Caleres Inc (CAL) 2005 Q3 法說會逐字稿

Good day everyone and welcome to the Brown Shoe Company third quarter 2005 financial results conference call.

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

Before we begin, I would 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 on this call that are not current or historical facts are forward-looking statements.

These are subject to known and unknown risks of 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 these lists (ph) 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 on the Company's SEC reports.

Copies of the Company's reports are available on the Company's web site, brownshoe.com, 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 this situation may change.

Also SEC regulations require us to provide information in a non-GAAP financial measure covered in today's conference call.

Such non-GAAP information includes principally of earnings diluted per share which have been adjusted to explain certain charges and information regarding components of the Company's operating segments.

Information regarding such non-GAAP information is contained in today's earnings release, which is posted on Brown Shoe's web site in the news section.

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

Joining Mr. Fromm are Brown Shoe's President, Diane Sullivan, and the Chief Financial Officer, Andy Rosen; and Joe Wood, President of Brown Shoe's Famous Footwear division.

Please go ahead.

Thank you, good morning.

Thanks for joining us to discuss the third quarter and first nine months results for 2005.

You know, it's a great time to be in the footwear business.

It was a terrific quarter with results exceeding our expectations.

It is clear that the confluence of cooler weather and strengthening consumer interest has been good for the shoe business.

We like to say shoe love is true love, and right now, the consumer is having a love affair with footwear.

Purchasing shoes, and particularly boots, is broadly based across all channels and price points of distribution as best seen by the solid strength of our Dr. Scholl's brand and by the record sales results posted at Famous Footwear and what could base to be characterized as a surge in business of our Via Spiga brand at the bridge (ph) department stores.

Turning to the terrific results for the quarter, net sales rose 20% to $617.7 million.

That includes $67 million in Bennett sales and earnings were up $0.04 per share from last year to $1.04 per share on a GAAP basis, or up nearly 24% to $23 million, or $1.21 per share on an adjusted basis, which excludes our Naturalizer retail store closing costs.

While we acknowledge that the footwear business is strengthening in general, we attribute Brown Shoe Company's success to maintaining focus in four key areas.

First, our acquisition of Bennett.

As Diane will discuss later on, this is on track and producing the type of strong results we had anticipated.

Second, our commitment to creating clear and sustainable differentiation at Famous Footwear with our trend-right product stories and our more enticing shopping experience.

As Joe will tell us, it turns out that back-to-school was later and softer than we would have liked.

However, since the consumer returned around mid-September, business has increasingly strengthened, and as I mentioned, Famous Footwear posted record sales results with strong margins for the third quarter.

Third, our results speak for themselves as rigorous emphasis on sell-through and inventory management at wholesale and retail put our inventory in a fresher and cleaner position and lower markdown exposure.

And fourth, our focus on strengthening our balance sheet.

As a result of the solid results for the quarter, our cash flow increased nicely and we reduced our debt to cap ratio to 39% at the end of the quarter, down from 41.2% at the end of the second quarter.

We believe that these platform operational and financial initiatives should continue to add value as we enter the final quarter of the year.

Our wholesale backlog increase of 11.5%, coupled with the acceleration in sales trends at Famous Footwear, bodes well for the fourth quarter and achieving our new guidance range of $3.00 to $3.10 for the full-year, excluding charges set forth in the press release this morning.

And now one last comment before I turn the call over to Diane to review our performance in more detail.

We set out to create a clear leadership position in the footwear industry, building and managing a unique portfolio of strong branded concepts at wholesale and retail.

We continue to see the hidden benefit from the strength of this platform as it allows us to capitalize on the shared learning and insights across the enterprise, which in turn allows us to develop product to fit the specialized consumer needs of our retail partners.

While this is always important, it is even more important in the current consolidating environment.

We're in the footwear business and we know that having trend-right product is always the key to our success.

Diane, over to you.

Okay, good morning everyone, and thanks, Ron.

As Ron mentioned, we delivered strong results in the third quarter with solid contributions from our wholesale and our Famous Footwear businesses.

Wholesale operating earnings rose by 30%, excluding Bennett, and if you include Bennett, by 85%.

And also as you have heard, Famous Footwear generated record sales and operating earnings as they gained real traction in the second half of the quarter.

The quarter also shows progress as we continued to manage the business better and improved execution in a number of critical areas.

