Caleres Inc (CAL) 2015 Q4 法說會逐字稿

Good afternoon.

My name is Jennifer and I would like to welcome everyone to the Caleres fourth-quarter 2015 earnings call.

(Operator Instructions)

Thank you.

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

Thank you.

Good afternoon and thank you for participating in the Caleres fourth-quarter 2015 earnings call, which is being made available to the public via webcast.

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

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

In addition, slides are available on our website for you to reference during this 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 which 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 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.

Thanks, Peggy, and good afternoon, everyone, and thanks so much for joining us.

It's been a little over three months since our third-quarter call where we expressed confidence in our ability to manage the factors under our control and to deal with fourth-quarter challenges, like weather, a promotional holiday season, and excess inventory in the marketplace.

At that time, I had said that these types of short-term, industry-wide challenges wouldn't derail us from delivering consistent, profitable, and sustainable growth, and we did just that in the fourth quarter, with adjusted EPS up 30%.

For the full year, we saw improvement at both the top and bottom line.

Now, starting with Famous Footwear.

Fourth-quarter same-store sales were up 0.8% and steadily improved as the quarter progressed.

November was down about 2%, as unseasonably warm weather lingered; however, December was up about 2%, and this positive trend continued into January.

While some retailers were more promotional during the quarter, we actually reduced the rate of some of our promotions.

We maintained the same marketing calendar as we did in 2014, and we continued to offer trend-right merchandise.

Canvas, part of our overall athletic business, was once again up double digits, while total athletic was up 5%.

And while women's dress and casual styles were soft, booties were big winners in the quarter, up more than 30%.

Our product mix and our clean inventory position throughout the quarter helped us drive increased gross margin at Famous, which was up 58 basis points in the fourth quarter.

So not surprisingly, what we're seeing is that when a consumer finds the footwear they want, they buy it.

This is why we invested in Famous' omni-channel and why we were able to deliver improved conversion rates for all of our channels, in-store, online, and mobile.

To that point, in the fourth quarter, we also saw an increase in pairs per transaction and average unit retail, both in-store and online as well.

While traffic was down in store, it was up at Famous.com, as consumers continued to browse and shop online.

In total, Famous.com accounted for 6% of Famous Footwear sales in the quarter, with the strongest growth once again coming from mobile.

In addition to a solid fourth quarter at Famous, we also wrapped up a great year, delivering annual sales of $1.6 billion, up 1.9%, with same-store sales also up 1.9%.

For 2015, the team delivered record operating profit of $109 million and improved revenue per square foot to $217 per foot.

Now turning to our brand portfolio where full-year sales were up 2.3% and fourth-quarter sales were up 0.8%.

While there were certainly challenges relating to a later winter and excess inventory in the marketplace, because we ended our third quarter with inventory down 0.6% year-over-year, we were not under pressure to rely on off-price channels during a promotional fourth quarter.

As a result, we were able to deliver improvements in both gross and adjusted operating margin in the fourth quarter, up 74 basis points and 40 basis points respectively, for a solid finish to 2015.

For our healthy living brands, full-year sales of $566.3 million were roughly flat, however, Dr. Scholl's, LifeStride, and Ryka all delivered growth.

For the fourth quarter, total sales of $127.4 million were down 6.7%, but there was some good news.

Naturalizer same-store sales were up 0.5% in the fourth quarter, while e-commerce sales were up double digits.

Unfortunately, these positive results could not offset the negative impact related to currency, which was approximately $4 million; some product eliminations, nearly $4 million; and some store closures of a little more than $1 million.

And that accounted for roughly the entire fourth-quarter decline at healthy living.

We expect some of these fourth-quarter trends that impacted Naturalizer to continue into the first quarter, specifically the impact from currency and the planned product exits.

We also expect to see first-quarter weakness in the mass channel for Dr. Scholl's.

Shifting to contemporary fashion where full-year sales of $437.4 million were up 5.8%.

We saw improvement 2015 across all brands, with the exception of Via Spiga.

For the fourth quarter, sales of $120.9 million were up 9.1%, led by our two largest contemporary brands, Sam Edelman and Franco Sarto.

I expect positive contemporary fashion sales trends are going to continue into 2016.

Going forward, our broad portfolio of brands will help us to navigate continued changes in consumer shopping preferences, industry-wide inventory management, and channel disruption.

I'm very excited and confident about the potential for our entire Company, and our ambitions have not changed.

There's no denying there has been a shift in the marketplace and the situation will continue to be dynamic.

However, the breadth of our Company-wide portfolio across brands, channels, retailers, and consumer segments provides us with more flexibility and better positions us for a constantly evolving retail environment.

While the near-term retail landscape remains uncertain, we plan to continue to execute in 2016 as we did during a challenging fourth quarter and throughout 2015.

The teams did just an outstanding job last year, with Famous Footwear delivering record operating profit and our brand portfolio passing the $1 billion sales mark.

We executed against our plan this past year and as a result, we achieved a number of significant accomplishments.

We continued to invest in our people, as we added depth to our executive ranks and consolidated our brand portfolio under one leader.

