Caleres Inc (CAL) 2003 Q4 法說會逐字稿

Welcome to the Brown Shoe Co. fourth-quarter 2003 financial results conference call.

This call is being made accessible to the public via webcast in accordance with the SEC regulation FD.

Before we begin, I'd like to remind you of the Company's Safe Harbor language.

During this conference call, the Company will make certain forward-looking statements to help you better understand its financial results and competitive outlook.

Discussion of the Company's future plans and other statements in this call that are not current or historical facts are forward-looking statements.

These involve known and unknown risks and uncertainties that could cause the actual results to materially differ from historical results or from any future results expressed or implied by any forward-looking statements.

Factors that could cause actual results to differ materially include those listed in our press release issued this morning and available on our 8-K filed prior to this call and other risk factors listed from time to time in the Company's SEC's reports.

Copies of the Company's reports are available online and from the Company's investor relations department.

The Company does not undertake any obligation or plan to update these forward looking statements even though its situation may change.

During this call, the Company aims to provide you with helpful financial, strategic, and operational information.

As such, all financial information that will be discussed will exclude special charges and recoveries from both the Company's fourth-quarter and fiscal 2002 and 2003 years.

The reconciliation of this information to be discussed during this conference call today to reported GAAP information can be found in Brown Shoe's press release which is included in Form 8-K furnished this morning and available on the Company's website.

And now, I'd like to turn the call over to Ron Fromm -- Chairman and CEO of Brown Shoe Company.

Good morning, everyone, thank you for joining us to discuss our fourth-quarter and fiscal 2003 results.

With me today are Diane Sullivan, who recently joined us as President;

Andy Rosen, our Chief Financial Officer; and Joe Wood, our President of Famous Footwear.

Let me just start by saying I want to apologize a little bit as we get into the details of this call.

I think that we tried to do an exceptional job of being very succinct but also we understand there's a lot of information and we want to try to make sure we bring clarity.

So bear with us.

I think we're going to do an overview -- quick -- from me, turn it over to Joe to get some remarks on where Famous is and what their perspective is.

Let Andy do the detail work of sorting out the pluses and minuses and then we will let Diane add a few comments as well.

You know, I think most importantly we are extremely pleased to report fourth-quarter and fiscal 2003 results.

Clearly, they exceeded our expectations.

Prior to the special charges and recoveries outlined in the press release, our fourth-quarter diluted earnings per share rose by 15.6 percent to 52 cents from 45 cents a year ago.

You know, again -- prior to the special charges and recovery -- diluted full year earnings per share rose by 13.1 percent to $2.77.

Our balance sheet continues to strengthen, show improvement and generated strong cash flow, reduced the inventory and lowered our debt to capital ratio -- all key initiatives for us and, again, we feel real pleased with our results.

Fiscal 2003 also marked a period where we met our earnings goals and made even more progress than the financial results and measures show.

Extremely pleased with our performance.

Our priority as we begin 2003 was to balance the earnings growth with our investments in our brands, the talent, our marketing and continue to support our improving infrastructure.

We are pleased to have accomplished this objective.

So to this end we implemented several important initiatives to prepare our business for the next phase of expansion, while driving solid improvements in operating earnings for both our wholesale and our retail organization.

At Famous Footwear we concentrated on four key areas.

First of all we essentially completed 415 remodels of the 893 stores in our format.

We continue to expand and express improved shopping experience and Joe is going to talk about that.

Joe will pay you more about the Famous initiatives in the minute.

Our Famous Footwear plan focused more on frequent deliveries of Trend Right footwear for the family.

We achieved initial success with differentiated styles from our top-selling athletic casual dress and kids shoes including our own Brown Shoe brands that had a terrific year with our LifeStride, Naturalizer, Brown Shoe and other brands -- Dr. Scholl's.

We accomplished this with $16 million less of inventory for the second straight year.

We're very pleased with the project impact initiatives in inventory management.

