Q2 2021 Genesco Inc Earnings Call

At PNM and Investor Relations. Thank you. Please go ahead.

Good morning, everyone and thank you for joining us to discuss our second quarter fiscal 2021 results.

With me on the call today, our Mimi Vaughn, our board Chair, President and Chief Executive Officer Ml Tucker, our Chief Financial Officer.

Participants on the call expect to make forward looking statements.

These statements to reflect the participants expectations as of today that actual results could be different.

Genesco refers you to this morning's earnings release, and the company's SEC filings, including the most recent 10-K and 10-Q filings for some of the factors, including the impact of Cobot 19 that could cause differences from the expectations reflected in the forward looking statements made during the call today.

Participants also expect to refer to certain adjusted financial measures during the call.

All non-GAAP financial measures referred to in the prepared remarks are reconciled to their GAAP counterparts, and the attachments to this mornings press release and its schedules available on the company's homepage under Investor Relations in the quarterly earnings section.

I want to remind everyone. We have posted a presentation summarizing our results that is accessible on our website.

We hope you're all staying safe and healthy now we'd like to turn it over to maybe to discuss the quarter highlight the progress we're making on select strategic initiatives. Thanks, Dave Good morning, everyone. Thank you for joining us today.

As we navigate through one is the more challenging retail environment in history.

I want to begin by acknowledging that tremendous effort from our employees.

The genesco team has shown great ingenuity and resilience throughout the past several months as Weve tackled a myriad of new challenges brought on by the pandemic.

I'm extremely proud of how our organization has executed during this incredibly fluid situation.

Our company began the year with positive momentum and from a position of strength following 11 consecutive quarters of comp sales growth.

Regardless of the near term volatility, we're experiencing now and are likely to the experience in the coming months with the pandemic.

We remain confident in the strong strategic positioning of our businesses for the longer term.

With respect to the second quarter fluid as a good way to describe how recent events unfolded.

The quarter began with positive momentum from pent up demand and government stimulus as customers enthusiastically return to our stores when we reopened and continue to actively engage and shop with us online.

The significant undertaking of reopening brick and mortar locations required bringing back necessary staff to first to reconfigure our stores and then to operate them under the new protocols to ensure our highest priority the health and safety of our people and customers.

This speed and Executional excellence, our teams demonstrated in getting our stores open and operational was a huge advantage as we often opened on the first day permitted by local authorities.

In July towards the end of the quarter. After this very positive start.

Our business in North America was impacted by the resurgence of the virus across the country and its negative impact on store traffic and by the back to school season that hasn't yet materialized with an unprecedented number of students learning from home.

Overall, 96% of our store fleet is currently open.

The locations that remain to be opened our in places where local governments have restricted operations and a handful of street and airport stores, where traffic hasn't yet warranted reopening.

Journeys open quickly and benefited from a first to market position early in the reopening phase.

Jay Nm didn't begin reopening until mid may as we anticipated its customer customer would take more time to return to shopping.

Across the Atlantic the UK government was more cautious about reopening its economy.

Mid June was a turning point, though when England permitted openings, allowing us to rapidly reopened stores. After then.

Across all our businesses our stores were opened for about 70% of the days in the quarter.

I'll go into more detail on each business in a moment, but we were very pleased by the initial performance of journeys stores, which comped up double digits right out of the gate and the nicely positive operating income journeys posted in Q2.

And more recently with the steady improvement at Schuh.

But the headwinds at Johnson, and Murphy had a material impact on the quarter.

The combination of all these dynamics led to a total revenues decrease of 20% with the drop in store volume, partially offset by a notable hundred 44% increase in E commerce.

Thanks to our decisive cost cutting actions early in the outbreak total expenses were down almost as much as revenue even as we added costs from store Reopenings.

But we experienced gross margin pressure from higher digital sales.

Increased inventory reserves at Jay them and higher promotional activity issue.

While sales and profits improved considerably over Q1, we swung to a loss versus a small profit a year ago with adjusted loss per share coming in at a one dollar and 23 cents.

We were however, encouraged by our ability to mitigate a portion of the impact to our bottom line from the reduction in store revenue.

On top of the cost savings initiatives, our performance benefited from a meaningful increase in ecommerce profits.

Our E Commerce channel was nicely positive and profitable prior to the pandemic.

We've all is operated with a goal to drive profits and each incremental sale is accretive so we welcome the additional volume.

And as E. Com grows we're leveraging the fixed costs and the investments we've made in this channel, which is driving further and profitability.

Equally encouraging was our ability to reduce inventories in line with sales and to generate cash during the quarter.

Now, let's take you through the details of our net cash position, but I'm pleased with the entire organization's focus on cash generation and preservation during this trying stretch.

So looking now at each of our businesses in more detail.

Journeys was positioned well with the right product at accessible price points for a teen customer excited and anxious to shop.

Comfort became the fashion choice is a pandemic and journeys fashion athletic assortment fits the bill.

On top of that journey spring summer offering which included a range of comfortable sandals and other more casual product resonated strongly, especially with women and kids.

While stores traffic was down double digits in the first two month month of the quarter.

Robust conversion and higher transaction size drove comps in open journey stores to positive double digit levels as the team consumer less affected by the virus showed up in our stores with stimulus money in their pockets and a high intent to purchase full priced footwear.

The strength of store sales plus healthy E commerce volume, which almost tripled for the quarter drove journeys total sales up double digits year over year for June even as we were still opening stores.

Then in early July traffic began to fade somewhat in North America as the number of new Cobot cases spiked first in states like Florida, Texas, Arizona, and California, and then across much of the country.

Around mid July we typically see weekly traffic and sales volumes begin to accelerate as back to school selling gets underway.

With students starting school later or beginning the new year learning from home, we experienced a meaningful falloff in year over year store traffic and did not see that big bump in demand, we usually see in late July which pushed journeys store comps into double digit negative territory for the month.

With July representing almost 50% of journeys second quarter sales last year. This trend a little more than offset the strong store results in may and June.

Shoes market positioning is similar to journeys selling comfortable accessible fashion footwear to teens and young adults a real plus for the pandemic and good weather added sales of sandals. This summer.

Shoe stores were opened for less than half the quarter since the UK was slower in reopening its economy and even as they reopen UK consumers, we're not as quick to shop in stores post lockdown.

Traffic was initially down well over 50% before steadily improving along with sales as the quarter progressed.

Like journeys robust conversion and higher transaction size boosted store comps to less negative levels.

In addition, shoes advanced digital capabilities were on full display.

It was the most successful of our businesses capturing a portion of the lost store volume by almost tripling, it's ecommerce sales, albeit through heavy promotional activity to match the UK competition.

The trends have helped journeys and shoes performance had been headwinds for Johnston and Murphy with its less casual product and an older consumer.

Results for very challenging throughout the quarter as the J nm customer had fewer reasons to buy with many working from home and most social gatherings and events postponed or canceled.

Store traffic. After initially improving reverse course in July with a spike in Covance cases, and was down over 60% for the quarter with sales performing a little better than that.

While Jay them historically enjoys a larger penetration of E commerce sales the gains during quarantine have not been as pronounced as we've seen in our teen and use businesses.

So given its results Janeane has been the business, where we've taken the greatest action on on cost and head count in the quarter. In addition to significant inventory reserves.

We also made the difficult decision to wind down traffic, which was a startup brand Jay Nm was underwriting.

Turning now to the current quarter.

Back to school, our most important season after holiday significantly impacts our Q3 performance and back to school has been very different this year.

Some of the more broad based Bts surveys estimate that up to two thirds of us elementary Middle and high school students will attend school only virtually to start.

Beyond this some will follow a hybrid online and in person model.

For those students going back in person Labor day is one week later this year and many schools are delaying start dates for up to several weeks.

This has a couple of implications for journeys.

The first is the shift of Bts shopping to later.

The second is to what extent will the appetite for footwear apparel and accessories change for students who will be learning virtually at home initially.

We've already gone through what is typically the Bts peak in the last week of July in the first half of August. So we saw a meaningful drop in journeys traffic in sales versus last year due to the shifts.

We have however, also seen significantly better results in the last two weeks and would expect this trend to continue as comparisons further use.

We have seen nicely positive comps for this period in some states, where we know students are going back in person.

When all said is done we believe the bts selling season will be prolonged.

Extending several more weeks into September for the delayed starts and potentially longer is virtual learners then shift to in person.

Journeys as the go to place for Bts footwear is ready to service customers with an exceptional assortment and excellent service whenever Bts finally arrived.

Back to school in the UK has started as usual and we've seen store traffic and sales build in Q3 as a result.

