Steven Madden Ltd (SHOO) 2018 Q2 法說會逐字稿

Good day, everyone, and welcome to the Steve Madden Second Quarter 2018 Earnings Conference Call.

Today's conference is being recorded.

And at this time, I would like to turn the conference over to Danielle McCoy, Director of Corporate Development and Investor Relations.

Please go ahead.

Thank you.

Good morning, everyone.

Thank you for joining us today for the discussion of Steve Madden Second Quarter 2018 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 risk and uncertainties as described from time to time in the company's report 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 on as current after today's date.

Before I turn the call over to Ed, I would 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 measure.

Ed?

Thanks, Danielle.

Good morning, everyone, and thank you for joining us to review Steve Madden's second quarter 2018 results.

We had another solid quarter at Steve Madden with Q2 net sales growing 6% and diluted EPS increasing 19% compared to the prior year.

We are pleased with these results, particularly in light of the tough comparisons from the prior year.

Our wholesale footwear business continued on its upward trajectory with net sales growing 6%, including increases in both our branded and private label businesses.

Steve Madden brand was the highlight, with high single-digit percentage growth in the U.S. and greater than 30% growth in international markets during the quarter.

The Steve Madden's strength was broad-based with the gains across each of women's, men's and kids as well as Steven Madden Girl and Madden NYC.

The international business was also strong throughout with robust increases in our directly owned subsidiaries in Canada and Mexico, our SM Europe JV and in our distributor business, most notably with our distribution partners in Italy, India and the Middle East.

And most importantly, the brand remains an outperformer in terms of retail sell-through.

Steve and his design team continue to create own trend and well-balanced product assortments with strength across a range of categories, enabling us to outpace the competition and positioning us for continued growth going forward.

Turning to our other brands, Dolce Vita returned to year-over-year growth in the second quarter as the dramatic improvement in sell-through performance that we saw in that brand starting in Q1, resulted in a strong reorder business in Q2.

And Blondo also continues to gain momentum and recorded a nice sales increase in the quarter.

As we enter fall, which is Blondo's primary selling season, Blondo is poised for significant growth, driven by expansion of its core boot business with the existing customers as well as entry to new points of distribution in new product categories, including the test of men's in selected doors.

In wholesale accessories, net sales rose 3% compared to the year ago period, driven primarily by growth in our private label handbag division, where we continue to see significant gains in the mass-merchant channel.

We also remain pleased with the trend in our Steve Madden handbag business, where we continue to gain traction in the department stores as well as with our special makeup business.

Based on the strong momentum we had in our Steve Madden and private label handbag businesses, combined with the addition of Anne Klein handbags for fall, we expect accessories net sales to accelerate in the back half.

Now retail segment, net sales increased 8%, including a 1.6% comparable store sales gain.

We are pleased to see same-store sales turned positive, despite an approximately 200 basis point negative impact in the quarter from the Easter shift.

From our product perspective, sandals and sneakers were the standout categories, each saw double-digit comp growth in the quarter.

We are also pleased to see the accessories penetration in our stores increased due to strong growth in handbags.

Overall, we were pleased with our second quarter performance, which was in line with our expectations.

Looking ahead, we remain on track to achieve our sales and adjusted EPS guidance for 2018, and we are confident that our brands and our business model position the company for sustainable growth for years to come.

With that, I'll turn it over to Danielle to review our financial results in more detail.

Thanks, Ed.

Our consolidated net sales increased 5.8% to $395.8 million compared to prior year net sales of $374.1 million.

Our wholesale segment saw a strong growth despite tough comparisons in the prior year.

Wholesale footwear net sales increased 5.9% to $252.1 million led by strong growth of our Steve Madden brand in both domestic and international markets.

In wholesale accessories, net sales increased 2.6% to $69.3 million driven by growth in private label handbag.

In our retail segment, net sales increased 8.5% to $74.3 million.

Our same-store sales turned positive in the quarter, up 1.6%.

We ended the quarter with 208 company-operated retail stores, including 59 outlets and 6 e-commerce stores as well as a 45 company-operated concessions in international markets.

Turning to other income.

Our licensing royalty income net of expenses was $1.6 million in the quarter compared to $0.9 million in last year's second quarter, while First Cost commission income was $0.6 million compared to $1.3 million last year.

Consolidated gross margin decreased 10 basis points to 37.3% compared to 37.4% in the prior year.

