Good day, everyone and welcome to the Genesco Second Quarter Fiscal 2017 Conference Call. Just as a reminder, today’s call is being recorded. Participants on the call expect to make forward-looking statements. These statements reflect the participants’ expectations as of today, but actual results could be different. Genesco refers to you this morning’s earnings release and to the company’s SEC filings, including the most recent 10-Q filing for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made during today’s call. Participants also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial numbers or measures referred to in 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 Relations. I will now turn the call over to Mr. Bob Dennis, Genesco’s Chairman, President and Chief Executive Officer. Please go ahead.

Good morning and thank you for being with us. I am joined today by our Chief Financial Officer, Mimi Vaughn. The headline for today’s call is that while we delivered a solid quarter in terms of EPS, we have experienced significant comp deterioration in our Journeys business over the past 2 months related to a fashion rotation, which we expect will persist for several more quarters and therefore has meaningfully changed our outlook for the back half of the year. For the second quarter, we had a 1% decline in consolidated comp sales and we delivered adjusted EPS of $0.34 just below last year’s level of $0.36. Adjusting for increases in year-over-year bonus, our operating results were on par with last year’s Q2. Let me talk through the situation at Journeys. Comps, after being positive in Q1, were lackluster in May, which is a low volume month and then got progressively worse through June, July and then August, which is the peak for back-to-school selling. Journeys’ comp for Q2 finished at minus 4% and for Q3 is running at minus 7% to date as of last Saturday, August 27. Through much of the early summer traffic in the Journeys stores was weaker than we experienced earlier in the year, but we expect that this trend to improve as we entered the key back-to-school period and as we hit the end of July, traffic did indeed pickup. But conversion in our stores dropped off considerably telling us that our overall assortment is not as on trend as we had expected. We have seen the Journeys consumers shift away from several of the fashion trends that have helped fuel strong performance in recent years. We are also seeing strong consumer interest and rapid growth in brands that are not yet at a…

Thank you, Bob. Good morning, everyone. As a reminder, as usual, we have posted more detailed information online in our CFO commentary. For Q2, total sales decreased 5% $626 million. Excluding Lids Team Sports from last year sales, total sales would have been flat for the quarter. Q2 sales included a 1% decrease in consolidated comp sales and increase in non-comp sales of approximately $5 million, including 36 Little Burgundy stores we acquired and an increase of 9% in wholesale sales, not including Lids Team Sports. As Bob pointed out, comp started the second quarter stronger than they finished particularly in Journeys and in Schuh. By division, comps were down 4% at Journeys, down 1% at Schuh, flat at Lids and up 3% at Johnston & Murphy. We had planned flat to negative comps for Lids but did not have visibility into the Journeys fashion ship or the Schuh decline when we plan the second quarter consequently these comps were worse than expected. Consolidated store comps were down 2% and consolidated direct comps were down 1%. Comps for all of our direct businesses except for Lids were nicely positive. Direct as a percent of total retail sales remained at 8% for the quarter. Lids’ direct comp was negative for the quarter and brought the average for the company to negative. Last year in Q2, Lids has new locate system, which gave online access to an additional 50,000 plus SKUs from inventory located in stores, coupled with promotional sales in connection with the inventory clean up helped to drive a 39% direct comp. Locate drove sales again this year, but not enough to comp positively against the promotional sales from last year. Turning to the third quarter to-date, consolidated comps through Saturday, August 27, were down 5% with stores down 5%…

