Caleres Inc (CAL) 2013 Q4 法說會逐字稿

Good morning. My name is Molly and I will be your conference operator today. At this time I would like to welcome everyone to the fourth-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)

Thank you. I will now turn the call over to Peggy Reilly Tharp. You may begin your conference.

Thank you, Molly. Good morning and thank you for participating in the Brown Shoe Company fourth-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 Company.

Earlier today we distributed a press release that details financial tables which is available on our website at www.brownshoe.com. In addition, slides are available on our website for you to reference during today's call.

Please be aware 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 offline. 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, CEO, President, and Chairman; Russ Hammer, Chief Financial Officer; and Rick Ausick, President Famous Footwear. Today, we'll begin with a strategy review from Dianne, followed by a financial summary from Russ, before turning the call back over for Q&A. Now I'd like to turn the call over to Dianne.

Thanks, Peggy and good morning. Thank you everyone for joining us today as we wrap up a strong 2013 for Brown Shoe Company. At $2.513 billion, sales were up 1.4% over 2012, with contribution from all three of our key platforms: family, healthy living, and contemporary fashion.

Adjusted EPS was $1.41 for the year, up 25% over last year as we benefited from all the portfolio realignment work that we've done over the last two years. These efforts also helped drive the improvement in our annual operating margin which came in at 4.2% on an adjusted basis. As we've discussed in the past, we had hoped to be halfway to our long-term operating margin goal of 8% by the end of 2014, and I'm happy to report that we're a year ahead of plan.

None of these results would have been possible without the effort from the brands and the businesses, so let's turn to them starting with Famous. As everybody here knows, mother nature did her best to dot fourth-quarter performance with same-store sales declining 1.8%, but the team delivered a good overall 2013.

Let's review some of the year's results. Same-store sales were up 2.9% for the year. Operating earnings hit a record $107 million while operating margins improved to 7%. Revenue per square foot hit $207, up 4%. And we had record sales for the second and third quarter, including a 5.6% increase for back-to-school.

Unfortunately, a fabulous 2013 ended with one of the snowiest and coldest winters in recent memory, and in total we lost nearly 4% of our potential selling days in the forth quarter due to weather. Accordingly, we saw an increase as you would imagine in boot sales, which were up 7.5%, but athletic sales were down 5.1%.

Now while we only have a few weeks of the first quarter behind us, we're still seeing store closures related to weather. We lost approximately 6% of our potential selling days in February of 2014. And so far in March, we've lost roughly the same amount; however, in the sales regions we've designated as warm and hot, sales have been 10% to 15% higher than in our cold and moderate markets so far in the first quarter of 2014. The product success we've seen in those markets have us feeling very confident about spring styles once spring finally gets here; and that's the point, it always does at some point in time. So with that in mind, we could see first-quarter sales shifting into the second quarter since spring is already delayed and consumers remain in a buy-now, wear-now frame of mind.

Now before moving to our wholesale operations, I'd like to call out Famous' gross margin for the fourth quarter. At 45.5% it was up 150 basis points, as we benefited from our proactive effort to reduce our BOGO promotions during the holiday shopping season.

Now let's talk a little bit about wholesale where 2013 sales of $763.7 million were up 5.3%, and both our healthy living and contemporary fashion platforms contributed. We also saw an improvement in wholesale operating margins for the year, coming in at 6.4%, up 100 basis points on an adjusted basis. For the fourth quarter, wholesale sales of $196.3 million were up 13.5%, and both platforms contributed to the growth. For healthy living, wholesale sales were up 2.4% in 2013, and 4.3% in the quarter, with the quarterly increase led by a double-digit improvement in Naturalizer.

You might recall when we began 2013, we shared with you that we expected Naturalizer to be on the right path by the end of the year, and I believe that we have turned the corner with this brand. For Dr. Scholl's, domestic sales improved for both the full year and forth quarter, up mid- and low-single digits respectively. We continued to see success throughout 2013 with our tiered product approach to this brand, and we'll continue to drive sales at the mid tier in 2014.

At LifeStride, we once again saw improvement from this consistently profitable performer. Sales were up low-double digits for the full year and mid-single digits for the fourth quarter as retailer sentiment for this brand remains strong. ForRyka, we're preparing to rollout new styles this fall and new colors will be in store this spring, but we're really most excited about the product line updates coming later in this year.

