Caleres Inc (CAL) 2013 Q1 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Q1 2013 earnings conference 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. Tharp, you may begin your conference.

Thank you, Marcus.

Good morning and thank you for participating in the Brown Shoe Company's first-quarter 2013 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 today we distributed a press release with detailed financial tables, which is available on our website at BrownShoe.com.

In addition, slides are available on our website for you to reference during today's call.

Please be aware that today's discussion contains forward-looking statements, which 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 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.

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

Joining us on the call today are Diane Sullivan, President and Chief Executive Officer; Russ Hammer, Chief Financial Officer; and Rick Ausick, President of Famous Footwear.

Today we'll begin with a strategy review from Diane followed by a financial summary from Russ before turning the call back over for Q&A.

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

Thanks, Peggy and good morning everyone for joining us.

I'm very pleased to share a terrific first quarter with you from both a financial and a strategic perspective.

On the financial side we reported first-quarter sales of $588.7 million, down slightly year over year due to the brands we have exited as part of our portfolio realignment.

Excluding sales of these brands in both first quarters, consolidated sales were up slightly in 2013.

We also delivered improved adjusted earnings per share of $0.32, up 39% as we continued to reap the benefits of our portfolio realignment efforts.

And we reported record first-quarter operating profit of $29 million at Famous Footwear.

On the strategic side we made significant progress against our portfolio realignment efforts, starting with the sale of Avia and Nevados for $74 million.

Although we were not actively marketing these brands for sale, Galaxy's interest in acquiring them resulted in an offer, which we believe was in the best interest of our shareholders to accept.

This transaction will help us better focus our resources and our efforts, as well as strengthen our balance sheet and better position us to take advantage of future opportunities.

It also allows us to continue to expand and strengthen the ryka brand, which was the most relevant part of the ASG acquisition for us.

Additionally during the quarter, we took several other portfolio actions.

We made the strategic decision not to renew the Vera Wang license, which expires at the end of this year, and we came to a resolution concerning our Etienne Aigner license and finalized the termination of that relationship.

Combined, these and other actions resulted in a charge of $28.8 million during the quarter.

In total for 2013 we expect to record a charge of between $32 million and $34 million, and $17 million of this amount is non-cash.

I am confident that the realignment and refinement of our portfolio will help us to more rapidly execute on our goals and deliver on our long-term targets.

Now, from an operating performance perspective the ongoing execution of our consumer-focused efforts at Famous Footwear continue to deliver positive results, where we reported another outstanding quarter.

Total sales for the first quarter were $352.3 million with same-store sales up 1.1%.

While as we all know weather was tough in the first two months of the quarter, same-store sales growth of 14.2% in April helped the quarter rebound.

And the good news was that we made up the difference faster than expected and we're back on track to meet our Famous Footwear sales plan for 2013 by mid-May.

Even with this less than favorable weather in February and March, we saw an improved conversion rate in the quarter as we continued to benefit from our strategic efforts to put the right products in the right stores in the right locations.

And we think this increase in our conversion rate will extend beyond the improvement in weather as we continue to see sales strength from key vendors with our top four vendors all up 7% or more.

To give you a little more color from a category perspective, we saw stronger boot sales in the quarter, up approximately 21.3%.

Unfortunately these came at the expense of sandals sales, which were down 13.3% in the quarter, but up 4.3% in April as the weather began to turn.

Athletic footwear sales also rebounded in April, up nearly 17%.

Both shoes had another strong quarter, up more than 15%, and canvas footwear overall did very well, up more than 50% in the first quarter.

At Famous.com we marked another quarter of more than 20% growth.

We logged more than 15 million visits at Famous.com with over 5 million of those via mobile.

In total, mobile revenues grew by more than 139% in the quarter as the traditional and online shopping continued to merge.

Now, let's turn to our first-quarter wholesale operations where sales were down 2.9% excluding exited brands.

For total wholesale both gross profit and margins were up thanks to a more profitable brand mix, improved initial margins, and a reduction in inventory markdowns.

As you know, we've been focusing on becoming a more profitable and somewhat leaner in our wholesale operations.

And while there is still some work to do, we made very good progress at wholesale during the quarter.

Our contemporary fashion brands felt the biggest impact from the slow start to the quarter as unseasonable weather weighed heavily on dress sandals and dress shoes.

First-quarter wholesale sales for this platform was down 2.5% excluding exited brands, but we did have really nice growth at Sam Edelman, Franco Sarto, and Carlos Santana, but those things were unable to offset some weaker results that we did have at Via Spiga.

