Genesco Inc.

Good day, everyone, and welcome to the Genesco fourth quarter fiscal 2023 conference call. Just as a reminder, today's call is being recorded. I will now turn the call over to Darrell Macquarie, 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 23 results. Participants on the call expect to make forward-looking statements reflecting our expectations as of today. but actual results could be different. UNESCO refers you to this morning's earnings release and the company's SEC filings, including its most recent 10-K and 10-Q filings, for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made today. Participants also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial measures are reconciled to their GAAP counterparts in the attachments to this morning's press release. and in schedules available on the company's website in the quarterly results section. We have also posted a presentation summarizing our results here as well. With me on the call today is Mimi Vaughn, board chair, president, and chief executive officer, and Tom George, chief financial officer. Now, I'd like to turn the call over to Mimi.

Thanks, Daryl. Good morning, everyone, and thank you for joining us today. Many areas of our business shined in fiscal 23, even as new headwinds emerged with a rapidly changing consumer environment. Coming off a strong fiscal 22, our footwear-focused strategy allowed us to effectively navigate these more challenging conditions this past year. Record top-line results at both SHU and Johnston & Murphy helped mitigate some of the pressures that weighed on both Genesco Brands Group and, in particular, Journeys, following its record year in fiscal 22. While we expected Journeys to give back some of its stimulus-fueled gains, the business was tested more than we anticipated. The effect of decades' high inflation on the consumer and the elevated footwear channel inventories are the two factors that impacted us the most. Nevertheless, our performance in fiscal 23 demonstrated resiliency. enabled by our differentiated strategic positioning, the benefits of our multi-division, multi-channel operating model, and our experienced team's ability to execute and navigate the market turbulence. In addition to the strong showing from SHU and J&M, other highlights from the year we just finished include total comps improved sequentially through the year, culminating in a 5% comp gain in the fourth quarter with both positive store and positive e-commerce comps. Digital penetration accounted for 20% of direct-to-consumer sales, up from 13% in pre-pandemic fiscal 20, growing almost 70%. We returned over $70 million to shareholders through share repurchases, totaling 10% of our outstanding shares, And we delivered adjusted EPS of $5.59, an increase of more than 20% compared with pre-pandemic fiscal 20. We also made meaningful progress against several key strategic imperatives to drive growth in the years ahead. They include improving our brand building capabilities and growing Genesco's branded platform with successful reimagining and repositioning of Johnston and Murphy. Returning to e-commerce growth after absorbing the pandemic gains early in the year, notching a 21% Q4 digital comp and creating the baseline for future growth. Building deeper and stronger connections with our poor consumers, powered by our loyalty initiatives at SHU and J&M, which we will expand to Journeys this year with the launch of its new loyalty program, Journeys All Access, and making continued major investments in marketing and consumer insights to drive sales, build awareness, and elevate our brand. We also made significant advancements in our IT transformation with new capacity and capabilities to support omnichannel, e-commerce, consumer analytics, and loyalty. And finally, we're pleased with our ESG progress this past year, including our first global carbon assessment and the issuance of our inaugural ESG report. We continue to build the strategic roadmap for additional ESG priorities and look forward to more progress. Now, I'll briefly discuss Q4 results by business before handing the call to Tom to take you through the financials and our outlook. And after that, I'll outline the key actions and initiatives we're executing in fiscal 24 to improve performance and address the challenges that emerge this year. Beginning with our retail platform in SHU, let me start by congratulating the team on a successful holiday on top of last year's successful season and a record finish to a record sales year. On a constant currency basis, sales increased well into the double digits, underscoring its growing strength in the UK market as SHU continues to out-execute competition and gain market share. Elevated brand relationships and improved access to higher-tiered product assortments combined with effective consumer marketing put SHU in a great position to capitalize on holiday demand despite the high inflation and economic headwinds facing UK consumers. Demand was strong for both casual and fashion athletic footwear, and SHU enjoyed increased boot sales and higher selling prices. Shoppers chose increasingly to return to SHU's physical locations to take advantage of its best-in-class customer service, rewarding SHU with positive store traffic. SHU's progress in fiscal 23 is especially notable as profitability