Good day, everyone and welcome to the Genesco First Quarter Fiscal 2016 Conference Call. Just a reminder today's call is being recorded. Participants on the call expect to make forward-looking statements. These statements reflect the participants' expectations as of today, but actual results could be different. Genesco refers you to this morning's earnings release and to the company's SEC filings, including the most recent 10-K filing for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made during the call today. Participants also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial measures referred to in the prepared remarks are reconciled to their GAAP counterparts in the attachments to this morning's press release and in schedules available on the company's homepage under Investor Relations. I’ll now turn the call over to Bob Dennis, Genesco's Chairman, President and Chief Executive Officer. Please go ahead, sir.

Good morning and thank you for being with us. I am joined today by Chief Financial Officer, Mimi Vaughn. The first quarter played out almost as we had expected. Adjusted earnings per share were $0.51 compared to $0.81 last year, but $0.04 below our internal expectations and roughly $0.03 of this shortfall was related to an unpredicted and substantial spike in medical and workers’ comp claims. Therefore our operating businesses in the aggregate pretty much delivered the performance we anticipated. Total sales increased 5% to $661 million, with consolidated comps up 4%. Performance was once again driven by strong trends in our direct businesses. Direct comparable sales grew 27% and stores were up 3%. Direct as a percentage of our retail businesses increased to over 8% this quarter. The annual EPS outlook we announced on our last call reflected expectation that the quarter and indeed the first half would be down considerably compared to last year. The difference in our year-over-year earnings for the quarter was driven by a handful of anticipated factors, heavily weighted to the Lids Sports Group. And before we run through these factors I want to reinforce our conviction that the Lids Sports Group that we are seeking to capture a significant strategic opportunity represented by becoming the leading Omni channel provider of licensed sports merchandise in the U.S. The road to this compelling strategic goal has been bumpy and it is likely to remain bumpy for the next several quarters but this does not diminish our enthusiasm for the long-term prospects that we are building at Lids. That said here are the most significant challenges that we foresaw going into the quarter. First we expected substantial gross margin pressure in the Lids Sports Group due to higher promotional activity and we actually experienced even more…

Thank you, Bob, and good morning, everyone. As a reminder we have posted more detailed information online in our CFO commentary. So I will highlight a few important points from the reported results. In the first quarter we had solid sales across all of our retail businesses with total sales up 5% over last year to $661 million. This was driven by a 4% increase in consolidated comp sales and increase in non-comp sales of approximately $6 million, including the opening of 15 new stores and an increase of 4% in the wholesale sales. By division, total comps were up across the board, up 5% at Journeys, 4% at Schuh, 3% at Lids and 3% at Johnston & Murphy. Consolidated store comps were up 3% and direct comps were up 27%, which pushed direct as a percent of total retail sales to over 8% for the quarter compared to 7% a year-ago. Sales picked up after the Easter offset driven by warmer weather and the receipt of spring and summer goods and these solid trends accelerated into the second quarter. Consolidated comp sales for the second quarter to-date through last Saturday, May 23rd, are up 7%. By division, for the second quarter-to-date, total comps are up for all of our retail businesses again, up 7% at Journeys, 4% at Schuh, 7% at Lids, and 8% at Johnston & Murphy. Consolidated store comps for the second quarter to-date are up 5% and direct comps are up 28%. The effect of Lids turning on Locate and giving online access to an additional 50,000 plus SKUs in the stores continues to be dramatic. As a result of this, plus promotional activity, Lids’ direct comps quarter-to-date are up 54%. Now adjusted gross margin for the quarter decreased 90 basis points from last year, a…

Thanks Mimi. Let’s talk about the key factors in the performance of our individual business units in the first quarter and our current outlook for them starting with Journeys. It was another solid quarter at Journeys after a fantastic record breaking year as the buying team continues to be on trend with a narrow [ph] and deep assortment that reflects the current fashion cycle. The quarter benefitted more than usual from the sale of boots particularly early in the quarter when much of the country was experiencing record low temperatures. These extra boot sales enabled Journeys to end the winter selling season in a very clean inventory position ready to bring in spring merchandise. The West Coast port situation was a challenge given the strong 16% comp in the fourth quarter Journeys inventory going into the year already light was affected by shipment delays in March and the beginning of April. We estimate that the delayed deliveries lowered Journeys comp by about three points in the first quarter. Journeys caught up with the delays by the end of April and once spring merchandise hit the selling floor Journeys comps accelerated as seen the second quarter to-date results. Importantly, the initiatives we spoke about on our last earnings call continue to fuel gains in traffic and conversions and should be a tailwind for Journeys this entire fiscal year. These initiatives include an increased investment in catalogs and digital marketing where we are seeing a high ROI from driving traffic to both the website and stores and adjustments to the store staffing model to take better advantage of peak shopping hours. One challenge to Journeys base is the wage increases that affect all our selling at retail businesses. As expected Journeys was not able to leverage selling salaries despite its 5% comp…

Thank you. [Operator Instructions] And we will take our first question from Jay Sole with Morgan Stanley.

Hi good morning.

Hi, Jay.

On the Lids inventory issue that caused you to take down the guidance, is the message that the Lids story is the same as it was last quarter but it’s just going to cost a bit more than expected to clear the inventory and you still think that business will be on track by 2016 or you are pushing out -- are you pushing out the timing of when the Lids business gets back on track?

