Caleres Inc (CAL) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the first quarter 2009 Brown Shoe Company, Inc.

earnings conference call.

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

Ken, please go ahead.

Thanks, Alexandria.

Good morning, everyone, and thanks for joining us for the Brown Shoe first quarter 2009 financial results conference call.

This call is also available to the public via webcast in accordance with the SEC's Regulation FD.

Before I turn the call over to Ron Fromm, 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 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 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 the situation may change.

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

Good morning.

Thank you for joining us today.

With me on the call are Diane Sullivan, our President and Chief Operating Officer, Mark Hood, our Chief Financial Officer; and Joe Wood, President of Brown Shoe Retail will be available for questions.

Following my opening remarks Mark will discuss our financial performance in more detail and review our outlook.

Then Diane will provide additional insight into our operating performance.

Following this we will all be available for questions.

We are pleased to report that our sales and loss in the quarter were better than internal and external expectations reflecting a solid performance of our brands in an ongoing tough environment for consumer spending, as well as our disciplined expense and balance sheet management practices.

While we are not satisfied to report a net loss for the quarter, the first quarter did include solid progress on our initiatives and we do expect to achieve profitability this year as stated in the press release, those are GAAP earnings.

For the first quarter of 2009, in total we reported net sales of $539 million, representing a decline of 2.8% from the first quarter last year and a net loss of $0.18 per diluted share or $0.14 per diluted share adjusted for $0.04 per diluted share in costs associated with our IT initiatives.

This compares to net earnings of $0.17 per diluted share last year, or $0.05 per diluted share adjusted for our net gain of $0.12 per diluted share in special recoveries last year.

Our sales decline was driven by lower traffic, which has lead to reductions in shipments to our wholesale customers and negative comparable store sales at Famous Footwear, and our other owned retail stores.

The good news is that inventory levels remain lean throughout our channels of distribution and our brands are performing solidly considering the environment.

As we have discussed on the last couple of updates, our priorities are focused on two major areas of work.

First, controlling the controllables, in the areas of expense, capital, and balance sheet management, and secondly, driving improved operating performance in our core brands and businesses, while continuing to develop our new brands in support of our long term growth opportunities.

The quarter included solid progress on both priorities.

To this end, we are positioned to generate greater than the $28 million to $31 million in savings under expense and capital containment initiatives that we announced earlier in the year.

We are currently expecting to achieve more than $35 million in targeted savings this year.

We will continue to evaluate additional opportunities across all aspects of our business to maximize profitability going forward.

Our results included positive operating cash flow of $49 million.

During the quarter, we re-evaluated our store expansion plans, raising the return on investment required for new stores.

As a result of our analysis, we currently expect our net new stores openings for Famous Footwear this year to be flat or perhaps down 15 stores, and expect net closings of 30 stores in each of the next two years.

We will continue to focus our investments in those areas of our business that provide the greatest returns, and our IT initiatives are central to this philosophy.

We have discussed the details of this project on the last few calls, and I will add that we are now expecting to gain greater efficiencies from our ERP systems that will translate into a minimum of $12 million to $18 million in annual cost savings over time.

This is in addition to the $35 million in cost savings discussed a moment ago.

And we'll contribute to our position in the industry as a leading partner.

As I said, we've managed our balance sheet well, including average inventory per store was down 5.1% at Famous Footwear and down 5.6% on a constant dollar basis at our North American specialty stores, versus the first quarter of last year.

We also reduced net debt by $32.7 million for the quarter.

Turning to our core brands, Famous Footwear, Naturalizer and Dr.

Scholl's, which represent approximately 80% of our total sales and the vast majority of our profitability.

Our emphasis on providing unique product, relevant fashion across our brands and strong value, continues to be the right strategy and in line with our consumer's shopping needs, and has lead to solid performance for our core brands this quarter.

Recently, we have intensified our technology advancements within Naturalizer and Dr.

Scholl's to further differentiate both brands on the selling floor.

This combined with the tremendous loyalty of the brands elicited from consumers, and their overall fashion and value proposition, has lead to encouraging results when consumers do choose to shop and buy.

While we believe we will need to experience improved traffic trends to see a positive change in our overall sales performance, we do believe our efforts have positioned us well for a profitable performance in 2009.

