Genesco Inc.

Good day, everyone, and welcome to the Genesco second quarter fiscal 2021 conference call. Just a reminder, today's call is being recorded. I will now turn the call over to David Slater, Vice President of FP&A and Investor Relations. Thank you. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our second quarter fiscal 2021 results. With me on the call today are Mimi Vaughn, our Board Chair, 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 that actual results could be different. Genesco refers you to this morning's earnings release and the company's SDC filing, including the most recent 10-K and 10-Q filings for some of the factors, including the impact of COVID-19 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 we have posted a presentation summarizing our results that is accessible on our website. We hope you're all staying safe and healthy. Now we'd like to turn it over to Mimi to discuss the quarter, highlight the progress we're making on select strategic initiatives.

Thanks, Dave. Good morning, everyone. Thank you for joining us today. As we navigate through one of the more challenging retail environments in history, I want to begin by acknowledging the tremendous effort from our employees. The Genesco team has shown great ingenuity and resilience throughout the past several months as we've tackled a myriad of new challenges brought on by the pandemic. I'm extremely proud of how our organization has executed during this incredibly fluid situation. Our company began the year with positive momentum and from a position of strength. following 11 consecutive quarters of comp sales growth. Regardless of the near-term volatility we're experiencing now and are likely to experience in the coming months with the pandemic, we remain confident in the strong strategic positioning of our businesses for the longer term. With respect to the second quarter, fluid is a good way to describe how recent events unfolded. The quarter began with positive momentum from pent-up demand and government stimulus as customers enthusiastically returned to our stores when we reopened and continued to actively engage and shop with us online. The significant undertaking of reopening brick-and-mortar locations required bringing back necessary staff to first reconfigure our stores and then to operate them under the new protocols to ensure our highest priority. the health and safety of our people and customers. The speed and executional excellence our teams demonstrated in getting our stores open and operational was a huge advantage as we often opened on the first day permitted by local authorities. In July, towards the end of the quarter, after this very positive start, our business in North America was impacted by the resurgence of the virus across the country and its negative impact on store traffic, and by the back-to-school season that hasn't yet materialized with an unprecedented number of students learning from home. Overall, 96% of our store fleet is currently open. The locations that remain to be opened are in places where local governments have restricted operations and a handful of street and airport stores where traffic hasn't yet warranted reopening. Journeys opened quickly and benefited from a first-to-market position early in the reopening phase. J&M didn't begin reopening until mid-May, as we anticipated its customer would take more time to return to shopping. Across the Atlantic, the UK government was more cautious about reopening its economy, Mid-June was a turning point, though, when England permitted openings, allowing us to rapidly reopen stores after that. Across all our businesses, our stores were open for about 70% of the days in the quarter. I'll go into more detail on each business in a moment, but we were very pleased by the initial performance of Journey stores, which crossed up double digits right out of the gate, and the nicely positive operating income journeys posted in Q2, and more recently with a steady improvement at SHU. But the headwinds at Johnson & Murphy had a material impact on the quarter. The combination of all these dynamics led to a total revenue decrease of 20%, with the drop in store volume partially offset by a notable 144% increase in e-commerce. Thanks to our decisive cost-cutting actions early in the outbreak, total expenses were down almost as much as revenue, even as we added costs from store reopenings. But we experienced gross margin pressure from higher digital sales, increased inventory reserves at J&M, and higher promotional activity at SHU. While sales and profits improved considerably over Q1, we swung to a loss versus a small profit a year ago, with adjusted loss per share coming in at $1.23. We were, however, encouraged by our ability to mitigate a portion of the impact to our bottom line from the reduction in store revenue. On top of the cost savings initiative, our performance benefited from a meaningful increase in e-commerce profits. Our e-commerce channel was nicely positive and profitable prior to the pandemic, We've always operated with the goal to drive profits, and each incremental sale is accretive, so we welcome the additional volume. And as e-comm grows, we're leveraging the fixed costs and the investments we've made in this channel, which is driving further profitability. Equally encouraging was our ability to reduce inventories in line with sales and to generate cash during the quarter. Mel will take you through the details of our net cash position, but I'm pleased with the entire organization's focus on cash generation and preservation during this trying stretch. So looking now at each of our businesses in more detail. Journeys was positioned well, with the right product at accessible price points for a teen customer excited and anxious to shop. Comfort became the fashion choice of the pandemic, and Journey's fashion athletic assortment fits the bill. On top of that, Journey's spring-summer offering, which included a range of comfortable sandals and other more casual products, resonated strongly, especially with