Peggy Tharp - Vice President, Investor Relations Diane Sullivan - Chief Executive Officer, President and Chairman Ken Hannah - Chief Financial Officer Rick Ausick - President of Famous Footwear.

Jay Sole - Morgan Stanley Jeff Stein - Northcoast Laurent Vasilescu - Macquarie Scott Krasik - Buckingham Christopher Svezia - Susquehanna Financial Group Sam Poser - Susquehanna.

Good afternoon. My name is Ian and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2017 Caleres Earnings Call [Operator Instructions]. After the speakers' remarks, there'll be a question-and-answer session [Operator Instructions]. Thank you. I'd now like to turn the call over to Ms.

Peggy Reilly Tharp. Ma’am, you may begin your conference..

Thank you, Ian. Good afternoon. I’m Peggy Reilly Tharp, Vice President of Investor Relations for Caleres and I'd like to thank you for joining our second quarter 2017 earnings call and 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 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 statement. Copies of these reports are available online. Company undertakes no obligation to update any information discussed in this call at any time.

Joining the today are Diane Sullivan, CEO, President and Chairman; Ken Hannah, Chief Financial Officer; and Rick Ausick, President, Famous Footwear. And I would now like to turn the call over to Diane Sullivan.

Diane?.

Thanks Peggy. I'd like to begin by saying a good start to the year, continued into the second quarter. As we reported, adjusted earnings per share of $0.48, up 4.3% year-over-year. Consolidated sales were up 8.7%, including Allen Edmonds, and up 2% on an organic basis.

At Famous Footwear, comp sales were up 2.8% in the second quarter and were positive for each month of the quarter. In total, we saw improvements in sales across all genders, all climate zones and all consumer channels.

We also saw an improvement in traffic, which was up 3.5%, and both comp sales and traffic, are benefitting from our consumer targeting efforts, which I'll talk more about in a few moments.

In terms of product trends at Famous, we saw continued growth in overall athletic sales, with men's and women's up mid-single digit, while kid’s athletic sales were up high-single digits. Lifestyle athletics also continued to trend higher, and delivered sales improvements of 20%.

For seasonal products, women's footbed and sports sandal styles performed especially well in the second quarter. In total, women's sandals sales were up low-single digits and delivered significant margin improvement. For our brand portfolio, total sales were up 16.8%.

It will come as no surprise that Sam Edelman and Vince, both women's and men's, had outstanding quarters. And we're seeing a growing level of enthusiasm for both of these brands. We're also seeing progress in Naturalizer, with North American sales up year-over-year.

This brand continues to improve its overall performance as the work we've been doing is showing progress and promise. While we had planned for organic brand portfolio sales to be up low-single digits in the first half, excluding Allen Edmonds, results came in flat as we continue to diversify our sales to shift away from lower margin channels.

At the same time, our focus on growing our e-commerce related sales is delivering results. And these sales now represent nearly a quarter of our brand portfolio. So solid results all around for both sides of our business.

But before I turn things over to Ken, I'd like to provide an update for a few key strategic areas that I’ve discussed with you before. First, our Allen Edmonds integration remains on track. For the quarter, the brand contributed to both our sales and gross margin improvements.

In addition, we brought our new talent to lead men's, including Allen Edmonds and International. We believe both of these areas represent untapped potential as we continue to diversify our portfolio. Joining our Company is Malcolm Robinson, who brings deep experience in men's and in managing global brands to Caleres.

He will oversee the strategic growth initiatives, primarily for Allen Edmonds and the expansion of our International footprint. Also, new to Caleres, is [Akram Aldamki] who joined Malcolm and will lead the International team on a day-to-day basis.

[Akram] will be supporting and building the International presence for all brands across our portfolio, but with a specific focus on Naturalizer, Allen Edmonds and Sam Edelman. Our speed-to-market initiatives also remained on track.

The program has already helped us to improve our brand portfolio profitability and our ability to respond to consumer demand. It has also begun to drive improved retail sell-through and has enabled us to get early reads on our best selling items.

