Bob Dennis - Chairman, President and CEO Mimi Vaughn - CFO.

Jay Sole - Morgan Stanley Pam Quintiliano - SunTrust Erinn Murphy - Piper Jaffray Mitch Kummetz - B. Riley Jonathan Komp - Robert W. Baird Dan Isaacson - Macquarie Scott Krasik - Buckingham Research Group.

Good day, everyone and welcome to the Genesco Third Quarter Fiscal 2017 Conference Call. Just a reminder, today’s call is being recorded. Participants on the call expect to make forward-looking statements. These statements reflect the participants’ expectations as of today, but actual results could be different.

Genesco refers you to this morning’s earnings release and to the company’s SEC filings, including the most recent 10-Q filing for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made during the call today.

Participants also expect to refer to certain adjusted financial measures during the call. All non-GAAP financial measures referred to in the prepared remarks are reconciled to their GAAP counterparts in the attachments to this morning’s press release and in schedules available on the company’s homepage under Investor Relations.

I will now turn the call over to Mr. Bob Dennis, Genesco’s Chairman, President and Chief Executive Officer. Please go ahead..

Good morning and thank you for being with us. I am joined today by Chief Financial Officer, Mimi Vaughn. We have a number of topics to cover. I’m going to start with a brief review of our Q3 results including the key drivers of our performance against expectations.

And then next, I’m going to discuss November sales including the Black Friday weekend and how our current sales trends are shaping our outlook for the reminder of the year. Then Mimi will walk you through the numbers in more detail as well as the specifics on our guidance.

And then I’ll return to provide additional forward-looking commentary on each of our businesses and after that we’ll take questions. Our third quarter results while down from last year exceeded our expectations. We delivered adjusted EPS of $1.28 compared to a $1.40 a year ago.

Consolidated comp sales declined 3% with challenging comps at Journeys, partially offset by comp gains in our other retail division. But in total, comps were better than we expected.

The improvement in our bottom line versus expectations was driven by the stronger than anticipated comps at Lids and Schuh, better gross margins at Lids, and very effective selling salary and expense management at Journeys. EPS also benefited from share repurchases made during the quarter.

Lids comp sales were fueled by - were up 2% fueled by the favorable MLB Playoff and World Series lineups, despite the tough 12% comparison from last year when we increased our promotional activity to right-size inventory.

Gross margin on the Lids retail businesses was up a significant 400 basis point as we anniversaried the promotional activity and benefited from more full-price selling. The third quarter in a row we reaped the benefit of the numerous initiatives we executed to improve the Lids business during fiscal ’16.

At Journeys, comps continued to be challenged by the ongoing fashion rotation we described last quarter. As we said then, about every two to four years through the history of the concept, Journeys’ teen customer decides they are ready for something different and embraces the new fashion direction.

And while Journeys has adeptly managed to ship through several rotations including grunge and skate, the current shift has been exaggerated since Journeys has been narrow and deep in its newest merchandise assortment for some time. A fashion rotation out of a more concentrated position clearly has more negative impacts.

So following a very challenging August, Journeys comps improved a little in September with a later back to school but then deteriorated quite a bit in October as unseasonably warm weather across the US hurt mall traffic and food sales. Journeys comps for Q3 were down 8% against the solid 6% increase last year.

We continue to see strong consumer interest and rapid growth in brands that are not yet at a size in the assortment to fully offset the decline elsewhere. Our confidence in the spring assortment continues to be strong as the Journeys team has committed to much larger positions in styles the consumer is looking for.

In the last two fiscal years, Journey has delivered record sales and earnings as the preeminent provider of fashion footwear to teens and with a change in assortment, we feel we should be back on track to be doing so once again.

On the other side of the Atlantic, following a tough August, Schuh comps in September rebounded with a later back to school in the UK compared with last year. And in October, Schuh adjusted its promotional cadence to better address market conditions and was able to drive higher sales and gain gross margin dollar.

Positive comps in September and October offset August decline and Schuh comp ended flat for Q3. In spite of these improvements, our reported profitability was once again pressured by foreign exchange headwinds from the stronger US dollar versus falling pound.

Finally, Johnston & Murphy sales with apparel and more casual footwear fueled a 1% increase on top of a 5% increase last year. It was a solid performance by J&M in a challenging retail environment for non-athletic footwear.

Turning to our Q4 comp, through this past Tuesday, November 29, including the Thanksgiving weekend, quarter-to-date consolidated comps were down 2% with stores down 4% and direct sales up 9%.

Underlying these fourth quarter numbers however is a tale of very two different trends with very strong Lids results offsetting weaker results than the rest of our businesses.

The Chicago Cubs dramatic win over the Cleveland Indians in game seven and the end of the plus 100-year World Series crowd provided Lids with an unusually strong start to the quarter. Lids comps are up 15% Q4 to-date.

I’d like to salute the entire Lids team with a tremendous effort and superb execution to capitalize on the Cubs’ victory that took a lot of work. Lids achieved record breaking sales in many stores serving fans in the local Chicago market which was augmented by online sales to displace Cub fans throughout the country.

