Genesco Inc (GCO) 2014 Q4 法說會逐字稿

Good day, everyone, and welcome to the Genesco fourth-quarter fiscal year-end 2014 conference call.

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

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

These statements reflect the participants' expectations as of today, but actual results could be different.

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

Participants also expect to refer to certain adjusted financial measures during the call.

All non-GAAP financial measures referred to in the prepared remarks are reconciled to their GAAP counterparts in the attachments to this morning's press release and in the schedules available on the Company's homepage under Investor Relations.

I will now turn the call over to Bob Dennis, Genesco's Chairman, President, and Chief Executive Officer.

Please go ahead, sir.

Good morning and thank you for being us.

I am joined today by Jim Gulmi, our Chief Financial Officer.

As in prior quarters, Jim's detailed review of the quarterly financials has been posted to our website, along with the press release from earlier this morning.

I'll begin today's call with remarks about our full-year and fourth-quarter results, our start to FY15, and our outlook for the year.

Then I'll turn the call over to Jim for a review of the numbers in guidance, and after that, I will return and give a little color on our operating segments before opening the call up for your questions.

Our adjusted earnings per share for FY14 were $5.09, $0.01 below the low end of our guidance.

We set expectations around the low end of the range when we last updated guidance in early January.

Fourth-quarter comparable sales increased 1%, and overall sales roughly met our expectations.

The miss on earnings was largely related to Lids.com getting aggressive in January with dynamic pricing on clearance goods and on their digital marketing spend, which drove solid sales growth, but hurt profitability more than we expected.

Through last Saturday, quarter-to-date comps were down 2%.

Sales have been choppy recently, with the first week of the quarter down significantly, due to a major winter storm, but then sales improved as more normalized weather arrived and the IRS started returning money to earlier filers.

As a measure of the weather's impact, comps in our stores have been roughly on plan for the quarter, excluding the first week.

And for the entire quarter to date, comps have been positive in our west and southwest regions where weather has not been much of a factor.

Having gotten our inventories clean in January, we have maintained our typical promotional posture for February, and for the quarter we expect gross margins to be solid.

Looking forward to this year overall, the absence of a meaningful new fashion driver in the teen footwear space makes us cautious about Journeys' and Schuh's prospects in the first half of this year, and customer traffic remains somewhat choppy across the whole Company.

So our expectation for the Company's comp sales in the first half of FY15 are modest.

We are expecting a first-half comp in the 1% to 2% range, compared to the back-half range of 2.5% to 3.5%.

Overall for all of our retail businesses, including direct, we are budgeting low single-digit comps for the year, which is split between low single digits in our stores and high teens in our direct business.

Last year, direct accounted for 7% of our overall retail sales, and we look for it to increased to 8% this year.

In this year's fourth quarter, direct was 9% of retail sales.

We do see several opportunities for targeted growth in the coming year.

We are concentrating store expansions in our underpenetrated retail concepts, namely Locker Room by Lids and Clubhouse stores in North America, Journeys Kidz in the US, Schuh in the UK, and Johnston & Murphy in North America.

Locker Room and Journeys Kidz have delivered solid comp sales gains this year, and Schuh's new stores as a group are performing ahead of budget, despite the business' tough comps over the past year.

J&M's steady improvements have expanded their potential real-estate reach.

Overall, we see the opportunity to add a total of 92 net new stores in these four concepts this year and 125 net new stores overall.

And this includes potential Locker Room by Lids acquisitions, but does not include up to 175 new Locker Room by Lids shop in shops within Macy's.

So the large majority of our net new stores are in our expanding concepts.

We are opening stores much more slowly in our more mature concepts, Journeys and Lids headwear, being mindful not to over-expand.

Altogether, we are expecting to increase our net store count by 125, which is up 5%, again, excluding Macy's, which would add another 7% to that total.

Our other growth focus for the year remains the direct business and related omni-channel initiatives.

Direct comparable sales increased 10% in Q4 on top of a 17% a year ago and gained 11% for the year on top of 11% in FY13.

We are mobile-optimized across all of our retail concepts, and therefore, an increasing percentage of these sales are coming from mobile and tablet devices.

Our gains are, in part, a result of our operations providing a range of shopping options for our customers.

For example, our customers in Journeys, Schuh, and Johnston & Murphy have, for some time, been able to access a concept's entire inventory position from both stores and online, a capability first established many years ago to service the stores.

Not only does this drive sales from customers shopping on their own devices, but it also allows in-store customers, through our POS, to access product styles not available in that store or to address size gaps within a particular store.

As another example, customers in all our concepts can buy online and return purchases to our stores.

Many customers like this option, because our very broad store network often makes in-store returns and exchanges easier than shipping merchandise back.

Fully 5% of Journeys groups in-store sales last year were actually digital sales made online via POS terminals in the stores and shipped from our warehouse or another store to the customer.

We report these digitally assisted sales executed within our stores as store sales, not direct sales, but this capability obviously helps us compete effectively.

As we've discussed, Lids is rolling out similar capabilities by late summer, and the resulting online access to the full range of Lids' inventory should provide a sustained boost to available SKUs online and to sales.

All this underlines what we see as a key strategic advantage in having both bricks-and-mortar stores and a robust digital commerce presence, since the two channels are truly symbiotic, feeding and supporting each other so that the whole is greater than the sum of its parts.

We have a number of other initiatives underway or in the planning stages to enable us to provide additional direct and omni-channel capabilities to better serve our customers, wherever and however they choose to shop.

For example, at Journeys, Schuh, and Johnston & Murphy today, customers are able to go online and check store availability for product they would like to buy before making the trip.

And at Schuh, they can also reserve product online.

We pull that product off the shelf and hold it for them, and they can then come into the store and try it on before actually buying.

And this last capability will eventually be extended to the rest of our store brands.

In addition, to give customers access to an even broader range of product than what is carried in our stores, we are increasingly carrying Internet-only product online, and for select vendors, giving customers access to inventory in vendor warehouses for even greater selection.

