Good afternoon. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to Fourth Quarter 2016 Caleres Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I’d now like to turn the call over to Ms. Peggy Reilly Tharp. Ms. Reilly Tharp the floor is yours.

Thank you, Sarah. Good afternoon. I’m Peggy Reilly Tharp, Vice President of Investor Relations for Caleres, and I'd like to thank you for joining our fourth quarter 2016 earnings call webcast. A press release with detailed financial tables and slides are both available at caleres.com. Please be aware today’s discussion contains forward-looking statements which are subject to a number of risks and uncertainties. Actual results may differ materially due to various risk factors, including, but not limited to, the factors disclosed in the Company’s Form 10-K and other filings with the US Securities and Exchange Commission. Please refer to today’s press release and our SEC filings for more information on risk factors and other factors which could impact forward-looking statements. Copies of these reports are available online. The Company undertakes no obligation to update any information discussed in this call at any time. And with that I’d like to turn the call to Diane Sullivan, CEO, President and Chairman.

Good afternoon and thank you very much for joining today. As always, Ken Hannah, our Chief Financial Officer and Rick Ausick, our President of Famous Footwear are here with us today and are ready to answer any questions. As you saw in our release, we reported fourth quarter adjusted diluted earnings per share of $0.33, an increase of 26.9% over last year. However, there were clearly a lot of moving parts. In addition to the acquisition of Allen Edmonds, we took a deeper look into our brand portfolio business and the opportunities available to us. As a result, we made some additional changes to better position our company going forward and Ken is going to address all of those items in detail during his financial review. But before that I think it's important to talk through 2016 from an overall strategic point of view, so you can have a complete and thorough perspective before we get into all the puts and takes of our performance and much of the strategic initiatives that we had going on in 2016 are going to continue into 2017. I'd like to begin by taking a few moments to cover four key areas, where we have focused our time, energy and investments, starting with the continued diversification of our portfolio of brands. For a while now, I've been talking to you about the benefits of our diversified portfolio strategy, because for many years investors would ask us why we operated both retail and wholesale segments. As we wrap up 2016, I think the answer is becoming clearer. Not only is each side of our business contributing equally to our adjusted operating earnings, we're also stronger overall and better able to navigate the new retail landscape together. Thanks to our portfolio strategy which is fundamentally about…

Thank you Diane, and good afternoon everyone. As Diane mentioned, our fourth quarter results had a number of moving parts related to the acquisition of Allen Edmonds and some other actions. I'd like to start by taking a moment to walk you through each of these non-recurring items. First, we recorded $0.29 associated with the acquisition and integration of Allen Edmonds and for the reorganization of our men's brands, including the impairment of our investment in Jack Erwin. Second, we recorded $0.08 for the restructuring of our brand portfolio as we took proactive steps to realign and reallocate our resources against our top strategic initiatives. Third, we recorded $0.12 for an impairment related to the shoes.com announcement late in the fourth quarter of 2016 that they would be ceasing operations. This amount is for the book value of our convertible note related to our 2014 sale of shoes.com and for a small amount of accounts receivable for recent product sales. As a result of these proactive strategic and non-recurring decisions, we reported a net loss per share of $0.16 in the fourth quarter. The adjusted earnings per share excluding these non-GAAP charges was $0.33, up 26.9% over the same period a year ago. For the full-year, adjusted diluted earnings per share of $2 came in at the lower end of our guidance range and was flat to last year's adjusted earnings per share. Consolidated sales for the fourth quarter of $639.5 million were up 5.1% with e-commerce representing 16% of total sales. For the full year, consolidated sales of $2.5794 billion were essentially flat versus 2015. At Famous Footwear, fourth quarter sales of $367.5 million were up 1.9% over 2015 as we operated nine more stores year-over-year, while same store sales were up 0.3%. Famous.com sales increased nearly 40% to…

[Operator Instructions] Your first question comes from Jeff Stein of Northcoast Research.

A question, first of all, on your SG&A expense at the Famous Footwear division. It looks like it was up very significantly in the fourth quarter. And maybe we could start by talking about what caused that.

