Good day, everyone, and welcome to Genesco's Second 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 second quarter fiscal '24 results. Participants on the call expect to make forward-looking statements reflecting our expectations as of date, but actual results could be different. Genesco refers you to this morning's earnings release and the company's SEC filings, including our most recent 10-K and 10-Q filings or 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 the schedules available on the company's website in the Quarterly Earnings 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, and good morning, everyone. Thank you for joining us. Before I discuss our second quarter performance, I'd like to take a moment to address the other news we released yesterday, the announcement of Mario Gallione's plan retirement at the end of the fiscal year. Mario has had an extraordinary 44 year career with Genesco, most recently as President of Journeys Group for the last six years. His exceptional merchant leadership and footwear expertise has been instrumental in building Journeys into the leading teen fashion footwear retailer it is today. We will all miss his incredible passion for Journeys and for our people and thank him for his extensive contributions to our company. With Mario working to ensure a smooth transition and Mike Sypert’s recent promotion to Journey's Chief Operating Officer, along with Journeys experienced senior leadership, I know we already have a strong team in place as we determine Mario's successor. Now moving to our results. Although, the headwinds pressuring our Journeys business persisted as the second quarter progressed and summer kicked in, sales trends modestly improved relative to Q1, picking up in June and sustaining into July as the back-to-school season began. Paired with our other divisions, this enabled us to deliver results ahead of our reset expectations during this lower volume time of the year. Despite a challenging consumer backdrop, Johnston & Murphy and Schuh each delivered another quarter of record sales, exceeding our expectations and helping to counter the pressure at Journeys. J&M and Schuh are concrete and recent examples of our ability to manage through adverse cycles, respond to changing consumer dynamics and come out on the other side in an even stronger competitive position. At J&M, in response to the pandemic, we swiftly and effectively repositioned the brand to meet the changing needs…

Thanks, Mimi. While the second quarter was challenging, and we were encouraged that our profitability came in ahead of expectations in the current climate. We not only have a solid foundation in place to navigate the current consumer environment but also remain confident that our footwear-focused strategy can continue to drive strong results over time. Turning to our results for the quarter. Consolidated revenue was $523 million, down 2% compared to last year and down 3% on a constant currency basis. With the stronger result relative to expectations driven primarily by Journeys and Schuh. While the Journeys consumer remained discerning when it came to spending, the magnitude of store channel traffic and sales decline improved versus Q1. And our digital business saw a nice acceleration in year-over-year growth, increasing double digits with particular strength in July as back-to-school approached. Our total comps were down 2% 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 6% and while direct comps were up 14%. But business Schuh total comps increased 17%, J&M total comps increased 12%, and Journeys' total comps were down 11%. Overall gross margin was up 20 basis points as compared to last year. Although Journeys' gross margin declined, the decrease was less than anticipated and was more than offset by improvements in all our other businesses. As compared to last year, our Journeys gross margin was primarily driven by incremental markdowns to clear product in the current environment. Overall, we are pleased with the improvement in our other businesses as our initiatives to expand gross margin continue to gain traction. By business, Journeys gross margin was down 100 basis points Schuh's gross margin was up 280 basis points as the division benefited from an elevated…

Thank you. [Operator Instructions] Our first question is from Mitch Kummetz with Seaport Global Securities. Please proceed.

Yeah. Thanks for taking my question. I guess I have several I'll ask few now and then jump back into the queue. Maybe on the Journeys business, you referenced sequential improvement both in the press release and on the call today. Is there any way you can -- and I guess that's continued into August. Can you quantify that? I mean, are we like -- I mean, did you get to like down mid-single by August or kind of just maybe go through that.

Mitch, thank you for your question. And we were pleased to see improvement overall in the Journeys business. And I'll just remind you that the Journeys comp in the first quarter was down 14%. In the second quarter, we saw that improvement to down 11%. And really, as I said on our last call, when we got into May, the comp for May was pretty much reflective of what we were seeing in the first quarter. The summer was off to a very slow start. And we didn't see comps pick up until June, but they picked up, fly in June and really picked up in July to being down in the high single digits, running down around 9%. And that really carried through into August. And so we've seen that movement from down 14 to down 11% to down 9%.

