Genesco Inc.

Good day, everyone, and welcome to Genesco's second quarter fiscal 2027 conference call. Just a reminder, today's call is being recorded. I will now turn the call over to Darryl MacQuarrie, senior director of FP&A and investor relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss our second quarter fiscal 2027 results. During today's call, participants expect to make forward-looking statements that reflect our expectations as of today, and actual results could differ materially. 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 actual results to differ from the expectations reflected in the forward-looking statements made today. We 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 the schedules available on the company's website in the quarterly results section. We've also posted a presentation summarizing our results there as well. With me on the call today is Mimi Vaughn, Board Chair, President, and Chief Executive Officer, and Jonathan Collins, Senior Vice President, Finance, and Chief Financial Officer. Now, I'd like to turn the call over to Mimi.

Thanks, Darryl. Good morning, everyone, and thank you for joining our second quarter fiscal 27 earnings call. Before I get into our results and progress on strategy and initiatives, I'd like to start by welcoming Jonathan Collins, who joined Genesco in early August as our chief financial officer. Jonathan brings more than 30 years of exceptional financial experience. His senior leadership roles in major global retail and e-commerce businesses include CFO of Walmart Africa and CAO of India's Flipkart Group, and he was most recently Chief Financial Officer of America's Car Mart. Jonathan's public company leadership, multi-channel retail experience, and capital markets expertise Make him a strong fit for Genesco as we continue executing our Footwear First strategy and generating shareholder value. I'm confident he'll be an excellent partner to me, our leadership team, and the board as we drive our next phase of growth. Welcome, Jonathan. Jonathan's arrival, along with our appointment of Thomas Petersson as president of SHU following Colin Temple's retirement, which I'll touch on in more detail shortly, reflect our strong belief in the direction we are headed and our determination to keep accelerating our progress. Turning now to Q2, I'm very pleased to report that we delivered bottom line results that were significantly better than last year and well ahead of our expectations With every business achieving gains versus plans. The quarter once again highlights that our strategy is working and our momentum is building. We've been taking considerable action to respond to changes in a dynamic consumer environment and successfully evolve our business, and Q2 provides clear proof of our continued progress. Earnings improvement came from strong execution evidenced by higher gross margin recapture, more full price selling, higher ticket and conversion, better store productivity, and more disciplined expense management. This is the earnings leverage we set out to build this year, and we're increasingly confident that it reflects positive structural improvement for a higher quality, more profitable business. While we did in Q2 receive a substantial portion of the tariff refunds we applied for, which Jonathan will detail later, this is not included in the adjusted numbers we are reporting. Our sharp execution drove meaningful earnings improvement even in this lower volume sales quarter and with a lower sales base. As anticipated, the decline in sales was driven by three shorter-term headwinds tied to strategic actions we're taking to improve our business. Namely, continued store closures as we optimize our fleet, the license transition ahead of the Wrangler launch, and our intentional pullback on discounting and promotional activity at SHU. These actions are in pursuit of a healthier, more profitable business over time. As we move past these events, we expect sales trends will improve, and we remain confident the consumer-facing initiatives underway position us well for future growth. Importantly, both Journeys and Johnson & Murphy posted positive comparable sales in the quarter, continuing their ongoing streaks of consecutive gains, with the overall company comp reflecting the reduced discounting issue and corresponding impact on sales. The consumer backdrop has not changed materially from what we described last quarter. Our customer remains selective and intentional. They shop with purpose when there's a reason and they don't when there's not, and they're willing to pay up when we deliver the right product. What continues to stand out is that compelling product and newness are winning. We have the right assortments, our customer is responding, and notably, buying at full price. The back-to-school read in Q3 so far is another encouraging example. After robust spring selling, the consumer turned attention, as usual, to summer activities other than shopping. Since then, Journeys has accelerated to a mid-single-digit comp in August on top of its second-most challenging, well-into-the-double-digits monthly two-year stack. Johnson and Murphy has also seen a notable uptick in interest in its recently dropped fall offering. This gets us off to a good start for the back half. Our goal is to extend the momentum of the last year and a half and continue to gain market share, even as footwear industry dynamics remain challenged. And with that, let me now provide more color by business on the second quarter and the actions underway to deliver the back half, starting with retail. In Q2, Journeys delivered its eighth consecutive quarter of positive comparable sales on top of strong growth a year ago, extending the positive transformation story for the style-led teen that is one of the most important proof points of our strategy. Both store and e-commerce comps were positive. Journey's merchant team continues to do an