Q1 2013 Earnings Call Transcript
Transcript Call Date 05/29/2013

Operator: Good morning. My name is Marcus and I'll be your conference operator today. At this time, I would like to welcome everyone to the Q1 2013 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

Thank you. Ms. Tharp, you may begin your conference.

Peggy Reilly Tharp - IR: Thank you, Marcus. Good morning and thank you for participating in the Brown Shoe Company's first quarter 2013 earnings call, which is being made available to the public via webcast. I am Peggy Reilly Tharp, Vice President of Investor Relations for Brown Shoe Company. Earlier today, we distributed a press release with detailed financial tables, which is available on our website at In addition, slides are available on our website for you to reference during today's call.

Please be aware that today's discussion contains forward-looking statements, which are subject to a number of risks and uncertainties. Actual results may differ materially due to various risk factors including but not limited to, the factors disclosed in the Company's Form 10-K and other filings with the U.S. Securities and Exchange Commission. Please refer to today's press release and our SEC filings for more information on risk factors and other factors that could impact forward-looking statements. Copies of these reports are available online. The Company undertakes no obligation to update any information discussed in this call at any time.

Joining us on the call today are Diane Sullivan, President and Chief Executive Officer; Russ Hammer, Chief Financial Officer; and Rick Ausick, President of Famous Footwear. Today we will begin with a strategy review from Diane, followed by a financial summary from Russ before turning the call back over for Q&A.

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

Diane M. Sullivan - President and CEO: Thanks, Peggy, and good morning, everyone, for joining us. I'm very pleased to share a terrific first quarter with you, from both a financial and a strategic perspective. On the financial side, we reported first quarter sales of $588.7 million, down slightly year-over-year due to the brands we have exited as part of our portfolio realignment. Excluding sales of these brands in both first quarters consolidated sales were up slightly in 2013.

We also delivered improved adjusted earnings per share of $0.32, up 39%, as we continue to reap the benefits of our portfolio realignment efforts, and we recorded record first quarter operating profit of $29 million at Famous Footwear. On the strategic side, we made significant progress against our portfolio realignment efforts, starting with sale of Avia and Nevados for $74 million. Although we were not actively marketing these brands for sale Galaxy's interest in acquiring them, resulted in an offer, which we believe was in the best interest of our shareholders to accept. This transaction will help us better focus our resources and our efforts as well as strengthen our balance sheet and better position us to take advantage of future opportunities. It also allows us to continue to expand and strengthen the Ryka brand which was the most relevant part of the ASG acquisition for us.

Additionally, during the quarter, we took several other portfolio actions. We made the strategic decision not to renew the Vera Wang license which expires at the end of this year and we came to a resolution concerning our Etienne Aigner license and finalized the termination of that relationship. Combined, these and other actions resulted in a charge of $28.8 million during the quarter. In total for 2013, we expect to record a charge of between $32 million and $34 million and $17 million of this amount is non-cash.

I am confident that the realignment and refinement of our portfolio will help us to more rapidly execute on our goals and deliver on our long-term targets.

Now, from an operating performance perspective, the ongoing execution of our consumer focused efforts at Famous Footwear continued to deliver positive results, where we reported another outstanding quarter. Total sales for the first quarter were $352.3 million with same-store sales up 1.1%. While as we all know, weather was tough in the first two months of the quarter. Same-store sales growth of 14.2% in April helped the quarter rebound, and the good news was that we made up the difference faster than expected and we're back on track to meet our famous footwear sales plan for 2013 by mid-May. Even with this less than favorable weather in February and March, we saw an improved conversion rate in the quarter as we continued to benefit from our strategic efforts to put the right products in the right stores in the right locations. We think this increase in our conversion will extend beyond the improvement in weather, as we continue to see sales strength from key vendors with our top four vendors all up 7% or more.

To give you a little more color from a category perspective, we saw stronger boot sales in the quarter up approximately 21.3%. Unfortunately these came at the expense of sandal sales which were down 13.3% in the quarter but up 4.3% in April as the weather began to turn. Athletic footwear sales also rebounded in April up nearly 17%. Boat shoes had another strong quarter up more than 15% and canvas footwear overall did very well up more than 50% in the first quarter. At we marked another quarter of more than 20% growth. We logged more than 15 million visits at with over 5 million of those via mobile. In total mobile revenue grew by more than 139% in the quarter as the traditional and online shopping continued to merge.

Now let’s turn to our first quarter Wholesale Operations, where sales were down 2.9% excluding exited brands. For total Wholesale both gross profit and margin were up, thanks to a more profitable brand mix, improved initial margins and a reduction in inventory markdown. As you know, we have been focusing on becoming a more profitable and somewhat leaner in our Wholesale Operations and while there is still some work to do, we made very good progress at Wholesale during the quarter. Our contemporary fashion brand felt the biggest impact from the slow start to the quarter as unseasonable weather weighed heavily on dress sandals and dress shoes.

