Good day, everyone, and welcome to Genesco Fourth Quarter Fiscal 2023 Conference Call. Just 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 fourth quarter and full year fiscal 2023 results. Participants on the call expect to make forward-looking statements reflecting our 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 its most recent 10-K and 10-Q filings, for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made today. Participants also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial measures are reconciled to their GAAP counterparts in the attachments to this morning's press release and in schedules available on the Company's website in the quarterly results section. We have posted a presentation summarizing our results here as well. With me on the call today is Mimi Vaughn, Board Chair, President, and Chief Executive Officer; and Tom George, Chief Financial Officer. Now I'd like to turn the call over to Mimi.

Thanks, Darryl. Good morning everyone and thank you for joining us today. Many areas of our business shined in fiscal 2023 even as new headwinds emerged with rapidly changing consumer environment. Coming off a strong fiscal 2022, our footwear focused strategy allowed us to effectively navigate these more challenging conditions this past year. Record top-line results at both Schuh and Johnston & Murphy helped mitigate some of the pressures that weighed on both Genesco Brands Group and in particular Journeys following its record year in fiscal 2022. While we expected Journeys to get back some of its stimulus fueled gains, the business was tested more than we anticipated. The effect of decade's high inflation on the consumer and the elevated footwear channel inventories are the two factors that impacted us the most. Nevertheless, our performance in fiscal 2023 demonstrated resiliency enabled by our differentiated strategic positioning, the benefits of our multi-division, multi-channel operating model, and our experienced team's ability to execute and navigate the market turbulence. In addition to the strong showing from Schuh and J&M, other highlights from the year we just finished include total comps improved sequentially through the year, culminating in a 5% comp gain in the fourth quarter with both positive store and positive e-commerce comps. Digital penetration accounted for 20% of direct-to-consumer sales, up from 13% in pre-pandemic fiscal 2020, growing almost 70%. We returned over $70 million to shareholders through share repurchases totaling 10% of our outstanding shares, and we delivered adjusted EPS of $5.59, an increase of more than 20% compared with pre-pandemic fiscal 2020. We also made meaningful progress against several key strategic imperatives to drive growth in the years ahead. They include proving our brand building capabilities and growing Genesco's branded platform with successful re-imagining and re-repositioning of Johnston & Murphy.…

Thanks, Mimi. As I review the results, you will see we're having success driving digital, turning around shoe and capitalizing on Johnston & Murphy's growth, while also focusing our efforts now on improving Genesco Brands Group and Journeys store channel profitability. Turning to results for the quarter, consolidated revenue in Q4 was $725 million, essentially flat to last year, but up 2% on a constant currency basis. On a comp basis the strong performance from both shoe and J&M led to total comps of a positive 5% for the quarter, the third straight quarter of sequential growth. Total store comps were up 1%, while direct comps were up 21%. By business shoe, total comps increased 20% J&M total comps increased 23% and Journeys total comps were down 1%. Finally, Genesco Brands Group’s sales declined $16 million. We ended the quarter with 15 fewer stores versus a year ago as we continued to optimize our store footprint and drive productivity in our existing store estate. Digital sales were up almost 60% versus pre-pandemic levels with digital sales accounting for 25% of total retail sales up from 22% last year and 17% in fiscal year 2020. Gross margins were down 250 basis points from last year. The main driver of the year-over-year change was the return to a more normalized promotional environment compared to essentially none last year in addition to excess freight and warehouse cost. By business Journeys' gross margin was down 300 basis points and shoe’s gross margin was down 120 basis points given the return to a more normalized promotional environment, but both were still better than pre-pandemic levels. J&M's gross margin was down 350 basis points driven by an unfavorable inventory reserve reversal comparison, normalized promotions and higher warehouse cost. And Genesco Brands Group gross margin was down…

