Peggy Reilly Tharp - VP, IR Diane Sullivan - Chairman, President & CEO Ken Hannah - SVP & CFO Rick Ausick - President, Famous Footwear.

Scott Krasik - Buckingham Research Laurent Vasilescu - Macquarie Steve Marotta - CL King & Associates Jill Nelson - Johnson Rice Jeff Stein - Northcoast Research Jay Sole - Morgan Stanley Sam Poser - Susquehanna William Reuter - Bank of America/Merrill Lynch.

Good afternoon. My name is Jennifer and I'll be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

And I would like to turn the conference over to Peggy Reilly Tharp..

Thank you, Jennifer. Good afternoon. I’m Peggy Reilly Tharp, Vice President of Investor Relations for Caleres. And I'd like to thank you for joining us on our second 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 the various risk factors, including, but not limited to, the factors disclosed in the Company’s Form 10-K and other filings with the U.S. Securities and Exchange Commission.

Please refer to today’s press release and our SEC filings for more information on risk factors and other factors 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.

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. And I'd now turn the call over to you Diane..

Good afternoon everyone and thanks so much for joining us for a review of our second quarter. We successfully managed our business, despite continuing industry-wide shift and delivered.

Our results show the benefit of good execution during a challenging environment, as we improved gross margin, maintained SG&A spend, and continued to invest for long-term growth.

We kept inventories in line with our expectations, as we prepared for the key back-to-school selling season and also maintained our focus on inventory management and our brand portfolio. We reported dollar improvement in cash from operations and we increased our return to our shareholders through our dividend and share repurchase program.

And importantly as in the first quarter, we continued to strategically invest on both an operational and the capital basis for the long-term success and growth of our Company. So while the overall industry is still soft, we are actively managing the areas within our control and maintaining very discipline focus.

Thanks to our investments and the team’s agility, we have been able to read and react to the acyclical seasonal shopping partners we have been seeing and to more rapidly respond to the consumers’ desire that we are seeing for newness.

We continue to see consumers’ seeking distinctive products from trusted brands which for sure benefits, both our Brand Portfolio and our Famous Footwear segments. We are also seeing continued growth in our ecommerce sales for both segments with total ecommerce accounting for approximately 10% of our consolidated sales in the second quarter.

Now let's turn to Famous Footwear where same-store sales were down 1.1% during the very next period from May to July. With May comp sales down, while June was up and for July comp sales were down again. We continue to see a shift to buying closer need for the back-to-school selling season.

But we’ve certainly seen evidence of this transfer several years. It’s much more pronounced this year with consumers buying at need or even later in the season in some instances.

With roughly two thirds of our consumer doors already back in the class room, we are deep into the heart of back-to- school and yet we’re seeing some consumers are starting their shopping after school as far as even more than we’ve seen before.

So even with the changes in consumer shopping cadence our same-store sales for the back-to-school season are currently up about 1%. With each week showing improved performance as August comp sales up 2.5%.

As I just mentioned, we’re also seeing an increase in sales at famous.com up 65% to-date for back-to-school, with the majority of these orders being fulfilled from store inventory. In terms of product trends at Famous, we saw continued growth in lifestyle athletic and sport-influenced product in the second quarter.

We plan these sales up for back-to-school and they are taking share from overall athletic and reaching into the Fashion segment, and as you would imagine, these are the areas we have planed up for the back half and into 2017.

Now turning to our brand portfolio segment, where we saw a mixed performance between our healthy living and contemporary fashion brands with total sales down 3.8%. Despite tough environment the teams did a good job and managed inventory, while actively adjusting to the changing retail marketplace.

Thanks to their efforts, brand portfolio gross margin was up 85 basis points, with consecutive quarterly improvement and additionally operating margin improved and was up nearly 90 basis points in the quarter. For our healthy living brand, second quarter sales of $127.4 million were down 9.4%. As expected Dr.

Scholl’s sales were lower as we continued to exit some categories in the mass channel. While these exits are going continue to weigh on Scholl’s performance this year, the brand is optimistic about early opportunities in new higher margin categories.

Naturalizer also declined in the second quarter, operating fewer doors year-over-year and experiencing some difficult traffic trends. Despite the top-line challenges, operating margin improved in the quarter as the brand focused on inventory management and expense reduction.

Shifting to contemporary fashion, with second quarter sales of 105.1 million were up 3.8% with all key brands delivering nice improvement, including Sam Edelman and Franco Sarto.

Consumers are responding to newness and our contemporary fashion brands are providing all of the right designs, from block heels to flat to sportive women styles into what we’re seeing now is a lot of people with glaze and transitional product.

