Steven Madden Ltd (SHOO) 2017 Q3 法說會逐字稿

Good day, and welcome to the Steve Madden Third Quarter 2017 Earnings Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Megan Crudele.

You may begin.

Thank you.

Good morning, everyone.

Thank you for joining us today for the discussion of Steve Madden's third quarter 2017 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.

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 today's date.

Hosting the call today are Ed Rosenfeld, Chairman and CEO of Steve Madden; and Danielle McCoy, Director of Corporate Development and Investor Relations.

I'll now turn the call over to Danielle.

Thanks, Megan, and good morning, everyone.

Before turning the call over to Ed, I'd like to note that the financial results presented below are on an adjusted basis unless otherwise noted.

Please refer to our press release for a reconciliation of GAAP to non-GAAP financial measures.

Thanks, Danielle.

Good morning, everyone, and thank you for joining us to review Steve Madden's third quarter 2017 results.

Before we begin, I want to welcome Danielle McCoy, our new Director of Corporate Development and Investor Relations, to the team.

You'll be hearing from Danielle in a bit as she reviews our financial results for the quarter.

But first, let me provide you with a brief overview of Q3.

We delivered solid results in the quarter, which were in line with our expectations on a consolidated basis on both the top and bottom lines.

Strong performance in our largest segment, wholesale footwear, was partially offset by softness in retail and wholesale accessories.

In wholesale footwear, our Steve Madden businesses were the growth drivers, particularly Steve Madden Women's, Steve Madden Men's and Madden Girl.

In a tough retail environment, our on-trend merchandise assortments in these businesses continued to drive strong retail sell-through for our wholesale partners.

And those partners are rewarding us with increased market share in their stores and on their websites.

We're seeing this success in both domestic and international markets.

Our SM Europe JV was the highlight in the quarter, continuing to exceed expectations in terms of both sales and brand development.

In the wholesale accessories segment, we had strong performance in the handbag category, driven by robust growth in Steve Madden handbags.

Unfortunately, the increase in handbags was offset by a decline in cold weather accessories, as our wholesale partners reduced orders and pushed back the timing of deliveries due to the poor performance of the cold weather accessories category as a whole over the last couple of years.

In our retail business, same-store sales declined 3.8% for the quarter, as gains in sneakers and sandals were not enough to offset declines in the dress and boot categories.

Business in our retail stores softened in September.

Comps were down approximately 8% for the month, and that trend has continued into October.

Boot category is off to a very slow start.

For October, boots have accounted for the entire decline in our comp stores.

Before I turn the call over to Danielle to walk through the details of the financials, I want to highlight some steps we took in Q3 to strengthen our brands in our business and position the company for future growth.

First, we opened a new flagship store during the quarter right in the heart of Times Square in New York City.

That's our largest location in the world in terms of square footage and it has consistently been our #1 door in sales since it opened on August 1. This is important.

It's a tremendous marketing tool for the brand.

With the prime corner location in one of the most highly trafficked retail areas in the world, this store is raising awareness for the Steve Madden brand with customers from all over the globe.

We also continued to move forward with our new strategy in Asia.

After forming a joint venture for Mainland China in May with C.Banner, in July, we signed a joint venture agreement for Taiwan with Dolce, the largest footwear company in Taiwan.

Both JVs opened their first shop-in-shop locations in August, and we ended the quarter with 8 shop-in-shops and 2 mall stores in China and 7 shop-in-shops in Taiwan.

By the end of the year, we expect to have approximately 22 to 24 total locations in Asia.

We've also launched on Tmall as well as Yahoo Shopping in Taiwan.

We plan to launch stevemadden.cn over the next month or so.

While it's very early, initial sales are encouraging in both territories, and we are extremely optimistic about the opportunity for Steve Madden in the region.

We will also be opening a store in Q4 in Singapore as a test for a potential new joint venture with Valiram, a leading retailer in Southeast Asia that operates stores for companies including Kate Spade, Michael Kors, Victoria's Secret and Bath & Body Works.

In the marketing front, we have a number of exciting initiatives taking place as we look to continue to build brand equity and attract new customers.

While our marketing efforts have historically been focused mostly on women, recently we've been investing more in marketing targeted to men.

