Caleres, Inc.
Q4 2020 Earnings Call Transcript

Published: 16 Mar 2021

[Operator:]

Good afternoon. And welcome to the Fourth Quarter 2020 Caleres Earnings Conference Call. My name is Erica, and I will be your conference coordinator. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. As a reminder, this conference is being recorded. At this time, I will turn the call over to Logan Bonacorsi, Vice President of Investor Relations. Please go ahead, ma’am.

[Logan Bonacorsi:]

Good afternoon. I would like to thank you for joining our fourth quarter 2020 earnings call and webcast. A press release with detailed financial tables, as well as our quarterly slide presentation are available at caleres.com.

[Diane Sullivan:]

Yes. Thanks, Logan, and good afternoon, everyone. We appreciate you joining us on today’s call as we review our fourth quarter results, provide a little color on what we’re seeing in the marketplace, and share how we are planning for 2021. Even with the impact of the virus on the economy, our business, and our personal lives during the last year, the Caleres team remained focused, dedicated, and determined. Over the last year our associates drew on their creativity and their great optimism to drive the organization through the protracted economic lockdown and to shift toward a recovery and our future. I would like to thank our entire global workforce for rising to this unprecedented challenge in a quick and agile manner. I couldn’t be more proud. As a result of these efforts, the organization was able to make tremendous progress on a wide range of strategic objectives on both the operational and the financial fronts. To start, we intensified our focus on driving down costs, streamlining the organization to align with the ongoing needs of the business, and rightsizing our expense base. Through these efforts, we expect to realize $100 million in ongoing annual expense and capital savings beginning in 2021. In addition, we leveraged our previous capital investments in digital to drive an approximately 40% year-over-year increase in ecommerce sales from our own dotcom sites. This pivot enables the brands to adjust swiftly to changing consumer behavior and priorities in the wake of the pandemic. I’ll discuss more specifics on our digital progress in just a few moments.

[Ken Hannah:]

