Genesco(GCO) - 2020 Q4 - Annual Report

Part I Business Overview Genesco Inc. is a leading global retailer and wholesaler of branded footwear, apparel, and accessories, operating four distinct business segments with $2.2 billion in net sales for fiscal year 2020 General Company Information - Genesco Inc., incorporated in Tennessee in 1934, is a leading retailer and wholesaler of branded footwear, apparel, and accessories, with $2.2 billion in net sales for fiscal year 2020[8] - The company operates four reporting business segments: Journeys Group, Schuh Group, Johnston & Murphy Group, and Licensed Brands[8] - On January 1, 2020, the company acquired Togast LLC and entered into a new U.S. footwear license agreement with Levi Strauss & Co., expanding the brand portfolio of its Licensed Brands segment[8] - On February 2, 2019, the company sold its Lids Sports Group business, with its operating results reported as a loss from discontinued operations in the consolidated statements of operations[8] - On January 1, 2020, the company completed the acquisition of Togast LLC, expanding its licensed footwear brand portfolio to include Levi's®, Bass®, ADIO, and FUBU brands[8] - On February 2, 2019, the company completed the sale of its Lids Sports Group business[8] - As of February 1, 2020, the company operated 1,480 retail stores in the U.S., Puerto Rico, Canada, the UK, and Ireland[10] - The COVID-19 pandemic led to temporary store closures in North America on March 18, 2020, and in the UK and Ireland on March 23, with the UK e-commerce business temporarily closed on March 26, potentially delaying or increasing store opening and closing plans for fiscal year 2021[11] Retail Store Count Changes (Fiscal Years 2016-2020) | Metric | Fiscal 2016 | Fiscal 2017 | Fiscal 2018 | Fiscal 2019 | Fiscal 2020 | | :----------- | :------- | :------- | :------- | :------- | :------- | | Stores at Beginning of Year | 1,460 | 1,520 | 1,554 | 1,535 | 1,512 | | Stores Opened During Year | 54 | 66 | 59 | 36 | 12 | | Stores Acquired During Year | 37 | — | — | — | — | | Stores Closed During Year | (31) | (32) | (78) | (59) | (44) | | Stores at End of Year | 1,520 | 1,554 | 1,535 | 1,512 | 1,480 | Company Strategy The company focuses on creating and curating leading footwear brands and becoming a preferred destination for fashion footwear consumers - The company is committed to creating and curating leading footwear brands that represent style, innovation, and self-expression, aiming to be the consumer's preferred destination for fashion footwear[14] - The company's strategy revolves around six pillars: 1) Deepening consumer insights to strengthen customer relationships and brand equity; 2) Enhancing product innovation and trend insights; 3) Accelerating digitalization to grow direct-to-consumer business; 4) Maximizing the relationship between physical stores and digital business; 5) Reshaping the cost base to reinvest in future growth; 6) Seeking synergistic acquisitions to drive growth and create shareholder value[14] - The company expects to reduce new store openings in the future, focusing on high-productivity locations, and may reduce total square footage and store count while improving productivity of existing stores and investing in omnichannel and digital retail technology and infrastructure[14] - The company has achieved growth through acquisitions (e.g., Schuh Group, Little Burgundy, and Togast) and may continue to pursue acquisition opportunities in the future[14][16] - The company strives to develop strategies to mitigate significant risks, including those related to consumer demand such as economic conditions, fashion trends changes, inventory management, and competitive pressures[17] Business Segments The company operates four distinct business segments, each targeting specific demographics and contributing differently to overall net sales and comparable sales growth Fiscal Year 2020 Net Sales Contribution and Comparable Sales Growth by Business Segment | Business Segment | FY2020 Net Sales Contribution | FY2020 Comparable Sales Growth | | :----------------- | :------------------- | :----------------------- | | Journeys Group | 66% | 4% | | Schuh Group | 17% | 2% | | Johnston & Murphy Group | 14% | -2% | | Licensed Brands | 3% | N/A | - Journeys Group primarily targets teenagers aged 13 to 22, selling branded footwear and accessories, operating 1,171 stores as of February 1, 2020[19][20] - Schuh Group primarily targets teenagers and young adults aged 16 to 24, selling branded casual and athletic footwear, operating 129 stores as of February 1, 2020[22] - Johnston & Murphy Group primarily targets business and professional individuals aged 35 to 55, selling footwear, apparel, and accessories, operating 180 retail and factory stores as of February 1, 2020[24] - Licensed Brands sells licensed footwear for brands such as Levi's®, Dockers®, and Bass®, with the exclusive license for Dockers® men's footwear in the U.S. dating back to 1991, generating approximately $47 million in sales in fiscal year 2020[27][30] Manufacturing and Sourcing The company relies on independent third-party manufacturers and sources footwear and accessories from a diverse range of countries globally - The company relies on independent third-party manufacturers for its wholesale footwear products and sources footwear and accessories from countries including Bangladesh, Brazil, Canada, China, Dominican Republic, El Salvador, France, Germany, Hong Kong, India, Indonesia, Italy, Mauritius, Mexico, Nicaragua, Pakistan, Portugal, Peru, Romania, Taiwan, and Vietnam[28] Competition The footwear and accessories industry is highly competitive, with success dependent on various factors including style, price, quality, and customer service - The footwear and accessories industry is highly competitive, with rivals including small local shops, regional and national department stores, discount stores, specialty chains, suppliers with direct-to-consumer channels, and online retailers[29] - The company's success depends on its competitiveness in style, price, quality, comfort, brand loyalty, customer service, store location and ambiance, technology, infrastructure, and delivery speed and relevant product offerings to support e-commerce[29] Licenses The company holds proprietary brands and exclusive licensing agreements for key footwear brands, contributing to its product portfolio - The company owns the Johnston & Murphy® and H.S. Trask® brands and owns or licenses the trade names for its retail concepts directly or through wholly-owned subsidiaries[30] - The company holds an exclusive license for Dockers® men's