First quarter, Wholesale sales for this platform was down 2.5%, excluding exited brands, but we did have really nice growth at Sam Edelman, Franco Sarto and Carlos Santana, but those things were unable to offset some weaker results that we did have at Via Spiga. While we saw more markdowns and allowances in the first quarter because of the challenging whether, we have already begun to see retail sales improve in May.

Vince, our newest addition to our contemporary fashion portfolio, was off to a strong start. We expect to again additional traction with this brand throughout the rest of the year, and as I mentioned, our Sam Edelman brand outperformed again in the quarter, it was up 25.4% and in May, it was honored by Nordstrom as a partner in excellence and of course, I think you all know that we launched Sam & Libby target earlier this month, with our first week outperforming expectations.

So, let's move to our healthy living brands, at Naturalizer, April sales have offset tough weather in February and March. Our same-store sales improved as the quarter progressed and a very strong April helped us and the first quarter up slightly. All in, Natural sales were down 5.7%, however we've been seeing improved turns at this brand, a strong leading indicator of very good health and we've also seen inventory get tighter as sell-throughs have improved for the year.

Our Dr. Scholl's Shoes brand was up 10.7% for the quarter and continued to perform ahead of plan. Our shift away from the mass channel from the mid-tier is going well with our strong spring product getting good reception from retailers and consumers, and LifeStride continues to be a solid performer, up 10.6% in the quarter. Of note, our Ryka brand will be transitioning to St. Louis over the next few months and the team will be headed up by Deb Krivelow, who has been the driving force behind our LifeStride brand and its terrific performance for the past two years. So overall, we've made some great progress during the quarter with our strategic portfolio effort and also in terms of our financial results.

For the remainder of the year, we will be focused on continuing to drive operating margin improvement at all of our businesses. While we still have to get through back-to-school and the third quarter, our biggest quarter, but due to our strong first quarter results I feel very confident on our business and am raising our adjusted EPS guidance to $1.22 to $1.29.

With that, I'd now like to turn the call over to Russ, and he's going to give you a little bit more detail around our guidance and a review of our financials.

Russ Hammer - SVP and CFO: Thank you, Diane. Thank you, everyone for joining us on both the call and the webcast. We certainly appreciate it. Although, Diane briefly reviewed our consolidated sales, I'd like to add a little more color.

For the first quarter, we reported net sales of $588.7 million versus $598.2 million in the prior year, which reflects an adjustment for discontinued operations related to Avia, Nevados, Aigner and Vera Wang.

However, results for the first quarter of 2013 and 2012 also includes sales of $0.2 million and $10.2 million respectively, from brands of businesses we have exited. If we exclude these sales from both periods, net sales of our ongoing businesses were up slightly.

For the first quarter on a GAAP basis we reported a loss of $10.8 million or $0.26 per diluted share versus earnings of $1.7 million in the prior year or $0.04 per diluted share. First quarter 2013 results included portfolio realignment costs of $28.8 million while the first quarter of 2012 included portfolio realignment and integration related costs of $12.8 million. On an adjusted basis net earnings in the first quarter improved 38% to $13.8 million or $0.32 per diluted share, compared to earnings of $10 million or $0.23 per diluted share in the first quarter of 2012.

I'd now like to turn to our individual businesses, beginning with Famous Footwear, which is part of our targeted family platform. As Diane discussed, we reported good first quarter sales and record-setting operating profit. Importantly even though traffic was down in the quarter our conversion rate was up significantly. All told, our market basket continued to improve during the first quarter. These results, it's important to note, were with 12 fewer stores year-over-year and on a trailing 12 month basis our revenue per square foot exceeded $200 per square foot. In the first quarter we closed or relocated 13 stores and opened 12. At quarter end we remained on track to close or relocate 60 stores and opened 55 in 2013.

Turning to our Wholesale Operations where sales were down 2.9% excluding discontinued and exited brands, for our contemporary fashion portfolio first quarter sales excluding discontinued and exited brands were down 2.5%, as we had planned some businesses to move in the first quarter into the second quarter and as we also saw mix shift to the mid-tier channel. For our Healthy Living brands, Wholesale sales excluding discontinued and exited brands were down 3.1% in the first quarter. However, Dr. Scholl's and LifeStride brands both came in ahead of last year and beat budget for this year. Although Naturalizer revenue was down year-over-year, the brand is much healthier than this time last year with first quarter gross profit up 380 basis points.

For Brown Shoe Company overall, online sales remained a driver both wholesale and retail in the first quarter. Wholesale sales via our external e-commerce partners were up more than 15% while our site was up more than 20%. All told, sales at our owned e-commerce sites were up 3.1% in the first quarter and accounted for more than 5% of total sales.

Let's turn to a review of our financial metrics now. Overall, gross margin in the first quarter was 40.8%, which was up approximately 160 basis points. Our SG&A spend was up slightly year-over-year and a 36.3% of revenue was up approximately 90 basis points. Inventory at quarter end was $485.9 million, up 2.2%, when compared to $475.6 million in 2012. At Famous Footwear, total inventory was up 1.3%, while at wholesale inventory was up 2.4%.

