Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's DSW Inc.'s Second Quarter Fiscal 2011 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. And now I would like to turn the conference over to Mr. Doug Probst of DSW. Please go ahead.

Thank you, and good morning. Welcome to DSW's Second Quarter Earnings Conference Call. With me today in Columbus are Mr. Mike MacDonald, CEO; and Debbie Ferrée, Vice Chairperson and Chief Merchandising Officer. Please note that various remarks we make about future expectations, plans and prospects of the company constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those listed in today's press release and in our public filings with the SEC. Earlier this morning, we issued a press release detailing the results of operations for the quarter ended July 30, 2011. Our reported net income was $139.9 million or $3.96 per diluted share on 35.4 million weighted average shares outstanding and included a net benefit of $106.2 million related to our merger with Retail Ventures, Inc., which was completed on May 26, 2011. You can find these items detailed in the condensed consolidated statements of operations and reconciliation of adjusted results attached to our press release issued this morning. However, given the complexity of the transaction, let me share with you the details of the costs and benefits and the specifics of where they are reflected on our P&L so you have a clear comparison of our operating performance to last year. The $106.2 million net benefit of the merger breaks down into the following 5 components: one, $6.1 million in cost included in the SG&A, primarily related to DSW and RVI transaction costs and other RVI operating expenses; two, $22.9 million in noncash expense related to the change in fair value of derivative instruments. This reflects the change in value of the PIES and warrants. Three, net interest expense of $5.4 million related to interest on the PIES and deferred financing fees on other RVI…

Thanks, Doug, and good morning, everyone. And as Doug said, the second quarter was another good one for DSW. We were pleased with our sales and profit performance and we made further progress on our strategic and operational objectives. We've now had 8 consecutive quarters of very strong comp sales growth. Over that 2-year period, our comps have averaged plus 12%. We attribute that strong growth to 3 things: our unique operating model, our improving execution of that model and the impact of our initiatives. In terms of our operating model, we believe the combination of a breathtaking assortment of branded product and everyday discount pricing structure and an assisted self-select service approach is resonating with more and more shoppers. The shopping experience DSW provides to its customers is fun, efficient and usually successful. During the second quarter, we made progress on some important priorities. First, we continued to grow sales productivity. As you've heard us say in the past, we believe sales productivity is the key driver to the profitability of any brick-and-mortar retailer. On a trailing 4 quarter basis, our sales per square foot now totals almost $240. That compares to just under $200 per square foot in fiscal 2008. So we've increased sales productivity by more than 20% over that short time period. Second, we used our spring TV advertising to both build awareness of DSW and to evolve our brand image as a fashion authority. As a result, customer traffic in stores and to dsw.com increased during the quarter. In addition, unaided awareness of the DSW brand increased when we measured it following our spring TV campaign. Third, we did a better job of staying in stock during Q2, which resulted in improved customer conversion rates in both stores and on dsw.com. And fourth, we expanded…

[Operator Instructions] And our first question will come from Chris Svezia with Susquehanna Financial Group.

So I guess I -- you guys sound really good as usual and I know there's always the concerns about the backdrop. I guess I'm just curious, I mean, you guys -- or not, I know you didn't give any intra-quarter view, but I mean it's really basically taking a very conservative view on the back half with regards to your sort of top forecast, you're sort of margin outlook. And I'm just curious given then where inventories are, I mean, you guys aren't really seeing anything at this point or you're just taking a very conservative approach to the back half at this point. Is that just sort of how we're taking it? And obviously the flexibility to chase business if necessary, is that fair?

It is, Chris. I mean. Look, we like our position entering the fall season. We think it's very prudent to plan conservatively. Look at the front page of the Wall Street Journal today, you see the continuing aftermath of Irene. Look at Page 3 of the Wall Street Journal today, it talks about consumer sentiment. I mean, there's lots of uncertainty out there and one thing this company has proven is that it's pretty nimble and it can chase business trends that develop. And so we think going into the back half with a great liquidity and a conservative plan but opportunities to expand should be demand pickup above our expectations, we think that's a beautiful place to be. And in the past, we've taken those opportunities to not only drive sales but to expand margins. So I think it's the right way to plan the business.

