Q3 2020 Earnings Call

In the call over today Slater, Vice President of S.P., Acne and Investor Relations. Please go ahead Sir.

Good morning, everyone and thank you for joining us today to discuss our third quarter 2020 results and our full year fiscal 2020 outlook.

With me on the call today, or Bob Dennis Genesco, as Chairman, President and Chief Executive Officer, Mimi Vaughn, our Chief operating officer, and melt Tucker, our Chief Financial Officer.

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 the cut companies as 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 mornings press release and in the schedules available on the company's home page under Investor Relations and the core.

Early earnings section.

I want to remind everyone. We have posted a presentation summarizing our results and guidance at successful on our website. As another reminder, we filed an 8-K in connection with our Q1 earnings release that contains adjusted non-GAAP fiscal 19 results by quarter for last year restated to reflect the sale of Lids Sports group.

As if we never owned the business per GAAP requirements. You can find this on our website as well not now I'd like to turn it over to Bob.

Yes, Dave.

As you saw from our earnings release issued earlier. This morning, we delivered strong third quarter results and increased our full year guidance.

Before we get into a discussion of our recent performance industries outlook I want to take a few moments to touch on the leadership transition we announced last month.

I couldn't be more pleased with the board's decision to a point, maybe as my successor as President and CEO .

Since joining genesco over 16 years ago Veny has excelled in each of her leadership roles, including as head of corporate strategy at a shared services Chief Financial Officer, and most recently Chief operating officer.

For selection as the 12, President and CEO engine Escos 95 year history is a further step in our succession planning process, which began several years ago.

As we outlined in the November four press release, Mimi will assume her new role on February 2nd 2021st day of our new fiscal year.

On top of this Mimi was elected to the company's board of directors effectively October Thirtyth.

As appointments are incredibly well deserved.

I look forward supporting me and the entire management team in my role as executive Chairman as we work together to continue the positive momentum we have filled since divesting lives in February and turn our attention to delivering further value with our footwear focus strategy.

Maybe we'll discuss the strategic direction and the specific initiatives related to the strategy in more detail on our next call.

For now let me walk through the highlights from the third quarter from a high level our results significantly exceeded expectations as continuing strength at journeys coupled with much improved performance from shoe easily offset headwinds from a challenging quarter for Johnston <unk> Murphy.

The improvement in EPS above our expectations in Q3 was driven by better operating performance and not by additional share buybacks.

Consolidated comparable sales increased 3% on top of our most difficult two years dotcom comp comparison to date this year.

This marks our 10th consecutive quarter of positive comp sales.

Importantly, our overall brick and mortar performance was positive for the nine quarter in a row posting again, despite ongoing traffic challenges.

Meanwhile, ecommerce comps increased almost 20%, adding to its strong multi year run.

Total sales for the company would have been up but for the impact of lower UK and Canadian exchange rates.

The solid comp combined with higher gross margins across all divisions resulted in an improvement in profitability.

On an adjusted basis earnings per share.

And $1.33 cents compared with 97 cents in the third quarter last year.

Our third quarter and year to date performance highlights. The success, we were having as a more focused company on the sale lids as well as the benefit of our aggressive share repurchase activity.

Looking at the performance of each of our footwear businesses in the third quarter for journeys quarter was driven by another successful back to school as full price selling a fashion athletic styles, coupled with an extended sandal season contributed to strong results.

The journeys team remains a top of its gain as the team definitely navigate the ongoing fashion rotation that as an error and part of the business.

We are pleased with the balance.

Within journeys assortment as both fashion athletic and casual brands contributed to which results in Q3 further strengthening journeys market position.

Both store and e-commerce comps at journeys were solidly positive, which led to a 4% top increase on top of last year's strong gain.

Similar to recent quarters, great expense control, along with strong sales allowed for expense leverage.

Moving over to the UK shoe delivered much stronger back to school results than we were anticipating given the prolonged softness in consumer demand for apparel and footwear.

Comps increased 3% for the quarter with fashion boots in fashion athletic driving the business.

Leaning heavily into their advanced Omnichannel capabilities shoe is able to capitalize on an accelerated shift in the UK market to online spending which more than compensated for ongoing softness in store performance.

We believe the hard work of the shoe team and actions under our 20 point plan aimed at addressing profitability and enhancing shoe standing with the consumer and with the brand to sales are yielding positive results.

For the moment. It appears there is some improvement in the UK consumer appetite for footwear as well.

That said in the immediate term, we're still cautious in our outlook due to continued uncertainty about Brexit.

