Caleres Inc (CAL) 2007 Q1 法說會逐字稿

Welcome to the Q1, 2007 Brown Shoe Company, Inc.

earnings call.

I would now like to turn the call over to Ken Golden, Director of Investor Relations

Thank you and good morning.

Welcome to Brown Shoe Company first quarter 2007 financial results conference call.

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

Before we begin, I '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 understands 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 8k filed prior to this call and other risk factors listed from time to time in the company's SEC report.

Properties of the company's reports are available online and from the company's Investor Relations Department.

The company does not undertake any obligations or plan to update these forward-looking statements even thought the situation may change.

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

Good morning.

I am pleased to be speaking with you and to review our solid first quarter performance.

With me today is Mark Hood, our Chief Financial Officer and Joe Wood, President of Brown Shoe retail.

Diane Sullivan, our Chief Operating Officer, who usually participates with us on this call is unable to join this morning as she is tending to her son, who was recently seriously injured in a car accident.

I know you join me in our thoughts and prays for her and her family.

Following my opening remarks, Joe will provide an overview of Famous Footwear in our specialty retail division.

I will then discuss wholesale performance.

Finally, Mark will then review our financials and update our guidance.

Following this, we will be available to take your questions.

Please note that all of our earnings per share figures discussed on this call are on a post-split basis following our three for two stock split on April 2.

Brown Shoe obviously continues to reap benefits of its unique retail wholesale platform, our better than expected first quarter results were driven by record performance at Famous Footwear which has increasingly become the preferred shopping destination for branded footwear.

Without a doubt, famous is benefiting from consistency in its assortments, service and marketing.

This has led to increased consumer loyalty and importantly is driving transactions at its stores.

We expect to build on this positive momentum during the balance of the year.

We also had a good quarter in our specialty retail division with a 6.9% increase in sales, led by our Naturalizer stores which generated a 3.4% comp and Shoes.com which increased sales by 47% for the quarter.

On the wholesale front, sales were modestly below our expectations and included as we discussed on the last call a sales decrease attributed to the exit of the Bass license and continued reduction of our private label penetration.

Nonetheless, wholesale margins were strong in the quarter.

Wholesale operating earnings excluding costs related to our Earnings Enhancement Plan grew 190 basis points versus the first quarter last year on a sales base that was 16.6% lower.

This reflects the solid acceptance of our styles at retail across our brands and the success of our strategy to continuously flow tighter assortments of new merchandise.

In total, first quarter sales were $566.3 million and diluted earnings per share on a GAAP basis were $0.22 , which included costs of $0.07 per diluted share related to our Earnings Enhancement Plan.

On an adjusted basis, excluding the $0.07 in Earnings Enhancement costs, first quarter diluted earnings per share were $0.29, an increase of 26.1%.

This exceeded our expectations for adjusted earnings per share of $0.25 to $0.26 and compares to GAAP and adjusted earnings of $0.23 in the first quarter of last year.

Also positive is our strong quarter end balance sheet.

Inventory was down approximately 2% to $397.7 million and debt to capitalization was 22.7% down from 30.6% last year.

During the quarter, we made solid progress toward achievements of our Earnings Enhancement goals.

To this end, we closed three facilities including our Italian sales office, our Dover, New Hampshire Distribution Center and our Needham, Massachusetts office.

With these closings, we completed the move of the Bennett brands to our New York office.

We remain on track to achieve our targeted levels of cost savings and costs for our Earnings Enhancement Plan.

In total, we are pleased with our first start to the 2007.

The environment is certainly not without its challenges with unpredictable weather and higher oil prices affecting consumer sentiment.

Nonetheless, we believe we possess an operating platform and more importantly a compelling brand portfolio that are positioned to maximize growth opportunities while limiting downside risk.

As we look ahead, we will continue to focus on the strategies that have proven to be successful for us to date, and which we continue to expect will lead to consisting diem in sales and profitability for our company.

These strategies include first, maximizing our consumer-driven model.

Selling in and buying the right product and the right quantities, thereby increasing sell-through rates and margins for us and our vendors and retail partners.

We continue to refine this model seeking to reduce lead times thus allowing for us to react even more quickly to our customers' needs.

Second, building market leading brands.

