Good day, everyone, and welcome to the Genesco Fourth Quarter Fiscal 2024 Conference Call. Just a reminder, today's call is being recorded. I'll 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 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 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 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, and thank you for joining us. Fiscal '24 highlighted how substantially our consumer shopping behavior has changed since the pandemic. Back in fiscal '22, consumers were flush with cash, thanks to fiscal stimulus, and spent heavily in the footwear category, which led to a record year for Journeys. As we entered fiscal '24, we saw a pronounced drop in purchases at the beginning of the year and have been working to close the gap ever since. The forward buying dynamic, along with a period of higher inflation that followed, competitive discounting to clear elevated athletic footwear inventories and a general lack of innovation in footwear made for a difficult operating environment that remained challenging as we progressed through fiscal '24. Throughout the year, these evolving purchase patterns led to greater volatility and made it hard to forecast demand, particularly for Journeys. In the fourth quarter, after a strong Black Friday and solid kick-off to the holiday season, sales were negatively impacted by a more selective customer that shopped almost exclusively for key footwear items, coupled with a market shift away from boots. As we got into the month of January, the combination of softer-than-anticipated sales due to disruptive winter storms and higher-than-anticipated expenses at Journeys is what drove EPS below our most recent guidance. Throughout the quarter, our core product assortment was much more pressured than we originally expected at the beginning of Q4. We expect this dynamic to carry into this current year, and given our limited ability to now impact product for spring, we believe it will remain a significant headwind in the first half despite facing easier compares. We are clearly disappointed with these results. However, I want to stress that we faced challenging times before and consistently demonstrated a strong track…

Thanks, Mimi. The headwinds in Journeys along with the inclement weather we faced in January had a greater impact on our fourth quarter financial performance than we initially anticipated. Relative to our revised guidance, the net earnings per share result was below our expectations, primarily due to expense pressures at Journeys coupled with the lost store traffic and earnings resulting from January's unusually impactful snow and ice storms. Looking ahead, the efforts we've made and continue to make to contain expenses and drive productivity will better position us to withstand this pressure and emerge even stronger as sales growth returns. Turning to results for the quarter. Consolidated revenue was $739 million, up approximately 2% compared to last year, driven by sales increases in all divisions other than Journeys. Excluding the 53rd week, total sales declined 2%. Relative to our expectations, sales were largely in line with our revised guidance, with the exception of J&M, which was especially impacted by January's weather disruptions. Total comps were down 4%. For Journeys, although comps were negative 5%, the business continued to improve sequentially. Schuh comps were down 5%, driven by stores. Even with the January shortfall, J&M comps increased a healthy 8%. By channel, total store comps were down 7%, while direct comps were up 5%, with digital sales accounting for 27% of total retail sales, up from 25% last year. We ended the quarter with 69 fewer stores versus a year ago, largely the result of closing underperforming Journeys stores as we optimize our store footprint and drive productivity in our remaining store fleet. Overall, gross margin was down 10 basis points compared to last year, which was ahead of our expectations due to lower planned promotions at Journeys. With our consumer focused on purchasing key items, discounting was not as effective…

Thank you. We'll now be conducting the question-and-answer session. [Operator Instructions] And our first question is from the line of Jeff Lick with B. Riley Securities. Please proceed with your questions.

Good morning, guys. Thanks for taking the question. Kind of like a three-parter here. First off, in January, it appears that Journeys sales actually got better. If you look at the pre-release, comp was down 6%, it ended up being down 5%. Weather was bad. I was wondering if you could expound upon that. And then, just building on that, you referenced, Tom, in your script product challenges. I'm just kind of curious product challenges for the first half, first quarter, what specifically those are. And then, the big kind of head scratcher question is the implication was that -- or the thought that sales was the issue, but it appears that it's expenses and you referenced unanticipated expenses. And just to put a point on this, in 2019, you did $317 million of gross profit dollars. This year, you did $342 million of less stores, but your SG&A is $43 million higher. So, it appears that the issue here might be expenses more than it is sales or gross profit. So, I was wondering if you could unpack that for us. Thanks.

