Good day everyone and welcome to the Genesco Second Quarter Fiscal 2020 Conference Call. Just a reminder, today's call is being recorded. I would now like to turn the call over to Dave Slater, Vice President of FP&A and Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss our second quarter 2020 results and our full year fiscal 2020 outlook. With me on the call today are: Bob Dennis, Genesco's Chairman, President and Chief Executive Officer; Mimi Vaughn, our Chief Operating Officer; and Mel Tucker, our Chief Financial Officer. Participants on the call expect to make forward-looking statements. These statements reflect the participants' expectations as of today, but actual results could be different. Genesco refers you to this morning's earnings release and the Company's SEC filings, including the most recent 10-K filing for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made during the call today. Participants also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial measures referred to in the prepared remarks are reconciled to their GAAP counterparts in the attachments to this morning's press release and in schedules available on the Company's homepage under Investor Relations in the Quarterly Earnings Section. I want to remind everyone that we have posted a presentation summarizing our results and guidance that is accessible on our website. As another reminder, we filed an 8-K in connection with our last release in Q1 that contains adjusted non-GAAP fiscal 2019 results by quarter for the last year, restated to reflect the sale of Lids Sports Group as if we never owned the business per GAAP requirements. You can find that on our website as well. Now I'd like to turn it over to Bob.

Thanks, Dave. We have two new people in the room with us today. Just heard from Dave Slater, who joins us with over 20 years of retail experience with leadership roles at Chico’s FAS, Dollar Tree, and Walmart. Dave will be leading our Investor Relations function as well as our Financial Planning & Analysis team. We are excited to have someone with his relevant retail background join our team. As Dave mentioned, we are also joined today by our Chief Operating Officer, Mimi Vaughn; and for the first time, Mel Tucker, our new Chief Financial Officer. Mel joined Genesco in June from Century 21, the New York-based department store where he was CFO since 2014. Mel also has extensive retail experience having served in senior financial roles with leading companies such as Bass Pro Shops, PetSmart, and Home Depot during his 25-year career. We are thrilled to have someone of his caliber on our team. So welcome to you both. In a moment, Mel will review our recent performance and updated outlook in detail, and Mimi will cover some specific topics that could have potential impact on our business and the progress we are making on the Schuh 20-point plan. But first, let me walk through the highlights from the second quarter. From a high level, our consolidated results exceeded expectations across the board. The performance of our U.S. footwear businesses, Journeys in particular, fueled a 3% increase in consolidated comps, our 9th consecutive quarter of positive consolidated comparable sales for our footwear businesses. We were particularly pleased with this result, given the more challenging step comp comparisons we faced as we moved from the first into the second quarter. Importantly, our overall brick-and-mortar performance remained in positive territory and e-commerce comp sales accelerated to 20%, continuing its strong multiyear run. Total sales for the company would have been up, but for the impact of lower U.K. and Canadian exchange rates. The solid comps coupled with higher gross margins across all divisions resulted in a significant improvement in profitability. Excluding bonus expense, SG&A was up only 1% as we continue to benefit from the numerous cost savings initiatives we implemented through fiscal 2019 and in this fiscal year. On an adjusted basis, earnings per share was $0.15 compared with a loss of $0.01 in the second quarter last year. This solid performance combined with our strong first quarter results represents a great start to our first fiscal year as a footwear-focused company following the sale of Lids in early February. We completed the balance of the significant work of transitioning Lids off our infrastructure and systems during the quarter and we continued the important work of eliminating the stranded costs associated with the sale. Looking now at the performance of each of our footwear businesses in Q2. For Journeys, it was another outstanding quarter as the strength of its product assortment fueled continued topline momentum even as the business was up against a more challenging comp comparison. Strong full-price selling of seasonal footwear, including sandals contributed to Journeys' Q2 sales and margin gains, as did the ongoing success of fashion athletic styles. As usual, the retro and casual products that were bestsellers this year were different from a year ago, as the Journeys merchants continue to showcase their ability to adeptly manage the fashion rotation that is an inherent part of the business. Both store and e-commerce comps at Journeys were nicely positive, which led to a 4% comp increase on top of last year's double-digit gain and a significant improvement in year-over-year profitability. Similar to great recent quarters, great expense control along with strong sales allowed for expense leverage with rent leverage as the highlight. Moving over to the U.K., the operating environment remains difficult due to the continued soft consumer demand for apparel and footwear, challenging retail traffic overall and the overall economic weakness related to even greater Brexit uncertainty. Given all that, we were pleased that Schuh achieved a flat comp driven by improved e-commerce results. The Schuh team did a good job navigating the current headwinds to deliver higher gross margins than a year ago through careful inventory management and lower markdowns on sale product. Unfortunately, this effort wasn't enough to offset lower overall sales from changes in foreign exchange coupled with the deleverage from negative store comps in the quarter. Some of you might have seen a recent article in the U.K.'s Sunday Times that reported Schuh had engaged an outside adviser to help explore potential restructuring opportunities. It's important to understand the meaning of the word restructuring in this situation. We are largely looking at ways to renegotiate rents for Schuh's store fleet in order to improve profitability, following the ongoing declines in High Street and mall foot traffic making these rents uneconomical. Let me be clear, as I think the article might have been misinterpreted. We are not exploring a potential sale of this business. Schuh remains firmly in our future plans, and we are encouraged by the results of our 20-point plan, and we are committed to working closely with the teams to improve upon recent results. So now back to the U.S. Johnston & Murphy retail comps improved from first quarter levels, despite being up against stronger comparisons in the second quarter. While the shift to the sale catalog to later in the quarter versus last year was less effective than we had hoped, resulting in J&M's 1% comp gain, we did benefit from strong apparel sales. The business also achieved better gross margins and benefited from lower expense dollars delivering operating profit above last year's levels and ahead of expectations. Nine of the top 10 shoes for the season in our retail business were casual sport or hybrid styles with athletic-inspired bottoms underscoring the progress J&M has made diversifying its product offering beyond the dress shoes that the brand was originally known for. Finally, Licensed Brands also delivered a better bottom line performance, with meaningfully higher gross margins on lower sales. With a sizable cash flow generated from operations last year and the sale of the Lids business, we've been actively buying back stock opportunistically and returning capital to shareholders. Across two authorizations totaling $225 million, we began buybacks in late December and as of last Friday have repurchased close to 5.2 million shares almost exhausting the second authorization. This represents a 27% reduction to average shares outstanding last year. While the most recent repurchase activity will aid earnings for this year, the impact will be in the back half. The improvement in earnings per share above our expectations in Q2 was driven by better operating performance and not by share buybacks. Even after finishing these two authorizations, we still have excess cash flow from last year we can put to work, and we anticipate generating additional cash flow in this fiscal year to add to that. We are pleased to share that the top line momentum that we experienced in the second quarter continued nicely in August on both sides of the Atlantic for Journeys and for Schuh through the heart of the back-to-school selling season. J&M's August comp results slowed during this low-volume month for this business, as fall goods began to land and before a shift in the season begins. Based on our strong first half results and positive start to the third quarter, combined with the repurchase of more shares than we initially expected, we are raising our full year guidance. We now expect earnings per share for fiscal 2020 to be between $3.80 and $4.20, up from our previous range of $3.35 to $3.75. And as always, we do regard this guidance as a range with some upside and some potential downside. We are now more optimistic about Journeys' results offset by foreign exchange headwinds at Schuh and some comp headwinds at J&M. Later in the call, Mimi will review some of the other headwinds we potentially faced in the back half, which have not been built into our guidance namely tariffs and Brexit, and our plans to lessen their possible impact. With respect to our guidance, something close to the middle reflects our best current belief of where we might turn out for the year, which represents an increase in the neighborhood of 20% over fiscal 2019 earnings from continuing operations of $3.28. And with that said, let me turn the call over to Mel to give more specifics of the financials and the guidance. Over to you, Mel.

