Good morning and welcome to the DSW First Quarter Financial Results conference call. All participants will be in listen-only mode. This event is being recorded. Please note that various remarks made about the future expectations, plans and prospects of the Company constitute forward-looking statements. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those listed in today’s press release and in DSW’s public filings with the SEC. Joining us today are Mike MacDonald, President and CEO; Debbie Ferrée, Vice Chairman and Chief Merchandising Officer; Doug Probst, CFO; and Christina Cheng, Director of Investor Relations. I would like to turn the conference over to Mr. Probst. Please go ahead, sir.

Thank you and good morning. I will comment on our results for the first quarter of 2012 and provide our guidance for the fiscal year. After that, I will turn the call over to Mike for his comments on the results and to share some insights on our strategic growth. Our reported net income for the first quarter was $39.9 million, which included a net $4.3 million charge for items related to our merger with Retail Ventures. You can find these items detailed in a reconciliation of adjusted results attached to our press release issued earlier this morning. On a reported basis, our earnings per share is $0.89. Excluding the RVI-related charges of $0.09, adjusted EPS was $0.98 per share. As we’ve done in prior quarters, we’ll first walk you through the major items associated with the merger and the specifics of where they are reflected on our P&L so you have a clear comparison of our operational performance to last year. The net $4.3 million in charges for RVI-related items breaks down to the following major components: first, $325,000 in pre-tax costs included in SG&A primarily due to legal fees related to RVI; second, $5.3 million of non-cash pre-tax cost for the change in the fair value of RVI-related warrants - please note that these warrants expire in June 2012; and finally, the removal of $1.3 million of non-cash after-tax income from the discontinued operations resulting from the closure of Filene’s Basement. Now that we have outlined these items, we will now focus our comments on the adjusted results which reflect the performance of our DSW operations. Net sales for the first quarter were $558.6 million as comparable sales grew 7.6% on top of a 10.8% comp last year. This represents a two-year comp of over 18%. By segment,…

Okay, thanks Doug. We were pleased with our strong results this quarter. We had better than expected comps due in part to the unseasonably warm weather in March and early April, which in turn led to significant leverage of our occupancy expenses. The strong sales combined with very good margin rates and good execution allowed DSW to achieve record profits in the quarter. Revenues of 558.6 million grew by 11% with comp sales increasing by 7.6%. Across all product categories, comp sales grew consistently in the high single digit range for the DSW segment. Women’s footwear increased by 8%, led by sandals. With the early arrival of warm weather, we chased the strong demand for this category, ending the quarter with sandals comps up by double digits. Our men’s business posted healthy 7% comps on top of an 18% increase last year. Athletic sales comped up 6% due to the addition of stronger technical brands and the infusion of color across the entire assortment. Accessory sales grew by 8% led by casual hosiery and small leather goods. Finally, our private brand business increased by over 30% and now represents nearly 11% of our sales versus 9% in the first quarter of last year. The continued growth of private brands helps to differentiate our product assortment and importantly helps us to offset cost pressure. As Doug said, we opened 10 new stores in the quarter and closed one, bringing our store count to 335 as of quarter-end. Selectively, these new stores are exceeding their sales plans by a wide margin. During the quarter, we also relocated two stores and the customer has transitioned to the new locations quite well. This is significant because our new store openings and relocations include some high profile, high volume stores, so let me give you…

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question is from Mark Montagna, Avondale Partners. Please go ahead. Mark Montagna – Avondale Partners: Hi. Trying to look forward with my question – when you look out to the fourth quarter, which I think that’s when you’re going to start to see some benefits on size optimization, I’m wondering how many vendors will be on the program for the fourth quarter and is that going to be their entire assortment? And then when you look at the percentage of total inventory, can you talk about what percent of total inventory would be on size optimization by this year-end and what you might expect for the following year-end?