We believe that this ongoing initiative will drive continuous learning and improvement for all of our brands. Next, turning to Famous Footwear, where we’re seeing results from our strategic initiatives to focus on acquiring, retaining and growing our share of wallet with targeted high value customers.

This work has provided significant consumer insights, and as a result, we have seen our best start to back-to-school since 2013. Season to-date comp sales are similar to our second quarter as we benefited from several key efforts related to these consumer insights.

For example, to drive consumer interest earlier in the season, we introduced trend stores in advance of the peak selling weeks, and highlighted color trends specifically gold, black and burgundy. We also rolled out new digital brand landing pages for our key athletic brands that we carry.

We also targeted media and marketing spend, which helped us to become more efficient and enabled us to react more rapidly. For example, this May, we completed a media test targeting prospective consumers. And based on the program’s success, we decided to expand its outreach across the country for back-to-school.

As a result of these efforts, we’re building on relationships and engaging with new consumers by speaking directly to them. And these purposeful efforts are paying-off and driving new visitors and shoppers to Famous Footwear.

While it’s still very early, we are working hard to own that relationship with our consumer and we’re seeing initial results and improved sales and traffic trends, and an increased rewards member sign-up in addition to a number of other areas.

While that covers some of the strategic work we’re doing at our two business segments, I would like to provide a quick look at our strategy from a corporate perspective. As in the past, we’ll move as efficient as possible, and maintaining our financial flexibility is just one of those efforts.

Our financial flexibility allows us to complete the Allen Edmonds acquisition and further diversify our business and becoming more balanced portfolio company. I am pleased with the progress we’ve made in continuing to grow our portfolio, and in delivering a more balanced division of earnings too.

Both of the businesses in our portfolio have done just a great job of day-to-day execution in the short-term, while maintaining focus on our long-term strategies and investments. We remain confident in our ability to drive results and believe we have the right strategy, plan and people in place to consistently deliver as we have in the past.

However, as we are still in the midst of our biggest quarter of the year, we are maintaining our fiscal earnings per share guidance at this time. Now, before I turn the call over to Ken, I want to extend -- has more than 200 associates working and living in the Greater Houston area.

This is a major market for us with employees from our Famous Footwear, Naturalizer, Allen Edmonds and Sam Edelman stores all being affected. We’re monitoring the situation closely and hoping for the best for all of the people impacted by this very tough situation. And with that, I'll turn it the things over to Ken..

Thank you, Diane and good afternoon everyone. I'm pleased to report that for the second quarter, we delivered adjusted earnings per share of $0.48, excluding $0.07 per share related to the acquisition, integration and reorganization of our men’s brands. For the second quarter of 2017 net earnings were $0.46 per share.

Our consolidated net sales for the second quarter of this year were $677 million, up 8.7% over last year. Our ecommerce related sales we saw a double-digit sales growth on a year-over-year basis. For our brand portfolio, second quarter sales of $272 million were up 16.8% versus the prior year, and includes $41.8 million of sales from Allen Edmonds.

Year-to-date, brand portfolio sales were flat versus 2016, excluding Allen Edmonds. At Famous Footwear, second quarter sales of $404.9 million were up 3.8% over 2016, as we operated 11 more stores year-over-year. Our comp store sales were up 2.8% for the quarter. Now turning to consolidated gross profit which came in at $287.5 million for the quarter.

Gross margin of 42.7% improved 108 basis points, excluding $1.9 million of acquisition related Allen Edmonds inventory adjustment amortization costs. Year-to-date, our adjusted gross margin of 43.1% was up 104 basis points, consistent with the second quarter.

Year-to-date, Brand Portfolio continued to drive strong contributions to our consolidated gross margin, delivering 394 basis points of improvement, excluding Allen Edmonds, inventory adjustment and amortization cost.

Organic gross margin was up more than 200 basis points versus the first half of 2016 with contributions from both our Healthy Living and Contemporary fashion businesses.

For Famous Footwear, second quarter gross margin 45.3% was down 21 basis points for the quarter, reflecting in part the year-over-year shipped and back-to-school promotional efforts at our outlets. However, as you may recall from our first quarter call, we began offering buy online pick-up in store in mid-May.

