) | ||||||||||||||||||
| Interest income | — | — | — | — | — | 11 | 11 | ||||||||||||||||||||
Earnings (loss) from continuing operations before income taxes | $ | 126,248 | $ | 19,124 | $ | 17,040 | $ | 17,761 | $ | 9,236 | $ | (37,876 | ) | $ | 151,533 | ||||||||||||
| Total assets** | $ | 349,021 | $ | 241,924 | $ | 517,284 | $ | 118,913 | $ | 50,718 | $ | 263,330 | $ | 1,541,190 | |||||||||||||
| Depreciation and amortization | 22,504 | 14,814 | 30,196 | 5,677 | 911 | 4,909 | 79,011 | ||||||||||||||||||||
| Capital expenditures | 33,251 | 19,065 | 37,396 | 7,796 | 774 | 2,370 | 100,652 | ||||||||||||||||||||
| Fiscal 2015 | |||||||||||||||||||||||||||
Journeys Group | Schuh Group | Lids Sports Group | Johnston & Murphy Group | Licensed Brands | Corporate & Other | Consolidated | |||||||||||||||||||||
| In thousands | |||||||||||||||||||||||||||
| Sales | $ | 1,179,476 | $ | 406,947 | $ | 903,451 | $ | 259,675 | $ | 110,896 | $ | 970 | $ | 2,861,415 | |||||||||||||
| Intercompany sales | — | — | (790 | ) | — | (781 | ) | — | (1,571 | ) | |||||||||||||||||
| Net sales to external customers | $ | 1,179,476 | $ | 406,947 | $ | 902,661 | $ | 259,675 | $ | 110,115 | $ | 970 | $ | 2,859,844 | |||||||||||||
| Segment operating income (loss) | $ | 114,784 | $ | 10,110 | $ | 48,970 | $ | 14,856 | $ | 10,459 | $ | (29,632 | ) | $ | 169,547 | ||||||||||||
| Asset Impairments and other* | — | — | — | — | — | (2,281 | ) | (2,281 | ) | ||||||||||||||||||
| Earnings (loss) from operations | 114,784 | 10,110 | 48,970 | 14,856 | 10,459 | (31,913 | ) | 167,266 | |||||||||||||||||||
| Indemnification asset write-off | — | — | — | — | — | (7,050 | ) | (7,050 | ) | ||||||||||||||||||
| Interest expense | — | — | — | — | — | (3,337 | ) | (3,337 | ) | ||||||||||||||||||
| Interest income | — | — | — | — | — | 110 | 110 | ||||||||||||||||||||
Earnings (loss) from continuing operations before income taxes | $ | 114,784 | $ | 10,110 | $ | 48,970 | $ | 14,856 | $ | 10,459 | $ | (42,190 | ) | $ | 156,989 | ||||||||||||
| Total assets** | $ | 292,536 | $ | 246,570 | $ | 660,833 | $ | 109,791 | $ | 47,066 | $ | 226,094 | $ | 1,582,890 | |||||||||||||
| Depreciation and amortization | 20,785 | 14,114 | 29,711 | 4,935 | 725 | 4,056 | 74,326 | ||||||||||||||||||||
| Capital expenditures | 26,180 | 21,382 | 43,013 | 8,196 | 979 | 3,361 | 103,111 | ||||||||||||||||||||
79
| (In thousands, | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Fiscal Year | |||||||||||||||||||||||||||||||||||
| except per share amounts) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||||
| Net sales | $ | 648,793 | $ | 660,597 | $ | 625,557 | $ | 655,525 | $ | 710,822 | $ | 773,898 | $ | 883,169 | $ | 932,214 | $ | 2,868,341 | $ | 3,022,234 | ||||||||||||||||||||
| Gross margin | 329,697 | 326,333 | 314,737 | 320,091 | 355,635 | 373,886 | 417,457 | 423,156 | 1,417,526 | 1,443,466 | ||||||||||||||||||||||||||||||
| Earnings from continuing operations before income taxes | 16,760 | (1) | 15,609 | (3) | 21,199 | (5) | 11,568 | (7) | 38,860 | (9) | 50,720 | (11) | 74,595 | (13) | 73,636 | (15) | 151,414 | 151,533 | ||||||||||||||||||||||
| Earnings from continuing operations | 10,564 | 9,945 | 14,504 | 7,593 | 25,948 | 32,855 | 46,843 | 44,988 | 97,859 | 95,381 | ||||||||||||||||||||||||||||||
| Net earnings | 10,410 | (2) | 9,878 | (4) | 14,578 | (6) | 7,520 | (8) | 25,895 | (10) | 32,507 | (12) | 46,548 | (14) | 44,664 | (16) | 97,431 | 94,569 | ||||||||||||||||||||||
| Diluted earnings per common share: | ||||||||||||||||||||||||||||||||||||||||
| Continuing operations | 0.50 | 0.42 | 0.72 | 0.32 | 1.30 | 1.43 | 2.40 | 2.07 | 4.85 | 4.15 | ||||||||||||||||||||||||||||||
| Net earnings | 0.50 | 0.42 | 0.72 | 0.32 | 1.30 | 1.42 | 2.39 | 2.06 | 4.83 | 4.11 | ||||||||||||||||||||||||||||||
ITEM 9,9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A,9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
We have established disclosure controls and procedures to ensure that material information relating to the Company,us, including itsour consolidated subsidiaries, is made known to the officers who certify the Company'sour financial reports and to other members of senior management and Board of Directors.
