• Fashion trends that affect the sales or product margins of the Company's retail product offerings.

• Inability of customers to obtain credit.

• Changes in the timing of holidays, or in the onset of seasonal weather affecting period-to-period sales comparisons.

• Changes in buying patterns by significant wholesale customers.

• Bankruptcies and deterioration in the financial condition of wholesale customers, limiting their ability to buy or pay for merchandise offered by the Company.

• Disruptions in product supply or distribution.

• Unfavorable trends in fuel costs, and further unfavorable trends in foreign exchange rates, foreign labor and material costs and other factors affecting the cost of products.

• Changes in business strategies by the Company's competitors (including pricing, distribution and promotional discounts), the entry of additional competitors into the Company's markets, and other competitive factors.

• The Company's ability to open, staff and support additional retail stores on schedule and at acceptable expense levels and to renew leases in existing stores on schedule and at acceptable expense levels.

• The Company's ability to negotiate acceptable lease terminations and otherwise to execute its previously announced store closing plans on schedule and at expected expense levels.

• Unexpected changes to the market for the Company's shares and the impact of any future stock repurchases.

• Variations from expected pension-related charges caused by conditions in the financial markets.

• The outcome of litigation, investigations and environmental matters involving the Company, including but not limited to the matters discussed in Note 10 to the Condensed Consolidated Financial Statements.

In addition to the risks referenced above, additional risks are highlighted in the Company's Annual Report on Form 10-K for the year ended February 2, 2008. Forward-looking statements reflect the expectations of the Company at the time they are made, and investors should rely on them only as expressions of opinion about what may happen in the future and only at the time they are made. The Company undertakes no obligation to update any forward-looking statement. Although the Company believes it has an appropriate business strategy and the resources necessary for its operations, predictions about future revenue and margin trends are inherently uncertain and the Company may alter its business strategies to address changing conditions.

Overview
Description of Business
The Company is a leading retailer of branded footwear and of licensed and branded headwear, operating 2,228 retail footwear and headwear stores throughout the United States and Puerto Rico including 46 headwear stores in Canada as of November 1, 2008. The Company also designs, sources, markets and distributes footwear under its own Johnston & Murphy brand and under the licensed Dockers® brand to more than 1,000 retail accounts in the United States, including a number of leading department, discount, and specialty stores. The Company operates five reportable business segments (not including corporate): Journeys Group, comprised of the Journeys, Journeys Kidz and Shi by Journeys retail footwear chains, catalog and e-commerce operations; Underground Station Group, comprised of the Underground Station retail footwear chain and e-commerce operations and the Company's remaining Jarman retail footwear stores; Hat World Group, comprised primarily of the Hat World, Lids, Hat Shack, Hat Zone, Head Quarters, Cap Connection and Lids Kids retail headwear chains and e-commerce operations; Johnston & Murphy Group, comprised of Johnston & Murphy retail operations, catalog and e-commerce operations and wholesale distribution; and Licensed Brands, comprised primarily of Dockers® Footwear, sourced and marketed under a license from Levi Strauss & Company.
The Journeys retail footwear stores sell footwear and accessories primarily for 13 to 22 year old men and women. The stores average approximately 1,925 square feet. The Journeys Kidz retail footwear stores sell footwear primarily for younger children, ages five to 12. These stores average approximately 1,425 square feet. Shi by Journeys retail footwear stores, the first of which opened in November 2005, sell footwear and accessories to fashion-conscious women in their early 20's to mid 30's. These stores average approximately 2,125 square feet.
The Underground Station retail footwear stores sell footwear and accessories primarily for men and women in the 20 to 35 age group and in the urban market. The Underground Station Group stores average approximately 1,775 square feet. In May of 2007, the Company announced a plan to close or convert up to 57 underperforming stores, including 49 Underground Station Group stores, due to the deterioration in the urban market. As of November 1, 2008, the Company had closed 28 of the 49 Underground Station Group stores.
The Hat World Group stores and kiosks sell licensed and branded headwear to men and women primarily in the early-teens to mid-20's age group. Hat World also operates a number of Lids Kids stores, offering licensed and branded headwear, apparel and accessories to children up to 10 years old, but has no plans to open additional Lids Kids stores. The Hat World Group locations average approximately 775 square feet and are primarily in malls, airports, street level stores and factory outlet centers throughout the United States, Puerto Rico and in Canada. Johnston & Murphy retail shops sell a broad range of men's footwear and accessories. These shops average approximately 1,425 square feet and are located primarily in better malls nationwide and in airports. Johnston & Murphy shoes are also distributed through the Company's wholesale operations to better department and independent specialty stores. In addition, the Company sells Johnston & Murphy footwear and accessories in factory stores, averaging approximately 2,350 square feet, located in factory outlet malls, and through a direct-to-consumer catalog and e-commerce operation.