By mid-June, we had rolled out to all doors and begun to see a favorable impact on our ecommerce gross margins. Our total SG&A in the second quarter was 37.5% of sales, or $253.5 million, including nearly $20 million of expense from Allen Edmonds.

Excluding Allen Edmonds, our Brand Portfolio SG&A expense was up 6.5% year-over-year, primarily reflecting increased investments at Sam Edelman. For Famous Footwear, we were able to leverage SG&A expense by 62 basis points, as the team delivered great top line for the quarter ahead of expectations and as we operate 11 more doors year-over-year.

We anticipate further expense leverage in the back half of the year, as we will close approximately 50 doors, following the back to school season. Consolidated operating earnings of $35.9 million were up 11.2%, excluding $4.8 million of expense related to the acquisition and integration and reorganization of our men's brands.

Adjusted operating margin of 5.3% was up 12 basis points year-over-year. Famous footwear delivered operating margin of 6.2%, up 41 basis points year-over-year. Our depreciation and amortization was $16.4 million in the second quarter, up 22.2%.

This increase includes, among other items, the addition of Allen Edmonds and its retail doors, the Lebanon Distribution Center modernization and expansion and the operation of 11 more doors at Famous Footwear, on a year-over-year basis.

Net interest expense for the second quarter was $4.4 million, up nearly 40% year-over-year, reflecting borrowings against our revolving credit facility to finance the acquisition of Allen Edmonds in December of 2016.

Our consolidated corporate tax rate was 33.9% in the second quarter, and 31.7% year-to-date versus 32.3% and 31% in the same periods a year ago. Capital expenditures were $15 million for the second quarter. For the first half, capital expenditures of $27.4 million were down $3.8 million year-over-year. Now, turning to our balance sheet highlights.

We ended the quarter with cash and equivalents of $52.9 million. Outstanding revolver borrowings at the end of the second quarter was $35 million, down 68% from $110 million at the end of last year as we continue to pay down our revolving credit facility with strong cash flow from operations, following the acquisition of Allen Edmonds.

In total, we delivered 5.3% increase in cash from operations on a year-to-date basis. And by the end of the second quarter, we had paid down $220 million of the $255 million related to the acquisition of Allen Edmonds. In total, we repatriated $120 million and also used $100 million of operating cash flow we generated since the acquisition.

While we still have approximately $35 million related to the Allen Edmonds acquisition remaining on our revolver; we expect to completely pay-off this amount by the end of the year. Our consolidated inventory position at quarter end was $722 million, up 11.3% year-over-year, including Allen Edmonds.

At Famous Footwear, we ended the quarter with inventory down 1.4% per store on a dollar basis, and down 1.3% per store on a pair basis. For our Brand Portfolio, inventory was up 39.6%, including Allen Edmonds.

Excluding Allen Edmonds, inventory was up 11.9% with the increase reflecting investments in key brands and styles at our growing drop-ship business. I'm very pleased with our performance in the second quarter. We grew our top line 8.7%% and saw improvements year-over-year in both adjusted gross and operating margins.

We continue to maintain our financial flexibility, paying down the revolver borrowings related to our acquisition. And we were upgraded by Moody's in the quarter to a Ba3 level.

Before we begin our Q&A, I'd like to reiterate our fiscal 2017 guidance, which has not changed since we first issued in back in mid-March; our consolidated net sales of $2.7 billion to $2.8 billion; comp sales at Famous Footwear, up low single-digits; net sales for the Brand Portfolio segment up in the high teens, including Allen Edmonds; gross margin up 45 basis points to 55 basis points; SG&A expense, as a percent of sales, up 30 to 40 basis points; and effective tax rate of between 31% and 33%, and adjusted earnings per diluted share between $2.10 and $2.20, excluding approximately $0.13 of acquisition, integration and reorganization costs in the first half of the year related to the Allen Edmonds acquisition.

This guidance includes the closing of 70 Famous Footwear stores and the opening of approximately 40 new doors as part of our normal lease renewal process; the closing will approximate 11 Naturalizer stores and the opening of four new locations; the opening of 10 new stores for Allen Edmonds and one for Sam Edelman; depreciation and amortization of approximately $60 million; capital expenditures of approximately $55 million, and an additional $12 million of operating expense related to the 53rd week in 2017.

