Caleres Inc (CAL) 2011 Q1 法說會逐字稿

Good morning.

My name is Ashley, and I will be your conference operator today.

At this time I would like to welcome everyone to the Brown Shoe earnings call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session.

(Operator Instructions).

Thank you.

Ms.

Reilly Tharp, you may begin your conference.

Good morning, and thank you for participating in the Brown Shoe first quarter 2011 earnings call which is being made available to the public via Webcast.

I'm Peggy Reilly Tharp, Vice President of Investor Relations for Brown Shoe.

Earlier this morning, we distributed a press release with detailed financial tables, which is available on our website at BrownShoe.com.

In addition, we have corresponding slides available at that site.

Please be aware that today's discussion contains forward-looking statements which are not historical facts and are subject to a number of risks and uncertainties.

Actual results may differ materially due to various risk factors including, but not limited to, the factors disclosed in the Company's Form 10-K and other filings with the US Securities and Exchange Commission.

Please refer to today's financial press release and our SEC filings for more information on risk factors and other factors that could impact forward-looking statements.

Copies of these reports are available online and from the Company's Investor Relations department.

The Company undertakes no obligation to update any information discussed in this call.

Joining us on the call today are Diane Sullivan, President and Chief Operating Officer, Mark Hood, Chief Financial Officer, Ron Fromm, Chairman and Chief Executive Officer, and Rick Ausick, President of Famous Footwear.

Today, we'll begin with a corporate strategy review from Diane, followed by a financial summary from Mark, before turning the call over to the moderator for Q & A.

I would now like to turn the call over to Diane Sullivan.

Good morning, everyone, and thank you for joining us.

The first quarter was certainly a busy period for us, and included several important accomplishments.

Refinancing our senior notes at a markedly lower rate, closing on the ASG acquisition and making significant progress on the integration, and making great strides in our SAP implementation, with the entire team coming together to put a stabilization program in place, and delivering a solid earnings result.

But given that tomorrow marks my first official day as CEO, I want to take a few minutes to talk about our future strategy and what you can expect.

This is an important time for Brown Shoe, and while I've been here for a number of years, I pledged to the Company, the Board and myself to refresh my perspective on Brown by listening with new ears, and seeing with new eyes, and this is going to continue over the next several months.

This means that we're looking at the entire Company with a tighter focus on shareholder value creation.

Everything is on the table, as we look to realign our portfolio of businesses around our strategies, grow the top line in our core businesses, and increase the productivity around our SG&A, our infrastructure costs, and our capital base.

We have such a terrific foundation to build on, with the unique combination of retail and wholesale assets and capabilities, and supported by a strong executive and associate base who are committed to seeing Brown Shoe be successful.

We also have a commitment, both internally to our associates, and externally to our consumers and our investors, to act with transparency and openness.

When it comes to our consumers, they want to know that when they shop or buy in any one of our stores or brands, they're getting consistent products and service at the right price, and we've been delivering on that promise for over 130 years.

The same can be said for you, our investors.

You want to see more consistency in our financial performance, and a more transparent landscape to our go forward strategy.

I know our story can be a complex one, but I believe we can simplify our message by focusing on the drivers of performance and setting sound targets and expectations.

This will be one of the guiding principles of my time as CEO at Brown.

The core of our mission and strategy that we developed last year is a very -- it's very straightforward.

Our mission is to inspire people to feel good and look better, feet first.

This strategy puts the consumer first by focusing on healthy living, contemporary fashion and family platforms, while we strive to reach our return on capital goals.

Healthy living is a concept that goes beyond fitness to cover wellness and comfort, and we expect consumer demand in this area to continue to grow, and our core assets are at the very heart of what this macro trend is all about.

Contemporary fashion has been the fastest-growing part of our portfolio, and an important part of what's going on in the marketplace.

All you have to do is see what's retailing at this particular time, and certainly over the last few years, brands like Sam Edelman, Via Spiga, and Vera Wang has helped us compete more effectively in this area.

Family, as always, is a focused platform for us and we're acutely aware of the shifting priorities and expectations of the modern family, so at Famous Footwear, we're always refining our approach, our merchandise and our stores to deliver the right experience for our customer.

As we evolve and align our portfolio around these three platforms, we plan to look at both acquisitions and divestitures in an effort to improve our margins and meet our ROIC targets.

We're also working to drive greater value from our infrastructure investments with an intense focus to complete our SAP transition, and leverage this important investment.

And of course, we'll continue to look at ways to evolve our vertical model to add even greater value for our customers in the enterprise, and our consumer-driven culture, as we further embed this through the organization, will continue to inspire innovation advancements and design technology and product development.

Finally, we will actively align our resources to achieve our strategic and financial goals, tightening the link between our strategies and the financial results they need to deliver.

Not all of this is new.

