Genesco Inc (GCO) 2012 Q3 法說會逐字稿

Good day everyone and welcome to the Genesco third quarter fiscal year 2012 conference call.

Just a reminder, today's call is being recorded.

Participants in the call expect to make forward-looking statements.

They reflect the participants' expectations as of today but actual results could be different.

Genesco refers you to this morning's earnings release to the Company's SEC filings including the most recent Form 10K and the second quarter fiscal year 2012 10-Q for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made during the call today.

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

Bob Dennis, Chairman, President and Chief Executive Officer of Genesco.

Please go ahead, sir.

Good morning and thank you for joining us for our third-quarter earnings call.

With me today is Jim Gulmi, our Chief Financial Officer.

Once again, we posted Jim's detailed review of the quarterly financials when we issued the earnings release early this morning.

I'll begin with a brief review of the highlights from the third quarter and then turn it over to Jim for some more details on the numbers.

Then I'll return to provide some additional color on our operating segments, after which we'll be happy to take your questions.

It was a strong all-around quarter with each of our major retail businesses again contributing to significant growth in sales and profitability.

And our positive sales momentum has stayed with us for the first three weeks of November.

For the quarter, total sales increased 33% to $617 million, driven primarily by our strong comp performance and the addition of Schuh.

As a reminder, we closed on our acquisition of Schuh, a UK footwear retailer with 75 stores and concessions in June of this year.

Consolidated comps rose 12% for the quarter which comes on top of a 9% increase in the year-ago period, and follows a 14% gain in the second quarter.

We were very encouraged to see comps again increase double digits, especially as we were up against tougher year over year comparisons.

For November through last Saturday, comps are up 11%.

Our two largest businesses, Journeys Group and Lids Sports Group again fueled our organic growth.

Journeys led the way with a 15% comp gain which was on top of a 9% gain last year, and Lids posted an 8% comp gain after being up 13% a year ago.

Our direct business was also very strong.

On a comp basis, our aggregate direct sales increased 21% and in total, direct sales nearly doubled primarily due to the addition of Schuh.

Schuh's performance continued to surpass our expectations with particular strength coming from fashion athletic.

With robust 33% sales growth Company wide, we were able to leverage our expense base by 160 basis points in the quarter resulting in a significant increase in EPS, adjusted as spelled out in the press release to $1.21, up from $0.77 last year, representing a 57% increase.

Historically, a good back-to-school means we have an assortment that should perform well during the holiday season.

Following our third-quarter performance and with early November comps running up, we feel good about our trend.

That said, we are not getting too aggressive in our assumptions for holiday given some of the headwinds still facing US consumers, plus the lingering uncertainty about how the economic situation in Europe could impact the world.

And as a reminder, we are up against another tough 9% comp in the fourth quarter.

Should the macroeconomic environment improve or if our level of concern proves to be overblown, we believe there may be upside to the upwardly revised guidance we outlined in this morning's press release, which Jim will review in his section.

Jim will also be providing preliminary directional guidance for fiscal 2013 in his remarks.

Generally, we expect the same trends to continue driving progress towards our long-term objectives.

And now, I'll turn the call over to Jim.

Thank you, Bob.

Much of the detailed financial information on the quarter has been posted online, so I will only be making a few brief comments.

The story is pretty much the same as last quarter.

We had a very strong third quarter, which exceeded our expectations.

A 12% comp increase and good leveraging expenses drove the improved performance compared to last year.

We earn $1.21 per share in the quarter, adjusted as shown on the attachment to the press release, compared to last year's $0.77 per share.

Year-to-date, we have earned $2.10 per share compared with $1.16 per share last year.

This represents an increase of 57% for the third quarter, and an 81% increase for the nine months.

Consolidated net sales for the quarter were $617 million, an increase of 33% over last year.

Excluding sales in the quarter of $92 million from companies acquired over the past 12 months, our sales growth this quarter was 13%.

Included in the acquisition sales are the sales from Schuh, which was acquired in June of this year and 2 acquisitions in October of last year.

Our consolidated gross margin was 50.6% compared with last year's adjusted gross margin of 51.1%.

The decrease was due partially to the addition of Schuh with a slightly lower gross margin than total Genesco in the quarter.