Shoes E Com performance remains strong with the potential to fill much of the GAAP left by stores in the quarter.

At Jay and end the third quarter has seen a continuation of Q2 trends.

And we expect the catalyst for improvement to be a switch in the fall season, which is typically in August, but we shifted to September this year.

Visibility is limited as we head into the back half and dependent in part on what happens with the virus and how federal state and local governments respond.

As such we are approaching the remainder of fiscal 21 cautiously, especially as it relates to expenses in inventory.

The cost reductions we've booked to date reflect a small amount of the progress we've already made in our recent rents negotiations with both the number of our larger as well as some independent landlords.

We continue to engage in constructive conversations with the balance of our landlord partners, who understand both our need for rent relief, while stores were closed and for more flexible and appropriate rent structures going forward in order to keep stores open.

Shifting gears I'll discuss the progress, we're making on several digital and Omnichannel strategic initiatives, we outlined at the beginning of our fiscal year, which were speeding up wherever possible.

The first is accelerate digital to grow direct to consumer.

Digital is one of our biggest growth opportunities and while we doubled E commerce over the last five years, we aim to further accelerate growth to double the business again in a shorter period going forward.

When stores closed during the pandemic, our E com business experienced unprecedented demand.

Our second quarter was the highest volume digital quarter in company history.

Importantly, we were able to meet the explosive demand. Thanks to investments we've made in mobile our platforms, our web sites in our distribution centers.

We have helped the customer adjusts to the pandemic by introducing services such as pay in three or four or four installments and videos on how to measure shoe size to aid with online purchasing.

In the near term, where prepping to handle what we anticipate will be record holiday digital volumes and have just upgraded our inventory locating and order brokering system, which will help the caused by providing even greater inventory accuracy, which is critical during peak sales periods.

We've also started to work on another bespoke ecommerce picking module for the journeys DC as we continue to invest to drive digital.

Not only did we achieved record E comm volumes, but we also achieved records for attracting new customers to our ecommerce channel.

The number of new web customers visiting our sites grew 55% in Q2 over last years levels.

Progress, we've made with our second initiatives build deeper consumer insights to strengthen customer relationships and advancing our CRM capabilities are helping us to engage with and retain these new customers.

We completed as CRM implementation as planned earlier in the year at Schuh aimed at increasing frequency of shopping and average order value.

Shoes CRM welcome campaigns initially launched in June our designed with personalized content to induce new customers to complete additional purchases and to build loyalty tissue along the way.

These new campaigns are already delivering higher conversion and promising results.

Journeys has had success driving additional purchases through its while some campaigns for its much larger number of new to customer files as well.

Lastly throughout the year, we had been making progress on a third pillar maximize the relationship between physical and digital as we plan to launch in our North American stores. The initial pilot of BOPUS at capability, we've had for a long time in the UK.

Our stores are a strategic asset and this capability, which is pandemic right allows us to leverage them further.

Touching now for a minute on strategic positioning.

The strength of our concepts and the competitive advantages we have built over time were evident in Q2.

This was especially true for our concepts that serve teens and young adults, which represent more than 80% of our business.

The journeys team customer is the young fashion seeking cut seeking customer who appreciate if edited assortment of branded product. This trend right for them trusting journeys to validate their choices.

They also value and need the advised of our edgy fashionable salespeople and like interacting with people they can relate to.

As a house of brands that journey serves as customers needs year round from sandals in the summer to sneakers for back to school and boots in the winter, which is compelling since kids by more than just one brand.

And of course with teens the brand that's hot today will not be tomorrow, which strengthens the moat around journeys positioning.

Thanks to an unparalleled relationship with the team customer journeys discerns these trends and continually secures the right coveted limited distribution product, which keeps us customers coming back again and again.

She has a similar positioning to journeys and its strong connection with its customers has only increased during the pandemic.

All this gives us confidence that when our consumer does come out to shop back to school or otherwise that both journeys and schuh, we'll continue to capture more than their fair share.

Our Jay and brand along with Levi's and our other license brands have deep rich histories and significant brand equities.

Jay Nm has achieved great success over the last decade pivoting away from being known strictly as a dress shoe company. Both evolving is product mix toward a more casual offering and proliferating the categories. It offers as a lifestyle brand.

While Jane M. holds true to its heritage of quality Instyle customers have embraced the newer product casual and casual athletic styles represented 60% of Jane and footwear sales last year, and apparel and accessories, 40% of sales in total.

Work from home has only accelerated the trend away from Dressier product and the Jane M. team. In response is rapidly accelerating the transition of its assortment to an even more casual focus for future seasons.

Fiscal 21 is a year like no other I'm. So proud of how our teams have responded to the unprecedented challenges we've all face.

Not only have they focused on supporting the business and one another but they've worked to advance our diversity initiatives and get back to our community in need through many efforts, including donations of shoes to students impacted by hardship as they get ready for back to school.

While we don't yet know how the rest of fiscal 21 will play out we believe our performance. This year has been impacted by the extraordinary market conditions and back to school and back to work on certainty and as these conditions normalize we will see the competitive strengths of our businesses shine through.

Importantly, we're well positioned from a liquidity standpoint to weather the storm and I'm confident we will emerge strong to take advantage of the many opportunities on the other side.

And with that I'll turn the call over to melted more insight into our performance and financials.

Thank you mean and good morning, everyone turning to results for the second quarter, even with robust E. Commerce sales overall revenue was down from store closures in store opening results.

Gross margin was pressured by higher shipping costs from strong digital sales inventory reserves JNNURM and promotional activity shoe offset partially by disciplined expense management that reduce as skewing a cost inline with the decline in revenue.

While the drop in revenue and earnings improved from last quarter's levels adjusted loss from continuing operations was $17 million or $1.23 per share compared to last years adjusted earnings from continuing operations of $2 million or 15 cents per share.

For the second quarter, ending cash was $209 million with borrowings of $211 million for net cash position of $88 million.

We entered the second quarter with $239 million of cash and during the quarter operations generated $74 million, while we spent $4 million on capital projects paid down $14 million in borrowings and generated 4 million from other activities for plus 60 million in total debt.

During the quarter. We also paid a large majority of vendor Inboards has that had been extended in reaction to the pandemic, but we have outstanding rent payables as we are an active negotiations with some of our landlords.

As the business environment continues to involve we remained focused on cash preservation, we are actively modeling multiple potential scenarios and even in our worst case scenario, we should have adequate liquidity to navigate our way through the choppy waters.

Turning to this is specifics for the second quarter consolidated revenue was $391 million down 20% compared to last year driven by store closures. A later stork to back to school and lower wholesale revenue.

E Commerce delivered an impressive 144% comp, which was offset by a decline in store revenue of 39% with stores closed for 30% of the possible operating days during the quarter.

We've not provided overall store comp results in Q2, as our comp policy removes any stores that are closed for seven consecutive days and therefore, we believe the overall sales is a more meaningful metric.

Overall sales were down 12% for journeys, 22% issue and 64% at Jane Mall sales were up 64% at licensed brands due to the Togut acquisition.

Consolidated gross margin was 42.7% down 590 basis points from last year.

Increased shifting to fulfill direct sales drove 190 basis points of the total decline in impacted all divisions with digital sales increasing to 32% of our retail business from 10% last year.

The remaining balance of the overall gross margin decrease was driven largely by significant inventory reserves, we took at Jay and I am on carrying over inventory in promotional activity shoe to compete in a highly discount oriented environment in the UK.

Jane EMS gross margin rate declined by 30 380 basis points year over year, while shoes gross margin rate decreased 1100 90 basis points.

Journeys gross margin rate decreased 120 basis points with E commerce shipping driving the reduction since additional markdowns in inventory reserves a bus above last years levels were not needed.

Adjusted SGN, a expenses were $188 million for the quarter down 19% on total sales that were down 20% as our entire organization has managed expenses with a very focused effort in a challenging sales environment.

A significant amount of the savings resulted from a reduction in store selling salaries and wages in our corporate areas from the actions, we took related to furloughs salary reductions and reductions in force.

Compensation expense also benefited from reduced operating hours, one stores reopened and government relief provided in the UK in Canada.

Occupancy costs with the next largest area of savings as we have benefited from the government program in the UK, which provides property tax relief and a small amount of book rent abatements.

We will contract rent expense for the most part is included in our expenses per accounting requirements. As we continued to have active discussions with landlords and work to pay for the negotiations we have finalized.

Other areas of savings include advertising travel and bonus expenses.

In summary, the second quarter adjusted operating loss was $20.9 million versus last year's the job adjusted operating income of $4.7 million.

