Steven Madden Ltd (SHOO) 2017 Q4 法說會逐字稿

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

Today's conference is being recorded and 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 and full year of 2017 earnings results.

Before we begin, I'd like to remind you that statements made on this call that are not statements of historical facts 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 Nick Gargiulo, Director of Financial Reporting.

With that, I will turn the call over to Nick.

Thanks, Jean 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, Nick.

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

We are pleased to have delivered diluted EPS at the high-end of our implied guidance range for the fourth quarter of 2017.

Solid performance in our wholesale business was offset by expected softness in our retail segment driven by weakness in the boot category.

Overall, 2017 was a strong year for Steve Madden.

We recorded double-digit percentage growth on both the top and bottom lines despite a challenging and rapidly changing retail landscape, demonstrating the power of our brands and the strength of our business model.

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 another outstanding year in our core Steve Madden wholesale footwear business.

Steve Madden Women's, Steve and his design team continue to create trend-right products across a range of categories that are resonating with consumers enabling the brand to outperform the competition.

Despite open to buy budgets at many of our largest wholesale customers that were flat or even down, the Steve Madden Women's wholesale footwear division grew net sales in the mid-teens on a percentage basis, clearly taking significant market share on the selling floors and websites of our wholesale customers.

Sell-through performance to the consumer was also robust and according to NPD, Steve Madden was the third-largest dollar volume gainer in the Women's fashion footwear market in the U.S. in 2017 behind only Adidas and Nike.

Steve Madden Men's was also a standout, growing more than 20% in 2017 as we reap the benefits of the incremental investments we made in Men's over the last year.

And Steve Madden kids continued its momentum as well.

It was also up over 20% in 2017 as we saw success with kids' versions of many of our best-selling Steve Madden Women's and Men's styles.

The strength of the brand extended to our diffusion brands as well.

Both Madden Girl and Steven by the Steve Madden group sales in the high single digits on a percentage basis and we also had a successful launch of Madden NYC, a new brand distributed exclusively at Kohl's.

We launched in 450 Kohl's stores in spring 2017 and based on the strong initial performance at retail, we are taking select styles to 800 doors for spring 2018.

Importantly, the strong sales performance across our Steve Madden wholesale footwear business was also accompanied by significant year-over-year gross margin improvement, which was the primary driver of the 100 basis point gross margin increase for the company on a consolidated basis in 2017 excluding Schwartz & Benjamin.

And the flagship brand was the highlight of our accessories business as well.

Steve Madden handbag net sales increased to mid-teens on a percentage basis as we better align the Steve Madden bags with the shoes in terms of styling, attitude and trend direction.

As in footwear, the brand Halo extended to 2 diffusion brand Madden Girl, which also had a double-digit percentage sales increase in the handbag category.

Overall, it was an exceptional year for the Steve Madden brand.

We think our flagship brand has never been stronger.

We also saw robust growth in some of the other brands in our portfolio.

Waterproof brand Blondo and licensed sneaker brand Superga were particularly strong, each grew net sales more than 30% compared to the prior year.

We are also pleased to report that we made significant progress in 2017 on one of our most important long-term growth initiatives, which is expanding our international business.

International net sales increased 15% for the year.

Our directly operated markets Canada and Mexico each delivered strong growth and our SM Europe JV, which we launched in June 2016 continues to exceed expectations in both sales and earnings.

We also launched 2 new joint ventures in August, 1 in Mainland China and 1 in Taiwan.

At year-end, we'd opened 3 stores and 21 concessions in those markets and had also launched e-commerce businesses on Tmall and Yahoo Shopping in Taiwan.

While it's early, we are pleased with what we see so far and believe Asia represents a major great opportunity for the company.

Around 2017, we also supported our brands particularly Steve Madden with increased market investment.

We highlighted entrepreneurs in a campaign called Self Made.

We worked with Caroline Vreeland as the face of the brand.

We opened a flagship location in the heart of Times Square in New York City.

We collaborated with GQ on a capsule collection of men's shoes and bags, and at holiday, we did a campaign with pop star Cardi B that set records for our brand in terms of social media reach and engagement and created tremendous buzz overall.

Also at the end of the year, the documentary about Steve came out called Mad Man, The Steve Madden Story, the movie chronicles Steve's life with all its ups and downs and can be found on Netflix, Amazon and iTunes.

