Genesco Inc (GCO) 2010 Q3 法說會逐字稿

Good day, everyone, and welcome to the Genesco third quarter fiscal year 2010 release conference call.

Just a reminder today's call is being recorded.

At this time, for opening remarks and introductions I would like to turn the conference over to Mr.

Bob Dennis, President and Chief Executive Officer of Genesco.

Please go ahead, sir.

Good morning.

Thank you for joining us for our third quarter fiscal 2010 conference call.

Participating with me on the call today are Hal Pennington, our Chairman, and Jim Gulmi, Chief Financial Officer.

As always we will make some forward-looking statements in this call.

They reflect our expectations as of today but actual results could be different.

We refer to you our earnings release and to our recent SEC filings including the most recent 10-Q for some of the factors that could cause differences from our expectations.

And for those listening to the he replay of this call on the Internet, some of these factors can be read on the opening screen.

We were pleased to report earnings for the quarter which exceeded both our internal projection and external expectations.

The earnings gains primarily came through better gross margins and solid expense control.

Our top line sales were roughly flat in the quarter on slightly negative comps.

As we discussed on our last conference call, we experienced a choppy start to back to school, but we finished strong in early September as we expected because of the Labor Day shift.

October was generally in line with our plan but probably had some assistance from the cold weather early in the month.

For the third quarter as a whole, net sales were roughly flat with last year at $390 million.

Same-store sales for the total company declined 2% versus the 2% increase last year.

We reported earnings at $0.53 per share this year reflecting the adjustments listed in Exhibit B of the press release.

This compares to EPS of $0.43 last year, also adjusted as outlined in the press release.

Our financial position remains strong, with no bank debt at the end of the third quarter, compared to $50 million last year and $32 million at year end.

Total debt at quarter end, including the convertible notes, was down about $101 million on a year-over-year basis, and we finish with $24 million in cash.

Immediately following the close of the quarter, we announced the conversion of $21 million of convertible notes into common stock and called the remaining $9 million of notes for redemption on December 3.

Right now we expect to have no debt on the balance sheet at year end.

And finally, we were very excited to announce the acquisition of Sports Fanatic shortly after the close of the third quarter.

I will discuss in this more detail later in the call but we believe that this concept represents an attractive new growth platform for Genesco.

October showed good signs of continued consumer recovery.

However, as other retailers have been reporting, November has been weaker than expected thus far, despite the help that we have gotten from the New York Yankees World Series victory.

Through Saturday, November 21, the last day for which we have good comp sales figures, Genesco's month to date comps were minus 3%.

While we don't like to blame the weather, we do think that an unseasonable warm November in much of the country has had a negative impact on the month to date results.

As I mentioned earlier, the cold snap in early October coincided with a surge in sales so we know that weather can make a difference in both directions.

It is important to note that retail sales for first three weeks of November historically represent only about 15% of our total retail sales for the quarter.

So there is still plenty of time to make up for the slow start.

Reflecting the slow start in November, we now expect fourth quarter comps to be flat to slightly positive.

As we have also said previously, our comparisons are easier in the current quarter.

The third quarter last year was up 2% while the fourth quarter was down 5% as was the fourth quarter before that.

And so we feel we are working off a lower baseline for the quarter.

We are also encouraged by the fairly consistent observation over the past year that consumers show up more readily for traditional buying occasions, like back to school, and we expect the Christmas season, even when they have been more reluctant to spend in between.

So we expect this demand pattern to play in our favor through the holiday period.

Based on these expectations, plus the better than expected Q3 and the addition of Sports Fanatic, we now expect to earn $1.78 to $1.84 for the year.

Jim will talk more about this guidance later in the call as well as our guidance for next year.

However, I will give you some general thoughts on our initial planning for next year.

We are looking for a year that will likely have a positive GNP, although we expect a fairly muted consumer recovery tied to slow improvements in unemployment over the course of 2010.

For our business, therefore we will be planning for only modest store growth no greater than this past year, modest comps of low single-digits, but continued improvement in expense control, especially on rents due to our expectation that mall occupancy will continue to be down.

On this basis, we estimate earnings for fiscal 2011 of $2 to $2.10.

When I hand the call to Jim Gulmi he will provide more detail on this guidance.

Now let me review our individual businesses beginning with Journeys.

For the Journeys Group, third quarter sales were $198 million compared to $201 million in the third quarter last year.

Same-store sales for the group were down 2% for the quarter, compared to a 5% gain for the same period last year.

Despite the sales decline, operating margin was up to 9% of sales from 8.4% last year.

Through November 21, comps for the month in the Journeys Group were minus 7%.

We expect to end the year with 1,024 stores in the Journeys Group.

Inventories for the Journeys Group ended down 4% compared to last year.

We feel very good about our inventory position across the Journeys chain as we head into holiday, both in terms of quantity and assortment.

Looking at components of the Journeys Group in the third quarter, in the Journey stores alone, third quarter comps were down 3% compared to a 4% increase last year.

Footwear unit comps decreased 1%, and average selling price decreased 1.5%.

The ASP decline was driven primarily by mix changes and higher markdowns in the athletic area.

We chose to be more promotional in the early stages of this year's BTS period which drove up the markdowns.

We continue to feel good about Journey's merchandise position as we head into holiday, especially in the boot category.

We also believe that canvas, women's fashion and core skate will continue to performing perform well.

Our Journey's direct business was strong with sales up more than 8% for the quarter which we believe was driven both by more paid searches and by our increased presence in social media.

Journeys has built a more meaningful presence on Facebook, Twitter, and other important social media in recent months.

We have made it easier for our core customers, who, as you know, fully embrace digital media, to talk to us as well as to each other about Journeys and its product.

All of this activity enhances our bond with this demographic.

In real estate, we opened one new Journey's store during the third quarter and did not close any stores.

We have renewed or renegotiated leases on 64 stores year to date with an average decrease in occupancy costs of 10%.

We remain on track to open 10 stores and close 8 stores and end the year with 818 stores.

