Genesco Inc. Stock

Good morning and welcome to this next session of the Goldman Sachs Global Consumer and Retailing Conference. My name is Brooke Roach and I cover the Apparel, Softlines, and Brand sector here at GS. I'm thrilled to introduce this next session with Genesco. Here with me on stage today is Mimi Vaughn, Board Chair, President, and Chief Executive Officer; and Jonathan Collins, SVP, Finance and Chief Financial Officer.

Welcome, Mimi. Welcome, Jonathan.

Thanks, Brooke. Thanks for having us this morning.

To kick it off, we'll show a brief video.

[Presentation]

That was great. Mimi, could you kick it off by telling us a little bit about where Genesco stands today in its Footwear First strategy? What's the next leg of that strategy that investors should be focused on, and what milestones should we be watching for?

Well, you saw, for those of you who don't know us, we are all about footwear, and we have both footwear retail brands as well as footwear brands. And what makes us distinctive is that we focus on very specific parts of the consumer market. We've come through a phase where we were building a lot of our digital capabilities. We doubled the size of our digital business. We laid some great tracks for analytic work. We did a lot with the interconnection between stores and online and really have repositioned the company quite a lot.

We launched something called a Footwear First strategy which is all designed to be focused on where the consumer is today and how much they have really changed through the course of the pandemic. Habits change, how consumers shop changed, particularly within footwear. And so our Footwear First strategy is all about dialing into the exact right product. If you don't have exactly what the consumer wants, if you don't have newness and freshness, they're passing you by because they're having to make choices.

So we're very dialed into product overall. We are talking a lot about awareness and how do we raise awareness because today the consumer finds out and discovers brands and thinks about brands in a very different way. We are thinking about experiences. You saw our fantastic store designs, and we're making the experiences in stores really an outstanding experience for the consumer, as well as online. And of course, we're investing in our people and our capabilities, because people are who allow you to unlock really wonderful things within retail.

And so I'd say to talk about milestones for Journeys, which we'll have a chance to talk about. We are on -- we announced our eighth consecutive into our ninth consecutive quarter of positive comps, in terms of the transformation and the reimagining of Journeys. It was interesting to hear the gap because I think we're all on this journey of how do we really meet where the consumer is today. We're excited about that, so I think that's a great milestone for us.

We've improved our bottom line by 100 basis points in each of the last couple of quarters, and so the impact of the initiatives that we're putting together are what we believe are really working. We've got tremendous momentum in our business and it's a tough footwear environment and it's a tough consumer environment in general in certain pockets and we're really outperforming and excited about that.

That's great to hear. Jonathan, let's bring you into the conversation. You recently joined Genesco as CFO. What attracted you to the company, and what are your initial impressions of the opportunities ahead?

Yes. I think, as I talked to Mimi and the Board during the interview process, the two things that really stand out to me were the words mission and opportunity, as you mentioned, Brooke. I'm a very mission-driven person. I spent 13 years at Walmart. They're very mission-driven. And I think there's nothing like that feeling of putting on a really nice, well-fitting pair of shoes to really uplift and give people confidence.

And so -- then opportunity, and we'll talk, I'm sure, a lot more about each of our divisions but just what a massive opportunity in terms of executing our Footwear First strategy and as well as the talent we have. I'm super impressed with the whole leadership team and the Board. And yes, just excited to join the company at this time.

That's great. Before we dive into the execution of the strategy, let's level set with the consumer. A couple of questions that we're asking all companies at our conference today is one on the health of the consumer in the back half environment, which is, as you look at the second half of '26 relative to your recent results, do you expect the environment to be the same, better or worse? And then as you roll that forward into 2027, do you expect the health of the consumer to be better, the same, or worse in 2027 versus 2026?

Consumers absolutely have been hanging in there. They want what they want and they buy what they want. We have really been the beneficiaries of them buying what they want. I do think in the back half of the year that it will be more challenging, and because of oil prices, gas prices. Gas prices are a real thing. I think that there wasn't a person that I spoke to after Labor Day that didn't talk about, you know, gas prices and prices at the pump and filling up at the pump. And so I think that's a real point of pain for the consumer and I think that the fact that diesel is up so high flows through into overall price inflation.

So, as we look into next year I believe we were going to get to a better point next year and that, the health of the consumer will continue. I think the consumer is in a good place from not having over-borrowed, they're paying down their credit card. We actually saw all strata of our consumer sectors across demographic groups perform well over back-to-school. And so we're encouraged by what we see. We know we've got to be spot-on on our assortments, and we plan to be.

You mentioned back-to-school just now, and so maybe we can dive a little bit deeper into that. Comps were a bit slower in Journeys in 2Q, but you noted an acceleration quarter-to-date on your call a few weeks ago. Can you talk about the cadence of consumer demand this summer and what you've seen on traffic versus conversion? How has back-to-school trended as you've moved through some of the timing shifts?

Sure. So the one thing I would say in terms of how the consumer is shopping is that when there's a reason to shop, and in footwear specifically, when there is a reason to shop, they come out and shop ferociously. And when there isn't a reason to shop, they sort of take a break and go and do some other things. And so, we saw some of that during the course of the spring, where it was a later spring because it took a while for the weather to warm up.

And so when we got into May, it's typically a lower month for us, but May was actually a good month. And as expected, into June and July, the consumer turned their attention to other activities outside of shopping. And I think the consumer has a lot of confidence in when they're ready to shop that they can find what they want to shop in a way they never have before. And so they really wait until the very last moment to be able to go out and shop.

And so we saw as expected, that lull that came across through to summer, but then this whole idea of they're coming back and they're shopping with intensity. And they came back and there was a later Labor Day this year and so there was an entire shift of back-to-school which really affected the second quarter. And we saw comps, move up into the mid-single digits in Journeys, as we expected it would. And so we had a really strong, um, back-to-school selling season. On top of the last couple of years, we have really strong comps in the third quarter and on top of very strong stacked comps performed well.

And then we expect the consumer is going to take a break again until the weather gets a bit cooler and there's a reason to shop over the holidays. And so our ability to execute against this and our ability to have the depth of the product is a critical component of capitalizing on those moments when the consumer comes out to shop.

That's great. Let's dig into the execution of your strategy, starting with Journeys. As you mentioned earlier, Journeys has now delivered eight consecutive quarters of positive comps, with August accelerating to that mid-single-digit level. What's working for you so well right now? And what do you view as the biggest opportunity to sustain that momentum ahead?

So the biggest opportunity is to serve a customer group that is six to seven times larger than what we have traditionally served. And I think Journeys has always been about serving the teen consumer. What we have done in over the course of the last several quarters is that we have dialed further into who specifically are we serving. And we saw an even bigger opportunity within the female market. And Journeys has tilted female lately, but we've owned it, we've claimed it, we've said that a lot of the athletic competition serves the male market -- the male teen market, in a really good way.

But we have an opportunity here to dial into the female consumer to an even greater extent. And that female consumer today wants to experiment with her look.

We've talked a lot in the past about, were you a skater? Were you a surfer? Were you gothic? Were you -- what were you. And in some of the of the fall campaign, the back-to-school campaign. You saw Madison Bailey, she had three different outfits where she's representing three different versions of herself.

And so we have an opportunity to serve this teen that's experimenting with, who do I want to be? I don't want to be pigeonholed like prior generations were. And we serve across both athletic and casual footwear and have an ability to do all of that. So a bigger market, six to seven times larger is our opportunity. We've dialed into our assortment. We've improved our assortment. We've elevated our assortment. We have brought a lot of -- specifically, a lot more attention to the Journeys brand. We've leaned into our overall marketing and our social campaigns.

We've improved our store experience. I'm sure we'll talk about our 4.0 store experience. And I really feel like we have dialed into this consumer base and that our consumers are liking what they see. And we're reaching out so that more people can come and rediscover what Journeys is all about today.

What's next with the Lead With Her strategy that you just mentioned?

Yep. So what's next is very much about more of the brand building and awareness building. And our teams are so socially oriented. They learn and discover through social. And our ability to be able to take campaigns like we just had and magnify campaigns through the influencers we use, through the celebrities that we use, is working really well.

So for example, when we launched our Life on Loud, which is the name of our platform or our campaign. We saw that our online traffic improved by 30%. And we saw that our store traffic actually improved significantly. to where we were outpacing where the industry was. And so our ability to pulse out in those moments when the consumer's ready to shop and to be able to capture that consumer and build awareness is very much front and center in terms of how we are thinking about being able to reach this dynamic demographic that we serve. The other area that is working really well is that you may have seen our 4.0, our new store rollout, and we've had a lot of good success.

That store rollout -- that store remodel is one thing to call it, but I think it really is the visible representation of the new Journeys strategy and how we're serving the consumer today. We have opened, a quite a number of those stores. We opened 85 last year, we're opening 95 this year. And so we expect they -- with an over 25% lift that will continue to propel our comps. And so the awareness building and the continued rollout of the overall 4.0 is how we are seeing continued growth.

Is there anything else that we should know about the 4.0 growth strategy from a storage perspective? And then Jonathan, is there anything that you can share about the economics of the format?

Yeah, I think we've quoted this 25% uplift that we're seeing. The other thing that I think is an opportunity for us is to really think about how do we take the 4.0 format that we have today? How do we take the kids format that we have today? We have one kind of experiment that we're trying in terms of combining the two and how much leverage will that provide us in terms of selling floor space and whatnot.

So I think we're very happy with the economics. We can't roll those out fast enough. They're super high on our priority list in terms of capital deployment. And so the faster we can accelerate those, I think the faster we'll be able to improve the economics of our business.

And just to really talk a little bit more and build on what Jonathan is saying. So better traffic, higher conversion, higher ASP. So that's part of the formula for the 4.0s. And what Jonathan is talking about is that out of the and 90-plus stores that we will be remodeling this year. 2/3 will be remodels in place, and 1/3 will be enlarging the stores. And so we're finding we're performing better in our higher-tiered malls, and we're finding we're performing better in great geographies like California and Texas. And so whereas we had stores that averaged a little over 2000, 2200, 2300 square feet. We're upsizing to 4000 square feet.

We're trying a few 5000 square foot store footprints and we think there's really great opportunity here to be able to display. We find that we need more room particularly in these peak periods. And because we're outperforming in these higher-tiered malls and in really great demographic areas that we're leaning into upsizing the size of our overall store footprint itself.

You briefly touched upon this topic on the call, but I'd love to hear a little bit more on the key fashion drivers that are fueling the consumer right now in footwear. There are a few other competitors that have been speaking quite negatively about consumer demand in your category. Are you seeing any impact from this? What's working best from the consumer today? And are you seeing any shifts in how the consumer was preferring different style silhouettes?

Yes. So, for sure, there's been a lot of conversation about our part of the consumer world. And I certainly say there has been. It's not new that there is a lot of promotional activity. There has been a lot of promotional activity. And we've stayed full-price. And I think that remarkably, in the last several quarters, we've talked about how we've been we have leaned even more so into full-price selling. And to lean into full-price selling, you have to have the strength of your assortment in order to pull that off.

And so, I will say that what we are seeing today, and I'll talk about the trends, and it goes right back to we have a very diversified offering. We're able to sell athletic. We're able to sell casual. We're able to sell whatever brands are working and we can rotate our offering into the brands that we see will be up and coming brands. And so we talked about eight brands right now are driving our growth and those brands are both across athletic and across casual. And so that's the strength of our model and the strength of our Journeys model.

And what we've seen is that we've seen four or five things. There's no one silver bullet in terms of our performance and our outperformance. But one is that we've been able to extend the life of certain footwear franchises. And serving the female customer means that we can extend into different colorways, we can extend into nice patterns, we can extend into animal prints, we can extend into frilly stripes, we can extend into lots of different things that extend the life of the franchises that perhaps others can't extend. We've leaned very hard into some of the trends like low profile, which isn't a new trend, and lifestyle running, which isn't a new trend. But dialing into how can we serve that customer in a way.

And Journeys is so compelling that we can take a brand, and we can take a silhouette, and we can sell a million pairs of it. And so the strength of being able to lean into a certain style is working nicely for us. We have some new brands that we are selling as well, and we're going against very low numbers in those new brands that we have introduced. And then the ballerina flats, the Mary Jane trend that you're seeing a lot of young girls wear are more distinctly feminine. And so the linking back to the diversification and serving her and leaning into her and For Her is working nicely together. And there are one or two other brands that we're excited about that I'll tell you about a little bit later when we wouldn't be giving away the secret.

But really, it's the diversification and it's the number of different opportunities that we have been working well. And our merchant group is extraordinary. They keep finding fantastic ways to unlock what our customer wants to buy and how to serve her in a way that's unique.

You mentioned promotional intensity in the early part of that last response. Are you seeing any change in price or mix or promotional intensity in the categories you've moved through back-to-school specifically? And what are your plans for promotions and pricing in the back half of the year?

So we want to be a full-price seller, and we want to have must-have product as opposed to attracting the customer through selling on promotion. And it's harder to do in a promotional environment, but we have been doing it. And I'd say that the promotional activity is not new. It's been going on for well over a year at this point in time. And so our strategy is to stick to what we're doing and just stay out of the fray because when you start to promote your way down to the bottom. Most of the time, our industry promotes when we're in an over-inventory position.

I think that certainly on the athletic side, there is some over-inventorying. And so we're anticipating the back half to be more promotional. But we will do our all, as we have been doing, to stay out of that promotional fray.

Does that mean that your prices in AUR are going to be higher, lower, or the same in the back half of the year versus the first half?

So they were higher in the front half of the year and we expect that they will be higher in the back half of the year so I wouldn't expect a big step-up but I also wouldn't expect that we're going to promote our way into lower price points.

One other topical commentary that we continue to get a lot of questions about is weather forecasts. There are a lot of forecasters out there that think that we might have a super El Nino year, and there's some concern about what that means for cold weather categories. You sell a lot of boots. I'm curious, how are you planning the business this year for the boots and cold weather category?

Yes. So the boots we sell are purely fashion. They're not necessarily for cold weather. And the funny stories that I hear are that it was 90 degrees -- and we're based in Nashville. It was 90 degrees when our kids went back to school, and we had kids showing up in Uggs. And Uggs, you're very warm when you're wearing your Uggs. But it is all about fashion. And if you're a middle school girl, then you want to be on trend and you're going to show up and you're going to be wearing whatever is on fashion.

So at the margin, we are not weather dependent. We do like to see triggers that tell the consumer it's time to shift seasons and it's time to think about changing your wardrobe and we certainly haven't seen that. There's just been so hot through the course of the summer and into the fall, that trigger that tells the consumer it's time to start mixing up your wardrobe hasn't happened yet, but it's just timing in terms of when that happens. So I think there will be a shift in timing for us, but that -- it doesn't necessarily mean that there it will impact the season And in some places, I think there's going to be record snowstorms. So we'll really see what ends up happening.

Fingers crossed.

Yes, hopefully. Hopefully in the right area.

In the right ski area.

Right ski area, right.

Let's shift to Schuh. Can you talk a little bit more about the recent performance that you've seen at the Schuh banner? What are the most important milestones that we should be watching that would demonstrate that the investments that you're making are working?

So, for those who don't know, Schuh is our U.K.-based business that we acquired when we went to open Journeys stores. So you can think about Schuh and Journeys really being the same business. And we see the same opportunity at Schuh that we have just been in the process of unlocking in Journeys. And our Journeys turnaround has been fast. We've added $50 million to the bottom line over the last couple of years with all these strategies that I have been talking about.

For this year, we were in that race of promoting in Schuh because it's been an even more promotional environment in the U.K. And we are pulling back on that promotion activity we're getting back to full-price selling. And I think you asked what are the markers what should we be watching and what we saw is that we had a lot a lot of headwinds on comp as a result of pulling back on promotions, but we had a 300 basis point pickup in gross margins. And so from that point of view, the strategy is working.

We're actually seeing that pullback online because there tends to be a more discount-oriented shopper shopping in the U.K. And so our first step is pullback on promotional activities. We were almost at the same level bottom line, even with such a big give up in sales because of the improvement that we had. And so I think through the course of this year, continue to watch us pulling back on promotional activity.

But at the same time, as we're managing costs and the like. We are leaning into better product, better assortment, the elevation of the product. of the assortment, the dialing into the consumer base, the leaning to the For Her strategy is very much what we are doing in the U.K. And so I think that as we see the lines crossed where we are seeing less headwinds from pulling back on promotions and more opportunity from dialing into the must have brands and elevating the assortment that you will see the lines cross and you'll see traction that we achieved within Journeys.

We've just put in a fantastic new head of the business. He comes from Puma. He was at Puma at a point in time and ran Foot Locker's biggest international businesses.

And so Tomas Petersson is our new head of our Schuh business. And we feel very fortunate and lucky to have such an extraordinary good fit to be able to lead the next generation of improvement in Schuh.

That's great to hear. Let's shift to Johnston & Murphy. You've made several changes to that banner over the last year. How are you thinking about the drivers of sustained growth brand growth over time? And how should we be thinking about category expansion as the brand continues to build?

Sure. So I'll start with category expansion and I'm sure some of you have seen how much we've expanded categories within Johnston & Murphy. Johnston & Murphy was known as a dress shoe resource and we have grown our non-footwear business where it is 50%. And in our airport stores and other places, it's more than 50% of our overall assortment. And I'd say with Johnston & Murphy, we are seeing an extraordinary moment in time right now where our consumer wants to dress up more.

I think that the pendulum is swinging back from years of sort of sitting around in your hoodies and your sneakers, and we're seeing that the customer wants to dress up again. And so Johnston & Murphy is very well positioned for that. We were doing a lot of this category expansion coming out of the pandemic, and then we hit a low, quite frankly, where we weren't refreshing our product enough. And we've spent a lot of time thinking about how do we shorten our lead times, how do we drop more within seasons.

We're able to do that with apparel more quickly than we are with footwear because of the cycle times and the lead times. And so we've seen the customer respond so well to knits and to our blazers. We're putting a lot of stretchiness into the material. A lot of the technology into the materials, and seeing some great consumer response. And so it's the product and the strength of the product assortment that is driving Johnston & Murphy.

Peyton Manning became our new spokesperson about a year ago, and if you were watching CNBC this morning, you saw Peyton in our new campaign, with Peyton for the next couple of years. And what is exciting about Peyton is that we knew that he would resonate with our customer base. He's got more than 85% awareness across our customer base.

We thought it might be with an older customer, but we're seeing the under 25, the 25 to 35 and 35 to 45-year-old new customer base growing at a faster rate than we're seeing in the rest of the consumer base.

And so I think it is really -- the strength of the assortment, coupled with the building awareness in this recent campaign that has been driving Johnston & Murphy, and then we're against the backdrop of a moment in time that the consumer is changing their looks. And that's always really great for us who are selling products for them.

Excellent. Let's shift to the margins of the business. Jonathan, you recently announced a $40 million to $50 million structural cost saving program through fiscal '29. How should we be thinking about the major work streams and the sequencing of the opportunity and how much is going to be reinvested versus flowed through to the bottom line?

Yes, I think. I mean, we did announce our structural cost savings. I think just on gross margin, there's still opportunity there to get more back to full-price selling. And we talked about that a little bit. Specifically on the cost savings program there's very, very positive proof points. Just in last quarter that we announced, year-over-year, we had a $6 million reduction in our cost base.

That's largely off the back of this IT cost transformation program that we have. But going forward, there's a massive opportunity around automation, particularly in our supply chain, leveraging AI, not just from how do we leverage AI for consumers and kind of help the shopping journey along a little bit.

But also in just the way we work and how we work and to do more with the resources that we have today. So those are kind of the major levers. And again, quite pleased with how we've executed to date. and some pretty good proof points for us to be able to deliver that.

That's great to hear. You mentioned AI, and AI is actually one of the questions that we're asking all companies at the conference today. So I'm curious if you can share a little more. Do you expect a significant increase in efficiency as a result of AI in '27 versus '26? And what part of the business will change the most as a result of AI over the next year?

I think -- we don't know -- I should answer it this way. Like every part of the business will change. I think it changes, AI has seemed so fast. If you go back, you know, even probably three years ago, nobody even knew who ChatGPT was, you know, And so I don't know. I think we're quite excited about leveraging AI in three ways. One is just with our employee base, how do they improve what they do every day? And it's really a force multiplier based on their work. Number two is, how does it improve the places where the customer maybe doesn't see so much? So product planning, design, et cetera.

And then three, how do we leverage AI in where the customer does engage us? If you go online today and you do an online shopping journey at the bottom of your, the buy box and the page on Johnston & Murphy, it will tell you, hey, if you're buying for shoes, you can complete this look with knits and pants and complete your wardrobe with it. And I can just imagine a day where that leverages AI to be more informed than what the customer -- what specific thing is the customer shopping for, what specific event. Are they shopping for work? Are they shopping for, say, a wedding or an outing or whatnot? And so I think it will help us across all those different areas.

Another question that we're asking all companies at our conference today is on the 2027 margin environment. Do you expect to see more meaningful margin headwinds or more margin tailwinds in 2027 versus 2026? And can you elaborate?

Yes, I think it'll -- for us, it'll -- there's opportunity, as I mentioned. Our long-run average for gross margin rate is about 28%. We're sitting at about 30%, sorry, 38%. We're sitting at about 37% today. So there's definitely opportunities there to kind of pull back on some margin. I would expect that there's going to be continued cost pressure. We haven't necessarily seen fuel prices kind of flowed through, particularly like freight charges weren't elevated.

But I would expect that to come into play as we move forward. But for us, regardless of the environment, we control what we control. We always focus on how do we lower the costs from a cost perspective. But then make sure we're executing our strategy so that we continuously focus on expanding our margins.

Let's tie this all together. What do you see as an achievable medium-term EBIT margin for the business and what are the most important drivers in delivering that level?

Yes, so frankly we have gone through some challenges in our business and this rebuilding our businesses is what we have embarked on over the last couple of years and are showing real positive, as I keep talking about, momentum and because of the actions that we are taking. And so we are -- to get back to a 4% operating margin, which on our base would be about $100 million of operating income, we are striving hard for in the next couple of years.