excellent job building on its elevated assortment across athletic and casual, achieving higher transaction size, more full-price selling, and better conversion again in the quarter. Product strengths remain broad-based across franchises and brands. including lifestyle running, sandals, and low-profile athletic fashion with momentum in newer brands and fashion trends such as Mary Janes and sneaker ballerinas. Ultimately, athletic lifestyle led to growth over the summer where Journeys demonstrated its ability to drive market leadership in several franchises important to its target team customer. Our 4.0 rollout remains a major driver, with the new format continuing to deliver in excess of a 25% sales list. We opened 25 locations in Q2, bringing our total for the year to almost 50. What is most noteworthy about the quarter beyond the positive comps is Journeys delivered a meaningful 180 points of expense leverage. The productivity of these 4.0s, continued fleet optimization, impactful cost reduction actions, and a new approach for selling salary efficiencies all contributed. This leverage, combined with more modest comp growth and roughly flat sales due to closed stores, drove the Knight's improvement in operating income, positioning Journey's Well for profit gains outside of a robust shopping peak. While our back to school business got off to a later start due to the Labor Day calendar shift, sales trends accelerated, boosted by our Life On Loud campaign as we got into the season, especially during tax-free periods with customers looking for budget relief. As I mentioned, Journeys is comping nicely positive against record back to school results last year, especially in larger, more premium shopping centers and in major states like California and Texas. Turning now to SHU, our reset is squarely about restoring better economics over time and this quarter's results show that work is taking hold. To oversee this next phase of the turnaround, we named Thomas Petersson president of SHU in late July. Thomas succeeds Colin Temple who is retiring after a remarkable 38 year career with the business including the last 15 years as president. I want to thank Colin for his extraordinary contributions in building SHU from the start into one of the UK's leading footwear retailers and for his partnership in getting the reset work off the ground. Thomas joins us from Foot Locker where he most recently served as the geographic leader and General Manager for Europe, Middle East and Africa, leading Foot Locker's largest international business. He brings extensive global leadership experience across multi-branded footwear retail and footwear brands with a focus on youth culture. Tomas is reporting to Andy Gray, head of our Journeys Global Retail Group. We have every confidence that his UK and international experience and track record growing profitable retail businesses make him the right leader to quickly build on the current progress. His skill set and experience are an exceptional fit for SHU. Welcome, Tomas. Now back to Q2. SHU's gross margin improved 300 basis points over last year as we prioritized full price selling over discounting and promotions With a full price mix, increasing by 10 full percentage points of overall sales. Greater than expected gross margin improvement, combined with extensive efforts to improve the cost structure, including six store closures in the quarter, selling salary efficiencies, and digital marketing optimization, among others, drove nearly flat operating income year over year, despite lower sales. That is the trade-off we said we would make at SHU, near-term sales pressure in exchange for a healthier business. We're also making progress in product with greater access to and allocation of Adidas, Nike, Asics, UGG, New Balance, Birkenstock, and others as part of our more elevated assortment strategy, and we expect continued improvement as part of the Journeys retail group. The UK consumer market remains challenged and price sensitive, which we're observing during back to school right now. Against this backdrop, and with our efforts to reduce discounting, we've said we expect the shoe turnaround to take longer than Journeys, but we see the same opportunity to serve the style-led youth customer we've captured at Journeys and remain confident in our plan. Moving now to our branded business, Johnston & Murphy built on its momentum with its third consecutive quarter of positive comp gains. Newness and improving assortments, thoughtful pricing strategies, and growing awareness, driven by increased brand marketing and our Peyton Manning campaign, contributed to this growth. The strength in the quarter was store-led, with traffic considerably outperforming the industry, along with improved conversion and higher transaction size. Both higher sales and better gross margins drove the profit increase in the quarter. We are beyond thrilled to announce that we have extended our successful partnership with Peyton Manning for two additional years. Peyton is the consummate successful aspirational J&M brand ambassador with over 85% recognition across our target customer base. Our post-initial campaign research showed positive trends in J&M awareness and brand appeal, with revenue from new customers growing at a double-digit rate this year and up for 10 consecutive months since the launch of the first campaign. Younger customers are driving the growth, from the under-25, 26-35, and 36-45-year-old segments, which gives us a long runway for growth. We're also benefiting from a shift in fashion trend. The shift is not to formal dressing, but to a more refined, put-together way of dressing for work, travel, and social occasions, and that shift is right in J&M's wheelhouse. Apparel was the biggest growth driver in the quarter, growing double digits, with strength from the XC Flex pinnacle blazers, pants, and knit. But we're also grew led by casual and casual athletic styles like the