Genesco Inc.

Good day, everyone, and welcome to the Genesco second quarter fiscal 2020 conference call. Just a reminder, today's call is being recorded. I would now like to turn the call over to Dave Slater, Vice President of P&A and Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our second quarter 2020 results and our full year fiscal 2020 outlook. With me on the call today are Bob Dennis, Genesco's Chairman, President, and Chief Executive Officer, Mimi Vaughn, our Chief Operating Officer, and Mel Tucker, our Chief Financial Officer. 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 filing for some of the factors 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 that we have posted a presentation summarizing our results and guidance that is accessible on our website. As another reminder, we filed an AK in connection with our last release in Q1 that contained adjusted non-GAAP fiscal 19 results by quarter for the last year, restated to reflect the sale of LID Sports Group as if we never owned the business per GAAP requirements. You can find that on our website as well. Now I'd like to turn it over to Bob.

Thanks, Dave. We have two new people in the room with us today. You just heard from Dave Slater. Dave joins us with over 20 years of retail experience with leadership roles at Chico's, FAS, Dollar Tree, and Walmart. Dave will be leading our investor relations function as well as our financial planning and analysis team. We are excited to have someone with his relevant retail background join our team. As Dave mentioned, we are also joined today by our Chief Operating Officer, Amy Vaughn, and for the first time, Mel Tucker, our new Chief Financial Officer. Mel joined Genesco in June from Century 21, the New York-based department store where he was CFO since 2014. Mel also has extensive retail experience, having served in senior financial roles with leading companies such as Bass Pro Shops, PetSmart, and Home Depot during his 25-year career. We are thrilled to have someone of his caliber on our team, and so welcome to you both. In a moment, Mel will review our recent performance and updated outlook in detail, and Mimi will cover some specific topics that could have potential impact on our business and the progress we were making on the SHU 20-point plan. But first, let me walk through the highlights from the second quarter. From a high level, our consolidated results exceeded expectations across the board. The performance of our U.S. footwear businesses, journeys in particular, fueled a 3% increase in consolidated comps, our ninth consecutive quarter of positive consolidated comparable sales for our footwear businesses. We were particularly pleased with this result given the more challenging stacked comp comparisons we faced as we moved from the first into the second quarter. Importantly, our overall brick-and-mortar performance remained in positive territory, and e-commerce comp sales accelerated to 20%, continuing its strong multi-year run. Total sales for the company would have been up, but for the impact of lower UK and Canadian exchange rates. The solid comp, coupled with higher gross margins across all divisions, resulted in a significant improvement in profitability. Excluding bonus expense, SG&A was up only 1% as we continue to benefit from the numerous cost savings initiatives we implemented through fiscal 19 and in this fiscal year. On an adjusted basis, Earnings per share was 15 cents compared with a loss of a penny in the second quarter last year. This solid performance combined with our strong first quarter results represent a great start to our first fiscal year as a footwear-focused company following the sale of lids in early February. We completed the balance of the significant work of transitioning lids off our infrastructure continued the important work of eliminating the stranded costs associated with the sale. Looking now at the performance of each of our footwear businesses in Q2. For Journeys, it was another outstanding quarter as the strength of its product assortment fueled continued top-line momentum, even as the business was up against a more challenging comp comparison. Strong full-price selling of seasonal footwear, including sandals, contributed to Journeys' success of fashion athletic styles. As usual, the retro and casual product that were best sellers this year were different from a year ago, as the Journeys merchants continue to showcase their ability to adeptly manage the fashion rotation that is an inherent part of the business. Both store and e-commerce comps at Journeys were nicely positive, which led to a 4% comp increase on top of last year's double-digit gain and a significant improvement in year-over-year profitability. Similar to recent quarters, great expense control along with strong sales allowed for expense leverage with rent leverage as the highlight. Moving over to the UK. The operating environment remains difficult due to the continued soft consumer demand for apparel and footwear, challenging retail traffic overall, and then overall economic weakness related to even greater Brexit uncertainty. Given all that, We were pleased that SHU achieved a flat comp driven by improved e-commerce results. The SHU team did a good job navigating the current headwinds to deliver higher gross margins than a year ago through careful inventory management and lower markdowns on sale products. Unfortunately, this effort wasn't enough to offset lower overall sales from changes in foreign exchange, coupled with the deleverage from negative store comps in the quarter. Some of you might have seen a recent article in the UK's Sunday Times that reported SHU had engaged an outside advisor to help explore potential restructuring opportunities. It's important to understand the meaning of the word restructuring in this situation. We are largely looking at ways to renegotiate rents for SHU's store fleet in order to improve profitability following the ongoing declines in high street and mall foot traffic, making these rents uneconomical. Let me be clear, as I think the article might have been misinterpreted, we are not exploring a potential sale of this business. SHU remains firmly in our future plans, and we are encouraged by the results of our 20-point plan, and we are committed to working closely with the team to improve upon recent results. So now back to the U.S. Johnson & Murphy retail comps improved from first quarter levels despite being up against stronger comparisons in the second quarter. While the shift of the sale catalog to later in the quarter versus last year was less effective than we had hoped, resulting in J&M's 1% comp gain, we did benefit from stronger apparel sales. The business also achieved better gross margins and benefited from lower expense dollars to deliver an operating profit above last year's levels and ahead of expectations. Nine of the top ten shoes for the season in our retail business were casual sport or hybrid styles with athletic-inspired bottoms, underscoring the progress J&M has made diversifying its product offering beyond the dress shoes that the brand was originally known for. Finally, licensed brands also delivered a better bottom line performance with meaningfully higher gross margins on lower sales. With a sizable cash flow generated from operations last year and the sale of the Litz business, we've been actively buying back stock opportunistically and returning capital to shareholders. Across two authorizations totaling $225 million, we began buybacks in late December, and as of last Friday, have repurchased close to 5.2 million shares, almost exhausting the second authorization. This represents a 27% reduction to average shares outstanding last year. While the most recent repurchase activity will aid earnings for this year, the impact will be in the back half. The improvement in earnings per share above our expectations in Q2 was driven by better operating performance and not by share buybacks. Even after finishing these two authorizations, we still have excess cash flow from last year we can put to work. and we anticipate generating additional cash flow in this fiscal year to add to that. We are pleased to share that the top-line momentum that we experienced in the second quarter continued nicely in August on both sides of the Atlantic for journeys and for SHU through the heart of the back-to-school selling season. J&M's August comp results slowed during this low-volume month of this business as fall goods begin to land and before a shift in the season begins. Based on our strong first half results and positive start to the third quarter, combined with the repurchase of more shares than we initially expected, we are raising our full year guidance. We now expect earnings per share for fiscal 20 to be between $3.80 and $4.20, up from our previous range of $3.35 to $3.75. And as always, we do regard this guidance as a range, with some upside and some potential downside. We are now more optimistic about Journey's results, offset by Barn Exchange headwinds at SHU and some comp headwinds at J&F. Later in the call, Mimi will review some of the other headwinds we potentially face in the back half, which have not been built into our guidance, namely tariffs and Brexit, and are planned to lessen their possible impact. With respect to our guidance, something close to the middle reflects our best current belief of where we might come out for the year, which represents an increase in the neighborhood of 20% over fiscal 19 earnings from continuing operations at $3.28. And with that said, let me turn the call over to Mel, even more specifics on the financials and the guidance. Over to you, Mel. Thanks, Bob.