Designer Brands Inc (DBI) 2006 Q4 法說會逐字稿

Hello and welcome to the Retail Ventures Inc.

fourth quarter year end operating results conference call.

As a reminder all lines will be in listen only mode and we will conduct a Q&A session at the end of the call.

(OPERATOR INSTRUCTIONS).

Before proceeding I'd like to restate for you the Company's policy with respect to forward-looking information, pursuant to the Private Securities Litigation Reform Act of 1995.

Statements made in the course of this call that are not purely historical such as statements regarding the Company's or management's intentions, expectations, or projections of the future are forward-looking statements.

Actual results could materially differ from the forward-looking statements.

Factors that could cause or contribute to such differences include but are not limited to the factors and risks discussed in the Company's annual report on Form 10-K for the period ended February 03, 2007, and other reports filed from time to time by the Company with the Securities and Exchange Commission.

Any forward-looking statements made during this call are based upon information presently available to the Company and the Company assumes no obligation to update any such forward-looking statements.

At this time I'd like to turn the call over to Heywood Wilansky so that we can begin the call.

Mr.

Wilansky.

Thank you, Julia.

Good afternoon, everyone.

I am here in Washington D.C.

for the opening tomorrow of Filene's Basement's newest store in Tyson's Corner, Virginia.

The grand opening is tomorrow morning.

With me on the phone is Jim McGrady, who is in Columbus, Ohio.

Jim will review all of the financial information of that relates to the fourth quarter and year end.

This is kind of an unusual call in that, one, I can't discussed the first quarter.

We haven't reported it yet.

Two, I can't discuss Value City and what is happening there as it is going through that (indiscernible) strategic alternatives.

So not so sure what I can talk about.

We might need some assistance to probe to see whether we can or can't answer questions.

So without further delay let's start with the financials and then we will try to get to whatever questions people might have and, with me, Jim McGrady will take that.

Jim.

Thanks.

Afternoon, everybody.

Today as you know we announced a fourth quarter net loss of $35.9 million, which is about $0.76 a share on a diluted basis and this compares to a net loss of $71.1 million last year, about $1.79 per share on a diluted basis.

For the fiscal year, we are reporting a net loss of $150 million compared to the prior year net loss of $183.4 million.

(technical difficulty) loss for each respective period is $3.35 and $4.75.

As shown in the press release that is out there, during the fourth quarter and year-to-date periods we recognized some pretty significant non-cash accounting charges related to the change in the value of derivative instruments.

This total is $65.2 million and $175.9 million, respectively, in the quarter and the year.

Remember, that as of last year at this time, there were no (technical difficulties) outstanding at this time.

Adjusting for these non-cash charges, non GAAP net income would be as follows.

For the fourth quarter it would have been $29.3 million, the EPS would have been $0.62; for the year-to-date period we would've had $25 million net income and an EPS of $0.55 per share.

Let's take a look at the sales line.

For the Company's total sales for the fourth quarter increased $53.5 million or 6.5% to $874 million.

The comp store sales as we show in the press release are 5.6% in the fourth quarter negative for Value City, DSW was a positive 1%, Filene's Basement was a positive -- or excuse me a negative 1.3 and in total we were a negative 2.8 for the quarter.

Again these numbers are included in today's press release.

Value City's comparable quarterly sales decreased in nonapparel hard lines 8.1% and decreased in apparel by 3.9%.

The apparel categories of ladies had an increase of 2% while men's and children's had decreases of 2.2% and 16.3%, respectively.

Jewelry and shoe comp sales also decreased by 31% and 4.8%.

DSW sales were $329.1 million which is a 15.9% increase in the quarter and that includes a net increase of 24 new stores, 117 nonaffiliated lease shoe departments, and five Filene's Basement lease shoe departments.

The merchandise categories of handbags, athletic and children's had increases of 12.2, 13.3 and 2% each.

Filene's Basement sales increased 16.9% in the quarter to $129.8 million which includes a net increase of four new stores.

The merchandise categories of men's, ladies' and children's had comp sales decreases of 2.2%, 1.3% and 3%, respectively.