Adjusting for $2.9 million in deferred purchase price expenses, related to the recent Schuh acquisition, which I had talked about in two previous conference calls, SG&A as a percentage of sales was 42.6% compared with an adjusted percent of 44.7% last year.

The improvement reflects the leveraging and selling salaries, rents, and depreciation.

Restructuring charges, primarily other legal matters, and network intrusion expenses this year were $300,000 compared with $2.1 million, mostly asset impairments last year.

Operating income adjusted for the referenced items was $49.3 million or 8% of sales compared with $29.8 million or 6.4% of sales last year.

Inventories were up 21% year over year, compared with a sales increase of 33%.

We believe that with shipments received in early November, we are well-positioned for the holiday season.

Capital expenditures in the quarter were $14.4 million compared to a $7 million last year.

Depreciation in the quarter was $13 million this year compared with $11.2 million last year.

Also in the third quarter this year, we spent $4.2 million in acquisitions compared with $56.7 million last year.

Last year, we also spent about $14 million in the stock buyback program during the quarter.

In summary, we had a good quarter with a strong sales increase and good expense leverage.

Adjusted operating income rose 65% this quarter compared with last year.

Now I'd like to spend a few minutes on our updated guidance for FY '12.

Based on the strong performance in the third quarter, and the momentum we are carrying in the fourth quarter, we are raising our full-year business outlook.

We are raising our full-year EPS guidance to $3.64 to $3.69, an increase from our previous range of $3.35 to $3.42.

Using the middle of our new range, this represents a 48% increase in adjusted EPS over the last year on top of a 33% increase last year.

This assumes an EPS of the fourth quarter in the range of $1.53 to $1.58.

Consistent with previous years, this year's annual guidance does not include about $2.5 million to $3.5 million pretax or $0.06 to $0.09 per share after tax in expected non-cash impairments and costs associated with a network intrusion we announced last December.

This amount is down from last year's non-cash impairments and network intrusion expense of $8.6 million pretax or about $0.22 per share after-tax due primarily to fewer expected [store] impairments in the current year.

It also does not include $7.3 million, or $0.31 per share in annual compensation expense related to the deferred purchase price for Schuh and $6.6 million pretax or $0.23 per share of Schuh acquisition expenses.

It does, however, reflect $1.4 million or $0.04 per share of purchase accounting adjustments of Schuh, and $4 million pretax or $0.10 per share related to the accrual for the Schuh long-term bonus.

Note that this long-term bonus amount could be larger if better than expected performance by Schuh accelerates the accrual of that bonus.

For the full year, we now expect comps to be up approximately 10% to 11%.

The breakdown is 13% in the first nine months of the year and the forecast for the last quarter is 3% to 4%.

We are going against tougher comparisons in the fourth quarter, as last year's comps were up 6% in the first three quarters and 9% in the fourth quarter.

We expect by year end to have opened 71 new stores this year and to have added another 85 stores in connection with acquisitions.

We will close a total of 79 stores or a net increase of about 77 or 3% of our store count.

Square footage will be up about 11% mainly due to the acquisition of the Schuh stores, which averaged on a per store basis about 4,600 square feet.

My online commentary includes a breakdown of store openings and closings by concept.

This translates into total sales of approximately $2.24 billion and overall sales increase for the year of approximately 25%.

Excluding sales from Schuh, we expect sales this year will increase by about 14%.

We are expecting an increase in operating margin of about 100 basis points to 120 basis points from leveraging expenses with a slight decrease in gross margin for the full year.

We expect an overall tax rate for the year of about 39.5% and shares outstanding will be approximately $23.8 million for the full year.

We are expecting capital expenditures for the full year to be about $58 million, including capital expenditures for Schuh and depreciation to be about $51 million.

Lastly, we would like to give you some early directional guidance on EPS for next year.

We expect EPS growth of 12% to 15% next year.

Currently, we are looking for low-single digit positive comps for fiscal 2013.

This guidance is subject to the same adjustments as in previous years primarily non-cash impairments and the ongoing adjustment for the Schuh deferred purchase price, which has been discussed previously.

Also for those beginning to model the quarterly breakdowns for next year, please remember we had an extremely strong first quarter this year.

As all of you know, the back half of the fiscal year is when we make the bulk of our money.

Historically, we have had about 60% of our sales and about 70% of our operating income in the back half of the year, and we expect a similar pattern next year.

