Good day, everyone, and welcome to the Genesco Third Quarter Fiscal 2022 Conference Call. A question-and-answer session will follow today's formal presentation. [Operator Instructions] As a reminder, today's call is being recorded. I will now turn the call over to Darryl MacQuarrie, Senior Director of FP&A. Please go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss our third quarter fiscal 2022 results. 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 and supply chain issues 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 attachment 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 as accessible on our website. With me on the call today is Mimi Vaughn, Board Chair, President and Chief Executive Officer. We'll begin our prepared remarks with highlights from the third quarter and discuss progress on our strategic initiatives; and Tom George, Chief Financial Officer, who will review Q3 results in more detail and provide guidance for Q4. Now, I'd like to turn the call over to Mimi.

Thanks, Darryl. Good morning, everyone. Thank you for joining today. As we announced last month, and you just heard, I'm very pleased we've removed interim from Tom's title. Tom brings almost 30 years of CFO experience and deep roots in brands and retail, most recently at Deckers Brands. He has been a tremendous asset to the organization since joining us a year ago, helping guide the business through a period of significant recovery and growth. We're excited he's part of our leadership team and will continue to benefit from his knowledge and expertise as we grow Genesco going forward. Now onto recent performance. Building off an extremely strong first half of the year, we delivered another record EPS that well exceeded our expectations fueled by a very successful back-to-school selling season. As expected, sales were up considerably from last year, but what's most exciting is the double-digit increase over pre-pandemic level. We entered the pandemic in a position of strength, are navigating the pandemic well and will enter the post-pandemic phase even stronger. While the current market conditions have presented a number of external challenges, including supply chain disruptions, labor shortages and wage increases, elevated freight expense and other cost pressures, we are managing through them adeptly. This quarter's performance highlights the differentiated competitive positions of our retail and branded concepts, strong consumer engagement and the strategic advantages delivered through our footwear-focused strategy as we work to transform our business. In particular, our results Spotlight Journeys and Schuh as the leading destinations for teen and use fashion footwear. Customers view them as unparalleled fashion authorities, validating whatever brands they're currently selling and are increasingly turning to our concept for their branded footwear needs. Back-to-school is a major driver of Q3 sales in a normal year, and we prepare for and…

Thanks, Mimi. We continue to execute well on our strategy. Third quarter results exceeded our expectations in pre-pandemic fiscal year '20 levels. We achieved better-than-expected sales, margins and SG&A leverage, all on significantly lower inventory levels. Before I get into the details of the quarter, I want to remind you, we believe that comparing to our pre-pandemic fiscal '20, two years ago provides the more difficult and often most meaningful assessment of our business. However, when comparing to fiscal year '20, keep in mind how our strategy has changed our business. E-commerce has become a larger percentage of sales along with wholesale sales for licensed brands. These changes come with an overall lower gross margin rate due to the impact of direct shipping expenses and the expansion of our wholesale volume. However, this should be more than offset with lower SG&A from these businesses. While these changes are reshaping the P&L, they have a net positive impact on operating margins and an added benefit of a less capital-intensive business model. In terms of the specifics for the quarter, consolidated revenue was $601 million, up 12% compared to fiscal '20. Journeys grew 7%, while Schuh grew 17% on a constant currency basis, and we doubled our Licensed Brands business. Regarding J&M, we are pleased with the continued momentum we are seeing. We were 8% below fiscal year '20 levels, and we continue to narrow the gap. From a channel perspective, we experienced increases in all channels. E-commerce was up 79% to fiscal year '20 and accounted for 18% of total retail sales, up from 11% in fiscal year '20. With stores opened 99% of the possible days during the quarter, we are going back to providing comparable sales information versus last year for the stores open in both periods. On a…

Thank you. We will now be conducting question-and-answer session. [Operator Instructions] Our first questions come from the line of Steve Marotta with CL King. Please proceed with your question.

Good morning, Mimi and Tom. Congratulations on a terrific quarter and post-pandemic performance.

Thanks Steve.

Thanks Steve.