To improve delivery options and timing, we are experimenting with local shipping points and many warehouses in our stores in order to get merchandise to the customer faster.

Importantly, we are investing in the systems that enhance our omni-channel capabilities.

We have previously mentioned to you a new order-management system to streamline and enhance the process between a customer sale and product delivery, which we expect to be operational later this year.

The Lids warehouse is leading the way for us on innovation, with a commitment to install a robotic system this year for faster and more efficient picking.

We are implementing new front-end e-commerce platforms in all of our North American businesses, and we are continuously investing in call-center and warehouse upgrades.

All of this leaves us optimistic for continued growth in direct, and for improved service options for our customers overall.

So despite recent challenges and our muted expectations for the first half of 2015, we believe the fundamentals of our business remain intact, and we are encouraged about our store opening plans, and especially about taking our omni-channel initiatives to the next level.

This year's plan accelerates some of the investments we are making in our key growth initiatives.

These investments are incorporated into our projections for FY15, adjusted earnings per share growth in the range of 16 -- 6% to 9%.

We remain focused on successfully navigating through the current headwinds and driving towards the five-year goals we shared with you last quarter.

And I will turn the call over to Jim now to review the numbers for the quarter.

Thank you, Bob.

As a reminder, detailed information for the quarter has been posted online, so I'll try to highlight a few important points in reported results and focus in more detail on guidance for the new year.

For the reasons Bob has mentioned, the fourth quarter came in slightly below our earnings guidance, which was last updated in January.

Consolidated net sales for the quarter were essentially in line and flat with last year.

Excluding additional week last year, total sales were up about 4%.

Comp sales for the quarter increased by 1%, with our direct business up 10% on top of 17% last year.

Comps for the Lids Sports Group increased by 4% for the quarter, reflecting strong Super-Bowl-related sales in our Seattle-based Lids Locker Room stores.

Lids' direct business increased 18% on top of 27% last year.

Journeys' quarterly comps were flat.

Journeys' direct sales increased 20% in the quarter, compared with 14% last year.

Johnston & Murphy continued its strong performance, with a comp increase of 11% in the quarter.

The Johnston & Murphy direct business was strong, with a 26% increase, on top of a 10% increase last year.

At Schuh, both store and direct sales were down 7%, with a direct result coming on top of a 17% increase in last year's fourth quarter.

Adjusted operating margin for the Company was 10.4%, compared with 10.3% last year.

Gross margin improved by 50 basis points in the quarter.

While this increase was slightly below our expectations, due to the factors Bob mentioned in his opening remarks, it was good to see, as this marked the first quarterly gross margin increase in the past six quarters.

The gross margin improvement was true for all business units, with the exception of the licensed brand group, which experienced some margin pressure.

We remind you that gross margin moves around for us, depending on sales mix.

Adjusted SG&A as a percentage of sales was 38.3%, up about 40 basis points, compared with last year.

The tough sales comparison made it difficult to leverage in the quarter, even with the lower bonus accruals compared to last year.

Overall SG&A expenses were up only 0.3%.

As we have just discussed before, we are expensing the Schuh acquisition-related contingent bonus quarterly, which is included in our guidance and in the adjusted numbers we report.

For the quarter, the contingent bonus accrual of $6 million reduced EPS by $0.20, compared with $6.3 million, or $0.20 per share last year.

For the full year, the contingent bonus expense amount was $13.1 million, or $0.43 per share, compared to the $15.8 million, or $0.50 per share last year.

We expect to fully expense the remainder of this contingent bonus in FY15.

In addition, the Schuh deferred purchase-price expense in the quarter was $3 million, or $0.13 per share.

Last year, the amount expensed for the quarter was $3.2 million, or $0.13 per share.

For the full year, the deferred purchase amount expensed was $11.7 million, or $0.50 per share, compared with $12.1 million, or $0.50 per share last year.

Consistent with past practice, we have excluded this from our guidance and from the adjusted results.

This and the other items excluded from the adjusted results included the effects of the midyear change in our EVA bonus accounting are spelled out in the earnings release as well.

Approximately GBP15 million or about $25 million, of the deferred purchase price, which has been accrued annually since we acquired Schuh, will be paid in FY15.

The final payment of GBP10 million, or about $16 million, will be due in FY16.

Additionally, the cash payment related to the contingent bonus expected to be approximately GBP28 million, or approximately $45 million, which includes payroll taxes, will also be paid in FY16.

So in short, gross margin improved by about 50 basis points and SG&A margin increased about 40 basis points, resulting in a slight operating margin improvement of 10 basis points.

We earned $2.16 per share for the quarter, adjusted as described in the press release, compared to the same number last year.

For the fiscal year, sales were $2.6 billion, an increase of 1% over FY13.

Excluding the impact of the 53rd week last year, the sales increase was 2%.

Adjusted operating margin was 7.5%, compared with 7.6% last year.

Gross margin was 30 basis points, offset by 20 basis points of SG&A leverage due to lower bonus accruals, despite the negative 1% comp for the year.

For the year on an adjusted basis, we earned $5.09 per share, compared with $5.06 last year.

Turning to the balance sheet, year-end inventories were up 12% compared with last year.

Retail inventories on a per-square-foot basis were up 6%, which is a nice improvement from the 10% increase at the end of the third quarter.

Wholesale inventories, which make up about 16% of total inventories, were up 11%.

Roughly half of the wholesale inventory increase was caused by licensed brands being very cautious and accelerating [receipts] to avoid any manufacturing disruptions arising from the Chinese New Year.

We ended FY14 with $59 million in cash, essentially flat with last year and with $0 debt, down from -- $0 US debt, down from $28 million last year.

We do have about $34 million in debt in the UK, including debt assumed in connection with the acquisition of Schuh, and additional debt incurred in FY14 in connection with the new Schuh distribution center.

Last year the UK debt amount was $23 million.

During the quarter, we did not purchase any stock.

For the 12 months, we have spent about $21 million repurchasing 338,000 shares at an average cost of $61.23.

We currently have $66 million available under our Board's most recent stock-repurchase authorizations.