In fact, the Locker Room business, which we are building, is even more of a back half loaded business.

Thank you and now I'll turn it back to Bob.

Thanks, Jim.

Let's talk about our individual businesses.

First, Lids Sports Group.

For the third quarter, total sales for Lids increased 22% to $186 million, driven primarily by an 8% comp gain and the acquisition of 48 Sports Avenue stores late in the third quarter last year, which contributed to an 11% square footage increase over the past 12 months.

Lids.com reported a 12% increase in comp sales.

Operating margin was 10.2% compared to 8% last year.

November comps were up 9% for the Group through last Saturday.

We ended October with an even 1,000 stores including 6 fan shops we acquired during the quarter up from 974 last year.

For our Lids hats stores, not a lot has changed since the last quarter in terms of trends driving this business.

Our NFL business is good; we have not suffered any ill effects from the strike.

With regard to the MBA and the current lockout there, we haven't seen much of an impact to that piece of our business either, which is relatively small to begin with.

Therefore, we aren't too concerned if more games get cancelled or the entire season is lost.

Lids Locker Room had a very strong quarter.

With the MLB playoffs and the start of the NFL and college football seasons, the third quarter marks the beginning of the most significant part of the year for this business.

We ended the quarter with a total of 76 Lids Locker Room stores and 42 Clubhouse locations.

Our team sports business continues to improve as we integrate the three businesses we have acquired in the last few years, which included relocating a large portion of the production process to Indianapolis.

We are making headway, bringing innovation to the industry and our scale, along with better systems and processes, and access to key products position us well to drive share gains in this very fragmented market.

Journeys Group had another strong quarter with sales up 16% and operating margins of 11.3%, up 140 basis points from 9.9% a year ago.

The casual trends we had spoken of in prior quarters are still benefiting this business.

The Group's comp store sales increase for the quarter was 15%, driven by a 15% comp increase at the Journeys stores, a 12% increase at Journeys Kidz and a 25% comp increase at Shi by Journeys.

The Group's e-commerce business was up 47%.

The strong back-to-school season generally bodes well for holiday and we are well-positioned for what we expect to be another strong boot season.

November comps for the Group were up 15% through last Saturday.

Our Journeys Kidz business, much like the Team business, is also benefiting from the casual trends and the performance of several key brands.

With one store opening in the third quarter, we now operate 153 Journeys Kidz locations.

Shi, while still small, delivered a large comp increase this quarter.

We continue to make progress, aligning our merchandise with the expectations of Shi's target customer, as evidenced by year-to-date comps of 25% through the third quarter.

Even with this strong performance, we are not quite ready to ramp up store openings in this Group but we are obviously pleased with the progress.

Journeys also added to our store base in Canada with the opening of three more locations for a total of nine at the end of the quarter.

We continue to be very pleased with our performance in this market and currently plan to add an additional four locations to our Journeys Canadian store count in fiscal 2012.

As I mentioned earlier, Schuh outperformed our internal projections during the third quarter.

Total sales for the quarter were $78 million.

We opened two stores and closed one store and one concession during the period which leaves the total doors at 75.

It is still early but the initial benefits from coordinating our vendor relationships and sharing best practices have been fruitful, and we expect this will only get better.

Turning to our other divisions, Johnston & Murphy had a solid third quarter.

Comp store sales increased 7% versus a 7% gain a year ago, driven by the combination of strength in casual footwear and the continued growth in non-footwear sales.

Operating margin for the Johnston & Murphy Group was 6.2% compared to 3.4% last year.

Dress shoe sales in the retail stores were also up for the quarter once again which was encouraging to see in light of the recent economic news and volatility in the stock market.

Comps in November through this past Saturday were up 9%.

We are also beginning to see positive results from our longer-term strategy to extend the Johnston & Murphy brand globally.

We have a new partner in Japan, whose first delivery is for this fall season; the first non-US Johnston & Murphy retail store opened in Mexico City this summer, and our partner reports that the results are significantly exceeding expectations.

We are finalizing plans for Johnston & Murphy retail stores to be open by next summer through our licensing in India, and we will open our first Johnston & Murphy retail store in Canada next month.

Underground Station posted a 14% comp store sales increase, its best quarterly performance in nine years.