As a reminder, due to the Allen Edmonds acquisition, we expect earnings per share to be more heavily weighted to the fourth quarter versus prior years. Additionally, we expect third quarter earnings per share to grow at a rate consistent with what we experienced in the second quarter of this year.

And with that, I’d like to turn the call back over to the operator for questions..

[Operator Instructions] Our first question is from the line of Jay Sole. Jay, your line is open..

Just on some of things but one a little bit. Comp up 2.8%.

Can you just talk about maybe what new brands contributed to that comp how much of a fact to that was in the quarter?.

Obviously, the biggest new brand we had was Under Armour. And basically, when we looked at the business going into the purchase and into back half for the year, we assumed that half of it would be incremental and half of it would be come from other parts of our business.

All I’ll say is and start giving more specifics, it’s not any worse than that, that’s about what it is, might be a little less incremental than that. But we’ll have to wait through we get to the end. It was semi-significant less than a percent..

And Rick, can you maybe just talk about by month and what you saw at Famous Footwear, and what you early read on back-to-school is having seen most of August at this point?.

So we had a slight increase in May, low-single-digits in June, and mid-single-digits in July. That’s how the flow went for the three months. And right now, we’re in the low to bottom end of mid-single-digit number for back-to-school..

And then maybe can you just talk about what impact the hurricane might have on your business. Obviously, expressed lot of concern probably people in that area.

How do you think it’s going to affect the business, if you can maybe get to [multiple speakers]?.

It’s hard to tell. I mean, part of it’s about how long it takes and how before they can start getting back to somewhat normal. We have 28 stores. I think totally, we have something in the 38 or 39 stores..

38, 39 of that, so about 2% of our total….

So it ends up to be the question of how do we -- when could we get them back in order. We already know that there is some damage in a handful of them, but we don’t know to what extent. Obviously, the problem right now is people still can’t get around the city.

And the last thing we want them to do is worry about our stores when they’re trying to take care their families and things like that, Jay. So I think it’s little early to -- it’s a top 10 market for us. So it could be regionally significant. But we’ll have to wait and see..

And then maybe just one more for me, just big picture perspective. Comps across retail have been so volatile. And you’re delivering -- accomplished probably going to be better when all -- better than most.

If you’re going to a better handle on why comps are moving so much, and that’s giving you a little bit better visibility into the business?.

Well, I can't speak for everybody else, but just about us. I think we've been on this path for a while. If you remember, couple of years ago at an Investor Day, we talked to you about this high value customer that we thought had, we had an better opportunity to be better positioned against. We probably were building some insights to.

And we wanted to make them a bigger part of our business. So what we have not varied from that, our work, we've continued to work on all aspects on that over the last two years.

Also, how we train our associates to approach customers in store; how we craft and/or the messages we send out to our customers; what brand intensification and product categories we impact in our stores. That's been the work we've continued to do, among other things.

The most recent things that we did was find the testament that we've tested some ideas on how to deliver the message directly to the consumer in a different way. That's where we have seen some return on that activity.

The good news was we were able to learn between May and early July, an impact that into our back-to-school marketing plan, starting the middle of July through August and into early September.

And as we look at it, those are the things that I believe are driving our results to be better than other people and then I think that's the thing we're going to focus on. We believe there is still -- we're in the very first early phase of this and we think there is something to it. We thought that for a while..

I’d just to add couple of things to what Rick said. All of that is totally true, and we've had to stay the course on this, because we did believe that at the end of the day, it was always going to be about our ability to engage, retain and grow our customer base, that was the way that we were going to grow the business over the longer term.

I think the other thing about this is, and I think we're just being a little modest on this that the great execution and really picking the right categories to invest in and have also made a difference in our business this year.

I think our footprint of being on average 6,500 square feet forces you to really think about what do you want to stand for, and how you going to make sure that you are -- got the right assortment in that store with the right kind of depths that’s going to be able to drive this performance.

