Q3 2021 Genesco Inc Earnings Call

Later, Vice President of F.P. at <unk> and Investor Relations. Please go ahead Sir.

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

With me on the call today is Mimi Vaughn, our board share President and Chief Executive Officer.

Participants on the call expect to make forward looking statements. These statements reflect the participants' expectations as of today, but actual results could be different.

Genesco refers you to this morning's and earnings release, and the company SEC filings, including the most recent 10-K and 10-Q filings for some of the factors, including the impact of COVID-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 on.

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 end the schedule of available on the company's home page under Investor Relations and 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 are all staying safe and healthy now I would like to turn it over to Mimi to discuss the quarter and the current outlook for the holiday season.

Thank you Dave Good morning, everyone. Thanks for joining on today.

As we announced earlier this week, we are pleased to report that Tom George has been appointed interim Chief Financial Officer of Genesco, replacing Mel Tucker, who stepped down last month.

Tom has almost 30 years as CFO experience and deep roots and brands and retail most recently and footwear at Deckers brands.

We look forward to adding tons of valuable expertise to support the continued growth of our business and very much look forward to Tom joining our leadership team.

Thomas appointment is effective December 14th and in the interim I have assumed the responsibilities of Chief Financial Officer, working closely with Dave Brent Baxter, Our Chief Accounting Officer, and Matt Johnston, Our treasurer, who together and have formed the office of the CFO.

These leaders and the rest of our talented finance team are ensuring that the transition will be seamless.

Dave will return of later in the call to review the financials.

I'm incredibly pleased with how well our organization performed during the third quarter as we navigated through of back to school season like non other.

It's a privilege to lead a team that is facing the challenges brought by COVID-19 head on serving our consumers extremely well through digital and Omnichannel, making.

Making progress on our strategic initiatives and quickly returning the company of profitability through.

Through all this we continue to operate with protocols to ensure our highest priority the health and safety of our people and customers.

As you'll hear today journeys and schuh, our businesses, serving teens and young adults that represent the large majority of our revenue has both performed well under recent pressure.

This speaks to the strong strategic market positions, both concepts of built over time and their ability to capitalize on the accelerated shift to online spending.

In today's channel this world, where there are no barriers to shopping anywhere the consumer wants journeys and schuh is recent performance underscores the tremendous loyalty that developed with their customers and the compelling proposition they offer to new customers.

Johnston and Murphy enjoys a strong strategic position with great heritage as well. However, the pandemic has hit Jane end Dressier competitive space harder extending the time frame for turning this business around.

All in all our teams executed with excellence managing their business as well as they reacted to rapidly changing dynamics during the quarter of.

And the U.S. there was nothing normal about the cadence of back to school.

The selling season Thats, usually marked by a sharp acceleration and weekly sales starting in late July and running through labor day, and not pack the punch that it usually does at school districts across the country delayed or suspended the return to end person learning.

As we expected we did see an extension of the selling season through September and into October However, and total back to school was down year over year and more heavily tilted to online.

Meanwhile, back to school timing in the UK was consistent with historical patterns, but far more consumers shop online for their school needs than ever before.

Stores were opened for about 95% of the possible days in the quarter compared to about 70% during the second quarter.

While we continue to face at traffic levels that are down well into the double digits. Our store teams are driving record levels of consumer conversion that helps to materially offset this headwind.

Our business has online on the other hand experienced strong gains in both traffic and conversion we.

We've said before our ecommerce sales were nicely profitable prior to the pandemic and as we reap the benefits of the many investments Weve made E com is driving even greater profitability.

New customers continued to deliver increased volumes as new website visitors were up almost 40% driving and almost 60% and new customer purchases.

The combination of these drivers led to a total revenue decrease of 11% year over year. This result was better than we expected due mainly to stronger sales at journeys and represents a meaningful improvement from last quarter's 20% decline.

The drop in store volume was partially offset by another strong quarter of digital growth with comps up over 60%.

Thanks to decisive cost cutting actions early in the outbreak along with onetime benefits such as rent abatements total expenses were down a little more than revenue.

While gross margins were down compared to last year, due primarily to lower margins at Jay and M and a mix shift among our businesses the drop improved sequentially from the second quarter as less promotional activity at schuh was necessary and journeys gross margins increased.

With sales and gross margin improving over last quarter combined with increased profitability in our E Com channel our bottom line swung solidly back into positive territory.

The return to profitability fueled positive operating cash generation in the quarter.

Equally encouraging was the health of our inventories, which were down more than 20%, allowing for fresh receipts of holiday merchandise.

In addition to significant effort, we invested with our landlord partners seeking rental payments during the time our stores were closed paid dividends and will bring even greater benefit next quarter.

We appreciate our landlord partners willingness to find mutually beneficial solutions and hope to expeditiously reach conclusion with those discussions we have not yet concluded.

So turning now to discuss each business and more detail.

Journeys third quarter results our inflow.

