Genesco Inc.

Good day, everyone, and welcome to the Ginesco fourth quarter fiscal 2022 conference call. Just a reminder, today's call is being recorded. I'll now turn the call over to Darrell McQuarrie, Senior Director of FP&A. Please go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss our fourth quarter and full year fiscal 2022 results. Participants on the call expect to make forward-looking statements. These statements reflect a participant's 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 and supply chain issues 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, board chair, president and chief executive officer, who will begin our prepared remarks with an overview of the period and the outlook for fiscal 23. and Tom George, Chief Financial Officer, who will review the quarterly financials in more detail, provide guidance for fiscal 23, and then turn the call back to Mimi, who will discuss strategic initiatives to drive our business in the coming year. Now, I'd like to turn the call over to Mimi.

Thanks, Daryl. Good morning, everyone. Thank you for joining today. A very strong holiday season concluded an outstanding year. Throughout fiscal 22, we accelerated our recovery from the pandemic and delivered record results for our footwear companies, even as we navigated a number of acute challenges. Despite multiple COVID variants, bottlenecks across the supply chain, labor shortages, and higher costs, we capitalized on the opportunity of a strong consumer spending environment to drive our business forward. Our exceptional results underscore the earnings power of our business model, the solid foundation for growth we've built through the strong competitive positions of our retail and branded concepts, and the successful execution of our footwear focus strategy. My sincere thanks and congratulations to our incredible teams across the company for achieving this great success. There are several key achievements that define the year. We grew revenue more than 35% over last year and 10% over fiscal 20. Gross margin expansion and meaningful expense leverage drove record operating income for our footwear businesses as we achieved an operating margin above 6%. We generated $240 million of operating cash flow, putting us in a great position to further invest in our business and return over $80 million to shareholders through share repurchases equal to 9% of outstanding shares. And we delivered record adjusted earnings per share of $7.62, an increase of more than 65% over fiscal 20. Additional highlights include capitalizing on the accelerated shift to online spending and holding on to last year's almost 75% gain to reach almost a half a billion dollars of digital sales. growing our branded wholesale business by almost $90 million versus two years ago while improving profitability, adding new licenses, and strengthening retail partnerships, and increasing store revenues over 40% from last year and nearly achieving fiscal 20 levels despite having 55 fewer stores. Overall, our results highlight the work we've done to create and curate leading footwear brands, and importantly, to strengthen our position as the leading destination for teen and youth branded fashion footwear. In today's channel-less world, where the consumer can truly shop anywhere, Journeys and Shoes growth underscores the tremendous loyalty developed with existing customers and compelling proposition offered to new customers. Teams view us as the unparalleled fashion authority, choosing fashion right brands and styles, validating whatever brands we're currently selling, and they are increasingly turning to our concepts for their branded footwear needs. We are not dependent on any one brand for the majority of our revenue, but rather 10 or more brands typically constitute 80% of what we sell. Friend-driven teens who are looking for the most current assortment of fashion footwear that is always evolving, whether they want to make a statement to stand out or want to fit in and be just like their friends, come to Journeys in Shoe to buy multiple brands and seek advice from our knowledgeable fashion advisor salespeople in our youth-focused, full-service environments. The effects from the pandemic on how consumers shop rather than harming our business, was instead the catalyst to reach new heights. Shifting now to the fourth quarter, the work we did to have the right assortments and the right holiday marketing campaigns helped deliver Q4 results well ahead of expectations. Consumer demand was robust, and we nonetheless believe our results would have been even stronger had we been able to maintain historic levels of inventory. Our performance over last year's Q4 was driven by store sales and versus two years ago by digital and branded wholesale sales. Q4 highlights include revenue up 14% over last year and 7% over two years ago. Remarkably, we achieved this despite overall inventory being down almost 20% versus last year and down by one-third compared with the fourth quarter two years ago during the key holiday period. With much more limited promotional activity coupled with price increases, full price selling was very strong, fueling a 300-plus basis point increase in gross margin versus last year and a 200 basis point increase compared to two years ago, much stronger than expected. Higher sales and this better-than-expected gross margin resulted in double-digit operating income expansion over pre-pandemic levels and record adjusted earnings per share of $3.48, an increase of more than 25% compared to last year's holiday season and 13% compared to two years ago. From a channel perspective, the power of our omnichannel strategy was on full display in the fourth quarter. as consumer appetite to shop in person, especially in the days leading up to Christmas, drove an almost 20% increase in store sales over the year-ago period. Strong demand in stores, with many items selling as soon as they hit the store floor, meant less store inventory than usual was available to service online demand. We saw the biggest shift to in-store shopping in the UK as SHU stores were open 100% of the quarter compared to roughly only a third of the days last year. Despite the strong in-store sales in both Journeys and SHU, we held on to almost 90% of last year's digital sales in total. So turning now to discuss each business. I'll start with Journeys and begin with a huge congratulations to the team. on setting all-time records of sales and operating profit for the year. Journey's performance underscores the competitive advantages the business has built and how it has leveraged those advantages to further separate itself as the destination for branded fashion footwear for teens. All of Journey's top 10 brands experienced year-over-year growth in fiscal 22, with most notching significant gains. The current fashion cycle, which I've been describing as shifting more into casual away from fashion athletic, plays into journey strength, positioning journeys well among its competition to deliver this assortment. In anticipation of continued supply chain pressure, we encouraged customers to shop early, and they