Prompt:
Human: These statements reflect the participants' expectations as of today, but the actual results could be different.
Participants also expect to refer to certain adjusted financial measures during the call.
Our company began fiscal '22 with positive momentum following an incredibly challenging year battling the pandemic.
In each successive quarter, our people worked with great tenacity and success to improve top and bottom-line results to close the gap pre-pandemic levels, drive the recovery, and return to profitable growth.
We entered the pandemic year from a position of strength following 11 consecutive quarters of comp sales growth in our footwear businesses.
Our overall performance in a difficult environment reflects the strong competitive positions of our retail and branded concepts, the strength of our Footwear Focus strategy, and our success capitalizing on opportunities to bolster these positions.
As a result, fiscal '22 is off to an incredibly strong start with the first quarter that meaningfully exceeded our expectations.
Our outperformance was driven by better-than-anticipated results at every division, led by record first-quarter revenue and profitability at Journeys.
Even as the pandemic continued to impact our businesses to varying degrees, the pace of our recovery accelerated each month and overall in Q1, reflecting stellar execution, combined with a temporary boost from U.S. government stimulus, and pent-up demand as the economy reopens faster than anticipated.
I'd like to begin today by outlining some of the key highlights from the quarter.
First, revenue and operating profit exceeded pre-pandemic levels, increasing 9% and 125%, respectively, over Q1 Fiscal '20 two years ago, even with our stores opened for a little less than 90% of the possible operating days in the quarter, given closures primarily in the U.K. and Canada.
Next, higher operating profit, combined with pre-pandemic share repurchases delivered outstanding Q1 earnings per share of $0.79, compared with a loss of $3.65 last year with positive earnings per share of $0.33 two years ago, all on an adjusted basis.
And finally, we achieved record first-quarter digital revenue and profit as we continue to capitalize on the accelerated shift to online spending.
We sustained last year's 64% growth and added another 43% on top of that.
Other highlights include hitting our highest store traffic numbers compared to pre-pandemic level as the vaccine rollout increased shoppers' confidence to return to physical stores, increasing the gross margin of almost 500 basis points compared to last year as our merchandise assortments and inventory management continued to fuel strong full-price selling, leveraging SG&A significantly compared to pre-pandemic levels, and achieving greater capital efficiencies by managing inventories and capital spending effectively leading to a healthy balance sheet and solid cash position.
We were pleased that every business in every channel contributed to the beat versus expectations with the stores delivering the biggest gain.
We've always known our customers enjoy our differentiated store experience and the exceptional service they receive in person, and that has been so exciting to see the strength of our brands draw enthusiastic shoppers back in as economies reopen.
It was, however, the combination of the store and e-commerce results that led to the strength in the quarter.
Our online business, from a strong foundation prior to COVID-19, generated double-digit operating margins due to our focus on full-price selling, disciplined marketing spend, and shipping-and-return policies to reinforce profitability.
To advance our digital capabilities at an even faster pace, we announced we promoted Parag Desai to the newly created position of chief strategy and digital officer.
In this new role, Parag will drive greater synergies and continue to integrate systems and digital best practices across our e-commerce portfolio, while also working with our divisions to deepen consumer insights and CRM capabilities.
Our digital investments have been generating strong results and we are confident Parag's appointment will accelerate progress, ensuring that we take advantage of the many omni-channel opportunities the pandemic presented.
Turning now to discuss each business in more detail beginning with Journeys, which again led the way delivering record first-quarter revenue and profit with 75% operating income growth versus pre-pandemic level.
There are several factors that shaped Journeys' exceptional Q1 performance starting with superb execution by its merchant team.
The pandemic has only magnified Journeys' industry-leading capabilities of anticipating, identifying, and securing the brands and styles most coveted by our team customers.
The combination of the right assortments and effective consumer engagement drove strong demand and full-price selling, including later in the quarter when we captured a healthy share of the increased consumer spending following the arrival of government stimulus checks and tax refunds.
In addition, Journeys' store team executed with excellence, achieving much higher conversion rates and increased transaction size, capitalizing on improving store traffic to drive store revenue above pre-pandemic levels.
On top of this, Journeys' online team delivered e-commerce sales that more than doubled pre-pandemic levels as new website visitors increased by almost 30% and generated close to 50% of Q1 online revenue.
With these incredibly strong vendor relationships, the Journeys team accomplished all of this while skillfully managing through the supply chain disruptions, which persisted in the industry throughout the quarter.
Journeys' offering of casual products resonated strongly with consumers as comfort continue to rain as the fashion choice of the pandemic.
While teens always have a big complement of fashion athletic footwear in their closets, we have talked about when fashion swings toward non-athletic or casual footwear, Journeys is especially well-positioned among its competition to deliver this assortment.
Moreover, current teen fashion trends are diverse and playing into a number of Journeys' brand strengths.
While fashion athletic grew nicely year over year, the gains in casual outpaces growth, including a strong start to the sandals season.
Congratulations Journeys team on another record quarter as the destination for fashion footwear for teens.
Over in the U.K., Schuh delivered a commendable performance under very difficult circumstances.
Stores were open for less than 20% of the possible operating days during the quarter due to government-mandated lockdowns that began around Christmas and continued until after Easter.
Despite the substantial loss of store days, revenue was in striking distance of Q1 two years ago and operating income exceeded pre-pandemic levels, including some one-time gains.
The Schuh team leaned successfully into its best-in-class digital capabilities throughout the pandemic to take advantage of the shift to online purchasing.
The first quarter was no exception as direct comps grew by more than 70% on top of last year's 90% growth and constituted more than 80% of Schuh's total revenue.
Prior to COVID-19, Schuh had the most advanced digital capabilities among our retail businesses, which have only strengthened over the past year through enhanced CRM capabilities, including more robust prospecting.
Schuh implemented significant operational changes to facilitate this digital growth, including reconfiguring its DC and labor model to add more e-commerce, packing stations, extending the deadline for next-day delivery through new freight carrier arrangements, and using stores as many DCs by rotating store fulfillment of e-commerce orders.
stores at the end of the quarter.
With seven of the top 10 best-performing brands in common, many of the trends driving Schuh's business were similar as usual to the ones driving Journeys, but with more of a fashion athletic tilt.
Before moving on from Schuh, I'd like to take a moment to congratulate the team on the official certification of its operations by Carbon Footprint Ltd as a carbon-neutral organization.
It has for a long time been a part of Schuh's DNA to operate in a socially responsible manner, consistent with its purpose pillars, and this accomplishment is the result of the team's efforts over several years.
This impressive achievement was realized ahead of schedule and provides the roadmap for our other businesses as we seek to reduce greenhouse gas emissions and work with our partners to reduce the carbon footprint of the products that we sell.
For Johnston & Murphy, the first quarter marked another positive step forward in its recovery.
As vaccines rolled out, consumers began their return to life phase more quickly than expected, gathering with family and friends in social outings and occasions.
In Q1, retail store traffic improved in each successive month, digital sales grew a notable almost 20%, attracting new customers to the brand, and wholesale revenue increased.
The announced recovery plan is centered around new product technology and innovation with 90% of new product development focused on expansion of its casual offering.
We were pleased that Q1's success was driven by high demand for newly developed casual styles, led by the athletic-inspired Amherst and Activ8 collections, and a new holistic marketing campaign in support of these launches.
At the same time, we saw continued gains in golf shoes and apparel this spring further validating our success extending J&M beyond its dress shoe roots.
While sales lagged pre-pandemic levels, we are encouraged by these trends and expect the recovery to accelerate once America begins the return to office phase likely begin in earnest as we enter summer and move into fall.
In yet another highlight, license brands is now beginning to realize the benefits of the Levi's footwear license and Togast acquisition that closed in January 2020 right as the pandemic began.
Revenue more than doubled to record Q1 levels, and operating profit improved considerably versus pre-pandemic levels as Levi's footwear was well received in accounts ranging from department stores to Journeys and Journeys Kidz to family footwear.
This progress reinforces our excitement about the potential to create value by combining powerful brands with our fully integrated footwear sourcing capabilities.
Turning now to the current quarter.
While Q2 is typically our lowest volume quarter as teams and consumers in general turn their attention to getting out-of-school and summer activities, the momentum from Q1 has continued into May.
While we expect government stimulus and pent-up demand to ebb at some point, we expect Journeys' strength to continue, Schuh's strength to build with the opening of stores in the U.K. economy, and Johnston & Murphy's recovery to continue, but it will likely take until back to work in the fall to propel another step function improvement.