Congratulations and well done Lids. On the other hand as many retailers have reported the persistent warm weather in November hurt all of our US businesses. And as a result, the effects of the ongoing fashion rotation at Journeys were compounded by soft demand to boot.

Johnston & Murphy’s comp for the period was flat as sales of boots and other cold weather products were affected and even sales of knit hat in Lids were hurt as well. For the Black Friday weekend, comp sales improved slightly from the quarter-to-date trend for all our footwear businesses except the two, but were disappointing overall.

Fashion footwear on both sides of the Atlantic was incredibly promotional as competitors moved to clear excess fall and winter inventory. And while Schuh adjusted its promotional cadence, competitors were much more aggressive. Overall, it looks like it will be a very promotional season for the category if these trends continued through the holiday.

Looking ahead at Lids, the Cubs’ victory should be a nice tailwind through Q4 and into next year but at more moderate levels than in November. We achieved the biggest impact of the anticipated pick-up in the first weeks immediately after the World Series win and later in the month of our Black Friday weekend.

We originally expected Lids Q4 comps to be negative as we continued to anniversary strong comps from the inventory rightsizing last year and we now anticipate Lids Q4 comps will be positive. And on the flip side, given recent results, we have become more cautious about Journeys and the rest of our footwear businesses.

On a consolidated basis based on our concern that the upside from Q3 and the gain from the Cub may be offset by difficulty trends at Journeys and Schuh in Q4 and so we are holding EPS guidance at $3.80 to $4.00 in fiscal ’17. Mimi will walk through the guidance in more detail. So with that, let me turn the call over to her to go over the financials..

Thanks Bob. Good morning everyone. As a reminder as usual we have posted more detailed information online in our CFO commentary. For Q3, total sales decreased 8% to $711 million.

Excluding Lids Team Sports from last year last year, total sales were down 3% for the quarter which included 3% decrease in consolidated comp sales and 4% increase in wholesale sales. As Bob pointed out, in Q3 comps were flat to moderately positive for all our businesses other than Journeys.

By division, comps were down 8% at Journeys, flat at Schuh, up 2% at Lids and up 1% at Johnston & Murphy. We had planned negative comps for Lids and Schuh, consequently with the MLB playoff and World Series help and the turnaround in Schuh comps, overall comp results were better than we expected.

Consolidated store comps were down 4% and consolidated direct comps were up 7%. Direct as a percent of total retail sales remained at 8% for the quarter. Comps for all our direct businesses expect for Lids were positive and for Journeys and Schuh they were positive at double-digit level.

Last year in Q3, Lids’ new locate system which gave online access to an additional 50,000 plus SKUs from inventory located in stores coupled with promotional sales from the inventory clean up drove a very noteworthy 52% direct comps.

Lifted by online MLB sales, Lid’s direct com were almost flat for the quarter against this very challenging comparison. Turning to the fourth quarter to-date, consolidated comps through Tuesday November 29, including the Black Friday weekend were down 2% with stores down 4% and direct up 9%.

By division, total comps were down 12% at Journeys, down 6% at Schuh, up 15% at Lids and flat at Johnston & Murphy. We would like to call out that this is the last time we will be reporting quarter-to-date comps.

Given calendar shift, payday and other offset among other things, this snapshot is often not indicative of what the quarterly trend will be and therefore not helpful we feel for understanding our businesses. We will however continue to give quarterly comp guidance in the CFO commentary posted online.

Gross margin for Q3 improved 170 basis points to 50% driven by Lids and Johnston & Murphy were better results offset declines in other businesses.

Gross margin for Lids improved 790 basis point, partly reflecting with sale of Lids Team Sports which was a lower margin business, but the improvement in the retail business alone was very robust, 410 in total due to a lower level of promotions this year and much stronger full-price selling.

Gross margin was up 100 basis points for Johnston & Murphy due to lower markdowns and lower expense to deliver products. Journeys gross margin decreased 120 basis point. Initial margins were a little lower but most of the decrease came from additional markdowns as Journeys worked diligently and successfully to keep inventory clean.

Schuh’s gross margin was 110 basis points lower driven by both mix with athletics as a higher percentage of the overall assortment and higher markdowns reflecting Schuh’s more aggressive promotional stance. Finally, gross margins in Licensed Brands were lower due to lower IMO. Total SG&A expense increased 270 basis points to 44.3% for Q3.

A significant factor driving this increase was the sale of Lids Team Sports which operated at a lower expense level than our retail businesses.

However, with the negative comps, remaining operation particularly Journeys deleveraged due mostly to rent expense from new stores and renewals, higher depreciation, higher credit card charges, and higher advertising expense to stimulate sales. Bonus expense at Lids contributed to the deleverage as well.

One bright spot for us continues to be how effectively we manage selling salaries holding them flat in Q3 in spite of the minimum wage pressure we have been battling and the topline weakness. Journeys managed selling salaries very aggressively in the quarter and expenses came in better than last year even with the negative comp.

