Operator: Good morning, and welcome to the DSW First Quarter 2013 Earnings Conference Call. All participants will be in listen-only mode. Please note that this event is being recorded.
I would now like to turn the conference over to Christina Cheng, Director of Investor Relations. Please go ahead.
Christina Cheng - Director, IR: Thank you. Good morning, and welcome to DSW's first quarter conference call. Earlier today, we issued a press release detailing the results of operations for the 13-week period ending May 4, 2013.
Please note that various remarks made about the future expectations, plans and prospects of the Company constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements due to various important factors including those listed in today's press release and DSW's public filings with the SEC.
Joining us today are Mike MacDonald, President and CEO; Debbie Ferree, Chief Merchandising Officer; and Doug Probst, Chief Financial Officer. Doug will start the prepared remarks with a short discussion of our reported results and then highlight the details of our adjusted results for the first quarter. Mike will provide more details in our operating performance and our progress this year towards achieving our long-term strategic goals. He will also provide a revised outlook for fiscal year 2013. After our prepared remarks, we will turn the floor over to Q&A.
With that, I will turn the call over to Doug.
Douglas J. Probst - EVP and CFO: Thanks, Christina, and good morning, everyone. Our reported net income for the 13 weeks ended May 4, 2013, was $34.5 million or $0.75 per share, which includes a net charge of $11.4 million or $0.25 per share from our luxury initiative. This compares to last year's reported net income of $39.9 million or $0.89 per share, which included a net charge of $4.3 million or $0.09 per share related to our merger with RVI.
Most of the $0.25 net charge from our luxury test was for an inventory reserve that we established based on our actual selling experience to-date. We believe this reserve reflects more realistic expectations for selling the balance of the inventory over the remainder of the year. We were disappointed with the results from the luxury initiative, and we'll evaluate our future luxury plans in light of these results. Mike will comment more fully on luxury in his remarks.
Adjusted net income in our base business was $45.9 million or $1 per share an increase of 2% over last year's adjusted net income of $44.1 million or $0.98 per share. The balance of my comments will focus on our base business, which excludes luxury and the RVI merger from last year.
Total sales for the first quarter increased by 7.7% to $601 million, which does include, $5.2 million of luxury sales with comparable sales declining, by 2.4% on top of the 7.6% comp increase last year. For the DSW segment, which includes DSW.com, comps also decreased, by 2.4%.
As you recall, we disclosed in our last earnings call that comp sales declined by 5% in the first six weeks of fiscal 2013. As we move through March, the business actually weakened from that level. However, in April, we saw a very healthy sales, rebound that allowed us to finish with the – finish the quarter with the negative 2.4% comp performance in the DSW segment.
Given the difficult start to the quarter, we were very satisfied with how we ended the quarter. The comparable sales performance was driven by a decline in store traffic that was offset by a significant increase in conversion and a slight improvement in average unit retail and units per transaction.
In our affiliated business group, comps declined by 1.7% after growing by 2.3% last year. Total revenues increased by 2.7% to $38.4 million. We opened five locations for a total of 348 at the end of the quarter. Gross margin declined by 100 basis points to 33.5% driven by a 50 basis point decline in merchandize margins and a 40 basis point deleverage in occupancy expenses.
Our merchandize margin contraction was due to last year's difficult comparison and a less favorable sales mix. Our SG&A rate in the first quarter improved by 50 basis points to 21.3%, driven by lower preopening cost and leverage in home office expenses. Our operating profit decreased by 50 basis points to 12.2% and net income grew by 4% to $45.9 million. Again, adjusted earnings were $1 per share, up from $0.98 last year.
Turning to our balance sheet, our inventory position as of the end of the first quarter, increased by 6% due to new store openings and e-commerce growth. On a cost per square foot basis however, inventories were down 5%. Given the level of volatility we experienced in Q1, we were very pleased with the level of our inventories at quarter end. We were also pleased with the mix of regular price and clearance merchandise.
Capital expenditures for the quarter were relatively flat to last year at $19.8 million, of which $14 million was for opening and remodeling stores and the balance IT projects. We ended the quarter with cash and investments of $430 million and as announced in our press release this morning, we increased our quarterly dividend by 39% to $0.25 per share. This is the second time we have increased our quarterly dividend, in less than two years. We did not repurchase any shares from our $100 million share repurchase authorization, which we recently extended.
With that, I'll turn it over to Mike.
