Genesco Inc.

06/12/2025 | Press release | Distributed by Public on 06/12/2025 07:44

Quarterly Report for Quarter Ending May 3, 2025 (Form 10-Q)

Management's Discussion andAnalysis of Financial Condition and Results of Operations

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 1, 2025, 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 3.6% to $474.0 million in the first quarter of Fiscal 2026 compared to $457.6 million in the first quarter of Fiscal 2025. The net sales increase compared to last year's first quarter reflects a 5% increase in comparable sales, including a 7% increase in e-commerce comparable sales and a 5% increase in same store sales, and increased wholesale sales, partially offset by the impact of net store closings. The Journeys Group business had a strong first quarter of Fiscal 2026 with comparable sales up 8%, fueled by strength in their product assortment. Schuh Group is benefiting from work on product elevation and improved access to top brands which contributed to their comparable sales increase of 1% in the first quarter of Fiscal 2026. The consumer continues to be very selective in their purchases in both the U.S and the U.K., with a willingness to shop when there is a reason, and retreat when there is not. Johnston & Murphy Group comparable sales were down 2% in the first quarter of Fiscal 2026 but there was growth in conversion rates and transaction size, demonstrating a positive consumer response to new product at Johnston & Murphy. By segment, Journeys Group sales increased 5%, Schuh Group sales increased 4% and Genesco Brands Group sales increased 7%, while Johnston & Murphy Group sales decreased 3% in the first quarter of Fiscal 2026 compared to the first quarter of Fiscal 2025. Schuh Group's sales increased 1% on a local currency basis for the first quarter of Fiscal 2026.

Gross margin increased 2.3% to $221.2 million in the first quarter of Fiscal 2026 from $216.3 million in the first quarter of Fiscal 2025, but decreased as a percentage of net sales from 47.3% in the first quarter of Fiscal 2025 to 46.7% in the first quarter of Fiscal 2026 reflecting decreased gross margin as a percentage of net sales in all business units except Genesco Brands Group. The overall decrease in gross margin as a percentage of net sales is due primarily to changes in brand mix at Journeys Group and Schuh Group and promotional activity at Schuh Group.

Selling and administrative expenses in the first quarter of Fiscal 2026 increased 0.5% to $249.0 million from $247.8 million compared to the first quarter of Fiscal 2025, but decreased 170 basis points as a percentage of net sales in the first quarter of Fiscal 2026 compared to the first quarter of Fiscal 2025 from 54.2% to 52.5%. The decrease as a percentage of net sales reflects decreased occupancy and performance-based compensation expenses as well as other cost savings initiatives. By segment, selling and administrative expenses decreased as a percentage of net sales in all business units except Johnston & Murphy Group.

Operating margin was (5.9)% in the first quarter of Fiscal 2026 compared to (7.0)% in the first quarter of Fiscal 2025 reflecting improved operating margin at Journeys Group and Genesco Brands Group, partially offset by decreased operating margin at Johnston & Murphy Group, while Schuh Group remained flat. The overall improvement in operating margin for the first quarter of Fiscal 2026 compared to the first quarter of Fiscal 2025 primarily reflects decreased expenses as a percentage of net sales, partially offset by decreased gross margin as a percentage of net sales.

The loss from continuing operations before income taxes ("pretax loss") for the first quarter of Fiscal 2026 was $29.7 million compared to a pretax loss of $33.1 million for the first quarter of Fiscal 2025. The pretax loss for the first quarter of Fiscal 2026 included asset impairment and other charges of $0.3 million for severance and asset impairments. The pretax loss for the first quarter of Fiscal 2025 included a $1.6 million charge for a distribution model transition in the Genesco Brands Group and asset impairment and other charges of $0.6 million for severance and asset impairments.

We had an effective income tax rate of 28.5% and 26.7% in the first quarter of Fiscal 2026 and Fiscal 2025, respectively. The higher effective tax rate in the first quarter of Fiscal 2026 compared to the first quarter of Fiscal 2025 reflects the impact of fewer unfavorable discrete items related to restricted stock vesting and penalties and interest related to income taxes.

The net loss in the first quarter of Fiscal 2026 was $21.2 million, or $2.02 diluted loss per share, compared to a net loss of $24.3 million, or $2.23 diluted loss per share, in the first quarter of Fiscal 2025.

