Good day, everyone, and welcome to the Genesco First Quarter Fiscal 2024 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 first quarter fiscal ‘24 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 filing 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 also 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. Thank you for joining us. While this quarter was undoubtedly a challenging one, I’d like to provide context on the factors impacting the current operating environment, including the shift we have seen in consumer dynamics within our Journeys business, what we have learned from them and most importantly, the immediate actions we are taking to improve our performance against a difficult macro backdrop across the industry. Before we get into the details, I will start by underscoring that despite the near-term turbulence, which we have reflected in our revised outlook for fiscal ‘24, I am confident in our footwear-focused strategy and believe in our future prospects. While the first quarter was even tougher than we anticipated for Journeys, both Johnston & Murphy and Schuh excelled, delivering record Q1 sales and demonstrating the benefit of our multi-division multi-channel operating model. In addition, we advanced many of the initiatives underlying this strategy that drive value. We continue to grow our digital business and we further strengthen the connections with our consumer through progress on loyalty and customer insights. As a company, we have in the past successfully navigated multiple adverse retail cycles across our businesses, with the most recent being the COVID shutdowns in calendar 2020. As the leading destination for fashion footwear for teens, Journeys track record of performance, including record sales and profits in the year following the shutdowns, demonstrates the resilience of the business, the importance of its value proposition to the consumer, and the ability to rebound from economic headwinds and fashion shift. I am confident we will come out on the other side of this environment in an even stronger competitive position. That said we are not satisfied with our Q1 performance. Following a positive end to the holiday season, our outlook…

Thanks, Mimi. The headwinds faced in Journeys had a greater impact on our Q1 financial performance than we anticipated, and we are taking more aggressive steps to course correct and manage our P&L as we move forward. In the meantime, we remain very pleased with the strength at J&M and Schuh and, we’re encouraged by the better-than-expected results at Genesco Brands Group. Turning to our results for the quarter. Consolidated revenue was $483 million, down 7% compared to last year and down 6% on a constant currency basis. Our total comps were down 5%, as strong double-digit gains for Schuh and J&M were offset by the negative comp at Journeys. By channel, total store comps were down 8%, while direct comps were up 7%. By business, Schuh total comps increased 13%, J&M total comps increased 18% and Journeys’ total comps were down 14%. Gross margins were down 100 basis points as compared to last year. The main driver of the year-over-year change, as expected, was the return to a more normalized promotional environment at Journeys compared to essentially none last year. And the decrease beyond expectations was due to the markdowns we took to clear slower-moving product given the pressure on Journeys’ top line. All other businesses improved year-over-year and exceeded our expectations. By business, Journeys’ gross margin was down 360 basis points. Schuh’s gross margin was up 230 basis points as efforts to improve gross margin and strengthen relationships with key brands continue to gain traction. J&M’s gross margin was up 300 basis points as we lapped the air freight headwinds we experienced a year ago. Finally, Genesco Brands Group gross margin was up 220 basis points as pressure from freight and logistics costs began to ease and due to mix. Moving down the P&L. Adjusted SG&A expense was…

[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 have several. So I hope you will indulge me. So starting with Journeys. I guess my first question, just big picture, what’s kind of the biggest piece that changed? It kind of feels like you’re originally thinking, boots were a drag because of weather and pricing. And once you kind of got through that maybe – once you got through the negative impact of tax refunds, the things would get better. And now it looks like that’s not the case. So has the consumer taken another step down from kind of where they were? And is that kind of the biggest piece? Or maybe you can just elaborate on why the big change on the Journeys side?

