Caleres Inc (CAL) 2002 Q4 法說會逐字稿

The Brown Shoe Company conference call will start momentarily.

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Good day and welcome to the Brown Shoe Company fourth quarter 2002 financial results conference call.

This call is being made accessible to the public via web cast in accordance with the SEC's regulation Sd.

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Before we we begin, I would like to remind you of the company's safe harbor language.

During this conference call, the company will Mac certain forward-looking statements.

Discussions of other future plans and other statements in this call that are not current or historical facts are forward-looking statement.

These involve known and unknown risk, uncertainties and other factors that could cause the results to materially differ from other results or from any other results expressed or required by any forward-looking statement.

Factors that can cause results to differ materially include the following.

Business and economic conditions, growth in the retail show industry, changes in customer order patterns, competitive factors, pricing pressures, excess or obsolete inventory and variation ins inventory valuation.

Shorter to manufacturing capacity and other risk factors listed from time to time in the company's SEC's reports.

Copies of the company's reports are available on line and from the company's investor relations department.

As a reminder, ladies and gentlemen, this call is being recorded and any reproduction of this call in all or in part is not permitted without the express written authorization of Brown Shoe Company.

Now, I would like to call over to Brown Shoe Company company's chairman of the board, President and Chief Executive Officer, Mr. Ronald Fromm.

Thank you.

Good afternoon.

Everyone.

With me this afternoon are Joe Wood, president of Famous Footwear and Andy Rosen, our chief financial officer.

Fiscal 2002 was truly an exciting year for Brown Shoe on a number of fronts.

Financially, operationally and strategically, we made strategic and significant progress and achieved greater than anticipated benefits from our repositioning efforts which we implemented throughout the year.

As you will recall, in the fourth quarter of fiscal 2001, we took a one-time charge to improve our competitive position, reduced expenses and increased profitability.

To this point, we closed 106 under performing domestic Naturalizer retail stores, improved the freshness of our inventories as well as our inventory turns entreprise wise and increased our management strength with the hire of Joe Wood, the president of Famous Footwear; and supported that with a completely new senior management team.

At the same time, we focused additional resources on Naturalizer, specifically to improve our styling and our brand image.

We strengthened our partnership with America's leading mass merchants delivering strong selling fashion value right footwear and improving the costs enabling us to reduce head count and eliminate redundancy in the company's I-S, finance and human resource area.

The benefit of these initiatives became abundantly clear throughout the year and we are extremely proud of the results, both for the quarter and for the year.

In the fourth quarter specifically, we recorded very strong sales and profits with earnings per share exceeding the revised guidance we issued earlier this month.

For the year, we reported total sales up 4.9% to 1.84 billion dollars, excluding non-recurring recovers , we diluted earnings per share by 52% to $2.45 for earnings per share of $1.61 prior to the charges in 2001.

Fiscal 2002 actual earnings per share of $2.52 reflects a 7 cent gain attributed to our ability to complete several project Impact initiative's at a lower cost than originally reserved.

As we look ahead, our entire team is intently focused and committed to unlocking the true value that we can realize through the breadth of our market penetration.

We believe we are well on our way to increasing Brown Shoe sales potentials, profitability and margins.

We are confident that we will achieve our goals.

To ensure our future success, we have planned significant investments in 2003.

We expect that these investments in our marketing, stores, people and processes will enable us to report sustained growth for the years to come.

Equally important is our strength and balance sheet, including strong cash flow and well controlled inventory and receivables.

We also improved our total death to cap ratio from 34% to 45.7% this year.

This gives us increased flexibility to capitalize on the numerous opportunities we believe exist for our company.

Before I turn the call over to Joe Wood to review our achievements at Famous Footwear, I would first like to run through some of our highlights from wholesale.

Wholesale revenues for the fourth quarter were up 41% or proximately 38 .5 million dollars compared to last year.

Naturalizer, along with our lifestride private label children division recorded the strongest increases versus a year ago quarter.

Naturalizer gained market share among department stores moving up in rank to the third position from the fourth position at the end of fiscal 2001.