Influenced heavily by back to school.

With more than two thirds of elementary and Middle and high school students attending school only virtually to begin the year at quarter got off to a difficult start.

Same store sales were down double digits in August although E commerce remains strong.

The business hit an inflection point in early September as comparisons began to ease of accelerated significantly over the remainder of the month and remains strong in October as we captured our fair share of late back to school demand.

While we were not able to fully make up for the loss volume in August we were encouraged at store comps were nicely positive in both September and October and ecommerce growth was even stronger than earlier in the quarter.

Comfort continued to be the fashion choices of pandemic and journeys offering of casual product resonated strongly with consumers.

While teams all his head of big compliment of fashion athletic footwear and their closets, when fashion swings towards non athletic or what we call casual footwear journeys is especially well positioned among its competition to deliver this assortment.

This spring a range of comfortable sandals and other casual products sold through well this fall our consumer's appetite for boots began early and more robustly and the season than we have seen in many years.

While the casual part of journeys assortment has been gaining ground over fashion athletic all year Q3 delivered the largest quarterly growth so far.

These gains have been especially pronounced and women's and kids as we've seen throughout the year.

On the other side of the Atlantic back to school at Schuh unfolded Similarly to previous years with school of starting on time and most students returning to in person learning. However in terms of consumer digital behavior. It was more extreme and significantly more back to school spending shifted online and the UK.

With its best in class digital capabilities Schuh was ideally positioned to capitalize on this digital shift and captured the vast majority of lost store volume through digital sales.

E Commerce generated almost 45% of schuh sales in the quarter, even with most stores being opened.

While store traffic was still down considerably back to school gave consumers a reason to shop and help drive traffic increases deep.

Decreases to less negative levels.

The blend of better store and much better online sales allowed schuh to gain market share during the quarter.

With positive comps and total and only a slight decline and year over year revenue from closed stores, coupled with cost savings schuh delivered a solid year over year operating profit increase and noteworthy achievement under difficult conditions.

With less competitive discounting pressure and more scarcity and supply at the brands itself Schuh pulled back significantly on promotional activity versus the second quarter, which help performance as well.

Like journeys shoes casual assortment gain ground over at fashion athletic assortment with boot sales driving a good portion of the pickup.

While performance improved from the second to the third quarter with the introduction of at fall assortment Johnston <unk> Murphy continues to find itself and a tough environment.

Its customer has fewer reasons to shop with many continuing to work from home and most large social gatherings and events postponed or cancelled.

In addition to store traffic being down over 50% for the quarter some of Jay and ends airport and street locations had yet to reopen which further impacted retail sales.

On a bright spot was boot sales, which began selling earlier in the season this year.

While Jay and M. historically has been known for its Dressier product. The team initiated work years ago to evolve Johnston and Murphy into a full lifestyle brand with a range of footwear and apparel offerings from dressier to more casual higher.

Highlighting the traction we've already made casual and casual athletic represented about 60% of footwear during our last fiscal year and apparel and accessories drove 40% of total sales.

Looking forward to the coming year, Jay Nm has focused on 90% of new product development on the expansion of its casual offerings to include casual athletic leisure rugged outdoor and performance, which follows upon its highly successful and re entry into call. This spring.

Leading these efforts as a new head of product development, who joined Jay Nm earlier, this year and brings a successful track record developing casual brands.

As the Jane and customer returns to work and socializing, which we hope with the recent medical advances will be sooner than later Jane ends or assortment and we'll be ready for the post pandemic lifestyles.

So turning now to the current quarter. We believe we have the right Assortments and are ready for this holiday season.

That said consumer demand has been very different this year due to the pandemic and its impact on consumer behavior and the economy, which has caused us to take a conservative approach to our outlook.

In November we faced headwinds from the re closure of stores in North America, and the UK as we carefully monitor and adhere to each countries and regions health requirements and as a result were closed for more than 10% of the possible operating operating days in the month.

The biggest impact was in England, and Ireland, where we had the best potential to make up some of these sales online and most stores have re opened at this time.

Following strong gains in September and October sales moderated and November got off to a slower start against robust comparisons a year ago.

We were encouraged to see trends improved quite a bit around mid month, providing the business with good momentum heading into black Friday.

For the Black Friday weekend itself as expected traffic was more subdued than usual.

In spite of the Choppiness November sales were in line with our expectations with and even heavier mix of digital versus store sales.

Unlike prior years, most retail venues and almost all of our stores were closed on Thanksgiving day.

The lion share of the holiday season remains ahead of us outside of cyber week digital sales or normally strongest during the earlier part of December.

Our holiday store volume is typically concentrated in peak days and weeks between Thanksgiving and Christmas and bills as the month progresses.

Whenever and however, the consumer decides to shop, we believe we're set up well to meet the demand. Thanks to investments, we've made and technology to drive growth across E commerce and in our stores.

With recent investments across mobile our platforms, our web sites and our distribution centers were prepared to handle what we anticipate will be record holiday digital volumes.