And I guess, either Doug or Debbie, how do you guys feel about the product? I guess input cost I think before was low to mid-single-digit increases. I think you felt pretty good about mitigating some of those costs in Q3, still uncertain about Q4 and I think you were hopeful that if you had product margins kind of flat, that'd be great. I mean, how do you thinking about it at this juncture?

Chris, it's Debbie. So as far as costs are concerned, as we talked about in the second quarter earnings call and also I'll reiterate now, we're seeing about mid-single-digit, mid- to low single-digit cost increases in the business. I think we've done a good job to try to mitigate those pressures and costs so that the margins come out where we need them to be. When you look at fourth quarter, we are seeing a bit of an increased acceleration relative to what we saw in the first part of the year and even in third quarter. So I am anticipating that there will be some increasing cost pressures. It seems to be around a couple of categories, around Boots and Men's, like I stated in the last earnings call. And we're just starting to get the cost in now for the spring season. It does look like we're starting to see in certain categories a bit of an increase in cost pressures to new to really call out the specifics right now though.

And I guess I might add, this is Doug, that Debbie spoke of the mitigating factors, well, we're projecting that our margin rates could be flat to last year given our great performance last year. We think that's pretty good as we've said last year because those mitigating factors include the size replenishment program, the prebuy that we did last year, private brand increasing its penetration, managing our luxury products in the number of stores that goes out to. So a lot of things that offset the cost increases that the merchant team is starting to feel, and so we're pretty pleased with that expectation.

[Technical Difficulty] Last question I have here, and then I'll jump off but just on a [indiscernible], the debt assumed on there [indiscernible] was that all just related to the PIES, I think there was like $134 million, and was that PIES related? What about the short-term pieces like the $69 million? What is that Doug? Is that just marked-to-mark or what? What is that number?

Chris, part of your question got mixed up because we couldn't hear you, broke up a little bit. But I think what you're asking is that, the mark-to-market is the rest of the charges, and that's the number that's generated by the changing stock price. So if I caught your question completely, the additional costs you're referring to are the mark-to-market charges on the PIES and the awards that are still outstanding.

No, I guess, let me just to reiterate it real quick. Specifically on the balance sheet -- the debt that's on the balance sheet, can you just tell us what's that?

Yes. Again you're breaking up. But the debt on the balance sheet will be the debt we're assuming at the merger. And that does include the debt we picked up with our RVI's merger.

And does all of that go away?

Once we settle the PIES in September.

And next, we'll hear from Jeff Black with Citi.

Yes, just a couple of questions related to inventory. I guess, Doug, what's the unit position here? I assume some of the increase in inventory is due to cost, how much? And then, Debbie, on the Boots, what are you seeing so far? I mean what kind of season do we really expect, is there enough fashion? Do we think we have enough fashion to pick up price? And finally, back to Doug, on the DC fulfillment stuff that is weighing gross margin a little bit, does that hit increase as we enter the back half, stay the same, what's going on there?

Yes, Jeff, I'll go first. So as far as Boots are concerned, what we called out in Q2 to look for in the back half in Boots for this fall season was that there would be enough fashion and that there was going to be also a mix change, a mix shift that actually would benefit the business. By mix shift, I mean a more of distortion towards booties versus boots. High-shafted boots don't go away, but there was a little bit of an increase in the penetration in the booties versus the boot. That is proving to check out positively for us. Overall, I do believe that there is enough fashion in boots to drive the business for the back half. Early results are positive and what we're seeing so far in terms of some of the new items, new fashion items hitting and also us even starting to reorder some of those items. So I'm relatively pleased with how we planned the back half in Boots. I think the trends that we called out are playing out very nicely, and I'm actually fairly positive about the back half.

And so the other follow-up questions on the DCFC, first of all, in the second quarter, we had about 10 basis point deleverage. That's probably about what we'll experience in the second half as well, even though the business continues to grow in dotcom, we're starting to anniversary ourselves to a degree. So a little bit of pressure on the back half. And as far as the mix of units, it's a little bit difficult -- we're looking at our notes here, it's a little bit difficult to try to report on that period of time at the end of July because you're going through a transition of new deliveries coming in versus the old deliveries that are in the inventory that's there. So I would say at the end of July, it's not materially different in units and costs, but again, it's a transition period at the end of July. That's -- we'll have a little bit more color as we get deeper into the third quarter to give a view on that. But I would just assume that it's not materially different at the end of July.