In recent months, we have solicited feedback on how we could effectively communicate our business model and strategy.

The common response was to simplify and spend more time discussing the material pieces of our business.

With this in mind, we will allocate the time for our prepared remarks on a proportional basis to the impact of each business to the enterprise.

While this means we will spend the majority of our time discussing details of Famous Footwear, Naturalizer and Dr.

Scholl's, operating performance and strategies, we are happy to answer all and any questions on the remainder of our businesses in the question and answer portion of the call.

In summary, we believe we have the right strategies to navigate us through this turbulent time for consumer spending.

We remain diligent in controlling the controllables and delivering profitable results, while focusing our resources on improving our sales.

Our core brands represent the greatest opportunity, short term, to affect a positive change in our overall performance, and we will continue to offer fashion and value to consumers.

Now we would like to pass the call to Mark to discuss our financial performance in the quarter.

Thank you, Ron, and good morning, everyone.

As you saw on our press release this morning, our net loss for the quarter was $7.6 million or $0.18 per diluted share, including total after-tax costs relating to our IT initiatives of $1.7 million, or $0.04 per diluted share.

This compares to net earnings of $7.2 million or $0.17 per diluted share in the first quarter last year.

Last year's earnings included a net gain in the quarter of $0.12 per diluted share, which consisted of costs of $0.03 per diluted share related to our headquarters consolidation, and a gain of $0.15 per diluted share from net insurance recoveries related to environmental remediation.

Turning to a full review of the income statement, net sales were $538.7 million, a decrease of 2.8%, compared to $554.5 million in the first quarter of fiscal 2008.

Reduced traffic from the ongoing challenges in the economic environment had an unfavorable impact on all of our businesses from a year-over-year perspective.

But as Ron mentioned, most of our businesses generated sales at our above our expectations.

At Famous Footwear, a 4.5% decrease in traffic, lead to a 4.9% decrease in same-store sales, and at wholesale our brands tracked their channel performance pretty closely.

Existing brands were down low double digits, partially offset by a high single digit gain from our new brands.

Gross margin in the quarter decreased 40 basis points to 38.6% of net sales from 39% of net sales last year.

The main components for the year-over-year change were the continued promotions in clearance pricing across retail and a greater mix of mid-tier channel sales versus department store sales at wholesale.

SG&A expenses in the quarter increased by $1.6 million to $212.8 million or 39.4% of net sales, versus $211.2 million or 38.1% in the same period last year.

The primary contributor to the year-over-year increase was the increase in facilities costs as the result of operating 69 more North American stores.

Our facilities cost on an average store basis were flattish, as we continued to work with our real estate partners on managing our leases across the portfolio.

The consolidation of Edelman Shoe was also a factor in the increase in expenses.

These cost increases were partially offset by expense savings across our organization.

Net restructuring and other special charges were $2.6 million in the first quarter, and relate to the implementation of a new information technology platform.

This is in contrast to last year's first quarter, which included a benefit from net insurance recoveries offset by costs related to our headquarters consolidation for a net gain of $8.4 million.

As a result of these items, we generated an operating loss in the quarter of $7.2 million, versus operating earnings of $13.6 million in the same period last year.

Net interest expense in the quarter increased by $1.3 million as a result of increased borrowing levels year-over-year.

In the quarter we recognized a $5.2 million tax benefit due to our operating loss.

Moving to our balance sheet, we're pleased with our asset management in the quarter, and our ability to pay down debt.

Cash and cash equivalents were $46.1 million at the end of the quarter, even as we reduced our net debt levels by $32.7 million.

This compares to cash and cash equivalents of $63.2 million last year.

Total inventory at quarter end increased 1.2% to $408.5 million from $403.6 million at the end of the first quarter last year, and down from $466 million at fiscal year end.

Inventory at Famous Footwear was down 5.1% on an average per store basis, but up $1.9 million to $299.2 million on 66 net new stores.

Inventory at wholesale was up $6.2 million from a year ago, primarily driven by two factors.

First, the consolidation of Edelman Shoe, and second, inventories for our new brand launches and an increase in landed product for Dr.

Scholl's as it increases penetration in to the mid-tier channel.

