Good day, everyone, and welcome to Genesco Second Quarter Fiscal 2023 Conference Call. Just 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 second quarter fiscal 2023 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, supply chain issues, and the current economic environment 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 in the Quarterly Earnings section. I want to remind everyone we have posted a presentation summarizing our results that is accessible on our website. With me on the call today is Mimi Vaughn, Board Chair, President and Chief Executive Officer, who will begin our prepared remarks with an overview of the period and the progress we are making on our strategic initiatives to drive the business this fiscal year; and Tom George, Chief Financial Officer, who will review the quarterly financials in more detail and provide guidance for Fiscal ‘23. Now I’d like to turn the call over to Mimi.

Thanks, Darryl. Good morning, everyone, and thank you for joining us today. After last year's record fiscal '22 results, we are pleased with our second quarter performance, our strong first half of this year and the longer term direction of our business. Following a stimulus induced spending environment, in which consumers had ample disposable income to drive strong sales gains that significantly benefited the first half of last year, we are pleased we continue to drive our business forward and maintain the large majority of those gains. Our footwear focused strategy is working and has created a much more resilient and fundamentally stronger business. The work we have done over the last few years to increase our digital penetration, strengthen our consumer connections, grow our footwear brands and reduce and reshape our retail cost structure has put the company in a better position to both outperform and favorable economic backdrops and successfully navigate more difficult market conditions like we are facing today. Our second quarter performance highlights the benefits of our multi-divisional business model. Stronger than expected results that Schuh and Johnston & Murphy helped overcome some softness late in the quarter versus expectations at Journeys, due to an increasingly challenging macro environment, which is affecting certain segments of consumers more than others. That said, Journeys year-over-year sales trends improved meaningfully each month in step with an improved inventory position on key brands and styles. This combined with the strength that Schuh and J&M and careful expense control allowed us to offset the lighter overall sales and deliver adjusted EPS that surpassed our expectations boosted further by a favorable compensation expense adjustment Tom will discuss later. The Schuh team did a tremendous job capitalizing on recent product and marketing initiatives, outperforming its competition in the U.K. marketplace fueled by pent…

Thanks, Mimi. As Mimi discussed, we were pleased with our performance during the quarter, especially our ability to drive profits ahead of expectations in the current climate. We have a solid foundation to not only navigate the current challenging environment, but also we continue to be confident in the ability of our footwear focused strategy to drive strong results over time. Consolidated revenue in Q2 was $535 million, down 4% to last year as we continue to anniversary the significant stimulus distributed a year ago and we experienced foreign exchange pressure from the strengthening dollar. On a constant currency basis sales were down 1%. As a reminder, Journeys consumer benefited most from the prior year government stimulus. On a comp basis, Journeys total comp was down 8%. Schuh total comps increased 9% driven by stores. J&M continued its strength versus last year in both stores and digital with total comps up 17%. Overall, total company comps were down 2% for the quarter with store comps down 2% and direct comps down 3%. We ended the quarter with 27 fewer stores versus a year ago as we optimize our store footprint and drive productivity in our existing store state. Digital sales as expected were down versus last year. However, direct still held on to 95% of its gains on a constant currency basis and was up over 75% versus pre-pandemic on a reported basis. E-commerce sales accounted for 18% of total retail sales versus 19% last year, up from 10% in fiscal year ’20. Wholesale was up as strength in J&M offset the decline in Licensed Brands as we reposition the distribution mix of the Levi's brand to rely less on the value channel. Gross margins were down 160 basis points to last year, but were in line with our expectations.…

Thank you. [Operator Instructions] Our first question is from Steve Marotta with CL King & Associates. Please proceed.

Good morning, Mimi, Tom and Darryl, congratulations on the earnings beat in the second quarter. Mimi, can you talk a little bit about the move from fashion athletic towards casual at Journeys. How can you capitalize on this? Do you think that you'll have the inventory associated with this shift in place by holiday? And can you talk a little bit about the ASPs between those two silos? Thanks.