Throughout this year, we have been flagging increased credit card chargeback in connection with the credit card chip and signature liability shift from issuing banks to retailers. In Q3, chargeback expense increased from Q2 levels and we expect this to be a negative factor until we finalize implementation of new technology early next year.

Lastly, the stronger US dollar against the UK pound created foreign exchange headwinds for Schuh as the pound declined 17% year-over-year in Q3. Foreign currency was responsible for three quarters of the decline in Schuh’s operating income.

Consolidated operating income came in better than anticipated as higher sales contributed to higher gross margin dollars and leveraged expenses more than we expected. But was worse than last year as better results in Lids J&M were not enough to offset declines in Journeys and Schuh.

Adjusted operating income decreased to $40.9 million from $52.2 million and adjusted operating margin decreased 90 basis point to 5.8%. We delivered third quarter adjusted EPS of $1.28 which benefited from share repurchases we made in the last year but was under last year's level of $1.40.

Turning to the balance sheet, excluding Lids Team Sports, total inventory was down 1% with a 3% decline in sales and 2% increase in retail square footage. Journeys’ inventory was clean. Without Little Burgundy, Journeys’ inventory was down 5%.

Including Little Burgundy, Journeys’ inventory was down 1% on a square footage increase of 6% and a sales decrease of 2%. Schuh’s inventory was clean even with the flat comp. On a constant currency basis, Schuh’s inventory was down 3% on a square footage increase of 10 % and sales increase of 4%.

Inventory for Lids retail business was down 2% on a square footage decrease of 6% and a 1% decline in sales. Capital expenditures were $25 million, and depreciation and amortization was $19 million for Q3. Finally, we repurchased 747,000 shares for roughly $40 million at an average price of $53.34.

Turning now to guidance, given the challenges at Journeys and Schuh, we have taken down expectations for sales for the remainder of the year. We now expect gross margins in Q4 to be more pressured with higher markdowns in these businesses as well but this will be offset a little by better gross margins at Lids.

SG&A will delever further with the lower comp. Taking into account the upside from Q3 and from a Cub offset by these challenges, we are reiterating our expectations for adjusted earnings per share for fiscal ’17 of a range of $3.80 to $4.00.

Our top line assumption is for sales to be down 5% to 6% for the year reflecting the Lids Team Sports sales, the impact of a stronger dollar on exchange rates and a consolidated comp, a negative 2% to 3% for the year. Our comp assumption for Lids is now positive for the year along with J&M offset by negative comps for Journeys and Schuh.

Excluding Macy's by the end of the year, we plan to have opened 88 new store concentrated in Journeys Kidz and to have closed 91 stores for a net three fewer stores. We expect gross margin to be up between 140 and 160 basis point in total for the company. This is predicated on a sizable margin recovery at Lids of more than 550 basis point.

Some of which is a change in mix from the Lids Team Sports sale, the rest is a pick up from the lower level of promotions.

With the negative comp, we anticipate SG&A expense will deleverage 220 to 250 basis points which is more than our last guidance estimate including higher bonuses expense in the better performing businesses plus a continued elevated level of chargeback.

We expect the strong dollar will weigh down earnings by $0.17 per share for the year assuming exchange rate stay where they currently are. But we expect positive impact from a legacy pension plan to offset some of this pressure. So this all results in an operating margin that is down for the year and our fiscal ’17 tax rate is expected to be 35.9%.

We anticipate capital expenditures will be in $110 million to $120 million range including some investment in a planned expansion of the Journeys distribution center. Depreciation and amortization is estimated at $76 million. Lastly, we are assuming average shares outstanding of 20.2 million for fiscal ‘17.

This includes buybacks made in the last three quarters and assumes no additional stock buyback for the year. $40 million remains outstanding under the recently approved repurchase authorization of $100 million which we can use opportunistically going forward.

For reference, given that we have repurchased 2.2 million shares or almost 10% of our share base in fiscal year ’17, if we complete no additional buybacks this year, we estimate our average share count for next year of fiscal year ’18 would be 19.6 million share. Now I will turn the call back to Bob..

Thanks Mimi. I'm going to provide additional thoughts on the outlook for each business starting with Journeys. So while Journeys’ comps got off to a very challenging start in Q4, we are optimistic and expect the trend will get better in the balance of the quarter for two reasons.

First, the unusually warm weather has hurt foot sales thus far in the quarter, and second, we are planning on deliveries of new product late in the quarter that reflects the fashion shift and that should give us a pop.

The weather will get colder and then as we saw over Black Friday weekend selected promotions on product not achieving the desired sell-throughs will move significant volume. We will take action as required in one way or the other we plan to end the year in a clean inventory position as we did in Q2 and Q3.

In addition to the weather, our outlook for boots has also been altered by the consumer wearing fashion athletic styles more year round into the fall and winter months.