We strengthened our balance sheet and received credit rating upgrades from both Moody's and S&P.

We successfully rebranded the Company and still maintained our ties to our heritage.

And we also committed to investing in our future, with the expansion and modernization of our distribution centers, the launch of two new brands, the continued expansion of our Sam Edelman brand and his retail stores, our consumer targeting efforts at Famous Footwear, and our continued investment in digital across the enterprise.

In 2016, you can expect more of the same from us, as we invest in our brands and our infrastructure and our people.

We are confident in our ability to deliver consistent, profitable, and sustainable growth.

And with that, I'll turn it over to Ken to give you a little bit more detail around our financial review.

Thank you, Diane, and good afternoon, everyone.

Today we reported a strong fourth quarter to close out a great 2015.

Our net sales for the quarter were $608.7 million, up 0.4% excluding shoes.com, which was sold in December of 2014.

For the full year, our sales of $2.577 billion were up 2%, excluding shoes.com.

Consolidated gross margin for the fourth quarter was 40.8% of sales, up 55 basis points year-over-year, as we drove improvement in both Famous Footwear and in our brand portfolio.

For the full year, gross margin of 40.7% was up 21 basis points and slightly ahead of our guidance as the team of effectively managed inventory in a tough second half.

Total SG&A expense in the fourth quarter was $231.2 million, or 38% of sales.

For the full year, SG&A of $912.7 million was flat as a percent of sales at 35.4%, consistent with our guidance.

Depreciation and amortization was $13.1 million for the fourth quarter.

Our net interest expense for the fourth quarter was $3.5 million, down 26% year-over-year as we benefited from the refinancing of our senior notes in the second quarter.

For the full year, interest expense was down 22%, excluding the debt extinguishment expenses we incurred.

Our corporate tax rate for the year was 24.8%, reflecting our continued use of existing tax loss carry-forwards.

Adjusted net earnings were $11.4 million in the fourth quarter versus $9 million in 2014, and adjusted earnings per share of $0.26 was up 30% year-over-year.

For the full year, we delivered adjusted net earnings of $88 million and $2 per share, an increase of 16% over 2014.

During the fourth quarter, we opened 12 Famous Footwear stores and closed 10, operating 8 more Famous stores year-over-year.

We also opened three new Sam Edelman stores in the fourth quarter and ended the year with six Sam stores in total.

For the full year we opened 50 Famous Footwear stores and closed 42, improving sales productivity to $217 per square foot.

Capital expenditures were $28.4 million for the fourth quarter and $81.2 million for the full year, reflecting increased distribution center investment associated with our consumer fulfillment initiative.

Now turning to the balance sheet.

We ended the year with cash and equivalents of $118.2 million and had no borrowings against our revolving credit facility.

Our overall inventory at year end was $546.7 million, up slightly from $543.1 million at the end of 2014.

At Famous Footwear, we ended the quarter with inventory up 1.2% on an average store basis.

Our brand portfolio inventory declined 1.8% year-over-year, as the brands were successful in moving seasonal product.

Our return on invested capital for 2015 was 12.6%, compared with 11.6% for the same period a year ago, reflecting the continuous improvement in our earnings.

Before we begin Q&A I'd like to provide you with our initial guidance for 2016.

Despite a solid fourth quarter and a strong 2015, we are realistic about potential 2016 challenges.

At Famous Footwear we expect the success we have had with casual athletic product to continue.

For our brand portfolio, we expect some near-term market challenge, as many of our retail partners try to improve their inventory productivity.

As Diane said earlier, we're confident in our ability to deliver consistent, profitable, and sustainable growth through the continued execution of our strategy, and we will continue to invest in our brands, our infrastructure, and our people.

We won't sacrifice our long-term goals for short-term and short-sighted success.

With this in mind, for 2016, we are currently expecting earnings per diluted share between $2 to $2.10, consolidated net sales of $2.65 billion to $2.68 billion, same-store sales at Famous Footwear up low single digits, net sales for the brand portfolio segment up mid single digits, gross margin up 10 basis points to 20 basis points, our SG&A flat to down 10 basis points, and effective tax rate between 30% to 32%, and capital expenditures of approximately $70 million.

This guidance includes the opening of 55 new Famous Footwear stores and the closing of approximately 40 stores, the opening of 6 new Sam Edelman retail stores and the addition to the 6 we're already operating at year end, the continued expansion and modernization of our distribution centers, and the ramp-up of our two new contemporary fashion brands, George Brown and Diane von Furstenberg

Just as we did in 2015, we will provide updates as 2016 progresses and as we gain more clarity around the overall retail marketplace.

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

(Operator Instructions)

Our first question comes from the line of Laurent Vasilescu with Macquarie.

Good afternoon, hank you very much for taking my question.

In terms of the earnings guidance for FY16, how do we think about the first half versus the back half?

Any color on the quarters, if that's possible.

And then any color on the gross margin evolution over the course of the year, that would be great.

I think, Laurent, this is Ken, as Diane mentioned, we expect the first half to be slower than the back half.

