Good morning. My name is [Regina] and I will be your conference operator today. At this time I would like to welcome everyone to the Brown Shoe Company, Inc. first quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Ken Golden, Director of Investor Relations. Mr. Golden, you may begin your conference.

Thank you, Regina. Good morning everyone and welcome to the Brown Shoe first quarter 2008 financial results conference call. This call is being made accessible to the public via webcast in accordance with the SEC's Regulation FD. Before we begin I'd like to remind you of the company's safe harbor language. During this conference call the company will make certain forward-looking statements to help you better understand its financial results and competitive outlook. Discussion of the company's future plans and other statements in this call that are not current or historical facts are forward-looking statements. These involve known and risks and uncertainties that could cause the actual results to materially differ from historical results or from any future results expressed or implied by any forward-looking statements. Factors that could cause actual results to differ materially include those listed in our press release issued this morning and available on our 8K filed prior to this call and other risk factors listed from time to time in the company's SEC reports. Copies of the company's reports are available online and from the company's Investor Relations Department. The company does not undertake any obligation or plan to update these forward-looking statements even though the situation may change. On the call this morning will be Ron Fromm, Chairman and CEO, Diane Sullivan, President and Chief Operating Officer, Mark Hood, Chief Financial Officer, and Joe Wood, President of Brown Shoe Retail. And now I'd like to turn the call over to Mark Hood.

Thank you, Ken. Good morning, everyone. There's no doubt that the consumer environment in the quarter was difficult, however we feel we managed our business well while making some key decisions and investments to better position us to win when the consumer returns. We will touch more on this later in the call. Now I'd like to begin with a review of the income statement. Consolidated net sales for the first quarter totaled $554 million, down 2.1% compared to $566 million in the first quarter of last year. The sales decline is attributed to the impact of the 7.3% decline in same-store sales performance at Famous Footwear offset in part by a 9% increase in store count, a 1% decline in Wholesale performance as Retail has continued to manage inventories tightly, and a 5.8% decline in same-store sales at Specialty Retail. All segments were impacted by the challenging consumer environment, with traffic and conversion levels down at Famous and fewer reorders with our retail partners on the Wholesale side of the business. On a bright note, we did have a strong quarter from our Brown New York brands, which generated a 21% increase in sales versus first quarter last year. Gross profit margins decreased 160 basis points to 39% from 40.6% in the first quarter last year. This decrease was the result of higher promotional activity at Famous Footwear as we moved to aggressively manage inventory and maintain market share during the quarter as well as higher allowances in the department store segment of our Wholesale business. SG&A declined as a percent of net sales to 36.6% or $203 million compared to 37.5% or $212 million in the first quarter last year. The decline in the quarter resulted from the settlement of remaining insurance claims related to the recovery of…

Thanks, Mark, and good morning, everyone. The first quarter did indeed prove to be challenging for Brown Shoe, yet the benefits of our operating platform and our financial discipline, along with the strength of our brand portfolio enabled us to optimize operating earnings in a difficult environment for consumer spending. The earlier Easter and uncooperative weather exacerbated an already challenging environment for consumer spending, one that has been clearly felt across the entire retail and consumer sector. This led to lower than anticipated sales and increased promotional activity in our Famous Footwear stores, and our Wholesale segment was also impacted as our retail partners managed through the same environment and sought to manage inventory more tightly. That does not mean, however, that there haven't been a few bright spots. As you would expect from us, during the first quarter we maintained our operating discipline and managed inventory and expenses well. Regarding expenses, we continued to invest in marketing, talent and our infrastructure to support our growth. At the same time, we drove improved efficiencies. In addition, our initiatives to improve the freshness and velocity of inventory continued to pay off. Inventory at quarter end was down 4.7% on an average store basis at Famous Footwear, down 13.8% at Wholesale, and we are pleased with the composition of our inventory across the enterprise as we begin the second quarter. Secondly, we continued our focus on maximizing growth opportunities within our Wholesale portfolio. Our Brown New York brands, particularly Franco Sarto, Etienne Aigner, and with our partner, Sam Edelman, enjoyed strong sales results as evidenced by our 21% increase in first quarter shipments as they capitalized on strong momentum from the fall season as well as the repositioning efforts that we've been working on for the last 12 months. Backlog also looks…

