Steven Madden Ltd (SHOO) 2016 Q4 法說會逐字稿

Good day and welcome to the Steve Madden fourth-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 fourth-quarter 2016 earnings results. Before we begin, I would 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 statements 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 CEO of Steve Madden.

Thanks, Jean. Good morning, everyone, and thank you for joining us to review Steve Madden's fourth-quarter and full-year 2016 results. With me to discuss the business is Derek Browe, the Company's Director of Finance and Investor Relations. We ended the year on a good note, delivering fourth-quarter EPS at the high end of our guidance range.

While consolidated sales for the quarter declined modestly from last year's fourth quarter due primarily to softness in our private label footwear and cold-weather accessories businesses. We had another quarter of outstanding growth in our Steve Madden Women's wholesale footwear division. We also achieved strong gross margin improvement as our on-trend product assortments and robust sellthrough at retail enabled us to reduce closeouts and minimize markdown allowances.

Overall, our financial performance for the full year 2016 was solid, particularly in light of the challenging retail environment we faced throughout the year and the struggles of many of our key wholesale customers. Sales for the year were approximately flat at $1.4 billion and diluted EPS was $2.03, a 10% increase compared to 2015. We also made progress on a number of key initiatives that position us for growth going forward.

Let me briefly touch on the highlights. First and foremost, we had outstanding performance in our core Steve Madden Women's Wholesale Footwear business. Steve and his design team created exceptional product across a range of categories that kept us ahead of our competition. The trend right merchandise drove strong sellthrough performance on the floors and websites of our wholesale customers, which in turn resulted in increased orders from those customers. For the year, our Steve Madden Women's Wholesale Footwear division had a net sales increase of 13%, an impressive feat given the soft overall performance and destocking initiatives of many of our largest wholesale customers.

In addition, we increased initial markups and reduced closeouts and markdown allowances in Steve Madden Women's, resulting in significant gross margin improvement, which was the primary driver of the 170 basis point consolidated gross margin improvement we recorded in 2016. As we head into 2017, we continue to have strong momentum in this business with sellthrough performance that is outpacing the competition and great feedback from our wholesale customers on our new styles.

Strong Steve Madden Women's product also benefited our Retail segment in 2016. We delivered a solid 4% comparable-store sales increase on top of a robust 11% same-store increase in the prior year. In addition to the comp increase, we expanded the store base from 169 stores at the end of 2015 to 189 stores at the end of 2016, driven primarily by new store openings in the outlet channel as well as openings in the international markets. In 2017 we expect to open 7 to 8 new stores and to close one location.

Another highlight in 2016 with the outstanding performance of our newer brands, Dolce Vita and Blondo. Dolce Vita net sales increased approximately 29% for the year, crossing the $100 million mark and operating margin reached the midteens. Continuing to drive wholesale growth in Dolce Vita will be a priority in 2017. As will the relaunch of DolceVita.com with a new mobile first design.

Blondo was also a bright spot. Since our acquisition of this brand in early 2015, we have evolved the product lines to include more fashionable styling, combined with the waterproof technology that Blondo has always been known for. We call this waterproofing the trends, and the response from wholesale customers and consumers has been outstanding. In 2016, Blondo's US business experienced rapid growth, particularly with its largest customer, Nordstrom, leading to overall sales growth for the brand of 14%. Margins were also up dramatically and profitability for the year more than doubled from 2015.

Based on the feedback that we've received from our partners and customers, we believe that there is an appetite for Blondo footwear outside of the boot category and in 2017 we are testing expansion of the brand into new categories, most notably, sneakers. We delivered our first sneakers last month and the early reads look very good.

Another area of focus for the Company is expanding our digital presence both in Wholesale and Retail. In Wholesale, we continue to grow with both the pure play e-comm players like Amazon and Zappos as well as the e-commerce businesses of the traditional bricks and mortar retailers like Nordstrom.com and Macy's.com. The aforementioned businesses represent our four biggest e-commerce accounts and our sales to them were up a combined 19% in 2016. And in our own Retail segment we continue to invest in our four branded website.

In 2016 we launched a new mobile app for Steve Madden, and as I mentioned earlier, we will be relaunching DolceVita.com in 2017. Our own e-commerce properties grew 13% on a combined basis in 2016. Another important strategic step we took in 2016 was the formation of SM Europe, a joint venture with SPM Shoetrade that manages the Steve Madden footwear and handbag business in much of Europe including Germany, France, England, Switzerland, the Benelux region, Scandinavia, Central Europe and the Baltic states.