Jewelry and home good categories had decreases of 1.5% and .7%.

Total gross profit for the fourth quarter increased $36.5 million to $334.3 million.

In the fourth quarter gross profit as a percent of sales increased 190 basis points to 38.2% from the previous year's quarter of 36.3%.

The increase in gross profits (technical difficulties) of increases at Value City of $8.1 million, DSW $18.7 million and Filene's Basement of $9.7.

Gross profit as a percent of sales in each of the segments for the fourth quarter was Value City 36%, DSW 41.7, Filene's Basement 36.7 and again overall, 38.2.

Excuse me Value City's gross profit increased as I said a little earlier $8.1 million for the quarter and as a percent of sales increased from 33.2% to 36%.

This was attributable to higher initial markups and reduced markdown rates.

DSW's gross profit as a percent of net sales remained consistent at 41.7% of sales.

Filene's Basement gross profit for the quarter as a percent of sales increased from 34.2% to 36.7% and this is primarily attributable to an increase at IMU and lower markdowns as a percent of sales.

For the year-to-date period total gross profit increased $106.2 million to $1.22 billion and as a percent of sales increased 150 basis points to 39.6%.

The increase in the overall margin rate is attributable to improvements in each of the three operating retail divisions.

Total SG&A expenses for the quarter increased by $23.6 million and as a percent of sales were (technical difficulties) percent.

For the year-to-date period SG&A increased $32.5 million to $1.14 billion or about 37.3% of sales.

Value City's SG&A expense for the quarter increased $1.7 million and increased as a percent of sales to 33.3%.

On an annual basis SG&A, Value City's SG&A increased as a percent of sales to 38.9% and this is primarily resolved of leverage and fixed cost against occupants in occupancy and salaries against the current period sales.

You may recall that last year at this time Value City recorded a gain for a terminated lease of approximately $9.5 million on a store they closed at the end of January in '06; and also they recorded a $2.9 million for a closing of a lease warehouse facility.

DSW's SG&A expense for the quarter increased $12.7 million and decreased as a percent of sales to 34.8%.

The decrease is primarily due to the decrease in marketing expense offset by a small increase in related personnel expenses.

The DSW segment year-to-date SG&A expense of 35.4% included costs associated with the new DSW stores and new lease shoe departments that weren't open this time last year.

Filene's Basement SG&A expense increased $9.3 million in the fourth quarter and also increased as a percent of sales to 37.3%.

This is primarily due to store expenses for the stores that weren't open at this time last year.

Our SG&A expense by division for the fourth quarter was Value City 33.2%, DSW 34.8%, and Filene's Basement 37.3%.

Taking a look at interest or net interest expense was -- excuse me.

For the fiscal year our net interest expense was $17.7 million, an $8.5 million reduction from '05.

The decrease is primarily due to the decrease of $12.8 million in average borrowings.

During fiscal '06 interest income rose $7.9 million to $9.5 million, due to short-term securities held by our DSW segment and an overall increase in cash and cash equivalents.

The effective tax rate for the three months ended February 3 of '07 was negative 3.1% as compared to a negative 28.3% last year.

This tax rate reflects the change in the fair value on the mark-to-market accounting for the warrants which are not tax-deductible and an increase in the valuation allowance provided for federal and state deferred tax assets.

As we take a look through our balance sheet inventory totaled $545.6 million at the end of the year versus $491.9 million last year, which is about a 10.9% increase.

Most of this is attributable to the new stores in operation at all the divisions with the exception of Value City where those comp inventories remain stable throughout the end of the period.

Our net working capital at February 3 was $274.4 million compared to $185 million in the prior year.

Current ratios were 1.45 and 1.33, respectively.

If we adjust for the $216 million derivative charge included in current liabilities, working capital would have been $490.8 million for the current ratio of 2.24.

Net [KSUs] for CapEx was approximately $65.6 million during the year and depreciation and amortization totaled $58.3 million.

EBITDA in the fourth quarter was a negative $11.5 million versus a negative $36.3 million for the last year.

