Good morning, my name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Brown Shoe Company Fourth Quarter 2014 Earnings Conference Call. [Operator Instructions]. Thank you. I’d now like to turn the conference over to Ms. Peggy Riley Tharp. Ma’am, you may begin.

Thank you. Good morning and thank you for participating in the Brown Shoe Company Fourth Quarter 2014 Earnings Call, which is being made available to the public via webcast. I’m Peggy Riley Tharp, Vice President of Investor Relations for Brown Shoe Company. Earlier today, we distributed a press release with detailed financial tables which is available on our website at brownshoe.com. In addition, slides are available on our website for you to reference during this call. Please be aware that today’s discussion contains forward-looking statements, which are subject to a number of risks and uncertainties. Actual results may differ materially due to various risk factors, including but not limited to the factors disclosed in the company’s Form 10-K and other filings with the US Securities and Exchange Commission. Please refer to today’s press release and our SEC filings for more information on risk factors and other factors that could impact forward-looking statements. Copies of these reports are available online. The company undertakes no obligation to update any information discussed in this call at any time. Joining us on the call today are Diane Sullivan, CEO, President and Chairman; Ken Hannah, Chief Financial Officer; and Rick Ausick, President of Famous Footwear. Today, we will begin with a strategy review from Diane followed by a financial summary from Ken before turning the call back over for Q&A. And I would now like to turn the call over to Diane Sullivan.

Well, good morning everyone. And thanks so much for joining us. You know while I always look forward to a new year, I must admit I don't mind reflecting back on 2014, which was another successful year here at our company. In fact, we reported adjusted operating earnings of a $129.4 million, up 23.8%. You know we finished the year on a high note despite a challenging retail environment. West Coast port delays and the ever-evolving shift in consumer behavior, and our strong fourth quarter has given us momentum and put us on a good path for 2015. So let’s take a quick look at last year starting with Famous Footwear which includes Shoes.com on a historical basis through December 12. Famous delivered sales of $1.589 billion and adjusted operating earnings of a $105.4 million. Gross margin at Famous improved 30 basis points last year to 44.4% and we maintained adjusted operating margin at 6.6%. I’d like to call out that this is the third consecutive year of record sales and adjusted operating profit at Famous Footwear, which is just a solid indicator of the good work that we’ve accomplished with this brand. For the quarter, Famous reported same-store sales up 4% as we saw a strong improvement in our conversion rate, up 5%. We also saw improvement in average unit retail up low single digits and a slight increase in pairs per transaction, and both contributed to our fourth-quarter growth. However, like the rest of the industry, we continue to see a decline in customer traffic in store. Boots and Athletics delivered good growth in the fourth quarter and we saw more of the same for both trends in February. Our key vendors continue to perform well with our top five brands representing about 40% of sales in the…

Thank you, Diane and good morning everyone. Before we walk through the financial results for the quarter and year, I want to briefly address the new segment reporting. I hope you found the segment release of the prior period information helpful. With the sale of Shoes.com this past December, we were forced to take a long hard look at our business segments; Famous Footwear, Specialty Retail and Wholesale. Specialty Retail has shifted from what was a collection of retail stores and branded e-commerce sites to essentially a single retail channel represented by Naturalizer. At the same our Wholesale brands have expanded beyond the simple wholesale designation as total e-commerce sales make up more of our consolidated revenue. To address these changes, we’ve presented our full-year and quarterly financial results as two new reportable segments, Famous Footwear and Brand Portfolio. Our Famous Footwear segment consists of our Famous Footwear retail operations including Famous Footwear e-commerce. This segment will also include Shoes.com through its disposition on December 12, 2014. Our Brand Portfolio segment includes all of our Healthy Living and Contemporary Fashion wholesale brands and any of their related retail operations and branded e-commerce sites. So going forward, when we talk about Naturalizer or Sam Edelman, we’ll be talking about the total business which is how we look at each brand internally and how I’ll talk about their results. As you heard earlier for the full year, net sales were $2.571 billion versus $2.513 billion in 2013, an increase of 2.3%. Adjusted net earnings for the year was $75.6 million or $1.72 per diluted share versus $61.5 million or $1.41 per diluted share in 2013. Both of these amounts exclude any benefit in 2014 related to the sale of Shoes.com or any cost in 2013 related to the portfolio realignment, up 23%…

[Operator Instructions]. Our first question will come from the line of Scott Krasik with Buckingham Research. Please go ahead.