So let's talk a little bit about contemporary fashion wholesale platform, where 2013 sales were up 12.7% and fourth-quarter sales were up 28.2%. The strong quarter was led by our Sam Edelman and Franco Sarto brands. Sam Edelman had a remarkable 2013 with sales up nearly 40% for the year and over 50% for the quarter.

As I'm sure many of you noticed that Kate Upton is the face of the Sam Edelman brand for spring, and while we're excited about the campaign, we're even more excited about Sam's apparel line which will launch this fall. I've seen the product and aside from looking great, it's just perfectly aligned with Sam's brand identity.

Franco Sarto had a good year in terms of sales, up high-single digits. For the fourth quarter, sales were up low-double digits and we saw strength in riding boots, wedge boots, and desert booties. For spring the brand is seeing good interest in casual oxfords, booties, and sandals, as well as casual flats, and these styles are already resonating well with retailers.

At Via Spiga, while sales were still down in the fourth quarter and for the full year, we're excited about what we're seeing from our new designer Paul Andrew, and so are our retail partners. For spring, Via Spiga's sell-throughs are up double digits year over year at our key retail partners. We still have a little more work to do, but I'm pleased with the quick action that the team took to get this brand back on track.

And finally, for our celebrity brands, Carlos and Fergie, we saw mixed results with Carlos delivering a very strong fourth quarter, up over 40% and a good 2013, with sales up mid-single digits. The Carlos brand always does well in fall and winter and they did again this year with boots and booties driving both sales and reorders. For Fergie, while sales were down for both the year and the quarter, boots helped drive an improvement in forth-quarter trends.

And finally turning to Vince. The brand more than doubled in the fourth quarter, and although this is off a small base, the attention the brand received in 2013 was really well deserved. We've seen good interest in our women's shoes and we began delivery of Vince men's footwear to about 60 doors beginning in the second quarter of 2014.

So while the weather did put a damper on the end of 2013, I'm very pleased with the success that we've demonstrated and the progress that we've made during the year. For 2014 we're going to continuously move forward and work toward building for growth in 2015 and beyond. We are going to share more specifics around the next phase of our strategic development during our Investor Day in early June. But before that, I'd actually like to call out that we acquired the Franco Sarto brand for $65 million earlier this year.

As you know, we have been interested in strategically shifting away from license brands and adding more owned brands to our portfolio. The addition of Franco to our own portfolio will enable us to fuel the long-term growth in our contemporary fashion platform. And in 2014, we're going to be investing heavily in our Sam Edelman brand, including the expansion of talent, marketing, ecommerce, and branded retail stores. This is a really exciting step forward for the Company and the brand, and we're confident this investment in 2014 will benefit the Company over the long term. Lots more to follow when we see everybody in early June for that Investor Day.

Now, with that, I'd like to turn the call over to Russ for a review of our financials and more details around our guidance.

Thank you, Dianne and thank you everyone for joining us on both the call and the webcast this morning. We certainly appreciate it. Although Dianne briefly reviewed our consolidated sales, I'd like to add a little more color.

Starting with the fourth quarter, we reported net sales of $600 million versus $618.7 million in the prior year, and both amounts excluded sales from discontinued operations. As a reminder, 2012 included a 53rd week, which increased net sales by approximately $21 million; that had an immaterial impact on earnings.

We reported GAAP net earnings of $6.2 million in the fourth quarter or $0.14 per diluted share, up 52.6% compared to $4 million in the prior year or $0.09 per diluted share. Fourth quarter 2012 included portfolio realignment costs of $2.9 million on a pre-tax basis, or $0.05 per diluted share. Excluding this amount, fourth-quarter earnings per share were flat year over year.

For the full year, net sales were $2.513 billion versus $2.478 billion in 2012, and these amounts exclude sales from exited businesses and brands. GAAP net earnings for the full year were $38.1 million or $0.88 per diluted share, versus $27.5 million or $0.64 in 2012. On an adjusted basis, excluding all portfolio realignment, organization change, and integration related costs in both years, net earnings for 2013 were $61.5 million or $1.41 per share, up 26.5% when compared to 2012 earnings of $48.6 million or $1.13 per share.

At Famous Footwear, we improved our revenue per square foot to $207 as we closed or relocated 62 stores and opened 51 this year. In the fourth quarter, we closed or relocated 13 stores and opened 9. And for 2014, we expect to open 50 to 55 stores and close 50 stores.

