Good day, everyone and welcome to the Genesco’s Third Quarter Fiscal 2019 Conference Call. Just 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 you to 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 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 Relations in the quarterly earnings section. I will now turn the call over to Bob Dennis, Genesco’s Chairman, President and Chief Executive Officer. Please go ahead, sir.

Good morning and thank you for being with us. I am joined today by our Chief Financial Officer, Mimi Vaughn. The ongoing strength of our U.S. footwear businesses again drove an acceleration in comparable sales on a sequential basis. Third quarter consolidated comps increased 4%, our strongest quarterly comp performance in more than 2.5 years, besting the 3% gain we posted in the second quarter. Importantly, after turning positive last quarter for the first time in 2 years, our brick-and-mortar performance continued to improve with store comps up 4%, fueled by stronger store traffic. E-commerce sales also accelerated increasing 9% on the heels of a Q2 gain as direct continued its strong multiyear run. Our overall comp result was shaped by strong results at Journeys and Johnston & Murphy, both of which have delivered exceptional comp performances in each quarter of the year thus far. While still in negative territory, Lids comps once again showed sequential improvement as the business continues its recovery from the double-digit decline it posted in last year’s fourth quarter. Likewise, Schuh’s comps rebounded somewhat from their more negative levels, but remained under pressure from the challenging selling environment in the UK. For both Lids and Schuh, additional promotional activity in Q3 generated positive consumer response driving incremental sales in gross margin dollars and keeping inventories clean. Even with the strong comp result, total sales for the quarter were down year-over-year due primarily to the calendar shift from last year’s 53rd week that moved a strong back-to-school week out of the third quarter and into the second. Mimi will cover the financials in more detail later in the call, but I want to highlight that we accrued significantly more bonus expense during the quarter than in the year ago period. In addition, a shift in the…

Thanks Bob. Good morning, everyone. We have posted more information in a brief presentation summarizing results and guidance and in our CFO commentary that you can access online at our website. Journeys’ strong performance in Q3 helped moderate decreases in our other businesses to deliver adjusted EPS of $0.95 versus $1.02 last year. As Bob mentioned, in spite of strong comps, total sales were down largely due to the calendar shift that dropped a strong week of back-to-school sales out of the quarter. Stronger sales and more leverage than expected and higher gross margins than last year helped to offset the higher bonus and catalog expenses, and we achieved earnings that surpassed what we had planned. Q3 consolidated revenue was down 1% to $713 million, including the move of out of the quarter of the back-to-school week, which represented around $20 million of sales. Our top line was also impacted by lower foreign exchange rates versus the dollar, net store closures and lower wholesale sales. Consolidated comps were up 4% with store comps up 4% and direct comps up 9%. Store comps were nicely positive for Journeys and J&M and overall accelerated from positive 2% last quarter to positive 4% this quarter. Direct as a percent of total retail sales in Q3 was 10.6%, up 70 basis points year-over-year validating the progress we have made driving e-commerce. Journeys posted improved results, comps were positive 9%, marking the sixth consecutive quarter of increases and including double-digit e-commerce comps. Highlights of Q3 in stores included mid single-digit growth in traffic, higher conversion and improved average ticket size, representing an extension of the trends we have been seeing all year long. Average ticket was boosted by an increase in footwear ASPs. However, the stronger driver of Journeys’ improvement was more footwear unit sales.…

Thanks, Mimi. The recent performance of our U.S. footwear businesses highlights the importance of brick-and-mortar retail in executing a successful multi-channel strategy. In addition to our results, results from many of our industry peers paint a similar picture. They also show a growing divergence between companies that have invested in building the necessary physical and digital infrastructures to compete and win in today’s consumer environment and those that have not. This is the time of the year when the recent initiatives we have implemented at our operating divisions, Journeys in particular, provides significant benefits. As such, we would like to call out a few areas within Journeys where we are seeing nice returns on our investments. The largest investment of capital in the past year related to the expansion and upgrade of the Journeys’ distribution center. This included a customized module for e-commerce picking and marrying up multiple items, among other new features, all aimed at increasing the DC’s speed and efficiency to get product out to the customer faster and more cost effectively. With these upgrades, we have been able to better optimize both store and e-commerce shipping simultaneously. On a year-to-date basis through Q3, with a much higher volume of shipments, the Journeys’ DC has shipped almost 65% of all web and store orders versus less than 55% in the same period last year, while shipments from stores have decreased to similar amount over the same timeframe. Shipping directly from the DC is the most efficient way to process e-commerce orders and it allows us to keep a stronger inventory position in our small footprint stores, where we have the opportunity to sell it, while also freeing up our store people to focus on selling instead of packing up orders to ship. The separation of e-commerce and store…

