DSW Q4 Earnings Conference Call: Full Transcript

Operator: Good morning and welcome to the DSW's fourth quarter 2015 earnings conference call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now to turn the conference over to Christina Cheng, Sr. Director of Investor Relations. Please go ahead. Christina Cheng: Senior Director of Investor Relations: Thank you, Emily. Good morning, and welcome to DSW's fourth quarter conference call. Earlier today, we issued a press release detailing the results of operations for the 13-week and 52-week periods ended January 30, 2016. Please note that various remarks made about the future expectations, plans and prospects of the Company constitute forward-looking statements. Results may differ materially from those indicated by these forward-looking statements, due to factors including those listed in today's press release, and our public filings with the SEC. We assume no obligation to update or revise our forward-looking statements. Joining us today are Roger Rawlins, our Chief Executive Officer; Debbie Ferree, Vice Chairman and Chief Merchandising Officer; and Mary Meixelsperger, Chief Financial Officer. Let me turn the call over to Roger. Roger L. Rawlins: Chief Executive Officer: Thanks Cristina and good morning. I am excited to be here today conducting my first call as CEO. We will start our prepared remarks with Mary's review of fourth quarter and the full year 2015 results and our outlook for 2016. Debbie will then follow with a discussion of our merchandising initiatives and after Debbie, I will outline our priorities for the year and leave some time for Q&A. Mary, please get it started. Mary E. Meixelsperger: Senior Vice President & Chief Financial Officer: Thanks Roger and good morning everyone. As expected, the fourth quarter was a challenging retail environment. As retailers are waiting to take clearance markdowns at the end of the season, we took aggressive action to drive the top line over the holidays with a focus on growing market share. These actions resulted in a 0.7% comparable sales increase for the fourth quarter on top of last year's plus 7.6% comp growth. Our promotional activity allowed us to exit the quarter with clean inventories and acquire new customers that came at the cost of substantially lower margin and earnings for the quarter. Comps were led by the athletic category, which increased by 15%. Women's footwear comped down 2%, while men's footwear comped up 2%. Record warm temperatures combined with the fashion downtrend in women's tall boots adversely impacted the boot category, which comped down 4%. Excluding the impact of both men's and women's boots, fourth quarter comps increased 3%. Overall, transactions increased by 4%, partly offset by a 3% decline in average dollar sales. In our affiliated business group, comp increased 4% on top of last year's 3% growth. The segment benefited from an effective merchandising strategy and less exposure to unseasonal weather. Gross profit declined by 300 basis points driven by higher markdowns to activate customers and drive traffic. We were disappointed with the margin erosion we experienced this holiday, but we gained new marketing insights that we will apply to drive profitable sales going forward. Operating expenses deleveraged by 200 basis points due primarily to higher marketing, CEO transition and IT expenses. The income tax rate was 310 basis points lower than last year due to the timing of the discrete items. Net income for the quarter was $11.8 million or $0.14 per share. Town Shoes of Canada, which was also impacted by unseasonably warm weather, contributed less than half a penny to earnings this quarter. For the full year, we increased comps by just under 1%. Total sales increased by 5% to $2.6 billion in 2015 with 37 net new stores. Our full year gross margin declined by 90 basis points due to the fall season promotional activity. Occupancy fulfillment and distribution costs were flat year-over-year as a percentage of sales. Operating expenses increased by 8.2%, delevering by 60 basis points, driven by increased marketing and stock compensation expenses. Income tax rate was 50 basis points favorable to last year. Net income was $136 million and full year diluted earnings per share of $1.54 declined by 9% from last year's $1.69 per share. Overall, share repurchases contributed two pennies to EPS. Total inventory increased by 1.5% on a cost per square foot basis. We will continue to aggressively manage inventory. At the end of the quarter, cash, short and long term investments were $330 million compared $447 million last year because of our share repurchase activity. For the full year, free cash flow increased by 27% to $132 million. We spent $30 million CapEx in the fourth quarter for a total of $112 million for the full year, with $52 million in stores, $28 million in technology, and the remaining $32 million in our supply chain and other business projects. The CapEx increase of 20% was primarily related to expansion of our fulfillment and distribution center capacity. With this project behind us, we are budgeting next year's CapEx to decline by 15% to $95 million. We returned close to $250 million in shareholder distributions this year with $180 million in share repurchases and $70 million in dividends. For the quarter, we repurchased 5 million for $116 million with $83.5 million remaining in our current $200 million authorization. As previously announced, the acquired Ebuys, Inc., a leading off-price footwear and accessories retailer operating in digital marketplaces in North America, Europe, Australia and Asia, as well as two company-owned on e-commerce brands. The transaction closed on March 4th. The purchase price was comprised of $61 million paid at closing and deferred payments contingent on Ebuys' future performance over the next three years. We expect Ebuys to contribute $0.04 to $0.06 per share excluding the impact of purchase accounting, transaction costs, and any fair market value accounting for contingent consideration. Turning to our outlook for 2016, we expect total revenue to grow in the 8% to 10% range, including a comparable sales increase of 1% to 2%. The opening of 32 net new stores and $100 million in revenues from Ebuys. We expect the growth margin for DSW will remain flattish. Before the impact of Ebuys, operating expense is expected to be 10% higher due to compensation expenses reversed last year and higher marketing, IT, store expenses and depreciation. Including Ebuys, we expect operating expense increase in the low teens. Adjusted earnings per share is expected to range from $1.54 to $1.64 per share, assuming a tax rate of approximately 39% and 83 million shares of standing. Our guidance does not include the impact from purchase accounting, transaction costs, and fair metric value