Again if we adjust for the charges that went through for the derivatives, the EBITDA would have been a positive $53.7 million for the prior year and $37.3 million this year.

Our consolidated availability under a secured revolving credit facility was $203.4 million; on a consolidated basis outstanding letters of credit totaled $19.4 million and $13.4 million dollars at February 3 on Retail Ventures and DSW and the news -- on those credit facilities, excuse me.

Our current availability is $228.6 million which is comprised of $86.6 million under the RVI revolver and $142 million under the DSW revolver.

(technical difficulties) includes a look at the fourth quarter and year operations from a financial perspective.

As Heywood indicated at this time we are not providing a fiscal 2007 outlook for RVI and when the review of strategic alternatives has been completed, we will update our future expectations.

So at this time I would like to take the opportunity to turn the call back over to Heywood.

Thank you, Jim.

As I said when we started we are kind of in a funny situation where we can't talk about Value City and we really can't talk about the first quarter per se.

So I think that the most productive thing for us to do would be to open the lines up for questions and see if that can bring us into areas we can discuss are not.

So Julia if you would open up the lines maybe we could have some questions we could try to address.

(OPERATOR INSTRUCTIONS).

(indiscernible)

Can you say how much of a decline at Filene's Basement and I know (technical difficulty) about Value City in this current in the fourth quarter was a result of some of the categories you made a strategic or intentional decision to exit?

I can see that as Filene's Basement.

I think to some degree for many of the stores that operate in the northern tier of the country that some of the misses, a significant portion of them were attributable to categories that historically were weather-related including sweaters, coats, gloves, hats, scarves.

And in all the businesses those categories were significantly weaker than our previous history and we believe primarily due to artificially unseasonable weather throughout the primary selling period of the fourth quarter.

It really didn't get cold or seasonable until mid-January at that point in time.

Can you say anything about Value City in that -- in this fourth quarter decline?

I can say that the same thing is true.

Value City has a big business in Chicago, Ohio, rural Pennsylvania, big cold water climes.

And I know without going through the specific or particular business I've looked at the businesses that dropped 4 or 5 or 6% in a particular category over the quarter, looked at the cold weather impact on the businesses in those areas, and found that almost all some of the softlines areas of the decline related to cold weather product.

The Value City customer, somewhat different from the Filene's Basement customer, really buys clothes to need.

And the signal for them to move to the purchase line is influenced pretty dramatically by climate changes.

When it gets nice out we will say a big pop in our business going into spring categories and same thing is reversely true going into the fourth quarter for fall and winter categories.

Got it, because I remembered earlier in 2006 you had a call where you mentioned that there are some categories like paper towels and other household items that you made an intentional decision to exit out.

I wondered if we had lapped that in this quarter?

I think that there was a minimal amount hurt from the non anniversary businesses.

I would say that it was primarily due to not that assessment but more to the big dramatic decrease in cold weather-related products.

[Samuel Kingston].

Just a couple of quick ones.

First I was wondering if you could update us on the private-label sales at Value City how that is trending?

Just to refresh everyone's memory in 2004, when Value City did zero business in softlines private-label, 2006 -- the year that just completed -- they were in the $60 million range and that the objective in 2007 was to move it towards the $100 million level.

Then the $60 million range in 2006 was within the boundaries of what the Company achieved.

Then, just sort of a technical financial question here.

I have been having some trouble really figuring out the long-term obligations piece.

Could you just walk me through exactly what is encapsulated in there?

Jim.

Yes what we have in there are $143.7 million worth of [pis] which are derivatives type of an instrument.

We have our revolving credit facility for both RVI and DSW.

RVI doesn't have -- or excuse me.

DSW does not have anything outstanding at this point in time and there's about $27 million worth of capital leases that are outstanding in there as well.

That should be the sum of what is in there.

There's also, I guess we net in their against that a discount on the pis that gets amortized over the life of the period.

Actually when we file the 10-K which will be either tomorrow or around Monday there's a full disclosure in there what those -- what's comprising that.

I think it was, looking back at the last Q, I don't think the capital leases were spelled out exactly.