Let's turn to a review of our financial metrics now. Overall gross margin in the fourth quarter was 40.2%, which was up 20 basis points. SG&A as a share of revenue was 38.5%, up 90 basis points year over year as we had lower sales at Famous Footwear with only slightly lower SG&A expenses.

For the full year, gross margin was 40.4%, up 40 basis points on an adjusted basis. SG&A as a share of revenue was 36.2%, up 20 basis points year over year. Inventory at year end was $547.5 million, up 8.7% from $503.7 million in 2012. At Famous Footwear, while total inventory was up 8.6%, our aging position improved by 100 basis points year over year. Wholesale inventory was up 8.7% at year end, driven by our higher growth contemporary fashion brands.

Our corporate tax rate was 30.6% for the full year, resulting in a negative 14.8% for the fourth quarter. Cash and equivalents at year end were $82.5 million, up 21%. Net interest expense of $5 million was down 14% in the quarter, and for the full year, net interest of $21 million was down 7.8% as we continued to reduce our borrowings.

Our cash and investments net of short-term borrowings were $75.5 million for 2013, an improvement of $112.3 million over last year. We ended the quarter with only $7 million of borrowings against our revolving credit agreement. Our aggressive balance sheet management resulted in significant improvement in our borrowing position in 2013, down over 90%.

Depreciation and amortization was $55.3 million for the year, while capital expenditures were $49.2 million, down 22.8%. Our debt-to-capital ratio improved to 30.1% from 41.6% in 2012. And yesterday, we reported our 365th consecutive quarterly dividend, payable April 1 to shareholders of record as of March 24.

At Brown Shoe Company we executed on our strategy in 2013, and improved our operating performance, delivering steady improvement toward our long-term financial goals by driving sustainable profitability. For 2014, we expect to continue to deliver towards our long-term goals while balancing our realistic outlook, in terms of the economy, the consumer, and the weather, especially this early in the year.

So before we begin Q&A, I'd like to provide our first look at FY14 guidance. And at this juncture, we expect consolidated net sales of $2.58 billion to $2.60 billion; same-store sales at Famous Footwear up low-single digits; specialty retail sales down low-single digits due to store closures; net sales at wholesale operations up low- to mid-single digits; gross margin up approximately 10 basis points; SG&A of $920 million to $930 million with continued leverage; net interest expense of $20 million to $21 million; and an effective tax rate of 33% to 35%. We see depreciation and amortization of $51 million to $54 million; and capital expenditures we expect to be $53 million to $57 million; with earnings per diluted share expected to be between $1.45 and $1.55.

We believe we are approaching 2014 with a healthy amount of realism. As Dianne mentioned the first quarter has already been rough in terms of weather-related store closures and spring sales continue to be delayed. While we expect we will be able to make up some of these sales in the second quarter, we could see this year's first-quarter earnings at or below last year's level.

We only have six weeks of 2014 behind us and the third quarter remains our largest. As we move throughout the year we'll update you on our quarterly progress just as we did last year. And with that, operator we would be happy to answer all questions.

(Operator Instructions)

Your first question comes from the line of Danielle McCoy.

Good morning, guys, congrats on a solid quarter.

Great, thanks, Danielle.

Just a few questions around store openings and closings. Can you give us a little bit more color on the specialty retail, what stores opened and closed in the fourth quarter, and how we should expect that going forward?

And when we look at the Sam Edelman stores, how many should we expect to open this year? And when I look at Vince, how should we expect the growth and maybe some door expansion or retail expansion with the IPO and their aggressive store expansion plans? Thank you.

Okay, thanks, Danielle. Let me start with the last one first on Vince. Obviously we think the brand's doing its IPO is really just beneficial in total for the opportunity that that brand has with the consumer. Tremendous interest in the brand continues. Sales as I mentioned had doubled as we've shipped to twice as many doors.

Our forecast for 2014 really has sales up significantly really based on door count growth and significant performance in terms of sell-throughs. So we are very encouraged by our first 12 to 18 months of retailing with the Vince brand, so feel very good about the opportunity going forward. So it's a combination of a number of things and Russ, on the door count?

On the door count for specialty we started the fourth quarter with 183 stores, we opened 1 and closed 5, so we ended the quarter with 179. And on the Sam stores we have one and as we mentioned on previous calls, we are planning on opening a Beverly Hills one in the second quarter this year.