Consumer demand for the Steve Madden brand in Europe has increased dramatically over the past few years and we decided that the time was right to transition from a distributor model to a joint venture model in these territories. By operating the business directly with our joint venture partner, rather than through a distributor, we are able to better control the merchandising and overall brand positioning in the market. And by cutting out the middleman, we are able to offer a more compelling price value proposition to the consumer. We are thrilled with the results so far and building our business in this region will be a major area of focus for us for years to come.

At the tail end of the year we also wound down our relationship with our distributor in Asia in preparation for transitioning to a new business model in that territory. We are currently working toward forming a new joint venture for China and potentially other parts of Asia and are targeting a relaunch in the region in the back half of 2017. We believe there is tremendous opportunity in China and the rest of Asia for Steve Madden. We look forward to providing you updates throughout the year on our progress on this endeavor.

Finally, we continue to use our strong balance sheet and healthy free cash flow to generate returns for shareholders. In 2016 we repurchased over 2.4 million shares or approximately 4% of the Company including open market repurchases and shares acquired through the net settlement of employee stock awards. And on January 30 this year, we acquired Schwartz & Benjamin, which specializes in the design, sourcing and sale of licensed and private label footwear and is known for its outstanding capability in the designer and accessible luxury space.

Schwartz & Benjamin had in 2016 net sales of approximately $88 million and its current brand partners include Kate Spade, Rebecca Minkoff, Alice + Olivia and Avec Les Filles. We see significant opportunity to expand the business and enhance its profitability by combining Schwartz & Benjamin's strengths, which include premier execution in the design and sourcing of high-quality footwear as well as a strong portfolio of brand partners with our proven business model and infrastructure.

The transaction was completed for approximately $15.8 million in cash at closing plus an earn-out based on financial performance through January 31, 2023. We expect the deal to be approximately neutral to EPS in 2017, excluding one-time transaction and integration costs and to be accretive thereafter.

In summary, while we faced a tough retail environment over the last year, we delivered solid financial performance and made progress on a number of key strategic initiatives. As we enter 2017, we have strong momentum in our core business and we are confident that we are well-positioned to drive sales and earnings growth and create shareholder value over the long term. With that I'll turn the call over to Derek to review our financial performance in more detail and provide our outlook for 2017.

Thanks, Ed, and good morning, everyone. As Ed mentioned, we were pleased with our financial results for the fourth quarter, considering the challenging retail environment. Our fourth-quarter consolidated net sales modestly declined 2.3% to $336.4 million compared to the prior year net sales of $344.3 million as sales growth in our Retail business was offset by a decrease in our Wholesale segments.

As we look at the Wholesale segment, Wholesale Footwear net sales decreased 5.3% to $189.4 million compared to $200 million in the prior year, driven by continued softness in our private label business and a decline in our international distributor business. We were pleased, however, to see another quarter of double-digit growth in our core Steve Madden Women's wholesale business, which benefited from a strong product assortment. Additionally, other footwear brands such as Dolce Vita, Blondo, Betsey Johnson and Superga all performed well.

In Wholesale Accessories, net sales were $62.2 million in Q4 compared to $65 million in the prior year period. We were pleased to see growth in our handbag business. However, softness in our cold-weather accessories more than offset the growth in handbags. Retail net sales increased 7.1% to $84.9 million and same-store sales increased 1.1% on top of a 6.1% gain in last year's fourth-quarter. Strong performance in sneakers offset softness in boots and booties.

Turning to fourth quarter, we opened two full price stores, one in Mexico and one in South Africa. Additionally, we added a new outlet location. We ended the quarter with 189 Company operated retail stores including 52 outlets and four e-commerce sites. Turning to other income. Our commission and licensing income, net of expenses was $1.5 million in the quarter versus $3 million in last year's fourth quarter. While First Cost commission income and licensing royalty income were down versus the prior year.

During the quarter, we were pleased that our consolidated gross margins expanded 260 basis points to 38.7% compared to 36.1% in the prior year. This expansion was driven by an increase in our Wholesale gross margin. Wholesale Footwear gross margin increased to 30.9% for the quarter compared to 27.5% in the prior year quarter, and improvement was driven by our on-trend product assortments which led to higher initial markups and lower markdown allowances and closeouts. Additionally, we benefited due to sales mix.