Thank you, Diane, and good afternoon, everyone. Before I walk through our fourth quarter and fiscal year financials, I’d like to echo Diane’s comments and express how extremely proud I am of what our team was able to achieve during a time of such unprecedented challenge. We remained intensely focused on appropriately managing expenses and reducing working capital throughout 2020. Through these ongoing efforts, we are confident we have positioned the organization to weather the uncertainties that persist and take full advantage of the opportunities we see in the marketplace. I would like to start by providing a brief update on our liquidity position and capital structure, then discuss our fourth quarter and fiscal year results and finally provides some color on the outlook for the first quarter of 2021. As we communicated over the last several quarters, we believe deleveraging to be the most value creating use of cash given the marketplace. To that end, we once again made debt reduction a priority in our capital allocation process. We generated approximately $25 million in cash from operations in the fourth quarter and paid down an additional $50 million in revolver debt, reducing the outstanding balance to $250 million at the end of the quarter, $25 million below our pre-pandemic debt levels. $126 million in cash generated from operations in 2020 clearly demonstrate the actions taken to manage working capital. All told, we ended the year with a solid liquidity position consisting of approximately $88 million in cash and $350 million of capacity on our asset based revolving credit facility. In addition to our progress on debt reduction during the year, we also returned approximately $34 million to shareholders during the year through our longstanding quarterly dividend and our share repurchase program. Overall, we bought back approximately 7% of our shares outstanding in 2020 at an average price of $8.05. Looking ahead, we expect to reduce our debt level still further, while at the same time continuing to return cash to our shareholders through investing in our business, our longstanding dividend and opportunistically buying back shares. Now moving on to a review of our financials. We had a number of non-recurring and for the most part non-cash adjustments in the quarter. I will walk through those adjustments. You can also find a full presentation of our GAAP results and a reconciliation table to our adjusted results in the earnings release we issued earlier today. Our adjusted earnings per share for the fiscal fourth quarter of 2020 was $0.03 per share, excluding $1.03 of COVID-19-related expenses associated with non-cash impairments of property and lease right-of-use assets primarily for Allen Edmonds and tax valuation allowances associated with our deferred tax assets. $0.49 of non-cash intangible asset impairment charges for Allen Edmonds, $0.37 of expense related to the previously announced exit of a number of our Naturalizer retail stores, the fair value adjustment of $0.18 associated with the mandatory purchase obligation for Blowfish Malibu and the Vionic integration related costs of $0.07 as we completed the ERP integration in the fourth quarter. For fiscal year 2020, our adjusted loss per share was $1.40. This loss per share excludes $10.40 of charges, made up of $6.35 of non-cash goodwill and intangible asset impairment charges, $3.10 of COVID-19-related expenses associated with non-cash impairments or markdowns of inventory, property and leased assets and tax valuation allowances associated with our deferred tax assets. The total fair value adjustment of $0.48 associated with the mandatory purchase obligation for Blowfish Malibu, $0.40 of expense related to brand exits and the Vionic integration-related costs of $0.07 taken in the fourth quarter. Again, we’ve provided a complete reconciliation of our GAAP results in the earnings release issued earlier today. And having said that, my remarks will focus on our adjusted results as we believe this represents our overall operating performance. For the fourth quarter, we delivered consolidated sales of $571 million, down 18.3% from fourth quarter of 2019 levels. Our direct-to-consumer sales reached 75% of our total, while our owned ecommerce sales increased approximately 25% during the period. For the year we reported $2.1 million in sales, down 28% from 2019, reflecting the significant effects on our business due to the COVID-19 global health crisis and the associated economic lockdown. Our direct-to-consumer business reached 73% for the full year, up from 68% in 2019. As Diane mentioned earlier, Famous Footwear total sales were $346.7 million, down 6.2% from the fourth quarter of fiscal 2019. Notably, the predictable sequential seasonal sales decline in Famous Footwear from the third quarter to the fourth quarter was appreciably less, resulting in a smaller year-over-year sales decline evidence that Famous continued this ongoing momentum driven by still strong athletic sales and ongoing strength in its ecommerce business. Our comparable store sales were down 1.8% during the fourth quarter, with our ecommerce sales up approximately 51%. For the full year, Famous Footwear sales were $1.3 billion, down 20.4% year-over-year, driven primarily by the temporary store closures earlier in the year and the non-traditional back-to-school season. Comparable store sales for the year were up 1.6% with our annual ecommerce sales up 75% over 2019. Our Brand Portfolio fourth quarter total sales were $234 million, a decrease of 32.4% year-over-year. Full year Brand Portfolio sales were down 35.8%, reflecting steep declines in women’s fashion footwear, temporary closure of our owned retail and wholesale partners’ stores, and weak consumer demand for certain footwear categories as markets closed and consumers became accustomed to a work-from-home lifestyle. Our consolidated gross margin was 39.9%, down 20 basis points year-over-year. Famous Footwear had a gross profit margin of approximately 41% in the fourth quarter, a 168-basis-point decline was driven by growth and increased penetration of ecommerce related business in the quarter. However, notably, ecommerce margins increased more than 400 basis points in the period, reflecting the higher ecommerce productivity due to buy online pick-up in store, curbside and ship from store initiatives. Our fiscal year gross margin for Famous Footwear was 39.2%, reflecting a higher mix of ecommerce sales due to temporary retail store closures and increased promotional activity to liquidate seasonal inventory during the year. Our Brand Portfolio fourth quarter gross margin was 36.5% and was 107 basis points higher than the fourth quarter of last year, reflecting a lower level of promotion and our overall inventory position. The annual gross margin was 36.2%. Our consolidated SG&A expense for the fourth quarter was $226.1 million, representing a decline of approximately $35 million compared to the fourth quarter last year. This year-over-year decline was driven by store selling productivity and actions taken to lower facilities, marketing and general corporate overhead expenses. Our annual SG&A expense was $889.5 million, a decline of $176.3 million compared to fiscal year 2019. This decline was led by the reduction in variable cost, ongoing savings from the voluntary early retirement plan commenced in the fourth quarter of 2019 and lower lease expense from closing 104 total retail doors during the year. As we have stated, we expect to achieve $100 million or approximately $25 million per quarter of annual expense savings going forward. At Famous Footwear, we posted operating earnings of $14.8 million in the fourth quarter, reflecting a $20 million reduction in expenses and improved ecommerce margin. This represents $4.5 million more in operating earnings on $23 million less sales than the fourth quarter of 2019. Operating margin was 4.3% in the quarter, up 148 basis points year-over-year. In the Brand Portfolio, we’re pleased to report an operating earnings of $1.2 million for the quarter, reflecting a $20 million reduction in expenses year-over-year. Our net interest expense for the quarter was 5.6 million and for the year was $24.4 million excluding the Blowfish adjustment. Our full year consolidated GAAP tax rate was 15.1%. This lower rate reflects the favorable impact related to the utilization of the CARES Act carry-back provisions, which allows us to carry-back losses in 2020 to years with a higher federal tax rate. The company’s fourth quarter net income was $1.3 million or earnings per diluted share of $0.03. This compares to net income of $13.9 million or $0.34 per diluted share in the fourth quarter of last year. Our inventory year end was down 21% and included an approximately 15% decline in Famous Footwear inventory and a 29% decline in inventory in the Brand Portfolio segment. Furthermore, we significantly reduced our overall operating working capital position by approximately 50% in 2020. Our capital expenditures totaled approximately $22 million for the year, down from approximately $50 million in 2019. And looking ahead at 2021, given the ongoing disruptions related to the virus, supply chain dislocations and continued near-term uncertainty in the marketplace, we’re not providing fiscal year 2021 guidance at this time. That said, I’m happy to provide you with some high level perspective regarding our outlook for the first quarter. To reiterate Diane’s previous comments, we currently have between $60 million and $70 million of delayed receipts due to supply chain disruptions and the ongoing port congestion. We don’t expect that to be resolved in the first quarter. In addition, as a reminder, our sales in the first quarter are seasonably the lowest quarter of the year and we expect that to continue to be the case in 2021. But that being said, we expect Q1 2021 at the consolidated level to look a lot like Q4 of 2020, both in dollars of sales and dollars of earnings per share. With Famous Footwear sales expected to be between 5% and 10% lower than the first quarter of 2019 and Brand Portfolio sales expected to be between 28 and 32% lower than the first quarter of 2019. Furthermore, as previously discuss, we plan to complete the Naturalizer restructuring during the first quarter and we’ll take additional non-recurring charges during that period. Excluding the impact of Naturalizer closings and barring any further delays in the supply chain, we accept positive adjusted earnings per share in the first quarter and a continued reduction in our overall debt levels. In closing, in the face of the unprecedented disruption in our business in 2020, the company acted quickly and decisively. Our nimble business model enabled us to adjust to the environment and prioritize cash flow and liquidity, while still furthering our long-term strategic objectives, investing for future growth and creating value for our shareholders. With that, I’d like to turn the call over to the operator for questions. Operator?

