TABLE OF CONTENTS

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PART I

ITEM 1, BUSINESS

General

Genesco is a leading retailer and wholesaler of branded footwear with net sales for Fiscal 2004 of $837.4 million. During Fiscal 2004, the Company operated four reportable business segments (not including corporate): Journeys, comprised of Journeys and Journeys Kidz retail footwear chains; Underground Station/Jarman Group, comprised of the Underground Station and Jarman retail footwear chains; Johnston & Murphy, comprised of Johnston & Murphy retail operations and wholesale distribution; and Dockers Footwear. In Fiscal 2002, the Dockers segment included Nautica Footwear. The Company ended its license to market footwear under the Nautica label, effective January 31, 2001. The Company continued to sell Nautica-branded footwear during the first six months of Fiscal 2002 in order to fill existing customer orders and sell existing inventory. On April 1, 2004, the Company acquired Hat World Corporation, a leading retailer of licensed and branded headwear.

At January 31, 2004, the Company operated 1,046 retail footwear stores and leased departments throughout the United States and Puerto Rico. It currently plans to open a total of approximately 86 new retail stores in Fiscal 2005. At January 31, 2004, Journeys operated 665 stores, including 40 Journeys Kidz; Underground Station/Jarman Group operated 233 stores, including 137 Underground Station stores and Johnston & Murphy operated 148 stores and factory stores. At January 31, 2004, Hat World Corporation operated 481 stores.

The following table sets forth certain additional information concerning the Company’s retail footwear stores and leased departments during the five most recent fiscal years:

The Company also designs, sources, markets and distributes footwear under its own Johnston & Murphy brand and under the licensed Dockers brand, to nearly 1,000 retail accounts in the United States, including a number of leading department, discount, and specialty stores.

Shorthand references to fiscal years (e.g., “Fiscal 2004”) refer to the fiscal year ended on the Saturday nearest January 31st in the named year (e.g., January 31, 2004). For further information on the Company’s business segments, see Note 13 to the Consolidated Financial Statements included in Item 8 and Management’s Discussion and Analysis of Financial Condition and Results of Operations. All information contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations which is referred to in Item 1 of this report is

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incorporated by such reference in Item 1. This report contains forward-looking statements. Actual results may vary materially and adversely from the expectations reflected in these statements. For a discussion of some of the factors that may lead to different results, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Available Information

The Company files reports with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and other reports from time to time. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company is an electronic filer and the SEC maintains an Internet site at http://www.sec.gov that contains the reports, proxy and information statements, and other information filed electronically. Our website address is http://www.genesco.com. Please note that our website address is provided as an inactive textual reference only. We make available free of charge through our website annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.

Segments

Journeys

The Journeys segment accounted for approximately 56% of the Company’s net sales in Fiscal 2004. Operating income attributable to Journeys was $54.8 million in Fiscal 2004, with an operating margin of 11.7%. The Company believes its innovative store formats, mix of well-known brands, new product introductions, and experienced management team provide significant competitive advantages for Journeys.

At January 31, 2004, Journeys operated 665 stores, including 40 Journeys Kidz stores, averaging approximately 1,600 square feet, throughout the United States and Puerto Rico, selling footwear for young men and women and children.

Journeys added 51 net new stores in Fiscal 2004 and comparable store sales were down 1% from the prior fiscal year. Journeys stores, located primarily in the Southeast, Midwest, California, Texas, and Puerto Rico, target customers in the 12-19 year age group through the use of youth-oriented decor and popular music videos. Journeys stores carry predominately branded merchandise across a wide range of prices, including such leading brand names as Dr. Martens, Converse, Diesel, Timberland and Phat Farm. From a base of 323 Journeys stores at the end of Fiscal 2000, the Company opened 102 net new Journeys stores in Fiscal 2001, 108 net new stores in Fiscal 2002, 81 net new stores in Fiscal 2003 and 51 net new stores in Fiscal 2004 and plans to open approximately 43 net new Journeys stores in Fiscal 2005.

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Underground Station/Jarman Group

The Underground Station/Jarman Group segment accounted for approximately 18% of the Company’s net sales in Fiscal 2004. Operating income attributable to Underground Station/Jarman Group was $8.2 million in Fiscal 2004, with an operating margin of 5.5%.

At January 31, 2004, Underground Station/Jarman Group operated 233 stores, including 137 Underground Station stores, averaging approximately 1,500 square feet, throughout the United States, selling footwear primarily for men.

