Genesco Inc: Form 10-Q for the period ended Nov 2, 2024
Filed with the SEC on Dec 12, 2024 and accepted by EDGAR at Dec 12, 2024, 10:53 ET.
Management's discussion and analysis
As filed, 38,096 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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 February 3, 2024, 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 increased 2.9% to $596.3 million in the third quarter of Fiscal 2025 compared to $579.3 million in the third quarter of Fiscal 2024. The net sales increase compared to last year's third quarter reflects a 6% increase in comparable sales, including a 15% increase in e-commerce comparable sales and a 4% increase in same store sales, and a favorable foreign exchange impact, partially offset by the negative impact of approximately $17 million due to the move of a strong week of back-to-school sales into the second quarter this year related to the 53-week calendar shift and the impact of net store closings. The Journeys Group business had strong back-to-school sales with comparable sales up 11% for the third quarter of Fiscal 2025, fueled by continued improvement in their product assortment, among other actions. Schuh Group continued to contend with a challenging U.K. macro environment in the third quarter this year and the consumer continued to be selective in their purchases. Johnston & Murphy Group consumers responded well to new product launches during the quarter with both conversion and transaction size increases, but the softening in men's premium non-athletic footwear market made for a difficult operating environment as store traffic decreased in the third quarter this year. Inflationary pressures continue to impact discretionary spending. By segment, Journeys Group sales increased 4%, Schuh Group sales increased 3%, Johnston & Murphy Group sales decreased 4% and Genesco Brands Group sales increased 10% for the third quarter of Fiscal 2025 compared to the third quarter of Fiscal 2024. Schuh Group's sales decreased 2% on a local currency basis for the third quarter of Fiscal 2025.
Gross margin increased 2.5% to $285.3 million in the third quarter of Fiscal 2025 from $278.4 million in the third quarter of Fiscal 2024, but decreased as a percentage of net sales from 48.1% to 47.8% reflecting decreased gross margin as a percentage of net sales at Journeys Group and Schuh Group, partially offset by increased gross margin as a percentage of net sales at Johnston & Murphy Group and Genesco Brands Group. The decreased gross margin as a percentage of net sales is due primarily to changes in product mix at Journeys Group.
Selling and administrative expenses in the third quarter of Fiscal 2025 increased 2.8% to $274.9 million from $267.5 million compared to the third quarter of Fiscal 2024 reflecting increased selling salaries, marketing expense and compensation expense. Selling and administrative expenses decreased 10 basis points as a percentage of net sales from 46.2% to 46.1%, reflecting the impact of our cost savings initiatives and closure of unproductive stores. By segment, selling and administrative expenses decreased as a percentage of net sales at Journeys Group and Genesco Brands Group, partially offset by increased expenses as a percentage of net sales at Schuh Group and Johnston & Murphy Group.
Operating margin was 1.7% in the third quarter of Fiscal 2025 compared to 1.9% in the third quarter of Fiscal 2024 reflecting decreased operating margin at Schuh Group and Johnston & Murphy Group, partially offset by improved operating margin at Journeys Group and Genesco Brands Group. The overall decrease in operating margin for the third quarter this year compared to the third quarter last year primarily reflects a decrease in gross margin as a percentage of net sales that more than offset decreased expenses as a percentage of net sales.
Earnings from continuing operations before income taxes (“pretax earnings”) for the third quarter of Fiscal 2025 was $8.9 million compared to $8.5 million for the third quarter of Fiscal 2024. Pretax earnings for the third quarter of both Fiscal 2025 and Fiscal 2024 included asset impairment and other charges of $0.1 million for asset impairments.
We had an effective income tax rate of 311.5% and 22.5% in the third quarter of Fiscal 2025 and Fiscal 2024, respectively. The higher effective tax rate in the third quarter this year compared to the third quarter last year reflects a $26.3 million U.S. valuation allowance in the third quarter this year, reflecting the uncertainty regarding our ability to realize the benefit of our general tax attributes in the U.S. jurisdiction.
