Genesco(GCO) - 2020 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (unaudited) Genesco Inc.'s unaudited condensed consolidated financial statements for Q3 and nine months ended November 2, 2019, reflect the Lids Sports Group sale and ASC 842 adoption, recognizing significant lease assets and liabilities Condensed Consolidated Balance Sheets As of November 2, 2019, total assets increased to $1.79 billion from $1.18 billion due to ASC 842 adoption, recognizing a $750.9 million operating lease right-of-use asset and corresponding liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Nov 2, 2019 | Feb 2, 2019 | Nov 3, 2018 | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $55,826 | $167,355 | $53,423 | | Inventories | $473,940 | $366,667 | $454,673 | | Operating lease right of use asset | $750,855 | — | — | | Total Assets | $1,785,492 | $1,181,081 | $1,430,713 | | Liabilities & Equity | | | | | Current portion - operating lease liability | $145,788 | — | — | | Long-term operating lease liability | $663,168 | — | — | | Long-term debt | $62,368 | $56,751 | $72,455 | | Total Liabilities | $1,212,044 | $443,530 | $588,952 | | Retained earnings | $343,156 | $508,555 | $617,923 | | Total Equity | $573,448 | $737,551 | $841,761 | - The adoption of new lease accounting standard ASC 842 resulted in the recognition of a $750.9 million operating lease right-of-use asset and corresponding current ($145.8 million) and long-term ($663.2 million) lease liabilities as of November 2, 2019[6][8] Condensed Consolidated Statements of Operations Q3 net sales slightly decreased to $537.3 million, but net earnings rose to $19.0 million; nine-month net sales grew to $1.52 billion, with operating income increasing to $38.0 million Q3 Performance Summary (in thousands, except per share amounts) | Metric | Q3 2020 (ended Nov 2, 2019) | Q3 2019 (ended Nov 3, 2018) | | :--- | :--- | :--- | | Net sales | $537,263 | $539,828 | | Operating income | $25,943 | $26,387 | | Earnings from continuing operations | $18,979 | $19,694 | | Net Earnings | $18,899 | $14,387 | | Diluted EPS (Net earnings) | $1.30 | $0.73 | Nine-Month Performance Summary (in thousands, except per share amounts) | Metric | Nine Months 2020 (ended Nov 2, 2019) | Nine Months 2019 (ended Nov 3, 2018) | | :--- | :--- | :--- | | Net sales | $1,519,487 | $1,513,062 | | Operating income | $37,989 | $31,174 | | Earnings from continuing operations | $26,242 | $21,525 | | Net Earnings | $25,822 | $12,041 | | Diluted EPS (Net earnings) | $1.60 | $0.62 | Condensed Consolidated Statements of Cash Flows Nine-month operating cash flow significantly decreased to $2.8 million, while investing activities provided $77.3 million from a business sale, and financing used $191.3 million for share repurchases Nine-Month Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Nov 2, 2019 | Nine Months Ended Nov 3, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,806 | $58,297 | | Net cash provided by (used in) investing activities | $77,342 | $(45,406) | | Net cash provided by (used in) financing activities | $(191,318) | $1,390 | | Net (Decrease) in Cash | $(111,529) | $13,486 | - Investing activities were significantly impacted by the receipt of $98.7 million from the sale of a business during the first nine months of Fiscal 2020[14] - Financing activities were dominated by $189.2 million used for share repurchases in the first nine months of Fiscal 2020, with no such repurchases in the prior-year period[14] Notes to Condensed Consolidated Financial Statements (unaudited) Detailed notes cover accounting policies, four business segments, the significant impact of ASC 842 adoption, the Lids Sports Group sale as discontinued operations, and legal contingencies - The company operates four reportable business segments: Journeys Group, Schuh Group, Johnston & Murphy Group, and Licensed Brands[21] - On February 2, 2019, the company completed the sale of its Lids Sports Group business, with operating results reported in loss from discontinued operations[20] - The adoption of ASC 842 on February 3, 2019, resulted in recording net operating lease right-of-use assets of $795.6 million and operating lease liabilities of $855.3 million[48][50] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q3 and nine-month Fiscal 2020 performance, focusing on the Lids sale, footwear strategy, segment results, liquidity, capital resources, and market risks, noting a 3% comparable sales growth in Q3 Overview and Strategy The company's strategy, following the Lids Sports Group sale, focuses on footwear-centric growth through organic