And one example of this is the collaboration we launched in August with GQ.

The GQ + Steve Madden Capsule Collection consists of men's footwear and bags with elevated materials and styling.

And we believe it's providing a valuable halo for the rest of this Steve Madden men's collection.

Also have a face of the Steve Madden brand for the first time, Caroline Vreeland, a singer, songwriter and actress.

We started our partnership with Caroline with a digital campaign inspired by the '90s and focused on Steve Madden's iconic platforms.

And we followed that up by featuring her in our fall 2017 global campaign, which launched in August.

Based on the strong consumer response and social engagement, we've extended our partnership with Caroline to go through holiday 2017 and spring 2018.

We believe the campaigns and Caroline's fun, confident, adventurous spirit are really resonating with our consumer.

Finally, I'm proud to announce that Steve Madden was recently named Footwear News' Company of the Year for the fifth time.

This is a testament to the strong, diversified business model that we have built, and especially to our associates, whose talent, hard work and dedication are the foundation of our success at Steve Madden.

We believe it's also an affirmation of our unwavering focus on creating trend-right product and getting it to market quickly, which has enabled us to continue to thrive despite the disruption we're seeing in the retail industry.

As we look ahead, we anticipate that the retail environment will remain challenging and that the boot category in particular will continue to be a headwind through the fourth quarter.

We are therefore taking a prudent approach as we plan the business for the holiday season, working closely with our wholesale partners and managing our inventory levels carefully.

That said, our proven business model, strong brands and on-trend product offerings remain key differentiators.

And we believe that they position us well to continue outperforming the competition.

With that, I'll turn it over to Danielle to review our financial results for the quarter in more detail and provide you with an update on our sales and earnings guidance for the year.

Thanks, Ed.

Before I begin, I want to say how excited I am to have joined the Steve Madden team, and that I look forward to working closely with all of you.

Turning to the results for the third quarter.

Our consolidated net sales increased 8% to $441.2 million compared to prior year net sales of $408.4 million.

When we exclude the impact from the Schwartz & Benjamin acquisition, which contributed $24.9 million in net sales, our consolidated net sales increased 1.9%.

Wholesale footwear net sales increased 12.1% to $300.6 million.

Excluding the impact of Schwartz & Benjamin, wholesale footwear net sales increased 2.8%, as a strong increase in our branded business was partially offset by a decrease in private label, driven by a decline with Payless.

As Ed mentioned, our flagship brand led the way with strong performance in Steve Madden Women's, Men’s and Kids as well as in Madden Girl.

Blondo and Superga were also standouts in the quarter.

In wholesale accessories, net sales decreased 2.7% to $76.4 million compared to last year's $78.4 million.

As Ed mentioned, we were pleased with the continued momentum in our Steve Madden handbag business, which recorded robust growth during the quarter.

However, this growth was offset by a decline in cold weather accessories.

In our retail segment, net sales increased 4% to $64.3 million.

Our same-store sales decreased 3.8% compared to a 1.3% increase last year.

Note that the hurricanes in Texas and on the East Coast negatively impacted our comps by approximately 100 basis points.

Our average unit retail was down significantly in the quarter due to a mix shift from higher AUR categories like dress shoes and boots, to lower AUR categories like sandals, sneakers and pool slides.

Traffic was also down, but this was offset by higher conversion and units per transaction.

During the quarter, we opened one full-price store and 3 outlet stores in the U.S. as well as 5 full-price stores in international market.

We ended the quarter with 202 company-operated retail locations, including 4 Internet stores.

In addition, during the third quarter, we opened 15 concessions in Asia and ended the quarter with 32 company-operated concessions in international market.

Turning to other income.

Our licensing royalty income, net of expenses, was $2.7 million in the quarter compared to $2.9 million in last year's third quarter, while First Cost commission income, net of expenses, was $2 million compared to $2.4 million last year.

Consolidated gross margin decreased 20 basis points to 37.6% compared to 37.8% in the prior year.

Also, gross margin was flat compared to last year at 33.9%.

Excluding Schwartz & Benjamin, wholesale gross margin expanded 130 basis points versus the prior year.

