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Text: 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.
With me on the call today is Mimi Vaughn, board chair, president, and chief executive officer.
And Tom George, chief financial officer, will review Q3 results in more detail and provide guidance for Q4.
As we announced last month, and you just heard, I'm very pleased we've removed interim from Tom's title.
Tom brings almost 30 years of CFO experience and deep roots in brands and retail, most recently at Deckers Brands.
He has been a tremendous asset to the organization since joining us a year ago, helping guide the business through a period of significant recovery and growth.
We're excited he's part of our leadership team and will continue to benefit from his knowledge and expertise as we grow Genesco going forward.
Now onto recent performance.
Building off an extremely strong first half of the year, we delivered another record earnings per share that well exceeded our expectations, fueled by a very successful back-to-school selling season.
As expected, sales were up considerably from last year, but what's most exciting is the double-digit increase over pre-pandemic level.
We entered the pandemic in a position of strength, are navigating the pandemic well and will enter the post-pandemic phase even stronger.
While the current market conditions have presented a number of external challenges, including supply chain disruptions, labor shortages and wage increases, elevated freight expense, and other cost pressures, we are managing through them adeptly.
This quarter's performance highlights the differentiated competitive positions of our retail and branded concepts, strong consumer engagement, and the strategic advantages delivered through our footwear-focused strategy as we work to transform our business.
In particular, our results spotlight Journeys and Schuh as the leading destinations for teen and youth fashion footwear.
Customers view them as unparalleled fashion authorities, validating whatever brands they're currently selling and are increasingly turning to our concept for their branded footwear needs.
and the U.K. as students largely return to in-person classes in the U.S. for the first time.
Sales at Journeys and Schuh exceeded pre-pandemic level.
And while sales volumes typically moderate after the back-to-school rush, we were very encouraged that demand accelerated throughout the quarter and remained strong into October.
I'll call out for Q3 overall was the robust consumer appetite for in-person shopping even as the number of COVID cases spiked, which allowed us to drive a 30% increase in store sales over last year.
Although traffic is still below pre-pandemic levels, it improved across the board to the best levels we've seen.
Our ability to capitalize on the increased demand would not have been possible without the commitment and drive of our store teams who worked tirelessly to prepare and execute a successful back-to-school.
Congratulations to our entire field organization on a job well done.
These results reinforce our view that kids like to shop in person even if they begin their shopping journey online, making our stores a strategic asset working in tandem with our digital capabilities.
I'll now provide some key highlights from this important back-to-school quarter.
Third quarter revenue of $601 million increased 25% versus last year and 12% versus two years ago.
And revenue growth, better-than-expected gross margins, and expense leverage resulted in an operating income increase of almost 70% over pre-pandemic levels and record earnings per share of $2.36 compared with $0.85 last year and $1.33 two years ago, all on an adjusted basis.
Additional highlights include: the robust store sales I've already talked about plus another quarter of strong digital growth; digital sales, which come with double-digit operating margins, increased 11% year-over-year and 79% compared to fiscal '20.
With this, our e-commerce business now represents 18% of total retail sales and is approaching $0.5 billion; next, increasing gross margin by 210 basis points versus last year, driven primarily by higher full-price selling and price increases while being flat with fiscal '20 in spite of the changing mix of our business and some freight expense pressure; leveraging adjusted SG&A by 260 basis points compared to pre-pandemic levels, as we make progress on efforts to reshape our cost structure; and finally, restarting our share repurchase activity by buying back $31 million of Genesco stock, demonstrating our strong financial position, confidence in our future, and commitment to a strong track record of returning capital to shareholders.
As excited as we are about this quarter, we are even more excited about driving our strategy forward to deliver additional growth, profits, and shareholder value.
So, turning now to discuss each business in more detail.
Strong consumer demand for a variety of brands and styles drove continued momentum as Journeys achieved record third quarter revenue and operating profit, marking the fourth consecutive quarter of record profitability even while operating with inventory almost 30% below pre-pandemic levels.
Leveraging its industry-leading vendor partnerships and deep talent and experience, Journeys merchants selected and secured a compelling assortment of footwear most desired by its team customer.
The current fashion cycle, which I've been describing as shifting more into casual, plays into Journeys strength with a nicely diversified assortment.
However, for this back-to-school, performance was strong in several categories across both casual and fashion athletic.
Nine of the top 10 brands experienced year-over-year growth in the quarter.
In addition, the in-person back-to-school also drove a big pickup in non-footwear sales, like backpacks, with non-footwear up over 50%.
With consumers willing to spend more for full-priced items, coupled with higher footwear ASPs, Journeys also experienced a nice lift in gross margins.
Direct sales held on to most of last year's very strong gains as Journeys increased social media and digital advertising, driving an almost 30% increase in online conversion versus two-year-ago results.