That is probably the plugged figure that I'm missing.

Then in terms of the cash at RVI right now, what does that stand at the end of the quarter?

The cash at RVI at the end of the quarter is just slightly over $60 million.

And you guys say no update on Value City.

Correct?

We just cannot talk about it until a finality of whatever it is that is going to happen is prepared to announce.

Right.

Can you give us any sense of the timing on that?

Not right now.

We just can't comment on it.

Adam Kimora.

I have a couple of quick ones.

What was the new store opening cost at Filene's Basement in the fourth quarter and for the full year?

We opened five new stores in the fall.

Jim, do you have that number handy?

It's $8 million.

I think it was $8 million.

On the year.

That's for the full year?

That was all in the fall season.

So it all falls in the fourth quarter?

That cannot.

I'm not sure if it all falls in the fourth.

It all falls in the fall.

Yes I think actually all of it does.

There's some of the preopening that ended up in the -- .

In the third quarter.

(MULTIPLE SPEAKERS) third quarter but the biggest and most substantial piece is all out there in Q4.

What is our current thinking on store openings for Filene's Basement in 2007 or your fiscal year '08, I guess?

2007, which for us is February whatever is third or fourth this year through the end of next January, we are opening up seven new stores.

The seven stores that we are opening we have already opened.

We opened them last week.

The store just outside of Princeton, NJ, in a shopping area called Mercer Mall.

And we also opened last week in downtown Baltimore on the Inner Harbor right on Pratt Street right facing the Inner Harbor.

Both those stores opened last week and today we opened a new store in Orlean Park, which is a suburb in Chicago.

The Mercer Mall in New Jersey, the Inner Harbor Mall in Baltimore and the Orlean Park that we opened today, all those three stores are in the vicinity of 30,000 square feet or more of our smaller format.

Tomorrow -- and that's part of why I'm in Washington D.C.

as we speak -- we are opening up our store in Tyson's Corner, Virginia, and most of you all know that Tyson's is a shopping mecca and there our store is coming to be north of 45,000 square feet and we have great expectations for it.

I can tell you that so far the stores we have opened have all gone according to plan and that we are quite comfortable with what we have opened so far.

In the fall of this year we have three new stores scheduled.

We have a store in Columbia, Maryland, again -- a very important shopping area.

It will be a big store north of 45,000 square feet and we are looking at September, October.

We are not quite nailed down to the particular date yet.

The second store in the fall is in [Paramis], New Jersey right on Route 4.

And we are really looking at that store as a real test of our competitiveness.

We are going to be opening up adjacent to Century 21 which is a pretty dominant all price privately held retailer in the New York metro area and (technical difficulty) one has been voted I guess the best store in New York each of the last few years.

Better than Macy's, Bloomingdale's, etc.

So we are looking forward to going head to head with them.

In our store there will be 54,000 square feet or a couple of square feet bigger than that, but no less than 54,000 square feet.

So that's a big store for us with big expectations.

The last store that opens is in Northshore Mall in New England.

We closed that store February 28 of this year at the end of February.

It's a Simon Mall.

The store was about 30,000 feet.

It's being expanded to 40,000 feet, being moved forward in its location to a better location and being redone new with new escalators, new fixtures, new everything and, hopefully, a much better position.

Again, probably more in the smaller store volume range as opposed to the Columbia, Tyson's, or Paramis stores.

That's seven new stores this year.

One of which is a replacement store.

Last fall, we opened five new stores.

We are closing one other store this year.

We closed on or about September 1.

We are closing the downtown Boston store.

The headquarter store.

That store will be closed for in the vicinity of 18 months give or take a few months either way for a total renovation redo.

And the store ends up going from two levels and about 65,000 square feet of selling to three levels and about 80,000 square feet of selling.

It's a very exciting project.

Of course we are bit that excited about closing our largest store for 18 months but in the pursuit of long-term progress, it's the right move for the company.

That is really all we've announced at this point.

Has that store been a drag so -- on comp three so did that have any effect on the fourth quarter filing [stops]?