Vaccine rollout progress should benefit store traffic in the back half of the year, and we expect that a good amount of the digital business that we captured during the pandemic will be sticky and anticipate a much higher e-commerce penetration as compared to fiscal '20.
We're anticipating a more normalized back-to-school with a significant return to in-person learning and a more normalized holiday.
Some COVID effects will linger, but with higher savings and continued government aid, the consumer is well-positioned to spend.
While stimulus has been a positive, the strength we're seeing in our results goes well beyond this tailwind to the traction and momentum we're experiencing as a result of our strong portfolio of businesses and the strategic direction we embraced a couple of years ago with our footwear focused strategy.
The pace of our recovery only reinforces our belief that the path we were on prior to the pandemic and now is the right path forward.
What we're most excited about is we see opportunities to solidify the digital gains we made and capitalize on the ongoing industry consolidation to further expand our market share.
COVID-19 has provided us the real opportunity to transform our business at a faster case, and our results demonstrate that's what we're accomplishing.
Q1 results far exceeded both our expectations and last year across the board.
For comparison purposes, we believe that comparing to two years ago, our pre-pandemic fiscal '20 provides the most meaningful assessment of current performance is there is simply too much noise in fiscal 21's results for drawing informative comparisons.
However, looking back at how our business has changed since fiscal '20, e-commerce has become a larger percentage, and our licensed brand segment has become a larger piece of the total as well due to the acquisition of Togast and strong Levi's sales.
These changes come with an overall lower gross margin rate due to the impact of direct shipping expense and the expansion of our wholesale volume, which should be more than offset with lower SG&A from these businesses, coupled with the impact of our cost reduction initiative once our business normalizes post-pandemic.
While these changes will reshape the P&L, they have a positive impact on operating margins and an added benefit of a less capital-intensive business model.
Turning back to Q1.
I'm pleased to report that the first quarter continued the sequential improvement of our operating results since the onset of the pandemic.
Higher revenue in excess of pre-pandemic levels, combined with SG&A that remains well managed, led to significantly higher operating income versus fiscal '20, and Q1 adjusted earnings per share of $0.79 compared to $0.33 in fiscal '20.
In terms of the specifics for the quarter, consolidated revenue was 539 million, up 9% compared to fiscal '20, driven by continued strength in e-commerce, up 144% versus fiscal '20 combined with strong results from Journeys and licensed brands compared to pre-pandemic levels.
We did not provide overall or store comp results in Q1 as our comp policy removes any stores that are closed for seven consecutive days, either this year or last year.
And therefore, we feel that overall sales is a more meaningful metric.
Overall digital sales increased to 25% of our retail business compared to 11% in fiscal '20, led by Journeys' penetration improvement, Schuh's ability to capture lost store sales online, and J&M's double-digit improvement compared to fiscal '20.
Licensed brands revenue was up 122% versus fiscal '20.
Consolidated gross margin was 47.8%, down 160 basis points from fiscal '20.
As we have experienced since the onset of the pandemic, increased shipping to fulfill direct sales pressure the gross margin rate in all our businesses, totaling 150 basis points of the overall decline, driven mainly by Schuh's much higher level of digital sales due to store closures.
While e-com puts pressure on our gross margin rate, as I mentioned, it comes with a lower cost structure and a high operating income rate.
Journeys' gross margin increased 130 basis points driven by lower markdowns in both stores and online.
Schuh's gross margin decreased 1,030 basis points due largely to the higher shipping expense from the shift in channel mix since e-commerce accounted for so much issues revenue in the quarter.
J&M's gross margin decrease of 200 basis points was due to more closeouts at wholesale and higher markdowns at retail.
However, it was a sizable sequential improvement.
Finally, the combination of lower revenue at J&M, typically the highest gross margin rate of our businesses, and the revenue growth of licensed brands, typically our lowest gross margin rate negatively impacted the overall mix by 90 basis points.
Adjusted SG&A expense was 44.3%, a 340-basis-point improvement compared to fiscal '20 as we leverage from higher revenue and ongoing actions around expense management.
government program, which provides property tax relief, rent abatements, and our ongoing rent savings on renewals.
The next largest areas of savings came from the reduction in store selling salaries, driven by the effective use of workforce management tools to drive higher conversion in the face of wage pressure.
These savings were partially offset by incentive compensation driven by improved profitability and increased marketing expenses needed to drive traffic to both stores and online.
Over the past many years, our organization has been intently focused on a critical effort to reduce occupancy costs, given the shift of traffic online.
And we continue to have even greater traction during the pandemic.
In Q1 this year, we negotiated 48 renewals and achieved a 29% reduction in cash rent or 27% on a straight-line basis in North America.
This was on top of a 23% cash rent reduction or 22% on a straight-line basis for 123 renewals last year.
These renewals are for an even shorter term, averaging approximately two years compared to the three-year average we have seen in recent years.
With over 40% of our fleet coming up for renewal in the next 24 months, this will remain a key priority for us going forward.
In summary, the first quarter's adjusted operating income was 18.8 million versus fiscal '20's 8.4 million.
Journeys, Schuh, and licensed brands all achieved higher operating income compared to fiscal '20.
Our adjusted non-GAAP tax rate for the first quarter was 36%, reflecting the impact of foreign jurisdictions for which no income tax benefits were recorded.
Turning now to the balance sheet.
Q1 total inventory was down 18% compared to fiscal '20 on sales that were up 9%, with all divisions showing improvement.
Our ending net cash position was 214 million, 32 million higher than the fourth quarter's level, driven by strong cash generation from operations.
Capital expenditures were 12 million as our spend remains focused on digital and omnichannel, and depreciation and amortization was 11 million.
We closed 17 stores and opened one during the first quarter.
Due to limited visibility in the business of the impact of the pandemic, we will not be providing guidance for the second quarter or full fiscal 2022.
That said, I do want to share some high-level thoughts on how we are expecting the upcoming quarter to play out.
As I mentioned, we believe it is best to use the pre-pandemic fiscal '20 as the reference point.
Q1 revenue benefited from stimulus and new Levi's business with headwinds from store closures at Schuh.
And while J&M's trend is improving, it remained lower than fiscal '20.
Expenses in Q1 benefited from rent abatements and some government relief programs.
Selling salary dollars were lower in the quarter as Schuh stores were opened for less than 20% of the quarter.
As we transition into Q2, in May, we continue to feel the tailwind is stimulus but expected to wane as we progress through the quarter.
As we enter back-to-school late in Q2, we assume that schools will return to in-person learning this fall with which should be a more normalized back-to-school selling season for Journeys and Schuh.
Around the same time, we expect more customers should begin returning to their offices which should further benefit J&M's trend.
Now getting to more specifics of Q2, starting with revenue, we expect higher revenue compared to fiscal '20 levels.
This is mainly due to growth at Journeys, Schuh stores coming back online, and continued strength from the Levi's business.
J&M's trajectory is expected to improve but remain under fiscal '20's level.
Directionally, the overall sales increase for Q2 compared to fiscal '20 could be a little less than the 9% increase we experienced in Q1.
Our view does not contemplate additional store closures or restrictions from COVID-19 beyond what we know today.
Gross margin rates for Q2 will be below fiscal '20 levels, but better than the 160-basis-point decline we experienced in Q1.
The sequential improvement is expected to come from better margin at Schuh, which will have a lower penetration of e-com compared to Q1.
Overall, higher e-commerce penetration and the higher shipping costs that come with it continue to put pressure on our rate versus fiscal '20.
Additionally, we anticipate the pressure from J&M to continue into Q2, as well as the impact of the license brand's growth on our business model as previously discussed.
We expect that the adjusted SG&A rate in Q2 will be in the ballpark of the rate in fiscal '20.
Sequentially, we will not see the large SG&A leverage we saw in Q1 as the benefits from rent abatements and some government relief programs will be less than Q1.
Compared to fiscal '20, higher revenue, combined with our ongoing cost reduction initiatives, will drive an improvement but will be offset by higher performance-based compensation.
As a reminder, our EVA program pays for year-over-year improvement and we paid no incentive compensation last year, which will have an impact in every quarter this year.
In summary, we expect operating income to be around breakeven for Q2, which is historically our lowest volume quarter of the year, making it difficult to turn a large profit.
For taxes, with operating income around breakeven in Q2, we expect a negligible tax expense.
The annual tax rate is expected to be approximately 32%.
In addition, thinking about the year, we'd also like to note we had a number of expense pick-ups like rent abatements in the back half of fiscal '21 during the pandemic we don't expect to repeat in the back half of this year.