Michael R. MacDonald - President and CEO: Thanks Doug, and good morning to everyone on the call. We increased our sales by 7.7% this quarter, despite recording negative 2.4% comp. We were disappointed with our first comp sales decline after 14 consecutive quarters of comp store growth. Much of the country experienced one of the coldest starts to spring this year, which contrasts sharply with the some of the warmest temperatures on record in the first quarter of last year. We responded very quickly and decisively to this dramatic turnaround in weather. We adjusted merchandize receipts in weather-affected categories early in the quarter. In April, we also intensified our messaging relative to assortment and value in the sandal category. These actions allowed us to minimize inventory imbalances while still supporting categories that were less weather-affected.
One of DSW's strengths is its nimbleness in adjusting to changes in its business. We demonstrated that strength in Q1. When the weather opened up at the end of the quarter, all categories improved. But the weather sensitive categories strengthened the most, probably reflecting some pent-up demand.
Performance by category was mixed, again primarily as a result of weather. Comparable sales in women's footwear, declined by 6%, driven by a double-digit decline in the sandal category. Bright spots within women's included the entire casual footwear segment and boots, which had a big percentage gain on a relatively small dollar base. Men's footwear continued its momentum with comparable sales growing by 8% on top of last year's 7% growth. The men's business was healthy in all classifications except for sandals.
Athletic footwear recorded a comparable sales decline of 1% in the quarter. Once again, performance athletic outperformed fashion athletic. Accessories, was our strongest business, posting an increase of 11% in the quarter. All subcategories contributed to this excellent performance.
Finally, sales of private brand merchandize grew to 12% of our mix compared to 10.8% in the first quarter of last year.
Growth in DSW.com, which is included in our comp sales results remained healthy throughout the quarter, although our sandal business online was not immune from the unfavorable weather. During the quarter, we opened up 12 new DSW stores, bringing our store comp to 376 at the end of the quarter. We remain on track to open 25 to 30 new stores for the year.
Stores already opened this year are operated from one week to seven weeks in the first quarter and so far these stores' collective performance is exceeding our plans.
We continue to make progress on the jewelry business, which is being tested in 25 stores. The weekly sales volume from this new category continues to grow as more and more customers become aware that we actually have it. Once, we implement certain systems support for this business, we will roll it out to additional stores, most likely beginning in the first half of next year.
Now, let me say a few words about our luxury tests. As you can tell from Doug's remarks, this test has not produced the results we'd hoped for. Based on our actual experience to-date, it appears that DSW does not have the ability to sell through a luxury inventory investment of the size we made over a reasonable timeframe and at acceptable margins. Our efforts over the balance of the year will be focused on reducing our luxury inventory to a level that is consistent with our demonstrated rate of sale.
We still believe there are significant non-financial reasons for being in the luxury business. However, our future approach to the luxury category will depend on our ability to buy the right mix of product in quantities that we can digest and at costs that will allow us to at least break even in this business.
Turning to systems, our initiatives fall into three broad areas, supply chain, customer service and omnichannel. In the supply chain area, we continue to be encouraged by the evidence we are gathering from the size optimization system that we implemented in mid-2012. Eventually, this system allows us to be smarter in the way we allocate sizes by store. In the first quarter, we achieved increases in our in stock rates by size, particularly in print sizes. This is one measure of the effectiveness of the size allocation improvements we are making. Ultimately, we expect to be able to demonstrate improved regular price sell through rates and lower mark down rates as a result of this system.
Also within the supply chain area, we continue to work on assortment planning, which will improve our buy store assortments relative to in use, fashion, price point and brand. As I always say, this is a very large initiative that will be in development through 2014, with benefits not beginning until 2015. There are also two systems enhancements that will improve the experience we deliver to our customers, e-certificates will allow us to electronically retrieve customers' unredeemed reward certificate point of sale. Eventually, we will do away with paper certificates all together. Both our customers and our associates appreciate this new capability, which is currently operating in two-thirds of our stores and will be in all stores by the end of the year.
Later this year, we will upgrade our point of sales system to facilitate ringing transactions on mobile devices, electronic retrieval of customer receipts and sending electronic receipts to those customers who prefer them over paper receipts. We believe these enhancements will also improve the customer experience.
Finally, in the omnichannel area, we have two initiatives underway. In the second half of this year, we expect to activate our charge-send system. This system will allow us to find a wanted shoe from the fulfillment center or one of our stores regardless of whether the customer is shopping in a store or online. All stores will have shipping capability and the wanted footwear will be shipped free of charge. This capability will result in fewer lost sales and happier customers.
