Genesco Inc.

Good day, everyone. Welcome to the Genesco second 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 second 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 10Q and 10K 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. 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 second quarter, and Tom George, our Chief Financial Officer, who will review our Q2 results in more detail and provide direction for Q3. Now I'd like to turn it over to Mimi.

Thanks, Dave. Good morning, everyone, and thank you for joining us today. Following an incredibly strong start to Fiscal 22, we delivered an outstanding second quarter performance, as our top line accelerated even further ahead of pre-pandemic levels and we produced record Q2 EPS that well exceeded our expectations. With much stronger revenue highlighted by robust full price selling and good expense management, our second quarter profit for our footwear businesses also set a new record. The levels at which our business performed during the first half of the year following a challenging fiscal 21 reflect the strong competitive positions of our retail and branded concepts, close connections with our customers, and the compelling execution of our footwear-focused strategy to transform our business and deliver these results. We are a stronger company coming out of the pandemic. Our results highlight the work we've done to accelerate online sales and enhance our store and omnichannel offerings, as we create and curate leading footwear brands to be the destination for our consumers' favorite fashion footwear. Our teams continue to do a superb job providing the right product our customers are looking for, combined with exceptional service and differentiated shopping experiences. Our outperformance was driven by better than anticipated results across the board, with all businesses exceeding pre-pandemic profit levels. As excited as we are with the progress we are making, we are even more excited about our strategy and our future opportunity to build upon this foundation and drive growth, profits, and shareholder value. I'll begin by providing some highlights from the quarter. Both revenue and adjusted operating income exceeded pre-pandemic levels, increasing 14% and 346% respectively over fiscal year 20 two years ago. And higher operating profit delivered a record Q2 EPS of $1.05 compared with a loss of $1.23 last year and positive 15 cents two years ago, all on an adjusted basis. Additional highlights include delivering another strong quarter of digital results with double-digit operating profit to achieve a 19% digital penetration. This was driven by a 97% increase in digital revenue compared to fiscal year 20, as we retained almost 80% of last year's volume, which was elevated due to store closures. Next, driving much higher conversion and transaction size to deliver store sales that were almost at pre-pandemic level. Increasing gross margin by 640 basis points versus last year and 50 basis points compared to fiscal 20 driven primarily by higher full-price selling, leveraging adjusted SG&A by 230 basis points compared to pre-pandemic levels, and further strengthening of our already strong balance sheet and cash position, enabling a balanced approach of investing in our business while also returning capital to shareholders going forward. As the vaccine rollout continued and economies on both sides of the Atlantic more broadly reopened, Consumers, aided by government stimulus, stepped up their footwear purchasing in the quarter and chose to shop with our brands to satisfy their pent-up demand. We were pleased that every channel contributed to the beat versus expectations. Digital has been a key strategic initiative, and the investments we've made have allowed us to double our e-commerce business in two years. However, we've also talked about how much our customers enjoy our store experience and the important role of our stores as a strategic asset in a compelling omnichannel offering, which proved out once again this quarter. So turning now to discuss each business in more detail, beginning with Journeys. The Journeys team once again did a tremendous job capitalizing on current market momentum and achieved record revenue and operating profit in the second quarter, marking the third consecutive quarter with record profitability. Journey's performance as we emerge from the pandemic highlights the competitive advantage the business has built and how we are leveraging those advantages to further separate ourselves from the rest of the industry as the destination for fashion footwear for teens. Leaning into decades of experience and its unparalleled vendor partnerships, Journey's deftly navigated global supply chain disruptions to secure supply of the brands and styles most coveted by its customers. The current fashion cycle, which has been shifting more to casual product, plays into Journey's wheelhouse with strength in the assortment across the board, highlighted by the balance in its top 10 brands, evenly split in the quarter between casual and fashion athletic. On-trend merchandise assortments, an effective consumer engagement through social and other channels, fueled strong demand and full-price selling, with particular strength in women and kids. Both store and e-com revenue were up compared to pre-pandemic levels, with digital leading the way, even with much higher conversion rates and transaction size driving store volume. Over in the UK, SHU delivered a solid top-line increase compared to the second quarter two years ago, as government-mandated lockdowns were lifted and the retail sector experienced its first quarter of mostly uninterrupted operations for the first time since before Christmas. Two-store business rebounded steadily, driven by pent-up demand and our successful efforts to drive sales of multiple pairs. And even as consumers increasingly returned to physical shopping, SHU retained much of the online gains from a year ago, resulting in online contributing almost 45% of total sales. The UK retail market is going through a highly disruptive phase with strong consumer propensity to shop online and with many retail bankruptcies reshaping the landscape. The SHU team is taking advantage of this disruption, utilizing its advanced digital offering to strengthen consumer connections during the lockdown. and those efforts are paying off as the market reopens and shoppers once again have the choice to engage with the brand either online or in-store. Many of the product and brand trends driving shoes performance, as usual, are the same as Journeys, but with a slightly heavier tilt toward Fashion Athletic. Another highlight of the second quarter was the more rapid than expected pace of Johnston & Murphy's recovery. boosted by an improving market environment and strong demand for many of the brand's newest product offerings. With the number of social events and family gatherings increasing and more customers returning to in-person shopping, retail traffic improved each successive month during the second quarter, building upon the gains in the first quarter. At the same time, e-commerce revenue grew strongly, increasing over 50% compared to pre-pandemic levels, as customers chose the digital channel to engage with the brand. We were especially pleased with the performance of J&M's new athletically inspired casual assortment. Sell-throughs were very strong, with many new items selling out in both our direct-to-consumer channels as well as in