I think in the healthy living business with both Naturalizer and Dr. Scholl's, I think we've got some continued sales shortfalls in the early part of the year with currency, the changes that we're seeing in the mass channels, and then I think it progresses throughout the year.

Okay.

Great.

And then I just wanted to follow up.

I think I heard Sam Edelman was up high single digits for the fourth quarter.

If that's the case, what are your expectations for this year, and how do we think about the initiatives for 2016 on Sam Edelman?

Hi, Laurent, it's Diane.

How are you?

Good, how are you?

We're very excited, continue to be about our Sam Edelman business, and yes it was -- actually, they were up over double digits, a little -- somewhere in the, I would say low double-digit range.

We feel really good about their continued trend.

We love the idea now that we will have 12 stores by the end of 2016, which we think is at a great place for that brand.

We will probably pause and really assess and make sure that they're as productive and as profitable as we need them to be, but feel very good about that.

And his e-commerce business as with all of our businesses across actually our enterprise has been just phenomenal.

So he's been up over 40%.

Our Famous business, e-commerce business has been up over 30%.

Virtually every aspect, when you look at any of our e-commerce businesses they've been fantastic, including [drop ship] and our brand portfolio businesses, so feeling very positive about all those things.

Okay.

Great.

And then lastly, on the comps, if I heard right, it sounds like quarter to date comps are up low single digits.

I think February last year was flat and then it got much better in March when the weather turned and became more cooperative.

How do we think about the comp cadence for this year, for the first quarter?

Laurent, it's Rick.

Our comps are up mid single digits so I don't know -- I don't think we said anything before, but mid single for the first six weeks.

And that's pretty consistent, was pretty consistent with what we had in February, has been consistent so far this month.

The shift in Easter's a week earlier, so that has some play on our promotional calendar and how all that falls.

So I think we really have to -- we don't see it changing much.

We think it might be at its high point now as we go through the offsets.

We could see a little bit of reduction there.

We talked about low single digits is our target, and I think that's what we still expect.

We'll know more in three or four weeks when we cycle through Easter this year and versus last year.

Okay.

Thank you very much and best of luck.

Thanks, Laurent.

Your next question comes from Chris Svezia with Susquehanna Financial.

Good afternoon, everyone.

Thanks for taking my questions.

First, just on the comp being up mid single digits so far for the first quarter, how much does the tax refund play into that number?

Or you just made that observation, that it's been pretty consistent.

In other words, was it slow to start and then accelerate as you came through or just any additional color about that?

The first two weeks of February were a little soft and then it accelerated after that.

But I think some of that could have been weather from a year ago and this year weather versus last year.

We saw -- there was a couple of days where we had a blip that seemed to be as we investigated like a Wednesday, Thursday of maybe the second or third week of February where we seemed to have an inordinate upswing in our business for a day or two.

That seemed to be related to tax refunds, as we talked to the industry a little bit.

Other than that, we really didn't see it and we haven't really -- it's not been one of those things we ever felt had a big impact on our business one way or the other.

Okay, and as you think about product broadly, canvas, it sounds like a broken record, continues to work for you.

How do you comp on top of comp?

Is it just continued demand, special makeups, you get better product?

And then on top of that, just maybe talk a little about the athletic piece to the business in terms of any color about running?

Any color about just fashion athletic, things of that nature.

I throw fashion athletic in the same place as we would talk about canvas from a lifestyle point of view.

All that would be what we consider lifestyle product.

But the canvas piece specifically, I think it's a combination of keeping the assortment fresh, making sure that we have great size integrity on all those key items.

We have a few special things.

We've don't have a whole over-assorted group of shoes that are exclusively to us, but we do have some things that are and those things sell well.

And we keep updating them and changing them as the seasons pass.

I think it's the whole conversation of something that we've been at and working on for a number of years that built a relationship with the consumer, that if you were looking for that product, if you wanted a choice, the choice would be to come to us because we have a great selection and inventory when you need it.

As far as the performance side, pleasantly surprised.

The fourth quarter we were down low single digits in running for the fourth quarter, but currently we're up basically low single digits, in addition to the growth we're seeing in the lifestyle piece of the business.

So both things are actually doing pretty nicely for us right now.

And as you think about the leveragability and the opportunity to expand operating margins for Famous, has anything in this reality that you're in, inventories seem okay, store productivity continues improve.

Anything that's changed in terms of the ability to generate operating margin improvement on a modest comp increase or no?

I think the only thing that we're still -- and I think it's indicative throughout what we've heard people talk about is as you do more online business, if you do more e-commerce business, your shipping costs can impact your profitability there.

So I think that's the only thing we're now going back and looking at what does it actually mean if that business grows disproportionately to our total business?

Would we get the same flow-through of operating profit that we historically had?

And the answer is probably not.

So we're trying to put some parameters around what that would look like.

But that's the only thing that seems to be out of the ordinary.

Thank you.

And Diane, for you, just could you -- you went through the branded piece pretty quickly.

Could you walk through one more time Naturalizer.

Between retail and wholesale, could you say that again, what the differences were?

