Okay. Good morning, everybody, and welcome to the 28th Annual ICR Conference. My name is Joe Civello. I work for Truist Securities, covering the soft lines industry. I'm very pleased to be hosting this next session with Genesco. Here with me today are Mimi Vaughn, Board Chair, President and CEO, and Sandra Harris, CFO. Welcome, guys.
Thanks, Joe.
Thank you, Joe.
So before we start, I think we have a video we want to watch before we get started. We can run that.
Hi, I'm Peyton Manning. Some of my greatest moments didn't happen in cleats. They happened in shoes like these, the Anders. Caught a trophy bass in these bad boys last month. Nearly broke my line. Or the XC Flex Blazer. Wore this to the racetrack. Made a bet on a long shot colt named Awkward Hug. He didn't win, but he did place ahead of my brother's horse. Johnston & Murphy, made for the moment since 1850.
Awesome. Love the excitement across the portfolio, and very cool to have Peyton Manning in there. So happy to talk about that. But before we get started, do you guys have any comments for the conference before we start?
Yeah, sure. So you can see our business, for those of you. We're a footwear-focused company. We have a retail side. We're the destination for the brands, the top-selling brands for teen customers and youth customers through Journeys and Schuh in the U.K. And we also have a branded side of our business, the cornerstone of which is Johnston & Murphy. What unites our businesses is really a direct-to-consumer platform. We've been in the process of reinventing. I think Journeys is a great example of that. We just posted our sixth consecutive quarter of positive comps led by Journeys at the high single- or double-digit rate. Have a lot of earnings potential underneath the cover of what we have, and excited to talk about it.
Great. Okay. Now, before we get into the quarter-to-date results, which came out this morning and look great, can you just talk about how you're thinking about the consumer environment today? Specifically, we've been seeing a lot of volatility and demand increasingly concentrate around key shopping moments. So how is that shaping how you run the business and think about providing guidance?
So for sure, there are a lot of puts and takes with the consumer. And what we have been observing is that the consumer is definitely stretched. And being stretched, they're having to make decisions. And so newness and freshness is what is motivating the consumer above everything else. The second thing I'd call out is that we see the consumer come out and shop when there's a reason to shop. And the peaks are really high, as we demonstrated. But the valleys also are there as well. And so it's a very well-educated consumer. They get educated during those valleys. They come out and they shop in really big force. So you have to be ready for them. And I think that's the number one thing, is you have to be ready for them.
Got it. Makes a lot of sense. Continuing with the consumer macro a bit, tariffs were obviously the big difference between holiday 2025 and 2024. And as price increases have started to roll through. What would you say have been the most meaningful shifts you've seen in consumer shopping behaviors?
Up double digits, and so they're accepting of those prices and really picking and choosing what they want and being very discriminating about what they're purchasing, so being spot on in the assortment is very important. Having the depth of the assortment in the items that they want is what really helped us to drive holiday sales.
Got it. And just one more on the industry-wide stuff. How would you say price increases have flowed through industry-wide? And do you think that we should be coming up on kind of having things behind us by maybe spring, summer?
I think that there are a lot of riddles in terms of exactly what's going to happen with tariffs and price increases. I think there's a lot more to try to understand, a lot more to unfold, but I think at the end of the day, there have been price increases that have flowed through. We do anticipate some more will flow through in spring, and we'll have to sort of see how the rest of the story comes to be.
Got it. Okay, great. And as we mentioned before, you just reported some pretty impressive holiday results this morning. Can you take us through what you saw and how that compared to your guidance and where you saw the most upside?
Sure, so we were very pleased with our holiday results, and as I said, the consumer absolutely came out and shopped in force in December. They were looking online, and we could see them really deciding their purchases, and they came out in huge force, so our momentum started to build right after Black Friday. It increased as we got closer to Christmas. The couple of days before, the couple of weeks before Christmas were really phenomenal for our business, much more than we had expected, but we were ready for it, and so our comp overall was 9% on top of the 10% that we disclosed last year. Altogether, we saw that online came back, which online had been dormant in our third quarter. Stores continued to really shine. Our stores comp was up 10%. Our online comps were up 9%, and the leader of all this was Journeys.
