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Text: With me on the call today is Mimi Vaughn, our board chair, president, and chief executive officer.
These statements reflect the participants' expectations as of today, but actual results could be different.
Participants also expect to refer to certain adjusted financial measures during the call.
We hope you're all staying safe and healthy.
As we announced earlier this week, we are pleased to report that Tom George has been appointed interim chief financial officer of Genesco, replacing Mel Tucker, who stepped down last month.
Tom has almost 30 years of CFO experience and deep roots in brands and retail, most recently in footwear at Deckers brands.
We look forward to adding Tom's valuable expertise to support the continued growth of our business and very much look forward to Tom joining our leadership team.
Tom's appointment is effective December 14, and in the interim, I have assumed the responsibilities of chief financial officer, working closely with Dave, Brent Baxter, our chief accounting officer; and Matt Johnson, our treasurer, who together have formed the office of the CFO.
These leaders and the rest of our talented finance team are ensuring that the transition will be seamless.
Dave will return later in the call to review the financials.
I'm incredibly pleased with how well our organization performed during the third quarter as we navigated through a back-to-school season like none other.
It's a privilege to lead a team that is facing the challenges brought by COVID-19 head on, serving our consumers extremely well through digital and omnichannel, making progress on our strategic initiatives and quickly returning the company to profitability.
Through all this, we continue to operate with protocols to ensure our highest priority, the health and safety of our people and customers.
As you'll hear today, Journeys and Schuh are businesses serving teens and young adults that represent the large majority of our revenue, have both performed well under recent pressure.
This speaks to the strong strategic market positions, both concepts have built over time and their ability to capitalize on the accelerated shift to online spending.
In todays channel less world, where there are no barriers to shopping anywhere the consumer wants, Journeys' and Schuh's recent performance underscores the tremendous loyalty they've developed with their customers and the compelling proposition they offer to new customers.
Johnston & Murphy enjoys a strong strategic position with great heritage as well.
However, the pandemic has hit J&M's dressier competitive space harder, extending the time frame for turning this business around.
All in all, our teams executed with excellence, managing their businesses well as they reacted to rapidly changing dynamics during the quarter.
In the U.S., there was nothing normal about the cadence of back to school.
The selling season that's usually marked by a sharp acceleration in weekly sales starting in late July and running through Labor Day did not pack the punch that it usually does as school districts across the country delayed or suspended the return to in-person learning.
As we expected, we did see an extension of the selling season through September and into October.
However, in total, back to school was down year over year and more heavily tilted to online.
Meanwhile, back-to-school timing in the U.K. was consistent with historical patterns but far more consumers shopped online for their school needs than ever before.
Stores were open for about 95% of the possible days in the quarter compared to about 70% during the second quarter.
While we continue to face traffic levels that are down well into the double digits, our store teams are driving record levels of consumer conversion that helps to materially offset this headwind.
Our businesses online, on the other hand, experienced strong gains in both traffic and conversion.
We've said before, our e-commerce sales were nicely profitable prior to the pandemic and as we reap the benefits of the many investments we've made, e-comm is driving even greater profitability.
New customers continued to deliver increased volumes as new website visitors were up almost 40%, driving an almost 60% in new customer purchases.
The combination of these drivers led to a total revenue decrease of 11% year over year.
This result was better than we expected due mainly to stronger sales at Journeys and represents a meaningful improvement from last quarter's 20% decline.
The drop in-store volume was partially offset by another strong quarter of digital growth with comps up over 60%.
While gross margins were down compared to last year, due primarily to lower margins at J&M and a mix shift among our businesses, the drop improved sequentially from the second quarter as less promotional activity as Schuh was necessary and Journeys' gross margins increased.
With sales and gross margin improving over last quarter combined with increased profitability in our e-comm channel, our bottom line swung solidly back into positive territory.
The return to profitability yielded positive operating cash generation in the quarter.
Equally encouraging was the health of our inventories which were down more than 20%, allowing for fresh receipts of holiday merchandise.
In addition, the significant effort we invested with our landlord partners seeking rent abatements during the time our stores were closed, paid dividends and will bring even greater benefit next quarter.
We appreciate our landlord partners' willingness to find mutually beneficial solutions and hope to expeditiously reach conclusion with those discussions we have not yet concluded.
So turning now to discuss each business in more detail.
Journeys' third-quarter results are influenced heavily by back to school with more than two-thirds of elementary, middle and high school students attending school only virtually to begin the year, the quarter got off to a difficult start.
