Good day, everyone, and welcome to the Genesco First Quarter Fiscal Year 2013 Conference Call. Just a reminder, today's call is being recorded. Participants in the call expect to make forward-looking statements. They reflect the participants' expectations as of today, but actual results could be different. Genesco refers you to this morning's earning release and to the company's SEC filings, including the most recent 10-K filing for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made during the call today. Participants also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial measures referred to in the prepared remarks are reconciled to their GAAP counterparts in the attachments to this morning's press release and in schedules available on the company's homepage under Investor Relation. I would now like to turn the call over to Mr. Bob Dennis, Chairman, President and Chief Executive Officer. Please go ahead, sir.

Good morning, and thank you for being with us for our first quarter earnings call. With me today is Jim Gulmi, our Chief Financial Officer. As a reminder, Jim's detailed review of the quarterly financials has been posted to our website along with the press release from earlier this morning. I'll begin this call with a few remarks about the first quarter and how we are thinking about the rest of the year, and then I will turn the call over to Jim for a review of the numbers. And then, I'll return to provide some color on our operating segments before we open the call up for your questions. Our fiscal year is off to a very good start. The strongly positive sales trends that have characterized our business for the past 7 quarters beginning with Back-to-School in the fiscal 2011 continued in the first quarter. Our 9% comp comes on top of a 14% comp a year ago and follows a 12% gain in the fourth quarter. Through last Saturday, second quarter comps were up 7% versus 12% over the same period last year. We have been able to maintain momentum despite more difficult year-over-year comparisons, thanks to our businesses' strong strategic positioning, favorable fashion trends and excellent execution by our operating teams. This top line strength continues to drive operating expense leverage and profitability above expectations. The prospects for our various growth initiatives remain positive. First, as we'll discuss in more detail later in the call, Schuh continues to outperform our expectations even as macroeconomic conditions in the U.K. had weakened, and we are moving quickly to take advantage of a weak real estate market by accelerating store openings there. Second, we remain excited about Canadian expansion opportunities for Lids Sports, Journeys and Johnston & Murphy with…

Thank you, Bob. Much of the detailed financial information for the quarter has been posted online so I will only be making a few comments. The first quarter came in better than our forecast. Comp sales were up 9% for the quarter. This compares with 14% comps in the first quarter of last year. This was led by a 12% comp increase on top of a 14% increase last year for the Journeys Group. A 4% comp increase on top of a 16% increase last year for the Lids group and a 4% comp increase on top of a 10% increase last year for Johnston & Murphy in the first quarter. The Journeys Group's comps in both periods have been adjusted to reflect the simulation of 135 Underground by Journeys stores. I'll remind you that these comp sales do not include our direct business, that is e-commerce and catalog sales. The direct business increased 67% in the quarter due in large part to the addition of Schuh UK's e-commerce sales. Excluding Schuh UK, direct sales increased 8% in the quarter. Month to date, same-door sales -- same-store sales through May 19 increased 7% and direct sales increased 5% on a comparable basis. Consolidated net sales for the quarter were $600 million, an increase of 25% over last year. This includes sales of $70 million from our Schuh UK acquisition in June of last year. Excluding Schuh UK sales, sales increased 10% for the first quarter. We earned $0.98 in the quarter, adjusted as shown on the attachment to our press release compared to last year's adjusted earnings per share of $0.67 or an increase of 46%. Gross margin in the quarter was 51.5% compared with last year's gross margin of 51.4%. Adjusted for all the items broken out in the…

Thanks, Jim. At Journeys, strong fashion trends drove another quarter of robust growth, with first quarter comps for Journeys Group up 12% versus 14% last year. Quarter-to-date through last Saturday, comparable store sales were up 10%. Our spring merchandise assortments are resonating with consumers, which gives us confidence about our prospects for summer and our plans for Back-to-School. ASPs in the Journeys stores were up 9% in the quarter, some of that coming from the stores being less promotional in the quarter than last year. Excluding the promotional offset, we estimate that the ASP increase was mid-single-digit. We saw the first significant ASP increase in the fourth quarter last year so we have 2 more quarters to go before we anniversary these higher ASPs. Shi by Journeys and Journeys Kidz posted strong comps during the quarter. These results were encouraging, as both chains began to anniversary tougher comparisons in the first quarter. For Shi by Journeys, we still need to improve four-wall profitability before we will be ready to resume growing the store count, but we continue to be encouraged by their trend. We continue to view the Canadian market as a meaningful opportunity for Journeys, and we are moving quickly to capitalize on it. During the quarter, we opened 5 stores, increasing the Canadian store count to 18 with plans for 7 more openings over the balance of the year. Journeys.com was up 5% in the quarter on top of 29% last year helped by increased traffic. As we discussed in our year-end call, Journeys has plans to further boost e-commerce by significantly broadening the online merchandise offering and is actively working on some infrastructure improvements to support that initiative. Journeys.com is also enjoying healthy growth in mobile traffic, which is more marketing than transactional but is clearly an…

