Steven Madden Ltd (SHOO) 2002 Q1 法說會逐字稿

Welcome to the Steven Madden, Ltd. conference. During the presentations, all participants will be a listen-only mode. Afterwards you will be invited to participate in a question-and-answer session. At that time if you have a question you will press 1 on your touchtone phone to register for a question. As a reminder, this conference is being recorded on May 1, 2002. I would now like to turn the program over to Cara O'Brien of Morgan Wacht. Go ahead, please.

Thank you. Good morning, everyone, and thank you for joining this discussion on Steven Madden, Ltd. first quarter results. By now you should have received a copy of the press release. If you have not, please call our offices at 212-850-5776 and we will fax one out to you immediately.

Before we begin I would like to remind you that statements in this conference call that are not statements of historical or current facts constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other unknown factors that can cause the actual results to be different or from any future results expressed or implied by such forward-looking statements. The statements contained herein are also subject to other risks and uncertainties that are described from time to time in the company's reports and registration statements filed with the SEC. Also please refer to the earnings release for more information on risk factors that could cause actual results to differ.

Finally, please note that any forward-looking statements used in this call should not be relied upon as current after today's date.

I'd now like to turn the call over to Jamie Karson, chief executive officer of Steven Madden, Ltd. Jamie?

Good morning, and thank you for joining us in the review of Steven Madden, Ltd.'s operating results for first quarter that ended March 31, 2002, and to also discuss the company's near-term growth prospects.

With me to review the numbers that were released today are Richard Olicker, our president and Chief Operating Officer, and Arvind Dharia, our chief financial officer.

We are extremely pleased with the strength of our first quarter and are thrilled to begin the year on such a positive note. We have continued to perform by methodically executing our business strategy, strengthening our brands and increasing our market share. In a conservative retail environment where inventories and purchasing patterns for early spring were broad but without depth, our unique production and replenishment strategy continued to provide us with the ability to maximize opportunities in season, setting us apart from our peers. The execution of this strategy enabled us to achieve a 25 percent increase in total sales in our combined wholesale and retail operating divisions. This performance was also extremely well balanced. Our wholesale business grew 25 percent, $37.8 million, and our retail business grew 24 percent to $18.8 million.

We are particularly pleased to report retail comp store gains of 14 percent over the first quarter of 2001. These cumulative achievements generated earnings per share of 30 cents on 13,540,000 weighted shares outstanding in the first quarter of 2002, which was 3 cents above our internal expectations and consensus estimates versus versus 29 cents on 12,407,000 weighted shares outstanding in the first quarter of 2001.

Furthermore, the company was able to effectively leverage its infrastructure while continuing to drive business and nurture our newest and faster than growing brand, Madden Men. This is reflected by a decrease in operating expenses as a percentage of net sales by 120 basis points to 31.4 percent from 32.6 percent as well as the 18.2 percent increase in operating income.

Finally, we remain in excellent financial health. At quarter end, our balance sheet reflects the company had approximately $39 million in cash, cash equivalents and investment securities. No long- or short-term debt and total stockholders equity of $108.8 million providing an enormously strong foundation from which to build the future growth of our company.

I'd like to turn the call over to Richard Olicker, our president and chief operating officer, to review the operating results in more detail.

Thank you, sir, Jamie, and good morning, everyone. Let's review what happened in the quarter. Net sales increased 25 percent through $66.6 million versus 53.4 million in the first quarter of 2001. Net income increased 12 percent to $4.1 million versus 3.7 million last year. Diluted net income increased 3 percent, 30 cents per share on 13,540,000 shares diluted outstanding shares [inaudible] as compared to 29 cents per share on 12,407,000 diluted shares outstanding in the same period of 2001. This exceeded both our planned and analysts' expectations of 27 cents and was achieved to a better-than-expected sales gain, particularly in our men's division and the operating leverage that resulted from maintaining a stable operating expense structure.