Wholesale Accessories gross margins rose to 32.7% compared to 30.7% last year due to higher margins in cold-weather accessories, which despite lower sales had better sellthrough. Retail gross margins were 60.5% compared to 62.3% last year. The decrease in our retail gross margin was primarily the result of our decision to proactively clear through slower moving product, mostly casual boots and booties. While this negatively impacted the fourth quarter margin it enabled our stores to showcase newer trends and left us in much cleaner inventory position heading into the first quarter.

In addition, retail gross margin was also negatively impacted by FX at our foreign retail locations continued to see margin contraction due to the strength of the US dollar since the vast majority of their inventory purchases are in US dollars. Operating expenses for the quarter increased to $92.1 million or 27.4% of net sales compared to operating expenses of $88.5 million or 25.7% of net sales in the same period last year. Operating income for the quarter totaled $39.6 million or 11.8% of net sales compared to last year's fourth-quarter operating income of $38.7 million or 11.2% of net sales.

Our effective tax rate for the quarter was 28.5% compared to 34.1% in the same period last year. Lower rate reflects the benefit of investing in our international business as well as the benefit from exercising and the vesting of stock-based awards provided as compensation. And finally, net income for the quarter and was $28.7 million or $0.49 per share diluted compared to $25.7 million, $0.43 per diluted share in the fourth quarter 2016.

With that I'd like to briefly touch on full-year results. Consolidated net sales for 2016 decreased 0.4% to $1.4 billion from $1.41 billion in the prior year. Net income was $120.9 million or $2.03 per diluted share for the year ended December 31, 2016, compared to net income of $112.9 million or $1.85 per diluted share for the year ended December 31, 2015. Net income in 2015 included an after-tax net benefit of $2 million related to early lease termination of the Company's 5th Avenue store location as well as an after-tax loss of $2 million related to the partial impairment of the Company's Wild Pair trademark.

Moving to the balance sheet, which we are pleased remains strong. As of December 31, 2016, we had $236.2 million of cash and marketable securities and no debt. Inventory increased 17.4% to $119.8 million compared to $102.1 million in the prior year. Our on-hand inventory was flat to the prior year, but in-transit inventory was higher due to the earlier Chinese New Year as well as forecasted sales increases in Q1. We are comfortable with both the amount and the content of our inventory position. Our consolidated inventory turn for the last 12 months ended December 31 was 8.2 times and our CapEx and the quarter was $3 million bringing our full-year CapEx to $15.9 million.

During the quarter, we repurchased approximately 516,000 shares for approximately $19.6 million and for the full year, we repurchased over 2.4 million shares for approximately $86 million. This includes shares acquired through the net settlement of employee stock awards. Now to our guidance. For the full year 2017, we expect that net sales growth will be 8% to 10% and expect that diluted EPS will be in the range of $2.12 to $2.18. The EPS guidance assumes a tax rate of approximately 31% up from 29.1% last year. Forecasted increase in the tax rate impacts 2017 EPS negatively by approximately $0.06.

Now I'd like to turn it over to the operator for questions.

(Operator Instructions) Erinn Murphy, Piper Jaffray.

Great. Thanks. Good morning. Ed, I was hoping you could unpack a little bit how you are thinking about the major sales drivers for 2017. I guess if you were to back out the acquisition, it seems like the organic growth underpinning that is about 3% to 5%. So maybe just help us rank the biggest drivers take up there both from a footwear as well an accessories perspective.

Sure, so if you look at footwear, we are at low double digits including the acquisition in Wholesale Footwear, but you are right, if you back out -- I think that Schwartz & Benjamin is going to add about 9% to the Wholesale Footwear growth rate. So we're probably looking at sort of 2% to 3% Wholesale Footwear growth for the year, and excluding Schwartz & Benjamin, and that's really up 10 in branded, down 10 in private label. So much stronger growth in the branded piece, and we've talked about where we have nice momentum there, most notably Steve Madden Women's.

In terms of accessories, I think you should think about that as a mid single-digit grower and same for Retail and I think that will get you to the annual numbers.