Thanks for the question, Steve. When you think about Journeys our skilled merchants place bets on the right product, they have lots of experience. They've made the right fashion calls over the last several cycles that is a competitive advantage for us. And out of the last few fashion cycles -- the last one we came out of is retro athletic into casual and casual just continues -- we continue to see strength on top of strength. Teams always have fashion athletic in their closets, but when it moves to casual, it is beneficial for us. We're uniquely positioned to serve the customer here. There is more diversification in team fashion today. There's a reinterpretation of the ‘90s trends. I've talked about even a little bit of ‘80s and there are just a number of brands that are popular right now that are being substituted for sandals and other things as we saw through the summer. We do have the inventory in place that we need. We had it for back to school, in fact, we have a head start on the holiday inventory, because we received some late items last holiday and we carried them over so that we already went holiday sales kick in. We do shift into boots much more so in the back part of the year. The ASP difference between the two categories between casual, athletic and casual is interestingly not that different, because of the mix of boots with some of the other products. And so we have been seeing price increases. I did talk about -- we have been seeing overall ASP increases. I did talk about a shift that we're seeing with Journeys -- the Journeys customer into some more accessible price point product. But overall, our -- overall ASPs are still up.

That's very helpful. Tom, can you talk a little bit about what total freight incremental freight dollars are expected this year? And I'm curious how much you think that reverts next year to normal? In other words, could all of those disappear frankly?

Yes, for this year, in total is interesting. In total for the year, it's about $14 million to $15 million relative to last year, it's the same number, it's just sort of sequenced differently. A good amount of that is airfreight and we would expect in future periods maybe next year and out years that we shouldn't need that same level of airfreight. So we should get a benefit in future years on airfreight.

Yes. We're also hoping to see that container costs come down, they have been elevated over historical levels. We're seeing some easing on the pressure certainly of being able to get product onto ships, which is positive. And prices leveled out, came down a little bit, still above historical highs. But as the whole supply chain normalizes and consumer demand let's off a bit versus last year those prices should get back down to -- we hope historical level.

Right and that’s a good point.

Sure. I'd like to expand on that actually offline. I mean, we have one other question, I know that you would also alluded to the fact that back to school started a little bit later this year than would normally be anticipated. There have been times, of course, in the last couple of years, with lots of durations amongst the consumer and when and where they purchase. I know it's maybe impossible. They may be covered at this moment, but still potentially comment on what are the odds that to believe this back to school season has a longer tail, in other words, same amount of dollars, but simply shifted maybe two weeks forward?

Sure. That's a great question, Steve. We have seen a change in consumer shopping patterns for back to school, absolutely over the last couple of years, where it was a very late start where we usually see the back to school season last -- in the last two weeks of July, into August, into the first two weeks of September, so eight weeks altogether. The last couple of years, we really didn't see any activity pick up. In fact, last year, we saw that the whole July, August part of the season was softer than normal, but then we picked up the volume that we didn't see in September and in October. And I think last year and the year before were unusual times. I think that parents were waiting to see if kids went back to school and then when they went back to school, if they would stay in school. So we attribute that to those patterns to what was going on in the last couple of years. However, this year we're seeing the same dynamic. To be conservative, we have said that in September and October, the consumer will revert to historical shopping patterns. But typically, kids want to wear new shoes back to school. They want to come back and see what their friends are wearing. We talk a lot about in the moment purchases. In the moment purchases have gotten to be in the moment at the last moment purchases. And so we would be cautiously optimistic that those trends would carry over into the fall, but for guidance purposes, we haven't built it in. The good news is that August picked up significantly, I mean, we were just really very pleased to see what a big swing we had between the end of July and into August and that momentum is continuing and we'll see what happens through the course of the Labor Day weekend.

You know, I have one follow-up to that. What do you attribute the swing to? Do you think that consumers have reset their expectations for food and fuel? Do you think that because gas has rolled off, there's been that pickup? What do you attribute the delta being between August and July? More on a macro level than a micro level?

Yes. You know, interestingly, we saw that back to school purchasing early in the cycle for early tax freeze wasn't as strong as when we got closer to school starting. I think more people were taking vacations in the back part of the summer this year. There's a lot of pent up demand on vacations. I think that consumers were enjoying the summer. And so just really flipped into, wow, we've got to go back to school, I think that's a little bit of what has happened. We've seen overall the consumer cycle shift into consumers waiting until the last minute. I think there's just more information out there, it used to be that you'd go and you'd shop your shopping venue, shop them all in other places to see what trends were in style. Well, now you've got that in the palm of your hand and you can figure that out. You also have a lot more confidence about being able to find the inventory wherever it is. And so that has really pushed just shopping patterns closer to the time of need this year, especially I think that consumers were distracted enjoying the summer and that we've seen a pickup certainly a significant pickup in traffic, as we've gotten into August.

That's really helpful. Thank you. I'll take the balance offline.

