Good afternoon and welcome to the Caleres Fourth Quarter Earnings Conference Call. My name is Jesse, and I will be your conference coordinator. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded.

At this time, I will turn the call over to Logan Bonacorsi, Vice President of Investor Relations. Please go ahead, Miss..

Good afternoon. I would like to thank you for joining our fourth quarter 2019 earnings call and webcast. A press release with detailed financial tables as well as our quarterly slide presentation are 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 our 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 me on the call today is Diane Sullivan, CEO, President and Chairman and Ken Hannah, Senior Vice President and Chief Financial Officer. I would now like to turn the call over to Diane..

Thanks Logan and good afternoon everyone. Thank you for joining our fourth quarter call and for your continued support of Caleres. Clearly there is a tremendous amount going on in the marketplace, and all is happening by the minute.

So before we launch into the 2019 results, I would like to briefly address the coronavirus and the cross functional steps we are taking to protect our people, and protect our business. It goes without saying that our first priority is the health and safety of our global workforce.

To keep our team members safe, we have implemented a comprehensive protocol that includes travel bans and return to work restrictions, ensuring the ability of our employees to work remotely, additional deep cleaning and disinfecting where required, and most importantly, in times like this on-going and timely communication.

As it relates to the coronavirus financial impact on our business, we believe, we have reasonably good visibility into the supply chain and the effect on Caleres to date and what is expected through the first quarter of 2020.

As of today, all of our factory partners in China are up in running, worker return rates are in excess of 70%, capacity utilization is increasing, and product delay times are subsiding. On the other hand, consumer sentiment is harder to predict.

Our direct-to-consumer businesses thus far have been performing well, making it difficult to anticipate the broader impact, a prolonged health crisis could have on the retail sector and consumer demand overall. As expected in times, in these times of uncertainty, we are leaning in and taking actions to ensure we are protecting the business overall.

We are actively monitoring the leading indicators across the markets we serve. We're assessing these everyday and reacting in real time by managing our expenses accordingly, reducing our open-to-buy where necessary, evaluating our promotional cadence and being very disciplined in our management of inventory. In short, we will protect our people.

We will protect our business, and ensure we are prepared to be positioned for the when the rebound comes. Now let's transition to our 2019 performance. Caleres delivered consolidated sales of $2,921.6 million and adjusted earnings per share of $2.10 falling short of our expectations.

During the fourth quarter, the weakness in the fashion footwear market pressured our results during the period. Specifically, we experienced a shortfall in sales to the value channel as those customers pulled back in reaction to a poor retail footwear business and shifted towards lower priced offerings.

This resulted in a decline in demand for both closeout product and new orders. Furthermore, our booth business was a standout, up double-digits through mid-fourth quarter, as on-trend product resonated with consumers across the brands.

However, unfavorable weather in the second half of the quarter, stalled cold weather products resulting in some share sales to fall short of our strong expectations for the business.

Specifically, our Sam Edelman brand experienced a softening of cold weather product sales, lower demand for tall shaft boots and a decline in replenishment and reorders for core products. Additionally, the brand experienced a difficult selling environment within the mid-tier channel business.

And as you would expect, Sam pivoted in season to inject newness into the product line, namely adding multiple new sneakers and new silhouettes and sandals and dress with all of these new products showing signs of early success at retail.

As you know, Sam had such a strong track record of knowing his consumer well and providing her with the styles and trends she loves. Offsetting some of this fourth quarter sales pressures, was a solid performance from Famous Footwear, where we recorded a 5.1% improvement in same store sales year-over-year.

While 2019 started slowly for Famous, we delivered sequential quarterly improvements as we progressed throughout the year.

This progression was driven by strong, broad based improvement, across all of our channels, categories, genders, geographies and formats, specifically fourth quarter sales results were lifted by the strong performance from top brands, including Nike, a 9.5% year-over-year improvement in kids, a 60% year-over-year increase in premium brands, improved consumer engagement, and retention with our rewards program, and higher e-commerce and brick-and-mortar sales.