Okay, that's helpful. And then just the private label, can you just talk about how you are thinking about Payless within that downtime. Is that the majority of the shortfall there?

No, I can't -- we wouldn't address our forecasts for a specific customer. But I think that what we can provide is that we are looking at down 10 for the overall private label footwear.

Okay, fair enough. And then, just on the EPS, I'm a little surprised there wasn't more flow-through just given the strength of the top line, so could you just walk through what you are seeing from an SG&A perspective and are there any one-time costs from the acquisition in the guidance?

Sure, I mean, just to highlight what we're looking at there, you're right that the sales growth is 8% to 10% but keep in mind there is $80 million in there from Schwartz & Benjamin which we've said is not going to contribute or is going to be neutral from an earnings standpoint. So the sales growth is sort of 2%, 2.5% on the low end to 4%, 4.5% on the high end of the guidance excluding Schwartz & Benjamin and I think the earnings growth we're looking at is high single-digits if you back out the tax impact. So I think it's a reasonable relationship of earnings growth to sales growth.

Yes, got it. Okay, and then just on gross margin, you've seen some good kind of IMU improvement over the last year. Can you talk about your outlook for gross margin in 2017 and just help us think about maybe first half versus second half with your visibility there.

Sure, I think when you put it all together, gross margin should potentially be up very modestly, maybe 10 basis points for the year because you've got some puts and takes in terms of mix there. On the Wholesale Footwear side, we've got -- excluding Schwartz & Benjamin, we've got branded growing faster than private label so that's a mix benefits.

However, Schwartz & Benjamin is a mix a negative and that really offsets the other impact, so that's why you're looking at flat or up very modestly for the year. I think the opportunity is a little bit better in the first half as opposed to the back half in terms of year-over-year comparison.

Camilo Lyon, Canaccord Genuity.

Thank you. Good morning, guys. How are you? So, just going back to the commentary on private label, Ed, if you could just maybe talk about how you are viewing -- what's embedded in the guidance from a protective stance given some of the headlines that we've seen around some of your private label customers? And any sort of offset that you have also that can serve to mitigate any one particular customer's shrinking of sales?

I really -- other than what we've already provided, which is that we are planning the private label footwear business down about 10%, I can't -- there's not much more I can comment on there. Certainly wouldn't comment on any specific customers, as I said. We've got a lot of potential offsets to that, and that's why the sales growth that we've embedded in the guidance or that the guidance includes positive sales growth because we've got great momentum in Steve Madden Women's. We've got strong momentum in other of -- a number of our other brands, whether it's Dolce Vita, Blondo, Betsey Johnson, Superga, etc. We've got the new program called Madden NYC at Kohl's which will be a benefit this year. So we've got a lot of positive things happening in the business.

And is it right to assume that the -- that those positives, and mainly the incremental initiatives like Madden NYC at Kohl's, is there a gross margin benefit that's greater than some of your private label gross margin businesses that would actually yield to a significant greater gross profit dollar improvement?

Well, you're absolutely right that these branded businesses that we were just talking about, including Madden NYC at Kohl's, carry a higher gross margin than the private label footwear business. I'm not going to speculate on exactly where the gross profit dollars are going to come out on individual businesses, but you've got the overall guidance incorporates all of our assumptions there.

Got it. And then -- so just to be clear that there is no incremental expectation of risk associated with some of these private label customers relative to where you've guide? You feel like you've appropriately guided to manage that downside risk?

Yes, we've tried to take a pretty conservative look at that.

Great. And then as it relates to Schwartz & Benjamin, if we go back to Blondo and even Dolce Vita when you bought those brands, understanding that there is a greater licensing component to Schwartz & Benjamin versus wholesale for the prior two, if I remember correctly, I think your profitability improvements, particularly on Dolce Vita, was pretty fast. Sounds like you are not expecting any profitability improvements or it remains a breakeven business for Schwartz & Benjamin this year. Is there an opportunity to fast-forward the profitability realization in the back half?

I think that there is a potential to start seeing some earnings contribution in the back half. We still think for the full year the right way to look at it and the prudent way to look at it is basically breakeven in terms of EPS, but we do expect to start to -- we're fast at work on integrating the business and finding some cost savings where we can. And so we would expect to start to see some improvement in the back half and then start to see earnings accretion in 2018.