As a result, we saw good consumer response to our brands and our products.

Some of what we think are the key drivers of this performance this quarter were, first of all, our Bennett business.

The integration is going smoothly on all fronts and systems are scheduled to convert next month.

Importantly, the acquisition is meeting our expectations.

It added $0.16 to earnings per share in the quarter and is contributing nicely through our wholesale platform.

We remain particularly excited about the prospects for our Franco Sarto and Via Spiga brand.

And anecdotally, for these two brands at retail right now, we are seeing doubled-digit sell-throughs on much lower inventory, and this certainly ties well to our second driver, our whole sell-through strategy.

We are working hard and we have increased our turns and are flowing our deliveries in a way that ensures higher sell-throughs at retail.

This strategy is really helping us to improve our Naturalizer business model right now as we are beginning to reduce our exposure to markdowns and allowances, and we expect by the end of the year to have less merchandise to clear.

Third, our continuing emphasis on producing a flow of new styles for the consumer.

Having this constant flow across both our retail and our wholesale divisions enable to meet consumers' changing fashion needs as she wants to buy now to wear now.

And lastly, I think that I would like to comment on inventories.

At quarter end, our wholesale inventories were in great shape, down 18% from last year on a comparable basis, excluding Bennett.

And for example at Naturalizer, they're down at retail too, which makes us more nimble and allows us to introduce new styles more quickly.

All (indiscernible), these four factors assisted in delivering improved operating results across our wholesale platform.

In addition to these four drivers, I would like update you on what were and have been the more challenging areas of our business.

We've made some progress, we still have work to do.

Our Children's division improved nicely with better sales and earnings this quarter and year-to-date.

Our Bass brand continues to be challenging.

While the product design and styling market is more consistent with Bass' heritage and it's receiving higher marks from consumers and retailers, at this point we haven't achieved the scale we need to reach our margin and our own performance standard.

And Naturalizer, while performing about even with last year, is beginning to show promise as the result of our business model changes and our brand's update work.

We believe the brand is on track for improved performance in the fourth quarter.

And now I would like to comment on the numbers in more detail.

In total, third quarter wholesale sales were 226.5 million, up 52% from the prior year quarter.

That includes 55 million in sales from the Bennett business.

Excluding Bennett, wholesale sales rose about 8%.

Total wholesale operating earnings rose to 19.2 million.

That was an increase of 85%.

Bennett contributed 5.8 million and on a comparable basis, excluding Bennett, wholesale operating earnings were up nearly 30% with operating margins improving to 8.3% from 7% last year.

At Specialty Retail, which includes our 381 Naturalizer F.X.

LaSalle and Via Spiga stores in North America as well as our shoes.com e-commerce business, we achieved sales of -- sales growth of 16% during the quarter.

Combined comp store sales were up 2.5%.

As you will recall, in June, we announced plans to strengthen the Naturalizer brand by closing underperforming stores, consolidating our retail administration and streamlining certain wholesale functions.

Since then, we have consolidated retail administration and accounting functions; we have realigned our wholesale selling teams and added some new key talent, and to date, we have closed 29 stores under the program and have closed dates for 57 more, with 11 in process.

So basically, we are on track to close 97 stores this year under this program.

All in all, we are on track to complete these initiatives in 2005.

So while the operating loss for this division was 7 million versus a loss of 1.6 million in the year-ago quarter this, loss includes pre-tax costs of 5.2 million to accomplish this restructuring.

We continue to believe that in 2006, we will improve the performance of the chain.

Once more, we are seeing early indicators of improved performance at our ongoing store base versus last year.

Now I would like to quickly address a topic that I know is top of mind for many investors -- the Federated/May consolidation.

We have been partners with Federated for a long time and they supported the rejuvenation of our Naturalizer brand in the late 1990s and they were one of the first to help us launch Carlos in 2001.

Our operating model works well with Federated.

We're a meaningful resource for them across several brands and we rank number two in overall department store market share.

Our recent meetings with Federated have been very positive and we continue to believe they are a solid opportunity for our wholesale portfolio.

That said, we're working closely with them to understand their plans, we're planning our business at the door level to ensure that we optimize our business, but we recognize that we must continually earn our stripes every day by delivering product that sells through to their customers at superior rates.

