Tom brings almost 30 years of CFO experience and deep roots in brands and retail, most recently at Deckers Brands.
I'll call out for Q3 overall was the robust consumer appetite for in-person shopping even as the number of COVID cases spiked, which allowed us to drive a 30% increase in store sales over last year.
Third quarter revenue of $601 million increased 25% versus last year and 12% versus two years ago.
And revenue growth, better-than-expected gross margins, and expense leverage resulted in an operating income increase of almost 70% over pre-pandemic levels and record earnings per share of $2.36 compared with $0.85 last year and $1.33 two years ago, all on an adjusted basis.
Additional highlights include: the robust store sales I've already talked about plus another quarter of strong digital growth; digital sales, which come with double-digit operating margins, increased 11% year-over-year and 79% compared to fiscal '20.
With this, our e-commerce business now represents 18% of total retail sales and is approaching $0.5 billion; next, increasing gross margin by 210 basis points versus last year, driven primarily by higher full-price selling and price increases while being flat with fiscal '20 in spite of the changing mix of our business and some freight expense pressure; leveraging adjusted SG&A by 260 basis points compared to pre-pandemic levels, as we make progress on efforts to reshape our cost structure; and finally, restarting our share repurchase activity by buying back $31 million of Genesco stock, demonstrating our strong financial position, confidence in our future, and commitment to a strong track record of returning capital to shareholders.
Strong consumer demand for a variety of brands and styles drove continued momentum as Journeys achieved record third quarter revenue and operating profit, marking the fourth consecutive quarter of record profitability even while operating with inventory almost 30% below pre-pandemic levels.
Nine of the top 10 brands experienced year-over-year growth in the quarter.
In addition, the in-person back-to-school also drove a big pickup in non-footwear sales, like backpacks, with non-footwear up over 50%.
Direct sales held on to most of last year's very strong gains as Journeys increased social media and digital advertising, driving an almost 30% increase in online conversion versus two-year-ago results.
We were also very pleased with Schuh's back-to-school performance as Q3 constant currency sales increased almost 20% above pre-pandemic sales.
The fashion trends driving Schuh's business are largely the same ones driving Journeys, and several of Schuh's top 10 brands experienced growth in the quarter as well.
Delayed deliveries and much stronger-than-expected demand put J&M's inventory almost 50% below two-year-ago levels.
Casual footwear now makes up more than 70% of DTC footwear product sales with casual athletic increasing 120% versus last year.
J&M's marketing strategy in which we highlight innovation and technology features new products such as the bags, which was presented in the September advertising campaign and resulted in an 80% sell-through by the end of the month.
In addition, J&M's apparel business, highlighted by printed woven shirts and knits, increased by over 30% versus two years ago, endorsing efforts to position J&M as a modern lifestyle brand with broader consumer reach.
We expect adjusted earnings for fiscal '22 to be between $6.40 and $6.90 per share.
We regard this guidance as a range, but somewhere close to the middle reflects our best current belief of where we would come out, representing an increase of about 45% over fiscal '20.
Journeys research shows that while our digitally native Gen Z customer interacts with us across several digital touchpoints, up to 75% intend to make their purchases in-store, requiring investment to provide a compelling store experience.
And we're currently able to identify 80% of Journeys' customers.
In the fall, Journeys ramped up efforts across North America in partnership with a nonprofit candidate, Journeys employees in 73 cities came together to build and donate 1,500 skateboards to underserved use.
In terms of the specifics for the quarter, consolidated revenue was $601 million, up 12% compared to fiscal '20.
Journeys grew 7% while Schuh grew 17% on a constant currency basis, and we doubled our licensed brands business.
We were 8% below fiscal year '20 levels, and we continue to narrow the gap.
E-commerce was up 79% to fiscal year '20 and accounted for 18% of total retail sales, up from 11% in fiscal year '20.
With stores opened 99% of the possible days during the quarter, we are going back to providing comparable sales information versus last year for the stores open in both periods.
On a year-over-year basis, Journeys and Schuh drove positive overall comps of 15% and 23%, respectively, while J&M comps were positive 77%.
