Good morning and welcome to the DSW, Inc. Second Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Christina Cheng, Senior Director-Investor Relations. Please go ahead.

Thank you. Good morning and welcome to DSW's second quarter conference call. Earlier today, we issued a press release detailing the results of operations for the 13-week period ended August 1, 2015. 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 these forward-looking statements due to various factors including those listed in today's press release and our public filings with the SEC. Joining us today are Mike MacDonald, President and CEO; Debbie Ferrée, Vice Chairman and Chief Merchandising Officer; and Mary Meixelsperger, Chief Financial Officer. Mike will start with an update of our strategic initiatives and review our second quarter performance. Mary will then discuss our second quarter results in greater detail. After our prepared remarks, we will open the floor for Q&A. With that, I turn the call over to Mike. Michael R. MacDonald - President, CEO & Inside Director: Thanks, Christina, and good morning, everyone. I thought we change it up a bit today in terms of how we handle this earnings call. So instead of diving right into the typical details of our Q2 financial performance, I want to first remind you of where we are in our journey to evolve into a more customer-centric company. The journey started in 2013 when we spent a lot of time studying how customer shopping preferences were changing. Customers have smartphone access to more information on brands, prices, product availability, customer reviews, and other factors affecting what, where and how they made their purchases. Like many other retailers, we had two separate channels: stores and dotcom that operated differently, both internally and in terms of our face to the customer. The DSW senior management team, with the help of two consulting…

We will now begin the question-and-answer session. At this time we will pause momentarily to assemble our roster. And as a reminder, please limit your questions to one question and one follow-up. The first question is comes from Scott Krasik of Buckingham Research. Please go ahead.

Hi, this is Kelly on for Scott. Thank you for taking my question. Could you just dig in a little further into your explanation around the penetration of clearance inventory from 1Q versus 2Q and how that affected the comps overall? I think what you were saying is that clearance comps at least, were up mid-single digits in 1Q and now they are down mid-single digits in 2Q, is that correct? Michael R. MacDonald - President, CEO & Inside Director: Okay, so reg price comps were up 5% in Q1 and they were up a little more than 4% in Q2, so pretty consistent. What was different is the clearance comps, which were up 5% in Q1 and down almost 6% in Q2. So, there was like a 10-or so point swing in our clearance comps between Q1 and Q2.

Okay. And then, as we look to the back half of the year, and I think just broadly speaking, how trends are looking there, and then just how that dynamic plays out, given we're going against more normalized comp comparisons and – how are you planning that clearance inventory in the back half of the year? Michael R. MacDonald - President, CEO & Inside Director: Yeah. Well, what you should think is that our Q2 mix of reg and clearance was more normalized, and that should continue into the fall season based on our inventories which we're comfortable with, both in total and in terms of the mix between reg and clearance. And in terms of commenting on how the fall is starting out, we don't really do that. So...

Okay. Thank you very much.

The next question comes from Jessica Schmidt of KeyBanc. Please go ahead.

Hi, thanks for taking my question. Can you talk about the impact from the later (19:10) tax-free holiday in select states and I guess, what that really had on your comp trends? And then I guess, how comfortable do you think you are in, I guess recovering that as you do start to enter these tax-free holidays? I just think that just given some of the price points, particularly around the boots business, that was probably impactful. Michael R. MacDonald - President, CEO & Inside Director: Yes, so I think there were nine states where there was a change in the timing of the tax-free holiday. And it moved out by a week, but that in Q2 this year, we had two days of the three days, typically in the quarter, and the Sunday fell into the first day of Q3, and in this year, all three days fell into quarter three. So there were two days of the three sales tax-free days that were non-comparable. And, we've done some analytical work on that. We think it was worth less than a $1 million swing between quarters, so not really significant.