Thank you, Diane, and good morning, everyone. The first quarter was challenging for Famous Footwear, driven by current macroeconomic issues, a slump in consumer spending, cooler spring weather and then an early Easter, which historically has never been good even in strong retail cycles. This obviously affected our footwear sales, prompting higher promotional activity at Famous and across the industry. However, we have seen in the back end of the quarter and so far in May improved performance with comp sales running slightly positive. And while that is encouraging, the environment remains highly promotional. In total, first quarter net sales were $318.8 million, down 2% from last year. As we mentioned, same-store sales decreased 7.3%, which compares to a 2.5% same-store sales increase in the comparable period a year ago. We had a more difficult comparison than most of our peer set, and looking at a two-year comparative basis, we had performed at the upper end of this group. Total net sales benefited from operating 91 more stores versus the first quarter of last year. At Famous, we continue to maintain our operating discipline, controlling expenses and our inventory. We entered the quarter with inventory down on a per-store basis, and aged inventory at 2.4%, right in line with last year. We do feel comfortable about the freshness of our inventory position at the start of this second quarter. In terms of margins, lower sales along with a 140 basis point decline in gross margin rate and the result of our aggressive approach to stay competitive and maintain inventory freshness in the quarter along with the lack of leverage on expenses led to a 64% decline in operating earnings to $7.6 million or 2.4% of sales compared to $21 million or 6.4% of sales last year. In reviewing the selling…

Thank you, Joe. Good morning, everyone. As we've said, it's just obvious that we're disappointed that we were not able to better perform in a very turbulent environment. Most of our businesses were challenged, but not all. Importantly, we continue to emphasize strategies that we believe will add to our resiliency while we position Brown Shoe for sustained long-term growth in sales and profitability. In the near term, of course that means focusing on execution at all levels of the business. As I think about Wholesale, I think the important element is we will continue to emphasize having wonderful properties in our pipeline for the future. We continue to add vibrant brands to our portfolio and intensify our efforts to continuously flow footwear with high consumer appeal. As Joe commented on, Famous Footwear has in the recent weeks some encouraging improvement. But the landscape continues and the outlook continues to be very challenging. While we're encouraged by our product and marketing initiatives, we understand that the next real viable time for us will come at back-to-school, and I can assure you that our energy around the execution for back-to-school will be not any short of where we've been in the past. Long-term we believe we are well positioned and that our highly recognized world class brands in Retail and Wholesale are indeed exactly what the customer wants as she looks for trust in the product and the integrity of the brands as she buys in this environment, as she works through the cyclical environment and fashion famine. Importantly, we believe this is an opportune time to act a little more boldly on our transformational initiatives. As most of you know, last month we announced the interconnecting of our company by joining Famous Footwear with our St. Louis operations. This has…

(Operator Instructions) Your first question comes from [Chris Favia] - Susquehanna Financial Group.

I guess first for you Diane, I was wondering maybe if you could add some color regarding, you seem pretty optimistic regarding the Wholesale business and I was just wondering if you can kind of walk through your thought processes as you go into the second half in terms of what's going to be driving that business for you still to hit that mid single-digit growth. Obviously, the environment is certainly challenging and you're seeing promotional activity for some of the brands out there. I was just wondering what are the key drivers to really improve that business in the face of the difficult environment you're seeing right now?

Yes, a couple of things, Chris. It's a great question. We've spent a lot of time really trying to make sure we've got our ducks lined up and in a row to deliver that mid single digit that we've been talking about for awhile. I'd say first of all it is the momentum in our New York brands. If you think about where we were last year, our comparisons in the back half of the year are much weaker than the performance than we've experienced in the first half of this year. So we've really been, you know, this has been a 12 to 18-month process to get those businesses where we would like to see them. So I think that's number one. I think the other piece of it is the Carlos and the Original in Dr. Scholl's businesses. Again, we've seen the vitality and vibrancy of those two brands at Retail, and our Dr. Scholl's businesses at Wal-Mart. That business has improved. Our opportunities there have continued to be available to us if we manage that well. And I guess lastly is the - probably I'd talk a little bit about the Naturalizer piece being the one kind of question that we have in the back half. We've repositioned our assortments pretty well, and we are really now going up against we're going to be rolling out Natural Sport for the first time to more doors and Natural Sole at Kohl's, too, and then finally the launch of Fergie in the fourth quarter. So all in, it's a tough one, Chris, because you don't really know how the reorders will play out and how tight everybody's going to keep inventory. But I think the teams have done great work to get us positioned. And then as I look at the backlog right now, the backlog is at about 8%. And we all know backlogs; you have to be very cautious about how we view that. But it looks like, at least for the near term, we have the backlog to support our thinking today.