Next, we'll hear from Steven Marotta with CL King. Steven Marotta - CL King & Associates, Inc.: Regarding the flat inventory per square foot, was there any delivery delays that may have skewed that a bit? In other words, did you take additional deliveries in early August, that may have then resulted in smaller increases on a per square foot basis for inventory?

Yes, there were a few million dollars of inventory receipts that flipped from July into August. Steven Marotta - CL King & Associates, Inc.: Can you quantify that at all? How, say inventory per square foot is roughly now? I know you're reticent to speak intra-quarter, but is there any way to quantify that?

Well, you know what? I won't even have that number for another day and a half. So I can't tell you what it is. My sense is it's probably up slightly. Steven Marotta - CL King & Associates, Inc.: Okay. And then as it relates, again, I know, I understand reticence on speaking intra-quarter. As it relates to Irene, can you speak about number of stores impacted, days opened impacted? Is there -- it is enough to trigger business interruption insurance? Can you just speak about the storm a bit?

Yes. Okay. So we had a total of 67 stores that were -- that had their hours curtailed or -- in some fashion over the weekend. And I think on Saturday, we had about 8 stores that never opened. On Sunday, we had almost 40 stores that never opened. And yesterday, we had 6 or 7 stores that never opened. And the total number of stores that were sales affected is probably a larger number than the 67 whose hours were affected. And I would say the maximum number of stores affected on a sales basis over the weekend, it's probably closer to 85 or 90. And we obviously felt the impact particularly in those stores, the 67 that I mentioned that were -- that have their hours curtailed. In terms of the total impact, I guess we've got to wait. I think there are residual flooding impacts and of course then, as customers concentrate more on recovering their personal lives, I think they think less about shopping for shoes. So I think it's going to be a period of days or even weeks until we fully understand the impact. In terms of BI insurance, a couple of things. The flood insurance, which is probably what will be applicable is $100,000 deductible and most of the time that's applied not on an occurrence basis but on a location basis, which means that since our stores on average do about $15,000 a day in sales, it would be pretty verified air for us to get to $100,000 -- over a $100,000 loss profit from a single store. So on that score, not a lot of BI coverage, we don't believe. There are however additional provisions in our insurance that would apply the deductible on an occurrence basis under certain circumstances, and we believe power outages and mandatory evacuation notices meet those conditions. So we are pursuing insurance coverage for those areas that lost power and had mandatory evacuation because then when you group stores together, you have a better chance of getting over that $100,000 deductible.

And next, we'll hear from Claire Gallacher with Capstone Investments.

I was curious about what drove the comps during the quarter. Can you talk maybe traffic versus maybe AUR and kind of the breakdown that you saw in Q2?

Sure. Claire, we can barely hear you but I -- you're asking about the breakdown in comps and we are very pleased that every component contribute to comps. Mostly it was traffic being the largest, over half of it. The conversion was up slightly. Our average unit retails are up a little bit, as well as our units per transaction. So all 4 components of our comps were positive in the second quarter, but it was still mostly driven by traffic.

And then just kind of a follow-up on the comps. Was there any specific product, maybe sandals or boots or for -- the fashion component of Women's, whatever it is, kind of what helps it to get you to that 12% level when you're originally planning for something along the mid-single-digit range?

Claire, this is Debbie. I'll take that question from you. First of all, I'm pleased to report that the comp increases really came from all categories, so it was a fairly balanced performance. In the Women's area, as Mike talked about, a 12% comp just came from several different places. Fashion actually drove it, so the fashion piece of the Women's business that was like up 11% and classic was up 8%. Within Women's, the highlights were the categories we've been talking about in the last couple of earnings calls, evening shoes and plain pumps still continuing to drive the Women's business. Sandals also had a very, very nice increase. So we started strongly in the early part of the season, kind of got a little tough in March and April when the weather was a little bit inclement and then really picked up nicely for us. So we came out of the season very, very strong with a strong sandal performance. But the other categories we have actually did well too. Men's did well, both in dress and casual. Athletic did well as we talked about. We were able to anniversary and actually beat those toning numbers with the addition of the new categories of technical, lightweight and of course, our Nike business. So it really came across from many different places, which speaks to me about the health of the overall business.