You will recall that we were in the number 8 position trier to the brand reimaging campaign.

The strengthening of Naturalizer as a preferred department store brand is leading to new opportunities for us.

To this point, in addition to distributing Naturalizer in all the major department stores such as May company, Dillard and Sachs, we are now on the doors of Nordstrom.

Let me jump to Naturalizer retail for a moment.

Naturalizer retail played a key role in reimaging the brand.

And, as you know, under our Impact initiative, we pledged to improve the chain's profitability.

While we successfully closed 106 U.S. under-performing stores, most rewarding has been the improved productivity of our ongoing store base.

This was achieved with better product, better quality and styling and our high-image campaign.

We an 8.1% increase reported in the fourth quarter.

Importantly, our margins remain strong.

Clearly, we are merchandising the ride product to these stores and the customers are responding which Bodes well for future growth, both in our retail chains and department store segment.

Lifestride made en surging progress.

We are re-establishing life stride leadership by focusing our design and -- giving the consumer understandable fashion at price points of 29.99 to 49.99.

This has enabled us to increase our shares, strengthen our margin and improve profitability.

This is the same formula for success that we used with Naturalizer and the turn-around at Famous.

In junior footwear, original Dr. Shol's, the exercise sandals have become the darling of the fashion magazine.

We have capitalizing on this popularity with an expanding line that lends itself to all sea sons.

This will be in 120 doors including May company, Macy's, the gap and Famous Footwear.

Junior footwear represents another opportunity for us in the junior market as we leverage the popularity of high kids apparel.

Macy's east, Macy's west and profits in all Famous Footwear doors.

In the better segment, our Carlos by Carlos Santana line affords us a unique opportunity to get the worldwide popularity of Carlos.

This line is distribute today over 400 doors, included Federated, Nordstrom and other accounts.

Our kids footwear continues its positive momentum fueled by productive licensing business, including Barbie, Mary Kate and Ashley, Bob the builder and, of course, Spiderman.

We recently signed several license agreements with Warner brothers for super man, super girl and two Looney tunes characters.

Super girl with be out of the gate and at Famous Footwear in April.

In summary, our wholesale momentum is robust and our visibility high.

This will forward our position and back log is up 16% year over year.

This increase is on top after solid good year, a year ago, and we are achieving these games in what arguably is one of the most difficult and challenging environments.

Now, I will turn the call over to Joe Wood, president of Famous Footwear to update you on the terrific progress we are having there.

Go ahead, Joe.

Thanks, Ron.

We continue to be very excited about the progress we are making at Famous.

In the fourth quarter, we increased operating earnings by more than 250% before charges last year to 6.1 million.

Fourth quarter sales ended up slightly to 242.3 million.

While comp store sales declined 2.9%.

Our results reflected improvements across all business metrics.

We grove growth profitability higher by about 500 basis point.

We accomplished this by increasing our full price sale which I believe is a true indication that our consumers like our strong assortment of trend right, afford bli priced footwear.

This has raised the profitability dramatically.

A reduction in traffic has been the primary factor behind the same store sales decline.

We are currently addressing this issue.

We are optimistic that traffic will increase by the fall, especially again our upcoming high energy spring and back-to-school ad campaign that include the combination of TV, radio and print design today print information about the new famous stores.

And the ability of our new product offering to win purchases.

Additionally, while we continue to expect moderate comp trends over the near term, we believe that the combination of fresh product, new styles from major manufacturers and a more aggressive advertising program will enable us to improve same-store results in the second half of this year.

Our operating margins are moving in the right direction as well.

At 4.3% in operating margins for fiscal 2002, we have made considerable progress towards achieving our 5% operating margin goal as we look to 2004.

Inventory turn rates continue to be nearly 19% ahead of last year adjusting for square footage, we are currently running the business on 80 million dollars less inventory than we did 24 months ago when we launched project Impact in early 2001.

With the reduction in our need for working capital, which greatly lowers our interest costs, it means more current product for our customers and, again, better margins for Famous.

This year, we have two main objectives.