The other omnichannel project we're working on is our dropship system that will allow us to offer customers footwear styles that are actually housed in our suppliers' warehouses. This capability will allow us to expand our assortment without investing in the inventory or the space to support that broadened assortment. We expect to have our first vendor up on dropship by year end. As you can see we have a lot going on that will enhance our ability to deliver even more effectively on our brand cornerstones of a breathtaking assortment, irresistible value and simple convenience.
Finally, I'd like to discuss our expectations for financial performance in fiscal 2013. We're now projecting comp sales in the range of flat to plus 2% growth for the full year. Excluding any impact from our merger with RVI and our luxury test, we're estimating earnings per share of $3.40 to $3.60, which compares to last year's $3.35 per share. We estimate the cost of our luxury initiative to be approximately $0.30 per share for the full year, of which $0.25 was realized in the first quarter.
This past quarter was a bit tumultuous. We endured unprecedented weather swings and we experienced disappointing results from our luxury test. Through these challenges, our base business remained strong, and our formula remained the most compelling game in town. We have plans in place to improve our effectiveness, our footprint and our market share.
With that, I will turn the call back over to the operator to open it up for your questions.
Operator: Scott Krasik, BB&T Capital Markets.
Scott Krasik - BB&T Capital Markets: Just a quick one on the luxury. Is the $5.25 million in the year calling out, and the 10 X million of net income, is that just the apparel piece, or does that include some footwear as well?
Michael R. MacDonald - President and CEO: That includes the whole luxury piece. Both Luxe810 which is the website piece and the apparel that we tried to sell throughout those five pop up stores.
Scott Krasik - BB&T Capital Markets: So, for lack of a better word, we're trying to, in essence make, it appear like, we're trying to put it apples-to-apples like it the Luxe810 never happened, is that right?
Michael R. MacDonald - President and CEO: Yes.
Scott Krasik - BB&T Capital Markets: Then just in terms of your outlook, your visibility in terms of some of the seasonal categories, even though you're very clean on inventory, are you assuming that the industry overall is going to be very promotional and then, because you don't have a back-to-school business and others really do. Are you planning your inventory receipts or business differently in the second quarter than others who are expecting a big benefit in Q2?
Deborah L. Ferree - Vice Chairman and Chief Merchandising Officer: This is Debbie, I'll take that question for you. First of all, we're not a promotional business. What we did through the downturn in sandals which was down 15% comp for the quarter, what we did is we managed receipts, number one, by matching the inventories or the receipts to what we thought the sales plan would be and number two, as you saw in mid-April, what we did, is we took a really sharp price point that we had, $39.95 and under and we simply marketed or communicated to our customer that we had some really sharp values in the assortment, but we didn't take promotional mark downs to really get there, we really just communicated the strength of our value proposition and actually on that group of style that we marketed, actually when you look at a nine month point of view, we came out better. We're projecting that we come out better in margin, than had we done nothing with those shoes in terms of promoting them. So, I would tell you, we just did what we always do. We managed receipts and we talked about our value proposition. As far as Q2 is concerned, I see some additional upside that we typically would not go after for back-to-school, because we're not really a back-to-school business, our business tends to be a little bit more even throughout the season, but we're seeing a couple of different things that we'll do differently this year. Number one, I do think that we'll extend our sandal season in a couple of key styles. It's a message to our customers that are going to back to school, back to college. So you'll see a few more purchases and styles that support the Big It items of the season in terms of sandals. So we'll extend probably into the third or fourth week of August a little additional sandal business over what we did last year. That will not be dilutive to the margin. It will be accretive to the margin because we're going back and remind the It items, we'll own them in the right sizes and that will be at regular margins that you would normally see at the beginning of the sandal season. That's number one. Number two how we manage our boot-to-bootie penetration will be different this year. We saw boots continue through first quarter this year, and there are some opportunities that we learned that will have in second and third quarter. We learned that from what we missed in first quarter. So you'll start to see a bootie penetration penetrate a little bit higher than it was last year, starting – beginning of July through the beginning of September. I think that will be additional business for us. So those two thing; extend the sandal season by four weeks, number two, change the penetration mix between boots and booties.
