Q4 2021 Caleres Inc Earnings Call
Afternoon, and welcome to the Polaris fourth quarter earnings Conference call. My name is Jim Mario and I will be your conference coordinator at this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please limit to one question and one follow up question as a reminder.
This conference is being recorded at this time I will turn the call over to Logan Upon of course, the Vice President of Investor Relations. Please go ahead.
Good afternoon, I'd like to thank you for joining our fourth quarter 2021 earnings call and webcast a press release with detailed financial tables as well as our quarterly slide presentation are available at <unk> Dot com. Please be aware today's discussion contains forward looking statements, which are subject to a number of risks and uncertainties actual results.
May differ materially due to various risk factors, including but not limited to the factors disclosed in the company's Form 10-K , and other filings with the U S Securities and Exchange Commission.
Please refer to today's press release, and our SEC filings for more information on risk factors and other factors, which could impact forward looking statements copies of these reports are online the company undertakes no obligation to update any information discussed on this call at any time.
Joining me on the call today is Diane Sullivan, Chairman and CEO , Ken Hannah Senior Vice President and CFO and Jay Smith, President we will begin the call with brief prepared remarks, and thereafter, we'll be happy to take your questions I would now like to turn the call over to Diane Diane.
Thank you Logan and good afternoon, everyone I'm thrilled to report the Claris delivered strong results exceeding our expectations. During the first fourth quarter of 2021 capping off our best year ever.
Global work force didn't allow the significant rebound in demand and a rapid return of the consumer to pass us by we leveraged our strengths linked into our capabilities navigated the ongoing macro challenges and strengthened our balance sheet, while always keeping the consumer at the core of our focus.
These tremendous efforts coupled with our established strategies and investments resulted in a record breaking year on effectively every financial measure.
In total we delivered adjusted operating earnings of nearly 220 million in adjusted earnings per share of $4.29 a level nearly double that of our previous annual record. In addition, we generated approximately $286 million and adjusted EBITDA.
Furthermore, we highlighted our recent environmental social and governance progress and set ambitious 2025 targets and in our in our inaugural ESG report.
A report that with nationally recognized on Newsweek's, most responsible companies list and ranked in the top 10 for the consumer goods category. We look forward to providing an update on these efforts in our next report.
Overall, we exited 2021 a more agile and financially sound organization poised to generate significant and ongoing value for our shareholders.
Now, let me move to some of our performance highlights from the quarter just ended.
During the fourth quarter, we delivered strong fourth quarter sales generated record fourth quarter gross margin level.
Achieved record fourth quarter operating earnings of approximately 44 million and adjusted earnings per share of 91 cents.
Eliminated the remaining portion of our higher cost long term debt.
And maintained our focus on connecting with our consumers and advancing our efforts to unlock growth opportunities across the enterprise.
Leading this outstanding performance was the strong demand at famous footwear, which resulted in another record quarter for our largest brand most notably famous delivered a nearly 9% increase in sales over the fourth quarter of 2019.
Despite entering the period with inventory down 24%.
Furthermore, famous achieved its strongest holiday season on record as consumers look to us for the brands and styles. They love.
In addition, we sustained strong gross margin levels with a gross margin rate of nearly 49% as full price selling continued during the period.
This marks four quarters of year over year margin improvement and ultimately, resulting in a full year gross margin rate of 48%.
Or 548 basis points better than 2019.
And for the full year, our famous brand delivered its best year on record by a wide margin.
Our targeted consumer marketing, coupled with merchandising planning and allocation expertise.
And our unmatched local knowledge.
Enabled us to have the right product in the right places tend to meet the needs of the famous consumer.
Going forward why while we are still experiencing disruptions due to the supply chain. We are confident that our disciplined approach to inventory and the structural shift in the industry's promotional environment will enable famous to sustain our margin level higher than our historical averages.
The brand portfolio also turned in an impressive performance and made significant strides in its ongoing rebound despite a number of strong headwinds.
