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 February 2, 2019
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from to
Commission File No. 1-3083
Genesco Inc.
(Exact name of registrant as specified in its charter)
Tennessee | 62-0211340 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Genesco Park, | 1415 Murfreesboro Pike | 37217-2895 | |
Nashville, | Tennessee | (Zip Code) | |
(Address of principal executive offices) | |||
Registrant’s telephone number, including area code: (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; a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |
Emerging Growth company | ☐ | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant 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. ☒
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 August 4, 2018, 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 15, 2019,
Documents Incorporated by Reference
Certain portions of registrant’s Definitive Proxy Statement for its 2021 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 27, 2019 annual meeting of shareholdersregistrant’s fiscal year ended January 30, 2021) are incorporated by reference into Part III by reference.
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*All or a portion of the referenced section is incorporated by reference from our Definitive Proxy Statement for our 2021 Annual Meeting of the Shareholders (which is expected to be filed with the SEC within 120 days after the end of Fiscal 2021).
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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, risks related to public health and safety issues, including, for example, risks related to the ongoing novel coronavirus ("COVID-19") pandemic, as well as the timing and availability of effective medical treatments and the ongoing rollout of vaccines in response to the COVID-19 pandemic, including disruptions to our business, sales, supply chain and financial results, the level of consumer spending on our merchandise and in general, the level and timing of promotional activity necessary to protect our reputation and maintain inventories at appropriate levels, the timing and amount of any share repurchases by us, risks related to doing business internationally, including the manufacturing of a portion of our products in China, the increasing scope of our non-U.S. operations, the imposition of tariffs on products imported by us or our vendors as well as the ability and costs to move production of products in response to tariffs, our ability to obtain from suppliers products that are in-demand on a timely basis and effectively manage disruptions in product supply or distribution, unfavorable trends in fuel costs, foreign exchange rates, foreign labor and material costs, a disruption in shipping or increase in cost of our imported products, and other factors affecting the cost of products, our dependence on third-party vendors and licensors for the products we sell, the effects of the British decision to exit the European Union and other sources of market weakness in the U.K. and the Republic of Ireland (“ROI”), the effectiveness of our omnichannel initiatives, costs associated with changes in minimum wage and overtime requirements, wage pressure in the U.S. and the U.K., the evolving regulatory landscape related to our use of social media, the establishment and protection of our intellectual property, weakness in the consumer economy and retail industry, competition and fashion trends in our markets, including trends with respect to the popularity of casual and dress footwear, weakness in shopping mall traffic, any failure to increase sales at our existing stores, given our high fixed expense cost structure, and in our e-commerce businesses, risks related to the potential for terrorist events, changes in buying patterns by significant wholesale customers, changes in consumer preferences, our ability to continue to complete and integrate acquisitions, expand our business and diversify our product base, impairment of goodwill in connection with acquisitions, payment related risks that could increase our operating cost, expose us to fraud or theft, subject us to potential liability and disrupt our business, retained liabilities associated with divestitures of businesses including potential liabilities under leases as the prior tenant or as a guarantor of certain leases, and changes in the timing of holidays or in the onset of seasonal weather affecting period-to-period sales comparisons. Additional factors that could cause differences from expectations include the ability to open additional retail stores, to renew leases in existing stores, to control or lower occupancy costs, and to conduct required remodeling or refurbishment on schedule and at expected expense levels, our ability to realize anticipated cost savings, including rent savings, our ability to realize any anticipated tax benefits, our ability to achieve expected digital gains and gain market share, deterioration in the performance of individual businesses or of our market value relative to our book value, resulting in impairments of fixed assets, operating lease right of use assets or intangible assets or other adverse financial consequences and the timing and amount of such impairments or other consequences, unexpected changes to the market for our shares or for the retail sector in general, costs and reputational harm as a result of disruptions in our business or information technology systems either by security breaches and incidents or by potential problems associated with the implementation of new or upgraded systems, uncertainty regarding the expected phase out of the London Interbank Offered Rate ("LIBOR"), and the cost and outcome of litigation, investigations and environmental matters that involve us. For a full discussion of risk factors, see Item 1A, "Risk Factors".
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PART I
ITEM 1, BUSINESS
General
Genesco Inc. ("Genesco", “Company”, "we", "our", or the “Company”"us"), 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 20192021 of $2.2$1.8 billion. During Fiscal 2019, the Company2021, we operated four reportable business segments (not including corporate): (i) Journeys Group, comprised of the Journeys®, Journeys Kidz® and Little Burgundy® retail footwear chains and e-commerce operations and catalog;operations; (ii) Schuh Group, comprised of the Schuh retail footwear chain and e-commerce operations; (iii) Johnston & Murphy Group, comprised of Johnston & Murphy® retail operations, e-commerce operations and catalog and wholesale distribution of products under the Johnston & Murphy
Effective January 1, 2020, we completed the acquisition of substantially all the assets and the assumption of certain liabilities of Togast LLC, Togast Direct, LLC and TGB Design, LLC (collectively, "Togast"). Togast specializes in the design, sourcing and sale of licensed footwear. We also entered into a new U.S. footwear license fromagreement with Levi Strauss & Company,Co. for the license of Levi's® footwear for men, women and children in the U.S. concurrently with the Togast acquisition. The acquisition expands our portfolio to include footwear licenses for G.H. Bass Footwearand FUBU, among others. Togast operates in our Licensed Brands segment.
At January 30, 2021, we operated under a license from G-III Apparel Group, Ltd., which was terminated in January 2018, and other brands. On February 2, 2019, the Company completed the sale of its Lids Sports Group business. As a result, the Company reported the operating results of this business in "(Loss) earnings from discontinued operations, net" in the Consolidated Statements of Operations for all periods presented. In addition, the related assets and liabilities as of February 3, 2018 have been reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheets. Unless otherwise noted, the discussion that follows relates to continuing operations.
The following table sets forth certain additional information concerning the Company’sour retail footwear and accessory stores during the five most recent fiscal years:
|
| Fiscal 2017 |
|
| Fiscal 2018 |
|
| Fiscal 2019 |
|
| Fiscal 2020 |
|
| Fiscal 2021 |
| |||||
Retail Stores |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year |
|
| 1,520 |
|
|
| 1,554 |
|
|
| 1,535 |
|
|
| 1,512 |
|
|
| 1,480 |
|
Opened during year |
|
| 66 |
|
|
| 59 |
|
|
| 36 |
|
|
| 12 |
|
|
| 13 |
|
Closed during year |
|
| (32 | ) |
|
| (78 | ) |
|
| (59 | ) |
|
| (44 | ) |
|
| (33 | ) |
End of year |
|
| 1,554 |
|
|
| 1,535 |
|
|
| 1,512 |
|
|
| 1,480 |
|
|
| 1,460 |
|
Fiscal 2015 | Fiscal 2016 | Fiscal 2017 | Fiscal 2018 | Fiscal 2019 | ||||||||||
| Retail Stores | ||||||||||||||
| Beginning of year | 1,435 | 1,460 | 1,520 | 1,554 | 1,535 | |||||||||
| Opened during year | 55 | 54 | 66 | 59 | 36 | |||||||||
| Acquired during year | — | 37 | — | — | — | |||||||||
| Closed during year | (30 | ) | (31 | ) | (32 | ) | (78 | ) | (59 | ) | ||||
| End of year | 1,460 | 1,520 | 1,554 | 1,535 | 1,512 | |||||||||
We also sources, designs, marketssource, design, market and distributesdistribute footwear under its ownour Johnston & Murphy
Shorthand references to fiscal years (e.g., “Fiscal 2019”2021”) refer to the fiscal year ended on the Saturday nearest January 31
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COVID-19
Impacts related to the novel coronavirus global pandemic (“COVID-19”) have been significantly adverse for the retail industry, our Company, our customers, and our employees. We have experienced significant disruptions to our business due to the COVID-19 pandemic and related social distancing and shelter-in-place recommendations and mandates, which initially resulted in the temporary closure of a number of stores and furlough of our employees. During Fiscal 2021, as stores were impacted by negative mall traffic, we focused on our digital capabilities. As of January 30, 2021, the vast majority of our stores in North America had reopened, although we continue to see residual impacts on foot traffic and in-store revenues. As of January 30, 2021, essentially all of the stores in the United Kingdom and the ROI remained closed.
The Company files reports withimpacts of the SecuritiesCOVID-19 pandemic on our business are discussed in further detail throughout this Business section, Item 1A - Risk Factors, and Exchange Commission (“SEC”), including annual reportsPart II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K, quarterly reports on Form 10-Q10-K.
Strategy
Across our company, we aspire to create and other reports from timecurate leading footwear brands that represent style, innovation and self-expression and to time.be the destination for our consumers' favorite fashion footwear. Each of our businesses has a strong strategic position grounded in a deep and ever-evolving understanding of the customers it serves. The Company is an electronic filerstrength of our concepts and the SEC maintains an internet site at http://www.sec.govadvantages we have built over time have established long-lasting leadership positions that contains the reports, proxy and information statements, and other information filed electronically. The Company’s website address is http://www.genesco.com. The Company’s website address is provided as an inactive textual reference only. The Company makes available free of chargemake our footwear businesses outstanding on their own, but what they share through the website annual reportsbenefit of synergies, makes them even stronger together. We have aligned our business around six pillars; 1) build deeper consumer insights to strengthen customer relationships and brand equity, 2) intensify product innovation and trend insight efforts, 3) accelerate digital to grow direct-to-consumer, 4) maximize the relationship between physical and digital, 5) reshape the cost base to reinvest for future growth, and 6) pursue synergistic acquisitions that add growth and create shareholder value. We anticipate opening fewer new stores 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, Nominating and Governance Committee and Strategic Alternatives 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 omnichannel 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, and anticipate that we may pursue acquisitions reactively rather than proactively until we recover further from the pandemic. We anticipate that potential acquisitions would either augment existing businesses or facilitate our entry into new businesses that are compatible with position descriptionsour existing footwear businesses and core expertise.
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 consumer 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 persistent unemployment, the effects of directors (the "Boardthe ongoing COVID-19 pandemic, 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 freeimportant factors in our ability to mitigate risks associated with changing customer preferences and other changes in consumer demand.
5
Segments
Journeys Group
The Journeys Group segment, including Journeys, Journeys Kidz and Little Burgundy retail stores, e-commerce and catalog operations, accounted for approximately 65%69% of the Company’sour net sales in Fiscal 2019. Fiscal 2019 comparable sales, including both store and direct sales, increased 8% from Fiscal 2018.
At January 30, 2021, Journeys Group operated 1,159 stores, including 888 Journeys stores, 233 Journeys Kidz stores and 38 Little Burgundy stores averaging approximately 1,975 square feet, located primarily in malls and factory outlet centers throughout the United States, Puerto Rico and Canada, selling footwear and accessories for young men, women and children. Journeys Group's e-commerce websites include the following: journeys.com, journeyskidz.com, journeys.ca and littleburgundyshoes.com. In Fiscal 2019,2021, the Journeys Group closed a net of 27 stores, and currently has plans to close a net of seven stores in Fiscal 2020.
Schuh Group
The Schuh Group segment, including e-commerce operations, accounted for approximately 18%17% of the Company’sour net sales in Fiscal 2019. For Fiscal 2019 comparable sales, including both store and direct sales, decreased 8%.
Johnston & Murphy Group
The Johnston & Murphy Group segment, including retail stores, e-commerce and catalog operations and wholesale distribution, accounted for approximately 14%8% of the Company’sour net sales in Fiscal 2019. Comparable sales for Johnston & Murphy retail operations, including both store and direct sales, increased 7% for Fiscal 2019.2021. The majority of Johnston & Murphy wholesale sales 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 February 2, 2019,January 30, 2021, Johnston & Murphy operated 183178 retail shops and factory stores throughoutprimarily in the United States and Canada averaging approximately 1,900 square feet and selling footwear, apparel and accessories primarily for men in the 35 to 55 year age group, targeting business and professional customers. Women’s footwear and accessories are sold in select Johnston & Murphy locations. Johnston & Murphy retail shops are located primarily in higher-end malls and airports nationwide and sell a broad range of men’s dress and casual footwear, apparel and accessories. The CompanyWomen’s footwear and accessories are sold in select Johnston & Murphy locations. We also sellssell Johnston & Murphy products directly to consumers through an e-commerce website
Johnston & Murphy Wholesale Operations. Johnston & Murphy men’s and women's footwear and accessories are sold at wholesale, primarily to better department stores, independent specialty stores and e-commerce. 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, the Company offers the H.S. Trask brand, with men's and women's footwear and leather accessories offered primarily through better independent retailers and department stores, an e-commerce website, trask.com, and catalog. Suggested retail prices for Trask footwear typically range from $195 to $495.
Licensed Brands
The Licensed Brands segment accounted for approximately 3%6% of the Company’sour net sales in Fiscal 2019.2021. Licensed Brands sales include footwear marketed under the Dockers
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national retail chains that carry Dockers slackspants and sportswear and in department and specialty stores across the country. Suggested retail prices for Dockers footwear generally range from $50 to $90. The Company also sellsTogast designs and sources licensed footwear under other licenses.
Manufacturing and Sourcing
We rely on independent third-party manufacturers for production of itsour footwear products sold at wholesale. The Company sourceswholesale and our Johnston & Murphy retail business. 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, Nicaragua, Pakistan, Portugal, Peru, Romania, Taiwan, and Vietnam. The Company’sOur retail operations, excluding Johnston & Murphy, sell primarily branded products from third parties who source primarily overseas.
Competition
Competition is intense in the footwear and accessory industries. The Company’sOur retail footwear 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 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 relevant 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. Because most of the Company’sour business is at-once, the backlog at any one time is not necessarily indicative of future sales. As of March 2, 2019, the Company’sFebruary 27, 2021, our wholesale operations had a backlog of orders, including unconfirmed customer purchase orders, amounting to approximately $28.8$64.6 million, compared to approximately $34.3$24.7 million on March 3, 2018.February 29, 2020. The increase in backlog reflects the acquisition of Togast. Our backlog may be more vulnerable to cancellation than is somewhat seasonal, reaching a peaktypical due to the COVID-19 pandemic.
Human Capital
Our Employees
We had approximately 19,000 employees as of January 30, 2021 with approximately 16,000 employed in the Spring. The Company maintains in-stock programs for selected product lines with anticipated high volume sales.
Our values include treating our customers and each other with integrity, trust and respect, and creating an unrivaled home for talent and diversity to grow and succeed. We consider our employees to be core to our success.
7
Employee Health & Safety
COVID-19
Importantly, during Fiscal 2021, we faced many disruptions as a substantialresult of the COVID-19 pandemic. During this time, we took a number of part-timesteps to support our employees and approximately 15,225customers including:
• | Increased safety and cleaning protocols |
• | Employee safety training and communications |
• | Modified visitor and travel policies |
• | Strict protocols for employee contact tracing |
• | Technology investments to allow remote work where possible |
• | Suspension of meetings and events, utilizing virtual alternatives where possible |
We also took action to protect employee wages and benefits during periods of store closings and periods of decreased mall and store traffic. Specifically, we continued benefits and paid employee premiums for employees on furlough due to store closings and temporarily implemented minimum guarantees in pay for full-time commissioned-based retail store employees. We also returned all or a portion of salaries lost for employees who were impacted by forced salary reductions.
Benefits
We currently offer a comprehensive benefits package designed to meet the diverse needs of our employees. 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 such as domestic partner benefits, parental leave, paid time for community service, adoption benefits, financial assistance with emergencies, scholarship opportunities, matching gift contributions and a generous product discount.
Competitive Pay
Our compensation programs are designed to align the compensation of our employees with the Company’s performance and to provide incentives to attract, retain and motivate employees.
Our compensation philosophy is to motivate and retain our employees were part-time at February 2, 2019.
Diversity, Equity and Inclusion and Employee Engagement
We are committed to furthering our efforts to cultivate a respectful and inclusive work environment in support of our employees and our business objectives. We have committed our diversity, equity and inclusion action to four overarching areas – community, talent, business practices and measurement.
We routinely conduct annual employee engagement surveys with various segments of our population. In 2020, we also conducted a diversity, equity and inclusion survey. We remain committed to listening to and learning from our employees.
Seasonality
Our business is seasonal with the Company'sour investment in inventory and accounts receivable 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.
8
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 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 1316 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 (the "Board of Directors" or the "Board") 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.
9
ITEM 1A, RISK FACTORS
Our business is subject to significant risks. 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
We are experiencing a material disruption to our business as a result of the COVID-19 pandemic and our sales, supply chain and financial results have been, and may continue to be materially adversely impacted.
Our business is subject to risks, or public perception of risks, arising from public health and safety crises, including pandemics, which have impacted, and may in the future impact, our wholesale and retail demand and supply chain. On March 18, 2020, we closed all of our North American stores and on March 23, 2020, we temporarily closed all our stores in the United Kingdom and the ROI in response to the COVID-19 pandemic. Our wholesale partner stores also closed or substantially reduced operating hours in March of 2020. Beginning on May 1, 2020, we began reopening some of our stores based on pertinent state and local orders, and as of August 1, 2020, we had reopened most of our stores, although some stores, notably in California, Canada, the U.K. and the ROI, have been subject to further closures for varying periods. The duration of any closures and their impact over the longer term are uncertain and cannot be predicted at this time. The effects of the COVID-19 pandemic depend on future developments outside our control such as the spread of the disease and the effectiveness of containment efforts, as well as the timing and availability of effective medical treatments and the ongoing rollout of vaccines. Even if the COVID-19 pandemic does not continue for an extended period, our business could be materially adversely affected by several additional factors related to the COVID-19 pandemic, including the following:
• | Reduced consumer demand and customer traffic in malls and shopping centers and reduced demand for our wholesale products from our retail partners; |
• | The effects of the COVID-19 pandemic on the global economy, including a recession, or the deterioration of economic conditions in the markets in which we operate, or an increase in unemployment levels could result in customers having less disposable income which could lead to reduced sales of our products; |
• | The effects of the COVID-19 pandemic could further delay inventory production and fulfillment and our release or delivery of new product offerings or require us to make unexpected changes to our offerings; |
• | “Shelter in Place” and other similar mandated or suggested isolation protocols could disrupt not only our brick and mortar operations but our e-commerce operations as well, particularly if employees are not able to report to work or perform their work remotely; |
• | While we are making efforts to both maintain reductions in operating costs and conserve cash, we may not be successful in doing so; |
• | We are undertaking discussions with our landlords and other vendors to obtain rent and other relief, but we may not be successful in these endeavors. As a result, we may be subject to litigation or other claims; |
• | After the pandemic has subsided, fear of COVID-19, re-occurrence of the outbreak or another pandemic or similar crisis could cause customers to avoid public places where our stores are located such as malls, outlets, and airports; |
• | We have been forced to reduce our workforce, and as a result, there may be obstacles and delays in reopening stores which have remained closed as we may have to hire and train a substantial number of new employees; and |
• | We may be required to revise certain accounting estimates and judgments such as, but not limited to, those related to the valuation of goodwill, long-lived assets and deferred tax assets, which could have a material adverse effect on our financial position and results of operations. |
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COVID-19 has also had a significant impact on the countries, including China, from which we and our vendors source products. We and our vendors rely upon the facilities of third-party manufacturers in other countries to support our business. The outbreak has resulted in significant governmental measures being implemented to control the spread of the virus, including, among others, restrictions on manufacturing and the movement of employees in many other countries. As a result of the COVID-19 pandemic and the measures designed to contain the spread of the virus, our and our vendors’ third-party manufacturers may not have the materials, capacity, or capability to manufacture our products according to our schedule and specifications. If third-party manufacturers’ operations are curtailed, we and our vendors may need to seek alternate manufacturing sources, which may be more expensive. Alternate sources may not be available or may result in delays in shipments to us from our supply chain and subsequently to our customers, each of which would affect our results of operations. While the disruptions and restrictions on the ability to travel, quarantines, and temporary closures of the facilities of third-party manufacturers and suppliers, as well as general limitations on movement are expected to be temporary, the duration of the production and supply chain disruption, and related financial impact, cannot be estimated at this time. Should the production and distribution disruptions continue for an extended period of time, the impact on our supply chain could have a material adverse effect on our results of operations and cash flows.
Consumer spending is affected by poor economic conditions and other factors 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 categories. A number of factors may affect the level of consumer spending on merchandise that we offer, including, among other things:
• | general economic and industry conditions, including the risks associated with recessions in the U.S. and Canada, and the impact of the ongoing COVID-19 pandemic; |
• | weather conditions; |
• | economic conditions in the U.K and the ROI and the uncertainty surrounding, as well as the effects of, the withdrawal of the U.K. from the European Union (“Brexit”); |
• | energy costs, which affect gasoline and home heating prices; |
• | the level of consumer debt; |
• | pricing of products; |
• | interest rates; |
• | tax rates, refunds and policies; |
• | war, terrorism and other hostilities; and |
• | consumer confidence in future economic conditions. |
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. Demand can also be influenced by other factors beyond our control.
Moreover, while we believe that our operating cash flows and borrowing capacity under committed lines of credit will be adequate for our anticipated cash requirements, if the economy were to experience a continued or worsening downturn, if one or more of our revolving credit banks were to fail to honor its commitments under our credit lines or if we were unable to draw on our credit lines for any reason, we could be required to modify our operations for decreased cash flow or to seek alternative sources of liquidity, and such alternative sources might not be available to us. These same factors could impact our wholesale customers, limiting their ability to buy or pay for merchandise offered by us.
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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.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 and other extrinsic demand drivers that are beyond our control.
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. Failure to execute any of these activities successfully could result in adverse consequences, including lower sales, product margins, operating income and cash flows.
Our future success also depends on our ability to respond to changing consumer preferences, identify and interpret consumer trends, and successfully market new products.
The industry in which we operate is subject to rapidly changing consumer preferences. The continued popularity of our footwear and the development and selection of new lines and styles of footwear with widespread consumer appeal, including consumer acceptance of our footwear, requires us to accurately identify and interpret changing consumer trends and preferences, and to effectively respond in a timely manner. Continuing demand and market acceptance for both existing and new products are uncertain and depend on the following factors:
In assessing our response to anticipated changing consumer preferences and trends, we frequently must make decisions about product designs and marketing expenditures several months in advance of the 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 that achieve market acceptance. Because of the ever-changing nature of consumer preferences and market trends, a number of companies in our industry experience periods of rapid growth, followed by declines, in revenue and earnings. 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 products that achieve market acceptance, we could experience excess inventories and higher than normal markdowns, returns, order cancellations or an inability to profitably sell our products, and our business, financial condition, results of operations and cash flows could be materially and adversely affected.
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, such as COVID-19, 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, which could have a material adverse effect on the market price of our stock.
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
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fourth quarter sales or earnings by changes in our operations or strategies in other quarters. A significant shortfall in results for the fourth quarter of any year could have a material adverse effect on our annual 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:
• | the timing of any new store openings and renewals; |
• | the amount of net sales contributed by new and existing stores; |
• | the timing of certain holidays and sales events; |
• | changes in quarter end dates due to the 53-week year; |
• | changes in our merchandise mix; |
• | weather conditions that affect consumer spending; and |
• | actions of competitors, including promotional activity. |
A failure to increase sales at our existing stores, given our high fixed expense cost structure, and in our e-commerce businesses may adversely affect our stock price and impact our results of operations.
A number of factors have historically affected, and will continue to affect, our comparable sales results and gross margin, including:
• | consumer trends, such as less disposable income due to the impact of economic conditions, tax policies and other factors; |
• | the lack of new fashion trends to drive demand in certain of our businesses and the ability of those businesses to adjust to fashion changes on a timely basis; |
• | closing of department stores that anchor malls or a significant number of non-anchor mall formats; |
• | competition; |
• | declining mall traffic due to changing customer preferences in the way they shop; |
• | timing of holidays including sales tax holidays and the timing of tax refunds; |
• | general regional and national economic conditions; |
• | inclement weather; |
• | new merchandise introductions and changes in our merchandise mix; |
• | our ability to distribute merchandise efficiently to our stores; |
• | timing and type of sales events, promotional activities or other advertising; |
• | our ability to adapt to changing customer preferences in the ways they digitally shop; |
• | access to allocated product from our vendors; |
• | our ability to execute our business strategy effectively; and |
• | other external events beyond our control, such as COVID-19. |
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.
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 United StatesU.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 outlet centers, particularly in North America.centers. We expect competition in the e-commerce market will continue to intensify. As a greater portion of consumer expenditures with retailers occurs online and through mobile commerce applications,Growth in e-commerce could result in financial difficulties, including store closures, bankruptcies or liquidations for our brick-and-mortar wholesale customers who fail to successfully integrate their physical retail stores and digital retail or otherwise compete effectively in the e-commerce market may experience financial difficulties, including store closures, bankruptcies or liquidations.market. We cannot control the success of individual malls, and an increase in store closures by other retailers may lead to mall bankruptcies, mall vacancies and reduced foot traffic. A continuation or worsening of these trends could cause financial
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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 cash flows.
Our future success will be determined, in part, on our ability to manage the impact of the rapidly changing retail environment and identify and capitalize on retail trends, including technology, enhanced digital capabilities, e-commerce and other process efficiencies that will better service our customers. If we fail to compete successfully, our businesses, market share, results of operations and financial condition will be materially and adversely affected.
Our business is intensely competitive and increased or new competition could have a material adverse effect on us.
The retail footwear 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,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:
• | increased operational efficiencies of competitors; |
• | competitive pricing strategies; |
• | expansion by existing competitors; |
• | expansion of direct-to-consumer selling by our vendors; |
• | entry by new competitors into markets in which we currently operate; and |
• | adoption by existing retail competitors of innovative store formats or sales methods. |
Investments and Infrastructure Risks
We face a number of risks in opening new stores and renewing leases on existing stores.
We expect tomay open new stores, both in regional malls, where most of the operational experience of our U.S. businesses lies, and in other venues including outlet centers, major city street locations, airports and tourist destinations. We cannot offer assurances that we will be able to open as many stores as we have planned, that any new store will achieve similar operating results to those of our existing stores or that new stores opened in markets in which we operate will not have a material adverse effect on the revenues and profitability of our existing stores. TheIn addition to the risks already discussed for existing stores, the success of ourany planned expansion will be dependent upon numerous factors, many of which are beyond our control, including the following:
• | our ability to identify suitable markets and individual store sites within those markets; |
• | the competition for suitable store sites; |
• | our ability to negotiate favorable lease terms for new stores and renewals (including rent and other costs) with landlords; |
• | our ability to obtain governmental and other third-party consents, permits and licenses necessary to the operation of our stores or otherwise; |
• | the ability to build and remodel stores on schedule and at acceptable cost; |
• | the availability of employees to staff new stores and our ability to hire, train, motivate and retain store personnel; |
• | the effect of changes to laws and regulations, including wage, over-time, and employee benefits laws on store expense; |
• | the availability of adequate management and financial resources to manage an increased number of stores; |
• | our ability to adapt our distribution and other operational and management systems to an expanded network of stores; and |
• | unforeseen events, such as COVID-19, could prevent or delay store openings and impact our liquidity needed for store openings. |
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. If we fall behind new store openings, we will lose expected sales and earnings between the
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planned opening date and the actual opening and may further complicate the logistics of opening stores, possibly resulting in additional delays, seasonally inappropriate product assortments, and other undesirable conditions.
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 decided and may in the future decide to divest assets or businesses, such as the divestiture of our Lids Sports Group business in February 2019.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 such as the Lids Sports Group divestiture, may also involve our continued financial involvement in the divested business, such as through transition services agreements and guarantees. Under these arrangements, 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., earn-outs) or otherwise. Any such adjustments could result in a material change in the consideration paid to or received by us, as applicable, in such transactions.
Goodwill recorded with acquisitions is subject to impairment which could reduce the Company's
profitability.In connection with acquisitions, the Company recordswe record goodwill on itsour Consolidated Balance Sheets. This asset is not amortized but is subject to an impairment test at least annually, where the Company haswe 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
Deterioration in the Company’sour market value, whether related to the Company’sour operating performance or to disruptions in the equity markets or deterioration in the operating performance of the business unit with which goodwill is associated, which could require the Companybe caused by events such as, but not limited to, COVID-19, could cause us to recognize the impairment of some or all of the $93.1$38.6 million of goodwill on itsour Consolidated Balance Sheets at February 2, 2019,January 30, 2021, resulting in the reduction of net assets and a corresponding non-cash charge to earnings in the amount of the impairment.
The operation of the Company’sour business is heavily dependent on itsour information systems.
We depend on a variety of information technology systems for the efficient functioning of our business (including our 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, 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 the Companyus by independent software developers. The inability of theseour employees and developers or the Companyour 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 the Companyus vulnerable to security breaches.
We also rely heavily on our information technology staff. If we cannot meet our staffing needs in this area, we may not be able to fulfill our technology initiatives or to provide maintenance on existing systems.
We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject 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 credit and debit cards, installment payment methods, PayPal, and gift cards, the Company iswe 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 certain payment methods, including credit and debit cards, we pay interchange and other fees, which could increase over time and raise our operating costs. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, and other forms of electronic payment. 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. The payment card industry established October 1, 2015 asWe completed the date on which it shifted liability for certain transactions to retailers who are not able to acceptimplementation of Europay,
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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 Payment Card Industry’sPCI’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.
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 customer, 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 personally identifiable information,PII, and/or theft. A similar cybersecurity breach to the computer networks and systems of our third-party vendors and partners, including those that are "cloud"-based,cloud-based, over which we have 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, personally identifiable informationPII of customers or employees. Such a cyber-incident could result in any of the following:
• | theft, destruction, loss, misappropriation, or release of confidential financial and other data, intellectual property, customer awards, or customer or employee information, including PII such as payment card information, email addresses, passwords, social security numbers, home addresses, or health information; |
• | operational or business delays resulting from the disruption of our e-commerce sites, computer networks or the computer networks of our third-party vendors and partners and subsequent material clean-up and mitigation costs and activities; |
• | negative publicity resulting in material reputation or brand damage with our customers, vendors, third-party partners or industry peers; |
• | loss of sales, including those generated through our e-commerce websites; and |
• | governmental penalties, fines and/or enforcement actions, payment and industry penalties and fines and/or class action and other lawsuits. |
Any of the above risks, individually or in aggregation, could materially damage our reputation and result in lost sales, governmental and payment card industry fines, and/or class action and other lawsuits, which in turn could have a material adverse effect on our financial position, results of operations, and cash flows.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
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Operational, Supply Chain and Third PartyThird-Party Risks
Increased operating costs, including those resulting from potential increases in the minimum wage, could have an adverse effect on our results.
Increased operating costs, including those 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, by makingand make it more difficult to identify new store locations that we believe will meet our investment return requirements and slow our ability to open stores.requirements. In addition, other employment and healthcare law changes may increase the cost of provided retirement and healthcare benefits expenses. Increases in the Company’sour overall employment costs could have a material adverse effect on the Company’s business, results of operations and financial and competitive position.
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 have a material adverse effect onmaterially adversely affect our business and operations.