Based on their evaluation as of January 28, 2017,February 3, 2024, the principal executive officer and principal financial officer of the Company have concluded that the Company'sour disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), were effective to ensure that the information required to be disclosed by the Companyus in the reports that it fileswe file or submitssubmit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Company'sour management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Management’s annual report on internal control over financial reporting.
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. The Company’sOur internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Company’sour internal control over financial reporting as of January 28, 2017.February 3, 2024. In making this assessment, management used the criteria set forth in
Ernst & Young LLP, the independent registered public accounting firm who also audited the Company’sour Consolidated Financial Statements, has issued an attestation report on the Company’s effectiveness of internal control over financial reporting which is included herein.
Changes in internal control over financial reporting.
There were no changes in the Company'sour internal control over financial reporting that occurred during the Company'sour last fiscal quarter that have materially affected or are reasonablereasonably likely to materially affect the Company'sour internal control over financial reporting.
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ITEM 9B,9B. OTHER INFORMATION
During the fourth quarter of Fiscal 2024, no director or Section 16 officer of the Company adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408 (a) of Regulation S-K).
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10,10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Certain information required by this item is incorporated herein by reference to the sections entitled “Election of Directors,” “Corporate Governance” and “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” in the Company’sour definitive proxy statement for itsour annual meeting of shareholders to be held June 22, 2017,27, 2024, to be filed with the Securities and Exchange Commission. Pursuant to General Instruction G(3), certain information concerning theour executive officers of the Company appears under Part I, Item 4A, “Executive Officers of the Registrant”“Information about Our Executive Officers” in this report following Item 4, "Mine Safety Disclosures" of Part I.
We have a code of ethics (the “Code of Ethics”) that applies to all of itsour directors, officers (including itsour chief executive officer, chief financial officer and chief accounting officer) and employees. The Company hasWe have made the Code of Ethics available and intendsintend to post any legally required amendments to, or waivers of, such Code of Ethics on itsour website at
ITEM 11,11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the sections entitled “Director Compensation,” “Compensation Committee Report” and “Executive Compensation” in the Company’sour definitive proxy statement for itsour annual meeting of shareholders to be held June 22, 2017,27, 2024, to be filed with the Securities and Exchange Commission.
81
ITEM 12,12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Certain information required by this item is incorporated herein by reference to the section entitled “Security Ownership of Officers, Directors and Principal Shareholders” in the Company’sour definitive proxy statement for itsour annual meeting of shareholders to be held June 22, 2017,27, 2024, to be filed with the Securities and Exchange Commission.
The following table provides certain information as of January 28, 2017February 3, 2024 with respect to our equity compensation plans:
EQUITY COMPENSATION PLAN INFORMATION*
Plan Category |
| (a) |
|
| (b) |
|
| (c) |
| |||
Equity compensation plans approved by security holders |
|
| 878 |
|
| $ | — |
|
|
| 730,381 |
|
Equity compensation plans not approved by security holders |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 878 |
|
| $ | — |
|
|
| 730,381 |
|
(1)
| Plan Category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | (b) Weighted-average exercise price of outstanding options, warrants and rights | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (2) | ||||||
| Equity compensation plans approved by security holders | 2,523 | $ | — | 2,556,824 | |||||
| Equity compensation plans not approved by security holders | — | — | — | ||||||
| Total | 2,523 | $ | — | 2,556,824 | |||||
| Such shares may be issued as restricted shares or other forms of stock-based compensation pursuant to our stock incentive plans. |
* For additional information concerning our equity compensation plans, see the discussion in Note 14, "Share-Based Compensation Plans".