First, of course, is driving sales.

Building on our target customer research in 2002, by the end of this fiscal year, we will have over 400 of our stores configured and updated to the format and standards that she is looking for.

This gives us that base to increase traffic.

We will will be increasing our advertising by 40% in 2003 wts expanded use of television, radio and our rewards direct mail program which rewards frequent shoppers.

As a complement to our print campaigns.

This investment will be targeted more heavily in the markets where we have updated every one of our store's form mats and that will enable us to help the story of fresher products and amplify to do the shoe shopping success.

I don't think we'll do this without the strong product line.

Athletics continue to be the backbone of our business representing over 45% of our total sales.

This business has been driven by basketball and cross-training products.

The retro looks across various vendor assortments remain extremely strong and we anticipate the running and walking categories to improve as we move to warmer weather this spring.

Our women's business had a very strong fall selling season driven by the junior shoe category led by vendors such as Sketchers, Mudd, Lai.

We will have trend products and look for our casual junior business to outperform the company trend for the near term.

In women's, we are also benefiting from the success of our Brown Shoe as Naturalizer and striderite achieved great achievement.

We have a much tighter and cleaner assortment than in previous selling seasons.

We have experienced good selling on key young men's products from fall and expect us to continue into spring.

Men's spring boot business, potentially driven by late-snow in key markets, is leading this sales trend.

Early selling on spring product, delivered in the warm markets, has been very encouraging in the slide and sandal categories.

We anticipate a like response when decent weather arrives in our northern tier stores.

And kids' inventories is fresher than last year and more reflective of key in-season fashion looks.

The category mirrors our junior shoe statements in appropriate styling for younger girls.

Athletic foot wear is still a major factor for this consumer and we see this business remaeng a see driver for the spring selling season.

Character shoes, as Ron mentioned, such as Spiderman, Bob the Builder and Barbie are selling through very nicely.

You see this trend continuing at least through the balance of this year.

Our second priority is driving profitability.

We will continue to see profitability related improvement associated with the Impact freshness and velocity in the shoes as we talked about many times.

We expect impact related profitability improvements to further improve gross profit associated with improved freshness and velocity, another 8% improvement in inventory turns coming off of the 19% improvement in 2002.

Distribution in logistics economies associated with greater numbers of pre-packs and precision in-flow and timing of product receipts.

Sustainable profit improvements must also include a same-store sales increase which, as previously noted, will come from improvements in arj retail selling price as well as improvement in customer counts.

This year, we opened 55 stores and we planned on opening 55 and close 85.

However, square footage will improve slightly due to the new stores being larger.

In summary, we have made considerable progress and believe the initiatives we are implementing today should provide visibility growth in sales and earnings over the long term.

Our product is strong.

We do have a clear vision and our entire management team is dedicate today driving growth at Famous Footwear.

At this time, I would like to turn the call over to Andy Rosen who will review our financials.

Thank you, Joe.

Good afternoon, everyone.

The past year was an exciting one for Brown Shoe company as we drove home our project Impact program and results met or exceeded our original plans.

Starting with Famous Footwear, as Joe mentioned, fourth quarter sales were 242.3 million dollars, relatively flat with last year's fourth quarter sales of 241.3 million.

Comps were down 2.9% between mainly attributed to lower traffic.

Related to this point, Famous's margin strengthened significantly as our customers' positive response to fresher inventory pushed gross margin dollars well ahead of last year.

In fact, our gross margin rate improved 590 basis point in the fourth quarter.

Fourth quarter operating income at Famous rose 2.61 million dollars, representing a 256% increase over last year's fourth quarter before charges.

For the full year, Famous Footwear reported sales growth of 2 .9% to 1.075 billion dollars reflecting higher sales from new stores and increase square footage partially offset by a decrease in comp store sales.

We opened 53 stores and closed 55.

At the end of fiscal 2002, Famous Footwear operated 918 stores.

Full year, Famous Footwear comps were down 1 .3% due to the reasons I stated previously.

However, operating income rose sub stainingly to 46 .3 million dollars from 25 .5 last year before charges, an increase of 81.8%.