Okay. And then it sounds like from a product standpoint, I know last call, you talked about, I think, the last couple of calls, you've talked about kind of the shift away from casual more towards athletic. And I think last call, you talked about strength in clogs. Can you just give us an update in terms of what you're seeing there?

There's been some bouncing around, Mitch, in terms of product. But in general, what we saw and what I described coming out of the pandemic is that our customers, our teen customers gravitated toward what we call the casual side versus fashion athletic. And our teen always has a huge complement of fashion athletic in their closet. It's what they were on a day-to-day basis. But fashion swung much more to casual driven by the purchases of more sandals, more boots, more shoes versus what we call fashion athletic. And in ups and downs, we're still seeing the strength within the casual side in terms of what customers are buying. And I've described before is that if you go back to winter, we saw a lot of trading down from tall boots into shorter boots what our teams are liking is slipper like product but a little bit more structured. So clogs I've talked about as well. There are a number of different brands that are representing the clog style. And that's a nice trend that we are seeing. We are actually getting some early reads on fall product interestingly. It's still it's still quite hot in many parts of the United States. And -- but we are seeing that there is some more interest and more appetite in product for the fall. And so I think in general, the consumer has been sitting on the sidelines. They've been picking and choosing what they want to buy, but they -- and I talked a lot about the appetite for newness, which is driving what our consumer purchase behavior is responding to more than anything else. And so that appetite for newness, we have seen translate into appetite for more fall and winter type product despite the fact that it's still summer time.

And then on Schuh, obviously, that business is trending very well. You referenced some market share gain there. I guess I'm curious how much of this is -- anything you talked about kind of a better assortment. How much of this is the assortment is that much better? Maybe the consumer in the UK is stronger. The competitive landscape has changed more there than here. Can you maybe parse that out a little bit more?

Yeah. There are lots of dynamics within the U.K. market. Schuh business has performed just remarkably well in the face of pretty extreme headwinds. There was a lot of change in the consumer in the retail landscape. There were a lot of retail store closures and the like, but that's largely behind us, and we're measuring against a market that has stabilized from the point of retail store closures. And so against the backdrop of a consumer environment in terms of inflation being high in terms of just overall spending power on the part of the consumer being competed away, Schuh is outshining competition and truly taking market share. And so the measurement of market share is that the compelling assortments that Schuh's offering the great service within stores, the terrific abilities on the website is the amplified marketing and the specific marketing to the Schuh consumer is resonating and working really well. So it's a combination of lots of factors in addition to access to more and better of our allocated product that's what's working well, and that's been a pretty remarkable move up to number 10 in the overall market. And that's a movement of three places overall. So it is a gaining of market share because of how well that team has created strategies to go after the market and how effectively they've executed.

Okay. And then one more, and I'll get into it back in the queue. You mentioned some of the challenges around wholesale. I think you referenced some weakness for J&M in the quarter. And then also, have you changed in your outlook for the back half. Can you say what J&M wholesale was in the quarter? And then can you maybe just again add a little bit more color in terms of how you're thinking about wholesale, whether it's for J&M or the other brands for the back half?

The way to think about that, Mitch, is that the one way you can get to it because we didn't break it out specifically, is that J&M's comps and that's really retail stores and e-commerce were plus 12%, and the growth in sales overall for the business was up 4%. So you can get a measure of the overall wholesale headwinds there. And with what we're seeing, and I think what many in the industry are talking about is that given the consumer environment, the -- our wholesale customers, that is our retail partners are just being very conservative. And right now, the number one thing is to keep inventories clean. And even when -- and to keep them low, and even when product is selling through nicely as it is evidenced by the great sell-through in our direct channels. Our partners are being cautious. And I think that they just are coming off of a huge bulge of inventory and want to make sure that they are able to keep inventories in line. And so there's tended to be really pronouncements across the board, again, in spite of sell-throughs, great sell-throughs within particular brands. And so we have seen that, in general, on the branded side of our business and have reflected that into our overall guidance for the back part of the year.

Okay. Thanks. I’ll get back in the queue.

Thank you.

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

Great. Thanks. I was wondering, if you could talk about some of the momentum that you've seen at Johnston & Murphy. You mentioned that comps were up fairly strongly. So it would be great if you could just double-click into what's driving that momentum and what you expect to head at the division.