Recent market research validated that our strategies are further building the strength of the Journeys brand as Journeys share of teen footwear purchases and likelihood to be considered as a go-to place for shoes have both increased nicely since the last time the research was conducted.
We were also very pleased with Schuh's back-to-school performance as Q3 constant currency sales increased almost 20% above pre-pandemic sales.
Although students attended school in person last year, this year, shoppers increasingly return to physical retail, and our store teams drove higher conversion and more multi-sales on the best traffic of the year.
The return to stores did not impede the growth of online with direct sales notching large gains on top of last year's meaningful growth as the e-commerce channel more than doubled on a two-year basis.
Fueling this growth were several back-to-school key marketing campaigns and increased spending.
The fashion trends driving Schuh's business are largely the same ones driving Journeys, and several of Schuh's top 10 brands experienced growth in the quarter as well.
Additionally, Schuh's success managing through COVID strengthened its key vendor partnerships, boding well for the future with even better access to products.
Turning now to our branded side.
Our plan to reimagine Johnston & Murphy for a more casual, more comfortable post-pandemic environment is delivering tangible results.
Hardest hit by COVID, J&M is tracking well ahead of its turnaround goals.
Sales improved further in Q3, both online and in stores but are still below two-year-ago levels due to the extended delays of return to the office and lower inventories from supply chain disruption.
Delayed deliveries and much stronger-than-expected demand put J&M's inventory almost 50% below two-year-ago levels.
We are especially pleased with the performance of J&M's new athletically inspired casual product.
Casual footwear now makes up more than 70% of DTC footwear product sales with casual athletic increasing 120% versus last year.
J&M's marketing strategy in which we highlight innovation and technology features new products such as the bags, which was presented in the September advertising campaign and resulted in an 80% sell-through by the end of the month.
In addition, J&M's apparel business, highlighted by printed woven shirts and knits, increased by over 30% versus two years ago, endorsing efforts to position J&M as a modern lifestyle brand with broader consumer reach.
Rounding out the discussion, Licensed Brands, unfortunately, saw the biggest challenges from supply chain disruption, which led, among other things, to much higher-than-expected freight costs.
On a positive note, there was strong demand for both Levi's and Dockers footwear in value and full-price channels, which positions the business for improved profitability and supply challenges subside.
Turning now to the current quarter.
We have trend-right assortments and are well-prepared for the holiday season, which many will celebrate together for the first time in two years.
We were very pleased with our results in November, as sales tracked nicely ahead of pre-pandemic levels, and the boot season is off to a good start with boots as a key part of our fourth quarter mix.
For the Black Friday weekend itself, we were also pleased with the results.
While supply chain issues will continue to require close management, we have taken many actions to best prepare our businesses to meet our holiday sales expectations.
Given the recovery and confidence we have, we are returning to giving guidance.
We expect adjusted earnings for fiscal '22 to be between $6.40 and $6.90 per share.
We regard this guidance as a range, but somewhere close to the middle reflects our best current belief of where we would come out, representing an increase of about 45% over fiscal '20.
Tom will give more guidance details later in the call.
Our footwear-focused strategy is delivering results.
COVID has provided the real opportunity to transform our business at a more rapid rate and we are on a very good pace delivering growth and improved operating margins and EPS.
This new direction leverages our strong direct-to-consumer capabilities across footwear retail and brands and the synergies between platforms.
Driving this strategy are six strategic pillars that emphasize continued investment in digital and omnichannel, deepening consumer insights, driving product innovation, reshaping our cost base, and pursuing synergistic acquisitions, all to transform our businesses and exceed the expectations of today's consumer whose needs have advanced.
I'd like to give a brief update about some of the work underway.
We have rolled out at Johnston & Murphy in the U.S., new point-of-sale hardware and software, along with new tablets advancing efforts to further digitize our stores and enhance the omnichannel shopping experience.
For consumers, tablets allow easier access to the full merchandise assortment anywhere in our network.
Mobile checkout allows consumers to skip the checkout line.
The new software enables new payment methods like Venmo, and we are able to upgrade our clienteling efforts.
For employees, the new technology creates efficiencies across in-store tasks, such as visual merchandising and new hire onboarding.
After the holidays, we will roll out this technology at Journeys and will benefit from these capabilities in our next fiscal year.
Journeys research shows that while our digitally native Gen Z customer interacts with us across several digital touchpoints, up to 75% intend to make their purchases in-store, requiring investment to provide a compelling store experience.
Journeys also brought online a bespoke e-commerce packing module with carton on-demand capabilities, which is helping speed fulfillment of online orders during this peak holiday period and keep up with a much higher digital demand.
An added benefit is we are able to keep our stores well stocked for in-person shopping.