As we moved into the important back to school period we began to advertise our new revitalized format in our Famous Footwear stores to consumers with a focus on product selection and value versus everyone else that continues to clamor about price.

Lastly, we invested in technology to ensure that the right product is in the right stores at the right time.

We are certainly pleased with the initial success of these initiatives such as our great back to school season and the improving key metrics like purchase ratios and gross margin gains.

Our [indiscernible] Famous Footwear's operating margins despite the same-store sales decline and resulted in a 14.4 percent gain in operating earnings.

On the wholesale side, our brand increased their market share.

While Naturalizer sales were down 1.2 percent the brand increased its market share to 4.9 percent and ended the year in second place among United States department stores according to the independent research firm of NPD.

LifeStride had a tremendously strong year with sales increasing 17 1/2 percent over 2002.

And our Dr. Scholl's men's and athletic product, sold primarily at Wal-Mart, recorded substantial increases.

Meanwhile our Original Dr. Scholl's -- the fashion side of our brand -- continued to gain distribution in major department stores and independents and we anticipate the Footwear will be over 2800 stores this spring up from 2400 stores a year ago.

You know perhaps we're proudest of the fact that Brown Shoe brands held five of the top 10 selling patterns in department stores, three Naturalizers, one LifeStride and one Original Dr. Scholl's.

All of this data coming from the NPD source and while we have certain challenges in our private label kids businesses -- which primarily sells through the mass channel -- our men's and athletic businesses performed extremely well.

At the same time we've made the decision to close our last remaining footwear manufacturing facility in Canada.

Now with this move complete, our Canadian operation is positioned to leverage the outstanding capabilities of our worldwide sourcing organization and we expect to see significant improved results in this business in 2004.

And in December, we made two significant announcements.

First, Bass.

We announced the signing of a worldwide licensing agreement for Bass footwear at wholesale.

We finalized this agreement on February 2nd and while it is still early we're very encouraged that by adding this dimension Bass brings to our Company many of -- as many of you are aware Bass footwear expands on our strong capabilities in women's and kids' footwear and also provides us with a men's entry in the upper moderate zone.

We are excited about this opportunity to leverage our core competencies in footwear and build the back -- the Bass name and the Bass brand.

Second, we announced Diane Sullivan has joined Brown Shoe as president and now oversees all the Company's operating divisions.

We're excited to have Diane joined Brown Shoe, especially given her breadth of brand building experience and in having great and strong retail partnerships.

She comes to Brown Shoe from [indiscernible] Van Heusen where she was the Vice Chairman of the footwear [inaudible].

Importantly our retail and wholesale division helped each other grow.

Internally, our divisions are building stronger partnerships and employing our test and learn strategies in product development and validation to a greater degree than ever before.

And we're working to maximize the inner Company synergies and sales.

As we look ahead we remain positive about our prospects and are intently focused on delivering sustainable earnings growth over the long-term.

Importantly, we believe we're well positioned to drive sales increases as we continue our efforts in the following areas.

First, building brand preference.

Second, delivering shoes that delight the consumer and, third, reading the market and listening to the consumers.

And, finally, combining our fashion and retail knowledge so that we are early to market with styled right footwear across each of the channels in categories resales.

And we also expect to lead the market in efficiency and have begun an initiative to achieve a world-class sourcing structure.

Once implemented, our new Project ExCEL initiative is expected to improve our speed to market, to lower our product costs, and enable us to increasingly become retailers' and consumers' vendor of choice.

A broad-based initiative that we're very excited about over the next couple of years.

Now I'll turn the call over to Joe, let him give some perspective on our Famous business.

Thanks, Ron, and good morning, everyone.

We did have a solid fourth-quarter at Famous Footwear as we've maintained sales and realized a 40 basis point improvement in our gross margin.

Operating earnings were also in line with last year even as we continued to increase the investment in our stores.

Highlights for the quarter include the growth in our women's business.