Coming election, and the potential impact on consumer confidence as well as the protracted deterioration and high Street traffic.

On our last call. We spoke about one of she was most critical initiatives, we're attacking shoes fixed cost structure with a strong focus on rent reduction.

We must renegotiate rents for shoes in store fleet in order to improve profitability. Following the ongoing declines in high Street and mall foot traffic, making these rents on economical.

Joe is working with outside advisor and has engaged with every one of its landlord partners.

And while we're making progress we must make substantially more progress on this front as we head into the ended the year achieved not only reductions, but more flexible rent structure as to whether the current retail and consumer volatility.

Back to Us Johnston <unk> Murphy posted its first negative comp in many quarters as comparable sales declined 6% in Q3 on top of a double digit increase in a year ago period.

Following a flattish comp performance in the first half of the year, Jane and could not overcome both the challenging comparisons and the impact of unseasonably warm temperatures and.

That has had on traffic and will fall footwear demand during the quarter.

The team drove conversion in spite of lower traffic and reacted quickly to the difficult topline trends, reducing both inventory and variable as DNA expense versus a year ago.

Last year's introduction of premium sport casual footwear provided a tremendous boosted Jane EMS results.

This year's footwear introductions have not had the same impact which became even more apparent in Q3 with more difficult environment.

While we have seen some bounce back in Q4, so far and footwear market currently dominated by some sameness. The team is working diligently on product innovation and new product introductions for next year to inject greater freshness into the assortment.

We believe this will better position and differentiate Jane am among as footwear competitors and will drive greater traffic and consumption for the brand.

And finally license brands delivered a better bottom line performance with meaningfully higher gross margins on lower sales.

With a sizable cash flow generated both from operations last year and from the sale. This business, we've been actively buying back stock Opportunistically and returning capital to shareholders.

Well, we will cover the buybacks in greater detail in his section.

Now to touch on fourth quarter to date.

With the later Thanksgiving this year visibility into the precise trends is more limited due to the offsets.

However, our Q4 results to date are tracking to our projections.

For the Black Friday weekend itself, starting on Thursday through cyber Monday, and comparing with the same holiday period last year consolidated comps were up nicely with all of our businesses delivering positive results.

Both e-commerce bookings and store comps were positive.

However, our increases like many other retailers, who have reported out were heavily weighted to online.

She was strong performance was especially noteworthy over the Black Friday weekend.

Based on our strong Q3 results and positive start to Q4, we're raising our full year outlook.

We now expect earnings per share for fiscal 2000 to be somewhere between $4.10 and fallout portals and 40 cents.

And as always we do regardless guidance as a range, but somewhere close to the middle reflects our best currently where we might come out.

Which represents an increase of about 30% over fiscal 19 earnings of $3.28.

It has been a busy year, so far with the sale of lids kicking things off in February followed by the ongoing work separating that business from our operations.

A noteworthy call out is that we have recently sold the former lids headquarters at again to carrying value.

As we've made progress separating from lets we've been concentrating on execution and are capitalizing on the benefits of being a more focused company.

We are pleased with the initial progress we've made on this front and believe there are significant opportunities with further improvement over the longer term.

And with that let me turn the call over to melt give more specifics on the financials and guidance.

Thanks, Bob Good morning, everyone. As Bob said, we were very pleased for our third quarter performance our year over year profit improvement was led by journeys with shoe and licensed brands each contributing to the improved results.

Q3 exceeded our expectations with adjusted EPS growing considerably to $1.33 from 97 cents in the prior year.

The year over year improvement was driven by the benefit of share repurchases solid comps and improved gross margins, partially offset by some SGN a de leverage.

Q3 consolidated revenue was a little under last years level at 537 million, excluding the impact the impact of lower exchange rates revenue would have been up 2 million compared to last year consolidated comps were up 3% with store comps up 1% and direct comps up 19% positive comps were offset that summit.

Stent by lower wholesale sales in the impact from closed stores.

Direct as a percent of total retail sales was 11.4% in Q3 up 180 basis points accelerating the great progress, we're making driving e-commerce , our ecommerce business is profitable and we continue to invest at attractive returns to better serve our customer in this channel.

Journeys posted a solid comp increase of 4% on top of 9% last year and it's tough as two year stack comp to date up 13%, marking its 10th consecutive quarter of increases highlighted by both positive store comps and strong double digit ecommerce growth.

Q3 continues the trend of increases in conversion and increases in transaction size, which drove a solid comp in spite of less store traffic.