We've helped the customer adjust to the pandemic online by introducing services like corner at journeys. This summer, which is a pay and four installments option that is driving much larger transaction size and operating technology on our website that helps customers determine what size is best to order.

With the ability to fulfill online orders of fire, our distribution centers or from any of our almost 1500 store locations, we are well positioned to meet the surge in demand.

Earlier this year, we upgraded our inventory locating and order brokering system to provide greater inventory accuracy, which is critical during this peak sales period.

This system also allows functionalities such as Tiering stores to protect inventory in our highest volume stores, enabling us to better optimize sales across our network.

Even with the acceleration and online demand at the majority of holiday sales will still take place and our physical locations.

Our stores become even greater strategic assets that we get as we get closer to Christmas and customers don't want to risks online orders not arriving in time.

This is the first year, we'll have holiday comparison data in our workforce management system since we implemented at last year.

At this technology proved invaluable and managing the unusual traffic patterns during back to school and will enable us to rapidly at or remove labor to optimize store staffing levels. During this unusual holiday season.

Thanks in part to changes in our compensation programs. This year, we've reduced turnover meaningfully and have a more tenured more experienced workforce on our sales floor for holiday ready to provide the excellent customer service we are known for.

This holiday will be about execution, something we do well that will differentiate us among others.

We've also developed some terrific marketing campaigns adjusted for what we learned during the pandemic to drive traffic and sales and this important holiday selling season.

We've increased digital marketing spend substantially and are leveraging our CRM systems to inform our digital social and other advertising efforts.

So thanks to our competitive strength, we've navigated well through extraordinary market conditions, this year, including back to school and back to work on certainty and we will continue to navigate through this unusual holiday season.

As conditions normalize and we make further progress on our strategic initiatives I am confident will emerge strong and be well positioned with more than enough liquidity to take advantage of the many opportunities. The pandemic has presented.

To conclude now I'd like to recognize and to thank our employees across our company, especially those in our stores and field and our call centers and distribution Senators centers for your dedication skill and ingenuity.

We appreciate your efforts all year round, but really especially in this busy holiday season in the midst of the pandemic when I'm certain you'll go the extra mile to delight our customers on.

I'm also proud of the work our teams are doing and the communities, we serve including donating shoes and masks and supporting our diversity and inclusion initiatives.

Finally, we wish you and your family of happiness, and good health of holiday season, and with that I'll pass the call back over to Dave.

Like you maybe we were very pleased under the circumstances with our performance in Q3, and the return to profitability against the backdrop of of endemic.

Q3 sequential improvements compared to the prior two quarters and both revenue and gross margin along with a lower tax rate and a small pickup in EPS DNA drill results back from nicely positive levels with adjusted EPS of 85 cents compared to $1.33 cents last year.

For the third quarter, ending cash was $115 million with borrowings of $33 million for of net cash position of $82 million, just a little below second quarter's levels.

We ended the quarter with $299 million of cash and during the quarter operations generated $5 million, while we spent $8 million on capital projects and paid down $178 million and borrowings using a 184 million and total.

In addition, we continue to have outstanding rent payables as we remain and active negotiations with a number of our landlords.

While the business environment continues to be fluid. We are confident we have adequate liquidity to navigate these challenging times and decided to pay down the majority of our revolver balances and both North America and UK during the quarter.

As a reminder, early this year, we increased our north American AB of borrowing capacity to $350 million and in Q3, we secured a new 19 million pound UK facility, replacing and expiring one.

Turning to the specifics of the quarter.

Consolidated revenue was $479 million down 11% compared to last year driven by on lower back to school revenue continued pressure at Jan them and the impact from store closures during the quarter.

Robust ecommerce comp of 62% was offset by a decline and store revenue of 22% driven by a comp decline of 18%, while our stores were closed for 5% of of possible operating days during the quarter.

Digital sales increased to 21% of retail business from 11% last year.

Our current policy of removes any stores that are closed for second seven consecutive days and therefore, we are providing both overall and comp sales by business to give better insight into performance.

Overall sales were down 10% for journeys with comp sales down 6%.

While store traffic was down well into double digits, much higher conversion and transaction size lift at journeys comps.

At Schuh overall sales were down 3%, while sales were up 1% at.

Jan income overall sales were down 45% and comp sales were down 43%.

A licensed brands overall sales were up 91% due to gas acquisition.

Consolidated gross margin was 47.1% down 210 basis points from last year 100 basis points of which was related to GNM cash.

Consistent with last quarter increased shipping to fulfill direct sales pressure of the gross margin rate and all of our businesses totaling 50 basis points of the total overall decline.

During these gross margin increased 110 basis points driven by lower markdowns.

She was gross margin decreased 320 basis points more than half of which was due to increased E. Commerce shipping expense with the balance due to higher penetration of sales product.

Dan EMS gross margin decrease of 1370 basis points was due to more close outs and wholesale.