initiatives like improved comparable sales and operating margins, alongside potential acquisitions - The company's long-term strategy is to pursue growth through a footwear-focused approach, concentrating on both organic growth and potential acquisitions[151] - Organic growth initiatives include improving comparable sales (in-store and e-commerce), increasing operating margins, opportunistically managing the store base, and enhancing brand value[151] Results of Operations Q3 Fiscal 2020 saw a slight net sales decrease to $537.3 million but 3% comparable sales growth, with Journeys Group showing strong performance and Johnston & Murphy Group experiencing sales and operating income declines Q3 Fiscal 2020 Segment Performance | Segment | Net Sales (in thousands) | % Change YoY | Operating Income (in thousands) | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | Journeys Group | $354,920 | 2.7% | $28,955 | 17.3% | | Schuh Group | $92,899 | (2.8)% | $4,369 | 3.9% | | Johnston & Murphy Group | $72,703 | (8.8)% | $3,715 | (26.8)% | | Licensed Brands | $16,726 | (10.8)% | $(27) | 87.6% | - Overall comparable sales for Q3 Fiscal 2020 increased by 3%, driven by a 1% increase in same-store sales and a 19% increase in comparable direct (e-commerce/catalog) sales[161] Liquidity and Capital Resources As of November 2, 2019, cash was $55.8 million; nine-month operating cash flow decreased to $2.8 million, while $77.3 million from investing activities and $191.3 million in share repurchases significantly impacted liquidity - The company repurchased 4,570,015 shares for $189.4 million during the first nine months of Fiscal 2020, with approximately $89.7 million remaining under authorization as of December 6, 2019[220][99] - Total capital expenditures for Fiscal 2020 are expected to be approximately $40 million, allocated to new store openings, renovations, and technology enhancements[217] - The company amended its primary credit facility, decreasing the total commitment from $400.0 million to $275.0 million following the Lids Sports Group sale, with $203.2 million excess availability at November 2, 2019[200][206] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from interest rate changes and foreign currency fluctuations, particularly impacting the Schuh Group, and has a credit risk concentration with one wholesale customer - The company is exposed to foreign currency translation risk from its foreign operations, primarily the Schuh Group, with currency fluctuations negatively impacting Schuh's net sales by $14.4 million for the first nine months of Fiscal 2020[229][231] - As of November 2, 2019, one wholesale customer accounted for 21% of the company's total trade receivables balance, indicating a concentration of credit risk[228] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of November 2, 2019, with no material changes to internal control over financial reporting during the third quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of November 2, 2019[235] - There were no changes in internal control over financial reporting during the third quarter that materially affected, or are reasonably likely to materially affect, these controls[236] Part II. Other Information Item 1. Legal Proceedings Legal proceedings information is incorporated by reference from Note 9, covering environmental obligations and wage and hour lawsuit settlements related to former operations - Information regarding legal proceedings is incorporated by reference from Note 9 of the financial statements[238] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended February 2, 2019, have occurred - There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for Fiscal 2019[239] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 Fiscal 2020, the company repurchased 1,150,198 shares at an average price of $35.85, with $89.7 million remaining for future repurchases as of November 2, 2019 Issuer Purchases of Equity Securities (Q3 Fiscal 2020) | Period (2019) | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | August 4 - August 31 | 857,750 | $34.98 | | September 1 - September 28 | 23,765 | $40.56 | | September 29 - November 2 | 268,683 | $38.43 | - As of November 2, 2019, approximately $89.7 million remained available for purchase under the company's share repurchase programs[239] Item 6. Exhibits Exhibits filed with this Form 10-Q include CEO and CFO certifications under Sarbanes-Oxley and Inline XBRL documents - The exhibits filed with this report include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, and Interactive Data Files (Inline XBRL)[241]