We refined our business model to do this and we will continue to be one of their key partners.

In summary, we are pleased with the tone of our business this quarter.

The strategic initiatives we established late last year are being implemented across the Company and are beginning to produce the results we expected.

Now before I turn the call over to Joe, let me say that our Famous Footwear team just did a terrific job in a very difficult back-to-school season.

They managed the late sandal business to maximize profits and are achieving excellent momentum in our women's business.

So, Joe, I would like to turn the call over to you now.

Thank you, Diane, and good morning everyone.

We at Famous Footwear were pleased with our third quarter results.

Permit me first to go over some highlights of our financial performance, and then I will comment on business in general during the quarter.

We experienced a same-store sales gain of 2.1% in the quarter compared to a 0.4% decline in the same quarter last year.

Total sales were 328.1 million versus 311.7 million last year, an increase of 5.3%.

Our comp increase reflected two key metrics.

Our average per-pair footwear retails were higher than last year and our customer traffic count was also up for the quarter over last year.

Other metrics included gross profit dollars at 144.5 million.

That was 7.4 million more than the third quarter of last year, an increase of 5.4%, and our gross profit margin of 44% was equal to last year's figure.

Our quarter three operating expenses once again were well-controlled as they increased at a lower rate than our sales and our operating earnings for the first quarter grew 7.3% to 26.2 million.

This represents 8% of net sales and compares to operating earnings of 24.4 million for the third quarter last year, which were 7.8% of net sales.

And finally, we were very pleased that our quarter ending inventory came in under our plan.

All in all, a pretty solid quarter.

During this time frame, Famous closed the third quarter with 943 stores; that was 20 more than this time last year, and our commitment to remodeling continues.

During the quarter, we remodeled 15 locations, bringing the total number of stores with our new look to 450.

We will remodel an additional 30 locations before the fourth quarter ends, leaving us with just 200 to address as we enter next year.

Just a few comments on our third quarter business in general.

As with most other footwear retailers, Famous Footwear experienced softer August sales than we had anticipated, and it wasn't until mid-September in October that sales turned positive.

But when they did, we were pleased to see comp increases in three of our four major categories.

Our women's business continued to lead a very strong performance for the quarter, with junior casual, women's clogs in the sport category that were very impressive in their comp results.

The men's business continued to deliver very nice comp gains in casual, work and in hiking.

In our nonathletic kids business -- remained extremely strong and experienced very nice gains, led both by boys and girl's casual and girl's dress.

And finally athletics.

After we mentioned a softer August back-to-school than anticipated, business picked up in the second week of September and then have remained extremely strong for the balance of the month in all of October, this business being driven by running, trail and skate.

Finally, I should add that we saw increased contributions from the Brown Shoe brands, including Dr. Scholl's men's product, Buster Brown, Barbie, Connie and Naturalizer.

In short, with solid third quarter results, we believe Famous is in a very good position to deliver the sales and operating profit goals we established at the beginning of the fiscal year.

At this time, let me turn the call over to Andy Rosen, who will walk you through the total company's financial performance.

Thank you, Joe, and good morning.

As you have heard, we are quite pleased with our third quarter results.

Diluted EPS was $1.04.

That includes the $0.17 in charges we took for the Naturalizer store closings.

On an adjusted basis excluding this charge, EPS was $1.21 and adjusted earnings increased 4.4 million, or 23.9% to $23 million.

We also improved our balance sheet and lowered debt and increased cash flow, and inventory remains well positioned.

Included in the appendix to this morning's press release is a detailed reconciliation of net earnings and guidance on a GAAP basis to adjusted net earnings and guidance for the third and fourth quarters and for last year.

Turning to the full income statement for the third quarter, consolidated net sales for the quarter totaled 617.7 million.

This was an increase of 102.9 million, or $0.22 from the 514.8 million we posted in the third quarter last year.

Total operating income rose by 3.5 million to 31.4 million, or 5.1% of net sales.

That compared with 27.9 million, or 5.4% of net sales last year, with the decrease in the operating margin percentage due to the Naturalizer closing cost which as we stated earlier amounted to 5.2 million pre-tax for the quarter.

Breaking the numbers down further -- gross profit dollars increased by 15.1% to 239.5 million from 208 million in the year-ago quarter, while gross margin rate decreased by 160 basis points to 38.8% from 40.4% in last year's quarter.

