Genesco Inc. (GCO) Earnings Call Transcript & Summary

Good morning and welcome to this next session of the Goldman Sachs Global Consumer and Retailing Conference. My name is Brooke Roach and I cover the apparel, soft lines, and brand sector here at GS. I'm thrilled to introduce this next session with Genesco. Here with me on stage today is Mimi Vaughn, Board Chair, President, and Chief Executive Officer, and Jonathan Collins, Senior Vice President, Finance and Chief Financial Officer. Welcome, Mimi, welcome, Jonathan. Thanks for having us this morning. To kick it off, we'll show a brief video. Thank you. Mimi, could you kick it off by telling us a little bit about where Genesco stands today in its Footwear First strategy? What's the next leg of that strategy that investors should be focused on, and what milestones should we be watching for?

Well, you saw, for those of you who don't know us, we are all about footwear, and we have both footwear retail brands as well as footwear brands. And what makes us distinctive is that we focus on very specific parts of the consumer market. We've come through a phase where we were building a lot of our digital capabilities. We doubled the size of our digital business. We laid some great tracks for analytic work. We did a lot with the interconnection between stores and online and really have repositioned the company quite a lot. We launched something called a Footwear First strategy which is all designed to be focused on where the consumer is today and how much they have really changed through the course of the pandemic, habits change, how consumers shop changed, particularly within footwear. And so our Footwear First strategy is all about dialing into the exact right product. If you don't have exactly what the consumer wants, if you don't have newness and freshness, they're passing you by because they're having to make choices. So we're very dialed into product overall. We are talking a lot about awareness and how do we raise awareness because today the consumer finds out and discovers brands and thinks about brands in a very different way. We are thinking about experiences. You saw our fantastic store designs, and we're making the experiences in stores really an outstanding experience for the consumer, as well as online. And of course, we're investing in our people and our capabilities, because people are who allow you to unlock really wonderful things within retail. And so I'd say to talk about milestones for Journeys, which we'll have a chance to talk about, we are on, uh we announced our eighth consecutive into our ninth consecutive quarter of positive comps, um in terms of the uh transformation and the reimagining of Journeys. It was interesting to hear the gap because I think we're all on this journey of how do we really meet where the consumer is today. Uh We're excited about that, so I think that's a great milestone for us. We've improved our um bottom line by 100 basis points in each of the last couple of quarters, and so the um, the impact of the initiatives that we're putting together are what we believe are really working. tremendous momentum in our business and it's a tough footwear environment and it's a tough consumer environment in general in certain pockets and we're really outperforming and excited about that.

That's great to hear. Jonathan, let's bring you into the conversation. You recently joined Genesco as CFO. What attracted you to the company, and what are your initial impressions of the opportunities ahead?

I think as I talked to Mimi and the Board during the interview process, the two things that really stand out to me were the words mission and opportunity, as you mentioned, Brooke. I'm a very mission-driven person. I spent 13 years at Walmart. They're a mission-driven. And I think there's nothing like that feeling of putting on a really nice, well-fitting pair of shoes to really uplift and give people confidence. And so then opportunity, and we'll talk, I'm sure, a lot more about each of our divisions but just what a massive opportunity in terms of executing our Footwear First strategy and as well as the talent we have. I'm super impressed with the whole leadership team and the Board. Yes, just excited to join the company at this time.

That's great. Before we dive into the execution of the strategy, let's level set with the consumer. A couple of questions that we're asking all companies at our conference today is 1 on the health of the consumer in the back half environment, which is, as you look at the second half of '26 relative to your recent results, do you expect the environment to be the same, better or worse? And then as you roll that forward into 2027, do you expect the health of the consumer to be better, the same, or worse in 2027 versus 2026?

Consumers absolutely have been hanging in there. They want what they want and they buy what they want. we have really been the beneficiaries of them buying what they want. I do think in the back half of the year that it will be more challenging, and because of, you know, oil prices, gas prices. Gas prices are a real thing. I think that there wasn't a person that I spoke to after Labor Day that didn't talk about, you know, gas prices and prices at the pump and filling up at the pump. And so I think that's a real point of pain for the consumer and I think that the fact that diesel is up so high flows through into into overall price inflation so as we look into next year I believe we were going to get to a better point next year and that um, the health of the consumer will continue. I think the consumer is in a good place from um not having over-borrowed, they're paying down their credit card. We actually saw all strata of our um consumer sectors um across demographic groups um perform well over back to school. And so we're encouraged by what we see. We know we've gotta be spot on on our assortments.

plan to be. You mentioned back to school just now, and so maybe we can dive a little bit deeper into that. Comps were a bit slower in Journeys in 2Q, but you noted an acceleration quarter to date on your call a few weeks ago. Can you talk about the cadence of consumer demand this summer and what you've seen on traffic versus conversion? How has back to school trended as you've moved through some of the timing shifts?