Okay, here’s how it’s going to roll out, Mark. We will in the month of June—towards the end of the month of June, we will begin to place orders for product to arrive, some in the fourth quarter but mostly beyond, that will use the size profiles that we’ve now developed. Also at the end of June, we will modify all of our replenishment models to reflect the revised size profile knowledge that we’ve gained from this effort. And as you’ll recall, about a third of our sales are represented by replenishment styles and the other two-thirds are fashion. So I think as to the third of our styles that are on replenishment, we should begin to see some benefit from the revised replenishment models in the second half. I think as to the other two-thirds of our inventory, you should probably count on that not happening in a meaningful way until first quarter of next year. Mark Montagna – Avondale Partners: Okay. And then just looking at vendor drop ships, I know you’re working on that for ecommerce. Are you expecting that to begin in the fourth quarter, and if so, how many vendors? Or is that more of an issue for the following year?

Yeah, it really is more of an issue for the following year. Our stated objective is to have one vendor up on drop ship by February 1, 2013, and then to gradually add vendors thereafter. So it’s really going to be a 2013 event, and I don’t think I answered fully your previous question about the number of vendors who appear to have the ability to accommodate a revised size profile, and I don’t have specific information for you but our planning and allocation people have been very pleased with the seeming flexibility of our vendors to accommodate this, and I would guess that probably 75% of our vendors have indicated they can accommodate our revised size profiles. Mark Montagna – Avondale Partners: Okay, that’s great. And then just the last question – when you were talking about product input costs up, I think it was about 5% in the first half, how much of that is due to just the mix shift toward higher priced merchandise?

You know, I’m not sure I have that specific information. Debbie, you want--? Deborah Ferrée: Yeah, let me see if I can take that question for you. So if you look at it by kind of category, so women’s, men’s and athletics, women’s had the smallest increase in cost increase. It was about 2%, so that really is just pure product increases – materials and things like that. The athletic and the men’s department were consistent at about plus-5 to 6%. That’s where you really start talking more about the blend of it being cost increase in product and materials, and mix. So mix had more of an impact in the men’s and the athletic than it did women’s, so it really is a balance. Women’s, I would say is purely material increases; men’s and athletic had more to do with mix. Lastly in the handbag and accessory area, that actually had the highest increase and that was at the high end of the 6, low end of the 7% range. That was most all due to a mix and a shift in strategy in some of the vendors that we’re going to be bringing in for the future. Mark Montagna – Avondale Partners: Okay, thank you.

The next question is from Chris Svezia, Susquehanna. Please go ahead. Chris Svezia – Susquehanna: Good morning everyone. Congratulations. Debbie, just to go back to product margins, I mean, you did a nice job in Q1 between weather and the right product, more full price merchandise. You mitigated most of the impact. Just, I guess, talk about what you’re seeing going forward, your ability to continue to manage that process to maybe end up with minimal impact to product margin. Just, also what you’re also seeing coming out of China as well. Deborah Ferrée: Okay. There was a lot in there, Chris, so let me see if I can’t break that down for you. Just talk about cost increases right now – cost increases continue to go up but are mitigating a little bit, so the levels that they are going up are less for the future. We’ve been able to manage those cost increases through an increase in private brand but also some good partnership negotiations with our vendors. I don’t see that as a big event going forward. I think we’ll still be able to manage those cost increases. In terms of AURs and as it relates to product margin, our AURs, we have seen some nice increase in AUR. Specifically, it’s been in the women’s area. Most all of the AURs in the other areas – men’s and athletic – are pretty flat to last year, so I think if we continue, which I’m confident we can continue to get our increases in comps in regular price, that we’ll be able to continue to manage those margins going forward. So being able to control the cost and manage how we sell through our regular price, I’m pretty confident about the margins going forward into Q2 and going…

Your next question is from Steve Marotta, CL King & Associates. Please go ahead. Steve Marotta – CL King & Associates: Good morning everybody, and let me offer my congratulations as well. Doug, you mentioned pre-opening expenses being $10 million more in the first three quarters of this year versus last year. Can you talk specifically to the first quarter, and again is it still continuing to be spread evenly? And again, if you could speak to the first quarter, that’d be great.