Underground Station/Jarman Group comparable store sales decreased 6% from the prior fiscal year. Jarman stores are located primarily in urban and suburban areas in the Southeast and Midwest, target male consumers in the 20-35 age group and sell footwear in the mid-price range ($50 to $100). The Underground Station stores are located primarily in urban areas. For Fiscal 2004, most of the footwear sold in Underground Station/Jarman stores was branded merchandise, including such leading brand names as Timberland, Phat Farm, Lugz, Diesel and Steve Madden, with the remainder made up of Genesco and private label brands. The product mix at each Underground Station/Jarman store is tailored to match local customer preferences and competitive dynamics. The Company opened 4 net new Underground Station/Jarman stores, including 23 net new Underground Station stores, in Fiscal 2004, increasing the total number of Underground Station/Jarman stores to 233. The 23 net new Underground Station stores included eight conversions of Jarman retail stores to Underground Station stores. The Company plans to open approximately 24 net new Underground Station stores in Fiscal 2005 and close approximately 40 Jarman stores. For additional information, including with respect to the closing or conversion of the Company’s Jarman stores, see “Managements Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 to the Consolidated Financial Statements, included in Item 8.

Johnston & Murphy

The Johnston & Murphy segment accounted for approximately 19% of the Company’s net sales in Fiscal 2004. Operating income attributable to Johnston & Murphy was $4.0 million in Fiscal 2004, with an operating margin of 2.5%. All of the Johnston & Murphy wholesale sales are of the Genesco-owned Johnston & Murphy brand and approximately 94% of the Johnston & Murphy retail sales are of Genesco-owned brands.

Johnston & Murphy Retail Operations. Johnston & Murphy comparable store sales were down 1% in Fiscal 2004 compared to the prior fiscal year. Johnston & Murphy retail shops are located primarily in better malls nationwide and sell a broad range of men’s dress and casual footwear and accessories. Johnston & Murphy stores target business and professional consumers primarily between the ages of 25 and 54. Retail prices for Johnston & Murphy footwear generally range from $100 to $250. Casual and dress casual products accounted for 38% of total Johnston & Murphy retail sales in Fiscal 2004, with the balance consisting of dress shoes and accessories.

At January 31, 2004, Johnston & Murphy operated 148 retail stores and factory stores, averaging approximately 1,500 square feet, throughout the United States selling footwear for men.

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Johnston & Murphy Wholesale Operations. For more than 150 years Johnston & Murphy has served the footwear needs of discerning professional men with superior craftsmanship, premium quality materials and relevant styling. Johnston & Murphy offers footwear for dress, dress casual, and casual occasions selling greater than $100, with the majority of styles offered from $125-$175. In addition to sales through Company-owned Johnston & Murphy retail shops and factory stores, Johnston & Murphy footwear is sold primarily through better department and independent specialty stores.

Dockers Footwear

The Dockers Footwear segment accounted for approximately 7% of the Company’s net sales in Fiscal 2004. Operating income attributable to Dockers was $4.5 million in Fiscal 2004, with an operating margin of 7.5%. Substantially all of the Dockers sales and Fiscal 2002 Nautica sales are of footwear marketed under brands for which Genesco has an exclusive footwear license. See “Trademarks and Licenses.”

Dockers. In 1991, Levi Strauss & Co. granted the Company the exclusive license to market men’s footwear under the Dockers brand name in the United States. The Dockers brand name is well recognized in the men’s casual fashion industry. The Company uses the Dockers brand name to market a line of comfortable, moderately-priced, casual and dress casual lifestyle footwear. Dockers footwear is marketed through many of the same national retail chains that carry Dockers slacks and sportswear. Suggested retail prices for Dockers footwear generally range from $50 to $94.

Nautica. The Company ended its license to market footwear under the Nautica label, effective January 31, 2001. Sales for the first half of Fiscal 2002 included sales of Nautica footwear permitted under the termination arrangement with the licensor. For additional information on Nautica, see Note 2 to the Consolidated Financial Statements included in Item 8 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Manufacturing and Sourcing

The Company relies primarily on independent third-party manufacturers for production of its footwear products. The Company sources footwear products from foreign manufacturers located in China, Italy, Mexico, Brazil, Indonesia, Taiwan, India and Portugal.

Competition

Competition is intense in the footwear industry. The Company’s retail footwear competitors range from small, locally owned shoe stores to regional and national department stores, discount stores, and specialty chains. The Company competes with hundreds of footwear wholesale operations in the United States and throughout the world, most of which are relatively small, specialized operations, but some of which are large, more diversified companies. Some of the Company’s competitors have certain resources that are not available to the Company. The Company’s success depends upon its ability to remain competitive with respect to the key factors of style, price, quality, comfort, brand loyalty, and customer service. The location and atmosphere of the Company’s retail stores is an additional competitive factor for the Company’s retail operations. Any failure by the Company to remain competitive with respect to such key factors could have a material adverse effect on the Company’s business, financial condition, or results of operations.