So I think it is that combination of this consumer engagement work we've been doing, how we strap with it to try to get to the other side of it. And then it's just good old fashioned great execution. But I think the Famous team making sure that they have the right use in the right place at the right time, which still matters a whole lot..

And our next question is from the line of Jeff Stein. Jeff, your line is open..

Couple of questions. Nice job everyone, it was great quarter. So you mentioned traffic for Famous Footwear was up 3.5%.

And I'm wondering is that bricks-and-mortar only, or are you including online? And if you're including online, can you parse it out in terms of what's the bricks-and-mortar traffic situation was?.

That was including all channels, brick-and-mortar, as well as online. So traffic was up all-in 3.5%, down 1% in brick-and-mortar and up 9%, little over 9%, in same store comp..

So you know is one of the best quarterly trends you’ve had in about five years?.

Yes. .

In mid-single digits, so that was a relatively large move..

Yes..

Diane, maybe you could talk a little bit about how exactly you’re engaging this high value customer. Is it more through social media? When you say digital encompasses a lot of different things.

So maybe you can talk just specific in terms of what exactly you landed on here in your tests, your media tests?.

I would say there’s a couple of things Jeff, and it has both communication piece of it and the marketing was the for the last piece we put into place. That’s been really understanding and identifying who these people are understanding how we wanted to craft and create assortments with brands and products that they really like.

So there was a lot of consumer insight that informed us about that. It informed us a lot about our real estate and the location of where these high value customers were around our stores, which was a big piece of it. So we can really see what the penetration of these customers are by market and by store. So we did a lot of that work.

And then this last test was really a combination of a lot of different things, and this is the interesting part about it, Jeff. We didn’t really change the message or how we delivered it, but same digital work was e-com, I should say, e-mail blast that we’ve sent out, whether it was a reward messages we sent out, it didn’t really matter.

It was the same vehicle, the same messages, but just to a much more targeted customer that fit into this profile of the high value consumer. So that was the first step. And now we’re going to get smarter and smarter and smarter about how we can actually specific and tailor different messages for each one of these different segments of our population..

Do you have any data on the average spend for a high value customer, and on an annual basis, relative of the rest of the customer base?.

Yes, we do..

It’s much bigger..

It’s a lot bigger, yes. Let’s see, I am looking at this right now here. It’s at least -- it’s about our gold members and on average about 1.5 times what multiple do, and our high value customer is very close to what our gold member would normally deliver as well..

Do you have the number? How many high value customers do you currently have?.

We have -- in our current database we have a little under 1 million customers in our database right now. And that’s been growing. I don’t have the current numbers as we acquired new ones every day. So that will be something we’ll be able to keep track of. We started with the -- we’ve been harvesting somewhere in the neighborhood of 1 million customers.

And then that number is growing obviously..

And a couple of additional questions, real quick. First of all, the benefit of buy online pick up in-store through your gross margin. I know it’s early on.

But can you talk about how much of a penalty you’ve been incurring the last several quarters, the Famous Footwear’s gross margin from your online business? Just to perhaps size the opportunity for gross margin improvement as buy online pick up in-store gains momentum..

I mean, for an every quarter that we’re shipping either from a store or from a warehouse on an online order, it’s about 15 point impact on just those shipping expenses to get into the consumer. So if you go through and look, it’s basically $6 on your average unit retail.

So every time one of those customers elects to pick that up in the store work in the team get the benefit of that difference. And so on a mid-$40 AUR, it's pretty significant. So we've been very pleased with that and it also gives them an opportunity to engage with that customer when they come in as well..

And Ken, any thoughts in terms of what percentage of your online orders now are being picked up in the store, again recognizing it's early on?.

It's early, that number is -- it's a double-digit number. So we’ll see where it all settles down. But right now, that's a double-digit percentage of the online orders..

And last question real quick. Can you talk about the growth in your retail comps in your Brand Portfolio group? Is that -- that has kind of a huge increase relative to what we've seen historically. Maybe talk about what's going on there..

Well, Jeff, I'm happy to report that in our Naturalizer stores, we saw comps, positive comps, every month of this quarter and probably starting a low single up to the mid-single digit range. We think that that had a tremendous amount, the impact on that was really through our speed to market programs.

