# GENESCO INC (GCO) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from GENESCO INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/18498/000095017024036902/gco-20240203.htm
Accession: 0000950170-24-036902
Filing date: 2024-03-27
Report date: 2024-02-03
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/GCO/
All MD&A years: /company/GCO/mda/
Previous year: /company/GCO/mda/fy2023/ (FY 2023)
Next year: /company/GCO/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Consolidated Financial Statements and related Notes and other financial information appearing elsewhere in this Annual Report on Form 10-K, and with Part II, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) of our Annual Report on Form 10-K for the fiscal year ended January 28, 2023, filed with the SEC on March 22, 2023, which provides a discussion of our financial condition and results of operations for Fiscal 2023 compared to our Fiscal 2022.

Summary of Results of Operations

•
Net sales decreased 2.5% in Fiscal 2024 compared to Fiscal 2023.

•
Fiscal 2024 included a 53rd week. Excluding the 53rd week, net sales decreased 3.6% for Fiscal 2024.

•
Journeys Group sales decreased 8% and Genesco Brands Group sales decreased 9%, partially offset by an increase of 11% at Schuh Group and 8% at Johnston & Murphy Group.

•
Total comparable sales decreased 4% for Fiscal 2024, including a 7% decrease in same store sales and an 8% increase in comparable direct sales.

•
Gross margin decreased as a percentage of net sales from 47.6% in Fiscal 2023 to 47.3% in Fiscal 2024.

•
Selling and administrative expenses increased as a percentage of net sales from 43.7% in Fiscal 2023 to 46.5% in Fiscal 2024.

•
Operating margin decreased as a percentage of net sales from 3.9% in Fiscal 2023 to (0.6%) in Fiscal 2024.

•
The effective income tax rate decreased from 19.8% in Fiscal 2023 to (8.5%) in Fiscal 2024.

•
Diluted loss per share from continuing operations was $2.10 per share in Fiscal 2024 compared to diluted earnings per share from continuing operations of $5.69 per share in Fiscal 2023.

Key Performance Indicators

In assessing the performance of our business, we consider a variety of performance and financial measures. The key performance indicators we use to evaluate the financial condition and operating performance of our business are comparable sales, net sales, gross margin, operating income and operating margin. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the U.S. GAAP financial measures presented herein. These measures may not be comparable to similarly-titled performance indicators used by other companies.

Comparable Sales

We consider comparable sales to be an important indicator of our current performance, and investors may find it useful as such. Comparable sales results are important to achieve leveraging of our costs, including occupancy, selling salaries, depreciation, etc. Comparable sales also have a direct impact on our total net revenue, cash and working capital. We define "comparable sales" as sales from stores open longer than one year, beginning with the first day a store has comparable sales (which we refer to in this report as "same store sales"), and sales from websites operated longer than one year and direct mail catalog sales (which we refer to in this report as "comparable direct sales"). Temporarily closed stores are excluded from the comparable sales calculation if closed for more than seven days. Expanded stores are excluded from the comparable sales calculation until the first day an expanded store has comparable prior year sales. Current year foreign exchange rates are applied to both current year and prior year comparable sales to achieve a consistent basis for comparison. We have not disclosed comparable sales for Fiscal 2023,

31

as we believe that overall sales was a more meaningful metric in Fiscal 2023 due to the impact of the COVID-19 pandemic and related extended store closures that occurred in the first quarter of Fiscal 2022.

Results of Operations—Fiscal 2024 Compared to Fiscal 2023

Our net sales for Fiscal 2024 decreased 2.5% to $2.32 billion from $2.38 billion in Fiscal 2023. Included in Fiscal 2024 was a 53rd week compared to a 52-week in Fiscal 2023. Excluding the 53rd week, net sales decreased 3.6% for Fiscal 2024. The decrease in net sales was driven by decreased store sales at Journeys Group and decreased wholesale sales, partially offset by an 8% increase in e-commerce comparable sales for the total Company, strong store performance at Schuh and Johnston & Murphy and an $8.7 million favorable foreign exchange impact on sales due to changes in foreign exchange rates. Inflationary pressures and economic uncertainty continue to impact the discretionary spending behavior of our consumers. The shopping behavior of our Journeys consumer, in particular, has shifted toward shopping almost exclusively for key footwear items, putting more pressure on our core product assortment. Journeys Group sales decreased 8% and Genesco Brands Group sales decreased 9%, while Schuh Group sales increased 11% and Johnston & Murphy Group sales increased 8% for Fiscal 2024 compared to Fiscal 2023. Schuh's sales increased 8% on a local currency basis for Fiscal 2024. Total comparable sales decreased 4% for Fiscal 2024, with same store sales down 7% and comparable direct sales up 8%.

