Q4 2020 Earnings Call

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Good day, everyone and welcome to the Genesco fourth quarter fiscal 2020 conference call. Just a reminder, today's call is being recorded I will now turn 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 to discuss or fourth quarter fiscal 2020 full year results and our full year fiscal 2021 outlook.

With me on the call today.

He Vaughan, our president and Chief Executive Officer, and they'll Tucker, our Chief Financial Officer.

Participants on the call expect coming 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 in the company's FCC filings, including the most recent 10-K filing for some of the factors that could cause differences from 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 GAAP the counterparts and the attachments to this mornings press release in the schedules available in the company's homepage under Investor Relations and the quarterly earnings section.

I want to remind everyone. We have posted a presentation summarize summarizing our results and guidance as accessible 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 us on our website as well now I'd like to turn it over to Mimi.

Thanks, Dave Good morning, everyone.

Fiscal 20 was filled with many notable successes an important accomplishments.

In our first year as the footwear focused company, we delivered strong results building on the turnaround in profitability that began in fiscal 19.

We strengthened our organizational capabilities through investments in people and technology.

In addition, we made an acquisition late in the year that advances our go forward strategy to build the branded side of our business and provides genesco with another growth vehicle as we embark upon this exciting new chapter in our company's history.

Before we get into a discussion of our recent performance and outlook I'd like to thank Bob Dennis for his decade, plus years of leadership as CEO and recognize his tremendous career and considerable contribution to our company.

Bob Legend ESCO through a period, a significant change for our industry.

Overseeing the company's transformation from primarily a bricks and mortar retailer to an omnichannel leader.

During his tenure, we acquired shoe acquired little Burgundy sold the Lids Sports group and launched the footwear focused strategy. We are currently executing.

In addition to the lasting imprint Bob is left on Genesco. He has positively impacted the greater national community in so many ways through his many charitable works.

Fortunately the company and its shareholders will continue to benefit from Bob Wisdom and leadership in his new role as executive Chairman.

Bob It's been a true pleasure for me and for US all to have had the opportunity to work with you.

Now onto our performance.

Theres much to celebrate from the past year a few of the many highlights include delivering comp sales growth in every quarter, even as we faced more challenging comparisons, marking our 11th consecutive quarter of comp sales growth.

Achieving positive store comps by driving meaningful improvements in conversion, while we combat at lower store traffic.

Shaving an all time high for direct sales penetration growing by 180 basis points.

Successfully unplugging lids to become a more focused company.

Eliminating more stranded costs associated with the lids business than expected and continued success with our cost reduction efforts.

Securing the rights to the Levi's footwear license along with our execution our acquisition of tow guest which added important scale and new opportunities to our license brands business.

Generating almost $120 million worth of cash flow from operations, returning close to $200 million to shareholders through share repurchases and increasing adjusted earnings per share by 40% on top of the 20 plus percent improvement delivered in fiscal 19.

We were able to achieve all of this because we have tremendous businesses and great people.

As a result of the actions we took throughout the course of fiscal 20 were an even stronger company than we were a year ago and our future as a footwear focused company is bright.

With a very healthy balance sheet, we have the flexibility to invest for growth in new capabilities in our current business pursue new growth opportunities and return cash to our shareholders.

Full year adjusted EPS of $4.58 was above our guidance range of $4 in 10 cents to $4 in 40 cents driven primarily by stronger than expected results at schuh during the fourth quarter, coupled with lower than planned expenses due to the significant progress we made removing.

The costs from the lids divestiture.

Exceeding the high end of the range was a fitting finished to an outstanding year.

Later in the call I will outline the main pillars of our current five year plan and selected key initiatives. We're executing in fiscal 21 aimed at further advancing our footwear strategies.

Now, let's turn to Q4 results.

Compared with the previous year. Our Q4 performance included positive comps gross margin expansion and flat expenses as a percent of sales.

The combination of these results and our share repurchase activity over the past 12 months fueled Q4, EPS of $3, a nine cents, an increase of 40% compared to the year ago period.

The fourth quarter was marked by a pronounced shift from bricks and mortar to ecommerce on both sides of the Atlantic.

This dynamic was driven not only by heightened consumer preference for online shopping throughout the holiday season, but also encouraged by retailers offers and promotions, which jump started to selling period.

The shift among our businesses in particular was precipitated by technology enhancements, we've deployed that have allowed for easier mobile use.

Helped by increases in digital marketing spend and bolstered by the trust our customers have in our ability to quickly deliver their guests in time for the holidays.

In the face of lower store traffic our store selling teams did an excellent job driving higher conversion rates and higher transaction size. However, it wasn't enough to overcome the softer footfall, resulting in our first negative store comp in many quarters.

As we look to our results by brand, let's start with journeys and begin by congratulating the team on its impressive full year results on top of last year strong improvement.

Journeys deep understanding of the team consumer and their fashion preferences.

Expertise of its merchant teams to interpret these trends and make the right product calls and abilities of its store and ecommerce teams to deliver an exceptional customer experience firmly entrenched as journeys as the leading omnichannel retailer fashion footwear for teens and generated another year of market share an operating income growth.

Yes.

Congratulations to the journeys team on an outstanding year.

Specifically in Q4 journeys continued its solid topline growth.

Hosting a positive comp increase on top of a challenging two year stack comp in the high teens, which was journeys most challenging stack comparison this year.

Sales were driven by strong full price selling, especially within key brands of our boot offering reflecting a trend right assortment.

During the digital growth was a real highlight as we realized a record level of digital sales dollar growth.

30 success in digital throughout the year was driven by the investments made on our redesigned website as well as our effective use of digital marketing to increase website traffic.

Last year's expansion and upgrade of the journeys distribution center, including dedicated ecommerce fulfillment also allowed us to processes record volume and get orders out to customers faster and more cost efficiently.

Nonetheless negative store comps made it difficult to leverage the fixed expense base in the store channel in spite of the robust digital growth and positive digital profit contribution.

Shoe exceeded expectations for Q4 and put a nice finish on the here with comps increasing low single digits for the second consecutive quarter.

With its advanced Omnichannel capabilities shoe with ideally positioned to take advantage of the accelerated shift in consumer purchasing away from the high Street to online, which was an even more pronounced trend in the UK.

Similar to journeys boost sales for solid and shoes kids business was a strong contributor.

The top and bottom line improvement achieved by the shoe team underscores its progress executing the 20 point plan, we outlined last year aimed at turning shoes business around addressing near term profitability and enhancing shoes standing with the consumer and with the brands itself.

This plan included an exit from the German market to increased focus on the UK.

In spite of negative store comps shoe was able to add to the bottom line in Q4, given both the profitability and the scale of its digital business.

These results are particularly encouraging as they were delivered in the midst of an extremely challenging holiday season in the UK.

Congratulations also to the shoe team.

Turning now to Johnston and Murphy comps improved on a sequential basis, but we're still negative down low single digits on top of the mid single digit increase last year.

Positive performance in apparel, and outerwear could not offset the impact on consumer demand for footwear.

As we discussed on our Q3 call fiscal 19 introduction of premiums sport casual footwear provided a tremendous boost to Jay in EMS results.

Last year's footwear introduction did not have the same impact which became even more apparent in the back half of the year.

In a footwear market currently dominated by sameness. The team is working diligently on product innovation and new product introductions for the coming year to inject greater freshman freshness into the assortment.

This should better position and differentiate Jay nm, among its footwear competitors and drive greater traffic and consumption for the brand in seasons to come.

Post holiday, both traffic and sales slowed in our North American business for journeys in particular boots are an important sales driver, which coupled with an injection of cash for the consumer from tax refunds drove brisk boot sales last year in Q1.

This year's temperate start an unseasonably warm weather in many parts of the country has contributed to less robust boot sales than we had planned and we had experienced a notable drop in store traffic.

Shoe post holiday sales have been robust driven by clearance activity.

Shifting gears now to fiscal 21.

These traffic trends, coupled with the timing of Jane EMS, new product innovation and introductions for the back half of the year cause us to take a cautious outlook for the first half.

We also acknowledge the potential for choppiness in the UK given uncertainty with Brexit throughout the year.

The touch now on the Corona virus, we have seen store traffic affected most notably in tourist destinations in both the UK and North America and also in our airport stores.

This is clearly a fluid situation, which will undoubtedly change, but our comp forecast reflects what we know today on only what we have seen in the trend in our business thus far.

We believe many of these factors are transitory and we currently expect to pick up in our business and the momentum to build in the second half, which is the most important time of the year with back to school and holiday.

Importantly, we have EPS upside in fiscal 2001 from share buybacks, we completed already last year, and we will have new revenue and profit from the tow gas acquisition.

So taking these factors into account we are projecting adjusted earnings per share between $4 in 90 cents and $5.40 for fiscal 2001.

This guidance is a range with both upside and downside potential.

Something close to those metal reflects our best current beliefs of where we might come out for the year, which represents a double digit increase over fiscal 20 earnings per share.

Now, let me turn the call over to Mel to review the financials and the guidance in detail. Thank you mean in fiscal 20, we celebrate another strong year of exceptional performance.

For the year, we improved adjusted operating income by 9% increasing from $91 million to $9 million, we improved EPS by $1.30 cents year over year to $4.58 and acquired 20 versus $3.28 for 19 in two to $2.67 Netwise 18.

We grew comps by 3% improved gross margin by 60 basis points with every division showing improvement for the year, we held expense growth to less than 1% and continued our operating income improvement as a result.

As many mentioned we had a solid fourth quarter in our performance exceeded expectations with EPS, increasing from $3, a nine cents Crs and 18 cents last year or over 40% with improvement in our shoe business lower corporate and bonus expense and share buybacks aiding the year over year improvement.

The beat to expectations was due to shoes performance in the elimination of more stranded costs than we expected.

Q4 consolidated revenue was a little over last years level due to a positive comp and improved exchange rates. This was partially offset by closed stores and lower wholesale sales.

Consolidated comps, a 1% driven by direct comps of 19% in store comps decreased 2%.

Direct sales penetration as a percent of total retail sales was 16.6% for the quarter accelerating 290 basis points ahead of last year.

Our E Commerce business continues to experience robust growth as we invest in digital wallet. The same time maintaining profitability in this channel.

Journeys comp, 1% for the quarter on top of this highest two year stack comparison of the year at 18%.

E Commerce grew strong double digits once again, partially offset by negative store comps.

Strong in store conversion and increases in average transaction size, we're outweighed by continued negative store traffic as a negative trend accelerated during the holiday season.

We recorded a 3% comp for the quarter on top of the two year stack of negative 7%.

E Commerce continues to lead the comp improvement issue posting yet another double digit gain that was partially offset by negative store comps.

Store traffic on a high street continues to be challenged but was mitigated by improvements in both conversion and average selling price.