Given the accelerated shift of our business from stores to digital and the impact from the pandemic, we continue to make progress on reshaping our cost structure with rent expense as a critical component.
We have good experience reducing our cost base.
During fiscal '19 and '20, we identified 43 million in expense savings, and in addition, following the divestiture of Lids, we eliminated the 9 million stranded costs associated with that business.
More recently, in fiscal '21, during the pandemic, we reduced our adjusted SG&A expense by over 15%.
While a good amount of this was temporary, there are also significant permanent dollar savings.
This has become a core competency of Genesco.
As a reminder, our initial target for this year is to identify savings in operating expenses of 25 million to 30 million or approximately 3% on an annualized basis.
These savings are coming from reduced occupancy costs and selling salaries and lower IT, transportation, and marketing costs from our procurement initiatives already under way.
These savings are before investing in the variable expenses necessary for our increased digital sales, as well as minimum wage and other new cost pressures, and increased inflation that time will tell whether it's temporary or permanent.
To date, we have made significant process on the targeted savings and we'll continue to provide updates as the year unfolds.
This cost-saving initiative is one part of a multipronged strategy to transform our business, all designed to reflect the more capital-efficient model.
Combined with lower capital expenditures on stores, fewer lease obligations, and efficient use of inventory, it will drive further improvements and return on invested capital and allow for improved flexibility in our operating model.
The team has much to be proud of and remains aligned on delivering on our footwear-focused strategy.
As I said, the footwear-focused strategy we embarked on a couple of years ago is the right strategy for our business and the foundation of our strong performance.
Let me briefly revisit the rationale behind this strategy and how it continues to drive results.
Across our company, we aspire to create and curate leading footwear brands that represent style, innovation, and self-expression, to be the destination for our consumers' favorite fashion footwear.
Our strong strategic positioning in a specialty consumer markets we serve, close connections with our customers, and enduring leadership positions are what make each of our footwear businesses distinctive on their own, and the synergies they share make them stronger together.
We are best known for our retail platform, but we have an important and valuable side of our business that successfully owns and licenses brands, giving us another good platform for future growth.
Our opportunity to unlock the full potential of Genesco is to accelerate the digital and omnichannel potential in our retail businesses and to meaningfully grow our brand inside.
We operate in an industry undergoing substantial change with the continued consumer adoption of digital commerce, positioning our company to effect transformational change.
We made substantial progress on this in fiscal '20, and the pandemic despite its challenges was an accelerant to this change.
Looking at the retail side of our business, Journeys' understanding of teens and unrivaled access to merchandise they want equips Journeys uniquely well to serve this fickle customer and to navigate the shifts that are an advantageous and inherent part of fashion footwear in this market segment.
Schuh occupies an essentially identical position in the UK.
Both brands have exceptional merchandising abilities and a passionate focus on customer service.
Both serve as key omnichannel distribution partners for the current most relevant youth footwear brands.
Given that they enjoy significant overlap in their vendor bases, their combined scale allows for stronger brand relationships underscored by activities like joint top to top global summit and shared special makeup product collections sold exclusively at Journeys and Schuh.
Vendor scale, along with product and consumer insights, provide great synergies, as well as strategic and operational initiative sharing.
A strong example of this is Schuh entering into the kids' business and now a substantial, profitable, and growing part of Schuh by borrowing and leveraging Journeys' know-how and success.
The anchor of the branded side of our company is Johnston & Murphy, whose leadership position is founded on brand equity that has taken 170 years to build.
This heritage, ability to interpret and shape its customers' evolving fashion needs through time, and established omnichannel expertise provide a strong foundation for recovery from the pandemic.
As a complement to brands we own, licensed brands allows us to leverage our footwear capabilities and expertise across other well-known brands with strong brand equity and opens additional tiers of distributions.
Our branded businesses benefit from common wholesale trade relationships and product trend inspiration exchange.
And in addition, the global sourcing platform spanning across J&M and licensed brands provide some of the most meaningful benefits.
For example, licensed brands designs, develops, and sources product accounting for one-third of the casual footwear sold in J&M factory outlets, including the top-selling style overall.
Our branded platform is Genesco's most promising platform for future growth.
This platform allows for leveraging of our robust direct-to-consumer capabilities, complemented by well-developed wholesale channel relationships, giving us the opportunity to add additional footwear brands that can plug into this infrastructure and capitalize on today's retail landscape where brands increasingly go direct to consumer.
Licenses plugged into this infrastructure also add value, evidenced by the success we're having with Levi's and the enhanced capabilities Togast added to our footwear sourcing platform.
In addition, not only do we benefit from a North American shared services platform in areas like technology, logistics, finance, and HR, but size and scale matter even more in our now technology and digitally driven retail sector as the investments to keep pace with consumer expectations continue to grow.
While Journeys and Johnston & Murphy go to market as separate and distinctive brands, they share almost all of their retail systems and services, providing significant cost-sharing and enhanced benefits.
From point-of-sale software to merchandising systems to loss prevention and real estate, the retail technology and infrastructures of these two concepts are largely integrated.
For example, the point-of-sale software upgrade we're rolling out this year will serve both Journeys and J&M.
Likewise, the wholesale technology infrastructures of J&M and license brands are significantly integrated as well.
As we look to the remainder of fiscal '22 and beyond, further leveraging these synergies within and across platforms is an important step in delivering increased value on top of the six strategic growth pillars driving our footwear-focused strategy.
These six pillars put in place prior to the pandemic emphasize continued investment in our digital and omnichannel capabilities, deepening our consumer insights, driving product innovation, and reshaping our cost base.
On future calls, like the last one, I'll provide an update on the significant progress we're making on these six pillars and corresponding strategic initiatives, which are having real impact to driving growth and profits for Genesco.
Not only have we taken care of our customers and each other during the pandemic, but we began the year on a firm foundation that allowed us to grow and create tremendous value in our company.
In addition, over the last several months, we've added four very qualified and experienced directors to our board, whose perspectives will be invaluable as we shape our future.
Genesco is on the right path.
Our strategy is working.
Our future is bright.
And I have never been more excited about the people and potential in our business.
 Assistant:

Chosen response:
q1 non-gaap earnings per share $0.79 from continuing operations.
q1 sales $539 million versus refinitiv ibes estimate of $449.1 million.
qtrly comparable direct sales increased 43%.
co is not providing guidance at this time.
as of may 27, 2021, co is operating in 96% of its locations, including about 1,100 journeys, 160 johnston & murphy, 123 schuh locations.


Prompt:
Human: These statements reflect the participants' expectations as of today, but actual results could be different.
Participants also expect to refer to certain adjusted financial measures during the call.
A very strong holiday season concluded an outstanding year.
Throughout fiscal '22, we accelerated our recovery from the pandemic and delivered record results for our footwear companies even as we navigated a number of acute challenges.
Despite multiple COVID variants, bottlenecks across the supply chain, labor shortages, and higher costs, we capitalized on the opportunity of a strong consumer spending environment to drive our business forward.
Our exceptional results underscore the earnings power of our business model, the solid foundation for growth we built through the strong competitive positions of our retail and branded concepts, and the successful execution of our footwear-focused strategy.
There are several key achievements that defined the year.
We grew revenue more than 35% over last year and 10% over fiscal '20.
Gross margin expansion and meaningful expense leverage drove record operating income for our footwear businesses as we achieved an operating margin above 6%.
We generated $240 million of operating cash flow, putting us in a great position to further invest in our business and return over $80 million to shareholders through share repurchases equal to 9% of outstanding shares, and we delivered record adjusted earnings per share of $7.62, an increase of more than 65% over fiscal '20.
Additional highlights include capitalizing on the accelerated shift to online spending and holding on to last year's almost 75% gain to reach almost $0.5 billion of digital sales, growing our branded wholesale business by almost $90 million versus two years ago, while improving profitability, adding new licenses and strengthening retail partnerships, and increasing store revenues over 40% from last year and nearly achieving fiscal '20 levels despite having 55 fewer stores.
Overall, our results highlight the work we've done to create and curate leading footwear brands and importantly, to strengthen our position as the leading destination for teen and youth-branded fashion footwear.
In today's channel-less world, where the consumer can truly shop anywhere, Journeys' and Schuh's growth underscores the tremendous loyalty developed with existing customers and compelling proposition offered to new customers.
Teens view us as the unparalleled fashion authority, choosing fashion-right brands and styles, validating whatever brands we're currently selling, and they are increasingly turning to our concept for their branded footwear needs.
