Genesco Inc.

Good day, everyone, and welcome to Genesco's third quarter fiscal 2025 conference call. Just a reminder, today's call is being recorded. Genesco management included in the conference call will be Mimi Vaughn, Board Chair, President and Chief Executive Officer, Sondra Harris, Senior Vice President, Chief Financial Officer, Tom George, Senior Vice President, Principal Accounting Officer, and Daryl McQuarrie, Senior Director, FP&A. I will now turn the call over to Darrell Macquarie, Senior Director of FP&A. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our third quarter fiscal 25 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 presentations summarizing our results here as well. With me on the call today is Mimi Vaughn, Board Chair, President, and Chief Executive Officer, Tom George, Principal Accounting Officer, and Sandra Harris, Senior Vice President, Finance, and Chief Financial Officer. Now, I'd like to turn the call over to Mimi.

Thank you, Daryl. Good morning, everyone. Thank you for joining us. I'd like to begin by welcoming Sandra, who joined Genesco as Chief Financial Officer in October with over 30 years of finance leadership experience, including 10 years at BF Corp, where she was responsible for driving global business and financial strategies across BF's iconic lifestyle brands. Her experience with VF includes serving as chief financial officer for direct-to-consumer, global supply chain, and shared services, including information technology. She's a terrific addition to our team as we drive a return to profitable growth, bringing invaluable expertise from numerous multi-channel, multi-brand consumer businesses. I also want to take a moment to thank Tom for his many contributions to Genesco since stepping in as CFO in late 2020. Tom joined our company at a pivotal time of tremendous change in the consumer environment, helping us successfully navigate both record highs and some very unique challenges. After a 40-year career in finance, including 30 years as a public company CFO, we wish you all the best during your well-deserved retirement. I'll start with a review of the key drivers of our third quarter performance and provide an update on the strategic initiatives to drive growth at Journeys and elsewhere across our company. Tom and Sandra will review our financials in more detail and walk through our raised outlook then we'll be happy to answer questions. But first, we were pleased to deliver third quarter results that exceeded expectations, marking another quarter of year-over-year sales increases and a strong return to positive costs. Our outperformance was driven by journeys as the initial phase of our strategic growth plan unfolds, underscoring the outstanding execution of journeys' near-term initiatives and and the resilience of this business, even in the face of continued consumer headwinds. Journey's comparable sales for the third quarter not only inflected positive, but were up double digits, fueled by continued improvement in the product assortment and the visual reset of our stores, among other actions. Congratulations to Andy Gray and the entire Journey's team for the speed in which they've been able to enhance the consumer experience and deliver an excellent back-to-school and strong finish to the third quarter. This performance more than offset modest comp declines for both Shu and Johnston and Murphy, allowing us to deliver total comp growth of 6%. Both store and digital comps were nicely positive, with the digital business a standout, up mid-teens, with digital penetration reaching over 24% of retail sales. Overall, sales, gross margins, and expenses as a percentage of sales all exceeded our expectations in Q3, and our clean inventory exiting the quarter positions us well for the balance of the year. Ongoing cost reduction and store optimization efforts contributed to adjusted EPS as well, which was also meaningfully above our projection and up versus last year. If you add back the approximately 35 to 40 cents from the 53rd week calendar shift, including the move of an important back-to-school week into the second quarter instead of the third quarter this year, EPS would have been up further, highlighting the impact of positive comps driving profitable growth on the platform of reduced costs and lower share count we've been building. Our number one priority is to improve performance at Journeys. As we have in the past, most recently coming out of COVID with SHU and J&M, we have demonstrated our ability to evolve our businesses to meet shifts in consumer preferences and changes in purchasing behavior, emerging stronger through challenging cycles. The consumer dynamic and changes over the last few years have required accelerated and unprecedented ongoing evolution on our part to successfully meet our customers' needs. We are excited to accomplish this with Journeys. As a reminder, step one of our plan centered around efforts to inject the product assortment with more newness and storytelling and and to deliver that to our consumers through enhanced store, digital, and social experiences. The double-digit comps in Q3 demonstrate solid progress against that plan. The journey's consumer has become more interested in a broader range of brands and more diversified in the styles they're wearing. For the first time in several quarters, we saw a notable pickup in interest in footwear over back-to-school, marked by growth in industry traffic this year. This shift plays well into Journey's proposition as the expert curator of styles across both casual and fashion athletic