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 wholesalee-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 process is efficient and well positioned to support our current business and our expansion plans, 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 events, labor disagreements or shipping
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Our freight cost is impacted by changes in fuel prices, through surcharges. Fuel pricessurcharges and surchargesother factors which can affect freight cost both on inbound freight from vendors to our distribution centers and outbound freight from our distribution centers to our stores and wholesale customers. Increases in freight costs, including in connection with increased fuel prices, and surcharges and other factors may increase freight costs and thereby 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 may significantly decreasecould adversely affect our sales and profits.
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 our customers’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:
• | disruptions in the shipping and importation of imported products because of factors such as: |
• | raw material shortages, work stoppages, strikes and political unrest; |
• | problems with oceanic shipping, including shipping container shortages and delays in ports; |
• | increased customs inspections of import shipments or other factors that could result in penalties causing delays in shipments; |
• | economic crises, natural disasters, pandemics (including COVID-19), international disputes and wars; and |
• | increases in the cost of purchasing or shipping foreign merchandise resulting from: |
• | imposition of additional cargo or safeguard measures; |
• | denial by the United States of “most favored nation” trading status to or the imposition of quotas or other restriction on imports from a foreign country from which we purchase goods; |
• | changes in import duties, import quotas and other trade sanctions; and |
• | increases in shipping rates. |
A significantconsiderable amount 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 profits.
A small portion of the products we buy abroad is priced in foreign currencies and, therefore, we are affected by fluctuating currency exchange rates. In the past, we have entered into foreign currency exchange contracts with major financial institutions to hedge these fluctuations. We mightmay not be able to effectively protect ourselves in the future against currency rate fluctuations, and our financial performance could suffer as a result.fluctuations. Even dollar-denominated foreign purchases may be affected by currency fluctuations as suppliers seek to reflect appreciation in the local currency against the dollar in the price of the products that they provide. You should readSee 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.
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 protection of that data is critical to our business. The regulatory environment surrounding information security and privacy continues to evolve and new laws are increasingly are 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 GDPR and similar U.S. federal and state laws, including California privacy laws, could in the future result in significant penalties which could have a material adverse effect
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on our business and results of operations. Complying with GDPR and similar U.S. federal and state laws, including a potential federal privacy law,Data protection compliance could also cause us to incur substantial costs, forego a substantial amount of revenue or be subject to business risk associated with system changes and new business processes.
We are dependent on third-party vendors and licensors for the merchandise we sell.
We do not manufacture the merchandise we sell. This means thatsell, and our Licensed Brands business is dependent on third-party licenses. Accordingly, our product supply is subject to 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, COVID-19, work stoppages, strikes, political unrest, 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 to competitors.business. Additionally, manufacturers are required to remain in compliance with certain wage, labor and environment-related laws and regulations. Delayed compliance or failure to comply with such laws and regulations 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 Dockers license agreement expires November 30, 2019. If the Company is unable to renew the license under satisfactory termsmanufacture of our products and conditions, the Company could lose approximately $56 million in sales from the loss of the footwear license.
While we have taken action to diversify our sourcing base outside of China, since a portion of our products are manufactured in China, the possibility of adverse changes in trade or political relations with China, political instability, in China, increases in labor costs, the occurrence of prolonged adverse weather conditions or a natural disaster such as an earthquake or typhoon, or the continuation of the COVID-19 pandemic or the outbreak of aanother pandemic disease 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 business operations may be adversely affected by the current and future political environment in the Communist Party of China. China’s government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. 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. Under its current leadership, China’s governmentCommunist Party has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. Therepolicies; however, there is no assurance however, that China’s government will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice. A change in policies by the Chinese governmentPolicy changes could adversely affect our interests by,through, among other factors: changes in laws and regulations, or the interpretation thereof, 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, and thereorders. There may be circumstances in the future where we may have to incur premium freight charges to expedite the delivery of product to our customers. If we incur a significant amount of premium freight charges,customers which could negatively affect our gross profit will be negatively affected if we are unable to pass on those charges to our customers.
Legal, Regulatory, Global and Other External Risks
Establishing and protecting our intellectual property the value ofis critical to our brands could be adversely affected.
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 lines of business.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’ lawscountries do not protect intellectual property rights to the same extent as the U.S. laws do.
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 other persons’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
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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 are subjectmay 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 products we sell, most of which are produced outside the countries in which we operate. These uncertainties may include a global economic slowdown, changes in consumer spending or travel, increase in fuel prices, and the economic consequences of pandemics such as the ongoing COVID-19 pandemic, natural disasters, military action or terrorist activities and increased regulatory and compliance burdens related to governmental actions in response to a variety of factors, including but not limited to national security and anti-terrorism concerns and concerns about climate change. Any future events arising as a result of terrorist activity or other world events may have a material adverse impact on our business, including the demand for and our ability to source products, and consequently on our results of operations and financial condition.
The increasing 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. In March 2017,business, including the United Kingdom announced its decision to exit the European Union ("Brexit"). The U.K.'s withdrawal is currently scheduled to take place in the first halfimpact of 2019, unless a further extension is agreed to; however, uncertainty remains as to what kind of post-Brexit agreement betweenBrexit. Although the U.K. and the European Union ("(“E.U."”), if any, may be approved by entered into the U.K. Parliament. OurE.U.-U.K. Trade and Cooperation Agreement on December 30, 2020, uncertainty remains about the impact on our business in the U.K. may be adversely affected by the uncertainty surrounding the timing of the withdrawal and the future relationship between the U.K. and the E.U. Brexit and any uncertainty with respect thereto could adverselyROI, including impact on tariffs, shipping costs, consumer demand and create significant currency fluctuations.
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. The Company may incur additional costs as it addresses any such changes. All or any one of these factors could adversely affect our business, revenue, financial condition and results of operations.
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, the Company'sour revenues and profits are reduced when converted into U.S. dollars and the Company'sour margins may be negatively impacted by the increase in product costs. Although the Companywe typically hashave sought to mitigate the negative impacts of foreign currency exchange rate fluctuations through price increases and further actions to reduce costs, the Companywe may not be able to fully offset the impact, if at all. The Company’s success depends, in part, on its ability to manage these various foreign currency impacts as changes in the value of the U.S. dollar relative to other currencies could have a material adverse effect on the Company’s business and results of operations.
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.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 United States, primarily inU.S., including from China. The United States recently announced the imposition ofExisting and potential future tariffs on certain products imported into the U.S. from China. The imposition of tariffs on imported products could result in an increase in prices for those products. In addition, the tariffs could also increase the costs of our U.S. suppliers, causing our U.S.those suppliers to also increase the costs of their products. While it is too early to predict how the recently enacted tariffs will impact our business, the imposition of these tariffs and any additional tariffs that may be imposed on other items imported by us or our suppliers from China could require us to increase prices to our customers. If we are unable to pass along increased costs to our customers, our gross margins could be adversely affected. Alternatively, wetariffs may seekcause us to shift production outside of China,to other countries, resulting in significant costs and disruption to our business. TheIn addition, further imposition of tariffs by the United States also has resulted in the adoption of tariffs by China and could result in the adoption of tariffs byor other countries as well. A resulting trade war could have a significant adverse effect on world trade and the world economy. These recently enacted tariffs and any additional developments in tax policy or trade relations could have a material adverse effect on our business, results
21
Our ability to source our merchandise profitably or at 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 our 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, Nicaragua, Pakistan, Portugal, Peru Romania, Taiwan and Vietnam, and our retail operations sell primarily branded products from third partiesthird-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 could have a significant impact on our sourcing patterns in the future. In addition, political uncertainty in the United States may result in significant changes toWe rely on our suppliers to manufacture and ship the products they produce for us in a timely 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 these disputes result in work slowdowns, lockouts, strikes or other disruptions.
We are subject to regulatory proceedings and litigation and to regulatory changes that could have an adverse effect on our 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 1316 to the Consolidated Financial Statements. If these or similar matters are resolved against us, our results of operations, our cash flows, or our financial condition could be adversely affected. The costs of 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 United States, Puerto Rico, Canada, the United Kingdom, and the Republic of Ireland and Germany,ROI, we are
Financial Risks
Our indebtedness is subject to floating interest rates.
Borrowings under our credit facility bear interest at varying rates, some of which are based on LIBOR, 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
22
increase even if the principal amount borrowed remained the same, and our net income and cash flows will correspondingly decrease.
In addition, on November 30, 2020, the International Exchange (ICE) Benchmark Association, which administrates LIBOR, announced that it intends to begin a phase out of LIBOR at the end of 2021, by ceasing (i) entering into new contracts that use LIBOR as a reference rate by December 31, 2021 and (ii) publication of two LIBOR rates (one-week and two-month) after December 31, 2021, while the remaining LIBOR rates (overnight, one-month, three-month, six-month and 12-month) will be retired on June 30, 2023. It is unclear if LIBOR will cease to exist at that time or changes in the interpretationif new methods of calculating LIBOR will be established such that it continues to exist after 2023. The expected phase out of LIBOR could cause market volatility or application of existing accounting guidance coulddisruption and may adversely affect our financial performance.
Changes in our effective income tax rate could adversely affect our net earnings.
A number of factors influence our effective income tax rate, including changes in tax law, tax treaties, interpretation of existing laws, including the newly enacted Tax Cuts and Jobs Act of 2017 (the "Act"), and our ability to sustain our reporting positions on 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 guidance that could have a material impact on the Company'sour effective tax rate in future periods.
ITEM 1B, UNRESOLVED STAFF COMMENTS
None.
ITEM 2, PROPERTIES
At February 2, 2019, the CompanyJanuary 30, 2021, we operated 1,5121,460 retail footwear and accessory stores throughout the United States, Puerto Rico, Canada, the United Kingdom and the Republic of Ireland and Germany.ROI. New shopping center store leases in the United States, Puerto Rico and Canada typically are for a term of approximately 10 years. New store leases in the United Kingdom and the Republic of Ireland and GermanyROI typically have terms of between 10 and 15 years. All typically provide for rentWe have leases with fixed base rental payments, rental payments based on a percentage of retail sales against aover contractual amounts and others with predetermined fixed escalations of the minimum rentrental payments based on the square footage leased.
The general location, use and approximate size of the Company’sour principal properties are set forth below:
Location |
| Owned/ Leased |
| Segment |
| Use |
| Approximate Area Square Feet |
|
| |
Lebanon, TN |
| Owned |
| Journeys Group |
| Distribution warehouse and administrative offices |
|
| 563,000 |
|
|
Nashville, TN |
| Leased |
| Various |
| Corporate headquarters |
|
| 306,455 |
| (1) |
Bathgate, Scotland |
| Owned |
| Schuh Group |
| Distribution warehouse |
|
| 244,644 |
|
|
Chapel Hill, TN |
| Owned |
| Licensed Brands |
| Distribution warehouse |
|
| 182,000 |
|
|
Fayetteville, TN |
| Owned |
| Johnston & Murphy Group |
| Distribution warehouse |
|
| 178,500 |
|
|
Deans Industrial Estate, Livingston, Scotland |
| Owned |
| Schuh Group |
| Distribution warehouse and administrative offices |
|
| 106,813 |
|
|
Nashville, TN |
| Owned |
| Journeys Group |
| Distribution warehouse |
|
| 63,000 |
|
|
(1) | ||||||||||
| ||||||||||
| We occupy almost 100% of our corporate headquarters building. The lease on the Nashville | office expires in April 2022. | |||||||||
On February 10, 2020, we announced plans for our new corporate headquarters in Nashville, Tennessee. We entered into a lease agreement, which was subsequently amended, for approximately 182,000 square feet of office space which will replace our current corporate headquarters office lease. The term of the lease on the Company’s Nashville office expires in April 2022. The Company believesis 15 years, with two options to extend for an additional period of five years each. We believe that all leases of properties that are material to itsour operations may be renewed, or that alternative properties are available, on terms not materially less favorable to the Companyus than existing leases.
ITEM 3, LEGAL PROCEEDINGS
From time to time, we are subject to legal and/or administrative proceedings incidental to our business. It is the New York State Departmentopinion of Environmental Conservation (“NYSDEC”) and the Company entered into a consent order whereby the Company assumed responsibility for conducting a remedial investigation and feasibility study (“RIFS”) and implementing an interim remedial measure (“IRM”) with regard to the site of a knitting mill operated by a former subsidiary of the Company 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 Decision in September 2007. The Record of Decision specified a remedy of a combination of groundwater extraction and treatment and in-situ chemical oxidation.
Further information with respect to the site willthis item may be limited to periodic monitoring and that future costs relatedfound in Note 16 to the site should not have a material effect on its financial condition or results of operations.
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ITEM 4, MINE SAFETY DISCLOSURES
Not applicable.
ITEM 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, 54, Board Chair,President and Chief Executive Officer.
Thomas Allen George, 65, Senior Vice President – Finance and Interim Chief Financial Officer.Mr. George joined the Company in December 2020 as interim senior vice president of finance and chief financial officer. 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.
Daniel E. Ewoldsen, 51, Senior Vice President. Mr. Ewoldsen is a 17-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.
Mario Gallione, 60, Senior Vice President. Mr. Gallione is a 43-year veteran of Genesco. He began his career as a Jarman sales associate in 1977. He was promoted to manager and served in a variety of sales management positions until 1987 when he was promoted as a merchandiser trainee and rose through the ranks to divisional merchandise manager for Journeys in 1994 and vice president in 1998. In October 2006, he was named senior vice president, general merchandise manager of Journeys Group. In 2010, he was named chief merchandising officer of Journeys Group. In September 2017, Mr. Gallione was named president of Journeys and in July 2019, he was named senior vice president of Genesco.
Scott E. Becker, 53, 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. 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.
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Parag D. Desai,
Brently G. Baxter, 55, Vice President and Chief Accounting Officer.
Matthew N. Johnson,
ITEM 5, MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIESMarket Information
Our stock is traded on the New York Stock Exchange under the symbol "GCO".
There were approximately 1,5501,350 common shareholders of record on March 15, 2019.
We have not paid cash dividends in respectto our holders of itsour Common Stock since 1973. The Company’sOur ability to pay cash dividends in respectto our holders of its common stock is subject to various restrictions. See Notes 6 and 8Note 11 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
| Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) | ||||||
| November 2018 | ||||||||||
| 11-4-18 to 12-1-18 | — | $ | — | — | $ | — | ||||
| December 2018 | ||||||||||
| 12-2-18 to 12-29-18 | — | $ | — | — | $ | — | ||||
| January 2019 | ||||||||||
12-30-18 to 2-2-19(1) | 968,375 | $ | 47.45 | 968,375 | $ | 79,055 | ||||
12-30-18 to 2-2-19(2) | 8,805 | $ | 47.75 | — | $ | — | ||||
In September 2019, the Board authorized a $100 million share repurchase program, describedpursuant to which we may repurchase shares of our common stock, par value $1.00 per share, with an aggregate gross purchase price of up to $100 million. We have $89.7 million remaining as of January 30, 2021 under Item 7, "Management's Discussionsuch share repurchase program. During the three and Analysis of Financial Condition and Results of Operations." The Company expects 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, SELECTED FINANCIAL DATA
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| In Thousands except per common share data, Financial Statistics and Other Data (End of Year) | Fiscal Year End | ||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| Results of Operations Data | |||||||||||||||||||
| Net sales | $ | 2,188,553 | $ | 2,127,547 | $ | 2,020,831 | $ | 2,046,730 | $ | 1,957,183 | |||||||||
| Depreciation and amortization | 52,161 | 51,533 | 49,943 | 48,815 | 44,615 | ||||||||||||||
Earnings from operations(1) | 81,817 | 74,372 | 107,793 | 142,872 | 117,588 | ||||||||||||||
| Earnings from continuing operations before income taxes | 78,259 | 68,989 | 112,758 | 134,705 | 104,901 | ||||||||||||||
| Earnings from continuing operations | 51,224 | 36,708 | 72,882 | 85,135 | 66,373 | ||||||||||||||
| (Loss) earnings from discontinued operations, net | (103,154 | ) | (148,547 | ) | 24,549 | 9,434 | 31,352 | ||||||||||||
| Net earnings (loss) | $ | (51,930 | ) | $ | (111,839 | ) | $ | 97,431 | $ | 94,569 | $ | 97,725 | |||||||
| Per Common Share Data | |||||||||||||||||||
| Earnings from continuing operations | |||||||||||||||||||
| Basic | $ | 2.65 | $ | 1.91 | $ | 3.63 | $ | 3.72 | $ | 2.82 | |||||||||
| Diluted | 2.63 | 1.90 | 3.61 | 3.70 | 2.80 | ||||||||||||||
| Discontinued operations | |||||||||||||||||||
| Basic | (5.33 | ) | (7.73 | ) | 1.22 | 0.41 | 1.34 | ||||||||||||
| Diluted | (5.29 | ) | (7.70 | ) | 1.22 | 0.41 | 1.32 | ||||||||||||
| Net earnings (loss) | |||||||||||||||||||
| Basic | (2.68 | ) | (5.82 | ) | 4.85 | 4.13 | 4.16 | ||||||||||||
| Diluted | (2.66 | ) | (5.80 | ) | 4.83 | 4.11 | 4.12 | ||||||||||||
| Balance Sheet and Cash Flow Data | |||||||||||||||||||
| Total assets | $ | 1,181,081 | $ | 1,315,353 | $ | 1,440,999 | $ | 1,540,057 | $ | 1,578,991 | |||||||||
Long-term debt(2) | 65,743 | 88,385 | 82,905 | 111,765 | 28,958 | ||||||||||||||
| Non-redeemable preferred stock | 1,060 | 1,052 | 1,060 | 1,077 | 1,274 | ||||||||||||||
| Common equity | 736,491 | 828,122 | 919,993 | 954,079 | 995,533 | ||||||||||||||
| Capital expenditures | 41,780 | 98,609 | 74,925 | 76,982 | 64,109 | ||||||||||||||
| Financial Statistics | |||||||||||||||||||
| Earnings from operations as a percent of net sales | 3.7 | % | 3.5 | % | 5.3 | % | 7.0 | % | 6.0 | % | |||||||||
| Book value per share (common equity divided by common shares outstanding) | $ | 38.55 | $ | 41.61 | $ | 46.31 | $ | 43.70 | $ | 41.43 | |||||||||
| Working capital (in thousands) | $ | 454,817 | $ | 438,020 | $ | 407,587 | $ | 447,504 | $ | 413,449 | |||||||||
| Current ratio | 2.6 | 2.7 | 2.3 | 2.4 | 2.0 | ||||||||||||||
| Percent long-term debt to total capitalization | 8.2 | % | 9.6 | % | 8.2 | % | 10.5 | % | 2.8 | % | |||||||||
| Other Data (End of Year) | |||||||||||||||||||
Number of retail outlets(3) | 1,512 | 1,535 | 1,554 | 1,520 | 1,460 | ||||||||||||||
| Number of employees | 21,000 | 20,900 | 21,200 | 19,000 | 18,475 | ||||||||||||||
ITEM 7, MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONSThis discussionManagement’s Discussion and the notes to theAnalysis of Financial Condition and Results of Operations should be read in conjunction with our Consolidated Financial Statements as well asand related Notes and other financial information appearing elsewhere in this Annual Report on Form 10-K, and with Part II, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) of our Annual Report on Form 10-K for the fiscal year ended February 1, "Business", include certain forward-looking statements,2020, filed with the SEC on April 1, 2020, which include statements regardingprovides a discussion of our intent, belief or expectationsfinancial condition and all statements other than those made solely with respectresults of operations for Fiscal 2020 compared to historical fact. Actual results could differ materially from those reflectedour Fiscal 2019.
Summary of Results of Operations
Our net sales decreased 18.7% during Fiscal 2021 compared to Fiscal 2020. The sales decrease was driven by the forward-looking statements in this discussion and a number of factors may adversely affectimpact from the forward-looking statements and the Company’s future results, liquidity, capital resources or prospects. These include, but are not limited to, the level and timing of promotional activity necessary to maintain inventories at appropriate levels, the timing and amount of any share repurchases by the Company, the imposition of tariffs on imported products or the disallowance of tax deductions on imported products, disruptions in product supply or distribution, unfavorable trends in fuel costs, foreign exchange rates, foreign labor and material costs, and other factors affecting the cost of products, the effects of the British decision to exit the European Union,COVID-19 pandemic, including potential effects on consumer demand, currency exchange rates, and the supply chain, the effectiveness of our omnichannel initiatives, costs associated with changes in minimum wage and overtime requirements, cost associated with wage pressure related to a full employment environment in the U.S. and the U.K., weakness in the consumer economy and retail industry for the products we sell, competition in the Company’s markets, including online and including competition from some of the Company's vendors in the branded footwear market, fashion trends, including the lack of new fashion trends and products, that affect the sales or product margins of the Company’s retail product offerings, weakness in shopping mall traffic and challenges to the viability of malls where the Company operates stores, related to planned closings of department stores or other factors and the extent and pace of growth of online shopping, the effects of the implementation of federal tax reform on the estimated tax rate reflected in certain forward-looking statements, changes in buying patterns by significant wholesale customers, bankruptcies or deterioration in financial condition of significant wholesale customers or the inability of wholesale customers or consumers to obtain credit, the Company’s ability to continue to complete and integrate acquisitions, expand its business and diversify its product base, retained liabilities, indemnification obligations and other ongoing arrangements associated with divestitures of businesses (including potential liabilities under leases as the prior tenant or as 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 affect the Company’s prospects and cause differences from expectations include the ability to build, open, staff and support additional retail stores and to renew leases in existing stores and control and lower occupancy costs, and to conduct required remodeling or refurbishment on schedule and at expected expense levels, our ability to realize anticipated cost savings, deterioration in the performance of individual businesses or of the Company’s market value relative to its book value, resulting in impairments of fixed assets or intangible assets or other adverse financial consequences and the timing and amount of such impairments or other consequences, unexpected changes to the market for the Company’s shares or for the retail sector in general, costs and reputational harm as a result of disruptions instore closures during the Company's information technology systems either by security breachesyear, lower store comparable sales and incidents or by potential problems associated with the implementation of new or upgraded systems, and the cost and outcome of litigation, investigations and environmental matters involving the Company. For a full discussion of risk factors, see Item 1A, "Risk Factors".
Journeys Group comprised of Journeys, Journeys Kidz and Little Burgundy retail footwear chains, e-commerce operations and catalog; (ii)sales decreased 16%, Schuh Group comprised of the Schuh retail footwear chain and e-commerce operations; (iii)sales decreased 18%, Johnston & Murphy Group
Selling and administrative expenses increased as a percentage of net sales from 43.7% in Fiscal 2018 to 44.0% in Fiscal 2019,2020 to 45.6% in Fiscal 2021, reflecting increased expenses as a percentage of net sales in Schuh Group, Licensed Brands and Corporate, partially offset by decreased expenses as a percentage of net sales in Journeys Group and Johnston & Murphy Group. Earnings from operationsGroup, partially offset by decreased expenses as a percentage of net sales in Schuh Group, Licensed Brands and Corporate. However, on a dollar basis, expenses decreased 15.8% in Fiscal 2021 compared to Fiscal 2020 due primarily to reduced occupancy expense, driven by rent abatements with landlords and government relief programs, as well as reduced selling salaries and bonus and travel expenses, partially offset by increased marketing expenses.
Operating margin decreased as a percentage of net sales from 3.5%3.8% in Fiscal 20182020 to 3.7%(6.0)% in Fiscal 2019,2021, reflecting increased earningsoperating losses in all of our business units except Journeys Group due to disruptions related to the COVID-19 pandemic including recognition of non-cash impairment charges of $79.3 million for goodwill, $13.8 million for retail store assets and $5.3 million for trademarks.
Significant Developments
COVID-19
In March 2020, the World Health Organization categorized the outbreak of COVID-19 as a pandemic. As a result, and in consideration of the health and well-being of our employees, customers and communities, and in support of efforts to contain the spread of the virus, we have taken several precautionary measures throughout the year and adjusted our operational needs, including:
•On March 18, 2020, we temporarily closed our North American retail stores.
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•On March 19, 2020, we initially borrowed $150.0 million under our Credit Facility as a precautionary measure to ensure funds were available to meet our obligations for a substantial period of time in response to the COVID-19 pandemic that caused public health officials to recommend precautions that would mitigate the spread of the virus, including “stay-at-home” orders and similar mandates and warning the public against congregating in heavily populated areas such as malls and shopping centers. We paid down the $150.0 million on September 10, 2020.
•On March 19, 2020, Schuh entered into an Amendment and Restatement Agreement (the “U.K. A&R Agreement”) with Lloyds Bank which amended and restated the Amendment and Restatement Agreement dated April 26, 2017. The U.K. A&R Agreement included only a Facility C revolving credit agreement of £19.0 million, bore interest at LIBOR plus 2.2% per annum and expired in September 2020. In March 2020, we borrowed £19.0 million as a precautionary measure in response to the COVID-19 pandemic. The U.K. A&R Agreement was replaced with the Facility Letter in October 2020 and the outstanding borrowings in the amount of £19.0 million were repaid.
•On March 23, 2020, we temporarily closed our stores in the United Kingdom and the ROI.
•On March 26, 2020, we temporarily closed our U.K. e-commerce business. Effective April 3, 2020, our U.K.-based Schuh business announced that it had reopened its e-commerce operations in compliance with government health and safety practices.
•On March 27, 2020, we announced that we were adjusting our operational needs, including a significant reduction of expense, capital and planned inventory receipts. As part of these measures, we made the decision to temporarily reduce compensation for the executive team and select employees and reduced the cash compensation for our Board of Directors. In addition, we furloughed all of our full-time store employees in North America and our store and distribution center employees in the United Kingdom. We also furloughed employees and reduced headcount in our corporate offices, call centers and distribution centers. Across all these actions, this represented a reduction of our workforce by 90%.
•During a portion of the first and second quarters of Fiscal 2021, we extended payment terms with suppliers, managed inventory by reducing future receipts and reduced planned capital expenditures by over 50%. For new receipts as of August 1, 2020, we restored contractual payment terms with suppliers.
•On June 5, 2020, we entered into a Second Amendment to our Credit Facility to, among other things, increase the Total Commitments (as defined in the Credit Facility) for the revolving loans from $275.0 million to $332.5 million, establish a First-in, Last-out (“FILO”) tranche of indebtedness of $17.5 million, for $350.0 million of total capacity.
•On June 25, 2020, our Board of Directors considered the Company’s financial results to date and that more than 90% of the Company’s stores were expected to be reopened by June 30, 2020, and decided to restore a portion of the compensation of the executive team and select employees whose compensation had been reduced on March 27, 2020. In addition, the cash compensation of our Board of Directors, which had also been reduced on March 27, 2020, was partially restored.
•In October 2020, our Board of Directors restored the remaining portion of the compensation of the executive team and select employees whose compensation had been reduced on March 27, 2020 as well as the compensation of the Board of Directors.
•On October 9, 2020, Schuh entered into the Facility Letter with Lloyds under the U.K.'s Coronavirus Large Business Interruption Loan Scheme pursuant to which Lloyds made available a RCF of £19.0 million for the purpose of refinancing Schuh's existing indebtedness with Lloyds. The RCF expires in October 2023 and bears interest at 2.5% over the Bank of England Base Rate. As of January 30, 2021, we have not borrowed under the Facility Letter.
•During the fourth quarter of Fiscal 2021, another lockdown in the U.K. and the ROI disrupted the Schuh Group business with stores closed for 36% of possible days in the fourth quarter. As of January 30, 2021, all but two Schuh stores remained closed. These stores are expected to remain closed until shortly after Easter, April 4, 2021.
29
•In December 2020, the Company returned the compensation to select employees whose compensation had been reduced on March 27, 2020.
As of March 11, 2021, we were operating in 90% of our locations, including approximately 1,145 Journeys, 160 Johnston & Murphy Group, partially offset by decreased earningsand two Schuh locations. All store locations are operating under enhanced measures to ensure the health and safety of employees and customers, including requiring employees to wear masks, requiring customers in Schuh Group, Licensed Brandsour stores to wear masks, providing hand sanitizer in multiple locations throughout each store for customer and Corporate in Fiscal 2019.
As a result of the sale,economic and business impact of the Company met the requirements of ASC 360 to report the results of Lids Sports GroupCOVID-19 pandemic, we revised certain accounting estimates and judgments as discontinued operations, and reflected the loss in (loss) earnings from discontinued operations, net on the Company's Consolidated Statements of Operations. Unless otherwise noted, the discussion herein relates to continuing operations. See additional information regarding the sale of Lids Sports Groupdiscussed in Item 8, Note 3, "Asset Impairments and Other Charges and Discontinued Operations"“COVID-19”, to the Company'sour Consolidated Financial Statements included in this Annual Report on Form 10-K.
Since the Company's Consolidated Financial Statements.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic and options to defer payroll tax payments. Based on our evaluation of the CARES Act, we qualify for certain employer payroll tax credits as well as the deferral of payroll and other tax payments in the fourth quarterfuture, which will be treated as government subsidies to offset related operating expenses. During Fiscal 2021, qualified payroll tax credits reduced our selling and administrative expenses by approximately $13.8 million on our Consolidated Statements of Operations. We also deferred $9.5 million of qualified payroll taxes in the U.S. that will be repaid in equal installments by December 31, 2021 and December 31, 2022. Savings from the government program in the U.K. has also provided property tax relief of approximately $13.3 million for Fiscal 2017. The Company incurred2021. Additionally, we recorded a one-time charge to earningstax receivable of $2.5$107.2 million in our U.S. federal jurisdiction as a result of a carryback of our Fiscal 2021 federal tax losses to prior tax periods under the fourth quarterCARES Act. Due to a higher tax rate in prior tax periods than the current U.S. federal statutory tax rate of 21%, the carryback claim creates a permanent tax benefit of $46.4 million.
We recorded our income tax expense, deferred tax assets and related liabilities based on our best estimates. As part of this process, we assessed the likelihood of realizing the benefits of our deferred tax assets. During Fiscal 20172021, based on available evidence, we recorded an additional valuation allowance against previously recorded deferred tax assets in connection our U.K. jurisdiction of $2.6 million and our Irish jurisdiction of $0.2 million. We will continue to monitor the realizability of our deferred tax assets, particularly in certain foreign jurisdictions where the COVID-19 pandemic has started to create significant net operating losses. Our ability to recover these deferred tax assets depends on several factors, including our results of operations and our ability to project future taxable income in those jurisdictions.
The Acquisition of Togast
Effective January 1, 2020, we completed the acquisition of substantially all the assets and the assumption of certain liabilities of Togast. Togast specializes in the design, sourcing and sale of licensed footwear. We also entered into a new U.S. footwear license agreement with Levi Strauss & Co. for the license of Levi's® footwear for men, women and children in U.S. concurrently
30
with the pension plan buyout.Togast acquisition. The Company initiated the buyout offeracquisition expands our portfolio to include footwear licenses for Bass® and FUBU, among others. Togast operates in an effort to lower the Company's risk exposure to the pension plan by lowering the Plan's assets and liabilities.
