Genesco Inc.

Good day, everyone, and welcome to the Genesco First Quarter Fiscal 2022 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 First Quarter Fiscal 2022 results. 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 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. 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 first quarter and Tom George, our Chief Financial Officer, who will review Q1 results in more detail and provide direction for Q2. Now I'd like to turn it over to Mimi.

Thanks, Dave. Good morning, everyone, and thank you for joining us today. Our company began fiscal 22 with positive momentum following an incredibly challenging year battling the pandemic. In each successive quarter, our people worked with great tenacity and success to improve top and bottom line results, to close the gap to pre-pandemic levels, drive the recovery, and return to profitable growth. We entered the pandemic year from a position of strength following 11 consecutive quarters of comp sales growth in our footwear businesses. Our overall performance in a difficult environment reflects the strong competitive positions of our retail and branded concepts, the strength of our footwear focus strategy, and our success capitalizing on opportunities to bolster these positions. Thanks to the ingenuity and efforts of our people, we exited last year with a solid foundation to build upon. As a result, fiscal 22 is off to an incredibly strong start with a first quarter that meaningfully exceeded our expectations. Our outperformance was driven by better than anticipated results at every division, led by record first quarter revenue and profitability at Journeys. Even as the pandemic continued to impact our businesses to varying degrees, the pace of our recovery accelerated each month and overall in Q1, reflecting stellar execution combined with a temporary boost from U.S. government stimulus and pent-up demand as the economy reopened faster than anticipated. I'd like to begin today by outlining some of the key highlights from the quarter. First, revenue and operating profit exceeded pre-pandemic levels, increasing 9% and 125% respectively over Q1 fiscal 20 two years ago, even with our stores open for a little less than 90% of the possible operating days in the quarter, given closures primarily in the UK and Canada. Next, Higher operating profit combined with pre-pandemic share repurchases delivered outstanding Q1 EPS of 79 cents compared with a loss of $3.65 last year and positive EPS of 33 cents two years ago, all on an adjusted basis. And finally, we achieved record first quarter digital revenue and profit as we continue to capitalize on the accelerated shift to online spending. We sustained last year's 64% growth and added another 43% on top of that. Other highlights include hitting our highest store traffic numbers compared to pre-pandemic levels as the vaccine rollout increased shoppers' confidence to return to physical stores, increasing gross margin up almost 500 basis points compared to last year as our merchandise assortments and inventory management continue to fuel strong full-price selling, leveraging SG&A significantly compared to pre-pandemic levels, and achieving greater capital efficiency by managing inventories and capital spending effectively, leading to a healthy balance sheet and solid cash position. We were pleased that every business and every channel contributed to the beat versus expectations, with the stores delivering the biggest gain. We've always known our customers enjoy our differentiated store experience and the exceptional service they receive in person. And it has been so exciting to see the strength of our brands draw enthusiastic shoppers back in as economies reopen. It was, however, the combination of the store and e-commerce results that led to the strength in the quarter. Our online business from a strong foundation prior to COVID-19 generated double-digit operating margins due to our focus on full-price selling, disciplined marketing spend, and shipping and return policies to reinforce profitability. Thanks to significant digital investments we've made over the past several years, we were able to handily process the record first quarter volumes and e-commerce margin improved further as we leveraged these investments with more scale over a wider base of revenue. To advance our digital capabilities at an even faster pace, we announced we promoted Parag Desai to the newly created position of Chief Strategy and Digital Officer. In this new role, Parag will drive greater synergies and continue to integrate systems and digital best practices across our e-commerce portfolio, while also working with our divisions to deepen consumer insights and CRM capabilities. Our digital investments have been generating strong results, and we are confident Parag's appointment will accelerate progress, ensuring that we take advantage of the many omnichannel opportunities the pandemic presented. Congratulations, Parag. Turning now to discuss each business in more detail, beginning with Journeys, which again led the way, delivering record first quarter revenue and profit with 75% operating income growth versus pre-pandemic levels. There were several factors that shaped Journey's exceptional Q1 performance, starting with superb execution by its merchant team. The pandemic has only magnified Journey's industry-leading capabilities of anticipating, identifying, and securing the brands and styles most coveted by our team customers. The combination of the right assortments and effective consumer engagement drove strong demand and full price selling. including later in the quarter when we captured a healthy share of the increased consumer spending following the arrival of government stimulus checks and tax refunds. In addition, Journey's store team executed with excellence, achieving much higher conversion rates and increased transaction size, capitalizing on improving store traffic to drive store revenue above pre-pandemic levels. On top of this, Journey's online team delivered e-commerce sales that more than doubled pre-pandemic levels, as new website visitors increased by almost 30% and generated close to 50% of Q1 online revenue. With its incredibly strong vendor relationships, the Journey's team accomplished all of this while skillfully managing through the supply chain disruption, which persisted in the industry throughout the quarter. Journey's offering of casual product resonated strongly with consumers as comfort continued to reign as the fashion choice of the pandemic. While teens always have a big compliment of fashion