footwear in the U.S., Canada, and the Caribbean, with the agreement expiring in 2024; net sales of Dockers products were approximately $47 million in fiscal year 2020 and $56 million in fiscal year 2019[30] - In January 2020, the company entered into a new license agreement with Levi Strauss & Co. for Levi's® men's, women's, and children's footwear in the U.S. and Caribbean, with an initial term through November 30, 2024[30] Wholesale Backlog Wholesale order backlog, including unconfirmed customer purchase orders, decreased in fiscal year 2020 and is subject to seasonality and potential cancellations due to the COVID-19 pandemic - As of February 29, 2020, the company's wholesale business order backlog (including unconfirmed customer purchase orders) was approximately $24.7 million, down from $28.8 million as of March 2, 2019[31] - Order backlog is seasonal, typically peaking in the spring, and may be more susceptible to cancellations due to the COVID-19 pandemic[31] Employees As of February 1, 2020, the company employed approximately 22,050 individuals, with a significant portion being part-time retail store employees - As of February 1, 2020, the company had approximately 22,050 employees, of whom about 16,400 were part-time retail store employees[33] Seasonality The company's business is seasonal, with inventory and receivables typically peaking in spring and fall, and the majority of net sales and operating earnings generated in the fourth quarter - The company's business is seasonal, with inventory and accounts receivable typically peaking in the spring and fall of each year, and the majority of net sales and operating earnings generated in the fourth quarter[34] Environmental Matters The company is subject to environmental laws and regulations related to its former manufacturing operations and current sites, potentially incurring remediation liabilities and penalties - The company's former manufacturing operations and current operating locations are subject to federal, state, and local environmental laws and regulations concerning wastewater discharge, air quality, waste disposal, and hazardous substance releases[35] - The company is currently involved in administrative and judicial environmental proceedings related to former facilities, which may result in environmental remediation liabilities, fines, and penalties[35] Available Information The company files reports with the SEC, including 10-K, 10-Q, and 8-K, which are accessible through its website - The company files reports with the U.S. Securities and Exchange Commission (SEC), including 10-K, 10-Q, and 8-K, and makes these reports available through its website[36] Risk Factors The company faces multiple significant risks, including the impact of the COVID-19 pandemic, economic conditions, brand reputation, fashion trends, declining mall traffic, and operational challenges - The COVID-19 pandemic has caused significant disruptions to the company's sales, supply chain, and financial performance, with potential future economic recession and rising unemployment leading to reduced product sales[39][40][41] - Consumer spending is influenced by various factors such as economic conditions, weather, energy costs, consumer debt, interest rates, tax policies, war, terrorism, and consumer confidence, which may lead to decreased demand for the company's products[43][44][45] - Failure to protect the company's reputation, or damage from negative publicity, social media, or non-compliance with ethical, social, health, product, labor, data privacy, and environmental standards, could result in revenue decline[47] - The company's business is highly dependent on fashion trends, and failure to timely identify and respond to changes in consumer preferences may lead to decreased sales, product margins, operating income, and cash flow, along with risks of excess inventory and high markdowns[48][50][51][52] - A majority of the company's stores are located in shopping malls, and declining mall traffic (including the impact of COVID-19) may negatively affect comparable store sales growth[53] - The company's business is seasonal, with most net sales and operating income generated in the fourth quarter, limiting the ability to offset sales or earnings shortfalls in other quarters[54] - Changes in the retail industry, including consolidation, store closures, bankruptcies, and rapid expansion of online retail, may lead to decreased mall traffic and materially adversely affect the company's business or financial condition[58] - The footwear and accessories market is highly competitive, with factors such as competitors' operational efficiency, pricing strategies, expansion, direct-to-consumer sales by suppliers, and new market entrants potentially having a material adverse effect on the company[61] - New store openings and lease renewals for existing stores face risks, including identifying suitable markets and locations, negotiating lease terms, government permits, employee recruitment and training, managing resources, adaptability of distribution systems, and unforeseen events like COVID-19[63][64][66] - Acquisitions and dispositions of businesses carry risks, including failure to successfully integrate, failure to achieve profitability targets, goodwill impairment, retention of liabilities and costs, and post-transaction adjustments that may significantly alter consideration[67][68][69] - Goodwill recorded in acquisitions is subject to impairment risk, which, if market value deteriorates relative to book value, could lead to goodwill impairment and reduce the company's profitability[70][71][72] - The company's business heavily relies on information systems, facing risks of system damage, disruptions (e.g., computer viruses, security breaches, power outages), reliance on third-party vendors, and failure to meet technology personnel needs[73][74][75] - The company faces payment-related risks, including increased operating costs, fraud or theft risks, potential liabilities, and business disruptions, as well as challenges in complying with payment network rules, data security standards, and EMV technology certification[76][78] - Privacy breaches (through cybersecurity incidents or otherwise) or failure to comply with privacy laws (such as GDPR) could materially adversely affect the company's business, leading to reputational damage, lost sales, government fines, and litigation[79][80][81] - Increased operating costs, including rising minimum wages, labor market competition, store rents, distribution center costs, and healthcare costs, may reduce operating margins and impact the ability to expand stores[82][83] - Loss