Caleres Inc (CAL) 2013 Q2 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the second-quarter 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).

I would now like to turn the call over to Peggy Riley Tharp.

Thank you.

You may begin your conference.

Thank you, Carmen.

Good morning and thank you for participating in the Brown Shoe Company second quarter 2013 earnings call, which is being made available to the public via webcast.

I am Peggy Riley Tharp, Vice President of Investor Relations for Brown Shoe Company.

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 10K 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 today on the call are Diane Sullivan, President and Chief Executive Officer; Russ Hammer, Chief Financial Officer; and Rick Ausick, President of Famous Footwear.

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

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

Good morning and thanks for joining us today as we report another strong quarter of Brown Shoe Company results.

Second-quarter consolidated sales of $621.7 million were up 10% over last year, and that does exclude sales from discontinued brands.

Adjusted earnings per share of $0.33 were up 106% as we continued to incrementally benefit from our Famous Footwear real estate, inventory assortment, and marketing efforts, while making good strides with our Healthy Living and Contemporary Fashion wholesale portfolios as well.

You know, for about a year now, I have been telling you that Famous is the leading indicator that our strategic initiatives are working.

But, with our second-quarter results, it is clear our success is becoming somewhat more broad-based, spanning both retail and wholesale as we continue to deliver against our strategic plans and long-term goals.

Let's drill down a bit, starting with Famous Footwear where we saw continued strength in same-store sales, up 6.8% for the quarter and 4% for the first half of the year.

Total sales at Famous were $388.2 million, while operating profit of $29 million was up 41%, and both of these are second-quarter records.

Weather remains unpredictable in the quarter, and we saw a related decline in traffic.

However, all of our other key indicators were positive, especially our conversion rate which was up 6.3%.

We believe our improved conversion rate is due to solid performance in key categories during the quarter.

Women's and kids sandals were both up 10%, and we also saw good overall athletic sales, up 7% in total with men's, women's, and kids all contributing to this growth.

Canvas outperformed in the quarter as well, up 26%.

Color continued to drive interest in canvas and other styles, including accessories, which were up 8%.

As you might expect, boots have continued to transcend seasons with sales at Famous for boots in the second quarter up 7%.

So when you add it all together, we have just seen a number of different styles and categories working well with no single product or trends dominating our sales or our assortment.

At famous.com, sales were up 14% in the second quarter, and we lost more than logged 15 million visits with over 5 million of those via mobile.

Traffic was up 15% at famous.com as consumers continue to merge their online and in-store shopping experiences.

Before we turn to wholesale, I would like to take just a few minutes to update you on our back-to-school so far.

You know, we followed last year's success with a very similar go-to-market plan, but made sure that we drilled down on the things that were really working.

Once again, we targeted big brand ideas and invested in key product inventory.

We went in deep for these items and then amplified them through in-store signage, displays, and end caps to truly tell these brand stories.

We also continued with national TV, including the addition of the Good Morning America summer concert series sponsorship.

These 15 concerts took place each Friday morning in the summer and helped increase Famous's visibility and brand presence on a national scale.

If you haven't had a chance to see any of the concerts yet and see what (technical difficulty) presence Famous has on that show, there is one left between Labor Day, featuring Alicia Keys.

We also increased our overall reach through digital and online advertising and continue to drive home our message that Famous is all about brand, ease and family.

And with back-to-school sales up mid-single digits over the past six weeks, I think it is clear that our message is resonating and delivering.

Just as we did last year, we are maximizing our back-to-school store traffic to drive participation in our rewards program.

This effort has been even more successful this year as we expect to add more than 1 million new members during back-to-school, up 6% over last year.

With each new rewards member, we gain more information on our consumers and insight into their shopping history.

As a result, we are able to target our offers to be more relevant to each individual consumer.

Now, let's turn to our wholesale operations where sales of $180.5 million were up 12.4%, excluding sales from discontinued brands.

