Caleres Inc (CAL) 2014 Q4 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Brown Shoe Company fourth-quarter 2014 earnings conference call.

(Operator Instructions)

Thank you.

I would now like to turn the conference over to Ms. Peggy Reilly Tharp.

Ma'am, you may begin.

Thank you.

Good morning, and thank you for participating in the Brown Shoe Company fourth-quarter 2014 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 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 this 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, CEO, President and Chairman; Ken Hannah, 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 Ken, before turning the call back over for Q&A.

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

Well, good morning, everyone, and thanks so much for joining us.

You know, while I always look forward to a new year, I must admit I don't mind reflecting back on 2014, which was another successful year here at our Company.

In fact, we reported adjusted operating earnings of $129.4 million, up 23.8%.

And we finished the year on a high note, despite a challenging retail environment, West Coast port delays and the ever-evolving shifts in consumer behavior.

And our strong fourth-quarter has given us momentum and put us on a good path for 2015.

So let's take a quick look at last year, starting with Famous Footwear, which includes Shoes.com, on a historical basis through December 12.

Famous delivered sales of $1.589 billion and adjusted operating earnings of $105.4 million.

Gross margin at Famous improved 30 basis points last year to 44.4%, and we maintained adjusted operating margin of 6.6%.

I'd like to call out that this is the third consecutive year of record sales in adjusted operating profit at Famous Footwear, which is just a solid indicator of the good work that we've accomplished with this brand.

For the quarter, Famous reported same-store sales up 4%, as we saw a strong improvement in our conversion rate, up 5%.

We also saw improvement in average unit retail, up low-single digits, and a slight increase in pairs per transaction.

And both contributed to our fourth-quarter growth.

However, like the rest of the industry, we continued to see a decline in customer traffic in-store.

Boots and athletics delivered good growth in the fourth-quarter, and we saw more of the same for both trends in February.

Our key vendors continued to perform well, with our top five brands representing about 40% of sales in the quarter.

And while we saw sales level off in the back half of February as the weather turned, early indications for spring look good so far.

Canvas continues to be important across men's, women's and children's.

For doors in our hot-climate zone, we're seeing sandals delivering as expected.

And we anticipate this trend will play out in other climate zones as the weather turns.

So what else are we seeing so far in 2015, and what can you expect from Famous Footwear this year?

Well, with respect to our strategy, we're going to continue to build on our success today.

We remain committed to our real estate strategy, and will continue to evaluate opportunities to leverage our existing store base and drive profitability.

And at the inventory level, we're going to continue to use our system to evolve and enhance our product assortment planning.

Through these efforts, we expect to gain additional efficiencies and traction, and to improve our margin and turnover.

We also remain committed to acquiring new consumers, while engaging with our existing base.

In addition to targeting new millennial families, we're also testing new ways of interacting with all of our consumers, and this includes shifting our efforts to a more digital approach.

Finally, we'll keep driving omni-channel and continue to find ways to optimize our digital assets.

So far, we've seen good success, with total online sales at Famous at more than 10% in the fourth quarter, including desktop, tablet and mobile sales.

We also saw an increase in online traffic AURs in our conversion rate, and we're looking forward to expanding online sales in 2015.

So our strategic efforts for Famous are really an extension and an evolution of the success we've had to-date.

We know there is still more benefit to be gained from these programs, and of course, we also always have new efforts underway.

Let's move onto our Brand Portfolio, which reported 2014 sales of $982.5 million, up 6.3%, and gross margin of 34%.

This business also delivered outstanding improvement in adjusted operating margin of 7.5%, up 250 basis points over last year.

Results were similarly strong for the quarter, with sales up 5.4%.

Gross margin was up 40 basis points, and adjusted operating margin up 160 basis points.

We saw outstanding improvement from our Contemporary Fashion brands, with sales of $110.8 million, up more than 20%.

Sam Edelman, Franco Sarto, Vince and Via Spiga all contributed to this growth, despite the promotional holiday environment.

For our Healthy Living brands, sales were down 4.7% in the quarter.

However, these brands maintained steady operating margins.

As we take a look at the year, we saw standout performance in our Brand Portfolio segment with Contemporary Fashion, where Franco Sarto and Sam Edelman brands achieved record sales in 2014 and both brands remained well-over the $100 million sales marks.

I think you all recall that Sam Edelman opened its Beverly Hills store and launched an e-commerce site for its Circus brand.

And both brands generated a lot of publicity so far this spring with their recently released campaigns.

The campaigns features same shoes, handbags, and of course, apparel.

Sam's apparel launch in the back half of last year was well-received by both retailers and consumers.

And non-footwear sales accounted for more than 5% of Sam's retail business in 2014.

We plan to continue to grow each distinctive Sam Edelman brand, including Circus and Sam & Libby, in 2015, as well as advance Sam Edelman's position in the marketplace as a global lifestyle brand.

Now looking at our Vince women's business, they also did well, and continue to exceed expectations and add another 200 doors.

While the Vince men's business tripled its doors and is expanding into new categories in 2015 after a successful launch last year.

At Via Spiga, we made very positive headway this year, as the team continued to improve design and brand relevance.