Response to this unvarnished behind the scenes look at our founder has been outstanding.

Another highlight in 2017 was the acquisition of Schwartz & Benjamin at the beginning of the year.

Schwartz & Benjamin is the footwear licensee for Kate Spade and Avec Les Filles.

It contributed $80 million in net sales in the 11 months we owned it in 2017 and it provides us a platform to expand in the designer and accessible luxury footwear space as well as to build both brands and private labels that target a more mature sophisticated customer.

We are relaunching Brian Atwood on the Schwartz & Benjamin platform for 2018 with products made in Italy and average unit retails of approximately $400 for shoes, $600 for booties and $900 for boots.

And we'll also be adding the Anne Klein brand to the Schwartz & Benjamin portfolio in 2018.

As we recently signed an agreement to become the licensee for Anne Klein footwear and handbags starting with fall 2018 shipments.

The Anne Klein brand has a rich heritage going back 50 years and with its dedication to timeless American classics, it's a nice compliment to the other brands in our portfolio.

We are targeting $80 million to $90 million in net sales under the Anne Klein brand in the first 12 months of shipping, which encompasses the back half of 2018 and the first half of 2019.

Finally, in 2017, we continued to utilize our strong balance sheet and healthy free cash flow to return capital to shareholders in the form of share repurchases.

We bought back 2.6 million shares or approximately 4% of the company for $99 million, including open market repurchases and shares acquired due to net settlement of employee stock awards.

This morning, we added another leg to our capital return strategy when we announced that our Board of Directors has approved the initiation of our first ever quarterly cash dividend.

We view this as a significant milestone for the company, as well as a reflection of our confidence in the company's long-term prospects and the testament to our commitment to enhance shareholder value.

The dividend is intended to supplement continued investments in our business, as well as acquisitions and share repurchases.

In summary, 2017 was a very good year for Steve Madden as we delivered strong financial results and also made important investments for the future.

We entered the New Year with strong momentum in our flagship brand, increasing traction in our international business and significant opportunity with some of our newer brands.

Based on that and a business model that over the last few years has proven its resilience in the face of a challenging retail environment, we believe we are well positioned to continue to drive sales and earnings growth, as well as generate shareholder returns over the long term.

With that, I'll turn it over to Nick to review our financial performance in more detail and provide our outlook for 2018.

Thanks, Ed.

Our fourth quarter consolidated net sales increased 8.3% to $364.4 million compared to prior year net sales of $336.4 million.

When we exclude the impact from the Schwartz & Benjamin acquisition, which contributed $20.3 million in net sales, our consolidated net sales increased 2.3%.

Wholesale footwear net sales increased 15% to $217.7 million.

Excluding the impact of Schwartz & Benjamin, wholesale footwear net sales increased 4.3% with increases in both our branded and private label businesses.

Wholesale accessories, net sales decreased 2.7% to $60.5 million driven by a decline in Betsey Johnson handbags.

In our retail segment, net sales increased 1.5% to $86.2 million.

Our same-store sales decreased 5.1% compared to a 1.1% increase last year driven by softness in the boot category.

During the fourth quarter, we opened 1 full price store and 1 outlet store in the U.S. as well as 1 full price store in Mexico and 1 in China.

We ended the quarter with 206 company operated retail locations including 60 outlets and 4 Internet stores.

In addition, during the fourth quarter, we opened 6 concessions in Asia and ended the quarter with 38 company operated concessions in international markets.

Turning to other income.

Our licensing royalty income net of expenses was $3.1 million in the quarter compared to $1.6 million in last year's fourth quarter.

While First Cost commission income net of expenses, was $0.3 million compared to a loss of $0.1 million last year.

Consolidated gross margin decreased 60 basis points to 38.1% compared to 38.7% in the prior year.

Wholesale gross margin decreased 40 basis points to 31% compared to 31.4% last year.

Excluding Schwartz & Benjamin, wholesale gross margin increased 50 basis points versus the prior year due to margin improvement in the wholesale footwear segment.

Sale gross margin expanded 30 basis points to 60.8% compared to 60.5% in the prior year.

Operating expenses for the quarter increased to $105.8 million or 29% of net sales compared to operating expenses of $92.1 million or 27.4% of net sales in the same period last year.

