10 Mar Genesco’s Q4 Earnings Surpass Expectations On In-Store Sales Recovery
Genesco, Inc. reported fourth-quarter earnings on an adjusted basis easily topped Wall Street expectations with a boost from full-price selling and strong in-store sales at Journeys and its other banners. Sales increased 14 percent year-over-year and 7 percent compared to two years ago.
Genesco Inc. reported GAAP earnings from continuing operations per diluted share of $4.41 for the three months ended January 29, 2022, compared to earnings from continuing operations per diluted share of $6.20 in the fourth quarter last year and $2.49 per diluted share two years ago. Adjusted for the Excluded Items in both periods, the company reported fourth-quarter earnings from continuing operations per diluted share of $3.48, compared to $2.76 per diluted share last year and $3.09 per diluted share two years ago.
Excluded Items excluded in the latest period excludes a gain on the sale of a distribution warehouse and expenses related to the company’s new headquarters building, net of tax effect in the fourth quarter and year of Fiscal 2022, and, additionally, charges for professional fees related to the actions of a shareholder activist and retail store asset impairments, partially offset by an insurance gain, net of tax effect for the year of Fiscal 2022.
GAAP earnings from continuing operations per diluted share were $7.92 for the year ended January 29, 2022, compared to a loss from continuing operations per diluted share of $(3.94) for the year ended January 30, 2021 and earnings from continuing operations per diluted share of $3.94 for the year ended February 1, 2020. Adjusted for the Excluded Items in all periods, the company reported Fiscal 2022 earnings from continuing operations per diluted share of $7.62, compared to a loss from continuing operations per diluted share of $(1.18) for Fiscal 2021 and earnings from continuing operations per diluted share of $4.58 for Fiscal 2020.
Mimi E. Vaughn, Genesco board chair, president and chief executive officer, said, “We concluded an outstanding year with a very strong fourth quarter that far exceeded our expectations. Our holiday performance was fueled by unprecedented levels of full-price selling and strong in-store sales while our digital channel held on to most of last year’s record gains. Throughout Fiscal 2022 we accelerated our recovery from the pandemic even as we navigated a number of challenges, driving double-digit sales growth and record profitability for our footwear companies led by Journeys. We believe our exceptional results this year underscore the earnings power of our business model and the work we’ve done enhancing the strong competitive positions of our retail and branded concepts through our footwear-focused strategy.
“Fiscal 2023 has gotten off to a strong start compared with last year, however, we expect this trend to moderate in the near-term as we anniversary last year’s March stimulus payments and first-half sales revert to more normalized, pre-pandemic patterns. That said, we believe we can deliver another year of solid top-line growth on top of a very strong Fiscal 2022 driven by a strong second half as inventory levels improve and recent price actions provide an additional tailwind.”
Thomas A. George, Genesco’s chief financial officer, commented, “Throughout the year we witnessed continued strength in all of our businesses, culminating in exceptional fourth-quarter results. Our strong finish helped drive record annual operating income for our footwear businesses, a 66 percent increase in full-year adjusted EPS compared to Fiscal 2020 two years ago, and $240 million in operating cash flow, putting us in a great position to further invest in our business and continue returning value to shareholders. We are excited about the year ahead and the momentum of our business. We expect adjusted earnings per share for Fiscal 2023 to range between $7.00 and $7.75 per share with our best current expectation near the midpoint of that range. In addition, we expect the back half will be much stronger than the first half with the greatest pressure in the first quarter.”
Fourth Quarter Review
Net sales for the fourth quarter of Fiscal 2022 increased 14 percent to $728 million from $637 million in the fourth quarter of Fiscal 2021 and increased 7 percent from $678 million in the fourth quarter of Fiscal 2020. The sales increase from Fiscal 2020, reflecting strong holiday sales, was driven by increased wholesale sales, a 36 percent increase in e-commerce sales, and the positive impact of changes in foreign exchange rates, partially offset by a 4 percent decrease in store sales as supply chain challenges created inventory shortfalls. Although the company has disclosed comparable sales for the fourth quarter of Fiscal 2022, it believes that overall sales are a more meaningful metric during these periods due to the impact of COVID-19.
By concept, Journeys’ comps grew 1 percent in the year after climbing 2 percent in the year-ago quarter. Schuh Group’s comps were down 2 percent after posting a 35 percent gain in the 2020 fourth quarter. Johnson & Murphy Group’s comps were up 38 percent after declining 35 percent in the year-ago quarter.