The Company entered into an exclusive license with Levi Strauss & Co. to market men's footwear in the United States under the Dockers® brand name in 1991. Levi Strauss & Co. and the Company have subsequently added additional territories, including Canada and Mexico. The Dockers license agreement was renewed November 1, 2006. The Dockers license agreement, as amended, expires on December 31, 2009, with a Company option to renew through December 31, 2012, subject to certain conditions. The Company uses the Dockers name to market casual and dress casual footwear to men aged 30 to 55 through many of the same national retail chains that carry Dockers slacks and sportswear and in department and specialty stores across the country. Strategy
The Company's strategy has been to seek long-term, organic growth by: 1) increasing the Company's store base, 2) increasing retail square footage, 3) improving comparable store sales, 4) increasing operating margin and 5) enhancing the value of its brands. Our future results are subject to various risks, uncertainties and other challenges, including those discussed under the caption "Forward Looking Statements," above and those discussed in Item 1A., "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended February 2, 2008. Additionally, the pace of the Company's growth and the implementation of its long-term strategic plan may be negatively affected by economic conditions.
Generally, the Company attempts to develop strategies to mitigate the risks it views as material, including those discussed in Item 1A, "Risk Factors." Among the most important of these factors are those related to consumer demand. Conditions in the external economy can affect demand, resulting in changes in sales and, as prices are adjusted to drive sales and manage inventories, in gross margins. Because fashion trends influencing many of the Company's target customers (particularly customers of Journeys Group, Underground Station Group and Hat World Group) can change rapidly, the Company believes that its ability to react quickly to those changes has been important to its success. Even when the Company succeeds in aligning its merchandise offerings with consumer preferences, those preferences may affect results by, for example, driving sales of products with lower average selling prices. Moreover, economic factors, such as the current recession, may reduce the consumer's disposable income or his or her willingness to purchase discretionary items, and thus may reduce demand for the Company's merchandise, regardless of the Company's skill in detecting and responding to fashion trends. The Company believes its experience and discipline in merchandising and the buying power associated with its relative size in the industry are important to its ability to mitigate risks associated with changing customer preferences and other reductions in consumer demand. Also important to the Company's long-term prospects are the availability and cost of appropriate locations for the Company's retail concepts. The Company is opening stores in airports and on streets in major cities and tourist venues, among other locations, in an effort to broaden its selection of locations for additional stores beyond the malls that have traditionally been the dominant venue for its retail concepts.
Summary of Operating Results
The Company's net sales increased 4.6% during the third quarter of Fiscal 2009 compared to the third quarter of Fiscal 2008. The increase was driven primarily by a 10% increase in Journeys Group sales, a 6% increase in Hat World Group sales and a 3% increase in Licensed Brands sales, offset by a 10% decrease in Johnston & Murphy Group sales and a 9% decrease in Underground Station Group sales. Gross margin increased as a percentage of net sales during the third quarter of Fiscal 2009, primarily due to margin increases in the Journeys Group, Underground Station Group and Hat World Group. Selling and administrative expenses decreased as a percentage of net sales during the third quarter of Fiscal 2009, reflecting lower merger-related expenses and decreases as a percentage of net sales in the Underground Station Group and Licensed Brands, offset by increases