Turning now to Journey's Kidz, comps increased 3% in the quarter versus an 8% increase last year.

Footwear unit comps increased 0.4%, and ASPs increased 2.7%.

Boots continue to be very strong as Kidz has become a destination store for Uggs.

We did not open or close any new Journey Kidz stores during the quarter.

We expect to end the year with 150 stores in operation giving us 9 new stores for the year.

Shi by Journeys comps in the third quarter were down 3% compared to an increase of 6% last year.

Foot wear unit comps were down 12.3%.

Foot wear ASPs on a comp basis were up 9%.

We continue to increase our selection of athletic product in the stores.

Athletic represented 27.5% of total foot wear sales for the quarter compared to 25.3% last year.

We currently have 55 Shi stores in operation and plan to end the year with 56 stores having opened one new store this year and we have no plans to further expand Shi until we see more sales momentum.

Turning now to Hat World, third quarter sales were $106 million versus $93 million in the same period last year.

Total sales were up 13.5% for the third quarter and excluding sales from Impact Sports, which we didn't own last year, sales rose 4%.

Comps were up 1% during the quarter versus a comp increase of 2% for the same period last year.

The sales gain was achieved despite a World Series that shifted back by one week and ended in Q4 this year versus Q3 last year.

The positive offsetting factor in the quarter was that the sales of Yankees product, even before they won the series, contributed to a net gain in the quarter of roughly one point of comp versus the Philly's victory last year.

Hat World had an increase in operating income despite modest comps which was the result of solid expansion of gross margin.

The Yankees win was obviously a positive for Hat World, but the later World Series means that this year we have seen more benefit from the World Series in the fourth quarter compared to the third quarter, reflecting that quarter to date comps through November 21 are up 4%.

And we expect Yankees product will provide a boost throughout Q4.

With regard to the NFL, we did a better job this year buying more selectively and managing our inventory more efficiently, so while we don't expect a year-over-year sales kick, we do expect to see significant margin improvement in this category by the end of the quarter.

We opened a total of 10 new Hat World stores and closed nine in the third quarter.

Hat World's direct business showed strength in the quarter, up 9% over last year.

We expect to end this year with 889 Hat World stores, including 60 stores in Canada having opened 38 new stores and closing 35 during the year.

We also just opened our second flagship store in New York City on Broadway and 33rd street, which is doing extremely well with, of course, help from the Yankees, and we recently had strong openings for our first two stores in French speaking Canada.

As I mentioned earlier, in November, we acquired Sports Fanatic, a Florida-based retailer of licensed apparel, accessories and novelties with 37 stores in seven states.

The stores average about 3,000 square feet and the Company generated about $29 million in sales for its 12 months ended in September.

Sales per store are about $800,000 and consist of a very broad mix of fan based licensed merchandise.

Sports Fanatic stores set in many malls that already have a Hat World store.

Indeed, most malls already have both a Hat store usually one of ours, and a broad based fan store like Sports Fanatic that coexist.

We like this business for three basic reasons.

One, its strong strategic position.

Two, its synergies with Hat World.

And three, its solid growth prospect.

I'll spend a minute on each point.

First, strategic position.

We believe businesses that are niche oriented are the largest in their market segment and on that basis have significant competitive barriers to entry provide the opportunity for outsized returns.

Sports Fanatic, ones that have scaled nationally, can achieve that position just as Hat World did through preferred vendor relationships, real estate leverage and operational efficiencies.

The intensity of the connection between passionate sports fans and their favorite teams is one of the very best examples of building a positive brand affinity, and we now sit squarely in the middle of that relationship.

We bought one of the best regional chains out there as our initial platform which came with a great team that has deep knowledge and experience in the category.

And they were nicely profitable on their own even in this economy.

Now let's speak to the synergies.

We see opportunity to immediately leverage the strength of both organizations to improve performance.

We should be able to significantly improve their sales and inventory management through the use of our more replenishment oriented warehousing and distribution platform.

Today Sports Fanatic does virtually no replenishment.

We share many vendors and naturally given Hat World's size our better discounts will help Sports Fanatic's margin structure.

Sports Fanatic stores do not offer embroidery, nor does the Company currently have an e-commerce platform, and we clearly plan to add these.

At the same time we will look to take advantage of Sports Fanatic's merchandising skills and non-headwear categories to enhance the look and feel of our larger format Hat stores.

The business is ideally suited to what we know.

It is mall based.

Its customer demographic is similar to Hat World, and we share a merchandising approach that focuses on heavily tailoring a store's product offerings to the local market based on local teams.

We are already initiating the conversion of Sports Fanatic to Hat World's merchandising platform which is best in class for managing localized assortments.

Finally, let me speak to its potential for growth.

The industry is highly fragmented, and this fragmentation, along with Hat World's existing infrastructure and real estate power, should allow us to drive consolidation much as we did in the head wear space.

This can be achieved by either acquiring other regional chains or opening in a mall coincident with a fan store's lease expiration.

We have already identified six to seven chains representing roughly 300 stores in this niche and there are many more smaller chains and pure mom and pops.

It is important to remember that Hat World has a solid track record of successfully absorbing roll-up acquisitions.

Now, turning to Underground Station group, third quarter sales were $22 million compared with $24 million in the third quarter last year.

Comps decreased 6% during the third quarter compared to positive 1% last year.

Footwear unit comps for the third quarter decreased 1.3% and ASPs declined 3.7%.

Through November 21, comps for the month were down 9%.

Over the past 12 months, we have closed 10 Underground Station stores, taken the total stores count down to 174.

In addition we have achieved reductions in occupancy expenses averaging 32% for renewals or renegotiated leases on 30 stores year to date.

As we have said previously, we will not open any Underground Station stores this year and expect that our store count for Underground Station group will be down to 169 stores by year end.

We continue to monitor our strategy for winding down the worst performing stores and shortening lease life to minimize our exposure.

