Welcome to the second quarter 2009 Brown Shoe Company, Inc. earnings conference call. I would now like to turn the call over to Ken Golden, Director of Investor Relations.

Good morning everyone. Thanks for joining us today for the Brown Shoe's second quarter 2009 financial results conference call. This call is being made accessible to the public via Web cast in accordance with the SEC's regulation FD. Before I pass the call over to Ron Fromm, 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 unknown 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 8-K 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. Now I’d like to turn the call over to Ronald Fromm, Chairman and CEO of Brown Shoe.

Good morning everyone. With me on the call are: Diane Sullivan, our President and Chief Operating Officer; Mark Hood, our Chief Financial Officer: and Joe Wood, the President of Brown Shoe Retail. Following my opening remarks, Mark will discuss our financial performance in more detail and review our outlook, then Diane will provide additional insight into our operating performance. Following this, we will all be available for questions, including Joe Wood, to answer them. Our earnings performance was in line with our expectations for both the second quarter and the first half of 2009. Though it remains a challenging period for us in the industry, our results are getting progressively better and our outlook is getting progressively better as well. During the quarter, we continued to run the business based on our core operating principles, managing the controllables and making key investments to give us an opportunity to win in the back half of the year, while continuing to position us for success as this economic climate ends. Before I touch on the results, I just would like to make a couple of comments about how proud I am of the entire organization for how they have managed through this extremely challenging period and the effort that has been put forth to give us the best chance of success during back-to-school and the fall selling seasons. In the last twelve months, in addition to coping with a tough economic climate, we successfully relocated our Famous Footwear business from Madison to St. Louis, developed and launched a new distribution center on the West Coast, opened two new design studios in the Far East, and began the implementation of a new information technology platform. This has required a lot of sacrifice and heavy lifting and I thank them for their continued focus…

As you saw in our press release this morning, our net loss for the quarter was $4.2 million, or $0.10 per diluted share, including after-tax costs related to our information technology initiatives of $1.3 million, or $0.03 per diluted share. This compares to net earnings of $2.2 million, or $0.05 per diluted share in the second quarter of last year. Last year's net earnings included after-tax costs of $0.15 per diluted share, primarily related to our headquarters consolidation. Turning to a full review of the income statement for the second quarter, net sales were $511.6 million, a decrease, as Ron mentioned, of 10.1% compared to $569.2 million in the second quarter of fiscal 2008. Reduced traffic at our stores and the stores and the stores of our retail partners, had an unfavorable impact on all of our businesses from a year-over-year perspective. At Famous Footwear a 6.6% decrease in traffic was the driver of a 6.7% decrease in same store sales. Wholesale sales were down 21.1% in the quarter, with sales for most of our brands down in the period. Our private brand and private label business accounted for more than half of the decline during the quarter. And Specialty retail sales declined 12%, driven by lower sales at Shoes.com, a 3.8% decrease in same store sales, and an unfavorable Canadian exchange rate. Our gross margin rate in the quarter improved by 50 basis points to 39.8% of net sales, from 39.3% of net sales in the second quarter of last year. The main components for the year-over-year change were an improvement in gross margin rate of wholesale, resulting from an increase in the mix of higher margin branded sales, vertical profit resulting from an increase in penetration of our brands at Famous Footwear, and lower allowances to our wholesale…

The second quarter marked a challenging period for our company and the industry as customer traffic continued to be soft. Our retail partners focused on maintaining lean inventories on their selling floors, which lowered sales at wholesale, while lower customer counts and increased promotional activity led to a decline in performance at Famous Footwear. Our focus remained on positioning our brands, marketing, and stores for improved performance as we moved through the year, while managing our expenses very tightly. While we recognize that the environment and visibility remain challenging, we believe our initiatives have positioned us solidly for Famous Footwear to improve its sales trend during the all-important back-to-school season, and on the wholesale side of our business we are seeing some encouraging signs coming out of our recent shows, leading us to believe our brands are positioned well for 2010. Importantly, inventories at Famous are fresh and our wholesale inventory is in good shape and we also believe that there is opportunity to grow sales in the fourth quarter and expect solid profitability during the back half of the year. Beginning with the review of Famous Footwear, total sales were $314.1 million, a decline of 3.7% from the second quarter of last year. Total sales benefited from the additional stores since the second quarter of last year but was offset by the 6.7% decline in comp store sales. Traffic continued to be the driver of our comp sales decline, with consumers making fewer shopping trips, given this tough environment. As we mentioned on our first quarter call, we changed our promotional cadence early in the quarter in favor of single-pair promotions. Unfortunately, the industry and consumers remained focused on BOGO, which disadvantaged our same store sales performance early in the quarter. We reintroduced BOGO to our stores in June…

Why don't we just open it up for questions and we will make comments afterwards.

