Caleres Inc Q2 FY2020 Earnings Call

Good afternoon and welcome to the Caleres Second 2020 Earnings Conference Call. My name is Erika 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 were provided. As a reminder, this conference is being recorded. At this time, I would like to turn the call over to Logan Bonacorsi, Vice President of Investor Relations. Please go ahead.

Good afternoon. I would like to thank you for joining our second quarter 2020 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 that 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 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, Chairman; and Ken Hannah, Senior Vice President and CFO. We will begin the call with brief prepared remarks and thereafter we will be happy to take your questions. I would now like to turn the call over to Diane Sullivan. Diane?

Thanks Logan, and good afternoon everybody. Thank you for joining our second quarter earnings call and for your ongoing support of our company. We hope that you and your families are staying healthy and safe. As I did last quarter, I'd like to extend my thanks and my gratitude to the Caleres team for their resilience and ongoing dedication as we continue to navigate this rapidly evolving environment. We once again demonstrated our ability to collaborate effectively, work efficiently, and respond quickly to ever-changing market conditions. As we have stressed in the past, the health and the well-being of our associates, our consumers, and our communities has been a guiding principle in our decision making over the last several months. And this will continue to take priority through the duration of this global health crisis. Before I jump into our results, I'd like to take a step back and remind you why Caleres as a whole is positioned to be successful now and over the long term. First of all, our brands relate well to the consumers’ ever evolving mindset, changing preferences, and dynamic behaviors. Casual, athletic, and sport inspired styles currently in demand by consumers make up a large and growing part of our portfolio. For the trailing 12 months, approximately 85% of our total product mix resided in these categories. Also, our previous investments in our capabilities and e-commerce business has positioned us exceptionally well to capitalize on the accelerating shift to online purchasing. Illustrating this progress, for the trailing 12 months, our e-commerce penetration grew to 27%, up from 18% during the previous 12-month period. We will continue to look for ways to invest wisely in our digital platform, as we progress through this new marketplace. And finally, our foundation is built on putting the consumer first in everything we do. With that in mind, the vast majority of our business has been and is direct-to-consumer. Now turning to the second quarter. While we still experienced a significant impact on our business due to COVID-19 and the resulting economic disruption and retail shutdown, the company made significant progress during the period reflecting the success of the approach we implemented at the onset of the pandemic. For instance, Caleres recorded sequential improvement in a number of key financial metrics versus the first quarter of 2020, including a 26% increase in net sales, driven by robust e-commerce sales and an acceleration in the opening of our stores, resulting in a 16% improvement in adjusted gross profit and a 56% improvement in our adjusted loss per share. In addition, we advanced a number of our strategic objectives that are helping to drive our recovery. First, the organization executed a phased and efficient reopening of our retail store fleet. By mid-June, a vast majority of our retail stores were open for in-store service with enhanced safety measures and protocols. At the same time, we are offering contactless curbside pickup at roughly 60% of our locations and are continuing to utilize the network of stores as distribution points to support our growing e-commerce business. Second, the shift from consumers to online purchasing accelerated during the period with Famous Footwear and Brand Portfolio continuing to capitalize on this ongoing shift. In fact, direct e-commerce sales, which includes sales from our own e-commerce sites and dropship business, expanded 80% year-over-year and grew roughly 37% sequentially. Notably, e-commerce sales made up 34% of our total sales mix in the second quarter, compared to about 17% in the same