The wholesale gross margin decreased to 31.4% for the quarter compared to 31.7% in the prior year quarter.

The modest decline in wholesale gross margin compared to last year was the result of a customer mix shift in the company's private label footwear business.

Retail gross margin rose 62.9% -- to 62.9% compared to 62.6% last year.

Operating expenses for the quarter increased to $106.1 million or 26.8% of net sales compared to operating expenses of $98.9 million or 26.4% of net sales in the same period last year.

Operating income for the quarter totaled $44 million or 11.1% of net sales compared to last year's second quarter operating income of $43.1 million or 11.5% of net sales.

Our tax -- effective tax rate for the quarter was 21.7% compared to 32% in the same period last year.

The lower effective tax rate is primarily a result of the impact of the Tax Cuts and Jobs Act.

Finally, net income for the quarter was $35.2 million or $0.61 per diluted share compared to $29.7 million or $0.51 per diluted share in the second quarter of 2017.

Moving to the balance sheet.

Our financial foundation remains strong.

As of July (sic)[June] 30, 2018, we had $257.4 million of cash and marketable securities and no debt.

Inventory totaled $133.6 million, excluding inventory in our Anne Klein licensed footwear and handbags, inventory was $131 million compared to $121.2 million in the prior year, an increase of 8.1%.

Inventory was up slightly more than sales due to increase in replenishment business, which generates higher margin sales with limited markdown liability, but requires us to carry more inventory.

As well as an increase in Blondo, where we ran out of inventory a year ago and are poised for significant growth in the back half.

Our consolidated inventory turn for the last 12 months ended June, 30 was 8.6x and our CapEx in the quarter was $2.3 million.

During the quarter, we repurchased approximately 193,000 shares for $9.4 million, which includes shares acquired through the net settlement of employees' stock awards.

At the end of the second quarter, there was a $148.1 million remaining on the share repurchase authorization.

Last, the company's Board of Directors declared a quarterly cash dividend of $0.20 per share.

The dividend will be payable on September 28, 2018, to stockholders of record as of the close of business on September 18, 2018.

Now turning to our guidance.

For the full year 2018, we continue to expect that net sales growth will be 5% to 7%.

We expect diluted EPS on a GAAP basis for fiscal 2018 will be in the range of $2.51 to $2.58, and adjusted diluted EPS will be in the range of $2.60 to $2.67.

EPS growth on a percentage basis compared to the prior year in Q3 is expected to be in line with what we saw in the first 2 quarters of the year.

We see greater opportunity for EPS growth in Q4 due to easier comparisons and a more beneficial tax rate due to projected discrete tax benefit related to stock-based compensation.

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

Operator?

(Operator Instructions) And our first question comes from Camilo Lyon of Canaccord Genuity.

Ed, just if you take on the view of the second half.

And in particular, if you -- what have you seen from any reason how some of the performance of your brand is unfolding at the Anniversary Sale at Nordstrom as well as in your retail stores that can give some insights into where some of the demand trends are unfolding.

I mean how that compares to the outlook?

Yes, I would say, the answer to that is so far so good.

We had a really successful Nordstrom Anniversary Sale.

We pretty much couldn't be happier what we've seen there.

The Steve Madden brand was outstanding, recorded very strong increase in sell-through to the consumer and that's on top of a very good performance last year.

Strength across a range of categories there, including we had a great mule, a great wedge sneaker and over-the-knee boot, a hiker boot, et cetera.

And then the other one, I would call out is Blondo, had an absolutely tremendous performance in the Nordstrom Anniversary Sale, really one of the most successful brands in the sale period.

So we're excited about what we've seen there, too.

And then may be some -- I guess, one sort of general comment I would make about what we've seen in terms of product category or trend is, we did see, I think, some encouraging newness in the boot category.

Number one, I think the reads on tall shaft boots were better than we've seen in a few years, and when I talk about tall shaft boot, I'm saying excluding over the knee.

So it's sort of tall shaft boots to the knee obviously, the category that hasn't been strong in the last few years, but we've got some good reads there in the Nordstrom Anniversary Sale.

And then also I think I mentioned that we had a successful Hiker Boot in Steve Madden, that's a new trend within the boot category that we're excited about.

Now I want to make a note of caution here, I don't think nothing we've seen is leads us to change our overall view on boots and booties for the fall as of yet.

We're still planning that about flat.