Scott Krasik - BB&T Capital Markets: Then just to follow up on that, based on the NRF calendar, can you say sort of what magnitude that extra week you're going to get if, I guess, the first week of November meant to you last year just for modeling purposes?
Douglas J. Probst - EVP and CFO: Scott, not at this point. I would hesitate to throw out a number on the call. But let us do a little homework on that and try to frame that up.
Operator: Jeff VanSinderen, B. Riley.
Jeff VanSinderen - B. Riley & Co. LLC: Just wanted to follow up on the weather situation. Any other color you can give us on what you saw in the colder markets versus the warmer markets? Then maybe you can give us more color on what you've seen, since the weather has broken in the last – well, I guess since the last month of the quarter?
Michael R. MacDonald - President and CEO: Well, there really weren't – a year ago there really weren't very many temperate parts of the country. It was pretty much record warm temperatures throughout the entire first quarter, every place except around the West Coast. This year, most of the country was cooler than normal and they keep these records, these weather records on averages for the last 118 years. They rank each state in the country and then they regionalize the states and I think there was a change, year-over-year change on average of about 60 places in terms of the ranking from 1 to 118. So it was a dramatic turnaround and it affected virtually the entire country, less so in the South and even less than that in the West. But in terms of the Northeast, the Mid-Atlantic and the Midwest, it was a dramatic turnabout. Our weather reflected that as it happened. We joked internally and we said that the calendar was literally four or five weeks late and the business we got in March, we should've – or in April, we should've been getting in March. That's literally how it worked out. As Doug said in his remarks, the business actually got a little weaker as we moved into March and it was on the basis of the strength of the rebound in April that we were able to come out with a negative 2 comp. So, as tough as it was early, it was drawn late and we finally got some consistent warm weather and the all areas of the business jumped up, but of course the sand oil and all opened up footwear, even some of the athletic businesses that are weather dependent jumped up more than the average, so we were pleased with the way the business rebounded, and we're continuing to monitor the business, we think there's still some pent up demand out there, and I think it's going to be a while before we really discern our underlying sales trend. So, in terms of managing the business, we're still trying to be prudent on our expenses and careful on our inventory management and we know that when we do that, we make more money, if the business turns up and we minimize any downside if the business turns down. So, I feel like we did a fantastic job of managing through a very volatile time period in terms of weather and sales and I feel like we're positioned exceptionally well as we start the second quarter, with actually some wind in our sales because of the strength of April.
Jeff VanSinderen - B. Riley & Co. LLC: Is it fair to say that you feel like your inventory at this point is clean?
Michael R. MacDonald - President and CEO: Yup.
Operator: David Mann, Johnson Rice.
David Mann - Johnson Rice & Company LLC: Just following up on inventory, can you just elaborate, when you're talking about the quantity and composition, how you feel like you stand in terms of sandals and open-toe inventory versus other and where you are in terms of clearance levels this year versus last, when you had some issues as well?
Michael R. MacDonald - President and CEO: I think three things. One, our inventory per square foot is down 5%. I think it's down about 4% if you adjust for the one week shift in the calendar. So, on any basis it's in good shape totally. Our clearance ownership in terms of units per average store and in terms of its penetration to our total ownership is down year-over-year meaningfully. In terms of our sandal inventory, we're in good shape to do business and we project coming out at the end of the quarter exactly where we want to be. So really, it's as simple as that, David.
David Mann - Johnson Rice & Company LLC: For the follow-up, Doug, when we think about the margin compare versus last year, I mean, obviously you accelerated some markdowns and took a big hit in merchandize margin. How do we think about the type of markdowns you're doing in the second quarter, promotional markdowns in terms of the opportunity you might have to recoup versus last year?
Michael R. MacDonald - President and CEO: I think Doug is going to probably talk about this. But last year, in the scheme of things over a multiyear period, it was a pretty good quarter in terms of margin performance. So that's number one. Number two, I think we're cleaner going into Q2 than we were a year ago. Number three, if you think about what happened to us in Q1 with an unfavorable mix, sales mix by category, we had, what, 6% comp decline in women's and an 8% comp increase in men's and men's has a lower margin rate than women's. If you subscribe to the theory that there's still some pent-up demand out there such that women's can outpace men's in Q2, that mix that worked against us in Q1 could possibly work in our favor in Q2.