This increase was offset by the challenges we faced in our Athletic Footwear business due to price compression across the industry to the tune of about 3 to 4 percent.

As many of you are aware our Athletic Footwear represents about 40 percent of our total sales in the fourth-quarter Famous.

The good news is that our inventories are in great shape and our current and upcoming footwear offerings combined with high impact marketing campaign have us well positioned now to record sales and earning increases in 2004.

I feel there are several drivers that we believe will enable us to meet our growth objectives.

First, we are opening more stores than we're closing in 2004.

Over the past two years, we closed our worst performing stores. 2004, we plan to open about 70 stores and close 50 for a net opening of approximately 20 stores.

The new stores are somewhat larger than the stores we will close and, therefore, we expect to gross square footage about 2 percent this year.

Longer-term, we continue to believe we have the opportunity to significantly grow our 893-store base.

Second, we're planning a 2 percent increase in our average retail prices in 2004.

Our average inbound costs repair is up slightly from last year which should lead to higher retail prices at our stores.

And third, we face [indiscernible] comparisons through the first five months of fiscal '03 we averaged about a 4 percent comp store sales decline.

In fact the athletic areas dropped over 7 percent store for store in the first six months of last year.

Fourth, our athletic product is much better.

The infusion of fresh new footwear including exclusive athletic by some key vendors we believe will add to the excitement of our stores.

We believe that time is right to advertise new Famous to our consumers.

In 2004, plans include nearly a 15 percent increase in marketing spending.

The increase will go largely to broadcast television and radio.

And in [indiscernible] vendor exclusive products.

In addition we are increasing sport 2 rewards, our best customer program whose numbers have nearly doubled over the past two years.

And lastly we're continuing to remodel our stores to further appeal to our consumers and further enhance her Famous Footwear shopping experience.

To this end we will renovate about 150 stores this coming year and our approximately 70 new stores will open in Next Generation store format.

In summary, we're looking forward to this coming year.

Our products and stores look great.

The additional marketing expenditures should help build best store traffic.

I think we also expect to continue to create further improvements in our gross margin.

Given the reductions we made in our eighth inventory (indiscernible) by the strength of our current offerings.

We're currently very comfortable in our ability to deliver this year's plan.

Now I'd like to turn the call over to Andy to review the financials.

Thanks Joe.

Good morning, all.

Before I summarize our financials I'd like to highlight certain special charges included in our 2003 results compared to special recoveries included in our 2002 results.

In the fourth-quarter of 2003, we recorded special charges of $4.5 million pretax for 2.7 million after-tax related to the closing of our last Canadian footwear manufacturing facility.

And charges of 3.1 million pretax or 2 million after-tax related to the Redfield class action litigation, including the verdict anticipated pre trial interest and sanctioned cost.

As you may recall, by comparison, in the fourth-quarter of 2002, the Company recorded pretax recoveries of 1.1 million related to the severance reserve established for the Company's shared service platform and recovered pretax $900,000 of the reserve established to close Naturalizer retail stores.

I refer you to the footnotes in our press release for details on the accounting for these charges in line items.

For comparison purposes, the results we will share with you on the call today will exclude these special charges and recoveries.

However, to review the full effect of these items on our financials, please refer to the tables included in this morning's press release.

Therefore on an apples to apples basis, consolidated sales for the fourth quarter totaled 433.8 million compared to 452.1 million during the fourth-quarter of last year -- a 4 percent decline.

While this decline was disappointing, sales comparisons were difficult, due to the acceleration of deliveries to customers that occurred in the fourth quarter of 2002 in anticipation of a possible West Coast dockworkers strike.

Consolidated operating profit for this quarter, however, increased 26.7 percent to $15.2 million or 3 1/2 percent of sales from 12 million or 2.7 percent of sales last year.

We are especially pleased with our ability to expand operating profit and attribute this performance to excellent asset and expense management throughout the Corporation.

Breaking this down further, gross margin rose by 160 basis points to 42.1 percent of sales compared to 40.5 percent of sales in the prior year's quarter.