Retail gross margin decreased to 59.3% compared to 59.9% in the prior year.

While we ran fewer promotional events in the windows and filled a higher percentage of products at full price than a year ago, the sale in clearance product that we did sell went out the door at a deeper discount than last year as we moved aggressively to keep inventory clean as business softened.

Operating expenses for the quarter increased to $104.7 million or 23.7% of net sales compared to operating expenses of $96 million or 23.5% of net sales in the same period last year.

Operating income for the quarter totaled $65.9 million or 14.9% of net sales compared to last year's third quarter operating income of $63.8 million or 15.6% of net sales.

Our effective tax rate for the quarter was 32.1% compared to 32.3% in the same period last year.

Finally, net income for the quarter was $44.5 million or $0.77 per diluted share compared to $43.8 million or $0.74 per diluted share in the third quarter of 2016.

In addition to our solid operating results, we're pleased that our balance sheet remains strong.

As of September 30, 2017, we had $176.9 million in cash, cash equivalents and marketable securities and no debt.

Inventory levels at the end of Q3 were well controlled.

Excluding Schwartz & Benjamin, inventory increased 3.5% to $115.8 million compared to $112 million in the prior year.

Including Schwartz & Benjamin, inventory was $124.1 million.

Our consolidated inventory turns for the last 12 months ended September 30, 2017, was 8.2x.

CapEx in the quarter was $4 million and during the quarter, we repurchased 228,562 shares for approximately $9.3 million, which includes shares acquired through the net settlement of employee stock awards.

Turning to guidance.

For the full year 2017, we are maintaining our outlook for both sales and EPS.

We expect the net sales growth will be 9% to 11%.

We expect that diluted EPS for the year will be in the range of $2.03 to $2.09 on a GAAP basis.

Excluding onetime expenses related to the acquisition of Schwartz & Benjamin and the Payless bankruptcy, which are outlined further in the press release, we expect diluted EPS will be in the range of $2.18 to $2.24.

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

(Operator Instructions) And we'll take our first question from Erinn Murphy with Piper Jaffray.

Ed, I guess the first question for you is just to focus a little bit more on the retail business.

Could you just unpack how the comp trended throughout the quarter?

I know you mentioned September was down 8%.

But curious how that looked relative to July and August.

And then within September, could you just parse out the hurricane impact versus the other factors you called out like boots and dress shoes?

Sure.

So yes, as we said, the business did soften in September.

So we were through August -- through the first 2 months, we were down pretty modestly, low singles.

And then we did see the business weaken in September to down 8% for that month.

The hurricane certainly had an impact there.

We said it was about 100 basis points for the full quarter.

Obviously, a good chunk of that was for the month.

I don't have that calculation in front of me.

But let's say, it was 150 basis points for the month or maybe even close to 200 basis points for the month.

And then obviously, most impactful was boots because, as we said, that category is off to a slow start and becomes much more important in September, much bigger piece of the business.

And so we felt a bigger drag from boots in September.

I mean, just on the boot category comment, I mean, I think at the end of last quarter, you talked about planning that entire category down 10% for the back half of the year.

Has it started off a little bit weaker?

Can you just, a, confirm that, that's still your plan to be down 10%?

And then I guess, secondly, how are your wholesale partners starting to digest a slower start to the boots season?

Have you seen any shifts in order patterns or anything like that?

Sure.

So yes, coming in, we were looking for down 10% in the boot category.

I would say we still think we can achieve down 10% in wholesale.

But given the slow start to the year, we don't think we're going to -- we now think that we're looking at something lower than that in our retail business.

I would say, probably down mid to high teens in our retail stores.

And in the wholesale community, clearly, there is -- I think there is some nervousness around boots.

We haven't yet seen dramatic increases in promotional activity in that category.

But certainly, we've baked into our plan a pretty promotional environment, particularly related to the boot category.

Okay.

And then just last question for me.

I mean, you obviously still feel confident in reaffirming the full year guidance.

But with one quarter left, it's still a fairly decent range.

Could you just kind of walk through what your assumptions are at the high end of the guidance?

Whether it's from a promotional perspective, the environment, whether anything that we can just kind of help kind of calibrate where your -- what would be a high versus a low end of the guidance?