While there is no doubt this was an outstanding quarter, we had about $7 million of sales shift into the second quarter from the third, primarily for Naturalizer and our other Healthy Living brands.

The shift includes the acceleration of orders at the request of our retail partners, which is an encouraging sign, as well as supply chain improvements that have helped us get product to market sooner than last year.

Healthy Living sales for the second quarter grew 14.4% to $106.1 million, excluding sales from discontinued brands, and we are seeing improvement across all of the brands in this segment of our portfolio.

For our largest brand, Naturalizer, wholesale sales were up 17% in the quarter.

At Naturalizer retail, same-store sales were up nearly 5% as a strong May continued into June.

Although we still have work to do to get Naturalizer back to where it has historically performed, we are certainly seeing tangible signs of improvement with all-in sales up 9% in the second quarter.

For fall read for our Naturalizer retail stores are encouraging with good consumer response to our fall products and year-over-year increase in early sell-throughs.

We are also seeing positive fall product reads for our other Healthy Living brands.

For the second quarter, Dr. Scholl's and LifeStride both reported good results with sales up double-digits for both brands.

And ryka exceeded its internal plan as we continued with the transition of this brand to St.

Louis.

At our Contemporary Fashion brand, sales of $73.4 million were up 10.2% in the quarter, excluding sales from discontinued brands.

We saw a continued strong performance from Sam Edelman and Franco Sarto, up 25% and 16%, respectively.

The products looked great for both of these brands, the two largest in our Contemporary Passion portfolio, and retailers and consumers can't get enough of them.

And for our Sam Edelman brand, consumers will now be able to get (technical difficulty) in addition to footwear, handbags, outwear and jewelry.

As you might have seen in WWD, we will be partnering with Kellwood on the apparel line, which will include tops, bottoms, knits, wovens and dresses.

We have already seen interest from every Sam Edelman customer, and the excitement in the industry about this partnership is very encouraging.

And for Vince, our spring product performs very well in its second season, and early fall selling has been strong across all categories.

Both June and August standings were strong for Vince, and we continue to add doors for this dynamic new brand.

We did continue to see some weakness at Via Spiga, and we have been continuing to work quickly to adapt to consumer demand for much more casual footwear.

And those of you who might have had the opportunity to visit us during the shoe show season here, you would have seen how relevant our 2014 Via Spiga line looks.

So encouraged for 2014.

Clearly, our performance exceeded expectations in the second quarter with Famous Footwear firing on all cylinders and our wholesale operations up double-digits.

To reflect our strong second-quarter results, we are raising our adjusted EPS guidance range to $1.27 to $1.32.

While we look to be on track for a good back-to-school season, I would like to remind everyone that one week of back-to-school sales or approximately $15 million of incremental sales moved to the second quarter from the third quarter this year.

This is in addition to the $7 million of wholesale sales which shifted into the second quarter from the third quarter.

And we are also seeing retailers beginning to indicate that they may be shifting some spring orders from the fourth quarter of this year into the first quarter of next as they begin to really assess this -- more of this buy now, wear now trends.

So while we plan our business on a quarterly fiscal basis and you model it the same way, consumers don't always shop that way.

They are shopping seasonally.

It is not going to always flow perfectly from quarter to quarter, and that is going to include the back half of this year for us.

With that said, I believe we are retaining an appropriate amount of realism for the back half, despite our strong first half, based on the current macro retail environment.

And, at this point, it is difficult to tell what impact, if any, this will have on our third and fourth quarter.

With that, I would now like to turn the call over to Russ for a review of our financials and a little bit more detail around our guidance.

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

We certainly appreciate it.

We are pleased with how we delivered in the first half in a challenging environment.

The second quarter was another proof point that we have the right strategies and the right product to deliver consistently on our promises to our shareholders.

The execution of our strategy has delivered the results for our shareholders over the past six quarters, but we still have much work to do.