Mitch, thanks for your question. Thanks for joining us this morning, and that’s exactly what we’ve seen. We are in a very unusual time. And first, I want to say is that we have a really good track record of successfully navigating. Times like this, multiple adverse economic cycles and fashion shifts within Journeys. And the most recent one was during the COVID pandemic, and Journeys took a hit and came out much stronger on the other side with record profit and sales. And so we anticipate that we will navigate this as well. But specifically, you’re exactly right. As we were in the first quarter, we saw a pretty dramatic drop-off in store traffic and comps as we – after we completed a successful holiday season. We believe that the trend would improve in March, for a couple of reasons. One is that we got further away from boots. and we talked about the consumer trading down in boots, and also just really holding back on overall purchases. And we thought that the switch into spring and a reason to reward robe and to buy spring fashion would also bring the consumer in. But we frankly didn’t see the improvement in store traffic. The consumer just seems to be sitting on the sidelines. It’s such a unique time right now because of so many factors that play the economic headwinds that are out there with inflation. Tax refunds were certainly a part of it. The – I want to underscore how much the excess inventory and the athletic discounting is a factor in the market because – that coupled with the price increases that we and our brands taken across the assortment, have just pivoted the consumer to taking part in what usually isn’t marked down and taking part in some of that product. So bottom line, there is that we did not see the pickup in consumer traffic and purchases, and we think it is prudent to just reflect that in our guidance.

I guess a few follow-ups. I’ll maybe I’ll ask them together and feel free to have me repeat. But you mentioned the athletic discounting and the drag there. When do you think that you’ll see that? And you also talked about the trade down. I know that, that was an issue with boots in particular, consumers buying $100ish minis versus $200 classic [indiscernible]. How did that manifest itself now that you’ve transitioned to spring? And do you think maybe you’re losing customers to lower tiers of distribution and the trade down? And then lastly, just in terms of kind of the change of season, is that having a big impact on sandals? And is it – do you think it’s – there is some weather component to that, that could potentially get better as we get further into in the summer? So really three follow-ups, so one on the athletic discounting, one on the trade down and one on the seasonal.

Okay. Great. Let me start with the athletic discounting. And I think as much as everyone in the industry was anticipating that the athletic discounting would supply, by the time we hit midyear, before back-to-school, we’ve actually had a number of others within the industry who have announced recently who have said that, that discounting will have a – will continue through the balance of the year. And they have actually built a markdown and to be able to affect that clearance. And these are really dramatic discounts, and it’s on good products, and it’s on products that normally isn’t discounted. And that’s why we think it attracts a lot of attention. I am going to answer your question around boots and the change of season by just talking about just the fashion cycle that we are in. Boots become much less of our assortment as we travel through the first quarter. They are more than 30% of our mix in February, and they go down to about 10% in April. And so they would certainly become less of a factor. What we are really seeing is that our consumer is sitting on the sidelines. When we asked our consumer about one of our most recent research at the end of the year, about how they feel about Journeys, we are still at the top of the league tables in consideration for where can shop. We outscore others on being welcoming and cool and fun and having helpful employees. And so I think that it’s really just sitting on the sidelines right now. One of the things that I called out is that our consumer is looking for newness. We and our brands gravitated to core products. In recent times, it made a lot of sense because it was a…

Okay. And then one final question. On the store closings, it looks like you now expect 45 fewer Journeys stores at the end of the year. Could you kind of walk us through kind of what the schedule of getting to that number looks like and its impact on the P&L? I know that you – it sounds like you are hoping to kind of maybe pick up lost sales online. But does that have – how much of a sales impact do you think that has? And what does that do to the SG&A in particular?

Sure, Mitch. I will start, and then I will hand it over to Tom. But in response to this, as you said, we are closing over 100 underperforming Journeys stores at this time, and we have added to our cost reduction. And we really do believe that we are going to position the business well to that sets us up for profitability to improve very quickly and materially when sales rebound. But we have identified these stores that we intend to close. And we are with more sophisticated analytics. And our real estate tools can – and our customer information can drive the sales in these other businesses to our other locations and certainly, to online, where we are having a lot of success. And here, we think that it doesn’t take a lot when you remove the fixed expenses to replace the profitability that we would lose in these stores and will eliminate a lot of fixed expenses. And so we think that’s going to be a real positive for the business. And I will hand it over to Tom to talk about when we think that impact – that will impact sales and overall profitability.

