Good day, everyone, and welcome to the Genesco Second Quarter Fiscal 2021 Conference Call. Just a reminder, today's call is being recorded. I will now turn the call over to David Slater, Vice President of FP&A and Investor Relations. Thank you. Please, go ahead.

Good morning, everyone, and thank you for joining us to discuss our second quarter fiscal 2021 results. With me on the call today are Mimi Vaughn, our Board Chair, President and Chief Executive Officer; and Mel Tucker, our Chief Financial Officer. 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 the company's SEC filings, including the most recent 10-K and 10-Q filings for some of the factors, including the impact of COVID-19 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 and the attachments to this morning's press release and in schedules available on the company's homepage under Investor Relations in the quarterly earnings section. I want to remind everyone, we have posted a presentation summarizing our results that is accessible on our website. We hope you’re all staying safe and healthy. Now, I'd like to turn it over to Mimi to discuss the quarter, highlight the progress we're making on select strategic initiatives.

Thanks, Dave. Good morning, everyone. Thank you for joining us today. As we navigate through one of the more challenging retail environments in history, I want to begin by acknowledging the tremendous effort from our employees. The Genesco team has shown great ingenuity and resilience throughout the past several months, as we’ve tackled a myriad of new challenges brought on by the pandemic. I'm extremely proud of how our organization has executed during this incredibly fluid situation. Our company began the year with positive momentum and from a position of strength, following 11 consecutive quarters of comp sales growth. Regardless of the near-term volatility we're experiencing now, and are likely to experience in the coming months with the pandemic, we remained confident in the strong strategic positioning of our businesses for the longer term. With respect to the second quarter, fluid is a good way to describe how recent events unfolded. The quarter began with positive momentum from pent-up demand and government stimulus, as customers enthusiastically return to our stores when we reopened and continued to actively engage and shop with us online. The significant undertaking of reopening brick-and-mortar locations require bringing back necessary staff to first reconfigure our stores, and then to operate them under the new protocols to ensure our highest priority, the health and safety of our people and customers. The speed and executional excellence our teams demonstrated in getting our stores open and operational was a huge advantage, as we often opened on the first day permitted by local authorities. In July, towards the end of the quarter, after this very positive start, our business in North America business was impacted by the resurgence of the virus across the country and its negative impact on store traffic, and by the back-to-school season that hasn't yet materialized,…

Thank you, Mimi, and good morning, everyone. Turning to results for the second quarter. Even with robust e-commerce sales, overall revenue was down from store closures and store opening results. Gross margin was pressured by higher shipping costs from strong digital sales, inventory reserves at J&M and promotional activity at Schuh, offset partially by disciplined expense management that reduced SG&A cost in line with the decline in revenue. While the drop in revenue and earnings improved from last quarter's levels, adjusted loss from continuing operations was $17 million or $1.23 per share, compared to last year's adjusted earnings from continuing operations of $2 million or $0.15 per share. For the second quarter, ending cash was $299 million with borrowings of $211 million for a net cash position of $88 million. We entered the second quarter with $239 million of cash. And during the quarter, operations generated $74 million, while we spent $4 million on capital projects, paid down $14 million in borrowings and generated $4 million from other activities for plus $60 million in total. During the quarter, we also paid a large majority of vendor invoices that had been extended in reaction to the pandemic, but we have outstanding rent payables as we are in active negotiations with some of our landlords. As the business environment continues to evolve, we remain focused on cash preservation. We are actively modeling multiple potential scenarios. And even in our worst-case scenario, we should have adequate liquidity to navigate our way through the choppy waters. Turning to the specifics for the second quarter. Consolidated revenue was $391 million, down 20% compared to last year, driven by store closures, a later start to back-to-school and lower wholesale revenue. E-commerce delivered an impressive 144% comp, which was offset by a decline in store revenue of…

[Operator Instructions] Our first question is coming from Janine Stichter of Jefferies. Please go ahead.