During the quarter, growth margin decreased 160 basis points to 39.8 percent versus 41.4 percent last year, and this was primarily attributable to two factors. This spring, our wholesale customers adopted a broad and shallow assortment strategy resorting in season open to buy for performing products. That strategy plays to our strength being organized to turn products quickly in season and while we did benefit as evidenced by our top line growth of 25 percent, there were attendant higher costs of goods and expenses bringing this product to market with speed. In our case, by electing to produce more goods, United States and Europe at higher costs and with greater air freight expense than would have been obtainable had we had longer production lead times, we accepted lower first quarter margins in exchange for lesser inventory risks. Also impacting our first quarter gross margin was the realization of customary markdowns taken in the first quarter. Let's review what happened in each division during the quarter. For the company's wholesale division, which is comprised of five brands: Steve Madden Women's, Men's, LEI, Stevies and David Aaron, revenues increased 25 percent, $37.8 million versus 38.3 million last year. Revenues from Steve Madden Women's wholesale were 22.9 million in 2002 versus 23.1 million in 2001, driven by a balance of classifications ranging from [inaudible], assortment of Euro casuals, additional mules sandals and early [inaudible] at value price points. Maximize the Euro casual sporting category by quickly adding patterns built on successful construction reaching a broader cross-section of customers. We also included younger easier versions of Oxfords and mules into the mix which attracted younger customers to these looks and we introduced a [inaudible] Euro sport mule that has had a very strong start. This will set us up for a strong back to school featuring additional patterns on this bottom. We also continue to have excellent sell-throughs and high demands for our open stock offerings and due to high initial sales, we added a new [inaudible] stitched thong to open stock. Finally, our sandal category, including dress sandals, have continued to grow as we expanded the assortment to accommodate the junior and the crossover customer. LEI sales increased 18.8 percent, $11.6 million from 9.7 million in 2001 driven by closed pro fashion casuals and fresh spring dress sandals, significant increases were achieved at Kohl's and JC Penney as well as May Company and Sachs Group, and we added Goody's as a new LEI customer. Sales of Stevies, our children's brand, increased 23.3 percent, $2.4 million versus 2.8 million in 2001.

[inaudible] expansion most notably with New Kids R Us fashion doors and Nordstrom. We are also extremely pleased to report a successful relaunch of Stevies at Journeys Kids, prospect for further grow in the near future. David Aaron made excellent progress in the quarter with sales increasing 39.7 percent, 2 and a half million versus a million-8 in 2001.

Continue to out-pace our internal growth plan. Pointy-toed dress shoes as well as sport active shoes drove the business. Exceeded plans in our key accounts including Macy's East, Bloomingdale's and Lord and Taylor and we expanded into more Nordstrom and May Company doors. David Aaron is also evaluating its own open stock replenishment program, a strategy that will generate additional sales of select key SKUs and reduce markdown liability. Finally, Madden Men's really arrived in the first quarter of 2002, the sales increasing 718 percent to 7 and a half million dollars versus $910,000 in 2001.

Madden Men's has found its momentum primarily due to having the freshest looks in the market and a broad customer base coupled with a business strategy that works. Facing a very difficult fall in the men's industry, we were enjoying tremendous acceptance at retail late last year. Rather than waiting for the traditional first quarter shipping period for spring, we delivered our spring collection early last November. Early spring reads from these deliveries were so strong that [inaudible] became multiple-door roll-outs for several large key retailers. Our sourcing partners were very responsive in the timely delivery of sufficiently large quantities to fulfill both our open stock bins and the immediate in-season demands for goods in our first quarter. [inaudible] dollars came from the traditional men's brands that were not turning and from a lack of our fresh product in the market for the period. Classifications that drove the business were Euro casual and sport active look.

Madden Men's is now widely accepted by a broad age spectrum and a multi-cultural demographic. End of March, Men's was in over 800 doors and in 21 of our own retail stores.

The new door expansion, our ability to react to key items in season through our extensive EDI and open stock replenishment program and the low roll out of men's concept shops this fall will provide a solid basis for terrific roads for this brand. Moving to our retail division, as of March 31, 2002, there were 73 stores in operation, including our Internet store. Revenues increased 24.4 percent, $18.8 million versus 15.1 million in 2001. During the quarter, retail at 28 percent of our total business sustained percentage to the total at last year. The company did not open any new stores in the first quarter but we have signed five new leases, including locations in [inaudible] Massachusetts; Pembroke, Florida; [inaudible] Street in Boston; Fashion Valley in San Diego; and Fashion Square in Scottsdale, Arizona. Moving us toward our goal of opening eight to ten stores in 2002. inaudible] and Pembroke locations are scheduled to be added during the second quarter which will bring the total count to 75 including the Internet store.