Some of it you've heard in recent quarters.

What is new is that this is the framework that we're going to be using as the basis of our go forward strategy.

There's still a lot of work to be done, but we have a clear vision for where we're going.

Together, we are driving a product and merchant focus, and working to develop compelling brands that inspire our consumers.

Simply put, we are striving to marry the speed and agility of an entrepreneurial mindset with the foundational strength of 133-year-old $2.7 billion footwear business.

Timing-wise, my first 100 days coincide with the release of our second quarter results, and I look forward to sharing more of our strategic and financial goals with you then, and again throughout the year.

I'm very excited about the time and place where we are right now, but I'm even more excited about the future.

And as you would imagine, I can't wrap up my comments today without thanking Ron.

He has been an inspiration to all the associates at Brown Shoe and his dedication to the Company will continue to inspire us, and I personally, and we in total, really look forward to receiving his continued counsel as Chairman.

And with that, I'd now like to turn the call over to Mark for a review of our financials.

Thank you, Diane, and good morning, everyone.

I'd like to review our quarterly results beginning with consolidated net sales.

Consolidated net sales of $624.6 million were up 5.4%(Sic-see press release) over a record first quarter in 2010.

As you recall, last year, we reported our best first quarter in Famous Footwear's 50-year history, with this year's first quarter being our second best.

In addition to a strong year-over-year comparison in the first quarter, we also had to contend with difficult, if not deadly weather across the United States.

Our strongest growth in the first quarter was in the Southeast where we saw same-store sales increase by almost 7%.

Overall, our warm and hot markets outpaced our cold and moderate markets by approximately 600 basis points, and as you know, more than two-thirds of our stores are located in cold and moderate markets.

This resulted in lower Famous Footwear net sales, totaling $342.7 million, or a 5.4% decline, with same-store sales declining 3.9%.

While traffic was down, our conversion rate was up 3.8% over last year, and our average unit retails were 2.4% higher; however, the role that weather and destructive storms played in slower year-over-year sales was magnified by our decision to eliminate buy-one get-one days in the first quarter.

In the prior year, we had five weeks of BOGO, while we have had none year-to-date.

For full year 2011, we expect BOGO days will be down approximately 29% on top of last year's 44% reduction.

The impact of eliminating BOGO on first-quarter sales comparisons was approximately 3%.

Turning to toning, we actually saw an increase in the number of units sold this year versus last year.

We are still selling through tens of thousands of pairs each week, albeit at lower AURs.

The impact of toning on first-quarter comparisons was approximately 2.6%.

We remain confident in our strategy to replace the expected decline in toning with running, which was up more than 20% in the first quarter.

Running and toning performed well during the quarter, when the weather was actually in our favor.

We lead the industry in toning revenue in the first quarter of last year, and we are still up against strong comparisons in the second quarter.

During the first quarter, overall sandal sales were down mid-singles.

While we were somewhat encouraged by our sandal sales performance in our warm and hot climate zones, sales were far slower in our cold to moderate climate zones.

Still, the trend is moving in the right direction with the weather, which would lead us to expect better sandal performance once we begin to see a more normal seasonal temperatures in our cold and moderate climates.

Nonetheless, sandals negatively impacted our first quarter 2011 sales comparisons by approximately 1%.

During the first quarter, we opened 14 new stores and closed 12 stores.

Overall stores opened since we changed our criteria are operating at $212 per square foot and exceeding our pro formas.

Although early, the stores opened in the 2011 class are operating at $221 per square foot.

Our plans continue to be to open at least 45 stores and close 40 stores this year.

Turning to Specialty Retail, where slower sandal sales in the first quarter also had an impact, Specialty retail sales segment sales of $59.8 million were down 1.7% year-over-year.

Shoes.com sales increased 2.8%.

This was offset by a 1% decline in same-store sales in our North American specialty retail stores, and where we also are operating 24 fewer stores in the first quarter versus a year ago.

Turning now to our wholesale operations, which were better than our expectations.

Revenue of $222.1 million was up 27.1%, when compared to the first quarter of 2010.

Sales of our legacy wholesale brands increased by 3.6%.

As you know, we acquired ASG on February 17th, which contributed $41 million to first-quarter revenue or 6.6% of consolidated net sales.

On an all-in basis, combining retail and wholesale, Naturalizer revenues were up 8.4% across a strong base to $88.2 million.

We saw double digit increases in sales to multiple channels, expanding our overall consumer reach within this parameter.

On an all-in basis, Dr.

Scholl's revenue of $29.3 million was down year-over-year, and we would expect this trend to continue in 2011 as we work through our strategy to grow this brand beyond the mass channel, and as we lap last year's toning sales and fill in on the pocket shoes sold for distribution in the drug channel.

In aggregate, contemporary fashion sales in our wholesale division increased by 14.8%, led by an increase of 27% in our Sam Edelman division.