This initiative applies to both our retail and wholesale concepts as we focus on increasing brand preference and equity through brand and product differentiation as well as impactful marketing.

We will continue to invest in research to better understand the needs and desires of our consumers.

Third, investing in design and product development talent to ensure we have the best styling across the entire portfolio of brains.

Fourth, capitalizing on the strontion position of Famous Footwear.

We maintain our committment to offering differentiate and compelling styles, while accelerating our store expansion.

We continue to believe there's opportunity to operate a minimum of 1500 stores nationwide and finally, we expect to thoughtfully expand our global footprint.

Long-term, we believe the opportunity exists to increase our global penetration significantly as early results would indicate there is global acceptance to our brands.

Already, we are seeing benefits in the middle east and Japan.

For the fiscal year, we continue to expect sales in the range of $2.48 billion to $2.52 billion.

Based on our first quarter performance and the confidence in our outlook for the remainder of the year, we have increased our fiscal 2007 earnings guidance target and now expect diluted earnings per share in the range of $1.55 to $1.59.

On an adjusted basis, after excluding costs related to our Earnings Enhancement Plan this translates to $1.86 to $1.90 per share, a 14 to 17% increase over 2006.

And now given an outstanding results of our retail group, I'd like to turn the call over to Joe to review in detail our retail

Thanks, Ron, and good morning, everyone.

Famous Footwear continued its strong momentum from 2006 and delivered another record quarter.

Total first quarter sales rose 7.6% to 325.3 million led by new store sales and a 3.4% same-store sales increase.

Comps are driven by healthy and a year-over-year gains in average unit retails, customer conversion rates and paired for transaction across most of the categories.

Operating earnings increased 31.8% to 21 million.

This was fueled by strong top line growth and an increase in full price sales which led to year-over-year gross margin improvement of 90 basis points and a 20 basis point improvement in SG&A as a percent of sales.

Continued improvement in the freshness and velocity of our inventory as well as growth and preference for the Famous Footwear brand enable us to achieve these outstanding results.

We ended the season with inventory slightly down versus the same time last year while operating 57 more stores which is a reflection not only of our sales strength but also our ability to manage inventory to our customer needs.

We open 18 stores, closed 8 during the quarter ending Q1 with 1009 locations up from 952 stores in the first quarter last year.

In addition, during the quarter, we remodeled 41 stores and at quarter end, 74% of our retail store base was reflective of our new chocolate and cherry format.

By this back to school or shortly there after, all of our go forward stores will be converted to this new look.

Let's quickly review our performance during the quarter by major categories.

Growth during the quarter continued to be broad based with comp sales up year-over-year in all categories.

On a comp basis, Athletics were up 1%, our Women's business was up 5.9%, Men's up 2.4% and our Kids' business was up 12.3%.

In Athletics, business once again was led by Nike, Asics and our skate vendors.

And Women's Junior Casual product, once again, drove impressive increases in the category led by Skechers and [RocketBall].

Men's was mixed with strength in boots and cold climate states and sandals in warm states.

Our Children's business once again capture our largest gain in regards to percentage growth and Children's Casual styles were our strongest performers with Buster Brown and Skechers leading the way.

As we begin the second quarter, we're pleased with our positioning.

Consumers are continuing to show preference for our stores as we consistently meet our family's needs for fashion, quality and value.

We believe we have identified strong selling and differentiated assortments across all categories and genders.

We also believe our marketing is more effective as we continue to develop multichannel communications that delivers the famous story directly to her and her family.

Our store expansion remains on track with square footage growth expected to reach roughly 6% this year.

And we fully expect to open 110 Famous Footwear stores this year while closing approximately 40 to 45 units.

Due to the retail calendar, a key back to school selling week moves from the third quarter into the second quarter this year.

As a result, we're planning for same-store sales to increase by 4 to 5%.

Based on a shift in a tougher comparison in the third quarter, we're also projecting a lower growth rate in the third quarter, same-store sales.

We will fine tune third quarter sales guidance and provide more specifics on our second quarter call in August.

Based upon our merchandise and marketing initiatives, we are confident in our prospect to deliver stalled growth during the back to school season.

Now turning to our specialty retail division which primarily includes our Naturalizer Retail stores and Shoes.com e-Commerce business.