At the end of the first quarter there were 63 comp stores versus 62 last year. inaudible] store sales as Jamie recognized rose 14 percent, seeing the performance of our peer group. This performance was achieved through a timely early transition to fresh spring merchandise and executing our strategy of getting fresh product into our stores early and replenishing in season, also assisted by the mild weather in the northeast and the advantages from the calendar ship whereby Easter fell earlier than last year.

Finally, these comp gains could not have happened without the terrific energy and effort of our retail managers, back office and field associates. From a product assortment standpoint driving retail performance in the quarter was a continuation of best selling pointy-toed boots and booties, new casual clothes, coats, shoes, boots, gradual transition into sandals. Our model for replenishment of core items by size further supported retail performance.

The company continued to lead in the area of retail grassroots marketing. During the quarter in conjunction with the opening of our Puerto Rico store, most of the performance by teen sensation JiveZ appeared and signed autographs with Miss Teen USA, Joslyn Montero. For Valentine's Day in conjunction with Z100 in Metro New York gave a lucky girl a Madden night shopping spree hosted by Z100 DJ Rich Davis.

Our Grammy Awards promotion was expanded this year to include both the east and west coasts, giving us concentrated radio exposure in two of our retail markets.

Not only do we offer customers a chance to attend the Grammys, this year we also rewarded two store employees with a trip and tickets. This spring we also embarked on a very aggressive mole campaign going directly where our customers are. We also send targeted mailers utilizing internal mailing lists to successfully drive business, and contests and continued the stream of efforts that have kept the Steve Madden brand on the minds of our target consumers. Additional marketing is planned for the second quarter and the remainder of the year.

Moving to other income lines, in the first quarter, the company's other income line increased 10 percent, a million-2, versus a million-1 during the same period last year. Other income line includes the commission income from our private label division of Adesso-Madden and trademark loyalties earned from our licenses. Private label income increased 13 percent to $914,000 versus $808,000 last year. Increase with continued growth from the discount sector and broadening assortments within the sector particularly at Wal-Mart, Target and Sears. Growth classifications included sandals and wedges.

Licensing income was $330,000 versus $326,000, same period last year, an increase of 1 percent. At present, we have six licenses covering six product categories. We are committed to broadening our brand beyond the footwear classification and are currently working with a number of licensing professionals in an effort to achieve our goal, too, by year's end buying suitable transactions or arrangements that will serve to leverage our unique identity into broader product categories. Part of this general licensing initiative, we're attempting to also generate support from our retail partners. For instance the New York accessories market week in March, we hosted a private cocktail party for federated department store executives. Our brand message was: Why should your feet have all the fun? Effectively introducing the essence of our brand in categories beyond footwear to the premiere department store group in America.

Turning to the operations side, during the quarter we upgraded our phone system to its maximum capacity, added TVT scanners to enhance retail store store receiving and inventory management functions and enhance disaster recovery procedures to ensure full operational capability within 12 hours.

Later this month, we are looking forward to moving when our third-party warehouse provider a larger and modernized west coast distribution facility. Also as previously reported, the company continues to strengthen its management team by adding certain key personnel throughout the company and we will continue to add strength and depth to our management ranks.

Finally from a broader marketing perspective it was a strong quarter for brand reinforcement, recognition and visibility. The company continued to utilize trade print media in support of Steve Madden Men's. After the olympics we partnered with the Pro Am Jam snowboarding event in Vernon, New Jersey, and together with other sponsors such as JVC we encouraged visitors to sample our products, gave away shoes and built up our extensive mailing list now including a growing number of men. We enjoyed terrific editorial coverage of product placement in the first quarter, appearing among other places with the editor in chief of Lucky magazine on the CBS Morning Show next to product. Ten VJs on MTV could be found wearing our shoes and crediting us while they hosted Fashionably Loud, and our shoes were also featured in MTV's J-Lo Wannabe Contest. Two VH1 DJs debuted day in the life special where as part of her day, she visited our Soho store, met Steve and bought some great shoes. Our spring product is featured by fashion editors in publications such as Cosmopolitan, Glamour, Teen, Cosmo Girl, US Weekly, L Girl, J14 and Lucky, among many others.

At the WSA trade show in February, the editorial reaction to our fall assortment was the strongest in the company's history and we are looking forward to being featured heavily in consumer books this back to school. Also during the trade show, Footwear Plus magazine honored the company and Steve with a plus award in the woman's street wear category. Of particular honor to win this Plus award as it is retailers who select the winning company.

Let me turn the call back to Jamie who will give you some balance sheet highlights and provide some closing remarks.