Douglas J. Probst - EVP and CFO: David, I would just add to that is that, as you know, second and fourth quarters are our clearance periods to make sure our inventories are in line for the upcoming season. So as Mike also mentioned that our sales trends are going to be difficult to perfectly predict until we get a little settling in as to how much sales may have shifted, I would be hesitant to predict a merchandize margin rate at this stage. But I can assure you our inventories are going to be at the right spot as we open up the fall season and we'll do what it takes to get them there. Fortunately, with our balances at the end of first quarter, we're going into it in a good position.
Operator: Kate McShane, Citigroup.
Kate McShane - Citigroup: My question is around what your price expectations are for the rest of the year in terms of average selling price contributing to that flat to 2% growth comp guidance you gave today.
Michael R. MacDonald - President and CEO: I'm sorry. We couldn't understand your question very well. We couldn't hear. Could you repeat that please?
Kate McShane - Citigroup: I was wondering, if you could tell us what your average selling price expectation is for the rest of the year within that zero to 2% comp guidance.
Douglas J. Probst - EVP and CFO: Average selling price, as we mentioned in the first quarter, we have a little bit of benefit from the – we both talked of average unit retail, they were slightly positive, which we were proud of and it also gives an indication that we didn't have to be overly promotional to get what we get our inventory levels there, so, I would say, it being a slight, very slight contributor to our zero to 2% comp expectation.
Kate McShane - Citigroup: For my follow-up question, I know one of the first questions was around the luxury business. How should we think about your view on the luxury category going forward?
Michael R. MacDonald - President and CEO: As I tried to say in the prepared remarks, we need two or three things to happen and we'll be working with our purchasing agent to assess this. We need to buy the product in the right kind of mix, that is, in terms of close out, makeup and inline, and we need very importantly to buy it in quantities that we're able to really absorb and sell through at a reasonable rate, so that we can provide fresh flow and our assortment doesn't get stale and then the most important thing is we have to buy at costs that we can margin out, so at a level that we can cover our operating expenses and break even and that's going to mean that probably we're going to have to buy it a little sharper than we have in the past, but we need all three of those things to be in place for us to continue the luxury initiative. The reasons why we're willing to break even on this business are several. Number one, luxury represents a point of differentiation for DSW versus any relevant competitor. Two, it gives us a chance to broaden our customer base. Three, we think it helps us to solidify our image as a fashion leader and it provides a price umbrella under which customers sometimes feel more comfortable above buying the next level down in terms of price points. The most important, perhaps, reason why luxury makes sense for us and even at a breakeven level is because we think that by selling luxury product, we advance ourselves in conversations with other better and prestige brands, who today don't sell us. Those are all the reasons why we're willing to operate the business on a breakeven because we think those non-financial factors are important and they can help us advance the business. Ultimately, those non-financial factors turn into financial factors. So hopefully, that gives you a sense for how we're thinking about luxury going forward.
Operator: Sam Poser, Sterne Agee.
Sam Poser - Sterne Agee: I have a couple, please. Could you tell us – number one, could you just walk through what the tax rate for the quarter and how to think about that? Because it seems like it's actually significantly lower than it was last year.
Douglas J. Probst - EVP and CFO: Yes. I would assume about a little less than the 39% rate for the year. There is some volatility in that by quarter based on the accounting. But I would say it would slightly increase as we get through the year but end up a little just shy of 39% for the year.
Sam Poser - Sterne Agee: Because I'm talking about in the first quarter. Can you walk through that, please?
Douglas J. Probst - EVP and CFO: At the risk of getting into detailed tax conversations, a lot of it has to do with the timing of credits in that first quarter. So I can follow-up with you in more detail, but that would be the primary reason.
Operator: Camilo Lyon, Canaccord Genuity.
Camilo Lyon - Canaccord Genuity: Doug, I was hoping you could give us an update on your expense reduction plans that you had outlined intending to pursue last quarter, where we stand now? What the opportunity is going forward for the balance of the year?
Douglas J. Probst - EVP and CFO: Actually, it's gone very well. The team at DSW is large. It has really come together that you figure out, what are good reductions we could make without sacrificing the long-term growth of the business. So, honestly, the first quarter was less to do about some of those changes, we'll see those changes mostly in the second and third quarter as it relates to the SG&A rate, it'd be difficult to leverage that fourth quarter rate because we had an extra week of sales last year, but we've advanced the ball significantly. I want to restate that we haven't taken long-term damaging type cuts and it's mainly through the timing of when we are bringing on some peoples, some professional fees, travel, every little piece we looked at to be as efficient as we can and what obviously was a challenging start to the year. So, we had anticipated a leverage in SG&A this year, primarily due to the preopening expenses being reduced by about $8 million, but as we said it in the call, home office leverage can be achieved certainly as we grow in the sales line by about 7%. So, we're pleased and we're never done, but we're thinking, we're making good progress.
