Yeah. So, thank you, and good morning, everyone. I'm Corey Tarlowe, Jefferies Specialty Retail Analyst. We have Genesco's CEO and Board Chair, Mimi Vaughn, and CFO, Tom George. I believe we have a short video, and then we'll jump into Q&A.
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Get my teach on, get my teach on, get my teach on, get my teach on. All right. Well, thank you again, and good morning, everyone. Mimi, why don't we start with a discussion of the recent holiday sales results and your thoughts on the opportunities for the upcoming year?
Great. Well, thank you. Thank you for having us today, and thank you all for joining us. You know, the consumer's changed really significantly since the pandemic, and when you look at our businesses, we have a well-established track record of responding to the changes, not only in the economy, but also in the consumer world. And when you look at the work we've done in 5 responding with the shoe business in the UK, you can see we're a footwear-focused company. We both sell brands, and we own brands, but we really transformed that shoe business, gaining market share within the market. And Johnston & Murphy, the hardest hit business, during the pandemic, we did a complete reimagination of that brand and today are gaining in share and in sales as well.
With our Journeys business, it's where we are today. We saw that business being challenged at the beginning of the year this year, and we took steps to be able to address that and then have had sequential improvement. But we are at a place where we really need to rapidly accelerate the progress that we're making within Journeys and also take more aggressive action to be able to address some of the consumer challenges that we've seen. A really key part of that is we've got new management in place for Journeys. We announced about a month ago that Andy Gray was coming in to head Journeys.
We also announced last week that we have a new head merchant in place as well, and these are some folks with just extensive experience, really understand youth culture and really understand the footwear needs, both on the fashion side and the athletic side. And so, for Journeys, we've got a lot of things in place to be able to address that. To talk a little bit about footwear and what's been happening with footwear, and then we'll talk about specifically our holiday performance. But okay, you're having trouble hearing me, I think.
So specifically to talk about what's been happening in footwear, we saw in footwear this year that first of all, the consumer, after abundantly buying with us during the pandemic, was pulling back, choosing to shop in other categories. We've had a lot of promotional activity within the athletic world, which has really chilled some demand for other product. And then lastly, our consumer has said that we want something new, we want newness, and we want freshness. So we as an industry have really had to focus, has had to focus overall on that. And so we began the holiday with really very good sales coming out of Thanksgiving. We had positive sales within Journeys, positive sales overall for the company.
You know, there's a lull in between Thanksgiving and Christmas, and we didn't see the volumes that we expected to see during the peak days of the holiday. So Journeys was most challenged. Journeys comps were down 6%. On the positive side, our Johnston & Murphy business was up 11%. We'll talk a little bit more about some of the great progress that we're making there. And also, our direct business was up, and it was up against pretty strong compares, up 20% last year. So what we observed is that the consumer was very focused on items. For us, it was a very item-driven holiday, where the consumer wanted what they wanted.
Interestingly, we planned to be a bit more promotional, and we were, but it didn't move the needle, and we're a pretty non-promotional retailer, so it didn't really move the needle in terms of driving volume. Interestingly, our returns were higher. So the consumer was saying, "Hey, we want this. We don't want other things." Boots as a category, there was really not a lot of interest in boots. Boots makes up about 50% of our business in this time of year, and our overall boot sales were down 20%. So that's really the thing that affected the Journeys business the most. We had seen that early in the season, but we thought it was because of weather.
We thought it was certainly it would pick up as we got closer to the holidays, but we did not, we did not see that. So lots of initiatives to be able to drive the top line, but by the same token, we have put into action keeping our inventories very clean, which our inventories are very clean, and we will end the year very clean. Tom will talk more about that. We also put in place a cost program to take about $40 million of cost out of the company.
We, in addition to that, announced plans to close 100 Journeys stores, which we will by the end of the year, and so really shoring up our P&L and shoring up our overall cost structure while we are working on all these initiatives to drive the top line. And so that resulted in an adjustment to our guidance, and I'll let Tom talk a bit about that.
I could go ahead and give it a shot without the microphone. Can you hear me enough? So our prior guidance for sales were sales to be down 1-2%. Midpoint of the range would've been 1.5%. Now we're believing sales are gonna be down about 2.5%, so one percent more down in sales, and that's mainly driven by Journeys. There's a little bit of softness in our shoe business, but more than offset by the strength in our Johnston & Murphy business. So it was really related to the shoes holiday sales we saw and some of the earlier trends we're seeing in January, as well.
Our gross margins are the same guidance as we had before, down about 40 basis points, so no change in gross margins. Our SG&A expenses were expected to delever 200 to 220, 220 at the low end. Now we expect to delever about 270 basis points, so another 50 basis points to deleverage, with most of that being related to the sales takedown and some of it related to some additional cost to be able to process the e-commerce business in Journeys. We had more e-commerce fulfillment through the stores than we originally expected, and we had some more variable expenses with Johnston & Murphy because of the outperformed sales. So, so in the end, earnings per share is $0.65-$0.85, down from the original guide of $1.50-$2.00.