quarter of last year. I will detail specific e-commerce growth in just a few moments. Finally, we continue to rigorously manage our expenses and working capital during the period. Reflecting the strength of these initiatives, we generated approximately $67 million of cash from operations during the quarter and used that cash to restart our debt repayment efforts. In total, we reduced the borrowings under the credit facility by $88.5 million, effectively cutting in half the COVID related borrowing increase that we incurred during the first quarter of 2020. We exited the second quarter with roughly $150 million of cash and $350 million borrowed against our $600 million revolving credit facility. Now moving to our second quarter segment performance and the recovery of our businesses. The global pandemic has dramatically impacted the retail environment and the consumer landscape and accelerated a lot of change, forcing organizations to adjust to new conditions and consumer behaviors. And while both sides of our business have been affected, the pace of the recovery within each segment has been a bit different. Beginning with Famous Footwear. While the disruption associated with COVID-19 continued to pressure results throughout the period, there were a number of bright spots, including several that underscore what we believe are inherent competitive advantages. First, after a challenging May, we experienced a strong rebound in June, with the widespread reopening of our stores, pent up consumer demand, and ongoing strength in e-commerce driving the improvement. In fact, Famous achieved record sales in the month, exceeding last year's June sales by approximately $6 million. Second, our in-demand national brands and significant concentration in sport performance and leisure-oriented styles are well aligned with consumer preferences and the prevailing stay-at-home, work-from-home environment. In fact, these styles make up 95% of the Famous Footwear total sales mix, and it's our strong belief that in this uncertain environment, quality brands are more important than ever and that they provide consumers a sense of clarity, comfort, and confidence. A reflection of that is that our Top 10 brands represented more than 70% of our sales during the period. Third, we continue to lean into our digital capabilities to accelerate our e-commerce momentum. For the second quarter, Famous Footwear e-commerce sales grew approximately 150% year-over-year and improved more than 50% from the high watermark achieved in the first quarter of 2020. In addition, e-commerce penetration reached 25% of net sales, up from just 10% in the second quarter of last year. Lastly, at a time of heightened consumer health sensitivity and the ongoing desire that everyone has for convenience, we really believe that Famous has benefited from its strategically well-sited locations, which are highly concentrated in off-mall strip centers and outlets. We believe this advantaged geographic footprint, coupled with our contactless curbside shopping option, which is available in nearly 600 stores today, and a comfortable shopping environment, are particularly relevant and provide valuable support for the ongoing recovery of this business. Now, during this unusual time, one of the biggest questions that everyone is asking is what's going on with back-to-school. Back-to-school season for sure looks dramatically different this year. The uncertainty around school starts and the shift to distance learning across much of the country has certainly had an impact on the traditional back-to-school purchases, resulting in a sales peak that's much lower than the same period last year. As we progress through the third quarter, we're finding that the regions where school arrangements have been determined have seen nice improvements post-peak while conversely markets where plans have not been finalized have experienced declines. So looking ahead — as we see it right now, we expect the concentrated back-to-school buying activity that's typically taken place over a few weeks in late July and early August to be more evenly spread over an extended period of time. More specifically, while we are anticipating a sales decline in the traditional back-to-school time frame, we do expect Famous sales in the third quarter to improve sequentially, leading to a 15% to 20% decline compared to the third quarter of 2019. We are confident that Famous is prepared to succeed in any macro