Turning to wholesale, for the fourth quarter, wholesale sales rose 31% to 162.6 million and operating income increased 18% to 17.4 million.

We saw a gain in all wholesale categories with Naturalizer with an 18.2% increase in sales to our Lifestride, women's and kids businesses up up about 40%.

For full year, wholesale sales were 566 .4 million, up 12.5% from the 503.3 million recorded a year ago.

Operating earnings were up 55.2 million up from last year, excluding non-recurring charges.

The sales gain in wholesale was spread among nearly all of the operations branded, private and label division.

It's worth noting that Naturalizer achieved sales growth of 17 ppts 8% in 2002 after a 28% gain in 2001 and a 19% gain in 2000.

Our Lifestride, Dr. Sholl's, private label and Children's licensed products also realized sales increases.

Naturalizer retail stores throughout the United States and Canada posted sales of 46 .1 million in the fourth quarter, representing a 6 .5% decline, primarily due to a store base that was 15% smaller.

Same store sales rose 8 .1% in the United States in the fourth quarter which we believe is a good indication of the strength of our Naturalizer product offering.

In Canada, same store sales tea clind 5.5% for the quarter.

We know we have work to do on the Canadian portion of the chain and are beginning the process to address this challenge.

Full-year sale for the U.S. and Canadian Naturalizer retail stores were 195 in 2002 versus 207 million last year.

Operating earnings in fiscal 2002 were $514,000, excluding a $900,000 recovery of restructuring charges.

In fiscal 2001, there was an operating loss of 1.9 million before a non-recurring charges.

Same store sales for the full year in the ongoing domestic store rose 4.3%.

In Canada, however, same-store sales fell 6%. 89 stores wrr closed in 2002, 22 were opened.

Consolidated fourth quarter sales for Brown Shoe Company -- versus 420, an increase of 8.9%.

Gross margin during fourth quarter 2002 was 40 .5%, up 190 basis points versus a year ago quarter, before non-recurring charges and credits.

Basically, all operating divisions achieved gross margin gains.

SG&A as a percent of sales in fourth quarter 02 was 36.9% versus 36.3%.

We realize the benefits of the shared services platform and spent more on store facilities and incentive plan costs.

Operating income for the quarter was 15.9 million dollars, up 77% versus 9 million dollars in the year ago quarter before charges.

Interest expense during the quarter declined to 2.7 million versus 4.6 million.

The decreases reflect both lower average borrowings and lower average interest rates.

Low before recovery was 8.1 million versus 2 million last year an and resulted in earnings of shares of 45 cents versus 24 cents in the year ago quarter.

Looking at the full year now, consolidated sales rose by 4.9% to 1 ppbtsz 84 billion from 1.76 billion.

Total retail sales for the year were 1.275 billion versus 1.52 billion.

Versus the fiscal 2001 level of 503.3 million. improved margins at Famous Footwear refreshing fresher products mix.

SG&A for the full fiscal year were 35.9% before charges and recoveries, flat with the prior fiscal year.

Operating income for the year was 78 .5 million, up 39d.4% versus 56.3 million in 2001.

Retail operations generated operating income of 45.9 million, up 107% versus 22.2 million.

This increase was mostly driven by the rise and operating income at Famous Footwear.

The wholesale business recorded 55.2 million of operating income in the year, up 6% versus last year's level of 52 million.

EBITDA for the year increased to 97 million versus 81 million dollars before charges last year.

Interest expense for the year was 12.2 million versus 20 .2 million.

The decrease, again, reflects both lower average bow yoings and lower interest rates.

Net earnings per share were $2.45 before a non-recurring recoveries versus $1.61 per shares before charges in fiscal 2001.

Capital expenditures for the year total 25.6 million and depreciation total 24.9 million versus year ago levels of 26.3 million and 26.7 million respectively.

Net cash provided by operating activities was 104 million dollars, up from 21 million dollars last year, primarily due to the increase in net earnings and a reduction in working capital needs.

Now, some balance sheet items.