As a result, operating income was nearly breakeven, reflecting the success of our strategy to rationalize the store base down to a profitable core.

Unfortunately, the sales trends from the third-quarter have not carried over into Q4 so far as comps are down 1% through Saturday.

Finally, Licensed Brand sales increased 6% for the quarter.

However, Dockers Brand sales were down during the quarter due to several key customers focusing strategically on private label product.

Overall, we delivered a very strong third-quarter result and our year-to-date performance is well ahead of our initial expectations.

Companies acquired over the past 12 months added about $169 million in sales for the nine months ending October 29.

Excluding these acquisitions, the sales increase for the nine months was 14%.

Our total sales increase for the nine months was 28%.

While we are pleased with our start to Q4, with more than 80% of the quarter's retail sales historically coming after Thanksgiving, we believe it's prudent to maintain a conservative stance with regard to our outlook for the remainder of the year, especially given the unstable environment in which we are operating.

Looking ahead into fiscal 2013, we believe many of the same positive fashion trends that have fueled our recent results will continue and we are planning accordingly.

However, unlike fiscal 2012, we will be up against tougher comparisons.

We will have more specifics to share on our outlook including store opening plans when we report year-end results in March.

Longer term, we feel we have a strong and achievable five-year plan in place and I'm very confident in our ability to reach our target of $3.1 billion in sales and a 9% operating margin in fiscal 2016, achieved all through organic growth from this point forward.

We continue to execute at a very high level and I want to thank everyone at the Company for their contributions in making this such a strong third quarter for Genesco.

Our recent success has been a true team effort.

And now we are ready to take questions.

(Operator Instructions)

Jeff Klinefelter, Piper Jaffray.

Thank you.

Congratulations, everyone, on a great performance this year and this quarter.

Thanks, Jeff.

A couple questions.

One, Bob or Jim, just in terms of the Q4 guidance -- appreciating certainly that you're being conservative on the balance of the fourth quarter and a lot of business left to do -- can you remind us on the cadence from last year?

Did your comps accelerate meaningfully toward the end of the quarter and so your comparisons would be a little harder following this first few weeks of November?

And then, the second question would be on Schuh.

You did mention slightly lower gross margin contribution than Journeys.

Maybe you could just remind us on the Schuh op margin contribution, how that flows into your overall income statement and how you anticipate that starting to scale and contribute to both margin and SG&A leverage going forward.

On the comps, Jeff, we started pretty nicely last year.

So the 11% comp we have this year for the first three weeks is on top of an 11% last year, so the beginning of November was a stronger period in the quarter, [because] the quarter was underneath that.

Jim, what was the full fourth quarter?

Full fourth quarter was 9%.

So the full -- so we started 11% last year and ended at 9% and this year we started at 11%.

Okay.

On Schuh, we run -- our plan on Schuh did not have a lot of operating margin expansion.

It's really a growth story.

And, again, the reason for that is when they were a private company, when we acquired them, they were running very lean and mean.

So, as we expand their store base, we're also going to have to add some infrastructure, so we have not really assumed a lot of operating margin expansion.

Jim, do you want to add to the Schuh story?

Yes.

I think that, in terms of the break down of the P&L, which you've asked about, I think we've said all along that the gross margin is a little lower than Journeys, and we think there is some real opportunity there going forward.

Their operating margin, when we had the conference call announcing the acquisition, we had indicated their operating margin was -- for the previous 12 months was, I think, around 9%.

So, you can see their P&L is a little different than Journeys, but the end result is pretty strong at 9%.

And so, we feel really good about that.

That's great.

That's very helpful.

Thank you.

One last thing, just to clarify on your comp, could you give us a separation between pricing and units on your year-to-date comp?

We're getting (multiple speakers) -- Jeff, in our -- it differs a lot by business.

And so -- but the overall theme is that ASPs were up.

And for the obvious reason of the cost base driving costs to us in our branded businesses, and as we've discussed before, our expectation has always been that we get some of that back or all of that back, with retail price increases.

And that's essentially the pattern we've been seeing.

One more point on that, we definitely began to see the trend in October.

It's hard to generalize because we've got all different businesses but generally, we began to see that trend increase in the third quarter, and it's continuing into the fourth quarter.

