Genesco Inc: Form 10-Q for the period ended Oct 28, 2023

This section discusses management’s view of the financial condition, results of operations and cash flows of the Company. This section should be read in conjunction with the information contained in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, including the Risk Factors section, and information contained elsewhere in this Quarterly Report on Form 10-Q, including the Condensed Consolidated Financial Statements and notes to those financial statements. The results of operations for any interim period may not necessarily be indicative of the results that may be expected for any future interim period or the entire fiscal year.

Summary of Results of Operations

Our net sales decreased 4.1% to $579.3 million in the third quarter of Fiscal 2024 compared to $603.8 million in the third quarter of Fiscal 2023. The sales decrease compared to last year's third quarter was driven by decreased store sales in Journeys Group and decreased wholesale sales in Genesco Brands Group, partially offset by an 8% increase in comparable e-commerce sales for the total Company and a $7.8 million favorable impact in sales due to changes in foreign exchange rates. Warmer weather in October muted initial demand and delayed the start of the selling season for fall product and our branded businesses were impacted by disruptions related to the implementation of a new ERP system. In addition, ongoing inflationary pressures and economic uncertainty continued to impact discretionary spending behavior. Journeys Group sales decreased 8% and Genesco Brands Group sales decreased 22%, or an aggregate of $8.3 million, while Schuh Group sales increased 13% and Johnston & Murphy Group sales increased 2% for the third quarter of Fiscal 2024 compared to the third quarter of Fiscal 2023. Schuh's sales increased 5% on a local currency basis for the third quarter of Fiscal 2024. Total comparable sales decreased 4% for the third quarter of Fiscal 2024, with same store sales down 7% and comparable direct sales up 8%.

Gross margin decreased 5.2% to $278.4 million in the third quarter of Fiscal 2024 from $293.8 million in the third quarter of Fiscal 2023 and decreased as a percentage of net sales from 48.7% to 48.1%, reflecting decreased gross margin as a percentage of net sales in Journeys Group and Johnston & Murphy Group, partially offset by increased gross margin as a percentage of net sales in Schuh Group and Genesco Brands Group. The overall decrease in gross margin as a percentage of net sales reflects increased promotional activity at Journeys, including introductory coupons for its new loyalty program, more normalized markdowns and closeouts at Johnston & Murphy and increased shipping and warehouse expense in all retail businesses, reflecting increased warehouse costs and higher e-commerce penetration, partially offset by increased gross margin at Schuh reflecting reduced duties and freight from its new Ireland based distribution center as well as a more elevated product mix, and increased gross margin at Genesco Brands reflecting supply chain efficiencies and price increases.

Selling and administrative expenses in the third quarter of Fiscal 2024 were flat on a dollar basis compared to the third quarter of Fiscal 2023 but increased as a percentage of net sales from 44.3% to 46.2%, reflecting increased expenses as a percentage of net sales in all of our operating business units except Johnston & Murphy Group. The overall increase in expenses as a percentage of net sales reflects the deleverage of expenses, especially compensation, marketing and depreciation expenses, as a result of decreased revenue in the third quarter of Fiscal 2024.

Operating margin was 1.9% in the third quarter of Fiscal 2024 compared to 4.3% in the third quarter of Fiscal 2023 reflecting decreased operating margin in all of our operating business units. The decrease in operating margin for the third quarter this year compared to the third quarter last year was impacted by decreased net sales, decreased gross margin as a percentage of sales and increased expenses as percentage of net sales.

Earnings from continuing operations before income taxes (“pretax earnings”) for the third quarter of Fiscal 2024 was $8.5 million compared to $25.1 million for the third quarter of Fiscal 2023. Pretax earnings for the third quarter of Fiscal 2024 included asset impairment and other charges of $0.1 million for asset impairments.

We recorded an effective income tax rate of 22.5% and 18.7% in the third quarter of Fiscal 2024 and Fiscal 2023, respectively. The higher tax rate for the third quarter this year compared to the third quarter last year reflects that we are no longer subject to a valuation allowance in certain jurisdictions.