Yes, I mean, I guess, the only thing I would say is that if we were still looking at down 10% overall for boots, including wholesale and retail, I would say that under that scenario, we would be tracking towards the high end of the guidance.

Given what we're looking at in our own retail business, which is again a little bit softer in boots than we had anticipated, I think we're probably looking more at the middle of the range as sort of the base case.

If retail gets better, if we get cold weather and boots pick up, that would put us more at the high end of the range.

And obviously, if boots are even lower or tougher than we thought, that would put us more at the lower end.

We'll take our next question from Corinna Van der Ghinst with Citi.

I was wondering if we could start with the China JV just in terms of what the early takeaways might be so far in terms of brand positioning, price points and categories that might be working.

Is it similar to what you guys are seeing in the U.S.?

And then can you give us an updated sense of kind of what your annual retail store expansion plans could look like over the next few years just given the new JVs and some of the momentum that you guys have had internationally?

Sure.

Yes, I mean, I think we're pleased at what we're seeing so far in both Mainland China and Taiwan.

It's very early, so I don't want to draw too many conclusions from what we've seen.

But I think that the good takeaway so far and what we're pleased about is that the best products in the U.S. are also the best products in Asia.

And we're seeing a lot of consistency between the big items.

And that's something that we think is pretty encouraging.

Obviously, there are some tweaks we want to make.

We may want a few more sandals there, et cetera, but generally -- or some lower heels, but generally speaking, we feel like the products from the U.S. are working over there, which we're happy to see.

In terms of the store opening plans, particularly as they relate to Asia, it's really just too early to say.

We're still in the testing and learning phase here.

And I think on the next call, we should be prepared to at least talk to you about 2018.

But at this point, I want to hold off on making any of those -- provide any of those assumptions, because it's something that's very fluid on our end.

Okay, that's fair.

And then I was wondering if you could also talk about any initiatives that you guys may be taking to improve traffic trends in your stores?

And I apologize if I missed this earlier, but does your guidance assume that traffic is still -- sorry, the comps are still down in the fourth quarter?

Sure.

Okay.

We didn't -- we don't provide comp guidance, and we haven't -- and I don't think we're going to change that policy.

But we did say that October comps were in line with what we saw in September, which we disclosed was down 8%.

So I think you could draw your own conclusion about what we've baked into the full year -- excuse me, to the full fourth quarter.

And as it relates to traffic, yes, traffic has been down for us as it has been for virtually all of our competitors.

That's something that we expect to continue to see.

We've been making that up with improved conversion, and we've also had nice units per transaction improvement.

What's really been hurting us has been the decline in the AUR.

And that's a mix negative, particularly as boots become a smaller percentage of the business and sneakers become a higher percentage.

And that's something that we'll probably have to continue to contend with through the balance of fourth quarter.

Okay.

Great.

And then also, did you parse out at all in terms of your e-commerce performance in the quarter, how that kind of trended versus your expectations?

I know that there was some hurricane disruption in the brick-and-mortar stores, but could you talk about e-commerce as well?

E-com was also -- if you're thinking about our own e-commerce -- our own in-house e-commerce properties, that was also below our expectations.

It was better than the bricks and mortar.

But it was also softer than we had anticipated going into the quarter.

And then Amazon as well?

Amazon business continues to do very well.

And we're seeing continued strong growth there, both in our traditional wholesale business with them, what they call 1P as well as the 3P business, where we take our products that are not in our wholesale line, but that are in -- were formally exclusive to Steve Madden retail stores and on stevemadden.com and display those on Amazon and fulfill them to the consumer ourselves.

Both those businesses are growing very nicely.

We'll take our next question from Camilo Lyon with Canaccord Genuity.

Just a few quick ones from us.

This is Pallav on Camilo, by the way.

Firstly, on the Men's business, you talked about some of the initiatives that you are introducing on the marketing front.

Can you remind us how big is the men's business for you now?

And how the performance was during the quarter?

And what are some of the drivers going forward that you see in that business?

Sure.

Overall, Men's is a little less than 10% for us.

As -- in terms of what's been driving the business, yes, it's an area where we've put a lot more emphasis and focus recently.