Shoe posted a solid comp of 3% versus a negative 4% a year ago on a two year stack basis shoes comp performance has improved sequentially each quarter this year, not including the impact of foreign exchange and its exit from the German market shoes total sales would have been up 3% for the quarter.

E Commerce posted its highest double digit growth year to date during the quarter, but was partially offset by negative store comps store traffic continues to decline as overall traffic on the high Street has been negatively impacted by the shift in sales from bricks and mortar to the online channel improved conversion and a higher average selling price mitigated nagging.

Store traffic.

Jane imposed a negative 6% comp for the quarter on top of its most challenging comp comparison from last year of positive, 10% and a two year stack of positive 9%.

Sales were hampered by lower store traffic and a lower average transaction size, but strong in store execution drove an increase in conversion.

Positive results in Jane Am apparel sales were one highlight for the quarter.

In total Q3 consolidated gross margin increased 70 basis points to 49.2% journeys gross margin increased 50 basis points due to higher initial margins and lower markdowns choose gross margin improved 20 basis points due to higher margins on bulk sale in full price product.

Janeane gross margin was up 120 basis points due to a higher mix of direct to consumer sales and improved margins and its wholesale business as Jane and liquidated merchandise in its women's category last year.

Licensed brands gross margin improved 150 basis points due to more direct to consumer shipments in last close out product.

SGN a expense was up about 1% excluding bonus as we continued to benefit from the numerous cost saving initiatives, we implemented throughout fiscal 19 in in this fiscal year. Nonetheless, total adjusted SGN expense deleverage 60 basis points to 44.2% driven primarily by the negative comp at Jane.

And increased selling salaries across the balance of our businesses. In addition, we experienced some stranded cost headwinds from the divestiture of Blitz increased selling salaries reflect headwinds from minimum and living wage increases and our investment in wages to increase retention, we have successfully reduced total our hours.

Over the last several quarters by focusing staffing hours on high traffic periods, but the wage increases outstrip the reduction in hours this quarter.

Selling salary increases were partially offset by rent savings as we continue to have in partnership with our landlords very good success would renewals and rent reductions. We've negotiated 117 renewal year to date and achieved a 13% reduction in cash rent or 9% on a straight line basis in the US. This was on top of a 15% cash.

Cash rent reduction or 8% on a straight line basis for almost 170 renewals last year. These renewals are shorter term providing flexibility in our cost structure, which for this year averaged approximately three years, we're making good progress towards our stated goal to identify eliminate stranded costs as a result, the list divestiture in total we.

Had approximately $12 million of expenses that were allocated or shared with lives primary end primarily in areas like finance HR in the call center the process of restating, our fiscal 19 financials without lives removed approximately $9 million at these costs from last years numbers to the extent that we are not.

Not able to actually eliminate these stranded costs to the level reflected in our restated results, we would risk deleverage. So for those of you modeling our business removal of the first $9 million of stranded cost does not reflect a reduction to last year's expense levels as they have already been removed in our restatement over time.

Back to eliminate all $9 million of stranded costs, but had not accomplish this during Q3, we anticipate that some stranded costs will remain in the fourth quarters well, although we are working diligently to remove these cost.

In addition to major effects around stranded costs. We are taking further profit enhancement actions to reduce costs in areas such as rent payroll hours in supply chain in total we aim to identified by the ended the year up to an additional $15 million the cost across our organization for the second round the profit enhancement program.

In summary, third quarters, adjusted operating income 26.7 million versus 26.3 man a year ago.

Adjusted operating margin increased 10 basis points to 5% adjusted operating income dollars increase for all but our Jane and division and was offset by higher corporate bonuses.

Turning to the balance sheet inventory is higher than last year, but appropriate to expected demand. We believe we've invested in the right categories, particularly at journeys to set ourselves up for excess success and the all important holiday selling season.

Q3, total inventory was up 4% on quarterly sales are flat journeys inventory was up 9% on a sales increase of 3% last year journeys inventory was lighter than we would've liked as we were chasing inventory driven by strong comp performance is up 10% and 9% in Q2 in Q3 last year, respectively Choosy.

Inventory was up 5% on sales increase of 2% on a constant currency basis, Jane EMS inventory was down 10% on sales that were down 9%.

The Jane M. team is doing a good job managing inventory down in response to challenging sales results.

Capital expenditures were eight man and depreciation and amortization was 12 man.

We continue to return capital to shareholders as of last Friday November 29th we had repurchased approximately 300000 shares for a total of one of $11 million since the end of August exhausting, the remaining $1 million of the $100 million authorization. The board approved in Q1 in purchasing another $10 million from the 100 million dollar authorized.