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

For the second quarter, we reported net sales of $621.7 million versus $564.9 million in the prior year, and both amounts excluded sales from discontinued operations.

As a reminder and to provide further clarity, discontinued operations include the Avia, Nevados, Vera Wang, and [Enya] brands.

However, results for the second quarter included sales of approximately $1 million for brands and businesses we have exited.

In the second quarter of last year, this amount was $2.8 million.

The brands and businesses we have exited include our FX LaSalle and Brown Shoe Closet sales, and also our children and women's specialty wholesale brands.

We will lap most remaining sales for these brands and businesses in the third quarter of this year.

On a GAAP basis, we reported net earnings of $15.4 million in the second quarter or $0.35 per diluted share versus a loss of $2.5 million in the prior year or $0.06 per diluted share.

Second-quarter 2013 results included pretax portfolio realignment costs of $1.8 million, while the second-quarter 2012 included portfolio realignment and other organization change costs of $14.6 million, also on a pretax basis.

On an adjusted basis, earnings in the second quarter improved 108% to $14.2 million or $0.33 per diluted share.

This is compared to earnings of $6.8 million or $0.16 per diluted share in the second quarter of 2012.

I would 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 second-quarter results with same-store sales up 6.8%.

These results were with five more stores year-over-year, and on a trailing 12 month basis, our revenue per square foot has improved over $205.

We remain on track to close or relocate about 60 stores and open 55 in 2013.

And in the second quarter, we closed or relocated 14 stores and opened 19.

Year-to-date stores we have opened in 2013 are exceeding our pro forma targets, and that includes our first Canadian store, which opened at the end of the second quarter at the Toronto Premium Outlets.

Now turning to our wholesale operations, where sales of $180.5 million were up 12.4%, excluding sales and discontinued brands, contemporary fashion second-quarter sales of $73.4 million, excluding sales from discontinued brands, were up 10.2%.

For our Healthy Living brands, wholesale sales of $106.1 million were up 14.4% in the second quarter, excluding sales from discontinued brands.

For total wholesale, gross margin was up 20 basis points as we continued to target lower initial costs and reduced markdowns and allowances.

Wholesale sales via our external e-commerce partners were up 5.6%, while our famous.com site was up more than 14%.

All told, sales at our owned e-commerce sites were up 5.4% in the second quarter and accounted for more than 4% of total sales.

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

Overall, gross margin in the second quarter was 41%, which was up approximately 70 basis points.

Our SG&A spend was up $19.4 million year over year.

However, at 37.2% of revenue, it was down about 30 basis points as we continued to leverage our spend.

Inventory at quarter end was $616 million, up from $586 million in 2012.

At Famous Footwear, total inventory was up 3.4% as we invested in the right inventory and sizes, while wholesale inventory was up 4.3%.

Net interest expense of $5.1 million was down 8.2% in the quarter due to a reduction in overall debt.

Our consolidated tax rate was 23.1% for the quarter, reflecting a lower anticipated full year tax rate.

Cash and cash equivalents of $53.1 million were up 12.1%.

We ended the quarter with $23 million of borrowings under our revolving credit agreement, a reduction of $82 million from the end of the fourth quarter of 2012.

And at quarter end, our revolving credit agreement had $498 million of additional availability.

Depreciation and amortization was $13.5 million for the quarter, while capital expenditures were $22 million.

Our debt to capital ratio improved to 34.2% from 43.6% in the second quarter of 2012.

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

Despite uneven weather patterns and a decline in retail traffic, our performance in the first half of the year exceeded expectations.

As a result, we are updating our fiscal 2013 guidance.

We now expect consolidated net sales of $2.53 billion to $2.56 billion; same store sales of Famous Footwear below single digits; net sales at wholesale operations up low to mid single digits for continuing operations; gross profit margin flat for continuing operations; SG&A of $910 million to $915 million will be flat to down slightly as a percent of sales; net interest of $21 million to $22 million; an effective tax rate on an adjusted basis of 31% to 32%; depreciation and amortization of $54 million to $56 million; capital expenditures of $55 million to $57 million.