Net interest expense of $5.7 million was down 5% in the quarter due to reduction in overall debt. Our corporate tax rate was 51.9% for the quarter expecting the nondeductible nature of several of our special charges during the quarter. Cash and cash equivalents of $44.7 million were up 12.3%. Our continued dedication to balance sheet management resulted in yet another quarter of significant improvement in our borrowing position. We ended the quarter with $66 million of borrowings under our revolving credit agreement, a reduction of $39 million from the end of fourth quarter 2012.

At quarter end, our revolving credit agreement had nearly $414 million of additional availability. We expect these numbers to continue to improve as we direct the proceeds from the sale of Avia and Nevados towards further debt reduction.

Depreciation and amortization were $13.8 million for the quarter, while capital expenditures were $8.4 million. Our debt-to-capital ratio decreased 39.1% from 43.9% in the first quarter of 2012, while working capital as a percent of sales was 55.6%, versus 49.5% in the prior year.

Before we begin Q&A, I'd like to review our fiscal 2013 guidance. While we're pleased with our performance in the first quarter, our biggest quarter remains the third quarter, thanks to back-to-school. So, we remain realistic in our full-year guidance as we progress through 2013.

To reflect our strong performance in the first quarter and to adjust for exited brands, our updated guidance calls for adjusted earnings per diluted share of $1.22 to $1.29 as Diane mentioned earlier. Consolidated net sales of $2.54 billion to $2.57 billion; same-store sales at Famous Footwear up low single-digits; net sales at Wholesale Operations, up low single-digits excluding exited brands; gross margin profit up 30 to 50 basis points; SG&A of $900 million $910 million; net interest expense of $21 million to $22 million and effective tax rate on an adjusted basis of 32% to 33%. Depreciation and amortization, of $54 million to $56 million and capital expenditures of $50 million to $55 million.

In order to make it easier for you to compare and provide clarity and transparency, 2012 to 2013 on a going forward basis, we have added a Schedule 8 to the earnings release that details by quarter 2012 results, excluding discontinued operations, which consist of Avia, Nevados, Vera Wang and Aigner.

All told, we expect record $32 million to $34 million of cost related to these and other actions with $17 million of this amount non-cash and only another $3 million to $5 million expected in the remainder of the year. As a result of these charges GAAP earnings per diluted share for 2013 are expected to be between $0.63 and $0.70. In addition, I'd like to remind everyone that due to the addition of the 53rd week in 2012, one week of back-to-school sales will shift from the third quarter this year into the second quarter. All told we expect to see approximately $15 million of sales shifting from the third quarter of this year into the second quarter.

In addition, we have committed to incremental Famous Footwear marketing spend in the second quarter as we plan to get an early start on our back-to-school outreach by sponsoring Good Morning America's summer concert series.

With that operator, we had be happy to answer all questions.

Transcript Call Date 05/29/2013

Operator: Scott Krasik, BB&T Capital Markets.

Scott Krasik - BB&T Capital Markets: So I guess I was – if you said it I might have missed it. So of the dollar – the new guidance of $1.22 to $1.29 what contribution from the discontinued ops is in that?

Russ Hammer - SVP and CFO: Scott, we have not broken that out specifically. I think, when you look at Schedule 8, it will help you see what that impact is year-over-year. Then you can apply your math on that. But we have not specifically broken that out.

Scott Krasik - BB&T Capital Markets: Would the math then just use the loss from a year ago, or was there some other extra component of it I guess?

Russ Hammer - SVP and CFO: I think when you think about our guidance it stays in line with the strategy that we talked about last summer at our Investor Day. That we are streamlining the portfolio, and then on a go forward basis towards our long-term financial goals, which puts us in a better – our infrastructure, our cost structure, the profitability of our portfolio in a better situation to achieve that.

Scott Krasik - BB&T Capital Markets: Then in your comments around the benefit to the second quarter, but you're offsetting that with marketing costs, I mean should we still assume some benefit to EPS in the second quarter, even though you have other investments?

Russ Hammer - SVP and CFO: Scott, I'm not sure, how to answer your question. Yes. We're going to see benefits because the second quarter is a good quarter for us, not as strong as our third. But because we are seeing as Diane said, we are confident in our businesses on a go forward basis and we raised our annual guidance. We saw an opportunity in Famous to sponsor the Good Morning America concert series, which gives us a significant amount of impressions to the marketplace. So, we feel pretty confident about that.

Scott Krasik - BB&T Capital Markets: So, I guess just in terms of the leverage on the extra sales, even though you are spending a little more on marketing. You'll still get additional leverage on those sales based on the timing?

Russ Hammer - SVP and CFO: Absolutely.

Scott Krasik - BB&T Capital Markets: Then, can you say what the productivity or the average productivity is from the 60 stores that you're closing in 2013, sales per square foot?

Russ Hammer - SVP and CFO: They're mixed, because they're in different regions. Maybe to give you a flavor, they're significantly lower than the 200 we're running. If you remember that when we showed you at the investor day, that we started around the $1, 180 and now we're up to 200 on average and we have some that are significantly below that and we have some that are slightly above that 180, but most of them are below it.

