UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended January 29, February 1, 20202022
☐ | 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
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 xYes ☒ No ☐¨
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 ☐ ¨No No ☒x
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 xYes ☒ No ☐¨
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 xYes ☒ No ☐
¨
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 ☐ No x☒
TheState 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 3, 2019, the last business day of the registrant’s most recently completed second fiscal quarter was approximately - $$579,000,000868,000,000. The market value calculation was determined using a per share price of $36.50,$57.45, the price at which the common stock was last sold on the New York Stock Exchange on such date.July 31, 2021, the last business day of the registrant’s most recently completed second fiscal quarter. For purposes of this calculation, shares of common stock held by nonaffiliates excludes only those shares beneficially owned by officers, directors, and shareholders owning 10% or more of the outstanding common stock (and, in each case, their immediate family members and affiliates).
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 13, 2020,11, 2022, 14,691,25713,657,096 shares of the registrant’s common stock were outstanding.
Documents Incorporated by Reference
Certain portions of registrant’s Definitive Proxy Statement for its 2022 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 25, 2020 annual meeting of shareholdersregistrant’s fiscal year ended January 29, 2022) are incorporated by reference into Part III by reference.of this Annual Report on Form 10-K..
TABLE OF CONTENTS
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Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 86 |
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Item 16. | 92 | |
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Cautionary Notice Regarding Forward-lookingForward-Looking Statements
This annual reportAnnual 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") outbreak which beganpandemic; disruptions to our business, sales, supply chain and financial results; the level of consumer spending on our merchandise and interest in 2019,our brands and in general, the level and timing of promotional activity necessary to protect our reputation and maintain inventories at appropriate levels,levels; the timing and amount of any share repurchases by us,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,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,distribution; unfavorable trends in fuel costs, foreign exchange rates, foreign labor and material costs,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 exitwithdrawal of the United Kingdom ("U.K.") from the European Union ("Brexit") and other sources of market weakness in the U.K. market,and the Republic of Ireland (the “ROI”); the effectiveness of our omnichannel initiatives,initiatives; costs associated with changes in minimum wage and overtime requirements,requirements; wage pressure in the U.S. and the U.K.,; labor shortages; the effects of inflation, including our ability to pass increased cost on to consumers; effects resulting from wars and other military operations; 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,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,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,events; changes in buying patterns by significant wholesale customers,customers; changes in consumer preferences; our ability to continue to complete and integrate acquisitions,acquisitions; expand our business and diversify our product base,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,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 theour ability to open additional retail stores, and to renew leases in existing stores, and control or lower occupancy costs, and to conduct required remodeling or refurbishment on schedule and at expected expense levels, our ability to eliminate stranded costs associated with dispositions, our ability tolevels; realize anticipated cost savings, including rent savings,savings; realize any anticipated tax benefits, and 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,consequences; unexpected changes to the market for our shares or for the retail sector in general,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,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 "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 20202022 of $2.2$2.4 billion. During Fiscal 2020,2022, we operated four 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 operations, catalog, Trask e-commerce operations and wholesale distribution of products under the Johnston & Murphy® and H.S.Trask® brands;brand; and (iv) Licensed Brands, comprised of the licensed Dockers®, Levi's®, and G.H. Bass® brands, as well as other brands we license for footwear.
® 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 Bass®, ADIO and FUBU, among others. Togast operates in our Licensed Brands segment. On February 2, 2019, we completed the sale of our Lids Sports Group business. As a result, we reported the operating results of this business in loss from discontinued operations, net in our Consolidated Statements of Operations for Fiscal 2019 and 2018. Unless otherwise noted, the discussion that follows relates to continuing operations.
The following table sets forth certain additional information concerning our retail footwear and accessory stores during the five most recent fiscal years:
Fiscal 2016 | Fiscal 2017 | Fiscal 2018 | Fiscal 2019 | Fiscal 2020 | ||||||||||
| Retail Stores | ||||||||||||||
| Beginning of year | 1,460 | 1,520 | 1,554 | 1,535 | 1,512 | |||||||||
| Opened during year | 54 | 66 | 59 | 36 | 12 | |||||||||
| Acquired during year | 37 | — | — | — | — | |||||||||
| Closed during year | (31 | ) | (32 | ) | (78 | ) | (59 | ) | (44 | ) | ||||
| End of year | 1,520 | 1,554 | 1,535 | 1,512 | 1,480 | |||||||||
brand, the H.S. Trask®
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| Fiscal |
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| Fiscal |
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| Fiscal |
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| Fiscal |
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| Fiscal |
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Retail Stores |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Beginning of year |
|
| 1,554 |
|
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| 1,535 |
|
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| 1,512 |
|
|
| 1,480 |
|
|
| 1,460 |
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Opened during year |
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| 59 |
|
|
| 36 |
|
|
| 12 |
|
|
| 13 |
|
|
| 6 |
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Closed during year |
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| (78 | ) |
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| (59 | ) |
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| (44 | ) |
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| (33 | ) |
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| (41 | ) |
End of year |
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| 1,535 |
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| 1,512 |
|
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| 1,480 |
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| 1,460 |
|
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| 1,425 |
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brand, and the licensed Levi's
®, Dockers® and Bass® brands, as well as other brands that we license for footwear to over 1,100 retail accounts in the United States, including a number of leading department, discount, and specialty stores.
COVID-19
In March 2020, the World Health Organization categorized the outbreak of COVID-19 as a pandemic. Impacts related to the COVID-19 pandemic were significantly adverse in Fiscal 2021 for the retail industry, our Company, our customers, and adversely fromour employees. We experienced significant disruptions to our business in Fiscal 2021 due to the expectations reflectedCOVID-19 pandemic and related social distancing and shelter-in-place recommendations and mandates, which initially resulted in these statements. Forthe temporary closure of a discussionnumber of somestores and furlough of our employees. These disruptions continued in Fiscal 2022 due to the impact of COVID-19, including the Omicron variant, and supply chain disruptions that led to staff shortages and inventory shortfalls. At the beginning of Fiscal 2022, the vast majority of our stores in North America had reopened, but all of the factors that may lead to different results, seestores in the U.K. and the ROI remained closed. By the end of the second quarter of Fiscal 2022, or July 30, 2021, we were operating in substantially all retail locations.
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The impacts of the COVID-19 pandemic on our business are discussed in further detail throughout this Business section, Item 1A “Risk Factors”- Risk Factors, and Part II - Item 7 “Management’s- Management's Discussion and Analysis of Financial Condition and Results of Operations.”
Strategy
Across our company, we aspire to create and curate leading footwear brands that represent style, innovation and self-expression and to 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. We strive to build enduring relationships with our target customers, grounded in unparalleled consumer and market insights. We excite and constantly exceed expectations by delivering distinctive experiences and products, using our deep direct-to-consumer expertise across digital and physical channels. The strength of our concepts and the advantages we have built over time have established long-lasting leadership positions that make our footwear businesses outstanding on their own, but what they share through the benefit of synergies makes them even stronger together. We have aligned our footwear focused business around six pillars;pillars aimed at accelerating our transformation and leveraging synergies to drive growth and sustainable profitability, 1) accelerate digital to grow direct-to-consumer, 2) maximize the relationship between physical and digital channels, 3) build deeper consumer insights to strengthen customer relationships and brand equity, 2)4) 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 storesoptimizing our store footprint in the future, concentrating on locations that we believe will be most productive, as well as closing certain stores, perhaps reducing the overall square footage and store 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 the Schuh Group in June 2011, Little Burgundy in December 2015 and Togast in January 2020,2020. Now that many of the challenges of the pandemic are behind us, we expect to concentrate our efforts on opportunities to leverage our direct-to-consumer capabilities to grow our branded platform and may pursue acquisition opportunities in the future. We anticipate that potential acquisitions
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 marketplace and thus more subject to competitive pressures than our typical offering. Moreover, economic factors, such as persistent unemploymentinflation, the collateral effects of the COVID-19 pandemic, such as supply chain disruptions and increased logistics costs, and any future economic contraction and changes in tax policies, may reduce the consumer’s disposable income or his or her willingness to purchase discretionary items, and thus may reduce demand for our merchandise, regardless of our skill in detecting and responding to fashion trends. We believe our experience and discipline in merchandising and the buying power associated with our relative size and importance in the industry segments in which we compete are important factors in our ability to mitigate risks associated with changing customer preferences and other changes in consumer demand.
Segments
Journeys Group
The Journeys Group segment accounted for 66%65% of our net sales in Fiscal 2020. Fiscal 2020 comparable sales, including both store and direct sales, increased 4% from Fiscal 2019.
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primarily for younger children, toddler age to 12 years old. Little Burgundy retail footwear stores sell footwear and accessories to fashion-oriented men and women in the 21 to 34 age group ranging from students to young professionals.
At February 1, 2020,January 29, 2022, Journeys Group operated 1,1711,135 stores, including 899869 Journeys stores, 233229 Journeys Kidz stores and 3937 Little Burgundy stores averaging approximately 1,9752,000 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 2020,2022, the Journeys Group closed a net of 2224 stores.
Schuh Group
The Schuh Group segment accounted for 17%18% of our net sales in Fiscal 2020. Comparable sales, including both store and direct sales, increased 2% in Fiscal 2020.
Johnston & Murphy Group
The Johnston & Murphy Group segment accounted for 14%10% of our net sales in Fiscal 2020. Comparable sales for Johnston & Murphy retail operations, including both store and direct sales, decreased 2% for Fiscal 2020.2022. 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 1, 2020,January 29, 2022, Johnston & Murphy operated 180167 retail shops and factory stores primarily in the United States averaging approximately 1,9001,925 square feet and selling footwear, apparel and accessories primarily for men in the 35 to 55 year age group, targeting business and professional customers. 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. Women’s footwear and accessories are sold in select Johnston & Murphy locations. We also sell Johnston & Murphy products directly to consumers through an e-commerce website and a direct mail catalog.websites. The websites are johnstonmurphy.com and johnstonmurphy.ca. Footwear accounted for 62%59% of Johnston & Murphy retail sales
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.e-commerce retailers. Johnston & Murphy’s wholesale customers offer the brand’s footwear for dress, dress casual, and casual occasions, with the majority of styles offered in these channels selling from $100 to $195. Additionally, we offer 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 3%7% of our net sales in Fiscal 2020.2022. Licensed Brands sales include footwear marketed under the Levi's® brand, Dockers® brand and G.H. Bass® brand, among others. The Levi's brand license wasand the G.H. Bass brand license were entered into concurrently with the closing ofTogast acquisition. Levi's footwear is marketed to men, women and children through department and specialty stores and off-price retailers across the Togast acquisition.country as well as e-commerce retailers. Suggested retail prices for Levi's footwear generally range from $35 to $100. We have had the exclusive Dockers men’s footwear license in the United States since 1991. We acquired the Bass® brand1991, and our current license agreement with Dockers expires in conjunction with the acquisition of Togast. In addition, we renewed our men's Dockers footwear license for the United States.2024. Dockers footwear is marketed to men aged 30 to 55 through many of the same national retail chains that carry Dockers pants and sportswear and in department and specialty stores across the country. Suggested retail prices for Dockers footwear generally range from $50 to $90. TogastLicensed Brands designs and sources licensed footwear under the Levi's® and G.H. Bass and Bass®brand names, among others, and provides services for the sourcing of FUBU licensed footwear. In the fourth quarter of Fiscal 2022, we signed three-year licensing agreements
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with both STARTER and ETONIC to be their exclusive U.S. and Canadian footwear licensee for athletic footwear. We will design and manufacture the STARTER and ETONIC brands footwear for men, women and children with suggested retail prices ranging from $49 to $150 for Starter and $50 to $110 for Etonic. Licensed Brands e-commerce websites are nashvilleshoewarehouse.com and dockershoes.com.
Manufacturing and Sourcing
We rely on independent third-party manufacturers for production of our footwear products sold at wholesale.wholesale 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, Mauritius, Mexico, Nicaragua, Pakistan, Portugal, Peru, Romania, Taiwan,Spain, Turkey and Vietnam. Our 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. Our 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. We also compete 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 our competitors have resources that are not available to us. Our success depends upon our 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® and H.S. Trask® brandsbrand and own or license the trade names of our retail concepts either directly or through wholly-owned subsidiaries. The Dockers® footwear line, introduced in Fiscal 1993, is sold under a license agreement granting us the exclusive right to sell men’s footwear under the trademark in the United States, Canada and the Caribbean. The Dockers license agreement expires in 2024. Net sales of Dockers products were approximately $47 million in Fiscal 2020 and approximately $56 million in Fiscal 2019. We entered into a new license agreement with Levi Strauss & Co. in January 2020 for the right to sell men's, women's and children's footwear under the Levi's® trademark in the United States and the Caribbean. The initial term of the license agreement with respect to Levi's® trademarks is through November 30, 2024 with one additional four yearfour-year renewal term. We entered into a new license agreement for STARTER athletic footwear in September 2021. The initial term of the license is three years with a three-year renewal option, which would extend the partnership through December 31, 2027. We entered into a new license agreement with ETONIC brand in December 2021. The initial term of the license is three years with two three-year renewal options, which would extend the license through January 31, 2030. We license certain other footwear brands, mostly in foreign markets. License royalty income was not material in Fiscal 2020.2022.
Wholesale Backlog
Most of the orders in our wholesale divisions are for delivery within 150 days. BecauseHistorically, most of our business ishas been at-once, and as a result, the backlog at any one time ishas not necessarily been indicative of future sales. AsHowever, the current global supply chain environment has resulted in an increase in the backlog of February 29, 2020,orders for our wholesale operations, had a backlog of orders, including unconfirmed customer purchase orders, amountingfrom approximately $64.6 million as of February 27, 2021 to approximately $24.7$167.7 million compared to approximately $28.8 million on March 2, 2019. The backlog is somewhat seasonal, reaching a peak in the Spring. We maintain in-stock programs for selected product lines with anticipated high volume sales.as of February 26, 2022. Our backlog may be more vulnerable to cancellation than is typical due to COVID-19.
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Environmental, Social and Governance ("ESG") Initiatives
As a leading retailer and wholesaler of branded footwear, apparel and accessories, we strive to make a positive impact on our industry, our communities and our planet by committing to transparent, socially conscious, and sustainable business practices. We believe that our ESG practices should serve all of our stakeholders, including shareholders, employees, customers and business partners.
Through our ESG Program, we expect to continue to advance our sustainable business practices with the goal of consistently delivering products that exceed consumer expectations. We believe the progress of our ESG efforts is best served by disclosing goals and relevant metrics. During Fiscal 2023 we expect to complete our initial measurements or baselines for our greenhouse gas emissions and begin to establish targets and goals which can then be reported and measured against. In addition, we expect to issue our initial corporate sustainability report in Fiscal 2023.
Environmental
We are committed to reducing our impact on the environment by focusing on sustainability initiatives in our operations and throughout our supply chain and product lifecycle. To this end, in Fiscal 2022, we joined the Leather Working Group ("LWG"). The LWG is a not-for-profit organization responsible for the world's leading environmental certification for the leather manufacturing industry. As a member of the LWG, we apply holistic practices in the supply chain for leather manufacturing for our third-party manufacturers.
Human Capital
Our Employees
We had approximately 22,05018,000 employees at February 1, 2020,as of January 29, 2022 with approximately 150 of whom were15,000 employed in corporate staff departmentsthe United States and Canada, and approximately 3,000 in the U.K. and the balanceROI. The majority of our workforce consists of retail-based, customer-facing employees with approximately 70% part-time and 30% full-time as of January 29, 2022.
We consider our employees to be core to our success. Our values include treating our customers and each other with integrity, trust and respect, and creating an unrivaled home for talent and diversity to grow and succeed.
Workplace Health & Safety
We strive to provide a safe and healthy work environment for all employees. This has been critically important during the COVID-19 pandemic. Throughout Fiscal 2022, we continued to adapt and respond to the impacts of the COVID-19 pandemic across our various locations.
We maintained and updated the protocols put in operations. Retail stores employplace at the beginning of the pandemic, monitoring for compliance and making improvements and adjustments where needed. We took a substantial number of part-timesteps to protect our employees and approximately 16,400our customers including increased safety and cleaning protocols, social distancing policies, mask requirements, contact tracing, and on-site vaccination clinics.
These actions were important to continue to ensure the health and safety of our workforce and in ensuring the continuity of our operations.
Benefits and Compensation
We offer a comprehensive benefits package designed to meet the diverse needs of our employees were part-time at Februaryand their families. This package includes many benefits dedicated to our employees’ physical and mental health and well-being as well as benefits designed to help employees build wealth and prepare for the future.
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We also provide valuable benefits and protections based on the unique needs and interests of each individual employee such as domestic partner benefits, parental leave, adoption benefits, family building benefits, paid time for community service, financial assistance with emergencies, scholarship opportunities, matching gift contributions and a generous product discount.
Our compensation programs are designed to attract, retain and motivate employees. We provide short-term and long-term incentives to encourage and reward superior performance and also drive long-term shareholder value. We engage a nationally recognized outside compensation consulting firm to independently evaluate the effectiveness of our executive compensation programs and to provide benchmarking against our peers within the industry.
Diversity, Equity and Inclusion
We are committed to accelerating our diversity, equity, and inclusion efforts to make a meaningful difference for our employees, our customers, and our communities. Our commitment includes refining our diversity, equity, and inclusion strategy, actively engaging with, and supporting an expanded taskforce, investing in training and education for employees and leaders and supporting those in need. We have committed our diversity efforts to four overarching areas – community, talent, business practice and measurement.
Our work is ongoing as we continue to identify opportunities for improvement.
Employee Engagement
We conduct annual employee engagement surveys as well as other targeted surveys with various segments of our workforce to measure important aspects of the employee experience. The survey measures employee sentiment on a variety of topics including leadership, management, alignment, involvement, learning and development, social connection and work life blend, among others. The survey creates the opportunity to establish two-way communication and give employees a direct voice in influencing change. Our results indicate high participation rates and strong engagement scores. We remain committed to listening to and learning from our employees.
Training and Development
We provide employees with the opportunity to grow their careers and be rewarded for their contributions. We have a strong promote from within culture and target training and development that’s relevant to an employee’s current role as well as future roles to which they aspire.
Social Capital
We are committed to responsible sourcing practices in our supply chain. We depend on third-party vendors to produce the products we sell but strive to work only with those vendors who share our commitment to responsible practices, especially in their relationships with employees and their stewardship of the environment. Our supply chain and ethical practices policies are among the ways we seek to implement this commitment.
In 2021, we published a comprehensive human rights policy with its commitment to respecting human rights and belief in fundamental standards that support our commitment to treat our employees, customers and business partners with integrity, trust and respect. Our human rights policy addresses our internal business ethics and code of conduct policies and principles embedded in our business operations, and is guided by the United Nations Guiding Principles on Business and Human Rights, the UN Universal Declaration of Human Rights, and the Organization for Economic Cooperation and Development (OECD) Guidelines for Multi National Enterprises.
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We also monitor chemicals and substances in our supply chain for compliance with legal and regulatory requirements consistent with our Environmental Policy and expect our contracted factories and suppliers to take a proactive stance in eliminating any hazardous chemicals or substances in the manufacture of our products.
Information Security and Cybersecurity
As part of our retail and wholesale activities, marketing campaigns, customer relationship efforts and use of some third-party partners, we may handle and process certain non-public personal information that customers provide to purchase products, enroll in promotional or marketing programs, register on websites, or otherwise communicate to us in the course of providing support. This may include phone numbers, email addresses, physical addresses, contact preferences, personal information stored on electronic devices, and certain payment related information, including credit and debit card data. We have removed the transmission, processing, and storage of credit card data from our environment through the use of hardware based end-to-end encryption along with tokenization.
We gather and retain information about our employees only as necessary to fulfill our responsibilities as an employer. We may share information about such persons with benefit and/or employee services vendors that assist with certain aspects of our human resources offering.
We maintain controls and safeguards to mitigate the risks to our systems and to protect this information and have made significant investments to improve our information security and privacy posture and keep pace with the everchanging and evolving risks to our systems and our information. For example, we have implemented hardware based end-to-end encryption with tokenization, multifactor authentication protocols, next generation firewalls, comprehensive cloud email security and endpoint protection, detection, and response software, conducted continuous risk assessments, and established data security breach preparedness and response plans. We also promote security awareness with our employees and require all endpoint users to successfully complete our annual security awareness training.
In addition to information security, we must comply with increasingly complex and demanding regulatory standards enacted to protect the privacy of business and personal data in the United States, Europe and other jurisdictions. For example, the European Union adopted the General Data Protection Regulation (the “GDPR”), which went into effect on May 25, 2018; and California enacted the California Consumer Privacy Act (the "CCPA") which went into effect on January 1, 2020.
We have implemented processes and systems to allow for the expedient response and resolution of Data Subject Access Requests ("DSAR") in accordance with existing privacy laws and regulations that are applicable to our business, including GDPR and CCPA.
Compliance with these privacy laws and regulations can be costly and time consuming, and any failure to comply with these regulatory standards could subject us to legal and reputational risks.Failure to secure personal information could result in violation of data privacy laws and regulations, legal proceedings against us by governmental entities or others, issuance of fines by governmental authorities and damage to our reputation and credibility and could have a negative impact on revenues and profits.
Community
Building better communities is part of our everyday values. Our community outreach initiatives support underserved communities including our unique signature community outreach programs Cold Feet, Warm Shoes, the Make a Difference Charity Golf Tournament benefitting United Way, Journeys Attitude That Cares, and Schuh’s Purpose Pillar program. In addition, the Company and our employees engage through community sponsorship and leadership, and are proud of the recent community
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recognition being named for the third consecutive year as a “Best Place to Work for LGBTQ+ Equality” by the Human Rights Campaign Foundation.
Governance
We have corporate governance mechanisms in place, along with internal controls over our financial reporting framework. We also have Enterprise Risk Management and Ethics and Compliance program frameworks, with annual updates provided to committees of our board of directors ("Board of Directors" or "Board") and our Board. To drive our ESG efforts, we have established an ESG/sustainability management and oversight framework under the direction of our Senior Vice President, Corporate Secretary and General Counsel. A subcommittee of the Nominating and Governance Committee of our Board oversees our ESG efforts.
Our commitment to diversity and inclusion is reflected in our Board, which is comprised of 56% of members who are diverse in either gender and/or ethnicity as of January 29, 2022. We are committed to efforts to expand our Board’s diversity.
Seasonality
Our business is seasonal with our investment in inventory and accounts receivableworking capital normally reaching peaks in the spring and fall of each year and a significant portion of our net sales and operating earningsincome generated during the fourth quarter.
Environmental Matters
Our former manufacturing operations and the sites of those operations as well as the sites of our 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 us (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. We are currently involved in certain administrative and judicial environmental proceedings relating to our former facilities. See Note 1416 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 reportsAnnual Reports on Form 10-K, quarterly reportsQuarterly 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 reportsAnnual Reports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, current reportsCurrent 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 boardBoard of directors (the "Board of Directors" or the "Board")Directors and Board committees are also available free of charge through the website. The information provided on our website is not part of this report,Annual Report on Form 10-K and is therefore not incorporated by reference unless such information is otherwise specifically incorporated elsewhere in this report.
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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 experiencingexperienced 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 mighthave impacted, and may in the future impact, our wholesale and retail demand and supply chain. On March 18, 2020,In response to the COVID-19 pandemic, we temporarily closed all of our North American stores on March 23,18, 2020 and we temporarily closed all of our stores in the United KingdomU.K. and Republic of Ireland andthe ROI on March 26, 2020, we closed our e-commerce business in the UK in response to the COVID-19 pandemic.23, 2020. Our wholesale partner stores have also temporarily closed or substantially reduced operating hours. The durationhours in March of 2020. Beginning on May 1, 2020, we began reopening some of our stores based on pertinent state and local orders, and by August 1, 2020, we had reopened most of our stores, although some stores, notably in California, Canada, the U.K. and the ROI, were subject to further closures for varying periods. While all of our stores are now open, any future closures and their impact over the longer term are uncertain and cannot be predicted at this time. TheAny continuing effects of the COVID-19 pandemic depend on future developments outside our control such as the spreademergence of the diseasenew variants and the effectiveness of containment efforts.efforts, as well as the timing and availability of effective COVID-19 vaccines and other medical treatments. 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:
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COVID-19 has also had and continues to have a significant impact on the countries, including China, from which we and other countries.our vendors source products. We and our vendors rely upon the facilities of our third-party manufacturers in China as well as 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 regions of China and 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 our 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
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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 our third-party manufacturers and suppliers, as well as general limitations on movement, are expected to be temporary, the duration of thehave eased or subsided, production and supply chain disruption,disruptions have continued, and the duration of such disruptions and the related financial impact cannot be estimated at this time. Should the production and distribution closuresdisruptions continue for an extended
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:
Adverse economic conditions and any related decrease in consumer demand for discretionary items could have a material adverse effect on our business, results of operations and financial condition. The merchandise we sell generally consists of discretionary items. Reduced consumer confidence and spending may result in reduced demand for discretionary items and may force us to take inventory markdowns, decreasing sales and making expense leverage difficult to achieve. In addition, inflationary cost pressure on the products we sell might limit our ability to pass on cost increases resulting in gross margin impact or reduced demand. Demand can also be influenced by other factors beyond our control.
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.
Failure to protect our reputation could have a material adverse effect on our brand names.
Our success depends in part on the value and strength of the names of our business units. These names are integral to our businesses as well as to the implementation of our strategies for expanding our businesses. Maintaining, promoting, and positioning our brands will depend largely on the success of our marketing and merchandising efforts and our ability to provide high quality merchandise and a consistent, high quality customer experience. Our brands could be adversely affected if we fail to achieve these objectives or if our public image or reputation were to be tarnished by negative publicity or if adverse information concerning us is posted on social media platforms or similar mediums. Failure to comply, or accusation of failure to comply, with ethical, social, health, product, labor, data privacy, and environmental standards could also jeopardize our reputation and
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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 failure to appropriately address emerging environmental, social and governance matters could have a material adverse impact on our reputation and, as a result, our business.