In fact, when we look at our business in Journeys, if you look at the top vendors, there have been price increases for most of them, but they rolled in as early as August and as late as October, so the full weight of the cost increase and the price increase in particular really is a fourth-quarter event.

So it's safe to say that the ASPs are becoming at least slightly greater driver of comp as you move into the fourth quarter?

Well, I will say the ASPs are going to be up, so we'll see how comp plays out.

Okay.

Thank you.

Mark Montagna, Avondale Partners.

Hi.

Just a couple of quick questions regarding clearance.

I'm wondering -- I'm assuming clearance is obviously quite low.

Can you give us some direction as to whether it's lower this year versus last year?

I'll tell you what, it's very close.

I know in Journeys it's very close, for the overall [company], I don't have it right in front of me, but it's pretty close.

There's really no, let's say, meaningful difference in -- from a clearance standpoint.

The gross margin I talked about was down some, and that's partially because of Schuh, but also product mix, IMOs, it's down some because of product mix.

So, the clearance is really no difference.

It's not that big of a deal, it's really more IMO and from mix and also the acquisition of Schuh.

And the dynamic margin, as you can imagine, is both years -- last year and this year -- our comps exceeded expectations, so you end up being pretty lean on inventory, your clearance, [some] slow movers.

But, if anything, you're trying to get into as much full price selling as ever.

Okay.

And then, regarding Johnston & Murphy, can you tell us whether you saw higher gains -- higher comps in the footwear versus the apparel?

We've continued to gain a little bit of share -- the way we look at it is, in our shops, is what the percent that we are doing in non-footwear -- and I believe Jim's trying to look that number.

I believe that the percent went up a little bit, which means we would comp a little better on the non-footwear assortment.

He's looking for it.

I will get that out in a minute (multiple speakers).

I will answer that when we're done here.

Okay.

And then, you guys didn't mention anything with weather; I'm just curious, does weather really have any impact on your business?

Well, it certainly moves sales around if weather is not conducive -- either the cold weather, the arrival of cold weather or just localized weather that either keeps people or drives people to the mall, it affects business on a day-to-day basis.

But, our thesis has always been that most of our customers spend what they have in their pocket over the course of a quarter, and so it all evens out.

Obviously, if something happened on the cusp of a quarter, it could matter, but within a quarter we don't really call it out a whole lot.

And, Mark, on the question of the accessories or non-footwear, as a percentage of the business, that continued -- that increased in the third quarter versus this year versus last year.

So there wasn't --

Non-footwear did.

Non-footwear did.

So the percentage increased overall.

Okay.

So it grew faster.

Okay.

All right.

That is great.

Thank you.

Mitchel Kummetz, Robert Baird.

Thanks for taking my questions.

First, on your 2013 guidance, I know it's just preliminary guidance, but I was hoping maybe a little more color.

I know, Bob, you said that you're going to talk about store opening plans on the next call, but, I don't know, can you loosely say what your unit growth or square footage growth you might be looking at without getting into all the concepts, whether it's low single-digit type unit square footage growth?

Well, I'll tell you what the drivers are.

We're going to continue to look to do more in Canada with Journeys, probably not a lot here.

We're not planning any kind of aggressive rollout on either Shi or Underground Station, and so that's not a big component of it.

Schuh, we are going to continue to grow at the pace that we had laid out when we had originally talked about our growth prospects, so we're on track there.

And then the opportunity within Lids is going to be focused primarily on the Lids Locker Room business.

And, on that business, we will be opening with Locker Room stores; we will also be opportunistic in terms of continuing to acquire stores that help us fill out our footprint.

And so, those could come either from openings or acquisitions.

In terms of giving any more specific sizing of the growth, I'll hand it to Jim.

Obviously, this is very preliminary since we are really fine-tuning the projection or the plan for next year, but just to give you a frame of reference.

I would think that, right now, that we probably would open in the range of -- in terms of new stores from a percentage standpoint is, maybe around 3% store count, 2% to 3%.

And then, in square footage, square footage is a little more than that since we're opening and we've been opening -- we'll be opening more Schuh stores, S-C-H-U-H stores, and also Lids Locker Room, which are bigger stores, so that would be probably 4% to 5% square footage growth.

Okay.

That's very helpful.

And the wild card on this is store closures.

If you look at -- we closed a lot of stores this year.