Gross margin decreased 3.3% to $1.10 billion in Fiscal 2024 from $1.14 billion in Fiscal 2023 and decreased as a percentage of net sales from 47.6% in Fiscal 2023 to 47.3% in Fiscal 2024, reflecting decreased gross margin as a percentage of net sales in Journeys Group, partially offset by an increase in gross margin as a percentage of net sales in all of our other operating business units. The overall decrease in gross margin as a percentage of net sales reflects increased promotional activity at Journeys and Johnston & Murphy and increased shipping and warehouse expense at Johnston & Murphy, primarily reflecting increased warehouse costs. All of these decreases to gross margin are partially offset by a more elevated product mix at Schuh as well as reduced duties and freight from the new ROI-based distribution center, decreased air freight at Johnston & Murphy and easing of freight and logistics pressures, favorable changes in product mix and increased prices at Genesco Brands.

Selling and administrative expenses increased as a percentage of net sales from 43.7% in Fiscal 2023 to 46.5% in Fiscal 2024, reflecting increased expenses as a percentage of net sales in all of our operating business units. The overall increase in expenses as a percentage of net sales in Fiscal 2024 reflects the deleverage of expenses, especially compensation expense, selling salaries, marketing and occupancy expenses as a result of decreased revenue in Fiscal 2024. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs.

The loss from continuing operations before income taxes (“pretax loss") for Fiscal 2024 was $21.8 million, compared to earnings from continuing operations before income taxes ("pretax earnings") of $90.1 million for Fiscal 2023. The pretax loss for Fiscal 2024 included a non-cash goodwill impairment charge of $28.5 million and asset impairment and other charges of $1.8 million which included $1.1 million for severance and $1.0 million for asset impairments, partially offset by a $0.3 million insurance gain. Pretax earnings for Fiscal 2023 included an asset impairment and other charge of $0.9 million which included $1.6 million for asset impairments, partially offset by a $0.7 million gain on the termination of the pension plan.

The net loss for Fiscal 2024 was $16.8 million, or $1.50 diluted loss per share compared to net earnings of $71.9 million, or $5.66 diluted earnings per share for Fiscal 2023. The net loss for Fiscal 2024 includes a $9.4 million ($7.2 million, net of tax) gain from insurance proceeds related to legacy environmental matters. The effective income tax rate was (8.5%) for Fiscal 2024 compared to 19.8% for Fiscal 2023. The effective tax rate for Fiscal 2024 was lower compared to Fiscal 2023, reflecting the impact of recording a valuation allowance against certain tax attributes that we no longer believe it is more-likely-than-not we will realize the benefit, partially offset by accrued interest related to a IRS refund that is due to the Company. See Item 8, Note 11, "Income Taxes", to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information.

32

Journeys Group

[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended","","","%"],["","","2024","","","2023","","","Change"],["","","(dollars in thousands)"],["Net sales","","$","1,363,835","","","$","1,482,203","","","","(8.0",")%"],["Operating income","","$","11,072","","","$","94,404","","","","(88.3",")%"],["Operating margin","","","0.8","%","","","6.4","%"]]
[[/GREPCENT_TABLE]]

Net sales from Journeys Group decreased 8.0% to $1.4 billion for Fiscal 2024 compared to $1.5 billion for Fiscal 2023, primarily due to a total comparable sales decrease of 9% driven by decreased store sales, partially offset by increased digital comparable sales. In addition, there was a 3% decrease in the average number of Journeys stores for Fiscal 2024. We believe the Journeys consumer continues to be pressured by inflation and has chosen to conserve discretionary spending and primarily shop when the consumer has a key footwear item to purchase and take advantage of the abundance of discounted athletic product elsewhere in the market. The shift in the consumer's shopping behavior to shop almost exclusively for key footwear items in an environment with a general lack of innovation in footwear, has put pressure on our core product assortment. Highlights for Journeys in Fiscal 2024 were the launches of its All Access loyalty program and buy-online-pick-up-in-store in North America to encouraging results.