accounting for contingent consideration of approximately $0.10 to $0.12 per share. We expect the impact from last year's share repurchases to contribute $0.10 of diluted earnings per share or 6% earnings depletion this year. With that, I'll turn the call over to Debbie. Deborah L. Ferree: Vice Chairman and Chief Merchandising Officer: Thanks Mary and good morning everyone. From a merchandising standpoint, we are glad to put 2015 behind us. In hindsight, we were disproportionately focused on organizational and system changes that took our eye off the ball in terms of providing customers with the products they wanted. This year we are putting products back into singular focus. We have a merchant leadership team that has demonstrated the ability to build compelling and differentiated assortment from our customer insights and product expertise. They will bring renewed focus and accountability as we execute our assortment strategy. In short, we will demonstrate our obsession with great merchandise. We will focus on three key initiatives: athletic, women, fashion and kids. First, the athletic brands continue to offer some of the most exciting and innovative products in the footwear space. We believe the strength of athletic is part of a lifestyle shift that incorporates the customers' desire for casual comfort with sport-inspired fashion. DSW's athletic business grew 13% and reached a record high of almost 13% penetration in 2015. We will continue to feel this momentum in both the core athletic and the non-athletic fashion categories by putting women's and athletic at the center of our customer communications and marketing campaigns this year. Second, we will revitalize the women's business by testing and delivering new fashion with greater agility and speed. We are very encouraged by the early reads we have seen this quarter in categories for lead elevated product freshness. At the same time, we are going to engineer greater value and differentiate our assortment to credit brands, opportunistic buys and brand exclusives. We are implementing strategies to better bridge transitional periods between the seasons, we will continue to evolve our strong relationships and the strategic vendor partnerships that maximize future opportunities to expand DSW's role as a growth channel for many of our key brands. Lastly, we are launching children's footwear. We successfully sold kids online since 2010 and piloted kids' footwear in 22 test stores last year. We will launch our kids' assortment in 220 stores in time for the back-to-school season this year. This assortment will include a wide range of athletic and non-athletic boys and girls, use and toddler footwear. We will create an exciting kids department that enhances the space dedicated to other existing categories. In summary, with our initiatives in athletic, women's and kids, we have confident we will expand market share in footwear and drive profitable growth in the long term. Before I wrap up, I'd like to say a few words about Roger. Roger and I worked together for the last 10 year and Roger has proven himself as a dynamic leader. His strategic vision has guided our company to our digital evolution and under his leadership, I am confident we will continue to transform DSW and drive shareholder value in the years to come. With that, let me turn the call over to Roger. Roger L. Rawlins: Thanks Debbie. Today we want to provide you a clear sense of what we are doing at DSW to deliver results, enjoy performance in the evolving and dynamic retail space. For the past 10 years, I have been part of DSW's journey to become America's favorite place for shoes. As we look forward to celebrating DSW's 25th anniversary this July, we recognize that we become one of the largest foot wears in the United States because we have a special gene in our DNA. We are disruptors. We are one of the first to offer convenient open selling model for footwear and everyday value to our customers, and to launch a rewards program 24 million member strong today. The combination of these strategies created a unique concept in the footwear marketplace. While we're proud of our history, we are not satisfied with the financial results we have delivered for our shareholders the past two years. And while we've taken important steps to position DSW for sustainable growth, we have much more we need to do to maximize the full earnings power of DSW, Inc. For example, we will move faster to identify what works and even faster with what doesn't. We will expand deliberately into new markets with the right banners and store format. We will extend our customer reach through new categories, and we will acquire new strengths to compete in ways and places that are relevant to the customer such as our recently announced acquisition of Ebuys. Since stepping into my role three months ago, we have reassessed our priorities and developed a series of actions to deliver on each of these fronts. Today, let me share how our management team is leading the charge to restore sustainable and profitable growth at DSW. I'd like to summarize our actions with three words: focus, tempo, and disruption. First, we must focus on our attention on products and how we differentiate DSW's value proposition. Over the past two years, we have implemented systems and process changes that took time and energy away from the central task of merchandising, placing the right product in the right place at the right time and at the right price. We still have a number of initiatives we need to complete, but we are focused and sequenced to future initiatives to give our merchants and supply chain teams the chance to digest and utilize the new tools before adding new capabilities. As Debbie mentioned, we will focus our merchants on building a differentiated assortment through exclusive vendor offerings and transitioning from what today are private labels and into true private brands. We will support our product focus by increasing our marketing resources so that we can effectively amplify our value proposition across all customer touch points. This effort is already underway. This past season, we launched a marketing campaign that drove positive store traffic, attracted new customers and activated the highest percentage of rewards customers in our history. A key element of focus includes a stronger emphasis on the digital space. Digitally demanded sales grew by 22% in 2015, with more than 35% increase in the fourth quarter. We expect this growth in digitally demanded sales to continue in 2016. Importantly, with 70% of the US population within 20 mile of a DSW location, we have a tremendous opportunity to leverage our brick and mortar network in fulfilling digital order and providing customers with the flexibility they want. During the fourth quarter, stores fulfilled almost 30% of total