Same-store sales were down double digits in August, although e-commerce remains strong.
The business had an inflection point in early September as comparisons began to ease, accelerated significantly over the remainder of the month and remain strong in October as we captured our fair share of late back-to-school demand.
While we were not able to fully make up for the lost volume in August, we were encouraged that store comps were nicely positive in both September and October, and e-commerce growth was even stronger than earlier in the quarter.
Comfort continued to be the fashion choice of the pandemic and Journeys' offering of casual product resonated strongly with consumers.
While teens always have a big complement of fashion athletic footwear in their closets, when fashion swings toward nonathletic or what we call casual footwear, Journeys is especially well-positioned among its competition to deliver this assortment.
This spring a range of comfortable sandals and other casual products sold through well.
This fall, our consumers' appetite for boots began early and more robustly in the season than we have seen in many years.
While the casual part of Journeys' assortment has been gaining ground over fashion athletic all year, Q3 delivered the largest quarterly growth so far.
These gains have been especially pronounced in women's and kids' as we've seen throughout the year.
On the other side of the Atlantic, back to school at Schuh unfolded similarly to previous years with schools starting on time and most students returning to in-person learning.
With its best-in-class digital capabilities, Schuh was ideally positioned to capitalize on this digital shift and capture the vast majority of lost store volume through digital sales.
E-commerce generated almost 45% of Schuh's sales in the quarter, even with most stores being opened.
While store traffic was still down considerably, back to school gave consumers a reason to shop and helped drive traffic increases -- decreases to less negative levels.
The blend of better store and much better online sales allowed Schuh to gain market share during the quarter.
With positive comps in total and only a slight decline in year-over-year revenue from closed stores, coupled with cost savings, Schuh delivered a solid year-over-year operating profit increase.
A noteworthy achievement under difficult conditions.
With less competitive discounting pressure and more scarcity in supply of the brands itself, Schuh pull back significantly on promotional activity versus the second quarter which helped performance as well.
Like Journeys, Schuh's casual assortment gain ground over its fashion athletic assortment with boot sales driving a good portion of the pickup.
While performance improved from the second to the third quarter with the introduction of its fall assortment, Johnston & Murphy continues to find itself in a tough environment.
Its customer has fewer reasons to shop with many continuing to work from home and most large social gatherings and events postponed or canceled.
In addition to store traffic being down over 50% for the quarter, some of J&M's airport and street locations have yet to reopen which further impacted retail sales.
A bright spot was boot sales which began selling earlier in the season this year.
While J&M historically has been known for its dressier product, the team initiated work years ago to evolve Johnston & Murphy into a full lifestyle brand with a range of footwear and apparel offerings from dressier to more casual.
Highlighting the traction we've already made, casual and casual athletic represented about 60% of footwear during our last fiscal year and apparel and accessories drove 40% of total sales.
Looking forward to the coming year, J&M has focused 90% of new product development on the expansion of its casual offering to include casual athletic, leisure, rugged outdoor and performance which follows upon its highly successful reentry into Gulf this spring.
Leading these efforts is a new Head of Product Development, who joined J&M earlier this year and brings a successful track record developing casual brands.
As the J&M customer returns to work and socializing which we hope with the recent medical advances will be sooner than later, J&M's assortment will be ready for the post pandemic lifestyle.
So turning now to the current quarter.
We believe we have the right assortments and are ready for this holiday season.
That said, consumer demand has been very different this year due to the pandemic and its impact on consumer behavior and the economy which has caused us to take a conservative approach to our outlook.
In November, we faced headwinds from the reclosure of stores in North America and the U.K. as we carefully monitor and adhere to each country's and region's health requirements.
And as a result, we're closed for more than 10% of the possible operating days in the month.
The biggest impact was in England and Ireland, where we had the best potential to make up some of these sales online and most stores have reopened at this time.
Following strong gains in September and October, sales moderated and November got off to a slower start against robust comparisons a year ago.
We were encouraged to see trends improve quite a bit around mid-month, providing the business with good momentum heading into Black Friday.
For the Black Friday weekend itself, as expected, traffic was more subdued than usual.
In spite of the choppiness, November sales were in line with our expectations with an even heavier mix of digital versus store sales.
The lion's share of the holiday season remains ahead of us.
Outside of Cyber Week, digital sales were normally strongest during the earlier part of December.