Thanks, Bob. Good morning, everyone. As Bob said, we were very pleased with our second quarter performance. Our year-over-year profit improvement was led by Journeys, with Johnston & Murphy and Licensed Brands each contributing to the improved results. Adjusted EPS grew considerably to $0.15 from negative $0.01 in the prior year, driven by solid comps and improved gross margins, both of which contributed to the beat versus expectations. This was partially offset by some SG&A deleverage in this lowest volume quarter, as small increases in expenses can have an outsized impact. Q2 consolidated revenue was flat with last year at $487 million. Excluding the effect of lower exchange rates, revenue was up 1%. Consolidated comps were up 3%, with store comps up 1% and direct comps up 20%. Positive comps were offset to some extent by lower wholesale sales and closed stores. Direct, as a percent of total retail sales, was 10% in Q2, up 150 basis points, accelerating the good progress we continue to make in driving e-commerce. As a reminder, we run our e-commerce business to be a profit center. We could grow e-comm more rapidly with higher marketing expense and more free shipping and return offers, but we choose instead to keep an emphasis on profitable growth. Journeys posted a solid comp increase of 4% on top of a robust 10% gain last year, marking the 9th consecutive quarter of increases highlighted by both positive store comps and strong double-digit e-commerce growth. Comp sales on a 2-year stack basis improved from Q1 to Q2. Highlights of Q2 store performance included mid-single-digit increases in conversion and a low single-digit increase in transaction size, which drove a strong comp in spite of less store traffic. Schuh posted flat comp sales for the quarter in spite of a challenging macroeconomic environment in the U.K. versus a negative 7% a year ago. Not including the impact of foreign exchange, Schuh total sales were down only 1% for Q2. E-commerce posted a strong double-digit growth in comps but was offset by negative store comps. Store traffic declines and lower conversion rates were partially offset by higher ASPs. Comp on a two-year stack basis improved sequentially from the prior quarter, from double-digit negative to single-digit negative. Consumer brand choices continue to be polarized with strong preferences for certain athletic and casual brands; increased kids and accessory sales were highlights for the quarter. J&M posted a 1% comp for the quarter on top of a challenging 8% comp comparison from the prior year. A decline in store traffic was offset to some extent by an increase in conversion and higher transaction size. E-commerce comps drove the positive overall comp for the quarter. Q2 consolidated gross margin increased 110 basis points to 48.6%. Journeys' gross margin increased 70 basis points due to freight claims credits, lower shipping and warehouse cost, and lower markdowns. Schuh's gross margin improved 50 basis points due to a more efficient sell-through of sale product with lower markdowns. At J&M, gross margin was up 150 basis points, due largely to a favorable comparison in the wholesale business that we made the decision to clear merchandise last year in our women's category. Licensed Brands' gross margin improved 470 basis points due to more direct consumer shipments, fewer markdowns, and less closeout product. Total adjusted SG&A expense increased 30 basis points to 47.6%, driven primarily by increased marketing expense. As overall mall traffic has declined, we have been growing our direct channel. We have invested in additional paid search and catalogs to drive traffic to our stores and to our websites. This increase in marketing expense was partially offset by lower bonus expense and rent savings. In this low-volume sales quarter at a 1% store comp, we deleveraged store expenses just a little bit, thanks to the cost savings initiatives we began last year. We have continued cost reduction and profit-enhancement activities into the current fiscal year. Included in these activities is an effort to eliminate shared and stranded costs as a result of Lids' divestiture. In total, we had between $12 million and $15 million of expenses that were allocated or shared with Lids, primarily in areas like Finance, IT, HR, and the Call Center. We believe over time, we can eliminate much of this stranded cost and are working diligently towards that end. As part of the larger cost reduction efforts, we continue to have in partnership with our landlords very good success on renewals and rent reductions. We've negotiated 92 renewals year-to-date and achieved a 15% reduction in cash rent or 11% on a straight-line basis in the U.S. This was on top of a 15% cash rent reduction or 8% on a straight-line basis for almost 170 renewals last year. An important aspect of these renewals is the short-term, which for this year averaged approximately three years. This allows us to think about rent increasingly as more variables than fixed, providing flexibility in our cost structure. Other areas of savings identified this year include store labor hours, warehouse expenses, and credit card fees. In total, between stranded cost elimination