Well, I think we’re obviously looking to try and get that inventory to a target level by the end of the year and as we said that’s the number one priority. We are working on monthly year-end inventory targets as measured both by quantity of inventory and quality of inventory which means pressure. And so the learning that we came through in the quarter is that we can achieve that and so but it took a little more margin dollars to get there than what we had planned out, and so the guidance reflects the fact that we are going to be cautious that, that extra juice that we need to keep the clearance at the rate we are targeting will bleed into the second and third quarters. We think the fourth quarter is less affected simply because Locker Room is a fourth quarter business and so we could keep the same rate of liquidation going in order to get to our target but the change in gross margin will get muted by the fact that we have so much full price selling going on in the fourth quarter because that’s when the business really takes off. And our expectation is that we are setting ourselves up for a much stronger year next year.

Okay, got it. Now if we can talk about just the dotcom part of the Lids story, is the improvement you are seeing, is it really driven by conversion that - the Locate system is helping customers find the products that they want or is there also a traffic element where you are seeing more visitors to the site which is also part of the enhancements that you made to the system as well?

Jay, great question and it ties to your note, thank you for that note that you put out. It is both. So we are getting a substantial uptick in conversion which we expected, because we are not only showing more SKUs but we are showing an improved in-stock position on sizes as we’ve accessed all of our inventory and so there was no surprise that we were going to get that. What we didn’t see coming was the bump in traffic that we got and what we’re learning is that we are scoring better position in natural search, because we are more relevant. So the algorithms that are deriving our ratings are giving us, just bringing us more traffic, and so if you look at the 60% increase that we're getting, very round numbers, it's half conversion and half traffic. Just to stay with that thought a little more, there were a number of things that the way we're thinking about it, there are a number of other things that we can do to drive the business, which we're not doing because we think 60% gains operationally are all we want to handle right now. We really want to make sure that we are satisfying our customers, so that we become a preferred place to shop, and as such, we think 60% is just great. So one place you go there is when you get higher conversion, you are naturally tempted to then drive more investment dollars in the marketing, your position on the web. We are choosing not to be crazy aggressive with that yet, because we don't want to have to try and absorb more business than what we're trying to transact right now. So when you think about the point at which we anniversary turning on Locate,…

Got it. And then maybe, if I can just ask, last one, last one on Macy's. Can you just connect the inventory issues at Lids with the Lids and Macy's initiative, is it -- does the inventory issue kind of limit your ability to start adding stores at Macy's again and just can you talk in general about, what your learnings have been in the last few months about putting the stores in the right place and getting the conversion there et cetera, et cetera.

Yes. So, let's first start with the understanding that Macy's is a baby, all right. And it's a baby in the incubator right now. So we're really working it very hard, but the majority of the stores opened in the third quarter, so they are a little over half a year old. So you have to think about in that context, and also in the context that it is new territory. So it's not as if you could point to the model and say, this is how it's going to work. So we're running under-plan in general, there’s are some great stores and then we have some stores that are not doing well, and that contributed to the inventory problem, because we had both under -- in aggregate, underperformance and at the same time, lot of those stores opened late. So we had to order more merchandise for Macy's than was necessary given the ultimate opening schedule that we lived with. We're learning a ton. So we're learning about assortment and what works. We're learning a lot about location and in fact, the initial thesis on where we perform best in the store, which we really sought out, is a good location, but it turns out not being the best location and there are some locations that don’t work at all. To Macy’s credit they are great partners with us and they are being very supportive in our efforts at trying to find where to put the stores. The great thing about the design of the stores is that they are extraordinarily mobile. So we have done really no meaningful physical build-out that isn’t transportable to another part of the store. It is largely a fixture package and so we have already made some moves with stores and it’s a…

Okay. Got it. Thanks so much.

Yeah.

Our next question comes from Erinn Murphy with Piper Jaffray.

Great. Thank you. Good morning. Mimi I was just hoping you could help us just understand on the guidance a little bit more about the cadence throughout the year. I know, you talked about kind of Q2 being the lowest sales base quarter and really the earnings growth. I guess earnings skews the back half. Could you just help us think about Q2, I mean should the level be worse than what Q1 was, down 37% and then is Q4 that quarter you are anticipating to return to growth to kind to get that midpoint up flat for the year?

Yeah, Erinn this is a good topic for us to talk about and for all the reasons that we described, we are much more heavily weighted to the back half of the year, we were last year, as I said, 76% of our earnings were in the third and fourth quarter and given some of the promotional activity and the new stores which are weighted to the fourth quarter and the shift back to tax-free [ph] holidays for all the reasons will be even more heavily weighted to the third and fourth quarter this year. So year-over-year we expected that first quarter was going to be hit the most heavily. Second quarter, we also expect that we are going to be down on a year-over-year basis, quite a lot, not to the same extent that we were in the first quarter. We see things getting better in the third quarter and then even better in the fourth quarter. So the strength of our business and we put up a great fourth quarter last year, the strength of our business when consumers were out in the mall added to the gains that we have had in the direct business, gives us the optimism that as we clear through the Lids inventory that we will be able to see a lessening of the promotional activity as a percentage of the overall business and that, that will take less of the hit on margins as we progress through the year.