Operating income for the quarter totaled $36.3 million or 10% of net sales compared to last year's fourth quarter operating income of $39.6 million or 11.8% of net sales.

Our effective tax rate for the quarter was 24.9% as compared to 28.5% in the same period last year.

Finally, net income for the quarter was $27.5 million or $0.48 per diluted share compared to $28.7 million or $0.49 per diluted share in the fourth quarter of 2016.

Now, I would like to briefly touch on full year results.

Consolidated net sales for 2017 increased 10.5% to $1.55 billion from $1.4 billion in the prior year.

Excluding the impact from the Schwartz & Benjamin acquisition, which contributed $80 million in net sales, our consolidated net sales increased 4.8%.

Net income was $129.3 million or $2.24 per diluted share for the year ended December 31, 2017, compared to net income of $120.9 million or $2.03 per diluted share for the year ended December 31, 2016.

Moving to the balance sheet.

As of December 31, 2017, we had $274.8 million in cash, cash equivalents and marketable securities and no debt.

Inventory levels at the end of Q4 were well controlled.

Total inventory was $110.3 million.

Excluding Schwartz & Benjamin, inventory was $104.7 million, a 12.6% decrease compared to the prior year.

Our consolidated inventory turn for the last 12 months ended December 31, 2016 was 8.6x.

CapEx in the quarter was $3.1 million bringing our full year CapEx to $14.8 million.

During the quarter, we repurchased approximately 639,000 shares for approximately $26.2 million, and for the full year we repurchased 2.6 million shares or approximately $99.4 million both of which include shares acquired due to the net settlement of employees stock awards.

And as Ed mentioned, the company's Board of Directors has approved the initiation of a quarterly cash dividend.

The initial quarterly dividend of $0.20 per share will be payable on March 29, 2018 to stockholders of record as of the close of business on March 12, 2018.

Turning to guidance.

For the full year 2018, we expect that net sales growth will be 5% to 7% and we expect that diluted EPS will be in the range of $2.60 to $2.67.

The diluted EPS guidance assumes a tax rate of approximately 20.5%, down from 30.4% last year due primarily to the impact of the tax reform bill passed in December.

Note that due to the timing of projected tax benefits related to stock-based compensation, the quarterly tax rate is expected to be higher than the annual rate for the first 3 quarters and then lower than the annual rate in Q4.

Terms of overall earning seasonality, the earnings distribution by half is expected to be roughly 40% first half, 60% second half, which is in line with historical seasonality but is different from 2017, which was unusually weighted to the front half.

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

(Operator Instructions) And we will take our first question from Camilo Lyon from Canaccord Genuity.

Ed, I was hoping you can just give a little bit of color, Nick just touched on the seasonality.

You've had very good growth in the core Madden Women's business in the past couple of years.

May be just touch on a little bit of what you're seeing from the spring orders -- spring '18 orders perspective and trends and how that should play out given your tougher comparisons and what you see is the opportunity there for the spring season?

Yes.

If we think about the Steve Madden Women's business in particular, I think that we continue to have good momentum with all of our key accounts and the sell-through performance continues to be good.

So I think we're still taking market share there.

We also feel very good about what we see in terms of spring trends.

Lots of newness and excitement in sneakers.

Got some good things happening with wedges, with flat sandals, some closed up dress shoes coming on.

So felt pretty good about -- certainly very good about the collections and pretty good about the overall trend environment.

That being said, I think we've -- everybody is aware that last year there was very dramatic growth in Steve Madden Women's in first half and I think there was a little bit of that was some restocking, some retailers that had gotten too low in inventory levels in Steve Madden and had to restock to get those in-line.

So while the business continues to perform well, we've cautioned people that growth in the first half in Steve Madden Women's should be much more muted.

And then I think we have probably a little bit more opportunity in the back half.

Okay.

I'm just thinking about what you've learned from your entry into China, how the sales progressed there?

Can you just talk about -- how you see the trajectory of growth unfold there over the next 12 to 24 months?

And what is your appetite to really accelerate that piece of the growth algorithm?

Sure.

Yes.

So we launched in both Mainland China and in Taiwan in August and I think that by and large we're encouraged with what we see so far but I think that we are also cognizance of the fact that it's going to -- that there's going to be a process here.

It's a marathon, not a sprint and we're still in the kind of what I would call the test and learn phase.