Our GAAP earnings per diluted share for 2013 are expected to be between $0.73 and $0.78, and this includes $31 million of nonrecurring costs.

And, as Diane mentioned, we are raising our guidance on our adjusted earnings per diluted share to $1.27 to $1.32.

However, as Diane did, and I would again like to remind everyone, that due to the addition of the 53rd week in 2012, one week of back-to-school sales shifted to the second quarter this year from the third quarter, and this accounts for approximately $15 million of incremental sales in the second quarter out of the third quarter.

This is in addition to the $7 million of wholesale sales that shifted into the second quarter this year from the third quarter.

In total, approximately $22 million of retail and wholesale sales shifted into the second quarter of this year from the third quarter or about $0.09 of EPS.

We believe this will provide further clarity for you in your quarterly models quarterly.

Finally, we expect we can see some wholesale sales shift from the fourth quarter of 2013 into the first quarter of 2014 as retailers navigate their fiscal year-end spring product arrivals and an earlier Chinese New Year.

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

(Operator Instructions).

Jeff Stein, Northcoast Research.

Good morning, guys, and congrats on a very nice quarter in a very tough environment.

SG&A -- looking at your guidance on SG&A, it looks like since first quarter you have taken that number up $10 million to $15 million.

Wondering, first, if you could address that, where that is coming from?

Sure.

So most of that -- in the second quarter, if you remember, in the last earnings call, we told everybody about the Good Morning America marketing spend that we have been doing.

So that is part of the increase in the second quarter, and we will see that ratchet down.

We do have some of the Good Morning America in the third quarter, but most was in the second quarter.

And the other piece of that is just the variable expenses that go with the back-to-school and the strong performance we saw at Famous.

So we have variable expenses that will go up and down with the business.

Got it.

Got it.

And I am just kind of curious, you are looking -- essentially, you are implying a down second half of the year, and I understand part of that is from the revenue shift from one quarter to another.

But, still, it sounds like with wholesale now beginning to turn and good back-to-school results that -- I mean, are you being conservative or just cautious?

Yes, I think there's two things.

One, remember the shift also that left third quarter, Jeff, into second quarter, where last year that was the opposite.

So that is part of why you are seeing that performance down in the second half.

And then, we still have over half the year ahead of us, and our biggest quarter, as you know, is the third quarter, and we are cautious as we go into it that this environment with retail is uncertain.

Jeff, it is Diane.

I think the other thing, too, if you think about the top end of the guidance, the $1.32, that is close to a 17% increase over our earnings last year, too.

So all-in for the year, it is a pretty good performance, and we have to see the whites of their eyes to remain any more than that at this point, sitting here on August 27, I think it is.

So I don't we are being conservative when we look at really all-in last year.

Okay.

Wondering if you could talk about your deal with target and how that is progressing, and then, also, talk about the potential that you see next year for the Sam Edelman lifestyle royalty agreement, I guess, for lack of better understanding on that and how that might be able to -- how that may impact your results next year?

Yes.

Well, obviously, we are very excited about the Sam Edelman business.

Sam & Libby and the teams have done a terrific job of really expanding beyond just a footwear business into more of a lifestyle brand.

So we continue to think that investment in that brand is a good idea.

But not only with Target, which, by the way, yes, the performance of our business there has been very good.

It is going to continue to be probably about that size or even larger as we move into next year.

It's hard to know yet.

So, again, all the orders are in, but we are very encouraged with the sell-throughs and the performance.

And the Target team has just been terrific.

So we have a lot of good vibes about that.

And then, with Kellwood, we just announced it, Jeff, so Sam and Lynn Shanahan from Kellwood and the team are just in the process of putting those plans together.

So it's probably a little early for me to comment on the total impact, but clearly it -- all of those things -- all the categories will work together beautifully to really have a much stronger presence of the Sam Edelman brand beyond just the footwear locations.