Sure. So the 1 thing I would say in terms of how the consumer is shopping is that when there's a reason to shop, and in footwear specifically, when there is a reason to shop, they come out and shop ferociously. And when there isn't a reason to shop, they sort of take a break and go and do some other things. And so we saw some of that. during the course of the spring, where it was a later spring because it took a while for the weather to warm up. And so when we got into May, it's typically a lower month for us, but May was actually a good month. And as expected, into June and July, the consumer turned their attention to other activities outside of shopping. And I think the consumer has a lot of confidence in when they're ready to shop that they can find what they want to shop in a way they never have before. And so they really wait until the very last moment to be able to go out and shop. And so we saw as expected that lull that came across through to summer, but then this whole idea of they're coming back and they're shopping with intensity. And they came back and there was a later Labor Day this year and so there was an entire shift of back to school which really affected the second quarter. And we saw comps, um, move up into the mid-single digits in Journeys, as we expected it would. And so we had a really strong, um, back to school selling season. on top of the last couple of years, we have really strong comps in the third quarter and on top of very strong stacked comps performed well. And then we expect the consumer is going to take a break again until the weather gets a bit cooler and there's a reason to shop over the holidays. And so our ability to execute against this and our ability to have the data depth of the product is a critical component of capitalizing on those moments when the consumer comes out to shop.

That's great. Let's dig into the execution of your strategy, starting with Journeys. As you mentioned earlier, Journeys has now delivered eight consecutive quarters of positive comps, with August accelerating to that mid-single-digit level. What's working for you so well right now and what do you view as the biggest opportunity to sustain that momentum ahead?

So the biggest opportunity is to serve a customer group that is six to seven times larger than what we have traditionally served. And I think Journeys has always been about serving the teen consumer. What we have um done in over the course of the last um several quarters is that we have We've dialed further into who specifically are we serving. And we saw an even bigger opportunity within the female market. And Journeys has tilted female lately, but we've owned it, we've claimed it, we've said that a lot of the athletic competition serves um the male market, the male teen market, in a really good way. But we have an opportunity here to dial into the female consumer to an even greater extent. And this female consumer today wants to experiment with her look. We've talked a lot in the past about, were you a skater? Were you a surfer? Were you gothic? Were you what were you? And in some of the um of the fall campaign, the back to school campaign, we've and you saw Madison Bailey, she had three different outfits where she's representing three different versions of herself. And so we have an opportunity to serve this teen that's experimenting with, who do I want to be? I don't want to be pigeonholed like prior generations were. And we serve across both athletic and casual footwear and have an ability to do all of that. So a bigger market, six to seven times larger is our opportunity. We've dialed into our assortment. We've improved our assortment. We've elevated our assortment. We have brought a lot of, specifically, a lot more attention to the Journeys brand. We've leaned into our overall marketing and our social campaigns. We've improved our store experience. I'm sure we'll talk about our 4.0 store experience. And I really feel like we have dialed into this consumer base and that our consumers are liking what they see. And we're reaching out so that more people can come and rediscover what Journeys is all about today.

what's next with the lead with her strategy that you just mentioned? Yep. So what's next.

is very much about um more of the brand building and awareness building. And our teams are so socially oriented. They learn and discover through social and our ability to be able to take campaigns like we just had and magnify campaigns through the influencers we use, through the celebrities that we use, is working really well. So for example, when we launched our Life on Loud, which is the name of our platform or our campaign, we saw that our online traffic improved by 30%. And we saw that our store traffic actually improved significantly. to where we were outpacing where the industry was. And so our ability to pulse out in those moments when the consumer's ready to shop and to be able to capture that consumer and build awareness is very much front and center in terms of how we are thinking about being able to reach this dynamic demographic that we serve. The other area that is working really well is that you may have seen our 4.0, our new store rollout, and we've had a lot of good success. That store rollout, that store remodel is 1 thing to call it, but I think it really is the visible representation of the new Journey's strategy and how we're serving the consumer today. We opened, um, a quite a number of those stores. We, uh, opened 85 last year, we're opening 95 this year. And so we expect they with an over 25% lift that that will continue to propel our comps. And so the awareness building and the continued rollout of the, um, overall 4.0 is how we are seeing continued growth.

growth. Is there anything else that we should know about the 4.0 growth strategy from a storage perspective?

And then Jonathan, is there anything that you can share about the economics of the format? Yeah, I think we've quoted, you know, this 25% upliftness that we're seeing. The other thing that I think is an opportunity for us is to really think about how do we take the 4.0 format that we have today? How do we take the kids format that we have today? We have 1 kind of experiment that we're trying in terms of combining the two and how much leverage will that provide us in terms of selling floor plates and what or not. So I think we're very happy with the economics. We can't roll those out fast enough. super high on our priority list in terms of capital deployment. And so the faster we can accelerate those, I think the faster we'll be able to improve the economics of our business.