I just had a few follow-ups. So interesting commentary around what you are seeing in February. But you typically give us some directional idea of how the comp in Famous has trended quarter to date. So would you care to elaborate?

Well, you know Scott we were waiting for you to ask us that question. We figured you would. And I’ll turn it to Rick and let him give you a perspective about that so far this year.

Yeah, just relatively briefly, we basically are running flat to last year. We’ve shifted a few -- because of Easter shift in our calendar, we shifted our promotional calendar to adjust to that, Scott. So we’re [disadvantaged] in the first part of March and we’re advantaged this week. So by the time we get through this week, we feel we’ll be roughly flat for the quarter to date.

And you had been experiencing some weakness in the performance side of the Athletic business. Maybe comment, you know maybe it's too early, but how do you feel that's going to trend throughout the year and then Athletic overall?

Yeah, I think overall, it will be fine. I think the performance side of it is slightly weaker than we had hoped. We’ve planned it down slightly, it’s probably a little worse than that right now. We’re trying to wait and see if that's just due to weather in some of our key markets where it hasn’t been conducive to people you know getting out and using those shoes. But in total with the strength of the Lifestyle business, we don’t see it as being an issue for Athletic in total.

And just one last question on Athletic. How do you feel about your price points, you seem to be inching up some price points on some of the Marquee Nike product that you sell and some of the other stuff. Are you seeing resistance there?

When the shoes are right, no. And we think there’s some things coming that will be, even allow us to continue to impact that in back to school. We think that some of the stuff that we see for back to school allow us to continue to look at raising our price points or at least offering. A really great product with some new innovations at prices that are still below what they will find in the true specialty guys. But it still gives the customer the feel and look of that innovation on the Athletic side.

And then just a couple of clarifications. Ken, was there anything else that moved into Famous besides the Shoes.com piece or I mean, is that just pure Famous going forward?

Yes, and the 2015 forward is just pure Famous.

And then, can you just remind us what your callable type options are for the notes in 2015? And if they could be addressed, what type of accretion scenario we could look at?

Those don’t come due, Scott until May and we will take another look at them based on the interest rates in the market.

So and what is the -- is it like 103 or something, just remind us?

I don’t [know] it presently, but that sounds close.

Okay, so that is an accretive option in 2015?

No, we’ll keep looking at it every year like we do.

Your next question comes from the line of Jeff Stein with Northcoast Research. Please go ahead.

So first of all, just a question on your margin guidance. You know just kind of looking back to your Analyst Day this summer last year, it seems like you were looking for kind of a margin ramp in, you know let’s call it 30-40 basis points a year, but your guidance this year seems to be somewhat less than that. And I am wondering how much of that is reflective of the port situation and/or weather? And you know maybe you just can reconcile what you were saying last summer versus what you're looking at now?

Well for sure you know some of it is, you know our cautious outlook as it relates to you know the port situation and what our expectations are really in the first of the year. So the bulk of it really is that, Jeff and you know beyond that, you know our goal would still be to target what we had talked about last June at our Analyst Day.