Journeys notched a 12% comp on top of a 14% last year. As I said, it was all full-price selling, really tremendous assortment. Athletic carried through. Casual was what ramped up significantly. We had five brands that drove our business and really great metrics across the board. Journeys broke records. Our Schuh business in the U.K. was + 6%. We talked about Schuh in the U.K. environment being quite promotional as we entered the season. And so some of those comps for sure were driven by promotional activity. We navigated through, made sure that we matched competition, and that we ended, that we are going to end the year very clean in inventory. So there's a measure of that in there as well. And then Johnston & Murphy notched positive comps. So we were positive comps across the board.
Johnston & Murphy's selling was really all about the newness and freshness in the assortment. Apparel was the star of the show. Footwear also in collections like XC Flex were sold through really nicely, too. Altogether, quite a good holiday season.
And then, Joe, from a financial standpoint, our quarter-to-date significant comp of 9% implies that we have a beat to sales. And so that's primarily the driver of our change in estimate. Combine that with the margin pressures at Schuh that we've been talking about, and also with the higher incentive comp that was driven by the performance of Journeys, that's what gets us to the $1.30 new estimate.
Got it. Yeah. Nice upside there versus where we were before. Love to see it. Stepping back a little bit, Sandra provided some commentary on the categories that drove the performance at Journeys. If we could just dive in a little bit more there and also just talk about any weather-related items that our data-driven investors would love to hear about.
Yeah. I think weather on balance was good. No major snowstorm shut anything down, which was really good. So not much to talk about there. But when we talk about the categories that drove Journeys, athletic, I've been talking about athletic being a more year-round category that our consumer, our teen consumer, is wearing. And that for sure was true. So the strength of athletic continued. But what really turned on was casual. So boots were good. As I said, five brands drove our business. Three of them were casual. Two were athletic. So some nice mix across the board.
Got it. Okay, great. So love to spend a little bit more time on that Journeys performance. You've implemented a strategic growth plan that has driven some strong comp momentum. What would you say have been the key drivers of the improvements?
Where it all starts for Journeys is serving an underserved market. When we think about what the opportunity is for Journeys, and we've always been teen, but we've dialed into this opportunity over the course of the last year and a half about how do we serve this teen, and did a lot of work, did a lot of research around the consumer, and see that that teen consumer, particularly the teen girl, is well served. [audio distortion]Apparel. I can name 10 apparel competitors that, and I walked each one of them as we went through the mall on, and started with really thinking about how we demonstrate our product leadership across all of the brands that our teen girl consumer, very fashion-focused, is interested in.
And so the last year and a half has been all about just bringing in the depth of the assortment that we need, the key items that we need to serve this consumer, elevating the proposition out to the consumer, striking relationships, even better relationships with our brands. We're number one or number two with most of the casual brands. But we have really leaned into the athletic brands and brought some more expertise on our leadership team to be able to lean into that. And so product is a very important piece of it. And elevation of the product and more premium product is a very important element of it. Second element is all about the Journeys brand and articulating out and building the Journeys brand. And so this is all about the fantastic proposition, the inclusive environment, the purpose that Journeys serves.
And so we've done a lot of revamping of our visuals, a lot of our revamping online, a lot of the storytelling around what Journeys is all about and the brand building of Journeys. We launched a new brand platform, Life On Loud, which was a great remix of a '90s original and just getting the word out there about Journeys and the opportunity. The third element of it is the customer experience. And there are many aspects of the customer experience. But the most important one that I would talk about is our new store remodel, our 4.0. It is the best demonstration of what we are doing in terms of targeting this broader consumer base, the premium environment, the elevated assortment. And it's very shoppable, very easy to shop. You can see the leadership across the brands. The performance has been great, up 25%.
All the metrics have been good. The very last element is really unlocking the power of our people. And we absolutely did that with better training, better attracting retention of our overall store base. We lead with stores in Journeys and had really excellent conversion, excellent metrics over holidays. So proof points that it's paying off. But it is all about that consumer. It's all about serving the underserved consumer. And we see a lot of opportunity continuing for Journeys going forward. We comped the comp last quarter, and we're comping the comp again even more strongly this quarter.