We bought back over 50% of our shares. So we have a tremendous amount of leverage within our operating model and the improvement that we put up that $100 million is almost a $7 -- $6 to $7 share price, and so there's a lot a lot of step up and a lot of opportunity.

Even if you look at where we were last year to this year, we have a lot of ability to do that. And so it is a combination of thinking about how do we continue to grow positively. This is an unusual year for us in that our sales are going down because we're closing stores, we're anniversaring a license, and we are pulling back on Schuh promotions, but all the work we're doing around cost savings, layering on top of that a return to growth and top line growth on top of very minimal cost increases is what will drive us going forward. And so we've got heads down.

I think this year is a great -- provides great evidence of the path that we're on and the progress that we're making.

One last question for you, Jonathan, on capital allocation. You have outlined a lot of opportunities today where you could invest some capital, whether that's the 4.0 stores, Johnston & Murphy expansion, tech, inventory, as well as share repurchases. How should we be thinking about the prioritization of those capital uses today?

Yeah, I think our #1 opportunity is our 4.0 stores and rolling those out and trying to accelerate as quickly as possible. Then all the other things you mentioned, certainly even down to share buybacks as Mimi mentioned, relative to what we believe, you can look at book value or intrinsic value, we think we're underpriced and there's definitely an opportunity there. So, yes, it's taking the cash flow that we generate and deploying it across all those areas. And they're all our priorities in their own way from that perspective.

Mimi, we're about out of time. Any final thoughts or closing comments that you'd like to leave with the audience?

Yes, I would say that hopefully you've heard today that we are excited about the work that we're doing and we are dialing into serving these parts of the consumer market in a way that's better than anybody else. So I think that's really the key overall to success.

And as we do that, we see the opportunity to unlock real profit improvement and the leverage that we talked about on our overall base is one that allows us to drive for significant operating income and EPS growth.

And so just invite you to learn more about our company, invite you to visit our stores, invite you to certainly buy Johnston & Murphy shoes if none of you are wearing. Some of you are not wearing Johnston & Murphy but we have some really great opportunities within our business and are excited to talk more about that with anybody who would like to learn more. So thanks for having us today.

Thank you, Mimi. Thank you, Jonathan.

Thank you.

Good day, everyone, and welcome to Genesco's Second Quarter Fiscal 2027 Conference Call. Just a reminder, today's call is being recorded. I will now turn the call over to Darryl MacQuarrie, Senior Director of FP&A and Investor Relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss our second quarter fiscal 2027 results. During today's call, participants expect to make forward-looking statements that reflect our expectations as of today, and actual results could differ materially. Genesco refers you to this morning's earnings release and the company's SEC filings, including its most recent 10-K and 10-Q filings, for some of the factors that could cause actual results to differ from the expectations reflected in the forward-looking statements made today. We also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial measures are reconciled to their GAAP counterparts in the attachments to this morning's press release and in the schedules available on the company's website in the quarterly results section. We have also posted a presentation summarizing our results there as well. With me on the call today is Mimi Vaughn, Board Chair, President, and Chief Executive Officer, and Jonathan Collins, Senior Vice President, Finance, and Chief Financial Officer.

Now, I'd like to turn the call over to Mimi.

Thanks, Darryl. Good morning, everyone, and thank you for joining our second quarter fiscal '27 earnings call. Before I get into our results and progress on strategy and initiatives, I'd like to start by welcoming Jonathan Collins, who joined Genesco in early August as our Chief Financial Officer. Jonathan brings more than 30 years of exceptional financial experience. His senior leadership roles in major global retail and e-commerce businesses include CFO of Walmart Africa and CAO of India's Flipkart Group, and he was most recently Chief Financial Officer of America's Car-Mart. Jonathan's public company leadership, multi-channel retail experience, and capital markets expertise make him a strong fit for Genesco as we continue executing our footwear first strategy and generating shareholder value. I'm confident he'll be an excellent partner to me, our leadership team, and the board as we move forward. We drive our next phase of growth. Welcome, Jonathan. Jonathan's arrival, along with our appointment of Tomas Petersson as President of schuh following Colin Temple's retirement, which I'll touch on in more detail shortly, reflect our strong beliefs in the direction we are headed and our determination to keep accelerating our progress.

Turning now to Q2, I'm very pleased to report that we delivered bottom line results that were significantly better than last year and well ahead of our expectations with every business achieving gains versus plans. The quarter once again highlights that our strategy is working and our momentum is building. We've been taking considerable action to respond to changes in a dynamic consumer environment and successfully evolve our business, and Q2 provides clear proof of our continued progress. Earnings improvement came from strong execution evidenced by higher gross margin recapture, more full price selling, higher ticket and conversion, better store productivity, and more disciplined expense management. This is the earnings leverage we set out to build this year, and we're increasingly confident that it reflects our strategic initiatives, flex positive structural improvement for a higher quality, more profitable business. While we did in Q2 receive a substantial portion of the tariff refunds we applied for, which Jonathan will detail later, this is not included in the adjusted numbers we are reporting. Our sharp execution drove meaningful earnings improvement even in this lower volume sales quarter and with a lower sales base.

As anticipated, the decline in sales was driven by three shorter-term headwinds tied to strategic actions we're taking to improve our business, namely continued store closures, as we optimize the license transition ahead of the Wrangler launch, and our intentional pullback on discounting and promotional activity at schuh. These actions are in pursuit of a healthier, more profitable business over time. As we move past these events, we expect sales trends will improve and we remain confident the consumer-facing initiatives underway position us well for future growth. Importantly, both Journeys and Johnston & Murphy posted positive comparable sales in the quarter, continuing their ongoing streaks of consecutive gains, with the overall company comp reflecting the reduced discounting at schuh and corresponding impact on sales. The consumer backdrop has not changed materially from what we described last quarter. Our customer remains selective and intentional. They shop with purpose when there's a reason and they don't when there's not.

And they're willing to pay up when we deliver the right product. What continues to stand out is that compelling product and newness are winning. We have the right assortments, our customer is responding, and notably buying at full price. The back-to-school read in Q3 so far is another encouraging example. After robust spring selling, the consumer turned attention, as usual, to summer activities other than shopping. Since then, Journeys has accelerated to a mid-single-digit comp in August on top of its second most challenging, well into the double digits, monthly two-year stack. Johnston & Murphy has also seen a notable uptick in interest in its recently dropped fall offering.

This gets us off to a good start for the back half. Our goal is to extend the momentum of the last year and a half and continue to gain market share even as footwear industry dynamics remain challenged. And with that, let me now provide more color by business on the second quarter and the actions underway to deliver the back half, starting with retail. In Q2, Journeys delivered its eighth consecutive quarter of positive comparable sales on top of strong growth a year ago, extending the positive transformation story for the style-led teen that is one of the most important proof points of our strategy. Both store and e-commerce comps were positive. Journeys' merchant team continues to do an excellent job building on its elevated assortment across athletic and casual, achieving higher transaction size, more full-price selling, and better conversion again in the quarter. Projects product strengths remain broad-based across franchises and brands, including lifestyle running, sandals, and low-profile athletic fashion, with momentum in newer brands and fashion trends such as Mary Janes and sneaker ballerinas.

Ultimately, Athletic Lifestyle led to growth over the summer, where Journeys demonstrated its ability to drive market leadership in several franchises important to its target teen customer. Our 4.0 rollout remains a major driver with the new format continuing to deliver in excess of a 25% sales list. We opened 25 locations in Q2, bringing our total for the year to almost 50. What is most noteworthy about the quarter, beyond the positive comps, is Journeys delivered a meaningful 180 points of expense leverage. The productivity of these 4.0s, continued fleet optimization, impactful cost reduction actions, and a new approach for selling salary efficiencies all contributed. This leverage combined with more modest comp growth and roughly flat sales due to closed stores drove the nice improvement in operating income, positioning Journeys well for profit gains outside of a robust shopping peak. While our back-to-school business got off to a later start due to the Labor Day calendar shift, sales trends accelerated, boosted by our Life on Loud campaign as we got into the season, especially during tax-free periods with customers looking for budget relief.

Thank you. As I mentioned, Journeys is comping nicely positive against record back-to-school results last year, especially in larger, more premium shopping centers and in major states like California and U.S.

Turning now to schuh, our reset is squarely about restoring better economics over time, and this quarter's results show that work is taking hold. To oversee this next phase of the turnaround, we named Tomas Petersson President of schuh in late July. Tomas succeeds Colin Temple, who is retiring after a remarkable 38-year career with the business, including the last 15 years as President. I want to thank Colin for his extraordinary contributions in building schuh from the start into one of the UK's leading footwear retailers and for his partnership in getting the reset work off the ground. Tomas joins us from Foot Locker, where he most recently served as the geographic leader and General Manager for Europe, Middle East, and Africa, leading Foot Locker's largest international business. He brings extensive global leadership experience across multi-branded footwear retail and footwear brands with a focus on youth culture.

Tomas is reporting to Andy Gray, head of our Journeys Global Retail Group. We have every confidence that his UK and international experience and track record growing profitable retail businesses make him the right leader to quickly build on the current progress. His skill set and experience are an exceptional fit for schuh. Welcome, Tomas. Now back to Q2, schuh's gross margin improved 300 basis points over last year as we prioritized full price selling over discounting and promotions, a full price mix increasing by 10 full percentage points of overall sales. Greater than expected gross margin improvement combined with extensive efforts to improve the cost structure, including six store closures in the quarter, selling salary efficiencies, and digital marketing optimization among others drove nearly flat operating income year over year despite lower sales. This is the trade-off we said we would make at schuh, near-term sales pressure in exchange for a healthier business. We're also making progress in product with greater access to and allocation of Adidas, Nike, Asics, UGG, New Balance, Birkenstock, and others as part of our more elevated assortment strategy, and we expect continued improvement as part of the Journeys retail group. The UK consumer market remains challenged and price sensitive, which we're observing during back to school right now. Against this backdrop and with our efforts to reduce discounting, we've said we expect the schuh turnaround to take longer than Journeys, but we see the same opportunity to serve the style-led youth customer we've captured at Journeys and remain confident in our plan.

Moving now to our branded business, Johnston & Murphy built on its momentum with its third consecutive quarter of positive comp gains. Newness and improving assortments, thoughtful pricing strategies, and growing awareness driven by increased brand marketing on our Peyton Manning campaign contributed to this growth. The strength in the quarter was store-led, with traffic considerably outperforming the industry, along with improved conversion and higher transaction size. Both higher sales and better gross margins drove the profit increase in the quarter. We are beyond thrilled to announce that we have extended our successful partnership with Peyton Manning for two additional years. Peyton is the consummate successful aspirational J&M brand ambassador with over 85% recognition across our target customer base. Our post-initial campaign research showed positive trends in J&M awareness and brand appeal, with revenue from new customers growing at a double-digit rate this year and up for 10 consecutive months since the launch of the first campaign.

Younger customers are driving the growth from the under 25, 26 to 35, and 36 to 45-year-old segments, which gives us a long runway for growth. We're also benefiting from a shift in fashion trend. The shift is not to formal dressing, but to a more refined, put-together way of dressing for work, travel, and social occasions. And that shift is right in J&M's wheelhouse. Apparel was the biggest growth driver in the quarter, growing double digits, with strength from the XC Flex Pinnacle Blazers, Pants, and Knits. But we're also grew led by casual and casual athletic styles like the Akerson, which is a dressier, refined sneaker. At Genesco Brands, major increases in Docker sales and significantly improved gross margins help offset revenue loss from license exits as our excitement builds for the Wrangler footwear launch this month. Now turning to our outlook, we're very pleased with the bottom line outperformance we delivered in Q2 and the comp acceleration we expected as Q3 got underway and we moved into the heart of back to school even as comparisons became more challenging.

While we anticipate continued choppiness in consumer shopping for the balance of the year and lower comps in non-shopping peaks, we've shown that we can effectively navigate these periods. With our outperformance to expectations, we are rolling a portion of that upside forward, but are now expecting more challenging sales in the back half to take the actions needed at schuh, given how promotional we now expect the UK footwear market to be. We also plan to invest in brand building and marketing to drive customer awareness and grow our business. Taken together, these factors give us confidence that we are well positioned to deliver at the high end, up from the middle of our previously increased EPS range of $2 to $2.40. Let me now briefly highlight a few of the initiatives that are shaping the second half and supporting our longer-term earnings bridge. At Journeys, over the past two years of transformation, we've sharpened the customer proposition, we've meaningfully elevated and diversified the assortment, we've improved brand access, we've invested in the Journeys brand, upgraded the store and online experience, and dramatically improved the economics of the business. With a reimagined concept in place, the next chapter and larger opportunity for growth is broadening awareness and attracting more new customers to Journeys, the style-led teen girl who is underserved in the mall today, a group that is six to seven times larger than our historical base.

A key initiative to accomplish this is significantly greater investment in building the Journeys brand. To this end, we expanded the reach of our Life on Loud platform with our new Back to School campaign, including more and bigger activations with our key brand partners and greater consumer engagement across the board, across social, digital, and in-store experiences. We've increased our media spend over 30%, and the campaign has already delivered over 260 million media impressions in the first four weeks of an eight-week flight. TikTok and Instagram engagement has increased 30%, including TikTok Top View, and it's all led, as we intended, to traffic increases in stores and to journeys.com, which we have seen since its launch on July 14th. The campaign features Outer Banks' Madison Bailey and ExoKitties' Anna Cathcart, two celebrities that resonate with our teen customer, and other influencers who are all magnifying the campaign's impact through their own social networks. Our 4.0 store rollout is another key vehicle for attracting new customers and bringing the reimagined Journeys experience to life. Through the second quarter, we've opened 130 stores in the new 4.0 format and increased our full-year target to 95 stores, bringing the total to about 180, or 20%, of the total fleet by year-end.

Roughly two-thirds are remodeled with the balance primarily relocations to larger footprints, plus a handful of new stores, which will drive even more growth. Our larger stores and better malls are outperforming, and we're capitalizing on that opportunity. In San Antonio, for example, we consolidated separate Journeys and Journeys Kids stores into a larger format location that's delivering promising early results. With sales at more than 70% month-to-date, and well ahead of Target. We also opened our first 4.0 Journeys Kid store in Mesquite, U.S., with plans for seven more this year to determine if this, too, can be an additional growth vehicle. Moving to schuh, our priority is to build on the reset work underway while simultaneously honing the customer proposition and solidifying the path to strengthen the brand's positioning in the UK market. With Tomas now on board, we look forward to sharing that strategic growth plan in more detail in the coming months with inspiration from the Journeys' playbook successes.

And in the meanwhile, we will be continuing to reduce reliance on discounting. There will be a little less opportunity for gross margin improvement in Q3, but more in Q4. Completing the closure of 20 stores in total over the last two years or over 15% of the store base as we optimize the footprint. Furthering the cost reduction results we have been achieving, and building on the product access gains while rationalizing tertiary brands. At Johnston & Murphy, we see a unique moment at this time to greatly expand on our momentum as consumers gravitate toward a more refined and put-together look. We're excited for the new Johnston & Murphy and Peyton campaign, which launched on September 1st, one month earlier than last year. We shifted additional marketing dollars into Q3 for more impact. Campaign has a fashion theme with continued focus on reaching our target customer through live sports and sports and business programming and content. Our assortment will be supported by strong fall newness in quarter zips, layering pieces, outerwear, and boots as we head into this important selling season. And we will have additional new customer acquisition catalysts with the opening of 10 new J&M stores in the back half.

So, in summary, our Footwear First strategy continues to gain traction and the strategic initiatives we've put in place are translating into tangible results across our company. This progress is a direct result of the stellar dedication and execution of our people, and I want to thank you for your incredible work, which is so exciting to see pay off. And with that, I'll turn it over to Jonathan to review our financial results and outlook in more detail.

Thanks, Mimi, and good morning, everyone. Before I get into the quarter, I want to say how excited I am to be joining Genesco. As I shared when I was announced, I am honored and humbled to join the company at such an exciting time in its growth journey. Over the past few weeks, I've had the opportunity to spend time with Mimi, the board, and the leadership team, and what stands out is the progress being made under the Footwear First strategy and the significant opportunity ahead. We have strong brands and leading positions in attractive categories and multiple opportunities to drive profitable growth and shareholder value. Forward to partnering with the team as we execute on these opportunities. With that, let me turn to the quarter. The headline for the quarter is that earnings improved meaningfully despite lower sales driven by gross margin expansion and disciplined expense management.

This performance demonstrates the operating leverage we are building and reinforces our confidence in the earnings potential of the business. Revenue for the quarter decreased 3% to $530 million, and overall comparable sales declined 1%. Mimi outlined, the decline in sales was anticipated and driven primarily by the impact of store closures, a deliberate reduction in promotional activity at schuh amid a highly promotional UK market, and the loss of sales from the license transition ahead of the Wrangler launch. We ended the quarter with 67 net fewer stores than a year ago, representing approximately 5% of both our fleet and square footage and approximately 2% of sales. Importantly, these closures continue to be accretive to operating income with many generating positive sales transfers in excess of 15% while improving fixed cost leverage across our fleet. By channel, store comps increased 1%, while e-commerce comps declined 6% due to the outsized impact of reduced promotions at schuh Online. Division, Journeys' comps increased 2% and Johnston & Murphy's comps increased 4%, while more than offset by a 9% decline at schuh. Adjusted gross margin was 47.2%, up 140 basis points from last year, driven by reduced promotional activity and higher full-price selling at schuh, a favorable sales mix, license exit benefit, and pricing and tariff mitigation actions in our branded businesses.

Adjusted operating expenses decreased approximately $6 million versus last year, driven by selling salary efficiencies and effective cost control. Adjusted SG&A expense was 48.8% of sales and deleveraged 40 basis points due primarily to lower sales volume, excluding pre-sales. As a result of our quarter's performance, adjusted operating loss improved by $6 million to a loss of $8 million compared to a loss of $14 million last year. Adjusted diluted loss per share was $0.83 compared to a loss of $1.14 last year. This quarter's EPS was negatively impacted by a significantly lower tax rate versus last year driven by the valuation allowance discussed on our Q4 call and doesn't fully reflect the improvement in operating income. As we continue to execute the enterprise-wide structural cost savings initiative announced earlier in the year, I want to provide additional color on the $40 to $50 million opportunity. The program focuses on selling salary productivity, operational efficiencies, procurement initiatives, and AI and automation opportunities. Importantly, these are structural savings designed to permanently improve the economics of the business rather than one-time cost reductions.

The early results we are seeing from our IT transformation and broader efficiency initiatives increase our confidence in the program. For fiscal 2027, we expect to realize up to $20 million of savings, with the remaining $20 to $30 million expected over the following two years. These savings are enabling us to invest in areas that drive growth and brand awareness, while also helping to offset inflationary pressures. Regarding tariffs, we received approximately $22 million of refunds during the quarter, which we've excluded from our adjusted results. As a reminder, these relate only to our branded businesses, where we import products which represent roughly 20% of our company. As previously discussed, we view these proceeds as non-operating in nature and intend to deploy them consistently with our capital allocation priorities, including growth investments and returns to shareholders. We will continue mitigating tariff impacts through pricing, sourcing, and mix actions as we assess any additional exposure from the new Section 301 tariffs.

Turning now to capital allocation and the balance sheet, inventory at quarter end was up 8% versus last year, driven primarily by investments in Journeys' growth initiatives, support for 4.0 store expansion, and key product categories headed into back to school. Overall, inventory remains clean and appropriately positioned for the fall and holiday selling seasons. Capital expenditures totaled $17 million during the quarter and were focused primarily on Journeys 4.0 remodels and growth initiatives. We ended the quarter with 1,186 stores following three openings and 25 closures. We did not repurchase shares during the second quarter. In the third quarter, through August 31st, we repurchased approximately 318,000 shares, or about 3% of outstanding shares, for $11 million, leaving $19 million remaining under our authorization. We continue to do so. To view share repurchases as an important component of our capital allocation framework while maintaining balance sheet flexibility.

Our balance sheet remains healthy, liquidity remains strong, and we expect solid cash flow generation as we move through the second half of the year. Before discussing the specifics of our updated outlook, I want to reiterate our approach to guidance. The majority of our annual earnings are generated during the third and fourth quarters, particularly the fourth quarter, and we continue to operate in a dynamic consumer environment. While recent performance has been encouraging and supports an increase to our full-year outlook, we believe it is prudent to maintain an appropriate level of conservatism until we are further through the holiday selling season. Our goal is to establish a range we believe is achievable while preserving opportunities to outperform. Turning now to our outlook, based on our second quarter outperformance, we now expect fiscal 2027 adjusted diluted earnings per share to be at the high end up from the middle of our previously increased range of $2 to $2.40. For the back half of the year, we still expect continued momentum at Journeys and Johnston & Murphy, gross margin progress at schuh, and disciplined expense management.

We are flowing a portion of the Q2 outperformance through to the balance of the year, while also incorporating quite a bit more than initially expected sales pressure in the back half from schuh, as we continue to prioritize gross margin improvement through more full price selling in an increasingly competitive UK footwear market, along with increasing sales pressure. Investments in marketing and brand building initiatives. Importantly, our adjusted outlook excludes the tariff refunds received during the second quarter and assumes no benefit from any future tariff refunds. Our full-year guidance now assumes flat comparable sales versus our prior expectation of up 1% to 2%, reflecting the greater sales pressure at schuh, resulting in total sales down approximately 2% versus our prior expectation of down 1% to flat. Gross margin expansion of 60 to 80 basis points, versus our prior expectation of 50 to 60 basis points, reflecting second quarter outperformance. SG&A as a percentage of sales to deleverage approximately 30 basis points versus our prior expectation of flat to 20 basis points of deleverage reflecting the lower sales. And adjusted operating income within our prior range of $34 to $40 million with the higher end of the range up from the middle, now the most likely outperforming outcome. We also continue to assume a full-year adjusted effective tax rate of approximately 30%.