Thank you. [Operator Instructions] And we will take our first question from Mitch Kummetz with Pivotal Research.

Yes, excuse me, thanks for taking my questions. I guess I got a few. Bob, I think you mentioned in your remarks that November comp was running ahead of Q3. Correct me if I am wrong on that, but could you elaborate on that? I think last quarter when you kind of gave that information, you talked about sort of how all concepts were running ahead. Any color on kind of how that looks on a concept-by-concept basis? I am guessing maybe they are all up except for maybe Schuh, but you tell me?

Well, overall it’s a little bit better. So I don’t want to exaggerate it. It is higher, but not a big, big difference. And I also want to admire it just a little bit by pointing out weather. So we have had particularly good run with boots given the early winter weather here. In terms of specific businesses, let me ask Mimi to cover that.

Yes. So I think that the leader in the clubhouse is Journeys. Journeys, has been on a strong run versus last year when the weather was very warm in the U.S. at this time, Journeys boot sales were up. And so that is propelling some nice increases. Johnston & Murphy also is taking along quite well. They had a 10% comp last quarter, so that’s a pretty stout comparison. And the most challenging of our businesses is in the UK and that continues to be more challenging. In my guidance remarks, I talked about the fact that we expect a dip in comps, which have been negative for the balance of the quarter just given how difficult the consumer environment is there.

And the dynamics at Lids are worth calling out. Mimi mentioned, I will just repeat the fact that they had a minus 2 comp in the third quarter, but we do something called a hot market analysis, so we pick out all the teams that were in the playoffs this year and last year and we look at how that moved the needle up or down and that was tough this year because of the Red Sox versus Houston. If you eliminate the hot market analysis, then the rest of the Lids business was running flat, which was an improvement. And so the baseball business does have a tail on it. But as you go into the fourth quarter, the NFL and NBA will become more important than MLB proportionately a little less important. And as we mentioned, we see actually some positive momentum in our NFL business and that’s driven by some of the teams that are making nice comebacks and some players that are exciting the fan base.

And then just as a follow-up to that, any sort of preliminary views on the NBA season? I mean, it sounds like NBL – I am sorry, NFL was getting the quarter and has gotten better. You just mentioned that NBA matters in Q4, how are you thinking about that?

Very strong. Couple of things about the NBA, first, all hail LeBron, the jersey is, it makes the Lakers one of the strongest teams for us right now. So his move is a positive effect for the business. But the overall assortment in NBA is very compelling for the consumer. And then Nike who have license has done a nice job with distribution. And so with some narrowing of the distribution, we feel like we’re beneficiaries of all of that. So overall, it’s really a hot category for us right now, and as we said, it gets more important as we roll into the fourth quarter.

And then last one, just on Journeys to drill down a little bit there. Maybe I think you said that November was strong, but against a mid-single-digit increase in November last year? I know the Journeys comps plus 11% for the quarter. Just remind us where the tough comparison is in the quarter, and was it really like boots in December, like were – exposure for you guys last year and that’s where it’s tough to lap, just kind of the details on that?

Yes. So what we are most delighted about is that Journeys business is running strong positive comps against positives last year. And so I talked about November and I talked about the mid-single-digit increase. Our business last year got stronger in December and then even stronger in January. For the quarter altogether, you’ll remember that Journeys had a plus 11% comp. And basically, what unfolded is that the weather got colder as we got deeper into the fourth quarter and the sell-through of boots actually accelerated. In January, it was good and that carried over into the first quarter. And so the comparison in November is strong, but it’s the easiest since we got stronger into December and to January.

Got it.