Dan in posted a negative 3% comp for the quarter on top of a two year stack comp of 8%.

Ecommerce comps were positive in while Jane and overall comps were negative there was a sequential improvement from last quarter.

Negative store traffic outweighed improvements in both conversion and average transaction size.

Moving to margin in total consolidated gross margin increased 20 basis points to 46.9% journeys gross margin increased 20 basis points due to fewer markdowns.

Choose gross margin improved 30 basis points due to higher food inflation of full price sales.

Jane EMS gross margin decreased by 50 basis points due to higher markdowns at retail.

Adjusted as she in a expense as a percentage of sales was flat year over year in Q4 without the benefit of lower bonus expense, we would have de leveraged 80 basis points in Q4 as it is difficult to leverage the brick and mortar fixed expense base with negative store comps.

Expense dollars in total were roughly flat in the quarter lower bonus expense and improved store rents were offset by increases in marketing as we continue to invest in marketing to drive customers into our stores into our web sites.

We continue to benefit from cost cutting initiatives and overall as you know they came in better than expectations as we made great progress in our efforts to remove stranded cost.

Related to stranded costs, we restated adjusted non-GAAP fiscal 19 results to reflect the sale of lists as if we never owned the business per GAAP requirements. As we've mentioned before this required us to remove $9 million in share costs with our lives business from our financials in fiscal 19, and thus we needed to.

Actually eliminate $9 million of cost in fiscal 2000 to avoid creating de leverage so for those of you modeling our business removal of the first $9 billion of stranded cost does not reflect a reduction of last year's expense levels as they've already been removed in our restatement.

Through the efforts across our shared services corporate and division platforms, we were able to identify and remove the $9 million is stranded costs, we needed to in fiscal week 20.

Thanks goes out to the many people across our organization who drove these efforts.

Additionally, we continued our profit enhancement program or pick up in fiscal 2000, identifying over $11 million of cost reduction.

The areas of success included rent reductions labor optimization through utilization of our workforce management tool warehouse efficiencies and freight savings all areas of the company contributed to these savings as we remain focused on bending the cost curve.

We continue to make good progress on rent reductions in partnership with our landlords as we renew existing leases for the year, our real estate team successfully negotiated a 160 renewals for an 11% cash reduction or 8% on a straight line basis.

In the U.S fiscal 20 marks the third year of consistent progress in lowering ramps in fiscal 19, we negotiated an 8% reduction on straight line basis on 170 renewals in fiscal 18.

In fiscal 18, we negotiate a 13% reduction on a straight line basis on a 192 renewals with multiple years of progress we are benefiting from compounding effect of our efforts in at the same time working to shorten lease lives since less than 15% of our leases come up for renewal each year, we will continue to benefit from ongoing opportunities through.

Deuce, our rent expense going forward.

In summary, the four quarters adjusted operating income was 59.3 million versus 58.5 man a year ago. Adjusted operating margin came in at 8.8%, which is up 10 basis points over last year.

Adjusted operating income dollars increased issue corporate expenses were lower in this was partially offset by lower operating income at our other divisions.

Another call out is that we successfully terminated our pension plan. This year in the settlement charges are included in our GAAP numbers.

Turning to the balance sheet.

Total inventory remains in good shape as our divisions Adeptly managed inventory levels with both inventory and sales were flat year over year in Q4 at journeys total inventory was up 1% on quarterly sales. There were also up 1% Schuhs inventory was up 15% on sales that were up 1% on constant currency basis.

As you pull for receipts that were initially planned in Q1.

James inventory was down 14% on quarterly sales that were down 4% ending the year remarkably clean given their challenging back half sales results.

Capital expenditures in Q4 were $8 million and depreciation and amortization was $12 million.

For the full year capital expenditures totaled $30 million, which is well below budget and last year due to opening fewer stores than plan as well as the timing of IP projects.

We expect to make some of this shortfall with higher capital spending that will carry over to fiscal 21 for the quarter. We did not repurchase any additional shares for the year, we repurchased a total of 4.6 million shares for $189 million.

Since December of 2018 in anticipation of utilizing the sale proceeds from lives, we have repurchased 5.5 million shares across three offered authorizations for a total of $235 million. This represents a 28% reduction in the average shares outstanding since our last fiscal year, we have approximately $90 million.

Of course outstanding on our current 100 million dollar authorization.

On our balance sheet, our balance sheet remains very strong as we ended the year with $81 million in cash and know US borrowings we've been actively using our cash paying off Canadian data $42 million in the fourth quarter, leaving only $14 million of debt relating to our UK business. This reduction in Canadian debt eliminates the negative carry and.

Improves our effective tax rate in addition to paying down debt, we use $34 million in cash on hand to acquire the tow gas assets.

Turning now to guidance for fiscal 2001.

We estimate adjusted earnings per share in the range of four dollarsnine sense to $5 in 40 cents in something close to the middle is our current view of where we may come out.

We have not built in any additional impact of the corona bars to demand beyond what may exist in our current business trend from a supply perspective, we directly developments or merchandise largely for Johnston <unk> Murphy in licensed brands of those goods less than the third comes from China, resulting in direct sourcing for merchandise representing quite.

A bit less than 10% of ourselves in total while most factories are now up and running and we do expect some delays is too early to determine the price precise impact.

The remaining product we source from third party vendors, we estimate goods, representing another 25% to 30% of ourselves and toll or import from China. While many of these vendors have dual sourcing from countries and in addition to China, we have less visibility here than four product we sourced directly so as also too early to determine the.

Impact on goods, we source indirectly.

We have taken a conservative view of the first half of the year with wider projected comp range is due to more limited visibility the comp performance is planned higher in the back half and given the concentration of ourselves at this time of year provides upside for the year and important call out from modeling is that both Q1 in Q2 or low volume.

Orders, which will make it difficult to make money, especially in Q1 since it will be challenging to leverage or fixed expense base, given mostly negative comp assumptions for the year. We expect consolidated sales will range from plus 3% to up 6% included in Arkansas, our guidance for consolidated sales is.

Between $80 million to $90 million in revenue related to the tow gas acquisition.

We expect consolidated comps, including direct ranging from down 1% to a positive 2%.

We currently plan to open around 30, new stores split between 20 journeys and 10 Johnston <unk> Murphy locations. We continue to learn more are we continue to earn more than our cost of capital our new store openings. Additionally, Additionally, we are finding opportunities to enter into shared fate deals where landlords that minimize our risk.

Through landlords support on store Buildout costs percentage rent and multiple kick out opportunities. We plan on closing approximately 20 stores. However, we will couple of people store opened with a short lease term if the rent deals attractive.

We expect gross margin to be down between 30, and 50 basis points driven by higher wholesale volume from the tow gas acquisition, which carries lower margins. We express expect gross margin rates for the balance of the year to improve compared to last year.

Conversely, the additional revenue from tow gas Miss lower cost structure benefits, our SGN a leverage in addition for this year, we are targeting $15 million to $20 million in cost reduction with only part of this built in we expect our as she in a rate to improve between 20 and 40 basis points our baseline businesses.

Not expected to elect to leverage due to flat to negative store comp assumptions and expense pressure in the UK.

Included in our SGN expense is an earn out for potential payments related to the tow gas acquisitions that are contingent on EBIT growth targets that are not that were built into the acquisition agreement.

Most earn out we expect a mid single digit EBIT margin per license brands. This all results in an operating margin within a few tens of last years levels in EPS that ranges from up mid single digits to up in the mid teens due in large part to the impact of share buybacks in the benefit of co gas share buybacks from last year will be.

Benefit our fiscal 2001 EPS by approximately 9%.

We estimate the fiscal 21 tax rate will be 26.5%.

Capital expenditures will be between 60 and $65 million inclusive of approximately $15 million for the build out of our new headquarters.

Our capital expenditures will be centered on digital and Omnichannel investments refreshing our store fleet and building out new stores, we estimate depreciation and amortization at $52 million close to the level of spending we plan without the headquarters lastly, we are assuming an average of 14.4 million shares outstanding are.

EPS guidance assumes no additional stock buybacks beyond what we've made to date, but we can repurchase availability opportunistically during the year now I'll turn the call back to meaning.

Thanks now.

Following a successful first year as a footwear focused company I'd like to touch briefly on the rationale we laid out when we made the decision to pursue our current strategy and discuss the exciting direction. We're taking in this new chapter.

Across our company, we aspire to create and cure rate, leading footwear brands that represents style innovation in self expression and to be the destination for our consumers favorite fashion footwear.

Each of our businesses as a strong strategic position grounded in his deep and ever evolving understanding of the customer it serves.

The strength of our concept and the advantages we have built over time have established long lasting leadership positions that make our footwear businesses outstanding on their own the what they share through the benefits of synergies makes them even stronger together.

Our best known for being a retailer that we have an important and valuable side of our business that successfully owns and licenses brands given us a good platform for future growth.

Our opportunity to unlock the full potential of genesco is to accelerate the digital and omnichannel potential in our retail businesses and to grow our branded side.

We made substantial progress on this in fiscal 20, and our future plans artist further growth profit in the short short term and strengthen our strategic position for longer term growth.

Following the recent work on the sale and unplugging of the lids business from our infrastructure. We believe this year provides a solid baseline from which to build a new growth plan.

We updated our five year plan in the fall using fiscal 20 as the first year, so I'd like to describe the outcome.

Beginning with the topline we're forecasting average annual growth in the 3% to 4% range driven by strong digital growth and robust conversion in stores.

We expect operating income to grow at a faster pace than revenue as we move toward and overall operating margin of 6% by fiscal 2004.

The plan I, just described generates meaningful cash flow in the range of 400 $500 million after a healthy investments in our current business.

This cash I will be used either to make acquisitions aimed primarily at building a more robust branded platform or returned to shareholders likely through additional stock repurchases.

Based on what I, just outlined we expect average annual EPS to grow into double digit range, even though we expect the first half of this year to be challenging the strength of our strategic positioning should allow us to achieve these goals overtime.

In developing this plan, we aligned our business around six pillars, taking the strategies that have been working and adding new areas of focus.

The six strategic pillars are number one build deeper consumer insights to strengthen customer relationships and brand equity.

Number two intensify product innovation and trend insight efforts.

Number three accelerate digital to grow direct to consumer.

Number four maximize their relationship between physical and digital.

Number five reshape the cost base to reinvest for future growth.

And finally number six pursue synergistic acquisitions that ad growth and create shareholder value.

And our fiscal 21 plan, we developed specific initiatives that tied to each of these pillars and I will highlight just a few of them.

Starting with pillar number one build deeper consumer insights to strengthen customer relationships and brand equity.

We have always had strong customer insights from our interaction in our physical locations and we are now augmenting this with customer data and analytic efforts.