Due to the valuation allowance and seasonal earnings pattern of the business, we again expect the tax rate to remain unusually low for the third quarter, with the fourth quarter true up to reach the full year rate. Our updated outlook assumes a weighted average diluted share count of approximately 10.8 million shares, reflecting repurchases completed through August 31st. For the third quarter, specifically, we expect roughly flat comparable sales with positive comps at Journeys and J&M offset by negative comps at schuh. Total sales down a little over 4% to 4.5% reflecting the sales pressure at schuh, $14 million of loss from license exits, and the impact of store closures. We expected the most pressure from the license loss in the second and third quarters, but we're able to make up about half of it in the second quarter, which we are not assuming for the third. Margin expansion of 90 to 100 basis points driven by Genesco Brands lapping significant clearance activity last year and our expectation for more full-price selling at schuh. SG&A deleverage that will more than offset the gross margin expansion, reflecting the sales decline, as well as 100 basis points of pressure from increased marketing and investment behind back to school and the expanded J&M Peyton campaign, and a tax rate of approximately 7% to 8%. Taken together, we expect third quarter operating income to be moderately below last year, reflecting the timing of these pressures and investments, while EPS is expected to be $0.05 to $0.15 higher. We view this as a temporary break in our operating income progression, with growth expected to resume in the fourth quarter.

As we move through the second half, we expect earnings to remain heavily weighted towards the fourth quarter, consistent with our historical seasonal pattern. While we remain appropriately cautious heading into holiday, continued momentum at Journeys and Johnston & Murphy, margin progress at schuh, and disciplined execution across the company reinforce our confidence in the full-year outlook. Together with efficiency initiatives, we believe this progress demonstrates the earnings potential of our operating model and positions us to deliver sustained income growth over time. Operator, we are now ready for questions.

Thank you. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keypad. Our first question is from Joseph Civello with Truist Securities. Please proceed.

Oh hi guys, thanks so much for taking my questions. Congratulations and a good quarter. I wanted to follow up on the categories at Journeys. I know you said, you know, strong comps for broad base. I'm wondering if we could get into the details of, you know, the different components of that, whether it be athletic or canvas, boots, anything would be helpful. Thanks.

Good morning, Joe, and thank you. We're excited about the performance in the quarter. And just to give you a bit more brand color about where Journeys is, we are really experiencing multi-branded momentum. We benefit from the fact that we have a diversified set of brands across, as you said, athletic and canvas and casual, and that gives our consumer a lot to choose from and also allows us to be very diversified in our overall assortment, not dependent on any one brand. I'd say we had about eight-plus brands providing growth in the quarter. There was some newness. We're seeing that low profile is definitely a look that is gaining quite a bit of traction. There's some nice trends in ballerinas and in Mary Janes in certain brands.

It's a look that is providing newness. And as I said, newness is what is resonating. Lifestyle running continues to perform very nicely. We've got some benefits from some new brands that we introduced last year. As typical, we introduce it on a lower base and then it ramps over time. Sandal business was quite good for the summer, and there were one to two other brands that really did help add to the overall mix. It's been much more on the lifestyle, athletic side.

There have been some bright spots in casual, but if I had to weigh the scales, I would say certainly would be more lifestyle, athletic than casual growth that we experienced in the quarter.

Got it. Thanks so much.

Our next question is from Mitchel Kummetz with Seaport Research Partners. Please proceed.

Yes, thanks. I've got a couple of questions, I guess. Mimi, kind of along the lines of product and Journeys, can you address – your exposure to and performance of legacy athletic silhouettes, you know? Some of your competitors came out last week and talked about challenges there. Just wondering what you're seeing there, and do you see any risk in the back half to maybe some increased promotions around some of those products from some of your competitors? Competitors, and then I've got a follow up.

Sure. Good morning, Mitch. Thanks for the question. You know, there has been a lot of talk in the industry about legacy athletic styles. As I said, our lifestyle athletic was the star of the quarter for us. And it's due to the fact that we are diversified against – across a number of different brands. And I think some of the pressure in the industry is concentrated within some individual brands. And so do we expect more promotional activity in the back part of the year? We do, but it really has been quite promotional for some time now, within the athletic space, and some in apparel, some in particular styles. Our great benefit is that we are serving that style-based customer, particularly with a tilt toward the teen girl.

And what we're seeing in ballerinas and Mary Janes and some of the other styles that are quite female tilted more than anything else is helping to drive our business. And so we're quite focused on what we're doing, on how well Journeys is performing against, you know, against fantastic performance the last couple of years. And so, you know, in the back part of the year, we expect promotional activity will happen around us as it has been happening for some time, but our full price selling was quite good, was quite good through back to school, and we intend to keep the focus on full price selling for the back half.

Just as a follow-up on the Mary Janes and ballet flats, I get the impression that you're referring to products like Samba Jane or maybe the Speed Cat ballet shoes. Is there also an opportunity for you around some of those silhouettes on the non-athletic side? Sure, where maybe there's even less competition in the mall for those kinds of products. And you guys obviously address the non-athletic side well in the mall.

For sure. That's a great question, Mitch. And for sure, I think any time trends take off, they start in one place, and then brands really try to put their own interpretation of what those trends will be. And certainly we do have on the Mary Jane side some nice opportunities on the casual side, you know that our mix shifts a lot into more casual in the back part of the year. And so there's certainly an opportunity. The beauty of the Journeys model is that we can sell athletic, we can sell casual, we can sell whatever's relevant, we can rotate our brands in and out so that we are top of mind spotlighting and showcasing and growing the brands that are really relevant for our keen consumer.

And then my last question, just on the product outlook for the back half, can you talk a little bit about how you're thinking about the boot segment? And then there's been obviously some talk about potentially a super El Niño this year. I know that your boot business is more fashion than function, but weather does play somewhat of a factor. So could you maybe kind of walk through your thoughts around, how you're thinking about boots and the potential impact of maybe some warmer weather this winter?

Sure. So the key thing that you said, Mitch, is that our boots are definitely about fashion. And it does need to be cool to get the consumer to register that it's time to buy boots and it's time to shift what they're wearing into the fall season. And so I'd say that, you know, how cool is that? The winter is doesn't necessarily impact where, you know, our outlook on what the boot segment would be. I will say it's been extraordinarily hot. I mean it's we're in Nashville and it's going to be 90 degrees feels like 100, you know, really late into where we are in September. And so too early to get a read on the boot segment. I think we'll know a little bit more when cooler fall weather comes into play, but we've got a great assortment across all the categories that I just talked about. And that's what we're really banking on for what's carrying us well through back to school.

We've seen a nice pickup in our comp through back to school. And the diversification is going to carry us into the holiday season as well.

Thank you.

Our next question is from Samuel Poser with Williams Trading. Please proceed.

Good morning, thanks for taking my questions. I'd just like to know, you gave, you mentioned in your prepares that Journeys, comp stores and e-comm. Can you tell us sort of the variance for the two other divisions, like how the, you know, like... For schuh and for the same information for schuh and for J&M, please.

Sure. So we were delighted that Journeys had positive comps in both the store channel as well as online. And we particularly saw a lot of growth in traffic for online with our Life on Loud campaign. If you haven't checked it out, Sam, I know that you, um, that you frequent social media, but it's a spectacular campaign and that allowed us to drive a lot of traffic both to stores but um to e-com in particular. If we shift over to, um, to schuh, uh, we are pulling back on promotions and online is a customer who either is jumping on the latest fashion trend or is looking for a deal. And so the pullback on the promotional activity has disproportionately affected our online channel. So our comps were more negative in online than they were in stores. And we can manage that better.

I think we talked about the fact that schuh was able to almost offset all of the sales decline in the quarter. And it's because we can pull down on our expenses in the online channel. And so we're actually pleased with how our stores are holding up in light of the pullback. Johnston & Murphy, we had some unique factors in the quarter where we had, we've been pulling back on our catalog drops and we had a pullback on catalog in the quarter that, again, disproportionately impacts the online channel. And so what we're excited about right now is how much online has has taken off for Johnston & Murphy with the fall assortment and with the fall drop. And the shift I talked about into a more dressed up, cleaned up look is really benefiting us across really every channel at this time.

So, just so I can just clarify just for, you also mentioned that the comps in August at Journeys has accelerated because of the later back to school. But I guess with less promotions going on in at schuh would disproportionately fall off when the promotional activity is higher they Correct? Because you're trying to keep it cleaner. And it's a different market. And then J&M comps theoretically accelerated based on the drop of the new product. Is that a fair just...

General way to think about it? We're off to a really good start in the quarter, and we've seen an acceleration of Journeys comp, I said, into the mid-single digits, and I think that part of the second quarter comp was for Journeys was affected by a later back-to-school. So for sure, back-to- a couple, at least a week, maybe a couple more weeks for Journeys. We expect that robust comp to continue, and then we do expect in October, the end of September, October into November, until holiday starts, that comps will pull back. We do believe that Journeys comps will stay positive. For schuh, we've seen a little bit of a tick up from a negative level over back to school, but we do expect the same fall off. And for J&M comps, you know, certainly have accelerated based on the impact of the new product drops. Yes, for sure. So I think for sure. You know, Journeys up where it is, schuh will fall off later on, and then J&M comps have picked up.

Then where are you in schuh with getting what you believe is that product mix where it needs to be? You know, getting it really, you know, in its sort of full effect of having the product to more focus on on the teen girl, I guess, but teenagers in general than it has been.

We have been working on that, and a key part of the schuh strategy is elevation of the assortment, similarly to what we did in Journeys a couple of years ago. And we are making good progress. And as you know, it takes some time to be able to change the assortment, given the lead times in our product cycle. But we are quite pleased on the progress that we're making. I don't think you see the full impact just yet. I do think some of the progress we're making is being overshadowed by the fact that we are, you know, seeing that we are pulling back on promotions. And so I think that that putts in the takes that certainly are making progress, more progress to come, but overshadowed by lower sales from the pull back on promotions.

Our next question is from Kylie Cohu with Jefferies. Please proceed.

Hey, good morning and thanks for taking my questions. Journeys has now delivered eight consecutive quarters of positive comps. You've highlighted a much larger opportunity with the underserved teen girl customer. As you're thinking about increasing marketing spend and expanding the 4.0 format, how should investors think about the relative of traffic growth conversion and AUR to sustain this positive comp momentum over the next few years. Thank you.

Kylie, thanks for your question and for noting that Journeys is on its eighth consecutive quarter of positive comps and we're really into our ninth consecutive quarter if you count our quarter to date. And what has been driving that is a reimagined concept that's really thinking about sharpness around the curve. The consumer base that we are serving. It is an underserved, um, you know, young female, uh, within the mall who's well served by apparel, but there's an opportunity, we think, for six to seven times larger, um, consumer base than the market we have traditionally served. And if you've been in our 4.0's, you will see that. I mean, you will see just an incredible environment that really speaks to her and has the exact right brand assortment that she's looking for across multiple different brands with the exact right styles out of an assortment. And that's what we can do in Journeys is we can edit these assortment and provide exactly what that young girl is looking for. And we have an assortment that is really unparalleled across the mall.

And so what has been happening within footwear in general is that customers have been buying few repairs to compensate for some of the offset in ASP increases. And we have been seeing great conversion in Journeys. We've been seeing better traffic in the 4.0s. We expect the 4.0 traffic to grow over time as more consumers get to know the concept. The buying cycle for footwear is long, um and therefore it takes a bit to be able to really compound that traffic growth, but um we're really leaning into conversion, and because of the elevation of the product, the um average that AUR has helped us the most, and so. So conversion in AUR for now and increasingly traffic growth as we build a base of new customers. And as you said, our Life on Loud campaign is just a great example and all the work we're doing on social is work to be able to continue to contribute to our traffic growth.

Great. Thank you so much. Thank you.

We have reached the end of our question and answer session. I would like to turn the conference back over to Ms. Vaughn for closing remarks.

Thanks for joining us this morning. We wish everybody a great holiday weekend and look forward to talking to you on our next quarterly call, if not before.

Thank you. This will conclude today's conference. Thank you for participating. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

Good day, everyone, and welcome to the Genesco First Quarter Fiscal 2027 Conference Call. Just as a reminder, today's call is being recorded.

I will now turn the call over to Darryl MacQuarrie, Senior Director of FP&A and IR. Please go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss our first quarter fiscal '27 results. Participants on the call expect to make forward-looking statements reflecting our expectations as of today, but actual results could be different. Genesco refers you to this morning's earnings release and the company's SEC filings, including its most recent 10-K and 10-Q filings for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made today. Participants also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial measures are reconciled to their GAAP counterparts in the attachments to this morning's press release and in schedules available on the company's website in the Quarterly Results section. We have also posted a presentation summarizing our results here as well.

With me on the call today is Mimi Vaughn, Board Chair, President and Chief Executive Officer and Interim Chief Financial Officer. Now I'd like to turn the call over to Mimi.

Good morning, and thank you for joining our first quarter fiscal '27 earnings call. I will be reviewing the quarter's results and progress on our strategy and initiatives and Darryl will come back to assist and cover our financials and walk through details of our latest guidance.

I'm pleased to report after a strong finish to fiscal '26 that we are off to a very good start to the year, delivering our seventh consecutive quarter of positive comparable sales and first quarter results that exceeded our expectations across the board. Our beat was broad-based across sales, gross margin and expense leverage, reflecting a high level of execution, and we had gains in every business versus expectations. Our momentum is building and the strategic initiatives we've put in place are translating into tangible results across our company. We delivered total sales and operating income nicely ahead of last year, demonstrating that our strategy is working and that we are creating meaningful value through operational execution.

We're driving a more profitable, higher quality business and Q1 once again provides clear proof of our progress. For the quarter, comps were fueled by mid-single-digit increases at Journeys and high single-digit increases at Johnston & Murphy, offset to some extent by declines at Schuh as we began the pullback from promotional activity.

April overall for the company was the strongest comp month of the quarter. Stores in Q1 were again a highlight as our strategic efforts to drive improvement in this channel achieved impact. And while the beat was broad-based beyond the comp growth, we were especially pleased with the efficiencies gained throughout the business. The consumer environment is unchanged from what we've described over the past year, selective and intentional. Customers shop with purpose during key events and pull back in between. When they engage, they're looking for must-have product and newness and when we deliver what they want, they're willing to pay up for it.

This pattern has become the new normal and we navigated effectively even with the most recent external events of the first quarter. Looking back over a little more than the past 1.5 years, we've made tremendous strides working to improve our business to appeal to a customer who has rapidly evolved. We have delivered positive overall comps in every quarter dating back to the third quarter of fiscal '25. We've strengthened our market share in key customer segments. We've improved operating income and EPS. And importantly, we've demonstrated that our company can perform in a volatile event-driven consumer environment. Now for Q1 color by business, starting with retail. Journeys added to its run of comp gains, up 5% on top of an 8% increase last year.

The transformation work we've been executing, elevating the assortment, sharpening our focus on the style-led team girl, building brand awareness, improving the store and online experience and rolling out our 4.0 stores continues to drive sustained comp growth and meaningful profit improvement. Product was a key driver. On our last call, I said we had the opportunity to build further on a number of iconic footwear franchises. And this, coupled with growth of some newer brands led to gains across a diversified base of brands. Both athletic lifestyle and casual achieved healthy growth with increased demand for sandals, boots, low profile and lifestyle running.

The strength of our multi-branded multi-category elevated assortment drove stronger full price selling and considerably higher average transaction size in the quarter. We're outpacing the broader footwear market and continue to see market share gains at Journeys, where we're gaining traction as the destination for the Style led team girl as a result of our ongoing transformation momentum. While elevated product is the initial draw with mid-single-digit conversion increases on top of increases last year, our store teams are doing an exceptional job converting customers who cross the lease side.

Our 4.0 store rollout continues with this new crop of stores also delivering in excess of a 25% sales lift. We opened 21 new 4.0 stores in the quarter and now have 105 completed to date, with 4.0 becoming an increasingly greater driver of performance. Not only did the store channel perform well, but Journeys appeal was across channels with e-commerce posting double-digit gains.

Importantly, store closures and cost efficiencies created a meaningful 190 basis points of expense leverage, demonstrating the significant productivity gains achieved in tandem with the comp increases. At Schuh, we are putting the building blocks in place to support profitable growth. Comps were down 9% in Q1, which was in part intentional as we prioritized and achieved more full-price selling and more controlled markdowns. This strategy resulted in higher average transaction size, but as expected, pressured store traffic beyond the pressure already present in the weaker U.K. consumer market. E-commerce also saw lower traffic due to reduced promotions as this channel in particular, attracts bargain seekers.

That said, we're seeing improvement in product elevation with brand access and depth in brands like Adidas, Nike and ASICs and expect additional progress as part of the Journeys Retail Group. Our work also includes tightening expenses and closing unprofitable stores, and we closed 5 stores in the first quarter. We anticipate the shoe turnaround will take longer than Journeys due to the tougher U.K. consumer environment right now and the need to pull back from promotional activity.

But with sharpened customer positioning, we see the same opportunity to serve the style-led Youth girl that we saw at Journeys. We also see bigger growth opportunities for these businesses together in the future with their shared brand relationships. We put out a tactical plan for Schuh in Q4. And in time, we are confident our approach will deliver improved results. Moving now to Branded. We were pleased with the overall contribution of our branded business in Q1. We're seeing encouraging green shoots at Johnston & Murphy as the brand delivered a strong quarter with a 7% comp gain. This sharp acceleration versus recent comp trends reflects the product work we've been doing, the pricing strategies we've implemented and increased brand awareness driven by our higher marketing and social media spend including the Peyton Manning campaign.

Product is resonating in both apparel and footwear. While apparel has been a standout for some time, especially blazers and knits this quarter, we also saw a nice growth in footwear. We've been working diligently to accelerate our product innovation, and we're seeing strong consumer response to our updated designs and new footwear concepts like the Arison and Tyson collections. We're also benefiting from a new trend shift toward more refined and tailored dressing, especially as people want to look good at the office which is right in J&M's wheelhouse.

Desirable product drove higher full-price selling and fewer markdowns. We have also seen awareness of J&M continue to trend up in the months since the Peyton Manning launch, especially among younger consumers with demand from new customers up double digits. At Genesco Brands, we've now completed the wind down of the Levi's license and are excited for the fall launch of our newest license Wrangler Footwear, which positions us for healthy growth going forward.

In the meantime, our business led by Dockers delivered a solid start to fiscal '27 with sales and profits ahead of last year and ahead of plan despite the loss of substantial Levi sales. Let me address tariffs briefly. Tariff headwinds were highest in Q1 due to inventory flow timing, but are mitigating actions around pricing and sourcing diversification have helped ease these headwinds. The latest court rulings have provided some relief. Additionally, we're expecting IEPA refunds of approximately $23 million to $25 million which we have already filed for but are not included in our financials this quarter nor in our outlook. I will call out that these refunds apply to the branded side of our business, where we import product directly which represents around 20% of our sales.

Turning now to guidance. We remain confident in continued momentum in North America and note the resilience of the consumer and their response to our compelling assortments as we navigated several external headwinds during the first quarter. In Q2, so far, comps are tracking at a similar pace to Q1 with a bit of a pickup in North America and a give-up at Schuh where the economy and geopolitical pressures are taking a toll. With our outperformance to expectations in Q1, a we are rolling a portion of that upside forward, offset somewhat by a more cautious U.K. outlook. At the same time, while we're optimistic about driving our business in the second half during back-to-school and holiday, when there are more reasons to shop, we're also taking the opportunity to lessen the pressure on the back half considering the choppy consumer environment.

We remain focused on recapturing gross margin by pulling back on shoe discounting and lapping license exits and liquidation from last year. Altogether, this adds up to an increased full year EPS guidance range of $2 to $2.40. I'd now like to touch briefly on some of the exciting initiatives we're implementing in the coming months as we advance our footwear first strategy, starting with Journeys. Journeys strategic growth plan aims to serve a wider teen audience interested in style and trend that is 6 to 7x larger than the market we've traditionally served and who is underserved in the mall today.

Upcoming initiatives are heavily focused on back-to-school and include leaning into current product trends with continued growth across both athletic and casual including lifestyle running, low profile and sandals from the diversified mix of existing and new brands that have been driving the business. Launching the Life on Loud BTS campaign featuring multiple celebrities and influencers and backed by a substantial increase in media spend to build on Journeys brand awareness, gains, and achieve new customer growth.

Doubling the 4.0 store count this year, adding a targeted 90 stores up from a little more than 80, about 2/3 of which will be remodels and the balance relocations to larger footprints and a handful of new stores for even more growth. working to improve discoverability including new product feed enhancements within AgenticSearch and trialing an online shopping agent to drive digital growth. and releasing the next iteration of our all Access loyalty program, which currently has close to 11 million members featuring a fresh look and better ways to connect with our most valuable customers.

Moving to Schuh. Our immediate priority continues to be actions in this reset year to ultimately improve profitability, including continuing to reduce reliance on discounting by removing additional calendar promotions and discount stacking to steer gross margin recovery. The largest opportunity is ahead of us in the coming quarters. The market in Q2 currently is athletically focused with price sensitivity and fewer trends than we're seeing in the U.S. right now. So this will take some time. Building on the improved product access we have been achieving with brands like Nike and Adidas and rationalizing tertiary brands in the assortment.

Optimizing the store footprint with the closure of 12 stores over the last 14 months, eliminating unproductive locations and shifting volume to nearby stores to improve store channel economics, and implementing cost reduction actions in areas like rent and selling salaries, improving efficiency in areas like digital marketing and implementing a new procurement function. Touching on Johnston & Murphy, we're building on our robust comp momentum by further capitalizing this spring and fall on the trend shift to more refined dressing supporting a more professional look and more neutral textured apparel to attract customers interested in refilling their closets.

Shifting additional dollars into brand building and continuing our successful partnership with Peyton Manning by launching a new fall campaign to further drive brand awareness and attract a younger customer. and expanding brand distribution by opening up to 15 new stores this year or 10% of the fleet, not including store closures. Lastly, we are pleased with initiatives like the IT transformation, where we're driving operating efficiencies in addition to enhanced capabilities and our more broad-based automation and spend optimization efforts across the company, where AI can unlock additional potential. With this, we are announcing a new $40 million to $50 million cost program between now and fiscal '29 aimed at structurally reducing our cost base beyond our ongoing efforts. And finally, let me step back and emphasize a few key themes that define where we are as a company. First, our strategy is working. 7 consecutive quarters of positive comp growth, improving profitability and momentum at multiple businesses demonstrate that we're executing our plan effectively.

