Genesco Reports Second Quarter Fiscal 2009 Results

August 28, 2008 at 7:33 AM EDT
           --- Pre-Tax Earnings From Continuing Operations Rise ---

                       --- Full-Year Outlook Raised ---

NASHVILLE, Tenn., Aug. 28 /PRNewswire-FirstCall/ -- Genesco Inc. (NYSE: GCO) reported a loss from continuing operations of $4.9 million, or $0.27 per diluted share, for the second quarter ended August 2, 2008. These results reflect $6.4 million, or $0.36 per diluted share, of income tax liability primarily related to an increase in the value of stock received in the settlement of litigation with The Finish Line Inc. that could not be recognized as income for accounting purposes. Earnings before income taxes from continuing operations for the quarter were $2.5 million, including fixed asset impairments, store-closing costs and litigation settlement expenses totaling $3.6 million pre-tax, or $0.09 per diluted share. In the second quarter last year, the Company reported a loss from continuing operations of $2.9 million, or $0.13 per diluted share. Last year's results reflected a loss before income taxes from continuing operations of $5.6 million, including charges of $5.5 million, or $0.13 per diluted share, primarily consisting of merger-related expenses, fixed asset impairments and store closing costs.

Adjusting for the listed items in both periods, earnings from continuing operations were $3.6 million, or $0.18 per diluted share, in the second quarter this year, compared to breakeven earnings and earnings per share in the same period last year. Because of the magnitude of the income tax effect of the settlement shares and for consistency with first quarter disclosures and with the Company's previously announced earnings expectations, which excluded the listed items, the Company believes the disclosure of adjusted earnings before discontinued operations on this basis will be useful to investors. A reconciliation of the adjusted financial measures to their corresponding measures as reported pursuant to U.S. Generally Accepted Accounting Principles is included on Schedule B to this press release.

As part of its March 2008 litigation settlement with The Finish Line, the Company received shares of Finish Line common stock, which it agreed to distribute to the Company's shareholders. The shares appreciated in value by approximately $23 million before the distribution occurred. Because of differences between U.S. Generally Accepted Accounting Principles and the tax law in their respective treatment of this appreciation, the Company recorded a tax liability on the appreciation, which could not be recognized as income for accounting purposes. Consequently, the Company's effective tax rate for the second quarter of Fiscal 2009 was 295%, compared to 47% for the same quarter last year.

The Company also recorded an after-tax charge of $5.4 million, or $0.29 per share, to discontinued operations for an environmental liability relating to settlement negotiations with the Environmental Protection Agency concerning the site of a factory in New York, which the Company operated in the late 1960s.

Net sales for the second quarter of fiscal 2009 increased by 8% to $353 million, compared to net sales for the second quarter of the previous year of $328 million. Comparable store sales for the Company increased 4%.

Genesco President and Chief Executive Officer Robert J. Dennis said, "Our solid second quarter operating results reflect the ongoing success of our merchandising strategies and excellent execution across the board from our team. Given our positive momentum, strong positioning in the marketplace and easier comparisons, which continue through the second half of the year, we are optimistic about our prospects for the balance of the year, although we remain mindful of the uncertain economic environment. Accordingly, we have modestly raised our expectations for the balance of the year."

Second Quarter Business Unit Performance

"Net sales in the Journeys Group grew 9% from the prior year period to $161 million. Same store sales for the Journeys Group were up 2% for the quarter and same store sales in the Journeys stores were up 2%, compared to a 7% decline last year. Footwear unit comps in Journeys rose 2% and average selling price increased 2% in the quarter. The solid results were driven by continued strength in Journeys' skate business, modestly offset by weakness in women's casual footwear.

"Net sales in the Hat World Group increased 13% from the prior year period to approximately $102 million and same store sales increased 7% in the second quarter, with urban stores up 9% and non-urban stores up 6%. Core and fashion Major League Baseball performed well and action brands were also very strong. Hat World once again generated meaningful operating margin expansion in the quarter.

"Net sales for the Underground Station Group, which includes the remaining Jarman stores, were $24 million for the second quarter. Same store sales increased 9% from the prior year period and footwear unit comps rose 13%, reflecting Underground Station's continued progress with its new merchandising strategies. In addition, operating margin improved once again, reflecting increased leverage from the strong comparable sales increase.

"Johnston & Murphy Group's net sales were approximately $44 million, with wholesale sales down 9% from the prior year period and same store sales for the Johnston & Murphy shops declined 3% from the prior year period. Johnston & Murphy's results reflect a challenging economic environment and a difficult comparison from the previous year. The brand remains strong, and management will continue to focus on driving dollars per transaction and carefully managing inventories and controlling expenses.

"Second quarter sales of Licensed Brands increased 16% from the prior year period to approximately $22 million. The Dockers(R) Footwear business remains solid across all of its channels of distribution, with particular strength in the specialty shoe retail chains."