But again, encouraging to see some newness in that category.

Great.

I guess the question that we have is, as we think about the compares from first half to second half is materially in the back half.

You just give a pretty good list of things that are positive and trending certainly in the right direction.

It doesn't sound like there is a change in demand trends on the sneaker business either.

So I guess, just trying to parse out the outlook as it stands, is it just more -- I guess, maybe the better question is, what gets you to the high end of the guidance range versus what gets you to the low end of the guidance range because by the tone of what you're saying seems like there's a lot of positively unfolding in the face of easier comparison.

I'm just trying to reconcile what the guidance is implying relative to the description of the characterization that you're giving.

Yes.

So a couple of points I made there.

Certainly to get to the high end of our guidance does imply greater growth, EPS growth in the back half then what we saw in the first half.

And we do think that, as Danielle point out, that, that opportunity is bigger in Q4.

So just sort of reiterate what she -- what Danielle articulated in the prepared remarks, we were up I think about 17% EPS in the first half.

We think that's sort of the right way to think about Q3, but we think there's an opportunity to do better than that in Q4.

And obviously, where exactly Q4 shakes out will depend a lot on how strong the boot category comes in.

Certainly, if tall shaft boots do pick up materially then that would be potential upside in Q4.

Is there a greater expense that is expected to unfold in the third quarter that's making that EPS growth more like the first half just because you grew EPS in last year in Q3 at only 4% so -- versus about north of 20% in the front half.

So what's driving that incremental or at the similar sort of rate of growth in Q3 versus the first half of this year?

I guess -- I don't know how to answer.

I guess we have to go business by business but honestly, again, Q3 I think should look much like what we've seen so far in terms of top line and margins and expense.

Okay, all right.

That's fair.

I guess, the last one for me is do you have any updates on the M&A environment?

And how opportunities are presenting themselves on the acquisition front?

Well, we're certainly out there looking at a lot of things.

I think that overall M&A activity has increased across the space.

There've been a few more opportunities to look at.

We've taken a pretty hard look at few things.

That being said, I think that evaluation expectations are pretty lofty in some cases.

And so not sure we'll get anything done, but we're out there kicking the tires on things.

And our next question comes from Erinn Murphy of Piper Jaffray.

Ed, I was hoping if you could talk a little bit more about the wholesale footwear business, another good quarter of kind of mid-single-digit growth, can you just help us think about how the different channels are performing between mass, your specialty footwear channel, department stores and then of course your digital pure play?

Yes, sure.

So first of all, the branded business was a little bit stronger than private label.

I think branded was up 7.5%, 8% in there in Q2, private label was more like 3%.

So I think you can interpret from that, that department stores and the online retailers were a little bit stronger for us than the mass-merchant channel, which is way more of our private label has done.

But generally speaking, we're seeing pretty good trends across the channels.

Okay.

And then maybe just on the digital pure play.

Can you just share a little bit of what you saw during Prime Day for Amazon?

And just broadly, how you feel about that particular account if you go into the back half and the opportunities there?

Yes, we had a good Prime Day.

I think we were up just under 20% for the week.

I don't know if I have the actual data just for Prime Day, but for that week, we were up just under 20%.

And continue to see that as obviously a growth account.

The one we want to continue to work with.

I think we continue to get better and identify what products are going to be more successful on Amazon and continues to be very important partner of course.

Okay.

And then, I guess, my other big question is on retail.

It's nice to see a positive comp despite kind of the Easter headwind.

You specifically called out sandals and sneakers up double digits, what were the offsets to that?

And then if you go into the fall, I guess you've already talked as it relates to Nordstrom Anniversary Sale, kind of early reads on boots, have you seen anything in your retail stores yet that would further confirm those reads?

Yes, in terms of the offsets, dress shoes were down overall in Q2.

While we were up in closed-up dress shoes, the opened-up dress category, which is -- has been a bigger category, was down.

And so the net was down.

We were also down in boots and booties, although that's obviously a smaller category in Q2.

And then in terms of the reason our retail stores, yes, I think they're pretty much in line with the Nordstrom Anniversary results.

Okay, okay.

And my last question is just on China.

You call that international being over 30%.

Can you just drill down a little bit more about what you're seeing in China in particular?

How you're doing on Tmall versus kind of your own distribution strategy and anything we should be thinking about from an investment perspective as you build that business?

Sure.

Just one point of clarification first.