While we remain very bullish on the long-term prospects there and haven't seen anything that would lead us to think otherwise.

I don't think that we're ready at this moment to really step on the accelerator aggressively in terms of bricks and mortar location openings.

We opened about 24 locations in 2017.

I think that was 21 shop in shops and 3 stores and I would say at this moment I expect us to do a similar number in 2018.

I think that frankly, our JV partner might like us to go a little faster but I think what we've seen so far is that there are some meaningful differences in terms of the merchandise that works or that is working right now over in China compared to what we see in the U.S. And so we really want to make sure we get that merchandising formula right, before we push really hard on growth.

As our CEO of that business says he wants to get the recipe right before we serve the meal to a lot of customers.

And I'm very confident that we're going to be able to do that.

We're implementing our test and react strategy in China.

It's really the first international market where we've done in a meaningful way and that's in progress, really going to start testing products in the next couple of months there.

And so I'm confident that we'll be able to get that right but we want to do that before we push hard on the location openings.

We are of course moving aggressively to grow the e-commerce business and our current forecast shows e-commerce making up about 60% of our sales in 2018 in that region.

Got it.

That makes sense.

And then just kind of stepping back and looking at the success you've had in all aspects of the business both wholesale and retail, core smaller brands.

As you think about like the long term EBIT margin opportunity of the business, what do you think this business can get to?

Well, we've been in and around 12% the last few years.

I do think that there's some opportunity for EBIT margin expansion there.

I think let's say 14-ish is a good long-term target but obviously in the near term, we're also investing.

We're investing in Asia for one, we're also investing in our e-commerce capability.

We're investing in some newer brands.

I mentioned incline in the formal remarks.

So I think that's probably not an '18 or '19 goal but it's a longer term goal.

We'll take over next question from Ed Yruma from KeyBanc Capital Markets.

This is Noah on for Ed.

First just on Schwartz & Benjamin, it was a bit of a gross margin drag in the quarter.

Can you talk about how you see that brands margin structure over time?

Is there any near-term opportunity to kind of bring it in line with the broader wholesale business?

And then just any gross margin puts and takes we should think about as we move through the year?

Yes.

Schwartz & Benjamin, just so everybody understands, it's a structurally lower gross margin business.

It will never be in line with the company average because it's got 2 pieces of branded in a private label wholesale piece and the branded piece in particular, keep in mind it's essentially with the exception of Brian Atwood, it's all licensed.

And so you're paying between 7% and 11% off the top to the licensors, which obviously reduces the gross margin.

That being said, I do think that over time, that there's some opportunity for us to improve the Schwartz & Benjamin gross margin, we talked about that a little bit on, I believe it was the last call that we've reduced inventory levels there.

We think that we can run this business with less inventory than it was run with previously and we think we'll be able to reduce closeouts and control markdown allowances and therefore push the gross margin up there over time.

But again, it won't get to the company average.

Terms of '18, which I think was the second part of your question with respect to gross margins, is that right?

Yes.

Yes.

I really think that we're looking for roughly flat gross margins in '18.

And even if we look at that by segment, I would say it's basically flat wholesale footwear, wholesale accessories and retail.

Maybe a tick up, up or down by segment but essentially, we're looking for in line with what we did in '17.

Okay, great and then just maybe one more on the Men's business, can you remind us how large that business is?

And then maybe what were some of the drivers of the 20% growth during the quarter?

And maybe how are you thinking about this opportunity overtime?

Yes.

Men's is about 10% of our business overall and we're really pleased with what we're seeing in that business, we've talked about how we put more emphasis on Men's of late.

I think we upgraded the team.

We also invested considerably more in marketing over the last year than we had previously in Men's.

And I also think the product assortment is just much stronger and more balanced.

So in terms of what's working or what was working in Q4, Chelsea Boots were doing very well.

We continue to do well with chukka boots, any of our sort of dress casual looks have been good.

Got some smoking slippers that have been very good.

So seen some really strength across a range of categories, which makes us feel good as we head forward.

And we will take our next question from Erinn Murphy from Piper Jaffray.

I guess I wanted to go back to the sales guidance of 5% or 7%.

I think that includes a partial year of Anne Klein.

So if we were to back that out, it really does seem like the underlining is pretty conservative, it's like 2.5% to 4.5% by our estimates.