At Healthy Living, the Naturalizer business was a bit mixed.

While our wholesale was very good across virtually every metric, our Naturalizer retail stores under-performed against our expectations.

We have a lot of work to do with the retail side of this business -- not just in-store, but online as well -- as we look to expand our already-strong total e-commerce sales beyond the 22% share of all-in Naturalizer sales.

So while Naturalizer retail had a difficult fourth quarter, we're confident about the potential for our Naturalizer brand.

It's clear from our wholesale and international performance that we're strategically on the right path and filling a definitive consumer need.

Also in 2014, we saw LifeStride cross the $100 million sales mark.

This quietly profitable brand also delivered record operating earnings as it continued to grow in the mid-tier channel.

Dr. Scholl's also reported a great year, with good increases in both sales and operating earnings.

So while 2014 had some great call-outs in our Brand Portfolio, we're looking for even more in 2015.

We plan to invest in the business this year, as we look to strategically drive both organic growth and external opportunities.

We'll continue to look at incubators to fill white space in the marketplace, maximizing on the success we have had with internal brands like Vesey's, or Sam & Libby and Circus.

And with the external licenses like Vince.

We've done a great deal of work on several initiatives we plan to execute on later this year, and I can't wait to share more about these efforts with you sometime later in the first quarter.

While this work will require some investment, it's also expected to deliver against our long-term strategy to expand the strength and profitability of our Contemporary Fashion brand.

And as always, we will maintain our ability to acquire a potential demand brand when the time, the price and the brand are a right fit for us.

And finally, one other important initiative in investments, specifically around our consumer fulfillment capabilities.

In 2015, we're embarking on a two-year plan to optimize our logistics network and build a foundation to meet our increasing omni-channel needs.

This year, our major investment will be for the expansion and modernization of our Lebanon, Tennessee, distribution center.

We're modernizing our Tejon and Perth distribution centers as well.

These improvements will help us capture additional speed, flexibility and capacity, which will give us the ability to expand our drop-ship capabilities and grow our overall business.

We've made a lot of progress as a Company in 2014.

But we know there's always room for improvement, and more benefit to be gained.

We are pleased with the results we report this year, including our stronger adjusted operating earnings.

Still, we recognize that there are parts of the portfolio that need to improve.

And as always, we're committed to taking the necessary actions so that every one of our brands and businesses can live up to their potential.

And with that, I'd now like to turn the call over to Ken for a review of our overall financials, and details around our guidance.

Thank you, Diane, and good morning, everyone.

Before we walk through the financial results for the quarter and year, I want to briefly address the new segment reporting.

I hope you found the segment release of the prior-period information helpful.

With the sale of Shoes.com this past December, we were forced to take a long hard look at our business segments -- Famous Footwear, specialty retail, and wholesale.

Specialty retail has shifted from what was a collection of retail stores and branded e-commerce sites, to essentially a single retail channel, represented by Naturalizer.

At the same time, our wholesale brands have expanded beyond the simple wholesale designation, as total e-commerce sales make up more of our consolidated revenue.

To address these changes, we have presented our full-year and quarterly financial results as two new reportable segments -- Famous Footwear and Brand Portfolio.

Our Famous Footwear segment consists of our Famous Footwear retail operations, including Famous Footwear e-commerce.

This segment will also include Shoes.com through its disposition on December 12, 2014.

Our Brand Portfolio segment includes all of our Healthy Living and Contemporary Fashion wholesale brands, and any of their related retail operations and branded e-commerce sites.

So going forward, when we talk about Naturalizer or Sam Edelman, we will be talking about the total business, which is how we look at each brand internally, and how I will talk about their results.

As you heard earlier, for the full year, net sales were $2.571 billion versus $2.513 billion in 2013, an increase of 2.3%.

Adjusted net earnings for the year were $75.6 million, or $1.72 per diluted share, versus $61.5 million or $1.41 per diluted share in 2013.

Both of these amounts exclude any benefit in 2014 related to the sale of Shoes.com, or any costs in 2013 related to the portfolio realignment, up 23% year over year.

A complete reconciliation is included with our release.

For the fourth quarter, net sales increased 2.6% to $615.4 million versus $600 million in the prior-year, with both our Famous Footwear and our Brand Portfolio segments contributing to the increase.

We reported adjusted net earnings of $9 million in the fourth quarter, or $0.20 per diluted share, excluding any benefit related to the sale of Shoes.com.

When you compare that to fourth-quarter 2013 net earnings of $6.2 million or $0.14 per diluted share, we were up 45.5%.

At Famous Footwear, we improved our revenue per square foot to $215, up 3.5% over 2013, closing 56 stores and opening 50 in 2014.

In the fourth quarter, we closed 13 stores, and opened 10.

For 2015, we expect to be net-neutral on store count, as we currently plan to open 50 stores, and close the same amount.

By the end of this month, we plan to have opened 9 of the 50 new stores.

We are carefully managing our planned store openings in the first half of the year as we navigate through any impact from the port delays.

This could shift some openings by a few weeks.

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

Overall gross margin for the full year was flat at 40.4%, with improvements in both the Famous Footwear and Brand Portfolio segments.