We are not dependent on anyone brand for the majority of our revenue, but rather 10 or more brands typically constitute 80% of what we sell.
Trend-driven teens who are looking for the most current assortment of fashion footwear that is always evolving, whether they want to make a statement to stand out or want to fit in and be just like their friends, come to Journeys and Schuh to buy multiple brands and seek advice from our knowledgeable fashion advisor salespeople in our youth-focused full-service environment.
The effects from the pandemic on how consumers shop rather than harming our business was instead the catalyst to reach new heights.
Shifting now to the fourth quarter.
The work we did to have the right assortment and the right holiday marketing campaigns helped deliver Q4 results well ahead of expectations.
Consumer demand was robust, and we nonetheless believe our results would have been even stronger had we been able to maintain historic levels of inventory.
Our performance over last year's Q4 was driven by store sales and, versus two years ago, by digital and branded wholesale sales.
Q4 highlights include revenue up 14% over last year and 7% over two years ago.
Remarkably, we achieved this despite overall inventory being down almost 20% versus last year and down by one-third compared with the fourth quarter two years ago during the key holiday period.
With much more limited promotional activity, coupled with price increases, full-price selling was very strong, fueling a 300-plus basis point increase in gross margin versus last year, and a 200 basis point increase compared to two years ago, much stronger than expected.
Higher sales and this better-than-expected gross margin resulted in double-digit operating income expansion over pre-pandemic levels and record adjusted earnings per share of $3.48, an increase of more than 25% compared to last year's holiday season and 13% compared to two years ago.
From a channel perspective, the power of our omnichannel strategy was on full display in the fourth quarter as consumer appetite to shop in person, especially in the days leading up to Christmas, drove an almost 20% increase in-store sales over the year-ago period.
Strong demand in stores with many items selling as soon as they hit the store floor meant less store inventory than usual was available to service online demand.
We saw the biggest shift to in-store shopping in the U.K. as Schuh stores were open 100% of the quarter compared to roughly only a third of the days last year.
Despite the strong in-store sales in both Journeys and Schuh, we held on to almost 90% of last year's digital sales in total.
So turning now to discuss each business.
I'll start with Journeys and begin with a huge congratulations to the team on setting all-time records of sales and operating profit for the year.
Journeys' performance underscores the competitive advantages the business has built and how it has leveraged those advantages to further separate itself as the destination for branded fashion footwear for teens.
All of Journeys' Top 10 brands experienced year-over-year growth in fiscal '22 with most notching significant gains.
The current fashion cycle, which I've been describing, is shifting more into casual away from fashion athletic, plays into Journeys' strength, positioning Journeys well among its competition to deliver this assortment.
In anticipation of continued supply chain pressure, we encouraged customers to shop early and they did and the holiday season got off to a very strong start.
At this peak volume time, as the season unfolded, while traffic remained solid, conversion, which had been robust, dropped off as Journeys was not able to quickly replenish in-demand products to match outsized holiday demand.
While Journeys' talented store teams drove sales above last year's level, selling whatever was available, we believe Journeys' sales would have been meaningfully higher had we been able to get the inventory receipts we had ordered.
As a positive, tight inventory led to unprecedented levels of full-price selling with customers also willing to absorb price increases to secure desired product, driving further margin acceleration.
Finally, the Journeys team continues to live its core values of being a family with an attitude that cares, partnering during the holidays with nonprofit candidates and customers at the register for its largest national community activation, and donating $600,000 for bikes for underserved youth across the United States.
As part of this initiative, Journeys' headquarters employees built and donated 300 bikes and helmets to two Nashville elementary schools just in time for the holidays.
We were incredibly pleased with holiday results as Schuh capitalized on pent-up consumer demand and delivered Q4 constant currency revenue up more than 30% versus last year and 12% versus two years ago.
Like Journeys, Schuh's strength is its ability to deliver the fashion brands desired by its youth consumer and Schuh drove a nice growth across its diversified mix of both casual and fashion athletic footwear.
As a result of its stellar execution throughout the pandemic, navigating multiple store openings and closings, and making the most of its advanced digital capabilities, Schuh garnered improved product access being moved up a tier by a number of its high-profile brands.
This step forward in access, coupled with less severe supply chain disruptions and strong inventory management allowed Schuh to be in a better inventory position over the holidays.
U.K. customers were more comfortable shopping in person, leading to better in-store traffic, Schuh retained much of its digital gains from when stores were closed last year, resulting in a Q4 46% digital penetration.
Lastly, less promotional activity and product mix also drove strong margin gains.
Turning now to our branded side.
Our plan to reimagine Johnston & Murphy for a more casual, more comfortable, post-pandemic environment continues to prove out in the marketplace with the biggest Q4 bottom-line gain over last year of all of our businesses.
J&M continues to expand its focus from not just the products consumers need for work, but the products people desire for everyday life.
Q4's strong sell-through in boots, casual and casual athletic footwear, and equally strong performance in apparel and outerwear demonstrates just how far we've come, making J&M an attractive multi-category lifestyle brand.
This pivot has included new strategies for how and where we reach our customers.
New product story marketing campaigns have been very effective, and we've seen the most growth in our digital channel, up 14% compared to Q4 last year, and growth in our under-35 customer base, up 30% in Q4.
Much stronger demand and supply constraints pushed inventory more than 50% below pre-pandemic levels, hampering our ability to capture all of the demand during the holidays and return J&M to pre-pandemic sales.
Nevertheless, we're excited about J&M's trajectory and expect upside in the year to come.
Rounding out the discussion, momentum for Licensed Brands accelerated as the year progressed, notching impressive sales growth of 70% over last year as we successfully turned around the business and capitalized on the new capabilities we obtained with the Togast acquisition.
While supply chain disruption and excess freight costs weighed on the P&L throughout the year, we saw growing demand for both Levi's and Dockers footwear in value and full-price channels, positioning the business for improved profitability as these challenges subside, and we continue to take advantage of the white space in the marketplace.
In conclusion, our footwear-focused strategy is delivering results.
COVID provided the real opportunity to transform our business at a more rapid rate.
We are a healthier company today and delivered growth and improved earnings as a result of higher digital sales and profits, a more profitable store channel, and growing branded wholesale sales.
Our future is bright as we build upon the progress we have made.
Turning now to the current year.
Fiscal '22 had headwinds I have discussed and also some unique tailwinds, namely: healthy consumer spending in the first half due to significant government stimulus; an unusually good environment for full price selling as a result of high demand and scarcity of supply; and we benefited from some onetime gains related to rent and government relief, mostly in the U.K. With respect to fiscal '23, sales have gotten off to a much stronger start versus last year, but a slower start versus pre-pandemic, driven largely by the lower inventory level and lagging tax refunds.
We are expecting year-over-year trends to moderate as we anniversary stimulus and the lack of inventory further pressures growth early in the new year, especially in the first quarter.
Looking further into fiscal '23, we're working hard to overcome the cost pressures that are prevalent today, and we don't anticipate the factors that led to such a strong full-price selling environment to be sustained.
Tom will provide the financial details of our outlook momentarily, but we feel confident about delivering topline growth on top of a very strong fiscal '22.
Consistent with what I have outlined, we are planning the back half to be much stronger than the first half as inventory levels improve, logistics cost pressure starts to ease, and continued price actions help offset higher costs.
Fiscal '23 will also be an investment year for J&M as we advance the work on the brand's repositioning.
We expect adjusted earnings per share for fiscal '23 to be between $7 and $7.75 and believe somewhere close to the middle of the range is where the year will land.
While there are a number of variables at play, our results over what has been a very volatile past 24 months gives me great confidence in our team's ability to execute.
Finally, our ESG program will achieve an important milestone early in the year with the completion of our inaugural enterprisewide carbon footprint assessment.
Our work continues to progress with more to come when we publish a comprehensive ESG report later this spring.
Throughout fiscal '22, our employees stepped up wherever needed, and I can't overstate how critical this work was to our success.
Companies succeed like we have because of strong teams and dedicated people who help them achieve new heights.
I'm incredibly proud of what we accomplished together.
I would like to echo Mimi's remarks regarding the continued success of our key strategies and our amazing people.
With the year now behind us, we feel even more confident in our portfolio and the ability of our footwear-focused strategy to drive strong results.
Throughout the year, we saw continued strength in all our businesses, culminating in a strong Q4, which was driven by our team's ability to execute the strategies put in place.