was up considerably, excluding the substantial one-time rent and other COVID credits she received in fiscal 22. Back in the U.S., journeys remained under pressure in Q4 as the consumer headwinds and excess footwear inventory weighed on demand. During back-to-school, consumers shopped when there was a reason to buy and retreated to conserve cash during the in-between periods and we expected the same for holiday. This was a big change from the strong selling environment the prior year when teens bought anything in stock and available. The fourth quarter started slowly with warmer weather in November, and while there was a pickup in December, it was not at the level we saw during back to school as the consumer, pressured by inflation, shopped less and made harder choices on where to spend money. While footwear units were up a little in the quarter, benefiting from a stronger January, overall sales, including boots, were down due to price-sensitive customers trading down to more excessively priced footwear and a significant drop-off in add-on purchases like socks. Against the backdrop of heightened industry-wide discounting in response to the over-inventory footwear marketplace, While markdowns normalized compared to the prior year, additional discounting did not move enough incremental volume to make it worthwhile. And as a result, journeys adhered largely to full-price selling and we achieved gross margins above pre-pandemic levels. While both gross margins and sales were at or above pre-pandemic levels, journeys, like our other retail businesses, have since this time absorbed additional marketing and other expenses to support the growth of e-commerce and has also experienced major selling salary and other cost pressures. Our strategic effort to grow e-commerce is achieving success, demonstrated by comps well into the double digits for journeys in Q4. However, we must double down on actions to right-size rent expense and reduce our store costs to better overcome challenging store economics. Tom will discuss this in greater detail, but these cost right-sizing efforts are critical during a time when expense growth is outpacing sales growth. That said, well positioned as the leading destination for fashion footwear for teens, Journeys has a proven track record of powering through economic cycles and emerging strong with growth and profit opportunities on the other side. Now to our brands. We're excited about the potential of Johnston & Murphy and very pleased with the progress as we reposition the brand for accelerated growth. Our plan to reimagine J&M as a more comfortable, more casual brand with products well-suited for today's lifestyle is proving out. A strong fourth quarter culminated in a record sales year with total sales up 17% and 24% respectively. And while store traffic and sales were up considerably, e-commerce was an even bigger highlight. J&M's product and design team did an exceptional job matching current trends with fresh, compelling products differentiated with technical features. Casual and casual athletic were, again, the primary drivers of sales, with strong apparel demand contributing to the positive results. J&M's product story marketing campaigns proved effective in attracting a broader and a younger consumer to the brand while building on our premium positioning and price points. Congratulations to the entire J&M team on a successful holiday season and a fantastic year. The plan is working and the future for the business has never been brighter. Finishing our brand review, I'm pleased to announce that Genesco Licensed Brands is now Genesco Brands Group. This name change reinforces Genesco's strategic commitment to expansion of the company's branded portfolio and Genesco Brands Group as a platform for growth. Our stated strategy to elevate the Levi's business to higher tiers of distribution expectedly put pressure on our top line this year. In addition, the inflated inventories in the channels combined with much higher freight costs that hit this business especially hard given its price points, made for a very challenging Q4 in fiscal 23. We believe these issues will subside as fiscal 24 progresses, which, coupled with more distinctive product design, will allow the business to drive improved profitability in the coming year and longer term. Now turning the calendar to this fiscal 24 year, We continue to experience a consumer holding back on discretionary purchases and elevated footwear industry inventories. As such, we're taking a cautious view on overall sales and planning the back half with back to school and holiday opportunities to be stronger than the front, relying on initiatives and actions we're taking to drive sales rather than a consumer rebound. View one will be especially challenging with the top line impacted by lackluster boot and other sales, as well as smaller retailer order books. Nevertheless, while the consumer environment remains difficult to predict, I am confident in the actions we're taking and our team's ability to execute. We're really proud of the strides we've made driving our footwear focus strategy forward And all of this starts and ends with our amazing, talented people. I'd like to thank you for your tremendous efforts and dedication, which paved the way for great success ahead. And now I'll turn it over to Tom.