Fiscal 2024 highlighted how substantially consumer shopping behavior has changed since the pandemic.

That observation looks like an understatement now that the market is getting a solid look at how everyone else has been doing over the last 12 months, but it wasn’t necessarily an Aha! moment either for Genesco, Inc. Board Chair, President & CEO Mimi Vaughn when she made that statement to open the company’s quarterly conference call with analysts. It appeared to be a call to action for the Journeys business and how it lost sight of its customers.

“Back in fiscal 2022, consumers were flush with cash, thanks to fiscal stimulus, and spent heavily in the footwear category, which led to a record year for Journeys,” said Vaughn, elevated to her role in February 2020. She joined Genesco in 2003. “As we entered fiscal 2024, we saw a pronounced drop in purchases at the beginning of the year and have been working to close the gap ever since,” she continued.

And nowhere has that been more evident than in Genesco’s street lifestyle retailer Journeys, which rode the wave as much or more than most.

Vaughn said the forward buying dynamic, with a period of higher inflation that followed, competitive discounting to clear elevated athletic footwear inventories and a general lack of innovation in footwear made for a complex operating environment that remained challenging as the business progressed through fiscal 2024.

“Throughout the year, these evolving purchase patterns led to greater volatility and made it hard to forecast demand, particularly for Journeys,” she said.

The company also owns UK-based retailer Schuh, vertical footwear brand Johnston & Murphy (J&M), and a host of casual and dress footwear brands it tracks under its Genesco Brands Group segment.

“In the fourth quarter, after a strong Black Friday and solid kick-off to the holiday season, sales were negatively impacted by a more selective customer that shopped almost exclusively for key footwear items, coupled with a market shift away from boots,” Vaughn shared. “As we got into January, the combination of softer-than-anticipated sales due to disruptive winter storms and higher-than-anticipated expenses at Journeys drove EPS below our most recent guidance.”

Adjusted for excluded items in both periods, Genesco’s fourth-quarter earnings from continuing operations were $28.5 million, or $2.59 per share, in fiscal 2024, compared to $37.1 million, or $3.06 per share, in the 2023 fourth-quarter period.

“Throughout the quarter, our core product assortment was much more pressured than we originally expected at the beginning of Q4,” Vaughn continued. “We expect this dynamic to carry into the current year, and given our limited ability to now impact product for spring, we believe it will remain a significant headwind in the first half despite facing easier compares.”

She said they were “clearly disappointed with these results” but suggested that Journeys is a fixable issue, reminding everyone that the company had faced challenging times before and consistently demonstrated a strong track record of turning around the business to emerge stronger.

“Our response to the pandemic and recent turnarounds at Schuh and J&M, evidenced by another year of record sales for both, are clear examples of this, and I’m confident we will achieve the same success with Journeys,” she committed. “It’s also important to note, despite a very difficult operating climate, in fiscal 2024, our overall sales declined only low single-digits and our gross margin compressed by just 30 basis points,” stressing the limited damage from Journey’s issues. 

“The sensitivity of our model is such that smaller movements in sales are magnified with quite a bit of deleverage against our largely fixed cost base. Coupled with our low share count, this substantially affected our bottom line; however, the inverse is also true. In a sales growth environment, as we’ve demonstrated before, our model provides significant leverage and earnings upside potential. Our cost savings initiatives are aimed at improving this further,” she continued.

Looking into fiscal 2025, which started in the beginning of February, Vaughn noted Genesco’s operating environment remained difficult.

“Given the steeper challenges in our core business, we now have more work to do in our assortment,” Vaughn offered. “We’re counting on more time for a Journeys rebound. That said, we clearly understand what we need to achieve; Journeys’ continued turnaround is our number one priority. With the right new leadership in place and a strong team overall, we’re better positioned than ever to accomplish this task.”

Vaughn said no other retailer serves street lifestyle footwear customers like Journeys.

“Journeys is the one-stop shop for a broad range of both casual and athletic brands,” she clarified on the call. “This unique proposition as the destination for teen fashion footwear, particularly for the teen girl, remains solidly intact. As fashion broadens and teens are embracing multiple wearing occasions, we will achieve success with a more diversified assortment that addresses these needs and fills out our customers’ closets.”

Vaughn said that the company has the backing of the consumer, who consistently scores Journeys higher than its competitors in market research and brand partners, who demonstrate exceptional support.

“Under [Journeys Group President] Andy Gray’s leadership, the Journeys team is working to dramatically accelerate the pace of improvement in response to how the consumer has changed,” giving a nod to the former Foot Locker exec who joined the company in January. “With his strong merchant background, excellent vendor relationships and expertise in brand building and product innovation, Andy’s insight has already proven tremendously valuable.” Vaughn said that they are working with great urgency and that their efforts would take time given the footwear industry’s lead times, but also noted that product solutions are in the works and expect they will set the stage for more significant progress for back-to-school and holiday.

“Andy and team have taken a deep dive on the business and put a sharper focus on a turnaround program and growth strategy that will impact the customer through product, marketing and experience,” Vaughn said before walking through the key steps in the Journeys turnaround plan.

1. Drive product leadership and create marketplace differentiation. “To continue improving Journeys footwear leadership and assortment, we’re implementing new strategies led by our recently appointed chief merchant [Chris Santaella] to meaningfully increase product access and boost investment in key fashion, athletic and casual brands. This includes diversifying and adding new key styles with our existing brand partners, increasing our leadership position with all our key brands, enhancing in-store social and digital exposure to build awareness with our customers to shop Journeys for these brands, and working to add brands beyond those were traditionally known for,” Vaughn outlined.