of key management personnel or failure to attract and retain necessary talent could adversely affect the company's operating performance, particularly in store operational control and inventory loss[85][86] - Loss or disruption of distribution centers, along with freight costs, could materially adversely affect the company's business, leading to delayed merchandise delivery, lost sales, and profits[87][88][89] - Increased costs or supply disruptions for imported products could adversely affect the company's business, including raw material shortages, transportation disruptions, increased tariffs, trade restrictions, and currency fluctuations[90][91][92][93][94][95] - Evolving data protection requirements, such as GDPR, could lead to significant fines for non-compliance and increase compliance costs and business risks[96][97] - The company relies on third-party suppliers and licensors for merchandise, and if these suppliers fail to provide goods of the required quality and quantity in a timely manner, or restrict product supply, the company may lose customers[98] - Operating in foreign countries (including China) carries risks such as changes in trade or political relations, political instability, increased labor costs, natural disasters, or epidemics, which could severely disrupt product manufacturing and shipping[99][101] - Use of social media may lead to fines or other penalties due to evolving laws and regulations, and non-compliance could damage the company's reputation[102] - Establishing and protecting intellectual property is crucial for the company's business, and failure to protect trademarks, patents, and other intellectual property could harm competitiveness and lead to litigation costs and reduced profitability[103] - The company's business is affected by global and domestic events (such as global economic slowdowns, changes in consumer spending, rising fuel prices, epidemics, natural disasters, military actions, or terrorist activities), which may impact consumer demand and product sourcing capabilities[104] - Expansion of non-U.S. operations increases the company's exposure to currency fluctuations and foreign political, legal, and economic conditions, such as Brexit potentially affecting consumer demand and causing currency volatility[105][106][108][109][110] - Imposition of tariffs on the company's products could adversely affect its business, leading to higher product prices, damaged gross margins, or the need to shift production to other countries, incurring significant costs and business disruptions[111] - New trade restrictions, more burdensome existing trade restrictions, or supplier or port disruptions could impair the company's ability to profitably source merchandise, increase costs, or reduce merchandise supply[112][113][114][116] - The company faces regulatory and legal proceedings, as well as regulatory changes (such as minimum wage, overtime, and employee benefit requirements), which could adversely affect its financial condition and operating results[117][118] - New accounting standards or changes in the interpretation or application of existing accounting standards may increase operating costs and affect financial statements, such as the implementation of lease accounting standards[119][120] - A portion of the company's debt carries floating interest rates, and rising interest rates would increase debt service obligations, reducing net income and cash flow; the phase-out of LIBOR may also lead to market volatility and increased financing costs[121][122] - Changes in the effective income tax rate could adversely affect net earnings, influenced by tax laws, tax treaties, interpretation of existing laws, and the company's ability to maintain its reported positions[124] - Actions by activist shareholders could result in significant costs for the company, divert management's attention and resources, and adversely affect the business, including potential loss of business opportunities and stock price volatility[125][126] Unresolved Staff Comments There are no unresolved staff comments in this report - There are no unresolved staff comments in this report[127] Properties As of February 1, 2020, the company operated 1,480 retail footwear and accessories stores primarily in the U.S., Puerto Rico, Canada, the UK, and Ireland, with lease terms typically ranging from 10 to 15 years, including fixed and percentage-based rents - As of February 1, 2020, the company operated 1,480 retail footwear and accessories stores, primarily located in the U.S., Puerto Rico, Canada, the UK, and Ireland[129] - New shopping mall store leases in the U.S., Puerto Rico, and Canada typically have terms of approximately 10 years, while store leases in the UK and Ireland typically range from 10 to 15 years[129] - The company's lease agreements include fixed base rent payments, rent payments based on a percentage of retail sales, and scheduled fixed minimum rent increases[129] Overview of Key Properties (As of February 1, 2020) | Location | Owned/Leased | Business Segment | Purpose | Approximate Area (Square Feet) | | :------------------------- | :-------- | :------------------- | :------------------------- | :------------------- | | Lebanon, TN | Owned | Journeys Group | Distribution warehouse and administrative offices | 563,000 | | Nashville, TN | Leased | Various | Executive & footwear operations offices | 306,455 | | Bathgate, Scotland | Owned | Schuh Group | Distribution warehouse | 244,644 | | Chapel Hill, TN | Owned | Licensed Brands Johnston & Murphy | Distribution warehouse | 182,000 | | Fayetteville, TN | Owned | Group | Distribution warehouse | 178,500 | | Deans Industrial Estate, Livingston, Scotland | Owned | Schuh Group Journeys | Distribution warehouse and administrative offices | 106,813 | | Nashville, TN | Owned | Group | Distribution warehouse | 63,000 | - The company announced on February 10, 2020, plans to establish a new corporate headquarters in Nashville, signing a lease agreement for approximately 199,000 square feet of office space with a 15-year term[132][454] Legal Proceedings The company is involved in various legal proceedings, primarily environmental matters related to former facilities and a labor class action lawsuit, with settlements reached for some environmental issues and provisions made for estimated future liabilities - The company is involved in environmental matters in New York State related to a former knitting mill site, having reached a settlement with the EPA and the Village of Garden City, paying $10 million and anticipating future oversight costs between $1.7 million and $2.0 million[133][134][135][136] - In