The store count for Journeys Group was 1,063 stores at the end of Fiscal 2024, including 222 Journeys Kidz stores, 39 Journeys stores in Canada and 33 Little Burgundy stores in Canada, compared to 1,130 stores at the end of Fiscal 2023, including 233 Journeys Kidz stores, 45 Journeys stores in Canada and 34 Little Burgundy stores in Canada.

Journeys Group operating income for Fiscal 2024 decreased 88.3% to $11.1 million, compared to $94.4 million for Fiscal 2023. The decrease in operating income was primarily due to (i) decreased net sales, (ii) decreased gross margin as a percentage of net sales, primarily reflecting increased promotional activity and (iii) increased selling and administrative expenses as a percentage of net sales reflecting the deleverage of expenses, especially occupancy expense, selling salaries, depreciation and compensation expenses as a result of decreased revenue in Fiscal 2024.

Schuh Group

[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended","","","%"],["","","2024","","","2023","","","Change"],["","","(dollars in thousands)"],["Net sales","","$","480,164","","","$","432,002","","","","11.1","%"],["Operating income","","$","21,435","","","$","17,601","","","","21.8","%"],["Operating margin","","","4.5","%","","","4.1","%"]]
[[/GREPCENT_TABLE]]

Net sales from the Schuh Group increased 11.1% to $480.2 million for Fiscal 2024 compared to $432.0 million for Fiscal 2023, primarily due to increased total comparable sales of 6% driven by increased e-commerce and store sales and a favorable impact of $11.8 million in sales due to changes in foreign exchange rates. Schuh's sales increased 8% on a local currency basis for Fiscal 2024. Our efforts to strengthen Schuh's value proposition has differentiated the business from competitors, grabbing the attention of new customers and enhancing our brand relationships. Schuh's loyalty program, Schuh Club, has been key to strengthening Schuh's market position. Schuh Group operated 122 stores at the end of Fiscal 2024 and Fiscal 2023.

Schuh Group operating income for Fiscal 2024 was $21.4 million compared to $17.6 million for Fiscal 2023. The 21.8% increase in operating income this year reflects (i) increased net sales and (ii) increased gross margin as a percentage of net sales, reflecting an elevated product mix and reduced duties and freight as a result of the new ROI-based distribution center. In addition, operating income included a favorable impact of $1.3 million due to changes in foreign exchange rates compared to last year. Selling and

33

administrative expenses increased as a percentage of net sales reflecting increased selling salaries, marketing expense and performance-based compensation expense, partially offset by decreased occupancy expense.

Johnston & Murphy Group

[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended","","","%"],["","","2024","","","2023","","","Change"],["","","(dollars in thousands)"],["Net sales","","$","339,446","","","$","314,759","","","","7.8","%"],["Operating income","","$","16,314","","","$","14,364","","","","13.6","%"],["Operating margin","","","4.8","%","","","4.6","%"]]
[[/GREPCENT_TABLE]]

Johnston & Murphy Group net sales increased 7.8% to $339.4 million for Fiscal 2024 from $314.8 million for Fiscal 2023 primarily due to increased total comparable sales of 9% driven by increased store and e-commerce sales, partially offset by decreased wholesale sales. Compelling product and strong sales of non-footwear items contributed to the increase in sales for Fiscal 2024. Johnston & Murphy has repositioned its brand to a multi-category lifestyle brand, offering more casual and comfortable footwear and apparel, and it continues to resonate well with its consumers' more casual preferences. Retail operations accounted for 78.3% of Johnston & Murphy Group's sales in Fiscal 2024, up from 76.0% in Fiscal 2023. The store count for Johnston & Murphy retail operations at the end of Fiscal 2024 was 156 Johnston & Murphy shops and factory stores, including five stores in Canada, compared to 158 Johnston & Murphy shops and factory stores, including six stores in Canada, at the end of Fiscal 2023.

Johnston & Murphy Group operating income for Fiscal 2024 increased 13.6% to $16.3 million compared to $14.4 million in Fiscal 2023. The increase was primarily due to (i) increased net sales and (ii) increased gross margin as a percentage of net sales reflecting a decrease in air freight, partially offset by increased retail markdowns, warehouse costs and increased inventory reserves. Selling and administrative expenses increased as a percentage of net sales in Fiscal 2024 compared to Fiscal 2023 reflecting increased marketing expense, professional fees and compensation expense, partially offset by decreased performance-based compensation expense and occupancy expense.