Fourth-quarter gross margin had a similar profile, and was also flat to last year at 40.2%.

For the full year, SG&A was 35.4% of revenue, leveraging 80 basis points.

For the fourth quarter, SG&A came in at 37.6% of sales, down 90 basis points.

Inventory at year-end was $543.1 million, down slightly from $547.5 million in 2013.

At Famous Footwear, inventory was down 8% year over year, reflecting a planned reduction.

On the Brand Portfolio side of our business, inventory was up 14.5% at year-end, driven primarily by our higher-growth Contemporary Fashion brands.

We are carefully monitoring the West Coast port situation, and have taken action to mitigate the impact of delays we are experiencing.

Some of those actions include moving orders to different ports along the East and West Coast, and moving up shipping dates on key and advertised items where possible.

However, we are starting to see some delays, and we are working with our partners to manage through these issues.

Our corporate tax rate was 24.7% for the full year, and negative 32.4% for the quarter, due to a benefit from the sale of Shoes.com.

Excluding the unusual items driving the negative quarterly tax rate, our tax rate for the full year would have been 30.6%.

Cash and equivalents at year-end were $67.4 million.

Net interest expense of $20.1 million was down 3.9% for the year, and the fourth quarter came in at $4.7 million, down 5.4%.

The reduction in interest expense is a direct result of the refinancing of our revolving credit facility in the fourth quarter.

The amendment resulted in a lower interest rate, a reduction in unused fees, less restrictive covenants, more flexibility and an increase in availability to $600 million.

We ended the year with no borrowings against our revolving credit facility.

Depreciation and amortization was $51.6 million for the year, while capital expenditures were $50 million.

Our debt-to-total-capital ratio improved to 26.9% from 30.1% in 2013.

For Brown Shoe Company, 2014 was a strong year on a number of fronts, with a variety of accomplishments.

We are certainly looking to continue that success in 2015.

Before we move to Q&A, I'd like to review our FY15 guidance.

While we are confident in our ability to work our way through the fallout from the West Coast port situation over the course of the year, we are cautious regarding the first quarter.

With this in mind, we are currently expecting full-year 2015 diluted earnings per share of between $1.78 and $1.88.

That's driven by consolidated net sales of $2.61 billion to $2.63 billion.

Same-store sales at Famous Footwear up low-single digits.

As a reminder, reported sales in our Famous Footwear segment are expected to be roughly flat year over year, due to the sale of Shoes.com and its associated revenue in 2014.

Net sales for the Brand Portfolio segment are expected to be up mid-single digits.

Gross margin up approximately 10 basis points.

Our SG&A continuing to leverage at less-than or equal-to 35.4% of sales.

Net interest expense of approximately $18 million.

An effective tax rate of 30% to 33%.

Depreciation and amortization of approximately $53 million.

And lastly, capital expenditures of approximately $75 million, with roughly $22 million allocated for expansion and modernization of our distribution centers.

And with that, I'd like to turn the call back over to the operator for questions.

(Operator Instructions)

Scott Krasik, Buckingham Research.

Thanks for all the color, and welcome, Ken.

Just had a few follow-ups.

Interesting commentary around what you're seeing in February.

But you typically give us some directional idea of how the comp in Famous has trended quarter-to-date.

So would you care to elaborate?

Well, Scott, we were waiting for you to ask us that question.

(laughter) We figured you would.

I'll turn it to Rick, and let him give you a perspective about that so far this year.

Relatively briefly, we basically are running flat to last year.

We've shifted a few -- because of Easter shift in our calendar, we shift our promotional calendar to adjust for that, Scott.

So we were disadvantaged in the first part of March, and we're advantaged this week.

By the time we get through this week, we feel we'll be roughly flat for the quarter to-date.

Okay, that's helpful.

And you had been experiencing some weakness in the performance side of the athletic business.

Maybe it's too early, but how do you feel that's going to trend throughout the year, and then athletic overall?

I think overall, it will be fine.

I think the performance side of it is slightly weaker than we had hoped.

We had planned it down slightly; it's probably a little worse than that right now.

We're trying to wait and see if that's just due to weather in some of our key markets, where it hasn't been conducive to people getting out and using those shoes.

But in total, with the strength of the lifestyle business, we don't see it as being an issue for athletic, in total.

And just one last question on athletic.

How do you feel about your price points?

You seem to be inching up some price points on some of the Marquis Nike product that you sell, some of the other stuff.

Are you seeing resistance there?

When the shoes are right, no.

We think there's some things coming that will be -- even allow us to continue that in back-to-school.

Because some of the stuff we see for back-to-school will allow us to continue to look at raising our price points.

Or at least, offering really great product with some new innovations at prices that are still below what they'll find in the true specialty guys, but still gives the customer the feel and look of that innovation in the athletic side.

Okay, that's great.

And just a couple clarifications.

Ken, was there anything else that moved into Famous besides the Shoes.com piece?

And then, is that just pure Famous going forward?

Yes.

In 2015 forward, it's just pure Famous.

Okay, that's helpful.

And then, can you remind us what your callable-type options are for the notes in 2015?

And if they could be addressed, what type of accretion scenario we could look at?

Those don't come due, Scott, until May.