environmental matters concerning a former leather tannery site in Gloversville, New York, the company reached a $1.5 million settlement with the EPA in February 2017, with 75% reimbursed by environmental insurance carriers[137] - For environmental matters at the former Volunteer Leather Company facility in Whitehall, Michigan, the company has substantially completed its remedial action plan, with future obligations expected to be limited to periodic monitoring[138][139] Environmental Contingency Provisions (Fiscal Years 2018-2020) | Fiscal Year | Provision Amount (Million USD) | | :------- | :------------------- | | FY2020 | $1.5 | | FY2019 | $1.8 | | FY2018 | $3.0 | - The company reached a settlement in a labor class action lawsuit (Chen and Salas v. Genesco Inc., et al.) related to its former Hat World subsidiary, paying $400,000 in attorneys' fees and administrative costs, and up to $800,000 to plaintiff class members[141][143] - The company received a notice from the IRS regarding a $4.2 million Employer Shared Responsibility Payment (ESRP) for 2017, but based on its analysis, the company believes it is not liable and has not recorded a reserve[144] Mine Safety Disclosures Not applicable - Not applicable[146] Executive Officers This section lists the company's executive officers, their ages, and business experience, highlighting key leadership appointments - Mimi Eckel Vaughn (age 53) was appointed President and Chief Executive Officer on February 2, 2020[147] - Melvin G. Tucker (age 55) joined the company as Senior Vice President and Chief Financial Officer in June 2019[148] - Danny Ewoldsen (age 50) is President of the Johnston & Murphy Group and was appointed Senior Vice President of Genesco in July 2019[149] - Mario Gallione (age 59) is President of Journeys and was appointed Senior Vice President of Genesco in July 2019[151] - Scott E. Becker (age 52) joined the company as Senior Vice President, General Counsel, and Corporate Secretary in October 2019[152] - Parag D. Desai (age 45) serves as Senior Vice President, Strategy and Shared Services[153] - Brently G. Baxter (age 54) joined the company as Vice President and Chief Accounting Officer in September 2019[154] - Matthew N. Johnson (age 55) serves as Vice President and Treasurer[155] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the New York Stock Exchange under the symbol "GCO," with approximately 1,450 shareholders as of March 13, 2020, and no cash dividends paid since 1973 - The company's stock trades on the New York Stock Exchange under the symbol "GCO"[157] - As of March 13, 2020, the company had approximately 1,450 common stock shareholders[157] - The company has not paid cash dividends to common stock holders since 1973[158] - There were no recent sales of unregistered securities or issuer purchases of equity securities[158] Selected Financial Data This section provides a five-fiscal-year summary of selected financial data, highlighting fluctuations in net sales, operating margins, and earnings per share from continuing operations, significantly impacted by the sale of Lids Sports Group - The Lids Sports Group business was sold on February 2, 2019, and its operating results have been adjusted to discontinued operations in the table below[161] Selected Financial Data (Fiscal Years 2016-2020) | Metric | Fiscal 2020 | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | Fiscal 2016 | | :--------------------------------- | :---------- | :---------- | :---------- | :---------- | :---------- | | Operating Performance Data (Thousands USD) | | | | | | | 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 | 61,757 | 51,224 | 36,708 | 72,882 | 85,135 | | (Loss) Earnings from Discontinued Operations, Net of Tax | (373) | (103,154) | (148,547) | 24,549 | 9,434 | | Net (Loss) Earnings | $61,384 | $(51,930) | $(111,839) | $97,431 | $94,569 | | Per Common Share Data | | | | | | | Earnings from Continuing Operations (Diluted) | $3.94 | $2.63 | $1.90 | $3.61 | $3.70 | | Discontinued Operations (Diluted) | $(0.02) | $(5.29) | $(7.70) | $1.22 | $0.41 | | Net (Loss) Earnings (Diluted) | $3.92 | $(2.66) | $(5.80) | $4.83 | $4.11 | | Balance Sheet and Cash Flow Data (Thousands USD) | | | | | | | Total Assets | $1,680,478 | $1,181,081 | $1,315,353 | $1,440,999 | $1,540,057 | | Long-Term Debt | 14,393 | 65,743 | 88,385 | 82,905 | 111,765 | | Common Shareholders' 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 | $42.07 | $38.55 | $41.61 | $46.31 | $43.70 | | Working Capital | $146,248 | $454,817 | $438,020 | $407,587 | $447,504 | | Current Ratio | 1.4 | 2.6 | 2.7 | 2.3 | 2.4 | | Long-Term Debt as a Percent of Total Capitalization | 2.3% | 8.2% | 9.6% | 8.2% | 10.5% | | Other Data | | | | | | | Number of Retail Stores | 1,480 | 1,512 | 1,535 | 1,554 | 1,520 | | Number of Employees | 22,050 | 21,000 | 20,900 | 21,200 | 19,000 | - Earnings from continuing operations in fiscal year 2020 included a $0.6 million loss on early extinguishment of debt, while fiscal year 2017 included a $12.3 million gain on the sale of SureGrip Footwear[163] - Earnings from continuing operations in fiscal years 2020, 2019, 2018, 2017, and 2016 included $13.4 million, $3.2 million, $7.8 million, $(8.0 million), and $2.7 million, respectively, in asset impairments and other charges (gains)[164] - Working capital as of February 1, 2020, was impacted by the adoption of ASC 842, which required the current portion of operating lease liabilities, totaling $142.7 million, to be presented on the consolidated balance sheets[165] Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and operating results for fiscal year 2020 compared to fiscal year 2019, highlighting a slight increase in net sales, improved gross margin, and the significant impact of the COVID-19 pandemic on future operations and liquidity Summary of Results of Operations Fiscal year 2020 saw a slight increase in net sales and improved gross margin, while selling and administrative expenses remained stable as a percentage of net sales - Net sales for fiscal year 2020 increased by 0.4% compared to fiscal year 2019, primarily driven by a 3% increase in Journeys Group sales, partially offset by declines in Schuh Group, Johnston & Murphy Group, and Licensed Brands sales[168] - Gross margin increased from 47.8% of net sales in fiscal year 2019 to 48.4% in fiscal year 2020, reflecting improved gross margins as a percentage of net sales across all business segments[168] - Selling and administrative expenses as a percentage of net sales remained flat at 44.0% in both fiscal years 2020 and 2019[168] - Operating income as a percentage of net sales