Yes. Mitch, just to level set here. With the information we posted, we are going to be down a net 78 stores for Journeys over the course of the year, just to level set on that number. And the ones that we are opening are mainly, they are not mall locations, they are off-mall locations, plus some premium outlets. And we have done very well with premium outlets. Most of those will be open in time for the back half of the year. The closures, you can see, we are making big headway on those early and a lot of those will be closed for the back half. So, they have a bigger impact in the back half of the year, both the third quarter and the fourth quarter. Some impact in the second quarter, but the bigger impact on closures is in the third quarter and the fourth quarter. So, bigger impact on sales, big impact on SG&A, especially in the fourth quarter, minimal impact, if any on profitability.

In these stores that we are closing, on average, have lower sales volumes. And so they are…

Significantly lower.

Yes. So, they have less of an impact than an average store closure would have.

And our next question comes from the line of Ryan [indiscernible] with Jefferies. Please proceed with your questions.

Hi. Yes, thank you. This is Ryan on for Corey. I was just curious, as it relates to the store closing update, can you just provide any color around the trends you are seeing in off-mall versus in-mall locations? And then just what’s the current mix between off-mall and on-mall locations? And how are you thinking about that moving forward? Thanks.

Thanks for joining us this morning, Ryan, and I will talk a bit about our off-mall strategies. We are primarily located within mall locations right now for Journeys. We have got a number of street locations for Schuh. A number of airport locations for Johnston & Murphy. And in general, in the Journeys portfolio, we also have a lot of outlets. So, we don’t really consider that to be off-mall. We consider off-mall to be more of those power centers and locations that are anchored by a different mix of tenants. So, a lot by some of the value channel folks, a lot of the larger box off-mall locations. And so this is really a newer initiative for us. We – in our market research with our consumers, have gotten the feedback that our customers go to off-mall locations multiple times per month, and it’s part of their – of the places that they go. They enjoy the convenience of shopping closer to home and combined with some of the omnichannel services that we can offer like curbside pickup. And so we have had success with a number of early off-mall locations that delivered attractive four-wall, and that encouraged us to test more. And so we are – we have opened 13 of what we expect to open to be 25 off-mall stores. And these are with a larger footprint and ability to carry the full assortment of kids and adults. What we have seen so far is that they are significantly lower rent expense, which is great for our economics. We have got a double up early on with our marketing spend so that we can drive traffic and build awareness to know that we are there, but we see that there is a nice amount of conversion within these locations, and it puts us in a position to diversify away from malls. We are really enthusiastic about this growth opportunity, and it just gives us the potential of really a number of growth locations for Journeys. There are a lot of our peers that are out there. There are some formats that appeal to teens and to twins, and we would be looking to co-locate with them as well.

Okay. Great. And then could you just provide some additional information around the loyalty programs at Journeys, Schuh and Johnston & Murphy? Any sort of stats you could provide around the typical demographic? How member retention or transactions sizes defer from non-members?

Sure. We are really excited about the soft launch of our Journeys All Access program. which took place earlier this month. And we will be rolling that out in time for back-to-school, which is – which we think will do a lot to drive repeat purchases and also do a lot to drive average transaction size. And so we launched the Johnston & Murphy Insiders program a couple of years ago. And I talked today on our call about having 800,000 members. And what we are seeing is that new members or new customers are really joining at a very, very high rate. And we are seeing higher average transaction size within their purchases. On the Schuh side, we have just anniversaried the Schuh Club, which launched a year ago. And we have 1.8 million members – sorry, 1.6 million members that we have added pretty quickly. And the UK – size of the UK is a fifth of the size of the U.S., so we are pretty pleased by how many we have added. And we have seen more purchase frequency within the Schuh Club as well. And so we think that overall, our loyalty efforts, coupled with all of our efforts on CRM and on personalization, are going to drive the ability for us to increase the number of pairs of shoes that our customers buy every year. So, we have got lots of teams across our organization working on these initiatives, and they are excited about the results that we are seeing and also excited about the potential for Journeys.