[Operator Instructions] We'll take our first question from Jeff Klinefelter with Piper Jaffray.

I wanted just to ask you a couple of questions. One, first of all, Jim, you commented on the second quarter, May being the smallest month of the quarter. Could you remind us just, at least generally, what the cadence of the business was last year? Do your compares kind of get harder as you go through the second quarter? Easier? Are they kind of consistent? And then also wanted to know, Bob, on the embroidery, 650 stores in Lids. What is kind of the average productivity in four-wall for those versus the non-embroidery stores? And I have one follow-up as well.

Yes. Let me just talk-- while Jim gets the numbers. On the comps, we had a very strong year all of last year where the second half gets more comparison -- more challenging as if you do a stacked comp. Because where comps really took off for us were 6 quarters ago, starting with Back-to-School 2 years ago. So it's really, when we get to the third quarter, we're going against 2 years of more challenging comps. Jim can give you the numbers.

Yes. Last year comparisons for total, the month of May and July were pretty close. July was a little higher than May, and June was higher. So actually, it's -- May was the lowest. It got higher in June and then it kind of dropped back in July.

And then, Jeff, on your embroidery question, I'm going to sort of duck it. I don't have the numbers here, but it's actually not going to give you the visibility you want. The bias for us is to put embroidery stores in our higher volume stores, and the ones that frequently don't have embroidery are ones that were lower volume in the first place. So that comparison really isn't going to show you a lot. I mean, what we do know, and we've said this in the past, is when we have embroidery retrofitted into a store that didn't have the displays any other product, we got about an 8% pickup. The other good thing about embroidery is it still comps -- if you look at it on a comp basis, we continue to learn how to sell it, execute it really well, so it's comping strongly. So we grow that base of our business very nicely.

Okay. One other one, just generally as we look into the second half of the year, I mean, there are lot of concerns about footwear. There are some concerns in particular about broadly define the boot category and what happened last year in the fourth quarter. You're talking about your comparisons getting tougher, your stacks getting tougher. Describe how you view the outlook? Your opportunities to navigate through that environment both your own comparisons and also kind of the dynamics in the industry? I mean, if you have ASP pressure, what are your opportunities to go after more units?

Yes. Now, Jeff, as you know, we don't call out a lot of trends or future commitments for competitive reasons. What we do is we flex our assortment to align with what the teenager wants to wear. And the beauty of our business right now is that demand is across so many different categories of merchandise. Everything from athletics, skates still an important business for us. The rest of athletics is strong and then that gray area, that's athletic shoes that are really truly fashion shoes even from other brands. And then the boat shoe business is strong. We've got so many things going on that we will be assorting to what we believe is the right mix. Boots will be an important part of our business. They were last year. They will be this year and certain vendors that have been important there are going to continue to be important. But in terms of giving you sort of a skew on our mix, we're going to duck that. And when you think about ASPs, yes, the strength of the boot business year-over-year will affect our ASPs. But in years where we've had ASP increases, we have demonstrated our ability to make it up on units because we really buy our inventory to a dollar number. And so, we'll be looking to sell what we think is in most demand in the store. I have to leave it at that.

We'll take our next question from Scott Krasik with BB&T Capital Markets.

Maybe just help us understand exactly what's going on with the e-commerce. I mean, you talked about the initiative at Journeys, May to date Lids [ph] were negative and Journeys is just sort of growing low single digits. How do you view your ability to grow that business and what's the right growth rate?

