Genesco Inc (GCO) 2015 Q3 法說會逐字稿

Good day, everyone, and welcome to the Genesco third-quarter FY15 conference call. Just 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 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 with us. I'm 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. Also joining us today is Mimi Vaughn, our Senior vice President of Strategy and Shared Services and Incoming CFO.

Let me first begin with a few words about the CFO transition that we announced in the press release this morning. As we said in that announcement, Jim Gulmi has decided to step out of the CFO role at the end of this fiscal year. Mimi Vaughn, who many of you have met, or at least heard from on a previous conference call, and who currently serves as our Senior Vice President for Strategy and Shared Services, will become CFO on February 1.

We also announced that Parag Desai, who was, until earlier this year, a principal at McKinsey, with extensive expensive consumer goods, retail, and technology, will assume the Strategy and Shared Services role at that time. Transitions at this level are always momentous.

This one is especially so because it has been almost three decades since Genesco has had a new CFO. Jim has been a constant thread running through successive chapters of dramatic transformation at the Company. To note that he has served as CFO under six different CEOs, as remarkable as that is, does not begin to tell the story.

To put it in the terms that Jim will appreciate most, let's just cite a couple of numbers. In 1986, when Jim became CFO, Genesco stocked opened the calendar year at $3.50 and closed it at $3.38 per share. The Company had 538 million in net sales that fiscal year and most of those were wholesale sales of domestically manufactured shoes and apparel.

The first Journeys stores had just been opened and it is safe to say it was not a focus of attention for either investors or the CFO. The Company had an operating loss of $9 million, EPS was negative $2.39. With $2.6 billion of mostly retail sales, and adjusted earnings of $5.09 per share for the last full fiscal year, the transformation is self-evident.

To have played the role he has through such a transformation speaks volumes about Jim's talents, resiliency, and commitment. We are very fortunate, and I am personally very grateful that Jim is willing to continue as a Senior Advisor to the Company and to me for at least the next year, and he has a list of initiatives that should keep him busy.

We are also fortunate to have, in Mimi Vaughn, a highly qualified internal successor for the CFO role. While her tenure of only 11 years at Genesco pales in comparison to Jim's, her focus on strategy has given her a deep knowledge of both the Company and the industry, as well as extensive exposure to financial aspects of Genesco's business, all of which promise a seamless transition. And since Jim has been planning for this step for some time, he and Mimi have been able to work together in planning for the transition to ensure that the hand-off goes smoothly.

And finally, we're excited that Parag Desai has agreed to join us as Senior VP of Strategy and Shared Services. Parag brings a wealth of relative experience and a fresh perspective, and we expect good things from him, too. I know you'll join me in wishing Jim and Mimi the best as they finish the transition over the balance of the year and start their new roles in February and in welcoming Parag to the Company.

Now turning to an overview of our results, third-quarter earnings per share of $1.28 were below our expectations. Consolidated comp sales increased 3%, with stores up 3% and direct comp sales up 9%. However, operating profits fell short of our expectations due to a sales shortfall in Lids that caused negative SG&A leverage and lower gross margins. Unfortunately, the gains we experienced elsewhere were not enough to offset these shortfalls.

In the quarter, Journeys built sales momentum and outperformed our expectations. Schuh continued to see choppy comp sales, some of which we believe was due to unseasonably warm weather in the UK, but despite the comp sales challenge, Schuh delivered a bottom-line performance in line with our expectations, boosted by their continued new store growth and excellent expense management. Johnston & Murphy have flat comp sales after three years of strong gains, but came in near our expectations for earnings, thanks to good expense control.

So our biggest performance issue was within the Lids Sports Group, where comps were up 1% and operating margin contracted more than we anticipated. We will start today by explaining what is going on within that business and what we plan to do about it. Overall, for the Lids Sports Group, comp sales increased 1% for the third quarter on top of a 5% gain a year ago and compared to a 2% decline in the second quarter.

We were pleasantly surprised that this year's World Series with Kansas City and San Francisco performed on par with last year's strong line-up of Boston and St. Louis in the third quarter. Fourth-quarter comps for the group were plus 2% through last Tuesday. We did run an aggressive promotion in the first half of November to drive clearance of older stock, which is reflected in the numbers.

Even though comps for the third quarter were positive, overall they did not meet our expectations and operating income fell short of plan. We had entered the quarter with expectations of year-over-year operating income growth, but instead came in well below last year. To understand the shortfall, we need to look at each part of the Lids business.

The Lids hat business stabilized and performed to expectations in the quarter. Hat store comps were slightly ahead of our expectations and gross margin was up slightly. We have successfully managed this business through the ups and downs of snapback sensation. Snapback portion of our business has stabilized and we believe the Lids hat business is positioned for modest sales and profit growth going forward.

The Lids direct business had a 3% comp on top of a 40% gain a year ago, with improved margins over last year, and the business met our expectations in terms of profitability. Sales were weaker than expected in our freestanding Locker Room by Lids and Clubhouse stores in the third quarter, after a very strong double-digit positive comp for the third quarter last year. As a result, we had negative leverage on SG&A and poor sales also contributed to increased markdowns that hurt gross margins in the Clubhouse business.

We opened 96 Locker Room by Lids stores within Macy's during the third quarter. A combination of softer-than-expected sales and higher-than-expected store opening expenses, given the large number of store openings, led to a loss for the quarter.

That said, we continue to believe our Macy's partnership represents a valuable opportunity for the future. Over the past year, we have opened and acquired 76 Locker Room and Clubhouse stores, in addition to the 166 Macy's departments. Given that all of our Locker Room and Clubhouse stores, both freestanding and within Macy's, are fourth-quarter businesses, and we have a much larger store base year-over-year, we expect to see strong growth in contribution from the group in the current quarter.

So when you look at the Lids retail business overall, we have been transforming it from the number one retailer of licensed headwear into a leading destination for all licensed sports merchandise, and indeed, the first and only national licensed sports omnichannel retailer. As should be clear from this performance summary, of the three legs of our licensed sports omnichannel strategy two, the hat stores and the direct business, are performing well, while the Locker Room by Lids and the Clubhouse stores, including Locker Room by Lids in Macy's, are experiencing some growing pains.

We continue to feel good about the strategic position of this part of the business and we believe we can address the challenges by adjusting our merchandise approach in the more broadly assorted stores. In the coming year, these stores will benefit from a focus on improving inventory turns, achieving greater freshness, and presenting an always relevant assortment in sync with the current sports season.

Looking ahead with respect to Lids omnichannel prospects, we are excited to be on the cusp of reaping benefits from some of the technology investment we've been working on for the past several quarters. In early November, we temporarily turned on a new system that gives the direct business the ability to access the inventory from 170 Lids and Locker Room stores, in addition to warehouse inventory.