The newness in our fashion athletic assortment continues to perform well, however it just isn't enough to offset the softness from boots as this athletic product represents a much smaller percentage of the mix right now in Q4. But this trend does bode well for spring and the new fiscal year.

We said on our last call that the customer has signaled the direction of this fashion shift more clearly than in some prior one, making our primary challenge to get enough of the new product into the assortment to satisfy the demand.

So drawing on the strength of our vendor relationships, our spring order book has filled up nicely with products that we believe will have strong appeal for the Journeys customer some of which will actually be arriving in late Q4.

In the meantime, the Journeys team is taking many actions to drive sales over the remainder of the quarter and this includes things like increasing the frequency of email marketing campaign, upping the online marketing spend and doubling down on social media efforts to engage with our customers.

And there are several bright spots within the Journeys Group worth noting. First, Journeys Direct business remains robust, increasing by strong double digits in each month of the third quarter. And second, Journeys Kidz has been less affected by the fashion shift that it's older counterpart.

We remain on track to open 38 new kids stores in fiscal ‘17 and we believe we are well positioned to solidify Journeys Kidz as the go to place for branded children's footwear in the mall.

And then finally, as we approach the one-year anniversary of our acquisition of Little Burgundy, I want to congratulate the team in Canada for consistently exceeding our expectations from what we originally had in our mind when we purchased the business. They have delivered a double digit comps in this fiscal years but congratulations to the LB team.

At Schuh, we entered the fourth quarter with good momentum and resilience in overall retail sales in the UK post Brexit referendum. Last year in Q4, comps were down 2% and gross margin decreased 200 basis points.

So with these easier comparisons, we believe the business was set up well for an improved holiday season until we hit a very promotional Black Friday weekend.

Our learnings from the promotional activity in the back half of the year has given Schuh the direction it needs to take in the weeks leading up to Christmas and while we expect improvement in the recent sales trends for the rest of the quarter, our outlook for the business has become more conservative.

We have several reasons to be optimistic about Schuh’s prospects from improving the current trend in Q4. First, boot sales picked up with the arrival of colder weather in the UK and at the same time Schuh has been able to capitalize on strength and fashion athletic as they are a little ahead of Journeys in the current fashion rotation.

And then finally Schuh has made good progress leveraging vendor relationships in order to receive better terms. And this does help offset the pressure from a higher penetration of athletic product which carries a lower gross margin than [indiscernible].

Moving to Lids again, we expect demand for Cubs products to remain strong through the holiday season and into next year. And beyond the Cubs effect, we continue to see the benefit of the work we did last year to turn the business around.

We've been in much better position to chase top products now that we are taking more markdowns in-season and freeing up open to buy dollars to flow new goods into Lids stores and onto lids.com.

This has been true not only in locker room but also in the headwear business where several micro-trends led by branded hat are driving positive comps and gross margin expansion. In addition, Lids has benefited from closing or renegotiating rent for the 50 underperforming stores we earmarked to address this year and next.

And then finally we are pleased with the progress we're making in our partnership with Macy’s. We closed 37 stops this year to reduce our footprint down to a more profitable core.

Relocated shops to improve adjacencies, work with the merchandising mix to better serve the Macy’s customer and tweak the staffing model to better align with current traffic trends in several stores.

Macy's stores in the Chicago market profitably greatly from the Cubs victory with strong comp sales and an area of upside for us is macys.com which is one of the top ten sites for retail traffic.

That said, there is more work ahead to develop a sustainable operating model that generates the return targets we established for the business at the outset of this relationship. Next, Johnston & Murphy posted its eighth consecutive quarterly comp increase.

J&M’s performance once again underscores the team’s [indiscernible] the brand from a dress to resource to a lifestyle brand with expanded casual and sport casual footwear collections and growing apparel offering.

We believe J&M is well positioned to continue to take market share but based on what looks to be a promotional holiday season for the category, we have moderated our outlook for Q4.

And lastly, our Licensed Brands division had another challenging quarter reflecting the weak performance of many of our key accounts in the department store and national chain count. We continue to be excited about the recent launch of which is helping offset some of the current softness in [indiscernible].

So in closing, in the midst of all the short-term focus here, it would be easy to lose sight of the longer term competitive advantages that we as a company enjoy. Lids is the leading omni-channel retailer of licensed sports merchandise in North America. A month since the Cubs’ World Series victory illustrates that compelling position.

Our Chicago land stores reaped a windfall in sales generated in the excitement of the victory, of the victory parade and the ongoing celebration in the local market, while the e-commerce business has served a nationwide fanbase with feel and efficiency. Likewise, Journeys occupies the same leadership position in the teen fashion footwear market.

We own the mall where that research shows that our customers still like to buy even as they increasingly research their purchase online. And the strong vendor relationships but Journeys scale and experience provide are invaluable in managing through the fashion cycles that are a fact of life in this market.