Thanks, Mimi. Let me provide additional thoughts on the outlook for each of our businesses starting with Journeys. I mentioned earlier the current fashion shift at Journeys came on much more suddenly than what our team has experienced in the past. This cycle appears to be different from our historical patterns and another more positive respect. Often, in the early phases of prior shifts, our merchants have seen the customer walk away from a trend without immediately giving a clear signal as to what the next fashion driver was going to be. This time, the direction of the shift is more evident and our primary challenge is not figuring out what the customer wants, rather it is getting enough of the new on-trend product into the assortment to satisfy demands. Based on this, combined with the experience of Journeys leadership in the strength of our vendor relationships, we are working hard to ensure that the trough in this cycle will be shorter than previous ones. That said, it is not an overnight fix and the balance of the year is likely to be difficult for Journeys as we manage through this transition. And in the meantime, we plan to manage inventories tightly, so we don’t get in an upside down position something for which our team also has a good track record of success. There are bright spots within the Journeys group worth noting. First, Journeys direct business continues to perform well driven by several recent growth initiatives that includes supply chain investments to increase the speed of deliveries to customers, more web exclusive product offerings and an increase in the catalog and direct marketing to drive higher digital and store traffic with a solid return on investment. Journeys direct comps performed well in Q2 and are up at nicely…

Thank you. [Operator Instructions] And our first question comes from Jay Sole from Morgan Stanley.

Great, thank you. Bob, I wanted to ask you about this fashion rotation at Journeys. Obviously, it sounds like there are some brand issues, I realized you don’t want to talk about that. But what can you tell us at least about categories or styles? Can you give us anymore color on what’s happening from a fashion standpoint? And then secondly, on the allocation issue, it sounds like that there is a hot product out there, you know what it is, typically brands like to capture opportunities to sell, what’s limiting the brand or the brands or whatever the styles from delivering the product to you because if there is demand there, it seems like they would want to capture it?

Sure. Jay, you are right, we are not go to call out brands and we are not going to call out styles. We think that for competitive reasons, we are best off keeping that to ourselves. I know that will frustrate some of you but that’s our policy. The shifts were going on. You guys will probably figure it out. But in terms of your question on why can’t we rotate more quickly, the thing worth noting is how sudden in terms of timing and severe in terms of swing that this was. So we are chasing product that is essentially totally on allocation. The vendors were caught that are – or the beneficiaries of this I think were caught a little off-guard in how pronounced this is. To be clear, these are fashion trends that our buying team, were all over. It’s just that the extent to which the swing has occurred is more pronounced than anyone would have anticipated. So as we noted in the remarks, on several brands we are seeing huge gains, but we just can’t get anymore products other than what’s on our order. We are chasing like if we were in a category where – we are chasing a category where they were supply, it would not be the issue. It’s just the fact that the whole supply chain is backed up at the moment and the timing on that is we don’t think we can get a really meaningful move beyond what was in the order book as we recognized the severity of this. We didn’t think we can move the order book until the spring. So when we dropped spring, which arrives in the first quarter, we will have a pretty pronounced move beyond what we had anticipated, but between now and then we think we are going to be a little challenged selling out of what is really in highest demand and a little long and what has gone soft.

So I understood, so you are saying once we get to the spring assortment, that supply will start to fill in at a rate that’s more appropriate for the level of demand, is there any reason to think that beyond that you won’t get the supply that you are looking for, I mean is there an issue of does whatever the hot product is, is there a scarcity value that maybe they are worried about delivering too much or anything like that or do you feel like this is just like any other cycle where once the supply chain catches up you will get the product you need and be able to satisfy the demand that’s out there?

I think it’s a little more like the latter. There is some release approaches that are being used on select styles, but in the main I think this is mostly about the supply chain catching up to the unanticipated level of demand.

Great, got it. Thank you, Bob.

And Jay, you know that Journeys has a tremendous relationship with vendors and so in the past we have been able to get our fair share of product. Vendors do like to manage supply and we in partnership with them tend to like the fact that supply is managed carefully into the environment. So as Bob said, spring is going to be the time that we will catch up.

Understood. Thanks.

And our next question comes from Scott Krasik from Buckingham Research.

Yes. Thanks. Thanks for taking my question. So just a follow-up on Journeys, is the order of magnitude just given the presence of the brands that are down trending, I mean is it just majors when Doc Marten sort of fell off about 10 years ago?