women and kids. While store traffic was down double digits in the first two months of the quarter, robust conversion and higher transaction size drove comps in open Journey stores to positive double-digit levels as the teen consumer, less affected by the virus, showed up in our stores with stimulus money in their pockets and a high intent to purchase full-priced footwear. The strength of store sales plus healthy e-commerce volume, which almost tripled for the quarter, drove Journey's total sales up double digits year over year for June, even as we were still opening stores. Then in early July, traffic began to fade somewhat in North America as the number of new COVID cases spiked, first in states like Florida, Texas, Arizona, and California, and then across much of the country. Around mid-July, we typically see weekly traffic and sales volumes begin to accelerate as back-to-school selling gets underway. With students starting school later or beginning the new year learning from home, we experienced a meaningful fall-off in year-over-year store traffic and did not see the big bump in demand we usually see in late July, which pushed Journey's store comps into double-digit negative territory for the month. With July representing almost 50% of Journey's second quarter sales last year, this trend a little more than offset the strong store results in May and June. Shoes market positioning is similar to Journeys, selling comfortable, accessible fashion footwear to teens and young adults, a real plus for the pandemic. And good weather aided sales of sandals this summer. Shoe stores were open for less than half the quarter since the U.K. was slower in reopening its economy. And even as they reopened, U.K. consumers were not as quick to shop in stores post-lockdown. Traffic was initially down well over 50% before steadily improving along with sales as the quarter progressed. Like Journeys, robust conversion and higher transaction size boosted store comps to less negative levels. In addition, SHU's advanced digital capabilities were on full display. It was the most successful of our businesses, capturing a portion of the lost store volume by almost tripling its e-commerce sales, albeit through heavy promotional activity to match the UK competition. The trends that helped Journeys in Shoes performance have been headwinds for Johnston and Murphy with its less casual product and an older consumer. Results were very challenging throughout the quarter as the J&M customer had fewer reasons to buy with many working from home and most social gatherings and events postponed or canceled. Store traffic, after initially improving, reversed course in July with a spike in COVID cases and was down over 60% for the quarter, with sales performing a little better than that. While J&M historically enjoys a larger penetration of e-commerce sales, the gains during quarantine have not been as pronounced as we've seen in our teen and youth businesses. So given its results, J&M has been the business where we've taken the greatest action on cost and headcount in the quarter, in addition to significant inventory reserves. We also made the difficult decision to wind down Trask, which was a startup brand J&M was underwriting. Turning now to the current quarter. Back to school, our most important season after holidays, significantly impacts our Q3 performance. and back to school has been very different this year. Some of the more broad-based BTS surveys estimate that up to two-thirds of U.S. elementary, middle, and high school students will attend school only virtually to start. Beyond this, some will follow a hybrid online and in-person model. For those students going back in person, Labor Day is one week later this year, and many schools are delaying start dates for up to several weeks. This has a couple of implications for journeys. The first is the shift of BTS shopping to later. The second is to what extent will the appetite for footwear, apparel, and accessories change for students who will be learning virtually at home initially? We've already gone through what is typically the BTS peak in the last week of July and the first half of August, so we saw a meaningful drop in journeys, traffic, and sales versus last year due to the shifts. We have, however, also seen significantly better results in the last two weeks and would expect this trend to continue as comparisons further ease. We've seen nicely positive comps for this period in some states where we know students are going back in person. When all is said and done, we believe the BTS selling season will be prolonged, extending several more weeks into September for the delayed starts, and potentially longer if virtual learners then shift to in-person. Journeys as the go-to place for BTS footwear is ready to service customers with an exceptional assortment and excellent service whenever BTS finally arrives. Back to school in the UK has started as usual, and we've seen store traffic and sales build in Q3 as a result. SHU's e-comm performance remains strong with the potential to fill much of the gap left by stores in the quarter. At J&M, the third quarter has seen a continuation of Q2 trends, and we expect the catalyst for improvement to be a switch in the fall season, which is typically in August, but we shifted to September this year. Visibility is limited as we head into the back half and dependent in part on what happens with the virus and how federal, state, and local governments respond. As such, we're approaching the remainder of fiscal 21 cautiously, especially as it relates to expenses and inventory. The cost reductions we've booked to date reflect a small amount of the progress we've already made in our recent rent negotiations, with both a number of our larger as well as some independent landlords. We continue to engage in constructive conversations with the balance of our landlord partners who understand both our need for rent relief while stores were closed and for more flexible and appropriate rent structures going forward in order to keep stores open. Shifting