And then my last question really have to do with just kind of the SG&A spend. Could you remind us what you're investing in for the second half of the year just to kind of -- the SG&A deleverage that you're expecting? Could you just kind of walk us through that?

Sure. Well, the leverage we've been getting, of course, is in the first half has been on the extremely high comps being about 12% for the full spring season. So the ability to leverage on lower comps obviously becomes a little bit more challenging. So it's not necessarily the timing of those investments, more of a comparison as the sales change. But that said, the investments are mainly focused on IT increase or continuing spending there that we've been doing for past couple of years now. And more from a quarterly perspective, it's important to note that we're probably shifting about $4 million of marketing from the fourth quarter last year into the third quarter of this year. So although the percentage of sales isn't changing materially for the year or even by the season, putting more marketing dollars in the third quarter puts more pressure on that SG&A rate. Last year, we had the Miss America Pageant and some other things pushed in the fourth quarter. This year, we're putting more marketing dollars closer to where we believe the bigger sales are coming. So that's why we're seeing that calendarized shift as well. But it's the same story, investing into our growth mainly through IT but other elements of the business, whether it's dotcom or stores or other areas where we need to invest to continue the growth, but it's primarily focused on IT.

[Operator Instructions] Our next question will come from Jeffrey Van Sinderen with the B. Riley. Jeffrey Van Sinderen - B. Riley & Co., LLC: Any sense you can give us on the monthly sales progression? I know you guys don't really break that out, but just any sense of how the sales kind of trended throughout the quarter? And then also any sense you can give us on the sales progression over the last 6 weeks? I know you're not necessarily all a back-to-school destination, but any sense there outside of the anomalies of the Irene storm?

I'll just comment on that. Thank you for understanding that we don't necessarily comment throughout the quarter because there's a lot of shifts and patterns -- weather-related or whatever. But I would tell you that every month in the second quarter was very strong. So there wasn't a particular month that contributed more than the other significantly. Now the last 6 weeks, even if we gave that information, August is much smaller than September and October. I think September and October historically has been over 50% larger than August. We're not necessarily a back-to-school business, so even if we gave you that information on the last 6 weeks, it wouldn't be a good thing to extrapolate on. So traditionally, we have not reported that. And even if we did, it would be perhaps misleading. Same thing goes for February, at the time coming into the season. But March and April are the timeframes that really matter. So I hope that helps a little bit, but that's the information we can share. Jeffrey Van Sinderen - B. Riley & Co., LLC: Got it. And then anything -- any color you can give us on what you're hearing on off-mall traffic maybe versus what you're hearing mall traffic? Is there anything to glean from that?

Well, we've read the same reports that you have and traffic appears to be slowing a little bit outwardly. But again, depending on how you look at it, you could read into those trends but we know what our traffic is. Our traffic has been real strong in the second quarter. It's a key point of our comp growth. So we just have to focus on that and continue to drive traffic as best as we can. And we're mostly in strip centers, so hopefully we're a destination sometimes. And the in-mall traffic that's a lot of people get some benefit from doesn't really affect us that much. So consumer confidence kind of is a metric that we kind of keep an eye on to see where that trend is going and obviously we all heard that's kind of soft right now, so we have to be cognizant of that. Jeffrey Van Sinderen - B. Riley & Co., LLC: And then anything more you can say on the small store format test so far? Anything to update there?

Just to clarify that, it's a small market test, it's not a small store format test. Stores will be normal-sized stores but in markets that are less than we would typically -- less populous than we would typically enter. And there's 2 of them this fall and we'll -- as is our practice, we will announce them the day that they open.