These relationships help us to not only work out of product that is losing its luster in an orderly way but also get favorable access to the shoes that our customers really want to buy. And Johnston & Murphy’s leadership position in its segment of the market is founded on a brand equity that has taken more than 165 years and 30 Presidents to create.

This heritage plus an ability to understand its customers every evolving fashion needs and translate that into a product offering that resonates season after season is the inherent advantage that keeps J&M at the top of the leaderboard.

And then finally of course, the commitment and talent of our extraordinary teams across all of our businesses remain our greatest strength as they meet the challenges and opportunities that present themselves every day.

My thanks to all of you for all that you do and especially during the demanding stretch we just finished for the Black Friday weekend. And with that said, operator we are ready for questions..

Thank you. [Operator Instructions] And we will hear first from Jay Sole of Morgan Stanley..

Thank you. Bob, my question is about the World Series. Can you just give us an idea of the dollars that a regular baseball season generates from the World Series and what -- how that compares to this year because no obviously a Cubs story, but Cleveland’s story too. And last year Kansas City was a story.

So can you just kind of tell us a little bit about how the difference has changed? And then at the same time, can you tell us about how the NFL business is doing. It’s usually, November and December are big NFL months. It seems like the rates have gone up [ph] for NFL this year.

So has that been an offset and if you can just kind of give us some numbers on that. That would be helpful..

Sure. So I’m going to give you some color on it. I’ll ask Mimi to talk more specifically. Obviously, in Q3, we had a good lineup of playoff teams, but then especially in the beginning of Q4, when the Cubs won the series, that was a one-time event.

It's a little tricky because the team at Lids believes that the demand within the hot categories and especially the club may have pulled dollars away from other categories. The best example of that is the Blackhawks. They’re -- for us, a pretty slow start on sales, despite having a very strong early win loss record.

So there's a lot of mixed stuff that goes on in terms of how the customer behaves, what we're presenting at the front of the store.

And so as we go forward, we're expecting to continue to have tailwinds from Cubs in Q4 all the way into next year, including the beginning of the next baseball season, because we'll have World Series related products available then. And obviously, we've reflected all of that in our guidance.

So we'll get a little bump the rest of the way, but the big bump is pretty much over. And with that, I’ll ask Mimi, if you want to give any more color on it..

Yeah. I think the Cubs win and particularly the national fan base is what is so notable about this World Series and, Jay, as we looked at it, it wasn't just the Cubs in the third quarter, but it was really the strength of the lineup among the Blue Jays, the Dodgers, the Cubs and the Indians.

And so, we think that we perhaps picked up about four points of comp for Lids in the third quarter and about half of that was Cubs and about half of that was the rest of the strength of that lineup. And as Bob said, there are some offsets and other teams that attention was drawn away from.

The Cubs in the fourth quarter we believe will provide us about five to six points of comp. So if you'll recall, we promoted significantly during the fourth quarter last year in order to right size our inventories and going against those numbers, we felt like we would have negative comps within Lids.

The strength of the Cubs really carries us to a favorable comp position for the fourth quarter we think in the mid-single digit range and so the Cubs were quite strong for us, both in the third and the fourth quarters..

And we will go next to Pam Quintiliano of SunTrust..

Hey, guys. Thanks for taking my questions. So I wanted to talk a little bit about Journeys. It's really exciting. It sounds like you're getting some of the product earlier than anticipated.

So I was hoping you can remind us when you had hoped to get in that product versus now getting it in potentially for 4Q and if this includes any exclusive product to Journeys? And then just one other one on Journeys, a quick one.

Historically, when the weather turns, do you think you make up with that pent up demand on sales or is it then lost because your consumer has gone and spent on something else instead? Thanks so much..

So let me talk first about Q4 and then we'll talk about going forward. We noted on our Q3 call the team saw the emerging demand for products from several brands with really sort of new fashion statement and we bought into the trend and indeed those brands are up significantly for us.

And what we didn't foresee was the extent to which the demand within this trend would explode and surpass what we anticipated. And in fact, this trend has expanded in a rate we had never seen before. And when we look back, there wasn't any strong indicator.

At the time, we placed the bulk of our Q4 orders, even [indiscernible] there was no evidence that demand would expand at this pace. And we’ve looked at Google trends and a lot of the social media items that hopefully would be a predictor, we didn’t see that.

What we believe is our spring assortment, which will begin to drop in late January, that's why we're calling out a little help in Q4, that will put us in a very strong position. So we've done a very, very major rotation in terms of what the assortment will look like and that's why we're confident we'll get off to a good start next year.

Specifically in next year, we were bought for a low single digit comp in Q1. We believe the shift in the assortment will take us where we need to be, obviously we’ll see once we get to Q4 if that holds together. And then the compounding factor has been that we're disappointed with sales of a seasonal product at Journeys.

And we noted even back on the Q3 call that our early read on Boots was a little, not encouraging, but we said that our read then was naturally hard to put too much faith in because that was in the summer.

And since then, the weather has not been our friend, but nor do customers seem to have a pure fashion drive into boots that they've had in the past years. And as we called out that there are a lot of teams that are wearing athletic and so they can't wear athletic anymore.