Journeys generated positive operating income for the quarter, but gross margin headwinds, especially at Jay and Himanshu led to a consolidated operating loss.

Our adjusted non-GAAP tax rate for the second quarter was 23%.

Turning to the balance sheet Q2, total inventory was down 18% on sales that were down 20%.

Journeys inventory was down 22% on sales that were down 12%, we've been chasing inventory at journeys and we're working to bring inventory back in line with sales.

Choose inventory was down 20% on a constant currency basis with sales that were down 22%.

James inventory was down 11% on sales that were down 64%. This reflects carryover inventory and the level of reserves, we believe will be adequate to better rightsize current inventory levels.

Capital expenditures were $4 million as we took action demand spending down even further in areas outside of digital and Omnichannel and depreciation and amortization was $12 million.

Given the uncertainty in the economic environment, we're not providing guidance this quarter, but we will will share some current thoughts on the business going forward.

Q3 revenue will be dependent upon when and if schools returned to in person instruction. This fall.

Improvement in back to school that we've seen recently continues on its current trajectory the year over year drop in overall sales will be somewhat better than it was in the second quarter.

Gross margin rates for Q3 will improve from Q2 as we do not anticipate the same level of inventory reserves or promotional activity.

However, we do expect Q3 gross margin rate will be lower than last year as ecommerce sales penetration will continue to be higher.

We expect as DNA dollars in Q3 to remain below last years levels as we continue to benefit from our ongoing cost reduction efforts in savings from rent abatements.

Q3 as seen a reductions however will be below the first half levels as most stores have reopened.

The annual tax rate is expected to be approximately 20%.

Finally in Q3 it back to school does not continue on its current trajectory. We also expect a loss for the quarter.

In conclusion, I would like to thank our associates, who maintained their unwavering focus to serve our customers and manage our cost structure, while maintaining a site a safe environment as we effectively manage through these demanding times together, our thoughts or with our people and others affected by hurricane lower and the wildfires in California. This.

Includes our prepared remarks, thank you for joining us this Tom I'd like to turn the call back to the operator for questions.

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Our first question is coming from Ternium deter of Jefferies. Please go ahead.

Hi, Good morning, everyone. Thanks for taking my question.

Well, we'll have more about back coil and what you're seeing regionally I guess talk us through some of what you're seeing and in terms how can we get comfort around the added this may be more shifts in spend later in the season Nenad complete.

Apple back to growth and our fulfillment.

But you're seeing regionally around that thank you.

Morning Janine.

Yes back to school as the certainly very different this year and for US it's meaningful in the second quarter, but it's even more meaningful in the third quarter.

And so what's happening this year as as we said in our remarks is that.

Up to two thirds or going back virtually and so do you think about that means only one third are going back in person to start and this is the this is the big deal.

One of those going back in person, we estimate that a little over 70% have already gone back.

Thats later than usual so theres no question that.

Kids are going back later, but if you think about it net net only about a quarter or a little bit more of our country's kids have gone back in the way that they typically do.

And so what we have seen is that during the peak period that was the toughest comparison for us.

We had tax free is during that time in the tax free is that we're not effective they typically stimulate sales, but I think parents were sitting on the sidelines just waiting to see there was a lot of uncertainty about when and how hits are going to be going back.

So the last two weeks have gotten better we actually have 20 states that are positive and there is a pretty high.

Hi correlation between the states that have gone back in person and and more robust sales.

Plus markets are going back after labor day than usual as you may have seen that that New York City said that it's going to be September 20 Onest.

So we will see more volume in September than we typically do because of the delays and.

You take the current trend, which has been better and you run this out and.

That means that will get in the neighborhood about half of that back to school volume that we typically get.

The big wildcard is whether the those schools that have gone back virtually will eventually shift back to in person.

And there's lots of appetite for parents to get kits into school, especially younger kids, because they don't lung kids falling behind so that could extend back to school into October.

The bottom line is that there are a substantial number of kids, who have not gone back at points to potential opportunity for us ahead.

Okay, great. Thank you and then maybe a follow up on that and any color on how you're planning holiday in terms of timing you Chris on companies. They made their holiday marketing as early as October which would seem that we might just wrap up back to school and go straight into holiday this year.

Yes, that's true I think that that the October timeframe as it was lots of folks have been talking about and we anticipate that the ecommerce.

Volume will be larger this year than it ever has been before and I think a lot of retailers are going to be trying to induce customers to get their shopping earlier to accommodate those peaks.

So the consumer has been holding up well in the in the us in the UK just judging from the retail sale that we've seen so far and additional government stimulus would help us there's a lot of evidence that the U.S. consumer has been saving and not spending. So we think that there will be there will be income.

Valuable for holiday spending.

The fourth quarter and holiday is typically a time when we over index, especially for journeys. If you look at our stack comps over the past many years this than strongest in Q4, the boot season in footwear for teens is a big gift giving items.

So we had solid those seasons for journeys and schuh last year and it's given us some good reads on what would work this year and.

Back to school is less robust than it typically is than that may leave some pent up demand for holiday. So net net we are we're planning conservatively, but we also know that that fourth quarter is an opportunity for us to really do some business.

Great. Thank you.

Thank you. Our next question is coming from Jonathan Komp, Robert W. Baird. Please go ahead.

Yes, hi, thank you.

I want to do its first ask about inventory and how you're planning and especially for journeys specifically.

The reduction that you reported.

How are you planning looking looking into the second half year or any additional color on.

How you're concentrating the makeup of the inventory around or on brands or trends that you're seeing again in any differences that we might typically thanks.

Sure John Let me start and give some color and then I'll hand, it to melted give give a bit more.

We had robust demand when we will close.

And our stores online and then when we reopened for journeys in for shoe, which depleted our inventory pretty significantly.

We caught order growth for the back half when the pandemic first started so we really have been in inventory chase mode and part of the thinking around reducing inventory was to focus on core styles and core product that we know we sell and just given some of their results.

From from reopening we feel really good about what our assortments contain and there.

The degree to which they are resonating with consumers and so we have leaned into those assortments for holiday. We are sticking to the core product that we think we'll sell well.

On balance, we will be chasing into inventory, but our inventories really clean right now and so that that positions us nicely as we go into holiday and millet, if you'd add more to that yes, Matt I think you just you just touched went pretty well Mimi.

Journeys and Schuh, we were able to quickly reduce inventory and I think we have the ability to flex up and down would sell so with overall inventory in line with sales with those two businesses, we've been down to react quickly and chase product when needed and we have mainly core product.

The area, where theres, a little bit of challenges Ajay nm, it's historically, our lowest turning business.

And they're going to need some time to align their inventory levels to the rate of sale were below last year for the quarter, but we expect through the third fourth quarters that will probably run a little bit above last year, but we've taken the appropriate write downs in terms of the inventory, we chose not to liquidate but rather to carry it through so that we can sell it next.

Sure because it's good quality product not requiring more than the reserves that we booked already we are starting to see a little bit of pickup in the wholesale channels in the off price in the family footwear channels on they're coming back online a little bit more quickly than department stores and as a consequence licensed brands is starting to benefit from.

Matt.

And Jane and they are starting to see some wholesale accounts place orders. So I expect that we'll probably have some challenges there, but I think weve appropriately reserved for.

I think all the divisions are on the side are trying to chase inventory for the quarter, we're going to build inventories is our highest inventory period of the year, but all in all I think that we're in a pretty good shape as it relates to inventory.

Okay, Great and then just on yes to your day reduction in the second half, but you're expecting.

Especially with most of the stores back those banks could you could share more color.

On the drivers that you see and then.

Yeah within that how much might you consider giving more unique or kind of more onetime factors in the second half pursuit Hadrian's that might continue into next year.

So just as we look at where we're getting our biggest savings theres theres going to be about 4% of our stores right. Now are closed so we're going to continue to benefit from ma'am.

A lot of these are onetime or so for example in the UK on the property tax relief goes through this year.

But on the occupancy line, which is our biggest cost line.

We've been doing a watson negotiate lower rents trying to push for on percentage rent deals where appropriate. So hopefully we'll get some movement. There I expect there is going to be quite a few.

Renovated deals to get papered in the third quarter I'm not sure how that will extend into the fourth quarter on selling salaries in the back half will continue to benefit from reduced small hours were operating under less hours in a lot of our stores right now and that certainly it reduces payroll cost increases productivity.

So on that certainly applause.

We are experiencing a new norm.

Clearly, we've learned how to communicate and operate not travel as much. So I think travel continues to be a benefit I think one of the things that we're going to have to do as we're going to have to really look at how do we align our expenses once we determine what the new normal is on the revenue line and we're still trying to figure out how we normalize going forward, but I think that by and large the team to be.