increased from 3.7% in fiscal year 2019 to 3.8% in fiscal year 2020[168] Significant Developments The company experienced significant developments including the impact of the COVID-19 pandemic, the acquisition of Togast, and the sale of the Lids Sports Group business - The COVID-19 pandemic led to temporary store closures in North America on March 18, 2020, and in the UK and Ireland on March 23, with the UK e-commerce business temporarily closed on March 26, creating significant uncertainty regarding future performance[169] - On January 1, 2020, the company completed the acquisition of Togast, expanding its licensed footwear brand portfolio to include Levi's®, Bass®, ADIO, and FUBU, among others[170] - On February 2, 2019, the company sold its Lids Sports Group business for $93.8 million in cash, recording a $98.3 million after-tax loss[171] - In the fourth quarter of fiscal year 2020, the company sold the Lids Sports Group headquarters building for $17.7 million, realizing a $0.6 million gain[173] - In fiscal year 2020, the company recorded $13.4 million in pre-tax charges, including $11.5 million for pension settlement expenses and $3.1 million for retail store asset impairments, partially offset by gains from the sale of the Lids Sports Group headquarters building, lease termination gains, and Hurricane Maria-related gains[174] - In March 2019, the Board of Directors authorized the termination of the defined benefit pension plan, which was completed in January 2020, resulting in $11.5 million in pension settlement expenses[175] Results of Operations—Fiscal 2020 Compared to Fiscal 2019 Fiscal year 2020 saw a slight increase in net sales and improved gross margin, leading to higher earnings from continuing operations, despite various asset impairment and other charges - Net sales increased by 0.4% to $2.2 billion in fiscal year 2020, with comparable sales growing by 3% (1% from stores and 18% from direct-to-consumer)[177] - Gross margin increased by 1.5% to $1.063 billion, representing 48.4% of net sales, up from 47.8% in fiscal year 2019[177] - Selling and administrative expenses increased by 0.5%, but remained flat as a percentage of net sales at 44.0%[177] - Earnings from continuing operations before income taxes were $82.4 million in fiscal year 2020, compared to $78.3 million in fiscal year 2019, with fiscal year 2020 including $13.4 million in asset impairments and other charges[178] - Net earnings were $61.4 million (diluted EPS of $3.92) in fiscal year 2020, compared to a net loss of $51.9 million (diluted EPS of $(2.66)) in fiscal year 2019, which primarily included a $103.2 million net loss from discontinued operations[179] - The effective income tax rate was 25.1% in fiscal year 2020, down from 34.5% in fiscal year 2019, primarily due to additional income being taxed at lower statutory rates in certain jurisdictions[179] Journeys Group Operating Performance (Fiscal Years 2019-2020) | Metric | FY2020 (Thousands USD) | FY2019 (Thousands USD) | Percentage Change | | :----------- | :----------------- | :----------------- | :--------- | | Net Sales | $1,460,253 | $1,419,993 | 2.8% | | Operating Income | $114,945 | $100,799 | 14.0% | | Operating Margin | 7.9% | 7.1% | | - Journeys Group net sales increased by 2.8%, primarily due to a 4% comparable sales increase (with footwear unit comparable sales up 5%), partially offset by a 3% decrease in average store count[181] - Journeys Group operating income increased by 14.0%, mainly due to higher net sales, improved gross margin (fewer markdowns), and reduced rent and bonus expenses[182] Schuh Group Operating Performance (Fiscal Years 2019-2020) | Metric | FY2020 (Thousands USD) | FY2019 (Thousands USD) | Percentage Change | | :----------- | :----------------- | :----------------- | :--------- | | Net Sales | $373,930 | $382,591 | (2.3)% | | Operating Income | $4,659 | $3,765 | 23.7% | | Operating Margin | 1.2% | 1.0% | | - Schuh Group net sales decreased by 2.3%, primarily impacted by foreign currency exchange rate changes (a $12.8 million reduction) and a 2% decrease in average store count, partially offset by a 2% comparable sales increase[183] - Schuh Group operating income increased by 23.7%, mainly due to improved merchandise margins and reduced rent and depreciation expenses[184] Johnston & Murphy Group Operating Performance (Fiscal Years 2019-2020) | Metric | FY2020 (Thousands USD) | FY2019 (Thousands USD) | Percentage Change | | :----------- | :----------------- | :----------------- | :--------- | | Net Sales | $300,850 | $313,134 | (3.9)% | | Operating Income | $17,702 | $20,385 | (13.2)% | | Operating Margin | 5.9% | 6.5% | | - Johnston & Murphy Group net sales decreased by 3.9%, primarily due to a 2% comparable sales decrease and a 10% decline in wholesale sales[185] - Johnston & Murphy operating income decreased by 13.2%, mainly due to lower net sales and increased marketing, sales payroll, and rent expenses[187] Licensed Brands Operating Performance (Fiscal Years 2019-2020) | Metric | FY2020 (Thousands USD) | FY2019 (Thousands USD) | Percentage Change | | :----------- | :----------------- | :----------------- | :--------- | | Net Sales | $61,859 | $72,564 | (14.8)% | | Operating Loss | $(698) | $(488) | (43.0)% | | Operating Margin | (1.1)% | (0.7)% | | - Licensed Brands net sales decreased by 14.8%, primarily reflecting lower Dockers footwear sales[188] - Licensed Brands operating loss increased from $0.5 million in fiscal year 2019 to $0.7 million in fiscal year 2020, mainly due to lower net sales and increased compensation, shipping, warehousing, freight, and marketing expenses[188] - Corporate and other expenses were $53.3 million in fiscal year 2020, up from $42.6 million in fiscal year 2019, primarily including $13.4 million in asset impairments and other charges[189] - Net interest expense decreased by 61.7% from $3.3 million in fiscal year 2019 to $1.3 million in fiscal year 2020, primarily due to increased interest income[189] Liquidity and Capital Resources The company's liquidity is primarily supported by cash from operations, cash on hand, and credit facilities, with proactive borrowing measures taken in response to the COVID-19 pandemic Overview of Liquidity and Capital Resources (Fiscal Years 2018-2020) | Metric | February 1, 2020 (Millions USD) | February 2, 2019 (Millions USD) | February 3, 2018 (Millions USD) | | :----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :----------------------- | :----------------------- | :----------------------- | | Cash and Cash Equivalents | $81.4 | $167.4 | $39.9 | | Working Capital | $146.2 | $454.8 | $438.0 | | Long-Term