Okay, great. And just one last one. Could you talk about the performance in Canada for Famous Footwear and maybe some plans going forward?

Yes, Danielle, it's Rick. We had the store open at the end of August or I'm sorry, end of July, so the first of August, so we had a full six months, outperformed our expectations relatively significantly, so we've been very pleased with it. And understanding that it's an open air mall, so we're understanding how that all works because the business obviously the last 60 days has been a little less than we had thought, but we had a lot more business the first 120 days if you will than we had expected, so we're still figuring that out a little bit.

Our plans are to continue, we have four signed leases I believe for this year, one's a store opening, we have one opening I believe this month or next month, and then the balance of them are towards the back half of the year. We'll continue to build around Toronto. I think there's two of them in the Toronto area, and we've also signed some agreements to open a store and possibly two in Montreal, so that's it for the moment.

This is our initial plan as we thought about the market and we wanted to get a little broader geographic view of how we could do, and then we'll see how this works and make our plans from there if we continue to find it's a worthwhile opportunity.

Okay, great, thanks guys, good luck.

Thanks Danielle.

Your next question comes from the line of Jeff Stein.

Hi guys, a couple questions. First of all Russ, can you talk a little bit about the inventories at Famous Footwear? You indicated that aging is better than last year, yet you are up significantly it looks like on a per store basis. Can you talk about the quality of the inventory and potentially markdown risks that you might see in the first quarter?

Sure. I'll give a little color and then maybe Rick, maybe you'd add a little bit as well. So when we look at our inventory I mentioned that it had improved almost 100 basis points on aging, and where we're up in our inventories in our areas that are our fasting moving areas, our athletic, our canvas, and brands that are larger, faster moving ones.

Yes, I think Jeff just to add a little bit to that. Obviously we missed some sales in the fourth quarter that we had expected to get, and so there's a little bit of that in that number. But we had also planned to come into the season with some higher inventories, particularly in what we call athletic lifestyle businesses. So this would be canvas product, some of the Skechers GOwalk product that's doing so well, so those categories are where we invested for first quarter.

Those investments are doing very well even with the weather not being so good, and we're getting a lot more out of our warm stores with it than we are out of cold right now. We expect when that weather changes that those businesses will catch up, so it was part of the result of not great January selling and part of a result of a strategic effort to get into the categories we thought the customer wanted buy from us.

Russ do you see working capital being a source or use of cash this year?

Working capital in total should be a source for us this year.

Okay. So it sounds to me then like you would expect inventories to perhaps even be down a bit for the year?

We do. And in Famous is where we're looking at inventories being flat to down for the year.

Okay. And Diane, question for you. There's a couple of I think it's several of your licenses on the wholesale side are scheduled to expire 2014 or at least it looks like you have [renewal] options and I'm speaking of Carlos and Fergie. Any sense in terms of what you might do there?

Not yet, Jeff. We are going to continue to -- we really like what those two brands represent in the portfolio. They have strong following in different segments of the customer base than the rest of our portfolios, so we'll assess it like everything else as we've done over the last couple of years. It has to fit strategically into our long-term plans and it's going to hit the financial hurdles that we set forward as well. But right now no decision has been made and we really think it does appeal to a different consumer.

Okay, and with respect to Naturalizer, it does again, congrats on getting that business stabilized. What should we be looking for on the wholesale side of your business and in that brand particular? And I'm wondering with the general weakness that we saw at retail during the fourth quarter, have you seen any of your retail customers pull back on orders or cancel orders? And final question, with regard to Naturalizer, would you expect it to grow below, in line, or above the growth rate you're expecting for the entire division for the year?

Okay. Let me see if I can hit all the questions that you asked there, Jeff. First of all, so far season to date, we're actually very pleased with the sell-through performance of virtually all of our brands across our wholesale portfolio. It's in some ways I really just think it's been a work in progress a bit for awhile, and right now we're seeing as I mentioned in some cases almost double the sell-through rates in a few of our brands. So I would tell you today, I don't see any pulling back, despite the fact that the weather has been a bit sluggish.