Incremental inventory reserves and higher markdowns at retail.

Finally, the combination of lower revenue at Jay and them typically our highest gross margin rate of our businesses and the revenue growth of licensed brands typically our lowest gross margin rate negatively impacted view of roll rate mix.

Adjusted SDN and expenses were down 11% and as a percentage of sales levers 10 basis points to 44.1% as we realize the collective benefits of our organizations disciplined action to manage expenses and relief from government programs.

The largest year over year savings came from office occupancy costs.

Driven in large part by the execution of $7 million of renovations with our landlord partners, who provided support for the times when the stores were closed and savings from the UK government programs, which provides property tax relief.

The next largest areas of savings came from bonus expense and the reduction and self store selling salaries.

GAAP and compensation expense benefited from reduced operating hours and government salary relief provided in Canada and the UK.

Given the added cost of driving customer traffic to our stores and web sites.

Our organization is intently focused on the strategic initiative of reshaping the cost structure.

One of the most impactful area of has been and a multiyear effort cinerama centered around occupancy costs and we have achieved even greater transaction traction this year and with the pandemic.

In addition to the rent abatements savings, we have negotiated 58 renewals year to date and achieved a 28% reduction and cash rents or 27 on a straight line basis and 27% on a straight line basis and the U.S.

This is on top of an 11% cash rent reduction or 8% on a straight line basis for 160 renewals last year.

These renewals are four and even shorter term, averaging approximately one and a half years compared to the three year average we saw last year.

With almost a third of our fleet coming up for renewal on the next 24 months.

We should make substantial progress here.

In summary.

The third quarter of adjusted operating income was $13.9 million versus last years, adjusted operating income of $26.7 million.

Both schuh and licensed brands generated operating income increases over last year, while journeys was lower and Jane them saw the largest year over year decline.

Our adjusted non-GAAP tax rate for the third quarter was 4%, reflecting the impact of foreign jurisdictions for which no income taxes were recorded.

Turning now to the balance sheet.

Q3, total inventory was down 22% of on sales that were down 11%.

Journeys inventory was down 28% on sales that were down 10%.

Schuhs inventory was down 22% with sales that were down 8% on a constant currency basis.

Both journeys and Schuh will continue to chase inventory during Q4, adding fresh merchandise to increase these levels.

Okay, and EMS inventory was down 3% on sales at were down 45%, reflecting the pack and hold inventory and a level of reserves, we believe will be adequate to better right size the current inventory levels.

Capital expenditures were $8 million as we as our spend remains focused on digital and Omnichannel and depreciation and amortization was $11 million.

We closed seven stores and opened seven during the quarter.

Given the continued uncertainty due to the pandemic, we're not providing guidance this quarter, but we will share some current thoughts on the business going forward.

Q4 revenue usually is dependent upon performing well during what are traditionally the peak volume times of the holiday season.

This year, we are more conservative about those consumer peaks materializing.

Therefore, thinking about revenue the year over year percentage decline and overall sales and the fourth quarter could be just a little bit more than the decline and the third quarter as a result of this.

That said if consumer demand of stronger during the peaks. We believe we are well positioned to capture our fair share, which would result and succeeding these levels.

This does not contemplate any additional store closures or restrictions beyond what we know today, which could be a bigger headwind.

With the month of November stores were opened for about 88% of the at possible operating days and currently 97% of our stores are opened.

Stores have also been operating on more limited hours.

Gross margin rates versus last year for Q4 should be in the range of the decrease we saw in Q3 to.

The Q3 headwinds of higher E commerce penetration Jan and gross margin pressure and the negative impact from the mix of businesses, we expect will persist and acute into Q4.

We expect SGN eightyk in Q4 to leverage quite a bit from last year's levels. As we continue to benefit from on a go and cost reduction efforts and get some substantial help from rent abatements.

While the annual tax rate is expected to be approximately 80% I'd like to highlight that in the fourth quarter, we expected to be approximately 40%.

In conclusion, I would like to Echo mean, these comments on our amazing team who of ex executed so admirably throughout this entire year.

From store closings and reopening.

Through an unprecedented back to school season, and now and the middle of the most important holiday season, the talent and perseverance shown during this challenging year leaves me with much to be admired and appreciated.

This completes our prepared remarks at this time I would like to turn the call back over to the operator for questions.

Thank you at.

At this time, we'll now be conducting a question and answer session and she'd like to ask a question. Please press star one from your telephone keypad and the confirmation tone and indicate your line is and the question queue you.

Let me first start to feel like to remove your question from the Q from.

Participants using speaker equipment, maybe necessary to pick up per handset before pressing the star keys.

One moment, please so we pull for questions.

Thank you and our first question comes from the line of Steve Marotta with CL King. Please proceed with your questions.

Good morning, Mimi and day of congratulations on a terrific execution and the third quarter of.

And I got a couple of questions and you've probably already incorporated this into what was the.