As we said before, I think we've said this in the past.

The downtown Boston store with the removal of the upstairs Filene's Basement store and the general degradation of the area before the remodel and before the entire city block gets redone, it's cost us in the neighborhood of 3%, give or take.

Beginning in the first quarter we will report that our comps both would Boston and without Boston and that's so you'll be able to get a flavor.

I'm sorry just so -- it cost you, you think 3 percentage points in comps in the fourth quarter that you just reported?

Yes.

I don't want to harp on it, but just what can you tell us about the timing of letting us know how the strategic review is going.

I mean, when you announced it I guess it was back in December, I think you said it was going to take three to four months.

Do you think it is going to take another three to four months or what can you tell us about the timing?

We really can't say anything, you know.

We have been advised by all of our advisors that until we are prepared to make an announcement that says we are doing this or we're doing that or we're not doing this or we're not doing that, we really can't comment on it.

It's just not -- able to do that.

I guess we can comment that we are working on it and that it's a work in progress.

(indiscernible)

I had a couple of questions on the corporate expenses.

Can you give a sense that if you were to divest Value City or have some kind of transaction, how much would you save on that corporate expense line?

I actually don't know that we would save anything.

We've got a full push down accounting that's done and that's what's allocated.

I think you would definitely have fewer people but you would need to pay about the same price because you are going to have management of each one of those divisions.

Really at the end of the day, I'm not certain that there would be anything that would quote "be saved." I don't think that there would be any incremental costs but at the same point in time I'm not sure that there would be anything saved.

A lot of that depends upon if there was a transaction what the shape of that transaction took and how it was organized and would there be shared services or not.

So until we know the answers to that it's very hard for us to pinpoint the benefit or not to the rest of the organization.

Can you give us a sense of why the corporate expenses went up some much in '07?

I mean they were up 22% on a 5 plus percent increase in revenues.

I think a lot of it has to do with the new store opening expenses.

I don't think it does.

It has a lot to do with the new store opening expenses for the stores across the excuse me -- DSW and Filene's Basement.

So.

DSW's net new stores, Jim, last year were how much?

How many?

It was north of around 30 --

DSW had a net, net increase in the quarter of 24 so -- 29 to 30 overall.

So if you look at the year, SGA (technical difficulty) it also depends upon the timing, Value City's SG&A came down for the year from 39.8% to (technical difficulty) 8.9%.

DSW came down from 36.3 to 35.4.

Filene's Basement was flat at 39.5 against 39.5 and that was driven by five new stores which as a percentage of the total store base was a big number for Filene's Basement.

And remember if you are taking a look at '05 and '06 approximately $7 million of that is the difference between what we spent on the closing of the warehouse and the termination of the store lease that we had.

So there was a decline -- there was a credit last year (MULTIPLE SPEAKERS).

Five put in there for that.

Was your question -- your question wasn't back about the true corporate piece was it?

You were talking about overall.

Actually I was looking at the corporate piece of it which went from 144 to 176 million round numbers.

Yes and that accounts for a couple of things that's in there.

One thing that accounts for is the reduction of about 7 million shares from a year-to-year comparison that were exercised in the warrants that were in there.

This is kind of a strange piece of accounting.

We also issued the piece during the year back in, I think it was in mid-August.

But one thing you have to remember is the price of RVI stock improves.

The expense is larger on the books of retail ventures.

It's kind of a I don't know, I think it's an unusual piece of accounting.

Not a lot of people have it on their books.

Especially retail companies.

But the better the performance of the price of the stock, the more expense the Company has to incur.

And that really is about the only way I can summarize it.

(OPERATOR INSTRUCTIONS).

[Tory Campbell].

How long does it take Filene's, a new Filene's store to get up to normal margins?

Typically what happens is the first season the margins are a little overstated.

The next 12 months, they usually are a little understated and then they normalize the next 12 months after that.

And the reason of course why they are higher is there are no markdowns in the first season when you are opening the inventory and, then, you typically end up somehow always overstocking new stores.