As we think about the forecast for 2014, in total, we're planning our wholesale operations sales up low- to mid-single digits, that's really where we're at and it's obviously there's some growing faster than that, some growing a little slower than that. And in terms of Naturalizer, we actually think that that's going to be in the mid- to high-single digit growth, so it could potentially grow a little faster in next year than the overall wholesale portfolio. And again, I think that's new product, new launches, and frankly, just we had to improve the performance there, so it was about time.

And where are the laggards in the portfolio, because when you add Naturalizer to what's going on in contemporary brands, it would seem to me that a low- to mid-single digit sales increase for wholesale would be a fairly conservative projection.

Yes, the laggards would be, Ryka would be the one that is still in that transition phase of we moved it this year, Deb Krivelow and the team are doing terrific work about repositioning it. And so therefore, that's going to take a little bit of time so I would expect we're talking 2015 before we really are feeling that they're going to positively comp.

I would say the second one would be Via Spiga. While the early signals of it are good right now so far in the first six weeks, seven weeks of the quarter, it's coming off of a low base last year, so we are pretty conservative in our projection on it. So those probably would be the two that would be lagging.

Great, thank you very much.

Thanks, Jeff.

Your next question comes from the line of Steve Marotta.

Good morning, everybody.

Good morning, Steve.

Commenting on the inventory again given that it was up roughly 9% at Famous Footwear, have you changed the promotional cadence at all during spring to date or over the next couple of weeks in order to try to lighten inventory levels?

I think mostly Steve, we've managed the business pretty consistently; if merchandise, if things are selling at the rates we expect, we leave prices. If we are not, we lower prices. There are some things we're lowering prices on, but nothing egregious, nothing out of the way, out of the ordinary, so I don't think at this point so far, we haven't done that.

The products that we have in inventory, again maybe we've gone out and adjusted our flows on our second and third orders on things in order to make sure that we don't overbuy on that end of it, but I don't see anything that tells me we have a lot of big issues in our inventory. We always have issues but nothing that seems to be overwhelming and that would hit the margins in a big way.

Okay and I just want to understand this right. You lost 6% of days in February, that's accurate?

Well, so if you think about it we have call it roughly 1,000 stores, and there's 28 days, so we have 28,000 potential store days. So yes, we had store closings or partial openings on about 6% of those days, so that's whatever that is, 1,600 days, right? That we did not have a full day or any days' worth of selling in parts of the country, so that's how we look at it.

You wouldn't want to give a little color on specific comp quarter to date?

Quarter to date we're down 1%. If we actually took the first week of February out, we would be up low-single digits, because that was the week we had the biggest impact on our store closures, and that's very, very erratic.

Our stores in hot and warm markets are up high-single digits, and our stores in cold markets are down double digits. So it's just a matter of that. I hate to say that all the time, because everybody just doesn't believe you, but it's very significant. So anyway it's the biggest spread between our markets that I've seen in quite a while. Typically they move in much more concert.

Okay, just to reiterate, comps quarter to date down only 1% including the dismal first week of February?

Right.

Okay, great. Last question I have surrounding the $55 million expected this year committed to CapEx. Can you talk a little bit about the projects that are specified there?

Sure. So besides the stores, we're continuing our brand buildout on the stores and the Victory Towers and signage. We're also investing in the omnichannel throughout both Famous and our other brands. As you know, we've opened the Sam brand just recently as well, and those are the main investments that we're doing.

Terrific, thank you very much.

Your next question comes from the line of Jill Nelson.

Good morning.

Good morning, Jill.

First question is on gross margin guidance, up 10 basis points for the year. Could you talk about the components of that given you're seeing some nice lift on Famous being less promotional, but on the flip side, I would expected wholesale margins to be tracking higher just given you've improved that brand mix.

Yes, that's exactly where we do see the margins going higher Jill, is in the wholesale. We actually don't see that in the Famous side, we see those pretty flat. But we do see in wholesale, it's on both healthy and contemporary, but as contemporary continues to grow faster, we will see that higher margin impact.

Okay. And then could you talk about maybe in the fourth quarter on wholesale, it looked like gross margins were hit. Could you talk about was that more of just greater markdown allowances or what were the factors driving that pressure in the fourth quarter?

So fourth quarter, our wholesale margins were at 28.9% versus 29.2% adjusted, down a bit, and most of that was just due to mix between wholesale, contemporary, and healthy living. We did take, as we talked about on the last call, a little bit of markdowns in the Ryka, the older inventory that we were marking down to dispose of before we brought out the new product.