This decrease was primarily due to the mix of our business which was more heavily weighted to wholesale this quarter due to the Bennett acquisition than to our retail business.

In addition, markdown costs to clear inventory in our closing Naturalizer stores also negatively affected the gross margin rates.

SG&A increased by 15.5% to 208.1 million.

That compared to 180.2 million last year.

However, as a percent of sales, SG&A improved 130 basis points to 33.7% in the third quarter from 35% last year.

This resulted from improved sales leverage, tight expense control throughout the Company and a greater mix of wholesale business, partially offset by the higher cost to close Naturalizer stores.

Consolidated pre-tax net interest expense totaled 5 million in the third quarter, compared to 1.8 million last year.

This increase reflects the debt we incurred to acquire Bennett.

Our tax rate for the quarter was 25% versus 28.9% last year.

This brings us to a year-to-date tax rate of 28.9%, excluding the first quarter charge of 9.6 million to repatriate foreign hedge (ph).

The 28.9% rate compares to 30% for the period last year.

For the full year 2005, we expect a tax rate of approximately 29%, excluding the extra cost to repatriate foreign cash.

If we include the extra cost to repatriate foreign cash, the full-year tax rate would be approximately 42%.

In the third quarter, net earnings were 19.8 million compared to 18.6 million last year, an increase of 6.5%.

And, as Ron mentioned, on an adjusted basis, earnings were up 24% over last year to 23 million versus 18.6 million in the 2004 period.

Turning to the balance sheet, total inventory levels at the end of the third quarter were 429.1 million, or 4.7% higher than the 410 million in the prior year.

This increase was due to the acquisition of Bennett and the addition of new Famous Footwear stores.

At quarter end, debt to total capitalization improved to 39% from the 41.2% at the end of the second quarter of 2005.

Capital expenditures totaled 26.5 million in the first nine months of the year and for the full year, we expect capital expenditures of about $40 million.

Continuing with nine-month results, for the first nine months of fiscal 2005, net sales totaled 1.692 billion compared to 1.465 billion during the first nine months of fiscal 2004.

Total operating income increased 17% to 65.2 million, or 3.9% of sales, compared to 55.8 million, or 3.8% of sales in the first nine months of last year.

Net earnings were 27.6 million compared to 34.8 million last year and diluted earnings per share declined to $1.46 compared to $1.84 during the first nine months of 2004.

Looking at the nine-months results, however, on a comparable basis; that is, excluding the $0.51 per share repatriation tax charge, excluding bridge loan costs of $0.03 per share and excluding the $0.26 pairs share cost for Naturalizer closings to date, adjusted diluted earnings per share were $2.26 versus our adjusted earnings per share of $2.01 for the first nine months of 2004, an increase of 12%.

As you may recall, 2004 adjusted numbers exclude the Bass transition costs of $0.17 per share.

To update you on the financial impact of the Bennett acquisition, year-to-date, Bennett has generated operating earnings of $7 million.

After inclusion of all interest costs to finance the acquisition and a recognition of inventory write-up costs, the (indiscernible) net earnings impact of Bennett is accretive by $0.06 per share.

We continue to expect that the acquisition will be accretive by $0.15 to $0.20 per diluted share for the full fiscal 2005.

As to forward guidance, for the fourth quarter, we estimate earnings in the range of $0.46 to $0.61 per share.

This guidance reflects an estimated cost of, first, $0.19 to $0.24 per diluted share to close underperforming Naturalizer stores; and second, an additional tax provision of about $800,000, or $0.04 per share related to the repatriation of an additional 30 to $32 million of foreign earnings under the American Jobs Creation Act of 2004.

Excluding these costs, quarter adjusted diluted EPS are anticipated to be in the range of $0.74 to $0.84 versus earnings-per-share of $0.46 for the year-ago fourth quarter.

For the full fiscal 2005, we are raising the range on our previous estimates.

We now project diluted earnings per share will be $1.92 cents $2.07.

This compares to $2.30 per share last year.

The current estimated range includes $1.03 to $1.08 in charges comprised of, number one, incremental tax expense of $0.55 per diluted share to repatriate foreign earnings; number two, estimated Naturalizer costs of $0.45 to $0.50 for lease buyouts, severance and inventory markdowns; and number three, the $0.03 per share we paid a bridge loan fee connected with the Bennett acquisition.