When I was talking about the international being up over 30%, that was specific to the Steve Madden brand in wholesale footwear.

So the overall international growth is about 24% for the quarter, so just wanted to be clear on that.

In terms of Asia, I think, we're very pleased with what we're seeing online right now and specifically with Tmall, that business just keeps -- continues to get better each month.

And again, it's early, but we're learning a lot there and feel very good about what we're seeing there.

The offline performance has honestly been pretty mix so far.

We've got some good locations, and we've got some locations that are definitely not meeting our expectations.

So we are, I would say, sort of tapping the brakes on bricks-and-mortar openings, while we work to get that store model or concession model right in China.

But we're -- long-term, we remain very optimistic about the opportunity there.

We've got some of the senior-most people in our company, spending a lot of time.

And we're working to get the merchandise assortment right.

And there's a lot that we're working on their whether it's a little bit some more low heels, some more flats, perhaps a little bit more comfort features in some of the products.

We're also going to ramp up marketing.

We're going to start our first influencer campaign there in Q4.

So we've got a lot of initiatives that we're working on, and I think we're going to do well there, but it's going to take a little time.

As I said, the online is really the bright spot so far, and we're going be expanding to some new online channels over the next few months.

So Tmall has really been the primary channel in China.

We're going to go launch with JV, VIP in red over the next few months.

So we're excited about that.

And moving to our next question, we will hear from Dana Telsey of Telsey Advisory Group.

Ed, can you talk a little bit about thoughts on tariffs and how you plan for any potential tariffs, what -- how you see that going forward?

And then also on the Anne Klein business, is it still on track for $80 million to $90 million in sales for the first year?

And how is your business at Kohl's performing, given you're expanding the number of doors you are in there too?

Great.

Thanks, Dana.

So the first one was on tariffs.

Obviously, on July 10, the Trump administration released a list, it was about $200 billion in goods that we import from China that they said could be subject to an additional 10% tariff.

And -- while shoes was not in that list, handbags and certain other accessory categories that we make were.

So that's -- obviously, those tariffs have not gone into effect.

There's, I think, a couple month common period.

There's going to be some hearings in August, but that's something we're watching very carefully.

We're of course hopeful that this is a tactic in a negotiation and that those tariffs are not ultimately implemented.

Because frankly, if they are, unfortunately, they're going to result in a price increase on handbags to the consumer.

We and others will certainly try to pass on a good chunk of this to the consumer in the form of higher retail prices.

I think one thing to remember is that everybody in our space is in the same boat here.

When I talk about our space, I'm talking about the types of handbags that we make.

So synthetic bags excessively priced, virtually all of our competitors make most, if not all of their products in that category in China.

That's a little bit of a different picture if you're talking about higher-priced leather bags.

There's more diversity in terms of country of origin there, but in the -- a part of the market that we play in, mostly everybody -- the vast majority of the bags are made in China.

And so everybody's going to be faced with the same challenge, and I think it's going to result in increased price for the consumer.

The math -- back of the envelope of math says that retail prices would have to go up about 3.5% to offset additional 10% duty.

So that's the first thing that we would look to do is to take a little price.

The second thing is we would look to move more of our production to Cambodia.

We started to move some of our handbags to Cambodia about 3 years ago.

That gives us frankly, about 3-year head start on most of our peers because many folks are just now trying to make that move or just looking to do that now in light of these tariffs.

But this year, we'll do about 15% of our handbag production in Cambodia, our head of handbag sourcing is actually over there right now, working on a plan to ramp that up, and I think that we can conceivably double that next year to about 30%, anything beyond that is -- in the first year is probably unachievable.

But -- so that's really how we're thinking about the tariff issue on handbags, but obviously hoping that, that doesn't come to pass.

The second question was about Anne Klein.

Yes, we're off to a good start in Anne Klein, just started shipping.

I still -- we still believe that $80 million to $90 million target for the first year is the right way to think about it, but we feel very good about what we're seeing there.

We think we've gotten a really good feedback from the retailers about our involvement, and I think they're excited about some of the [ease] that we bring to the table and the way we work.

And so we're pretty optimistic about the prospects for that brand.

And then finally, I think you asked about Kohl's, and that's been a really positive story for us.

As you pointed out, we took a few styles to 800 doors in Madden -- this is Madden NYC, our exclusive brand in Kohl's.

For spring, we did well, made plan, actually exceeded plan.