Notably, we furthered our efforts to grow our direct to consumer business with our fourth quarter owned ecommerce increasing approximately 32% when compared to the fourth quarter of 2020.
Also during the fourth quarter four of our key brands, Sam Edelman, Allen Edmonds Bionic and Blowfish turned in strong sales and margin results with all four outpacing quarterly sales expectations and also surpassing fourth quarter 2019 earnings levels.
It's worth noting that Polaris acquired three of these four brands during the course of the last five years to differentiate our portfolio further and reach new consumer segments.
This recent performance underscores our capabilities in cultivating integrating and then growing acquired assets in a way that is leveraging and value creating.
With the effects of the pandemic beginning to recede, we expect to build further momentum and critical mass with these four brands and the entire portfolio.
So now I'd really like to turn our attention to highlight on our key focus areas that will enable us to win and 2022 .
Looking first at famous where are we expect another strong earnings performance. This year, we continued to execute with excellence on our merchandising marketing and consumer experience strategies.
First when it comes to our product we will continue to offer what the consumer wants to throw a balanced assortment of athletic sport and seasonal styles, both in store and online.
We will continue to leverage our leadership position in athletic and sport and build upon our strong relationships with key partners in these categories in order to capitalize on the ongoing demand.
We expect consumers will still gravitate towards the most well known brands in these categories and believe famous III Mi remains exceptionally well situated to benefit, particularly as some of our competitors have been limited in their ability to distribute certain iconic brands.
In addition, as we work to evolve our product offerings, we are testing and adding new and emerging brands across genders and categories, usually our nationwide network and our localized knowledge and expertise to meet the shifting preferences and behaviors of the famous consumer we've.
We believe this could attract new famous consumers while at the same time, providing the current customer with additional options.
During the year, our top 20 brands represented more than 80% of our sales with the top 11 to 20 brands growing and their importance.
A great example of this would be birkenstock, which has moved into the top 10.
And third on merchandise, we are focused on increasing the opportunity between famous in our owned portfolio brands. As this provides a potential for higher margin for the enterprise as a whole.
There are several brands within the current portfolio that represent an excellent fit with a famous consumers desire for athletic and sport styling and could provide a runway for growth.
These brands include life Stride Blowfish Doctor Shoals, and Bionic Beach in fact three of these brands currently sit.
And the top 20 sales performers at famous.
In addition, the recent lift in interest and demand for occasion and dress styles by the famous consumer could provide another avenue for some of our fashion focused brands both in store and on famous footwear dotcom.
Turning to marketing during 2021 we did a tremendous amount of work to further understand the.
The famous consumer while at the same time undertaking our marketing attribution study.
We are using our findings to inform our strategies and to optimize our media investment in order to acquire new reactivate previous and perhaps most importantly retain existing famous consumers.
Over the last year, we saw a significant increase in AUR and margins.
And famous as we improved our inventory efficiencies and pulled back on promotions as we progress through 2022, we expect the competitive landscape to continue to support an environment of limited promotional activity, that's requiring a different approach and connecting with new consumers engaging.
Current ones and establishing a strong connection with the famous brand overall.
As a result, we are being surgical and our marketing tactics using targeting and personalization in order to drive repeat purchases and working to shift traditional one channel shoppers to omnichannel consumers.
We are highly aware of the lifetime value omnichannel customers bring and believe this to be a long term value creating opportunity for famous.
Finally, I want to close the discussion on famous with our focus on enhancing the consumer experience an area, where we're always striving to do better.
And where we have done a significant amount of work, it's worth noting that year over year top line growth was driven by increased sales at brick and mortar making into a much more much more important that the consumer experience is consistent across omni channel. As a result, we have developed and are testing a prototype store that offers an enhanced.
Shopping experiencing experience showcasing the fact that we carry the most in demand brands and styles is completely localized and extremely convenient.
