Genesco Inc.

Good day, everyone, and welcome to the Genesco First Quarter Fiscal 2027 Conference Call. Just as a reminder, today's call is being recorded. I will now turn the call over to Darrell McCrory, Senior Director of FP&A and IR. Please go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss our First Quarter Fiscal 2027 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 calls. 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 Interim Chief Financial Officer. Now, I'd like to turn the call over to Mimi.

Good morning, and thank you for joining our first quarter fiscal 27 earnings call. I will be reviewing the quarter's results and progress on our strategy and initiative, and Daryl will come back to assist and cover our financials and walk through details of our latest guidance. I'm pleased to report after a strong finish to fiscal 26 that we are off to a very good start to the year. delivering our seventh consecutive quarter of positive comparable sales and first quarter results that exceeded our expectations across the board. Our beat was broad-based across sales, gross margin, and expense leverage, reflecting a high level of execution, and we had gains in every business versus expectations. Our momentum is building, and the strategic initiatives we've put in place are translating into tangible results across our company. We delivered total sales and operating income nicely ahead of last year, demonstrating that our strategy is working and that we are creating meaningful value through operational execution. We're driving a more profitable, higher-quality business, and Q1 once again provides clear proof of our progress. For the quarter, comps were fueled by mid-single-digit increases at Journeys and high single-digit increases at Johnston & Murphy, offset to some extent by declines at SHU as we began the pullback from promotional activity. April, overall for the company, was the strongest comp month of the quarter. Stores in Q1 were again a highlight as our strategic efforts to drive improvement in this channel achieved impact. And while the beat was broad-based, beyond the comp growth, we were especially pleased with the efficiencies gained throughout the business. The consumer environment is unchanged from what we've described over the past year, selective and intentional. Customers shop with purpose during key events and pull back in between. When they engage, they're looking for must-have product and newness, and when we deliver what they want, they're willing to pay up for it. This pattern has become the new normal, and we navigated effectively, even with the most recent external events of the first quarter. Looking back over a little more than the past year and a half, we've made tremendous strides working to improve our business to appeal to a customer who has rapidly evolved. We've delivered positive overall comps in every quarter, dating back to the third quarter of fiscal 25. We've strengthened our market share in key customer segments. We've improved operating income and EPS. And importantly, we've demonstrated that our company can perform in a volatile, event-driven consumer environment. Now for Q1 color by business, starting with retail. Journey's added to its run of comp gains of 5% on top of an 8% increase last year. The transformation work we've been executing, elevating the assortment, sharpening our focus on the style-led teen girl, building brand awareness, improving the store and online experience, and rolling out our 4.0 stores continues to drive sustained comp growth and meaningful profit improvement. Product was a key driver. On our last call, I said we had the opportunity to build further on a number of iconic footwear franchises. And this, coupled with growth of some newer brands, led to gains across a diversified base of brands. Both athletic lifestyle and casual achieved healthy growth with increased demand for sandals, boots, low-profile, and lifestyle running. The strength of our multi-branded, multi-category, elevated assortment drove stronger full-price selling and considerably higher average transaction size in the quarter. We're outpacing the broader footwear market and continue to see market share gains at Journeys where we're gaining traction as the destination for the style-led teen girl as a result of our ongoing transformation momentum. While elevated product is the initial draw, with mid-single-digit conversion increases on top of increases last year, our store teams are doing an exceptional job converting customers who cross the lease line. Our 4.0 store rollout continues, with this new crop of stores also delivering in excess of a 25% sales lift. We opened 21 new 4.0 stores in the quarter and now have 105 completed to date. with 4.0s becoming an increasingly greater driver of performance. Not only did the store channel perform well, but Journey's appeal was across channels, with e-commerce posting double-digit gains. Importantly, store closures and cost efficiencies created a meaningful 190 basis points of expense leverage, demonstrating the significant productivity gains achieved in tandem with the comp increases. At SHU, we were putting the building blocks in place to support profitable growth. Comps were down 9% in Q1, which was in part intentional, as we prioritized and achieved more full-price selling and more controlled markdowns. This strategy resulted in higher average transaction size, but as expected, pressured store traffic beyond the pressure already present in the weaker UK consumer markets. E-commerce also saw lower traffic due to reduced promotions as this channel in particular attracts bargain seekers. That said, we're seeing improvement in product elevation with brand access and depth in brands like Adidas, Nike, and Asics, and expect additional progress as part of the Journeys retail group. Our work also includes tightening expenses and closing unprofitable stores, and we closed five stores in the first quarter. We anticipate the shoe turnaround will take longer than Journey's due to the tougher UK consumer environment right now and the need to pull back from promotional activity. But with sharpened customer positioning, we see the same opportunity to serve the style-led youth girl that we saw at Journey's. We also see bigger growth opportunities for these businesses together in the future with their shared brand relationships. We put out a tactical plan for SHU in Q4, and in time, we are confident our approach will deliver improved results. Moving now to branded, we were pleased with the overall contribution of our branded business in Q1. We're seeing encouraging green shoots at Johnston and Murphy, as the brand delivered a strong quarter with a 7% comp gain. This sharp acceleration versus recent comp trends reflects the product work we've been doing, the pricing strategies we've implemented, and increased brand awareness driven by our higher marketing and social media spend, including the Peyton Manning campaign. Product is resonating in both apparel and footwear. While apparel has been a standout for some time, especially blazers and knits this quarter, we also saw nice growth in footwear. We've been working diligently to accelerate our product innovation, and we're seeing strong consumer response to our updated designs and new footwear concepts like the Akerson and Tyson collections. We're also benefiting from a new trend shift toward more refined and tailored dressing, especially as people want