Overall, we are pleased with the performance of Famous and the team has just done an exceptional job of analyzing the consumer, identifying opportunities, and then executing upon clear and very well-defined strategies.

Now, I'd like to provide a quick recap on the significant progress we made on a number of value creating strategic objectives across our business. During 2019, we continued to strengthen the connections with our consumers as evidenced by our growing direct-to-consumer e-commerce related businesses, which grew 23% year-over-year.

We believe the ability to fulfill this growing business and respond quickly to consumer demand, continues to be a differentiator for Caleres. Beyond the e-commerce improvement, we continue to be pleased with the successful relaunch and execution of the Famous Footwear rewards program.

Over the last 12 months, we have seen improvements year-over-year in our retention rate, the first time actually in five years as well as increased shopping and spending by existing rewards members. Next, we continued to be highly focused on proactively managing our portfolio.

It remains imperative that we continue to develop our family of brands to drive brand, strength and relevance. In 2019, we entered into an exclusive partnership with Veronica Beard, furthering our reach into the attainable luxury space.

In addition, we demonstrated our ability to create and transform brands with the relaunch of the heritage, Zodiac brand. At the same time, we made the decision to shift away from partnerships with DvF and Carlos Santana and recently elected to reposition our Via Spiga brand.

And finally, all year, we continue to focus on managing the variables within our control. This includes a year-over-year reduction of capital expenditures and fixed costs, excuse me fixed costs, driving declines in our inventory levels, as well as shortening product lifecycle.

We also executed cost containment initiatives that will carry into 2020, including the voluntary early retirement plan that we will save between $8 million to $10 million on an annualized basis going forward.

Importantly, also during 2019, Caleres generated approximately $170 million of cash flow from operations and put that cash to good use returning approximately $45 million to our shareholders through our share repurchase program and our long standing dividend, where we recently announced our 388 uninterrupted quarterly dividend pay out, and further reducing the borrowings under our credit facility by 60 million during the year.

Now as we look ahead to 2020. The strategic priorities that we laid out at our Investor Day remain intact. We are focused on leveraging the investments we have made for our future, with these priorities guiding and informing our decision making. At Famous Footwear for 2020, our key focus area is our first in merchandising.

We're going to continue to leverage our strength in athletic and athletic inspired shoes, while growing our iconic and premium brands. Our kids business is strong, and our accessories business is returning to growth.

We have significantly reduced our SKU count and our overall inventory allowing us to buy deeper into the styles that are driving our business. Second, is marketing where we will continue to evolve the Famous brand and strengthen our brand voice to deepen our connection with consumers.

Our media mix and marketing spend will shift to more customer facing initiatives, and we will drive further customer loyalty through our rewards programs.

And last, is our consumer experience, where we will drive sales with the growth of famous.com and launch a new e-com platform to offer new capabilities, enhance customer experiences, and the ability to quickly adapt to the changing consumer dynamic.

And as we turn to Brand Portfolio for 2020, we're going to continue to focus on product design and development and relevance, in order to make sure we continue to deliver the product the consumer wants. There are going to be multiple levers that we believe can contribute to our growth in 2020.

First of all, product innovation will intensify with a focus on fashion sport. Here we’ll capitalize on our design and production capabilities to provide a competitive edge in this category, exploiting fashion sport across the portfolio at tiered price points.

E-commerce will continue to grow, with the critical investments we've made resulting in best-in-class capabilities, and the evolution of Naturalizer and Allen Edmonds will continue with the recent rebranding of these two icons, and we believe that will help drive market share growth.

Brand partnerships with Vince and Veronica Beard will be critical with the first product launch of Veronica Beard in spring 2020. And finally at Vionic, the founders are clearly at the helm, and we expect fiscal year 2020 results to be better than 2019.

As we detailed on the third quarter call, we have moved from a two to a four season calendar to ensure that we're delivering trend right product and newness more frequently.