Jeff, thank you for all those questions and let's take them one at a time. So, you asked about in January, Journeys sales got better. And in fact, in January, Journeys sales did get better. I'll just remind you of the cadence of the quarter that we started out nicely in November with a very nice Black Friday weekend. And then, sales gave some back in December and then picked up in January. And I'll also say that in December, in particular, we saw that the customer was coming to our stores, traffic was up. But in fact, they were very focused on select items and were shopping only for those things, those must-have key items. And we always can convert our customers to other things, but it was challenging this year just given some of the other pressures -- economic pressures. And so, as we got into January, we saw that what really took off was our e-commerce business. We've been working to grow e-comm over the last many years, and we're delighted to see some of the growth. There were a lot of winter storms and our Journeys customer went online. We were driving some of those sales with clearance product, and so there was some appetite for clearance product as well. I would say that that's what helped January. And then, just talking about product challenges that are specific to Q1 before I hand it over to Tom, we have made a lot of progress on Journeys over the course of this year, where we started the year, we came into the year and, after relatively flattish sales the year before, saw a pretty significant drop as the consumer just had a great appetite for newness and wanted to buy different things than they had been buying…

Yeah, Jeff, let me try to tackle on the expenses and hit some of the points. I think the first one was an understanding of the expenses in January, and we did have some additional expenses more than we originally anticipated in Journeys, and it was around the store channel. Some of it was the occupancy cost for Journeys and some of that's related to just some of the final timing of some store closures there as well as we had some additional cost in January over and above what we expected, processing some significant returns to vendors. And as a result of that, the good news is we got our inventories down at the end of the year. Journeys down about 22% related to the prior year. So, there was some return on those additional expenses. And then, there was just some other additional store expenses related even to labor to process that return to vendor. So, that's the January number. When you look at expenses relative to calendar '19, our fiscal year '20, important thing to point out there is there's been a huge transformation in the business and that -- there's been a huge movement towards our direct business in all our businesses, especially Journeys. With that growth in our e-commerce business, there is an investment operating expenses. So, that -- you need to consider that when you're considering the growth in expenses. And I think another thing to point out on expenses in terms of when you look at our guide going forward to next year, you can see that that implies a significant reduction in our expenses going forward. So, we feel good where we're at on expenses. And when you look at that guide, you can see the traction we're getting, taking expenses out. And just another thing back on fiscal year '24, we got a lot of traction within the Journeys store channel taking expenses out. So, feel good where we...

Just a quick follow-up then...

Yeah, go ahead.

Tom, I'm just curious, with regards to the final timing of store closures, returns to vendors, the labor that's associated there, I mean, it seems like it might have been tempting to kind of put those in non-recurring, which you did not. Any thoughts there, and what maybe -- any guidance as to what that amount might have been?

Yeah. It's normal course, so we really -- those are situations we can't necessarily put them down into non-recurring. So, we were hoping to use the conference call here to get into conversations about some of those one-time type of things.

Yeah, we had an aggressive push and I think the great news is that we are in terrific shape in our inventory. Journeys is down more than 20%. And so, that, and we did that without having to take an excessive amount of markdowns. And so...

Right.

...we're clean. We've got ample open-to-buy to chase into the product that we know we will bring in during the course of the year. And so, I think that's the positive, and we had a chance to be able to push back more inventory that didn't work to our brand partners who've been exceptional working with us and are excited about being able to work with us to bring new styles in and to bring in to feed some of the trends like clogs and the fashion athletic that we see a lot of appetite for.

Okay. Thanks very much. I'm taking up too much time, so let some others ask the questions. Best of luck in Q1.

Thank you, Jeff.

All right, thank you.

Our next question is from the line of Corey Tarlowe with Jefferies. Please proceed with your question.

Good morning, and thanks for taking my question. Mimi, longer term in nature, curious to how you think about the go-forward margin trajectory for the business, and what the right margin profile for the enterprise might be more broadly, and what are the building blocks to get you to that level over a multi-year time horizon?

