Genesco Inc. (GCO)

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Genesco Inc. (GCO)

F1Q09 Earnings Call

May 29, 2008 8:30 am ET

Executives

Hal Pennington – Chairman, Chief Executive Officer

Bob Dennis – President, Chief Operating Officer

Jim Gulmi - Chief Financial Officer

Analysts

John Shanley – Susquehanna International

Jeff Klinefelter – Piper Jaffray

Scott Krasik – C.L. King

Mitch Kummetz – Robert W. Baird

Adam Comora – EnTrust Capital

Jill Caruthers – Johnson Rice

[Justin Mower – Lordap]

Steven Martin – Slater Capital

Presentation

Operator

Good day everyone and welcome to the Genesco first quarter fiscal year 2009 release conference call. (Operator instructions) At this time for opening remarks and introductions, I’d like to turn our call over to Mr. Hal Pennington, Chairman and Chief Executive Officer at Genesco. Please go ahead sir.

Hal Pennington

Good morning and thank you for joining us for our first quarter of fiscal 2009 conference call. Participating with me on the call today are Bob Dennis our President and Chief Operating Officer and Jim Gulmi, our Chief Financial Officer.

As always we will make some forward-looking statements in this call. They reflect our expectations as of today but actual results could be materially different. We refer you to our earnings release and to our recent SEC filings, including the 10-K for the fiscal year ended 2008 for some of the factors that could cause differences from our expectations. For those listening to the replay of this call on the internet, some of these factors can be read on the opening screen.

As you saw in our press release, we’re off to a good start for the year, especially given the challenging retail environment with first quarter results that exceeded our expectations. Net sales increased 7% to $357 million. Total same store sales increased 2% and we estimate that diluted earnings per share was $0.14 per share for the quarter compared to our guidance of $0.08 to $0.10 before the items we break out in the schedule in our news release.

We also effectively managed inventories. Year over year they were up less than 1% for the quarter compared to up 15% at year end. And, we repurchased approximately $91 million of stock or 4 million shares at an average price of $22.73. Our strategies for individual business are working.

Journeys, Hat World and Underground Station all posted comps above expectations. Johnston & Murphy delivered operating earnings as planned despite some market related pressure on comps. And the Dockers footwear business remains solid.

So again, we’re encouraged by these results, particularly in light of the ongoing challenges in the marketplace and I would like to thank our entire team for their continued hard work and dedication. And now I’ll turn the call over to Bob to discuss each division in detail.

Bob Dennis

Thanks Hal. Let’s begin with Journeys. Comps for the Journeys group were flat for the quarter and comps in the Journeys stores were up 1% compared to 3% last year. The better than expected comp was driven primarily by strength in our skate business. Overall, unit comps increased more than 5% while average selling price declined about 5% during the quarter primarily reflecting a 39% drop in Heelys ASPs.

Excluding the Heelys business, average selling price was roughly flat. We estimate that Heelys negatively impacted Journeys’ comp by approximately 6% and net sales by $7.6 million. However, we expect that the Heelys negative impact will moderate later in the year beginning in July.

Men’s footwear made up about 54% of Journeys footwear sales for the quarter and women’s footwear was about 42% while kid’s was 4%. As planned, we were aggressive in managing our inventories at Journeys during Q1. At the end of the quarter, inventories were actually below plan to a more conservative level that is appropriate for the current business environment.

We opened seven new stores during the quarter and remain on track to open 28 this fiscal year to end the year with a total of 831 stores. We also expanded seven Journey stores and plan to expand 22 more stores during the year. Finally, our Journeys direct business which represented about 3% of the Journeys Groups’ total business was up 37% during the quarter.

While we did increase the number of catalogues mailed, the sales increase was disproportionately higher than the circulation increase. As we move into summer and back to school, we feel good about our positioning. We believe Journeys first quarter performance is an encouraging sign that our product selection is right. Longer term, Journeys position as the go to footwear retailer for teens seems to be as strong as ever and leaves us confident about the future.

In Journeys Kidz, comps declined 8% in the quarter compared to a 6% increase last year. This was again primarily due to weakness in Heelys which represented an even higher percentage of Kidz sales than in the Journeys stores last year.

We estimate that Heelys negatively impacted Journeys kid’s comp by about 7% in the first quarter. As with Journeys, we expect the Kidz business to reflect the Heelys effect fairly dramatically through the end of June and then to benefit from the easier comparisons once we anniversary the decline of that business beginning in July. We opened eight new Journeys Kidz stores during the quarter and expect to have 140 stores in operation by the end of fiscal 2009.

Turning briefly to Shi by Journeys, we saw nice gains in the sandals and fashion athletic business but this was offset by broader weakness in dress and casual footwear. With 50 stores in operation, Shi remains a work in progress. We continue to fine tune our merchandising, pricing and presentation and we remain encouraged about the prospects for this concept. Our current plan is to open 13 new Shi stores in fiscal 2009 to end the year with 60 stores.

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