Jason The board approved in Q3 altogether since last December we have repurchased over 5.5 million shares across three authorizations for a total of $235 million. This represents a 28% reduction in the average shares outstanding in the last fiscal year, we ended the quarter with $56 million in cash.

Versus $53 million, a year ago, and no U.S dollar borrowings moving on to guidance for fiscal 2000.

With our better than expected Q3 performance and a solid start to Q4 in this all important holiday selling season, we are taking eat our EPS guidance range up to $4 in 10 cents to $4 in 40 cents compared to our previous guidance range of $3.80 to $4 in 20 cents something close to the middle of this new range reflects.

Our current belief of where we might come out for the year, which implies year over year improvement of about 30%. This new guidance range. Now also includes the estimated negative impact of tariffs for this year. We now expect consolidated sales for the year to range from flat to up 1% as our year to date results enable us to now.

For the bottom end of our range, we still expect consolidated comps to range from up 2% to up 3% in for store comps underlying our guidance to range from up 1% to up 2%. We continued to be conservative in our overall comp assumption for the rest of the year due to more difficult stack comparisons for journeys in particular.

We are now more optimistic about shoes comp given the recent performance, but have a little more cautious outlook for Jane them for the balance of the year.

With respect to Brexit the situation has evolved since we last provide an update on our Q2 call in September the ukase exit from the European Union has been postponed again and a general election is set for December 12. This is obviously an evolving situation with the potential for some consumer disruption that we've taken into an account.

And our guidance with only a few months left we have improved visibility into our real estate transaction for fiscal 20, we now plan to open around 15, new stores still mostly journeys in journeys Kidz, we still plan to close around 40 stores. If we can't get right rent deals for a slight decrease in square footage for the third year in a row.

Based upon our Q3 performance in the updated Q4 forecasts. We now expect gross margins to be up 40 to 60 basis points in total an increase from our prior estimate of up to 30 to 50 basis points with improvement coming from all of our businesses. Our full year guidance. Now includes the estimated negative impact from terrace of a little less than.

Five cents in Q4.

With a low store comp in the timing of eliminating stranded costs, we still spat expect SG enable de lever, but we now expect deleverage in the 30 to 40 basis point range narrowing from our prior estimate of 30 to 50 basis points. We now expect capital expenditures will be around $40 million, which includes spending on digital in omni.

Okay abilities, while investing to refresh our store fleet, we still estimate depreciation and amortization at $50 million.

We continue to estimate the fiscal 2000 tax rate at approximately 28% and an average of approximately 15.7 mere million shares will be outstanding for this year, assuming no stock buybacks beyond what we've made today.

Also assuming additional share repurchases, assuming no additional share repurchase for the remainder of the year.

Our weighted average shares outstanding for next year fiscal 2001 will be approximately 14.4 million shares providing an EPS increase of approximately 9% now I'll turn the call over to many who will cover some of the key initiatives. Our businesses are executing this holiday season and provide an update on the progress we're making on our footwear focused strategy.

Thanks, now as we discussed at Seneca start to the holidays with solid result that a black Friday cyber Monday period.

We feel good about our current momentum and believe we are well prepared to capitalize on the ramp in consumer spending leading up to Christmas.

For the calendar as compress was 64 days between Thanksgiving and Christmas compared to last year, we're confident in our team's ability to execute and we don't foresee a shorter holiday season materially affecting our business.

I will highlight elements of our plans for driving traffic and sales during our is selling season, starting the journey.

We kicked off lastly official start to the holidays with a 360 degree seasonal lifestyle brand campaign across both owned and paid channels over to Black Friday weekend and into cyber week.

Instead of using traditional model. This campaign features local micro insulin therapy, and creative and their teams and their early twenties, including two journeys store employees from the Portland, and Mt Hood, Oregon area.

Hey campaign includes a deep spend within social channels, most relevant to our team consumer and featured exclusive rich content that showcases journeys very and compelling product assortment.

At the same time over Black Friday weekend, we ran at targeted promotional campaign with more robust messaging across stores E Mail SNS wet and social media channels. The results were very encouraging across the board.

Mobile continues to dominate how our customer shops, so thats online at journeys at almost 90% our online traffic now come through a mobile device.

Mobile has experienced a sharp spike in traffic year to date, thanks to efficient spending across various advertising channels, which we plan to capitalize on throughout the holiday season.

In addition, with the and timing of led to on the customer service Center at share. This journey. The team is down 100% dedicated to serving the journey customer.