Camilo Lyon - Canaccord Genuity: Am I correct in assuming that, that's embedded in your current outlook?
Douglas J. Probst - EVP and CFO: Yes.
Camilo Lyon - Canaccord Genuity: Then, just a clarification question on the Q1 comp that was reported. What is that comp, excluding the luxury sales?
Douglas J. Probst - EVP and CFO: Negative 2.0%.
Operator: Christopher Svezia, Susquehanna Financial.
Christopher Svezia - Susquehanna Financial Group: I've a couple, just clarifying questions here. I guess, first Doug, for you, could you just tell me what the – go over again what the gross margin rate was for the first quarter on a non-GAAP basis?
Douglas J. Probst - EVP and CFO: Non- GAAP basis, the gross profit was 33.5 versus last year's of 34.8 and again that excludes the luxury business altogether.
Christopher Svezia - Susquehanna Financial Group: So, can I ask you – I'm just a little confused. I'm getting a different number. So, you're excluding – so using revenues of $596 million and a cost of sales of $402 million to get there, what am I – I'm just kind of – I'm getting a different number. That's why I'm just curious, what I'm missing.
Douglas J. Probst - EVP and CFO: Well, again, we pulled out the luxury business that we had in our business last year, so which is mainly store and a little bit of dot com business. So, that may be the reconciling item that you're thinking of. So, last year's actual rate reported 34.5, that's a little higher when you exclude the luxury business, the little that we had last year.
Christopher Svezia - Susquehanna Financial Group: I know Sam was asking this about – can you just tell us what the tax rate was in Q1 on a non-GAAP basis, what that rate was?
Douglas J. Probst - EVP and CFO: Could you say again?
Christopher Svezia - Susquehanna Financial Group: Can you just tell us what the tax rate was on a non-GAAP basis for Q1? I mean, it looks like 32%. I mean, is it fair to say that you're able to use the tax deductibility of the luxury piece against ordinary income or I'm just trying to clarify that for a sec?
Douglas J. Probst - EVP and CFO: The tax rate base-to-base is about 37.2%. So hopefully that helps reconcile you, and that's last year. I'm sorry, 37.2% this year, but that's base-to-base. So the comparison would be the number that was reported.
Christopher Svezia - Susquehanna Financial Group: Separately, I'm just curious, in April when you said the business improved with the weather, how did traffic – how were the traffic trends in April? Did they turn positive as well?
Michael R. MacDonald - President and CEO: Traffic was significantly better in the month of April. We still had – it was not – our comp increase was not all traffic-driven. It was still partially due to strong conversion. So we were working on traffic. Traffic should be a little stronger than it is right now and I think that we've heard that phenomenon from other retailers as well. So we've been trying to understand that. We know that a lot of it was weather-driven. We're a little concerned that not all of it is weather-driven. So we're looking at all of our metrics and we've got a few changes that we'll make in the fall season to address that.
Douglas J. Probst - EVP and CFO: I'd like to interject. I want to respond to another question to make sure it's clear. The negative 2.4% comp that we talked about was excluding the luxury business, I jumped too quick to the answer. It would be negative 2.0%, if we did include the luxury business, because there were some favorable sales. So, I apologize for maybe temporarily misleading you. So, negative 2.0%, if you included Luxe business, negative 2.4% if you excluded it.
Christopher Svezia - Susquehanna Financial Group: Doug, just on the gross margin and how we think about that for the year. I know part of that is product margin. Any color in terms deciphering how we think about product margin, how do we think about occupancy costs for the balance of the year based on your flat to up 2 comp?
Douglas J. Probst - EVP and CFO: Well, unfortunately on that level of comp, it'd be unlikely to leverage occupancy. We'd expect to get a little deleverage on that. Obviously, closer to leverage if we get to the 2, but in the middle it'd be a little deleverage on occupancy. From a merchandise margin rate, it could get pretty close to flat to last year. Again, a lot's going to determine how much fuel we have to use during the markdown period to the second and fourth quarter. So, again, last year's 44.9% margin rate from a merchandise standpoint was pretty good and zero to 2 to get close to that, we’d be pretty pleased.