Sales for this segment totaled 60.3 million in the quarter up 6.9% from 56.4 million in the first quarter of last year.

Same-store sales Naturalizer increased 3.4% and Shoes.com generated a 46.6% increase in sales versus last year.

Specialty retail segment recorded an operating loss of approximately 2.9 million, which does include 200,000 in pre tax cost for our Earnings Enhancement Plan, primarily related to the closure of our last Via Spiga store as part of our Earnings Enhancement Plan.

This loss was flat to the prior year.

Now I'd like to turn the call back to Ron.

Thanks, Joe.

Congratulations to you and the team again on having just an outstanding first quarter.

Let me start my comments by saying that I really like the momentum in our branded wholesale business as we go into [Fannie] in a couple of weeks.

Having said that, our wholesale sales were $180.7 million, a decline of 16.6% from the first quarter last year.

As you all know, we guided on the last call sales were planned down as a result of the decisions made in 2006 to exit the Bass license and reduce our emphasis on the low margin private label business.

However, sales were slightly lower than those expectations.

Nonetheless, during the quarter, we managed our wholesale business very well.

Operating earnings were $13 million, inclusive of $2.1 million in costs related to our Earnings Enhancement Plan.

Excluding these costs, we achieved 190 basis point increase in operating margins to 8.4% of sales in the first quarter.

We also ended the quarter with inventory in great shape and down 18% on a year-over-year basis.

This point the success of our strategy of delivering a continuous supply of new styles at retail in adhering to our consumer driven model which focuses on selling appropriate quantities based on demand.

We remain focused on our increasing our branded business.

Our New York brands Naturalizer, LifeStrides, Dr.

Scholl's should continue to lead this group.

We continue to see positive signals on our repositioning efforts with the New York brands.

We expect double-digit sales growth for these brands during the second half.

Fall will be the first selling season under our new product and management teams and the complete transition to our consumer driven model.

With that, I think it's time to turn the call over to Mark let him discuss our financial highlights.

Thank you, Ron.

Good morning, everyone.

Beginning with a review of the income statement, consolidated net sales for the fist quarter 2007 totaled 566.3 million compared to 575.5 million in the first quarter last year.

Solid sales growth at Famous Footwear and Specialty Retail during the quarter was offset by a planned reduction in wholesale sales resulting from the exit of the Bass business at the end of 2006 and a reduced emphasis on low margin private label sales.

Gross profit margins increased 190 basis points to 40.6% from 38.7% in the fist quarter last year.

This increase primarily reflects improves gross margins at Famous Footwear as well as Naturalizer, Dr.

Scholl's and Via Spiga brand at wholesale offerings as well as a declining mix of private label product though our private label products in the quarter were done at higher margin rates.

SG&A totaled 212.3 million or 37.5% of sales compared to 204.4 million or 35.5% of net sales in the first quarter last year.

The increase in SG&A percentage reflects the shift in our sales mix towards our retail businesses which carry higher SG&A rates versus wholesale.

Approximately, 90 basis points of the increase is a result of the 5.1 million in costs during the quarter related to the implementation of our Earnings Enhancement Plan.

Net interest expense totaled 3.4 million in the fist quarter compared to 4.2 million last year.

The decrease in net interest expense was due to higher cash balances and lower borrowings versus the first quarter last year.

On an adjusted basis, excluding special charges which are summarized in Schedule 4 of our press release, we achieved earnings of 13 million or $0.29 per diluted share compared to $0.23 last year.

This exceeded the high end of our first quarter adjusted earnings guidance range of $0.25 to $0.26 by $0.03 per share and represents a 26% increase compared to the first quarter 2006.

We ended the quarter with a strong balance sheet.

Cash and short-term investments doubled to 60.7 million from 29.8 million at the end of last year's first quarter.

Total inventory was 397.7 million down from 404.6 million in the prior year period.

Our inventory remains well controlled and reflects the financial discipline within our wholesale and retail segments.

Total debt outstanding was 159.5 million at the end of the quarter.

Debt to total capitalization at the end of the quarter was 22.7% compared to 30.6% at the end of the fist quarter 2006.

Capital expenditures totaled 7.9 million in the quarter, which reflects spending for new stores and remodels as well as infrastructures enhancements.

For all of fiscal 2007, we continue to plan capital expenditures in the range of 60 to 65 million.

