Steven Madden Ltd (SHOO) 2016 Q3 法說會逐字稿

Good day and welcome to the Steve Madden third-quarter 2016 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Jean Fontana of ICR. You may begin.

Thank you. Good morning everyone. Thank you for joining us today for the discussion of Steve Madden's third-quarter 2016 earnings results. Before we begin, I'd like to remind you that statements made on this call that are not statements of historical fact constitute forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties and other unknown factors that could cause actual results to differ materially from historical facts or any future results expressed or implied in the forward-looking statements. These statements contained herein are also subject to the risks and uncertainties as described from time to time in the Company's reports and registration statements filed with the SEC. Also, please refer to the Company's earnings release for information on the factors that could cause actual results to differ. Finally, please note that any forward-looking statement used on today's call cannot be relied upon as current after this date. I would now like to turn the call over to Ed Rosenfeld, Chairman and Chief Executive Officer of Steve Madden.

Thanks Jean. Good morning, everyone and thank you for joining us to review Steve Madden's third-quarter 2016 results. With me to discuss the business is Derek Browe, the Company's Director of Finance and Investor Relations.

We are pleased with our third-quarter results which exceeded our expectations on both the top and bottom lines. The primary driver of the overachievement to forecast was the outstanding and accelerating performance in our core Steve Madden women's wholesale footwear division. The strong sell-through we saw in this brand in spring has continued into fall and our key retail customers are responding by shifting more open-to-buy dollars to the Steve Madden brand.

Net sales for the Steve Madden womens wholesale footwear division are now up double digits on a percentage basis for the year-to-date, an impressive feat given the challenging retail environment and the extreme caution and focus on inventory control on the part of the major retailers. It is clear that the Steve Madden brand is outperforming its competition brand and taking market share.

I also want to point out that this is not just a top-line story. The strength of the product in Steve Madden is also driving significant gross margin expansion. Not only is the on-trend assortment enabling us to reduce closeouts and markdown allowances, but being ahead of our competition on some new trends, including sock booties and velvet, is allowing us to expand our initial on markups. Overall our largest and most profitable division is healthier; it has better momentum that it has had in a few years.

Another brand that continues to see phenomenal trends is Dolce Vita. Dolce Vita recorded another quarter of robust sales and earnings gains driven by an outstanding collection with particular strength in ankle booties and over-the-knee boots.

In addition, we are also very pleased with the momentum we are seeing in our smaller brands in wholesale footwear, Blondo, Betsy Johnson, Freebird and Superga. Each of these brands grew double digits on a percentage basis in third quarter and is on track to be up double digits for the year, again something we're quite proud of given the state of the overall retail environment.

As you can see, our wholesale footwear brand portfolio had a strong Q3. That said, we did see an overall decline in wholesale footwear sales during the quarter due primarily to not anniversarying a one-time cold-weather capsule collection under our Madden Girl brand as well as, to a lesser extent, expected softness in our private-label footwear business. If we exclude the one-time Madden Girl program, wholesale footwear sales were up versus the prior year.

In wholesale accessories, the business continues to stabilize and improve after experiencing declines at the end of last year and the beginning of this year. This segment also recorded a sales decline in the quarter due to not repeating the one-time Madden Girl program from a year ago. Like wholesale footwear, the wholesale accessories segment had a modest sales increase if we exclude that program from last year's numbers. Given the industry headwinds we face in this segment, including the soft handbag market and a cold-weather accessories business suffering the lingering effects of last year's record warm winter, we are happy with that result.

In our retail business, we are pleased to deliver a seventh consecutive quarter of positive comparable store-sales growth. While we experienced declines in sandals and casual boots and booties, we made up for it with strong gains in fashion sneakers, dress shoes and dress boots and booties.

Overall we're pleased with the results in third quarter across the business particularly in light of the ongoing challenges in the retail industry overall. Our brands and our product assortments are strong and we are outperforming the competition.

That said, our wholesale customers remain very cautious. Given the tough and uncertain environment, we remain focused on prudently managing our inventory and we are pleased to exit third quarter with extremely clean inventories down almost 10% compared to the prior year.

With that, I will now turn the call over to Derek to review our financial performance for the quarter in more detail.