Christopher Svezia - Susquehanna Financial Group: Lastly, Debbie for you. Just on the athletic business, kind of how you're thinking about that. I'm sure that improved that you guys came through April, but just your thoughts on your initiatives on the athletic business and just general thoughts to go through the balance of the year?
Deborah L. Ferree - Vice Chairman and Chief Merchandising Officer: So, Chris, we actually – running for us is still the strongest category and we actually saw a significant increase in penetration and running. We're starting to see cross training come on quite strongly and that's comp being quite large double-digits, and the whole fashion piece, the street piece with some of the key items from Skechers, the GOwalk and things like that, that's starting to come on very strong as well. So, I'm very pleased with our athletic business. We've got it positioned well, both in terms of content and inventory, going into back-to-school and quite liquid in inventory and so, I think we're in a really good place in athletic.
Operator: Seth Sigman, Credit Suisse.
Seth Sigman - Credit Suisse: Just a question on the comps guidance, it looks like you took it up slightly for the year, I think previously you discussed flat comps maybe for the second half of the year. Have the actual assumptions changed at all for the back half or still kind of planning conservatively at this point?
Douglas J. Probst - EVP and CFO: I think when we mentioned flat comps, we didn't endorse that as a piece of guidance, we just said, look, the first – I think it's the time, the first six weeks of the year was down 5% and we felt like it was mostly weather that was hurting our business, but what we did is, we said, if we were to be flat for the year, then this is the kind of earnings performance you could expect out of us. Maybe, we're being a little cute, but we were trying not to give guidance, but trying to be informative. So, there's really no basis to compare against. I think if you do the math, with our 2.4 negative comp in Q1, if we did between 1 and 3.5 over the balance of the year, so Q2, Q3, and Q4, that gets you to a flat to plus 2 comp. So, we hope that that's appropriately conservative, and that's how we're managing our receipts right now.
Seth Sigman - Credit Suisse: Then you mentioned the improvement in conversion helping support comps this quarter. I mean, it seemed like implied, it was a nice benefit from that. Was there a change in trends in conversion versus maybe prior periods? I mean, clearly you have a lot of ongoing system initiatives. Can you maybe elaborate on what's helping drive that conversion at this point?
Michael R. MacDonald - President and CEO: Yes. The upturn in conversion was significant and traditionally, we have always interpreted higher conversion to be an endorsement of our assortment and an indication that we're doing a good job for the customer interacting at store level. I think your point about disappointing fewer customers and having more of the right sizes as a result of size optimization, it's directionally valid. Statistically, I can't really tell you how much that was in Q1, but I know that it helped a little bit. So to answer your question directly, the conversion increase was significant and it was much different than what we have been running, so we are pleased with it.
Operator: Mark Montagna, Avondale Partners.
Mark Montagna - Avondale Partners, LLC: So it sounds like you performed quite well the last four weeks of the quarter. Is it fair to say that, that same case of strength has continued at that rate through quarter-to-date right here in the second quarter?
Douglas J. Probst - EVP and CFO: We learned our lesson in the first quarter, Mark, to not over project on the first few weeks of the quarter. So we can tell you that obviously April got better from our results and as weather improved, so did our performance. So you can read into that but that extended. But we're careful not to extrapolate off of earlier results of May because similar in a reverse way though to last year, where we don't know how much has been pulled forward or pushed back as far as the business trends, so we'd be reluctant to go there. I think our zero to 2% comps, kind of use historical averages from this period of time as we're managing the business. So we don't want to get in that habit of giving that kind of short-term performance, but we think that's the prudent thing to do at this time.
Mark Montagna - Avondale Partners, LLC: Then just last year when – can you give us an idea as to what the cadence of comps was last year through the second quarter? Because it sounded like it may have weakened as the quarter progressed last year.
Douglas J. Probst - EVP and CFO: Yes. I suppose we could give you that. But again, the patterns of comps in the second quarter, because it is a clearance period, can get pretty subtle as well because when we rotate our merchandize, for example, that is a timing that could overlap a May and a June. So I wouldn't put too much credibility or credence in the patterns of sales with that kind of performance by month. But if I look back at it, it's not terribly different by month last year.
Mark Montagna - Avondale Partners, LLC: Just lastly a quick question. In terms of fashion athletic versus performance athletic, can you help us understand how that breaks down in terms of importance, what percent within athletic is fashion versus performance?
Michael R. MacDonald - President and CEO: About two-thirds performance and one-third fashion.