Thank you, Richard. inaudible] overall financial condition, we believe we have maintained a pristine balance sheet, which [inaudible] to the viability of our company. March 31, 2002, cash, cash equivalents and investment securities was $39.4 million. Inventories were at 15.6 million, down from 16.3 million last year. Our inventory charts [inaudible] for the prior 12-month period. Accounts receivable at 38.9 million [inaudible] at the end of first quarter in 2001. Working capital was at 83.4 million. Total shareholders equity was at 108.8 million, [inaudible] diluted shares outstanding were 13,540,000 shares, great foundation upon which to build.

The plan for future growth envisions a coordinated, methodical approach to growing the business and our brands, valuating several opportunities to expand the Steve Madden brands into other categories such as women's and men's jeans, apparel, cosmetic and fragrances.

The carefully weighing our options, monitoring the importance of selecting the right partners in developing the right opportunities to expand our brand into additional categories in the near term.

We are also evaluating several opportunities to develop an international business and we are taking a methodical approach to this endeavor as we are presented with many different opportunities. But we are excited by the prospect of the selling our product in Asia, Europe and other parts of the world. [inaudible] We previously announced that we introduced an exclusive distribution and development arrangement with Steve Madden stores and distribute product in South Korea. inaudible] already is distributing to the prestigious Hyundai Department Store chain in Korea. Based upon early reaction, we believe it should be a highly successful venture. Continued to nurture and grow our existing brands by designing and building the coolest most fashion forward shoes and by further developing product lines to fill our multiple channels of distribution. We utilize our cash to support and grow these businesses and contemporaneously with that, we will develop a plan respecting the further creation of shareholder value.

In conclusion, the first quarter was an outstanding period for Steven Madden, Ltd. [inaudible] execution of our growth strategies and dedication to the business models that sets us apart serves to strengthen our brands and increase our market share and enabled us to deliver another quarter of consistent performance and growth over the prior year period.

As we move forward, we are energized and remain confident in our ability to achieve the targets that we have set for the year. For the full year, anticipate that earnings per diluted share will be between a dollar 28 and a dollar 33 [inaudible] with current analysts expectations.

We're optimistic as we move forward. The future is very bright for Steven Madden, Ltd. I hope this call has been informative. Thank you for your time and your interest and now we'll turn the call back to the operator to take any of your questions.

Thank you. Ladies and gentlemen, at this time if you have a question, you will need to press the 1 on your touchtone phone. Questions will be taken in the order they are received. If your question has already been answered, you may remove yourself from the queue by pressing the pound key.

Also, if you're using a speakerphone, please pick up the handset before pressing the buttons. One moment, please for the first question.

We'll take our first question from Amir Ali with [Sedoni Company]. Go ahead, please.

Hey, how are you?

How are you?

Pretty good. I actually got on the call late. Sorry about this. In terms of gross margin, I missed the recap. Could you just do that for me real quickly? I got in on the call, there was a comment about freight and a couple other comments it sounds like right before that about gross margins.

Are you asking about the decrease, the reasons for the decrease?

Yes, yes. Thanks.

Okay. The primary factor is that we are in an environment where our wholesale customers are playing it very tight to the vest. They're buying in a broad and shallow way and they're -- and very close to need, causing pressure on margins because it forces us to move to countries that can turn very quickly but generally at a slightly higher cost of goods and also with an air freight expense.

Okay.

So that was the -- the most notable reason for our gross margins.

Okay. And in terms of quantifiable amounts, the difference is then in expenses in terms of cost of goods sold, you're saying it's less to do with price points then and more to do with an increase in absolute dollars of the cost to produce the product?

I think that's a fair statement.

That's a fair statement.

Was there differences in gross margin between retail and wholesale aside from the historical differences in terms of the price points that were -- that were commanded at wholesale and retail?

Are you saying in our wholesale division, wholesale and retail divisions?

Our average prices to customers at wholesale versus price charged to customers at retail?

Right.

I'm not -- I'm wonder -- I'm asking which one you're asking.

Okay. I guess in terms of historical amount that is an average price point at retail versus wholesale, wholesale's a little bit below that. I'm saying, did wholesale come down in January? Was there still pressure from promotional activity that bleeded into January and maybe perhaps early February in terms of some of your bigger retailers?

I think the answer is probably yes but it's probably also because of multiple reasons, you know. This was the season that saw some early promotional activity and lower site goods like, for example, EVA sandals. This was a lower wholesale and a lower retail ticket.