In addition our focus on supply chain enhancements is beginning to help us maximize our most successful styles. As our retail partners have continued to tighten their inventory, they have reduced their initial orders then maintained their focus on chasing product in seasons. Thanks to the work we have done over the past 12 months.

We’re gradually reducing cycle trends and improving our ability to deliver more product in seasons. And as you know, the entire retail landscape is changing quickly and consumers have continued to shift their buying patterns.

Despite these challenges, I’m really excited to be part of the industry at this time, because the issues that we’re facing today are really going to help us shape our future and the investments that we’ve made here at Caleres and the work we've done over the past few years will help us as we navigate this exciting new terrains.

So despite the current environment we're confident in our ability to deliver consistent, profitable and sustainable long-term growth through the continued execution of our strategy, investments such as our supply chain and our consumer fulfillment initiatives have made it easier for us for adapt to the constant changes in the industry and retail.

And as a result we're maintaining our fiscal earnings per share guidance and Ken is going to provide you with a complete guidance update prior to Q&A. And with that, I am going to turn things over to Ken..

Thank you, Diane, and good afternoon everyone. Today, we reported second quarter net sales of $622.9 million, down 2.3% reflecting a soft overall retail environment.

Our consolidated gross margin for the second quarter was 41.7% of sales, up 47 basis points year-over-year with improvements at both our Famous Footwear and Brand Portfolio segments, up 14 and 85 basis points respectively.

In the second quarter just as in the first, we continued to benefit from improved product mix and focused inventory management with a reduction in overall markdowns. Year-to-date gross margin improvement is nearly 80 basis points to 42% of sales. Total SG&A in the second quarter was 36.5% of revenue or $227.3 million.

Despite a lackluster retail environment and slower sales, we've continued to invest for long-term growth and maintained our overall SG&A spend year-over-year.

Depreciation and amortization was $13.4 million for the second quarter, up 4% on an increased store base and reflecting investment in the modernization and expansion of our distribution centers.

Net interest expense for the second quarter was $3.2 million, down more than 20% year-over-year as we benefitted from the refinancing of our senior note to the second quarter of 2015.

For the second quarter, our corporate tax rate was 32.3%, a significant increase over last year's rate of 26.5% which included a $1.2 million discrete tax benefit associated with the utilization of the existing tax loss carry forwards. The difference in rate year-over-year would equate to a $0.04 of earnings per share difference in the quarter.

As a remainder, in the third quarter of 2015 we also recognized a $0.03 tax benefit. Net earnings in the second quarter of this year including investment in the business and additional retail doors were $19.8 million or $0.46 per share.

For the second quarter of 2015 adjusted net earnings were $22.1 million or $0.50 per share excluding the debt extinguishment expenses we incurred. Capital expenditures were $13 million for the second quarter and $31.2 million for the first half reflecting investment in new retail doors and the expansion and modernization of our distribution centers.

Now, turning to the balance sheet, we ended the quarter with cash and equivalents of $165.7 million, up $47.6 million from the end of 2015 and had no borrowings against our revolving credit facility. As Diane Mentioned, we also returned cash to our shareholders to be above our share repurchase and dividend programs.

We’ve purchased an additional 450,000 shares of common stock in the second quarter on top of the 450,000 shares we repurchased in the first quarter. We also declared a dividend of $0.07 per share, our 374th consecutive quarterly dividend. Our consolidated inventory position at quarter end was $648.9 million, up approximately 1% year-over-year.

At Famous Footwear we ended the quarter with inventory up 3.4% per store on a dollar basis and up 0.6% per store on a pair basis. For our brand portfolio, inventory equivalent was down approximately 4% as we continue to focus on inventory management.

During the quarter, our brands once again encountered low initial orders and more mid-seasonal replenishment resulting in overall higher margins. Before we begin Q&A I’d like to share our current view of fiscal 2016 guidance.

We are maintaining earnings per share guidance of $2 to $2.10 as we expect to manage our inventory and our expenses to drive bottom-line earnings growth year-over-year. We now expect consolidated sales of between $2.57 billion to $2.6 billion with same-store sales at Famous Footwear now expected to be flat to up low single-digits.

We’re also raising our gross margin expectations to reflect the good margin expansion year-to-date and we now expect our way to increase 25 to 35 basis points over 2015. We are maintaining our other guidance metrics at this point in time including our tax rate of between 30% and 32%.

However, I would like to remind everyone that in 2015 our corporate tax rate was 24.8%, reflecting a number of discrete tax items. And with that, I’d like to turn the call back over to the operator for questions..