Regarding guidance for fiscal 2007, based on a better than expected performance during the first quarter and continued confidence in the remainder of the year, we have increased our expectations for the full year.

Currently, we expect diluted earnings per share on a GAAP basis in the range of $1.55 to $1.59 per share.

This guidance includes estimated costs related to our Earnings Enhancement Plan of $0.31 per diluted share.

On an adjusted basis, excluding these costs, we expect earnings per diluted share to be in the range of $1.86 to $1.90 per share.

This represents growth of 14 to 17% over adjusted earnings per diluted share of $1.63 in fiscal 2006.

Net sales continue to be estimated in the range of 2.48 billion to 2.52 billion, which is predicated on a same-store sales increase of 2.5% to 3.5% at Famous Footwear and an addition of approximately 110 new store openings and 40 to 45 closings.

Wholesale sales are expected to be below 2006 levels with growth in our branded businesses offset by the exit of the Bass license and reduced private label business.

We also continue to plan for a double-digit increase in marketing investment and a 200 basis point increase in tax rate due to a lower mix of foreign earnings.

For the second quarter of 2007, we expect diluted earnings per share on a GAAP basis to be $0.22 to $0.24 per share as compared to $0.35 in the second quarter last year.

You should recall; however, second quarter 2006 earnings included a net benefit of $0.08 per share related to net recoveries from environmental remediation offset by the initial costs related to our Earnings Enhancement Plan.

Second quarter 2007 guidance included estimated charges relating to the Earnings Enhancement Plan of $0.08 per share.

On an adjusted basis, excluding the Earnings Enhancement charges, we expect second quarter 2007 earnings per diluted share in the range of $0.30 to $0.32 per share, which represents an 11% to 19% increase over second quarter 2006 adjusted earnings per diluted share of $0.27.

Net sales are estimated to be in the range of 582 million to 592 million, which is predicated on a same-store sales gain of 4% to 5% at Famous Footwear.

Our sales guidance includes an additional week of the back to school selling season in the second quarter resulting from the retail calendar shift in fiscal 2007 following a 53-week year in 2006.

Consequently, third quarter sales growth at Famous Footwear will be lower than last year due to this calendar shift and top Q3 comparisons.

Second quarter wholesale sales are expected to be lower than last year but sequentially greater in Q2 than in Q1.

Wholesale operating profits are also expected to be lower in the second quarter than in the prior year.

Primarily as a result of changes in marketing expenses including the timing of trade show cost and now I'd like to turn the call back to the operator to begin the question and answer portion of the call.

Megan?

Yes, sir.

At this time, we will conduct a question and answer session.

(OPERATOR INSTRUCTIONS) Brown Shoe Company requests that you limit your question to one question and a follow-up so all participants' questions are recognized.

You should re-enter the queue for any additional questions that you may have.

We will pause for just a moment to compile the Q & A roster.

Mr.

John Shanley with Susquehanna, please go ahead with your question.

Thank you, good morning.

Joe, first of all, let me congratulate you on really a phenomenal performance paticularily enlight of what most of your competitors have turned in Famous' performance was really outstanding.

I wonder if you could highlight for us, Joe, if you would, what merchandising sectors would the primary contributors that propelled Famous to achieve the 6.5% operating margin versus the 5.3 you had last year?

John, it remains not really a new story, just an evolution of a continuing one or it would be really kind of pleased across the board.

Especially, our women's business contained in the junior category to drive outstanding numbers.

And I think our assortments in athletics we were probably one of the few companies that show a comp increase in athletic for the first quarter.

Rather it remains in the Nike house especially with [Reax] that was introduce in this channel last summer, Asics and Escape brand pur Escape product is in athletic has just been against the trend of at retail.

So very pleased with our athletic and women's business.

It just continues to evolve as we continue to focus more on story telling with our key vendors.

Product margins and those products that you just highlighted above the company average in terms of profitability.

Yes.

It is John, mainly because we managed the inventory so well, also.

That has been so fresh our age inventory, once again, is at a historic low.

So the margin gains that were getting out of there it's really on the sell through on the product and the inventory management in turn that we're achieving currently.

Could you also break down for us the sales in the quarter by major merchandise category, till we have an idea where the growth is really coming from from a base standpoint.