Okay. And then just last question, given that the weather has been an impact, could you talk about how your ecommerce business trended fourth quarter and maybe first quarter to date, if you saw some relief there, given store traffic has been challenging with weather.

I think the problem is Jill that our customer buys when they need it, so if the weather doesn't seem to have helped, at least not helped our ecommerce sides that much. The customers are buying, they're still buying boots, but it's really on a value basis and they haven't fully embraced the spring business because they are not able to buy now and wear now.

We also had some changes in our promotional calendar that we talked about at holiday for the Famous with three less BOGO weeks, that has a huge impact on our dot com. That customer is a lot more value driven, so when there's value and promotion in our business model, our online business is stronger; when it's not there, we lose a significant piece of business. So that was impacted greater in the fourth quarter than you would have thought because of the less BOGO.

All right. Appreciate it, thank you.

Your next question comes from the line of [Ben Tempina].

Hi, how are you? Thank you for taking my question.

Hi Ben.

Good morning, Ben.

Conversion rate in Famous Footwear for the fourth quarter, what was that?

It's good. It was up.

Okay, great. And then can you help us on the algorithm for the comps of Famous Footwear for 2014, ASPs, conversions, how are you thinking about getting to that low-single digits, low to mid?

It's primarily around continued improvement in the market basket size, so whether it's additional pairs or additional average selling price, and a continued improvement in our conversion with traffic flat to down slightly.

Okay, great. And then in terms of trends, it sounds like athletic and canvas continue to be strong for you guys. What are you seeing in terms of fashion, on the fashion side of things?

Yes, Diane can talk a little bit about what she sees from other wholesale brands. But at Famous, we're still a little early on the sandal business, but flat sandals in our hot and warm markets are doing very well, some of the early deliveries. We haven't got a lot of thongs in yet, but this is mostly banded flat sandals and a variety of uppers, primarily the upper being more foot covering, more covering, whether it's a gladiator style or any of those kind of looks, the customer seems to be responding to that on the sandal side.

Our wedge business is very strong. We primarily transitioned from rope bottom to a cork-like or wood-like bottom if you will. Those things are performing very well in those markets. And then there's this crochet-type if you will, so we have a couple of junior flats that have crochet uppers, we even have some missy things that have crochet uppers, have a few wedges that have crochet. Everything that has that look on it is selling very well. So that seems to be something that we can, will do well as the weather gets warmer around the country, so that's primarily the things that are working well on the non-athletic side.

I think Rick covered most of them. The thing I would add is there's a bit in dress, not traditional dress. It's much more caged kind of looks that are selling right now. A lot of up front on the foot kind of looks that are working.

A little more casual vibe in everything that the consumer is purchasing today, a little more relaxed so you even see soft nubucks and washed metallic leathers trending pretty well right now. And then in the spirit of the lifestyle categories that Rick was talking about, across all of our brands if we have a little slip-on Vans kind of like sneaker, we're seeing those sell-through extremely well as well, so that would probably be the advent to what Rick said.

Great, thank you. And then last for you, Russ. Occupancy costs on a per store basis this year, is that going to be up and roughly by how much?

We do have just normal over the term of the lease increments that occur which are normally in that 3% range, so I would expect it to be a little less than that actually with the turnovers that we're going to have on our leases.

Okay, great. Thank you so much.

Thanks, Ben.

Your next question comes from the line of Chris Svezia.

Hi, everyone. Good morning.

Good morning, Chris.

Nice job.

Thank you.

Sure. So I have a bunch of things here. First, talk to you Rick, first. First, Easter impact being what, three weeks or so later this year, maybe talk about what that does for Famous Footwear good or bad?

Yes, we'll find out. I think the opportunity this year obviously is with the later Easter, it's helpful since we had a slower start. I think we would suspect that the weather will change here some time in the next 30 days, and that would give us still time, two to three weeks or four weeks out from Easter itself to start to move through a lot of our spring products.

So again, historically, in the old days, right, we used to like have an early Easter and because we could then have another event for Mother's Day, so we would have Easter would be more dress-driven business, and Mother's Day would be more casual-driven business, but that's all changed as the customer has gotten more casual in their lifestyle. So we see less of that, so I think right now I'm happy that Easter is later. It gives us a chance to get our inventories in really good shape and hopefully as the weather converts in bigger parts of the country, drive some real volume at the end of March and into early April that will help.