athletic footwear in their closets, we have talked about when fashion swings toward non-athletic or casual footwear, Journey's is especially well positioned among its competition to deliver this assortment. Moreover, current teen fashion trends are diverse and playing into a number of Journey's brand strengths. While Fashion Athletic grew nicely year over year, the gains in casual outpaced this growth, including a strong start to the sandal season. Congratulations, Journey's team, on another record quarter as the destination for fashion footwear for teens. Over in the UK, SHU delivered a commendable performance under very difficult circumstances. Stores were open for less than 20% of the possible operating days during the quarter due to government-mandated lockdowns that began around Christmas and continued until after Easter. Despite the substantial loss of store days, revenue was in striking distance of Q1 two years ago and operating income exceeded pre-pandemic levels, including some one-time gains. the SHU team leaned successfully into its best-in-class digital capabilities throughout the pandemic to take advantage of the shift to online purchasing. The first quarter was no exception as direct comps grew by more than 70% on top of last year's 90% growth and constituted more than 80% of SHU's total revenue. Prior to COVID-19, SHU had the most advanced digital capabilities among our retail businesses, which have only strengthened over the past year through enhanced CRM capabilities, including more robust prospecting. SHU implemented significant operational changes to facilitate this digital growth, including reconfiguring its DC and labor model to add more e-commerce packing stations, extending the deadline for next-day delivery through new freight carrier arrangements, and using stores as mini-DCs by rotating store fulfillment of e-commerce orders. With fast tracking of the UK vaccine rollout, restrictions started to lift, and SHU deftly executed the formidable task of reopening stores in England in mid-April, followed by the large majority of the UK stores at the end of the quarter. With seven of the top 10 best-performing brands in common, many of the trends driving SHU's business were similar as usual to the ones driving journeys, but with more of a fashion athletic tilt. Before moving on from SHU, I'd like to take a moment to congratulate the team on the official certification of its operations by Carbon Footprint Limited as a carbon neutral organization. It has for a long time been a part of SHU's DNA to operate in a socially responsible manner, consistent with its purpose pillars, And this accomplishment is the result of the team's efforts over several years. This impressive achievement was realized ahead of schedule and provides a roadmap for our other businesses as we seek to reduce greenhouse gas emissions and work with our partners to reduce the carbon footprint of the products that we sell. For Johnston and Murphy, the first quarter marked another positive step forward in its recovery. As vaccines rolled out, consumers began the return-to-life phase more quickly than expected, gathering with family and friends in social outings and occasions. In Q1, retail store traffic improved in each successive month, digital sales grew a notable almost 20%, attracting new customers to the brand, and wholesale revenue increased. J&M's recovery plan is centered around new product technology and innovation, with 90% of new product development focused on expansion of its casual offering. We were pleased that Q1 success was driven by high demand for newly developed casual styles, led by the athletic-inspired Amherst and Activate collections, and a new holistic marketing campaign in support of these launches. At the same time, we saw continued gains in golf shoes and apparel this spring, further validating our success extending J&M beyond its dress shoe roots. While sales lagged pre-pandemic levels, we are encouraged by these trends and expect the recovery to accelerate once America begins the return to office phase, likely begin in earnest as we enter summer and move into fall. In yet another highlight, licensed brands is now beginning to realize the benefits of the Levi's Footwear License and Togast Acquisition that closed in January 2020, right as the pandemic began. Revenue more than doubled to record Q1 levels, and operating profit improved considerably versus pre-pandemic levels, as Levi's Footwear was well-received in accounts ranging from department stores to Journeys and Journeys Kids to Family Footwear. This progress reinforces our excitement about the potential to create value by combining powerful brands with our fully integrated footwear sourcing capabilities. Turning now to the current quarter, while Q2 is typically our lowest volume quarter as teens and consumers in general turn their attention to getting out of school and summer activities, the momentum from Q1 has continued into May. While we expect government stimulus and pent-up demand to ebb at some point, we expect Journey's strength to continue shoe strength to build with the opening of stores and the UK economy and Johnston Murphy's recovery to continue, but it will likely take until back to work in the fall to propel another step function improvement. Vaccine rollout progress should benefit store traffic in the back half of the year, and we expect that a good amount of the digital business that we captured during the pandemic will be sticky and anticipate a much higher e-commerce penetration as compared to fiscal 20. We're anticipating a more normalized back to school with a significant return to in-person learning and a more normalized holiday. Some COVID effects will linger, but with higher savings and continued government aid, the consumer is well positioned to spend. While stimulus has been a positive, the strength we're seeing in our results goes well beyond this tailwind to the traction and momentum we're experiencing as a result of our strong portfolio of businesses and the strategic direction we embraced a couple of years ago with our footwear focus strategy. The pace of our recovery only reinforces our belief that the path we were on prior to the pandemic and now is the right path forward. What we're most excited about is we see opportunities to solidify the digital gains we made and capitalize on the ongoing industry consolidation to further expand our market share. COVID-19 has provided us the real opportunity to transform our business at a faster pace, and our results demonstrate that's what we're accomplishing. I'll now turn the call over to Tom.