(Operator Instructions) Your first question comes from Christopher Svezia - Susquehanna Financial Group.

When you step back and just looking at your guidance for a second, and you're looking at that fourth quarter, particularly on the Wholesale side, I was wondering would you add some color about why you feel as comfortable as you do about that business rebounding into maybe a mid-teen ranges. The comparison is pretty favorable. Is that primarily the driver or is there a readjustment, or do you see something in backlog trends or something along the line to give you that comfort level that's going to show that level of rebound in the business on the Wholesale side?

Again, as I said, while the visibility is not perfect, as we look at a number of the brands in our portfolio, we do see some momentum building. So for example, if we think about our businesses with Sam Edelman and Via Spega and Vera Wang, you know, there are some new businesses there that are being launched that we didn't have really in the fourth quarter of last year, as well as we see momentum building on those key brands. In addition to that, our core businesses of Naturalizer and Dr. Scholl's, as we look to the fourth quarter and we see some things happening as we turn, shift into 2010, we see some opportunities for wins there as well. And then, along with celebrity brands, between Carlos and Fergie, which is again, really a new launch and some momentum, we think that there is opportunity. We feel like we kind of dealt ourself to win but clearly the consumer has to show up for us to really take advantage of all of that.

I think the only thing I would add to that is we had a very significant decline, 25%, in Q4 last year, which was impacted negatively by the ice storm on our January shipments, so I think some of those factors of the new brands and momentum brands that Diane talked about, along with the comparison, give us confidence for those numbers in the fourth quarter.

Are your retail partners willing to take in, kind of be accepting of more inventory, now that they've kind of lowered the decks and kind of gotten to a kind of more sustainable level in terms of the inventory levels they want to have? Are they being more receptive to taking in that product?

I think that the answer to that is no. I think selectivity is the issue here. I think this is really the result of programs that we've developed over the last twelve months that we see coming to fruition in the fourth quarter is where we'll see the upturn. If it hadn't been for the realignment of our Scholl's business in the second and third quarters, that wouldn't look so severe of an upturn.

While we're on the Dr. Scholl's business for a second, does that have anything to do with what Walmart is doing with their footwear business, strategically?

Yes, it does. And we actually believe that we are extremely well positioned, for fourth quarter and going into 2010, as we worked very closely with them on our Dr. Scholl's brand. They really view it as a very, very strong component of their footwear floors and in fact, we have a number of tests going on as it relates to Dr. Scholl's departments as well as testing different pricing levels in Walmart, also, to see if we can improve the velocity of our business there. So I think we've got a great strategic partner there and really it bodes well for us for the future.

At Famous, I guess any color about what you've seen so far. You commented some of your early markets starting to trend positive, those have gone back. And some color about what the consumer is looking for, are you still expecting it be pretty promotional? Are you still running BOGOs in those markets? Any color about what they're buying, how they're buying it would be certainly helpful.

I think you had five questions in there but let me know when I'm done what I haven't answered. A couple of things that I've been extremely surprised in, we have five timing groups. We knew that back-to-school was going to be later by a week. Have been extremely surprised that it's running at least two weeks behind that. We have seen the first two timing groups run two weeks late but they are both now, and continue to be in positive, both in sales and in traffic counts, so what does that bring for our next three groups? I think it will be the end of September before we look back and really assess the strength of back-to-school. But encouraging as it is running so late. So the buying after the fact, not near need, they're buying after need. It's still being driven a good portion by athletic so even as other retailers have struggled, at least some of those that have reported, our business remains fairly healthy in athletics. So we feel very positive about the investment that we made there. What were other ones that I missed?

I was curious, maybe from a pricing perspective, are you still running BOGOs in those markets that have converted to back-to-school?

Yes, we are still running BOGO. It still is the most effective vehicle that the consumer responds to. But we have found one thing, is it promotional? I don't think it's any more promotional than it was prior and what we are finding, if you really dig under the motor and look at the SKU base, this is really about price, so as we get further into this, it's not about $19.99, $29.99, it is about the brands. It is about giving them a good value; it's not about—at least our business is not being driven by price.