While we saw more markdowns in allowances in the first quarter because of the challenging weather, we have already begun to see retail sales improve in May.

Vince, our newest addition to our contemporary fashion portfolio is off to a strong start.

We expect to gain additional traction with this brand throughout the rest of the year.

And as I mentioned, our Sam Edelman brand outperformed again in the quarter, it was up 25.4%, and in May it was honored by Nordstrom as a partner in excellence.

And of course I think you all know that we launched Sam and Libby at Target earlier this month with our first week outperforming expectations.

So let's move to our healthy living brands.

At Naturalizer, April sales helped offset tough weather in February and March.

Our same-store sales improved as the quarter progressed, and a very strong April helped us end the first quarter up slightly.

All-in Natural sales were down 5.7 %, however, we've been seeing improved turns at this brand, a strong leading indicator of very good health.

And we've also seen inventory get tighter as sellthroughs have improved for the year.

Our Dr. Scholl's shoes brand was up 10.7% for the quarter and continues to perform ahead of plan.

Our shift away from the mass channel to the mid-tier is going well with our strong spring product getting good reception from retailers and consumers.

And LifeStride continues to be a solid performer, up 10.6% in the quarter.

Of note, our ryka brand will be transitioning to St.

Louis over the next few months and the team will be headed up by Deb [Criblo], who has been the driving force behind our LifeStride brand and its terrific performance for the past two years.

So overall, we've made some great progress during the quarter with our strategic portfolio efforts and also in terms of our financial results.

For the remainder of the year, we will be focused on continuing to drive operating margin improvement at all of our businesses.

While we still have to get through back-to-school and the third quarter, our biggest quarter, but due to our strong first-quarter results, I feel very confident in our business and am raising our adjusted EPS guidance to $1.22 to $1.29.

With that I'd now like to turn the call over to Russ and he's going to give you a little bit more detail around our guidance and a review of our financials.

Thank you, Diane, and thank you, everyone for joining us on both the call and webcast.

We certainly appreciate it.

Although Diane briefly reviewed our consolidated sales I'd like to add a little more color.

For the first quarter we reported net sales of $588.7 million versus $598.2 million in the prior year, which reflects an adjustment for discontinued operations related to Avia, Nevados, Aigner, and Vera Wang.

However, results for the first quarter 2013 and 2012 also include sales of $0.2 million and $10.2 million respectively from brands and businesses we have exited.

If we exclude these sales from both periods, net sales of our ongoing businesses were up slightly.

For the first quarter on a GAAP basis we reported a loss of $10.8 million or $0.26 per diluted share versus earnings of $1.7 million in the prior year or $0.04 per diluted share.

First-quarter 2013 results included portfolio realignment costs of $28.8 million, while the first quarter of 2012 included a portfolio realignment and integration related costs of $12.8 million.

On an adjusted basis net earnings in the first quarter improved 38% to $13.8 million, or $0.32 per diluted share, compared to earnings of $10 million or $0.23 per diluted share in the first quarter of 2012.

I'd now like to turn to our individual businesses, beginning with Famous Footwear, which is part of our targeted family platform.

As Diane discussed, we reported good quarter first-quarter sales and record-setting operating profit.

Importantly, even though traffic was down in the quarter our conversion rate was up significantly.

All told, our market basket continued to improve during the first quarter.

These results, it's important to note were with 12 fewer stores year over year, and on a trailing 12-month basis our revenue per square foot exceeded $200 per square foot.

In the first quarter we closed or relocated 13 stores and opened 12.

At quarter end, we remained on track to close or relocate 60 stores and opened 55 in 2013.

Turning to our wholesale operations, where sales were down 2.9% excluding discontinued and exited brands.

For our contemporary fashion portfolio, first-quarter sales excluding discontinued and exited brands were down 2.5%, as we had planned some businesses to move from the first quarter into the second quarter and as we also saw a mix shift to the mid-tier channel.

For our healthy living brands, wholesale sales excluding discontinued and exited brands were down 3.1% in the first quarter.

However, Dr. Scholl's and LifeStride brands both came in ahead of last year and beat budget for this year.

Although Naturalizer revenue was down year over year, the brand is much healthier than this time last year, with first-quarter gross profit up 380 basis points.

For Brown Shoe Company overall, online sales remained a driver of both wholesale and retail in the first quarter.

Wholesale sales via our external e-commerce partners were up more than 15% while our Famous.com site was up more than 20%.

All told, sales at our owned e-commerce sites were up 3.1% in the first quarter and accounted for more than 5% of total sales.