Okay. Thank you. And just as a follow-up, can you talk a bit about the off-price channel, and I guess, some of the inventories you're seeing there? I know some other value retailers have discussed high levels of supply that may be coming from mid and lower-tiered department stores. But, I guess, what are you seeing and how do you think about the back half of the year in terms of inventory availability and your value positioning, I guess, if some of these department stores do get more promotional? Deborah L. Ferrée - Vice Chairman & Chief Merchandising Officer: This is Debbie. I'll take that question. So, first of all, in terms of how we see availability of inventory for the back half, remember that our closeout penetration or those opportunistic buys that we actually access from the market range somewhere between 10% and 15%. So, most of our receipts are pre-planned, both in-line SMUs, so they're more predictable. So, I don't rely as much on the off-price inventory to drive my business, although it is important in terms of offering – delivering even more value to the consumer. As far as how we're positioned from offering value to the customer, we have spent a lot of time and effort on making sure that we continue to deliver that great value to the consumer. And, as you know, our value proposition is, we deliver great value every single day. That doesn't change, and there's more of an intense focus on that today than there ever has been before. And so, that's how I'd look at the competitive landscape.

Great. Thank you. Deborah L. Ferrée - Vice Chairman & Chief Merchandising Officer: You're welcome.

The next question comes from Camilo Lyon of Canaccord Genuity. Please go ahead.

Hi, this is Pallav Saini on for Camilo. Thanks for taking our question. First of all, going back to the comps, was any of it related to the shipment delays related to the West Coast port? And if you can give us some color on the trends and category performance during the quarter, that will be helpful. Michael R. MacDonald - President, CEO & Inside Director: So, relative to shipment delays, I think what you should interpret about the swings year-over-year in comps between reg and clearance is really the abnormality that existed in the prior year, as versus any abnormality in the current year. We felt like we managed through the port delays quite well through the release of some of our pre-buy merchandise. So, the aberration year-over-year is really more a function of the unusual nature of last year, not so much this year. And then, what was your question on category performance?

Right. So, in terms of categories, was there anything that you would want to call out on dress or fashion that it seems to be – continue to perform well? If you can give some more color on some of the other categories, that would be helpful. Deborah L. Ferrée - Vice Chairman & Chief Merchandising Officer: Sure. So, the things that stood out particularly strong in Q2 would be in the athletic zone – as you know, these fashion athletic casuals have done exceptionally well and specifically around the younger product. So, we're really pleased with our performance there. That trend has been strong all year, and when I look at the back half of the year, it doesn't look like that's going to let up at all. So, I'm particularly pleased with the product we've been able to access, to drive, what Mike had mentioned to you, was our highest penetration in the history of DSW in the athletic category. So, I feel very strongly about that. The next thing is, is the consistency in the Men's business – was quite pleased there, as we continue to see Men's comp at a low-to-mid single-digit comp range, and the trends that are going on there, whether it's boots or comfort or street, all of those categories are comping very, very strongly. And I don't really see that changing either. So there's a nice consistent performance in Men's, improvements in comps, and also in margin, which I'm really pleased with. So those would probably be the two highlights. I'll just mention briefly in the accessory area, Mike mentioned a little bit earlier that we were repurposing some of our inventory dollars out of the handbag area into the accessory area. These areas are comping very, very strong, and so by moving dollars over to support those sales, it also helps give us some margin boost because those categories typically margin a little bit higher than our average. So those will be the three areas that I would call out that really did especially well this quarter.

Great. Thank you so much. Deborah L. Ferrée - Vice Chairman & Chief Merchandising Officer: You're welcome.

The next question comes from Jeff Van Sinderen of B. Riley. Please go ahead. Jeff Van Sinderen - B. Riley & Co. LLC: Good morning. Maybe you can just touch as a follow-up to the different categories, on Women's, I'm just wondering if there are things that you see either in boots or other parts of Women's outside of athletic that could be drivers in Q3 or in second half overall? And then, as a follow-up to that, maybe you can just touch on the Kids' business because I know that's an evolving one. Thanks. Deborah L. Ferrée - Vice Chairman & Chief Merchandising Officer: Sure. So in the Women's area, as we mentioned, that was – the Women's area comped down by a point (sic) [comped flat]. The weakness there really came out of the dress and casual. And let me just be more specific around that. What we're seeing in the casual zone is a shift moving out of some of the Women's casual into some of the fashion athletic casual, but when you combine casuals, Women's casuals in general, we're seeing significant double-digit comps. So I think it's really just a tradeoff of what customers are voting for. So in that casual zone overall, Women's black and brown and athletic casual, I'm actually very pleased. And what I'm happy about is that the athletic casual momentum that we've seen for spring seems to be carrying through. Early indicators in the month of July for back-to-school signaled that it was still trending very, very strongly. I don't see a reason why that would slow down. There's big key items there, there's some freshness there, so I'm really excited about that. Two other call-outs from a category perspective in Women's, boots comped in the mid single-digit comp for Q2. And what we're seeing there, I think is indicative of what we're going to see in the back half, and that is a strong acceptance by the consumer in the bootie zone, and as we mentioned to you before, we have moved money out of tall boots and put them into booties, and that seems to be paying off very nicely for us. As far as sandals are concerned, we had a nice 6% comp increase in dress sandals – dress and casual sandals for Q2. So I was pleased there. In the casual piece, it was 3% and in the dress piece, we comped up 15%. So I was pleased there. That trend will fall off a little bit as we get into the fall, but as you know, we also have a third quarter strategy in sandals that supports our warm doors, so we'll get a lot of learning from that, so that we're positioned well for spring of 2016.