Joe, yes -- I mean, Johnnie, are you looking by gender or by --

Just what percentage of the business in the quarter came from athletic versus women's.

John, it really didn't change that much.

Our athletic business remains 43/ 44% of our business.

Kids remains in the 12, 13%.

Our women's business in the high 20s and the balance in men's.

Okay.

Next question I have is Ron, the wholesale business over the last couple of years has had a good deal of variances in terms of it's performance.

Do you feel this could get back up to a 9 or 9 plus percent operating profit margin either this year or the near future?

Yes, we do.

I think you will continue to see the benefits that are driven primarily by this element we call the consumer driven wholesale model which really helps bring the discipline of doing a lot more work up front to understand each consumer segment and the opportunity to drive business for a shorter period of time.

You know, the mantra here is sell less in and move on to the new goods quicker.

It just continues to take risk out of the business, particularly markdown risk out of the business, which is the biggest driver of our operating margin improvement.

Is the Brown New York business, Ron, giving you a lift in terms of margin contribution?

Is it running above the Naturalizer or other components of your wholesale operation?

We tend not to give that information that specific out but let me just give you where we are on Brown New York.

Again, we are probably ahead of where we thought we'd be at this time six months ago.

We're probably ahead of where we thought we'd be at this time three months ago.

I think as we go into Fannie here, the momentum and divide that we're hearing from the key accounts as we just came back from all those trips and, John, again, when it gets down to the retail partner and the buyer in the room, it all comes down to that, our sell-through currently in spring are better than anticipated.

I would tell you that that is really a result of work that was done last year some -- a little bit of work by our teams who were in place at that time around getting us back focus around what we thought were the key trends and focusing more on those key trends.

But I really think that that is going to pick up as we go throughout the season.

Were on track with the Brown New York brands.

We expected a sales decline and to sort of work our way through the changes and the way that model works.

And we're real pleased with the progress.

It will drag better operating margins for the whole company.

You get a mix in there, again, I think Mark Goodall likes to say as you go up that pyramid you get higher price points but you also have other elements of that formula that change.

Double-digit operating margin performance at wholesale is what our aspirations are.

Fair enough.

I just have one last one if I can squeeze it in.

Specialty retailing, again, lost money in the first quarter down 2.7 million.

Little bit better thatn the 2.9 million it lost in the first quarter last year.

Can we assume that most of that loss, Ron, was generated by the Naturalizer Retail stores.

No.

Is the Shoes.com a profitable business and as that sales volumes increases could it offset the losses being sustained in the Naturalizer Retailer operations?

This quarter just started the opposite effect.

We continue to see the positive results out of our Naturalizer stores.

We had a real solid store for store performance and overall gain there.

And again, while we're not going to get in the habit of sharing those profit numbers specifically by a division, we are in the profitable end of the business on just that store basis.

We continue to make investments in our Shoes.com business, and we continue to move -- mature that model as we brought in, Joe, was kind enough to share John [Berserk] with us and John's come open and we build the Shoe.com up and we're building in those same standards for inventory management and the consumer-driven model that we have throughout the rest of our business.

And so there were mark-down costs associated with getting that consumer-driven model on to the Shoes.com platform which were greater than expected in this quarter.

Sort of a catch up and clean up to how we need to run that business going forward.

Okay.

We can assume from that then that the Naturalizer retailer was actually a profitable business in the fist quarter?

All, again, I'm not -- I don't -- because you get into -- the model is we look at Naturalizer as the brand, and I can tell you that the brand continues to add value to the chain in the ways we'd like to see it add.

All right.

It's a positive result to the Corporation.

Thanks.

Appreciate it very much.

Thank you.

Ms.

Heather Boxen, with Sidoti and Company, please go ahead with your question.

Good morning, dies.

My main question here is Joe can maybe help me with this.

It seems like there was considerable head winds across the entire first quarter be it weather, macro economic factors seems to have affected every shoe retailer but Famous Footwear.

Can you talk a little bit about what you guys are doing differently that everybody else maybe that was helping you guys out?

I don't, first of all, we had a great first quarter.

We've also very much for us also roller coaster of extreme highs and extreme lows,but fortunately the quarter came out very, very good.

I don't think we're doing anything when I say differently.