And maybe the last thing -- I didn't mention it in the script -- we are looking at additional storage for Sam as well.

So we've signed a lease for a store in LA, and we continue to look for the right locations, including shop-in-shops and some -- with some of our retail partners.

So we are really making sure that we invest in that business and drive the growth there.

Okay.

Thank you.

Also, thank you for providing a little more detail on the breakdown of wholesale between your healthy living and contemporary fashion.

I'm wondering, do you have those numbers for first quarter so we might begin to develop a more detailed model, and, also, wondering if you could comment on how much Via Spiga was down during the second quarter?

So we do have those, and we can provide those to you.

And the Via Spiga was down in the quarter, as Diane mentioned.

We continue to see that softness from the early spring season.

I don't think that we are going to breakout any more detail on that at this time, though.

Okay.

Well just you did provide the detail on the other brands.

That's the reason I'm asking.

I mean, was it down double-digits?

Sure.

It was down double-digits.

For Via Spiga.

Okay.

Great.

Yes.

Thank you.

Scott Krasik, BB&T Capital Markets.

Hey, guys.

Congratulations.

Hey, Scott.

Good morning, Scott.

How are you doing?

Good.

Thanks.

So first, for the Famous team, just coming back from platform and the shows, do you feel like boat shoes and canvas are sort of big megatrends that work for spring for the last two or three years?

Will those continue?

Do you see any new big trends happening?

Do you see fatigue in those that have carried the comps?

Scott, it's Rick.

I guess we worry about it.

I am not sure we see it.

I think it's a matter of balancing.

I think we had a very strong boat shoe business for back-to-school.

That's probably our third or fourth as we built that, but it has also been a build.

We have added stores and product selection there.

So will it be as strong next year?

I think that is still a question.

I think we will look at it and see.

The canvas business, really, is surprisingly strong, and I think that will continue next year, for sure.

We have got gotten -- with the addition of other brands and stronger brand presence with new partners, or additional business with new partners, we haven't hurt our core business.

That is the thing that has been surprising to me.

So I think, as long as we start seeing that, we think there is still time to invest.

Good.

Okay.

No.

That's helpful.

And then, Diane, I am intrigued by your shop-in-shop comment about Sam.

Would that be with a large department store that you are currently in or a large department store that you are currently not in?

It's probably both.

Okay.

I think it is both.

We haven't worked out all the details, but yes.

It would be both.

That's exciting.

And then, in terms of license categories, sportswear is great.

When exactly will that be in a meaningful number of stores, and then did it make sense to do sportswear before you do accessories?

I would think handbags would be a category you would try and jump into.

Yes.

Well, we are there, and we are there with jewelry.

We haven't talked a whole lot about it.

So we do have handbags; we do have jewelry; we do have outerwear.

So it just feels like the right time now with Kellwood.

And, as I mentioned to Jeff, I would share it with you, I just think it's a little early for me to tell you what kind of -- and it would have enough scale to have an impact -- material impact on our performance.

I don't know yet, but, certainly, we are launching for spring.

I think it is spring 2014 or fall 2014.

So, as soon as I know, we will, of course, update you.

Okay.

Well, congrats.

Thanks.

Danielle McCoy, Brean Capital.

Good morning, guys.

Congrats on the great quarter.

Thanks, Danielle.

I was wondering if you could give a little bit more color on some of the enhancements you have been making within the Healthy Living segments and with some of the contemporary brands and -- because we saw a really powerful performance this quarter.

I was wondering if you could just elaborate on that a little bit more.

Yes.

In the contemporary fashion part, it is actually kind of easy to comment on because it was really driven by the two biggest brands in that -- of the five in that segment, which was Franco and Sam.

And I think, Danielle, you know pretty well about what we have been doing with the Sam Edelman brands and really expanding that as a brand family and the circus by Sam Edelman, the work we do at Target, and then the core business.