Also, SG&A dollars decreased approximately 3.5 million to 167.3 million.

However, as a percent of sales, SG&A increased to 38.6 percent compared to 37.8 percent of sales in the prior year as revenue gains were not achieved.

Net interest expense totaled 2.0 million in the fourth quarter compared to 2.6 million last year.

The reduction in interest expense results from lower average borrowings.

Our tax rate rose to 26 percent from 13.7 percent a year ago period, reflecting a greater mix of domestic income which is taxed at higher rates vs. offshore income.

In total for the fourth-quarter and, again, excluding special charges, operating earnings rose by 26.7 percent.

And net earnings rose by 20.9 percent to 9.8 million compared to 8.1 million last year.

Diluted earnings per share totaled 52 cents on 18.9 million shares -- a 15.6 percent increase compared to 45 cents on 18.2 million shares outstanding in the prior year.

EPS totaled 27 cents after the specials charges in the fourth quarter this year.

Breaking our fourth-quarter results down at the segment level, Famous Footwear reported sales of 242 million and operating profit of 6.1 million, about even with the prior year's quarter.

We ended the year with inventories current and in good shape, down about 5 percent compared to last year.

Same-store sales declined 2.3 percent although conversion rates increased and higher gross margins were achieved.

During the fourth-quarter we opened six stores and closed 21.

And at the end of the fourth quarter Famous Footwear operated 893 stores.

Turning to wholesale.

For the fourth quarter, sales totaled 142.3 million compared to 162.6 million last year.

As mentioned, we had a tough comparison with a stocking up that occurred in the fourth quarter of 2002 in anticipation of a possible West Coast dockworkers strike.

However, at wholesale, our ability to improve gross margins generated an 8.7 percent gain in wholesale operating income to 19.0 million compared to 17.4 million in the fourth quarter last year.

At Naturalizer Retail, fourth-quarter sales increased 1.8 percent to 46.9 million compared to 46.1 million in the fourth quarter last year.

Approximately 2.7 million of this increase was due to changes in the Canadian U.S. dollar exchange rate.

We did, however, achieve positive comp store sales gains of 0.4 percent within our U.S. segment led by the outlet channel stores.

For the fourth quarter, our Canadian chain experienced a 2 percent same-store sales decline and lower margins.

We operated 170 stores in Canada at the end of the quarter compared to 172 at the same time last year.

Total operating earnings for the Naturalizer retail segment declined from a .3 million profit to a loss of 1.2 million this quarter.

As Ron indicated earlier in the fourth-quarter we closed the last remaining manufacturing facility in Canada.

And with this move complete, we expect improved margin and earnings performance at retail in 2004.

And now for the full fiscal year 2003.

Net sales totaled 1.8 billion even with fiscal 2002.

Gross margin improved 130 basis points to 41.5 percent compared to 40.2 percent last year.

SG&A totaled 678.7 million or 37 percent of sales compared to 688.7 million or 36 -- excuse me -- or 36.3 percent of sales last year.

Total operating profit increased 14.4 percent to 81.6 million or 4.5 percent of sales compared to 71.3 million or 3.9 percent of sales in 2002.

The tax rate for the year was 28.7 percent compared to 26.1 percent last year.

Net earnings grew 17.4 percent to 51.6 million compared to 44 million last year.

And diluted earnings per share increased to $2.77 -- a 13.1 percent improvement compared to $2.45 in the prior year.

Including the special charges and recoveries, diluted EPS for fiscal 2003 was $2.52, essentially flat with last year.

The Company ended the year with a strong balance sheet.

We maintained and improved upon our inventory metrics.

At quarter end, inventory declined by 16.4 million to 376.2 million from 392.6 million in the prior year quarter.

Our inventories are current and on plan and we believe we are well-positioned for the spring season.

Total debt was reduced during the year by approximately $33 million to 119.5 million compared to 152.5 million at the end of last year.