brands. Importantly, we're seeing strong consumer response across both categories, reinforcing Journey's unique position as the footwear destination for the style-led teen, particularly the teen girl. Journey's traffic, consequently, considerably outpaced the growth in traffic in the industry. While sales at Journey's have accelerated after multi-year positive sales runs, traffic at SHU and Johnston & Murphy continues to trend lower than last year. Shoes performance is being hampered by the difficult macroeconomic environment in the U.K., while in the U.S., softer demand for premium non-athletic footwear is pressuring J&M's top line. On both sides of the Atlantic, consumer behavior remains needs-based, and consumers remain very selective about what to buy. We continue to add newness and freshness into our assortments to satisfy shoppers who are looking for key footwear items and must have product and passing on everything else. As we enter the fourth quarter, we have been pleased with our performance to date and in our Black Friday Cyber Monday results in the midst of a heavily promotional retail environment. The arrival of more seasonable weather has encouraged sales of fall and winter merchandise. While we diligently work to deliver a strong holiday and finish to the year, building on these positive Q3 results, we're in the very early innings of returning journeys and the overall company to historical rates of sales and profitability. We're optimistic that these product changes and a sharper focus on the consumer will along with initiatives around brand building and elevating the consumer experience will drive even greater improvement in fiscal 26 and beyond. And now for more color on our individual businesses in Q3, starting with journeys. After turning positive in July, comps accelerated as back-to-school shopping got underway in earnest and remained consistently strong throughout the quarter. Journey's skilled merchant team and new merchant leadership took aggressive and quick action with the order book and our key brand partners at the start of the year to bring in the styles that would resonate during back to school. Significant newness across a number of casual and athletic brands fueled strong full-price selling, including post-Labor Day, even as the industry saw a pullback in demand when there wasn't as much reason to shop. Journey's customers transitioned nicely into buying must-have styles in the fall-winter assortment at the end of September into October during what is typically a non-peak time before holiday, driving sales gains for the quarter, which outpaced the market. With greater depth of the brands and styles teens want, we are well-positioned to continue to drive demand through the holiday season. Journey's stores, with positive traffic and higher ASPs, inflected positive, and Journey's digital business remained very healthy, posting another quarter of double-digit growth and even sharper acceleration than stores, resulting in digital representing 17% of total sales. This performance is reflective of our recent cycle of investment in digital, including all-access loyalty program incentives, CRM campaigns, and omnichannel delivery options targeted to entice shoppers to purchase online. Moving to SHU, comps improved versus the first half, getting closer to positive territory, even as the footwear category continues to face market headwinds in the U.K., While still challenged, the sequential improvement was driven by better performance in stores as traffic and conversion picked up relative to earlier in the year. At the same time, digital sales remained resilient and were positive at over 40% of the business. The shoe kids category remained a bright spot and delivered a solid back to school, continuing its trend about performance as well. During Q3, UK consumers were motivated to buy only during key shopping periods, and the market overall was more promotionally driven to spur demand. We expect this choppiness to continue in the fourth quarter. 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. Looking ahead, the team is focused on a number of initiatives to improve performance. Like Journeys, SHU is leaning into the opportunity to better serve the female customer and further differentiate SHU to both consumers and global brand partners. With that positioning, SHU has achieved success elevating its access to several key athletic and casual brands and important franchises for future coming seasons and is working on others. SHU is also building awareness and engagement with its new brand agency and marketing campaigns. This work also includes leveraging in connection with its CRM programs, the growing SHU club loyalty program, which now stands at almost 3 million members and benefits from greater member purchase frequency. Now turning to our branded business, starting with Johnston and Murphy. Like SHU, J&M's comps improved over the first half as consumers responded favorably to new product launches and new product innovation, and we anniversaried last year's ERP implementation. While store traffic was down in Q3, both conversion and transaction size were up, demonstrating positive customer reaction to the assortment. Despite an ongoing slowdown in men's non-athletic premium footwear, J&M continues to make inroads driving growth in more casual footwear and non-footwear categories like apparel and accessories, which now represent about half of direct consumer sales. Our strategy of evolving J&M into a more casual multi-category lifestyle brand in response to the changing needs of the J&M consumer