Hi, good morning everyone. Thanks for taking my questions. I wanted to ask a little bit more about back-to-school and what you're seeing regionally? I guess, talk us through some of what you're seeing in terms of how can we get comfort around the idea that this might be more a shift in spend later in the season than a complete lack of back-to-school spend? And just talk through some of the details that you're seeing regionally around that? Thank you.

Good morning, Janine. Yes, back-to-school is certainly very different this year. And for us, it's meaningful in the second quarter, but it's even more meaningful in the third quarter. And so what's happening this year is, as we've said in our remarks is that up to 2/3 are going back virtually. And so if you think about that, that means only 1/3 are going back in-person to start and this is the big deal. And if those going back in person, we estimate that a little over 70% have already gone back. That's later than usual. So there's no question that kids are going back later. But if you think about it net-net, only about 1/4 or a little bit more of our country's kids have gone back in the way that they typically do. And so what we have seen is, during the peak period that was the toughest comparison for us. We had tax freeze during that time, and the tax freeze were not effective. They typically stimulate sales. But, I think, parents were sitting on the sidelines just waiting to see. There was a lot of uncertainty about when and how kids are going to be going back. So the last two weeks have gotten better. We actually have 20 states that are positive, and there's a pretty high correlation between the states that have gone back in-person and more robust sales. Plus, more kids are going back after Labor Day than usual. You may have seen that New York City said that it's going to be September 21. So we will see more volume in September than we typically do, because of the delays. And you take the current trend, which has been better and you run this out, and that means that we'll get in the neighborhood of about half of the back-to-school volume that we typically get. The big wildcard is whether the schools that have gone back virtually will eventually shift back to in-person. And there's lots of appetite for parents to get kids into school, especially younger kids, because they don't want kids falling behind. So that could extend back-to-school into October. I think the bottom line is that there are a substantial number of kids who’ve not gone back points to potential opportunity for us ahead.

Okay, great. Thank you. And then just maybe a follow up on that. Any color on how you're planning holiday in terms of timing? We've heard some companies saying they may start holiday marketing as early as October, which would seem that we might just wrap up back-to-school and go straight into holiday this year?

Yes, that's true. I think that the October time frame is what lots of folks have been talking about, and we anticipate that the e-commerce volume will be larger this year than it ever has been before. And I think a lot of retailers are going to be trying to induce customers to get their shopping earlier to accommodate those peaks. So the consumer has been holding up well in the U.S. and the U.K., just judging from the retail sales that we've seen so far, and additional government stimulus would help us. There's a lot of evidence that the U.S. consumer has been saving, and not spending. So we think that there will be income available for holiday spending. The fourth quarter and holiday is typically a time when we over index, especially for Journeys. If you look at our stack comps over the past many years, it's been strongest in Q4. The boot season in footwear for teens is a big gift-giving item. We had solid boot seasons for Journeys and Schuh last year, and it's given us some good reads on what would work this year. And if back-to-school is less robust than it typically is, than that may leave some pent-up demand for holidays. So net-net, we're planning conservatively, but we also know that fourth quarter is an opportunity for us to really do some business.

Great. Thank you.

Thank you. Our next question is coming from Jonathan Komp of Robert W. Baird. Please go ahead.

Yes. Hi. Thank you. I wanted to just first ask about inventory and how you're planning and especially for Journeys, specifically. Given the reduction that you reported, how are you planning -- looking into the second half here? And any additional color on how you're concentrating the makeup of the inventory around brands or trends that you're seeing? And any differences than we might typically think of?