Turning to earnings per diluted share of $0.08, which were down when compared to the first quarter results of $0.23 in 2010.

Diluted EPS in the first quarter of this year included $0.08 of ASG acquisition and inventory-related purchase accounting adjustments.

Excluding these amounts, adjusted earnings were $0.16 per diluted share.

In the prior year, we had $0.03 of systems cost and excluding this amount, diluted EPS were $0.26.

Our gross profit margin for the quarter was 40%, down 140 basis points compared to the first quarter 2010 gross profit margin of 41.4%.

For Famous Footwear, our 45.7% gross margin rate was up 40 basis points over last year, due in part to the elimination of five weeks of BOGO; however, there were other puts and takes in the quarter, most notably in toning, where margins declined versus the prior year.

Specialty retail gross margin declined by 150 basis points.

For wholesale operations, gross profit margin of 30.5% was down 190 basis points in the first quarter.

The majority of this decline resulted from inventory-related purchase accounting adjustments from the ASG acquisition.

Our legacy wholesale margins declined 110 basis points to 31.3% in 2011, and lowered consolidated gross margin by 30 to 40 basis points.

Improvements in branded channel mix were offset by higher markdowns and allowances.

SG&A expense for the quarter was up 4.9%, primarily due to the inclusion of ASG expenses.

Increased marketing spend and systems costs also contributed, but were largely offset by lower incentive costs.

Net interest expense for the quarter was $6.6 million, while our effective tax rate was 39.1%.

The tax rate was up over the prior year due to the non-tax deductible nature of some of the ASG-related acquisition costs.

Depreciation and amortization for the quarter was $14.3 million while capital expenditures were $9.7 million.

At quarter-end, we had $212.8 million in availability under our revolving credit facility, and $54.2 million in cash and cash equivalents.

As you know, during the quarter, we announced and priced our offering of $200 million and 7.125% senior notes due 2019.

We're using a portion of the net proceeds to fund the purchase and retirement of our outstanding 8.75% senior notes due in 2012.

As a result, you can expect to see $0.01 of EPS impact, related to the write-off of the remaining debt issuance costs on our 8.75% notes in the second quarter.

Finally, inventory of $534.7 million of first quarter was up 23.9% over the prior year.

At Famous Footwear, while total inventory was up 8.8%, inventory was only up mid-single digits on a unit basis.

With respect to toning inventory, our investment is down 46% from peak levels, and is largely in line with our go-forward business expectations.

You will recall that the build in our inventory came in the second quarter of 2010, and we expect inventory will be down year-over-year at the end of the second through the fourth quarters.

In our wholesale business, approximately two-thirds of the inventory increase was related to the acquisition of ASG.

Additionally, our legacy wholesale inventory increased by $27 million, as a result of efforts to mitigate the impact of price increases and hedge against delivery issues experienced in the back half of 2010.

We expect our legacy wholesale inventory in the second half of 2011 to be below last year's.

Turning to guidance.

We are maintaining our previous annual guidance; however given our first quarter 2011 results, we would expect this to trend toward the lower end.

To quickly review, we expect the consolidated net sales increase in the low double-digit range, an increase in Famous Footwear same-store sales in the low- to mid-single digit range, a wholesale net sales increase in the low- to mid-single digit range for our legacy brands, a flat gross profit rate, excluding inventory-related purchase accounting, net interest expense of $26 million to $28 million, and an effective tax rate of 35% to 36%, earnings per diluted share of $1.25 to $1.32, which includes $62 million to $64 million of depreciation and amortization and capital expenditures of $58 million to $60 million.

We continue to expect accretion from ASG to be from $0.10 to $0.12 for the year, excluding acquisition, integration and inventory-related purchase accounting costs with some variability by quarter, as a result of how Avia anniversaries last year's toning sales.

While I think we all would have preferred to see a stronger retail sales performance in the first quarter, we have always expected the first half of this year to be a challenge.

We continue to believe the improvement in our 2011 results will occur in the back half of the year, due to a strong first half in 2010, as well as the costs related to the acquisition of ASG.

Despite the tough year-over-year comparison of the first quarter, we were able to grow our gross profit margin at Famous Footwear, and experienced revenue growth in our wholesale operations.

As Diane stated in our release, we continue to feel good about our overall strategy and we are looking forward to heading into the back-to-school selling season in the second half of 2011.

With that, I'd now like to turn the call back over to our operator for Q&A.

(Operator Instructions).

Jeff Stein with Soleil Securities.

Hi, Diane.

Congratulations on your new position.

Thank you, Jeff.

First of all, you discussed in your opening comments that your intent is to realign the portfolio, and I'm wondering if you could talk perhaps about some of the brands that might perhaps not necessarily be keepers in the portfolio.