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

Well that's a great question. You know I think frankly you know it’s hard to tell yes, but I’d expect really on both sides of it, you know. On the Wholesale side, as Ken had mentioned in this remarks that we took a lot of action last year in terms of extending our lead times, and shifting where we received some goods. And through the first -- fourth quarter, we really didn’t have any issues and really through February, you know I think we’ve been able to perform well. It's a little tighter now as the consumer and the retailer is looking to have more spring goods on the floor. So sure, we’re in some cases you know a little bit late. And it’s going to take a while to catch up and we’ll have to see where that all shakes out as we move through the first and really the second quarter. And I think we’ve heard from you know everybody that the new normal, if there is a new normal it doesn't come until you know May when they really kind of untangle some things. And I think we would agree that you know, we’re in good position on some of our key brands, but a little light in some of our more seasonal goods. And as soon as we can get that corrected and as quick as we can get it on the floor, we’ll be able to you know drive the outcomes that we’re looking for this year.

Rick, in your comment regarding Famous Footwear trends in February, can you kind of talk about what’s going on geographically? I presume that you're doing better in warm weather markets and may be, give us kind of an idea of what the spread in comps is, let's say in the Northeast versus the West Coast and Southern regions.

Yeah, in general terms the Northeast would be down probably high single double digits. Again a lot of closures, a lot of weather impacted the business there primarily for the end of February and into early March. Our warmer markets, so if you think of Florida, Texas Arizona, even California, those are probably up mid-single digits. And everything else around there is some place around flat.

And final question for your Diane. Last year, I think in the third quarter you alluded to you know more to come kind of on what you might do with the Naturalizer stores and that business continues to under perform. Can you talk about where you see that business a year from now? Is it part of -- do you see it as part of the portfolio? Do you see it sizably smaller? Do you see you know perhaps some sort of restructuring in that business? Thanks.

Yeah, yeah, well just sort of as a quick recap on Naturalizer in total. You know, we did see on the wholesale side, everything was very good across virtually every metric. Our wholesale sales to the external view was up 6.5% in the fourth quarter. Operating margin was up 370 basis points. And then total for the year, we were up 2.3% and operating margin was up 211 basis points. That was on the wholesale side. International also showed strong operating margin growth for the year as well. So it really is, when you think about it Jeff, it really is the store base that we have to continue to look at how we get those stores to perform better. We’ve been working over the last couple of years to rationalize the fleet, so we did operate eight fewer stores year-over-year. And in the fourth quarter, our same-store sales were down 6.5%. We really think there is still the opportunity. I think it’s critical that we’ve stores that are that showcase for that brand. And as we’ve begun to expand that brand family and to be [these], international sport and other things, we do believe that you know over the next 12 to 24 months that will be an economic contributor to the total all-in Naturalizer business. So we’re not given up on it. You should expect to see it, but you should expect to see it perform substantially better than what it has to date.

Your next question will come from the line of Jay Sole with Morgan Stanley. Please go ahead.

Diane, you know I’ve a question on the CapEx. You know $75 million is the projection for this year and that's a step up from the $50 million of last year and the year before. You know, can we expect that this is the level of CapEx that we’ll see going forward beyond 2015?

No, it’s really a one or two-year increase because pretty much Jay, over the last number of years our CapEx has run anywhere between $45 million and $50 million. And you see the step up because the investment in the consumer fulfillment on logistics network that I discussed, which we think is again critical to supporting, you know our Omni-Channel. It’s delivering quicker speed to, and gain more efficiencies in terms of getting our inventory and goods to the store. So you know that, it will just be this year and next year, and then it will normalize again back into that $45 million to $50 million range.

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

Yeah, I would say so for sure. I think we’re doing a number of things in the company to make sure that we continue to do, make sure we’re connecting with the consumers digitally. I think if we looked at our media mix next year, you know substantial swing. Rick and the team has really taken a look at that versus traditional media. And I think Rick has something like 60% of your marketing mix next year is going to be, you know shifted to digital which is a substantial shift from I think about 25% the prior year. So we’re being much more aggressive about how we are taking a look at that. And I think we’re also looking at other ways that you know we can you know add more talent in that area in the company. I think that's not -- that's probably not unlike a lot of folks and really virtually every industry and continue to be you know very savvy around the digital space.