Thanks, Ed and good morning, everyone. Turning to our financial results for the third quarter, consolidated net sales decreased 1.2% to $408.4 million compared to the prior-year net sales of $413.5 million. During the quarter sales growth in the retail business was offset by modest decline in our wholesale segment.

Wholesale footwear net sales decreased 3% to $268.2 million compared to $276.4 million in the prior year. As Ed mentioned, the prior-year net sales amount included sales related to the one-time Madde Girl cold-weather capsule collection. Excluding these sales which were $11.5 million in the prior-year, wholesale footwear net sales increased 1.2%.

The increase was led by the performance of our flagship Steve Madden brand which capitalized on outstanding product assortment and outperformance in categories such as fashion sneakers and dress shoes as well as on the emergence of new trends. As Ed mentions we saw particular strength in newness in the dress boot and bootie category and as in styles that featured velvet materials and we are pleased to be at the forefront of these trends. In addition we had double-digit growth in Dolce Vita, Blondo, Betsey Johnson, Freebird and Superga. These increases were partially offset by expected softness in our private-label business.

In wholesale accessories, net sales were $78.4 million in Q3 compared to $80.6 million in the prior-year period. Prior-year wholesale accessories net sales included $3.4 million in sales related to the one-time Madden Girl cold-weather capsule collection. Excluding these sales from the prior-year, wholesale accessories had an increase of 1.6% resulting from an increase in our private-label handbag business.

In our retail division, net sales increased 9.5% to $61.8 million; same-store sales increased 1.3% on top of an 11.2% gain last year. In last year third-quarter, the biggest driver of comp improvement was a significant increase in the sandal category. This year sandals were down double digits but were more than offset -- we more than offset that decline with strong performance in sneakers, dress shoes and dress boots and booties.

During the quarter, we opened four full-price stores and three outlet locations and closed one full-price store. We ended the quarter with 186 company-operated retail stores including 51 outlets and four e-commerce sites.

Turning to other income, our commission and licensing income, net of expenses, was $5.4 million in the quarter versus $6.6 million in last year's third-quarter. The decrease relates primarily to commission income which was down to the reduction of first-cost business with certain private label footwear customers.

Our consolidated gross margins expanded by 180 basis points to 37.8% compared to 36% in the prior year driven by an increase in wholesale footwear gross margin which was 33.8% for the quarter compared to 31.4% in the prior-year quarter. As Ed mentioned, the improvement was driven by lower markdown allowances and closeouts as well as the benefit of higher margins on the new trends.

Wholesale accessories gross margin was 34.3% down modestly compared to34.6% last year due to sales mix. Retail gross margins were 59.9% compared to 60.4%; the decrease in our retail gross margin was driven by our foreign locations which were impacted by the continued strength of the US dollar. These locations purchased the vast majority of their inventory in US dollars and, as such, their cost of goods sold increased as a percentage of sales.

Operating expenses for the quarter increased to $96.1 million or 23.5% of net sales compared to operating expenses of $89.1 million or 21.6% of net sales in the same period last year. The increase in operating expense relates to new retail locations, bonus accruals, advertising and costs from our new joint venture in Europe. Operating income for the quarter totaled $63.8 million or 15.6% of net sales compared to last year's third-quarter operating income of $66.3 million or 16% of net sales.

Our effective tax rate for the quarter was 32.3% compared to 34.1% in the same period last year and net income for the quarter was $43.8 million or $0.74 per diluted share compared to $42.9 million or $0.70 per diluted share in the third quarter of 2015. In Q3 as we've previously discussed, we early adopted a new accounting standard that changes how we account for the tax benefit of stock -based awards provided as compensation. The accounting standard requires that excess tax benefits and deficiencies, which result from differences between book and tax treatment of stock -based compensation, be recorded as part of income-tax expense rather than as part of additional paid in capital in the shareholder's equity section of the balance sheet.

Early adoption of the new guidance required us to reflect the adjustments as of January 1, 2016. As such our year-to-date results reflect the impact of the adoption as of January 1, 2016, and not only reflect the benefit we received in Q3 of $83,000 but also include the benefit received in Q1 of $3.698 million and the benefit in Q2 of $65,000. Further in connection with the adoption, the Company has adjusted diluted shares outstanding to 60,252,690 shares for the three months ended March 31, 2016 and 59,739,120 shares for the three-month period ended June 30, 2016.