Sure, let me talk about the total brand portfolio one more time, I think, Chris, because I know it goes pretty fast.

I would say again, for the fourth quarter we really saw positive sales improvements in Franco and Sam and Carlos, Fergie and Ryka.

They were very strong.

We were basically flat in Scholl's and LifeStride and Vince in the fourth quarter.

And really the Scholl's piece of it was due to and will continue in the first quarter with a little bit of softness and some change at Walmart.

And then in terms of where it was a little tougher was Spiga and Naturalizer in the fourth quarter.

But as you turn to the full year again, because it's really tough to always evaluate these brands on a quarter by quarter, certainly seasonal is more effective.

But for the full year, virtually all brands, with the exception of Spiga and Naturalizer, were flat or up for the year, which again, I think was very good.

So turning to Naturalizer specifically, there were some really bright lights.

It gives you the feeling and the data points that basically telling me that we're starting to make some -- have some improvement there.

Our comps were up 0.5 point in the fourth quarter.

Our e-commerce business was up about 15%.

That wasn't quite enough to offset a couple of negatives.

We had some currency issues, because we have those Canadian stores of about $4 million.

We did exit some low margin product categories, which was about $4 million and some 10 fewer stores, which is about another $1 million.

That was all in the fourth quarter.

And again, back to the year to give you a perspective on that, wholesale sales were up 6.5%.

E-commerce trends are improving.

Comps are improving.

And significant way from first half to the second half.

And again, it was just in total, the headwinds on currency and fewer stores that we were operating.

While we've got to continue to demonstrate this continuous improvement, I am seeing a lot of data points that make me feel good that we're heading in the right direction and doing the right work that we had to do.

And I've been saying that this was not going to be an overnight sensation; it was going to take a little bit of time.

And I think we're making the right kind of progress, never fast enough, of course, but feel very good about it.

Okay.

Thank you for the detail.

And just one last follow-up.

When you think about the first half and some of the retail environment that we're in, how much of this is just the broad landscape of the retail environment?

Everyone's being conservative on open to buy and trying to keep inventories tight.

And how much of it is specifically to your brand?

Is it more just the environment you guys are trying to keep a lid on things to get through the Walmart, et cetera, and (inaudible)?

No, actually, it really is the environment.

Really the Walmart is the only one which we really wanted to make sure we called out.

Is that it's related specifically to us.

But it's really about the environment, as you know very, very well, Chris.

Retailers are really trying to continue to navigate how do they drive inventory productivity?

And it was certainly amplified in the fourth quarter of this year and everybody's trying to figure out how do they do that well and still satisfy the needs of the consumer.

So the game is really inventory productivity.

People are trying to shift the risk around.

We're getting lower initials.

Everybody wants to chase product.

And I think we're in a good position to really respond to a lot of that, but we want to be really careful very early on to make sure that we have a very, very clear picture of what that all is going to look like.

So it really is the market condition.

And when I look at the sell-throughs right now of our business, as the weather has started to open up, I'm starting to feel even more confident about things.

But until we see it, and it's the same thing I've been saying since I've been CEO here, when we see it and are sure, we will let you know.

But are feeling quite of confident about what some of the early reads look like.

Thank you and all the best.

Congratulations.

Thanks a lot, Chris.

Our next question comes from Jeff Stein with Northcoast Research.

Hi, guys, this is Krishan calling in for Jeff.

Thank you for taking our questions.

For the wholesale business, what are the major puts and takes, biggest opportunities as you enter the year?

Second here, for Famous Footwear, what do you see as impact or possible impact from the earlier Easter this year?

And if you can talk a little about the key categories that you're seeing performing well in the spring of so far.

Lastly, if you can talk about the key investment priorities you have for this year and how are you thinking about allocating capital investments for the year?

Thank you.

Okay.

Thank you.

Why don't I -- I'll take the opportunities on the brand portfolio.

Rick, you can talk a little about the Famous piece, and Ken, the capital allocation.

So in terms of the biggest opportunities in 2016, actually, there's not a business that we don't feel has an opportunity.

I think particularly in the contemporary fashion side of our business is where I would expect to see the most lift, and that has a lot to do with the fact that there is a lot of newness in some of the trends and the sell-throughs and products that we're seeing right now that I think is giving us a lot of confidence, whether it's sports sneakers that we're seeing from a number of our brands, spring booties has been strong.

There's a whole new block heel trend out there that are on sandals and a lot of other things that a number of our brands are seeing great opportunities there.

Lacing and gillies and that sort of thing has refreshed the dress category.

Lots of great flats out there right now.

So when we look at some of the trends, it's some really new and fresh, exciting things are beginning to drive the business.

So we have -- that's reflected in a lot of our brands and our brand portfolio.

So our biggest growth is we'll see definitely in 2016 in the contemporary fashion space, but expect LifeStride and Naturalizer and Ryka to show good gains as we go forward as well.

So that's a little bit of color on 2016.

And Rick, a little on trends from your perspective.

On the Easter shift, Easter, earlier Easter, a week doesn't usually matter.