We're -- our growth rate -- first of all, when you look at the comps, make sure you look at the comparisons because we had a lot of initiatives that we're sort of in blast off mode a year ago. Look, we're being aggressive in all of our businesses given the big opportunity of e-commerce and our approach is shaped by the belief that in the long run, our retailer that has both stores and a robust e-commerce presence is best positioned to win share. And especially if they're seamlessly integrated and operated in a way to complement each other, and so that's where we’re headed. And we believe that the e-commerce, there's as much marketing as -- we called out the growth in mobile at Journeys and we think that's a very important part of it. So if you just use Journeys as an example, we're driving this convergence between our stores, and the digital world is really a total system for serving customers. So you can buy online, you can return to Journeys, the online store has all of our inventory represented both the DCs and the stores. The Journeys stores all have screens accessible to our customers. That allows the customers to see what we have, and we've learned recently that our customers will go into our stores and buy something that we don't have on hand either because we've stocked out or because it's a smaller volume store and it didn't get a full allocation of the full assortment. So we're learning how to fulfill the orders promptly in our stores. If you think about the teenagers, they use mobile all the time. That's what they do. And a lot of what we're seeing is a lot of kids will -- they go to the mobile phone, they look at that Journeys.com, they decide what to buy and they come into the store. And we've got to figure out all the ways in which we make that a driver of what we do. And particularly given that not all of our stores are assorted to the full range of Journeys, that gives us the opportunity to even broaden the range, even to SKUs that may not be in any of our stores or say our top 10 volume stores. So what we're looking to do is take advantage of the fact that we're both Internet and store. This is a long-term place, so I'm not going to give you a growth rate on it. But we think at the end of the day, we get to win in the space and especially get a big benefit when hopefully, at some point, the sales tax and balance gets equalized.

Just anything to that negative comp of Lids [ph] in May in e-commerce?

Well, there was a -- the comp last year was a breakout event as forty something. And that was driven by the fact that when snapbacks got hot, people wanted to have them now. And before we even got to ship them to the store, we had them on the web. And so people were running to the web to get this very hot product. So you really have to look at the stacked comp to get the trend.

Yes, it was about 40% last year.

Okay. And then just help us now because you have the apparel and some of your Lids Locker Room stores. How big is the NFL for you in maybe Q3 and Q4 and what part of that is hats versus jerseys?

Well, if you do -- first of all, the NFL business and the hat stores, which is reflective of the NFL business. It grows steadily through the third quarter and the fourth quarter. And so it keeps accelerating as you get deeper into the season. So that's the first thing to do be mindful of. And then if you look at our overall Locker Room stores, the percentage overall of hats, it's something like -- and Jim's trying to run for the numbers, but it's about 20% hats. It's about 30%, 40% apparel and then the rest is the hard goods in the back, in that ballpark. And NFL will mirror that.

And NFL within the Locker Room is the biggest portion or...

You mean of all the sports?

Yes, within the...

Not by sport category? No.

It was not in the first quarter.

No, it's nothing in the first -- I don't know it is for the year, Scott. Jim's digging for it.

We'll take our next question from Sam Poser with Sterne Agee.

Question about Schuh. When you say it beat your expectations, can you give us some idea of the magnitude of the beat? And also how you think about relative sales by quarter of Schuh compared to the balance of the business as you gave it to us?

Sorry, what's the second half of that, Sam?

You discussed the percent of total sales for the balance of the year, how you thought about second, third and fourth quarter. I wondered how Schuh varies from that so we can use a better planning because it came in significantly higher than what I expected. I don't know how much higher it did than you. And that's why I'm trying to get a gauge on how you look at the rest of the year there.

Yes. Well Sam we're not disclosing a comp on -- we don't really -- not comp in our business, and we're not getting into that. We had bought the business with fairly conservative assumptions with a pro forma build-off of sort of low single-digit kind of comps. And they're beating that by a healthy margin. So we're very, very pleased with what the results are coming out of that, especially given the challenges in that economy. So we're happy with that. And Jim, do you know the percentages to the second question?

The percentage breakout by quarter is what you're looking for, Sam?

Correct.

Okay, well...

Well, Jim did. Schuh, the cadence on that is a little different in the first half of the year, where Journeys is softest in the second quarter and Schuh is softer in the first quarter. Do I have that right Jim?

Yes. Okay. So second quarter, Sam, it'll be about roughly -- it'll be around about the same as total Genesco that we gave earlier, 20% to 21%. And in the third quarter, about 24% to 25%. And then in the final quarter, the balance maybe, hopefully it will workout 30% to -- 32% to 34%.