Overall sales for the fourth quarter this year compared to the fourth quarter of Fiscal 2021 were up 2 percent at Journeys, up 33 percent at Schuh, up 51 percent at Johnston & Murphy and up 98 percent at Licensed Brands. Overall sales, compared to the fourth quarter of Fiscal 2020, were up 2 percent at Journeys, up 15 percent at Schuh and up 263 percent at Licensed Brands, partially offset by a 12 percent decrease in Johnston & Murphy sales.
Fourth-quarter gross margin this year was 48.9 percent, up 310 basis points, compared with 45.8 percent last year and up 200 basis points compared with the fourth quarter of Fiscal 2020 at 46.9 percent. The increase, as a percentage of sales, compared to Fiscal 2020 is due primarily to increased full-price selling and price increases at Journeys, Schuh and Johnston & Murphy retail, partially offset by the mix impact of its e-commerce and wholesale businesses and increased logistics costs.
GAAP selling and administrative expense for the fourth quarter this year increased 430 basis points as a percent of sales compared with last year and increased 140 basis points compared with the fourth quarter of Fiscal 2020. Adjusted selling and administrative expense for the fourth quarter this year increased 410 basis points as a percentage of sales compared with last year and increased 170 basis points compared with the fourth quarter of Fiscal 2020. The increase from Fiscal 2020 is due primarily to increased marketing expenses and performance-based compensation expense, partially offset by reduced occupancy expense. Fiscal 2021’s selling and administrative expenses benefitted from one-time COVID-19 rent relief.
Genesco’s GAAP operating income for the fourth quarter was $83.4 million, or 11.5 percent of sales this year, compared with $62.6 million, or 9.8 percent of sales 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 $66.4 million this year compared to $64.7 million last year and $59.3 million in the fourth quarter of Fiscal 2020. Adjusted operating margin was 9.1 percent of sales in the fourth quarter of Fiscal 2022, 10.2 percent last year and 8.8 percent in the fourth quarter of Fiscal 2020.
The effective tax rate for the quarter was 24.9 percent in Fiscal 2022 compared to -45.6 percent last year and 21.0 percent in the fourth quarter of Fiscal 2020. The adjusted tax rate, reflecting Excluded Items, was 25.3 percent in Fiscal 2022 compared to 37.5 percent last year and 25.3 percent in the fourth quarter of Fiscal 2020. The lower adjusted tax rate for this year, as compared to last year, reflects the impact of the CARES Act provisions in the fourth quarter of Fiscal 2021 which does not apply in the fourth quarter of Fiscal 2022.
GAAP earnings from continuing operations were $62.2 million in the fourth quarter of Fiscal 2022, compared to $90.0 million in the fourth quarter 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 $49.1 million, or $3.48 per share, in Fiscal 2022, compared to $40.0 million, or $2.76 per share, last year and $44.1 million, or $3.09 per share, in the fourth quarter of Fiscal 2020.
Adjusted earnings of r $3.48 per share were well ahead of Wall Street’s consensus target of $2.64. Revenues of $728 million topped Wall Street’s consensus target of $726.57 million.
Full Year Review
Net sales for Fiscal 2022 increased 36 percent to $2.4 billion from $1.8 billion in Fiscal 2021 and increased 10 percent from $2.2 billion in Fiscal 2020. The sales increase from Fiscal 2020 was driven by a 77 percent increase in e-commerce sales, increased wholesale sales and the positive impact of changes in foreign exchange rates, partially offset by a 4 percent decrease in store sales. The decrease in store sales for Fiscal 2022 was impacted by Schuh stores open 79 percent of days in Fiscal 2022 as the COVID-19 pandemic continued to impact store openings in the UK in the first part of this year and supply chain challenges impacting all of our retail stores in the latter part of this year. Comparable direct sales decreased 2 percent in Fiscal 2022 compared to a 74 percent increase in Fiscal 2021 and an 18 percent increase in Fiscal 2020. The company has not disclosed comparable sales, except for comparable direct sales, for Fiscal 2022 and Fiscal 2021, as it believes that overall sales is a more meaningful metric during these periods due to the impact of COVID-19.
Overall sales for Fiscal 2022 compared to Fiscal 2021 were up 28 percent at Journeys, up 38 percent at Schuh, up 65 percent at Johnston & Murphy, and up 70 percent at Licensed Brands. Overall sales compared to Fiscal 2020 were up 8 percent at Journeys, up 13 percent at Schuh and up 174 percent at Licensed Brands, partially offset by a 16 percent decrease in Johnston & Murphy sales.