Not that you're trying to to but you end up with additional markdowns you clear up the following year with (technical difficulties) lowers and then, you get to a normalized inventory level.

If I was to look at your comp store sales -- and just remind me I don't think those comp stores that you are giving me are apples to apples because you did close a couple of -- you did get out of some areas.

I think furniture if I recall correctly is one area.

I guess my question is these comps are not on apples to apples, basically.

They are not 100% but it's not that far off.

And I'll tell you that the disappointing comps in the Filene's Basement and Value City businesses, a significant portion of that was driven by cold weather product that just didn't happen for the companies.

It looks like you are doing a pretty good job of moving margins up.

So I guess my question is, assuming the Company is as it is today, what are your target margins two or three, five years for Filene's Basement and Value City?

Here's what I think.

I think -- I don't believe that either of those businesses will ever be a 40 margin business.

Too much competitive pressure to allow you to accomplish that in total.

Value City's -- let me see if I show the final margins in 2000 -- and Value City for the year improved their margin from 35.6% to 37.2% from 2005 to 2006.

It's a pretty good move.

Should 2007 get to 38?

Sure.

Could (technical difficulties) be a little better than that?

Sure.

But I don't think it's a 30; I don't think it's a 40.

I think it tops with a high three.

38 to 39 is probably a range that keeps it competitive in a pricing point of view.

Filene's Basement margin for 2005 improved from 34.3% to 37.0%; that's a pretty dramatic improvement.

In the nature of being a high end off price dealing with designer products, you are going get some limitations to how high the margin can get.

Could it get to 38%?

Sure.

Could it get to 40?

I don't believe so.

I guess the final question, I'm noticing that we had a nice growth in license fees and other income.

Is that something that we -- what is behind that?

And is that something that we could expect to continue on in the future?

The license income at Filene's Basement is driven by the footwear business and as you know, when we report sales we don't report footwear at sales for Filene's Basement.

So when we report our sales the actual (indiscernible) sales are considerably higher than the sales we reported.

So footwear which could be 8 to 10% of the store's business on a normalized basis gets reported as income.

Now as you add stores and add shoe apartments that income dollar amount is going to be higher from that piece of it.

Then also -- I'm going to just take a look at something here.

Actually a big piece of that comes from some of our Valley Fair operations and some of the cosmetic operations and (MULTIPLE SPEAKERS) that we are operating.

We have a couple of stores in the Value City chain that actually operate under a little bit of a different scenario.

They are called Valley Fair.

They are located over at New Jersey and they have a lot of lease space in them.

I mean none of it is what I want to call competitor retail or anything like that or is not even within the store, but what it is is like dry cleaners and (MULTIPLE SPEAKERS)

Chinese restaurants, supermarkets, liquor stores.

Things like that, toy stores.

That's a piece of it and then actually that's probably a predominant piece of that $700,000 some odd increase that we are seeing in there in license fee and other income.

I guess my final question if I may, is there any other categories that you would like to scale back or increase or -- ?

Well, increase, many of them.

Scale back, Tony, I believe that we are done on that side of it.

So we are back into the build as opposed to the destroy and build.

We have already destroyed now we are back to the build.

Well we look forward to seeing your announcement on corporate restructuring activities.

David Mann.

Just to clarify that question on license fees, it looks like they were up something like $2.3 million or 30 basis points.

Was there any onetime item in there?

There really isn't.

There's not a onetime item or charge or anything like that in the prior year.

It's just based upon the timing and how the other departments -- how profitable they are and we can collect the fees and what amount on the space is leased.

Going back to questions on the Basement.

Can you give an idea of what sort of last year's stores did on an annual sales productivity rate, sales per foot and what kind of target you have first-year for the stores this year and where you think that the chain can get to?

On a pro forma basis on a gross store basis, virtually all the stores are programmed to be at a $300.00 square foot on an annualized basis.

On a gross basis not net.

On a gross basis beginning with your one.

In terms of what the target is over time, on selling space, the Company if you take out downtown Boston and don't count that as selling space because maybe the productivity is too large and you might skew the number higher, we are right around 450 on selling.