We spent about $14 million on small acquisitions in FY14, related primarily to Lids Locker Room.

In FY14, we generated approximately $140 million in operating cash flow.

Of this, we spent about 70% on capital expenditures, 10% on acquisitions, 15% on share repurchases, and the balance of 5% was used primarily to pay down debt.

Fourth-quarter capital expenditures were $22.8 million, and depreciation and amortization was $17.6 million.

For the full year, capital expenditures were $98.5 million and depreciation and amortization was $67.1 million.

We ended the year with 2,539 stores compared with 2,459 stores last year.

This excludes the 26 new Macy's locations and 3 Schuh pop-up stores.

Square footage for the year was up 6.1%, excluding the Macy's locations.

A detailed breakdown of the store count is included in my discussion of the quarterly financials posted to our website today.

On our third quarter call, we gave some preliminary directional guidance for FY15.

Now, I would like to spend a few minutes providing more details around our expectations for the coming year.

Our FY15 EPS guidance is in the range of $5.40 to $5.55.

This guidance is subject to the same adjustments as in previous years, excluding impairments, which are of course non-cash, and other charges, which we expect to total of about $3.1 million to $4.5 million pretax, or $0.08 to $0.12 per share after tax.

EPS guidance also excludes the ongoing Schuh deferred purchase price expense, which is expected to be approximately $7.1 million, or $0.30 per share in FY15.

The final payment will be expensed in FY16 and is expected to be $1.6 million, or about $0.06 per share.

Consistent with past practice, this guidance includes the full-year accrual for the Schuh contingent bonus built into the acquisition agreement, which we currently expect to be approximately $11.5 million, or $0.38 per share in FY15.

This should be the final year expensing this contingent bonus accrual.

As I mentioned earlier, we expect the full amount of the accrual of GBP28 million to be paid in FY16.

In developing this guidance, we used the following assumptions: we are assuming comps, including direct sales in the 2% to 3% range for the full year; we are expecting an overall sales increase of 8% to 9% for the fiscal year; our plan is to open or acquire 169 stores in FY15.

This does not include up to 175 new Macy's locations.

Our current plan is to close 47 stores during the year.

We plan to end FY15 with 2,664 stores, again, excluding the Macy's locations.

This will be a 5% net increase in stores.

Net square footage, excluding the Macy's locations, is expected to be up 6.3% for the year.

A detailed summary of our plan for new and acquired stores is included in my financial review on the website.

We are expecting gross margin as a percentage of sales to be up slightly for the year.

Expenses will also be up as a percent of sales compared with last year, due in large part to added bonus accruals.

This results in a flat operating margin percent.

Our tax assumption for the full year is expected to be approximately 37.3%.

We are assuming average shares outstanding of approximately $23.7 million for the year.

We have not included any stock buybacks in this guidance.

We are also expecting capital expenditure for the year of about $149 million, and depreciation and amortization will be about $80 million.

In terms of the quarterly breakdown for the year, I remind you that historically we have generated about 55% to 60% of our sales and 70% at our full-year operating income in the back half of the year.

FY15 we expect upwards of 70% to 75% of operating income to come in the back half, due to the slow starts at Journeys and Schuh, and the increased contribution of Lids Locker Room, which is more heavily weighted to the fourth quarter than our other concepts.

In addition, the early challenges at Journeys and Schuh will have a much bigger impact on the first quarter, as compared to the second quarter.

I will now turn the call over to Bob.

Thank you, Jim.

I'll begin my review of our operating segments with the Lids Sports Group, where sales comped up 4% this quarter on top of a 10% decline a year ago, and after a 5% gain in the third quarter this year.

Lids fourth-quarter sales gains were driven by solid growth in our Locker Room and Clubhouse stores and in Lids.com.

First quarter comps for the group were plus 3% through last Saturday.

Beginning with the Lids hat stores, snap-backs remain an important component of the Lids business, although they continue to decline slowly as a percent of sales, as our core fitted product slowly rebuilds a larger share of the sales mix.

Snap-back inventories are in good shape exiting the year, and gross margin for this product remains strong.

We really like the Lids stores' competitive position as the dominant player in the space, and while we see less growth in the hat store square footage, this business remains our cash cow.

Turning to Locker Room and Clubhouse stores, comparable sales increased double digits for the second consecutive quarter.

This year, the Super Bowl was a big factor in the fourth-quarter numbers, with our eight Locker Room stores in Seattle doing especially well running up to and following the Seahawks win.

We ended the year with 128 Locker Room and 49 Clubhouse locations, and our current plan calls for adding approximately 40 to 50 new Locker Rooms and Clubhouse locations through a combination of organic expansion and acquisitions over the coming year.

We continue to believe we have the opportunity to scale this business to a nationwide footprint, which, along with our digital business, should give us a competitive advantage that mimics those that we currently enjoy in the headwear space.

This was the first holiday season operating Locker Room by Lids departments at Macy's.

We are learning a great deal about the Macy's customer in terms of their product preferences and shopping patterns, and we continue to seek good potential for this business.

We ended the year with 26 shops and have plans to open up to 175 in FY15.

Finally Lids.com had another strong quarter.

The work we've done repositioning the website as a one-stop shop for sports licensed merchandise by increasing the product selection well beyond hats, has driven healthy growth throughout the year.

Let's discuss for a moment how this fits into the consumer sports market.

Fans fall into two fundamental sets of customers: local fans and displaced fans, that is, fans who live away from the home market of their favorite team.

Our platform allows us to hit both segments.

Our brick-and-mortar locations cater to the local fan by carrying a deep and broad local market assortment, as well as the top national teams.

And in deed, as an example of the importance of the local teams, our store sales in Locker Room and Clubhouse stores spike significantly when the local team has a home game; it is very much a need-it-now purchase occasion.

Our digital capabilities provide the displaced fan with the ability to shop our online inventory through their devices, as well as through our recently installed in-store kiosks.

We believe we will be able to build on this current momentum in the direct channel and boost store sales by implementing our initiative to enable online access to our entire system inventory, including inventory in stores, later this year.