With recent investments across mobile, our platforms, our websites and our distribution centers, we're prepared to handle what we anticipate will be record holiday digital volumes.
We've helped the customer adjust to the pandemic online by introducing services like Klarna at Journeys this summer which is a pay in four installment option that is driving much larger transaction size and offering technology on our website that helps customers determine what size is best to order.
With the ability to fulfill online orders via our distribution centers or from any of our almost 1,500 store locations, we're well-positioned to meet the surge in demand.
Earlier this year, we upgraded our inventory locating an order brokering system to provide greater inventory accuracy which is critical during this peak sales period.
This system also allows functionality such as tiering stores to protect inventory in our highest volume stores, enabling us to better optimize sales across our network.
Even with the acceleration in online demand, the majority of holiday sales will still take place in our physical locations.
Our stores become even greater strategic assets as we get closer to Christmas and customers don't want to risk online orders not arriving in time.
This is the first year we'll have holiday comparison data in our workforce management system since we implemented it last year.
This technology proved invaluable in managing the unusual traffic patterns during back to school and will enable us to rapidly add or remove labor to optimize store staffing levels during this unusual holiday season.
This holiday will be about execution, something we do well that will differentiate us among others.
We've also developed some terrific marketing campaigns, adjusted for what we learned during the pandemic to drive traffic and sales in this important holiday selling season.
We've increased digital marketing spend substantially and are leveraging our CRM systems to inform our digital, social and other advertising efforts.
As conditions normalize and we make further progress on our strategic initiatives, I am confident we'll emerge strong and be well-positioned with more than enough liquidity to take advantage of the many opportunities the pandemic has presented.
We appreciate your efforts all year round, but really especially in this busy holiday season in the midst of the pandemic.
When I'm certain you'll go the extra mile to delight our customers.
I'm also so proud of the work our teams are doing in the communities we serve including donating shoes and masks and supporting our diversity and inclusion initiatives.
Finally, we wish you and your family's happiness and good health this holiday season.
And with that, I'll pass the call back over to Dave.
We were very pleased under the circumstances with our performance in Q3 and the return to profitability against the backdrop of the pandemic.
In Q3 sequential improvement compared to the prior two quarters in both revenue and gross margin, along with a lower tax rate and a small pickup in SG&A drove results back to nicely positive levels with adjusted earnings per share of $0.85 compared to $1.33 last year.
For the third quarter, ending cash was $115 million, with borrowings of $33 million for a net cash position of $82 million.
Just a little below second-quarter's levels.
We entered the quarter with $299 million of cash.
And during the quarter, operations generated $5 million while we spent $8 million on capital projects and paid down $178 million in borrowings using $184 million in total.
In addition, we continue to have outstanding rent payables as we remain in active negotiations with a number of our landlords.
While the business environment continues to be fluid, we are confident we have adequate liquidity to navigate these challenging times and decided to pay down the majority of our revolver balances in both North America and U.K. during the quarter.
As a reminder, early this year, we increased our North American ABL borrowing capacity to $350 million.
facility replacing an expiring one.
Turning to the specifics of the quarter.
Consolidated revenue was $479 million, down 11% compared to last year driven by a lower back-to-school revenue, continued pressure at J&M and the impact from store closures during the quarter.
Robust e-commerce comp of 62% was offset by a decline in-store revenue of 22% driven by a comp decline of 18%, while our stores were closed for 5% of the possible operating days during the quarter.
Digital sales increased to 21% of retail business from 11% last year.
Our comp policy removes any stores that are closed for seven consecutive days.
And therefore, we are providing both overall and comp sales by business to give better insight into performance.
Overall, sales were down 10% for Journeys with comp sales down 6% while store traffic was down well into double digits, much higher conversion and transaction size lifted Journeys' comps.
At Schuh, overall sales were down 3%, while sales were up 1%.
At J&M, overall sales were down 45%, and comp sales were down 43%.
Our licensed brands, overall sales were up 91% due to Togast acquisition.
Consolidated gross margin was 47.1%, down 210 basis points from last year, 100 basis points of which was related to J&M.
Consistent with last quarter, increased shipping to fulfill direct sales pressured the gross margin rate in all of our businesses, totaling 50 basis points of the total overall decline.
Journeys' gross margin increased 110 basis points driven by lower markdowns.
Schuh's gross margin decreased 320 basis points, more than half of which was due to increased e-comm shipping expense with the balance due to higher penetration of sale products.