I guess that backlog reflects the assumption of higher price points going to the back half of the year because of cost pressures. And can you add any color about LifeStride? You didn't mention that. What's going on there?

Yes. I would say, again, I put it under our more moderate conversation. I think both Naturalizer and LifeStride being in the more moderate and traditional zone had challenges this spring. So I don't expect major turnaround there, but I think it will hold its position. And the teams are again - in fact, I was in China just a couple of weeks ago - they're working really fast and really smartly around the migration of our factory base to really make sure that we're able to deliver great product with a lot of integrity at prices that are in line with our expectations. So I don't have a crystal ball, how it will all exactly play out, but I think all the cards we look at today you know, she hasn't voted yet, but we feel confident that we've teed ourselves up.

The other thing you have to remember is that our Wholesale business in 2007 continued to decline at greater rates as we progressed through the year, so the comparisons in the back half of the year are actually a little easier than the comparisons in the first quarter.

And then I guess, Joe, for you on Famous, I just want to be clear. It seems like the promotional environment still continues to be out there. Any thoughts of when potentially that could subside or is that really going to be product driven as we find some newness in the marketplace and basically the industry trying to get their hands around the inventory levels that are out there at retail?

Chris, I think we're obviously going to see it. I mean, just at the beginning of the first quarter we're going to see that. We're going to see it through the second quarter, and I think obviously, as we get in the back-to-school. You know, I don't think anyone's - I think the good news is no one's inventories that I'm aware of - or the inventories that are fairly well under control. It is just trying to keep market share now in a soft spending economy. So I just don't think we're going to see much change, at least through the second quarter. We'll have to see what third quarter and fourth bring us since we're against some soft comparatives to this year versus last year.

And it seems like you're gaining greater access, whether it's from Adidas or the skate brands, DC Shoe and Nike, Timberland, etc., in your stores. Is there any other categories you're certainly interested in, encouraged about as you go into the back half? Obviously, you talked about athletic and that seems to be showing some signs of life. Anything else as you go into back-to-school?

You know, not - Chris, I'd [inaudible] a timeframe. I mean, it is being - our men's business has struggled some. It's okay. As far as any excitement right now, it is definitely in the athletic, skate, more of a casual type business. Our junior business continues to be a little tough, which we ran some exceptional years for two to three years in a row. So currently as we sit here right now it's all in the athletic and athletic casual type business.

And then the last question I have, I guess, just for Mark, when you look at the guidance that you've given for the balance of the year, what are you assuming in terms of the economic backdrop to sort of attain that guidance? Are you anticipating to some degree the possibility of it getting worse or improving or sort of staying the same at this point?

Again, I think that's a great question. I think the guidance really assumes that slowly the environment gets a little bit better. I think the comparisons, as we've said, obviously get easier as you get through the year, but it doesn't assume an overnight improvement. Again, if you go back to the beginning of the year, we set guidance in a backdrop of a deteriorating economic environment, and that has materialized. And we're managing the business cautiously as we move forward.

Your next question comes from Heather Boksen - Sidoti & Company. Heather Boksen - Sidoti & Company: A quick China question first. With everything going on over there right now, has the earthquakes or anything impacted your sourcing or retail operations there?

At this point in time, Heather, it has not. But obviously, from a humanitarian perspective, our hearts go out to everybody there. And actually our teams in China have been putting a fund together that the company is matching, and we're trying to be as thoughtful as we can to everybody over there. But right now it does not look like it's anything I've seen so far is that it will impact the fall goods or our retail operations. Heather Boksen - Sidoti & Company: And I guess my other question, with regards to the Famous Footwear relocation, it sounds like - I know when you announced it you said all the senior management was on board. Is that still the case? And I guess the tier below that of talent, you know, now that they've had some time to digest it, can you kind of quantify how many of them are making the move?