Thank you, Tom. We’re excited about the actions we’re taking to drive our business forward in the coming year. Fundamental to our footwear focused strategy are six strategic pillars that emphasize continued investment in digital and omnichannel, deepening our consumer insights, driving product innovation and reshaping our cost space. This strategy leverages our team’s exceptional direct-to-consumer expertise and the synergies between our retail and branded platforms. Given our expectation that Journeys consumers will continue making hard choices about how to spend their dollars this year; Journeys talented merchants are expending even greater efforts to elevate brand partnerships to secure access to higher tiered products, gain higher allocations of must have products and place more focus on SMUs and products unique to Journeys. These efforts also entail shifting the mix further to more accessible price point products. Another key area of focus is consumer engagement and loyalty; part of our third strategic pillar, building deeper consumer insights to strengthen customer relationships. We're looking forward to the launch of the Journeys loyalty program before Back to School. This program will not only give shoppers a reason to buy, but will also incentivize teens to concentrate their branded footwear purchases with Journeys. It will elevate Journeys brand's awareness, promote the Journeys brand and let our teams interact with customers on a more frequent basis. Last year's launch of the Shoe loyalty program well surpassed our expectation with 1.4 million signups in about nine months and a 6% increase in repeat purchase frequency for members versus non-members. The J&M insiders program with over 700,000 new members in its first year has led to improved average transaction size. We're expecting the same kind of impact with the Journeys program and paired with key marketing campaigns around the loyalty launch and a larger overall customer base…

Thank you. [Operator Instructions] Our first question comes from the line of Mitch Kummetz with Seaport Research. Please proceed with your question.

Yes, thanks for taking my questions. I've got a handful, I'm just going to go one at a time. I hope that's okay. So my first question and I do appreciate all the color on Q1, it sounds like the pressure there is going to be Journeys and the Brands group. Could you just add more color to that? I mean, is there any way you can kind of give us sort of a comp range on Journeys and it sounds like the Branch group is going to be down. I mean, are we talking kind of down double-digits? Anything more there would be helpful.

Mitch thanks for the question. We are calling Q1 out in particular because there's a big swing from last year to this year and there are several unique factors for this year making it a different first quarter. And it's mostly around sales and gross margin and so it's really we're seeing Journeys comps were quite favorable last year and what we are not seeing this year is our boot sales. Boot sales were down quite a bit. There's been unusually warm weather that's affected much of the country and as we mentioned, our non-footwear sales are down as well. The consumers holding back and just really budgeting what they are spending and not spending anything beyond that. Last year we had a really good receipt month and we were able to get new product out into the system to feed robust demand. We also expect tax refunds to be lower this year in the aggregate so far they’ve have paced with last year, but all in all the COVID tax credits are going to be down a little bit versus a year ago. And Genesco Brands as you said last year, we had great sell-ins due to, supply chain disruption and this year we’re not anniversarying that. And then the final thing I’d point out is that gross margins, we have been anniversarying the big pickups that we had due to just essentially no markdowns during robust demand times. And this is the final quarter that we are going to be anniversarying that in returning to more normalized markdowns and that that in fact impacts us as well.

Yes. Okay. And then maybe moving on, you talked about $20 million to $25 million in savings, I believe from a cost program. Is there any way to kind of provide some cadence around that? I don’t know how quickly that kicks in? And then you mentioned, selling salaries is a component of that. I am kind of curious how much of the cost improvement is going to be driven by that and how much ability you have there to really kind of cut?

I’ll give a bit of color and then turn it off over to Tom. But we are looking, we’re – we have a very targeted cost program and that $20 million to $25 million is what we are expecting to get from this year and selling salaries are going to be a big component of that. We’ve had a lot of our two big expense drivers are rent and selling salaries. We’ve had a lot of success in driving down rent expense. But let me turn it over to Tom for some more specifics.

Yes, Mitch. Yes, we feel really good about our progress there and we do expect to achieve the $20 million of that in this fiscal year. Most of it in the back half and most within the back half – most of it in the fourth quarter. So really pleased about that. And to your point on selling salaries, we do, we’ve really been digging in there and got a good understanding of what it takes from an hour perspective within the stores to not only, obviously in-store customers, but deliver and fulfill on our e-commerce business. So about half of it is selling salaries, then a significant portion of the remaining half is reductions in rent. Then there are some other variable store expenses we’ve been looking at that we think we have opportunities reduced there, including credit cards and some of the inner store kind of freight activity. We think there’s opportunities there. I think just the only other thing to point out the savings in the fourth quarter there that we’re going to achieve is somewhat muted by, there’s the word the 53rd week plays in and that’s somewhat of meeting some of that savings in the fourth quarter.