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 1, 2025. 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 1, 2025. There have been no significant changes in our definition of significant accounting policies or critical accounting estimates since the end of Fiscal 2025.

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 and other costs. 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 - First Quarter of Fiscal 2026 Compared to First Quarter of Fiscal 2025

Journeys Group

Three Months Ended

May 3, 2025

May 4, 2024

%
Change

(dollars in thousands)

Net sales

$

272,634

$

259,445

5.1

%

Cost of sales

139,515

131,801

Gross margin

133,119

127,644

4.3

%

% of sales

48.8

%

49.2

%

Selling and administrative expenses

148,402

146,466

1.3

%

% of sales

54.4

%

56.5

%

Operating loss

$

(15,283

)

$

(18,822

)

18.8

%

Operating margin

(5.6

)%

(7.3

)%

Net sales from Journeys Group increased 5.1% to $272.6 million in the first quarter of Fiscal 2026, compared to $259.4 million in the first quarter of Fiscal 2025. The net sales increase compared to Fiscal 2025's first quarter reflects an 8% increase in comparable sales, with increases in both stores and e-commerce channels, partially offset by a 6% decrease in the average number of stores in the first quarter of Fiscal 2026. We believe our Journeys Group consumer is more interested in a broader range of brands they are buying and more diversified in the styles they are wearing. The increased comparable sales in the first quarter of Fiscal 2026 was fueled by strength in Journeys Group's product assortment with athletic posting strong gains. Journeys Group drove strong gains in conversion and transaction size, which more than offset the softer traffic as consumers have shown a willingness to shop when there is a reason, and retreat when there is not.

We closed 19 Journeys Group stores and opened two stores in the first quarter of Fiscal 2026. Journeys Group operated 989 stores at the end of the first quarter of Fiscal 2026, including 203 Journeys Kidz stores in the United States, 34 Journeys stores in Canada and 29 Little Burgundy stores in Canada, compared to 1,047 stores at the end of the first quarter of Fiscal 2025, including 221 Journeys Kidz stores in the United States, 39 Journeys stores in Canada and 31 Little Burgundy stores in Canada.

The 170 basis point improvement in operating margin for Journeys Group for the first quarter of Fiscal 2026 compared to the first quarter of Fiscal 2025 was due to decreased selling and administrative expenses as a percentage of net sales reflecting leverage of expense as a result of increased revenue in the first quarter of Fiscal 2026, especially occupancy, freight and depreciation expenses, partially offset by higher selling expenses to drive growth. This was partially offset by decreased gross margin as a percentage of net sales reflecting decreased initial margins as

a result of changes in brand 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

Three Months Ended

May 3, 2025

May 4, 2024

%
Change

(dollars in thousands)

Net sales

$

95,915

$

92,349

3.9

%

Cost of sales

57,738

54,169

Gross margin

38,177

38,180

(0.0

)%

% of sales

39.8

%

41.3

%

Selling and administrative expenses

44,308

44,076

0.5

%

% of sales

46.2

%

47.7

%

Operating loss

$

(6,131

)

$

(5,896

)

(4.0

)%

Operating margin

(6.4

)%

(6.4

)%

Net sales from Schuh Group increased 3.9% to $95.9 million in the first quarter of Fiscal 2026 compared to $92.3 million in the first quarter of Fiscal 2025. Net sales for the first quarter of Fiscal 2026 includes a 1% increase in comparable sales, reflecting increased e-commerce comparable sales and includes a favorable impact of $2.3 million due to changes in foreign exchange rates, partially offset by decreased same store sales. Schuh is benefiting from their work on product elevation and improved access to top brands but continues to contend with a challenging U.K. macro environment in the first quarter of Fiscal 2026 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 first quarter of Fiscal 2026. Schuh Group's sales increased 1% on a local currency basis for the first quarter of Fiscal 2026. Schuh Group operated 121 stores at the end of the first quarter of Fiscal 2026, compared to 122 stores at the end of the first quarter of Fiscal 2025.

Operating margin remained flat for Schuh Group for the first quarter of Fiscal 2026 compared to the first quarter of Fiscal 2025. The 150 basis point decrease in selling and administrative expenses as a percentage of net sales, reflecting decreased marketing, compensation and performance-based compensation expenses, partially offset by increased occupancy expense, was offset by a 150 basis point decrease in gross margin as a percentage of net sales. The gross margin decrease as a percentage of net sales reflected lower initial margins as a result of changes in brand mix and increased promotional activity, partially offset by decreased shipping and warehouse expenses.