Scott Krasik - BB&T Capital Markets: So maybe in the 150, 160 range or something?

Diane M. Sullivan - President and CEO: Yeah.

Russ Hammer - SVP and CFO: Exactly.

Diane M. Sullivan - President and CEO: Yeah. It'll be in the 150 range.

Scott Krasik - BB&T Capital Markets: Then, in terms of 2014, are you comfortable with the existing portfolio at that point or is there still a class of stores or group of stores?

Diane M. Sullivan - President and CEO: With regard to the store base, we're always going to manage the store base like a portfolio and exit locations that we feel that we need to, but I don't expect it to be at the pace that we have done this last year. As it relates to the wholesale brand portfolio, I would say that we're very comfortable today with the brands now that are in our portfolio. So, we don't see additional changes going forward.

Scott Krasik - BB&T Capital Markets: Then, I missed some of the commentary at the beginning, I don't know if Rick's on the call or not, but I assume, the nautical boat shoe category is very strong and you definitely call that athletic, maybe talk about some of the other categories was molded footwear a strong category, how are you looking at maybe boots and booties for the beginning of back-to-school in Q3?

Diane M. Sullivan - President and CEO: Yeah, well I did say that boat shoes were up more than 15% in the quarter. Athletic sales were up 19%. Boot, yes, right, really all in April, right exactly, Rick. Boot sales were up as well 21%. That impacted sandal sales, but they rebounded a little over 4%, so it was a little better than 4% in April. But, Rick, molded footwear and other categories, how would you say?

Richard M. Ausick - Division President, Famous Footwear: I mean, I think (Simeon tagged) on the molded business as the saddle business. I think it's a little more of a summer and better weather business. So we were up, but we weren’t up significantly, and we had a huge, big increase in that category last year. So we were pretty happy to have an increase in the first quarter, but it wasn't what we had planned. We think it will be better in the second quarter just because the weather gets better. We have seen that happen already in the first three or four weeks.

Scott Krasik - BB&T Capital Markets: Then do you ride the fashion shift so far into early back-to-school? Do you make any changes? Do you bring in booties earlier?

Richard M. Ausick - Division President, Famous Footwear: Yes. We have a strategy to bring in some lace-up boots. The causal boot category, we think, is going to be important. But when I say important in our sense it will have a presence in our stores. But again, we are more committed to canvas footwear and the athletic business than we are to junior casual boots. But we will have a bigger presence of that category in our stores for back-to-school than we have had in the past.

Operator: Danielle McCoy, Brean Capital.

Danielle McCoy - Brean Capital: I guess if we look at Famous Footwear, you guys have been making a lot of great progress there. How should we look at more like the longer term store build out? I know you guys are looking to close and open similar amount of stores over the next two years. Is there potential for that stores to get higher than l,050-ish range or are you guys just comfortable with that level?

Richard M. Ausick - Division President, Famous Footwear: Well, I think there is always opportunity, if we get the right locations. I mean, we really look at it from where our customers are, where the opportunities lie from a retail operating space, is there a center we can go into, is there other retail we can be adjacent to. I don't think we've been limited by any of our own constraints. I think it's been about making sure we open the stores in the right place where we get the return we're looking for from that. So, to answer your question, it could be higher. But it's an individual basis based on the availability of retail space.

Danielle McCoy - Brean Capital: Do you guys have a more detailed open/close plan for the remainder of this year, for Famous Footwear?

Richard M. Ausick - Division President, Famous Footwear: Yes.

Russ Hammer - SVP and CFO: Yes. We do very much so.

Richard M. Ausick - Division President, Famous Footwear: So, I mean again, I don't have with me, but we could provide that. There is nothing – we have sort of – we opened basically in three places. We have opened most of our stores in spring in March, April. We opened again – we have another opening wave come at the end of June through August 1st. We open stores then and whatever is leftover we try open end of October and early November, and some of that depends Danielle on center opening and center being ready to – if it’s a new center and the space being available. But those are the three times we open – the closings come based again on lease expiration pretty much. So, those things could be very along the way. A lot of those will come. Some of those will come at the end of the year, because leases end at the end of January.

Russ Hammer - SVP and CFO: If possible we would want to get them open before back-to-school.

Richard M. Ausick - Division President, Famous Footwear: Right. We try to open as much before back-to-school, but sometimes just not able to do that because the center is not ready. We can provide you more of the details if you'd like.

Danielle McCoy - Brean Capital: Then looking at this Specialty segment, how should we look at that going further? Are you guys using the same sort of optimization of that real estate portfolio as you were on Famous Footwear?

Richard M. Ausick - Division President, Famous Footwear: We are. So, from a specialty standpoint, we go through the same process with our real estate committee and put the same level of rigor into the stores, and the locations that we're opening and closing.

Danielle McCoy - Brean Capital: Then, do you have a number on how many you might be opening or closing this year?