Before I get into the details of the quarter, I want to again remind you as we have done throughout the year that we believe comparing to our pre-pandemic fiscal year '20, two years ago, typically provides the more difficult and often most meaningful assessment of our business.
However, when comparing to fiscal year '20, keep in mind how our strategy has changed our business.
E-commerce has become a larger percentage of sales along with wholesale sales for licensed brands.
These changes come with an overall lower gross margin rate due to the impact of direct shipping expenses and the expansion of our wholesale volume.
However, this should be more than offset with lower SG&A from these businesses.
While these changes are reshaping the P&L, they have a net positive impact on operating margins and an added benefit of a less capital-intensive business model.
Turning now to the specifics for the quarter.
Consolidated revenue was $728 million, up 7% compared to fiscal '20.
Journeys grew 2%, while Schuh grew 12% on a constant currency basis, and we more than tripled our licensed brands business.
As for J&M, the quarter started off strong in November, but supply chain challenges led to a significant lack of inventory, which led to J&M sales being down 12% for the quarter.
From a channel perspective, we experienced increases in both the e-com and wholesale channels.
And while we drove robust growth in the store channel, sales remained 4% below fiscal year '20, as scarcity of inventory impeded sales.
Worth noting as well is that we ended the quarter with 55 fewer stores than we had in fiscal year '20 as we optimized our store footprint.
On a year-over-year comp basis, however, total company comp-store sales were up 10% and were driven by comp sales of 6% at Journeys, 22% at Schuh, and 55% at J&M.
Finally, e-commerce sales were up 36% to fiscal '20 and accounted for 22% of total retail sales, up from 17% in fiscal year '20, while we also held on to 88% of last year's gains even while having the majority of our stores open during the quarter.
We were again very pleased with gross margins, which were up 310 basis points to last year and 200 basis points versus two years ago.
Strong full-price selling and price increases offset the channel mix impact of increased e-commerce and wholesale and increased logistics costs.
Increased logistics costs put approximately 120 basis points or $9 million of pressure on Q4 gross margin, and were the greatest drag in our branded businesses.
Journeys' and Schuh's gross margins were up 330 and 250 basis points, respectively, to fiscal year '20, driven by more full-price selling and higher footwear ASPs.
J&M's gross margin was up 420 basis points to fiscal '20, also benefiting from strong full-price selling and price increases, which also drove the release of slow-moving inventory reserves.
Finally, licensed brands' gross margin was down 190 basis points to fiscal year '20, as we experienced almost 1,000 basis points or almost $5 million of pressure from additional logistics costs, which more than offset margin improvements in the business.
Adjusted SG&A expense was 39.8%, which was 170 basis points more than fiscal '20 as deleverage from investments in marketing and higher incentive compensation more than offset leverage in occupancy and selling salaries.
As a reminder, our incentive compensation plan is based on year-over-year performance.
And comparatively speaking, we had a much lower bonus expense in fiscal year '20 Q4 than we did this year.
The other major driver of the deleverage was in marketing expense, which is due to our efforts to drive our digital footprint as well as brand awareness.
This coincided with price increases and digital marketing costs, including increased cost per click.
It's worth mentioning, last year's SG&A levels were unusually low, benefiting from 10s of millions of dollars of one-time COVID rent relief.
Regarding our rent reduction efforts for fiscal '22, we negotiated permanent reductions through 181 renewals, which achieved a 16% reduction in rent expense in North America on a straight-line basis.
This was on top of a 22% reduction for 123 renewals last year.
These renewals are for an even shorter term averaging approximately two years, compared to the three-year average we have seen in recent years.
With 45% of our fleet coming up for renewal in the next couple of years, this continues to remain a key priority.
Finally, we are pleased with our ability to leverage selling salaries, particularly in this higher cost and more difficult labor environment as we effectively utilized our workforce management tools.
Last quarter, we reported that we had identified the full amount of our $25 million to $30 million cost savings target.
A large part of these savings are from current and future reductions in store occupancy.
We will continue to focus our multiyear cost savings efforts on store channel profitability, including further efforts on reducing occupancy costs, gaining more efficiencies with selling salaries to mitigate the effects of wage pressures, and continually look for ways to further drive efficiencies, given the changing cost structure of the business.
In summary, fourth quarter adjusted operating income was $66 million, a 9.1% operating margin, compared to $59 million or 8.8% for fiscal year '20.
Versus last year, operating income improved by $2 million or 2.6%.
Again, last year's SG&A levels were unusually low, benefiting from significant COVID rent relief.
The impact of this was greatest at Journeys and in large part led to lower operating income this year despite higher sales and gross margins as Journeys anniversaried these onetime gains.
The profitability achieved during the quarter provides strong evidence of the operating margin expansion that we are continuing to see with our footwear-focused strategy as well as our ability to execute our growth algorithm.
As Mimi mentioned, for the fiscal year, we achieved north of a 6% operating margin, which was an important milestone in our long-range plan.
For the quarter, our adjusted non-GAAP tax rate was 25%, which compares favorably to the 37% last year due to the impact of the Cares Act tax provisions in the fourth quarter of fiscal year '21.
This resulted in adjusted diluted earnings per share of $3.48 for the quarter, which compares to $2.76 last year and $3.09 in fiscal '20.
Turning now to the balance sheet.
Q4 total ending inventory was down 24%, compared to fiscal '20 on sales that were up 7%.
At the end of the quarter, all our business experienced inventory shortfalls versus fiscal '20 with the most impacted in Journeys and J&M, which were down 20% and 39%, respectively.
Our strong net cash position of $305 million, an increase of over $120 million versus last year, was driven by our strong operating performance.
Additionally, we consolidated operations and sold a warehouse, realizing a sizable gain on the transaction.
This strong performance and our confidence in the business enabled us to continue to return cash to our shareholders through the repurchase of 840,000 shares of stock for $52 million at an average price of $62.22 per share during the quarter.
Total fiscal '22 share repurchases were approximately 1.36 million shares or 9% of outstanding shares at a cost of approximately $82.8 million and at an average price of $60.88 per share, which effectively used up our September 2019 $100 million share repurchase authorization.
As a reminder, to continue to support our capital allocation strategy, we recently announced the approval of an additional $100 million repurchase authorization in February of this year, which represents our current availability.
Regarding capital allocation strategy, our immediate priority is to accomplish the substantial task of reinventorying, then invest in the business and continue to return cash to our shareholders through opportunistic share repurchases.
Capital expenditures were $19 million, including our new headquarters, and depreciation and amortization was $11 million.
We opened two stores and closed 11 during the fourth quarter to end the quarter with 1,425 total stores.
As we look toward fiscal year '23 guidance, we are excited about the year ahead and the continued momentum of our business.
But we recognize that we are faced with supply chain delivery delays, increased product, and logistics costs and the lapping of significant stimulus last year in the first half.
Regarding supply chain delays, we expect inventories to normalize late Q2 to early Q3.
In addition, we expect to experience wage pressures throughout the year.
After considering these factors, we expect fiscal year '23 sales to grow 2% to 4%.
For adjusted earnings per share, we expect a range of $7 to $7.75 per share with our best current expectation that earnings per share will be near the midpoint of the range.
Note that our full year guidance does not anticipate further significant supply chain disruptions or a more rapid escalation of inflation or geopolitical conflicts.
Regarding our individual businesses, for Journeys, we expect first-half sales to be below comparable fiscal year '22 levels since Journeys benefited considerably from stimulus last year.
We then expect growth in the back half as we assume inventories will normalize to pre-pandemic levels and would benefit from further price increases.
For Schuh, we expect growth for the year driven by more normalized store openings.
For J&M, we expect to return to pre-pandemic sales levels, and we expect growth for licensed brands as well.
Regarding gross margins, we expect gross margin rates to come down versus last year by roughly 40 to 50 basis points due mainly to increased markdown activity in the quarters in which markdowns normally occur as compared to essentially no promotional activity last year.
We expect adjusted SG&A as a percentage of sales to deleverage in the range of 10 to 40 basis points.
This is driven by leverage from reduced performance-based compensation being offset by anniversarying significant onetime rent abatements, primarily at Schuh, and selling salary wage pressure.
In addition, we will have increased marketing investments to drive our business forward.
Our guidance assumes no additional share repurchases for the fiscal year, which results in fiscal '23 average shares outstanding of approximately 13.4 million, but we can repurchase opportunistically with availability under our most recent authorization.
Furthermore, we expect the tax rate to be approximately 28%.