There is an increased focus from investors, customers, employees, business partners and other stakeholders concerning ESG matters. The expectations related to ESG matters are rapidly evolving, and from time to time, we have announced and will announce certain ESG initiatives and goals. Our ESG efforts may not be perceived to be effective or we could be criticized for the scope of such initiatives or goals. In addition, we could fail to timely meet or accurately report our progress on such initiatives and goals. As a result, we could suffer negative publicity and our reputation could be adversely impacted, which in turn could have a negative impact on investor perception and our products' acceptance by consumers. This may also impact our ability to attract and retain talent to compete in the marketplace.
There is also uncertainty in the markets in which we operate regarding potential policies related to issues surrounding global environmental sustainability. Changes in the legal or regulatory environment affecting responsible sourcing, supply chain transparency, or environmental protection, among others, including regulations to limit carbon dioxide and other greenhouse gas emissions, to discourage the use of plastic or to limit or to impose additional costs on commercial water use may result in increased compliance costs for us and our business partners.
Our 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
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.
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
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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.
Our business is seasonal, with a significant portion of our net sales and operating income generated during the fourth quarter, which includes the holiday shopping season. Because of this seasonality, we have limited ability to compensate for shortfalls in fourth quarter sales or earnings by changes in our operations or strategies in other quarters. Adverse events outside of our control, such as supply chain interruptions, increased labor costs and labor availability, decreased consumer traffic (as a result of the COVID-19 pandemic or otherwise) or deteriorating economic conditions could result in lower than expected sales during the holiday shopping season or other periods in which we experience higher net sales, which could materially impact our financial condition and results of operations. Our quarterly results of operations also may fluctuate significantly based on other factors such factors as:
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:
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.
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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, our brick-and-mortar wholesale customers who fail to successfully integrate their physical retail stores and digital retail or otherwise compete effectivelyGrowth in the e-commerce market may experiencecould result in financial difficulties, including store closures, bankruptcies or liquidations.liquidations for our brick-and-mortar stores and those of our wholesale customers who fail to compete effectively in the e-commerce market. We cannot control the success of individual malls, and an increase in store closures by other retailers may lead to mall bankruptcies, mall vacancies and reduced foot traffic. A continuation or worsening of these trends could cause financial difficulties for one or more of our segments, which, in turn, could substantially increase our credit risk and have a material adverse effect on our results of operations, financial condition and 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.
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, including:
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, other off-mall locations 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. In 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:
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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 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 our 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 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. Following any such divestitures, we may retain or incur liabilities or costs relating to our previous ownership of the assets or business that we sell. Any required payments on retained liabilities or indemnification obligations with respect to past or future asset or business divestitures could have a material adverse effect on our business or results of operations. Dispositions may also involve our continued financial involvement in the divested business, such as through transition services agreements and guarantees. Under these arrangements, 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, we record goodwill on our Consolidated Balance Sheets. This asset is not amortized but is subject to an impairment test at least annually, where we have the option first to assess qualitative factors to determine whether
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events and circumstances indicate that it is more likely than not that goodwill is impaired. If after such assessment we conclude that the asset is not impaired, no further action is required. However, if we conclude otherwise, we are required to determine the fair value of the asset using a quantitative impairment test that is based on projected future cash flows from the acquired business discounted at a rate commensurate with the risk we consider to be inherent in our current business model. We perform the impairment test annually at the beginning of our fourth quarter, or more frequently if events or circumstances indicate that the value of the asset might be impaired.
Deterioration in our equity market value, whether related to our operating performance or to disruptions in the equity markets or deterioration in the operating performance of the business unit with which goodwill is associated, which could be caused by events such as, but not limited to, COVID-19, could cause us to recognize the impairment of some or all of the $122.2$38.6 million of goodwill on our Consolidated Balance Sheets at February 1, 2020,January 29, 2022, resulting in the reduction of net assets and a corresponding non-cash charge to earnings in the amount of the impairment.
Technology, Data Security and Privacy Risks
The operation of our business is heavily dependent on our information systems.
We depend on a variety of information technology systems for the efficient functioning of our business (including 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 us by independent software developers.companies. The inability of our employees and developers or our inability to continue to maintain and upgrade these information systems and software programs could disrupt or reduce the efficiency of our operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations or leave us vulnerable to security breaches.
We also rely heavily on our information technology staff. If we cannot meet our staffing needs in 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, we are subject to rules, regulations, contractual obligations and compliance requirements, including payment network rules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers. The regulatory environment related to information security and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs or accelerate these costs with additional legal and financial exposure for noncompliance. For 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
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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. We completed the implementation of Europay, Mastercard and Visa ("EMV") technology and received certification in Fiscal 2018; however future upgrades to our Company's systems could expose us to the fraudulent use of credit cards and increased costs, including possible fines and restrictions on our Company's ability to accept payments by credit or debit cards, if we were not to receive recertification. Because we accept debit and credit cards for payment, we are also subject to industry data protection standards and protocols, such as the Payment Card Industry Data Security Standards (“PCI DSS”), issued by the Payment Card Industry Security Standards Council. Additionally, we have implemented technology in our stores to allow for the acceptance of EMV credit transactions and point-to-point encryption. Complying with PCI DSS standards and implementing related procedures, technology and information security measures require significant resources and ongoing attention. However, even if we comply with PCI DSS standards and offer EMV and point-to-point encryption technology in our stores, we may be vulnerable to, and unable to detect and appropriately respond to, data security breaches and data loss, including cybersecurity attacks or other breach of cardholder data.
In addition, the Payment Card Industry (“PCI”) is controlled by a limited number of vendors who have the ability to impose changes in the 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:
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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. Although we carry cybersecurity insurance, in the event of a cyber-incident, that insurance may not be extensive enough or adequate in scope of coverage or amount to reimburse us for damages we may incur. Further, a significant breach of federal, state, provincial, local or international privacy laws could have a material adverse effect on our reputation.
Data protection requirements are constantly evolving and these requirements could adversely affect our business and operating results.
We have access to collect or maintain information about our customers, and the 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 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 on our business and results of operations. 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.
Operational, Supply Chain and Third PartyThird-Party Risks
Increased operating costs, including thosewage increases resulting from potential increases in the minimum wage or competitive pressures, could have an adverse effect on our results.
Increased operating costs, including thosewage increases resulting from potential increases in the minimum wage or wage increases reflecting competition in relevant labor markets, store occupancy costs, distribution center costs and other expense items, including healthcare costs, may reduce our operating margin, 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 our 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 materially adversely effectaffect our business.
Each of our divisions uses a single distribution center to handle all or a significant amount of its merchandise. Most of our operations’ inventory is shipped directly from suppliers to our operations' distribution centers, where the inventory is then processed, sorted and shipped to our stores, to our wholesale customers or to our wholesalee-commerce customers. We depend on the
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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 isprocesses are efficient and well positioned to support our current business and our expansion plans,potential expansions, we cannot offer assurance that we have anticipated all of the changing demands that our expanding operations, particularly our e-commerce operations, will impose on our receiving and distribution system, or that events beyond our control, such as disruptions in operations due to fire or other catastrophic events, labor disagreements or shortages or shipping problems (whether in our own or in our third party vendors’ or carriers’ businesses), will not result in delays in the delivery of merchandise to our stores or to our wholesale customers or e-commerce/retail customers. In addition, to the extent we need to add capacity to distribution centers by either leasing or building new distribution centers or adding capacity at existing centers. Failure to execute on these initiatives may cause disruption in our business. We alsocenters or make changes in our distribution processes from time to time in an effort to improve efficiency and maximize capacity. Wecapacity, we cannot assure that these changes will not result in unanticipated delays or interruptions in distribution. We depend upon third partiesthird-parties for shipment of a significant amount of merchandise. Interruptions in the services provided by third partiesthird-parties may occasionally result from damage or destruction to our distribution centers; weather-related events; natural disasters; pandemics; trade policy changes or restrictions; tariffs or import-related taxes; third-party strikes, lock-outs, work stoppages or slowdowns;labor disruptions; shipping capacity constraints; third-party contract disputes; military conflicts; acts of terrorism; or other factors beyond our control. An interruption in service by third partiesthird-parties for any reason could cause temporary disruptions in our business, a loss of sales and profits, and other material adverse effects.
Our freight cost iscosts are 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 could adversely affect our business.
Merchandise originally manufactured and imported from overseas makes up a large proportion of our total inventory. A disruption in the shipping of our imported merchandise or an increase in the cost of those products may significantly decrease our sales and profits. We may be unable to meet customer demands or pass on price increases to our customers. In addition, if imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet demand. Products from alternative sources may also be of lesser quality or more expensive than those we currently import. Risks associated with our reliance on imported products include:
Some of the inventory we sell is imported from China, which has historically been subject to efforts to increase duty rates or to impose restrictions on imports of certain products.
21
If we or our suppliers or licensees are unable to source raw materials or finished goods from the countries where we or they wish to purchase them, either because of a regulatory change or for any other reason, or if the cost of doing so should increase, it could have a material adverse effect on our sales and earnings.
A small portion of the products we buy abroad is priced in foreign currencies and, therefore, we are affected by fluctuating currency exchange rates. In the past, we have entered into foreign currency exchange contracts with major financial institutions to hedge these fluctuations. We may not be able to effectively protect ourselves in the future against currency rate fluctuations. Even dollar-denominated foreign purchases may be affected by currency fluctuations to reflect appreciation in the local currency against the dollar in the price of the products that they provide. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information about our foreign currency exchange rate exposure and any hedging activities.
We are dependent on third-party vendors and licensors for the merchandise we sell.
We do not manufacture the merchandise we sell, and our Licensed Brands business is dependent on third-party licenses. This means thatAccordingly, 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, labor shortages, 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, regulations and regulations.policies. Delayed compliance or failure to comply with such laws, regulations and regulationspolicies by our vendors could adversely affect our ability to obtain products generally or at favorable costs, affecting our overall ability to maintain and manage inventory levels.
The manufacture of our products and our distributing operations are subject to the risks of doing business abroad, including in China, which could affect our ability to obtain products from foreign suppliers or control the costs of our products.
Although we have taken action to diversify our sourcing base outside of China, because 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 another 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
22
Legal, Regulatory, Global and Other External Risks
The impact of social media may subject usclimate change, extreme weather, infectious disease outbreaks such as COVID-19, and other unexpected events could result in an interruption to fines orour business, as well as to the operations of our third-party partners, and have a material adverse impact on our business.
The operations of our retail stores, corporate offices, distribution centers, digital operations and supply chain, as well as the operations of our third-party partners, including vendors and manufacturers, are vulnerable to disruption from climate change, natural disasters, infectious disease outbreaks and other penalties.
These events could reduce the availability or quality of the materials used to manufacture our merchandise, which allow individuals accesscould cause delays in responding to a broad audience of consumers and other interested persons. As laws and regulations rapidly evolve to govern the use of these platforms and devices, the failure by us, our associates or third parties acting at our direction to abide by applicable laws and regulationsconsumer demand resulting in the usepotential loss of these platformscustomers and mediumsrevenues or we may incur increased costs to meet demand and may not be able to pass all or a portion of higher costs on to our customers, which could adversely impactaffect our reputationgross margin and results of our operations.
In addition, historically, our operations have been seasonal, and extreme weather conditions, including natural disasters, unseasonable weather or subject uschanges in weather patterns, may diminish demand for our seasonal merchandise and could also influence consumer preferences and fashion trends, consumer traffic and shopping habits. In addition, we may incur costs that exceed our applicable insurance coverage for any necessary repairs to finesproperty damage or other penalties.
Establishing and protecting our intellectual property is critical to our business.
Our ability to remain competitive is dependent upon our continued ability to secure and protect trademarks, patents and other intellectual property rights in the U.S. and internationally for all of our 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 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, inflation, 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, wars or other 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.
23
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. formally withdrew from the European Union ("E.U.") on January 31, 2020; however, uncertainty remains as to what kindimpact 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 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. We may incur additional costs as it addresses any such changes.
As we expand our international operations, we also increase our exposure to exchange rate fluctuations. Sales from stores outside the U.S. are denominated in the currency of the country in which these operations or stores are located and changes in foreign exchange rates affect the translation of the sales and earnings of these businesses into U.S. dollars for financial reporting purposes. Additionally, inventory purchase agreements may also be denominated in the currency of the country where the vendor resides.
If the U.S. dollar strengthens relative to foreign currencies, our revenues and profits are reduced when converted into U.S. dollars and our margins may be negatively impacted by the increase in product costs. Although we typically have sought to mitigate the negative impacts of foreign currency exchange rate fluctuations through price increases and further actions to reduce costs, we may not be able to fully offset the impact, if at all. Our success depends, in part, on our 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 our 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,U.S., including from China. The United States has imposedExisting and potential future tariffs on certain products imported into the U.S. from China. These tariffs and any additional 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. If we are unable to pass along increased costs to our customers, our gross margins could be adversely affected. Alternatively, tariffs may cause us to shift production to other countries, resulting in significant costs and disruption to our business. 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. Tariffs and any additional developments in tax policy or trade relations could have a material adverse effect on our business, results of operations and liquidity.
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, Mauritius,Mexico, Nicaragua, Pakistan, Portugal, Peru, Romania, TaiwanSpain, Turkey and Vietnam, and ourVietnam. Our retail operations, excluding Johnston & Murphy, sell primarily branded products from third parties who source primarily overseas. The investments we are making to develop our sourcing capabilities may not be successful and may, in turn, have an adverse impact on our financial position and results of operations.
There are quotas and trade restrictions on certain categories of goods and apparel from China and countries that are not subject to the World Trade Organization Agreement, which 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 to United StatesU.S. trade policies, treaties and tariffs, including trade policies and tariffs regarding China, including the potential disallowance of tax deductions for imported merchandise or the imposition of additional unilateral tariffs on imported products.. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly
24
reduce global trade and, in particular, trade between these nations and the United States.trade. Any of these factors could depress economic activity, restrict our sourcing from suppliers and have a material adverse effect on our business, financial condition and results of operations and affect our strategy in Asia and elsewhere around the world.operations. We cannot predict whether any of the countries in which our merchandise is currently manufactured or may be manufactured in the future will be subject to additional trade restrictions imposed by the U.S. and foreign governments, nor can we predict the likelihood, type or effect of any such restrictions. Trade restrictions, including increased tariffs or quotas, embargoes, safeguards and customs restrictions against items we source from foreign manufacturers could increase the cost, delay shipping or reduce the supply of products available to us or may require us to modify our current business practices, any of which could hurt our profitability.
We 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 1416 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,U.K., and the Republic of Ireland,ROI, we are subject to federal, state, provincial, territorial, local and foreign regulations, which impose costs and risks on our business. Numerous states and municipalities as well as the federal government of the U.S. are proposing or have implemented changes to minimum wage, overtime, employee leave, employee benefit requirements and other requirements that will increase costs. The Company and each of our subsidiaries that employ an average of 50 full-time employees in a calendar year are required to offer a minimum level of health coverage for 95% of our full-time employees or be subject to a penalty. Changes in regulations could make compliance more difficult and costly, and failure to comply with these requirements, including even a seemingly minor infraction, could result in liability for damages or penalties.
Actions of activist shareholders have caused, and could continue to cause, us to incur substantial costs, divert management’s attention and resources, and have an adverse effect on our business.
Our shareholders may from time to time engage in proxy solicitations, advance shareholders proposals or otherwise attempt to affect changes or acquire control over the Company. If activistFor example, on May 24, 2021, a shareholder filed a revised preliminary proxy statement containing proposed opposition to our preliminarily filed proxy statement on May 21, 2021, including a proposal to elect four new directors to our Board of Directors. Activist shareholder activities ensue,could adversely affect our business could be adversely affected because responding to proxy contests and reacting to other actions by activist shareholders can be costly and time-consuming, disrupt our operations and divert the attention of management and our employees. For example, we have retained, and may be required toin the future, retain the services of various professionals to advise us on activist shareholder matters, including legal, financial and communication advisors, the costs of which may negatively impact our future financial results. In addition, perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist shareholders initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, customers, and employees, and cause our stock price to experience periods of volatility or stagnation.
25
Financial Risks
Our indebtedness is subject to floating interest rates.
Borrowings under our credit facility bear interest at varying rates and expose us to interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness referred to above would increase even if the principal amount borrowed remained the same, and our net income and cash flows will correspondingly decrease. Additionally, in connection with the ICE Benchmark Administration’s announced phase-out of LIBOR, we amended our credit facility to, among other things, replace LIBOR with the Secured Overnight Financing Rate (“SOFR”), the Sterling Overnight Index Average (“SONIA”) and the Euro Interbank Offered Rate (“EURIBOR”). It is unclear, however, whether SOFR, SONIA or EURIBOR will retain market acceptance as a LIBOR replacement tool, and we may need to renegotiate our credit facility if other LIBOR alternatives are established and become more widely adopted.
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 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 our effective tax rate in future periods.
26
ITEM 1B, UNRESOLVED STAFF COMMENTS
None.
ITEM 2, PROPERTIES
At February 1, 2020,January 29, 2022, we operated 1,4801,425 retail footwear and accessory stores throughout the United States, Puerto Rico, Canada, the United Kingdom and the Republic of Ireland.ROI. New shopping center store leases in the United States, Puerto Rico and Canada typically are for a termhave initial terms of approximately 10 years. New store leases in the United KingdomU.K. and the Republic of IrelandROI typically have initial terms of between 10 and 15 years. We have 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 rental payments based on a defined consumer price index or percentage.
The general location, use and approximate size of our principal properties are set forth below:
Location | Owned/ | Segment | Use | Approximate |
|
| |
Lebanon, TN | Owned | Journeys Group | Distribution warehouse and administrative offices |
| 563,000 |
|
|
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 |
|
|
Northwest Business Park, Ballycoolin, Dublin | Leased | Schuh Group | Distribution warehouse and administrative offices |
| 49,460 |
|
|
Nashville, TN | Leased | Various | Corporate headquarters |
| 282,657 |
| (2) |
| ||||||||||
The 63,000 square foot distribution warehouse, owned by us in Nashville, Tennessee, was sold in January 2022.
ITEM 3, LEGAL PROCEEDINGS
From time 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.
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 our financial condition or results of operations.
and Massachusetts matters for payment of attorneys' fees and administrative costs totaling $0.4 million plus total payments to members of the
27
ITEM 4, MINE SAFETY DISCLOSURES
Not applicable.
ITEM 4A, INFORMATION ABOUT OUR EXECUTIVE OFFICERS
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, 53,55, Board Chair, President and Chief Executive Officer. Ms. Vaughn joined the Company in September 2003 as vice president of strategy and business development. She was named senior vice president, strategy and business development in October 2006, senior vice president of strategy and shared services in April 2009 and senior vice president - finance and chief financial officer in February 2015. In May 2019, Ms. Vaughn was named senior vice president and chief operating officer and continued to serve as senior vice president - finance and chief financial officer until Mel Tuckerher replacement was appointed as her replacement in June 2019. In October 2019, Ms. Vaughn was appointed to become president and a member of the Board of Directors. Ms. Vaughn was appointed chief executive officer of the Company on February 2, 2020. In July 2020, Ms. Vaughn was appointed Board chair of the Company. Prior to joining the Company, Ms. Vaughn was executive vice president of business development and marketing, and acting chief financial officer from 2000 to 2001, for Link2Gov Corporation in Nashville. From 1993 to 1999, she was a consultant at McKinsey and Company in Atlanta.
Melvin G. Tucker, Parag D. Desai,55 47, Chief, Strategy and Digital Officer. Mr. Desai joined the Company in 2014 as senior vice president of strategy and shared services. He was named chief strategy and digital officer in May 2021. Prior to joining the Company, Mr. Desai spent 14 years with McKinsey and Company, including seven years as a partner. Previously, Mr. Desai also held business development and technology positions at Outpace Systems and Booz Allen & Hamilton.
Thomas Allen George, 66, Senior Vice President -– Finance and Chief Financial Officer. Mr. TuckerGeorge joined the Company in June 2019December 2020 as interim senior vice president of finance and chief financial officer. He was named as permanent senior vice-president - finance and chief financial officer in October 2021. Mr. Tucker most recently servedGeorge has 40 years of experience, including 30 years as chief financial officer of Century 21 Department Stores, a position he held since 2014.public and private companies. Prior to serving in that role, Mr. Tucker served asjoining Genesco, he was chief financial officer of Bass Pro Shops from 2013Deckers Outdoor Corporation d/b/a Deckers Brands, a global footwear company, for nine years and prior to 2014, as senior vice presidentthat was chief financial officer of finance of PetSmart from 2008 to 2013, and as vice president of financial planning and analysis of Circuit City from 2005 to 2008.
Scott E. Becker, 52,54, 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.
Parag D. Desai,Daniel E. Ewoldsen 45,, 52, Senior Vice President. Mr. Ewoldsen is an 18-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 StrategyJohnston & Murphy Group in February 2018 and Shared Services. Mr. Desai joined the Company in 2014 asnamed senior vice president of strategy and shared services.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 Company,El Portal division.
28
Mario Gallione, 61, Senior Vice President. Mr. Desai spent 14 years with McKinsey and Company, including seven yearsGallione is a 44-year veteran of Genesco. He began his career as a partner. Previously,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. Desai also held business developmentGallione was named president of Journeys and technology positions at Outpace Systems and Booz Allen & Hamilton.in July 2019, he was named senior vice president of Genesco.
Brently G. Baxter, 54,56, Vice President and Chief Accounting Officer. Mr. Baxter joined the Company in September 2019 as vice president and chief accounting officer. Mr. Baxter most recently served as group vice president, controller and principal accounting officer for Sally Beauty Holdings, Inc., a position he held since 2017. From 2014 and 2016, he served as senior vice president, controller and chief accounting officer for Stein Mart, Inc. From 2006 to 2014, he served as vice president, accounting, treasury and corporate controller for PetSmart, Inc. From 2003 to 2006, Mr. Baxter served as vice president and controller for Cracker Barrel Old Country Store, Inc.
Matthew N. Johnson, 55,57, Vice President and Treasurer. Mr. Johnson joined the Company in 1993 as manager, corporate finance and was elected assistant treasurer in December 1993. He was elected treasurer in June 1996. He was named vice president finance in October 2006 and renamed treasurer in April 2011 after a period of service as chief financial officer of one of the Company's divisions. Prior to joining the Company, Mr. Johnson was a vice president in the corporate and institutional banking division of The First National Bank of Chicago.
29
PART II
ITEM 5, MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our stock is traded on the New York Stock Exchange under the symbol "GCO".
There were approximately 1,4501,425 common shareholders of record on March 13, 2020.
We have not paid cash dividends to our holders of our Common Stock since 1973.1973 and we do not currently anticipate paying cash dividends in the foreseeable future. Our ability to pay cash dividends to our holders of common stock is subject to various restrictions. See Note 911 to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data" for information regarding restrictions on dividends and redemption of capital stock.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
ISSUER PURCHASES OF EQUITY SECURITIES |
| |||||||||||
Period | (a) Total |
| (b) Average |
| (c) Total |
| (d) Maximum |
| ||||
November 2021 |
|
|
|
|
|
|
|
| ||||
10-31-21 to 11-27-21 |
| — |
| $ | — |
|
| — |
| $ | 59,046 |
|
|
|
|
|
|
|
|
|
| ||||
December 2021 |
|
|
|
|
|
|
|
| ||||
11-28-21 to 12-25-21(1) |
| 234,345 |
| $ | 61.77 |
|
| 234,345 |
| $ | 44,571 |
|
|
|
|
|
|
|
|
|
| ||||
January 2022 |
|
|
|
|
|
|
|
| ||||
12-26-21 to 1-29-22(1) |
| 604,871 |
| $ | 62.40 |
|
| 604,871 |
| $ | 6,826 |
|
|
|
|
|
|
|
|
|
| ||||
Total |
| 839,216 |
| $ | 62.22 |
|
| 839,216 |
| $ | 6,826 |
|
|
|
|
|
|
|
|
|
| ||||
(1) Share repurchases were made pursuant to a $100.0 million share repurchase program approved by the Board of Directors and announced in September 2019. We expect to implement the balance of the repurchase program through purchases made from time to time either in the open market or through private transactions, in accordance with the regulations of the SEC and other applicable legal requirements. In February 2022, we announced a $100.0 million increase to the existing $100.0 million share repurchase authorization. |
| |||||||||||
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
We completed the sale of Lids Sports Group on February 2, 2019. The operating results in the table below have been adjusted to reflect Lids Sports Group in discontinued operations for all periods prior to Fiscal 2020. See Item 8, Note 16 to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information about discontinued operations.30
| In thousands except per common share data, Financial Statistics and Other Data (End of Year) | Fiscal Year End | ||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
| Results of Operations Data | |||||||||||||||||||
| Net sales | $ | 2,197,066 | $ | 2,188,553 | $ | 2,127,547 | $ | 2,020,831 | $ | 2,046,730 | |||||||||
| Depreciation and amortization | 49,574 | 52,161 | 51,533 | 49,943 | 48,815 | ||||||||||||||
| Operating income | 83,318 | 81,817 | 74,372 | 107,793 | 142,872 | ||||||||||||||
| Earnings from continuing operations before income taxes | 82,435 | 78,259 | 68,989 | 112,758 | 134,705 | ||||||||||||||
Earnings from continuing operations(1) | 61,757 | 51,224 | 36,708 | 72,882 | 85,135 | ||||||||||||||
| (Loss) earnings from discontinued operations, net | (373 | ) | (103,154 | ) | (148,547 | ) | 24,549 | 9,434 | |||||||||||
| Net earnings (loss) | $ | 61,384 | $ | (51,930 | ) | $ | (111,839 | ) | $ | 97,431 | $ | 94,569 | |||||||
| Per Common Share Data | |||||||||||||||||||
| Earnings from continuing operations | |||||||||||||||||||
| Basic | $ | 3.97 | $ | 2.65 | $ | 1.91 | $ | 3.63 | $ | 3.72 | |||||||||
| Diluted | 3.94 | 2.63 | 1.90 | 3.61 | 3.70 | ||||||||||||||
| Discontinued operations | |||||||||||||||||||
| Basic | (0.02 | ) | (5.33 | ) | (7.73 | ) | 1.22 | 0.41 | |||||||||||
| Diluted | (0.02 | ) | (5.29 | ) | (7.70 | ) | 1.22 | 0.41 | |||||||||||
| Net earnings (loss) | |||||||||||||||||||
| Basic | 3.95 | (2.68 | ) | (5.82 | ) | 4.85 | 4.13 | ||||||||||||
| Diluted | 3.92 | (2.66 | ) | (5.80 | ) | 4.83 | 4.11 | ||||||||||||
| Balance Sheet and Cash Flow Data | |||||||||||||||||||
| Total assets | $ | 1,680,478 | $ | 1,181,081 | $ | 1,315,353 | $ | 1,440,999 | $ | 1,540,057 | |||||||||
Long-term debt(2) | 14,393 | 65,743 | 88,385 | 82,905 | 111,765 | ||||||||||||||
| Non-redeemable preferred stock | 1,009 | 1,060 | 1,052 | 1,060 | 1,077 | ||||||||||||||
| Common equity | 618,334 | 736,491 | 828,122 | 919,993 | 954,079 | ||||||||||||||
| Capital expenditures | 29,767 | 41,780 | 98,609 | 74,925 | 76,982 | ||||||||||||||
| Financial Statistics | |||||||||||||||||||
| Operating income as a percent of net sales | 3.8 | % | 3.7 | % | 3.5 | % | 5.3 | % | 7.0 | % | |||||||||
| Book value per share (common equity divided by common shares outstanding) | $ | 42.07 | $ | 38.55 | $ | 41.61 | $ | 46.31 | $ | 43.70 | |||||||||
Working capital(3) (in thousands) | $ | 146,248 | $ | 454,817 | $ | 438,020 | $ | 407,587 | $ | 447,504 | |||||||||
Current ratio(3) | 1.4 | 2.6 | 2.7 | 2.3 | 2.4 | ||||||||||||||
| Percent long-term debt to total capitalization | 2.3 | % | 8.2 | % | 9.6 | % | 8.2 | % | 10.5 | % | |||||||||
| Other Data (End of Year) | |||||||||||||||||||
Number of retail outlets(4) | 1,480 | 1,512 | 1,535 | 1,554 | 1,520 | ||||||||||||||
| Number of employees | 22,050 | 21,000 | 20,900 | 21,200 | 19,000 | ||||||||||||||
(1)Reflected in earnings from continuing operations was a charge of $0.6 million for loss on early retirement of debt for Fiscal 2019 and a gain of $12.3 million from the sale of SureGrip Footwear for Fiscal 2017.