Accounts receivable increased 21% to 82 .5 million dollars versus the end of fiscal 2001 due to higher wholesale sales.

Inventories decreased slightly to 392.6 million versus 396 .2 million one year ago.

As Joe mentioned, when adjusted for square footage, our inventories at Famous Footwear have declined proximately 80 million dollars versus 24 months ago.

More importantly, the freshness of our inventory has significantly improved over the last year as agings continue to improve.

We also reduced total debt to 152 million dollars from 216 million dollars at the end of fiscal 2001 and debt to capital improved to 34% from 45.7%.

As to our forward guidance, for fiscal 2003, we anticipate recording net sales of proximately 1.9 billion.

We once again project strong cash flow of more than 80 million dollars before capital expenditures and dividend.

Cap Ex is expected to be up 10 million dollars to proximately 35 million.

As Ron mentioned, we view 2003 as a year of balance between growth and investment where we will be investing and building traffic and sales at Famous Footwear and creating greater consumer preference for our wholesale and retail brands.

Based on these plans and projections, we expect a per share earnings level of $2.75 for the full year 2003.

Embedded in this estimate are expectations that comp store sales are likely to run low single digit positives for Famous Footwear and slightly better for Naturalizer.

We are currently estimating first-quarter earnings per share in the range of 44 cents to 48 cents per share, up from 43 cents in first quarter 2002.

Quite frankly, this reflects conversatism in our part as we observe the consumer who, in large part, remains on the sideline.

And this also reflects a slow start to spring business associated with very poor weather which has impacted our retail divisions.

Speaking of this difficult weather, it is driving our same-store sales for February down nearly 10%.

Our gross margin rate, however, is holding nicely and we are encouraged by store performance in warmer weather markets.

While these estimates could prove conservative, at this point, we believe it is prudent to maintain a conservative stance.

We feel we'll be in a better position to provide further evaluation in late march when our spring selling season is underway.

We will now open up the call for questions and then Ron will share his closing perspective.

+++ q-and-a.

Thank you.

We will go ahead and take the electronic question and answer session at this time.

If you are using a speaker phone, please use the hand set.

We'll take the first question from John Shilg from Wells Fargo.

Congratulations on a very impressive quarter.

Very nice job.

I want to start with a couple of quick questions.

Can you give us an idea of that 590 point gross margin improvement that Andy mentioned?

Was that across most merchandise categories or was it heavily concentrated in few or can you give us a little bit of an insight as to what really drove that substantial improvement?

The improvement, John, really is the same across most categories.

It was not concentrated.

It was really just a reflection of not having to deal with some aged inventory and the sell-through on our new product, especially in fourth quarter came at a very rapid rate.

So it was not concentrated in any one area.

Okay.

Great.

You gave us the anticipation for the new store opening program.

I wonder if you can give us an update in terms of the store modernization program and then perhaps a rough idea of the total portfolio that will have either been improved with the renovation or will be a new store by the end of the fiscal 03 period.

Okay.

Right now, John, we are sitting with about 200 stores that have been completely redone.

We are kind of proud of that because, in January of 2001, we only had one.

So, right now, we are sitting with 200.

We will renovate, in the current year we're in, between 150 to 160 stores.

Again, I think I mentioned we opened up 50, proximately 55 new stores.

By the end of 2004, we will have renovated about 550 to 600 of the stores.

Again, out of the 918, you have to remember 200 of those are in outlet locations so those won't be touched.

So we believe, by the end of 2004, we will have every one of our stores in a position that we walk in and they will have been renovated through either full or some extent or they won't need additional work, that it will mirror the presentation that we want to give to our consumer.

Great.

Ron, I wonder if you can give us a little bit of an insight on the Naturalizer retail business.

The turnaround in the retail operation, particularly the U.S. stores was very impressive.

I thought you had initially guided us to anticipate that we would not see a profit in the U.S. retail Naturalizer division until some time this year.

What is driving the performance and do you expect that trend to continue into 2003?

Clearly, we had a very strong fourth quarter with Naturalizer retail.