Got it. Yeah. And I think a big part of that, you touched on it with having all these brands and better assortments. And now that you have comped the comp here, again, the focus for all these investors will be comping the comp again. So how should we think about your product opportunity in 2026 as you lap those gains from last year?
Yeah. Look, I think we continue to believe there's good product opportunity. We're comping stronger comp. We've learned a lot over the course of the last year. We've learned a lot in terms of what works and what doesn't work. The beauty of the model that we have is that we can come in and out of what the customer wants. And we can also help her to better understand what she wants as well. And so I think that it's the building on the knowledge that we have. We introduced a couple of new brands. I want to underscore that it wasn't those brands that delivered our holiday, but that's opportunity for the future. And so we see some nice opportunities to build on what we've been doing and also to grow some of the new brands that we've introduced.
Yep. Makes sense. Can you talk about the longer-term potential for the 4.0 rollout and your confidence level in kind of utilizing this more premium model to drive sustainable growth?
By the end of the year, we'll have rolled 80 of the 4.0s. We accelerated the rollout, and that will be less than 10% of our overall fleet. And so when you can think about 10% of our fleet comping 25%+ , that's some built-in comp going forward. So that should help sustain the momentum going forward. We will roll out a similar number this year. And it's a great environment. It's a clean aesthetic, the brand statements I talked about. And so we are very ambitious to continue that rollout. And our plans are to invest in the 4.0s on an ongoing basis. We think we can get to probably 30%-40% of our fleet in the next couple of years.
Got it. Okay. Maybe switch gears a bit towards Schuh, your U.K. footwear business that's pretty similar to Journeys. Can you just elaborate on the broader U.K. marketplace pressure you were talking about and how we should think about your performance going forward as you execute a turnaround there?
Sure. We talked about the challenging market in the U.K., and it has been challenging, but we've taken the steps to be able to get as clean as we possibly can by the end of this year, and going forward, just to help think about unlocking the opportunity in Schuh, it's some of the playbook from Journeys, but really some of the aspects that are unique to the U.K. market, and so Schuh is the number one seller of branded footwear with a fashion bent, just like Journeys. There are bigger athletic competitors out there, but the opportunity is the same to serve that underserved girl in the U.K. market, and so step number one is really articulating that in an even stronger way. We've made some strides on that coming out of the pandemic. We moved up significantly and grew the business quite a lot.
But there's a reset underway right now following the year that we've had. And so it's articulating the customer that we're serving and really gearing every aspect of our business around serving that customer as we've done in Journeys in the recent past. And then going on a brand offensive, that step one for Journeys was after that, after the positioning was to go on a brand offensive and really work with our brands. Our brands covet this young girl. And we can serve her very well. And so really being able to get better assorted in the product and the brands that that girl is interested in. And then we've got work to do around making sure that we can build the brand awareness, that we are also planning on optimizing the store network as well and the store portfolio.
And so lots underway in terms of the opportunity for Schuh as well. And that will become an increased priority for this coming year.
Got it. And recently announced the Journeys Global Retail Group bringing the Schuh and Journeys businesses together. Can you talk about the benefits you expect to bring as it comes through?
Yeah. We have Journeys in the United States and Canada. We have Little Burgundy in Canada. And we have Schuh in the United Kingdom. And the Journeys Global Retail Group is the opportunity on a global basis to really serve this teen, this young girl on a global basis. The insight that we have from one market to the next helps inform our thinking about what she's interested in and what she's thinking in terms of fashion. Our ability to be able to work with our brands on a global basis is the compelling part of what we have put together here. We are leading really with product.
Chris Santaella is leading this, the product side of it and the brand side of it, uniting these businesses together so that we can be more forward-thinking about the growth opportunities with our brands and develop in the pipeline just greater opportunity for growth across each one of our businesses. And so it's the sharing of knowledge. It's the bigger scale that we will bring to the marketplace as well.
Got it. And obviously, you guys have such a diverse business that we get to touch on a third one here. I would love to ask about the branded business a little bit. We saw Peyton Manning before. Can you just talk a bit about Johnston & Murphy and where that brand is positioned right now?