This is Ken. So I think we were operating nine more doors in the fourth quarter of ’16 versus ’15 and then there was also - we had some media spend that we went ahead and spent in the fourth quarter that was that roughly about $3 million.

Okay. But, Ken, if we look at the - let me get to the - so your gross profit was - your adjusted gross profit was down, let's call it, $2.5 million. But your operating profit was down about $11 million. So I guess I'm trying to reconcile where most of it came from. So you got $3 million from additional media spend. How much was the nine additional doors?

Well, it would have been another 3 million.

So there's probably another $3 million or so? A couple million? All right, well, we can talk about that offline. Just a higher-level question, which is we're beginning to see a significant contraction in the number of retail doors out there, just via retail bankruptcies and big-box retailers downsizing. So the question is, as we look ahead and I'm referencing the brand portfolio group, how do you grow the topline organically on a go-forward basis?

Hi Jeff, it’s Diane, how are you?

Good.

We still think there's tremendous opportunity for the brand portfolio going forward and while the traditional retail doors are in some cases shrinking to your point, the choices that the consumer has in terms of where they go and how they buy with whether it's online into all different types of sites that we think that that's still an opportunity for us and right now, we have probably around 20% of all of our sales in the brand portfolio right now were through e-commerce sites, whether it's through drop-ship or directly through their sites. So we think there is still numerous opportunities for growth for us and then if you look at within the brand portfolio, there are brands that are really continuing to grow nicely and we think there's a lot of runway, whether it's the new Allen Edmonds that we added, Sam Edelman, whether it's Vince, we’re starting to make progress on Naturalizer and turn that around, so we think there are plenty of pockets of opportunity for again a growth within our company.

Well, with the growth in your online penetration, wouldn't that put some additional pressure on your gross margin? I notice you are guiding to higher gross margins for the year, so I'm wondering where the gross margin improvement comes from. And is part of that expected benefit offset by the higher shipping charges that you're likely to see from the improved penetration of --?

Yeah. I think what you're saying is absolutely right that we still have opportunities for margin expansion through all of our supply chain initiatives, all the work around speed that we're doing and how much quickly we can get into better selling goods, we think that's ultimately going to help us, both on the margin side and the top line. So again, I think, yeah, there's always bits of puts and takes here and there Jeff, but if you look at it all and we still think there is opportunity for margin growth and brand portfolio.

Your next question comes from Jay Sole with Morgan Stanley.

Great. Thank you. Diane, maybe if we could walk through the brand portfolio, it sounds like there's decisions made to maybe deemphasize some brands that was part of the $0.08 charge. And then at the same time, I don't know if you gave a number for the Healthy Living segment sales and the contemporary fashion segment sales. But if we could have those numbers, that would be great as well.

Sure. Actually Jay, in terms of taking a look at the restructuring and how we realign some resource, it wasn't really about any specific brand, it was really about how do we make sure we've got the resources in the right pockets to drive our strategic initiatives around speed and speed to market and the growth in digital and all the e-commerce businesses that we were seeing. So our first step in all of that was really about driving more consistency in our processes across our entire supply chain and in our brand portfolio. So we created something called an integrated planning team that is -- all their job is to basically look at consumer and demand and try to forecast better and work with the brand teams in terms of how we're going to take advantage of things that are selling well in the businesses. So there was a lot around this integrated and sales planning piece. So that was one. We also decided that there was opportunities to bring together more of our marketing and digital teams. We thought that that was going to be a better use of resources. We had still a fairly traditional split in some of that and it was time to pull out altogether and we've brought leadership over actually for Famous Footwear to add lead our branded digital efforts. So that was another piece of what we did and with some of that, some people left on all of these and others got moved around. And then, lastly as we were thinking about the opportunities for our international growth for the future, we saw really an opportunity while we've been doing all right with Naturalizers, we think that there is even more opportunity with Sam and with Allen Edmonds because of the fact they have their own retail stores that we really believe are going to be critical to growing and growing internationally. So there was a bit of realignment around that. So that's just a little bit of color around sort of our thoughts around the brands and the restructuring, so it wasn't about anyone in particular. And then as it relates to contemporary fashion versus healthy living for the fourth quarter, the good news is that actually they were both about flat in the fourth quarter. And with actually a nice improvement on our healthy living businesses, which we had sort of been downtrending a bit there in the first three quarters, so nice turnarounds there. And our contemporary fashion business was up a little bit, basically flat, in the fourth quarter that is. And then as you look at the full year, it was up in mid-single digits.