As a demand driver, this was tremendously successful; so much so that we suspended the test to further improve the store-level logistics necessary to fulfill the flood of orders that came in during its first few days of operation. We will make the necessary adjustments and continue to test this system during the slower sales periods of the next few weeks, with a view to having it fully operational, and an even larger number of stores next year, when we expect it to make a meaningful contribution to operating results for the segment.

The other operational challenge for Lids Sports Group for the quarter was in Lids team sports. In the third quarter, sales were not as strong as we expected, and gross margin was below both plan and last year. We continue to see the same compelling strategic opportunities in this business that led us to assemble a number of regional leaders in the market to form Lids team sports several years ago, but we have experienced some discreet executional issues and we recognize that we have to do a better job on the fundamentals to realize the potential that we see. To that end, we have recently made a change and brought in one of Lids's founders to focus full-time on improving day-to-day operations.

The Lids team has spent the past few years focused heavily on growth, building new businesses and adding capabilities that create considerable opportunities for our Company. From FY11 to the latest 12 months ending in October of this year, sales have grown 43% from $603 million to $860 million.

We have opened 214 new stores and 190 new Macy's locations and acquired 114 stores. Largely through acquisition, we have added a substantial team sports business.

We have also several key digital and supply chain initiatives currently underway, all of which we've talked about at length, which will add significant value to the business over time. However, all of this rapid growth and development has challenged the team in delivering consistent bottom-line performance, especially in these newer businesses. While we believe there are still solid growth opportunities ahead, we plan to significantly slow the growth for a period of time to allow the team to capitalize on what has been built.

So for the next year, Lids will focus less on adding stores and more on driving sales and realizing the opportunities that all the omnichannel initiatives, technology upgrades, and strategic acquisitions provide. The team will concentrate on integration, execution, and efficiencies, with the ultimate goal of returning to the high single-digit or low double-digit operating margins that Lids enjoyed in the past. We anticipate that this strategy will yield improved bottom-line results in the course of the next fiscal year.

Now, turning to Journeys. We have been really pleased by the strong performance of our Journeys business. Third-quarter comps increased 6%, which was ahead of plan, and an acceleration from the second quarter when comps were up 5%. Journeys direct business was especially strong during the third quarter, increasing 22% over last year. Fourth-quarter comps through last Tuesday are up 13%, providing a robust start to the quarter.

As we have said before, the positive trend in non-athletic footwear, including boots, has been a clear point of differentiation for Journeys during the past several back-to-school and holiday seasons. Strength in this area, as we anticipated, fueled improved results in the quarter versus a year ago.

In addition, as we anticipated earlier this year, newness on the athletic side has become a meaningful complement to the non-athletic growth. This came to fruition in the third quarter and drove robust, full-price selling and the full price selling helped expand gross margins above last year and Journeys exited the quarter with inventories in excellent shape ahead of the holiday season.

The recent performance by Journeys was driven by more than just positive fashion developments and exceptional merchandising. The Journeys team has implemented numerous omnichannel and other initiatives that are paying dividends for the business.

With respect to digital, traffic to the website increased notably in the third quarter, particularly traffic from mobile devices. This is a trend we have seen over the last several quarters and is understandable given teems' fascination with their mobile phones. Increased traffic and a higher conversion rate contributed to the 22% direct sales increase in the quarter.

Journeys is committed to serving its customers in both the digital and physical worlds and is working to make the experience a positive one across channels. Not only can customers go online to check availability for product and sizes before making the trip to a store, but they can also access store inventory when shopping online and place orders for merchandise in the distribution center or in other stores if the store they are in does not have the merchandise they want. Next year, Journeys customers will be able to buy online and go to a local store to pick up what they have purchased.

On our last call, we spoke about the in-depth study of the US teen consumer. Journeys recently completed this. This research reaffirmed the incredible brand awareness Journeys has among teens and its status as the house of brands, the place teens know they can go to find the footwear brands they like and want.

This work led to a segmentation across all teenage consumers and the recommendation that Journeys focus on a subset of teens that purchase a disproportionate amount of footwear and heavily influence their peers. It also led to a number of initiatives, such as increased rotation our product on the leased line and store design improvements to attract these customers and capture an increased share of their footwear purchases. The Journeys team has been implementing these initiatives and believes they are helping to drive sales.

Finally, Journeys has been experimenting with adding more salespeople during power hours, those times of increased customer traffic based on store counters, which we believe has also been driving sales. So all in all, it was an outstanding quarter for the team in what continues to be a choppy retail environment.

Now to Schuh, which performed in line with our expectations from an operating profit standpoint. Comparable sales were flat with last year in the quarter, with stores down 2% and direct up 16%. Schuh had a strong start to August when, as you may remember from last quarter's conference call, we reported comps ran up 5% through the first three weeks.

We were anticipating trends to moderate as the quarter progressed; however, the fall-off in demand was even greater than we expected, partly due to unseasonably warm weather in September and October. The team did a good job of managing the business in a tough operating environment and was able to offset the lower-than-expected sales and gross margin through good expense control. We believe the product assortment is well-positioned for the holidays, inventories are in good shape, up 9% at the end of the quarter compared with a 10% increase in sales.

Fourth-quarter comps for Schuh through last Tuesday are up 9%, and while the sales pick-up has been solid quarter-to-date, Schuh did run its first ever Black Friday promotion, which has recently become a broad practice of UK retailers and is included in these results. As such, we gave up some gross margin to capture higher sales. Finally, Schuh opened a new distribution center during the quarter, on time and on budget, an accomplishment worth noting.

Looking at Johnston & Murphy, total sales for the quarter increased 7% on a flat comp. This breakeven comp was against strong results for the third quarter last year. Comps have picked up in the fourth quarter, with comps up 3% through this past Tuesday. We don't expect to pick up in comps until we really anniversary the weaker comps in the first quarter of next year.

As we pointed out on our last earnings call, demand for classic dress shoes appears to have softened after several quarters of particularly strong growth. Johnston & Murphy has offset this pressure through improved sales from updated dress and non-dress footwear. In addition, J&M's apparel and women's footwear continues to perform well, extending the reach of the brand to new consumers.

Finally, we were very pleased with the double-digit growth in Johnston & Murphy's wholesale business for the quarter. Sales in the Licensed Brands Group were down slightly for the quarter, but Licensed Brands achieved a very high single-digit operating margin.

Jim will walk through the components of our outlook in a moment, but in short, we are taking our EPS guidance for the year down to $4.75 to $4.85 from $5.10 to $5.20 to reflect our third-quarter performance and a continuation of the challenges at Lids and Schuh in the fourth quarter. Through last Tuesday, overall fourth-quarter-to-date comp for Genesco was positive 9%.

As we mentioned, both Schuh and Lids were somewhat more promotional in November than last year. That said, we are pleased with our start to Q4. Once again, we owe a successful Thanksgiving weekend to the stellar efforts of our retail management teams and store associates. Our employees executed this critical holiday in evermore challenging conditions, which once again, included a large number of our stores that opened early on Thanksgiving Day.