Well, Jeff, we're in the process of really taking a look at, and doing the work that we need to do to address what brands we feel should be in and should be out of the portfolio, but the key thing is that we really want to have all of our lead assets aligned with each one of those consumer platforms that I talked about, and we'll be assessing the contribution that each one of those brands makes for the long term, so we're in the process of doing that work, and determined to get to the right outcome to deliver improved results.

Do you have any kind of a timeline and perhaps an intent to kind of discuss, perhaps a more detailed plan with investors?

Yes, I do.

I would say I need probably another 60 to 90 days and then certainly, towards the Fall or the middle of the Fall there, I think we'll be at a place where I'd love to get everybody together and kind of share what the go-forward look is.

Terrific, and wondering if you could talk a little bit about the wholesale gross margin pressure in your legacy brands during the first quarter.

Which brands did you see weakness in?

Why and is it something that we should expect to continue into the second quarter?

Jeff, it's Mark.

Again, I think we saw it a little bit across the board and probably the primary issue for the weakness was, we had some increased allowances and chargebacks that resulted from the shipping, a little bit of carryover in the shipping issues, that was about 90 basis points of the 130 or 110 point decline.

Okay, and Mark, the $1.25 to $1.32, could you remind us what that includes or excludes?

In other words, does that exclude the purchase accounting adjustments and does it include or exclude the $0.10 to $0.12 of accretion you expect from ASG?

Yes, that's the GAAP number, Jeff.

It includes the accretion from ASG, and it also includes the $0.12 to $0.15 of costs.

Got it.

And you did call out in the release, Mark, $1.7 million of acquisition-related costs in the first quarter.

Was that included on the SG&A line or is that baked into gross margin?

That portion is in SG&A.

There's also a piece that's in cost of goods sold, Jeff.

Roughly, do you know what the split is?

Yes, well there was $2.7 million pretax in cost of goods sold.

Okay, but then there's a separate line item, so you have the ASG, cost of goods sold, which is $2.7 million, and then you call out in Schedule 4 on the release $1.7 million of acquisition-related costs.

Right.

That would be the transaction costs, primarily.

We haven't experienced any significant integration costs.

And I guess my question was, is that in SG&A?

Well the $1.7 million is shown on the non-recurring cost line.

Okay.

Got it.

Okay.

And what gives you confidence that you can show some improvement at Famous Footwear during the second quarter?

Your profitability was down 33% in the quarter.

Can you make a case that it's going to look any different for the balance of the Spring?

Well again, I think we do face a tough comparison again in the second quarter at Famous going up against a 12% comp, so I think the comparison is a little bit easier.

I think that we have our strategies in place to anniversary going against the toning strength in the first half of last year, and again, I think I've said that was a strategy to play out as a win over the entire year, and not necessarily on a quarter-by-quarter basis.

Final question, I don't know if you care to address this but has the trend of Famous Footwear improved since the beginning of May, since the weather has improved a bit?

Yes, we're running so far in May ahead of the first quarter run rate on comps and I would remind you that we're probably also then up against the strongest month of the first quarter last year and the month of May.

Got it.

Thank you very much.

We were up high teens last year.

Thank you.

Scott Krasik with BB&T Capital Markets.

Thanks.

Good morning, everyone.

Good morning, Scott.

The wholesale business, I'm just trying to figure out, the sales were up 27%.

Your receivables were up 66%.

Can you reconcile those numbers for me, Mark?

Sure, again obviously, we've got the acquisition of ASG where we acquired those receivables that existed at February 17th.

We can help you with the details of that offline, probably.

So excluding what you took on the receivable, there's nothing changing in your days outstanding or anything like that?

Again, I'd say there's a little bit of a bubble in the receivables relative to the go-live issues on SAP in terms of some delays in getting billings out, but there's no collectibility issues or nothing that we're concerned about.

Okay, and then, you said that the comps have improved from the first quarter minus 4.

Could you characterize them as positive, or are they still negative?

Slightly negative.

Okay, and then your point that May was in the high teens, I think you ended up with--

12.

So how did June and July look relative to each other?

I don't have those details in front of me.

I don't know if somebody in the room can hand them to me in a minute I'll get back to you on that.

Okay, thanks.

And then just in terms of the other moving parts in Famous Footwear, I think you anniversary now in Q2 the fewer BOGO days; is that right?

Yes, Scott, it's Rick Ausick.

Yes, we have anniversaried, that was the biggest take out was the first quarter and then from this point on, pretty comparable.

Rick, do you feel comfortable with your traffic, some of your competitors have said that they actually are happy that you've chosen to eliminate BOGO days so just now that we're on an apples-to-apples comparison, do you think if they do serve a purpose in terms of driving traffic at strategic times?

Well I think its never been an issue about driving traffic.