This has allowed for better training and led to lower turnover of Brad enabling us to provide a much improved customer service experience.

We are seeing better call center metrics compared to the same period last year, including faster customer connect times quicker handle times and lower abandoned rates.

Meanwhile, we are utilizing for the first time across our entire store network for this holiday newly introduced workforce management data to optimize store staffing level with the goal of improving employee to customer ratios during key sales time.

These tools create significant value by redistributing and moving hours were needed based on store traffic. So our associates can deliver an exceptional full service experience at every customer which has driven higher conversion rates all year.

We have seen benefits as assistant in particular on Fridays, Saturdays and Sundays, so far which our peak traffic tons during the week and we anticipate even greater benefit during these busy holiday time, when converting every customer really counts.

In addition, journeys assessing the benefits from the decision to accelerate holiday hiring timeline to allow for the additional training a seasonal employees.

Finally journeys accelerated is across asking this year to get inventory in and back out the warehouse in into stores much more quickly.

Customized e-commerce picking module as second year of operation. This investment is paying dividends as journey shipped more than 60% of this went orders from the distribution center.

Shipping directly from the DC is the most effective layer process econ borders and it allows us to keep a stronger inventory position in our small footprint stores, where we have the opportunity to sell it while freeing up our store associates to focus on serving customers and staff packing orders ships.

So on the other side as the Atlantic Sue has received a lot of positive attention for its recently rolled out value or settles campaign that rewards customers with a five pound discount on their purchase when they bring in apparel shoes for recycling.

The sustainability and charitable aspects of this program are resonating with industry press and consumers appear eager to contribute to a good costs, while also helping out their wallet.

This program is a key part as she is overall sustainability efforts, which is limited purpose pillar.

She was also offering a pay and free installments option for both stores and online purchases. This holiday as automated several aspects of customer service queries, making it easier for customers to get their question answer more efficiently.

Finally to drive traffic to it stores Inlet site Johnston, then Murphy dropped a million catalogs and home than mandated for Thanksgiving and will drop a million more to maximize traffic in the final weekends of the shopping season.

Customer shopping online will discover our redesigned website aimed at improving the mobile shopping experience, which showcases larger product images and allows for additional payment methods as well.

In addition, JM offers he gifting, where a gift giver can select an item for our recipient without having to now his or her size and to give further gift, giving incentive Jane on has eliminated and minimum purchase for free shipping too.

Shifting gears now I plan to share with you more detail behind our footwear focused strategy and initiative on our next earnings call.

Our strong results this year illustrate the powerful.

Footwear platform, we built that combines the operating niche footwear retail businesses and owning footwear brand.

Our ability insecurity and rotate the leading fashion brands desired by our customer as let separates us from competition and allows us to occupy the strong market positions in the third party retail businesses, we operate today.

And as we think about the future as the opportunities to grow the branded side of our business owned and licensed brands that gives us additional robust growth prospects.

We're extremely excited about this next chapter for Genesco and I look forward to sharing with you what our team has been working on.

So to conclude now Bob and I would like to express our thanks and acknowledge our employees throughout our company for their enthusiasm for their hard work, which we see all year round, but our especially appreciative and this busy holiday selling season.

In particular, we want to call out our employees in our stores in the field in our distribution centers and in our call centers that put an extra hours. So we can help our customers find that perfect died and they're looking for and provide glenda wonderful customer service along the way.

I saw so many examples of this over black Friday weekend of our people delighting our customers.

We truly have exceptional people across our businesses are thanks to you for all you do for Genesco happy holidays every line and we look forward to talking with you on our next call.

Operator, we're now ready to take classes.

Thank you, ladies and gentlemen to answer your question. Please take note by pressing star line on your telephone keypad.

If you're using a speakerphone. Please make sure your mute function is turned off to allow you signaled to reach our equipment. Once again press star one at this time.

We'll take our first question from Janine Stichter with Jefferies. Please go ahead.

Hi, good morning, and congrats on the great results.

Yes.

Question for me, even do a lot of different initiatives that seem like the timeline to focus since you sold 11 to more fully focused on the footwear business can you kind of bucket, which one do you think are really the most needle moving and it seems like you're already seeing some benefits in some of these initiatives. So just give us some perspective on how we should think about what are the most meaningful drivers.

You can impact the business now that you're squarely focused on footwear.

So are you seeing we've got a really rich set of synergies and platforms. When we look across the size of Arpus as.

