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

Good morning, everyone, and thank you for joining us to discuss our third quarter fiscal 2021 results. With me on the call today is Mimi Vaughn, our Board Chair, President and Chief Executive 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 in the attachments to this morning's press release and in the 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 and current outlook for the holiday season.

Thank you, Dave. Good morning, everyone. Thanks for joining us today. As we announced earlier this week, we are pleased to report that Tom George has been appointed Interim Chief Financial Officer of Genesco, replacing Mel Tucker who stepped down last month. Tom has almost 30 years of CFO experience and deep roots in brands and retail, most recently in footwear at Deckers Brands. We look forward to adding Tom’s valuable expertise to support the continued growth of our business and very much look forward to Tom joining our leadership team. Tom’s appointment is effective December 14th and in the interim I have assumed the responsibilities of Chief Financial Officer working closely with Dave, Brent Baxter, our Chief Accounting Officer, and Matt Johnson, our Treasurer, who together have formed the office of the CFO. These leaders and the rest of our talented finance team are ensuring that the transition will be seamless. Dave will return later in the call to review the financials. I’m incredibly pleased with how well our organization performed during the third quarter, as we navigated through a back-to-school season, like none other. It's a privilege to lead a team that is facing the challenges brought by COVID-19 head-on, serving our consumers extremely well through digital and omnichannel, making progress on our strategic initiatives and quickly returning the company to profitability. Through all this, we continue to operate with protocols to ensure our highest priority, the health and safety of our people and customers. As you'll hear today, Journeys and Schuh, our businesses serving teens and young adults that represent a large majority of our revenue, have both performed well under recent pressure. This speaks to the strong strategic market positions both concepts have built over time and their ability to capitalize on the accelerated shift to…

Thank you, Mimi. We were very pleased under the circumstances with our performance in Q3 and the return to profitability against the backdrop of the pandemic. Q3 sequential improvement compared to the prior 2 quarters in both revenue and gross margin, along with a lower tax rate and a small pickup in SG&A, drove results back to nicely positive levels with adjusted EPS of $0.85 compared to $1.33 last year. For the third quarter, ending cash was $115 million, with borrowings of $33 million for a net cash position of $82 million. Just a little below second quarter's levels. We ended the quarter with $299 million of cash. And during the quarter, operations generated $5 million while we spent $8 million on capital projects and paid down $178 million in borrowings, using $184 million in total. In addition, we continue to have outstanding rent payables as we remain in active negotiations with a number of our landlords. While the business environment continues to be fluid, we are confident we have adequate liquidity to navigate these challenging times and decided to pay down the majority of our revolver balances in both North America and UK during the quarter. As a reminder, early this year, we increased our North American ABL borrowing capacity to $350 million. And in Q3, we secured a new GBP19 million UK facility replacing and expiring one. Turning to the specifics of the quarter. Consolidated revenue was $479 million, down 11% compared to last year, driven by a lower back-to-school revenue, continued pressure at J&M and the impact from store closures during the quarter. Robust e-commerce comp of 62% was offset by a decline in store revenue of 22%, driven by a comp decline of 18%, while our stores were closed for 5% of the possible operating days…

[Operator Instructions] Our first question comes from the line of Steve Marotta with CL King.

Congratulations on the perfect execution in the third quarter. I've got a couple of questions. And you've probably already incorporated this into what was the cursory fourth quarter guidance. But as far as increased shipping costs go during these peak weeks, can you talk a little bit about how that's affecting the margin, if you could potentially quantify that? Or maybe you're avoiding it in some fashion. If you could talk to that cost specifically, that would be helpful.

Yes. Let me sort of just start talking about our overall relationship because we spent a lot of time focused on making sure that we could not only have enough shipping capacity. I know there's been a lot of conversation out there about various retailers hitting capacity limits. But we work with Federal Express, and we actually changed over to a Federal Express relationship a number of years ago. And it's been really positive. We are not concerned about hitting any caps. We indicated what volume we thought we would hit early -- very early in the fall. And so far we've been executing well against that. And certainly, we do have more shipping expense within our P&L because our digital penetration is so high. But part of what we are seeing is that we are increasingly more profitable because we're amortizing the fixed expenses of digital. If we look at our last quarter, we more than doubled our e-commerce profitability because of that. And so we were in the good position to have the operating positive e-commerce economics prior to the pandemic and what the pandemic has done has only enhanced our ability to gain profits out of this channel. Dave, I don't know if you'd add anything to that.