So is it accurate to say that in the guidance for fiscal 2017, there's no new planned reductions in the wholesale portfolio, like we saw last year?

No, no planned reductions. No, we would really think about our ’17 plan as, we really be thinking about our brand portfolio non-Allen Edmonds in the low to mid-single digits. That kind of growth.

Got it. And then maybe if I'll ask one more. Just thinking about that 8% EBIT margin long-term target that you put out there, in light of the environment that you're seeing out there in retail, has that changed your 8% EBIT margin target? And what's the timing right as it stands today that you feel like the company can get there?

Yeah. It’s a good question, Jay and if I told you that we knew the exact answer to that, that wouldn't be fair telling you straight. I think we are wondering exactly how long that's going to take and whether that's the best measure of success for us that we think there's a tremendous opportunity here to continue to show meaningful improvement in our earnings growth and the market share. We think as we talked about a lot on this call about our balance sheet and cash from operations, we think that's going to be a very, very important part of what we want to focus on going forward, because we still believe that acquisition is going to be a very, very important part of our overall strategy for the future and to growth. So we want to make sure that our cash generation is outstanding and that we frankly take a deep breath in ’17 and basically really optimize and take advantage of the investments that we've made up to this point in time and really do that. So that would be I guess the best way that I could answer the question at the moment.

Your next question comes from Scott Krasik with Buckingham Research.

Hi, everyone. Thanks. A bunch of questions. So, first, what were Allen Edmonds sales in the fourth quarter?

Yeah. We're not going to be breaking out the individual brand information.

Okay. Well, so then maybe can you talk about what you're expecting for accretion or dilution from the Allen Edmonds brand in 2017?

Yeah. We're expecting modest accretion. So there was no meaningful impact in the fourth quarter and then as we ramp throughout the year and we start to get the benefit of the synergies that have been identified, we do have modest accretion built into our numbers for 2017.

Scott, maybe to help it, the brand is not as big as Naturalizer and Sam, but bigger than Franco Sarto and Scholl's. That gives you just a frame of reference and their sales skew very much to the back half of the year.

So, the only problem here that's going to be really difficult to understand how the brand is actually growing, if we don't know what Allen -- the rest of the brands are growing if we don't know what Allen Edmonds is doing. But really, that gives investors pause, maybe.

Scott, we’ve never actually divulged any individual brand sales.

Okay. You gave $12 million in operating expenses for the extra week. Can you say what the sales level is for that week?

It varies.

It ends up not being much of a meaningful contribution for earnings. So if you take our normal rate.

So, sort of a normal week from sales, but low-margin?

It’s like $25 million roughly top line.

Okay. That's helpful, thank you. And then just a question on the fourth quarter. It seems like you came up a little bit short on maybe the contemporary brands. And I'm wondering if that came about because of cancellations or missing fall sales, or sales you expected to materialize in January didn't happen?

No. I don't think it was really any of those things. If anything Scott, most of our brands came in very much about, very close to what we had expected. I think the one part might have been more in the value channel and special make ups. That got a little tight as the quarter went on that would be really the only area. So it was -- again it was very profitable sales.

Okay. And then just two more. What is your expectation for interest expense, just given the higher debt and timing of debt paydown this year?

I think, it’s, hold on, let me take it for you. We’ll be paying the remaining 110 down, so it’s got up a whole lot year over year. It’s roughly $17 million.

Okay, perfect. And then just lastly, you guided Famous Footwear comps up low-single-digits for the year. There's obviously well-documented challenges at retail, given the delays in tax refunds and obviously the weather, et cetera. So just wondering, in terms of getting started, I don't know if you want to tell us what the comps are quarter-to-date or what you expect them to be, making it up for the first quarter. But it seems like you may be below that for the first quarter, so just wondering where you expect to make up the difference. Thanks.