And while we’re on the subject, one of the thing we’re calling out, again, Mimi mentioned it, but it’s a point of emphasis, the shape of our comps is very positive in the sense that brick-and-mortar has found its legs again. And so for the past 2 years or so, we’ve been calling out the fact that comps that tilt too heavily digital are dilutive simply because there’s more variable cost in the digital business and it’s more of a fixed cost business with small-box retailing in particular. So the fact that we are seeing some really nice brick-and-mortar gains. If we can sustain that, that’s a plus. It makes the sales increase that much more effective on the bottom line.

Got it. Alright. Thanks guys.

Yes.

Thanks, Mitch.

And we’ll take our next question from Janine Stichter with Jefferies.

Hi, good morning. I just wanted to ask a little bit about Schuh. It sounds like there are couple of things going on there, the bigger one being the environment and then to a lesser extent, there are some issues with product scarcity. Is there any way you can kind of parse out how much you think is the environment and then how much is some scarcity from some of these vendors and how you see that progressing? I think you have thought that by the time of the year – by the time we got to the kind of the fourth quarter, some of these scarcity issues would be getting a little bit better. Just kind of the progress you’re seeing there and how we should expect that to unfold?

Yes. So the macro environment, and you can view all the data is public, that’s coming out. It is really starting to show that, that the economy in the UK is getting affected by the uncertainty. And it’s not just will they get to a deal, it’s what will that deal do in terms of commerce and incomes in the UK and nervousness around those themes generally hit a discretionary spending, which is where we sit. And so reports across the board from the High Street have shown that it’s been a difficult environment. So that’s the factor that is the bigger variable, the one that represents the unknown. In terms of product, look, the hottest product in everybody’s retail fashion chains sold out, so we’re subject to that. In the athletic space, there are more brands that try to manage down supply and keep it scarce to keep the demand up, that’s the marketing strategy that works. To the extent that it’s a narrow distribution, that’s helpful for us. But when demand gets very, very focused on certain brands then it can be an impediment because everybody wants one thing and they’re willing to wait until they can get that one or two things and so we’re still subject to a little bit of that, but the thing that we are most attentive to at the moment is the overall nature of the UK. And the last thing is that all that uncertainty also hits the exchange rate. And so we’re exposed to variations in the pound versus the dollar, which have not been our friend lately. Mimi, anything to add to that?

No, I think that’s right. I think the scarcity issues have gotten somewhat better and it’s just the consumer environment that has gotten worse.

Okay, great. And then just wanted to clarify. I think you said ASPs were up for Schuh, is that just a function of mix?

Yes, they were up and they were helped by boots. So it’s colder in the UK this time this year too and so that is – that’s helping ASPs overall.

Great. Thank you.

And we’ll take our next question from Jonathan Komp with Baird.

Yes, hi, thank you. Maybe just a higher-level question, but I want to maybe first ask on this year, with the comps strengthening in a little ahead of plan, but not a lot of change in the earnings outlook. I just wanted to maybe ask more specifically kind of a difference between those?

Yes. So look, Mimi had called it out, again another thing worth repeating is, we have a big bonus accrual being put together this year. So if you took last year’s scenario, where we actually had some bonus reversals and you’re familiar with how our bonus banks work, so we had reversals last year, not a big one, but meaningful. And then this year, we are accruing a lot of bonus given that this will be our first – if you take the mid-range of the guidance, this is our first increase in 4 or 5 years. And so we are finally, thankfully, being able to reward more of our employees with bonus, I think that’s very important for us to do. So if you added that bonus difference back then you do have a very meaningful improvement in earnings, and that’s the distinction. Mimi, anything else you want to add to that?

Yes. And so John, I think the other thing specifically to add on to what Bob said is that in the fourth quarter, we are anticipating a bit more promotional activity for Lids and for Schuh. We are determined to make sure that inventories are clean at the end of the fourth quarter, and given some of the softness in sales, we’re going to take the action necessary. So that will drive comps and help comps, but we’re going to give up a little bit on the margin line. We will regain some by a little bit less deleverage. But to Bob’s point, the bonus expense this year does cause the deleverage. If I said otherwise, we expect that expenses would be down, but that is a one-time event going against no bonus for last year.