Richard M. Ausick - Division President, Famous Footwear: I believe it's like '13, in that ballpark, but I'll double check that for you, Danielle.

Operator: Jill Caruthers, Johnson Rice.

Jill Caruthers - Johnson Rice: You talked about athletic sales being up for April, but could you talk about the first quarter in general, what athletic comps were for Famous?

Russ Hammer - SVP and CFO: I think we're up slightly. Flat to up slightly.

Jill Caruthers - Johnson Rice: Then could you talk about just the wholesale brand portfolio, I guess, the new addition or the new news as the Vera Wang exit at the end of the year, if you could talk about why maybe that didn't fit the portfolio or reasoning is for exiting that license?

Diane M. Sullivan - President and CEO: Sure, it was a natural license expiration, so we have been working with Vera for the last five years and basically as we looked at the opportunities within our portfolio and other things in the marketplace, we thought it was just sort of the right time to make that call. So, that's really the simple reason why, and we love Vera and love what she's doing but felt our resources could be better focused in our contemporary fashion business against our brands like Sam Edelman or Vince, and where we could get some more significant growth.

Danielle McCoy - Brean Capital: Then within the first quarter I know it was very volatile with the weather and whatnot, but with Wholesale adjusted sales being down was it mainly a fewer in season re-orders or things of that nature, is that how we should view this?

Diane M. Sullivan - President and CEO: Yes. Particularly where there were really two areas where we were most challenged. One was in Via Spiga and that had a lot to do with the category of business that they are in. They really are in that dress and sandal category. So as we know that was not – it was not a great quarter for that. So they were hurt. As we look through the rest of the year, I expect it to recover somewhat but it's going to take a little while. Then of course Naturalizer is just really starting its rebound. By the end of this year we expect to be in a good position. But everyone had an up quarter in terms of their sales. Scholl's was up, LifeStride was up, Franco was up, Sam was up, Carlos was up. So it was really just those two.

Danielle McCoy - Brean Capital: Then just last question. Given the additions you have done to the brand portfolio review and whatnot, could you update the targeted EBIT contribution? I think the last number you had given was overall the initiatives would add $15 million EBIT, I didn’t know if you could update that number given some of the new brand sales and whatnot?

Russ Hammer - SVP and CFO: Yes. So our – the $15 million from the activities on the portfolio restructuring have not changed and then what we have done on the Schedule 8 is we have broken out for you, the impact of the discontinued and exited businesses, so you can see that in detail and we have also reworked the quarters for last year. So you can update your model on those impacts as well.

Operator: Steven Marotta, CL King & Associates.

Steven Marotta - CL King & Associates: As it relates to the gross margin in the first quarter being up 160 basis points, can you drill down a little bit there, was it being more narrow indeed at Famous that helped out. I know that Famous was up 30 basis points, wholesale was up, was it the discontinuation of lower margin merchandise? Can you just dill down a little bit on that?

Richard M. Ausick - Division President, Famous Footwear: Famous, it's all about mix. Our sandal business is up, at that time it was a high margin, but we had some categories, the canvas business that was driving the first quarter sales as we documented in the call, earlier as high margin business as well. So, I think we were able to transfer some business that we would have come to believe, sandals in that canvas – it's a good margin business and that drove a lot of additional sales. So, I think it's mostly around a mix issue. It would be how I would classify it, but yeah, it came out very well. We were pretty happy with our margin rates in the first quarter.

Russ Hammer - SVP and CFO: Steve, I'd just add the gross margin that we showed of 40% versus 38% to last year. It was largely driven by higher margin wholesale as well as the higher proportion of retail mix that Rick talked to. I think the exciting thing is we saw increase in margins in all of our business, in Famous, in wholesale and in specialty versus last year. So, the strategy that we're working on is delivering results.

Steven Marotta - CL King & Associates: In your Investor Day last year, you talked about a goal of 8% operating margins. Given the current or recent divestitures, has that goal changed, and have you also more clearly delineated a timeframe for it?

Russ Hammer - SVP and CFO: The goal has not changed. It's still our long-term goal. We're making good steady progress towards it and that is still our goal.

Steven Marotta - CL King & Associates: You want to comment at all on quarter to-date? Has May experienced not necessarily similar trends and double-digits like April did, but something along those pace and I assume that sandal sales were better in May than April.

Richard M. Ausick - Division President, Famous Footwear: Yeah, the trend has lessened obviously for May, but it's still – our trend right now is high single-digits. We're very happy with that. Sandals have done better. The athletic business has done better. It's been in those big key categories for us, so I think it's – we're seeing a broad base – gives us some confidence not only for second quarter but a lot of what we're seeing is product that we would have impact for back-to-school. So, we're pretty confident that the assortment looks good. We'll keep working on that, but right now, we're seeing pretty good results.

Steven Marotta - CL King & Associates: Just to be very clear, you think Famous' comps in May are high single-digit?

Richard M. Ausick - Division President, Famous Footwear: Say that one more time.