We regularly assess the need for a valuation allowance against our deferred tax assets. In making that assessment, we consider all available evidence, both positive and negative, including but not limited to earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets in assessing the extent to which a valuation allowance should be applied against our U.S. and foreign deferred tax assets. We now expect our U.S. jurisdiction to be in a cumulative loss position within the near term which we believe is a new significant piece of negative evidence in the third quarter of Fiscal 2025. Due to the weight of the cumulative loss position for our U.S. jurisdiction in our objective analysis of all the positive and negative evidence, we no longer believe it is more likely than not we will realize certain U.S. deferred tax assets. As a result, we recorded a full valuation allowance against our U.S. deferred tax assets.
The net loss in the third quarter of Fiscal 2025 was $18.9 million, or $1.76 diluted loss per share, compared to net earnings of $6.5 million, or $0.60 diluted earnings per share, in the third quarter of Fiscal 2024.
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 February 3, 2024. 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 February 3, 2024. There have been no significant changes in our definition of significant accounting policies or critical accounting estimates since the end of Fiscal 2024.
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 and depreciation etc. Comparable sales also have a direct impact on our total net revenue, working capital and cash. 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 e-commerce 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.
Operating Margin
Operating margin is a ratio calculated by dividing operating income (loss) by net sales. We believe operating margin provides investors with useful information related to the profitability of our business after considering all of the selling, general and administrative expenses and other operating charges incurred. We use this measure in making financial, operating and planning decisions and in evaluating our overall performance.
Results of Operations – Third Quarter of Fiscal 2025 Compared to Third Quarter of Fiscal 2024
Journeys Group
(dollars in thousands)
| Three Months Ended November 2, 2024 | October 28, 2023 | % Change | |
|---|---|---|---|
| Net sales | $362,517 | $349,367 | 3.8% |
| Operating income | $13,166 | $11,975 | 9.9% |
| Operating margin | 3.6% | 3.4% |
Net sales from Journeys Group increased 3.8% to $362.5 million in the third quarter of Fiscal 2025, compared to $349.4 million in the third quarter of Fiscal 2024. The net sales increase compared to last year's third quarter reflects an 11% increase in comparable sales, partially offset by the negative impact of moving a strong week of back-to-school sales into the second quarter this year related to the 53-week calendar shift and a 5% decrease in the average number of stores in the third quarter this year. We believe our Journeys consumer has become more interested in a broader range of brands they are buying and more diversified in the styles they are wearing. Journeys added significant new product offerings across a number of casual and athletic brands which fueled strong full price selling and increased average selling prices in the third quarter this year. The newness in product offerings also contributed to increased traffic in stores as well as online with digital representing 17% of total sales for Journeys in the third quarter this year. We closed 12 Journeys Group stores in the third quarter of Fiscal 2025 and expect to close up to ten more Journeys Group stores in Fiscal 2025. Journeys Group operated 1,028 stores at the end of the third quarter of Fiscal 2025, including 218 Journeys Kidz stores, 37 Journeys stores in Canada and 30 Little Burgundy stores in Canada, compared to 1,080 stores at the end of the third quarter of last year, including 224 Journeys Kidz stores, 41 Journeys stores in Canada and 34 Little Burgundy stores in Canada.
The 20 basis point improvement in operating margin for Journeys Group for the third quarter of Fiscal 2025 compared to the third quarter of Fiscal 2024 was due to decreased selling and administrative expenses as a percentage of net sales reflecting a decrease in occupancy, freight and compensation expenses, partially offset by decreased gross margin as a percentage of net sales reflecting changes in product mix. The decrease in selling and administrative expenses as a percentage of net sales demonstrates the impact of our cost savings initiatives and closing underperforming stores.