Asset Impairment and Other Charges
We recorded a pretax charge to earnings of $3.2$18.7 million in Fiscal 2019,2021, including $4.2 million for retail store asset impairments, $0.3 million in legal and other matters and $0.1 million for hurricane losses, partially offset by a $(1.4) million gain related to Hurricane Maria.
Postretirement Benefit Liability
In March 2019, our board of directors authorized the termination of the defined benefit pension plan. The Company recordedtermination was completed in January 2020 with a pretax gainpension settlement charge of $11.5 million which is included in asset impairments and other, net on the Consolidated Statements of Operations for Fiscal 2020.
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 earningsevaluate the financial condition and operating performance of $(8.0)our business are comparable sales, net sales, gross margin, operating income (loss) and operating margin. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the 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 2021 because we believe that overall sales are a more meaningful metric during this period due to the impact of COVID-19.
Results of Operations—Fiscal 2021 Compared to Fiscal 2020
Our net sales for Fiscal 2021 decreased 18.7% to $1.79 billion from $2.20 billion in Fiscal 2020. The decrease in net sales was driven by the impact from store closures during the year due to the COVID-19 pandemic, lower store comparable sales and sales pressure at Johnston & Murphy, partially offset by digital comparable growth of 74%. Stores were open about 76% of possible days during Fiscal 2021.
Gross margin decreased 24.3% to $804.5 million in Fiscal 2017, including2021 from $1.06 billion in Fiscal 2020, and decreased as a gainpercentage of $(8.9) million for network intrusion expensesnet sales from 48.4% in Fiscal 2020 to 45.0% in Fiscal 2021, reflecting gross margin decreases as a percentage of net sales in all of our business units, except Journeys Group. The gross margin decrease is primarily due to higher shipping and warehouse expense in all of our retail divisions, increased inventory reserves at Johnston & Murphy Group, increased markdowns at Johnston & Murphy retail and closeouts at Johnston & Murphy wholesale and increased promotional activity at Schuh Group, partially offset by decreased markdowns at Journeys Group. The higher shipping and warehouse expense is a result of the increased
31
penetration of e-commerce sales. In addition, changes in sales mix among our business units had an unfavorable impact on gross margin.
Selling and administrative expenses increased as a litigation settlementpercentage of net sales from 44.0% in Fiscal 2020 to 45.6% in Fiscal 2021, but decreased 15.8% in total dollars due primarily to reduced occupancy expense, driven by rent abatements with landlords and a gain of $(0.5) million for other legal matters,government relief programs, as well as reduced selling salaries and bonus and travel expenses, partially offset by $1.4increased marketing expenses. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs.
Earnings (loss) from continuing operations before income taxes (“pretax earnings (loss)”) for Fiscal 2021 was a pretax loss of $(111.7) million, compared to pretax earnings of $82.4 million for Fiscal 2020. The pretax loss for Fiscal 2021 included a goodwill impairment charge of $79.3 million and an asset impairment and other charge of $18.7 million for retail store asset impairments.
The net loss for Fiscal 2021 was $(56.4) million, contributionor $(3.97) diluted loss per share compared to net earnings of $61.4 million, or $3.92 diluted earnings per share for Fiscal 2020. The effective income tax rate was 49.8% for Fiscal 2021 compared to 25.1% for Fiscal 2020. The effective tax rate for Fiscal 2021 was higher compared to Fiscal 2020 due to initiatives under the CARES Act and taxes accrued for the U.S. jurisdiction, partially offset by the non-deductibility of the goodwill impairment charge and our performance in foreign jurisdictions for which no income tax benefit or expense is recorded for Fiscal 2021. See Item 8, Note 12, "Income Taxes", to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information.
Journeys Group
|
| Fiscal Year Ended |
|
| % |
| ||||||
|
| 2021 |
|
| 2020 |
|
| Change |
| |||
|
| (dollars in thousands) |
|
|
|
|
| |||||
Net sales |
| $ | 1,227,954 |
|
| $ | 1,460,253 |
|
|
| (15.9 | )% |
Operating income |
| $ | 76,896 |
|
| $ | 114,945 |
|
|
| (33.1 | )% |
Operating margin |
|
| 6.3 | % |
|
| 7.9 | % |
|
|
|
|
Net sales from Journeys Group decreased 15.9% to $1.23 billion for Fiscal 2021 compared to $1.46 billion for Fiscal 2020, primarily due to store closures in response to the pension plan, the pension asset reflected in the Consolidated Balance SheetsCOVID-19 pandemic and lower store comparable sales, reflecting decreased store traffic, partially offset by increased to $4.3 million compared to $0.7 milliondigital comparable growth. The store count for Journeys Group was 1,159 stores at the end of Fiscal 2018. There was a2021, including 233 Journeys Kidz stores, 47 Journeys stores in Canada and 38 Little Burgundy stores in Canada, compared to 1,171 stores at the end of Fiscal 2020, including 233 Journeys Kidz stores, 46 Journeys stores in Canada and 39 Little Burgundy stores in Canada.
Journeys Group operating income for Fiscal 2021 decreased 33.1% to $76.9 million, compared to $114.9 million for Fiscal 2020. The decrease in operating income was primarily due to decreased net sales and increased expenses as a percentage of net sales, reflecting increased occupancy, marketing, depreciation, freight and compensation expenses, partially offset by decreased bonus expenses and selling salaries. Gross margin for Fiscal 2021 increased slightly as a percentage of net sales, primarily reflecting decreased markdowns, partially offset by higher shipping and warehouse expense from higher e-commerce sales.
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Schuh Group
|
| Fiscal Year Ended |
|
| % |
| ||||||
|
| 2021 |
|
| 2020 |
|
| Change |
| |||
|
| (dollars in thousands) |
|
|
|
|
| |||||
Net sales |
| $ | 305,941 |
|
| $ | 373,930 |
|
|
| (18.2 | )% |
Operating income (loss) |
| $ | (11,602 | ) |
| $ | 4,659 |
|
| NM |
| |
Operating margin |
|
| -3.8 | % |
|
| 1.2 | % |
|
|
|
|
Net sales from the Schuh Group decreased 18.2% to $305.9 million for Fiscal 2021, compared to $373.9 million for Fiscal 2020, primarily due to store closures in response to the COVID-19 pandemic and lower store comparable sales, partially offset by increased digital comparable growth and the favorable impact of $4.9 million due to changes in foreign exchange rates. Schuh Group operated 123 stores at the end of Fiscal 2021 compared to 129 stores at the end of Fiscal 2020.
Schuh Group had an operating loss of $(11.6) million in Fiscal 2021 compared to operating income of $4.7 million for Fiscal 2020. The decrease in earnings this year reflects decreased net sales and decreased gross margin as a percentage of net sales, reflecting higher shipping and warehouse expense from higher e-commerce sales and increased promotional activity. Schuh Group’s selling and administrative expenses decreased as a percentage of net sales this year, reflecting decreased occupancy expense, as a result of savings from the government program in the U.K. providing property tax relief and rent abatement agreements with our landlords, and decreased selling salaries, partially offset by increased marketing, compensation and credit card expenses and professional fees. In addition, Schuh Group's operating loss included a favorable impact of $1.1 million for Fiscal 2021 due to changes in foreign exchange rates.
Johnston & Murphy Group
|
| Fiscal Year Ended |
|
| % |
| ||||||
|
| 2021 |
|
| 2020 |
|
| Change |
| |||
|
| (dollars in thousands) |
|
|
|
|
| |||||
Net sales |
| $ | 152,941 |
|
| $ | 300,850 |
|
|
| (49.2 | )% |
Operating income (loss) |
| $ | (47,624 | ) |
| $ | 17,702 |
|
| NM |
| |
Operating margin |
|
| -31.1 | % |
|
| 5.9 | % |
|
|
|
|
Johnston & Murphy Group net sales decreased 49.2% to $152.9 million for Fiscal 2021 from $300.9 million for Fiscal 2020 primarily due to lower store comparable sales, store closures in response to the COVID-19 pandemic and lower wholesale sales, partially offset by increased digital comparable growth. Retail operations accounted for 77.6% of Johnston & Murphy Group's sales in Fiscal 2021, up from 75.8% in Fiscal 2020. The store count for Johnston & Murphy retail operations at the end of Fiscal 2021 included 178 Johnston & Murphy shops and factory stores, including eight stores in Canada, compared to 180 Johnston & Murphy shops and factory stores, including eight stores in Canada, at the end of Fiscal 2020.
The operating loss for Johnston & Murphy Group for Fiscal 2021 was $(47.6) million compared to operating income of $17.7 million in Fiscal 2020. The decrease was primarily due to (i) decreased net sales (ii) decreased gross margin as a percentage of net sales, reflecting incremental inventory reserves, higher markdowns at retail, closeouts at wholesale and increased shipping and warehouse expense from higher e-commerce sales and (iii) increased selling and administrative expenses as a percentage of net sales, reflecting the inability to leverage expenses on lower sales due to the COVID-19 pandemic.
33
Licensed Brands
|
| Fiscal Year Ended |
|
| % |
| ||||||
|
| 2021 |
|
| 2020 |
|
| Change |
| |||
|
| (dollars in thousands) |
|
|
|
|
| |||||
Net sales |
| $ | 99,694 |
|
| $ | 61,859 |
|
|
| 61.2 | % |
Operating loss |
| $ | (5,430 | ) |
| $ | (698 | ) |
| NM |
| |
Operating margin |
|
| -5.4 | % |
|
| -1.1 | % |
|
|
|
|
Licensed Brands’ net sales increased 61.2% to $99.7 million for Fiscal 2021 from $61.9 million for Fiscal 2020, reflecting increased sales related to the Togast acquisition, partially offset by decreased sales of Dockers footwear.
Licensed Brands’ operating loss increased from $(0.7) million for Fiscal 2020 to $(5.4) million for Fiscal 2021, primarily due to decreased gross margin as a percentage of net sales as the recently acquired Togast business carried lower margins than the historic business due to the impact of pre-acquisition royalty and commission cost on legacy Togast product sales and the COVID-19 pandemic impact. As the legacy Togast products comprise less of the overall sales mix of Licensed Brands, we expect the gross margin to improve. Licensed Brands’ selling and administrative expenses decreased as a percentage of net sales, reflecting multiple expense category fluctuations as a result of both acquiring the Togast business, which carries lower expenses as a percentage of net sales than the historic business, and the impact of the COVID-19 pandemic, including higher bad debt expense for Fiscal 2021. In addition, we benefitted from actions we took to restructure the Togast business and integrate post acquisition such as the elimination of a potential $34 million earnout in future years.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for Fiscal 2021 was $119.5 million compared to $53.3 million for Fiscal 2020. Corporate expense in Fiscal 2021 included non-cash impairment charges of $79.3 million related to goodwill, $13.8 million related to retail store assets and $5.3 million for trademarks, partially offset by a $(0.4) million gain for the release of an earnout related to the Togast acquisition. Fiscal 2020 included a $13.4 million charge in asset impairment and other charges, primarily for pension liability adjustmentsettlement expense and retail store asset impairments, partially offset by a gain on the sale of $0.2the Lids Sports Group headquarters building, a gain on lease terminations and a gain related to Hurricane Maria. Corporate and other expense, excluding asset impairment and other charges, decreased 46% reflecting decreased bonus and compensation expenses and decreased professional fees.
Net interest expense increased to $5.1 million pretax in accumulated other comprehensive lossFiscal 2021 from $1.3 million in equity. Depending upon futureFiscal 2020 primarily due to increased average borrowings and lower interest rates on short-term investments.
Liquidity and returns on plan assets and other factors, there can be no assurance that additional adjustments in future periods will not be required.
The impacts of the COVID-19 pandemic have adversely affected our results of operations. In response to Environmental Matters
34
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 the fourth quarter of each fiscal year.
Cash flow changes: |
| Fiscal Year Ended |
| |||||||||
(dollars in millions) |
| January 30, 2021 |
|
| February 1, 2020 |
|
| Increase (Decrease) |
| |||
Net cash provided by operating activities |
| $ | 157.8 |
|
| $ | 117.2 |
|
| $ | 40.6 |
|
Net cash provided by (used in) investing activities |
|
| (24.0 | ) |
|
| 53.3 |
|
|
| (77.3 | ) |
Net cash used in financing activities |
|
| (3.2 | ) |
|
| (256.5 | ) |
|
| 253.3 |
|
Effect of foreign exchange rate fluctuations on cash |
|
| 3.1 |
|
|
| 0.1 |
|
|
| 3.0 |
|
Increase (decrease) in cash and cash equivalents |
| $ | 133.7 |
|
| $ | (85.9 | ) |
| $ | 219.6 |
|
Reasons for the major variances in cash provided by (used in) the table above are as follows:
Cash provided by operating activities was $40.6 million higher for Fiscal 2021 compared to Fiscal 2020, reflecting primarily the following factors:
• | A $63.1 million increase in cash flow from changes in inventory, net of reserves, reflecting decreased inventory in all of our business segments for Fiscal 2021; |
• | A $40.0 million increase in cash flow from changes in accounts payable reflecting changes in buying patterns; |
• | A $28.9 million increase in cash flow from changes in other assets and liabilities and a $13.1 million increase in cash flow from changes in other accrued liabilities, both reflecting reduced rent payments since the onset of the COVID-19 pandemic; partially offset by |
• | A $81.3 million decrease in cash flow from decreased net earnings, net of intangible impairment, discrete income tax benefits and inventory reserve adjustments. |
Cash provided by investing activities was $77.3 million lower for Fiscal 2021 reflecting the receipt of proceeds from the sale of Lids Sports Group in the prior year, partially offset by the acquisition of Togast in the fourth quarter of Fiscal Year 2020.
Cash used in financing activities was $253.3 million higher in Fiscal 2021 primarily reflecting share repurchases in Fiscal Year 2020.
Sources of Liquidity and Future Capital Needs
We have three principal sources of liquidity: cash flow from operations, cash and cash equivalents on hand and our credit facilities discussed in Item 8, Note 3,"Asset Impairments and Other Charges and Discontinued Operations" and Note 13, "Legal Proceedings"9, "Long-Term Debt", to the Company'sour Consolidated Financial Statements included in thethis Annual Report on Form 10-K.
On June 5, 2020, we entered into a Second Amendment to our Credit Facility to, among other things, increase the Total Commitments for the revolving loans from $275.0 million to $332.5 million, establish a FILO tranche of indebtedness of $17.5 million, for $350.0 million total capacity, increase pricing on the revolving loans, modify certain covenant and reporting terms and pledge additional collateral. As of January 30, 2021, we have borrowed $33.0 million under our Credit Facility.
On October 9, 2020, Schuh entered into a Facility Letter with Lloyds under the U.K.'s Coronavirus Large Business Interruption Loan Scheme pursuant to which Lloyds made available a RCF of £19.0 million for the purpose of refinancing Schuh's existing indebtedness with Lloyds. The RCF expires in October 2023. As of January 30, 2021, we have not borrowed under the Schuh Facility Letter.
35
As we manage through the impacts of the COVID-19 pandemic in Fiscal 2022, we have access to our existing cash, as well as our available credit facilities to meet short-term liquidity needs. We believe that cash on hand, cash provided by operations and borrowings under our amended Credit Facility and the Schuh Facility Letter will be sufficient to support our near-term liquidity. Our year end cash benefitted from both lower inventory levels as well as rent payables that will be paid once remaining COVID-related rent negotiations are fully completed and executed in Fiscal 2022. Additionally, in the fourth quarter of Fiscal 2021, we implemented tax mechanisms allowed under the 5-year carryback provisions in the CARES Act which we expect will generate significant cash inflows in Fiscal 2022. In Fiscal 2022, we will need to rebuild our inventories, especially at Journeys Group, in response to COVID-19.
We were in compliance with all the relevant terms and conditions of the Credit Facility and Facility Letter as of January 30, 2021.
Contractual Obligations
The following table sets forth aggregate contractual obligations as of January 30, 2021.
(in thousands) |
|
|
| |||||||||
Contractual Obligations |
| Total |
|
| Current |
|
| Long-Term |
| |||
Long-Term Debt Obligations |
| $ | 32,986 |
|
| $ | — |
|
| $ | 32,986 |
|
Operating Lease Obligations(1) |
|
| 800,962 |
|
|
| 204,457 |
|
|
| 596,505 |
|
Purchase Obligations(2) |
|
| 22,753 |
|
|
| 22,753 |
|
|
| — |
|
Other Long-Term Liabilities |
|
| 855 |
|
|
| 172 |
|
|
| 683 |
|
Total Contractual Obligations |
| $ | 857,556 |
|
| $ | 227,382 |
|
| $ | 630,174 |
|
(1) Operating lease obligations excludes $68.8 million for leases signed but not yet commenced.
(2) As a result of the Togast 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 $24.1 million and $29.8 million for Fiscal 2021 and 2020, respectively. The $5.7 million decrease in Fiscal 2021 capital expenditures as compared to Fiscal 2020 is primarily due to decreased store renovations in Fiscal 2021 as well as decreased capital expenditures as a result of the COVID-19 pandemic.
We expect total capital expenditures for Fiscal 2022 to be approximately $35 million to $40 million of which approximately 74% is for computer hardware, software and warehouse enhancements for initiatives to drive traffic and omni-channel capabilities. Planned capital expenditures excludes approximately $16 million, net of tenant allowance, for the new Corporate Headquarters building which is still in the planning stage. We do not currently have any longer term capital expenditures or other cash requirements other than as set forth in the contractual obligations table. We also do not currently have any off-balance sheet arrangements.
Common Stock Repurchases
We did not repurchase any shares during Fiscal 2021. We have $89.7 million remaining as of January 30, 2021 under our current $100.0 million share repurchase authorization. We repurchased 4,570,015 shares at a cost of $189.4 million during Fiscal 2020.
36
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 16, "Legal Proceedings and Other Matters", to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
Financial Market Risk
The following discusses our exposure to financial market risk.
Outstanding Debt – We have $33.0 million of outstanding U.S. revolver borrowings at a weighted average interest rate of 4.05% as of January 30, 2021. A 100 basis point increase in interest rates would increase annual interest expense by $0.3 million on the $33.0 million revolver borrowings.
Cash and Cash Equivalents – Our cash and cash equivalent balances are held in our bank accounts and not invested at this time. We did not have significant exposure to changing interest rates on invested cash at January 30, 2021. As a result, we consider the interest rate market risk implicit in these investments at January 30, 2021 to be low.
Summary – Based on our overall market interest rate exposure at January 30, 2021, 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 2022 would not be material.
Accounts Receivable – Our accounts receivable balance at January 30, 2021 is concentrated in our wholesale businesses, which sell primarily to department stores and independent retailers across the United States. In the wholesale businesses, one customer accounted for 16%, one customer accounted for 13% and two customers each accounted for 10% of our total trade receivables balance, while no other customer accounted for more than 7% of our total trade receivables balance as of January 30, 2021. 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 affected by conditions or occurrences within the economy and the retail industry, as well as company-specific information.
Foreign Currency Exchange Risk – We are exposed to translation risk because certain of our foreign operations utilize the local currency as their functional currency and those financial results must be translated into United States dollars. As currency exchange rates fluctuate, translation of our financial statements of foreign businesses into United States dollars affects the comparability of financial results between years. Schuh Group's net sales and operating loss for Fiscal 2021 were positively impacted by $4.9 million and positively impacted by $1.1 million, respectively, due to the change in foreign exchange rates.
New Accounting Policies
Descriptions of recently issued accounting pronouncements, if any, and the accounting pronouncements adopted by us during Fiscal 2021 are included in Note 12 to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data".
Critical Accounting Estimates
As a result of the Company values its inventories ateconomic and business impact of COVID-19, we may be required to revise certain accounting estimates and judgments such as, but not limited to, those related to the lowervaluation of cost or net realizable value in its wholesaleinventory, goodwill, long-lived assets and Schuh Group segments.
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. Net realizable value is determined using a system of analysis which evaluates inventory at the
37
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 providesWe provide a valuation allowance when the inventory has not been marked down to net 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 segment, the Company employswe 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 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 allowances, the Company maintainswe 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 amounts for markdowns, shrinkage and damaged goods would have changed inventory by $0.8$1.6 million at February 2, 2019.
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.
We annually assesses itsassess our goodwill and indefinite lived trade namestrademarks for impairment and on an interim basis if indicators of impairment are present. The Company’sOur annual assessment date of goodwill and indefinite lived trade names is the first day of the fourth quarter.
In accordance with ASC 350, the Company haswe 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, the Company concludeswe conclude that the asset is not impaired, no further action is required. However, if the Company concludeswe conclude otherwise, it iswe are required to determine the fair value of the asset using a quantitative impairment test. The quantitative impairment test for goodwill compares the fair value of each reporting unit with the carrying value of the businessreporting unit with which the goodwill is associated. If 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. The Company estimatesWe 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 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
38
expenditures and changes in future working capital requirements. For additional information regarding impairment of long-lived assets, see
Revenue Recognition
In accordance with ASU 2014-09, “Revenue"Revenue from Contracts with Customers (Topic 606)”" ("ASC 606"). In accordance with 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 the Company expectswe expect to be entitled to in exchange for corresponding goods. The majority of the Company'sour sales are single performance obligation arrangements for retail sale transactions for which the transaction price is equivalent to the stated price of the product, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product at the point of sale. Revenue from retail sales is recognized at the point of sale, is net of estimated returns, and excludes sales and value added taxes. Revenue from catalog and internet sales is recognized at estimated time of delivery to the customer, is net of estimated returns, and excludes sales and value added taxes. Wholesale revenue is recorded net of estimated returns and allowances for markdowns, damages and miscellaneous claims when the related goods have been shipped and legal title has passed to the customer. Actual amounts of markdowns have not differed materially from estimates. Shipping and handling costs charged to customers are included in net sales. The CompanyWe elected the practical expedient within ASC 606 related to taxes that are assessed by a governmental authority, which allows for the exclusion of sales and value added tax from transaction price.
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 returns and claims in any future period may differ from historical experience. Revenue from gift cards is deferred and recognized upon the redemption of the cards. These cards have no expiration date. Income from unredeemed cards is recognized on thein our Consolidated Statements of Operations within net sales in proportion to the pattern of rights exercised by the customer in future periods. The Company performsWe perform an evaluation of historical redemption patterns from the date of original issuance to estimate future period redemption activity. For additional information on the new revenue recognition standard, see Item 8, Note 1, "Summary of Significant Accounting Policies", to the Company's Consolidated Financial Statements included in this Annual Report on Form 10-K.
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 believeswe believe that recovery of an asset is at risk, 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
39
Income tax reserves for uncertain tax positions are determined using the methodology required by the Income Tax Topic of the Accounting Standards Codification (“Codification”). 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 9,12, "Income Taxes", to the Company's Consolidated Financial Statements included in this Annual Report on Form 10-K for the impact on income taxes of the Act enacted December of 2017.
| Fiscal Year Ended | % Change | |||||||||
| 2019 | 2018 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 1,419,993 | $ | 1,329,460 | 6.8 | % | ||||
| Earnings from operations | $ | 100,799 | $ | 74,114 | 36.0 | % | ||||
| Operating margin | 7.1 | % | 5.6 | % | ||||||
Leases
We recognize lease assets and corresponding lease liabilities for Fiscal 2019 comparedall 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 $1.33 billionexercise in our expected lease terms for Fiscal 2018. The increase reflected an 8% increase in comparable sales partially offset by a 2% decrease in average Journeys stores operated (i.e. the sumcalculations of the numberright-of-use assets and liabilities. Approximately 2% of stores open onour leases contain renewal options. To determine the first daypresent 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 fiscal year andrisk associated with the last day of each fiscal month during the year divided by thirteen) for Fiscal 2019. The comparable sales increase reflected a 6% increase in footwear unit comparable sales and the average price per pair of shoes increased 2%. The store count for Journeys Group was 1,193 stores at the end of Fiscal 2019, including 239 Journeys Kidz stores, 46 Journeys stores in Canada and 41 Little Burgundy stores in Canada, compared to 1,220 stores at the end of Fiscal 2018, including 242 Journeys Kidz stores, 46 Journeys stores in Canada and 39 Little Burgundy stores in Canada.
| Fiscal Year Ended | % Change | |||||||||
| 2019 | 2018 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 382,591 | $ | 403,698 | (5.2 | )% | ||||
| Earnings from operations | $ | 3,765 | $ | 20,104 | (81.3 | )% | ||||
| Operating margin | 1.0 | % | 5.0 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2019 | 2018 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 313,134 | $ | 304,160 | 3.0 | % | ||||
| Earnings from operations | $ | 20,385 | $ | 19,367 | 5.3 | % | ||||
| Operating margin | 6.5 | % | 6.4 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2019 | 2018 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 72,564 | $ | 89,809 | (19.2 | )% | ||||
| Loss from operations | $ | (488 | ) | $ | (299 | ) | (63.2 | )% | ||
| Operating margin | (0.7 | )% | (0.3 | )% | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2018 | 2017 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 1,329,460 | $ | 1,251,646 | 6.2 | % | ||||
| Earnings from operations | $ | 74,114 | $ | 85,270 | (13.1 | )% | ||||
| Operating margin | 5.6 | % | 6.8 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2018 | 2017 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 403,698 | $ | 372,872 | 8.3 | % | ||||
| Earnings from operations | $ | 20,104 | $ | 20,530 | (2.1 | )% | ||||
| Operating margin | 5.0 | % | 5.5 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2018 | 2017 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 304,160 | $ | 289,324 | 5.1 | % | ||||
| Earnings from operations | $ | 19,367 | $ | 19,330 | 0.2 | % | ||||
| Operating margin | 6.4 | % | 6.7 | % | ||||||
| Fiscal Year Ended | % Change | |||||||||
| 2018 | 2017 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 89,809 | $ | 106,372 | (15.6 | )% | ||||
| Earnings (loss) from operations | $ | (299 | ) | $ | 4,498 | NM | ||||
| Operating margin | (0.3 | )% | 4.2 | % | ||||||
| Feb. 2, 2019 | Feb. 3, 2018 | Jan. 28, 2017 | |||||||||
| (dollars in millions) | |||||||||||
| Cash and cash equivalents | $ | 167.4 | $ | 39.9 | $ | 48.3 | |||||
| Working capital | $ | 454.8 | $ | 438.0 | $ | 407.6 | |||||
| Long-term debt (includes current maturities) | $ | 65.7 | $ | 88.4 | $ | 82.9 | |||||
| Cash flow changes: (Includes discontinued operations) | Fiscal Year Ended | ||||||||
| Increase | |||||||||
| (dollars in millions) | February 2, 2019 | February 3, 2018 | (Decrease) | ||||||
| Net cash provided by operating activities | $ | 237.1 | $ | 164.6 | $ | 72.5 | |||
| Net cash used in investing activities | (56.5 | ) | (127.6 | ) | 71.1 | ||||
| Net cash used in financing activities | (52.8 | ) | (47.4 | ) | (5.4 | ) | |||
| Effect of foreign exchange rate fluctuations on cash | (0.4 | ) | 2.0 | (2.4 | ) | ||||
| Increase (decrease) in cash and cash equivalents | $ | 127.4 | $ | (8.4 | ) | $ | 135.8 | ||
| Cash flow changes: (Includes discontinued operations) | Fiscal Year Ended | ||||||||
| Increase | |||||||||
| (dollars in millions) | February 3, 2018 | January 28, 2017 | (Decrease) | ||||||
| Net cash provided by operating activities | $ | 164.6 | $ | 165.2 | $ | (0.6 | ) | ||
| Net cash used in investing activities | (127.6 | ) | (70.9 | ) | (56.7 | ) | |||
| Net cash used in financing activities | (47.4 | ) | (178.2 | ) | 130.8 | ||||
| Effect of foreign exchange rate fluctuations on cash | 2.0 | (1.1 | ) | 3.1 | |||||
| Decrease in cash and cash equivalents | $ | (8.4 | ) | $ | (85.0 | ) | $ | 76.6 | |
| (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 | $ | 65,743 | $ | 8,970 | $ | — | $ | 56,773 | $ | — | |||||||||
| Operating Lease Obligations | 1,097,721 | 183,432 | 330,739 | 259,912 | 323,638 | ||||||||||||||
Purchase Obligations(1) | 616,882 | 616,882 | — | — | — | ||||||||||||||
Long-Term Obligations – Schuh(2) | 147 | 147 | — | — | — | ||||||||||||||
| Other Long-Term Liabilities | 898 | 172 | 343 | 380 | 3 | ||||||||||||||
Total Contractual Obligations(3) | $ | 1,781,391 | $ | 809,603 | $ | 331,082 | $ | 317,065 | $ | 323,641 | |||||||||
| (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 | $ | 11,156 | $ | 11,156 | $ | — | $ | — | $ | — | |||||||||
| Total Commercial Commitments | $ | 11,156 | $ | 11,156 | $ | — | $ | — | $ | — | |||||||||
ITEM 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."
INDEX TO FINANCIAL STATEMENTS
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50 | |
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 February 2, 2019,January 30, 2021, 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 (the Company) maintained, in all material respects, effective internal control over financial reporting as of February 2, 2019,January 30, 2021, 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 2, 2019January 30, 2021 and February 3, 2018, and1, 2020, the related consolidated statements of operations, comprehensive income, cash flows, and equity for each of the three fiscal years in the period ended February 2, 2019,January 30, 2021, and the related notes and financial statement schedule listed in the Index at Item 15, and our report dated April 3, 2019March 31, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company'sCompany’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’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the 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 31, 2021
42
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. and Subsidiaries (the Company) as of February 2, 2019January 30, 2021 and February 3, 2018, and1, 2020, the related consolidated statements of operations, comprehensive income, cash flows and equity for each of the three fiscal years in the period ended February 2, 2019,January 30, 2021, 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, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at February 2, 2019January 30, 2021 and February 3, 2018,1, 2020, and the results of its operations and its cash flows for each of the three fiscal years in the period ended February 2, 2019,January 30, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of February 2, 2019,January 30, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework),framework) and our report dated April 3, 2019March 31, 2021 expressed an unqualified opinion thereon.
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 and schedule 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 includedinclude 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) relate 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 a 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 separate opinions on the critical audit matter or on the account or disclosures to which they relate.
43
Valuation of Schuh Group Indefinite Lived Trademark | |||
Description of the Matter | At January 30, 2021 the Company had $23.1 million recorded for the indefinite lived trademark associated with the Schuh Group reporting unit. As discussed in Notes 1, 3, and 4 to the consolidated financial statements, the Company assesses indefinite lived trademarks for impairment on an annual basis, or on an interim basis if indicators of impairment are present. If the carrying amount exceeds the estimated fair value, an impairment loss would be recorded in the amount equal to the excess. | ||
Auditing the Company’s quantitative indefinite lived trademark impairment test was complex and highly judgmental due to the subjective nature of the significant assumptions used in the determination of estimated fair value for the Schuh Group trademark. For example, the fair value estimate was sensitive to significant assumptions, including revenue projections, royalty rate, and discount rate, which are affected by expected future market or economic conditions and industry and company-specific qualitative factors. | |||
How We | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s trademark impairment evaluation process. For example, we tested controls over the Company’s review of the significant assumptions used in the trademark valuation as well as the | Company’s review of the reasonableness of the data used in this valuation. | |
To test the estimated fair value of the Schuh Group trademark, we performed audit procedures that included, among others, testing the significant assumptions discussed above, testing the underlying data used by the Company in its analyses by comparing to historical and other industry data, as well as validating certain assertions with data internal to the Company and from other sources. We compared the significant assumptions used by the Company to current industry and economic trends while also considering changes to the Company’s business model, customer base and product mix. We assessed the historical accuracy of the Company’s revenue projections by comparing the Company’s past projections to actual performance. We also performed sensitivity analyses to evaluate the impact that changes in the significant assumptions would have on the fair value of the Schuh Group trademark. Finally, we involved a valuation specialist to assist in our evaluation of the Company's model, valuation methodology and significant assumptions, including assisting in evaluating the Company’s discount rate and royalty rate. | |||
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2001.