With these changes reflected, our Q1 diluted earnings per share is $0.39 and our Q2 diluted earnings per share is $0.41. Full disclosure of the impact will be included in our third-quarter 10-Q.

We continue to have a strong balance sheet. As of September 30, 2016 we had $183.5 million of cash and marketable securities and no debt. Inventory decreased 9.5% to $112 million compared to $123.8 million the prior year. We are pleased with not only the level but the content of our inventory position as we continue to very closely manage our inventory due to the challenge -- the continued challenges in our industry while maintaining levels and assortment that will enable us to meet our sales goals.

CapEx for the quarter was $4.5 million and during the quarter we repurchased approximately 737,000 shares for approximately $25.3 million. This includes shares acquired through the net settlement of employee stock awards.

Turning to guidance, for the full year we continue to expect that net-sales growth will be 0 to 1%, but now expect that diluted EPS will be in the range of $1.98 to $2.03. Now I'd like to turn it over to the operator for questions.

(Operator Instructions)

We will go first to Erinn Murphy with Piper Jaffray.

Ed, I guess I had a question for you. You mentioned in your prepared remarks open-to-buy dollars are shifting toward the Steve Madden brand now; when did you start seeing that change pick up? How do you think retailers are approaching this overall open-to-buy dollars in the footwear segment you compete in versus the pureplay athletic players as you think about the fourth quarter?

Good morning Erinn. In terms of open device shifting to Steve Madden, I think that has been happening all year. As you know Steve Madden womens and also had nice growth, sort of mid- to high-single digits in the first half which is outpacing the industry and then that growth has accelerated well into the double digits in the back half of the year. It is something that has been happening all year, but I think it has accelerated. The second part of your question was how am I thinking about open-to-buy dollars, could you repeat that?

How are the retailers approaching open-to-buy dollars for the fashion segment that you guys compete in versus the pureplay athletic players in the fourth quarter?

We know that the athletic players have been performing well and that open-to-buy dollars for that category have been increasing so I think that the overall pie for the more fashion players is probably not growing, but we are taking a much bigger piece of that pie and that is how we are driving growth.

In terms of your fourth-quarter implied sales guidance, what are you guys assuming in terms of reorders that you need to see from the retailers?

We're getting a very healthy level of reorder activity right now because we have the right product and it is performing. We've obviously baked our assumptions about how that continues into fourth quarter, hard to quantify.

Okay, and then a last question on the international side of your business, I think you had a couple of pressure points last quarter; how are the key regions of China, Middle East faring right now as you have gotten into the third quarter and the back half of the year?

I think if you look at our international business, it is basically very similar to what we talked about last quarter which is that the owned markets, specifically Canada and Mexico as well as our new joint venture in Europe are all performing well and are on plan and we feel good about the trends that we are seeing there. Where we are experiencing declines is in our distributor business and you called out the two major culprits which are Asia and to a lesser extent the UAE. I think those are essentially performing as we expected they would. We knew the orders were going to be down in those regions for the back half as we cleared through some inventory; and hopefully we will be positioned to return to growth in those markets in 2017.

If I could sneak one more, on the Dolce Vita brand, where are margins now as that brand continues to outperform?

Dolce Vita continues to do great. We had another strong quarter of sales growth. Operating margin continues to expand. We are now up to about 15% operating margin there.

Okay, I will let someone else hop in. Thank you.

We will go next to Camilo Lyon with Canaccord Genuity.

Thanks, good morning guys. Nice job on the quarter. So Ed, just stepping back a little bit, if we kind of reflect on what has happened thus far throughout the year, your performance at wholesale has been pretty darn strong yet the wholesalers have been reluctant to really commit to reorders. Do you think that loosened up a little bit in the third quarter? Without the change in guidance for the full year, is there an improvement that's embedded relative to 90 days ago with the fourth-quarter reorders or is this the same expectation that you had before?