Finally, specialty retail inventory was down 5.6% on an average per-store basis in constant dollars for our North American stores.

Long term debt outstanding at quarter end was $150 million, same as quarter end last year.

Borrowings under our revolving credit facility were $39 million versus no borrowings at first quarter end 2008, but significantly lower than the $112.5 million at year end.

Capital expenditures or purchases of property, equipment and capitalized software in the first quarter totaled $13.3 million.

CapEx in the quarter primarily reflects spending for our IT initiatives and new stores.

Moving to our outlook, we currently expect to report a net loss in the second quarter, although with a sequential improvement in our bottom line results as compared to the first quarter on a lower net sales base.

Turning to the fiscal year for fiscal 2009, we continue to expect net sales in the range of $2.2 billion, to $2.3 billion.

Famous Footwear plans to open 55 new stores for the year, and we have increased store closings to 55 to 70 stores.

Same-store sales are expected to decline mid-single digits for the year.

At wholesale we continue to expect a high single-digit decline in our existing brands, which will be partially offset by growth in new brands such as Sam Edelman, Fergie and Fergalicious.

And Dr.

Scholl's will continue its expansion into the mid-tier channel.

In total we think wholesale sales will be down in the mid single digits.

Selling and administrative expenses are expected in the range of 38.8% to 39.2% for the full year, which includes costs of $8 million to $9 million related to our IT initiatives.

Our expenses will grow year-over-year, primarily due to having a full year of fixed expenses related to 2008 net increase of 72 North American stores.

The current year new store openings for Famous Footwear are skewed to the beginning of the year, with 39 prior to Easter, and the majority of closings will occur in the second half of the year.

Also contributing to the year-over-year increase is the consolidation of Edelman Shoe business and some expected increases in benefit costs.

These increases in costs will be partially offset by our cost saving initiatives.

As Ron said earlier, we now expect to generate more than $35 million in savings this year.

We expect to generate a tax benefit in fiscal 2009.

Our consolidated effective tax rate is heavily dependent on geographic earnings.

That is the mix of foreign and domestic earnings.

The taxes we provided are based on our best estimate of the annual effective rate.

Depreciation and amortization of capitalized software and intangible assets are expected to total $53 million to $55 million for the full year.

Net interest expense should approximate $21 million to $22 million, driven by increased periodic year-over-year borrowings and higher unused fees on our revolving credit facility.

Capital expenditures, which include purchases of property and equipment, and capitalized software are expected to be $55 million to $60 million, primarily related to our IT initiatives, logistics network and new stores.

We now expect to generate positive operating earnings or EBIT, positive net earnings on both a GAAP and non-GAAP basis, and positive cash flow for the full year.

I would like to turn the call over to Diane.

Thanks, Mark, and good morning, everyone.

To underscore comments from Ron and Mark, our first quarter performance was reflective of the continuation of a difficult environment.

That being said, our brands performed solidly, and Famous Footwear gained market share.

Beginning with the review of Famous, total sales were $317.6 million, a decline of 0.4% from sales of $318.8 million in the first quarter last year.

Total sales benefited from the addition of 66 net new stores open since the first quarter last year with comp store sales declining 4.9%.

Customers shopped early in the quarter, however, the Easter build was below our expectations, given that the weather did not provide an incentive to shop.

Consumers continue to seem to buy with that emphasis on need over want, negatively impacting customer traffic.

In our comparable store base, traffic count was down 4.5% with conversion rate down 1.7% compared to Q1 last year.

However, average unit retails were up 5.1%, and gross profit margin was even with a year ago at 43% of net sales.

Turning to operating expenses for Famous, we managed expenses tightly and they were below our internal expectations during the quarter, but up $4.1 million versus the first quarter last year, due to operating those 66 additional doors.

As a result, operating earnings declined to $3 million also ahead of our internal plans, but down from $7.6 million in the first quarter last year.

In terms of merchandise and product classifications, athletics continued to lead Famous' performance with comp store sales up 2.8%.

Athletic remains driven by strong skate styles from brands like DC, running styles from brands such as Nike and ASICS, and fashion and value athletics such as Converse.

We believe that today's emphasis on value is one of the reasons driving our customers to purchase athletics as a more versatile alternative to fashion footwear.