Very focused on making sure that what we're spending is required and discretionary spends not really happening.

Okay. That's all really helpful. Thank you.

Thank you. Our next question is coming from Mitch Kummetz pivotal research. Please go ahead.

Yes, Thanks for taking my questions I guess I've got a few and let me get my back to school question all the way first so well when you talk about.

Kind of your outlook for Q3.

Sales would be down less than they were in Q2. If you see continued improvement at the back to school situation, what exactly does that mean kind of in terms your thoughts around sort of in person versus virtual learning. How did you guys said that two thirds right now our virtual did so are you assuming that you're kind of get.

Hi, good improvement that market, you're going back in person or is that virtual percent stay. The same is just the you're catching up as markets are back in school, even if it our virtual I'm just trying to understand kind of the dynamics around the terms of what's assumed.

For that guidance.

Yes.

Mitch, let let let me start and give some color and then and then let Mel chime in as well, but as we have observed back to school. All that we are counting is those kids that we know who will be going back in person now we know that it's more than just stand person kit.

Who has been shopping we can tell that because our.

It's a third are going back in person, we expect to realize more than a third of our typical back to school sale, but definitely for this virtual learners a lot of parents I, absolutely assume including me are not we're not buying at the same levels, because we're waiting and conserving our dollars with the idea that our kids.

We'll go back and they're going to want to have new new shoes, and new backpacks to where when they when they do in fact the school. So the way we have thought about the additional.

Back to school.

Revenue that we would pick up is just a continuation of these current trends, it's not betting on weather kids, who are learning virtually are going to go back in person. If that is the case, if a number of kids and a lot of schools had been saying Hey, maybe after labor day, which were on labor day.

Some schools recently has said that we're going to try for after fall breaks which are in early October.

It's more kids do end up going back to school than that upside to what we have have built into our outlook.

Got it and I would.

And I would just just to that just briefly that.

We still have the headwind a 4% of our stores currently arent open.

And if you look at we were 20% down in sales for Q2 I.

I don't think we're going to be able to cut that in half, but I think that will probably be able to reduce it to be between 10% and 20% down for Q3.

Got it and then.

Maybe you mentioned that the Q2 got off to a good start because of you know stimulus and pent up demand some of that's kind of worn off.

But then also you talked about some of the Kogut spikes that happen in July and I think the rates there.

Gotten better so I don't know how difficult. It is this sort of parse the these things out, especially in a weird back to school season could could you maybe speak to.

Stimulus, some pent up demand and kind of.

You some proven cobot raised so thats, how you see that sort of impacting your business of later than I guess I've got one last one.

Sure.

So let me let me just start with just the trends that we observed Theres no question in journeys was our early read because they got out of the gate and opened up them as quickly.

Customers were just so excited to get back into journeys stores and we have the right assortment.

To fit their needs and yes, pent up demand health and stimulus money helped but the assortment was was certainly one of the main drivers of that demand.

And it was right as we got into July and we tracked it pretty closely to measure the increase in coated rate and we saw a we saw an impact on our business, but it wasn't nearly as pronounced as the back to school impact.

Back to school is just significant for us at the end of the second quarter. It's it's really the last half of July with though last week of July being the biggest.

And then into August and so when I, just think about the impact on the journeys business. It's been mostly back to school, which we believe is delayed in part and may have future opportunity with kids coming back from virtual learning and into a much lesser extent the impact of Covance, yes.

My sense is that consumers are learning to live with Covance, they're figuring out how to navigate daily life and we've learned so much about the disease that there's going to be some more willingness for your average consumer to get out window shopping app, because I believe that they can manage against covance. So I expect that over there.

Is going to become less of an issue as we get get into the back part of the year certainly they're going to be some consumers who are going to vote to shop online. We expect our online business will continue to flourish through the back part of the year.

But net net I'd say that the impact of back to school has been far more pronounced than overhead.

I guess my last question you made some comments about improving E com profitability I mean, obviously, when we kind of look at the panel on the quarter you know the outpaced ecom growth put pressure on the gross margin line from shipping.

I don't know that that goes away with improving profitability, but so is it just what improves as that business scale to reward or are they are fixed costs or how do we think about.

The impact on the margins for the proving ecommerce business or E commerce profitability ecommerce growth as a percentage of that business I'm, just trying to kind of reconcile that yeah sure. So.

Unlike some other retailers we have all is operated our E com business to be profitable you can push the pedal on marketing expense to the point, where you're not getting return and you're just building market share, but not necessarily profitable market share and we've all as.

Kept in mind, the need for the balance to build profitable E Commerce volume and so we started in a position of profitability, we actually have reasonably.

Solid gross margins, it's just that there's a more variable portion.

Of.

Of expenses when you consider the E com channel and so the more we sell the more we have expense added into the gross margin line, which makes it more variable, but the S. DNA expense is amortized over a broader base of of volume and so that's really what we've been seeing and we saw.

A pretty strong pickup in contribution from E commerce.

Dollars during the course of the quarter in fact ecommerce dollars dollars tripled and.

And it's mostly because of.

Gross margins on on a on apples to apples basis hanging in there, but then then great.

Amortization of some of the investments and the fixed expenses that we have so just to put it.

To put a lens on how we think about ecommerce volume we welcome ecommerce volume.

All the ecommerce volume, we can get if we don't get positive comps in stores, we de leverage on the fixed expenses. There so that really as we view the channels as separate channels and the need to either being able to right size the cost structure on the store side or to continue to draw.

Five traffic and sales into that channel. So that we don't deleverage on the fixed expense base over there.

Got it thanks good luck.

Q.

Thank you. Our next question is coming from Sam Poser Susquehanna. Please go ahead.

Good morning, everybody. Thank you so much for taking my questions.

Could you tell us what the E commerce growth was by or or lack thereof.

By banner, you mentioned, the triple digits shoe could you tell us about the other businesses as well please sure so E com.

Tripled at Schuh E. Com also tripled at journeys when you see the 144% rate of growth.

Constant in Murphy also grew but it was at a lower rate than the other two businesses and so that that brought the average down to the 144% I think there was a lot of appetite to shop online we saw a 50% increase in track.

Perfect to online we saw just phenomenal conversion rates there was a high intent to convert.

We were very pleased with the number of new customers, who showed up online are our growth of new customers outstripped our growth of of additional traffic to the side. So that was a really good sign and we have an opportunity to capture those new customers and sell to them.

Going forward.

And that's it that's a good segue I have a whole bunch questions. So that's a good segue into my second one.

Well, how many of these new customers were new to the website and then how many of them were new to journeys new to shoot newly Johnston <unk> Murphy in in in their entirety as far as you know exposure data goes yeah.

So we definitely we're converting some of.

The customers, who typically shop in stores.

Two shopping online and that's a positive because you've seen the data Sam that your best customer shop, you in multiple channels.

Far more of our new customers were truly new to journeys new tissue.

In particular shoe.

She saw the biggest rate of growth at journeys rate of growth is also quite positive. So by far it was customers that we hadnt seen before either in our stores or or online and they were attracted to the assortment that we were offering and as I said, a comfort and casual is a sign of the times.

And so journeys and schuh, we're well positioned not only for for the teen customer base that they serve in the young adult customer base, but my sense is that we may have attracted a broader set of those consumers and perhaps others, who who are attracted to the product mix.

Great. Thank you and then.

You know our I'll ask you my mobile App question or where are are you working on that now and.

Given given the kind of scale and given some of the.

The results we're hearing from other people that are driving a lot of business or.

For a lot of interactions through their mobile apps is that something but your advancing right now.

Yes, so early on.

And I'll talk about shoe several years ago actually shoe launched a mobile app and we found that the consumer is about higher propensity to.

Mobile apps for purchases that they do frequently and so we we felt like at yes consumers downloaded the mobile app that didnt engage.

The world changed a lot since then and.

Slap certainly is something that.

Others have found to really helped drive their business I'd describe that as it's been at icing on the cake, where you are you got robust customer information and we've got robust customer information, we're working our CRM.

Initiatives really hard to drive further insight about our consumers and also to be able to.

Market to those consumers in a way that's the personal to them and then a mobile app makes sense.

In the context of building the customer information building, the data and giving our customers away to interact with your brand.

Through social through through the mobile App and.

And certainly through through the web site, which which has been the our consumers choice to come shop with us.

Thank you at this time I'd like turn the floor back over to move on for closing comments.

Great well, thank you for joining us today, and we look forward to speaking with you on our next call. When we talk about Q3 results.

Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines are log off the webcast at that time can have a wonderful day.

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Good day, everyone and welcome to the did not supposed second quarter fiscal 2021 conference call. That's a reminder, today's call is being recorded I'll now turn the call over to David Slater, Vice President of DNA and Investor Relations. Thank you. Please go ahead.

Good morning, everyone and thank you for joining us to discuss our second quarter fiscal 2021 result.

With me on the call today, our Mimi Vaughn, Our board Chair, President and Chief Executive Officer, Mel Parker, 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.

After refers you to this morning's earnings release.

The company's FTC filing, including the most recent 10-K and 10-Q filings for some of the factors, including the impact of Cobot 19 that could cause differences from the expectations reflected in the forward looking statements made during the call today.

Participants also expect to refer to certain adjusted financial measures during the call.

Non-GAAP financial measures referred to in the prepared remarks are reconciled to their gas counterparts, and the attachments to this mornings press release and its scheduled available on the company's homepage under Investor Relations and the quarterly earnings section.

I want to remind everyone. We have posted a presentation summarizing our results that's accessible on our website.

We hope you're all staying safe and healthy now we'd like to turned over to maybe just discussed the quarter I like the progress we're making on select strategic initiatives. Thanks, Dave Good morning, everyone. Thank you for joining us today.

As we navigate through one of the more challenging retail environments in history.

I want to begin by acknowledging the tremendous effort from our employees.

The genesco team has shown great ingenuity and resilient throughout the past several months as Weve tackled a myriad of new challenges brought on by the pandemic.

I'm extremely proud of how our organization has executed during this incredibly fluid situation.

Our company began the year with positive momentum and from a position of strength following 11 consecutive quarters of comp sales growth.

Regardless of the near term volatility we're experiencing now that are likely to experience in the coming months with the pandemic.

We remain confident and the strong strategic positioning of our businesses for the longer term.

With respect to the second quarter fluid as a good way to describe how recent events unfold it.

The border began with positive momentum from pent up demand and government stimulus as customers enthusiastically return to our stores when we reopened and continue to actively engage and shop with us online.

The significant undertaking of reopening brick and mortar locations required bringing back necessary staff to first to reconfigure our stores and then to operate them under the new protocols to ensure our highest priority the health and safety of our people and customers.

The speed and Executional excellence, our teams demonstrated in getting our stores open an operational was a huge advantage as we often open on the first day permitted by local authorities.

In July towards the end of the quarter. After this very positive start.

Our business in North America was impacted by the resurgence of the virus across the country and its negative impact on store traffic and by the back to school season that hasn't yet materialized with an unprecedented number of student learning from home.

Overall, 96% of our store fleet is currently open.

The locations that remains to be opened our in places where local governments have restricted operations and a handful of street, an airport stores, where traffic hasn't yet warranted reopening.

Journeys opened quickly and benefited from a first to market position early in the reopening phase.

Jay Nm didn't begin reopening until mid may as we anticipated its cups or customer would take more time to return to shopping.

Across the Atlantic into UK government was more cautious about reopening its economy.

Mid June was a turning point, though when England permitted openings, allowing us to rapidly reopen stores after that.

Across all our businesses our stores were opened for about 70% of the days in the quarter.

I'll go into more detail on each business in a moment, but we were very pleased by the initial performance a journey stores, which comped up double digits right out of the game and the nicely positive operating income journey posted in Q2.

And more recently with a steady improvement at schuh.

But the headwinds at Johnston <unk> Murphy had a material impact on the quarter.

The combination of all these dynamics led to a total revenue decrease of 20% with the drop in store volume, partially offset by a notable hundred and 44% increase in ecommerce.

Thanks to our decisive cost cutting action early in the outbreak total expenses were down almost as much as revenue even as we added costs from store reopening.

But we experienced gross margin pressure from higher digital sales.

Increased inventory reserves, and Jan and higher promotional activity issue.

While sales and profit improved considerably over Q1, we swung to a loss versus a small profit a year ago with adjusted loss per share coming in at a dollar and 23 cents.

We were however, encouraged by our ability to mitigate a portion of the impact to our bottom line from the reduction in store revenue.

On top of the cost savings initiatives, our performance benefited from a meaningful increase in ecommerce profits.

Our ecommerce channel was nicely positive and profitable prior to the pandemic.

We've always operated with a goal to drive profits and each incremental sale is accretive so we welcome the additional volume.

And as E. Com grows we're leveraging the fixed costs and the investments we've made in this channel which is driving further profitability.

Equally encouraging was our ability to reduce inventories in line with sales and to generate cash during the quarter.

Now, let's take you through the details of our net cash position, but I'm pleased with the entire organization's focus on cash generation and preservation during this trying stretch.

So looking now at each of our businesses in more detail.

Journeys was positioned well with the right product at accessible price points for a teen customer excited and anxious to shop.

Comfort became the fashion choice of the pandemic and journeys fashion athletic assortment fits the bill.

On top of that journey spring summer offering which included a range of comfortable sandals and other more casual product resonated strongly, especially with women and kids.

While store traffic was down double digits on the first two month month of the quarter.

Robust conversion and higher transaction size drove comps in open journey stores to positive double digit levels as the team consumer less affected by the virus showed up in our stores with stimulus money on their pockets and a high intent to purchase full priced footwear.

The strength of store sales plus healthy E commerce volume, which almost tripled for the quarter drove journeys total sales up double digits year over year for June even as we were still opening stores.

Then in early July traffic began to say somewhat in North America as the number of new Cobot cases spiked first in states like Florida, Texas, Arizona, and California, and then across much of the country.

Around mid July we typically see weekly traffic and sales volumes begin to accelerate as back to school selling gets underway.

With students starting school later or beginning the new year learning from home, we experienced a meaningful falloff in year over year store traffic and did not see the big bump in demand, we usually see in late July which pushed journeys store comps into double digit negative territory for the month.

With July representing almost 50% of journeys second quarter sales last year. This trend a little more than offset the strong store results in may and June.

Shoes market positioning is similar to journeys selling comfortable accessible fashion footwear to teens and young adults a real plus for the pandemic and good weather added sales of sandals. This summer.

Shoe stores were opened for less than half the quarter since the UK was slower in reopening its economy and even as they reopen UK consumers, we're not as quick to shop in stores post locked down.

Traffic was initially down well over 50% before steadily improving along with sales as the quarter progressed.

Like journeys robust conversion and higher transaction side boosted store comps to less negative level.

In addition, shoes advanced digital capabilities were on full display.

It was the most successful of our businesses capturing a portion of the lost store volume by almost tripling in ecommerce sales, albeit through heavy promotional activity to match the UK competition.

The trends that helped journeys and schuh is performance have been headwinds for Johnston <unk> Murphy with its less casual product and an older consumer.

Results for a very challenging throughout the quarter as the J nm customer had fewer reasons to buy with many working from home and most social gatherings and events postponed or canceled.

Store traffic. After initially improving reverse course in July with a spike in Covance cases, and was down over 60% for the quarter with sales performing a little better than that.

While Jay them historically enjoys a larger penetration of E commerce sales the gains during Florentine have not been as pronounced as we've seen in our team and use businesses.

So given its results Janeane has been the business, where we've taken the greatest action on on cost and head count in the quarter. In addition to significant inventory reserves.

We also made the difficult decision to wind down traffic, which was a startup brand Jay Nm was underwriting.

Turning now to the current quarter.

Back to school, our most important season after holiday significantly impacts our Q3 performance and back to school has been very different this year.

Some of the more broad based Bts surveys estimate that up to two thirds of U.S. elementary Middle and high school students will attend school only virtually to start.

Beyond that some will follow a hybrid online and in person model.

For those students going back and person Labor day is one week later this year and many school are delaying start dates for up to several weeks.

This has a couple of implications for journeys.

The first is the shift of Bts shopping to later.

The second is to what extent, while the appetite for footwear apparel and accessories change for students who will be learning virtually at home initially.

We've already gone through what is typically the Bts peak in the last week of July in the first half of August. So we saw a meaningful drop in journeys traffic and sales versus last year due to the shifts.

We have however, also seen significantly better results in the last two weeks and would expect this trend to continue as comparisons further he is.

We have seen nicely positive comps for this period in some states, where we know students are going back in person.

When all said and done we believe the bts selling season will be prolonged.

Extending several more weeks into September for the delayed starts and potentially longer it virtual learners then shift in person.

Journeys as of the go to place for Bts footwear is ready to service customers with an exceptional assortment and excellent service whenever Bts finally arrived.

Back to school in the UK and started as usual and we've seen store traffic and sales build in Q3 as a result.