Fiscal 2009 Outlook

The Company said it has raised its previously announced earnings per share outlook for the current fiscal year. The Company now expects earnings per share in the range of $2.15 to $2.20 for the full fiscal year (excluding merger-related expenses, asset impairment charges, and other items reflected on Schedule C to this announcement).

Cautionary Note Concerning Forward-Looking Statements

This release contains forward-looking statements, including those regarding the performance outlook for the Company and its individual businesses, and all other statements not addressing solely historical facts or present conditions. Actual results could vary materially from the expectations reflected in these statements. A number of factors could cause differences. These include adjustments to estimates reflected in forward-looking statements and post closing adjustments to financial information reported, including the income tax liability related to the Finish Line shares, continuing weakness in the consumer economy, fashion trends that affect the sales or product margins of the Company's retail product offerings, changes in the timing of holidays or in the onset of seasonal weather affecting period-to-period sales comparisons, changes in buying patterns by significant wholesale customers, bankruptcies or deterioration in financial condition of significant wholesale customers, disruptions in product supply or distribution, further unfavorable trends in fuel costs, foreign exchange rates, foreign labor and materials costs, and other factors affecting the cost of products, and competition in the Company's markets. Additional factors that could affect the Company's prospects and cause differences from expectations include the ability to open, staff and support additional retail stores on schedule and at acceptable expense levels and to renew leases in existing stores on schedule and at acceptable expense levels, the ability to negotiate acceptable lease terminations and otherwise to execute the previously announced store closing plans on schedule and at expected expense levels, unexpected changes to the market for our shares, the impact of any future stock repurchases, variations from expected pension-related charges caused by conditions in the financial markets, and the outcome of litigation, investigations and environmental matters involving the Company, including but not limited to the outcome of the negotiations with the Environmental Protection Agency noted in this announcement. 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 our 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 our 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.

Conference Call

The Company's live conference call on August 28, 2008, at 7:30 a.m. (Central time) may be accessed through the Company's internet 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.

About Genesco Inc.

Genesco Inc., a Nashville-based specialty retailer, sells footwear, headwear and accessories in more than 2,200 retail stores in the United States and Canada, principally under the names Journeys, Journeys Kidz, Shi by Journeys, Johnston & Murphy, Underground Station, Hatworld, Lids, Hat Shack, Hat Zone, Head Quarters and Cap Connection, and on internet websites www.journeys.com, www.journeyskidz.com, www.shibyjourneys.com, www.undergroundstation.com, www.johnstonmurphy.com, www.dockersshoes.com, and www.lids.com. The Company also sells footwear at wholesale under its Johnston & Murphy brand and under the licensed Dockers brand. Additional information on Genesco and its operating divisions may be accessed at its website www.genesco.com


                                  GENESCO INC.

    Consolidated Earnings Summary
                                      Three Months Ended   Six Months Ended
                                      August 2, August 4, August 2, August 4,
    In Thousands                        2008      2007      2008      2007

    Net sales                         $353,138  $327,977  $710,073  $662,628
    Cost of sales                      171,814   164,358   347,354   327,165
    Selling and administrative
     expenses                          173,420   166,059   353,466   325,132
    Restructuring and other, net         3,261       158  (198,577)    6,753
    Earnings (loss) from operations      4,643    (2,598)  207,830     3,578
    Interest expense, net                2,114     3,000     4,317     5,402
    Earnings (loss) before income
     taxes from continuing operations    2,529    (5,598)  203,513    (1,824)

    Income tax expense (benefit)         7,458    (2,658)   78,550    (1,087)
    Earnings (loss) from continuing
     operations                         (4,929)   (2,940)  124,963      (737)

    Provision for discontinued
     operations                         (5,361)   (1,225)   (5,454)   (1,225)
    Net Earnings (Loss)               $(10,290)  $(4,165) $119,509   $(1,962)



    Earnings Per Share Information
                                       Three Months Ended   Six Months Ended
                                       August 2, August 4, August 2, August 4,
    In Thousands (except per share       2008      2007      2008      2007
     amounts)

    Preferred dividend requirements        $50       $54       $99      $118

    Average common shares - Basic EPS   18,513    22,415    19,782    22,403

    Basic earnings (loss) per share:
       Before discontinued operations   ($0.27)   ($0.13)    $6.31    ($0.04)
       Net earnings (loss)              ($0.56)   ($0.19)    $6.04    ($0.09)

    Average common and common
     equivalent shares - Diluted EPS    18,513    22,415    24,508    22,403

    Diluted earnings (loss) per share:
       Before discontinued operations   ($0.27)   ($0.13)    $5.15    ($0.04)
       Net earnings (loss)              ($0.56)   ($0.19)    $4.93    ($0.09)



                                     GENESCO INC.