I was talking to one of our board members as well when she walks around New York, she sees the women shift into boots, given a seasonal move. And that's probably true that teenagers are acting a little differently and they're sticking with athletic longer into this time of year than perhaps they’ve had in the past.

So we're going to be subject to both the timing of winter and then it's not as much whether we can catch up on the sales, that's not our main focus.

Our main focus is on how other retailers react to the slow start in terms of promotions, because in the branded category, if some of the other retailers who carry the brands that we carry, they break ranks, that might change the dynamic in the marketplace. And so we're paying more attention to that.

If we've got a major snowstorm tomorrow, which is not going to happen, we would probably move a lot of boots at a good price. But we probably need that to happen pretty soon, before the retailer out there starts of make a move on the product.

Anything you would add Mimi?.

I think just to reiterate our commitment to the new spring products are quite substantial. We have great relationships with the vendors that we believe that need to supply this product and that has allowed us to make substantial progress.

And to elaborate a bit on the winter product, our number one goal right now is to make sure that we don't end the year with a lot of excess inventory and so we've been very mindful of that and have been doing all that we can to make sure that we end in a good inventory position.

And so we've been taking action and our merchants have been working hard to make that happen. And so we may give up some upside in sales as a result of working our inventory down, but we think that that is of primary importance in the fourth quarter..

And we'll go next to Erinn Murphy of Piper Jaffray..

Great. Thanks. Good morning. Just following up on Journeys.

Is it possible if you guys could break out what you saw in terms of traffic versus ticket for that down 8% comp in the quarter and then what were the contributors that decelerated during the month of November when you saw that down 12%? And then the second piece is that Q4 for foot, what typically has been a mix of foot at Journey for Q4.

And then just given the last two warm winters or last year and what seemed to be warm so far, what should that mix look like over time? Thanks..

So I'll just, qualitatively, what happened in November is that's where, Erinn, where boots become a significant part of our business.

So in addition to having the challenges with the rotation of fashion athletic that we describe, you can layer on top of that a very, very slow start up to the boot fees and other retailers as you probably know of have pulled that out. So that’s an industry wide event.

And so we're just subject to two things, one of which hopefully gets cured with cold weather and if not, we will then start to come out our way to make sure that our inventories are rightsized at the end of the quarter as we always have. And that's an area in particular that affects our conservatism in terms of how we’re thinking about guidance..

Right. And then just to talk specifically about traffic, traffic in August and September, we spoke about the fact that late in the summer and in July, that traffic have fallen off and that we expected that it would pick back up when we hit back and it did in fact pick back up from the levels where it was in August and September.

But then as we moved into October and November, traffic was down pretty significantly in our stores. And the fact of the matter was the customers just weren't looking for cold weather product and weren't coming into our stores. Conversion interestingly was up in October and was mostly flat in November.

But it really was the decline in traffic that ended up getting us. As far as average ticket, average selling price has been increasing for us, because we've been trading into a higher priced product. We've been trading out of products that is in the $50 to $60 range and trading up in to product that is a higher average price.

And so our average ticket size has interestingly, the add-on purchases have come down a bit.

The way we think about it, Erinn, is that our customers tend to have a certain amount of money in their pocket that they're going to spend and so when they were buying lower price footwear, they'd buy something plus an add-on, be it a backpack or a pair of socks or some accessories within our stores.

So our average ticket has actually remained relatively flat, despite that increase in average price of our footwear. And I think your last question was foot mix and our foot mix is certainly down year-over-year versus where it was last six..

And we’ll go to our next question from Mitch Kummetz of B. Riley..

Yeah. Thanks. Maybe just quick on the boots, because Bob, you mentioned that if it's no next week, that would be a big help. But then Mimi, you talked about being mindful not to end the year with too much inventory, you're willing to kind of give up on sales in order to focus more on the inventory side.

I mean it seems like I'm doing a lot of weather watching these days and we're actually supposed to get some pretty cold..

We are too..

I am not surprised. So the weather is supposed to turn next week and I'm just trying to, how do you view channel inventory, you're obviously watching your competitors out there.

I mean what are you assuming in terms of kind of the weather over the balance of the quarter and if we do get the weather, how much does that really help, how much can you chase versus just watching the inventory and just trying to managing through. And maybe not being as promotional as maybe what’s anticipated.

I’m just trying to understand those dynamics..

Well, Mitch, you’re asking if we have sort of perfect information that connects the unknown of weather for the unknown of how well weather might help us. And obviously, what I'm saying is we don't.

So the merchants at Journeys are going to have to use their judgment to watch the development of sales, keep an eye on the weather and the calendar and keep their eye on the competitors. And with all that input, make a good judgment call accordingly.

In general, the feeling is that retail in general is operating with a better inventory position in past years. So hopefully that will help a little bit.