We believe that the competitive advantage this will bring to all of the Lids Groups' retail concepts is tremendous, because it will enable them to better serve the total mass of fans.

In addition, we are positioned well vis-à-vis pure-play competition with omni-channel capabilities provided by our store network.

For example, fans can buy products online and return product at any one of our over 900 Lids locations and soon to be 200-plus Locker Room and Clubhouse locations.

They will eventually be able to reserve online and pick up in a store, giving you just some examples of the best of both digital and store worlds.

Now turning to the Journeys Group, total comparable sales were flat for the quarter, with a slightly negative store comp and a strong double-digit increase in Journeys direct.

This is on top of a minus 1% comp for the quarter last year.

As expected, the divergence between casual footwear and fashion athletic trends was pronounced during the fourth quarter, with a solid gain in casual, including boots.

Due to the absence of a dominant new trend or a key new product launch, our athletic business was softer.

We expect Journeys top line to be somewhat challenged until we move into the back half of the year, where we have more visibility on positive fashion trends and the non-athletic casual product once again becomes a much better percentage -- bigger percentage of the mix.

But we view the overall trend into casual as a plus, because we are distinctive as the go-to store for many of the brands on that side of the store.

Comp quarter to date at Journeys Group is minus 2%.

To make one important point here that is easy to lose sight of in the middle of a challenging fashion trough, these troughs are a recurring feature in this space.

Periodically, the most recent fashion driver wanes, and we go through a period of determining what the next driver will be.

But long experience confirms two things: there is always a next fashion driver, and the Journeys team is very good at identifying it early on and making the most of it.

As a measure of this, if you look at the top 10 brands today and then look back 10 years, only two brands from this year's list has been in the top 10 for all 10 years over the period.

So brand rotation is a consistent feature of this business, and it will surely happen again.

This is a time when we try to keep a slightly longer perspective.

We have the strategic advantage as a branded retailer of being able to ship into the next trend, and there will be a next trend.

Interestingly, the category trends that are challenging the Journeys stores are not having nearly the same effect on Journeys Kidz stores, where comps were up.

The fourth-quarter increase was 2% on top of a 5% decline a year ago.

Casual was definitely the stronger category, thanks partly to boots, but we are also seeing athletic sales hold their own.

We believe part of our recent success can be attributed to the concept's unique position in the market; no one else does what we do in the kids footwear space.

We ended the year with 174 Kidz stores in the US and plan to add another 25 stores this year.

Longer term, we think the potential exists for approximately 300 locations, which is currently contemplated in our five-year plan.

Journeys direct comps were up 20% for the quarter, driven by a big increase in traffic with a substantial increase in particular to our mobile site.

At Schuh, comps were down 7% on top of a 7% increase a year ago, with store and digital comps performing similarly.

Comps have remained challenged so far at minus 8% quarter to date in FY15, as weather in the UK has been uncooperative, marked by heavy rains and flooding.

Despite the negative comps, Schuh continues to perform very well versus the expectations that were the basis of our decision to acquire the business almost three years ago.

Like Journeys, the management team at Schuh has proven adept at successfully managing their business during periods without strong fashion drivers, while also being quick to identify and capitalize on new trends.

And so, as with Journeys, we keep a longer-term perspective.

We believe during the current cycle that Schuh continues to have the right product offering in its market; however, we have had to become more competitive on price then we'd like, due to actions from several of our peers.

In the meantime, we continue to utilize innovation and technology to distinguish Schuh's service model.

We continue to test the expansion of our mini-warehouse program in FY15, which has already extended the cutoff time for next-day delivery and customer orders within its delivery zone from 5 PM to 10 PM.

Additionally, we're in the early stages of testing it platform for same-day service throughout the entire UK.

Growth through unit expansion was the story for Schuh during FY14.

Schuh added 19 new stores to end the year with 96 permanent locations, and increased store square footage by 23%.

As I said earlier, the new stores continue to perform above their pro formas, and we plan to open 15 stores in the new year, again, focusing primarily on increasing Schuh's presence in southern England.

Johnston & Murphy capped off a terrific FY14 with its strongest comp of the year in Q4, an increase of 11% on top of a 2% increase a year ago.

This marks the 14th consecutive quarterly comp increase.

Comps through last Saturday were down 6%, due in large part to J&M's heavy presence in the Northeast, which has been so hard hit by the winter weather.

The brand's success is being driven by a very compelling line of premium dress and dress casual shoes.

The team has done a great job leveraging J&M's heritage and authenticity into an updated, more modern version of the brand, without losing sight of its past.

And at the same time, new marketing initiatives have been very effective at telling the story and connecting with a younger and much wider audience, including women, with our J&M women's line.

The same factors are also fueling strong results in J&M's wholesale business, which was up 8% for the full year.

J&M's wholesale-expansion strategy will continue to include a focus on Canada and on our women's opportunities.

And finally, the licensed brands group delivered another healthy operating-margin performance for the year.

So as we begin FY15, we believe we have a balanced plan in place to protect profitability in the face of some near-term uncertainty, and to invest in areas of the business that strengthen our competitive advantages and provide the greatest opportunity for longer-term growth.

And before we close, I'd like to recognize our and higher Genesco team for their continued efforts.

It's their collective skill and dedication that have once again proven that we have the people and the processes in place to successfully navigate through a choppy retail environment.

It also reinforces the powerful strategic position of our businesses, and even more clearly the value of the many years of experience and the commitment to excellence of our operating teams, so we are excited about the tremendous opportunities ahead.

And operator, we are now ready for questions.

(Operator Instructions)

Taposh Bari, Goldman Sachs.

Hello.

Good morning, everyone.

A quick question on your footwear business, it seems like you are feeling stronger about the fall/winter assortment as a whole versus spring/summer.

How are you feeling about -- I know you don't get into details about brand, but how are you feeling generally speaking about innovation in the category for spring?

Do feel like -- a couple questions there, do feel like the brands are introducing enough newness?

Do feel like your merchants are taking of risk on new styles and you feel -- I know it's early, but you feel like consumers are responding to those initiatives?