So curious if you can just spend a little bit more time on the organic building blocks either by brand or by channel?

Just because it seems like a pretty conservative bar, off the bat.

Yes.

So there's actually something that offsets that Anne Klein impact that you're looking at, which is a change in accounting for Payless in the back half.

So we've signed a new buying agency agreement with Payless, which is actually we believe going to result in increased business with them but that -- based on the new agreement, Payless will now move out of the top line and into that first cost line in the back half of the year.

And that largely offsets the Anne Klein impact.

So -- in fact the net of that is sort of less than a 100 basis point positive, so if you're looking at 5% to 7% consolidated on a reported basis if you excluded both the Anne Klein and the Payless shift, it would be sort of 4% and change to 6% and change.

Got it.

Okay, that's helpful.

And then may be focusing a little bit more on your loyalty program, and we've seen a lot more buzz about that in your stores and online.

Could you talk about how that's performing?

I think it's still at very early days in kind of what you're learning from that?

Yes.

Yes, we're pretty excited about it.

I think we're off to a good start.

As you said, it's only been around for a few months here.

I think that we got up and running in November, I want to say.

And the first 6 months to a year, frankly, the big goal is just getting people to sign up, you got to get people into the program.

And our goal for the first year was to get 300,000 sign ups.

I think we're going to get 300,000 at the end of this week.

So we're very pleased with how many people we're getting into the program.

Frankly, it's a little too early to tell you about their behavior or how it's working, beyond that because we just don't have enough history.

But we're pretty excited about it and we're pretty excited about the data that this is going to give us on our best customers and how we can use that going forward.

Okay.

If I can just sneak in 1 more but with the declaration of the dividend this morning, can you just talk about if that changed?

How you're thinking about the buy back?

And then is there any buyback assumed in the guidance for '18?

Sure.

Yes, it has not changed how we're thinking about the buyback.

As I mentioned in the earlier remarks, we really view the dividend as a supplement to our existing capital allocation strategy, what are the priorities are, of course investing in our business first, finding great acquisitions, second.

And then of course, returning capital to shareholders in the form of share repurchase.

So share repurchase will still be something we'll be looking at just as we did before and we've obviously been very consistent about doing that over the last few years.

That said, we didn't build it into the guidance and that's consistent with past practice.

And we'll take our next question from Janine Stichter from Jefferies.

Just wanted to get some more color on how we should think about the retail comps progressing through the year as the boot headwind becomes less meaningful as we get into spring?

And then along those lines, how we should think about the complexion changing in terms of transaction in the AUR the boot headwind moderates?

It's not a whole lot I can say about that because we don't provide -- as a rule, we do not provide comp guidance.

I think that one thing you're alluding to is accurate though, that we're certainly looking forward to having boots in the rearview mirror.

Because that was clearly a drag in fourth and in first, well it's not as bigger percentage of business that it has in fourth, it's still a meaningful part.

And so it's still creating some headwinds.

So definitely looking forward to having that in the rearview mirror.

As you point out, boots has been the source of an AUR headwind, felt that pretty meaningfully in fourth quarter.

Feeling it again in January and February and that should really be behind us as we move into second quarter.

Okay, great.

And then just on the SG&A, I know you mentioned some investments in Asia and e-commerce.

Anything else we should be thinking about as a headwind for this year, specifically thinking about wages and anything else that we should just kind of be aware of?

No.

I mean, look, I think there are some -- there is some wage pressure, we built a little bit of that into the forecast.

We obviously have some expenses that we're taking on related to the Anne Klein business but I think the biggest one is really Asia.

I think we've got about $9 million or thereabouts of SG&A associated with Asia in the plan for 2018.

But overall, I think that SG&A should be fairly well controlled this year, if we're looking at sales up 5% to 7%, I think SG&A should be up similar rate.

And we will take our next question from Corinna Van der Ghinst from Citi Research.

Ed, I'll try not to ask too many questions.

I was just hoping to start with details on the cadence for fiscal '18.

I know you guys called out in the prepared remarks the EPS weighting, but I was wondering if you could share a little bit more detail just on what you're guidance assumes for wholesale footwear and accessories for the full year?

And then breaking that down for the first half versus the back half as you lap the Payless pressures?

Sure.

Okay.

So wholesale footwear.

