Good day, everyone and welcome to the Genesco First Quarter Fiscal 2020 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-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 Relations in the Quarterly Earnings section. I will now turn the call over to Mr. Rob 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 Operating and Financial Officer, Mimi Vaughn. Let me take a moment to highlight developments with respect to our senior leadership team. On May 1, Mimi Vaughn, our CFO was appointed to the additional position of Chief Operating Officer. As you know, we are in the process of hiring a new CFO from the outside and we are in the closing stages of that process. Until that role is filled, Mimi will hold the dual titles. And the reality is that Mimi has already been bridging both roles as she has been working closely with our various operators on key initiatives, such as cost control, real estate management and performance improvement plans. This move formally recognizes her efforts and strengthens the management team as we move forward with a footwear-focused strategy. So congratulations, Mimi. Now, following the sale of Lids in early February fiscal ‘20 is off to a good start with improved results in every business with Journeys leading the way. In our first quarter, consolidated comparable sales increased 5%, our eighth consecutive quarter of positive consolidated comparable sales for our footwear businesses. Importantly, our overall brick-and-mortar performance remained firmly in positive territory and e-commerce sales accelerated from recent levels continuing its strong multiyear run. Our overall comp result was fueled by another spectacular quarter at Journeys as the momentum from the strong back-to-school and holiday seasons carried into the New Year. Shoes comps showed improvement, turning positive in Q1 helped by easier comparisons and increased promotional activity aimed at trying to stimulate demand in what remains a challenging UK footwear and apparel market. After a record setting year, Johnston & Murphy comps were flat as sales for spring merchandise were slow to take…

Thanks Bob. Good morning, everyone. I have got a couple of things to callout first. We have posted more information in a brief presentation, summarizing results and guidance you can access online at our website. We have combined the content of our CFO commentary into these materials and our press release, making them more accessible and are no longer publishing a CFO commentary. In addition, part of the 8-K we filed this morning contains non-GAAP fiscal ‘19 results by quarter for last year restated to reflect the sale of Lids Sports Group. You can find this on our website as well. As a reminder, since we completed the sale on the last day of the fiscal year, GAAP required that we include Lids’ results in discontinued operations and that we restate our historical financials as if we never owned the business. This restatement process involves taking certain expenses that were previously shared with and allocated to Lids and re-spreading them across our remaining divisions. It also involved, including on both the historical and future basis, the cost of the Lids headquarters building, which we still own even though there are no operations associated with it. We plan to eventually sell the building, but in the meanwhile, we absorb its costs. The net effect of all this for fiscal ‘19 operating income, is lower by about 20 basis points for most divisions and corporate bears the cost of the building. Overall, this reduces profitability for the remaining operations versus prior to the restatement. Nevertheless, Lids was both a higher gross margin and a higher SG&A expense business than average. Without it, gross margins were lower, SG&A expenses lower and operating margins are higher on a percentage basis for continuing operations. We published restated GAAP numbers at the end of the fiscal…

Thanks, Mimi. The in-depth strategic review we undertook over the course of last year after the decision to sell Lids reaffirmed just how much benefit we get across the collection of footwear businesses in our portfolio in a similar way to other successful portfolio retail and branded companies. Our strong strategic positioning, close connection with our customers and enduring leadership positions are what make each of our footwear businesses distinctive on their own. And then what they share as sources of synergies makes them stronger and better together than they are apart. There are seven areas of major synergy I’d like to highlight and share a few examples of where these synergies have benefited us in the past and also allowed us to build platforms that can give benefit in the future to new parts of the portfolio. The first one is product and vendor synergies. Since Journeys and Schuh enjoy significant overlap in their vendor base, their combined scale allows for stronger brand relationships underscored by activities like top-to-top global summits held jointly to set product and marketing direction. This dynamic provides benefits in negotiating product costs, and purchase terms as well as access to hot and unique merchandise, such as special product makeup’s carried only in Journeys and Schuh. This product overlap also extends to the Little Burgundy business we acquired in Canada a few years ago. Second, strategic initiative Journeys and Schuh have also benefited from exchanging ideas and sharing strategic initiatives. And so for example, this sharing led the kids towers and Schuh stores in the development of stand-alone Schuh Kids locations, a very productive part of the Schuh portfolio borrowing from Journeys know-how and success in kids footwear. Third, wholesale trade relationships we use the excellent relationships and reputation we have across multiple tiers of…

Thank you. [Operator Instructions] Our first question comes from Mitch Kummetz of Pivotal Research. Please go ahead.