We remind you how inflexible landlords are right new about negotiating for the early closing of stores especially in this market which limits our degrees of freedom.

Importantly, we still expect that Underground Station will be cash flow positive for the year as it also was last year, and that its loss will be reduced year-over-year.

Inventories are down proportional to sales and in good shape for holiday.

Now for Johnston & Murphy.

Third quarter sales for the Johnston & Murphy group were $40 million versus $42 million last year and comp sales in the Johnston & Murphy group decreased 2% compared to a 15% decline last year.

While the economic environment for better brands is still somewhat challenging, it appears that the worst is behind us as we have experienced sequential comp improvements for the past five months and operating margin was up to 4.1% of sales from 3.6% last year.

Through November 21, comps for the month are up 1%.

Comparisons remain favorable for the rest of the year.

In the third quarter, Johnston & Murphy's wholesale business declined about 13% compared to last year, primarily as a result of general weakness in department stores and our customers' ongoing efforts to manage inventories down.

That said, our sell-throughs are holding up nicely and we still represent an outperforming brand for our retail partners.

Our team has done an excellent job in reducing our overall inventory position which was down 15% to $49 million from $57.7 million last year.

As a reminder, inventories were up 20% year-over-year in January, so this is an important accomplishment.

And this reduction did not inflict significant margin damage as it was achieved primarily by managing down receipts versus taking markdowns.

The assortment continues to evolve in order to attract new customers and to serve the needs of more and more end users.

Johnston and Murphy is building a stronger presence in more casual footwear and we are excited by our customers' response to some new product introductions, especially about new collections coming for spring in this category.

In keeping with the current retail trends our casual product typically sales at lower, more accessible price points.

And non-footwear again, became a higher percentage of sales in the quarter as the team successfully broadens the brand's appeal.

In addition, we are very pleased with the performance of the J&M Women's line which is delivering significant year-over-year comp gains albeit in limited doors.

Our team has done a terrific job fine-tuning our product and our price point, and the customer base in these stores is growing nicely.

We opened two now Johnston & Murphy stores and closed one in the third quarter.

Johnston & Murphy expects to end the fiscal year with 162 stores in operation having opened eight new stores and closed three this year.

Finally, turning to licensed brands, sales were $24 million for the third quarter compared to $30 million for the same period last year.

Dockers brand sales were down 19% during the quarter compared to last year, primarily reflecting the launch of a new product line last year.

We, did however, generate a solid improvement in gross margin, and as a result, operating margin increased 340 basis points.

We also recently launched a line of shoes onto the licensed brand Joe by Joseph Abboud to be distributed exclusively at JC Penny, which we are also excited about.

Now Jim will take you through financials for the quarter.

Thank you, Bob.

I will now run through P&L for the quarter.

Sales were essential flat at $390 million for the quarter.

Total comp sales decreased 2%.

Journeys group sales decreased 1% to $198 million, and comps were down 2%.

Hat World group sales rose 14% to $106 million.

Excluding Impact Sports, Hat World sales increased 4% and comp sales increased 1%.

Underground Station sales were 10% to $22 million, reflecting a 6% comp decline and a 5% reduction in store count to 174 stores.

Johnston & Murphy group sales were down 3% to $40 million.

Johnston & Murphy's wholesale sales decreased 13%.

Comp sales for the Johnston & Murphy shops and factory stores were down 2%.

License brands sales decreased 20% to $24 million.

Now turning to gross margin.

Total gross margin for Genesco increased by 50 basis points to 51.3% compared to 50.8% last year.

This was due primarily to lower margin reductions and an increase in initial mark-ons.

Gross margin for the Journeys group was up 70 basis points due primarily to lower margin reductions and lower shipping and warehouse costs.

Hat World's gross margin was down about 260 basis points due to the lower gross margin from Impact Sports a wholesale business.

Excluding Impact Sports, Hat World's retail gross margin would have been up for the quarter.

Gross margin for Johnston & Murphy was up about 20 basis points which is the first quarterly improvement in over a year.

This improvement was driven primarily by lower markdowns.

Underground Station's gross margin was also up about 110 basis points due primarily to higher initial mark-ons.

License brands gross margin increased nicely due primarily to product mix and lower close-out sales.

Now turning to SG&A.

Total SG&A was 45.7% of sales compared to 46% last year.

Expense dollars were down for the quarter due to lower bonus accruals.

We continue to see improvement in occupancy expenses.

Last year average square footage was up 4.7% and occupancy expense increased 7.2% in the quarter.

This year, average square footage was up 1.7% and occupancy expense was up only 1.9%.

On a per square foot basis, occupancy expense was essentially flat with last year.

Hat World did leverage in the quarter due to the favorable effect of adding a lower expense structure of Impact Sports, a wholesale business.

Johnston & Murphy's expenses as a percent of sales were down slightly from last year.

Journeys, Underground Station and licensed brands experienced some increase in their expense to sales ratios but expense dollars were down in each operating unit.

The restructuring in other line item in the P&L reflect $2.6 million primarily in retail store fixed asset impairments.

These were all non-cash charges during the quarter.

Last year's restructuring and other amount was $2.3 million which included a $1.9 million in retail store asset impairments and about $400,000 for lease terminations.

Adjusting for the restructuring amounts in income statements in both years, and acquisition related expenses of $200,000 last year, we reported operating income of $21.9 million, or 5.6% of sales in the third quarter this year compared with $18.8 million or 4.8% of sales last year.

Journeys earned $17.9 million or 9% of sales compared with $16.9 million or 8.4% of sales last year.

This improvement was driven by the improvement in gross margin.

Johnston & Murphy's operating margin of 4.1% was up from 3.6% last year due in part to the improved gross margin.

License brand operating income was essential flat with last year while operating margins improved strong toll 16.5% compared to 13.1% last year.

Hat World's operating income was $7 million, while operating margin was 6.6% compared to 7.2% last year, reflecting the addition of Impact Sports which lowered the Hat World operating margin by about 90 basis points.