Nashville, Tennessee
March 31, 2021
44
Genesco Inc.
and Subsidiaries
Consolidated Balance Sheets
In Thousands, except share amounts
|
| As of Fiscal Year End |
| |||||
Assets |
| January 30, 2021 |
|
| February 1, 2020 |
| ||
Current Assets: |
|
|
| |||||
Cash and cash equivalents |
| $ | 215,091 |
|
| $ | 81,418 |
|
Accounts receivable, net of allowances of $5,015 at January 30, 2021 and $2,940 at February 1, 2020 |
|
| 31,410 |
|
|
| 29,195 |
|
Inventories |
|
| 290,966 |
|
|
| 365,269 |
|
Prepaids and other current assets |
|
| 130,128 |
|
|
| 32,301 |
|
Total current assets |
|
| 667,595 |
|
|
| 508,183 |
|
Property and equipment, net |
|
| 207,842 |
|
|
| 238,320 |
|
Operating lease right of use asset |
|
| 621,727 |
|
|
| 735,044 |
|
Goodwill |
|
| 38,550 |
|
|
| 122,184 |
|
Other intangibles |
|
| 30,929 |
|
|
| 36,364 |
|
Deferred income taxes |
|
| 0 |
|
|
| 19,475 |
|
Other noncurrent assets |
|
| 20,725 |
|
|
| 20,908 |
|
Total Assets |
| $ | 1,587,368 |
|
| $ | 1,680,478 |
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 150,437 |
|
| $ | 135,784 |
|
Current portion - operating lease liability |
|
| 173,505 |
|
|
| 142,695 |
|
Other accrued liabilities |
|
| 78,991 |
|
|
| 83,456 |
|
Total current liabilities |
|
| 402,933 |
|
|
| 361,935 |
|
Long-term debt |
|
| 32,986 |
|
|
| 14,393 |
|
Long-term operating lease liability |
|
| 527,549 |
|
|
| 647,949 |
|
Other long-term liabilities |
|
| 57,141 |
|
|
| 36,858 |
|
Total liabilities |
|
| 1,020,609 |
|
|
| 1,061,135 |
|
Commitments and contingent liabilities |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Non-redeemable preferred stock |
|
| 1,009 |
|
|
| 1,009 |
|
Common equity: |
|
|
|
|
|
|
|
|
Common stock, $1 par value: |
|
|
|
|
|
|
|
|
Authorized: 80,000,000 shares |
|
|
|
|
|
|
|
|
Issued common stock |
|
| 15,438 |
|
|
| 15,186 |
|
Additional paid-in capital |
|
| 282,308 |
|
|
| 274,101 |
|
Retained earnings |
|
| 320,920 |
|
|
| 378,572 |
|
Accumulated other comprehensive loss |
|
| (35,059 | ) |
|
| (31,668 | ) |
Treasury shares, at cost (488,464 shares) |
|
| (17,857 | ) |
|
| (17,857 | ) |
Total equity |
|
| 566,759 |
|
|
| 619,343 |
|
Total Liabilities and Equity |
| $ | 1,587,368 |
|
| $ | 1,680,478 |
|
| As of Fiscal Year End | |||||||
| Assets | February 2, 2019 | February 3, 2018 | |||||
| Current Assets: | |||||||
| Cash and cash equivalents | $ | 167,355 | $ | 39,937 | |||
| Accounts receivable, net of allowances of $2,894 at February 2, | |||||||
| 2019 and $4,593 at February 3, 2018 | 132,390 | 33,614 | |||||
| Inventories | 366,667 | 388,410 | |||||
| Prepaids and other current assets | 64,634 | 54,031 | |||||
| Current assets - discontinued operations | — | 177,096 | |||||
| Total current assets | 731,046 | 693,088 | |||||
| Property and equipment: | |||||||
| Land | 7,953 | 8,047 | |||||
| Buildings and building equipment | 82,621 | 79,656 | |||||
| Computer hardware, software and equipment | 138,147 | 118,433 | |||||
| Furniture and fixtures | 129,625 | 126,699 | |||||
| Construction in progress | 5,920 | 29,457 | |||||
| Improvements to leased property | 341,134 | 337,798 | |||||
| Property and equipment, at cost | 705,400 | 700,090 | |||||
| Accumulated depreciation | (428,025 | ) | (401,543 | ) | |||
| Property and equipment, net | 277,375 | 298,547 | |||||
| Deferred income taxes | 21,335 | 25,077 | |||||
| Goodwill | 93,081 | 100,308 | |||||
| Trademarks, net of accumulated amortization of zero at both | |||||||
| February 2, 2019 and February 3, 2018 | 30,904 | 33,150 | |||||
| Other intangibles, net of accumulated amortization of $4,680 at | |||||||
| February 2, 2019 and $4,696 at February 3, 2018 | 943 | 1,340 | |||||
| Other noncurrent assets | 26,397 | 24,559 | |||||
| Non-current assets - discontinued operations | — | 139,284 | |||||
| Total Assets | $ | 1,181,081 | $ | 1,315,353 | |||
| As of Fiscal Year End | |||||||
| Liabilities and Equity | February 2, 2019 | February 3, 2018 | |||||
| Current Liabilities: | |||||||
| Accounts payable | $ | 158,603 | $ | 123,287 | |||
| Accrued employee compensation | 43,246 | 18,746 | |||||
| Accrued other taxes | 17,389 | 16,114 | |||||
| Accrued income taxes | 2,133 | 1,488 | |||||
| Current portion – long-term debt | 8,992 | 1,766 | |||||
| Other accrued liabilities | 45,313 | 50,523 | |||||
| Provision for discontinued operations | 553 | 1,902 | |||||
| Current liabilities - discontinued operations | — | 41,242 | |||||
| Total current liabilities | 276,229 | 255,068 | |||||
| Long-term debt | 56,751 | 86,619 | |||||
| Deferred rent and other long-term liabilities | 108,704 | 115,348 | |||||
| Provision for discontinued operations | 1,846 | 1,707 | |||||
| Non-current liabilities - discontinued operations | — | 25,907 | |||||
| Total liabilities | 443,530 | 484,649 | |||||
| Commitments and contingent liabilities | |||||||
| Equity | |||||||
| Non-redeemable preferred stock | 1,060 | 1,052 | |||||
| Common equity: | |||||||
| Common stock, $1 par value: | |||||||
| Authorized: 80,000,000 shares | |||||||
| Issued/Outstanding: | |||||||
| February 2, 2019 – 19,591,048/19,102,584 | |||||||
| February 3, 2018 – 20,392,253/19,903,789 | 19,591 | 20,392 | |||||
| Additional paid-in capital | 264,138 | 250,877 | |||||
| Retained earnings | 508,555 | 603,902 | |||||
| Accumulated other comprehensive loss | (37,936 | ) | (29,192 | ) | |||
| Treasury shares, at cost (488,464 shares) | (17,857 | ) | (17,857 | ) | |||
| Total Genesco equity | 737,551 | 829,174 | |||||
| Noncontrolling interest – non-redeemable | — | 1,530 | |||||
| Total equity | 737,551 | 830,704 | |||||
| Total Liabilities and Equity | $ | 1,181,081 | $ | 1,315,353 | |||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
and Subsidiaries
Consolidated Statements of Operations
In Thousands, except per share amounts
|
| Fiscal Year |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Net sales |
| $ | 1,786,530 |
|
| $ | 2,197,066 |
|
| $ | 2,188,553 |
|
Cost of sales |
|
| 982,063 |
|
|
| 1,133,951 |
|
|
| 1,141,497 |
|
Gross margin |
|
| 804,467 |
|
|
| 1,063,115 |
|
|
| 1,047,056 |
|
Selling and administrative expenses |
|
| 813,775 |
|
|
| 966,423 |
|
|
| 962,076 |
|
Goodwill impairment |
|
| 79,259 |
|
|
| 0 |
|
|
| 0 |
|
Asset impairments and other, net |
|
| 18,682 |
|
|
| 13,374 |
|
|
| 3,163 |
|
Operating income (loss) |
|
| (107,249 | ) |
|
| 83,318 |
|
|
| 81,817 |
|
Loss on early retirement of debt |
|
| 0 |
|
|
| 0 |
|
|
| 597 |
|
Other components of net periodic benefit income |
|
| (670 | ) |
|
| (395 | ) |
|
| (380 | ) |
Interest expense (net of interest income of $0.3 million, $2.1 million and $0.8 million for Fiscal 2021, 2020 and 2019, respectively) |
|
| 5,090 |
|
|
| 1,278 |
|
|
| 3,341 |
|
Earnings (loss) from continuing operations before income taxes |
|
| (111,669 | ) |
|
| 82,435 |
|
|
| 78,259 |
|
Income tax expense (benefit) |
|
| (55,641 | ) |
|
| 20,678 |
|
|
| 27,035 |
|
Earnings (loss) from continuing operations |
|
| (56,028 | ) |
|
| 61,757 |
|
|
| 51,224 |
|
Loss from discontinued operations, net of tax of $0.2 million, $0.1 million and $27.5 million for Fiscal 2021, 2020 and 2019, respectively |
|
| (401 | ) |
|
| (373 | ) |
|
| (103,154 | ) |
Net Earnings (Loss) |
| $ | (56,429 | ) |
| $ | 61,384 |
|
| $ | (51,930 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
| $ | (3.94 | ) |
| $ | 3.97 |
|
| $ | 2.65 |
|
Discontinued operations |
|
| (0.03 | ) |
|
| (0.02 | ) |
|
| (5.33 | ) |
Net earnings (loss) |
| $ | (3.97 | ) |
| $ | 3.95 |
|
| $ | (2.68 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
| $ | (3.94 | ) |
| $ | 3.94 |
|
| $ | 2.63 |
|
Discontinued operations |
|
| (0.03 | ) |
|
| (0.02 | ) |
|
| (5.29 | ) |
Net earnings (loss) |
| $ | (3.97 | ) |
| $ | 3.92 |
|
| $ | (2.66 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 14,216 |
|
|
| 15,544 |
|
|
| 19,351 |
|
Diluted |
|
| 14,216 |
|
|
| 15,671 |
|
|
| 19,495 |
|
| Fiscal Year | ||||||||||
| 2019 | 2018 | 2017 | ||||||||
| Net sales | $ | 2,188,553 | $ | 2,127,547 | $ | 2,020,831 | ||||
| Cost of sales | 1,141,497 | 1,116,164 | 1,044,912 | |||||||
| Selling and administrative expenses | 962,076 | 929,238 | 876,157 | |||||||
| Asset impairments and other, net | 3,163 | 7,773 | (8,031 | ) | ||||||
| Earnings from operations | 81,817 | 74,372 | 107,793 | |||||||
| Gain on sale of SureGrip Footwear | — | — | (12,297 | ) | ||||||
| Loss on early retirement of debt | 597 | — | — | |||||||
| Other components of net periodic benefit cost | (380 | ) | (29 | ) | 2,085 | |||||
| Interest expense, net: | ||||||||||
| Interest expense | 4,115 | 5,420 | 5,294 | |||||||
| Interest income | (774 | ) | (8 | ) | (47 | ) | ||||
| Total interest expense, net | 3,341 | 5,412 | 5,247 | |||||||
| Earnings from continuing operations before income taxes | 78,259 | 68,989 | 112,758 | |||||||
| Income tax expense | 27,035 | 32,281 | 39,876 | |||||||
| Earnings from continuing operations | 51,224 | 36,708 | 72,882 | |||||||
| (Loss) earnings from discontinued operations, net of tax of | ||||||||||
| $27.5 million, $22.7 million and $13.4 million for Fiscal 2019, | ||||||||||
| 2018 and 2017, respectively | (103,154 | ) | (148,547 | ) | 24,549 | |||||
| Net Earnings (Loss) | $ | (51,930 | ) | $ | (111,839 | ) | $ | 97,431 | ||
| Basic earnings (loss) per common share: | ||||||||||
| Continuing operations | $ | 2.65 | $ | 1.91 | $ | 3.63 | ||||
| Discontinued operations | (5.33 | ) | (7.73 | ) | 1.22 | |||||
| Net earnings (loss) | $ | (2.68 | ) | $ | (5.82 | ) | $ | 4.85 | ||
| Diluted earnings (loss) per common share: | ||||||||||
| Continuing operations | $ | 2.63 | $ | 1.90 | $ | 3.61 | ||||
| Discontinued operations | (5.29 | ) | (7.70 | ) | 1.22 | |||||
| Net earnings (loss) | $ | (2.66 | ) | $ | (5.80 | ) | $ | 4.83 | ||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
and Subsidiaries
Consolidated Statements of Comprehensive Income
In Thousands, except as noted
|
| Fiscal Year |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Net earnings (loss) |
| $ | (56,429 | ) |
| $ | 61,384 |
|
| $ | (51,930 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability adjustment net of tax of $2.1 million and $0.0 million for 2020 and 2019, respectively |
|
| 0 |
|
|
| 6,035 |
|
|
| 123 |
|
Postretirement liability adjustment net of tax of $0.1 million, $1.0 million and $1.6 million for 2021, 2020 and 2019, respectively |
|
| 314 |
|
|
| (2,697 | ) |
|
| 4,077 |
|
Foreign currency translation adjustments |
|
| (3,705 | ) |
|
| 2,930 |
|
|
| (12,944 | ) |
Total other comprehensive income (loss) |
|
| (3,391 | ) |
|
| 6,268 |
|
|
| (8,744 | ) |
Comprehensive Income (Loss) |
| $ | (59,820 | ) |
| $ | 67,652 |
|
| $ | (60,674 | ) |
The accompanying Notes are an integral part of these Consolidated Financial Statement.
47
Genesco Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
In Thousands
|
| Fiscal Year |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
| $ | (56,429 | ) |
| $ | 61,384 |
|
| $ | (51,930 | ) |
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 46,499 |
|
|
| 49,574 |
|
|
| 76,939 |
|
Deferred income taxes |
|
| 39,142 |
|
|
| 660 |
|
|
| 272 |
|
Impairment of intangible assets |
|
| 84,519 |
|
|
| 269 |
|
|
| 5,736 |
|
Impairment of long-lived assets |
|
| 13,871 |
|
|
| 2,827 |
|
|
| 5,823 |
|
Restricted stock expense |
|
| 8,460 |
|
|
| 10,077 |
|
|
| 13,437 |
|
Provision for discontinued operations |
|
| 345 |
|
|
| 425 |
|
|
| 743 |
|
Loss on sale of business |
|
| 0 |
|
|
| 86 |
|
|
| 126,321 |
|
Loss on pension plan termination |
|
| 0 |
|
|
| 11,510 |
|
|
| 0 |
|
Other |
|
| 3,916 |
|
|
| 568 |
|
|
| 2,460 |
|
Changes in working capital and other assets and liabilities, net of acquisitions/dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (4,159 | ) |
|
| 656 |
|
|
| 6,312 |
|
Inventories |
|
| 76,525 |
|
|
| 1,930 |
|
|
| 2,684 |
|
Prepaids and other current assets |
|
| (97,842 | ) |
|
| 16,228 |
|
|
| (9,116 | ) |
Accounts payable |
|
| 29,631 |
|
|
| (10,333 | ) |
|
| 43,028 |
|
Other accrued liabilities |
|
| (7,732 | ) |
|
| (20,787 | ) |
|
| 20,713 |
|
Other assets and liabilities |
|
| 20,995 |
|
|
| (7,904 | ) |
|
| (6,279 | ) |
Net cash provided by operating activities |
|
| 157,741 |
|
|
| 117,170 |
|
|
| 237,143 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (24,130 | ) |
|
| (29,767 | ) |
|
| (57,230 | ) |
Other investing activities |
|
| 0 |
|
|
| 171 |
|
|
| 1,505 |
|
Acquisitions, net of cash acquired |
|
| 0 |
|
|
| (33,524 | ) |
|
| 0 |
|
Proceeds from (payments for) sale of businesses |
|
| 0 |
|
|
| 98,677 |
|
|
| (1,088 | ) |
Proceeds from asset sales |
|
| 110 |
|
|
| 17,751 |
|
|
| 310 |
|
Net cash provided by (used in) investing activities |
|
| (24,020 | ) |
|
| 53,308 |
|
|
| (56,503 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Payments of long-term debt |
|
| 0 |
|
|
| (9,133 | ) |
|
| (1,650 | ) |
Borrowings under revolving credit facility |
|
| 221,310 |
|
|
| 93,328 |
|
|
| 284,473 |
|
Payments on revolving credit facility |
|
| (205,327 | ) |
|
| (135,403 | ) |
|
| (299,606 | ) |
Shares repurchased related to share repurchase plan |
|
| 0 |
|
|
| (190,384 | ) |
|
| (44,935 | ) |
Restricted shares withheld for taxes |
|
| (1,223 | ) |
|
| (2,355 | ) |
|
| (2,853 | ) |
Change in overdraft balances |
|
| (16,573 | ) |
|
| (12,557 | ) |
|
| 15,494 |
|
Additions to deferred financing costs |
|
| (1,350 | ) |
|
| (7 | ) |
|
| (359 | ) |
Other |
|
| (1 | ) |
|
| 0 |
|
|
| (3,322 | ) |
Net cash used in financing activities |
|
| (3,164 | ) |
|
| (256,511 | ) |
|
| (52,758 | ) |
Effect of foreign exchange rate fluctuations on cash |
|
| 3,116 |
|
|
| 96 |
|
|
| (464 | ) |
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| 133,673 |
|
|
| (85,937 | ) |
|
| 127,418 |
|
Cash and cash equivalents at beginning of year |
|
| 81,418 |
|
|
| 167,355 |
|
|
| 39,937 |
|
Cash and cash equivalents at end of year |
| $ | 215,091 |
|
| $ | 81,418 |
|
| $ | 167,355 |
|
Supplemental information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 4,386 |
|
| $ | 3,005 |
|
| $ | 3,338 |
|
Income taxes paid |
|
| 7,685 |
|
|
| 4,899 |
|
|
| 12,451 |
|
Cash paid for amounts included in measurement of operating lease liabilities |
|
| 142,908 |
|
|
| 188,247 |
|
|
| 0 |
|
Operating leased assets obtained in exchange for new operating lease liabilities |
|
| 38,731 |
|
|
| 80,078 |
|
|
| 0 |
|
| Fiscal Year | |||||||||
| 2019 | 2018 | 2017 | |||||||
| Net earnings (loss) | $ | (51,930 | ) | $ | (111,839 | ) | $ | 97,431 | |
| Other comprehensive income (loss): | |||||||||
| Pension liability adjustment net of tax of $0.0 million, | |||||||||
| $1.9 million and $2.4 million for 2019, 2018 and 2017 respectively | 123 | 5,189 | 3,618 | ||||||
| Postretirement liability adjustment net of tax of $1.6 million, | |||||||||
| $0.1 million and $0.4 million for 2019, 2018 and 2017, respectively | 4,077 | (376 | ) | (674 | ) | ||||
| Stranded tax effect from tax reform | — | (2,234 | ) | — | |||||
| Foreign currency translation adjustments | (12,944 | ) | 19,521 | (11,623 | ) | ||||
| Total other comprehensive income (loss) | (8,744 | ) | 22,100 | (8,679 | ) | ||||
| Comprehensive Income (Loss) | $ | (60,674 | ) | $ | (89,739 | ) | $ | 88,752 | |
The accompanying Notes are an integral part of these Consolidated Financial Statements.
and Subsidiaries
Consolidated Statements of Cash Flows
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 3, 2018 |
| $ | 1,052 |
|
| $ | 20,392 |
|
| $ | 250,877 |
|
| $ | 603,902 |
|
| $ | (29,192 | ) |
| $ | (17,857 | ) |
| $ | 1,530 |
|
| $ | 830,704 |
|
Cumulative adjustment from ASC 606, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,413 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,413 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (51,930 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (51,930 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,744 | ) |
|
| — |
|
|
| — |
|
|
| (8,744 | ) |
Employee and non-employee restricted stock |
|
| — |
|
|
| — |
|
|
| 13,437 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,437 |
|
Restricted stock issuance |
|
| — |
|
|
| 390 |
|
|
| (390 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Restricted shares withheld for taxes |
|
| — |
|
|
| (70 | ) |
|
| 70 |
|
|
| (2,853 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,853 | ) |
Shares repurchased |
|
| — |
|
|
| (968 | ) |
|
| — |
|
|
| (44,977 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (45,945 | ) |
Other |
|
| 8 |
|
|
| (153 | ) |
|
| 144 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
Noncontrolling interest – loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,530 | ) |
|
| (1,530 | ) |
Balance February 2, 2019 |
|
| 1,060 |
|
|
| 19,591 |
|
|
| 264,138 |
|
|
| 508,555 |
|
|
| (37,936 | ) |
|
| (17,857 | ) |
|
| — |
|
|
| 737,551 |
|
Cumulative adjustment from ASC 842, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,208 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,208 | ) |
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 61,384 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 61,384 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,268 |
|
|
| — |
|
|
| — |
|
|
| 6,268 |
|
Employee and non-employee restricted stock |
|
| — |
|
|
| — |
|
|
| 10,077 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,077 |
|
Restricted stock issuance |
|
| — |
|
|
| 285 |
|
|
| (285 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Restricted shares withheld for taxes |
|
| — |
|
|
| (56 | ) |
|
| 56 |
|
|
| (2,355 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,355 | ) |
Shares repurchased |
|
| — |
|
|
| (4,570 | ) |
|
| — |
|
|
| (184,804 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (189,374 | ) |
Other |
|
| (51 | ) |
|
| (64 | ) |
|
| 115 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance February 1, 2020 |
|
| 1,009 |
|
|
| 15,186 |
|
|
| 274,101 |
|
|
| 378,572 |
|
|
| (31,668 | ) |
|
| (17,857 | ) |
|
| — |
|
|
| 619,343 |
|
Net loss |
|
|
|
|
|
| — |
|
|
| — |
|
|
| (56,429 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (56,429 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,391 | ) |
|
| — |
|
|
| — |
|
|
| (3,391 | ) |
Employee and non-employee restricted stock |
|
| — |
|
|
| — |
|
|
| 8,460 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,460 |
|
Restricted stock issuance |
|
| — |
|
|
| 467 |
|
|
| (467 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Restricted shares withheld for taxes |
|
| — |
|
|
| (65 | ) |
|
| 65 |
|
|
| (1,223 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,223 | ) |
Other |
|
| — |
|
|
| (150 | ) |
|
| 149 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
Balance January 30, 2021 |
| $ | 1,009 |
|
| $ | 15,438 |
|
| $ | 282,308 |
|
| $ | 320,920 |
|
| $ | (35,059 | ) |
| $ | (17,857 | ) |
| $ | — |
|
| $ | 566,759 |
|
| Fiscal Year | |||||||||
| 2019 | 2018 | 2017 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||
| Net earnings (loss) | $ | (51,930 | ) | $ | (111,839 | ) | $ | 97,431 | |
| Adjustments to reconcile net earnings (loss) to net cash | |||||||||
| provided by operating activities: | |||||||||
| Depreciation and amortization | 76,939 | 78,326 | 75,768 | ||||||
| Amortization of deferred note expense and debt discount | 593 | 747 | 839 | ||||||
| Deferred income taxes | 272 | (15,584 | ) | 5,394 | |||||
| Provision for accounts receivable | 116 | 853 | 442 | ||||||
| Impairment of intangible assets | 5,736 | 182,211 | — | ||||||
| Impairment of long-lived assets | 5,823 | 2,670 | 6,409 | ||||||
| Restricted stock expense | 13,437 | 13,505 | 13,481 | ||||||
| Provision for discontinued operations | 743 | 552 | 701 | ||||||
| Loss (Gain) on sale of business | 126,321 | — | (14,701 | ) | |||||
| Loss on pension buyout | — | — | 2,456 | ||||||
| Other | 1,751 | 1,857 | 1,599 | ||||||
| Effect on cash from changes in working capital and other | |||||||||
| assets and liabilities, net of acquisitions/dispositions: | |||||||||
| Accounts receivable | 6,312 | 835 | 1,362 | ||||||
| Inventories | 2,684 | 31,606 | (45,396 | ) | |||||
| Prepaids and other current assets | (9,116 | ) | (4,025 | ) | (2,258 | ) | |||
| Accounts payable | 43,028 | (7,337 | ) | 24,527 | |||||
| Other accrued liabilities | 20,713 | (22,339 | ) | (12,867 | ) | ||||
| Other assets and liabilities | (6,279 | ) | 12,553 | 10,062 | |||||
| Net cash provided by operating activities | 237,143 | 164,591 | 165,249 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||
| Capital expenditures | (57,230 | ) | (127,853 | ) | (93,970 | ) | |||
| Other investing activities | 1,505 | — | — | ||||||
| Acquisitions, net of cash acquired | — | — | (22 | ) | |||||
| Proceeds from asset sales and sale of businesses | (778 | ) | 252 | 23,053 | |||||
| Net cash used in investing activities | (56,503 | ) | (127,601 | ) | (70,939 | ) | |||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||
| Payments of long-term debt | (1,650 | ) | (9,289 | ) | (6,591 | ) | |||
| Borrowings under revolving credit facility | 284,473 | 515,560 | 340,920 | ||||||
| Payments on revolving credit facility | (299,606 | ) | (508,875 | ) | (357,685 | ) | |||
| Shares repurchased related to share repurchase plan | (44,935 | ) | (16,163 | ) | (140,499 | ) | |||
| Restricted shares withheld for taxes | (2,853 | ) | (1,716 | ) | (3,435 | ) | |||
| Change in overdraft balances | 15,494 | (22,498 | ) | (8,349 | ) | ||||
| Additions to deferred note cost | (359 | ) | (1,429 | ) | — | ||||
| Exercise of stock options | — | — | 1,018 | ||||||
| Other | (3,322 | ) | (3,000 | ) | (3,594 | ) | |||
| Net cash used in financing activities | (52,758 | ) | (47,410 | ) | (178,215 | ) | |||
| Effect of foreign exchange rate fluctuations on cash | (464 | ) | 2,056 | (1,082 | ) | ||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 127,418 | (8,364 | ) | (84,987 | ) | ||||
Cash and cash equivalents at beginning of year(1) | 39,937 | 48,301 | 133,288 | ||||||
Cash and cash equivalents at end of year(1) | $ | 167,355 | $ | 39,937 | $ | 48,301 | |||
| Net cash paid for: | |||||||||
| Interest | $ | 3,338 | $ | 5,350 | $ | 4,263 | |||
| Income taxes | 12,451 | 37,471 | 52,384 | ||||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
and Subsidiaries
| 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 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 | |||||||||||||||||||||
| Net loss | — | — | — | (111,839 | ) | — | — | — | (111,839 | ) | |||||||||||||||||||||
| Other comprehensive earnings | — | — | — | — | 22,100 | — | — | 22,100 | |||||||||||||||||||||||
| Employee and non-employee restricted stock | — | — | 13,505 | — | — | — | — | 13,505 | |||||||||||||||||||||||
| Restricted stock issuance | — | 357 | (357 | ) | — | — | — | — | — | ||||||||||||||||||||||
| Restricted shares withheld for taxes | — | (51 | ) | 51 | (1,716 | ) | — | — | — | (1,716 | ) | ||||||||||||||||||||
| Shares repurchased | — | (275 | ) | — | (15,888 | ) | — | — | — | (16,163 | ) | ||||||||||||||||||||
| Stranded tax effect from tax reform | — | — | — | 2,234 | — | — | — | 2,234 | |||||||||||||||||||||||
| Other | (8 | ) | 7 | 1 | — | — | — | — | — | ||||||||||||||||||||||
| Noncontrolling interest – gain | — | — | — | — | — | — | 62 | 62 | |||||||||||||||||||||||
| Balance February 3, 2018 | 1,052 | 20,392 | 250,877 | 603,902 | (29,192 | ) | (17,857 | ) | 1,530 | 830,704 | |||||||||||||||||||||
| Cumulative adjustment from ASC 606, net of tax | — | — | — | 4,413 | — | — | — | 4,413 | |||||||||||||||||||||||
| Net loss | — | — | (51,930 | ) | — | — | — | (51,930 | ) | ||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (8,744 | ) | — | — | (8,744 | ) | |||||||||||||||||||||
| Employee and non-employee restricted stock | — | — | 13,437 | — | — | — | — | 13,437 | |||||||||||||||||||||||
| Restricted stock issuance | — | 390 | (390 | ) | — | — | — | — | — | ||||||||||||||||||||||
| Restricted shares withheld for taxes | — | (70 | ) | 70 | (2,853 | ) | — | — | — | (2,853 | ) | ||||||||||||||||||||
| Shares repurchased | — | (968 | ) | — | (44,977 | ) | — | — | — | (45,945 | ) | ||||||||||||||||||||
| Other | 8 | (153 | ) | 144 | — | — | — | — | (1 | ) | |||||||||||||||||||||
| Noncontrolling interest – loss | — | — | — | — | — | — | (1,530 | ) | (1,530 | ) | |||||||||||||||||||||
| Balance February 2, 2019 | $ | 1,060 | $ | 19,591 | $ | 264,138 | $ | 508,555 | $ | (37,936 | ) | $ | (17,857 | ) | $ | — | $ | 737,551 | |||||||||||||
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
Nature of Operations
Genesco Inc. and its subsidiaries (collectively the "Company", "we", "our", or "us") business includes the sourcing and design, marketing and distribution of footwear and accessories through retail stores in the U.S., Puerto Rico and Canada primarily under the Journeys®, Journeys Kidz®, Little Burgundy® and Johnston & Murphy® banners and under the Schuh banner in the United Kingdom and the Republic of Ireland and Germany;ROI; through catalogs and e-commerce websites including the following: journeys.com, journeyskidz.com, journeys.ca, schuh.co.uk, littleburgundyshoes.com,schuh.ie, schuh.eu, johnstonmurphy.com and trask.com,littleburgundyshoes.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 we license for footwear. At January 30, 2021, we operated 1,460 retail stores in the CompanyU.S., Puerto Rico, Canada, the United Kingdom and the ROI.