Akerson, which is a dressier, refined sneaker. At Genesco Brands, major increases in Docker sales and significantly improved gross margins help offset revenue loss from license exits as our excitement builds for the Wrangler Footwear launch this month. Now turning to our outlook. We're very pleased with the bottom line outperformance we delivered in Q2 and the comp acceleration we expected as Q3 got underway and we moved into the heart of back to school, even as comparisons became more challenging. While we anticipate continued choppiness in consumer shopping for the balance of the year and lower comps in non-shopping peaks, we've shown that we can effectively navigate these periods. With our outperformance to expectations, we are rolling a portion of that upside forward but are now expecting more challenging sales in the back half to take the actions needed at SHU given how promotional we now expect the UK footwear market to be. We also plan to invest in brand building and marketing to drive customer awareness and grow our business. Taken together, these factors give us confidence that we are well positioned to deliver at the high end, up from the middle of our previously increased EPS range of $2 to $2.40. Let me now briefly highlight a few of the initiatives that are shaping the second half and supporting our longer-term earnings bridge. At Journeys, over the past two years of transformation, we've sharpened the customer proposition, we've meaningfully elevated and diversified the assortment, we've improved brand access, we've invested in the Journeys brand, upgraded the store and online experience, and dramatically improved the economics of the business. With a reimagined concept in place, The next chapter and larger opportunity for growth is broadening awareness and attracting more new customers to Journeys. The style-led teen girl who is underserved in the mall today, a group that is six to seven times larger than our historical base. A key initiative to accomplish this is significantly greater investment in building the Journeys brand. To this end, we expanded the reach of our Life on Loud platform with our new Back to School campaign. including more and bigger activations with our key brand partners and greater consumer engagement across social, digital and in-store experiences. We've increased our media spend over 30% and the campaign has already delivered over 260 million media impressions in the first four weeks of an eight-week flight. TikTok and Instagram engagement has increased 30% including TikTok Top View. And it's all led, as we intended, to traffic increases in stores and to journeys.com, which we have seen since its launch on July 14th. The campaign features Outer Banks' Madison Bailey and XO Kitty's Anna Cathcart, two celebrities that resonate with our team customer, and other influencers who are all magnifying the campaign's impact through their own social networks. Our 4.0 store rollout is another key vehicle for attracting new customers and bringing the Reimagine Journeys experience to life. Through the second quarter, we've opened 130 stores in the new 4.0 format and increased our full year target to 95 stores, bringing the total to about 180, or 20%, of the total fleet by year end. Roughly two-thirds are remodels, with the balance primarily relocations to larger footprints, plus a handful of new stores, which will drive even more growth. Our larger stores and better malls are outperforming, and we're capitalizing on that opportunity. In San Antonio, for example, we consolidated separate Journeys and Journeys Kids stores into a larger format location that's delivering promising early results. With sales at more than 70% month to date and well ahead of target. We also opened our first 4.0 journeys kit store in Mesquite, Texas with plans for seven more this year to determine if this too can be an additional growth vehicle. Moving to SHU, our priority is to build on the reset work underway while simultaneously honing the customer proposition and solidifying the path to strengthen the brand's positioning in the UK market. With Tomas now on board, we look forward to sharing that strategic growth plan in more detail in the coming months with inspiration from the journey's playbook successes. And in the meanwhile, we will be continuing to reduce reliance on discounting. There will be a little less opportunity for gross margin improvement in Q3, but more in Q4. Completing the closure of 20 stores in total over the last two years or over 15% of the store base as we optimize the footprint, furthering the cost reduction results we have been achieving, and building on the product access gains while rationalizing tertiary brands. At Johnston and Murphy, we see a unique moment at this time to greatly expand on our momentum as consumers gravitate toward a more refined and put together look. We're excited for the new Johnston and Murphy and Payton campaign, which launched on September 1st, one month earlier than last year. We shifted additional marketing dollars into Q3 for more impact. This campaign has a fashion theme with continued focus on reaching our target customer through live sports and sports and business programming and content. Our assortment will be supported by strong fall newness in quarter zips, layering pieces, outerwear, and boots as we head into this important selling season. and we will have additional new customer acquisition catalysts with the opening of 10 new J&M stores in the back half. So in summary, our Footwear First strategy continues to gain traction and the strategic initiatives we've put in place are translating into tangible results across our company. This progress is a direct result of the stellar dedication and execution of our people and I want to thank you for your incredible work, which is so exciting to see pay off. And with that, I'll turn it over to Jonathan to review our financial results and outlook in more detail.