Most importantly, it's very consistent with our enhanced digital experience and stays true to the brand's DNA.
So far we really like the results, we're seeing making a few adjustments here and there and plan to open 10, additional prototypes and key geographically diverse markets over the next several months.
We look forward to sharing consumers' reactions to the new stores as we move through the year.
Beyond this we are constantly exploring adding locations in markets, where we may be underpenetrated and where we believe we can leverage our leading athletic assortment to gain share and grow earnings.
In addition, we have plans to refresh and upgrade high traffic and high potential famous stores this year.
You'll recall this was an initiative that we began in 2019, but was paused due to the pandemic and then restarted in 2020 one.
We're planning to update 120 stores this year, which is on top of the nearly 70 store enhancements we completed in 2021.
These upgrade should further enhance the consumer experience elevate key brand stories and unlock still greater value from these already high performing locations.
We are already seeing positive trends in stores, where previously completed refreshes and are optimistic that these efforts will create consumer excitement further our differentiation and bolster our national presence and generate solid returns.
So now, let's turn to the key areas of focus for the brand portfolio in 2022.
First we believe that we have established an exceptionally strong foundation on which to build and view our improving performance to be a key component in our ability to continue the strong results of fiscal year, 2021 and 2022.
A central component to drive brand growth is in the brand portfolio. This year will be to ensure that we can better align inventory with consumer demand.
During the back half of 2021 global supply chain dislocations limited our ability to adequately meet improving demand for certain of our brands and certain of our products.
In fact, we operated in the fourth quarter of 'twenty, one with approximately 20% less inventory when compared to fourth quarter of 19, excluding the in transit inventory, which was more than twice as high for the same period.
That said, we have been slowly building back our inventory levels over the last several months managing our supply chain aggressively and in real time, accelerating receipts wherever possible and placing a strong emphasis on building up each brands' top selling styles to drive sales.
We view this greater alignment of inventory as a real opportunity to capture demand and accelerate growth during the year.
Next we have initiated an edit to win strategy across the brand portfolio with positive impacts for our brands consumers.
Retail and sourcing partners and really frankly Polaris as a whole in short we're tightening our SKU count in each owned brand to enhance productivity and lower costs, while building on the successful into band products that consumers want.
We expect that this focus will result in more in stock of what the consumer loves leading to much higher satisfaction and loyalty rates.
Higher retail prices and fewer markdowns and allowances.
Better sell throughs, and better margins lower development and sample costs and simplification of functions across the product life cycle.
That's kind of a no brainer to do that I'm not sure why you wouldn't want to do that with those kind of outcomes.
Finally, we are putting a high degree of focus on optimizing the portfolio emphasizing and investing in our lead brands in.
In addition to famous footwear, which we've discussed these include Sam Edelman Allen Edmonds and Bionic. We view. These brands is central to our portfolio. They have advanced product innovation capabilities to pivot seamlessly with consumer trends.
Had strong consumer recognition and loyalty with a clear runway for growth.
Most notably Sam Edelman, and Allen Edmonds are extremely well positioned to capitalize on the resurgence in footwear for event and work while the Ionic will continue to take advantage of the demand for health and wellness products, which has been and continues to be strong it's worth noting that the excitement around Sam Edelman new.
Products and styles, which had been showcase beautifully in their recent catalogues.
We have driven significant increases in their direct to consumer business. In fact during 2021 its e-commerce business increased 104% when compared to fiscal year 19, with traffic conversion and average order value metrics, all showing strong improvements over the same period.
Looking at Allen Edmonds, we furthered our product evolution in this brand by leveraging our design and innovation capabilities and our top selling Park Avenue to create the Park Avenue Sneaker and the Park Avenue loved so all of which are receiving a fantastic response from consumers.
This progression will allow the brand to build nicely on our signature and a very popular style to attract new consumers. While at the same time reinforcing brand awareness and building on its strong consumer loyalty.