And debt to total capitalization improved to 25 percent from 34 percent at the end of 2002.

Cash flow from operations activities was $88 million positive.

Capital expenditures for the quarter totaled 7.8 million and the full year 29.5 million.

We estimate capital expenditures for fiscal 2004 in the range of $33 to $35 million.

With respect to our forward-looking guidance, we continue to estimate net earnings per diluted shares of $3.15 for (indiscernible) which represents a growth of nearly 14 percent over fiscal 2003 earnings per share of $2.77.

And as a reminder that $2.77 is prior to special charges.

The $3.15 estimate includes additional marketing expenditures of Famous Footwear.

Incremental costs associated with the streamlining of our supply chain management processes and the cost to assimilate the vast footwear position.

We expected Bass to be neutral to earnings in 2004.

Net sales for 2004 are expected to increase about 10 percent to approximately 2 billion.

Inclusive of 60 to 70 billion a million in sales from our new Bass license.

Our sales guidance is predicated on, first, achieving same-store sales growth of 1 to 2 percent at Famous Footwear.

Total sales at Famous Footwear are expected to rise by 4 percent given that we are also increasing average square footage by 2 to 3 percent.

And second, sales within our wholesale segment are expected to rise by 18 to 20 percent, which is supported by an 11 percent increase in our current backlog, expanded rollouts of our new brands, $60 to $70 million in sales from our Bass license and continued growth by existing brands.

With regard to our 2004 first-quarter we estimate EPS in a range of 30 to 35 cents compared to 49 cents in the year ago period.

Our first-quarter 2004 estimate reflects the incurrence of the majority of the transition costs associated with assimilating the Bass footwear license into our organizations and added consulting costs related to supply chain management.

Net sales for the first quarter are estimated to range between $470 million and $480 million.

Additionally, earlier this month we introduced preliminary fiscal 2005 diluted earnings per share guidance in the range of $3.65 to $3.85, representing growth of 19 percent at the midpoint of the range as compared to fiscal 2004 earnings guidance.

We expect Bass Footwear to contribute between 15 and 20 cents per share in 2005 which is included in our guidance for the year.

And now, I'd like to introduce our new President -- Diane Sullivan -- and turn the call over to her for concluding comments.

Good morning and thank you, Andy.

It's great to speak with you all this morning on my first earnings call as Brown Shoe's President.

I've been here now for almost six weeks and my enthusiasm for the Company, the team and our growth prospects continues.

And that's in large part due to the great business model we have.

One that combines the largest family footwear retail chain with great wholesale brands and the expertise of our private label organization.

Our operating model here is the great foundation of this potential as we reach all channels of distribution, many consumer segments and we benefit by the knowledge learned and the synergies created with this platform.

It's just terrific and it provides us with unique insight into the marketplace.

There are really four key reasons why we believe that our success will continue.

First of all, we are focused on building lifestyle footwear brands and our confidence in our ability to continue our extension, especially given the strong acceptance of our brands and our product line at retail across of the categories we sell.

Secondly, as you've heard, Famous Footwear is positioned for growth with the distinctive product and creative marketing campaigns that they have.

We know that when the consumer shops Famous, she's increasingly purchasing shoes and our job this year is to make sure that we continue those great conversion rates as well as ensure that more feet walk through our doors.

And we believe that we have established a plan to make this happen.

Third, our Naturalizer Canada business should generate improved profitability.

With the steps we took to introduce imported product in 2003 we believe we will realize improved performance in this business this year.

And, finally, we have added the Bass brand.

A complementary business to our Company.

As part of the brand shoe organization Bass footwear will have access to brand (ph) that sourcing and distribution infrastructure and as well as this, along with the added capital and marketing support, that will allow us to fully capitalize on this great recognizable brand in the marketplace.

So, in conclusion, 2003 was a very good year for Brown Shoe, with net earnings excluding the special charges rising 17.4 percent.