Effective January 1, 2020, we completed the acquisition of Togast, which specializes in the design, sourcing and sale of licensed footwear. We also entered into a new U.S. footwear license agreement with Levi Strauss & Co. for the license of Levi's® footwear for men, women, and children in the U.S. The acquisition expands our portfolio to include footwear licenses for footwear.G.H. Bass® and FUBU, among others. Togast operates in our Licensed Brands segment. On February 2, 2019, the Companywe completed the sale of itsour Lids Sports Group business. As a result, the Companywe reported the operating results of this business in (loss) earningsloss from discontinued operations, net in theour Consolidated Statements of Operations for all periods presented. In addition, the related assets and liabilities as of February 3, 2018 have been reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheets.Fiscal 2019. The cash flows related to discontinued operations have not been segregated and are included in theour Consolidated Statements of Cash Flows.Flows for Fiscal 2019. Unless otherwise noted, discussion within these notes to theour consolidated financial statements relates to continuing operations. See Note 318 for additional information related to discontinued operations. At February 2, 2019, the Company operated 1,512 retail stores in the U.S., Puerto Rico, Canada, the United Kingdom, the Republic of Ireland and Germany.
During Fiscal 2019, the Company2021, we operated four4 reportable business segments (not including corporate): (i) Journeys Group, comprised of the Journeys, Journeys Kidz and Little Burgundy retail footwear chains e-commerce and cataloge-commerce operations; (ii) Schuh Group, comprised of the Schuh retail footwear chain and e-commerce operations; (iii) Johnston & Murphy Group, comprised of Johnston & Murphy retail operations, e-commerce and catalog operations and wholesale distribution of products under the Johnston & Murphy
Principles of Consolidation
All subsidiaries are consolidated in theour 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. As a result, Fiscal 2021, 2020 and 2019 was awere all 52-week yearyears with 364 days,days. Fiscal 2018 was a 53-week year with 371 days2021 ended on January 30, 2021, Fiscal 2020 ended on February 1, 2020 and Fiscal 2017 was a 52-week year with 364 days. Fiscal 2019 ended on February 2, 2019, Fiscal 2018 ended on February 3, 2018 and Fiscal 2017 ended on January 28, 2017.
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.
50
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant areas requiring management estimates or judgments includeAccounting Policies, Continued
Cash and Cash Equivalents
Our foreign subsidiaries held cash of approximately $21.8 million and $8.9 million as of January 30, 2021 and February 1, 2020, respectively, which is included in cash and cash equivalents on the following key financial areas:
There were 0 cash equivalents at January 30, 2021 and there were $59.6 million of cash equivalents at February 1, 2020. Our $59.6 million of cash equivalents at the lowerprevious year end was invested in institutional money market funds which invest exclusively in highly rated, short-term securities that are issued, guaranteed or collateralized by the U.S. government or by U.S. government agencies and instrumentalities. The majority of costpayments due from banks for domestic customer credit card transactions process within 24 - 48 hours and are accordingly classified as cash and cash equivalents in our Consolidated Balance Sheets.
At January 30, 2021 and February 1, 2020, outstanding checks drawn on zero-balance accounts at certain domestic banks exceeded book cash balances at those banks by approximately $0.5 million and $17.1 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 net realizable value in itsoccurrences within the economy and the retail industry as well as by customer specific factors. In the wholesale businesses, 1 customer accounted for 16%, 1 customer accounted for 13% and Schuh Group segment.
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. Net 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 providesWe provide a valuation allowance when the inventory has not been marked down to net 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 segment, the Company employswe 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.
51
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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
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 $45.6 million, $49.4 million and $52.1 million for Fiscal 2021, 2020 and 2019, 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 2% 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.
52
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 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 $11.5 million and $11.1 million as of January 30, 2021 and February 1, 2020, 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 and 5.
We annually assesses itsassess our goodwill and indefinite lived trade names for impairment and on an interim basis if indicators of impairment are present. The Company’sOur annual assessment date of goodwill and indefinite lived trade names is the first day of the fourth quarter.
In accordance with ASC 350, the Company haswe 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, the Company concludeswe conclude that the asset is not impaired, no further action is required. However, if the Company concludeswe conclude otherwise, it iswe are required to determine the fair value of the asset using a quantitative impairment test. The quantitative impairment test for goodwill compares the fair value of each reporting unit with the carrying value of the businessreporting unit with which the goodwill is associated. If 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. The Company estimatesWe 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 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. See also Note 2.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Fair Value
The Fair Value Measurements and Other Contingencies
Level 1 - Quoted prices in accordance withactive 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 Company's pre-adoption accounting policiesfull term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and therefore have not been adjusted to conform to ASC 606.
A financial asset or liability’s classification within the point gift card redemption was deemed remote. Upon adoption,hierarchy is determined based on the Company now recognizes gift card breakage over time in proportionlowest level input that is significant to the pattern of rights exercised by the customer. Prior to adopting ASC 606, the Company capitalized direct-response advertising costs and expensed them over the period of benefit. Under ASC 606, the Companyfair value measurement.
Revenue Recognition
Revenue is recognizing these costs as expense when incurred. Additionally, the adoption of ASC 606 resulted in the Company presenting the asset for the carrying amount of product to be returned within prepaids and other current assets on the Consolidated Balance Sheets. Prior to adopting ASC 606, the value of product expected to be returned was presented as a component of inventories on the Consolidated Balance Sheets.
| Balance at | Adjustments | Balance at | |||||||
| February 3, 2018 | due to ASC 606 | February 4, 2018 | |||||||
| Assets | |||||||||
| Current assets: | |||||||||
| Prepaids and other current assets | $ | 33,614 | $ | 2,275 | $ | 35,889 | |||
| Inventories | 388,410 | (4,526 | ) | 383,884 | |||||
| Deferred income taxes | 25,077 | (1,568 | ) | 23,509 | |||||
| Liabilities and Equity | |||||||||
| Current liabilities: | |||||||||
| Other accrued liabilities | 50,523 | (3,332 | ) | 47,191 | |||||
| Current liabilities - discontinued operations | 41,242 | (4,900 | ) | 36,342 | |||||
| Equity | |||||||||
| Retained Earnings | 603,902 | 4,413 | 608,315 | ||||||
| February 2, 2019 | |||||||||
| As Reported | Balances without the adoption of ASC 606 | Effect of Change Higher/(Lower) | |||||||
| Inventories | $ | 366,667 | $ | 369,906 | $ | (3,239 | ) | ||
| Prepaids and other current assets | 64,634 | 64,139 | 495 | ||||||
| Total current assets | 731,046 | 733,790 | (2,744 | ) | |||||
| Deferred income taxes | 21,335 | 21,785 | (450 | ) | |||||
| Total Assets | 1,181,081 | 1,184,275 | (3,194 | ) | |||||
| Other accrued liabilities | 45,313 | 48,798 | (3,485 | ) | |||||
| Total current liabilities | 276,229 | 279,714 | (3,485 | ) | |||||
| Total liabilities | 443,530 | 447,015 | (3,485 | ) | |||||
| Retained earnings | 508,555 | 508,242 | 313 | ||||||
| Accumulated other comprehensive loss | (37,936 | ) | (37,914 | ) | (22 | ) | |||
| Total equity | 737,551 | 737,260 | 291 | ||||||
| Total Liabilities and Equity | 1,181,081 | 1,184,275 | (3,194 | ) | |||||
| Fiscal 2019 | |||||||||
| As Reported | Balances without the adoption of ASC 606 | Effect of Change Higher/(Lower) | |||||||
| Net sales | $ | 2,188,553 | $ | 2,188,398 | $ | 155 | |||
| Selling and administrative expenses | 962,076 | 961,581 | 495 | ||||||
| Earnings from operations | 81,817 | 82,157 | (340 | ) | |||||
| Earnings from continuing operations before income taxes | 78,259 | 78,599 | (340 | ) | |||||
| Income tax expense | 27,035 | 27,127 | (92 | ) | |||||
| Earnings from continuing operations | 51,224 | 51,472 | (248 | ) | |||||
| Loss from discontinued operations | (103,154 | ) | (99,302 | ) | (3,852 | ) | |||
| Net earnings | (51,930 | ) | (47,830 | ) | (4,100 | ) | |||
| Diluted earnings per share from continuing operations | $ | 2.63 | $ | 2.64 | $ | (0.01 | ) | ||
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 returns and claims in any future period may differ from historical experience. Revenue from gift cards is deferred and recognized upon the redemption of the cards. These cards have no expiration date. Income from unredeemed cards is recognized on the Consolidated Statements of Operations within net sales in proportion to the pattern of rights exercised by the customer in future periods. The Company performsWe perform an evaluation of historical redemption patterns from the date of original issuance to estimate future period redemption activity.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Our Consolidated Balance Sheets include an accrued liability for gift cards of $5.1$5.0 million and $8.4 million at February 2, 2019in each of the years ended January 30, 2021 and February 3, 2018, respectively.1, 2020. Gift card breakage recognized as revenue was $0.8 million, $0.4$1.0 million and $0.6$0.8 million for Fiscal 2019, 20182021, 2020 and 2017,2019, respectively. During Fiscal 2019, the Company2021, we recognized $3.6$3.0 million of gift card redemptions and gift card breakage revenue that were included in the gift card liability as of February 3, 2018.
| In thousands | February 2, 2019 | February 3, 2018 | |||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
| U.S. Revolver Borrowings | $ | 56,773 | $ | 56,861 | $ | 69,372 | $ | 69,421 | |||||||
| UK Term Loans | 8,970 | 9,063 | 11,419 | 11,602 | |||||||||||
| UK Revolver Borrowings | — | — | 7,594 | 7,671 | |||||||||||
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 the Company’sour warehouses to the stores and the cost of transportation from the Company'sour warehouses to the 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 costs of distribution are included in selling and administrative expenses on theour Consolidated Statements of Operations in the amounts of
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 $334.3$269.8 million, $333.8$334.4 million and $313.4$334.3 million for Fiscal 2021, 2020 and 2019, 2018 and 2017, 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 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 them as reductions to revenues at the time revenues are recorded. Markdowns are negotiated with retailers and changes are made to the estimates as agreements are reached. Actual amounts for markdowns have not differed materially from estimates.
55
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 specified advertising guidelines and provide appropriate documentation of expenses to be reimbursed. The Company’sOur cooperative advertising agreements require that wholesale customers present documentation or other evidence of specific advertisements or display materials used for the Company’sour products by submitting the actual print advertisements presented in catalogs, newspaper inserts or other advertising circulars, or by permitting physical inspection of displays. Additionally, the Company’sour cooperative advertising agreements require that the amount of reimbursement requested for such
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 incurred. If the amount of cash consideration received exceeds the costs being reimbursed, such excess amount would be recorded as a reduction of cost of sales.
Vendor reimbursements of cooperative advertising costs recognized as a reduction of selling and administrative expenses were
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
Commitments
As a result of the Togast acquisition, we also have a commitment to Samsung C&T America, Inc. (“Samsung��) related to the ultimate sale and 2017, respectively.
56
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
| Foreign Currency Translation | Unrecognized Pension/Postretirement Benefit Costs | Total Accumulated Other Comprehensive Income (Loss) | ||||||||
| (In thousands) | ||||||||||
| Balance February 3, 2018 | $ | (20,808 | ) | $ | (8,384 | ) | $ | (29,192 | ) | |
| Other comprehensive income (loss) before reclassifications: | ||||||||||
| Foreign currency translation adjustment | (11,481 | ) | — | (11,481 | ) | |||||
| Loss on intra-entity foreign currency transactions | ||||||||||
| (long-term investment nature) | (1,463 | ) | — | (1,463 | ) | |||||
| Plan amendment | — | 3,658 | 3,658 | |||||||
| Net actuarial gain | — | 2,688 | 2,688 | |||||||
| Amounts reclassified from AOCI: | ||||||||||
Curtailment(1) | — | (1,199 | ) | (1,199 | ) | |||||
Amortization of net actuarial loss and prior service cost - ongoing operations(2) | — | 582 | 582 | |||||||
Amortization of net actuarial loss and prior service cost - discontinued operations(1) | — | (57 | ) | (57 | ) | |||||
| Income tax expense | — | 1,472 | 1,472 | |||||||
| Current period other comprehensive income (loss), net of tax | (12,944 | ) | 4,200 | (8,744 | ) | |||||
| Balance February 2, 2019 | $ | (33,752 | ) | $ | (4,184 | ) | $ | (37,936 | ) | |
New Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
We adopted ASU 2016-02, " Leases (Topic 842)", ("ASC 842"), as of February 2018, the FASB issued ASC 220, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Act. This guidance is effective for all entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The amendments in ASC 220 should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The Company adopted ASC 220
Adoption of the new standard. The Company continues to assess the impact the adoption of ASU 2016-02 will have on its Consolidated Financial Statements, related disclosures and internal controls and is expecting a material impact on its Consolidated Balance Sheets because the Company is party to a significant number of lease contracts.
In August 2018, the FASB issued ASU 2018-14, to improve the effectiveness of disclosures2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in the notes to financial statements for employers that sponsor defined benefit pension plans. ASU 2018-14a Cloud Computing Arrangement That is effective for financial statements issued for fiscal years ending after December 15, 2020, and early adoption is permitted. The Company is currently assessing the impact of this update on its notes to its Consolidated Financial Statements.
We adopted ASC 606 in the first quarter of Fiscal 2019 using the modified retrospective method by recognizing the cumulative effect of $4.4 million as an adjustment to the opening balance of retained earnings at February 4, 2018. The Companyadoption of this standard did not have a material impact on our Consolidated Financial Statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. We adopted ASU No. 2016-13 in the first quarter of Fiscal 2021. This guidance did not have a material impact on our Consolidated Financial Statements.
57
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 2
New Accounting Pronouncements, Continued
New Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes”. This guidance aims to simplify the accounting for income taxes by removing certain exceptions to the general principles within the current guidance and by clarifying and amending the current guidance. The guidance is currently evaluatingeffective for annual reporting periods, and interim periods within those years, beginning after December 15, 2020. We do not expect the guidance to have a material impact on our Consolidated Financial Statements.
Note 3
COVID-19
In March 2020, the World Health Organization categorized the outbreak of COVID-19 as a pandemic. To help control the spread of the virus and protect the health and safety of our employees and customers, we began temporarily closing or modifying operating models and hours of our retail stores in North America, the United Kingdom and the ROI both in response to governmental requirements including “stay-at-home” orders and similar mandates and voluntarily, beyond the requirements of local government authorities, during Fiscal 2021.
Changes made in our operations, including temporary closures, combined with reduced customer traffic due to concerns over COVID-19, resulted in material reductions in revenues and operating income during Fiscal 2021. This prompted us to update our impairment analyses of our retail store portfolios and related lease right-of-use assets. For certain lower-performing stores, we compared the carrying value of store assets to undiscounted cash flows with updated assumptions on near-term profitability. As a result, we recorded an incremental $11.0 million asset impairment charge within asset impairments and other, net on our Consolidated Statements of Operations during Fiscal 2021.
We evaluated our goodwill and indefinite-lived intangible assets for indicators of impairment at the end of the first three quarters of this year and our annual assessment of impairment on the first day of our fourth quarter for Fiscal 2021. During the first quarter, such evaluation caused us to determine that, when considering the impact of ASU 2018-15.
We evaluated our remaining assets, particularly accounts receivable and inventory. Our wholesale businesses sell primarily to independent retailers and department stores across the United States. Receivables arising from these sales are not collateralized. Customer credit risk is affected by conditions or occurrences within the economy and the retail industry, such as the COVID-19 pandemic, as well as by customer specific factors. We establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
We also record reserves for obsolete and slow-moving inventory and for estimated shrinkage between physical inventory counts. We recorded incremental inventory reserve provisions as a result of excess inventory due to the impact of the COVID-19 pandemic on retail traffic and demand for certain products. Depending on the pace of reopening our stores as well as future customer behavior, among other factors, we may incur additional inventory reserve provisions.
58
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 2
COVID-19, Continued
Since the first quarter of Fiscal 2021, we have withheld certain contractual rent payments generally correlating with time periods when our stores were closed and/or correlating with sales declines from Fiscal 2020. We continue to recognize rent expense in accordance with the contractual terms. We have been working with landlords in various markets seeking commercially reasonable lease concessions given the current environment, and while some agreements have been reached, a number of negotiations remain ongoing. In cases where the agreements do not result in a substantial increase in the rights of the lessor or the obligation of the lessee such that the total cash flows of the modified lease are substantially the same or less than the total cash flows of the existing lease, we have not reevaluated the contract terms. For these lease agreements, we have recognized a reduction in variable rent expense in the period that the concession was granted.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic and options to defer payroll tax payments. Based on our evaluation of the CARES Act, we qualify for certain employer payroll tax credits as well as the deferral of payroll and other tax payments in the future, which will be treated as government subsidies to offset related operating expenses. During Fiscal 2021, qualified payroll tax credits reduced our selling and administrative expenses by approximately $13.8 million on our Consolidated Statements of Operations. We also deferred $9.5 million of qualified payroll taxes in the U.S. that will be repaid in equal installments by December 31, 2021 and December 31, 2022. Savings from the government program in the U.K. has also provided property tax relief of approximately $13.3 million in Fiscal 2021. Additionally, we recorded a tax receivable of $107.2 million in our U.S. federal jurisdiction as a result of a carryback of our Fiscal 2021 federal tax losses to prior tax periods under the CARES Act. Due to a higher tax rate in prior tax periods than the current U.S. federal statutory tax rate of 21%, the carryback claim creates a permanent tax benefit of $46.4 million.
We recorded our income tax expense, deferred tax assets and related liabilities based on our best estimates. As part of this process, we assessed the likelihood of realizing the benefits of our deferred tax assets. During Fiscal 2021, based on available evidence, we recorded an additional valuation allowance against previously recorded deferred tax assets in our U.K. jurisdiction of $2.6 million and our Irish jurisdiction of $0.2 million. We will continue to monitor the realizability of our deferred tax assets, particularly in certain foreign jurisdictions where the COVID-19 pandemic has started to create significant net operating losses. Our ability to recover these deferred tax assets depends on several factors, including our results of operations and our ability to project future taxable income in those jurisdictions.
The COVID-19 pandemic remains a rapidly evolving situation. The continuation of the COVID-19 pandemic, its economic impact and actions taken in response thereto may result in prolonged or recurring periods of store closures and modified operating schedules and may result in changes in customer behaviors, including a potential reduction in consumer discretionary spending in our stores. These may lead to increased asset recovery and valuation risks, such as impairment of our store and other assets and an inability to realize deferred tax assets due to sustaining losses in certain jurisdictions. The uncertainties in the global economy have and are likely to continue to impact the financial viability of our suppliers, and other business partners, which may interrupt our supply chain, limit our ability to collect receivables and require other changes to our operations. These and other factors have and will continue to adversely impact our net revenues, gross margins, operating income and earnings per share financial measures.
59
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 4
Goodwill and Other Intangible Assets
Goodwill
Effective January 1, 2020, we completed the acquisition of substantially all of the assets, and Saleassumption of Business
The changes in the carrying amount of goodwill by segment were as follows:
(In thousands) |
| Schuh Group |
|
| Journeys Group |
|
| Licensed Brands Group |
|
| Total Goodwill |
| ||||
Balance, February 1, 2020 |
| $ | 84,069 |
|
| $ | 9,730 |
|
| $ | 28,385 |
|
| $ | 122,184 |
|
Change in opening balance sheet |
|
| 0 |
|
|
| 0 |
|
|
| 83 |
|
|
| 83 |
|
Impairment |
|
| (79,259 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (79,259 | ) |
Effect of foreign currency exchange rates |
|
| (4,810 | ) |
|
| 352 |
|
|
| 0 |
|
|
| (4,458 | ) |
Balance, January 30, 2021 |
| $ | 0 |
|
| $ | 10,082 |
|
| $ | 28,468 |
|
| $ | 38,550 |
|
| (In Thousands) | Schuh Group | Journeys Group | Total Goodwill | |||||
| Balance, February 3, 2018 | $89,915 | $10,393 | $ | 100,308 | ||||
| Effect of foreign currency exchange rates | (6,672 | ) | (555 | ) | $ | (7,227 | ) | |
| Balance, February 2, 2019 | $ | 83,243 | 9,838 | $ | 93,081 | |||
During the Company annually assesses its goodwill and indefinite lived trade names for impairment and on an interim basis iffirst quarter of Fiscal 2021, we identified qualitative indicators of impairment, are present. The Company’s annual assessment dateincluding a significant decline in our stock price and market capitalization resulting from the COVID-19 pandemic, since the last consideration of goodwill and indefinite lived trade names is the first dayindicators of the fourth quarter.
Goodwill Valuation (Schuh Group)
We estimated the fair value of our Schuh reporting unit in the Schuh Group business by $11.4 million. Furthermore,first quarter of Fiscal 2021 using a discounted cash flow method (income approach) weighted 50% and a guideline public company method (market approach) weighted 50%. The key assumptions used under the Companyincome approach include the following:
• | Future cash flow assumptions - Our projections for the Schuh reporting unit were based on organic growth and were derived from historical experience and assumptions regarding future growth and profitability trends, including considerations for the impact from the outbreak of the COVID-19 pandemic. Our analysis incorporated an assumed period of cash flows of seven years with a terminal value. |
• | Discount rate - The discount rate was based on an estimated weighted average cost of capital (“WACC”) for the reporting unit. The components of WACC are the cost of equity and the cost of debt, each of which requires judgment by management to estimate. We developed our cost of equity estimate based on perceived risks and predictability of future cash flows. The WACC used to estimate the fair values of the Schuh reporting unit was 16%. |
60
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 4
Goodwill and Other Intangible Assets, Continued
The guideline company method involves analyzing transaction and financial data of publicly traded companies to develop multiples, which are adjusted to account for differences in growth prospects and risk profiles of the reporting unit and comparable companies.
Other Intangible Assets
Trademark Valuation
In addition, as a result of the factors noted that a decrease in projected annual revenue growth by one percent would reduceabove, we evaluated the fair value of our trademarks during the Schuh first quarter of Fiscal 2021. The fair value of trademarks was determined based on the royalty savings approach. This analysis indicated trademark
impairment in our JourneysGroup business by $7.4 million. However, ifand Johnston & Murphy Group. As a result, we recorded a trademark impairment of $5.3 million in the first quarter of Fiscal 2021. This charge is included in asset impairment and other, net in the accompanying Consolidated Statements of Operations.
Key assumptions do not remain constant,included in the estimation of the fair value offor trademarks include the Schuh Group business may decrease by a greater amount.following:
• | Future cash flow assumptions - Future cash flow assumptions include retail sales from our retail store operations and ecommerce retail sales. Sales were based on organic growth and were derived from historical experience and assumptions regarding future growth, including considerations for the impact of the ongoing COVID-19 pandemic. Our analysis incorporated an assumed period of cash flows of five years with a terminal value. |
• | Royalty rate - The royalty rate used to estimate the fair values of our reporting units’ trademarks was 1%. |
• | Discount rate - The discount rate was based on an estimated WACC for each business. The components of WACC are the cost of equity and the cost of debt, each of which requires judgment by management to estimate. The WACC used to estimate the fair values of our reporting units’ trademarks was approximately 15%. |
Other intangibles by major classes were as follows:
|
| Trademarks(1) |
|
| Customer Lists(2) |
|
| Other(3) |
|
| Total |
| ||||||||||||||||||||
(In thousands) |
| Jan. 30, 2021 |
|
| Feb. 1, 2020 |
|
| Jan. 30, 2021 |
|
| Feb. 1, 2020 |
|
| Jan. 30, 2021 |
|
| Feb. 1, 2020 |
|
| Jan. 30, 2021 |
|
| Feb. 1, 2020 |
| ||||||||
Gross other intangibles |
| $ | 26,443 |
|
| $ | 31,023 |
|
| $ | 6,617 |
|
| $ | 6,562 |
|
| $ | 400 |
|
| $ | 767 |
|
| $ | 33,460 |
|
| $ | 38,352 |
|
Accumulated amortization |
|
| 0 |
|
|
| 0 |
|
|
| (2,131 | ) |
|
| (1,509 | ) |
|
| (400 | ) |
|
| (479 | ) |
|
| (2,531 | ) |
|
| (1,988 | ) |
Other Intangibles, net |
| $ | 26,443 |
|
| $ | 31,023 |
|
| $ | 4,486 |
|
| $ | 5,053 |
|
| $ | 0 |
|
| $ | 288 |
|
| $ | 30,929 |
|
| $ | 36,364 |
|
| Leases | Customer Lists | Other(1) | Total | |||||||||||||||||||||
| In thousands | Feb. 2, 2019 | Feb. 3, 2018 | Feb. 2, 2019 | Feb. 3, 2018 | Feb. 2, 2019 | Feb. 3, 2018 | Feb. 2, 2019 | Feb. 3, 2018 | ||||||||||||||||
| Gross other intangibles | $ | 3,532 | $ | 3,780 | $ | 1,450 | $ | 1,564 | $ | 641 | $ | 692 | $ | 5,623 | $ | 6,036 | ||||||||
| Accumulated amortization | (2,916 | ) | (2,865 | ) | (1,450 | ) | (1,564 | ) | (314 | ) | (267 | ) | (4,680 | ) | (4,696 | ) | ||||||||
| Net Other Intangibles | $ | 616 | $ | 915 | $ | — | $ | — | $ | 327 | $ | 425 | $ | 943 | $ | 1,340 | ||||||||
(1)(
(2)Includes $5.1 million for the Togast acquisition.
(3) | Backlog for Togast. |
The amortization of intangibles was $0.9 million and $0.2 million for Fiscal 2021 and Fiscal 2020, respectively, and less than $0.1 million for Fiscal 2019 and 2018 and $0.1 million for Fiscal 2017. The2019. Currently, amortization of intangibles willis expected to be less than $0.1$0.6 million for each of the next five years.
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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 in asset impairment and other, net in the accompanying Consolidated Statements of Operations.
We recorded a pretax charge to earnings of $18.7 million in Fiscal 2021, including $13.8 million for retail store asset impairments and $5.3 million for a trademark impairment, partially offset by a $(0.4) million gain for the release of an earnout related to the Togast acquisition.
We recorded a pretax charge to earnings of $13.4 million in Fiscal 2020, including $11.5 million pension settlement expense and $3.1 million for retail store asset impairments, partially offset by a $(0.6) million gain on the sale of the Lids Sports Group headquarters building, a $(0.4) million gain for lease terminations and a $(0.2) million gain related to Hurricane Maria.
We recorded a pretax charge to earnings of $3.2 million in Fiscal 2019, including $4.2 million for retail store asset impairments, $0.3 million infor legal and other matters and $0.1 million for hurricane losses, partially offset by a $(1.4) million gain related to Hurricane Maria.
Note 6
Inventories
(In thousands) |
| January 30, 2021 |
|
| February 1, 2020 |
| ||
Wholesale finished goods |
| $ | 27,851 |
|
| $ | 34,271 |
|
Retail merchandise |
|
| 263,115 |
|
|
| 330,998 |
|
Total Inventories |
| $ | 290,966 |
|
| $ | 365,269 |
|
Note 7
Property and Equipment and Other Current Accrued Liabilities
(In thousands) | January 30, 2021 |
|
| February 1, 2020 |
| ||
Land | $ | 7,451 |
|
| $ | 7,360 |
|
Buildings and building equipment |
| 74,617 |
|
|
| 63,493 |
|
Computer hardware, software and equipment |
| 138,516 |
|
|
| 140,503 |
|
Furniture and fixtures |
| 127,635 |
|
|
| 128,542 |
|
Construction in progress |
| 14,422 |
|
|
| 9,593 |
|
Improvements to leased property |
| 334,267 |
|
|
| 342,592 |
|
Property and equipment, at cost |
| 696,908 |
|
|
| 692,083 |
|
Accumulated depreciation |
| (489,066 | ) |
|
| (453,763 | ) |
Total Property and Equipment, net | $ | 207,842 |
|
| $ | 238,320 |
|
(In thousands) |
| January 30, 2021 |
|
| February 1, 2020 |
| ||
Accrued employee compensation |
| $ | 11,025 |
|
| $ | 31,579 |
|
Accrued other taxes |
|
| 15,578 |
|
|
| 11,583 |
|
Accrued income taxes |
|
| 674 |
|
|
| 190 |
|
Provision for discontinued operations |
|
| 527 |
|
|
| 495 |
|
Other accrued liabilities |
|
| 51,187 |
|
|
| 39,609 |
|
Total Other Current Accrued Liabilities |
| $ | 78,991 |
|
| $ | 83,456 |
|
62
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 8
Fair Value
The carrying amounts and fair values of our financial instruments at January 30, 2021 and February 1, 2020 are:
(In thousands) |
| January 30, 2021 |
|
| February 1, 2020 |
| ||||||||||
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
| ||||
U.S. Revolver Borrowings |
| $ | 32,986 |
|
| $ | 33,612 |
|
| $ | 14,393 |
|
| $ | 14,056 |
|
Debt fair values were determined using a discounted cash flow analysis based on current market interest rates for similar types of financial instruments and would be classified in Level 2 as defined in Note 1.
Carrying amounts reported on our Consolidated Balance Sheets for cash, cash equivalents, receivables and accounts payable approximate fair value due to the short-term maturity of these instruments.
As of January 30, 2021, we have $13.2 million of long-lived assets held and used which were measured using Level 3 inputs within the fair value hierarchy. We used a discounted cash flow model to estimate the fair value of these long-lived assets. Discount rate and growth rate assumptions are derived from current economic conditions, expectations of management and projected trends of current operating results. As a result, we have determined that the majority of the inputs used to value our long-lived assets held and used are unobservable inputs that fall within Level 3 of the fair value hierarchy.
Note 9
Long-Term Debt
Credit Facility
On June 5, 2020, we entered into a Second Amendment (the “Second Amendment”) to our Fourth Amended and Restated Credit Agreement dated as of January 31, 2018 between us and the lenders party thereto and Bank of America, N.A. as agent (as amended, the “Credit Facility” or the “Credit Agreement”), to, among other things, increase the Total Commitments (as defined in the Credit Facility) for the revolving loans from $275.0 million to $332.5 million, establish a first-in, last-out (“FILO”) tranche of indebtedness of $17.5 million, for $350.0 million of total capacity, increase pricing on the revolving loans and modify certain covenant and reporting terms. The Credit Facility continues to be secured by certain assets of the Company recordedand certain subsidiaries of the Company, including accounts receivable, inventory, payment intangibles, and deposit accounts and specifically excludes equity interests, equipment, and most leasehold interests. The Second Amendment to our Credit Facility added a pretax chargesecurity interest in certain intellectual property. The Second Amendment also provides for the borrowing base expansion to earningsinclude real estate as those assets are added as collateral. In addition, the Second Amendment adds customary real estate covenants to the Credit Facility. The current outstanding long-term debt balance of $7.8$33.0 million bears interest at an average rate of 4.05% and matures January 31, 2023.
Deferred financing costs incurred of $1.1 million related to the amended Credit Facility were capitalized and are being amortized over the remaining term of the agreement. The remaining balance of deferred financing costs incurred related to the Credit Facility are being amortized over the remaining term of the agreement. These costs are included in other non-current assets on the Consolidated Balance Sheets. In connection with an amendment to the Credit Facility in Fiscal 2018,2019, deferred financing costs of $0.6 million were written off. Those costs are included in loss on early retirement of debt on the Consolidated Statements of Operations in Fiscal 2019.
