Genesco Inc. GCO

--Fourth Quarter Comps Increased 5%--
-- Fourth Quarter E-Commerce Sales Increased 15%--
--Johnston & Murphy and Schuh Achieve Record Sales in FY23—

NASHVILLE, Tenn., March 9, 2023 /PRNewswire/ -- Genesco Inc. (NYSE: GCO) today reported fourth quarter and full fiscal year results for the three and twelve months ended January 28, 2023.

Fourth Quarter Fiscal 2023 Financial Summary

• Net sales of $725 million were essentially flat with last year and increased 7% over Q4FY20
• Excluding the impact of lower exchange rates, net sales increased 2% for Q4FY23 compared to Q4FY22
• Comps up 5%, with stores up 1% and direct up 21%
• E-commerce sales up 15% compared to Q4FY22 and up 57% compared to Q4FY20
• E-commerce sales represented 25% of retail sales compared to 22% last year and increased from 17% of retail sales in Q4FY20
• GAAP EPS from continuing operations was $3.23 vs. $4.41 last year and $2.49 in Q4FY20
• Non-GAAP EPS from continuing operations was $3.06¹ vs. $3.48 last year and $3.09 in Q4FY20

Fiscal 2023 Financial Summary

• Net sales of $2.4 billion decreased 2% compared to last year but increased 9% over FY20
• Excluding the impact of lower exchange rates, net sales increased 1% for FY23 compared to FY22
• E-commerce sales down 5% compared to FY22 but up 67% compared to FY20
• E-commerce sales represented 20% of retail sales, down from 21% compared to last year but an increase from 13% of retail sales in FY20
• GAAP EPS from continuing operations was $5.69 vs. $7.92 last year and $3.94 in FY20
• Non-GAAP EPS from continuing operations was $5.59¹ vs. $7.62 last year and $4.58 in FY20
• Repurchased $72.7 million of stock during FY23, with $34.1 million remaining on the current authorization

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% 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% 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% increase in e-commerce sales and a total comparable sales increase of 5%. E-commerce sales increased 57% above pre-pandemic levels. Excluding the impact of lower exchange rates, net sales increased 2% for the fourth quarter of Fiscal 2023 compared to the fourth quarter of Fiscal 2022 despite having 15 fewer stores.

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

Fourth quarter gross margin this year was 46.4%, down 250 basis points compared with 48.9% last year and down 50 basis points compared with Fiscal 2020 at 46.9%.  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.

Selling and administrative expense 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% of sales this year, compared with $83.4 million, or 11.5% of sales in the fourth quarter last year and $45.3 million, or 6.7% 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% of sales in the fourth quarter of Fiscal 2023, 9.1% in the fourth quarter last year and 8.8% in the fourth quarter of Fiscal 2020. 

The effective tax rate for the quarter was 19.1% in Fiscal 2023 compared to 24.9% in the fourth quarter last year and 21.0% in the fourth quarter of Fiscal 2020.  The adjusted tax rate, reflecting Excluded Items, was 25.2% in Fiscal 2023 compared to 25.3% in the fourth quarter last year and 25.3% 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 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% to $2.38 billion from $2.42 billion in Fiscal 2022 but increased 9% 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% in Fiscal 2023 compared to Fiscal 2022, but increased 67% above Fiscal 2020 pre-pandemic levels. Comparable direct sales were flat in Fiscal 2023 compared to a 2% decrease in Fiscal 2022. Excluding the impact of lower exchange rates, net sales increased 1% 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 is 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% at Schuh and 24% at Johnston & Murphy, partially offset by a decrease of 6% at Journeys and a decrease of 8% at Genesco Brands Group.  On a constant currency basis, Schuh sales were up 15% for Fiscal 2023.

Gross margin for Fiscal 2023 was 47.6%, down 120 basis points compared with 48.8% last year and down 80 basis points compared with Fiscal 2020 at 48.4%. 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.

Selling and administrative expense 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%, up 110 basis points, compared to 42.5% last year and decreased 30 basis points compared to 43.9% 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% of sales, compared to $155.6 million, or 6.4% of sales last year and $83.3 million, or 3.8% 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% of sales in Fiscal 2023 and 6.3% of sales last year and 4.5% in Fiscal 2020. 

The effective tax rate was 19.8% in Fiscal 2023 compared to 24.9% last year and 25.1% in Fiscal 2020.  The adjusted tax rate, reflecting Excluded Items, was 24.0% in Fiscal 2023 compared to 25.8% last year and 26.9% 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% 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% 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 was $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%.  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% 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:

• Sales to be flat to up 2%, or down 1% to up 1%, excluding the 53^rd 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.²
• Guidance assumes no further share repurchases and a tax rate of 26%

Please refer to the Q4FY23 conference call and Q4FY23 Summary Results presentation for details regarding guidance assumptions.