In summary, this all results in expected operating margin below fiscal year '22, which beyond cost pressures, in large part, is due to a difficult first quarter and our belief that factors that led to such a strong full-price selling environment will not be sustained.
While we typically don't provide quarterly guidance, I want to provide some perspective on Q1.
As I said, we are lapping the benefits of fiscal year '22 stimulus, while at the same time experiencing delivery delays.
As a result, we expect Q1 sales to be below last year, which is the main driver of a good amount of SG&A deleverage in the quarter.
We are also anniversarying some onetime pickups like rent abatements in Q1 last year.
Regarding gross margin, increased air freight logistics costs are driving pressure, particularly at J&M.
The good news is we expect overall gross margin to be just under last year's levels.
With all of this, we expect a small loss in the quarter even as first-half earnings return more to a pre-pandemic cadence.
Also, it is worth noting for Q1, we expect to incur a small amount of tax expense due to our inability to recognize tax credits for our international operations.
The results Tom detailed clearly demonstrate that our footwear-focused strategy is advancing our business in this ever-changing environment.
This strategy, implemented before the pandemic, leverages our team's significant direct-to-consumer expertise across footwear, retail, and brands and the synergies between platforms.
Driving this strategy are six strategic pillars that emphasize continued investment in digital and omnichannel, deepening our consumer insights, driving product innovation, reshaping our cost base, and pursuing synergistic acquisitions, all to transform our business and exceed the expectations of today's consumer whose needs have rapidly advanced.
We continually refine our focus within the six pillars to take further advantage of the major changes underway in our industry.
Before we get to Q&A, let me walk you through the pillars and briefly highlight select initiatives for fiscal '23.
The first pillar is accelerate digital to grow the direct-to-consumer channel.
The investments we have made paid huge dividends and contributed meaningfully to our results these past two years as we achieved e-commerce sales growth of almost 80% over this time.
Importantly, our online business generates operating margins well into the double-digits due to our focus on full-price selling, disciplined marketing spend, and shipping and return policies to reinforce profitability.
This year, we are increasing our IT investments and resources to support digital.
We also believe continued enrichment of the digital shopping experience through fit refinement, try-on augmented reality and shop-the-look features will further add to digital growth in fiscal '23.
After a successful virtual try-on pilot program with Journeys this past year, we plan to roll out that program across all brands in the upcoming year.
Additionally, we accelerated automation to support omnichannel growth and we'll benefit from last year's go-live of our new carton-on-demand system and bespoke e-commerce packing module.
Lastly, we will add to our investment in digital marketing to drive traffic and attract new customers.
We expect marketing to be up more than 60% versus pre-pandemic spending, in large part, driven by these digital marketing increases.
Our second pillar is maximize the relationship between physical and digital channels.
During the pandemic, we increasingly saw the importance of these two channels working seamlessly together to provide consumers with their preferred shopping experiences, and we're building on and refining this relationship.
Our research has told us that over 30% of Journeys' target consumers visit local non-mall shopping centers two to three times per month and enjoy the convenience of shopping closer to home, combined with enhanced omnichannel services like easier curbside pickup.
We piloted a number of these off-mall locations, and we're very pleased with the early sales and four-wall results.
As such, we are expanding our portfolio of Journeys' non-mall locations and opening up to 30 new locations this year.
Tools like our new real estate analytics platform will allow us to optimize our site selection as we build out this footprint.
At Schuh, we are opening a new distribution center in Ireland to better support omnichannel sales there.
With this new center, we will also increase the efficiency of our Irish operations, while reducing costs resulting from new duties imposed post-Brexit.
Moving to our third pillar, building deeper consumer insights to strengthen consumer relationships and brand equity.
Data-driven consumer insights and more robust CRM capabilities are key to driving our next big wave of growth.
Because of the trusted relationship we have with our customers and their parents and the efforts to capture first-party data in our stores, we are currently able to identify 80%-plus of our Journeys and J&M customers.
This year, we will continue our investments in CRM and data analytics, particularly through database growth and loyalty program advancement.
We expect to fully launch our new Schuh loyalty program following a successful test in fiscal '22, grow our Johnston & Murphy program, which launched last year, and advance the work on a loyalty program for Journeys.
We will also invest to elevate the Journeys and Johnston & Murphy brands through increased marketing campaigns and spend to support this initiative.
Our fourth pillar, intensifying product innovation, and trend insight efforts, we will be utilizing new consumer insights to further innovate Johnston & Murphy's product offering and its accelerated shift to casual.
We have made tremendous progress reimagining the brand, highlighting proprietary innovation involving performance, advanced cushioning, and breathability technologies in both footwear and apparel, and growing Johnston & Murphy into its position as the No.
7 casual brand in the premium channel.
In addition, we will leverage our Togast capabilities and talent in connection with our new starter and Etonic licenses, which have shown strong presale demand and also build on the impressive growth achieved with the Levi's U.S. men's, women's, and kids' footwear license and category opportunities in areas like slippers, flip flops, and slides.
Finally, we are investing in a new scalable wholesale enterprise resource planning system to support the growth of our branded platform.
Pillar five, reshaping the cost base to reinvest for future growth has been a continuous effort, and especially at the store channel in working with our landlord partners to find a solution to rightsize rents to match traffic levels.
In addition to the approach Tom outlined for rent reduction, we are improving efficiency wherever we have people-intensive activities.
For example, this year, we're investing in new receiving automation in our Journeys distribution center, which should lower labor costs and increase productivity, especially during peak receiving periods.
And finally, pillar six, pursue synergistic acquisitions to enhance growth.
As we navigated an unprecedented environment over the last two years, acquisitions were not at the forefront of our strategy in spite of the success we're having with the Togast acquisition.
Now that many of the challenges of the pandemic are behind us, we will concentrate our efforts on opportunities to leverage our powerful direct-to-consumer capabilities to grow our branded platform and leverage its synergies.
So now to close, while we are so pleased with the year we just finished, we are even more excited about driving our footwear-focused strategy to deliver additional growth and shareholder value.
Operator, we're now ready to open the call to questions.
 Assistant:

Chosen response:
q4 non-gaap earnings per share $3.48 from continuing operations.
q4 sales rose 14 percent to $728 million.
q4 same store sales rose 10 percent.
sees fy adjusted earnings per share $7.00 to $7.75 from continuing operations.
for fiscal 2023, co sees sales to be up 2% to 4%, compared to fy22.


Prompt:
Human: These estimates are subject to some risks and uncertainties.
Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings.
Revenue is up $640 million or 7.3% against the first quarter last year.
Operating earnings are up $4 million, and net earnings are up $2 million.
To be a little more granular, revenue on the defense side of the business is up against last year's first quarter by $444 million, and aerospace is up $196 million.
The operating earnings on the defense side are up $45 million or 6.4%, while operating earnings in the aerospace side are down $20 million, but still nicely above consensus.
I will have more to say about this a bit later.
The operating margin for the entire company was 10%, 70 basis points lower than the year-ago quarter.
This was driven by a 250-basis-point lower margin rate at aerospace, as was fully anticipated in our guidance to you, combined with $21 million more in corporate operating expense.
From a slightly different perspective, we beat consensus by $0.18 per share.
We have roughly $500 million more in revenue than anticipated by the sell side and almost $50 million more in operating earnings.
So it's a pure operations beat.
I must confess that we also beat our own expectations rather handsomely.
This is, in almost all respects, a very solid quarter.
It's hard to find something not to like about it.
It's a very good start to the year.
Aerospace enjoyed revenue of $1.9 billion and operating earnings of $220 million with an 11.7% operating margin.
Revenue is almost $200 million higher than anticipated by us and the sell side.
Revenue is also $196 million higher than the year-ago quarter.
The difference is almost exclusively more G500 and G600 deliveries than the year-ago quarter.
The 11.7% operating margin is lower than the year-ago quarter, but consistent with our guidance and sell-side expectations.
Finally, we took some mark-to-market charges with respect to our G500 test inventory.
Without the charge, from a pure operating perspective, performance in the quarter was superb.
Aerospace also had a very strong quarter from an orders perspective with a book-to-bill of 1.3:1.
Gulfstream alone had a book-to-bill of 1.34:1.
In unit terms, this is the strongest order quarter for the last two years, excluding the fourth quarter of 2019 when we launched the G700.
The sales activity truly accelerated in the middle of February and continued on through the remainder of the quarter.
The momentum developed in the quarter appears to be rolling over into the second quarter as well.
We are experiencing a high level of interest and activity.