We're actually based on the success that we've had.

We're going to take more styles to the 800 doors next spring.

And actually this fall, we're taking 1 style all door as a test sneaker.

In -- so we'll see obviously how that goes.

But overall it's a very positive story in Madden NYC.

We're off to testing some kids' product in selected doors in Madden NYC and Kohl's.

And our next question comes from Tom Nikic of Wells Fargo.

Ed, I think you mentioned that you expect to see an acceleration in the accessories business in the back half.

And I was wondering if a part of that is the contribution from the Anne Klein license or if you meant to sort of organically you expect acceleration in your legacy businesses?

Yes, so it's both.

So we expect an acceleration in the organic business and then obviously, when you put Anne Klein on top of that, that juices it even more.

Okay, great.

And on the retail side, so you had gross margin up year-over-year, which is good and it's kind of bounce around a little bit and when you kind of look just overall, you had sort of mid-single digit operating margin in your retail segment and kind of ups and downs.

And I guess, when you just kind of think about the profitability of your retail business, I mean, where do you think there's opportunities, do you think there's opportunities on the gross margin side on SG&A leverage, if you can comp positively consistently.

I guess, where do you think the opportunities are to improve the margins and the probability there?

That's a good question.

I do think that there's some opportunity for gross margin improvement.

Although, I would say, relatively modest.

Although we are targeting a little bit of gross margin improvement there in the back half.

But I think the bigger opportunity is we've got to get the top line moving and have better comp-store sales performance and that will enable us to lever SG&A, because that's really where we've moved in the wrong direction.

And so I think that's really what's going to be important, and I think we need to do that in the bricks and mortar, but also really need to drive more top line growth in e-commerce, and we're working on a lot of initiatives to do that and in fact, already started to see some of them bear fruit.

Got it.

And what sort of comp do you need to leverage your expenses?

3.

And we'll now go to a question from Jeff Van Sinderen of B. Riley.

Just as a follow-up since you're talking about retail, given all the retial vacancies out there, I'm just wondering how you're thinking about potential opportunity to lower rent as stores come up for renewal?

Yes, it's a good question.

I think we have seen the worm turn a little bit in terms of our discussions with landlords.

There were a number of years there that every time we got to the end of a lease, they were -- even we were a little frustrated, because it was happening as traffic in the malls were declining and business is moving online, but the landlords were still looking for big increases to renew our leases.

Now that dynamic has changed a little bit.

In many cases, we're getting -- able to either keep the rents flat or even reduce them.

In some cases, we have moved to a percentage-rent deal.

But keep in mind, we do have -- I think the opportunity is much bigger if you're in C and D malls.

And we really have pretty much all A locations.

And so we can maybe -- we're in a better negotiating position than we were a few years ago, but not as strong as if you're in some of those C and D malls.

Okay, fair enough.

And then, you guys have been doing an amazing job in fashion sneakers and it seems like you have good momentum there.

Is there anything you see that would slow down the fashion sneaker segment in second half?

Or do you think that, that continues to be a strong category for you?

No, I really don't.

We see that momentum continuing.

Okay, great.

And then just one more follow-up, if I could.

Just wondering, given the strength you've had, the recent strength in trends in Dolce and Blondo, how we should think about the growth rate for those businesses in second half that kind of it looks like they're accelerating.

Just wondering, how we should think about that?

Sure.

Well, Dolce -- yes, we were pleased to return to growth in Q2.

We do think that we'll see growth there in the back half, but I don't think it's particularly needle moving for the annual results.

It's a business that was moving in the wrong direction, we've got turned around now.

But I think it'll -- it's going to be maybe spring '19 before you see that really accelerate.

In terms of Blondo, that's a different story.

That business really is on a very strong upward trajectory and has been for a while.

So the growth in the back half should be very strong there.

I'm not going to tell you exactly what, I think, that means but very healthy growth in Blondo.

And moving on, we have a question from Janine Stichter of Jefferies.

Just want to ask a little bit about Steve Madden Men's.

It sounds like you saw some nice improvement there this quarter.

So can you just talk about what's changing there?

And then any plans you have maybe on the marketing or product side for the back half of the year?

In Men's?

Yes.

The question -- yes.

Yes.

Well, Man's is a business that's been good for us over the last couple of years.

We've talked about how we put more emphasis on that part of the business.

We made a leadership change.

I think we made some -- we've sort of broadened out the product assortment and made some improvements there.