environment, and as we approach the balance of 2020 and beyond, we will make sure we continue to build on our strengths, address our weaknesses, and leverage the opportunities that we have to drive profitable growth. So let's turn now to the Brand Portfolio segment. During the quarter, and very much in line with our internal expectations, net sales declined 49% compared to the second quarter of last year. The decline in Brand Portfolio was due in large part to store closures, reduced orders from wholesale customers as they continue to work down seasonal inventory post their retail shutdown, and a shift in timing of new orders as retailers work to align inventory to expected consumer demand. During the period, the team was laser-focused on addressing customer order cancellations, aggressively reducing spring inventory across all channels, driving digital demand, and developing a virtual market capability to help bring our spring 2021 lines to market. In order to strengthen our position heading into fall, we worked closely during the period with our partners to aggressively reduce inventory levels, moving pairs online through our owned branded and Famous Footwear sites and through our value channel partners as they work to restock their stores post opening. In total, we cut our inventory levels by 33% year-over-year. And while these necessary actions certainly impacted our results during the quarter, there were a number of highlights. Counterbalancing the decline in sales to our wholesale partners to some degree was a significant improvement in our e-commerce channel. Our digital direct-to-consumer capabilities supported the business during the store closures and those sales levels have remained elevated post resumption of in-store operations. Given this ongoing shift to increased digital purchasing, we are continuing to maximize our focus on that digital marketplace and making sure that we're leveraging our resources to ensure optimal web design, effective marketing, and appropriate inventory levels in order to drive improvement across the business. Specifically, the company's branded-only e-commerce sites increased 35% when compared to the second quarter of 2019 led by exceptional performance from Vionic and other sport and comfort oriented brands, including Via Spiga and Dr. Scholl's. Furthermore, e-commerce penetration for the Brand Portfolio grew to more than 46% of total net sales in the period. This strong e-commerce performance underscores the strength of the company's portfolio of lifestyle brands. In short, while consumer demand for dress styles continues to remain under pressure, the balance of our mix across our casual, athletic and sport styles are really helping out. In summary, given the significant reduction in seasonal inventory, encouraging feedback for fall, and proven e-commerce performance, we expect a sustained recovery for the Brand Portfolio segment in the year second half. We're pleased with our ability to react quickly to the changes that we've seen in the environment, which we view as an important validation of the capabilities of our people and our model. Looking ahead, we remain confident that we have the right strategies in place to drive long-term profitable growth. Importantly, we possess a strong business model that has several advantages, including a powerful portfolio of lifestyle brands rooted in casual, athletic and sport inspired styles and a robust direct-to-consumer brand in Famous Footwear that's really perfectly aligned with consumer trends and leading among the destinations for family footwear. This structure enables Caleres to not only benefit from the insights of trending customer purchase behavior, but also benefit from the diversity in our customer base and channels of distribution, providing the benefit of not having to rely on any one brand, one trend or channel for our success. This structure, combined with our strong liquidity and disciplined management of expenses, has helped us exceptionally well to position and navigate in the near term and capitalize on the opportunities that lie ahead for market share growth. We're excited about our future and our ability to capitalize on the rapidly changing consumer behavior, and what certainly is going to continue to be a dynamic marketplace and ensure that we drive value for all of our stakeholders. And with that, let me turn the call over to Ken, who will give you more details around our financial review. Ken?