The information required by this item is incorporated herein by reference to the section entitled “Election of Directors” in the Company’sour definitive proxy statement for itsour annual meeting of shareholders to be held June 22, 2017,27, 2024, to be filed with the Securities and Exchange Commission.
ITEM 14,14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated herein by reference to the section entitled “Audit Matters” in the Company’sour definitive proxy statement for itsour annual meeting of shareholders to be held June 22, 2017,27, 2024, to be filed with the Securities and Exchange Commission.
82
PART IV
ITEM 15,15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
The following consolidated financial statements of Genesco Inc. and Subsidiaries are filed as part of this report under Item 8, Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, February 3, 2024 and January 28, 2017 and January 30, 2016
Consolidated Statements of Operations, each of the three fiscal years ended 2017, 20162024, 2023 and 2015
Consolidated Statements of Comprehensive Income (Loss), each of the three fiscal years ended 2017, 20162024, 2023 and 2015
Consolidated Statements of Cash Flows, each of the three fiscal years ended 2017, 20162024, 2023 and 2015
Consolidated Statements of Equity, each of the three fiscal years ended 2017, 20162024, 2023 and 2015
Notes to Consolidated Financial Statements
Financial Statement Schedules
Schedule 2 — Valuation and Qualifying Accounts, each of the three fiscal years ended 2017, 20162024, 2023 and 2015
All other schedules are omitted because the required information is either not applicable or is presented in the financial statements or related notes. These schedules begin on page 114.
Exhibits
(2) | a. | ||
b. | |||
c. | |||
(3) | a. | ||
b. | |||
(4) | a. | ||
b. |
83
(10) | a. |
| February 3, 2018. | |||
b. | |||
c. | |||
d. | |||
e. | |||
f. | |||
g. | |||
h. | |||
i. | |||
j. | |||
k. | |||
l. | |||
m. | |||
n. | |||
o. | |||
p. | |||
q. | |||
r. | |||
84
s. | |||
t. | Form of Indemnification Agreement For Directors. Incorporated by reference to Exhibit (10)m to the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 1993 (File No.1-3083). (P) | ||
u. | |||
v. | |||
w. | |||
x. | |||
y. | |||
z. | |||
aa. | |||
bb. | |||
cc. | |||
dd. | |||
ee. | |||
ff. | |||
gg. | |||
hh. | |||
ii. | |||
jj. | |||
kk. | |||
(21) | |||
(23) | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm included on page | ||
(24) | |||
(31.1) | |||
85
(31.2) | |||
(32.1) | |||
(32.2) | |||
(97) | Genesco Inc. Amended and Restated Compensation Recoupment Policy, dated as of October 26, 2023. | ||
101 | The following materials from Genesco Inc.'s Annual Form on Form 10-K for the year ended February 3, 2024, formatted in Inline XBRL | ||
104 | Cover Page Interactive Data File (formatted as Inline XBRL | ||
Exhibits (10)ce through (10)k,s and (10)ov through (10)q and (10)w through (10)xcc are Management Contracts or Compensatory Plans or Arrangements required to be filed as Exhibits to this Annual Report on Form 10-K.
* Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment.
A copy of any of the above described exhibits will be furnished to the shareholders upon written request, addressed to Director, Corporate Relations, Genesco Inc., Genesco Park, Room 498, P.O. Box 731,535 Marriott Drive, 12th Floor, Nashville, Tennessee 37202-0731,37215, accompanied by a check in the amount of $15.00 payable to Genesco Inc.
ITEM 16,16. FORM 10-K SUMMARY
None.
86
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration statement (Form S-8 No. 333-08463) of Genesco Inc.,
(2) Registration statement (Form S-8 No. 333-104908) of Genesco Inc.,
(3) Registration statement (Form S-8 No. 333-40249) of Genesco Inc.,
(4) Registration statement (Form S-8 No. 333-128201) of Genesco Inc.,
(5) Registration statement (Form S-8 No. 333-160339) of Genesco Inc., and
(6) Registration statement (Form S-8 No. 333-180463) of Genesco Inc.
(7) Registration statement (Form S-8 No. 333-218670) of Genesco Inc.,
(8) Registration statement (Form S-8 No. 333-248715) of Genesco Inc., and
(9) Registration statement (Form S-8 No. 333-274394) of Genesco Inc.
of our reports dated March 29, 2017,27, 2024, with respect to the consolidated financial statements and schedule of Genesco Inc. and Subsidiaries and the effectiveness of internal control over financial reporting of Genesco Inc. and Subsidiaries and included in this Annual Report (Form 10-K) of Genesco Inc. for the year ended January 28, 2017.