And we will take another look at them, based on interest rates in the market.

And what is it -- is it like one out of three or something?

Just remind--

I don't know what is presently, but it sounds close.

Okay.

So that is an accretive option in 2015?

We'll keep looking at it every year, like we do.

Okay, thanks.

Good luck, guys.

Thanks.

Jeff Stein, Northcoast Research.

First of all, just question on your margin guidance.

Just looking back to your Analyst Day mid-summer last year, it seemed like you were looking for a margin ramp in -- let's call it 30, 40 basis points a year.

But your guidance this year seems to be somewhat less than that.

And I'm wondering how much of that is reflective of the port situation and/or weather?

And maybe you can just reconcile what you were saying last summer versus what you're looking at now?

Well, for sure some of it is our cautious outlook as it relates to the port situation, what our expectations are really in the first half of the year.

So the bulk of it really is that, Jeff.

And beyond that, our goal would still be to target what we had talked about last June at our Analyst Day.

Okay.

Is the port situation at the present time -- do you see it being more impactful on your -- the Brand Portfolio side, or on Famous Footwear?

Well, that's a great question.

I think frankly, it's hard to tell yet.

But I would expect really on both sides of it.

On the wholesale side, as Ken had mentioned in his remarks, that we took a lot of action last year in terms of extending our lead times and shifting where we received some goods.

And through the first fourth quarter, we really didn't have any issues.

And really through February, I think we've been able to perform well.

It's a little tighter now, as the consumer and the retailers are looking to have more spring goods on the floor.

So sure, we are in some cases, a little bit late.

It's going to take a while to catch up.

And we'll have to see where that all shakes out as we move through the first, and really the second quarter.

I think we've heard from everybody that the new normal -- if there is a new normal -- doesn't come until May, when they really untangle some things.

And I think Rick would agree that we're in good position on some of our key brands, but a little light in some of our more seasonal goods.

And as soon as we can get that corrected, and as quick as we can get it on the floor, we'll be able to drive the outcomes that we're looking for this year.

Sure.

Rick, in your comment regarding Famous Footwear trends in February, can you talk about what's going on geographically?

I presume that you're doing better in warm weather markets.

And give us an idea what the spread in comps is, let's say, in the Northeast versus the West Coast and southern regions?

In general terms, the Northeast would be down probably high-single to just double-digits.

Again, a lot of closures, a lot of weather-impacted business there, primarily through end of February and into early March.

Our warmer markets -- so if you just think of Florida, Texas, Arizona, even California -- those are probably up mid-single-digits.

Everything else around there is someplace around flat.

Okay, great.

And final question, for you, Diane.

Last year, I think in the third quarter, you alluded to more-to-come on what you might do with the Naturalizer stores.

That business continues to under-perform.

Can you talk about where you see that business a year from now?

Do you see it as part of the portfolio?

Do you see it decisively smaller?

Do you see perhaps some sort of restructuring in that business?

Thanks.

Yes.

Just as a quick recap on Naturalizer in total, we did see on the wholesale side, everything was very good across virtually every metric.

Our wholesale sales to the external view was up 6.5% in the fourth quarter.

Operating margin was up 370 basis points.

And in total for the year, we were up 2.3%, and operating margin was up 211 basis points -- that was on the wholesale side.

International also showed strong operating margin growth for the year as well.

So it really is -- when you think about it, Jeff, it really is the store base, that we have to continue to look at how we get those stores to perform better.

We have been working over the last couple years to rationalize the fleet.

So we did operate eight fewer stores year-over-year.

And in the fourth quarter, our same-store sales were down 6.5%.

We really think there is still the opportunity.

I think it's critical that we have stores that are that showcase for that brand.

And as we've begun to expand that brand family into Vesey's and to Natural Sport and other things, we do believe that over the next 12 to 24 months, that will be an economic contributor -- the total all-in Naturalizer business.

So we are not giving up on it.

You should expect to see it.

But you should expect to see it perform substantially better than what it has to-date.

Okay.

Thank you very much.

Yes.

Jay Sole, Morgan Stanley.

Diane, I have a question on the CapEx.

$75 million is the projection for this year, and it's a step up from the $50 million of last year and the year before.

Could we expect that this is the level of CapEx that we'll see going forward beyond 2015?

No, it's really a one- or two-year increase.

Because pretty much, Jay, over the last number of years, our CapEx has run anywhere between $45 million and $50 million.

You see the step-up because the investment in the consumer fulfillment logistics network that I discussed.

Which we think is, again, critical to supporting our omni-channel, delivering quicker speed, and gain more efficiencies in terms of getting our inventory and goods to the stores.

So it will just be this year, next year, and then it will normalize again back into that $45 million to $50 million range.

Okay.

Is it fair to say that this focus on the more digital approach at Famous Footwear and the other initiatives you're talking about is a little bit of a change in the strategy, where you're placing a little bit more focus on it now than you were six months ago?

Yes, I would say so, for sure.

I think we're doing a number of things in the Company to make sure that we continue to make sure we're connecting with consumers digitally.

I think if we looked at our media mix next year, a substantial swing.

Rick and the team have really taken a look at that versus traditional media.