So that has been -- that's really helped field the growth.

And then the Franco Sarto business has been just really ticking very, very nicely, as Jay and Donna and the teams have really -- and Franco -- have really focused on creating a much more modern, relevant, comfortable footwear to wear.

And it has just been amazing the sell-throughs that that we have seen there.

It is a terrific -- it represents a great value in the marketplace.

So contemporary fashion easier.

And then on the Healthy Living side, it really is with respect to Naturalizer, we have had a couple of -- four quarters, frankly, in 2012 for lots of different reasons.

And so we are really sort of getting our mojo back there.

I don't know that there is any specific thing other than great product, great quality, shoes that fit, very comfortable, and then launching the [Beezy's] line, which the teams did this year as well, which is a more sport look.

So I think that has helped.

And then Scholl's has been has been on track for a while to really expand beyond Walmart and make sure we develop a business beyond that, and Keith and the teams have done a great job there.

And LifeStride, you know, Deb continued to drive that business extremely well.

Always a strong performer and a real strong operating profit contributor to the portfolio.

So kind of just lots of different things, but good execution, good blocking and tackling, and a real determination to win by the people leading those businesses.

All right.

Great.

And then, just switching to Famous Footwear, are you guys fully complete with switching over some of the formats and the visual enhancements that you guys were doing last year?

It is Rick.

No, we are not quite there.

I think by back to school, by 1 July, we actually stopped our progress this year, so we could make sure we could have the stores functional.

About 65% of our stores have our new signage -- outdoor sign -- the sign on the building that we want, and we have about 85% of our fixture in the Victory Tower, the [Lit Towers] in our strip centers.

So we are 120 stores short still on that, and we are about almost 100% completed malls.

I think we have about 20 left out of 160 stores to do where we would come in and put the new signs and the fixtures in those stores.

Some of those our stores that are questionable about their go forwards, so there is still a question whether we will do them.

But I think we have another 50 or 60 stores we will do in the back half of the year, and then we will take a look at where we are at and decide how we go about it in 2014 and what investment we need to make in 2014.

But we are far along; not quite finished.

All right.

Great.

Thanks, guys.

Good luck.

Thanks, Danielle.

Steven Marotta, CL King & Associates.

Good morning, everybody.

You mentioned that comps are up mid-single digit over the last six weeks in the back-to-school timeframe.

Is that indicative also of Q3 to date?

Yes, it is.

Great.

And reiterating the promotional plead in Q3 is similar to last year, basically same number.

I think there was a couple of BOGO weeks in Q3 last year.

Yes.

Well, the entire August is still back-to-school, and that is Q3, so that is all BOGO, and we do go basically through Labor Day.

Same number.

Yes.

The calendar is basically the same.

And, quite honestly, Steve, we had a few less days in July because we started a few days later.

We will have a few more days in September because we will extend it on the back half, and that's really about a store operations issue.

They wanted to start on Thursday versus Sunday, so we just shifted a few days.

But, other than that, the time is exactly pretty much the same.

Okay.

And, lastly, the $22 million benefit to Q2 and the $0.09 -- is that a gross number to Q3 or a net number?

In other words, is there any benefit of the calendar shift or a negative on the back end of Q3 versus Q4?

No.

That would be a net number.

Okay.

That's great.

Thank you very much.

Jill Nelson, Johnson Rice.

Good morning.

A few questions.

Could you explain a bit more on the wholesale revenue shift you saw?

You noted a $7 million shift.

Could you go over the factors of that again?

Sure.

I think, as Diane mentioned in her part of the call earlier, that was on customer-requested move-ins, which we thought was pretty encouraging given the environment that was going on.

It is fundamentally Naturalizer is (multiple speakers) part of it, right?

Right.

Okay.

So retailers wanted to take the product earlier.

Exactly.

Right.

For Naturalizer.

Okay.

Okay.

And then could you talk about your Famous conversion rate was up very strong again this quarter.