Genesco Brands Group

[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended","","","%"],["","","2024","","","2023","","","Change"],["","","(dollars in thousands)"],["Net sales","","$","141,179","","","$","155,924","","","","(9.5",")%"],["Operating loss","","$","(8",")","","$","(678",")","","","98.8","%"],["Operating margin","","","(0.0",")%","","","(0.4",")%"]]
[[/GREPCENT_TABLE]]

Net sales for Genesco Brands Group decreased 9.5% to $141.2 million for Fiscal 2024 from $155.9 million for Fiscal 2023, primarily due to higher sell-in in the first half of the prior year as retailers were replenishing inventory due to supply chain constraints as well as an intentional strategy to pull back value channel sales.

The operating loss for Genesco Brands Group in Fiscal 2024 was basically break even compared to an operating loss of $0.7 million in Fiscal 2023. The improvement in the operating loss was primarily due to increased gross margin as a percentage of net sales reflecting the easing of freight and logistics pressures, favorable changes in product mix and increased prices. Selling and administrative expenses increased as a percentage of net sales reflecting deleverage of expenses as a result of decreased revenue in Fiscal 2024 as well as increased performance-based compensation expense.

34

Corporate, Interest Expenses and Other Charges

Corporate and other expense for Fiscal 2024 was $62.3 million compared to $32.5 million for Fiscal 2023. Corporate and other expense in Fiscal 2024 included non-cash impairment charges of $28.5 million related to goodwill and a $1.8 million charge in asset impairment and other charges which included $1.1 million in severance and $1.0 million for asset impairments, partially offset by a $0.3 million insurance gain. Corporate and other expense in Fiscal 2023 included $1.6 million for asset impairments, partially offset by a $0.7 million gain on the termination of our pension plan.

Net interest expense increased $4.9 million to $7.8 million in Fiscal 2024 from $2.9 million in Fiscal 2023 primarily reflecting increased average borrowings and higher interest rates.

Liquidity and Capital Resources

Working Capital

Our business is seasonal, with our investment in inventory and accounts receivable normally reaching peaks in the spring and fall of each year. Historically, cash flow from operations has been generated principally in the fourth quarter of each fiscal year.

[[GREPCENT_TABLE]]
[["Cash flow changes:","","Fiscal Year Ended"],["(in thousands)","","February 3, 2024","","","January 28, 2023","","","Increase (Decrease)"],["Net cash provided by (used in) operating activities","","$","94,796","","","$","(164,884",")","","$","259,680"],["Net cash used in investing activities","","","(60,001",")","","","(59,934",")","","","(67",")"],["Net cash used in financing activities","","","(47,579",")","","","(45,530",")","","","(2,049",")"],["Effect of foreign exchange rate fluctuations on cash","","","(51",")","","","(2,187",")","","","2,136"],["Net decrease in cash","","$","(12,835",")","","$","(272,535",")","","$","259,700"]]
[[/GREPCENT_TABLE]]

Reasons for the major variances in cash provided by (used in) the table above are as follows:

Cash provided by operating activities was $259.7 million higher in Fiscal 2024 compared to Fiscal 2023, reflecting primarily the following factors:

•
a $263.9 million increase in cash flow from changes in inventory, primarily reflecting a decrease in inventory, primarily Journeys and Johnston & Murphy inventory, in Fiscal 2024 compared to the re-inventorying of our operating business units in Fiscal 2023 following the supply chain disruptions in Fiscal 2022, partially offset by a $15.8 million decrease in cash flow from changes in accounts payable, primarily reflecting changes in buying patterns in Fiscal 2024; and

•
a $47.3 million increase in cash flow from changes in other accrued liabilities, primarily reflecting a significantly lower payment of Fiscal 2023 performance-based compensation accruals in Fiscal 2024 compared to Fiscal 2023; partially offset by

•
an $88.7 million decrease in cash flow from decreased earnings in Fiscal 2024.