Look, it looks kind of like that in terms of the – we had a very, very important brand and we have talked about that one in the past because it’s way in the past. And yes, it has that kind of flavor that the difference here Scott, is how quickly it happened. And so the curve is steeper if you can think about it that way, right.

Okay, that makes sense. And then switching to Lids for a second, the amount of margin you are getting back, I mean I think there was 150 bps to 250 bps or around there from promotions, is that – do you expect to get more going forward, is that sort of the right order of magnitude and what will determine that going forward?

This is Bob. I will just give you color and then I will hand it to Mimi. We are going to continue to see pretty big margin pickup. And when we got down to the fourth quarter, because we had set an end of year target for the Lids team, things got especially aggressive. Now that said, if you go way back, you go say, 3 years back, 3 years or 4 years back, where we had really high margins, don’t expect us to get back all the way to those levels for two reasons. One, we had snapbacks, which in the early stage of the snapbacks, we were basically getting higher than average margins because of an imbalance in supply and demand. And then secondly, we are being very aggressive in season marking down products now to make sure that we are clearing more timely and we are being reasonably aggressive. And a good example of that, this year the free agency fee and the NBA was more active than most people had expected and so using Kevin Durant as an example, our team got really aggressive to make sure that we were able to sell through the OKC Jersey pretty quickly. And so the disciplines we are bringing on are bringing gross margins to the appropriate normalized level, which doesn’t get as all the way back.

Okay.

When you look at the gross margin pickup we have had and I will just talk about the first part of this year and then the back part of the year, in the first quarter and this is including Lids Team Sports because you have the comparison from last year. But both that and the underlying retail businesses, there are fewer promotions that we are running within the retail businesses are definitely helping us. So our pickup in the first quarter was 570 basis points. This quarter, it was 480 basis points. And really this quarter, in the second quarter last year, we had the biggest amount of full price selling because of the championships that we described on the call. When you move into the back part of the year, we have even more opportunity for gross margin pickup in Lids. And it’s because the intensity of the promotion was greater. So last year, roughly speaking, in the first half we would give up 200 basis points to 300 basis points in Lids. In the back part of the year we were giving up 500 basis points and 600 basis points. So relatively speaking, it will be a mirror of what happened last year in terms of how we pick up this year.

Okay, that’s helpful. If I could just sneak one last in on SG&A, you talked about maybe addressing some staffing to help the comp declines, is there anything else from an SG&A standpoint or is it really just occupancy and staff, labor…?

We are buckling down across the board. When you have negative comps, you just tighten up everywhere. And as I mentioned, we were actually in spite of the negative comp able to leverage selling salaries. And so in the peak periods, when there is more variable labor in our stores, we will have an opportunity to manage that. But it’s the rent expense that really creates the most amount of de-leverage for us. And given that we anticipate that comps are going to be more negative in the third quarter, we are going to be hit a little hard during the third quarter than we will in the fourth.

And then Scott when you go into Lids, they are – nothing has changed there in terms of the bonus accrual that we have discussed in the past. So there is de-levering there around a bonus accrual, which is expected to be paid out both this year and in future years assuming they don’t go backwards. So, we are putting some money in the bank for them.

Interesting. Okay, thank you.

And our next question comes from Mitch Kummetz from B. Riley.

Yes. Thanks for taking my questions. So Bob, I mean you have had a lot of experience with Journeys with trends coming and going and as far as what you are seeing now, you talked about, I mean your buyers, your merchants are all over it, just can’t get enough product, I am guessing that other retailers are probably struggling to get enough product, too and I am just wondering how you think about this cycle versus other cycles where maybe another cycles there weren’t as many retailers kind of competing for the things that were trending versus the cycle where it seems like a lot of people are kind of selling the same shoes, any thoughts on that?