digital orders. In order to take full advantage of this, we are motivating our field and building tools to maximize these omni-channel capabilities to remain engaged with the customer. Now let's talk about tempo. The rapid evolution in consumer behavior demands that we operate at a different pace. We clearly demonstrated this skill in Q4. After we experienced very difficult third quarter, we gathered a team of key leaders and challenged them to change the trend. We knew the bottom line of Q4 would not achieve our original budget. But we did not want to standby and give up market share to allow unproductive inventories to build. Upon their recommendation, we intensified our marketing efforts with weekly deals and compelling offers for the holiday gift giving season. The results were immediate. Despite a very promotional holiday season, comp trends changed almost 500 basis points from third quarter to fourth, with positive store traffic and market share gains during the important holiday season. This is the kind of creative tempo that we are going to apply going forward. In addition, the tempo we demonstrated in launching Buy Online Pick-Up In Store and Buy Online Ship to Store together in just six weeks was instrumental in driving the increase in digitally demanded sales in the fourth quarter. In fact, ComScore identified DSW as the third fastest growing retail e-commerce business in terms of unique visitors during the holiday period. To advance our priorities, we recruited a number of successful executives into the company with significant experience building consumer brands within fast paced growth-oriented businesses. Our Chief Commercial Officer is new position within DSW and will have responsibility for growing the reach of our affiliated business group, expanding the DSW brand internationally, and continuing innovation. Our new SVP of Planning and Allocation will lead our efforts in optimizing our supply chain. Our new Chief Marketing Officer who was instrumental in pushing our boundaries this holiday season will spearhead a powerful marketing campaign for DSW. And our new Senior Vice President and General Manager for the affiliated business group will drive our existing business and attract new partners. As you can see from these additions, we've been busy building a team of talented professionals that will take our business to the next level. So let's talk a little bit about disruption. As I mentioned earlier, DSW has historically been very successful in disrupting the footwear industry. We intend to build on this mindset. In 2016, we will officially launch kids footwear in half of the DSW stores during back-to-school. Our research points to a meaningful opportunity to grow DSW's presence in kids. We will continue to grow our brand in Canada with 10 new DSW stores opening this year and we will continue to explore opportunities to grow outside North America. Finally, with our acquisition of Ebuys, DSW will expand into new markets, regions and digital channels. Ebuys expands DSW's target ecosystem with the addition of the differentiated pure play off-price model. At the same time, this acquisition expands our buying power and off-price sourcing capabilities. And finally, Ebuys customer base will open new entry points in the international markets that we expand in the long term. In summary, while we have made progress, we are not satisfied. We're committed to focusing on products, competing at a different tempo and adding new disruptive capabilities that will bring the kind of growth that we and our shareholders expect to achieve in the long run. With that, I will turn the call over to the operator for questions. Question & Answer Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from David Mann of Johnson Rice. Please go ahead. David Mann: Johnson Rice: Yes. Thank you, good morning. Congratulations Roger on the transition and sort of the recovery in Q4. Roger L. Rawlins: Thanks David. David Mann: Question on margins with the flat margin guidance for 2016. I am curious on the puts and takes here in terms of merchandise margin and what you expect to, how we should think about occupancy and distribution leverage. And then can you also talk may be a little bit longer term is sort of this kind of gross margin just about 30% or well below that? Is that how we should think about the long term margin structure? Thank you. Mary E. Meixelsperger: Hi David, this is Mary. I'll take the first part of -- the last part of your question first. So on long term margin structures, we really see the margin performance that we had in '15 as a floor with an opportunity to expand margins through the system initiatives that we've been working on and other types of initiatives going forward. So while we think that the '15 performance was disappointing, we do view that as a floor for our margin levels going forwards. And for '16, first part of your question, we think we will get back some of the promotional margins we saw in the back half of the year. We will see some offset to that with some additional pressure shipping, as you could see from our -- increase in our digitally demanded sales. We expect to have some additional shipping cost pressure on margin. So overall we are guiding to margins being flattish for the year in '16. David Mann: And then just one question on the children's expansion, can you give us a sense on the amount of square footage you expect to dedicate to children in the stores and would you expect that to pull away from other categories or you think you can just sort of fit -- shoehorn it in, if you will? Deborah L. Ferree: Good morning David, this is Debbie. So for our first 200 stores, the ones that we will open for back-to-school, what we were able to do is we went into stores that it would have no impact at all to the current square footage that we are dedicating to the rest of the categories. In other words, we have room to actually put the kids in without disrupting any of the other categories. As far as square footage, I don't have exact square footage, but I will tell you that it's about, there is about 200 to 250 customer choices in children's department and that fits very nicely in the current stores. As we look to the future, we are going to have to look at how we create that space in the stores and we will be looking at inventory efficiency categories that perhaps aren't performing quite as well. So, that is the next tranche of work we will have to do to roll that out in the next year. David Mann: Thank you. Roger L. Rawlins: And David, to add a little bit more color regarding kids, obviously we are doing it because we want to grab market share within the kids category. But it is also about adult footwear. I mean, we see that when a customer is a part of DSW and engaging with DSW before they have a child, we have a