It all ends up in the same quarter; we think we get the business.

It just shifts our promotional cadence a little bit, and you might get some shift of business a little earlier based on spring breaks and things like that.

But again, we don't think that changes the overall perspective.

That's why we believe we're still in that low single-digit increase for the quarter, would probably be where we end up when it's all said and done.

As far as trends, we talked a little about athletic before, so that trend is very strong currently.

Our sandal business is, again, very strong so far, a nice lift both in sports sandals.

So the athletic branded sandals that we have are doing well, as well as some of the foot bed sandals, so think Birkenstock and the like, those things have started off very, very strongly in the first quarter so far.

Those two categories are important to us you now and into second quarter, so that gives us confidence that we have -- our assortment looks right, and then we'll just see how the customer votes over the next few weeks in the first quarter here.

I'll just close here with the investments.

I think from an ROIC standpoint, we mentioned we ended the year on the trailing 12-month basis of 12.6%, so that's up from 11.6% for the 12 months the year before.

I think we mentioned that we're focused internally on our people, our brands, and our infrastructure.

We've got -- we spent $80 million in 2015 in capital.

We are guiding to spend another $70 million in capital this year as we continue to invest in our distribution centers to complete our consumer fulfillment initiative.

We're obviously -- we're opening 55 new Famous stores.

So internally, we think we have lots of opportunity to continue to improve our operating performance.

We will continue to pay a modest dividend, and we do have authorization from our Board from a share repurchase standpoint.

And so at a minimum this year, we will buy enough shares to offset dilution.

And then as we've said before, we're opportunistic when it comes to M&A.

Okay.

Thank you very much.

Our next question comes from the line of Jill Nelson with Johnson Rice.

Good afternoon.

If you could you just talk about last year you had a lot of disruption with the port issue and whatnot.

If you could just refresh us.

And do we face any easy compares in the first half that you think you might be able to lap?

Jill, from a Famous point of view, the only place we really felt it significantly was on our women's non-athletic and the kids non-athletic piece of the business where we had some delays in delivery of first0quarter goods that showed up late in the middle of March, if you will, to allow us to be able to sell through that product.

Obviously, we didn't have that situation this year.

Those businesses are very good right now, so I think we're getting some benefit from I it.

Obviously, the belief is that that would moderate itself a little bit as we get into April and probably early second quarter, when all those things solve themselves for us.

So other than that, we really didn't see a lot of impact in any other piece of the business.

And I don't think, Jill, I don't think there's any other impact anywhere else in the enterprise.

And just given as you talk about the retail channels, trying to figure out their inventory productivity and whatnot, still guiding looking for mid single-digit type increase at the branded portfolio division, would we assume a lower number first, second quarter and that growth trend elevating in the back half through that segment?

Exactly.

Okay.

Exactly.

That's why we called out a couple of things continuing into the first quarter.

Okay.

And then if you could talk about maybe some of your brands that are more exposed to the off-price channel, given there's been some changes in that as well, that would be helpful.

The biggest hurdle we have is the one that we talked about with Scholl's.

And it's with Walmart.

And as they really are making sure they're adjusting their brands and products to address their consumer need, they're really making sure that they're extraordinarily value priced.

And that's not really where the Scholl's product has been really positioned on their floor.

So it primarily is Walmart.

The rest of it, Jill, is much more opportunistic.

The big issue in the fourth quarter was there was so much inventory from brands that you could say were demand brands that had a lot of excess inventory that then created more pressure for brands at the lower end of some of the channels.

But overall, I don't see that as being a continuing issue for us once we get you through the first quarter of this year.

I appreciate it.

Thank you.

Our next question comes from Scott Krasik with Buckingham Research.

Hi, everyone.

Thanks.

Hi, Scott.

Hey.

Just to confirm, you gave some of the details, but so mid-single-digit comp quarter to date.

Just relative to the fourth-quarter trends, athletic being up mid singles, women's being down, so which one of those have shifted or how do those look in 1Q relative to 4Q?

Athletic is better than that and women's non-athletic is much better than that.

That's good.

And then in your experience, a good, early Easter, does that portend pull-forward?

Does that portend that when the weather stays sustainably warm, you generally see similar trends?

What have you experienced in the past?

I think that's -- actually is a long-term weather guys are talking about, this is actually shaping up to be a relatively normal weather year, if there's ever one of those left anymore, where warm and wet in the spring, hot and dry in the summer, and cool and cold and snowy in the winter.

When we've had those kind of things, you do get more first-quarter business on your open footwear than you would normally get, and it moderates a little bit in the second quarter.

Now, whether that's what holds you true, Scott, I don't know, but it would typically say that first quarter would be a better forebearer of how the open sandal business and open footwear business is going to do for the season.

But again, we're impressed by the sell-throughs.

We're impressed by the units we're selling and what that means.

We haven't done anything as far as going back and buying more goods yet; it's not that kind of situation yet.

So I think we're happy with what we have and think it's something that can sustain for a while.

And then what percentage of your athletic business is performance?

Performance is still probably about 60%, something like that.

And a lot of people have talked about that business trending down.