Corey, thank you for that question. We're very excited about our prospects for J&M. It's one of the most exciting opportunities for growth within our company and very much aligned with our strategy to grow the branded side of our business. What we did, what that team did in being really hard hit during the pandemic was to pivot much harder into casual and into comfort. And it's great product with great styling, but also with special technical features with proprietary chassis systems. It's waterproofing features, it's smart moisture wicking technology, and we've been investing a lot in the product. And so it's a comfortable product. It's a product that's really filled with great features, and it's much more casual. In prior times, we have been focused on a shift into casual might mean trading down average selling prices for our footwear. But because we have built in technology, we're actually able to achieve pretty similar overall pricing for casual products. And in addition to that, the team has done quite a tremendous job of proliferating categories and building these technical features into the apparel and the accessories. And so I talked about our overall apparel and accessory sales being up 20%. They now comprise overall 40% of our direct-to-consumer sales. And so in general, our customer really likes what they're seeing. They're seeing an opportunity to buy product that doesn't -- that they doesn't have in their closets right now, and it's just fantastic when you put on the shoes, you put on the parable it is so comfortable. It is so good looking. And so there's opportunities for further expansion into other categories, expansion into blazers, we've been doing really well this season. We have expanded into a boys business as well. And we think right now the opportunity is to build brand awareness. Our customers like what they're seeing. Some of our more recent research has said that we have opportunities to drive further awareness, and that's what we're intending to do.

Great. Thanks. That's very helpful. And then just secondly, on inventory. It seems like you've made some really nice progress there. Could you maybe talk about how you expect inventories to trend throughout the rest of this year? And maybe the associated impact on margin. It seems like your inventories maybe even be in a better place than the industry more broadly. So curious just to get a sense for where you're at on that journey.

Yeah, Corey. This is Tom. Good question. We're really pleased with what we've been able to do with our inventories. The Journeys Group continues to have strong relationships with all its key vendors and those vendors work and the merchandising team works very closely with those key vendors. Making sure we have the right product at the right time and the appropriate inventory balance, so we can mitigate month balance (ph). So for terms of trends going forward, you saw the overall inventory was down 2% to 3% at the end of the second quarter. We expect to even continue to improve on that for the third quarter and the fourth quarter. And Journeys specifically, you saw it was down at the end of the second quarter, 15%, and we expect similar kind of results in the third quarter and the fourth quarter. So I'm really pleased with that. And I think in terms of how that impacts margins going forward, we feel a little bit more bullish in the fourth quarter on Journeys margin as a result of that. Because we're going to end the year with an inventory position of -- with much more of their current relevant product that's selling well vis-a-vis a year ago. So really good what we've done with inventory. We've got continued processes in place and the business is driving to continue to watch inventories going forward and help -- which will help with the margins as well.

Yeah. As Tom said, our merchants have done a great job of managing inventory. But what's so good about this is it gives us lots of flexibility to chase into the newness that I've been talking about. We, in fact, have been able to do that. And so we've got ultimate flexibility to be able to bring in the product we need to be able to drive that business.

Great. Thank you so much for all the color and best of luck.

Thank you.

And we now have some follow-up question from Mitch Kummetz with Seaport Global. Please proceed.

Yeah. Thank you. I've got another handful, so I hope you'll indulge me. On the Journeys guide for the year. It looks like it's improved from down low doubles to down high singles. So can you kind of walk through sort of what's implied for the back half of the year. I mean, are you looking at like sort of down high singles in 3Q down mid-singles in Q4? Is that kind of the trajectory that you think that business is on?

Let me talk generally about that and let Tom be able to weigh in. But specifically, the approach that we have taken is that we believe it's prudent to just keep extrapolating the current trend, Mitch. So there's been a little bit of pickup in the current trend. And so we're incorporating that into our overall thinking. But we're not anticipating that there's going to be a big pickup in the consumer market. We're not expecting that any major economic improvement or decline in the back part of the year, we're just extrapolating out the trend. What we are doing though is we are building in this newness that I keep talking about and the product that is resonating with our consumer. And that's what is driving our overall pickup. It is product driven by gaining access to products that we have a good degree of confidence that we'll sell through. And so that's the general approach that we've taken. And I'll turn it over to Tom to give you any more color.