certain market share. Once they find there are significant other, we sort of maintain that market share. When that child is born our market share cuts significantly on the adult side, and then when that child leaves the house, we get right back to where we were before they had a child. So, our goal is to obviously grab kids' market share, but it's also about not walking them to our competition once they have a child in their home. So, it's a combination of both kids, but also how it drives adult share. David Mann: Thank you and good luck in '16. Roger L. Rawlins: Thank you. Operator: Our next question is from of Eddy Plank of Jefferies. Please go ahead. Edward Plank: Jefferies: Good morning, thanks guys and welcome Roger. Roger L. Rawlins: Thank you. Edward Plank: Debbie, you commented on being pleased with early merchandise results, some of the changes you made. I guess how should we think about the opportunity for spring from a trend perspective and maybe how much the stores -- athletic you're building into your expectations at this point? Deborah L. Ferree: Sure, so let me just back up for a second and say that when you look at the basis point improvement from Q3 to Q4, in those categories that were a little bit weak and I would say that was with dress and casual. We saw a significant improvement from Q3 to Q4 and we are continuing to see that improvement even as we start the new year. I think this came from some of the fresh new trends and let's about the women's business first and we'll talk about athletic in a minute. So, in the woman's business beginning in Q4 we really recognized that the industry was, it looked a little bit flat. And so, we started to test some new items, new categories, new products and we saw some immediate positive reaction from our consumer. We got back into those items very quickly and are starting to see those very positive results now, and those really speak to some of the trends that I think are pretty exciting for the future. I mean, if you look at the dress category, should these continue, the straps, new block heels and the flat category, all the lace-ups and new sport that's occurring, I mean, these are products that really didn't exist at this time last year. So I'm highly encouraged by us testing, learning and actually being able to get back into inventory positions that are actually proving out very positively right now. As it related to athletic, I think the full athletic business, it's truly a lifestyle shift and it's happening not only in performance but in fashion. It is actually testing out very well in the athletic category, but also in the non-athletic categories, in women's. So, you're actually seeing the full athletic at leisure trend across the business, not only in the women's business but in the pure athletic business. As you know, if you go back to previous earnings calls, you'll see that we've reported double-digit comp increases in the athletic space constantly through '15 and we're not seeing that trends stop even through the first few weeks of the year. So I don't see it stopping, I think that it's being fueled by fresh products and it's also a lifestyle shift that's here to stay. So I'm very encouraged by it and we're able to get the right product to continue to fill this business. Roger L. Rawlins: And Eddy, I think whenever in our scripts or comments about getting this team focused, I think taking some projects that we had on the list for Debbie and her team that were planned in '16 or beyond to remove some of those things and really empower them to go find the product and manage our inventories in a conservative manner and power this team to go find the right product and we've had history of doing that. So that's -- when I talk about tempo and how we're going to move at a different pace, I've witnessed this team doing that in the past and that's what we are trying to get back to. Edward Plank: Great. That's really helpful. Thank you for the detail and best of luck. Deborah L. Ferree: Thank you. Operator: Our next question is from Scott Krasik of Buckingham Research Group. Please go ahead. Scott Krasik: Buckingham Research Group: Yes, hi everybody. And congrats Roger, welcome. Roger L. Rawlins: Thank you. Scott Krasik: So one of the big questions we get maybe for Roger and Debbie, how you view your brick and mortar competition at this point, how you think about your value messaging, you mentioned increasing your marketing investment? I am wondering, if that related to that and whether you feel like you need to do anymore on the price side to improve the value message or if you've done enough? And then I have a follow-up. Thanks. Roger L. Rawlins: Thanks Scott. What I would tell you is I think as I look at the competitive landscape and sort of where we fit, stores are a huge asset to us and I use this example a lot here in the office. I talk about the fact that we have now 470 fulfillment centers that we open the door to every single day. That is the competitive advantage. Rather than just building a warehouse and only selling digitally, we open the doors to those warehouses every single day. So we want to use our stores as a weapon both in how we compete in the brick and mortar space, but also and more importantly in the digital space. I think the example we have with Buy Online Pick-Up, Buy Online Ship to Stores, as we mentioned in the call, being within 20 miles of 70% of the US population, those are all things that we think allow us to compete differently. We do believe that there is opportunity to continue to grow our store base and we are working to figure out how big that should be and we'll have some answers for that later this year. As it relates to the promotions and discounting and some of those things, I think it comes back to the conversations we've been having here around focusing on our product. How we differentiate our assortment, how we create exclusives that are available only at the DSW, how we collaborate with our brands to build different, again different product, how we increase our close-out penetration and how we pass that value on to our customer and as we both mentioned in the script, how we take our private labels and turn them into private brands. I will tell you the work that our team has done on Mix No. 6 as we've launched that this spring, it looks like a brand. And that's what we are trying to accomplish. So, those are ways we see that we can compete both in the brick and mortar space as well as in the value space. Scott Krasik: And then before I -- just comment on pricing, what actions you've taken versus what you see in the future? Roger L. Rawlins: Debbie, do you want to...? Deborah L. Ferree: Yes, so I think the way I look at that we are not going to operate defensively. We have a strong merchant team that is very product-focused and we have