How are you seeing that for you?

How is that part of it --

For the first quarter, it's up low single digits, and it was down low single digits for fourth quarter.

So that trend has changed a little bit as well.

That's interesting.

Thanks, Rick.

And then, Diane, I forget exactly when you reported third quarter, maybe November 25th or something in that range.

Something like that, yes.

At that point, you were guiding to double-digit wholesale growth, and a lot of it was supposed to come in January.

So I'm just wondering, you obviously came in well below that.

What changed relative to your outlook then?

You obviously knew it was going to be a bad boot season even then.

Yes, we did.

It certainly was -- got even worse than what we had anticipated at that point in time.

So it was really, as we worked our way through the quarter, we just tried to manage it, Scott, as we saw it and tried to really optimize the profitability and try to take -- make sure that we were balancing sales and margin and profit all the way through that.

So, and it varies so much by brand.

But that was really was we tried to do.

So yes, we were a little more hopeful about the top line on the brand portfolio side But, again, had to deal with what we had to deal with and managed our way through.

Rick, one last question, sorry.

A large national chain today announced the big rollout on kids footwear.

I think kids might be a quarter of your business or somewhere in that range.

How do you view that in terms of a new competitor entering and what do you do to defend your turf, so to speak?

First of all, kids is about 15% of our total business.

15%, sorry.

And listen, there's nothing I can do to stop that, so we just -- we want to compete, so we'll compete.

And we've had people enter the lifestyle athletic business.

We've had people grow their athletic business over the last five or six years, and that's probably as competitive a business.

And all our business has done is gotten better and grown more rapidly than what we think the market has grown in our channel.

So I don't see us doing anything different than just doing our job and having the great assortments in our stores.

And that customer's been shopping with us for 50 years.

So I think it's going to be one of those things that we'll take our chances, but we think we can compete very well.

Okay, thanks.

Good luck.

Our next question comes from Corinna Freedman with BB&T.

Hi, good evening, guys.

Diane, I wonder if you could quantify your comments about retailers wanting to take on less risk and you being more in stock.

Could you talk about maybe the delta year over year this fall, for this fall sell-ins versus last fall?

Yes, Corinna, no problem.

I think it wasn't so much in really in the fourth quarter; it's what we're seeing going -- coming into first and into second and third quarters where we're seeing most of that impact.

And right now, I'd say it depends again on the brand.

Some brands they've got the order base very close on the initial orders, and there's some that are down in the high single digits.

So it really varies by retailer too, in terms of their trends have been.

It could be anywhere from basically flat to initial orders being down in the high single-digit range.

And does that change your expectations for inventories for next quarter or the next couple quarters?

Well, as you can see, we've really managed our inventories pretty well.

We will not -- we're going to have to pick and choose our spots about here and there if we feel very strongly about a certain shoe or category of business that we really want to support with additional inventory, which we do, certainly, many times because we don't get all of our orders up front on initials.

But I think we'll continue to be very smart about it until we see the way everybody is going to play this over the next couple of months.

And then how fast we can really get into some goods as well.

We've been working very hard on that too on certain rapid replenishment capabilities that we have.

So it's an important aspect of what we think we're going to have to be paying attention to from a wholesale perspective to grow our business going forward in the next couple of years.

Thank you.

And my last question is if you can give us an update on the apparel initiative for Edelman and also the store rollout.

Yes, sure.

We're -- again, continue to be excited about Sam's business.

We have six stores opened this year.

We've got six more up, coming up, and I'm actually trying to flip to see if I can find which ones those are and the timing.

With respect to apparel, I can't remember if we've mentioned this on a call or not before, but we actually do not -- our agreement with Kellwood, we terminated that I would say middle of last year.

So we did continue to have some goods from them through most of 2015.

And Sam and the team are in the process of really assessing what they're going to do and how they're going to handle that going forward.

So they have a couple of alternatives, but trying to figure out what's the right approach there.

And then in the meantime on the stores that are coming up, we have a store in Boston at the Pru, Aventura Mall, Northpark, World Trade Center, and then the Galleria in Houston in 2017 are the ones that are on the docket.

So terrific locations.

In fact, I actually was in Boston this last weekend and walked by the location at the Pru, and looked like a great spot.

So very excited about really getting a better understand of what it's going to take to be super successful with Sam Edelman stores.

Great.

Thanks so much.

Thanks.

Our next question is from Jay Sole with Morgan Stanley.

Hi, good afternoon.

Good afternoon.

Diane, I have three questions.

First, can you give us an update on the global supply chain initiative and how that might be impacting gross margin guidance for this year?

And then secondly, I think you touched on this earlier, but given the industry-related challenges that you spoke of, how does that make you think about M&A?

Does it make you think any differently?

And then lastly, just a quick update on Diane von Furstenberg, like what to watch for maybe for FY16, how that partnership is progressing.

Thank you.

Sure.

No problem, Jay.

Let's start with the last one first, DVF, again, very excited about that partnership.

Diane, as I think I've said all along, has been actively engaged with our teams and really building that business with us and making sure that we have the right product that speaks to the consumer.