[Operator Instructions] Our first question comes from Scott Krasik with Buckingham Research..

So, just want to dig into what’s happening at Famous, a little bit soft growth to our expectations, but a descent rebound in August.

So, can you just talk a little about the health of your customer? Are they coming up to shop less? I think last year’s back-to-school got off to a slow start because of Labor Day so maybe it's just an easy comparison? So maybe just a little bit more detail there please, thanks..

Yes Scott, I think last year the other thing that happened was there was I think some shift tax free from July to August so that made July a little softer too. I don’t know that the health of the customer is much different. I think it’s their shopping pattern that makes us -- more difficult for us to predict and to see.

Again, a lot of what the second quarter softness was, was the last three weeks of July being less than last year and less than we had expected. And again as Diane said we’re up 1% for that back-to-school period so the three weeks of July and the four weeks of August would now be up one. So they came, they just came at a different point in time.

Strange things like tax free weekends were okay, some places they weren’t very good and the after tax rate of business was better in those markets. So it kind of makes no sense to people weren’t driven to shop on tax weekends but eventually came back five to 10 days later and purchased again.

So I think it's that kind of thing we are seeing, I don’t know that it’s necessary to help or the ability that consumers want to buy our customers want to buy, it’s about to hold the tiny things that you, the thing we can quite understand yet..

And relative to either the percentage of your markets that are back-to-school or the shifts from people waiting till they get back-to-school to purchase, I mean any thoughts around that?.

Yes, we have about 60% of the schools are back into our store base. So we still have 35% or so that are going back and those all that now happens after Labor Day.

So I think the question for us is how we start this weekend going to this weekend and obviously the week are 10 days past that that are week or two weeks past that we have seen, where we had more activity in other parts of the country will we get that in the Northeast, will we get that in the Chicago, Indianapolis, Seattle markets all those big markets they go back after Labor Day..

Though Scott I’ll say those 13 weeks are just much liter than they have ever been. So late July weeks, it's almost like a two to three week shift it feels like in terms of how the consumer traffic is speaking for back-to-school for us.

So we have really got to see all the way into the middle of September and through September truly to really get a better sense of what that’s all going to look like..

And then just sorry two more Rick, thanks Diane.

Number one, how your top brands you always type by your top five brands as a percentage of total how are they performing for back-to-school and your sort of near the medium-term outlook for them? And then has anything changed in terms of what you are doing from a promotional standpoint, I know mix and Vigo take your margins down, are you doing anything to be able to offset that this year in 3Q? Thanks..

Our margins, our are promotional activity is relatively the same, the margin will end up being, it will be depend on how the customer purchases up to a degree at this point in time. So I don’t see, I don’t think we have had a major shift in our promotional activity or promotional need.

As far as our top brands buy and large top brands are all performing at or better than our current trend. So if we are up one for back-to-school, our top brands are performing at that level or better, and there are several of them significantly better..

And your next question is from Laurent Vasilescu with Macquarie..

Can you remind us how the Famous Footwear comp did last year during the quarter by month, if I remember correctly I think comps get a little bit easier into October?.

We are looking, hang on Laurent. August was 39, September was 57, and October was 35..

Okay, very helpful.

And then on Scott's question with regards to probably I think last quarter it was note that March sales had receipts for back-to-school were up 25% to 30%, can you tell us if that category is meeting your expectations versus what you already have initially ordered?.

It's close, it's getting momentum just like everything else early in the period it did not. But as we have gotten into the last I’ll call it three to four weeks, it's probably been at that level if not higher. So we are gaining on it. I would think we are probably in total a little bit lite to that projection, but we still have three weeks to go.

But feel like we’d be able to be close to that number when it's all said and done..

Okay great.

And then turning to gross margin, can you provide any color on how should we think about, your overall company gross margin between 3Q and 4Q?.

Well I think as we go across and look, Famous obviously we were down a little bit in the first quarter, we were up I think 14 basis point in the second quarter and so, we’re not expecting a lot of continued expansion there.

I think on the branded side, the teams have done a nice job, managing inventory and I think as we have shifted to some lower initials, there has been a lot less give back.

And so on a net margin basis, we’ve made tremendous amount of progress we’re just going into the fall season, so we hope to continue to get some expansion in the brand portfolio as well..

Okay very helpful. And then I wondered due to the long-term guidance you provided last year during the Investor Day has anything since we are almost a year out now, lapping that event, has anything changed in terms of the long-term vision, in terms of the P&L or just the branded side versus Sammy or footwear side.