And I think, Rick, it's something like 60% of your marketing mix next year, is going to be shifted to digital.

Which is a substantial shift from, I think, about 25% the prior year.

So we're being much more aggressive about how we're taking a look at that.

And I think we're also looking at other ways that we can add more talent in that area in the Company.

I think that's probably not unlike a lot of folks, in really virtually every industry, and continue to be very savvy around the digital space.

Got it.

And if I can just ask one more.

Diane, you did a great job again this quarter of keeping SG&A growth below sales growth.

Were there sources of incremental savings?

And were there areas of investment that you were able to make, even though you were able to hold SG&A down again?

Yes, thanks, Jay, I appreciate that.

I wouldn't say there was anything special.

I think our top line grew pretty much about where we thought it would.

We held or improved slightly -- particularly on the wholesale side -- our gross margin rates.

That was a big goal that we had.

And as we've talked about, our model, it really leverages extremely well.

If we get that top line in that margin expansion, with very little additional SG&A -- and again, the pressure will always be on that -- we will continue to invest where we need to.

The operating margin returns are terrific.

And as I said, next year we're going to be working on the consumer fulfillment.

That's a significant investment.

We also going to be investing in digital space.

You'll hear from us in the first quarter about some new brands that we're going to be launching, both as an incubator and as potential licensees out there.

So I think we are making the right prudent choices on SG&A, Jay, for where we are in our recovery and our long-term target, for our operating margin.

Got it, great.

Thanks so much.

Good luck this quarter.

Thanks.

Sam Poser, Sterne Agee.

A couple things.

Number one, can you tell us what the revenue loss was for the quarter, specifically from Shoes.com?

Probably.

Hold on a second.

Yes, hang on, Sam.

About $10 million or so.

Okay, thanks.

And then, Rick, the earlier Easter -- all things being equal, I would think that would help your business, jump-starting spring a little earlier than it did a year ago.

Theoretically, that's been always one of the thought processes.

I think, again, the weather problems we had were -- we had less stores impacted, but stores that were impacted are bigger markets and bigger stores.

So the actual dollar impact was not that much less, for March at least, and late February.

It wasn't that much less than we had a year ago when we thought we actually had more stores impacted, Sam.

So some of it is around where the weather problems are, and then getting those people able to get back to spring and get out.

Spring breaks are starting this week.

To a degree, we start seeing more of that activity, in some of our southern markets particularly, the tourist areas.

So hopefully, between now and -- that ramps up pretty rapidly over the next two to three weeks.

So yes, you would think it would start.

But it didn't seem to do that much difference at the end of February and the first week of March.

No, I'm not talking about that.

I'm really talking about -- you have Easter on the fifth of April this year, so Good Friday is three weeks earlier than it was a year ago.

And so the actual issue of Easter itself, the jump-start that you might have gotten later last year because Easter was later, versus having it earlier this year, I would expect that's coming.

That isn't pre-effect by what happened the last few weeks.

Oh, yes.

And then just to make sure I got it right, you said that the Naturalizer business in the quarter -- wholesale was up 6.5%?

And operating margins were up 370 bps in the quarter for Naturalizer wholesale?

Correct.

And then for the full year, Naturalizer wholesale was -- I got the margins up 211 bps.

But what were the sales?

2.3%.

And do you see that momentum continuing?

Yes.

For the wholesale side of things?

Yes.

Okay.

And then the question really is -- just to follow up on the question regarding Naturalizer retail -- is, how long do you hope it gets better?

Or is it just -- lets get rid of it because it is a drag, and think of a different way of highlighting brands going forward?

Even if it means closing where you are, and reopening with new-looking stores that haven't been there for a long time?

Yes.

In follow-up to that question and Jeff's question too, I would say -- we look at everything, every way that we can optimize both sales and earnings.

If we eliminated all Naturalizer retail stores, our shareholder and our earnings would be in a negative position relative to where we are today.

That would not be additive for the Company.

So we have to really figure out, how quickly can we really have those become an economic contributor.

And to your point that -- is it going to require some additional investment in that?

We don't really know yet.

I don't think it's significant.

Will it require some?

I'm sure.

So I think, Sam, it's a good question.

And we will look at every possibility to really maximize the value of that brand and that decision.

Steve Marotta, CL King & Associates.

Ken, let me offer a welcome aboard.

I have three quick questions.

The first is, what is the split at Famous Footwear for February, March and April, as a percent of revenue please?

What was the first part of it?

The split in revenue at Famous Footwear from February, March and April, as a percentage of the total?

By how the month comps?

Comps by month?

Is that what you're asking?

Yes, that's correct.

Okay.

The comp plan, or the volume plans or the--

Historical?

The percentage of sales that's expected to dump into February, the percentage of sales that's expected in March, the percentage of sales in April, for the entire quarter?

February is the smallest month.

March is the biggest month.

And April is between the two.

Got you, that's helpful.

The consolidated gross margin drivers for the current fiscal year -- of course, the guidance is for up 10%.

Can you talk a little bit about what your assumptions are behind the up 10%, and where the levers are there as well?

I think if you look, it's across both segments.