Could you talk about -- I know you have talked about narrowing the SKU assortment and things of that nature.

If you could talk about the factors they are driving that as well.

Well, I think a couple of things, Jill.

The assortment is narrower and deeper, so we think we are better in this service leveling store on key item.

We have gone into expanded sizes, so we have more wides and sizes 11s, 12s, and 5s and 5.5s for women in our assortments than we have ever had.

We see some good activity on that, so that is another conversion point.

And, frankly, I think the store associates -- we put a new training program in starting for back-to-school that is much more streamlined and more engagement driven.

And so how to help them speak with customers when they walk in; how to turn a customer into somebody who is just a shopper into a buyer.

I think all those things add up.

It is not any one thing, it's a combination of three or four things, but they all seem to kind of come together right now over the last couple of quarters, and we are seeing some very nice results.

Okay.

And just a clarification, you had noted Famous Footwear inventory was up to 3.4%.

Is that on a per store basis, or is that overall?

That is overall.

Overall.

Okay.

And do you have a per store number?

The stores are basically the same.

I would think we are like one or two stores off.

We don't have a big variance in the stores, so it's pretty close to the same number.

Okay.

Thank you.

Chris Svezia, Susquehanna Financial.

Good morning, everyone.

Nice job on the quarter.

Good morning, Chris.

I was wondering, just on the back-to-school trend, at Famous, up mid-single digit comps, any color about styles, brands, drivers?

Did you bring anything in early, late, any shifts going on?

Just any additional color around what you are seeing in the marketplace at all?

Yes.

I think it is pretty much, Chris, the same as Diane talked about, I think.

Our athletic business is very strong.

Our Nike business is very strong.

Our Nike running business is very strong.

And we have done great with the Flex Run shoe.

So I think actually, a couple of weeks ago, or maybe the last week, it was the number one running shoe in the industry.

So having that product in our assortment has made a big difference, and I think we are doing a nice job with that.

So that's a big piece of it.

The canvas, between Converse and Vans, we believe that is a customer that we have cultivated over the last 10 years and, as we have impacted that assortment and that category has gotten more important for that customer, I think we are just taking advantage of that.

And we have got great assortments, great depth, and we are selling that canvas business very, very well.

On the non-athletic side, in women's, we did put -- the sandal business -- the sports sandal business, particularly, we thought was an opportunity.

We impacted that inventory.

That is proving to be very strong.

Trends there are as good as they were in second quarter in women's sandals, so we think that is something that we are harvesting that opportunity.

And then the early boot business.

We are not that -- we have never been that aggressive about it, but we thought this year, with casual boots, whether they are lace-ups or short booties, was an opportunity for us to see if we could have some impact.

We don't talk about it a lot because we are screaming so much about athletic side of the business, but we did put about 15 or 20 SKUs in.

We don't have a bad one.

So we have actually gone back and made sure we have invested properly for the balance of third and into fourth quarter on those looks because we think it seems like the customer is very ready to buy it.

It seems to be a seasonless trend right now.

So we are going to continue that business.

Those are probably the biggest things.

And the boat business, whether it is canvas or leather, has been very strong.

Okay.

Thank you.

And then I am just curious, the EBIT margin improvement at Famous was certainly very strong, and I am just curious about sustainability of that.

I mean, you had good gross margin improvement.

Can you maybe talk about if there was product margin improvement?

Just really curious.

There was pretty strong sustainability of that.

Any thoughts about that?

Yes.

The idea would be to sustain, so it's not something we think is a once and done.

Again, our margins have maintained in a certain range for a while, right?

It is not that 44 to 45 points is about where we end up most of the time.

Our inventories are very current, and we have worked hard to maintain them, ad we are going to continue to keep that inventory current.

I think there is a benefit there, and that is helping our margin because we are moving through some of that inventory faster.

Taking that first part down and moving on.

Some of our system enhancements are going to help us.