Let's turn to a review of our financial metrics now.

Overall gross margin in the first quarter was 40.8%, which was up approximately 160 basis points.

Our SG&A spend was up slightly year over year, and at 36.3% of revenue, was up approximately 90 basis points.

Inventory at quarter end was $485.9 million, up 2.2% when compared to $475.6 million in 2012.

At Famous Footwear, total inventory was up 1.3%, while at wholesale inventory was up 2.4%.

Net interest expense of $5.7 million was down 5% in the quarter due to reduction in overall debt.

Our corporate tax rate was 51.9% for the quarter, reflecting the nondeductible nature of several of our special charges during the quarter.

Cash and cash equivalents of $44.7 million were up 12.3%.

Our continued dedication to balance sheet management resulted in yet another quarter of significant improvement in our borrowing position.

We ended the quarter with $66 million of borrowings under our revolving credit agreement, a reduction of $39 million from the end of fourth quarter 2012.

At quarter end our revolving credit agreement had nearly $414 million of additional availability.

We expect these numbers to continue to improve as we direct the proceeds from the sale of Avia and Nevados towards further debt reduction.

Depreciation and amortization were $13.8 million for the quarter while capital expenditures were $8.4 million.

Our debt-to-capital ratio decreased to 39.1% from 43.9% in the first quarter 2012, while working capital as a percent of sales was 55.6% versus 49.5% in the prior year.

Before we begin Q&A, I'd like to review our fiscal 2013 guidance.

While we're pleased with our performance in the first quarter, our biggest quarter remains the third quarter, thanks to back-to-school, so we remain realistic in our full-year guidance as we progress through 2013.

To reflect our strong performance in the first quarter and to adjust for exited brands, our updated guidance calls for adjusted earnings per diluted share of $1.22 to $1.29 as Diane mentioned earlier.

Consolidated net sales of $2.54 billion to $2.57 billion, same-store sales at Famous Footwear up low-single digits, net sales at wholesale operations up low-single digits excluding exited brands, gross margin profit up 30 to 50 basis points, SG&A of $900 million to $910 million, net interest expense of $21 million to $22 million, and effective tax rate on an adjusted basis of 32% to 33%, depreciation and amortization of $54 million to $56 million, and capital expenditures of $50 million to $55 million.

In order to make it easier for you to compare and provide clarity and transparency 2012 to 2013 on a go-forward basis, we have as a schedule eight to the earnings release that details by quarter 2012 results excluding discontinued operations, which consist of Avia, Nevados, Vera Wang, and Aigner.

All told, we expect to record $32 million to $34 million of costs related to these and other actions, with $17 million of this amount non-cash, and only another $3 million to $5 million expected in the remainder of the year.

As a result of these charges, GAAP earnings per diluted share for 2013 are expected to be between $0.63 and $0.70.

In addition, I'd like to remind everyone that due to the addition of a 53rd week in 2012, one week of back-to-school sales will shift from the third quarter this year into the second quarter.

All told, we expect to see approximately $15 million of sales shifting from the third quarter of this year into the second quarter.

In addition, we have committed to incremental Famous Footwear marketing spend in the second quarter as we plan to get an early start on our back-to-school outreach by sponsoring Good Morning America's summer concert series.

And with that operator we would be happy to answer all questions.

(Operator Instructions)

Scott Krasik, BB&T Capital Markets.

So I guess I was -- if you said it, I missed it.

Of the new guidance, the $1.22 to $1.29, what contribution from the discontinued ops is in that?

Scott, we have not broken that out specifically.

I think when you look at schedule eight, it will help you see what that impact is year over year.

And then you can apply your math from that, but we have not specifically broken that out.

Would the math then just use the loss from a year ago?

Or was there some other extra component of it, I guess?

I think when you think about our guidance, it stays in line with the strategy that we talked about last summer at our investor day in that we are streamlining the portfolio.

And then on a go-forward basis towards our long-term financial goals, it puts us in a better -- our infrastructure -- our cost structure the profitability of our portfolio in better situation to achieve that.

Okay.

And then in your comments around the benefit to the second quarter, but your offsetting that with marketing costs, should we still assume some benefit to EPS in the second quarter even though you have other investments?

Scott, I'm not sure how to answer your question.

Yes, we're going to see benefits because the second quarter is a good quarter for us, not as strong as our third, but because we are seeing as Diane said, we are confident in our businesses on a go-forward basis and we've raised our annual guidance, we saw an opportunity in Famous to sponsor the Good Morning America concert series, which gives us a significant amount of impressions to the marketplace.