The issue about the customer recognizing value in the store, and I think if we wanted to drive traffic we would do it more often, because it does drive traffic, but the issue we had was, as we talked to customers and listen to how they viewed our value proposition, they don't necessarily see it as the value-add, so we thought, we believed that our opportunity is to upgrade our assortment to some degree, add some categories and products that maybe others don't have, and then offer that value on a more daily basis is really the key to what the customer is looking for from us, so again, it's a long term play.

It's not going to be a win in a week or month or quarter, so we weathered last year by taking 4 weeks out.

This was probably our biggest attempt as far as taking the promotion out to get a key time.

Basically, it worked to how we had planned it, but we also had weather factors.

We had other issues involved that make it hard to know exactly what the customer thinks, but we all have our strategies, and we think this is the right one for us.

Okay, that's helpful, and then I guess Diane, has ASG, because the metrics in toning at least the category seems to be getting worse, has ASG successfully moved on and is it benefiting from this trend in lightweight as well, and is that the future of the key brands there?

Yes, good question, Scott.

When we acquired ASG, our eyes were wide open with respect to what the role that toning has really played in their overall performance for their Company and we really saw an opportunity across all of the brands in their portfolio, Vera, Ryka, AND1, as well as some of their outdoor brands that were fairly small, but we thought there would be additional opportunity and the toning piece of it was really only part of the Avia piece of it, so we see them, particularly on the Ryka and AND1 side of the equation in outdoor doing really well, and beating last year, and as we look at Avia, they have entered the lightweight area, they've got some early reads on some of their products that looks pretty good, but that's going to be again a work in progress for any Company from a wholesale perspective, that as to Toning sales that they're up against, so we have a little more work to do.

I guess Diane or Rick, how aggressively do you expect to use Avia lightweight running for back-to-school and holiday in Famous?

Is that a big push?

We have some product coming in but as far as, its always been a portion of our business.

We haven't necessarily increased that portion at this moment in time, for some of the reasons Diane mentioned, I think it's still a little bit of work in progress.

When the product gets right and we have success, we'll buy more.

Okay, thanks very much everyone.

Scott, back to your question on comps, they decelerated through the quarter.

Chris Svezia with Susquehanna Financial.

Good morning, everyone, and my congratulations to you, Diane, as well.

Thanks a lot, Chris.

Let's talk about SAP for a second, just kind of where you guys are at this point, seemed like last time we spoke, you were starting to ship on time but felt some issues with forecasting modules and still having to pay some markdown support due to some shipment issues earlier.

I'm just kind of, where do we stand right now both from a shipping on time perspective, where it stands on the margin and any factors as we go forward?

Yes.

Let me take that one, Chris.

I would tell you we certainly feel a whole lot better than we did 90 days ago in terms of our implementation and we see the shipments for the quarter, again very, very nice job by the teams across the Company.

I believe I'd mentioned somewhere along the way here that about 60 days ago or so, we brought in some additional SAP expertise, along with more technical expertise to help us solve the issue and along with, actually, we brought in Deloitte to help us make sure we were looking at the business and people and process size the way we needed to, to try to accelerate what always for every Company is a tough implementation, so I would tell you that we were making good progress, we feel like the teams are engaged, we're doing the right thing, and it's still day-to-day, to really get everybody comfortable, so it feels like it's part of your normal ongoing activity so that's going to take a little bit of time, but we've made pretty good progress.

So it's fair to say that you're shipping product where you want to be in terms of your shipping windows and schedules?

It's just as we look at, I guess first quarter had some on the legacy business on negative impact on the margin related to it, does that continue into the second quarter or does it abate?

I'm curious how we can look at it from a go-forward perspective.

Do you feel like third quarter we got this down pat, we know what we're doing, no more pressure on shipping window, or on the margin or where is the inflection point?

Chris, this is Mark.

So, I think we're probably across the inflection point, but I think we did have some early February shipments that didn't hit the selling floor on time, and I think we probably realized the bulk of that pressure in the first quarter, but as you close the season in the second quarter there could be some residual markdown allowance pressure there, but as you hit the Fall season, the question is how right is the product and yes, we expect it to ship on time.

Okay.

Helpful and just on a broad base.

When you guys talk about most of your earnings growth in the back half of the year, does that just imply, just without you being very specific about, I know you don't want to give quarterly guidance here, but does that just assume, second quarter, just given the puts and takes comparison, looks like a down quarter year over year, or is there just a low earnings quarter for the year?

Just trying to put some context around what you're talking about most of the earnings growth in the back half.

And our practice is to provide annual guidance and I think as we talked in the opening remarks we expect that to come in the back half.

We would expect earnings to be below last year in the second quarter.

And then when you guys talk about gross margin for the overall Company, it seems like you're talking about flat, excluding inventory-related purchase accounting, I think previously was up 50 BPs.

What's the change?

