Genesco Inc. reported earnings from continuing operations of $4.5 million, or 19 cents per diluted share, for the fourth quarter including pretax expenses of $18.8 million in connection with the company's merger-related litigation with The Finish Line, Inc., UBS Securities LLC and UBS Investments LLC, retail store asset impairments and costs related to the previously announced plan to close underperforming stores. Earnings were reduced by approximately 81 cents per diluted share in the aggregate of merger- related and store-closing costs, asset impairments and the non tax deductibility of merger-related expenses during the quarter. For the fourth quarter ended February 3, 2007, earnings from continuing operations were $35.7 million, or $1.36 per diluted share, including a $0.6 million pretax gain, or approximately a penny per diluted share, primarily for recognition of gift card income and a favorable litigation settlement offset by the early termination of a licensing agreement and impairment charges. Net sales for the thirteen- week fourth quarter of fiscal 2008 decreased 2.1% to $467.0 million, compared to $476.9 million for the fourteen-week fourth quarter of fiscal 2007.
Full Year Results
For the fiscal year ended February 2, 2008, Genesco reported earnings from continuing operations of $9.4 million or 40 cents per diluted share. Earnings for the year included pretax expenses of $37.3 million in connection with the proposed Finish Line merger and related litigation, store closing costs and asset impairments, and were reduced by approximately $1.26 per diluted share by such costs and due to the non tax deductibility of merger-related expenses during the year. For the previous fiscal year, earnings from continuing operations were $68.2 million, or $2.61 per diluted share, including a $1.1 million pretax charge, or approximately 3 cents per diluted share, primarily for asset impairments offset by gift card income, a favorable litigation settlement and the early termination of a licensing agreement. Net sales for fiscal 2008 increased 2.9% to $1.50 billion, compared to $1.46 billion for fiscal 2007.
Fourth Quarter Business Unit Performance
Genesco chairman and CEO, Hal N. Pennington said, “Our fourth quarter results reflect a challenging retail environment, especially in footwear.
“Net sales in the Journeys Group were approximately $227 million and same store sales declined 7% in the quarter, reflecting the challenging retail environment, the lack of a significant fashion driver in the footwear market and the continued effect of Heelys over-distribution. We expect the Journeys business to remain challenging through the first half of fiscal 2009 and then improve significantly in the second half of the year as we benefit from the comparison to the Heelys-related weakness in the third and fourth quarters of fiscal 2008 and enter our strongest selling seasons. We expect to open 65 new Journeys Group stores in fiscal 2009 and we are forecasting low single digit same store sales gains for the fiscal year.
“Net sales in the Hat World Group increased 5% to approximately $122 million while same store sales declined 4% in the fourth quarter. Hat World's core business, particularly core Major League Baseball products, and its branded action category continued to perform well during the quarter, while the fashion baseball and NCAA categories underperformed. We expect Hat World's first quarter of fiscal 2009 to benefit from the comparison to the same period of fiscal 2008, which was hurt by the transition to a new MLB on- field hat style. We expect to open 40 new Hat World Group stores in fiscal 2009 and we are forecasting low single digit same store sales increases for the fiscal year.
“Net sales for the Underground Station Group, which includes the remaining Jarman stores, were $43 million and same store sales declined 5%, reflecting the challenging urban market and a weaker than expected performance from one of its major branded boot vendors. We continue to be pleased with Underground Station's progress on its new merchandising strategies and we are seeing tangible evidence that the concept is becoming more differentiated from other mall-based footwear concepts and evolving into a true, dual-gender retailer. We were especially pleased to see improvement in Underground Station's same store sales in the fourth quarter and in February. We do not plan to open any new Underground Station stores in fiscal 2009 and we expect mid to high single digit same store sales gains for the fiscal year.
“Johnston & Murphy Group's net sales were approximately $54 million, same store sales for the shops declined 1% and operating margin increased 150 basis points to 13.6% in the fourth quarter. Johnston & Murphy continues to perform well across all of its channels of distribution and the brand's strategic push to expand beyond footwear continues, as non-footwear product accounted for 38% of Johnston & Murphy shops' sales during the quarter. We expect to open a combined total of 10 new Johnston & Murphy shops and outlets in fiscal 2009 and we are forecasting low single digit same store sales gains for the fiscal year.
“Fourth quarter sales of Licensed Brands increased 3% to approximately $21 million and operating margin increased 170 basis points to 8.4%, reflecting the Dockers Footwear business' ongoing gross margin expansion and increased earnings from the introduction of a line of footwear sourced for limited distribution. Despite the environment, Dockers continues to develop new technologies that further differentiate the brand, while remaining true to its comfort-value equation, and this is reflected in its strong order backlog for the spring season.”