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Trademarks and Licenses

The Company owns its Johnston & Murphy footwear brand through a wholly-owned subsidiary. The Dockers brand footwear line, introduced in Fiscal 1993, is sold under a license agreement. The Dockers license agreement expires on December 31, 2004 with an option to renew through December 31, 2008. Net sales of Dockers products were $60 million in Fiscal 2004 and $78 million in Fiscal 2003. The Company licenses certain of its footwear brands, mostly in foreign markets. License royalty income was not material in Fiscal 2004.

Backlog

Most of the Company’s orders are for delivery within 150 days. Because most of the Company’s business is at-once, the backlog at any one time is not necessarily indicative of future sales. As of March 27, 2004, the Company’s wholesale operations had a backlog of orders, including unconfirmed customer purchase orders, amounting to approximately $15.3 million, compared to approximately $17.5 million on March 29, 2003. The backlog is somewhat seasonal, reaching a peak in spring. The Company maintains in-stock programs for selected anticipated high volume sales.

Employees

Genesco had approximately 6,200 employees at January 31, 2004, approximately 6,110 of whom were employed in operations and 90 in corporate staff departments. Retail footwear stores employ a substantial number of part-time employees and approximately 3,250 of the Company’s employees were part-time.

Properties

At January 31, 2004, the Company operated 1,046 retail footwear stores and leased departments throughout the United States and Puerto Rico. New shopping center store leases typically are for a term of approximately 10 years and new factory outlet leases typically are for a term of approximately five years. Both typically provide for rent based on a percentage of sales against a fixed minimum rent based on the square footage leased. The Company’s two leased departments are operated under agreements which are generally terminable by department stores upon short notice.

The Company operates three distribution centers (all of which are owned) aggregating approximately 700,000 square feet. All of the facilities are located in Tennessee. The Company’s executive offices and the offices of its footwear operations, which are leased, are in Nashville, Tennessee where Genesco occupies approximately 60% of a 295,000 square foot building.

The lease on the Company’s Nashville, Tennessee office expires in 2007. The Company believes that all leases (other than the long-term Nashville lease) of properties that are material to its operations may be renewed on terms not materially less favorable to the Company than existing leases.

Environmental Matters

The Company’s former manufacturing operations and the sites of those operations are subject to numerous federal, state, and local laws and regulations relating to human health and safety and the environment. These laws and regulations address and regulate, among other matters, wastewater discharge, air quality and the generation, handling, storage, treatment, disposal, and

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transportation of solid and hazardous wastes and releases of hazardous substances into the environment. In addition, third parties and governmental agencies in some cases have the power under such laws and regulations to require remediation of environmental conditions and, in the case of governmental agencies, to impose fines and penalties. Several of the facilities owned by the Company (currently or in the past) are located in industrial areas and have historically been used for extensive periods for industrial operations such as tanning, dyeing, and manufacturing. Some of these operations used materials and generated wastes that would be considered regulated substances under current environmental laws and regulations. The Company currently is involved in certain administrative and judicial environmental proceedings relating to the Company’s former facilities. See “Legal Proceedings.”

ITEM 2, PROPERTIES

See Item 1.

ITEM 3, LEGAL PROCEEDINGS

New York State Environmental Proceedings

In 1995, the Company received notice from the New York State Department of Environmental Conservation (the “Department”) that it deemed remedial action to be necessary with respect to certain contaminants in the vicinity of a knitting mill operated by a former subsidiary of the Company from 1965 to 1969, and that it considered the Company a potentially responsible party. In August 1997, the Department and the Company entered into a consent order whereby the Company assumed responsibility for conducting a remedial investigation and feasibility study (“RIFS”) and implementing an interim remediation measure with regard to the site, without admitting liability or accepting responsibility for any future remediation of the site. In conjunction with the consent order, the Company entered into an agreement with the owner of the site providing for a release from liability for property damage and for necessary access to the site, for payments totaling $400,000. The Company estimates that the cost of conducting the RIFS and implementing the interim remedial measure will be in the range of $5.1 million to $5.3 million, $4.1 million of which the Company has already paid. The Company believes that it has adequately reserved for the costs of conducting the RIFS and implementing the interim remedial measure contemplated by the consent order, but there is no assurance that the consent order will ultimately resolve the matter.

The Company is also currently assessing various methods of preventing potential future impact of contamination from the site on two public wells that are in the expected future path of the groundwater plume from the site. The Village of Garden City has proposed the installation at the supply wells of enhanced treatment measures at an estimated cost of approximately $1.1 million. The Company is assessing the Garden City proposal for feasibility and cost-effectiveness as it continues to analyze the extent of its responsibility with respect to the wells. The Company has not ascertained what responsibility, if any, it has for any contamination in connection with the facility or what other parties may be liable in that connection and is unable to predict the extent of its liability, if any, beyond that voluntarily assumed by the consent order.

In May 2003, the Company filed a declaratory judgment action in the U. S. District Court for the Middle District of Tennessee against former general liability insurance carriers that underwrote policies covering the Company during periods relevant to this matter. The action seeks a

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determination that the carriers’ defense and indemnity obligations under the policies extend to the site.