Underground Station's operating loss was lower than last year in the quarter by about $400,000.

Net interest expense for the quarter was $1.9 million compared to adds 3.3 million last year.

This reduction is due primarily to the conversion of approximately $56 million in convertible notes to common equity in the first quarter this year, and our strong cash flow in the quarter.

In this quarter's interest expense there is an additional $292,000 pretax that relates to the new accounting standard for convertible debt under APB 14-1.

Last year's third quarter interest expense has also been restated by $775,000 pretax as APB 14-1 requires a restatement of the previous year.

The added interest expense in both years are non-cash expenses and are excluded for purposes of guidance.

Pretax earnings for the third quarter were $17.4 million compared to earnings of $13 million last year.

Again, both years include non-cash charges of $2.6 million and $2.3 million respectively.

Primarily fixed asset store impairments.

Earnings from continuing operations, excluding all the items listed in schedule B of our press release was about $12.3 million or $0.53 per share compared with earnings last year of $9.5 million or $0.43 per share.

Now turning to the balance sheet.

We are pleased with our balance sheet at the end of the quarter.

Bank debt was zero, which is down from year-end from the year-end amount of $32 million and last year's third quarter borrowing of $50 million.

Our unused borrowing availability under our $200 million committed lines of credit was about $188 million at quarter end, including outstanding letters of credit.

Inventories were down 5% from last year's levels, even with the additional inventory from the Impact Sports acquisition late last year.

Excluding Impact Sports, inventories would have been down 7%.

We continue to believe our inventories are in good shape and we are well positioned for the fourth quarter.

In previous calls, we talked about our plan to reduce Johnston & Murphy inventories below last year by the end of the quarter.

We are happy to say that Johnston & Murphy's inventories were down 15% compared to last year.

The balance sheet now reflects long-term debt of $29 million at book value versus $130 million last year.

In both years a convertible notes on the balance sheet have been adjusted to reflect APB 14-1 for convertible notes.

The face value of these convertible notes this year is about $ 30 million, about $86 million last year.

The reduction is, of course, due to the exchange offer.

At quarter end, we had over $521 million in shareholders equity and approximately $29 million book value of convertible notes.

Since quarter end, we have exchanged approximately $21 million of the remaining convertible notes for common stock and the balance of these notes of approximately $9 million at face value have been called for redemption with conversion price of $20.06.

We are currently in the 30-day call period that is scheduled to expire December 3, 2009.

For the quarter, capital expenditures was $7.1 million and depreciation was $11.5 million.

In the third quarter we opened 13 stores and closed 12.

We ended the quarter with 2,243 stores compared with 2,228 stores last year.

This represented a net new store increase of 15 stores or a 1% year-over-year increase while total square footage increased 1.7% to 3.2 million square feet.

We expect capital expenditures for fiscal 2010 to be in the $42 million range, based on opening 66 new stores this year.

Depreciation for the full year is expected to be about $47 million.

We expect to end FY 2010 with 818 Journeys stores, 150 Journeys Kidz stores, 56 Shi by Journeys stores, 889 Hat World stores including 60 stores in Canada, 169 Underground Station stores, 117 Johnston & Murphy shops, and 45 Johnston & Murphy factory stores.

We also acquired 37 stores as a result of the acquisition of Sports Fanatic.

That is a total of 2,281 stores or a net increase of 2% for the year.

These plans will also increase retail square footage by about 5%.

Without the acquisition of Sports Fanatic we estimate square footage would have increase I do by 1.5%.

In addition, we will have spent about $19 million on previously announced acquisitions this fiscal year.

Now to update everyone on guidance.

Based on our strong third quarter performance, we are raising our annual EPS guidance to $1.78 to $1.84 on sales of $1.58 billion.

This compares to a previous guidance of $1.70 to $1.80.

We have not given any fourth quarter guidance to date so I would like to address that now.

Our increased annual guidance reflects fourth quarter EPS of $1.07 to $1.13.

This guidance is subject to same adjustments as our previous guidance.

We also expect comps to be flat to slightly positive for the fourth quarter and negative low single-digits for the year.

For guidance purposes, we expect the overall tax rate for the fourth quarter of this year will be 39.4%, share count, 23.8 million shares.

Consistent with the prior two years, annual EPS guidance does not include approximately $15 million or $0.40 per share in expected impairments, lease terminations and legal matters for the full year.

Over 90% of these items represent non-cash expenses.

As I discussed in our previous conference call, the new accounting pronouncement for convertible notes will not impact our full year EPS.

For guidance purposes, we have excluded the previously announced costs associated with our exchange of approximately $77 million on convertible notes and common shares.

We estimate the financial impact from the last exchange of $21 million early in November will be about $500,000.

I would also like to briefly cover some early thoughts on FY 2011 outlook.

Currently we are planning for a low single-digit positive comp for FY 2011.

Our unit growth assumption is approximately 60 to 70 new stores, which includes a few new Sports Fanatic stores.

In addition, the first quarter has been our strongest quarter so far this year which will make for more difficult than usual comparison in the first quarter next year.

Capital expenditures will be in the 45 million to $50 million range, and depreciation will be about $46 million.

We expect our cash flow to be strongly positive in FY 2011.

We are anticipating EPS in the range of $2 to $2.10 which represents an increase of almost 15% at the high end.

This guidance is subject to the same adjustments as in previous years, primarily non-cash asset impairments.

What we are not guiding by quarter, we would remind that you our year is back end weighted, both in terms of sales and earnings.

Historically, approximately 60% of our sales and 70% of our earnings are in the back half of the year.

Now I will turn the call over to Bob for closing comments.

Thanks, Jim.

To conclude, let me just reiterate how pleased we are both with what we have accomplished so far this year and what we see looking ahead.

Our business strategic strength and our teams operational skill and commitment to excellence has proven to be a powerful combination giving us healthy cash flow and allowing us to strengthen our balance sheet and invest in future growth all in one of the most difficult economic environments that any one of us can remember.