as a percentage of net sales in the Journeys Group and Johnston & Murphy Group. Selling and administrative expenses for the Hat World Group were flat for the third quarter of Fiscal 2009. Last year's third quarter selling and administrative expenses included $6.1 million of merger-related expenses compared to $0.2 million in this year's third quarter. Earnings from operations increased as a percentage of net sales during the third quarter of Fiscal 2009, primarily due to the reduction in merger-related expenses and to an increase in earnings from operations in the Hat World Group as well as a smaller loss in the Underground Station Group, offset by decreased earnings from operations in the Johnston & Murphy Group and Licensed Brands. Earnings from operations as a percentage of net sales in the Journeys Group were flat for the third quarter this year.
Significant Developments
Terminated Merger Agreement
The Company announced in June 2007 that the boards of directors of both Genesco and The Finish Line, Inc. had unanimously approved a definitive merger agreement under which The Finish Line would acquire all of the outstanding common shares of Genesco at $54.50 per share in cash (the "Proposed Merger"). The Finish Line refused to close the Proposed Merger and litigation ensued. The Proposed Merger and related agreement were terminated in March 2008 in connection with an agreement to settle the litigation with The Finish Line and UBS Loan Finance LLC and UBS Securities LLC (collectively, "UBS") for a cash payment of $175.0 million to the Company and a 12% equity stake in The Finish Line, which the Company received in the first quarter of Fiscal 2009. The Company distributed the 12% equity stake, or 6,518,971 shares of Class A Common Stock of The Finish Line Inc., on June 13, 2008, to its common shareholders of record on May 30, 2008, as required by the settlement agreement.
During the third quarter and first nine months of Fiscal 2009, the Company expensed $0.2 million and $7.8 million, respectively, in merger-related litigation costs. During the third quarter and first nine months of Fiscal 2008, the Company expensed $6.1 million and $11.6 million, respectively, in merger-related costs and litigation expenses. The total merger-related costs and litigation expenses for Fiscal 2008 of $27.6 million are tax deductible in Fiscal 2009 and will result in a permanent tax benefit reflected as a component of income tax expense. For additional information, see the "Merger-Related Litigation" section in Note 10.
Restructuring and Other Charges
The Company recorded a pretax charge to earnings of $2.3 million in the third quarter of Fiscal 2009. The charge included $1.9 million in retail store asset impairments and $0.4 million for lease terminations. The Company recorded a pretax charge to earnings of $7.8 million in the first nine months of Fiscal 2009. The charge included $5.5 million in retail store asset impairments, $1.2 million for lease terminations and $1.1 million in other legal matters. The Company recorded a pretax charge to earnings of $0.1 million in the third quarter of Fiscal 2008. The charge was primarily for retail store asset impairments. The Company recorded a pretax charge to earnings of $6.8 million in the first nine months of Fiscal 2008. The charge included $6.8 million of charges for retail store asset impairments, primarily in the Underground Station Group, and $0.3 million for the lease termination of one Hat World store, offset by a $0.3 million excise tax refund.
Share Repurchase Program
In March 2008, the board authorized up to $100.0 million in stock repurchases primarily funded with the after-tax cash proceeds of the settlement of merger-related litigation with The Finish