Further, we're leveraging the data and the predictive analytics that have been successful for the rest of our Brand Portfolio to ensure we're leaning out our inventories and delivering fresh product. So you know we're entering 2020 with momentum in our Famous Footwear brand and with confidence in the strength of our overall Brand Portfolio.

While the macro environment is uncertain, we are confident in the clarity portfolio, and believe it provides a compelling value proposition in this market environment. Our brands are strong and relevant.

Our financial foundation is solid and flexible, and we will leverage the investments we've made in our platform and capabilities that have really positioned us to serve the consumer exactly in the marketplace exactly where they're going. We are looking at the year with a laser focus on what we can control, and we have our eyes wide open.

The coronavirus impact on our Brand Portfolio supply chain in the first quarter of 2020 is expected to be $0.15 to $0.20 per share and as a result we are expecting to deliver earnings per share of between $1.95 and $2.15 this year. And with that, I'm going to turn the call over to Ken for a financial review..

Thank you Diane and good afternoon everyone. As Diane mentioned earlier, we delivered a little over $2.9 billion in sales, and $2.10 of adjusted earnings per share in 2019.

And while disappointing when compared to our expectations, we accomplished a number of our strategic priorities pertaining to consumer connections, portfolio management, and our capabilities. For the fourth quarter, we reported earnings per share of $0.01.

This included $0.27 for expense containment initiatives consisting primarily of our voluntary early retirement program. $0.03 of Brand Portfolio expense related to the repositioning of our Via Spiga brand and $0.03 related to the fair value adjustment associated with the mandatory purchase obligation for Blowfish Malibu.

Adjusted earnings per share in the quarter, excluding these items was $0.34, and included approximately $0.07 of dilution related to Vionic interest and amortization expense. Our consolidated sales for the fourth quarter of $698.9 million were down 3% from the prior year.

Building on its momentum in the third quarter, Famous Footwear delivered a strong fourth quarter, reflecting increased brick-and-mortar and e-commerce sales, and continued progress with our rewards program. Our total Famous Footwear sales were up 1.2% in the quarter with same-store sales up 5.1%.

For full year 2019, total sales of Famous Footwear were approximately $1,588 million down approximately 1% as we operated 43 fewer doors versus the prior year with same-store sales up 2% for the full year. We ended the year with 949 doors of Famous Footwear. Our Brand Portfolio total sales during the fourth quarter were down 9.4% year-over-year.

As previously communicated, this coincides with a decline in women's fashion footwear and a slowing of the growth in sport inspired product. This decline was also driven by challenging selling conditions in the value channel, reductions in reordering and replenishment, and softness in our cold weather product sales.

We also can continue to see a shift in order patterns from upfront to at-once via dropship, resulting in a delay in the timing of our recognition of revenue from period to period. For the full year, Brand Portfolio sale were $1,406.5 million up 7.1% year-over-year driven primarily by 2018 acquisitions and market share gains.

Let's turn to consolidated gross profit and margin. For the fourth quarter, consolidated gross profit of $278.8 million and 39.9% of sales was up 133 basis points year-over-year. For Famous Footwear, fourth quarter gross margin of 42.5% was down 20 basis points year-over-year reflecting the growth in their e-commerce business.

Brand Portfolio reported gross margin of 35% in the fourth quarter, up 275 basis points from the prior year, including the impact associated with purchase accounting year-over-year. The adjusted gross margin was 35.5% in the fourth quarter, up 60 basis points over last year, and includes the impact of higher tariffs on product coming out of China.

Our consolidated SG&A expense for the fourth quarter was $260.8 million and represented 37.3% of sales and $1,065.8 million for the full year 2019 representing 36.5% of sales leveraging 27 basis points from 2018. Our depreciation and amortization for the fourth quarter was $16.6 million down 4.6% versus the prior year.