We haven't changed the guidance for fourth quarter materially based on what we're seeing, but clearly there has been improvement in the at-once business that we are receiving particularly in the Steve Madden brand. Again, what we've seen is that initial orders continue to be underwhelming, you know initial plans continue to be underwhelming, but because of the performance, we're getting a lot more replenishment, a lot more reorders, a lot more in-season business and that's what's really driving the growth.

Okay. So, if that continues well into the fourth quarter, is it correct to think that those reorders should accelerate as time progresses?

I don't know about accelerate, but if they continue at the rate that we saw in third, we would be very pleased with them.

Okay. And then, rolling forward to next year, coming off 2016 that has been cautiously ordered pretty much in both fall and winter and spring, summer season, what-- how do you think the early conversations are progressing with respect to initial orders for next year? In other words, will next year be as tough as this year has been from an initial order perspective or are the retailers understanding and seeing that they have been under inventoried relative to what has been very strong sell-through rates for your brand?

I don't think it will be as difficult as it was this year because we've got this basically extremely strong year behind our -- that we've put up this year in terms of sell-through performance for them; but nevertheless, we want to point out that they do remain cautious. As we are getting our initial plans for next year, we do not believe that they are as strong as what our sell-through performance warrants. So we are still pushing them to try to get a little bit more aggressive. We don't think they are stepping up the way that they have in prior cycles when we've had this kind of performance. But certainly things are moving in the right direction and we'll keep pushing on them as hard as we can.

Okay. Moving on to some of the category commentary, you mentioned something that was interesting about casual booties, give you some share to address booties, if you could just articulate a little bit more of what you are seeing and what that means from a channel-inventory perspective and how you are positioned relative to that?

Within the boot and bootie category, what we've seen is the real newness and the strength is in dress boots and booties; and again, lots of newness in that category and we feel great about how we are positioned. We really nailed the trends in that category and on a lot of it, we really think we beat the competition to market with the right products. So we feel great about our offerings in that part of the boot and bootie category.

In terms of casual boots and booties, those are, overall for the industry, I would say spotty. There are some items that are working, but there is a lot of supply in that category and there is not as much newness; and so I would say the performance there is sort of mixed.

And if you think about inventory levels in the channel, while overall inventories in the shoe category I think are better than they were a year ago, if there is a place where they are elevated, I think it is in the casual boot and bootie category. So we do have to expect a fair amount of promotion in that category in Q4.

Great, and this my final question, is there anything happening in the fourth quarter that is anomalous to the fourth quarter; maybe some of the impact on your gross margin from some of the Hanjin bankruptcy or anything that is worthy of a callout?

I will let Derek comment on Hanjin, but I think the only thing I would just caution people as they think about their models is we do --we've called out, when we took our guidance down, our sales guidance down last quarter, we called out private-label and international as the culprits. Those impacted us a little bit in Q3.

We're actually going to feel a bit more of an impact from those in Q4, particularly in the private-label side there is just some timing there. We had some big customers, Walmart being an example that elected to take product in and early first quarter as opposed to fourth quarter last year. There is a little bit of pressure on the top-line in fourth from those factors, but Derek, do you want to address the Hanjin?

I think as we look at Hanjin, in particular the impact as we look at fourth quarter, we do think that there will be an impact from slightly higher rates. We actually initially thought, as the bankruptcy occurred in some of the rate letters that we are getting, that it would be more impactful, but we are pleased that our logistic team is able to push back on some of those rate increases. But I think as we look at the fourth quarter, we can assume kind of less than a $1 million impact from increased rates due to the Hanjin bankruptcy.

Great, thanks a lot guys. Good luck on that performance again.

We will go next to Jay Sole with Morgan Stanley.

Great, thank you. Ed, you talked about how the initial orders had been weak, the at-once has been really strong. You know, with inventory down 10%, Derek said that you had the inventory to drive sales, but it seems like retailers are asking brands to hold inventory longer and do more at-once. You know, can you really turn the inventory faster to be able to capture the upside and going forward like it seems you did this quarter? And what is the key to being able to do that?

That's a good question. We do have lean inventories but if you look at the makeup of that inventory, we do think that we have targeted inventory investments in the right categories and in the right products. If you look at the key items that we think are really going to drive business for us in Q4 and where we can really get replenishment and reorder business, we think that we do have the inventory in those products.