So we feel pretty confident about that.

Right.

So I guess just in terms of the leverage on the extra sales, even though you're spending a little more on marketing, you'll still get additional leverage on those sales based on the timing?

Absolutely.

Okay.

And then can you say what the productivity or the average productivity is from the 60 stores that you're closing in 2013?

They're mixed because they're in different regions.

Maybe to give you a flavor, they're significantly lower than the $200 we're running.

If you remember, when we showed you at the investor day that we started around $180.

And now we're up to $200 on average, and we have some that are significantly below that.

And we have some that are slightly above that $180, but most of them are below it.

So we're still -- maybe in the $150, $160 range or something like that?

Yes.

It will be in the $150 range, Scott.

And then in terms of 2014, are you comfortable with the existing portfolio at that point?

Or is there still a class of stores or a group of stores?

Yes.

No, we're -- with regard to the store base, we're always going to manage the store base like a portfolio and exit locations that we feel that we need to.

But certainly not -- I don't expect it to be at the pace that we have done this last year.

And as it relates to the wholesale brand portfolio, I would say that we're very comfortable today with the brands now that are in our portfolio.

So we don't see additional changes going forward.

Okay.

And I missed some of the commentary at the beginning, I don't know if Rick is on the call or not, but I assume the nautical boat shoe category is very strong and you definitely called out athletic.

Maybe talk about some of the other categories, was molded footwear a strong category?

How are you looking at maybe boots and booties for the beginning of back-to-school?

And Q3?

Yes.

I did say that boat shoes were up more than 15% in the quarter.

Athletic sales were up 19%.

Boot -- really all in April, right, exactly, Rick.

Boot sales were up as well, 21%.

That impacted sandal sales, they rebounded a little over 4%, so a little better than 4% in April.

But Rick, molded footwear and other categories --

I think some impact on the molded business, as the sandal business I think gets a little bit more of a summer and better weather business, so we were up, but we weren't up significantly.

And we had a big increase in that category last year, so we were pretty happy to have a decrease in the first quarter, but it wasn't what we had planned.

We think it will be better in the second quarter just because the weather gets better.

We've seen that happen already in the first three or four weeks.

And then you ride the fashion shift so far in early back-to-school, do you make any changes, do you bring in booties earlier?

Yes.

We had a strategy to bring in some lace up boots, the casual boot category we think is going to be important, but when I say important in our sense, it will have a presence in our store.

But again, we are more committed to canvas footwear and the athletic business than we are to junior casual boots, but we will have a bigger presence of that category in our stores for back-to-school than we've had in the past.

Okay.

Thanks very much and good luck.

Danielle McCoy, Brean Capital.

Congrats on a great quarter.

I guess if we look at Famous Footwear, you guys have been making a lot of great progress there.

How should we will look at more like the longer-term store build out?

I know you guys are looking to close and open similar amount of stores over the next two years.

Is there potential for that store base to get higher than the 1,050-ish range or are you guys just comfortable with that level?

Well, I think there's always opportunity if we get the right locations.

We really look at it from where our customers are and where the opportunities lie from a retail operating space, is there a center we can go into, is there other retail we can be adjacent to?

I don't think we've been limited by any of our own constraints.

I think it's been about making sure we've opened the stores in the right place where we can get the returns we're looking for from them.

So to answer your question, it could be higher, but it's an individual basis based on the availability of retail space.

Okay.

Great.

And do you guys have a more detailed open-close plan for the remainder of this year?

For Famous Footwear?

We do.

Very much so.

Yes.

Again, I don't have it with me, but we could provide that.

There's nothing -- we opened basically in three places.

We've opened the most of our stores in spring in March, April.

We open again -- we have another opening wave come at the end of June through August 1. We open stores then, and whatever's leftover we kind of try to open at the end of October and early November.

And some of that depends, Danielle, on center opening and center being ready -- if it's a new center and the space being available, but those are the three kinds we open.

The closings come based again on lease expirations pretty much.

And so those things can be varied along the way.

A lot of those will come, some of those will come at the end of the year because leases end at the end of January.

And if possible, we would want to get them open before back-to-school.

Right, we try to open more back-to-school, but sometimes not able to do that because the center is not ready.

But we can provide you more of those details if you'd like.

Okay.

Yes.

That would be great.

And then looking at the specialty segment, how should we look at that going further?

Are you guys using the same sort of optimization of that real estate portfolio as you are in Famous Footwear?