And so I just can't give you an answer to that other than to point out the fact that Journeys’ track record is one where they always manage through the inventory in effective way and the buying team is the same buying team. So we have a lot of faith that they're on it. They will make the right call.

They will likely be making conservative calls, the deeper we get into the season and not let the highest traffic days go past without being in a right position to get our inventory go high..

And we’ll go to our next question from Jonathan Komp of Robert W. Baird..

Yeah, hi. Thanks. I'd like to follow up on the topic of traffic and conversion for Journeys and I think a few months ago, you talked about the initial comps falloff at Journeys in August.

Really not being a traffic issue, it was entirely lower conversion and now it sounds like traffic has fallen off a little bit more in understanding the boot headwinds, but are there any signs that as you don't have the current mix of the fashion athletic product that you're talking about that customers are staying away from the stores and heading elsewhere? And then as you look forward to spring and the ability to shift the merchandise assortment, Bob, maybe is there any historical context you can provide historically and that type of shift towards fashion athletic for Journeys and if it’s been successful in the past?.

Well, in general, the shift that Journeys makes when we have a fashion rotation of any sort is that we go through a negative comp period as we're seeing now and we come back strong and before we get into the sort of the details of traffic and conversion, let's just sort of look at the Journeys customer.

We’ve started doing a lot of research and we did another round after back to school and it really just points to the behavior of the Kidz and Journeys role within it.

So first, the teenagers tell us they still like to go to stores and so, and that is confirmed by the independent research and it’s confirmed by our mix of sales between stores and online. They will do, no surprise, a lot more research online.

So when you see a decline in traffic, we have always assumed over the last several years, a lot of that is the window shopping aspect, the first step of shopping. And the fact that we have been comping up on lower traffic with better conversion is a good fit with that.

Right now, we're in a spot where we're not converting because when they come into our store, we don't necessarily have exactly what they want. And then the drive around traffic is the fact that the weather doesn't compel them relative to other years to get out there and start looking for winter goods.

So, second, the research tells us that the teens are very brand oriented, much more so than in apparel. And again, and this is very consistent with syndicated research, which confirms that. But as I said, you need to have the brands the teams want. And we've been a little off course on that, but we're correcting it.

And then finally, just while I’m going through this teenager, the other bit of the research shows that Journeys continues to be the number one store brand for our segment of enthusiast teens, both in terms of their awareness of the store and then their intent to purchase from us.

So what I'm saying is we got traffic, we got conversion, but what we don't see is any indication of a fundamental change in our business model rather than a fashion rotation that we have seen several times in the past history of Journeys. And when we go through these fashion rotations in the past, we come out strong on the next trend.

So while this has just been a little more severe because of our concentrated position going in and then it's been a little further exacerbated by weather, we think the team has done a great job of pivoting and we believe we're headed back to where we need to be in terms of assortment and performance..

Jon, I think you got the cadence of the traffic right. I think we would attribute the drop off in October and November largely to the weather. As Bob says, we have no evidence that our team is going and shopping online.

We are viewed as the destination for fashion athletic footwear within the mall and so we believe that positioning will serve us well and we've got the product that the customer really wants to buy..

And our next question comes from Laurent Vasilescu of Macquarie..

Hi. Good morning. This is Dan Isaacson on for Laurent.

Do you guys have any thoughts on a high level plan on store openings and closures for next year and which banners are you kind of looking on to either open or close stores on?.

Sure. So we continue to be cautious on square footage expansion overall. We would expect that teen Journeys and the Lids stores, they’re pretty close to being built out in the US. We’ll see little to no new growth, may even reduce square footage in the next few years in the C malls.

We've got the whole, we’ve got Macy's and other big box guys that are closing stores and so as the C malls start to waver, that could be closures and so what we're doing for those chains, the marginal stores and the marginal malls are on very short leased lives.

They stay open essentially on a year-to-year basis as long as landlord will allow us to stay nicely profitable. Otherwise, we close them.

What store growth we will achieve will likely come, as Mimi had noted, from Journeys Kidz where we see some very nice white space and that the category where mom does go, because of the fit issues and then we were just completing our build out of shoe in the UK, but that’s largely there. And then Lids locker room is the wildcard.

It's another potential area of future growth, but right now, we're focused on closing the unprofitable stores or at least restructuring their rents, the ones that we opened a few years back and then we're maximizing the performance in the remaining stores.

And then finally, we're rightsizing, as we noted, Macy's down to its profitable core from which we get that thing positioned correctly and get to our return target, that’s another potential area of growth.

So, but if you add it all up, our square footage growth, on a percentage basis, is going to be a lot, lot less in the next five years than it was in the past five years..

So, Dan, I think that if you look at where we were this year, we are projected to open 88 stores and we are closing 91 stores. And so on a net basis, we are going to be flat because the stores we’re opening are a little bit bigger than the stores we’re closing.

But importantly, we're not trading off productivity from productivity within those numbers, right. We're opening what we believe will be stronger stores and closing what we believe will be weaker stores.