Where we could read and react and address very quickly, it allowed our teams to really bring in goods that we’re selling, and most things quickly that weren’t selling as well. In addition to that, we had launched a new sport program for Neutralizer.

So a combination of all the things I've been talking about for a while plus the speed project was the sport aspect to it that allowed it to perform as well. Our Sam Edelman business, those comps were also up very, very strongly in the quarter. And that has been for a couple of reasons.

So I think it's just a power of how well Sam and his team are doing in terms of the right trends. And getting that right is really number one. I think the second thing is we’ve begun to add different accessories into the mix of the store that's helped a little bit.

And I would say more importantly is really been the investments that we made and digital campaign, as well as the inventory investments that we made for Sam in the first half of the year, as well. So again a combination of a number of factors that I think help to drive by both of those things..

And our next question is from the line of Laurent Vasilescu. Laurent, Your line is open..

I wanted to follow-up on the lifestyle product number where the percentage rates go up 20%, that's pretty impressive.

Can you remind us what the brands fall into that bucket? And any additional color on what's driving this growth?.

It's more than to talk about brands. It's about the products themselves. So we split our business into what we call performance side, which would be more products that’s more specific to an activity right, running, cross training that kind of product versus the lifestyle business that we would -- what we consider court or lifestyle kind of products.

So the best example is Nike, Tangen, is in the lifestyle product; Nike Flex is in the performance side. So that's -- they might both be look like running shoes, one is more -- has more properties of a running shoe, the other one is more about lifestyle.

So that's -- and Skate would be a lifestyle -- all the Skate products would be a lifestyle business; Converse would be a lifestyle business..

And then I want to follow up of cadence of earnings between 2Q and 4Q.

Can you remind us if there was any -- were there any one time items in last year's 4Q SG&A as we factor in the guidance on 3Q versus 4Q earnings?.

No, not particularly. And I think that's one of the reasons that we had tried to provide a little bit more back half color is, with the acquisition, obviously, Allen Edmonds is a big fourth quarter business. I think as we work to diversify our brands and the brand portfolio, we get much more contribution there in the fourth quarter.

And so, we’ve tried to help by sharing our third quarter expectations. We were up roughly 4% in the second quarter, and would expect to be up roughly in the third..

And because Allen Edmonds is a bigger business in the fourth quarter, should we think that the gross margins higher in the fourth quarter?.

The Allen Edmonds gross margins or the….

The overall gross margins, because of the contribution of Allen Edmonds….

I mean the margin I think has been pretty consistent throughout the last several quarters. So it's really more about the top line driving leverage..

And then one more question, Kids, up high single digits.

Is that driven -- I'm guessing that's driven by Skechers?.

It's driven by the same thing that’s driving results. So it'd be the lifestyle athletic product primarily that I described earlier..

And then your last question.

In terms of capital allocation, can you repeat down your revolver this year? Can we see additional share repurchases, increase in dividend? Or could we see another tuck-in acquisition like Allen Edmonds to complement existing portfolio?.

We're going to pay our dividend and certainly, been very happy with the success of the acquisition and the integration of Allen Edmonds. And so for the right opportunity, we would be willing to allocate more capital in that area..

And our next question is from the line of Scott Krasik. Scott your line is open..

This is Mack on for Scott. Just wanted to revert back quick to commentary around back-to-school. You guys had mentioned that it was turning out [plus] single-digits.

I was just wondering what your expectations were for the season? And then is that based on the growth that you're seeing within athletic as well that’s accelerating the back-to-school sales?.

The answer is that low single digit was our expectation for the time period. So we're pretty much right there. And yes, the athletic is still the accelerator for the business during back-to-school..

And then on the Allen Edmonds front.

Now that we’re closer to 2018, have you guys changed the way you think about it for next year and going forward? What's the right growth rate for that business?.

We'll provide guidance for 2018 when we close out the year..

And our next question is from line of Steve Marotta. Steve your line is open..

Can you -- congratulations also on a great quarter.