I think we are able to win stock on the right sizes.

That allows us to sell shoes at more full retail, right?

When the customer comes in and satisfy them.

So, therefore, there is another opportunity for margin.

So there is a combination of things that it doesn't feel like this is something we are (multiple speakers).

(multiple speakers) the store portfolio actions we took, too.

Yes.

Again, all the stuff that we have -- the 100-and-something stores we've closed over the last couple of years.

Our store base is as healthy as it has ever been.

So that, again, drives a tremendous amount of operating profit.

Okay.

Just shifting to wholesale for a second.

Just curious about where you stand on the Naturalizer business.

Nice to see some improvement in the early reads that you are getting.

But I'm just curious, when you went through the whole S&P conversion, the independent channels, I think that was an area of focus as you are coming out of that.

Where do you stand on getting those independent channels back up and running with the Naturalizer brand?

Actually, pretty well.

You know, they did take -- it was -- we felt terrible about the customer service that we delivered in the last six months to a lot of our independents, but that has rebounded pretty nicely, and we are actually seeing an increase in our independent business pretty much across the board here with respect to all of our businesses.

So, Chris, I think that is behind us.

It was unfortunate, but we are feeling much better about the future, and all of our systems are stable and working beautifully.

Okay.

And then, you mentioned something toward fourth quarter regarding more wear now spring shift maybe business getting pulled out of Q4 into Q1.

Is that what you are already hearing coming out of Magic in terms of what people are talking about?

Yes.

And, again, I can't really -- I can't quantify it yet.

It was just a lot of indications around the fact with where Chinese New Year fell this year.

The idea that they didn't want to have too many sandals on the floor too early in February.

So instead of shipping in late January, that it might go out in February.

So that kind of a shift was at year end has -- could potentially have an impact on fourth quarter.

But I would think in the next 30 to 45 days, I will have pretty good visibility on that because I will know -- I will have all the orders in, and I will have a sense of really where they are going to land.

But that certainly made us a little cautious about January shipping, which is usually -- typically a very large month for us.

Okay.

And the last two questions.

Just lots of change in the gross margin.

Thought process this year was predicated on what exactly?

Well, it's both retail and wholesale improvements.

So, as Rick just mentioned on the retail gross margin improvement and then with our strategy on the exited businesses, we are seeing, as Diane mentioned, the Naturalizer business coming back; the Life Stride business; the Healthy Living and the contemporary.

I mean, across the board, we are seeing our margins improving in wholesale.

So I just -- one quick question.

I think your previous guidance said you expected gross margins to be up 30 to 50 basis points.

Now you are expecting it to be flat.

So I am curious why flat versus up?

Again, I think the guidance is reflecting the cautiousness in the second half as we go out.

Okay.

Does that have anything to do with mix shift -- wholesale versus retail or no?

No, not really.

We don't see a mix there.

Famous did have a very strong second quarter, but, as you saw, wholesale was up just as much.

So in the back half, we don't see that changing.

Okay.

All the best.

Thank you.

Thanks, Chris.

Carla Castella, JPMorgan.

I am wondering if the sales that were pulled forward into the second quarter, if that also boosted gross margins, assuming they were full price sales?

I would not say it boosted the gross margins.

We took normal gross margins with that.

Okay.

And then, one follow-up.

On the Sam Edelman -- on the designer brands, there seems to have strong growth.

How much of that is same-store growth versus adding new wholesale doors?

Good question.

I would say on the core Sam business, it is actually -- we are comping nicely against our businesses last year.

And then you add to that.

So I would say it is up a bit, and then when you add in the target business and the from new line from Circus, it just kind of took it over the top.

Okay.

Great.

Thanks a lot.

There are no other questions at this time.

Do you have any closing remarks?

I just want to say thank you for joining us for our second-quarter call.

We look forward to seeing you at the end of the third quarter and appreciate your support.

Thanks a lot.

Thank you for participating in today's conference call.

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