Net earnings in the third quarter of Fiscal 2024 were $6.5 million, or $0.60 diluted earnings per share, compared to $20.4 million, or $1.65 diluted earnings per share in the third quarter of Fiscal 2023.

Critical Accounting Estimates

We discuss our critical accounting estimates in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations", in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023. We describe our significant accounting policies in Note 1, "Summary of Significant Accounting Policies", of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023. There have been no other significant changes in our definition of significant accounting policies or critical accounting estimates since the end of Fiscal 2023.

Key Performance Indicators

In assessing the performance of our business, we consider a variety of performance and financial measures. The key performance indicators we use to evaluate the financial condition and operating performance of our business are comparable sales, net sales, gross margin, operating income and operating margin. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the U.S. GAAP financial measures presented herein. These measures may not be comparable to similarly titled performance indicators used by other companies.

Comparable Sales

We consider comparable sales to be an important indicator of our current performance, and investors may find it useful as such. Comparable sales results are important to achieve leveraging of our costs, including occupancy, selling salaries, depreciation, etc. Comparable sales also have a direct impact on our total net revenue, cash and working capital. We define "comparable sales" as sales from stores open longer than one year, beginning with the first day a store has comparable sales (which we refer to as "same store sales"), and sales from websites operated longer than one year and direct mail catalog sales (which we refer to in this report as "comparable direct sales"). Temporarily closed stores are excluded from the comparable sales calculation if closed for more than seven days. Expanded stores are excluded from the comparable sales calculation until the first day an expanded store has comparable prior year sales. Current year foreign exchange rates are applied to both current year and prior year comparable sales to achieve a consistent basis for comparison. We have disclosed comparable sales for the third quarter and first nine months of Fiscal 2024 and the third quarter of Fiscal 2023 but did not disclose comparable sales for the first nine months of Fiscal 2023 due to the impact of the COVID-19 pandemic and related extensive store closures during the first quarter of Fiscal 2022. We believe that overall sales is a more meaningful metric during the first nine months of Fiscal 2023.

Results of Operations – Third Quarter of Fiscal 2024 Compared to Third Quarter of Fiscal 2023

Journeys Group

(dollars in thousands)

Net sales from Journeys Group decreased to $349.4 million in the third quarter of Fiscal 2024, compared to $380.6 million in the third quarter of Fiscal 2023 primarily due to a total comparable sales decrease of 8% driven by decreased store sales, partially offset by increased digital sales, and a 3% decrease in the average number of stores in the third quarter this year. We believe the Journeys consumer continues to be pressured by inflation and has chosen to conserve discretionary spending and primarily shop when the consumer has a specific item to purchase, continuing to trade down to lower price points and take advantage of the abundance of discounted athletic product elsewhere in the market. We did see the negative sales trends in the first half of the year sequentially improve in the third quarter this year. The changes we made across product mix resonated with our consumer and sales of high demand, must-have items were strong. However, this was not enough to offset the lack of newness and industry discounting in athletic or the unanticipated late start to fall selling due to the warmer weather in October. Our Journeys store closure plans are on track, with approximately 75% of the 100 planned doors closed through the end of the third quarter, and the remainder targeted to close by the end of Fiscal 2024. Journeys Group operated 1,080 stores at the end of the third quarter of Fiscal 2024, including 224 Journeys Kidz stores, 41 Journeys stores in Canada and 34 Little Burgundy stores in Canada, compared to 1,123 stores at the end of the third quarter of last year, including 230 Journeys Kidz stores, 45 Journeys stores in Canada and 35 Little Burgundy stores in Canada.

Journeys Group had operating income of $12.0 million in the third quarter of Fiscal 2024 compared to $27.1 million in the third quarter of Fiscal 2023. The decrease in operating income for Journeys Group was due to (i) decreased net sales, (ii) decreased gross margin as a percentage of net sales reflecting increased promotional activity, including introductory coupons for its new loyalty program, and increased shipping and warehouse expense and (iii) increased selling and administrative expenses as a percentage of net sales reflecting the deleverage of expenses, especially occupancy, depreciation, marketing and compensation expenses as a result of the decreased revenue in the third quarter of Fiscal 2024.