Sure. Incremental pre-opening costs in the first quarter were probably about $3 million, or approximately $3 million, and we expect about a 3 million and $4 million increase in the next couple quarters after that. So it’s still what we originally planned, and obviously a pain in the short term for the next two quarters but certainly a big benefit as we get those stores opened. Steve Marotta – CL King & Associates: Sure. Also in the preamble, you also spoke about marketing expense in the first quarter.

Right, and that was incremental spend as well to last year, but we don’t really use our last year’s spending as the plan for marketing. We look at it as a plan of how we want to spend our dollars, and in this particular year our first quarter spend was a few million dollars higher than last year; but as a percent of sales for the year, we look for marketing expenses, excluding pre-opening marketing expenses, to be roughly the same percentage of sales as last year. Steve Marotta – CL King & Associates: So were they roughly the same percent of sales as last year?

For the year, is what we think it is. It’s a higher percentage of sales in the first quarter, but again, we manage it on an annual basis. Steve Marotta – CL King & Associates: Okay. And lastly, you sort of spoke about this during the preamble as well – as it relates to inventory, can you talk about clearance as a percent of total inventory at the end of the first quarter versus last year?

Well, obviously with more regular priced selling, there is some expectation that inventory levels would change; but we are happy with the mix. I think if you walk into our stores, you’ll see that the balance of clearance inventory as well as regular price inventory is a pretty good situation where we would to be at this stage. So I don’t want you to get misled on the fact that we had higher regular priced selling, that our inventories are in balance right now. We were able to manage the inventory and chase the inventories appropriately to keep those levels at the right place.

Yeah, I think statistically our percent to total—our clearance percent to total at the end of the quarter was identical to the prior year. Steve Marotta – CL King & Associates: Great, that’s very helpful. My very last question is—and I know you have not spoken about 2013, but would you expect to capture 100% of that pre-opening differential that you’re experiencing this year, capture it next year? In other words, or do you think that that’s going to be reinvested in the business somehow?

Obviously it also depends on how many stores we open next year, which we originally planned about 15 to 20, so if we do open fewer stores we’d recapture some of that, and the other benefit is that if the mix of stores of the stores that Mike spoke about – San Francisco, Chicago, New York – if there’s fewer of those big volume stores, that pre-opening cost might come down as well. But it’s a little early to predict because it’s mostly driven on how many new stores we’re going to open in 2013. Steve Marotta – CL King & Associates: Great, okay. Excellent. Thank you much.

The next question is from David Mann, Johnson Rice. Please go ahead. David Mann – Johnson Rice : Thank you, good morning. Nice job. Question on the inventories as well – the 5% increase in inventory per square foot, how should we think about in terms of sort of the build-out of inventory towards some of the new stores, or are you a little more bullish about your comps for the second quarter, because I think you came into the first quarter with a lower inventory per foot.

Yeah, there’s some minor impact from the build-up of inventories for stores that will open down the road, but the 5% should not imply that we’ve got an expectation of 5% comps in Q2. I think our guidance for 3 to 5 for the balance of the year—for the year makes sense, and I think if you do the math on that actually, David, what it would imply is 2 to 4 comps for the balance of the year combined with 7.5 comps in Q1. So our inventories are consistent with our plans and consistent with that sales expectation. David Mann – Johnson Rice: Great. And in terms of the monthly progression in comps, did you—you know, obviously with the Easter shift, there was some change. But was there a deceleration in April and into May as you came out of some of the strength of the pull-forward, given the weather?

Well as you know, we don’t comment on that, but obviously we see up and down related to weather and where it starts to break in areas of the country. So it was maybe a little choppy but we look at March and April combined, and always have. David Mann – Johnson Rice: In terms of some of the new store performance, can you comment on how some of the stores are doing in the smaller market openings?