Cash used in investing activities was flat for Fiscal 2024 compared to Fiscal 2023 as the increased capital expenditures for investments in retail stores and omni-channel was offset by decreased capital expenditures for the new corporate headquarters building.

Cash used in financing activities was $2.0 million higher in Fiscal 2024 as compared to Fiscal 2023 primarily reflecting decreased revolver borrowings in Fiscal 2024, partially offset by decreased share repurchases this year.

35

Sources of Liquidity and Future Capital Needs

We have three principal sources of liquidity: cash flow from operations, cash on hand and our credit facilities discussed in Item 8, Note 8, "Long-Term Debt", to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

On January 28, 2022, we entered into a Third Amendment (the "Third Amendment") to our Fourth Amended and Restated Credit Agreement dated as of January 31, 2018 between us, certain of our subsidiaries, the lenders party thereto and Bank of America, N.A. as agent (as amended, the "Credit Facility" or the "Credit Agreement") to, among other things, extend the maturity date to January 28, 2027 and remove the $17.5 million first in-last out term loan. The Total Commitments (as defined in the Credit Agreement) for revolving loans is $332.5 million. As of February 3, 2024 we have $32.9 million in U.S. revolver borrowings and $1.8 million (C$2.4 million) related to GCO Canada ULC. We had outstanding letters of credit of $6.9 million under the Credit Facility at February 3, 2024. These letters of credit support lease and insurance indemnifications.

On November 2, 2022, Schuh entered into a facility agreement (the "Facility Agreement") with Lloyds Bank PLC (“Lloyds”) for a £19.0 million revolving credit facility. The Facility Agreement expires November 2, 2025, with options to request two one-year extensions to this termination date subject to lender approval, and bears interest at 2.35% over the Bank of England Base Rate. This Facility Agreement replaced Schuh's Facility Letter that would have expired in October 2023. The Facility Agreement includes certain financial covenants specific to Schuh. Following certain customary events of default outlined in the Facility Agreement, payment of outstanding amounts due may be accelerated or the commitments may be terminated. The Facility Agreement is secured by charges over all of the assets of Schuh, and Schuh's subsidiary, Schuh (ROI) Limited. Pursuant to a Guarantee in favor of Lloyds in its capacity as security trustee, Genesco Inc. has guaranteed the obligations of Schuh under the Facility Agreement and certain existing ancillary facilities on an unsecured basis. As of February 3, 2024, we did not have any borrowings under the Schuh Facility Agreement.

We were in compliance with all the relevant terms and conditions of the Credit Facility and Facility Agreement as of February 3, 2024.

We believe that cash on hand, cash provided by operations and borrowings under our amended Credit Facility and the Schuh Facility Agreement will be sufficient to support our liquidity needs in Fiscal 2025 and the foreseeable future.

In the fourth quarter of Fiscal 2021, we implemented tax strategies allowed under the 5-year carryback provisions in the CARES Act which we believe will generate approximately $55 million of net tax refunds. We received approximately $26 million of such net tax refunds in Fiscal 2022 and anticipated receipt of the remaining outstanding net tax refund in Fiscal 2023. However, in the third quarter of Fiscal 2023, we were notified the IRS would conduct an audit of the periods related to the outstanding net tax refund. While we do not believe any uncertainty with the technical merits of the positions generating the net tax refunds exists, we do anticipate the timing of the net tax refund will be extended as a result of the audit process. Accordingly, we have recorded the outstanding refund as non-current prepaid income taxes on the Consolidated Balance Sheets as of February 3, 2024.

36

Contractual Obligations

The following table sets forth aggregate contractual obligations as of February 3, 2024.

[[GREPCENT_TABLE]]
[["(in thousands)"],["Contractual Obligations","","Total","","","Current","","","Long-Term"],["Long-Term Debt Obligations","","$","34,682","","","$","\u2014","","","$","34,682"],["Operating Lease Obligations(1)","","","566,926","","","","152,087","","","","414,839"],["Purchase Obligations(2)","","","8,495","","","","8,495","","","","\u2014"],["Other Long-Term Liabilities","","","539","","","","153","","","","386"],["Total Contractual Obligations","","$","610,642","","","$","160,735","","","$","449,907"]]
[[/GREPCENT_TABLE]]

(1) Operating lease obligations excludes $10.5 million for leases signed but not yet commenced.