Let's put it this way, wholesale overall -- if we look at wholesale overall, I'd say mid-singles and then retail, high singles.

That's what gets you to the 5% to 7% that we put out on a consolidated basis.

Wholesale -- within wholesale, I would say wholesale footwear, a little bit below overall wholesale and wholesale accessories a little bit above.

And then the second question was seasonality of sales, is that right?

Yes.

Just kind of giving what you're lacking from last year.

I think the Payless pressure started earlier in the year and just any of the moving parts there?

Yes.

I mean there is a lot of moving parts because of -- you're right, the Payless from the prior year.

Than this year you've got Payless moving out, Anne Klein coming in et cetera.

Maybe I'll just -- I think it's probably going to have to be easiest just talking about it on a consolidated basis.

Definitely, the back half growth should be better in consolidated sales than the first half, similar to what we said about EPS.

Okay.

And then you've called out Blondo a few times over the last couple of months as a meaningful growth opportunity for 2018.

Can you remind us how big that business is today, and where you see the real opportunities for growth in terms of what kinds of doors you guys are going into or what categories?

And the same thing for Men's, if you're expanding your distribution for this year, where are the opportunities there?

Yes.

So with respect to Blondo, we don't break out our sales by brand.

It's -- has been a relatively smaller brand but it's been growing very rapidly over the last couple of years.

And we are seeing as you alluded to some expanded distribution opportunities this year, with both new department stores and new specialty stores that are going to be -- I guess it should -- this includes both new accounts and new doors within existing accounts.

The other thing is I think there is an opportunity for sort of product category expansion.

It's obviously, historically been really all about boots and booties and we've got some other categories that folks are looking at for Blondo and we've got some sneakers.

We've also got Men's in Blondo, it's historically been all Women's or almost all Women's.

In terms of Men's, it's really expanding with the existing distribution.

It's not a brand-new description but it's the usual suspects, the better department stores, the e-commerce retailers et cetera.

And we will take our next question from Jeff Vander -- Van Sinderen from B. Riley FBR.

Ed, you talked a little bit about sneakers but just wondering if you can touch more on I guess what the outlook is?

And what the plans are for the sneaker and sneaker derivative business for you this year?

Just wondering about that classification.

Yes.

I mean that continues to be the -- really the strongest growth category for us.

And we feel very good about it.

We don't see that momentum slowing down at all.

There is a lot of different things that we're seeing working in sneakers.

So we still have our slip ons that we do very well with but we're doing very well with lace-ups, joggers, particularly with color blocking are very good for us right now.

High tops are doing well.

And then the new thing is these dad sneakers, which -- that's a new trend that we've -- we've seen some strong early reads on and we're going to be delivering in a much bigger way over the next month or so.

Okay, good.

And then just if we can get back to your own retail stores for a moment.

I know you mentioned the boot compare.

But just wondering how you're thinking about the spring holiday counters shift this year, if there's anything around that?

And then I guess anything you could say about traffic excluding boots are kind of I guess sell-throughs.

And I know it's early, but maybe the longer weather markets and some of the spring products so far in '18 in your own stores?

Sure.

I mean in terms of the calendar shift I don't think there's much magic to it.

I guess Easter is earlier this year.

So that will help us a little bit in March.

In terms of what we're seeing in the other categories outside of boots as I said, I think sneakers are probably the most important.

We're also seeing a lot of good things in the sandal category broadly.

Wedges is something that really wasn't very important for us last year but that's doing quite well this year.

So that would include wedges with both rope bottoms and wood bottoms.

We've got some flat sandals like one band flat sandals that are doing well.

Foot beds are still good.

Anything also -- and all these categories with sort of we call it glitz or bling, rhinestones are very good.

And then I mentioned in the dress category, whereas a year ago, it was all about opened up dress.

We still got some opened up dress working but we've got some closed dress like pointy toe, closed up dress shoes that are doing well.

So quite a few categories that we feel good about.

And our next question will come from Tom Nikic from Wells Fargo.

I was just wondering about the new partnership with Anne Klein and sort of what you think you can contribute to that business?

Or what it was about the brand that you found appealing to add into your business?

Yes.

So one of the -- when we acquired Schwartz & Benjamin, part of the rationale there and I mentioned this I think a little bit -- or touched on this in the prepared remarks, was to have a platform to really go after what we call the true Women's business.