As we have indicated we believe we are well positioned to make the most of this holiday season and we obviously remain enthusiastic about where we are headed and now we will be glad to take your questions.

(Operator Instructions).

Scott Krasik of CL King.

Bob, can you talk about conversion?

I'm not sure if you actually have customer counters in your stores, but is the inconsistency in the sales trend is that related to conversion or are you just having less people coming through the doors, and maybe speak to the divisions a little bit.

You're right, we don't have counters in our store, so we look at what's going in to rest of retail and just the power of observation, and we think it's mostly driven by traffic.

And we've had this observation over the year that people are more inclined to come out and open up their wallet.

Part of this is just driven by the fact that others in the mall get promotional.

We benefit from.

That when you are in between one of these periods the mall seems to go a little more dead.

We can't quantify how much is conversion and traffic but that's basically what our feel is.

That's pretty much for all our concepts.

Anything in terms of missing a fashion?

I think in terms of Uggs you're certainly there.

Anything else in terms of fashion on the boot side you missed or casual?

No, we can't really point to anything that we feel we've missed.

We like our fashion position.

As you know, it's boots, then athletics with an emphasis on canvas and vulcanized style.

We're obviously well positioned in Journeys.

Hat World, we've got it rise on the nose.

We were fortunate to have the Yankees win.

Look at Johnston & Murphy they continue to make strides in the non-dress shoe, both casual footwear and non-footwear to make that a big driver of their business.

We think they're especially well positioned fall, then especially in spring with what they're doing in casual.

So we kind of like where everybody is positioned right now.

Where do you stand -- you say is you're not open any more Shi stores you're certainly not going to get the productivity increase, no plans next year as well?

We're just -- we believe we opened that chain during a period where it's very hard to develop a customer base.

And so we continue to get feedback that people love the concept.

We get a lot of shopping.

Just don't get as much business as we need at the register.

And so we're going to have to wait it out.

I can't predict how long it's going to take for that customer to start showing up.

The one thing I can tell you, it's interesting, and this is Johnston & Murphy as an observation is that within Johnston & Murphy we measure how many customers are new to the chain versus core, meaning that they've done business with us in the past.

And up until very recently, we were just all about core customers, and there was no one searching out new chains in which to shop new stores.

And all of a sudden within Johnston & Murphy that has started to change that people are starting to come out of their shell and maybe looking for another resource to should.

And we need that pattern to extend to Shi before we can expect to the break out.

Is it profitable at this point?

We're not breaking that out.

Jim, I just didn't hear, what was the quarter to date or November month to date comp at the Journeys group?

What did you want?

The November month to date comp at that time Journeys group.

Down 7.

Okay, thanks.

Christopher Svezia of Susquehanna International Group.

This is Tom Hagerhty in for Chris today.

Wonder if you could give more color on comps by concept in the fourth quarter what you guys are looking for.

We're actually -- Underground Station, we expect to be pretty rough.

Underground Station, slightly negative.

Hat World, lower single-digit possible.

Johnston & Murphy, low single-digit positive, and Journeys, flat to slightly positive.

Okay.

Sounds good.

And sounds like you're continuing to get the occupancy costs down on a lot of your stores.

Can you kind of gives an idea?

I think you said it was maybe a point or two benefit where you can leverage now compared to the 3 to 4 historical rate.

Do you have any more color on that?

Has anything changed?

Maybe move into 2010, -- I mean FY 2011.

I think what we've said is in that the past, we've said that we thought the leverage point was about 3 to 4% when we were opening a lot of stores and rents were going up.

As we've been talking about for the last few quarters, obvious we're seeing a major moderation in our rent increases, due in two parts.

Not only tougher negotiations, but also not opening as many stores.

So we said that we think, we estimate on an annual basis that the break-even from a leveraged standpoint is probably around 2%, maybe a little above that, that in range.

And really nothing has changed, and I think that we will -- right now we're continuing to see benefits from it, and I think we'll continue to see some benefits in the next year.

Sounds good.

After a couple of quarters of Journeys rising ASPs, looks like they're coming down agent more.

Have you gotten through the inventory where you're comfortable that maybe you can start seeing some slight positives of Journeys for 4Q?

It's a reasonable expectation in the sense that we are more committed this year to the boot business than we were last year.

So that's going to carry it.

Presumably through the fourth quarter and the winter months.

And a healthy chunk of why we had an ASP decline in the quarter, not all of it, but a lot of it, was related to the fact that we did get a little more promotion time in early parts of back to school to achieve an inventory correction, and it was the first time we had done anything store wide.

And so as a result of that, all of our categories took a little bit of a margin hit, because that all got spread out.

Okay.

Any kind of rough estimate on kind of where percentage of the business lies, boots would be for you guys, and if would you give that kind of color?

A little more than last year.

It's an important category.

We are not going break it out, though.

Thanks, guys.

Good luck.

Jill Carruthers of Johnson Rice.

Good morning.

If you could strip out the bonus accrual benefit you got in the third quarter were you able to leverage expenses?

For total Genesco?

Yes.

Expenses would have been up a little in absolute dollars.

Just one second.

Jim is checking it out but you're hitting us where it hurts.

Did you point out the bonus accrual.

I was just trying to break that out.

If I remember exactly what the bonus accrual is I think it's about flat.

Okay.

We leverage a little bit, and I think without the bonus accrual we would have been about flat, maybe down a little bit.

And where did you see, since that -- you were able to leverage it less than a positive 2% comp where, did you see this improvement on the expense side?

On a positive comp?

We had a negative 2, and we're basically flat.

right.

I was just saying --

If you say the leverage point is slightly positive.

Why were we flat?

Yes.

I already expect expenses to be up.

We're getting good relief on rent and we've also, our operators have done a very nice job of managing hours in the stores.

The hours part of it is not an element that you can sustain forever, because you hit your minimum staffing levels.

So in this quarter, we managed to basically flatten out expenses as a percent, and a negative comp, but we still think that it's -- the break-even is probably more a low digit positive comp in the future.