Scott, it’s Rick. We're not going to talk about current today because we've had about three things happening that I don't know exactly how to factor with, me at about 200 stores closed down the last two days up in the Northeast. We had the tax shift, all those kind of things and Easter shifted. So it's all -- it's a very big moving target. Our expectation is that we'll be of low single digit increase for the first quarter. We were basically on plan on that number until the weather pattern hit at the end of last week and into this weekend and yesterday, the day before. So we feel like -- we feel like that tells us we're right to believe that. I think we have to wait and get through the cold of this week and then the shift of Easter and it will no more the second week of April, but we feel pretty good that we're close to that.

Your next question comes from Steve Marotta with CL King & Associates.

Good morning, everyone. Ken, just to rephrase what you just said, the 53rd week, then, is not meaningful to EPS in the current fiscal year. Correct?

Correct.

Okay. Could you talk a little bit about puts and takes on a quarterly basis for the year? I know you don't guide to the quarter, but if there is any shifts in marketing spend or discretionary spend, or anomalies that don't include weather patterns that have already happened, is there anything to look out for, for the current year on a quarter to quarter basis.

Yeah. I mean I think that the big thing is the brand portfolio contribution to earnings has continued to increase over the last couple of years and so that naturally shifts some profitability to the back half with the acquisition of Allen Edmonds, they do a big chunk of their earnings in the third and fourth quarters and so that contribution is going to shift. I don't think our third quarter contribution is not changing all that much, it's really coming out of the first quarter and kind of into the fourth quarter is kind of the biggest shift. I mean I think that's why if you look at this year, without anything, really abnormal and that's why we wanted to make sure we communicated our adjusted fourth quarter earnings, when we talk about that being up over 20%. That's getting to a level that we expect that fourth quarter to be an even bigger contribution in 2017, when you add in the amount of business that Allen Edmonds does around the holiday season. So from the back to school all the way through to Black Friday and through the Christmas holiday season, that's also when they run their big anniversary sale or their America sale, Rediscover America sale. So there's a big waiting there from an earnings standpoint.

Okay. And the $17 million in interest, considering you're going to pay -- when do you expect to materially pay it down? And so I'm assuming that's going to be first half weighted as well?

Yeah. Well remember, like 12.5 or 13 or so of that is associated with the $200 million of notes. So the variable rate on the revolver itself is pretty low, sub-3%. So we will pay that down over the course of the year and you should expect the 110 balance that we had at the end of the year to continue to come down throughout the year as we generate cash from operations.

Okay. Lastly, Diane, when you look out to the coming year, and even two years, where do you see the most amount of white space? What gets you most excited? If we look back on fiscal 2017, and it turns out that your initial guidance proved conservative, where do you think that is likely to come from?

That's a great question, Steve. I would say that I don't know that it's from any particular sort of brand or product category. I mean the ones that have been hot continue to be. So sport is still strong and right now, we see a lot of consumer interest in backless footwear and seasonal-less footwear, but frankly I think our growth is going to come from the strategic initiatives that we've been putting in place over the last couple of years. So the works that we have done around our speed to market initiative, as we get that going and that really gets ramped up, our ability to respond to those changing consumer preferences, I really think is going to put us in a very, very competitive position and the consumer is going to come back many times to our brands because of our ability to be able to do that. So I think it's really around the speed piece of it. And then I think our ability to fulfill through all different vehicles whether it's our drop-ship programs at the distribution facility that we've just made that significant investment in and the work that Rick and the teams have been doing on making sure that customer can shop any way that she wants for Famous Footwear. So for me, it’s more of going to be enabled through the strategic initiatives that we've put in place. That's where I think the growth is going to come from.

That's very helpful. Actually, Ken, I have one more. Just to reiterate, when you talked about the brand portfolio and what it did in sales in the fourth quarter, did you say that e-commerce was up 90%, and that it comprised 27% of sales? I'm assuming that's also the wholesale dot-com, not your direct dot-com.

Yes. That’s correct.

Both of those are accurate?

Yeah. It was 90 and it’s all the dot-com pure play, drop-ship and then our own dot-com sites.

And there are no further questions on the telephone at this time.

Well, thank you, everyone for joining us this afternoon and we look forward to our follow-up calls with everyone and seeing you along the way this quarter. Thanks so much.

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