Sure. Johnston & Murphy has been known as a dress shoe business. Coming out of the pandemic, we had an opportunity to really reposition that business to be more casual and to be much more comfortable. We accomplished that. We changed the assortment pretty dramatically. At the same time, we built into the opportunity to grow non-footwear categories. We have a lot of apparel. We have a lot of non-footwear categories as well. It's about 50% of our business. We've always served a very successful professional person, mostly men. We continue to do that. We are interpreting what's the right attire, what's the right footwear for that professional male today. We've had a lot of good success in being able to do that.
We've been focused a lot on product and making sure that we can bring technology to the product to differentiate the product.
Got it. Yeah, and can we talk a little bit about the collaboration with Peyton Manning? I think it's pretty exciting. Just talk about how it came about and early reads from that deal.
Yeah. So, product is one aspect. And differentiated product is very important. We have been working on injecting newness and freshness into the assortment, more frequent drops. That's been a lot of the work that we have been doing this year. In addition to that, Johnston & Murphy is a 175-year-old brand. And the brand awareness is fairly low among our target group of consumers. It's 30%- 35%, 40% among our target group of consumers. So we actually saw Peyton wearing our product and felt like he would be a great spokesperson for us. He's a very authentic person and embodies a lot of the elements of the brand that we wanted to put forward. So we struck a deal with him. We started in October. He started as our spokesperson in October. We have seen the immediate impact of bringing Peyton into our business. He's in our stores.
He is online. He is on TV with us. He talks about us in the ManningCast. And he wears our product pretty regularly. And so we've seen increased traffic to the stores. We've seen increased traffic to the website. And I'm excited about the prospect of working with him going forward.
Yeah. Hard to find somebody more well-loved than Peyton Manning. So that all makes sense.
Well-known.
Great. All right. So bringing it all together, we spent a lot of time here on the underlying demand, top-line trends. Before we close, we'd love to hear about the puts and takes for margins and profitability going forward. Maybe we'd start on gross and then work our way down to operating.
Yeah, Joe. So this year, as we look back, we comp positive every quarter. And that has driven meaningful sales, which has also driven meaningful SG&A. We did have margin pressures from Schuh, as Mimi's talked about, and also with our exit of our licenses at the Genesco Brands Group and tariff pressures. As we think about next year, Joe, we expect that we're going to recapture that margin. And maybe not all of it. We do expect that the consumer will still be responsive to tariffs. And tariffs are still unknown. But we do expect to meaningfully capture that. At the same time, we will have lower sales. We will continue to comp positive. However, we have a timing gap in our Genesco Brands Group between the exit of the Levi's license and the ramp-up of Wrangler.
And then as we work on the profitability improvements in our Schuh business and work to optimize that fleet, we'll also have some store closures to accomplish that. So although the different levers of our financial performance will change, we do expect to drive meaningful earnings growth.
Got it. And maybe we could just talk a little bit about capital allocation as well.
Yeah. So on capital allocation, you've heard us say in the past, we've bought back a significant amount of our shares over the years. And we've talked today about our excitement around addressing the consumer, especially through initiatives like our 4.0. And so we continue, as we go into next year, to really invest back in this business. We've historically spent around $55 million-$60 million on capital. As we go into next year, we expect the same as we continue or maybe slightly higher as we continue to expand on our 4.0 stores.
Got it. And how should we think about down the line, let's just say, footprint and operating margins as we move forward?
Yeah. So we do think as we continue to implement our strategies that over time, we can drive meaningful leverage in our business. Right? This year, we've driven 100 basis points of SG&A leverage every quarter. The positive comps helped that. Our cost initiatives helped that. And we do know that as we look forward to the future, that we can continue to create that type of leverage in the business. And so over time, we do believe that 100 basis points would be meaningful in our operating income, could return us to historical levels of operating income, which was around $100 million, which would be about a 4% operating income as a percent of sales and also about a $5-$6 earnings per share.
Got it. Well, thank you guys so much. This was all really interesting. Appreciate everything.
Yeah. Thank you, Joe. And thank you, everyone, for joining us today. I think that to sum it all up, we have really great momentum in our business. We have a lot of earnings potential that Sandra talked about. We think that there is really sustainable opportunity within Journeys and opportunity for our other businesses as well. So thanks for joining us. And thank you, Joe.
Thank you so much.
Thank you.