Okay, that makes sense. Advertising, last year you did Good Morning America. What's the game plan this year? I assume that helped drive traffic, any thoughts about that this year from an advertising perspective?

Yes, we're still working on it, probably won't be Good Morning America. We got a good deal last year, not so much this year, but we're still looking. We will do some national TV campaign in May, which is different, so that was part of the plan to mitigate the Good Morning America. So we will do that which will help, we hope, lead into back to school and we're still looking for another type of event whether it's broadcast or partnership with somebody else to help drive our August business but we haven't quite got there yet.

Okay. And I have to ask one product question for you. Any thoughts about the boat shoe category business as you think about spring into early summer this year?

A lot of conversation around it. I think we're finding again that the traditional product, the actual leather boat shoe is actually doing pretty well, and it's a staple business now Chris. I think you might be right in the sense that it's less of a fashion item and there's some of these customers, teens particularly that are transitioning into something else, but we still are selling very nicely our basic boat shoe business.

We have a couple of canvas styles, particularly on the mens' side that are very, very strong with laceless type of things on a boat bottom, but they have an oxford upper and they're laceless. Those shoes are doing very well.

So it's a combination of things, as the boat shoe silhouette itself is probably reducing a little bit. We're probably reducing our impact with the silhouette, but there's still a pretty good size business. We expect it to be pretty good all the way through back-to-school. Not what it was. Won't be the same kind of increases, but we still expect it to grow the businesses to some degree.

Fair enough. And I'll ask you Rick this question because I know Russ is going to sandbag it. (laughter) But just in terms of Famous Footwear, at a low-single digit comp, can you get EBIT margin expansion, I know you're at the 7% range, which is pretty high, but just thoughts about the ability to incrementally, not saying you can say it, but incrementally expand on that?

I think we still think it's in that 1.5% to 2%, once we get past those numbers, I think we still believe we can still leverage the business.

Fair enough, thank you. And then just on the Franco purchase, I'm just curious, when did you do that? And number two, now that it's no longer that licensing stream, is it fair to say that that could have some meaningful impact in profitability, or are there investments you need to make now that it's more yours to drive the business? I'm just curious how we should think about that?

Good question, Chris. We completed the transaction very early in February. And again had been working on it awhile, but completed it, I think it was on February 3 or 4. You're exactly right. We do expect that it can enhance our overall operating margin over time, but in the short-term there will be some investments that we need to make, additional design investments. And you can't really look at just Franco in isolation because we're going to be making significant investments in the Sam Edelman brand this year as well. So it certainly should over time, we are excited about it, we think it's the right thing to do, and we have very high expectations for it over time.

Okay. And between Franco and Sam which are putting up the double digit kind of growth, how sustainable is that? You think Sam is pretty much a given, but I'm just curious the momentum that you're seeing there and your comments about early spring really not seeing too much of a negative impact. It seems like there's definitely some strong momentum sustainability behind that. Can you maybe talk to that?

I think the way we think about because of how powerfully strong Sam was this last year, our forecast for 2014 really has them up in the low-double digits, so not quite as strong as it had been. And for Franco, we're really thinking about it in the low-single digits at this point in time until we get a little further into the year.

Okay. Great to see the EBIT margin improvement fourth quarter at wholesale and for the year. You make the comment that you're making some investments. At the end of the day the crux of this story is really getting that wholesale business back to call it 10% EBIT margin. You've been there before. So I'm just curious, you still anticipate I guess EBIT margin directionally improving at wholesale just low- to mid-single digits even though even though you met with some --

Absolutely.

We do. Of course the historic mix had a lot of first-cost business and now we have more sustainable brand healthy growth, and we see both the margin expansion on healthy and contemporary fashion side.

Okay, fair enough. That's all I have at the moment. Thank you very much and we'll talk to you guys soon.

Thanks, Chris.

Thanks, Chris.

Your next question comes from the line of Scott Krasik.

Hi guys, how are you?

Good morning, Scott.

Chris has always done a great job asking questions. If I repeat any I'm sorry. I think, Rick, the only category we left out now is molded. Did you comment on molded?