Is that due to first quarter primarily, or what's changed since previously?

I think I thought our guidance was flat throughout, Chris.

Again, flat excluding the purchase accounting so you got, we expect wholesale on a margin rate basis to be up, but because of the mix, back to flat overall.

Okay, I was just looking back at the fourth quarter and it seemed like it was shows some improvement, but excluding the purchase accounting piece.

And then Rick, a question for you.

When you think about the Famous Footwear business and kind of the puts and takes between units and average selling price for the balance of the year, just kind of how do we think that from an inventory perspective?

Given where you are right now, and obviously the talk about inventory getting more in line as you get into the third quarter, but just kind of given your thoughts about units versus ASPs for the Famous Footwear business as we go into back-to-school?

Yes, I believe we have some uptick on our running business because those shoes are selling at higher retails than we have in the past.

The technology, the brands we're bringing to the marketplace are allowing us to get more from the customer.

Obviously from the back half, we have a large boot business.

Those prices, as everybody has talked about so far that I've listened to, are going up and we're expecting that we're going to be able to pass some of that on to the consumer for the right kind of product.

So again, I believe that our average unit pricing outside of toning for the moment, will probably rise to some degree and the back half of the year.

Our first quarter was impacted, because obviously if we sold the sandals like we would have liked to, that would have lowered our average pricing because sandals are at a lower price than some of the other categories, and probably would have got it more in line so that's maybe a mix issue for first quarter than it is around any kind of strategy change in our assortment.

And from a unit perspective, Rick as you go into the back half of the year, if ASPs are offsetting most of the input costs that's up, is that from a unit perspective flat, is it down slightly?

I think it depends on the category.

I think our boot business will be closer to flat than up on units, because I think we will have some ability to pass on prices there.

Our athletic business on the running side will sell a lot more units, because those units we're not only going to have higher prices but we're going to sell a lot more units.

Our plans are pretty aggressive so I think it depends on the category.

You put it all together Chris, I would think our unit sales will be up slightly or flat.

I would think our average selling price will be up to some degree, and that kind of makes the comparison to our low- to mid-single digit comp store increases.

Okay, and then just a quick question on the dot-com piece, if I may.

I'm just curious, remind me why only up slightly, in terms of revenue, obviously dot-com has been for most brick and mortar, one of the strongest elements in their business in terms of comps, I'm just curious what you guys saw during the quarter, and just confirm what the revenue number was.

I think it was up slightly.

It was up about 3%, Chris.

Again our total direct-to-consumer business was up about 9%, and we placed a little bit more emphasis on our multi-channel piece of that over the last couple of quarters, and I think again, we've been managing the pure-play piece of that with a little bit tighter inventories.

And the brick and mortar piece for Famous Footwear, Chris was up significantly, if that's a question about brick and mortar and cross channel business, that piece was up significantly.

The Shoes.com business was more flattish.

I see, okay, got you.

Helpful.

And then one last thing.

Mark, just confirm where you're at.

Your capital structure right now, just remind me all the puts and takes here, where you stand not, as of quarter-end, but right now today, in terms of what's on the, what are the notes that's $200 million in principal, what's in your revolver right now, just remind me where you stand today?

If possible?

Again, I'll give you the quarter end number was $288 million, and that's prior to having done the notes.

The notes in round numbers, we would have, we will take the $200 million and approximately $193 million of proceeds and pay down $150 million of existing senior notes and the balance will be paid down against the revolver.

We would expect revolver borrowings to continue to go down from where they were at the end of the first quarter.

We also would expect as inventory liquidates and receivables collect, to have a net lowering of our working capital borrowings.

Thanks very much and best of luck.

Thanks.

Thanks, Chris.

Steve Marotta with CL King.

Good morning, everybody.

Couple of quick questions.

Did I understand it correctly that your expected BOGO weeks in the second quarter would be roughly equal to the second quarter of last year?

Yes.

Okay.

We didn't do very many so yes.

Can you quantify those?

No.

Okay.

Fair enough.

Can you talk a little bit about sandals as a percent of the mix in the first quarter versus first quarter last year and also what your expectations are for the second quarter versus the second quarter last year in that category?

One second.

It's about 15% of our business in first quarter in total.

The second quarter probably goes to something like about 35%, 30% to 35%, it goes up significantly in the second quarter.

Sandal business, just as a point of view, we sell a ton of sandals in August and September for back-to-school, so it actually is even rolled into third quarter to a degree, and so you can't discount that.

It's a big part of our business for the college kid and even the high school kid, with back-to-school, that's a big piece of their work of when they come in, so a significant piece of it second quarter is our biggest business and when we look at it third quarter volume is probably pretty close to first quarter volume, when it's all said and done.

And are those roughly comparable with last year, or is there any material change in those percentage mix?