and these other opportunities, we aim to identify this year another $20 million of cost to take out of the business. In summary, the second quarter's adjusted operating income was $4.7 million versus $1 million a year ago. Adjusted operating margin increased 80 basis points to 1%. Operating income dollars increased for every U.S. footwear division, offset to some extent by Schuh and higher bonuses at corporate. Turning to the balance sheet, inventory is in good shape. Q2 inventory was up 2% on flat quarterly sales. We intentionally added inventory at Journeys to be better positioned to supply our business during the back-to-school period. Journeys' inventory was up 6% on a sales increase of 3%. J&M's inventory was down 4% on sales that were down 2%. Schuh's inventory was up 2% on a sales decrease of 1% on a constant-currency basis as Schuh successfully managed inventory in a tough retail environment. Capital expenditures were $7 million and depreciation and amortization was $12 million. We continue to aggressively return capital to shareholders using almost all of the $100 million repurchase authorization that our Board approved in Q1. As of last Friday, August 30th, we have repurchased close to 2.5 million shares for a total of $99 million. Altogether, including the initial repurchase authorization of $125 million, we have repurchased 5.2 million shares since December for $224 million. We ended the quarter with $58 million in cash versus $50 million a year ago and no U.S. dollar borrowings. Moving on to guidance for fiscal 2020. With a better-than-expected Q2 performance and a solid start to Q3 and the important high-volume back-to-school season coupled with the repurchase of additional shares, we are taking our EPS guidance range up to $3.80 to $4.20 compared to our previous guidance range of $3.35 to $3.75. Something close to the middle of this new range reflects our best current belief of where we might come out for the year. We continue to assume low single-digit overall comps for the year's remaining quarters due to more difficult stacked comparisons in the back half for Journeys in particular. While we have increased Journeys' Q3 comp assumption given the positive back-to-school results thus far, we've reduced our Q3 comp assumption for J&M given the slow start to the current quarter. In addition, since the last time we discussed guidance, we faced further headwinds from the weakness of the British pound, which could affect sales and profits for the year. Another variable is the exact timing of eliminating stranded costs from the Lids divestiture. While we are pleased that Lids is completely off our shared services and systems and are confident we will ultimately eliminate much of this cost, Lids unplugged even faster than we expected. We have a detailed plan to eliminate the stranded costs that remain but have more potential exposure for this year in Q3, especially due to this timing. In the high end of our guidance range, we eliminate more costs. In the low end, less. The guidance also does not anticipate repurchases of shares beyond the buybacks we've already completed. As Bob said, Mimi will discuss the possible impact of tariffs and a hard Brexit in the U.K., both of which could affect our results, but we have not built anything explicitly into our guidance related to either of these factors. For the year, we still expect consolidated sales will range from down 1% to up 1%, with the high end of the range becoming more challenging with the pound weakness, but now expect higher consolidated comps ranging from up 2% to up 3%. Store comps underlying guidance now range from up 1% to up 2%. We still plan to open around 30 new stores, mostly Journeys and Journeys Kidz. We plan to close around 40 stores if we can't get the right rent deals or square footage decrease for the third year in a row. We now expect gross margin to be up 30 to 50 basis points in total, up from our initial estimate of 10 to 20 basis points, with much of the improvement coming from the branded businesses, namely J&M and Licensed Brands. With a low store comp and the timing of eliminating stranded costs, we now expect SG&A expense will deleverage in the 30 to 50 basis point range. This all results in an operating margin within a few tenths of last year's levels and EPS that ranges from up mid-teens to up in the high 20% range due to the net impact of share buybacks. We now estimate that fiscal 2020 tax rate at approximately 28%. An important callout for modeling for the remainder of the year is that we expect much of the year-over-year improvement in EPS in the back half to come in the fourth quarter. Capital expenditures will be around $45 million as we plan to spend more on digital and omnichannel investments while still investing to refresh our store fleet. We estimate depreciation and amortization at $50 million. Lastly, we are assuming an average of approximately 15.7 million shares outstanding, assuming no stock buybacks beyond what we have made to date. Now I'll turn the call over to Mimi who will cover how the company is positioned to deal with two external headwinds, tariffs and Brexit, and provide an update on our Schuh 20-point improvement plan.