Shoes E Com performance remains strong with the potential to fill much of the GAAP left by stores in the quarter.

At Jay Nm, the third quarter has seen a continuation of Q2 trends.

And we expect the catalyst for improvement to be a switch in the fall season, which is typically in August, but we shifted to September this year.

Visibility is limited as we head into the back half and dependent in part on what happens with the virus and how federal state and local governments respond.

As such we're approaching the remainder of fiscal 21 cautiously, especially as it relates to expenses in inventory.

The cost reductions, we booked to date reflect a small amount of the progress we've already made in our recent rents negotiations with both the number of our larger as well as some independent landlords.

We continue to engage in constructive conversations with the balance of our landlord partners, who understand both our need for rent relief, while stores were closed and for more flexible and appropriate rent structures going forward in order to keep stores open.

Shifting gears I'll discuss the progress, we're making on several digital and Omnichannel strategic initiatives, we outlined at the beginning of our fiscal year, which were speeding up wherever possible.

The first as accelerate digital to grow direct to consumer.

Digital is one of our biggest growth opportunities and while we doubled E commerce over the last five years, we aim to further accelerate growth to double the business again in a shorter period going forward.

When stores closed during the pandemic, our E com business experienced unprecedented demand.

Our second quarter was the highest volume digital quarter in company history.

Importantly, we were able to meet the explosive demand. Thanks to investments we've made in mobile our platforms, our web sites in our distribution centers.

We have helped the customer adjust to the pandemic by introducing services such as pay in three or four or four installments and videos on how to measure shoe size to aid with online purchasing.

In the near term, where prepping to handle what we anticipate will be record holiday digital volumes and have just upgraded our inventory locating and order brokering system, which will help the caused by providing even greater inventory accuracy, which is critical during peak sales periods.

We've also started to work on another bespoke ecommerce picking module for the journeys DC as we continue to invest to drive digital.

Not only did we achieved record E com volumes, but we also achieved record for attracting new customers to our E Commerce channel.

The number of new web customers visiting our sites grew 55% in Q2 over last years levels.

Progress, we've made with our second initiative build deeper consumer insights to strengthen customer relationships and advancing our CRM capabilities are helping us to engage with and retain these new customers.

We completed as CRM implementation as planned earlier in the year at Schuh aimed at increasing frequency of shopping and average order value.

Shoes CRM welcome campaigns initially launched in June our designed with personalized content to induce new customers to complete additional purchases and to build loyalty tissue along the way.

These new campaigns are already delivering higher conversion and promising results.

Journeys has had success driving additional purchases through its welcome campaigns for its much larger number of new to customer files as well.

Lastly throughout the year, we had been making progress on a third pillar maximize the relationship between physical and digital as we plan to launch in our North American stores. The initial pilot of BOPUS capability, we've had for a long time in the UK.

Our stores are a strategic asset and this capability, which is pandemic right allows us to leverage them further.

Touching now for a minute on strategic positioning.

The strength of our concept and the competitive advantages we have built over time or evident in Q2.

This was especially true for our concepts that serve teens and young adults, which represent more than 80% of our business.

The journeys team customer is a young fashion seeking cut seeking customer who appreciate if edited assortment of branded product. This trend right for them trusting journeys to validate their choices.

They also value and navy advised of our edgy fashionable salespeople unlike interacting with people they can relate to.

As a house of brands that journey serves as customers needs year round from sandals and a summer to sneakers for back to school and boots in the winter, which is compelling since kids by more than just one brand.

And of course with teens the brand that hot today will not be tomorrow, which strengthens the moat around journeys positioning.

Thanks to an unparalleled relationship with the team customer journeys discern these trends and continually secures the right coveted limited distribution product, which keeps us customers coming back again and again.

She has a similar positioning to journeys and its strong connection with its customers has only increased during the pandemic.

All this gives us confidence that when our consumer does come out to shop back to school or otherwise that both journeys and schuh, we'll continue to capture more than their fair share.

Our Jay and brand along with Levi's and our other license brands have deep rich histories and significant brand equity.

Jay Nm has achieved great success over the last decade pivoting away from being known strictly as a dress shoe company. Both evolving is product mix toward a more casual offering and proliferating the categories. It offers as a lifestyle brand.

While Jane M. holds true to its heritage of quality and style customers have embraced the newer product casual and casual athletic styles represented 60% of Jane and footwear sales last year, and apparel and accessories, 40% of sales in total.

Work from home has only accelerated the trend away from Dressier product and the Jane M. team. In response is rapidly accelerating the transition of its assortment to an even more casual focus for future seasons.

Fiscal 21 is a year like no other I'm. So proud of how our teams have responded to the unprecedented challenges we've all phase.

Not only have they focused on supporting the business and one another but they work to advance our diversity initiatives and get back to our community in need through many efforts, including donations of shoes to students impacted by hardship as they get ready for back to school.

While we don't yet know how the rest of fiscal 21 will play out we believe our performance. This year has been impacted by the extraordinary market conditions and back to school and back to work on certainty and as these conditions normalize we will see that competitive strengths of our businesses shine through.

Importantly, we're well positioned from a liquidity standpoint to weather the storm and I'm confident we will emerge strong to take advantage of the many opportunities on the other side.

And with that I'll turn the call over to melted more insight into our performance and financial.

Thank you mean and good morning, everyone turning to results for the second quarter, even with robust E. Commerce sales overall revenue was down from store closures in store opening results.

Gross margin was pressured by higher shipping costs from strong digital sales inventory reserves JNNURM and promotional activity issue offset partially by disciplined expense management that reduce SGN any costs in line with the decline in revenue.

While the drop in revenue and earnings improved from last quarter's levels adjusted loss from continuing operations was $17 million or $1.23 per share compared to last years adjusted earnings from continuing operations of $2 million or 15 cents per share.

For the second quarter, ending cash was $209 million with borrowings of $211 million for net cash position of $88 million.

We entered the second quarter with $239 million of cash and during the quarter operations generated $74 million, while we spent $4 million on capital projects paid down $14 million and borrowings and generated 4 million from other activities plus 60 million in total debt.

In the quarter. We also paid a large majority of vendor Inboards has that had been extended in reaction to the pandemic, but we have outstanding rent payables as we are an active negotiations with some of our landlords.

As a business environment continues to involve.

We remain focused on cash preservation, we are actively modeling multiple potential scenarios and even in our worst case scenario, we should have adequate liquidity to navigate our way through the choppy waters.

Turning to the specifics for the second quarter consolidated revenue was $391 million down 20% compared to last year driven by store closures. A later start to back to school and lower wholesale revenue.

E Commerce delivered an impressive 144% comp, which was offset by decline in store revenue of 39% with stores closed for 30% of the possible operating days during the quarter.

We have not provided overall store comp results in Q2, as our comp policy removes any stores that are closed for seven consecutive days and therefore, we believe that overall sales as a more meaningful metric.

Overall sales were down 12% for journeys, 22% issue and 64% at Janney Mall sales were up 64% at license brands do the tow gas acquisition.

Consolidated gross margin was 42.7% down 590 basis points from last year.

Increased shifting to fulfill direct sales drove 190 basis points of the total decline in impacted all divisions with digital sales increasing to 32% of our retail business from 10% last year.

The remaining balance of the overall gross margin decrease was driven largely by significant inventory reserves, we took at Jay nm on carrying over inventory and promotional activity shoe to compete in a highly discount oriented environment in the UK.

Jane EMS gross margin rate declined by 30 380 basis points year over year, while shoes gross margin rate decreased 1100 90 basis points.

Journeys gross margin rate decreased 120 basis points with E commerce shipping driving the reduction since additional markdowns in inventory reserves a bus above last years levels were not needed.

Adjusted EPS Gionee expenses were $188 million for the quarter down 19% on total sales that were down 20% as our entire organization has managed expenses with a very focused effort in a challenging sales environment.

Significant amount of the savings resulted from the reduction in store selling salaries and wages and our corporate areas from the actions, we took related to furloughs salary reductions and reductions in force.

Compensation expense also benefited from reduced operating hours, one stores reopened and government really provided in the UK in Canada.

Occupancy costs with the next largest area of savings as we have benefited from the government program in the UK, which provides property tax relief and a small amount of book ramp abatements.

We will contract rent expense for the most part is included in our expenses per accounting requirements. As we continued to have active discussions with landlords and work to pay for the negotiations we have finalized.

Other areas of savings include advertising travel and bonus expenses.

In summary, the second quarter adjusted operating loss was $20.9 million versus last year's the job adjusted operating income of $4.7 million.

