Genesco Inc., the parent of Journeys, reported a steep loss in the first quarter that included an impairment charge for Schuh. Sales tumbled 44 percent in the first quarter with stores closed starting in mid-March. The loss of sales due to store closures was partly offset by triple-digit e-commerce comp gains for the month of April and 64 percent comp growth for the first quarter.

Beyond Journeys, other banners include Journeys Kidz, Schuh, Schuh Kids, Little Burgundy, and Johnston & Murphy. Genesco also sells wholesale footwear under its Johnston & Murphy brand, Trask brand, licensed Dockers brand, licensed Levi’s brand, and licensed Bass brand.

Mimi E. Vaughn, Genesco president and CEO said, “I am proud of how our organization has responded in these extraordinary times as we strived to protect our people, our customers and our business. Thanks to the work we did last year creating a footwear-focused company and building on the turnaround in profitability that began in Fiscal 2019, we entered the pandemic in a positon of strength. Despite the challenges we faced from the decision in mid-March to temporarily close all of our stores, we were able to stay actively engaged with existing and new customers as we successfully leveraged the multi-year investments we’ve made advancing our digital commerce capabilities. Our targeted actions, combined with the accelerated shift in online purchasing, brought on by COVID-19 helped fuel a triple digit e-commerce comp gain for the month of April and a 64 percent comp growth for the first quarter. In May, e-commerce sales increased further above April’s substantial levels.

“As the second quarter got underway, we began reopening our stores with the health and safety of our teams and customers as our top priority. Today, approximately 1,000 stores are open, and we are pleased with the initial results we’ve experienced thus far especially at Journeys where sales in-store that have reopened are comping nicely positive to last year’s volumes for the same period. That said, there continues to be a good deal of uncertainty about near-term trends and therefore we are planning sales conservatively and managing expenses and inventory accordingly. We feel good about the strategic positioning of our businesses for the longer-term, and we believe that we’ve taken the necessary steps to navigate the near-term impact of this pandemic.”

Actions Taken In Response To COVID-19
In response to the impact of COVID-19 in the first quarter, the company took the following actions to preserve financial liquidity and financial flexibility:

  • Borrowed $208 million on its existing line of credit, extended payment terms with suppliers, managed inventory by reducing future receipts and reduced planned capital expenditures by over 50 percent;
  • Furloughed, or reduced, its workforce by 90 percent across stores, corporate offices, call centers, and distribution centers;
  • Implemented salary reductions for the executive team and select employees, reduced the cash compensation of its board of directors and suspended certain employee benefits including 401(k) matching;
  • Maximized benefits provided by the CARES Act in the U.S. as well as relief packages provided by the UK government including employee retention credits, income tax benefits and property tax relief;
  • Including the above, reduced expenses by 20 percent during the quarter; and
  • Amended its ABL lending agreement increasing the facility from $275 million to up to $350 million of borrowing capacity.

Store Re-Opening Update
As of June 6, 2020, the company is currently operating in close to 1,000 locations including more than 900 Journeys, more than 80 Johnston & Murphy and a few Schuh locations. The Company anticipates reopening close to 85 percent of all its stores by the end of June.

All store locations are operating under enhanced measures to ensure the health and safety of employees and customers including requiring employees to wear masks, providing hand sanitizer in multiple locations throughout each store for customer and employee use, enhanced cleaning and sanitation protocols, reconfigured sales floors to promote physical distancing, and modified employee and customer interactions to limit contact.

Genesco will continue its phased approach to reopen stores when the following conditions are met:

  • state and local governments have allowed stores to operate;
  • the Company believes it can operate safely under its enhanced health and safety measures; and
  • the Company believes that it can ensure the safety of its employees and customers.