Does that make sense, Jill?

Does it.

Thank you.

And I know you said occupancy costs lower were the driver for fiscal 2011.

Could you talk about how many leases you have up for renewal next year and kind of what are you expecting rent reductions to look like?

I don't have the number offhand on the renewals, and it's not just renewals, because we can't even give you a firm number.

It's renewals combined to kick-outs, of which we have to qualify based on sales.

And then we are constantly canvassing the malls for violations on covenants.

So all three of those are driving an event of lease negotiation.

If you take away the covenant part of it, we have said that over a three-year period, ball park half our stores were up.

For a lease renewal last year, this year, next year.

And I just don't know split.

But it's not too far off from an even split on each year.

Okay.

And then just last question, the way you're entering the holiday, I know sales have been a little inconsistent.

Any different plans to approach the holiday this year versus last year?

Anything different for black Friday or anything like that?

Thanks.

We're looking at this holiday right now, and it's one where we're not looking too much in the first three weeks of November as an indicator.

I know some other retailers have seen that as an issue, and our view is again, that there's this distinction between these more or less deader periods of shopping versus event driven shopping, weather was at play.

So we continue to expect comps more in the flat to slightly positive for the quarter, and we're roughly bought for that.

So it really doesn't require to us go off of what our plan is, which is consistent with what we've always done in the past which is to emphasize full price selling and great service, and not to get caught up in the game of getting too promotional, and so what we'll do obviously is we work through the quarter is we'll watch sales and make sure that it supports that it strategy.

Last year the sales did not keep one that strategy, and we took timely markdowns starting in the middle of the month that made sure that our inventory by the end of the quarter was very nicely in line.

So there's nothing to do right now other than to stick with the plan and to pay attention to sales trends and to just take the markdowns on individual items that aren't resonating with the customer, but beyond that really emphasize full-price selling.

Thank you.

Next we'll hear from Mitch Kummetz from Robert Baird.

A few questions.

Starting with your month to date comp down 3% what's the comparison there to last year?

We don't after comparison, and one of the reasons for that, Mitch is that last year, with Thanksgiving having moved, the comps in the month were -- had ridiculous swings week to week.

So we didn't think it was prudent to try and make the comparison because it's really not a fair comparison.

So we're really just giving the number for this year.

Okay.

And then, Jim, on the gross margin you saw nice improvement in the quarter.

What are your thoughts for Q4, and then even into your outlook for 2011?

Okay.

We've been saying for awhile that we felt it was an opportunity for gross margin improvement in the fourth quarter.

And I continue to think that it's true.

We've got a little more promotional last year in January, and so hopefully what he not be doing that this year.

So I think that the opportunity in the fourth quarter certainly is to see some gross margin improvement.

For next year, the gross margin is -- I think that -- I think continually, we should be able to get a little more gross margin improvement next year also.

Johnston Murphy is already beginning to see some improvement, hopefully a little improvement in Underground Station, and maybe a little more -- a little less promotional in Journeys.

So I certainly think in that the fourth quarter we should see some improvement in gross margin.

I think there's an opportunity for next year also.

That's helpful.

Then lastly, Bob, talk a little bit more about Sports Fanatic.

Is the seasonality in this business, is it fairly comparable to Hat World right now?

Directionally, it's like hat World, and it's a little more pronounced.

It has a bigger gift giving component, which makes it even slightly more weighted to the fourth quarter.

So that's the pattern that we're looking at, and that's why we've thought our timing on the purchase was fortunate for us, because we got a really nice cash flow in the first quarter.

What's the margin profile of this business I'm guessing the margins are below Hat World but do you think you could bring them up given the synergies you talked about?

As Bob said on his comments, we -- it is profitable, but we certainly think there's an opportunity to raise the operating margins there.

Yes, primarily -- partly in synergies but it's also we think from the gross margin standpoint with our relationship with vendors we can get better discounts and things like that so we do think there's some opportunity for gross margin expansion also.

Just managing sell-throughs.

They basically do a direct ship to stores on all their purchases, and we will do what we do well, which is really set it up on a replenishment basis which will just help sell-throughs, and that should flow through to margin.

What's the near-term real-estate strategy there?

It sounds like, I think you said 60 to 70 stores ear looking to open in 2011 that some of these are likely to be Sports Fanatic stores.

Are you looking to go into new market, or what's the near-term out look?

Right now, understand we just bought it.

And so there are certain things to do with regards to integration.

We're going to flow them through our warehouse.

So we've got to get a lot of things done before we start really piling on, so we do want to open some new stores, but don't expect that next year is a gang buster year.

For new stores in that category.

What we are going to do, though, be very opportunistic, and because most malls already have a store in this format, we look -- we're going to be opportunistically looking at each mall, how do we get into that market and how do we get into that mall, and our options are obviously to acquire another chain, and they tend to be regionally orientate , or to start opening up in the malls as close as possible to an expiring lease.

Obviously, when you have over 2,000 stores as we do, we can get the landlord's attention, and we can tie deals to other deals and so when a lease comes up in a mall, in a market that we regard as attractive, we think we can get preferred

Last question on this, what's the expected impact on earnings?

It sounds like the business is weighted more towards Q 4.

Do you expect this to be positive?

What's the out look for the impact on earnings next year?

Sports Fanatic?

Yes.

It will be profitable in the fourth quarter, and certain for the full year it is going to be accretive next year.

Can you say by how much, what's baked into the guidance?

No, but it's -- we're not up to 10% operating margins there, but we expect to be profitable both in the fourth quarter and for the full year next year.

Great, thanks, good luck.

Next we'll hear from Robin Murchison of SunTrust.

Hi, good morning.

Some of my questions have been answered but let me piggyback off of that last question.

I sort of got the impression that you all said there were six to seven chains and maybe 300 stores, so maybe Sport Fanatic might grow through acquisitions versus -- that was the impression I took away.

Would you expect to be making acquisitions or just grow by units that you put up?