Yes. Thanks for taking my questions. I guess, I’ve got a few. One, on Q1, could you give us the comp by month, I don’t know if you made that available?

We did not make that available, Mitch, but it was a tough February and then you really have to add together March and April because of the April offset and add it together, that performed obviously well.

Got it.

Yes. Basically what happened is that Bob talked about the delay in tax refunds. So that shifted some sales out of February into March, it offset the fact that Easter moved out of March and then sales then strengthened in April. So through the course of the three months, sales got progressively stronger.

And that’s a good lead to my second question because, Bob, it sounds like in your prepared remarks, you talked about Journeys and there was some caution on the comp guide for Q1 around tax refunds and it sounds like those didn’t come in as bad as you had feared. And I’m just wondering, how much of the beat relative to your plan on Journeys was that there was a less tax refund impact versus other things? And then, if you can maybe kind of address some of those other things in terms of exceeding your guidance on Journeys?

Well, now, so the uncertainty on tax refunds, Mitch, it was on two things, it was timing and then total level. And the total level of tax refunds that came out was actually a little lower than previous year. So, the Journeys performance was driven by a lot more than just sort of the fuel that came from tax. We were just being cautioned because we didn’t know what the tax gap was going to be, small or medium or bigger, it was very hard to figure that out so, it ends up – that tax ended up probably in the neighborhood of where we had expected it to be, so the real upside performance came from all the other things that drive the business, just great merchandising and great performance in our stores and online.

Got it, and I’m a little confused on your views – your updated views on Johnston & Murphy because it sounds like some of the Q1 miss might have been due to the late catalog drop that kind of shifted from Q1 to Q2. It seems like that would benefit Q2, but you’ve taken your Q2 guide down. It sounds like some of that – it sounds like the view then is due to maybe just the trends outside of that catalog, particularly on the seasonal side, but I don’t see how that might impact the back half. So I’m just – can you just provide a little bit more color around that?

Well, in general, they came off of a very, very good year and that’s when they had strong comps and we saw a flat comp in the first quarter and maybe part of that is weather. But the other thing we know about Johnston & Murphy, historically, not every time, but often, they get challenged a little bit when the stock market, the financial markets and everything get a little disrupted. And that hasn’t happened every time, but historically, it more often than not has been a problem. So you point to that and you see what’s going on in the marketplace and you get a little caution. Mimi, do you want to add along to that?

I think that it’s just a slight amount of additional caution, Mitch. We took comps down by 1%. Part of what we noted in the first quarter is that traffic was down considerably and our – what we know from other retail concepts is that mall traffic was down in the first quarter. We were able to make that up by very strong conversion increases in Journeys in particular and conversion increases elsewhere, but it’s really the traffic that has caused us to be somewhat more cautious about J&M going forward.

And that’s where – just plan it with a little more to give you perspective. We’ve been looking at the general shopper traffic data and it’s a peculiar pattern right now, which we don’t completely understand because for several years as you well know, total traffic into the apparel and accessories category declined until we got to last year, fiscal 19, and all of a sudden that leveled out year-over-year. and, so we finally got the benefit of traffic not being the headwind in the mall in general that it had been. It obviously varies a lot within our businesses from business-to-business, but there was a general trend. And what’s concerning us now is in fiscal 20, it has gotten back into that decline mode again, which kind of surprised us because we were hoping, obviously, that maybe the overall trend of traffic had found its bottom. And so, as Mimi noted, the traffic patterns are changing again and we’re seeing it in Johnston & Murphy, we’re seeing it a little less in Journeys, but even Journeys is more benefiting on conversion than they are in traffic right now in terms of driving their comps.