Steven Marotta - CL King & Associates: My very last question is, as it relates to marketing spend on a year-over-year basis, I know there were some variances between quarters, and as you'd mentioned from a Good Morning America standpoint, I'm assuming that now the second quarter's going to feel sort of a bigger bucket from a marketing spend. Can you go over a little bit, the quarterly cadence there, this year versus last year?

Richard M. Ausick - Division President, Famous Footwear: The only place it would really make the difference is second quarter, because that's really where the bulk of the Good Morning America spend starts, it actually started last week. It goes through August, but the bulk of it is between now and August 1. So, on an annual basis, I think it's between 10 and 15 basis points higher on a marketing spend, than we have talked about in the past, which we basically said was equal to last year. Again, we would hope that somewhere along the way, we either define that in a cost side, or we define it in additional sales, but right now, we're saying that, that's what would show up in our annual numbers.

Russ Hammer - SVP and CFO: I think to answer your question on a quarterly cadence, as I mentioned this is primarily a second quarter activity. It does around summer. So we will see higher marketing spend in the second quarter from that quarterly cadence perspective as Rick was talking to the annual impact and then the quarterly we do see second quarter being higher.

Steven Marotta - CL King & Associates: If it's annually then roughly equal with last year, wouldn’t that then imply third quarter would be down on a year-over-year basis?

Richard M. Ausick - Division President, Famous Footwear: I said at a plus 10 to 15 basis points versus last year on an annual basis.

Operator: Jeff Stein, Northcoast.

Jeffrey Stein - Northcoast Research: Diane a question on Naturalizer. I am just trying to understand what the issues are in order to get that business back on track because it seems like virtually everything else in your Wholesale portfolio is up and with the exception of Via Spiga above plan. But Naturalizer is kind of the biggest bucket there. So what are the key issues and what is kind of the timeline to get them resolved?

Diane M. Sullivan - President and CEO: We feel Jeff by the end of this year we should be back showing good growth in Naturalizer quarter-to-quarter. It's been a combination of a lot of things as I have said in the prior calls. It had a lot to do with first of all the implementation of AFS and SAP that was – that hit them hard particularly with the large independent base that they had. So that was a bit difficult. Last year there were some design missteps as well. So that was a bit of an issue and we believe again that we have got that corrected and as we move through the course of the year that we will see continuous improvement in the Naturalizer businesses. It's one of those things you hiccup as you've certainly seen, if you do want some of the wholesale business, it takes you probably two to three seasons to recover. So, I would expect by late this year we're going to see that. That's what our forecast calls for, that's what our plans call for, and then really nice improvement as we turn into 2014. The key thing, one other think I will say, back to, again we've been mostly focused on improving gross margin rates and operating margins. I mean, not to say that we're not trying to get that topline going in the right direction, but that's been the focus and as we turn the corner to fourth and then to next year, we think Naturalizer can do all of the above and not just two of the above.

Jeffrey Stein - Northcoast Research: If you're looking at sales versus let's say execution issues, are the execution issues in your view pretty much behind you and now you have to kind of win back the shelf space from the retailer?

Diane M. Sullivan - President and CEO: Absolutely, without a doubt.

Jeffrey Stein - Northcoast Research: Russ on the calendar shift. Of the $15 million, I presume that the vast majority of that would affect Famous Footwear. Would that be correct?

Russ Hammer - SVP and CFO: That's correct a 100%.

Jeffrey Stein - Northcoast Research: So, in other words all $15 million you're saying – none of the wholesale business?

Russ Hammer - SVP and CFO: That's correct.

Jeffrey Stein - Northcoast Research: With regard to your specialty retail business, back to that, I mean is that kind of on the table as far as taking a look at that segment as part of your portfolio review, because at the end of the day, it's less than 10% of your total business and if you look at the long-term track record there, it really has never been much of a contributor and yet, I presume, it requires quite a bit of working capital and management time. Do you really need to have that business as part of the portfolio?

Russ Hammer - SVP and CFO: I think the thing that you need to understand on the, and I'm sure you do on the specialty retail side is the all in impact including wholesale that it drives, and the profitability on Naturalizer, Diane mentioned that our margins are improving and the profitability of the overall business is improving including the retail side as well as the wholesale side, but the flow through impact on wholesale profitability is pretty significant for the Company and that's why it's a pretty strategic asset for us, but all in our Naturalizer profitability, wholesale and retail, especially retail is improving and improving nicely, year-over-year.

Jeffrey Stein - Northcoast Research: The final question, back to Vera Wang, was it more a question of disappointing sales performance of Vera or you just could not get together on terms?

Diane M. Sullivan - President and CEO: It was actually really neither. We've been working with Vera for the last five years. We were at this natural place, where the license was either up for renewal or not and when I looked at the opportunities that we had with Sam Edelman and Vince, we felt our resources could be best focused on those as a growth opportunity. So, it was really that.

Operator: Chris Svezia, Susquehanna.