Schuh Group
(dollars in thousands)
| Three Months Ended November 2, 2024 | October 28, 2023 | % Change | |
|---|---|---|---|
| Net sales | $121,826 | $118,129 | 3.1% |
| Operating income | $3,119 | $5,484 | (43.1)% |
| Operating margin | 2.6% | 4.6% |
Net sales from Schuh Group increased 3.1% to $121.8 million in the third quarter of Fiscal 2025 compared to $118.1 million in the third quarter of Fiscal 2024. Net sales for the third quarter this year included a favorable impact of $5.5 million due to changes in foreign exchange rates, partially offset by decreased comparable sales and moving a strong week of back-to-school sales into the second quarter this year related to the 53-week calendar shift. Total comparable sales for Schuh Group decreased 1% for the third quarter this year. Schuh Group continued to contend with a challenging U.K. macro environment in the third quarter this year and the consumer continued to be selective in their purchases. Schuh Group's e-commerce business remains a key channel for consumer engagement, accounting for over 40% of its sales in the third quarter of Fiscal 2025. Schuh Group's sales decreased 2% on a local currency basis for the third quarter of Fiscal 2025. Schuh Group operated 122 stores at the end of the third quarter of Fiscal 2025, compared to 124 stores at the end of the third quarter of Fiscal 2024.
The 200 basis point decrease in operating margin for Schuh Group for the third quarter of Fiscal 2025 compared to the third quarter of Fiscal 2024 reflects increased selling and administrative expenses as a percentage of net sales, reflecting increased selling salaries and marketing expense partially offset by decreased performance-based compensation expense. Gross margin decreased as a percentage of net sales reflecting increased promotional activity and changes in product mix, partially offset by decreased shipping and warehouse expenses.
Johnston & Murphy Group
(dollars in thousands)
| Three Months Ended November 2, 2024 | October 28, 2023 | % Change | |
|---|---|---|---|
| Net sales | $78,463 | $81,411 | (3.6)% |
| Operating income (loss) | $(91) | $2,706 | NM |
| Operating margin | (0.1)% | 3.3% |
Johnston & Murphy Group net sales decreased 3.6% to $78.5 million for the third quarter of Fiscal 2025 from $81.4 million for the third quarter of Fiscal 2024, primarily due to decreased wholesale sales, a 3% decrease in the average number of stores in the third quarter this year and a 1% decrease in comparable sales. Consumers responded well to new footwear product launches during the quarter with both conversion and transaction size increases, but the softening in men's premium non-athletic footwear market made for a difficult operating environment as store traffic continued down in the third quarter this year. The brand's apparel and accessories continue to resonate well with its consumers and the Johnston & Murphy Group intends to continue to capitalize on opportunities beyond footwear. Retail operations accounted for 74.0% of Johnston & Murphy Group's sales in the third quarter of Fiscal 2025, up from 72.5% in the third quarter of Fiscal 2024. The store count for Johnston & Murphy Group's retail operations at the end of the third quarter of Fiscal 2025 was 152 stores, including five stores in Canada, compared to 156 stores, including six stores in Canada, at the end of the third quarter of Fiscal 2024.
The 340 basis point decrease in operating margin for Johnston & Murphy for the third quarter of Fiscal 2025 compared to the third quarter of Fiscal 2024 reflects increased selling and administrative expenses as a percentage of net sales for the third quarter of Fiscal 2025 reflecting the deleverage of expenses, especially marketing expense, occupancy expense, selling salaries and compensation expense in part as a result of decreased revenue in the third quarter of Fiscal 2025, as well as increased performance-based compensation expense due to the impact of the reversal of performance-based compensation expense in the third quarter of Fiscal 2024. Gross margin as a percentage of net sales increased for the third quarter of Fiscal 2025, reflecting improved initial margins, lower markdowns and a higher mix of direct-to-consumer sales volume.