Thank you.

Our next question is from Corey Tarlowe with Jefferies. Please proceed.

Hi, good morning, and thank you so much for taking my questions. So I wanted to start talking about Johnston & Murphy given, I think, what's very clear is that you've done a tremendous job turning this business around from the start of COVID when everything was locked down and people weren't going to the office and now you've pivoted the business to be more casual, driving what I believe was a record second quarter revenue for the segment in spite of having fewer stores than prior years, which is incredibly impressive. So can you just talk about what you're doing at that brand that you think is really going to drive sustainable success and growth going forward? And then maybe just touch a little bit on what we can expect from a profitability standpoint as well?

Sure. Thank you for that question, Corey. The J&M customer is in a good place. We are delighted by what we are seeing from the brand right now and have great prospects, great prospects in the future for the brand. What has happened in the most recent time is that the J&M customer got used to comfort working from home and once you experience comfort, it's hard to go back. The J&M team did really a terrific job during the pandemic, taking advantage of the opportunity to rethink the brand, the pandemic gave us a chance to think about how the brand could be different from a product perspective and also appeal to younger customers and we pivoted harder into casual and comfort. It's really terrific product. There's great styling with special technical features, proprietary chassis systems, great water proving, great moisture wicking, great just comfort features. And after the recession, after the great recession a number of years ago, we had a chance to reinvent the brand and were able to double the size of the brand and think that there is an opportunity to do that again this time around. We have a chance to sell customers, things that are not in their wardrobe, things that they need for today's lifestyle. So they're trading in their dress shoes or their more formal shoes for hybrid products, which is great styling with lots of comfort features. Johnston & Murphy has done such a great job repositioning. Right now, we are selling a lot of casual and casual athletic products I talked about, the top styles being casual and casual athletic. In fact, we are -- casual and dress casual are more than 90% of the footwear sold today. And so dresses is getting to be a much smaller portion of the overall sales. We've complemented that with additional categories that really round out the lifestyle offering. And interestingly, we used to worry about casual just trading down price points from dress footwear, but we have actually seen that we've been able to build in great comfort and technology features and have been able to see higher price point. So we like the profitability profile that we see. We like the potential for increased sales. We're spending a lot in marketing right now to let people know about some of the changes in the brand. We've just done a market research study that says that as much as we think everyone knows about Johnston & Murphy, there's lots more potential for additional consumers. So great prospects going forward.

Got it. And then just on the profitability expectations for the segment?

Yes. So this year, it's a front half, back half story. We were chasing a lot of product. You saw a great turnaround in sales and really the second and the third quarter. Tom talked about the overall pressure from airfreight and that's mostly in the Johnston & Murphy segment this year. I think profitability was up in the second quarter over pre-pandemic levels, but less than last year because of some of that airfreight and the inventory reverse. But I would say that we could get back to historical Johnston & Murphy has been as high as double digit profitability. We went from pretty big losses during the pandemic. We're making good strides this year. And over the longer term, we think there is nothing that would prevent us from getting back to historical levels of operating margin.

Yes, let me just reiterate what Mimi is saying. I mean, if you look at Johnston & Murphy where our expectations are for this year relative to pre-pandemic, you'll see that we really expect where the sales will be a little bit above pre-pandemic levels and we have profitability won't be the same as pre-pandemic, because we are investing in marketing for growth here. We've got a good opportunity to continue to grow that brand at a good pace. We've got the distribution infrastructure in place to be able to get further efficiencies from the stores. We really see down the road even more upside in efficiencies on the stores going forward, because we sell a lot of apparel as well. And so the stores are a great opportunity for growth. Our digital business, as you've seen, has grown very well that's double digit profitability on the margin, so another good thing. And then our wholesale business, again, a good opportunity to get a lot of traction, a lot of good sell throughs there's a big wholesale opportunity for Johnston & Murphy going forward. And in the end, we ceased if we continue to invest in marketing and continue to keep the product development has seen going with new product, we can really grow that brand and take a lot of share in that category and get to even stronger profitability rates than they were pre-pandemic.

That's great. Thanks for all the color. And then just one final one to double click on a comment that I think Tom you made you had mentioned that you don't have any expectations for incremental promotions throughout the remainder of this year? I just -- I'm a little confused, because I think that stands in contrast to what we've heard from other retailers getting more cautious on promotions? So could you just clarify that and explain that? I want to make sure I heard that properly.