Yeah, Mitch. In the third quarter, we're really same expectations as we had three months ago for the third quarter. Sort of down relative to the prior year, high-single digits to low double-digits. And in the fourth quarter, pretty similar expectations as well. Maybe a slight improvement based on some improvement in newness, but really nothing of significance relative essentially pretty much in line with the prior expectations in both the third quarter and the fourth quarter.

Good. And then Mimi, just to clarify something you said earlier, and reconcile that with your prepared remarks. I think you said that July Journeys comp was minus 9%. And I thought you said in your prepared remarks that August was better than July in Journeys. Is that the case? Was August better than a minus 9%?

Yeah. I think what I was referencing in my prepared remarks, Mitch was the pickup from the second quarter into the third quarter. And so really it was going from the down 11% in the second quarter, which, of course, had sequential improvement into overall improvement into August.

Okay. And then you mentioned the confidence that you have in the newness. In your prepared remarks, you also talked about some of the challenges around the athletic inventory overhang. Have you seen any improvement there? Or are you anticipating less of a drag from that on Journeys as we go through the balance of the year?

We have been talking for several quarters at this point about the athletic overhang really within the industry, not within the product that we are selling. And initially, I think everybody was anticipating that this overhang would be cleared up by back-to-school. And then the goalposts shifted out until the end of the year. And what we are seeing out in the marketplace, and what we're hearing from other competitors and the like, is that the overhang is still out there, and it will linger certainly through the back part of the year. And that's incorporated within our overall thinking. And we are anticipating that by the end of the year, we hopefully that the industry can really move past some of this, but it's still existing today. And markdowns are still being taken pretty significantly. You're not seeing that degree of markdown within. That's not a specific factor that is affecting our business. But what it is doing is suppressing demand for some of the athletic product that we're selling because the deals that are out there on really very good product is pretty attractive.

Okay. And then just a couple of last one. Tom, on the Journeys stores, I know you're closing a bunch of stores. Do you have a store count for Journeys at year-end?

I do.

I've got kind of a separate one for you, Tom. On the $40 million in cost savings, it sounds like $20 million of that is being realized this year. Can you maybe just kind of walk us through the phasing of that by quarter? Have we already started to see some of that in the first half or the second quarter? And how does that kind of play out over the next couple of quarters? And that's it for me.

So answer to the first question. The projected Journeys store count is 1,057 at the end of the year.

Okay. Thank you.

And then -- on the cost savings. Yes. In terms of cost savings, Mitch, most of the costs will still be in the fourth quarter. There will be some, some in the third quarter, but most of it is still driven in the fourth quarter. And we're still confident -- still feel confident about what we're doing from that perspective. In addition to -- we did -- as we talked about, we are -- have a lot of initiatives in place relative to selling salaries, and we're losing a lot fewer hours relative to the prior year in selling salaries. At the same time, some of the traction we're getting in terms of reducing those salaries is not what we originally expected, but we'll continue to work on that. We still -- we also still continue to yield some selling salary savings. We also still have some good initiatives in place outside of selling salaries or we'll continue to double down on our occupancy cost going forward. We've got some initiatives in the branded group as well in terms of what we can do to reduce our expenses there. And we also have some procurement initiatives in place relative to outside spend that will continue to work on that. And then we've also have some good visibility and line of sight on what additional cost savings we'll look for next year as well. Pretty similar categories for next year as well. So good line of sight on that, good confidence that we'll achieve that again to the original question. There's more of it in the fourth quarter. I think another thing just to point out in the fourth quarter that in this year, the Journey's fourth quarter or expenses absorbed a 53rd week of expenses as well. So when you adjust for that and you adjust for a full year of the OpEx impact for store closings in the next year, you really start seeing the opportunity we have here with a reset cost base and you start thinking about sort of modest expectations for the other parts of the business from a sales growth and a margin perspective relative to the success we've seen there. So modest expectations on the other divisions. Even a modest comp improvement with Journeys going forward into next year. And with what we've done over the last 12 months, we bought back 13% our share. As you can see, a lot of earnings per share leverage next year.

This does conclude the question-and-answer session. I would like to hand it back to management for closing comments.

Thank you for joining us today. We look forward to talking to you on our next quarterly call.

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