Speaking of Allen Edmonds Excitingly, the brand will be celebrating its 100th anniversary in May a century of an American made brand.
As we honor this significant milestone we have curated generated 100 creators entrepreneurs artists musicians dancers, actavis and thought leaders across generations gender and race.
Photographing them all in the Park Avenue.
Through these remarkable people, we will highlight the stories and the pride that comes from the fact passion for creating and further underscores the 100 years of commitment to our life's work designing and making shoes.
I'd like to encourage you to follow our story and their stories on Allen Edmonds Dot com during the month of May as we celebrate our legacy.
Beyond our leadership brands, we see significant upside for Veronica beard.
<unk>, sarto, and naturalize or as demand for dress styles accelerate during the year.
These brands, which were disproportionately affected during the pandemic are well known by the consumer and have exciting new offerings to celebrate the consumers more social event driven lifestyle.
That many of our brands are positioned ideally to capitalize on what is shaping up to be one of the biggest shares for events social gatherings and for sure wedding celebrations.
One brand in particular that has a tremendous opportunity as natural.
His naturalize or that.
That brand has launched a wedding shop on naturalize their dotcom that showcases its expanded offerings and styles designed for the bride and for her big day as well as all the bridal party in gas and all of the special events, leading up to it we are amplifying. This further with collaborations with key retail.
<unk> to bring it to life across many touch points currently more than 20% of our naturalize of web business is coming through the wedding shop.
We expect the increased demand for these brands to be a significant driver also in the overall rebound for the brand portfolio in 2022.
So to wrap up some of my comments this afternoon we.
We have seen a step change in the earnings power of the organization and we are excited about the future opportunities for our brands and the potential for long term value creation.
The strategies deployed in the capital invested have served to greatly enhance our earnings power to date and have set the stage for even greater progress as we advance through the year.
While clearly we are operating during a period of a continuously evolving in unpredictable macro challenges, we know how and are prepared to move swiftly and we believe we are poised to deliver the most exceptional operating and financial performance possible in these uncertain times.
Even with this uncertainty and give it given its continuing confidence in <unk> future outlook and ongoing improvements in the company's sustainable long term cash generating capabilities.
The Polaris Board recently authorized an additional 7 million shares of Polaris common stock for share repurchases.
With that I will now hand, it over to Ken for a more detailed look at our financials capital allocation plans and higher 2022 outlook Ken.
Thanks, Diane and good afternoon, everyone.
I'm excited about the momentum we experienced in our business during 2021, clearly we're focusing on maintaining this momentum controlling the variables within our control Bill.
Building on our recent success in delivering on our top priority of driving sustainable shareholder value.
I'd like to start my discussion today by sharing our perspective all of our outstanding results.
Retailing, our capital allocation plans and closing with our outlook for 2022.
While most of my commentary will focus on the comparable period in 2019, there will be some instances, where 2020 is a more relevant comparison period and will be noted as such.
We delivered consolidated fourth quarter sales of $679 $3 million, which was 19% above 2022.
Two 8% below the fourth quarter of 2019.
As Diane mentioned this performance was driven by famous delivering an eight 8% increase over the fourth quarter of 2019.
Other quarterly record for the brand and reflecting strong increases in our brick and mortar business. Despite operating 55 fewer stores in 2021, when compared to 2019.
Our brand portfolio continued to improve with fourth quarter sales, increasing 24, 4% compared to the fourth quarter of 2020.
While declining 15, 8% versus the fourth quarter of 2019, including the impact of the exited brands.
Our consolidated gross margin was 43, 4% up 351 basis points from the fourth quarter of 2019.
<unk> another quarter of strong margin performance at famous footwear.
In fact famous footwear delivered gross profit margin of 48, 9% in the fourth quarter.
This 641 basis point improvement over 2019 was driven primarily by the robust consumer demand for our brand offerings, the continuation of more full price selling and another quarter of minimal promotional activity.