Our next question comes from Laurent Vasilescu of Macquarie. Please go ahead.

Good morning, and thanks for taking my question. I wanted a follow up on the Journeys commentary. Obviously, 1Q, you’ve guided flattish and then delivered an impressive 7%. And you did talk about the cadence. Maybe you can talk a little bit more about 2Q, guided up 1% to 2%. Are you seeing a drop off in traffic? Just – I know you talked about traffic leveling off, but are you seeing a traffic – drop off in traffic right now at Journeys or is there a drop off in particularly – a particular category Journeys right now?

Well, we’re not going to comment really on – I mean, I can’t comment on traffic related to categories, people come into the store. So traffic has been, as I just said, a little more of an issue than we had expected. And obviously, we’re doing very well with conversion. In Journeys, again, as we look forward, we see stack comps, which were very strong and so that causes us to be cautious. Overall, in May, as we disclosed, we had a positive result from a comp standpoint in May and it got progressively better over the course of the month. So I think it’s really just looking at the compares.

Yes. I would just echo that and I think our conservatism in the first quarter was, as Bob said, largely related to tax refunds and uncertainty there, but our conservatism for the balance of the year is related to two-year stacked comps. And so, our two-year stacks, just because Journeys has had a really terrific run the past couple of years, so our two-year stacks are plus 11, plus 13 and plus 18. And so we think it’s prudent to be conservative going forward. It’s not that we are seeing anything in our product trends. Product trends were strong across boots, across casual footwear, including sandals across athletic. And when that happens, there is a lot of opportunity to drive the business. And so, it’s not product specific, it is – it’s much more related to overall stack comparisons.

And the last comment on that is, as we’ve said for years, Journeys’ buying strategy is most often to buy a little north of that financial plan because they manage to find lots of flexibility and adjusting, if necessary. So some upside to that comp guidance is possible.

Okay, thank you very much. And then I want to follow-up on the pro forma numbers. Mimi, thank you very much for them to this morning, it really does help. I think you mentioned that 2Q EPS will likely be negative, driven by just the conservatism around the comp guide. Should we assume that the gross margins are up in the second quarter or maybe how much – how many – how much stranded costs should we assume for the second quarter? And then I’d love to ask a follow up on tariffs, if I may.

Sure. So in terms of the second quarter, I said that unless we hit the high end of our comp guidance the Q2 EPS would likely be negative. So what we’re saying is that we’d be hovering around zero. And so, depending where comps come out, we will either be north of flat or south of flat. Secondly, we do expect some EPS – sorry, some gross margin benefit really in each of the subsequent quarters for the rest of the year. We had a nice pickup in the first quarter. It won’t be as strong as the first quarter, but we expect a little bit of a boost in each of the subsequent quarters. And then finally on stranded costs, that really becomes more of an issue for the back half of the year. And so, the way to think about that is that we’ve had costs that we have been sharing with Lids. We’ve continued to carry those costs in order to provide services. But if Lids unplugs from those services sooner than we expected, it may take us a little bit more time to be able to reduce those costs. And so that is a pressure for the back half of the year not necessarily the second quarter.

Okay, very helpful. And then lastly, on tariffs, thanks for all the color, I think you mentioned that 30% to 40% of Journeys comes from China through the vendors. Assuming currencies remains the same and if there is a 25% increase in tariffs, how much should be felt by the end consumer? Should we assume half of it? And then the retailers, such as yourself the vendors and the manufacturers in China who want to keep capacity, should we assume the remaining half is spread – burdened across the three players?

I don’t think I quite understood what you meant by that.

So if there’s a increase in tariffs by 25%, I’m just curious to know how much of it is felt across the ecosystem, whether it’s the end consumer, the retailer, the vendor and then the manufacturer who wants to keep capacity in China?