In summary, we are disappointed with our third-quarter bottom-line results and our revised guidance for the full year. That said, we believe we have identified the factors weighing on Lids's profitability and that we are taking the appropriate actions to improve the division's future performance.

Then at the same time, our other businesses, especially Journeys, have started at the all-important fourth quarter very well. Nonetheless, we continue to be cautious about the fourth quarter, as reflected in the guidance, given the recent pattern of strong comps during shopping events being followed by a reversion to slower sales. Now I will turn the call over to Jim.

Thank you Bob. As usual, we have posted more detailed financial information for the quarter online, so I'll only be highlighting a few points. Earnings-per-share adjusted, as we break out in the press release, came in at $1.28, which was below our internal projection for the quarter and below last year, when adjusted EPS was $1.43. Consolidated net sales for the quarter were $723 million, an increase of 8%, and essentially in line with the internal expectations.

Total comp sales increased 3% for the quarter, with stores up 3%, and the direct business up 9%. Journeys and Lids had positive comps in the quarter and each delivered improved sales trends compared to the second quarter. J&M and Schuh comps were flat. Quarter-to-date, total comp sales through Tuesday, December 2, increased 9%, which includes a direct comp [sales] increase of 22% and a store comp increase of 7%.

The earnings shortfall from our expectations for the quarter reflected a lower-than-expected gross margin, which came in about 30 basis points below expectations and 20 basis points below last year, and higher than expected SG&A as a percent of sales. Both of these misses reflect the factors in Lids Locker Room and Lids team sports that Bob has discussed. The hat business, both in the US and Canada, performed in line with expectations, as did our other businesses, in the aggregate, with particular strength in the Journeys Group, driven by strong comps and improved gross margin.

Adjusting for all of the items broken out in the press release, expenses as a percent of sales increased to 42.9% from 41.5% last year. More than half of this increase was caused by a small EVA bonus accrual this year compared to the large EVA bonus accrual reversal last year in the third quarter. We have talked about the impact of this bonus accrual swing year-over-year for a few quarters. We expect the swing to moderate in the fourth quarter when the year-over-year change should be much smaller.

As we have discussed before, we are expensing the Schuh acquisition contingent bonus quarterly. This is included in our guidance and the adjusted numbers we report. For the quarter, the contingent bonus accrual of $4.2 million reduced EPS by $0.14, compared with $3.9 million or $0.13 per share last year. We expect that the final amount of this contingent bonus of $3 million, or $0.10 per share, to be expensed in the fourth quarter of this year.

In addition, the Schuh deferred purchase price expense in the quarter was $1 million, or $0.04 per share. Last year, the amount expensed for the quarter was $3 million, or $0.12 per share. As a reminder, the deferred purchase price accrual will end of the second quarter next year. This year, we also wrote off an indemnification asset of $7.1 million that we were carrying in connection with some tax positions taken by Schuh at the time of the acquisition.

The uncertainty related to these positions was favorably resolved during the quarter, allowing us to also reverse a corresponding FIN 48 provision. So the net effect on net earnings for the quarter was essentially zero. Consistent with past practices, we have excluded both the deferred purchase price expense and the effects of the tax resolution from our guidance and from the adjusted results.

Also, consistent with past practice, we have excluded asset impairments, gains from the sale of leasehold interests, and other legal items from our non-GAAP guidance and results. The amount of these items expensed this quarter was approximately $1 million pre-tax, or $0.03 per share compared to $1.5 million pre-tax, or $0.04 per share last year.

We ended the quarter was $38 million in cash, compared with $32 million last year, and $115 million in debt compared with $98 million last year. During the quarter, we used a total of $33 million of cash to make two acquisitions in the Lids Sports Group. Inventories increased 6% year-over-year in the third quarter compared to 7% sales increase year-to-date. Capital expenditures were $33 million and depreciation and amortization was $19 million for the quarter. This compares with $39 million and $17 million, respectively, last year.

Year-to-date, we have opened 260 stores, including 165 Locker Room by Lids Macy's locations; acquired 56 Locker Room stores; and closed 47 stores. During the first nine months last year, we opened 135 stores, including 24 Macy's locations; acquired seven Locker Room stores; and closed 64 stores. Our store count is up 12% this year, and excluding Macy's, the increase is 5%. Square footage is up 9%; excluding Macy's, it is up 7%.

Now turning to our guidance for FY15. As Bob said, we are lowering our EPS guidance for the full year to $4.75 to $4.85. This reflects the shortfall in the third quarter and a reduction in fourth-quarter expectations. This guidance is subject to the same adjustments as in previous years, excluding impairments and other legal matters, partially offset by a lease termination gain in the first quarter. We expect these items to total about $2.9 million to $3.4 million pre-tax, or $0.08 to $0.09 per share after tax for the full year.

EPS guidance also excludes the Schuh deferred purchase price expense, which is expected to be approximately $7.3 million, or $0.31 per share, in FY15. Consistent with past practice, this guidance includes the final accrual for the Schuh contingent bonus, which we expect to total approximately $11.9 million, or $0.39 per share in FY15. We expect the full amount of the contingent bonus, up GBP28 million, to actually be paid to FY16, but there will be no P&L expense related to it after this year.

Finally, the guidance excludes the one-time charge of $5.7 million, or $0.15 per share, related to the bonus plan amendment that we took in the first quarter and discussed in the first-quarter conference call. You will note that our revised guidance still anticipates fourth-quarter earnings growth of up to 11% from the fourth quarter last year. This reflects improvement in two specific factors that have had a significantly negative effect on year-over-year comparisons in each of the first three quarters this year.

First, the contingent bonus accrual issue has been higher than last year in the first three quarters by a total of $1.7 million. By contrast, in the fourth quarter, the charge is expected to be $3 million lower than in the fourth quarter last year. Also, we have seen negative swings in EVA bonus accruals year-over-year in each of the first three quarters, ranging from $3 million to $5 million, reflecting sizable bonus reversals last year.

This swing should moderate to only $1 million to $2 million in the fourth quarter. In addition to these two factors, the fourth quarter should also benefit from year-over-year growth in the Locker Room store count, which I will talk about in more detail in a minute.

In terms of business trends reflected in the guidance, we feel very good about the Journeys opportunity in the fourth quarter. Journeys third quarter was strong at 6% comp and the momentum has continued into the fourth quarter. Schuh's started the fourth quarter a little slower than we expected, but the customer responded well to Schuh's first ever Black Friday promotion.

We believe that we have built sufficient room for promotional activity in the guidance to boost sales and keep inventories at appropriate levels. J&M has been going against some fairly difficult comps. These tough comparisons continue into the fourth quarter, when the comp comparison is over 10%, so we haven't factored any significant comp improvement in the outlook for Johnston & Murphy.