The right product, the right brand positioning, the right experience in stores and online, all of these matter. And as we've gotten these lined up in our footwear first strategy, we win. Second, we're creating value through operational execution. We have a credible path to unlock considerable earnings upside in historical operating profit levels in each of our strategically well-positioned businesses.

The quarter's results add to our track record of improvement with Journeys' rapid turnaround as our most recent example of evolving in response to dynamic consumer change. Third, cost savings and disciplined expense management are meaningful parts of our path forward to accelerate the impact of comp growth and more rapid profit improvement. And finally, we're off to a strong start and look forward to delivering another year of improved performance. Before I turn it over to Darryl to walk through our financials and guidance details, I want to thank our incredible people across our company for their tremendous efforts.

The operational progress that we're making the execution discipline that you're demonstrating and your deep understanding of what our customers want are essential to our success.

Thanks, Mimi. Higher sales, improved gross margins and expense leverage drove a notable improvement in operating income in the first quarter. Revenue for the quarter increased 3% to $487 million. driven by overall comparable sales growth of 2%. These gains, along with other noncomp sales gains and favorable foreign currency impact were partially offset by store closings from ongoing footprint optimization. We ended the quarter with 48 net fewer stores versus a year ago, a decrease of about 4% of the fleet and 4% of square footage, representing approximately 1% of the sales.

These closures were accretive to operating income, and for many, we saw positive sales transfers north of 15%, generating improved fixed cost leverage across the fleet. Store comps increased 3% while direct comps were flat as a result of the decreased promotions at Schuh, which especially impacted the online channel. Johnston & Murphy led the business with comps up 7%, followed by Journeys up 5% partially offset by schuh comps, down 9%. Adjusted gross margin for the quarter was 47%, up 30 basis points versus last year.

The increase was driven by reduced promotions at Schuh shipping and warehouse efficiencies and favorable mix in our branded businesses, partially offset by expected brand mix pressure at both Journeys and Schuh. Adjusted SG&A expense was 51.9% of sales, leveraging 60 basis points versus last year. We achieved this meaningful improvement, which was driven by occupancy, selling salaries and other cost initiatives despite additional investments in marketing and more performance-based incentive compensation.

As a result of our strong performance, adjusted operating loss improved by $4 million to $23.9 million compared to a loss of $27.9 million last year. Adjusted diluted loss per share was $2.18 compared to a loss of $2.05 last year. Earnings per share was below last year despite improved operating profits due to a lower adjusted tax rate of approximately 7% this year versus approximately 27% last year, driven by the valuation allowance discussed on our Q4 call.

Turning now to capital allocation and the balance sheet. We continue to operate from a position of strength, bolstered by disciplined inventory management and healthy liquidity. Inventory at core end was up 6% versus last year, driven by Journeys, reflecting investments in our new brand development, support for 4.0 store expansion and increased inventory in key growth product categories. Overall, inventory remains clean as we position ourselves for back-to-school sales opportunities.

Capital expenditures during the quarter totaled $50 million and were focused primarily on Journeys 4.0 remodels. We ended the quarter with 1,200 total stores following 2 openings and 30 closures. For the trailing 12 months, we achieved an overall sales per square foot gain of 9%, demonstrating the improved efficiency across our fleet.

We did not repurchase shares during the quarter and have $29.8 million remaining under our existing authorization after repurchasing a little over 5% of our shares last year. We continue to view share repurchases as an important component of our balanced capital allocation strategy, and we are committed to deploying excess capital. As a reminder, we have repurchased 50% of our outstanding shares since the beginning of fiscal '20. Turning now to our outlook. The core assumptions underpinning our fiscal '27 guidance remain intact. These include continued strength in Journeys, improvement at Johnson & Murphy and the promotion reset at Schuh for gross margin recovery at the expense of comps and sales, all leading to a healthy increase in operating profit and earnings per share weighted to the back half, especially the fourth quarter.

As a reminder, for the full year, we discussed positive comps being offset by $30 million of store closures and $30 million of lost sales from licensed exits, resulting in flattish overall sales. We expect positive journeys in Johnson & Murphy comps to offset the negative shoe comps. For gross margin, we expect improvement driven by the reduced shoe discounting and lapping the license exit headwinds from last year, and we expect continued cost discipline though no leverage on a flat sales base. Finally, quarterly tax rate volatility due to the valuation allowance will lead to materially lower rates in the first 3 quarters with a fourth quarter true-up to end with a comparable full year rate.

This will distort quarterly earnings per share comparisons, particularly in Q1 and Q2, where a lower tax rate will generate higher losses per share in loss-making quarters. So again, we recommend investors focus on operating income trends as the cleanest read on underlying performance. Now based on our better-than-expected start to the year, partially offset by a more cautious view of Schuh in the near term and a little more conservatism relating to the consumer in the back half of the year, we are raising our full year earnings per share guidance range to $2 to $2.40.

Our upwardly revised full year guidance now assumes SG&A as a percent of sales ranging from approximately flat to 20 basis points of deleverage compared to prior expectations of 10 to 30 basis points of deleverage, and adjusted operating income of approximately $34 million to $40 million compared to prior expectations of $32 million to $38 million, with the middle of the range to the most likely outcome. The remaining assumptions of our initial full year guidance remain unchanged.

These include comparable sales growth of approximately 1% to 2%. Total sales of down 1% to flat. Gross margin up approximately 50 to 60 basis points with an assumed annual incremental tariff rate of 15% and not including the impact of any tariff refunds. No incremental share repurchases resulting in fiscal '27 average share count of approximately $10.9 million and a full year tax rate of approximately 30%.

For the second quarter specifically versus our original guidance, we now expect more top line pressure and a little less gross margin pickup at Schuh, leading to flat to slightly down overall comps as negative shoe comps again offset positive journeys in J&M comps. Total sales down 3% to 4% versus last year, reflecting lower shoe sales, much greater loss of license revenue and store closures. Gross margin to increase 50 to 70 basis points with more opportunity for improvement as shoe promotions and licensed product liquidation began in earnest this time last year.

SG&A deleverage of 60 to 80 basis points with the lower sales in this lower volume quarter and a tax rate of approximately 7% to 8%. Taking all this to new account, we expect second quarter operating loss to be in line with to slightly worse than last year, with earnings per share expected to be approximately $0.20 to $0.30 lower primarily due to the lower tax benefit.

We expect Q2 to be the most pressured quarter year-over-year with improvement thereafter driven by higher sales volumes and continued gross margin recapture. In summary, we are encouraged by the start to our year and the progress we are making across the business. While the environment remains dynamic, we are confident in our ability to drive profitable growth through differentiated assortments strong brand partnerships and disciplined expense management.

Operator, we are now ready for questions.

[Operator Instructions] Our first question comes from the line of Joseph Civello with Truist Securities.

Congratulations. First off, on the Journey side, you mentioned expanded access to some of the bigger brands and maybe rationalizing some of the more tertiary ones. Can you provide a little more color on that? And then your outlook for each category this year, if we think about casual athletic campus and the product pipelines in those?

Great. Joe, thanks for joining us this morning. Thanks for your questions. And I think you're asking about Journeys. The tertiary brands that we are rationalizing are really more in relation to Schuh. We've already done some of that in Journeys and I want to just talk about the fashion trends of note at Journeys and the strength of our assortment.

We've been talking a lot about how there's opportunity to serve this team, the girl that we're serving with both fashion athletic and casual and Journeys is really well positioned to take advantage of this. And growth is coming from multiple places that we've seen that we had the opportunity to build on some of the franchises that have been doing well. We've seen extensions into colors, into patterns and into different materials. And the [indiscernible] is a great example of that. We have seen that lots of extensions of things that have been working well. The Sandal business has been just on fire the ring, and we have been delighted to see that. It's been a bit of a later spring, but sandals have been good. low profile is getting a lot of traction, and there are some brands that are well represented in low profile. There are some other nice trends that have been emerging like ballerinas and Mary Jane and that's represented in a few brands as well. We introduced some new brands last year that I talked about Nike and HOKA were 2 that I had called out, and we typically start slowly and then we build upon that.

We've seen a few trends and boots as well and certain shoe silhouette. So there's just lots to choose from right now. There's one thing that I would call out, but what is really encouraging is just the diversity of different opportunities across the assortment across the brand mix.

Got it. Great. And then on the Johnston & Murphy side, you guys are clearly seeing some strength due to the paint and manning and the other initiatives you have going there. And then also probably some of this like underlying dress-up trends that people are talking about. Is there any way to parse out like how much of the acceleration came from each of those?

Yes. There are so many good things working in Johnston & Murphy right now, and that acceleration to 7% was great. And I think it is the real work that we've been doing over time that is paying off. And I think the icing on the cake is the dressing up part for sure. But I'd say that what's really important right now is to have the exact right product for consumers. They're picking and choosing. But if you have newness and if you are delivering newness and something different, the consumer really responds.

So we've done a ton of work in terms of increased freshness across our categories. We've seen that apparel has been very good in Johnston & Murphy, but what was notable this quarter is the pickup in footwear. And we've been working on accelerating our overall cycle time so that we can deliver more freshness within the season a lot more new introductions on the year. The [indiscernible] collection has been working well. The Akerson, the Higgins that's been good on the product front. There's no question that Peyton has been really beneficial to us too. We have seen just more brand awareness. We've seen more interest in the brand. New customer growth is up double digits, and particularly with a younger customer.

So product is good, patent is great. We are excited to announce that we've extended patent and into the new fall campaign, which should help sustain that momentum. And then the last piece, which I think is helpful and it's a real thing for Johnston & Murphy, and I think it's a real thing for the consumer who's interested in dressing up more that they want to show up in the office and look more refined and just more tailored dressing. And I'm not saying that this isn't going back to dress shoes.

It's just a more tailored look. There's been a pronounced shift from 40 styles to these more refined looks. And you'll see that in our offering. It's very much in Johnson Murphy's wheelhouse. So I think it's all these things coming together that are sustaining the momentum.

Got it. And then one last one, just on the $40 million to $50 million cost program. Can you just talk about that a little bit and where you see the lowest hanging fruit?

Yes. So I think that we have room to improve our profitability, and we've been working hard on strategic initiatives and working hard to grow the top line. But to accelerate this improvement, we think we need to do some extra things on the cost side. And where we started was really the work that we're doing on the IT transformation, and we started with looking for a set of capabilities. In IT to say that how could we take advantage of AI and some other of the technical capabilities that are out there, and we ended up landing in a place where we are pursuing a very different approach to IT with a partnership that gave us some efficiency.

So we just talk about some structural change to the way that we are doing the work. And so it's structural changes that we are looking at. We've -- over the past 3 years, we've been growing, have had very moderate growth in our expenses. It's been about 0.5 percentage point. But this one -- this program will help us to keep that low and even lower. And so we're looking at areas like selling salaries, actually, taking out hours, working differently in stores.

We're looking at robotics and automation within our distribution centers. marketing spend optimization work as well, really just overall, how are we changing how we do our work. And we've done enough work to think that $40 million to $50 million is achievable, and are really refining more of the details for next year and the year beyond.

Our next question comes from the line of Mantero Moreno-Cheek with Jefferies.

Congrats on the quarter. I guess my first question is, I know you called out that the shoe turnaround to take longer in Journeys. But should we expect the banner to like positive as early as 1Q next year? Or should it take a little bit more time than that?

Tara, thank you. We are -- we did say that the inflection in Schuh is going to take a bit more time than journeys for 2 reasons. One is that the whole market really went into a very promotional cycle. And what we called out for this year is that we are pulling back from those promotions and that it will take a bit longer than expected just because of the consumer market has been a bit more challenged.

And so the things that we're working on right now are that, number one, pulling back from promotional activity, and that is certainly working. We do expect a nice pickup in gross margin through the course of the year this year. We are chasing into additional brands and better allocation of product. And and our assortment actually looks really good right now. And I think that the market is just very athletically focused, and it's also just very price sensitive. And so that will help as well, better allocation of product. We're working on just the cost base, as I said.

And altogether, I think through the course of of this year, we will see how it goes. A lot depends on the consumer environment. We are really affected right now because of the proximity to the Iran conflict and consumer sentiment has been affected by that. But hopefully, that conflict will be resolved as we go through the year and sentiment will pick up, and we'll see how that market ends up changing.

And then one quick one for me again. I believe you caught out higher average transaction size for Journeys. Can you just break out transaction and ticket for comps?

Yes. So 2 things have been driving journeys, transaction sizes, higher average selling prices and much better conversion. Overall for the footwear market, we look at footwear traffic for the overall sector. footwear traffic has been down pretty considerably. What we're seeing is that the consumer is reaching up to afford higher price points, but they are shopping less frequently, buying few pairs. And so overall, U.S. footwear traffic has been down Journeys has been down in line, perhaps even a little bit more because we had some pickups last year in traffic. But consumers just love what they see when they cross the lease line, our people in our stores have been doing a great job of converting. And so we've been gaining market share overall for Journeys.

Our next question comes from the line of Sam Poser with Williams Trading.

I just wanted to do a little follow-up on -- about the cost savings. You talked about the the selling salaries, I mean where do you anticipate most of the money coming from? And can you -- and then the timing of it, we're not going to see that much this year, I assume, but would we start to see some next year? I mean, what's the -- how does it pace over for that $40 billion to $50 billion.

Sure. So Sam, I think that you are already seeing some of the benefit of all of the work that we've been doing on cost. This is just an acceleration of what we've been doing. We had a 2% comp and we picked up 60 basis points of leverage. And so I think that's just a testament to some of the work that we've been doing we will be seeing some of the benefit this year with our IT transformation work. We think, in general, that that's going to give us about a $10 million of savings between this year and next year, we do expect that some of the additional savings will come from additional rent and store closures like we have been doing.

That structurally takes expense out of the overall base. We've been working on selling salaries and taking hours out by changing the way that we're doing work. And another big project that we are exploring is more automation and robotics within our distribution centers. And so we have -- we've looked overall believe we can get the 40% to 50% and are further refining some of the initiatives that will be out into next year and the following year. But there will be savings this year and next year and the following.

And then this refers to last year and to Q1. You said that there was an offset to higher incentive comp, both there was -- the incentive comp was up last year and it was up again in Q1. Can you break out the incentive comp between like the operating divisions and corporate, and how that -- as a percent or however you want to do it?

So I'm going to start with last year and incentive compensation was up by maybe a few hundred thousand dollars last year, Sam, so I'm not sure what you're referring to there. And if I wanted to break that out, I'd say it's probably 75% divisions and 25% corporate in terms of where we were last year. Journeys clearly had an amazing year last year, and much of the bonus was there. In fact, a couple of our divisions did not bonus last year. As far as the incentive compensation for this first quarter, we called out accruing more more incentive compensation simply because we outperformed where our plan was, and that's why there was more for the first quarter. In our current guidance, we are not anticipating a greater amount of incentive compensation this year.

Okay. And then lastly, on the tariffs, you've filed for the refund. When you get -- assuming you get the refund, how do you anticipate accounting for it? Is it going to go to cash on the balance sheet? Is it going to be a onetime in a gross margin line, whenever it shows up? I assume you're doing the cash-on-hand approach to this. So could you give us some idea of how to think about that? And then as attached to that, you talk about your buybacks being opportunistic. The stocks I mean what do you regard as opportunistic given the stocks will be up today. And there were -- the stock spend at low lows in recent months. How do you view what opportunistic is when it comes to the buyback?

Okay. I think we've got a couple of questions in there. Let me start with tariffs, Sam. So we talked about $23 million to $25 million of refunds we are using the game contingency method just for -- there are a couple of different ways that you can do it. We -- so that means that you actually book the dollars when you receive them, and we're not certain when we're going to receive them.

I think that everyone's saying maybe 60 to 90 days, which would mean in the second quarter. And of that 22% to 25%, I'd say probably 2/3 of that applied to tariffs from last year and maybe 1/3 from this year. And so what we would end up booking is running that through our income statement, but we're likely going to break that out. We think tariffs will go back. to where they are -- where they have been, at least that's what the administration has said that they're looking to put in Section 301 tariffs at the levels we're assuming where the EPA tariffs were.

And so we'll see what ends up happening for the balance of the year, but we'll really break it out for you as onetime puts and takes. And I don't think we said anything about buybacks being opportunistic. In fact, we've been very deliberate and intentional about buying back our stock. In every year, over the past 10 years, except for the pandemic year, we have repurchased stock really systematically. We've repurchased over 50% shares since fiscal year '20 at rather big levels. And so I'd say that we look at capital allocation to invest in our business. And in fact, we bought back 5% of our shares last year. We look at our capital allocation right now. It's investing in our business. and also just seeing opportunities like the 4.0 that we are backing and investing against some of the inventory growth we need to drive our business.

We've got a really good track record of not sitting on cash. as demonstrated by our buyback record. And so we're committed to the return of capital to our investors, which we have demonstrated with our specific actions.

Our next question comes from the line of Mitch Kummetz with Seaport Research Partners.

I've got a few. Let me start with Hug. It sounds like you're maybe a little less bullish on the U.K. environment. And I guess I'm curious as to why the sales guide for the year hasn't changed? And then also, when we think about that guide, like what kind of comp is assumed there? Because I would guess in the quarter, the sales were down 6%, comp was down 9%. I would guess the difference is really FX. But I would think that FX is less of a benefit as we go through the year. So are you assuming a better comp for Schuh than a minus 9% over the balance of the quarter starting in the second quarter? And then I have a couple of others.

Great. Mitch, thank you for your questions. We are less bullish on the U.K. environment just because of recent events and really specifically for the second quarter. And so if this is the case, why hasn't the full year sales change. So we did have a pickup from foreign exchange in the first part of the year. We do think it's going to be less of a pickup as we go through the year. this year. We -- and so the puts and takes in terms of the overall, the sales guidance is a little bit less in she, but we also had a little bit more in the first quarter and then there's a little bit more sales.

There's a little bit more comp that's offset in our other businesses. So there are a few puts and takes there. And so for So, we expect that comps won't be a whole lot -- will not be a whole lot better in the second quarter. But then in the third and the fourth quarters, we are just anticipating right now that the the conflict in Iran won't be as prolonged as into the back part of the year and that consumer sentiment perhaps will pick up.

We also are looking at some of the new product receipts that we have, and we have more opportunity to impact the back part of the year, but it's a very dynamic situation in the U.K. right now.

I really appreciate all that color. And then on my second question, that definitely did better in the quarter than I was modeling. And I'm curious on this $30 million drag for the year on the exited licenses. How much did that hit in the quarter? And how do you expect the balance of that to kind of play out at the remainder of the year? And then I've got one more -- 1 last question.

Sure. So for us also, Genesco Brands performed better in the first quarter for sure, Mitch. And we had a sales gap that we needed to make up, and the team made up the entire sales gap in the quarter. And if you compare this year to last year, sales were up. And we do not expect that to happen.

The biggest hit begins in the second quarter that is a large part of the reason for the sales being down in the second quarter because a big amount of sales come out of the second quarter and then the third quarter as well. So second and third quarter are the biggest hits and then the fourth quarter, and so that's typically how it will play out. And then Darryl, I don't know if you have anything to add to that, but it's the second or the third quarter that are the biggest hits with some remaining in the third quarter.

Yes. That's when we had more heavy clearance activity and the Levi's exited last year. So that's where you're seeing it the most, really in that second and third quarter.

Okay. And then lastly, on the lead with her strategy at Journeys, can you remind us what percent of your journey sales is to the female consumer. And can you talk a little bit about -- and I know that a lot of what you sell is [indiscernible], so it might be hard to kind of parse that out. But could you also talk about kind of what you're seeing in terms of the female performance at that business as you started this initiative.

Sure. So the strategy is exactly right, Mitch, that we see an opportunity out there to serve this team girl at Journeys, who is really well served for apparel in the mall, but who is very underserved as far as footwear goes and where trends have gone recently, has been to just diversified, she's interested in changing your look from 1 day to the next and looking for a diversified set of brands to be able to do that. And so I think that when we started all of this, that we tilted a bit more heavily toward that female consumer, but we see an opportunity to serve a market that is 6x to 7x bigger than the customer that we have traditionally served, elevating the product has been a very important part of the strategic growth plan. .

And the work that we're doing, the work that our merchant team is doing, the work that Chris is doing is absolutely paying off. we are seeing that the sales to -- and you're right, a lot is Unisex, but we have seen increased growth to our females. We're well over 50% of our sales to females. Some of the trends right now, the trends that I called out in terms of Mary Jane and ballerinas and some of the different color treatments and the different tester treatments are very female led. And so the trends are nicely supporting the direction that we're heading as well.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Ms. Vaughn for any final comments.

Great. Thank you for joining us. We look forward to talking to you on our second quarter call. .

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Good day, everyone, and welcome to the Genesco Fourth Quarter Fiscal 2026 Conference Call. Just a reminder, today's call is being recorded. I'll now turn the call over to Jason Ware, Vice President of FP&A and Investor Relations. Please go ahead, sir.

Good morning, everyone and thank you for joining us to discuss our fourth quarter fiscal 2026 results. Participants on the call expect to make forward-looking statements reflecting our expectations as of today, but actual results could be different. Genesco refers you to this morning's earnings release and the company's SEC filings including its most recent 10-K and 10-Q filings for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made today. Participants also expect to let certain adjusted financial measures during the call. All non-GAAP financial measures are reconciled to their GAAP counterparts in the attachments to this morning's press release and in schedules available on the company's website in the Quarterly Results section. We have also posted a presentation summarizing our results here as well.

With me on the call today is Mimi Vaughn, Board Chair, President and Chief Executive Officer; and Sandra Harris, Senior Vice President of Finance and Chief Financial Officer.

Now I'd like to turn the call over to Mimi.

Good morning, everyone, and thank you for joining our fourth quarter earnings call. Let me begin by taking a moment to thank Sandra for the contribution she has made to our company. Since stepping into the CFO role, she has been part of our important progress, strengthening our financial discipline, navigating through a dynamic external environment and working to achieve meaningful profit improvement. We wish her the best of luck in her future endeavors. We have already begun an active search for her successor and plan to work through this expeditiously. As a reminder, I will assume the role of Interim CFO and a seamless transition working closely with our talented and deeply experienced finance leadership team and leveraging my prior time in the CFO role.