First Quarter Review
Net sales for the first quarter of Fiscal 2021 decreased 44 percent to $279 million from $496 million in the first quarter of Fiscal 2020. This sales decrease was driven by the closure of stores for the back half of the first quarter as a result of COVID-19, lower wholesale sales and lower exchange rates partially offset by digital comp growth of 64 percent. As a result of the store closures in response to COVID-19, the Company has not included first quarter Fiscal 2021 comparable sales, except for comparable direct sales, as it feels that overall sales are a more meaningful metric during this period.

First-quarter gross margin this year was 43.0 percent, down 640 basis points, compared with 49.4 percent last year. The decrease, as a percentage of sales, is due primarily to higher shipping and warehouse expenses in all divisions driven by the increase in penetration of e-commerce and an increase in inventory reserves at Journeys, higher penetration of sale product at Schuh, and more markdowns at Johnston & Murphy.

Selling and administrative expenses for the first quarter this year increased, as a percentage of net sales, due to lower sales as a result of COVID-19, but expense in dollars decreased 20 percent compared to the same period last year. Proactive steps taken at the onset of the pandemic and lower bonus expenses drove the reduction in expenses. The Company reduced selling salaries, occupancy and compensation expenses along with other non-essential expenses compared to the previous year.

Genesco’s GAAP operating loss for the first quarter was $(156.0) million, or (55.9) percent of sales this year compared with operating income of $9.1 million, or 1.8 percent of sales last year. Adjusted for the excluded items in both periods, the operating loss for the first quarter was $(69.5) million this year compared with an operating income of $8.4 million last year. The adjusted operating margin was (24.9) percent of sales in the first quarter of Fiscal 2021 and 1.7 percent last year.

The effective tax rate for the quarter was 14.1 percent in Fiscal 2021 compared to 30.7 percent last year. The adjusted tax rate, reflecting excluded items, was 26.8 percent in Fiscal 2021 compared to 31.3 percent last year. The lower adjusted tax rate for this year primarily reflects the inability to recognize a tax benefit for certain foreign losses.

The GAAP loss from continuing operations was $(134.6) million in the first quarter of Fiscal 2021, compared to earnings from continuing operations of $6.5 million in the first quarter last year. Adjusted for the excluded items in both periods, the first-quarter loss from continuing operations was $(51.4) million, or ($3.65) loss per share in Fiscal 2021 compared to earnings from continuing operations of $5.9 million, or $0.33 earnings per share last year.

Impairment Charges
Due to the significant decline in its stock price and market capitalization resulting from the outbreak of COVID-19, the company identified indicators of impairment in the first quarter of Fiscal 2021. As a result, the company recognized the full impairment of goodwill in its Schuh Group and recorded a non-cash impairment charge of $79.3 million pretax, or $5.62 per diluted share after tax. In addition, the Company also recorded a $5.3 million non-cash trademark impairment and $3.0 million for retail store asset impairments for the first quarter of Fiscal 2021.

Cash, Borrowings And Inventory
Cash and cash equivalents at May 2, 2020, were $238.6 million, compared with $156.7 million at May 4, 2019. Total debt at the end of the first quarter of Fiscal 2021 was $222.7 million compared with $73.7 million at the end of last year’s first quarter. Total unused availability as of May 2, 2020 was $52.0 million and was increased by the recent amendment to its bank facility. Inventories increased 6 percent in the first quarter of Fiscal 2021 on a year-over-year basis.

Capital Expenditures And Store Activity
For the first quarter, capital expenditures were $7 million, primarily related to store projects already in progress as well as digital and omnichannel initiatives. Depreciation and amortization were $12 million. During the quarter, the Company opened three stores and closed four. The Company ended the quarter with 1,479 stores compared with 1,504 stores at the end of the first quarter last year, or a decrease of 2 percent. Square footage was down 2 percent on a year-over-year basis.

Share Repurchases
The Company did not repurchase any shares during the first quarter of Fiscal 2021.

Fiscal 2021 Outlook
Due to the continued uncertainty in the overall economy, the Company is not providing guidance at this time.

Photo courtesy Genesco