did, and the holiday season got off to a very strong start. At this peak volume time, as the season unfolded, While traffic remained solid, conversion, which had been robust, dropped off as Journeys was not able to quickly replenish in-demand products to match outsized holiday demand. While Journeys' talented store teams drove sales above last year's levels, selling whatever was available, we believe Journeys' sales would have been meaningfully higher had we been able to get the inventory receipts we had ordered. As a positive, tight inventory led to unprecedented levels of full price selling, with customers also willing to absorb price increases to secure desired product, driving further margin acceleration. Finally, the Journeys team continues to live its core values of being a family with an attitude that cares. Partnering during the holidays with non-profit canned aid and customers at the register, for its largest national community activation and donating $600,000 for bikes for underserved youth across the United States. As part of this initiative, Journey's headquarters employees built and donated 300 bikes and helmets to two Nashville elementary schools just in time for the holidays. Shifting now to the UK, we were incredibly pleased with holiday results. as SHU capitalized on pent-up consumer demand and delivered Q4 constant currency revenue up more than 30% versus last year and 12% versus two years ago. Like Journeys, SHU's strength is its ability to deliver the fashion brands desired by its youth consumer, and SHU drove a nice growth across its diversified mix of both casual and fashion athletic footwear. As a result of its stellar execution throughout the pandemic, navigating multiple store openings and closings, and making the most of its advanced digital capabilities, SHU garnered improved product access, being moved up a tier by a number of its high-profile brands. This step forward in access, coupled with less severe supply chain disruptions, and strong inventory management allowed SHU to be in a better inventory position over the holidays. UK customers were more comfortable shopping in person, leading to better in-store traffic. SHU retained much of its digital gains from when stores were closed last year, resulting in a Q4 46% digital penetration. Lastly, less promotional activity and product mix also drove strong margin gains. Turning now to our branded side, our plan to reimagine Johnston & Murphy for a more casual, more comfortable post-pandemic environment continues to prove out in the marketplace with the biggest Q4 bottom line gain over last year of all of our businesses. J&M continues to expand its focus from not just the products consumers need for work, but the products people desire for everyday life. Q4's strong sell-through in boots, casual and casual athletic footwear, and equally strong performance in apparel and outerwear demonstrates just how far we've come making J&M an attractive multi-category lifestyle brand. This pivot has included new strategies for how and where we reach our customer. New product story marketing campaigns have been very effective, and we've seen the most growth in our digital channel, up 14% compared to Q4 last year, and growth in our under 35 customer base, up 30% in Q4. Much stronger demand and supply constraints pushed inventory more than 50% below pre-pandemic levels, hampering our ability to capture all of the demand during the holidays and return J&M to pre-pandemic sales. Nevertheless, we're excited about J&M's trajectory and expect upside in the year to come. Rounding out the discussion, momentum for licensed brands accelerated as the year progressed, notching impressive sales growth of 70% over last year as we successfully turned around the business and capitalized on the new capabilities we obtained with the TOGAS acquisition. While supply chain disruption and excess freight costs weighed on the P&L throughout the year, we saw growing demand for both Levi's and Dockers footwear, in value and full price channels, positioning the business for improved profitability as these challenges subside and we continue to take advantage of the white space in the marketplace. In conclusion, our footwear focus strategy is delivering results. COVID provided the real opportunity to transform our business at a more rapid rate. We are a healthier company today and delivered growth and improved earnings as a result of higher digital sales and profits, a more profitable store channel, and growing branded wholesale sales. Our future is bright as we build upon the progress we have made. Turning now to the current year, fiscal 22 had headwinds I have discussed and also some unique tailwinds, namely healthy consumer spending in the first half, due to significant government stimulus, an unusually good environment for full-price selling as a result of high demand and scarcity of supply, and we benefited from some one-time gains related to rent and government relief, mostly in the UK. With respect to fiscal 23, sales have gotten off to a much stronger start versus last year, but a slower start versus pre-pandemic driven largely by the lower inventory level and lagging tax refunds. We are expecting year-over-year trends to moderate as we anniversary stimulus and the lack of inventory further pressures growth early in the new year, especially in the first quarter. Looking further into fiscal 23, we're working hard to overcome the cost pressures that are prevalent today and we don't anticipate the factors that led to such a strong full-price selling environment to be sustained. Tom will provide the financial details of our outlook momentarily, but we feel confident about delivering top-line growth on top of a very strong fiscal 22. Consistent with what I have outlined, we are planning the back half to be much stronger than the first half as inventory levels improve Logistics cost pressure starts to ease and continued price actions help offset higher costs. Fiscal 23 will also be an investment year for J&M as we advance the work on the brand's repositioning. We expect adjusted earnings per share for Fiscal 23 to be between $7 and $7.75 and believe somewhere close to the middle of the range is where the year will land. While there are a number of variables at play, our results over what has been a very volatile past 24 months gives me great confidence in our team's ability to execute. Finally, our ESG program will achieve an important milestone early in the year with the completion of our inaugural enterprise-wide carbon footprint assessment. Our work continues to progress with more to come when we publish a comprehensive ESG report later this spring. Now to close, I'd like to again thank our people for their outstanding work and diligent efforts through another challenging year. Throughout fiscal 22, our employees stepped up wherever needed, and I can't overstate how critical this work was to our success. Companies succeed like we have because of strong teams and dedicated people who help them achieve new heights. I'm incredibly proud of what we accomplished together. Now I'd like to turn the call over to Tom.