This morning, I'll start with a review of the quarter and year before turning it over to Sandra to cover our financials and walk through guidance for the coming year. Then I'll come back and discuss our strategy and fiscal '27 initiatives before opening it up for questions.

We delivered a strong finish to fiscal '26 with fourth quarter results that exceeded our expectations and reflected outstanding execution during the most important shopping period of the year. We exit the year with clear momentum as we head into fiscal '27. As we've discussed throughout the year, the consumer environment remains selective and intentional. The consumer engages during key shopping moments and pulls back in between, a pattern that became even more pronounced in the back half of the year. We saw it clearly in December after a choppy October and in measured November, demand accelerated meaningfully during peak holiday weeks.

The final weeks leading up to Christmas were among our strongest of the year. When the consumer came out to shop, they came out with purpose. We had just the right assortments and our people were ready to serve them however they wanted to shop and they responded decisively. For the quarter, total comparable sales increased 9%, building on robust 10% comparable performance last year. Stores were especially strong compelled by exceptional conversion over holiday and higher transaction size, while digital reaccelerated, especially during peak weeks. This balanced performance across channels reinforces the strength of our multichannel model, especially in high-volume periods.

Journeys once again led the way. The transformation and strategic growth work we've been executing over the past 2 years, elevating the assortment leaning into our sharp point on the style team girl, building our brand, improving the experience and rolling out 4.0 stores continues to translate into sustained comp growth and meaningful profit improvement with double-digit comp gains in Q4 this year on top of double-digit gains last year.

Holiday performance at Journeys was driven by a powerful combination of demand for both casual and athletic lifestyle footwear casual and boots saw a notable lift and really drove the business, particularly within key brands and franchises. At the same time, we continue to build athletic as a year-round category for our customer, and that strength added to the quarter. The work of our expert merchant team helped drive strong full price selling and higher average selling prices clear proof that when we deliver key styles and must-have product, the consumer is willing to stretch for it. What's most exciting is we grew total customers in December and January and continued to achieve market share gains.

Journeys performance far outpaced the overall footwear market as the Journeys transformation gains important traction with the larger used customer base we're targeting, especially the team girl. Our 4.0 stores shined over the holidays and continue to outperform the fleet driving higher traffic and improved productivity. These stores not only elevate the experience but reinforce our authority across brands and categories. We now have more than 80 4.0 locations, and they are becoming an increasingly meaningful driver of performance.

In addition, I want to give a shout out to all our Journeys store teams across the store footprint who did an absolutely amazing job and delivered fantastic customer conversion during the holiday this year.

At Schuh, the U.K. retail environment remained highly promotional and competitive ending in a lackluster holiday season, especially for discretionary categories. While many of the brands driving Journeys growth also resonated at Schuh, greater price sensitivity had the U.K. consumer looking for bargains. With the goal of exiting the year in a clean inventory position, the team aggressively navigated the season, driving positive comps at the expense of gross margin with promotional activity taking a toll on profitability for the quarter. Taking a broader view, we see a similar consumer opportunity to Journeys in the U.K., but our clear eyed about the work ahead at Schuh, as I will discuss shortly, are focused on restoring margin discipline and improving store productivity in fiscal '27.

Moving now to our branded business. At Johnston & Murphy, we made encouraging progress as the quarter unfolded with comps improving in each successive month and meaningfully in the run-through holiday. Apparel and accessories performed well, supported by new trend, renewed product focus and faster innovation cycles. The refresh in the ICON quarter [indiscernible] program and growth in knits and blazers were prominent contributors to these increases. Our partnership with Peyton Manning launched right before the start of the fourth quarter, generated strong engagement and traffic lift, and we saw improved comp trends in both stores and digital as the holiday period progressed.

Promisingly, this momentum has increased further into the first quarter with greater return to work and more interest in dressing up. Genesco Brands Group continued through its transition year. The tail end of the Levi's and other license exits and tariff impacts weighed on results, but we have simplified the portfolio and prepare for the launch of Wrangler Footwear this fall which positions this business for healthy growth following the start-up year.

So looking back, fiscal '26 represents a meaningful step forward. We delivered positive overall comps in every quarter of the year while extending Journey Street to 6 consecutive quarters of comp growth reaching back to fiscal '25. We strengthened our market share in key customer segments. We improved operating income year-over-year. We delivered EPS in the range we laid out at the start of the year despite massive disruption and negative impacts from tariffs, a tough footwear backdrop and a much more challenging U.K. market. And importantly, we demonstrated that our company can perform in a volatile event-driven consumer environment. We see meaningful earnings opportunity to unlock in each of our strategically well-positioned businesses, but we must evolve our concepts to meet the needs of the customer, which have rapidly changed in recent years.

Journeys has been our #1 priority, and we have demonstrated real success unlocking much greater profitability. With journeys on its way, we intensify our attention to our other businesses with Schuh at the top of the list. Importantly, we entered the year in a strong position to achieve this overarching goal, thanks to clean inventories and initiatives in place to drive the improvement. Indeed, Q1 is off to a good start in North America even with the February weather disruption. The year reinforced a critical lesson the right product, the right brand positioning, the right experience in stores and online. All of these matter. And when we get these aligned, we win, enabling us to take another meaningful step forward in fiscal '27.

I want to thank our talented and incredible people who are at the core of what we achieved in the year we just finished and will achieve in the year to come.

And with that, I'll turn it over to Sandra to walk you through the financial details for the quarter and our outlook for fiscal '27.

Thanks, Mimi. Overall, for the quarter, we grew revenue, delivered high single-digit comp meaningfully leveraged SG&A and generated adjusted EPS of $3.74, up $0.48 versus last year. For the full year, adjusted EPS was $1.45, and finishing above our revised estimates and well ahead of the prior year. Fourth quarter revenue of $800 million increased 7% year-over-year. Comparable sales rose 9% and with stores up 9% and direct up 8%. Importantly, this marked our strongest quarterly comp performance of the year across both channels delivered in our highest volume quarter and on top of strong results last year. All businesses delivered positive comps in the quarter, Journeys led with 12% growth driven by continued strength in key franchises and full price selling. This built on 14% in Q4 last year, a remarkable stack comp result. Dawson and Murphy comps increased 2% with sequential improvement in December and January. Shoe comps rose 3%, driven in part by holiday promotional activity.

Notably, e-commerce penetration at Schuh exceeded 50% of sales in the quarter, reflecting a highly promotional environment and continued value-driven online behavior in that market. These gains as well as favorable foreign currency impacts were partially offset by lower revenue from ongoing store optimization and closures and the wind down of licenses at Genesco brands. We ended the quarter with 42 net fewer stores versus a year ago, which was a decrease of about 3% of the fleet and 2% of the square footage, representing about 1% of the cells. Closing these stores was accretive to operating income and for many, we also saw a positive sales transfer.

Adjusted gross margin for the quarter declined 90 basis points versus last year. The decrease was primarily driven by heightened promotional activity at Schuh along with the ongoing tariff pressure and changes in channel mix at Genesco brands. Journeys and Johnston & Murphy gross margins were supported by strong full price selling that mostly offset brand mix shifts and tariff pressures. SG&A expense was 39.1% of sales leveraging 140 basis points year-over-year. In addition to our store optimization efforts related to rightsizing the store fleet that removes store expense, additional cost actions, including rent reductions, selling salary efficiencies, freight negotiations and other procurement efficiencies, combined with high single-digit comp growth drove the leverage. We achieved this significant leverage despite the expected higher brand marketing investments and a meaningful increase in performance-based incentive compensation expense, which is primarily accrued in the fourth quarter as earned.

As a result of our strong performance, adjusted operating income was $56 million for the quarter, an increase of 17% compared to $48 million last year, and adjusted diluted EPS and was $3.74 versus $3.26 in Q4 last year. Full year adjusted diluted EPS was $1.45 versus $0.94 last year, and we ended the year with an adjusted tax rate of 30%. Now turning to capital allocation and the balance sheet. We generated $164 million of free cash flow in the fourth quarter and nearly $84 million for the full year, ending the year in a positive net cash position. Year-end inventories were up modestly versus last year, reflecting a deliberate investment in key items of Journeys to support sustained consumer demand and continued momentum.

Inventories at Schuh were lower on a constant currency basis as a result of significant promotional sell-through during the holiday period, leaving the business in a cleaner position exiting the year. And at Genesco brand inventories declined significantly with the sell-off of product related to the licensed exits. Capital expenditures in Q4 were primarily focused on retail stores ending the year with 84 Journeys 4.0 stores. We also opened 4 new Johnston & Murphy stores during the quarter. While we did not repurchase shares in the fourth quarter, we repurchased approximately 600,000 shares earlier in the year, representing about 5% of shares outstanding at that time. We have $29.8 million remaining under our current authorization -- and as a reminder, we have repurchased 50% of our outstanding shares since the beginning of fiscal '20.

Our strong liquidity and revolver capacity provide more than enough flexibility to support our strategic priorities and disciplined capital allocation approach.

Turning now to fiscal '27 guidance. We exited the fourth quarter with solid momentum. And as we look to fiscal '27, we expect continued strength at Journeys, improvement at Johnston & Murphy and a reset for Schuh to drive profitability. While we navigate a fluid external and consumer environment, we expect to add to this year's gains. Before I get into the specifics of our guidance, there are a few key factors shaping this year that I want to highlight.

First, positive comps being offset by store closures and license exits, resulting in flattish sales. Gross margin improvement driven by reduced shoe permissions and lapping license exit headwinds, continued cost discipline, though no leverage on a flat sales base. and quarterly tax rate volatility due to the valuation allowance with a comparable full year rate. This all results in a healthy improvement in operating profit and earnings per share for the year.

Let me expand on each of these, beginning with sales. For fiscal '27, we expect comparable sales to increase approximately 1% to 2%. And after increasing 6% in fiscal '25 and 9% in fiscal '26. Journeys' comps are projected to be positive again this year, which along with positive comps at Johnston & Murphy, will more than offset negative comps at Schuh from the promotional reset. This is a deliberate trade-off. We are prioritizing margin recovery and earnings improvement at -- so over short-term comp gains. These comp gains will be reduced by approximately $30 million of sales from planned net store closures related to our ongoing store optimization efforts, including -- so and roughly $30 million of net sales from the license exits. As a result, we expect total sales to range from down 1% to flat for the year.

By division, we expect low single-digit sales growth at Journeys as comp growth is partially offset by planned store closures. 2 -- are expected to decline mid-single digits reflecting store closures and sales headwinds with fewer promotions. We expect Johnston & Murphy sales to increase mid-single digits, helped by new stores and wholesale expansion. And at Genesco Brands sales will decline due to the timing gap between Levi's wind-down and the launch of Wrangler later in the year. For the full year, we expect gross margin to improve approximately 50 to 60 basis points, driven primarily by margin recovery at Schuh with more full price selling and at Genesco brands as we lap prior year liquidation. At Journeys, we expect modest rate pressure from brand mix, but growth in average selling prices.

Regarding tariffs, although we expect higher unmitigated dollar exposure in fiscal '27 due to a full year impact, ongoing mitigation efforts, including pricing actions and sourcing adjustments are expected to result and a net negative operating income impact of approximately $5 million to $10 million already included in these assumptions. With the flattish sales, we expect full year SG&A as a percent of sales to deleverage only about 10 to 30 basis points compared to last year. reflecting investments to support longer-term growth, along with continued store optimization efforts and cost savings initiatives, including the benefits from our strategic technology transformation we announced back in January. As in prior years, profitability will be weighted to the back half of the year given seasonal sales patterns.

We expect year-over-year operating income growth to improve after the first quarter but be quite weighted to the fourth quarter. as we benefit from higher volumes, improved store productivity and lapping a highly promotional period issue. Our guidance assumes no share repurchases and resulting in fiscal '27 average share count of approximately $10.9 million. We expect our full year effective tax rate to be approximately 30%. However, as an important call out -- due to our tax valuation allowance and our seasonal earnings profile, we expect our effective tax rate to be materially lower in the first 3 quarters, roughly 7% to 8% and with a fourth quarter true-up to reach the full year rate. This will distort quarterly earnings per share comparisons, particularly in Q1 and Q2 were a lower tax rate generate higher losses per share in loss-making quarters.

So we recommend investors focus on operating income trends as the cleanest read on underlying performance. Based on these assumptions, we expect fiscal year adjusted operating income to be in the range of $32 million to $38 million and adjusted EPS to be in the range of $1.90 to $2.30. We expect capital expenditures of approximately $65 million to $70 million, primarily for Journeys remodels and selective new stores at Journeys and Johnston & Murphy.

Now for some additional color specific to the first quarter. We expect first quarter comps to be in line with the full year range, fueled by stronger anticipated tax refunds and more robust Journeys comps diluted to some extent by notably negative shoe comps. Even with the positive comp sales will be down a little for the reasons that we've discussed.

For gross margin, we expect the rate to be flattish to last year as there is more opportunity for pickup as the year progresses. On SG&A, we expect deleverage at the high end of our annual range given it is our lowest volume quarter. This results in an expected adjusted operating loss that is a little over $1 million worse to last year and adjusted EPS that will be quite a bit lower than last year due to the tax rate impact. Again, Q1 is the most pressured quarter year-over-year. We expect improvement from here with higher sales volumes and more gross margin recapture.

In fiscal '27, we remain focused on driving profitable growth by investing in our businesses, continuing cost discipline and improving performance in challenged areas. Our aim is to build on the progress made in fiscal '26 and continue rebuilding the company toward historical profitability levels to unlock shareholder value.

And now I'll turn it back over to Mimi to provide an update on our fiscal '27 strategy.

Thank you, Sandra. We advanced our business over the last few years through our footwear-focused strategy comprised of 6 pillars designed to meet evolving customer needs and improve our cost structure in response to changes in the retail landscape. Looking back, we more than doubled e-commerce to nearly $600 million in a little over 5 years, now representing over 25% of direct-to-consumer sales. We added BOPIS and other essential omnichannel capabilities. We introduced loyalty and signed up over 15 million members in just a few short years. We dramatically evolved our product assortments -- we've built meaningful data analytics and CRM capabilities, and we remove tens of millions of dollars from our cost structure, among other achievements.

Entering the new year, we're evolving our focus with what we call footwear first, an advancement of our strategy that centers our work even more clearly around the customer. Our priorities going forward are now on 4 strategic growth drivers: number one, creating and curating winning product; number two, elevating our distinctive retail and consumer brands, number three, delivering exceptional consumer experiences; and number four, building amazing teams. In addition, reshaping the cost structure remains a focus until we achieve historical profit levels but it is now embedded in our annual plans. These 4 drivers form our overall company strategy, but each business has its own important slate of initiatives for the new year that brings this to life.

And starting with Journeys. We said Journeys strategic growth plan aims to make Journeys the destination for the style-led team, especially the Team Girl. No other concept goes across athletic casual and canvas footwear. This is how Journeys is differentiated and represents the white space we found to build on its strengths to serve a wider teen audience interested in style and trend that 6 to 7x larger than the market we've traditionally served and who is underserved in the mall today. In fiscal '27, you'll see us building on our progress in the second full year of executing this strategy. In addition, we're taking the 4 key areas we've been concentrating on for Journeys and expanding them to 5 Together, these initiatives position us to continue comp growth and expand profitability as we've successfully demonstrated so far.

Starting with product and diversifying our footwear leadership. We achieved success with a more premium, more elevated assortment, giving us confidence to expand our female-led positioning and open to buy with key vendors. We grew through a diversified portfolio of multiple brands this past year and see opportunity to extend a number of iconic franchises across categories. including lifestyle running, casual, low profile and sandals. Growth will come from trend leadership and newness from these categories, growth from the new brands we introduced last year, and growth from new models from existing in-demand brands. Leaning into these key trends and newness, we see opportunity to drive ASP increases once again this year as well.

Second, building the Journeys brand, bringing our refreshed trend and style-led positioning to expand awareness with this broader teen audience and acquire new customers. Our Life on Loud campaign with 750 million impressions across top streaming platforms and social in the fall campaign will extend into spring, backed by increased media spend totaling millions of dollars. For back-to-school and holiday, we'll be unveiling a new creative concept with headline talent backed by even more media spend. We will elevate our editorial content, expand our employee ambassador program and increase our social media presence to fuel discovery and our positioning that Journeys is the place for the latest on-trend footwear. As a preferred brand partner, we will build upon our activations like the ones we did last year with the Nike launch and the customization tour with UGG. And lastly, we will launch a community platform focused on teen well-being, creating energy and positivity to engage with our customer base.

Third, reimagining the store fleet. Our new 4.0 format is a key component of our strategy and demonstrates the power of an elevated physical shopping experience, delivering stronger new customer acquisition and higher comp lift. In the coming year, we will double the 4.0 store count, adding another 80-plus to our fleet. About 2/3 of these will be remodels and the balance will be relocations to bigger footprints and some additional new stores or more growth. We expect to end the year with about 20% of the fleet converted to 4.0 stores. Another exciting initiative is expanding the 4.0 concept to Journeys Kids and experimenting to test the results. This new kids concept will be connected to the Big Journeys format, but with some intentional differences. Among other features, Kids 4.0 will increase display capacity across all size ranges to see if we're able to drive higher store volumes. The fourth and new area we've broken out for Journeys is driving digital evolution.

With the growth of AI, improving discoverability within a genic search is a key focus. Improving the website experience is another along with testing new online customer acquisition and retention tactics in general and also in connection with the all access loyalty program.

And finally, unlocking the power of our people, our investment in building stronger retail teams engaged in better selling behaviors and stronger conversion, pay dividends, and we're building on these efforts in the coming year. Now moving over to Schuh. We see the same opportunity in the U.K. as we have at Journeys to be the leading fashion footwear destination for style-led use with a sharp point on the female customer under 25. As such, we moved shoe under the Journeys Retail Group and Andy Gray's leadership in late fall last year. We have a number of the elements in place at Schuh, such as a new store format and have the strategy work underway to refine our customer proposition and competitive positioning.

However, in the year to come, our immediate priority is on actions to significantly improve Shoe profitability in this reset year. Some of the most important are reducing Schuh's reliance on discounting, while the U.K. market has been challenged with heavy promotional activity, matching promotions help sales but hurt profits. We ended the year in a clean inventory position, enabling us to begin removing several calendar promotions and focus on gross margin recovery. This reset will take some time, but our aim is to get back to full price selling of must-have product. As part of this and to further the progress the merchant team has made on product elevation and brand access, -- she will leverage the Journeys Global Retail Group under the leadership of FrisSantella to work with our key brand partners to better serve this coveted customer. This was a critical component of the Journeys strategic growth plan when we started that work as well. Efforts began last year and will continue this year to optimize the store fleet closing unproductive stores to improve the overall cost base and store channel economics.

Finally, we are targeting additional cost reduction actions in areas like selling salaries and rent reductions and implementing quick wins on experience like better visual merchandising and social media updates. As progress on these initiatives take hold, we will then shift our focus to Schuh's strategic growth plan focus further on customer, brand awareness and experience.

Moving now to our branded platform. Johnston & Murphy will expand its consumer reach as a modern lifestyle brand. Delivering fresh and distinctive product continues as the primary focus. The plan this year is to capitalize on the favorable trend shift for J&M, more tailored styling, more dressing up while maintaining comfort. We plan further growth in apparel and accessories, building on success injecting the assortment with greater freshness due to shorter lead times and capitalizing on trends like the shift into NIM. In footwear, we're renewing the assortment with 30% more new introductions, including franchise updates and new concepts like the Ripple. We will leverage accelerated development tracks to deliver greater freshness in season as well.

We plan to add to our brand and awareness building investments like the successful partnership with Peyton Manning and expand distribution by opening 10 to 15 new stores, which increases our fleet by 5% to 10%. And finally, Genesco Brands has done an incredible job quickly building out a full line for Wrangler footwear in anticipation of the fall launch. As we move into the year, our evolved Footwear first strategy centers on the consumer and rebuilding profitability while driving growth. With the work we've already done and this new strategy -- we're confident in our ability to drive improvement while positioning the company for future growth beyond fiscal '27.

And with that, I will now open it up for questions.

[Operator Instructions] Our first question is from the line of Mitch Kummetz with Seaport Research.

Yes. I guess my first question is on Journeys. I was hoping you could say how the business is performing quarter-to-date. Also, what sort of comp is embedded in the low single-digit sales increase. I would guess, probably something kind of in the mid-single-digit range as far as comp goes, -- and then do you expect comp to be pretty consistent for Journeys over the course of the year by quarter? Or do you expect it to be stronger in the back half, given that that's where we see back-to-school and holiday pop-up and the consumer being very event driven. And then I do have a couple of follow-ups.

Terrific. Thanks for joining us this morning, Mitch. We have been really pleased by Journeys growth and performance over the last couple of years, and I'll just take you back and say that -- this is our first full year of the Journeys turnaround. And so when you look to see where comps have been, we increased comps by 6% in fiscal '25 and then followed by 9% in fiscal '26. So really incredible comp growth. I'll take your first question and say how is the business performing quarter-to-date. As I said, we're really pleased with where we are quarter-to-date. It's only been a month. It's been February, but we're tracking in the mid-single digits, and there's been a lot of disruption in terms of weather, but there was a lot of disruption last year as well. when we think going forward and expect the comp for this year, we don't quite get to mid-single digits for this year. But I think it really is just being mindful or excited about all the initiatives that we have, we're mindful of the peaks and valleys that come through the course of the year, which we saw last year, and I think that we've embedded that within our forecast.

In terms of the comp by quarter, we expect a higher comp in the early part of the year. We're looking at tax refunds. And think that it should be a positive tailwind to what we see in Journeys. And then, of course, in the back part of the year, the business comped an incredible 12% on top of the 14% last year. So we're mindful of that. We all these great initiatives in place to continue to drive that business forward. Most importantly, we're taking journeys to a place that it's never been before and with a more elevated product mix and serving a broader customer base.