The Company was a defendant in a civil action filed by the State of New York against the City of Gloversville, New York, and 33 other private defendants. The action arose out of the alleged disposal of certain hazardous material directly or indirectly into a municipal landfill and sought recovery for the costs of investigating and performing remedial actions and damage to natural resources. The Company paid approximately $0.2 million in October 2002, in exchange for a release from further liability related to the site.

Whitehall Environmental Matters

Pursuant to a work plan approved by the Michigan Department of Environmental Quality (“MDEQ”) the Company has performed sampling and analysis of soil, sediments, surface water, groundwater and waste management areas at the Company’s Volunteer Leather Company facility in Whitehall, Michigan.

On June 29, 1999, the Company submitted a remedial action plan (the “Plan”) for the site to MDEQ and subsequently amended it to include additional upland remediation to bring the property into compliance with regulatory standards for non-industrial uses. The Company, with the approval of MDEQ, had previously installed horizontal wells to capture groundwater from a portion of the site and treat it by air sparging. The Plan proposed continued operation of this system for an indefinite period and monitoring of groundwater samples to ensure that the system is functioning as intended. In the fourth quarter of Fiscal 2004, the Company proposed and provided for costs associated with certain enhancements to the system. Management cannot reasonably estimate the range of costs associated with future remediation of the site or predict whether it will have a material effect on the Company’s financial condition or results of operations.

On June 30, 1999, the City of Whitehall filed an action against the Company in the circuit court for the City of Muskegon primarily seeking to require the Company to remediate lake sediment contamination at the site. The Company, the City of Whitehall and MDEQ settled their disagreement over lake sediments for a lump sum payment of $3.4 million by the Company in the first quarter of Fiscal 2003. In connection with the settlement, the City’s lawsuit has been dismissed with prejudice.

Patent Actions

In January 2003, the Company was named a defendant in an action filed in the United States District Court for the Eastern District of Pennsylvania, Schoenhaus, et al. vs. Genesco Inc., et al., alleging that certain features of shoes in the Company’s Johnston & Murphy line infringe the plaintiff’s patent, misappropriate trade secrets and involve conversion of the plaintiff’s proprietary information and unjust enrichment of the Company. The Company has filed an answer denying plaintiffs’ claims and a motion to dismiss at least a portion of the claims and intends to defend the matter vigorously.

In March 2002, the Company was named a defendant in Lemelson Medical, Education & Research Foundation Limited Partnership v. Federal Express Corporation, et al., in the U. S. District Court for the District of Arizona. The case is one of a number of similar cases alleging patent infringement against users of bar code technology. The case was stayed prior to any

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discovery pending the outcome of suits in the Federal District Court in Nevada which challenge the validity of the subject patents. The complaint seeks injunctive relief and unspecified damages. In January 2004, the Nevada District Court ruled the patents unenforceable. The Company intends to defend the matter vigorously if the Nevada District Court decision does not result in its dismissal.

SEC Matter

The Company discovered, investigated, publicly announced and self-reported to the Securities and Exchange Commission in December 2001 certain accounting errors relating to the timing of certain shipments of Johnston & Murphy products. By letter dated March 4, 2003, the staff of the Commission advised the Company that it intended to recommend that the Commission institute a cease and desist proceeding against the Company under the periodic reporting, books and records and internal control provisions of the Securities Exchange Act of 1934 in connection with the errors. On December 19, 2003, the Commission entered an administrative order whereby, without admitting or denying the Commission’s findings, the Company agreed to cease and desist from committing or causing any violations under the relevant sections of the Securities Exchange Act and regulations thereunder.

ITEM 4, SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth quarter of Fiscal 2004.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The officers of the Company are generally elected at the first meeting of the board of directors following the annual meeting of shareholders and hold office until their successors have been chosen and qualify. The name, age and office of each of the Company’s executive officers and certain information relating to the business experience of each are set forth below:

Ben T. Harris, 60, Chairman. Mr. Harris joined the Company in 1967 and in 1980 was named manager of the leased department division of the Jarman Shoe Company. In 1991, he was named president of the Jarman Shoe Company and in 1995 was named president of Retail Footwear, which included the Jarman Shoe Company, Journeys, Boot Factory and General Shoe Warehouse. Mr. Harris was named executive vice president — operations in January 1996. He was named president and chief operating officer and a director of the Company as of November 1, 1996 and was named chief executive officer as of February 1, 1997. Mr. Harris was named chairman as of November 4, 1999.