Okay. And then, secondly, Bob -- thanks, Jim. Bob, what do you think is making for the strong performance there? I mean, what's the driver given the tough environment? Why is it working versus the expectation? Is it product? How much of you guys had a part of it? And how much do you think you guys could do? Just for the given business, not talking about opening stores or anything.

And you're talking Schuh still?

Correct.

Yes. It's product. Product is a huge chunk of it, but the product comes because we have a terrific merchant team that is executing and figuring out how to position that store properly. They're getting access to all the right brands. Our team here in the U.S. is giving them a little extra access on a couple of brands and helping them get more access to exclusive product that is exclusive to Journeys here and is now exclusive to Schuh in the U.K. They're just great operators as well. You have got to get over there sometime, Sam, and see the stores. They're extremely well run. It's easy to see why a customer is loyal to Schuh. And so -- but it is retail, branded retail. And so at the end of the day, if you had to pick any one thing out, it's going to be the assortment that's really driving things. And the story there is the same as the story here. It's a very broad set of trends and a very broad set of vendors, which are all being very effective. And Sam, as you called out, that helps you get narrow and deep and really drive sell-throughs when you have so many good things going on. So what's happening here is happening there.

And one last thing. Have you learned anything the other way, happening at Schuh that might be helping you at Journeys?

There are a lot of things that we can bring back here. We're not emphasizing that right now for the simple reason that as we accelerate store growth over there beyond what the plan was -- the plan was beyond what they had ever done in 1 year in the past. Though the challenges for that team right now in terms of executing their own business is sort of enough to have on their plate right now. So we're -- we think there are probably some opportunities. We're not making that the headline at the moment just because there's just so much to do.

We'll take our next question from Mark Montagna with Avondale Partners.

I had a question on just the EPS guidance for the fiscal year that you raised. It sounds like the big hurdle with raising it is the 15 additional new stores. Is that the only hurdle that was holding you back from raising it higher? And then can you give us an idea as to what that expense is on those 15 stores? Because I assume Schuh is quite a bit bigger of an expense considering the size of those stores.

Well -- sorry, Mark, it's really 2 issues. It's one, the additional stores and then also the additional expense related to the Schuh contingent bonus accrual since they're outperforming -- since they basically outperformed in the first quarter by so much, the accrual was -- most of accruals taken in the first quarter, but some of it bounces on the back half. So it's really a combination of both of those plus the fact is the Street was at about $0.74, and we turned about $0.98. But as you know, our actual internal forecast was a little higher than the Street. So I'm not really going to give you the exact amount of the, let's say the additional expense in the back half. But it makes up for the most part the difference between what we passed on and what we had as our internal number.

Okay. So when it -- just looking at the additional store expense and the Schuh bonus, is it 50-50 or does it lean towards more those additional stores?

It's close 50-50. The stores are actually a bit more, but maybe, it's 60-40.

Okay, all right. And then, I'm not sure -- I might have missed this. Did you guys give an update on your progress with expanding the product on the website and also the larger stores within Canada?

Well, we did call out Canada, so you go back to the script for that. On the Internet, yes, we are looking at ways to have more Internet-only product that would be available to Journeys. Our challenge there is some infrastructure we need to do that, particularly just in the warehouse. And so we're examining that and working to figure out how to do it. And that's very closely aligned with what we want to do with the larger stores in terms of increasing the opportunity there. So those 2 initiatives are pretty closely linked.

Okay. So then with the website and the larger stores, when can we expect to see that new expanded product in both of those places?

Yes, I'll start thinking more like sort of a really having an impact on the businesses. It's a next-year event, not a this-year event.

Okay. And then last question just deals with -- on the last call, you mentioned there's 191 stores that are 2,400 square feet in Journeys. And you're working to make those more productive. What do you do with those 191 stores when a lease comes up? Do you try to exit those stores to go to a smaller store? Or you're committed to those 191 stores even if a lease comes up this year?