And then my second question also on Journeys. Can you talk a little bit about maybe some changes to the assortment this year. I know you had said on prior calls, that you had added HOKA, Saucony and Nike, and Nike came late in the year. I'm just curious with those brands in particular, I know that when you introduce brands like that, they start out in select stores. Curious to know if you are growing the number of stores that those brands are in? And if you -- if there are any other new brands that you could speak of that you'll be adding to the Journeys assortment in fiscal '27? Then I have one last question.

Great. I've talked a lot, Mitch, about how fashion has been broadening and that our teams are embracing more wearing occasions. And the really important takeaway here is that we need to have the brands that our customer wants and what is represented within their closet. And so that's what we've been striving to do and Journeys is the place that no matter what's relevant and there will always be something relevant. We will be well positioned to be very deep in what matters most to our consumer. And so what I'll talk about for this year is that, once again, our year is not dependent on adding new brands. We see opportunity within the existing franchises. I think our growth was spread out. I think it's 10 different brands that we see growth spread out across and we see some continued opportunity to add to the franchises that saw some very good growth in this year. And so as far as the new brands, we do expect some growth from these new brands we do expect to add additional product on balance -- but again, the overall growth for the year is really not dependent on adding anything new. And when we add the next brand, I will let you know.

And then last question on Schuh. Can you say how much pressure Schuh was on gross margin in '26? And how much recovery you're anticipating in '27 as you cut out some of the promotions in that business?

Sure. I think what's important is that we are going to withdraw from promotions. We won't get there all the way this year, but we will make a really good dent into it. And I'll ask Sandra just to recap how much we gave up in gross margin and how much we expect to pick up.

Yes, Mitch. So the deleverage that we in '26 in gross margin or lower gross margin. About 60% of that is attributable to Schuh with the majority of the rest of it related to the exit of the licenses with some small impact on tariffs.

Yes. So I think it was 250 basis points altogether. And we don't think we will pick all of that back up as we go through the course of the year this year. I think it's been a couple of years in a row that we have lost gross margin due to the promotional environment. We can't get it all back in 1 year, but we're going to make a very good start.

Our next question is from the line of Joseph Civello with Truth Securities.

You gave some great color on the category strength during 4Q -- and where you see growth coming from this year. Can you talk about the canvas category at all and how that performed over the holidays and what you're thinking about the pipeline for that in 2026?

So thanks for joining us this morning. When I think about the growth that Journeys experienced in the fourth quarter and the categories that propelled the growth it really was all about casual and about boots. We saw a nice pickup in boots after several years of not a lot of forward momentum in the boot category. And so our fourth quarter was all about casual. And what's exciting about our business is that we've got a nice balance. And so we've got athletic in other parts of the year, and we will be leaning into athletic particularly lifestyle running through the course of the spring. Canvas continues to be relevant and important category for our customer base. It's a much more accessible price point. than some of the other categories. But we have seen the consumer stretching up to pay up for what they want, and we're not anticipating growth in the cannabis category overall for this year.

Got it. And you've made a lot of gains, obviously, we've talked about the new brands, higher heat, the customizable event. Are you continuing to see brands engage more with you guys just to provide more premium in-store experiences for customers?

For sure. We and they are so excited about what we have accomplished over the last couple of years. And it all starts with who is the consumer we're trying to serve. And we are -- we've always been known for teens. We've always been a bit more female focused, but we are leaning significantly into that. And when you think about how well that customer served with apparel, she's really well served where you can think of 10 to 15 places that she goes in the mall and the place that she can go for her footwear is to Journeys. And so our brands want access to this very coveted customer. This customer has demonstrated that she likes to shop in the physical world. It is a pass time, it is fun. It's engaging. She's super, super educated about what she wants. She keeps up with fashion trends, and we are continuing to lean further into our trend leadership into the style setting that is out there and working with our brands to be able to do it. So it's a fantastic partnership.

In terms of what we are able to do together. So what's important is that we are promoting the Journeys brand but also promoting the brands that our consumer wants. And so going forward, we have done activations with our brands. We will continue to do activations with our brands. We are adding more premium product. We do see additional opportunity to push up ASPs through the course of the year, and the consumer is responding really well. We've committed to opening more 4.0, so we have a great environment. for our brands to put their product. And yes, and so we'll continue to build.

Got it. Yes, makes sense. And then on the ASP comment, can you sort of break out like how much of that might be coming from just continuing to expand your premium assortment versus underlying like product -- the pipeline that the brands are setting themselves like in terms of higher ASPs?

Sure. So it's both. For sure, the industry has been taking price increases and always when brands have heat or items have heat or franchises have heat brands are always seeing an opportunity to be able to take price increases as appropriate just with not if you're a hot brand, you can certainly you have the opportunity to expand pricing and then overall cost pressure from higher tariffs is driving some of that as well. But it is also that we are improving the premium nature of our assortment. And so we're actually adding items that are at a higher average selling price than the overall assortment today. So altogether, it's a positive combination that we're just seeing, in general, some ASP pickups from, in general, some price increases, but also adding new items to the assortment that are more premium in nature.

[Operator Instructions] The next question comes from the line of Sam Poser with Williams Trading.

I've got a handful. Number one, what is the timing by concept of the store openings and closings? And then within that, how many 4.0 stores are you planning to have open this year?

Sam, thank you for joining us this morning, and I will talk about 4.0, and then I will ask Sandra to talk about openings and closings for the year and just overall timing of that. But we are delighted with the 4.0 performance. I know you've been in our stores. We managed to get more than 80. I think it's 84 open through the course of the year this year, and we plan to open 80 more over the course of the year again this year, and it will be about 20% of our fleet. But what notable, and I want to call this out to you is that about 2/3 of those are just remodel in place. which is what we mostly did last year, but about 1/3 of them are larger stores. So we're expanding our footprint in these -- in many of the locations because we really like what we've seen. We've been able to drive more productivity and we need more space. And we can, particularly in the more premium malls we're performing even better than average. And so more premium malls, more opportunity to take bigger square footage allows us to be able to not just get the lift from the remodel in place but to add square footage overall. And so we will continue with that. And I think I did call out, too, that we're doing a kids 4.0, and we're going to see how that works. And over to Sandra for the openings and closings.

And then Sam, in our summary deck that's posted, there's a listing of the opening and closing is expected for next year by division. But just in general, -- we're expecting to open 23 stores next year, predominantly weighted to Johnston & Murphy, and that will be more towards the back half of the year. And in regard to the closures, we have about 75 stores about 75% of that will be journeys, and that's the ongoing store optimization, which we do around lease expiration timing. And then we have about 13 for Schuh and 6 for Johnston & Murphy. And those are...

I know all of that. I read that in the thing. All I'm trying to do is figure out by quarter, how many you're opening and planning to open and close by concept by quarter -- that's what I'm trying to figure out. I know the total. I just don't want to say your opening stores. So I don't want to put my model, you're opening stores to the wrong time or closing stores in the wrong time.

Yes, Sam. So on the 4.0, we're doing them, obviously, earlier in the year pretty evenly Q1, Q2 was about double of that in Q3. So they're open and they're ready and to productive, right? And then in regard to the other Johnston & Murphy stores opening them in the prime period, right, Q3 and some into Q4. On the store closures, it's all around lease expiration, but predominantly, they're split between Q1 and Q2 and trailing off in Q3 and Q4.

Okay. And then can you talk about -- you like -- can you talk about the sales in the licensed businesses and how much like how down that is going to be in the first half, how that -- how bad it's going to be or how bad it's going to be year-over-year in the first half? How is it expected to be up at any point in time in the year? And you ran -- I think you had like around 35% gross margin at 1 time, it was down. What is the thought process to get back to those higher gross margins within that business?

Yes. So I'll give you a little color, and I'll get Sandra to get the numbers. So we expect the most pressure from the down sales. I think we told you it was a net 30 altogether. We expect the most pressure in the second quarter. and then the third quarter, not much in the fourth quarter and then some in the first quarter. So the majority of what I'd say about 2/3 of the loss is going to happen between second and third quarters. It used to be a 35% gross margin business. We absolutely want to get it back to that level. We won't be there yet this year. we are starting up the Wrangler, and I know you've seen the line and team has done an amazing job getting the full line out quickly.

But we are -- the plan here is that our Dockers business were down to dockers and Wrangler, we simplified the assortment, -- and Dockers is moving toward that 35%. We're going to need some time to experiment with Wrangler and therefore, won't hit that gross margin level until we grow that business.

And then lastly, I understand that rank that there's an opportunity with Wrangler in the mass, but that doesn't appear like where you're starting it. Can you talk about sort of the initial the timing and the initial plans for the type of -- where you're looking to put it this year and so on.

Sure. So there is opportunity for Wrangler in many tiers of distribution. And if you look where the apparel is distributed, it informs the thinking that mass is an opportunity but there's much higher tiers of distribution, where we are going to start. And so the initial collection and we're going to be focused on what -- turn, and we're going to be focused on work. And we call the First Horizon Western Specialty farm and ranch, really at the top of the pyramid is where we're starting. Tier 1 distribution that will really set the halo for later distribution in mass. So it's not going to be in the near term that we're going to get to mass it's going to be in some of just the more premium account, Sam. So that's how we're going about establishing the footwear part of this brand.

Our next question comes from the line of Mantero Moreno-Cheek with Jefferies.

Can you triangulate what is driving the ticket and traffic at journeys and the rest of the brands. And then also on inventory, you ended the year up 2%. And I'm just conguessing that imply that units are down. So is there anything you can just discuss there on inventory, on AUR, ticket and traffic. And I have a follow-up as to that.

Sure, Mantero. I will start with just talking about traffic and ticket and the like. And I hand it to Sandra to talk about inventory. But in general, in the fourth quarter and in general, in the footwear industry, traffic has been down. I think for the industry in general, traffic was down close to 10% in the fourth quarter. And I think that is a measure of a couple of things. One is the consumers more educated. They're doing less window shopping. They know what they want when they come in. And so the traffic that is coming in is more qualified traffic. What we have been working on is we have been working on conversion. And our businesses across the board saw higher conversion in the fourth quarter.

I called out Journeys conversion, their store associates are really driving pretty doing phenomenal work to drive great conversion for the customers to cross the lease line, well into the double-digit levels. and then average selling price is the other piece that is moving the needle. And so it's conversion and selling price and transaction size that is moving the needle. And units are down overall. I think the consumer in general is stretching up to buy what they want and units are down across the industry. But the important thing is that they are really stepping up and accepting the price points and reaching to buy that much have product that they want.

Yes, we final inventory as units are down, but we also have the exit able licenses at Genesco Brands Group. And then we also had the highly promotional cadence at Schuh, which sold off a lot of inventory. And so all of currency basis, they're down as well.

And then my follow-up is, have you -- or did you say how much higher the 4.0 stores they're comping versus the chain?

Yes, we did for this time around, we said that they've been comping 25% plus and they continue at that level. And we saw stronger everything. You've heard how strong Journeys was over the fourth quarter, but you can take everything that we said and 4.0s were even stronger, stronger traffic, stronger conversion, stronger selling prices, more new customers. And new customers are going to be the hook for the 4.0 stores. It's the visible difference in the manifestation of the new journey strategy. And so the ability to attract new customers is stronger in the 4.0. And so we will continue to roll out this year and have more opportunity to do that.

At this time, I'll turn the floor back to management for closing remarks.

Great. Thank you, everyone, for joining us, and we look forward to talking with you on our next call.

This will conclude today's conference. We thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.

Good day, everyone, and welcome to the Genesco Third Quarter Fiscal 2026 Conference Call. Just a reminder, today's call is being recorded.

I'll now turn the call over to Jason Ware, Vice President of FP&A and Investor Relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss our third quarter fiscal 2026 results. Participants on the call expect to make forward-looking statements reflecting our expectations as of today, but actual results could be different. Genesco refers you to this morning's earnings release and the company's SEC filings, including its most recent 10-K and 10-Q filings for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made today.

Participants also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial measures are reconciled to their GAAP counterparts in the attachments to this morning's press release and in schedules available on the company's website in the Quarterly Results section. We have also posted a presentation summarizing our results here as well.

With me on the call today is: Mimi Vaughn, Board Chair, President and Chief Executive Officer; and Sandra Harris, Senior Vice President, Finance and Chief Financial Officer.

Now I'd like to turn the call over to Mimi.

Thanks, Jason. Good morning, everyone, and thank you for joining us on our third quarter earnings call. We delivered solid performance versus last year in this important back-to-school quarter led by Journeys, which achieved 6% comp growth, and more than a 50% increase in operating income. This significant improvement in profitability was partially offset by the anticipated exit of licenses in Genesco Brands Group, the impact of tariffs, and more than expected gross margin pressure at Schuh as the U.K. market faced heightened promotional activity.

Against this backdrop, we delivered our fifth consecutive quarter of positive comp sales growth overall and third quarter results within our expectations, albeit at the lower end, reflecting both the strength and resilience of our portfolio in a dynamic consumer environment.

Total comparable sales increased 3%, with store comps up a noteworthy 5%, coupled with a modest decline in e-commerce comps, which faced tougher comparisons against last year's double-digit gains. These results reflect our investment in the store channel and the strength of our in-store experience, supported by well-executed assortments and engaged teams that continue to drive conversion.

The consumer environment continues to reflect customers shopping when there's a reason and pulling back when there's not. This pattern became much more pronounced for our category during back-to-school this year, which is factoring into our view of the fourth quarter.

In the third quarter, demand was even stronger than we expected during the heart of back-to-school, and then traffic and purchase intent softened considerably and more than we expected in the weeks following with an especially challenging October.

Customers are searching for must-have items and newness and freshness to drive their purchases. Importantly, when you have what our customer wants, they're willing to pay up for what they want, but they're conserving on footwear shopping in nonpeak times and passing altogether on products not in high demand. We saw the same pattern in the first few weeks of November.

Encouragingly, as we move through November with colder weather and as we approach the holidays, overall performance picked up. Early results from Black Friday and Cyber Monday were positive, reaffirming we have the right brands and styles to satisfy what this discriminating customer is looking for.

Before I dive deeper into the business, I'd like to highlight the progress and the key strategic initiatives we launched during the quarter that will drive growth and profitability going forward. First, Journeys continues executing against its strategic plan to accelerate growth, delivering its fifth consecutive quarter of positive comp growth along with almost 200 basis points of operating margin expansion.

Notably, Journeys' mid-single-digit comp was on top of double-digit comps for the third quarter last year, and at a time when footwear industry trends have been challenging. These results underscore the meaningful market share gains we've captured this year as the next wave of Journeys' transformative initiatives gained meaningful traction.

Second, part of this next wave of initiatives is building awareness of the Journeys brand with the wider customer base we're targeting. The Life on Loud brand campaign, launched in September, has already surpassed 70 million social views and continues to grow as we shift investment toward impactful brand-building campaigns to drive new customer growth and traffic.

Third, we formed the newly created Journeys Global Retail Group under Andy Gray's leadership, uniting Journeys, Schuh and Little Burgundy. These 3 banners are the destination retailers for the young style-led female across their respective markets. We see clear opportunities bringing these retail businesses together as we strengthen market positioning with this customer and drive greater growth serving her in collaboration with our brand partners.

This new structure will facilitate further progress as we shift our attention with even greater urgency to improving Schuh's performance.

Next, we're truly excited about Johnston & Murphy's introduction of legendary quarterback Peyton Manning as its new brand ambassador and face of the brand. The launch of this new partnership generated an immediate double-digit traffic increase following the campaign's debut online and in our stores in early October.

And finally, while the wind down of the Levi's license is causing meaningful onetime headwinds in Genesco Brands Group this year, we are thrilled with and preparing for growth with the fall '26 footwear launch for the iconic denim and authentically American Wrangler brand.

Now for more Q3 color and initiatives for each business, starting with Journeys. August led Q3 for Journeys with a record back-to-school and strong double-digit comp growth on top of double-digit gains last year. When the customer came out to shop for back-to-school, Journeys was a key destination. Store performance remained robust with Q3 store comps tracking in line with the first half of the year driven by higher conversion and transaction size and contribution from our 4.0 store remodels.

Journeys product offering remains diversified across athletic, casual and canvas as we strive to represent all brands in demand by our youth consumer. While we saw growth from both athletic and casual brands in Q3, athletic was the more dominant category with low-profile and running-inspired styles resonating. We are currently seeing our customer gravitating to athletic styles on a more year-round basis. Boot sales were also positive in Q3, but driven by specific brands.

Now, turning to Schuh. The U.K. retail environment remains very challenging. Currently, the U.K. footwear customer is focused either on must-have items with much less interest in the rest of the assortment or is looking for a deal to spur a purchase. As a result, Schuh's overall comps took a step back for the quarter as gains in store conversion and average transaction size were not enough to offset the traffic declines.

We increased our promotional activity even more than expected during the quarter, both to match our competitors' promotional stance and to motivate demand as well as to manage inventories appropriately. We are taking proactive steps to strengthen the business and position Schuh for renewed growth.

In the near term in Q4, we're focused on course-correcting through several actions, including assortment updates, our past, present and future holiday campaign, targeted social marketing, AI-driven e-commerce content and stronger in-store conversion via the new ATV program.

Even with these steps, we still expect headwinds in a challenged U.K. marketplace that we will have to navigate through. Into next year, the newly formed Journeys Global Retail Group is working to unlock greater product access and growth. Through this and by leveraging other elements of the Journeys playbook, we are implementing a holistic plan to dramatically improve operating performance. This ranges from sharpening Schuh's customer value proposition to building Schuh brand awareness and also includes fleet optimization.

Turning now to our branded business. At Johnston & Murphy in Q3, overall sales increased year-over-year, reflecting growth in the wholesale channel. The decline in overall comps was driven in large part by softer e-commerce trends as we shifted spend from performance marketing early in the quarter to brand awareness including the launch of our new brand ambassador in early October. Gross margins were pressured due to channel mix with a greater percentage of wholesale sales as well as tariff headwinds in the wholesale channel ahead of price increases.

After success with J&M's strategic repositioning into a more casual, comfortable multi-category lifestyle brand, we've been working hard to deliver more newness and distinctive products in response to comp headwinds.

During the quarter, we introduced newness across both footwear and apparel, supported by increased innovation like the XC+ footwear collection, updated fabric and design details, and redesigned programs like the Quarter Zip offering. While we were pleased overall with the performance of these new introductions, especially in apparel and accessories, we have work to do to drive more robust sales across the balance of the assortment.

Accelerating brand awareness and acquiring new customers have been J&M's other areas of focus, and we made major strides here with the Peyton Manning launch in October. While it's still early, the campaign generated strong media coverage and immediate double-digit traffic gains, which translated into improved comp trends and new customer acquisition. We look forward to ongoing collaboration with Peyton.

And finally, we're investing in J&M store remodels and new store openings with impactful results. And now early in Q4, we have inflected to a net store increase to drive growth going forward. Rounding out the branded business, the impact of tariffs, which affects this business the most, and the continued liquidation of licenses we're exiting, substantially pressured both Genesco Brands Group gross margins and our overall performance during the quarter.

We look forward to completing the liquidation by the end of the year and moving past this headwind. And now let me briefly recap the exciting progress fueling Journeys' strategic growth plan. Our strategy focuses on Journeys as the destination for the style-led teen, especially the teen girl, as no other concept goes across athletic casual and canvas footwear. This is how we are differentiated and the white space we identified to build on the traditional strengths of Journeys to serve a wider teen audience interested in style and trend that's 6 to 7x larger than the market we've historically served.

As a reminder, we're executing across 4 key areas: First, product elevation and diversification. We're driving product elevation and diversified footwear leadership with best-in-class and more premium footwear brands. This work is achieving great impact as we saw an increase in third quarter average transaction value on top of significant growth last year.

As we strive to represent all brands in our customers' closet, we launched Nike in November with an assortment of premium styles that is just right for our teen. The Nike addition added newness to Journeys' offering and generated true excitement and energy in our business and with our people. We look forward to building further on this partnership.

Second, investing in the Journeys brand. We're building momentum through a refreshed style-led positioning aimed at expanding awareness with this broader teen audience. I've talked about the launch of Life on Loud brand awareness campaign, where we reimagined an iconic late '90s music video as well as created unique experiential moments like our Gus Dapperton pop-up event in our New York City 14th Street Store. Beyond the Nike launch, we also executed brand activations, including a customization tour with UGG. We held an in-store concert with PUMA and Lyn Lapid and launched a partnership with Converse to bring first-of-its-kind hologram advertising to malls across the U.S.

Third, elevating the customer experience, especially in stores, we've accelerated the rollout of our new 4.0 store format, and elevated setting to attract new customers and call attention to our more premium offering, which continues to deliver more than a 25% sales lift and strong new customer acquisition. We expect to end the year with more than 80 stores in this new format with more to follow next year.

And finally, investing in our people. We've been investing in a stronger team at retail engaged in better selling behaviors and stepped up customer engagement, which has helped drive high single-digit store comps over the last 12 months.

Journeys is well positioned for Q4 and the holiday season with a strong offering and campaigns that are clearly resonating with our target customer. The brand's consistent comp growth, profitability improvement, and expanding omnichannel engagement gives us confidence as we close the year and continue building on this momentum into next year. We're excited about the road ahead and the tremendous value Journeys can unlock.

Now turning to our outlook. While we're encouraged by the read from November, particularly during Black Friday and Cyber Monday, there are some factors causing us to update our view on the remainder of the year.

To start, we have materially changed our sales and margin projections for Schuh, to reflect the ongoing difficult U.K. market and performance. We have also moderated the growth assumptions for our other businesses based on the footwear, consumer traffic, and spending patterns we've witnessed on nonpeak shopping days.

While we are able to partially mitigate the impact on profitability through reductions in expenses, it isn't enough to offset the overall reduction in sales, and even more so the margin pressure at Schuh. Therefore, we are adjusting our full year EPS guidance. While we are disappointed to be lowering our overall outlook, our updated view doesn't change the fact that Journeys remains on track to deliver an outstanding year with comps projected to increase mid-single digits and operating income that almost doubles.

Sandra will take you through the more detailed guidance assumptions. Before I turn the call over, I'd like to thank our teams for their tremendous efforts to evolve our business with a deep understanding of what our customer wants, and for their incredible execution, which is essential to delivering the important holiday season and a strong finish to fiscal '26, which we will build upon in the year to come. And now, Sandra, over to you.