Christopher Svezia - Susquehanna Financial Group: Diane, a question for you, just your retail partner's department stores, et cetera, I mean, how are they thinking about how spring unfolded for you guys, and any impact and maybe how they're thinking about fall, and the order activity and they're willing to take on existing orders, just kind of getting a pulse of how your retail customers are feeling at this point?

Diane M. Sullivan - President and CEO: I think in general they are feeling terrific. I mean, let me give you sort of a little bit of a perspective. Number one, it's very odd as you don’t have to travel too far to know how strong the Sam Edelman brand and all of its – Sam and Libby and all that's doing. So they feel really terrific about that. Vince that new line is growing rapidly. We are increasing the door base on Vince, so we really think that through next fall that's going to be terrific and into next year. So they are positive about that. You turn to Franco, that's growing. Carlos and Fergie are growing. The real issue is the two that I have mentioned which is Via Spiga, we have some work to do with respect to making sure that we balance the categories of the business there because the consumer moved very quickly to more casual kinds of footwear. I would leave it at that. So as we turn to fall we think that will rebound and Naturalizer is already starting its run ahead. So generally speaking Chris I think we are in good position.

Christopher Svezia - Susquehanna Financial Group: For you just on the Famous side and I might have missed this. I got on a little late here. Can you talk about maybe just the traffic and conversion and ticket trends you saw in the first quarter and obviously in May I am assuming if you are talking high single but had to improve, if I got that correct?

Diane M. Sullivan - President and CEO: Yes. So we are – we did say that we were comps running in the high single that's after the 14.2% in April. Our traffic comp in the quarter, were down a bit but our conversion rate and our basket size and everything was up. In fact our conversion rates were so strong it's really the highest that we've had in the history of Famous. So, we really believe all the work that Rick and the team have been doing to – make sure we do have the right product in the right spot is really working. Conversion was up 6.1%, pairs per transaction were up about 1%, and footwear AURs were up just slightly at about 0.3%. So, felt pretty good about it.

Christopher Svezia - Susquehanna Financial Group: How do you guys feel about pricing on the Famous Footwear side is going to be in the back half of the year, in another words, how do you think about average unit retails, average selling price, et cetera, the mix of the business going through the back half of the year for back-to-school?

Diane M. Sullivan - President and CEO: I'll flip that over to Rick, he can…

Richard M. Ausick - Division President, Famous Footwear: I don't see anything being negative there. I think the biggest question sometimes on all that is how the customer shops or buys, right. So, we haven't got anything in our assortment that would tell me it's going to go down. So, it is just a matter of how they are shopping if they gravitate to canvas, which is obviously a lower price point than higher-end athletic, more than we expect and that could change it. But those shoes are at pretty good margins, so it won’t impact our margin necessarily. So, there could be a combination of things happening, Chris, but on the surface, again first quarter was pretty indicative of that. We had a really strong growth in canvas and a modest growth in athletic, while we still came out with higher average retails and better conversion. So, kind of some of that really depends on how the customers buys, but I don't see anything that would make it negative.

Christopher Svezia - Susquehanna Financial Group: How much do you think in May that you are seeing is that just really pent-up demand or is that – I'm just trying to gauge how much up high single is just really, (indiscernible)?

Richard M. Ausick - Division President, Famous Footwear: We don't expect the rest of the quarter to be high-single, we are going to put it that way. So, I believe there was a change, obviously weather change, people they got more seasonable in bigger parts of the country that we have a bunch of – a lot of stores, whether it be Minneapolis or Chicago or the Northeast and that drove some business. Those are the places that were lagging in first quarter. They came on in the first four or five, last three or four weeks of first quarter and the first three weeks of May, and that will moderate. We expect that to moderate. We're not expecting high single-digits, but we love it, but we're not expecting that, but again, we started off nicely and we'll see what happens but, those things are all starting to even out a little bit around the country.

Christopher Svezia - Susquehanna Financial Group: Then Russ, a couple of questions for you, just on – your revenue guidance for the year didn't change too much relative to last time you reported, you guys already factor in Avia being outside of the business or it's something else offsetting that?

Russ Hammer - SVP and CFO: We did.

Christopher Svezia - Susquehanna Financial Group: Then on the charges, can you walk through the 32 to 34, what's in that, what's cash, what's non-cash, just partial out what that is?

Russ Hammer - SVP and CFO: Again on Schedule 4 of the attachment on the earnings release, we walk through the GAAP to non-GAAP adjustment, but basically, if you look at the $29 million that we incurred in the quarter of the pre-tax impact of the charges, $17.2 is non-cash and $11.6 is due to business exits and cost reductions. If you think about it, of the $29 million we recorded in the first quarter, about $13 million was for Avia and Nevados, about $5 million was disposal of assets, and about $7 million was Aigner and $3.5 million Vera, and the rest miscellaneous, if that helps from a breakout perspective, and again, that's all on Schedule 4.

Christopher Svezia - Susquehanna Financial Group: So, just so I got this right, so really not a lot of this is really related to Avia, a lot of it is related to – or actually the $30 million related to it? I might have missed that.

Russ Hammer - SVP and CFO: Correct. Which is, really the impairment not cash.