Well, what we said is what we said.

We don't feel the first half, which is more driven by athletic, we don't think we have visibility on the kind of newness that would really drive the business, and we feel more confident on the back half, which is where casual becomes more intense and where we feel we have more visibility on what's going on and have some excitement.

That said, the team came back from Vegas excited by many things that they saw, which we're not going to get into here.

That is all subject to testing things in our stores.

So the merchants do believe they are seeing new things emerge that give us the opportunity to test.

The big question is whether those will resonate with the customers and whether they will become important enough to move the needle.

We're not banking on that for the way we are looking at the business going forward for this year.

So therefore, that's why we're conservative in the first half and a little more confident about the back half.

Okay.

And then the second question I have was on the Locker Rooms/Clubhouse concept, good comps thee, particularly over the past couple of quarters.

Can you help us understand what the productivity curve for those stores look like post-acquisition?

So I'm assuming once you acquire a region, you infuse new merchandising initiatives, better execution, et cetera, rebranding, and I'm assuming that that drives a pretty material spike in comps.

Is that fair?

And then secondly, how does that comp trajectory look over the course of a multi-year period, since you've been doing this now for a couple of years?

Yes.

It's the right question, and we are not as clear on being able to quantify it as we would be for a normal business.

And here's the difference between this business and normal: it's teams.

And so, it is very hard to analyze -- we're pretty certain we get nice comp increases, and we are seeing evidence of that.

But -- and we've written a new store model with our best judgment of what that looks like.

But it's going to take a few more years where we can aggregate enough stores so that the team effect gets normalized out.

So we have some markets where we killed it, and obviously, we called out Seattle as one.

And we have some markets where it was awful, where the teams really disappointed this year, year over year.

And so we are trying to normalize for all of that, which is a little more challenging than you'd think.

So with that said, we believe we're getting good, steady comps.

Our new store model for acquired stores and for -- particularly for de novo stores, assumes that classic two-year ramp up of mid to higher single digits before it normalizes out.

The acquired stores, it depends on the store we acquire.

To be fair, some of the stores we have acquired, when we got our hands on them, were wonderfully run.

And so, the opportunity to improve the merchandising on them is less the improvement than is the gross margin opportunity, because what we do believe we're going to have as we scale is an element of buying power.

But some of the stores that we've seen, to be perfectly honest to -- in a few cases, we have learned something from them in terms of how to merchandise effectively.

So the acquired stores are also a mixed bag.

The really run well-run ones we are only getting margin, and some of them where we have been able to go in and affect change, we have seen comp

Got you.

Thank you for that detail.

One final one, if I could squeeze in it: are you willing to tell us what the comp has been quarter to date, excluding that dreaded first week?

And if you can, can you tell us if it's within that 1% to 2% range for the first half?

It was -- we said it was positive and on plan; I do not have the number beyond that.

Maybe Jim will be able to give that to you later.

Sounds good.

The basic message is it's a positive run rate, and even within that after you get the first week, you can see the storms.

You can see yesterday.

There was a storm yesterday, and you can see it in our numbers.

So it runs up and down, but the key for us was that after we got through that very horrible first week we've been positive.

Got you.

All the best.

Thank you.

Thank you.

Stephanie Wissink, Piper Jaffray.

Hi.

Good --

Hello Steph?

Is anybody there?

(Operator Instructions)

Pam Quintiliano, SunTrust Investments.

Great.

Thank you so much for taking my question, guys.

So had actually a few for you.

First, you highlighted weather.

Can you talk about the store closures in January and also February, and how we should think about that versus last year?

Yes, there were more.

I don't have the number.

I'm sorry -- we -- and it is not just closures.

It's the traffic goes down; it's a half a day of closure.

Pam, it's really hard to tease it out.

I don't have those numbers for you.

As I said, the to comparisons we did to try and get our handle on it was dropping that first week and seeing that we were positive thereafter.

And then we know that in the west and the southwest, which were largely unaffected by weather, we had strong business.

So that gives us confidence on the assortment.

Okay.

And the truth is, on weather, to be fair, when we have looked at weather in the past, it's always been our view that when you have bad weather, you make up some of that.

So I don't want to make too big a deal out of the weather.

We know that our customer generally spends what they have in their pocket, and so oftentimes what you are getting is a shifting around.

But it seems so extreme this year, especially in the northeast, so unusual that we are assuming that it actually has taken a little bit away from our business.

Others have mentioned up to three times the rate last year of store and partial store closures.

I don't know.

We do know, but we haven't quantified it for this call.

Okay.

And then with weather, even though you make up some of that, when I think about Journeys, I would've thought that the cold weather would've been somewhat of a benefit quarter to date.

So just because you still have some of those boots, et cetera, and the customer is certainly not inspired to be buying spring product yet, did you see any of that?

Yes.

It helps drive through the seasonal goods that we are still carrying forward, but we get into the mode in first quarter of starting to reset the stores for spring.

And obviously, the longer you are in holiday and the stronger you were in liquidating in January, the less of that product you have and the more that you've moved into your spring goods.

Which leads me to my next question, which was just the composition of inventories and how we think, even though it's come down from where you had been, how clean you were and how comfortable you are with the inventories, particularly at Journeys and if there's any way to think about how you are approaching that going forward, given your caution surrounding the first half of the year?

Yes.

We are very comfortable with our inventories.

We believe that the valuation that we have taken puts us in a real good shape and the mix is favorable towards currencies and goods versus older goods.

And in the sports business where some of that overage occurs, we manage -- we have been managing it down with receipts, because most of that is not seasonally at risk.

Jim?

I want to reconfirm that we feel really comfortable with our Journeys' inventories.

We've run all kinds of models on it, and it's very, very clean.

So we feel very good about the levels of inventory at Journeys.

And then if I could squeeze in one last one.

You had mentioned how you have to be more competitive on the price points at Schuh.

Domestically, is there anything you are seeing in the environment that has cause for concern that you think you may have to be a little bit more promotional than planned?

No.

No.

