Genesco, Inc. reported earnings on an adjusted basis fell 24.4 percent in the fourth quarter due to the return of a more normalized promotional environment as well as increased freight and warehouse costs. Same-store sales were up 5 percent as double-digit growth at Schuh and Johnson & Murphy offset a 1 percent dip at Journeys.

Net sales of $725 million were essentially flat with last year and increased 7 percent over the pre-pandemic Q420 quarter.

Earnings on an adjusted basis of $3.06 were ahead of Wall Street’s consensus of $3.00. Sales of $725 million were just below consensus estimates of $727 million.

For the year, net sales of $2.4 billion decreased 2 percent compared to last year but increased 9 percent over FY20. Excluding the impact of lower exchange rates, net sales increased 1 percent for FY23 compared to FY22. Non-GAAP EPS from continuing operations was $5.591 verus $7.62 last year and $4.58 in FY20

Mimi E. Vaughn, Genesco board chair, president and chief executive officer, said, “Many areas of our business outperformed in Fiscal 2023 even as new headwinds emerged and the consumer demand environment rapidly changed. Record top-line results at Schuh and Johnston & Murphy helped mitigate some of the pressures that weighed on Journeys following its record sales and operating profit in Fiscal 2022. Our overall performance, which included total quarterly comparable sales improving sequentially through the year, demonstrates the resiliency of our footwear-focused strategy and the benefits of our multi-division, multi-channel operating model.

For Fiscal 2024, we have a number of initiatives planned to drive growth as well as more immediate actions to reshape our cost structure to better align with consumer behavior. Given the macroeconomic uncertainty, we believe it is prudent to adopt a cautious view for the current year. That said, we believe that the strong, strategic positioning of our businesses and our experienced teams’ proven ability to successfully execute in both favorable and challenging markets, has the company on course for delivering increased profitability and greater shareholder value over the longer term.”

Thomas A. George, Genesco chief financial officer, commented, “I am encouraged by the top-line momentum we gained through Fiscal 2023 even as headwinds strengthened, culminating in a 5 percent increase in fourth-quarter total comparable sales. Fiscal 2024 has started slowly as we lap a strong prior year period that was marked by higher levels of consumer discretionary spending, and higher retailer order books. With some additional pressure expected on sales this year, especially in the first half, we are balancing our focus on investing for the future and driving down costs as we expect some of the recent cost pressures to persist in the near term. We believe we are taking the necessary steps to best serve our customers and our shareholders in this turbulent market. Therefore, we are forecasting adjusted earnings per share for Fiscal 2024 to range between $5.10 and $5.90 with our best current expectation near the midpoint of that range and with a greater percentage of this year’s earnings coming in the second half as compared with Fiscal 2023.”

Fourth Quarter Review
Net sales for the fourth quarter of Fiscal 2023 of $725 million were essentially flat compared to $728 million in the fourth quarter of Fiscal 2022 and increased 7 percent from $678 million in the fourth quarter of Fiscal 2020, prior to the pandemic. The sales decrease compared to last year was driven by foreign exchange pressure in the Schuh business resulting from the strengthening dollar and decreased wholesale sales, partially offset by a 15 percent increase in e-commerce sales and a total comparable sales increase of 5 percent. E-commerce sales increased 57 percent above pre-pandemic levels. Excluding the impact of lower exchange rates, net sales increased 2 percent for the fourth quarter of Fiscal 2023 compared to the fourth quarter of Fiscal 2022 despite having 15 fewer stores.

By concept, same-store sales at Journeys were down 1 percent against a 1 percent gain the prior year. Same-store sales at Schuh Group were up 20 percent against a 2 percent decline the prior year. Same-store sales at Johnston & Murphy Group jumped 23 percent on top of a 38 percent increase a year ago.

Total Genesco comparable sales were up 5 percent against a 3 percent gain last year. Same-store sales at stores were up 1 percent against a 10 percent gain last year. Comparable direct or online sales were up 21 percent versus a 12 percent decline last year.

Overall sales for the fourth quarter of Fiscal 2023 compared to the fourth quarter of Fiscal 2022 increased 7 percent at Schuh and 17 percent at Johnston & Murphy, partially offset by a decrease of 2 percent at Journeys and a decrease of 34 percent, or $16 million at Genesco Brands Group. On a constant currency basis, Schuh sales were up 18 percent for the fourth quarter this year.