Johnston & Murphy Group

Three Months Ended

May 3, 2025

May 4, 2024

%
Change

(dollars in thousands)

Net sales

$

76,839

$

79,207

(3.0

)%

Cost of sales

35,702

36,613

Gross margin

41,137

42,594

(3.4

)%

% of sales

53.5

%

53.8

%

Selling and administrative expenses

40,637

40,239

1.0

%

% of sales

52.9

%

50.8

%

Operating income

$

500

$

2,355

(78.8

)%

Operating margin

0.7

%

3.0

%

Johnston & Murphy Group net sales decreased 3.0% to $76.8 million for the first quarter of Fiscal 2026 from $79.2 million for the first quarter of Fiscal 2025, primarily due to a 2% decrease in comparable sales, reflecting decreased store sales, and a 4% decrease in the average number of stores in the first quarter of Fiscal 2026, partially offset by increased wholesale sales. Even with a decrease in comparable sales for the first quarter of Fiscal 2026, we saw growth in Johnston & Murphy Group's store conversion and transaction size which is a positive consumer response to their assortment, especially for new product. Retail operations accounted for 72.8% of Johnston & Murphy Group's sales in the first quarter of Fiscal 2026, down from 74.0% in the first quarter of Fiscal 2025. The store count for Johnston & Murphy Group's retail operations at the end of the first quarter of Fiscal 2026 was 146 shops and factory stores compared to 152 shops and factory stores, including five stores in Canada, at the end of the first quarter of Fiscal 2025. Johnston & Murphy Group closed its five Canadian stores at the end of Fiscal 2025.

The 230 basis point decrease in operating margin for Johnston & Murphy Group for the first quarter of Fiscal 2026 compared to the first quarter of Fiscal 2025 reflects increased selling and administrative expenses as a percentage of net sales for the first quarter of Fiscal 2026 primarily due to the deleverage of expenses, especially marketing, depreciation and compensation expenses as a result of decreased revenue in the first quarter of Fiscal 2026, partially offset by decreased performance-based compensation expense. The decrease in operating margin also reflects a decrease in gross margin as a percentage of net sales for the first quarter of Fiscal 2026 compared to the first quarter of Fiscal 2025 primarily due a lower mix of direct-to-consumer sales volume as well as higher retail markdowns and an increase in shipping and warehouse expense, partially offset by improved initial margins.

Genesco Brands Group

Three Months Ended

May 3, 2025

May 4, 2024

%
Change

(dollars in thousands)

Net sales

$

28,585

$

26,596

7.5

%

Cost of sales

19,837

18,733

Gross margin

8,748

7,863

11.3

%

% of sales

30.6

%

29.6

%

Selling and administrative expenses

8,050

8,849

(9.0

)%

% of sales

28.2

%

33.3

%

Operating income (loss)

$

698

$

(986

)

NM

Operating margin

2.4

%

(3.7

)%

Genesco Brands Group's net sales increased 7.5% to $28.6 million for the first quarter of Fiscal 2026 from $26.6 million for the first quarter of Fiscal 2025 primarily due to increased sales of Levi's footwear, partially offset by decreased sales in Dockers footwear and other licenses.

The 610 basis point improvement in operating margin for Genesco Brands Group for the first quarter of Fiscal 2026 compared to the first quarter of Fiscal 2025 was primarily due to decreased selling and administrative expenses as a percentage of net sales in the first quarter of Fiscal 2026 reflecting leverage of expenses as a result of increased revenue in the first quarter of Fiscal 2026, as well as lower performance-based compensation expense. Gross margin increased as a percentage of net sales which also contributed to the operating margin improvement, reflecting a $1.6 million inventory provision in gross margin for a distribution model transition in the first quarter of Fiscal 2025.

Corporate, Interest Expenses and Other Charges

Corporate and other expense for the first quarter of Fiscal 2026 was $7.9 million compared to $8.8 million for the first quarter of Fiscal 2025. Corporate expense in the first quarter of Fiscal 2026 and Fiscal 2025 included asset impairment and other charges of $0.3 million and $0.6 million, respectively, for asset impairments and severance. The corporate expense decrease, excluding asset impairment and other charges, reflects decreased professional fees and performance-based compensation expense in the first quarter of Fiscal 2026 compared to the first quarter of Fiscal 2025.