gears, I'll discuss the progress we're making on several digital and omnichannel strategic initiatives we outlined at the beginning of our fiscal year, which we're speeding up wherever possible. The first is accelerate digital to grow direct-to-consumer. Digital is one of our biggest growth opportunities, and while we doubled e-commerce over the last five years, we aim to further accelerate growth to double the business again in a shorter period going forward. When stores closed during the pandemic, our e-com business experienced unprecedented demand. Our second quarter was the highest volume digital quarter in company history. Importantly, we were able to meet the explosive demand thanks to investments we've made in mobile, our platforms, our websites, and our distribution centers. We've helped the customer adjust to the pandemic by introducing services such as pay-in-three or four installments, and videos on how to measure shoe size to aid with online purchasing. In the near term, we're prepping to handle what we anticipate will be record holiday digital volumes and have just upgraded our inventory locating and order brokering system, which will help the cause by providing even greater inventory accuracy, which is critical during peak sales periods. We've also started to work on another bespoke e-commerce picking module for the Journeys DC as we continue to invest to draw digital. Not only did we achieve record e-com volumes, but we also achieved records for attracting new customers to our e-commerce channel. The number of new web customers visiting our sites grew 55% in Q2 over last year's levels. Progress we've made with our second initiative, Build Deeper Consumer Insights, to strengthen customer relationships and advancing our CRM capabilities are helping us to engage with and retain these new customers. We completed a CRM implementation as planned earlier in the year at SHU aimed at increasing frequency of shopping and average order value. SHU's CRM welcome campaigns initially launched in June are designed with personalized content to induce new customers to complete additional purchases and to build loyalty to SHU along the way. These new campaigns are already delivering higher conversion and promising results. Journeys has had success driving additional purchases through its welcome campaigns for its much larger number of new to customer files as well. Lastly, throughout the year, we have been making progress on a third pillar, maximize the relationship between physical and digital, as we plan to launch in our North American stores the initial pilot of Bopus, a capability we've had for a long time in the UK. Our stores are a strategic asset, and this capability, which is pandemic-right, allows us to leverage them further. Touching now for a minute on strategic positioning. The strength of our concepts and the competitive advantages we've built over time were evident in Q2. This was especially true for our concepts that serve teens and young adults, which represent more than 80% of our business. The Journeys team customer is a young, fashion-seeking customer who appreciates its edited assortment of branded product that's trend right for them, trusting Journeys to validate their choices. They also value and need the advice of our edgy, fashionable salespeople and like interacting with people they can relate to. As a house of brands, Journey serves its customers' needs year-round, from sandals in the summer to sneakers for back to school and boots in the winter, which is compelling since kids buy more than just one brand. And of course, with teens, the brand that's hot today will not be tomorrow, which strengthens the moat around Journey's positioning. Thanks to its unparalleled relationship with the teen customer, Journeys discerns these trends and continually secures the right, coveted, limited distribution product, which keeps its customers coming back again and again. SHU has a similar positioning to Journeys, and its strong connection with its customers has only increased during the pandemic. All this gives us confidence that when our consumer does come out to shop, back to school or otherwise, that both journeys in shoe will continue to capture more than their fair share. Our J&M brand, along with Levi's and our other licensed brands, have deep, rich histories and significant brand equity. J&M has achieved great success over the last decade, pivoting away from being known strictly as a dress shoe company, both evolving its product mix toward a more casual offering and proliferating the categories it offers as a lifestyle brand. While J&M holds true to its heritage of quality and style, customers have embraced the newer product. Casual and casual athletic styles represented 60% of J&M's footwear sales last year, and apparel and accessories 40% of sales in total. Work from home has only accelerated the trend away from dressier products, and the J&M team in response is rapidly accelerating the transition of its assortment to an even more casual focus for future seasons. Fiscal 21 is a year like no other. I'm so proud of how our teams have responded to the unprecedented challenges we've all faced. Not only have they focused on supporting the business and one another, but they've worked to advance our diversity initiatives and give back to our community in need through many efforts, including donations of shoes to students impacted by hardship as they get ready for back to school. While we don't yet know how the rest of fiscal 21 will play out, we believe our performance this year has been impacted by the extraordinary market conditions and back to school and back to work uncertainty. And as these conditions normalize, We will see the competitive strengths of our businesses shine through. Importantly, we're well positioned from a liquidity standpoint to weather the storm, and I'm confident we will emerge strong to take advantage of the many opportunities on the other side. And with that, I'll turn the call over to Mel to give more insight into our performance and financials.