Thanks Mimi, that’s super helpful. And then I guess on the Schuh business I guess that you guys talked about little bit of choppiness in terms of the sales. And are you seeing a volatility in traffic in cities outside of London, I mean I recognize as the tourist flows have been fairly volatile on high street, but just to kind of help compare, contrast between kind of what you’re seeing and kind of the intercity London stores versus outside in broader UK market?

Yeah. The word choppy is the one that we’ve used and that’s kind of what we see. We have good weeks and then we have soft weeks and in arrogate it’s been sort of so-so in terms of store traffic. Obviously Schuh.com based on those numbers is doing very nicely. So the choppiness is most extreme from the numbers in London and that’s why we called that out but it’s we just haven’t seen steadiness and as we also called out surprisingly some of the trends that are driving Journeys business are not driving business at Schuh. And so they're having to go through more of a brand rotation and they are finding some things that are working but they were committed to some brands that are not performing to the levels that we were hoping they would. And so when you are in that situation you're handcuffed a little bit on performance until you can get the shape of your inventory commitments more in-line with your sales trends. So the team is doing great work and they're making all of those transitions, dotcom business is doing terrific. They continue to build their Omni channel capabilities. They've got the excitement of store number one in Germany looking based on very, very short run. But even with a short run it’s nice to see positive numbers. So there is lots of good going on there we just would love to see just a little more juice in traffic sales and convergence in the stores.

Well, no, that’s super helpful. Maybe just the brand mix comments, if you could just elaborate that, and you talked about kind of lower margin business as driving that. I mean is that any athletic brands you have in Schuh in the UK that you don't have here in the United States in Journey whether it's Nike or some of the other kind of the athletic brands that are probably lower margin for you guys there. Or what -- and as a follow the private label in Schuh or just would love to kind of hear kind of what the de-coupling is between the Schuh versus the Journeys business on a margin, I guess brand mix from our perspective.

Nice try Erinn. As you know we don't call out brands. So there are some brands where as it rotates that have slightly lower margins than some of the brands that had been stronger performers. I am going to leave it with that. The private label business has not been a stellar business. As you know as lot of the girls who would be buying fashion have been buying Canvas [ph] and have been buying brands. And so that to some extent has been an impediment to private label performing at some of the levels that we’ve seen historically.

Okay and then just last, a follow up on Jay’s question on the Macy's business. And I apologize if I missed it but how many re-locations do you see happening this year for the stores that you aren’t pleased with the total -- the current location.

Don't know yet. I mean that's going to be a discussion with Macy's and again I'm going to sound like a broken record, where a lot of these stores are only four or five months into their lives, so let's give them a little time for customers to find them. If they're in a more challenging part of the store there might be a longer period of discovery for them. Each of Macy's stores they don't have a standard footprint. So it's not as if you can say let's move all the stores here. So they're one by one decisions. I just can't give you a number. Obviously where we're not performing up to the level, where either we or Macy's would like to see it, there will be discussions about what our options are.

Got it, thank you guys.

Thank you.

The next we'll hear from Edward Plank with Jefferies.

Good morning guys, thanks. I guess just following up on the Macy's question, you have maybe any updated thoughts on the profitability trajectory of the business, what you might see this year and then over longer term, is it still potentially a high single digit EBIT margin?

It's a -- in the near term, as we said it's not going to be profitable this year and it tilts [ph] as much as all of our other locker room business into the fourth quarter. So think about that is the shape of the curve. And our target for the business has been to get it to a strong return on invested capital, that doesn't require quite the same operating margin that we target in fully built out stores because the capital commitment is lower. So mid to high single digit operating margins is kind of where we would like to get to and right now we're just trying to go north.

I think an important part of being able to accomplish that, as Bob referenced is the staffing model and the number of hours. I mean the traffic certainly picked up a lot on the weekend in department stores and during the week it’s very quiet, and so being able to pare back staffing levels when it’s not important to be staffed in the stores is going to enhance profitability by a lot.

Got it, understood. And then another follow up here. It looks like you might have trimmed the comp guidance for Journeys in the second quarter from what you gave last quarter, yet the comps are trending up 7% quarter to date. I guess I am just wondering what the disconnect is there? And then Mimi, can you quantify maybe what the dollar impact is from the tax free shifts out of 2Q into 3Q? Thanks.

Sure, so on the Journeys guidance in Q2, it really is a shifting of the tax free holidays out of Q2 into Q3. There are a number of states that have announced that they are moving and there are a couple in the balance that haven’t announced definitively. But we are betting that they are going to end up moving, and that is entirely the reason for the move and what we took out of the second quarter we added back into the third quarter. So again we feel like Journeys trends are on -- we were affected by the port issue in the first quarter, Journeys comp was 5%. We think that we gave up 3% to the ports and we are back in the 7% range quarter-to-date. So we feel like the trends that have been sustaining Journeys will continue through the course of the spring and the summer and that we will have another strong back-to-school and Christmas. We are going against a 16% comp in the fourth quarter, so that has caused us to moderate Q4 relative to Q3. But we, just to give you a sense of the tax free shift we anticipate that all together about $4 million worth of sales are going to shift out of Q2 into Q3 and because Q2 is such a low quarter for us, we really don’t see the effects of back-to-school until Q3. That’s the reason for the shift in the comp.

Got it. That’s very helpful. And then if I could just one last one, so then I guess following up on the SG&A a little bit, do you think with the shift and just compare you have to last year might there be an opportunity for leverage in the third quarter on SG&A or is it too optimistic you think it would be before the fourth quarter?