Excluding the tax on the Naturalizer items just mentioned, our estimated 2005 adjusted diluted earnings per share are anticipated to be in the range of $3.00 to $3.10.

This guidance includes the anticipated accretion of $0.15 to $0.20 per share from, the acquisition of Bennett Footwear and is predicated on store-for-store sales increases of about 2% for Famous Footwear over the full year.

Fiscal 2005 net sales are currently estimated at $2.3 billion versus 1.94 billion in 2004.

This projection includes about $190 million in additional partial-year revenues as a result of the Bennett acquisition.

With that completing the financial overview, I will now turn the call over to the operator to take questions.

(Operator Instructions).

Michelle Graham, Merrill Lynch.

Good morning.

The first question is on Famous.

You said three of the four categories were performed -- were up -- were comped (ph) up.

I guess what was down?

And what are you seeing in terms of sales trends now and sort of into the holiday?

I mentioned three out of the major four categories -- our women's business, our kid's business and men's business -- continue to be very healthy.

They continue to comp on a monthly basis.

Our athletic business was the only business that did not comp, and that's where we struggled in August in the first 10 days of September.

We did have a nice gain over last year and we missed comping our athletic business ever so slightly for the quarter.

However, I have never seen an October that has been as healthy in athletic probably in the last eight or 10 years.

And certainly, the performance here hasn't been like that in the last eight to 10 years and we see that trend continuing as we enter November.

Okay, that is helpful.

And I guess was that due to some of what's going on in the end malls (ph) on the athletic side?

It's hard, and I came from that business.

But the big difference between mall business and where we have our business located is we are not dependent on allocated product.

And I think that is a huge point on the health of a business.

A lot of times, the mall businesses driven with allocated product.

The success of that is the success of their business and we're not dependent on that.

We have a much broader-based business outside the mall.

That's helpful.

Thanks.

And on the Naturalizer closures, you're closing 17 more stores.

Why it wouldn't that be a little more accretive to next year?

We said from day one that closing those stores would improve our operating performance on a go-forward basis at about $0.15 per share.

I think we've been consistent with that (multiple speakers) but you always have to net against the elimination of under-performing stores with the effect on our wholesale business, which effectively gives up the upstream profit.

So it's a complicated formula as we've talked about in the past, but those are the reasons why.

Okay, so I guess you said 80 stores in the past; now you're saying 97.

So I guess the additional 17 stores are -- those were also money losers -- is that?

I think these are stores that had natural lease expirations that were coming up primarily at the close of '05 and in early '06 that for one reason or another, it could be under-performance, it could be in malls that don't lend themselves to the Naturalizer brand message.

It could be a number of reasons why.

And I'm just wondering if Diane could talk a little bit about Life Stride.

That was flat this quarter versus up last year.

Was that just to compare, and how's that business doing?

It was up just a slight bit in the quarter.

It continues to perform extremely well at retail.

We are, again, you've hear us talk about this pretty much every call now for a couple of quarters.

We're really trying to flow our goods smartly to increase our sell-throughs.

So overall, it continues to be a good performer at retail.

So it was just up a little bit this quarter.

Great, thanks.

Chris Svezia, Susquehanna Financial Group.

Good morning.

I have a couple of questions for you guys.

I guess first for Joe, on Famous Footwear.

The performance during the month was pretty solid, however, it seemed like it was a little bit softer relative to some of the peer group that has reported third-quarter numbers.

Outside of some of the softness we saw during back-to-school, which I believe everyone is kind of exposed to, was there anything else during the quarter that might have detracted from some of the business?

Were you less promotional, and that's why operating income was up year-over-year?

Our position has always been, as we repositioned Famous become trend-right value and not promotional.

I don't know -- I think I'm correct on this -- but if -- I think when you take a look at some of the other companies we compete with, we were fairly comparable to them.

There was one retailer that out-performed us, but, again their business was based more on athletic.

So I'm not sure I'm answering your question.

But I don't think we're that far off from some of the retailers that we gauge ourselves by and by the NPD reports.

Am I mistaken there?

I guess what I was looking at is some of the -- between some of the peers that have reported somewhat higher than what you guys have reported.

And I was just judging from the improvement you saw in operating income, whether it was being less promotional.

I know --.