Robin don't know.

These are all privately held.

So I'll just give you the Hat World model.

When we first obviously before Genesco owned Hat World, we put Hat World and Lids together, so that put a midwestern headwear chain and one that was focused on the coast and created a national footprint.

Over time we bout Hat Zone, we bought Hat Shack, Cap Connection, we bought Cap Factory, and these were all businesses where the message basically was, look, we'd like to own your business, we think we could I want great you nicely, but if you don't want to do that, that's okay, and in some markets where the chains said no, we prefer our independence, then we start pick off malls one by one as our point of entry.

We've taken both strategies with Hat World and as a result, we pretty much present in every mall that we want to be at this point.

So it's a little hard to predict which way we'll turn, and we'll be pretty rational economic animals when we take a look at it and say what's the make buy decision and tied to how willing is someone interested in hooking up with us, and we'll make the decisions as we roll forward, so it's a little hard to predict.

Thanks, that's helpful, Bob.

Jim, inventory receipts, what are they looking like here in the fourth quarter?

Inventory receipts.

Inventories, we are in good shape.

We were actually underplan at the end of the third quarter, but the reason we were underplan is that we built in a little bit of a cushion because we didn't think our operators could get inventories down to where they said they could, so we're really essentially on plan from where the operating guides expected them to be at the end of the third quarter so we feel good about where we are, and we're positioned well for the fourth quarter.

Robin, we're basically bout for the guidance.

Bought for flat to slightly positive comp and in each of continues to their respective targets.

So between starting inventory and receipts they're going to have enough goods to drive that number and end up at the end of January with an inventory number that roughly mimics last year.

Right.

If you remember, we've been talking he -- excuse me, one last thing.

We've been talking from day one that we expected some kind of positive comp.

So we planned for that, and we've planned our inventories that way from the beginning of the year.

We think we're in good shape.

Right, yeah.

You guys had talked to buying for positive comps for the fourth quarter, and certainly the pattern of business that I think you are experiencing right now is not just similar from the rest of the especially the rest of the group that focuses more on a younger customer, and we do tend to hear that around events they're coming out, but certainly not too much ahead.

So I think some of your patterns are paralleling at least the apparel guys, the other apparel guys.

Now, the women's business, if you could just talk a little bit, if could you comment on Johnston & Murphy women, and if you could comment on what you think Shi is missing.

I will start with Shi.

We like what we've got in Shi.

We continue to tweak the assortment to make it a little more oriented towards athletic, because that's where we can be distinctive, and to just drive up to a higher price point.

We thought we were selling at sightlily ASPs that were slightly lower.

So we layered on another price point.

We think the assortment rob and we're missing traffic.

It's just hard to build a customer base on a discretionary purchase like women's shoes in this environment.

Women have their go to store already, and it's hard to make them have another go to store.

In Johnston & Murphy women's, first let me emphasize how small that business.

We're only in 30 something doors with it, and what we like is how the word seems to get around from almost word of mouth, and I've experienced this firsthand here in Nashville that this is something that women to the check out, and because of its small size, that's basically our big chunk of our marking program is that word of mouth.

And also, the team did a really nice job of focusing on price points and styles that worked better than some of the things that they had in the first loop.

So there's a learning curve there, and those two things combined have added very nice comps.

Again, on pretty small numbers.

What we get excited about, and I've said this before, that if we can make Johnston & Murphy women's work reasonably well, it becomes a change the game he will meant for the whole chain, because the number of malls we could take Johnston & Murphy stores to, the number of malls we can get to changes dramatically if the volumes consist of men's plus women's rather than just men's.

And so there's a virtual circle of performance we can make this work that after folks the entire business, which gets us excited.

But emphasis on great success but small at this point.

Seems like you're saying that maybe there's some lease exclusions that, if it is a men's and women's retail concept that you have a greater ability to get into a mall versus just a male concept.

No, it's not lease issues, Robin.

If you're Johnston & Murphy men's, you can get into, whatever it is, 160 malls.

When you do the pro forma for the next 100 malls it's hard to make it work.

If you had a women's into the concept and you don't have to add that much more labor and you can add a little bit of square footage but the incremental square foot tabling is a lot cheaper, all of a sudden store economics improve to the point where you can do that next 100 malls.

And that's what the virtuous circle is that we can have an economic model for the box that suddenly works in many more malls.

Thanks and good luck for holiday.

Thanks.

Next we'll hear from Sam Poser of Sterne Agee.

Couple more questions.

Number -- what is the -- what was -- what's the long-term EBIT margin for Sports Fanatic opportunity there?

The long-term EBIT margin.

You look at it strategically, Sam, and when you scale this thing, it should have economics that mimic Hat World, because what you are going to be is the only person in the mall selling licensed merchandise that has a margin structure similar to the things that we already sell, and you should have an operating environment that is also reasonably similar.

Again, I focus on the strategic notion that you are in a mall and in most instances you are the only person selling what you are selling.

You're full-price selling, a destination stores and so that should support really good margins.

They are obviously -- they were profitable when we bought them, and they're well on their way to achieving that without having the scale and without having the margin help that we can provide.

So we're pretty confident that that's rough economics of what continues should look like once we get it up to speed.

Okay.

Are you looking for other acquisitions outside of rolling up potentially rolling up this license business, and can you give us an update on where you are with the team businesses also, which you haven't really mentioned?

You mean the team sports business?

Right.

Yes.

First of all, in terms of he growth, as we look forward, we think that our new store potential is more limited on a percentage growth basis than it's been in the past.

So as Jim highlighted, next year we expect to again, have a lot of generation of cash.

And so that makes us a little more keen to understand where our other growth opportunities might come from.

We like niche orientate businesses.

Every one of our businesses can be defined that way, and we think that niche businesses that basically own their category can produce outsized returns.

So that's where we're headed.

On top of that we would prefer businesses that after close tie to business these we already own, then you can absorb the kind of synergies that we've just described with Sports Fanatic.