We've done more marketing for the Men's business.

As you know, historically, we really focus most of our market on Women's.

We made a concerted effort to speak to the Men's customer.

So I think that -- it's really just sort of a continuation of what we've seen.

In terms of product, I think it's really the dress-casual product.

It's been -- it was most successful for us in Q2.

As we go into the back half, we expect again be selling a lot of Chelsea boots and a lot of chukkas as well.

But Men's is an important initiative for as, we continue to focus on it.

And then just one follow-up, if you could update us about how you are feeling about inventory in the channel.

And then can you just remind us what percentage of the holiday season is currently booked?

Sure.

I think inventory in the channel is in pretty good shape.

I mean, I've to hand it to the retailers.

I think they've been doing a better job, of late, keeping the inventory in line with sales.

And so we think that it's a pretty healthy channel, all things considered.

In terms of holiday, not a lot.

We've got -- we know quite a bit about Q3, but as you know, we work very close to seasons.

So Q4, we don't have much of that booked.

And so we still have a lot of work to do for the balance of the year.

We'll now go to a question from Christopher Svezia of Wedbush Securities.

This is actually Paul Nawalany on for Chris.

I was hoping if you could speak about your efforts on consumer engagement, particularly with social media for example, recalling you worked with Cardi B last year.

And also perhaps an update on the SM PASS.

And then also additionally within sneakers, are there some pockets of acceleration you're seeing such as with dad shoes?

And then finally, if you could -- if you haven't already provided an update on the dress category in Women's?

Sure.

Yes, we'll -- obviously, our core consumer spends a lot of time on social media.

That's a great way to communicate with her.

And so it's a big area of focus for us.

You mentioned the social media campaign that we did with Cardi B. We thought that was pretty exciting.

We got great feedback from that from our consumer.

I mean, we took a celebrity who is very relevant to our core demographic and who has a great social media presence and in fact, part of the way she came to fame was through her posts on social media.

And she -- one of the things that we did with her, which is I think a good way to work with influencers at least like Cardi B, is we really let her create the content in conjunction with us.

And so it was really authentic and obviously we promoted it on our social media channels, but she promoted it on hers as well and got great feedback there.

And of course, we're working on lots of other initiatives there with a number of influencers, not all of them as big as Cardi B, but that's a big point of emphasis for us.

You also asked about SM PASS, that's our loyalty program.

We've launched that I think it was October of last year when it was definitely fall of 2017.

Again, we've been saying pretty consistently for the first year, our primary focus is on getting on sign ups.

And we are ahead of schedule there.

I think we're approaching 600,000 people in the program, which is well ahead of our target that we had originally put out for the first full year.

So we're pleased with that, and we're still learning I think and there's some things that we feel very good about with respect to the program and then we think there's some areas of opportunity.

One of the things we're going to look at is how we can perhaps do a better job of incentivizing full-price shopping and a full price -- and rewarding the full-price customers opposed to the bargain hunter.

So we're looking at potential tweeks to the program there.

And then the last one was sneaker.

Could you just repeat the question about sneakers?

Yes.

So within sneakers, are there any particular areas such as with dad shoes perhaps you might be seeing accelerations throughout the year?

Or any other pockets of successes that you can speak to?

And again, on -- any update on the dress category for Women's?

Sure.

Yes, within sneakers, we continue to have a number of different things working.

We've got joggers that are doing well as well as slip-ons that are important.

But in terms of what we're seeing kind of pickup, I would say, obviously the dad sneakers is a big one that continues to be a trend.

It's gathering steam, particularly in the higher-fashion areas and in the a doors.

We're also seeing wedge sneakers and high tops become more important.

In the Nordstrom Anniversary Sale, we had a very successful wedge sneaker in Steve Madden as well as one in Blondo.

So we're excited about that.

And then with respect to the dress category, I would say, that's sort of mixed.

I talked about how opened-up dress at least in our retail stores has been down, but closed-up dress has been picking up.

And so I think that category is sort of going sideways at the moment.

And we'll hear next from Edward Yruma of KeyBanc Capital Markets.

This is Matt on for Ed.

So just a quick one for us.

Wondering if you can comment on your performance with the Walmart, Lord & Taylor partnership thus far.

Any early reads you could share would be helpful.

No, I'm hesitant to be that specific about a specific customer.