At journeys, we recently completed work on a call center platform that gathers information from eight disparate systems that includes transactional behavioral and demographic information such as past purchases shipping preferences, social preferences and promotion history and consolidates it into a unified view of the.

Customer.

While still early this capability has been very beneficial to our customer service reps that previously didnt have an efficient way to access complete customer data.

It has enhanced our ability to timely respond to inquiries to fix problems and to provide great overall service.

With a current net promoter score of 85 journeys has a high bar to keep jumping over.

Phase two of this project, which is now in development leaves artificial intelligence to generate insights and recommendations for our CSR team to drive their sales efforts.

Meanwhile, at Schuh, we expect to benefit this year from a CRM implementation aimed at increasing the frequency of shopping and increasing average order value by leveraging cross sell opportunities for customers in our database.

This has included a customer segmentation effort and the development of specific customer journeys designed to drive conversion.

The integration of the data repository of marketing cloud and social studio is now complete with a go live targeted for this spring.

Moving onto pillar number to intensify product innovation and trend inside efforts.

At Johnson Murphy the team has our finest brand architecture and product assortment across all categories with a focus on three key collections.

The core Jay Nm line continues to be the largest revenue driver offering a broad assortment across footwear apparel and accessories.

Based on its recent successes strong trajectory that brand is also putting more development behind its innovative XC extreme comfort offering, which now accounts for over 20% of footwear sale and offers tremendous growth potential.

Lastly, as the product teams attention is focused on broadening Johnston and Murphy collection, which represents the brands most premium proposition and creates the brand Halo with products source primarily in Europe.

With additional clarity around brand architecture, Jane and is ramping up its new product introductions with a 30% increase in new footwear skews planned for fiscal year 21 in the fall.

By a 70% increase in our technical Xsix collection.

To support their refreshed assortment Jan and we'll execute an integrated marketing program to drive awareness to tell stories and to activate customers across distribution channels.

This will feature six unique product launches throughout the year delivering more frequent launches than ever before and will encompass Jane EMS stores digital catalog wholesale partners and social.

At the same time shoe is making a concerted push to broaden its private label offering.

With the Kenai to let the customer is seeking the product will be created using shoes own handwriting focused on quality.

Taking advantage of our newly constituted product team design and development expertise and ability to identify key trends in the market. The goal is to offer a range south to complement our third party branded offering and to drive margins higher.

Turning to pillar three accelerate digital to grow direct to consumer.

We're working on a number of initiatives, including introducing deferred payment options at all divisions.

Shoe has already rolled out a deferred payment option, which has proven to drive increased conversion and an increase in average basket size is 20 plus percent.

With an eye toward shoe success, both journeys and Johnston <unk> Murphy, our testing online deferred payment option.

We will measure the impact on conversion average order size and new customer acquisition and will rollout in the back half of the year.

We're optimistic this will drive sales, while offering our because our customers a much sought after payment method.

Materially increasing journeys ecommerce penetration is also a top priority for fiscal 2001 building on five years of strong increases cap with fiscal 2020 plus percent growth.

Last year journeys drove a substantial amount of additional website traffic through a combination of paid media activities.

This was also its first holiday season with its newly designed website that both improved functionality and optimized for mobile first which was especially effective since mobile is the device of choice for the journeys customer.

Fuel ecommerce in the coming year journeys will once again significantly increase its investment in digital marketing.

Shifting now to pillar for maximize the relationship between physical and digital physical 21 is all about building the capabilities for buy online pickup in store or BOPUS in North America.

This is an offering we have had for some time at schuh, which drives around 20% of shoes online purchases and stairs customer traffic into it stores.

We anticipate piloting BOPUS during Q4 with the aim of a complete rollout in the first half of fiscal 2000 to both this functionality will be achieved through the execution of a series of projects throughout the year, including enhancing the speeded inventory updates to get to real time inventory, replacing our store special order system and upgrading both.

Our software and hardware.

On the pillar five reshaped the cost base to reinvest for future growth.

Our profit enhancement program has become a routine part of how each of our decisions now operates recognizing the need to reduce the fixed expense structure of our store channel given the growth of online we have a number of savings priorities for fiscal 21 that Mel discussed that will constitute version three point of sale of our profit enhancement.

Efforts.

And finally pillar number six pursuit synergistic acquisitions that ad growth and create shareholder value.

We have significantly bolstered the prospects for a license brands division by securing their rights to the Levi's footwear license for mens womens and kids in the US along with our acquisition of tow gas late last year.

There were a number of factors that made that's an attractive acquisition.

For starters Levi's is one of the most recognized apparel brands in the country, where the heritage dating back almost a 170 years.

The Levi's brand Halo and casual aesthetic is an excellent launching point for footwear and drives consumer awareness and consideration across a spectrum of footwear categories from Canada to boots.

The acquisition also provide sourcing and operational strength.

So gas has a highly capable sourcing office in China with full product development capabilities. The combination of the licensed brands and Togut businesses gives us considerable scale and access to a wider range of constructions and price points that complements our existing range of products.

In terms of synergy Levi's current distribution is weighted towards the value channel, which unlock new distribution for our existing licensed brands portfolio, while our higher tier retail channel relationships and sourcing provide levis with potential new door growth.

Importantly, this transaction strengthens our relationship with Levi's and enhances our sourcing platform, giving us the ability to add more brands and licenses in the future.

We are truly excited about the tail gas edition and we welcome its talented people to our company.

With the entire organization aligned on these six strategic pillars Genesco is prime for a successful future.

Before we move onto fiscal 21, we have a lot to celebrate about fiscal 20.

Together, we've accomplished so much and I'd like to extend a sincere thanks to all of our very talented people across our organization for their dedication and hard work.

Our success speaks to the value of the skill in the experience and commitment to excellence of you all.

Before we close I'd also like to thank everyone for their concern about last week's devastating tornadoes here in Nashville.

We're pleased to report that none of our people or their families were hurt and none of the company's facilities were damaged.

We have some employees who sustained damage to their homes and we're doing all we can to help our people and the wonderful community. We live in get on the path to a speedy recovery.

Our Hearts go out to those who have been impacted by the devastation and losses.

And now I'd like to turn the call over to the operator for questions.

Thank you if he would like to ask a question. Please signaled by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off till I guessing not to reach our equipment.

Again that is star one to ask a question.

Ill take our first question from Mitch Kummetz with pivotal research.

Yes, thanks for taking my questions.

Maybe I know you don't like to speak to quarter to date trends, but given the special.

Circumstances here I was hoping you could maybe address a few things you called out in your release also in your comments.

The impact on opened 19 on airport tourist stores could you maybe.

Speak to how those are trending versus over the balance of the chain can you talk about maybe how many of your stores you would characterize as airport and tourist and then.

Can you could talk a little bit what you're seeing elsewhere within the business, particularly in some of those areas that have been maybe most affected like let's say a seattle, so maybe we could start there.

Yeah, So so Mitch.

Thanks for your questions and.

I know there a lot of questions about the impact of.

Covered 19 in the current of IRS and I want to start by just talking a little bit about our trend and.

Starting with the trend in January and February and March we can typically sell a lot of foods at journeys, if the weather as cold and February as usually held by tax returns.

Last year, we did exactly that we sold a lot of boots. This year. The weather was warmer and we didnt sell as many basis as we would have as the weather had in coal.

We saw a decline in store traffic at this time really over the late January into February time period, and maybe the customer decided that I'm going to.

Perhaps wait until spring I'm going to where what I have now and wait until the season turn if the winter isn't going to last for long.

So then we ask.

To what extent is is corona virus, having an impact on consumer demand and we have to really discern how much is trend and how much as the impact from the Corona virus. We certainly have been seeing an impact on traffic in tourist locations really in places in the UK like London in Edinburgh.

And places they call them pretty cities, which replaces like New York and Bath, where we're lots of overseas tourist come to visit on the West coast in the US. We've also seen some impact mostly from tourists and as I mentioned in airports and wherever we have an airport location we have.

We have been impacted.

I'd say, we've started to see some impact beyond tourist locations recently, but it is it is fairly recently that we have we've seen that impact. So it's it's a matter of discerning how much is trend and how much is.

His impact from from the Corona virus. So we've built in only what we've seen so far in guidance. This is very obviously, a dynamic and evolving situation. We don't know how far it will go are exactly how long will laugh and it's too soon to know how much how much this will specifically affect consumer spending.

So we've been through situations like this before match might hurt mall traffic for a time, but it will eventually be under control and we're going to benefit on the other side of this from pent up demand and we typically tend to come out stronger on the other side.

In the meantime, our digital business can pick up some of the flat we havent had that tool at our disposal in prior times when when we have seen.

A demand shock. So we think that weekend, we can benefit from some of the pent up demand that will come out of the other side. So in the meantime, it is a so rapidly evolving situation that we're paying attention to and and we are correct or customizing our responses to what we see.

Can you say, how many stores are tourist an airport.

Okay.

We have.

A handful of airport locations.

In the neighborhood of 2020 to 30 locations and art, our tourist stores really a lot depends on how you define to define those we would define those as as big cities like New York in La and San Francisco, and Orlando would be one of those as well the vast preponderance of our.

Our stores are in non tourist locations, it's really the the.

Smaller portion of the number of our stores are in our interests locations.

And then on on journeys for Q1, you're guiding to a comp of down seven down three hoping you could kind of break that out a little bit how much of that is.

The softness in boots to starts a quarter versus any kind of drag from covert 19 that you're seeing versus just underlying trend within kind of core non seasonal part of your business.

Sure. So just to start with do performance.

We do this gave us a solid performance during the course of the holiday, but it was very brand specific.

We started out with a burst of cold weather at the beginning beginning of November and the update we gave you that I see our at the beginning of January. We said we were we were really pleased with how boots is sold over the holiday season.

I think that that a lot of the softness that we saw in.

In late January to February was due to weather among other things and we didnt see the same sell through on boots that we would have otherwise scene that most of what we sell when it comes to visit fashion, but it helps to have gold whether.

Some of the more fashion related boot sold through nicely some of the more weather dependent ones not so much as that really is what we took as a trend going going into into the into the first quarter.

As far as you know we sell a lot of retro athletic product when the cycle first started there was a lot of upside to sell something new into People's wardrobes and into their closets.

We like the cycle because of stretches across a number of athletic brands, we have a lot to work within the in the catalog of retro product, we still do sea legs to that to this cycle, but it's very brand dependent theres some are performing well.

And some and some not performing well.

We're also very excited about the more casual side of our business both what sells in the summer and also fashion boots in spite of what happened over the late winter the late winter seasons, and it's good to see this casual growth we've been very athletically driven over the course of the last few years, but casual adds to the diversification.

Yes.

Well take our next question from Jonathan conflict there.