We are.

We are.

So from a specialty standpoint, we go through the same process with our real estate committee and with the same level of rigor into the stores and the locations that we're opening and closing.

Okay.

And then do you have a number on how many you might be opening or closing this year?

I believe it's like 13 net.

That ballpark.

But I'll double check that for you, Danielle.

Okay.

And I think that's actually about it.

Thank you, guys, so much and good luck.

Jill Caruthers, Johnson Rice.

You talked about athletic sales being up for April, but could you talk about the first quarter in general, what athletic comps were for Famous?

I think we're up slightly, flat to up slightly.

Okay.

And then could you talk about just the wholesale brand portfolio, I guess the new addition or new news with the Vera Wang exit at the end of the year.

Talk about why maybe that didn't fit the portfolio or reasonings for exiting that license?

Sure.

It was a natural license expiration, so we had been -- had been working with Vera for the last five years, and basically as we looked at the opportunities within our portfolio and other things in the marketplace, we thought it was just sort of the right time to make that call.

So that's really the simple reason why.

And we love Vera and love what she's doing, but felt our resources could be better focused in our contemporary fashion business against our brands like Sam Edelman or Vince, and where we could get some more significant growth.

Okay.

And then within the first quarter I know it was very volatile with the weather and whatnot, but with wholesale adjusted sales being down, was it mainly fewer in-season reorders or things of that nature?

Is that how we should view the --

Yes.

Particularly -- there were really two areas where we were most challenged.

One was in Via Spiga and that had a lot to do with the category of business that they're in, they really are in that dress and dress sandal category, so as we know, that was not a great quarter for that.

So they were hurt as we look through the rest of the year.

I expect it to recover somewhat but it's going to take a while.

And then of course Naturalizer is just really starting its rebound.

By the end of this year we expect to be in good position.

But everyone else had an up quarter in terms of their sales, Scholl's was up, LifeStride was up, Franco was up, Sam was up, Carlos was up, so it was really just those two.

Okay.

And then just last question, given the additions you've done to the brand portfolio review and whatnot, could you update the targeted EBIT contribution?

I think the last number you had given was overall, the initiatives would add $15 million to EBIT.

Didn't know if you could update that number given some of the new brand sales and whatnot?

Yes.

So the $15 million from the activities on the portfolio restructuring have not changed.

And then what we've done on the schedule eight is we've broken out for you the impact of the discontinued and exited businesses, so you can see that in detail.

And we've also reworked the quarters from last year, so you can update your model on those impacts as well.

All right.

Thank you.

Steve Marotta, CL King and Associates.

As it relates to the gross margin in the first quarter being up 160 basis points, can you drill down a little bit there?

Was it being more narrow and deep at Famous that helped out?

I know that Famous was up 30 basis points, wholesale was up, was it the discontinuation of lower margins merchandise?

Can you just drill down a little bit on that?

Steve, at Famous it's all that mix, I think.

Our sandal business is up at that time is a high-margin, but we had some categories, the canvas business that was driving the first-quarter sales as we documented in the call earlier.

But it's high-margin business as well, so I think we were able to transfer some business that we would have (inaudible) sandals into that.

Canvas, it's a good margin business and that drove a lot of additional sales, so I think it's mostly around a mix issue.

Would be how I would classify it.

But yes, it came out very well.

We were pretty happy with our margin mix in the first quarter.

Steve, I'd just add the gross margins that we showed at 40% versus the 38.2% last year, it was largely driven by higher-margin wholesale as well as the higher proportion of retail mix that Rick talked to.

I think the exciting thing is we saw increase in margins in all of our business in Famous, in wholesale, and in specialty versus last year.

So the strategy that we're working on is delivering results.

Okay.

That's great.

In your investor day last year you talked about a goal of 8% operating margins; given the current or recent divestitures, has that goal changed?

And have you also more clearly delineated a timeframe for it?

The goal has not changed.

It's still our long-term goal.

We are making good steady progress towards it and that is still our goal.

Okay.

And do you want to comment at all on quarter to date?

Has it -- has May experienced not necessarily similar trends and double digits like April did, but something along those pace and I assume that sandal sales were better in May than April?

Yes.

The trend has lessened obviously for May, but our trend right now is high-single digits, which is we're very happy with that.

Sandals have done better.

The athletic business has done better.

It's been in those big key categories for us, so I think again we're seeing a broad-based, gives us some confidence not only for second quarter, but a lot of what we're seeing is product that we would have impact for back-to-school.