So those stores that we’re closing operate at a lower level of sales and profitability and oftentimes are in a low to negative profitability situation. And so we think that that is a healthy pruning of our overall fleet. So for next year specifically, we anticipate that we would be opening stores at a rate that's similar to this year.

So it would be something like 40 kids stores. We have been opening stores in Canada for Journeys. Lids right now has a number of, they have over 100 stores in Canada. Journeys doesn't quite yet have 40 and so we think there's an opportunity among all of our various banners in Canada to open about 10 stores.

Between Journeys and Lids, there'd be another 10 stores that we would fill in. Johnson and Murphy and Shoe, each would have a little bit fewer than 10 stores. So altogether, that adds up to be about 70 to 80 stores. We would open for next year and then of course the wild card will be how many stores we close.

Often, when we go to close the store, the landlord often finds that they are able to give us great rent concessions. We've gone to close several of the Lids locker room stores that have been underperforming and in fact we've been able to get 40% rent concessions on 23 stores that we had otherwise planned on closing.

And so, I think the closing is the wild card and is dependent on how good the rent concessions will be, but at the end of the day, as the store is so low volume that it isn't worth the time to continue to operate, no matter how good the rent release is, then we will close the store..

And we'll go to our last question from Scott Krasik of Buckingham Research Group..

Yeah. Hi, everyone. Thanks for fitting me in here. I wanted to talk about gross margins and there's a lot of moving parts here. So for Lids, obviously you have this big recovery from excess inventory issues last year. And then the warehouse cost popped up.

So just wondering how much that is, but then do you view this as a one-time thing on the recovery, especially just given how much you must be selling full price for Cubs? And then on Journeys, last year, you were able I think in the fourth quarter, it was promotional, but your gross margins weren't even down or maybe down a little bit because you got concessions from vendors.

So I’m just wondering if to your point you may have to be promotional this fourth quarter, do you expect to get the same level of support.

And then how do you view Journeys’ gross margins as you shift into some of these new trends?.

I’ll give you. On Lids, it probably is -- certainly at this order of magnitude, it's a one-time event.

What's interesting is if you look at the profile of the way that the team is running Lids right now, they still are taking a lot of markdowns on product on a number of units that were flowing through, identifying and flowing through with mark down products.

The gap is not as big as we ever would have imagined and the reason is what they're doing is they're taking marks much earlier, which means they can -- their marks are much less indeed.

And the two benefits of that, the one obvious one is it allows us to have a better result in terms of what the final gross margin is for the markdown product and then on a blended basis overall, but maybe as important or more important is it's clearing up open divide, it creates chase dollars.

And Scott, as you can imagine, in a category like license support, the more dollars you have available to chase, the more you can get after that price team to the extent that there's product available, but you can get out ahead of it hopefully and invest in the teams that have the potential to make the playoffs. So that's the story there.

On Journeys, look when a retailer runs into the kind of sales challenges that we've had at Journeys, it naturally weighs on gross margin. The journeys team's ability to work with vendors to get assistance in all sorts of different forms historically has been good.

That can come in all sorts of forms in terms of getting relief and we partner, truly partner with our vendors to try and do the thing that is best for them and best for us, given the circumstance. But I think it's fair to say that in the near term, given the sales pressure, there will be some pressure on gross margin.

In the longer term, the product shift does probably weight us a little in the direction of slightly lower initials, because of the athletic emphasis. The flip of that is we get better ASPs. And so the kind of fashion trend we're talking about is a swing from a lower ASP to a higher ASP. So the wildcard will be unit.

We have to be careful about assuming that a higher ASP translates into sales on a one-to-one basis, as our kid only has so much money to spend. And so if we actually got that, we would feel very, very fortunate, more likely they buy a little less of other stuff in our store and we've already seen a little bit of evidence of that.

So that's the general dynamic.

Mimi, anything you want to add?.

Scott, I think that this year's fourth quarter will not be like last year's fourth quarter. We gave up about 120 basis points in Journeys gross margin in the third quarter. And that was due to markdowns just to ensure that our inventories would be really clean at the end of the quarter.

We think that it’s likely going to take the same action in the fourth quarter this year and so we are giving up a little bit of initials due to the stronger athletic mix, but we think that this year, it is actually going to take the markdowns on our part. Our vendors have absolutely been working with us.

But the magnitude of the correction that we had to make between the products we were going to receive and the products that we needed to mark down, this year, has been such that it will impact our bottom line.

And going forward, when we anniversary this, clearly, we won't have the level of markdowns next year, but our gross margins will be at a lower level because of that athletic mix..

And that concludes today's question-and-answer session. Mr. Dennis, at this time, I will turn the conference back to you for any additional or closing remarks..

Well, thank you. We will, as we always have done in the past, be attending ICR in January down in sunny Florida. I assume it won’t snow there, but that would be good. And so we look forward to seeing all of you there and we wish you all a happy holiday and thank you for being with us today..

And again, that does conclude today's call. We would like to thank everyone for their participation. You may now disconnect..