a demonstrated ability to be able to get that right product in to the consumers' hands. As far as pricing is concerned, yes, we look at every single item, we're aware of what's happening in the marketplace, but we are going to offer a sale value to our consumers that allows us to deliver the financials that we need to deliver within the company. So I think that a few examples of how we might be sharpening price points are we are going to increase our close-out penetration, but there have to be the right close-outs. Number one, the products have to be right. So we are going to increase the close-out penetration. We are selectively taking some of our terrific private brands and we are taking some key items and we are really sharpening the price point there by working very, very hard on putting a cost and a proceed value, quality in the product that we will be able to offer our consumers some great value so that they have access to some really terrific items, trend items for the season. And so we work -- some of those are value propositions through our private brand. But overall, we feel that 2015 behind us, we really have a strong understanding and lock on what we need to do to deliver this great product at great value to the consumer. And I think when you look at early indication to this spring season, you are seeing that demonstrated. Roger L. Rawlins: And Scott, I think it's important that as we think of how we compete, we are not going win, no one is going to win if all of you are competing on its price. So we have to look at our entire value proposition. So our value proposition is price, it's information, it's the experience we can create within our business. And so our team is working hard to figure out what are those experiences we can bring to life that it's, you're not just coming to us because you can get something at a discounted price. You are getting it because it's available at DSW and it might not be available anywhere else. Scott Krasik: That's helpful, thanks. And then just last, how do you look at Ebuys longer term? Is this a scalable business, is this an acquisition vehicle? Do you just think that with capital you can make it bigger? Just wondering how you are thinking about that business longer term. Roger L. Rawlins: What we were really excited about when we looked at Ebuys opportunity was within this team, because we have been here for quite a while, it reminds you that's what DSW was when it started. That was primarily was just how closed down, and the excitement that came with being in that space, that charger hunt. And we believe, one, we can provide them access to more products than what they have today. We love the fact that there is probably some synergies that we can extract being in this relationship, and ultimately we think that they are going to enter into markets and through channels that today DSW, we are just not familiar with. So we think it's a win-win. We are going to be able to help them to grow their business and to grow it in a very profitable way, but at the same time they are going to help us grow and think differently about the way in which we operate. So, we are really excited about the opportunity. Scott Krasik: Okay, good luck. Thank you. Roger L. Rawlins: Thank you. Operator: Our next question is from Kelly Chen of Telsey Advisory Group. Please go ahead. Kelly Chen: Telsey Advisory Group: Thanks guys and congrats on a nice quarter with a nice turnaround in comps. Roger, you'd mentioned changing the tempo, implementing VPOs as one of the example. I was trying to get sense of how much of those actions do you think was in response to just environment being extremely tough in the fourth quarter and being -- would that be more temporary in nature? It sounds like some of those actions are necessary and going to continue into 2016. I was just trying to get a sense of if you are going to continue some of those actions -- I know 2015 and 2016 gross margin kind of at a trough level, but do you think you can get back to a 32% gross margin which is where you guys were at a couple of years ago or structurally how much is that going to impact the gross margin? Roger L. Rawlins: Sure. I think in the fourth quarter we took a lot of actions and some of those are things we learned that were fantastic and that we will repeat as we head into 2016, and some of them we look back as we hindsight fourth quarter and said, you know what, that's not the direction we want to take and also that might not be right for the DSW brand long term. And I will tell you, I am excited about we have a team that's dedicated to figuring out which of those items we are going to use as we head into 2016. As it relates to the long term view on margin, when we get back to where we were in our peak, that I don't think I can answer right now. I think there is upside, as Mary mentioned, to our margin rate. But I will tell you I think we are going to be really focused on margin dollars. I mean, if we were focused on rate, we might not be as aggressive as we are being right now on the athletics space, which historically that category is 500 basis points less in margin weight than it is in the women's fashion category. But, you know what, we are going there because that's where she is going. Kids is an example, not the highest gross margin rate business, but while we can grab market share and we can grab gross margin dollars is what -- which is what we take to the bank. So, work for us to get back to those rates, but that's not our primary focus. It's about we are grabbing share and ultimately we will grow bottom line with that share. Kelly Chen: Great, thanks. And then for Debbie, I was wondering you had mentioned obviously, I thought I kind of, at leisure is really strong. Could you talk a little bit more about the women's side as a business? How do you view the fashion now? Is there anything that excites to now in spring? And then early thoughts on if boots were weak this quarter, what does that mean for AURs this year and how can you help offset some of the weakness there? Deborah L. Ferree: Okay. So thank you for those questions. I will answer the woman's first in terms of just general overall trend and then I will answer the boot question. So as I stated a little bit earlier, what we did is we started to see some fresh new products come out of some of our key brands, probably end of third quarter beginning of fourth quarter. We identified, we tested those, we identified them very quickly and we are able to get the correct inventory levels of those products that we are selling back into the inventories for Q1 and going forward. So I think the thing I am most excited about is the trends that we're seeing right now in the products that are doing very well, haven't been in the customers' closet before. So, if you just look at the dress