I don’t think we get to leverage in the third quarter. I think we are going to have to get into the fourth quarter to really see some leverage.

Got it, okay all the best guys. Thanks.

Thank you.

And next we will hear from Taposh Bari with Goldman Sachs.

Hi good morning. Bob a couple of questions for you on Lids. So it sounds like the issues that you are seeing currently are a function of both indigestion as you grow or as you grew in competition, so I was hoping you can kind of help discern the magnitude of each, which is a bigger issue for you today and hoping you can provide an update on what you are seeing on the competitive front as well across the different types of banners within the Lids segment?

Sure, so yes, there is two factors going on. You are right there is the self-inflicted wounds and then we’re being -- I don’t like the word analogies, but you can see we’ve got two battles going on. The self-inflicted one is the one that we are probably more affected by right now. We are just really focused on getting more aged goods liquidated and as you heard us say several times it’s a do whatever it takes philosophy and it took a little more on the first quarter and that will continue to be where we go. Parallel to that there is two levels -- there is two parts of competition, there is store based and there is online based. So the store based portion of it, as you know Taposh we’ve talked about it, we believe that the retailer who has taken an Omni channel approach who can use their inventory in the store to both sell to the traffic in the store but also make it available online. It’s a big leg up and then the reverse of that which is the traffic you get to your store, who are looking for goods that are not in that store because they are displaced and we get to capture that. If you add those two things up the productivity of our store pretty much trumps what is traditionally a mom and pop industry and we have a great example of that here locally in Nashville we have a good presence in [indiscernible]. When I shopped [indiscernible] mills in February, I noticed that main mom and pop competitor had closed. So I called Lids, found out that they had closed in January and from that date forward Lids Locker Room that was down the hallway was up. I think year-to-date they're up around 26%. So there is the competitive dynamic that in the long run, as our stores win and we believe they will we have massive share gains available to us. And then there is an online competition and online there is really two major players. You have the same visibility that we have to the promotional cadences that are going on. We're committed to go pursue online share. We are up on our full price business, 40% and we’re going to continue to do what it takes, that's taking some margin hits because in order to compete for that business we need to be relevant on price and we're going to continue to do that. And so but that will be in our economics and we think that the growth we get off of that makes up for what we're doing for our online only offers. So overall, we think that we have a model that's the winning model and we have two different forms of competition and we think we're well positioned to compete on both sides.

That's helpful. And then just another follow up on Lids, so I guess in the [indiscernible] and competition piece, but wanted to pick your brain and your thoughts on the health of the category at large, so licensed sports apparel and headwear, what do you think are the category today and I guess ultimately do you think that the category needs to be in a good place for Lids Sports Group to succeed because it sounds like part of the bet that you're making is consolidation, and economies would scale and making one plus one equals to three. And I guess I wanted to get your -- and whether you think the actual category needs to be healthy for that operation to actually succeed.

Well the answer to that question is, yes you need a healthy category. We don't see a lot of evidence that the category is unhealthy. I know several analysts have quoted retailers who do not focus on licensed sports as been challenged there. I don't take that as evidence that the category is challenged. I take that as evidence that the consolidators are going to win the space. We've learned that in the hat business. When we were in the hat business many of the major broad line sporting goods guys were in the headwear business and many publically acknowledged that it was more difficult for them to compete because the authority in the space which was Lids and HATWORLD was gaining share and it just made it a challenge. And I think there is a good chance that what you're seeing in the commentary coming from those who aren’t fully committed to the space that's the dynamic. So if you generally look, it's hard to, as you know, it’s hard to get really good data on the size of the category and certainly very hard to get year-over-year trend data on the size of the category. So we sort of reference our vendors as the proxy for that and the vendors are seeing that the industry is pretty solid. What's interesting about two things that are interesting about it, one is it's not a feast and famine business. It's an ordinary business that occasionally becomes a feast. And that's when fashion grabs licensed sports and makes it part of the package. We're not there right now. So we're living in a world where fashion other than in headwear, which -- where it still has relevance but for example there was a period where jerseys became a big part of a fashion uniform and that's not the case at the moment. And so that represents upside to the category. Does that help answer your question?

Yes it does I appreciate that. And last one and I'll pass it along, for Mimi, can you provide some context, guidance whatever you want call it, on the spread of sales revenues versus comp growth in the fourth quarter. I know that continues to be a dynamic part of the algorithm. But on the surface it seems like the guidance is pretty fourth quarter weighted more so than it was last year and when you were obviously performing quite well in terms of comp growth. And I think if you can help provide some context there, it would help us in our modeling?

Sure. So in the CFO commentary, we break out comp by division, and we have said for Journeys, it'll be 4% to 5%, for Lid it will be 3% to 4% and then total Genesco will be 3% to 4% in the fourth quarter and that's on top of a strong fourth quarter again last year.

Yes. That's helpful. But I was asking specifically for the spread, so just trying to get a better sense of how much higher revenue growth will be versus comp growth in light of the fact that you have a disproportionate amount of non-comping growth that comes in the fourth quarter.

We didn’t have a lot of non-comp growth.

In the fourth quarter, yeah, we had most things open in the fourth quarter.

Yes, not much opened in the fourth quarter Taposh, most of -- like Macy's stores were mostly opened by the end of the third. I think maybe a few bled into the fourth quarter, but even they'll comp early, pre-Christmas.