Yes. I would say that, Steve, we're not likely to quantify the impact -- the expected impact in Q4, but that is definitely something that will pressure our margin rate as we head into the holiday season.

Yes. It was 50 basis points in the third quarter. So we'll expect that it's -- the penetration quite be as high in the fourth quarter because penetration is usually higher anyway.

That's very helpful. Looking ahead to the next back-to-school season, you mentioned currently that comfort and casual are working well, that is a huge surprise. Given how different this season is, is it possible -- you don't have to tell me what they are, but is it possible to glean any changes or potential future changes in consumer fashion preferences that can be applied to next year and next back-to-school season? Or is there so much noise that it's simply impossible?

Well, there's definitely a lot of noise, and I think that that's going to be the case for some time to come. I talked a bit about it in our prepared remarks that our teen is known for going through fashion cycles. And over the years, we've talked about lots of different fashion cycles from surf to skate to more gothic to you name it. And teens are constantly seeking something new. Our latest cycle that we've been talking about has been the retro athletic cycle, and that's been a terrific cycle because there are lots of brands that have fantastic silhouettes in their portfolios that they've been able to pull out. We saw earlier this year a bigger shift into casual and we really define our world in terms of fashion athletic and casual. And this year, we saw that sandals were really popular. Our kids are always wearing fashion athletic shoes. But the pandemic steered everybody to wear comfort and our teens found lots of nice products within the casual side of our assortment. We saw that not only in the summer, but we saw early boot sales in the fall. And so the combination of sandals and boots has put our casual as a percentage of our overall business at a much higher level. And so will that stick? We'll see. But typically, our teen consumers jumps on a trend, stays on that trend for a bit. And we typically have a fairly good sense as to opportunity and upside. And we see that we've got some nice upside in that casual trend. Journeys and Schuh are both uniquely positioned among competition out there. We're in a great position where we can offer both fashion athletic and casual, and we will move toward whatever brands are most popular with our kids.

Next question is from the line of Janine Stichter with Jefferies.

I wanted to ask a little bit more about digital. Maybe talk a little bit about some of the omnichannel investments you've been making over the years, and how those stand to benefit you for holiday? And then if you could just remind us by brand where your digital penetration fits and where you see the most opportunity?

Great. So we've had a lot of success with our digital strategy this year. Last quarter, we were up 144%. This quarter, we were up over 60%. Over the last many years, we've been growing at a 15% rate. But last year, we said we have an intent to grow digital even to a greater level, and we're growing at a 20% rate. So we've invested across a number of areas. It's not just the front end systems, but it's really important to be able to have the right tools to drive traffic and to encourage conversion. It's important to be investing in the infrastructure, in the order management systems. I talked a little bit about the upgrade we did to our inventory locating systems. It's important to be investing within our distribution centers, and we've made quite significant investments over the last few years in both the Journeys and Schuh's distribution centers. We put in a bespoke e-commerce picking module into Journeys last year. We will be putting in another bespoke -- another one of those modules in the coming year. We're going to actually start work on that early in our next fiscal year. And so you roll all of that -- and payment is another place. Payment is another opportunity. So it's no one thing. It's no one silver bullet that allows digital to be successful, but it's investment across all of those areas, and our teams have been focused on each one of those. Our digital penetration by brand is the highest at Schuh pre-pandemic, and it's important to talk about pre-pandemic because the pandemic has made comparisons challenging with opening and store closings. But pre-pandemic, Schuh's digital penetration was over 25%. And this last quarter, digital was almost 50% of their business with stores -- with some stores closed, followed by Johnston & Murphy. The Johnson & Murphy customer likes shopping online, likes taking advantage of perhaps not having to go into a retail venue. And then Journeys follows up after that. And I think that perhaps we've seen just -- we've seen high-growth rates of new customers in both Journeys and Schuh throughout the pandemic. I think there is likely the largest opportunity in those businesses.

Our next question is from the line of Jonathan Komp with Baird.

First, I just want to ask about the fourth quarter and the commentary you gave. When we think about the trends to-date in November being in line with your expectations, is that signaling you're projecting forward a similar trend that you've seen in terms of top-line growth? Or are you expecting to change during the balance of the quarter?