ITEM 7, MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of resultsFinancial Condition and Results of operationsOperations should be read in conjunction with our Consolidated Financial Statements and related Notes and other financial condition pertaining to Fiscal 2019information appearing elsewhere in this Annual Report on Form 10-K, and Fiscal 2018, seewith 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 2, 2019, Item 7. Management's DiscussionJanuary 30, 2021, filed with the SEC on March 31, 2021, which provides a discussion of our financial condition and Analysisresults of Results of Operations and Financial Condition.
Summary of Results of Operations
Our net sales increased 0.4%35.6% during Fiscal 20202022 compared to Fiscal 2019.2021. The sales increase reflected a 3% increasewas driven by increased store sales resulting from the reopening of stores that were closed in Journeys GroupFiscal 2021 due to the COVID-19 pandemic and increased wholesale sales, partially offset by a 2% decrease in digital comparable sales. Stores were open about 96% of possible days in Fiscal 2022 compared to 76% of possible days in Fiscal 2021. We have not disclosed comparable sales for Fiscal 2022 or Fiscal 2021 as we believe that overall sales are a more meaningful metric during these periods due to the impact of the COVID-19 pandemic. See below, under the heading "Comparable Sales", for our definition of comparable sales.
Journeys Group sales increased 28%, Schuh Group sales a 4% decrease inincreased 38%, Johnston & Murphy Group sales increased 65% and a 15% decrease in Licensed Brands sales. Excluding the impact of lower exchange rates, net sales increased 1%70% during Fiscal 2020.2022 compared to Fiscal 2021. Gross margin increased as a percentage of net sales from 47.8%45.0% in Fiscal 20192021 to 48.4%48.8% in Fiscal 2020,2022, reflecting gross margin increases as a percentage of net sales in all of our operating business segments. units. The gross margin increase is primarily due to more full-price selling at Journeys Group, Schuh Group and Johnston & Murphy retail, decreased inventory reserves at Johnston & Murphy Group and lower shipping and warehouse expense in all of our retail divisions. The lower shipping and warehouse expense is a result of reduced e-commerce penetration in Fiscal 2022 as a larger percentage of retail stores were open in Fiscal 2022 compared to Fiscal 2021.
Selling and administrative expenses were flatdecreased as a percentage of net sales at 44.0%from 45.6% in Fiscal 2020 and2021 to 42.7% in Fiscal 2019,2022, reflecting decreased expenses as a percentage of net sales in Journeys Group and Schuh Group, offset by increased expensesall of our operating business units. The decrease as a percentage of net sales in Johnston & Murphy Groupexpenses in Fiscal 2022 was primarily due to greater leverage of fixed expenses as a result of the significant increase in revenue and Licensed Brands, while Corporate expenses were flat. to reduced occupancy expense as a percentage of sales, partially offset by increased performance-based compensation. In Fiscal 2021, we did not record any performance-based compensation expense. The reduction in occupancy expense as a percentage of sales is driven in part by benefits from our ongoing lease initiative and was partially offset by increased percentage rent as a result of increased sales.
Operating incomemargin increased as a percentage of net sales from 3.7%(6.0)% in Fiscal 20192021 to 3.8%6.4% in Fiscal 2020,2022, reflecting increased earningsoperating income in Journeys Group and Schuh Group, partially offset by decreased earnings in Johnston & Murphy Group, Licensed Brands and Corporate in Fiscal 2020.
Significant Developments
COVID-19
In March 2020, the World Health Organization categorized the outbreak of COVID-19 continues to growas a pandemic. As a result, and in the U.S., U.K. and globally, and related government and private sector responsive actions may adversely affect our business operations. It is impossible to predict the effect and ultimate impact of the COVID-19 pandemic as the situation is rapidly evolving. The spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus, especially when congregating in heavily populated areas, such as malls and shopping centers. 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 and adjusted our operational needs, including:
•On March 18, 2020, we temporarily closed our North American storesretail stores.
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•On March 19, 2020, we borrowed $150.0 million under our Credit Facility as a precautionary measure to ensure funds were available to meet our obligations for a substantial period of time in response to the COVID-19 pandemic that caused public health officials to recommend precautions that would mitigate the spread of the virus, including “stay-at-home” orders and similar mandates and warning the public against congregating in heavily populated areas such as malls and shopping centers. We paid down the $150.0 million on September 10, 2020.
•On March 18,19, 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 addition, onMarch 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 described below 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 KingdomU.K. and Ireland were closed and onthe ROI.
•On March 26, 2020, we temporarily closed our UKU.K. e-commerce business. Effective April 3, 2020, our U.K.-based Schuh business was temporarily closed. Ourannounced that it had reopened its e-commerce operations acrossin 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 expenses, 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 American brands remain openAmerica and ready to serve our customers.store and distribution center employees in the U.K. We will continue to evaluate the timing of reopeningalso furloughed employees and reduced headcount in our stores and UK e-commerce operations until such time as the stores can be opened safely and in compliance with applicable laws and regulations, as developments continue to occur in this rapidly changing environment. There is significant uncertainty around the breadth and duration of these store closures and other business disruptions related to COVID-19, as well as its impact on the U.S. and U.K. economies, consumer willingness to visit malls and shoppingcorporate offices, call centers and employee willingness to staffdistribution centers. In the aggregate, these actions resulted in a temporary reduction of our stores once they re-open. Whileworkforce by 90%.
•During a portion of the first and second quarters of Fiscal 2021, we anticipate ourextended payment terms with suppliers, managed inventory by reducing future results to be adversely impacted, the extent to which COVID-19 impacts our future results will depend on future developments, which are highly uncertainreceipts and cannot be predicted, includingreduced planned capital expenditures by over 50%. For new information which may emerge concerning the severityreceipts as of COVID-19 and the actions taken to contain it or treat its impact.
footwear for men, women and children in U.S. concurrently with the Togast acquisition. The acquisition expands our portfolio to include footwear licenses for Bass®, ADIO and FUBU, among others. Togast operates in our Licensed Brands segment.
•On June 25, 2020, our Board of Directors considered the Company’s financial results to FanzzLids Holdings,date and that more than 90% of the Company’s stores were expected to be reopened by June 30, 2020, and decided to restore going forward a holding company controlledportion of the compensation of the executive team and operated by affiliates of Ames Watson Capital, LLC. The sale was completedselect employees whose compensation had been reduced on February 2, 2019 for $93.8 million cash, which consisted of a sales price of $100.0 million and working capital adjustments of $6.2 million. Because the effective date of closing was a Saturday and we did not receiveMarch 27, 2020. In addition, the cash proceeds until February 4, 2019,compensation of our Board of Directors, which had also been reduced on March 27, 2020, was partially restored.
•In October 2020, our Board of Directors restored going forward the purchase price is reflected in accounts receivable at February 2, 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 valueremaining portion of the Lids Sports Group assets sold and other miscellaneous charges, including divestiture transaction costs, offset by a tax benefit
•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 was not includedLloyds made available a revolving credit facility ("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 sale, was reclassified to corporate and other. Bank of England Base Rate. As of January 29, 2022, we have no borrowings under the Facility Letter.
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•During the fourth quarter of Fiscal 2020, we completed2021, another lockdown in the saleU.K. and the ROI disrupted the Schuh Group business with stores closed for approximately 80% of possible days in the first quarter of Fiscal 2022. All Schuh Group stores had re-opened as of the Lids Sports Group headquarters buildingend of the second quarter of Fiscal 2022.
•During the fourth quarter of Fiscal 2021, a second lockdown in several provinces in Canada disrupted business in some of the Journeys, Little Burgundy and Johnston & Murphy stores. All impacted stores in Canada had re-opened as of the end of the second quarter of Fiscal 2022.
•In December 2020, the Company returned the compensation to select employees other than executive team whose compensation had been reduced on March 27, 2020.
We are operating substantially all retail locations. All store locations are operating under enhanced measures to ensure the health and safety of employees and customers, including providing hand sanitizer in multiple locations throughout each store for customer and employee use, enhanced cleaning and sanitation protocols, reconfigured sales floors to promote physical distancing and modified employee and customer interactions to limit contact. In most of our Journeys, Schuh and Johnston & Murphy stores, it is no longer required for employees to wear masks unless mandated by local government where the store is located.
As a result of the economic and business impact of the COVID-19 pandemic, we revised certain accounting estimates and judgments. Given the ongoing and evolving economic and business impact of the COVID-19 pandemic, we may be required to further revise certain accounting estimates and judgments such as, but not limited to, those related to the valuation of inventory, goodwill, long-lived assets and deferred tax assets, which could have a material adverse effect on our financial position and results of operations.
During Fiscal 2021 and the first half of Fiscal 2022, we 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 worked with landlords in various markets to seek commercially reasonable lease concessions given the impact of COVID-19. In cases where the agreements did 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 $17.7the modified lease were substantially the same or less than the total cash flows of the existing lease, we did not reevaluate the contract terms. For these lease agreements, we have recognized a reduction in variable rent expense in the period that the concession was granted. During Fiscal 2022 and Fiscal 2021, we have recognized approximately $17 million and $34 million, respectively, in rent savings which included a gainare related to abatements and temporary rent relief.
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 saleCARES Act, we qualify for certain employer payroll tax credits as well as the deferral of $0.6 million reported in asset impairmentspayroll and other nettax payments in the future, which were treated as government subsidies to offset related operating expenses. During Fiscal 2022 and Fiscal 2021, qualified payroll tax credits under the CARES Act and other foreign subsidy programs reduced our selling and administrative expenses by approximately $7.8 million and $13.8 million, respectively, on our Consolidated Statements of Operations.
Savings from a government program in the U.K. have provided property tax relief of approximately $9.7 million and $13.3 million, respectively, for Fiscal 2022 and Fiscal 2021. Other government relief programs in the U.K., the ROI and Canada provided aggregate savings of approximately $5.2 million in Fiscal 2022.
During the second half of Fiscal 2022, supply chain challenges caused increased freight and logistics costs related to inventory purchases from suppliers. We have estimated that these costs increased our cost of sales by approximately $12.7 million on our Consolidated Statements of Operations for the year ended February 1, 2020. Unless otherwise noted, the discussion herein relates to continuing operations. See additional information regarding the sale of Lids Sports Group in Item 8, Note 16, "Discontinued Operations", to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
33
Asset Impairment and Other Charges
We recorded a pretax chargegain to earnings of $13.4$8.1 million in Fiscal 2020,2022, including $11.5an $18.1 million pension settlement expensegain on the sale of a distribution warehouse and $3.1a $0.6 million insurance gain, partially offset by $8.6 million for professional fees related to the actions of a shareholder activist and $2.0 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.
Key Performance Indicators
In assessing the performance of our business, we consider a variety of performance and financial measures. The key performance indicators we use to evaluate the financial condition and operating performance of our business are comparable sales, net sales, gross margin, operating income (loss) and operating margin. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the 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 this report,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" areas sales from stores open longer than one year, beginning with the first day ita 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 itan 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.
Results of Operations—Fiscal 20202022 Compared to Fiscal 2019
Our net sales for Fiscal 20202022 increased 0.4%35.6% to $2.20$2.4 billion from $2.19$1.8 billion in Fiscal 2019.2021. The increase in net sales was a resultdriven by increased store sales resulting from the reopening of stores that were closed at times in Fiscal 2021 due to the COVID-19 pandemic and increased wholesale sales, in Journeys Group, partially offset by decreased salesa 2% decrease in Schuh Group, Johnston & Murphy Group and Licensed Brands. Comparable sales increased 3%, with stores up 1% and direct up 18%. digital comparable sales. Stores were open about 96% of possible days in Fiscal 2022 compared to 76% of possible days in Fiscal 2021.
Gross margin increased 1.5%46.8% to $1.063$1.2 billion in Fiscal 20202022 from $1.047 billion$804.5 million in Fiscal 2019,2021, and increased as a percentage of net sales from 47.8%45.0% in Fiscal 20192021 to 48.4%48.8% in Fiscal 2020, primarily2022, reflecting increased gross margin increases as a percentage of net sales in all of our operating business segments. units. The gross margin increase is primarily due to more full-price selling at Journeys Group, Schuh Group and Johnston & Murphy retail, decreased inventory reserves at Johnston & Murphy Group and lower shipping and warehouse expense in all of our retail divisions. The lower shipping and warehouse expense is a result of reduced e-commerce penetration in Fiscal 2022 as a larger percentage of retail stores were open in Fiscal 2022 compared to Fiscal 2021.
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Selling and administrative expenses in Fiscal 2020 increased 0.5% from Fiscal 2019, but were flatdecreased as a percentage of net sales at 44.0%, primarilyfrom 45.6% in Fiscal 2021 to 42.7% in Fiscal 2022, reflecting decreased expenses as a percentage of net sales in Journeys Groupall of our operating business units. The decrease as a percentage of net sales in expenses in Fiscal 2022 was primarily due to greater leverage of fixed expenses as a result of the significant increase in revenue and Schuh Group,to reduced occupancy expense as a percentage of sales, partially offset by increased expensesperformance-based compensation. The reduction in Johnston & Murphy Groupoccupancy expense as a percentage of sales is driven in part by benefits from our ongoing lease initiative and Licensed Brands, while Corporate was flat.partially offset by increased percentage rent as a result of increased sales. Our annual performance-based economic value added (EVA) compensation plan, which is for essentially all corporate and non-store division employees, is designed to be self-funded by improved earnings and capital efficiency on a year-over-year basis. The plan is designed to reward increasing net operating earnings after taxes minus a charge for capital on a year-over-year basis. As a result of the significant improvement in our earnings on a more efficient capital base in Fiscal 2022, we accrued performance-based compensation expense of $54 million in Fiscal 2022, of which $48 million will be paid in the first quarter of Fiscal 2023. The remaining amount, which is subject to a service requirement, is an estimate that is expected to be paid in Fiscal 2024, Fiscal 2025 and Fiscal 2026 and could increase or decrease according to our future performance. We did not accrue performance-based incentive compensation in Fiscal 2021, as we experienced a significant decline in earnings compared to Fiscal 2020 as a result of the COVID-19 pandemic. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs.
Earnings from continuing operations before income taxes (“pretax earnings”earnings") for Fiscal 20202022 were $82.4$153.0 million, compared to $78.3a pretax loss of $111.7 million for Fiscal 2019.2021. Pretax earnings for Fiscal 20202022 included an asset impairment and other gain of $8.1 million which included an $18.1 million gain on the sale of a distribution warehouse and a $0.6 million insurance gain, partially offset by $8.6 million for professional fees related to the actions of a shareholder activist and $2.0 million for retail store asset impairments. The pretax loss for Fiscal 2021 included a goodwill impairment charge of $79.3 million and an asset impairment and other charge of $13.4$18.7 million for pension settlement expense and retail store asset impairments, partially offset by a gain on the sale of the Lids Sports Group headquarters building, a gain on lease terminations and a gain related to Hurricane Maria. Pretax earnings for Fiscal 2019which included an asset impairment and other charge of $3.2$13.8 million for retail store asset impairments other legal matters and hurricane losses,$5.3 million for a trademark impairment, partially offset by a $0.4 million gain from Hurricane Maria. In addition, pretax earnings included a $0.6 million charge for loss on early retirementthe release of debt.
Net earnings for Fiscal 20202022 were $61.4$114.9 million, ($3.92or $7.92 diluted earnings per share)share compared to a net loss of $(51.9)$56.4 million, ($2.66or $3.97 diluted loss per share)share for Fiscal 2019. Net earnings for Fiscal 2020 included a pretax charge of $0.4 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by us. The net loss for Fiscal 2019 included a net loss from discontinued operations of $103.2 million ($5.29 diluted loss per share). Included in Fiscal 2019 discontinued operations was a $126.3 million pretax loss on the sale of Lids Sports Group as well as a pretax charge of $0.7 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by us.2021. The effective income tax rate was 25.1%24.9% for Fiscal 20202022 compared to 34.5%49.8% for Fiscal 2019.2021. The effective tax rate for Fiscal 20202022 was lower compared to Fiscal 2019 due to2021 as the benefit of additional income taxed at lower jurisdictional statutoryone-time tax rates,benefits from initiatives under the CARES Act were partially offset by a reductionthe non-deductibility of the goodwill impairment charge in U.S. federal tax credits.Fiscal 2021, did not apply to Fiscal 2022. See Item 8, Note 10,12, "Income Taxes", to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information.
During Fiscal 2022, we benefitted from government stimulus which we don’t expect to recur going forward. We expect a more normalized promotional environment in Fiscal 2023, thereby reducing gross margins. We expect lower performance-based compensation expense and higher occupancy expense next year as Fiscal 2022 benefitted from leverage in occupancy expense as a result of the significant increase in revenue as well as rent abatements and government relief in Fiscal 2022 which is not expected to recur going forward in Fiscal 2023. In addition, we expect increased freight and logistics costs with a more normalized supply chain and inventory levels in the back half of Fiscal 2023.
Journeys Group
| Fiscal Year Ended | % Change | |||||||||
| 2020 | 2019 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 1,460,253 | $ | 1,419,993 | 2.8 | % | ||||
| Operating income | $ | 114,945 | $ | 100,799 | 14.0 | % | ||||
| Operating margin | 7.9 | % | 7.1 | % | ||||||
|
| Fiscal Year Ended |
|
| % |
| ||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 1,576,475 |
|
| $ | 1,227,954 |
|
|
| 28.4 | % |
Operating income |
| $ | 165,336 |
|
| $ | 76,896 |
|
|
| 115.0 | % |
Operating margin |
|
| 10.5 | % |
|
| 6.3 | % |
|
|
| |
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Net sales from Journeys Group increased 2.8%28.4% to $1.46$1.58 billion for Fiscal 20202022 compared to $1.42$1.23 billion for Fiscal 2019. The increase reflected a 4% increase in comparable2021, primarily due to increased store sales, resulting from the reopening of stores that were closed during Fiscal 2021 due to the COVID-19 pandemic, partially offset by a 3% decrease in average Journeys stores operated (i.e. the sum of the number of stores open on the first day of the fiscal year and the last day of each fiscal month during the year divided by thirteen) for Fiscal 2020. Thedecreased digital comparable sales increase reflected a 5% increase in footwear unit comparable sales, while the average price per pair of shoes was flat.sales. The store count for Journeys Group was 1,1711,135 stores at the end of Fiscal 2020,2022, including 233229 Journeys Kidz stores, 4647 Journeys stores in Canada and 3937 Little Burgundy stores in Canada, compared to 1,1931,159 stores at the end of Fiscal 2019,2021, including 239233 Journeys Kidz stores, 4647 Journeys stores in Canada and 4138 Little Burgundy stores in Canada.
Journeys Group operating income for Fiscal 20202022 increased 14.0%115.0% to $114.9$165.3 million, compared to $100.8$76.9 million for Fiscal 2019.2021. The increase in operating income was primarily due to (i) increased net sales, (ii) increased gross margin as a percentage of net sales, primarily reflecting decreased markdowns, improved initial margins and decreased shipping and warehouse expenses and (iii) decreased selling and administrative expenses as a percentage of net sales due to greater leverage of fixed expenses as a result of revenue growth, and to decreased occupancy expense as a percentage of sales, partially offset by increased performance-based compensation.
Schuh Group
|
| Fiscal Year Ended |
|
| % |
| ||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 423,560 |
|
| $ | 305,941 |
|
|
| 38.4 | % |
Operating income (loss) |
| $ | 19,257 |
|
| $ | (11,602 | ) |
| NM |
| |
Operating margin |
|
| 4.5 | % |
|
| (3.8 | )% |
|
|
| |
Net sales from the Schuh Group increased 38.4% to $423.6 million for Fiscal 2022, compared to $305.9 million for Fiscal 2021, primarily due to increased store sales, resulting from the reopening of stores that were closed during Fiscal 2021 due to the COVID-19 pandemic, the favorable impact of $22.6 million due to changes in foreign exchange rates and increased digital comparable sales. Stores were open almost 80% of possible operating days in Fiscal 2022 compared to 58% of possible operating days in Fiscal 2021. Schuh Group operated 123 stores at the end of Fiscal 2022 and Fiscal 2021.
Schuh Group operating income for Fiscal 2022 was $19.3 million compared to an operating loss of $11.6 million for Fiscal 2021. The increase in earnings this year reflects (i) increased net sales, (ii) increased gross margin as a percentage of net sales, reflecting more full-price selling and decreased shipping and warehouse expense and (iii) decreased selling and administrative expenses as a percentage of net sales, reflecting decreased rentoccupancy expense as a percentage of sales, grant income from the U.K. and bonusROI governments, and greater leverage of fixed expenses as a result of revenue growth, partially offset by increased professional feesperformance-based compensation and marketing expense.
| Fiscal Year Ended | % Change | |||||||||
| 2020 | 2019 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 373,930 | $ | 382,591 | (2.3 | )% | ||||
| Operating income | $ | 4,659 | $ | 3,765 | 23.7 | % | ||||
| Operating margin | 1.2 | % | 1.0 | % | ||||||
Johnston & Murphy Group
| Fiscal Year Ended | % Change | |||||||||
| 2020 | 2019 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 300,850 | $ | 313,134 | (3.9 | )% | ||||
| Operating income | $ | 17,702 | $ | 20,385 | (13.2 | )% | ||||
| Operating margin | 5.9 | % | 6.5 | % | ||||||
|
| Fiscal Year Ended |
|
| % |
| ||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 252,855 |
|
| $ | 152,941 |
|
|
| 65.3 | % |
Operating income (loss) |
| $ | 7,029 |
|
| $ | (47,624 | ) |
| NM |
| |
Operating margin |
|
| 2.8 | % |
|
| (31.1 | )% |
|
|
| |
Johnston & Murphy Group net sales decreased 3.9%increased 65.3% to $300.9$252.9 million for Fiscal 20202022 from $313.1$152.9 million for Fiscal 2019. The decrease reflected 2021 primarily a 2% decrease in comparabledue to increased store sales, resulting from the reopening of stores closed during Fiscal 2021 due to the COVID-19 pandemic, and increased wholesale sales and a 1% decrease in average stores operated for Johnston & Murphy retail operations and a 10% decrease in Johnston & Murphy wholesaledigital comparable sales. Unit sales for the Johnston
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the end of Fiscal 20202022 included 180167 Johnston & Murphy shops and factory stores, including eight stores in Canada, compared to 183178 Johnston & Murphy shops and factory stores, including eight stores in Canada, at the end of Fiscal 2019.
Johnston & Murphy Group operating income for Fiscal 2020 decreased 13.2%2022 was $7.0 million compared to $17.7an operating loss of $47.6 million from $20.4 million forin Fiscal 2019,2021. The increase was primarily due to (i) decreasedincreased net sales, and (ii) increased gross margin as a percentage of net sales, reflecting decreased retail markdowns, decreased inventory reserves, decreased shipping and warehouse expense and a higher mix of retail product and (iii) decreased selling and administrative expenses as a percentage of net sales primarily due to increased marketing expense, selling salariesgreater leverage of fixed expenses as a result of revenue growth, especially occupancy and rent expense,compensation expenses, partially offset by decreased bonusincreased performance-based compensation expense.
Licensed Brands
| Fiscal Year Ended | % Change | |||||||||
| 2020 | 2019 | |||||||||
| (dollars in thousands) | ||||||||||
| Net sales | $ | 61,859 | $ | 72,564 | (14.8 | )% | ||||
| Operating loss | $ | (698 | ) | $ | (488 | ) | (43.0 | )% | ||
| Operating margin | (1.1 | )% | (0.7 | )% | ||||||
|
| Fiscal Year Ended |
|
| % |
| ||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||
|
| (dollars in thousands) |
|
|
|
| ||||||
Net sales |
| $ | 169,194 |
|
| $ | 99,694 |
|
|
| 69.7 | % |
Operating income (loss) |
| $ | 6,583 |
|
| $ | (5,430 | ) |
| NM |
| |
Operating margin |
|
| 3.9 | % |
|
| (5.4 | )% |
|
|
| |
Licensed Brands’ net sales decreased 14.8%increased 69.7% to $61.9$169.2 million for Fiscal 20202022 from $72.6$99.7 million for Fiscal 2019. The2021, reflecting primarily the growth of our Levi's footwear business as well as increased sales decrease primarily reflects decreased sales of Dockers Footwear. Unit sales for Dockers Footwear decreased 13% for Fiscal 2020in our other licensed brands as customers began to recover from the COVID-19 pandemic and the average price per pair of shoes decreased 4% for the same period.