(2) As a result of the Togast acquisition, we also have a commitment to Samsung C&T America, Inc. (“Samsung”) related to the ultimate sale and valuation of related inventories owned by Samsung. If the product is sold below Samsung’s cost, we are committed to Samsung for the difference between the sales price and its cost.

We issue inventory purchase orders in the ordinary course of business, which represent authorizations to purchase that are cancelable by their terms. We do not consider purchase orders to be firm inventory commitments. If we choose to cancel a purchase order, we may be obligated to reimburse the vendor for unrecoverable outlays incurred prior to cancellation.

Capital Expenditures

Capital expenditures were $60.3 million and $59.9 million for Fiscal 2024 and 2023, respectively. The $0.4 million increase in Fiscal 2024 capital expenditures as compared to Fiscal 2023 is primarily due to increases for new stores, renovations and computer hardware, software and warehouse enhancements to drive traffic and omni-channel initiatives, almost offset by decreased capital expenditures for our new corporate headquarters.

We expect total capital expenditures for Fiscal 2025 to be approximately $52-$57 million of which approximately 59% is for new stores and renovations and 41% is for computer hardware, software and warehouse enhancements for initiatives to drive traffic and omni-channel initiatives and other projects. We do not currently have any longer term capital expenditures or other cash requirements other than as set forth in the contractual obligations table. We also do not currently have any off-balance sheet arrangements.

Common Stock Repurchases

We repurchased 1,261,295 shares during Fiscal 2024 at a cost of $32.0 million or an average of $25.39 per share. We were operating under a $100.0 million repurchase authorization from February 2022. In June 2023, we announced an additional $50.0 million share repurchase authorization. As of February 3, 2024, we have $52.1 million remaining under the expanded share repurchase authorization. We repurchased 1,380,272 shares during Fiscal 2023 at a cost of $72.7 million or an average of $52.66 per share. We repurchased 1,360,909 shares during Fiscal 2022 at a cost of $82.8 million or an average of $60.88 per share. During the first quarter of Fiscal 2025, through March 27, 2024, we did not repurchase any shares.

Environmental and Other Contingencies

We are subject to certain loss contingencies related to environmental proceedings and other legal matters, including those disclosed in Item 8, Note 15, "Legal Proceedings", to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

37

Financial Market Risk

The following discusses our exposure to financial market risk.

Outstanding Debt – We have $34.7 million of outstanding U.S. revolver borrowings, which includes $1.8 million (C$2.4 million) related to GCO Canada ULC, at a weighted average interest rate of 7.79% as of February 3, 2024. A 100 basis point increase in interest rates would increase annual interest expense by $0.3 million on the $34.7 million revolver borrowings.

Cash – Our cash balances are held in our bank accounts and not invested at this time. We did not have significant exposure to changing interest rates on invested cash at February 3, 2024. As a result, we consider the interest rate risk implicit in these investments at February 3, 2024 to be low. We did not hold any cash equivalents at February 3, 2024.

Summary – Based on our overall market interest rate exposure at February 3, 2024, we believe that the effect, if any, of reasonably possible near-term changes in interest rates on our consolidated financial position, results of operations or cash flows for Fiscal 2025 would not be material.

Accounts Receivable – Our accounts receivable balance at February 3, 2024 is concentrated in our wholesale businesses, which sell primarily to department stores and independent retailers across the United States. In the wholesale businesses, one customer accounted for 18%, one customer accounted for 16%, one customer accounted for 11% and one customer accounted for 10% of our total trade receivables balance, while no other customer accounted for more than 8% of our total trade receivables balance as of February 3, 2024. We monitor the credit quality of our customers and establish an allowance for doubtful accounts based upon factors surrounding credit risk of specific customers, historical trends and other information, as well as customer specific factors; however, credit risk is affected by conditions or occurrences within the economy and the retail industry, as well as company-specific information.

Foreign Currency Exchange Risk – We are exposed to translation risk because certain of our foreign operations utilize the local currency as their functional currency and those financial results must be translated into United States dollars. As currency exchange rates fluctuate, translation of our financial statements of foreign businesses into United States dollars affects the comparability of financial results between years. Schuh Group's net sales and operating income for Fiscal 2024 were positively impacted by $11.8 million and $1.3 million, respectively, due to the change in foreign exchange rates.