Can you talk a little bit about Nike selling direct to Amazon, and how you think that may affect your business in the short and longer term?.

Well, I think there is a good size of that business. So I think as it takes -- cleans up the marketplace. I supposed this is one of the reasons that they were interested in doing it. I think until we see how it all rolls out and what that looks like, it hasn’t. I haven’t seen it to do anything yet. But I think that remains to be seen, Steve.

And then we’ll do what we always do. We’ll try to look at whether we need to change our assortment or adjust our assortment, if there is something that’s impacting it. But so far, I don’t know how that’s going to work until we see how it impacts and what the customer thinks..

Without giving any specific guidance of course for 2018, can you comment at all about how new deal open to buy dollars of being allocated by the wholesale channel for Spring of 2018, and if that’s up, down or relatively flat with last year?.

I would say everyone is trying to do more with less, and that continues. So our ability to replenish, to drop shift, to run our speed programs to operate much more in real time, is really going to be our answer to that. So that’s how we see us gaining share in the marketplace. So it’s probably not going to be substantially different.

There may be shifts between categories of businesses and brands based on their performance. But, in total, we still see that everyone wanting to do more with less and chase goods as much as possible..

That’s helpful. And Ken, if I missed it, interest expense expectations for the current year please….

It’s trending down. I think it was 4.4 in the quarter. So that was coming down. So you should be able to look at the last two quarters and then watch it decline $35 million left on the revolver..

And our next question is from the line of Chris Svezia. Chris, your line is open..

So I guess first on Famous. I guess, how important is, I guess, falls into the, lifestyle category.

Is that fair and that was a big or a held portion attributed to the count?.

That is -- high portion of that business and there is a few things in performance. But most of it is in lifestyle..

And as you think about, Rick, the comment about SG&A leverage for Famous into the back half for the year, you’re closing 70 stores. I think the occupancy cost is in SG&A.

Is that pretty much even between Q3 and Q4 expect to get that leverage as result of that?.

Yes, obviously, we like it was wise to keep those stores open during back-to-school or peak time, and then we start looking at closing them; sometime towards the end of the September through October, depending on lease agreements, some of them maybe a little later than that, maybe in January.

But the bulk of them, I believe, will be close before Christmas, for sure..

And then how you specifically did, I guess, pretty good job planning sandals, managing the inventory commitment there. How you’re thinking about the boot business, fashion boot, functional boots as you’re going to back half of the year. How you’re planning at for Famous? I guess also, Diane, how you think about that on the wholesale side..

So the biggest shift -- I think, we’re planning -- the total dollars are planned probably pretty close between, let me say, boots. So that's between cold weather, shearling, tall shaft boots and booties, but the category themselves had pretty substantial change. So we have that bootie category that’s been impacted higher.

So we have more of those in part of our assortment, less on tall shaft, and somewhat less on both shearling and cold leather. But all-in-all, I think we're pretty flat. And the answer to what we expect is we expect flat, and that's what we'll manage our business to. But this will all depend on what price points we sell everything at.

So if we can sell it earlier and when weather changes or the trends are correct, we do it little better. If not, we'll do it a little worse. But I think that's about where we thought it would be in the grand scheme of things is about flat..

Chris, that’s pretty consistent with the brand portfolio, that's pretty much how people planned it. One of the things that you can see if you’re in the market today that a lot of the newness, it's really been moved from August to September. So there is not as much out there right now.

But what is out there is selling really nicely, particularly in the short boot category. And you are seeing a little bit more with embroidery and western natural and it seem to be doing well early on.

And actually little bit more on the dress side now for a change of face; but early to tell yet, big delivery coming up the end of this month and into early September..

Ken, question for you on gross margin. I am just curious you jumped 100 basis points plus in the first half. Your guidance is, call it, 50-ish on average, or there for the year. Obviously Allen Edmonds added piece to it, the inventory management component. And it seems like you still expect pretty consistent gross margin improvement.

But your guidance assumes an inflection in the back half, even as Allen Edmonds from this bigger piece of the business.

So walk through why that would potentially be the case?.