We changed leadership at the beginning part of this year, brought in a new president for Steve Madden Men's.

And I think that he and the team have really put together a -- what I would say is a more strategic balance assortment of product, with strength across a range of categories.

As I mentioned earlier in the prepared remarks, we've also been investing more in marketing.

We have a campaign called Self Made, which highlights entrepreneurs in which we featured a lot of men and which has been largely men's focused, although we also highlighted women's entrepreneurs as well.

We've also done the collaboration with GQ, which is our first big collaboration on the men's side.

So it's just an area where we're putting more resources, and we're really seeing it pay off.

It's going to be up nicely double digits for us for the year.

Great.

And on the -- you also called out the SM Europe business.

Can you give us a little more color there?

What's been driving that business?

Sure.

When we did -- we did the joint venture in the middle of last year, and we're just -- as we've been saying really almost since we did it, it's quite a bit ahead of where we anticipated it would be.

Having a lot -- we focused a lot on -- it's primarily a wholesale business, first of all.

We focused a lot on the e-commerce accounts, so folks like Zalando, ASOS, Amazon, Sarenza; in terms of the territories, I would say, Germany, most important in the U.K., Eastern Europe and Scandinavia.

We also have very strong businesses in Italy and Spain, which are -- remain under the distributor model, so we're not doing that -- running that through the SM Europe JV, but those are also doing very well.

And we're starting to get some franchise stores in Europe as well.

We've got about 6 in Eastern Europe, 3 in Spain and 2 in Greece now.

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

Can you give us more on what you're seeing in the Dolce Vita brand and Schwartz & Benjamin business?

And maybe how you're thinking about those segments for Q4 and then looking towards strength?

Sure.

So Dolce Vita, as I talked about in the last call, we had a little bit of a pause in growth there.

We had a challenging spring, particularly with one major account, and so saw that business pull back a little bit in fall in terms of shipping.

But the sell-through has improved pretty dramatically in fall, and so we should be positioned to return to growth in 2018.

Schwartz & Benjamin, the integration is on track, really, mostly, I should say, complete.

We've -- we -- they were formally running their back office and their warehouse out of Massachusetts.

We've consolidated that operation into our own.

So we've got them in our warehouses, we've got them on our systems.

And now we're really turning towards sort of putting our imprint on how they manage the business.

And so one thing you are seeing in the back half here is similar to what you've seen in some of our other acquisitions.

We really believe we can run this business with less inventory than they've run it with historically and to turn faster.

And so we are reducing inventory levels at Schwartz & Benjamin.

There's a little bit of an impact there from inventory liquidation, which is hopefully a onetime process as we get them in line with our inventory model.

But that should position us for a healthy business in 2018.

Okay.

That's helpful.

And what's your latest take on sort of the potential to make acquisitions?

Do you think it's getting more or less attractive in terms of the brands that are coming up and, I guess, the multiples that are being demanded?

It's a good question.

I do think that when there is this type of disruption in the industry, that sometimes that tends to encourage companies to want to sell or partner up with larger companies.

And so sometimes, it does create opportunities from an acquisition standpoint.

In terms of the multiples that people are looking for, that's -- I think it's hard to generalize.

We've come across some opportunities where the valuation expectations are reasonable and some where they were certainly not reasonable.

So that's something that we have to evaluate really on a case-by-case basis.

But we continue to think that acquisitions can be an important part of the strategy here.

It's obviously been a pretty important piece of our growth historically, and so we're definitely out there looking for the next opportunity.

We'll take our next question from Edward Yruma with KeyBanc Capital Markets.

This is Noah on for Ed.

Just on the handbag category strength, can you talk about the driver of the strong trends?

And then maybe any changes you've seen in the channel or channel health in general?

Yes.

In Steve Madden, I think we've made some important improvements to the product, something that I think I touched on in a recent call.

But at the tail-end of last year, we hired a new design director for Steve Madden.

And I think that she and the team have done a really good job of really better aligning the Steve Madden handbags with the Steve Madden shoes in terms of styling and trend direction.

And we think the bags are really more trend-right and on brand than they've been in some time.

And the customer is really responding to it, and we're seeing nice growth in that business.

Great.

And then maybe just one more.