63
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 9
Long-Term Debt, Continued
The Credit Facility is a revolving credit facility in the aggregate principal amount of $332.5 million, including (i) for the Company and other borrowers formed in the U.S., a $5.2$70.0 million licensing termination expense, $1.7sublimit for the issuance of letters of credit and a domestic swingline subfacility of up to $45.0 million, (ii) for GCO Canada ULC, a revolving credit subfacility in an amount not to exceed $70.0 million, which includes a $5.0 million sublimit for the issuance of letters of credit and a swingline subfacility of up to $5.0 million, and (iii) for Genesco (UK) Limited, a revolving credit subfacility in an aggregate amount not to exceed $100.0 million, which includes a $10.0 million sublimit for the issuance of letters of credit and a swingline subfacility of up to $10.0 million. Any swingline loans and any letters of credit and borrowings under the Canadian and U.K. subfacilities will reduce the availability under the Credit Facility on a dollar for dollar basis. We have the option, from time to time, to increase the availability under the Credit Facility by an aggregate amount of up to $200.0 million subject to, among other things, the receipt of commitments for the increased amount. In connection with this increased facility, the Canadian revolving credit subfacility may be increased by no more than $15.0 million and the UK revolving credit subfacility may be increased by no more than $100.0 million. The aggregate amount of the loans made and letters of credit issued under the Credit Facility are limited to the lesser of the facility amount ($332.5 million or, if increased as described above, up to $532.5 million) or the "Borrowing Base", as defined in the Credit Agreement.
We are required to pay a commitment fee on the actual daily unused portions of the Credit Facility at a rate of 0.25% per annum.
The Credit Facility also permits us to incur senior debt in an amount up to the greater of $500.0 million or an amount that would not cause our ratio of consolidated total indebtedness to consolidated EBITDA to exceed 5.0:1.0 provided that certain terms and conditions are met.
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 to certain material documents and other matters customarily restricted in such agreements.
The Credit Facility does not require us to comply with any financial covenants unless Excess Availability, as defined in the Credit Agreement, is less than the greater of $22.5 million or 10% of the Loan Cap. If and during such time as Excess Availability is less than the greater of $22.5 million or 10% of the Loan Cap, the Credit Facility requires us to meet a minimum fixed charge coverage ratio. Excess Availability was $147.1 million at January 30, 2021.
The Credit Facility contains customary events of default, which if any of them occurs, would permit or require the principal of and interest on the Credit Facility to be declared due and payable as applicable.
We were in compliance with all the relevant terms and conditions of the Credit Facility as of January 30, 2021.
64
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 9
Long-Term Debt, Continued
U.K. Credit Agreement
On October 9, 2020, Schuh entered into a facility letter (the "Facility Letter") with Lloyds Bank (“Lloyds”) under the U.K.'s Coronavirus Large Business Interruption Loan Scheme pursuant to which Lloyds made available a revolving capital facility (the "RCF") of £19.0 million for the purpose of refinancing Schuh's existing indebtedness with Lloyds. The RCF expires in October 2023 and bears interest at 2.5% over the Bank of England Base Rate. The Facility Letter includes certain financial covenants tested against Schuh, which take effect in the second quarter of Fiscal 2022. Following certain customary events of default outlined in the Facility Letter, payment of outstanding amounts due under the RCF may be accelerated or the commitments may be terminated. The RCF 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 Letter and certain existing ancillary facilities on an unsecured basis.
We were in compliance with all the relevant terms and conditions of the Facility Letter as of January 30, 2021.
(In thousands) |
| January 30, 2021 |
|
| February 1, 2020 |
| ||
U.S. Revolver borrowings |
| $ | 32,986 |
|
| $ | 14,393 |
|
U.K. revolver borrowings |
|
| 0 |
|
|
| 0 |
|
Total long-term debt |
|
| 32,986 |
|
|
| 14,393 |
|
Current portion |
|
| 0 |
|
|
| 0 |
|
Total Noncurrent Portion of Long-Term Debt |
| $ | 32,986 |
|
| $ | 14,393 |
|
The revolver borrowings outstanding under the Credit Facility at January 30, 2021 included $17.5 million U.S. revolver borrowings and $15.5 million (£11.3 million) related to Genesco (UK) Limited. We had outstanding letters of credit of $9.8 million under the Credit Facility at January 30, 2021. These letters of credit support lease and insurance indemnifications.
Note 10
Leases
We lease our office space and all of our retail store asset impairmentslocations, transportation equipment and $0.9other equipment under various noncancelable operating leases. The leases have varying terms and expire at various dates through 2034. The store leases in the United States, Puerto Rico and Canada typically have initial terms of approximately 10 years. The store leases in the United Kingdom and the ROI typically have initial terms of between 10 and 15 years. Our lease portfolio includes leases with fixed base rental payments, rental payments based on a percentage of retail sales over contractual amounts and others with predetermined fixed escalations of the minimum rentals based on a defined consumer price index or percentage. Generally, most of the leases require us to pay taxes, insurance, maintenance costs and contingent rentals based on sales. 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 our right-of-use assets and liabilities. Approximately 2% of our leases contain renewal options. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The lease on our Nashville office expires in April 2022. On February 10, 2020, we announced plans for our new corporate headquarters in Nashville, Tennessee. We entered into a lease agreement, which was subsequently amended, for approximately 182,000 square feet of office space which will replace our current corporate headquarters office lease. The term of the lease is 15 years, with 2 options to extend for an additional period of five years each.
65
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Leases, Continued
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 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 January 30, 2021 and February 1, 2020.
(In thousands) |
| Fiscal 2021 |
| Fiscal 2020 |
| ||
Operating lease cost |
| $ | 160,973 |
| $ | 184,428 |
|
Variable lease cost |
|
| 9,562 |
|
| 12,176 |
|
Less: Sublease income |
|
| (165 | ) |
| (307 | ) |
Net Lease Cost |
| $ | 170,370 |
| $ | 196,297 |
|
Prior to the adoption of ASC 842 as of February 3, 2019 (our Fiscal 2020), rent expense was calculated in accordance with ASC 840, “Leases”. Total rent expense was $202.6 million for hurricane losses.
The Companyfollowing table reconciles the maturities of undiscounted cash flows to our operating lease liabilities recorded a pretax gainon the Consolidated Balance Sheets at January 30, 2021:
Fiscal Years |
| (In thousands) |
| |
2022 |
| $ | 204,457 |
|
2023 |
|
| 159,030 |
|
2024 |
|
| 132,869 |
|
2025 |
|
| 105,026 |
|
2026 |
|
| 85,379 |
|
Thereafter |
|
| 114,201 |
|
Total undiscounted future minimum lease payments |
|
| 800,962 |
|
Less: Amounts representing interest |
|
| (99,908 | ) |
Total Present Value of Operating Lease Liabilities |
| $ | 701,054 |
|
Our weighted-average remaining lease term and weighted-average discount rate for operating leases as of January 30, 2021 and February 1, 2020 are:
|
| January 30, 2021 |
| February 1, 2020 |
|
Weighted-average remaining lease term (years) |
| 5.5 years |
| 6.2 years |
|
Weighted-average discount rate |
| 5.1% |
| 5.2% |
|
66
Genesco Inc.
and Subsidiaries
Notes to earningsConsolidated Financial Statements
Note 10
Leases, Continued
As of $(8.0)January 30, 2021, we have additional operating leases that have not yet commenced with estimated right of use liabilities of $68.8 million, primarily related to the new headquarters building lease. These leases will commence between 2021 and 2022 with lease terms of 8 to 15 years, with the 15 year lease being for the new headquarters building.
Beginning in Fiscal 2017, including a gain of $(8.9) millionMarch 2020, we suspended rent payments under the leases for network intrusion expensesour temporarily closed stores and initiated discussions with landlords to obtain lease concessions. We have considered the FASB’s recent guidance regarding lease concessions as a result of the effects of the COVID-19 pandemic and have elected to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 and Topic 840 as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract). Also, in accordance with the FASB’s guidance, we apply this election for concessions related to the effects of the COVID-19 pandemic that do not result in a litigation settlementsubstantial increase in our obligations or in the rights of the landlord. We continued to recognize contractual rent expense while lease concessions are under negotiation with the respective landlord. The rent concessions are recognized in the period when the amendment is executed. COVID-19 related lease concessions decreased our contractual rent expense by approximately $34 million during Fiscal 2021. As of January 30, 2021, we had an accrued liability for unpaid rent related to the closed stores of $26.9 million. We continue to negotiate lease concessions with our landlords.
Note 11
Equity
Non-Redeemable Preferred Stock
|
|
|
|
|
| Number of Shares |
|
| Amounts in Thousands |
| ||||||||||||||||||
Class |
| Shares Authorized |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||||||
Employees’ Subordinated Convertible Preferred |
|
| 5,000,000 |
|
|
| 34,425 |
|
|
| 34,440 |
|
|
| 36,147 |
|
| $ | 1,033 |
|
| $ | 1,033 |
|
| $ | 1,084 |
|
Stated Value of Issued Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,033 |
|
|
| 1,033 |
|
|
| 1,084 |
|
Employees’ Preferred Stock Purchase Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (24 | ) |
|
| (24 | ) |
|
| (24 | ) |
Total Non-Redeemable Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,009 |
|
| $ | 1,009 |
|
| $ | 1,060 |
|
Subordinated Serial Preferred Stock:
Our charter permits the Board of Directors to issue Subordinated Serial Preferred Stock (3,000,000 shares, in aggregate, are authorized) in as many series, each with as many shares and such rights and preferences as the board may designate. We have shares authorized for $2.30 Series 1, $4.75 Series 3, $4.75 Series 4, Series 6 and $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 us 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.
Employees’ Subordinated Convertible Preferred Stock:
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 1 share of common stock and has 1 vote per share.
67
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 11
Equity, Continued
Common Stock:
Common stock-$1 par value. Authorized: 80,000,000 shares; issued: January 30, 2021 – 15,438,338 shares; February 1, 2020 –15,185,670 shares. There were 488,464 shares held in treasury at January 30, 2021 and February 1, 2020. Each outstanding share is entitled to 1 vote. At January 30, 2021, common shares were reserved as follows: 34,425 shares for conversion of preferred stock and 1,261,501 shares for the 2020 Genesco Inc. Equity Incentive Plan (the "2020 Plan").
For the year ended January 30, 2021, 428,362 shares of common stock were issued as restricted shares as part of the Second Amended and Restated 2009 Genesco Inc. Equity Incentive Plan (the “2009 Plan”); 38,723 shares were issued to directors in exchange for their services; 64,382 shares were withheld for taxes on restricted stock vested in Fiscal 2021; 150,050 shares of restricted stock were forfeited in Fiscal 2021; and 15 shares were issued in miscellaneous conversions of Employees’ Subordinated Convertible Preferred Stock. We did 0t repurchase any shares of common stock in Fiscal 2021. We have $89.7 million remaining under our current $100.0 million share repurchase authorization.
For the year ended February 1, 2020, 270,173 shares of common stock were issued as restricted shares as part of the 2009 Plan; 25,368 shares were issued to directors in exchange for their services; 55,598 shares were withheld for taxes on restricted stock vested in Fiscal 2020; 77,013 shares of restricted stock were forfeited in Fiscal 2020; and 1,707 shares were issued in miscellaneous conversions of Employees’ Subordinated Convertible Preferred Stock. In addition, the Company repurchased and retired 4,570,015 shares of common stock at an average weighted market price of $41.44 for a total of $189.4 million
For the year ended February 2, 2019, 353,633 shares of common stock were issued as restricted shares as part of the 2009 Plan; 36,421 shares were issued to directors in exchange for their services; 69,762 shares were withheld for taxes on restricted stock vested in Fiscal 2019; 153,646 shares of restricted stock were forfeited in Fiscal 2019; and 524 shares were issued in miscellaneous conversions of Employees’ Subordinated Convertible Preferred Stock. In addition, the Company repurchased and retired 968,375 shares of common stock at an average weighted market price of $47.45 for a total of $45.9 million.
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. Exchanges of subordinated serial preferred stock for common stock or other stock junior to such exchanged stock are permitted.
Note 12
Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted in the United States. The Act includes a number of changes to existing U.S. tax laws that impact us including the reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. The Act also provides for a one-time transition tax on indefinitely reinvested foreign earnings and the acceleration of depreciation for certain assets placed into service after September 27, 2017, as well as prospective changes beginning in 2018, including the elimination of certain domestic deductions and credits and additional limitations on the deductibility of executive compensation. While we consider our accounting for the Act to be complete, we continue to evaluate new guidance and legislation as it is issued.
68
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12
Income Taxes, Continued
The components of earnings from continuing operations before income taxes is comprised of the following:
(In thousands) |
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
United States |
| $ | (3,123 | ) |
| $ | 83,871 |
|
| $ | 84,807 |
|
Foreign |
|
| (108,546 | ) |
|
| (1,436 | ) |
|
| (6,548 | ) |
Total Earnings (Loss) from Continuing Operations before Income Taxes |
| $ | (111,669 | ) |
| $ | 82,435 |
|
| $ | 78,259 |
|
Income tax expense from continuing operations is comprised of the following:
(In thousands) |
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Current |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
| $ | (106,397 | ) |
| $ | 16,313 |
|
| $ | 13,657 |
|
International |
|
| 1,391 |
|
|
| 322 |
|
|
| 1,649 |
|
State |
|
| 10,223 |
|
|
| 3,383 |
|
|
| 4,029 |
|
Total Current Income Tax Expense (Benefit) |
|
| (94,783 | ) |
|
| 20,018 |
|
|
| 19,335 |
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal |
|
| 48,511 |
|
|
| (463 | ) |
|
| 3,632 |
|
International |
|
| 2,773 |
|
|
| 1,145 |
|
|
| 2,594 |
|
State |
|
| (12,142 | ) |
|
| (22 | ) |
|
| 1,474 |
|
Total Deferred Income Tax Expense |
|
| 39,142 |
|
|
| 660 |
|
|
| 7,700 |
|
Total Income Tax Expense (Benefit) – Continuing Operations |
| $ | (55,641 | ) |
| $ | 20,678 |
|
| $ | 27,035 |
|
Reconciliation of the United States federal statutory rate to our effective tax rate from continuing operations is as follows:
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
U. S. federal statutory rate of tax |
|
| 21.00 | % |
|
| 21.00 | % |
|
| 21.00 | % |
State taxes (net of federal tax benefit) |
|
| 1.35 |
|
|
| 3.62 |
|
|
| 5.67 |
|
Foreign rate differential |
|
| (0.25 | ) |
|
| (2.21 | ) |
|
| (2.56 | ) |
Change in valuation allowance |
|
| (10.70 | ) |
|
| 3.64 |
|
|
| 11.51 |
|
Credits |
|
| 0.44 |
|
|
| (0.93 | ) |
|
| (2.65 | ) |
Permanent items |
|
| (0.66 | ) |
|
| 1.72 |
|
|
| 2.27 |
|
Uncertain federal, state and foreign tax positions |
|
| 0 |
|
|
| (2.01 | ) |
|
| (1.68 | ) |
Transition tax |
|
| 0 |
|
|
| 0 |
|
|
| 2.23 |
|
CARES Act |
|
| 41.53 |
|
|
| 0 |
|
|
| 0 |
|
Outside Basis Difference - IRC Section 165(g) 3 |
|
| 10.34 |
|
|
| 0 |
|
|
| 0 |
|
Goodwill Impairment |
|
| (13.50 | ) |
|
| 0 |
|
|
| 0 |
|
Other |
|
| 0.28 |
|
|
| 0.25 |
|
|
| (1.24 | ) |
Effective Tax Rate |
|
| 49.83 | % |
|
| 25.08 | % |
|
| 34.55 | % |
69
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12
Income Taxes, Continued
The Fiscal 2021 effective tax rate reflects the favorable impact of the CARES Act, enacted on March 27, 2020. Due to the net operating loss provisions of the CARES Act, we realized a $46.4 million tax benefit in Fiscal 2021. A change to our international operations that took effect in January 2021 resulted in an additional $12.8 million tax benefit in Fiscal 2021. These tax benefits were offset partially by an increase in the valuation allowance in foreign jurisdictions and a gainnon-deductible goodwill impairment charge.
We are subject to a tax on global intangible low-tax income (“GILTI”). GILTI taxes foreign income in excess of $(0.5)deemed return on tangible assets of a foreign corporation and we elected to treat this tax as a period cost. Because of tax losses in foreign jurisdictions, there was no liability for GILTI in any period.
Deferred tax assets and liabilities are comprised of the following:
|
| January 30, |
|
| February 1, |
| ||
(In thousands) |
| 2021 |
|
| 2020 |
| ||
Pensions |
| $ | 229 |
|
| $ | 332 |
|
Lease obligation |
|
| 175,113 |
|
|
| 188,590 |
|
Book over tax depreciation |
|
| 13,528 |
|
|
| 4,558 |
|
Expense accruals |
|
| 10,388 |
|
|
| 7,386 |
|
Uniform capitalization costs |
|
| 4,886 |
|
|
| 7,292 |
|
Provisions for discontinued operations and restructurings |
|
| 650 |
|
|
| 674 |
|
Inventory valuation |
|
| 2,242 |
|
|
| 810 |
|
Tax net operating loss and credit carryforwards |
|
| 39,829 |
|
|
| 11,972 |
|
Allowances for bad debts and notes |
|
| 888 |
|
|
| 181 |
|
Deferred compensation and restricted stock |
|
| 2,945 |
|
|
| 3,344 |
|
Identified intangibles |
|
| 1,586 |
|
|
| 0 |
|
Other |
|
| 34 |
|
|
| 144 |
|
Gross deferred tax assets |
|
| 252,318 |
|
|
| 225,283 |
|
Deferred tax asset valuation allowance |
|
| (36,561 | ) |
|
| (23,333 | ) |
Deferred tax asset net of valuation allowance |
|
| 215,757 |
|
|
| 201,950 |
|
Identified intangibles |
|
| (4,677 | ) |
|
| (3,616 | ) |
Prepaids |
|
| (1,765 | ) |
|
| (1,929 | ) |
Right of use asset |
|
| (163,674 | ) |
|
| (176,930 | ) |
Tax over book depreciation |
|
| (64,009 | ) |
|
| 0 |
|
Other |
|
| (1,120 | ) |
|
| 0 |
|
Gross deferred tax liabilities |
|
| (235,245 | ) |
|
| (182,475 | ) |
Net Deferred Tax Assets (Liabilities) |
| $ | (19,488 | ) |
| $ | 19,475 |
|
We have an income tax receivable of $108.6 million included in prepaids and other current assets on the Consolidated Balance Sheets as of January 30, 2021.
The deferred tax balances have been classified in our Consolidated Balance Sheets as follows:
|
| 2021 |
|
| 2020 |
| ||
Net non-current asset |
| $ | 0 |
|
| $ | 19,475 |
|
Net non-current liability |
|
| (19,488 | ) |
|
| 0 |
|
Net Deferred Tax Assets |
| $ | (19,488 | ) |
| $ | 19,475 |
|
70
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12
Income Taxes, Continued
As of January 30, 2021 and February 1, 2020, we had state net operating loss carryforwards of $22.4 million and $3.4 million, respectively. We provided a valuation allowance against these attributes of $3.2 million as of January 30, 2021 and February 1, 2020. The attributes expire in fiscal years 2022 through 2039.
As of January 30, 2021 and February 1, 2020, we had state tax credits of $0.5 million and $0.6 million, respectively. These credits expire in fiscal years 2022 through 2026.
As of January 30, 2021 and February 1, 2020, we had foreign net operating loss carryforwards of $57.6 million and $29.5 million, respectively, which have a carryforward period at least 18 years.
As of January 30, 2021, we have provided a total valuation allowance of approximately $36.6 million on deferred tax assets associated primarily with foreign and state net operating losses for which management has determined it is more likely than not that the deferred tax assets will not be realized. The $13.3 million net increase in valuation allowance during Fiscal 2021 from the $23.3 million provided for as of February 1, 2020 relates primarily to foreign tax attributes. Management believes that it is more likely than not that the remaining deferred tax assets will be fully realized.
As of January 30, 2021, no deferred taxes have been provided on the accumulated undistributed earnings of our foreign operations beyond the amounts recorded for deemed repatriation of such earnings, as required in the Act. An actual repatriation of earnings from our foreign operations could still be subject to additional foreign withholding and U.S. state taxes. Based upon evaluation of our foreign operations, undistributed earnings are intended to remain permanently reinvested to finance anticipated future growth and expansion, and accordingly, deferred taxes have not been provided. If undistributed earnings of our foreign operations were not considered permanently reinvested as of January 30, 2021, an immaterial amount of additional deferred taxes would have been provided.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for Fiscal 2021, 2020 and 2019.
(In thousands) |
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Unrecognized Tax Benefit – Beginning of Period |
| $ | 178 |
|
| $ | 1,835 |
|
| $ | 3,701 |
|
Gross Increases (Decreases) – Tax Positions in a Current Period |
|
| 0 |
|
|
| 178 |
|
|
| (638 | ) |
Settlements |
|
| 0 |
|
|
| (931 | ) |
|
| 0 |
|
Lapse of Statutes of Limitations |
|
| 0 |
|
|
| (904 | ) |
|
| (1,228 | ) |
Unrecognized Tax Benefit – End of Period |
| $ | 178 |
|
| $ | 178 |
|
| $ | 1,835 |
|
The amount of unrecognized tax benefits as of January 30, 2021, February 1, 2020 and February 2, 2019 which would impact the annual effective rate if recognized were $0.2 million, $0.2 million and $0.6 million, respectively. The amount of unrecognized tax benefits may change during the next twelve months but we do not believe the change, if any, will be material to our consolidated financial position or results of operations.
We recognize interest expense and penalties related to the above unrecognized tax benefits within income tax expense on the Consolidated Statements of Operations and it was not material for Fiscal 2021, 2020 or 2019.
We file income tax returns in federal and in many state and local jurisdictions as well as foreign jurisdictions. With few exceptions, our state and local income tax returns for fiscal years ended January 31, 2018 and beyond remain subject to examination. In addition, we have subsidiaries in various foreign jurisdictions that have statutes of limitation generally ranging from two to six years. Our US federal income tax returns for fiscal years ended January 31, 2018 and beyond remain subject to examination.
71
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 13
Other Postretirement Benefit Plans
We provide health care benefits for early retirees that meet certain age and years of service criteria and life insurance benefits for certain retirees. Under the health care plan, early retirees are eligible for benefits until age 65. Employees who met certain requirements are eligible for life insurance benefits. We accrue such benefits during the period in which the employee renders service.
Obligations and Funded Status
The measurement date of the assets and liabilities for postretirement medical and life insurance plans is the month-end date that is closest to our fiscal year end.
Change in Benefit Obligation
|
| Other Benefits |
| |||||
(In thousands) |
| 2021 |
|
| 2020 |
| ||
Benefit obligation at beginning of year |
| $ | 7,025 |
|
| $ | 4,525 |
|
Service cost |
|
| 89 |
|
|
| 89 |
|
Interest cost |
|
| 124 |
|
|
| 151 |
|
Plan participants’ contributions |
|
| 134 |
|
|
| 111 |
|
Asset transfer |
|
| — |
|
|
| — |
|
Benefits paid |
|
| (550 | ) |
|
| (591 | ) |
Actuarial (gain) loss |
|
| (1,216 | ) |
|
| 2,740 |
|
Benefit Obligation at End of Year |
| $ | 5,606 |
|
| $ | 7,025 |
|
Funded Status at End of Year |
| $ | (5,606 | ) |
| $ | (7,025 | ) |
Amounts recognized in the Consolidated Balance Sheets consist of:
|
| Other Benefits |
| |||||
(In thousands) |
| 2021 |
|
| 2020 |
| ||
Current liabilities |
| $ | (708 | ) |
| $ | (603 | ) |
Noncurrent liabilities |
|
| (4,898 | ) |
|
| (6,422 | ) |
Net Amount Recognized |
| $ | (5,606 | ) |
| $ | (7,025 | ) |
Amounts recognized in accumulated other comprehensive income consist of:
|
| Other Benefits |
| |||||
(In thousands) |
| 2021 |
|
| 2020 |
| ||
Prior service cost |
| $ | (322 | ) |
| $ | (1,244 | ) |
Net loss (gain) |
|
| 1,040 |
|
|
| 2,384 |
|
Total Recognized in Accumulated Other Comprehensive Loss |
| $ | 718 |
|
| $ | 1,140 |
|
72
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 13
Other Postretirement Benefit Plans, Continued
Components of Net Periodic Benefit Cost
Net Periodic Benefit Cost
|
| Other Benefits |
| |||||||||
(In thousands) |
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Service cost |
| $ | 89 |
|
| $ | 89 |
|
| $ | 409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
| 124 |
|
|
| 151 |
|
|
| 214 |
|
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
| (921 | ) |
|
| (921 | ) |
|
| (231 | ) |
Losses |
|
| 128 |
|
|
| 22 |
|
|
| 37 |
|
Net amortization |
|
| (793 | ) |
|
| (899 | ) |
|
| (194 | ) |
Other components of net periodic benefit cost |
| $ | (669 | ) |
| $ | (748 | ) |
| $ | 20 |
|
Net Periodic Benefit Cost - Ongoing Operations |
| $ | (580 | ) |
| $ | (659 | ) |
| $ | 429 |
|
Net Periodic Benefit Cost - Discontinued Operations |
| $ | — |
|
| $ | — |
|
| $ | (877 | ) |
Reconciliation of Accumulated Other Comprehensive Income
|
| Other Benefits |
| |
(In thousands) |
| 2021 |
| |
Net (gain) loss |
| $ | (1,216 | ) |
Amortization of prior service cost |
|
| 921 |
|
Amortization of net actuarial loss |
|
| (128 | ) |
Total Recognized in Other Comprehensive Income |
| $ | (423 | ) |
Total Recognized in Net Periodic Benefit Cost and Other Comprehensive Income |
| $ | (1,003 | ) |
Weighted-average assumptions used to determine benefit obligations
|
| Other Benefits |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Discount rate |
|
| 1.49 | % |
|
| 2.21 | % |
Rate of compensation increase |
| NA |
|
| NA |
| ||
For Fiscal 2021 and 2020, the discount rate was based on a yield curve of high-quality corporate bonds with cash flows matching our planned expected benefit payments.
Weighted-average assumptions used to determine net periodic benefit costs
|
| Other Benefits |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Discount rate |
|
| 1.49 | % |
|
| 3.48 | % |
|
| 3.67 | % |
Expected long-term rate of return on plan assets |
| NA |
|
| NA |
|
| NA |
| |||
Rate of compensation increase |
| NA |
|
| NA |
|
| NA |
| |||
73
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 13
Other Postretirement Benefit Plans, Continued
Assumed health care cost trend rates
|
| 2021 |
|
| 2020 |
| ||
Health care cost trend rate assumed for next year |
|
| 6.25 | % |
|
| 7.25 | % |
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) |
|
| 5.75 | % |
|
| 6.25 | % |
Year that the rate reaches the ultimate trend rate |
| 2023 |
|
| 2024 |
| ||
Estimated Future Benefit Payments
Expected benefit payments for other postretirement benefits, paid from the employee benefit trust, are as follows:
Estimated future payments |
| Other Benefits ($ in millions) |
| |
2021 |
| $ | 0.7 |
|
2022 |
|
| 0.6 |
|
2023 |
|
| 0.6 |
|
2024 |
|
| 0.5 |
|
2025 |
|
| 0.5 |
|
2026 – 2030 |
|
| 2.0 |
|
Section 401(k) Savings Plan
We have a Section 401(k) Savings Plan available to all employees, including retail employees who have completed 500 hours of service within the first six months of employment, and are age 18 or older.
Since January 1, 2005, we have matched 100% of each employee’s contribution of up to 3% of salary and 50% of the next 2% of salary. In addition, for those employees hired before December 31, 2004, who were eligible for our cash balance retirement plan before it was frozen, we annually make an additional contribution of 2 1/2 % of salary to each employee’s account. Participants are immediately vested in their contributions and our matching contribution plus actual earnings thereon. Our contribution expense for the matching program was approximately $2.9 million for Fiscal 2021, $5.3 million for Fiscal 2020 and $5.6 million for Fiscal 2019. As a result of the COVID-19 pandemic, we suspended our match of employee contributions as of May 1, 2020. The match was reinstated on January 1, 2021.
Note 14
Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities to issue common stock were exercised or converted to common stock.
74
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 14
Earnings Per Share, Continued
Weighted-average number of shares used for earnings per share is as follows:
|
| Fiscal Year |
| |||||||||
(Shares in thousands) |
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
Weighted-average number of shares - basic |
|
| 14,216 |
|
|
| 15,544 |
|
|
| 19,351 |
|
Common stock equivalents |
|
| 0 |
|
|
| 127 |
|
|
| 144 |
|
Weighted-average number of shares - diluted |
|
| 14,216 |
|
|
| 15,671 |
|
|
| 19,495 |
|
Common stock equivalents are excluded in Fiscal 2021 due to the loss from continuing operations.
Note 15
Share-Based Compensation Plans
We have share-based compensation covering certain members of management and non-employee directors. The fair value of employee restricted stock is determined based on the closing price of our stock on the date of grant. Forfeitures for restricted stock are recognized as they occur.
Stock and Cash Incentive Plans
Under the 2020 Plan, which became effective June 25, 2020, we may grant options, restricted shares, performance awards and other stock-based awards to our key employees, non-employee directors and consultants for up to 1.8 million shares of common stock. The 2020 Plan replaced our Second Amended and Restated 2009 Equity Incentive Plan (the “2009 Plan”). There will be no future awards under the 2009 Plan. Under both plans, the exercise price of each option equals the market price of our stock on the date of grant, and an option’s maximum term is 10 years. Options granted under the plan primarily vest 25% per year over four years. Restricted share grants deplete the shares available for future grants at a ratio of 2.0 shares per restricted share grant.
In addition, we established the 2020 Restricted Cash Incentive Program (the “Program”) in Fiscal 2021 to attract and retain executive officers and key employees. 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. Only employees that were employed as of the grant date were eligible for the Program. The compensation paid under the Program is taxable and subject 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 $0.4 million for Fiscal 2021.
On February 5, 2020, our new chief executive officer was issued a one-time grant of stock options under the 2009 Plan of 26,620 shares with a grant date fair value of $500,000. The fair value of the one-time stock option is recognized as compensation expense ratably over the vesting period. We estimated the fair value of the stock option award as of the date of the grant by applying a Black-Scholes pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense. The key assumptions used in determining the fair value of the stock option award granted during Fiscal 2021 were expected price volatility of 45.0%, a risk-free rate of 1.52% and a weighted average term of 6.25 years. This resulted in a fair value of $18.78 per share for this one-time stock option.