And while we're continuing to invest in the Brand Portfolio business, we are expecting to get gross margin increases.

So it's really across the board.

Okay.

Lastly, from a real estate strategy standpoint, you spoke a year ago about the Arizona test, and how you went from -- I believe it was 16 doors to 13.

I think there is a bulk that are under review in order to endeavor to optimize that retail portfolio.

Can you talk a little bit about where you are now in the process?

(multiple speakers) Company stores?

If you could talk about the process?

There would be seven stores we closed last year that would fall into that category, of stores where we believe that we would have the ability to move substantial sales to other stores.

We're still a little early to tell how that's working.

The accretion is there.

It looks a little less than we might have thought, but still probably worth doing.

And then, we have probably on our potential close list for 2015 about another 10 stores that fall into that high-accretion list of stores that we've been looking at.

So as we get close to those expirations on our leases, we'll look at it again.

And depending on if the landlord makes a different deal, that obviously changes that model.

So it all depends on what happens with that, Steve.

But so far, I think we're finding that there's opportunity there -- maybe a little less than what we had initially thought.

But enough for us to continue to go down that path.

Great, that's helpful.

Thank you.

Eddie Plank, Jefferies.

Welcome, Ken.

Diane, how did the promo environment play out in the fourth quarter relative to your expectations?

And what are your thoughts on the environment now, as we head into spring?

Well, actually, we were really pleased in the fourth quarter with our overall performance, even with that promotional environment.

I think the struggle really had been particularly in the case of boots and tall shaft boots -- that's where there was a lot of price pressure and promotional pressure.

And wherever we had issues on that, we took early action, and we were able to really work our way through most of that.

I think that helped our overall performance on the branded side in the fourth quarter.

So I think we navigated that quite well, and so it was less of an issue for us.

And I think Rick would say the same thing for Famous Footwear as well.

They were able to work their way through that, with the 4% comp that they delivered in the quarter.

As we look at spring, it's all now around -- really comes back, unfortunately, Eddie, to the whole port question.

It's a little early to tell what the real big trends are going to be, or what the overall impact is going to be.

So I see less about the promotional environment, and really more about what is the impact of any late goods going to be, both on our wholesale and our retail side of the business.

Got it, that's very helpful.

If I could ask one more.

With respect to taking the Sam Edelman brand global, I know it's early in that path, but can you give a little bit more detail around the strategy, how you see it playing out?

And then also your thinking around adding more Sam retail stores this year?

Thanks.

Yes, we are.

Great question.

We plan to add, I think, five to seven more stores in 2015, in the US.

And we're very close to signing a number of distributor agreements with folks in different parts of the world.

So you would expect to see five to seven stores in the US, and a number of agreements, sometime in the next six months, on Sam Edelman expansions in new markets.

Great.

Thanks a lot, and good luck, guys.

Thanks.

Jill Nelson, Johnson Rice.

If you could just follow up -- given the more cautious 2015 guidance, given the port issues, if you could talk about the back-half of your guidance.

Are you assuming a return to that growth projection of high-single-digit to low-double-digit EBIT growth that mirrors your long-term plan?

Yes, for sure.

I think, again, our guidance this year is very consistent with the way that we've guided in the last number of years -- with that little extra conservatism because of the port issues.

No one has a crystal ball on how that's all going to play out.

I wish I knew how consumers and retailers were going to react on that.

But yes, our goals have not changed at all, Jill, in terms of our targets.

Okay.

And should we see a big swing in the way you're projecting the Brand Portfolio sales growth from first-half to second-half, in comparison to that annual guide of mid-single-digit growth?

I would say a little heavier on the back-half, yes.

A little heavier on the back-half.

Okay.

And then one related question.

The Famous Footwear inventory down 8%.

I think you noted it was in line with plan, but then it seems like that might include some slower shipments with the ports.

Could you break down that number a bit, just try to get more clarity around it?

Yes, Jill.

That number includes Shoes.com -- less inventory in Shoes.com.

So the true Famous number, Famous only, was down about 5%, 5.4%, something like that, on a total basis.

Which was about what -- we actually were pretty -- very, very close to what we planned to be at the end of January.

That has deteriorated in February and currently, because of the late deliveries.

We really weren't disadvantaged that much in December and January, on deliveries.

It's really been the last four or five weeks where we've seen more delays coming, and back-up of goods being a week to two weeks behind what we would anticipate.

Okay.

Thank you so much.

Sure.

Danielle McCoy, Wunderlich Securities.

I just had a follow-up on Sam Edelman.

If you could just talk about some of the domestic wholesale expansion opportunities, or how we should think about the extension of product categories?

Is that more of the Sam Edelman retail store to include more of the apparel?

Or is there a potential to get that into some more of wholesale distribution?

Great question, Danielle.

Think about it this way.

We have three engines, really, in Sam today.

We have the Sam Edelman brand, we have Sam & Libby at Target, and we have Circus by Sam Edelman.

And we really see all three of those brands having opportunities for expansion in 2015.

Starting with the Sam Edelman business itself, we are now going to be really in our second season in spring, on apparel, continuing to expand our door base with people like Nordstrom and Dillard's and Lord & Taylor.