Yes. So Jon, we talked a bit about this, but what we have been seeing is an unusual set of behavior. In the back-to-school time period, we typically have spikes early on during back-to-school. And then it trails off in September. We didn't see those spikes this year, but we saw really nice spikes in September and into October. We have also been seeing the consumer choosing to shop during the week and more so than on the weekend. And so what we saw -- and what we saw over Black Friday is that consumers shopped a lot in the week prior to Black Friday. The traffic overall was more subdued, and it was more subdued both in stores and then even on Cyber Monday because there had been so much shopping pulled earlier and pulled forward. And we expect that that's going to happen through the course of the holiday season. And so we have a number of really peak days such as the Saturday before Christmas, Black Friday is typically one of them. And what we expect to see is something similar to what we saw at back-to-school where the peaks are not quite as high, but that the valley is get filled in. And so we are expecting -- we added all of that up together. And in our forecast said that let's take a little bit off the peak, so let's fill in some of the valleys and came up with something that was fairly similar to where we had been in the third quarter with hopefully more of our stores staying open. I think one of the key things to point out is that it's going to be more online-oriented, and we expect that volumes are going to build in stores as we get closer to Christmas. And so if consumers shop more robustly during those peaks, then it will be higher than what we have laid out. But if the peaks are more subdued as we're expecting, and that's where we think we will end up. Dave, would you add anything to that?

Yes. As Mimi indicated, November came in pretty close to where we thought it would be, and that included the impact of the COVID-related closures we saw mainly in the UK and Thanksgiving Day being closed in -- virtually in all locations in the U.S. So we said that we would expect Q4 sales to decline just a little bit more than we saw in Q3, the 11% we saw in Q3. And when I say a little bit more, I mean a couple of percentage points more. And as Mimi indicated, our focus has really been around the peak days, and we're being conservative on the peaks. And -- but if traffic comes in better during those peak times, then our sales will be better. So that's really our outlook right now.

And if we get stimulus, then that will be more than enough icing on the cake. And so lots of challenges but also lots of opportunity in the coming holiday season.

Yes, that's really helpful. And maybe then a question on SG&A. Just it sounded like for the fourth quarter, you're signaling more leverage potential even on potentially slightly greater sales declines. I just want to understand that. And maybe more broadly on the cost structure going into next year. I think it's helpful in your COVID-related adjustment table. In the press release, I think it calls out more than $20 million year-to-date of savings from property tax relief and rent abatements. And just want to ask how you're thinking about the ability to overcome that headwind next year that as presumably those costs come back in?

Great. Yes, why don't you start with the SG&A and then maybe I'll jump in on the -- on some costs -- start on the cost structure. I'll jump on that.

Yes, absolutely. So to first address, Jon, your question on the COVID table and the relief that we have or the items that we list on there related to property tax relief and rent abatements. And how I think about rent abatements, it's more of a timing issue than it is of actual savings because we ended up booking full rent in the -- earlier in the year. And now we're just getting savings for when our stores were closed. So when stores are opened next year, then the economics should play out accordingly. The UK property tax relief, again, is similar. We're getting that relief because our stores were closed and as stores will reopen next year, we should be able to overcome the costs as they come back into our business. And just as overall thoughts on SG&A and why we think we can leverage in Q4, we've -- we're benefiting from a lot of the collective efforts that we took early on in the pandemic around our cost structure. And many of those will continue into the fourth quarter. I would say the largest opportunity is going to come from the rent abatements that we are coming to a conclusion with many of our landlords. And what we think is that could be more than double the amount that -- of the $7 million that we recognized in Q3, and we really expect our SG&A to leverage quite a bit from last year's levels, even on the lower sales volumes that we expect because of this. And it could be as much as 100 basis points depending on the level of our revenue in the quarter.

Yes. So just to chime in a bit on the cost structure and the reshaping of the cost structure. I think Dave pointed out -- good job pointed out how much rent relief we have gotten outside of these abatements, and that's through the course of the normal renegotiations. And Jon, we've talked for a number of years about how on the renewals that we have been executing that we have seen rent reductions in the neighborhood of 8% to 10%. But it's stepped up pretty significantly through the course of the pandemic, and I think that, that is some acknowledgment of the fact that traffic has been down, and we're having to spend more marketing dollars to be able to drive traffic to stores and to our website. So that certainly helps the cause. And I do think as far as cost structure grows, that the growth of our e-comm channel and the size and the scale will help profitability. There's a lot of investment required upfront but all the way along to grow e-commerce. And the more size and scale that you can get, the better the economics end up being. And so that, coupled with some of the rent savings and the cost reductions on the store side should add up to a positive economic formula.