That's the current selling sales productivity?

Right.

That's as a total company all combined.

So new stores, we certainly -- we look to open them up at 300 gross and you figure that [15]% of the space is typically is nonsales.

That translates to about 350 on selling to start.

And the 450?

Where do you think that can go to?

I don't (technical difficulties) question that we can get 10% or more out of it over time.

And in terms of on the operating margin, I know you commented a little bit about gross margin, but looks like Filene's Basement was relatively nil operating profit.

Where do you think it can go, let's say if you continue at this kind of growth pace in the next three years.

What kind of target operating margin do you think is reasonable?

Well what we said in the past, and I don't see anything that would change our statement, is that when Filene's Basement does $600 million or more and does not become impacted by preopening expense, extra opening expense and for the starting point there would be probably be about [30]% margins.

Operating margins and then we would grow from there.

And the 600 million?

Is that without the lease department or is that including that?

That's a good question and also questions how do you want to account for it?

As income or as sales and margin.

So I would say accounting for it as sales and margin.

And to get to that kind of level, are there any major infrastructure initiatives that you think are required?

There are some systems things we are working on.

They are not monumental in terms of the size or cost of them at this point in time.

The biggest obstacle to getting there is the reopening of the downtown Boston store and that, we anticipate that happening in the spring of 2009.

How much are you seeing in terms of transfer sales in the other store that you just opened in Boston?

Since they're both open now you would say not a lot.

But when that store closes you might get some transference, based upon the amount of traffic that visits the other store.

In terms of Value City, in the last few calls you've given us at least some commentary on relative store performance.

Can you just give us an update if you look back at '06, how many stores perhaps lost money on a four wall basis?

Jim might give you an accounting definition on a four wall basis.

Remember we charge transportation (technical difficulties) corporate line there.

So X that, we don't have many if any.

Jim.

We don't have any.

They were all four wall profitable under that scenario.

How many of the stores are seeing -- continue to see very substandard performance or material deterioration there?

We have 113 stores and for the year we had positive comps for the year in more or less 38 of them.

And we had, with negative comps of 2% or better, a total of 74 stores or thereabouts.

So there were 39 stores that had comps that were worse than negative 2%.

In February there was some news accounts about cost cuts at Value City.

Can you just give us an idea of -- ?

What we were doing?

Yes.

What happened?

It really has been in the pipeline for quite some time but was never executed.

Value City, in order to maximize the productivity of selling, had a disproportionate amount of full-time to part-time associates working in their stores and we rectified that to get to the balance more of an ideal balance.

So we eliminated a number of full-time positions and replaced those hours with part-time positions.

When you do that, number 1, your flexibility on the store level to get people to work in the store when the customers are there improves dramatically.

We had a lot of people who were not flexible with their schedules based upon being there for quite some time.

Fulltimers who could of viewed that they owned their schedule and that wasn't working for the Company.

The second piece is that on average, full-time people earn more per hour and the third piece is that on average -- well, not on average, full-time people are benefit people and most part-time people are not benefit people.

So the combination of all those led to a projected savings in 2007 and beyond based upon a lower average hourly rate, a savings on benefit, a more productive flexible schedule minus some severance costs for the positions that we eliminated.

We eliminated around 950 full-time positions.

Something of that nature.

Are you able to quantify for us some range what the amount of savings were?

Yes.

I think, overall, we saved probably close to $9 million and that includes an estimate for benefits and taxes and everything like that.

But it is not net of severance, right.

So if you take about $3.5 million severance off there, that will be approximately the first-year savings.

And that 3.5 million will be in the first quarter?

Yes.

And just curiously in terms of people, I guess this is a time where there is some uncertainty for folks who are at Value City.

Are you seeing any departures because of this in some key members of the team?

On the merchandising side of the business we have been able to hold the team together waiting, anticipating whatever transaction might occur.

We've had some sales support defections, not wholesale and not at the upper level, but in the midlevel.

Good luck with the whole process.

Samuel Kingston.

Just a quick follow-up.

First, on the cash.