Finally, Journeys piloted on its website and pleased with the conversion results plans to roll out augmented reality software, which enables customers to virtually try on and visualize what a pair of shoes would look like on their feet.
Building deeper consumer insights is another pillar where Journeys is dedicating substantial effort starting with first-party data.
Our methods for capturing first-party data and being able to identify Journeys' customers continue to improve.
Because of the trusted relationships we have with our team, consumer, and their parents, the efforts of our people to collect customer information in stores, combined with our notable online growth, has improved visibility.
And we're currently able to identify 80% of Journeys' customers.
Identified customers enter the Journeys' marketing ecosystem and depending on their preferred method of communication receive a combination of digital, email, SMS, social, and direct mail marketing.
In parallel, we're in the process of moving our customer database in-house, cleansing our existing data, and populating a data lake.
Along with the customer segmentation from our primary research, this will enable us to invest in differentiated marketing content that drives consumer engagement, whether we're speaking with the consumer who love shoes and wants to stand out or the consumer who cares a lot about fitting in and wearing shoes their friends were.
In a fragmented industry and knowing our teams enjoy wearing a variety of footwear brands, our aim is to drive loyalty, further consolidate their purchases and take a larger share of our customers' closets.
Touching now on ongoing initiatives of giving back to our communities.
In the fall, Journeys ramped up efforts across North America in partnership with a nonprofit candidate, Journeys employees in 73 cities came together to build and donate 1,500 skateboards to underserved use.
It was the largest employee-driven giveback campaign in our history, with more high-impact events to come.
We're advancing our ESG program on this and on other fronts, with the key milestone being the start of an enterprisewide carbon footprint assessment as we work toward publishing a comprehensive ESG report next year.
I'm continually inspired by the drive and the dedication of our people and saw so many examples over Black Friday weekend, as you're all going the extra mile to serve our customers so well.
We continue to execute well on our strategy.
Third quarter results exceeded our expectations in pre-pandemic fiscal year '20 levels.
We achieved better-than-expected sales, margins, and SG&A leverage, all on significantly lower inventory levels.
Before I get into the details of the quarter, I want to remind you, we believe that comparing to our pre-pandemic fiscal '20, two years ago provides the more difficult and often most meaningful assessment of our business.
However, when comparing to fiscal year '20, keep in mind how our strategy has changed our business.
E-commerce has become a larger percentage of sales along with wholesale sales for licensed brands.
These changes come with an overall lower gross margin rate due to the impact of direct shipping expenses and the expansion of our wholesale volume.
However, this should be more than offset with lower SG&A from these businesses.
While these changes are reshaping the P&L, they have a net positive impact on operating margins and an added benefit of a less capital-intensive business model.
In terms of the specifics for the quarter, consolidated revenue was $601 million, up 12% compared to fiscal '20.
Journeys grew 7% while Schuh grew 17% on a constant currency basis, and we doubled our licensed brands business.
Regarding J&M, we are pleased with the continued momentum we are seeing.
We were 8% below fiscal year '20 levels, and we continue to narrow the gap.
From a channel perspective, we experienced increases in all channels.
E-commerce was up 79% to fiscal year '20 and accounted for 18% of total retail sales, up from 11% in fiscal year '20.
With stores opened 99% of the possible days during the quarter, we are going back to providing comparable sales information versus last year for the stores open in both periods.
On a year-over-year basis, Journeys and Schuh drove positive overall comps of 15% and 23%, respectively, while J&M comps were positive 77%.
We were very pleased with gross margins, which were up 210 basis points to last year and flat at 49.2% versus two years ago.
Strong full-price selling and price increases offset the channel mix impact of increased e-commerce and wholesale and increased logistics costs.
Increased logistics costs put approximately 70 basis points of pressure on Q3 gross margin were the greatest drag in our branded businesses.
Journeys gross margin was up 140 basis points to fiscal year '20, driven by more full-price selling and higher footwear ASPs.
While Schuh's gross margin was down 180 basis points to fiscal year '20 due to a higher e-com mix and higher shipping expenses.
J&M's gross margin was up 230 basis points to fiscal year '20, benefiting from strong full-price selling, which also drove the release of slow-moving inventory reserves.
For J&M, additional logistics costs put 240 basis points of pressure on J&M's Q3 margins.
Finally, licensed brands gross margin was down 150 basis points to fiscal year '20, as we experienced 740 basis points of pressure on Q3 margins from additional logistics costs, which more than offset margin improvements in the business.
Adjusted SG&A expense was 41.6%, a 260 basis point improvement compared to fiscal '20 as we leverage from higher revenue and ongoing actions to manage expenses.
In addition, we experienced leverage in selling salaries and depreciation, partially offset by deleverage in marketing expenses.
As part of the SG&A discussion, I would like to provide a brief update on our $25 million to $30 million cost savings initiative.