[Operator:]

Your first question is from Laura Champine with Loop Capital.

[Laura Champine:]

Thanks for taking my question. I’m hoping you’ll dive a little bit more into the lost sales from the slowdowns at the ports and how long -- how much of that do you think you’d get back eventually maybe in Q2? And also, Ken, if you could give us a sense of how you expect to manage inventories this year? I would imagine you’re going to have to rebuild at some point? Thanks.

[Diane Sullivan:]

Yeah. Hi, Laura. It’s Diane. Let me start on the port congestion topic and supply chain, and it certainly is the big topic at the moment. So that $60 million to $70 million in receipts that are delayed, let me kind of split that out for you a little bit. Right now, there’s about $50 million of receipts that are delayed for Famous Footwear, and there’s about $10 million to $20 million or so that’s delayed on the Brand Portfolio side. It’s hard to tell yet exactly when we’re going to be caught up fully with respect to all of those receipts. We don’t have the visibility yet of what that looks like. So, there’s a number of actions that we’re taking and we’re obviously taking a look at this week to week. We’re looking at making sure that we’re placing orders on the Brand Portfolio side in advance of where our needs are going to be going into the back half of the year, so being proactive about that. We’re looking at making sure that we continue our Rapid Response Program and selling the inventory that we do have on our Brand Portfolio side. With respect to Famous, the good news is, they have been really operating at a lower inventory level throughout really 2020 obviously, and our expectation is that they will be down in the range of 5% to 10% on their inventory levels typically going through the rest of the year. So, the good news and the silver lining and all that and until we really see is that it allows you to really manage your pricing, manage your promotional cadence, hopefully take advantage of what margin improvement we might see, but it’s really a little unclear yet about what the opportunity cost is going to look like in the short-term. But, again, believe that we are actively managing this and making sure that it -- we get ourselves in a position to take advantage of what we expect is going to be a pretty good rebound as we move into the second quarter and then more so even into the back half of the year. I don’t know, Ken, if you would want to add any additional points on the congestion and supply chain.

[Ken Hannah:]

Yeah. Thank you, Diane. I think when we look at that, obviously there’s a good portion of that that is timing. And then a lot of that is supplying our at-once business, which you’ve heard us talk about how hard we’ve worked on our speed programs and our ability to hold inventory and be able to fulfill consumer demand. So, obviously, the timing of that certainly puts a portion at risk. You’d ask them the inventory. Obviously, we’re very clean coming out of the year. I think the team did a fantastic job really lowering the overall levels and really turning inventory into cash. We mentioned we generated $126 million of cash from operations in 2020 despite the reported earnings being much lower than that. And I think what we learned is that we have the ability to turn our inventory a little faster than we have in the past, so while our inventory is expected to increase kind of throughout the year and really in anticipation for the back half, obviously we’re planning to turn that a little bit faster than we would have in prior years. So, lots of work by the teams and then obviously disappointed in the delays and the congestion because we really feel like we can put that inventory to good use.

[Operator:]

Our next question is from Steve Marotta with CL King & Associates.

[Steve Marotta:]

Hello, Diane, Ken, Jay, and Logan. Diane, I would love your thoughts on, first, very high level, how you feel the cadence of this year is going to progress? And then on a more granular level, how do you prepare for that? In other words, if -- and I’m not holding you anything, this is just how I would love to hear or how you are thinking about from -- again, how the year progresses. And then a planning point from a product standpoint and a delivery standpoint, do you think that dress is going to be more popular in the back half of the year than it has been maybe in the last 12 month to 18 months, product categories that could pop, just your high level thoughts on the year.

[Diane Sullivan:]

Yeah. Sure. I’d be happy to. I think, when we entered this year and finished the fiscal year of 2020, we went through this whole planning process and really keeping our mind on this idea that we were going to take a fairly conservative approach to the front half of the year, and we expected a much stronger rebound in the back half of the year. And that was -- because it was really still unclear about how fast the vaccine rollout was going to occur, and then as we saw a little bit more of the supply chain disruption, again, wanting to make sure we were fairly conservative on our viewpoint in the front half. In terms of the categories of business that we feel that are going to continue to be strong, there’s no doubt about it that this sport and active and wellness categories of business is going to absolutely continue throughout. We don’t think that that’s going to change significantly at all. We think that is going to continue to be important. But what we are starting to see a little bit is that, the -- how you define what’s dress or what’s casual and what’s -- the sandals might sell or what boots might sell. We’re seeing already Steve the early signs that actually opened up footwear is selling actually outstandingly well and it’s not only flat kinds of sandals and that sort of thing, but wedges and heels as well seems to be working and there’s the early distant light right now that we can see. It opened up a little more dress type of sandals. We’re seeing that become that’s how the women’s sale go out attend a vast wedding be able to take advantage of those kinds of opportunities. The other thing is, we also -- there’s no doubt that, we have about our position in our portfolio at this moment. Their growth potential -- is their growth potential and we really think we have the set of brands that sort of like I talked about this afternoon, where we really want to maximize them extraordinarily well positioned, as well as Dr. Scholl’s and Vionics. We think those are the kinds of brands that where we really want to maximize the momentum and further their growth potential and we know that Sam Edelman is already some of the early signs of the consumer coming back to those iconic brands, iconic styles, and Alan Edmonds and Naturalizer reinvigorating that. I think we’re going to be really pleasantly surprised with combination of a lot of things. And maybe then just the other thing, why we feel pretty good about our position is our digital business. We’ve made those investments. We have the fulfillment capabilities. We have the logistics capabilities. We have the platform now. We’ve got the content management system. We have got curbside. So we have all of those things. So as you even tie it back to Ken’s comments about the capital investments, this year being a $22 million versus kind of where it’s been in the past. We’ve made those investments and we’re really focused on making sure we get the productivity out of the investments we’ve made. So that’s a little bit of a longer answer to your question. I hope I got to the key points you wanted me to get to. But that’s kind of how we see the shape of the year.