Okay.

Well, we have -- and our position is to be less promotional.

I have said for the past three years and going into our fourth that we are not positioning Famous to be a price-driven concept.

As a trend-right concept at a value, I didn't think that is game could be won, at least for us, driving price.

And to differentiate ourselves, we're going to drive it on a different model than the rest of the industry or the channel that we compete in.

And I think we're being very successful there and I think it will be a healthier business long-term.

And just on the promotional environment I guess as you go into the fourth quarter, up against a pretty solid number;

I think almost 4% fourth quarter of last year.

I guess do you feel pretty solid and comfortable with the product offerings that you're getting?

And if at all, can you comment on the level of exclusive that you're getting on the athletic side of the business and roughly how that trended during the quarter as well.

We had a nice fourth quarter last year, and I think we feel very comfortable, especially with the trend coming out of October into November.

So we are still very optimistic about performing very nicely in the fourth quarter of this year.

To the point of exclusives, it continues to grow here.

Again, the point of exclusive product here is two (ph) -- it's to differentiate us from others in our channel, which I think we continue to do and to basically fill holes in the offerings that we have from our athletic companies.

So has boded very well, it continues to grow.

But again, it's a business set-up that differentiates us from other people in our channel.

And just to clarify one thing.

Have comp store sales accelerated for Famous Footwear I guess coming out of the third quarter heading into the fourth quarter?

Let's just say that the trend that we saw as they closed out the third quarter has continued into the fourth.

A question for you, Diane, actually two questions.

One, I guess first, can you just add some color with regards to the Bass business?

Kind of what you're to do to that business, kind of improve kind of the sell-in and sell-through and the margin levels for that business at this point as you head into the fourth quarter into next year?

Sure.

As I mentioned already on the call today that we spent the better part of this year really working on our Naturalizer wholesale business, improving our retail business, getting kids stabilized, integrating Bennett.

And now, those businesses are on the right track.

We can turn even more and increase the tension to accelerate our performance of our Bass business.

I think you know, Chris, that it's one of the top three brands at May and it's already in several Federated divisions.

Sell-throughs are better than last year, inventories are lower than last year, prices are higher than last year, but we still have to increase the number of doors and the distribution and continue to accelerate the growth on the margin rate in order to really improve the overall performance of this business.

Has there been any resistance on the higher price points at all?

You know, there hasn't been.

We're improving the quality and raising the prices and the consumers reacted well where the product is and we were getting good marks from retailers as well.

So it is really a question of scale and margin and we still have work to do.

We have to really work hard to get it done.

And I was wondering if maybe you could just comment -- you didn't talk about your Mass (ph) or Pagoda (ph) business. (indiscernible) some changes that are occurring in that business, kind of how it trended during the quarter?

Actually, our overall business there was very healthy.

Our Dr. Scholl's business continues to perform well.

It actually exceeds our expectations on a continuous basis and our private label business across all of our retail base has been slightly better than our expectations.

So right now, that looks good to us through the rest of the year.

And I have one question for Andy.

Just on -- the tax rate during the quarter based on kind of a rough calculation looks like it added roughly $0.08 to $0.10 a share or so during the quarter I guess if you kind of strip out some of the charges.

And I think during the second-quarter conference call, you guided for a tax rate of somewhere in the low to mid 30 rate.

And I guess kind of based on how you're looking at your business, I know you talked briefly about this on the call, but how should we forecast for the fourth quarter for a tax rate?

Is it roughly 30% or how should we be looking at that?

I think we gave you full-year guidance for the year at about 29%.

We are always playing catch-up on this tax rate.

It becomes a function of a mix between businesses.

The impact of the Bennett's earnings come into play.

So we are always shooting at the middle of the target and a little bit playing catch-up as we try to blend out for the full year, true up every quarter, et cetera.

So fourth quarter rate, year-to-date, we're about 29.

For the full year, we're going to be about 29 we estimate.

So fourth quarter, we'll be 29, 30 sort of range.

Okay, so 29, 30 for the fourth quarter?

Yes.

Okay, thank you very much.

I appreciate it.

Deena Friedman, Brean Murray.

Good morning.

Congratulations on a very nice quarter.

Just a few questions.

I was wondering if you could quantify the impact of the three hurricanes that you saw during the quarter?

Let me address that since we have a lot of retail stores down through the South.