Thank you, Mel. Good morning, everybody. As we've discussed, it's been a strong first six months of fiscal 2020 and we're heading into our busiest selling season with nice momentum. While we feel good about our prospects for the year, evidenced by our heightened outlook, both tariffs and Brexit present possible headwinds, and we're taking specific actions to mitigate their potential effect. Most importantly, we continue to root for a successful resolution of trade negotiations with China. As far as the fourth tranche of tariffs effective on September 1 and December 15, we don't believe the impact will be significant in this fiscal year and haven't yet included anything in our annual guidance as it remains a very fluid and dynamic situation. On an annual basis, currently about one-third of our merchandise is imported from China, with approximately 10% from direct imports and the remaining amount imported by our third-party vendors. To give the details in terms of direct exposure, we develop and directly source merchandise for Johnston & Murphy and Licensed Brands, which together were a little less than 20% of our total sales in fiscal 2019. Of those goods, approximately 50% currently comes from China with a heavier weighting to Licensed Brands, resulting in direct sourcing from China for merchandise representing a little less than 10% of our sales in total. Since most of this product is leather shoes, the tariffs unfortunately went into effect at the start of September versus in mid-December. We pulled forward as much inventory as we could for receipt ahead of September 1 and have been working with our vendors to share the now higher cost. The devaluation of the Chinese yuan is also helping lessen the near-term impact. We currently estimate the potential impact to our bottom line in this fiscal year, if nothing changes under the current circumstances, to be in the neighborhood of $1 million relating to this product that we source directly, given how late it is in the year. Looking further out, our intent is to diversify sourcing as much as we can outside of China and these efforts are well underway for fiscal 2021. The balance of our merchandise is imported by our third-party vendors. For Journeys, which accounted for 65% of total sales last year, we estimate that 30% to 40% of the product we buy from third-party vendors is currently sourced from China. The remainder of our business, which is based in the U.K. and the Republic of Ireland, of course, does not affect us. For this indirectly sourced product, we expect that our third-party vendors would undertake similar actions to what we're taking. However, we have less visibility into their specific plans. We do know that many of our vendors, especially the bigger ones which represent the majority of our purchases, have long ago diversified their sourcing to include countries in addition to China. Therefore, we anticipate they will ship as much product sourced from factories and places like Vietnam to the U.S. as they can to mitigate any impact. The good news is that, to date, we have not heard from any of our footwear vendors that they intend to pass on price increases for this year. Shifting gears now to Brexit. While we hope a hard Brexit, which entails the U.K. leaving the European Union without a trade agreement in place, does not become a reality, our Schuh team has been diligent about understanding the potential impact and has spent several months crafting a detailed contingency plan to minimize disruption if it does. While there will be some additional costs to operate in this new environment, they would expect only a small amount of Schuh's product in operations. The Brexit situation evolves daily, but we believe we will be well prepared for whatever comes our way. To give some color, we have to think about this situation, both from the standpoint of what we sourced and where we operate. Like our situation in the U.S., Schuh has both indirect and direct sourcing. The indirect piece, the product brought in by third-party vendors represents almost all of what Schuh currently sells. Today, much of this product lands on the continent before coming over to the U.K. duty-free and with no customs border. It's our current understanding that the U.K. government plans in the event of a hard Brexit that goods landed in the U.K. can be cleared immediately and duties paid retrospectively. If so, the vast majority of the products we sell would be able to flow freely into the U.K. For the remaining product that Schuh directly sources, which is largely our private-label product, a little over half of this comes from the EU. These goods could potentially be subject to additional tariffs which would represent a small amount of additional costs if we can't find alternative sourcing outside of the region. Then in terms of where Schuh operates. Of its 132 stores, 10 are in the Republic of Ireland which would remain in the EU. All product flows back and forth freely between these markets with no customs or duties today. We have options for the future including setting up a mini distribution center in Ireland to land a product directly to supply these 10 stores and the e-commerce demand, rather than continuing to supply from the U.K. This change would drive some additional costs which would be partially offset by savings from the removal of other costs we incur in today's supply chain. The Schuh team has successfully set up mini distribution centers in the past and stands ready to implement this plan in a matter of weeks if necessary. So in summary, the incremental costs from Brexit would be potentially some duty on a small amount of a product we sell, plus the additional expense of operating a mini distribution center in the Republic of Ireland, which should be manageable. Most importantly, goods will continue to flow into the U.K. Touching now on our Schuh 20-point program. Consumer spending in the U.K. has held up relatively well, thanks to the strongest labor market in decades; however, for some time now purchases have been concentrated in basics like groceries and housing, while purchases in discretionary categories, particularly footwear and apparel, have been under significant pressure. There continues to be a clear divergence, not only across categories, but also across channels, as growth in online spending far outpaces growth on the High Street. The incessant Brexit back and forth and prolonged uncertainty has weighed on consumer confidence which has been declining for some time now. Against this challenging retail and consumer backdrop and Schuh's performance, as we discussed on our last call, we implemented an aggressive set of actions aimed at immediately addressing near-term profitability. At the same time, we're executing initiatives to enhance Schuh's standing with the consumer and with the brands themselves to better position Schuh over the more medium term. The Schuh team is working hard with great urgency to impact the business. These initiatives include among many others: testing new categories like socks and apparel and fueling add-on sales; launching new digital marketing campaigns; implementing new selling techniques and incentives to drive in-store conversion; continuing cost-reduction initiatives; and rapidly adding to the database of consumer names to bolster its marketing program. As one of our most critical initiatives, as Bob mentioned earlier, we're attacking Schuh's fixed cost structure with a strong focus on rent reduction. In this environment, traffic into stores has declined and rents are well above what the market warrants today; we must make progress on this front and achieve not only reductions but more flexible rent structures to weather the current retail volatility. So now, I'll hand the call back to Bob for closing.