And by that we mean a more sort of mature customer.

With Steve Madden and some of our other businesses, we have a really dominant leading position with -- in the young, trendy part of the footwear business.

And we felt there was an opportunity to build more that targets a slightly older customer.

And Anne Klein is a great brand that really serves that customer and we think fits perfectly in the Schwartz & Benjamin platform.

In fact, Schwartz & Benjamin actually was the licensee for Anne Klein for over 30 years.

And really had the brand in its heyday, had a very big business until about 2007 when the brand owner took it back in-house.

So they really understand the Anne Klein business and we think that they can -- we can do a great job with it on that platform.

So we're excited about that.

Got it.

And just sort of a quick follow-up to that.

So now that you've got Schwartz & Benjamin, you're able to I guess do sort of what you're doing with Anne Klein and bring a brand in without actually acquiring the brand.

How should we think about your M&A strategy going forward?

Should we think about, maybe now you'll just add brands to Schwartz & Benjamin when you can?

And less sort of outright M&A?

Or does it kind of depend on the circumstances?

Yes.

I think it's really a case-by-case basis.

We're still out there looking for the right acquisitions, nothing has changed on that front.

Clearly, we have the capability to be a licensee as well but in the right circumstance, would be -- we certainly remain interested in buying brands outright.

And our next question comes from Chris Svezia from Wedbush.

Ed, I'm just curious, international growth, how do we think about that relative to the 5% to 7% total company growth?

Just how you're thinking about that for 2018?

Yes.

Obviously, international is growing faster.

It's still a relatively small part of the business.

So it doesn't move the needle as much as some of the other -- as the domestic business certainly, but yes, it should be strong double-digit grower.

Okay, and regard to brands, I know you don't give specific numbers necessarily, but Dolce Vita had a difficult 2017.

Just given what was going on with one particular retailer, that seem to subside as the year went on.

Just any thoughts about that brand?

As you think about 2018?

Yes.

I'm optimistic that we're going to get that turned around.

I think spring is a little bit of a challenge because of the tough spring '17 and you intend to get sort of plan down the following year if you have a tough year in a given season.

But the good news is that our sales at retail -- the sell-through performance is much improved and we're seeing some real nice hits in early '18 on spring product with Dolce Vita.

They've got some stacked heels, some flat sandals as well.

There's some things that are really working well.

So I think that based on that improve sell-through performance, we should be positioned to get that moving in the right direction going forward.

Okay.

And just finally, with regard to the retail business, high single digit revenue growth, how many -- what are you looking to do from a store perspective?

I know you don't give up top guidance, but is it fair to assume to get to that level of growth that you would at least some positive comp for the year?

So in terms of openings and closings, in the U.S., I think we'll be a net closer.

Stores will be down maybe 3 to 5 overall net.

And then in international, I think will be a net opener.

Maybe we'll be up 9 or 10 stores by the end of the year on a net basis.

Again, I'm not going to address the comp assumption in the forecast.

I will remind you though that the Asia business comes in, in the retail segment and so that's a significant part of the growth in 2018 on the top line.

And our next question comes from Scott Krasik from Buckingham Research.

Just some modeling questions here.

So if you think about the $1 billion or so in wholesale footwear that you did this year, can you just sort of break it out Steve Madden brand, versus the other brands, versus private label?

Well, I mean -- look, I think that again, we're not going to do it in exactly that detail, but we've talked publicly about the fact that if you look at the consolidated, Steve Madden brand represents little over 55% of our total.

And then the balance is other brands and private label.

And how does -- sorry evenly split between the other 2?

Yes.

Exactly.

And then is there any -- like Dolce Vita is more of a spring business, is Anne Klein split more evenly or does it skew one season?

It's actually split pretty evenly.

I mean most businesses are a little bit bigger in the back half but I think Anne Klein is actually split pretty evenly.

And then how do you balance the Anne Klein gross margins, which I assume you have a licensing obligation there versus the Payless coming out?

Should that be a net positive to gross margin?

Yes.

But very modest.

We've baked in a pretty conservative gross margin assumption for Anne Klein initially, keep in mind we sort of stepped into this in the middle here and I think there's opportunity to improve that overtime.

But one point I want to make about Anne Klein overall is we've assumed that it's breakeven for the year in terms of profitability.