Now that being said, you know our model here and that is we like to turn the inventory fast and we like to remain lean and we are willing to sacrifice that last dollar of sales that we could have potentially have gotten in order to run with leaner inventory and protect our downside in the margin and we have not changed that policy. Clearly, particularly in this environment where we are getting tons of reorders could we, if we had more inventory could we do a little bit more sales? Yes, but we don't think that -- we would also be taking additional risk and that's not something we are willing to do.

Got it, okay. And then following on to that, so maybe if there has been a one-less order that choose not to take, the impact on gross margin seems like it has been pretty good. I mean the gross in Q3 was kind of better than expected. I think we talked last call about maybe 150 basis points of gross-margin improvement for the year which implies the Q3 trend kind of continues to Q4; is that still fair? Is that fair to think about that or how should we think about just the impact from really strong at-once orders on gross margin in Q4?

Yes. I think that is the right way to think about it. It should be in that range that you just mentioned so similar improvement in Q4 as there was in Q3 or even a little bit better.

And then just lastly, just so we can understand the quarter a little bit better, can you just talk about how it trended from July to August to September in the wholesale business, just the growth rate in the wholesale orders especially for the Steve Madden brand as you went through the quarter?

It was improving sequentially as we went through the quarter.

Okay, thank you.

We will go next to Jessica Schmidt with KeyBanc Capital Markets.

Thanks for taking my question. Just given some of the better inventory levels in the channel and your ability to pull back on markdowns and clearance activity at wholesale, do you think the environment is getting less promotional? How should we be thinking about trends into the holiday?

In terms of overall promotional activity, I do not think it is getting less promotional. It's still promotional out there and as we've talked to our key retailers about their plans for holiday, most have indicated that they are anniversarying very heavy promotions from last year or that they had very heavy promotions last year and that they are intending to anniversary those promotions for the most part. So I think we have to continue to expect that we're going to be combating a pretty promotional environment.

Great, and then just a quick follow-up. I know that trends in private label have been difficult, but can you talk a bit about fashion sneakers in that channel and if you think these items are starting to resonate and could begin to maybe offset some of the weakness there?

That's a good question because as you point out where as boots are down overall as a category in Steve Madden womens, we have made up for it with categories like fashion sneakers and we've not been able to do the same thing in the private-label channel; but we have seen fashion sneakers really start to pick up in that private-label channel, really just back-to-school. We saw a nice pop there and so we are expecting that to be a much more important category starting in spring 2017 in private label.

Great, I will pass it along.

We will take our next question from Jeff Van Sinderen with B. Riley.

Good morning, I had a follow-up on the boots and bootie business, just wondering if you can frame your mix of dress versus casual in boots and booties? And then also, anything to read into the weather and I guess how you're thinking about the anniversary to the extremely unfavorable weather we had last year in Q4?

Sure, in terms of the mix in boots and booties casual versus dress, if you think about our retail business, our Steve Madden retail stores and of course we're talking just about womens here. Last year, it was about, the ratio of casual to dress was about 4 to 1 in the boot and bootie category. This year, it'll be less than 2 to 1. Obviously swinging the pendulum towards dress shoes.

In wholesale, if you think about our Steve Madden women's wholesale business, we are able to swing the pendulum much faster and farther. So last year casual was 90% of the boot and bootie mix and this year it will be about 50-50 in wholesale.

In terms of your question about the weather, obviously it was not helpful; the weather last year was not helpful, record warm temperatures. We hope and it certainly looks like that it's going to be a little better this year and hopefully that will help us particularly in our cold-weather accessories business but we've not baked any significant improvement for the weather into our guidance.

Okay. And then if we look at your own retail business, just wondering if there is any regional differences to point out? Any by bucket of a store, type of store, any differences there that you are seeing?

The big thing, and this is something that we have talked about for the last couple of calls, unfortunately, is that our New York City business continues to be weak and that continues to run more than 1000 basis points weaker than the rest of the chain which we attribute primarily to the impact of the tourism impact from the stronger dollar. That continues to be the big callout there.

Okay, that's helpful. And then anything -- I know it's still early, but anything to talk about yet on Kohl's, the Kohl's plan for next year or still too early there?