Licensed Brands’ operating lossincome increased from $(0.5)a loss of $5.4 million for Fiscal 20192021 to $(0.7)income of $6.6 million for Fiscal 2020,2022. The $12.0 million increase in operating income was primarily due to (i) decreasedincreased net sales, and (ii) increased gross margin as a percentage of net sales as the prior year gross margin was impacted by pre-Togast acquisition royalty and commission cost and (iii) decreased selling and administrative expenses as a percentage of net sales primarily due to increased compensationreflecting decreased bad debt expense and shipping and warehouse, freight and marketing expense,compensation expenses, partially offset by decreased bonusincreased royalty and royalty expenses.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for Fiscal 20202022 was $53.3$42.6 million compared to $42.6$119.5 million for Fiscal 2019.2021. Corporate expense in Fiscal 20202022 included an $18.1 million gain on the sale of a $13.4distribution warehouse and a $0.6 million chargeinsurance gain, partially offset by $8.6 million for professional fees related to the actions of a shareholder activist and $2.0 million for retail store asset impairments. 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. Corporate and other expense, excluding asset impairment and other charges, primarily for pension settlementincreased $29.1 million reflecting increased performance-based compensation expense and retail store asset impairments, partially offset by a gainrent expense on the sale of the Lids Sports Groupour new headquarters building, a gain on lease terminations and a gain related to Hurricane Maria.building. In Fiscal 2019 included a $3.2 million charge in asset impairment and other charges, primarily for retail store asset impairments, other legal matters and hurricane losses, partially offset by a gain from Hurricane Maria. Excluding the charges listed above, corporate and other expense increased slightly primarily due to increased professional fees partially offset by decreased expenses associated with the former Lids Sports Group headquarters building.
Net interest expense decreased 61.7% from $3.3to $2.4 million in Fiscal 2019 to $1.32022 from $5.1 million in Fiscal 20202021 primarily due to increased interest income. Interest income increased $1.3 million due to the increasedecreased average borrowings in average short-term investments.
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Liquidity and Capital Resources
| Feb. 1, 2020 | Feb. 2, 2019 | Feb. 3, 2018 | |||||||||
| (dollars in millions) | |||||||||||
| Cash and cash equivalents | $ | 81.4 | $ | 167.4 | $ | 39.9 | |||||
Working capital(1) | $ | 146.2 | $ | 454.8 | $ | 438.0 | |||||
| Long-term debt (includes current maturities) | $ | 14.4 | $ | 65.7 | $ | 88.4 | |||||
(1) Working capital as of February 1, 2020 was impacted by the adoption of ASC 842 which requires the current portion of operating lease liabilities to be on the face of the Consolidated Balance Sheets. At February 1, 2020, current portion of operating lease liabilities was $142.7 million.
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: (Includes discontinued operations in Fiscal 2019) | Fiscal Year Ended | ||||||||
| Increase | |||||||||
| (dollars in millions) | February 1, 2020 | February 2, 2019 | (Decrease) | ||||||
| Net cash provided by operating activities | $ | 117.2 | $ | 237.1 | $ | (119.9 | ) | ||
| Net cash provided by (used in) investing activities | 53.3 | (56.5 | ) | 109.8 | |||||
| Net cash used in financing activities | (256.5 | ) | (52.8 | ) | (203.7 | ) | |||
| Effect of foreign exchange rate fluctuations on cash | 0.1 | (0.4 | ) | 0.5 | |||||
| Increase (decrease) in cash and cash equivalents | $ | (85.9 | ) | $ | 127.4 | $ | (213.3 | ) | |
Cash flow changes: |
| Fiscal Year Ended |
| |||||||||
(dollars in millions) |
| January 29, 2022 |
|
| January 30, 2021 |
|
| Increase |
| |||
Net cash provided by operating activities |
| $ | 239.9 |
|
| $ | 157.8 |
|
| $ | 82.1 |
|
Net cash used in investing activities |
|
| (33.9 | ) |
|
| (24.0 | ) |
|
| (9.9 | ) |
Net cash used in financing activities |
|
| (101.2 | ) |
|
| (3.2 | ) |
|
| (98.0 | ) |
Effect of foreign exchange rate fluctuations on cash |
|
| 0.6 |
|
|
| 3.1 |
|
|
| (2.5 | ) |
Increase in cash and cash equivalents |
| $ | 105.4 |
|
| $ | 133.7 |
|
| $ | (28.3 | ) |
Reasons for the major variances in cash provided by (used in) the table above are as follows:
Cash provided by operating activities was $119.9$82.1 million lowerhigher for Fiscal 20202022 compared to Fiscal 2019,2021, reflecting primarily the following factors:
Cash used in accounts payable in discontinued operations in the prior year;
Cash used in financing activities was $203.7$98.0 million higher in Fiscal 2020 reflecting primarily increased share repurchases2022 as compared to Fiscal 2019.
Sources of Liquidity
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 7,9, "Long-Term Debt", to our Consolidated Financial Statements included in this Annual Report on Form 10-K. We believe
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On January 28, 2022, we entered into a Third Amendment to our Credit Facility to, among other things, extend the maturity date to January 28, 2027 and remove the first in-last out term loan that cash and cash equivalents on hand, cash flow from operations and availability under our credit facilities will be sufficientwas in an amount equal to cover our working capital, capital expenditures and stock repurchases, if any,$17.5 million. The Total Commitments (as defined in the Credit Agreement) for the foreseeable future.
On October 9, 2020, Schuh entered into a Facility andLetter 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 29, 2022, we have subsequentlynot borrowed another $34.3 million. under the Schuh Facility Letter.
We did this as a precautionary measure to ensure funds are available to meet our obligations for a substantial period of time. This borrowing waswere in response tocompliance with all the COVID-19 outbreak that caused public health officials to recommend precautions that would mitigate the spread of the virus, including warning against congregating in heavily populated areas such as mallsrelevant terms and shopping centers, and led to the temporary closure of our North American stores on March 18, 2020. We intend to hold the proceeds from the Credit Facility borrowings on our Consolidated Balance Sheets and, in accordance with the termsconditions of the Credit Facility may use the proceeds in the future for working capital, general corporate or other purposes as permitted by the Credit Agreement. In addition, on March 23, 2020, we closed our stores in the United Kingdom and Ireland and on March 26, 2020, we closed our UK e-commerce operations. As of March 24, 2020, we have borrowed
| (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 | $ | 14,393 | $ | — | $ | 14,393 | $ | — | $ | — | |||||||||
| Operating Lease Obligations | 926,396 | 180,314 | 322,624 | 231,212 | 192,246 | ||||||||||||||
Purchase Obligations(1) | 521,048 | 521,048 | — | — | — | ||||||||||||||
| Other Long-Term Liabilities | 881 | 172 | 343 | 342 | 24 | ||||||||||||||
Total Contractual Obligations(2) | $ | 1,462,718 | $ | 701,534 | $ | 337,360 | $ | 231,554 | $ | 192,270 | |||||||||
| (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 | $ | 9,324 | $ | 9,324 | $ | — | $ | — | $ | — | |||||||||
| Total Commercial Commitments | $ | 9,324 | $ | 9,324 | $ | — | $ | — | $ | — | |||||||||
We believe that cash on hand, cash provided by operations and borrowings under our amended Credit Facility and the U.K. A&R AgreementSchuh Facility Letter will be sufficient to support our near-term liquidity. Extended temporary storeliquidity needs in Fiscal 2023 and e-commerce closures may require accessthe foreseeable future.
Our Fiscal 2022 year end cash benefitted from lower inventory levels resulting from supply chain disruptions. During Fiscal 2023, we expect our primary cash requirements to additional credit.
In the fourth quarter of $81.4Fiscal 2021, we implemented tax strategies allowed under the 5-year carryback provisions in the CARES Act which we believed would generate approximately $55 million of net tax refunds. During Fiscal 2022, we have received approximately $26 million of such refunds and $167.4 millionexpect to receive the balance in Fiscal 2023.
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Contractual Obligations
The following table sets forth aggregate contractual obligations as of February 1, 2020 and February 2, 2019, respectively, of which approximately $8.9January 29, 2022.
(in thousands) |
|
|
| |||||||||
Contractual Obligations |
| Total |
|
| Current |
|
| Long-Term |
| |||
Long-Term Debt Obligations |
| $ | 15,679 |
|
| $ | — |
|
| $ | 15,679 |
|
Operating Lease Obligations(1) |
|
| 711,900 |
|
|
| 169,973 |
|
|
| 541,927 |
|
Purchase Obligations(2) |
|
| 11,446 |
|
|
| 11,446 |
|
|
| — |
|
Other Long-Term Liabilities |
|
| 791 |
|
|
| 172 |
|
|
| 619 |
|
Total Contractual Obligations |
| $ | 739,816 |
|
| $ | 181,591 |
|
| $ | 558,225 |
|
(1) Operating lease obligations excludes $10.9 million and $20.8 million was held by our foreign subsidiaries as of February 1, 2020 and February 2, 2019, respectively. Our strategic plan doesfor leases signed but not require the repatriation of foreign cash in order to fund our operations in the U.S., and it is our current intention to indefinitely reinvest our foreign cash and cash equivalents outside of the U.S. If we were to repatriate foreign cash to the U.S., we would be required to accrue and pay U.S. taxes in accordance with applicable U.S. tax rules and regulations asyet commenced.
(2) As a result of the repatriation. CashTogast acquisition, we also have a commitment to Samsung C&T America, Inc. (“Samsung”) related to the ultimate sale and cash
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 $53.9 million and $127.2$24.1 million for Fiscal 2022 and 2021, respectively. The $29.8 million increase in Fiscal 2022 capital expenditures as compared to Fiscal 2021 is primarily related to the Company's new headquarters building and digital and omni-channel initiatives.
We expect total capital expenditures for Fiscal 2023 to be approximately $55 million of which approximately 55% is for new stores and renovations and 45% is for computer hardware, software and warehouse enhancements for initiatives to drive traffic and omni-channel initiatives and other. Planned capital expenditures excludes approximately $11 million for our new corporate headquarters building. We do not currently have any longer term capital expenditures or other cash equivalents at February 1, 2020 and February 2, 2019, respectively. Cash equivalents are primarily institutional money market funds. Our $59.6 million of cash equivalents was investedrequirements other than as set forth 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.
Common Stock Repurchases
We repurchased 1,360,909 shares during Fiscal 2022 at a cost of $82.8 million or an average of $60.88 per share. As of January 29, 2022, we accrued $4.8 million for share repurchases that will settle in Fiscal 2023 which is included in other accrued liabilities on the Consolidated Balance Sheets. We were operating under a $100.0 million repurchase authorization from September 2019. In February 2022, we announced a $100.0 million increase to the existing $100.0 million share repurchase authorization. As of March 23, 2022, we have $100.3 million remaining under the expanded share repurchase authorization. We did not repurchase any shares in Fiscal 2021. We repurchased 4,570,015 shares during Fiscal 2020 at a cost of $189.4 million during Fiscal 2020 as partor an average of three authorizations totaling $325.0 million approved by the Board of Directors. We have $89.7 million remaining as of February 1, 2020 under our current $100.0 million share repurchase authorization. We repurchased 968,375 shares at a cost of $45.9 million during Fiscal 2019. We repurchased 275,300 shares at a cost of $16.2 million during Fiscal 2018.
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 14,16, "Legal Proceedings and Other Matters"Proceedings", to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
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Financial Market Risk
The following discusses our exposure to financial market risk.
Outstanding Debt – We have $14.4$15.7 million (£11.7 million) of outstanding U.S. revolver borrowings at a weighted average interest rate of 2.13%1.48% as of February 1, 2020.January 29, 2022. A 100 basis point increase in interest rates would increase annual interest expense by $0.1$0.2 million on the $14.4$15.7 million revolver borrowings. On March 19, 2020, we borrowed $150.0 million under our Credit Facility as a precautionary measure to ensure funds are available to meet our obligations for a substantial period of time in response to the COVID-19 outbreak. Subsequently, we have borrowed an additional $34.3 million under our Credit Facility. In addition, as of March 24, 2020, we have borrowed £19.0
million on our U.K. A&R Agreement.
Summary – Based on our overall market interest rate exposure at February 1, 2020,January 29, 2022, 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 20202023 would not be material.
Accounts Receivable – Our accounts receivable balance at February 1, 2020January 29, 2022 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 26%38%, three customers eachone customer accounted for 9%13% and one customer accounted for 6%7% of our total trade receivables balance, while no other customer accounted for more than 5%6% of our total trade receivables balance as of February 1, 2020.January 29, 2022. 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 income for Fiscal 20202022 were negatively impacted by $12.8 million and positively impacted by $0.3$22.6 million and $0.4 million, respectively, due to the change in foreign exchange rates.
New Accounting Principles
Descriptions of recently issued accounting pronouncements, if any, and the accounting pronouncements adopted by us during Fiscal 20202022 are included in Note 2, "New Accounting Pronouncements", to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data".
Critical Accounting Estimates
As a result of the continuing economic 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 valuation of inventory, goodwill, long-lived assets and deferred tax assets, which could have a material adverse affecteffect on our financial position and results of operations.
Inventory Valuation
In our footwear wholesale operations and our 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 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. We 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 satisfactory levels.
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In our retail operations, other than the Schuh Group segment, we employ the retail inventory method, applying average cost-to-retail ratios to the retail value of inventories. Under the retail inventory method, valuing inventory at the lower of cost or market is achieved as markdowns are taken or accrued as a reduction of the retail value of inventories.
Inherent in the retail inventory method are subjective judgments and estimates, including merchandise mark-on, markups, markdowns and shrinkage. These judgments and estimates, coupled with the 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, we employ the retail inventory method in multiple subclasses of inventory with similar gross margins, and analyze markdown requirements at the stock number level based on factors such as inventory turn, average selling price and inventory age. In addition, we 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, we maintain reserves for shrinkage and damaged goods based on historical rates.
Inherent in the analysis of both wholesale and retail inventory valuation are subjective judgments about current market conditions, fashion trends and overall economic conditions. Failure to make appropriate conclusions regarding these factors may result in an overstatement or understatement of inventory value. A change of 10% from the recorded amounts for markdowns, shrinkage and damaged goods would have changed inventory by $0.7$0.4 million at February 1, 2020.
Impairment of Long-Lived Assets
We periodically assess the realizability of our long-lived assets, other than goodwill, and evaluate 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 assess our goodwill and indefinite lived trade namestrademarks for impairment and on an interim basis if indicators of impairment are present. Our annual assessment date of goodwill and indefinite lived trade names is the first day of the fourth quarter.
In accordance with ASC 350, we have the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill is impaired. If, after such assessment, we conclude that the asset is not impaired, no further action is required. However, if we conclude otherwise, we are required to determine the fair value of the asset using a quantitative impairment test. The quantitative impairment test for goodwill compares the fair value of each reporting unit with the carrying value of the reporting 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. We estimate fair value using the best information available, and compute the fair value derived by a combination of the market and income approach. The market approach is based on observed market data of comparable companies to determine fair value. The income approach utilizes a projection of a reporting unit’s estimated operating results and cash flows that are discounted using a weighted-average cost of capital that reflects current market conditions. A key assumption in our fair value estimate is the weighted average cost of capital utilized for discounting our cash flow projections in our income approach. The projection uses our 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. For additional information regarding impairment of long-lived assets, see Item 8, Note 3,4, "Goodwill and Other Intangible
42
The quantitative impairment test for indefinite lived trademarks compares the fair value of the trademark with the carrying value of the related trademark. If the fair value of the trademark is less than the carrying value of the trademark, an impairment charge would be recorded for the amount, if any, in which the carrying value exceeds the trademark’s fair value. We estimate fair value using the best information available, and compute the fair value using an income approach that estimates the savings that the trademark owner would realize from owning that asset instead of having to pay rent or a royalty for the use of it. Key assumptions in our fair value estimate are the selected royalty rate and discount rate. Other significant estimates and assumptions include terminal value growth rates and future profitability expectations.
Revenue Recognition
In accordance with ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASC 606"), revenue shall be recognized upon satisfaction of all contractual performance obligations and transfer of control to the customer. Revenue is measured as the amount of consideration we expect to be entitled to in exchange for corresponding goods. The majority of our 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. We 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 in our Consolidated Statements of Operations within net sales in proportion to the pattern of rights exercised by the customer in future periods. We perform an evaluation of historical redemption patterns from the date of original issuance to estimate future period redemption activity.
Income Taxes
As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our income taxes in each of the tax jurisdictions in which 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 our Consolidated Balance Sheets. We then assess the likelihood that our 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 we believeit is more likely than not that recoverysome portion or all of ana deferred asset is at risk,will not be realized, valuation allowances are established. To the extent valuation allowances are established or increased in a period, we include an expense within the tax provision in our Consolidated Statements of Operations. These deferred tax valuation allowances may be released in future years when we consider that it is more likely than not that some portion or all of the deferred tax assets will be realized. In making such a determination, we will need to periodically evaluate whether or not all available evidence, such as future taxable income and reversal of temporary differences, tax planning strategies, and recent results of operations, provides sufficient positive evidence to offset any other potential negative evidence that may exist at such time. In the event the deferred tax valuation allowance is released, we would record an income tax benefit for a portion or all of the deferred tax valuation allowance released. At February 1, 2020,January 29, 2022, we had a deferred tax valuation allowance of $23.3$42.2 million.
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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 our determinations and estimates prove to be inaccurate, the resulting adjustments could be material to our future financial results. See Item 8, Note 10,12, "Income Taxes", to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information related to income taxes.
Leases
We recognize lease assets and corresponding lease liabilities for all operating leases on the Consolidated Balance Sheets as described under ASU No. 2016-02, “Leases (Topic 842).” We evaluate renewal options and break options at lease inception and on an ongoing basis, and include renewal options and break options that we are reasonably certain to exercise in our expected lease terms for calculations of the right-of-use assets and liabilities. Approximately 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. See Item 8, Note 8,10, "Leases", to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information related to leases.
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."
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ITEM 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
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45
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Genesco Inc.
Opinion on Internal Control over Financial Reporting
We have audited Genesco Inc. and Subsidiaries'Subsidiaries’ internal control over financial reporting as of February 1, 2020,January 29, 2022, 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 1, 2020,January 29, 2022, 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 1, 2020January 29, 2022 and February 2, 2019, andJanuary 30, 2021, the related consolidated statements of operations, comprehensive income, cash flows, and equity for each of the three fiscal years in the period ended February 1, 2020,January 29, 2022, and the related notes and financial statement schedule listed in the Index at Item 15, and our report dated April 1, 2020March 23, 2022 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 23, 2022
46
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Genesco Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Genesco Inc. (the Company) as of February 1, 2020January 29, 2022 and February 2, 2019,January 30, 2021, the related consolidated statements of operations, comprehensive income, cash flows and equity for each of the three fiscal years in the period ended February 1, 2020,January 29, 2022, 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 1, 2020January 29, 2022 and February 2, 2019,January 30, 2021, and the results of its operations and its cash flows for each of the three fiscal years in the period ended February 1, 2020,January 29, 2022, 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 1, 2020,January 29, 2022, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 1, 2020March 23, 2022 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 based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that: (1) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit mattersmatter 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 mattersmatter below, providing separate opinions on the critical audit mattersmatter or on the accountsaccount or disclosures to which they relate.
47
Valuation of Schuh | ||
Description of the Matter | At | |
Auditing | ||
| conditions and industry and company-specific qualitative factors. | ||
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s | |
To test the estimated fair value of the Schuh | ||
| evaluating the Company’s royalty rate and discount rate. | ||
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2001.
Nashville, Tennessee
March 23, 2022
48
Genesco Inc.
and Subsidiaries
Consolidated Balance Sheets
In Thousands, except share amounts
| As of Fiscal Year End | |||||||
| Assets | February 1, 2020 | February 2, 2019 | |||||
| Current Assets: | |||||||
| Cash and cash equivalents | $ | 81,418 | $ | 167,355 | |||
| Accounts receivable, net of allowances of $2,940 at February 1, 2020 | |||||||
| and $2,894 at February 2, 2019 | 29,195 | 132,390 | |||||
| Inventories | 365,269 | 366,667 | |||||
| Prepaids and other current assets | 32,301 | 64,634 | |||||
| Total current assets | 508,183 | 731,046 | |||||
| Property and equipment: | |||||||
| Land | 7,360 | 7,953 | |||||
| Buildings and building equipment | 63,493 | 82,621 | |||||
| Computer hardware, software and equipment | 140,503 | 138,147 | |||||
| Furniture and fixtures | 128,542 | 129,625 | |||||
| Construction in progress | 9,593 | 5,920 | |||||
| Improvements to leased property | 342,592 | 341,134 | |||||
| Property and equipment, at cost | 692,083 | 705,400 | |||||
| Accumulated depreciation | (453,763 | ) | (428,025 | ) | |||
| Property and equipment, net | 238,320 | 277,375 | |||||
| Deferred income taxes | 19,475 | 21,335 | |||||
| Operating lease right of use asset | 735,044 | — | |||||
| Goodwill | 122,184 | 93,081 | |||||
| Trademarks, net of accumulated amortization of zero at both | |||||||
| February 1, 2020 and February 2, 2019 | 31,023 | 30,904 | |||||
| Other intangibles, net of accumulated amortization of $1,988 at | |||||||
| February 1, 2020 and $4,680 at February 2, 2019 | 5,341 | 943 | |||||
| Other noncurrent assets | 20,908 | 26,397 | |||||
| Total Assets | $ | 1,680,478 | $ | 1,181,081 | |||
| As of Fiscal Year End | |||||||
| Liabilities and Equity | February 1, 2020 | February 2, 2019 | |||||
| Current Liabilities: | |||||||
| Accounts payable | $ | 135,784 | $ | 158,603 | |||
| Accrued employee compensation | 31,579 | 43,246 | |||||
| Accrued other taxes | 11,583 | 17,389 | |||||
| Accrued income taxes | 190 | 2,133 | |||||
| Current portion – long-term debt | — | 8,992 | |||||
| Current portion - operating lease liability | 142,695 | — | |||||
| Other accrued liabilities | 39,609 | 45,313 | |||||
| Provision for discontinued operations | 495 | 553 | |||||
| Total current liabilities | 361,935 | 276,229 | |||||
| Long-term debt | 14,393 | 56,751 | |||||
| Long-term operating lease liability | 647,949 | — | |||||
| Other long-term liabilities | 35,177 | 108,704 | |||||
| Provision for discontinued operations | 1,681 | 1,846 | |||||
| Total liabilities | 1,061,135 | 443,530 | |||||
| Commitments and contingent liabilities | |||||||
| Equity | |||||||
| Non-redeemable preferred stock | 1,009 | 1,060 | |||||
| Common equity: | |||||||
| Common stock, $1 par value: | |||||||
| Authorized: 80,000,000 shares | |||||||
| Issued/Outstanding: | |||||||
| February 1, 2020 – 15,185,670/14,697,206 | |||||||
| February 2, 2019 – 19,591,048/19,102,584 | 15,186 | 19,591 | |||||
| Additional paid-in capital | 274,101 | 264,138 | |||||
| Retained earnings | 378,572 | 508,555 | |||||
| Accumulated other comprehensive loss | (31,668 | ) | (37,936 | ) | |||
| Treasury shares, at cost (488,464 shares) | (17,857 | ) | (17,857 | ) | |||
| Total equity | 619,343 | 737,551 | |||||
| Total Liabilities and Equity | $ | 1,680,478 | $ | 1,181,081 | |||
| As of Fiscal Year End |
| |||||
Assets | January 29, 2022 |
|
| January 30, 2021 |
| ||
Current Assets: |
|
| |||||
Cash and cash equivalents | $ | 320,525 |
|
| $ | 215,091 |
|
Accounts receivable, net of allowances of $4,656 at January 29, 2022 and $5,015 at January 30, 2021 |
| 39,509 |
|
|
| 31,410 |
|
Inventories |
| 278,200 |
|
|
| 290,966 |
|
Prepaids and other current assets |
| 71,564 |
|
|
| 130,128 |
|
Total current assets |
| 709,798 |
|
|
| 667,595 |
|
Property and equipment, net |
| 216,308 |
|
|
| 207,842 |
|
Operating lease right of use asset |
| 543,789 |
|
|
| 621,727 |
|
Goodwill |
| 38,556 |
|
|
| 38,550 |
|
Other intangibles |
| 29,855 |
|
|
| 30,929 |
|
Deferred income taxes |
| 1,466 |
|
|
| — |
|
Other noncurrent assets |
| 22,327 |
|
|
| 20,725 |
|
Total Assets | $ | 1,562,099 |
|
| $ | 1,587,368 |
|
Liabilities and Equity |
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
| ||
Accounts payable | $ | 152,484 |
|
| $ | 150,437 |
|
Current portion - operating lease liability |
| 145,088 |
|
|
| 173,505 |
|
Other accrued liabilities |
| 134,156 |
|
|
| 78,991 |
|
Total current liabilities |
| 431,728 |
|
|
| 402,933 |
|
Long-term debt |
| 15,679 |
|
|
| 32,986 |
|
Long-term operating lease liability |
| 471,878 |
|
|
| 527,549 |
|
Other long-term liabilities |
| 40,346 |
|
|
| 57,141 |
|
Total liabilities |
| 959,631 |
|
|
| 1,020,609 |
|
Commitments and contingent liabilities |
|
|
|
|
| ||
Equity |
|
|
|
|
| ||
Non-redeemable preferred stock |
| 827 |
|
|
| 1,009 |
|
Common equity: |
|
|
|
|
| ||
Common stock, $1 par value: |
|
|
|
|
| ||
Authorized: 80,000,000 shares |
|
|
|
|
| ||
Issued common stock |
| 14,256 |
|
|
| 15,438 |
|
Additional paid-in capital |
| 291,444 |
|
|
| 282,308 |
|
Retained earnings |
| 350,206 |
|
|
| 320,920 |
|
Accumulated other comprehensive loss |
| (36,408 | ) |
|
| (35,059 | ) |
Treasury shares, at cost (488,464 shares) |
| (17,857 | ) |
|
| (17,857 | ) |
Total equity |
| 602,468 |
|
|
| 566,759 |
|
Total Liabilities and Equity | $ | 1,562,099 |
|
| $ | 1,587,368 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
49
Genesco Inc.