Thanks, Mimi. The strong start to the year, including our ninth consecutive quarter of positive comp sales as a footwear company, is a testament to the dedication, commitment, and hard work we glorify our employees on a daily basis. There are not many who can boast of this track record of successive positive comps, and with the solid start to the third quarter, the current trend continues, knock on wood; we are on our way to adding a 10th. We want to recognize the contributions of all of our employees and tell you how much we appreciate you. In addition to our team's ability to execute, there are several reasons we are optimistic about our future. Our company is anchored by well-known brands with strong consumer connections and loyalty, positioning us well in today's volatile retail world. Bolstering our confidence is the fact that we were early to invest in digital and omni-channel infrastructures and today enjoy advanced capabilities allowing us to connect with and serve our customers whenever and however they choose. The combination of our digital offerings and fleet of stores and important strategic assets represents a powerful platform to win with today's empowered consumer, and emerge as a clear winner in the ongoing consolidation of retail. We are working hard to reposition all our stores with shorter, more favorable lease terms, which gives us ultimate flexibility. And now as a footwear-focused company, the synergies among our businesses provide us with even more opportunities to drive enhanced profitability and greater shareholder value over the long term. We are truly stronger together. And with that said, operator, we are now ready to take questions.

Thank you. We will take our first question from Janine Stichter with Jefferies.

Good morning everyone. Congrats on the strong quarter.

Thanks.

Thank you.

Just hoping if you could give a little bit perspective on Journeys. It seems like the strength you're seeing there is pretty broad based. If you can just give us some perspective on what the concentration looks like whether it's by brand or by style that you're seeing right now? And then maybe some thoughts on how you're thinking about boots for the holiday season? And then kind of along those lines also the e-commerce business really strong this quarter. So just any thoughts on what you're doing there that's maybe driving that growth? Thank you.