It's been an evolution.

We started a little over four years ago.

A repositioning Famous Footwear, from an item driven low-cost retail business to one that is now 360 degrees different than it was four years ago.

It was an updated family footwear store with brand new store look.

A completely different assortment look that is trend current.

It's a marking message that is trend current to our consumers.

The model we changed four years ago, and we continue to reap the benefits of that currently and hopefully as we look forward.

It's a brand new Famous Footwear that continues to evolve very quickly.

So can you touch maybe you said that the quarter was maybe up and down.

You did face some of the, I would say, the weather challenges and everything.

Seems like everybody else faced in March, April.

I don't think we were different other than the results of the retailers with the Easter shift and unbelievable weather patterns we had.

Fortunately, the concept was strong enough and our message was strong enough the quarter came out fine but it was up and down.

Just moving on, I guess, to the wholesale side of the business, you talked a lot about you got out of some of the lower margin private label business.

Going forward, I this we said you can expect wholesale revenue to be up in the back half of the year.

When you said that, with as that a net number or was that excluding, you know, the private label aspect of it?

Heather, it's Mark.

The only specific comment on the second half wholesale was that the Brown New York brands would be up double-digits.

We expect to continue to see on a year over basis sequential improvements in the second and third quarters, the fourth quarter following the 53rd week would probably have a half different picture as a result of that, but I think in total, we're comfortable with the pace of our branded business growth and continue to work closely on our private label margin maximization opportunities.

Brown New York excludes private label.

Does it exclude any other brands?

It's the Via, Franco and (Inaudible) Nickels as well.

Thanks, guys.

Mr.

R.J.

Hottovy with Next Generation Research.

Please go ahead, sir.

Good morning, guys and congratulations on the quarter.

First question I had was just kind of a follow-up to the roller coaster pattern you guys just discussed.

I guess it's primarily relates to some of the cold weather markets.

You had mentioned that in the men's category that, sandals are weak and the cold market areas.

Just trying to get a sense as to the markdown activity with regard to sandals knowing that a lot of your competitors have substantially marked down their sandal inventory going into the quarter.

I guess a couple comments.

One is that our sandal business coming out of the cold spell that we experienced our sandal business is outstanding across the board so we're very pleased with that.

Currently, we don't see a markdown exposure on our sandal business going forward.

We're just now coming on to the selling season.

In fact, our strongest month obviously coming with June and July and especially August.

Very heavy sales.

Right now, we don't see any markdown exposure on our sandal business going forward.

Very pleased with it at the current time frame.

I think again, and Joe can verify this or build upon it, but it probably goes back almost two years ago when the Famous team sat down and looked at the opportunity and risk associated with seasonal peaks in those businesses and made a decision to plan those business more tightly around those seasonal opportunities and occasionally, and I think on this call occasionally we've had times when everything turns right, maybe somebody outperforms us because we didn't absolutely maximize every last dollar, but what we've seen is the way you manage the inventory continues to give us this sell-through increase percentage and allows us to keep our inventories clean and what we found is being able to deliver fresh product quicker is more important than, peaking out on those few things.

I can't put it any better than Ron just has.

It's too early for, I don't like the word panic.

We're not concerned.

We're just coming into the selling season.

We've always done very well with controlling our inventory, maximizing those sales on a seasonal business.

This business now runs through August and halfway through September.

So we're just basically mid May through the end of May right now.

Thanks.

That was very helpful.

Second question I have.

Maybe this was from Mark here.

Maybe we can get a little help trying to strengthening our model.

That back to school week, how big of a week is that?

Maybe if you can help quantify that particular week and the quarter just so we can get a better sense of our models some.

Yes.

I think we tried to dimensionalize that in our comments but by stating 4 to 5% same-store sales growth in the quarter essentially you get, around two points of comp moving from the third quarter to the second quarter.

Thank you.

Keep up the good work.

Mr.

Joseph George with Thomas Wiesel, please go ahead, sir.

Good morning, guys.

Congratulations on the quarter.

Thank you.

Hello?

Thank you.

I had a couple of questions.

First one on the wholesale division.

When I look at the revenue numbers it's dropped from 216 to 180.

Of course a part of it is a plan decrease because of Bass license and the reduced sale of private label.