[Steve Marotta:]

Absolutely. No. That was very helpful the insights. Ken, the $100 million in annualized savings, roughly $25 million per quarter, is that straight line year-over-year or do you anticipate there will be some reinvestment as -- on an as needed basis? In other words, from a modeling standpoint, just look at last year’s SG&A about $25 million off and that’s where the brackets are or are there offsets?

[Ken Hannah:]

Yeah. I mean, obviously, there’s a variable component to that. So I think we’ve got $225 million, $226 million in SG&A expense. And Q4, we would expect to be pretty much at those same levels on the same level of sales in Q1. Then -- and then, obviously, at the seasonality once we get into Q3 and that’s one of our larger quarters, there’s a little bit more expense. But the savings is really expected to be throughout. I think, the 2020 compared to 2019, we were down almost $175 million. So $75 million or so that ties back to variable costs on our sales and the other $100 million is direct cost that has been taken out of the business.

[Steve Marotta:]

That’s really helpful as well. Diane I have one more question. I’m not sure you’ve had a…

[Diane Sullivan:]

Okay.

[Steve Marotta:]

… public platform to expand on management changes that were announced in early December. Maybe you want to talk a little bit about that, your thought process there? How that’s going if there’s any other evolution to this current year that we can expect or be updated on? Thanks.

[Diane Sullivan:]

Yeah. Sure. No problem. And actually just going back to your other question too, I should have mentioned, February was a little light, right? Everybody knows about the weather in February and what happened along that -- those lines. So just wanted to get that out there that, there was significant days lost in our Famous Business, as I’m sure every other retailer has faced as well. But so a little bit more about the cadence of the year. So just beat I wanted to get out there. With respect to our talent base and the organizational changes, I think, we feel very highly confident with the team that we have. Jay is leading it, adding Lydia, promoting Keith Duplain, Mike Edwards is doing a heck of a job leading Famous Footwear. We have a high degree of confidence there. We’ve added other people in our digital portions of our business. You’re going to see us add even more this year to make sure that our capabilities in our business continues to grow. And then I would probably also add that that we also believe that we really need to have that the voice of the consumer directly sitting at our leadership team and so you will expect -- should expect to see us appoint CMO in the company in the relatively not too distant future. We think that’s a critical component and ingredients of what is really going to help us accelerate our performance and our understanding and insight around the consumer as we go forward. So the biggest changes you’ll see are really in the marketing and the digital side of our business and the rest we feel, again, other than the normal ongoing things, we feel pretty good about where we’re at this moment.

[Steve Marotta:]

Very, very helpful. I’ll take the rest of my questions offline. Thanks.

[Diane Sullivan:]

Thanks, Steve.

[Ken Hannah:]

Thank you, Steve.

[Operator:]

Your next question is from Sam Poser with Williams Trading.