Next, we'll hear from Scott Krasik with BB&T Capital Markets. Scott Krasik - BB&T Capital Markets: Start with big picture. Doug or Mike, if you guys are able to exceed your comp outlook for the back half of this year, regarding our models, is this something that we should just sort of ignore the 2-year trends, the stack that we look at and just say, look DSW is in a new phase in terms of the ability to convert customers and take market share and you'll be able to continue to comp on top of what we view as difficult year-over-years?

It's a really good question, Scott. And I had trepidation a year ago when we entered the fall season of 2010, because we were annualizing what was sort of like turning the light switch on a year earlier when the comps suddenly went from negative to double-digit positive and we proved an ability over the last 4 quarters to comp on top of that comp. But now we're up against another point of inflection and we've got to prove our ability to comp on top of that again, and that's why we're taking what we hope is a conservative view to the fall. So we'll just have to see how that plays out but given that we're another year -- we're into the third year of comp challenges, that's why we're taking a conservative view, not to mention the fact that there's a good deal of uncertainty out there right now, whether it's the debt ceiling which will be debated again in the months to come or it's consumer sentiment or it's confidence or it's unemployment or it's housing or whatever, we got tons of uncertainty out there. So that's why we think it's prudent to take a conservative view. But again, this is another nervous time just like it was a year ago. We passed the hurdle a year ago. We'll see if we can pass the hurdle again this year.

Scott, I guess I would add to that and to that point is that historically, the last couple of years, for example, fall, the average store has been bigger than the average store volume in the spring. But prior to those last 2 years, fall used to be smaller than spring. So we can't just look at the last 2 years as our history and predictors of the next 6 months. We have to look at the longer-term history as well and consider that when we make our sales projections. Scott Krasik - BB&T Capital Markets: And my question really didn't to do with much with the next 6 months as the next couple of years going forward. But Debbie, how are you so confident in your ability to chase inventory if your comps are running better than planned to model the inventory flat or is that more a function of nervousness about the economy and potential declining traffic? Maybe talk about your decision to come at this fall with flat to up slightly inventory.

Scott, I'm always comfortable planning flat to up slight low single-digit comps. This company has always proven their ability to be able to commit to the known must-have items early on in the season, the big items, the key items, core items, big trend items and leave enough money open to be able to chase the business. We've proven it before. I don't see any indication that we wouldn't be able to do that again this fall. There are plenty of goods out in the market. Scott Krasik - BB&T Capital Markets: And Debbie, have you anniversary-ed the impact from the technical Nike that you brought in? I think, it was last spring. So I think you're past that. Are there any other introductions on the Athletic side that could boost the numbers?

The big toning numbers are pretty much behind us, so we're kind of glad we're past that time. The new things that we talked about before, which is the technical, the lightweight, they're doing exceptionally well and they continue to trend well. They saved us in the spring season actually, and we're -- and was part of the reason why we could anniversary this toning numbers. So they continue to be strong. We continue to have what I believe is very compelling content for the customer. And when we look at the sell-throughs, I'm really happy with what we're getting. We also have not seen any reason to believe we wouldn't be able to feed into that merchandise if the trend even gets bigger than that. So I'm comfortable with there's enough newness in Athletic to sustain some nice increases. Scott Krasik - BB&T Capital Markets: And then just lastly, Doug, on the balance sheet, I think we're clear now that the pieces of the debt will go away this year. Are there any portions of the cash, either in short term or in long term that would -- that are RVI-related for some reason that would go away or is that how should we look at the cash for year end?

Actually the balance sheet reflects the cash that we acquired in the merger. It's not significant. And so the balance sheet numbers that I quoted does include the RVI cash for this year and last year, but again it's not significant relative to the DSW cash. Scott Krasik - BB&T Capital Markets: So the $410 million or whatever the number was, including the long term, that's a number to count on as we go forward as well?

Yes, obviously, we've got to pay the dividends that we declared. But yes, that's the number to start with.

Next, we'll go to David Mann with Johnson Rice. David Mann - Johnson Rice & Company, L.L.C.: A couple of questions on the dotcom business, can you elaborate on how that benefited that 13% comp? And also did the rate of growth in dotcom accelerate in the second quarter?