Yes, hi, Thank you maybe first just a follow up to the last discussion there just.

More along kind of a casual assortment at journeys when I when I look at the website today, there's a lot of crock stock Martin and Steven converse or those types of brands that you think can keep the assortment fresh and working.

Yes, as you look ahead and what's embedded in the outlook for journeys or just any thoughts on.

Kind of sustainability.

Current assortment that you have.

Sure. So I would start by saying that I think looking at journeys.

Overall performance in the fourth quarter, we were going against a two year stack of 18 and put a positive 1% on that so when you think about three years them. We gained 20% in our journey businesses. I think is really a measure of gaining gaining market share and fashion is constantly rotating into.

As we were selling what that team consumer wants to buy and when we look at our assortment certainly for the spring we see some really nice opportunities in some of the brands that that we are now that we're offering and.

Interestingly, what we see is that we have we still have nice conversion in our stores. It really has been a function of traffic and so I think strong conversion in our stores as a measure of when people walk into our stores across the lease line they like what they see.

It's really a matter of traffic is the issue that we have been been facing over the more recent weeks.

Okay. That's really helpful. And then maybe a broader topic I understand and this is probably difficult to answer and may be shifting day today, but just curious maybe how you think more broadly about.

Contingency planning and protecting the business when you have 4% operating margin and yet seemingly pretty low visibility in terms of thus the near term demand and some of that the macro factors out there just how do you conceptually you make sure you're protecting the business in that environment.

Yeah, It's a great question and I think about top of mind for many companies. These days into in terms of.

The what to do in reaction to the current virus situation.

And John I'd say, they're really good thing is that we have really experienced teams.

Who have been through lots of cycles over the years, whether it be the great recession or product rotations.

You know our teams we've got a lot of long tenure in our teams the health and safety of our people is really most important and we're taking all the necessary actions here.

We have traffic counters in stores, we can react and adjust staffing levels as needed and we're going to manage expenses and.

Capital spending very carefully it's a matter of really managing your business carefully through all of this again over the long term I think at the situation situations like these hurt mall traffic in for a time, but eventually when these situations get under control, we will benefit from a from.

The pent up demand that's out there.

And long term the strength of our businesses and the strategic positioning is what helps us to get to the other side as these things the the retail environment typically has a shake out during these times and strong retailers do well and.

In weaker retailers find it hard to survive.

Okay.

Well take our next question from Jennings District with Jefferies.

Hi, Good morning, I am just a few more clarifications on the guide if you could just help me understand what's embedded.

I mentioned the slowdown at an airport in tourist locations are you embedding any product, but outside of those stores and your comp guidance and then the gross margin guidance is there any impact from either needing to help expedite goods that you starts directly or from name to markdown product that may be a rise a little bit late I just help me understand kind of what than there. Thank you.

So just on the sales guide Janine.

We didn't build anything incremental into what the what the guide is beyond what was in our current business related to the trends within our business. So so nothing additional built into that.

Yes, and just as just before we answer the rest the question Jeanine. There's so many permutations of what could happen that we can only build in what we know.

As far as.

I'll turn it back melted just talked about expediting product and adjusting for gross margin for late product deliveries.

So we really from a expediting product, we don't really think that we have too many issues. There I think from a supply perspective, some fee come to our divisional presidents, we feel pretty good about being able to get product in.

So I don't think theres going to be any supply constraints, probably the only real issue on the margin line in the front half of the year as we have a little bit more cost of inventory in our toe gas business, which was acquired in licensed brands. So our margin profile will be a little bit lower in the front half of the year and as we sell through the inventory we have on hand.

The margins in that business will improve so margins will be a little bit lower in Q1 in Q2.

Also we're clearing additional product.

It shoe as we mentioned that is driving a lot incremental revenue in the first quarter, but I think the first two quarters, a little bit challenges on the margin line, but is built into our full year guidance, yes. So for now I think and to sum that up.

When you think about Chinese new year, we had a lot of product that was uncompleted and put on the water and so we tend to be in a good inventory position at the at the present moment as Mel said.

On the supply side.

We must factories are up and running for a product that we sourced directly.

We we have good visibility into the things we sourced directly.

What we get from third party vendors, we've not heard of many delays yet Janine and that's the large majority of our business, but it's a bit too soon to tell as we get into the into the second quarter May and June are lower volume month for us and so we're in stock for much of what we need for spring.

May and June will be lower volume month for us.

When we need to start building inventory is is a few months from now which is really back in into June and July for our journeys business. When we begin to stock up for for back to school. We're landing a lot of fall product at that time to an addition to back to school product and so.

I will tell the extensive which we've got to expedite.

Additional product.

And it except that happens it will be into the second quarter.

Okay, Great. That's helpful. And then just shifting gears a little bit you've had some pretty consistent success with reducing ranson now are hearing even more so than ever some of the balance of power shifting back into the hands of that the tenant. So just any update on kind of what you're seeing your conversations fairly handlers and if you feel like theres an opportunity at Craven, maybe more significant reduction.

Yeah.

Yeah, I think ill give some commentary and then let Mel just talked about what we have been seeing but we have been.

We've been paying a lot of attention to our fixed rent expense structure for really the last three years, we have had quite a lot of of success here on not only getting rate reductions, but on shortening lease lives and whats important is that we are working to variable.

Hi, guys.

Rent expense to the extent, we can and thats the whole reasons behind the shortening of the lease life is that if we can.

Signed a shorter term renewal then if if traffic goes up and sales go up we're happy to pay more rent and if it does than we have an opportunity to adjust again some of what we've been seeing Mel made reference to in in our prepared remarks, where we are entering into agreements with some of our landlords on these.

Shared fate deals, where they help us with capital they actually give us variable rent upfront, we have an opportunity to have.

Multiple kick outs.

And that is a way to just minimize minimize risk and so we can move rent expense up and down according to how sales unfold and to the extent that we find ourselves in a situation, where we don't want to be in a store. We we have the flexibility in the opportunity to exit.

We'll go to NPL into that yes, I mean, I think you nailed it I mean, I'd say that one more thing I'd add to it as this we hit about 15% of our stores per year. So we've got quite a few more years of getting two stores and having a chance to renegotiate these renewals and im, especially excited by the fact that more and more of these deals we're in.

Entering into can be shared fade deals and the more we can do that the more we can protect on the downside as well so we're making good progress and.

I think we've got plenty of runway to keep doing that.

Well take our next question from Steve Marotta with CL King and associates.

Good morning me and mouth first just to put a fine point on I know you don't provide quarterly guidance, but you've provided a little bit of color.

Assuming negative EPS on a year literal negative bps not just the comparison on a year over year basis in the first and second quarter is not unreasonable correct.

Yes, correct, where we are expecting that it's going to we had a really strong first quarter last year and we're expecting to go backwards. I think we said we think it might be it will be difficult to make money in the first quarter based on.

The current negative comp projection and and even into the second quarter. We expect it will go backwards and you know, depending how fargo, but how far backwards we go.

Mid may also be challenging is just simply very low volume quarters, where we are hanging on with our fifth fixed expenses to try to get to the back half of the year in back to school and holiday, where we where we make.

A lot of our profit.

I wanted to put a finer point on that and then you've mentioned that.

Your annual guidance assumes nothing incremental outside of the current trends.

But it does assume some sort of normalization at some point is that a normalization assumption starting tomorrow to mean to to the average.

Comp expectation for the balance of year or is that something that starts at the end of the first quarter or at the end of the second quarter. When is your inflection point.

What would be considered normalized trends.

Yes, so I think what we've done as we have if you. If you look at our overall comp guidance, we've given by quarter, we have been most conservative with with that with comps in the first quarter and even getting into the second quarter. We think that there's a possibility that we could have negative comps that theres also a possibility that.

Start to round out at the end of the second quarter, but the whole situation with the Corona viruses dynamic and I would say is be safe to say that that is.

If the situation unfolds further or that we haven't built in any additional impact.

So our guidance reflects what we've seen so far and what we've seen so far says that the first half is going to be.

It's going to be challenging, but that we have a chance in the back half based on the product trends, we're seeing and then also based on the compares.

If you look at at fiscal 20, we had our strongest comps in the first half of the year and toward the back ended the year, we gave back a little on comps. So we expect the opposite to happen this year.

A couple other things that I'd point out is that the Togo business that that Mel gave you the economics about we'd need to add in and that add to both the topline in the bottom line, we expect for this year.

The year, we've just finished had quite a bit of bonus built into our numbers and so we never like to give back bonus, but but it does provide some cushion.

To the extent that this year faces some challenges and then finally the share buybacks that we've had out there.

That weve completed already as about 9% to this year as well and so when you look at our overall guidance. It assumes the addition of some new revenue at actually at the midpoint assumes that our based businesses.

Go back a little bit and then we've got some cushion from the bonus and and then finally share buybacks help on EPS side.

Last question comes from Sam Poser with Susquehanna.

Hi, Good morning. Thank you for taking my questions I've got a couple of can you give us some idea of the range of volume out of total gas and how much your foreseeing that business.

How many bips that alone may impact.

Gross margin in let's say in the first quarter as liquidates not.

Taking away though.

The fundamental issue that the gross margin there is lower than other parts of it.

Yeah, So I'll start with a color and then I'll turn it to melted to give you the specifics in the first quarter, but.

This this tow guest opportunity is a great opportunity, we really like the fact that we've added levi's as a brand.

To our our portfolio and we've we brought onboard a terrific team to complement our license brands team.

Our licensed brands businesses more front end front of the year.

Loaded that Togo business is more back end of the year loaded we have some nuances in the acquisition where we've got.

Some pressure on on gross margin in the first part of the Irrs Mel mentioned and in the back part of the year. We will we'll work through some of the inventory that we're taking on which gives us some more upside for for gross margin, but maybe if you want to talk specifically about about where where we see.

The first quarter gross margins. So so for the year, we guided 30 to 50 basis points down in gross margin rate in a lot of that is due to the addition of tow gas in wholesale business lower margins 80 to 90 million revenue.

But as I mentioned with Jeanine is that there are additional.

Rule teasing admissions in the cost of goods that we have in the front half of the year as we cycle through that inventory our margins will improve as the year progressive. So if you think about that 30 to 50 in the front half its probably twice that is for us to pressure in the front half and it gets better as the year progresses and it actually flips in the back half and even more pressure problem.

The first quarter than than in the second first is the worst.

And could we see gross margin down like 80 to 100 basis points in total in the first quarter.

Yes, yes, and even a little more than that.

That concludes today's question and answer session. At this time I would like to turn the conference back to me for any additional my closing remarks.

Yes. Thank you all for joining us today, and how we look forward to giving you update on our next earnings release.

That concludes today's presentation. Thank you for your participation you may now disconnect.