Christopher Svezia - Susquehanna Financial Group: Let me ask this, was Avia I don’t what cost it was, was Avia a profitable business more so than the Wholesale corporate average or no?

Russ Hammer - SVP and CFO: We do not break that out but I think the way to think about it is through this transaction we have kept the more profitable piece of that business Ryka and it falls in nicely to our Healthy Living so its improving our portfolio.

Christopher Svezia - Susquehanna Financial Group: Lastly here, two things real quickly. Just balance sheet at year end where should cash roughly be, cash net of debt or how everyone would look at it the balance sheet?

Russ Hammer - SVP and CFO: So our cash is going to continue to improve. We will have the proceeds from the Avia Nevados sale that we will be applying to debt which will significantly improve that here in the next quarter and so you will see our cash number improving significantly on the balance sheet. We did not actually provide that number though but you will see most of the proceeds will be used to pay down debt.

Christopher Svezia - Susquehanna Financial Group: Lastly, just on the EBIT margin on Wholesale, if I got this correct, looks like year-over-year it's still flat. Does that include the exit – that includes all the exits of these non-go forward businesses, correctly? So with an apples-to-apples comparison on an adjusted basis, correct?

Russ Hammer - SVP and CFO: I am sorry would you repeat that please?

Christopher Svezia - Susquehanna Financial Group: So I guess I am saying is if you look at Q1 you did a 4.6% EBIT margin on the Wholesale business, it looks flat year-over-year. I guess my question is does that include all the non-go forward businesses are taken out of that number? So it's an apples-to-apples correct?

Russ Hammer - SVP and CFO: Yes. That's correct.

Christopher Svezia - Susquehanna Financial Group: So, let me, okay.

Russ Hammer - SVP and CFO: Also on your previous question if you look at Schedule 8, you will see the specific breakout of the piece that was giving, that's a quarterly report.

Operator: Scott Krasik, BB&T Capital Markets.

Scott Krasik - BB&T Capital Markets: Just a few. First, Rick, you've been committed to continuing to run BOGOs during high-traffic, peak periods. Do you still think your customer relies on that, is that just strategy that shouldn't change?

Richard M. Ausick - Division President, Famous Footwear: But the only way, only time we actually run anything is back-to-school. So, I don't see that changing.

Scott Krasik - BB&T Capital Markets: Then Diane, Sam Edelman was great. I've seen the Sam & Libby Shoes at Target, they look pretty special. Maybe can you tell us how many stores those are in right now and what the early read on that is?

Diane M. Sullivan - President and CEO: Yes. I can tell you that the early read the first week it was – way exceeded everybody's expectations, well above the plan. It's been three weeks that it moderated in the second and third week. But still running ahead of the expectations that both Sam & Libby and Target had, which was pretty aggressive. Scott, we were a little worried about launching in May, it's not the ideal time, particularly one at the heavy sandal assortment, but it ended up being okay, just because of the weather and the way the weather changed. If we had launched earlier, we probably wouldn't have been as successful. So, first three weeks so far so good and the door count, I have to get back to you on how many.

Scott Krasik - BB&T Capital Markets: Is there room for the Sam & Libby strategy a target to – is there room for it to expand or did you go in sort of full?

Diane M. Sullivan - President and CEO: There's room to expand, not only in terms of footwear, but other extensions into other categories of the lifestyle as well. So, that would be – we would love to be able to do that.

Scott Krasik - BB&T Capital Markets: Then, to the extent that you've always said, Vince was going to be pretty small or has been pretty small but, now they're talking about, an IPO in the fall. I'm sure that footwear's an important part of that business. So, maybe talk about your expectations now for Vince over the next couple of years.

Diane M. Sullivan - President and CEO: I think, actually we're really pleased with the progress that really Carlos and Vince have made because you're right, it puts a lot more focus on growth, there in developing that. So, I would tell you, we see at a minimum a $30 million to $40 million footwear business in the next three years. That's our goal.

Scott Krasik - BB&T Capital Markets: Then, Russ, just last, I'm just looking back at the 8-K you guys filed about the Avia sale, it looks like, last year on a pro forma basis, you're at a loss of about $7.5 million, is that the right way to look at it.

Russ Hammer - SVP and CFO: Yeah, I think if you go to Schedule 8, it has the detail on that for you.

Scott Krasik - BB&T Capital Markets: So, the Schedule 8 match is what the pro forma numbers were…?

Russ Hammer - SVP and CFO: No, no. Actually, it does not, because that has other exit brands as well. So, if you're asking just Avia, and first of all, we sold Avia and Nevados. So, it was at a loss at that point in time on that pro forma that we had in the 8-K.

Operator: At this time we have no further questions. Diane, do you have any closing remarks.

Diane M. Sullivan - President and CEO: Thank you everyone for joining us today. looking forward to talking with you at the upcoming Shoe Show in New York and then of course for our second quarter call in early September I actually think it is. So thanks again for joining us, appreciate it.

Operator: This does conclude today's conference. You may now disconnect.