Genesco Inc.

Mimi Vong, Board Chair, President, and Chief Executive Officer, and Sondra Harris, Senior Vice President, Finance, and Chief Financial Officer. Now I'd like to turn the call over to Mimi.

Thanks, Jason. Good morning, everyone, and thank you for joining us on our third quarter earnings call. We delivered solid performance versus last year in this important back-to-school quarter led by Journeys, which achieved 6% comp growth and more than a 50% increase in operating income. This significant improvement in profitability was partially offset by the anticipated exit of licenses in Genesco Brands Group, the impact of tariffs, and more than expected gross margin pressure at SHU as the UK market faced heightened promotional activity. Against this backdrop, we delivered our fifth consecutive quarter of positive comp sales growth overall and third quarter results within our expectations, albeit at the lower end, reflecting both the strength and resilience of our portfolio in a dynamic consumer environment. Total comparable sales increased 3%, with store comps up a noteworthy 5%. Coupled with a modest decline in e-commerce comps, which faced tougher comparisons against last year's double-digit gains. These results reflect our investment in the store channel and the strength of our in-store experience, supported by well-executed assortments and engaged teams that continue to drive conversion. The consumer environment continues to reflect customers shopping when there's a reason and pulling back when there's not. This pattern became much more pronounced for our category during back to school this year, which is factoring into our view of the fourth quarter. In the third quarter, demand was even stronger than we expected during the heart of back to school, and then traffic and purchase intent softened considerably and more than we expected in the weeks following with an especially challenging October. Customers are searching for must-have items and newness and freshness to drive their purchases. Importantly, when you have what our customer wants, they're willing to pay up for what they want, but they're conserving on footwear shopping in non-peak times and passing altogether on products not in high demand. We saw this same pattern in the first few weeks of November. Encouragingly, as we moved through November with colder weather and as we approached the holidays, overall performance picked up. Early results from Black Friday and Cyber Monday were positive, reaffirming we have the right brands and styles to satisfy what this discriminating customer is looking for. Before I dive deeper into the business, I'd like to highlight the progress and the key strategic initiatives we launched during the quarter that will drive growth and profitability going forward. First, Journeys continues executing against its strategic plan to accelerate growth, delivering its fifth consecutive quarter of positive comp growth, along with almost 200 basis points of operating margin expansion. Notably, Journeys' mid-single digit comp was on top of double digit comps for the third quarter last year, and at a time when footwear industry trends have been challenging. These results underscore the meaningful market share gains we've captured this year as the next wave of Journeys' transformative initiatives gain meaningful traction. Second, part of this next wave of initiatives is building awareness of the Journeys brand with the wider customer base we're targeting. The Life on Loud brand campaign launched in September has already surpassed 70 million social views and continues to grow as we shift investment toward impactful brand building campaigns to drive new customer growth and traffic. Third, we formed the newly created Journeys Global Retail Group under Andy Gray's leadership, uniting Journeys Shoe and Little Burgundy. These three banners are the destination retailers for the young style-led female across their respective markets. We see clear opportunities bringing these retail businesses together as we strengthen market positioning with this customer and drive greater growth serving her in collaboration with our brand partners. This new structure will facilitate further progress as we shift our attention with even greater urgency to improving shoes performance. Next, we're truly excited about Johnston & Murphy's introduction of legendary quarterback Peyton Manning as its new brand ambassador and face of the brand. The launch of this new partnership generated an immediate double-digit traffic increase following the campaign's debut online and in our stores in early October. And finally, while the wind down of the Levi's license is causing meaningful one-time headwinds in Genesco Brands Group this year, we are thrilled with and preparing for growth with the fall 26 footwear launch for the iconic denim and authentically American Wrangler brand. Now for more Q3 color and initiatives for each business, starting with Journeys. August led Q3 for Journeys with a record back to school and strong double digit comp growth on top of double digit gains last year. When the customer came out to shop for back to school, Journeys was a key destination. Store performance remained robust with Q3 store comps tracking in line with the first half of the year driven by higher conversion and transaction size, and contribution from our 4.0 store remodels. Journey's product offering remains diversified across athletic, casual, and canvas, as we strive to represent all brands in demand by our youth consumer. While we saw growth from both athletic and casual brands in Q3, athletic was the more dominant category, with low-profile and running-inspired styles resonating. We are currently seeing our customer gravitating to athletic styles on a more year-round basis. Boot sales were also positive in Q3, but driven by specific brands. Now turning to shoe. The UK retail environment remains very challenging. Currently, the UK footwear customer is focused either on must-have items with much less interest in the rest of the assortment, or is looking for a deal to spur a purchase. As a result, SHU's overall comps took a step back for the quarter, as gains in store conversion and average transaction size were not enough to offset the traffic declines. We increased our promotional activity even more than expected during the quarter, both to match our competitors' promotional stance and to motivate demand, as well as to manage inventories appropriately. We are taking proactive steps to strengthen the business and position SHU for renewed growth. In the near term in Q4, we're focused on course correcting through several actions, including assortment updates, our past, present, and future holiday campaign, targeted social marketing, AI-driven e-commerce content, and stronger in-store conversion via the new ATV program. Even with these steps, we still expect headwinds in a challenged UK marketplace that we will have to navigate through. Into next year, the newly