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Good day, everyone and welcome to the Genesco fourth quarter fiscal 2020 conference call. Just a reminder, today's call is being recorded I will now turn the call over today Slater, Vice President of ESP, and eight and Investor Relations. Please go ahead Sir.

Good morning, everyone and thank you for joining us to discuss our fourth quarter and fiscal 2020 full year results and our full year fiscal 2021 outlook.

With me on the call today, our Mimi Vaughn, our president and Chief Executive Officer, and they'll 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 company's FCC filings, including the most recent 10-K filing for some of the factors that could cause differences from 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 GAAP counterparts, and the attachments to this mornings press release in the schedules available in the company's homepage under Investor Relations and the quarterly earnings section.

I want to remind everyone. We have posted a presentation summarize summarizing our results and guidance as accessible 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 Lids Sports group as if we never owned the business per GAAP requirements. You can find this on our website as well now I'd like to turn it over to Mimi.

Thanks, Dave Good morning, everyone.

Fiscal 20 with filled with many notable successes an important accomplishments.

And our first year as a footwear focused company, we delivered strong results building on the turnaround in profitability that began in fiscal 19.

We strengthened our organizational capabilities through investments in people and technology.

In addition, we made an acquisition late in the year that advances our go forward strategy to build the branded side of our business and provides genesco with another growth vehicle as we embark upon this exciting new chapter in our company's history.

Before we get into a discussion of our recent performance and outlook I'd like to thank Bob Dennis for his decade, plus years of leadership as CEO and recognize his tremendous career and considerable contribution to our company.

Bob Legend NASSCO through a period, a significant change for our industry.

Overseeing the company's transformation from primarily a bricks and mortar retailer to an omnichannel leader.

During his tenure, we acquired shoe acquired little Burgundy sold a lift sports group and launched the footwear focused strategy. We are currently executing.

In addition to the lasting imprint Bob is left on Genesco. He has positively impacted the greater national community in so many ways through his many charitable works.

Fortunately the company and its shareholders will continue to benefit from Bob Swift women leadership in his new role as executive Chairman.

Bob It's been a true pleasure for me and for US all to have had the opportunity to work with you.

Now onto our performance.

There's much to celebrate from the past year a few of the many highlights include delivering comp sales growth in every quarter, even as we face more challenging comparisons, marking our 11th consecutive quarter of comp sales growth.

Achieving positive store comps by driving meaningful improvements in conversion, while we combat it lower store traffic.

Shaving an all time high for direct sales penetration growing by 180 basis points.

Successfully unplugging lids to become a more focused company.

Eliminating more stranded costs associated with the lids business than expected and continued success with our cost reduction efforts.

Securing the rights to the Levi's footwear license along with our execution our acquisition of tow guest which added important scale and new opportunities to our license brands business.

Generating almost $120 million worth of cash flow from operations, returning close to $200 million to shareholders through share repurchases and increasing adjusted earnings per share by 40% on top of the 20 plus percent improvement delivered in fiscal 19.

We were able to achieve all of that because we have tremendous businesses and great people.

As a result of the actions we took throughout the course of fiscal 20, where an even stronger company than we were a year ago and our future as a footwear focused company is bright.

But the very healthy balance sheet, we have the flexibility to invest for growth in new capabilities in our current business pursue new growth opportunities and return cash to our shareholders.

Full year adjusted EPS of $4.58 was above our guidance range of $4.10 to $4.40 driven primarily by stronger than expected results at schuh during the fourth quarter, coupled with lower than planned expenses due to the significant progress we made removing.

The cost from the lids divestiture.

Exceeding the high end of the range was a fitting finished to an outstanding year.

Later in the call I will outline the main pillars of our current five year plan and selected key initiatives. We're executing in fiscal 21 aimed at further advancing our footwear strategies.

Now, let's turn to Q4 results.

Compared with the previous year. Our Q4 performance included positive comps gross margin expansion and flat expenses as a percent of sales.

The combination of these results and our share repurchase activity over the past 12 months fuel to Q4 EPS of $3, a nine cents, an increase of 40% compared to the year ago period.

The fourth quarter was marked by a pronounced shift from Brexit in order to ecommerce on both sides of the Atlantic.

This dynamic was driven not only by heightened consumer preference for online shopping throughout the holiday season, but also encouraged by retailers offers and promotions, which jumpstarted the selling period.

The shift in our businesses in particular was precipitated by technology enhancements. We've deployed that have allowed for easier mobile use helped by increases in digital marketing spend and bolstered by the trust our customers have in our ability to quickly deliver their guests in time for the holidays.

In the face of lower store traffic our store selling teams did an excellent job driving higher conversion rates and higher transaction size. However, it wasn't enough to overcome the softer footfall, resulting in our first negative store comp in many quarters.

As we look to our results by brand, let's start with journeys and begin by congratulating the team on its impressive full year results on top of last year strong improvement.

Journeys deep understanding of the team consumer and their fashion preferences.

Expertise of its merchant teams to interpret these trends and make the right product calls and abilities of its store and ecommerce team to deliver an exceptional customer experience firmly entrenched just journeys as the leading omnichannel retailer fashion footwear for teens and generated another year of market share an operating income growth.

Congratulations to the journey team on an outstanding year.

Specifically in Q4 journeys continued its solid topline growth.

Posting a positive comp increase on top of a challenging two year stack comp in the high teens, which was journeys most challenging that comparison this year.

Sales were driven by strong full price selling, especially within key brands of our boot offering reflecting a trend right assortment.

Journey digital growth was a real highlight as we realized a record level of digital sales dollar growth.

Journeys success and digital throughout the year was driven by the investments made on our redesigned website as well as our effective use of digital marketing to increase website traffic.

Last year's expansion and upgrade of the journeys distribution center, including dedicated ecommerce fulfillment also allowed us to processes record volume and get orders out to customers faster and more cost efficiently.

Nonetheless negative store comp made it difficult to leverage the fixed expense base in the store channel in spite of the robust digital growth and positive digital profit contribution.

Shoe exceeded expectations for Q4 and put a nice finish on the here with comps increasing low single digits for the second consecutive quarter.

With its advanced Omnichannel capabilities shoe with ideally positioned to take advantage of the accelerated shifts in consumer purchasing away from the high Street to online, which was an even more pronounced trend in the UK.

Similar to journeys boost sale for solid and shoes kids business was a strong contributor.

The top and bottom line improvement achieved by the shoe team underscores its progress executing the 20 point plan, we outlined last year aimed at turning shoes business around addressing near term profitability and enhancing shoes standing with the consumer and with the brands itself.

This plan included an exit from the German market to increased focus on the UK.

In spite of negative store comps shoe was able to add to the bottom line in Q4, given both the profitability and the scale of its digital business.

These results are particularly encouraging as they were delivered in the midst of an extremely challenging holiday season in the UK.

Congratulations also to the shoe team.

Turning now to Johnston and Murphy comps improved on a sequential basis, but we're still negative down low single digits on top of the mid single digit increase last year.

Positive performance in apparel, and outerwear could not offset the impact on consumer demand for footwear.

As we discussed on our Q3 call fiscal 19 introduction of premium sport casual footwear provided a tremendous boost to Jane EMS results.

Last year's footwear introduction did not have the same impact which became even more apparent in the back half of the year.

In a footwear market currently dominated by sameness. The team is working diligently on product innovation and new product introductions for the coming year to inject greater freshmen freshness into the assortment.

This should better position and differentiate Jay nm, among its footwear competitors and drive greater traffic and consumption for the brand in seasons to come.

Post holiday, both traffic and sales slowed in our North American business for journeys in particular boost are an important sales driver, which coupled with an injection of cash for the consumer from tax refunds drove briscoe boot sales last year in Q1.

This year's temperate start an unseasonably warm weather in many parts of the country has contributed to less robust boot sales than we had planned and we had experienced a notable drop in store traffic.

At Schuh post holiday sales have been robust driven by clearance activity.

Shifting gears now to fiscal 21.

These traffic trends coupled with the timing of Jane ends new product innovation and introductions for the back half of the year cause us to take a cautious outlook for the first half.

We also acknowledge the potential for choppiness in the UK given uncertainty with Brexit throughout the year.

The touch now on the Corona virus, we have seen store traffic affected most notably in tourist destinations in both the UK and North America and also in our airports stores.

This is clearly a fluid situation, which will undoubtedly change, but our comp forecast reflects what we know today and only what we have seen in the trend in our business thus far.

We believe many of these factors are transitory and we currently expect to pick up in our business and the momentum to build in the second half, which is the most important time of the year with back to school and holiday.

Importantly, we have EPS upside in fiscal 21 from share buybacks, we completed already last year, and we will have new revenue and profit from the tail gas acquisition.

So taking these factors into account, we're projecting adjusted earnings per share between $4.90 in $5 in 40 cents for fiscal 2001.

This guidance is a range with both upside and downside potential.

Something close to those metal reflects our best current beliefs of where we might come out for the year, which represents a double digit increase over fiscal 20 earnings per share.

Now, let me turn the call over to Mel to review the financials and the guidance in detail. Thank you mean in fiscal 20, we celebrate another strong year of exceptional performance for the year, we improved adjusted operating income by 9% increasing from $91 million to $9 million we improve.

EPS by $1.30 cents year over year to $4.58 and acquired 20 versus $3.28 enough why 19 in two to $2.67 Neff why 18, we grew comps by 3% improved gross margin by 60 basis points with every division shown improvement for the year, we held expense.

Growth to less than 1% and continue to operating income improvement as a result.

As many mentioned we had a solid fourth quarter in our performance exceeded expectations with EPS, increasing from three dollarsnine since 2018 cents last year or over 40% with improvement in our shoe business lower corporate and bonus expense and share buybacks aiding the year over year improvement.

The beat to expectations was due to shoes performance in the elimination of more stranded costs than we expected.

Q4 consolidated revenue was a little over last years level due to a positive comp and improved exchange rates. This was partially offset by close stores in lower wholesale sales.

Consolidated comp to 1% driven by direct comps of 19% in store comps decreased 2%.

Direct penetrate sales penetration as a percent a total retail sales was 16.6% for the quarter accelerating 290 basis points ahead of last year.

Our ecommerce business continues to experience robust growth as we invest in digital while the same time maintaining profitability in this channel.

Journeys comp, 1% for the quarter on top of this highest two year stack comparison of the year at 18%.

E Commerce grew strong double digits once again, partially offset by negative store comps.

Strong in store conversion and increases in average transaction size, we're outweighed by continued negative store traffic as a negative trend accelerated during the holiday season.

We recorded a 3% comp for the quarter on top of a two year stack of negative 7%.

E Commerce continues to lead the comp improvement issue posting yet another double digit gain that was partially offset by negative store comps.