Debt (including current portion) | $14.4 | $65.7 | $88.4 | - Working capital as of February 1, 2020, was impacted by the adoption of ASC 842, which resulted in $142.7 million of current operating lease liabilities being recorded on the balance sheet[191] - Cash flow from operating activities in fiscal year 2020 decreased by $119.9 million compared to fiscal year 2019, primarily due to losses on business dispositions, changes in accounts payable, changes in other accrued liabilities, and reduced depreciation and amortization, partially offset by increased net earnings and changes in prepaid and other current assets[194][198] - Cash flow from investing activities in fiscal year 2020 increased by $109.8 million, primarily reflecting proceeds from the sale of Lids Sports Group and its headquarters building, and reduced capital expenditures, partially offset by the Togast acquisition[194] - Cash flow from financing activities in fiscal year 2020 increased by $203.7 million, primarily reflecting increased stock repurchases[195] - The company's primary sources of liquidity include cash flow from operations, cash on hand, and credit facilities, which are deemed sufficient to meet foreseeable working capital, capital expenditure, and stock repurchase needs[196] - In response to the COVID-19 pandemic, the company borrowed $150 million on March 19, 2020, an additional $34.3 million thereafter, and £19 million on March 24, 2020, to ensure adequate liquidity[197][201][213][457][458] - The company has no off-balance sheet arrangements[201] Contractual Obligations and Commitments (As of February 1, 2020) | Contractual Obligation (Thousands USD) | 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 | 521,048 | 521,048 | — | — | — | | Other Long-Term Liabilities | 881 | 172 | 343 | 342 | 24 | | Total Contractual Obligations | $1,462,718 | $701,534 | $337,360 | $231,554 | $192,270 | | Commercial Commitments (Letters of Credit) | $9,324 | $9,324 | $— | $— | $— | - Capital expenditures for fiscal year 2020 were $29.8 million, a decrease of $27.4 million from fiscal year 2019, primarily due to fewer new store openings and reduced capital expenditures related to discontinued operations[206] - Total capital expenditures for fiscal year 2021 are expected to decrease due to the COVID-19 pandemic[207] - As of February 1, 2020, the company had $81.4 million in cash and cash equivalents, with $8.9 million held by foreign subsidiaries, which the company plans to indefinitely reinvest overseas[208] - In fiscal year 2020, the company repurchased 4,570,015 shares of common stock for $189.4 million, with a remaining authorization balance of $89.7 million for stock repurchases[210] - The company faces contingent losses related to environmental litigation and other legal matters[211] - As of February 1, 2020, the company had $14.4 million in U.S. revolving credit borrowings, with a weighted average interest rate of 2.13%; a 100 basis point increase in interest rates would increase annual interest expense by $0.1 million[213] - The company's cash and cash equivalents are primarily invested in institutional money market funds, with low interest rate market risk[214] - The company's accounts receivable are concentrated in its wholesale business, with one customer accounting for 26% of total trade accounts receivable[216] - Foreign currency exchange rate fluctuations impacted the company's results, with Schuh Group's net sales negatively affected by $12.8 million and operating income positively affected by $0.3 million in fiscal year 2020[217] New Accounting Principles This section describes recently issued accounting pronouncements and those adopted by the company in fiscal year 2020 - This section provides a description of recently issued accounting pronouncements and those adopted by the company in fiscal year 2020[218] Critical Accounting Estimates The company's financial reporting relies on critical accounting estimates, including inventory valuation, long-lived asset impairment, revenue recognition, income taxes, and leases, which may require revision due to the COVID-19 pandemic - The economic and business impacts of the COVID-19 pandemic may require the company to revise certain accounting estimates and judgments, such as the valuation of goodwill, long-lived assets, and deferred tax assets, which could materially adversely affect financial condition and operating results[220] - Inventory Valuation: Wholesale businesses and Schuh Group use the First-In, First-Out (FIFO) method and assess net realizable value based on inventory turnover, average selling prices, and other factors; other retail businesses use the retail inventory method, valuing inventory through markdowns or markdown accruals[221][222][223][224] - Long-Lived Asset Impairment: The company periodically assesses the recoverability of long-lived assets and evaluates for impairment when indicators suggest that carrying values may not be recoverable; goodwill and indefinite-lived trademarks are tested for impairment annually[225][226] - Revenue Recognition: Revenue is recognized when all contractual performance obligations are satisfied and control is transferred to the customer, net of estimated returns and sales taxes[229][230] - Income Taxes: The company estimates income taxes in each tax jurisdiction, assesses deferred tax assets and liabilities, and establishes valuation allowances based on the likelihood of future taxable income[231][232] - Leases: The company recognizes right-of-use assets and corresponding lease liabilities for all operating leases on its consolidated balance sheets under ASC 842, using the incremental borrowing rate to determine the present value of lease payments[234] Quantitative and Qualitative Disclosures about Market Risk This section provides quantitative and qualitative information about the company's exposure to financial market risks by referencing the "Financial Market Risks" section within Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" - This section provides quantitative and qualitative information about the company's exposure to financial market risks by referencing the "Financial Market Risks" section within Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations"[235] Financial Statements and Supplementary Data This section includes the consolidated financial statements and supplementary data for Genesco Inc. and its subsidiaries, along with reports from independent registered public accounting firms and detailed financial notes - This section includes reports from independent registered public accounting firms on internal control over financial reporting and