Schuh Group

(dollars in thousands)

Net sales from Schuh Group increased to $118.1 million in the third quarter of Fiscal 2024 compared to $104.8 million in the third quarter of Fiscal 2023, primarily due to increased total comparable sales of 5% driven by a healthy back-to-school season with increased e-commerce and store sales and a favorable impact of $8.4 million in sales due to changes in foreign exchange rates. Schuh was impacted by a later start to fall selling due to the warmer weather in October. The strength of the Schuh business is broad based across stores and digital as their digital business continues to account for almost 40% of its sales in the third quarter of Fiscal 2024. Schuh's sales increased 5% on a local currency basis for the third quarter of Fiscal 2024. Schuh Group operated 124 stores at the end of the third quarter of Fiscal 2024, compared to 122 stores at the end of the third quarter of Fiscal 2023.

Schuh Group had operating income of $5.5 million in the third quarter of Fiscal 2024 compared to $5.9 million in the third quarter of Fiscal 2023. The decrease in operating income compared to last year reflects increased selling and administrative expenses as a percentage of net sales, reflecting increased performance-based compensation and compensation expenses and selling salaries, partially offset by decreased occupancy expense. In addition, operating income included a favorable impact of $0.4 million due to changes in foreign exchange rates compared to last year. Gross margin increased as a percentage of net sales reflecting reduced duties and freight from its new Ireland based distribution center as well as a more elevated product mix, which was partially offset by increased shipping and warehouse expense, reflecting higher e-commerce penetration and increased warehouse costs..

Johnston & Murphy Group

(dollars in thousands)

Johnston & Murphy Group net sales increased to $81.4 million for the third quarter of Fiscal 2024 from $79.6 million for the third quarter of Fiscal 2023, primarily due to a 1% increase in comparable sales, reflecting increased e-commerce sales and wholesale sales, partially offset by decreased store sales. Johnston & Murphy sales for the third quarter of Fiscal 2024 were impacted by the implementation of a new ERP system along with warmer weather in October that delayed the start to the fall selling season. Johnston & Murphy has repositioned its business as a multi-category lifestyle brand. The brand's casual category as well as apparel and accessories continued to resonate well with its consumers. Retail operations accounted for 72.5% of Johnston & Murphy Group's sales in the third quarter of Fiscal 2024, down from 72.9% in the third quarter of Fiscal 2023. The store count for Johnston & Murphy retail operations at the end of the third quarter of Fiscal 2024 was 156 stores, including six stores in Canada, compared to 159 stores, including six stores in Canada, at the end of the third quarter of Fiscal 2023.

Johnston & Murphy Group had operating income of $2.7 million for the third quarter of Fiscal 2024 compared to $3.5 million in the third quarter of Fiscal 2023. The decrease in operating income compared to last year reflects decreased gross margin as a percentage of net sales, reflecting more normalized markdowns and closeouts and increased shipping and warehouse expense, reflecting increased warehouse costs. Selling and administrative expenses decreased as a percentage of net sales for the third quarter of Fiscal 2024, reflecting decreased performance-based compensation expense and occupancy expense, partially offset by increased marketing expense.

Genesco Brands Group

(dollars in thousands)

17

Genesco Brands' net sales decreased to $30.4 million for the third quarter of Fiscal 2024 from $38.7 million for the third quarter of Fiscal 2023 primarily due to an intentional strategy to pull back value channel sales.

Genesco Brands' operating loss improved to $1.6 million in the third quarter of Fiscal 2024 compared to $1.9 million in the third quarter of Fiscal 2023. The $0.4 million smaller operating loss was primarily due to increased gross margin as a percentage of net sales reflecting supply chain efficiencies and price increases. Selling and administrative expenses increased as a percentage of net sales in the third quarter of Fiscal 2024 reflecting the deleverage of expenses as a result of decreased revenue in the third quarter this year, partially offset by decreased royalty, marketing and other expenses.