And then anything, are you seeing anything in terms of potential acquisitions out there?.

So I don’t think anything has changed, since what we had communicated back in October about the long-term outlook and the priorities of the business. I think that is was guiding our decisions on the day to day basis and, we recognize that what’s going on in the overall environment right now, is a moment in time.

We continue to invest in the initiatives that we had laid-out and have no reason not to continue to do so at this point..

Okay very helpful, and then anything on the acquisitions at this point in time?.

No..

Okay.

And then may be lastly, the terms of the supply chain initiatives called out, can you potentially quantify to the positive impact on the gross margin or anything else on the P&L for that matter?.

Yes I think, we’re early into that, most of what we’re seeing is in the area of speed to market and cycle time.

So I think our timing was good and the desire of a lot of our customers to pull back on some initial orders and be able to chase goods, I think the work that the team has done in the supply chain and particularly around cycle time has benefited our ability to respond to our customer.

And I think most of the dollar savings that we expect to get from those initiatives will really start to show up into a more meaningful way in 2017..

I want to say Hannah it’s really going to be in ’17 it’s fairly small, most of the impact to 2016, and it really is back to that, the comment around initial orders being less on the wholesale side it’s really going to allow us to drive in season replenishment and respond to the chase that every retailer want us to do today.

So it’s really I think 2017 and beyond, when you’re really going to start to see that back to our top-line is really what I’m hoping..

And our next question comes from the Steve Marotta with CL King & Associates..

August was up 2.5% and I believe you mentioned that each week in the back-to-school season has been better than the previous?.

Correct..

So we can assume that each week in August has also gotten consecutively better?.

Yes..

Okay, so the last week, I don’t want to beat a dead horse last week in August must be running nicely above 2.5% in order to have gotten to that average term for the month?.

Yes, yes that's true and I think the reason we want to make sure we look at the longer window on all this see that the volatility that we had seen throughout even the second quarter, making sure that we don't try to read too much into every single month.

But what we're seeing is that customer buyings really it feels a couple of weeks sort of away from where they historically have been. So we expect with another 35% of people to go back-to-school yet that we should continue to see some descent trends for the next couple of weeks..

Yes it's just a heck of a head start to the quarter it's really good.

Can you talk a little bit about and maybe this is directly related to your previous answer, can you talk a little bit about your comfort with the famous footwear inventory being up 3.4% in light of down 1.1% comp?.

Yes, I think Rick I am sure would echo this we're very comfortable with our inventory levels and if you really look at it on the pair it's up slightly, and we believe that we have got the inventory on the right categories of merchandise.

There isn't really anything that looks out of line to us and the teams do a fantastic job of managing that always throughout the given season, so Rick I don't see any issue..

Yes, frankly Steve the lack of sales in the last part of July impacted that we had goods in store to sell in the end of July for back-to-school that didn’t materialize, so if I factor out a 0.5% or so of inventory that should have been sold. Now we're down to 3 or less 3% on a dollar basis and we're probably actually at or below on the pair side.

So we're fine with that. We think that was basically where we wanted to be for this period of time..

Last question, there is a competitor that's adding, loudly adding children’s footwear in the back half of this year, do you plan on reacting to that, have you felt any initial impact from that, can you talk a little bit about the competitive environment within that particular product category?.

Steve, our kids business in the quarter end and half has been performing really nicely, so we haven't seen any impact yet. I know it's pretty early in terms of their adds to the stores. We feel that we're going to be able to compete there just like we compete against every other category that we have in the past.

Whether it is people that are adding more athletic and more sport you name it and we're confident that we'll manage through that and find the right answer to it..

Your next question comes from Jill Nelson with Johnson Rice..

If you could just talk about the department store chain, have you seen any differences heading into the fall season and then any insight into growing back from the 100 Macy’s stores close that they recently announced?.

Let me answer Jill it is Diane let me answer the last question first. Those 100 Macy’s store is really not going to be a significant impact to us it is I don’t know somewhere around 13% to 15% of their total business they are in the stores and typically they'd be the most unprofitable store.

So therefore tiny little bit of sales impact but overall profitability once we conclude it's going to be a win anyway. So we don't see anything there. With respect to the overall business and department stores I'd say that generally as inventory levels came back in line a little bit and that's really what the challenge has been.

We're sighting to see if some of the new things that are hitting the floors respond pretty nicely. So the customer seems to be responding to newness they’re loving anything that relates to any of the sport styles that you’ve heard a lot about and block heels, the sandals has been really important.