Yes. This one came suddenly, but to me the thing we called out, which I will call out again, because I think its distinctive is we have gone through some cycles where Jim and Mario are from Journeys have said, we don’t really see where our next basis of advantage is coming from in terms of trend. And that’s not the case here. And so we are really in chase mode to try and get into the businesses that are in the greatest demand. And that in a way is more comforting and gives you more confidence that you can see from a timing standpoint and from an action standpoint, what needs to happen and how quickly it might happen in order to try and get out from the trough. So, I think that’s what distinguishes it. Who else is selling the shoes, it’s this is not that hasn’t changed a whole lot. Journeys’ is really the only national footprint team focused fashion retailer and so it was that way. It will continue to be that way. Some of what’s going on here is on the athletic side, fashion athletic side, so some of the athletic guys will also dip their toes in here. That’s not unusual for us. So, I wouldn’t say the competitive situation is all that different from where it was. This is just – let’s pedal as hard as we can to get to the point where the assortment is in a better mix for our demand pattern.

Got it. And then a follow-up on, it sounds like you took down your Q4 comp outlook partly based on this trend that we are talking about, but I think you also made a comment that you are now maybe a little less bullish on kind of other holiday stuff. And I am just wondering, was that kind of a comment on the boot category in general or was there something more specific to a style or a brand not that you are going to name it that relates to more kind of Q4 oriented selling?

No, it’s more generally around seasonal. And as I said how good a read do you get in August? History says that you do get a little visibility, but this was hot out there and some of these brands are truly seasonally driven. So, it just caused us to say let’s just be a little more cautious because of the little bit of news we had wasn’t as positive as we hope, but let’s just call it a little bit of news.

Got it. Alright, thanks guys.

And our next question comes from Jim House from Piper Jaffray.

Good morning. This is Jim House and I am on for Erinn Murphy.

Hi, Jim.

Hi, good morning. Could you speak a little bit more about trends in the UK post Brexit? And then also, as you look at the holiday season, what are you planning for the promotional calendar for both the UK and the U.S.?

Yes. So, let’s just start with Schuh. The Brexit hit, the week of the Brexit really going into the vote, coming out of the vote was very, very difficult stretch. And then as probably you have all read, the UK has normalized in its consumer spending much more than the market had anticipated. If you look inside of the data, the shape of that swings to other categories apparel and footwear has been more or less flattish. We are running a little bit below that trend. But it isn’t one of the strongest categories and those retailers who have been reporting out have been mixed. So, what we are – that’s what we are looking at. And when you look – and the one thing that I will call out on Schuh is that there is an offset that they are going through right now with back-to-school. And so in England, the back-to-school is later and so we are actually in a window right now, where they are performing a little bit better, which is giving us some encouragement. Longer term, you get into the promotional period and they are going to – they have laid out their promotional calendar for Black Friday, which is going to be a little bit different from the way we did last year. I don’t want to go into – for competitive reasons, I don’t want to go into anymore detail than that. And likewise, Journeys will be similar to what they have done in the past now that’s all dependent on sales trends. Obviously, that’s an opportunity to get more liquidation if that’s necessary and so that decision will be made on the fly depending upon what we feel like we need to do, but the current promotional calendar for Journeys did not anticipate anything significantly different from what we have done in the past.

And one other note, Jim, the fourth quarter in the UK last year, the holiday season was especially promotional. And it was the confluence of factors. It was a weak footwear market, but also was due to an unseasonably warm winter and so there was just a great amount of promotions that this year we are hoping in general that the category doesn’t repeat. And so our plans for the back part of the year for both Journeys and for Schuh is as always to promote to clear seasonal merchandise and we are anticipating that given the year that we had last year that we have opportunity for less promotional activity particularly at Schuh.

Great. Thank you for the detail.

And our next question comes from Jonathan Komp from Robert W. Baird.