Sure. So Janine, just to start with the perspective on the brands, we've talked about this retro athletic trend that started with certain brands and it really has morphed into demand for other brands. This trend had a lot of legs because many of those athletic brands that we carry have retro styles in their libraries spanning back. The brands and the styles driving the business today aren't the ones that were driving the business two years ago. We are very pleased with the breadth of the comp drivers lately. Casual has been adding to the mix while at the same time, we have seen athletic continue to be strong. We had a very nice sandal season, a strong sandal season over the course of the summer. We had a strong boot season last year. So, we'll see about the coming boot season. It's a little too early to tell; the temperatures across the country, at least Nashville this week are in excess of 90 degrees. So, it's hard to get a clear reading on the boot season as yet, but we feel like we're well diversified across brands and across franchises. There's a lot of newness in what we've been seeing. We are particularly pleased with the progress, as I said, that we are making in casual. On e-commerce growth for the upcoming holiday season, look, we continue to make great progress within e-commerce. Some of the things that we're doing is we're just investing, and I think Mel said it on the call, he said that we run our e-commerce business to make profit. So, we measure carefully some of the investments that we're making and ensure that we're getting positive returns for that, but we have been spending more on paid search, we have been spending more on catalogs. It’s been a really effective tool to drive traffic not only to our websites, but also to our stores. We have a really nice set of investments that we've made in systems like order management that have given us some robust capabilities.

Helpful color. Thank you very much.

And we will take our next question from Jonathan Komp with Baird. Please go ahead.

Yes. Hi. Thank you. Maybe just a follow-up on Journeys. I know the business is performing well against tough comparisons. The comparisons stay fairly tough. So if you could give any more color on how you're thinking about the sustainability there? I know you're embedding lower comps but you've exceeded the plan recently. So I'm curious, the potential for that trend to continue as you look forward in the business as a seasonal mix changes.

Yes. There's not a whole lot more to say. The second quarter, the notable thing about the second quarter was, we were comping against two years for the first time of positive comps and we continue to run up. So we believe we're gaining share. We think the trends that were driving the business in the second quarter, they obviously, as we disclosed, persisted through back-to-school, and so we feel like we've got a good assortment for holidays. The only thing that modifies a little bit our outlook relative to how Journeys did in the first half is the comparison. They got tougher especially in the fourth quarter. So we're being a little, in our guidance, a little more muted in our comp expectations. But it's not because we don't think the business is strong; we just think the compares are up there. So it's about all we can say about Journeys.

Yes. And the only thing that I would point out is that, we move from a two-year stack of plus 1% in Journeys to plus 11% in the second quarter and we performed really well against that. Despite the fact that there are equally tough compares in the back part of the year, if we put that performance up in the second quarter, it does bode well for the back half.

Okay. And then maybe just a similar question for Schuh. I know you outperformed in the quarter but didn't change the comp outlook. So is that embedding in conservatism given all the factors we talked about, Mimi, or how should we read the second half outlook there?

Yes. I think I'd start by saying that we feel like we have a really good underlying business at Schuh. We've got advanced technology there. We've got a strong customer service orientation and we've got a really experienced management team. It's been a very challenging environment. We feel like our 20-point plan focusing on near-term profitability is good, and as you said our comps were better for the quarter than we expected. The thing, and really just a highlight for the back part of the year, is that there's just a lot of uncertainty in the U.K. It's like watching a ping-pong match where every few hours there's this new information out there around Brexit. Just being cognizant of that, I think that's what has caused us to continue to be conservative in the back half. We'll see how things develop from here.

And with Schuh, it's important to note that in the U.K., there has been a significant shift towards e-commerce and away from physical stores, as mentioned in the opening remarks. Foot traffic on the High Street has become increasingly difficult. The positive aspect for us is that Schuh was ahead of the curve in digital and omnichannel efforts even before we acquired them. They are consistently recognized as one of the leading omnichannel retailers in the U.K. These capabilities are greatly benefiting us. In the recent quarter, while there were negative results in stores, online sales were very positive, and they have an excellent system for meeting customer needs in the current climate. This gives us some confidence moving forward.

Okay, great. Then last one for me just on the profit outlook. Maybe first if you could remind us the $12 million to $15 million of stranded cost, is that an annualized number? And how should we think about kind of the impact you're embedding by quarter on a rough basis? And then might be early for this Mel, but I'm curious kind of coming in with a fresh look, if there's any areas that you see bringing in your perspective that might be able to go further in terms of some of the cost savings opportunities that the company has been pursuing, or if you think it will be pursuing the status quo in terms of the areas that have already been looked at?