Got it. And then just lastly, I think you've increased the amount of SKUs that are on auto replenishment by 2.5 times over last year. If you could just help us understand what that means to your business and how much flexibility that gives to in-season reorders, that was kind of an issue last year despite what were very good sellthrough rates.

Yes, we are really pleased with what we're seeing out of our replenishment business. As you point out, we have more styles on replenishment now than we ever have before in Steve Madden -- in our Steve Madden Women's business. I think we're up to 13 styles in replenishment in Steve Madden Women's. And as a point of comparison, historically in many seasons, that was only one or two styles that we would have on replenishment. So that means we've got a lot of styles that are core styles where we are getting weekly orders and it generates sales with high margins and limited markdown liability.

So we like that quite a bit, And we have one department store customer, one big retailer that I am thinking of in particular I think is doing about a third of their business right now on replenishment. And so that's something that's really driving a lot of business for us and high-margin business for us, so we're pleased about that.

Sounds great. Good luck in the year. Thanks, Ed.

Jay Sole, Morgan Stanley.

Great, thank you. Ed, I just want to ask you about inventory. On the balance sheet, looks like inventory is up about 17% year-over-year, but your commentary suggests that is in line. Can you explain the inventory situation right now and why it looks higher a little bit on the balance sheet then maybe the commentary suggests?

Yes, it's a good question. As Derek mentioned briefly, when he touched on it in the formal remarks, we were actually flat on-hand, so the inventory that we actually had on-hand in our warehouses and our stores, etc., was flat, but we were up significantly in in-transit inventory. And a very big piece of that was the timing of Chinese New Year this year. Chinese New Year was almost 2 weeks earlier. I think was 11 or 12 days earlier, so we had to have more products on the boat at year-end or in transit. That was a big piece of it.

We also do have a sales forecast increase in Q1 for 2017, and so needed some more in-transit inventory to support the sales. And then the last thing I'll just mention is we have to think about the composition of sales because we have different businesses that have different -- require more or less inventory. So the private label business that we are projecting to be down, that has no inventory. The branded business that we're projecting to be up does require inventory and so there is a mix issue that's part of the equation there as well.

Got it. And then you touched on the challenging retail environment. Is that something where -- is that different from what we've seen over the last few quarters or is that really a factor of the tax refund delays? Could you just talk about what you are seeing in the environment now that kind of led to that comment?

No, I was really talking more broadly about what we've been seeing over the last 18 months in the industry and the challenges that many of our big wholesale customers have faced. As we all know, many of them have been comping negatively -- a lot of them have been seeing very weak store traffic trends and so that's really what we were referring to.

Okay, and then maybe one last one for me. Can you just talk about how Schwartz & Benjamin fits into the overall portfolio? Is it addressing maybe a gap where there was a business opportunity that your brands really weren't touching on? Or how does that -- how does the deal fit in overall?

Yes, I think what we like about it is that it's a complementary capability because it really adds a capability in that higher-end segment of the market and an expertise in designing and sourcing really high-quality footwear at higher price points and also they have very strong customer relationships at places like Neiman's and Saks where we historically have not done a lot of business. So we just think it really rounds out the offering.

I think that we felt very good about our capability -- if you think about Steve Madden or even Dolce Vita price points and down, we felt like we would match up our capability against anybody's. But when it got into that accessible luxury space or designer space, it was not where we really had a lot of expertise and that's what Schwartz & Benjamin brings.

Got it. Thanks so much.

Corinna Van Der Ghinst, Citi Research.

Thank you. Hi, good morning, guys. I think you had said previously that the backlogs are down again going into this year, similar to the kind of ordering behavior that you guys saw from fill last year but could you talk about how your reorders are trending or how you expect that to trend into this spring season? And does your topline guidance today assume a higher level of reorders than last year?

Reorder activity has been very strong for us for the last few quarters and it continues to be very strong. Yes, I believe reorder activity, particularly in the first half is up in the guidance. We really -- to be honest with you, we really don't look at it that way. But, yes, it is trending higher and I expect it will be higher particularly in the first half.

Okay, great. And then maybe you could talk a little bit about your momentum in Europe right now. It sounds like it's been going pretty well so far. Where exactly is that growth coming from in terms of markets and where do you see the biggest near-term opportunities for the brand as you are looking out into this year?