We probably would have closed even more stores this year, if a number of the landlords weren't very accommodating on rent.

And, in most of those instances, where we took a big rent reduction or to keep a store open, we kept that lease very short.

So, we still have a lot of stores that's sort of the bottom end of the food chain, if you will, where, on a year-to-year basis, we might be making a move on them.

Now, they obviously they don't move the needle a lot because they're obviously low-volume stores.

But, in terms of the square footage growth, that could be affected by the store closings that we choose to do next year.

Okay.

I want to ask Jim about margins for next year, but because you mentioned that, Bob, where are you in the process of renegotiating leases?

I think a year ago you gave us a timeframe -- not a timeframe but a map of how that's playing out.

I'm trying to remember where we're at with that, what inning are you in?

How much opportunity do you still have in order to lower your leverage point on occupancy and just overall fixed cost?

Well, we're still in the middle of the game and we continue to see the same type of opportunities that we have seen over the last several years.

We'll call out the fact that a lot of landlords were citing improvement in occupancy and we'll urge you all to go walk a mall and -- not the A malls, obviously, but when you get down to the lower half of the mall spectrum, see what that occupancy is.

It's a lot of local retail and nail salons and things that we think are not probably paying the kind of rent the landlords want; so, what we're finding is still a lot of flexibility to help us get to a reasonable return on those stores.

So, we continue to see -- and we look at those in three ways.

We've got lease expirations, which are a piece of it.

We have kick outs -- and, again, those stores I just discussed that we might have extended another year, if they're not a one-year deal than they're a three-year deal with a kick out, so we always have the opportunity to protect our downside.

And so, those also are opportunities for us.

Then, we continue to have this really aggressive program of auditing the malls for what occupancy they have in place and seeking the relief that exists in the covenants in our leases.

And with the [Gap's] announcement a couple weeks ago, that's a lot more square footage that obviously is at risk for the landlords.

So, we expect we will still see some benefits from that angle as well.

In terms of, ask Jim -- just in terms of the cycle on our leases, we're still in high season for looking at a lot of leases.

Yes, I think that this year, the number will probably be in excess of 250 leases.

And then next year, it could ramp up some, more kick out clauses next year on coming up.

So, in terms of number of leases, we still have a lot in front of us and so there will still continue to be a lot of opportunity there.

Okay, great.

That's good.

Again, as we think about next year, obviously, you would expect some margin improvement in order to get to 12%, 15% earnings growth.

Is there opportunity on the gross margin side?

I mean, when you think about gross margin versus SG&A, looks like a little pressure on gross margin this year, can that improve next year?

We're not really a gross margin story.

We're a full price seller; we work well with our vendors.

We're really looking at [that] growth and then the leverage on SG&A.

That would be the bigger driver of operating margin expansion.

Got it.

That's helpful.

And then lastly, Jim, you guys gave your Q4 comp outlook.

Can you just touch upon that by concept?

Yes.

It's really, I said 3% to 4% in the back half and it's basically, right now, for Johnston & Murphy, it's all about the same, in that range; there's really no outlier.

We're -- just about all the different businesses, it's in that range of 3% to 4%.

Got it.

Okay.

Great.

Thanks.

Good luck.

(Operator Instructions)

Robin Murchison from StarTrust -- SunTrust, sorry.

Good morning.

Several questions here.

I wanted to ask Bob about -- you said you were not quite ready to ramp up Shi and I just wanted to get you to elaborate a little bit on that.

Well, we have -- we're delighted with the progress the team has made, and these are really robust comp numbers.

They are on a pretty low base because we were tough coming out of the gates.

And then the other thing that we suffered at Shi, when we first got opened, was that we opened at the top of the real estate cycle, so the rents were pretty high.

So, we are in the process of looking at Shi; we have a target, essentially pro forma, that we need to get Shi to, in terms of a four wall, that would signal that we've got it right and that we're ready to go.

Obviously, we're getting a lot closer to it than we were a year ago, but we're not quite there yet.

On the other one -- part is, we still have this very shaky economy, and so we had a false start with Shi when we opened into the teeth of a recession.

And it would be really nice, once we commit to ramp it, to do it in an environment where we think demand has got some level of stability ahead of it.

No, I think it's a wise move to be steady with it.