[Sam Poser:]

Good afternoon. Thanks for taking my questions. I was just wondering -- a couple of things. I was just wondering, one, which like of the $50 million of Famous product. I mean, there are specific categories that are hurting you more than others. That’s sort of the weight right now and another retailer…

[Diane Sullivan:]

So it’s pretty balanced across really the largest brands, pretty much as you would expect, right, the end demand brands. That’s where it mostly is spread across.

[Sam Poser:]

Another retailer discussed it as sort of like Domino’s, it was like, what didn’t come in in December came in in January, what didn’t come in January came in in February and what didn’t come in…

[Diane Sullivan:]

Yeah.

[Sam Poser:]

…in February is coming in in March? So is the major problem here more seasonal product that’s hurting you right now versus, let’s say, sneakers, I mean, sort of in the scheme of things where you’d normally catch a lot of sandals, but of sandals…

[Diane Sullivan:]

Right.

[Sam Poser:]

… weight that really hurts business?

[Diane Sullivan:]

Yeah. It’s -- I would tell you, it’s a great way to describe with the Domino’s because that is a bit of what’s been happening and that’s the key part of it, you don’t know really when you’re going to catch up and it’s gone a little bit back and forth, one week, you might feel you’re caught up the next week, you’re maybe a little further behind. But your characterization is a good one. But again, it really is cutting across, it really isn’t the seasonal goods as much as it is really against all the -- all categories, it is on some athletic, it is on a broad base of brands and on categories. So, again, we’ll see how it plays out. The team’s doing a great job managing their way through it. There’s no reason to believe that that we’re not going to catch up at some point in time. But it’s really we don’t have the visibility yet from when that really is going to occur.

[Sam Poser:]

Yeah. And then within the color that you provided on the first quarter, the stimulus checks hit or is that included in the color that you’re providing and can you give us some indication of really in the last few days how business accelerate -- may have accelerated given the stimulus at Famous?

[Ken Hannah:]

Yeah. It isn’t -- it’s included in our outlook. And I think that’s a little bit of the at-once business that we were talking about and in terms of -- the stimulus is there. We’ve seen traffic coming through as people are receiving those checks and it’s really just about inventory levels not being exactly where you’d like them to be to fully capture that opportunity. So, I mean, we know that’s going to be timing and then we’re hoping that we see that resolve itself as we get into the latter part of the second quarter. But we have taken into consideration the early signs of the stimulus.

[Sam Poser:]

Thanks. And lastly, with Famous again, you sort of mentioned, you can turn your inventory a little faster and all that stuff. I mean, does this mean that you’re going to narrow your assortment and go deeper on key -- like, are you learning more about how to do key items through this crisis and realizing that third, blue, whatever may not be necessary, you can live with two -- a lot more of two of them?

[Diane Sullivan:]

Yeah.

[Ken Hannah:]

Yeah. Absolutely. Skew rationalization, I think, Diane, in her prepared remarks, talk to the -- those top 15 brands representing almost 80%. They learn a lot in 2020, and obviously, as we’re going through and looking a 0.5 point of improvement in terms of Famous requires a 15% to 20% kind of delta on the inventory level. So, we’re working through all of that with the teams and hoping to find some good out of the learnings that we had in 2020.

[Sam Poser:]

Let me then theoretically, when things come back, whatever it looks like that not going to -- you’re expecting much more productivity out of your inventory there. And then, Diane, lastly, I sorry, again, you sort of said that everything’s going to go back to, you are expecting dress and some of that stuff maybe to come back in the back half of the year. I mean, are you looking -- I mean, are you in the roaring ‘20s is coming camp or are you in the roaring ‘20s, but it’s better be comfortable -- everybody better be comfortable with that?