Genesco Brands Group
(dollars in thousands)
| Three Months Ended November 2, 2024 | October 28, 2023 | % Change | |
|---|---|---|---|
| Net sales | $33,522 | $30,408 | 10.2% |
| Operating income (loss) | $3,729 | $(1,560) | NM |
| Operating margin | 11.1% | (5.1)% |
Genesco Brands' net sales increased 10.2% to $33.5 million for the third quarter of Fiscal 2025 from $30.4 million for the third quarter of Fiscal 2024 due primarily to increased sales of Levi's and Dockers footwear, partially offset by decreased sales in other licenses and private label offerings as we continue to reposition the business to a more refined portfolio of licenses.
The improvement in operating margin for Genesco Brands Group for the third quarter of Fiscal 2025 compared to the third quarter of Fiscal 2024 was primarily due to increased gross margin as a percentage of net sales reflecting more full price selling in Levi's and a favorable change in sales mix and decreased selling and administrative expenses as a percentage of net sales in the third quarter of Fiscal 2025 reflecting leverage of expense as a result of increased revenue in the third quarter of Fiscal 2025 as well as decreased royalty, marketing and other expenses as a result of an amendment to the Levi's license agreement, and decreased performance-based compensation expense and warehouse expense.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for the third quarter of Fiscal 2025 was $9.7 million compared to $7.8 million for the third quarter of Fiscal 2024. Corporate expense in the third quarter of both Fiscal 2025 and Fiscal 2024 included a $0.1 million charge in asset impairment and other charges for asset impairments. The corporate expense increase, excluding asset impairment and other charges, reflects increased performance-based compensation expense in the third quarter this year compared to the third quarter last year.
Net interest expense decreased 45.0% to $1.2 million in the third quarter of Fiscal 2025 compared to $2.2 million in the third quarter of Fiscal 2024 primarily reflecting decreased average borrowings in the third quarter this year compared to the third quarter last year.
Results of Operations – First Nine Months of Fiscal 2025 Compared to First Nine Months of Fiscal 2024
Our net sales decreased 0.4% to $1.579 billion in the first nine months of Fiscal 2025 compared to $1.586 billion in the first nine months of Fiscal 2024. The net sales decrease compared to last year's first nine months was driven by decreased comparable store sales, the impact of net store closings and decreased wholesale sales, partially offset by a 9% increase in e-commerce comparable sales, the inclusion this year of additional sales due to the calendar shift because Fiscal 2024 was a 53-week year and a favorable impact of $7.8 million in sales due to foreign exchange rates. Journeys Group sales and Schuh Group sales each increased 1% for the first nine months while Johnston & Murphy Group sales decreased 5% and Genesco Brands Group sales decreased 10% for the first nine months of Fiscal 2025 compared to the first nine months of Fiscal 2024. Schuh's sales decreased 1% on a local currency basis for the first nine months of Fiscal 2025. Total comparable sales were flat for the first nine months of Fiscal 2025, with same store sales down 2% and comparable e-commerce sales up 9%.
Gross margin decreased 1.3% to $747.2 million in the first nine months of Fiscal 2025 from $756.8 million in the first nine months of Fiscal 2024 and decreased as a percentage of net sales from 47.7% to 47.3% reflecting decreased gross margin as a percentage of net sales in all business units except Johnston & Murphy Group. The decreased gross margin as a percentage of net sales reflects primarily a higher level of promotional activity at Schuh and changes in product mix at Journeys.
Selling and administrative expenses in the first nine months of Fiscal 2025 were down slightly to $777.9 million compared to $778.5 million in the first nine months of Fiscal 2024. Selling and administrative expenses increased 20 basis points as a percentage of net sales in the first nine months of Fiscal 2025 compared to the first nine months of Fiscal 2024 from 49.1% to 49.3%, reflecting increased expenses as a percentage of net sales at Schuh Group and Johnston & Murphy Group, partially offset by decreased expenses as a percentage of sales at Journeys Group and Genesco Brands Group. The increase in expenses as a percentage of net sales reflects increased selling salaries, depreciation expense, marketing expense and professional fees, partially offset by decreased occupancy expense, royalty expense and a favorable change in certain non-income taxes.