The history of Journeys has been that it is a full-priced seller and our promotional position is largely oriented towards liquidation of slow selling and end-of-season goods, and that's the way we've been able to continue to run the business.

Our brands here seem to do a slightly better job of managing distribution in a way that encourages full-price selling, which we're encouraging that kind of structure in the UK.

It just isn't quite parallel to it.

Great.

Thank you so much and best of luck.

Stephanie Wissink, Piper Jaffray.

Hello guys.

Just a couple questions to the already-asked group of questions: on CapEx for 2014, I think, Bob, you mentioned that in the P&L there were some expenses related to the omni-channel initiative.

Can you talk about the expenses in CapEx versus the P&L, to help us appreciate what you're capitalize versus expensing?

And then secondly, on the digital margins versus your store-level margins, any clarity there on how the margin mix shakes out for both Journeys and the Lids Group?

And then last on the Macy's locations, I think you mentioned up to 175 planned locations for this year.

How should we model those by quarter, and then how should we think about the additive revenues?

Are you thinking about those per unit or per square foot?

Thank you.

Yes.

Let me give an overview of this, and then Jim can possibly give you a few numbers.

On -- I'll go first to the digital question.

Our digital margins are significantly better in all of our businesses than the stores, essentially the four-wall.

And the reason for that is two: first, they are less mark-down intense, but more importantly, we tend to allocate all of our central overhead through the stores under the thesis that the digital business is incremental.

That is to say, we wouldn't be in the digital business if we were not running stores.

So they are very profitable, and you could make the argument they are too profitable, because the debate we are having nowadays is ought we be more aggressive on market share, as opposed to profits?

And a little bit of what you see in our earnings guidance is a bit of a tilt toward trying to gain a little more share, which is throwing a couple of switches in terms of being more aggressive on marketing and more aggressive on elements of pricing, not the actual price, but things like free shipping, things that you can use to drive sales.

And so that's the position of our digital business.

On CapEx, you'll see that we are very aggressive on CapEx this year for a bunch of reasons.

The first is that we are doing more stores than we've done in a while, and the reason is that we have a number of concepts that we believe are working.

We know that's counter to a lot of the rest of the industry, given the greater growth that's occurring in digital, but that's why we emphasize the fact that most of our store growth is in concepts that we are still growing: Kidz, Locker Room, Schuh, and J&M.

And in those instances, we track the new-store openings from last year to make sure they are beating pro forma, which is set up to beat our capital hurdle and they are doing well.

Mindful of what's going on in the mall, we're riding those leases with a lot of protection.

And so, we're opening new stores, but we are leaving ourselves a lot of wiggle room in terms of how we manage the future of those stores.

But as long as we can continue to make money on those stores, we will.

And then another chunk of the CapEx is going towards non-store stuff, which would include both the DCs; so we've got a new DC in the UK, and we have a new DC in -- or a consolidation, really, of DCs in the Lids Sports Group.

They've been -- as they've grown, they've dotted, basically, Northwest Indianapolis with a number of facilities, and that's introduced inefficiencies.

So getting into one DC is going to help us out.

And then, we are making investments in the operating system, the new front end, all the stuff that we called out in the script related to omni-channel.

And so with all that said, Jim, do you want to expand on that?

Yes, (inaudible) some of the blanks.

The first question you asked was about the Macy's store --one of the questions you asked was about the Macy's store and how fast we are going to roll that out.

And the general game plan is that, again, 175 stores, and we're looking at 35 to 40 in the first quarter; 90 to 100 in the second quarter; and another 50 or so in the third quarter.

And so that should add up to, hopefully, around 175.

In terms of the capital expenditures in the new budget, related to IT -- related to digital area, it's -- some of this stuff is really hard to break out because it's serving different purposes, but a ballpark number is probably in the range of around $15 million, maybe a little higher.

But that's an estimate of the CapEx our FY15, calendar 2014.

And then just to add to that, most of these investments we are talking about also have a bit of a P&L hedge.

So for example, on new stores, we now have to run that period where we have depreciation expense during the build out of the store.

Or the rent -- we carry the rent forward, and so we have unproductive rent for all of those stores.

So there's a bit of a drag on the earnings statement when you get more aggressive on store openings, as we are doing this year.

Bob, if I could pop in one more question here, based on the solid performance at Johnston & Murphy, I think you mentioned 14 quarters of positive comps.

Has that shaped your outlook for potential acquisitions to layer in, in that more fashion footwear space?

Yes.

I don't say it's reshaped it.

We've thought that Johnston & Murphy is an extraordinarily strong brand, given its legacy and its market position at very high share in the area in which it competes.

So I'm not sure that it's the comp as opposed to the brand.

And what we've been looking at -- we've looked at both footwear possibilities and also other -- both men's and women's brands that would be complementary in non-footwear.

As you know, in Johnston & Murphy now, we're doing about one-third of our business in our shops in non-footwear.

And so, we've been considering ways to try and enhance that.

And then also, as you know, we've been growing our women's business.

We haven't gone crazy with it in terms of what we're expecting in terms of how soon it gets really big, but the percentage growth on it has been very healthy.

And we've been giving some thought to ways to accelerate that growth if we had a women's -- small women's brand that would be complementary to what we are already doing.

Thank you.

Best of luck, guys.

Thank you.

Mark Montagna, Avondale Partners.

Hi.

Good morning.

Question about Locker Room and Clubhouse sounds, like they are really hitting stride and doing well.

How many years until this actually reaches an EBIT rate of, say, 8% to 9%?

If you look at the five-year plan, I think we are three, four years out to getting there.

A lot of what drives that is the comp we talked about before and our ability to scale to the point where we really start to get some help on gross margin.

One of the things we've been doing is doing a consolidation on the hard goods side, all the gift-oriented stuff, that's the most fragmented of the licensed categories, and that's been an opportunity for us.

So that's a process that we're continuing and trying to be careful as we do it without making any mistakes, but that's going to help drive margin up.

Just as a reference point, when we consolidated the headwear business, as we got to the tail end of that process, so we had scaled and some of the businesses we acquired hadn't, we were seeing 300 or 400 basis-point differences in gross margin, based on the power we had in the marketplace, plus the rate at which we could fully liquidate, because of the distribution system that we use.