and Subsidiaries
Consolidated Statements of Operations
In Thousands, except per share amounts
| Fiscal Year | ||||||||||
| 2020 | 2019 | 2018 | ||||||||
| Net sales | $ | 2,197,066 | $ | 2,188,553 | $ | 2,127,547 | ||||
| Cost of sales | 1,133,951 | 1,141,497 | 1,116,164 | |||||||
| Gross margin | 1,063,115 | 1,047,056 | 1,011,383 | |||||||
| Selling and administrative expenses | 966,423 | 962,076 | 929,238 | |||||||
| Asset impairments and other, net | 13,374 | 3,163 | 7,773 | |||||||
| Operating income | 83,318 | 81,817 | 74,372 | |||||||
| Loss on early retirement of debt | — | 597 | — | |||||||
| Other components of net periodic benefit cost | (395 | ) | (380 | ) | (29 | ) | ||||
| Interest expense, net: | ||||||||||
| Interest expense | 3,339 | 4,115 | 5,420 | |||||||
| Interest income | (2,061 | ) | (774 | ) | (8 | ) | ||||
| Total interest expense, net | 1,278 | 3,341 | 5,412 | |||||||
| Earnings from continuing operations before income taxes | 82,435 | 78,259 | 68,989 | |||||||
| Income tax expense | 20,678 | 27,035 | 32,281 | |||||||
| Earnings from continuing operations | 61,757 | 51,224 | 36,708 | |||||||
| Loss from discontinued operations, net of tax of $0.1 million, | ||||||||||
| $27.5 million and $22.7 million for Fiscal 2020, 2019 and 2018, | ||||||||||
| respectively | (373 | ) | (103,154 | ) | (148,547 | ) | ||||
| Net Earnings (Loss) | $ | 61,384 | $ | (51,930 | ) | $ | (111,839 | ) | ||
| Basic weighted average common shares | 15,544 | 19,351 | 19,218 | |||||||
| Basic earnings (loss) per common share: | ||||||||||
| Continuing operations | $ | 3.97 | $ | 2.65 | $ | 1.91 | ||||
| Discontinued operations | (0.02 | ) | (5.33 | ) | (7.73 | ) | ||||
| Net earnings (loss) | $ | 3.95 | $ | (2.68 | ) | $ | (5.82 | ) | ||
| Diluted weighted average common shares | 15,671 | 19,495 | 19,282 | |||||||
| Diluted earnings (loss) per common share: | ||||||||||
| Continuing operations | $ | 3.94 | $ | 2.63 | $ | 1.90 | ||||
| Discontinued operations | (0.02 | ) | (5.29 | ) | (7.70 | ) | ||||
| Net earnings (loss) | $ | 3.92 | $ | (2.66 | ) | $ | (5.80 | ) | ||
|
| Fiscal Year |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Net sales |
| $ | 2,422,084 |
|
| $ | 1,786,530 |
|
| $ | 2,197,066 |
|
Cost of sales |
|
| 1,240,948 |
|
|
| 982,063 |
|
|
| 1,133,951 |
|
Gross margin |
|
| 1,181,136 |
|
|
| 804,467 |
|
|
| 1,063,115 |
|
Selling and administrative expenses |
|
| 1,033,625 |
|
|
| 813,775 |
|
|
| 966,423 |
|
Goodwill impairment |
|
| 0 |
|
|
| 79,259 |
|
|
| 0 |
|
Asset impairments and other, net |
|
| (8,056 | ) |
|
| 18,682 |
|
|
| 13,374 |
|
Operating income (loss) |
|
| 155,567 |
|
|
| (107,249 | ) |
|
| 83,318 |
|
Other components of net periodic benefit cost (income) |
|
| 128 |
|
|
| (670 | ) |
|
| (395 | ) |
Interest expense (net of interest income of $0.6 million, $0.3 million and $2.1 million for Fiscal 2022, 2021 and 2020, respectively) |
|
| 2,448 |
|
|
| 5,090 |
|
|
| 1,278 |
|
Earnings (loss) from continuing operations before income taxes |
|
| 152,991 |
|
|
| (111,669 | ) |
|
| 82,435 |
|
Income tax expense (benefit) |
|
| 38,044 |
|
|
| (55,641 | ) |
|
| 20,678 |
|
Earnings (loss) from continuing operations |
|
| 114,947 |
|
|
| (56,028 | ) |
|
| 61,757 |
|
Loss from discontinued operations, net of tax of $0.0 million, $0.2 million and $0.1 million for Fiscal 2022, 2021 and 2020, respectively |
|
| (97 | ) |
|
| (401 | ) |
|
| (373 | ) |
Net Earnings (Loss) |
| $ | 114,850 |
|
| $ | (56,429 | ) |
| $ | 61,384 |
|
|
|
|
|
|
|
|
|
|
| |||
Basic earnings (loss) per common share: |
|
|
|
|
|
|
|
|
| |||
Continuing operations |
| $ | 8.11 |
|
| $ | (3.94 | ) |
| $ | 3.97 |
|
Discontinued operations |
|
| 0.00 |
|
|
| (0.03 | ) |
|
| (0.02 | ) |
Net earnings (loss) |
| $ | 8.11 |
|
| $ | (3.97 | ) |
| $ | 3.95 |
|
|
|
|
|
|
|
|
|
|
| |||
Diluted earnings (loss) per common share: |
|
|
|
|
|
|
|
|
| |||
Continuing operations |
| $ | 7.92 |
|
| $ | (3.94 | ) |
| $ | 3.94 |
|
Discontinued operations |
|
| 0.00 |
|
|
| (0.03 | ) |
|
| (0.02 | ) |
Net earnings (loss) |
| $ | 7.92 |
|
| $ | (3.97 | ) |
| $ | 3.92 |
|
|
|
|
|
|
|
|
|
|
| |||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
| |||
Basic |
|
| 14,170 |
|
|
| 14,216 |
|
|
| 15,544 |
|
Diluted |
|
| 14,509 |
|
|
| 14,216 |
|
|
| 15,671 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
50
Genesco Inc.
and Subsidiaries
Consolidated Statements of Comprehensive Income
In Thousands, except as noted
| Fiscal Year | |||||||||
| 2020 | 2019 | 2018 | |||||||
| Net earnings (loss) | $ | 61,384 | $ | (51,930 | ) | $ | (111,839 | ) | |
| Other comprehensive income (loss): | |||||||||
| Pension liability adjustment net of tax of $2.1 million, $0.0 million and | |||||||||
| $1.9 million for 2020, 2019 and 2018, respectively | 6,035 | 123 | 5,189 | ||||||
| Postretirement liability adjustment net of tax of $1.0 million, $1.6 million | |||||||||
| and $0.1 million for 2020, 2019 and 2018, respectively | (2,697 | ) | 4,077 | (376 | ) | ||||
| Stranded tax effect from tax reform | — | — | (2,234 | ) | |||||
| Foreign currency translation adjustments | 2,930 | (12,944 | ) | 19,521 | |||||
| Total other comprehensive income (loss) | 6,268 | (8,744 | ) | 22,100 | |||||
| Comprehensive Income (Loss) | $ | 67,652 | $ | (60,674 | ) | $ | (89,739 | ) | |
|
| Fiscal Year |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Net earnings (loss) |
| $ | 114,850 |
|
| $ | (56,429 | ) |
| $ | 61,384 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
| |||
Pension liability adjustment net of tax of $2.1 million for 2020 |
|
| 0 |
|
|
| 0 |
|
|
| 6,035 |
|
Postretirement liability adjustment net of tax of $0.3 million, $0.1 million and $1.0 million for 2022, 2021 and 2020, respectively |
|
| (735 | ) |
|
| 314 |
|
|
| (2,697 | ) |
Foreign currency translation adjustments |
|
| (613 | ) |
|
| (3,705 | ) |
|
| 2,930 |
|
Total other comprehensive income (loss) |
|
| (1,348 | ) |
|
| (3,391 | ) |
|
| 6,268 |
|
Comprehensive Income (Loss) |
| $ | 113,502 |
|
| $ | (59,820 | ) |
| $ | 67,652 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statement.
51
Genesco Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
In Thousands
| Fiscal Year |
| |||||||
| 2022 |
| 2021 |
| 2020 |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| |||
Net earnings (loss) | $ | 114,850 |
| $ | (56,429 | ) | $ | 61,384 |
|
Adjustments to reconcile net earnings (loss) to net cash provided by operating |
|
|
|
|
|
| |||
Depreciation and amortization |
| 42,969 |
|
| 46,499 |
|
| 49,574 |
|
Deferred income taxes |
| (18,710 | ) |
| 39,142 |
|
| 660 |
|
Impairment of intangible assets |
| 0 |
|
| 84,519 |
|
| 269 |
|
Impairment of long-lived assets |
| 2,049 |
|
| 13,871 |
|
| 2,827 |
|
Restricted stock expense |
| 9,132 |
|
| 8,460 |
|
| 10,077 |
|
Provision for discontinued operations |
| 132 |
|
| 345 |
|
| 425 |
|
Loss on sale of business |
| 0 |
|
| 0 |
|
| 86 |
|
Loss on pension plan termination |
| 0 |
|
| 0 |
|
| 11,510 |
|
Gain on sale of assets |
| (19,140 | ) |
| 0 |
|
| 0 |
|
Other |
| 766 |
|
| 3,916 |
|
| 568 |
|
Changes in working capital and other assets and liabilities, net of |
|
|
|
|
|
| |||
Accounts receivable |
| (8,280 | ) |
| (4,159 | ) |
| 656 |
|
Inventories |
| 10,829 |
|
| 76,525 |
|
| 1,930 |
|
Prepaids and other current assets |
| 58,388 |
|
| (97,842 | ) |
| 16,228 |
|
Accounts payable |
| 3,763 |
|
| 29,631 |
|
| (10,333 | ) |
Other accrued liabilities |
| 50,927 |
|
| (7,732 | ) |
| (20,787 | ) |
Other assets and liabilities |
| (7,805 | ) |
| 20,995 |
|
| (7,904 | ) |
Net cash provided by operating activities |
| 239,870 |
|
| 157,741 |
|
| 117,170 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
| |||
Capital expenditures |
| (53,905 | ) |
| (24,130 | ) |
| (29,767 | ) |
Other investing activities |
| 74 |
|
| 0 |
|
| 171 |
|
Acquisitions, net of cash acquired |
| (80 | ) |
| 0 |
|
| (33,524 | ) |
Proceeds from (payments for) sale of businesses |
| 0 |
|
| 0 |
|
| 98,677 |
|
Proceeds from asset sales |
| 20,013 |
|
| 110 |
|
| 17,751 |
|
Net cash provided by (used in) investing activities |
| (33,898 | ) |
| (24,020 | ) |
| 53,308 |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
| |||
Payments of long-term debt |
| 0 |
|
| 0 |
|
| (9,133 | ) |
Borrowings under revolving credit facility |
| 29,283 |
|
| 221,310 |
|
| 93,328 |
|
Payments on revolving credit facility |
| (46,516 | ) |
| (205,327 | ) |
| (135,403 | ) |
Shares repurchased related to share repurchase plan |
| (78,068 | ) |
| 0 |
|
| (190,384 | ) |
Restricted shares withheld for taxes |
| (4,076 | ) |
| (1,223 | ) |
| (2,355 | ) |
Change in overdraft balances |
| (516 | ) |
| (16,573 | ) |
| (12,557 | ) |
Additions to deferred financing costs |
| (1,276 | ) |
| (1,350 | ) |
| (7 | ) |
Other |
| 0 |
|
| (1 | ) |
| 0 |
|
Net cash used in financing activities |
| (101,169 | ) |
| (3,164 | ) |
| (256,511 | ) |
Effect of foreign exchange rate fluctuations on cash |
| 631 |
|
| 3,116 |
|
| 96 |
|
Net Increase (Decrease) in Cash and Cash Equivalents |
| 105,434 |
|
| 133,673 |
|
| (85,937 | ) |
Cash and cash equivalents at beginning of year |
| 215,091 |
|
| 81,418 |
|
| 167,355 |
|
Cash and cash equivalents at end of year | $ | 320,525 |
| $ | 215,091 |
| $ | 81,418 |
|
Supplemental information: |
|
|
|
|
|
| |||
Interest paid | $ | 2,331 |
| $ | 4,386 |
| $ | 3,005 |
|
Income taxes paid (refunded) |
| (178 | ) |
| 7,685 |
|
| 4,899 |
|
Cash paid for amounts included in measurement of operating lease liabilities |
| 193,661 |
|
| 142,908 |
|
| 188,247 |
|
Operating leased assets obtained in exchange for new operating lease liabilities |
| 80,378 |
|
| 38,731 |
|
| 80,078 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
52
Genesco Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
In Thousands
| Fiscal Year | |||||||||
| 2020 | 2019 | 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||
| Net earnings (loss) | $ | 61,384 | $ | (51,930 | ) | $ | (111,839 | ) | |
| Adjustments to reconcile net earnings (loss) to net cash | |||||||||
| provided by operating activities: | |||||||||
| Depreciation and amortization | 49,574 | 76,939 | 78,326 | ||||||
| Amortization of deferred note expense and debt discount | 404 | 593 | 747 | ||||||
| Deferred income taxes | 660 | 272 | (15,584 | ) | |||||
| Provision for accounts receivable | 133 | 116 | 853 | ||||||
| Impairment of intangible assets | 269 | 5,736 | 182,211 | ||||||
| Impairment of long-lived assets | 2,827 | 5,823 | 2,670 | ||||||
| Restricted stock expense | 10,077 | 13,437 | 13,505 | ||||||
| Provision for discontinued operations | 425 | 743 | 552 | ||||||
| Loss on sale of business | 86 | 126,321 | — | ||||||
| Loss on pension plan termination | 11,510 | — | — | ||||||
| Other | 31 | 1,751 | 1,857 | ||||||
| Effect on cash from changes in working capital and other | |||||||||
| assets and liabilities, net of acquisitions/dispositions: | |||||||||
| Accounts receivable | 656 | 6,312 | 835 | ||||||
| Inventories | 1,930 | 2,684 | 31,606 | ||||||
| Prepaids and other current assets | 16,228 | (9,116 | ) | (4,025 | ) | ||||
| Accounts payable | (10,333 | ) | 43,028 | (7,337 | ) | ||||
| Other accrued liabilities | (20,787 | ) | 20,713 | (22,339 | ) | ||||
| Other assets and liabilities | (7,904 | ) | (6,279 | ) | 12,553 | ||||
| Net cash provided by operating activities | 117,170 | 237,143 | 164,591 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||
| Capital expenditures | (29,767 | ) | (57,230 | ) | (127,853 | ) | |||
| Other investing activities | 171 | 1,505 | — | ||||||
| Acquisitions, net of cash acquired | (33,524 | ) | — | — | |||||
| Proceeds from (payments for) sale of businesses | 98,677 | (1,088 | ) | — | |||||
| Proceeds from asset sales | 17,751 | 310 | 252 | ||||||
| Net cash provided by (used in) investing activities | 53,308 | (56,503 | ) | (127,601 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||
| Payments of long-term debt | (9,133 | ) | (1,650 | ) | (9,289 | ) | |||
| Borrowings under revolving credit facility | 93,328 | 284,473 | 515,560 | ||||||
| Payments on revolving credit facility | (135,403 | ) | (299,606 | ) | (508,875 | ) | |||
| Shares repurchased related to share repurchase plan | (190,384 | ) | (44,935 | ) | (16,163 | ) | |||
| Restricted shares withheld for taxes | (2,355 | ) | (2,853 | ) | (1,716 | ) | |||
| Change in overdraft balances | (12,557 | ) | 15,494 | (22,498 | ) | ||||
| Additions to deferred note cost | (7 | ) | (359 | ) | (1,429 | ) | |||
| Other | — | (3,322 | ) | (3,000 | ) | ||||
| Net cash used in financing activities | (256,511 | ) | (52,758 | ) | (47,410 | ) | |||
| Effect of foreign exchange rate fluctuations on cash | 96 | (464 | ) | 2,056 | |||||
| Net Increase (Decrease) in Cash and Cash Equivalents | (85,937 | ) | 127,418 | (8,364 | ) | ||||
Cash and cash equivalents at beginning of year(1) | 167,355 | 39,937 | 48,301 | ||||||
Cash and cash equivalents at end of year(1) | $ | 81,418 | $ | 167,355 | $ | 39,937 | |||
| Supplemental information: | |||||||||
| Interest paid | $ | 3,005 | $ | 3,338 | $ | 5,350 | |||
| Income taxes paid | 4,899 | 12,451 | 37,471 | ||||||
| Cash paid for amounts included in measurement of operating lease liabilities | 188,247 | — | — | ||||||
| Operating leased assets obtained in exhange for new operating lease liabilities | 80,078 | — | — | ||||||
(1)
| Non- |
| Common |
| Additional |
| Retained |
| Accumulated |
| Treasury |
| Total |
| |||||||
Balance February 2, 2019 | $ | 1,060 |
| $ | 19,591 |
| $ | 264,138 |
| $ | 508,555 |
| $ | (37,936 | ) | $ | (17,857 | ) | $ | 737,551 |
|
Cumulative adjustment from |
| — |
|
| — |
|
| — |
|
| (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 | ) |
| — |
|
| — |
|
| — |
|
| 0 |
|
Restricted shares withheld for taxes |
| — |
|
| (56 | ) |
| 56 |
|
| (2,355 | ) |
| — |
|
| — |
|
| (2,355 | ) |
Shares repurchased |
| — |
|
| (4,570 | ) |
| — |
|
| (184,804 | ) |
| — |
|
| — |
|
| (189,374 | ) |
Other |
| (51 | ) |
| (64 | ) |
| 115 |
|
| — |
|
| — |
|
| — |
|
| 0 |
|
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 | ) |
| — |
|
| — |
|
| — |
|
| 0 |
|
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 |
|
Net earnings |
|
|
| — |
|
| — |
|
| 114,850 |
|
| — |
|
| — |
|
| 114,850 |
| |
Other comprehensive loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (1,348 | ) |
| — |
|
| (1,348 | ) |
Employee and non-employee restricted stock |
| — |
|
| — |
|
| 9,132 |
|
| — |
|
| — |
|
| — |
|
| 9,132 |
|
Restricted stock issuance |
| — |
|
| 244 |
|
| (244 | ) |
| — |
|
| — |
|
| — |
|
| 0 |
|
Restricted shares withheld for taxes |
| — |
|
| (65 | ) |
| 65 |
|
| (4,076 | ) |
| — |
|
| — |
|
| (4,076 | ) |
Shares repurchased |
| — |
|
| (1,361 | ) |
| — |
|
| (81,488 | ) |
| — |
|
| — |
|
| (82,849 | ) |
Other |
| (182 | ) |
| — |
|
| 183 |
|
| — |
|
| (1 | ) |
| — |
|
| 0 |
|
Balance January 29, 2022 | $ | 827 |
| $ | 14,256 |
| $ | 291,444 |
| $ | 350,206 |
| $ | (36,408 | ) | $ | (17,857 | ) | $ | 602,468 |
|
The cash flows related to discontinued operations in Fiscal 2019 and 2018 have not been segregated, and are included in th
e Consolidated Statements of Cash Flows.
53
Genesco Inc.
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 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 income | — | — | — | — | 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 | |||||||||||||||||||||
| 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 | |||||||||||||
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 KingdomU.K. and the Republic of Ireland;ROI; through catalogs and e-commerce websites including the following: journeys.com, journeyskidz.com, journeys.ca, schuh.co.uk, schuh.ie, schuh.eu, littleburgundyshoes.com, johnstonmurphy.com, trask.comjohnstonmurphy.ca, nashvilleshoewarehouse.com and littleburgundyshoes.comdockersshoes.com and at wholesale, primarily under our Johnston & Murphy brand, the Trasklicensed Dockers® brand, the licensed DockersLevi's® brand, the licensed Levi's brand, the licensedG.H. Bass® brand and other brands that we license for footwear. At February 1, 2020,January 29, 2022, we operated 1,4801,425 retail stores in the U.S., Puerto Rico, Canada, the United KingdomU.K. and the Republic of Ireland.
During Fiscal 2020,2022, we operated 4 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 operations catalog, Trask e-commerce operations and wholesale distribution of products under the Johnston & Murphy® and H.S. Trask® brands; brand; and (iv) Licensed Brands, comprised of the licensed Dockers,®, Levi's,®, and G.H. Bass® brands, as well as other brands we license for footwear.
Principles of Consolidation
All subsidiaries are consolidated in our Consolidated Financial Statements. All significant intercompany transactions and accounts have been eliminated.
Fiscal Year
Our fiscal year ends on the Saturday closest to January 31. As a result, Fiscal 2022, 2021 and 2020 was awere all 52-week yearyears with 364 days, days. Fiscal 2019 was a 52-week year with 364 days2022 ended on January 29, 2022, Fiscal 2021 ended on January 30, 2021 and Fiscal 2018 was a 53-week year with 371 days. Fiscal 2020 ended on February 1, 2020, Fiscal 2019 ended on February 2, 2019 and Fiscal 2018 ended on February 3, 2018.2020.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Our foreign subsidiaries held cash of approximately $8.9$39.7 million and $20.8$21.8 million as of February 1, 2020January 29, 2022 and February 2, 2019,January 30, 2021, respectively, which is included in cash and cash equivalents on the Consolidated Balance Sheets. Our strategic plan does not require the repatriation of foreign cash in order to fund our operations in the U.S., and it is our current intention to indefinitely reinvest our foreign cash and cash equivalents outside of the U.S. If we were to repatriate foreign cash to the U.S., we would be required to accrue and pay U.S. taxes in accordance with applicable U.S. tax rules and regulations as a result of the repatriation.
54
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
There were $59.6 million and $127.2 million of0 cash equivalents at February 1, 2020January 29, 2022 or January 30, 2021.
At January 29, 2022 and February 2, 2019, respectively. Cash equivalents are primarily institutional money market funds. Our $59.6 million of cash equivalents 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 payments 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.
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 occurrences within the economy and the retail industry as well as by customer specific factors. In the wholesale businesses, one1 customer accounted for 26%38%, three customers each accounted for 9% and one1 customer accounted for 6%13% and 1 customer accounted for 7% of our total trade receivables balance, while no0 other customer accounted for more than 5%6% of our total trade receivables balance as of February 1, 2020.
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 our footwear wholesale operations and our 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 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. We 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 satisfactory levels.
In our retail operations, other than the Schuh Group segment, we employ the retail inventory method, applying average cost-to-retail ratios to the retail value of inventories. Under the retail inventory method, valuing inventory at the lower of cost or market is achieved as markdowns are taken or accrued as a reduction of the retail value of inventories.
Inherent in the retail inventory method are subjective judgments and estimates, including merchandise mark-on, markups, markdowns and shrinkage. These judgments and estimates, coupled with the 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, we employ the retail inventory method in multiple subclasses of inventory with similar gross margins, and analyze markdown requirements at the stock number level based on factors such as inventory turn, average selling price and inventory age. In addition, we 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, we maintain reserves for shrinkage and damaged goods based on historical rates.
Inherent in the analysis of both wholesale and retail inventory valuation are subjective judgments about current market conditions, fashion trends and overall economic conditions. Failure to make appropriate conclusions regarding these factors may result in an overstatement or understatement of inventory value.
55
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
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 $49.4$42.4 million, $52.1$45.6 million and $51.5$49.4 million for Fiscal 2022, 2021 and 2020, 2019 and 2018, 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%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.
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 accrued expenses and other accrued liabilities and deferred rent and 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 $11.1 million and $10.9$11.5 million as of Februaryboth January 29, 2022 and January 30, 2021.
56
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 2020 and February 2, 2019, respectively.
Summary of Significant Accounting Policies, Continued
Impairment of Long-Lived Assets
We periodically assess the realizability of our long-lived assets, other than goodwill, and evaluate 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 assess our goodwill and indefinite lived trade names for impairment and on an interim basis if indicators of impairment are present. Our annual assessment date of goodwill and indefinite lived trade names is the first day of the fourth quarter.
In accordance with ASC 350, we have the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill is impaired. If, after such assessment, we conclude that the asset is not impaired, no further action is required. However, if we conclude otherwise, we are required to determine the fair value of the asset using a quantitative impairment test. The quantitative impairment test for goodwill compares the fair value of each reporting unit with the carrying value of the reporting 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. We estimate fair value using the best information available, and compute the fair value derived by a combination of the market and income approach. The market approach is based on observed market data of comparable companies to determine fair value. The income approach utilizes a projection of a reporting unit’s estimated operating results and cash flows that are discounted using a weighted-average cost of capital that reflects current market conditions. A key assumption in our fair value estimate is the weighted average cost of capital utilized for discounting our cash flow projections in our income approach. The projection uses our best estimates of economic and market conditions over the projected period including growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements.
Fair Value
The Fair Value Measurements and Disclosures Topic of the Codification defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. This Topic defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
57
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Revenue Recognition
Revenue is recognized upon satisfaction of all contractual performance obligations and transfer of control to the customer. Revenue is measured as the amount of consideration we expect to be entitled to in exchange for corresponding goods. The majority of our 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
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
Our Consolidated Balance Sheets include an accrued liability for gift cards of $5.0$6.3 million and $5.1$5.0 million at February 1, 2020as of January 29, 2022 and February 2, 2019,January 30, 2021, respectively. Gift card breakage recognized as revenue was $1.0$1.0 million, $0.8$0.8 million and $0.4$1.0 million for Fiscal 2020, 20192022, 2021 and 2018,2020, respectively. During Fiscal 2020,2022, we recognized $3.7$3.1 million of gift card redemptions and gift card breakage revenue that were included in the gift card liability as of February 2, 2019.January 30, 2021.
58
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies, Continued
Cost of Sales
For our retail operations, the cost of sales includes actual product cost, the cost of transportation to our warehouses from suppliers, the cost of transportation from our warehouses to the stores and the cost of transportation from our warehouses to the customer. Additionally, the cost of our distribution facilities allocated to our retail operations is included in cost of sales.