Okay, that’s very helpful. And then maybe just a follow-up. As you look forward to next year, it’s a little hard just to know the exact pacing of some of the rent reductions and the broader corporate expense actions. Are you intending to signal that there could be kind of a step change in the cost outlook for your business? Just thinking about kind of the ability to leverage different levels of sales growth, do you see a big change ahead as you look forward to next year?

So if you look forward to next year, the big themes are of – it’s all about comp sales. I mean, we can play expenses all day long. But driving sales is the key to really expanding profitability at our company given the small-box nature of our business and the heavy fixed cost component, and so we like the trend that we’re on. We like the trend that’s going on in the mall. If you look at ShopperTrak information and you look at traffic into apparel and accessory stores, this year it has finally flattened out roughly versus last year versus 4 years of pretty significant decline on top of decline. So there’s something going on in the marketplace where people are saying, I’m willing to go back to the store. And so we look at that and we look at our current comp trend and we say, what we – maybe we have turned the corner that would be the huge plus. And then as I mentioned before, comps are great, store comps are really great for us because of the cost structure. And then layered on top of that, of course, is what you referred to is expenses. And we think what we will be able to continue particularly, in the rent world to go after improved rents, because we still have rolling leases, we’ve got our lease life shortened up nicely. So we revisit rents more frequently, but we don’t get to see everyone every year. And so we have still multi-years of rent reviews coming up, which give us the option to either get the rent settled down to where it needs to be or to close that store because it’s underperforming. So we think we still have a lot of potential on the rent line. And then beyond that, we are going to continue on the cost program looking for other opportunities.

Understood. Appreciate the perspective.

Thanks.

And we will take our next question from Laurent Vasilescu with Macquarie.

Good morning and thank you very much for taking my question. I think your net closures are shaking out to be around 50 locations for this year. Do you have any high level thoughts on the number of store openings and closures anticipated for next year and possibly by concept as well?

Let me give you sort of the themes here and then I will pass it to Mimi. The theme is that, first of all, we are – right now, the structure of our business overall is we are equally profitable across A malls, B malls and C malls. So, when we get in the room with a landlord, we are taking every store on its own and saying can we get to a deal more often than not with a short-term lease that allows that store to earn its cost of capital. And if we can, we keep it open. And our experience so far has been that we have more opportunities to keep it open than generally we expected. And we don’t think that pattern is going to change a whole lot. So, it’s a little uncertain as to therefore how many stores we will keep open and that is all hooked to the theme, which we have mentioned before that if we have a store and we do close it, we don’t make an assumption that we pickup a lot of that business with the closure of that store by other stores in that market or by digital business. And so our theory is that if we can make money in any individual store with an attractive rent deal, then that’s what we are going to do. And I will also just highlight as part of that, what’s interesting in this whole dynamic is that we are still also opening some new stores. So the number that Mimi gave you was net and we are doing that because we are seeing for some of our concepts opportunities to get into malls that really weren’t available to us or not available to us at the rent structure that we really believe we need to have and we track those very carefully. And those new stores in aggregate are returning their cost of capital nicely. So the other factor that’s affecting the net number is that we actually do open some stores.

Yes, I think that’s right. Bob has got those things right that we have some nice opportunity with our Journeys Kidz concept. We have fewer than 250 stores and we think there is more growth available there and then the balance of our opportunity right now in concepts like Journeys that are well-penetrated are these opportunistic fill-ins. And believe it or not, there are more than a handful of locations in really strong A malls that we haven’t been able to get the rent deals to work out before and we are now able to get them to work out. So I would anticipate that next year – the shape of next year’s opening is going to look very much like this year’s.

Okay, that’s very helpful. And then I want to follow-up on the licensed business. I think in the CFO commentary, it talked about termination of a very small brand. I am just curious to know what the size – revenue size is for that business? And then yes, any further thoughts on the licensed business with regards to Dockers?

Well, we have had the small brand that we terminated. We had the license for Bass, which we thought we could grow into a really attractive business that didn’t work out anywhere near as well as we had hoped and so we terminated that license. So, you see the shrinking of the revenues there is primarily related to the wind down of the Bass license.