Our brand portfolio recorded fourth quarter gross margin of 34%.
Clothing $11 million in criminal Ocean freight this was 100 basis points lower than the fourth quarter of 2019. It did mark a sequential improvement from the third quarter of 2021.
Ocean freight had a 390 basis point impact on the quarter.
<unk> or annual consolidated gross margin of 44, 2% three.
365 basis points higher than the full year 2019.
Given the structural change in famous footwear margin profile and the potential for further expansion of brand portfolio. We expect our consolidated gross margin going forward will continue to exceed our historical averages.
Our fourth quarter SG&A expense was $251 million during the period were 36, 9% of sales.
$9 $8 million decline from the same period, two years ago, including investments made in digital marketing and consumer experience in the quarter.
For the year or SG&A expense was $1 billion.
36, 3% of net sales, representing a 57.7 million dollar decline from fiscal year 2019.
As a reminder, our full year SG&A expense includes incremental expense of approximately $30 million compared to 2019 relating to incentive compensation and profit sharing for the extraordinarily results achieved this year.
Our operating earnings for the quarter were $43 $8 million or six 5% of sales and $219 $3 million or seven 9% of sales for the full year.
EBITDA for the trailing 12 months was $286 million, representing 10, 3% of sales.
Our inventory at year end was down approximately three 5% compared to fiscal 2019 and included a 21, 9% decline at famous footwear and a 17, 1% increase for the brand portfolio.
The brand portfolio inventory included more than $160 million of inventory in transit.
Excluding this in transit inventory the brand portfolio inventory will be down approximately 20%.
As Diane discussed we will be laser focused on managing our inventory levels and the brand portfolio focusing on the top styles and brands with strong consumer momentum in an effort to counterbalance the ongoing delays in receipts and better align inventory levels with consumer demand and drive sales.
The company generated approximately $168 $4 million in cash from operations during the year and use that cash to further reduce debt levels fund our dividend buy back shares and continue to invest in our overall business.
We proactively called and subsequently shifted all of our higher cost long term debt to borrowings under our lower cost revolving credit facility ultra.
Ultimately these actions allowed us to end fiscal 2021 with 202 hundred $90 million of debt down from $448 $9 million at the end of fiscal year 2020.
All told these activities will reduce our interest expense going forward by $20 million from our 2019 levels and provide the financial flexibility we need to execute our plans.
During the fourth quarter, we utilized approximately $21 $3 million in cash from operations as our working capital investment needs increased ahead of our spring selling we expect this to continue into the first quarter of 2022.
Now, let's turn now to our capital allocation.
You know, we carefully and constantly evaluate the most value enhancing avenues for our free cash flow and put it in a place of flexible capital return program inclusive of dividends share buybacks and investing in growing the business.
This year will be no different and we will focus our capital allocation on first returning cash to shareholders via dividends and buybacks as Diane mentioned earlier, we announced this afternoon. Our board of directors authorized an incremental 7 million shares for our share repurchase program.
With this increase we now have approximately 9 million shares under the current authorization.
Second we will be investing in organic growth in areas, such as marketing digital and consumer experiences.
Third we will be looking at funding strategic bolt on acquisitions and fourth we will continue to be looking at opportunities to selectively reduce our revolving line of credit.
Finally, as we look forward into 2022 and inclusive of the company's current expectations for its underlying business along with anticipated macro challenges that include geopolitical concerns inflationary pressures ongoing supply chain disruptions and lack of comparable government stimulus efforts.
We expect our annual consolidated sales to be flat to up 3% in 2022, when compared to fiscal 2020 one we.
We also expect our earnings per share to be between $3.75 and $4 per share. This range does not include any impact associated with any share repurchases.
It's worth noting that given the current strength, we're seeing in the underlying business along with the ongoing uncertainties in the macro environment, we expect 50% of our earnings in 2022 to be in the first half of the year.