With your inventories up and you said it's an athletic buy, I'm curious, how flexible are vendors? Are you buying to anticipate a kind of promotional environment out there? Is that how your buys are being reflected, given the inventories are being up?

There are two parts to that inventory purchase. One was on a promotional end, where we did window it to a vendor base and bought a couple of vendors so we could promote at a price if we wanted to. Again, consumers telling us it's not about the price. The other was a pull forward of inventory from orders out in August, bring them back into July, to position us not to walk a sale. So I'm not really concerned about the athletic inventory. Again, it will be down and our total inventory will be down 3% to the previous year, at Q3 and Q4. So I feel very comfortable where our inventory is now. And also considering if you look over the last couple of years, our inventory is down 15% over the previous years. It would still be down 3% on a quarter-end basis, Q2. So I feel very good about my inventory.

On the expense side, earlier in the year you had talked about $29.0 million to $31.0 million in expense savings through some of these initiatives. It went up to almost $35.0 million, now you're talking $40.0 million. It's roughly a $10.0 million or so swing. Could you talk about precisely where that's coming from, number one? And number two, are you deferring any expenses, things that you might be doing, that you're deferring maybe until next year? Can you talk about where that's coming from?

Again, I think the entire organization is keenly aware of the environment we are operating in and is managing the controllable expenses even better than we had hoped they would when we planned the thing. And I think the bold actions that Ron talked about, in terms of headcount reductions, have yielded better results. And in those instances where we have back-filled positions, we've actually been successful in getting savings at the positions we've had to refill that we hadn't counted on. Continue to get good work done in terms of adjusting rents to the current market conditions, as Diane talked about on the call. And just things like travel have been extremely well managed and cost have come down. And no real deferral of expenses but clearly we are conscious about not spending if it doesn't need to be spent.

Your next question comes from Heather Boksen - Sidoti & Company. Heather Boksen - Sidoti & Company: I was curious with regards to the Wholesale group, how much of this guidance for the back half of the year would you say is retailers just wanting the later deliveries? And also with regard to that fourth quarter expectation, are you assuming any reorders in there to get to those kind of numbers?

I think there are probably two components that are driving our outlook. I think the first one is as we look at our third quarter we clearly have the on-order right now to deliver the third quarter that we have forecast, that we've outlined, so I think that's number one. Number two is the point that really Mark made, that our fourth quarter last year was a really challenging one and as we look at the new launches of new businesses in the fourth quarter of this year, along with some momentum building in some of our brands, we think there's opportunity. Then the last piece of it is when we look at our stock to sales ratios right now, we are really under-inventoried out there, and so if the consumer does decide to come back in any way, shape, or form, we think our inventories at retail are really light. So again, we'll never know until she comes in and votes. But I think we have put ourselves in a position, as best as we can, to take advantage of that environment. Heather Boksen - Sidoti & Company: Looking ahead to spring 2010, I know you said the reaction so far to the product has been good. Good enough to show some wholesale revenue growth next year or will the private label decline still offset that?

It feels like a little far out to make any kind of predictions, but I would tell you that in terms of our private label and private branded business, we sort of expected by the end of the year to represent less than 3% of our sales on a consolidated basis. So it is getting to a place where it really is not that meaningful, so we would certainly like to believe that 2010 we would begin to show improvements in our sales growth and sales trends at wholesale.

It's early. We certainly haven't completed a planning cycle for 2010. I think we've done a lot of work towards improving over the three-year outlook but calling the timing of that on a quarterly basis, etc., it's very early in terms of the detail work. And I think that as Diane mentioned, the private label, private brand decline, which we expect to continue in the back half, will take that to a level where it doesn't represent the same risk in 2010, but the momentum of some of our brands in sophomore season of the new brand launches should give us good confidence for wholesale growth next year.

I think we're hesitant to try to forecast end of the year inventory planning by our retail partners. I think that a lot of water is going to go under the dam before we get to that point, as to how much are they going to ship before Chinese New Year, how much are they going to ship after the swings from month to month, and all of that has effect on our quarter timing. But it doesn't have affect on our continued, growing confidence in the brand portfolio as we go forward. So whatever hesitance we have is all about timing, not about progress. Heather Boksen - Sidoti & Company: It sounds like the BOGO promotions have had a better response than some of the promotional kinds of activities that you were doing earlier in the quarter. Is that the way to go, going forward? And should we expect BOGOs to be a little more significant in the fourth quarter, year-over-year? Just how should we think of that?