Okay. A point of clarification on the question was I think your license agreement with Dockers in that $70 million business was coming up for renewal, any thoughts on that business going forward?

Yes. So we have renewed the Dockers license and look we have a great infrastructure in the licensed brands business. We have had a lot of success over the years plugging in new brands over the recent past and continue to believe that there are good opportunities to add on to the Dockers infrastructure.

Absolutely. So, we are in the business of trying to find other licenses that can add to what we have on that platform.

Okay, great. Thank you very much and best of luck.

Thanks, Laurent.

And our next question comes from Erinn Murphy with Piper Jaffray.

Hi, this is Christian Yonkoski on for Erinn today. Thank you very much for taking our questions. Just to touch on Journeys quickly. Yes, Journeys posted a pretty impressive comp this quarter, but it didn’t seem like really solid flow-through on operating margin line. Can you may be talk about whether that was just strictly the bonuses and some of these investments in like the call center? Also if there is any other factors we should think about and then also how to think about the leverage point going into next year?

Well, easily the biggest factor is the increased bonus.

Yes. No, I think that’s right. The bonus is – Journeys booked several million dollars of bonus and but for that and again that’s against no bonus for last year and there is also a shift in the timing of catalog expense and that shift in timing also affected Journeys in the quarter as well. I think without those two things, Journeys operating margin and flow-through would have been quite good. I mean on the strength of those comps plus the combination of the cost reductions, which has absolutely taken root at Journeys, there is some very nice flow-through outside of those items.

Okay, that’s very helpful. And then in terms of promotional activity for Lids and Schuh, how should we kind of think about the promotional levels going forward? I know you mentioned that they will likely be very promotional in Q4, but is this the level we should expect for the foreseeable future or how should we think about this in the future quarters?

They are going to be more promotional and they are going to do what they need to do to compete in the marketplace. So in the case of Schuh, that very much depends on the nature of the economy and how the High Street is reacting to that economy. So like any good retailer you are going to do what you need to do in a situation like that. Lids is more promotional, but interestingly the margin isn’t taking as big a hit, because one of the other offset to that which they are doing very well is the discipline on when we take our markdowns for a lot of general clearance and Lids has significantly improved with a positive effect on margins. The theme there basically is taking earlier discounts on teams that are not going to make the playoffs, which is usually the pivot point for a falloff in demand. And so what we have gotten better at doing, we have a terrific merchandising team there is recognizing when to take our first hit and to get significant liquidation at better margin to keep overall margins in better shape. So, that’s the offset and it’s the same story. We are going to do what we need to do to compete in the marketplace.

Yes. I think that’s right. Just on Lids specifically and then on Schuh specifically for the fourth quarter, I think we found some creative ways to promote to really drive the Lids business and we will continue to do that in the fourth quarter. And as Bob said, it has – the net effect of it has been to accretive to gross margin dollars. So that’s the story with Lids. On Schuh, if you will recall, last year’s fourth quarter was extremely promotional after a really solid year last year, the UK market that was really the turning point and the tipping point and we had more inventory, because we had expected a stronger sell-throughs in the period. So versus last year, we are in much better shape. On the inventory front, we have inventories planned for a challenging market. The most recent turn in the market has shown us that it’s going to be a little bit more challenging than we expected. We still expect that Schuh’s gross margin will be up versus last year, which was quite challenging. And so that just helps get some perspective and then going into next year, when you can anticipate a tough consumer environment, you can moderate your inventories to accommodate that and that’s what we would intend to do for next year.

Great. Thank you. And then just the last one from us today, is there any update on the search process for a new CFO or anything you can share there?

Yes. We are still on the plan for Mimi to move to COO. As we went through the sale process at Lids, we wanted to settle that out to try and get the CFO process in a better situation. And so that is still on our agenda.

But we had bit of a hiatus on that.

But we had a little bit of a hiatus, because we have got other – we had some other things going on.

Great. Thank you so much for your time this morning.

Thank you.

And it appears that we have no further questions at this time. I would now like to turn our call back over to Bob Dennis for any additional or closing remarks.

Well, thank you everybody for being with us and we look forward to talking to you early next year about our holiday results.

And that does conclude today’s conference. Thank you for your participation. You may now disconnect.