[Diane Sullivan:]

Exactly. I’m and the everybody’s going to want to be comfortable camp, that there’s going to be a consistent improvement and the performance of the businesses going forward throughout the year. And that I do think in some cases, it doesn’t ever go back, Sam, to what was, but I definitely think that there is some pent-up demand for footwear that they don’t already have in their closet. And this idea that social occasions and weddings and all of that at some point in time are going to matter and even just to feel good and put in a great pair of shoes on your feet, that’s a little different than those sneakers and the clubs that you’ve been wearing is going to feel right. So never get into the scale and size, it was much more occasion based. We’re not going to chase it. But we’re going to be prepared to take advantage of it as we begin to size what the opportunity might be. I think the biggest impact from that that you won’t see come back is, what we might call career-oriented shoes. That what’s not coming back? What -- but the rest of it we think is going to be critical.

[Sam Poser:]

Thank you very much and good luck.

[Diane Sullivan:]

Thank you, Sam.

[Ken Hannah:]

Thanks, Sam.

[Operator:]

Our final question is from William Reuter with Bank of America.

[William Reuter:]

Hi. I just have two. So the first, you’ve been talking about the changing portfolio dynamics where there’s going to be growth, changes to the assortment. Is there any thought that you believe that actually the portfolio’s composition should change and that either there’s something that you maybe left depart, like depart with or maybe other acquisition targets out there that you see those attractive?

[Diane Sullivan:]

Right. Thank you, William. It’s Diane. We do continuously look at evolving the portfolio and really has even as of last year exited three brands and actually added two. So we are constantly evolving it. And again, to my comment a little bit earlier, we’re really trying to look at, again, assess potential and kind of where we think the run -- what the runway looks like against trend alignment and kind of its the brand’s growth potential. And looking at where we really need to maximize momentum and drive it because the consumer and all the attributes of what success is going to look like kind of surround that segment of the portfolio. We know there’s a few that we have to reinvigorate, which we’re doing. And that is a couple that we’re really making sure that we’re maintaining it. We’re not investing it -- over investing in any of those things and trying to shift our investment back over to those brands that are in this growth mode right now and also back over to our digital capabilities to make sure that we don’t miss those opportunities, because that, that’s part of the business that’s growing significantly. So that that’s how I would say, we manage the portfolio and our history kind of shows how we continue to add and subtract brands as we need to.

[William Reuter:]

Yeah. And then -- that’s helpful. And then just one follow-up. Ken, the 6.25% has become the call price steps down in August. The markets are obviously incredibly hot. I guess how are you viewing the opportunity to potentially refinance those at this time?

[Ken Hannah:]

Yeah. I mean, we’re actually hoping that we can turn our inventory at the levels that we hope and continue to generate enough cash from operations. We will continue to pay the revolver down and we would likely start to move some of those from a fixed to a variable rate. And as you can imagine, they’re at 6.25%. They’re callable in August and if we’re able to continue to pay down the revolving credit, we could move those over at 3% and so just in that, it’s a pretty significant reduction. So, I think, as we said, our capital allocation priorities are to continue to reduce the levels of debt and try to make sure that the leverage is down where it needs to be.

[William Reuter:]

Yeah. Makes sense. Okay. All right. Thanks a lot. Thanks for taking questions.

[Diane Sullivan:]

Thank you.

[Ken Hannah:]

Thank you.

[Operator:]

There are no further questions at this time. I’ll turn the call back over to Diane Sullivan for closing remarks.

[Diane Sullivan:]

Well, thank you, everyone for joining us today. Before we disconnect I just wanted to reiterate the progress we made during the year. We leveraged our previous capital investments to embrace digital. We effectively and efficiently managed our expense base. We reduce the amount of working capital to run our day-to-day business. And we’ve significantly paid down our debt levels. So as we move ahead, Caleres is more flexible and focused with an even more vigorous commitment to connecting with our consumers and providing them with compelling and fresh product. We’re extremely confident that we can leverage our talented and dedicated workforce, strong operating platform, powerful portfolio and improved -- and improving financial position to capitalize on the opportunities we see ahead in order to make sure we drive long-term value for our shareholders. With that, we look forward to talking with you on our next update at the end of the first quarter. Thanks again.

[Operator:]

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.