Hal N. Pennington, 66, President and Chief Executive Officer. Mr. Pennington has served in various roles during his 42 year tenure with Genesco. He was vice president-wholesale for Johnston & Murphy from 1990 until his appointment as president of Dockers Footwear in August 1995. He was named president of Johnston & Murphy in February 1997 and named senior vice president in June 1998. Mr. Pennington was named executive vice president, chief operating officer and a director of the Company as of November 4, 1999. Mr. Pennington was named president of the Company as of November 1, 2000. He has responsibility for operational support functions including human resources and information systems, in addition to oversight of the Company’s operating divisions. Mr. Pennington was named chief executive officer of the Company as of April 25, 2002.

James S. Gulmi, 58, Senior Vice President – Finance and Chief Financial Officer. Mr. Gulmi was employed by Genesco in 1971 as a financial analyst, appointed assistant treasurer in 1974 and named treasurer in 1979. He was elected a vice president in 1983 and assumed the responsibilities of chief financial officer in 1986. Mr. Gulmi was appointed senior vice president - finance in January 1996.

James C. Estepa, 52, Senior Vice President. Mr. Estepa joined the Company in 1985 and in February 1996 was named vice president operations of Genesco Retail, which included the Jarman Shoe Company, Journeys, Boot Factory and General Shoe Warehouse. Mr. Estepa was named senior vice president operations of Genesco Retail in June 1998. He was named president of Journeys in March 1999. Mr. Estepa was named senior vice president of the Company in April 2000. He was named president and chief executive officer of the Genesco Retail Group in 2001, assuming additional responsibilities of overseeing Jarman and Underground Station.

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Jonathan D. Caplan, 50, Senior Vice President. Mr. Caplan rejoined the Company in October 2002 as chief executive officer of the branded group and president of Johnston & Murphy and was named senior vice president in November 2003. Mr. Caplan joined the Company in June 1992 and served as president of Genesco’s Laredo-Code West division from December 1985 to May 1992. After that time, Mr. Caplan was president of Stride Rite’s Children’s Group and then its Ked’s Footwear division, from 1992 to 1996. He was vice president, New Business Development and Strategy, for Service Merchandise Corporation from 1997 to 1998. Prior to joining Genesco in October 2002, Mr. Caplan served as president and chief executive officer of Hi-Tec Sports North America beginning in 1998.

John W. Clinard, 56, Vice President – Administration and Human Resources. Mr. Clinard has served in various human resources capacities during his 32 year tenure with Genesco. He was named vice president — human resources in June 1997. He was named vice president administration and human resources in November 2000.

Roger G. Sisson, 40, Vice President, Secretary and General Counsel. Mr. Sisson joined the Company in January 1994 as assistant general counsel and was elected secretary in February 1994. He was named general counsel in January 1996. Mr. Sisson was named vice president in November 2003. Before joining the Company, Mr. Sisson was associated with a Nashville law firm for approximately six years.

Mimi Eckel Vaughn, 37, Vice President of Strategy and Business Development. Ms. Vaughn joined the Company in September 2003 in her current position. Prior to joining the Company, Ms. Vaughn was executive vice president of business development and marketing, and acting chief financial officer from 2000 to 2001 for Link2Gov Corporation in Nashville. From 1993 to 1999, she was a senior engagement manager at McKinsey and Company in Atlanta. Prior to joining McKinsey, she held various corporate finance positions at Goldman, Sachs & Co., Wasserstein Perella & Co. Inc. and Drexel Burnham Lambert.

Matthew N. Johnson, 39, Treasurer. Mr. Johnson joined the Company in April 1993 as manager, corporate finance and was elected assistant treasurer in December 1993. He was elected treasurer in June 1996. Prior to joining the Company, Mr. Johnson was a vice president in the corporate and institutional banking division of The First National Bank of Chicago.

Paul D. Williams, 49, Chief Accounting Officer. Mr. Williams joined the Company in 1977, was named director of corporate accounting and financial reporting in 1993 and chief accounting officer in April 1995.

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PART II

ITEM 5, MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company’s common stock is listed on the New York Stock Exchange (Symbol: GCO) and the Chicago Stock Exchange. The following table sets forth for the periods indicated the high and low sales prices of the common stock as shown in the New York Stock Exchange Composite Transactions listed in the Wall Street Journal.

Fiscal Year ended February 1

Fiscal Year ended January 31

There were approximately 5,600 common shareholders of record on April 2, 2004.

The Company has not paid cash dividends in respect of its common stock since 1973. The Company’s ability to pay cash dividends in respect of its common stock is subject to various restrictions. See Item 7 and Notes 5 and 7 to the Consolidated Financial Statements included in Item 8 for information regarding restrictions on dividends and redemptions of capital stock.

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ITEM 6, SELECTED FINANCIAL DATA

Financial Summary

*Includes Nautica Retail leased departments of 57 and 47 in Fiscal 2001 and 2000, respectively.