The next question comes from Eddie Plank of Jefferies. Please go ahead.

Hey, good morning, guys. I guess, Debbie, just to expand on what you're seeing in athletic, I guess it would appear to be stealing a little bit from the bigger core women's business. How do you kind of continue to position yourself to capitalize on athletic without kind of disrupting what you're known for, the typical balance of the assortment? I mean, how high can it go as a percent of the total? Deborah L. Ferrée - Vice Chairman & Chief Merchandising Officer: Gosh, you know something? As far as penetration in athletic, I don't know. We went from 14% penetration Q2 last year to 16% this year, so I was very, very pleased with that shift. I would tell you, I really look at what do we really need to focus on to maximize this whole athletic athleisure trend. And I think we're well-positioned in our fashion merchandise, we're well-positioned with the key brands, which we won't mention brand names on the call this morning, but we know who they are, the brands that are really doing well in athletic, and I think there are some trends that continue to happen, whether it's vulcanized or fashion performance that I think are just at the pre-peak in terms of their sales curve. So, we believe that we have the brands and we've got the products that will allow us to capitalize and maximize that trend going forward. And I think it's a lifestyle shift and I don't think it's slowing up at all.

Great. That's helpful. If I could ask a follow-up, Mary, can you just walk us a little bit through how to think about the merchandise margin over the balance of the year? I think you're still up against some declines. I guess just a little bit more on what the puts and takes are over the back half. Thank you. Mary Meixelsperger - Senior Vice President & Chief Financial Officer: We typically don't provide a lot of color in terms of quarterly guidance, but I would tell you that my expectation is, on the merch margin lines, that we certainly will have stabilized our markdown rates relative to the big improvement we saw in the first half of the year, where we were up against such higher markdowns in the spring of 2014. So, my expectation is that we should stabilize in the markdown rate. We should stabilize overall in IMU. We took key pricing changes last year, and we are lapping those now. And I expect that our IMU rates will stabilize. We see some very modest headwinds on shipping, as more of our overall sales penetration is being shipped to – our sales are being fulfilled via shipping to our customer. But overall, I would tell you that our expectations for fall is, we should see modest improvements in merchandise margin relative to last year.

Great. Thanks for the color. Best of luck going forward. Mary Meixelsperger - Senior Vice President & Chief Financial Officer: Thank you.

The next question comes from David Mann of Johnson Rice. Please go ahead. David M. Mann - Johnson Rice & Co. LLC: Hi. Yes, thank you. Good morning. On the previous call and press release, you guys gave some revenue and comp guidance for the full year that wasn't included in this release or call. Can you just elaborate or update us on how we should think about that? Michael R. MacDonald - President, CEO & Inside Director: Yeah, I think our current guidance is consistent with prior guidance, and that's why we didn't comment on it specifically. David M. Mann - Johnson Rice & Co. LLC: Okay. Great. Just wanted to confirm that. And then, secondly, just going back to the accessories situation, can you just elaborate on the categories where you do expect to – or subcategories where you expect to reallocate inventory? And how quickly should the accessories business stabilize, given what you're going to do there? Deborah L. Ferrée - Vice Chairman & Chief Merchandising Officer: Good morning, David. David M. Mann - Johnson Rice & Co. LLC: Good morning, Debbie. Deborah L. Ferrée - Vice Chairman & Chief Merchandising Officer: Just -so, let me comment on just the accessory piece first, and then we'll talk about handbags. There are many exciting opportunities in accessories right now, which we've already started to realize the sales and margin benefit of, in the spring season. And things that I think will continue through the fall season. So, for example, the jewelry business is actually – is good. I think that will continue to stay good, and we actually see a bit of an upside there. Some of the new categories, the wraps and the shawls and – which kind of encroaches a little bit in the ready-to-wear space,…

The next question comes from Chris Svezia of Susquehanna Financial Group. Please go ahead.