And a lot more in terms of booties a little bit early on booties but some of the sort of transitional businesses that have open to booties on block heels have been pretty good too.

So I would say early weeks are a little bit better but surely to call it and we’re just seeing little bit soft around our sell-throughs on some of those new goods, anything that’s been around for a while that is if she’s seen before she’d not responding to that are absolutely new and are a great value she seems to like.

So I think this will take the full year for it to all normalize but I think as inventory levels get back in line and people feel a lot better. We will and we should be back to a slightly better cadence..

Your next question comes from Jeff Stein with Northcoast Research..

First a question for Rick, wondering if you can give us some detail on how the comp broke down at Famous Footwear in terms of AUR units per transactions and conversions?.

I think transactions were down slightly in the quarter, about mid single-digits call it or low single-digits I should say low single-digits on the transactions. AURs and payers so the basket itself was up low single-digits that’s where we get to the last percentile so [Multiple Speakers] sorry..

And conversion?.

Conversion is up, and conversion was up in total..

Okay. I think Diane that kind of answered this question, but maybe I’ll just ask it in another way. When back-to-school is over, the business changes, and I am wondering how the product that drives the back draft of the quarter is kind of responding to early sell-throughs of that type of product.

And then secondarily any concerns around the election cycle, and how that is going to affect your media plans for the fall?.

Well I know Diane talked a little bit about some of the product things that are working earlier. I think booties are okay they’re not fantastic, so I think that’s something that we’re hopeful that we will get better as we get close to -- as we get further into the season.

We don’t have a lot of tall shaft boots on our floors, because the handful that we have are doing okay. More of those arrive in our inventories over the next two to three weeks, so that will be something we would look to drive the back half.

So, I think as far as new receipts that would drive that pretty much would be it on new things and again a little early to tell what that’s going to actually do for our business.

As far as the election I think all that stuff has an impact on the customer particularly when we’re talking about it being as intense and negatively toned as it has been and it is probably only going to get worse I would imagine. I think basically people are concerned about what’s going on..

And in terms of our media spend it was really all digital this year. So, we had chosen just to kind of avoid the higher cost around the Olympics and election cost and all that. And certainly there is an opportunity to really push ourselves more digitally..

Okay.

Diane maybe you could just bring us up-to-date on DVF and George Brown in terms of where those two brands stand?.

Yes we are really early, just shifting shoes now, Web site for George Brown. Sorry just shipping shoes and selling them. But small kind of can't get a good read on it yet. The Web site for George Brown is up mid September, so that will be great. But I would think of sort of October Jeff, I’ll have a better sense of things.

And on DVF, sell throughs have been very good on the shoes that we have out there, again not material to our total yet, but nothing that would indicate today that it shouldn’t be strong going forward..

Your next question comes from Jay Sole with Morgan Stanley..

Great thank you. So my question is on Naturalizer, in the first week you said the Brand Portfolio comp was down 8%, I assume I think you said is Naturalizer. Can you just maybe talk about the Canadian stores versus U.S.

stores any impact that FX had? And then maybe how that wholesale business is doing for Naturalizer and some of the new products like Bzees things like that? Thank you..

Yes. Sure, hi Jay, it's Diane. I’ll be happy to, I think we have been really working on, I would say stabilizing and trying to grow Naturalizer now really for in earnest for the last six to 12 months, kind of steady progress, not ever as fast as you would really like it to be.

We have been kind of focusing on things that are really under our -- that we can control. So trying to improve operating productivity has been kind of the most immediate thing that we wanted to focus on. I think what, I like about the performance on Naturalizer is our gross margin on wholesale is up 70 basis points and the retail about 40.

I think that indicates it was really helpful in terms of how the teams managed the inventory at Naturalizer because that really could have been a significant problem for us and they were significantly down and our inventory is really clean right now. Operating margin on an all in basis was up 80 basis points and operating earnings were up about 10%.

Bzees demand actually we cannot keep pace with at this particular time and we are really trying to get more capacity in the fourth quarter of this year. So that has been sort of, it has been exceeding our expectations.

And then in terms of kind of things other things that have been going on some indicators about what the future would hold, I would say we have done a lot of work around new product that we presented in Naturalizer premium line in June and August and that has been received extraordinarily well we are pulling forward, in fact we are pulling a lot of those goods into sort of I would say the October, November time period into our stores so we can get a much better read on that.

We have been putting in more sport and athletic in the store as well and that’s been certainly helping with the performance there. So not making as much progress on the top-line right now that would have light given that environment that we are in.

But I think that we are really putting ourselves in a position to win and really making sure we have got the -- it is really improving our operating productivity.