So far, our early reads on the selling of this, we first shipped our first shoes in really December.

But feeling -- like what we're seeing, have some really good best sellers out there already.

I think it's too early to call yet how fast we can ramp it.

I think I've always said that our goal was to have it be as successful and ramp similarly to our Vince women's business, and we haven't changed our ambition around that.

So we'll see and we'll continue to have work to do.

On the M&A side of things, given the environment today, I don't think, Jay, that really changes my perspective about it.

We have a lot of confidence that we've got the right strategies in place for our businesses.

We think we are focused on the right areas; we have been for a number of years.

I think we've been patient and thoughtful, and we'll continue to be that.

But if we find something that we feel is strategically relevant for our enterprise and our portfolio of businesses, we'll go after it, but thoughtfully.

So that's what I would say on M&A.

In terms of global supply chain, a lot of terrific work going on there.

I think you've heard little bits and pieces of it.

It's really four components.

We're looking at materials management and rationalizing our materials.

We're looking at rapid replenishment to help us really compete even more effectively in this new environment so we can get back into really good selling products quickly.

We're also looking at our supply base in total, our factory partnerships, and really looking at how can we focus those even more.

We really believe that strategic partnerships are the way to go.

That's the consistency and the quality and the brands that we want to deliver to our consumers.

So we're looking at reducing the number of partnerships, but keeping focused on the most important ones.

And then the last piece of what we've been working on I don't know if we've chatted too much about it.

But we're also looking at really what I would call integrated planning across the Company.

And that is how do we make sure that all the way from line planning, all the way to supply planning and placing orders in the factories, we have a really well-orchestrated, integrated approach to how we do that.

And while it works, we think there's a way to really streamline and simplify some of our processes across our Company.

So we're doing a lot of work on that and would expect that the -- I would think sometime in the middle of this year most of that work will be really well underway.

And our expectations are that in 2017, we should have some material impact from that work, and even in the short term on some of the rapid replenishment, as we're piloting some of those things we should have some early read on that too.

A guy named Mark Schmidt, who is our CIO and has all of our logistics overseeing that project, and he's doing a great job, with I think probably 50 people across the Company that are working with him to help make that happen.

So feel pretty good about that.

Very good, sounds great.

Thanks, Diane.

Our next question comes from Eddie Plank with Jefferies.

Good afternoon, guys.

Thanks for taking the question.

Hi, Eddie.

Hi.

Maybe this is for Ken on the gross margin expectations for 2016.

Maybe you can parse it out how you're viewing it, the opportunity for Famous Footwear versus the brand portfolio.

I know Famous has some tough first-half compares.

Just curious how you're thinking about that.

I think we guided up 10 to 20 basis points, delivered 21 basis points this year.

So it's not a whole lot different than the way that we had saw it in 2015.

I think that obviously with the wholesale business process review, the supply chain initiative that Diane was mentioning, we do believe in the latter part of the year we'll start to see some impact from that.

Most of the plans there really call for 2017 impact, but some of the early reads are indicating that there's likely some benefit for this year.

So that will help in terms of the branded business.

And Rick's business is really with the mix, obviously as he grows his business, we get the benefit of that in our mix.

And so we don't expect it to be a whole lot different than what we saw in 2015.

Okay.

That's helpful.

Diane, maybe can you talk a little about what you're seeing with Via Spiga?

It's been down for a few quarters now.

Maybe some of the challenges there and how you're addressing those?

I know it's been -- it was unfortunate this fall season, I did have, as the teams did, hope that it would be a little different.

But a lot of their business, very high penetration of boots in their business in the back half, so that was a tough one to overcome.

But again, I think the team that we have in place there is doing a good job.

Actually, Jay has brought in another woman, her name is Nelli Kim, who we're really thrilled about.

She's going to be the general manager of our [events], our DVF, and our Via Spiga via businesses.

She's phenomenal and working with the teams there.

And we continue to be excited about the design team led by Paul Andrew, who is doing a good job.

And early reads are, again, we have to -- I don't believe it until I see it all really happen, but the early reads on our product for spring and our order base looks very good.

And even some of our sell-throughs right now are strong and our positioning with some of our customers for anniversary events and you name it also looks pretty good.

You're right, it's been a little bit of an up and down, a little frustrating.

But good news is it seems to be on the right track and not one of our bigger businesses either.

So if we can get it corrected and get it on a better growth trajectory, I think it could be a real contributor in the future.

Great.

That's really helpful.

And then just lastly, maybe it's early to ask this question, but does the outlook for 2016 change your view at all on the ability to hit the 8% Op margin by 2020, or is that just too early to tell?

No, I think our long-term objectives are the same.

And I think -- and if you look at what we delivered this year with the 16% improvement, and I think we laid out throughout the year we got benefits with some discrete tax items, we were able to utilize some NOLs.

And even if you back that out, the earnings this year were up double-digit.

And so when you fold in to the $2 to $2.10 and you look on an apples-to-apples and you just take out the implications around tax, the high end of that guidance range is up 11%.