Turning to the Lids Group outlook, as Bob noted, we believe the hat business in the US and Canada has stabilized, but the strength of the Seattle Seahawks last year creates a headwind for the Locker Room business in the fourth quarter if Seattle does not return to the Super Bowl, so we don't anticipate any meaningful pick-up in Locker Room comps until next year. Even with the difficult sales comparisons, we expect a better bottom-line contribution from the Locker Room and Clubhouse in fourth quarter this year.

Locker Room realizes 40% to 50% of annual sales and even a larger share of annual profits in the fourth quarter. This year, we have 242 more Locker Room stores at Macy's departments, more than double the number at the same time last year. This includes 37 stores from the Canadian acquisition that was not anticipated in the previous guidance.

Let me briefly review the assumptions behind the updated guidance. We are assuming a total comp increase in the 2% to 3% range for the full year, [where the] nine months total comps were up 2%, but we are respecting comps in the 4% to 5% range in the fourth quarter. A more detailed breakdown of our quarterly comp guidance is in online commentary.

We expecting an overall sales increase of 7% to 8% for the fiscal year. Our plan is to open or acquire 165 stores in FY15. This does not include the 165 new Macy's locations we have opened this year. Our current plan is to close 47 stores during the year. We plan to end FY15 with 2,658 stores, again, excluding the Macy's locations. This will be a 5% net increase in stores. Square footage, excluding the Macy's locations, is expected to be up 6% for the year. A detailed summary of our plan for new and acquired stores is included in my online commentary.

We are now expecting gross margin as a percent of sales to be 49.2%, down about 30 basis points from last year and from our last guidance update in August. This is driven primarily by Lids and Schuh, where we are now anticipating higher promotional activity.

Expenses as a percent of sales were up 30 basis points compared with the earlier guidance. Expenses will be up as a percent of sales by 70 basis points compared with last year, due mostly to bonus accruals, which increased this year versus last year's bonus accruals. This results in operating margin of 6.5% for the full year.

Our tax assumption for the full year is approximately 36.9%. We are assuming average shares outstanding of approximately 23.7 million for the year. We have not included any stock buyback in this guidance. We are also expecting capital expenditures for the year of about $136 million and depreciation and amortization will be about $74 million.

Finally, we would like to give some early directional guidance for next year. We expect low single-digit positive comps and EPS growth in the range of 18% for FY16. About 800 basis points of this EPS increase is from the pick-up of approximately $11.9 million, or $0.39 per share, versus this year from the end of the Schuh contingent bonus accruals. The EPS guidance is subject to the same adjustments as in previous years, primarily excluding non-cash impairments and the final Schuh deferred purchase price accrual of $1.6 million.

As all of you know, the back half of our 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 would expect a similar pattern next year. Now I'll turn the call back to Bob.

Thanks, Jim. Once again, while we are disappointed with the results for the third quarter and with our outlook for the fourth quarter, we still believe we have a plan for addressing the performance issues at Lids. We are pleased with the overall strength we are seeing in the beginning of the fourth quarter, particularly at Journeys.

Finally, we want to thank our entire team in advance for all the hard work that will go into delivering the best possible results for the holiday season. With that said, operator, we are ready for questions.

(Operator Instructions)

Erinn Murphy, Piper Jaffray.

Great. Thank you. Good morning. Jim, I wish you all the best. Mimi, congratulations on your appointment to the incoming CFO. You guys are one of the first companies to report post-Black Friday. There's been a lot of mixed views in the industry of how the week went overall, but just love your perspective of what you're seeing both online, in-store, broadly, in terms of how that consumer has been reacting?

Sure. We had a great Thanksgiving weekend. As we noted, we opened a lot of stores earlier than usual. We experimented with staying open all night. Various chains went at it differently, and even within the chains, changed it up as to whether they stayed open all Thursday night through to Friday morning or not.

But overall we had a great result. If you look at Thursday through Sunday's comp for the Company, we were up 12%, the stores were up 10%, e-comm was up 46%. Now caveat on that, so Schuh participated in Black Friday with a promotional event for the first time. They sat it out in past years and so their total comp was up 49%, so pretty crazy numbers.

If you back them out and you say, well went on in North America? In North America, our business over that period was up 5%. So the stores were up 6% and e-commerce in North America was actually down 10%. Let me explain that. E-commerce shows up as a sale when we ship and so what we had was a huge backlog of orders.

So if you look at e-commerce over that weekend in terms of orders instead, we were up 68%, so obviously a huge backlog that we're shipping this week. Again, Schuh is the outlier. They were up 176% because of their first-time participation. So if you back them out again, and you just look at North America, our orders in North America were up 40%.

Just the observations from the team, traffic got much more spread out. It's no longer noses to the windows of the stores waiting for the gates to open as much as it had been in the past. We don't do big doorbusters. We are more promotional, but we don't play what I call the silly game in terms of loss leaders.

So we don't drive that kind traffic. We really live off of everybody else's. But net-net, obviously, off of those numbers, Erinn, we are very pleased with our performance on Thanksgiving/Black Friday weekend and we'll see how that carries forward.

Great, Bob. That's great. Very helpful to hear. And just last year, if you guys could just remind us, there were a lot of store closures and just abnormal challenges in traffic, just given the severe weather, ice storms, exiting December in January. Could you just remind us what the impact or slowdown had been in some of your businesses last year as we look to anniversary that?

Erinn, I'll give you the overall theme, is our sense is that sales get pushed around, but when you do total comps for the season, we've never been ones to say that the weather shorted us. We'd have to get into the individual weeks to say, and we know that comps this year will reflect those comparisons, but we didn't plan out this season with an eye for having missed sales last year that we're going to make up this year. Jim, anything you'd add to that?

Got it. Okay. Just the last question. You called out both Lids and Schuh as being more promotional and walked through some of the themes there. What are you seeing in terms of Journeys and the promotional environment there as we head into the holiday as it compares to last year? Thank you.

Journeys was slightly less promotional, and obviously, when you have a narrow and deep assortment in the product that the customers really want and it's generally a product that's not widely distributed, that just screams opportunity to do a lot of full price selling, so that's what we've been doing and that's what we expect to continue to do.

Great. Thank you, guys, and best of luck in the holiday season.

Thanks.

Scott Krasik, Buckingham Research Group.

Hey, everyone. Good luck, Jim. Being the CFO at Genesco is like being the head coach of the Steelers (laughter), but I wish you well. Just going into Lids a little bit, maybe talk about some of the challenges you have in the Licensed division because you're dealing with bigger vendors like Nike, you don't necessarily get the buying power that you did growing the scale at the Hat business, and then to the extent that you expect to get better profitability next year, are you going to get more leverage? Is there actually cost-cutting or is it just you are not going to add as much SG&A?

A bunch of questions there. Let's just repeat what's going on. The Hat stores are solid, the direct business is solid, and our expectations for direct, next year, when we actually give guidance will be robust because of what we described with our early experience of turning on the system that we call locate, which is locating the right product for the customer regardless of where it sits in the chain.