Net interest expense increased 50.4% to $1.3 million in the first quarter of Fiscal 2026 compared to $0.9 million in the first quarter of Fiscal 2025 primarily reflecting increased average borrowings in the first quarter of Fiscal 2026 compared to the first quarter of Fiscal 2025.

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.

Three Months Ended

Cash flow changes:

May 3, 2025

May 4, 2024

Increase
(Decrease)

(in thousands)

Net cash used in operating activities

$

(101,036

)

$

(33,744

)

$

(67,292

)

Net cash used in investing activities

(18,898

)

(6,377

)

(12,521

)

Net cash provided by financing activities

107,329

24,242

83,087

Effect of foreign exchange rate fluctuations on cash

346

(29

)

375

Net decrease in cash

$

(12,259

)

$

(15,908

)

$

3,649

Reasons for the major variances in cash provided by (used in) the table above are as follows:

Cash used in operating activities was $67.3 million higher in the first three months of Fiscal 2026 compared to the first three months of Fiscal 2025, reflecting primarily the following factors:

a $41.7 million decrease in cash flow from changes in accounts payable, primarily reflecting changes in buying patterns in the first three months of Fiscal 2026 as well as changes in timing of rent payments in the first quarter of Fiscal 2026 compared to the first quarter of Fiscal 2025;
a $13.0 million decrease in cash flow from changes in other accrued liabilities, primarily reflecting a higher payment of Fiscal 2025 performance-based compensation accruals in the first quarter of Fiscal 2026 compared to the first quarter of Fiscal 2025; and
a $7.2 million decrease in cash flow from changes in accounts receivable, primarily reflecting increased wholesale sales.

Cash used in investing activities was $12.5 million higher for the first three months of Fiscal 2026 as compared to the first three months of Fiscal 2025 reflecting increased capital expenditures primarily related to investments in retail stores.

Cash provided by financing activities was $83.1 million higher in the first three months of Fiscal 2026 as compared to the first three months of Fiscal 2025 reflecting increased net borrowings, partially offset by increased share repurchases in Fiscal 2026 compared to the same period in Fiscal 2025.

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 2025.

As of May 3, 2025, we have borrowed $111.2 million U.S. revolver borrowings, $2.5 million (C$3.5 million) related to GCO Canada ULC and $7.3 million (£5.5 million) related to Schuh revolver borrowings. We were in compliance with all the relevant terms and conditions of the Credit Facility and the Facility Agreement as of May 3, 2025.

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 2026 and the foreseeable future.

On January 17, 2025, we executed Form 870 with the Internal Revenue Service ("IRS") exam team and began the process of completing the separate Joint Committee on Taxation ("JCT") review of our outstanding U.S. Federal tax refund claim for the Fiscal 2014 to Fiscal 2021 tax periods. As of February 1, 2025, we estimated the refund outstanding to be $59.3 million including interest. The balance outstanding has increased to $60.0 million as of May 3, 2025 as a result of additional accrued interest. During the first quarter of Fiscal 2026, the JCT finalized their review with no changes to the claim and the IRS began the process of issuing the refund. We have received $58.3 million of the refund during the second quarter of Fiscal 2026. We expect to receive the remaining balance in the second quarter this year as well. As such, the $60.0 million receivable is classified as prepaids and other current assets on the Consolidated Balance Sheets as of May 3, 2025.

Contractual Obligations

Our contractual obligations at May 3, 2025 increased 29% compared to February 1, 2025, primarily due to increased long-term debt and lease obligations.

Capital Expenditures

Total capital expenditures in Fiscal 2026 are expected to be approximately $50-$65 million of which approximately 70% is for new stores and renovations and 30% is for other initiatives. 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 Annual Report on Form 10-K for the fiscal year ended February 1, 2025. We also do not currently have any off-balance sheet arrangements.

Common Stock Repurchases

We repurchased 604,531 shares of our common stock during the first quarter of Fiscal 2026 at a cost of $12.6 million, or an average of $20.79 per share. We have $29.8 million remaining as of May 3, 2025 under our expanded share repurchase authorization announced in June 2023. We did not repurchase any shares of our common stock during the first quarter of Fiscal 2025. During the second quarter of Fiscal 2026, through June 11, 2025, 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 first quarter of Fiscal 2026 are included in Note 1 to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

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