So we're pretty confident that the assortment looks good, we will keep working on that, but right now we're seeing pretty good results.

Just to be very clear, you're saying Famous' comps in May are high-single digits?

Say that one more time?

Yes.

Excellent.

And my very last question is as it relates to marketing spend on a year over year basis, I know there were some variances between quarters.

And as you mentioned from Good Morning America standpoint, I'm assuming that now the second quarter's going to feel a bigger bucket from a marketing spend.

Can you go over a little bit the quarterly cadence there this year versus last year?

The only place that would really make a difference is second quarter, because that's really where the bulk of the Good Morning America spend starts.

It actually started last week, it goes through August but the bulk of it is between now and August 1. So on an annual basis I think it's between 10 and 15 basis points higher on a marketing spend than we have talked about in past, which we basically said was equal to last year.

Again, we would hope that somewhere along the way we either could find that in the cost side or we could find it in the additional sales, but right now we're saying that's what would show up in our annual number.

Yes.

And I think to answer your question on a quarterly cadence, as I mentioned, this is primarily a second-quarter activity, it does run all summer so we will see higher marketing expense in the second quarter from that quarterly cadence perspective, as Rick was talking, the annual impact and then the quarterly we do see second quarter being higher.

If it's annually, then roughly equal with last year, wouldn't that then imply third quarter would be down on a year over year basis?

No.

I said plus 10 to 15 basis points versus last year on an annual basis.

I got you.

I got you.

Okay.

Fair enough.

Thank you.

Jeff Stein, Northcoast.

Diane, question on Naturalizer -- just trying to understand what the issues are in order to get that business back on track, because it seems like virtually everything else in your wholesale portfolio is up.

And with the exception of Via Spiga above plan, but Naturalizer's kind of the biggest bucket there, so what are the key issues and what is kind of the timeline to get them resolved?

We feel, Jeff, by the end of this year, we should be back showing good growth in Naturalizer quarter to quarter.

It's been a combination of a lot of things as I've said in the prior calls.

It had a lot to do with first of all the implementation of ASF and SAP.

That hit them hard, particularly with the large independent basis they had so that was a bit difficult last year.

There were some design miss-steps as well.

So that was a bit of an issue and we believe again that we've got that corrected.

And as we move through the course of the year, that we'll see continuous improvement in the Naturalizer business.

It's one of those things you pick up as use you've certainly seen if you do on some of the wholesale business, it takes you probably two to three seasons to recover, so I would expect by late this year we're going to see that.

That's what our forecast calls for, that's what our plans call for, and then really nice improvement as we turn into 2014.

And the key thing, one other thing I will say, gets back to again we've been mostly focused on improving gross margin rates and operating margins.

I mean, not to say that we're not trying to get that topline going in the right direction, but that's been the focus, and as we turn the corner to fourth and into next year, we think Naturalizer can do all of the above, not just two of the above.

So with regard to -- if you're looking at sales versus let's say execution issues, are the execution issues in your view pretty much behind you?

And now you have to win back the shelf space from the retailer?

Absolutely.

Without a doubt.

Okay.

Russ, on the calendar shift, of the $15 million I presume that the vast majority of that would affect Famous Footwear.

Would that be correct?

That's correct.

100%.

Okay.

Great.

So in other words, all $15 million you're saying, none of the wholesale business?

That's correct.

Okay.

And with regard to your specialty retail business, back to that, I mean is that kind of on the table as far as taking a look at that segment as part of your portfolio review?

Because at the end of the day, it's less than 10% of your total business.

And if you look at the long-term track record there, it really has never been much of a contributor, and yet I presume it requires quite a bit of working capital and management time.

Do you really need to have that business as part of the portfolio?

I think the thing that you need to understand on -- I'm sure you do -- on the specialty retail side, is the all-in impact including wholesale that it drives.

And the profitability on a Naturalizer as you heard Diane mentioned that our margins are improving and the profitability of the overall business is improving, including the retail side as well as the wholesale side.

But the flow-through impact on wholesale profitability is pretty significant for the Company and that's why it's a pretty strategic asset for us.

But all in, our Naturalizer profitability wholesale and retail, especially retail is improving.

And improving nicely year over year.

Okay.

And the final question, back to Vera Wang, was it more a question of disappointing sales performance of Vera, or you just could not get together on terms?

It was actually really neither.

We've been working with Vera for the last five years.

We were at this natural place, Jeff, where the license was either up for renewal or not.

And when I looked at the opportunities that we had with Sam Edelman and Vince, we felt our resources could be best focused on those as growth opportunities.