Our fourth quarter reported operating earnings were $5.7 million and adjusted offerings were $19.6 million. At Famous Footwear, fourth quarter adjusted operating earnings of $10.3 million were up almost 68% from a year ago. For the Brand Portfolio, fourth quarter adjusted operating earnings were $18.6 million.

Our net interest expense for the fourth quarter of $7.8 million includes 1.5 million of fair value adjustment associated with the Blowfish purchase obligation.

Interest expense excluding the fair value adjustment was down $500,000 from a year ago, as we have paid down the balance on our revolving credit facility used to finance the October 2018 [ph] acquisition of Vionic.

Full-year 2019 interest expense was $33.1 million including $5.4 million of fair value adjustment associated with the Blowfish purchase obligation. Our full year tax rate was 21%. Adjusted earnings before interest, taxes, depreciation and amortization for the full year 2019 was $204.3 million with adjusted EBITDA margin of 7%.

For Famous Footwear, full year adjusted EBITDA was $107.1 million with an adjusted EBITDA margin of 6.7%. Brand Portfolio adjusted EBITDA totaled $105.6 million in 2019 with an adjusted EBITDA margin of 7.5%. Our capital expenditures were $50.2 million for 2019, reflecting a $16.7 million decline year-over-year.

Now turning to our balance sheet, we ended the year with $45.2 million of cash and equivalents. Our outstanding borrowings under our revolving credit facility were $275 million at year-end, down $60 million for the full year 2019, and down $85 million from the $360 million following our October 2018 acquisition.

Our consolidated inventory position at the end of the fourth quarter was $618.4 million, down almost $65 million or 9.5% year-over-year. At Famous Footwear, we ended the year with inventory down 5.8% year-over-year due primarily to fewer stores and a focus on SKU reduction to improve our inventory turn and flow of goods.

For our Brand Portfolio, our inventories were down year-over-year as the team’s effectively balanced inventory in-house within our partners. We are particularly pleased with these results in light of our retail partners increasingly ordering closer to need. Our 2019 operating cash flow was $170.8 million up approximately 32% over 2018.

And during the year, we returned $45 million to shareholders, comprised of $33.4 million of buybacks and $11.4 million of dividends.

In 2020, we are committed to continuing our capital return program, which will include investing wisely in our business, with capital expenditures of $40 million in 2020 executing further on our buyback program, paying the dividend and reducing our revolver borrowings still further.

We currently have approximately 5.2 million shares of remaining authorization under our share repurchase authorization program.

Moving now to our outlook, we are expecting full year 2020 consolidated net sales to be flat at $2.95 billion with Brand Portfolio sales expected to be flat to up low single digits and Famous Footwear same store sales up low single digits. We will close approximately 50 stores at Famous Footwear and open approximately 20 new stores.

As Diane mentioned, we're expecting headwinds in the first quarter of 2020 relating to supply chain disruptions due to the coronavirus. We're currently anticipating a $0.15 to $0.20 per share of coronavirus impact on the Brand Portfolio of supply chain in the first quarter of 2020.

For the remainder of the year, we will continue to actively assess this very fluid situation and the impacts. To that end, we expect to deliver earnings per share of between $1.95 to $2.15 per share this year. We've not included any potential erosion in consumer sentiment that may arise due to the coronavirus.

We are entering 2020 highly focused on the strategic pillars we have laid out, and with an emphasis on managing what we control. We believe, we've created a unique portfolio that is built for agility and execution and is expertly prepared and positioned to benefit when the market ultimately turns.

Now, I would like to turn the call over to the operator for Q&A..

Thank you [Operator Instructions]. Your first question comes from Rick Patel of Needham & Company. Your line is open..

Thank you. Good afternoon everyone. Ken, you mentioned….

Good afternoon, Rick..

Good afternoon, Rick..

Hi, Diane. Ken, you mentioned that your guidance does not reflect a deterioration in consumer sentiment related to the virus. I just wanted to follow up on that.

So maybe, can you talk about what the trends for Famous have been like as we think about late February through the past couple of weeks? I'm just curious as consumer concerns about their health and the fear factor related to this virus that increases whether or not it's had a negative impact on traffic, and to what extent that is embedded in guidance right now?.