New Accounting Principles

Descriptions of recently issued accounting pronouncements, if any, and the accounting pronouncements adopted by us during Fiscal 2024 are included in Note 2, "New Accounting Pronouncements", to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data".

Critical Accounting Estimates

Inventory Valuation

In our footwear wholesale operations and our Schuh Group segment, cost for inventory that we own is determined using the first-in, first-out ("FIFO") method. Net realizable value is determined using a system of analysis which evaluates inventory at the stock number level based on factors such as inventory turn, average selling price, inventory level, and selling prices reflected in future orders for footwear wholesale. We provide a valuation allowance when the inventory has not been marked down to net realizable value based on current selling prices or when the inventory is not turning and is not expected to turn at satisfactory levels.

In our retail operations, other than the Schuh Group segment, we employ the retail inventory method, applying average cost-to-retail ratios to the retail value of inventories. Under the retail inventory method, valuing inventory at the lower of cost or market is achieved as markdowns are taken or accrued as a reduction of the retail value of inventories.

38

Inherent in the retail inventory method are subjective judgments and estimates, including merchandise mark-on, markups, markdowns and shrinkage. These judgments and estimates, coupled with the fact that the retail inventory method is an averaging process, could produce a range of cost figures. To reduce the risk of inaccuracy and to ensure consistent presentation, we employ the retail inventory method in multiple subclasses of inventory with similar gross margins, and analyze markdown requirements at the stock number level based on factors such as inventory turn, average selling price and inventory age. In addition, we accrue markdowns as necessary. These additional markdown accruals reflect all of the above factors as well as current agreements to return products to vendors and vendor agreements to provide markdown support. In addition to markdown allowances, we maintain reserves for shrinkage and damaged goods based on historical rates.

Inherent in the analysis of both wholesale and retail inventory valuation are subjective judgments about current market conditions, fashion trends and overall economic conditions. Failure to make appropriate conclusions regarding these factors may result in an overstatement or understatement of inventory value. A change of 10% from the recorded amounts for markdowns, shrinkage and damaged goods would have changed inventory by $0.7 million at February 3, 2024.

Impairment of Long-Lived Assets

We periodically assess the recoverability of our long-lived assets, other than goodwill, and evaluate such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Asset impairment is determined to exist if estimated future cash flows, undiscounted and without interest charges, are less than the carrying amount. Inherent in the analysis of impairment are subjective judgments about future cash flows. Failure to make appropriate conclusions regarding these judgments may result in an overstatement or understatement of the value of long-lived assets.

We annually assess our goodwill and indefinite lived trademarks for impairment and on an interim basis if indicators of impairment are present. Our annual assessment date of goodwill and indefinite lived trade names is the first day of the fourth quarter.

In accordance with ASC 350, "Intangibles - Goodwill and Other" ("ASC 350") we have the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill is impaired. If, after such assessment, we conclude that the asset is not impaired, no further action is required. However, if we conclude otherwise, we are required to determine the fair value of the asset using a quantitative impairment test. The quantitative impairment test for goodwill compares the fair value of each reporting unit with the carrying value of the reporting unit with which the goodwill is associated. If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded for the amount, if any, in which the carrying value exceeds the reporting unit's fair value. We estimate fair value using the best information available, and compute the fair value derived by a combination of the market and income approach. The market approach is based on observed market data of comparable companies to determine fair value. The income approach utilizes a projection of a reporting unit’s estimated operating results and cash flows that are discounted using a weighted-average cost of capital that reflects current market conditions. A key assumption in our fair value estimate is the weighted average cost of capital utilized for discounting our cash flow projections in our income approach. The projection uses our best estimates of economic and market conditions over the projected period including growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. For additional information regarding impairment of long-lived assets, see Item 8, Note 3, "Goodwill and Other Intangible Assets" and Note 4,"Asset Impairments and Other Charges" to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

The quantitative impairment test for indefinite lived trademarks compares the fair value of the trademark with the carrying value of the related trademark. If the fair value of the trademark is less than the carrying value of the trademark, an impairment charge would be recorded for the amount, if any, in which the carrying value exceeds the trademark’s fair value. We estimate fair value using the best information available, and compute the fair value using an income approach that estimates the savings that the

39

trademark owner would realize from owning that asset instead of having to pay rent or a royalty for the use of it. Key assumptions in our fair value estimate are the selected royalty rate and discount rate. Other significant estimates and assumptions include terminal value growth rates and future profitability expectations.

