Genesco Inc.

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

Good morning, everyone, and thank you for joining us to discuss our fourth quarter and fiscal 2021 full year results and our key areas of focus for fiscal 2022. 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 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 that we have posted a presentation summarizing our results that is accessible on our website. With me on the call today is Mimi Vaughn, our Board Chair, President, and Chief Executive Officer, who will begin our prepared remarks with highlights from the fourth quarter and year, and Tom George, our Chief Financial Officer, who will review Q4 results in more detail and provide direction for the first quarter of the upcoming year. Tom will then turn the call back over to Mimi, who will then discuss some of our key strategic initiatives. We hope that you are all staying safe and healthy. Now I'd like to turn it over to Mimi.

Thanks, Dave. Good morning, everyone, and thank you for joining us today. I'd like to begin by welcoming Tom, who with almost 30 years of CFO experience and deep roots in brands and retail, has been a tremendous addition to our team as we drive the recovery in our business and a return to profitable growth. We concluded an incredibly challenging year with a fourth quarter that exceeded our expectations across the board. Our performance was driven by record digital revenue and superb all-around results at Journeys, highlighted by stronger than anticipated store volume. As it did throughout fiscal 21, our organization successfully navigated difficult operating conditions to serve our customers, this time during the all-important holiday selling season. I could not be more proud of how well our teams have executed during the pandemic. They have faced each new challenge in a very dynamic environment with tenacity and ingenuity while operating under protocols to ensure our highest priority, the health and safety of each other and our customers. My sincere thanks goes out to every member of our team at Genesco for all your good work driving the results we achieved. Before we get into a review of fourth quarter performance, I'd like to highlight some of the major accomplishments from fiscal 21. Starting with the significant and unfamiliar task of efficiently closing and swiftly reopening our entire fleet of nearly 1,500 retail locations, some of them multiple times. Capitalizing on the accelerated shift to online spending, achieving record digital revenue of $450 million, an increase of almost 75% year-over-year, while also fueling record profitability for this channel. Driving record conversion rates in stores, helping to partially offset the impact from lower traffic levels and store closures. Increasing market share in Journeys in SHU, which represent the large majority of our revenue with their ability to retain sales in the face of the pandemic's disruption. Conserving capital and reducing operating expenses by 15% compared with fiscal 20. Generating cash flow of over $130 million to ensure healthy liquidity. And finally, delivering sequential improvement every quarter. In particular, bottom line results reflect the strong foundation we built for the digital channel prior to the pandemic. Our online business generated double digit operating margins before COVID-19 due to our focus on full price selling, disciplined marketing spend, and shipping and return policies to reinforce profitability. Thanks to numerous digital investments we've made over the past several years, Not only were we able to effectively handle the unprecedented volume from accelerated demand, but e-commerce margins improved further as we leveraged these investments over a wider base of revenues. Our overall performance under difficult circumstances also reflects the strong competitive positions of our retail concepts prior to COVID-19 and our success capitalizing on opportunities to further strengthen the leadership positions of our teen and young adult footwear businesses. In today's channel-less world, where the consumer can shop anywhere the consumer wants, Journeys and Shoes results underscore the tremendous loyalty they've developed with their existing customers and compelling proposition they offer new customers. So turning now to the fourth quarter, the work we did to have the right assortments and right holiday campaigns helped deliver Q4 results ahead of expectations in spite of some store closures not anticipated in the UK and Canada and supply chain delays and disruption. While we continued to face softer traffic levels than a year ago across our retail businesses, Journey Stores posted a nice improvement compared with the third quarter as more shoppers visited Journey's locations during the peak weeks leading up to Christmas. Our store teams once again drove very strong levels of customer conversion to help materially offset the headwinds from less traffic. Meanwhile, our business online, especially mobile, experienced very strong gains in both traffic and conversion, with new customers again driving increased volumes. New website visitors were up 40%, contributing an almost 50% growth in new customer purchases, and we delivered another strong quarter of digital growth with comps up 55%. The combination of these factors led to a total revenue decrease of 6% versus last year, with stores open about 90% of the possible days in the quarter. This result was better than we expected, due mainly to the stronger store sales at Journeys and represents a meaningful improvement from last quarter's 11% decline and Q2's 20% decline. While gross margins were down compared to last year, the gap narrowed for the third consecutive quarter and the sequential improvement was driven by an increase at Journeys due to strong full-price selling. As a result of decisive cost containment