Cursory fourth quarter guidance.

As far as increased shipping costs go during the peak weeks can you talk a little bit about how that's affecting.

The margin if you could.

Potentially quantify that or maybe you're avoiding it and some fashion and if you could talk to that cost specific will that be helpful.

Yeah, Let me, let me sort of just start talking about our overall relationship because we spent a lot of time focused on making sure that we could not only have enough shipping capacity I know, there's been a lot of conversation out there about about various retailers hitting capacity limits, but we.

We work with Federal Express and we actually.

Changed over two of Federal express relationship and number of years ago, and it's been really positive we are not concerned about hitting any caps we.

We indicated what volume we thought we would hit.

Early very early on in the fall and.

So far we've been executing well against that and certainly we do have more shipping expenses within our PNM all because our digital penetration is so high but part of what we are seeing is that we are increasingly more profitable because we're amortizing the fixed expenses.

Of digital is if we look at our last quarter, we more than doubled our ecommerce on profitability because of that and so we were on the good position to have Bob.

The operating on a positive E commerce economics on prior to the pandemic and what the pandemic has done has only.

Enhanced our ability to to to gain profits out of this channel day about on if you'd at anything of that yeah, you know I Wouldnt say that.

Steve we're not like you quantified the impact of the expected impact in Q4, but that is definitely something that will pressure our margin rate as we head into.

The holiday season that was 50 basis points and the third quarter. So you know well we will expect that at the penetration of might be is as high on the fourth quarter because of penetration as is usually is usually higher anyway.

That's very helpful.

Looking ahead to the next back to school shoes, and you mentioned currently that comfort and casual or working well that it's no surprise.

Given how low.

Different. This season is is it possible and you don't have to tell me what they are put in is it possible to glean any change and what potential future changes.

And consumer fashion preferences.

That can be applied to of next year and next back to school season.

Yeah, just turn on or is there so much noise that it's simply and possible [laughter].

Well they are definitely a lot of noise and I of bank that that's going to be the case for some time to come.

You know I talked a bit about it in our prepared remarks, but.

Our team is known for going through fashion cycles and over the years, we've talked about lots of different fashion cycles from surf to skate to.

No to more Gothic too to you name at and teens are constantly seeking something new.

Our latest cycle that we've been talking about has been the retro athletic cycle and that's been a terrific cycle because there are lots of brands that have fantastic and.

And Patrick silhouettes, and their portfolios that they've been able to pull pull out.

We saw earlier this year, a bigger shift into casual and we really define our world in terms of fashion athletic and and casual and this year. We saw that sandals were really popular our kids are all as were and Pat fashion Athletic at.

Flooding at shoes, but on the pandemic feared everybody toward comfort and our teens found.

Lots of nice product within the casual side of our assortment.

We saw that not only in the summer, but we saw early boot sales in the fall and so the combination of sandals and boots has put our casual as a percentage of our overall business at a much higher level and so will that stick, we'll see but typically our team consumers.

Pumps on a trend stays on that trend for a bit and we typically have a fairly good sense as to as to.

Opportunity and upside and we see that we've got some nice upside in that cash flow trends journeys and schuh are both uniquely position them on competition out there.

We are in a and a great position, where we can offer both fashion athletic and and casual and we will move toward whatever brands are our most popular with our kids.

That's really helpful. Thank you.

The next question is from the line of Janine Stichter with Jefferies. Please proceed with your questions.

Hi, good morning, and one at a little bit more about digital on.

And maybe talk a little bit about some of the omni channel and that you've been making over the years and habit and you for holiday and then if you could just remind us and by brands, where your digital penetration today and at what you see them on opportunities. Thank you.

Great. So we've had a lot of success with our digital strategy. This year at last quarter, we were up 144%. This quarter, we were up over 60%.

Over the last many years, we've been growing at a 15% rate, but last year. We said, we haven't and tend to grow digital even to a greater level and we are growing at a 20% rate. So we've invested across a number of areas. It's not just the front end.

Systems, but it's really important to be able to have the right tools to drive traffic and to to encourage conversion on its important to be investing in the infrastructure in the order management systems I talked a little bit about the upgrade we did to our inventory you locating systems.

It's important to be investing within our distribution centers and Weve made quite significant investments over the last few years in both the journeys and schuh distribution centers, we put in of the of the Spok ecommerce picking module into journeys last year, we will be putting in a number.

Our bespoke.

Another one of those modules.

In the in the coming year, we're going to actually start work on that early and aren't our next fiscal year and so you roll all of that and payment is and other place payment is another opportunities. So it's no. One thing is no no one silver bullet that allows digital to be successful, but its investment across.

All of those areas and our teams have been focused on on each one of those.

On our digital penetration by brand is the highest at schuh pre.

Pre pandemic and it's important to talk about pre pandemic because of pandemic as has has made and comparisons challenging with opening and store closings, but pre pandemic shoes digital penetration was over 25% and this last quarter digital was almost 50% of their business with us.