We were very pleased with gross margins, which were up 210 basis points to last year and flat at 49.2% versus two years ago.
Increased logistics costs put approximately 70 basis points of pressure on Q3 gross margin were the greatest drag in our branded businesses.
Journeys gross margin was up 140 basis points to fiscal year '20, driven by more full-price selling and higher footwear ASPs.
While Schuh's gross margin was down 180 basis points to fiscal year '20 due to a higher e-com mix and higher shipping expenses.
J&M's gross margin was up 230 basis points to fiscal year '20, benefiting from strong full-price selling, which also drove the release of slow-moving inventory reserves.
For J&M, additional logistics costs put 240 basis points of pressure on J&M's Q3 margins.
Finally, licensed brands gross margin was down 150 basis points to fiscal year '20, as we experienced 740 basis points of pressure on Q3 margins from additional logistics costs, which more than offset margin improvements in the business.
Adjusted SG&A expense was 41.6%, a 260 basis point improvement compared to fiscal '20 as we leverage from higher revenue and ongoing actions to manage expenses.
As part of the SG&A discussion, I would like to provide a brief update on our $25 million to $30 million cost savings initiative.
Regarding rent reductions, year to date through Q3, we have negotiated 129 renewals and achieved a 19% reduction in rent expense in North America on a straight-line basis.
This was on top of a 22% reduction or 123 renewals last year.
With 40% of our fleet coming up for renewal in the next couple of years, this remains a key priority.
In summary, third quarter adjusted operating income was $45.2 million, a 7.5% operating margin compared to $26.7 million or 5% for fiscal year '20.
Our adjusted non-GAAP tax rate for the third quarter was 23%.
Q3 total inventory was down 28% compared to fiscal '20 on sales that were up 12%.
Our strong net cash position of $267 million and our confidence in the business enabled us to repurchase 522,000 shares of stock for $30.6 million at an average price of $58.71 per share.
We currently have $59 million remaining on our share repurchase authorization.
Capital expenditures were $15 million, and depreciation and amortization was $10 million.
We closed five stores during the third quarter to end the quarter with 1,434 total stores.
Based on the strength of our performance this year to date, current Q4 visibility, and expectations for a more normal holiday selling season, we expect fiscal year '22 sales to grow 9% to 11% compared to the pre-pandemic fiscal year '20.
For adjusted earnings, we expect a range of $6.40 to $6.90 per share.
Our best current expectation is that earnings will be near the midpoint of this range, an increase of 45% over fiscal year '20 pre-pandemic levels.
Q4 adjusted earnings per share would range from $2.22 to $2.72 per share.
We expect gross margin rates for Q4 to be relatively flat versus fiscal year '20 levels with a possible 30 basis point swing in either direction.
Increased logistics costs are expected to pressure gross margins by 130 basis points and will offset to some extent these improvements in full-price selling.
We expect Q4 adjusted SG&A as a percentage of sales to deleverage in the range of 180 to 200 basis points compared to fiscal year '20.
Our guidance assumes no additional share repurchases for the remainder of the fiscal year, which results in Q4 weighted average shares outstanding of approximately 14.3 million.
Furthermore, for Q4, we expect the tax rate to be approximately 28%.

Summary:
Third quarter revenue of $601 million increased 25% versus last year and 12% versus two years ago.
And revenue growth, better-than-expected gross margins, and expense leverage resulted in an operating income increase of almost 70% over pre-pandemic levels and record earnings per share of $2.36 compared with $0.85 last year and $1.33 two years ago, all on an adjusted basis.
We expect adjusted earnings for fiscal '22 to be between $6.40 and $6.90 per share.
As part of the SG&A discussion, I would like to provide a brief update on our $25 million to $30 million cost savings initiative.
Based on the strength of our performance this year to date, current Q4 visibility, and expectations for a more normal holiday selling season, we expect fiscal year '22 sales to grow 9% to 11% compared to the pre-pandemic fiscal year '20.
For adjusted earnings, we expect a range of $6.40 to $6.90 per share.