/s/ Ernst & Young LLP | ||
Nashville, Tennessee | ||
March |
87
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GENESCO INC. | ||
By: | /s/Thomas A. George | |
Thomas A. George | ||
Senior Vice President – Finance and | ||
Chief Financial Officer | ||
Date: March 29, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 29th9th day of March, 2017.
/s/Mimi Eckel Vaughn | ||
Board Chair, President, Chief Executive Officer | ||
Mimi Eckel Vaughn | ||
(Principal Executive Officer) | ||
/s/ | Senior Vice President – Finance and | |
Thomas A. George | Chief Financial Officer | |
(Principal Financial Officer) | ||
/s/ | Vice President and Chief Accounting Officer | |
Brently G. Baxter | (Principal Accounting Officer) | |
Directors: | ||
Joanna Barsh* | Angel R. Martinez * | |
Matthew Bilunas* | Mary Meixelsperger* | |
Carolyn Bojanowski * | Gregory A. Sandfort* | |
John F. Lambros.* | Mimi E. Vaughn* | |
Thurgood Marshall, Jr.* | ||
*By | /s/Scott E. Becker | |
Scott E. Becker | ||
Attorney-In-Fact | ||
88
Genesco Inc. | ||
and Subsidiaries | ||
Financial Statement Schedule | ||
February 3, 2024 | |
89
Schedule 2
Genesco Inc.
and Subsidiaries
Valuation and Qualifying Accounts
Year Ended February 3, 2024
(In thousands) |
| Beginning |
|
| Charged |
|
| Reductions |
|
| Ending |
| ||||
Allowances deducted from assets in the balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts Receivable Allowances |
| $ | 3,710 |
|
| $ | 662 |
|
| $ | (106 | ) |
| $ | 4,266 |
|
Markdown Allowance (1) |
| $ | 6,018 |
|
| $ | 3,818 |
|
| $ | (3,607 | ) |
| $ | 6,229 |
|
Year Ended January 28, 2017
| In Thousands | Beginning Balance | Charged to Profit and Loss | Reductions | Ending Balance | |||||||||||
| Reserves deducted from assets in the balance sheet: | |||||||||||||||
| Accounts Receivable Allowances | $ | 2,960 | $ | 442 | $ | (329 | ) | $ | 3,073 | ||||||
| Markdown Reserves (1) | $ | 11,632 | $ | 3,322 | $ | (2,088 | ) | $ | 12,866 | ||||||
(In thousands) |
| Beginning |
|
| Charged |
|
| Reductions |
|
| Ending |
| ||||
Allowances deducted from assets in the balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts Receivable Allowances |
| $ | 4,656 |
|
| $ | (78 | ) |
| $ | (868 | ) |
| $ | 3,710 |
|
Markdown Allowance (1) |
| $ | 3,159 |
|
| $ | 4,275 |
|
| $ | (1,416 | ) |
| $ | 6,018 |
|
Year Ended January 30, 2016
(In thousands) |
| Beginning |
|
| Charged |
|
| Reductions |
|
| Ending |
| ||||
Allowances deducted from assets in the balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts Receivable Allowances |
| $ | 5,015 |
|
| $ | 19 |
|
| $ | (378 | ) |
| $ | 4,656 |
|
Markdown Allowance (1) |
| $ | 14,951 |
|
| $ | — |
|
| $ | (11,792 | ) |
| $ | 3,159 |
|
(1)
| In Thousands | Beginning Balance | Charged to Profit and Loss | Reductions | Ending Balance | |||||||||||
| Reserves deducted from assets in the balance sheet: | |||||||||||||||
| Accounts Receivable Allowances | $ | 4,191 | $ | 637 | $ | (1,868 | ) | $ | 2,960 | ||||||
| Markdown Reserves (1) | $ | 10,246 | $ | 6,560 | $ | (5,174 | ) | $ | 11,632 | ||||||
| In Thousands | Beginning Balance | Charged to Profit and Loss | Reductions | Ending Balance | |||||||||||
| Reserves deducted from assets in the balance sheet: | |||||||||||||||
| Accounts Receivable Allowances | $ | 4,420 | $ | 390 | $ | (619 | ) | $ | 4,191 | ||||||
| Markdown Reserves (1) | $ | 5,369 | $ | 6,000 | $ | (1,123 | ) | $ | 10,246 | ||||||
90