I think we'll try to stay a little bit away from numbers. I'm not sure that's of great value. But if you think about the hierarchy of management here, we're well in the transition almost the first three to four top layers of management are all moving and shifting over. As you would imagine, a couple of exceptions were folks have family situations which were not going. So we're very pleased at that level. And probably just as important is we have already - again, I'll try to stay away from the numbers, but it's thousands of resumes, and the process that we've built, a very professional one of which we are already have had the ability to make offers and have offers accepted at the next level of need as we go through there. So still early. I think July will come quick. It'll be the end of July, and we'll have operations up and running there. And, you know, you're always going to have challenges. This is a very, very bold move and one that has a lot of work behind it. The timing of this was very, very well selected in terms of when we made the announcement, as we worked through the season and the cycle, and we will maintain presence in Madison for any key positions to make sure we have linkage going on the way back, too. So I think we're in pretty good shape for where we are. But Joe, you can certainly add perspective.

We're pleased. I have 70% of the buying staff that's coming down; a few still trying to make family decisions and trying to make that transition. Our key merchant's coming. All of our DMs are coming. The leadership group of Famous is relocating here to St. Louis, so I'm very pleased with that. So it's the leaders that we wanted to move here, and they're coming. Heather Boksen - Sidoti & Company: That's good to hear. Also with respect to the new headquarters building, can you give us any additional color on what's going on there? It sounds like from the release it's going to be on the existing property. Is that correct?

Yes. Obviously, we're early in the planning, but we control a pretty good tract of ground here in Clayton. We're working with a couple of private partners in the public domain in terms of a redevelopment of that property. And the new headquarters would be comprised of a portion of that property and an operating lease at some time in the future. Heather Boksen - Sidoti & Company: So I guess there's no expenses for that in '08, but how should we be looking at Capex, I guess, for '09 and beyond with respect to those initiatives?

Again, it's expected to be an operating lease so the building itself would not run through as a capital expenditure for Brown. Some of the leasehold improvements in equipment will come on board as a capital expenditure at some point in the future. Heather Boksen - Sidoti & Company: With respect to the new Fergie brand, any idea yet what the price points are going to be on that and what kind of distribution you're trying to target?

Yes, we're actually working through all that right now. I would tell you that the current plan is that it will be both a department store and a national chain opportunity, and we have been designing and developing product that we think is appropriate for the consumer that's shopping in each of those channels and those customers that are really have [inaudible] aspire to be like Fergie. So particularly in the national chain side, our expectations could be more casual oriented, a little bit younger, and in the department store a little more sophisticated and more in line with I think - you may or may not have read about the fact that she's doing the music for the new Sex in the City movie, and so that sophisticated side of her we think is right for this department store sector. So [Gary Rich] and the team are in the process of putting all those pieces together, doing a great job, and by June I think we'll be able to give everybody a sense of what the price points, channel and customer targets will be.

Your next question comes from Scott Krasik - C. L. King & Associates, Inc. Scott Krasik - C. L. King & Associates, Inc.: I guess, Mark, the guidance that you gave at the end of the fourth quarter, the $1.52 to $1.62, did that include the insurance recovery, the $0.15?

It did not. Scott Krasik - C. L. King & Associates, Inc.: And then, Joe, maybe talk about athletic. We had heard a lot of good positive feedback on athletics as well. Maybe talk about where that's coming, where you see performance athletic playing a part. And do you have a sense, if we really do move back into an athletic cycle, you're positioning in athletic is significantly better than it was last time around versus the peer athletic retailers.

Yes. I don't know how much more flavor to give it. All genders in athletic. I thought what was interesting was, as April's business turned positive led by athletic and it came across the categories - it came across kids, it came across women's, it came across men's - it was being driven, again by the vendors that I mentioned, especially led by Nike on the performance end. Our performance business is very good. Not only Nike and DC or Nike and New Balance and ASICS, but it's an interesting mix between performance from those types of companies. And then, when you take a look at Converse and DC Skate, especially, more of the lifestyle. Now that's in athletic, that's where we put that, but you have both. Right now performance is going very well, and what I would consider the street athletic casual going very well. So encouraged that we see that type of trend in April and we've seen that the first 20 days in May so far, too. Scott Krasik - C. L. King & Associates, Inc.: Where are you with the low profile business at this point?