So I think we're continuing to focus on growing our earnings at a double-digit pace, and obviously, we got the benefit and the tax category in 2015.

I think our cash tax rate was below 10%.

So the effective rate was at 25%, 26%.

And the end of the day, we're looking at maximizing the return on invested capital and trying to manage our inventory and our cash and everything else.

So when we look out over the 2016 period, we don't see anything any different than we really saw when we laid out our longer-term objective and when we were all together in October.

Okay.

Great.

Thanks for the color.

Best of luck.

Thanks, Eddie.

Our next question comes from Sam Poser with CRT Capital.

Good afternoon.

Thanks for taking my question.

A few.

Ken, what's the share count we should be using for next year?

Flat for this year.

We'll buy enough shares to offset any dilution from our compensation plan, so you should assume the share count is flat.

No change.

Okay.

And then Rick -- thank you.

Rick, are you getting product -- are you getting some Olympic product this year that you might not have seen in the past?

We have an Olympic [colorway] package coming in June, July, something like that, Sam, whatever it is.

Of course, we don't know what those look like.

But when they tell us, we'll know, so --

And is that -- are there enough units there to move the needle?

I can't remember.

It's not a tremendous number of stores, Sam.

I don't think it's more than 200 stores; I could be wrong about that.

Okay.

And then --

It's nice, but it's not -- I don't see it moving the needle.

And then when you look, Ken, when you look at the guidance, last year you guided low.

It picked you up some steam as the year went on.

It sounds like to me that in about four weeks after we get through Easter and everything, your view of the world could you just really -- all of your views of the world could change dramatically.

Is that a fair assessment?

I think that's a fair assessment.

Look, we tried to lay out what we see today, and there's been a lot of pullback on initial orders.

And I think when you look at the individual brands, the sell-through at retail is very good.

But we do recognize that a lot of our partners are in a situation where they're trying to manage their inventory.

And so we're not seeing the initial buys at a level to where we felt like we could raise our guidance any more than what we provided.

But obviously, as we've done in the past, as we move throughout the year and we get more clarity and a higher degree of confidence, we'll certainly share that information with you.

And then on the Famous Footwear side of things, you're comping quite well.

It sounds like you're lined up pretty well with inventory and so on.

So why guide to low singles when you're off to such a good start, as you're seeing it right now running mid?

I think a couple of things, Sam.

I think we've had a -- we believe I think we had a little bit of advantage in some categories for the port.

That will anniversary itself, and that will all catch itself up.

We have a weather benefit that we don't know if that's going to be -- move some business from second quarter to first quarter on some of our open footwear business.

And we want to see the continued opportunity if performance athletic continues, that would be a plus we're not expecting.

So those are just things we're trying to watch out for to make sure we're cautious and prudent about it.

But I'm hoping for double digits.

So are we all, but one last thing, Rick.

Are your buyers buying to this low single plan and then you're chasing?

Are you as a retailer taking the same point of view as the customers of a lot of the wholesale businesses?

We don't turn our inventory enormously fast, first of all.

So I think our first opportunity is if we get a better sell-through by 1 point or 2, that's not anything that we necessarily have to run out and he react to because we're going to run out of shoes.

So I think it comes down to individual items, and there have been a couple already this season, where we saw some reaction and early indications and we went out and bought more product for second quarter into third quarter.

But that was on something that was selling at very, very high rates.

I think on an everyday basis, we can get an extra 2% or 3% on our comp without having much inventory issues.

And our inventory turn would go up 3 to 5 basis points or something like that.

Thank you very much.

Good luck.

Thanks, Sam.

Our final question comes from William Reuter with Bank of America.

Good afternoon, guys.

Thanks for sneaking me in.

There was an earlier question about M&A and how big a part of your strategy that it's going to be this year.

I think I wasn't entirely sure what you guys were saying about the environment, how active it is, how many opportunities you guys are seeing and how you're viewing either your need or more your desire to participate this year.

So can you maybe give me a little more color there?

Yes, I think what we said is we'd be opportunistic.

I don't think we're seeing tons of opportunity out in the marketplace.

I think right now, we're focused internally on investing in our business, and that's generating a nice return on our invested capital.

So I think the point was that we're certainly open and interested for the right opportunity and not really seeing any major change in the environment.

Okay.

And then with regard to your own business, it sounds like you guys are really excited about the momentum you're seeing on the contemporary side.

Is this meant to imply that in the event that there would be M&A opportunities, you guys would be more active in that segment?

Or is that not necessarily the case?

Obviously that piece of the portfolio is growing at a faster rate.

So to the extent that's where the customer is looking to spend their money, then obviously that drives our interest as well.

So we're looking for opportunities that would be accretive to our business, would be a nice add to our portfolio and allow us to continue to achieve our long-term goals.

I'll leave it at that.

Thank you.

We have no further questions in queue at this time.

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

Thank you very much, everyone, for joining us this afternoon, and we look forward to speaking to you again at the end of the first quarter sometime late in May.

Take care.

Thank you for your participation.

This does conclude today's conference call and you may now disconnect.