Well, in our world, every store is a store, so in -- it's a case-by-case decision. But if we make a decision on one of those stores, it is unlikely because of its size, all right? Once you build it out, I mean, if you look at the economics of real estate, once you've invested in a buildout, assuming you're not going to rebuild the store again, the economics argue very heavily to stay in place. Plus, we are believers that we can make those stores much more productive. And by the way, they come back since -- what we did is we opened a lot of these larger stores into the teeth of the recession and they have bounced back very nicely. So they're productive, and we just think we haven't really taken total advantage of the opportunity. And we'll see that out there. The truth is very few of those because so many of those were done sort of the middle of the last decade and a lot of them on 10-year leases, we're not seeing them for a while anyway. So we'll actually have a pretty good read on our full potential by the time we start looking at most of those leases.

We'll take our next question from Steve Marotta with CL King & Associates.

Jim, the trailing 12 months for Journeys on a sales per square foot basis, how does it compare currently to where you guys peaked in the mid, early 2000s?

It's obviously grown, but still I don't believe it's up to where it was when it was -- when it peaked. We're approaching it, but it's not at the peak yet.

Okay. Is that something that you could define offline?

It could define?

Yes. The differential between where the TTM is now and where peak was?

Yes, probably, yes.

All right. I'll get back to you on that later. And Bob, as it relates -- you sort of spoke about this tangentially on a prior question. But as it relates to where you are and where you thought you'd be from a best practices standpoint between Schuh and between Journeys, what inning are you currently in? And how much more is there to do there? And I know that the Schuh that you had intimated the Schuh guys are focused on accelerating store growth at the moment but, again, from a sharing of best practices, best merchandising, best brand. Where do you think you are in that process?

Well, I don't think of it is a 9 inning game. We think of it as a game that never ends because the teams on each side of the ocean are continuing to work on stuff that they will share back and forth. So of the stuff that we had identified early on as being the sort of clear and obvious stuff, which is mostly in the world of merchandising, we basically have the processes in place to do that. Our vendors to a large extent, have said yes, we're all over this. We're recognizing that Schuh is part of Journeys. And so we're going to try and bring the same benefits to Schuh that have accrued to Journeys basically because of their size here. So that's just happening, and most of it is rolling into place. Then beyond that, our teams talk all the time. And the topics range very broad, everything from how we operate the stores to how do we operate the websites and what have we learned of what works and what doesn't work, and that's going to be an ongoing process forever.

Steve, one thing. I went back and I looked -- when I answered you, it was really I was answering for the Journeys Group. If you look at the Journeys stores by themselves, they are approaching that number. I don't have the exact number, but I think they're pretty close.

We'll hear next from Jill Caruthers with Johnson Rice.

A follow-up on the Schuh accelerated unit growth. Could you talk about these real estate opportunities you've seen additionally for this year? Are they different sites or how do they vary versus the current pace you have?

Well, they're just on trend for what we have cited as the growth opportunity. So where Schuh was most underpenetrated within their home market was Southern U.K. And so not all the new stores are there, but that's where the concentration of the new stores will be. It's real estate in a tight real estate market. And so especially in a place like U.K., and this would be true as Canada as well, when a good opportunity shows up, you jump on it because -- if you can, because the opportunity to find really great real estate is more challenging. So the environment in the U.K. has opened the door for us to be more aggressive. The team at Schuh who, like us here, have a bias to being conservative, at the beginning said let's figure out how many stores we are comfortable opening up because we're stretching our infrastructure beyond what we can. But then came back and said when we combine the opportunities with our confidence in our team's ability to open stores, let's get moving, let's jump on these opportunities. So there's nothing unusual about the stores. They are a mix of mall and high street, which is typical of their mix. And so they're just trying to take advantage of opportunity, which is great for us, great for everybody.

Okay. And then just last question. I know it's only a few months in, but could you just give us a little bit more color on your understandings of the initial conversion of the Underground Station? Anything you think you learned in the past few months or kind of go over the timeline again, I'd appreciate it.