Yeah, we opened two small market stores in Q1. One was in Peoria, Illinois and the other was in Fargo, North Dakota; and those two individual stores are beating their sales plans by more than any of the other stores we’ve opened, let me just say it that way. The small market test continues to be very encouraging. David Mann – Johnson Rice: Given that and given some of your excitement about new store performance, whether in the big markets as well as it sounds like across the board new store performance, at what point will you reassess the opportunity for the total store potential in the U.S.? You know, I think you’ve talked about it being about 450 now.

Yeah, I think that the 450 could grow to 500 based on small markets, and I don’t think we’ve declared that but that’s the magnitude of the next tier of markets that we would enter. David Mann – Johnson Rice: Great, thank you very much.

The next question is Scott Krasik, BB&T Capital Markets. Please go ahead. Scott Krasik – BB&T Capital Markets: Yeah, hi everyone. Congratulations, great job. Debbie, anything different with the way you’re flowing merchandise for early fall? I mean, you had a great early boot season last year. Is that a tough comp for you? Do you expect price year-over-year to maybe give you some pressure, and what trends do you expect to drive early fall sales this year? Deborah Ferrée: You know, last year we did have a nice Q3 but to be very honest with you, I’m very critical of some of the business that we actually missed in Q3. I think the benefit this year is to pull up some of the younger fashion business that we actually receipted in September last year, and I want to receipt that end of July, beginning of August this year. I think there’s an opportunity to pick up some of the young fashion business for the back-to-school time period, even though we’re not a true back-to-school driven business; but I think there’s opportunity there. So that would really be the only change, the only shift that I would make. Everything else would be pretty consistent with last year. Scott Krasik – BB&T Capital Markets: Okay, that’s helpful. Mike or Doug, you continue to get dinged by these distribution costs related to DSW.com. Are those going to continue until you really have drop shipping up and running, or are there things you can do before that?

There’s really two things happening in those lines. One is the higher cost associated with the fulfillment center, and it won’t change materially as a percent of sales until we do get to drop ship. The other piece is higher costs related to our now-fully penetrated replenishment business, and the labor content associated with the distribution of that product is quite a bit higher than just product that flows through the DC. I didn’t mention it in the call, but we are also underway with a pretty major capital investment in our Columbus distribution center, and what’s going to happen as a result of that is we’re putting in a whole sortation system. That will significantly improve the productivity and throughput capability of replenishment goods as they go through the pipeline, so we should get some efficiency on that. Scott Krasik – BB&T Capital Markets: When does that go live?

That will go live—I think it will be installed by the end of the third quarter. It might be the end of the fourth quarter – I’ll have to get back to you on that, Scott. Scott Krasik – BB&T Capital Markets: Okay. And then in terms of collecting data for style optimization, where are you in that in your thinking for going live with style optimization, and then also have you really started to consider markdown optimization at all?

Okay, so what we talked about in the call, Scott, is size optimization. We don’t have a project called style optimization. Scott Krasik – BB&T Capital Markets: I thought that was the goal, though, to eventually allocate by color and—

Oh, sure – yeah, we call that assortment planning. Scott Krasik – BB&T Capital Markets: Okay, sorry.

Yeah, and so the work on that will begin in the second half, but it’s a two-year project so it’s not going to help us immediately. As to the comment about markdown optimization, we continue to talk about it but we see it as a follow-on priority, a secondary priority to the assortment planning project. Scott Krasik – BB&T Capital Markets: Sure, okay. Well congratulations.