Yes.

Got it.

So...

A large majority of our sales in the fourth quarter are comped out. And one thing, I wanted to amend what I said to Eddie, in the third quarter, we actually do anticipate that we are going to see improvement and get some leverage on SG&A. And so, the way we see this, that the year is going to unfold is that we're going to start to see improvement in SG&A in the third, and also in the fourth quarter, because of the strong comp and some of the moderation of the promotional activity.

Thanks guys.

Thank you.

Scott Krasik with Buckingham Research Group has our next question.

Yes. Hey everyone. Thanks. So couple questions. First, how do you approach pricing? As you pointed out, there is a promotional aspect to the online, but then it seems like your primary online competitor on Lids is also trying to just under price you even if it's by a nickel on every item. So how do you approach that and how do you combat that?

Scott, we're in there, trying to compete in order to gain our fair share. Scott, we're up 62% year-to-date. I don't -- we don't feel the need to price any more aggressively because 62% is pretty challenging to keep up with. So for the moment we're feeling like we're pricing just fine, to achieve what we want to achieve.

Right. Except you have too much inventory and your margins are down significantly, so…

Well, if I price more aggressively, have more sales, can take my margins down, that's not a direction that makes sense to us right now. We're happy with our sales rate. We're liquidating our inventory on the plan that we designed, which is a month-by-month plan. And so we don't need to go ahead of that if it means that we have to get that much more aggressive on pricing. And again we're also being mindful that in the online business we want to not overstrain our operations. We want to keep customers happy, by delivering what they ordered on time in good shape.

And it's not just promotional sales that are up online.

Yeah.

It is also what we consider to be non-promotional. Sales were up 40% there. The amount of inventory and again e-commerce is just a terrific vehicle for liquidating inventories. So we've been pushing our liquidation out there as well, but we've seen a lift overall in our non-promotional sales. So if we thought what the customer wants they are willing to pay the price, particularly the [indiscernible] who doesn't have much of a choice.

Okay. No, I guess, that is fine. And then can you just dig in a little bit more into your comments of the gross margin at Journeys, was flat this quarter given the strong comp and is it IMU, the mix not really promotional there, so what dynamics?

Yes, I mean the mix at Journeys changes from the season and the margins were strong and they continue to be strong.

They're strong last year, they're strong this year.

Yes, it's not a promotional quarter, it's not particularly a promotional quarter and Journeys have just a track record over the past several years of maintaining a strong gross margin and have done a good job of not really having to promote and so they are in great inventory position, their inventory is clean, they were actually low through the quarter and feel positive about the pace of sales.

Okay and then just last Bob I think it’s been a while since we’ve talked about an operating margin target. I think last summer is 9.5%, maybe 9, I might be wrong but just in terms of the pressure you’ve seen at Lids the last year so how do you view that going forward?

Yes, we still think that in the long run, Lids we’re doing this because we think Lids tracks still to a -- at least the high single digit operating margin. The wild card on that obviously is timing. How long does it take us to get there? As I think you know Scott, we work on a five year plan over the summer. We’re going to spend a lot of time looking at that and figuring out what the pattern looks like. It’s going to be multi-year in order to start trending in that direction. Some of the inventory fix is one where we’ve got a handle and I think we have better visible in the timing. Some of the weaker stores that we opened in the Locker Room group they’re going to take a little more time to rightsize. The good news is if you take say the 30 worse stores, I think it’s something like -- the number is something like in the mid-20s out of 30 stores. We have kick outs in the leases over the next three years. So over three year period we get to address another part of what the drag is on performance and either close those doors or work with the landlord to rightsize the rent, so that will take a little more time. We’ll have probably better perspective on that in the fall.

Okay. Thanks. Good luck.

Yes.

Next, we’ll hear from Steve Marotta with CL King & Associates.

Good morning, Bob and Mimi. Couple of very quick questions. First, you mentioned that the comp came in relatively inline with expectations in the first quarter, sales happen to have been a little bit below what consensus -- and my estimate. When you think about new store productivity did that change as the quarter progressed? I know that there are some issues of course with the Macy’s stores but did they perform even below expectations from the beginning of the quarter to the end of the quarter?

Our new store performance as we talked that in past conference calls have not been performing to our expectations within Lids. To our expectations in the quarter we performed about -- we have a good sense of where those levels are at this point and we didn’t experience any big gaps in our non-comp stores for the quarter.

Okay.

Yes, and just to be clear I want to make the distinction between Lids Locker Room and then the rest of our company, which would include Lids hat stores. Our new store performance throughout the rest of the business is pretty good and that’s why we’re opening 115 stores this year. It’s supported by the fact that the last wave of stores are giving us an adequate return. So it is very narrowly defined on the Macy’s and the de novo Locker Room stores that we opened where we’ve got the non-comp performance issues.

That’s helpful. Thank you. As it pertains specifically to the point in time during the year where you endeavored a new promotional strategy at Lids, I believe it was during the football season, would you say by October 1st so that all of the issues will be lapped by the fourth quarter or did you hold out on some of those promotions deeper into the season where it would not fully lap in the fourth quarter?