Sure, Jon. Let me start and give some color, and then I'll hand it to Mel to give a bit more. We had robust demand when we were closed in our stores, online, and then when we reopened for Journeys and for Schuh, which depleted our inventory pretty significantly. We cut orders for the back half when the pandemic first started, so we really have been in inventory chase mode. And part of the thinking around reducing inventory was to focus on core styles and core products that we know would sell. And just given some of the results from reopening, we feel really good about what our assortments contain, and their -- the degree to which they're resonating with consumers. And so we have leaned into those assortments for holiday. We are sticking to the core products that we think will sell well. On balance, we will be chasing into inventory, but our inventory is really clean right now. And so that positions us nicely as we go into holiday. And Mel, I don't know if you'd add more to that?

Yeah. I mean, I think you just -- you touched on it pretty well, Mimi. I mean, with Journeys and Schuh, we were able to quickly reduce inventory. And I think we have the ability to flex up and down with sales. So with overall inventory in line with sales with those two businesses, we've been able to react quickly and chase product when needed, and we have mainly core products. The area where there's a little bit of challenges are at J&M. It's historically our lowest turning business. And they're going to need some time to align their inventory levels to the rate of sale. We're below last year for the quarter, but we expect through the third and fourth quarters that we'll probably run a little bit above last year. But we've taken the appropriate write-downs in terms of the inventory. We chose not to liquidate, but rather to carry it through so that we can sell it next year because it's good quality product, not requiring more than the reserves that we've booked already. We are starting to see a little bit of pickup in the wholesale channels, in the off-price and the family footwear channels. They're coming back online a little bit more quickly than department stores. And as a consequence, licensed brands is starting to benefit from that. In J&M, they are starting to see some wholesale accounts place orders. So I expect that we'll probably have some challenges there, but I think we've appropriately reserved for it. And I think all the divisions are on the side of trying to chase inventory. For the quarter, we're going to build inventories. It's our highest inventory period of the year. But all-in-all, I think that we're in a pretty good shape as it relates to inventory.

Okay, great. And then just on the SG&A reduction in the second half that you're expecting, especially with most of the stores backed out. Can you just share more color on the drivers that you see? And then, within that, how much might be considered more unique or more one-time factors in the second half versus savings that might continue into next year?

So just as we look at where we're getting our biggest savings, there's going to be about 4% of our stores right now are closed, so we're going to continue to benefit from that. A lot of these are one-timers. So for example, in the U.K., the property tax relief goes through this year. But on the occupancy line, which is our biggest cost line, we've been doing a lot to negotiate lower rents, trying to push for percentage rent deals where appropriate. So hopefully, we'll get some movement there. I expect there's going to be quite a few rent abatement deals that get papered in the third quarter. I'm not sure how that will extend into the fourth quarter. Selling salaries in the back half, we'll continue to benefit from reduced mall hours. We're operating under less hours in a lot of our stores right now, and that certainly – it reduces payroll costs, increases productivity. So that's certainly a plus. And as we're experiencing a new norm, clearly, we've learned how to communicate and operate and not travel as much, so I think travel continues to be a benefit. I think one of the things that we're going to have to do is we're going to have to really look at how do we align our expenses once we determine what the new normal is on the revenue line, and we're still trying to figure out how we normalize going forward. But I think that, by and large, the teams have been very focused on making sure that what we're spending is required and discretionary spend is not really happening.

Okay. That’s all really helpful. Thank you.

Thank you. Our next question is coming from Mitch Kummetz of Pivotal Research. Please go ahead.

Yes. Thanks for taking my questions. I guess, I've got a few, and let me get my back-to-school question out of the way first. So Mel, when you talk about kind of your outlook for Q3 that sales would be down less than they were in Q2 if you see continued improvement in the back-to-school situation. What exactly does that mean, kind of in terms of your thoughts around sort of in-person versus virtual learning? I think you guys said that two-thirds right now are virtual. So are you assuming to kind of get that continued improvement that more kids are going back in-person, or is that virtual percent stay the same? It's just that you're catching up as more kids are back in school, even if they are virtual? I'm just trying to understand kind of the dynamics around that in terms of what's assumed for that guidance.