With that I'd like to turn the call over to the operator for questions operator.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Your first question will come from Steve Marotta from C. L King and associates. Please proceed.
Morning, I'll have to excuse me I'm, all backwards, Diane and Ken and Logan Congratulations on ending the year terrific well very very well done I was wondering just a couple of details on the guidance does the 375 to $4 for the year assume incremental share purchase and then Ken maybe you can walk through the.
The puts and takes in expectations for gross margin and SG&A through the year not necessarily on a quarterly basis, but just the big deltas and what you would consider a comparable against say incremental freight.
Parables from district from a channel standpoint from an increased promotion standpoint, that's all on the gross margin line and then maybe on SG&A as well.
Steve It's Diane thanks for the thanks for the kind comments Senate you know obviously, it's a team effort everyone across the company put a tremendous amount of time and energy into.
Helping to deliver these results. So we thank everybody on that and just as a quick note in terms of the share repurchases were not included in that guidance of 375 to $4 and Ken I'll, Let you start work walking through some of that.
Thank you Diana.
As we are as we go along.
Probably the easiest way to think about it Steve is from a gross margin standpoint, we delivered a little over 44%. This year I think you can assume that we're going to hold that rate and are in.
2022 period, there's really two different dynamics that are going on one is famous had delivered 48% were allowing for a little bit of of promotion and some investment. There. So you could expect that to be a little bit a little bit lower and then on brand portfolio as we mentioned.
We were only down 100 basis points in the fourth quarter up against the 380 or so basis point impact from Ocean freight we don't see the ocean freight expense going away across the first half and then it'll be comped.
In the back half, but you know the <unk>.
Rice increases that the team has put through for the most part we'll be able to offset that and we would expect the brand portfolio gross margin to be up 100 to 200 basis points. So when you net all of that out I think you can make it really really easy and just kind of assume we're going to work to kind of hold right around that 44 <unk>.
<unk> range for you know for.
For the year on the expense side.
So we went through we shared where we were investing dollars I think we ended the we ended the year of that being around 36, 36.5%. Thank you can assume that with inflation and wages whether it's in stores are also in our Dcs, we would expect that to go.
Up a little bit probably not more than 100 basis points and so I think you can use that to kind of model across the year and I think you can get within the sales guidance that we provided are flat to up three.
Clearly the growth that we see is really going to be driven on the brand portfolio. And then you know famous is lapping some government stimulus and the like and so I think you can get.
To those ranges by modeling it that way.
That's very helpful and just a follow up to that.
Far as offsetting.
Incremental costs like Ocean freight.
Just wanted to reiterate what you just said the price increases that have been instituted for the first half of the year are expected to offset those incremental costs I guess, unlike the fourth quarter.
That's right that's right. So the third the third quarter, if I recall, Jay you guys were down a roughly $350 to 400 basis points that was almost all driven by the 12 million of incremental ocean freight and what we said at the time is we didn't go back and change pricing.
On orders that we had already taken when when.
When we saw those ocean freight costs going up and so are our price increases were really effective for spring we shipped some of that spring in the fourth quarter, and we were able to offset about 280 basis points of that and then the expectation is that you should see the.
The offset in Q1 and Q2 come through based on the price increases that we pass through.
That's very helpful. Dan just a question on the wholesale order book do you see a material change in fashion for goods that are being delivered say in the first half of the year versus the second half of the year is is is dress and dress your items.
Becoming a larger portion of the mix of what is being demanded at wholesale in the back half or is it relatively similar.
Yeah, Great question, Steve you know as you can very well imagine our our order book right now and our position and we're feeling very good about what that currently looks like and you know as we get more inventory in and as we get that out to retail and in front of the consumer we really see you know our sell through rates continuing.
To improve and as we have taken a look at this demand for dress right, who would have really expected that it would come back as quickly, but it's just been tremendous so you know as we've been taking a look at that close to I think 30% of some of the our our bookings have been.