Operator: Jane Thorn Leeson, KeyBanc.
Jane Thorn Leeson - KeyBanc Capital Markets: My question was on the luxury. What areas of the luxury test, if you could get more granular didn't perform as well?
Michael R. MacDonald - President and CEO: Well, there were two parts of the luxury business. There was the footwear and accessories part, that was carried in a handful of our stores and predominantly, it was a DSW.com and we bannered it under the Luxe810 logo and if you go to our website, you can see that the Luxe810 is a separate tab there and when you open that tab and you go in there, you can see that it has different creative, the images are larger, the prices are actually hidden and so, that was the primary thrust of our luxury test. The sell-throughs on that were reasonable when we discounted deeply, they were slow, when we had less deep discounts. The other thing I'd say is that the luxury test could only have been successful if we were to attract a great many new customers to DSW, and that's how we tried to pursue the business. What we found is that the cost of attracting new luxury customers to the DSW website were very much higher than we have anticipated in relation to the sales that were generated through those efforts. So it was kind of a situation where unless we spend wildly on attracting new customers or we discount deeply in order to move the product, we just can't get adequate sell-throughs given the quantities that we own. So that's the LUXE810 portion. The other piece, which was a non-strategic piece but it was part of what we needed to take in, in order to get the significant footwear and accessories piece, was feminine apparel. We agreed to take that and as a part of the total cost of the deal and our first attempt was to liquidate that product, through pop-up stores in high-profile locations, five high-profile locations throughout the country. As we commented on last earnings call, the early results of those pop-up stores, was not good and that continued for the full month that those pop-up stores were open. So, whereas we had thought that we would continue to open up additional pop-up stores over the balance of the year based on our experience in those first five pop-up stores, we changed our approach and we're now pursuing the final liquidation of that product, not through retail efforts but through wholesale efforts. So I hope that explains. We never had an intention to pursue apparel in the luxury sector as a go-forward part of the business. It was sort of a purchase with purchase if you will.
Jane Thorn Leeson - KeyBanc Capital Markets: I guess the follow-up to that is. How exactly were you trying to attract new customers? What was the biggest, most expensive piece of that?
Michael R. MacDonald - President and CEO: It's really affiliate marketing, because it's a dotcom, primarily a dotcom business.
Operator: Sam Poser, Sterne Agee.
Sam Poser - Sterne Agee: One of them was answered. But I've been getting a lot of calls from a lot of investors saying, asking more details on this tax rate because nobody can get to 37%, including myself for the quarter. If you could walk through the adjusted margin, SG&A and taxes so we can all know the numbers, it would help, I think, everybody.
Douglas J. Probst - EVP and CFO: So, I can walk you through the dollar per share on an adjusted basis and the key numbers to consider are the gross profit rate of 33.5%, and SG&A rate of 21.3%, an operating income rate of 12.2%, and a tax rate of 37.2%.
Sam Poser - Sterne Agee: That's off of the adjusted sales number taking the sales out or that is the $601 million?
Douglas J. Probst - EVP and CFO: That's out of sales. It's right. The reduced sales of $596 million, and I would like to point people too, there is a reconciliation at the back of the press release that at least gives you some of those components from gross margin and operating expenses on a dollar and EPS basis.
Sam Poser - Sterne Agee: Then lastly, given what you are doing with the inventory and so, Debbie, is this going to give you assuming that the trends stay strong, does this give you the opportunity to chase key items going forward, both in second quarter and beyond?
Deborah L. Ferree - Vice Chairman and Chief Merchandising Officer: Yeah Sam, we do that as a normal business practice anyway. So, it's better that our inventory is there in a place that will allow us to maximize key items, if we decide to accelerate those and pull those forward as you know, we have big key items, kind of planned out throughout the season that will also give us the opportunity to maximize things that we don't know about right now, by chasing them to reorder. So, yes on both notes.
Operator: I'm showing no further questions. This concludes our question and answer session. I would now like to turn the conference back over to the Company's CEO, Mike MacDonald for any closing remarks.
Michael R. MacDonald - President and CEO: Thank you, very much. As usual, Christina and Doug are going to be available to answer any follow-up questions throughout the day and we certainly appreciate your interest in DSW and your participation in the call today. Hopefully, from today's interaction, you get the sense that we're excited about DSW and our prospect for continued success and market share gain. So, thanks again for your participation. Have a great day.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.