Got it, and then if I can just ask one more. You know Diane you did a great job again this quarter of keeping SG&A growth below sales growth. You know were there sources of incremental savings and were there area of investments that you were able to make, even though you were able to hold SG&A down again?

Yeah, well I think, thanks Jay, I appreciate that. You know, I wouldn’t say there was anything special. I mean, I think you know our top line grew pretty much about where we thought it was. We, you know held or improved slightly. Particularly on the wholesale side, our growth margin rates, that was a big goal that we had. And as we’ve talked about our model, you know it really leverages extremely well if we get that top line and that margin expansion with very little additional SG&A. And again the pressure will always be on that. You know we’ll continue to invest where we need to. The operating margin returns are terrific. So and as I said, next year we’re going to be working on the consumer fulfillment. That's a significant investment. We’re also going to be investing in the digital space. We’re going to be, you’ll hear from us in the first quarter about some of the brands that we’re going to be launching, both as an incubator and as you know potential licensees out there. So I think we’re making the right prudent choices on SG&A, Jay, you know for kind of where we’re in our recovery and our long-term targets for you know our operating margins.

Our next question comes from the line of Sam Poser with Sterne Agee. Please go ahead.

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

Probably, hold on a second.

Yeah, hang on, Sam.

[indiscernible].

Yeah, about $10 million or so.

And then Rick, the earlier Easter, I mean all things being equal, I would think that would help your business jumpstarting spring a little earlier than it did a year ago?

You know, theoretically that's been, obviously been one of thought processes. You know, I think again you know the weather problems we had were, we had less stores impacted, but the stores impacted our bigger markets and bigger stores. So the actual dollar impact was not that much less for March at least and late February. It wasn’t that much less that we had a year ago and we thought, we actually had more stores impacted, Sam. So, some of it’s just around where the weather problems are, and then getting those people able to get back to spring and get out. And you know the spring break is just starting this week to a degree, we start seeing more of that activity in some of our Southern markets, particularly the tourist areas. So hopefully between now and that ramps up pretty rapidly over the next 2 to 3 weeks. So yes, you would think it would start but it didn’t seem to do that much difference at the end of February and the first week of March.

No, no, no. I am not talking about that. I'm really talking about, you’ve Easter on the 5th of April this year, so Good Friday is three weeks earlier than it was a year ago. And so the actual issue of Easter itself, the jumpstart that you might have gotten later last year because Easter was later versus having it earlier this year. I would expect that's coming, that is in pre-effect by what happened in the last three weeks?

Yeah, yes.

And then, just to make sure I got it right, you said that the Naturalizer business in the quarter, wholesale was up 6.5% and operating margins were up 370 bps in the quarter for Naturalizer wholesale?

Correct.

And then for the full year, Naturalizer wholesale was, I got the margin is up 211 bps, but what was the sales?

2.3%.

And do you see that momentum continuing through the wholesale side of things?

Yes.

Okay, and then I guess the question really is, is and I just have a follow-up on the question regarding Naturalizer retail. Is how long do you hope it gets better or is it just, let's get rid of it because it is a drag and maybe think of a different way of highlighting brands going forward? I mean even if it means closing where you are and reopening with you know new-looking stores that haven’t been there for a long, long period?

Yeah. You know, I don't think -- I guess I would say in regard to that question, Jeff’s question too, I would say we look at every thing, every way that we can optimize both sales and earnings. If we eliminated all Naturalizer retail stores, our shareholder and our earnings would be in a negative position relative to where we’re today. That would not be additive for the company, so we’ve to really figure out how quickly can we really have those become an economic contributor. And to your point, that is it going to require some additional investment in that? We don't really know yet. I don't think it’s significant. Will it require some, I am sure. So you know I think you know Sam has a good question and we’ll look at every possibility to really maximize the value of that brand and that decision.

Your next question will come from the line of Steve Marotta with C.L. King & Associates. Please go ahead.