Unfortunately, right now, BOGO is a way of life. It's just as you shop, it's not only in footwear. It's common place; it is what the consumer expects it to be, whether it's footwear or other categories. I don't think you'll see an increase in fourth quarter compared to last year. At least that's our plans. We don't see an increase in that promotional vehicle. We probably will mirror it from last year, but will not increase it.

Your next question comes from Jillian Caruthers – Johnson Rice. Jillian Caruthers – Johnson Rice : [audio break]Wholesale brand at Famous Footwear, kind of you have broken out before the percentage with and without athletics, what that makes up at the Famous Footwear, as well as the gross margin help, because you did point that out as one of the drivers this quarter, of more improved margins.

You broke up a little so we're going to try to piece together, but I believe you were asking for a little bit of perspective on the vertical improvement that we're seeing with our Wholesale brands at Famous? Jillian Caruthers – Johnson Rice : That's right. The kind of mix that you're seeing there. And you've broken out before with and without athletics as well.

I think that we don't really sell what I call true athletic in our company. A little bit in the Scholl's line. But we are expecting and have experienced an increase from—we had been running in the 14% to 15% range historically and with the launch of Libby and Fergalicious into Famous in the spring season here, we are seeing a lift in that number. And also an improvement in the gross margins, driven by some of those inter-company businesses. Jillian Caruthers – Johnson Rice : Is there any way that you can quantify that margin benefit that you saw in the second quarter?

I know exactly what it is but we don't break that out in terms of our disclosure. Jillian Caruthers – Johnson Rice : And the wholesale weakness, is there any way that you can talk about the different components of that? I know that you had mentioned earlier about half of the decline was private label, if you could talk about the other half. Is it low orders, low reorders, are you losing any customers out there. Just a little bit more to that.

Sure. No problems, we'll be happy to do that. As Mark had indicated, more than half of the second quarter shortfall was in the private label, private brand side of it. And then as we look at it, across the branded portfolio, it was really all brands, with the exception of Sam Edelman and Carlos Santana, showed some decline, to a larger or smaller degree of decline in the second quarter. It's not that we're losing any retail customers, it really is as we manage our stock to sales ratios at retail and make sure that we're not getting ourselves out of line, really that has been the intent. So I can't think of really anything else to add with respect to that point. I think Sam and Carlos has been fantastic and the others it was a little bit here and there, on the rest of the branded piece.

And back to the margin question, again, on the Wholesale side we had improvement in our third party margins as well as in our inter-company margins. So that also benefits at Famous the strength of those brands.

Your next question is a follow-up from Christopher Svezia - Susquehanna Financial Group.

From a sourcing-cost perspective, obviously coming out of China, costs are coming down, can you quantify to what degree either these have to be reinvested back in other brands or just kind of used to continue to move product. I'm just curious what you foresee is going to happen with lower sourcing costs from just moving product. And for you, what's going to happen from a P&L perspective.

Certainly in the third and fourth quarter as I know you and I have chatted about, we do see our initial margin rate improving as costs are coming down and as we're being smarter about where we're sourcing and how we're sourcing. So as we look at both third quarter and fourth quarter, we see gross margin rates improving. And it looks like a couple of hundred basis point improvement in the back half. Something like that on our initial margin. It's kind of the way that we're seeing it.

[audio break]

Sorry, Chris, you faded out there, too, I couldn't hear you.

I guess that's strictly on the Wholesale side of the business and I guess my question is obviously you are not anticipating that you'll see the entire benefit of that. I mean, some of that, to some degree, might get reinvested, is that a fair assumption, or depending on how the second half unfolds, whether there's mark-down allowances, things of that nature have to unfold. Is that a fair observation?

I think so. I mean, I think we've sort of demonstrated, at least in this second quarter here, that our allowance rates have gotten a little bit better and we have been a little sharper on some of those things, but clearly again, it will unfold. Our intent, obviously though would be to try to capture as much of that as we possibly can.

And Joe, you talked about athletics, some broad strokes, but I'm curious, more specifically color on running, you do a small basketball business, classics, skate, just are those still growth categories? What's going on in that regard?

A couple of things. Really it's much around basketball. Running business still remains very healthy. I think it's following some of the people's industry trends. But our running business remains healthy. Obviously it's the same components there, with Saucony, Nike, Asics has continued to be strong. We do have a very large skate business being driven by DC and some of our other vendors. It has flattened out some but when you take the whole vulcanize between—because that is somewhat the same consumer, between converse, between our skate consumer, that business remains very healthy. So we're still please in our running and our skate business continues to lead the athletic portion of our results.