Corey, thank you for the question. To talk about the different parts of our business, we were delighted to see that both Johnston & Murphy and Schuh had back-to-back record years. We have done a lot of work there. The consumer changed a lot during the pandemic. Both of those businesses were quite challenged a couple of years ago. And we put our heads down and did the work to really turn around those businesses and took the actions around product and marketing and technology to be able to get those businesses back to mid-single digit levels of operating income where they have achieved historically. And so, what we are talking about right now is Journeys. And Journeys' value proposition is very strong. We've been through many cycles before where we have come out ahead. This time around, it was unique because there are so many factors at play, and we do believe it's a cycle that we're in. We have a lot of confidence in the Journeys business. It's the go-to-place for teens. It plays such an important role in just their selection of fashion footwear items. Our brand relationships are terrific as well. We're very important to our brands, and we've got some terrific dialogue going on with our brands today to talk about bringing in new product to be able to fill the appetite for our teens. The next thing I'd say is that Journeys is a really resilient business. If you go back and you look at our track record of navigating both economic headwinds and fashion shifts, we have successfully navigated that in the recent past and in the less recent past as well. And the beauty of our model is that we can shift into brands that are hot, we can rotate the assortment,…

Maybe one more thing I'd add, Corey, is on the branded side of the business. Johnston & Murphy and our Genesco Branded group, we're getting a lot of traction in terms of improving our gross margins and we have a roadmap going forward to continue to improve our gross margins on the branded side of the business. So that's -- as well as a driver going forward to improve the overall company operating margin.

Great. Thanks. And then, just to double-click on gross margin, it sounds like there's an expectation for sales to be down this year, but gross margin to be up. So, Tom, could you just maybe walk through how to get to that from the first quarter through the full year? And what are the underlying drivers are? And maybe rank the drivers, if you could?

Let me start and then I'll hand it to Tom. But I think we have been in a position where we've kept our inventories really clean through the course of the year. So, we haven't seen any -- we haven't taken markdowns at all near the level of others in our industry, and in fact, we outperformed gross margin in the fourth quarter. So, we don't -- and by the way, the industry is more cleaned up than it was when we started the fourth quarter. And so, we don't anticipate that we will have a lot of pressure from markdowns, given how clean our inventories are. There's a little bit of pressure from mix because of the brand mix in both Journeys and Schuh, but that's offset by some other initiatives that we have underway to help on gross margin. So, I think we're anticipating we'll be up a bit. And I'll hand to Tom to talk about that.

Yeah. In total, we expect it to be flat to up a bit for the year, and Mimi hit on a good -- one of the bigger points in terms of the promotional environment we're expecting on the Journeys side. Another thing to consider is with our Schuh business, we continue to work and have initiatives in place to continue to drive gross margin improvement there as well. So, we'll see some of that.

And some of that is freight contracts we've renegotiated. We've got more efficiency within our distribution centers, so both in the U.S. and the UK that will allow us to have more efficient warehousing and distribution expense.

And then, on the branded side of the business, we expect to see some improved margins there as well. But one thing to point out in terms of the cadence in that, in the first quarter, we're expecting some decline in gross margin, and that's mainly around the [IMO] (ph) mix in both Journeys and Schuh in the first quarter, and that seems to moderate as the rest of the year goes by.

Great. Thank you so much for all the color.

Thank you. Our next questions will be coming from the line of Mitch Kummetz with Seaport Research. Please proceed with your questions.

Yes. Thank you. Can you guys hear me okay? I'm having some phone issues.

We can.

We can.

Okay. Good. I've got a handful of questions. I'm going to maybe just do these one by one. First on Journeys, you mentioned the sequential improvement in 4Q. Has that continued through February? Or have you seen the business kind of fall back again?

So, when you think about the fourth quarter, I just talked about January picked up a bit. The key here, Mitch, is that what emerged over the holidays is that our consumer moved further away from core product. And while we made improvement in terms of the winter assortment that we brought in and the newness and the freshness, it's the core product that the consumer moved further away from. And that is core product that we anticipated to carry into the spring. And that's really what we have been focused on in terms of our outlook for the first quarter that we'd have pressure as a result of that. And so, we wouldn't anticipate that trend would pick up further. We have had nice sequential improvement, but we expect that we'll sort of be where we are at least for the first quarter of the year, that will improve a little bit as we can bring product in and affect the trend in the back part of the second year, even more pickup in the third quarter, and we have a huge push in the fourth quarter just given the overall lead times for footwear, which are in the range of six months.