Yes I think, as we've mentioned we saw good momentum coming out of Q4 that momentum continued all the way through February and it really wasn't until we got into the first week of March, where we started to see some impacts across the portfolio. It's changing on a daily basis. You know at this point, we haven't seen anything material.

But just in throughout the course of today, obviously we've seen different things being cancelled events, being pulled back and so, we have no way to assess exactly what all of that means. But you can bet that we will actively manage it as we move forward..

And is it safe to assume that your performance at Famous has been relatively intact?.

Yes absolutely..

Yes, that that was what we were speaking about Rick. Certainly the momentum at Famous continued into February and if we had not seen any kind of slowing down on that really until the maybe the last couple of days.

But, I think again, if you think about the performance that they've had in that fourth quarter going into February, again, it's on across so many geographies and categories and products and consumers and trends.

And so while we're again we have our eyes wide open about what the potential can be, you know so far the momentum had been good there, and we're tracking one of the things that we felt was really important and we started this two weeks ago, actually with respect to sort of a market tracker.

You know we've been actively managing obviously this crisis with a crisis management team since really mid-January and again with that focus on protecting our people, and managing the supply chain and everything in China.

But even more recently, on the business side for 2020, we really wanted to make sure that we looked at postponing any kind of discretionary investments we had, we didn't need to make, looking at capital making sure we were you know managing our capital well, looking at the inventory, just all of those things really even coming out of January.

And you know that we felt was important and now we have the -- are we're really looking through Famous, through our Brand Portfolio, through our retail partners, exactly what's going on in each of our markets.

So we're looking at that in real time, and feel like we're going to be able to you know make sure that that we're we've got the real time information and have all the information that -- that's possible to address any of those opportunities and concerns or challenges..

That's very helpful.

And can you also provide some color on your expense savings initiatives perhaps in more detail on where the inefficiencies were as we think about Famous versus the Brand Portfolio? And on the flip side, I guess where the investments would be needed to drive growth? Diane you just mentioned, that you're pulling back on what you view as discretionary investments, but just curious what you would consider to be critical to drive growth going forward that may offset some of those expense savings?.

Yes. Okay, Rick, sure I'll do us a little bit, and I'm sure Ken will add to this. I mean, I think it certainly started last year as we looked at our expenses overall, as you can see on our SG&A and everything as a percent of sales we managed really well.

So, all through last year, as we were challenged, we were making sure that we were addressing most of that in real time. It was really a lot through and October into November, you know the voluntary early retirement plan and that restructuring, that really has given us the -- I would say a little bit of a tailwind going into 2020.

And that is that 8 million to 10 million. And it was probably somewhere in the neighborhood of a 100 or so folks that were affected in our system. So that was a significant thing. And then there was many cases just to give you a little bit of an example where it was more efficient.

We really looked at our regional structure at Famous Footwear, how many regional managers, district managers. What was the span of control? So we looked really through everything. And then it was about what brands were adding value and/or not adding -- where was -- where was the economic contribution there.

So, again as we looked at things like DvF or Carlos Santana, and then thinking about Via Spiga we were really able to reapply some of those resources to the brands that we felt were had much more growth opportunity and make sure that we were leveraging those capabilities as well. So it was a combination throughout the year.

Lots of different things and Ken, I don't know if you would like to add to that too..

Yes, the only thing I would add is as we had mentioned, we've made the investment and the capabilities in particular to be able to meet the e-commerce and digital growth requirements. And so we were moving forward in an attempt to try to leverage those investments.

So we're reducing our CapEx levels down to what we believe are back to maintenance type levels. And you know there’s really no large projects that we have taken on. We're completing the work on our re-platform and e-commerce, but all the distribution center automation is complete.

And those facilities are performing well so it's really about leveraging those investments that we've already made..

Thanks very much and all the best this year..

Thanks, Rick..