With stores some stores close.

Followed by at Johnston, <unk> Murphy of the Johnston <unk> Murphy customer.

And like shopping online likes taking advantage of of perhaps not having to go into a retail venue and then journeys on follows up after that and I think that perhaps you know weve seen just on we've seen high growth rates of new customers and both journeys and schuh throughout the pandemic I think there.

As for likely the largest opportunity in those businesses.

Great. Thanks to all of the color and best of luck from holiday.

Thanks Janine.

Our next question is from the line of Jonathan Komp with Baird. Please proceed with your question.

Yeah, Hi, good morning, Thank you.

Just wanted to ask about the fourth quarter and the commentary you gave when we think about good try and debate in November of being in line with your expectation.

Yes, signaling and you're projecting forward at a similar to try and that you're seeing and in terms of topline growth where are you expecting any change during the balance of the quarter.

Okay.

Yeah, So John we talked a bit about this but what we have been seeing as an unusual set of behavior.

And the back to school time period, we typically have spikes early on during back to school and then at trails off and September we didn't see those spikes this year, but we saw.

Really nice spikes in September and into October we have also been seeing.

Consumers are choosing to shop during the week and more so than on the weekend and and so what we saw on what we saw over over Black Friday is that consumers shop, a lot in the week prior to Black Friday, they at traffic overall was more subdued.

And it was more subdued both and stores and then even on cyber Monday, because there has been so much shopping pulled earlier and pull forward.

And we.

And we expect that that's going to happen through the course of the holiday season, and so we have a number of really peak days such as the Saturday before Christmas of Black Friday is typically one of them and what we expect to see something similar that and what we saw at back to school, where the peaks are not buy quite as high but that the VAT.

Please get filled in and so.

We are expecting you know, we we added all of that up together and in our forecast said at let's take a little bit off the peaks and lets fill in some of the valleys and ER and came up with something that was fairly similar to where we had been and the in the third quarter with.

We would hopefully more of our stores staying open I.

I think one of the key things to point out is that it's going to be more online oriented and we expect that volumes are going to build and stores as we get closer to Christmas and so if consumers shop at more robustly during those peaks than it will be higher than what we have laid out.

But that is the peaks are more subdued as we're expecting and that's where we think we will end up.

Day, we at anything to that Yeah, you know as Mimi indicated November came in pretty close to where we thought it would be and that included the impact of the co bid related closures, we saw mainly in the UK and.

Thanksgiving day, being closed and virtually all and all locations and the U.S. So.

You know, we said that we would expect Q4 sales to decline just a little bit more and then.

Than we saw in Q3 of the 11% we saw on Q3, and when I say, a little bit more I mean, a couple of percentage points more.

And as maybe indicative of our focus has really been around the peak days and we're being conservative on the peaks and.

But if traffic comes and better during those peak times and our sales will be better. So that's that's really our outlook right now and if we get stimulus and that will be and more than enough icing on the cake and so lots of lots of challenges, but also lots of opportunity and the coming holiday season.

Yeah, that's very helpful and and maybe then a question on SDMA is just.

So on a like for the fourth quarter, your signal and more leverage potential even on potentially slightly and greater sales declined from just wanted to understand that didnt, maybe maybe more broadly on the cost structure going into next year.

Yes, I think it's helpful and your Pokmon go and then adjusting net payable.

And the press release, I think you called out more than 20 million year to date of savings from property tax relief and rent abatements and just want to add.

As part of your thinking about the ability to day, we will.

Overcome that headwind next year, yes. It is yes, presumably those costs come back and.

Great. Yes, one of you start with the EPS DNA and then maybe I'll jump in on the on on some costs are at start on the cost structure and once again, yeah, absolutely. So to first address John your question on the co bid table and the relief that we have are the items that we list on there related to.

Property tax relief and rent abatements, and and how I think about rent abatements, it's more of a timing issue than it is of actual savings because we ended up booking full rent and the.

Earlier in the year and now we're just getting savings for when our stores were closed. So when stores are opened next year then the economics should play out of accordingly, the UK property tax relief again at similar we're getting that relief because our stores were closed and as stores. We opened next year.

We should be able to overcome the cost of they come back into our our business and Joe.

Just as you.

Overall thoughts on on SGN and why we think we can leverage and Q4.

We we are we're benefiting from a lot of the collective efforts that we took early on in the pandemic around our cost structure and many of those will continue into the fourth quarter I would say the largest opportunity is going to come from.

The rent abatements that.

We are coming to.

Inclusion with with many of our landlords.

And what we think is that could be more than double the amount that of the $7 million that we recognized in Q3, and we really expect our machining SGN end to leverage quite a bit from lapping last year's levels, even on the lower sales volumes that we expect because of this and.

And and could be as much as 100 basis points, depending on the level of our revenue in the quarter.

And so just to chime in of it on the cost structure and and.