I’ve three quick questions. The first is what is the split at Famous Footwear for February, March and April as a percent of revenue, please?

What was the first part of it?

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

By month, you know the month [indiscernible]?

Comp by month, is that what you are -- [indiscernible]?

Yeah, that's correct.

The comp plans or the volume plans or the?

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

February is the smallest month. March is the biggest month and April is between the two.

The consolidated gross margin drivers for the current fiscal year, of course your guidance is for up 10. Can you talk a little bit about what your assumptions are behind the up 10, and where the levers are there as well?

Yeah. I mean I think if you look, it’s across both segments. And you know while we’re continuing to invest in you know the Brand Portfolio business, we’re expecting to get gross margin increases. So it's really across the board.

Okay lastly from a real estate strategy standpoint, a year ago about the Arizona test and how you went from, I believe it was 16 doors, 13. I think there is a bulk that are under review in order to endeavor to optimize that retail portfolio. Can you talk a little bit about where you are now and the process, the company stores. And if you could just talk about the [indiscernible]?

There will be 7 stores we closed last year that would fall into that category are the stores where we believe that we would have the ability to move substantial sales to other stores. We’re still early to tell how that's working. The accretion is there. It looks a little less than we might have thought, but still probably worth doing. And then we’ve probably on our potential close list for 2015 about another 10 stores that would fall into that high accretion list of stores that we’ve been looking at. So as we get close to those expirations on our leases, we’ll look at it again. And you know depending on if the landlord makes a different deal, that obviously changes that model. So it all depends on what happens with that, Steve. But so far, I think we are finding that there’s opportunity there, maybe a little less than what we had initially thought but enough for us to continue to go down that path.

Your next question will come from the line of Edward Plank with Jefferies. Please go ahead.

Diane, how does the promo environment play out in the fourth quarter relative to your expectations? And then I guess what are your thoughts on the environment now as we head into spring?

Well actually, we were really pleased in the fourth quarter with our overall performance, you know even with that promotional environment. I think you know the struggle really had been if particularly in the case of boots and [indiscernible] boots. That's where there was a plot of price pressure and promotional pressure. And wherever we had issues on that, we took early action and we were able to really work our way through most of that. So it really, I think that helped our overall performance and turn the brand side in the fourth quarter. So I think we you know navigated that quite well and it was less of an issue for us. And I think, Rick would say the same thing for Famous Footwear as well. You know they were able to kind of work their way through that with that, you know the 4% comp that they delivered in the quarter. As we kind of look at spring, I mean it’s all now around you know, really it comes back unfortunately it is the whole port question. You know it's a little early to tell, you know what the real big trends are going to be or kind of what the overall impact is going to be. So I see less about the promotional environment and really more about you know what is the impact of any late goods going to be both on our wholesale and our retail side of the business.

And if I could just ask one more. You know with respect to taking the Sam Edelman brand global, I know it's early in that path. But I guess, can you give a little bit more detail around that strategy? How you see it playing out? And then also your thinking around adding more Sam retail stores this year?

Yes, we’re, a great question. Yeah, we plan to add I think 5 to 7 more stores in 2015 in the US. And we are very close to signing a number of distributor agreements with folks in different parts of the world. So you would expect to see 5 to 7 stores in the US and a number of agreements some time in the next six months on Sam Edelman expansion in new markets.

Your next question will come from the line of Jill Nelson with Johnson Rice. Please go ahead.

And just a follow-up. Given the more cautious 2015 guidance, given the port issues, could you talk about maybe the back half of your guidance. Are you assuming kind of a return to that growth projection of you know high-single digit to low double-digit EBIT growth that kind of mirrors your long-term plan?

Yeah, for sure. I think you know we’re, again our guidance this year is very consistent with the way that we’ve guided in the last number of years with that little extra conservatism because of the port issues. And no one has the crystal ball on how that's all going to play out. I wish I knew how consumers and retailers are going to react on that. But yes, you know our goals have not changed at all, Jill in terms of our targets.

