Q4 2021 Genesco Inc Earnings Call

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Good day, everyone and welcome to the Genesco fourth quarter fiscal 2021 conference call.

Just a reminder, today's call is being recorded I will now turn the call over to Dave Slater, Vice President of F. P&A and Investor Relations. Please go ahead Sir.

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

And our key areas of focus for fiscal 2022.

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 <unk>.

<unk> refers you to this morning's earnings release, and the company's SEC filings, including the most of 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 all non-GAAP financial measures referred to in the prepared remarks are reconciled to their GAAP counterparts, and the attachments to this morning's press release.

And and schedules available on the company's homepage under Investor Relations and the quarterly earnings section.

I want to remind everyone that we've posted a presentation summarizing our results at is accessible on our website.

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

Who will begin our prepared remarks with highlights from the fourth quarter and year and Tom George Our Chief Financial Officer, who will review Q4 results in more detail and provide direction for the first quarter of the upcoming year.

Tom will then turn the call back to over to Mimi, who will then discuss some of our key strategic strategic initiatives.

And we hope that you're all staying safe and healthy now I'd like to turn it over to Mimi.

Thanks, Dave Good morning, everyone and thank you for joining us today.

I'd like to begin by welcoming Tom who with almost 30 years of CFO experience and deep roots and brands and retail has been a tremendous addition to our team as we drive the recovery and our business and a return to profitable growth.

We concluded and incredibly challenging year with of fourth quarter that exceeded our expectations across the board.

Our performance was driven by record digital revenue and superb all around results at journeys highlighted by stronger than anticipated store volume.

As it did throughout fiscal 'twenty, one our organization successfully navigated difficult operating conditions to serve our customers. This time during the all important holiday selling season.

I could not be more proud of how well our teams have executed during the pandemic.

They have faced each new challenge and a very dynamic environment with tenacity and ingenuity, while operating under protocols to ensure our highest priority the health and safety of each other and our customers.

My sincere. Thanks goes out to every member of our team at Genesco for all your good work driving the results we achieved.

Before we get into our review of fourth quarter performance I'd like to highlight some of the major accomplishments from fiscal 'twenty one.

Starting with the significant and on familiar task of efficiently closing and swiftly reopening our entire fleet of nearly 500 retail locations some of them multiple times.

Capitalizing on the accelerated shift to online spending achieving record digital revenue of $450 million and increase of almost 75% year over year, while also fueling record profitability for this channel.

Driving record conversion rates and stores, helping to partially offset the impact from lower traffic levels and store closures.

Increasing market share in journeys and schuh, which represent the large majority of our revenue with their ability to retain sales in the face of the pandemic disruption.

Conserving capital and reducing operating expenses by 15% compared with fiscal 'twenty.

Generating cash flow of over $130 million to ensure healthy liquidity.

And finally, delivering sequential improvement every quarter.

And particular bottom line results reflect the strong foundation, we built for the digital channel prior to the pandemic.

Our online business generated double digit operating margins before COVID-19, due to our focus on full price selling disciplined marketing spend and shipping and return policies to reinforce profitability.

Thanks to numerous digital investments we've made over the past several years not only were we able to effectively handle the unprecedented volume from accelerated demand, but E. Commerce margins improved further as we leveraged these investments over a wider base of revenues.

Our overall performance under difficult circumstances also reflects the strong competitive position of our retail concepts prior to COVID-19, and our success capitalizing on opportunities to further strengthen the leadership positions of our teen and young adult footwear businesses.

And today as channel lists world, where the consumer can shop anywhere of the consumer wants journeys and shoes results underscore the tremendous loyalty they have developed with our existing customers and compelling proposition they offer new customers.

So turning now to the fourth quarter. The work we did to have the right Assortments and right holiday campaigns helped deliver Q4 results ahead of expectations. In spite of some store closures not anticipated in the UK, and Canada and supply chain delays and disruption.

While we continue to face softer traffic levels and a year ago across our retail businesses.

Journeys stores posted a nice improvement compared with the third quarter as more shoppers visited journeys locations during the peak weeks, leading up to Christmas.