So I think I'll leave that to Walmart and Lord & Taylor to comment on how that's going, but we are participating and partnering and those are 2 important partners of ours.

And certainly hoping that it's a great success.

And moving on we have a question from Sam Poser of Susquehanna.

Couple of quick follow-ups.

The full-line stores versus the outlet, any comp differential there?

Yes, outlets's been performing a little bit better than the full-price stores.

Is there any improvement in New York City to the comp, is that a different -- does that -- was that a driver?

What kind of improvement have you seen in New York?

Unfortunately not.

If you wanted to ask me one thing I was frustrated about in Q2 in retail, because overall I thought we showed some nice improvement.

The New York City was still well below the rest of the chain.

And we still are just seeing traffic, much worse traffic numbers in New York than in the balance of the chain, so that's been a challenge.

And then you've mentioned the Nordstrom sale did quite well.

Can you give us some indication of sort of how much better than versus your expectation?

Can you give us some idea of how much better it did versus your expectation?

Or was it -- did really well, but that was your expectation and so on?

I mean, I can't quantify it for you, but it was considerably better than our plan.

And I would -- next week is FFANY.

I mean that's when you're going to take a lot this information and really start writing fourth quarter, if I'm not mistaken.

From what you've learned over the last month or so with some of the new -- I guess with some of the new boots both, the high boots as well as sort of more hiker types.

I would assume within the next few weeks, you're going to have a much better view on what fourth quarter is going to look like based on early reads and orders?

Yes.

That's right.

Any more detail would be lovely.

No.

I mean I think you said it correctly.

Obviously, what we've learned so far in terms of our early reads in testing is going to inform what we push to our wholesale customers at the upcoming show.

And that will determine what fourth quarter looks like.

All right.

So there's only one more question.

When you look -- when you gave your original full year guidance and then have now maintained it over the last 2 quarters, from a revenue perspective, does the -- what kind of changes in sort of -- what makes up the puts and takes within that guidance, how have things changed?

Was Dolce on plan?

Or is that better?

Were dress shoes worse and so on, you mentioned some of the good and bad.

So can you give us some idea sort of the inside baseball on sort of how this -- on how the revenue puts and takes within the maintained revenue guidance?

Honestly, there aren't big enough variations from our plan in identifying them.

I mean, obviously you got a division that's $1 million or $2 million ahead, a division that's $1 million or $2 million behind what we initially thought, but there is nothing significant.

And the underlying growth rate, when you -- you're going to be delivering, I would guess, about half of the Anne Klein business or Anne Klein product this back half of the year for the first year's sales.

Isn't that -- I mean doesn't that drive increase just, sort of, automatically on your wholesale?

Above where it was was in the first half of the year?

Yes, but remember that at the same time Payless is moving out of the top line and into the other income line.

And in fact, we'll do more business in Payless than we will in Anne Klein in the back half.

So if you were to have neither of those shifts, our consolidated growth rate would probably be a little bit -- would actually be a little bit better, maybe 50 basis points better than what we've guided for the full year.

Can you give us some idea of what kind of dollars are moving into that other income line in the back half of the year?

Or how much you need to get taken out and move -- how to -- can you give us some breakdown there?

Well.

No, I can't.

I can't give you the sales.

I don't -- we don't break out, I mean by individual customer.

The other income line, I'll just remind you however; number one, Payless is our lowest-margin customer.

And number two, we report that line item income net of expenses.

So the SG&A associated with that business will also be moving into that line.

And so you don't need to be looking for any material uptick in that line in the back half.

And we'll hear next from Laurent Vasilescu of Macquarie.

This is Werlson Hwang on behalf of Laurent.

Your digital commerce showed improvement in Q1.

Can you talk about the drivers and what you expect for growth in FY '19?

And separately, another solid gross margin but can you parse out the gross margin drivers for the quarter and how we should think about the gross margin cadence for the next few quarters?

Sure.

So the first question was about digital commerce, and really we think about that as 2 pieces.

One is our wholesale business to online retailers, and of course within that, we have the pure play guys, like Amazon and Zappos, Zalando in Europe as well as what we do with nordstrom.com, macys.com et cetera in the online components of the traditional bricks and mortar guys.

Those businesses are performing well.

They are growing obviously faster than our sales to bricks and mortar retailers, and we'll continue to focus on building those.

And then we've also seen a nice improvement recently in our own e-commerce business, and specifically on stevemadden.com that a number of new initiatives there.