And driven by good margins and solid sell-throughs across the chain.

We will see additional marketing efforts on the image campaign to continue to try to build traffic in those Naturalizer retail stores as we move forward.

John,, as you know, we are still, you know, in that 380 to $400 sales per square foot mark there and we know that we need to improve that before we get to, you know, consistent profit results in Naturalizer retail.

You know, I think that, like the Famous business, we sort of need to get out of this lousy weather period before we can get a good read of how the Naturalizer retail business is headed for spring.

But we really are proud and pleased with the progress we made in 2002.

I think that, you know, we initially laid out plans to break even on that domestic side, I think some time by 2004 and I think with continued progress, we ought to get there a little sooner.

That's great.

The Naturalizer wholesale business, those are pretty impressive numbers that you are posting and, yet, when we met with a lot of your competing department store brands at the recent W S A program, they were bee moaning the weakness of their brands because of weak women's sales.

What is distinguishing your brand from the other players?

What is the drive factor that's causing the popularity of Naturalizer right now?

I think when we look at Naturalizer on the wholesale side, we really are very excited about what's going on there.

You know, and own overall basis, our sell-throughs have been just outstanding in Naturalizer.

As you know, John, that tends to drive a lot of decision-making on the part of our retail partners.

It's not always just driven by the sales but the sell-throughs and the margins that you can generate for them.

What's happening there is, as that business continues to grow, our partnerships with our retail partners are allowing us to gain greater share of voice in the key media pieces each season.

So we continue to garner not only better square footage on the sales floor but we are garner better square in. in the key places for Famous Footwear and I think that's the overall driver.

And then, as you recall, we also are seeing the continuation of positive distribution increases in the department store arena and as we have cited probably 12 months ago, we started working hard on disbugs with Nordstrom and we now have Nordstrom on all doors.

I think the combination of still having opportunity for growth through distribution and key sell-through is very key.

In addition, I think as we roll through spring and build plans for fall, the success at Naturalizer will allow us to garner some increases in S K U floor presentation in some key Silhouettes and we'll probably want to wait until we get those on the floor before we talk more about that.

I wanted to add something, John in that we maintain a chain of Naturalizer stores and we also have significant retail presence with Famous but it gives you the opportunity of early read and test and, so, we are able to some degree at least to have a higher level of confidence as to what the big shoes are and, so, as we are out in the market, you know, we validate some of that performance because our operating now will permit us to do now with a chain of retail presence that we have.

That's great.

You are doing something right because just about everything else is hitting a brick wall in that channel.

Andy, I just have a couple of housekeeping issues that maybe you can clarify for me.

The tax rate came in, I think, at around 13.7% versus third quarter was around 27%.

What was the main reason for the tax-rate decline?

It's primarily a mix issue, John.

As you know, in our wholesale business, we do capture earnings off shore.

Those monies are kept offshore for purposes of possible investment in growth in the international business and as that mix of earnings reflected fairly significant activity in the wholesale business in the fourth quarter, it served to cause that rate to come down for the quarter.

So what shall we model going forwards for 2003 in terms of tax rate?

I would say 27 to 30%, something like that.

Again, mix is going to drive it but high 20s to 30s.

Then also the other expense item of 3 .7 million, what is that?

You will see that's a provision of some additional -- we are alive in environmental litigation and to fully provide for that potential remediation, we have built some reserves there.

And that will be fully disclosed in the M.D.

N/A of our 10ks.

It's nothing new but hopefully this remediation will come to some conclusions as to what the full obligations might be.

That's what it is.

Does the 10k spell out what the potential total hit may be?

The 10k, I think the total hit with respect to mediation at this point is either paid for or fully reserved in our judgment.

that's fine.

The last question I had was, looking at your February number that you gave us for guidance, comps running at 10%, what percentage historically of the third quarter does February represent in terms of both sales and general operating profits?

I don't know that we break the profit piece out but I can tell you that Famous Footwear February represents something less than 25% of their total sales.

So you still ramp up for Easter and towards the back of the quarter, is that correct?