Reflected in earnings from continuing operations for Fiscal 2004, 2003, 2002 and 2001 were restructuring and other charges of $0.9 million, $2.5 million, $5.1 million and $4.4 million, respectively, including $0.3 million and $1.0 million included in gross margin in Fiscal 2002 and 2001, respectively. See Note 2 to the Consolidated Financial Statements for additional information regarding these charges.

Reflected in earnings from continuing operations for Fiscal 2004 and 2002 was a tax benefit of $1.1 million and $3.5 million, respectively, resulting from the reversal of previously accrued income taxes.

Long-term debt includes current obligations. In June 2003, the Company issued $86.3 million of 4 1/8% convertible subordinated debentures due 2023. The Company used the proceeds plus additional cash to pay off $103.2 million of its 5 1/2% convertible subordinated notes which resulted in a $2.6 million loss on the early retirement of debt reflected in earnings from continuing operations for Fiscal 2004.

The Company has not paid dividends on its Common Stock since 1973. See Notes 5 and 7 to the Consolidated Financial Statements for a description of limitations on the Company’s ability to pay dividends.

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

Overview

The Company is a leading retailer and wholesaler of branded footwear, operating 1,046 retail footwear stores and leased departments throughout the United States and Puerto Rico as of January 31, 2004. The Company also designs, sources, markets and distributes footwear under its own Johnston & Murphy brand and under the licensed Dockers brand to nearly 1,000 retail accounts in the United States, including a number of leading department, discount, and specialty stores. On April 1, 2004, the Company acquired Hat World Corporation, a leading retailer of licensed and branded headwear operating 481 stores at January 31, 2004. See “Significant Developments.”

During Fiscal 2004, the Company operated four reportable business segments (not including corporate): Journeys, comprised of Journeys and Journeys Kidz retail footwear chains; Underground Station/Jarman Group, comprised of the Underground Station and Jarman retail footwear chains; Johnston & Murphy, comprised of Johnston & Murphy retail operations and wholesale distribution; and Dockers Footwear.

The Journeys retail footwear stores sell footwear primarily for 12 - 19 year old young men and women. The stores average approximately 1,600 square feet. The Journeys Kidz retail footwear stores sell footwear primarily for younger children, ages five to 12. These stores average approximately 1,400 square feet.

The Underground Station/Jarman retail footwear stores sell footwear primarily for men in the 20 - 35 age group. For Fiscal 2004, 23% of sales in Underground Station stores were women’s shoes. The Company plans to expand and improve its women’s business in Underground Station stores. The Underground Station/Jarman stores average approximately 1,500 square feet. In the fourth quarter of Fiscal 2004, the Company made the strategic decision to close 34 Jarman stores over the next twelve months subject to its ability to negotiate lease terminations. These stores are not suitable for conversion to Underground Station stores. The remaining 62 Jarman stores will be converted to Underground Station stores as quickly as it is financially feasible, subject to landlord approval.

Johnston & Murphy retail stores sell a broad range of men’s dress and casual footwear and accessories to business and professional consumers primarily between the ages of 25 and 54. These stores average approximately 1,300 square feet and are located primarily in better malls nationwide. Johnston & Murphy shoes are also distributed through the Company’s wholesale operations to better department and independent specialty stores. In addition, the Company sells Johnston & Murphy footwear in factory stores located in factory outlet malls. These stores are approximately 2,400 square feet.

The Company was granted the exclusive license to market men’s footwear under the Dockers brand name in 1991. The Dockers license agreement expires on December 31, 2004 with a Company option to renew through December 31, 2008. The Company uses the Dockers name to market casual and dress casual footwear through many of the same national retail chains that carry Dockers slacks and sportswear. The factors reflected in the sales decline of Dockers for Fiscal 2004 included a decline in sales in certain accounts reflecting strategic decisions to change their product offering to include more private label goods, fewer close out shipments than last year, lower than expected sell-throughs in one of Dockers Footwear’s product lines in the first half of

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this year and retailers’ reducing orders in response to the economic environment.

Net sales increased 1.1% during Fiscal 2004 compared to the prior year. The increase was driven by the addition of new stores that offset a decline in same store sales and decreased revenue in our wholesale businesses. The Company believes the same store sales decline was primarily due to a fashion trend that favored lower-priced product categories in Journeys and, to a lesser extent, Underground Station, offset in part by increased unit sales. During Fiscal 2004, Johnston & Murphy focused on brand profitability and gross margin rather than sales growth. Sales decreased from the prior year due to the Company’s pricing strategy and decreased wholesale sales. Docker’s Footwear sales reflect the challenging conditions in the men’s moderately-priced casual shoe market, a preference for private label versus branded products by certain customers and poor customer reception for one product line early in the fiscal year. Gross margin decreased as a percentage of sales during Fiscal 2004 primarily due to markdowns and the adverse effect of the strengthening euro on product cost in our Johnston & Murphy division. If the average exchange rate for the euro remained at the same levels for each quarter of Fiscal 2004 compared to Fiscal 2003, the Company estimates gross margin would have increased approximately $5.6 million.