We like the businesses that we're in we like the platform that combine those operating footwear retail businesses and owning footwear brands and there's really a lot of synergy across that platform on even celina retail side on the brand side of our business.

And.

Synergies kind of lots of for that product and vendors synergies that we've been capitalizing on that here and as.

Platforms that we can leverage and I think some of the things that we're most excited about this year are really are on digital initiatives. We have had a chance to double down on our focus on digital we have been executing across.

Platform that we have updating our website really hitting the opportunity for our customers to have a better experience online and that that has paid and that really nice dividends.

Great. That's helpful. Thank you and then just on journey that sounds like the strength, you're seeing there is pretty broad, but can you give some perspective, just me by category at what you're seeing boots for casual North Atlantic and how we should think about adequate clear performance.

This is valsartan headed to maybe.

As you know, we're very sensitive about giving too much color our current trend lines for competitive reasons.

The Big news on journeys I think is that it is broad based and so coming into the holiday. We were benefiting from the fact that we consider continue to see customers buy products for.

Currencies in aware now kind of mentality has sandals at long run that was probably aided by the weather.

We got into this.

We've gone through back to school in into this holiday season, where brothers letter was a lot of activity boots.

Like sector is strong we have some very strong casual brands and so I think that there's always puts and takes and so things are going down but were overall very pleased with the assortment.

I think I always as eckel up authentic that were nicely diversified across brands franchises as a lot of newness and what we have been selling fashion at all as rotating our merchants are are excited about what they're seeing and our as.

That really rates on visits.

And.

We continue to sell nicely on both the athletic and casual aside our businesses. The casual side that has given us a lot of encouragement lately.

Great. Thank you very much.

We'll take our next question from Jonathan Komp with Baird. Please go ahead.

Yes, hi, Thank you I'm, maybe just a follow up on journeys I know for a while you've been talking about kind of a bit more difficult multi year comparisons and the business really hasn't slowed as a as you've cycled the tougher to your comps. So maybe just any more perspective as you get further into cycling the.

Higher to your comps in the sustainability for journeys is going forward.

So we are really pleased with it journeys perform as Tom If you look on a two year stack basis that across the four quarters of this year.

It was a blend of plus 11, plus 13, and then goes up even more for the fourth quarter, but against that journeys that continues to execute and we think it's a measure as just a very deep understanding of that team customer journeys has had tremendous success over the past.

Couple of decades of reading and understanding and evolving with that team customer and then.

Since the tremendous job.

Rotating the assortment to whatever that teen desires and so we believe that it's really a measure of gaining share in the marketplace that profound understanding as a consumer coupled with a great reading of the trends allows us to continue to put up really solid results and I would buy as Bob said quite back.

It is something we said before particularly with respect to journeys is the investments in digital.

I have helped a lot so as we have driven our digital presence.

That has been driving sales on that side of the business. We as you know we re fitted hour.

Our DC to accommodate a faster delivery at a more efficient delivery of digital orders.

Thats feeding us really well.

The marketing that we've been doing on social some of which maybe just described is also really helping us we know that our catalog continues to be a driver.

The traffic in the stores as well as digital sales. So the marketing efforts were making our paid off so I think it's a there was a big virtuous circle of all of these things connecting with a great assortment.

Okay, Great and this following up on the sales projections for this quarter in this is maybe across the banners, but.

Just wanted to maybe clarify the color you gave quarter debate and I know its noisy with a shift but to get to the comps guidance that you gave you a 1% to 2% overall.

For the fourth quarter are you assuming catch up yet in the weeks ahead, given some of those shifts or just trying to get color on how you're planning the business for the quarter.

Well, we haven't given a comp number for the quarter because as we noted is this is this huge off ship offset.

So.

But our teams did was.

At the very best job, given the offsets of estimating what their trends would be by week by week by day.

And as we said on the scripts.

We are we're tracking to that projection so we feel comfortable.

Obviously, the biggest junket December is yet to come we've got huge week.

Out there.

About 10 days way so.

So we're comfortable with the trend we're on right now.

And we think will Eric.

I think thats right I think that.

We are tracking.

The overall guidance that we gave and we were pleased by the five days.

The Thanksgiving weekend and.

It is the only five days and that has a lot there's a lot to come but.

But each one of our business as deliver positive result on a comparable period year over year, we were especially pleased to see really strong results at schuh.

Turning to strong John's Murphy with Pos that after a challenging third quarter. So we think we're set to go into the holiday.

Okay, Great and then maybe just last one if I could just on the stranded costs and the cost savings you're planning or you signaling kind of any change in the.