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

I would say a little heavier on the back half. Yes, a little heavier on the back has.

Okay and then just one kind of related question. The Famous Footwear inventory down 8%, I think you noted it was in line with the plan and that kind of seems like that might include some slower shipments with the ports. Could you just kind of break down that number a bit to just try to get a more clarity around this?

Yeah Jill, that number includes Shoes.com, and that's inventory of Shoes.com. And so the true Famous number, Famous only was down about 5, 5.4 something like that on a total basis. We actually were pretty very, very close to what we planned to be at the end of January, as that deteriorated in February and currently because of the late deliveries. We really weren’t disadvantaged that much in December and January on deliveries. It's really been the last four or five weeks where we’ve seen more delays coming and the backup of goods being a week or two weeks behind what we would anticipate.

Your next question will come from the line of Danielle McCoy with Wunderlich Securities. Please go ahead.

I guess, I just had a follow-up on Sam Edelman. If you could just talk about maybe some of the domestic wholesale expansion opportunities, or how we should think about the expansion of product categories? Is that more of just the Sam Edelman retail store to include more of the apparel or is there a potential to get that into some more of wholesale distribution?

Yeah, well a great question, Danielle. Think about it this way. You know we’ve three engines really in Sam today. We’ve the Sam Edelman brand, we’ve Sam & Libby at target and we’ve Circus by Sam Edelman. And we really see all three of those brands having opportunities for expansion in 2015. You know starting with the Sam Edelman business itself, you know we are now going to be really in our second season in spring. You know on apparel, you know continuing to expand our door base with people like Nordstrom and Dillard's and Lord and Taylor. So we really think there’s more opportunity there along with other license categories, whether it’s jewelry or handbags or outerwear. So you know that will continue to gain traction in 2015. Sam’s core footwear business right now looks to be very, very good, feeling positive about his opportunities in 2015. And he's looking at new ways to expand you know that category of business including new retailers that he’s going to be working with. You add to it the store growth that we talked about and we’re being very thoughtful about what stores we add and where we add them. Making sure you know that we continue to make sure that they are an economic contributor to the whole picture. And there is a lot of opportunity on online and the digital space too. You know we’ve got the Sam Edelman website up. It’s e-commerce enabled obviously and we see that as being an engine too on the Sam side, and then as I mentioned the International. So when you think about it, there’s lots of different channels of growth opportunity for that core business. And Circus is really in its early developing stages and things that, that will continue to have both you know product expansion opportunities. Meaning, there’s more categories and more SKUs that we can really get to in Circus. And the Sam & Libby business continues to be great. I think this is to get, it’s an anniversary for the original Sam & Libby Bow [indiscernible] this year. So the Target is going to be helping us with that in the celebration of that. So I think there’s a lot of different channels of opportunity for that Sam Edelman brand.

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

Yeah, we’ve six stores open now yet, Danielle. Our 7th opens in next 30 days or 45 days. I think that will be our 7th and that's the last negotiated lease we’ve. We’re still looking at other opportunities. They had a very good 2014. Again the weather in the last few weeks in that part of the world hasn’t been that good either, so our business has been a little soft against plan. We still have a very positive outlook on those stores. We’re being appropriately cautious as far as how many more stores we’re looking at. We want to go through probably another season of business to make sure we understand the customer a little bit better. But we still think there’s opportunity and particularly these stores are basically around Toronto and a couple of stores in Montreal. So there is lot more western part of Canada to look at if we decide that there’s opportunity. So I think we’re still looking at it as a potential growth there.

Alright, great. And then lastly on the DC, can you give us a little bit more color on what kind of upgrade you guys are doing? And how we should expect the flow through on implementation and potential leverage going forward?