No, nothing to talk about yet, but we will keep you posted.

Thanks very much and best of luck.

We will take our next question from Corinna Van der Ghinst from CitiBank.

Thank you. Hi guys. My first question was just a follow-up to some of the previous questions that you were asked. The improvement that you guys are seeing in at-once orders, are those concentrated in fashion sneakers or are you really seeing those across the categories of strength that you talked about?

It's really across a range of categories, sneakers being one of them but dress shoes, the dress boots and booties, a number different categories.

Okay, and then how are you thinking about average selling prices just based on the mix that we're seeing with the mix shifting even more towards sneakers, but also dress shoes and are you making any changes to your assortment for spring based on the strength that we're seeing in the fashion sneakers side of the business?

In terms of the changing the assortment for spring based on sneakers is just that we are going to continue to increase the penetration of sneakers. That will be even a little bit higher this year than it was last year, or excuse me, next year than it was this year for spring.

In terms of AUR or ASP, there is continued pressure there that -- we've had our AURs have been down a number of quarters in a row due to mix, but obviously, we have been able to make it up through units.

Any changes to your replenishment program on that basis?

No changes -- the only change in terms of replenishment is that we have more products on replenishment now than we have had historically. We're probably up to 7 or 8 style in Steve Madden womens that are on replenishment, primarily sneakers and dress shoes.

Okay, great. Then my last quick question was if you could comment on your performance in the mid-tier, family channel in the back half of this year. Is that kind of inline with your wider wholesale performance that you talked about or are there any differentiated comments there?

We are very pleased with the performance we are seeing in the family channel and the mid-tier as well.

Great, thanks.

We'll go next to Sam Poser from SIG.

Good morning, I've got a few questions. First of all on the SG&A, how should we be thinking about SG&A growth and could you give us some color ongoing and can you give us some color on the cost of the JV in Europe and investments in China for fourth quarter and looking ahead beyond that?

Derek, do you want to take that one?

For the quarter, Sam, yes our SG&A was up. We had 7.8%. We called out that the factors that were doing, as you pointed out, one is just the fact that we have a new joint venture, so really you have all the operating costs now consolidated in for that business. I think that. I think with the inclusion of some of the other items that we pointed out, we are running a little higher than we originally planned for the year. I would say we were looking at 5% growth before, closer to 6% growth for the full year now. So as we look to next year, we will be lapping the inclusion of that joint venture and stuff within our buckets there.

So you'd expect that to come off?

I'm sorry?

Oh, I'm sorry. I think you also asked about China? Is that right?

Yes, I mean how much investment--

That business remains a distributor right now. As we said, we are evaluating alternatives to that business, but there's no change as of now.

Thank you. And then, within your guidance, given the tax rates that have been moving all over the place, what is your full-year tax rate that we're looking at right now and what should be, is it 32%? Is that where we should be on a standard basis?

Yes, Sam, given the impact of the adoption of this new accounting standard, I think we spoke before that the tax rate can be a little bit volatile quarter to quarter giving, when we have shares that may be vesting that are going to impact the benefit that we receive from the taxes. Having said that, I think what we have kind of laid out is that the biggest benefit, if we look back historically, has been to our Q1 tax rate because that's when we have a lot of our shares vesting or stock-related activity. For the full-year 2016, I think we are looking at kind of a 30% rate for the year; that would imply that for Q4 we are going to be kind of consistent with where we were at Q3, of a 32%, kind of a 32% EBIT rate. But again, the full-year tax rate of 30% is really being impacted by the fact that Q1 had a favorable rate due to the effects of the adoption of the accounting standard.

Should we see that same kind of tax rate in Q1 of 2017 as well or is it going to equal out?

I think you should have-- I don't know that it will be as favorable in Q1 of 2017 as we saw this year.

Let me jump in here. I think the full-year rate should be, based on what we know today, we think it will probably be inline, but you're not going to be able to forecast quarterly tax rates going forward based on this new accounting standard.

Okay, thank you. Can you give us some idea of what your wholesale footwear and retail comp wholesale footwear sales assumption and retail comp assumption are for Q4?