The next question is from Patrick McKeever, MKM Partners. Please go ahead. Patrick McKeever – MKM Partners: Okay, thank you. Good morning everyone. Just a couple questions, first on the urban market stores – wondering if you could give us even some broad color on unit economics, sales per square foot versus non-urban stores first year—well, maybe not first year return on investment, but just the returns for those stores. And what do you think is the ultimate growth opportunity in urban markets, and how big can urban market stores be as a percent of your total store base? And then secondly, any quick thoughts on just the growing cash balance on the balance sheet? I know you increased the dividend or are planning to increase the dividend, and you’ve got the accelerated store growth and some of the infrastructure investments; but how should we think about the big amount of cash on the balance sheet? Thanks.

Okay, well on the, as you call them, urban stores, we were really pleased with the reception we got in both Manhattan on 34th Street and in Chicago on State Street. We held pre-opening private parties for our premier customers a couple of days before the official store opening, and I think we had 1,200 people show up on 34th Street and we had 1,500 people show up on State Street in downtown Chicago. So clearly, there is an appetite for what we do in both of those markets. You know, the Union Square San Francisco situation was slightly different in that we were moving off of a very high traffic portion of Powell Street because it’s close to the transportation hub and moving up the street, literally and figuratively, onto Union Square where the traffic is slightly less robust. The good news in that situation is that while we have experienced a diminution in traffic, it’s been pretty much offset by the increase in conversion. So the way we interpret that is we’ve eliminated a lot of non-productive traffic, and as I mentioned in my comments, that store gives us much more space and much higher quality space, and it’s definitely more reflective of the DSW brand. In terms of the unit economics, we require the same internal rate of return for a large store as we do for small stores, so we don’t change our hurdle rates and it looks like based on pretty limited early information that we’re not going to be disappointed by any of these large stores. They obviously come with—what comes with them is higher rent per square foot and generally higher build-out costs per square foot as well, so we’ve got to do more sales productivity. Our Union Square store in Manhattan, which…

As a reminder, if you do have a question, please press star then one. Our next question is a follow-up from Chris Svezia, Susquehanna. Please go ahead. Chris Svezia – Susquehanna: Hey Doug, you’ve been way too quiet, so I’ve got a question for you. So what’s your company line comment regarding gross margin and SG&A for the year, assuming you do a 3 to 5 comp? Just maybe talk about the puts and takes on those as you see it in your guidance.

Fair enough, and this isn’t a company line – this is our most open commentary! But let’s break gross profit down into a couple of things. First, merchandise margins – at that comp range, it will be difficult to get back to that 45.2% we achieved in 2011, for a number of reasons we’ve been mentioning. But we can get close, and a lot depends on how we manage the inventories and if we get closer to the top side of that comp range, but we don’t expect to beat last year’s merchandise margin rate. However, because of the occupancy leverage that we would get at that sales level, you could see a little bit of expansion in gross profit percentage. Last year’s 32.3 was a record high, but if we get at the high end of that range, perhaps we could get some improvement on that record rate of last year. As far as SG&A, going into the year we said that SG&A leverage would be very difficult to achieve given the incremental investments that we’ve been talking about, so I don’t expect leverage. If we do, it wouldn’t be significant for 2012, given all these incremental spends. Chris Svezia – Susquehanna: Okay. And then I know you don’t give quarterly guidance, but there’s nothing in your plan or thought process that could potentially lead to a down quarterly result due to the pressure from pre-opening costs, et cetera. Is that a fair general statement?