We recognized $0.1 million of stock option related share-based compensation in Fiscal 2021 in selling and administrative expenses in the accompanying Consolidated Statements of Operations. As of January 30, 2021, there was $0.4 million of unrecognized compensation expense related to these stock options under the 2009 Plan. For Fiscal 2020 and 2019, we did 0t recognize any stock option related share-based compensation for our stock incentive plans as all such amounts were fully recognized in earlier periods. We did 0t capitalize any share-based compensation expense.
75
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 15
Share-Based Compensation Plans, Continued
Restricted Stock Incentive Plans
Director Restricted Stock
The 2020 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 2021, 2020 and 2019. 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. For awards made prior to Fiscal 2021, the director is restricted from selling, transferring, pledging or assigning the shares for three years from the grant date unless he or she earlier leaves the board.
The grants for Fiscal 2021, 2020 and 2019 were valued at $91,375 for each year, per director, with the exception of two new directors with a grant valued at $106,605 each in Fiscal 2019, based on the average closing price of the stock for the first 5 trading days of the month in which they were granted and vested on the first anniversary of the grant date. In addition, we issued 1,338 shares to a newly elected director in Fiscal 2021. For Fiscal 2021, 2020 and 2019, we issued 28,266 shares, 14,455 shares and 22,042 shares, respectively, of director restricted stock.
In addition, the 2009 Plan permitted an outside director to elect irrevocably to receive all or a specified portion of his annual retainers for board membership and any committee chairmanship for the following fiscal year in a number of shares of restricted stock (the "Retainer Stock"). Shares of the Retainer Stock were granted as of the first business day of the fiscal year as to which the election was effective, subject to forfeiture to the extent not earned upon the outside director's ceasing to serve as a director or committee chairman during such fiscal year. Once the shares were earned, the director is restricted from selling, transferring, pledging or assigning the shares for an additional three years. The 2020 Plan does not permit the issuance of retainer stock. For Fiscal 2021, 2020 and 2019, we issued 10,457 shares, 10,913 shares and 14,379 shares, respectively, of Retainer Stock. Director retainer fees were reduced during Fiscal 2021 primarily related to the COVID-19 pandemic. In connection with the fee reduction, 2,965 shares of Retainer Stock were forfeited during Fiscal 2021.
We recognized $0.9 million, $1.3 million and $1.3 million of director restricted stock related share-based compensation in Fiscal 2021, 2020 and 2019 in selling and administrative expenses in the accompanying Consolidated Statements of Operations.
Employee Restricted Stock
Under the 2009 Plan, we issued 427,741 shares, 269,816 shares and 352,060 shares of employee restricted stock in Fiscal 2021, 2020 and 2019, respectively. Shares of employee restricted stock issued in Fiscal 2021, 2020 and 2019 primarily vest 25% per year over four years, provided that on such date the grantee has remained continuously employed by the Company since the date of grant. In addition, we issued 621, 1,800 and 4,388 restricted stock units in Fiscal 2021, 2020 and 2019, respectively, to certain employees at no cost that vest over three years. The fair value of employee restricted stock is charged against income as compensation expense over the vesting period. Compensation expense recognized in selling and administrative expenses in the accompanying Consolidated Statements of Operations for these shares was $7.4 million, $8.8 million and $12.1 million for Fiscal 2021, 2020 and 2019, respectively, and is inclusive of discontinued operations of $2.0 million in Fiscal 2019.
76
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 15
Share-Based Compensation Plans, Continued
A summary of the status of our nonvested shares of our employee restricted stock as of January 30, 2021 is presented below:
Nonvested Restricted Shares |
| Shares |
|
| Weighted- Average Grant-Date Fair Value |
| ||
Nonvested at February 3, 2018 |
|
| 640,080 |
|
| $ | 48.37 |
|
Granted |
|
| 352,060 |
|
|
| 40.90 |
|
Vested |
|
| (177,394 | ) |
|
| 54.12 |
|
Withheld for federal taxes |
|
| (69,762 | ) |
|
| 54.26 |
|
Forfeited |
|
| (153,646 | ) |
|
| 42.66 |
|
Nonvested at February 2, 2019 |
|
| 591,338 |
|
|
| 42.99 |
|
Granted |
|
| 269,816 |
|
|
| 42.48 |
|
Vested |
|
| (138,765 | ) |
|
| 47.56 |
|
Withheld for federal taxes |
|
| (55,598 | ) |
|
| 46.51 |
|
Forfeited |
|
| (77,013 | ) |
|
| 42.19 |
|
Nonvested at February 1, 2020 |
|
| 589,778 |
|
|
| 41.46 |
|
Granted |
|
| 427,741 |
|
|
| 19.62 |
|
Vested |
|
| (139,962 | ) |
|
| 50.35 |
|
Withheld for federal taxes |
|
| (64,382 | ) |
|
| 50.29 |
|
Forfeited |
|
| (147,085 | ) |
|
| 36.62 |
|
Nonvested at January 30, 2021 |
|
| 666,090 |
|
| $ | 27.98 |
|
As of January 30, 2021, we had $14.5 million of total unrecognized compensation expense related to nonvested share-based compensation arrangements for restricted stock discussed above. That cost is expected to be recognized over a weighted average period of 1.77 years.
Note 16
Legal Proceedings
Environmental Matters
New York State Environmental Matters
In August 1997, the New York State Department of Environmental Conservation (“NYSDEC”) and the Company entered into a consent order whereby we assumed responsibility for conducting a remedial investigation and feasibility study and implementing an interim remedial measure with regard to the site of a knitting mill operated by a former subsidiary of ours 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 Decision in September 2007. The Record of Decision specified a remedy of a combination of groundwater extraction and treatment and in-situ chemical oxidation.
In September 2015, the EPA adopted an amendment to the Record of Decision eliminating the separate ground-water extraction and treatment systems and the use of in-situ oxidation from the remedy adopted in the Record of Decision. The amendment provides for the continued operation and maintenance of the existing wellhead treatment systems on wells operated by the Village
77
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 16
Legal Proceedings, Continued
of Garden City, New York (the "Village"). It also requires us to perform certain ongoing monitoring, operation and maintenance activities and to reimburse EPA's future oversight cost, involving future costs to us estimated to be between $1.7 million and $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.
The Village additionally asserted that we are liable for the costs associated with enhanced treatment required by the impact of the groundwater plume from the site on 2 public water supply wells, including historical total costs ranging from approximately $1.8 million to in excess of $2.5 million, and future operation and maintenance costs which the Village estimated at $126,400 annually while the enhanced treatment continues. On December 14, 2007, the Village filed a complaint (the "Village Lawsuit") against us and the owner of the property under the Resource Conservation and Recovery Act (“RCRA”), the Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) as well as a number of state law theories in the U.S. District Court for the Eastern District of New York, seeking an injunction requiring the defendants to remediate contamination from the site and to establish their liability for future costs that may be incurred in connection with it.
In June 2016 we reached an agreement with the Village providing for the Village to continue to operate and maintain the well head treatment systems in accordance with the Record of Decision and to release its claims against us asserted in the Village Lawsuit in exchange for a lump-sum payment of $10.0 million by us. On August 25, 2016, the Village Lawsuit was dismissed with prejudice. The cost of the settlement with the Village and the estimated costs associated with our compliance with the Consent Judgment were covered by our existing provision for the site. The settlement with the Village did not have, and we expect that the Consent Judgment will not have, a material effect on our financial condition or results of operations.
In April 2015, we received from EPA a Notice of Potential Liability and Demand for Costs (the "Notice") pursuant to CERCLA regarding the site in Gloversville, New York of a former leather tannery operated by us and by other, unrelated parties. The Notice demanded payment of approximately $2.2 million of response costs claimed by EPA to have been incurred to conduct assessments and removal activities at the site. In February 2017, we entered into a settlement agreement with EPA resolving their claim for past response costs in exchange for a payment by us of $1.5 million which was paid in May 2017. Our environmental insurance carrier has reimbursed us for 75% of the settlement amount, subject to a $500,000 self-insured retention. We do not expect any additional cost related to the matter.
Whitehall Environmental Matters
We have performed sampling and analysis of soil, sediments, surface water, groundwater and waste management areas at our former Volunteer Leather Company facility in Whitehall, Michigan.
In October 2010, we entered into a Consent Decree with the Michigan Department of Natural Resources and Environment providing for implementation of a remedial Work Plan for the facility site designed to bring the site into compliance with applicable regulatory standards. The Work Plan's implementation is substantially complete and we expect, based on our present understanding of the condition of the site, that our future obligations with respect to the site will be limited to periodic monitoring and that future costs related to the site should not have a material effect on our financial condition or results of operations.
78
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 16
Legal Proceedings, Continued
Accrual for Environmental Contingencies
Related to all outstanding environmental contingencies, we had accrued $1.5 million as of January 30, 2021, $1.5 million as of February 1, 2020 and $1.8 million as of February 2, 2019. All such provisions reflect our 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. 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 Consolidated Balance Sheets because it relates to former facilities operated by us. We have made pretax accruals for certain of these contingencies, including approximately $0.3 million in Fiscal 2021, $0.4 million in Fiscal 2020 and $0.7 million in Fiscal 2019. These charges are included in loss from discontinued operations, net in the Consolidated Statements of Operations and represent changes in estimates.
In addition to the matters specifically described in this Note, we are a party to other legal and regulatory proceedings and claims arising in the ordinary course of our business. While management does not believe that our liability with respect to any of these other matters partially offset by $1.4 million for retail storeis likely to have a material effect on our financial statements, legal proceedings are subject to inherent uncertainties and unfavorable rulings could have a material adverse impact on our financial statements.
Note 17
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 and Schuh Group sell primarily branded products from other companies while Johnston & Murphy Group and Licensed Brands sell primarily our owned and licensed brands.
Corporate assets include cash, domestic prepaid rent expense, prepaid income taxes, pension asset, impairments.deferred income taxes, deferred note expense on revolver debt and corporate fixed assets, including the former Lids Sports Group headquarters building in Fiscal 2019, 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 a pension settlement charge, major litigation and major lease terminations.
79
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 17
Business Segment Information, Continued
Fiscal 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
| Journeys Group |
|
| Schuh Group |
|
| Johnston & Murphy Group |
|
| Licensed Brands |
|
| Corporate & Other |
|
| Consolidated |
| ||||||
Sales |
| $ | 1,227,954 |
|
| $ | 305,941 |
|
| $ | 152,941 |
|
| $ | 101,287 |
|
| $ | 0 |
|
| $ | 1,788,123 |
|
Intercompany sales |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,593 | ) |
|
| — |
|
|
| (1,593 | ) |
Net sales to external customers |
| $ | 1,227,954 |
|
| $ | 305,941 |
|
| $ | 152,941 |
|
| $ | 99,694 |
|
| $ | — |
|
| $ | 1,786,530 |
|
Segment operating income (loss) |
| $ | 76,896 |
|
| $ | (11,602 | ) |
| $ | (47,624 | ) |
| $ | (5,430 | ) |
| $ | (21,548 | ) |
| $ | (9,308 | ) |
Goodwill impairment(1) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (79,259 | ) |
|
| (79,259 | ) |
Asset impairments and other(2) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (18,682 | ) |
|
| (18,682 | ) |
Operating income (loss) |
|
| 76,896 |
|
|
| (11,602 | ) |
|
| (47,624 | ) |
|
| (5,430 | ) |
|
| (119,489 | ) |
|
| (107,249 | ) |
Other components of net periodic benefit income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 670 |
|
|
| 670 |
|
Interest expense |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (5,342 | ) |
|
| (5,342 | ) |
Interest income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 252 |
|
|
| 252 |
|
Earnings (loss) from continuing operations before income taxes |
| $ | 76,896 |
|
| $ | (11,602 | ) |
| $ | (47,624 | ) |
| $ | (5,430 | ) |
| $ | (123,909 | ) |
| $ | (111,669 | ) |
Total assets(3) |
| $ | 767,535 |
|
| $ | 232,681 |
|
| $ | 159,027 |
|
| $ | 58,320 |
|
| $ | 369,805 |
|
| $ | 1,587,368 |
|
Depreciation and amortization |
|
| 29,326 |
|
|
| 8,885 |
|
|
| 5,487 |
|
|
| 1,317 |
|
|
| 1,484 |
|
|
| 46,499 |
|
Capital expenditures |
|
| 16,188 |
|
|
| 2,794 |
|
|
| 4,064 |
|
|
| 356 |
|
|
| 728 |
|
|
| 24,130 |
|
(1) | Goodwill impairment of $79.3 million is related to Schuh Group. |
(2) | Asset Impairments and other includes a $13.8 million charge for retail store asset impairments, of which $7.0 million is in the Johnston & Murphy Group, $4.1 million is in the Journeys Group and $2.7 million is in the Schuh Group, and a $5.3 million charge for trademark impairment, partially offset by a $(0.4) million gain for the release of an earnout related to the Togast acquisition. |
(3) | Of our $829.6 million of long-lived assets, $140.9 million and $35.1 million relate to long-lived assets in the United Kingdom and Canada, respectively. |
80
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 17
Business Segment Information, Continued
Fiscal 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
| Journeys Group |
|
| Schuh Group |
|
| Johnston & Murphy Group |
|
| Licensed Brands |
|
| Corporate & Other |
|
| Consolidated |
| ||||||
Sales |
| $ | 1,460,253 |
|
| $ | 373,930 |
|
| $ | 300,850 |
|
| $ | 61,859 |
|
| $ | 174 |
|
| $ | 2,197,066 |
|
Intercompany sales |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
Net sales to external customers |
| $ | 1,460,253 |
|
| $ | 373,930 |
|
| $ | 300,850 |
|
| $ | 61,859 |
|
| $ | 174 |
|
| $ | 2,197,066 |
|
Segment operating income (loss) |
| $ | 114,945 |
|
| $ | 4,659 |
|
| $ | 17,702 |
|
| $ | (698 | ) |
| $ | (39,916 | ) |
| $ | 96,692 |
|
Asset impairments and other(1) |
|
|
|
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (13,374 | ) |
|
| (13,374 | ) |
Operating income |
|
| 114,945 |
|
|
| 4,659 |
|
|
| 17,702 |
|
|
| (698 | ) |
|
| (53,290 | ) |
|
| 83,318 |
|
Other components of net periodic benefit income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 395 |
|
|
| 395 |
|
Interest expense |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (3,339 | ) |
|
| (3,339 | ) |
Interest income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,061 |
|
|
| 2,061 |
|
Earnings from continuing operations before income taxes |
| $ | 114,945 |
|
| $ | 4,659 |
|
| $ | 17,702 |
|
| $ | (698 | ) |
| $ | (54,173 | ) |
| $ | 82,435 |
|
Total assets(2) |
| $ | 908,312 |
|
| $ | 363,205 |
|
| $ | 197,670 |
|
| $ | 63,385 |
|
| $ | 147,906 |
|
| $ | 1,680,478 |
|
Depreciation and amortization |
|
| 29,122 |
|
|
| 11,466 |
|
|
| 6,091 |
|
|
| 660 |
|
|
| 2,235 |
|
|
| 49,574 |
|
Capital expenditures |
|
| 17,920 |
|
|
| 4,890 |
|
|
| 5,540 |
|
|
| 428 |
|
|
| 989 |
|
|
| 29,767 |
|
(1) | Asset Impairments and other includes an $11.5 million pension settlement expense and a $3.1 million charge for retail store asset impairments, of which $1.2 million is in the Johnston & Murphy Group, $1.2 million is in the Schuh Group and $0.7 million is in the Journeys Group, partially offset by a $(0.6) million gain on the sale of the Lids Sports Group headquarters building, a $(0.4) million gain for lease terminations and a $(0.2) million gain related to Hurricane Maria. |
(2) | Of our $973.4 million of long-lived assets, $174.4 million and $46.2 million relate to long-lived assets in the United Kingdom and Canada, respectively. |
81
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 17
Business Segment Information, Continued
Fiscal 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
| Journeys Group |
|
| Schuh Group |
|
| Johnston & Murphy Group |
|
| Licensed Brands |
|
| Corporate & Other |
|
| Consolidated |
| ||||||
Sales |
| $ | 1,419,993 |
|
| $ | 382,591 |
|
| $ | 313,134 |
|
| $ | 72,576 |
|
| $ | 271 |
|
| $ | 2,188,565 |
|
Intercompany sales |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (12 | ) |
|
| — |
|
|
| (12 | ) |
Net sales to external customers |
| $ | 1,419,993 |
|
| $ | 382,591 |
|
| $ | 313,134 |
|
| $ | 72,564 |
|
| $ | 271 |
|
| $ | 2,188,553 |
|
Segment operating income (loss) |
| $ | 100,799 |
|
| $ | 3,765 |
|
| $ | 20,385 |
|
| $ | (488 | ) |
| $ | (39,481 | ) |
| $ | 84,980 |
|
Asset impairments and other(1) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (3,163 | ) |
|
| (3,163 | ) |
Operating income |
|
| 100,799 |
|
|
| 3,765 |
|
|
| 20,385 |
|
|
| (488 | ) |
|
| (42,644 | ) |
|
| 81,817 |
|
Loss on early retirement of debt |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (597 | ) |
|
| (597 | ) |
Other components of net periodic benefit income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 380 |
|
|
| 380 |
|
Interest expense |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (4,115 | ) |
|
| (4,115 | ) |
Interest income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 774 |
|
|
| 774 |
|
Earnings from continuing operations before income taxes |
| $ | 100,799 |
|
| $ | 3,765 |
|
| $ | 20,385 |
|
| $ | (488 | ) |
| $ | (46,202 | ) |
| $ | 78,259 |
|
Total assets(2) |
| $ | 425,842 |
|
| $ | 211,983 |
|
| $ | 128,525 |
|
| $ | 24,004 |
|
| $ | 390,727 |
|
| $ | 1,181,081 |
|
Depreciation and amortization(3) |
|
| 28,121 |
|
|
| 14,193 |
|
|
| 6,517 |
|
|
| 637 |
|
|
| 2,693 |
|
|
| 52,161 |
|
Capital expenditures(4) |
|
| 26,114 |
|
|
| 7,226 |
|
|
| 6,526 |
|
|
| 162 |
|
|
| 1,752 |
|
|
| 41,780 |
|
(1) | Asset Impairments and other includes a $4.2 million charge for retail store asset impairments, of which $2.4 million is in the Schuh Group, $1.6 million is in the Journeys Group and $0.2 million is in the Johnston & Murphy Group, a $0.3 million charge for legal and other matters and a $0.1 million charge for hurricane losses, partially offset by a $(1.4) million gain related to Hurricane Maria. |
(2) | Of our $277.4 million of long-lived assets, $44.6 million and $12.8 million relate to long-lived assets in the United Kingdom and Canada, respectively. |
(3) | Excludes $24.8 million of depreciation and amortization related to Lids Sports Group. This amount is included in depreciation and amortization in our Consolidated Statements of Cash Flows as we did not segregate cash flows related to discontinued operations. |
(4) | Excludes $15.4 million of capital expenditures related to Lids Sports Group. This amount is included in capital expenditures in our Consolidated Statements of Cash Flows as we did not segregate cash flows related to discontinued operations. |
82
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 18
Discontinued Operations
On December 14, 2018, the Companywe entered into a definitive agreement for the sale of Lids Sports Group to FanzzLids Holdings, LLC (the "Purchaser"), a holding company controlled and operated by affiliates of Ames Watson Capital, LLC. The sale was completed on February 2, 2019 for
During the fourth quarter of Fiscal 2019, we recorded a loss on the sale of Lids Sports Group of $98.3 million, net of tax, on the sale of these assets, representing the sales price less the value of the Lids Sports Group assets sold and other adjustments. Becausemiscellaneous charges, including divestiture transaction costs, offset by a tax benefit on the loss. Included in the loss on the sale is a $48.7 million write-off of trademarks. The tax benefit associated with discontinued operations differs from the effective daterate due to the mix of closing was a Saturdayearnings and loss in the cash proceeds were not received byvarious jurisdictions, the Company until February 4, 2019, the purchase price is reflected in accounts receivable at February 2, 2019.
As a result of the sale, the Companywe met the requirements of ASC 360 to report the results of Lids Sports Group as discontinued operations. The Company hasWe have presented operating results of Lids Sports Group and the loss on the sale of Lids Sports Group in (loss) earningsloss from discontinued operations, net on thein our Consolidated Statements of Operations for all periods presented.Fiscal 2019. Certain corporate overhead costs and other allocated costs previously allocated to the Lids Sports Group business for segment reporting purposes did not qualify for classification within discontinued operations and have been reallocated to continuing operations whereas bank fees and certain legal fees related to the Lids Sports Group business segment previously excluded from segment earnings were reclassified to discontinued operations. The costs of the Lids Sports Group headquarters building, which was not included in the sale, was reclassified to corporate and other in segment earnings. In addition, the third quarter Fiscal 2018 goodwill impairment charge of $182.2 million and the third quarter Fiscal 2019 trademark impairment charge of $5.7 million related to the Lids Sports Group business segment, that were bothwas previously excluded from the calculation of segment earnings, werewas reclassified to discontinued
As part of the Lids Sports Group sales transaction, the Purchaser has agreed to indemnify and hold the Companyus harmless in connection with continuing obligations and any guarantees of the Companyours in place as of February 2, 2019 in respect of post-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 released. However, the Company iswe are contingently liable in the event of a breach by the Purchaser of any such obligation to a third-party. In addition, the Company iswe are a guarantor for
83
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 18
Discontinued Operations, Continued
Components of amounts reflected in (loss) earningsloss from discontinued operations, net of tax on the Consolidated Statements of Operations for the yearsyear ended February 2, 2019 February 3, 2018 and January 28, 2017 areis as follows (in thousands):
|
| Fiscal Year |
| |
|
| 2019 |
| |
Net sales |
| $ | 723,125 |
|
Cost of sales |
|
| 348,038 |
|
Selling and administrative expenses |
|
| 370,480 |
|
Goodwill and trademark impairment |
|
| 5,736 |
|
Asset impairments and other, net |
|
| 2,394 |
|
Loss on sale of Lids Sports Group |
|
| (126,321 | ) |
Other components of net periodic benefit cost |
|
| (23 | ) |
Provision for discontinued operations(1) |
|
| (743 | ) |
Loss from discontinued operations before taxes |
|
| (130,610 | ) |
Income tax benefit |
|
| (27,456 | ) |
Loss from discontinued operations, net of tax |
| $ | (103,154 | ) |
(1) | Expenses primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by us (see Note 16). |
| Fiscal Year | |||||||||
| 2019 | 2018 | 2017 | |||||||
| Net sales | $ | 723,125 | $ | 779,469 | $ | 847,510 | |||
| Cost of sales | 348,038 | 374,730 | 405,903 | ||||||
| Selling and administrative expenses | 370,480 | 391,982 | 400,513 | ||||||
| Goodwill and trademark impairment | 5,736 | 182,211 | — | ||||||
| Asset impairments and other, net | 2,394 | 1,068 | 4,773 | ||||||
| Loss on sale of Lids Sports Group | (126,321 | ) | — | — | |||||
| Other components of net periodic benefit cost | (23 | ) | (128 | ) | (69 | ) | |||
| Gain on sale of Lids Team Sports | — | — | 2,404 | ||||||
Provision for discontinued operations(1) | (743 | ) | (552 | ) | (701 | ) | |||
| (Loss) earnings from discontinued operations before taxes | (130,610 | ) | (171,202 | ) | 37,955 | ||||
| Income tax expense (benefit) | (27,456 | ) | (22,655 | ) | 13,406 | ||||
| (Loss) earnings from discontinued operations, net of tax | $ | (103,154 | ) | $ | (148,547 | ) | $ | 24,549 | |
| (In thousands) | February 3, 2018 | ||
| Assets | |||
| Accounts Receivable | $ | 9,678 | |
| Inventories | 154,215 | ||
| Prepaids and other current assets | 13,203 | ||
| Current assets - discontinued operations | $ | 177,096 | |
| Property and equipment, net | $ | 84,082 | |
| Trademarks | 54,748 | ||
| Other Intangibles | 454 | ||
| Long-term assets - discontinued operations | $ | 139,284 | |
| Liabilities | |||
| Accounts payable | $ | 17,675 | |
| Accrued employee compensation | 1,870 | ||
| Other accrued liabilities | 21,697 | ||
| Current liabilities - discontinued operations | $ | 41,242 | |
| Deferred rent and other long-term liabilities | $ | 25,907 | |
| Long-term liabilities - discontinued operations | $ | 25,907 | |
The cash flows related to discontinued operations have not been segregated and are included in theour Consolidated Statements of Cash Flows. The following table summarizes depreciation and amortization, capital expenditures and the significant operating noncash items from discontinued operations for each period presented:
| Fiscal Year | |||||||||
| (In thousands) | 2019 | 2018 | 2017 | ||||||
| Depreciation and amortization | $ | 24,778 | $ | 26,793 | $ | 25,825 | |||
| Capital expenditures | 15,450 | 29,244 | 19,045 | ||||||
| Impairment of intangible assets | 5,736 | 182,211 | — | ||||||
| Impairment of long-lived assets | 1,670 | 1,007 | 5,052 | ||||||
|
| Fiscal Year |
| |
(In thousands) |
| 2019 |
| |
Depreciation and amortization |
| $ | 24,778 |
|
Capital expenditures |
|
| 15,450 |
|
Impairment of intangible assets |
|
| 5,736 |
|
Impairment of long-lived assets |
|
| 1,670 |
|
84
| Accrued Provision for Discontinued Operations | |||
| In thousands | Facility Shutdown Costs | ||
| Balance January 30, 2016 | $ | 15,619 | |
| Additional provision Fiscal 2017 | 701 | ||
| Charges and adjustments, net | (11,277 | ) | |
| Balance January 28, 2017 | 5,043 | ||
| Additional provision Fiscal 2018 | 552 | ||
| Charges and adjustments, net | (1,986 | ) | |
| Balance February 3, 2018 | 3,609 | ||
| Additional provision Fiscal 2019 | 743 | ||
| Charges and adjustments, net | (1,953 | ) | |
Balance February 2, 2019(1) | 2,399 | ||
| Current provision for discontinued operations | 553 | ||
Total Noncurrent Provision for Discontinued Operations | $ | 1,846 | |
| In thousands | February 2, 2019 | February 3, 2018 | |||||
| Wholesale finished goods | $ | 45,679 | $ | 52,924 | |||
| Retail merchandise | 320,988 | 335,486 | |||||
| Total Inventories | $ | 366,667 | $ | 388,410 | |||
Long-Lived Assets Held and Used | Level 1 | Level 2 | Level 3 | Impairment Charges | |||||||||||||||
| Measured as of May 5, 2018 | $ | 434 | $ | — | $ | — | $ | 434 | $ | 1,025 | |||||||||
| Measured as of August 4, 2018 | 171 | — | — | 171 | 329 | ||||||||||||||
| Measured as of November 3, 2018 | — | — | — | — | 699 | ||||||||||||||
| Measured as of February 2, 2019 | 422 | — | — | 422 | 2,099 | ||||||||||||||
| Total Asset Impairment Fiscal 2019 | $ | 4,152 | |||||||||||||||||
| In thousands | February 2, 2019 | February 3, 2018 | |||||
| U.S. Revolver borrowings | $ | 56,773 | $ | 69,372 | |||
| UK term loans | 8,992 | 11,479 | |||||
| UK revolver borrowings | — | 7,594 | |||||
| Deferred note expense on term loans | (22 | ) | (60 | ) | |||
| Total long-term debt | 65,743 | 88,385 | |||||
| Current portion | 8,992 | 1,766 | |||||
| Total Noncurrent Portion of Long-Term Debt | $ | 56,751 | $ | 86,619 | |||
| In thousands | 2019 | 2018 | 2017 | ||||||||
| Minimum rentals | $ | 192,508 | $ | 196,392 | $ | 179,806 | |||||
| Contingent rentals | 10,271 | 6,979 | 7,459 | ||||||||