For our 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 excluding (i) those related to the transportation of products from the supplier to the warehouse, (ii) for our 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 our distribution facilities which are allocated to our retail operations. Wholesale costs of distribution are included in selling and administrative expenses on our Consolidated Statements of Operations in the amounts of $5.6$12.8 million, $5.6$10.1 million and $5.8$5.6 million for Fiscal 2022, 2021 and 2020, 2019 and 2018, respectively.
We record buying, merchandising and occupancy costs in selling and administrative expense. Because we do not include these costs in cost of sales, our 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 $334.4$299.6 million, $334.3$269.8 million and $333.8$334.4 million for Fiscal 2022, 2021 and 2020, 2019 and 2018, 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
Advertising Costs
Advertising costs are predominantly expensed as incurred. Advertising costs were $72.3$106.4 million, $68.3$80.1 million and $68.6$72.3 million for Fiscal 2022, 2021 and 2020, 2019 and 2018, respectively.
Consideration to Resellers
In our wholesale businesses, we do not have any written buy-down programs with retailers, but we have provided certain retailers with markdown allowances for obsolete and slow movingslow-moving products that are in the retailer’s inventory. We estimate these allowances and provide for them as reductions to revenues at the time revenues are recorded. Markdowns are negotiated
59
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 our 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. Our cooperative advertising agreements require that wholesale customers present documentation or other evidence of specific advertisements or display materials used for our products by submitting
Vendor Allowances
From time to time, we negotiate allowances from our 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 our 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 us 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 $8.0$10.7 million, $7.8$6.2 million and $8.7$9.1 million for Fiscal 2020, 20192022, 2021 and 2018,2020, respectively. During Fiscal 2020, 20192022, 2021 and 2018,2020, our vendor reimbursements of cooperative advertising received were not in excess of the costs incurred.
Foreign Currency Translation
The functional currency of our foreign operations is the applicable local currency. The translation of the applicable foreign currency into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date. Income and expense accounts are translated at monthly average exchange rates. The unearned gains and losses resulting from such translation are included as a separate component of accumulated other comprehensive loss within shareholders' equity. Gains and losses from certain foreign currency transactions were not material for Fiscal 2020, 2019 or 2018.2022, 2021 and 2020.
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 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. At January 29, 2022, the related inventory owned by Samsung had a historical cost of $11.4 million. As of January 29, 2022, we believe that we have appropriately accounted for any differences between the fair value of the Samsung inventory and Samsung’s historical cost.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 2
New Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
In December 2019, using the optional transition method provided by ASU 2018-11, "Leases (Topic 842): Targeted Improvements". The optional transition approach provides a method for recording existing leases at adoption by allowing a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, as opposed to the modified or full retrospective transition methods that require restating prior comparative periods. Additionally, we elected the “package of practical expedients”, which permits us to not reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. We also elected the practical expedient to not separate lease and non-lease components for its store and equipment leases.
New Accounting Pronouncements Not Yet Adopted
In June 2016,March 2020, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses2020-04, "Reference Rate Reform (Topic 326)848): MeasurementFacilitation of Credit Lossesthe Effects of Reference Rate Reform on Financial Instruments"Reporting", as amended and supplemented by subsequent ASUs (collectively, “ASU 2020-04”), which requires entitiesprovides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected 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.be discontinued. This guidance will beis applicable for borrowing instruments, which use LIBOR as a reference rate, and is effective for us in the first quarter of the year ending January 30, 2021 ("Fiscal 2021") with early adoption permitted.immediately, but is only available through December 31, 2022. We do not expect the adoption of this guidanceASU to have a material impact on our Consolidated Financial Statements. However,
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 temporarily closed or modified operating models and hours of our retail stores in North America, the U.K. and the ROI beginning in March 2020, both in response to governmental requirements including “stay-at-home” orders and similar mandates and voluntarily, beyond the requirements of local government authorities. A portion of our store fleet remained closed during Fiscal 2021 and the majority of Fiscal 2022. By the end of the third quarter of Fiscal 2022, we were operating in substantially all locations.
Changes made in our operations, including temporary closures, combined with reduced customer traffic due to concerns over COVID-19, resulted in a material impact on our business. 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.
We evaluated our goodwill and indefinite-lived intangible assets for indicators of impairment at the end of each quarter of Fiscal 2021 and Fiscal 2022. During the first quarter of Fiscal 2021, such evaluation caused us to determine that, when considering the impact of COVID-19, indicators of impairment existed relating to the goodwill associated with Schuh Group and certain other trademarks. Therefore, we updated the goodwill impairment analysis for Schuh Group, and, as a result, recorded a goodwill impairment charge of $79.3 million during the quarter ended May 2, 2020. In addition, we updated our impairment analysis for other intangible assets and, as a result, recorded a trademark impairment charge of $5.3 million during the quarter ended May 2, 2020. There were 0 impairment indicators for the remainder of Fiscal 2021 or for Fiscal 2022.
We evaluated our remaining tangible assets, particularly accounts receivable and inventory. Our wholesale businesses sell primarily to independent retailers and department stores across the United States. Receivables arising from these sales are also evaluating how COVID-19 will impact this standard.not
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 3
COVID-19, Continued
collateralized. Customer credit risk is affected by conditions or occurrences within the economy and the retail industry, such as COVID-19, as well as by customer specific factors. We establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
We also record reserves for obsolete and slow-moving inventory and for estimated shrinkage between physical inventory counts. During the initial phases of the COVID-19 pandemic, we recorded incremental inventory reserve provisions as a result of excess inventory due to the impact of COVID-19 on retail traffic and demand for certain products. Depending on future customer behavior, among other factors, we may incur additional inventory reserve provisions.
During Fiscal 2021 and the first half of Fiscal 2022, we 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 worked with landlords in various markets to seek commercially reasonable lease concessions given the impact of COVID-19. In cases where the agreements did 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 were substantially the same or less than the total cash flows of the existing lease, we did not reevaluate the contract terms. For these lease agreements, we 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 CARES Act, which, among other things, provided employer payroll tax credits for wages paid to employees who were unable to work during the COVID-19 pandemic and options to defer payroll tax payments. Based on our evaluation of the CARES Act, we qualified for certain employer payroll tax credits as well as the deferral of payroll and other tax payments in the future, which were treated as government subsidies to offset related operating expenses. Qualified payroll tax credits under the CARES Act and other foreign subsidy programs reduced our selling and administrative expenses by approximately $7.8 million and $13.8 million during Fiscal 2022 and Fiscal 2021, respectively, on our Consolidated Statements of Operations.
Savings from a government program in the U.K. have provided property tax relief for Fiscal 2022 and Fiscal 2021 of approximately $9.7 million and $13.3 million, respectively. Other government relief programs in the U.K., the ROI and Canada provided savings in Fiscal 2022 of approximately $5.2 million in the aggregate.
The COVID-19 pandemic continues to evolve. The emergence of variants from the original strain, its economic impact and actions taken in response thereto, including, without limitation, the timing and availability of COVID-19 vaccines and effective medical treatments 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 and online. These may lead to increased asset recovery and valuation risks, such as impairment of our store and other assets and an inability to realize deferred tax assets due to sustaining losses in certain jurisdictions. The uncertainties in the global economy have and are likely to continue to impact the financial viability of our suppliers, and other business partners, which have interrupted and may continue to interrupt our supply chain, limit our ability to collect receivables and require other changes to our operations. These and other factors have and may continue to adversely impact our net sales, gross margin, operating income and earnings per share financial measures.
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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 assumption of certain liabilities, of Togast for an aggregate base purchase price of $33.5 million, which was paid in full in cash at the closing, with an additional two-part earnout provision of up to an additional $17.0 million in cash following our Fiscal 2022 and an additional $17.0 million in cash following our Fiscal 2024, contingent upon the acquired business achieving certain earnings targets over multi-year periods, plus a potential further payment following Fiscal 2022 of 10% of earnings in excess of the earnings target. The two-part earnout provision is largely subject to the payees' post acquisition service requirement and therefore will be recorded as compensation expense and not reported as a component of the purchase price for the acquisition. 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 the U.S. The Togast purchase includes footwear licenses for Bass®, ADIO and FUBU, among others. Togast operates within the Licensed Brands segment.
(In thousands) |
| Journeys |
|
| Licensed |
|
| Total |
| |||
Balance, January 30, 2021 |
| $ | 10,082 |
|
| $ | 28,468 |
|
| $ | 38,550 |
|
Effect of foreign currency exchange rates |
|
| 5 |
|
|
| 1 |
|
|
| 6 |
|
Balance, January 29, 2022 |
| $ | 10,087 |
|
| $ | 28,469 |
|
| $ | 38,556 |
|
| (In thousands) | Schuh Group | Journeys Group | Licensed Brands Group | Total Goodwill | |||||
| Balance, February 2, 2019 | $83,243 | $9,838 | $ | — | $93,081 | ||||
| Acquisition | — | — | 28,385 | 28,385 | |||||
| Effect of foreign currency exchange rates | 826 | (108 | ) | — | 718 | ||||
| Balance, February 1, 2020 | $84,069 | $9,730 | $28,385 | $122,184 | |||||
During the first quarter of Fiscal 2021, we identified qualitative indicators of impairment, including a significant decline in our stock price and market capitalization resulting from the COVID-19 pandemic, since the last consideration of indicators of impairment in the fourth quarter of Fiscal 2020 for our Schuh Group reporting unitunit. When indicators of impairment are present on an interim basis, we must assess whether it is “more likely than not” (i.e., a greater than 50% chance) that an impairment has continuedoccurred. Due to perform below our projected operating results, as partthe identified indicators of impairment in the first quarter of Fiscal 2021, we determined that it was “more likely than not” that an impairment had occurred and performed a full valuation of our annualSchuh Group reporting. Based upon the results of these analyses, we concluded the goodwill attributed to Schuh Group was fully impaired. As a result, we recorded an impairment assessment ascharge of $79.3 million in the first quarter of Fiscal 2021.
Goodwill Valuation (Schuh Group)
We estimated the fair value of our Schuh reporting unit in the 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 income approach include the following:
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.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 4
Goodwill and Other Intangible Assets, Continued
Other Intangible Assets
Trademark Valuation
In addition, as a result of the factors noted above, 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 $10.0 million. Furthermore,and Johnston & Murphy Group. As a result, we noted thatrecorded a decreasetrademark impairment of $5.3 million in projected annual revenue growth by one percent would reducethe first quarter of Fiscal 2021. This charge is included in asset impairment and other, net in the accompanying Consolidated Statements of Operations.
Key assumptions included in the estimation of the fair value for trademarks include the following:
Other intangibles by major classes were as follows:
|
| Trademarks(1) |
|
| Customer Lists(2) |
|
| Other(3) |
|
| Total |
| ||||||||||||||||||||
(In thousands) |
| Jan. 29, |
|
| Jan. 30, |
|
| Jan. 29, |
|
| Jan. 30, |
|
| Jan. 29, |
|
| Jan. 30, |
|
| Jan. 29, |
|
| Jan. 30, |
| ||||||||
Gross other intangibles |
| $ | 25,935 |
|
| $ | 26,443 |
|
| $ | 6,586 |
|
| $ | 6,617 |
|
| $ | 400 |
|
| $ | 400 |
|
| $ | 32,921 |
|
| $ | 33,460 |
|
Accumulated amortization |
|
| 0 |
|
|
| 0 |
|
|
| (2,666 | ) |
|
| (2,131 | ) |
|
| (400 | ) |
|
| (400 | ) |
|
| (3,066 | ) |
|
| (2,531 | ) |
Other Intangibles, net |
| $ | 25,935 |
|
| $ | 26,443 |
|
| $ | 3,920 |
|
| $ | 4,486 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 29,855 |
|
| $ | 30,929 |
|
| Leases | Customer Lists(1) | Other(2) | Total | |||||||||||||||||||||
| (In thousands) | Feb. 1, 2020 | Feb. 2, 2019 | Feb. 1, 2020 | Feb. 2, 2019 | Feb. 1, 2020 | Feb. 2, 2019 | Feb. 1, 2020 | Feb. 2, 2019 | ||||||||||||||||
| Gross other intangibles | $ | — | $ | 3,532 | $ | 6,562 | $ | 1,450 | $ | 767 | $ | 641 | $ | 7,329 | $ | 5,623 | ||||||||
| Accumulated amortization | — | (2,916 | ) | (1,509 | ) | (1,450 | ) | (479 | ) | (314 | ) | (1,988 | ) | (4,680 | ) | |||||||||
| Net Other Intangibles | $ | — | $ | 616 | $ | 5,053 | $ | — | $ | 288 | $ | 327 | $ | 5,341 | $ | 943 | ||||||||
Includes backlog and vendor contract.
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Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 4
Asset Impairments and Other Charges
Asset impairment charges are reflected as a reduction of the net carrying value of property and equipment and operating lease right of use assets, in asset impairment and other, net in the accompanying Consolidated Statements of Operations.
We recorded a pretax gain to earnings of $8.1 million in Fiscal 2022, including an $18.1 million gain on the sale of a distribution warehouse and a $0.6 million insurance gain, partially offset by $8.6 million for professional fees related to the actions of a shareholder activist and $2.0 million for retail store asset impairments.
We recorded a pretax charge to earnings of $13.4$18.7 million in Fiscal 2021, including $13.8 million for retail store asset impairments and $5.3 million for 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$11.5 million pension settlement expense and $3.1$3.1 million for retail store asset impairments, partially offset by a $(0.6)$0.6 million gain on the sale of the Lids Sports Group headquarters building, a $(0.4)$0.4 million gain for lease terminations and a $(0.2)$0.2 million gain related to Hurricane Maria.
Note 6
Inventories
(In thousands) | January 29, 2022 |
|
| January 30, 2021 |
| ||
Wholesale finished goods | $ | 28,432 |
|
| $ | 27,851 |
|
Retail merchandise |
| 249,768 |
|
|
| 263,115 |
|
Total Inventories | $ | 278,200 |
|
| $ | 290,966 |
|
Note 7
Property and Equipment and Other Current Accrued Liabilities
(In thousands) | January 29, 2022 |
| January 30, 2021 |
| ||
Land | $ | 7,233 |
| $ | 7,451 |
|
Buildings and building equipment |
| 73,962 |
|
| 74,617 |
|
Computer hardware, software and equipment |
| 152,075 |
|
| 138,516 |
|
Furniture and fixtures |
| 124,536 |
|
| 127,635 |
|
Construction in progress |
| 42,903 |
|
| 14,422 |
|
Improvements to leased property |
| 325,180 |
|
| 334,267 |
|
Property and equipment, at cost |
| 725,889 |
|
| 696,908 |
|
Accumulated depreciation |
| (509,581 | ) |
| (489,066 | ) |
Total Property and Equipment, net | $ | 216,308 |
| $ | 207,842 |
|
65
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 4
Property and Equipment and Other Charges,Current Accrued Liabilities, Continued
(In thousands) | January 29, 2022 |
|
| January 30, 2021 |
| ||
Accrued employee compensation(1) | $ | 60,575 |
|
| $ | 11,025 |
|
Accrued other taxes |
| 17,631 |
|
|
| 15,578 |
|
Accrued income taxes |
| 2,385 |
|
|
| 674 |
|
Provision for discontinued operations |
| 491 |
|
|
| 527 |
|
Other accrued liabilities |
| 53,074 |
|
|
| 51,187 |
|
Total Other Current Accrued Liabilities | $ | 134,156 |
|
| $ | 78,991 |
|
(1) Includes accrual for performance-based incentive compensation of $3.2$48.1 million in Fiscal 2019, including $4.2and $0.0 million for retail store asset impairments, $0.3 million for legalas of January 29, 2022 and other matters and $0.1 for hurricane losses, partially offset by a $(1.4) million gain related to Hurricane Maria.January 30, 2021, respectively.
Note 5
| (In thousands) | February 1, 2020 | February 2, 2019 | |||||
| Wholesale finished goods | $ | 34,271 | $ | 45,679 | |||
| Retail merchandise | 330,998 | 320,988 | |||||
| Total Inventories | $ | 365,269 | $ | 366,667 | |||
The carrying amounts and fair values of our financial instruments at February 1, 2020January 29, 2022 and February 2, 2019January 30, 2021 are:
(In thousands) |
| January 29, 2022 |
|
| January 30, 2021 |
| ||||||||||
|
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||
U.S. Revolver Borrowings |
| $ | 15,679 |
|
| $ | 15,679 |
|
| $ | 32,986 |
|
| $ | 33,612 |
|
| (In thousands) | February 1, 2020 | February 2, 2019 | |||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
| U.S. Revolver Borrowings | $ | 14,393 | $ | 14,056 | $ | 56,773 | $ | 56,861 | |||||||
| UK Term Loans | — | — | 8,970 | 9,063 | |||||||||||
| UK Revolver Borrowings | — | — | — | — | |||||||||||
Since our Credit Facility was amended on January 28, 2022, the carrying amount of our U.S. revolver borrowings as of January 29, 2022 approximates 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 29, 2022, we have $11.4 million of investments held and liabilitiesused which were measured at fair value on a nonrecurring basis as of Februaryusing Level 1 2020 aggregated by the level ininputs within the fair value hierarchy within which those measurements fall (in thousands):hierarchy.
Long-Lived Assets Held and Used | Level 1 | Level 2 | Level 3 | Impairment Charges | |||||||||||||||
| Measured as of May 4, 2019 | $ | 906 | $ | — | $ | — | $ | 906 | $ | 307 | |||||||||
| Measured as of August 3, 2019 | 63 | — | — | 63 | 731 | ||||||||||||||
| Measured as of November 2, 2019 | 263 | — | — | 263 | 799 | ||||||||||||||
| Measured as of February 1, 2020 | — | — | — | — | 1,258 | ||||||||||||||
| Total Asset Impairment Fiscal 2020 | $ | 3,095 | |||||||||||||||||
Long-Term Debt
Credit Facility
On February 1, 2019,January 28, 2022, we entered into a FirstThird Amendment (the “Third Amendment”) to the Fourth Amended and Restated Credit Agreement, (the "Amendment") amending the our Fourth Amended and Restated Credit Agreement dated as of January 31, 2018 between us, andcertain of our subsidiaries, the lenders party thereto and Bank of America, N.A., as agent (as amended, the "Credit Facility"“Credit Facility” or the "Credit Agreement"“Credit Agreement”). The Amendment modified the Credit Facility, to, among other things, decrease each of(i) extend the Domesticmaturity date to January 28, 2027, (ii) remove the first in-last out term loan that was in an amount equal to $17.5 million and (iii) add certain in-transit inventory to the borrowing base, subject to customary eligibility requirements. In addition, the Third Amendment makes conforming changes to replace LIBOR with the Secured Overnight Financing Rate ("SOFR"), the Sterling Overnight Index Average ("SONIA") and EURIBOR. The Total Commitments (as defined in the Credit Agreement) for the revolving loans remains at $332.5 million.
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Genesco Inc.
and the Total Commitments from $400.0 millionSubsidiaries
Notes to $275.0 million and to permit the sale of Lids Sports Group. Consolidated Financial Statements
Note 9
Long-Term Debt, Continued
The Credit Facility continues to be secured by certain assets of the Company and certain subsidiaries of the Company, including accounts receivable, inventory, payment intangibles and deposit accounts. Equity interests, certain equipment, intellectual property and most leasehold interests are specifically excluded. The Credit Facility continues to provide for the borrowing base to include real estate as those assets are added or maintained as collateral and contains customary real estate covenants. The current outstanding long-term debt balance of $15.7 million bears interest at an average rate of 1.48% and matures January 31, 2023.
Deferred financing costs incurred of $1.7$1.2 million related to the amended Credit Facility were capitalized and are being amortized over five years. In connection with the Amendment toterm of the Credit Facility, deferred financing costs of $0.6 million were written off. These costs are included in loss on early retirement of debt on the Consolidated Statements of Operations.new agreement. The remaining balance of deferred financing costs incurred related to the previous Credit Facility are being amortized over the remaining four yearsterm of the new agreement. These costs are included in other non-current assets on the Consolidated Balance Sheets.
The Credit Facility is a revolving credit facility in the aggregate principal amount of $275.0$332.5 million, including (i) for the Company and other borrowers formed in the U.S., a $$70.0 million sublimit for the issuance of letters of credit and a domestic swingline subfacility of up to $$45.0 million, (ii) for GCO Canada Inc.,ULC, a revolving credit subfacility in an amount not to exceed $$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 $$10.0 million .million. Any swingline loans and any letters of credit and borrowings under the Canadian and U.K. subfacilities will reduce the availability under the Credit Facility on a dollar for dollar basis. We have the option, from time to time, to increase the availability under the Credit Facility by an aggregate amount of up to $200.0$200.0 million subject to, among other things, the receipt of commitments for the increased amount. In connection with this increased facility, the Canadian revolving credit subfacility may be increased by no more than $$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 ($275.0332.5 million or, if increased as described above, up to $475.0$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%0.20% per annum.
The Credit Facility also permits us to incur senior debt in an amount up to the greater of $500.0$500.0 million or an amount that would not cause our ratio of consolidated total indebtedness to consolidated EBITDA to exceed 5.0:5.0:1.0 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 $17.5$22.5 million or 10.0%10% of the Loan Cap.loan cap. If and during such time as Excess Availability is less than the greater of $17.5$22.5 million or 10.0%10% of the Loan Cap,loan cap, the Credit Facility requires us to meethave a minimum fixed charge coverage ratio.ratio of not less than 1.0:1.0. Excess Availability was $199.9$165.3 million at February 1, 2020. See January 29, 2022.
67
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 18 for subsequent events related to the Credit Facility.
Long-Term Debt, Continued
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 29, 2022.
U.K. Credit Agreements
On November 15, 2019,October 9, 2020, Schuh Limited ("Schuh") entered into an Amendment and Restatement Agreementa facility letter (the “2019 Restatement Agreement”"Facility Letter") with Lloyds Bank plc (“Lloyds”) which amended and restated the Amendment and Restatement Agreement dated April 26, 2017. Schuh Limited replaced Schuh Group Limited as Parent under the 2019 Restatement Agreement.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 2019 Restatement Agreement containsRCF expires in October 2023 and bears interest at 2.5% over the Bank of England Base Rate. The Facility Letter includes certain financial covenants attested against Schuh, which took effect in the Schuh level, including a minimum interest coverage covenantsecond quarter of 4.50x and a maximum leverage covenantFiscal 2022. Following certain customary events of 1.75x.default outlined in the Facility Letter, payment of outstanding amounts due under the RCF may be accelerated or the commitments may be terminated. The 2019 Restatement AgreementRCF is secured by a pledgecharges over all of all the assets of Schuh, and Schuh's subsidiary, Schuh (ROI) Limited. Pursuant to a Guarantee in favor of Lloyds in its capacity as security trustee, Genesco Inc. has
We were in compliance with all the covenants at February 1, 2020.
million, a Facility C revolving credit agreement of £19.0
(In thousands) | January 29, 2022 |
|
| January 30, 2021 |
| ||
U.S. Revolver borrowings | $ | 15,679 |
|
| $ | 32,986 |
|
U.K. revolver borrowings |
| 0 |
|
|
| 0 |
|
Total long-term debt |
| 15,679 |
|
|
| 32,986 |
|
Current portion |
| 0 |
|
|
| 0 |
|
Total Noncurrent Portion of Long-Term Debt | $ | 15,679 |
|
| $ | 32,986 |
|
million, a working capital facility of
£2.5 million and a Facility D revolving credit facility of €7.2 million for its operations in Ireland. The Facility B loan bears interest at LIBOR plus 2.5% per annum and was paid off in January 2020. The Facility C bears interest at LIBOR plus 2.2% per annum and expired January 31, 2020. The Facility D bears interest at EURIBOR plus 2.2% per annum and expired January 31, 2020. There were no UK term loans or UK revolver loans outstanding at February 1, 2020.
| (In thousands) | February 1, 2020 | February 2, 2019 | |||||
| U.S. Revolver borrowings | $ | 14,393 | $ | 56,773 | |||
| UK term loans | — | 8,992 | |||||
| UK revolver borrowings | — | — | |||||
| Deferred note expense on term loans | — | (22 | ) | ||||
| Total long-term debt | 14,393 | 65,743 | |||||
| Current portion | — | 8,992 | |||||
| Total Noncurrent Portion of Long-Term Debt | $ | 14,393 | $ | 56,751 | |||
68
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 8
Leases
We lease our office space and all of our retail store locations, transportation equipment and other equipment under various noncancelable operating leases. The leases have varying terms and expire at various dates through 2034.2037. 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 KingdomU.K. and the Republic of IrelandROI typically have initial terms of between 10 and 15 years.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%2% of our leases contain renewal options. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
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 199,000182,000 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.
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 yearyears ended February 1, 2020.