Store traffic on the high Street continues to be challenged but was mitigated by improvements in both conversion and average selling price.

Jane and posted a negative 3% comp for the quarter on top of a two year stack comp of 8%.

Ecommerce comps were positive in while Jane and overall comps were negative there was a sequential improvement from last quarter.

Negative store traffic outweighed improvements in both conversion and average transaction size.

Moving to margin in total consolidated gross margin increased 20 basis points to 46.9% journeys gross margin increased 20 basis points due to fewer markdowns.

Choose gross margin improved 30 basis points due to higher food and train of full price sales.

Jane EMS gross margin decreased by 50 basis points due to higher markdowns at retail.

Adjusted SGN a expense as a percentage of sales was flat year over year in Q4 without the benefit of lower bonus expense, we would have de leveraged 80 basis points in Q4 as it is difficult to leverage the brick and mortar fixed expense base with negative store comps.

The expense dollars in total were roughly flat in the quarter lower bonus expense and improved store rents were offset by increases in marketing as we continue to invest in marketing to drive customers into our stores into our websites.

We continue to benefit from cost cutting initiatives in overall as you know they came in better than expectations as we made great progress in our efforts to remove stranded cost.

Related to stranded costs, we restated adjusted non-GAAP fiscal 19 results to reflect the sale of lists as if we never owned the business per GAAP requirements. As we've mentioned before this required us to remove $9 million and shared costs with our lives business from our financials in fiscal 19, and thus we needed to.

Actually eliminate $9 million of cost in fiscal 2000 to avoid creating de leverage so for those of you modeling our business removal of the first $9 billion of stranded cost does not reflect a reduction of last year's expense levels as they've already been removed in our restatement.

Through the efforts across our shared services corporate and division platforms, we were able to identify and remove the $9 million is stranded costs, we needed to in fiscal <unk> 20.

Thanks goes out to the many people across our organization who drove these efforts.

Additionally, we continued our profit enhancement program or pick up in fiscal 20, identifying over $11 million of cost reduction.

The areas of success included rent reductions labor optimization through utilization of our workforce management tool warehouse efficiencies and freight savings all areas of the company contributed to these savings as we remain focused on bending the cost curve.

We continue to make good progress on rent reductions in partnership with our landlords as we renew existing leases for the year, our real estate team successfully negotiated a 160 renewals for an 11% cash reduction or 8% on a straight line basis.

In the U.S physical 20 marks the third year of consistent progress in lowering rents in fiscal 19, we negotiated an 8% reduction on straight line basis on a 170 renewals in fiscal 18 in fiscal 18, we negotiate a 13% reduction on a straight line basis on a 109 to renewals with multiple years of.

Progress we are benefiting from compounding effect of our efforts and at the same time working to shorten lease lives since less than 15% of our leases come up for renewal each year, we will continue to benefit from ongoing opportunities to reduce our rent expense going forward.

In summary, the fourth quarters adjusted operating income was 59.3 million versus 58.5 man a year ago. Adjusted operating margin came in at 8.8%, which is up 10 basis points over last year. Adjusted operating income dollars increased issue corporate expenses were lower in this was partially.

Offset by lower operating income at our other divisions.

Another call out is that we successfully terminated our pension plan this year and the settlement charges are included in our GAAP numbers.

Turning to the balance sheet.

Total inventory remains in good shape as our divisions Adeptly managed inventory levels with both inventory in sales were flat year over year in Q4 journeys total inventory was up 1% on quarterly sales. There were also up 1% Schuhs inventory was up 15% on sales that were up 1% on constant currency basis.

As you pull for receipts that were initially planned in Q1.

James inventory was down 14% on quarterly sales that were down 4% ending the year remarkably clean given their challenging back half sales results.

Capital expenditures in Q4 were $8 million and depreciation and amortization was $12 million.

For the full year capital expenditures totaled $30 million, which is well below budget in last year due to opening fewer stores than plan as well as the timing of IP projects.

We expect to make some of this shortfall with higher capital spending that will carry over to fiscal 21 for the quarter. We did not repurchase any additional shares for the year, we repurchased a total of 4.6 million shares for $189 million.

Since December of 2018 in anticipation of utilizing the sale proceeds from lives, we have repurchased 5.5 million shares across three opera authorizations for a total of $235 million. This represents a 28% reduction in the average shares outstanding since our last fiscal year, we have approximately $90 million.

Hours outstanding on our current 100 million dollar authorization.

On our balance sheet, our balance sheet remains very strong as we ended the year with $81 million in cash and know US borrowings we've been actively using our cash paying off Canadian data $42 million in the fourth quarter, leaving only $14 million of debt relating to our UK business. This reduction in Canadian debt eliminates the negative carry.

Improves our effective tax rate in addition to paying down debt, we use $34 million in cash on hand to acquire the tow gas assets.

Turning now to guidance for fiscal 2001.

We estimate adjusted earnings per share in the range of $4.09 to $5 in 40 cents in something close to the middle is our current view of where we may come out.

We have not built in any additional impact of the current of ours to demand beyond what may exist in our current business trend from a supply perspective, we directly developments worth merchandise largely for Johnston <unk> Murphy in licensed brands.

Those goods less than the third comes from China, resulting in direct sourcing for merchandise representing quite a bit less than 10% of ourselves in total while most factories are now up and running and we do expect some delays it's too early to determine the price precise impact.

The remaining product we source from third party vendors, we estimate representing another 25% to 30% of ourselves and toll or import from China. While many of these vendors have dual sourcing from countries and in addition to China, we have less visibility here than four product we sourced directly so as also too early to determine the.

Impact on goods, we source indirectly.

We have taken a conservative view of the first half of the year with wider projected comp range is due to more limited visibility the comp performance is planned higher in the back half and given the concentration of ourselves at this time of year provides upside for the year and important call out from modeling is that both Q1 in Q2 or low volume.

Quarters, which will make it difficult to make money, especially in Q1 since it will be challenging to leverage or fixed expense base, given mostly negative comp assumptions.

For the year, we expect consolidated sales will range from plus 3% to up 6% included in Arkansas, Our guidance for consolidated sales is between $80 million to $90 million in revenue related to the tow gas acquisition.

We expect consolidated comps, including direct ranging from down 1% to a positive 2%.

We currently plan to open around 30, new stores split between 20 journeys and Johnston <unk> Murphy locations. We continue to learn more are we continue to earn more than our cost of capital. Our new store. Openings. Addition, Additionally, we are finding opportunities to enter into shared fate deals where landlords that minimize our risk.

Through landlords support on store build on costs percentage rent and multiple kick out opportunities. We plan on closing approximately 20 stores. However, we will keep a store opened with a short lease term if the rentals attractive.

We expect gross margin to be down between 30, and 50 basis points driven by higher wholesale volume from the tow gas acquisition, which carries lower margins. We expressed expect gross margin rates for the balance of the year to improve compared to last year.

Conversely, the additional revenue from tow gas Miss lower cost structure benefits, our SGN a leverage in addition for this year, we are targeting $15 million to $20 million in cost reduction with only part of this built in we expect her as she in a rate to improve between 20 and 40 basis points our baseline businesses.

Not expected to elect to leverage due to flat to negative store comp assumptions and expense pressure in the UK.

Included in our SGN expenses and earn out for potential payments related to the toll gas acquisitions that are contingent on EBIT growth targets that are not that were built into the acquisition agreement.

Most earn out we expect a mid single digit EBIT margin per license brands. This all results in an operating margin within a few tens of last years levels in EPS that ranges from up mid single digits to up in the mid teens due in large part to the impact of share buybacks in the benefit of co gas share buybacks from last year will.

Benefit our fiscal 2001 EPS by approximately 9%.

We estimate the fiscal 21 tax rate will be 26.5%.

Capital expenditures will be between 60 and $65 million inclusive of approximately $15 million for the buildout of our new headquarters.

Capital expenditures will be centered on digital and Omnichannel investments refreshing, our store fleet and building out new stores, we estimate depreciation and amortization at $52 million close to the level of spending we plan without the headquarters lastly, we are assuming an average of 14.4 million shares outstanding are.

EPS guidance assumes no additional stock buybacks beyond what we've made to date, but we can repurchase availability opportunistically during the year.

Now I'll turn the call back to meeting.

Thanks now.

Following a successful first year as of footwear focused company I'd like to touch briefly on the rationale we laid out when we made the decision to pursue our current strategy and discuss the exciting direction. We're taking in this new chapter.

Across our company, we aspire to create and cure rate, leading footwear brands that represents style innovation and self expression and to be the destination for our consumers favorite fashion footwear.

Each of our businesses has a strong strategic position grounded in his deep and ever evolving understanding of the customer it serves.

The strength of our concepts and the advantages we have built over time have established long lasting leadership positions that make our footwear businesses outstanding on their own the what they share through the benefits of synergies makes them even stronger together.

We're best known for being a retailer that we have an important and valuable side of our business that successfully owns and licenses brands given us a good platform for future growth.

Our opportunity to unlock the full potential of genesco is to accelerate the digital and omnichannel potential in our retail businesses and to grow our branded side.

We made substantial progress on this in fiscal 20, and our future plans are to further grow profit in the short short term and strengthen our strategic position for longer term growth.

Following the recent work on the sale and unplugging of the lids business from our infrastructure. We believe this year provides a solid baseline from which to build a new growth plan.

We updated our five year plan in the fall using fiscal 20 as the first year, so I'd like to describe the outcome.

Beginning with the top line, we're forecasting average annual growth in the 3% to 4% range driven by strong digital growth and robust conversion stores.

We expect operating income to grow at a faster pace in revenue as we move toward and overall operating margin of 6% by fiscal 2004.

The plan I, just described generates meaningful cash flow in the range of 400 $500 million after healthy investments in our current business.

This cash I will be used either to make acquisitions aimed primarily at building a more robust branded platform or return to shareholders likely through additional stock repurchases.

Based on what I, just outlined we expect average annual EPS to grow into double digit range, even though we expect the first half of this year to be challenging the strength of our strategic positioning should allow us to achieve these goals overtime.

In developing this plan, we aligned our business around six pillars, taking the strategies that have been working and adding new areas of focus.

The six strategic pillars are number one build deeper consumer insights to strengthen customer relationships and brand equity.

Number two intensify product innovation and trend insight efforts.

Number three accelerate digital to grow direct to consumer.

Number four maximize the relationship between physical and digital.

Number five reshaped the cost base to reinvest for future growth.

And finally number six pursue synergistic acquisitions that ad growth and create shareholder value.

In our fiscal 21 plan, we developed specific initiatives that tie to each of these pillars and I will highlight just a few of them.

Starting with pillar number one build deeper consumer insights to strengthen customer relationships and brand equity.