Operating margin was a loss of 2.0% in the first nine months of Fiscal 2025 compared to a loss of 3.2% in the first nine months of Fiscal 2024 reflecting improved operating margin at Journeys Group and Genesco Brands Group, partially offset by decreased operating margin at Schuh Group and Johnston & Murphy Group. The overall improvement in operating margin for the first nine months this year compared to the first nine months last year primarily reflects a non-cash goodwill impairment charge of $28.5 million in the second quarter of Fiscal 2024, partially offset by decreased gross margin as a percentage of net sales and increased selling and administrative expenses as a percentage of net sales in the first nine months of Fiscal 2025 compared to the first nine months of Fiscal 2024.
The pretax loss for the first nine months of Fiscal 2025 was $35.9 million compared to a pretax loss of $57.4 million for the first nine months of Fiscal 2024. The pretax loss for the first nine months of Fiscal 2025 included a $1.8 million charge for a distribution model transition in the Genesco Brands Group and asset impairment and other charges of $1.5 million for severance and asset impairments. 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.
We had an effective income tax rate of -47.7% and 23.5% in the first nine months of Fiscal 2025 and Fiscal 2024, respectively. The lower effective tax rate for the first nine months this year compared to the first nine months last year reflects a $26.3 million U.S. valuation allowance recorded in the third quarter of Fiscal 2025, reflecting the uncertainty regarding our ability to realize the benefit of our general tax attributes in the U.S. jurisdiction.
The net loss in the first nine months of Fiscal 2025 was $53.3 million, or $4.90 diluted loss per share, compared to a net loss of $44.0 million, or $3.88 diluted loss per share, in the first nine months of Fiscal 2024.
Journeys Group
(dollars in thousands)
| Nine Months Ended November 2, 2024 | October 28, 2023 | % Change | |
|---|---|---|---|
| Net sales | $920,808 | $908,832 | 1.3% |
| Operating loss | $(16,807) | $(21,265) | 21.0% |
| Operating margin | (1.8)% | (2.3)% |
Net sales from Journeys Group increased 1.3% to $920.8 million in the first nine months of Fiscal 2025, compared to $908.8 million in the first nine months of Fiscal 2024. The net sales increase compared to last year's first nine months reflects a 2% increase in comparable sales and additional sales this year related to the 53-week calendar shift, partially offset by a 6% decrease in the average number of Journeys stores in the first nine months this year. We believe our Journeys consumer has become more interested in a broader range of brands they are buying and more diversified in the styles they are wearing. We added a significant amount of fresh product to our assortment in the later part of our first nine months this year and store traffic has increased as a result and drove a sequential improvement in Journeys Group comparable sales. We closed 41 Journeys Group stores in the first nine months of Fiscal 2025 and expect to close up to ten more Journeys Group stores in Fiscal 2025.
The 50 basis point improvement in operating margin for Journeys Group for the first nine months of Fiscal 2025 compared to the first nine months of Fiscal 2024 was due primarily to decreased selling and administrative expenses as a percentage of net sales reflecting a decrease in occupancy and compensation expenses, partially offset by increased selling salaries and depreciation expense. The decrease in selling and administrative expenses, in both absolute dollars and as a percentage of sales, demonstrates the impact of our cost savings initiatives and closing underperforming stores. Gross margin as a percentage of net sales decreased for the first nine months of Fiscal 2025, reflecting changes in product mix, partially offset by decreased markdowns.