Is it more than boots, Bob?

Is it -- are you seeing improvement -- is the comp driven by improvement across many categories or is it predominantly boot driven?

Many categories.

Okay, good.

Jim, I just wanted to ask you, I think you got a few pennies from the tax rate.

As we look into next year and, given the contribution of Schuh, should we expect the tax rate to come down?

Well, I tell you what, we're planning right now at about 39.5%, and there were adjustments going back and forth.

There was a few adjustments in there and that's why the tax rate is a little lower, has been a little lower, but we think normalized right now maybe 39.5% would be the right rate.

Okay.

And then, also wondered, not that it -- didn't seem to affect you guys too much, but any color on the UK economy in general?

Even if it's different from what you saw with Schuh, can you just give us a little color there?

Well, the guys in the UK have a tracking mechanism that I think a lot of retailers pool their results and then you get to see how you're doing against that pool of results.

And so, they're achieving a level of outperformance that, in the UK, that is at least as great as Journeys is relative to the mall here.

So, we know that they are essentially an outlier to the rest of retail in the UK.

We know [why] the same trends that are driving Journeys and so we're obviously hopeful that they'll sustain that.

So, it's a challenging environment in the UK, maybe a little more so right now in terms of consumer spend than it is here.

But they're cleaning up their act in a way as a country faster than we are.

So, when you look to the out years, maybe they're getting done what needs to get done now, and then that might bode well for their future.

But the beauty of it right now is the fashion is allowing them -- and their terrific execution -- is allowing them to really outperform the UK.

Okay.

Great.

Thank you and good luck on the fourth quarter.

Jill Caruthers, Johnson Rice.

Good morning.

If you could talk about in the third quarter, you noted some gross margin pressure at Journeys from product mix.

If you could discuss what's moving that?

Well, I'm not going to get into the brands, but it's just some -- the margin in some of the products that we were selling [ the IMO] was a bit lower than in -- when compared to last year, it's not a big deal.

You can see our gross margin is down, not much and most of that was due to the Schuh acquisition.

It was a small amount but, again, it's just a mix issue and it's -- we don't really think it's a big deal.

It's not a big amount in any one brand or anything like that.

It was just the way it [settled] out for the quarter.

Okay.

And then, could you talk about just at Journeys, the merchandise strength you saw?

Clearly very strong comps throughout the quarter And could you -- you did highlight boots this [strength], could you talk about the percentage of boots for third quarter versus fourth quarter for you?

As you know, Jill, we're not going to call out trends like that.

We consider that to be competitive.

Really, the same broad strength that we've seen in the past at Journeys has been sustained.

So, in addition to boots, we've got some great trends in casual and we've got even some aspects of our athletic business is also strong.

So, the great thing about the Journeys right now is a lot of different things -- all good, all at once.

And I really don't want to go into much detail beyond that.

All right.

And just last question, as your team sports division continues to grow and you build up the scale there, could you tell us any new finding that you're seeing in the market or new opportunities maybe that was different versus a couple of quarters back?

What we're finding is just great receptivity to our approach in the marketplace.

And that is a combination of being able to arrive with the kind of package we've got, which includes having Nike as the lead brand.

That's very powerful in the marketplace.

And, we're finding that our -- the way we're building this infrastructure in order to be scaled is going to be effective.

We still have a lot more work to do to build it out, but we're basically getting the early read that what we're looking to do, the customer's looking at it and saying, that works for us.

All right.

I appreciate it.

Thank you.

Samuel Poser, Sterne Agee.

Good morning, guys.

I've got a few here.

Number one, regarding the Lids Teams -- Lids Locker Room stores, the NFL is switching uniforms next year.

How important do you think that's going be to driving comps there?

We think it's a plus.

We like the vendor mix, and so, but just simply newness and a fresh approach, Sam, generally bodes well for demand.

We see it even on an individual team when they change the logos, as the Marlins are going to next year when they rename the team, is a big driver.

So, when you see a league doing something that's going to bring some newness into the space, it's a big plus.

And then the caveat on that is, you have a new set of suppliers, and so they've got to get geared up and make sure their supply chain can do what it needs to do.

So, that comes with a certain level of risk.

And then, for us, the challenge will also be closing out the old merchandise and getting into the new.