has produced significant sales growth over the past four years, as the team works to reimagine and reposition the brand from its legacy dress shoe heritage. Looking ahead to the balance of the year, we expect and have seen an acceleration in sales of the fall-winter assortment with items like outerwear as the weather has finally turned colder across the country. In addition, we're in a better inventory position in our stores for the holidays, including more depth in footwear, outerwear, and other items, and with success, relaunching backpacks and other accessories. And looking further ahead, we have several initiatives underway to improve current trends and return J&M to year-over-year growth, the most important of which are efforts to bring more distinctive product to the market built upon our unique brand style, quality, and design principles, and to deliver more frequent year-round freshness in our offering. This includes bringing back updated, iconic styles for our 175th year brand anniversary next year. Coupled with efforts to increase brand awareness, we look forward to driving this renowned brand to new heights. Wrapping up the branded discussion, we continue to achieve very good success with the repositioning of Genesco Brands Group. Efforts to simplify the licenses portfolio to emphasize key brands and channels means lower sales in the short term, but considerably more profit, which was evident once again in Q3 results. Now moving back to Journeys and its strategic growth plan. Our broader plan centers on Journeys' unique positioning to address the underserved teen girl in the mall. While this customer is well-served with fashion apparel, our in-depth market research revealed Journeys has an even greater opportunity to serve this consumer's fashion footwear needs. To that end, we've been expanding our consumer segmentation and sharpening our brand positioning to reach a wider teen audience with a more intentional focus on the style-led teen with a sharp point on her with an assortment of even more premium product. This consumer continues to evolve, and today's teens are interested in expressing themselves in different ways from one day to the next, and footwear is a key enabler to this. At the same time, the marketplace is quite segmented among athletic, casual, and fashion consumers with no concept that goes across all footwear categories in the mall for the style-led team. This is the opportunity, and no one is better positioned than Journeys to win with this customer. We have built three strategic growth priorities around product, brand, and experience to fuel our new positioning and engage and excite more customers. In addition to bringing in a new president, we have also augmented our talented Journeys leadership team this year with highly experienced new chief product and marketing officers who bring tremendous expertise. Starting with product and diversifying our footwear leadership, our focus here is on expanding our leadership positions across athletic, canvas, and casual footwear to with both breadth and depth of key leading styles, building more long-term strategic partnerships with our best-in-class premium footwear brands, and editing and focusing our non-footwear business. Next is investing in our journey's brand. These efforts include creating a new brand purpose and platform to differentiate and be a positive, inclusive, connected force for teens and young adults, increasing investment in brand marketing, delivering Journeys' updated brand positioning and tone of voice to drive awareness and consideration of the Journeys brand through digital, social, and other media, and ultimately building new footwear demand creation capabilities. And finally, elevating our consumer experience. We are introducing an updated store concept which retains the Journeys energy and DNA of in an environment designed for the style-led teen who shops across footwear brands and categories with 10 initial locations open to date. Strengthening our brand positioning and elevating the consumer experience on journeys.com to enhance the transactional approach we've been delivering. And lastly, evolving our all-access membership program, where we've already signed up over 4 million members in a little over a year to provide a more personalized experience and increase long-term customer value and retention. These actions will solidify Journey's leading market position for the longer term, and we look forward to sharing more details of this plan with you going forward. In closing with our outlook, we're pleased with the upside we delivered in Q3 and the momentum we've carried into Q4. For journeys, we're optimistic we're in a position to drive solid results over the remainder of the year, while at the same time, based on recent trends, we've adopted a more cautious view for SHU and Johnston and Murphy. This all results in us modestly raising our view for the year. Cassandra will take you through the specifics. Before passing the call, I'd like to thank our incredible people. Our unmatched ability to reinvent ourselves, evolve, and grow over the years with a profound understanding of what our customer wants is our true competitive advantage and real cause for celebration with our 100th anniversary as a company this year. The work you've done has positioned us well for this busy holiday season, and I look forward to continued success as we finish strong in fiscal 25 and build on this momentum to unlock the considerable growth and value in our company in fiscal 26 and beyond. And with that, I'll turn the call over to Tom.