Schuh Group
(dollars in thousands)
| Nine Months Ended November 2, 2024 | October 28, 2023 | % Change | |
|---|---|---|---|
| Net sales | $338,736 | $334,033 | 1.4% |
| Operating income | $4,562 | $12,110 | (62.3)% |
| Operating margin | 1.3% | 3.6% |
Net sales from Schuh Group increased 1.4% to $338.7 million in the first nine months of Fiscal 2025 compared to $334.0 million in the first nine months of Fiscal 2024. Net sales for the first nine months of Fiscal 2025 included a favorable impact of $8.7 million due to changes in foreign exchange rates, partially offset by decreased comparable sales. Total comparable sales for Schuh Group decreased 3% for the first nine months this year. Schuh Group continued to contend with a challenging U.K. macro environment in the first nine months this year and the consumer continues to be selective in their purchases. In addition, Schuh Group sales in the first nine months of Fiscal 2025 compares against strong sales growth in the first nine months of Fiscal 2024. Schuh Group's e-commerce business remains a key channel for consumer engagement, accounting for approximately 40% of its sales in the first nine months of Fiscal 2025. Schuh Group's sales decreased 1% on a local currency basis for the first nine months of Fiscal 2025.
The 230 basis point decrease in operating margin for Schuh Group for the first nine months of Fiscal 2025 compared to the first nine months of Fiscal 2024 reflects decreased gross margin as a percentage of net sales reflecting a more promotional environment at Schuh Group during the first nine months this year, partially offset by decreased shipping and warehouse expenses. The increase in selling and administrative expenses as a percentage of net sales also contributed to the decrease in operating margin reflecting increased selling salaries, marketing, compensation and depreciation expenses, partially offset by decreased performance-based compensation and occupancy expenses.
Johnston & Murphy Group
(dollars in thousands)
| Nine Months Ended November 2, 2024 | October 28, 2023 | % Change | |
|---|---|---|---|
| Net sales | $228,707 | $241,823 | (5.4)% |
| Operating income | $1,861 | $10,178 | (81.7)% |
| Operating margin | 0.8% | 4.2% |
Johnston & Murphy Group net sales decreased 5.4% to $228.7 million for the first nine months of Fiscal 2025 from $241.8 million for the first nine months of Fiscal 2024, primarily due to decreased wholesale sales, a 3% decrease in comparable sales, reflecting decreased comparable sales and a 3% decrease in the average number of stores in the first nine months of Fiscal 2025. The softening in men's premium, non-athletic, footwear market made for a difficult operating environment in the first nine months of Fiscal 2025 due to consumer selectivity related to premium priced products. Retail operations accounted for 76.0% of Johnston & Murphy Group's sales in the first nine months of Fiscal 2025, up slightly from 75.4% in the first nine months of Fiscal 2024.
The 340 basis point decrease in operating margin for Johnston & Murphy Group for the first nine months of Fiscal 2025 compared to the first nine months of Fiscal 2024 reflects increased selling and administrative expenses as a percentage of net sales for the first nine months of Fiscal 2025, reflecting the deleverage of expenses, especially marketing expense, selling salaries, occupancy and compensation expenses in part as a result of decreased revenue in the first nine months of Fiscal 2025. Johnston & Murphy continues to make investments in marketing to enhance the brand as the men's premium, non-athletic footwear market returns to a more normal operating environment. Gross margin as a percentage of net sales increased for the first nine months of Fiscal 2025, primarily reflecting improved initial margins, lower markdowns, lower warehouse costs and a higher mix of direct-to-consumer sales volume.
Genesco Brands Group
(dollars in thousands)
| Nine Months Ended November 2, 2024 | October 28, 2023 | % Change | |
|---|---|---|---|
| Net sales | $90,862 | $100,986 | (10.0)% |
| Operating income | $5,415 | $259 | NM |
| Operating margin | 6.0% | 0.3% |
Genesco Brands' net sales decreased 10.0% to $90.9 million for the first nine months of Fiscal 2025 from $101.0 million for the first nine months of Fiscal 2024 due primarily to the repositioning of the business to a more refined portfolio of licenses, partially offset by increased sales of Dockers footwear.