Journeys generated positive operating income for the quarter, but gross margin headwinds, especially at Jay and Emin shoe led to a consolidated operating loss.

Our adjusted non-GAAP tax rate for the second quarter was 23%.

Turning to the balance sheet Q2, total inventory was down 18% on sales that were down 20%.

Journeys inventory was down 22% on sales that were down 12%, we've been chasing inventory at journeys and are working to bring inventory back in line with sales.

Choose inventory was down 20% on a constant currency basis with sales that were down 22%.

James inventory was down 11% on sales that were down 64%. This reflects carryover inventory and a level of reserves, we believe will be adequate to better right size current inventory levels.

Capital expenditures were $4 million as we took action demand spending down even further in areas outside of digital and Omnichannel and depreciation and amortization was $12 million.

Given the uncertainty in the economic environment, we're not providing guidance this quarter, but we will will share some current thoughts on the business going forward.

Q3 revenue will be dependent upon when and if schools returned to in person instruction. This fall.

Improvement in back to school that we've seen recently continues on its current trajectory the year over year drop in overall sales will be somewhat better than it was in the second quarter.

Gross margin rates for Q3, one proof from Q2 as we do not anticipate the same level of inventory reserves or promotional activity.

However, we do expect Q3 gross margin rate will be lower than last year as ecommerce sales penetration will continue to be higher.

We expect SGN $8 in Q3 to remain below last years levels as we continue to benefit from our ongoing cost reduction efforts in savings from rent abatements.

Q3, SGN a reductions however will be below the first half levels as most stores have reopened.

The annual tax rate is expected to be approximately 20%.

Finally in Q3 it back to school does not continue on its current trajectory. We also expect a loss for the quarter.

In conclusion, I would like to thank our associates, who maintained their unwavering focus to serve our customers and manage our cost structure, while maintaining a site a safe environment as we effectively manage through these demanding times together, our thoughts or with our people and others affected by hurricane lower and the wildfires in California. This.

Includes our prepared remarks, thank you for joining us at this time I'd like to turn the call back to the operator for questions.

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Our first question is coming from Ternium deter of Jefferies. Please go ahead.

Hi, Good morning, everyone. Thanks for taking my question.

Well talk a little more about back going what you're seeing regionally I guess talk us through some of what you're seeing and in terms how can they get comfort around the idea that might be more a shift in spend later in the season, then a complete lack of global Ben I'll call some of the detail, but you're seeing regionally around that thank you.

Morning today in.

Yes back to school as the certainly very different this year and for US it's meaningful in the second quarter, but it's even more meaningful in the third quarter.

So what's happening this year as as we said in our remarks is that.

Up to two thirds or going back virtually and so do you think about that means only one third are going back in person to start and that's this is this is the big deal.

And if those going back and person, we estimate that a little over 70% have already gone back.

Thats later than usual so theres no question that.

The kids are going back later, but if you think about it net net only about a quarter or a little bit more of our country's kids have gone back in the way that they typically do.

And so what we have seen is that during the peak period that with the toughest comparison for us.

We had tax free is during that time in the tax free we're not effective they typically stimulate sales, but I think parents were sitting on the sidelines just waiting to see there was a lot of uncertainty about when and how kids are going to be going back.

So the last two weeks have gotten better we actually have 20 states that are positive and there is a pretty high.

Hi correlation between the states that have gone back in person and and more robust sales.

Plus markets are going back after labor day than usual as you may have seen that that New York City said that it's going to be September 20 Onest.

So we will see more volume in September than we typically do because of the delays and.

You take the current trend, which has been better and you run this out.

And.

That means they will get in the neighborhood about half of the back to school volume that we typically get.

The big wildcard is whether the those schools that have gone back virtually will eventually shift back to in person and there's lots of appetite for parents to get kits into school, especially.

Longer kids, because they don't lung kids falling behind so that could extend that fall into October I think the bottom line is that there are a substantial number of kids who have not gone back.

Instead potential opportunity for us ahead.

Okay, great. Thank you and then maybe a follow up on that and any color on how you're planning holiday in terms of timing the credit some companies. They made their holiday marketing as early as October which would be in that we might just wrap up back to school and go straight into holiday this year.

Yes, that's true I think that that the October timeframe as it was lots of folks have been talking about and we anticipate that.

E Commerce.

Volume will be larger this year than it ever had been before and I think a lot of retailers are going to be trying to induce customers to get their shopping earlier to accommodate those peaks.

So the consumer has been holding up well in the in the us in the UK just judging from the retail sale that we've seen so far and additional government stimulus would help us there's a lot of evidence that the us consumer has been saving and not spending. So we think that there will be there will be income.

Available for holiday spending.

The fourth quarter and holiday is typically a time when we over index, especially for journeys. If you look at our stack comps over the past many years has been strongest in Q4, the boot season in footwear for teens is a big gift giving items.

So we had solid seasons for journeys and schuh last year and it's given us some good reads on what would work this year and.

It back to school is less robust than it typically is that that may leave some pent up demand for holiday. So net net we are we're planning conservatively, but we also know that that fourth quarter is an opportunity for us to really do some business.

Great. Thank you.

Thank you. Our next question is coming from Jonathan Komp, Robert W. Baird. Please go ahead.

Yes, hi, thank you.

On his first ask about inventory and how you're planning and especially for journeys specifically.

The reduction that you reported.

How are you planning looking looking into the second half year any additional color on.

While we are concentrating the makeup of the inventory around or on brands or trends that you're seeing again and maybe different soon but we might typically thanks.

Sure John Let me start and give some color and then I'll hand, it to melted give give a bit more.

We had robust demand when we will close.

And our stores online and then when we reopened for journeys in for shoe, which depleted our inventory pretty significantly.

We caught order.

For the back half when the pandemic first started so we really have been in inventory chase mode and part of the thinking around reducing inventory was to focus on core styles in core product that we know itself and just given some of the results from from.

Reopening we feel really good about what our assortments contain and there.

The degree to which they are resonating with consumers and so we have leaned into those assortments for holiday.

We are sticking to the core product that we think we'll sell well.

On balance, we will be chasing into inventory, but our inventories really clean right now and so that that positions us nicely as we go into holiday and mill and if you'd add more to that yes, Matt I think you just.

Touched went pretty well, maybe I mean with journeys and schuh, we were able to quickly reduce inventory and I think we have the ability to flex up and down would sell so with overall inventory in line with sales with those two businesses, we've been down to react quickly and chase product when needed and we have mainly core product.

The area, where there is a little bit of challenges that Jay nm, It's historically, our lowest turning business and they're going to need some time to align their inventory levels to the rate of sale were below last year for the quarter, but we expect through the third and fourth quarter that will probably run a little bit above last year, but we've taken the appropriate write downs in terms of the image.

Tory, we chose not to liquidate, but rather to carry it through so that we can sell it next year, because it's good quality product not requiring more than the reserves that we booked already.

We are starting to see a little bit of pickup in the wholesale channels.

The off price in the family footwear channels on they're coming back online a little bit more quickly than department stores and as a consequence license brands is starting to benefit from that.

Jane and they are starting to see some wholesale accounts place orders. So I expect that we'll probably have some challenges there, but I think weve appropriately reserved for.

Thank all the divisions are on the side are trying to chase inventory for the quarter, we're going to build inventories is our highest inventory period of the year, but.

All in all I think that we're in a pretty good shape as it relates to inventory.

Okay, Great and then just on yesterday reduction in the second half, but you're expecting.

Especially with most of the stores back I was going can you can share more color.

On the drivers that you see and then.

Within that how much might be considered kind of more unique or kind of more one client crackers in the second half pursuit savings that might continue into next year.

So just as we look at where we're getting our biggest savings theres theres going to be about 4% of our stores right. Now are closed so we're going to continue to benefit from Matt.

A lot of these are onetime or so for example in the UK the property tax relief goes through this year.

But on the occupancy line, which is our biggest cost line.

We've been doing a watson negotiate lower rents trying to push for on percentage rent deals where appropriate. So hopefully we'll get some movement. There I expect there is going to be quite a few.

Then abatement deals to get paper in the third quarter I'm not sure how that will extend into the fourth quarter on selling salaries in the back half will continue to benefit from reduced small hours were operating under less hours in a lot of our stores right now and that certainly it reduces payroll cost increases productivity.

So on that certainly applause.

We are experiencing a new norm.

Clearly, we've learned how to communicate and operate not travel as much. So I think travel continues to be a benefit I think one of the things that we're going to have to do as we're going to have to really look at how do we align our expenses once we determine what the new normal is on the revenue line and we're still trying to figure out how we normalize going forward, but I think that by and large the team today.