financial statements, confirming the company maintained effective internal control over financial reporting in all material respects[237][244] - The company in fiscal year 2020 adopted ASU 2016-02, "Leases (Topic 842)," resulting in the recognition of $795.6 million in operating lease right-of-use assets and $855.3 million in lease liabilities[246][313] - Auditors identified the valuation of Schuh goodwill and the adoption of ASU 2016-02 as critical audit matters, due to significant management estimates and judgments in determining fair value and incremental borrowing rates[249][251][252] Consolidated Balance Sheet Summary (As of February 1, 2020, and February 2, 2019) | Assets (Thousands USD) | February 1, 2020 | February 2, 2019 | | :------------------------- | :----------- | :----------- | | Cash and Cash Equivalents | $81,418 | $167,355 | | Accounts Receivable, Net | 29,195 | 132,390 | | Inventories | 365,269 | 366,667 | | Prepaid Expenses and Other Current Assets | 32,301 | 64,634 | | Total Current Assets | 508,183 | 731,046 | | Property and Equipment, Net | 238,320 | 277,375 | | Deferred Income Taxes | 19,475 | 21,335 | | Operating Lease Right-of-Use Assets | 735,044 | — | | Goodwill | 122,184 | 93,081 | | Trademarks, Net | 31,023 | 30,904 | | Other Intangible Assets, Net | 5,341 | 943 | | Other Noncurrent Assets | 20,908 | 26,397 | | Total Assets | $1,680,478 | $1,181,081 | | Liabilities and Equity (Thousands USD) | February 1, 2020 | February 2, 2019 | | :------------------------- | :----------- | :----------- | | 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 of Long-Term Debt | — | 8,992 | | Current Portion of Operating Lease Liabilities | 142,695 | — | | Other Accrued Liabilities | 39,609 | 45,313 | | Discontinued Operations Reserve | 495 | 553 | | Total Current Liabilities | 361,935 | 276,229 | | Long-Term Debt | 14,393 | 56,751 | | Long-Term Operating Lease Liabilities | 647,949 | — | | Other Long-Term Liabilities | 35,177 | 108,704 | | Discontinued Operations Reserve | 1,681 | 1,846 | | Total Liabilities | 1,061,135 | 443,530 | | Nonredeemable Preferred Stock | 1,009 | 1,060 | | Total Common Shareholders' Equity | 619,343 | 737,551 | | Total Liabilities and Equity | $1,680,478 | $1,181,081 | Consolidated Statements of Operations Summary (Fiscal Years 2020, 2019, and 2018) | Metric (Thousands USD) | Fiscal 2020 | Fiscal 2019 | Fiscal 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 Charges, Net | 13,374 | 3,163 | 7,773 | | Operating Income | 83,318 | 81,817 | 74,372 | | Loss on Early Extinguishment of Debt | — | 597 | — | | Other Components of Net Periodic Benefit Cost | (395) | (380) | (29) | | Net Interest Expense | 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 | (373) | (103,154) | (148,547) | | Net (Loss) Earnings | $61,384 | $(51,930) | $(111,839) | | Diluted Earnings (Loss) Per Share | | | | | Continuing Operations | $3.94 | $2.63 | $1.90 | | Discontinued Operations | $(0.02) | $(5.29) | $(7.70) | | Net (Loss) Earnings | $3.92 | $(2.66) | $(5.80) | Consolidated Statements of Cash Flows Summary (Fiscal Years 2020, 2019, and 2018) | Cash Flows (Thousands USD) | Fiscal 2020 | Fiscal 2019 | Fiscal 2018 | | :--------------------------------- | :---------- | :---------- | :---------- | | Cash Flows from Operating Activities | | | | | Net (Loss) Earnings | $61,384 | $(51,930) | $(111,839) | | Depreciation and Amortization | 49,574 | 76,939 | 78,326 | | Impairment of Intangible Assets | 269 | 5,736 | 182,211 | | Impairment of Long-Lived Assets | 2,827 | 5,823 | 2,670 | | Pension Plan Termination Loss | 11,510 | — | — | | Changes in Working Capital Affecting Cash Flow | (18,593) | 63,619 | 18,832 | | 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) | | Proceeds from (Payments for) Business Dispositions | 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 on Long-Term Debt | (9,133) | (1,650) | (9,289) | | Borrowings on Revolving Credit Facilities | 93,328 | 284,473 | 515,560 | | Payments on Revolving Credit Facilities | (135,403) | (299,606) | (508,875) | | Stock Repurchases | (190,384) | (44,935) | (16,163) | | Net Cash Used in Financing Activities | (256,511) | (52,758) | (47,410) | | Effect of Exchange Rate Changes 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 | 167,355 | 39,937 | 48,301 | | Cash and Cash Equivalents at End of Year | $81,418 | $167,355 | $39,937 | Consolidated Statements of Shareholders' Equity Summary (Fiscal Years 2020, 2019, and 2018) | Metric (Thousands USD) | February 1, 2020 | February 2, 2019 | February 3, 2018 | | :--------------------------------- | :----------- | :----------- | :----------- | | Nonredeemable Preferred Stock | $1,009 | $1,060 | $1,052 | | Common Stock | 15,186 | 19,591 | 20,392 | | Additional Paid-in Capital | 274,101 | 264,138 | 250,877 | | Retained Earnings | 378,572 | 508,555 | 603,902 | | Accumulated Other Comprehensive Loss | (31,668) | (37,936) | (29,192) | | Treasury Stock, at Cost | (17,857) | (17,857) | (17,857) | | Noncontrolling Interest | — | — | 1,530 | | Total Equity | $619,343 | $737,551 | $830,704 | Note 1 Summary of Significant Accounting Policies This note outlines the company's business operations, consolidation principles, fiscal year definition, and key accounting policies for estimates, cash, receivables, inventory, property, leases, and revenue recognition - The company's business involves designing, marketing, and distributing footwear and accessories through retail stores, e-commerce websites, and wholesale channels, with key brands including Journeys, Schuh, Johnston & Murphy, and Licensed Brands[268] - On January 1, 2020, the company acquired Togast, expanding the Licensed Brands segment's licensed footwear portfolio; on February 2, 2019, the company sold its Lids Sports Group business, with results reported as discontinued operations[269] - All of the company's subsidiaries are consolidated, and all significant intercompany transactions and accounts have been eliminated[271] - The company's fiscal year ends on the Saturday closest to January 31; fiscal years 2020 and 2019 were 52-week periods, while fiscal year 2018 was a 53-week period[272] - The preparation of financial statements requires management to make estimates and assumptions, and actual results may differ from these estimates[273] - As of February 1, 2020, approximately $8.9 million in cash was held by the company's foreign subsidiaries, which the company plans to indefinitely reinvest overseas[274] - Cash equivalents primarily consist of institutional money market funds, invested in highly-rated, short-term U.S. government or government agency-backed