The next question is from the line of Sam Poser with Susquehanna.

I just want to know -- a few just follow-ups. The question was asked what your digital penetration was by banner -- by business. You talked about -- you gave the number for Schuh, but you did not give specifics for Journeys and Johnston & Murphy. Please do.

Yes, sure. So Johnston & Murphy it was in the range of 20% and Journeys was less than 10% last year. All of our businesses this year, their digital penetration has been higher. And Dave, I think you've got the number for the -- maybe talk about the second and the third quarters.

Yes. Obviously, Sam, with stores closed for portions of both -- for all the quarters this year, our digital penetration is swung wildly higher. But for the third quarter, Journeys was up almost double of their digital penetration versus last year.

So around -- could you just give us what the numbers are?

Yes. So last year, in Q3, the digital penetration at Journeys was 7 -- I'm sorry, yes, the digital penetration was 7%. And this year in Q3, it was nearly 14%. And for Schuh, last year, it was 24% and this year it was 43%, so almost doubling. For Johnston & Murphy, last year it was 18%, and this year it was almost 34%. So big swings this year over last.

And also those businesses grew nicely. So when you think about just the revenue increase in the digital and once the stores are fully reopened and traffic sort of improves, how sticky do you think you'll be able to -- how sticky do you think your e-commerce revenue will be?

Yes. Look, we think that the consumer has tried a lot as far as digital goes this year, and they've liked what they've seen and they've really liked the experiences that they've had. And I will give a huge shout out to our teams for the ability to execute on some of these levels. Because in Schuh, for example, last quarter, e-comm penetration was 70%; and in Journeys, it was 20%. And to be able to do -- and the growth rates were almost -- they almost tripled their businesses. And to be able to do that and execute well against that and get very high customer satisfaction scores is a good testament to our abilities there. And so I think that much of that will stick. At the same time, our teen likes coming into our stores, and we saw that our digital penetration went down well from the time that -- from the second to the third quarter because consumers have those options. So the way we're thinking about the world going forward, Sam, is, however, our consumers want to shop with us, we're going to have terrific experiences within the stores and great experiences on our websites, and the consumer will go back and forth seamlessly across the two of them.

I've got a handful of other questions. Number one, you mentioned you had new -- you mentioned the level of new customers to your website. But if you think about it, again, by banner, how many new customers, especially Schuh and Journeys, how many new customers were new, not only to the website maybe but also just new to Schuh or Journeys?

Yes. Look, I think we were measuring the website just because there's been such up and down in terms of overall closings of stores, Sam. So I think that it's just an unusual time for measuring stores because we've got the pandemic going on and customers -- some customers may be reluctant to go ahead and shop within stores. And so that's why we are really focused on our websites. And the exciting thing about the websites is that you could type anything into your URL and consumers are choosing to come and shop with our concepts. And what we saw is, I called out a 40% increase in new website visitors. And it was pretty equal between Journeys and Schuh. Johnston & Murphy, of course, is a bit less just because of where they're situated from a fashion point of view. And new customers were -- drove a large percentage of purchases and were almost 45% of our overall online sales. And so we take those new customers, we plug them into our CRM systems. We do a lot of work for specific programs and specific journeys to try to get them to purchase again. And the key to getting stickiness is to have the customers have a great experience, have them come back and shop with you again and then encourage additional purchases. And after a certain number of purchases, we can say that those are -- we can define them then as loyal customers.

Our next question comes from the line of Mitch Kummetz with Pivotal Research.

I've got a few questions of my own. So let me start -- and if Tom George is on the call or in the building, welcome Tom. It's been a while. So let me start with the fourth quarter outlook. So you expect it to be down more than Q3, although it sounds like maybe only by a couple of points. And I get what you're saying about the peaks and valleys, but I'm wondering if the main reason for Q4 likely to be weaker than Q3 in terms of the growth rate is more about the store open days that there are fewer store open days in Q4 than Q3? Or is it more about the peaks and the valleys, at least as it kind of relates to the difference between Q3?