the wholesale channel, where J&M gained significant market share. These product launches, accompanied by enhanced marketing campaigns, are attracting a younger customer, validating our efforts to reimagine the storied J&M brand beyond its dressier roots into a modern lifestyle brand with broad consumer reach. With second quarter sales nearing pre-pandemic levels combined with strong full price selling, J&M's operating profit exceeded pre-pandemic levels, a remarkable turnaround compared to last year. These trends are adding to our optimism for continued improvement whenever America begins the return to office phase, hopefully later this year. Rounding out the highlights from the quarter, licensed brands revenue more than doubled versus a year ago, reflecting the growing contribution from the Levi's footwear license we acquired in January 2020. Operating profit improved versus pre-pandemic levels, although not at the rate we expected due to higher freight costs, which are temporarily pressuring near-term margins. We continue to be very pleased with how Levi's product is selling in accounts ranging from department stores to Journeys to Journeys Kids to Family Footwear. This has led to a strong order book for the back half and reinforces our excitement about the potential to create value by combining powerful brand licenses with our fully integrated footwear sourcing capabilities. Turning now to the current quarter, we have been pleased with our results to date as sales track ahead of pre-pandemic levels in August and we are several weeks into the all-important back-to-school selling season. Last year's back-to-school was like none before since most children began the school year learning remotely. This year, the vast majority of students are beginning the school year in person, which is driving more robust sales. While the Delta variant, back to work timing, and other factors will drive different patterns of consumption in the back half, with a healthy and resilient consumer and the strength of our offering, we remain confident in our ability to drive sales above fiscal 20 level for the remainder of the year. We will work hard to continue to successfully implement strategies to overcome the inventory, supply chain, labor, cost pressure, and other headwinds that are endemic in our industry today. Tom will give additional details on our outlook. Shifting gears, our footwear focus strategy is working and is delivering results. This strategy, implemented before the pandemic, leverages our strong direct-to-consumer capabilities across footwear retail and brands and the synergies between platforms. Driving this strategy are six strategic pillars that emphasize continued investment in digital and omnichannel, deepening our consumer insights, driving product innovation, reshaping our cost base, and pursuing synergistic acquisitions, all to transform our business and exceed the expectation of today's consumer whose needs have rapidly advanced. In addition, COVID has provided us the real opportunity to transform our business at a faster rate, and we are on a very good pace to deliver growth and improved operating margins. While each of the six pillars is important to achieving our future objectives, I'd like to expand on just a few of our initiatives which are driving results, while Tom will discuss reshaping the cost base. Our strong digital growth highlights the progress we're making with this key strategic initiative. In Q2, we welcomed 48 million visitors to our website, and new e-commerce customers increased 80% from pre-pandemic levels. Data-driven consumer insights More robust CRM and enhanced marketing are key to increasing consumer engagement and driving our next big wave of growth. SHU is taking advantage of the market disruption brought on by the pandemic to invest further in new customer prospecting through digital marketing designed to target weakened competitors' customers, as well as geo-targeting where competitors' physical locations have closed. These efforts have helped contribute to an increase of new online customers of more than 100% compared to pre-pandemic levels. Journeys marketing efforts are gaining leverage by focusing on influencers who the teen consumer views as more authentic, creating a more organic experience that further builds upon the trust Journeys has established with its customer. This content is being delivered through social media channels and SMS, helping to drive a significant increase of 50-plus percent of new online customers. In addition, Journeys continues to make progress implementing an upgraded integrated customer database with enhanced CRM capabilities, which will improve customer retention and acquisition and provide a clearer view of customer lifetime value. To keep up with this increase in digital demand, Journeys is wrapping up testing and bringing online another bespoke e-commerce fulfillment module, which doubles capacity ahead of the ramp-up of demand for online orders during holiday. We are underway rolling out in North America new point-of-sale hardware and software, along with new tablets, advancing our efforts to digitize our stores and enhance the omnichannel shopping experience. For consumers, tablets facilitate easy access to the full assortment anywhere in our system and upgrade our clienteling efforts and mobile checkout allows consumers to skip the checkout line. For employees, this new technology creates efficiencies across a variety of in-store tasks, such as new hire onboarding and employee training and communication. With J&M's accelerating recovery, we can put greater focus on the next phase, reimagining the brand. Product innovation and technology is at the center of differentiating J&M's casual products and commanding more premium price points. Launches of the athletically inspired Amherst and Activate collections and the expansion of the J&M golf collection were highly successful this spring and another major step moving the brand beyond its dress shoe origins. J&M's design team is focused on expanding its technology toolbox with innovation including the Axis chassis system, which offers optimal support, comfort, and flexibility, TruFoam, which delivers superior cushioning and lightweight comfort, and SmartDegree, which is temperature regulation technology. New product design and technology coupled with consumer insights and amplified marketing messaging will be the winning formula to grow J&M as a fresh lifestyle brand with broader consumer reach. Turning to the ESG, we continue to advance these efforts, including the establishment of our board's ESG subcommittee, and we are working toward publication of a comprehensive ESG report next year. Again, these are just a few of the initiatives that are driving positive transformation for Genesco. We look forward to updating you on our continued progress and on other initiatives. Before turning the call over to Tom, I would like to thank and congratulate all our people across our company for your excellent execution, hard work, and great success in the first half of this year. You continue to superbly navigate a dynamic and challenging environment with the health and safety of each other in mind, and I continue to be amazed by your drive and determination. Genesco's future is so bright because of you all. Finally, our thoughts are with our neighbors to the west of us in Nashville affected by the devastating floods last week and those impacted this week by Hurricane Ida. Now I'll turn it over to Tom.