Very focused on making sure that what we're spending is required and discretionary spends not really happening.

Okay Thats all really helpful. Thank you.

Thank you. Our next question is coming from Mitch Kummetz pivotal research. Please go ahead.

Yes, Thanks for taking my questions I guess I've got a few and let me get my by school question out of the way first so well what do you talk about.

Kind of your outlook for Q3.

Sales would be down less than they were in Q2, if you see continued.

Proven at the back to school situation, what exactly does that mean kind of in terms your thoughts around sort of in person versus virtual learning I think you guys said that two thirds right now our virtual do so are you assuming that you're kind of get continued improvements that more kits are going back and person or is that virtual percent stay. The same is just the younger.

Touching up as markets are back in school, even if they are virtual I'm, just trying to understand kind of the dynamics around that terms of what's assumed.

For that guidance.

Yes.

Mitch, let let let me start and give some color and then and then let melt chime in as well, but as we have observed back to school all that we are counting is.

Those kids that we know who will be going back in person now we know that it's more than just stand person Kid, who has been shopping we can tell that because our.

It's a third are going back in person, we expect to realize more than a third of our typical back to school sales, but definitely for those virtual learners a lot of parents I, absolutely assume including me are not we're not buying at the same levels, because we're waiting and conserving our dollars with the idea that our kids.

We'll go back and they're going to want to have new new shoes, and new backpacks to where when they when they do in fact the school. So the way we have thought about the additional.

Back to school.

Revenue that we would pick up it's just a continuation of these current trends, it's not betting on weather kids, who are learning virtually aren't going to go back in person if that is the case if.

Number of kids and a lot of schools have been saying, Hey, maybe after labor day, which were on labor day. Some goals recently has said that we're going to try for after fall breaks which are in early October.

If more kids do end up going back to school than that upside to what we have has built into our outlook.

Got it and I would.

And I would just just to that just briefly that.

We still have the headwind of 4% of our stores currently arent open.

And if you look at we were 20% down in sales for Q2.

I don't think we're going to be able to cut that in half, but I think that will probably be able to reduce it to be between 10% and 20% down for Q3.

Got it and then.

Maybe you mentioned that the Q2 got off to a good start because of.

Stimulus some pent up demand some of that's kind of worn off.

But then also you talked about some of the cobot spikes that happened in July and I think the rates there.

Gotten better so I don't know how difficult it is sort of parse through these things out, especially in a weird back to school season. It could you maybe speak to.

Stimulus and pent up demand.

[music].

Have you some proven covered rate so thats, how you see that sort of.

I think your business of late to that I guess I've got one last one.

Sure.

So let me let me just start with just the trends that we observed Theres. No question journeys was our early read because they got out of the gate and opened up them as quickly.

Customers were just so excited to get back into journey stores, and we have the right assortment.

To fit their needs and EPS pent up demand health and stimulus money helped but the assortment was was certainly one of the main drivers of that demand.

And it was right as we got into July and we tracked it pretty closely to measure the increase in coated rate and we saw a we saw an impact on our business, but it wasn't nearly as pronounced as the back to school impact.

Back to school is just significant for us at the end of the second quarter. It. It's really the last half of July with though last week as July being the biggest.

Then into August and so when I, just think about the impact on the journeys business. It's been mostly back to school, which we believe is delayed in part and may have future opportunity with kids coming back from virtual learning and.

A much lesser extent the impact of co that my sense is that consumers are learning to live with Covance, they're figuring out how to navigate daily life and we've learned so much about the disease that there's going to be some more willingness for your average consumer to get out and go shopping app because I.

I believe that they can manage against Cove, and so I expect that co that is going to become less of an issue as we get get into the back part of the year certainly they're going to based on consumers who are going to vote to shop online. We expect our online business will continue to flourish through the back.

Part of the year.

But net net I'd say that the impact back to school has been far more pronounced than hoevet.

I guess my last question you made some comments about improving profitability I mean, obviously, what we kind of look at the panel on the quarter you know the outpaced.

Calm growth put pressure on the gross margin line from shipping.

I don't know that that goes away with improving profitability, but so is it just what improves as that business scales and reward or are they are fixed costs or how do we think about.

The impact on the margins, improving ecommerce business or E commerce profitability ecommerce growth as a percentage of that business I'm, just trying to kind of reconcile that yeah sure. So.

Unlike some other retailers we have all is operated our E com business to be profitable you can push the pedal on marketing expense to the point, where you're not getting return and you're just.

Building market share, but not necessarily profitable market share and we've all as.

Kept in mind, the need for the balance to build profitable E Commerce volume and so we started in a position of profitability, we actually have reasonably.

Solid gross margins, it's just that there is a more variable portion.

Of.

Expenses, when you consider that E com channel and so the more we sell the more we have expense added into the gross margin line, which makes it more variable, but the S. DNA expense is amortized over a broader base of volume and so that's really what we've been saying we saw.

Pretty strong pickup in contribution from E Commerce.

Dollars during the course of the quarter has in fact ecommerce dollars dollars tripled.

And it's mostly because of.

Gross margins on.

On an apples to apples basis hanging in there, but then then great.

Amortization of some of the investments and the fixed expenses that we have so just to put it.

To put a lens on how we think about ecommerce volume we welcome ecommerce volume.

All the ecommerce volume we can get.

If we don't get positive comps in stores, we de leverage on the fixed expenses. There so that really as we viewed the channels as separate channels and the need to either be able to rightsize the cost structure.

On the store side or to continue to drive traffic and sales into that channel. So that we don't de leverage on the fixed expense base over there.

Got it thanks good luck.

Yes.

Thank you. Our next question is coming from Sam Poser Susquehanna. Please go ahead.

Good morning, everybody. Thank you so much for taking my questions.

Could you tell us what the E commerce growth was by or or lack thereof.

Banner, you mentioned, the triple digits shoe, but could you tell us about the other businesses as well please.

Sure So E com.

Tripled at Schuh.

E Com also tripled at journeys when you see the 144% rate of growth.

Johnston and Murphy also grew but it was at a lower rate than the other two businesses and so that that brought the average down to the 144%.

I think there was a lot of appetite to shop online we saw a 50% increase in traffic to online. We saw just phenomenal conversion rates there was a high intent to convert.

We were very pleased with the number of new customers, who showed up online.

Our growth of new customers outstripped our growth of.

Additional traffic to the site. So that was it really good sign and we have an opportunity to capture those new customers and sell to them.

Going forward.

And that's it that's a good segue I have a whole bunch questions. So thats a good segue into my second one.

Well, how many of these new customers were new to the website and then how many of them were new to journeys new to shoot new to Johnston <unk> Murphy in in in their entirety as far as you know as far as your data goes yeah.

So we definitely we're converting some of.

The customers, who typically shop in stores.

Two shopping online and that's a positive because you've seen the data Sam that your best customer shock you in multiple channels.

Far more of our new customers were truly new to journey is new to issue.

In particular shoe.

She saw the biggest rate of growth at journeys rate of growth was also quite positive. So by far it was customers that we hadnt seen before either in our stores or or online and they were attracted to the assortment that we were offering and as I said comfort and casual is a sign of the times.

So journeys and schuh, we're well positioned not only for for the team customer base that they serve in the young adult customer base, but my sense is that we may have attracted.

A broader set of both consumers and perhaps others, who who are attracted to the product mix.

Great. Thank you and then.

You know our I'll ask you my mobile App question or where are are you working on that now and.

Given given the scale and given some of.

The results, we're hearing from other people that.

Our driving a lot of business.

For a lot of interaction through their mobile apps and Thats something that you are advancing right now.

So early on.

Now I'll talk about shoe several years ago actually at Schuh had launched a mobile app and we found that the consumer is higher propensity to.

Mobile apps for purchases that they do frequently and so we we felt like yes consumers downloaded the mobile app that didnt engage.

The world changed a lot since then and.

Slap certainly something that.

Others have found to really helped drive their business I'd describe that as a bit of icing on the cake, where you are you've got robust customer information and we've got robust customer information, we're working our CRM.

Initiatives really hard to drive further insight about our consumers and also to be able to.

Market to those consumers in a way that's the personal to them and then a mobile app makes sense.

In the context of building the customer information building, the data and giving customers a way to interact with your brand.

Through social through through the mobile App and.

And certainly through through the web site, which which has been the our consumers choice to come shop with us.

Thank you at this time I'd like to turn the floor back over to move on for closing comments.

Great well, thank you for joining us today, and we look forward to speaking with you on our next call. When we talk about Q3 results.

Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines are log off the webcast at this time and have a wonderful day.