Yes, I think, David, we don't want to comment on the impact of dotcom because we've made it a practice not to segregate that piece of the business from the other because there's so much cross shopping. I think the business -- Doug, correct me if I'm wrong, but the comp growth in Q2 was relatively comparable with Q1, is that correct?

Yes.

Yes. So it was strong in both quarters. David Mann - Johnson Rice & Company, L.L.C.: And the growth rate in the first half of the year, how would that as compared to the growth in dotcom last year?

About the same. David Mann - Johnson Rice & Company, L.L.C.: In terms of the accessory success you had in the Men's business since you've called out both these categories, can you talk about, I don't know if it's Debbie or Mike, can you talk about your ability to continue to grow those specific categories? Where are you in terms of expanding the inventories or some of the other initiatives there?

Yes, David. So in the Accessory business, as we've called out, this is a growth category for us and that would span everything from handbags, to hosiery, accessories and small leather goods. We are underpenetrated in this category so there is reason to believe in my opinion that we have some nice, long-term growth ahead of us. There are many things that contributed to the comps, the big driver with the casual hosiery area. As you know, fashion legwear is hot, it was last fall, it was hot this spring and looks like it's going to be hot again for this fall. Handbag business is something that is a real development opportunity for us as we continue to cast out higher price points and increase penetration in our leather versus our nonleather piece of our business. So the penetration opportunity would suggest that we have some nice business ahead of us in Accessories. David Mann - Johnson Rice & Company, L.L.C.: And on the Men's side, is there still a lot of growth there?

Yes. We're still underpenetrated to what our high was several years ago. We're also seeing some nice business there as we talked to you about before. We have size replenishment in the core product in our business, which is about 1/3 of the business more or less. But what we're seeing some real nice increases coming from is in the contemporary piece of the business as we continue to add more of the fashion element versus the classic which is what we'd always had in the past, that's what we are known for. We went and added the fashion contemporary element, and we're seeing some real nice response from our customers there. So yes, some nice long-term growth out of Men's as well. David Mann - Johnson Rice & Company, L.L.C.: And then, Mike, one question on the use of cash. Obviously, you made the decision not to use the cash to retire the PIES and you talked about perhaps some future uses of the cash for growth options. Can you just talk about -- so investors can appreciate, should we expect the cash to be kept defensively over the near term or would you potentially deploy it whether towards some growth initiatives or anything else in some short order over the next couple of quarters?

Well, we've got all of our options open to us and that was part of the reasoning behind redeeming the PIES with shares so that we could manage the amount of cash that we would have available to do whatever we want to do and we think we've positioned ourselves well. Having said that, we look at lots of things but we're very careful shoppers and we've got to make certain that opportunities that present themselves are right strategically for the business, financially for the business and operationally for the business. And as we've said many times before, we must stay focused on this machine called DSW because we got -- we have huge opportunities ahead of us as we pursue systems initiatives, category initiatives, marketing initiatives, precision marketing initiatives, as we really utilize the rewards database. We have so much opportunity ahead of us in our base business that we can't allow new things to distract us. So we're actively looking at things as they come available, but we've got a pretty strong screen that we put those opportunities through.

Next, we'll go to Mark Montagna with Avondale Partners.

I have a question about your Leased divisions. I know that it was an initiative that you're focused on. I'm wondering if your systems are fully capable taking on new clients, do you have enough DC space, do you have enough land to expand on to and is your -- do you have the web site capability to service these clients if they happen to want to be on the Web because I'm really kind of imagining that at some point over the next 12 months we could perhaps see some see some sort of announcements related to this?

That's a great question and 2 good issues, and we're addressing both of those as we speak. The systems capabilities of bringing on a new business, as well as the Web portion. Similar to the DSW business, we have to make sure we focus on our existing lease partners, making sure we're doing the right things in their stores. But on top of that, we're utilizing this time as we prepare hopefully for a new Leased Business partner to make sure the systems are in order. And there's a lot of other IT issues going on as well that we're working on. So we have to make sure this is appropriately prioritized. But the capability of bringing on a new business efficiently is important and we're working on that, again, throughout 2011, we've been working on that. And the dotcom element is clearly a piece that we would like to add as well. But to Mike's earlier point, we got to focus on the DSW machine first and -- but at the same time, we can add some capabilities to our Leased Business partners, can have the dotcom channel as well. So a big opportunity in both, but you called out the exact 2 points from the infrastructure standpoint that we've been working on during 2011 to prepare for that hopeful addition of a new partner.