Yes, hi. Thank you. Just want to follow-up on Journeys first. Bob, a broader question, I know you have talked a lot about the supply and allocation side of the fashion shift you are seeing and trying to get more product. What about from the consumer standpoint? And I guess the nature of my question is do you think that consumer is more likely to go to other competitors and I am thinking more of the performance athletic competitors in the mall rather than Journeys for some of the hot styles when you do get it or any thoughts about that dynamic?

Yes, lot of thought about that dynamic. Our research shows that our core customer who is a fashion-oriented teenager puts Journeys at the front of their list. And so even in instances where there is some like-to-like product, we are more the preferred shop for that customer. And then what we do is both in terms of presentation, in terms of how we sort around the core styles, we position ourselves more as a destination for these styles and brands. And then stylistically in the store the kinds of people we have doing the selling, our approach to selling just is a better fit for what is a fashion-driven product than what would occur in the athletic stores. We do a great job around what they are really built for which is performance athletic.

And Jon, I think that the traffic patterns that we saw through the course of back-to-school will help inform what the consumer is thinking about as far as Journeys goes. We had weaker traffic in early summer, but when back-to-school came, traffic picked up in our stores back to the levels where they were earlier in the year. And so it was really conversion that was the issue. We had customers coming into the store looking for products, searching for their needs for back-to-school and not finding the product that they wanted. And so it’s conversion that dropped off and traffic continues to come in at the pace where it was before. So that gives us the confidence that when we have the product that consumer wants, they are going to come back and they are going to check and make sure that we have what they need and will return to the Journeys stores.

Okay, great. And then if I could ask a follow-up on the areas you are seeing trade away from, I know you don’t want to name names. Could you talk is it a single brand? Is it maybe multiple brands? And what are you seeing from those vendors in terms of some of that response? Is there any opportunity to reinvigorate some of the trends there or do you think it’s more negative outlook release for a few quarters?

For competitive reasons, we are not going to go into really what it is. I will just highlight the fact that a lot of our brand partners are very good at pivoting and reworking what they are doing in order to remain competitive. And so I wouldn’t count any of them out. They probably have a little bit of work to do. Second thing I will point out is Journeys history with all of our brand partners is one where we are very collaborative with each other. And so what we generally get from them is a reasonable amount of help in terms of working our way through this, which is something that can benefit both of us in the long run. So, we are confident that this shift will get righted and all the vendors will be doing their best to try and help us get there.

Okay. And maybe last one if I could, I am wondering if you just comment, I know previously the operating margin outlook for Lids was to roughly double versus last year. Is that still the case? Has that changed at all?

Yes. We think that we have been seeing stronger gains in gross margin than we had started the year anticipating. And so we expect that those pickups will continue. What we have moderated in Lids though is some perspective on the top line. The challenges that we are seeing just comping against the promotional activity in the e-commerce channel, is more challenging than we had thought. And so we have moderated our outlook for the top line, but that is offset by gross margin increases. And so net-net, we were thinking that we are going to come up about where we thought we would be with Lids.

Okay. Thanks for taking my question.

And our next question comes from Pam Quintiliano from SunTrust.

Great. Thanks so much for taking my questions and for all the granularity that you guys are providing. So one broader one, as we think about your millennial customer and how they are shopping, do you think part of this is reflecting – has the shift happened quicker than you have seen in the past, because the way they are shopping is different and they are doing more research online before coming into the stores and does that change the way your buyers have to approach their job versus historically?

Well, first of all, Pam, our core customer is the teen customer. And we are puzzling over a lot of why this seems to be more sudden and severe and it’s easy to speculate the social media’s piece of it. And so – and we are also spending some time saying is there another way to be more anticipatory of this, which is just – that’s the job of a merchant. So we don’t have any clear answers for you on how to do that. We have done a little bit of work, tiny amount of work on social media predictors and they weren’t very good predictors of this. So it is – and particularly given the lead times to buy large amounts to really move the needle, I am not sure that we know what the solution is. And I don’t want to make this one sound like it’s gigantically different from what we have seen in the past. Just the onset of this came on a little faster. But the general theme here is a fashion shift, which we need to react, to which we are reacting. And again, the beauty of this is we believe that we see the endpoint on we know what we need to do and we can figure out how long it will take to do it.