Comp store sales grew 6% in accessories, but declined 12.7% in women's, 12.9% in men's and 8.8% in kids'.

The weather was not conducive to selling sandals in the first quarter, which would hopefully lead to improved trends as we enter the key months of the summer selling season.

Regarding our store count, during the quarter, we opened 39 stores and closed 11, resulting in 1,166 total stores.

As we begin the second quarter, we believe we are in a good inventory position, with average core store inventory down 5.1% in line with our comp sales trends.

Our position on aged merchandise also remains strong and consistent with prior years.

As we look to back-to-school, we are encouraged by the strength in athletics, which are a primary driver of our business during this period.

In fact, athletics ramp up to roughly 60% of our sales during the selling period, and as such we're making investments to win during back-to-school with a planned increase in our athletic inventory, aimed to make certain that we're positioned to capitalize on the strength of that category.

Even with this added investment, our average store inventory is still planned below last year's level.

In addition, our plans include a new marketing campaign during the back-to-school season, which will reach more consumers reinforcing our messaging around value and strong brands, which we ultimately believe will lead to improved traffic and conversion.

The third quarter represents a terrific opportunity to capture share at Famous, and we will also be making enhancements to our customer contact strategies.

Now turning to our wholesale business.

In total, wholesale sales declined 5% in the quarter to $168.8 million, and were in line with our expectations.

The lower sales in the quarter combined with increased promotional activity at retail, resulted in operating earnings declining $5.9 million or 3.5% of net sales from $8.7 million, or 4.9% of net sales last year.

Within our wholesale portfolio, our brands performed solidly, which we attribute to our brands' teams ability to translate current fashion, as well as the great value we offer customers across our price points and the range of channels of distribution.

And our channel mix within the portfolio has continued to shift with our mid-tier sales increasing as a proportion of portfolio sales by 11% with the commensurate reduction in department stores and our mass business.

Now turning to brand performance, I'll focus on our core brands of Naturalizer and Dr.

Scholl's, beginning with Naturalizer.

Our largest and core wholesale brand, Naturalizer turned in a solid performance for the quarter.

Wholesale sales were up 0.6%, and operating earnings rose 8%.

We believe the consumer has begun to positively respond to our styling and our new comfort features with Inside Technology, which is now included in approximately 70% of our Spring 2009 products.

The year-over-year demand for reorders with this new comfort system compared with similar styles to last year is up approximately 7%.

Further, we believe our good, better, best pricing strategy is working well, particularly within the good or value price points.

For our sandal business, as an example, this has resulted in faster turns, better sell throughs and higher average retails out the door.

Now while we have historically discussed our domestic wholesale business separate from our international and owned retail businesses, we believe combining the sales and profitability of Naturalizer across the wholesale and specialty retail segment is more reflective of the true strength of this brand that generates approximately $0.5 billion in sales at retail around the world.

As an example, our key messages including new collections as well as $49.90 value price points are much more effectively communicated across our multi-channel touch points of catalog, retail stores, e-commerce, as well as other marketing vehicles that ultimately drive higher impressions, much more synergistically for the brand.

Total Naturalizer sales were $68.9 million for the first quarter versus $73.5 million in the year-ago period.

And operating earnings were $1.9 million versus $2.4 million in Q1 of last year.

Same-store sales across all North American Naturalizer stores were down 5.7%, roughly in line with traffic.

The all in, Naturalizer business, has historically been a double digit operating margin business, and while it has been impacted by the current environment, we fully expect to achieve those levels again.

Moving to Dr.

Scholl's, which remains an iconic brand in the eyes of consumers for comfort, and transcends all channels of distribution from mid tier to department stores such as Macy's.

For the quarter, Dr.

Scholl's wholesale sales were down 5.1% from the same period last year.

Operating earnings were up 49%, driven by lower expenses.

The brand is performing well across all channel segments, and we introduced work boots featuring TS tractions, in the mid-tier channels of distribution.

On the fashion side, we're also beginning to see a resurgence in the popularity of our original Dr.

Scholl's exercise sandals among fashion editors driven by the importance of the wood trend and the increasing interest that we all see in consumer products with wellness attributes.