And just to really talk a little bit more and build on what Jonathan is saying, so better traffic, higher conversion, higher ASP. So that's part of the formula for the 4.0s. And what Jonathan is talking about is that out of the and 90 plus stores that we will be remodeling this year. So two-thirds will be remodels in place, and a third will be enlarging the stores. And so we're finding we're performing better in our higher-tiered malls, and we're finding we're performing better in great geographies like California and Texas. And so whereas we had stores that averaged a little over 2,200, 2,300 square feet. We're upsizing to 4,000 square feet. We're trying a few 5,000 square foot store footprints and we think there's really great opportunity here to be able to display we find that we need more room particularly in these peak periods and because we're outperforming in these higher you know these higher tiered malls and in really great demographic areas that we're leaning into upsizing the size of our overall store footprint itself.

You briefly touched upon this topic on the call, but I'd love to hear a little bit more on the key fashion drivers that are fueling the consumer right now in footwear. There are a few other competitors that have been speaking quite negatively about consumer demand in your category. Are you seeing any impact from this? What's working best from the consumer today? And are you seeing any shifts? and how the consumer was preferring different style silhouettes.

Yes. So for sure, there's been a lot of conversation about our part of the consumer world. And I certainly say there has been. It's not new that there is a lot of promotional activity. There has been a lot of promotional activity. And we've stayed full price. And I think that remarkably, in the last several quarters, we've talked about how we've been we have leaned even more so into full price selling. And to lean into full price selling, you have to have the strength of your assortment in order to pull that off. And so I will say that what we are seeing today, and I'll talk about the trends, and it goes right back to we have a very diversified offering. We're able to sell athletic. We're able to sell casual. We're able to sell low. whatever brands are working and we can rotate our offering into the brands that we see will be up and coming brands. And so we talked about eight brands right now are driving our growth and those brands are both across athletic and across casual. our model and the strength of our Journey's model. And what we've seen is that we've seen, um, four or five things. There's no 1 silver bullet in terms of our performance and our outperformance, but 1 is that we've been able to extend the life of certain footwear franchises. And serving the female customer means that we can extend into different colorways, we can extend into patterns, we can extend into animal prints, we can extend into frilly stripes, we can extend into lots of different things that uh that extend the life of the franchises that um perhaps others can't uh extend. We've leaned very hard into some of the trends like low profile, which isn't a new trend, and lifestyle running, which isn't a new trend, but um dialing into how can we serve that customer in a way. And Journeys is so compelling that we can take a brand, and we can take a silhouette, and we can sell 1 million pairs of it. And so the strength of being able to, uh, lean into a certain, uh, style, uh, is working nicely for us. We have some new brands that we are selling as well, and we're going against very low numbers in those new brands that we have introduced. And then the ballerina flats, the Mary Jane trend that you're seeing a lot of young girls wear are more distinctly feminine, and so So the linking back to the diversification and serving her and leaning into her and for her is working nicely together. And there are 1 or 2 other brands that we're excited about that I'll tell you about a little bit later when we wouldn't be giving away the secret. But really, it's the diversification and it's the number of different opportunities that we have that well and our merchant group is extraordinary. They keep finding fantastic ways to unlock.

our customer wants to buy and how to serve her in a way that's unique. You mentioned promotional intensity in the early part of that last response. Are you seeing any change in price or mix? or promotional intensity in the categories you've moved through back to school specifically? And what are your plans for promotions and pricing in the back half of the year?

So we want to be a full price seller, and we want to have must-have product as opposed to attracting the customer through selling on promotion. And it's harder to do in a promotional environment, but we have been doing it. And I'd say that the promotional activity is not new. It's been going on, um, for well over a year at this point in time. And so our strategy is to stick to what we're and just stay out of the fray because when you start to promote your way down to the bottom, I mean most of the time, our industry promotes when we're in an over-inventory position. I think that certainly on the athletic side, there is some over-inventorying. And so we're anticipating the back half to be more promotional. But we will do our all, as we have been doing, to stay out of that promotional fray.

does that mean that your prices in AUR are going to be higher, lower, or the same?

the back half of the year versus the first half? So they were higher in the front half of the year and we expect that they will be higher in the back half of the year so I wouldn't expect a big step up but I also wouldn't expect that we're going to promote our way into into lower price points.

One other topical commentary that we continue to get a lot of questions about is weather forecasts. There are a lot of forecasters out there that think that we might have a super El Nino year, and there's some concern about what that means for cold weather categories. You sell a lot of boots. I'm curious, how are you planning the business this year for the boots and cold weather category?