So we're not there yet in terms of that scale, but-- and I'm not sure if it's 300 or 400 basis points opportunity, but we have nice opportunity as we grow to continue to chase that.

Let me jump in then.

If you look at the Locker Room and the Clubhouse businesses, the difference again is the Locker Room is multi-team, and the Clubhouse business is team-specific.

And the margins are pretty strong, pretty good in the Locker Room.

It's more the Clubhouse right now, and that's team-specific and that's somewhat related to how well the teams do in the playoffs or the World Series or the Super Bowl, things like that.

So if you look at the Locker Room by itself, which is multi-team, and a lot of that -- some of that was driven, certainly by the Seattle Super Bowl impact.

But we had a pretty good operating margin for the year.

So driving to that, say, in three to four years again, to maybe 8% to 9%, is that more parabolic or steady stat -- steady even gains over the previous?

It's probably steadier.

Okay.

I will jump off so you can jam through some more questions.

Thank you, Mark.

Steve Marotta, CL King.

Good morning, everybody.

Bob, you mentioned earlier that these trends in -- or lack of trends, if you will, in the team footwear space are transitory in nature.

In your experience, what are the periods of time that this tends to occur?

Right now you are saying that you have got some clarity through to fall.

Have they been, again, in that one to two quarters, or is it sometimes four to eight quarters?

I wanted to know your experience there.

Well, I'll first remind you of the opening statement by our operator, who said the past is no prediction of the future, but our history would say when you go through -- it's more as you go through two years of this.

With last time we went through it, it was a really heavy athletic cycle.

And in that instance, it really was, I think, about it, Jim Gulmi, about a two-year event or so for Journeys when they had that last lull?

Yes.

And we started having this issue -- see this issue in the fourth quarter a year ago so we are essentially five quarters in.

So if you use that as a measure, our expectation that the back half might get stronger for us would be consistent, but again, no guarantees.

Okay.

That's great.

And the other question I had is pertaining to the inventory.

You mentioned very specifically that you are happy with the inventory at Journeys and that there will be -- I know you don't promote anyway, but there's no issues there.

Is there an anticipation of an increased promotional cadence at Lids over the next 4 to 12 weeks?

No.

Lids operates in normal times on a fairly fixed promotional calendar, and we don't see them being off that calendar all that much.

It's not going to be driven -- at least where we are today -- it won't be driven by excess inventory.

They're not going to --

The inventory gets managed with the receipts more easily.

One of the things that pushed the inventories up is that when snap-backs got really hot and fitted slowed, we drove our inventory position in snap-backs up.

We didn't try to accelerate the liquidation of fitted, because we knew that most of that fitted inventory wasn't at risk.

And so we just said, let's manage that down.

That's an example of really the dynamic for how we handle inventory most of the time at Lids.

Great.

Thank you very much.

Jill Nelson, Johnson Rice.

Good morning.

Could you talk a bit about the lag of the Journeys fashion cycle.

On the athletic, I know that there's been a lack of fashion newness, but could you also talk, is some of that weakness maybe you are not getting the allocation you want from preferred vendors?

No.

We are -- our vendor relationships are -- we are just fine, and they are working with us, as they are as anxious to see better things happen as we are.

So -- the only call out is there, as you know for the last two years -- two or three years, we haven't had Nike in our mix.

And so year over year, there's no change in that situation, so that would be the only call out.

But beyond that, our vendors are working with us feverishly to try and find the next opportunity.

Okay.

And then the lack of Nike, do you feel -- are you working to try to get that back in the stores, or is that really not a brand you want at Journeys?

Several years ago, Nike decided not to continue Journeys as a point of distribution for reasons that we didn't completely understand.

And so, if we were able to initiate a conversation with Nike, we would give it a very careful consideration.

We have a great relationship with Nike, by the way, outside of that.

They are in Kidz; they are a major partner of Lids, both in team sports and in our licensed stores, especially that they now have the NFL.

So a very important vendor, very great relationship in those channels.

They just decided that Journeys wasn't part of the mix.

Okay.

And then I know you don't give EPS guidance by quarter, but could you talk about -- I believe you had a pretty significant benefit from a bonus accrual reversal in the first quarter of last year.

Could you talk about how that would impact this first quarter year over year comparison or anything we should note for quarter by quarter?

Well, just that the first quarter is going to be tough.

And as Bob said, the first half, we really don't really see any -- you saw it on the comp guidance we gave for the back half.

So the first quarter, we are expecting to be -- comparisons will be very tough.

Maybe some improvement in the second quarter, but we really hit our stride in the third and fourth quarter.

So we are looking for a slower first half and a pick up in the back half.

And the first quarter is going to be tough based on the initial reading for the month of February.

All right.

Appreciate it.

Thank you.

Mitch Kummetz, Robert Baird Investments.

Yes.

Thank you.

A few questions.

Jim, on the -- your comp down, looks like comps up for the year?

Yes.

Would I comment on that?

Could you?

Do you want the usual routine?

Please.

Yes.

Okay.

Comps for the first quarter, flat to up slightly; second quarter, in the 2% to 2.5% range.

This is for total.

And in the third quarter, 2.5% to 3%, 3.5% and then 3% to 4% in the fourth quarter.

Okay.

And then, on a full-year basis by the concept, I assume maybe a little stronger on the Lids side, a little weaker on the Schuh side, but if you can give us a rundown on that?

Yes.

On -- in terms of Journeys, let's say 1% to 2%.

Yes.

Schuh in the -- we're looking at again -- a pick up in the back half, but probably 1% to 2% there also.

Okay.

Johnston & Murphy in the 3% range, and Lids in the 3% to 4% range.

Okay.

Great.

That's helpful.

And then on your earnings guidance, I want to reconcile, you've taken down the earnings guidance a bit.

It was 12 -- sorry, 10% to 12% growth; it's now 6% to 9% growth.

It doesn't really look like your comp outlook has really changed, or maybe it has.