Another thing to point out, you know, over the last five years, we've bought back about 50% of our shares, including 20% the last two years. So, you know, changes, you know, with changes in operating income really get magnified with the, the, the lower share count. We expect to generate good free cash flow this year, about $50 million-$60 million of free cash flow. Our inventories, we've continued to manage those well. At the end of the third quarter, overall, they were down 8%, and Journeys was down about in the mid-teens. We expect to improve on that when we close out the fourth quarter with inventory. Overall inventory could be down as much as 10%, and Journeys inventory down as much as mid-teens to high teens. So we continue to do a good job managing inventory.
You know, that, that equates to the good, strong free cash flow, which puts us in a good position as we enter into fiscal year 2025. And we feel good about the steps we've been taking in terms of the cost program and the progress on the cost program and the progress on closing out lower-performing stores. And that, along with the share repurchases, really enables us to get a lot of leverage when we have modest growth and comps going forward. So, you know, we're, we're happy to get this year behind us and looking forward to next year and the opportunity we have going forward.
That's great. And then you think about the broad portfolio that you have that caters to all these unique customer subsets. Could you maybe talk a little bit about the competitive differentiation, across all your businesses and the strategic direction and some initiatives that you have to drive growth?
Yeah. So I'm gonna spend most of my time talking about Journeys, but I wanna talk about Johnston & Murphy, too, 'cause we're very excited about the potential in Johnston & Murphy, so I'll come back and talk about that. But in Journeys, we were delighted to see positive traffic, so real interest within our consumer group around the brand. And Journeys... where our businesses are is that we are differentiated within the marketplace. We stand for something for our consumer. We're different than what other competitors offer, and we have structurally things in place that really help us to maintain our positions. And so when I think about Journeys, nobody does quite what Journeys does. We cater to teens. You saw the great...
You know, the great assortment of brands that we sell. We're a key partner to the brands that we offer within our stores. Our teens like our environment, they like our salespeople. We get great marks in terms of the atmosphere and the environment that we have with our teen customer. And we are great at managing through you know, brand cycles, and whatever is in place in Journeys today won't be in place tomorrow. And so being on top of those brands, really, really thinking through what the consumer wants is a key skill for us because of how much teens fashion cycles through. And so specifically for Journeys, we have in place a plan in addition to just our change in leadership, to for stronger engagement with our consumer.
We have rolled out a loyalty program that we have 2 million members of over the last six months. We're seeing much more higher purchase frequency and also just higher transaction values with those customers. Our customers give us a lot of information, and so our overall CRM efforts, we have ramped up our CRM efforts and are using this to be able to better reach out to our consumers. In addition to that, we have worked hard on elevating our brand relationships, on getting more differentiation into our assortment, of working with our brand partners in a way to get higher-tiered allocations. That has helped us a lot with shoe. It's part of the playbook we're taking for Journeys. Deepening our marketing.
I mean, interestingly, there's a whole generation of kids who sat out the rite of passage of going and visiting malls during the pandemic, and so we have a real opportunity. We have found that the awareness around Journeys, we have a real opportunity to market into that, and so we have plans in place to do that. And, are growing overall our digital business. Our shoe digital business is at 40%, Journeys is below 15%, so we think there's lots of growth opportunity within that as well. And then overall, are shoring up the P&L. I want to come back and just talk about the new leadership that we have in place for Journeys. And, you know, Andy Gray has a 20-year, 20-plus year track record within the industry.
Very seasoned, very seasoned leader, was a global brand president, head of, chief commercial officer, also just the chief merchant, and brings a wealth of experience. He's known as a product innovator, as a brand builder, as a disruptor, and so bringing that leadership into Journeys is terrific. And then we've recently added a new chief merchant that I described, and he's got a 30-year track record within the industry. And so we've got, we've got a great team to go, and initiatives in place to be able to address the challenges that we see in the Journeys business.
Just a minute on Johnston & Murphy, that Johnston & Murphy, as I said, was the hardest hit of our businesses, and we really went back to the drawing board on product and said: "What do we need to do to evolve this brand to be right for the post-pandemic customer?" And did that. What you'll see is we've been known for dress shoes and completely rethought our overall assortment. Brought a lot of comfort, a lot more casual product, but yet, at the same time, our customer, like you, wants to look really good when they come to work. So it's how do we get the product to look good, but at the same time, be really comfortable?
In addition to that, we have grown our categories, and now non-footwear is more than 40% of our overall business. And so we've made progress really quickly within Johnston & Murphy. We doubled our overall business the last time we went through a consumer cycle, and intend to do that again. We think there's lots of daylight in terms of the opportunity we have in Johnston & Murphy.
Great. You mentioned that the consumer is being a little bit more item-specific driven in their shopping habits based on what you saw this holiday. Could you maybe assess for us and level set the current state of the consumer and how you see that consumer evolving over the next twelve months?
Yeah. So, you know, certainly some of what I talked about in terms of footwear as a category has been more challenged than other categories. That the consumer, after buying a lot during the pandemic, said that, "You know, we're gonna choose to purchase other categories." We have seen that the consumer wants what they want. I talked a little bit about that, and I think going forward, thinking through where the opportunity is for Journeys, it is on building into some of the trends. We had a great franchise over the holidays, where Journeys sold through more of that franchise than anybody else did. And so it's the connection to the teen consumer. It's bringing to the table what the consumer wants.