And then on Journeys, so you're expecting Journeys comp to be down mid singles for the year, I believe, if I read the presentation correctly. It sounds like from a sales standpoint, you expect the most pressure in 1Q. So, what is your plan for Journeys in the first quarter? Are you expecting it to be down like double digits?

No.

No, not expecting it to be down double digits.

Right, yeah.

And for the year, I think we just need to check that number...

Yeah. I don't think we gave...

...for the year.

So, I'm not sure we came out with a number for Journeys specifically. I know we gave total company guidance for the year, but the first quarter for Journeys, we could expect that to be mid to -- down mid- to high-single digits in the first quarter.

Okay. It looks like in the presentation...

Not far from where we...

In the presentation, you've got Journeys down mid-single digits, but I guess that's on a sales side, not a comp side.

That's right. We have -- right.

That's correct. That's because of the stores that we've closed that are [indiscernible].

That is not a comp.

But are not productive in the [indiscernible].

Right. That's right.

Okay. And then, on Schuh, I know that you're lapping some difficult comps in the first half of the year. You guys were, I think, double-digit comp last year in the first half. So, how are you thinking about the shape of Schuh for the year just given tougher compares in the first half and then that easing in the back half?

Yes, that's exactly right. So, in the first half, we expect the most pressure of Schuh, because if you look at the stacked comps, we had really a pretty spectacular stacked comps in the first half over the last several years. And so, we expect continued pressure in Schuh, particularly because the economic environment has been tougher. In the second quarter, we actually expect that to ease off a bit. And we see opportunity in the back part of the year for Schuh with holiday and also back-to-school. The environment -- inflation is coming down. They've had higher inflation than we've had. Their inflation efforts overall are gaining traction. We expect that, that will show up in the consumers' appetite for purchasing in the back part of the year. There also have been mandatory wage increases in the UK that will take hold and we expect a brighter picture for the consumer in the back part of the year. Overall, Schuh has just been taking market share and operating in a very difficult environment. And the overall retail sales in the UK were down for the holiday period. And we expect that as the consumer regroups and we get into spring selling that there is appetite for spring product and some sandal product and that we'll be able to leverage that into the back part of the year. So, you're right, it's a more difficult front part of the year building into a more positive back part of the year.

And then maybe lastly, I'm just trying to better understand your confidence in an uptick in the Journeys business for the back half. Because for holiday, I mean, obviously boots were weak, but also you talked about selling out of key items. And then for the first half of the year, spring, you're talking about challenges in the core business. So, when you look at the back half, from a key item standpoint, are you anticipating better access and allocations to those key items? And then also in terms of the core business, are you seeing some inflection there? Do you think that -- you talked about vulcanized being difficult in 4Q. Like are you anticipating the vulcanized business getting or you pivoting to other things, other products that you consider to be core that you'd be better represented in core product because of some shift to other types of product? Do you understand what I'm kind of trying to get at? How much of this is just better allocation of key items versus something happening in the core that's different in the back half versus the first half?

So, a lot of questions in there, Mitch, but we are absolutely anticipating that we are going to be getting better allocations of product. We are absolutely anticipating that we are going to be shifting into brands and increasing the assortment in the brands that are working. And we've got line of sight into what those are. We've actually got line of sight into a bigger order book based on the actions that we have already taken. When I think about the strength of our Journeys' merchant relationships, we have doubled down on that by bringing in even more expertise that our new Chief Merchant and that Andy have and the relationships that they have with the brands that are really important. And so, it's a full-court press to get more allocation of items that we are excited about of diversifying across our mix with brands that are working today. It is moving the assortment into a different mix for sure. And we absolutely do not anticipate that core products that we've been selling traditionally will rebound, that the vulcanized product that I referenced will be rebounding. It is putting in additional product on the athletic side and also on the casual side to be able to build the sales through the course of the year.

Okay. That's helpful. I appreciate the color. So, thanks, and good luck.

All right, thanks.

Thank you.

Thank you. At this time, I will turn the floor back to management for any further remarks.

Great. Thank you for joining us today. We look forward to you joining us on future calls where we're going to talk about the progress that we are making within our Journeys business. And thanks again.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.