Fiscal 2009 Outlook
For the fiscal year ending January 31, 2009, Genesco expects net sales of approximately $1.6 billion and earnings per share in the range of $1.83 to $1.91. Earnings expectations do not reflect merger-related litigation expenses or settlement gains, any reduction in shares outstanding or enhancement of earnings per share from the stock repurchase program, or store closing and retail store asset impairment charges. In addition, earnings expectations do not reflect the fiscal year 2009 tax benefits associated with deducting the prior period merger-related expenses in the year the merger was terminated.
GENESCO INC.Consolidated Earnings Summary
Fourth Quarter Fiscal Year Ended
In Thousands 2008 2007 2008 2007Net sales $466,995 $476,861 $1,502,119 $1,460,478
Cost of sales 239,294 242,239 750,904 729,643
Selling and administrative
expenses 196,161 175,208 695,487 608,685
Restructuring and other,
net 2,893 (567) 9,702 1,105
Earnings from operations 28,647 59,981 46,026 121,045
Interest expense, net 3,520 2,905 12,426 9,927
Earnings before income
taxes from continuing
operations 25,127 57,076 33,600 111,118
Income tax expense 20,647 21,414 24,247 42,871
Earnings from continuing
operations 4,480 35,662 9,353 68,247Provision for discontinued
operations, net (368) (314) (1,603) (601)
Net Earnings $4,112 $35,348 $7,750 $67,646Earnings Per Share
Information
Fourth Quarter Fiscal Year Ended
In Thousands (except per
share amounts) 2008 2007 2008 2007
Preferred dividend
requirements $50 $64 $217 $256Average common shares –
Basic EPS 22,502 22,269 22,441 22,646Basic earnings per share:
Before discontinued
operations $0.20 $1.60 $0.41 $3.00
Net earnings $0.18 $1.58 $0.34 $2.98Average common and common
equivalent shares –
Diluted EPS 26,830 26,704 22,984 27,068Diluted earnings per share:
Before discontinued
operations $0.19 $1.36 $0.40 $2.61
Net earnings $0.17 $1.35 $0.33 $2.59GENESCO INC.
Consolidated Earnings Summary
Fourth Quarter Fiscal Year Ended
In Thousands 2008 2007 2008 2007
Sales:
Journeys Group $226,767 $234,329 $713,366 $696,889
Underground Station
Group 42,880 49,215 124,002 155,069
Hat World Group 121,794 115,944 378,913 342,641
Johnston & Murphy Group 54,133 56,565 192,487 186,979
Licensed Brands 21,349 20,663 92,706 78,422
Corporate and Other 72 145 645 478
Net Sales $466,995 $476,861 $1,502,119 $1,460,478
Operating Income (Loss):
Journeys Group $23,961 $37,489 $51,097 $83,835
Underground Station
Group 2,281 3,817 (7,710) 3,844
Hat World Group 17,278 19,025 31,987 41,359
Johnston & Murphy Group 7,348 6,837 19,807 15,337
Licensed Brands 1,783 1,387 10,976 6,777
Corporate and Other* (24,004) (8,574) (60,131) (30,107)
Earnings from operations 28,647 59,981 46,026 121,045
Interest, net 3,520 2,905 12,426 9,927Earnings before income
taxes from continuing
operations 25,127 57,076 33,600 111,118Income tax expense 20,647 21,414 24,247 42,871
Earnings from continuing
operations 4,480 35,662 9,353 68,247Provision for discontinued
operations (368) (314) (1,603) (601)
Net Earnings $4,112 $35,348 $7,750 $67,646* Includes $2.9 million and $9.7 million of other charges in the fourth
quarter and year of Fiscal 2008, respectively, which includes $1.9
million and $8.7 million, respectively, in asset impairments related to
underperforming stores and $1.2 million and $1.5 million, respectively,
for lease terminations offset by $0.2 million and $0.5 million,
respectively, in excise tax refunds and an antitrust settlement. There
is also an additional $0.9 million of charges related to lease
terminations that are included in cost of sales on the consolidated
earnings summary. The fourth quarter and year of Fiscal 2008 also
includes $15.1 million and $26.7 million, respectively, in expenses
related to the Company's merger-related litigation. Includes $0.6
million of other income and $1.1 million of other charges in the fourth
quarter and year of Fiscal 2007, respectively, which includes $0.5
million and $2.2 million of charges for asset impairment, lease
terminations and the termination of a small license agreement offset by
$1.1 million of income for gift card breakage and a litigation
settlement in the fourth quarter and year of Fiscal 2007, respectively.