shoe business which has relied so long on plain comps. Right now opened up styles or selling shooties or selling strappy shoes, walk heel. So there is a whole change in the look of what the dress shoes look like and it's actually resonating very strongly with the customers. In the casual category, which, as you know, it actually had about an 800 basis point improvement from -- in comp performance from Q3 to Q4, it's now doing very well, towards the positive comp side. And the reason it is, is once again fresh new styles there. So, two big things, a lot of newness in the flat category which was really kind of stale for a while; and then, we're starting to see some of those four sport at leisure styles show up in the women's casual business and it doesn't just reside in the athletic category. So, I am really excited about that and like I said, the inventories are positioned to take advantage of what the customer has stated that they really like. As far as boots is concerned, so boots in the fourth quarter comped down by 4%. Tall boots in 2014 was over half of our business. Last year, it was about a third of our business, but it comped down about 30%, a little higher than 30%, about 34%, and that was because I think that there was not a lot of freshness and newness in that category. But the other categories, booties and cold weather comped up significantly, and without sharing the exact numbers, they were very, very high comp numbers. We're seeing the bootie trend continue into Q1. So, I like what I am seeing right now for Q1 , but how do I look at fall 2016. All of the brands, I believe for a little bit reluctant and slow in showing new products in December of -- this past December Shoe Show and I'm glad that they were because what happened with boots last year, there was a lot of sameness, stale, not a lot of freshness and I think everyone had to step back for a movement and say what are we going to do to reinvigorate and re-energize boots. What I just saw coming out of two trade shows in February was actually very exciting and the boosts on the floor for this fall will not look anything like they did last year. The market did a remarkable job in really updating and really getting our customer reason on why they should pull money out of their pockets for boots this fall. So I'm very encouraged and pleasantly surprised about what I saw and I think we will capture the benefit of that this fall season. Kelly Chen: Fantastic color, thanks guys and good luck. Roger L. Rawlins: Thank you. Operator: Our next question is from Jessica Schmidt of KeyBanc Capital Markets. Please go ahead. Jessica Schmidt: KeyBanc Capital Markets: Hi, thanks for taking my question. Can you just talk about technology spend going forward? I know you are pulling back on CapEx next year, now that you completed the project. But I guess how should we think about the ongoing technology investment going forward, just given how important the digital channel is? Mary E. Meixelsperger: Yeah, hi Jessica. This is Mary and we do expect to continue to invest in technology. One of the areas in our SG&A growth next year will be some de-leverage related to our technology spend. So that's definitely an area that we think is important to invest in as well as continued investments in marketing in 2016. So overall, continues to be important. We are very much kind of picking our places in where and how we want to invest, especially that allows us to really leverage investments that we have made previously in 2015 and prior so that we are really getting the full returns on those investments that we have made in the past. So there are certain areas of the business, as Roger had mentioned, especially within our merchandise and supply chain, where we are going to focused on leveraging the dollars that we have already invested and looking at other ways within the technology spend that we can leverage. Specifically, one of the big projects we have this year is on our site redesign. We mentioned to you that we had upgraded and re-platformed our dotcom site in 2015 and now we are taking advantage of that new technology to be able to redesign the site and we expect that to really benefit the back half of 2016. Roger L. Rawlins: Jessica, I think exactly as Mary described, I think we spend a lot of time and effort in dollars in developing really these omni-channel capabilities I think that we are all really proud of. Where we are going to focus our attention now is more on the customer-facing side. So that's the site redesign, that's how do you bring to life the fact that we are carrying across our chain somewhere close to 25,000, and depending on the day, 30,000 choices, that's styles and colors. But in any one individual store, there is may be 2000 or 2500 or as low as 800 in a small market. We want to build tools and capabilities that bring to life that broad assortment to our customer so that they can experience that through whatever devices they are wanting to experience that through. So the vast majority of our investments at least in the next 12 to 18 months will be more on the customer-facing types of opportunities. Jessica Schmidt: Great and can you just talk about trends in the accessories business and I guess have you seen any improvement in the handbag category? Deborah L. Ferree: Sure. So last call what we decided is we really needed to take a deep look inside of our handbag and accessory business and we needed to, what I call, right-size the handbag area. So what we did, we took our focus on a piece of it, which was, I'll call it call the affordable fashion piece, so the modern piece of the business. We have seen positive results there, we have started to comp positively in regular price in that area based on the adjustments that we made. So I am encouraged about what I am seeing in handbags right now. The bigger piece of the increase for fourth quarter was in all of the ponchos and the blanket wraps and things like that, and I think it's a very fun time right now as there are some pieces of the apparel business that have actually crept into the accessory business that we actually have done very well with. And then the other piece of it is there are some small items like bags and things like that that are great opportunities for you to really add an incremental sale to your handbags. So I am actually encouraged by what I am seeing in accessories right now. I think we right-sized the business. We planned the categories appropriately coming out of fourth quarter and you will start to see improvements in that business, not only ion handbags, but a majority area and some of the other smaller businesses within accessory area. Jessica Schmidt: Great, thank you. Deborah L. Ferree: Welcome. Operator: Our next question is from Chris Svezia of Susquehanna Financial Group. Please go ahead. Chris