So, we're a little more challenged with carryover product, which we'll have to work through.

But, we're already pretty lean on NFL inventory on a year-over-year basis, so we're feeling pretty good about that part of the switch over.

But the newness is generally going to bode well, specifically in the headwear business with New Era having taken on the NFL license; and, obviously, they are the premier hat marketer -- manufacturer and marketer.

They really know how to do this stuff well.

That really is exciting for us.

Great.

Thank you.

And then, you have fairly mature businesses here when you look at the Lids stores, and Journeys as well.

To put up the double digits -- the high single-digit comps with Lids and then the double-digit comps at Journeys, to do that on top of what you had and considering what a mature business it is, what are the main things that you are attributing to that performance right now?

Well, I'll quibble with mature.

I guess mature is in the eyes of the beholder and if you're talking about the opportunity for square-footage growth in our core businesses in the United States, then the answer is, yes, maybe you are mature.

But, if you take Lids, Lids Locker Room is not mature.

That's a completely new opportunity.

What we're doing with Lids.com in terms of taking it from being a headwear site to a broadly assorted site and then on top of that being able to do Clubhouse stores, which are websites for teens, I'd say that's not really mature.

Within the existing stores, we're building an embroidery business that is still in its high-growth phase, so that's not really mature.

When you look at Journeys, and I won't really call it Journeys, I'll say, let's talk about our team headwear -- I'm sorry, our team footwear business, we've got Canada growing, we've got the opportunity in the UK, we've got Shi by Journeys, which we're not expanding yet but that still represents an opportunity.

Then the fantastic thing that Journeys has been doing with Journeys.com, where the comps were up in the 40%.

There's a lot of things that our team does, they don't accept the phrase mature when they talk about their business, because between using technology and looking at international expansion, looking at new concepts, there's all sorts of opportunities to take our fundamental position in the marketplace and grow.

Thank you.

And then, when we look at the Journeys business, I asked you this question last quarter and I think you were going to get back to me regarding the narrowing of the assortment in the Journeys stores and going deeper on key items and I continue to see the stores looking cleaner.

Is that -- can you give us some idea of how you've narrowed the mix and attacked the key items better because I would assume that, that is contributing to the results that are out there.

Yes, Sam, you are right.

You've proved yourself to be a keen observer of the store last time, and in talking -- (multiple speakers) and Jim, is exactly what's going on.

The process is, you can explain it in a fairly simple way.

When you don't have a lot of items that are working, then you're in the process of searching for things and you're testing a lot of stuff and you end up broadening the assortment.

When you're in the happy place we're in right now, which is a very wide range of stuff that is working, then the commitment we're making is on those lines that are working well, which, again, are pretty broad based.

So, right now, we're in a position where we are a less broad, more deep that should help sell-throughs, both in terms of having a greater percentage of hot product in the stores, but also when you get down to the final run, you have much more efficient use of your inventory.

So, we are in that very good position.

We're not going to call it out with numbers, but it's certainly the direction that the team has been able to go and it is a nice contributor to performance.

Thank you.

Just a quick thought, you're running up mid-teens at Journeys.

The economy's -- you haven't done that in years, really.

The economy is weak right now.

Is that -- what's really changed there for you guys?

Is it just better product?

Is it just better execution right now?

Is that, simply put, the difference?

I certainly will call out better execution, better product and fashion trends in our favor but remember, we compete with a lot of people for a fixed amount of dollars that's in the teenager's pocket.

And so, when you think about where else that money goes and, specifically, you think about teenage apparel, it is pretty clear that apparel doesn't have as much going on right now as footwear does.

So, the decision of a kid walking the mall is likely to move more dollars into their footwear budget and out of their apparel budget.

You can see that in the apparel [guide] numbers; so I think we're benefiting from that as well.

But -- so I think it's a bunch of things.

I think there's fashion trends, great execution, and then other aspects of the teenager's world is not calling for spending.

Thank you.

And then, one last thing, week 50 -- when is your fifty-third week year?

Next year.

So, it's 2013?

That's right.

All right.

Thank you.

Thank you guys so much.

Continued success.

Thank you.

That concludes today's question-and-answer session.

Mr.

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

Just thank you all for joining us and we look forward to talking to you after the holiday.

Thank you.

That concludes today's conference.

Thank you for your participation.