Regarding sourcing, we remain on track with our efforts to lower our sourcing costs as we move to lower cost regions and consolidate our factory base.

We expect this to translate into improved gross margin rates and more balanced pricing for consumers in the second half of the year.

While we believe we are on the right track in terms of our styling and value, we expect our wholesale business to remain difficult during the second quarter where sales are more heavily weighted towards reorders, and we expect to be lower in this difficult environment.

And finally, I would like to note that we continue to see consumer and media excitement around our celebrity artist brands, including the recently launched Fergie and Fergalicious lines.

The line's popularity is certainly driven by both the fashion aesthetic, as well as the buzz around Fergie herself.

And as I'm sure many of you may have seen or heard, she made an appearance on last week's American Idol finale, along with another of our brand partners, Carlos Santana, which certainly helps drive their awareness and popularity.

With that, I would like to turn the call back over to Ron for closing comments.

Thanks, Diane.

Let me be as direct as I can.

Customer traffic is still the issue in our stores and the stores of our partners across all channels of distribution.

We will deliver profitability, because we took decisive action to align our business model with our environment.

We expect to earn more with less, less inventory, fewer stores, fewer suppliers, lower traffic, fewer customers, and less staff and less costs.

By taking this decisive action early, we have given ourselves the ability to allocate our resources toward marketing and product development to drive success in 2009 and beyond.

I continue to believe in the long term that the footwear industry is going to go through a renewal process, and Brown Shoe will play a greater role in this new landscape.

With that we will turn it over for questions and once again I would just like to remind you that we would encourage you to ask questions about any of our product lines.

(Operator instructions) Our first question is from Heather Boksen with Sidoti.

Yes, first question.

Given the tax rebate that seemed to help everyone last year, I know you spoke to what we should expect out of Famous Footwear for comps for the full year, but any help you can give with regard to the second quarter would be appreciated.

Well, I think that we continue to see the second quarter pretty difficult, pretty challenging.

I think second quarter is a little bit of a quiet zone.

You really don't begin back-to-school until the very late weeks of the second quarter in July, and so I think second quarter, probably not dissimilar from where we have been.

I think we believe that the real opportunity in our real resource reallocation has been in to the third quarter.

All right.

And kind of along the same lines with sales tax holidays this year, are you guys seeing anything that would cause any movement between Q2 and Q3?

Heather, it's Mark.

We are not seeing anything as we have looked at the alignment.

I think most states have kept their sales tax holidays consistent with the prior year.

I think we will see a later Labor Day impact following the timing and flow of the business, but we don't expect that to change the quarter or early calendarization of our back-to-school business.

If I could fit one more quick one in, any additional color you can give on what the new metrics are for what is causing you to close additional Famous Footwear stores and closing stores going forward?

And maybe what you see being the total store opportunity for the chain going forward in the longer term?

Yes, again, I think what we have done is we have certainly over the course of the last 18 to 24 months tightened up our new store return characteristics in terms of the required investment return on those stores, as well as in more recent months have focused heavily on lease action dates as part of our portfolio management, and are looking at the ongoing return on investment of stores, and if the return hurdles are not achieved, we're choosing to close versus spend.

You know, Heather, we continue to be committed to on the long term getting back to that 6.5% to 7.5% operating margin that Famous Footwear achieved a few years ago, and cleansing and rinsing the real estate portfolio is part of that process.

I would probably just remind many on the call too that we have built into our process for many years the numerous kickouts at three years and five years so that we can do this in a pretty orderly fashion.

All right.

So what do you see the total opportunity for the chain at these days?

6.5% to 7.5% operating margin, I believe is still where we believe we can get back to, then we'll work our way north of that.

I was talking in terms of total stores.

Oh, total stores.

Right now we're just focusing on sort of the priority markets and getting ourselves clearly established in a strong competitive position in those markets.

I believe on a long term basis, when we get through the housing slump, when we get through the recovery, and we get through all of that, that has got a lot of cloudiness out there, but clearly there is not going to be a difference in the factor that there is still a consumer that is very brand conscious and very attracted to the Famous Footwear brands.

And I believe over time we'll continue to move north of that 1,500 store marker, but I think we got to, we're taking care of the more immediate where we can see.