And that category and don't think about it not as so called traditional dress, but anything really that you know opened up dress things to go to social occasions anything things on a hill that sort of thing. So yes, it's it's grown considerably because the consumer really wants to get out and is as is going to weddings.
We heard Jay Didnt weigh that and I think a lot of people too.
$2 5 million weddings and.
2022 and.
They're they're having a hard time getting our places to have the weddings and the reception. So theres a lot of people thinking that's going into 'twenty, two 'twenty, three which of course, we're praying for that actually to happen, but Jay anything on else on the AR on the backlog and the pre books and all of that together I think Steve we.
See the dress piece, because it's about 30% of our on order position that compares against 15% in 2021 and that is actually above where we were in the first half of 2019. So it's a really strong trend I think the most exciting thing is as the product comes in the sell throughs are very very high so we see that continuing.
As we go through the year.
Okay. That's really helpful and I just have one more question for whoever wants to answer regarding the supply chain do you see any let up in either or by the third and fourth quarter of this year or is this really just plan to be as sticky as it is now through the balance of the year.
I think Steve our assumption is that it's going to be sticky all the way through 2022.
I don't think there's any reason right now to believe that we should expect anything different I think it allows us to be really a proactive and working through what we have to do to ensure that we have the goods here to satisfy our partners and our consumers all the way through so we.
We don't expect it to change significantly and you know you you hear a little bit coming out of China, or Vietnam to where that little district full pop up with COVID-19 happening or the latest one yesterday, where there's a.
That down or locked down in a different a different city. So you know that I don't think that we can expect that that's going to go away completely. So we're sort of used to it. It's the new normal that we're operating against them and we'll just manage our way through it and do what we need to do but don't see it changing.
Very helpful. Thank you I'll take the rest of my questions offline.
Thanks, Dave Thank you Steve.
Next question will come from Laura Champine with loop capital. Please proceed with your question.
Thanks for taking my question, it's a little bit more around the the guidance for half of earnings to come in the first half, especially Ken and in keeping with the thought that brand portfolio, probably has a better back half based on margins well what does that imply in terms of expectation.
Expectations for sales and promotional trends this back to school season.
Well I think it's core it's.
The momentum coming out of Q4, and Q1, and Q2 being quite a bit larger than what they have traditionally been as opposed to Q3 being less so what we you know we typically if you go back pre pandemic, we would see 40% of our earnings come in the first half and then 60% come in the <unk>.
Half so just in modeling we thought we would make it easy for everyone. If you take the $3 75 to $4 and you just divide it by two and you split it across the first two quarters, yet you ought to be pretty close to kind of what we're thinking.
Obviously, theres a lot of work required to actually make that happen but.
We felt like that was probably the easiest way to explain our view of kind of what's going to happen across the first half and Laura maybe to your question about promotional activity and what does that mean in the back half. It really are our promotional calendar will not change at all relative for 'twenty to 'twenty two versus what we did in 2021.
So very consistent calendar in the quarter.
Got it does that imply that you keep the positive top line momentum in the first half, but may be see a lower sales result in the second half or should I not try to find our sales outlook in your in your guidance today.
No I mean I think that.
As you heard from Jay Our spring Order book is good we expect good spring selling and then I.
I think our view is Q3 and Q4 right now managing the day to day, just seem like a long way off and so clearly are.
Our visibility over the first half is much better than it is across the back half. So I wouldn't read a whole lot into the selling I mean, we tried to give you that range between flat to up three to account for some of that variability.
Understood. Thank you.
Thank you Laura.
Your next question will come from Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Good afternoon, everyone and congratulations on the nice progress a couple of things as you think about the Ku count I think Diane you had mentioned you're tightening the SK you count where is it now from where you had been and where do you see it going forward and any updates on active and Nike.
<unk> seen and stainless and how that has contributed and I have a follow right. Thank you.