On traffic and the promotional environment in outlet relative to full price.

I think last quarter, you had mentioned that outlet promotions were elevated relative to full price.

I guess, just anything that you've seen there?

Yes, that' still the case.

As we've pulled back on the promotional events that were running in the full-price stores and trying to take a less promotional stance overall in full price, we have been a little bit more aggressive in outlets.

And so outlet was really the main culprit of the modest gross margin decline that we saw in the quarter in retail.

We will take our next question from Chris Svezia with Wedbush.

I guess, Ed, for you, just go back to, I think, Erinn's question, as she was talking about -- you were answering about the midpoint of the outlook for the fourth quarter or implied outlook for the fourth quarter.

How does that apply to earnings?

Is that sort of a similar thought process as you think about earnings and boot exposure, et cetera?

I was talking about earnings, to be honest.

I think the answer really is the same for sales and earnings guidance.

Okay.

All right.

Got it.

Did you comment at all on how much your international business grew in the quarter, by any chance?

It was up low double digits.

Low double digits.

Okay.

And I'm curious, when you step back and look at your business, you had really great success with footbed sandals this year.

The slip-on sneaker business was really strong.

You commented on Dolce Vita potentially returning to growth as you go into next year.

Just as you start to think about and build some thought process for spring, anything else you could call out?

Do you think you can continue to build upon the success of the existing platforms?

Do you need to really come up with something else or really need to see momentum in the dress business to start to really continue to accelerate or build upon what you've already built upon?

Just any thoughts about as you start to think as you go into next year from a product perspective and the key drivers?

Yes.

For obvious competitive reasons, we try not to talk too specifically about trends prospectively.

We're happy to talk about what we're seeing in the stores today.

But I think if you look at the business right now, I mean, we're concerned about boots.

The rest of it -- we're seeing a lot of strength across a range of categories.

And so that should position us well for spring.

I mean, sneakers obviously are most important.

We continue to see nice increases there and really across a range of different types of sneakers.

So we've got slip-ons; but now we've also seen a lot of success with joggers; high tops are good, low profile.

So we've got a lot of different things working in sneakers.

Sandals was a category, obviously not important for fourth quarter, but it was a category that was very strong for us in Q3.

And we think there are some new sandal looks that we're pretty excited about for spring.

Pool slides of course should be important again.

Mules is something that was very good in the higher fashion areas this year, and I would expect that will be important really more across the country next year.

And then dress shoes, we've had a lot of success with our open dress, but what we're pleased to see now is that closed dress or pumps, which is a category that really hasn't been good for a while, is really starting to pick up.

So really, a lot of different things working outside the boot category.

And I don't want to -- I just want to do make the point because I haven't said it yet.

Within -- it's not that there's nothing working in boots.

We are actually seeing quite a lot of success in the dress bootie category and got some pretty hot items there.

But the overall category of course is down.

Okay.

Fair enough.

And just finally as you think about Q4, I think the private label business and potentially Payless was supposed to reaccelerate for Q4 just based on bankruptcy what was going on and order-take for Q3 and shipments.

Is that still the case for Q4?

So we'll see improvement in that business?

Yes.

So there was a big -- we took a pretty sizable hit from Payless in Q3.

But the Payless business should be back in line with [LY] for Q4.

We will take our next question from Sam Poser with Susquehanna.

This is Will on for Sam.

Ed, just in terms of EBIT margins in the international business, how does that compare to domestic?

If you can give any color on that?

It's pretty similar.

Okay.

And so -- I know international is about 10% of business now, where do you see that in 2 to 5 years as far as penetration goes?

Well, I'm hesitant to put a specific timetable on it, especially as we're still -- we think that Asia is going to be a really important part of that, and we're still sort of putting together our plans there.

But certainly, the opportunity should be at least 20% to 30% of the business over time.

Great.

And just on another topic.

Can you just talk about how some of the moderate brands are doing?

Candie's.

You've launched Madden NYC at Kohl's.

Can you just talk a little bit about how the performances are doing in those brands?

Yes.

Madden NYC and Kohl's, we're really pleased with what we're seeing there.

And I think Kohl's is really pleased as well.

We're in about 450 doors.