Well again, we never would like that; but the toughest quarters for us on a comparative basis to last year are going to be the second and third quarters, for the reasons we’ve been talking about – the lower comps certainly than we’ve achieved in the first quarter, merchandise margin pressure, lack of occupancy leverage, incremental spend for pre-opening. All those things against very good performance last year would make the second and third quarters the most challenging to last year – flattish. But that’s why we keep on emphasizing the fourth quarter – all those factors tend to alleviate themselves as you get into the fourth quarter, and second quarter being the toughest because we’re starting to put some pre-opening cost in that quarter and getting practically zero sales in that quarter because the openings don’t happen until the third quarter. So that would be the most challenging one, but second and third will be tough as compared to last year. Chris Svezia – Susquehanna: Okay. And last one I have is just, Debbie, for you – athletic comps, nice to see the sequential improvements we’ve been seeing here. Just sort of your thoughts about what’s working, what’s not? I know you’re moving up price points, more technical product. You’re getting through the toning issue, I guess, is somewhat abating here. Any thoughts as you kind of come into the summer season here about the athletic business? Deborah Ferrée: Yes, Chris. We’ve been really pleased with the athletic performance. We’re lapping the toning craze, if you will, from last year. It really is a non-event for us right now in toning. Last year, the toning percent to total penetration to athletic was 6%, Q2 was 3, Q3 3, and Q4 2. So those are the kind of toning penetrations we’re up against from last year. This year, toning was only 1% of our business, yet we delivered a 6% comp in athletic so what the real drivers are, are some of the big ideas we’ve been talking about – technical and lightweight. Those are huge growth businesses for us. They’re both high penetrations to our total. Trail is also doing very well; basic running is doing well, and of course, the increase in that number one famous brand of Nike that we continue to do—the customer, it really loves the product that we’re delivering from Nike. So I like the way the mix looks. I like how we have really evolved it from being just a fashion athletic business to a combination of fashion and technical, so I think the balanced assortment is resonating well with the customer, and we’ll continue to grow the technical and lightweight piece because the customer loves that product. So not really seeing any risk in that business going forward for us at all. Chris Svezia – Susquehanna: Okay, all right. Well thank you very much, and all the best.

The next question is a follow-up from Mark Montagna, Avondale Partners. Please go ahead. Mark Montagna – Avondale Partners: Hi. Just wanted to go back to your store openings. You had mentioned that they are quite strong, meaning your plans. Are you seeing the best ever sales out of your new stores in comparison to what your expectations were? Is it better than the past two years?

Mark, I don’t have the numbers right in front of me but my sense is that it’s probably comparable to what we experienced last year in terms of overage versus the sales plan. Mark Montagna – Avondale Partners: Okay. And then just lastly looking out to the fourth quarter, for pre-opening expenses, should those be lower this year in the fourth quarter than they were just this past fourth quarter, since perhaps you’re not going to be opening as many large stores in the first quarter of the following year?

I would say they’re flat to last year in the fourth quarter. Mark Montagna – Avondale Partners: Okay. All right, thank you.

The next question is a follow-up from Patrick McKeever, MKM Partners. Please go ahead. Patrick McKeever – MKM Partners: Hi, yeah just a quick one. On the technical running and the growth that you’re seeing there, do you feel like you’re bringing a new customer into the store with that product, and are they buying other merchandise within the store? Deborah Ferrée: So I definitely feel because we had never really been in the technical business before, I definitely feel that we’re bringing a brand new customer in. I think we’re doing two things. I think number one, the customer that we already have coming in our store that’s buying all the rest of the men’s and women’s products that couldn’t buy this, that this is a real service to them so they don’t have to go somewhere else to buy their technical product. So I think we had these customers in our store and we weren’t able to service them because we didn’t really have anything outside of just fashion athletic, so I think that really is the biggest driver here. Do I think that we will continue to bring new customers in the store? I believe that as customers realize that DSW is an option to buy technical and lightweight product that we’ll continue to attract more of these customers. I can’t quantify for you exactly what else they’re buying in the store. I know there is crossover business and that there is new business that’s just coming in our store that is looking for this kind of product, of course, that couldn’t find it before. Patrick McKeever – MKM Partners: Great, thank you.

This concludes our question and answer session. I would like to turn the conference back over to Mike MacDonald, President and CEO for any closing remarks.

Thanks very much, and thanks to all of you for your interest in DSW. It’s a fun place to be right now and you can be assured that we’re going to do our best to keep the party going. We look forward to speaking with you again on our next earnings call, if not before. Thanks very much.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.