So I'm going to take the stranded cost question and then hand it to Mel just to talk about some of the profit improvement initiatives that we continue to pursue for this year. But we've said $12 million to $15 million of stranded cost and that is over the course of a fiscal year. I would just remind you that we shared expenses in areas like IT and HR and Finance with Lids. In the first half of this year, if you think about it, we were providing these – so we continue to provide these services to Lids. While we have the cost we also were getting some revenue to cover those costs. We've talked about Lids unplugging even faster than we expected. By the end of next year, we think we can eliminate most of these costs out. That would be all about perhaps $2 million to $3 million of that expense. So it's just going to take a little time because we need to renegotiate contracts and reorganize some of the work and reinvent how we go at some of this work. We've got to sell those buildings and we have a path but it will take some time. So that really is what is weighing the SG&A expense in the back half of the year, is just our anticipating that we're going to carry these costs. We've got really good plans in place. We've got people who are working to eliminate these costs and to the extent that we can make progress faster than we've got planned out, then that will be good for the bottom line for the business. And I'll turn it to Mel just to talk a little bit about the profit improvement and cost savings.

Yes. I would just echo kind of what Mimi has said. I think that the important thing is, we've got a line of sight to eliminating these costs. It's just a matter of taking action to get it out. While we have a line of sight, really the question in my mind is just the timing of when we're going to take it out. We're kind of at a starting stop, but we're now moving forward and taking action or removing the cost. I think the divisions have done a very nice job of identifying opportunities on their P&L to pull costs. So the $12 million to $15 million in stranded costs, we think most of that's going to go away. We have also challenged them to go out and get some more program total of roughly $20 million in cost takeout. I expect a good piece of that to be out on an annualized basis as we end the year, but the rest of it coming in the first half of next year and we don't have full line of sight to the entire $20 million now, but the piece this $12 million to $15 million we do.

And our next question will come from Steve Marotta with CL King & Associates. Please go ahead.

Good morning Bob, Mimi, Mel, and Dave. Mimi, just to reiterate, I want to clarify, you mentioned that this year based on the timing of the tariffs and the mitigating factors that you've implemented so far basically bringing items in a little bit earlier that there's $1 million of direct COGS exposure in the current fiscal year to the incremental tariffs. Is that accurate?

Yes. That's right. And that's mostly associated with the products that we bring in directly. I think that I just want to give a shout out to our Johnston & Murphy and our Licensed Brands team. They've been having tariff talks going on since much earlier this year; since the spring, but they got on the issue right away. They've done a great job of pulling product forward as much as possible. We originally thought tariffs might go into place in August. So they went out and they pulled this product forward. Ever since we've heard about the September tariffs, our teams went back to work renegotiating with factories to contribute and have had lots of success in getting factories to say, okay, we'll help absorb some of this cost. A small amount of the product is expected by this year because you can imagine we landed much of the product that we're going to sell in the early fall, and so the exposure that we had is really in the very back part of the year. We're hopeful for some resolution of trade overall, but considering everything that we have right now the $1 million is associated with the goods that we import. We really have got nothing from any of our third-party footwear vendors about price increases. So that, from our view right now, should not have an impact.

Very helpful. And Bob, roughly three years ago there was a switch from a trend standpoint to retro, and it caught everybody by surprise as related to the swiftness of that change. So it's kind of a two-part question. One is, are you seeing anything new that might be different than the retro trends say a year from now? And layered on to that is, what kind of processes are in place now that may not have been three years ago so that even a swift change in trend might not mean such a headwind to comps and current merchandise?

Well, Steve, that's a great question. I won't be able to satisfy you completely. Firstly, if we were to notice a forward trend that would impact the merchandise landscape, we wouldn’t disclose that information as it gives us a competitive edge. What we have stated before still holds true: we've experienced a strong back-to-school season with the current assortment and we have a clear view of what the holiday assortment will be, leading us to feel optimistic about our direction, which is reflected in our guidance. I can't promise that a sudden shift in fashion preferences among teens won't occur, as it's difficult to predict such changes. We're focused on maintaining a diverse range of vendors and franchises, continually monitoring what is selling well, and our team is skilled at clearing out items that aren't performing. At present, we're on a very positive trend. The change we experienced about three years ago was quite unique in its abruptness and intensity. Historically, that event appears to have been an exception, but as you know, unusual events can happen at any time. So, while I won't say it will never happen again, we are prepared.

That's helpful. Thank you very much.

And our next question will come from Sam Poser with Susquehanna. Please go ahead.

Good morning. Thank you for taking my questions and for everyone new as well. I have a whole bunch. Number one, you talked about the impact of Brexit on the Schuh business with a potential impact and so on from sort of an operational perspective. But what about like on an ongoing sales perspective? You guys couldn't get goods into the country. What's it going to do to demand? I mean, what's the impression if Brexit actually happens? If it happens on a hard Brexit or soft Brexit? How the consumer do you think is going to respond there period in general?