J&M's gross margin decrease of 1,370 basis points was due to more close outs at wholesale, incremental inventory reserves and higher markdowns at retail.
Finally, the combination of lower revenue at J&M, typically our highest gross margin rate of our businesses and the revenue growth of licensed brands, typically our lowest gross margin rate negatively impacted the overall rate mix.
Adjusted SG&A expenses were down 11%.
And as a percentage of sales, leveraged 10 basis points to 44.1% as we realized the collective benefits of our organization's disciplined actions to manage expenses and relief from government programs.
government programs which provides property tax relief.
The next largest areas of savings came from bonus expense and the reduction in store selling salaries.
Compensation expense benefited from reduced operating hours and government salary relief provided in Canada and the U.K. Given the added cost of driving customer traffic to our stores and websites, our organization is intently focused on the strategic initiative of reshaping the cost structure.
One of the most impactful areas has been a multiyear effort centered around occupancy costs, and we have achieved even greater traction this year with the pandemic.
In addition to the rent abatement savings, we have negotiated 58 renewals year-to-date and achieved a 28% reduction in cash rent or 27% on a straight-line basis in the U.S., this was on top of an 11% cash rent reduction or 8% on a straight-line basis or 160 renewals last year.
These renewals are for an even shorter-term, averaging approximately one and a half years compared to the three year average we saw last year, with almost a third of our fleet coming up for renewal in the next 24 months, we should make substantial progress here.
In summary, the third-quarter's adjusted operating income was $13.9 million versus last year's adjusted operating income of $26.7 million.
Both Schuh and licensed brands generated operating income increases over last year, while Journeys was lower and J&M saw the largest year-over-year decline.
Our adjusted non-GAAP tax rate for the third quarter was 4% reflecting the impact of foreign jurisdictions for which no income taxes were recorded.
Turning now to the balance sheet.
Q3 total inventory was down 22% on sales that were down 11%.
Journeys' inventory was down 28% on sales that were down 10%.
Schuh's inventory was down 22% with sales that were down 8% on a constant currency basis.
Both Journeys and Schuh will continue to chase inventory during Q4, adding fresh merchandise to increase these levels.
J&M's inventory was down 3% on sales that were down 45% reflecting the pack-and-hold inventory and the level of reserves we believe will be adequate to better rightsize the current inventory levels.
Capital expenditures were $8 million as we -- as our spend remains focused on digital and omnichannel and depreciation and amortization was $11 million.
We closed seven stores and opened seven during the quarter.
Given the continued uncertainty due to the pandemic, we are not providing guidance this quarter, but we'll share some current thoughts on the business going forward.
Q4 revenue usually is dependent upon performing well during what are traditionally, the peak volume times of the holiday season.
This year, we are more conservative about those consumer peaks materializing.
Therefore, thinking about revenue, the year-over-year percentage decline in overall sales in the fourth quarter could be just a little bit more than the decline in the third quarter as a result of this.
That said, if consumer demand is stronger during the peaks, we believe we are well-positioned to capture our fair share which would result in us exceeding these levels.
This does not contemplate any additional store closures or restrictions beyond what we know today which could be a bigger headwind.
For the month of November, stores were open for about 88% of the possible operating days and currently, 97% of our stores are open.
Stores have also been operating on more limited hours.
Gross margin rates versus last year for Q4 should be in the range of the decrease we saw in Q3.
The Q3 headwinds of higher e-commerce penetration, J&M gross margin pressure and the negative impact from the mix of businesses we expect will persist into Q4.
We expect SG&A in Q4 to leverage quite a bit from last year's levels, as we continue to benefit from ongoing cost reduction efforts and get some substantial help from rent abatements.
While the annual tax rate is expected to be approximately 18%.
I'd like to highlight that in the fourth quarter, we expect it to be approximately 40%.
In conclusion, I would like to echo Mimi's comments on our amazing teams, who have executed so admirably throughout this entire year.
From store closings and reopenings through an unprecedented back-to-school season and now in the middle of the most important holiday season, the talent and perseverance shown during this challenging year leaves me with much to be admired and appreciated.

user
compname reports q3 adjusted earnings per share $0.85.
q3 non-gaap earnings per share $0.85 from continuing operations.
q3 sales $479 million versus refinitiv ibes estimate of $457.2 million.
co is not providing guidance at this time.

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