Yes. Mitch, let me start and give some color, and then let Mel chime in as well. But as we have observed back-to-school, all that we are counting is those kids that we know, who will be going back in-person. Now we know that it's more than just stay in-person kid who has been shopping, we can tell that because our – if a third are going back in-person, we expect to realize more than a third of our typical back-to-school sales. But definitely for those virtual learners, a lot of parents, I absolutely assume, including me, are not – we're not buying at the same levels, because we're waiting and conserving our dollars with the idea that our kids will go back, and they're going to want to have new shoes and new backpacks to where when they do, in fact, go to school. So the way we have thought about the additional back-to-school revenue that we would pick up is just a continuation of these current trends. It's not betting on whether kids, who are learning virtually, are going to go back in person. If that is the case, if a number of kids, and a lot of schools have been saying, 'Hey, may be after Labor Day, which we're on Labor Day, some schools recently have said that we're going to try for after fall breaks, which are in early October.' If more kids do end up going back-to-school, and that's upside to what we have built into our outlook.

Got it.

And I would just add just to that, just briefly, that we still have the headwind of 4% of our stores currently aren't open. And if you look at – we were 20% down in sales for Q2, I don't think we're going to be able to cut that in half, but I think that we'll probably be able to reduce it to between 10% and 20% down for Q3.

Got it. And then Mimi you mentioned that the Q2 got off to a good start because of stimulus and pent-up demand, some of that's kind of worn-off. And then also you talked about some of the COVID spikes that happened in July, and I think the rates there have gotten better. So I don't know how difficult it is to sort of parse these things out, especially in a weird back-to-school season. But could you maybe speak to stimulus and pent-up demand? And kind of maybe some improving COVID rates? And how you see that sort of impacting your business of late? And then I guess, I've got one last one.

Sure. So let me just start with just the trends that we observed. Look, there's no question, Journeys was our early read because they got out of the gate, we opened up the most quickly. Customers were just so excited to get back into Journeys stores and we have the right assortment to fit their needs. And yes, pent-up demand helped and stimulus money helped, but the assortment was certainly one of the main drivers of that demand. And it was right as we got into July and we tracked it pretty closely to measure the increase in COVID rates. And we saw an impact on our business, but it wasn't nearly as pronounced as the back-to-school impact. Back-to-school is just significant for us. At the end of the second quarter, it's really the last half of July, with the last week of July being the biggest, and then into August. And so when I just think about the impact on the Journeys business, it's been mostly back-to-school, which we believe is delayed in part and may have future opportunity with kids coming back from virtual learning and to a much lesser extent, the impact of COVID. And my sense is that consumers are learning to live with COVID. They're figuring out how to navigate daily life and we've learned so much about the disease, that there's going to be some more willingness for your average consumer to get out and go shopping because they believe that they can manage against COVID. So I expect that COVID is going to become less of an issue as we get into the back part of the year. Certainly, there are going to be some consumers who are going to vote to shop online. We expect our online business will continue to flourish through the back part of the year. But net-net, I'd say that the impact of back-to-school has been far more pronounced than COVID.

And I guess my last question, you made some comments about improving e-com profitability. I mean, obviously, when we kind of look at the P&L in the quarter, the outpaced e-comm growth put pressure on the gross margin line from shipping. I don't know don't know that, that goes away with improving profitability. So is it just – what improves as that business that business scales? I mean, where are their fixed costs or how do we think about the impact on the margins of improving e-commerce business or e-commerce profitability as e-commerce grows as a percentage of the business? I'm just trying to kind of reconcile all of that.