I know that you are not providing guidance for next year, of course, but I just have a couple of very, very high-level questions, and I'm sure that this probably won't be the last time we hear on this call. But from a margin retention standpoint in the coming fiscal year, can you talk a little bit about strategies and tactics associated with maintaining that margin and not reverting to mean?

Sure. It's a great question. And I think that we are really pleased with the progress that we have made on margins this year. We had come out with a 6% target initially with our five-year plan, and we had a chance over the summer to take that up to a six-plus percent. And if you look at our current strategy, we are driving the business by, first of all, increasing the growth of e-commerce, which has double-digit operating margins. And so that adds nicely to the bottom line. The second thing that we've done is significantly improve our store economics by getting rent reductions and other cost reductions. And so those certainly will continue to bear fruit for us. And the last thing is that we have been growing the branded side of our business, and that is both in licensed brands, with some very nice growth this year. And we know that Johnston & Murphy's turnaround will be successful and add as well. And so when we look at all of that, we are optimistic about the market share that we've picked up and the underlying growth drivers. I think as you look to next year, the pandemic accelerated the improvement opportunity that we had that we knew that we had. And as we get into next year, we're optimistic about being able to hang on to some of that certainly to much of the market share growth. And a couple of things will help us next year. Certainly, we've had a lot of freight pressure. Tom talked about that freight pressure. And we also, this year, have had a performance incentive compensation and bonus. And if we don't improve over this year's earnings and the way our bonus plan works is that that bonus falls back out of the P&L. And so, we have those opportunities to really pick up some profitability in our numbers next year. Tom, would you add anything to that?

I think I just reinforce, we're really pleased with the results. I think if you look at this year's guidance implicit and that guidance is roughly a 5.5% operating margin. And that absorbs about 50 basis points of freight for the year. So you can see adjusting for the freight, we're about a 6% operating margin now, which was our target for fiscal year '25. So, obviously pleased with those results. We like a lot of momentum in the business. We're really excited about the branded business. Really excited about the traction we continue to get in our digital business. As we gain volume, we'll get better pricing over time in our branded business, that's going to help the branded business gross margins cited about the turnaround with Johnston & Murphy and everything we're doing there. So we're feeling we're in a good situation here going forward.

That's great. Tom, you sort of actually answered my follow-up question, but I'm going to ask it anyway. As far as the aggregate logistics costs associated with the current fiscal year, I think you said it was 50 basis points. Is that really all encompassing of all incremental costs associated this year with supply chain? And then the follow-up to that is, what would you expect to say for the first half of next year? And really, what I'm driving at is the expectation again from what is known now, and I know that its variance the delta in those two numbers between what was experienced this year and what will we experience next year from incremental freight?

So that was -- yes, you're right, the 50 basis points was the entire incremental freight and logistics costs for this year. And regarding the crystal ball into the supply chain for next year, that we've done a lot of research on that. Everybody has done some research on that and try to make a call on that. But we can see that there's -- that's probably going to continue for most of next year, not necessarily just the first half of next year. But -- so there's the exposure, so to speak. But we have done a lot of work in terms of mitigating our risk there, not to say there's still some risk there and there's still going to be some pressure. So it's a little bit too early to make a call on how much of the freight pressures will continue for next year. But -- and then the scheme of things, I think I could say it's mainly a branded business concept for us. And in the scheme of things, freight and logistics costs aren't the biggest cost in the cost of goods sold line. So I think that can help put it in perspective. And we have a lot of other levers to work with and structural momentum in the business that we feel probably in the end is going to be able to mitigate a lot of that freight and logistics cost pressure.

I think that's right. I think I would just underscore what Tom said is that in the vast majority of our business this year, we have been shielded from some of that freight and logistics costs because we are well diversified across a vendor -- our vendor base and agreed to pricing several months ago. And I think that to the extent that the cost pressure continues, we have been successful in taking price increases to absorb some of that cost pressure and anticipate that we will continue to be able to do so. And so we've been managing through that quite well. It will be an issue for the first half of the year, but with a little bit more time, there's more opportunity to manage it.

[Operator Instructions] There are no further questions at this time. I would like to turn the call back over to Mimi Vaughn for any closing comments.

Great. Thank you for joining us today. We wish everybody a happy holiday season.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great weekend.