Fourth quarter gross margin this year was 46.4 percent, down 250 basis points compared with 48.9 percent last year and down 50 basis points compared with Fiscal 2020 at 46.9 percent. The decrease as a percentage of sales compared to Fiscal 2022 is due primarily to a more normalized promotional environment compared to essentially none last year, in addition to increased freight and warehouse costs this year.

SG&A for the fourth quarter this year decreased 50 basis points as a percentage of sales compared with last year and increased 90 basis points compared with the fourth quarter of Fiscal 2020. Adjusted selling and administrative expense for the fourth quarter this year decreased 40 basis points as a percentage of sales compared with last year and increased 130 basis points compared with the fourth quarter of Fiscal 2020. The fourth quarter of Fiscal 2022 included one-time benefits for rent credits and government relief of approximately 70 basis points. Excluding these one-time benefits last year, leverage in performance-based compensation and occupancy expenses more than offset the deleverage from compensation and marketing expenses.

Genesco’s GAAP operating income for the fourth quarter was $49.8 million, or 6.9 percent of sales this year, compared with $83.4 million, or 11.5 percent of sales in the fourth quarter last year and $45.3 million, or 6.7 percent of sales in the fourth quarter of Fiscal 2020. Adjusted for the Excluded Items in all periods, operating income for the fourth quarter was $51.0 million this year compared to $66.4 million last year and $59.3 million in the fourth quarter of Fiscal 2020. Adjusted operating margin was 7.0 percent of sales in the fourth quarter of Fiscal 2023, 9.1 percent in the fourth quarter of last year and 8.8 percent in the fourth quarter of Fiscal 2020.

The effective tax rate for the quarter was 19.1 percent in Fiscal 2023 compared to 24.9 percent in the fourth quarter of last year and 21.0 percent in the fourth quarter of Fiscal 2020. The adjusted tax rate, reflecting Excluded Items, was 25.2 percent in Fiscal 2023 compared to 25.3 percent in the fourth quarter of last year and 25.3 percent in the fourth quarter of Fiscal 2020.

GAAP earnings from continuing operations were $39.2 million in the fourth quarter of Fiscal 2023, compared to $62.2 million in the fourth quarter of last year and $35.5 million in the fourth quarter of Fiscal 2020. Adjusted for the Excluded Items in all periods, fourth-quarter earnings from continuing operations were $37.1 million, or $3.06 per share, in Fiscal 2023, compared to $49.1 million, or $3.48 per share, in the fourth quarter last year and $44.1 million, or $3.09 per share, in the fourth quarter of Fiscal 2020.

Full Year Review
Net sales for Fiscal 2023 decreased 2 percent to $2.38 billion from $2.42 billion in Fiscal 2022 but increased 9 percent from $2.20 billion in Fiscal 2020, prior to the pandemic. The sales decrease compared to last year was mainly driven by foreign exchange pressure in the Schuh business resulting from the strengthening dollar and a decrease in e-commerce sales, partially offset by increased store and wholesale sales. E-commerce sales decreased 5 percent in Fiscal 2023 compared to Fiscal 2022 but increased 67 percent above Fiscal 2020 pre-pandemic levels. Comparable direct sales were flat in Fiscal 2023 compared to a 2 percent decrease in Fiscal 2022. Excluding the impact of lower exchange rates, net sales increased 1 percent for Fiscal 2023 compared to Fiscal 2022. The company has not disclosed comparable sales, except for comparable direct sales, for Fiscal 2023 and Fiscal 2022, as it believes that overall sales are a more meaningful metric during these periods due to closed stores and the impact of COVID-19.

Overall sales for Fiscal 2023 compared to Fiscal 2022 increased 2 percent at Schuh and 24 percent at Johnston & Murphy, partially offset by a decrease of 6 percent at Journeys and a decrease of 8 percent at Genesco Brands Group. On a constant currency basis, Schuh sales were up 15 percent for Fiscal 2023.

Gross margin for Fiscal 2023 was 47.6 percent, down 120 basis points compared with 48.8 percent last year and down 80 basis points compared with Fiscal 2020 at 48.4 percent. The decrease as a percentage of sales compared to Fiscal 2022 is due primarily to a more normalized promotional environment in the Journeys business and increased freight and logistics costs in the Johnston & Murphy and Genesco Brands Group businesses.