Understood, thanks.

Our next question is from Chris Svezia with Susquehanna Financial.

Mr.

Svezia, go ahead with your question.

Good morning, everyone and thanks for the additional color and detail.

I have a couple of questions.

I guess first, just going back to Famous for a moment, the stores that you are closing, I guess most of these are kickouts.

Do they by any chance -- could you maybe add some color as to how old they are, number one?

Number two, if they are money-losing stores or are they cash flow positive?

Any color about how you are looking at these stores in that regard would be helpful.

Yes, again, Chris, Mark.

You know, I think they would generally tend to be older stores, where we have the lease action date as Ron mentioned, we have kickout dates at three and five years, so the majority of the stores are being closed as the result of the lease-action date coming up, and we're focusing on, I'll call them the bottom quartile of our performing stores in terms of the ones that you would expect would close.

They have lower return characteristics.

They may be four-wall cash flow, but not earning an acceptable rate of return.

And then, Ron, your comment about getting back to that mid-single digit operating margin performance for Famous.

I know if you go back to the late 1990s, you guys were doing a strong margin, and then, you know, you restructured the business, and you were kind of doing a low mid-single digit margin.

You peaked out at 7%, I think in 2006.

What gets you back to that level?

I mean, getting out of some stores is one piece.

But what is going to drive the business in terms of turning inventory, increasing ASPs and changing the size of the box?

I mean, are there other things that you need to do to get back to that level?

That's right, Chris.

You know, I think that Diane and Joe can probably comment on some more specifics, but we continue to believe that retailing is changing.

It's a dynamic area and how we speak to consumers, how we message with consumers, how we get them interested in buying, all of those things are sort of taking another rotation in an age in which, she really drives towards need first, and then those other areas.

I always like to say we're going to remain a merchant-driven business.

We focus on the consumer and we manage inventories to opportunities, and then we want to have marketing programs to support those opportunities.

And I think when we pull that all together in combination, we will drive conversion higher, okay, we will continue to be promotional with the marketplace, because that's the footwear business that we live in.

That's just going to be the way it is, but I think it's that combination of those things that is going to drive that result.

I also think that I continue to believe that as we build the strength of the Famous Footwear brand, we continue to attract other great brands to put in our stores.

And so, right now, for instance, I was just in stores this week and just was really, really pleased with the new Birkenstock display and what's working on there.

Those things are the things that drive the business.

The access to great supplier and vendor support from the key vendor group in giving us those new opportunities, I think that is what is driving it.

Joe or Diane do you want --

I think the only thing I would add to that, as you summarized it, Chris, is we really do believe that Famous Footwear is positioned in the marketplace to represent great value with national brands, so we think that's a great proposition.

To Mark's point, being really smart about store closings and openings and the balance of that, the size of the footprint is absolutely key to get productivity up.

Access to new brands, which our merchant team has done a terrific job of continuing to add new brands to our store, and then I would say it's really back to the marketing piece of it.

And as we mentioned in the call and I think I had a chance to chat with you at one point in time too that we are really reallocating a lot of our marketing dollars to those time periods during the year where we have organic traffic and that seems to really be a smart thing for us to do, because we have a real opportunity to capture share during that time period, and really expanding the way we are trying to reach consumers as well, through CRM and other components, and Joe, I don't know if there is anything I forgot.

I don't think so.

Only one thought is to take a look at our business and 2006 was one of our better years with operating profits above 7%.

And I think when you go and take a look at those metrics during what we consider a very, very good year, when you take a look at comp-store increases and traffic, it was in the low single digits that drove those numbers.

It wasn't a huge, huge increase.

So if we take a look at our business today, what is it going to take us back to the 2006 numbers and it isn't something that isn't achievable if we get a little bit of wind behind our back at retail?

So the numbers can be moved dramatically by slight increases both in traffic and comp sales.

Which I think, Chris, comes back to decisive action we took earlier, which really righted our platform so that we moved ourselves from a deleveraging position to a leveraging position with just minimal upside sales performance.

Thanks for the color.

Two other just quick questions.

Just on the wholesale business, I guess maybe you can just comment on the other brands, Brown, New York, Franco, the Via Spiga brands.