When you look a Locker Room and Clubhouse, those businesses were, from a profitability standpoint, a little more challenged. The comparison you draw in vendors, we actually in many ways think of it as a plus, because these are vendors who generally maintain, just like with Journeys, pretty narrow distribution and they are committed to maintaining full-price selling in the channels to whom they do sell, and that's always been our friend. So we have vendor concentration in the Hat stores, we will have vendor concentration in the Locker Room stores that is similar, and we think, because it's narrowly distributed, that's a benefit.

When you look at what's going on in the broadly assorted stores, it's a couple of things. First, and we're going to have to just get used to the fact that we are exposed to teams winning and losing, so for the quarter we did what we are calling internally a hot market analysis. We're looking at the top gaining teams and the top losing teams and doing a comparison. In this quarter, the losing teams in terms of market share were bigger than the gaining teams. We had things like the Cardinals. Ohio State, as good as they're doing this year -- we're very exposed to Ohio State, as you know, they are a Clubhouse store of ours. We run eight Buckeye stores in Columbus. They are down. They were undefeated at this point last year. They lost in the Big Ten championship. So we have high hopes for them this weekend.

And there's just a bunch of things, like the Heat, the Miami Heat, and I can just look down the list and see some losers. We gained with the Yankees. Believe it or not, we are gaining right now with Seattle, which is more inventory-driven than it is that they are a better team at this point. But when we add up the top 10 and the top 10 gainers and the top 10 losers, it actually was about a negative 2 points of comp. We're always going to have that exposure.

Then the other thing that's going on is when we open all these stores, and that's -- when I say open, both acquire and open stores -- at the rate that we've been doing, it puts an enormous burden on the merchants. You're asking merchants to spend a lot of time figuring out how to optimize the assortment in the stores we own, and at the same time, to model up new stores. As you know, in this business, modeling up a new store for in the sports business is very different from modeling up a new store for say, the Gap, because you have all the teams you've got to understand and you've got to write an assortment that is specific to that store.

In addition to that, we opened a lot of Locker Room stores within Macy's. That's an additional challenge because, when you are opening stores, and there our opening dates were fluid, so you're packing away inventory for those stores with your best estimate of when that store is open. If you're off by a lot on when the store opens, you actually have packed away the wrong season.

So there's just lots of things involved with opening the stores, which also would include just training and the crews, which is an upfront expense, that add a burden to and a drag on earnings. All of that added up. So it became a more challenging period for the Locker Room guys, which we think adds to the conclusion that it's timely to just take a breather, let's get the assortments right, let's really start giving the merchants more time to maximize the model for assortments by store and for flow of goods.

When we get that squared up, we'll be back in business for continuing to open more stores, continuing with the ambition that we end up with a scale that is of the same magnitude of the Hat stores, which we think gives us sufficient leverage with vendors for it to be a fair fight and then the dominant assortment, which is what we're pursuing, wins the day. So a lot said there, but hopefully that gives you some perspective on both what happened and how we're thinking about go-forward.

Let me ask you a different question. The need to be promotional or the promotion that you've done, are those competitive-driven or are those because your losing teams hurt more than your winning teams helped so you have more inventory left over from the losing teams?

A couple things. It is a little bit competitive. We have one big competitor who we are going to compete with. The second more important thing is that the merchants have come to the conclusion that they need a faster rotation and a higher turn to achieve a greater level of freshness, a greater percentage of in-season goods in the store, and physically enough space in the store to show what is current and relevant, and to be not as pronounced in the other businesses.

To do that right, just like in the fashion business, where you start to exit spring in July, we need to start exiting some of the losing teams sooner and more aggressively to make sure that we've exited, say football, by the time the season is over to make room for baseball. So what you'd expect to see when you chase that formula is slightly higher sales, slightly higher margins, but ultimately the freshness is what wins the day in that you are just more efficient and you have a better presentation in the stores. We're all in agreement on that. We're all chasing that. It's going to take some time for them to get that right, but I believe they're going to get the model right and it'll be a big win for us.

Scott, let me follow up on the first part of your question about major vendors. Just to refresh your memory, in the Locker Room stores, the general mix of product is somewhere in the range of, let's say, 40% apparel, and then the difference is split between accessories and hats, with probably hats making up a smaller percent.

The significance of that is that, on the hat side, really nothing different than what we are already doing in our regular hat business, so we know how to deal with bigger vendors there and we've been doing it for a long time. On accessory side, it's very, very fragmented and we're working on that so there's really no one big vendor there. It's actually probably too fragmented.

On the apparel side is really where the question comes in. So I just wanted you to know that it isn't 100% for their business, it's really probably about 30% or 40% of the business, which is apparel-related, where there is something new, in terms of dealing with the larger vendors, even though we have some of that in hats, but that's the new part of it.

Okay. That's fair. Thank you. And then just last, it sounded like you did an acquisition in Canada. What was the other acquisition?

The two acquisitions that we've most recently done in the retail space was the Canada acquisition, an acquisition called Jersey City, so now we're cheering harder for Canadian hockey teams. Then the other one was Cardboard Heroes whose stores are heavily concentrated in Ohio and we believe that's where we got very fortunate, because LeBron going to Cleveland, as we inventory that store up, should be our friend.

All right. Good luck. And good luck, Jim, again.

Jay Sole, Morgan Stanley.

Hi. Good morning.

Hey.

My question is just one more Lids. It sounds like you're saying that the merchandise issues are really not about the product itself, it's not that the customer doesn't want the product, it's really more about tactical things didn't quite play out as you expected. Is that fair, that the products that the merchants are picking is what the consumer wants, it is just getting it to the right place, right time?

Yes. It's more -- the two issues would be teams and then flow. Teams is out of our control, other than we have to be quicker to mark down the teams that are not going to sell through well because of their win/loss record, so we're going to move in that direction. Then flow is just simply writing a buy plan that more aggressively exits one season in order to be even fresher and more pronounced and more present in the next season.

Okay. Got it. Understood. Then maybe if I can switch gears for a second, bringing on a new person onto the team, bringing Parag onto the team, as you look out -- you mentioned he brings a fresh perspective -- as you come together as a group and look out at the main issues that you want to focus on, is it -- besides the Lids stuff that we are talking about around the flow, are there other things that you're going to work on right away, that you're going to look to get him involved in right away?

First of all, think of Parag's arrival as just continuity with all the work that Mimi has been doing. So first of all, there's a line job because HR and IT are a big part of their responsibility. So there's involvement in a lot of the omni-channel development that we've been doing, a lot of the investments we've been making, in having a lot of the right IT people, which for every retailer is a huge challenge, and then that role involves both internal strategy and external.