So do you feel you will have the capabilities at some point in 2012 to bring somebody else on?

Yes.

Do you -- Can I narrow that down? Do you think it's closer to the beginning of the year or middle of the year or hard to tell at this point?

It's hard to tell at this point. Nothing is imminent, but we have a lot of good conversations and the Leased Business team has done a real nice job taking questions from those potential partners and helping them try to figure out what a nice program might be. And we'll see how it turns out.

And next, we'll go to Patrick McKeever with MKM Partners.

Just wondering what is embedded in your gross margin guidance for the back half of the year from a merchandise margin standpoint. I mean, I'm assuming you're expecting margins to be down in the back half but -- can you quantify it and even give us some color by quarter how that might look?

First of all, it's flat. Hopefully, as we hit the target that we talked about the merchandise margin would be relatively flat, as well as the other components of gross margin. And that pretty much stays consistent by quarter.

And then in the second quarter with the 60 basis point improvement in merchandise margin, what was the -- what were the key pieces of that?

Well, a lot of it has to do with sales and more sales mean less markdowns. So that's a component. And again, we did not have the cost pressures that we expect in the back half. As we said all year long, we knew that those cost pressures would be mainly impacting us in the back half. And in the first half of the year, the costs weren't nearly as the -- nearly as large as they are going forward. So hope that helps a little bit.

Sure. No, it does, but I mean, I guess why haven't you seen more cost pressure on merchandise margin? I mean, it seems as if most footwear retailers have seen a fair bit of cost pressure, but it seems more -- for DSW, this is -- if we see it at all -- well, I'm guessing we will, but it's going to be more of a second half type of event. I mean, how do you -- what are the key differences there?

Yes, this is Debbie. I'll take that question. So yes, we were safe with the same cost pressures that everyone else. I think what I would attribute the success to is, first of all, the partnerships that we have with our manufacturers. Both of us recognize that we were both facing some pretty big cost increases, the wholesalers and then passing that on to the retailers. And so we worked with our manufacturers in how we placed product, when we placed products in the factories, the factories that we dealt with. The quantity of big items that we bought. So intensifying our big key items, which typically when you do that, you get a cost benefit there. In addition to that, the increase of our private brand program helped us mitigate some of the costing pressures we were seeing from the manufacturers. I don't want to suggest that cost pressures weren't there, they were. I think the merchants have done a nice job to mitigate those. I think as you look in the third quarter, we're seeing the same kind of partnerships with our manufacturers that we did in the first half. We are -- as we start to get the spring numbers, the spring costs back from the manufacturers, we are seeing some additional cost increases. So I don't think that this pressure is going to go away anytime soon and it will be incumbent on us to continue to work with our manufacturers to be able to keep the costs down. Remember what we did as well, we said we wanted to maintain our retails as closely as we could on commodity fashion items that really drive our business, and that we would take those increases on fashion-impulse items where price was less of a factor in the purchase decision of the customer versus the impulse side in itself. So we continue with that strategy. It's continuing to work for us and it's a strategy we use going forward.

And then just a quick one. I think you talked about doing some dedicated advertising marketing in Men's. I'm wondering if you've started that or is that something that we'll see in the fall season?

Yes, we've started to selectively do some things in Men. There really isn't anything conclusive right now that I can really report to you. We've had some successes. We've had some other things we tried that haven't been quite as successful. But we continue to test the waters to continue to elevate awareness for the Men's customer coming into DSW. I will tell you that I'm very pleased with the Men's results relative to just the testing approach we've taken in marketing. I mean, we put some Men's coverage in our TV commercials as you know. We've done selective things in print, but very, very small; selective things in email, very small. I just think that the male consumer is really recognizing that DSW has a relevant assortment that can satisfy a lot of their needs, both classic and fashion. And I would say that the sales comps are outpacing and exceeding my expectations relative to what little we have really done in marketing so far. But we'll continue to test the waters in Men's marketing and see if we can find what that magic formula is.