Svezia :Susquehanna Financial Group: Good morning everyone, thanks for taking my questions. I guess first, just Debbie, for you. Just your thoughts about the inventory that's out there, the opportunistic buys that are out there, any thoughts year-over-year about how you think about the opportunities within that category? And to back that up a little bit, any thoughts about initial mark up, I think last year you were able to get some benefits in terms of sourcing and negotiations that were positive on the margin. Just any thoughts, do you think about this year when you couple that with opportunistic buys as well? Deborah L. Ferree: Good morning, Chris. The opportunity buys for last fourth quarter were a bit flat. We are seeing the normal amount of risk come out of the market right now. But I will tell you a lot of the lists that we saw early were really in tall boots, and frankly not really anticipated there because that product really looks more like last year to me than go forward merchandise and I think our investments will be made. It will be a balance over the few close-out buys in that category, but I think the best investment will be is to put our money into forward facing products in the boot category. As far as the other categories right now, we are not really starting to see any lift of any significant. I thinks it's still early in the game. So I think it's to be determined in the close-out space what we'll find. But there are always goods out there. In terms of initial mark-ups, I will tell you I would like to maintain I and you to last year and I would like to show improvement. I think there are places that we're working on that will really help us there. In terms of growing the private brand opportunity, there is an opportunity to grow some initial market-ups there. In terms of close-out buys, depending on what we are able to access, we can either pass it to the customer or hold on to a little bit of that for ourselves and I won't know, Chris, until I actually start seeing those lifts. So I do know that costs are going down slightly, and there's a lot of difference points of view on what the percentage of that is, but we are seeing a little bit of an improvement in some costing, especially in the women's area. But I think it's too new to -- it's too early in the game to call that on the season right now. Chris Svezia : Okay. Thank you. And then Roger for you. I am just curious when you talk about projects that you are holding off on, on the supply chain side, can you may be a little more elaborate about what areas you are holding off and I think assortment planning was, correct me if I am wrong, still in the pipeline. Is that still going on? And I have one just follow up question on kids. Roger L. Rawlins: Yeah, Chris, so we've spent a lot of time and effort over the past couple of years in the merchant world there, I would say, and the supply chain world and assortment planning is by far the biggest initiative that we have going on there. We need to digest what is assortment planning and that's why we have sort of placed on hold some other things that were around the enterprise planning type of adjustments we were re going to make because ultimately we've got to be able to use the tools that we've built demonstrate that it's adding the value that we wanted. That's the approach that we are trying to take. Chris Svezia : Okay, thanks. And just quickly just on kids, a competitive arena, how do you think about getting exclusives special make ups in products? Just any color about the SKU in teen athletic and casual, just any more color about that category and how you differentiate that versus who know we know is already out there and well penetrated in that category? Deborah L. Ferree: So, Chris, could you -- I am a little confused by your question. What I heard was is how you are really going to be differentiate yourself and then I think you said -- mentioned something about athletic . So can you just be a little bit more specific so I can answer your question accurately? Chris Svezia : Sure Debbie. So, I guess I am just curious there is obviously a lot of competition in that space that play into kids and I guess I am curious how DSW will differentiate versus other players who have been in the marketplace in the kids category, whether it's category-specific, whether it's special make-ups, whether it's -- just curious really how you are going to differentiate DSW and be very profitable in kids footwear going forward? Deborah L. Ferree: Sure. Thanks for that clarification. So, in the children's area, by the nature of the business, it does have a lot of athletics in there, right? So, we're going to offer that to the consumer based on the customer information on we know, on what we know that she wants. But as far as the other parts of the business, we are starting to develop some private brands within our kids space that we already have in our casual hosiery business and I think that that's going to be one part that's really going to help us differentiate. So, I think you'll probably see quite a bit of consistency in the athletic space in kids department. Some of it you are going to see in other places, but as we work with these individual brands, what we're going try to do is we're going to try to differentiate assortment by sorting some other types of shoes and also doing our own private brand to be able kind of offset that a little bit. So, I think that answered your question. Chris Svezia : Now it does. Thank you very much and Roger, all the best to you. Roger L. Rawlins: Thanks Chris. Chris, one other thing I want to clarify is our assortment planning tool is in. So, that has been installed. That's when I said that we're not working on anything else, it's now that we've installed that, we need to make certain we use that in a way that will actually impact the business in a material way go forward. Chris Svezia : Got it. Okay, thanks. you. Roger L. Rawlins: Thank you. Operator: [Operator Instructions] And the next question is from Taposh Bari of Goldman Sachs. Please go ahead. Taposh Bari: Goldman Sachs: Good morning. Roger, I was hoping I can get your thoughts on how you think about store growth, long term store targets. Is that around some of the comments that you made around the digital growth you had both in '15 and the quarter? Roger L. Rawlins: I think as we look at stores, as I mentioned before, there are some real competitive advantages to stores and we don't believe we have built out our footprint as big as what we think it can be long term. I will tell you I am in the process of working with our team to figure out what do we think that looks like. But I will tell you our new store performance for 2015, we are actually very satisfied with the results we generated. They achieved our ROI targets as we look at the