Let me jump in here and then turn it over to Tom. Lots of other retailers right now are just talking about a large amount of inventory in the pipeline and that is really dictating the need for more promotions. We -- where we sit in the footwear world, especially the parts of the market that we serve are certainly less promotional than apparel. The scarcity and supply coupled with the robust demand last year, let us see the best full price selling environment we've ever seen. So we're normalizing versus that for this year. But our brands took the opportunity to rationalize allocations. We live in a highly allocated space where there's a lot of control and a lot of scarcity of supply in general. We've been chasing product through much of the year and we were still down 25% at the beginning of the year. So we feel like we've just gotten to the right points of inventory where re-inventoried properly. And so we are certainly expecting that we'll have more markdowns this year, because the consumer was just buying anything that was available last year. We did build back in some promotional activity for just to help spur demand as we usually do this year. But what Tom is saying is that we are not seeing that we are going to have to do even more activity than we had planned in order to right size inventories, because we feel like our inventories are in good shape.

You know, just add to that, I can give you some perspective. So really what I was referring to is really no change from the prior guidance on -- in terms of promotional activity and how that may impact margins, because what Mimi said, we've got great relationships with all our key suppliers and we work with them all the time to right size inventories. So we can continue to protect those brands and not markdown product. And from a reference point, we certainly have more -- we are planning for some more markdowns this year relative to last year. When last year, there was virtually no markdowns, but we're still a lot of learnings from last we're still planning markdowns at lower levels than pre-pandemic levels.

Understood. That's very helpful. And thank you so much for all the color and best of luck.

Thank you.

Our next question is from Mitch Kummetz with Seaport Research. Please proceed.

Yes, thanks for taking my questions. Let me start just a question on boots, you talked about carrying over some product and I know that given supply chain challenges last year there were a lot of late receipts. So I'm just trying to understand how much better your position in the category this year versus last year? Can you say what boot penetration is for you guys in Journeys like in Q3 and Q4? And again, any way to sort of give us a sense as to how much better you feel about where your inventory is on boots going into the season, the heart of the season this year versus last? And I have a follow-up.

Let me talk about last year and then contrast that to where we are this year. So last year, we really hit supply chain challenges most pronounced in the back half of the year. In the back half of the year, we switched as you know, Mitch to a boot assortment from more sandal and fashion athletic assortment. And so last year, we were chasing boot inventory all throughout the year. We were of the back half of the year. We were out of stock in core styles. We felt like we left a lot of demand on the table, because we didn't have core styles. That was part of the reason that we chose to take that later arriving inventory and carry it over into this year, so we'd be better positioned at the start of the season. So we are in much better inventory position to begin the season, a lot of supply chain issues have worked their way through the system and so we expect that we'll get continuous flow of product and we expect that we will be well positioned to meet the demand in this holiday season.

Okay. Thank you for that. And then my follow-up on the change in the sales guidance, Tom, it sounds like the biggest piece is Journeys. I thought I heard a high single-digit number mentioned in your discussion of that? I'm not clear as to like what the Journeys outlook has changed from two? Was it -- were you thinking high singles and now you're thinking less, I didn't put understand where that high singles came in? And also on the FX, I heard a 2% number and I know that the dollars strengthen since you guys last reported. And I'm just curious also what your -- did your FX outlook change for the year as the guidance was lowered? Or will not change? And if it was changed, how much did that change by? Thanks.

Yes. Mitch, on the FX, the outlook for the year, the impact, mainly that's obviously the Schuh in the U.K. impact a little bit of a Canadian impact on the Journeys business. But it really -- from a guidance to guidance perspective, it really didn't change much. We're looking at for the total year impact of FX about 2% on the total year sales.

I'll talk about just the overall expectations for Journeys. So we had expected in our prior outlook, Mitch, high single-digit growth, because at least back to what I was talking about where we felt like we left a lot of boot and other sales on the table in the back part of the year. We are running up during this back to school, but more in the -- I'd say mid single-digit range we're expecting in our forecast that the consumer will revert to historical patterns of not very robust shopping during the back part of September and October. But they will pick up and see at about the same levels for the holiday season for Journeys. So we had really ambitious expectations for Journeys. We like what we're seeing, but we have modified it. We have modified our expectations to really align with the actual performance we are achieving.

Okay. Thank you for that clarification. Good luck.

Thank you.

Thank you.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing comments.

Thank you for joining us. I wish everybody a great Labor Day weekend and look forward to talking to you on our next call.

All right. Thank you.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.