Line and UBS (see Notes 2 and 10). The Company repurchased 4.0 million shares at a cost of $90.9 million during the nine months ended November 1, 2008. Comparable Store Sales
Comparable store sales begin in the fifty-third week of a store's operation. Temporarily closed stores are excluded from the comparable store sales calculation for every full week of the store closing. Expanded stores are excluded from the comparable store sales calculation until the fifty-third week of operation in the expanded format. E-commerce and catalog sales are excluded from comparable store sales calculations.
Results of Operations - Third Quarter Fiscal 2009 Compared to Fiscal 2008 The Company's net sales in the third quarter ended November 1, 2008 increased 4.6% to $389.8 million from $372.5 million in the third quarter ended November 3, 2007. Gross margin increased 5.2% to $197.9 million in the third quarter this year from $188.1 million in the same period last year and increased as a percentage of net sales from 50.5% to 50.8%. Selling and administrative expenses in the third quarter this year increased 3.0% from the third quarter last year but decreased as a percentage of net sales from 46.8% to 46.0%. The Company records buying and merchandising and occupancy costs in selling and administrative expense. Because the Company does not include these costs in cost of sales, the Company's gross margin may not be comparable to other retailers that include these costs in the calculation of gross margin. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs.
Earnings before income taxes from continuing operations ("pretax earnings") for the third quarter ended November 1, 2008 were $13.8, million compared to $10.3 million for the third quarter ended November 3, 2007. Pretax earnings for the third quarter ended November 1, 2008 included restructuring and other charges of $2.3 million, primarily for retail store asset impairments and lease terminations. Pretax earnings for the third quarter of Fiscal 2009 also included $0.2 million in merger-related expenses. Pretax earnings for the third quarter ended November 3, 2007 included restructuring and other charges of $0.1 million, primarily for retail store asset impairments and $6.1 million in merger-related expenses.
Net earnings for the third quarter ended November 1, 2008 were $9.4 million ($0.43 diluted earnings per share) compared to $5.6 million ($0.23 diluted earnings per share) for the third quarter ended November 3, 2007. The Company recorded an effective income tax rate of 31.4% in the third quarter this year compared to 45.5% in the same period last year. The variance in the effective tax rate for the third quarter this year compared to the third quarter last year is attributable to non-deductible expenses incurred in Fiscal 2008 related to the merger agreement with the Finish Line that became deductible upon termination of the merger agreement in Fiscal 2009. In addition, this year's effective tax rate is lower due to a $1.2 million reduction in FIN 48 liabilities from an agreement reached on a state income tax contingency. See "Significant Developments - Terminated Merger Agreement," above.

Journeys Group

                                           Three Months Ended
                                       November 1,       November 3,           %
                                              2008              2007      Change
                                         (dollars in thousands)
          Net sales                  $     200,745     $     182,587         9.9 %
          Earnings from operations   $      16,901     $      15,336        10.2 %
          Operating margin                     8.4 %             8.4 %

Net sales from Journeys Group increased 9.9% for the third quarter ended November 1, 2008 compared to the same period last year. The increase reflects primarily an 8% increase in average Journeys Group stores operated (i.e., the sum of the number of stores open on the first day of the fiscal quarter and the last day of each fiscal month during the quarter divided by four) and a 5% increase in comparable store sales. The increase in comparable store sales was primarily due to a 4% increase in average price per pair of shoes, reflecting changes in product mix, and a 2% increase in footwear unit comparable sales. Overall unit sales increased 8% during the same period. Journeys Group operated 1,008 stores at the end of the third quarter of Fiscal 2009, including 137 Journeys Kidz stores and 53 Shi by Journeys stores, compared to 945 stores at the end of the third quarter last year, including 103 Journeys Kidz stores and 40 Shi by Journeys stores.
Journeys Group earnings from operations for the third quarter ended November 1, 2008 increased 10.2% to $16.9 million, compared to $15.3 million for the third quarter ended November 3, 2007. The increase was due to increased net sales and to increased gross margin as a percentage of net sales, reflecting changes in product mix, partially offset by increased expenses as a percentage of net sales. The expense increase reflected increased rent from new stores, lease renewals and relocation from smaller, volume constrained locations to bigger stores in order to offer a broader selection of products, as well as increased bonus accruals based on improved performance.

Underground Station Group

                                        Three Months Ended
                                   November 1,        November 3,            %
                                          2008               2007       Change
                                      (dollars in thousands)
          Net sales              $      24,266      $      26,792         (9.4 )%
          Loss from operations   $      (2,234 )    $      (2,930 )       23.8 %
          Operating margin                (9.2 )%           (10.9 )%