securities[275] - Wholesale business accounts receivable are concentrated among independent retailers and department stores, with the company providing allowances for doubtful accounts based on customer credit risk, historical trends, and other factors[277][278] - Inventory Valuation: Wholesale businesses and Schuh Group use the FIFO method, while other retail businesses use the retail inventory method, both valued at the lower of cost or market[279][280][281][282] - Property and equipment are recorded at cost and depreciated or amortized using the straight-line method over their estimated useful lives (20-45 years)[283] - The company recognizes operating lease assets and liabilities under ASC 842, using the incremental borrowing rate to determine the present value of lease payments[284] - Asset retirement obligations, primarily related to leasehold improvements, are recorded at their estimated fair value at the inception of the lease[286][287] - Long-Lived Asset Impairment: The company periodically assesses the recoverability of long-lived assets and evaluates for impairment when indicators suggest that carrying values may not be recoverable; goodwill and indefinite-lived trademarks are tested for impairment annually[288][289][290] - Fair Value Measurement: The company uses a three-level fair value hierarchy, maximizing observable inputs and minimizing unobservable inputs[291][292][293] - Revenue Recognition: Revenue is recognized when contractual performance obligations are satisfied and control is transferred to the customer, net of estimated returns and sales taxes; gift card revenue is deferred and recognized upon redemption[294][295][296][297] - Cost of Sales: Retail businesses include product costs, inbound freight, and distribution facility costs; wholesale businesses include product costs and freight from suppliers to warehouses[298][299] - Selling and Administrative Expenses: Include all operating costs except product freight and distribution facility costs for retail businesses; retail occupancy costs are included in selling and administrative expenses[300][301] - Shipping and Handling Costs: Costs related to purchasing inventory are capitalized into inventory and expensed as cost of sales when sold; other shipping and handling costs are included in selling and administrative expenses[302] - Advertising Expenses: Primarily expensed as incurred, totaling $72.3 million in fiscal year 2020[303] - Consideration to Dealers: Wholesale businesses provide markdown allowances, recognized as a reduction of revenue upon recognition; cooperative advertising funds are reimbursed when conditions are met, recognized as a reduction of selling and administrative expenses[304][305][306][307][308][309] - Foreign Currency Translation: The functional currency of foreign operations is the local currency, with unrealized gains and losses from exchange rate fluctuations recorded in accumulated other comprehensive loss[310] Note 2 New Accounting Pronouncements This note details the adoption of new accounting standards, including ASU 2016-02 on leases, and their impact on the company's consolidated financial statements - The company adopted ASU 2016-02, "Leases (Topic 842)," on February 3, 2019, resulting in the recognition of $795.6 million in operating lease right-of-use assets and $855.3 million in lease liabilities, with no material impact on net earnings or liquidity[312][313] - The company adopted ASU 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)," on August 4, 2019, with no material impact on the consolidated financial statements[314] - The company adopted ASU 2013-02, "Comprehensive Income (Topic 220)," in the fourth quarter of fiscal year 2018, reclassifying $2.2 million to retained earnings to reflect the stranded tax effect from tax reform legislation[315] - The company adopted ASU 2014-12, "Compensation—Stock Compensation (Topic 718)," in the first quarter of fiscal year 2018, which increased income tax expense by $2.2 million and reduced earnings per share by $0.11 in fiscal year 2018[316] - The company adopted ASC 606 in the first quarter of fiscal year 2019 using the modified retrospective method, with a $4.4 million cumulative effect adjustment to the opening balance of retained earnings, and no material impact on the consolidated financial statements[317] - The company does not expect the adoption of ASU No. 2016-13, "Financial Instruments—Credit Losses (Topic 326)," to have a material impact on its consolidated financial statements, but is evaluating the effects of COVID-19[318] Note 3 Goodwill and Other Intangible Assets This note details the accounting for goodwill and other intangible assets, including annual impairment testing and the impact of the Togast acquisition - Goodwill recorded in acquisitions is not amortized but is tested for impairment at least annually, or more frequently if indicators suggest its value may be impaired[320] - Identifiable finite-lived intangible assets, including trademarks, customer lists, order backlog, and vendor contracts, are amortized over their estimated useful lives[321] - On January 1, 2020, the company completed the acquisition of Togast for a total purchase price of $33.5 million in cash, with additional two-part contingent consideration up to $34.0 million[322] Changes in Goodwill Carrying Amount (Fiscal Years 2019-2020) | (Thousands USD) | Schuh Group | Journeys Group | Licensed Brands Group | Total Goodwill | | :----------------- | :---------- | :------------- | :-------------------- | :-------- | | Balance as of February 2, 2019 | $83,243 | $9,838 | $— | $93,081 | | Acquisitions | — | — | 28,385 | 28,385 | | Foreign Currency Exchange Rate Impact | 826 | (108) | — | 718 | | Balance as of February 1, 2020 | $84,069 | $9,730 | $28,385 | $122,184 | - The goodwill impairment test for the Schuh Group reporting unit indicated its fair value exceeded its carrying value by approximately $8.2 million, with no impairment occurring; a 100 basis point increase in the weighted average cost of capital would reduce fair value by $10 million, and a 1% decrease in annual revenue growth rate would reduce fair value by $6.9 million[323] Other Intangible Assets (As of February 1, 2020, and February 2, 2019) | (Thousands USD) | Leases (Feb 2, 2019) | Customer Lists (Feb 1, 2020) | Customer Lists (Feb 2, 2019) | Other (Feb 1, 2020) | Other (Feb 2, 2019) | Total (Feb 1, 2020) | Total (Feb 2, 2019) | | :----------------- | :------------------- | :----------------------- | :----------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Total Other Intangible Assets | $3,532 | $6,562 | $1,450 | $767 | $641 | $7,329 | **$