I know they will be fully lapped in the fourth quarter. What we did do in the fourth quarter, and we’ve called this out before is in recognition that we’ve got to be faster with our clearance cadence, we used the example of the NFL and we started taking marks on teams as they missed the play-offs as opposed to a practice of taking marks on football across the board at a certain date late in the season and we saw that, that was effective. We came out of the season cleaner on football than we had in previous years. But the actual attack mode on more aged goods that we felt that we needed to really aggressively get rid of went full force in the first quarter. The reason in the fourth quarter that we think we have an improvement opportunity on margin is simply because the fourth quarter business, and especially within Locker Room the full price business takes off, is a fourth quarter business. So we might continue to clear some aged goods in the fourth quarter but when you do a blended average you're going to be blending with a much, much higher level of full price sales. And that's the reason that we think that we ended up starting to see some moderation in the spread between this year and last year. Does that make sense to you?

It does, that’s helpful. Okay, one more quick question reading between the lines, I think I know the answer but just clearly delineated, would you say the competitive environment online for Lids was better or worse in Q1 versus Q4 or the same?

I'm just going to say it moves around so much it's hard to judge. I'm going to duck [ph] that, I don't really know, it's hard to judge.

Yes, I think everybody has to be pretty promotional in the fourth quarter as they just try to drive an e-commerce sale. But e-commerce online and it's all a pretty promotional activity.

Yes, you got a mix of stuff, what's the promotion, you got a lot of them are very hard to measure because it's the classic up to 30% off and unless you really go into the site and do a pretty vigorous analysis, up to 30% can be a huge promotion or it can be a non-event depending upon how many items you threw into the box, you know what I'm saying. And the other thing the other device when you're online, which is sort to unique to online is free shipping. So free shipping gives you a promotional posture that is a different kind of posture that you don’t really see in the store environment. And as you know free shipping becomes a more frequent promotion during fourth quarter.

Great, okay, that's helpful. Thank you very much.

And next we'll hear from Pam Quintiliano with SunTrust Robinson Humphrey.

Hey, thanks so much for taking my questions. I also have a few but I will try to keep it brief. So sorry if I missed it so it's point of clarification. When I think about long term pressure at Lids, is there any other to think about the composition of the product and is this just the new way you have to do business based on the competitive environment and the longer term margin profile has changed? Or does -- or do you just have some product that needs to be flushed through, you're done and then you take the learnings and you run the business more efficiently going forward?

Much more of the latter. Not to suggest that you're ever in retail out of a markdown cadence but we are in a much heavier markdown situation because we allowed some -- for a variety of reasons we allowed some older goods to linger, which in the headwear business was not anywhere near as risky as it is in the locker room business where it's a faster business. And then we had other things that we already called out. We had substantially lower performance in a number of our locker room stores, particularly the new ones. We had the Macy stores under performed and opened late, and you sort to roll up each of these items and you ended up with a chunk of inventory that required special treatment. So we're in special treatment territory and we're hopefully by next year in a markdown structure that is more in the ordinary course.

And I think the example that Bob talked about as the difference, Pam, where we took a lot of product out of the Lids headwear stores just to freshen them up during the course of the first quarter and we had negative comp in the stores. And really interestingly when we got that product out and made the stores easier to shop and delivered some fresh merchandise where you have seen both sales and margin improved. So that really is the idea for us to clear through the inventory that doesn’t need to be in the stores and for us to get on track to better sales and margin position.

And actually Pam, that's actually a great Genesco story because that pattern got demonstrated by Journeys, who have got much more aggressive in bringing out, taking out markdown goods and they could keep in the stores fresher and finding other vehicles for exiting the deeper markdown product.

Great, thanks for clarifying that. And then when you think about the tools you use for inventory management do those need to be updated, are you readdressing how you utilize the way you have just given the profile of your store base has changed so dramatically over the past several years and how we think about that, so you don’t necessarily get in the same situation again going forward?

Excellent question is the right question. We have a project going on that addresses that head on and so we expect that we will be working with a different set of process and procedures and a different goal post in terms of measuring when we need to take action. Obviously that will move towards doing things more quickly than we have in the past. And of course I am talking about Lids.

And the complexity I mean it is a problem that really becomes a great situation for us because there are 0.5 million SKUs to be managed within the Locker Room business and therefore that need for robust systems to be able to manage them effectively, we have been investing in and because of that complexity we think that over the longer term that it will be difficult to complete against us, who has gotten those systems and those processes down as well. So that’s an important point of focus for us and we’re spending a lot of time developing those refined systems and processes.

And even though, I think that’s ongoing adjustments with the business as you continue to grow, when I think about the stores and the inventories, when do you think there is more of a meaningful impact based on readjusting your approach?

Well, in terms of it being visible in the financial results next year. So the project we worked with, the project’s going on now. We have -- we are using some outside help. So we are bringing in people who have really been there, done that to help us get it right. We do have to clear through what we’ve got and that’s what’s going to be the pressure on this year’s profits. We hit our inventory target by the end of the year. That inventory number is still not quite where we need it to be, where we want to be in the long-term but it is close enough that we can then sort of ease our way to further improvement without a lot of pain. And from that point forward we should be operating in a model where we are persistently aggressive on attacking slower moving goods in a more timely way and that’s the key thing.

Great, and then turning quickly to Journeys, is there any way to think about the magnitude of what you have to pull forward and just ability to chase -- not asking what’s hot what’s not what you pull forward but just if the trends you are seeing continue to be doing very well for you, do you have the ability with some of those vendors to get more of those goods in?