The Company’s strategy is to seek long-term growth by: 1) increasing the Company’s store base, 2) increasing retail square footage, 3) improving comp store sales and 4) increasing operating margin. Our future results are subject to various risks, uncertainties and other challenges, including those discussed under the caption “Forward Looking Statements,” below. Among the most important of these factors are those related to consumer demand. Conditions in the external economy can affect demand, resulting in changes in sales and, as prices are adjusted to drive sales and control inventories, in gross margins. Because fashion trends influencing many of the Company’s target customers (particularly customers of Journeys and Underground Station) can change rapidly, the Company believes that its ability to detect and respond quickly to those changes has been important to its success. Even when the Company succeeds in aligning its merchandise offerings with consumer preferences, those preferences may affect results. For example, management believes that a fashion trend favoring generally lower-priced fashion athletic shoes over the more expensive utility styles that had been popular with consumers for many years resulted in lower average selling prices and lower comparable sales, despite increases in comparable store units sold in its Journeys division in Fiscal 2004. The Company believes its experience and discipline in merchandising and the buying power associated with its relative size in the industry are important to its ability to mitigate risks associated with changing customer preferences.

Forward Looking Statements

This discussion and the notes to the Consolidated Financial Statements include certain forward-looking statements (and statements other than those made solely with respect to historical fact and those regarding our intent, belief or expectations). Actual results could differ materially from those reflected by the forward-looking statements in this discussion and a number of factors may adversely affect the forward looking statements and the Company’s future results, liquidity and capital resources. These factors (some of which are beyond the Company’s control) include:

	•		Lower than expected consumer demand for the Company’s products, whether caused by weakness in the overall economy or changes in fashions or tastes that the Company fails to anticipate or respond to appropriately, which could lead to lower than expected sales and product margins and, consequently, profits.
	•		Further unfavorable trends in foreign exchange rates and other factors affecting the cost of products.

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	•		Changes in demand or buying patterns by significant wholesale customers.
	•		Disruptions in product supply or distribution.
	•		Changes in business strategies by the Company’s competitors (including pricing and promotional discounts).
	•		The Company’s ability to open, staff and support additional retail stores on schedule and at acceptable expense levels, to renew leases in existing stores on schedule and at acceptable expense levels and to identify and timely obtain new locations at acceptable expense levels.
	•		The ability to negotiate acceptable arrangements for closing or converting Jarman stores.
	•		Variations from expected pension-related charges caused by conditions in the financial markets.
	•		The outcome of litigation and environmental matters involving the Company, including those discussed in Note 12 to the Consolidated Financial Statements.
	•		The Company’s ability to integrate Hat World Corporation’s business successfully and timely.

Forward-looking statements reflect the expectations of the Company at the time they are made, and investors should rely on them only as expressions of opinion about what may happen in the future and only at the time they are made. The Company undertakes no obligation to update any forward-looking statement. Although the Company believes it has an appropriate business strategy and the resources necessary for its operations, predictions about future revenue and margin trends are inherently uncertain and the Company may alter its business strategies to address changing conditions.

Significant Developments

Hat World Acquisition

On February 5, 2004, the Company announced it had signed a definitive agreement to acquire Hat World Corporation. On April 1, 2004, the Company completed the acquisition of Hat World Corporation for a total purchase price of approximately $177 million, including adjustments for $11 million of net cash acquired and for working capital and certain tax benefits, subject to further post-closing adjustments. Hat World is a leading specialty retailer of licensed and branded headwear. As of January 31, 2004, it operated 481 stores across the U.S. under the Hat World, Lids, Hat Zone and Cap Factory names. The Company believes the acquisition will enhance its strategic development and prospects for growth. The Company funded the acquisition and associated expenses with a $100 million five year term loan and the balance from cash on hand. In connection with the transaction, the Company entered into new credit facilities totaling $175 million with 10 banks, led by Bank of America, N.A., as Administrative Agent, to fund a portion of the purchase price and to replace its existing revolving credit facility.

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Impairment and Other Charges

The Company recorded a pretax charge to earnings of $1.0 million ($0.6 million net of tax) in the fourth quarter of Fiscal 2004. The charge includes $2.8 million in asset impairments related to 59 underperforming retail stores identified as suitable for closing if acceptable lease terminations can be negotiated, most of which are Jarman stores. The charge is net of recognition of $1.8 million of excess restructuring provisions relating to facility shutdown costs originally accrued in Fiscal 2002. In accordance with SFAS No. 146, the Company revised its estimated liability and reduced the lease obligation during the period that the early lease termination was legally obtained.