As we look ahead, we are committed to delivering increased shareholder value and believe that the strategies, as well as the initiatives that have been put in place, will continue to forward this goal.

It was very nice to have a couple of minutes to say a few words but now what I would like to do is to turn the call over to the operator to begin the Q&A portion of the call.

+++ q-and-a.

[Operator Instructions].

From Wells Fargo, John Shanley.

Andy or Ron, I wonder if you could add a little bit more color on the comment in the press release about difficulties with certain retail accounts.

Was that focusing primarily on the wholesale business in the branded part or was it mass or was it both and were there one or two specific accounts that really caused most of the problem?

Thanks John.

You know, as we're pretty excited about the wholesale business, I think in general, and you know on the call here, that backlog double-digit backlog increase, obviously, includes all of our wholesale business and so I think we continue to show some real progress there.

Clearly, we have -- we've had some accounts that have had some challenges.

And we've been able to overcome that and offset that business as we go forward.

You know, I think when it comes to specific accounts, John, I think that's -- you can take that up with the different retailers out there.

I think we're real pleased with the progress.

We're pleased with where we sit with the backlog and expectations going forward.

So --

I wasn't asking for specific accounts Ron, I was trying to find out whether it was in the branded part of your business or in the (indiscernible) part of your business?

Again, we referenced that.

I think the branded part of our business has continued strong and we see some real robustness with our LifeStride and Original Dr. Scholl's brands, particularly, and so we've got some offsets in the mass side of the business.

Okay that's fair enough.

On the 11 percent on ship I assume that your futures -- on an apples to apples comparison basis, how does that compare with the end of the end of the fourth quarter of '02?

Andy, you might want to step in because I think that's some challenges with the flow of last year versus this year.

I don't have those in front of me, John but my recollection is and I can come back to you, my recollection is we're showing better strength and momentum as we move into early '04 than we did in late '03.

Excuse me in late '02.

LifeStride and Naturalizer continued to demonstrate momentum.

And I think we're pretty optimistic about those brands in particular as well as prospects for Dr. Scholl's.

So I think we are feeling good about that side of the business and probably it's reflected in a stronger run shipped but I'll pull those numbers -- I don't have them in front of me.

Okay.

I got a couple of questions for Joe.

Joe, the 150 stores that you're going to do, the modernization in this year.

What will that bring the total store base up to in terms of modernizing product -- stores, rather?

John, that will bring us up to a little over 600.

600?

Yeah and again out of the almost 900 stores, 200 of those are outlets and those really just become paint and carpeting so I really take a look at it, John, as almost a 700 store base.

Okay that's really a large percentage.

That's great.

And then have the -- you mentioned you're getting some exclusive products.

Have the Nike exclusives started to flow into Famous yet?

It's just now delivering some vendors prior to Nike have already delivered Nike -- is I think in the warehouse now, John, probably won't hit the stores until next week.

Okay, the announcement this morning that Jones is looking to acquire Maxwell, will that have any effect on your ability to either source Anne Klein or to get more of the Maxwell product line?

What's your feeling in terms of what that may do in terms of the ability to get the dress and casual shoe brands on the women's side of the business?

John, you know, I don't know, I just read that announcement this morning.

Kind of took me by surprise.

So I think it'd probably be premature at this timeframe for me to comment.

I really don't know.

Virginia Genereux with Merrill Lynch.

Good morning and congratulations.

Maybe two for Joe, if I could.

Joe, could you talk a little bit about sort of traffic trends across the store base?

I know you said you would be marketing the remodeled stores a bit more aggressively, but if traffic was down 4 percent in the past -- I think you said in the past year, can you tell us how that varies across the store base?

And what you think is working to stem that decline?

That's one.

Let me see if I can catch everything.

It really came across all three channels -- strip malls and outlets with -- and it was fairly flat across the board, Virginia, I don't know if that answers that question.

I think the -- on '04 we are going to have to see.