Great. Thank you.

Thank you.

Our next question comes from the line of Mitch Kummetz with Seaport Research. Please proceed with your question.

Yes. Thank you. I have three follow-ups. First, Tom, on the guide, I got the impression from your comments earlier that maybe 3Q is another loss as far as earnings. Is that what you are essentially guiding to or…?

No. Not at all. We expect Q3, we are going to see some growth in earnings. As we talked about the store closures, we will have some of the cost savings in Q3 as well. Journeys will have much lower operating expenses in Q3 as well. So, we expect relative to the prior year, we expect Q3 to be – from the sales perspective, we do expect Q3 to be down some overall. That’s really driven by Journeys. The rest of the businesses are going to be up. We do expect to take down relative to the prior guidance Journeys’ gross margins to more to reflect the current environment. What we mean to do there, they will have some lower operating expenses, but we expect Q3 operating income to be fairly comparable to last year’s Q3 operating income.

Okay. And then on the Genesco Brands Group, I believe you said modest growth over the balance of the year. I know that Q1 was hurt by the spring order books, based on how retailers were ordering products. How is the fall order book there setting up? Are you still optimistic about that?

We feel good where that order book is heading. Still the general market dynamics are less of an order book relative to the prior year. But with the traction we saw in the first quarter, we expect, going forward, we will be able to have some modest growth, more of that being for fall product more in the third quarter and the fourth quarter.

Our biggest – the biggest headwinds we were facing were in the first quarter Mitch, with the sell-ins that we were anniversarying from last year.

Got it. And then – and lastly, just on the inventory, it sounds like you are a bit heavy on the Journeys side. You mentioned pressure on gross margins, not only just lapping the lack of promotions last year, but then also clearing through slow-moving product. When do you think you can have, I guess the overall inventory kind of in the right shape, but particularly the Journeys inventory where you won’t have like excess product to move through anymore?

Yes. Let me echo Mimi’s comments on the job the Journeys team has done in terms of working the inventory and changing the assortment, and kudos to them. We have great relationships with all the key brands that I am sure you are all familiar with. So, kudos to them being able to get their hands around the Journeys inventory. So, as we move through the back half of the year, we do expect some improvement in Journeys inventory. And we certainly expect it to be below last year. And when you look at it relative to pre-pandemic levels, there will be some elevation, but in the scheme of things, fairly small when you consider the cost increases in that inventory relative to pre-pandemic levels. So, I feel really good about what the team has done. They have got a good history of getting their hands around inventory and rightsizing according to the sales trend. So, we feel good. We are going to end the year with lower inventories than last year, and we will – that certainly will help us generate good cash flow for the year.

And we are a full-price retailer, Mitch. We are not going on a promotional run here. The comments around first quarter, it was the last quarter that we are having to anniversary essentially no markdowns from last year. And so we think that the pressure on gross margins going forward will be less as we go through the year. In addition to that, what we are adding in terms of additional markdowns for Journeys is really just to clear the slow-moving product in response to the consumer environment for core products, our intent isn’t to mark down the core product, it’s just the management of receipts going forward. So, the pressure on gross margins should ease up.

And we have reached the end of the question-and-answer session. And I will now turn the call back over to Board Chair, President and CEO, Mimi Vaughn, for closing remarks.

Thank you for joining us today. We just want to point out again, we have got a great record of successfully navigating challenges like this. And we are taking the right action to respond to the consumer environment, and also to take the appropriate action to be able to drive profitability as we move forward and sales improve. So, thank you for your time today, and I look forward to speaking with you on our next earnings call.

And this concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.