to look good at the office, which is right in J&M's wheelhouse. Desirable product drove higher full-price selling and fewer markdowns. We've also seen awareness of J&M continue to trend up in the months since the Peyton Manning launch, especially among younger consumers, with demand from new customers up double digits. At Genesco Brands, we've now completed the wind down of the Levi's license and are excited for the fall launch of our newest license, Wrangler Footwear, which positions us for healthy growth going forward. In the meantime, our business led by Dockers delivered a solid start to fiscal 27 with sales and profits ahead of last year and ahead of plan despite the loss of substantial Levi's sales. Let me address tariffs briefly. Tariff headwinds were highest in Q1 due to inventory flow timing, but our mitigating actions around pricing and sourcing diversification have helped ease these headwinds. The latest court rulings have provided some relief. Additionally, we're expecting IEPA refunds of approximately $23 million to $25 million which we have already filed for but are not included on our financials this quarter, nor in our outlook. I will call out that these refunds apply to the branded side of our business, where we import product directly, which represents around 20% of our sales. Turning now to guidance, we remain confident in continued momentum in North America and note the resilience of the consumer and their response to our compelling assortments as we navigated several external headwinds during the first quarter. In Q2 so far, comps are tracking at a similar pace to Q1 with a bit of a pickup in North America and a give up at SHU where the economy and geopolitical pressures are taking a toll. With our outperformance to expectations in Q1, we are rolling a portion of that upside forward, offset somewhat by a more cautious UK outlook. At the same time, while we're optimistic about driving our business in the second half during back to school and holiday when there are more reasons to shop, we're also taking the opportunity to lessen the pressure on the back half considering the choppy consumer environment. We remain focused on recapturing gross margin by pulling back on shoe discounting and lapping license exits and liquidation from last year. Altogether, this adds up to an increased full-year EPS guidance range of $2 to $2.40. I'd now like to touch briefly on some of the exciting initiatives we're implementing in the coming months as we advance our Footwear First strategy, starting with Journeys. Journeys' strategic growth plan aims to serve a wider teen audience interested in style and trend that is six to seven times larger than the market we've traditionally served and who is underserved in the mall today. Upcoming initiatives are heavily focused on back-to-school and include leaning into current product trends with continued growth across both athletic and casual, including lifestyle running, low-profile, and sandals from the diversified mix of existing and new brands that have been driving the business. Launching the Life on Loud BTS campaign featuring multiple celebrities and influencers is and backed by a substantial increase in media spend to build on Journey's brand awareness gains and achieve new customer growth. Doubling the 4.0 store count this year, adding a targeted 90 stores up from a little more than 80, about two-thirds of which will be remodels and the balance relocations to larger footprints and a handful of new stores for even more growth. working to improve discoverability, including new product feed enhancements within agentic search, and trialing an online shopping agent to drive digital growth, and releasing the next iteration of our all-access loyalty program, which currently has close to 11 million members, featuring a fresh look and better ways to connect with our most valuable customers. Moving to SHU, our immediate priority continues to be actions in this reset year to ultimately improve profitability, including continuing to reduce reliance on discounting by removing additional calendar promotions and discount stacking to steer gross margin recovery. The largest opportunity is ahead of us in the coming quarters. The market in Q2 currently is athletically focused with price sensitivity increasing and fewer trends than we're seeing in the U.S. right now, so this will take some time. Building on the improved product access we have been achieving with brands like Nike and Adidas, and rationalizing tertiary brands in the assortment, optimizing the store footprint with the closure of 12 stores over the last 14 months, eliminating unproductive locations and shifting volume to nearby stores to improve store channel economics, and implementing cost reduction actions in areas like rent and selling salaries, improving efficiency in areas like digital marketing, and implementing a new procurement function. Touching on Johnston and Murphy, we're building on our robust comp momentum by further capitalizing this spring and fall on the trend shift to more refined dressings. supporting a more professional look and more neutral textured apparel to attract customers interested in refilling their closets. Shifting additional dollars into brand building and continuing our successful partnership with Peyton Manning by launching a new fall campaign to further drive brand awareness and attract a younger customer. and expanding brand distribution by opening up to 15 new stores this year, or 10% of the fleet, not including store closures. Lastly, we are pleased with initiatives like the IT transformation, where we're driving operating efficiencies in addition to enhanced capabilities, and our more broad-based automation and spend optimization efforts across the company, where AI can unlock additional potential. With this, we're announcing a new $40 to $50 million cost program between now and fiscal 29, aimed at structurally reducing our cost base beyond our ongoing efforts. And finally, let me step back and emphasize a few key themes that define where we are as a company. First, our strategy is working. Seven consecutive quarters of positive comp growth, improving profitability, and momentum at multiple businesses demonstrate that we're executing our plan effectively. The right product, the right brand positioning, the right experience in stores and online, all of these matter, and as we've gotten these lined up in our footwear first strategy, we win. Second, we're creating value through operational execution. We have a credible path to unlock considerable earnings upside and historical operating profit levels in each of our strategically well-positioned businesses. The quarter's results add to our track record of improvement, with Journey's rapid turnaround as our most recent example of evolving in response to dynamic consumer change. Third, cost savings and disciplined expense management are meaningful parts of our path forward to accelerate the impact of comp growth and more rapid profit improvement. And finally, we're off to a strong start and look forward to delivering another year of improved performance. Before I turn it over to Daryl to walk through our financials and guidance details, I want to thank our incredible people across our company for their tremendous efforts. The operational progress that we're making, the execution discipline that you're demonstrating, and your deep understanding of what our customers want are essential to our success.