So going back to Mimi's tenure in that role, she played a big role in shepherding the Schuh acquisition. We continue to look at deals and so the external part of what we're doing strategically will fall squarely in Mimi and Parag's lap and then we are helpful to the teams. The main driver of performance initiatives at each of our operating divisions are the operating divisions themselves, and we here at Corporate function as advisors to them, but they are well-equipped to take on this stuff and we're there to help as needed. So the bigger element of strategy in the job that Mimi had and Parag is picking up is more external and then some coordination around internal.

Got it. Understood. Thanks so much.

Sure.

Sam Poser, Sterne Agee.

Good morning. Jim, I'm going to miss you. A follow-up on all of this regarding Lids and Lids Locker Room and so on, are you looking at putting in new systems, and is next year, because of what you're doing, do you expect to get the margins going next year or is it a fix-it year and then you'll know how well it's working when we get towards the end of the year?

The systems issue, at this point, when you think about systems within the retail world, so this would not just be us but certainly us in spades, it's a continuous process, Sam. Systems become obsolete over time as the technology develops in our world and so when you look at Locate, which is the system I referred to, that's an important innovation there.

They are rolling out a new front end called Hybris, which is very important. And it's not just the Lids. Journeys is doing this. J&M is doing it. So think of it as more of a continuous improvement exercise rather than these a discrete projects that once you get them done, you're done.

I don't mean to -- I'm more referring to directly to the issues that you're dealing with, maybe systems that will help you better identify the slower sellers to take the markdowns more quickly, juicing up a markdown op, or something like that, to put in place, to help you do the things at specifically, at Lids and Lids Locker Room that you're doing better, since -- or at Locker room, since you chosen to slow down the store openings and so on and dig into this. I was wondering if there are specific issues surrounding that. I understand what you're saying about in total but I was really looking--?

Yes, but Sam, in terms of the merchandising challenges that we've identified, it is not as much as systems issue as it is both a philosophy of saying let's get faster on turn, let's get fresher, let's not chase margin as hard, let's chase turns, that's philosophical. And then it's creating the amount of time it takes for the merchants to attend and to think through and then execute what needs to get done. So they will have more time, more ability to do that, if we give them a little breathing room by slowing down the acquisitions and the new stores and let them get their arms around it. It is less of a systems issue.

So they have the mechanisms that can support that change in philosophy?

They have systems that can do it. We could probably invest in systems that would allow them to do it better and more easily. Again, there will be a continuous improvement around merchandising systems. Right now, Journeys is moving through an upgrade on their merchandising systems that allows them to do this better and more efficiently, and they are already very good at it, so I don't want to say we're not going to change systems, but it isn't discretely a systems issue.

Okay. Thank you. And then the guidance for next year, Jim, looks like it's about a 10% increase in EPS excluding -- on the high end of this year's guidance -- excluding the stuff associated with Schuh?

Right.

When you're thinking about that -- can you give us a little more color as to what you're putting into that guidance and how you are thinking about it?

Yes. Sure. I've never heard you be so delicate in asking a question before?

You're leaving. I feel bad. I don't want to upset you on your --?

Yes. Thank you. Let me give you some insight into that. You might look at it, which is what you're doing, and say well that seems a little aggressive, but let me back into some of our thinking on it. That increase is about a $10 million increase in operating income. If you break that down, we're going to have less headwinds from the standpoint of EVA adjustments in the fourth quarter, and also the Schuh contingent bonus will be less in the fourth quarter.

More talking about next year. I was more talking about next year?

I'm sorry. I'm sorry. I was all ready for that, Sam. I was all ready for the fourth quarter. You surprised me.

You see, it was not as easy as you thought.

Yes. We already put [it in that] guidance. We're putting a low -- as I said, low single-digit comps, okay? And again, we haven't taken it all the way -- we haven't done a lot of analysis, but just the trend is based with those single-digit comps and with the slowdown in opening new stores, certainly in the Lids group, that 10% should be doable.

There isn't anything magic in it. It's actually, obviously, a lot lower than, or lower than we had earlier anticipated, but with, let's say, low single-digit comps, and let's say, in the 3% range, we think we can leverage off of that. So a lot of this is going to be leverage and the drop that we've been seeing in gross margin, we hope will moderate, so it'll be a combination of those factors.

So you're planning on basically flattish or less down gross margins next year?

Yes.

And then you would think that you should be able to lever the SG&A. The question is can you get back to 2014 levels situation or below because it's wasn't -- it didn't -- it hasn't levered. It was flat that year, so that's what I'm more -- where I'm thinking--?

No. No. No. I don't think we can get back to the 2014 all at once, at least with that comp, 2% to 3%. So I don't believe we can get back there, but we will be moving in that direction. We can get pretty close on gross margin but not from a leveraging of expenses.

All right. Thank you very much and good luck. I look forward to celebrating with you.

Okay. Thanks.

Mark Montagna, Avondale Partners.

Hi. Good morning. Congratulations, Jim. A question on Lids growth. How many stores have you already committed to next year and is that all you are going to open? Have you ruled out any acquisitions? Then is there -- can you quantify what the savings on pre-opening costs and any other related costs are by the fewer stores of next year versus what you've had for this year?

I'll work backwards. No, we can't quantify the savings. It's not a savings play in terms of slowing the growth. It is an execution play, so it would show up, we believe, over time in gross margin and comp. The store commitment for next year is -- the Hat business is going to be business as usual, so let's separate that out, and there will be continued slow growth on a percentage basis within the Hat store world, because we continue to see good returns as we open those stores.

In the Locker Room business, we have a handful of commitments, which we will carry through on. Beyond that, as we write our budget for next year, we don't expect to do much more, if any more than that. In terms of acquisitions, I just don't want to ever say never, because if there's a couple of ones out there that we know are spectacular opportunities, and if they came to us priced right, we would do them, but more than likely, we are not going to stretch to do anything more, because we think we will benefit from focus. So that's a commitment to slow growth, but I don't want to nail it down to specific numbers, Mark.

Okay. And then you had some DC projects that were going on with Schuh and Lids. Wondering where those stand, when you expect them completed?

As we said, the Schuh DC is open, up and running, on time, on budget, and gives them enormous capacity. Within the way we built that out, we have option value on additional capacity, which would take a small amount of capital investment, so we built it essentially with expansion. The Lids is also consolidating their DC, as they grew so quickly, as we recited in the script, that required them to take on more space, which ended up to be other buildings within the industrial complex in which they sit.

That adds inefficiencies. You have got trucks running back and forth. That's the only way you get it done. We have consolidated down to one building. Included in that one building is a robotics picking system, which is fully constructed now, and if you ever want to come to Indy and see it, we would love to host you. It's very cool to just look at. It is in test phase right now and all of that is going well and we expect it to be online and in production in the first quarter. So most of the heavy lifting on the distribution work that we needed is done, and in both cases, we now own some extra capacity, both at Schuh and Lids, to support future growth. Jim or Mimi anything to add? Okay.

All right. And then just with Schuh, I noticed during the quarter, at some point, you opened a store in Germany. Was just wondering if you could walk us through what's going on there?