formed Journeys Global Retail Group is working to unlock greater product access and growth. Through this, and by leveraging other elements of the Journeys playbook, we are implementing a holistic plan to dramatically improve operating performance. This ranges from sharpening SHU's customer value proposition to building SHU brand awareness and also includes fleet optimization. Turning now to our branded business, at Johnston and Murphy in Q3, overall sales increased year over year, reflecting growth in the wholesale channel. The decline in overall comps was driven in large part by softer e-commerce trends as we shifted spend from performance marketing early in the quarter to brand awareness, including the launch of our new brand ambassador in early October. Gross margins were pressured due to channel mix with a greater percentage of wholesale sales, as well as tariff headwinds in the wholesale channel ahead of price increases. After success with J&M's strategic repositioning into a more casual, comfortable, multi-category lifestyle brand, we've been working hard to deliver more newness and distinctive product in response to comp headwinds. During the quarter, we introduced newness across both footwear and apparel, supported by increased innovation like the XC Plus Footwear Collection, updated fabric and design details, and redesigned programs like the Quarter Zip Offering. While we were pleased overall with the performance of these new introductions, especially in apparel and accessories, we have work to do to drive more robust sales across the balance of the assortment. Accelerating brand awareness and acquiring new customers have been J&M's other areas of focus, and we made major strides here with the Peyton Manning launch in October. While it's still early, the campaign generated strong media coverage and immediate double-digit traffic gains, which translated into improved comp trends and new customer acquisition. We look forward to ongoing collaboration with Payton. And finally, we're investing in J&M store remodels and new store openings with impactful results. And now, early in Q4, we have inflected to a net store increase to drive growth going forward. Rounding out the branded business, the impact of tariffs, which affects this business the most, and the continued liquidation of licenses we're exiting substantially pressured both Genesco Brands Group gross margins and our overall performance during the quarter. We look forward to completing the liquidation by the end of the year and moving past this headwind. And now let me briefly recap the exciting progress fueling Journey's strategic growth plan. Our strategy focuses on Journeys as the destination for the style-led teen, especially the teen girl, as no other concept goes across athletic, casual, and canvas footwear. This is how we are differentiated and the white space we identified to build on the traditional strengths of Journeys to serve a wider teen audience interested in style and trend that's six to seven times larger than the market we've historically served. As a reminder, we're executing across four key areas. First, product elevation and diversification. We're driving product elevation and diversified footwear leadership with best in class and more premium footwear brands. This work is achieving great impact as we saw an increase in third quarter average transaction volume on top of significant growth last year. As we strive to represent all brands in our customers' closet, we launched Nike in November with an assortment of premium styles that is just right for our team. The Nike edition added newness to Journey's offering and generated true excitement and energy in our business and with our people. We look forward to building further on this partnership. Second, investing in the Journey's brand. We're building momentum through a refreshed style-led positioning aimed at expanding awareness with this broader teen audience. I've talked about the launch of Life on Loud brand awareness campaign where we reimagined an iconic late 90s music video as well as created unique experiential moments like our Gus Dapperton pop-up event in our New York City 14th Street store. Beyond the Nike launch, we also executed brand activations including a customization tour with UGG. We held an in-store concert with Puma and Lynn Lapid and launched a partnership with Converse to bring first-of-its-kind hologram advertising to malls across the U.S. Third, elevating the customer experience, especially in stores. We've accelerated the rollout of our new 4.0 store format and elevated setting to attract new customers and call attention to our more premium offering, which continues to deliver more than a 25% sales lift and strong new customer acquisition. We expect to end the year with more than 80 stores in this new format, with more to follow next year. And finally, investing in our people. We've been investing in a stronger team at retail, engaged in better selling behaviors, and stepped up customer engagement, which has helped drive high single-digit store comps over the last 12 months. Journeys is well positioned for Q4 and the holiday season with a strong offering and campaigns that are clearly resonating with our target customer. The brand's consistent comp growth, profitability improvement, and expanding omnichannel engagement gives us confidence as we close the year and continue building on this momentum into next year. We're excited about the road ahead and the tremendous value journeys can unlock. Now turning to our outlook. While we're encouraged by the read from November, particularly during Black Friday and Cyber Monday, there are some factors causing us to update our view on the remainder of the year. To start, we have materially changed our sales and margin projections for SHU to reflect the ongoing difficult UK market and performance. We have also moderated the growth assumptions for our other businesses based on the footwear, consumer traffic, and spending patterns we've witnessed on non-peak shopping days. While we are able to partially mitigate the impact on profitability through reductions in expenses, it isn't enough to offset the overall reduction in sales and even more so the margin pressure at SHU. Therefore, we are adjusting our full year EPS guidance. While we are disappointed to be lowering our overall outlook, our updated view doesn't change the fact that Journeys remains on track to deliver an outstanding year with comps projected to increase mid-single digits and operating income that almost doubles. Sandra will take you through the more detailed guidance assumptions. Before I turn the call over, I'd like to thank our teams for their tremendous efforts to evolve our business with a deep understanding of what our customer wants and for their incredible execution, which is essential to delivering the important holiday season and a strong finish to fiscal 26, which we will build upon in the year to come. And now, Sandra, over to you.