Well, we’re building a new one basically. We’re adding on the building we’ve in Lebanon Tennessee, we’ve taken more property. They’re building an extension out, it will be the new facility. So we won’t lose any productivity while the building is being built. That was the whole idea. And then as that building gets built and new equipment gets put in, there will be a gradual movement of product to the new side of the building so that we can then start using the efficiency of the new equipment and the new processes as soon as we can. So the idea is not to lose any productivity at all over the course of the 18 months to two years that it’s going to take [indiscernible].

Your next question will come from the line of Laurent Vasilescu with Macquarie. Please go ahead.

It’s Stephanie Wakeham For Laurent. I just have a couple of quick questions. [indiscernible] product did really well up 20% in Q3. Just wondering if that continued into the fourth quarter and if you think that this trend will continue for the next fall or was it more of a one-year trend?

That did continue, probably not quite that strongly but it was probably mid-teens at least. So at a good margin, so I think you know we’re almost looking at it now is more of a basic business and the customer’s expectation is another part of their wardrobe. We update it with color or you know detail on some of the silhouettes. But it's really driven by a short and tall boots and basic colors. And those things don't seem to be slowing down. They did very well and the customer continues to respond. We believe it will still be a good business for us this coming fall as well.

And I think last quarter, it was noted that there was some weakness in the women’s non-Athletic side, particularly in dress and casual footwear. How should we think about that for 2015 and in particular the first half of the year?

Yeah, I think those categories are leveling out. I wouldn’t think, I wouldn’t call them robust. But I think they are starting to level off. Our inventory levels have been, we decreased our inventory levels dramatically. We’re up against some dramatic declines in the business, so we’re starting to see it even out. Our margins are coming up, so I think we’ve got the inventory in line. It won't be as big a negative for the total business as it had been for the last 12 to 18 months. As far as, is it going to be a driver? I can't say that yet, so I think that's probably not something that we would consider that important to driving our business. But we don't see it as being a negative in our assortments as it was over the last 18 months or so.

Your final question will come from the line of Chris Svezia with Susquehanna Financial. Please go ahead.

I guess, so first Rick for you, just going back and just looking at some product in general. You know casual lifestyle, so Canvas and the brands that subscribe to that and lifestyle etcetera. You have made some big bets there, I think you’ve some pretty robust thought process about that. Any you know based on what you're seeing any change in that thought process or know, you know you firmly believe that those bets will be right bets for spring and I guess some degree back to school, but for the spring selling season?

Yeah, I hope we bought enough.

It's a bit surprising. We would have thought that, that in December through February period would have been maybe a little softer just because of the time of year and what people are looking to buy And it really didn’t, it really hasn't declined. We still see that business is healthy as it was even prior to the cold weather. So that gives us more confidence to continue to do what we are doing and making sure we keep that inventory at its ultimate opportunity because that's really where the business is going between now and at least back to school for sure.

Are you shifting some of that, call it when you think about technical, I guess that's to a degree the running business, you continue to shift some of that hoping to buy dollars out of that and into that lifestyle?

Yeah, we’ve been pretty much on that March for a year. And I think we are pretty comfortable where we’re at today. And now it’s just a matter of managing inventory to sales, so the sales exceed our expectations and we’ll go out and buy more. If it doesn't, we think we’re -- you know we’re in a good position to get the turn in the margins we want on that category. And you know again, we would expect our running business to remain flat to down slightly for the year. And we think there’s some opportunity if the shoes perform better than we would expect, we could outdo that too. But that remains to be seen, that's still a wish versus the actuality.

Okay and Sandals, how did you -- I mean versus last year and just sort of a planning process and weather and timing and transitional product. I mean how did you think about that for spring into summer of this year? Is it just general thoughts about that?