The improvement in operating margin for Genesco Brands Group for the first nine months of Fiscal 2025 compared to the first nine months of Fiscal 2024 was primarily due to decreased selling and administrative expenses as a percentage of net sales in the first nine months of Fiscal 2025 reflecting decreased royalty, marketing and other expenses as a result of an amendment to the Levi's license agreement and decreased warehouse costs and bad debt expenses, partially offset by increased performance-based compensation expense. Gross margin decreased as a percentage of net sales reflecting a $1.8 million inventory provision for a distribution model transition, partially offset by a favorable brand sales mix shift.
Corporate, Interest Expenses and Other Charges
Corporate and other expense for the first nine months of Fiscal 2025 was $27.2 million compared to $52.1 million for the first nine months of Fiscal 2024. Corporate expense in the first nine months of Fiscal 2025 included a $1.5 million charge in asset impairment and other charges for severance and asset impairments. 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. The corporate expense increase, excluding asset impairment and other charges in Fiscal 2025 and Fiscal 2024 and goodwill impairment in Fiscal 2024, primarily reflects an increase in performance-based compensation expense and professional fees in the first nine months this year compared to the first nine months last year.
Net interest expense decreased 44.8% to $3.4 million in the first nine months of Fiscal 2025 compared to $6.2 million in the first nine months of Fiscal 2024 primarily reflecting decreased average borrowings 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)
| Cash flow changes: | Nine Months Ended November 2, 2024 | October 28, 2023 | Increase (Decrease) |
|---|---|---|---|
| Net cash used in operating activities | $(29,108) | $(23,540) | $(5,568) |
| Net cash used in investing activities | (27,396) | (49,651) | 22,255 |
| Net cash provided by financing activities | 54,543 | 47,198 | 7,345 |
| Effect of foreign exchange rate fluctuations on cash | 384 | (306) | 690 |
| Net decrease in cash | $(1,577) | $(26,299) | $24,722 |
Reasons for the major variances in cash provided by (used in) the table above are as follows:
Cash used in operating activities was $5.6 million higher in the first nine months of Fiscal 2025 compared to the first nine months of Fiscal 2024, reflecting primarily the following factors:
- a $54.8 million increase in cash flow from changes in accounts payable, primarily reflecting changes in buying patterns in the first nine months of Fiscal 2025; and
- an $18.3 million increase in cash flow from changes in accounts receivable, primarily reflecting the distribution model transition at Genesco Brands Group and decreased wholesale sales; partially offset by
- an $82.6 million decrease in cash flow from changes in inventory, primarily reflecting an increase in Genesco Brands Group inventory and a larger increase year over year in Journeys Group inventory, as well as a lower decrease year over year in Johnston & Murphy Group inventory, partially offset by a lower increase year over year in Schuh Group inventory in the first nine months of Fiscal 2025.
Cash used in investing activities was $22.3 million lower for the first nine months of Fiscal 2025 as compared to the first nine months of Fiscal 2024 reflecting decreased capital expenditures primarily related to omni-channel capabilities and investments in retail stores.
Cash provided by financing activities was $7.3 million higher in the first nine months of Fiscal 2025 as compared to the first nine months of Fiscal 2024 reflecting decreased share repurchases this year compared to the same period last year, partially offset by decreased net borrowings.
Sources of Liquidity and Future Capital Needs
We have three principal sources of liquidity: cash flow from operations, cash 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 2024.
As of November 2, 2024, we have borrowed $96.1 million U.S. revolver borrowings and $4.0 million (C$5.6 million) related to GCO Canada ULC. We were in compliance with all the relevant terms and conditions of the Credit Facility and the Facility Agreement as of November 2, 2024.
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 2025 and the foreseeable future.
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 November 2, 2024.
Contractual Obligations
Our contractual obligations at November 2, 2024 increased 7% compared to February 3, 2024, primarily due to increased long-term debt, partially offset by decreased lease obligations and purchase obligations.