(In thousands) |
| Fiscal 2022 |
| Fiscal 2021 |
| ||
Operating lease cost |
| $ | 174,127 |
| $ | 160,973 |
|
Variable lease cost |
|
| 21,540 |
|
| 9,562 |
|
Less: Sublease income |
|
| (246 | ) |
| (165 | ) |
Net Lease Cost |
| $ | 195,421 |
| $ | 170,370 |
|
69
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 8
Leases, Continued
The following table reconciles the maturities of undiscounted cash flows to our operating lease liabilities recorded on the Consolidated Balance Sheets at February 1, 2020:January 29, 2022:
Fiscal Years |
| (In thousands) |
| |
2023 |
| $ | 169,973 |
|
2024 |
|
| 142,451 |
|
2025 |
|
| 114,281 |
|
2026 |
|
| 93,827 |
|
2027 |
|
| 67,026 |
|
Thereafter |
|
| 124,342 |
|
Total undiscounted future minimum lease payments |
|
| 711,900 |
|
Less: Amounts representing interest |
|
| (94,934 | ) |
Total Present Value of Operating Lease Liabilities |
| $ | 616,966 |
|
| Fiscal Years | (In thousands) |
| 2021 | $180,314 |
| 2022 | 171,483 |
| 2023 | 151,141 |
| 2024 | 127,544 |
| 2025 | 103,668 |
| Thereafter | 192,246 |
| Total undiscounted future minimum lease payments | 926,396 |
| Less: Amounts representing interest | (135,752) |
| Total Present Value of Operating Lease Liabilities | $790,644 |
|
| January 29, 2022 | January 30, 2021 |
Weighted-average remaining lease term (years) |
| 5.8 years | 5.5 years |
Weighted-average discount rate |
| 5.0% | 5.1% |
Beginning in March 2020, we suspended rent payments under the leases for our temporarily closed stores and atinitiated discussions with landlords to obtain lease concessions. We have considered the adoptionFASB’s guidance regarding lease concessions as a result of the new standard, we continueeffects of the COVID-19 pandemic and have elected to present comparative prior periodaccount for lease amountsconcessions 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 ASC 840, "Leases". Asthe FASB’s guidance, we apply this election for concessions related to the effects of February 2, 2019 future minimum rental commitments were:
| Fiscal Years | (In thousands) |
| 2020 | $183,432 |
| 2021 | 171,584 |
| 2022 | 159,155 |
| 2023 | 140,889 |
| 2024 | 119,023 |
| Thereafter | 323,638 |
| Total Minimum Rental Commitments | $1,097,721 |
70
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 9
Equity
Non-Redeemable Preferred Stock
|
|
| Number of Shares |
| Amounts in Thousands |
| |||||||||||||||
|
|
| As of Fiscal Year End |
| As of Fiscal Year End |
| |||||||||||||||
Class | Shares Authorized |
| 2022 |
| 2021 |
| 2020 |
| 2022 |
| 2021 |
| 2020 |
| |||||||
Employees’ Subordinated Convertible Preferred |
| 5,000,000 |
|
| 28,325 |
|
| 34,425 |
|
| 34,440 |
| $ | 850 |
| $ | 1,033 |
| $ | 1,033 |
|
Stated Value of Issued Shares |
|
|
|
|
|
|
|
|
| 850 |
|
| 1,033 |
|
| 1,033 |
| ||||
Employees’ Preferred Stock Purchase Accounts |
|
|
|
|
|
|
|
|
| (23 | ) |
| (24 | ) |
| (24 | ) | ||||
Total Non-Redeemable Preferred Stock |
|
|
|
|
|
|
|
| $ | 827 |
| $ | 1,009 |
| $ | 1,009 |
| ||||
Shares Authorized | Number of Shares | Amounts in Thousands | ||||||||||||||||||||
| Class | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | ||||||||||||||||
| Employees’ Subordinated Convertible Preferred | 5,000,000 | 34,440 | 36,147 | 36,671 | $ | 1,033 | $ | 1,084 | $ | 1,100 | ||||||||||||
| Stated Value of Issued Shares | 1,033 | 1,084 | 1,100 | |||||||||||||||||||
| Employees’ Preferred Stock Purchase Accounts | (24 | ) | (24 | ) | (48 | ) | ||||||||||||||||
| Total Non-Redeemable Preferred Stock | $ | 1,009 | $ | 1,060 | $ | 1,052 | ||||||||||||||||
Subordinated Serial Preferred Stock:
Our charter permits the Board of Directors to issue Subordinated Serial Preferred Stock (3,000,000(3,000,000 shares, in aggregate, are authorized) in as many series, each with as many shares and such rights and preferences as the boardBoard may designate. We have shares authorized for $2.30$2.30 Series 1, $4.75$4.75 Series 3, $4.75$4.75 Series 4, Series 6 and $1.50$1.50 Subordinated Cumulative Preferred stocks in amounts of 64,368 shares, 40,449 shares, 53,764 shares, 800,000 shares and 5,000,000 shares, respectively. All of these preferred stocks were mandatorily redeemed by us in Fiscal 2014. As a result, there are no
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$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.
Common Stock:
Common stock-$1 par value. Authorized: 80,000,000 shares; issued: February 1, 2020January 29, 2022 – 15,185,67014,256,408 shares; February 2, 2019 –19,591,048January 30, 2021 –15,438,338 shares. There were 488,464 shares held in treasury at February 1, 2020January 29, 2022 and February 2, 2019.January 30, 2021. Each outstanding share is entitled to 1 vote. At February 1, 2020,January 29, 2022, common shares were reserved as follows: 34,44028,325 shares for conversion of preferred stock and 916,680850,847 shares for the Second Amended and Restated 20092020 Genesco Inc. Equity Incentive Plan (the "2009"2020 Plan").
For the year ended February 1, 2020, 270,173January 29, 2022, 229,363 shares of common stock were issued as restricted shares as part of the 20092020 Plan; 25,36814,936 shares were issued to directors in exchange for their services; 55,59864,535 shares were withheld for taxes on restricted stock vested in Fiscal 2020; 77,0132022; 6,885 shares of restricted stock were forfeited in Fiscal 2020;2022; and 1,7076,100 shares were issued in miscellaneous conversions of Employees’ Subordinated Convertible Preferred Stock. In addition, the Company repurchased and retired 4,570,0151,360,909 shares of common stock at an average weighted market price of $41.44$60.88 for a total of $189.4$82.8 million.
71
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 11
Equity, Continued
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 have $89.7 million remaining under our current $100.0 million sharedid 0t repurchase authorization.
For the year ended February 2, 2019, 353,6331, 2020, 270,173 shares of common stock were issued as restricted shares as part of the 2009 Plan; 36,42125,368 shares were issued to directors in exchange for their services; 69,76255,598 shares were withheld for taxes on restricted stock vested in Fiscal 2019; 153,6462020; 77,013 shares of restricted stock were forfeited in Fiscal 2019;2020; and 5241,707 shares were issued in miscellaneous conversions of Employees’ Subordinated Convertible Preferred Stock. In addition, the Company repurchased and retired 968,3754,570,015 shares of common stock at an average weighted market price of $47.45$41.44 for a total of $45.9$189.4 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 10
Income Taxes
The components of earnings from continuing operations before income taxes is comprised of the following:
|
| Fiscal Year |
| |||||||||
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
United States |
| $ | 130,517 |
|
| $ | (3,123 | ) |
| $ | 83,871 |
|
Foreign |
|
| 22,474 |
|
|
| (108,546 | ) |
|
| (1,436 | ) |
Total Earnings (Loss) from Continuing Operations before Income Taxes |
| $ | 152,991 |
|
| $ | (111,669 | ) |
| $ | 82,435 |
|
72
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12
Income Taxes, Continued
| (In thousands) | 2020 | 2019 | 2018 | ||||||||
| United States | $ | 83,871 | $ | 84,807 | $ | 58,137 | |||||
| Foreign | (1,436 | ) | (6,548 | ) | 10,852 | ||||||
| Total Earnings from Continuing Operations before Income Taxes | $ | 82,435 | $ | 78,259 | $ | 68,989 | |||||
Income tax expense from continuing operations is comprised of the following:
|
| Fiscal Year |
| |||||||||
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Current |
|
|
|
|
|
|
|
|
| |||
U.S. federal |
| $ | 49,354 |
|
| $ | (106,397 | ) |
| $ | 16,313 |
|
International |
|
| 3,555 |
|
|
| 1,391 |
|
|
| 322 |
|
State |
|
| 3,845 |
|
|
| 10,223 |
|
|
| 3,383 |
|
Total Current Income Tax Expense (Benefit) |
|
| 56,754 |
|
|
| (94,783 | ) |
|
| 20,018 |
|
Deferred |
|
|
|
|
|
|
|
|
| |||
U.S. federal |
|
| (22,542 | ) |
|
| 48,511 |
|
|
| (463 | ) |
International |
|
| 54 |
|
|
| 2,773 |
|
|
| 1,145 |
|
State |
|
| 3,778 |
|
|
| (12,142 | ) |
|
| (22 | ) |
Total Deferred Income Tax Expense |
|
| (18,710 | ) |
|
| 39,142 |
|
|
| 660 |
|
Total Income Tax Expense (Benefit) – Continuing Operations |
| $ | 38,044 |
|
| $ | (55,641 | ) |
| $ | 20,678 |
|
| (In thousands) | 2020 | 2019 | 2018 | ||||||||
| Current | |||||||||||
| U.S. federal | $ | 16,313 | $ | 13,657 | $ | 25,093 | |||||
| International | 322 | 1,649 | 5,421 | ||||||||
| State | 3,383 | 4,029 | 3,828 | ||||||||
| Total Current Income Tax Expense | 20,018 | 19,335 | 34,342 | ||||||||
| Deferred | |||||||||||
| U.S. federal | (463 | ) | 3,632 | 1,491 | |||||||
| International | 1,145 | 2,594 | (3,498 | ) | |||||||
| State | (22 | ) | 1,474 | (54 | ) | ||||||
| Total Deferred Income Tax Expense (Benefit) | 660 | 7,700 | (2,061 | ) | |||||||
| Total Income Tax Expense – Continuing Operations | $ | 20,678 | $ | 27,035 | $ | 32,281 | |||||
| 2020 | 2019 | 2018 | ||||||
| U. S. federal statutory rate of tax | 21.00 | % | 21.00 | % | 33.72 | % | ||
| State taxes (net of federal tax benefit) | 3.62 | 5.67 | 3.58 | |||||
| Foreign rate differential | (2.21 | ) | (2.56 | ) | (5.66 | ) | ||
| Change in valuation allowance | 3.64 | 11.51 | 1.95 | |||||
| Impact of statutory rate change | — | — | 7.74 | |||||
| Credits | (0.93 | ) | (2.65 | ) | (1.80 | ) | ||
| Permanent items | 1.72 | 2.27 | 2.77 | |||||
| Uncertain federal, state and foreign tax positions | (2.01 | ) | (1.68 | ) | (1.36 | ) | ||
| Transition tax | — | 2.23 | 6.47 | |||||
| Other | 0.25 | (1.24 | ) | (0.62 | ) | |||
| Effective Tax Rate | 25.08 | % | 34.55 | % | 46.79 | % | ||
|
| Fiscal Year |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
U. S. federal statutory rate of tax |
|
| 21.00 | % |
|
| 21.00 | % |
|
| 21.00 | % |
State taxes (net of federal tax benefit) |
|
| 3.94 |
|
|
| 1.35 |
|
|
| 3.62 |
|
Foreign rate differential |
|
| (0.11 | ) |
|
| (0.25 | ) |
|
| (2.21 | ) |
Change in valuation allowance |
|
| 1.58 |
|
|
| (10.70 | ) |
|
| 3.64 |
|
Credits |
|
| (0.55 | ) |
|
| 0.44 |
|
|
| (0.93 | ) |
Permanent items |
|
| (0.05 | ) |
|
| (0.66 | ) |
|
| 1.72 |
|
Uncertain federal, state and foreign tax positions |
|
| 0 |
|
|
| 0 |
|
|
| (2.01 | ) |
CARES Act |
|
| 0 |
|
|
| 41.53 |
|
|
| 0 |
|
Outside Basis Difference - IRC Section 165(g) 3 |
|
| 0 |
|
|
| 10.34 |
|
|
| 0 |
|
Goodwill Impairment |
|
| 0 |
|
|
| (13.50 | ) |
|
| 0 |
|
Other |
|
| (0.94 | ) |
|
| 0.28 |
|
|
| 0.25 |
|
Effective Tax Rate |
|
| 24.87 | % |
|
| 49.83 | % |
|
| 25.08 | % |
73
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 10
Income Taxes, Continued
We are subject to a tax on global intangible low-tax income (“GILTI”). GILTI taxes foreign income in excess of deemed return on tangible assets of a foreign corporation and we elected to treat this tax as a period cost. 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:
(In thousands) | January 29, 2022 |
|
| January 30, 2021 |
| ||
Pensions | $ | 553 |
|
| $ | 229 |
|
Lease obligation |
| 159,411 |
|
|
| 175,113 |
|
Book over tax depreciation |
| 17,369 |
|
|
| 13,528 |
|
Expense accruals |
| 11,965 |
|
|
| 10,388 |
|
Uniform capitalization costs |
| 4,844 |
|
|
| 4,886 |
|
Provisions for discontinued operations and restructurings |
| 596 |
|
|
| 650 |
|
Inventory valuation |
| 394 |
|
|
| 2,242 |
|
Tax net operating loss and credit carryforwards |
| 31,646 |
|
|
| 39,829 |
|
Allowances for bad debts and notes |
| 863 |
|
|
| 888 |
|
Deferred compensation and restricted stock |
| 2,736 |
|
|
| 2,945 |
|
Identified intangibles |
| 1,409 |
|
|
| 1,586 |
|
Other |
| 35 |
|
|
| 34 |
|
Gross deferred tax assets |
| 231,821 |
|
|
| 252,318 |
|
Deferred tax asset valuation allowance |
| (42,195 | ) |
|
| (36,561 | ) |
Deferred tax asset net of valuation allowance |
| 189,626 |
|
|
| 215,757 |
|
Identified intangibles |
| (6,333 | ) |
|
| (4,677 | ) |
Prepaids |
| (1,784 | ) |
|
| (1,765 | ) |
Right of use asset |
| (150,554 | ) |
|
| (163,674 | ) |
Tax over book depreciation |
| (30,421 | ) |
|
| (64,009 | ) |
Other |
| (1,051 | ) |
|
| (1,120 | ) |
Gross deferred tax liabilities |
| (190,143 | ) |
|
| (235,245 | ) |
Net Deferred Tax Liabilities | $ | (517 | ) |
| $ | (19,488 | ) |
We have an income tax receivable of $53.4 million included in prepaids and other current assets on the Consolidated Balance Sheets as of January 29, 2022.
| February 1, | February 2, | ||||||
| (In thousands) | 2020 | 2019 | |||||
| Pensions | $ | 332 | $ | — | |||
| Lease obligation | 188,590 | 11,081 | |||||
| Book over tax depreciation | 4,558 | 2,739 | |||||
| Expense accruals | 7,386 | 5,061 | |||||
| Uniform capitalization costs | 7,292 | 7,938 | |||||
| Provisions for discontinued operations and restructurings | 674 | 730 | |||||
| Inventory valuation | 810 | 908 | |||||
| Tax net operating loss and credit carryforwards | 11,972 | 15,766 | |||||
| Allowances for bad debts and notes | 181 | 318 | |||||
| Deferred compensation and restricted stock | 3,344 | 3,814 | |||||
| Other | 144 | 39 | |||||
| Gross deferred tax assets | 225,283 | 48,394 | |||||
| Deferred tax asset valuation allowance | (23,333 | ) | (20,354 | ) | |||
| Deferred tax asset net of valuation allowance | 201,950 | 28,040 | |||||
| Identified intangibles | (3,616 | ) | (3,265 | ) | |||
| Prepaids | (1,929 | ) | (1,638 | ) | |||
| Right of use asset | (176,930 | ) | — | ||||
| Pensions | — | (1,802 | ) | ||||
| Gross deferred tax liabilities | (182,475 | ) | (6,705 | ) | |||
| Net Deferred Tax Assets | $ | 19,475 | $ | 21,335 | |||
|
| As of Fiscal Year Ended |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net non-current asset |
| $ | 1,466 |
|
| $ | - |
|
Net non-current liability |
|
| (1,983 | ) |
|
| (19,488 | ) |
Net Deferred Tax Assets |
| $ | (517 | ) |
| $ | (19,488 | ) |
| 2020 | 2019 | ||||||
| Net non-current asset | $ | 19,475 | $ | 21,335 | |||
| Net Deferred Tax Assets | $ | 19,475 | $ | 21,335 | |||
As of February 1, 2020January 29, 2022 and February 2, 2019,January 30, 2021, we had state tax credits of $0.6$0.5 million and $0.4 million, respectively.each year. These credits expire in fiscal years 20212023 through 2026.
74
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 12
Income Taxes, Continued
As of February 1, 2020January 29, 2022 and February 2, 2019,January 30, 2021, we had foreign net operating loss carryforwards of $29.5$50.6 million and $28.4$57.6 million, respectively, which expire in 20have a carryforward period at least 17 years.
As of February 1, 2020,January 29, 2022, we have provided a total valuation allowance of approximately $23.3$42.2 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 $2.9$5.6 million net increase in valuation allowance during Fiscal 20202022 from the $20.4$36.6 million provided for as of February 2, 2019January 30, 2021 relates to increases of $0.5 million related to state tax attributes and $2.4 million relatedprimarily 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 February 1, 2020,January 29, 2022, 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 by U.S.in the Tax Reform.Cuts and Jobs Act (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 February 1, 2020,January 29, 2022, an immaterial amount of additional deferred taxes would have been provided.
As of January 29, 2022, foreign tax credit carryforwards of approximately $4.1 million were available to reduce possible future U.S. income taxes and which expire from 2028 to 2031. As a result of the Act, we may no longer utilize certain U.S. foreign tax credit carryforwards. A valuation allowance of $3.9 million has been established against these credits.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for Fiscal 2020, 2019 and 2018.benefits.
|
| Fiscal Year |
| |||||||||
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Unrecognized Tax Benefit – Beginning of Period |
| $ | 178 |
|
| $ | 178 |
|
| $ | 1,835 |
|
Gross Increases (Decreases) – Tax Positions in a Current Period |
|
| 0 |
|
|
| 0 |
|
|
| 178 |
|
Settlements |
|
| 0 |
|
|
| 0 |
|
|
| (931 | ) |
Lapse of Statutes of Limitations |
|
| 0 |
|
|
| 0 |
|
|
| (904 | ) |
Unrecognized Tax Benefit – End of Period |
| $ | 178 |
|
| $ | 178 |
|
| $ | 178 |
|
| (In thousands) | 2020 | 2019 | 2018 | ||||||||
| Unrecognized Tax Benefit – Beginning of Period | $ | 1,835 | $ | 3,701 | $ | 5,622 | |||||
| Gross Increases (Decreases) – Tax Positions in a Prior Period | — | — | (15 | ) | |||||||
| Gross Increases (Decreases) – Tax Positions in a Current Period | 178 | (638 | ) | (166 | ) | ||||||
| Settlements | (931 | ) | — | — | |||||||
| Lapse of Statutes of Limitations | (904 | ) | (1,228 | ) | (1,740 | ) | |||||
| Unrecognized Tax Benefit – End of Period | $ | 178 | $ | 1,835 | $ | 3,701 | |||||
The amount of unrecognized tax benefits as of January 29, 2022, January 30, 2021 and February 1, 2020 February 2, 2019 and February 3, 2018 which would impact the annual effective rate if recognized were $0.2$0.2 million $0.6 million and $0.6 million, respectively.each year. 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 2020, 20192022, 2021 or 2018.
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, 20172019 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.years. Our USU.S. federal income tax returns for fiscal years ended January 31, 20172019 and beyond remain subject to examination.
75
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 11
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 65.65. 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 the defined benefit pension plan and postretirement medical and life insurance plans is the month-end date that is closest to our fiscal year end.
| Pension Benefits | Other Benefits | ||||||||||||||
| (In thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||
| Fair value of plan assets at beginning of year | $ | 82,632 | $ | 85,730 | $ | — | $ | — | |||||||
| Actual gain on plan assets | 8,470 | 892 | — | — | |||||||||||
| Employer contributions | — | 3,500 | 480 | 105 | |||||||||||
| Plan participants’ contributions | — | — | 111 | 126 | |||||||||||
| Benefits paid | (26,363 | ) | (7,490 | ) | (591 | ) | (231 | ) | |||||||
| Asset transfer | (64,739 | ) | — | — | — | ||||||||||
| Fair Value of Plan Assets at End of Year | $ | — | $ | 82,632 | — | — | |||||||||
Change in Benefit Obligation
|
| Other Benefits |
| |||||
|
| As of Fiscal Year End |
| |||||
(In thousands) |
| 2022 |
|
| 2021 |
| ||
Benefit obligation at beginning of year |
| $ | 5,606 |
|
| $ | 7,025 |
|
Service cost |
|
| 111 |
|
|
| 89 |
|
Interest cost |
|
| 102 |
|
|
| 124 |
|
Plan participants’ contributions |
|
| 143 |
|
|
| 134 |
|
Benefits paid |
|
| (874 | ) |
|
| (550 | ) |
Actuarial (gain) loss |
|
| 1,017 |
|
|
| (1,216 | ) |
Benefit Obligation at End of Year |
| $ | 6,105 |
|
| $ | 5,606 |
|
Funded Status at End of Year |
| $ | (6,105 | ) |
| $ | (5,606 | ) |
| Pension Benefits | Other Benefits | ||||||||||||||
| (In thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||
| Benefit obligation at beginning of year | $ | 78,322 | $ | 85,035 | $ | 4,525 | $ | 10,584 | |||||||
| Service cost - ongoing operations | 596 | 450 | 89 | 409 | |||||||||||
| Service cost - discontinued operations | — | — | — | 300 | |||||||||||
| Interest cost - ongoing operations | 2,771 | 3,022 | 151 | 214 | |||||||||||
| Interest cost - discontinued operations | — | — | — | 80 | |||||||||||
| Plan participants’ contributions | — | — | 111 | 126 | |||||||||||
| Effect of plan change | — | — | — | (3,658 | ) | ||||||||||
| Asset transfer | (64,739 | ) | — | — | — | ||||||||||
| Benefits paid | (26,363 | ) | (7,490 | ) | (591 | ) | (231 | ) | |||||||
| Actuarial (gain) loss | 9,413 | (2,695 | ) | 2,740 | (3,299 | ) | |||||||||
| Benefit Obligation at End of Year | $ | — | $ | 78,322 | $ | 7,025 | $ | 4,525 | |||||||
| Funded Status at End of Year | $ | — | $ | 4,310 | $ | (7,025 | ) | $ | (4,525 | ) | |||||
Amounts recognized in the Consolidated Balance Sheets consist of:
|
| Other Benefits |
| |||||
|
| As of Fiscal Year End |
| |||||
(In thousands) |
| 2022 |
|
| 2021 |
| ||
Current liabilities |
| $ | (676 | ) |
| $ | (708 | ) |
Noncurrent liabilities |
|
| (5,429 | ) |
|
| (4,898 | ) |
Net Amount Recognized |
| $ | (6,105 | ) |
| $ | (5,606 | ) |
| Pension Benefits | Other Benefits | ||||||||||||||
| (In thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||
| Noncurrent assets | $ | — | $ | 4,310 | $ | — | $ | — | |||||||
| Current liabilities | — | — | (603 | ) | (391 | ) | |||||||||
| Noncurrent liabilities | — | — | (6,422 | ) | (4,134 | ) | |||||||||
| Net Amount Recognized | $ | — | $ | 4,310 | $ | (7,025 | ) | $ | (4,525 | ) | |||||
|
| Other Benefits |
| |||||
|
| As of Fiscal Year Ended |
| |||||
(In thousands) |
| 2022 |
|
| 2021 |
| ||
Prior service cost |
| $ | 0 |
|
| $ | (322 | ) |
Net loss |
|
| 1,708 |
|
|
| 1,040 |
|
Total Recognized in Accumulated Other Comprehensive Loss |
| $ | 1,708 |
|
| $ | 718 |
|
| Pension Benefits | Other Benefits | ||||||||||||||
| (In thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||
| Prior service cost | $ | — | $ | — | $ | (1,244 | ) | $ | (2,165 | ) | |||||
| Net loss (gain) | — | 8,148 | 2,384 | (334 | ) | ||||||||||
| Total Recognized in Accumulated Other Comprehensive Loss | $ | — | $ | 8,148 | $ | 1,140 | $ | (2,499 | ) | ||||||
76
Genesco Inc.
and accumulated benefit obligation and fair value of plan assets are as follows:
| (In thousands) | February 1, 2020 | February 2, 2019 | |||||
| Projected benefit obligation | $ | — | $ | 78,322 | |||
| Accumulated benefit obligation | — | 78,322 | |||||
| Fair value of plan assets | — | 82,632 | |||||
Note 13
Other Postretirement Benefit Plans, Continued
Components of Net Periodic Benefit Cost
Net Periodic Benefit Cost
|
| Other Benefits |
| |||||||||
|
| Fiscal Year |
| |||||||||
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Service cost |
| $ | 111 |
|
| $ | 89 |
|
| $ | 89 |
|
|
|
|
|
|
|
|
|
|
| |||
Interest cost |
|
| 102 |
|
|
| 124 |
|
|
| 151 |
|
Amortization: |
|
|
|
|
|
|
|
|
| |||
Prior service cost |
|
| (322 | ) |
|
| (921 | ) |
|
| (921 | ) |
Losses |
|
| 348 |
|
|
| 128 |
|
|
| 22 |
|
Net amortization |
|
| 26 |
|
|
| (793 | ) |
|
| (899 | ) |
Other components of net periodic benefit cost (income) |
| $ | 128 |
|
| $ | (669 | ) |
| $ | (748 | ) |
Net Periodic Benefit Cost (Income) |
| $ | 239 |
|
| $ | (580 | ) |
| $ | (659 | ) |
| Pension Benefits | Other Benefits | ||||||||||||||||||||||
| (In thousands) | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | |||||||||||||||||
| Service cost | $ | 596 | $ | 450 | $ | 550 | $ | 89 | $ | 409 | $ | 507 | |||||||||||
| Interest cost | 2,771 | 3,022 | 3,277 | 151 | 214 | 251 | |||||||||||||||||
| Expected return on plan assets | (2,676 | ) | (4,198 | ) | (4,505 | ) | — | — | — | ||||||||||||||
| Amortization: | |||||||||||||||||||||||
| Prior service cost | — | — | — | (921 | ) | (231 | ) | — | |||||||||||||||
| Losses | 258 | 776 | 834 | 22 | 37 | 114 | |||||||||||||||||
| Net amortization | 258 | 776 | 834 | (899 | ) | (194 | ) | 114 | |||||||||||||||
| Other components of net periodic benefit cost | $ | 353 | $ | (400 | ) | $ | (394 | ) | $ | (748 | ) | $ | 20 | $ | 365 | ||||||||
| Net Periodic Benefit Cost - Ongoing Operations | $ | 949 | $ | 50 | $ | 156 | $ | (659 | ) | $ | 429 | $ | 872 | ||||||||||
| Net Periodic Benefit Cost - Discontinued Operations | $ | — | $ | — | $ | — | $ | — | $ | (877 | ) | $ | 524 | ||||||||||
|
| Other Benefits |
| |
(In thousands) |
| Fiscal 2022 |
| |
Net (gain) loss |
| $ | 1,016 |
|
Amortization of prior service cost |
|
| 322 |
|
Amortization of net actuarial loss |
|
| (348 | ) |
Total Recognized in Other Comprehensive Income |
| $ | 990 |
|
Total Recognized in Net Periodic Benefit Cost and Other Comprehensive Income |
| $ | 1,229 |
|
| Pension Benefits | Other Benefits | ||||||
| (In thousands) | 2020 | 2020 | |||||
| Net (gain) loss | $ | 3,620 | $ | 2,740 | |||
| Amortization of prior service cost | — | 921 | |||||
| Settlement charge | (11,510 | ) | — | ||||
| Amortization of net actuarial loss | (258 | ) | (22 | ) | |||
| Total Recognized in Other Comprehensive Income | $ | (8,148 | ) | $ | 3,639 | ||
| Total Recognized in Net Periodic Benefit Cost and Other Comprehensive Income | $ | (7,199 | ) | $ | 2,980 | ||
|
| Other Benefits |
| |||||
|
| As of Fiscal Year End |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Discount rate |
|
| 2.43 | % |
|
| 1.49 | % |
Rate of compensation increase |
| NA |
|
| NA |
| ||
| Pension Benefits | Other Benefits | |||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||
| Discount rate | NA | 4.05 | % | 2.21 | % | 3.48 | % | |||
| Rate of compensation increase | NA | NA | NA | NA | ||||||
For Fiscal 20202022 and 2019,2021, the discount rate was based on a yield curve of high qualityhigh-quality corporate bonds with cash flows matching our planned expected benefit payments.