Right now, Sam, the economic conditions by conventional measures in the U.K. are actually pretty strong. As Mimi noted, the consumer is spending; they're not spending it as much on apparel and footwear. Consumer confidence is a little weak. In terms of what's going to happen, there are so many scenarios in terms of what a Brexit could look like; if there will be one at all. It's pretty complicated. I'm not sure if there's a consensus among people who know more about this than we do about whether this introduces a recession to the U.K. or not. If it impacted employment, it obviously circles down through consumer spending. It’s just very, very hard to read exactly what the outcome would be if some form of a Brexit takes place because we don't know what that form is and so it's just really hard to predict. What we're doing, obviously, is we're doing what a lot of other people are doing, which is you stay as flexible as you can. To be honest, the amount of investment you put in is not going to be what it would be otherwise, if you had a clear line of sight to what the economic conditions are going to be. We're basically holding on tight. We're hoping that the country resolves this in a way that's favorable for the economy and the U.K. population and we'll all wait and see.

I have a follow-up about Schuh. You talked about the recent article and confirmed your full commitment. Can you share your long-term outlook for Schuh, considering the challenges it has faced over the past two years? With the implementation of the 10-point plan, what drives your commitment to the business? What would change that commitment, especially given the inconsistencies and current macroeconomic challenges?

The macro issues are the macro issues. One of the things that we think the macro issues are forcing is a consolidation of retail in the U.K. When we saw a flat comp achieved by Schuh with an improved gross margin in an environment where footwear was tough, that indicates that some of that consolidation is happening. Footwear has been sold in a lot of the bigger boxes in the U.K., and as you well know, many of them have been challenged economically. If there's going to be square footage reduction in the U.K., that becomes our friend. Our biggest cost opportunity there, as we highlighted in our remarks, is rents. The conventions for rent setting in the U.K. are very different from the U.S. The best word I can come up with is a little bit quirky. Given all of that, our team believes there is an opportunity to partner with a lot of the landlords and to say, let's look at the long term and let's try to get to some rent structures that make sense for us and for you so that everybody in this industry can have a good long run. That is what we're pursuing. That's what the article was about. It did get misinterpreted by a few people and so we felt it important to clarify.

Thank you. Journeys, one thing we noticed during our store visits is the assortment. Has it become more focused in terms of brands and items? Have you narrowed your selection and if so, to what extent?

No, Sam, I don't think it's changed significantly. You might have asked that question four or five years ago when we narrowed down our focus. It's interesting to relate this to the earlier question about when we became more focused; that was during the fashion rotation. If you feel that we're expanding a bit more with brands, I believe that's accurate, and we actually appreciate that for clear reasons based on our recent history. It's a matter of degree. To be honest, I would need to get the numbers and examine them closely. We believe we are very well positioned and do not think we are taking unusual risks. I wouldn't categorize it as big bets.

You are making larger investments in the franchises you have. When mentioning brands like Fanzz, Converse, or Adidas, it seems that while the assortment is there, the brand selection appears to be more limited compared to the past. Is that a fair assessment? The overall assortment seems broader, but it seems to be more concentrated on key items and brands. Therefore, I am interpreting that there is less risk involved rather than greater risk.

Sam, it's a matter of degree. Honestly, I need to examine the numbers closely. We believe we are very well positioned and not taking unusual risks. I wouldn't categorize it as taking big bets.

And our last question will come from Mitch Kummetz with Pivotal Research.

Hi. Thanks for taking my question. Bob, let me start with you. You mentioned back-to-school momentum at Journeys and Schuh, and I guess, I'm most interested in Journeys. I know back in the good old days you would have just given us an August comp and we could call it a day. I'm guessing you don't want to back to that policy. But could you maybe speak to it a little bit directionally? I know there's a little bit of back-to-school in the quarter, a good two-three weeks of back-to-school in the quarter. I'm curious, if in the quarter, if you saw sort of a step-up in your Journeys comp from sort of earlier in the quarter to those last two or three weeks for back-to-school? So maybe, if you could speak to it that way.

We're going to continue to monitor the momentum from the second quarter into the third, but we won't provide specific details. Indeed, during the good old days, we used to give you an exact number. However, recent retail figures have been affected by the hurricane threat on the East Coast, resulting in considerable volatility just last week. You can see the impact on businesses as some were preparing to board up their storefronts. We're cautious about sharing more than the fact that the momentum from the second quarter has persisted into the third, which we are pleased about.

Yes. We did write in the comp guidance for Journeys for the third quarter. I think that we're taking a balanced approach to the outlook for the third quarter.

And at this time, I'd like to turn the call back to Mr. Bob Dennis for any additional or closing remarks.

Thank you everybody for joining us. Thank you for your questions. We look forward to catching up with you at the next third quarter earnings release. Thanks all.

So, this concludes today's conference. Thank you for your participation. And you may now disconnect.