There really wasn't an impact.

There was and there wasn't.

You really have to go back and take a look at last year.

We had hurricanes through there the previous year also.

So all in all, the difference in lost sales between '05 and '04 was in the neighborhood of 3, $400,000.

So we didn't have a great '04 either weather-wise in the South, so it was not a material impact with the hurricane.

Great thank you.

And Joe, one other question for you.

Could you comment on some of the fashion trends you're seeing going into Q4?

Do you see a continued presence of dressier and women's product at Famous Footwear?

Yes, we do.

We don't always have time to go through in detail in these calls.

But our two businesses, and both under women's, and that's where obviously we fall (ph), our fashion trend.

If you take a look at our junior business and accessory-driven by Madden and Mudd, let's say and White Mountain, Clark's, Skechers; that business across the board is extremely healthy in the junior area.

But the same time frame, when you go over and take a look at your moderate business driven by your own company in LifeStride, Eurostep, Naturalizer, Pawnee (ph), the junior and moderate business in women's right now is just on fire.

It's across the board, and I think that's what's exciting.

It's not in any one pocket.

So it's healthy across the board from junior through moderate.

One other question.

In response to the weakness in athletic, are you going to be changing your athletic presence in the stores?

No, not at all.

Sometimes you worry about these calls.

We were disappointed in August.

Same time frame, would (ph) have been more pleased with our business mid-September through October.

So that does not change our offerings in the store in athletics.

I think sometimes one thing we don't get credit for is the flexibility of this concept.

If athletics gets weak for a short time frame, then we will go back to our women's, kids and men's business.

And when that gets weak, we have the flexibility of going over to athletics.

So I love the flexibility of the concept, but it won't change what we're doing in athletics.

One final question.

I know boots have been very popular this season.

Could you give me a sense of what your exposure to boots are?

Our boot business has been very good early.

It softened last week.

At parts, it's getting healthy again this week.

It's a very simple business to watch.

You can try to make it complicated.

You watch the weather and our boot business goes with the weather.

Our commitment to boots is about equal to last year.

The sell-through at this time frame is faster than it was this time last year, so we expect a good boots season.

Again, this is driven by weather; it's not driven by much else.

But, again, a great fashion year for boots, so we expect a great season.

Just a comment on boots.

We are seeing overall that it continues to be a good, strong category.

Western drove the trend early, it's kind of saturated right now.

But high-chap (ph) boots are selling well, particularly stretch, low -- our boots are flat to down, and the high boots up there seem to be more narrow-toe and wedge style.

And we're very well positioned to take advantage of those trends right now.

Excellent, congratulations, fabulous quarter.

Susan Sansbury, Miller Tabak.

Hi, good morning, thanks for letting me ask a question or two.

First on Naturalizer, could you give us an update on your forecast for this business for next year?

Do you still expect it to be breakeven, or do you think it might do better?

That is my first question.

Hi, Susan, it's Diane.

Let me just give you a little background.

I think you know we have been working hard on Naturalizer from brand repositioning work, improving the product, improving the styling, working on our wholesale business model, flowing goods better, and then of course, all of the initiatives around specialty retail and closing the underperforming stores.

I think the best way to maybe characterize how we are evaluating our progress to date, and I will let Andy jump in and add to this, is that when we really look at our Naturalizer retail and wholesale earnings on a combined basis, then we look at our performance this year versus last year, our operating margin is probably in the 3% range last year.

We are projecting to be north of 5% this year.

And right now, our preliminary look on next year is at about 7%.

So we feel like we are making good progress overall when we look at our combined Naturalizer business altogether.

So that doesn't represent any change from your position, say, three or four months ago.

Is that correct?

Susan, no change, but I don't think we stated in the prior call or discussions that this business as we account the retail business would make it to breakeven by next year.

Well, you said almost.

I think we said over the three-year period, we would work hard to generate good improvement that might get us to breakeven.

But I think it would be overstating our ambition here to achieve a share account at breakeven by next year.

Okay, so that's no change.

That's fine. (indiscernible) backlog number of up 11.5%.

How much of that gain reflects the contribution from Bennett?

None; that's excluding Bennett.

What would it be with Bennett?

It's a big, big number -- 50 plus, some number -- I just don't -- it's not comparable, so we don't talk to it.