Yes, we're off to a really good start there. I think we're seeing strength in a number of markets, Germany, Holland, the UK, even Poland where we've got a few franchise retail stores opened that are exceeding plan. So we feel very good about what we are seeing really across a number of different countries. I think the highlight is really what we are seeing with the online accounts. So Zalando, ASOS, Amazon. The business is really flying with them and we're exceeding expectations there and we've got some pretty healthy growth plans from those customers. So we're going to really look to focus on that.

And of those trends that you guys are seeing out there, are those similar in terms of like the styles that are working. Is that something that is a similar read through from what you are seeing in the US?

Yes, very similar.

Okay, great. And then lastly, you did mention Amazon in Europe but could you just touch on how that Amazon business is proceeding and also if there is any tax refund impact on your consumer? Thanks.

Sure, yes, Amazon continues to be a very important growth account for us and only getting more important. It's a -- you guys, as you know, it's something that we started putting a lot more focus on, maybe 18 to 24 months ago, and we're really pleased with the dividends that we're seeing there from that increased investment, time and resources. The business is just growing very dramatically and they've given us a very aggressive growth plan over the next four or five years and so we're going to continue to focus on it.

In terms of tax refunds, I think that there is some impact to us. We don't know exactly what that looks like, but it's really a timing impact and it's nothing we spent a lot of time worrying about.

Okay, great. Thanks so much.

Scott Krasik, Buckingham Research Group.

Hey, how are you doing? So, I guess without giving quarterly guidance, is there any progression to the year that we should think about either in terms of sales growth or EPS growth that you would want to call out?

The only thing I would call out is that despite the fact that we have a tax headwind in Q1, we actually think that the EPS growth year over year will be strongest in Q1 and there's really a couple things driving that. The biggest one is that we just have this really strong momentum in our branded Wholesale Footwear business right now. And we're seeing some really strong performance in Q1 there and that's our most profitable business. So that's a big driver. And then secondarily, and Wholesale Accessories, we do have an easier compare in Q1 as opposed to the remaining three quarters and so we're looking for better performance year over year there as well in Q1.

Interesting, okay. And then in terms of SM Asia, or you mentioned you were looking at a joint venture there. Is any of that contemplated in the guidance? And what would that entail either from an investment standpoint, an expense standpoint and then potentially revenues?

Yes, we don't have that in the guidance right now, but -- and I think it's too early to speculate about what exactly that will look like. But what I will say is that I would expect a financial impact this year, certainly from the profitability standpoint, to be very modest, I would say pretty immaterial. It's certainly -- we can't expect it to be a profit contributor right off the bat. But also we're not talking about a plan that requires a ton of investment and requires us to incur significant losses at the outset either. So I don't think it's something that you really need to build into your models.

Okay, thanks. And then on Schwartz & Benjamin, $88 million in sales in 2016; sounded like you were planning for $80 million in 2017. Just wondering what portion of that is Kate Spade and then as the noise heats up at Kate Spade as a potential acquisition target, how would that impact those sales and the change of control?

Sure, so just one point of clarification. Yes, you're right, we did say $80 million; just keep in mind that's for the 11 months that we're going to own it, so it's not necessarily that we're expecting the business declines by 10% this year, it's just that we're not owning it for the full year.

Can't disclose the sales by brand for Schwartz & Benjamin. Kate Spade is a meaningful brand for them, it's one we hope for a very long time. We do have a license agreement that runs through the end of 2020 and so we expect to have the brand -- we will have the brand through the end of 2020, no matter what happens with respect to the Kate Spade review of strategic alternatives. But certainly we would hope that we would be able to keep the brand in a renewal period beyond 2020 as well.

Okay, all right. Well, thanks and good luck.

Tom Nikic, Wells Fargo.

Hey, good morning, guys. I was wondering on the Wholesale Footwear side, I was kind of wondering about the margin difference between the branded and the private label and if there is any sort of help you could give us on that. And then I was also wondering on the tax rate, I know it was really lumpy quarter by quarter last year. I think Q1 was really low after you adopted the new accounting standard for stock compensation and I was kind of wondering if it should follow a similar pattern this year. Thanks, guys.

Sure, with respect to the gross margin branded versus private label, keep in mind private label is significantly lower. Private label is in the teens and the branded gross margin really varies by brand, but it's in the high 30s, low 40s for many of our brands. Derek, do you want to address the tax?