We have not opened a store in Germany and we continue to look at Europe. As we've said in the past, northern Europe is our current focus, but we do not have a current store open, so just you'll have to stay tuned on that.

Okay. And then just lastly, just regarding Journeys, is there a difference in performance between men's and women's? Or is it even?

Difference in what?

In performance, in terms of comps?

Yes, comps. Is one leading the charge, women's versus men's?

If it is, it's not very material. I don't know the numbers. A few things that we sell are actually dual-gender, so it's a little tricky to quantify, but it's not pronounced.

Okay. Thank you.

Mitch Kummetz, Robert W. Baird.

Yes. Congratulations, Jim, Mimi. Jim, don't hurt your knees or anything. You're going to need those come February. A couple questions on Lids. Bob, can you break out the comp in the quarter, hats versus non-hats? Or the headwear stores versus the non-headwear stores?

We haven't been disclosing the comp, specifically. Jim can give you a little bit of direction on it.

Is that full comp?

I've got something here. The hat stores were low single-digit positive and the Locker Room stores were low single-digit negative. Then we got hit very hard in our Clubhouse stores. Those are the ones where we have a relationship.

Right.

With -- the Ohio State business year-over-year has been tough for us, so that explains most of that shortfall.

Okay. And then maybe that's a good segue -- go ahead?

I was just saying the Canadian hat business was particularly strong.

Very strong in Canada.

And then is there any way to quantify what maybe the operating profit shortfall on Lids was in the quarter relative to what your plan was going into it?

Yes. It was -- let's put it this way, if you look at the total quarter, and you look at all of our other businesses, they were where we thought they were going to be.

Right.

Okay. So the net shortfall was in Lids, is our guidance.

Now and that's an important point. Let me just pick up on that, because when you can look against guidance, the miss was, as Jim just said, heavily related to Lids. As we mentioned in the script, we had planned Lids to actually have an improvement over last year and they actually came in off of last year. When you look at numbers year-over-year for our divisions, Lids was still, both on an absolute basis and on a percentage basis, the one that slipped the most from last year, but several of our other businesses slipped from last year.

It was a tough retail quarter. The distinction being that a lot of our other businesses planned that. They saw it coming and they had projected it in a way that allowed us to write guidance that assumed that it would be difficult. So when you get to the comparance to last year, it was Journeys did great, and it was challenging really for everybody else, just most challenging for Lids. Again, the big miss for us is that we had expectations that Lids would actually do better.

Okay.

One of the things that -- you look in the rearview mirror and you get really smart -- the Locker Room and Clubhouse business last third quarter was up significant double-digits. We had actually planned it to be up a little more on top of that. Particularly, when you have all this exposure to teams, again, looking in the rearview mirror, you say, was that a good number?

Obviously, it didn't work out to be a good number. It will forever be a challenge for us to be as accurate when we plan out Lids's business because we are more exposed to teams. When we get national with our footprint, that'll moderate a little bit, but you still have exposure to big national -- big market teams versus small-market teams.

And on the shortfall at the non-hats stores, so it's this Locker Room, it's Clubhouse, it's Macy's, and then even in team sports, is there any way you could, in order of magnitude, rank those in terms of how they fell short of plan? Was the biggest part of the miss Clubhouse?

Both Clubhouse and Lids team sports were significant.

Okay.

Yes. They were significant. There was some shortfall in Macy's, as we've talked about, and then the rest of it was on the wholesale business.

Okay.

Okay?

And then the last question I have, maybe just trying and going back to Sam's question about next year, can you talk about what the -- it's a low single-digit comp, Jim, you said 3% comp you can leverage, but how should we think about -- and I know you're dialing back about the Lids store growth -- how should we think about Lids units? You plan to end of this year with 1,380 stores. Where does that number -- does that number grow next year, at all? Is a flat? How should we think about growth in units across the other banners?

As Bob said, we're only going to be opening -- there could be some exceptions, obviously, depending on we find a good locations, but right now we're just looking that, let's just say growth in the hat stores, okay? Not a lot of growth. Probably pretty close to what it was this year. Then we're looking at not a lot of closings, but there will be some closings, so I would think it would be, from a net standpoint -- I don't know -- we don't have the firm plans in place, but certainly it would be less than 50, I would think.

Okay. All right. Great. Thanks, guys. Good luck.

Thanks.

Steve Marotta, CL King & Associates.

Good morning, everybody. Two very quick questions. Jim, as it pertains to CapEx for next year, considering that you are talking about store growth, can you offer a little bit of guidance on what the delta might be on a year-over-year basis from a CapEx standpoint?

Yes. This year, as we've said, we're going to be close to $140 million, a little less than that. Next year is a little fluid, obviously, because of all the IT things, but I would think it'd be $120 million, $125 million, in the $120 million to $125 million, probably, in that range.

Okay. I know you mentioned also that as a percent of sales, SG&A came in higher than expected because of the shortfall at Lids. From an aggregate dollars standpoint, was it planned at roughly $310 million?

Was it planned at that? No. It was planned a little less than that.

Can you offer that delta there roughly?

What's that?

Can you offer that delta--?

Lids came in exactly -- yes, I can. Lids came in actually very close on absolute dollars from an absolute dollar expense standpoint. Scary close. The problem was when they missed their sales, they weren't able to deleverage, and that hurt us from a leveraging standpoint. The major reason for the increase in expenses was primarily due to Journeys doing better than we had anticipated. Okay. In absolute dollars.

Okay. All right. That is helpful. Thank you.

Jill Nelson, Johnson Rice.

Good morning. Could you talk about just a little bit more on Macy's. You implied that, that was below plan -- issues there -- do they mimic what you're seeing at Locker Room and whatnot?

Yes. They mimic Locker Room, but the real challenge at Macy's was opening 96 stores in three months.

Right.

You just have to witness the event. You're trying to time it. You're hiring salespeople. They're going to be training usually in one of our stores. If you opened the store in the month that you were targeting, you are in great shape, but these stores ended up backloaded, obviously. We didn't actually plan them to be 96 in the third quarter, so some of them opened up with inventory that wasn't quite right. There's just a lot of issues related to getting that many stores open that quickly.

They impact performance. So I'd say from a merchandise standpoint, the issues would be similar for a store opened on time, more pronounced for a store opened off its planned cadence, and then you've got the additional burden of brand new salespeople operating -- paying for the training of them and then they've got to get in their groove. So it's -- you don't look at a store like that and say wow, there is a measure of success or failure. You say, great I've got it open, now let's start working it. And so many of them in one quarter is a burden on the quarter.