The shoes have been a real strong performer there, I think an outperformer for them in the category.

And we are going to be taking a couple styles to about 800 doors for spring.

And I think we and Kohl's are both really excited about the opportunity there.

We also, as you point out, have Candie's at Kohl's.

But as we grow Madden NYC, I think that may become more of our focus going forward.

We'll take our next question from Scott Krasik with Buckingham Research Group.

This is Matt on for Scott.

Without talking about numbers, would you be able to just comment on potential levers in wholesale footwear gross margin for next year and 4Q this year?

Sure.

I'll start with 4Q.

We've been -- also, footwear gross margin has been up all year.

And certainly on an organic basis it's been up pretty substantially.

I think that will continue to be the case in Q4.

However, we do have a negative impact from Schwartz & Benjamin, which -- because, a, that business has a structurally lower gross margin than our legacy wholesale footwear business; and b , because as I pointed out earlier, we are moving through some inventory as we sort of get them in line with our leaner inventory model.

And as we look out to next year, I think that -- on the legacy business, I think that you should probably see that mostly flattish to where we are this year.

We already had -- we've had very nice gross margin improvement on an organic basis over the last couple of years.

And while I don't think that we should go backwards, I think we have to be clear-eyed about the fact that there's probably not a ton of upside opportunity on the organic business.

But with Schwartz & Benjamin, I do feel that we have some opportunity to start to drive higher gross margin there, and so we should get some benefit.

Okay, great.

And then you provided some color on total JV doors in China for this year.

I think you said 22 to 24 locations.

Can you maybe quantify what you expect that growth rate to be or how many doors you expect next year in that region?

Yes.

I want to talk about that on the next call, because, as I said earlier, we're just really -- it's so early.

We're still learning, and we're still working with our JV partner to refine our plans for 2018 based on what we're seeing so far.

And we really want -- we need to get a couple more months of sales under our belt before we make any final determinations.

And we'll take our next question from Steve Marotta with CL King & Associates.

Just [eliciting] your opinion on the change in expectations for the boot category in the back half of the year.

How much you view that as weather-related and how much you view that as fashion-related?

And clearly, weather hasn't been a helpful component of that.

But what are your concerns that the weather changes but the category stays similar?

Yes, it's a good question.

And I think that what you've heard pretty consistently from us in talking about not only some of the softness in boots last year, but our expectations for a soft boot season this year was that we did not believe that weather was the primary issue here.

We think that it's mostly a soft part of the fashion cycle for boots.

Now that being said, clearly weather has not helped so far this year.

And we do anticipate that the business is going to get better as weather gets colder.

And in fact, even over the last week or 2, we've seen an improvement in our retail stores as we've gotten some colder weather.

Now keep in mind, when I say improvement, I mean less negative, so still down year-over-year in that category.

But again, it's clearly both.

It's not just weather, it's also driven by fashion.

Okay.

And if you can just remind us what boots were as a percent of the total mix in the back half of last year?

And what the expectation is for this year?

Well, it's in and around 50% of our Women's business in the back half, typically.

Obviously, it's going to be below that this year based on the forecast that I provided already.

Okay.

And I also recall that in the first half, you were selling boots later into the season than the year-ago period in an effort to catch a little bit more buy now, wear now.

Can you talk a little bit about what your exposure is in the first half of, say, '17 to the boot category?

Well, in the retail stores, it's -- boots and booties is still a meaningful part of the mix in first quarter.

Last year, I think it was -- or, excuse me, earlier this year, it was a little over a quarter of our Women's business in first quarter.

In wholesale, it's very small.

You're talking about mid-single-digit percentage of sales this quarter.

Okay, that's great.

And lastly, can you talk a little bit about your inventory exposure right now, the portion of your inventory that's boot-related?

Yes.

We as usual have been very proactive about managing that.

And so I feel that we're -- we've got that under control.

And certainly any liquidation that we did need is factored into the guidance.

It appears there are no further questions at this time.

I'd like to turn the conference back to management for closing remarks.

Great.

Well, thanks very much to all of you for joining us on the call this morning.

And we look forward to speaking with you on the next call.

Have a great day.

That concludes today's conference.

Thank you for your participation.

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