Genesco Inc. reported a second-quarter loss as sales decreased 20 percent. A 144 percent e-commerce growth wasn’t able to offset stores only being open about 70 percent of days in the period.  The parent of Journeys, Johnston & Murphy and Schuh, said it was able to generate $74 million of operating cash flow.

Genesco reported a GAAP loss from continuing operations per diluted share of $1.33 for the three months ended August 1, 2020, compared to earnings from continuing operations per diluted share of 5 cents in the second quarter last year. Adjusted for the excluded items in both periods, the company reported a second-quarter loss from continuing operations per diluted share of $1.23, compared to earnings from continuing operations per diluted share of 15 cents last year.

Mimi E. Vaughn, Genesco board chair, president and chief executive officer, said, “The second quarter began with consumers enthusiastically returning to our physical locations as we began reopening stores and continuing to actively engage and shop with us online. The speed and executional excellence our teams demonstrated in getting our stores open and operational was a huge advantage as we often opened on the first day permitted by local authorities. Despite our stores being open for about 70 percent of the days in the second quarter, total net revenue decreased only 20 percent as the drop in store volume was partially offset by a notable 144 percent increase in e-commerce sales as we pivoted to digital. Equally encouraging was our ability to reduce expenses and inventories in line with sales and to generate cash during the quarter. Journeys generated a positive operating income for the quarter, but gross margin headwinds especially at Johnston & Murphy and Schuh led to a consolidated operating loss.

“Towards the end of the second quarter and to begin the third quarter, our business in North America was significantly impacted by the changes in back-to-school timing brought on by the pandemic. This includes schools in several areas of the country starting later than last year and many others not returning to in-person learning. As such we believe the back-to-school selling season will extend deeper into the third quarter which has limited visibility as we head into the back half. I am incredibly proud of how our teams have responded to the unprecedented challenges we’ve faced thus far in Fiscal 2021. This, along with the strong strategic positioning of our businesses and current liquidity, gives me confidence that we will successfully weather this storm and emerge strong to take advantage of the many opportunities on the other side.”

Store Re-Opening Update
Currently, the company is operating in 96 percent of its locations, including approximately 1,130 Journeys, 160 Johnston & Murphy, and 125 Schuh locations.

All store locations are operating under enhanced measures to ensure the health and safety of employees and customers.

Genesco will continue its phased approach to reopen stores when:

  • 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.

Second Quarter Review
Net sales for the second quarter of Fiscal 2021 decreased 20 percent to $391 million from $487 million in the second quarter of Fiscal 2020. This sales decrease was driven by store closures, a later start to back-to-school, lower store comps and lower wholesale sales, partially offset by digital comp growth of 144 percent. As a result of the store closures and gradual reopening of stores in response to COVID-19, the company has not included second quarter Fiscal 2021 comparable sales, except for comparable direct sales, as it believes that overall sales is a more meaningful metric during this period.

Overall sales were down 12 percent for Journeys, 22 percent at Schuh, and 64 percent at J&M while sales were up 62 percent at Licensed Brands due to the Togast acquisition.

Second-quarter gross margin this year was 42.7 percent, down 590 basis points, compared with 48.6 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, significant inventory reserves taken at Johnston & Murphy, and increased promotional activity at Schuh.

Adjusted selling and administrative expense for the second quarter this year increased 40 basis points as a percentage of net sales due to lower sales as a result of COVID-19. On a dollar basis, expenses decreased 19 percent compared to the same period last year driven by disciplined expense management, including reduced selling salaries, occupancy, and compensation expense along with lower travel, advertising and bonus expenses.

Genesco’s GAAP operating loss for the second quarter was $(22.0) million, or (5.6) percent of sales this year compared with operating income of $3.0 million, or 0.6 percent of sales last year. Adjusted for the excluded items in both periods, the operating loss for the second quarter was $(20.9) million this year compared with an operating income of $4.7 million last year. Adjusted operating margin was (5.3) percent of sales in the second quarter of Fiscal 2021 and 1.0 percent last year.

The effective tax rate for the quarter was 20.3 percent in Fiscal 2021 compared to 70.7 percent last year. The adjusted tax rate, reflecting excluded items, was 23.0 percent in Fiscal 2021 compared to 45.2 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 $(18.9) million in the second quarter of Fiscal 2021, compared to earnings from continuing operations of $0.8 million in the second quarter last year. Adjusted for the excluded items in both periods, the second-quarter loss from continuing operations was $(17.4) million, or ($1.23) loss per share in Fiscal 2021, compared to earnings from continuing operations of $2.5 million, or $0.15 earnings per share last year.

The loss was ahead of Wall Street’s consensus target calling for a loss of $1.85. Sales of $391 million were just ahead of consensus expectations of  #$369 million.

Cash, Borrowings And Inventory
Cash and cash equivalents at August 1, 2020, were $299.1 million, compared with $58.0 million at August 3, 2019. Cash increased $60.6 million during the second quarter driven primarily by operating activities generating $74.4 million, partially offset by a use of cash in financing activities of $12.0 million, capital expenditures and other activities. Total debt at the end of the second quarter of Fiscal 2021 was $210.9 million compared with $75.1 million at the end of last year’s second quarter. Total unused availability as of August 1, 2020 was $63.4 million. Inventories decreased 18 percent in the second quarter of Fiscal 2021 on a year-over-year basis.

Capital Expenditures and Store Activity
For the second quarter, capital expenditures were $4 million, primarily related to digital and omnichannel initiatives and store projects already in progress. Depreciation and amortization were $12 million. During the quarter, the company opened three new stores and closed six stores. The company ended the quarter with 1,476 stores compared with 1,494 stores at the end of the second quarter last year, or a decrease of 1 percent. Square footage was down 1 percent on a year-over-year basis.

Share Repurchases
The company did not repurchase any shares during the second quarter of Fiscal 2021.

Fiscal 2021 Outlook
Due to the continued uncertainty in the overall economy driven by COVID-19, the company is not providing guidance at this time.