So progress little more work to do I would say fourth quarter is kind of be the time where I’ll be able to talk a little bit more about top-line performance and what we expect for '17 for Naturalizer..

It is interesting because you mentioned that Bzees is doing very well. With the wholesale business doing well, is there an opportunity perhaps to work on the operating, the expense structure with the lease portfolio, are you [Multiple Speakers]….

Yes..

…perhaps for the next couple of years, any thoughts around may be some to make the migrate some of those sales from your stores to the wholesale partners?.

Yes we do, we look at that all the time and in fact we’re rationalizing that portfolio where we need to we did have, I think it was a maybe a half dozen fewer stores this year 4 fewer doors this year and we had some currency impact as well.

So we are -- everything on that Jay really is always on the table for us to make sure that we’re looking at on the all in profitability how do you make sure that we continue to make progress on this business.

And you know one of the interesting points about Naturalizer is, about 20% of the total business is now it’s done on ecommerce, which again that is a big part of what we’re trying to turn the drive into shift. We think that is the way to go over the long-term..

Interesting okay, and then maybe one last one for me, you talked about a lot of the -- for the wholesale portfolio, how the retailers want to do more chasing in the season, is there any way you kind of just explain or I don’t know somehow quantify for us like what traditionally what percentage of the business has been kind of pre order and what has the chasing been where do you see it migrating where it is now and where is it going to be migrate to?.

Great question and I will sort to speak to the total although it varies a lot honestly by brand and depending on brand strength, market position and actually the value proposition of the brand too in the marketplace.

But generally speaking we’re seeing initial orders down anywhere from 5% to 15%, it could be on some brands, which means those upfront orders that you would normally get, you’re not getting.

So they are buying much less then what you have to do is be a leader work with the retailer and decide what kind of inventory you want a backup for the some of the big selling items you do that with a few retailers that you have got the right plans with but typically that.

That’s not going to account for any more than about a 10% of the business but we try to be every thoughtful on that, because you know how you can get killed on the inventory and it can, there is just no way today to clear goods as we are seeing now Caleres, even just trying to get Caleres to sell in store today, is much more challenging than it has been.

We’re finding it even in all of our brands the regular price selling is actually stronger than any of the Caleres selling. So I don’t know if that answers your question, so it’s just and then in season what we will do, we can rapid refurnish on existing item.

Somewhere between 40 and 50 or 60 days depending on kind of what category it is, we’re looking at design modification now, so for example, not exactly the same shows but may be a slight design tweak. We’re looking at being able to do that within 50 to 60 days time period.

And then also still working on the overall supply chain time period and trying to shrink that by another 30 days too, so when we turn the quarter next year, our goal would be to certainly have at least 10% of our business any given season, doves through some form of this replenishment reorder business in order to continue to grow.

But that all starts with making sure you have got the right products to begin with, right? It’s not going to change things that aren’t selling really well. So it really goes hand in hand, incredible product that’s really relevant and new impression to customer, and then its ability to replenish quickly and shorten the cycle time in the season..

And you next question comes from Scott Krasik with Buckingham Research..

Just a couple of follow-ups, first, Ken, it seems like you guys have been able to tweak the SG&A a bit given maybe some of the softer sales and the outlook in the back half of the year, just wondering how much of that is sustainable and should we expect to see leverage on that, next year you're going to have to reinvest to grow sales next?.

No, I mean I think we're trying to be rational real-time I mean in the SG&A I mean we're continuing to investment in new brands and resources to do that, so I think we're trying to do things that are sustainable.

Certainly as we get into the fourth quarter and start to give guidance for ’17 we'll be much more specific around that, but we are trying not do anything that is going to have to unwind and come back later..

Okay..

So I think most part we're continuing to invest in the initiatives that we laid out in October and just trying to get more efficient in everything we do..

And Diane, I think you are up to about 10 stores in Sam Edelman, you opened a new one down [Multiple Speakers] the World Trade Center [Multiple Speakers] just picture I don’t really get that many, so just how are you thinking about the stores are they accomplishing you from a brand perspective do you have a model that works, how you're thinking about that?.

Well we think that it is absolutely essential to have a retail presence for Sam Edelman, do we have a model that works fit to our ambitions absolutely not and I think that's what we wanted to get was 10 to 12 to 13 stores.

I will that we could really begin to understand how to drive that business and really make that an economic contributor to the overall Sam Edelman brand.

So still work in progress Scott, it feels very comfortable with the progress that we've made today, and we can see week to week again nice improvement in those stores that have just been opened really in the last six months. So kind of early to tell but right now tracking it very close to where we had hoped they would be..