And next, we'll take a follow-up question from Chris Svezia with Susquehanna Financial Group.

Just 2 quick follow-ups. I guess first just on your clearance inventory, just given where your overall inventories are. Can you just give us some sense of where that stands right now? And second question, just related to the size for replenishment. I know that kind of goes live shortly to benefit certainly next year and fourth quarter. Just give us a sense where you are on that and when you expect to kind of start to go live on that? Is that late fourth quarter or is that more first quarter next year?

So on replenishment, we're full board on replenishment. It's representing 30% of our business. If you're talking about size optimization...

Yes, sorry.

Okay. So we're working on that now. Probably implement it around the end of the year and begin to drive benefits next year from size optimization. In terms of your other question on clearance. Our clearance, I believe at the end of July, was up slightly to last year.

And our next follow-up question will come from Steve Marotta with CL King. Steven Marotta - CL King & Associates, Inc.: Doug, did I understand earlier you said that historically September volumes are 50% higher than August?

Talking total, yes. I mean it's a big increase. September, October, I wouldn't hang on that for a particular month, but those months as we've looked -- referred to them as Septober are generally much larger than August which was just the reiterations of the fact why we wouldn't, even if we were -- had a policy to, comment on August performance because it's not very indicative to what September, October generally are. Steven Marotta - CL King & Associates, Inc.: And then could you parse that one more derivative down on the weekend before Labor Day? I know that you guys are not a back-to-school business, so I'm assuming that in the grand scheme of things, one weekend late in a small month did not material to the quarter or is not -- is relatively not material to the quarter?

That's a safe assumption and if you use the word relatively. Every weekend is important. Steven Marotta - CL King & Associates, Inc.: I understand. No, of course. Can you drill down anymore there or do you feel comfortable doing that?

No, I mean, it kind of speaks in the same discussion of it -- builds as we get deeper into the September month and into October where the weather starts to cool, that's where we really start to see increasing volumes. So there's a crescendo as we get deeper into September. Steven Marotta - CL King & Associates, Inc.: Which spills over to October, which means that as -- both months are relatively similar historically in volumes, hence Septober?

Exactly. And again it really depends on when the weather cools, so if there's a cold snap sometime in September, last year it may have October, that's really the indicator not necessarily the calendar.

Next, we'll take another follow-up from Scott Krasik with BB&T Capital Markets. Scott Krasik - BB&T Capital Markets: Debbie, remind us what percent of sales Boots are roughly in Q3, Q4?

I think total boot classification is about 23% of total business. That's not total footwear, total business. Scott Krasik - BB&T Capital Markets: Okay. And then in terms of your latest thinking around Boots, you're still thinking that they're going to be up year-over-year?

Yes, I do. I think there's enough newness and enough new items that have actually hit us to give us an indication if the boot business will be good this year. We just come off 2 really strong solid years of Boots. So I'm not going to tell you that the comp increases are going to be what they were in the last 2 years either on a single-year or 2-year comp basis. But we are seeing positive indications from some early back-to-school fashion receipts that lead me to believe that we're going to have a nice season. Scott Krasik - BB&T Capital Markets: Okay. And then is there -- I know, Mike, there was inventory investment around size replenishment. Is there some type of investment you need for optimization or you just move the parts around?

No. I don't think you should think about it as an incremental investment for size optimization. Scott Krasik - BB&T Capital Markets: Okay, great. And then any...

Are you talking about an inventory investment or... Scott Krasik - BB&T Capital Markets: Inventory. No, inventory.

Not an incremental inventory investment. Scott Krasik - BB&T Capital Markets: Okay. And then in terms of plan -- full planning and allocation, color, size, style, all of the above, that's still going to be implemented in 2012?

Yes. But I think it's going to be an 18-month project that will start in 2012.

And at this time, I would like to turn the conference back to management for any additional or closing comments.

Okay. Thanks to all of you who participated and are still on the call, we appreciate your support. And I think our team will be available for follow-up calls today. Thank you.

And that does conclude today's conference. Thank you for your participation.