We never provide the comp guidance despite the fact that you ask on every call. I will say that if you're thinking in broad strokes about the segments, I think that we will be down low singles in wholesale footwear sales in Q4, based on, primarily, what I talked about earlier which is the pressure from private label and the international distributors will obviously be growing in the branded business in Q4.

And then, wholesale accessories, we've been running approximately flat there the last couple of quarters. We were down a little bit in Q3, but that was because of not anniversarying the Madden Girl program, so we should still I think look at that as being approximately flat for Q4.

And then retail sales growth in total should be in line with what it was in Q3. I think we were up 9.5% in total and that's a reasonable number to look at for Q4.

Okay, thank you very much and good luck.

We will go next to Scott Krasik with Buckingham Research.

Hey guys, good job in the tough environment. A lot of my questions have been answered. Just wondering a couple of things. Number one, do you guys have a view on potential changes in apparel fashion, bottoms fashion in particular, and do you think that is going to have a material impact on spring 2017 footwear sales?

I don't think we have any special insight into that. Clearly there has been a lot of talk about an improvement in the denim cycle and what I will say is that if that continues and comes to pass in a way some people are talking about, that is definitely a good thing for us. We're obviously, at Steve Madden, we are a very denim-friendly brand and to the extent girls are wearing more denim and perhaps a little bit less active wear, we view that as a positive trend for us.

And then your comments that in wholesale, your dress booties or roughly equal to your casual booties, does that suggest you've really derisk the potential amount of markdowns that you expect to see given the trends in dress booties?

I think that we were ahead of that and I feel pretty good about how we have managed the exposure there.

Okay good. And then, you're in a lot of different channels; some participate in price matching, some don't. Some are more sophisticated about it than others, maybe talk about what you are doing to minimize that and is that an opportunity next year?

Price matching is certainly a challenge for folks like us so there are a number of tactics that we try to employ to minimize the impact. One is doing some exclusive product for various retailers and selling sort of different versions of the same trend to some retailers so that we can avoid some of the price matching.

Obviously when it comes to Amazon marketplace, we've tried to police that and crack down and, in some cases, or in many cases stop shipping some of the smaller independents who were on the marketplace and were sometimes marking products down which would lead to price matching. So, it's a constant battle, but it is something we are working very hard at.

So are you doing all those things? Or you're accelerating?

We are.

And then, I missed it, why were the retail gross margins down this quarter?

The domestic margins were flat, so in the US business, we were flat to a year ago and it was same level of promotion, flat margin, but in the international locations, we were impacted by the stronger dollar. Of course these guys buy almost all their inventory in US dollars and then sell in the local currency; and so there is pressure on the margins in those locations, international locations.

And then, just last, any hindrance to you guys comping positively next year if the fashion stays relatively consistent, just given the multiyear comparison?

Well, I think, look, we've got probably some more challenging comparisons than some others but I think that we've got nice momentum and the brand is strong and I'd like to think that we're going to comp positively again in 2017.

Thanks guys.

We will go next to Steve Marotta with CL King and Associates.

Good morning, Derek, I'm just asking one of the questions a little bit differently, as it pertains specifically to spring of 2017, and I know you're not giving 2017 guidance, can you comment on, in your opinion, the open-to-buy dollars within the wholesale channel and whether that is increasing or decreasing or remaining flat with a year go?

I still think the initial plans are going to be fairly tight. Initial orders are going to be conservative. I think that we're in a better position to take share and we're in a better position to get a good chunk of those orders relative to others. But if you're looking at overall initial orders or initial plans, I don't expect that they are going to be up meaningfully at all.

Okay. I would assume you just said flattish.

I guess so.

The other question I had pertains to the costing environment with the exception of course of shipping in the near-term, can you talk a little bit about what you are hearing from a sourcing standpoint in the near and intermediate term sort of bleeding into spring?

Really not a big change either up or down. Things are pretty much status quo on the sourcing front.

Very helpful, thank you, very much.

It appears there are no further questions at this time. I would like to turn the conference back to management for any additional or closing remarks.

Great, well thanks very much to all of you for joining us on the call today. We look forward to speaking to you on the fourth-quarter call. Have a great day.

This does conclude today's conference. We thank you for your participation. You may now disconnect.