Are you selling more of hand bag stores did that translate to online, are you able to create some of but a lot of them?.

Yes, as you know on it's still I think it's probably still only about 12%, 10% to 12% of the total mix it varies by store, but eventually we think that it is going to grow and obviously when we built these stores too we had planned to have things other than just shoes and hand bags and jewelry in it we had planned to have some outwear as well as some apparel in there and we'll have more news on that to come in the future.

But in the meantime I think Sam and the team is doing a good job in terms of really trying to learn how to have these stores not only in from what they do on the brand and the line going forward and to have products as you would expect them to do, but really has begun to learn a little more about the customer too.

So early but yes we like it, but we want to take a pause I think that's what I said last quarter. And just kind of digest these stores and make sure we do see your point really have a model that works..

Your next question is from Sam Poser with Susquehanna..

I just want to clarify how we should think about the SG&A in the back half of the year just following up on what Scott asked? I mean, because based on the guidance it is down fairly significantly.

So what kind of, how are you planning on trimming the spending I guess to what degree?.

Well if you remember last year we had pushed some SG&A out of the second into the third and so I think we’re back to a little bit more normalized rate there. And then I think in Q4 I think as we’re, I think we’re seeing the biggest gains..

So okay. And then the conversation keeps talking about the environment and the environment out there is what it is. One of the other conversations that’s going on is that people are looking for experience for brands and for so on.

So I mean given that an equal opportunity annoyance of the environment, what are you doing to really work on and improving the customers’ experience in the stores to get them to come because yes product is king but there is a lot of products into the point of the target to move clearance that means that the consumer is so well informed right now.

You need to do something to entice them which maybe beyond product it may be further experience and so on.

So do you have things going on in that regard with Famous I guess specifically and the other brands as well?.

Well Sam it's Rick. There is obvious things we have been testing we haven’t found anything yet but we think would be something we would roll to all thousand stores. And I think it's -- we are trying to understand what that is.

I mean, we’re a value family channel footwear which has been part of it our businesses grow on convenience and speed of service to the customer when you are in the store.

So when you talk about experience, we try to make that experience as good as we can make it, bringing -- we have iPads in stores now for our associates in about 500 stores, so that we can have more access to show the customer more opportunities to purchase other colors and styles and variety that we have. And so we’re working off things like that.

But I mean again as far as recreating the inside of the store so that it has a better experience we’re waiting….

That’s not what I am looking for but yes I mean you have good conversion rate, your conversion rates are good Rick.

So these people are coming in and they’re finding it, but you’re not getting enough people coming in so I guess maybe it's what’s the experience that you could offer the consumer to entice them to come in beyond finding a great value on a pair of shoes because that may what got you to the party it may not be what gets you from here on [Multiple Speakers]..

Our stores are relatively small so if you’re asking other things, we should be doing inside the store. We have to give up product availability in order to do that. So I think not that we haven’t thought of that but I am just staying there are some trade-offs and the fact that our stores don’t have a lot of extra space in them.

So, if we decided to and I am not suggesting we would do this. One of the coffee bar in our store has an opportunity to get an experience, well we have to take something out because there is not really extra space to do that.

So I think we’ve looked at some of these things and we haven’t been able to come up with what that is, it doesn’t mean it's not out there, it just means that we’ve been able to come up with it..

And in some way standing our you know of a million dollar question, but everybody is searching for and are you going to drive traffic to brick and mortar and drive traffic in total to all ways that the customer is shopping and I think today it's still a really good one, good question.

And what we’re really trying to do is make sure that we have the right kind of products and assortment in the stores for the customer that we’re really upping our game and making the investments around how she is shopping whether it's mobile and online and making sure that’s easy for her to do.

We run programs with our associates in store, about how to connect with the customer and do that sort of thing. So I think it is your point is a good one, it's an evolving marketplace and we are going to have to constantly challenge ourselves.

You slither to the other side to Sam Edelman and it's a great example I think of a place that actually we have tremendous amount of opportunity to not only present Famous as the brand and what he is all about in a full assortment.

But I would tell you that there are a number of things in the next six to 12 months that you will see us do in some of these stores that I think will be quite a bit different than what you are seeing there today. And it's not coffee buffets or anything like that.

But in terms of new ways that we think we can actually engage the same growth to this brand so that she wants to shop even more. So it's good question, not an easy one to answer..