Yeah, you know we start our Sandals business relatively early in our warm and hot markets. November-December, we deliver some new sandals in January. So those stores have had new products in them for call it 6 to 8 weeks now. They have all the big items that we bought for the chain to get there early. So we can start seeing you know what the reaction is and understand what that might look like for the rest of the chain. We haven't seen anything that would give us a [cause] that the inventory items themselves, you know whether you know jewels, the flat sandals, whether it's footbed sandals or whether they are sports sandals. All of the different categories are performing as we would expect them to today in those markets. The issue now is getting enough of those shoes into the rest of the chain to capture the business. And that's where the delays on the deliveries could be problematic. And again I think it’s the shoe-by-shoe, delivery-by-delivery conversation. We really haven't made any adjustments yet, but that doesn't mean we won't. If we get delays too far, you know you lose some selling time, we probably won't need as many shoes we have on our order. And we don't want to overdo that and have to lower prices more dramatically to liquidate the inventory. So I think that's the work that still remains to be done and that's what gives us pause on the first quarter and into the second quarter.

Diane, for you just on the branded piece. As I think about Healthy Living and Contemporary as it pertains to that mid-single digit growth for the year. Broadly speaking how do I think about still Healthy Living as sort of this low single and Contemporary still a double-digit growth?

Yeah exactly.

So I am curious, when we think about the guidance for the year, and all those talk about first quarter and cautiousness. I'm sure you know where all of us have our numbers lingering for the first quarter. You know, to what degree you want to add any commentary about that? Is it fair to -- are you now thinking maybe first quarter is going to kind of flattish because of some of these issues or you know any thoughts or color about that?

Yeah, what I would add is just, as we are working through this port issue, the biggest issue is the uncertainty around what you know is going to look like between now and May. I think the team has done a great job working through you know the issues to date and has really been able to minimize you know the impact. And I think you heard Rick say, he’s starting to see that come through here in terms of some of the seasonal goods. And so it's more of the unknown and so when I look at the performance, I mean our guidance range, I mean the low end is a 3.5% increase and the high-end is a 9.5% increase. So I mean I think that we’ve tried to give ourselves enough room to you know with a slow start to still be able to deliver a great year. And you know that's the way, you know I am on week four. So I still have a lot to learn about you know the trends in the business and the levers that we have. But you know I am very encouraged and enthusiastic about what I've seen, the quality of the team here. And so we tried to put some numbers out that we were comfortable with, given the uncertainty around this port situation here at the beginning of the year.

So not explicitly answering a question, but it seems like you still can get some earnings growth in the first quarter I guess [indiscernible]?

Well, I think that's unknown. So we would like to, you know cover ourselves to be flat coming out of the first quarter. And we certainly are enthusiastic about what we’ve planned for the back half of the year.

Okay, two last things real quick here. One just on the debt, I’ve to go back to that for a second, and the 200 million that's out there at 7%. I mean obviously with the revolver and what you’ve done there, I mean you could easily use the revolver and potentially reduce your cost there by 500 basis points or something. Why not do that? That just seems very straightforward. And the last question is just, Diane, you know a great job and the whole team on the margins. When I think about the EBIT margin profile of this company and we play with these charts that you gave us on the Analyst Day and triangulate everything. I mean broadly, it looks like 6% EBIT margins by 16. I think basically what you're telling us is nothing has really changed here in the trajectory. And it's just a matter of some weather and some port issues, but overall lots of confidence. And will love to you know have the opportunity to continue take the numbers higher as the year unfolds? Is that fair?

Exactly, exactly well said.

Okay and with that, Peggy or somebody?

Yeah, no we’re certainly looking at it. I mean you know we had, there was a couple of dates that were tied to those notes. Those dates have passed to where from an economic standpoint, it certainly looks like it would make more sense now than before. And so we'll take a look at it and I can assure you, we are going to do what we need to do to make sure the balance sheet is where it needs to be and we’re positioned to capture the growth that comes our way.

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

Thanks everybody for joining us. And we look forward to seeing you during the first quarter and giving you some other news on some of our new business opportunities. So stay tuned. Thanks again.

Ladies and gentlemen, this does conclude today's conference. Thank you all for joining. You may now disconnect.