Gross margin for Fiscal 2022 was 48.8 percent, up 380 basis points, compared with 45.0 percent last year and up 40 basis points compared with Fiscal 2020 at 48.4 percent. The increase as a percentage of sales from Fiscal 2020 is due primarily to increased full-price selling at Journeys, Schuh and Johnston & Murphy retail, partially offset by the mix of our businesses and increased shipping and warehouse expense in all our retail businesses driven by the growth in e-commerce.
GAAP selling and administrative expense for Fiscal 2022 decreased 290 basis points as a percentage of sales compared with last year and decreased 130 basis points compared with Fiscal 2020. Adjusted selling and administrative expense as a percentage of sales for Fiscal 2022 was 42.5 percent, down 320 basis points, compared to 45.7 percent last year and decreased 140 basis points compared to 43.9 percent in Fiscal 2020. The decrease from Fiscal 2020 is due primarily to reduced occupancy expense, along with selling salaries, partially offset by increased performance-based compensation and marketing expenses. The reduction in occupancy expense is driven in part by rent abatement agreements with landlords and savings from government programs in Canada and the UK.
Genesco’s GAAP operating income for Fiscal 2022 was $155.6 million, or 6.4 percent of sales, compared with an operating loss of $(107.2) million, or (6.0) 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 $151.5 million this year compared to an operating loss of $(11.8) million last year and operating income of $99.2 million in Fiscal 2020. Adjusted operating margin was 6.3 percent of sales in Fiscal 2022 and (0.7) percent of sales last year and 4.5 percent in Fiscal 2020.
The effective tax rate was 24.9 percent in Fiscal 2022 compared to 49.8 percent last year and 25.1 percent in Fiscal 2020. The adjusted tax rate, reflecting Excluded Items, was 25.8 percent in Fiscal 2022 compared to -3.3 percent last year and 26.9 percent in Fiscal 2020. The higher adjusted tax rate for this year as compared to last year reflects the inability to recognize a tax benefit for certain foreign losses and a higher mix of earnings in jurisdictions where the company generates taxable income.
GAAP earnings from continuing operations were $114.9 million in Fiscal 2022, compared to a loss from continuing operations of $(56.0) million last year and earnings from continuing operations of $61.8 million in Fiscal 2020. Adjusted for the Excluded Items in all periods, earnings from continuing operations were $110.6 million, or $7.62 per share, in Fiscal 2022, compared to a loss from continuing operations of $(16.7) million, or $(1.18) per share, last year and earnings from continuing operations of $71.8 million, or $4.58 per share, in Fiscal 2020.
The sales guidance was in line with Genesco’s guidance for growth in the range of 9 percent to 11 percent compared to Fiscal 2020. Adjusted diluted earnings per share from continuing operations of $7.62 per share topped Genesco’s guidance in the range of $6.40 to $6.90.
Cash, Borrowings and Inventory
Cash and cash equivalents as of January 29, 2022, were $320.5 million, compared with $215.1 million as of January 30, 2021. Total debt at the end of the fourth quarter of Fiscal 2022 was $15.7 million compared with $33.0 million at the end of last year’s fourth quarter. Inventories decreased 4 percent in the fourth quarter of Fiscal 2022 on a year-over-year basis and decreased 24 percent versus the fourth quarter of Fiscal 2020.
Capital Expenditures and Store Activity
For the fourth quarter, capital expenditures were $19 million, related primarily to the company’s new headquarters building and digital and omnichannel initiatives. Depreciation and amortization were $11 million. For Fiscal 2022, capital expenditures were $54 million and depreciation and amortization were $43 million. During the quarter, the company opened two stores and closed eleven stores. The company ended the quarter with 1,425 stores compared with 1,460 stores at the end of the fourth 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 repurchased 839,216 shares during the fourth quarter of Fiscal 2022 at a cost of $52.2 million or an average of $62.22 per share. The company repurchased 1,360,909 shares, or 9 percent of common shares outstanding, during Fiscal 2022 at a cost of $82.8 million or an average of $60.88 per share. In February 2022, the company announced a $100 million increase to the existing $100 million share repurchase authorization. The company currently has $100.3 million remaining under the expanded share repurchase authorization.
Fiscal 2023 Outlook
For Fiscal 2023, the company expects:
- Sales to be up 2 percent to 4 percent, compared to FY22;
- Adjusted diluted earnings per share from continuing operations in the range of $7.00 to $7.75, with an expectation that earnings per share for the year will be near the mid-point of the range; and
- Assumes no further share repurchases and a tax rate of 27 percent to 28 percent.