The Company recorded a pretax charge to earnings of $2.5 million ($1.6 million net of tax) in the fourth quarter of Fiscal 2003. The charge includes $2.4 million in asset impairments related to 14 underperforming retail stores identified as suitable for closing if acceptable lease terminations can be negotiated, the payments included in the restructuring provision related to the termination of one of those leases, and $0.1 million in severance payments. The majority of these costs relate to the Johnston & Murphy division.

4 1/8% Convertible Subordinated Debentures due 2023

On June 24, 2003 and June 26, 2003, the Company issued a total of $86.3 million of 4 1/8% Convertible Subordinated Debentures due June 15, 2023. During the second quarter ended August 2, 2003, the Company used the net proceeds of $83 million and approximately $23 million in additional cash to repay all of the Company’s 5 1/2% convertible subordinated notes due 2005, including accrued interest payable and expenses incurred in connection therewith resulting in a loss on early retirement of debt of $2.6 million ($1.6 million redemption premium and $1.0 million write-off of unamortized deferred note expense) reflected in the Company’s second quarter results. See Note 5 to the Consolidated Financial Statements for additional information.

Minimum Pension Liability Adjustment

The return on pension plan assets was a gain of $15.9 million for Fiscal 2004 compared to a loss last year of $6.5 million. The interest rate used to measure benefit obligations decreased from 6.625% to 6.125% in Fiscal 2004. In addition, the Company contributed $6.0 million to the pension plan this year compared to $3.3 million last year. Plan assets were less than the accumulated benefit obligation, resulting in a pension liability of $25.6 million on the balance sheet compared to $34.3 million last year and a minimum pension liability credit adjustment of $4.3 million (net of tax) in other comprehensive income in shareholders’ equity. Depending upon future interest rates and returns on plan assets, and other known and unknown factors, there can be no assurance that additional adjustments in future periods will not be required.

Share Repurchase Program

In total, the Company’s board of directors has authorized the repurchase of 7.5 million shares of the Company’s common stock since the third quarter of Fiscal 1999. As of January 31, 2004, the Company had repurchased 7.1 million shares at a cost of $71.3 million pursuant to all authorizations. The board of directors has suspended any additional repurchases at this time.

Johnston & Murphy Plant Closing and Reductions in Operating Expenses

On January 31, 2002, the Company’s board of directors approved a plan to streamline operations and reduce operating expenses. The plan included closing the Company’s last remaining manufacturing plant and eliminating approximately 40 positions from its Nashville headquarters

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workforce. At the same time, the Company recognized the impairment of assets used in 12 underperforming stores, primarily in the Jarman group.

In connection with the plant closing, employee severance and asset impairments, the Company recorded a pretax charge to earnings of $5.4 million ($3.4 million net of tax) in the fourth quarter of Fiscal 2002. The charge included $0.3 million in plant asset write-downs, $3.7 million of other costs, including primarily employee severance and facility shutdown costs and $1.0 million of retail store asset impairments. Also included in the charge was a $0.4 million inventory write-down, primarily related to inventory of product offerings affected by the plant closing, which is reflected in gross margin on the income statement.

The Company ended operations in the manufacturing plant during the third quarter of Fiscal 2003.

Nautica Footwear License Cancellation

The Company ended its license to market footwear under the Nautica label, effective January 31, 2001. The Company’s net sales for Fiscal 2002 included $6.1 million of sales of Nautica – branded footwear to fill existing customer orders and sell existing inventory.

During the second quarter of Fiscal 2002, the Company recorded a restructuring gain of $0.3 million in connection with the successful completion of activities related to the Nautica Footwear license agreement’s termination. The gain included a $0.1 million reversal of the earlier inventory write-down, because the Company was able to liquidate its Nautica Footwear inventories at better prices than it initially expected. The reversal is reflected in gross margin on the income statement.

The Nautica footwear business contributed sales of approximately $6.1 million and an operating loss of $0.6 million in Fiscal 2002.

Discontinued Operations

In the fourth quarter ended January 31, 2004, the Company recorded an additional charge to earnings of $1.4 million ($0.9 million net of tax) reflected in discontinued operations, including $0.6 million for the Company’s former Volunteer Leather tannery in Whitehall, Michigan, and $0.8 million primarily for additional costs of a remedial investigation and feasibility study at its former knitting mill in New York. See Note 12 to the Consolidated Financial Statements.

In the fourth quarter ended February 2, 2002, the Company recorded an additional charge to earnings of $0.9 million ($0.6 million net of tax) reflected in discontinued operations, including $0.5 million for the Michigan site and $0.4 million primarily for additional anticipated costs of a remedial investigation and feasibility study at its former knitting mill in New York. See Note 12 to the Consolidated Financial Statements.

In the third quarter ended November 3, 2001, the Company reached an agreement with the Michigan Department of Environmental Quality to contribute a lump sum of $3.4 million toward se