You're saying a 2% to 3% comp before; I think you were saying a low single-digit comp.

Was it a low single-digit comp before, something a little better than the 2% to 3%, or is there something else going on in the business that I am not thinking about that takes down the earnings outlook?

This is Bob.

First, be mindful of the fact that as we worked up our plan for this year, we realized that we are going to be more aggressive on our investments.

So more new stores, that comes with a cost.

We've taken the growth rate on digital up, that will come at a cost.

So there's a little bit of growth and share gain that is a trade off with earnings.

And so when you think about it at 30,000 feet, that's a little bit of what is going on.

Now with that said, I will hand it back to Jim.

Yes.

It was -- even though the comps were up, we were expecting comps a little higher than where we ended up in the plan.

And 1% or 2% comp makes a big difference.

So it's -- the comps are still positive, but they are not as positive as we were looking initially.

Got it.

Yes.

And last question for you Bob, I know you don't like [mud] talking about trends, but bucket hats and Lids, there seems to be a bit of an emphasize there online.

Is that something?

And then on Journeys, athletics has been tough.

White-on-white, is that starting to trend back?

Does that maybe provide some of the catalyst?

You are exactly right that we don't like to talk about trends.

We are going to be carrying bucket hats this year, and also we will be carrying white-on-white.

Okay.

Good enough.

Thank you.

Chris Svezia, Susquehanna Financial Group.

Good morning, everyone.

The first question I have is on Journeys.

When you guys had made the comment that comps turned positive after the first week, was that the case with Journeys?

I don't know.

We just talked about the whole Company, and I don't want to get down to talking about each business over a four-week period.

So the whole Company was tracking to plan.

Okay.

And a question on the fourth quarter as it pertains to Journeys.

You made the comment that you comped negative -- slightly negative in the store.

Between the weather and the non-athletic casual trends, what -- if you can maybe parcel out what was the biggest issue?

Was it just really traffic?

I know you don't have traffic counters in Journeys, but why wouldn't that have been a little bit more positive?

Did you maybe not get as much product as you wanted, thoughts around that?

Did digital maybe cannibalize and take share from the stores?

Thoughts about that.

We think we are well positioned with -- given the trends, which we don't think are very friendly for us in spring, we think we are well-positioned on an assortment with that -- given what we have to work with.

And so, you have to look at the mix of the store, and you have to look at it year over year.

And it's actually dangerous too speculative based on five weeks of sales.

The stores are heavily set for spring, and we haven't had a lot of spring weather and when we did for a few days, we got a nice pop.

So why don't we just wait it out and we'll see.

We are feeling like our guidance is good guidance.

Jim just gave you guidance for the year for Journeys, and we're feeling like we're in good shape.

Okay.

I was talking more specifically about the fourth quarter for Journeys.

For what went on in the fourth quarter?

Yes.

I'm trying to parcel out real quick why the stores comped negative, given some of the product momentum, favorable weather.

Did digital maybe take some market share?

Was it a traffic issue?

I know you don't have traffic counters, but I'm just trying to decipher why stores for Journeys was negative?

No.

We don't have traffic counters, but interestingly, we are in the process of putting them into our highest volume stores.

So next year, we can give a better answer on the traffic dimension.

If you will look at our digital business, it was very strong.

And for the industry, digital was very strong.

And so we don't have full information on that, but you can easily postulate from there that digital was one of the factors, which is why we have gotten even more aggressive in expanding our digital business as a way of participating in that.

So that's a big component of it, we're guessing, again, not having full visibility.

The other factor is if you look at the mix, the mix in the fourth quarter went even more casual and softer in athletic than even we had anticipated.

So we had the store lined for a certain mix, and the mix shifted even more towards casual.

Okay.

Got it.

Helpful.

Last one, Jim, for you, the contingency bonus that flows through the P&L, $0.38.

That is after this year -- that's done.

There's nothing in FY16.

Correct?

It's done this year.

Okay.

All right.

Thank you very much.

Current year we're in.

If they hit them.

If they hit their numbers.

I got it.

So they don't -- okay.

So they have to hit a 1% to 2%, a slight positive comp for that to happen.

If they go under that, then it could drag it into next year.

Correct?

To be fair, what would move into next year in that instance is still pretty de minimus.

Okay.

Got it.

Most of it will occur -- if not all of it, most of it will be this year.

Okay.

Fair enough.

Thank you, guys.

There is more than comp involved in it, but nevertheless, if they hit the 1% to 2% number, they should be there.

Got it.

All right.

Thank you very much guys.

All the best.

Thank you.

Ben Shamsian, Sterne, Agee.

Hi.

Good morning.

Thank you for taking my call.

Firstly, can you provide the same-store sales for the Lids hat stores in the fourth quarter and maybe for quarter to date?

We don't normally break that out.

We're not going to get in the pattern of breaking that out.

You've got the Lids numbers right now.

Maybe down the road as Locker Room gets bigger, we'll start considering that, but right now, we're going to give the Lids number.

That okay.

Great.

And then I want to clarify your comments on Journeys in the second half.

Is it that you are seeing some good fashion trends emerge in the back half, or you're simply hoping to get away from the athletic trends in the back half?

Well, it's not -- it's that we have seen good trends in casual in all four quarters for the last several years.

And then casual becomes a greater percentage of the store.

It's a pretty dramatic shift in the fourth quarter.

So -- and we think that that's a trend that's continuing, and we're riding that.

And it'll be a trend that we'll participate in in the first and second quarters, as well, but it doesn't move the needle enough because it's not a big enough percentage of sales.

So when it becomes a bigger percentage of sales in the back half, then we feel like all of that sudden, that trend actually is -- it moves the needle.

Okay.

So it's just the numbers I guess.

Yes.

It's the numbers.

All right.

Great.

Thank you so much.

You bet.

I would now like to turn the conference back over to Bob Dennis for any closing or additional comments.

Well, we appreciate you all joining us for the call, and we look forward to talking to you again in three months.

Thank you, everybody.

And that concludes today's conference.

We thank you for your participation.