Thank you, Diane and good afternoon everyone. Despite facing ongoing pressure from the lingering health crisis, I am pleased with how we have further strengthened our competitive position during the period. We remain focused on appropriately managing expenses and working capital. We remain committed to controlling the controllables, improving inventory turns, reducing SG&A, and lowering capital expenditures. We remain confident with more than adequate liquidity and our ability to weather the downturn. I'd like to start the discussion this afternoon by providing an update on our liquidity position and capital structure, then discuss our second quarter results, and finally provide some additional color on the outlook for our business for the remainder of the year. As we communicated on our last call, we believe deleveraging to be the most value-creating use of cash given the volatile marketplace. To that end, during the second quarter we made debt reduction a priority in our capital allocation process. We paid down $88.5 million in revolver debt, reducing the outstanding balance to $350 million at the end of the quarter. Our cash balance of $148.5 million and our $600 million revolving line of credit provide adequate liquidity for us to navigate these uncertain times. Notably, we have no significant debt maturities until 2023. Looking ahead, we expect that debt reduction will continue to be a priority for our capital allocation process for the balance of 2020. Now moving on to review of our second quarter financials. We reported a loss per share of $0.83, including $0.13 of adjustments for COVID-19 related expenses and $0.13 related to the fair value adjustment associated with the mandatory purchase obligation for Blowfish Malibu. Our adjusted loss per share in the quarter, excluding these items, was $0.57 per share. Our consolidated sales for the second quarter were $501.4 million, down 33.4% from the prior period. At Famous Footwear, total sales were $333.9 million, down 20.5% from the second quarter of fiscal 2019. Excluding stores that we permanently closed during the second quarter, Famous Footwear sales would have been down 17.5%. Our traditional comparable store sales were up 14.7% during the quarter. Sales at Famous Footwear improved 75% sequentially, reflecting the reopening of its brick and mortar stores and marking the beginning of our recovery. Our Brand Portfolio total sales were $183.6 million, a decrease of 48.9% year-over-year. As previously mentioned, this decline was driven by store closures, reduced orders from wholesale customers as they continue to work down seasonal inventory, and a shift in timing of new orders as retailers work to align inventory to expected consumer demand. Our consolidated gross margin was 36.4% compared to gross margin of 40.7% in the second quarter of fiscal 2019. The 424 basis point decline was driven primarily due to the addition of our BOGO promotion utilized to help drive down inventory levels at Famous Footwear, a larger mix of e-commerce sales and the resulting shipping cost that hits gross margin, as well as the aggressive liquidation of our spring inventory. At Famous Footwear, they had a gross margin of 35.7%, which compared to a gross margin of 43.4% in the same period last year. Again the margin decline was driven by the addition of our BOGO promotion period, which helped fuel the reduction of seasonal inventory and some high shipping costs associated with a larger mix of e-commerce related business in the quarter. Brand Portfolio had gross margin of 34.9% and was relatively consistent with gross margin of 34.7% in the second quarter last year. Our consolidated SG&A expense was $201.3 million, representing a decline of approximately $66 million compared to the second quarter of last year and roughly $24 million lower than the first quarter of this year. This decline reflected lower corporate and store payroll expense as well as the ongoing benefits of our expense reduction programs. Notably, our quarterly cadence for SG&A will be very dynamic this year as some cost savings were more beneficial in the second quarter due to the timing of certain events, including workforce reductions, furloughs, and compensation adjustments and the closure of retail stores. While we remain committed to managing our costs, we project SG&A expense in the second half of the year will be slightly higher than the first half as conditions improve and requirements of the business increase. Lower sales and gross margin more than offset the improvements in SG&A and led to an adjusted operating loss of $18.7 million. This compares to an adjusted operating income of $38.4 million in the second quarter of last year. At Famous Footwear, we were pleased to post an adjusted operating profit of $1.6 million. The Brand Portfolio adjusted operating loss was $9.6 million and the company's adjusted net loss was $21.1 million or a loss of $0.57 per diluted share. This compares to adjusted net income of $25.8 million or $0.62 per diluted share last year. As I mentioned earlier, our inventory at quarter end was down 27%, and included a 23% decline at Famous Footwear and a 33% decline at the Brand Portfolio, reflecting great work by the team to liquidate spring inventory. The net cash provided by operating activities was $66.8 million, consistent with last year's levels with capital expenditures totaling $4.1 million. Our net interest expense for the second quarter was $13.4 million and includes $6.6 million of fair value adjustment associated with the Blowfish Malibu purchase obligation. The effective tax rate for the second quarter was 9.4%; the rate was impacted by certain discrete tax items of $2.7 million. If these discrete tax items had not been recognized, the effective tax rate would have been 17.3% for the period. Our tax provision includes a tax benefit associated with the CARES Act, which permits the company to carry back 2020 losses to years with the higher federal tax rate. In addition to our progress on debt reduction, we also returned approximately $13.1 million to shareholders through our share buybacks and our long-standing dividend. Given the ongoing uncertainty and limited visibility, we will not be providing formal fiscal year 2020 guidance, but we will revisit this traditional practice as conditions stabilize. However, I would like to give you some perspective and color regarding how we see the outlook for the third quarter. We expect net sales to improve when compared to the second quarter of 2020, resulting in a decline between 20% to 25% year-over-year. That includes Famous Footwear sales being down, as Diane mentioned earlier, 15% to 20% year-over-year and Brand Portfolio sales expected to be down approximately 30% year-over-year. Our gross margin rates should improve versus the second quarter, as we shift out of the promotional cadence required to reduce spring inventory. Our SG&A as a percent of sales should be slightly better than the second quarter and $30 million to $35 million favorable to the third quarter of last year. And most importantly, we expect to return to a positive adjusted earnings per share. In closing, our consumer-driven brand portfolio, advanced capabilities and actions taken during this disruptive period to shore up our financial position will enable Caleres to move through the balance of the year focused on the near-term challenges, while executing on our long-term strategic objectives, driving profitable growth and creating shareholder value. And with that, I'd like to turn the call over to the operator for questions.

