Genesco Inc.

Good day, everyone, and welcome to the Genesco First Quarter Fiscal 2021 Conference Call. Just as a reminder, today's call is being recorded. I will now like to turn the call over to Dave Slater, Vice President of FP&A and Investor Relations. Please go ahead, sir.

Thank you, Savannah, and good morning, everyone, and thank you for joining us this morning to discuss our First Quarter Fiscal 2021 results. With me on the call today are Mimi Vaughn, our President and Chief Executive 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 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 the schedules available on the company's homepage under investor relations in the quarterly earnings section. I want to remind everyone we have posted a presentation summarizing our results that is accessible on our website. Now I'd like to turn it over to Mimi.

Thank you, Dave. Good morning, everyone, and thank you for joining us today. We hope each of you and your families are doing well and staying healthy. Much has changed in the world since we last spoke a few months ago as the COVID-19 pandemic has challenged Genesco and others in so many ways, and as we strive to protect our people, our customers, and our businesses. Before we begin, I'd like to thank the Genesco team for the incredible tenacity and resilience you have demonstrated during these extraordinary times. Throughout the crisis, our people have been resourceful and effective, working to best navigate our business through this pandemic. Our company began fiscal 21 with positive momentum following 11 consecutive quarters of comp sales growth. Thanks to the work we did last year creating a footwear-focused company and building on the turnaround in profitability that began in fiscal 19, we entered the pandemic in a position of strength. Each of our businesses has a strong strategic position grounded in a deep and constantly evolving understanding of the customer it serves. The strength of our concepts and the competitive advantages we've built into leadership positions over time were evident as our customers actively sought to engage with us online while our stores were closed and as they have enthusiastically returned to our physical locations as we have reopened our stores. Going back to where we left off at our fourth quarter call, The impact from COVID-19 at the time was limited to some softness in store traffic, primarily in tourist destinations in both the UK and North America and in airport stores. The situation changed quickly as the number of reported cases rapidly increased, resulting in the President declaring a national emergency in many states requiring non-essential businesses to close and individuals to shelter at home. To safeguard the health of our employees and customers and with their well-being foremost in our minds, we made the decision to temporarily close all North American stores beginning on March 18th and all UK locations beginning on March 23rd. We also closed our headquarters buildings in Nashville, Montreal, and Scotland and began working remotely at that time. With our principal source of revenue interrupted, we quickly went to work and took dramatic and swift actions to drive e-commerce, our remaining source of revenue, and to preserve liquidity and financial flexibility. We've more than doubled our e-com business over the last five years thanks to a variety of investments. We've had a real focus on mobile. We've made our website experiences better for navigation and checkout. We've invested in distribution center expansions with dedicated e-commerce fulfillment, among many other investments. We've been able to capitalize on these investments, driving significant gains in our digital business during the pandemic. In mid-March, we began executing specific actions to further drive e-com sales and enhance communications with our customers while stores were closed. We increased online advertising spend above the increase we already planned, investing in marketing channels that have historically had higher conversion rates. In addition, we strategically revised our social and other digital campaigns to reflect comfort, creativity, and at-home messaging while intentionally featuring lifestyle supporting social distancing. User-generated content, positive messaging, and creative campaigns reflecting quarantines resonated especially well with our teen and youth customers. While we did experience a brief slowdown in digital sales from mid to late March, as consumers stocked up on food and other necessities to weather a prolonged home confinement, trends picked back up in early April and continued to accelerate week over week, resulting in triple-digit e-commerce gains for the month and an almost 65% comp gain for the quarter. Close to 90% of Journey's e-com traffic came in over mobile, with a 65% conversion increase. SHU's advanced digital capabilities benefited it greatly as well, as there have been days when e-com sales alone have been higher than last year's stores plus e-com sales combined. What's most exciting is the number of new visitors to our sites, representing nearly 50% of traffic in Q1. Not only are we attracting new customers and expanding our online shopper base, but we are also converting traditional in-store customers to digital buyers. In May, e-commerce sales increased considerably above April's substantial level, and we posted a 300-plus percent comp increase even as our stores were reopening. April delivered all-time records for e-com shipments, and in May we broke those records again. Our ability to process these volumes was made possible by the hard work of our DC teams and the investments we've made in enhancing our fulfillment capabilities. As pleased as we've been with e-com, the loss of store sales presented a tremendous economic challenge for our business. As such, the next area of significant focus was inventory. Knowing our stores would be closed for several weeks, our highly skilled and experienced merchant and product teams quickly turned to reducing any seasonal product they could given a shorter spring-summer selling season, pushing out orders for core product that would be needed later, and canceling select fall-winter merchandise orders that we anticipated wouldn't be needed. This was a very complicated undertaking, and our genuine thanks goes out to our team and our fantastic vendor and factory partners, who have not only extended us additional payment terms, but also, as they always have over the years, worked collaboratively and productively with us to adjust inventory levels to the reduced demand. As a result, inventory at the end of Q1 was up only 6% on a significant reduction in sales from store closures, and we have reduced receipts by several hundred million dollars going forward. The increase at quarter's end was largely at journeys, representing fresh products that should sell through as stores reopen. Our attention turned also to managing expenses, tightening capital, and controlling cash outflows. We made the decision to reduce our workforce by 90% across our stores, corporate offices, and distribution and call centers largely through extensive furloughs. We chose furloughs to give employees the confidence they were still employed by us and to facilitate a faster ramp up when stores reopened. In addition, we implemented salary reductions for me, our executive team, and select employees while our board volunteered to forego their cash compensation during this difficult period. As a result of these and other decisive and some difficult actions across our P&L, we reduced expenses by 20% during the quarter. At the same time, we've had productive conversations with our landlord partners regarding rent relief while stores were