Yeah, it’s dependent on whether the vendors got stuff in transit or sitting and really to roll and that varies. They obviously are chasing the hardest of stuff that’s got the biggest demand or where we feel like we are -- have an inventory opportunity. I am not going to tell you what that is. Journeys as you know because of their size can get vendors to be very reactive to their needs. And so they are doing what they can.

So, Pam I think a good example is to look at the comp from the fourth quarter that Journeys ability to deliver that 16% comp and meet that demand just gives you some insight into how thoughtful our vendors are about managing inventory. And so if they can get the product they do pull it forward and they jump on trends as fast as they see it.

Great and yes given the make of the product is little bit easier in the summer, obviously that also helps the situation. So and then just lastly, you mentioned in your comments about some mall traffic challenges. Just any updated thoughts that you have regarding health of your consumer as we think about Journeys and Lids, obviously we will bundle anywhere the differences in how they are shopping with online versus mall but just how you think they're feeling, gas prices macro and all of that stuff and if you're seeing any shifts in just their spending habits.

Well, Pam, the numbers speak for it right. We've had positive comps for our businesses and in the Lids case we're buying a little bit of that. So our general view is kind of what you read in the papers, what you read, is what you're seeing which is there are still maybe a disconnect between the level of consumer spending and what people are siding a stronger employment and other macro trends. And then obviously there is they're continuing shift to online from stores and when we're up this quarter, I mean like 27 online and three in the stores that's a big volume for what's going on.

Yes, it's interesting because all that's being done on down traffic. Pam, our belief is that consumers are doing their investigation and they're doing their research online which may reduce one or two trips to the mall. So there is impression that mall traffic is down, but interestingly with the traffic counters that we have put into the Journey stores, we are able to see that traffic is declining on a year-over-year basis, our conversion rates are improving and importantly our dollars per transaction are improving as well, as we're focusing on selling the skill and making sure that we optimize all the traffic that walks in the door. So while there are maybe fewer trips to the mall the intent here is to maximize every customer who comes across our door.

Excellent, best of luck, guys.

Thank you.

And next we'll hear from Jill Nelson with Johnson Rice.

Good morning guys. Just two quick ones. I believe last call you talked about you're going to be working with some vendors in efforts to ease some pricing pressure at the Lids. Could you just address that, how that's conversation are going if you are getting any traction there?

Sorry, Jill you have to help me a little more on that.

I mean you just -- you had referred to kind of the online pricing pressure last quarter, but you did say that you are in efforts one way to mitigate that pressure you're going to talk -- be in discussions with vendors to try to put some more controls out on the pricing across the market and have you?

Yes, it's a simply put it’s a never ending battle. We need to get, I now we remember what you're talking about, this is online and we're -- we need to get our vendors to be as attentive to distribution online as they have been historically in the stores. And there are certain vendors who do that are as good online as elsewhere. I think we've been raising the conversation -- the volume on the conversation and I think we can see it's having a little bit of impact. But as we say in sports it's sort of three, right now it's three yards and a cloud of dust.

Got it, and then just trying to parse through the difference between the big advantage between the Lids Store growth as well as e-commerce, but I know a big part of that is just the commercial activity you're doing online but if you could maybe -- are you seeing a different customer or maybe a different products selling better online versus store, and just trying to parse through that variance. Appreciate it.

Well, I mean two things going on. One, we have discovered that e-commerce is an excellent clearance vehicle, especially for the most distressed goods, that have taken the highest marks. And so we're operating it that way and we get a lot of people coming in and buy in multiples. The big theme in sports is that what happens in the stores is you get mostly the local customer and we are merchandised for that with local teams and then online tilts very heavily towards the displaced fan who is the person who is not living in a zip code where that team plays and so their only alternative in most instances is to go online and buy the product and that's probably the biggest distinction.

Okay, thank you.

Thanks.

And our next question comes from Samuel Poser with Sterne Agee & Leach.

Hi it's Ben Shamsian for Sam. Thanks for taking my questions. Bob, for you, help us understand the competency or value add that Genesco could give to Lids, and ultimately why wouldn’t shareholder capital be better served in a footwear business which you’ve proven to be successful?

Well, as you know we’ve run the businesses fairly independently and so I am not sure that capital from shareholders in Lids is not a good investment. We wouldn’t be doing it if it wasn’t. We’ve already articulated the strategic pieces of why we think that’s true. And so we don’t think of it as a trade-off between footwear or Lids. We take each opportunity individually and we believe what we’re building at Lids, it has a great long-term return potential for shareholders.

Got it. Okay. And then just on Schuh, without mentioning specific brands, I just want to understand the de-coupling on the category side if there is any, if there any categories that are performing well in Journeys but not at Schuh or vice versa and how can we think about that? I don’t need to know the brands specifically?

Not bad, it’s actually brand specific. So it isn’t as much categories as it is brands. So I’m afraid I can’t be very helpful to you, I am sorry.

Okay. And then for you Mimi, the labor test you talked with Journeys, what’s the timing of those results and have you quantified the magnitude that if you do need to raise wages how much would that be and the timing of that, that will be helpful.

Yes. So what we’re doing is in Journeys are specifically testing to see whether or not increasing wages would reduce turnover at the Assistant Manager level and the idea there is that in the short-term we would face some wage pressure as we increased wages but that over the longer-term that, that should pay off by reducing turnover. We’re in the middle of testing if we roll something out it will be in the back half of the year, and our quantification of what that is will be based on the outcome of those tests. So we will keep you posted as to how those go but we just wanted to make you all aware of the fact that was going on and that might be a decision we make through back half of the year.