business, even the small market doors, we can see that that's generating significant incremental volume to the business. What I think we got to sort of understand is what's the right type of experience we want to create in smaller markets and is that right for that to be a representation of the DSW brand if it's only 6000 or 8000 square feet. And if we can solve that or when we solve what that's going to look like, that creates all kinds of opportunities for us to expand through brick and mortar and digital combined. So I think giving you specifics on how many doors we think we can get to in the future, we are not ready to answer that question today, but that's work our team is working on right now. Taposh Bari: Okay, thanks. And then Mary, just a couple of follow-ups in terms of the data you usually provide, merch margins, can you tell us what the change was in the quarter and the composition of that vis-a-vis IMU? And then how are you expecting or how you are planning merch margins as part of your guidance for '16? And then on the accessories comp, usually you give us the accessories comp, can you tell us what it was in the fourth quarter? Thanks. Mary E. Meixelsperger: Sure. In terms of the actual merch margin changes for the quarter, our total merch margin was down by about 300 basis points and about 250 basis points of that was related to kind of promotional mark downs that we took during the quarter. The biggest other factor during the quarter was shipping. We did see a de-leverage in the shipping rate of 50 basis points. And then we had some offsets, we had some positive impact from our reward reserve and that was offset by some unfavorability in IMU that kind of netted out to nothing. So, the two big impacts were related to the markdown rates and the related promotion, marketing promotions and then their shipping rate. And in-terms of accessories comp, do you have, Debbie... Deborah L. Ferree: Yes, were down 4... Mary E. Meixelsperger: Accessories comp was down 4% for the quarter. Taposh Bari: And how are you thinking about merch margins for next year? Mary E. Meixelsperger: The merch margins for next year, I mentioned it a little bit, we're expecting to get some of the promotions back, the promotional markdowns in the fourth quarter back in that important, it's going to be offset a little bit by shipping, we think, there's about 10 basis points de-leverage in shipping. We think there is some de-leverage in our rewards program of about 20 basis points. I didn't mention earlier that we do think mix is going to have an impact both for from athletic as well as from the kids program, the kids launch. We think that mix impact on margin is unfavorable by about 20 to 25 basis points. And then we've got a number of other little things playing in there. So, broadly we think that the margin is flattish but there is some put and takes. Taposh Bari: Okay, thanks and best of luck. Mary E. Meixelsperger: Thanks Taposh. Operator: Our next question is from Sam Poser of Sterne Agee. Please go ahead. Sam Poser: Sterne Agee: Good morning. Thank you for taking my question. I guess you mentioned, Roger, that sort of need to increase the speed to identify good sellers or forced sellers. And I wonder how much of that is merchant sort of touch-related versus systems, optimizing systems related? Roger L. Rawlins: I would say that as we look at our business, we believe in our merchant team, Sam. I think that to me is the thing that we are going to leverage. And I mean, this is -- our belief is that we've had a lot on their plate and they have been distracted. And when they have the ability and the time to be able to sit down and evaluate how things are performing and react to that, we've demonstrated in our history that we can respond. So for me, a big chunk of it is our merchants. There are also new system capabilities that we have installed that we need to leverage. And so I think, Sam, it's a combination of those two things. I don't think it's one or the other, it's a combination of both. Sam Poser: And then Debbie -- thank you. Debbie, you mentioned that you expected to be -- initial markup to be around flat, but the initial markup on kids and/or athletic, especially the branded stuff is significantly lower than even branded dress footwear, women's dress. So how do you get to flat or was that more of a comment -- I mean, is that just flat relative to where your gross margin is going to be at the end of the day? Sort of is that lining up with where you guys expect the growth to be? Deborah L. Ferree: So, the penetration of athletic is about 14%, kids is not really -- I mean we are going to open another 220 stores for the back half of the years. So, that's not really and it's very small dollars for the back half in kids initially for next year. So I think the way you have to look at it is we're falling to a flat gross margin and then there are other levers within the gross margin that we are going to need to pull to be able to hit that flat gross margin. I think that when you increase closeouts and you're sharper on your pricing, your expected sell-through should get higher regular price, Sam, and it should suggest that you can control your markdowns a little bit better. So I think that big store years, flat gross margin and then we have to play with those levers underneath the covers to be able to hit that flat gross margin. Sam Poser: And I could -- just lastly -- can we assume that most of the gross margin recovery is going to happen in the back half of the year and you'll probably still be pressured in the front half of the year? Mary E. Meixelsperger: Yes, I think it's fair to say that most of the recovery relative to the promotions we took will be driven more in the back half of the year, but we typically just -- we don't give quarterly guidance in terms of how that's going to play out. But it's fair to say that more of that margin hit we took happened in the fourth quarter that we will be recovering. Sam Poser: Thanks. Thank you very much. Operator: This concludes our question-and-answer session. I'd like to turn the conference back over the Roger Rawlins for any closing remarks. Roger L. Rawlins: Thanks everyone for joining us today. I want to make certain I reiterate our commitment to generate steady top-line growth, increase profitability through the words I described: focus, tempo and disruption. There is a significant amount of work that we have ahead of us, but we're convened that we have created a strong foundation that's going to allow us to get DSW back to the long term sustainable profitable growth that all of you are looking for. Thanks for your continued support of DSW and I look forward to meeting and updating you on our progress some time here in the near future. Thank you. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.