Yes. So look, I think that the -- what I would say is that above anything else, that there's just a lot going on in the overall atmosphere. The consumer has been resilient throughout the year. And so there are also a whole lot of tailwinds. The consumer has been saving so that they've got disposable income. There's lots of indications of that. There's not a lot of spending on travel and entertainment, holiday parties and other things. And look, our brands are really -- and our footwear is really desired by teams at Christmas. It's just a big gift-giving item. So, we're very optimistic that we've got the right merchandise and that we can execute when traffic shows up in our stores. People are going to have a lot of time to shop because they're going to be working from home. And you can run out from home and do some shopping or you can pull up your mobile device and you can shop online as well. And so I would say, Mitch, that how we are thinking about it is just with some conservatism. Right now, we have got 97% of our stores opened. Last month, many of our stores were closed. And so we were we were only operating for about 88% of the overall time. December is a much bigger month than November is. And so to the extent that our stores can stay open and operate, then we'll be able to meet the demand. We expect more shopping will be on the weekdays. We've seen this already. We expect more shopping during the non-peak hours. Many malls have been working on reduced hours and have added hours to try to help meet this demand. Lots of people will wait until the last minute. They'll come into our stores really last minute. And so we're being conservative just because of the unusual nature of consumer behavior during the pandemic. But if the consumer comes out and shops in force, then we'll be able to meet the peaks to a greater extent and more like usual.

And given the challenges around the peaks, especially to the extent that Europe's store capacity may be limited around some of those really big days, what are you dealing, if anything proactively, to kind of stretch that out and make the valleys better? I mean I know that some of that's just happening organically. But to what extent are you trying to steer that in order to soften the impact of the lower peaks? And then I have a final question.

Yes. Sure. So we are definitely using our promotional posture to be able to steer the consumer into various times. So for example, Journeys typically launches their sale, both in stores and online, the week of Black Friday. And it's a great opportunity to just take advantage of traffic. And in fact, they launched the week before this year, and we're really successful driving customers both to the stores and to online, which relieved some of the pressure on Black Friday weekend itself. And so interestingly, we saw a lot of nice pickup in volume prior to Black Friday. Black Friday weekend itself was more subdued. Of course, the stores were closed on Thanksgiving. And then we saw a nice pickup afterward. And so all of our marketing, all of our messaging, all of, quite frankly, retail marketing and messaging is about shop early, think about how to avoid the peak times, make sure you get your shopping in. And we feel like people are going to be in a gift-giving spirit. It's a nice relief from some of what has been the monotony of the pandemic. And so there may be some real opportunity here. And the consumer is doing this themselves. I mean they are smart, they're figuring out when our less busy times within the malls and within shopping venues and will come in and will either pick up merchandise quickly without trying it on and take it home and try it on, or they will choose to try it on within our stores and purchase at that time. But we've seen a lot higher conversion. Conversion has been at the highest levels we've seen. There's a lot of intent to purchase even with traffic down, we can have positive comps. In Journeys in both September and October, we had positive store comps, and that was on lower traffic because conversion was so strong and transaction size was better. And so you add all of that up, and you say that it's a combination where we can make the numbers work to be able to meet some of the volumes that we had last year.

Okay. And then lastly, on boots. I know that in your comments on the quarter, you mentioned that boot started early. I know that your boot business is driven more by fashion than anything else. But I'm curious if you've seen the boot strength continue into November? Because, I guess, November feels like it's been -- or it was kind of a warm month, and I think your boot business was pretty good in November last year, so maybe a tougher compare. I'm kind of curious how you've seen that continue as you started the fourth quarter?

Yes. You've got a good memory, Mitch. So yes, I mean, boot started early and started really well. And there are a number of big brands that are driving this. And I'll tell you, in the first couple of weeks in November -- last year in November it was super cold, and so boot sales took off. This year in November, we had a lot happening in the first part of the month. The election was going on. Weather got a lot warmer, lots of different distractions. And so just overall traffic, as I mentioned, became more subdued. But then we saw the robust pickup thereafter. And I think that it's mostly fashion that is driving teens’ appetite. And I think there's a feeling that they just want something different. They want to change of seasons. They want to be doing something different. And they really like the offerings. A lot of our brands have put out some terrific product, and we have lots of nice allocation of that product, and so that's a winning formula.

At this time, we've reached the end of our question-and-answer session. Now I'll hand the call back to Mimi Vaughn for closing remarks.

Great. Thank you, everybody, for joining us today. We're wishing you really happy and really safe holidays.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.