Weighted-average assumptions used to determine net periodic benefit costs
|
| Other Benefits |
| |||||||||
|
| Fiscal Year |
| |||||||||
|
|
| 2022 |
|
|
| 2021 |
|
|
| 2020 |
|
Discount rate |
|
| 2.43 | % |
|
| 1.49 | % |
|
| 3.48 | % |
Expected long-term rate of return on plan assets |
| NA |
|
| NA |
|
| NA |
| |||
Rate of compensation increase |
| NA |
|
| NA |
|
| NA |
| |||
77
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 13
Other Postretirement Benefit Plans, Continued
| Pension Benefits | Other Benefits | ||||||||||||||||
| 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | ||||||||||||
| Discount rate | 4.05 | % | 3.70 | % | 3.95 | % | 3.48 | % | 3.67 | % | 3.98 | % | |||||
| Expected long-term rate of return on plan assets | 3.85 | % | 5.65 | % | 6.05 | % | NA | NA | NA | ||||||||
| Rate of compensation increase | NA | NA | NA | NA | NA | NA | |||||||||||
|
| As of Fiscal Year End |
| |||||
|
|
| 2022 |
|
| 2021 |
| |
Health care cost trend rate assumed for next year |
|
| 6.25 | % |
|
| 6.25 | % |
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) |
|
| 5.50 | % |
|
| 5.75 | % |
Year that the rate reaches the ultimate trend rate |
| 2025 |
|
| 2023 |
| ||
| 2020 | 2019 | ||||
| Health care cost trend rate assumed for next year | 7.25 | % | 7.25 | % | |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 6.25 | % | 6.75 | % | |
| Year that the rate reaches the ultimate trend rate | 2024 | 2022 | |||
| (In thousands) | 1% Increase in Rates | 1% Decrease in Rates | |||||
| Aggregated service and interest cost | $ | 20 | $ | 18 | |||
| Accumulated postretirement benefit obligation | $ | 526 | $ | 480 | |||
Expected benefit payments for other postretirement benefits, paid from the employee benefit trust, are as follows:
Estimated future payments |
| Other |
| |
2022 |
| $ | 0.7 |
|
2023 |
|
| 0.6 |
|
2024 |
|
| 0.6 |
|
2025 |
|
| 0.6 |
|
2026 |
|
| 0.5 |
|
2027 – 2031 |
|
| 2.4 |
|
| Estimated future payments | Other Benefits ($ in millions) | |||
| 2020 | $ | 0.6 | ||
| 2021 | 0.6 | |||
| 2022 | 0.6 | |||
| 2023 | 0.6 | |||
| 2024 | 0.5 | |||
| 2025 – 2029 | 2.8 | |||
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%100% of each employee’s contribution of up to 3%3% of salary and 50%50% of the next 2%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 $5.3$5.9 million for Fiscal 2020, $5.62022, $2.9 million for Fiscal 20192021 and $5.1$5.3 million for Fiscal 2018.2020. 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 12
Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing incomeearnings 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.
78
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) |
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Weighted-average number of shares - basic |
|
| 14,170 |
|
|
| 14,216 |
|
|
| 15,544 |
|
Common stock equivalents |
|
| 339 |
|
|
| 0 |
|
|
| 127 |
|
Weighted-average number of shares - diluted |
|
| 14,509 |
|
|
| 14,216 |
|
|
| 15,671 |
|
Common stock equivalents are excluded in Fiscal 2021 due to the loss from continuing operations.
We repurchased 1,360,909 shares during Fiscal 2022 at a cost of $82.8 million or an average of $60.88 per share. We accrued $4.8 million for share repurchases as of January 29, 2022 which is included in other accrued liabilities on the Consolidated Balance Sheets. We were operating under a $100.0 million repurchase authorization from September 2019. In February 2022, we announced a $100.0 million increase to the existing $100.0 million share repurchase authorization. As of March 23, 2022, we have $100.3 million remaining under the expanded share repurchase authorization. We did 0t repurchase any shares in Fiscal 2021. We repurchased 4,570,015 shares during Fiscal 2020 at a cost of $189.4 million or an average of $41.44 per share.
| Fiscal Year | ||||||
| (Shares in thousands) | 2020 | 2019 | 2018 | |||
| Weighted-average number of shares - basic | 15,544 | 19,351 | 19,218 | |||
| Common stock equivalents | 127 | 144 | 64 | |||
| Weighted-average number of shares - diluted | 15,671 | 19,495 | 19,282 | |||
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 Plan
Under the 20092020 Plan, which was originallybecame effective June 22, 2011,25, 2020, we may grant options, restricted shares, performance awards and other stock-based awards to our key employees, consultantsnon-employee directors and directorsconsultants for up to 2.61.8 million shares of common stock. UnderThe 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,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%25% per year over four years.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 2019under 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 2018, we did not recognize any stock option related share-based compensation for our stock incentive plan as all such amounts were fullysubject to applicable tax withholding requirements. Compensation expense recognized in earlier periods. We did 0t capitalize any share-based compensation cost.
79
Genesco Inc.
and Subsidiaries
Notes to stock options under the 2009 Plan. Consolidated Financial Statements
Note 15
Share-Based Compensation Plans, Continued
On February 5, 2020, our new
We recognized $0.1 million of stock option related share-based compensation in both Fiscal 2022 and Fiscal 2021 in selling and administrative expenses in the accompanying Consolidated Statements of Operations. As of January 29, 2022, there was $0.3 million of unrecognized compensation expense related to these stock options will beginunder the 2009 Plan. For Fiscal 2020, we did 0t recognize any stock option related share-based compensation for our stock incentive plans as all such amounts were fully recognized in the first quarter of our Fiscal 2021 since the grant was made on the first day on Fiscal 2021.
Restricted Stock Incentive Plans
Director Restricted Stock
The 20092020 Plan permits grants to non-employee directors on such terms as the Board of Directors may approve. Restricted stock awards were made to independent directors on the date of the annual meeting of shareholders in each of Fiscal 2020, 20192022, 2021 and 2018.2020. 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. In all cases,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 2022 were valued at $107,500, per director, and Subsidiaries
In addition, the 2009 Plan permitspermitted an outside director to elect irrevocably to receive all or a specified portion of his or her annual retainers for boardBoard 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 arewere granted as of the first business day of the fiscal year as to which the election iswas 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 arewere 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 2020, 20192021 and 2018,2020, we issued 10,913 shares, 14,37910,457 shares and 8,43510,913 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,
We recognized $1.3$0.7 million, $0.9 million and $1.3 million of director restricted stock related share-based compensation in each of Fiscal 2020, 20192022, 2021 and 20182020 in selling and administrative expenses in the accompanying Consolidated Statements of Operations.
80
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 15
Share-Based Compensation Plans, Continued
Employee Restricted Stock
Under the 20092020 Plan, we issued 269,816 shares, 352,060 shares and 356,224228,444 shares of employee restricted stock in Fiscal 2020, 20192022. Under the 2009 Plan, we issued 427,741 shares and 2018,269,816 shares of employee restricted stock in Fiscal 2021 and 2020, respectively. Shares of employee restricted stock issued in Fiscal 2020, 20192022, 2021 and 20182020 primarily vest 25%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 1,800, 4,388919, 621 and 4,9471,800 restricted stock units in Fiscal 2020, 20192022, 2021 and 2018,2020, respectively, to certain employees at no cost that vest over three years.years. The fair value of employee restricted stock is charged against income as compensation costexpense over the vesting period. Compensation costexpense recognized in selling and administrative expenses in the accompanying Consolidated Statements of Operations for these shares was $8.8$8.3 million, $12.1$7.4 million and $12.2$8.8 million for Fiscal 2022, 2021 and 2020, 2019 and 2018, respectively, and is inclusive of discontinued operations of $2.0 million and $1.7 million in Fiscal 2019 and 2018, respectively.
A summary of the status of our nonvested shares of our employee restricted stock as of February 1, 2020January 29, 2022 is presented below:
Nonvested Restricted Shares |
| Shares |
|
| Weighted- |
| ||
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 |
|
Granted |
|
| 228,444 |
|
|
| 63.40 |
|
Vested |
|
| (162,205 | ) |
|
| 30.47 |
|
Withheld for federal taxes |
|
| (64,535 | ) |
|
| 30.36 |
|
Forfeited |
|
| (6,885 | ) |
|
| 34.89 |
|
Nonvested at January 29, 2022 |
|
| 660,909 |
|
| $ | 39.46 |
|
| Nonvested Restricted Shares | Shares | Weighted-Average Grant-Date Fair Value | |||
| 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 | |||
| 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 | |||
As of February 1, 2020,January 29, 2022, we had $19.0$20.6 million of total unrecognized compensation costsexpense 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 1.791.81 years.
81
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 14
Legal Proceedings
Environmental Matters
The Company has legacy obligations including environmental monitoring and Other Matters
Accrual for Environmental Contingencies
Related to all outstanding environmental contingencies, we had accrued $1.5$1.4 million as of January 29, 2022, $1.5 million as of January 30, 2021 and $1.5 million as of February 1, 2020, $1.8 million as of February 2, 2019 and $3.0 million as of February 3, 2018.2020. 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 $0.4$0.2 million in Fiscal 2020, $0.72022, $0.3 million in Fiscal 20192021 and $0.6$0.4 million in Fiscal 2018.2020. These charges are included in loss from discontinued operations, net in the Consolidated Statements of Operations and represent changes in estimates.
Guarantee Related to Discontinued Operations
As part of the Lids Sports Group sales transaction, the purchaser has agreed to indemnify and Subsidiaries
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 is 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.
82
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 15
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, 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 Fiscal 2018,corporate operating lease right of use assets and miscellaneous investments. We do not allocate certain costs to each segment in order to make decisions and assess performance. These costs include corporate overhead, bank fees, interest expense, interest income, goodwill impairment, asset impairment charges and other, including a gain on the sale of a distribution warehouse, a pension settlement charge, major litigation and major lease terminations.
| Fiscal 2020 | |||||||||||||||||||||||
| Journeys Group | Schuh Group | Johnston & Murphy Group | Licensed Brands | Corporate & Other | Consolidated | ||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Sales | $ | 1,460,253 | $ | 373,930 | $ | 300,850 | $ | 61,859 | $ | 174 | $ | 2,197,066 | |||||||||||
| Intercompany sales | — | — | — | — | — | — | |||||||||||||||||
| 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) | — | — | — | — | (13,374 | ) | (13,374 | ) | |||||||||||||||
| Operating income | 114,945 | 4,659 | 17,702 | (698 | ) | (53,290 | ) | 83,318 | |||||||||||||||
| Other components of net periodic benefit cost | — | — | — | — | 395 | 395 | |||||||||||||||||
| Interest expense | — | — | — | — | (3,339 | ) | (3,339 | ) | |||||||||||||||
| Interest income | — | — | — | — | 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 | |||||||||||||||||
Fiscal 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(In thousands) | Journeys |
| Schuh |
| Johnston |
| Licensed |
| Corporate |
| Consolidated |
| ||||||
Sales | $ | 1,576,475 |
| $ | 423,560 |
| $ | 252,855 |
| $ | 170,619 |
| $ | 0 |
| $ | 2,423,509 |
|
Intercompany sales |
| 0 |
|
| 0 |
|
| 0 |
|
| (1,425 | ) |
| — |
|
| (1,425 | ) |
Net sales to external customers | $ | 1,576,475 |
| $ | 423,560 |
| $ | 252,855 |
| $ | 169,194 |
| $ | — |
| $ | 2,422,084 |
|
Segment operating income (loss) | $ | 165,336 |
| $ | 19,257 |
| $ | 7,029 |
| $ | 6,583 |
| $ | (50,694 | ) | $ | 147,511 |
|
Asset impairments and other(1) |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| 8,056 |
|
| 8,056 |
|
Operating income |
| 165,336 |
|
| 19,257 |
|
| 7,029 |
|
| 6,583 |
|
| (42,638 | ) |
| 155,567 |
|
Other components of net periodic benefit cost |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| (128 | ) |
| (128 | ) |
Interest expense,net |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| (2,448 | ) |
| (2,448 | ) |
Earnings from continuing operations before income taxes | $ | 165,336 |
| $ | 19,257 |
| $ | 7,029 |
| $ | 6,583 |
| $ | (45,214 | ) | $ | 152,991 |
|
Total assets at fiscal year end(2) | $ | 678,680 |
| $ | 207,495 |
| $ | 128,187 |
| $ | 67,658 |
| $ | 480,079 |
| $ | 1,562,099 |
|
Depreciation and amortization |
| 28,903 |
|
| 6,942 |
|
| 4,612 |
|
| 1,081 |
|
| 1,431 |
|
| 42,969 |
|
Capital expenditures |
| 22,438 |
|
| 3,062 |
|
| 4,647 |
|
| 1,071 |
|
| 22,687 |
|
| 53,905 |
|
83
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 17
Business Segment Information, Continued
Fiscal 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(In thousands) | Journeys |
| Schuh |
| Johnston |
| Licensed |
| Corporate |
| 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, net |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| (5,090 | ) |
| (5,090 | ) |
Earnings (loss) from continuing operations before income taxes | $ | 76,896 |
| $ | (11,602 | ) | $ | (47,624 | ) | $ | (5,430 | ) | $ | (123,909 | ) | $ | (111,669 | ) |
Total assets at fiscal year end(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 |
|
84
Genesco Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Note 17
Business Segment Information, Continued
Fiscal 2020 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(In thousands) | Journeys |
| Schuh |
| Johnston |
| Licensed |
| Corporate |
| 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 |
|
| 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, net |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
|
| (1,278 | ) |
| (1,278 | ) |
Earnings from continuing operations before income taxes | $ | 114,945 |
| $ | 4,659 |
| $ | 17,702 |
| $ | (698 | ) | $ | (54,173 | ) | $ | 82,435 |
|
Total assets at fiscal year end(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 |
|
| 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 | ) | |||||||||||||||
| Operating income | 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 | |||||||||||||||||
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)85Excludes $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.
| 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 | ) | |||||||||||||||
| Operating income | 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 Year | ||||||
| 2019 | 2018 | |||||
| Net sales | $ | 723,125 | $ | 779,469 | ||
| Cost of sales | 348,038 | 374,730 | ||||
| Selling and administrative expenses | 370,480 | 391,982 | ||||
| Goodwill and trademark impairment | 5,736 | 182,211 | ||||
| Asset impairments and other, net | 2,394 | 1,068 | ||||
| Loss on sale of Lids Sports Group | (126,321 | ) | — | |||
| Other components of net periodic benefit cost | (23 | ) | (128 | ) | ||
Provision for discontinued operations(1) | (743 | ) | (552 | ) | ||
| Loss from discontinued operations before taxes | (130,610 | ) | (171,202 | ) | ||
| Income tax benefit | (27,456 | ) | (22,655 | ) | ||
| Loss from discontinued operations, net of tax | $ | (103,154 | ) | $ | (148,547 | ) |
Expenses primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by us (see Note 14).
| Fiscal Year | ||||||
| (In thousands) | 2019 | 2018 | ||||
| Depreciation and amortization | $ | 24,778 | $ | 26,793 | ||
| Capital expenditures | 15,450 | 29,244 | ||||
| Impairment of intangible assets | 5,736 | 182,211 | ||||
| Impairment of long-lived assets | 1,670 | 1,007 | ||||
| (In thousands, | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Fiscal Year | |||||||||||||||||||||||||||||||||||
| except per share amounts) | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||
| Net sales | $ | 495,651 | $ | 486,219 | $ | 486,573 | $ | 487,015 | $ | 537,263 | $ | 539,828 | $ | 677,579 | $ | 675,491 | $ | 2,197,066 | $ | 2,188,553 | ||||||||||||||||||||
| Gross margin | 244,908 | 238,006 | 236,533 | 231,469 | 264,202 | 261,918 | 317,472 | 315,663 | 1,063,115 | 1,047,056 | ||||||||||||||||||||||||||||||
| Earnings from continuing operations before income taxes | 9,336 | (1) | 2,692 | (2) | 2,708 | (4) | 1 | 25,433 | (5) | 25,580 | 44,958 | (7) | 49,986 | (8) | 82,435 | 78,259 | ||||||||||||||||||||||||
| Earnings (loss) from continuing operations | 6,470 | 1,856 | 793 | (25 | ) | 18,979 | 19,694 | 35,515 | 29,699 | 61,757 | 51,224 | |||||||||||||||||||||||||||||
| Net earnings (loss) | 6,346 | (2,331 | ) | (3) | 577 | (15 | ) | 18,899 | 14,387 | (6) | 35,562 | (63,971 | ) | (9) | 61,384 | (51,930 | ) | |||||||||||||||||||||||
| Diluted earnings (loss) per common share: | ||||||||||||||||||||||||||||||||||||||||
| Continuing operations | 0.36 | 0.10 | 0.05 | 0.00 | 1.31 | 1.00 | 2.49 | 1.53 | 3.94 | 2.63 | ||||||||||||||||||||||||||||||
| Net earnings (loss) | 0.36 | (0.12 | ) | 0.04 | 0.00 | 1.30 | 0.73 | 2.49 | (3.29 | ) | 3.92 | (2.66 | ) | |||||||||||||||||||||||||||
(1)Includes a net asset impairment and other gain of $(0.7) million (see Note 4).
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 us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and Board of Directors.
Based on their evaluation as of February 1, 2020,January 29, 2022, the principal executive officer and principal financial officer of the Company have concluded that our 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 us in the reports that we file or submit 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 our 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. Our 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 our internal control over financial reporting as of February 1, 2020.January 29, 2022. In making this assessment, management used the criteria set forth in Internal Control – Integrated Framework (2013) drafted by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management believes that, as of February 1, 2020,January 29, 2022, our internal control over financial reporting was effective based on those criteria.
Ernst & Young LLP, the independent registered public accounting firm who also audited our 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 our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected or are reasonablereasonably likely to materially affect our internal control over financial reporting.
ITEM 9B, OTHER INFORMATION
Not applicable.
ITEM 9C, DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
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 “Delinquent Section 16(a) Reports” in our definitive proxy statement for our annual meeting of shareholders to be held June 25, 2020,23, 2022, to be filed with the Securities and Exchange Commission. Pursuant to General Instruction G(3), certain information concerning our executive officers appears under Part I, Item 4A, “Executive Officers of the Registrant”“Information about Our Executive Officers” in this report.
We have a code of ethics (the “Code of Ethics”) that applies to all of our directors, officers (including our chief executive officer, chief financial officer and chief accounting officer) and employees. We have made the Code of Ethics available and intend to post any legally required amendments to, or waivers of, such Code of Ethics on our website at http://www.genesco.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not a part of this report, and therefore is not incorporated herein by reference.
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 our definitive proxy statement for our annual meeting of shareholders to be held June 25, 2020,23, 2022, 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 our definitive proxy statement for our annual meeting of shareholders to be held June 25, 2020,23, 2022, to be filed with the Securities and Exchange Commission.
The following table provides certain information as of February 1, 2020January 29, 2022 with respect to our equity compensation plans:
EQUITY COMPENSATION PLAN INFORMATION*
Plan Category |
| (a) |
|
| (b) |
|
| (c) |
| |||
Equity compensation plans approved by security holders |
|
| 919 |
|
| $ | — |
|
|
| 850,847 |
|
Equity compensation plans not approved by security holders |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 919 |
|
| $ | — |
|
|
| 850,847 |
|
(1)
| Plan Category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | (b) Weighted-average exercise price of outstanding options, warrants and rights | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (2) | ||||||
| Equity compensation plans approved by security holders | 1,800 | $ | — | 951,120 | |||||
| Equity compensation plans not approved by security holders | — | — | — | ||||||
| Total | 1,800 | $ | — | 951,120 | |||||
| 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 15, "Share-Based Compensation Plans".
87
The information required by this item is incorporated herein by reference to the section entitled “Election of Directors” in our definitive proxy statement for our annual meeting of shareholders to be held June 25, 2020,23, 2022, 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 our definitive proxy statement for our annual meeting of shareholders to be held June 25, 2020,23, 2022, to be filed with the Securities and Exchange Commission.
88
PART IV
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 1, 2020January 29, 2022 and February 2, 2019
Consolidated Statements of Operations, each of the three fiscal years ended 2020, 20192022, 2021 and 2018
Consolidated Statements of Comprehensive Income, each of the three fiscal years ended 2020, 20192022, 2021 and 2018
Consolidated Statements of Cash Flows, each of the three fiscal years ended 2020, 20192022, 2021 and 2018
Consolidated Statements of Equity, each of the three fiscal years ended 2020, 20192022, 2021 and 2018
Notes to Consolidated Financial Statements
Financial Statement Schedules
Schedule 2 — Valuation and Qualifying Accounts, each of the three fiscal years ended 2020, 20192022, 2021 and 2018
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 91.
Exhibits
(2) | a. | ||
b. | |||
c. | |||
(3) | a. | ||
b. | |||
(4) | a. | ||
b. | |||
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(10) | a. | ||
b. |
c. | |||
d. | |||
e. | |||
f. | |||
g. | |||
h. | |||
i. | |||
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k. | |||
l. | |||
m. | |||
n. | |||
o. | |||
p. | |||
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q. | |||
r. | |||
s. | Form of Indemnification Agreement For Directors. Incorporated by reference to Exhibit (10)m to the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 1993 (File No.1-3083). (P) | ||
t. | |||
u. | |||
v. | |||
w. | |||
x. | |||
y. | |||
z. |
aa. | |||
bb. | |||
cc. | |||
dd. | |||
ee. | |||
ff. | |||
gg. | |||
hh. | |||
ii. | |||
jj. | |||
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kk. | |||
(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) |
Exhibits (10)eg through (10)m,r, (10)qv through (10)vaa and (10)aaff are Management Contracts or Compensatory Plans or Arrangements required to be filed as Exhibits to this Annual Report on Form 10-K.
* Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment.
A copy of any of the above described exhibits will be furnished to the shareholders upon written request, addressed to Director, Corporate Relations, Genesco Inc., Genesco Park, Room 498, P.O. Box 731, 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.
92
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration statement (Form S-8 No. 333-08463) of Genesco Inc.,
(2) Registration statement (Form S-8 No. 333-104908) of Genesco Inc.,
(3) Registration statement (Form S-8 No. 333-40249) of Genesco Inc.,
(4) Registration statement (Form S-8 No. 333-128201) of Genesco Inc.,
(5) Registration statement (Form S-8 No. 333-160339) of Genesco Inc.,
(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 1, 2020,March 23, 2022, 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 1, 2020.
/s/ Ernst & Young LLP | |
Nashville, Tennessee | |
March 23, 2022 | |
93
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GENESCO INC. | ||
By: | /s/ | |
Thomas A. George | ||
Senior Vice President – Finance and | ||
Chief Financial Officer | ||
Date: April 1, 2020
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 5th4th day of February, 2020.
/s/Mimi Eckel Vaughn | Board Chair, President, Chief Executive Officer | |
Mimi Eckel Vaughn | ||
(Principal Executive Officer) | ||
/s/ | Senior Vice President – Finance and | |
Thomas A. George | Chief Financial Officer | |
(Principal Financial Officer) | ||
/s/Brently G. Baxter | Vice President and Chief Accounting Officer | |
Brently G. Baxter | (Principal Accounting Officer) | |
Directors: | ||
Joanna Barsh* | Angel R. Martinez * | |
Matthew C. Diamond* | Mary Meixelsperger* | |
John F. Lambros * | Kevin P. McDermott* | |
Thurgood Marshall, Jr.* | Gregory A. Sandfort* | |
*By | /s/Scott E. Becker | |
Scott E. Becker | ||
Attorney-In-Fact | ||
94
Genesco Inc. | |
and Subsidiaries | |
Financial Statement Schedule | |
January 29, 2022 | |
95
Schedule 2
Genesco Inc.
and Subsidiaries
Valuation and Qualifying Accounts
Year Ended January 29, 2022
(In thousands) |
| Beginning |
|
| Charged |
|
| Reductions |
|
| Ending |
| ||||
Allowances deducted from assets in the balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts Receivable Allowances |
| $ | 5,015 |
|
| $ | 19 |
|
| $ | (378 | ) |
| $ | 4,656 |
|
Markdown Allowance (1) |
| $ | 14,951 |
|
| $ | — |
|
| $ | (11,792 | ) |
| $ | 3,159 |
|
Year Ended January 30, 2021
(In thousands) |
| Beginning |
|
| Charged |
|
| Reductions |
|
| Ending |
| ||||
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 |
|
| Charged |
|
| Reductions |
|
| Ending |
| ||||
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 |
|
(1)
| (In thousands) | Beginning Balance | Charged to Profit and Loss | Additions (Reductions) | Ending Balance | |||||||||||
| Allowances deducted from assets in the balance sheet: | |||||||||||||||
| Accounts Receivable Allowances | $ | 2,894 | $ | 133 | $ | (87 | ) | $ | 2,940 | ||||||
| Markdown Allowance (1) | $ | 7,019 | $ | 1,579 | $ | (3,039 | ) | $ | 5,559 | ||||||
| (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 | ||||||
| (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 | ||||||
96