So all the sales that we're bringing in the back half, we've assumed no profit contribution.

Okay.

That's interesting.

And then just last on international.

You have models out there like a Wolverine Worldwide that sells a lot of pairs, uses distributors, very profitable.

You've got the Skechers, who is growing very fast but spending a lot of money, and hopefully, leveraging in the future.

How would you characterize your strategy, particularly beyond this year as we look in '19 and '20?

I think that we're in -- I think it's evolving over time.

As you know originally, we started off 100% distributor and that's a nice model because it's low financial risk, there's essentially our partners -- or your distributor partners take a lot of the risk.

They own the inventory, they have to build the stores, they're doing all the market investment et cetera.

And basically, we're selling them the goods on direct from factory basis.

It's a great way to start a new market when you're not sure how it's going to work out.

Of course it's also lower margin.

So lower risk but lower profit spreads as well when it works.

And over time we're trying to transition some of the markets, the key markets to more of an ownership model.

We bought Canada and Mexico and now we've done joint ventures for much of Europe and much of Asia as well as South Africa.

So I think we have a balance here.

There are some markets we are very happy with what we're doing in the Middle East for instance under a distributer model, and I think that'll probably remain that way.

But there are some markets that we think it makes sense to be a joint venture and potentially over time to make them directly on subsidiaries.

And just profitability, do you see that being profitable early on in this strategy?

Yes.

It's market by market discussion.

The SM Europe JV, is very profitable already on an operating margin basis.

Asia, I think it's going to take some time.

We've assumed that's basically breakeven in 2018.

So it's just going to vary by market.

And our next question comes from Sam Poser from Susquehanna.

Most of the questions have been asked and answered.

Just real quick, on M&A and on building out that sort of the more traditional Women's footwear business with Anne Klein, could you give us a little more color on what you're seeing out there, and sort of what other tasks Schwartz & Benjamin (inaudible) given (inaudible)

Sorry, I didn't hear the last part of that.

Sort of what kind of charge are you going to give to Schwartz & Benjamin?

Expectations for them?

Other kind of brands that you may add to their portfolio and so on, over time?

And then what you're seeing in the M&A space right now, you sort of answered that.

But I would like to know sort of what kind of brands you're looking at, especially now that you do have Schwartz & Benjamin in your portfolio?

Yes.

I think that it's really what we said before.

I think we see it as a platform where we can go after that more mature Women's business.

That will include both brands and private label.

I think that there is a nice private label opportunity there that we don't -- that is complimentary to what we do with our other private label business.

So that's something that we're interested in.

Of course, it also gives us the platform to go after more higher end brands, accessible luxury et cetera.

So we'll continue to look at opportunities there.

In terms of the M&A front, there is not much I can say other than that we are out there looking at opportunities, and we hope we'll find something.

But we're going to continue to be disciplined about it, and we're not going to reach on price and we're going to make sure that anything we do we think is strategic for the company as well.

And our next question comes from Steve Marotta from CL K & Associates.

Two quick questions.

First of all, you mentioned that international net store openings are 9% to 10%.

Do the concessions count as 1 unit there?

No.

I'm sorry, those were freestanding stores.

So the concessions, if we opened 20 concessions or thereabouts, that's in addition to that.

Okay.

The other question I had is inventory is shown down on the balance sheet 8% year-over-year.

A, is that accurate?

Could you review the inventory commentary you had earlier in the call?

I didn't seem to reconcile with what's on the balance sheet but maybe I misunderstood.

It's down 8% consolidated if you exclude Schwartz & Benjamin from a year-ago because we didn't own it yet.

Then it's down 12.6%, sort of like for like.

And so obviously that's -- the inventory is very clean at the end of the year.

We -- I think there's a couple of things going on there.

I think, one is, it just -- it was -- most importantly, it was very well controlled, very clean.

In addition though, keep in mind a year ago, it was also up year-over-year, because of the earlier Chinese New Year we had more goods in transit.

And as Chinese New Year move back that piece of it reversed itself.

And this concludes today's question-and-answer session.

I would like to turn the call back to Mr. Ed Rosenfeld for any additional or closing remarks.

Great.

Well, thanks everybody for joining us this morning, have a great day and we look forward to speaking with you on the next call.

And this concludes today's conference.

Thank you for your participation, and you may now disconnect.