Sure. Yes, Tom, I mean you did see a little bit of usual activity throughout this year, but as we look at 2017 and as we mentioned in our remarks that we baked in the 31%-ish tax rate for the year. As we look at this year it actually should be -- we're looking at it more consistently through the first three quarters with maybe a little bit more -- a little bit lower in the fourth quarter. I think that's the way we should think about it.

All right, sounds good. Best of luck this year.

Jeff Van Sinderen, B. Riley & Company.

Good morning. I know it's really early but just wondering if there is any color on some of the spring product, maybe some of the warmer weather markets, just wondering if there is anything there to relay. Maybe we can start there.

Yes, we feel really good about what we're seeing in terms of consumer reaction to our spring product. In terms of category, the first thing we have to call out is sneakers. Our sneakers are just flying; and that continues to become a more and more important category for us in Steve Madden Women's. In our Steve Madden Women's Wholesale business, sneakers for Q1 are -- we expect to be in the low 20%s as a percentage of the total, which is the first time we have ever been up that high, so that's something that we're excited about.

In terms of other categories, footbeds are also performing very, very well for us, mules are performing very, very well. The next thing I would call out is novelty is performing great. So whether it's patchwork, pearls, floral prints, fur, there is a lot going on in terms of novelty that we're having a lot of success with. And that creates a lot of excitement on the shoe floor and it's a nice complement to what we talked about earlier, which is also, at the same time, having a lot of core replenishment product, particularly in the sneaker and dress shoe categories.

Okay, good to hear. And then just wondering if there is any more you can give us on how we should think about growth in Dolce Vita and then also in Brian Atwood, especially wondering if the Schwartz & Benjamin acquisition will have an impact on Brian Atwood this year?

Yes, in terms of Dolce Vita, obviously, that's been a tremendous success story for us. We talked about the brand being up nearly 30% in sales last year. Should see growth in 2017. Certainly we're not expecting it to be to the same level, but we still feel good about what we're seeing in that brand. And then I think you made a good call on Brian Atwood. Obviously, having Schwartz & Benjamin under our umbrella makes -- we think it makes a lot of sense to have them work on being Brian Atwood and potentially even Brian Atwood, and so that's what we're working on a plan with them and with Brian for that. And we hope to have something to talk about maybe even on the next call.

Okay, good to hear. Continued success. Thanks.

Steve Marotta, C.L. King & Associates.

Good morning, guys. Can you talk a little bit about the weighting of Schwartz & Benjamin throughout the year with the exclusion, of course, the month of January, which you didn't own it. Are there any material differentials from quarter to quarter?

Third-quarter is the biggest followed by fourth, followed by second, followed by first because we only owned it for two months.

Okay.

I don't have the percentages of total for each, but that would be the -- directionally the weighting.

That's fine. And as it pertains to the current revenue penetration run rate for pure play e-commerce, what is it roughly and what would you expect that to grow at in 2017?

I'm sorry. Can you say that again? The penetration of e-commerce?

Pure play e-commerce as a percent to total sales more or less again on a run rate basis and what you would expect that growth to be in 2017.

I don't have that number off the top of my head. If I had to -- I mean it's in the single digits, maybe mid-singles, something like that, and growing much faster than the overall. But I wouldn't put a number on it.

We can talk about it more off-line. Thank you. That's all I had.

Sam Poser, Susquehanna.

Good morning. Thanks for taking my question. A few things. Can you talk about how you are viewing what the opportunities are with the Madden NYC line at Kohl's and then the impact that you've built into your guidance from Payless liquidation?

Yes, on Madden NYC, that's something that we're pretty excited about. That's a new brand that we're offering them so far on an exclusive basis. It's in about 450 doors and we've got a range of product categories in there, not only the shoes and accessories that we do, but we've got some licensed categories that are important there like activewear and outerwear. Insofar we're very pleased with the early sellthroughs, it just hit stores over the last month so. And so we're optimistic about the future there. In terms of Payless, as I mentioned earlier, we're not going to comment on our forecasts for any specific customer.

All right, and then can you also talk -- there's been a lot of conversation about how the shrinking pie, you have got a lot of retailers are closing doors or being cautious. Can you talk about the kind of share gain that you are seeing and what your -- and how you view that, how you look at all that?

