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GENESCO Inc. Reports Operating Results (10-Q)

December 10, 2009 | About:
10qk

10qk

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GENESCO Inc. (GCO) filed Quarterly Report for the period ended 2009-10-31.

Genesco is a leading retailer and wholesaler of branded footwear. The company operates two segments: Specialty Retail Footwear and Branded Footwear. The company's owned and licensed footwear brands, sold through both wholesale and retail channels of distribution, include Johnston & Murphy, Dockers Footwear and Nautica Footwear. The company alsooperates the Volunteer Leather Company, a leather tanning and finishing business. Genesco Inc. has a market cap of $538.8 million; its shares were traded at around $23.76 with a P/E ratio of 13.7 and P/S ratio of 0.4. Genesco Inc. had an annual average earning growth of 10.4% over the past 10 years. GuruFocus rated Genesco Inc. the business predictability rank of 4-star.

Highlight of Business Operations:

On April 29, 2009, the Company entered into separate exchange agreements whereby it acquired and retired $56.4 million in aggregate principal amount ($51.3 million fair value) of its Debentures due June 15, 2023 in exchange for the issuance of 3,066,713 shares of its common stock, which include 2,811,575 shares that were reserved for conversion of the Debentures and 255,138 additional inducement shares, and a cash payment of approximately $0.9 million. The inducement was not deductible for tax purposes. As a result of the exchange, the Company recognized a loss on the early retirement of debt of $5.1 million in the first quarter of Fiscal 2010 reflected on the Condensed Consolidated Statements of Operations. After the exchange, $29.8 million aggregate principal amount of Debentures remain outstanding. After the end of the third quarter of Fiscal 2010, holders of an aggregate of $21.04 million principal amount of its 4 1/8% Convertible Subordinated Debentures were converted to 1,048,764 shares of common stock pursuant to separate conversion agreements which provided for a payment of an aggregate of $0.3 million to induce conversion and all except $1,000 of the balance of $8.775 million was converted to 437,347 common shares as of December 3, 2009. For additional information on the conversion of the Debentures, see Note 8 to the Condensed Consolidated Financial Statements.

The Company recorded a pretax charge to earnings of $2.3 million in the third quarter of Fiscal 2009. The charge included $1.9 million in asset impairments and $0.4 million for lease terminations. The Company recorded a pretax charge to earnings of $7.8 million in the first nine months of Fiscal 2009. The charge included $5.5 million in asset impairments, $1.2 million for lease terminations and $1.1 million in other legal matters.

Corporate and other expense for the third quarter ended October 31, 2009 was $9.4 million compared to $10.5 million for the third quarter ended November 1, 2008. Corporate expense in the third quarter this year included $2.6 million in restructuring and other charges, primarily for retail store asset impairments. Last years corporate expense in the third quarter included $2.3 million in restructuring and other charges, primarily for retail store asset impairments and lease terminations, and $0.2 million in merger-related expenses. The reduction in corporate and other expense was primarily due to reduced bonus accruals.

Interest expense decreased 43.6% from $3.3 million in the third quarter ended November 1, 2008, to $1.9 million for the third quarter ended October 31, 2009, primarily due to reduced interest expense on the Companys 4 1/8% Debentures as a result of retiring $56.4 million in aggregate principal amount of the Debentures during the first quarter of Fiscal 2010. The application of the updated Debt Topic to the Codification resulted in the recognition of additional pretax non-cash interest expense totaling $0.3 million for the third quarter ended October 31, 2009, compared to $0.8 million for the same period last year. Interest income decreased to $1,000 from $29,000 for the third quarter ended November 1, 2008.

Earnings before income taxes from continuing operations (pretax earnings) for the nine months ended October 31, 2009 were $8.2 million compared to $215.0 million for the nine months ended November 1, 2008. Pretax earnings for the nine months ended October 31, 2009 included a loss on the early retirement of debt of $5.1 million and restructuring and other charges of $10.9 million primarily for retail store asset impairments, other legal matters and lease terminations. Pretax earnings for the nine months ended November 1, 2008 included a gain of $204.1 million from the settlement of merger-related litigation with The Finish Line and UBS and restructuring and other

Net earnings for the nine months ended October 31, 2009 were $3.0 million ($0.13 diluted earnings per share) compared to $127.6 million ($5.41 diluted earnings per share) for the nine months ended November 1, 2008. Net earnings for the nine months ended October 31, 2009 included $0.3 million ($0.02 diluted loss per share) charge to earnings (net of tax) primarily for anticipated costs of environmental remediation related to former facilities operated by the Company. Net earnings for the nine months ended November 1, 2008 included a $5.5 million ($0.23 diluted loss per share) charge to earnings (net of tax) primarily for an environmental liability included in discontinued operations. The Company recorded an effective income tax rate of 60.5% in the first nine months this year compared to 38.1% in the same period last year. This years effective tax rate of 60.5% reflects the non-deductibility of certain items incurred in connection with the inducement of the conversion of the 4 1/8% Debentures for common stock in the first quarter this year. Last years effective tax rate of 38.1% is primarily attributable to the deduction of prior period merger-related expenses that became deductible upon termination of the Finish Line merger agreement offset by an income tax liability on an increase in value of shares of common stock received in the settlement of litigation with The Finish Line that had no corresponding income in the financial statements. In addition, last years effective rate was lower due to a $1.2 million reduction in tax liabilities from an agreement reached on a state income tax contingency.

Read the The complete ReportGCO is in the portfolios of Chuck Royce of ROYCE & ASSOCIATES, Bruce Kovner of Caxton Associates.

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