Well can I have one last follow-up on that, I mean Rick, could it just be that your -- that the she that you are going after is a much narrow -- you maybe tapping too wide in that and you just need to target the net more specifically to go after her which it might have been 20 kinds of women, five years ago and now it's five kinds of women that are shopping there.

And….

That’s a lot of the work that Rick has been doing around that high value customer..

Yes, I think that’s -- I think you are exactly right we believe that there is a customer that has higher value to us than other customers. So when you start making those decisions, you are going after a smaller pool of people that will shop with you more often, spend more when they shop and be a longer life time value.

All those things was things where we found in these customers we have in our current data base. And why we are still interested and so invested in making sure we get more of them to kind to shop with us.

So if they like the experience they -- I am sure they will like the different experience if we can make it better, so I don’t think it's something we have to -- we are not going to stay the same and things are going to likely, we are going to kind of keep evolving with them.

But you are actually right, it's more about finding those customers that have a stronger desire to buy footwear and then they have a stronger desire to buy footwear from you, which is Famous and therefore make sure you are talking them directly and getting as many of them came to shop.

That’s a narrow work field that we typically have talked to over the last 50 years of our existence..

I think I have choked the horse. So thank you very much..

Your next question is from William Reuter with Bank of America/Merrill Lynch..

My first question, when you guys talk about the choppy performance at Famous Footwear by month, I am wondering if you guys are seeing similar or consistent performance across the store base or if you are seeing greater diversions in this environment between the good stores and the bad stores?.

I don’t think so. I mean I think there is pockets of like everything, there is always pockets of the country that seem to perform better or worst depending on the moment but nothing that would make us think that there is some divergence of business by type of store or by area.

So I think it's more driven by the time of need and the need changes throughout the season based on all kind of external events.

So I think the days have been able to measure a weekly comp and assume that is relevant year-over-year when you are no longer setting for the entire spring in February, people are buying for spring throughout February, March and April. I think we have to look at it beyond just a week to week comp basis.

Because we don’t see divergence in stores I think, when the weather is good and people what to buy sandals, we see really good performance across every demographic bids having the nicer weather.

So I think it does tie back to the time of need, is really what’s driving the difference and when I look at our quarterly performance, I mean there is no trend, when you look at up amongst, down among, up amongst, down among that’s why we try to go back in really talk about the back-to-school season.

Because I think back-to-school season, we think is the, it’s going to be in amount where we thought. The back-to-school season for the back two weeks of July; obviously we’re lower than they were the year before. The last week compared to the same week a year ago, up quite a bit more than they were in that same period a year ago.

So I think it’s more, just the time of need than it is some divergence across stores..

I guess I was thinking about this in the context of, there is a lot of retailers they are changing the size of their store base, whether it’s through store closers or alternatively through grow and I’m trying to think about over the next couple of years, what that could mean in terms of you guys in the famous footwear segment in terms of, where you think that.

The right store base to maximize the profitability is?.

I think our current thinking and it has been that way for several years is, the size of the store base will be relevant on where our opportunities are on the real estate side and again we have a strategy against our customer target, that we have been able to identify opportunities in trade areas, where we don’t have stores.

Where there is enough of these customers that they should be able to support a store, we started to go down the real estate path of, placing stores in those markets. We are open, more are will come online the ones we have opened are doing nicely.

So we think there is a strategy around putting the store near to the customers who you want to attract, is a strategy but as far as does that mean that, that we are going to go out and open up all the 300 or 400 more stores, are we going to close 100 stores the answer to that is, that not how we think about it.

We think about it on a more a basis of making sure that the we’re opening are right with our customers’ right size and right location and those stores that are starting to not become right for our customer, we should look at it making sure we go about closing them so that our store base should just speak, if do this correctly our store base, should do nothing but get more profitable for us, and it should have increased our business, whether that means we’re going to have 5% more stores or 5% less stores, is kind of not really the issue any more it is about having the right ones..

Okay.

An earlier question about M&A, I wasn’t entirely clear to me whether you guys were saying that you guys were not active in terms of the market, or you were saying that you just didn’t want to make any comment about, where you guys are in that process at this point, is there anything you can provide there?.

I mean I think even if we were in the middle of something, we wouldn’t be able to talk about it on this call. So obviously we understand the importance of putting capital to work and we’re a portfolio of retail and wholesale and the brands and certainly in a number of different conversations but nothing to report at this time..

And we have no further questions in queue at this time and I would like to turn the conference back over to our presenters..

Thank you very much for joining us for our second quarter call. I look forward to seeing you all, along the way. And if not it was just a good quarter to all. Thank you..

Thank you for your participation. And this does conclude today's conference call and you may now disconnect..