Yes, clearly we're seeing particularly in Steve Madden Women's brand, very nice share gains in all of our key retailers and many of them are seeing their overall businesses either flat or even declining. But our business is growing nicely with them because we're taking share. Just over the last couple days, we heard about another of our big retailers who said they are cutting their plans for everybody except for Steve Madden going forward. So, we're very pleased that we are taking share and that we are an outperformer right now. But also we would prefer if the overall environment was healthier and the customers were doing better overall, because -- of course a rising tide lifts all boats.

Thanks. And then two other things. One, can you talk about how these various brands you've acquired over the last few years are interacting and how you plan for them to interact? For instance, with the Banana Republic business being done through Schwartz & Benjamin, is that something that Steve Madden's sourcing mechanism may be able to do better while, as you mentioned, Brian Atwood it may be better within the Schwartz & Benjamin sourcing mechanism? Are you going to utilize any waterproofing type technologies that do currently exist in Blondo in other brands? And how is all of the starting to gel? You got a lot of benefit from top line a few years ago. How do you see all of this works together including Dolce as a source of mechanism?

There's a lot there. Look, we're always looking for ways to get synergy out of the various brands and businesses that we own. That being said, we're also very careful to make sure that the various brands that we have in our portfolio retain their own identity and that always means a dedicated design team. It also means a dedicated sales team and, in many cases, that means dedicated sourcing.

So we do look for ways to get cost savings and synergies where appropriate but we also want to make sure that we don't start to make everything look the same. So happy to address any of those specifics with you off-line. I think there's probably too much for me to cover on this call.

Thank you. Good luck; continued success.

Camilo Lyon, Canaccord Genuity.

Hey, Ed, just a follow-up on a comment you made earlier regarding Q1 sales being the strongest. Given the strength that Steve Madden Women's is experiencing and the comment around you getting an incremental amount of open buy orders and your net share gaining benefit there you've seen at retail, why would that strength decelerate as the year progresses in Wholesale footwear as you face easier compares? I just want to make sure I have the cadence right or understand exactly what's embedded in the guidance.

I think we're just telling you what we see today, and so we have obviously very good visibility into Q1. I think we have to be -- recognize that Steve Madden Women's is a big business and it's primarily distributed in the channels that are not growing themselves and so I don't think it's sustainable for a long period of time to look at very, very robust sales growth or at least it wouldn't be prudent to forecast it that way. So I certainly hope that we can continue to see the type of sales growth that we're seeing in Q1 going forward, but it's not something we would put into our plans.

And the other thing I'll just comment on is at least with respect to Steve Madden Women's, the comparisons do get tougher as the year goes on. We were single-digit last year -- single-digit grower in Steve Madden Women's in first half last year and strong double-digit grower in the back half.

Okay. There's nothing to suggest that that momentum can't continue, though, despite the SM comparisons, given that there is just fewer players that are (inaudible) at your level?

We're going to do our best to continue the momentum, for sure.

Great. And then just rounding out my question, Mexico, do you have -- can you just address any sort of puts and takes around your exposure there? I know that there is a lot of volatility around policy decisions, but how you are planning your business around Mexico and what are the risks and benefits that we can understand a little bit better around that (technical difficulty) --?

In terms of our sourcing from Mexico, that's been on the decline, having nothing to do with any trade policy out of Washington, but simply because the types of looks that we source out of Mexico have been declining, so that hasn't been the trend, whereas years ago when we were doing the (inaudible) out of Mexico, it was something like 10% of our overall sourcing. Now it's down to about 4% out of Mexico, and headed south. So we do think that mitigates the impact of any potential change in trade policy including renegotiation of NAFTA.

In terms of our business in Mexico, because we also have an operation in Mexico, we're performing well there on the top line. But we have seen a profitability impact due to the strength of the dollar against the peso because obviously we have seen a very dramatic strengthening of the US dollar against the peso. And because our Mexican subsidiary is primarily buying in US dollars and then selling in pesos, there is a margin impact there in addition to just the impact of the translation back to US dollars for our reported financials.

Got it. Thanks again for the clarity.

We have no further questions in queue at this time. I would now like to turn the conference back over to Ed Rosenfeld for any additional or closing remarks.

Great. Well, thank you very much for joining us on today's call, and have a great day and we look forward to speaking with you on the first quarter call.

This does conclude today's conference call. Thank you all for your participation and you may now disconnect.