And we've opened, obviously, over the years, a lot of stores. There's some issues on this one is, I think is one, we've got another party involved in it, in the middle. But another issue is that we are -- in many cases, as Bob said, from an inventory standpoint, it's not necessarily -- [doesn't] wrong inventory; the problem is sometimes you are opening a store mid-season for a sport and so it's hard to transition in the mid-season to decide on how much of this versus that. So we've learned a lot in terms of when to open the stores from a [merchandising] standpoint. All those things contributed to it. It's just it took a little longer to get the inventory in line in those stores, which affected the top line, which eventually affected the bottom line.

A good measure of that is we did our test stores last year, opening them in the third quarter and the beginning of the fourth quarter. And now, so we have our first Macy's stores going comp, and the comp on the Macy's stores, it's a handful of stores, but it's strong. So you learn as you go, and if you're getting smarter and you're learning, you should have some nice comps as you get the merchandise mix right.

All right. Appreciate that. Just last one, flipping to Journeys, clearly both sides of the business are working there. Boots are strong, it seems like. Could you just talk about, maybe, as you've seen in the fashion athletic trends turn very strong for Q3 and into Q4, how about the insights into spring for that business, given it takes over a bigger part of the mix?

Yes. Generally, we just think that we've got a lot of very -- let me broadly say, we've got a lot of good things working in Journeys on, as you say, on both sides, and casual was strong for us before we got to boot season, so we have good things outside of boots operating within the casual. You're right, athletics, as a percent of total, becomes more important at the first half, and so the fact that we see a lot of newness and a lot of excitement in athletics, bodes well for the first half of next year.

Thank you.

Taposh Bari, Goldman Sachs.

Hey, guys. Good morning. Congrats to the Journeys teams on the nice trends there. Jim, I obviously will miss you. So a question on traffic. It seems like you have a lot of mall-based exposure, yet your comps are good, so can you just talk about what you're seeing in terms of traffic conversion at Lids and Journeys?

Yes. At Journeys, we referenced in the script, the counters. We have invested in counters for our stores, but we haven't anniversaried them, so I can tell you what the traffic is, in absolute basis, we have no good reference point. You see what we see in terms of the shopper track data on the malls. Our perspective on that -- we have a perspective on how traffic to the mall can be down and how comps can be up and it basically speaks to how people shop.

There is a large swath of people who do their window shopping, if you will, all of their browsing, all of their research, online. So a lot of the traffic fall off in our view are people who aren't just walking the mall to figure out what they might want to buy down the road. They are walking the mall with more purpose to buy, hence conversion of the people walking into the mall is higher.

There's a -- I'd refer you to a great piece by the consulting firm A.T. Kearney that interviewed a large number of shoppers that quantified that effect and it supports that thesis. That's especially true for teenagers. In our segment, our kids, as you can imagine, every kid is glued to their smartphone, does a better job of figuring out what they want to buy by the time they get to the mall. That would explain the broad mall pattern of lower traffic, higher conversion. We don't have the data right now to speak to it specifically to our stores, but we will when we get to the second half of next year.

So what is the conversion -- parlaying that, what does the conversion look like for your online business? I would imagine, based on your comment, that it would be down -- just not for you, but in general, because more people are, according to what you're saying, it seems like people are pre-shopping online but then transacting in-store. Are you seeing that online with your conversion trends?

Journey's conversion is up, so we're winning on all fronts simply because the merchandise is so compelling. Our site has been managed in a way that navigation and checkout becomes -- same thing that we're talking about earlier on the call -- it is a process of continuous improvement and so that applies to our web business, as well.

So between inventory and the quality of the site, we've been saying conversion go up. Of course, when you look at conversion, as you probably know, what you need to do is look at conversion across devices, because conversion is naturally lower on mobile. So when we talk about having improved conversion, we really think about conversion by device type as the measure of how well we're doing there because then you have a big mix change.

Got it. And then I just had another question on Lids. The non-Lids hat business, call it team sports, or I'm sorry, the Locker Room and Clubhouse division, what percentage does apparel represent of that merchandise?

It runs into the 40% or 50% range. Then headwear is 15% to 20%. Then the balance is the hard goods, and it's that hard good business that is especially a fourth-quarter item and we intensify around that when we get into fourth quarter.

And is the weakness in that line of -- in that business concentrated in any particular category? Is it broadly challenged?

We think the opportunity is in apparel.

The opportunity for improvement?

Yes.

Okay. And can you also just -- I know it's a small part of Lids, but it seems like it's making a lot of noise to the entire portfolio in the interim. Can you size up that part of the business on a full-year basis, on a fourth-quarter basis? That would be helpful to the extent that you can?

The Locker room business?

Yes. Locker Room and Clubhouse. The non-hat part of Lids?

It's a business whose revenues for this year is going to be in -- Jim, what's the ballpark numbers? Hang in there.

While you look for that, the other question I had is was, are you expecting -- I know you have a lot of self-help initiatives to stem the bleed there, but are you expecting the margin performance to improve in the fourth quarter and into 2015 or are you giving yourself some cushion, given that it may take some time?

Quarter-over-quarter, obviously, the margin for Locker Room and Clubhouse, it explodes positively in the fourth quarter, because it is a fourth-quarter business, so that's when you get all of your leverage. So we're -- that's why we were speaking about how the big store count increase year-over-year in the fourth quarter will be our friend, because every one of those stores will be nicely profitable in the fourth quarter.

How about on a seasonally adjusted basis, year-over-year? Are you expecting gross margins to continue to decline in the fourth quarter like they did in the third quarter?

Yes.

Yes. That was part of why the guidance came down. We not only took down the third quarter, but we took down the fourth quarter.

In the fourth quarter it came down because of gross margin and SG&A, but particularly, in the case of Lids, we took down the gross margin.

Okay. Thanks.

And to answer your other question about sizing this, if you look at the Locker Room business and the Clubhouse business, it will be in the $170 million to [$180 million] range, from a sales standpoint.

But if you think of it on a run rate business, it's bigger than that, because, Jim just give you an annual number, but we opened 96 Macy's in the third quarter, we made an acquisition -- two acquisitions, so you don't have the full-year numbers for those, plus the new stores we opened. So the run rate for that business is meaningfully higher.

What's the --?

My numbers did not include Macy's

Okay.

What's the fourth-quarter concentration, roughly, percentage-wise for that business?

What do you mean percentage-wise?

How much of the year is done in the fourth quarter?

How much of the -- in the fourth quarter -- (multiple speakers)?

Sales in the 40% to 50%.

40% to 50% range and earnings are higher than that. It is very, very much a fourth-quarter business.

Got it. Thanks, guys. All the best.

Okay. Thanks.

That does conclude the question-and-answer session. At this time, I'd like to turn the call back over to Bob Dennis for any additional or closing remarks.

Let me close first by one more time thanking Jim Gulmi for his exceptional leadership over his entire tenure here at Genesco. We are very grateful for what he has done over these many years. Then secondly, we will be seeing many of you, I imagine, at ICR in early January, and so at that point, we are excited to give you the update on how holiday worked out. Thank you all for joining us.

And again, that does conclude the call. We would like to thank everyone for your participation today.