closed, along with discussions about rent structures as stores reopen, given our need for more flexibility due to the significant uncertainty ahead. Finally, we cut capital spending by more than 50% for the coming year. We're moving forward with planned investments in digital and omnichannel strategic projects, such as BOCUS and distribution center upgrades, which are vital to further building our capabilities. but we've halted other spending mostly associated with new real estate projects. While we started the crisis in a positive cash position to ensure we had adequate liquidity, we borrowed a little over $200 million from our existing credit facilities and recently secured additional availability, which Mel will discuss. We managed cash burn very well and at quarter's end had $239 million of cash, including these borrowings. thanks to the extensive efforts I've described across the company and our treatment of payables and rent. Overall, we remain confident we're taking the necessary steps and working actively to maintain the cash position needed to navigate this pandemic. On May 1st, we shifted our focus and were excited to quickly begin reopening stores and welcoming customers back to serve them in our physical locations. We're operating at reduced hours, adhering to CDC and other government and health authority guidelines, where state and local officials have allowed malls to operate. As of today, we have opened more than 900 Journey stores and more than 80 J&M stores, close to 1,000 stores in total. More than 70% of our stores are now open in North America, and two-thirds of our fleet is open in total. The health and well-being of our employees and customers remains our absolute priority, and our special task force teams have worked tirelessly to ensure the appropriate safety procedures and equipment are in place for our stores and headquarters. All stores are operating under enhanced measures, including requiring our employees to wear masks, providing hand sanitizer in multiple locations throughout the store, implementing enhanced cleaning and sanitation protocols, reconfiguring sales floors to promote physical distancing, and modifying employee and customer interactions to limit contact. We will continue to reopen stores in a phased approach and where we believe we can work carefully under our enhanced measures to ensure the safety and the health of our people and customers. With the visibility we currently have, we're anticipating reopening close to 85% of our stores on both sides of the Atlantic by the end of June and almost all stores by the end of July. For the Journey stores we've reopened, not surprisingly, we've experienced lower traffic, double-digit decreases compared to last year. Journeys, however, have been able to more than offset this headwind through significantly higher conversion and higher transaction size, comping nicely positive to last year so far in the stores that are open. Women's and kids' sales have been especially robust, and we've seen families shopping together to satisfy pent-up demand. All in all, we're very encouraged by Journey's store performance post-reopening. We've always known the Journeys customer enjoys the store experience and the exceptional service they receive in person, and it's been tremendous to see the strength of the Journeys brand draw shoppers back in. To have opened as many stores as quickly as Journeys has done is a real testament to its operational abilities and sales have benefited from this first mover advantage. Conversion at the reopened Johnston and Murphy stores has also been much higher, but traffic has been substantially slower than we've seen at Journeys. While traffic and sales have been improving each week, we believe the return to pre-virus levels will take some time, as the J&M customer has remained largely on the sidelines due to the economic uncertainty brought on by the pandemic. Reopen store sales have been running at less than half of last year's levels so far. And while J&M historically enjoys a larger penetration of e-commerce sales, the gains during the quarantine have not been as pronounced as we've seen in our teen and youth businesses. As was the case prior to the pandemic, casual footwear and apparel continue to drive J&M sales. as working from home and sheltering in place has temporarily reduced the need for dressier products. With respect to SHU, it's too early for a read since only a few stores have been open for a few days. The UK has been slower to open than the US and is opening with a greater number of restrictions. June 15th is a key date when England allows stores to reopen and we expect to have over two-thirds of our fleet up and running then. With best-in-class e-commerce capabilities, SHU has been the most successful of our businesses, capturing some of the lost store sales over the past two-plus months, albeit through heavy promotional activity to match the UK competition. Like Journeys, women's and kids' sales have been most brisk. So it's important to note that we believe sales in May, typically a low-volume month for us, are benefiting from a number of special factors, including pent-up demand, less competition while many stores remain closed, more free time as consumers are home during the week with kids out of school, and consumer spending power, which has been bolstered by stimulus money and enhanced unemployment benefits. We've also opened in areas least affected by the virus, so we will see where sales normalize once all stores are open. Regardless of the near-term volatility we may experience in the coming months, we remain confident in the strategic positioning of our businesses for the longer term. We aspire to create and curate leading footwear brands and to be the destination for our consumers' favorite fashion footwear. Both journeys ensue as houses of brands have demonstrated their vast consumer appeal during this crisis. J&M, along with Levi's and our other licensed brands, have unique and rich histories, and their longer-term success lies with the loyal customer bases they've built up over the years. There will be opportunities that arise out of this chaos and the retail consolidation that is following, and our businesses are very well positioned to capitalize on them. I began and would like to end my remarks today thanking our extraordinary team of people for their diligent efforts and perseverance, especially those who've been on the front lines in our stores and distribution centers. Times of great adversity like these highlight our greatest asset, our talented, experienced, and highly committed people who adapted quickly and with ingenuity and creativity are meeting the many challenges we face. This has made all the difference for our company and has been inspiring to see unfold. Genesco team, I'm so proud of all that you've accomplished. At the same time, we've made a real effort to take care of our community through activities like Journey's involvement in the Tennessee Emergency Management Agency's COVID-19 response, J&M's donation of thousands of masks to the local community resource center, the SHU Trust's 3 million pound donation to the National Emergencies Trust and the National Health Services Charities, and licensed brands SHU donation to local schools, healthcare workers, and Souls for Souls. Our thanks also to our partners around the world who've extended great support to us. And finally, during this time of pain and anguish in our country. All of us at Genesco stand with those fighting for the causes of equality and racial justice, and we call on us all to help heal the divisiveness and to make progress in our communities. And with that, I'll turn the call over to Mel to give more insight into our performance and our financials.