There's been two soft weeks so far in February, one fairly decent week and this week looks outstanding and the traffic count is up across the board in all three channels so hopefully we're starting to see the beginnings of our margin.

It really doesn't kick in until this weekend in radio and television.

So I think it's still variable at this timeframe.

But at least initially this month it's a little positive compared to anything in '03.

Great and the radio and TV.

That's new?

That's new and can you tell us is that concentrated in X number of markets or covering X number of stores.

How should we think about that?

It covers over half of our stores we had.

There's two -- last year we had a branding campaign that kicked off in March.

This year, it's two campaigns -- a continuation of branding of Famous Footwear and then we also have a vendor kickoff, which is a campaign that covers over half our stores with special product and that actually kicks off the 29th which is this Sunday.

So it's a second campaign on top of one last year.

So we have two compared to one.

Great and then is the 15 percent increase, Joe, in marketing, is it more back to school would you say or just sort of balanced over the course of year?

Key selling periods?

Key selling periods, so it includes March which lead into Easter and that's television and radio and obviously it's concentrated there back to school and holiday.

So it's concentrated in three areas than more spread out, Virginia.

Great and what is your thought, Joe, on -- are you seeing a willingness on part of your consumers to pay higher prices?

You said you're looking for a 2 percent increase and planning a 2 percent increase in average selling price.

It sounds like you're buying more expensive product.

Are you seeing a willingness for people -- the people are willing to pay a little more?

Yeah, I don't think there's any hesitation -- isn't the fact that we're taking footwear prices up $5 or $10.

So I don't think the consumers isn't hesitating a bit to pay a little more at retail.

Okay, great and then one for Andy, I am sorry.

Andy, what were you able to take out of SG&A this quarter?

Very nice gross margin gains because you said you drove better operating sort of earnings, really, on the SG&A line.

What were you able to cut?

This is the ugly side of it.

We had an outstanding year in 2002.

And that resulted in fairly significant incentive payments for all of our associates here at Brown.

And while I think that '03 in its own way was every bit as great as '02, we continued to set the curve steeper for -- and the result's more challenging for us.

And it was a reduction in incentive payments within the Company as much as anything else that drove SG&A down.

Interest Capital, Adam Kamara (ph).

Hey, guys, nice job again.

I don't get tired of saying it.

Two quick questions.

One is net debt now 68 million.

If we have another year in terms of cash flow like we did in '03 we're going to be in a net cash position.

Where are we trying to take the debt and buy back (indiscernible) the plan of free cash flow in '04?

We're currently at 25 percent, debt to total cap.

That's total debt to total cap and it doesn't reflect the net debt -- net debt statistic.

I think this Company in the sector that we -- in which we operate -- I think at these levels, I think we're pretty comfortable so if I had to pick a number, Adam, 15 to 25 percent debt to cap is probably a level that we're very comfortable because I think it gives us the kind of flexibility that should allow us to grow the business in a number of different ways as the opportunities present themselves.

We're paying a nice dividend now.

We are investing in the business in a pretty meaningful way and we've tried to share that to some degree.

And I think we're going to continue to invest in the platform and grow the business.

So Ron's in New York today, I'm in St. Louis, he may want to comment but I don't see us aggressively engaged in repurchasing at this point, given the opportunities we have or believe we have with respect to growing both the retail business and our wholesale platform.

Yeah I think Andy -- that's good.

I think our commitment right now in the last two or three years was to rebuild the essence and the preference and the brands.

We've continued to have to do a lot of work there because we think it's just imperative that we create a stronger emotional connection to our branded consumer and in that fashion, attitude, and brand preference as a [indiscernible] and cascading event effect over the whole Company and so, I think we're going to continue to make those strategic investments in building our brands, including Famous Footwear, Naturalizer, Original Dr. Scholl's, etc.

On the other hand I think that we are committed to continuing to grow, profitably, our entire business and I think we have to continue to seek out those alternatives that's going to give us the flexibility to grow that business.