    Consolidated Earnings Summary
                                     Three Months Ended  Six Months Ended
                                     August 2, August 4, August 2, August 4,
    In Thousands                       2008      2007      2008      2007

    Sales:
       Journeys Group                $160,960  $148,091  $329,722  $304,012
       Underground Station Group       23,597    24,520    52,601    54,330
       Hat World Group                102,169    90,460   189,906   169,304
       Johnston & Murphy Group         44,014    45,657    90,585    91,951
       Licensed Brands                 22,145    19,059    46,893    42,588
       Corporate and Other                253       190       366       443
       Net Sales                     $353,138  $327,977  $710,073  $662,628
    Operating Income (Loss):
       Journeys Group                  $2,388      $983    $7,686   $11,800
       Underground Station Group       (3,038)   (4,893)   (4,019)   (7,061)
       Hat World Group                 11,454     7,418    15,179    10,070
       Johnston & Murphy Group          2,994     3,612     6,677     8,082
       Licensed Brands                  2,091     2,148     5,646     5,174
       Corporate and Other*           (11,246)  (11,866)  176,661   (24,487)
       Earnings (loss) from
        operations                      4,643    (2,598)  207,830     3,578
       Interest, net                    2,114     3,000     4,317     5,402
    Earnings (loss) before income
     taxes from continuing operations   2,529    (5,598)  203,513    (1,824)
    Income tax expense (benefit)        7,458    (2,658)   78,550    (1,087)
    Earnings (loss) from continuing
     operations                        (4,929)   (2,940)  124,963      (737)

    Provision for discontinued
     operations                        (5,361)   (1,225)   (5,454)   (1,225)
    Net Earnings (Loss)              $(10,290)  $(4,165) $119,509   $(1,962)

    *Includes $3.3 million of other charges in the second quarter of Fiscal
     2009 which includes $2.4 million in asset impairments, $0.6 million for
     lease terminations and $0.3 million for other legal matters and includes
     $198.6 million credit in the first six months of Fiscal 2009 of which
     $204.1 million were proceeds as a result of the settlement of merger-
     related litigation with The Finish Line and its investment bankers offset
     by $3.6 million in asset impairments, $1.1 million for other legal
     matters and $0.8 million for lease terminations.  The second quarter and
     six months of Fiscal 2009 also includes $0.3 million and $7.6 million,
     respectively, of merger-related expenses.

     Includes $0.2 million of other charges in the second quarter of Fiscal
     2008 which includes $0.4 million of asset impairments offset by a $0.2
     million excise tax refund and includes $6.8 million of other charges in
     the first six months of Fiscal 2008 of which $6.7 million is asset
     impairments and $0.3 million for lease terminations offset by a $0.2
     million excise tax refund.  The second quarter and six months of Fiscal
     2008 also includes $5.4 million and $5.5 million, respectively, of
     merger-related expenses.



                                   GENESCO INC.

     Consolidated Balance Sheet
                                                   August 2,         August 4,
     In Thousands                                    2008              2007
     Assets
     Cash and cash equivalents                      $24,283           $22,129
     Accounts receivable                             23,015            22,154
     Inventories                                    327,986           347,574
     Other current assets                            41,199            54,610
     Total current assets                           416,483           446,467
     Property and equipment                         249,067           236,154
     Other non-current assets                       172,669           171,948
     Total Assets                                  $838,219          $854,569
     Liabilities and Shareholders' Equity
     Accounts payable                              $133,806          $119,727
     Other current liabilities                       85,995            56,374
     Total current liabilities                      219,801           176,101
     Long-term debt                                 106,220           188,220
     Other long-term liabilities                     86,977            86,271
     Shareholders' equity                           425,221           403,977
     Total Liabilities and Shareholders' Equity    $838,219          $854,569


                                 GENESCO INC.

    Retail Units Operated - Six Months Ended August 2, 2008

                     Balance                  Balance                 Balance
                    02/03/07 Open Conv Close 02/02/08 Open Conv Close 08/02/08

    Journeys Group    853    118    0    4      967    28    0    2      993
       Journeys       768     41    0    4      805    10    0    2      813
       Journeys Kidz   73     42    0    0      115    13    0    0      128
       Shi by
        Journeys       12     35    0    0       47     5    0    0       52
    Underground
     Station Group    223      2    0   33      192     0    0    7      185
    Hat World Group   785     98    0   21      862    16    0    9      869
    Johnston & Murphy
     Group            148     11    0    5      154     3    0    2      155
       Shops          109      8    0    4      113     1    0    2      112
       Factory
        Outlets        39      3    0    1       41     2    0    0       43
    Total Retail
     Units          2,009    229    0   63    2,175    47    0   20    2,202