Good morning, everyone. I have three questions. I'll just ask them quick here. I guess first, just seems that the gross margin improvement in the second quarter, maybe not as strong as maybe some would have liked. Number one, I'm curious, does athletic mix put pressure on that? And, number two, given the comparison two years ago, coming off a very high watermark, does that just, maybe, create some pressure to make some of that back? Second question, I'm just curious, do you expect regular priced to accelerate in the second half from a comp perspective, given clearance was still up in the second half? And, lastly, Debbie, any comments on dress? I think you said it was down. Can we just talk a little about the Women's dress business? Thanks. Mary Meixelsperger - Senior Vice President & Chief Financial Officer: I'll take your question, Chris, on the gross margin improvement in Q2 and the impact of the athletic mix. Athletic mix does, in fact sell at a margin rate that's slightly below the overall average for the business. So, in fact, we did see some impact of the mix shift on our overall margins in Q2. So, in terms of order of magnitude of that, as that mix shift, I would tell you, it's certainly – it's probably in the 20-basis point to 60-basis (sic) [less than 20 bps] point range in the overall impact of the shift mix from moving more into athletic. On the reg price comps question, your second question about reg price comps for the back half, we really don't provide specific guidance around the back half, but we still are standing by our guidance of our comp sales for the year, in the low to mid-single digits, and feel good about that guidance that…

Okay. Thank you very much. All the best.

The next question comes from Sam Poser of Sterne Agee CRT. Please go ahead.

Thank you for – thank you – can you hear me? Michael R. MacDonald - President, CEO & Inside Director: Yes. Deborah L. Ferrée - Vice Chairman & Chief Merchandising Officer: Yes.

Okay. Thank you for taking my question. A couple of things. Debbie, do you expect the athletic penetration to continue to improve throughout the year, just given the trends? And then, can you talk more about – Mike or Mary, the – how you're thinking about use of your cash and how the evolution of systems improvements will help you going forward? Deborah L. Ferrée - Vice Chairman & Chief Merchandising Officer: Sure, Sam. So, I'll start with athletic. So as you know, the split between spring and fall is typically skewed more spring than fall in terms of penetration. So our penetration, as we mentioned, was 16% versus 14% last year for Q1. So I don't know that I really can expect that trend – that penetration to go up significantly higher than what we're seeing it right now. I do see opportunities in the back half in some of the younger, vulcanized categories of merchandise that we've done so well with this year that I don't really see stopping, but I don't really expect that the penetration would go much higher in the fall season because of the split between the two seasons.

Thanks. Mary Meixelsperger - Senior Vice President & Chief Financial Officer: And Sam, with regard to your questions on how we are thinking about use of our cash, we really are looking at driving our organic growth through the – both systems efforts and the changes that we're making from an omni-channel technology investment, as well as through the new store growth plans that we have. We'll have a total of a net – a total of net new – 39 stores this year, which is about a 9% unit increase and just under a 7% square footage increase. And in addition to that, we continue to look at inorganic opportunities – specifically, we looked at taking advantage of exchange rates to pre-fund the Canadian dollar investments we'll need to acquire the remaining 50% interest in Town Shoes out in a couple of years, and then we've also – we'll continue to look at the share repurchase program opportunistically. We continue to have a $63 million share repurchase authorization out there, and we'll continue to actively look at that share repurchase program opportunistically. In relationship to your question on the evolution of system improvements, I'll hand it over to Mike to answer. Michael R. MacDonald - President, CEO & Inside Director: Sure. Well, the things that we have going for us, Sam, our assortment planning, which I think we've said we expect to start to see benefits from next year; order routing optimization, which will probably begin to help us maybe yet this year; obviously, BOPUS, our buy online, pick up in store is going to be a plus on the sales line and buy online, ship to store will also be a partial incremental sales benefit. So all of the systems initiatives that we have underway, or most of them, are really designed to get the right shoe in the right place at the right time, which is going to increase our percentage of reg price selling as versus clearance selling. So they are designed to both be effective for the customer in terms of the not disappointing her and getting the shoe she wants, but also helping us from a margin point of view. So we see those – we see there being a lot more upside opportunity in our margin performance going forward than downside risk.