Absolutely.

That's great.

Thank you very much.

Appreciate the help.

thank you, John.

Thank you and once again as a reminder, if you would like to ask a question, please press the star key followed by the digit one on your star phone.

We'll next go to Steve Martin with Slater Capital.

Hi, guys, congratulations.

A couple of questions.

On the guidance for next year, you reduced your interest expense dramatically and you're going to throw more cash.

Can you give us some guidance as to where you think interest expenses is going to come in this coming year?

I don't have it in front of me, Steve, but my recollection is in the 10 1/2 versus 12 million this year.

Okay.

Holds on.

Joe, you were talking about operating margin goal for the retail division.

Can you look out a little further than next year and, you know, where do you think you can get to, you know, if you can deliver the top line growth at the store level?

I mentioned that we are looking at 2004 to be in the 5% range.

Again, we are in the process of turning Famous around.

It's hard to give you guidance.

If you take a look at this company three or four years ago, Andy, the operating margin was in the 6% range, is that correct?

At the Famous Footwear, historically, I think 6% or even slightly north of that was the level that we gt quite comfortable with, and aspired to get back to.

I would say that's probably a reasonable objective as we look out on past 2004.

Can you ballpark, you know, what kind of time frame that would be?

At this time frame, I probably can't.

Looking at Naturalizer wholesale, now that we've come out of the show and you got a lot of good reception, can you give us some ideas what back logs look like and what the sales increase is going to look like, you know, either by quarter or first half versus second half?

We don't go into that much detail.

Let me give you a little flavor for what's happening at wholesale.

We continue, as we said, you know, our sales picture looks good.

And we work out into the quarter.

We are certainly up over last year.

We are not as robust as maybe we were at this time last year.

But there is a number of mixed reasons and we have to work through the order flow, you know, over the next few weeks as we work with the people.

So, we see continuation of trend that people are ordering closer to the ship dates.

And so we see a little bit of shift there, particularly with boot orders, given the way winter has played out.

These appear to be later, but as we met with major customers, we are not concerned about that.

We think that our key position on key goods is going to flow, but I think everyone will maintain significant caution given the retail environment.

So I think the order flow is a little slower than it has been.

I think that there are reasons for that.

I think we feel pretty confident about our forward order position and it remains positive year over year.

All right.

Thanks a lot.

And you did a great job of increasing sales on what looks like, you know, year-end to be a flat to slightly down inventory.

Do you think you can do that again next year, or have you brought the inventories down as much as you think you can?

I think that total guidance enterprise wide, we continue to believe that we have opportunity for improvement there.

It won't be nearly as great, but I think that at Famous Footwear, we still believe 5 to 8%, 5 to 9%.

I think you are right in assuming that this project Impact initiative, while the benefits are great and have been mostly realized and realized earlier than we had anticipated, we still believe the key component, the foundation of those principles, inventory management, sell-throughs, markdown, exposure, all those things, we continue to believe, we'll manage aggressively and continue to see improvements from that operation.

So continued small improvements consistent with good work.

Thank you very much.

As final reminder, if you would like to ask a question, press the star key followed by the 1.

We'll take the next question from Andrew Komoro.

I just want to first ask about the margin at Famous Footwear.

He said 5% in 2004.

Is that in this year?

Are we in fiscal 2004 or are we talking next year?

I'm talking more about as we progress to fiscal 2003 and as we go to 2004.

This year should be approaching the 5%?

I don't think I'm going to comment on that, Adam.

I think we are looking for improvement.

Fair enough.

Adam, if I can add a little flavor, as we chatted before, 2003 is a year of investment for us and a balance between generating sustainable earnings improvement and still investing for the business and in particular at Famous Footwear, there are significant investments going there.

For that reason, we are not projecting significant improvement and that's why Joe is pushing that to 2004.

As Naturalizer continues to grow, should we see margins expand a little bit on the wholesale side?

I think that margin expansion is not the way you're going to see Naturalizer grow.

You're going to see it grow with continued distribution although, you know, we believe we have a comfortable position around our margin and continue to look there.