It is constructive to see this accelerated activity level without the benefit of the removal of travel restrictions and quarantine requirements in many countries outside the U.S. Demand should improve even further when these restrictions are ultimately removed.
Gulfstream experienced a 5.7% increase in service revenue.
On the other hand, Jet Aviation's FBOs and certain of its maintenance facilities are recovering more slowly.
Jet Aviation service revenue is down around $31 million, coupled with a modest increase in service operating earnings.
The FBOs and MRO sites will do much better as business travel accelerate.
The G500 and G600 continued to perform well.
Margins are improving on a consistent basis, and quality is superb.
As of the end of last week, we have delivered 104 of these aircraft to customers.
The G700 has over 1,400 test hours on the five test aircraft, and the first fully outfitted G700 is flying.
Its interior is absolutely beautiful.
We remain on track for entry into service in the fourth quarter of 2022.
Looking forward, we expect the second quarter to be our most challenging from a delivery perspective.
However, we also expect rapid improvement in the third and fourth quarters as we had planned for an increase in production and more delivery.
Combat systems has revenue of $1.8 billion, up 6.6% over the year-ago quarter.
While all three companies within the group contributed to the growth, the primary source was increased sales of our eight by eight-wheeled combat vehicles to Switzerland and Spain and sales of our six by six Eagle vehicles.
So all in all, good growth.
It is also interesting to observe that combat systems revenue has grown in 16 of the last 18 quarters on a quarter over the year-ago quarter basis.
Operating earnings, at $244 million, are up 9.4% on higher volume and a 30-basis-point improvement in margin.
This was an impressive performance by any reasonable measure.
You may recall that a notable development for this segment in the year-ago quarter was the formal signing of the restructured contract on the Canadian international program, which settled all issues.
The parties continue to perform on that contract, as contemplated.
This was helpful to free cash flow last year and continues to be so this year.
This risk item appears to be behind us.
Turning to marine systems.
You may recall that at this time a year ago, I was able to report that revenue in the first quarter of 2020 was up 9.1% against the first quarter in 2019.
I am very pleased to report today that first-quarter 2021 revenue of $2.48 billion is up 10.6% against first-quarter 2020.
The growth was led by Block V Virginia-class and Columbia-class construction volume.
We also enjoyed nice increases in ESB and T-AO construction volume at NASSCO.
This is very impressive continued growth.
In fact, revenue in this group has been up for the last 14 quarters on a quarter versus the year-ago quarter basis.
Operating earnings are $200 million in the quarter, up $16 million or 8.7% on an operating margin of 8.1%.
We will strive to improve our operating margin as we progress through the year.
On the order side, I should observe that total backlog was down only $231 million sequentially, leaving a powerful $49.8 billion in total backlog.
There was, obviously, significant order activity in the quarter, including the award of the 10th Block V Virginia-class submarine.
This segment have revenue of almost $3.2 billion in the quarter, up $95 million from the year-ago quarter or 3.1%.
The revenue increase was supplied by information technology, mostly associated with the ramp-up of new programs.
IT alone grew 5% in the quarter.
Operating earnings at $306 million or up $8 million or 2.7% on a 9.6% operating margin.
This is about 40 basis points ahead of consensus.
EBITDA margin is an impressive 13.3%, including state and local taxes, which are a 50-basis-point drag on that result.
Most of our competitors carry state and local taxes below the line.
This is a best-in-class EBITDA margin.
Total backlog grew $359 million sequentially, and total estimated contract value remained about the same.
There were also some notable items in GDIT's first quarter worth mentioning.
On the bid and proposal front, GDIT submitted the highest dollar value of proposals in any quarter since the acquisition of CSRA, 90% of which represent new business opportunities.
They ended the quarter with over $30 billion in proposals awaiting customer decision, most of which also represent new business opportunities versus recompetition of existing work.
So good order activity in the quarter with a book-to-bill of 1.1:1 and good order prospects on the horizon.
That concludes my remarks with respect to a very good quarter.
As you know, we never update guidance at this time of the year.
We will, however, give you a comprehensive update at the end of the second quarter, as is our custom.
I'll start with our cash performance in the quarter.
From an operating cash flow perspective, we essentially broke even for the quarter.
Including capital expenditures, our free cash flow was negative $131 million.
For those of you who followed us for some time, you know we've been a fairly significant user of cash in the first quarter for the past several years.
This quarter was a marked improvement from that pattern due in large part to the strong order activity at Gulfstream and ongoing progress payments on our large international combat systems program, consistent with the contract amendment Phebe referenced earlier.
So the quarter was nicely ahead of our expectations and reinforces our outlook for the year of free cash flow conversion in the 95% to 100% range.
Looking at capital deployment, I mentioned capital expenditures, which were $134 million in the quarter or 1.4% of sales.
That's down between 25% and 30% from the first quarter a year ago, but we're still expecting full-year capex to be roughly 2.5% of sales.
We also paid $315 million in dividends and increased the quarterly dividend by a little more than 8% to $1.19 per share.
And we spent nearly $750 million on the repurchase of 4.6 million shares at an average price of just over $161 per share.
After all this, we ended the first quarter with a cash balance of $1.8 billion and a net debt position of $11.4 billion, down $1.3 billion from this time last year.
Net interest expense in the quarter was $123 million, up from $107 million in the first quarter of 2020.
The increase in 2021 is due to the incremental debt issued last year in conjunction with the refinancing of maturing notes.
We have $3 billion of outstanding debt maturing later this year, and we plan to refinance a portion of those notes to achieve a more balanced deployment of capital, but this will still result in a declining debt balance this year and beyond.
During the quarter, Congress passed the American Rescue Plan Act.
As you may be aware, it contains two provisions that affect our business.
First, it extends the provision of the CARES Act that allows reimbursement of contractor payments to workers who are prevented from working due to COVID-related facility closures.
This will continue to benefit our technologies business, although it does not provide for fee on those costs.
So that will have an ongoing dilutive impact on the segment's margins.
Second, the act provides pension funding relief by reducing the amount of required contribution to our pension plans this year by a couple of hundred million dollars.
However, this same provision reduces the amount of pension costs we are reimbursed on our U.S. government contracts.
As a result, when coupled with the lower tax benefit from the reduced pension contributions, the impact on our 2021 cash flow is immaterial.
We expect the cash benefit from the act to increase modestly over the next couple of years, reinforcing our expectation that free cash flow can exceed 100% of net income over that period.
The tax rate in the quarter, at 16.2%, is consistent with our full-year expectation, so no change to our outlook on that front.
Finally, order activity and backlog were once again a strong story in the first quarter with a 1:1 book-to-bill for the company as a whole, even as we grew by more than 7% in the quarter.
As Phebe mentioned, the order activity in the aerospace and technologies groups led the way with a 1.3 times and 1.1 times book-to-bill, respectively.
We finished the quarter with a total backlog of $89.6 billion.
That's up 4.5% over this time last year.
And total potential contract value, including options and IDIQ contracts, was $131.4 billion, up 6% over the year-ago quarter.
Howard, that concludes my remarks.
As a reminder, we asked participants to ask one question and one follow-up, so that everyone has chance to participate.
Operator, could you please remind participants how to enter the queue?
 Assistant:

Chosen response:
q1 earnings per share $2.48.
q1 revenue rose 7.3 percent to $9.4 billion.
total backlog at end of first-quarter 2021 was $89.6 billion, up 4.5% from year-ago quarter.
total estimated contract value, sum of all backlog components, was $131.4 billion at end of quarter.


Prompt:
Human: This is Matt Eichmann.
I'm joined by Pete Watson, Greif's president and chief executive officer, Larry Hilsheimer, Greif's chief financial officer, and Ole Rosgaard, Greif's chief operating officer.
We will take questions at the end of today's call.
In accordance with regulation fair disclosure, please ask questions regarding issues you consider important because we're prohibited from discussing material, non-public information with you on an individual basis.
Please limit yourself to one question and one follow-up before returning to the queue.
Actual results could differ materially from those discussed.
We appreciate your interest in Greif, and hope that you and your families are staying both safe and healthy during the pandemic.
Greif delivered robust third-quarter results.
We executed with discipline to deliver record quarterly adjusted EBITDA of $238 million and adjusted class A earnings per share of $1.93, fueled by strong volumes and ongoing strategic pricing actions as we continue to experience strong demand across our global portfolio.
Our leverage ratio fell at 2.8 times, and our board approved a $0.02 and a $0.03 increase to our class A and class B quarterly dividend, respectively, payable on October 1.