    Retail Units Operated - Three Months Ended August 2, 2008
                                      Balance                          Balance
                                     05/03/08   Open   Conv   Close   08/02/08

    Journeys Group                      985      10      0       2       993
        Journeys                        812       3      0       2       813
        Journeys Kidz                   123       5      0       0       128
        Shi by Journeys                  50       2      0       0        52
    Underground Station Group           190       0      0       5       185
    Hat World Group                     868       5      0       4       869
    Johnston & Murphy Group             156       0      0       1       155
        Shops                           113       0      0       1       112
        Factory Outlets                  43       0      0       0        43
    Total Retail Units                2,199      15      0      12     2,202



     Constant Store Sales
                                     Three Months Ended   Six Months Ended
                                     August 2, August 4,  August 2, August 4,
                                       2008      2007       2008      2007

     Journeys Group                      2%       -7%       1%       -2%
     Underground Station Group           9%      -23%       9%      -22%
     Hat World Group                     7%       -2%       5%       -3%
     Johnston & Murphy Group            -4%        5%      -3%        4%
         Shops                          -3%        5%      -2%        4%
         Factory Outlets                -7%        6%      -5%        6%
     Total Constant Store Sales          4%       -6%       3%       -4%



                                  Genesco Inc.
           Adjustments to Reported Loss from Continuing Operations
             Three Months Ended August 2, 2008 and August 4, 2007

                                        3 mos      Impact      3 mos    Impact
   In Thousands (except per           Aug 2,2008   on EPS   Aug 4,2007  on EPS
    (share amounts)
    Loss from continuing operations,
     as reported                        (4,929)    $(0.27)    (2,940)   (0.13)

    Adjustments:  (1)
    Merger-related expenses                202       0.01      2,878     0.13
    Impairment & lease termination
     charges                             1,780       0.07         83     0.00
    Other legal matters                    190       0.01          -        -
    Impact of higher effective tax
     rate (2)                            6,366       0.36          -        -

    Adjusted earnings from continuing
      operations (3)                     3,609      $0.18         21    $0.00


    (1) All adjustments are net of tax.  The tax rate for the second quarter
        of Fiscal 2009 before the impact of the settlement of merger-related
        litigation and deductibility of prior year merger-related expenses is
        40.2% excluding a FIN 48 discreet item of $74,000.  The tax rate for
        the second quarter of Fiscal 2008 is 47.5%.

    (2) Includes added tax on Finish Line share appreciation and impact on EPS
        calculation from additional tax.

    (3) Reflects 23.3 million share count which includes convertible shares
        and common stock equivalents.

    The Company believes that disclosure of earnings and earnings per share
    from continuing operations on a pro forma basis adjusted for the items not
    reflected in the previously announced expectations will be meaningful to
    investors, in light of the impact of a higher effective tax rate and other
    items not reflected in those expectations.



                                 Genesco Inc.
        Adjustments to Forecasted Earnings from Continuing Operations
                     Fiscal Year Ending January 31, 2009

                                          High Guidance        Low Guidance
    In Thousands (except per share         Fiscal 2009         Fiscal 2009
     amounts)
    Forecasted earnings from
     continuing operations              164,905     $6.97    163,608    $6.92

    Adjustments:  (1)
    Settlement of merger-related
     litigation                        (122,037)   $(5.09)  (122,037)   (5.09)
    Merger-related expenses               4,531     $0.19      4,531     0.19
    Impairment and lease termination
     charges                              6,008     $0.25      6,008     0.25
    Other legal matters                     638     $0.03        638     0.03
    Lower effective tax rate             (3,512)   $(0.15)    (3,512)   (0.15)

    Adjusted forecasted
     earnings from continuing
     operations                          50,533     $2.20     49,236    $2.15



    (1) All adjustments are net of tax.  The tax rate for Fiscal 2009 before
        the impact of the settlement of merger-related litigation and
        deductibility of prior year merger-related expenses is 40.2% excluding
        FIN 48 discreet items of $322,000.

    This reconciliation reflects estimates and current expectations of future
    results. Actual results may vary materially from these expectations and
    estimates, for reasons including those included in the discussion of
    forward-looking statements elsewhere in this release. The Company
    disclaims any obligation to update such expectations and estimates.

SOURCE  Genesco Inc.
    -0-                             08/28/2008
    /CONTACT:  Financial, James S. Gulmi, +1-615-367-8325, or Media, Claire S.
McCall, +1-615-367-8283, both for Genesco Inc./
    /Company News On-Call:  http://www.prnewswire.com/comp/352750.html /
    /Web site:  http://www.genesco.com /
    (GCO)

CO:  Genesco Inc.
ST:  Tennessee
IN:  REA FAS
SU:  ERN CCA ERP

TI-TP
-- CLTH012 --
0365 08/28/2008 07:31 EDT http://www.prnewswire.com

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