Corporate, Interest Expenses and Other Charges

Corporate and other expense for the third quarter of Fiscal 2024 was $7.8 million compared to $8.5 million for the third quarter of Fiscal 2023. Corporate expense in the third quarter of Fiscal 2024 included $0.1 million charge in asset impairment and other charges for asset impairments. The corporate expense decrease, excluding asset impairment and other charges, primarily reflects a decrease in miscellaneous expenses in the third quarter this year compared to the third quarter last year.

Net interest expense increased $1.3 million to $2.2 million in the third quarter of Fiscal 2024 compared to net interest expense of $0.9 million in the third quarter of Fiscal 2023 primarily reflecting increased average borrowings and higher interest rates in the third quarter this year compared to the third quarter last year.

Results of Operations – Nine Months of Fiscal 2024 Compared to Nine Months of Fiscal 2023

Our net sales decreased 4.5% to $1.586 billion in the first nine months of Fiscal 2024 compared to $1.660 billion in the first nine months of Fiscal 2023. The sales decrease compared to last year's first nine months was driven by decreased store sales in Journeys Group and decreased wholesale sales, partially offset by a 10% increase in comparable e-commerce sales for the total Company, strong store performance at Schuh and Johnston & Murphy and a favorable impact of $2.6 million in sales due to changes in foreign exchange rates. Ongoing inflationary pressures and economic uncertainty continue to impact the discretionary spending behavior of our consumers. Journeys Group sales decreased 11% and Genesco Brands Group sales decreased 18%, or an aggregate of $22.6 million, while Schuh Group sales increased 13% and Johnston & Murphy Group sales increased 7% for the first nine months of Fiscal 2024 compared to the first nine months of Fiscal 2023. Schuh's sales increased 11% on a local currency basis for the first nine months of Fiscal 2024. Total comparable sales decreased 4% for the first nine months of Fiscal 2024, with same store sales down 7% and comparable direct sales up 10%.

Gross margin decreased 5.4% to $756.8 million in the first nine months of Fiscal 2024 from $799.6 million in the first nine months of Fiscal 2023 and decreased as a percentage of net sales from 48.2% to 47.7%, reflecting decreased gross margin as a percentage of net sales in Journeys Group, partially offset by an increase in gross margin as a percentage of net sales in all of our other operating business units. The overall decrease in gross margin as a percentage of net sales reflects increased promotional activity at Journeys and increased shipping and warehouse expense at Journeys and Johnston & Murphy, primarily reflecting increased warehouse costs, partially offset by a more elevated product mix at Schuh as well as reduced duties and freight from the new Ireland based distribution center, decreased air freight at Johnston & Murphy and supply chain efficiencies, favorable changes in product mix and increased prices at Genesco Brands.

Selling and administrative expenses in the first nine months of Fiscal 2024 increased 2.9% and increased as a percentage of net sales from 45.6% to 49.1%, reflecting increased expenses as a percentage of net sales in all operating business units except Johnston & Murphy Group. The overall increase in expenses as a percentage of net sales reflects the deleverage of expenses, especially compensation expense, marketing expense, occupancy expense and selling salaries as a result of decreased revenue in the first nine months of Fiscal 2024. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs.

The pretax loss for the first nine months of Fiscal 2024 was $57.4 million compared to pretax earnings of $41.6 million for the first nine months of Fiscal 2023. The pretax loss for the first nine months of Fiscal 2024 included a non-cash goodwill impairment charge of $28.5 million and asset impairment and other charges of $0.6 million for asset impairments. Pretax earnings for the first nine months of Fiscal 2023 included an asset impairment and other gain of $0.2 million for a $0.7 million gain on the termination of the pension plan, partially offset by $0.5 million in asset impairments.

We recorded an effective income tax rate of 23.5% in the first nine months of Fiscal 2024 compared to 20.6% in the first nine months of Fiscal 2023. The higher tax rate for the first nine months this year compared to the same period last year reflects that we are no longer subject to a valuation allowance in certain jurisdictions.

The net loss in the first nine months of Fiscal 2024 was $44.0 million, or $3.88 diluted loss per share, compared to net earnings in the first nine months of Fiscal 2023 of $33.0 million, or $2.56 diluted earnings per share.