Your first question is from Laura Champine with Loop Capital.

Thanks for taking my question. I appreciated in the deck that you gave a mix of your business that is sport inspired or casual of 86%, what would that have been a year ago?

It would be somewhere in the probably 82%, 80% somewhere along there Laura.

Got it. Understood.

Famous has always been very much in that area, up in the 90% plus always, and they're sitting at 96% now. Brand Portfolio would be the one that has sort of lagged, and we're going to have to continue to pivot as we move forward to make sure that we have all the product categories in line with where consumers are going and if that's appropriate for the brand we should have that in mind as well. So, it was roughly about 80%, 81%, 82% last year.

Your next question is from Rick Patel with Needham and Company.

Can you talk about comps for stores in markets that have been opened the longest? I'm just curious how things look on a year-over-year basis for that cohort of doors? And are you assuming that markets that reopen at a later time follow a similar path?

You know it's not so much the timing of the openings anymore because we kind of saw most of that happen through the month of June. It really is now what ended up happening Rick in late July, last couple of weeks of July we saw some of the markets being hit with the second impact of COVID, whether it was in the South or the West, and we saw that actually become the biggest issue with respect to how the consumer was responding, particularly as it related to our brick and mortar. The good news is that we have not seen a decline in our e-commerce business. So, the business that we were capturing during the first and through the second quarter really appears to be holding. So now the question is as we get more information around when kids are going back to school, what ends up happening potentially with the stimulus checks and all that kind of thing, well we think it's going to help extend that back-to-school time period and we will not have though — we won't have and haven't had that peak, but we think it will extend through the third quarter, which is why there are so many variables, you can't judge right now market by market, it changes. You know some are up 50, some are down 50, some are up 3, some are down 10 and there's all different correlating factors. So it's really hard to find one, which is why we really try to project through this and look at the full quarter and give you some kind of sense around down 15% to 20% is where we think this will all shake out.

And it seems that the strength that you've seen in digital has been sticky even in the face of new store openings, so I'm curious as that happens, how are you thinking longer-term about your store footprint and how many doors you should have over the long run?

Yes, we are constantly looking at that. It's a great question. And we have been really opening many fewer; in fact, we've had net closures really for the last couple of years, so we've been really focused on that. I know Molly and Ken and the team are looking at going market by market right now and looking at what kind of penetration of stores do we need with the growth that we're seeing in e-commerce and how do we optimize each of those markets, based on consumer acquisition and the thought process behind that. So we're sort of working our way through all of those markets ensuring that we're thinking about what that right footprint is and what the right combination is. So, ongoing work on that, and I can see that happening really for quite some time.

And last question is around the Brand Portfolio. So, to what extent has this pandemic changed your thinking about the Brand Portfolio strategy going forward? In other words, given e-commerce has accelerated and you're finding you have genuine strength in the brands themselves, should we expect your focus to shift away from your traditional wholesale channels and more into a DTC model as we come out of this?