Well, I think, clearly, we've been trending a little bit higher than our guidance. So I think just watching what's happening in the marketplace and wanting to make sure that we maintain our flexibility. We're also -- we’re going in Malcolm is coming and he's looking at a lot of how we're going to be going to market with the Allen Edmonds business.

And so I think that excluding Allen Edmonds, I think we're still feeling pretty good about where that guidance range is. And I think the wildcard is what kind of response we ultimately end up doing there as we look at our pricing and promotional cadence with that business. So we're running a little better than that.

And I think that there is probably little bit of upside there..

Final question, Diane, just as you think about Allen Edmonds and how well that has gone for you. How do you think about the acquisition profile of the Company? Are you more separate to it, no change, balance sheet improving, seems like you can have dry powder to do something sooner rather than later.

I am just curious about your thought process there..

I’ve obviously been very pleased with the way the team that handle this integration, and we're excited -- still remain, as excited as we were about the prospects for that brings going forward. So I'd have to say that I continue to have the same excitement as I’ve had up to this point in time.

But with that really higher degree of confidence about our team's ability to integrate these brands and to drive -- make sure they're creative and a benefit for shareholders. So I'm definitely in the mode of looking for the right brand that's fits with our portfolio well; so very open to it..

And our next question is from Jeff Stein. Jeff your line is open..

Just want to a follow-up question for Ken. Ken, if you look at your SG&A, just for your brand portfolio group, it was up almost 40% in the second quarter.

So I am wondering, can you tell us what the organic SG&A percentage was for that group, excluding Allen Edmonds?.

Yes, if you look at that, it had, I think, we said in our prepared remarks, said $20 million of expense roughly associated with Allen Edmonds. So you take that reported number and just back out the $20 million, there was 6.8% is what we said..

And our next question is from the line of Sam Poser. Sam your line is open..

I have a few questions.

What is the exact share count for the quarter that was on essentially [indiscernible]?.

Pull me exact number for….

While you’re digging around, in the quarter, you had your EBIT margin increase it was down in Q1, it was up in Q2. And you’re really telling us it’s going to be down again Q3, just based on what you’re telling us as far as the growth.

Could you tell us how you’re looking at that, and why that’s the case, while you’re digging that out?.

Let me give you the share count here, so that you have that. So for the quarter -- so we have effective number was 41,954..

Thank you..

And what was your other, Sam, on the….

In Q3, you’re basically implying that your EBIT margin is going to be down after being up this quarter. What change -- and then up again in the fourth quarter.

What change are you seeing that makes the EBIT margins down? I mean, if you’re saying the growth is going to be at around 4% again in EPS, then that’s implying that your EBIT margin is going to be down slightly..

So that is a -- the weighting is much higher to Famous in the third quarter. And so, typically, that third quarter margin and gross profit in Famous is always lower in the third quarter than it is in the second quarter. That’s the biggest contributor..

Well, that was through last year too, and last year in third quarter Famous’ gross margin was down 111 bps, and it was down 43 bps the year before. So why isn’t that correcting itself? Q2, you’re up against plus 13 and plus 57.

So why would this continue to be down on top of relatively easy comparisons versus being down off a little more difficult comparisons in Q2?.

I think it has to do with the ratio of the growth. There is a larger growth of that in the third quarter. We’re expecting the rate, the EBIT rate at Famous, to be higher in the third quarter year-over-year. But it's really the mix impact of the third quarter..

And then could you just give us the exact dollars -- how do you put in the queue, but the exact dollars for Healthy Living and for your contemporary fashion businesses..

That’s in the slide, but I’ll just look for you. For Healthy Living, sales were $125 million, down 1.9% contemporary fashion sales up $146.8 million were up 39.7%..

And the $125 million to $146.8 million and that $146.8 includes $41 million of $41.8 million of Allen, is that correct?.

Yes..

And at this time, we have no further audio questions. Presenters, I turn it back to you for closing comments..

All right. Thank you, Ian. Thanks everyone for joining us. Again, sending on good wishes as to everybody in Houston, and hoping that rain stop soon. Take care..

Ladies and gentlemen, this does conclude today’s conference call. We thank you greatly for your participation today. You may now disconnect..