SG&A for Fiscal 2023 increased 100 basis points as a percentage of sales compared with last year and decreased 30 basis points compared with Fiscal 2020. Adjusted selling and administrative expense as a percentage of sales for Fiscal 2023 was 43.6 percent, up 110 basis points, compared to 42.5 percent last year and decreased 30 basis points compared to 43.9 percent in Fiscal 2020. Fiscal 2022 included one-time benefits for rent credits and government relief of approximately 130 basis points. Excluding these one-time benefits last year, deleverage in selling salaries, marketing expenses and compensation expenses more than offset the leverage in performance-based compensation and occupancy expenses.

Genesco’s GAAP operating income for Fiscal 2023 was $93.2 million, or 3.9 percent of sales, compared to $155.6 million, or 6.4 percent of sales last year and $83.3 million, or 3.8 percent of sales for Fiscal 2020. Adjusted for the Excluded Items in all periods, operating income was $96.8 million this year compared to $151.5 million last year and operating income of $99.2 million in Fiscal 2020. Adjusted operating margin was 4.1 percent of sales in Fiscal 2023 and 6.3 percent of sales last year and 4.5 percent in Fiscal 2020.

The effective tax rate was 19.8 percent in Fiscal 2023 compared to 24.9 percent last year and 25.1 percent in Fiscal 2020. The adjusted tax rate, reflecting Excluded Items, was 24.0 percent in Fiscal 2023 compared to 25.8 percent last year and 26.9 percent in Fiscal 2020. The lower adjusted tax rate for Fiscal 2023 as compared to Fiscal 2022 reflects a reduction in the effective tax rate the company expects for jurisdictions in which it is profitable.

GAAP earnings from continuing operations were $72.2 million in Fiscal 2023, compared to $114.9 million last year and $61.8 million in Fiscal 2020. Adjusted for the Excluded Items in all periods, earnings from continuing operations were $71.1 million, or $5.59 per share, in Fiscal 2023, compared to $110.6 million, or $7.62 per share, last year and $71.8 million, or $4.58 per share, in Fiscal 2020.

Cash, Borrowings and Inventory
Cash as of January 28, 2023, was $48.0 million, compared with $320.5 million as of January 29, 2022. Total debt at the end of the fourth quarter of Fiscal 2023 was $44.9 million compared with $15.7 million at the end of last year’s fourth quarter. During the past 12 months, our strong cash balances enabled us to reinvest in our business for growth by replenishing about $195 million of net inventory and returning capital to shareholders with approximately $73 million of share repurchases. Inventories increased 65 percent in the fourth quarter of Fiscal 2023 on a year-over-year basis, as outsized stimulus demand and supply chain limitations resulted in unusually low inventory last year. Inventories increased 25 percent this year when compared to the fourth quarter of Fiscal 2020, prior to the pandemic.

Capital Expenditures and Store Activity
For the fourth quarter, capital expenditures were $20 million, related primarily to retail stores and digital and omnichannel initiatives. Depreciation and amortization was $11 million. For Fiscal 2023, capital expenditures were $50 million and depreciation and amortization were $41 million not including $8 million of net capital for our corporate headquarters and related depreciation. During the quarter, the company opened 17 stores and closed eleven stores. The company ended the quarter with 1,410 stores compared with 1,425 stores at the end of the fourth quarter last year, or a decrease of 1 percent. Square footage was flat on a year-over-year basis.

Share Repurchases
The company did not repurchase any shares during the fourth quarter of Fiscal 2023. The company repurchased 1,380,272 shares, or 10 percent of common shares outstanding, during Fiscal 2023 at a cost of $72.7 million or an average of $52.66 per share. The company currently has $34.1 million remaining on its expanded share repurchase authorization announced in February 2022.

Fiscal 2024 Outlook
For Fiscal 2024, the company expects the following:

  • Sales to be flat to up 2 percent, or down 1 percent to up 1 percent, excluding the 53rd week this year, compared to FY23;
  • Adjusted diluted earnings per share from continuing operations in the range of $5.10 to $5.90, with an expectation that earnings per share for the year will be near the mid-point of the range; and
  • Guidance assumes no further share repurchases and a tax rate of 26 percent.

Photo courtesy Genesco/Journeys