I’m reluctant to generalize about that. It’s going to be different by business, we’re direct in some businesses. We’re working with third party vendors in other situations. There’s going to be currency movement, presumably that is in play as part of this evolves. We were surprised when we pulled a number of our third party vendors to see how much action they have already taken in terms of diverting production – US-oriented production to other factories. Remember, most of these are global brands, so they get a certain level of flexibility of saying, well, I’m going to take this country and ship to US and I’m going to use China to ship other countries that aren’t as challenged on tariffs. So, there are just way too many moving parts for us to make it worth speculating on how much of a split it’s going to be between consumer and the supply chain and we don’t even know what the percentage will be when and if this all comes about.

Our next question comes from Jonathan Komp of Baird. Please go ahead.

Yes. Hi, thank you. Maybe Bob just to start back on the discussion about traffic that the industry is seeing currently. I think there’s a lot of struggle. Just trying to understand what is some of the unique factors. You mentioned the tax refunds that – and weather and some of the delay in the seasonal pattern versus any kind of underlying shifts in the health of the consumer. And I’m just wondering, when you look across geographies or across your lines of businesses, if there’s any additional color that would fall in either of those camps that you could share with us?

Well, I could share a lot, Jonathan, but it’s heavily speculative, so take it for what it’s worth. The one data point that we have which we already shared is the fact that broadly traffic to footwear and apparel stores has gone back into a bit of a decline on a percentage basis. The other thing that we’ve noticed, this is the only – the other fact I can throw at you is that if you look at tax returns by month, when we got to the end of the quarter, the end of April, the gap between how much tax got returned last year and how much got returned this year, forget what the number was, but it was X. There was less money that got out there. And then for reasons we have no idea of why in May that actually widened. And so, I think by our estimate I think the number was something like an additional $4 billion gap. So that’s – in a low spending month when you take $4 billion out of the pockets of the consumers year-over-year, that might help explain why there has been softness for a lot of people in the space or at least a contributor to it. Beyond that we see a lot of differences in that general traffic pattern between our stores and it usually is a matter of the assortment and how well positioned the business is. And so Journeys obviously is very well-positioned right now with the assortment and then the conversion that we have been getting, which is the real measure of the assortment has been very good. So, the consumer spend patterns are choppy right now. Consumer confidence has been reasonably strong. So it’s a little hard to figure out what was going on in May overall. We just know that we continue to post some good results.

Okay, thank you for that. I guess, we will continue to try to figure things out. Maybe a bigger picture question then just on the profitability, maybe more for Mimi, but I think this year you are kind of guiding flattish revenue on slightly positive comps and flattish margin with the buyback driving the EPS. Just curious when you look at the ability to peel off those stranded costs even now maybe bonus, which is maybe is a multiyear tailwind at some point, maybe not, but just wondering kind of thinking out loud the opportunity to get back to growing the underlying profitability of the business going forward if you can drive that kind of slightly positive same-store sales?

Yes. So, Jon, I think that the real driver particularly in the back part of the year is the flattish to slightly up store comp. I think we have talked to you before about the fact that we need store comps to be positive in order to just cover some of the increasing costs. So, I think the conservatism is really around this transition year for Lids and being able to flush some of the incremental cost out of our system. We have made very good progress on our cost reduction efforts. We are able to leverage below the 2% positive store comp threshold. I would say it’s even creeping down to the 1% level because of the cost reductions that we have in place. So this year is a transition year. I think that the top line growth we have had coupled with the cost reduction efforts will allow us to grow the bottom line.

I would try to summarize it with four things. You have got a bonus pattern. As you know, we are very – our bonus structure is very, very much driven by performance. And so when we up bonus, that’s leaving some potential for improvement in the following years if we don’t repeat, but right now, it represents a little bit of a headwind to the total bottom line. We continue to drive rents. And so we are looking at a lot of cost items, but it is in aggregate a very big item for us. And so we keep on hitting on that. The stranded cost issue was something we need to sort of get after this year and it’s a tricky thing because the timing of the Lids exit from the TSA affects things. But the last thing I will highlight and this is just retail 101 to really drive profit improvement on the bottom line, we need comp sales. And so the guide right now on comp sales gives us sort of marginal leverage. And if we can get back into that 3% to 4% comp range for a year, then the flow-through is dramatic.