And on the classic side? Anything there?

No, not really. Classics remain classics. We really have not seen an uptick in the classic business. It remains somewhat still in an urban business. But it really hasn't given us any lift. So we haven't seen any increase in consumer demand there.

And the non-athletic, high-bred, rocket dog sort of sketchers kind of business. Has that shown any improvement or is that trending in line with the overall company average?

This is a little bit too early. I would say though, we keep looking for and we are getting initial signs, and again, it's only a couple of weeks, but I guess the question we're asking ourselves is we're taking a look at the performance of our women's casual business and our women's junior business. It's starting to show some light early. So after a year a half in this industry of a woman's business being down and struggling, is she now tired of her whole closet? Can't take it anymore, coming back out? It's early. That season comes late September or October or November. But the first time we look at the numbers and ask if we've bottomed out and if we have then are we going to get back into the cycle of maybe a little more aggressive buying. And then your margins, as you know, improved. There is a five point swing there. So we'll see. It's not declining anymore. That's the good news.

And the early read on boots for us, too. Everybody is very, very positive. We get additional wind at our back on that. That not only should help our comps but also our margins, too.

Your next question comes from Sam Poser - Sterne, Agee & Leach. Sam Poser - Sterne, Agee & Leach: I want to follow-up on Chris' questions. Where do you put the shape-up shoes? What category do you have that in?

We just have it in our athletic business. Sam Poser - Sterne, Agee & Leach: Is your athletic business running up right now or do you see it running up for back to school?

A little too early. Again, back to—at the current time frame, yes, it is running up. Sam Poser - Sterne, Agee & Leach: And the inventory levels at the end of the quarter, I believe were up 3.7% per door.

About 3.1% at the end of Q2. Sam Poser - Sterne, Agee & Leach: And it sounds like you're planning business down in the third quarter and then are looking for more positive activity in the fourth quarter. Is that a fair statement?

Again, I think what we gave is back half guidance on comps, we didn't split it by quarter. Again, I think the 3% increase in average inventory, as we talked about, was pulling forward receipts. We said we would expect inventory would be down 3% by the end of the third quarter. Sam Poser - Sterne, Agee & Leach: On a per store basis?

On a per store basis, yes. Sam Poser - Sterne, Agee & Leach: And then how do you, when you're looking at the athletic business into spring 2010, how are you looking as orders are now due for spring 2010? How do you preliminarily look at your business? Are you staying very conservative? It sounds like you are starting to feel slightly more optimistic for the back half, so how does that roll as orders are due right now?

I think we're looking right now at basically athletic as a flat to up business some, for first quarter of next year. Again, that work is still in progress. Actually our orders are due, some by the end of August and the other ones by mid-September so we're still looking our way through that into the first part of next year. But athletics has always been extremely strong, especially as you go into first quarter. I mean, take a look at your late-February, March business. Right now, when you saw conservative, I would say right now we would say flat, but you would have to ask me 30 days now when orders are placed. Sam Poser - Sterne, Agee & Leach: And how is the change as you look at the mix, given the changes. I mean, you have done a good job over the years of really bowing against actual sales performance. You have stepped up with quite a few vendors. Other vendors have been struggling for some time, especially in the classics world. Are you really buying it by item now more so than by brand, I guess is the question.

The brand is still the number one that we take a look at, then obviously the SKU base within that brand. So it's brand first, SKU within the brand, and has that SKU base become tightened? Yes, it has. Sam Poser - Sterne, Agee & Leach: Diane, how are you looking on the department store orders, you know, preliminary spring following WSA and FFANY and so on? How are those preliminary, how does that look out for you right now, going forward?

Again, it's a range, depending on the customer. Because as you can see, their store-for-stores have been anything from down in the mid-teens to down in the low-single digits, depending on who you're talking about. So what we're really seeing is those open-to-buys and those plans corresponding somewhat with those kind of trends right now. So you don't see huge increases at all, but again, it's back to how each one of our brands is performing with each one of those partners. Sam Poser - Sterne, Agee & Leach: Have you been able to shorten your windows to be able to react closer to the need?

Yes. In a couple of places we certainly have this particular season. And we have been able to get some goods in. For example, as everybody is talking about boots right now, we were able to turn around some boot orders as soon as we got some early reads from a number of our retailers. So, yes, we have been able to do that in some cases.

We have reached the allotted time for questions.

Thank everyone. We appreciate your continued interest and look forward to the second half of the year and a solid back-to-school hopefully.

This concludes today’s conference call.