Revenue Recognition

In accordance with ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASC 606"), revenue shall be recognized upon satisfaction of all contractual performance obligations and transfer of control to the customer. Revenue is measured as the amount of consideration we expect to be entitled to in exchange for corresponding goods. Substantially all of our sales are single performance obligation arrangements for retail sale transactions for which the transaction price is equivalent to the stated price of the product, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product at the point of sale. Revenue from retail sales is recognized at the point of sale, is net of estimated returns, and excludes sales and value added taxes. Revenue from catalog and internet sales is recognized at estimated time of delivery to the customer, is net of estimated returns, and excludes sales and value added taxes. Wholesale revenue is recorded net of estimated returns and allowances for markdowns, damages and miscellaneous claims when the related goods have been shipped and legal title has passed to the customer. Actual amounts of markdowns have not differed materially from estimates. Shipping and handling costs charged to customers are included in net sales. We elected the practical expedient within ASC 606 related to taxes that are assessed by a governmental authority, which allows for the exclusion of sales and value added tax from transaction price.

A provision for estimated returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Estimated returns are based on historical returns and claims. Actual returns and claims in any future period may differ from historical experience. Revenue from gift cards is deferred and recognized upon the redemption of the cards. These cards have no expiration date. Income from unredeemed cards is recognized in our Consolidated Statements of Operations within net sales in proportion to the pattern of rights exercised by the customer in future periods. We perform an evaluation of historical redemption patterns from the date of original issuance to estimate future period redemption activity.

Income Taxes

As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our income taxes in each of the tax jurisdictions in which we operate. This process involves estimating actual current tax obligations together with assessing temporary differences resulting from differing treatment of certain items for tax and accounting purposes, such as depreciation of property and equipment and valuation of inventories. These temporary differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income. Actual results could differ from this assessment if adequate taxable income is not generated in future periods. To the extent it is more likely than not that some portion or all of a deferred asset will not be realized, valuation allowances are established. To the extent valuation allowances are established or increased in a period, we include an expense within the tax provision in our Consolidated Statements of Operations. These deferred tax valuation allowances may be released in future years when we consider that it is more likely than not that some portion or all of the deferred tax assets will be realized. In making such a determination, we will need to periodically evaluate whether or not all available evidence, such as future taxable income and reversal of temporary differences, tax planning strategies, and recent results of operations, provides sufficient positive evidence to offset any other negative evidence that may exist at such time. In the event the deferred tax valuation allowance is released, we would record an income tax benefit for a portion or all of the deferred tax valuation allowance released. At February 3, 2024, we had a deferred tax valuation allowance of $44.0 million.

40

Income tax reserves for uncertain tax positions are determined using the methodology required by the Accounting Standards Codification (“ASC”) Income Tax Topic, ("ASC 740"). This methodology requires companies to assess each income tax position taken using a two-step process. A determination is first made as to whether it is more likely than not that the position will be sustained, based upon the technical merits, upon examination by the taxing authorities. If the tax position is expected to meet the more likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50% likely to be realized upon ultimate settlement of the respective tax position. Uncertain tax positions require determinations and estimated liabilities to be made based on provisions of the tax law which may be subject to change or varying interpretation. If our determinations and estimates prove to be inaccurate, the resulting adjustments could be material to our future financial results. See Item 8, Note 11, "Income Taxes", to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information related to income taxes.

Leases

We recognize lease assets and corresponding lease liabilities for all operating leases on the Consolidated Balance Sheets as described under ASU No. 2016-02, “Leases (Topic 842).” We evaluate renewal options and break options at lease inception and on an ongoing basis, and include renewal options and break options that we are reasonably certain to exercise in our expected lease terms for calculations of the right-of-use assets and liabilities. Approximately 3% of our leases contain renewal options. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the reasonably certain lease term. As most of our leases do not provide a determinable implicit rate, we estimate our collateralized incremental borrowing rate based upon a synthetic credit rating and yield curve analysis at the lease commencement or modification date in determining the present value of lease payments. For lease payments in foreign currencies, the incremental borrowing rate is adjusted to be reflective of the risk associated with the respective currency. See Item 8, Note 9, "Leases", to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information related to leases.