So we really think there's more opportunity there, along with other license categories, whether it's jewelry or handbags or outerwear.

That will continue to gain traction in 2015.

Sam's core footwear business right now looks to be very good.

Feeling positive about his opportunities in 2015.

And he's looking at new ways to expand that category of business, including new retailers that he's going to be working with.

You add to it the store growth that we talked about -- and we're being very thoughtful about what stores we add and where we add them, making sure that we continue to make sure that they're an economic contributor to the whole picture.

And there's a lot of opportunity online in the digital space too.

We've got the Sam Edelman website up.

It's e-commerce-enabled obviously, and we see that as being an engine, too, on the Sam side.

And then as I mentioned, the international.

So when you think about it, there is lots of different channels of growth opportunity for that core business.

Circus is really in its early development stages.

And think that, that will continue to have both product expansion opportunities -- meaning there's more categories and more SKUs that we can really get to in Circus.

And the Sam & Libby business continues to be great.

I think this is an anniversary for the original Sam & Libby bow-ballet this year.

Target is going to be helping us with that, in the celebration of that.

So I think there's a lot of different channels of opportunity for that Sam Edelman brand.

All right, great.

And then shifting to Famous Footwear, can you give us an update on how the stores in Canada are doing?

We have six stores open now yet, Danielle.

Our seventh open within the next 30 or 45 days, I think, will be our seventh.

And that's the last negotiated lease we have.

We're still looking at other opportunities.

They had a very good 2014.

Again, the weather the last few weeks in that part of the world hasn't been that good either, so our business has been a little soft against plan.

We still have a very positive outlook on those stores.

We're being appropriately cautious, as far as how many more stores we're looking at.

We want to go through probably another season of business, to make sure we understand the customer a little bit better.

But we still think there's opportunity -- particularly, these stores are basically around Toronto and a couple stores in Montreal.

So there's a lot more western part of Canada to look at, if we decide that there's opportunity.

So I think we're still looking at it as a potential growth area.

All right, great.

And then lastly on the DC, can you give us a little bit more color on what kind of upgrades you guys are doing?

And how we should expect the flow-through on implementation and potential leverage going forward?

Well, we're building a new one basically.

We're adding -- on the building we have in Lebanon, Tennessee, we've pledged more property, and they're building an extension out.

It will be a new facility.

So we won't lose any productivity while the building is being built.

That was the whole idea.

And then as that building gets built and new equipment gets put in, there'll be a gradual movement of product to the new side of the building, so that we can then start using the efficiency of the new equipment and the new processes as soon as we can.

The idea was to not lose any productivity at all over the course of the 18 months to two years it's going to take to have this whole thing done.

All right, great.

Thanks so much.

Good luck, guys.

Thanks, Danielle.

Laurent Vasilescu, Macquarie.

It's Stephanie Wakeham on for Laurent.

Just a couple quick questions.

Shearling product did really well, up 20% in Q3.

Just wondering if that continued into the fourth quarter?

And if you think that this trend will continue for next fall, or was it more of a one-year trend?

It did continue, probably not quite that strongly, but it was probably mid-teens, at least -- at a good margin.

So I think we're almost looking at it now as more of a basic business, and the customers' expectation.

It's another part of their wardrobe we updated, with color or detail on some of the silhouettes.

But it's really driven by a short and a tall boot in basic colors.

And those things don't seem to be slowing down.

They did very well, and the customer continues to be respond.

We believe it will still be a good business for us this coming fall as well.

Great.

And I think last quarter, it was noted that there was some weakness in the women's non-athletic side, particularly in dress and casual footwear.

How should we think about this for 2015 -- and in particular, the first half of the year?

I think those categories are leveling out.

I wouldn't call them robust, but I think they're starting to level off.

Our inventory levels have been -- we decreased our inventory levels dramatically.

We're up against some dramatic declines in the business, so we're starting to see it even out.

Our margins are coming up.

So I think we've got the inventory in line.

It won't be as big a negative to the total business as it had been for the last 12 to 18 months.

As far as -- it is it going to be a driver?

I can't say that yet.

I think that's probably something that we would consider that's important in driving our business.

But we don't see it as being a negative in our assortment, as it was over the last 18 months or so.

Great, thanks.

Chris Svezia, Susquehanna Financial.

Ken, welcome.

First, Rick, for you.

Going back, looking at some product, in general.

Casual lifestyle -- so canvas and the brands that subscribe to that in lifestyle, et cetera.

You've made some big bets there.

I think you have some pretty robust thought process about that.

Based on what you're seeing, any change in that thought process?

Or no, you firmly believe that those bets will be the right bets for spring -- and to some degree, back-to-school -- but for the spring selling season?

Yes, I hope we you bought enough.

(laughter) It's a bit surprising.

We would have thought that, that December through February period would have been a little softer, just because of time of year and what people are looking to buy.

It really hasn't declined.

We still see that business as healthy as it was even prior to the cold weather.

So that gives us more confidence to continue to do what we're doing, in making sure that we keep that inventory at its ultimate opportunity.

Because I think that's really where the business is going between now and -- at least back-to-school, for sure.

Are you shifting some of that -- call it -- when you think about technical, that's to a degree, the running business.

