Q2 2023 Genesco Inc Earnings Call

with the delta being between August and July ? More on a macro level than a micro level. Yeah, you know, interestingly, we saw that back to school purchasing early in the cycle for early tax freeze wasn't as strong as when we got closer to school starting. I think more people were taking vacations in the back part of the summer this year. There was a lot of pent up demand on vacations.

I think that consumers were enjoying the summer. And so just really flipped into, wow, we've got to go back to school. I think that's a little bit of what has happened. We've seen overall the consumer cycle shift into consumers waiting until the last minute. I think there's just more information out there. It used to be that you'd go and you'd shop your shopping venues, shop the mall and other places to see what trends were in style. Well, now you've got that in the palm of your hand and you can figure that out.

We also have a lot more confidence about being able to find the inventory wherever it is. And so that has really pushed just shopping patterns closer to the time of need. This year especially, I think that consumers were distracted enjoying the summer and that we have seen a significant pickup in traffic as we have gotten into August .

That's really helpful. Thank you. I'll take the balance offline.

Thank you.

Our next question is from Corey Tarlo with Jefferies. Please proceed.

Hi, good morning, and thank you so much for taking my questions.

So I wanted to start talking about Johnson and Murphy given I think what's

very clear is that you've done a tremendous job.

turning this business around from the start of COVID when everything was locked down and people weren't going to the office and now you've pivoted the business to be more casual driving what I believe was record second quarter revenue for the segment in spite of having fewer stores than prior years which is incredibly impressive so can you just talk about what you're doing at that brand that you think is really going to drive sustainable

success and growth going forward and then maybe just touch a little bit on what we can expect from a profitability standpoint as well.

Sure, thank you for that question, Corey. The J&M customer is in a good place. We are delighted by what we are seeing from the brand right now and have great prospects in the future for the brand. What has happened in the most recent time is that the J&M customer got used to comfort working from home and once you experience comfort, it's hard to go back.

The J&M team did really a terrific job during the pandemic, taking advantage of the opportunity to rethink the brand. The pandemic gave us a chance to think about how the brand could be different from a product perspective and also appeal to younger customers. And we pivoted harder into casual and comfort. It's really a terrific product. There's great styling with special technical features.

proprietary chassis systems, great waterproofing, great moisture wicking, great just comfort features. And after the recession, after the great recession, a number of years ago, we had a chance to reinvent the brand and were able to double the size of the brand and think that there is an opportunity to do that again this time around. We have a chance to sell customers things that are not in their wardrobe, things that they need for today's lifestyle. So they're trading in.

their dress shoes or their more formal shoes for hybrid product, which is great styling with lots of comfort features. Johnson & Murphy has done such a great job repositioning. Right now, we are selling a lot of casual and casual athletic product. I talked about the top styles being casual and casual athletic. In fact, casual and dress casual are more than 90% casual.

the higher price point. So we like the profitability profile that we see, we like the potential for increased sales, we're spending a lot in marketing right now to let people know about some of the changes in the brand. We've just done a market research study that says that as much as we think everyone knows about Johnson & Murphy there's lots more potential for additional consumers.

So great prospects going forward.

Got it. And then just on the profitability expectations for the segment.

Yeah, so this year it's a front half, back half story. We were chasing a lot of product. You saw a great turnaround in sales in really the second and the third quarter. Tom talked about the overall pressure from air freight and that's mostly in the Johnston and Murphy segment this year. I think profitability was up in the second quarter over pre-pandemic levels, but less than last year because of some of that air freight and the inventory reversals.

relative to pre-pandemic, you'll see that we really expect where the sales will be a little bit above pre-pandemic levels and we'll have profitability. It won't be the same as pre-pandemic because we are investing in marketing for growth here. We've got a good opportunity to continue to grow that brand at a good pace. We've got the distribution infrastructure in place to be able to get further efficiencies from the stores. We really see down the road even more upside in efficiencies.

on the stores going forward because we sell a lot of apparel as well. And so the stores are a great opportunity for growth. Our digital business, as you've seen, is growing very well. That's double-digit profitability, you know, on the margins. So another good thing. And then our wholesale business, again, a good opportunity to get a lot of traction, a lot of good sell-throughs. There's a big wholesale opportunity for Johnson & Murphy going forward. And...