Okay.

When are you going to start including Bennett in the backlog?

We include it, but it won't have a comparable basis until April of next year.

Okay, I'm with you, okay.

And the inventories flood (ph) wholesale retail.

Can you parse the Bennett acquisition contribution and the closing of the Naturalizer stores, if you can?

I don't have the ending (ph) of the closing of the Naturalizer stores and the impact on inventory.

I don't think it's material.

The Bennett inventory represented about $25 million of the total.

Naturalizer would probably be less than 10.

I will tell you that on virtually every brand in the wholesale group, given the new business model, we have significantly reduced our inventory as we also have reduced our exposure to markdowns associated with Evan (ph) at more inventory.

So it's broad-based inventory management improvement.

So wholesale was down and retail was up?

Wholesale was down.

Retail is up a little bit, and that's primary growth at Famous Footwear and store count.

I believe on a comparable basis, Famous was flat to down a bit.

I don't want to misstate.

That's great.

I'm very pleased with the quarter.

Stay focused.

Thank you.

We try.

Heather Moxon (ph), Sidoti & Company.

Good morning guys.

Most of them have been answered, but to clarify, you said the tax rate we should be using for the fourth quarter is that 29 to 30%.

Would that be a good number to use on a go-forward basis?

It seems it's all over the place.

So is there -- Andy, can you tell us what number we should be using?

We're working on the budget right now and I will be happy to share specifics as we complete that and provide guidance.

But it's always a function of your mix between wholesale and retail and first cost and all that comes into play.

I cannot give you a better number right now, other than probably 30%, something like that.

Okay.

And maybe this question is best for Diane, but can you talk a little bit about the response so far from your retail partners, such as Federated to (ph) the new Naturalizer product for spring '06?

I think you mentioned briefly that it had been positive, but maybe a little more color.

Yes.

It actually, at WSA, I would tell you that across the board, everybody thought we had made a really nice step forward in our progress to make sure that the styling was a little bit more updated, a little more relevant to our target customer.

And that I think that's been showing -- boding well for us for spring, that the open-to-buy plan and their support of the brand continues to be just exactly what we had expected it would be.

So we are feeling, continue to feel good about our opportunities.

All right, thank you guys.

Sanjay Ramakrishna (ph), ING Clarion Capital (ph).

Thank you for taking my call.

A few quick questions.

I noticed that during the quarter, it looks like you paid down some of your revolver.

Would you say that looking towards the end of the fourth quarter, your debt levels would be similar with this quarter?

Do you see this being your seasonally busiest quarter anymore earmark for debt reduction?

I think debt levels by the end of the year would be pretty flattish from where they are now.

And with inventories, do you also have like a goal of where you would like to bring them down to, or you think (inaudible) in mind?

I would say our debt levels would be flattish, but again, we're going to bring back some foreign earnings and we will use that to pay down some debt.

So I want to be clear on that.

The operations we'd basically be around flat, but we will repay debt.

And so longer-term, do you still have your goal of bringing down your debt to capital ratio?

I think before, you had said that you wanted it, I think it was in the mid to low, high 30s -- is that right?

I think we have a couple of priorities, and those are to grow our business, to continue to invest in the platform we have and to improve the balance sheet, and that does not change.

And you would go with those above and beyond supporting your stock price more with additional buybacks or expanding your dividend?

Again, I think our priorities are to invest in our business and improve our balance sheet.

Great, thanks a lot.

That does conclude the question and answer session today.

Thanks everyone.

I really appreciate you joining us this morning.

Obviously, we are delighted with the performance this quarter.

Our achievements and product inventory and retail led to the better than expected results today.

More importantly, I think they position us well to increase performance in the future as we stated with raising our guidance for fiscal '05.

As you can tell from our remarks, I think you can see that we are excited about the trends in our business and are equally enthusiastic about the opportunities that we have to grow our platform, grow our brands and further improve our operating margins as we know we must.

We have the initiatives in place.

I like the fact that our planning is keeping pace with the issues at hand and we continue the positive momentum.

We look forward to updating you on our progress when we report fourth quarter results in March.

So I wish all of you as well as the 12,000 talented associates out there who serve our customers every day a healthy and very, very happy Thanksgiving.

Thank you very much, and that does conclude today's conference call.

Thank you for joining us, have a wonderful weekend.