If I could ask one more question real quick on – you mentioned the shift of the tax-free holidays being about $1 million, but do you think that the shift of the one-week-later Labor Day may have impacted sales in July more than you initially anticipated? Michael R. MacDonald - President, CEO & Inside Director: I do think that is the bigger of the two issues. To your point, I think it's a mentality. When you start to see football games and the fall gets crisper, I think it changes mentality about how customers feel about buying fall footwear, whether it's boots or it's booties. So yeah, I think that's the bigger of the two impacts, Sam.

And Q2, can we say that Q2 probably came in a little bit lighter than you would have initially anticipated, and you expect to make, given that you're sustaining the full year comp guidance, do you expect to make that back, I would assume mostly in the third quarter because of that? Michael R. MacDonald - President, CEO & Inside Director: Well, I mean think our full year comp guidance is sufficiently broad that it would absorb any shortfall or overachievement that might have happened at the end of Q2.

Thank you. Good luck.

The next question comes from Steve Marotta of C.L. King & Associates. Please go ahead. Steven L. Marotta - C.L. King & Associates, Inc.: Good morning, everybody. If you could please comment, I just have one question regarding the issues in Asia. Do you see that causing any slack in manufacturing capacity and combine that with lowering oil pricing benefiting your private label sourcing costs, and even beyond that your vendor and branded sourcing costs as well and that potentially benefiting margin over the next 12 to 24 months? Deborah L. Ferrée - Vice Chairman & Chief Merchandising Officer: So I would expect that we should see some sort of cost benefit. We'll be having those discussions with our key brands very shortly. What I don't know is whether that's going to get passed through or not. But I would expect that there should be some sort of a benefit there. Whether we realize that or not, it's too early for me to speak about that. Steven L. Marotta - C.L. King & Associates, Inc.: And of course, you'd expect that directly on your private label and then by extension potentially with your vendor brand as well, is that accurate? Deborah L. Ferrée - Vice Chairman & Chief Merchandising Officer: That's correct. Steven L. Marotta - C.L. King & Associates, Inc.: Great. Thank you. That helps. Mary Meixelsperger - Senior Vice President & Chief Financial Officer: Steve, I'll just add to that. We're definitely seeing favorability in our transportation costs associated with the lower fuel prices coming from the lower oil costs, so we expect that we will see benefits from that flowing through in the back half of the year. Steven L. Marotta - C.L. King & Associates, Inc.: That's very helpful. Thank you.

The next question comes from Kelly Chen of Telsey Advisory Group. Please go ahead.

Hey, guys. Thanks for taking my questions. Just two really quick ones to start off with. Could you clarify the comp slowdown that you saw this quarter due to the slowdown in the clearance – I think you mentioned in the back half the mix of regular and clearance is going to be more normalized, but does that mean you expect no impact from that or less of an impact in the second half? Michael R. MacDonald - President, CEO & Inside Director: I think our comps between reg and clearance last fall were pretty close to normal. So I would expect sort of an even performance between reg and clearance in the fall season. That's my general belief right now. I don't have in front of me the exact statistics on how we're planning reg versus clearance, quite honestly.