We're also increasing our adjusted earnings per share and adjusted free cash flow guidance, reflecting our strong year-to-date results and positive outlook for the remainder of the fiscal year.
Finally, in late June, we announced a planned executive leadership transition that will occur next year.
Upon my retirement on February 1, 2022, Ole Rosgaard will assume responsibility for Greif's next chief executive officer.
Until that time, Ole will serve as chief operating officer and work closely with me and our executive leadership team on his transition.
Ole is a servant leader and a proven team builder with demonstrated commitment to customer service excellence and disciplined operational execution.
Those attributes, along with his extensive manufacturing and industrial packaging experience, makes him the ideal leader to take Greif forward.
Ole, I'd like to ask you to say a few words.
It's great to be with you.
As Pete mentioned, my name is Ole Rosgaard, and I'm excited and humbled to be named as Greif's next CEO.
I look forward to joining these calls in the quarters ahead and to working more closely with all of you in the future.
As head of global industrial packaging, my focus was on driving and delivering the operating and business results that our customers and shareholders expect.
As COO, that focus continues across the wider Greif portfolio.
And as Pete said, I'm working closely with the executive leadership team on our fiscal 2022 business plan and will share more about my priorities for the future after I assume my new role.
On slide four, global industrial packaging business delivered outstanding third-quarter results.
Our global steel drum volume increased by 8% per day.
Our global rigid IBCs and large plastic drum volumes both rose by more than 25% per day.
We also saw mid-teens improvement in our filling volumes versus the prior-year quarter, with demand accelerating specifically in APAC.
Third-quarter average selling prices were up across all key global substrates year over year due to raw material pass-through arrangements and strategic pricing actions.
In Latin America, steel drum volumes rose by 15% on a per day basis versus the prior year and benefited from improved industrial trends and a strong agricultural and citrus season.
In EMEA, third-quarter steel drum and rigid IBC volumes increased by roughly 5% and 28% per day, respectively, with strong improvement across most key end markets.
And finally, in APAC, steel drum volumes rose by 7% per day versus the prior year.
Demand was solid in China, but a little softer in Southeast Asia due to COVID-19-related lockdowns that we continue to monitor across parts of that region.
Across GIP, we see little indication of customers rebuilding inventory.
Supply chain conditions remain tight, and our team is managing this challenge very well.
While we have not experienced any significant raw material shortage, some of our customers have, which has negatively impacted our demand in certain regions.
Labor availability is becoming more challenging, which is not unique to Greif, and has impacted the productivity of some plants in both GIP and paper packaging.
These disruptions are not material at enterprise level, but certainly present operational challenges, nonetheless.
GIP's key end markets are healthy.
We experienced a double-digit performance volume demand year over year for both chemicals, specialty chemicals and lubricants in most parts of our global portfolio.
And volume demand for solid food and paste weakened versus the prior-year quarter, but this was largely a result of pricing and margin decisions on our part that impacted conical demand in Southern Europe.
GIP's stronger volumes and higher average selling prices resulted in higher segment sales and gross profit year over year.
GIP's third-quarter adjusted EBITDA was a record and rose by roughly $62 million due to higher sales, partially offset by higher SG&A expense, mainly attributed to higher incentive accruals.
The business also benefited from a $9 million operating tax recovery in Brazil and an $8 million FX tailwind.
Please recall that GIP's Q3 2020 results included an opportunistic sourcing benefit of $5 million that did not recur.
Looking ahead, GIP is off to a solid fourth quarter, with August signs comparable to our trend in July.
I'd also like to comment that our thoughts and prayers are also with those that were impacted by Hurricane Ida earlier this week.
While the damage from Ida is extensive and dramatic, at this time, what we know, we do not anticipate a material impact to our fiscal '21 fiscal results from the storm.
Paper packaging's third-quarter sales rose by roughly $120 million versus the prior year, attributed to stronger volumes and higher selling prices due to increases in published containerboard and boxboard prices.
Adjusted EBITDA rose by roughly $18 million versus the prior year due to higher sales, partially offset by higher transportation and raw material headwinds, including a $24 million OCC drag.
SG&A expenses rose year over year, primarily due to higher incentive accruals.
We are actively executing on price increases in response to robust demand and cost inflation.
Since early June, we've announced five price increases, including a total of $100 a ton on CRB, $120 a ton in total on URB, and $70 a ton on containerboard.
As of August, the published indexes recognized $50 a ton on the CRB increases, $50 a ton on the URB increases, and a $50 and $60 a ton on linerboard and medium, respectively.
Demand in our converting operations remain very, very strong.
Third-quarter volumes in CorrChoice, our corrugated sheet feeder system, were up roughly 27% per day versus the prior year and are anticipated to stay strong through the fiscal fourth quarter.
Third-quarter specialty sales, which includes litho-laminate, triple-wall bulk packaging, and coatings, were up more than 38% versus the prior year.
Paper Packaging is off to a solid start in August.
Volumes in CorrChoice and our tube and core business are comparable to July's actuals.
Similar to my comments about GIP, we do not anticipate damage caused by Hurricane Ida to have a material impact to our paper packaging results in Q4.
Big picture, it was an outstanding quarter.
Third-quarter net sales, excluding the impact of foreign exchange, rose 34% versus the prior-year quarter due to stronger volumes and higher selling prices and were a record.
Adjusted EBITDA rose by $78 million and was also a record.
As Pete mentioned, EBITDA results include a $9 million Brazilian tax refund from overpayment of revenue-based taxes to the government that occurred in prior periods and were wrongly levied.
That refund reduced SG&A.
Keep in mind, our adjusted EBITDA result overcame more than $50 million of combined OCC and incentive headwinds versus the prior year, making our performance that much more impressive.
Interest expense fell by roughly $6 million versus the prior-year quarter due to lower debt balances, lower interest rates and a lower interest rate tier on our credit facility as a result of our substantial debt repayment.
Our third-quarter GAAP and non-GAAP tax rate were both 22% and were flat to prior year.
Third-quarter adjusted class A earnings per share more than doubled to $1.93 per share.
Finally, third-quarter adjusted cash flow fell by roughly $43 million versus the prior year.
While profitability improved significantly, working capital was a substantial cash use compared to a source in the prior year due to the run-up in raw material prices and corresponding cost increases.
That said, our team is executing with discipline and controlling what it can with superb results as trailing fourth-quarter working capital as a percentage of sales improved by 190 basis points year over year to 10.7%.
As Pete mentioned, we are increasing our adjusted earnings per share and adjusted free cash flow guidance, which reflects our strong year-to-date results and positive trajectory for the remainder of fiscal '21.
At the midpoint, we anticipate generating Class A earnings per share of $5.20, which is $0.50 per share more than our guide at Q2.
This improvement is largely due to stronger volumes and favorable pricing more than offsetting the additional OCC headwinds we expect to incur for the remainder of fiscal '21.
With our anticipated fiscal '21 result, we will more -- have more than doubled earnings per share since 2015 despite COVID-19's negative impact, the closure and/or divestiture of nearly 90 non-core or suboptimal plants and without any share repurchase benefit.
Also keep in mind that we currently have 600,000 more shares outstanding now versus the end of 2015.
We now anticipate generating between $335 million and $365 million in adjusted free cash flow, with a bias to the upside of that range.
At the midpoint, adjusted free cash flow has improved by $45 million relative to our Q2 guide due to improved earnings, slightly lower capital expenditures and cash tax savings, partially offset by higher working capital usage commensurate with our announced price increases to offset cost inflation.
To employ a consistent, three-pronged capital deployment strategy focused on business reinvestment, debt reduction and capital returns.
We have executed on an aggressive deleveraging plan and repaid $370 million in total debt since Q3 2020.
Our compliance leverage ratio improved by nearly a full turn over that time period, and we now anticipate reaching the high end of our targeted leverage ratio range by the fiscal year-end.
Given the dramatic improvement in our leverage profile and confidence in strong future cash generation, the Board approved a 4.5% increase to our quarterly dividend effective this year.
This is a first step toward a practice of steadily increasing our dividend as we discussed in prior earnings calls.
Looking ahead, we are well positioned to benefit from ongoing strength and improving trends in our key end markets.
Our extensive global portfolio, differentiated service capability and sharp focus on operational execution enable us to best serve our customer needs while generating significant shareholder value.
 Assistant:

Chosen response:
greif q3 earnings per share $1.93 excluding items.
q3 earnings per share $1.93 excluding items.
sees fiscal 2021 adjusted free cash flow $335 million- $365 million.