We have always had strong customer insights from our interaction in our physical locations and we are now augmenting this with customer data and analytic efforts.

At journeys, we recently completed work on a call center our platform that gathers information from eight disparate systems that includes transactional behavioral and demographic information such as past purchases shipping preferences, social preferences and promotion history and consolidates it into a unified view of the.

Customer.

Phil early this capability has been very beneficial to our customer service reps that previously didnt have an efficient way to access complete customer data.

It has enhance their ability to timely respond to inquiries to fix problems and to provide great overall service.

With the current net promoter score of 85 journeys has a high bar to keep jumping over.

Phase two of this project, which is now in development leaves artificial intelligence to generate insights and recommendations for our CSR team to drive their sales efforts.

Meanwhile, at Schuh, we expect to benefit this year from a CRM implementation aimed at increasing the frequency of shopping and increasing average order value by leveraging cross sell opportunities for customers in our database.

This has included a customer segmentation effort and the development of specific customer journeys designed to drive conversion.

The integration of the data repository marketing cloud and social studio is now complete with a go live targeted for this spring.

Moving onto pillar number to intensify product innovation and trend inside efforts.

At Johnston <unk> Murphy the team has refined its brand architecture and product assortment across all categories with a focus on three key collections.

The core Jay Nm line continues to be the largest revenue driver offering a broad assortment across footwear apparel and accessories.

Based on its recent successes strong trajectory that brand is also putting more development behind its innovative XC extreme comfort offering, which now accounts for over 20% of footwear sale and offers tremendous growth potential.

Lastly, the product teams attention is focused on broadening Johnston and Murphy collection, which represents the brands most premium proposition and creates the brand halo with products sourced primarily in Europe.

With additional clarity around brand architecture, Jan is ramping up its new product introductions with a 30% increase in new footwear skews planned for fiscal year 21 in the fall led by a 70% increase in our technical XC collection.

To support the refreshed assortment Jay enamel execute an integrated marketing programs to drive awareness to tell stories and to activate customers across distribution channels.

This will feature six unique product launches throughout the year delivering more frequent launches than ever before and will encompass Jane EMS stores digital catalog wholesale partners and social.

At the same time shoe is making a concerted push to broaden its private label offering.

With the Kenai to let the customer is seeking the product will be created using shoes own handwriting focused on quality.

Taking advantage of our newly constituted product team design and development expertise and ability to identify key trends in the market. The goal is to offer a range of styles to complement our third party branded offering and to drive margins higher.

Turning to pillar three accelerate digital to grow direct to consumer.

We're working on a number of initiatives, including introducing deferred payment options at all divisions.

Shoe has already rolled out a deferred payment option, which has proven to drive increased conversion and an increase in average basket size of 20 plus percent.

With an eye toward shoe success, both journeys and Johnston <unk> Murphy, our testing online deferred payment options, we will measure the impact on conversion average order size and new customer acquisition and will roll out in the back half of the year.

We're optimistic this will drive sales, while offering our because our customers a much sought after payment method.

Materially increasing journeys ecommerce penetration is also a top priority for fiscal 2001 building on five years of strong increases cap with fiscal 2020 plus percent growth.

Last year journeys drove a substantial amount of additional website traffic through a combination of paid media activities.

This was also its first holiday season with its newly designed website that both improved functionality and optimized for mobile first which was especially effective since mobile is the device of choice for the journeys customer.

Fuel ecommerce in the coming year journeys will once again significantly increase its investment in digital marketing.

Shifting now to pillar for maximize their relationship between physical and digital fiscal 21 is all about building the capabilities for buy online pickup in store or BOPUS in North America.

This is an offering we've had for some time at schuh, which drives around 20% of shoes online purchases and steers customer traffic into it stores.

We anticipate piloting BOPUS during Q4 with the aim of a complete rollout in the first half of fiscal 2000 to.

Both assumption Audi will be achieved through the execution of a series of projects throughout the year, including enhancing the speed at inventory updates to get to real time inventory, replacing our store special order system and upgrading both Pos software and hardware.

On the pillar five reshape the cost base to reinvest for future growth.

Our profit enhancement program has become a routine part of how each of our divisions now operates recognizing the need to reduce the fixed expense structure of our store channel given the growth of online we have a number of savings priorities for fiscal 21 that Mel discussed that will constitute version three point of sale of our profit enhancement.

Efforts.

And finally pillar number six pursuit synergistic acquisitions that ad growth and create shareholder value we.

We have significantly bolstered the prospects for a license brands division by securing their rights to the Levi's footwear license for mens womens and kids in the US along with our acquisition of tow gas late last year.

There were a number of factors that may that's an attractive acquisition.

For starters Levi's is one of the most recognized apparel brands in the country, where the heritage dating back almost 170 years.

The Levi's brand Halo and casual aesthetic is an excellent launching point for footwear and drive consumer awareness and consideration across the spectrum of footwear categories from Canada to boots.

The acquisition also provides sourcing and operational strength.

So gas has a highly capable sourcing office in China with full product development capabilities. The combination of the licensed brands until gas businesses gives us considerable scale and access to a wider range of constructions and price points that complements our existing range of products.

In terms of synergy Levi's current distribution is weighted toward the value channel, which unlock new distribution for our existing licensed brands portfolio, while our higher tier retail channel relationships and sourcing provide levis with potential new door growth.

Importantly, this transaction strengthens our relationship with Levi's and enhances our sourcing platform, giving us the ability to add more brands and licenses in the future.

We are truly excited about the tail guest edition and we welcome its talented people to our company.

With the entire organization aligned on these six strategic pillars Genesco is prime for a successful future before we move onto fiscal 21, we have a lot to celebrate about fiscal 20.

Together, we've accomplished so much and I'd like to extend a sincere thanks to all of our very talented people across our organization for their dedication and hard work.

Our success speaks to the value of the skill in the experience and commitment to excellence of you all.

Before we close I'd also like to thank everyone for their concern about last week's devastating tornadoes here in Nashville.

We're pleased to report that none of our people or their families were hurt and none of the company's facilities were damaged.

We have some employees who sustained damage to their homes and we're doing all we can to help our people and the wonderful community, we live and get on the path to a speedy recovery.

Our Hearts go out to those who have been impacted by the devastation and losses.

And now I'd like to turn the call over to the operator for questions.

Thank you if he would like to ask a question. Please signaled by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off till I guess signal to reach our equipment.

Again that is star one to ask a question.

We'll take our first question from Mitcham Sweats pivotal research.

Yes, thanks for taking my questions.

Maybe I know you don't like to speak to quarter to date trends, but given the special.

Circumstances here I was hoping you could maybe address a few things you called out in your release also in your comments.

The impact on Copenhagen Airport tourist stores could you maybe speak to how those are trending versus maybe the balance of the chain can you talk about maybe how many of your stores you would characterize.

Airport and Toro and then.

You could talk a little bit about what you're seeing elsewhere within the business, particularly in some of those areas that have been maybe most affected like let's say a seattle, so maybe we could start there.

Yes, so so mitch thanks.

Thanks for your questions and.

I know there a lot of questions about the impact of of covered 19 in the current of IRS and I want to start by just talking a little bit about our trend and.

Starting with the trend in January and February and March we can typically sell a lot of foods at journeys if the weather as cold and February is usually helped by tax returns.

Last year, we did exactly that we sold a lot of boots. This year. The weather was warmer and we didnt sell as many boots as we would have if the weather had been coal.

We saw a decline in store traffic at this time really over the late January into February time period, and maybe the customer decided that I'm going to.

Perhaps wait until spring I'm going to where would I have now and wait until the season turn if the winter isn't going to last for long.

So then we ask.

The to what extent is is corona virus, having an impact on consumer demand and we have to really discern how much is trend and how much is the impact.

The Corona virus, we certainly have been seeing an impact on traffic in tourist locations really in places in the UK like London, Edinburgh and places they called a pretty cities, which are places like New York and Bath, where we're lots of overseas tourist come to visit on the West coast in the.

Yes, we've also seen some impact mostly from tourists and as I mentioned in airports and wherever we have an airport location we have.

We have been impacted.

I'd say, we have started to see some impact beyond tourist locations recently, but is it is fairly recently that we have we've seen that impact. So it's a matter of discerning how much is trend and how much is.

His impact from from the Corona virus. So we've built in only what we've seen so far in guidance. This is very obviously, a dynamic and evolving situation. We don't know how far it will go are exactly how long it will laugh and it's too soon to know how much how much this will specifically affect consumer spending.

So we've been through situations like this before Mitch might hurt mall traffic for a time, but it will eventually be under control and we're going to benefit on the other side of this from pent up demand and we typically tend to come out stronger on the other side.

The meantime, our digital business can pick up some of the flat we havent had.

That tool at our disposal in prior times when when we have seen.

A demand shop. So we think that weekend, we can benefit from some of the pent up demand that will come out of the other side. So in the meantime, it is a so rapidly evolving situation that we're paying attention to and and we are customizing our responses to what we see.

Can you say, how many stores are tourist an airport.

Okay.

No we have a.

A handful of airport locations.

In the neighborhood of 2020 to 30 locations and art, our tourist stores really a lot depends on how you define to define those we would define those as as big cities like New York in La and San Francisco, and Orlando would be one of those as well the vast preponderance of our.

Our stores are in non tourist locations, it's really the the.

Smaller portion of the number of our stores are in our interests locations.

And then on a on journeys for Q1, you're guiding to a comp of down seven down three hoping you could kind of break that out a little bit how much of that is.

The softness in boots to start the quarter versus any kind of drag from covert 19 that youre seeing versus just the underlying trend within kind of core non seasonal part of your business.

Sure So just to start with new performance.

Do this gave us a solid performance during the course of the holiday, but it was very brand specific.

Started out with a burst of cold weather at the beginning beginning of November and the update we gave you that I see our at the beginning of January. We said we were we were really pleased with how boots has sold over the holiday season.

I think that that a lot of the softness that we saw in.

In late January to February was due to weather among other things and we didnt see the same sell through on boots that we would have otherwise scene that most of what we sell when it comes to visit fashion, but it helps to have gold whether.

Some of the more fashion related boots sold through nicely some of the more weather dependent ones not so much as that really is what we took as a trend going going into into the into the first quarter.

As far as you know we sell a lot of retro athletic product when the cycle first started there was a lot of upside to sell something new into People's wardrobes and into their closets.

We like the cycle because it stretches across a number of athletic brands, we have a lot to work within the in the catalog of retro product, we still do sea legs to that to this cycle, but it's very brand dependent theres some are performing well and.

And some and some not performing well.

We're also very excited about the more casual side of our business both what sells in the summer and also fashion boots in spite of what happened over the late winter late winter seasons, and it's good to see this casual growth we've been very athletically driven over the course of the last few years that casual adds to the.