Thanks, Mimi. I'll now walk through the details of the third quarter and provide an update on our outlook for the full year. Starting with revenue. Total revenue for the quarter was $616 million, up 3% compared to last year, driven by overall comparable sales growth of 3%, reflecting positive 6% comps at Journeys and 2% lower comps at Schuh and J&M.

Store comps increased 5%, while direct comps declined 3% on top of 15% comp growth last year, a favorable exchange rate in the U.K. and strong wholesale volume helped offset an overall smaller store base. Gross margin for the quarter was 46.8%, down 100 basis points from last year. The primary drivers were product liquidations in Genesco Brands Group, tariff cost increases ahead of price adjustment, margin pressure at Schuh due to the promotional environment in the U.K. and higher wholesale mix at Johnston & Murphy.

While we expected lower margins from the exit of licenses at Genesco Brand Group, we again pulled forward liquidation sales, which lifted revenue and gross profit, but at lower gross margins. We expect to be largely through this inventory by year-end, which should support gross margin improvement next year. Overall, SG&A expense was 44.7% of sales leveraging 140 basis points year-over-year. The improvement reflects broad-based cost reduction efforts with nearly every SG&A line showing leverage.

The most meaningful savings came from rent expense as we continue to optimize the store fleet and freight reductions. Importantly, we achieved this leverage while increasing marketing investment to support growth. All banners delivered expense leverage other than Schuh, which deleveraged with the lower store comps.

Adjusted operating income for the quarter was $12.9 million, above last year's $10.3 million, resulting in adjusted diluted earnings per share of $0.79 compared to $0.61 in the same period last year. The growth was driven by the sales increase and expense leverage and was partially offset by the gross margin pressure already highlighted.

Turning to the balance sheet and capital allocation. Free cash flow for the quarter improved nearly $5 million year-over-year. Inventory was up 7% compared to last year, in part because strong sell-through of key new styles in the third quarter last year left us with tighter inventory levels heading into the holiday season.

Our inventory is clean, and we are taking actions in the quarter to rightsize our inventory at Schuh. Capital expenditures totaled $18 million focused on store remodels, new stores, digital investments and customer experience enhancements.

We ended the quarter with 1,245 stores, having opened 4 and closed 12. Our Journeys 4.0 stores continue to deliver exceptional performance across all key metrics: comps, traffic, conversion and average transaction size. We now have 76 Journeys 4.0 locations and expect more than 80 by year-end, and their consistent outperformance reinforces our confidence in this concept as we continue to expand the rollout.

We did not repurchase any shares in the quarter, but as a reminder, we did repurchase approximately 600,000 shares in the first quarter, approximately 5% of shares outstanding, leaving $29.8 million remaining under our current share repurchase authorization.

Now turning to guidance. We now expect to deliver full year adjusted earnings per share of approximately $0.95, reflecting a higher tax rate of 34%. At our previously assumed tax rate of 29%, adjusted earnings per share would be above $1. The key drivers of the revised outlook are greater pressure on Schuh sales and margins due to the challenging U.K. consumer environment, more conservative sales assumptions across the portfolio, reflecting the heightened volatility in consumer spending we've seen recently, including tougher year-over-year comparisons in the Journeys e-commerce channel, and lower SG&A, consistent with our disciplined cost control throughout the year, which helps offset, but cannot fully absorb the incremental margin pressure at Schuh, combined with a more modest top line.

Our full year assumptions now reflect total revenue growth of about 2%, comparable sales growth of about 3%. We continue to expect mid-single-digit comp growth at Journeys for the full year. Gross margin down approximately 100 basis points year-over-year, reflecting deleverage year-to-date and continued margin pressure primarily at Schuh into Q4.

SG&A leveraging about 100 basis points as a percent of sales, driven by continued cost actions and store optimization efforts. Capital expenditures of $55 million to $65 million, supporting growth initiatives, including the Journeys 4.0 remodel program, other new and refreshed stores and ongoing digital investments.

We continue to expect positive free cash flow for the full year, average shares outstanding of approximately 10.6 million, and an adjusted tax rate of about 34%, impacted by deduction limitations tied to lower Schuh profitability. While the external environment is affecting our near-term performance, we remain encouraged by the progress of our strategic initiatives and confident in the areas within our control.

We remain focused on disciplined execution and flexibility while continuing to invest strategically to position Genesco for sustainable, long-term value creation. And now, I'll turn the call back to Mimi for her closing comments.

Thanks, Sandra. Before we open for questions, let me provide context on fiscal '26 and our path forward. This year has been defined by strong momentum at Journeys, offset by headwinds elsewhere. Looking ahead, we're well positioned for growth. Journeys will build on its proven momentum as we continue executing our strategic plan. And through our new Journeys Global Retail Group structure, we're applying our successful retail playbook to materially improve Schuh's performance.

Our branded businesses are expected to see gross margin rate benefits from a full year of price increases and lapping the license exits, even though tariff pressures will persist. The consumer remains selective, but we have the right strategies, teams and brand portfolio to navigate this environment. We're building a stronger, more resilient Genesco, positioned to deliver sustainable long-term value. Thank you again for joining us today, and we will now open up for questions.

[Operator Instructions] And the first question is from the line of Mitch Kummetz with Seaport Research.

I think I've got 3 of them. Let me start on Journeys and the outlook for the fourth quarter because you guys have lowered your sales outlook for Journeys for the year. And if my math is close to being right, that implies maybe sort of flat to down low single-digit sales for Journeys in the fourth quarter. I'm wondering if that's essentially what you're thinking, and I'm wondering if you expect Journeys to how you expect Journeys to comp in the quarter? Are you kind of looking for sort of a flat to slightly positive comp for Journeys in Q4? And then I have two others.

Great. Thanks for your question, Mitch, and thanks for joining us this morning. In terms of Journeys outlook, I will just take us back to last year, where Journeys had really a very strong back half of the year, I think it was a plus 11% comp and then a plus 14% comp. And so when we look to the fourth quarter, one of the things we called out today is that we have seen that during the nonpeak shopping times, the consumer is pulling back. And we saw that we had a very strong back-to-school. We had a record back-to-school sold through a lot of the terrific product that we're carrying, and then we saw the consumer pull back in the weeks following.

And so as we think to the fourth quarter, we have gone through a nonpeak period at the beginning of November, and we're mindful of the nonpeak period in January, but we're optimistic for robust sales for Journeys during the time when the consumer is going to come out to shop. And so when you look on a stacked comp basis over the last couple of years, we are expecting positive comps for Journeys in the fourth quarter. If you take the stack and you moderate just a bit, then that is really where we end up coming out.

If you look specifically at how we're thinking about the sales moderation, we're thinking about very strong store growth as we've seen all year, but we're moderating the e-commerce comp because we're going against such strong comparisons, and we saw that also in the third quarter.

In general, we are, again, optimistic for positive comps for Journeys. We have closed some stores, and so that ends up impacting the overall sales number. But in fact, Journeys is more productive in the stores that we are running, and we are using initiatives like the 4.0 to make the strong stores even stronger. And so net-net, when all is said and done, we expect a stronger portfolio and stack comps that are in line with where we were in the third quarter.

And then maybe just as a follow-up to that, Mimi, in the -- on prior calls, I think you called out the lift that you've gotten from the 4.0 stores. Can you say what that was in the third quarter?

Sure. We continue to see about the same level of performance out of the 4.0s, just really strong overall performance. And even during the nonpeak periods, our 4.0 stores performed at a higher level than the rest of our store fleet. So we know that, that initiative is really helping to both attract new customers and to elevate the environment where we see higher transaction size and higher conversion altogether.

We have just anniversaried the initial opening of the 4.0 stores. We had about 10 open by the end of the year last year, we expect that we're going to have more than 80 open by the end of the year this year. We're accelerating and we've accelerated through the course of the year, what we can see, what we believe we can do as far as having more remodels, because we like so much the impact that it's having on our business.

Again, we're mindful of the very strong comparisons to last year in Journeys, but we feel very good about our product assortment and all the other initiatives that I talked about on the call in terms of attracting new customers and really attracting that wider group of young customers, particularly that teen girl to what we have at Journeys these days.

And then I wanted to clarify something. In the press release, I think, it's you, Mimi, they quoted saying that given the improvement in the sales trend for Black Friday, Cyber Monday that, that contributed to a positive start to the fourth quarter. That suggests to me that sales were up in November. I just want to maybe see if that was actually the case, and if Journeys was positive comp in November. I know there are a lot of nonpeak shopping days in November before you get to Black Friday. So I was curious if Journeys was positive comp in November. And how do you expect the balance of the quarter to play out?

I mean, between now and Christmas, there's a lot of peak shopping days. Do you expect December to be positive comp for Journeys and then things to really kind of fall off in January? Is that sort of the trajectory that you're expecting?

Yes. So we were positive with Journeys comps in November. We saw a strengthening into the holiday. We had a record Black Friday on top of a record Black Friday last year. And so when there is a reason to come out and shop, our customer is shopping. And the exciting thing that I would call out, Mitch, is that we were doing a lot of full price selling. We were not promotional over the Black Friday weekend. If you walk the malls, if you walked the shopping districts, you saw that our athletic competition was highly, highly promotional. They've been promotional for some time, but they accelerated the messaging around promotional activity, and so a customer who is getting squeezed is, and looking for a deal, had plenty of opportunities to get deals at our competition, but we saw very nice full price selling, we saw higher average transaction value over the Black Friday weekend. We saw robust sales online as well.

And so here again, when the customer comes out to shop, we feel like we're going to get our fair share and then some. In particular, when we think about the shopping days going forward, we are expecting that we will have a very positive holiday. Our assortment is better than it's ever been. We've added Nike most recently, just to appeal further to our teen customer. We are mindful of the fact that after the holiday with a consumer that is conserving to spend during the holiday and who's paying up for what they really want to have that in January that we would expect to see the pullback that we saw after back-to-school after holiday in January.

And then maybe just one last one for me because you mentioned Nike. Can you say how many doors, I mean, my understanding is that it went into the 4.0 doors and online, but can you say how many doors you launched Nike and kind of what your plan is in terms of moving forward with Nike in terms of bringing it into new doors or maybe broadening the assortment?

Sure. We are excited about this partnership with Nike, and we have carried Nike in Journeys before, but it has been some -- it's been some time. And like any of our brands, Mitch, we don't start in all of our stores. We do start in a handful of doors. I've talked in the past about new brands that we've introduced. It might be 50 doors, it might be 100 doors, 200 would be a lot of doors for us to introduce a brand into, because we want to see how it performs. We dropped Nike at Journeys on November 12. So it's been a matter of days that we have been carrying the brand, but we are seriously excited about this because it fits our strategy to offer to our target customer, what they -- all the brands that they're interested in across our diversified assortment.

And Nike is with us because they want to reach the teen customer, and they want to reach the teen girl. I mean that's a very compelling partnership for us. What's really important is that we got top-tier product. You see the Vomeros and the P6000s, but Dunks and Air Force ones are also an important part of the wardrobe of our team. And so we've got just the right assortment for our team. So we're going to start with Nike in the same way that we start with everybody else.

It isn't going to drive huge volume initially. None of the brands that we introduced do, but it's super important in terms of validating Journeys as the place to go for the top brands. We will build and believe that Nike can absolutely move into one of certainly our top 10 and one of our more major brands.

Our next questions come from the line of Joseph Civello with Truist Securities.

Can you give any more color on the demand trends between Canvas and Athletic? One is the divergence between the 2 expanding? And two, how should we be thinking about the innovation pipeline across both for 2026?

Joe, thanks for joining us this morning. And I'm just going to talk about fashion trends in general in Journeys. And we've talked about fashion broadening and teens embracing more wearing occasions. And so we have a really nice assortment. It's our unique positioning that we've got both the fashion and the -- fashion athletic and the casual brands. When we look to see during the third quarter, we typically start to sell more boots. And this is the time of the year that the customer looks to specific boot brands.

We have seen a trend where boots were actually positive. They were good for us in the third quarter, and we expect to be positive in the fourth quarter, but it's very, very brand-specific. The other trend that we have seen is that we have seen the consumer moving toward wearing athletic footwear much more year-round, and so we saw growth in our casual brands, as I said, but even more growth in our athletic assortment.

And so we are really excited about the lifestyle athletic that we are selling. In terms of canvas, canvas is not as strongly in demand by our overall customer. It's still an important part of our mix. In terms of the innovation pipeline between the two going into 2026, we see more innovation on the athletic lifestyle side than we do on the canvas side.

Got it. Very helpful. On the boots, would you say that there's like new innovations that are driving a lot of that growth for those specific brands? Or is it better access on your part? What should we think about as like the bigger lever there?

I would talk a little bit about boots as starting with just fashion. And I'll say that we don't sell fashion boots per se, we're not selling like certain looks of boots that tend to be represented by nonbranded offerings, we sell boots that are related to specific brands.

Traditional boots have become less of a part of our assortment. Over the last couple of years, we've seen the customer gravitating toward much lower shafts, more moccasin like product, a lot of fir. It gives the warmth. So there's definitely a seasonal switch, but it's been out of taller boots into shorter boots and into moccasin-type boots, in addition to the customer trading into athletic. On the boot front, as I said, it's very brand-specific. There are some iconic brands that are in demand right now by the consumer. And so that's been fueling our growth.

Got it. And then one last one for me. Can you just give any more color on like the pullback you saw in terms of income demographics or anything like that? Just to help us understand where we saw things slow.

Sure. Interestingly, we attract a broad demographic group within Journeys. And what we have seen in the past is when the consumer gets squeezed, they gravitate to a lower price point product. We're not seeing that at all. We're seeing the consumers stretch up to buy what they want, and paying up. Our average transaction size is up pretty significantly, but they're conserving in between.

And so when we look across our demographic cohorts, we certainly see that the higher income customer is more robustly spending, but we're seeing that in general, the customer is stretching up to be able to purchase what they want, when they have a reason to go out and go shopping, but the pullback really is around conserving their cash for other things that they want to purchase.

The next questions are from the line of Mantero Moreno-Cheek with Jefferies.

So you highlighted Journeys' strong comp growth and the new brand launch at Nike. As you look ahead, are there any major next steps to continue expanding Journeys' brand portfolio? And also, how should we think about the current momentum and how that shapes growth outlook going forward?

Onto. In terms of Journeys and the Nike introduction, I think I've talked about several of the brands that we have been introducing in Journeys over the past few months, brands like HOKA and Saucony as well. And all of these are important in terms of validating Journeys in categories. We haven't had historical strength and brands that are an important part of our overall mix. So lifestyle running is a really great example of a category that's important. As I said, they don't start as major revenue plays, but they do build into top brands in our portfolio.

So the key for us is that we are absolutely pursuing a strategy of more diversification. And more diversification means that when styles or brands or categories get hot, that we're well represented in that. And if you go back over Journeys' history, you'll see that brands rotate in and out of our top assortment that our consumer, our team customer has an insatiable appetite for something new and something different and something that's next. And so our business model actually is a business model that can stand the test of time with the diversification because we can manage that rotation in and out of the brands that are important to our consumer.

And so it's having the right brands, having strong relationships with these brands, building growth plans going forward and being able to navigate where the consumer takes us and where we take the consumer. In terms of how should we think about Journeys sales momentum, we're just mindful of the fact that last year was a really strong period for Journeys as we significantly changed the assortment and drove comps well into the double digits.

And while we are anniversarying those strong comps quite nicely, there's always a phenomenon where going against strong comps that we just have to be mindful about the fact that we're anniversarying those stronger comps. I think that as we reset at the end of this year and we think about all the other initiatives that I talked about to attract new customers in to grow Journeys' brand awareness, to be able to improve the execution in our stores, to attract new customers to our 4.0s to add new 4, that all of these things are those initiatives and those steps that will allow us to sustain growth for Journeys over many, many quarters to come.

And it starts and it ends with the fact that we have a unique value proposition that we serve that style-led team. When you think about competition within the marketplace, there's lots of competition, but there's no direct competition, and there's no brand out there that has the relationships that we have with our branded vendors and that can bring to bear the diversity of the assortment and the strength and the breadth of the assortment that our customers are seeking. And so that's what we're leaning into, and that's what will drive our growth over many quarters and many years to come.

And then on margins, gross margin declined, and that was primarily due to margin pressure at Schuh and then ongoing tariff pressures. And so sorry, I missed this, but where do you see the greatest opportunities to improve margin from here? And what are the key levers that you plan to pull to drive margin expansion in the near term and in the long term?

That's a great question. I will -- I'll just start with some thoughts and then ask Sandra to weigh in on this. But our margin pressure this year was driven by 3 major factors. You got 2 of them. Schuh is one of them, tariffs is another one of them. But we are also -- it's our smallest business, but we are exiting a big license with Levi's. We're excited about the license we're going to replace it with, with Wrangler, but it's going to take some time to do that. And so when you look at our overall gross margin profile in the quarter, we took a pretty direct hit from product that we're liquidating from Levi's. That's a onetime thing. We won't repeat that. That will be out of our mix, but it was several hundreds of basis points for the division itself and had an impact overall.

The second area is tariffs, and we had a really I'd say, unique for a period of time, situation in our wholesale business, where we had locked in wholesale pricing last -- early in the year. and we needed to honor those prices. And so it's difficult to raise prices even though our goods came in at a higher rate of tariffs. So that squeezed us there. And we will be able to manage pricing over time and do a lot of other -- take a lot of other actions to manage the product cost. But over time, we see that, that we will be able to manage that. And then on Schuh, I mean it's probably going to be close to a couple of hundred basis points that we will give up in Schuh, because the market has been really so promotional.

And I think that looking into next year, we're going to do a lot of things where we're going to rightsize our inventory certainly to meet the demand that's in the U.K. market. We expect that our competition will do that as well. We will absolutely look to strengthen our overall assortment into a deeper and broader set of must-have styles, and I think that is going to help us as well. It will -- may take a couple of quarters like it took a couple of quarters for us with Journeys to do a lot of the reassortment, but we are optimistic that we can make progress overall with Schuh. We really thought we would have a better back half of the year. We took a lot of the actions that we needed to take to be able to -- when sales softened in May and June to get our inventory into the right place, but we have seen in with soft consumer demand, in the back part of the year this year that our competition is actually promoting to drive sales.

And we typically promote to clear merchandise, but when it comes to promoting to drive sales, then that's what we've been having to match. And so I think we're looking carefully at the situation. We're disappointed in the impact that it's going to have on our business for this year, but we do see that there's opportunity and there's upside into next year on all of these fronts.

And Mantero, I'll just add just a little bit of color on the 100 basis points. About half of that is related to the exits of the licenses. So as we wrap up the exit of those licenses, hopefully, by the end of the year, that would be an improvement next year for overall Genesco. And then Schuh makes up the majority of the rest of it tariffs has a residual impact, but I will point out that tariffs will continue to be a headwind into next year, but the majority of the trend this year is really related to the exit of the licenses and the challenges we're going through is Schuh, which Mimi addressed the actions we're taking.

Got it. And then I guess just one more for me. On marketing and ad spend, those have been pretty topical recently, and I know, you noted your live on loud campaign and the Peyton Manning, Johnston & Murphy has been performing well. So I guess is there anything else to note on these campaigns and how they help drive increased conversion or traffic? And also just how should we think about ad/marketing spend going forward?

Sure. So we -- thinking about brand investment and brand marketing is a very important initiative across all of our businesses, and I'll come back to that. But I want to point out that our teams did an extraordinary job of managing expenses across the quarter, and we ended up with 140 basis points of leverage in spite of additional marketing spend. And so the idea really is, as we think about shaping our cost structure and managing our cost structure, it's in a way for us to be able to fund the investment in overall marketing.

And so much of the marketing spend we've done in the past has been performance marketing to drive the growth of the digital channel, which has been quite successful, through areas like paid search and direct mail with catalogs, but we have been shifting our spend over the last year into these -- into brand marketing and more top of the funnel activities in order to attract new customers. And so you called out Life on Loud, you called out Peyton. Those are 2 great examples that we are really thrilled about. And these types of investments will pay off over time.

They are aimed at building awareness and attracting customers into our brand. We think we've got brands. We think we've got great merchandise, but our awareness is a lot lower than we would like it to be. And so these are directly aimed at being able to build and drive awareness.

That concludes our question-and-answer session. And I'll turn the floor back to Mimi for closing comments.

Thank you for joining us today. We wish everybody a happy holidays and look forward to talking with you when we report earnings and also after the holidays at the ICR conference.

This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation. Have a wonderful day.

Good morning, and welcome to day 2 of our 32nd Annual Global Retailing Conference here at GS. My name is Brooke Roche, and I cover the apparel, softlines and brand sector here at Goldman. And I'm very pleased to introduce our next session with Genesco. Here with me today are Mimi Vaughn, Board Chair, President and CEO; and Sandra Harris, CFO.

Welcome, Mimi. Welcome, Sandra.

Thank you, Brooke. Great to be here with you.

Shall we run the opening video?

Yes. Let's run it.

[Presentation]

Great. Well, that showed some really interesting things, including your new store format. But maybe to kick it off, you've implemented a lot of changes to the business over the last few years. And some of those strategic shifts have really started to gain traction. Can you briefly discuss the most important changes and the impact that you expect them to have this year?

Sure, sure. It's a great question. And for those of you who don't know our brands, we have a branded side of our business and also a retail side of our business. Our brands, we both own brands and we license brands through Johnston & Murphy and through Genesco Brands Group. And then we have a terrific retail business that sells all the hottest brands to really young people.

We have strategically well-positioned businesses. We're coming off of a great 4-quarter run with positive comp sales, led by our Journeys business that has notched high single double-digit comps over the last 4 quarters and is on a run rate of about 10%. So really a lot of exciting things happening there. We really are in the early innings of our Journeys strategic repositioning and growth plans. And so we think we have a lot of growth and a lot of opportunity ahead of us, and we have the opportunity to unlock quite a lot of earnings that we haven't given up over the last few years.