I'm pleased to report we have identified the full amount of the target for this fiscal year.
A significant portion of the savings is from rent reductions with the remainder in several areas, including travel, conventions, inter-store freight, compensation, and other overheads.
The full effect of these savings will be realized by the end of fiscal year '23.
These savings are part of the ongoing multiyear effort of reshaping our cost structure by improving store channel profitability.
Regarding rent reductions, year to date through Q3, we have negotiated 129 renewals and achieved a 19% reduction in rent expense in North America on a straight-line basis.
This was on top of a 22% reduction or 123 renewals last year.
These renewals are for an even shorter term, averaging approximately two years compared to the three-year average we have seen in recent years.
With 40% of our fleet coming up for renewal in the next couple of years, this remains a key priority.
In summary, third quarter adjusted operating income was $45.2 million, a 7.5% operating margin compared to $26.7 million or 5% for fiscal year '20.
This quarter's profitability provides strong evidence of the operating margin expansion opportunity achievable with our footwear-focused strategy.
Our adjusted non-GAAP tax rate for the third quarter was 23%.
Turning now to the balance sheet.
Q3 total inventory was down 28% compared to fiscal '20 on sales that were up 12%.
As we remain vigilant in keeping pace with consumer demand in the face of delivery delays.
Our strong net cash position of $267 million and our confidence in the business enabled us to repurchase 522,000 shares of stock for $30.6 million at an average price of $58.71 per share.
We currently have $59 million remaining on our share repurchase authorization.
Regarding capital allocation, our first priority is to invest in the business then continued to return cash to our shareholders through opportunistic share repurchases.
Capital expenditures were $15 million, and depreciation and amortization was $10 million.
We closed five stores during the third quarter to end the quarter with 1,434 total stores.
Now, turning to our outlook.
Given the recovery and confidence we have, we are returning to providing annual guidance.
Based on the strength of our performance this year to date, current Q4 visibility, and expectations for a more normal holiday selling season, we expect fiscal year '22 sales to grow 9% to 11% compared to the pre-pandemic fiscal year '20.
For adjusted earnings, we expect a range of $6.40 to $6.90 per share.
Our best current expectation is that earnings will be near the midpoint of this range, an increase of 45% over fiscal year '20 pre-pandemic levels.
Note that our full year guidance does not anticipate any further significant supply chain disruptions nor increased negative consumer or economic impact from COVID, including new COVID variants.
Although our plan going forward is not to provide quarterly guidance, given the current timing of restarting formal guidance, we would like to provide insights into Q4.
Note that all the comparisons we make are to pre-pandemic fiscal '20 Q4.
Implicit in the annual guidance is an expectation for Q4 sales growth versus fiscal '20 at the midpoint to be in the mid-single digits.
Q4 adjusted earnings per share would range from $2.22 to $2.72 per share.
And again, our best current expectation is for earnings to be near the midpoint of this range.
We expect gross margin rates for Q4 to be relatively flat versus fiscal year '20 levels with a possible 30 basis point swing in either direction.
We believe the promotional environment will remain favorable, and this range represents the degree of full-price selling we could achieve.
Similar to Q3, we expect channel mix as well as increased logistics costs to pressure gross margins.
Increased logistics costs are expected to pressure gross margins by 130 basis points and will offset to some extent these improvements in full-price selling.
We expect Q4 adjusted SG&A as a percentage of sales to deleverage in the range of 180 to 200 basis points compared to fiscal year '20.
This is driven primarily by increased advertising and marketing costs, particularly in brand advertising and digital marketing related to cost per click and higher performance-based compensation associated with the expected improvement in annual results, partially offset by leverage in occupancy cost.
As a reminder, fiscal year '20 Q4 performance-based compensation was relatively low, and this year's level reflects the improved performance that we have experienced on a year-over-year basis.
One more factor worth mentioning on the Q4 SG&A rate is we are not expecting the same amount of onetime government relief or rent abatements we experienced in Q3 this year or last year in Q4.
Our guidance assumes no additional share repurchases for the remainder of the fiscal year, which results in Q4 weighted average shares outstanding of approximately 14.3 million.
Furthermore, for Q4, we expect the tax rate to be approximately 28%.
In summary, this all results in an expected Q4 operating margin below FY '20 levels in large part driven by cost pressures unique to the fourth quarter this year.
We have the right team and the right strategy to continue to drive shareholder value.

user
q3 non-gaap earnings per share $2.36 from continuing operations.
q3 sales rose 25 percent to $601 million.
sees fy adjusted earnings per share $6.40 to $6.90 from continuing operations.
qtrly same store sales increased 25% over last year.
sees fy22 sales to be up 9% to 11%, compared to fiscal 2020.

assistant