2. Build the Journeys brand and enhance the Omni experience. “We’re intensifying efforts to build and promote Journeys as an industry-leading retail brand,” Vaughn said. “We’re onboarding a new creative agency to develop a new brand communication strategy. We plan to roll this out in the back part of the year along with an updated brand mission, vision and purpose. 

In parallel, we’re improving Journeys brand presence and upgrading the customer experience with quick actions in both stores and online, including refreshed messaging and visuals that tell a cohesive brand story across channels and social. We’re excited about the investment we’re making to personalize and improve the timeliness and relevance of our marketing communications as well.

“We’re also evolving the All Access loyalty program, where they signed up over two million members in six months, continuing to provide “an exciting feature-rich program that differentiates Journeys, generates valuable consumer insights and encourages consumers to consolidate purchases across brands with us.”

“And, finally, we will ultimately pursue an updated store concept and next-generation design to enrich the customer experience further,” she concluded as she defined the updated experience.

3. Leverage the power of people. “This initiative leverages the expertise of our store employees to set us apart by providing excellent service as a differentiator,” Vaughn emphasized. “Over the past year, we’ve introduced new capabilities, including mobile point of sale and BOPUS, to improve efficiency and customer engagement. And this year, we will further improve training execution and roll out additional features like data-informed suggested selling.”

4. Optimize to drive operational and cost efficiencies. “We’re implementing several initiatives here, including continued efforts to optimize the store footprint, closing unproductive stores and redirecting traffic and sales, while strategically opening mall and off-mall locations and prioritized optimization projects focused on selling salaries, rent expense, inventory management and digital marketing spend efficiency.” 

“In summary, I want to emphasize my belief in our team’s ability to reshape our business and unlock Journeys’ considerable earnings potential, Vaughn said.

Company CFO Tom George walked everyone through the dollars and cents of the quarter’s report, once again stating that the headwinds in the Journeys business and the inclement weather in January significantly impacted the company’s fourth-quarter financial performance more than initially anticipated.

“Relative to our revised guidance, the net earnings per share result was below our expectations, primarily due to expense pressures at Journeys coupled with the lost store traffic and earnings resulting from January’s unusually impactful snow and ice storms,” George reiterated. “Looking ahead, the efforts we’ve made and continue to make to contain expenses and drive productivity will better position us to withstand this pressure and emerge even stronger as sales growth returns.”

Consolidated Genesco revenue was $739.0 million, up approximately 2 percent compared to the prior year fourth quarter. George said the growth was “driven by sales increases in all divisions other than Journeys.” Excluding the 53rd week, total sales declined 2 percent.

Journeys sales were down 2.3 percent year-over-year (YoY) to 455.0 million in the fourth quarter, representing 61.6 percent of overall Genesco revenues, compared to 64.2 percent of the overall business in the prior-year quarter. Comparable store sales at Journeys declined 5 percent YoY in the fourth quarter, cycling a 1 percent decline in the prior-year quarter.

Total Genesco comps were down 4 percent. By channel, total store comps were down 7 percent, while direct comps were up 5 percent, with digital sales accounting for 27 percent of total retail sales, up from 25 percent last year.

“Relative to our expectations, sales were largely in line with our revised guidance, except J&M, which was especially impacted by January’s weather disruptions,” George said.

“We ended the quarter with 69 fewer stores versus a year ago, largely the result of closing underperforming Journeys stores as we optimize our store footprint and drive productivity in our remaining store fleet,” George highlighted.

Overall gross margin was reportedly down ten basis points compared to the prior-year quarter, which George said was ahead of expectations due to lower planned promotions at Journeys.

“With our consumer-focused on purchasing key items, discounting was not as effective in driving sales, so we moderated our promotional stance,” George noted. “Relative to last year, Journeys’ gross margin was down 30 basis points due primarily to product mix shift.”

George walked through the expense side of the business. He noted the resulting operating income line suffered due to the increase in operating expenses relative to guidance, primarily driven by Journeys in addition to the incremental cost to support higher-than-expected direct sales and product returns to vendors that resulted in greater-than-anticipated wage and freight pressure. He said they also experienced additional store expenses, including occupancy cost.

Operating income at Journeys Group came in at $32.3 million, or 7.1 percent of sales, or 9.2 percent of sales, for the quarter, compared to $43.2 million in the prior-year quarter.

“We ended the year with clean inventories, down 17 percent from last year,” George indicated. “With respect to Journeys, we worked with our brand partners to adjust inventory levels, enabling us to end the quarter with inventories 22 percent lower than last year and well positioned to bring newness and freshness to the assortment.”

Capital expenditures in Q4 were $10 million, with investments primarily directed to retail stores and digital and omni-channel initiatives.

“We opened five stores, primarily off-mall, and closed 24, ending the quarter with 1,341 total stores, George said. “With respect to store closures, we closed 94 Journeys stores in fiscal 2024 or roughly 8 percent of the total fleet,” George shared, indicating that the stores were primarily mall-based locations.

“For fiscal 2025, we aim to close up to 50 more Journeys stores,” he continued. “Savings from these closures will eliminate approximately $14 million of annualized costs from SG&A expense, which adds to the roughly $25 million of annualized savings from the stores closed this past year and is in addition to the $45 million to $50 million of run-rate savings we expect to achieve by the end of this year. The goal of these cost savings in store closure programs is to gain better expense leverage and operating margin expansion even with modest increases in sales.”

George said the updated plan targets a reduction in annualized run rate before reinvesting $45 million to $50 million by the end of fiscal 2025, which she emphasized is above the original target of $40 million.

“We expect savings from reduced store rents, selling salary productivity gains, reduced warehouse and logistics cost, and reduced freight cost from inventory optimization initiatives,” he said.

Journeys comps are expected to be down in the mid- to high-single digits for the fiscal first quarter.

Image courtesy Journeys