So it was really that.

Got it.

Okay.

Thank you very much.

Chris Svezia, Susquehanna.

Nice job on the quarter.

Diane, question for you, just your retail partners department stores, et cetera, how are they thinking about how spring unfolded for you guys and any impact?

And maybe how they're thinking about fall and the order activity and they are willing to take on existing orders, just kind of getting the pulse of how your retail customers are feeling at this point.

I think in general they are feeling terrific.

Let me give you a little bit of a perspective.

Number one, it's very obvious you don't have to travel too far to know how strong the Sam Edelman brand and all of this San and Libby and all that's doing.

So they feel really terrific about that.

Vince, that new line is growing rapidly.

We're increasing the door base in Vince so we really think that through next fall, that's going to be terrific and into next year, so they're positive about that.

You turn to Franco, that's growing, Carlos and Fergie are growing.

The real issue is the two that I've mentioned which is Via Spiga, we have some work to do with respect to making sure that we balance the categories of business there because the consumer moved very quickly to more casual kinds of footwear.

I'd leave it at that.

So as we turn to fall, we think that will rebound.

And Naturalizer is already starting its run ahead, so generally speaking, Chris, I think we're in good position.

Okay.

That's good to hear.

And for you, just on the Famous side, I might have missed this I got on a little late here, can you talk about maybe just the traffic and conversion and ticket trends you saw in the first quarter?

And obviously in May, I'm assuming if you're talking high single, that had to have improved --

Yes.

Yes.

So we did say that we were -- comps were running in the high single, that's after the 14.2% increase in April.

Our traffic counts in the quarter were down a bit.

But our conversion rate and basket size and everything was up.

In fact, our conversion rates were so strong it's really the highest that we've had in the history of Famous.

So we really believe all the work that Rick and the team have been doing to make sure we do have the right product and the right spot is really working.

Conversion was up 6.1%.

Pairs per transaction were up about 1%, and footwear AURs were up just slightly at about 0.3%.

So felt pretty good about it.

And how do you guys feel about pricing on the Famous Footwear side as going to the back half of the year?

In other words, how do you think about average unit retails, average selling price, et cetera, the mix of business going to the back half of the year for back-to-school?

I'll flip that over to Rick.

He can --

I don't see anything being negative there.

I think the biggest question sometimes on all that is how the customer shops and buys, right?

So we haven't got anything in our assortment that would tell me it's going to go down.

So just a matter of how they shop and if they gravitate to canvas, which is obviously a lower price point than higher-end athletic more than we expect and that could change it, but those shoes are at pretty good margins, so it won't impact our margins necessarily.

So there could be a combination of things happen Chris, but on the surface, again first quarter was pretty indicative of that, we had a really strong growth in canvas and a modest growth in athletic, but we still came out with higher average retails and better conversions.

So some of that really depends on how the customer buys, but I don't see anything that would make it negative.

How much do you think in May that you're seeing is that just really pent-up demand or is that -- I'm just trying to gauge how much up high single is just really --

We don't expect the rest quarter to be high single, let me put it that way.

So I believe there was a change obviously weather change and people got more seasonal, seasonable in bigger parts of the country than we have a lot of stores, whether it be Minneapolis or Chicago or the Northeast, and that drove some business.

Those are the places that we're lagging in first quarter, they came on in the first four or five -- last three or four weeks of first quarter and the first three weeks of May.

And that will moderate.

We expect that to moderate.

We are not expecting high-single digits.

We'd love it.

But we're not expecting that but again we started off nicely and we'll see what happens, but those things are all starting to even out a little bit around the country.

Okay.

And then Russ, a couple questions for you, just on your revenue guidance for the year didn't change too much relative to last time you reported.

You guys already factor in Avia being outside of the business or is something else offsetting that?

We did.

Okay.

And then on the charges, can you walk through the $32 million to $34 million, what's in that, what's cash, what's non-cash what's -- just parcel out what that is?

I'd be happy to.

And again, on schedule four of the attachments on the earnings release, we walked through the GAAP to non-GAAP adjustment.

But basically, if you look at the $29 million that we incurred in the quarter of a pretax impact of the charges, $17.2 million is non-cash and $11.6 million is due to business exits and cost reductions.

And if you think about it of the $29 million we recorded in the first quarter, about $13 million was for Avia Nevados, about $5 million was disposal of assets, and about $7 million was Aigner, and $3.5 million Vera.

And the rest miscellaneous.

If that helps from a breakout perspective.

Okay.