It's a good question. I think it's reinforced a couple of things. Number one, we feel really glad that we made the investment in the capabilities that we did over the last couple of years, specifically around our consumer fulfillment capabilities, because frankly, if we had not done that we would not be in a position to drive our digital business today. So I think it confirms that. I think it confirmed that our brands do have a lot of consumer loyalty out there, and there is an opportunity for us to continue to figure out how to grow those. We know that the speed piece, and how we really think about inventory and how we buy inventory and flow it, in order to really drive turns, better generate more cash, and all of that, I think that had a profound impact on the way our teams are thinking about our businesses here. Maybe two last things about Brand Portfolio specifically: we really believe that—and you can see in a lot of the data that came out in the second quarter—that brands that have comfort properties, and we have a lot of them in our business, are doing very well. For example, Vionic was up significantly on their e-commerce business. Those brands that speak to comfort are doing really well. So we think we really have to do an even better job of innovation and storytelling around what we're doing in our comfort brands. And then lastly, I think you're going to see us think about other new digital concepts—sort of digital-first concepts that take our Brand Portfolio and begin to present those to the consumer in new ways. So it's been a difficult time for everybody, but it's also been a time that really challenges you and challenges some of the thinking that you have about what were the lanes of opportunity, and I would tell you, I think we feel really reenergized around what the potential might be here. It's not always just growth for top-line sake. I think at this point we can really think about the quality of what we're doing and the earnings as we go forward. So I think it's been a constructive period for us and gives a little flavor for some of the things we're thinking about.

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

Diane in your initial remarks, you mentioned that back to school seemed to be better in markets where the programs were finalized and the information there was even if it was digital, just sort of settling in the consumer's head — is that helpful? Am I reading into that properly?

Yes, that's true. We definitely see post-peak improvements in markets where school plans are clearly defined. We typically peak in the last two weeks of July and the first three weeks of August, which is our key time period. As it's more clearly defined in those markets about when they're going back to school, our business actually improves relative to where it had been. It's still not up to those peak levels Steve, which is why Ken and I both talked about that 15% to 20% decline, but we do expect to see continued improvement in performance as more clarity comes to consumers.

Considering that digital commerce was so strong in the recent period, can you comment at all about your new customer file, how much of that has grown over the last year? During this period, how much additional data are you gathering on the customer?

We normally get a pretty good slug of new consumers coming in through our stores and digitally, but we actually found that a little over 90% of our online shoppers were new customers year-over-year during the period. A pretty good percentage of them are continuing to stick and shop from an omni-channel perspective. So the new-to-online cohort was almost a 94% increase over the customers we had last year. Now our job is obviously—and Molly and Marcy and the team are working on this—what do we have to do to attract, retain and grow? This gives us a totally new base of consumers to begin to communicate with. So while we didn't see stores open to bring in new to brick and mortar traffic, we did see a lot of new customers come online.

And then last question pertains to spring of '21. I know that this is really looking very far out, but considering the Brand Portfolio has a major wholesale component to it, can you talk a little bit about what you're seeing there from an open-to-buy dollar standpoint? I know, again it's preliminary, and I'm sure that retailers are holding it close to the vest and wanting deliveries later, but can you give us a little indication of how that process is flowing out for now?

Right now it's too early to tell. We had our first meetings in early August and everybody is trying to figure out how to work through third quarter and fourth quarter. In some cases inventories are pretty light, so what do we have to do to help support our partners with inventory of goods that are working? We're seeing a bit of that. I would say Steve that retailers are today still trying to figure out what they think the rest of the year is going to look like and are likely to plan very conservatively. We're going to continue to be disciplined and tight around the inventory that we buy. I think the whole system is getting used to trying to figure out how to operate with much less inventory everywhere. It's a little unclear how that will all shake out for next year. I would think somewhere in late September we'll have a better view once we have more data on how fall 2020 is progressing, which will be an important indicator for spring '21. But we feel we've got great relationships, we're working with the right partners, and our capabilities and capital position make us a go-to partner. We'll provide more as we learn more.

Your next question is from Sam Poser with Susquehanna.

This is Will on for Sam. I just wanted to ask, what impact do you believe that Nike's decision to prune some of their wholesale partners is going to have on the Famous business? And are you seeing improved availability of product and improved allocations as they are pruning some of these partners?