Journeys Group

(dollars in thousands)

Net sales from Journeys Group decreased to $908.8 million in the first nine months of Fiscal 2024, compared to $1.016 billion in the first nine months of Fiscal 2023 primarily due to a total comparable sales decrease of 10% driven by decreased store sales, partially offset by increased digital sales, and a 2% decrease in the average number of stores in the first nine months this year. We believe the Journeys consumer continues to be pressured by inflation and has chosen to conserve discretionary spending and primarily shop when the consumer has a specific item to purchase, continuing to trade down to lower price points and take advantage of the abundance of discounted athletic product elsewhere in the market. While we made changes to our product mix in the third quarter of Fiscal 2024, we will continue to work with our brands to reposition our product assortment at Journeys to meet the customer's appetite for newness.

Journeys Group had an operating loss of $21.3 million in the first nine months of Fiscal 2024 compared to operating income of $51.2 million in the first nine months of Fiscal 2023. The $72.5 million decrease in operating income for Journeys Group was due to (i) decreased net sales, (ii) decreased gross margin as a percentage of net sales primarily reflecting increased promotional activity and (iii) increased selling and administrative expenses as a percentage of net sales reflecting the deleverage of expenses, especially occupancy expense, selling salaries and compensation expense as a result of the decreased revenue in the first nine months of Fiscal 2024.

Schuh Group

(dollars in thousands)

Net sales from Schuh Group increased to $334.0 million in the first nine months of Fiscal 2024 compared to $294.5 million in the first nine months of Fiscal 2023, primarily due to increased total comparable sales of 11% driven by increased e-commerce and store sales and a favorable impact of $5.7 million in sales due to changes in foreign exchange rates. Schuh's sales increased 11% on a local currency basis for the first nine months of Fiscal 2024.

Schuh Group had operating income of $12.1 million in the first nine months of Fiscal 2024 compared to $5.3 million in the first nine months of Fiscal 2023. The increase in operating income for Schuh Group reflects (i) increased net sales and (ii) increased gross margin as a percentage of net sales reflecting an elevated product mix and reduced duties and freight as a result of the new Ireland based distribution center. In addition, operating income included a favorable impact of $0.9 million due to changes in foreign exchange rates compared to last year. Selling and administrative expenses as a percentage of net sales increased slightly, reflecting increased selling salaries and performance-based compensation expense, partially offset by decreased occupancy expense.

Johnston & Murphy Group

(dollars in thousands)

Johnston & Murphy Group net sales increased to $241.8 million for the first nine months of Fiscal 2024 from $225.4 million for the first nine months of Fiscal 2023, primarily due to a 10% increase in comparable sales, with increases in both store sales and e-commerce sales, partially offset by decreased wholesale sales. Johnston & Murphy has repositioned the brand to offer more casual and comfortable footwear and apparel, and it continues to resonate well with its consumers. Retail operations accounted for 75.4% of Johnston & Murphy Group's sales in the first nine months of Fiscal 2024, up from 73.0% in the first nine months of Fiscal 2023.

Johnston & Murphy Group had operating income of $10.2 million for the first nine months of Fiscal 2024 compared to $7.3 million in the first nine months of Fiscal 2023. The increase was primarily due to (i) increased net sales, (ii) increased gross margin as a percentage of net sales reflecting a decrease in air freight, partially offset by increased warehouse costs, retail markdowns and increased inventory reserves and (iii) decreased selling and administrative expenses reflecting greater leverage of expenses as a result of revenue growth, especially occupancy expense and performance-based compensation, partially offset by increased marketing and compensation expenses.

Genesco Brands Group

(dollars in thousands)

Genesco Brands' net sales decreased to $101.0 million for the first nine months of Fiscal 2024 from $123.5 million for the first nine months of Fiscal 2023 primarily due to higher sell-in in the first half of the prior year as retailers were replenishing inventory due to supply chain constraints as well as an intentional strategy to pull back value channel sales.