actions, along with one-time benefits, including substantial rent abatements recognized in the quarter, we drove total expenses down twice as much as revenue on a percentage basis. Inclusive of the rent abatements, operating income was up year over year. By tightly managing inventory throughout the year, we had the flexibility and confidence to bring in new fresh products. However, much lower year-end numbers also reflect the disruption in the supply chain, which caused delays, especially at Journeys and SHU, where we would have liked to have received product earlier. Turning now to discuss each business in more detail, let's start with Journeys and begin by congratulating the team on its impressive results across the board. Journeys delivered record operating profit in the biggest quarter of the year in the midst of a pandemic. Fourth quarter top line results match last year's levels as its merchant team skillfully interpreted trends, making the right product calls, and its store and digital teams delivered an exceptional customer experience. When our stores were open this year, Journey's customers were enthusiastic to shop our physical locations and engage with our people. And over the holidays, we were pleased by the strong appetite to shop our stores. With replenishment orders for many key styles arriving post-holiday, combined with the first wave of checks from the December stimulus program delivered early in the new year, the business accelerated as January progressed, leading to a strong finish to the quarter. Comfort reigns as the fashion choice of the pandemic, and Journey's offering of casual product continued to resonate strongly with consumers. While teens always have a big compliment of fashion athletic footwear in their closets, when fashion swings toward non-athletic, or what we call casual footwear, Journeys is especially well positioned among its competition to deliver this assortment. This fall and winter, our consumers' appetite for boots began early, and our boot business was good, and our casual business was even better, especially in women's and kids. Congratulations, Journeys team. Following a good back-to-school season, shoe came into the fourth quarter with positive momentum and a strong assortment of high-demand brands and styles. Unfortunately, the holiday season was severely disrupted by store closures across the UK, with shoe stores closed for about two-thirds of the possible days in the quarter. Fortunately, with best-in-class digital abilities, SHU was able to capture a significant portion of lost store volume through its digital channel, and total sales were down only 13%, capping off a year in which SHU, like Journeys, gained market share. As with Journeys, SHU's casual assortment gained ground over its fashion athletic assortment, with boots and casuals strong throughout the quarter and women's leading the way. Meanwhile, Johnson & Murphy's casual footwear offering and apparel categories were again the bright spots for the brand in what remained a very tough environment due to the work-from-home trend and significantly fewer social gatherings during the pandemic. The plan going forward is to accelerate the work started years ago to evolve J&M into a footwear-first lifestyle brand with a range of footwear and apparel from dressier to more casual. Despite the challenging year, there were some solid proof points that this strategy continues to gain traction, including the success in the innovative XC4 collection through the relaunch of golf. For the upcoming year, J&M has focused 90% of new product development on the expansion of its casual offering to include casual athletic, leisure, rugged outdoor, and performance. We brought in a new head of product development who brings a successful track record developing casual brands to aid in these efforts. As the customer returns to work and socializing, which we hope will be sooner than later, J&M's assortment will be ready for the post-pandemic lifestyle and further buoyed by J&M's core customer's increased level of savings during the pandemic. So turning now to the current quarter, Early February extended January's positive momentum until we hit the offset of income tax refunds, which were delayed by a few weeks this year. Nevertheless, February sales came in in line with our expectations, and in March, we have seen an uptick as refunds began to catch up. Looking ahead, while great progress is being made on this front, We expect the environment to remain fluid in the near term until the vaccine is more fully rolled out. In terms of how this shapes our results, it means the first half will show an improvement to last year given the easier comparisons due to the COVID shutdowns, but we will still be under pressure from store closures, especially in the UK, which is expected to be shut down until shortly after Easter. We anticipate store traffic will also continue to be affected across all geographies this spring. These dynamics will further pressure our results in these low-volume months when, in normal times, fixed operating expenses makes it challenging to break even. Stimulus will help, we will see how much, and we are optimistic about a greater recovery in the back half. But what we're most excited about is we see opportunities to solidify the digital gains we've made and capitalize on the ongoing industry consolidation to further expand our market share. As many challenges as COVID-19 has created for our company, it has also provided us the real opportunity to transform our business at a faster pace. We've learned a lot and we'll work hard to accelerate the initiatives and investments we planned to achieve these goals and exceed the expectations of the consumer whose needs have advanced. So I'll now turn the call over to Tom, who will review our fourth quarter results and future outlook in more detail.