We're going to be moving to a new platform, we'll probably talk about this in more detail in the next call.

We are modifying some of our marketing strategies there.

Again, probably a little bit too early to go in depth on those, but we'll certainly elaborate on that as the year progresses.

But so far we've seen a nice return on some of the initial actions that we've taken there, so we're excited about that.

The next part of your question was about gross margin.

Is that right?

Yes, that's correct.

How should we think about the drivers for the quarter and what your cadence for the next few quarters may be?

Ann is this on a consolidated basis, you're asking?

Yes, consolidated overall firm.

Yes.

So we were down 10 basis points in gross margin on a consolidated basis, but we did call out that there was a customer mix shift in private label side, and frankly big growth, significant growth with Payless and that had about an 80 basis point negative impact to the consolidated gross margin.

So absent that we would've had a nice increase.

As we look at the full year, I still think flat is the right way to plan that.

Now that implies that we'll have some gross margin improvement in the back half because we were down 40 bps in Q1 and 10 bps in Q2.

So we have to be up a little bit in the back half to get back to flat.

Any breakout between the third and fourth quarter that you could give?

I think a little bit more opportunity in fourth than in third, but we should be up in both.

Okay, great.

And one more question.

On store count with 2 quarters left, how should we think about the net store count increases here?

Is it still in the 9 to 10 store range?

Any updated thoughts on how many international concessions by the end of the year?

Yes, I think that the answer -- in terms of the net store openings, yes.

That's still the right way to think about it, 9 to 10.

In terms of international concessions, I think we'll end somewhere around, let's say, maybe 42.

We're actually going to close -- be a net closer in South Africa.

So we entered the year with about 17 there.

I think we'll end the year with around 14.

And in Asia, by the end of the year, we should be up to about 28.

And we'll hear next from Laura Champine of Loop Capital.

I think Danielle mentioned that you expect to get a little help from tax rate in the fourth quarter.

Can you give us your thoughts on where that tax rate ends up in Q4 and for the full year?

Yes.

So I think for the full year, we're looking at 20.5% in there.

Obviously, this is a little bit of a moving target with the -- this carrying rule that went into effect a year or 2 years ago, where we recognize these discrete benefits related to stock-based compensation in the various quarters.

And it also causes the quarterly rate to bounce around a little bit.

Obviously, each quarter this year, we're seeing a significant reduction from the prior year due to tax reform.

But based on the timing of restricted stock vesting, we anticipate that the discrete benefit in Q4 will result in potentially a bigger differential between last year and this year.

I mean, I guess you could think about it maybe sort of 23%-ish in Q3 and maybe 13.5% in Q4, those are real rough numbers, but those are as directionally.

And we'll hear at this time from Steve Marotta of CL King & Associates.

Ed, as it relates to the costing environment independent of tariff concerns, can you talk a little bit about the costing environment in the back half.

And I know that you haven't had orders that are placed for next year, but even if your sourcing agents are telling you a little bit about the first half of '19 that would be helpful as well?

And do you expect to pass all of that through or engineer some of the products downward or absorb some of it?

Can you just talk a little bit about costing and pricing?

Yes.

I think the costing environment is pretty neutral at the moment.

There are some pressures due to, I think, wages in China, materials et cetera, however, offering that is the fact that the dollar has strengthened against the RMB.

I think that the dollar -- or the RMB has weakened against the dollar by almost 8% since mid-April.

So that's allowing us to offset whatever other pressures there are.

Okay, that's helpful.

And I know that you do not provide comps on a quarter-to-day basis.

But if you could talk a little bit about may be just qualitatively, back-to-school impressions, you mentioned already that inventory within the channel is relatively conservatively planned for, but if you could just talk about maybe early reads and early back-to-school markets and anticipation for the current -- upcoming season?

Yes, I mean it's very early.

And as you know, back to school isn't quite as important for us today as it used to be.

But I think so far what we're hearing is pretty positive.

So I talked already quite a bit about the various product categories, but overall I think the retailers that we speak to, I think the sentiment is pretty good.

And with no other questions in the queue, I would now like to turn the call back over to Ed Rosenfeld for any additional or closing remarks.

Great.

Well, thanks very much for joining us on today's call, and we look forward to speaking with you on the third quarter call.

Have a great day.

And again that does conclude our call, we would like to thank everyone for your participation.

You may now disconnect.