You know, we continue to have out there estimates that show in that range and I think Andy said 15 to 20 percent growth in earnings the next couple of years.

And you know we think we need to grow that and we need to grow the topline.

And so some of that comes from Famous and what we see there.

But I think, ultimately, we have to find continued vehicles to invest in the future.

And I think we'd look first to investing in our future before we would look at stock repurchase.

Okay so does that also include maybe looking at potential acquisitions on the wholesale side?

I think that it includes looking at the entire portfolio and the entire portfolio of opportunity.

And you know I think there's clear opportunities that are in the marketplace.

And we need to continue to focus on which ones are going to leverage these unique platform.

We have wholesale and retail growth opportunities in our Company synergy opportunities and we're going to look at things that give us a unique capability to leverage our platform because we think this platform gives us more flexibility than the rest of the people in the industry.

Okay.

Terrific.

Quick one for Joe, sounded like if traffic is picking up in February and I'm going to assume that our conversion rates are holding steady and are we -- if we are already seeing ASPs rising 2 to 3 percent sounds like we should start seeing some positive comps.

Is that accurate for February?

Again I think it's a little too early.

I think through 23 days, Adam, still get a little bit what we saw February, have one week of disappointing, second week as I mentioned was very good, third week was not quite as disappointing as week one, and this week looks like it's going to be outstanding.

So we're still running a little bit of a roller coaster ride but at least so far February looks fairly encouraging.

Again it started off fairly soft but it is building as each week goes by.

You know, Adam, I know you're off the line, but again I think the real important element is our expectations for Famous for the quarter.

February isn't the bellwether of what's going to happen, particularly with the later Easter.

[Operator Instructions]

Mosaic Research, Sam Poser (ph).

Joe I have a question for you, regarding some of the brands and price points of some of the new product driving business.

Could you sort of give us some color on that?

Well, Sam, again I think it's a little early.

Again I hate to evaluate or comment on our vendors so early in the season.

I mean, we cautiously purchased product to share to get our average retails up.

But as we go through the first 23 days no matter whether it's athletic or nonathletic it's almost unfair.

I'd rather make those comments -- I don't mind doing it after the first quarter.

Again volume is so much different from March, April, and February -- we see some initial trends but those can change very quickly once you get into the volume weeks of March and April.

Could you give us -- try it from another direction.

Could you try to tell us about what brands are planned to do that business driving?

And raise the ISPs and so on?

Well, one of those has really been coming out of athletic.

We feel that our average price points in non-athletic can always be improved.

Most of the improvement we're looking for is coming out of our athletic business and across our total vendor base.

And, again, our athletics makes up almost 50 percent of our business, 47 percent.

So that could have some immediate impact but it's in athletics that's going to drive us.

And is that also continuing on getting a lot more -- trying to get more exclusive product and so on?

Sure, that definitely helps and has been and will continue to be our focus and it's a lot easier to increase your average retails on product if no one else has.

Are most of the vendors participating with you in getting the exclusive product or is it limited vendors?

We don't have one athletic vendor we deal with that we don't have exclusive products from for this spring so it's a continuing and growing process.

At this time, there appears to be no further questions.

Mr. Fromm, I will turn the conference back over to you, sir.

Thanks.

We appreciate you hanging in on the long call here.

You know, clearly, we believe that we've got some terrific strategies in place.

We believe we generate and can generate sustainable growth within our wholesale and retail operations.

You know for me, personally, it's really exciting to be surrounded by such a talented team and see the work that they've been diligent at pay off with gains in market share, gains in efficiency and gains in buildings -- retail wholesale platform.

You know that shares more information and creates those additional margin opportunities for the Corporation.

We look forward to talking to you next quarter.

We are excited about where we are right now and excited about what we think the next quarter is going to bring.

So, as always, we appreciate your continued support.

We look forward to speaking to you again when we report the first quarter results if not sooner.

Thanks a lot.

And that will conclude our teleconference for today.

We would like to thank you all for your participation.

You may now all disconnect.