No, we would expect to have a higher business in second quarter this year because we didn't quite get the volume we wanted in the first quarter, so but the percentage of our total business will be relatively small.

25% of our business in second quarter, I said 30%, so 15% first, 25% second is kind of where we would historically be at.

Okay, and lastly, you received, I'm guessing, material margin support from toning companies over the last couple of quarters.

Do you expect that to continue and is there any concern that given the inventory overhang in the industry, that begins to wane or that the actual margins that are being supported decline?

Can you talk a little bit about that process and how you see it going forward in the next quarter or 2 please?

I probably don't want to comment on the vendor support and the margin help because I think that's between us and our vendors.

As far as the overhang of inventory we're selling, again Mark made a comment we're selling tens of thousands of pairs.

The category is still relevant to the customer.

The prices are lower obviously, and our margins have been impacted.

Our challenge on a go-forward basis is to right-size the inventory and put a product assortment together that fits those price points that the customer is willing to pay and drive a business.

I think there's still opportunity there, and that's our mission in the back half and into Spring of 2012 is really what we're looking at, because you don't sell this many shoes without the customer liking them, so that's probably as much as I want to say and hope we have another question I'll try to answer it.

No, that's it.

Thank you very much.

Jill Caruthers with Johnson Rice.

Good morning.

Good morning, Jill.

Could you talk about, I know higher product costs are inevitable for the back half.

Could you talk about if you've tested any price increases in the first quarter and possibly any customer response from that?

Jill, it's Rick.

At retail, we really haven't.

I was doing enough other things to screw up my business, I didn't necessarily want to try that one, so we didn't do it, and only because we really didn't have any reason to.

I think where we put higher prices, we've put it on product that we thought the customer would buy.

For instance, some of the lightweight running categories, some of those shoes are at relatively significant higher prices, but it's a wanted item, it's something that's in trend, so the customer is paying for it, so I think that's the best answer I can give you right now.

Appreciate it and then just a question on the SG&A growth rate, was up roughly 5% in the first quarter, and you talked about a couple puts and takes where you had higher integration costs, but it sounded like marketing was down year over year.

Just trying to look out in the back half, should we expect to see some slowing of that rate, given I guess some synergies with ASG?

Jill, it's Mark.

Again, our increase in the first quarter was virtually all due to ASG, when you boil it down in terms of the dollar increase.

We've had an increase in marketing expense in the quarter of about $5 million, as you'll recall from our prior conversations, and then we had lower incentive costs in some of the other anomalous costs that start to fall away.

Okay, and we should expect to see synergies from ASG on the expense line in the back half?

Yes, although the deal wasn't done for synergies, but they had a relatively lean expense base, but as we begin to integrate, there will be some savings and as we apply our purchasing power to places like the distribution center, there will be savings.

Appreciate it.

Thank you.

Sam Poser with Sterne, Agee.

Oh, good morning, everybody.

Diane, congratulations.

Thanks, Sam and good morning.

Just a few questions.

With the American Sporting Goods brands, you've had it now for a little while so can you line up sort of how you're going to, how you're thinking right now about Avia, about Ryka, about AND1, how much of it do you think it's going to be driven through Famous versus into the wholesale model, Ryka at one point was a real premium women's athletic brand, how you're thinking about bringing it back to that and so on.

Yes.

Well here is what I can tell you, so far it's been, again, not very long.

Its been 70 days since we really owned the Company.

Mark Lardy has been working with the teams to really lay out the game plan.

Not so much for 2011, but going forward into 2012 and what we're also trying to do, Sam, is make sure that we land the right kind of General Manager for that business to help us really shape what the go-forward strategy needs to be for that business, but suffice it to say that everything that we've talked about up to this point in time in each one of those brands we think is right.

We've really believed that Ryka does have tremendous long-term potential and we can see the retail performance of that brand right now, looking really, really good AND1 with a little bit of push on basketball, its been solid as well.

The surprise really hits then in the outdoor aspect of that business.

I think I had mentioned somewhere along the way that we really already have the year booked against that and Avia, back to Avia, really trying to recalibrate the right side with that business with the shift from the growth they had in toning and to running, lightweight running, and really driving that business, so the teams are in the process of working through all those things, and getting that teed up for Spring and 2012.

Thank you.

And then Rick, looking at the difficulties given the comparisons, outside of the lightweight running business, dollars are dollars, both in inventory and in sales, so as far as I'm concerned, I guess one, how much of that inventory do you think is excessive at the 8% increase in inventory is excessive, number one, and number two, what, thinking of cross-categories, what are the key drivers that you're going to use to offset toning, be it lightweight running, so just across-the-board, what are the other key categories that you're going to try to exploit this year?

I guess I'm not quite sure what the question is about the excess inventory.

Well the point is that the argument was made that the inventory, that because the prices are higher, due to higher costs we have excess inventory but then due to higher costs, you also should have excess sales, so I don't really go there.