I think that, Andy, you always have a better flavor for the total wholesale feature..

I think the upside of Naturalizer, Adam, is one of share gain.

But I think we've got a little bit of room on the gross margin side and with current expense base that we can leverage, I think operating margin opportunity is there as we can continue to drive some share gains.

So, in the big picture, long term, it's share.

I think near term, there is a margin opportunity that we can pull out of here.

As Naturalizer becomes a bigger piece of your wholesale business because I think it's growing faster than the rest of wholesale.

Yeah, I think we can leverage that base and generate improved operating margins as we look out, if we can continue to drive that kind of share gain.

And that leads in my last question.

Where do you think you guys can take Naturalizer?

How much more do you think you can move market share?

I think we are taking it one year at a time.

We have improved a full point of market share this year and I think internally, our desire is to knock off another point in the coming 12 months.

You know, I think we believe Naturalizer has both the awareness of the brand name to give up the capability of continued significant growth overtime.

We know, you all know that the challenge we face with Naturalizer is we did not have styling which attracted the younger, more contemporary consumer.

We proved in our own stores that we can do more of that, but we also need -- I think included our investment conversation, we expect to continue marketing enhancements for Naturalizer retail and wholesale both.

So we need to continue to nurture that brand.

We like to say that we always had a lot of great brand awareness.

We need more brands preference and brands preference typically comes at point of sale when the customer's in the store and so we keep working on that version.

We are pretty pleased with that so we think there are still upsides where I think we closed the year here over 4% market share.

I think we closed the quarter, the last couple of months of the quarter, we were over 5% market share and, so, we continue to look ahead and build on that brand.

Terrific, guys.

My congratulations on a job well done this year.

Thank you.

That's all the questions we have at this point.

Mr. Fromm, we'll turn the mike over to you for closing comments.

Thank you, everyone.

We appreciate you joining us this afternoon.

I just would like to make one more comment on the wholesale business and that is that we are probably as delighted with Life Stride right in you as we are with Naturalizer.

The Life Stride momentum coming out of the show, into the first quarter has us feeling very good and very proud of the work that we have done there.

So hopefully we'll be able to continue to report some significant growth in Life Stride as we.

It feels great to be able to deliver such a year to our shareholders, especially to those who believed when we pledged to, you know, get out of the rut of cycle of mediocre and went on and embarked on project Impact.

The initiative, we really dedicated ourselves to creating a fundamentally better platform and we believe we've moved dramatically forward with that platform.

I must tell you that, as you would expect, the entire management team, the entire team throughout the enterprise, and that team is clearly more excited as we proved our ability to compete in the marketplace.

We are ready to take more steps.

I think as I said earlier, we actually are ahead of our schedule for improvement.

We are pleased with that.

We are going to press on both in making sure we realize the full improvement that we set off for ourselves applets taking next steps for opportunities in 2003 to bring and to build and invest in our business.

I think Andy and Joe both said it very well.

We know we need to really build our traffic.

We need to build that brand preference.

We need to drive sustainable top and bottom line growth.

I think it's always good to have momentum and our momentum is robust.

In fact, I can't really remember a time when the wholesale side of our business was as strong as it is today.

We are delivering winning shoe after winning shoe to our retail partners as I think Andy commented.

We really believe that our cycle of managing, early read, early learn programs, quick shift programs, all of those things are adding to our ability to maintain that momentum.

On the other side of the business, you know, a year ago, we were in the middle of change of management and Joe and his team have done an outstanding job in one year to have the position that we have today, both with the store, with the merchandise, with our vendor community.

I think it just represents a terrific work and it represents great opportunity for our future.

We've got big plans for this chain.

You know, and the Famous team has done the research.

They have cited the opportunities and they are committed to maximizing our growth and increasingly build our market share and, there by, building shareholder value.

So, with that, I guess I would like to say enough with the snowstorms.

I hope we can all begin to start thinking spring so we can really get moving.

Thank you very much.

And we'll talk to you in May.

Thank you and that concludes today's conference.

You may now disconnect.