And I guess secondarily to that, when you talk about sourcing costs coming down, are you more than likely going to be passing on those benefits to your customers to maintain share?

Or how do you envision that unfolding as you move to the back half of the year?

Your second question first.

I don't think it is a one size fits all on the cost question, whether we'll pass it along or not.

I think we're really trying to evaluate each brand and each opportunity and the value proposition on how we fit in the marketplace to make sure that we're in the right way balancing, improving our overall gross margin rates and profitability, but at the same time, trying to capture share.

So each brand kind of has a different strategy for that.

With respect to the rest of the brands in the portfolio, I guess maybe the quickest way to run through them would be to tell you that as we look at the first quarter, the brands that grew versus last year, either in market share, and or shipment and retail sales would be Carlos, Sam Edelman, Aigner did well, we launched our new Fergie business, and I would tell you that that has met our expectations.

We're going to be increasing our doors with Nordstrom in the back half of the year, and continuing to sell the brand at Famous and JC Penney.

The only area that we have decided to make an adjustment is at Sears.

The brand does not really resonate there, so we're making a quick change there.

But in general, we believe that that launch has gone pretty well.

As you heard Naturalizer, and Dr.

Scholl's really held and maintained share during the quarter as did Life Stride.

And our biggest challenge, quite honestly, continues to be in the women's specialty area, in the private brand, private label, a little bit on kids, but we expect that to turn around later this year.

And Franco, right now is a bit challenged at retail, as that whole tailored and classification has been a tough classification, and so we have been working pretty hard to make sure we get the product and the value proposition right there.

So that would give you a quick snapshot of kind of how the rest of the brand has done.

Okay.

Thank you.

I have a follow-up, but I will get back in the --

I guess I forgot Via.

The first quarter wasn't terrific for Via Spiga, but we're very encouraged about our business, particularly for the back half of the year and we're very, very comfortable with that, and of course, Sam Edelman is hot as anything right now at retail.

So, again, a mix within the portfolio.

Okay.

Thank you.

I have a follow-up, but I'll get back in the queue.

Thanks.

Our next question is from Jill Caruthers from Johnson Rice.

Ms.

Caruthers, go ahead with your question.

Last conference call you talked about reducing the number of BOGO days and weeks you had planned at the Famous Footwear division.

If you could just talk about how you are looking at promotions, how it ran in the first quarter, as well as kind of how you are looking at back-to-school?

This is Joe.

First quarter we did strategically take a look.

We ran approximately two weeks less of BOGO in the first quarter this year than we did last year.

We replaced those promotions, however, with item-priced vehicles, which had some success.

Our intent -- so we completed what we said we would do in the first quarter.

We are currently evaluating the balance of the year in BOGO.

You know, as you visit retail, the cost of entry today is BOGO, both at the mall strips and the outlet centers.

So we continue to evaluate what vehicle is best to reach that consumer.

So we still evaluate BOGO by quarter.

So our intent is to take a look at that, and if the consumer accepts what we did in the first quarter, terrific.

If not, we'll compete at a BOGO level a little more aggressively in second and third, but, again, consumer will tell us if we can stay in the current strategy.

I noticed you are running currently at 20% off entire purchase coupon.

Are you getting better response from that versus BOGO in this type of environment or is it really dependent on kind of the traffic that shows up the store?

It is really dependent on the traffic.

The coupons have been fairly successful.

She buys now, wears now.

She is wearing it out of the store.

At least the coupon effort that we put in first quarter has been successful and we have been please with that.

We're looking to continue to work that vehicle in the second quarter also and continue that.

Okay.

And just last question, if you could talk about kind of changes going on in the competitive field, some of the off-price players such as Ross and TJ have increased their exposure to footwear, they've noted strong performance in that category and they are getting their hands on some good brands at good prices.

If you can just talk about that and how that is changing the field for Famous Footwear?

Thanks.

Well, again, as I take a look at that retail channel, which I believe is one step below the, what I consider the value channel, mid-tier channel right now.

They are getting their hands on some additional product.

They have always been very aggressively priced, continue to be so.

But I don't see the depth in product.

It is still a vehicle that is very broken coming in.

I think they are just getting more press.

I really don't see the expansion of assortments in their stores now compared to a year ago.