Yes, sure. So unlike some other retailers, we have always operated our e-comm business to be profitable. You can push the pedal on marketing expense to the point where you're not getting a return and you're just building market share, but not necessarily profitable market share. And we've always kept in mind the need for the balance to build profitable e-commerce volume. And so we started in a position of profitability. We actually have reasonably solid gross margins. It's just that there's a more variable portion of expenses when you consider the e-com channel. And so, the more we sell, the more we have expense added into the gross margin line, which makes it more variable, but the SG&A expense is amortized over a broader base of volume. And so, that's really what we've been seeing. And we saw a pretty strong pickup in contribution from e-commerce dollars during the course of the quarter. In fact, e-commerce dollars tripled. And it's mostly because of gross margins on an apples-to-apples basis, hanging in there, but then great amortization of some of the investments and the fixed expenses that we have. So just to put a lens on how we think about e-commerce volume, we welcome e-commerce volume, all the e-commerce volume we can get. If we don't get positive comps in stores, we deleverage on the fixed expenses there. So that really is -- we view the channels as separate channels, and the need to either be able to right-size the cost structure on the store side or to continue to drive traffic and sales into that channel, so that we don't deleverage on the fixed expense base over there.

Got it. Right. Thanks and good luck.

Thank you.

Thank you. Our next question is coming from Sam Poser of Susquehanna. Please, go ahead.

Good morning, everybody. Thank you so much for taking my questions. Could you tell us what the e-commerce growth was by -- or lack thereof, by banner? You mentioned the triple digits at Schuh. But could you tell us about the other businesses as well, please?

Sure. So e-com tripled at Schuh. E-com also tripled at Journeys, when you see the 144% rate of growth. Johnston & Murphy also grew, but it was at a lower rate than the other two businesses. And so that brought the average down to the 144%. I think there was just a lot of appetite to shop online. We saw a 50% increase in traffic to online. We saw just phenomenal conversion rates. There was a high intent to convert. We were very pleased with the number of new customers who showed up online. Our growth of new customers outstripped our growth of additional traffic to the site. So that was a really good sign, and we have an opportunity to capture those new customers and sell to them going forward.

And that's a good segue. I have a whole bunch of questions, but that's a good segue on my second one. What -- how many of these new customers were new to the website? And then how many of them were new to Journeys, new to Schuh, new to Johnson & Murphy, in their entirety as far as your data goes?

Yes. So we definitely were converting some of the customers who typically shop in stores to shopping online. And that's a positive, because you've seen the data Sam that your best customers shop you in multiple channels. Far more of our new customers were truly new to Journeys, new to Schuh, in particular, Schuh. Schuh saw the biggest rate of growth. The Journeys' rate of growth was also quite positive. So by far, it was customers that we haven't seen before, either in our stores or online, and they were attracted to the assortment that we were offering. And as I said, comfort and casual is a sign of the times. And so Journeys and Schuh were well-positioned, not only for the teen customer base that they serve and the young adult customer base, but my sense is that we may have attracted a broader set of those consumers and perhaps others who were attracted to the product mix.

Great. Thank you. And then I'll ask you my mobile app question. Where are you working on that now? And given the, kind of, scale and given some of the results we're hearing from other people that are driving a lot of business or a lot of interactions through their mobile apps, is that something that you're advancing right now?

Yeah. So early on, and I'll talk about Schuh, several years ago, actually, Schuh had launched a mobile app. And we found that the consumer is -- has a higher propensity to use mobile apps for purchases that they do frequently. And so we felt like, yes, consumers downloaded the mobile app, but didn't engage. The world has changed a lot since then, and a mobile app certainly is something that others have found to really help drive their business. I describe that as a bit of icing on the cake, where you are -- you've got robust customer information, and we've got robust customer information. We're working our CRM initiatives really hard to drive further insight about our consumers and also to be able to market to those consumers in a way that's personal to them. And then a mobile app makes sense in the context of building the customer information, building the data and giving customers a way to interact with your brand through social, through the mobile app and certainly through the website, which has been the -- our consumers' choice to come shop with us.

Thank you. At this time, I'd like to turn the floor back over to Ms. Vaughn for closing comments.

Great. Well, thank you for joining us today, and we look forward to speaking with you on our next call, when we talk about Q3 results.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and have a wonderful day.