Relative to achieve those or or in the timing that you expect to torque down some of those costs I just want to clarify the comments you gave around on the cost side.

So on stranded costs. So we identified there was about 12 million dollar for the cost are allocated in shared and when we did our restatement and fiscal 19, we were required to eliminate those costs as if they never existed so in order for us to not de leverage we have to remove a minimum $9 million foot the cost and what we saw in Q.

Three was some de leverage because we have not gotten all those cost out and we still see some of that de leveraging our Q4 guidance as well.

What we do have a line of sight to get all of the cost out and really I think this quarter. The hard work and trying to remove that is happening we'll have a much better view of wins those costs are completely out of the system.

Our next call, but I think right now I feel comfortable that we have a path to get there. This just a question of when we do expect some deleveraging Q4 as a consequence, yes Len positive for that is that Bob mentioned that we seldom filled the lift headquarters building and that was something that we were anticipating was going away on our expense.

So that will be positive moving forward.

Well take our next question from samples are in leasing with Susquehanna and ladies and gentlemen to ask a question again that is star wine.

Good morning, Thank you for taking my question.

I just have I have a few one just some.

Cleanups corporate and other for the quarter was up fairly significantly can you.

Give us some color on that.

Yes, yes, we can't give some color on that and.

Some of that lets let now just talked about in terms of the additional costs. This is the first quarter that we have been unfunded from lit completely and so you see some stranded cost show up in the overall numbers and there are higher corporate bonuses then there.

Were last year.

Just because of.

Great.

The great performance that we've had so far it but the physician to Chris and more bonuses.

Thank you and then and then as I just want to think about in within the preliminary look into.

Next year that you provided.

With the.

An increase in the yes.

Can we assume that the majority of that EPA.

Growth would come out of.

Out of the out of the expense out of it we would be expense.

<unk> expense leverage or less.

We are less as DNA growth is that a fair the way to think about it.

Well, let's be clear about something we did did not give any guidance for next year.

Exactly what we did do slightly better. Please what we did do is we stated what the share count will be.

Average for the rest for that year, if we don't buy any more shares back and the reason we were doing that is when you go through a year, where you buy shares all through the year as reserves. This year, you're constantly changing your share account and so what we wanted to get out there is what is the.

Estimate of the share count for next year and then what is how does that compare to the average share count for this year and that means a 9% difference. So you put it another way fab.

If we repeated precisely last this year is operating income to next year right. So no change in anything other than share count it's a 9%.

Increase in ABS, we're not saying that we're guiding to a 9% increase and if yes, we're sizing the difference.

Yes out for you is that makes that service.

Okay, and you expect the share count next year, one more time I just want to make sure I get it all correct.

So we expect that average shares outstanding for next year to be 14.4 million shares. This year is 15.6, so its significant reduction.

We'll take our next question from Mitch Kummetz with pivotal research. Please go ahead.

Yeah. Thanks for taking my questions and Bob maybe maybe you congrats on both the with the leadership transition I think I'm, a little more Joel So Bob though.

And then let me start with I can let me just start with Sam and then John's questions kind of I, just I understand the cost side and really more thinking about next year or maybe you don't want to go there yet, but so I think about stranded costs. If I go from fiscal 20 to 21.

How much does that come down when I think about like bonuses. Obviously journeys is generally well next year. This is I would guess it abnormally good year for journeys and we sort of assume a normal year for journeys are normal year for corporate next year, how much can you save on a bonus side I'm just trying to understand how and again talking about next year.

I want to go there, but I'm just trying understand how some of those things might flow into next year.

So let me lightly off by saying Youre right. We don't want to go into next year, yet, but we really haven't Doug the heavy lifting on our budgeting of the year and as you know we we make so much of our money in the fourth quarter that without seeing this fourth quarter, it's really hard.

It's a roll forward.

We gave the share count thing because we thought as you guys tend to start the model of the year that that would be useful to you and so we laid that out for you.

The one thing that you called out which I think there's some truth, we are going to have a solid bonus year here this year and so there's.

Thats beds valid and but we're not guiding to what next year's will look like yeah. So so just to add on to that.

We over the last couple of years have been building back from zero bonuses and sale last year was that a really good.

Here for journeys and because it was good last year on this year is is there is on a big buildup and attorneys bonus that from core Brad.

Corporate was impacted by auto enrollment business last year. So for this year for the first time.

Corporate is able to benefit from the consolidated results for the business and so I would really think of it matches going from no bonuses to building back a usual nettwophone office in to that business and depending on where how we perform next year, we'll either maintain those same level, we hope or go up because.