Sure. What we did is at the very beginning of the year, we made the organizational change. That included integrating the fields. And that's the one area where we think we're getting immediate impact. So there is no longer a structure that has people who oversee the Underground stores and a separate group that oversee the Journeys stores. And what you do when you condense those 2 together is you reduce territory size, which gives people, supervisory people, more time in stores, less drive time, more time at home. It just is a better arrangement. And trust me, a great person in the field can have a lot of impact on a store, especially an underperforming stores, if they get to spend time with the people. And so we think that's one of the drivers of what's going on in our improved performance. So that's one thing. Then we also, at the same time, consolidated and reassigned a number of people here in Nashville into various roles to support a number of initiatives. That was all done. Now in terms of -- our real estate team was assigned the task of figuring out what to do with each store. We had a plan for each store, but in some cases, they were landlord-dependent. And what we just said today is we're finding kind of as we expected, a lot of cooperation from the landlords in supporting the conversion of Underground Station to Underground by Journeys. And so we're in the process -- over the next 6 months or so, of resigning the stores and making some tweaks to the interior to better fit what we want to do. So that's rolling. Then the last big piece, obviously, is the merchandise. And as we rewrite POs, we will start landing goods that are part of the new merchandising plan for Back-to-School. And so we'll see that, and then we'll think we'll have all of that complete for holiday. And so by holiday, we should be pretty much 100% on track for what we do, with the one exception is, we'll still have the challenge of making some systems conversions so that our systems recognize the Underground stores as part of Journeys. And that will be done by the very beginning of next fiscal year in our current plan.

[Operator Instructions] We'll hear next from Robin Murchison with SunTrust.

Three questions. One, I wanted to ask you about if you -- if Jim, you could just kind of go over with us the components of reaching that next 150 basis points to get you to 9% operating margin, what has to happen there? I know a key part of it has always been rents, but if you can just go over that. Secondly, I want to ask you about Johnston & Murphy Women's. It looks like almost all the product is on sale on the website. And thirdly, I want to ask you if you'll just remind us if you said what your AUC increase on a year-over-year basis is likely to look like in the fourth quarter.

What do you want to do, the 150 basis points? The 150 basis points, in general, is leveraged. I'll let Jim talk...

Nothing's really changed there. The whole 150, for the most part, is leverage. The pickup we got last year from 5.5% to 7% is primarily leverage. Going from 7% to 7.4% this year is primarily leverage and within that leveraged category, we continue to leverage rent. And we've done a good job of tightening up selling expenses and we're leveraging selling expenses also. So the key driver is rent and in selling salaries.

Yes. In women's, we're very pleased with what's going on with the women's business. And so I'm not -- I can't really respond to your observation that product is on sale other than to say, as we learn as we go, one of the things we learn, no surprise, is the women's business is a little faster. And so you have to make your calls on product that is working and not working in order to clear. So that's the only -- our business is fine in women's. There's nothing unusual going on this season, but we are learning that we have to run it a little bit faster. And that might be weighing on what you see on the web. And last question, the...

Average unit cost in the fourth quarter?

Within what business?

Just overall. What you expect the increase or just anything you can say relative to average unit cost.

Okay. Well, let's just sort of back up and realize again that 80% of our business is selling branded goods. And so we had a wave of cost increases that had parallel price increases to preserve gross margin. That's what we were expecting in terms of flowing it through, and that is what happened. And indeed, the customer has -- because you look at the ASPs and the comps, obviously, the customers were able to absorb the price increases. And so we've -- we comped positively both on price ASP but also on units. So that's really what happened in the third, fourth quarter with those increases that have now flowed through. I'm still talking the branded businesses. And we're expecting in the next third, fourth quarter another round of increases but less severe and less across-the-board. And so don't expect to see anything as robust in the next go around in terms of ASP drivers when we anniversary it. When you get into our -- into Johnston & Murphy and into Licensed Brands, we are looking at cost increases. And for the case of Johnston & Murphy, it's coming both from factories and labor, which is what the driver is for most of the businesses, as well as leather. Leather continues to be something that's challenged. And so what we've been doing there is, what we said, we're just testing the market to selectively increase price. And at Johnston & Murphy, we're reasonably successful on having -- of prices pass through. It's probably been the biggest challenge in our Licensed Brands business, which is a more moderate business where the pressures of the prices and the costs show up more prominently because you're already running a pretty tight ship in terms of cost and margins. And so that's just the classic give-and-take between a vendor and a retailer, trying to find out what works for both of them. And that's a battle we continue to be engaged in.

We'll move on to Chris Svezia with Susquehanna Financial Group.

Just one quick question. Just on the Lids headwear, I guess when you guys talk about what worked in the quarter and what you're seeing working, I want to talk about snapback, any color or comments about the action sports piece, MLB piece of the business? Or is snapback cannibalizing some of that as you sort of reference?