And Pam, one other thing that I would note is that we have talked over the past many quarters about how much we have benefited from being narrow and deepen our product assortment. And we think that part of the reason certainly social media will have an impact on team shopping, but we think that the large majority of the reasons for the sharp turn here is just because of how concentrated we are in some of our brands. And we have benefited from that on a more concentrated position coming off of a more concentrated position will give more of an opportunity for a sharper decline. And so that’s as much a reason that we can point to as anything else.

That’s very helpful. Thank you. And then another one, just regarding the orders, were you able to cut any orders based on what you saw. And then I know you touched on holiday and how you will typically – you will do what you need to do to be clean, but have you already started becoming more aggressive with some of the slower moving goods just how do we think about your promotional cadence through the remainder of the year, do you approach events differently, do you send more of the direct mailers with the coupons, just anything there would be helpful?

Pam, this will be a combination of everything. There will be maybe some opportunities to do some returns for some of the stuff that – and a lot of this is 12-month product. You push off deliveries. The brands that have softened they are not going away. And so we are going to do business with them. We just have to kind of space out receipts. Maybe we have to accelerate sales in a few instances and you may or may not get some assistance for that. The important thing is that Journeys has been through this before. And Journeys has demonstrated that in partnership with our vendors, we always work through this. It’s not without may be a little bit of pain, but it’s never the scale of the pain that many other retailers experience when they have this kind of swing. And that’s the strength of our team and the strength of our relationship with our vendors that we are pretty confident will end up with inventories in good shape at the end the year. Gross margins are being adjusted a little bit to reflect what we may have to do, but we have been there and we have done that and it’s – it will be a combination of all different tools to get this done.

Well and Pam I think we are already off to the races on that one. If you look to see, we had anticipated a positive comp for the third quarter – for the second quarter for Journeys and we ended up negative. And you can see that our inventory was up only 2%. So the management of the inventory is in place. It will continue through the course of the year. And that’s an area that our merchants are particularly focused on and particularly feel that working with their vendors to make sure we come out where we need to be.

And our next question comes from Jill Nelson from Johnson Rice.

Good morning. A couple of retailers are as we talked about, back-to-school kind of shopping season starting later than previous years, if you could maybe just talk about that, I know it’s a bit befuddled with the fashion shift, but any insight into that?

Yes. There is a slightly later pattern going on. We have accounted for that in our thinking about guidance. So you are – we are talking about week-to-week sales and we have budgeted that in. And so yes, there is slightly later back-to-school and that’s all in play right now.

Okay. And then third quarter comp guidance for Lids looks to have lowered from previous plan, I guess could you just point out some factors behind that revision?

Yes. So I had talked about comp-ing against the promotional activity online. And we actually are finding that to be more challenging. And so when I made comments talking about the fact that we had moderated our outlook on top line growth for Lids, but it will be offset by increased gross margin pickup. It was really in reference to the third quarter. In the third quarter last year, if you will remember last year in Lids, we used online as a great vehicle to right size inventory and to clear product. We were very intensely using the e-commerce channel in the third quarter. Our level of promotions ramped up in the fourth quarter, but we use stores more proportionately more in the fourth quarter. So we have moderated the Lids comp for the third quarter in response to what we have been witnessing so far in comp-ing against the promotional activity online from last year.

And it appears there are no further questions at this time. Mr. Dennis, I would like to turn the conference back over to you for any additional or closing remarks.

Just thank you, everyone for joining us. And we look forward to chatting with you about progress three months from now. Have a good day.

And that will conclude today’s conference. We appreciate your participation. You may now disconnect.