Okay. And then you mentioned 60 store closures and Journeys. It looks like 33 of those are happening this year. Again, can you just kind of help us with the cadence of this year’s store closings and then also, assuming that the bulk of those sales transfer to other stores or online, how much op margin can you pick up in the process of closing those 60 stores?

Yes. So as we’ve been looking at stores and overall levels of volume, why we have targeted and we’re actually targeting 64 for this year, Mitch, and that is based on whether stores are contributing at the levels that that warrants keeping them operating, given some rising costs. And when you think about it, if you, it doesn’t take a lot of transfer in order to have the economics come out about where they are if the store isn’t particularly productive. And so there can be a relatively small amount of transfer to another store leveraging that fixed expense base and eliminating the fixed expense base from the store that’s being closed. And in addition to that, we have dialed in a lot more specifically to exactly how much we can transfer to online. We’ve got great first party data. Our customers trust us, they give us the information and we have increased abilities to be able to direct that customer either to another store or to online.

And then Mimi, you talked about elevated footwear channel inventory, do you have any sense as to when you think that might normalize? And how much of this is, issues with kind of the vendor community and their direct discounting versus, maybe what you’re seeing with some of your kind of retailer competitors?

Really Mitch’s? Both, we had come out of the best full price selling environment, we’ve ever seen. Everybody was excited about, the consumer demand at the time and with the backup and the supply chain everything, it was a perfect storm. Everything landed at once where a lot of great inventory landed and consumers pulled back at the same time. And so we’ve been seeing brands really working on getting their inventory levels down and we’ve also seen retail partners doing that as well. And what that translated into is to just much more promotional activity, a lot more markdowns. We’re a full price seller, as I said, we tried more promotions, but it quite frankly didn’t move the needle against the backdrop of such a vigorous promotional environment. And the outlook right now, I mean, we’ve been following this and we were optimistic that we’d be in better, in a better place right now, but we really are thinking that it’s going to be by the second half once inventories have continued to sell off and in the meantime we continue to have our margins hold up quite well. We’re above pre-pandemic levels for both Journeys and Schuh and we’ll just continue to manage our overall inventory until we get to a point where our inventory is right sized.

Okay. And then last question on the order book. I think, Tom, in your comments around the full year, you talked about the brands group being difficult in the first half. Again, I assume that’s a function of a challenging spring order book, but I would guess that retailers are being pretty conservative ordering fall as well. Are you seeing that and does that put pressure on the brands group in the back half also?

It’s less pressure that we’re seeing in the back half right now. We have absorbed a lot of the spring order book and we are seeing some bright spots and some green shoots, with several retailers turning back on orders. There is definitely more robust appetite in the value channel. We’re seeing consumers shift down into trying to look for value quite frankly. And so there are – there differences in terms of the channels that, that are being served? And Tom might add something to that?

Yes, I think that that’s sort of our take on it. I think, just little bit of a general dynamic change this year, especially for those accounts. They want the brands so to speak, in this case our branded, our Licensed Brands group, to be able to take more of that inventory risk. And at the same time, how these conversations go they, at the same time they want us to be able to fulfill in season. So, we believe consistent with the earlier discussion on when the inventories and that those channels normalized, that we believe they’ll get more normalized by mid-year and then we’ll be ready by, for the back half of the year to be able to fulfill in season orders.

Yes. And we do think there will be upside there, because we will be anniversarying the promotional activity that happened in the back part of the year last year.

That’s right. All right. Well, thanks for taking all my questions and best of luck.

Thank you, Mitch.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I’ll turn the floor back to Ms. Vaughn for any final comments.

Thank you for joining us today, and we look forward to talking with you when we report first quarter earnings.

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.