In the end, we see if we continue to invest in marketing, continue to keep the product development machine going with new product, we can really, really grow that brand and take a lot of share in that category and get to even stronger profitability rates than they were pre-pandemic.

Thanks for all the color. And then just one final one to double click on a comment that I think Tom you made. You had mentioned that you don't have any expectations for incremental promotions throughout the remainder of this year. I just – I'm a little confused because I think that stands in contrast to what we've heard from other retailers getting more cautious on promotions. So could you just clarify that and – Okay.

and explain that. I want to make sure I heard that properly.

Let me jump in here and then turn it over to Tom. Lots of other retailers right now are just talking about a large amount of inventory in the pipeline, and that is really dictating the need for more promotions. We, where we sit in the footwear world, especially the parts of the market that we serve, are certainly less promotional than apparel. The scarcity in supply coupled with the robust demand last year let us...

25% at the beginning of the year, so we feel like we've just gotten to the right points of inventory, where we're re-inventoried properly. And so we are certainly expecting that we'll have more markdowns this year because the consumer was just buying anything that was available last year. We did build back in some promotional activity for just to help spur demand, as we usually do this year. But what Tom is saying is that we are not seeing that we are going to have to do...

and we work with them all the time to right size inventory so we can continue to protect those brands and not mark down product and from a reference point we certainly have more we are planning for some more markdowns this year relative to last year when last year was virtually no markdowns but we're still a lot of learnings from last year we're still planning markdowns at lower levels and pre-pandemic levels

I understood. Thank you so much for all the color and best of luck.

Thank you.

Our next question is from Mitch Commence with Seaport Research. Please proceed.

Yes, thanks for taking my questions. Let me start just a question on Boots. You talked about carrying over some product. Let me let them know that…

given supply chain challenges last year. There were a lot of late receipts. So I'm just trying to understand how much better your position in the category this year versus last year. Can you say what boot penetration is for you guys in Journeys like in Q3 and Q4? And again, any way to sort of give us a sense as to how much better you feel about where your inventory is on boots coming into the season, the heart of the season this year versus last.

fashion athletic assortment. And so last year, we were chasing boot inventory all throughout the year. We were of the back half of the year. We were out of stock in core styles. We felt like we left a lot of demand on the table because we didn't have core styles. That was part of the reason that we chose to take that late arriving inventory and carry it over into this year so we'd be better positioned at the start of the season. So we are in much better inventory position to begin the season.

digit number mentioned in your discussion of that. I'm not clear as to what the Journeys outlook has changed from to – Were you thinking high singles? And now you're thinking less. I didn't quite understand where that high singles came in. And also on the FX, I heard a 2% number, and I know that the dollar has strengthened since you guys last reported. And I'm just curious also, did your FX outlook change for the year as the guidance –

was lowered or was that not changed? And if it was changed, how much did that change by? Thanks.

Yeah, Mitch, on the FX, the outlook for the year, the impact, mainly that's obviously the issue in the UK impact, a little bit of a Canadian impact on the Journeys business.

It really, from a guidance to guidance perspective, it really didn't change much. We're looking at, for the total year impact of FX, about 2%.

on the total year sales.

I'll talk about just the overall expectations for Journeys. We had expected in our prior outlook pitch high single-digit growth because it links back to what I was talking about where we felt like we left a lot of boot and other sales on the table in the back part of the year. We are running up during this back-to-school, but more in the mid-single-digit range. We're expecting in our forecast that the consumer will revert to historical patterns of...

Good luck.

Thank you.

We have reached the end of our question and answer session. I would like to turn the conference back over to management for closing comments.

Thank you for joining us. I wish everybody a great Labor Day weekend and look forward to talking to you on our next call. Thank you.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.

The next available conference specialist will be with you momentarily. The next available conference specialist will be with you momentarily. Thank you.

Please. Yes, ma'am. This is Rachel Smith. And you're calling in for which call today? Here for the Genesco Inc. earnings call. Thank you. Live tripod movement

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