I just say, how much of that 8% would you call, that you need to, what's the appropriate amount?

You said it would be under by the end of the quarter.

Again, now I can answer the question this way.

We said we will be at or under inventory a year ago at the end of second quarter, so you could probably surmise that everything else is something we would like to not to have today, to a degree, and I think the way we're selling off our product, whether it be the toning piece or sandals, we believe that's in the ballpark of us to do, so yes.

Would we like to have that finished at the end of first quarter?

That was really our target, and we're probably about 45 to 60 days behind that.

We'll cross the path here probably some time in June, where our toning inventory will be less than last year, and then it just keeps reducing itself until we get to a more manageable level on an ongoing basis, so that's the big nut there.

On the categories that will replace it, for about the first 6 or 7 weeks of the season in first quarter, we were actually selling, our running business was actually, that combined with last year's toning, this year to last year, when you look at it, we were actually comping the business with running being up and toning being down, when we ran into our peak weeks, which started happening at the end of March and through actually the first week of May, which is our peak week of selling last year in toning, that obviously changed.

Our expectation is as the weather has gotten better, and our selling has improved in our seasonal categories and running is somewhat a seasonal category, we're starting to see that gap narrow again, and we would expect in another few weeks that paths will cross and our running business will start over making up some of the toning miss and that's part of the strategy so that's the biggest piece of it, Sam, from a category point of view.

There's other things we think are important, but that's really where we're looking for the increase.

All right, thank you.

And then, I guess that's it.

Thank you very much, and good luck.

Thanks, Sam.

Carla Casella with JPMorgan.

Hi.

I have a quick question about the licenses that you have coming up over the next 2 years.

Are there any that you're considering not continuing, of your existing licenses?

I guess the ones that come up are Franco Sarto, Carlos Santana, and Fergie?

We are always looking, any time we come up to the end of a particular cycle on any of our licenses, we would always take a look at and just to clarify, for example, Franco Sarto is a long term license, Scholl's is a long-term license that we have, so really it's more in our kids business, and some of our celebrity businesses where the cycle of those licenses are a little shorter, so we'll be looking at all of that as we go forward, and think about how to really optimize and maximize the portfolio and our returns.

Okay, great.

And then when you're looking at your cost structure and installation for the year, can you just talk about the trends that you expect by quarter, second, third and fourth quarter and how far out are you bought, or contracting on pricing?

Well, on the retail side, depending on the category, we place future orders with athletic vendors 6 months in advance, and the rest of our non-athletic businesses are usually around 60 to 90 days in advance, so we're pretty much booked through third quarter in total and we're starting to place some fourth quarter orders with our athletic people.

We don't see a dramatic, again when I say dramatic, if you're on a comparable basis in second quarter, there are changes in the mix of business which drive up your cost on an average basis for second quarter, as we have higher priced running shoes in our assortment, that drives up our average cost on a total basis, but on a comparable basis as far as what that looks like, we don't look at that as being necessarily a inflationary cost pricing issue.

As we get into third quarter, that obviously changes because that's really where we see the bulk of the increases for, whether it's weather prices, whether it's labor costs in the Far East, oil prices, et cetera, et cetera, and right now, by category, that's really what is very different by category.

Athletic is a little less impacted than things like boots, so our boot business has probably some of our bigger increases, again more labor intensive, more materials involved, that would seem natural that would be where the case would be, so third quarter, we're up some.

It doesn't feel dramatic but the customer will let us know.

And do you have a sense for how much of your cost increases, will you try and pass through all of them in pricing, or absorb some of them, and try and offset with other cost cuts and synergies that you're working on?

I think obviously, obviously our first effort would be to try to pass everything on we can.

But you have to be realistic.

We just did it again yesterday, we laid all our boot and bootie programs on the floor, and looked at all of our prices and moved some things to higher retail, moved some things to lower retail.

We want it to make sense to the customer.

That's more the issue than whether or not we get it or don't get it.

We want to make sure the product itself carries the value, and some of that means it's on the material, it's on the last, it's on the details of the product.

We spent a lot of time over the last 60 days going back and validating what that should look like making sure that we felt comfortable with our retail on our product and I think that's all you start with, and then you go and you start understanding what the customer's willing to accept when you get there, but we feel pretty good about where we're at, and again it looked like it made sense to me yesterday, so I'll probably look at it again in 2 weeks, and see if it still makes sense to me, but that's how we have to go about it.

Okay, great.

Thanks a lot.

And there are no further questions.

I'll now turn the call over to Ms.

Peggy Reilly Tharp for any closing remarks.

Thank you again for joining us today, and we look forward to chatting with you again when we release our second quarter earnings.

Good day.

Thank you, ladies and gentlemen.

This does conclude today's conference call.

You may now disconnect.