It's flattish. Athletic, you know, it's surprising athletic has started at - they've been at that now for two years. They were behind the curve, so we're getting some positive sales out of that also in athletic. But low profile is flattish right now, but Balance helps. So it's starting to struggle a little bit, but again, we've been filling that pipeline for over two years. Scott Krasik - C. L. King & Associates, Inc.: Are we still in an upswing on skate? Do you think skate's starting to get peakish? What's your thought on skate product?

No, not whatsoever. In fact, we're adding skate vendors. Again, DC will lead that, but when you take a look at skate, you almost have to take a look at Converse at the same time. That's a lifestyle that they're wearing right now, and those two businesses are very healthy. And I don't think we've come close to maximizing that business yet.

Your next question comes from Sam Poser - Sterne, Agee & Leach. Sam Poser - Sterne, Agee & Leach: Joe, just real quick to follow up on Scott's question, on the - I know you move a few brands like Sketchers in between juniors and athletic. Could you talk about how that's breaking out?

Sketchers is really more so in the junior business than in athletics, Sam. I'm not sure I understand your question in total. Sam Poser - Sterne, Agee & Leach: Well, shoes like the Energies are athletic, I believe, and then you have the low profiles that are more juniors. Is that not correct?

Well, again, that's in the junior business. It's not housed in our athletic. Sam Poser - Sterne, Agee & Leach: It's all in the - okay. All right. And are you seeing movement there from the low profile?

Sam, we haven't seen a big swing. Right now, again, low profile, it continues to be a lifestyle. It's been led obviously by some of our bigger vendors, especially Sketchers. As you know, it has been challenged, especially during the first quarter. So it's just a softness there. It just has swung over to athletic and athletic street. Sam Poser - Sterne, Agee & Leach: And then, Mark, I just want to follow up on the guidance and on how we should look at gross margins for the back half of the year and how you're looking at that.

Well, again, I think - we don't do line item guidance. Again, I'd just say that we had a tough gross margin in the first quarter as we tried to keep our inventories in line with the deteriorating sales environment. And I think, as we said, our content of our inventory is where we want it and our level of inventory is where we want it in terms of how we're guiding sales. So we would expect to deliver acceptable gross margins. Sam Poser - Sterne, Agee & Leach: And should we be looking at - your guidance with this wide range, you are doing this completely GAAP, is that correct, because you do have some legitimate one-time charges in here.

That is completely GAAP guidance. That is correct. Sam Poser - Sterne, Agee & Leach: And the net from the $0.37 to $0.44 on the re lo is now $0.11?

Yes, again, I think the $0.11 is what we expect would be the impact of those nonoperating items in 2008, the $0.37 to $0.44. It's not necessarily all included, the expenses that would be incurred in 2008. Sam Poser - Sterne, Agee & Leach: But that $0.37 to $0.44 does not include the benefit of the sale?

Yes. The $0.11, and that's the gain against that. All I'm saying is that the $0.37 to $0.44 expense part of that net number has a longer tail than the fourth quarter because of the lease. Sam Poser - Sterne, Agee & Leach: So when, if we're looking at Q3 and Q4, when should we think that you're going to get the benefit of the sale? And what are you giving yourself, I mean, how many cents per share are you deeming that, expecting that sale to be? What are you netting?

Again, we guided to a net $0.11. It's not going to be in the second quarter. We'll give you guidance on third, fourth quarter on the next call. Sam Poser - Sterne, Agee & Leach: But what I'm saying, though, is should we be taking the midpoint of, let's say $0.40, $0.40 and saying it's a $0.39 charge or benefit less the 3, I guess. I mean, is that the right way to look at it?

We're expecting the $0.11 for the year. We had $0.03 of costs in the first quarter. We have $0.14 of costs in the second quarter, and we'll break out the balance of that when we give guidance on the third and fourth quarter. Sam Poser - Sterne, Agee & Leach: But you're not going to give us the flip side of the expected benefit?