So --

Again, that's all on schedule four.

Okay.

All right.

I'll take -- just so I've got this right, so really not a lot of this is really related to Avia, a lot of it is related to -- actually wait, the $13 million, is the $13 million related to it?

I might have missed you on that.

Correct.

Which is really the impairment.

Non-cash.

Okay.

Let me ask you this, was Avia, I don't recall, was Avia a profitable business more so than the wholesale corporate average or no?

We did not break that out, but I think the way to think about it is through this transaction, we've kept the more profitable piece of that business, ryka, and it folds in nicely to our healthy living, so it's improving our portfolio.

Okay.

And then lastly here, two things real quickly, just balance sheet at year end, where should cash roughly be?

Cash net of debt or however we want to look at it?

The balance sheet?

So our cash is going to continue to improve.

We will have the proceeds from the Avia Nevados sale that we will be applying to debt, which will significantly improve that here in the next quarter.

And so you'll see our cash number improving significantly on the balance sheet.

We did not actually provide that number though, but you'll see most of the proceeds be used to pay down debt.

Okay.

And lastly just on the EBIT margin on wholesale, if I got this correct, looked like year over year it's still flat, does that include the exit -- that includes all the exits of these non-go forward businesses, correct?

So it's apples-to-apples comparison on an adjusted basis, correct?

I'm sorry, would you repeat that please?

I guess I'm saying is if you could look at Q1 you did a 4.6% EBIT margin on the wholesale business.

It looks flat year over year.

I guess my question is, does that include all the non-go forward businesses are taken out of that number, so it's an apples to apples, correct?

That's correct.

So let me -- okay.

And also on your previous question if you look at schedule 8 you'll see the specific break out of the pieces I was giving you.

I said schedule 5 before.

Okay.

All right.

That's all I have.

Thank you.

Scott Krasik, BB&T Capital Markets.

Just a few.

First, Rick, you've been committed to continuing to run BOGOs during high-traffic peak periods, do you still think your customer relies on that, and is that a strategy that shouldn't change?

The only time we actually run it anymore is back-to-school, so I don't see that changing.

Okay.

And then Diane, Sam Edelman was great.

I've seen the Sam and Libby shoes at Target.

They look pretty special.

Maybe, can you tell us how many stores those are in right now and what the early read on that is?

Yes.

I can tell you that the early read, the first week it was way exceeded everybody's expectations, well above the plan.

It's been three weeks, it's moderated in the second and third week, but still running ahead of the expectations that both Sam and Libby and Target had.

Which was pretty excessive, Scott, we were a little worried about launching in May.

It's not the ideal time, particularly when at the heavy sandal assortments, but it ended up being okay, just because of the weather.

And the way the weather changed.

If we had launched earlier, we probably wouldn't have been as successful, so first three weeks so far so good.

And the door count, I have to get back to you on how many.

Is there room for the Sam and Libby strategy at Target -- is there room for it to expand or did you go in sort of full --

There's room to expand.

Not only in terms of footwear but other extensions into other categories of the lifestyle as well.

So that would be -- we would love to be able to do that.

Okay.

And then to the extent that you've always said Vince is going to be pretty small or has been pretty small, but now they are talking about an IPO in the fall, I'm sure that footwear is an important part of that business, so maybe talk about your expectations now for Vince over the next couple of years?

Yes.

Great question.

I think it was actually we're really pleased with the progress that really Kellwood and Vince have made, because you're right, it puts a lot more focus on growth and (inaudible) there and developing that.

So I would tell you, we see at a minimum, a $30 million to $40 million footwear business in the next three years.

That's our goal.

Okay.

That's helpful.

Thanks.

That's great.

And then Russ, just last, I'm just looking back at the 8-K you guys filed about the Avia sale.

It looks like last year on a pro forma basis, it lost about $7.5 million.

Is that the right way to look at it?

I think if you go to schedule 8, it has the detail on that for you.

So -- okay.

So the schedule 8 matches what the pro forma numbers were?

No.

Actually it does not because that has other exit brands as well.

So if you're asking just Avia, and first of all we sold Avia and Nevados, yes, it was at a loss at that point in time on that pro forma that we had in the 8-K.

Okay.

Thank you very much.

At this time we have no further questions.

Diane, do you have any closing remarks?

Thank you, everyone for joining us today.

Looking forward to talking with you at the upcoming shoe show in New York.

And then of course for our second-quarter call in early September I actually think it is.

So thanks again for joining us.

Appreciate it.

This does conclude today's conference.

You may now disconnect.