Thank you Dana for your.
Comments as well, let me start with your second one first actually are our business at famous stone momentum that we really ended fourth quarter with has continued into the first quarter and we have not seen any slowdown at all in our athletic and our our sport business. In fact, its you know continued.
To be as strong as it as strong as it has been with a few new items.
Items coming into being.
Some of the top sellers, which has been nice to see our business with Nike continues to be great and we don't expect to see anything with with with any change with respect to our performance. There. So I'm really feeling very good about the momentum that our with our famous business overall.
Al I think as we look at our edit to win which Jay was really the architect of making sure that we.
Thought about that because it was critically important as we looked at a much tighter supply chain and we looked at productivity and profit and really wanted to get our gross margins up much higher on the on the brand portfolio side that it was important that we make the make sure we keep the customer happy too and we wanted those.
Loyalty scores and our our esqr scores and all of those things.
As high as possible. So you know.
I would say Jay I'll, let you give the numbers, but I think where I.
Cut it back about 10% to 15% the first slug and Youre looking to do another 10% I think on top of that or so, but that's really that's really the story is the 10 to 15 was where we were we're looking at it very closely by brand it really making the right decisions and I have to say so far it looks like.
Initial our initial results seemed like it's pointing in the right direction, we're going to continue to update quarter by quarter on our progress against that strategy and obviously seeing how it works, but it's allowed us to really get our inventory behind the most meaningful styles that are really helping propel our business.
Yeah.
Got it and then quick follow up on the brand portfolio I think the price increases for spring was set at around 15% and the brand portfolio that continue in the fall selling the upcoming fall selling season, but how are you thinking about that does it differ by brand and then one for Ken given that interest.
Spence is lower by around $20 million versus 2019, and you think about selectively reducing debt going forward.
What's what's the nature of that.
As you look forward. Thank you.
So dana on that you're exactly right. Your memory is good on the price increases it was 15% and Jay you want to comment on kind of how you see it going forward I think we will take it all the way through third quarter I think we'll continue on that 15% and then obviously, we'll start to lap that as we go into fourth quarter, where we come up against where we hit this spring.
Already so I think that's really the answer but.
Yes.
That would be the number.
Very consistent.
And Ken on on that interest expense on the interest expense I mean, you know what.
We will generate well over $200 million of operating cash in 2022, and so you know our decision of how much will go to paying revolver debt down will likely depend on kind of what happens on the stock price at these prices we feel like it's you know.
Highly undervalued and so.
Fortunately our board was willing to increase our authorization. So we plan to be using some of that cash to buy back those shares so that will all depend on kind of how that plays out.
But you know we're comfortable where we are today, we got zero long term debt, we've got $290 million outstanding against our line of credit we will be going into Q1 investing in working capital as you saw there was $160 million of inventory in transit.
We're working our way through to make sure that we're positioned to capture the demand that we think is out in front of us. So.
We're looking forward to putting that cash generation to work.
Thank you.
Thanks Dana.
You do have a follow up question from Steve Marotta from CL King <unk> Associates. Please proceed.
Good evening again I was just wondering if there were any shares repurchased in the year to date period.
There there is.
Rather than any in the year to date period.
We would have been closed in terms of.
The window. So we did buy about 600 and some odd thousand shares back 17 million I think in AR in Q4.
But we have not purchased any here in in Q1.
Helpful. Thank you.
And at this time there are no further questions in queue I would now like to turn it over to Diane Sullivan for closing remarks.
Thanks, everyone for listening. This afternoon 21 was an exceptional year for our company, we did capitalize on market opportunities control the controllable and really made excellent progress against our strategic initiatives. We're confident that these results coupled with the structural changes that we've made across our business should drive.
Long term value creation for our shareholders, we really look forward to providing you with an update on when we next speak with you in May Thank you very much.
This concludes today's conference call. Thank you for participating you may now disconnect.
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