And our store teams once again drove very strong levels of customer conversion to help materially offset the headwinds from less traffic.

Meanwhile, our business online, especially mobile experienced very strong gains in both traffic and conversion with new customers again driving increased volume.

New website visitors were up 40% contributing and almost 50% growth and new customer purchases and we delivered another strong quarter of digital growth with comps up 55%.

The combination of these factors led to a total revenue decrease of 6% versus last year with stores open about 90% of the possible days in the quarter.

This result was better than we expected due mainly to the stronger store sales at journeys and represents a meaningful improvement from last quarter's 11% decline and Q2's, 20% decline.

While gross margins were down compared to last year, the GAAP narrowed for the third consecutive quarter and the sequential improvement was driven by an increase at journeys due to strong full price selling.

As a result of decisive cost containment actions, along with one time benefits, including substantial rent abatements recognized in the quarter. We drove total expenses down twice as much as revenue on a percentage basis.

Inclusive of the rent abatements operating income was up year over year.

By tightly managing inventory throughout the year, we had the flexibility and confidence to bring in new fresh product. However, much lower year end numbers also reflect the disruption and the supply chain, which caused delays, especially at journeys and schuh, where we would have liked to have received product earlier.

Turning now to discuss each business and more detail, let's start with journeys and begin by congratulating the team on its impressive results across the board.

Journeys delivered record operating profit and the biggest quarter of the year in the midst of of pandemic.

Fourth quarter topline results match last year's levels as its merchant teams skillfully interpreted trends, making the right product calls and at store and digital teams delivered and exceptional customer experience.

While our stores were opened this year journeys customers were enthusiastic to shop, our physical locations and engage with our people and over the holidays. We were pleased by the strong appetite to shop our stores.

With replenishment orders for many key styles, arriving post holiday combined with the first wave of checks from the December stimulus program delivered early in the new year the business accelerated as January progressed, leading to a strong finish to the quarter.

Comfort range as the fashion choice of the pandemic and journeys offering of casual product continued to resonate strongly with consumers.

While <unk> always had a big compliment of fashion athletic footwear and their closets, when fashion swings toward non athletic or what we call casual footwear journeys is especially well positioned among its competition to deliver this assortment.

This fall and winter, our consumers' appetite for boots began early and our boot business was good and our casual business was even better, especially in womens and kids.

Congratulations journeys team.

Following a good back to school season shoe came into the fourth quarter with positive momentum and a strong assortment of high demand brands and styles.

Unfortunately, the holiday season was severely disrupted by store closures across the U K with shoe stores closed for about two thirds of the possible days in the quarter.

Fortunately with best in class digital abilities. She was able to capture a significant portion of lost store volume through its digital channel and total sales were down only 13% capping off a year and which shoe like journeys gained market share.

As with journeys and schuh casual assortment gained ground over at fashion athletic assortment with boots, and casual strong throughout the quarter and womens leading the way.

Meanwhile, Johnston <unk> murphys, casual footwear, offering and apparel categories, where again the bright spots for the brand and what remained of very tough environment due to the work from home trend and significantly fewer social gatherings during the pandemic.

The plan going forward is to accelerate the work started years ago to evolve <unk> into of footwear first lifestyle brand with a range of footwear and apparel from dressier to more casual.

Despite the challenging year, there were some solid proof points that this strategy continues to gain traction, including the success and the innovative XC four collection through the relaunch of golf.

For the upcoming year, Jay and M has focused 90% of new product development on the expansion of its casual offering to include casual athletic leisure rugged outdoor and performance.

We brought in a new head of product development, who brings a successful track record developing casual brands to aid and these efforts.

As the customer returns to work and socializing, which we hope will be sooner than later, Jane and assortment will be ready for the post pandemic lifestyle and further buoyed by Jay and EM core customers increased level of savings during the pandemic.

So turning now to the current quarter early February extended January as positive momentum until we hit the offset of income tax refunds, which were delayed by a few weeks this year net.

Nevertheless February sales came in in line with our expectations and in March we have seen an uptick as refunds began to catch up.

Looking ahead.