They have the same brands they did a year ago.

I think they are getting more attention, simply because they are performing better as that consumer has taken a look at value in a different way.

They have performed better, though, than some of the other channels that are mid-tier, or other value channels.

I just don't see the change in the additional product at the current time frame that they may be getting credit for.

Okay.

Thanks.

Our next question is a follow-up question from Chris Svezia with Susquehanna Financial.

I've got two questions.

First, I want to talk about your long term incentive plans, and I guess first the question is, your long-term incentive plan for 2009, 2010, and 2011, is based on adjusted EPS.

And I was just wondering if you could clarify what that adjusted means.

Does that exclude the IT initiatives, or does that include -- can you maybe just talk about what is in that, and what is not?

Yes, it would exclude the IT expense portion of that project, which is nonrecurring and not generating anything currently in the P&L.

So that would be, I don't know what your tax rate is going to be for the year, but that's $0.10, 10-ish, $0.12 in EPS.

Is that fair?

I'm going off $7 million to $8 million is what you said it is.

$8 million to $9 million was the updated number, and it would be probably $0.13, $0.14.

$0.13, $0.14.

So I'm curious, in this 8-K that was filed that talked about your long term incentive, it mentioned adjusted EPS of $0.20 for 2009, $0.30 for 2010, $0.76 for 2011.

I guess one question is, when you look at the -- I know it's probably based on some internal metrics and your Board goes through this observation.

But what, between the $0.20 and $0.30 between 2009 and 2010, what is that based upon conceptually.

It looks like you guys would make additional investments to drive the business.

Because $0.30, when you guys at one point in time were doing $1.65 off of what seems like a very depressed situation at the moment.

Doesn't seem like a real big number.

So is the bogey just low, or is there conceptually some investments going on in the business in 2010?

Wondered if you could just talk about that.

I'll let Ron chime in in a second, but back to the prior question in terms of adjusting earnings.

One of the things we always do as a part of the actual scoring of results, we also go through a quality of earnings, and would exclude or include items that don't represent a quality of earnings, so the targets aren't designed to be a lay-up per se, there is a quality of earnings test in addition to the absolute number.

I think the long term incentive targets were developed at a time frame earlier in the year, when there was greater uncertainty as you look forward as to how deep the recession would get and how long it would last, and we're set, perhaps, conservatively.

Yes, we do have investments that have been made with our capital and as those things go in service they will have higher depreciation costs for logistics, and new stores, and the IT platform as pieces of that come online, and then we'll begin to get the benefits.

So I think it's probably as much as anything the uncertainty during the time frame when those targets were established.

You know, I think the Board conscientiously tries to set objectives that are both achievable and reasonable to the shareholder, and, again, I think when you go back to the time these were set, it was probably at the peak of uncertainty as we look forward.

You know, and so I think as Mark said that's where we're at.

Thank you.

And then just one quick one for Joe.

When you think about Famous and the weakness in the non-athletic pieces of the business, and you talk about shifting more your open-to-buy teams on the athletic piece or back-to-school, is that just coming out of the dress and casual piece of the business, or what are you doing to invigorate the men's, women's, kids' side of the business, ex-athletic as you move forward?

It is just coming out of casual and the investment, obviously is going over into athletic.

You know, are we doing anything specific for casual?

That continues to be a search for new product, exciting product, but, again, what I have always said I liked about our concept, is that it's very flexible.

That the consumer tells us what they're looking for and we can adjust our inventory to that demand, so at some point, they'll come back to casual, when casual demands the fashion trends that is it currently hitting.

So right now, they are looking at athletic, that's what we're investing.

We're de-vesting a little bit in our casual and open-toed business and junior business.

That has just rolled over in to athletic.

So I like the flexibility of the concept we have so we can easily follow the consumer, say here is what we want, and that's what we supply them.

All right.

Thank you very much.

Appreciate it, thanks.

Mr.

Golden, there are no further questions at this time.

Please continue with your presentation or closing remarks that you may have.

Thank you all.

We appreciate your support, and we'll talk to you next quarter.

Ladies and gentlemen, this concludes today's first quarter 2009 Brown Shoe Company, Inc.

earnings conference call.

You may now disconnect.