Genesco Inc.

Good day, everyone, and welcome to the UNESCO Second Quarter Fiscal 2025 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 Second Quarter Fiscal 2025 results. Participants on the call expect to make forward-looking statements reflecting our 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 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. I'll start today with a review of the key drivers of our second quarter performance and provide an update on the strategic initiatives to drive growth at Journeys and elsewhere in our company. Tom will review the financials in more detail and walk through our current outlook, and then we'll be happy to take questions. We were pleased in the second quarter to once again deliver top and bottom line results ahead of our expectations. Sales exceeded the levels we anticipated, led by journeys, more than offsetting some pressure at Hsu and Johnston and Murphy, which continue to face robust multi-year comparisons. Our digital business was a standout of high single digits, and our ongoing plan to optimize the store footprint and reduce costs contributed to the bottom line as well, allowing us to leverage expenses in what is one of our lower volume quarters. Our number one priority is and has been to improve performance at Journeys. Step one of our plan centered around efforts to inject our product assortment with more newness, excitement, and storytelling to drive an inflection in Journeys comps and deliver that to our consumers through enhanced store, digital, and social experiences. And as we anticipated, our Q2 results demonstrated solid progress against that plan. Journey's assortment resonated well, driving strong sequential sales improvement with comps turning positive in July before the onset of back to school and accelerating into August. We saw a notable pickup in attention to footwear marked by growth in traffic by our North American youth consumer as the quarter progressed. The Journey's customer has become more interested in a broader range of brands they are buying and more diversified in the styles they're wearing. This shift plays well into Journey's proposition as the consummate curator of styles across both casual and fashion athletic brands. New Journey's leadership accomplished a lot in a short time to seize the opportunity to meet these changing footwear preferences and deliver positive back-to-school results. With greater depth on brand and styles teens want, we expect to be well-positioned to similarly drive demand for the important holiday season. We have more work to do to unlock Journey's full earnings potential, but our recent performance gives us confidence we're on the right track and is a key first step toward achieving this critical goal. Nevertheless, we continue to navigate a choppy environment. Faced with higher prices, the consumer remains very selective about what to buy and what not to buy, continuing to shop primarily for key footwear items and must-have product in Q2 and passing on others. They again showed willingness to shop when there is a reason, like during 4th of July and back to school, and retreat when there's not. We expect these behaviors to carry on, particularly during non-peak shopping periods. As we demonstrated with SHU and J&M coming through the pandemic, we have a solid record of managing well through adverse economic and fashion cycles, evolving with the customer to meet and exceed their changing footwear preferences and emerging stronger. We're committed and excited to do the same with Journeys as we execute strategies to elevate the Journeys product, brand, and consumer experience. Driving positive Journeys comps gives us considerable EPS upside with the leverage in our model enhanced by our recent cost reduction and share repurchase actions. Now for color on individual businesses, starting with Journeys. During holiday at the end of last year, we faced increased pressure on Journeys' core assortment, including vulcanized product and boots. With minimal ability to adjust right away given footwear lead times, we expected this dynamic to continue through much of the first half this year despite easier compares until we could deliver enough product to meaningfully impact the mix. Knowing our young customers' preferences were shifting in favor of this more diversified offering, the team led by our new chief merchant took aggressive and quick actions and successfully added significant newness and freshness across several major brands. Our key brand partners, very enthusiastic about Journey's unique customer proposition, stepped up with tremendous support of our strategic direction to better serve this cohort through elevated assortments and depth. Following a more challenging May and June, receipt of this product in time to kick off a strong back-to-school drove positive comps in July and and higher ASPs with solid results in early back-to-school markets and over tax-free holidays. The comp trend improved further in August when we entered the third quarter as shoppers turned out in a bigger way during key back-to-school weeks. Importantly, store traffic nicely outpaced the broader market as it accelerated through the quarter, highlighting that Journeys remains a key footwear destination. Journey's digital business remained very healthy, posting another quarter of double-digit growth as our performance marketing, all-access loyalty incentives, CRM campaigns, and omni-channel delivery options enticed shoppers to purchase online. Finally, Journey's inventories remained very clean, enabling us to drive full-price selling and keep markdowns below last year's levels. This positions us well to pull forward receipts to build inventory and maximize the demand in the back half. Moving to SHU, up against a strong two-year stacked comp of 26%, it proved to be a tough summer season and quarter for SHU. Q2 started off on a good note with pent-up demand from a late start to spring selling. But as summer kicked in with a higher cost of living, Consumers were generally not motivated to make purchases in the footwear category, and SHU's seasonal assortment did not resonate to the level we expected. Like Journeys, SHU's customers have also been shifting away from vulcanized footwear. These pressures prompted SHU to increase promotional activity to clear slower-moving product and match activity in the marketplace. While this helped drive a sequential improvement in comps and kept inventories in good shape, it took a toll on gross margin in the quarter. Ecom growth helped offset the weakness in stores and choose digital business, a meaningful channel at almost 40% of sales, remains a key avenue for driving growth and engagement. Despite the challenging backdrop, according to Kantar, SHU held its number 10 position in the UK footwear market versus last year, remaining a key destination for the youth shopper. Many of the brands and styles working at Journeys are resonating at SHU for back to school, and while demand remains muted, we expect less pressure on gross margin in this period, given the cleaner inventory. The kids' business remains a highlight, outperforming the business as a whole for the quarter and during back to school to date. Looking ahead, the team is implementing several initiatives to improve the trend and sharpen its customer focus. These include efforts to gain even stronger access to the best brands and in-demand product, putting in play its new customer segmentation based on its latest market research, revamping SHU's creative marketing