Yes. Well, first of all, let's be clear. Snapbacks are an important part of the business, but this is a fairly broadly assorted store. And I don't know what the percent of snapbacks is. I'm not sure we want to hand it out. But it's far from being the majority of the store. It's -- it just came out of nowhere, and so it created a pop. And our observation was when that business popped, the kids that bought that are the kids that normally bought MLB fitted both in the authentic and in the fashion part of it and action sports. And so each of those categories backed up a little bit as the kids went over to the cabinet. Just standing in one of our stores and you can see who the kids are that run over -- it's the classic fashion customer who's on to that right now. And so our expectation is when that cools, and it will eventually cool because we're in a fashion business, that they will move back to where they were, in action sports and MLB, or possibly move on to the next thing that we don't have visibility on yet. But the important thing from our perspective is we have the inventory under really good control. And it's sort of, it gets done for us first because it's still hot that it's -- it had great sell-through. But as a non-fitted hat by definition, it is a less inventory-intense business. So we can run a fairly higher percentage of sales and a lower percentage of our inventory, which really mitigates a lot of our risk. And that's what gives us a lot of comfort on what's going on here.

Okay, that's helpful. And just on a competitive environment, because it seems like everyone else has sort of woken up to what's going on in snapback and the headwear business in general a little bit more. And your competitors have talked about strength in that business. I mean, as far as you guys see it in how it plays out, by far, you have market-leading position in headwear. You're not seeing anything in the business from a share perspective, it's just maybe the fact that other competitors might have woken up to this business a little bit more. That's really all that's probably playing out, out there. Is that fair to say?

Yes. I think that's sort of fair. But understand that in the headwear business, the 2 things that the customers really care about are the breadth of the assortment, right? Variety wins the day, and we win there. And then freshness wins the day. And -- because of our position in the market, we're the ones that see the next -- you're probably not aware of which hat was last quarter and which hat is this quarter, but the customers in this space know that. And so newness matters a lot. And the other thing from a competition standpoint goes back to what I said. It is much easier to manage a adjustable hat than it is the fitted business. And so we probably lose a notch of competitive advantage in a category that is non-fitted because others can play in that space a little more easily. When you get into fitted hats, which continues to be the bigger chunk of our business, that's when managing size assortments and having an inventory intensity and having great replenishment capabilities matters. And so that's still the big chunk of our business, and that still gives us a big competitive advantage.

Your last question will come from Sam Poser with Sterne Agee.

I just have a quick follow-up. When you're looking at the plans for the balance of the year and you're thinking about the margins, can you just walk through that one more time and what is going to take to beat? Because it sounds like you're looking at the external stuff a lot. But if you keep on -- and you're expecting things to get worse, not better, is what it sounds like.

Sam, we're being cautious, given the macroeconomic environment. We're very confident right now about the relative position of our stores in terms of if you walk the mall and you say, are Journeys and Lids Sports and Johnston & Murphy, are they well positioned in their space? And the answer is absolutely yes. Our concern, as we said, is the consumers started spending with borrowed money again and that can't go to -- go on forever. So we're cautious on that basis. We continue to have good leverage on our business. So to improve operating margins year-over-year, the low-single-digit comps does that for us. We continue to have success on rent. We continue to not seep upward pressure on wages in the store. And so the 2 biggest cost items are very nicely under control. So reasonably low comps still give us leverage. Jim, would you want to...

Yes, Sam when say margins, I don't know what margins you're talking about. You want gross margin or operating margin?

I was talking of operating margins. I said...

You've been talking about operating. So I'm just -- I'm sort of just doing it on the larger picture there.

Okay. Well, larger picture. We really don't see much movement in our gross margin. We're saying gross margin will be down 10 basis points at the end of the year, but that's primarily driven by, as much as anything, just mix. We've got Schuh in there for the full 12 months. We've said Schuh's gross margin is a little below Journeys, so that's affecting it to some degree. Peanuts, 10 basis points. And the rest is we're talking about pretty conservative comps going forward, and we're still talking about some leverage, 2% or 3% comps. And we're still getting leverage, which is what we said all along. So that's kind of the story. It's still a little bit of leveraging going on, not home runs because they don't have home-run comps in there and basically maintaining our gross margin.

We have no further question.

Great. Well, thank you, everybody, for joining us, and we look forward to catching up with you again in August.

And this does conclude today's conference. We thank you for your participation. You may now disconnect.