Conference Call, Management Commentary and Investor Presentation

The Company has posted detailed financial commentary and a supplemental financial presentation of fourth quarter results on its website, www.genesco.com, in the investor relations section.  The Company's live conference call on March 9, 2023, at 7:30 a.m. (Central time), may be accessed through the Company's website, www.genesco.com. To listen live, please go to the website at least 15 minutes early to register, download and install any necessary software.

Safe Harbor Statement

This release contains forward-looking statements, including those regarding future sales, earnings, operating income, gross margins, expenses, capital expenditures, depreciation and amortization, tax rates, stores openings and closures, ESG progress and all other statements not addressing solely historical facts or present conditions. Forward-looking statements are usually identified by or are associated with such words as "intend," "expect," "feel," "believe," "anticipate," "optimistic" and similar terminology. Actual results could vary materially from the expectations reflected in these statements. A number of factors could cause differences. These include adjustments to projections reflected in forward-looking statements, including those resulting  from weakness in store and shopping mall traffic, restrictions on operations imposed by government entities and/or landlords, changes in public safety and health requirements, and limitations on the Company's ability to adequately staff and operate stores.  Differences from expectations could also result from stores closures and effects on the business as a result of civil disturbances; the level and timing of promotional activity necessary to maintain inventories at appropriate levels; our ability to pass on price increases to our customers; the imposition of tariffs on product imported by the Company or its vendors as well as the ability and costs to move production of products in response to tariffs; the Company's ability to obtain from suppliers products that are in-demand on a timely basis and effectively manage disruptions in product supply or distribution, including disruptions as a result of pandemics or geopolitical events; unfavorable trends in fuel costs, foreign exchange rates, foreign labor and material costs, and other factors affecting the cost of products; the effects of the British decision to exit the European Union, impacts of the Russia-Ukraine war, and other sources of market weakness in the U.K. and Republic of Ireland; the effectiveness of the Company's omnichannel initiatives; costs associated with changes in minimum wage and overtime requirements; wage pressure in the U.S. and the U.K.; weakness in the consumer economy and retail industry; competition and fashion trends in the Company's markets; risks related to the potential for terrorist events; risks related to public health and safety events; changes in buying patterns by significant wholesale customers; retained liabilities associated with divestitures of businesses including potential liabilities under leases as the prior tenant or as a guarantor; and changes in the timing of holidays or in the onset of seasonal weather affecting period-to-period sales comparisons. Additional factors that could cause differences from expectations include the ability to renew leases in existing stores and control or lower occupancy costs, and to conduct required remodeling or refurbishment on schedule and at expected expense levels; the Company's ability to realize anticipated cost savings, including rent savings; the amount and timing of share repurchases; the Company's ability to achieve expected digital gains and gain market share; deterioration in the performance of individual businesses or of the Company's market value relative to its book value, resulting in impairments of fixed assets, operating lease right of use assets or intangible assets or other adverse financial consequences and the timing and amount of such impairments or other consequences; unexpected changes to the market for the Company's shares or for the retail sector in general; our ability to meet our sustainability, stewardship, emission and diversity, equity and inclusion related ESG projections, goals and commitments; costs and reputational harm as a result of disruptions in the Company's business or information technology systems either by security breaches and incidents or by potential problems associated with the implementation of new or upgraded systems; the Company's ability to realize any anticipated tax benefits in both the amount and timeframe anticipated; and the cost and outcome of litigation, investigations and environmental matters involving the Company.  Additional factors are cited in the "Risk Factors," "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of, and elsewhere in, the Company's SEC filings, copies of which may be obtained from the SEC website, www.sec.gov, or by contacting the investor relations department of Genesco via the Company's website, www.genesco.com. Many of the factors that will determine the outcome of the subject matter of this release are beyond Genesco's ability to control or predict. Genesco undertakes no obligation to release publicly the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Forward-looking statements reflect the expectations of the Company at the time they are made. The Company disclaims any obligation to update such statements.

About Genesco Inc.

Genesco Inc., a Nashville-based specialty retailer and branded company, sells footwear and accessories in more than 1,400 retail stores throughout the U.S., Canada, the United Kingdom and the Republic of Ireland, principally under the names Journeys, Journeys Kidz, Little Burgundy, Schuh, Schuh Kids, Johnston & Murphy, and on internet websites www.journeys.com, www.journeyskidz.com, www.journeys.ca, www.littleburgundyshoes.com, www.schuh.co.uk, www.schuh.ie, www.schuh.eu, www.johnstonmurphy.com, www.johnstonmurphy.ca, www.nashvilleshoewarehouse.com, and www.dockersshoes.com. In addition, Genesco sells footwear at wholesale under its Johnston & Murphy brand, the licensed Levi's brand, the licensed Dockers brand, the licensed Bass brand, and other brands. Genesco is committed to progress in its diversity, equity and inclusion efforts, and the Company's environmental, social and governance stewardship. For more information on Genesco and its operating divisions, please visit www.genesco.com.