Plant based on on overall improvement.

All right stranded costs else's Echo, let Mel said and assets mill, if there's anything additional for him to say about it.

Just look carefully with stranded costs because of that peculiarities of the accounting means that those costs were taking out fiscal our fiscal 19 results in a sale we thought a panel fast Justice day event, and so when I talked about taking out $9 million worth of costs.

Yes, that's just for us to equal last years level, if we do better than that and we will have some pickup going forward, but the opportunity to do a lot better than that it is fairly limited. So right now we're focused on just being able to match what we've already done and on if we can do.

But better than that and that that will be reflected in our statement next year.

The only thing I would say and add to that was just be given where we are in the planning process. We're right in the middle at Roland everything up and I think it'd be premature to guide to a number now I feel good about the fact that we'll get the stranded cost out, but the timing and then all the other puts and takes that are going on with wage pressure and pep savings until we roll everything up I don't think we're going to have a really good clear view.

So I just would pausing and tell you that for Q4 will be ready to give you a good view of next year in terms of total cost.

Got it okay I'm a couple of questions on.

Shoe Im just trying to understand how conservative you guys are being with the guidance. Because obviously you are cautioned on costs on Brexit.

Hi Street traffic all that but Bob I think your comment you made was that the.

She was in does the performance was noteworthy for back to school and Mel I know you've talked about some stock comps when I look at Q3 issue was a minus one stack if I look at your guidance for Q4, the high end of the guidance sort of implies a minus seven to your stock. So I'm just trying to it feels like could be in really conservative there and I can understand that but I'm just trying to honor.

Maybe you could just had a little bit more.

Mitch shoe really rebounded nicely and it's very exciting for us to see that.

We're very pleased with the team.

Thanks, a lot of work into making this happen they've made some.

Some changes in tough decisions.

And we're really seem to be getting some credit for that but it was one quarter and we've got an election coming up and so one quarter.

Isn't enough for us to cut to say we have.

Basically fundamentally change the trend so we're going to say there and I guess are we being cautious I guess times going to tell whether we are off we're being cautious we think we're being prudent which would be sort of different wording of it.

But we're very excited about the fact that they have been able to show that the other thing I'd just point out is the competition.

In the UK is evolving as well and so part of the benefit that were.

Seeing as possibly related to competitive pressures on others.

Elsewhere in the marketplace. The big box guys in particular have struggled and they have a meaningful footwear business. So there is lots going on and we thought it as smart given the unusual dynamics politically over there in particular to two to stick with what we what we have good you yes over time.

And we do think issue. This is a good businesses thats, a really great technology and at Great customer service proposition then and their leadership team is really strong recently augmented by a new head of product and we also seeing really nice access from the leadership that we put in place over.

On the marketing effort. So over time, we anticipate that there will be consolidation in the market and then 20 point plan is designed to improve near term profitability and also to physician shoe well to take advantage of that market consolidations that we expect that that will play out over time.

You know that precise timing of wins.

We don't typically no yes.

And then lastly on Jan Emma.

Bob You mentioned, you've seen some bounce back quarter to date, and obviously you guys are guiding to a stronger comp in Q4 than what you posted in Q3. So I was hoping you just elaborate on kind of what bounce back you've seen there.

Yes so.

Jay that is still.

Model, where they reset the store for fall. So if you look at what happened in the third quarter.

They were reset for fall than we were saying those.

At least in Nashville, you know those 85 degree days.

It was as opposed to see that more and we could see that in the numbers. So if you look at the cadence of their business.

They suffered mightily in the period, where.

It was really warm and they improved a bit with the weather.

And then as we noted fourth quarter has continued to show a little worse break that out the third quarter played out.

The there was a little bit of a saying to us in the business.

The athletic bottoms out a variety of others has become.

The norm as a business and what we need to do now is to dig in and.

Continue to innovate around that look.

The other thing I'll just point out is.

When you get to the fourth quarter.

Johnston <unk> Murphy does a higher percentage of business in their non footwear, and so and that was not as affected by some of the weather related stuff was affected but the the non footwear part of the assortment has performed well and so we get the benefit of that as we go through the fourth.

Sure.

And this does conclude today's question and answer session. At this time I would like to turn the call back over to Bob Dennis for any additional or closing remarks.

Well. Thank you everyone for joining us and you know our next call will be somewhere early March and I'd like you look forward to hearing it.

[laughter].

Thank you for joining us.

And this does conclude today's call. Thank you for your participation you may now disconnect.

Oh.