No. Sam Poser - Sterne, Agee & Leach: And one last question for Diane. Good morning.

Hi, Sam. Sam Poser - Sterne, Agee & Leach: You've done a great job on, I mean, apparently, on the product side and on the acceptance side on Brown New York category. Just one quick one on that. Does that include Sam Edelman, and what's the plan there? And then also, when we look at what you're doing differently or is it the nature of the external market - what you're doing differently on the more moderate brands, Naturalizer and so on, are you going to employ strategies from New York into the more moderate brands?

Well, a couple of things. First of all, on the Sam Edelman side, just to sort of fill you in on that, you know, Sam and his team have really enjoyed a terrific spring selling season so far season to date. They have really been right on target with a lot of the key items and key silhouettes. And so we are feeling pretty good about the direction of that business. And of course you know we have a minority ownership in that piece of it. On the Brown New York side of the business, as I think you recall, this has been in process for a number of quarters. And [inaudible] and [Dan Friedman] is the team involved in those businesses that really doubled down and really looked at how do we make sure that we bring terrific design and style at the right value to the customer. And I think that, frankly, she's just voting that she likes what we're doing there. So I think that it's the same application on Naturalizer and LifeStride. LifeStride's a little bit of a trickier issue, but Naturalizer, I have tremendous confidence in that team, too, that, as we turn to the back half of the year that we will have the right kind of assortment, so a little more dress casual, a little more casual with some new comfort technology built into the product as well. Generally speaking, I think we're applying the same kind of philosophy and thought process against really all of our brands. Sam Poser - Sterne, Agee & Leach: And then one last thing on the Fergie, how shall we categorize Fergie? Is it going to be junior or is it going to be more impulse in the line of Carlos and so on?

Good question. And I know you've been a big proponent of us finding a vehicle to have a junior business within our portfolio, and I think actually if we do it right I believe that we will have a junior and younger opportunity within the national chain and then also more of an impulse and contemporary kind of opportunity at department stores. But it's a little early to tell until we kind of work through all of our plans on that, but that would be the intent.

Your last question comes from Scott Krasik - C. L. King & Associates, Inc. Scott Krasik - C. L. King & Associates, Inc.: Diane, just following up on that, you thought Carlos would be up in the second half. Is that just because impulse as a category was a disaster in the second half of last year?

Yes. Yes, it was. Impulse was a real challenge, and actually it has been a mixed bag this spring. But we've been really the best of the lot in that category, so we are really outperforming the competitors there. You know, the Macy's piece, you can't - we're really fortunate, too, I guess, you know, adding Carlos on that Macy's TV campaign. You can certainly see the sales lift that we experienced in their stores. So kind of a confluence of a lot of good things, including all the stuff I think that we did to develop great products as well as the marketing piece of it with Macy's. So I think it's a combination, Scott, of all of those things. Scott Krasik - C. L. King & Associates, Inc.: And then Mark, just looking at the full year guidance, to get to the low end of the guidance, is that really going to be driven by just a high promotional activity at Famous through back-to-school and holiday or how do you think about getting to that low end of the full year guidance?

Well, again, the guidance is a range because there's a lot of ways and outcomes to get that. And I think the low end of guidance would say it continues to be as difficult as it has been and the high end of the guidance would say that it gets somewhat better. Scott Krasik - C. L. King & Associates, Inc.: Well, I think you would have some control over the G&A more, right? And you didn't guide the sales down all that much, though. It seems like it would be more in gross margin?

Yes. And then, I think, again, expense control. Scott Krasik - C. L. King & Associates, Inc.: And then, just lastly, looking at these charges, how shall we tax effect these charges at they go throughout the year? I assume you're giving these on an after-tax basis?

Well, to the extent that we've done it on a per share basis, they're definitely after-tax numbers. And they would be taxed a domestic tax rate, which would be at about 40%.

This concludes the question-and-answer portion of today's conference. Please proceed with your presentation or any closing remarks.

Thank you, everyone. We really appreciate your support and look forward to better consumer times out there. So talk to you next quarter.

This concludes today's conference. Thank you for participating. You may now disconnect.