Genesco Brands' operating income decreased to $0.3 million in the first nine months of Fiscal 2024 compared to $2.6 million in the first nine months of Fiscal 2023. The decrease in operating income was primarily due to (i) decreased net sales and (ii) increased selling and administrative expenses as a percentage of net sales in the first nine months of Fiscal 2024 reflecting deleverage of expenses as a result of decreased revenue in the first nine months of Fiscal 2024. Gross margin increased as a percentage of net sales for the first nine months of Fiscal 2024 reflecting supply chain efficiencies, changes in product mix and price increases.

Corporate, Interest Expenses and Other Charges

Corporate and other expense for the first nine months of Fiscal 2024 was $52.1 million compared to $22.9 million for the first nine months of Fiscal 2023. Corporate expense in the first nine months of Fiscal 2024 included non-cash impairment charges of $28.5 million related to goodwill and a $0.6 million charge in asset impairment and other charges for asset impairments. Corporate expense in the first nine months of Fiscal 2023 included a $0.2 million gain in asset impairment and other charges for a gain on the termination of the pension plan, partially offset by asset impairments.

Net interest expense increased $4.6 million to $6.2 million in the first nine months of Fiscal 2024 compared to net interest expense of $1.6 million in the first nine months of Fiscal 2023 primarily reflecting increased average borrowings and higher interest rates in the first nine months this year compared to the first nine months last year.

Liquidity and Capital Resources

Working Capital

Our business is seasonal, with our investment in working capital normally reaching peaks in the summer and fall of each year in anticipation of the back-to-school and holiday selling seasons. Historically, cash flows from operations typically have been generated principally in the fourth quarter of each fiscal year.

(in thousands)

20

Reasons for the major variances in cash used in the table above are as follows:

Cash used in operating activities was $220.4 million lower in the first nine months of Fiscal 2024 compared to the first nine months of Fiscal 2023, reflecting primarily the following factors:

• a $232.8 million increase in cash flow from changes in inventory, primarily reflecting the re-inventorying of our operating business units in the first nine months last year due to the supply chain disruptions in Fiscal 2023 compared to a much smaller increase in inventory, primarily retail inventory, in the first nine months this year, partially offset by a $25.8 million decrease in cash flow from changes in accounts payable, primarily reflecting changes in buying patterns in the first nine months of Fiscal 2024 and the decrease in inventory growth year over year; and
• a $41.7 million increase in cash flow from changes in other accrued liabilities, primarily reflecting a significantly lower payment of Fiscal 2023 performance-based compensation accruals in the first nine months of Fiscal 2024 compared to the first nine months of Fiscal 2023; partially offset by
• a $77.0 million decrease in net earnings, which was partially offset by a $28.5 million non-cash goodwill impairment charge.

Cash used in investing activities was $9.8 million higher for the first nine months of Fiscal 2024 as compared to the first nine months of Fiscal 2023 reflecting increased capital expenditures primarily related to investments in retail stores and omni-channel as a result of catching up from the pause due to COVID, partially offset by decreased capital expenditures related to the new corporate headquarters building.

Cash provided by financing activities was $48.8 million higher in the first nine months of Fiscal 2024 as compared to the first nine months of Fiscal 2023 reflecting increased net borrowings and decreased share repurchases this year compared to the same period last year.

Sources of Liquidity and Future Capital Needs

We have three principal sources of liquidity: cash flow from operations, cash and cash equivalents on hand and our credit facilities discussed in Item 8, Note 8, "Long-Term Debt", to our Consolidated Financial Statements included in our Annual Report on Form 10-K for Fiscal 2023.

As of October 28, 2023, we have borrowed $117.2 million U.S. revolver borrowings, $4.9 million (C$6.8 million) related to GCO Canada ULC and $6.1 million (£5.0 million) U.K. revolver borrowings. We were in compliance with all the relevant terms and conditions of the Credit Facility and the Facility Agreement as of October 28, 2023.

We believe that cash on hand, cash provided by operations and borrowings under our Credit Facility and the Facility Agreement will be sufficient to support our liquidity needs in Fiscal 2024 and the foreseeable future.