So that's the kind of space that we would look at first for opportunities.

Now, that said, we also add terrific success with the acquisition of Hat World, which was more an additional leg on the stool, if you will, where the synergies were probably a little thinner, restricted to real estate, and so we would consider those as well, but they probably fall behind the potential to find businesses that tie closely to what we already do.

And I will also emphasize that I know each of our businesses we have poised for growth other organic opportunities.

They're just not tead up right now.

So I'd put Johnston & Murphy's women on that list.

I'd put Shi by Journeys on that list.

Impact Sports is a team dealer, and again, we see synergies that exist with Hat World and that business unit, and so it fits another category of it's very fragmented, it has not used technology to the level that it should, and we see that as another opportunity to start with -- in a niche category and grow it to be one of the biggest in the category just fits that pattern.

Right now where we are is we bought Impact and we bought one other, added a very important product line extension to what impact was all about, but we're very involved right now in building the infrastructure that we think it needs to grow it further.

And so that's the model of it right now.

It's a little different from Sports Fanatic because sports fanatic, we bought it, we can plug it into Hat World, it's already profitable.

Impact Sports is take a little more investment.

We knew that up front when we did the deal so we're in the process of making that well poised for growth.

Real quick, how fragmented is that market with the size of in the.

The team dealer business, it's ridiculously fragmented.

There's really one guy who is much bigger than us, a publicly traded company called Sports Supply.

Beyond that, it really gets down to mom and pops in a hurry, and there are thousands of them.

It's multi-billion-dollar category.

I'm just going to read through the questions, then you can attack them any way you want.

A thought of bonus accruals for fourth quarter, are you involved in the wellness business at all with any product, how many of the store leases -- how many of the stores, the split of the 50% of the stores, that's 2010 through 2012, or 2009 through 2011, as far as touching the -- renewals?

The renewal bubble is '09, '010, '011.

It doesn't go away but that is where it is most intense.

We are not involved in the wellness business.

We know it's very important for a lot of footwear guys.

We don't think it hits our customer.

We're really much more of a fashion retailer so within Journeys and the teenager it's in the a product line that's been meaningful there.

It's an older demographic so we've chosen thus far not the play that and I'll hand bonus accruals off to Mr.

Gulmi.

The swing in the fourth quarter versus last year is probably a couple million dollars.

It's not probably.

We anticipate it beg a couple million dollars.

And that's not that we're adding a couple million dollars to the bonus accruals, it's that we were reversion bonus accruals last year.

So the swing is a couple million dollars.

Then lastly, the boot business, how much better at Journeys group -- how much better was the boot business than the overall comp in the quarter?

That's competitive.

We are not going to disclose that.

You talked about the Ugg business with Kidz.

Can you talk about the Ugg business at Journeys?

No, sorry.

All right, thanks, guys, good luck.

You bet.

Next we'll hear from Shawn [Knotten] of Piper Jaffray.

You guys after broad view across the US, being in a number of different malls.

Can you talk about anything that you've seen that's been a regional difference in the third quarter, anything that changed from what was happening in the first half of the year?

Well, within the -- to go by business, within the hat business, it's very difficult.

I'll talk about hats and Johnston & Murphy.

I'll let Jim talk to Journeys.

And the hat business, it's very hard to pick out regional differences because the teams mat sore much, so teams get the playoffs, miss the playoffs, and that swamps whatever retail trend might be going on underneath that.

Within Johnston & Murphy, where we've seen the rebound most pronounced is where we saw the damage most pronounced a year ago which is in the financial centers, in the flagship stores, and so in big city marks like New York and Chicago and San Francisco, and banking oriented like Charlotte.

That's where we're now getting a rebound as you can imagine, the white collar customer in those environments are marginally more confident about their prospects than they were a year ago, and we're seeing in that the Johnston & Murphy business.

Within Journeys, I'm not sure we ever looked at it for the quarter.

I'm not sure -- I think the West Coast continues to be kind of the weakest areas, and I think that's pretty consistent.

I think the Florida area has been tough also, but it's primarily the west coast is tough for us, and Journeys has been tough.

So similar.

Sounds like some of those housing states are still impacting some of the Journeys business.

Secondly, just on -- you guys have done a nice job on controlling the SG&A.

Obviously there's some rent savings going on and some SG&A.

How should we think about the growth in SG&A moving forward for 2011?

And can we think about it on a square footage basis, or are there additional opportunities here?

Well, I'll give you some color.

Maybe Jim can quantify it.

We think that we're going to continue to slam rents.

The occupancy in the malls is down.

Store closings are still beg announced of people either with concrete plans or just sort of conceptual plans, so there's no expectation on our end that we can't continue what's been going on.

The nice thing about rent sue retain the daily did you last year and then you add to the again, so we actually might see an acceleration in the improvement in rent.

And then on labor, the only thing that pushes -- has kept us from getting more improvements on the labor rate side is that we bump up against minimum wage, so it's hard to imagine that in this unemployment environment anybody is going to even talk about minimum wage, so we probably don't get a lot more help on hours, as we have said earlier, because of the nature of our small box.

But both wages, the two big numbers, wages and rent, it's hard to imagine that those are going to increase a lot.

Now with that color, I will ask Jim to quantify it.

The key for us, we've talked about a lot is what is the comp assumption.

So we're assuming low single-digit comps for next year.

If you assume 3%, then we're going to leverage the expenses.

If you assume flat, we probably won't.

And so it will all be driven by sales increase, then leverage off of that.

Again, hopefully low single-digit if you are above 2 or 3%, we'll get alleges leverage there.

We expect to.

Okay, thanks for taking my question.

Best of luck for holiday.

Thanks.

At this time there are no further questions.

Mr.

Dennis, I will turn the conference back over to you for any additional or closing remarks.

We thank everybody for joining us.

We wish you a very happily holiday, and we look forward to talking to you the again after year end.

That does conclude today's teleconference.

Thank you all for your participation.

You may now disconnect.