The outlook for the year is continuing to be a choppy consumer environment, but being able to move out of just an item-driven place to more focus on the category is the direction we're headed in.
That's great. Could you maybe speak to some key elements of your Journeys Elevate plan? And also, I know you talked a little about bringing on Andy Gray and having new leadership in. Can you talk about the benefits of all that and, and how you see that playing together and over the next 12 months as well?
... Yeah, so, you know, I talked a little bit about all of those elements, that we have in place for Journeys. Maybe I'll spend a minute talking about Schuh, because Schuh is a company that is very similar to Journeys. In fact, we bought Schuh when we went to go open Journeys stores over in the UK. And what we saw was a business that was pretty challenged by Brexit and pretty challenged by a shift into athletic. And so, for Schuh, what we did in terms of the turnaround was that we really thought about what does Schuh represent within the marketplace? And our sharp point was around the female consumer, around the kids, around really what the purpose was for Schuh.
And so we went back and said, "Okay, how do we, you know, elevate our relationship with our brands, and, how do we really, get greater engagement with our consumer?" And what we've seen within our Schuh business is that we have had an opportunity to grow our market share. We moved up three places, through the course of the year, this year. We are known as sort of the destination for the youth consumer, and, again, taking some of the elements of the playbook, out of, of Schuh for the turnaround that we are affecting at Journeys.
Got it. And then just on Johnston & Murphy, we've talked about the growth opportunities there. Could you maybe double-click on what those look like over the next 12 months and some plans to drive brand awareness ahead?
So with Johnston & Murphy, what we saw through the course of the pandemic, we think everybody knows the brand Johnston & Murphy, because it's a 150+-year-old brand. It's been around for a very long period of time. We've just done a battery of research that says that Johnston & Murphy's brand awareness is only about 35%. And, you know, when our customers get introduced to our brand, we find that we generate a lot of loyalty. We have put in a loyalty program within Johnston & Murphy as well, and we're seeing that 60% of our purchases these days are coming from our loyalty program.
What we are most excited about is that we have a new creative agency on board, and, being able to just amplify, you know, what Johnston & Murphy is all about. That we're not about dress shoes, that we are about more than dress shoes, that we have diversified the assortment into a more casual offering, that we've got lots of categories in addition to footwear, that it's very lifestyle driven. We believe there's an opportunity to really grab market share. We've grown significantly on the top line since we have emerged from the pandemic and are reinvesting overall with marketing dollars to be able to drive the awareness and to get the word out there.
Great. And then just on the P&L, you've obviously made efforts to cut costs. Could you talk about streamlining efforts and how you see the P&L shaping up from a G&A and SG&A standpoint as we look ahead?
Yeah, yeah, that. We are happy with the efforts we've made there. And, you know, some of the focus areas on the P&L and the operating expenses are continued work on our rent line, which is our biggest operating expense line. And for the stores we want to keep, we're gonna continue to negotiate hard on those and continue to get reductions. We've got a history since the pandemic of about, you know, mid-teens to 10% kind of reductions on those renewals. So we're gonna continue to leverage that, tell our story to the landlords about the opportunity they have. Another thing we're continuing to look at is the second biggest line is selling salaries. We continue to do time studies and understanding of just what efforts are in the store, what's non-selling versus selling efforts.
We have been implementing, seeing some traction. We expect more traction in getting non-selling salary kind of activities out of the store. We continue to understand more how e-commerce plays into store operations and the cost involved in that, and we're gonna get some traction in that area as well. And procurement related to different overheads, third party spend, we've got some traction there. We'll continue to amp up and get more aggressive on that as well. So those are some of the areas that we're focused. On the gross margin line, we've got different dynamics going there. As we, you know, increase our e-commerce business, there's some shipping and handling that goes through the gross margin line, so that puts some net pressure on that.
But in the end, net-net, with the growth in Johnston & Murphy and the continued gross margin expansion efforts with Schuh, that should offset some of those additional sort of mix-channel mix kind of pressures we see going forward. So with the efforts in place, we see a good opportunity with small, you know, small growth in sales to be able to, you know, start getting our operating margin back up to, you know, historical levels. But it's gonna take some time, as Mimi mentioned, this year coming up. You know, especially, you know, towards the first half, it's gonna be some more challenges. But we feel we're setting up, taking the right steps to be in the right leadership in place now to be even more aggressive and, move forward into next year.
Yeah, and I just want to repeat that, too. I think when you look at the cost measures, and the store closures, that that our year for next year is set up nicely on small levels of growth to be able to drive nice increases overall in EPS.
Great. And we're running out of time here, so maybe any closing remarks that you want to leave with the audience?
Yeah, you know, just very excited about the opportunity that we have ahead of us in Journeys. We are well off of our historical operating margins, which we will build back into. We've got the leadership in place, we've got the initiatives in place to be able to do that, and that will unlock a significant amount of value for us going forward.
Okay, great. Well, thank you very much for joining us today. Have a great day.
All right, thank you.