Jason.

Well take our next question from Jonathan conflict there.

Yes, hi, Thank you maybe first just a follow up to the last discussion there just.

More along kind of a casual assortment at journeys what I, what I look at the web site today, there's a lot of crock stock Martin and Steven converse or those types of brands that you think can keep the assortment fresh and work and.

As you look ahead and what's embedded in the outlook for journeys or just any thoughts on.

Kind of his sustainability.

Current assortment that you have.

Sure. So I would start by saying that I think looking at journeys.

Overall performance in the fourth quarter, we were going against a two year stack of 18 and put a positive 1% on that so when you think about three years, we gained 20% in our journeys business. I think is really a measure of gaining getting market share and fashion is constantly rotating answer.

As we were selling what that team consumer wants to buy and when we look at our assortment certainly for the spring we see some really nice opportunities in some of the brands that that we are that we're offering and.

Interestingly, what we see is that we have we still have nice conversion in our stores. It really has been a function of traffic and so I think strong conversion in our stores as a measure of when people walk into our stores across the lease line they like what they see.

Really a matter of traffic is the issue that we have been been facing over the more recent weeks.

Okay. That's really helpful. And then maybe a broader topic I understand and this is probably difficult to answer maybe shifting day today, but just curious maybe how you think more broadly about.

Contingency planning and protecting the business when you have 4% operating margin and yet seemingly pretty low visibility in terms of the near term demand and some of that the macro factors out there just how do you conceptually you make sure you're protecting the business in that environment.

Yeah, It's a great question and I think about top of mind for many companies. These days into in terms of of.

The what to do in reaction to the current virus situation.

And John I'd say, they're really good thing is that we have really experienced teams.

Who have been through lots of cycles over the years, whether it be the great recession or product rotations.

You know our team is we've got a lot of long tenure in our teams the health and safety of our people is really most important and we're taking all the necessary actions here.

We have traffic counters in stores, we can react and adjust staffing levels as needed and and we're going to manage expenses and.

Capital spending very carefully it's a matter of really managing your business carefully through all of this again over the long term I think at the situation situations like these hurt mall traffic in for a time, but eventually when these situations get under control, we will benefit from a.

The pent up demand that's out there.

And long term the strength of our businesses and the strategic positioning is what helps us to get to the other side as these things the the retail environment typically has a shakeout during these times and strong retailers do well and and weaker retailers find it hard to survive.

Okay.

We'll take our next question from Jennings District with Jefferies.

Hi, Good morning, I am just a few more clarifications on the guide if you can just help me understand what's embedded.

I mentioned this slowdown at an airport in tourist locations are you embedding any progress but outside of those stores in your comp guidance and then the gross margin guidance is there any impacts meeting to help expedite goods that you starts directly or from name to markdown product that may be a ride is a little bit late adds help me understand kind of whats in there. Thank you.

So just on the sales guide Janine.

We didn't build anything incremental into what the what the guide is beyond what was in our current business related to the trends within our business. So so nothing additional built into that.

Yes, and just as just before we answer the rest the question Jeanine. There's so many permutations of what could happen that we can only build in what we know.

As far as.

I'll turn it back melted just talk about expediting product and adjusting for gross margin for late product deliveries.

So we really from a expediting product, we don't really thinks that we have too many issues. There I think from a supply perspective speaking to our divisional presidents, we feel pretty good about being able to get product in.

So I don't think theres going to be any supply constraints, probably the only real issue on the margin line in the front half the year as we have a little bit more cost of inventory in our toe gas business, which was acquired in license brands our margin profile will be a little bit lower in the front half of the year and as we sell through the inventory we have on here.

The margins in that business will improve so margins will be a little bit lower in Q1 in Q2.

Also we're clearing additional product.

It's shoe as we mentioned that is driving a lot incremental revenue in the first quarter, but I think the first two quarters, a little bit challenge on the margin line, but it's built into our full year guidance, yes. So for now I think and to sum that up.

When you think about Chinese new year, we had a lot of product that was completed and put on the water and so we tend to be in a good inventory position at the at the present moment as Mel said.

On the supply side.

We most factories are up and running for a product that we sourced directly.

We we have good visibility into the things we sourced directly.

What we get from third party vendors, we've not heard of many delays yet Janine and Thats. The large majority of our business, but it's a bit too soon to tell as we get into the into the second quarter May and June are lower volume month for us and so we're in stock for much of what we need for spring.

May and June will be lower volume month for us.

When we need to start building inventory is is a few months from now which is really Bakken into June and July for our journeys business. When we begin to stock up for for back to school. We're landing a lot of fall product at that time to in addition to back to school product and so.

I will tell the extension, which we've got to expedite.

Additional product.

And.

Except that happens it will be into the second quarter.

Okay. That's helpful. And then just shifting gears a little that you've had some pretty consistent success with reducing ran sense now are hearing even more so than ever some of the balance of power shifting back into the hands of that tenant. So just any update on kind of what you're seeing your conversations there landlords and if you feel like theres an opportunity for even maybe more significant reduction.

Yes.

Yeah, I think ill give some commentary and then let me I'll just talk about what we have been seeing but we have been.

We've been paying a lot of attendant to our fixed rent expense structure for really the last three years, we have had quite a lot of.

Of success here on not only getting rent reductions that on shortening lease life and whats important is that we are working to variabilize.

Rent expense to the extent, we can and thats the whole reason behind the shortening of the lease life is that.

If we can.

Signed a shorter term renewal then if if traffic goes up and sales go up we're happy to pay more rent and if it doesnt than we have an opportunity to adjust again some of what we've been seeing Mel made reference to in in our prepared remarks, where we are entering into agreements with some of our landlords on these show.

Eric fate deals, where they help us with capital they actually give us variable rent upfront, we have an opportunity to have.

Multiple kick outs.

And that as a way to just minimize minimize risk and so we can move rent expense up and down according to how sales unfold and.

To the extent that we find ourselves in a situation, where we don't want to be in a store. We we have the flexibility in the opportunity to exit.

Mill with you and getting to that yes, I think you nailed it I mean, I'd say that one more thing I'd add to it as this we hit about 15% of our stores per year. So we've got quite a few more years of getting two stores and having a chance to renegotiate these renewals and im, especially excited by the fact that more and more of these deals were.

Entering into can be shared fate deals in the more we can do that the more we can protect on the downside as well so we're making good progress and.

I think we've got plenty of runway to keep doing that.

We'll take our next question from Steve Marotta with C.L. King and associates.

Good morning Me and mill first just to put a finer point on I know you don't provide quarterly guidance, but you've provided a little bit of color.

Assuming negative EPS on a year literal negative bps not just the comparison on a year over year basis, and the first and second quarter is not unreasonable correct.

Yes, what's the right, where we are expecting that it's going to we had a really strong first quarter last year and we're expecting to go backwards. I think we said we think it might be it will be difficult to make money in the first quarter based on.

On the current negative comp projection and then even into the second quarter. We expect that we will go backwards and.

Depending how fargo, how far backwards we go.

They also be challenging is just simply very low volume quarters, where we are hanging on with our fifth fixed expenses to try to get to the back half of the year went back to school and holiday, where we where we make.

A lot of our profit.

I wanted to put a finer point on that and then you mentioned that.

Your annual guidance assumes nothing incremental outside of the current trends.

But it does assume some sort of normalization at some point is that a normalization assumption starting tomorrow to mean to to the average.

Comp expectation for the balance of the year or is that something that starts at the end of the first quarter or at the end of the second quarter. When is your inflection point.

What would be considered normalized trends.

Yes, so I think what we've done as we have if you. If you look at our overall comp guidance, we've given by quarter, we have been most conservative with with that with comps in the first quarter and even getting into the second quarter. We think that there's a possibility that we could have negative comps that theres also a possibility that we.

Start to round out at the end of the second quarter, but the whole situation with the Corona viruses dynamic and.

I would say is be safe to say that that if the situation unfolds further or that we haven't built in any additional impact.

So our guidance reflects what we've seen so far and what we've seen so far says that the first half is going to be.

It's going to be challenging, but that we have a chance in the back half.

Based on the product trends, we're seeing and then also based on the compares.

If you look at at fiscal 20, we had our strongest comps in the first half of the year and toward the back ended the year, we gave back a little on comp. So we expect the opposite to happen this year.

Couple other things that I'd point out is that the Togo business that Mel gave you the economics about we'd need to add in and that add to both the top line in the bottom line, we expect for this year.

The year, we've just finished had quite a bit of bonus built into our numbers and so we never like to give back bonus, but but it does provide some cushion.

To the extent that this year faces some challenges and then finally the share buybacks that would that we've had out there that weve completed already adds about 9% to this year as well and so when you look at our overall guidance. It assumes the addition of some new revenue at actually at the midpoint assumes that our base businesses.

Go back a little bit and then we've got some cushion from the bonus and and then finally share buybacks help on the EPS side.

Last question comes from Sam Poser with Susquehanna.

Good morning. Thank you for taking my questions I've got a couple of can you give us some idea of the range of volume out of total gas and how much your foreseeing that business.

How many bips that alone may impact.

Gross margin in let's say in the first quarter as liquidates not.

Taking away the.

Fundamental issue that the gross margin there is lower than other parts of the business.

Yes, so I'll start with a color and then I'll turn it to melted to give you the specifics in the first quarter, but.

This this toga opportunity is a great opportunity, we really like the fact that we've added levi's as a brand.

To our portfolio and we've we've brought onboard a terrific team to complement our license brands team.

Our license brands businesses more front end front of the year.

Loaded that Togo business with more back end of the year loaded we have some nuances in the acquisition where we've got.

Pressure on gross margin in the first part of the year as Mel mentioned and in the back part of the year. We will we'll work through some of the inventory that we're taking on which gives us some more upside for for gross margin, but maybe if you want to talk specifically about about where where we see.

The first quarter gross margins. So so for the year, we guided 30 to 50 basis points down in gross margin rate in a lot of that is due to the addition of tow gas in wholesale business lower margins 89 million revenue.

But as I mentioned with Jeanine is that there are additional.

Rule teasing admissions in the cost of goods that we have in the front half of the year as we cycle through that inventory our margins will improve as the year progressive. So if you think about that 30 to 50 in the front half its probably twice that is for us to pressure in the front half and it gets better as the year progress isn't it actually flips in the back half and even more pressure probably.

The first quarter than than in the second first is the worst.

And could we see gross margin down like 80 to 100 basis points in total in the first quarter.

Yes, yes, and even a little more than that.

That concludes today's question and answer session. At this time I would like to turn the conference back to me for any additional my closing remarks.

Yeah. Thank you all for joining us today, and how we look forward to giving you update on our next earnings release.

That concludes today's presentation. Thank you for your participation you may now disconnect.