Got it, sir. And then on gross margin this quarter, did you guys have any sort of impact from the Rewards program and also sharper pricing? I think this is about the time when you started to lap the initiatives that you guys put in place, though. I'm just wondering if you could speak to that on the margin side. And then my last question would just be on some of the omni-channel efforts. Mike, I know it's early with endless aisle, but if you could talk about some metrics that you're seeing in stores that you've tried this capability in. As you gain more traction, do you think it enables you to open up more small-format stores? Could it eventually offer you an opportunity to relocate stores to a smaller footprint? Just some color on that would be great. Thank you. Mary Meixelsperger - Senior Vice President & Chief Financial Officer: So on the margin question, Kelly, we did have some very, very modest deleveraging related to the Rewards program. If you recall, we did implement full points on clearance at the beginning of this year and our customer has responded favorably to that. We did expect it to have an unfavorable impact on rewards as customers earn and use their Rewards certificate. For the quarter, that impact was less than 5 basis points on margin. We were up against some good news from last year for the quarter related to the shortening of the Rewards certificate expiration date from six months to three months. So the net shift last year, we had about 24 basis points of good news from that shortening versus the less than 5 bps impact on the Rewards. So very, very modest impact. On the sharper pricing point of view in terms of our…

Great. Thank you.

The next question comes from Patrick McKeever of MKM Partners. Please go ahead.

Good morning. Thanks very much. Mike, earlier you were saying that just thinking about the inventory position, you're comfortable going into the back half of the year, but then I know it seem a little high in total, certainly. So just wondering if you could give us a little more – maybe a few more thoughts there, the inventory position, just particularly when considering some of the weakness in the department store space in the second quarter and the potential for a more promotional back half. Michael R. MacDonald - President, CEO & Inside Director: Sure. Well, you know what? I wouldn't read too much into the inventory position at the end of the quarter. It's a point-in-time number. So, by its definition, it's subject to fluctuations in timing of receipts and I've probably seen more ups and downs, and early and late receipts in this spring season than in any other in my time here at DSW. So, I wouldn't read anything into our inventory position at the end of the second quarter. We feel comfortable about it. We're always looking ahead. So, we talk about our open-to-buy not in the rearview mirror, but through the windshield. We're looking at open-to-buy 30 days, 60 days, 90 days out and that's how we're managing the inventory and the flow of receipts. And we are intent on maintaining inventories lean to take advantage of opportunistic buys and to chase the business. Whenever we do that, we have strong margin performance. And so that's how we're going to manage the inventories this fall. So, we feel really good about our inventory position and I hope you do too.

And then on the children's tests – the test, the children's test that you started I think about this time a year ago, any update there? Is that something that you plan to roll out in – I think it's what, 20 stores? Will you expand that test going into the fall? Michael R. MacDonald - President, CEO & Inside Director: We're not going to – we are in 20 stores plus on dotcom and we may have neglected that question earlier in the call. So I'll just say we were very pleased with the performance of our kids business in spring. It beat our plans and was significantly ahead of the prior year. It's still in 20 stores. We haven't yet declared it a rollout strategy, but I think we'll be there in the not too distant future, but we won't do that for fall, that's for sure.

Got it. Okay. Thanks very much.

The next question comes from Taposh Bari of Goldman Sachs. Please go ahead. Taposh Bari - Goldman Sachs & Co.: Hey. Good morning. Just a quick clarification on the accessories business. I know that the handbag category is weak at large, but this past quarter marked an actual inflection in your business for handbags, or has that business been weak for quite some time? And can you remind us how big the handbag piece is as a percentage of accessories? Deborah L. Ferrée - Vice Chairman & Chief Merchandising Officer: So the handbag business as a percent to our total is only 3% of the business. So that's the good news and bad news. We want to grow that area of the business, but it is not material in terms of its impact to our total performance. To answer your question about when do we start to see the weakness, we generated fairly nice comps up until this past quarter. So what we saw in this past quarter was a slowdown in the higher-end goods, which is consistent with what has happened in the industry – a lack of freshness in the industry, a lack of freshness in our assortment. So we're kind of consistent with everything else you're reading about in that category. The things that I'm excited about that we're doing is you can keep the sales plans the way they are and continue to hope, and hope is not a strategy. So we said actually until the handbag zone actually comes out of this kind of fatigue that it's in right now, let's move the money and put it in places where we can generate some strong sales and strong margin dollars. And so that was the reason for the move into the accessory area. We're doing…

This concludes our question-and-answer session. I would like to turn the conference back over to Mike MacDonald, the CEO, for any closing remarks. Michael R. MacDonald - President, CEO & Inside Director: Thanks very much. Many thanks to everyone for participating in today's call and thanks for your continuing interest and support of DSW. We'll work hard to continue to earn that support. Thank you.

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