The reshaping of the cost structure, I think Dave pointed out the job good job pointed out.

How much free rent relief, we have gotten outfit outside of these abatements and that's through the course of the normal renegotiations and John we've talked for a number of years about how on the renewals that we have been executing that we have seen.

Net reductions and the neighborhood of 8% to 10%, but it's stepped up pretty significantly through the course of the pandemic and I think that that is some acknowledgment of the fact that traffic has been down and we're having to spend more marketing dollars to be able to drive traffic to stores and and to our websites and so that.

Certainly helps the cause and I do think as far as cost structure gross that on the growth of our E Com channel and the size and the scale will help profitability. There's a lot of investment required upfront and all the way along to grow ecommerce and the more.

Size and scale and you can get the better the economics end of being and so that coupled with some of the rent savings and the cost reductions on the store side should at up to a two of positive economic formula.

Okay. That's helpful. Thank you.

Thank you and next question from the line of Sam Poser with Susquehanna. Please proceed with your question.

Hi, good morning, everybody happy holidays. Thank.

Thank you for taking my questions.

I just want to know of fusion as follow ups.

On the question was asked what your digital penetration was by by banner.

Yes, Hi business you talked about you gave the number of for share, but you did not gauge percentage of the JV and.

Murphy.

Please do yeah.

Yeah, So sure of though on Johnston, <unk> Murphy and who is in the range of 20% and journeys was less than 10% last year all of our businesses. This year at their digital penetration has been higher and David and you've got the number for this set and maybe just talk on the second and third quarters, Yeah, Obviously, Sam with stores close four per.

Portions of both for all of the quarters. This year, our digital penetration is swung wildly higher but.

For the third quarter.

Journeys.

Was was up almost double of their digital penetration versus last year.

So around what kind of can you just give us at the memory care.

Yes, so last year and Q3 of the digital penetration at journeys was seven I'm sorry, yes, the digital penetration was 7%.

And this year in Q3 it was.

Nearly 14%.

And for Schuh last year was 24% and of this year was 43% so almost doubling.

For Johnston of Murphy last year was 18% and this year it was almost 34% so big swings.

This year over last.

And it also looks businesses grew nicely. So when you think about just the rest of do increase and the digital and once the stores are fully reopened and traffic.

Improved.

How sticky do you think you'll be able to see how sticky do you think your E commerce revenue will be.

Yeah look we think that the consumer has on.

It has to try and a lot of as far as digital growth this year and they liked what they've seen and they've really like the experiences that they've had and on you know I will give a huge shout out to our teams for the ability to execute on some of these levels, because and now and and Schuh for example last quarter on E.

Ecomm penetration was 70% and then journeys it was 20% and to be able to do and the growth rates were almost dallas tripled their businesses and to be able to do that and execute well against that and get very high customer satisfaction scores is a is a good testament to our ability is there and.

So I think that that much of that.

You know much of that will stick at the same time, our team likes coming into our stores and we saw that our digital penetration on went down.

Well from the time that.

And from the second and third quarter, because consumers have those options. So.

The way, we're thinking about world going forward, Sam as however, our consumers want to shop with US we're going to have terrific experiences within the stores and great experiences on our websites and the consumer will go back and forth seamlessly across the two of them.

Thanks, and I've got a handful of other questions on net.

Number of number one you mentioned you had new you mentioned a level of new customers to your website, but if you think about it again by banner, how many new customers, especially of Hsulin journeys, how many new customers were new not only to the website baby, but also just new to sure journeys.

Yeah look I think we were on measuring the website, just because theres been such up and down in terms of overall closings of of stores. Sam So I think that that at its just an unusual time for measuring measuring stores, because we have got the pandemic going on and customer.

As some customers may be reluctant to go ahead, and and shop with and stores and so so that's.

That's why we are really focused on our websites and the exciting thing about about the look of the web sites is that you could type anything into your you are at all and consumers are choosing to come and shop with with our concepts and what we saw as I called out of a 40% increase and new low.

Site visitors and it was it was pretty equal between journeys and Schuh Johnston <unk> Murphy of course is a bit less just because of where they're situated from a fashion point of view and new customers were drove a large percentage of purchases and we're up almost 45% of our overall online sales and so.

We take those new customers, we plug them into our CRM systems, we do a lot of work on four specific programs and specific journeys to try to get them to purchase again and the key to getting stickiness is to have the customers have a great experience, having come back and shop with you again and then encourage additional.

Purchases and after a certain number of purchases. We can say that you know those are we can define and then as loyal customers.

Thank you.

Our next question comes from the line of Mitch Kummetz with pivotal research. Please proceed with your question.

Thank you I've got a few questions on my own simple, let me start and from Georgia is on the color on the building welcome Tom and it's been a while so let me start with a fourth of the fourth quarter outlook. So you expect it to be down more than Q3, although sounds like maybe only by a couple of points on I guess.