Your next question comes from Chris Svezia with Wedbush. Your line is open..

Good afternoon. And thanks for taking my questions..

Good afternoon. Chris..

So I guess first on the supply chain, can we just walk through the $0.15 to $0.20. What does that comprise? Is that just mix sales, cancelations product delays, just more specifically what that -- what that embodies and I assume after Q1. It's basically just Q1 and I think suppose into Q2.

Give us your thoughts on that?.

Yes Chris. And so I think you mentioned kind of what all that is comprised of. When we look at our Q1, we've got roughly $20 million of sales that we're counting on that has not been receded.

And those products are in various stages in the, in the supply chain some of which will need to be aired to get here in time for customers, some of which is going to need to be applied a discount, because of the timing and some of which you know will slide out of the quarter and run the potential of being canceled.

So I think those are the different elements of what we've tried to take into consideration..

Okay.

And -- I'm just barely keeping my view than, you don’t anticipate carrying into Q2 or what’s the color on that?.

Yes, I think we're -- you know we expect that, but as we get into Q2 that you know the factories are up and running. They do have some capacity available and that we are seeing the delays subside. And so as a result of that, we think that we're going to be able to minimize the impact on Q2.

Now obviously, what happens in terms of consumer sentiment is, is something that we're watching very closely. But from a supply chain standpoint, we feel like we've got pretty good visibility there and kind of know where things are and the timing on which we will receive those goods..

Okay. And just Hannah you mentioned earlier, that you're seeing some cancellations or pullback.

Does that have to do with the branded portfolio and is that factored in into your thought process?.

We haven't seen any….

We haven’t seen any cancellation or pullbacks. Didn’t say that..

Okay, I thought you did in response to the other..

No, no we didn’t. We were talking about the Famous Footwear momentum that actually accelerated going into February, but in the last since we turned to margin flow down a little bit..

Okay, got it.

So just on that on that point, are you expecting this to continue that moderating trend throughout the balance of the first quarter, or just how you -- how are you thinking about that?.

Yes, I mean, I think what we tried to illustrate. We exited Q4 at above a 5% comp and that we saw that momentum continue through February. We guided for the year, flat to up low single digits. So we tried to put in a normalization of what we would expect at Famous.

What we don't know is as there continues to be cancellations of events and NFL and NBA and NHL which may have been where we were earlier referencing cancellation, we were not talking about quarters, that -- that we have to believe that.

That will have some impact on the future demand, and we tried to do the best we could to take it into consideration in the way we guided. But we've not been able to assess any significant changes to what we're seeing today..

Okay. Got it.

And on the branded portfolio side, when you step back, again, how do you think about your visibility into that business? Just kind of given where it stands, less pre-book, more at-once dropship, just to talk about sort of flat to up low-single for the year? Sort of your visibility in order to attain that, how do we think about that cadence as the year progresses? I assume Q1 is down some level just sort of given the supply chain issues, but just your thoughts around that?.

Well, it's interesting, Chris. When you look at the Brand Portfolio in the fourth quarter and you think about its performance, there were -- while many of the brands were a little light to some of our expectations, we did see a lot of the different categories and our -- and brands in our portfolio grow in different places.

For example, like our sport business grew in the quarter, it was up 11% as we delivered new styles, and a lot of our brands like Vince and Naturalizer, Scholl’s, Ryka, Bzees and even Blowfish was really good. We did see nice indications too on some of our retails we are up on average a $1, our IMUs improved quite a bit.

And actually in the measured part of the marketplace we grew, but I think the real opportunity for us is in all the capabilities that we have been building over the last year or two. And our e-commerce business was up 22% in the quarter. It represented 33% of our sales in the quarter versus 25% last year.

So as I begin to think about where our opportunities lie and how we think about that going forward, we really think that as and I think the situation that we're all finding ourselves in today with potential schools closing and all of the things that are happening that, that move to the comfort and the confidence of the consumer shopping even more online, I think, plays very well into the investments in the facilities that we've made.