So just to understand if the tests does prove right and you do make the decision it’s likely going to have a negative effect at least in the back half of this year?

If we make the decision then to increase wages then that is something that takes place right away. We’re able to better leverage our store wages with the volumes in the third and fourth quarter. So as we get the results of these tests we will roll it into what our outlook is, but we wanted you all to be aware of it so that you didn’t have a surprise as we announced them.

But to be clear the test is not just whether we lower turnover, it’s whether lower turnover drives more conversion. What we are trying to do is have a situation we have more experienced people who are going to have -- provide better service, get better close rates and that translates in the top line. We’re not just trying to add expense.

No. I understand. I am just looking just from a modeling and how can we think about earning standpoint in the next two or three quarters and that could possibly be in the unforeseen hit to the bottom line. Okay, that was it. I appreciate it. Thank you.

Thank you.

And next we’ll hear from Chris Svezia with Susquehanna Financial Group.

Hey, good morning everyone. Thanks for taking all the questions. Just when you think there are no more I have a couple. But I guess Mimi for you just to clarify an earlier question regarding second quarter, as you indicate that potentially second quarter earnings in terms of decline to be worse than the first quarter, down 36 or did you not say that specifically?

No, the first quarter was down 37%. We expect the second quarter to be down significantly, not as much as 37%.

Okay. That’s helpful. Journeys, given the investments you’re making labor et cetera the leverage point for that division, from a comp perspective is now what is it, six? I am just trying to get what you need to do in order to get to that leverage point for the Journeys division?

No, I think that the -- how you have to think about that is that we are making investments in the e-commerce channel and we are making investment in -- and then we continue to operate our store network. And the store network has a high fixed cost base and we continue to believe that we can leverage, given no other pressures at Journeys at about that 3% level of comps and we have been doing some more investment recently in our ShopperTrak and in the catalogs to drive traffic to the store. But those are productive investments that will drive top line. And so I don't know, that's the profile within the stores of the comp we need to be able to leverage of stores have changed that much from the timing of the individual investments that we're making.

Okay. But it’s fair to say this year, it grinds a little bit higher into that 5-ish level, again that's what I'm trying to ask?

This year, what we've been facing is we were facing some minimum wage pressure across the board. I mean every retailer these days are talking about wage pressure and increasing wages and even McDonalds is talking about increasing wages and so that’s some of the pressure that we're seeing that will add to the pressure for store comps, that’s just a phenomenon of late.

Okay. Bob for you, when you step back and look at the guidance that you gave, the revised guidance and we kind of know where the trend line has been going in terms of the revisions that we've seen multiple quarters in a row. What do you -- when you look at it at this point, when you went back to everyone from a divisional perspective, do you feel like the level that you've given is appropriate? I know it's difficult to gage how everything’s going to play out, but if you kind of set the parameters by that, it really has to get nasty in order for you guys to have to revise again. I'm just trying to understand, what can make it much worse, what can make it maybe better and just your thought process around that.

It's a very fair question. We have done a ton of analysis in making sure that operation-by-operation that we have kind of tried to weave in what we think is conservative scenarios and protecting against the things that can happen. We are trying to be conservative and I will fully admit that that's the speech we gave you three months ago. So in some way the emperor has no clothes, but I think I got dressed today. So we're hoping we're there, we're hoping we've found the bottom. I will tell you we tilted to be conservative because of that. If you ask a question what could change, obviously the big thing is macro. So if the industry gets more challenged and we ride that wave down that would probably be the thing that I would -- if you said three months from now you're questioning your guidance again, what happened and I had to guess right now what happened, what happened I think would be macro.

So it'll be more macro than business, brand, more promotional stuff…

Yes, I can't think of anything in our business that we haven't sort of taken into account, that would be a factor that would be a bust over the next three months. But again we've been trying to do that and we've been getting surprised. So hopefully we've found the bottom.

Okay. Last thing, just not to beat this to death, but on the license business when you parcel between the different categories, NFL, NBA, NHL, MLB, where if anything is either the biggest pressure, need to resize the inventory whatever? I mean I understand that yes, some other players have indicated across the board that the category has been difficult. I think it is to a degree because it is not a fashion business, but where is the biggest pressure point, where do you feel like you've made the most progress, just kind of maybe walk through that, if you could.

Well, look it's -- the biggest issues are in the biggest categories, right. So our biggest categories are MLB by far, particularly the hat business and then the NFL. So everything is scaled proportionate to the size of the business that we do. I think we probably have a little less exposure in MLB because for us, MLB functions the closest to a 12 month business because you've got the MLB season that kicks in April. World Series is in October and then you're a month away from Black Friday. And so you get another opportunity to do MLB business. So I'd say that's probably the least exposed and then the rest is proportionate to the size of the business. The other thing just to make -- be clear is, it's heavily on the fashion and we had a lot of basics in our business and our basics is fine and we're feeling like as soon as we get the fashion site cleaned up we're in good shape. We will just maintain a faster cadence on fashion.

Okay. All right. All the best. Appreciate it. Thanks.

Thank you.

Thank you, everybody for joining us and we look forward to having a chat in roughly three months. See you all.