Thanks Will. We have heard about Nike's efforts and seen how they are narrowing their wholesale distribution to fewer partners. We do think it is an opportunity for Famous in the marketplace. We did a quick calculation that was somewhere in the $300 million to $400 million of retail sales that could be shifting around, and we think we are an important strategic partner to Nike so we do expect it to be advantageous for us over a period of time. Right now their business is very strong and our business with them is strong, so hopefully there will be more to follow.

And then you mentioned you've expanded BOPIS to 600 stores. How much can you give us a sense of how much BOPIS is a part of e-commerce? What was the penetration of BOPIS of your e-commerce business?

When we originally launched our buy-online-pickup-in-store (BOPIS) capability we expected it to be upwards toward between 15% and 20% of our business. For the curbside component specifically, Diane was referring to our curbside opportunities which we track separately. It's harder to do curbside in a mall environment but overall BOPIS and curbside have been meaningful contributors to e-commerce.

And then I guess I think you said e-commerce business for Brand Portfolio was up 35%, is that just the owned websites or does that include drop-ship to wholesale?

Yes. It's our owned e-commerce sites.

And then just one final for me. You mentioned on the last call about accelerating store closures — 160 stores across the Famous fleet. How many doors are you going to close in FY20? And are you still planning on opening any doors? I think you said 14 in Q1?

We ended up opening five stores in the second quarter and at Famous we were down 37 stores year-over-year. We were at 973 a year ago; the 37 were permanently closed in the second quarter over last year. We did accelerate some closures as a result of COVID closures. For this year, the net number is going to be close to 35, and that assumes that we open around 11. So, we opened five stores at Famous Footwear in the second quarter and we're continuing to evaluate the grid. That gets us closing this year about 46 including the accelerations.

Your final question is from William Reuter with Bank of America.

I have a two part question. With regard to your lead times for seasonal cold-weather footwear, what are your lead times on the Brand Portfolio side and then on the Famous Footwear side? And based upon this summer, it was fairly easy to go out and socially distance outside so seasonal footwear probably did well. It might be more challenging this winter, how are you thinking about that in the context of when you're going to have to make decisions on the volume of inventory?

We expect that whole category of waterproof boots, outdoor hiking and related items to be pretty good. Early reads on boots are okay. Our lead times from a Brand Portfolio perspective would be somewhere around 90 days on goods that we have already placed before and can turnaround in that period of time. For us to introduce something new, build something new today would take us closer to 120 days to really be able to do that. On the Famous side it's similar — they would have been placing goods in the spring for their holiday time period and they can typically augment it if they really see something going well. Right now everybody is trying to keep inventories as lean as possible and try to respond quickly. Based on how the length of seasonal selling for sandals has been extended, we would expect that boots could sell later into the season, which gives more time to respond and liquidate.

And then just my last question. Across different consumer products, whether it's apparel or footwear, I'm hearing of companies that are attempting to take less fashion risk in an effort to not be stuck with things and actually tightening their product assortment, which could have some benefits in terms of some efficiencies of manufacturing. Is that something which you would expect you'll be doing? And will that more or less be a tailwind to gross margins?

Yes, I think so. The whole supply chain—the development and the supply chain and the way people are buying—is definitely tightening up. There's less development happening, you have to be more focused. How you place your assortments is much clearer and fewer in number. I think the flow of the inventory will change quite a bit. As opposed to selling in and selling it down, you'll see more frequent flows of not only existing goods, but fresh inventory along the way. All of that should be healthy and over time have a positive impact on the overall margin profile of our business. It doesn't mean the consumer doesn't want newness because they really do. What is performing well are some of the things that are new, so you have to keep injecting newness, but at a pace that allows the whole system to digest that inventory. So I definitely think that will have a positive impact on our margins going forward.

There are no further questions at this time. Diane, I will turn the call back over to you for closing remarks.

Thank you very much everybody for your continued support of our company. We're excited about the progress that we've made. We think we're in a good position to continue to keep focused on continuing to really add shareholder value here at Caleres. So thanks again. Talk to you soon. Bye now.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.