During the second quarter of Fiscal 2024, in light of store traffic trends and general consumer uncertainty, we identified approximately 100 Journeys stores for closure in Fiscal 2024. Our Journeys store closure plans are on track, with approximately 75% of the 100 planned doors closed through the end of the third quarter, and the remainder targeted to close by the end of Fiscal 2024. We are continuing our efforts in making occupancy costs more variable. In addition, we are continuing to conduct a holistic review of our cost structure. We expect to realize significant cost savings in Fiscal 2024 and Fiscal 2025. We expect that a significant portion of these savings will be realized by our Journeys Group.

In the fourth quarter of Fiscal 2021, we implemented tax strategies allowed under the 5-year carryback provisions in the CARES Act which we believe will generate approximately $55 million of net tax refunds. We received approximately $26 million of such net tax refunds in Fiscal 2022 and anticipated receipt of the remaining outstanding net tax refund in Fiscal 2023. However, in the third quarter of Fiscal 2023, we were notified the IRS would conduct an audit of the periods related to the outstanding net tax refund. While we do not believe any uncertainty with the technical merits of the positions generating the net tax refunds exists, we do anticipate the timing of the net tax refund will be extended as a result of the audit process. Accordingly, we have recorded the outstanding refund to non-current prepaid income taxes on the Condensed Consolidated Balance Sheets as of October 28, 2023.

Contractual Obligations

Our contractual obligations at October 28, 2023 decreased 2% compared to January 28, 2023, primarily due to decreased lease obligations and purchase obligations, partially offset by increased long-term debt.

Capital Expenditures

Total capital expenditures in Fiscal 2024 are expected to be approximately $55 million to $60 million of which approximately 57% is for new stores and remodels and 43% is for computer hardware, software and warehouse enhancements for initiatives to drive traffic and omni-channel capabilities. We do not currently have any longer-term capital expenditures or other cash requirements other than as set forth above and in the contractual obligations table as disclosed in Item 7 of our Fiscal 2023 Form 10-K. We also do not currently have any off-balance sheet arrangements.

Common Stock Repurchases

We did not repurchase any shares during the third quarter of Fiscal 2024 and repurchased 1,261,295 shares during the first nine months of Fiscal 2024 at a cost of $32.0 million, or $25.39 per share. We have $52.1 million remaining as of October 28, 2023 under our expanded share repurchase authorization announced in June 2023. We repurchased 451,343 shares during the third quarter of Fiscal 2023 at a cost of $20.8 million, or $46.01 per share, and repurchased 1,380,272 shares during the first nine months of Fiscal 2023 at a cost of $72.7 million, or $52.66 per share. We accrued $4.8 million of share repurchases in the fourth quarter of Fiscal 2022 due to timing of the cash settlement which is included on the Condensed Consolidated Statements of Cash Flows for the nine months ended October 29, 2022. During the third quarter of Fiscal 2024, through December 6, 2023, we have not repurchased any shares.

Environmental and Other Contingencies

We are subject to certain loss contingencies related to environmental proceedings and other legal matters, including those disclosed in Item 1, Note 7, "Legal Proceedings", to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

New Accounting Pronouncements

Descriptions of recently issued accounting pronouncements, if any, and the accounting pronouncements adopted by us during the third quarter of Fiscal 2024 are included in Note 1 to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

We incorporate by reference the information regarding market risk appearing in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Financial Market Risk” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023. There have been no material changes to our exposure to market risks from those disclosed in the Form 10-K.

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures designed to ensure that information required to be disclosed by us, including our consolidated subsidiaries, in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is made known to the officers who certify our financial reports and to other members of senior management. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired objectives.

Based on their evaluation as of October 28, 2023, 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) promulgated under 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 time periods specified in SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

During the third quarter of Fiscal 2024, we implemented a new inventory management system for our wholesale operations and we updated and modified internal controls over financial reporting related to wholesale inventory. There were no other changes in our internal control over financial reporting that occurred during our third quarter of Fiscal 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

You should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended January 28, 2023, which could materially affect our business, financial condition or future results. The risks described in this report, and in our Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.