Capital Expenditures
Total capital expenditures in Fiscal 2025 are expected to be approximately $45 million to $50 million of which approximately 67% is for new stores and remodels and 33% 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 2024 Form 10-K. We also do not currently have any off-balance sheet arrangements.
Common Stock Repurchases
We repurchased 17,922 shares of our common stock during the third quarter of Fiscal 2025 at a cost of $0.4 million, or $24.50 per share, and repurchased 399,633 shares of our common stock during the first nine months of Fiscal 2025 at a cost of $9.8 million, or $24.49 per share. We have $42.3 million remaining as of November 2, 2024 under our expanded share repurchase authorization announced in June 2023. We have recorded an accrual for excise tax on stock repurchases of less than $0.1 million in other accrued liabilities in our Condensed Consolidated Balance Sheets as of November 2, 2024. We did not repurchase any shares of our common stock during the third quarter of Fiscal 2024 and repurchased 1,261,295 shares of our common stock during the first nine months of Fiscal 2024 at a cost of $32.0 million, or $25.39 per share.
During the fourth quarter of Fiscal 2025, through December 11, 2024, we have not repurchased any shares of our common stock.
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 2025 are included in Note 1 to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Market risk
As filed, 401 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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 February 3, 2024. There have been no material changes to our exposure to market risks from those disclosed in the Form 10-K.
Controls and procedures
As filed, 1,584 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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 November 2, 2024, 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
There were no changes in our internal control over financial reporting that occurred during our third quarter of Fiscal 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Risk factors
As filed, 557 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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 February 3, 2024, 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.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2024-11-02. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2024-08-04 to 2024-11-02 | $596.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months2024-02-04 to 2024-11-02 | $1.58bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months2024-08-04 to 2024-11-02 | $311.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months2024-02-04 to 2024-11-02 | $831.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months2024-08-04 to 2024-11-02 | $285.3m | us-gaap:GrossProfit |
| Gross profit | 9 months2024-02-04 to 2024-11-02 | $747.2m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months2024-08-04 to 2024-11-02 | $274.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months2024-02-04 to 2024-11-02 | $777.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months2024-08-04 to 2024-11-02 | $10.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months2024-02-04 to 2024-11-02 | −$32.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months2024-08-04 to 2024-11-02 | $1.2m | us-gaap:InterestExpense |
| Interest expense | 9 months2024-02-04 to 2024-11-02 | $3.4m | us-gaap:InterestExpense |
| Income tax | 3 months2024-08-04 to 2024-11-02 | $27.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months2024-02-04 to 2024-11-02 | $17.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2024-08-04 to 2024-11-02 | −$18.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months2024-02-04 to 2024-11-02 | −$53.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2024-08-04 to 2024-11-02 | −$1.76 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months2024-02-04 to 2024-11-02 | −$4.90 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2024-08-04 to 2024-11-02 | −$1.76 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months2024-02-04 to 2024-11-02 | −$4.90 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2024-08-04 to 2024-11-02 | 10,737,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months2024-02-04 to 2024-11-02 | 10,870,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months2024-02-04 to 2024-11-02 | −$29.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2024-02-04 to 2024-11-02 | $27.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months2024-02-04 to 2024-11-02 | $9.8m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Current assets | At period end2024-11-02 | $659.7m | us-gaap:AssetsCurrent |
| Total assets | At period end2024-11-02 | $1.44bn | us-gaap:Assets |
| Current liabilities | At period end2024-11-02 | $422.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | At period end2024-11-02 | $918.6m | us-gaap:Liabilities |
| Long-term debt | At period end2024-11-02 | $100.1m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | At period end2024-11-02 | $516.9m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0000950170-24-135629. Last ingested by Listed: Oct 24, 2026, 14:51 ET. Listed shows no prices and gives no investment advice.