You are saying about the peaks and valleys, but I'm wondering if the main reason and for Q4 likely to be weaker due and Q3 of the terms of the growth rate is more about the store opened day is that are there fewer store opened days from Q4 of the Q3 years and more about the peaks of the values of at least of the kind of relates to the difference between Q3.

Yeah. So look I think that the what I would say is that about anything else that there's just a lot going on and the overall atmosphere.

On the consumer spend and resilient throughout the year and so there are also a whole lot of of Tailwinds.

On the consumers and saving so that they've got disposable income there's lots of indications of that there's not a lot of spending on travel and entertainment on holiday parties and other things and look our brands are really and our footwear as really desired by teams at Christmas. It's just a big gift, giving items. So we're very optimistic that we've got the right.

Okay, and dies and that we can execute when traffic shows up in our stores and people.

People are going to have a lot of time to shop, because they are they and they're going to be working from home and you can run out from home and do some shopping or you can pull up the or at your mobile device and you can shop online as well and.

And so you know I would say Mitch that how we are thinking about it is just with some conservatism on right now we have got 97% of our stores opened last month on.

Many of our stores were closed and so we were on you know we were only operating for about 88% of of the overall time December is a much bigger month than than November is and so to the extent that our stores can stay open and operate then we will and it will be able to to meet that to me.

And we expect more shopping will be on the week day as we've seen this already we expect more shopping during the non peak hours. Many malls have been working on reduced hours and have added hours to try to help meet this demand lots of people wait until the last minute they'll come into our stores really last minute.

Net and you know so we were being conservative just because of the unusual and nature of consumer behavior at during the pandemic that at the consumer comes out and shops and force then we'll be able to may need the peaks to a a two and to a greater extent and and and more like you.

Hello.

And given the challenges around the peak and especially to the extent that you know your store capacity may be limited.

Over at some of those really big days, what are you doing if anything practically kind of.

Stretch that out and make the value.

Better I mean, I I know that some of that's just happening organically, but to what extent are you trying to steer that and.

Order to soften the impact of the lower period. So I have a final question yeah sure. So on you know we are definitely.

Using our promotional posture to be able to steer the consumer into various times. So for example at journeys typically launches there on sale those and stores and online at the week of Black Friday, and it's a great opportunity and just take advantage of.

Of traffic and in fact, they at launch the week before this year and we're really successful driving customers both to the stores and two online which relieved to some of the pressure on Black Friday weekend itself and so interestingly, we saw a lot of nice pickup.

And volume prior to Black Friday, Black Friday weekend itself is more subdued of course stores were closed on Thanksgiving and and we saw a nice pickup afterward, and so all of our marketing all of our messaging all of quite frankly retail marketing and messaging is about shopper early on and think about how to avoid the peak time.

And make sure you get your shopping in and we feel like people are going to be in at gift, giving spirit. Its at a nice and nice relief from from some of what is and the monotony of the pandemic and so there may be some real opportunity here on and the consumer is doing this themselves I mean, they are smart they are.

They're figuring out when are less busy times within the malls and within shopping venues and we'll come in and will either you pick up a pick up merchandise quickly without trying it on and take at home and try it on or they will choose to try it on live on our stores.

And and purchase at that time, but we've seen a lot higher conversion conversion has been at the highest levels. We've seen there's a lot of intent to purchase even with traffic down we can have positive comps and journeys and both September and October we had positive store comps and that was on lower traffic because.

Conversion was so strong and transaction sizes with better and so you at all of that up and you say that it's a combination where we can make the numbers work to be able to meet some of the volumes that we had last year.

Okay, and then lastly on on <unk> I know that in your and your comments on the quarter. You mentioned that it started early and then of the your <unk> business is driven more by faster than anything else, but I'm curious if you've seen.

<unk> strength continue and to November because I guess November feels like its been or was this kind of a warm month and I think your boot business was pretty good at November last year or some of your tougher compare on kind of curious how you see that continue.

You start of the fourth quarter.

And he's got a good memory match on [laughter].

So yes, I mean that started early and started and really well and there are a number of the at brands that are driving this and I'll tell you and the first couple of weeks and November last year and November was from Super Cold and so food sales took off this year in November we add a lot happening and the first part of the month of the election and election was going.

On whether or not a lot warmer and lots of different distractions and so on just overall traffic and as I as I mentioned became more subdued but then we saw the robust pick up thereafter, and you know I think that that it's mostly fashion that is is driving to.

Teens appetite and I think there's a feeling that they just want something different they want the change of seasons, they want to be doing something different and they really like the offerings of lots of our brands has put out some terrific product and we have lots of nice allocation of that product and so that's a winning formula.

Thank you.

And at this time of me if reached the end of a question and answer session and I'll hand, the call back to me and move on for closing remarks.

Great. Thank you everybody for joining us today were wishing you really happy at and really say of holidays.

Thank you and this will conclude today's conference you may disconnect. Your lines at this time and we thank you for your participation.