content, accelerating sign-ups for the SHU Club loyalty program, which now represents nearly 35% of total sales, and deploying new campaigns to drive higher loyalty point redemptions and sales. Now turning to our branded business, starting with Johnston & Murphy. Efforts to evolve and reimagine J&M as a more comfortable, more casual, multi-category lifestyle brand, led to years of solid growth and success coming out of the pandemic. During this time, J&M drove footwear market share gains by growing both its physical and digital direct-to-consumer channels. However, the combination of robust 29% two-year stack comps and considerable softening in the men's premium non-athletic footwear market pressured sales and caused deleverage in Q2. On a positive note, new products and new footwear franchises like the Amherst 2.0 are resonating well, showing the great appetite for freshness and reinforcing the ongoing desire for innovation and distinctive product. J&M has responded by pulling forward new product launches like the Anders Sneakers Program, fast-tracking programs like the Upton Dress Shoe Program, and rethinking its future development calendar to find places to inject more innovation and newness much more frequently into the assortment. Another major opportunity is to build on the success of apparel and accessories, which now represent almost half of its direct-to-consumer business. Woven shirts, blazers, bags, and wallets have all been standouts this year in our mission to step up J&M Affluence customers' wardrobes, increase apparel purchase frequency, and outfit them with confidence from head to toe. To accelerate progress for the rest of the year, we're looking forward to the arrival of more new fall product and franchise launches, which will pair with product story marketing and J&M's new brand campaign. We'll be increasing engagement with J&M's most valuable customers by leveraging its Insiders Affinity program which now consists of roughly 900,000 members. The program is driving higher average transaction size and more purchases, while at the same time, nearly two-thirds of new customers are joining as well. Finishing the branded discussion, we continue to achieve success with the repositioning of Genesco Brands Group. Efforts to simplify the license portfolio to emphasize key brands and channels means lower sales in the short term but more profit, which was evident once again in Q2 results and we expect will be for the future. Moving back to Journeys and its strategic growth plan, Andy Gray and team have made substantial progress on initiatives to rapidly accelerate Journeys' improvement and reinforce its leading market position for the longer term. Product advantages are at the forefront of this effort initially, but ultimately it's about elevating our product brand and experience and putting the customer at the center of everything we do. A critical component has been strengthening the leadership team, which began with the addition of Andy, then a new chief merchant and a new leadership role for the SVP of strategy and transformation. Most recently, we strengthened the team further with the addition of Stacey Doran as Journey's new chief marketing officer. An exceptional marketing leader, Stacey joins the team following an accomplished career at Levi's. We're excited for what her expertise and many achievements in consumer brand building will bring to Journey's offense. I'll take a moment now to share with you updates on other key initiatives. Number one, drive product leadership and create marketplace differentiation. Beyond successfully broadening our assortment and re-merchandising our stores to put an even sharper focus on footwear, we've also completed extensive customer research and updated our segmentation. The outcome of that work has revealed significant upside to build on our unique proposition being the leading destination for the young fashion teens and in particular, the teen girl. This is an underserved consumer in the footwear space. While many retailers in the mall cater to young females with fashion apparel, Journeys is the only destination in footwear for her with an authentically inclusive environment and strong presence across categories and premium brands. The diversity of our footwear offering, which is led by style versus any one category, is our leadership position. Number two, build the journey's brand and enhance the omni experience. This focuses on marketing and brand awareness to underscore journeys as a leading retail brand. Beginning with our store environment, we're executing parallel initiatives to first implement a visual refresh across all our stores, and second, roll out in a small group of test stores an updated store concept with a modern aesthetic that embodies Journey's youthful attitude and energy. The fleet-wide refresh gets underway in mid-Q3, highlighting Journey's footwear leadership and enhancing the in-store shopping experience with stronger visuals and storytelling. We plan to begin rolling out the updated store concept and next-generation design in October. Next, through our updated brand positioning and customer segmentation, we see considerable opportunity to both reach more consumers and better serve our current ones meeting their needs for all footwear wearing occasions. We're already doing that with bestsellers in running, sandals, clogs, boots, and vulcanized styles. Over the next several months, we'll enhance how we market to these consumer segments through digital and social channels, delivering Journey's updated brand positioning and tone of voice. And number three, leverage the power of our people. Here we're doubling down on our amazing group of store employees. Providing excellent service is the key to differentiating journeys from competition and ensuring our stores are fun and engaging places to shop. To do this, we're investing in our people, improving employee training to help drive more efficiency and stronger conversion on the sales floor, and we're increasing customer engagement through store technology like mobile checkout and browsing. Number four, optimize to drive operational and cost efficiencies. These efforts aim to lower the leverage point on our fixed expense base. And to that end, we continue to optimize the store footprint, closing unproductive stores, and investing to meaningfully drive profitability in better locations. Sales recapture rates from these stores continue to exceed the level required to achieve break-evens. Turning now to our outlook. We're very encouraged by the positive reaction to Journey's improved back-to-school assortment and optimistic we'll be positioned to drive similar results for holiday. But in addition, we're taking a more cautious view for SHU and J&M over the remainder of the year. While we now expect higher sales in total, we are maintaining our full-year guidance. We look forward to building on Journey's momentum going forward and to unlock the considerable growth in value here and across the rest of our company in fiscal 26 and beyond. Before passing the call, I'd like to give an extra special thank you to our incredible people. Our unmatched ability to reinvent ourselves, evolve, and grow over the years with a keen understanding of what our customer wants is our true competitive advantage. There's no better reminder of this than the celebration of our company's 100th anniversary this summer. Congratulations, and thank you for your tremendous efforts to drive our business for the balance of the year. With that, I'll hand it over to Tom.