And so the things that are making a big difference is we did a lot of heavy lifting, Brooke. We did closures of stores, optimizing our store portfolio. We took a lot of cost out. But our biggest work in terms of just reinventing our concepts, which we've been doing across the board has been paying off, and it's been the focus on Journeys that is a big focus. And it has been our #1 priority. And we have been working a lot on overall brand for Journeys, really strengthening our assortment on brand. We've been working a lot on overall positioning with Journeys. It all starts with the fact that we see an opportunity to serve an underserved part of the market that is 6 to 7x bigger than who we have historically served in Journeys.

And it is that Teen Girl with a teen girl focus. And that's a customer that is well represented on the apparel side, but not as well represented on the athletic side. And we see a real opportunity to -- we've always served teens, but an opportunity lean into a diversified assortment across casual, athletic and canvas. And so that's been a really important part of our plan. And in addition to that, the product piece of it, we are really increasing brand awareness to serve that market. We're elevating our overall brand assortment. Our 4.0, you saw is our new store format, elevating the overall experience and really leaning into the power of our store network. And so all of those things have been a terrific formula for success for Journeys.

That's great to hear. Before we dive a little bit deeper into the strategy and some of the changes that have happened both at Journeys and the rest of the business, let's start with a few topical questions that we're asking nearly every company at our conference. What are the expectations for the environment in the second half of '25 relative to your recent results? Do you expect things to be the same, better or worse?

Yes. So as I said, we have had quite strong performance and where the consumer is right now is that they are very selective, number one, that they are spending their dollars very selectively. They're well educated, so they know what they want, and they are bound and determined to get it. And if you have what they want, they are paying up. And we've seen that through much higher average selling prices. We've seen it through conversion. Customers go out, they figure out what they want and they come in if you have it, they'll buy it from you. And if you don't have it, they're passing you up to go on to somebody else.

And they are shopping when there's a reason to shop, and they're really going into hibernation when there isn't a reason to shop. And so we have been leveraging all of those opportunities to have the in-demand product newness and freshness is absolutely resonating with the consumer. And I think that will continue into the back half. And we have -- we're optimistic about our opportunities for the back half. And if you play into all of those themes in terms of must-have product newness, freshness, getting the attention of the consumer, winning market share versus any other competition, then that really is the formula that's going to carry us into the back half. So we think it's going to be about the same in the back half as it has been for the front.

Are there any reasons why that would change into 2026 on the better, same, worse hypothesis?

Again, the consumer is just so discriminating. There's a lot going on out there. I know you've had a lot of conversations about tariffs and where the consumer is going to be. I think that we're optimistic into next year as well with the same idea that its newness, it's freshness. It's giving the consumer a reason to buy that they're going to come and spend their dollars.

You mentioned tariffs, and that's been a very hot topic in retail this year. Can you provide an update regarding your expectations for tariff impacts, both on a fiscal year and an annualized basis? How much of this do you see opportunity to mitigate over time? And how long could these actions take?

Sure. So tariffs, as you know, have been very dynamic. We are shielded from big exposure because we sell other brands in our retail business, and that's about 80% of our business. And so what I'm going to be talking about is really the 20% of our business that is our own brands. And our own brands, we are quite well diversified in our sourcing. We are less than 10% dependent on China, which was the big deal to begin with.

I think overall, when you look at the current tariff regime and who knows what's going to happen next week and next month, but the current tariff regime hits us in an unmitigated way to the tune of about $20 million. So our exposure is quite less than many others that are out there. And through our mitigation efforts, we're working on diversifying our sourcing. We've negotiated a lot with our factory partners. We have terrific factory partners who have -- we've worked with for a very long time, diversifying our sourcing, going out and really rethinking how we can work on costing, how we can work on product. We can mitigate most of what we see this year. We think there's probably about $5 million spread across second and third quarters of the highest -- or the hardest hit, but into the fourth quarter, things get a little bit better.

And then into next year, time helps in terms of being able to diversify and to really rethink their product assortment, and that's very much what we're doing. Our teams have been doing a terrific job. It's a day-to-day thing. It involves a lot of visiting to our factories in Vietnam, a lot of visiting to our factories in India, a lot of pivoting to figure out what makes the most sense for here and now. But our relative exposure is less.

Given that you sell a lot of other brands products, I'm curious how those conversations with your vendors are going. Are they seeking additional margin dollars to try and offset their own tariff impact? Or is price the primary mitigation lever at this point for them? And are you seeing any impacts as a result of costs or pass-through straight to the consumer?

Sure. So we, in our retail business, sell a diversified set of global brands, both on the casual side and on the athletic side. And all of these brands are doing just what I talked about in terms of what we're doing because they understand that they want to mitigate the impact on the consumer as much as possible. And so what our brands have done is that they have taken a look at this and have been very thoughtful and very selective about price increases.

And so it is very much if you've got hot product, hot product is going to sell out. We work on highly allocated models. You can get what we sell other places, but you can't get it everywhere. And it's very much about allocation and about having that right product. And so our brands have been very thoughtful about how to take price increases, and they have been minimal to this point. We have seen some price increases. I think they're spreading it out across their global footprint as well.

In terms of the conversation, much of any impact that we have seen so far has been translated into higher MSRPs. And in terms of where we are thinking about building back our profitability, we have a lot of opportunity to build back our profitability. So the conversation we have with our brands is that we don't expect that we're going to get any margin hit that we don't have room in our P&L to be able to take that margin hit. But it's a very constructive, very productive set of conversations we're having.

Very clear. Let's turn back to some of the exciting initiatives that you have going on at Journeys. You've delivered some very robust comp improvements of late. What are the drivers of that? And what gives you confidence that, that is sustainable?

Sure. Well, we think it's very sustainable. We're in very early innings of what we're seeing happening within Journeys, and it all starts, Brooke, with where we are with serving that larger customer market. And I know you've been a Journeys shopper through the ages. The beauty of our model is that we can evolve to whatever is relevant for that teen and that young consumer. And our sharp point in terms of our -- of strengthening our positioning has been around that teen girl.

And so as we think about the product assortment, the first wave of opportunity that we had was leaning hard into the product assortment, getting more depth, getting more breadth, working with our brand partners. We typically are the #1 or #2 partner on the casual side. We have been growing our strength on the athletic side and then canvas is another leg of our stool. And so when we think about where our opportunity is, it is footwear leadership in an elevated assortment, elevated beyond where we've been. And so what we've been seeing in terms of driving comps has been elevated price points, which have translated into higher ASPs.

We always sold fairly robust price points on the casual side, and we have been matching that on the athletic side. And so altogether, we are appealing to this customer, this larger customer base in a more -- with more elevated product in a more elevated environment. And so product is really the first piece of it. The fact that we comped positive comps and in Journeys, in particular, we are looking at comping the double-digit comps that we had last year in back-to-school. We've had a great back-to-school, and we're comping double digits on top of double digits.

And so I think that a lot of questions about how long can this run be? Do you have 1 year worth of product opportunity? Well, in fact, we are better assorted now than we were last year. Our merchants did a fantastic job of chasing very much in-demand product, and we've had a chance over the last year to build even further what that assortment represents. And so elevation of product, more breadth and depth of the leading styles, we are always introducing new brands. We're not reliant on those new brands to be able to drive our comps, but we do see that we have more opportunity within our product assortment and within our overall selling prices.

The second area that we've been spending a lot of time on is that to appeal to this larger audience, we've got to get more Journeys brand awareness out there. We've been around for some time, but we have new generations of teens that we constantly have to appeal to. And so we have been investing a lot in brand awareness and in brand development. And so you will see that we are really thinking about all the touch points. If you visited our site lately, if you visited our stores lately, you'll see very different imagery in terms of what Journeys is about. And we have very -- our team has done a great job of being able to retain the customer base that we've had, but then also reach out to this broader base of customers who we always had something for them, but they didn't really think that Journeys was a place for them to go shop.

And so the brand awareness, the updated imagery, the tying together, our stores into social into our online platform, you'll see a lot of style blogs. We're style positioned. It is for the style-led girl. And so we are talking about style. We've got a style blog. We've got a lot of vignettes about what is in fashion, what is very much on trend. And we have spent a lot of time on social content. We have this amazing long-format content that has been on TikTok and has been in other places. It's the Jasmine series. If you all haven't seen it, you should definitely check it out. It's about a big foot who works in a Journeys store, and we've had 90 million views of that content so far.

And we're about to launch a fantastic new campaign Life On Loud, and it is all about music and celebration and youth and we're going to take that. It is a video. It's a remix of a '90s video. It celebrates the mall. It celebrates youth, it celebrates fashion. And taking that video, there are number of influencers that are in that. The social content will multiply from that and really just getting the word out about what Journeys is all about. That's our second pillar.

Our third pillar is about an elevated environment. And so you referenced our new 4.0 store, which you all saw in the video, and that 4.0 store is something that we've had great results on. It's a cleaner aesthetic. It's very shoppable environment. We've seen 25-plus percent growth in those remodeled stores. We've spent a lot of investment in our digital channel, and now we are investing within our store channel. And so those remodels have been paying off nicely as well. So broader customer group, much more elevated product being able to be -- to shop in a terrific environment.

And then the last piece is that we've always been known for our store people and our store experience, but we have been investing against training and upgrading our store people even further. And so that's paid off in tremendous conversion. So it's a multipronged integrated strategy to take Journeys not to where we were, but to a place that Journeys has never been before.

That's a lot of different initiatives that seem to be working. Let's dive a little deeper into the store strategy with the 4.0 fleet. You have just talked a little bit about some of those productivity and cost trends that you're seeing in the new fleet. But how does the upgraded store fit within the broader strategy? How are you thinking about the pace of acceleration? I know you're doing 80 this year, maybe 80 plus by year-end. I guess can you give us an update on what your expectations are for that as you roll that out through the balance of the fleet?

Sure. So the 4.0 is probably the most visible manifestation of the new strategy. And the important part about the new strategy is that really have to speak to the customer. And so you walk in, it's very shoppable. You see very clearly where the opportunities are across brands. We are seeing higher traffic. We're seeing better conversion. We're seeing higher average selling prices. And what's interesting is we've got much of the same assortment as we have in the rest of the store base, but yet that customer is reaching up to buy even higher average selling price product. And so the average selling prices are -- have been better than the rest of the chain.

And with such growth, it opens up opportunities for us thinking about even bigger stores. And so can we take a $2 million store, make it a $4 million store? Can we take a $1.5 million store, make it a $3 million store with such robust growth, it opens up opportunities for larger volume stores. Specifically around where we are with the 4.0, we just started rolling them out, and it is the fourth generation, which is why it's called the 4.0. We started rolling them out in October of last year. So it's been a fairly short period of time. We will have over 80 rolled out this year. We're concentrating on the top 250 stores. That's where we have the highest volumes and can make the biggest impact.

If you think about that the 80 stores would represent maybe 10% of our chain, 25% of overall lift, that's 2.5 points of comp. And so we can bank that this year. And then roll out the next 100 stores next year and 100 stores the following year. And so we have lots of comp drivers within the 4.0 store formats over the next couple of years. And we don't yet know how we're going to comp the comp. One of the major objectives of the 4.0 is to attract new customers. And so we are attracting more new customers without turning off our existing customer base. And so that's a really important part of the overall strategy.

You talked about attracting a new customer base. Earlier, we talked about some of the social media marketing that you're doing. Can you put it together, how many of your -- what proportion of your new customers are coming in through the stores versus your online site? And then are there any demographic or interesting consumer trends that you're seeing with the consumer cohorts in your new acquisition consumers versus the ones that have been legacy Journeys customers?

So it's early to tell that yet. And we are monitoring that quite closely. I mean we tend to serve a more affluent customer within Journeys, but we have a pretty broad range of customers. And serving the teen market, parents, a lot of times want to be able to support what their kids want and kids' ability to express themselves through footwear is something that we count on happening season after season.

And so as we are thinking about new customers, it's too early to know yet because we've just rolled out this 4.0 concept. Customers are just figuring out that there's an opportunity within Journeys. The preponderance of the comp growth that we've driven so far has been with our existing customer base. And so that bodes well for us that we've got a very strong base to be able to build on top of them. And so the second pillar that I was talking about in terms of brand awareness and reaching out to a broader segment of consumers is a really important part of it. We do know that in these 4.0 that we are attracting more new customers into the brand than we have in the rest of the store base. Online is an opportunity for us as well, but that's going to happen really through all of the marketing opportunities that we have underway.

One of the other changes that we've seen in Journeys over the last few years is the new brand partnerships that you've had, such as HOKA, Saucony. Can you elaborate on the rollout of those? How many stores are some of those high heat brands in today? What do you think that can get to? And what's the path for additional brand expansion from here?

Sure. So we are constantly introducing new brands. And I think that we've talked about HOKA and Saucony as some of the more recent additions. And part of why those brands are really important is that they represent what our customer is interested in. And so our customers are really interested in lifestyle running. They're really interested in 2000s running styles. And so having that full complement when you open a young girl's closet and you see what's in that closet, you see just a range of products from Birkenstocks to UGG to Adidas to -- you name it. And so being relevant is important in terms of having that full complement of brands.

And so most of the brands that we introduced start smaller. They start in 50 stores, 100 stores, 200 stores, but we have an incredible opportunity to scale it up through our store network with hundreds of stores and a very vibrant online presence, we can sell 1 million pairs of shoes really quickly. So our merchants are very adept at being able to figure out how to scale, when to move, when to move into a brand, when you move out of a brand. It's really very much part of the Journeys secret sauce and the formula that we have.

You mentioned a couple of customer preference changes or the fact that customers are very interested in the 2000 sneaker trend. Can you give us a little bit of commentary about what you're seeing in the back-to-school season regarding silhouette preference? What trends are you seeing? And are there any new silhouettes or categories that are starting to trend? We've had several cycles, canvas, vulcanized, skate, et cetera.

Sure. You've seen all those iterations of style and Journeys can do everything. And we've had skate, we've had goth, we've had preppy, we've had -- you name it. Right now, the beauty of where we sit in footwear is it is so diversified. There are so many things that are working. I called out 6 brands that had double-digit performance during the second quarter that we're counting on going forward and others to be able to really continue to drive comps.

And so consumers we've seen are -- have been on a clog trend. They have been on a exactly 2000 runnings. They have had -- we've had a great sandal season. There's been a lot of interest in sandals. We have early signs of boots performing in a way we haven't seen them perform over the last couple of seasons, and it's early and it's summer and it's still warm, although it's much cooler in New York these last few days. So the diversification is the thing that is the dominant theme today, and it's very brand-specific. And it's very much this consumer who wants to express himself or herself differently from one day to the next.

And so today, I might wake up and I might put on my sandals. Tomorrow, I might put on my running silhouettes. The next day, I may put on my boots. And so we've got a lot to choose from, a lot to be able to pick from to grow and to serve our customer.

We've spent the vast majority of our conversation on the momentum of Journeys because there is a lot going on there. But let's pivot and look at your Schuh business for a moment. Can you elaborate on recent performance there? Where are -- what's driving the most traction? And what's your outlook for -- or what are you seeing in the U.K. shopping environment overall?

Sure. So we acquired Schuh when we went to go open Journeys stores. So for those of you who aren't familiar with Schuh, it's very much service the same customer, very much serves the -- that has the same brand assortment. Not everything translates from one side of the Atlantic to the other, but we had a lot of success sharpening our overall focus very much for the young 25 and under teen and young college customer with a sharp point on that female customer. And so we had a lot of success over many years, gaining market share and growing in -- around that customer cohort.

Of late, the U.K. market has been pretty challenged. We had a couple of quarters of really nice positive growth. And in May and in June, really saw a pretty significant drop off overall in-store traffic. The themes around the consumer are the same, but they are even more discriminating. And so the brands and the styles that are resonating at Schuh are the ones that are resonating in Journeys, but there's limited interest in the rest of the assortment.

And so we've got an action plan for the near term, which is to drive a lot of traffic and conversion in stores to amp up our marketing to really go after an even better assortment and fill in a product in the near term. But over the longer term, it's many of the items from the playbook of Journeys, which is just building into a larger opportunity of a marketplace with more elevated product, great brand partnerships and a lot of marketing to let the customer know that we're here.

Let's turn to Johnston & Murphy. What are the key drivers of incremental improvement from here?

Yes. So we've got a diversified set of customer groups that we are focused on. Johnston & Murphy has been another story of reinvention, where it's a 175-year-old brand. It's, we believe, the longest continuously operated brand in the United States. And it's uniquely been known for its dress shoes and the pandemic gave us an opportunity to reimagine what Johnston & Murphy is all about. We lean heavily into casual into more comfortable styles and products. We really created more of a lifestyle brand where 50% of the product that we sell is non-footwear product and had lots and lots of years of growth coming out of pandemic.

Last year, we had some headwinds in terms of just overall comp performance. And what we noted is that the product cycle and being able to develop product newness and freshness and bring that to our stores and to our online channels was even more important than ever before. And so gone are the days, Brooke, of the 2 seasons worth of product. We found that we needed to rethink our product development process where we had to inject more product, more freshness into the assortment on a more regular basis. And that really requires more into the innovation pipeline. It requires more opportunities for us to drop product mid-season. And so we've been spending a lot of time working on that.

Our lead times are long. And so at the end of about a 1-year process, we were pleased to see our comps inflect positively. And so the lineup for Johnston & Murphy is to build on this, is to build on this product pipeline and the innovation and then also on just the strategic repositioning in the mind of the consumers. We think everybody knows about Johnston & Murphy because it's a 175-year-old brand, but yet the brand awareness is relatively low. And so we've got a fantastic campaign around the 175 years young. We have been shifting a lot of our marketing spend into brand building. We have a super exciting new brand spokesperson who will be revealed in October that you all will certainly know who is really representative of the brand, and we'll do our brand, some just great things for our brand in terms of just building overall awareness. And so we're excited about the opportunity that Johnston & Murphy represents.

That's really great. We touched a little bit about pricing earlier, but what are your expectations for the pricing of the items in your store into the back half of '25 and into '26? Have you seen any pushback or elasticity as a result of recent changes? And Sandra, what do you think about promotions from here? How does this inform your expectations?

Yes, I'll start there. So on pricing, we're taking a multitude of efforts to help offset the cost headwinds, right? And pricing is one of those. As Mimi mentioned earlier, we're doing a lot of things across our business, including negotiations with our factory suppliers, our efforts around expense reduction and also around pricing. So what we do know is that our customer is willing to save and to buy what they want, and that's what we are focused on, and that's where we're spending our time and efforts with our 4.0 remodels as well as our brand awareness campaigns and marketing. And so in regard to that, we think the consumer will continue to want to buy the brands that they love and that's what we're positioning ourselves to do.

As far as promotional environment, we obviously are seeing that in our U.K. business right now, which is highly competitive. I think time will have to tell on all aspects of what's going to happen. It's been a very volatile environment since April. And so I don't think any of us can really continue to predict. But what we're doing is making sure that we have the product that they really want to buy and that they're willing to pay for.

Let's keep on the line of margins and speak a little bit about SG&A. Where do you see opportunities to drive efficiencies and cut costs further going forward? And how are you thinking about balancing that with reinvestment and growth? One question that we're asking is just expectation for non-tariff margin drivers. Do you think they'll be better, the same or worse into 2026?

Yes. Again, starting in 2026, I think it's highly unpredictable at this point. We've seen a lot of volatility and what we know is that we're flexible and agile in responding to that. We have been focused over the last few years on productivity and efficiencies through our cost initiatives and programs. But as Mimi talked about, we're really investing for growth. And the growth is really important for us because we have a large fixed cost base with our stores, and we know that our consumer wants to shop in our stores.

And so we believe that what we've seen through the first half, especially in our Journeys business with the fourth consecutive quarter of positive growth that's driving a lot of leverage in our SG&A. And we're expecting that for the full year, we're going to grow 3% to 4% and have 4% to 5% comps. And as we do that and especially do it through our store platform, we're seeing a lot of leverage in our business. So we're predicting 80 to 100 basis points of leverage through our SG&A as we look into the back half of this year. And as we continue to focus on investing for growth and things that Mimi talked about, which are our 4.0 store formats, our brand awareness campaigns. As we do that over the next few years, 100 basis points of leverage each year is going to be meaningful to our bottom line in our operating income.

Let's tie all that together with the meaningful opportunities from SG&A. What do you think is an achievable medium-term EBIT margin for the business, both on a near and medium-term basis? What are the most more drivers? Is it indeed SG&A?

Yes. I think that it's a combination of things. It's just like our strategy, right? There's many prongs to it. One of the most important things is for us to return to growth, and we're doing that, right? We've posted the fourth consecutive quarter of growth. And to continue to deliver on programs and initiatives that support that growth, as Mimi talked about, we're seeing this 25% improvement in these 4.0 stores, right? So that growth is going to help us to leverage our fixed cost base. And so all of that combined with our intent focus on implementing programs and initiatives that help to offset the cost headwinds is going to be major contributors to our operating income.

And so as we look forward and go forward this year, we're expecting improvement in our operating income. As I said, 80 to 100 basis points. We do have some headwinds in our gross margins this year with the timing of the tariff implementation. You heard Mimi talk about, there's about $5 million there and then some of the promotional activity in the U.K. But we're well positioned through our investments for growth to really leverage our fixed cost base going forward.

And just to add on to that. So if you think about where we sit right now, what Sandra talked about is the very strong connection between growth. And at 3% to 4% growth, we're leveraging 100 basis points. And so our plan is to continue to drive growth over the next 2 to 3 years and continue to add about that level of improvement to the bottom line. And 6% operating margins has been where we've been historically, that gets us to 4%. At 4%, we get close to $100 million, which drives several dollars worth of EPS.

And so a really good formula, a lot of opportunity as I began the conversation with to unlock significant earnings in the businesses that we have over the quite near term.

That's great to hear. Mimi, Sandra, I think we're about out of time. Any final thoughts that you'd like to leave with the audience?

Yes. I think we are excited about the momentum we have in our business. We have taken our -- we're building on our fifth consecutive quarter of positive comp growth. We're in very early innings of the Journeys strategic growth opportunity. We see quite a lot of runway ahead of Journeys. Not only in Journeys, but in the rest of our businesses. We're working hard to accomplish that. And then I think that the most important thing is really leading to significant growth in earnings and opportunity in the near term. Thank you for having us.

Thank you so much, and thanks to all the audience for tuning in.