You stated about $60 million but just during the rudimentary math here I'm getting about $87 million if I back out the 73.2 DSW from what you are showing.

Is there something I'm missing there?

There's about -- the 60, is a little north of 60 is what we will call a permanent cash position that we would like to maintain.

The rest of it is just the ordinary float of cash that goes out there through the store operations for, really, Value City and Filene's Basement.

There's nothing that's missing.

But it's not like the next day that would be used to pay down a credit facility and things like that.

So it's not what I would consider a permanent piece of cash.

What is the outstanding on the RVI revolver again?

It's 105 million.

105 million.

What's the total size of that facility?

275.

275.

Then just on the Boston store, a couple of other things.

I mean, there's been reports in the press that you guys are exploring other locations.

Do you have anything to say on that, possibly?

We are kind of torn, between being out of that particular market for 18 months and so -- and the city at the same time is also -- would love to keep us in business some way, shape, or form in some form in that district.

We have looked at some temporary locations.

It's very hard for a landlord to make it reasonable for us for an 18 month lease where we are not prepared to spend any CapEx to fix a place up to make it inhabitable.

From that piece (technical difficulties).

So we are looking but I don't think that that's likely to happen.

Are you getting any sort of compensation for being out of that space for 18 months?

I think that's proprietary.

I'm not sure if we can discuss it, but I would say that when Value City's transaction or lack of transaction is announced that Jim and I will give you a projected 2007 P&L.

I'm not sure we will go to 2008 yet.

Suffice it to say we had a very strong lease there and so we are (technical difficulties) we are going to lose money there.

Right I mean I've seen reports in the press of something around $50 million, but I don't know.

Do you think the press knows what they're talking about, Sam?

Come on.

Finally, have you commented on what the sales are at that Boston store?

At the downtown Crossing store?

I don't know if we can -- Jim, do we have a comment on that?

We haven't.

No.

I would tell you that it's our largest volume store.

And the 600 million run rate, you had said by the end of '07, now you are pushing, but that's -- now you are saying that's dependent upon the Boston store coming back on.

Is that correct?

Yes that's correct.

So that will be spring of '09 now?

Yes when we made that comment we didn't realize we were going to have to close that store.

That changes the pie a little bit.

But we might still get to the profitability level that we talked about in '08.

Adam Kimora.

I'm just curious how much warrant cash do we still have left to come in?

What's the status of how many warrants have actually been exercised and cash that you have received?

So far we have had 7 million warrants that have been exercised.

We received $4.50 a share for those.

How much are still outstanding?

What's outstanding right now in the term warrants, we've got about 3.9 million of those and about 9.7 million of the convertible warrants that are still outstanding.

So 13.6 million.

13.6.

So in theory, we are getting another $54 million of cash and -- if we assume the fully diluted 62 million number.

At some point assuming that they operate X of those warrants into RVI stock for cash versus for stock.

Terrific.

One quick follow-up.

When you are talking about the 3% operating margins at Filene's at a $600 million run rate are we talking about, if Value City no longer is part of the Company, Filene's is stand-alone, is that what you're talking about?

A consolidated operating margin at Filene's there?

Are you talking about a divisional basis or what is that?

Initially we were talking about Filene's when it was part of RVI with everybody running.

Based upon the change in the status of Value City, we may have to reassess it.

But as Jim had said he didn't think that corporate charges would change dramatically upon that transaction.

So, therefore, it's going to run at the same level.

[Melong] Gupta.

I know you said this so I apologize for making you repeat it, but you said 3% was the effect of the Boston store on the entire Filene's Basement store portfolio or just that store?

On the Filene's Basement store portfolio.

So about -- if they did $111 million on that store on that and Filene's Basement (technical difficulties) million dollars this year?

That 3% was the effect on the comps.

On the comps.

For instance if our comps were flat totally without Boston there might have been (technical difficulties).

That appears to be our final question.

In that case, thanks everybody for participating in the call and look forward to being able to share with you some updates on Value City as soon as we're able to do that.

Thank you, everybody.

Thank you.

This call has been concluded.