Understood. Very helpful. And maybe just last one from me on the share repurchase, just given – I know you repurchased effectively 12% of the shares in the last few months really. I know part of that is use of the Lids proceeds, but how should we think about the pace going forward relative to what it’s been in the recent periods here?

So, we buy opportunistically as you know. We still have an open to buy so to speak on the authorization, but it will depend what we do going forward, it will depend on a lot of different things, including share price, what other opportunities we are seeing to deploy that cash productively for our shareholders, what we are not doing in any – we are not committing to any rate of purchase on a go forward basis.

Yes. So, as Bob said, we buy stock on an opportunistic basis and we think there has been some good opportunity in the recent past to repurchase shares.

Our next question comes from Sam Poser of Susquehanna. Please go ahead.

Good morning. Thank you for taking my question. I just am wondering with the money you are spending on the buybacks and footprint on buybacks if the opportunities come and the remaining authorization, what are other ways to spend the money let’s say on enhancing the stores [Technical Difficulty]? What kind of money are you spending against Schuh right now and so on to really get that business going? I think it’s a follow-up to the other question to sort of just drive the EBIT margins and so on.

Well, Sam, we disclosed what the overall CapEx was for this year and then we outlined some of the initiatives that we are taking on in Schuh including a refit of stores to a significantly – what we think is a significantly improved presentation to our customers and also a store fit out that accommodates what our brands would like to see, our brand partners. So, that’s rolling along. What we do going forward at Schuh with respect to that, I am using this as an example depends upon how the customer reacts to the first 3 stores that we did. We have got a plan to make investments in each of our businesses. For example at Johnston & Murphy, we think we have some white space to actually open stores which makes us a bit of an outlier in the industry. So, our plan already has in it a lot of the investments we think are the prudent investments to make. So, there aren’t too many opportunities very near-term within our existing businesses, because we are funding them at the levels that we think are appropriate. So then beyond that, what you look at is potential for us to make acquisitions. And so in the prepared remarks we outlined in pretty good detail where we think the strength of the basis for an acquisition exists around the 7 categories of synergies. Beyond that again, we need to be opportunistic for having the right business to fit and that timing in many ways is a little bit out of our hands. So, that’s a dependency of what we choose to do there. We are not going to exit from the discipline we have shown in the past of being good fiduciary stewards of the shareholder money. So if we do a deal, it’s because we really believe we can create a lot of shareholder value off of it. So on that one, it’s sort of a little bit of a stay-tuned, but we can’t really predict where we are headed there. And then what we don’t do is we don’t sit on cash and others will create sort of a hoard of a war chest, we are not a war chest company. And so what we are doing is given that philosophy as our last alternative we have been buying back.

Okay, thank you. And I just want to follow-up on Schuh, you talked about the weakness because of lot of the macro and I think Mimi you mentioned the consumer really wants the key items. So I guess the question is you are making the new stores and I saw it online, look very nice, but I guess the question is from a mix perspective, what are you doing to get some of those key items in your stores and so on there? I mean, clearly, you have the key items here in the U.S. at Journeys. What is it – or you have access to those items that those consumers really want there or are you in a separate category right now in general from where that consumer is?

Sam, you have seen the Schuh stores. We have access to pretty much all the brands that we think matter for our target consumer. The work you need to do with your brand partners is always a negotiation to say where are we positioned in your matrix. And so that’s an ongoing and never-ending conversation. We are trying to continue to make sure Schuh is a go to place for consumers and at the same time a great brand home for the key brands. And so we are working on that. To get into the detail of it, you have to go brand by brand which for obvious reasons we are not going to do here.

Ladies and gentlemen, this concludes today’s question-and-answer session. I would like to hand the call back to Mr. Bob Dennis for any additional or closing remarks.

Well, just we thank you all for joining us and we look forward to having another conversation with you in 3 months. Have a great day.

This concludes today’s conference call. Thank you for your participation. You may now disconnect.