You continue to shift some of that, hoping to buy dollars out of that and into that lifestyle --.

Yes, we've been pretty much on that march for a year.

And I think we're pretty comfortable where we're at today.

And now it's just a matter of managing inventory to sales.

So if the sales exceed our expectations, then we'll go out and buy more.

If it doesn't, we think we're in a good position to get the turn in the margins we want on that category.

And again, we would expect our running business to remain flat to down slightly for the year.

And we think there's some opportunity, if the shoes perform better than we expect, that we could outdo that too.

But that remains to be seen; that's still a wish versus the actuality.

Okay.

And sandals -- how did you -- versus last year and just the planning process and weather and timing and transitional product.

How did you think about that for spring into summer this year?

Just general thoughts about that?

We start our sandal business relatively early in our warm and hot markets -- November-December.

We delivered some new sandals January.

So those stores have had new product in them for -- call it six, eight weeks now.

They have all the big items that we bought for the chain get there early, so we can start seeing what the reaction is and understand what that might look like for the rest of the chain.

We haven't seen anything that would give us pause that the inventory items themselves -- whether jeweled to flat sandal, whether they're foot-bed sandals, whether they're sport sandals.

All those different categories are performing as we would expect them to today in those markets.

The issue now is just getting enough of those shoes into the rest of the chain to capture the business.

And that's where the delays on the deliveries could be problematic.

Again, I think it's a shoe-by-shoe, delivery-by-delivery conversation.

We really haven't made any adjustments yet, but that doesn't mean we won't.

If we get delayed too far, if we lose some selling time, we probably won't need as many shoes as we have on order.

And we don't want to overdo that, and have to lower prices more dramatically to liquidate the inventory.

So I think that's the work that still remains to be done.

And that's what gives us pause on the first quarter and into the second quarter.

Okay.

Diane, for you, just on the branded piece.

As I think about Healthy Living and Contemporary, as it pertains to that mid-single-digit growth for the year, broadly speaking, how do I think about it?

So Healthy Living is this low-single, and Contemporary is still a double-digit growth?

Yes, exactly.

Okay.

Ken, you must be bored, so I'll test you with a question.

(laughter)

I'm just fine.

(laughter)

I'm curious.

When we think about the guidance for the year, and all this talk about first quarter and cautiousness, I'm sure you know where all of us have our numbers lingering for the first quarter.

To what degree you want to add any commentary about that, are you now thinking first quarter is going to be flattish, because of some of these issues?

Or no?

Any thoughts or color about that?

What I would add is just, as we're working through this port issue, the biggest issue is the uncertainty around what it's going to look like between now and May.

I think the team has done a great job working through the issues to-date, and has really been able to minimize the impact.

I think you heard Rick say he's starting to see that come through here in terms of some of the seasonal goods.

And so it's more the unknown.

When I look at the performance -- our guidance range, the low end is a 3.5% increase, and the high-end is a 9.5% increase.

And I think that we've tried to give ourselves enough room with a slow start, to still be able to deliver a great year.

And that's the way -- I'm on week four.

So I still have a lot to learn about the trends in the business and the levers that we have.

But I'm very encouraged and enthusiastic about what I've seen, the quality of the team here.

And so we tried to put some numbers out that we were comfortable with, given the uncertainty around this port situation here, at the beginning of the year.

Okay.

So not explicitly answering the question, but it seems like you still can get some earnings growth in the first quarter?

I think that's unknown.

We'd like to cover ourselves to be flat coming out of the first quarter.

And we certainly are enthusiastic about what we have planned for the back-half of the year.

Okay.

Two last things real quick here.

One, just on the debt -- I have to go back to that for a second -- and the $200 million that's out there at 7%.

Obviously with the revolver and what you've done there, you could easily use the revolver and potentially reduce your cost there by 500 basis points or something.

Why not do that?

That just seems very straightforward.

And the last question is just -- Diane, great job, and the whole team, on the margins.

When I think about the EBIT margin profile of this Company -- and we play with these charts that you give us on the Analyst Day, and triangulate everything.

Broadly, it looks like 6% EBIT margins by 2016.

I think basically what you're telling us is, nothing has really changed here in the trajectory -- it's just a matter of some weather and some port issues.

But overall, lots of confidence and would love to have the opportunity to continue to take numbers higher as the year unfolds.

Is that fair?

Exactly.

Well said.

Okay.

And was that [Peggy] or somebody?

We're certainly looking at it.

There was a couple of dates that were tied to those notes.

Those dates have passed to where, from an economic standpoint, it certainly looks like it would make more sense now than before.

And so we'll take a look at it.

I can assure you, we're going to do what we need to do to make sure the balance sheet is where it needs to be.

And we're positioned to capture the growth that comes our way.

Okay, sounds good.

All the best.

Congrats.

Thanks, Chris.

I will now turn the call back over to Diane Sullivan for any closing remarks.

Thanks, everybody, for joining us.

And we look forward to seeing you during the first quarter, and giving you some other news on some of our new business opportunities.

So stay tuned.

Thanks again.

Ladies and gentlemen, this does conclude today's conference.

Thank you all for joining.

You may now disconnect.