Actually, this is actually pretty good. Some of the new silhouettes, less of the traditional things, we actually have like a little heel slide, which we were surprised how good the shoe is. So I think it's interesting that yes, some of the new things are doing well, basic things are still performing, the business is up nicely, again probably less than it had been in the last couple of years. But nothing wrong with that business right now.

And then if I could just touch on your comment again about you might adjust number two, three, or four receipts for spring. Are you selectively replenishing though like the businesses that are doing very well, or do you just have to give everybody a haircut because of the late start?

We really try never to do that and we're not in a position I think right now where we think it's that kind of a 911. So we've been very selective, a lot of it's just sometimes it's moving a delivery 30 days, and then maybe looking at the last one we might have had the one behind that and whether we need to adjust that, so we try to be very selective and very pointed on how we do that.

We're still buying a lot of shoes of the stuff that we are selling very well. So the canvas part of our business is getting a lot of love, because we still think there's a lot of opportunity in that business, so that's how we've looked at it.

And then it seems like at least on the technical side there's a shift towards more cushioning in running, stability versus the lightweight models, you did really well with the lightweight models. Are you already transitioning into some of this more cushioned product?

We've always had that in our assortment. It's just a matter of degrees, right? So we've always had shoes like the Torch and things like that, that have more of that built into it, and actually those shoes recolored and reupperred in the last 60 days, some of the new things are doing very well. So that will still be a big piece of our business going forward, but the lightweight and that is still the dominant piece of what's selling. It's moving and shifting a little bit, but it's not a full transition from they're stopping buying lightweight bottom, they're going to stability. It's a slight shift and arc in what we're seeing today in our business Scott.

Okay. And then after platform and fanny, what's your take on how your buyers are going to buy boots for this year, and are you seeing any shift, I think it was a good cold weather season but not great fashion. Are you seeing shift toward tall shafted boots?

Yes, I think we're just about finaled, I think we're actually in the process of finishing writing the orders for the first deliveries, at least. We believe there's still a nice opportunity in tall shaft riding boots, some different, couple new things on heel height, the heels are a little higher on some of those riding boots so it's a little different than what we've had in the past, a little chunkier. Still casual, I think that's the one thing that even on the boot side it's getting even more casual it looks like.

The lace up business I think we saw that was a really good business early, probably not as strong in the fourth quarter as we had hoped, so I think we're just making some adjustments in how we flow that and where we're going to put the investment. The shearling business was very good this year. I think even what people report on a public basis tells you that, because we narrowed that into a vendor, we do it from one guy now. We had a real strong business, so we're looking at making that, making sure we're impactful there, not going crazy on silhouettes. But just making sure we have the right depth on the basic items because it seems that's what the customer is looking for.

So I think those are the major things. I haven't added it up yet, so I suspect we're going to be up some. I don't think it's going to be enormous, but it will probably be trending about where the store would planned to trend, so call it low-single digits would be my guess, but certain categories would be bigger, other ones would be smaller.

Cold weather was great. We had cut back the store base because we thought we had gotten too broad. We won't expand the store base. We'll probably have more depth and a couple of more silhouettes. And probably in those list of stores where we abandon the true cold weather business, we're looking at putting in, making sure we have some waterproof styles, because there's a couple of waterproof things where the customer, it's not so much about snow, it's about rain and things like that. So we think that might be a small opportunity, not a big deal, but again just to cover that business a little bit.

That's really helpful, Rick thanks. And then just one last one Rick for you. You gave us great stats on the percentage of days that were closed this year in February. Can you tell us how many days maybe were closed last year in February and then also in 4Q?

I'd almost believe there was none in February. 4Q we had a few. Actually, I think we're coming up on some days this month where we had bad weather, I think it's this weekend actually and the end of next week where we had some late weather events in a couple parts of the country. I don't have it at my fingertips, Scott, but I think it was very small in February, I think it was very small in fourth-quarter last year. There was some, but it was much, it would probably be 1% or less I would guess of what we were talking about last year.

Okay. That's really helpful. And then just Diane I think about a year ago you said you hoped, I think it was in five years Vince could be a $40 million business. Can you comment on your updated thoughts on that, I think you've gotten off to a much better start than --

Oh I think we'll see that in two years.

Okay. And ultimately the size if you put your arms around it?

I don't know yet but it would be north of the $40 million that I thought.

Okay, thanks, good luck.

Thanks, Scott.

There are no further questions at this time.

Thank you very much. Appreciate everybody joining us this morning.

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