So I think it will have to all be written yet for sure. It's a little bit of an uncertain time. But I like our chances and I like the bets we've made. And I think that's going to prove out over the long term..

Okay. Last one from me, just on the balance sheet and just sort of how you think about cash flow, uses of cash, I know -- share repurchases dividend and debt. I'm just curious how do we think about I mean obviously cost has been cut more than half. But you see what's going on, but I also know that you want to pay down the revolver.

So I’m just curious how do you weigh the two of those, as you look at today in terms of capital allocation?.

Yes, I think we mentioned we've got 5.2 million shares remaining on our current authorization. We generated $170 million of operating cash in 2019. And as we look forward, we will continue to modestly pay down the debt. I think it's important to understand that as the Fed has continued to cut rates, the cost of that borrowing is like 2.5%.

So we've committed to continue to bring those levels down, but would plan to take any excess once we've accounted for the $40 million of CapEx that we have in our plans and look to return that back to shareholders..

Okay. Got it. Thank you. All the best..

Thank you, Chris..

[Operator Instructions] Your next question comes from Sam Poser with Susquehanna. Your line is open..

Good afternoon. Thank you for taking my questions. I just have a couple of questions on just some homework on the guidance here.

What is your expected tax rate for next year and then what are you -- how do you foresee the interest expense and other income, and all those little things?.

Yes. So from a tax standpoint, I mean, we're expecting a rate that's right around 25%. In terms of interest expense, if you take the reductions, where we have paid down, we ended the year with $275 million outstanding on the revolver. That level below where we were in 2019 would account for a $4 million reduction in our interest expense in 2020.

And then any incremental paydown will be a trade-off with share buyback. So we are expecting a minimum of a $4 million reduction in interest expense..

That would put it around $29 million, if I'm not mistaken?.

That's right..

Okay.

And then on the other income?.

The other income, it's really not a lot that's changing there..

So about $8 million again give or take?.

Yes, that's -- most of what's coming in there, Sam, is the return on our pension investments. So obviously, that's tied to those assets and the actual return that we generate. The service cost is still up in the operating expenses..

And then can you give us -- I mean, you're telling us what the impact is to EPS in Q1, but what -- I mean, can we talk about what's the sales impact? Could you just say like you're expecting....

We think that it is about a $20 million sales impact in Q1, so that if....

Against that trend, so just for the sake of argument and you said -- you guided the Brand Portfolio to flat to up low-singles, correct?.

Correct..

So, if we took flat and we took 20 -- I mean, you would say, it's not $20 million off of like a plus $1.5 million or something, is that a fair number to use like the mid....

That's right. If you go, I think we did around $340 million last year in Brand Portfolio. And so, in a flat environment, you could assume that there is a $20 million reduction that's associated with kind of what we're seeing in Q1 supply chain..

Off of flat, so you're basically thinking the low-end just given how Q4 was for Q1 of your guidance, and then….

Yes. As we look at -- as we look over the year, right, obviously in a flat to up 1%, we just -- we're down 9.5% in Q4. So you can assume that we're planning to be relatively flat through the first half of the year, but for a $20 million impact from the supply chain in Q1..

So you're expecting a lot of acceleration in the back half of the year in your Brand Portfolio even with the introduction of Veronica Beard in this?.

Yes. We're introducing Veronica Beard. We're not assuming a ton of growth in the back half. And that's why we guided flat to up low-single..

And then Zodiac also being introduced?.

Yes, Zodiac and Veronica Beard will be introduced this year..

All right. I think I got what I needed. I look forward to catching up later. Thank you..

All right. Thanks, Sam..

[Operator Instructions] There are no further questions at this time..

Thank you very much operator, and thank you everybody for joining our end-of-year 2019 call. We wish everybody much health and hope everybody is fine. We will continue to keep you updated as to our progress and look forward to chatting with you over the next couple of weeks. Thanks very much..

This concludes today’s call. You may now disconnect..