Net sales from the Underground Station Group decreased 9.4% to $24.3 million for the third quarter ended November 1, 2008, from $26.8 million for the same period last year. The decrease reflects a 15% decrease in average Underground Station Group stores operated related to the Company's strategy of closing Jarman stores and the store closing program announced in May 2007 to close or convert up to 49 Underground Station Group stores, offset by a 1% increase in comparable store sales. The increase in comparable store sales reflects an increase of 10% in footwear unit comparable sales, offset by a 4% decline in the average price per pair of shoes, reflecting changes in product mix partially due to more women's and children's products. Unit sales decreased 3% during the quarter reflecting the decrease in average stores in operation. Underground Station Group operated 184 stores at the end of the third quarter of Fiscal 2009,

including 171 Underground Station stores, compared to 215 stores at the end of the third quarter last year, including 193 Underground Station stores. Underground Station Group's loss from operations for the third quarter ended November 1, 2008 improved to $(2.2) million from $(2.9) million in the third quarter ended November 3, 2007. The improvement was due to increased gross margin as a percentage of net sales, reflecting changes in product mix, and to decreased expenses as a percentage of net sales from store closings and lower selling salaries.

Hat World Group

                                           Three Months Ended
                                       November 1,       November 3,           %
                                              2008              2007      Change
                                         (dollars in thousands)
          Net sales                  $      93,131     $      87,815         6.1 %
          Earnings from operations   $       6,721     $       4,639        44.9 %
          Operating margin                     7.2 %             5.3 %

Net sales from Hat World Group increased 6.1% for the third quarter ended November 1, 2008 compared to the same period last year, reflecting primarily a 4% increase in average stores operated and a 2% increase in comparable store sales. The comparable store sales increase reflected positive comparable store sales in both urban and non-urban markets and strength in fashion-oriented Major League Baseball products and branded action headwear. Hat World Group operated 879 stores at the end of the third quarter of Fiscal 2009, including 46 stores in Canada and 14 Lids Kids stores, compared to 856 stores at the end of the third quarter last year, including 32 stores in Canada and 14 Lids Kids stores. Hat World Group earnings from operations for the third quarter ended November 1, 2008 increased 44.9% to $6.7 million compared to $4.6 million for the third quarter ended November 3, 2007. The increase was due to increased net sales and increased gross margin as a percentage of net sales, primarily reflecting fewer off-priced sales. Expenses as a percentage of net sales for Hat World Group were flat for the third quarter this year.

Johnston & Murphy Group

                                          Three Months Ended
                                      November 1,       November 3,           %
                                             2008              2007      Change
                                        (dollars in thousands)
         Net sales                  $      41,785     $      46,403       (10.0 )%
         Earnings from operations   $       1,525     $       4,377       (65.2 )%
         Operating margin                     3.6 %             9.4 %

Johnston & Murphy Group net sales decreased 10.0% to $41.8 million for the third quarter ended November 1, 2008 from $46.4 million for the third quarter ended November 3, 2007, reflecting primarily a 15% decrease in comparable store sales and a 2% decrease in Johnston & Murphy wholesales sales, offset by a 1% increase in average stores operated for Johnston & Murphy retail operations. Unit sales for the Johnston & Murphy wholesale business were down 5% in the third quarter of Fiscal 2009, while the average price per pair of shoes increased 4% for the same period.

Retail operations accounted for 69.4% of Johnston & Murphy Group segment sales in the third quarter this year, down from 71.9% in the third quarter last year. The average price per pair of shoes for Johnston & Murphy retail operations decreased 2% (2% in the Johnston & Murphy shops) in the third quarter this year, primarily due to increased markdowns and changes in product mix, and footwear unit comparable sales decreased 16% during the same period. The store count for Johnston & Murphy retail operations at the end of the third quarter of Fiscal 2009 included 157 Johnston & Murphy shops and factory stores compared to 156 Johnston & Murphy shops and factory stores at the end of the third quarter of Fiscal 2008.
Johnston & Murphy Group earnings from operations for the third quarter ended November 1, 2008 decreased 65.2% to $1.5 million compared to $4.4 million for the same period last year, primarily due to decreased net sales, decreased gross margin as a percentage of net sales, reflecting increased markdowns and changes in product mix, and to increased expenses as a percentage of net sales, reflecting negative leverage from the decrease in comparable store sales.

Licensed Brands

                                          Three Months Ended
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