| Sublease rentals | (191 | ) | (223 | ) | (757 | ) | |||||
| Total Rental Expense | $ | 202,588 | $ | 203,148 | $ | 186,508 | |||||
| Fiscal Years | In thousands | ||
| 2020 | $ | 183,432 | |
| 2021 | 171,584 | ||
| 2022 | 159,155 | ||
| 2023 | 140,889 | ||
| 2024 | 119,023 | ||
| Later years | 323,638 | ||
| Total Minimum Rental Commitments | $ | 1,097,721 | |
Shares Authorized | Number of Shares | Amounts in Thousands | ||||||||||||||||||||
| Class | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||||||||||||
| Employees’ Subordinated Convertible Preferred | 5,000,000 | 36,147 | 36,671 | 37,646 | $ | 1,084 | $ | 1,100 | $ | 1,129 | ||||||||||||
| Stated Value of Issued Shares | 1,084 | 1,100 | 1,129 | |||||||||||||||||||
| Employees’ Preferred Stock Purchase Accounts | (24 | ) | (48 | ) | (69 | ) | ||||||||||||||||
| Total Non-Redeemable Preferred Stock | $ | 1,060 | $ | 1,052 | $ | 1,060 | ||||||||||||||||
| In thousands | Non-Redeemable Employees’ Preferred Stock | Employees’ Preferred Stock Purchase Accounts | Total Non-Redeemable Preferred Stock | |||||||||
| Balance January 30, 2016 | $ | 1,146 | $ | (69 | ) | $ | 1,077 | |||||
| Other stock conversions | (17 | ) | — | (17 | ) | |||||||
| Balance January 28, 2017 | 1,129 | (69 | ) | 1,060 | ||||||||
| Other stock conversions | (29 | ) | 21 | (8 | ) | |||||||
| Balance February 3, 2018 | 1,100 | (48 | ) | 1,052 | ||||||||
| Other stock conversions | (16 | ) | 24 | 8 | ||||||||
| Balance February 2, 2019 | $ | 1,084 | $ | (24 | ) | $ | 1,060 | |||||
Common Stock | Employees’ Preferred Stock | ||||
| 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 | |||
| Issue restricted stock | 356,224 | — | |||
| Shares repurchased | (275,300 | ) | — | ||
| Other | (42,943 | ) | (975 | ) | |
| Issued at February 3, 2018 | 20,392,253 | 36,671 | |||
| Issue restricted stock | 353,633 | — | |||
| Shares repurchased | (968,375 | ) | — | ||
| Other | (186,463 | ) | (524 | ) | |
| Issued at February 2, 2019 | 19,591,048 | 36,147 | |||
| Less shares repurchased and held in treasury | 488,464 | — | |||
| Outstanding at February 2, 2019 | 19,102,584 | 36,147 | |||
| In thousands | 2019 | 2018 | 2017 | ||||||||
| United States | $ | 84,807 | $ | 58,137 | $ | 98,185 | |||||
| Foreign | (6,548 | ) | 10,852 | 14,573 | |||||||
| Total Earnings from Continuing Operations before Income Taxes | $ | 78,259 | $ | 68,989 | $ | 112,758 | |||||
| In thousands | 2019 | 2018 | 2017 | ||||||||
| Current | |||||||||||
| U.S. federal | $ | 13,657 | $ | 25,093 | $ | 24,535 | |||||
| International | 1,649 | 5,421 | 3,291 | ||||||||
| State | 4,029 | 3,828 | 4,687 | ||||||||
| Total Current Income Tax Expense | 19,335 | 34,342 | 32,513 | ||||||||
| Deferred | |||||||||||
| U.S. federal | 3,632 | 1,491 | 4,704 | ||||||||
| International | 2,594 | (3,498 | ) | 1,182 | |||||||
| State | 1,474 | (54 | ) | 1,477 | |||||||
| Total Deferred Income Tax Expense (Benefit) | 7,700 | (2,061 | ) | 7,363 | |||||||
| Total Income Tax Expense – Continuing Operations | $ | 27,035 | $ | 32,281 | $ | 39,876 | |||||
| February 2, | February 3, | ||||||
| In thousands | 2019 | 2018 | |||||
| Identified intangibles | $ | (3,265 | ) | $ | (4,821 | ) | |
| Prepaids | (1,638 | ) | (2,226 | ) | |||
| Convertible bonds | — | (372 | ) | ||||
| Tax over book depreciation | — | (6,167 | ) | ||||
| Pensions | (1,802 | ) | — | ||||
| Gross deferred tax liabilities | (6,705 | ) | (13,586 | ) | |||
| Pensions | — | 562 | |||||
| Deferred rent | 11,081 | 14,214 | |||||
| Book over tax depreciation | 2,739 | — | |||||
| Expense accruals | 5,061 | 6,896 | |||||
| Uniform capitalization costs | 7,938 | 9,549 | |||||
| Provisions for discontinued operations and restructurings | 730 | 1,045 | |||||
| Inventory valuation | 908 | 1,798 | |||||
| Tax net operating loss and credit carryforwards | 15,766 | 3,682 | |||||
| Allowances for bad debts and notes | 318 | 382 | |||||
| Deferred compensation and restricted stock | 3,814 | 4,709 | |||||
| Other | 39 | 2,177 | |||||
| Gross deferred tax assets | 48,394 | 45,014 | |||||
| Deferred tax asset valuation allowance | (20,354 | ) | (6,351 | ) | |||
| Deferred tax asset net of valuation allowance | 28,040 | 38,663 | |||||
| Net Deferred Tax Assets | $ | 21,335 | $ | 25,077 | |||
| 2019 | 2018 | ||||||
| Net non-current asset | $ | 21,335 | $ | 25,077 | |||
| Net non-current liability | — | — | |||||
| Net Deferred Tax Assets | $ | 21,335 | $ | 25,077 | |||
| 2019 | 2018 | 2017 | ||||||
| U. S. federal statutory rate of tax | 21.00 | % | 33.72 | % | 35.00 | % | ||
| State taxes (net of federal tax benefit) | 5.67 | 3.58 | 4.07 | |||||
| Foreign rate differential | (2.56 | ) | (5.66 | ) | (3.38 | ) | ||
| Change in valuation allowance | 11.51 | 1.95 | 1.18 | |||||
| Impact of statutory rate change | — | 7.74 | — | |||||
| Credits | (2.65 | ) | (1.80 | ) | (1.20 | ) | ||
| Permanent items | 2.27 | 2.77 | 1.37 | |||||
| Uncertain federal, state and foreign tax positions | (1.68 | ) | (1.36 | ) | (1.21 | ) | ||
| Transition tax | 2.23 | 6.47 | — | |||||
| Other | (1.24 | ) | (0.62 | ) | (0.47 | ) | ||
| Effective Tax Rate | 34.55 | % | 46.79 | % | 35.36 | % | ||
| In thousands | 2019 | 2018 | 2017 | ||||||||
| Unrecognized Tax Benefit – Beginning of Period | $ | 3,701 | $ | 5,622 | $ | 14,639 | |||||
| Gross Increases (Decreases) – Tax Positions in a Prior Period | — | (15 | ) | (7,585 | ) | ||||||
| Gross Increases (Decreases) – Tax Positions in a Current Period | (638 | ) | (166 | ) | 491 | ||||||
| Settlements | — | — | (742 | ) | |||||||
| Lapse of Statutes of Limitations | (1,228 | ) | (1,740 | ) | (1,181 | ) | |||||
| Unrecognized Tax Benefit – End of Period | $ | 1,835 | $ | 3,701 | $ | 5,622 | |||||
| Pension Benefits | Other Benefits | ||||||||||||||
| In thousands | 2019 | 2018 | 2019 | 2018 | |||||||||||
| Benefit obligation at beginning of year | $ | 85,035 | $ | 86,947 | $ | 10,584 | $ | 8,943 | |||||||
| Service cost - ongoing operations | 450 | 550 | 409 | 507 | |||||||||||
| Service cost - discontinued operations | — | — | 300 | 396 | |||||||||||
| Interest cost - ongoing operations | 3,022 | 3,277 | 214 | 251 | |||||||||||
| Interest cost - discontinued operations | — | — | 80 | 103 | |||||||||||
| Plan participants’ contributions | — | — | 126 | 159 | |||||||||||
| Effect of plan change | — | — | (3,658 | ) | — | ||||||||||
| Benefits paid | (7,490 | ) | (7,811 | ) | (231 | ) | (403 | ) | |||||||
| Actuarial (gain) loss | (2,695 | ) | 2,072 | (3,299 | ) | 628 | |||||||||
| Benefit Obligation at End of Year | $ | 78,322 | $ | 85,035 | $ | 4,525 | $ | 10,584 | |||||||
| Pension Benefits | Other Benefits | ||||||||||||||
| In thousands | 2019 | 2018 | 2019 | 2018 | |||||||||||
| Fair value of plan assets at beginning of year | $ | 85,730 | $ | 80,682 | $ | — | $ | — | |||||||
| Actual gain on plan assets | 892 | 12,859 | — | — | |||||||||||
| Employer contributions | 3,500 | — | 105 | 244 | |||||||||||
| Plan participants’ contributions | — | — | 126 | 159 | |||||||||||
| Benefits paid | (7,490 | ) | (7,811 | ) | (231 | ) | (403 | ) | |||||||
| Fair Value of Plan Assets at End of Year | $ | 82,632 | $ | 85,730 | — | — | |||||||||
| Funded Status at End of Year | $ | 4,310 | $ | 695 | $ | (4,525 | ) | $ | (10,584 | ) | |||||
| Pension Benefits | Other Benefits | ||||||||||||||
| In thousands | 2019 | 2018 | 2019 | 2018 | |||||||||||
| Noncurrent assets | $ | 4,310 | $ | 695 | $ | — | $ | — | |||||||
| Current liabilities | — | — | (391 | ) | (393 | ) | |||||||||
| Noncurrent liabilities | — | — | (4,134 | ) | (10,191 | ) | |||||||||
| Net Amount Recognized | $ | 4,310 | $ | 695 | $ | (4,525 | ) | $ | (10,584 | ) | |||||
| Pension Benefits | Other Benefits | ||||||||||||||
| In thousands | 2019 | 2018 | 2019 | 2018 | |||||||||||
| Prior service cost | $ | — | $ | — | $ | (2,165 | ) | $ | — | ||||||
| Net loss (gain) | 8,148 | 8,314 | (334 | ) | 3,008 | ||||||||||
| Total Recognized in Accumulated Other Comprehensive Loss | $ | 8,148 | $ | 8,314 | $ | (2,499 | ) | $ | 3,008 | ||||||
| In thousands | February 2, 2019 | February 3, 2018 | |||||
| Projected benefit obligation | $ | 78,322 | $ | 85,035 | |||
| Accumulated benefit obligation | 78,322 | 85,035 | |||||
| Fair value of plan assets | 82,632 | 85,730 | |||||
| Pension Benefits | Other Benefits | ||||||||||||||||||||||
| In thousands | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | |||||||||||||||||
| Service cost | $ | 450 | $ | 550 | $ | 550 | $ | 409 | $ | 507 | $ | 429 | |||||||||||
| Interest cost | 3,022 | 3,277 | 4,118 | 214 | 251 | 225 | |||||||||||||||||
| Expected return on plan assets | (4,198 | ) | (4,505 | ) | (5,641 | ) | — | — | — | ||||||||||||||
| Settlement loss recognized | — | — | 2,456 | — | — | — | |||||||||||||||||
| Amortization: | |||||||||||||||||||||||
| Prior service cost | — | — | — | (231 | ) | — | — | ||||||||||||||||
| Losses | 776 | 834 | 810 | 37 | 114 | 117 | |||||||||||||||||
| Net amortization | $ | 776 | $ | 834 | $ | 810 | $ | (194 | ) | $ | 114 | $ | 117 | ||||||||||
| Other components of net periodic benefit cost | $ | (400 | ) | $ | (394 | ) | $ | 1,743 | $ | 20 | $ | 365 | $ | 342 | |||||||||
| Net Periodic Benefit Cost - Ongoing Operations | $ | 50 | $ | 156 | $ | 2,293 | $ | 429 | $ | 872 | $ | 771 | |||||||||||
| Net Periodic Benefit Cost - Discontinued Operations | $ | — | $ | — | $ | — | $ | (877 | ) | $ | 524 | $ | 344 | ||||||||||
| Pension Benefits | Other Benefits | ||||||
| In thousands | 2019 | 2019 | |||||
| Net (gain) loss | $ | 610 | $ | (3,299 | ) | ||
| Prior service cost | — | (3,658 | ) | ||||
| Amortization of prior service cost | — | 294 | |||||
| Recognition of prior service cost due to curtailment | — | 1,199 | |||||
| Amortization of net actuarial loss | (776 | ) | (42 | ) | |||
| Total Recognized in Other Comprehensive Income | $ | (166 | ) | $ | (5,506 | ) | |
| Total Recognized in Net Periodic Benefit Cost and Other Comprehensive Income | $ | (116 | ) | $ | (5,954 | ) | |
| Pension Benefits | Other Benefits | ||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||
| Discount rate | 4.05 | % | 3.70 | % | 3.48 | % | 3.67 | % | |||
| Rate of compensation increase | NA | NA | NA | NA | |||||||
| Pension Benefits | Other Benefits | ||||||||||||||||
| 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||||||||
| Discount rate | 3.70 | % | 3.95 | % | 4.30 | % | 3.67 | % | 3.98 | % | 4.04 | % | |||||
| Expected long-term rate of return on plan assets | 5.65 | % | 6.05 | % | 6.35 | % | NA | NA | NA | ||||||||
| Rate of compensation increase | NA | NA | NA | NA | NA | NA | |||||||||||
| 2019 | 2018 | ||||
| Health care cost trend rate assumed for next year | 7.25 | % | 8.0 | % | |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 6.75 | % | 5 | % | |
| Year that the rate reaches the ultimate trend rate | 2022 | 2028 | |||
| In thousands | 1% Increase in Rates | 1% Decrease in Rates | |||||
| Aggregated service and interest cost | $ | 220 | $ | 177 | |||
| Accumulated postretirement benefit obligation | $ | 290 | $ | 265 | |||
| Plan Assets | |||||
| February 2, 2019 | February 3, 2018 | ||||
| Asset Category | |||||
| Cash | 2 | % | 2 | % | |
| Equity securities | 0 | % | 64 | % | |
| Debt securities | 98 | % | 34 | % | |
| Total | 100 | % | 100 | % | |
| February 2, 2019 (In thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
| Equity Securities: | |||||||||||||||
| International Securities | $ | — | $ | — | $ | — | $ | — | |||||||
| U.S. Securities | — | — | — | — | |||||||||||
| Fixed Income Securities | — | 80,876 | — | 80,876 | |||||||||||
| Other: | |||||||||||||||
| Cash Equivalents | 1,871 | — | — | 1,871 | |||||||||||
| Other (includes receivables and payables) | (115 | ) | — | — | (115 | ) | |||||||||
| Total Pension Plan Assets | $ | 1,756 | $ | 80,876 | $ | — | $ | 82,632 | |||||||
| February 3, 2018 (In thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
| Equity Securities: | |||||||||||||||
| International Securities | $ | — | $ | 11,076 | $ | — | $ | 11,076 | |||||||
| U.S. Securities | — | 44,013 | — | 44,013 | |||||||||||
| Fixed Income Securities | — | 28,795 | — | 28,795 | |||||||||||
| Other: | |||||||||||||||
| Cash Equivalents | 1,893 | — | — | 1,893 | |||||||||||
| Other (includes receivables and payables) | (47 | ) | — | — | (47 | ) | |||||||||
| Total Pension Plan Assets | $ | 1,846 | $ | 83,884 | $ | — | $ | 85,730 | |||||||
| Estimated future payments | Pension Benefits ($ in millions) | Other Benefits ($ in millions) | |||||
| 2019 | $ | 7.0 | $ | 0.4 | |||
| 2020 | 6.7 | 0.4 | |||||
| 2021 | 6.4 | 0.4 | |||||
| 2022 | 6.4 | 0.4 | |||||
| 2023 | 6.2 | 0.4 | |||||
| 2024 – 2028 | 27.1 | 1.9 | |||||
For the Year Ended February 2, 2019 | For the Year Ended February 3, 2018 | For the Year Ended January 28, 2017 | ||||||||||||||||||||||||||||||
(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 | $ | 51,224 | $ | 36,708 | $ | 72,882 | ||||||||||||||||||||||||||
| Basic EPS from continuing operations | ||||||||||||||||||||||||||||||||
| Income from continuing operations available to common shareholders | 51,224 | 19,351 | $ | 2.65 | 36,708 | 19,218 | $ | 1.91 | 72,882 | 20,076 | $ | 3.63 | ||||||||||||||||||||
| Effect of Dilutive Securities from continuing operations | ||||||||||||||||||||||||||||||||
Dilutive share-based awards | 108 | 27 | 58 | |||||||||||||||||||||||||||||
Employees’ preferred stock(1) | 36 | 37 | 38 | |||||||||||||||||||||||||||||
| Diluted EPS from continuing operations | ||||||||||||||||||||||||||||||||
| Income from continuing operations available to common shareholders plus assumed conversions | $ | 51,224 | 19,495 | $ | 2.63 | $ | 36,708 | 19,282 | $ | 1.90 | $ | 72,882 | 20,172 | $ | 3.61 | |||||||||||||||||
| Nonvested Restricted Shares | Shares | Weighted-Average Grant-Date Fair Value | ||||
| 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 | ||||
| Granted | 356,224 | 32.00 | ||||
| Vested | (125,190 | ) | 68.94 | |||
| Withheld for federal taxes | (50,957 | ) | 68.87 | |||
| Forfeited | (23,999 | ) | 55.90 | |||
| Nonvested at February 3, 2018 | 640,080 | 48.37 | ||||
| Granted | 352,060 | 40.90 | ||||
| Vested | (177,394 | ) | 54.12 | |||
| Withheld for federal taxes | (69,762 | ) | 54.26 | |||
| Forfeited | (153,646 | ) | 42.66 | |||
| Nonvested at February 2, 2019 | 591,338 | $ | 42.99 | |||
| Fiscal 2019 | |||||||||||||||||||||||
Journeys Group | Schuh Group | Johnston & Murphy Group | Licensed Brands | Corporate & Other | Consolidated | ||||||||||||||||||
| In thousands | |||||||||||||||||||||||
| Sales | $ | 1,419,993 | $ | 382,591 | $ | 313,134 | $ | 72,576 | $ | 271 | $ | 2,188,565 | |||||||||||
| Intercompany sales | — | — | — | (12 | ) | — | (12 | ) | |||||||||||||||
| Net sales to external customers | $ | 1,419,993 | $ | 382,591 | $ | 313,134 | $ | 72,564 | $ | 271 | $ | 2,188,553 | |||||||||||
| Segment operating income (loss) | $ | 100,799 | $ | 3,765 | $ | 20,385 | $ | (488 | ) | $ | (39,481 | ) | $ | 84,980 | |||||||||
Asset impairments and other(1) | — | — | — | — | (3,163 | ) | (3,163 | ) | |||||||||||||||
| Earnings from operations | 100,799 | 3,765 | 20,385 | (488 | ) | (42,644 | ) | 81,817 | |||||||||||||||
| Loss on early retirement of debt | — | — | — | — | (597 | ) | (597 | ) | |||||||||||||||
| Other components of net periodic benefit cost | — | — | — | — | 380 | 380 | |||||||||||||||||
| Interest expense | — | — | — | — | (4,115 | ) | (4,115 | ) | |||||||||||||||
| Interest income | — | — | — | — | 774 | 774 | |||||||||||||||||
Earnings from continuing operations before income taxes | $ | 100,799 | $ | 3,765 | $ | 20,385 | $ | (488 | ) | $ | (46,202 | ) | $ | 78,259 | |||||||||
Total assets(2) | $ | 425,842 | $ | 211,983 | $ | 128,525 | $ | 24,004 | $ | 390,727 | $ | 1,181,081 | |||||||||||
Depreciation and amortization(3) | 28,121 | 14,193 | 6,517 | 637 | 2,693 | 52,161 | |||||||||||||||||
Capital expenditures(4) | 26,114 | 7,226 | 6,526 | 162 | 1,752 | 41,780 | |||||||||||||||||
| Fiscal 2018 | |||||||||||||||||||||||
Journeys Group | Schuh Group | Johnston & Murphy Group | Licensed Brands | Corporate & Other | Consolidated | ||||||||||||||||||
| In thousands | |||||||||||||||||||||||
| Sales | $ | 1,329,460 | $ | 403,698 | $ | 304,160 | $ | 89,812 | $ | 420 | $ | 2,127,550 | |||||||||||
| Intercompany sales | — | — | — | (3 | ) | — | (3 | ) | |||||||||||||||
| Net sales to external customers | $ | 1,329,460 | $ | 403,698 | $ | 304,160 | $ | 89,809 | $ | 420 | $ | 2,127,547 | |||||||||||
| Segment operating income (loss) | $ | 74,114 | $ | 20,104 | $ | 19,367 | $ | (299 | ) | $ | (31,141 | ) | $ | 82,145 | |||||||||
Asset impairments and other(1) | — | — | — | — | (7,773 | ) | (7,773 | ) | |||||||||||||||
| Earnings from operations | 74,114 | 20,104 | 19,367 | (299 | ) | (38,914 | ) | 74,372 | |||||||||||||||
| Other components of net periodic benefit cost | — | — | — | — | 29 | 29 | |||||||||||||||||
| Interest expense | — | — | — | — | (5,420 | ) | (5,420 | ) | |||||||||||||||
| Interest income | — | — | — | — | 8 | 8 | |||||||||||||||||
Earnings from continuing operations before income taxes | $ | 74,114 | $ | 20,104 | $ | 19,367 | $ | (299 | ) | $ | (44,297 | ) | $ | 68,989 | |||||||||
| Total assets ongoing operations | $ | 443,066 | $ | 239,479 | $ | 127,178 | $ | 32,331 | $ | 156,919 | $ | 998,973 | |||||||||||
| Assets from discontinued operations | 316,380 | ||||||||||||||||||||||
Total assets(2) | 1,315,353 | ||||||||||||||||||||||
Depreciation and amortization(3) | 26,490 | 13,769 | 6,418 | 688 | 4,168 | 51,533 | |||||||||||||||||
Capital expenditures(4) | 79,532 | 10,968 | 6,163 | 421 | 1,525 | 98,609 | |||||||||||||||||
| Fiscal 2017 | |||||||||||||||||||||||
Journeys Group | Schuh Group | Johnston & Murphy Group | Licensed Brands | Corporate & Other | Consolidated | ||||||||||||||||||
| In thousands | |||||||||||||||||||||||
| Sales | $ | 1,251,646 | $ | 372,872 | $ | 289,324 | $ | 107,210 | $ | 617 | $ | 2,021,669 | |||||||||||
| Intercompany sales | — | — | — | (838 | ) | — | (838 | ) | |||||||||||||||
| Net sales to external customers | $ | 1,251,646 | $ | 372,872 | $ | 289,324 | $ | 106,372 | $ | 617 | $ | 2,020,831 | |||||||||||
| Segment operating income (loss) | $ | 85,270 | $ | 20,530 | $ | 19,330 | $ | 4,498 | $ | (29,866 | ) | $ | 99,762 | ||||||||||
Asset impairments and other(1) | — | — | — | — | 8,031 | 8,031 | |||||||||||||||||
| Earnings from operations | 85,270 | 20,530 | 19,330 | 4,498 | (21,835 | ) | 107,793 | ||||||||||||||||
| Gain on sale of SureGrip Footwear | — | — | — | — | 12,297 | 12,297 | |||||||||||||||||
| Other components of net periodic benefit cost | — | — | — | — | (2,085 | ) | (2,085 | ) | |||||||||||||||
| Interest expense | — | — | — | — | (5,294 | ) | (5,294 | ) | |||||||||||||||
| Interest income | — | — | — | — | 47 | 47 | |||||||||||||||||
Earnings from continuing operations before income taxes | $ | 85,270 | $ | 20,530 | $ | 19,330 | $ | 4,498 | $ | (16,870 | ) | $ | 112,758 | ||||||||||
Total assets ongoing operations | $ | 404,773 | $ | 214,886 | $ | 126,559 | $ | 40,357 | $ | 142,585 | $ | 929,160 | |||||||||||
| Assets from discontinued operations | 511,839 | ||||||||||||||||||||||
Total assets(2) | 1,440,999 | ||||||||||||||||||||||
Depreciation and amortization(3) | 24,235 | 14,003 | 5,987 | 995 | 4,723 | 49,943 | |||||||||||||||||
Capital expenditures(4) | 50,259 | 11,236 | 9,221 | 760 | 3,449 | 74,925 | |||||||||||||||||
| (In thousands, | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Fiscal Year | |||||||||||||||||||||||||||||||||||
| except per share amounts) | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018(a) | 2019 | 2018(b) | ||||||||||||||||||||||||||||||
| Net sales | $ | 486,219 | $ | 466,467 | $ | 487,015 | $ | 436,276 | $ | 539,828 | $ | 535,412 | $ | 675,491 | $ | 689,392 | $ | 2,188,553 | $ | 2,127,547 | ||||||||||||||||||||
| Gross margin | 238,006 | 224,776 | 231,469 | 210,503 | 261,918 | 258,776 | 315,663 | 317,328 | 1,047,056 | 1,011,383 | ||||||||||||||||||||||||||||||
| Earnings (loss) from continuing operations before income taxes | 2,692 | (1) | 2,807 | (3) | 1 | (7,004 | ) | 25,580 | 26,588 | (7) | 49,986 | (9) | 46,598 | (11) | 78,259 | 68,989 | ||||||||||||||||||||||||
| Earnings (loss) from continuing operations | 1,856 | 1,617 | (25 | ) | (6,498 | ) | 19,694 | (6,835 | ) | 29,699 | 48,424 | 51,224 | 36,708 | |||||||||||||||||||||||||||
| Net earnings (loss) | (2,331 | ) | (2) | 885 | (4) | (15 | ) | (3,948 | ) | (5) | 14,387 | (6) | (164,821 | ) | (8) | (63,971 | ) | (10) | 56,045 | (12) | (51,930 | ) | (111,839 | ) | ||||||||||||||||
| Diluted earnings (loss) per common share: | ||||||||||||||||||||||||||||||||||||||||
| Continuing operations | 0.10 | 0.08 | 0.00 | (0.34 | ) | 1.00 | (0.35 | ) | 1.53 | 2.51 | 2.63 | 1.90 | ||||||||||||||||||||||||||||
| Net earnings (loss) | (0.12 | ) | 0.05 | 0.00 | (0.21 | ) | 0.73 | (8.56 | ) | (3.29 | ) | 2.90 | (2.66 | ) | (5.80 | ) | ||||||||||||||||||||||||
ITEM 9, CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 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 February 2, 2019,January 30, 2021, 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 February 2, 2019.January 30, 2021. 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. The report by Ernst & Young LLP is included in Item 8.
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 reasonable likely to materially affect the Company'sour internal control over financial reporting.
ITEM 9B, OTHER INFORMATION
Not applicable.
ITEM 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 27, 2019,24, 2021, 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” 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, 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 27, 2019,24, 2021, to be filed with the Securities and Exchange Commission.
ITEM 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 29, 2019,24, 2021, to be filed with the Securities and Exchange Commission.
The following table provides certain information as of February 2, 2019January 30, 2021 with respect to our equity compensation plans:
EQUITY COMPENSATION PLAN INFORMATION*
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 |
|
| 621 |
|
| $ | — |
|
|
| 1,261,501 |
|
Equity compensation plans not approved by security holders |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 621 |
|
| $ | — |
|
|
| 1,261,501 |
|
| 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 | 1,611 | $ | — | 1,354,713 | |||||
| Equity compensation plans not approved by security holders | — | — | — | ||||||
| Total | 1,611 | $ | — | 1,354,713 | |||||
(1) | |
Restricted stock units issued to certain employees at no cost. |
(2) | |
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 |
ITEM 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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 27, 2019,24, 2021, to be filed with the Securities and Exchange Commission.
ITEM 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 27, 2019,24, 2021, to be filed with the Securities and Exchange Commission.
ITEM 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 2, 2019January 30, 2021 and February 3, 2018
Consolidated Statements of Operations, each of the three fiscal years ended 2019, 20182021, 2020 and 2017
Consolidated Statements of Comprehensive Income, each of the three fiscal years ended 2019, 20182021, 2020 and 2017
Consolidated Statements of Cash Flows, each of the three fiscal years ended 2019, 20182021, 2020 and 2017
Consolidated Statements of Equity, each of the three fiscal years ended 2019, 20182021, 2020 and 2017
Notes to Consolidated Financial Statements
Financial Statement Schedules
Schedule 2 — Valuation and Qualifying Accounts, each of the three fiscal years ended 2019, 20182021, 2020 and 2017
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 124.
Exhibits
(2) | a. | ||
b. | |||
c. | |||
(3) | a. | ||
b. | |||
(4) | a. | ||
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(10) | a. | ||
88
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h. | |||
i. | |||
j. | |||
k. | |||
l. | |||
m. | |||
n. | |||
o. | |||
p. | 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). | ||
q. | |||
r. | |||
s. | |||
t. | |||
89
u. | |||
v. | |||
w. | |||
x. | |||
y. | |||
z. | |||
aa. | |||
bb. | |||
cc. | |||
dd. | |||
ee. | |||
ff. | |||
gg. | |||
hh. | |||
(21) | |||
(23) | . | ||
(24) | |||
(31.1) | |||
(31.2) | |||
(32.1) | |||
(32.2) | |||
101.INS | Inline XBRL Instance Document (The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.) | ||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||
90
Exhibits (10)ef through (10)m,o, (10)qs through (10)rx and (10)y through (10)aacc are Management Contracts or Compensatory Plans or Arrangements required to be filed as Exhibits to this Annual Report on Form 10-K.
* | |
Certain |
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, Nashville, Tennessee 37202-0731, accompanied by a check in the amount of $15.00 payable to Genesco Inc.
ITEM 16, FORM 10-K SUMMARY
None.
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.,
(6) Registration statement (Form S-8 No. 333-180463) of Genesco Inc., and
(7) Registration statement (Form S-8 No. 333-218670) of Genesco Inc.
(8) Registration statement (Form S-8 No. 333-248715) of Genesco Inc.,
of our reports dated April 3, 2019,March 31, 2021, 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 February 2, 2019.
/s/ Ernst & Young LLP | |
Nashville, Tennessee | |
March 31, 2021 | |
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 | ||
Interim Chief Financial Officer | ||
Date: April 3, 2019
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 6th16th day of February, 2019.
/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 | Interim Chief Financial Officer | |
(Principal Financial Officer) | ||
/s/ | Vice President and Chief Accounting Officer | |
Brently G. Baxter | (Principal Accounting Officer) | |
Directors: | ||
Joanna Barsh* | Thurgood Marshall, Jr.* | |
Matthew C. Diamond* | Kathleen Mason* | |
Marty G. Dickens * | Kevin P. McDermott* | |
John F. Lambros* |
*By | /s/Scott E. | |
Scott E. Becker | ||
Attorney-In-Fact | ||
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Genesco Inc. | |
and Subsidiaries | |
Financial Statement Schedule | |
January 30, 2021 |
and Subsidiaries
Valuation and Qualifying Accounts
Year Ended January 30, 2021
(In thousands) |
| Beginning Balance |
|
| Charged to Profit and Loss |
|
| Additions (Reductions) |
|
| Ending Balance |
| ||||
Allowances deducted from assets in the balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable Allowances |
| $ | 2,940 |
|
| $ | 2,606 |
|
| $ | (531 | ) |
| $ | 5,015 |
|
Markdown Allowance (1) |
| $ | 5,559 |
|
| $ | 11,080 |
|
| $ | (1,688 | ) |
| $ | 14,951 |
|
Year Ended February 1, 2020
(In thousands) |
| Beginning Balance |
|
| Charged to Profit and Loss |
|
| Reductions |
|
| Ending Balance |
| ||||
Allowances deducted from assets in the balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable Allowances |
| $ | 2,894 |
|
| $ | 133 |
|
| $ | (87 | ) |
| $ | 2,940 |
|
Markdown Allowance (1) |
| $ | 7,019 |
|
| $ | 1,579 |
|
| $ | (3,039 | ) |
| $ | 5,559 |
|
Year Ended February 2, 2019
(In thousands) |
| Beginning Balance |
|
| Charged to Profit and Loss |
|
| Reductions |
|
| Ending Balance |
| ||||
Allowances deducted from assets in the balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable Allowances |
| $ | 4,593 |
|
| $ | 40 |
|
| $ | (1,739 | ) |
| $ | 2,894 |
|
Markdown Allowance (1) |
| $ | 6,498 |
|
| $ | 4,297 |
|
| $ | (3,776 | ) |
| $ | 7,019 |
|
(1) | Reflects adjustment of merchandise inventories to realizable value. Charged to Profit and Loss column represents increases to the allowance and the Reductions column represents decreases to the allowance based on quarterly assessments of the allowance. |
| In Thousands | Beginning Balance | Charged to Profit and Loss | Additions (Reductions) | Ending Balance | |||||||||||
| Allowances deducted from assets in the balance sheet: | |||||||||||||||
| Accounts Receivable Allowances | $ | 4,593 | $ | 40 | $ | (1,739 | ) | $ | 2,894 | ||||||
| Markdown Allowance (1) | $ | 6,498 | $ | 4,297 | $ | (3,776 | ) | $ | 7,019 | ||||||
| In Thousands | Beginning Balance | Charged to Profit and Loss | Reductions | Ending Balance | |||||||||||
| Allowances deducted from assets in the balance sheet: | |||||||||||||||
| Accounts Receivable Allowances | $ | 3,073 | $ | 618 | $ | 902 | $ | 4,593 | |||||||
| Markdown Allowance (1) | $ | 5,416 | $ | 3,491 | $ | (2,409 | ) | $ | 6,498 | ||||||
| In Thousands | Beginning Balance | Charged to Profit and Loss | Reductions | Ending Balance | |||||||||||
| Allowances deducted from assets in the balance sheet: | |||||||||||||||
| Accounts Receivable Allowances | $ | 2,960 | $ | 442 | $ | (329 | ) | $ | 3,073 | ||||||
| Markdown Allowance (1) | $ | 4,584 | $ | 2,426 | $ | (1,594 | ) | $ | 5,416 | ||||||
95