But if you were to take out these two planned decreases, how has the segment done?

I think the numbers you quoted are the actual decreases there.

I think as we've said, the sales in the quarter were modestly below our expectations, which means that said differently, excuse me, our private label businesses was a little softer than we thought and our branded business performed well.

I think we -- the branded side of the business is on expectation.

Okay.

And the next thing I wanted to know was when you talked about realizing these benefits, because of the enhancement plan, in what way are you going to realize these benefits obviously in the form of reduction and cost, but is it something we're going to break down going forward?

And have you actually started realizing any of that as yet?

It's Mark again.

I think we continue to reap benefits of the costs we've invested in consolidation of our operations.

It lowers as we consolidate those operations or make head count changes for efficiency to have embedded lower operating costs going forward and one-time cost for the closure, our severance will now occur.

So now we are getting those benefits and the benefits are baked into our guidance numbers.

Okay.

Thank you.

Thank you.

Mr.

Sam Poser with Independent Research, please go ahead, sir.

Good morning.

Congratulations on a great quarter, everybody.

Ron, just a quick question.

How do you see the private label business going forward here?

How long's it going to continue to deteriorate?

Where do you see it leveling off?

Again as we look at the business, the business we primarily talk about here is private, truly private label first-cost item business.

And you know as we continue to work on our model, we continue to believe that our best efforts come when we have the opportunity to create collections.

With that opportunity out there, there's a number of continuing opportunities with private brand business that still we continue to put energy behind and continue to believe there's growth opportunity in.

We also have numerous initiatives that, that where we have in place that we continue to believe will give us sales opportunity in the second half and into next year with other major customers.

So I think as we're -- it's hard to say, but I think we continue to see more and more of our people take more and more product direct and the strength of our platform we basically have a portfolio management that says we're not really interested in doing business that has margins below certain expectations and so as the business continues it'll depend on what classifications business can go.

I think we'll still see softening for a while.

Thank you.

The margin variation, it's just not the same.

It may have a temporary impact but I think our teams are focused on making sure that we put more efforts against opportunities, higher up in the food chain.

Joe, a couple questions for you on this whole calendar shift.

Number one, quite a few of the states, like Florida and Texas are moving their back to schools back from last year from what I understand, and you pick up the entire weekend -- you pick up more of Labor Day in August.

How much will that offset that benefit of July?

Sam, I'm not sure yet.

Again, yes, school's starting later.

Some, especially Texas, Florida, southern schools are shifting into August.

Sam, I really take a look at that more so what do we pick up, what's our opportunity over whole time, both August and September?

So to me, it isn't so much do I pick it up this week?

Last week in August or first week in September?

I put August and September together.

How do we perform over these 8 or 9 weeks?

So to me it doesn't matter where it shifts.

I'm still going to pick up the sales.

it's just over what time frame.

It may shift into a little bit over July but I think it's a whole window, Sam.

I don't know if that really answers it the way you want it to.

I guess one of the other things is I don't know when the tax-free holiday's for Florida are, but they were in July last year.

Looks like they are going to move to August this year.

That's very positive, correct?

That's my understanding, yes.

Two other questions or follow-ups.

The kids athletic business,that part of kids or is that in athletics?

That is a part of kids.

In part of Kids?

Then for the month-ending inventory requirements, how are you looking at month ends especially when you look at, like, the end of July with -- or the end of June, the dates are moving all over the place because of the calendar shift.

Are you holding your people to month end or are you just flowing goods and aiming for end of quarters?

Flowing goods and aiming for the quarter.

Back to school product start coming at the end of June.

As a principal of running the business, we really work with our operating guys to not worry about where the financial cutoffs are and really focus on maximizing our business and letting the consumer dictate the calendar, the retail calendar that's out there.

We do that and from time to time I know it causes some confusion or some variations in the marketplace but we can't run our business by the financial calendar we have got to run our business by the way the consumers out there.

Congratulations again.

Thank you very much.

Your final question comes from John Zolidis with Buckingham Research.

Please go ahead, sir.

All my questions have been answered.

Great job on the quarter, guys.

Thanks.

Thank you all very much.

We really appreciate your continued support and look forward to talking to you next quarter.

This concludes today's first quarter Brown Shoe Company Inc.

earnings call.

You may now disconnect.