Thanks, Mimi. I'll now walk through the details of the third quarter and provide an update on our outlook for the full year. Starting with revenue, total revenue for the quarter was $616 million, up 3% compared to last year, driven by overall comparable sales growth of 3%, reflecting positive 6% comps at Journeys and 2% lower comps at SHU and J&M. Store comps increased 5%, while direct comps declined 3% on top of 15% comp growth last year. A favorable exchange rate in the UK and strong wholesale volume helped offset an overall smaller store base. Gross margin for the quarter was 46.8%, down 100 basis points from last year. The primary drivers were product liquidations in Genesco Brands Group, Tariff cost increases ahead of price adjustments, margin pressure at SHU due to the promotional environment in the UK, and higher wholesale mix at Johnston & Murphy. While we expected lower margins from the exit of licenses at Genesco Brand Group, we again pulled forward liquidation sales, which lifted revenue and gross profit, but at lower gross margins. We expect to be largely through this inventory by year end, which should support gross margin improvement next year. Overall SG&A expense was 44.7% of sales, leveraging 140 basis points year over year. The improvement reflects broad-based cost reduction efforts with nearly every SG&A line showing leverage. The most meaningful savings came from rent expense, as we continue to optimize the store fleet and freight reductions. Importantly, we achieved this leverage while increasing marketing investment to support growth. All banners delivered expense leverage other than SHU, which deleveraged with the lower store comps. Adjusted operating income for the quarter was $12.9 million above last year's $10.3 million, resulting in adjusted diluted earnings per share of 79 cents compared to 61 cents in the same period last year. The growth was driven by the sales increase and expense leverage and was partially offset by the gross margin pressure already highlighted. Turning to the balance sheet and capital allocation, free cash flow for the quarter improved nearly 5 million year over year. Inventory was up 7% compared to last year, in part because strong sell-through of key new styles in the third quarter last year left us with tighter inventory levels heading into the holiday season. Our inventory is clean, and we're taking actions in the quarter to right-size our inventory at SHU. Capital expenditures totaled $18 million, focused on store remodels, new stores, digital investments, and customer experience enhancements. We ended the quarter with 1,245 stores, having opened four and closed 12. Our Journeys 4.0 stores continue to deliver exceptional performance across all key metrics, comps, traffic, conversion, and average transaction size. We now have 76 Journeys 4.0 locations and expect more than 80 by year end. And their consistent outperformance reinforces our confidence in this concept as we continue to expand the rollout. We did not repurchase any shares in the quarter, But as a reminder, we did repurchase approximately 600,000 shares in the first quarter, approximately 5% of shares outstanding, leaving $29.8 million remaining under our current share repurchase authorization. Now turning to guidance. We now expect to deliver full-year adjusted earnings per share of approximately 95 cents, reflecting a higher tax rate of 34%. At our previously assumed tax rate of 29%, adjusted earnings per share would be above $1. The key drivers of the revised outlook are greater pressure on shoe sales and margins due to the challenging UK consumer environment, more conservative sales assumptions across the portfolio reflecting the heightened volatility in consumer spending we've seen recently, including tougher year-over-year comparisons in the Journeys e-commerce channel, and lower SG&A consistent with our disciplined cost control throughout the year, which helps offset but cannot fully absorb the incremental margin pressure at SHU, combined with a more modest top line. Our full-year assumptions now reflect total revenue growth of about 2%, comparable sales growth of about 3%, We continue to expect mid-single-digit comp growth at journeys for the full year. Gross margin down approximately 100 basis points year-over-year, reflecting deleveraged year-to-date and continued margin pressure primarily at SHU and to Q4. SG&A leveraging about 100 basis points as a percent of sales, driven by continued cost actions and store optimization efforts. Capital expenditures of $55 to $65 million supporting growth initiatives, including the Journey's 4.0 remodel program, other new and refreshed stores, and ongoing digital investments. We continue to expect positive free cash flow for the full year. Average shares outstanding of approximately $10.6 million and an adjusted tax rate of about 34%, impacted by deduction limitations tied to lower SHU profitability. While the external environment is affecting our near-term performance, we remain encouraged by the progress of our strategic initiatives and confident in the areas within our control. We remain focused on disciplined execution and flexibility while continuing to invest strategically to position Genesco for sustainable long-term value creation. And now I'll turn the call back to Mimi for her closing comments.