Okay.

So our average is down a little bit. I think -- is that what your question is?

I guess so. From January to February to March, were there difference, in price points? Was growth margin improving a little bit between those months? Or was it pretty much steady? Was January, February, March pretty consistent in terms of gross margins?

I think it was pretty much steady. I think we were narrowing what was happening in our wholesale businesses by not making great commitments to inventory ourselves and thereby not really having great cost advantages from value purchases so we were mirroring what was happening at retail generally at the buying patterns of our wholesale partners and that resulted in a pretty steady gross margin issue.

But compared to January and February or -- growth margins, looking the group plan to increase the group margins.

Where do you see that not necessarily in a hard number for the second quarter but just the 39.8 percent that you got in this first quarter, do you see that trending up? Where do you see that on maybe an annual, you know, 2002 basis or for the second quarter?

The trend is up.

The trend is up? Okay. If you look at the gross margin for the first quarter year over year, it slipped 150 basis point. In the second quarter, where do you see it in relation to last year's gross margin?

I think it's close to -- close to maybe [inaudible].

Okay, okay. Another question SGNA as a percentof sales, in absolute dollars, it went up about 3.5 million. As a percent of sales, do you see it staying at the 31 percent or should that get up maybe to 31 and a half, 32 going forward?

Going forward?

Yeah.

Going forward, it's [inaudible] is going to be [inaudible] what we estimated in the [inaudible] and to make it 32 percentage.

Okay. So that should be going up a little bit. For this first quarter, advertising as a percent of sales, do you know roughly that was at, your marketing budget as a percent of sales for the first quarter?

1.7? Great. A question about interest income. What rate is that, the 204,000? In terms of the net number, there's income. Is there expenses offsetting that? And if not, the 204,000 is based on roughly an average cash balance of what, and what was the rate that you guys witnessed for that first quarter in terms of an interest income rate?

inaudible] but right now, we are getting 2 and quarter percentage, approximately.

2 and a quarter? Okay. The 6.2 million investment securities, those are not cash equivalents? That's something fairly liquid?

Fairly liquid.

Actually, they have a schedule of maturation rate of being -- they vary short-term to, you know, midterm investment securities.

Okay. Is it possible going forward you guys could putting more money from cash balance into higher yielding investment securities?

Yeah, we're working on it right now.

Okay, question about licensing. Are there any -- I know you guys continue looking for deals. Is there anything that's impending maybe in the second, third quarter that's new that came about recently?

Looking at various opportunities. As you can imagine, we are presented with numerous opportunities and we're taking a very careful approach to picking the right partner. We think that's the most important thing. And as Richard pointed out, we would anticipate by year's end having those relationships in place.

Okay. Question about Madden Men, the -- not for an average price point but in terms of I guess a new product, do you guys -- what's your methodology on pricing them in terms of starting a new product? And where do you see gross margins for that product line? And do you see them trending up in the future or staying flat?

The price point at retail range from 60 to $90, and on boots, higher. And I do see gross margins moving up on the men's wholesale division.

Okay, that's it. Thanks very much, guys.

Thank you.

If you would like to register your site for a question, press the 1 on your touchtone phone at this time.

Next question from Joseph [Teglets] with Wachovia Securities. Go ahead, please.

Thank you. Hey, everybody.

Hey.

Good quarter. Go back through a couple of these issues again, if you could. GNA down 120 basis points.

I can see the whole yearly.

Okay.

inaudible] down like 60, 80 points [inaudible] approximately.

Still look at 50 basis points for the whole year so we can just kind of figure out the whole next three-quarters from that, correct? Okay. All right, Richard, I guess you talked about gross margin a couple times but the two issues you mentioned first as being chasing product and sourcing, no issues driving costs higher. That obviously is a -- I'm assuming that was a first quarter issue now that you got some tested, proven styles and a little more visibility for the year, a little better visibility for the year, you're now going back to Brazil or back to far east or wherever you need to go to get better margins. Is that safe to say?

Or we're making larger volume commitments through the faster turning countries, so we're driving some cost savings through that because I don't see the retail environment changing very dramatically over the midterm.

Okay. So you don't think -- in the first quarter, correct?

Well, we're going to -- yes, I think we're going to improve.

And certainly the -- and then the -- the other issue, markdowns in the first quarter, is that a department store issue, a carryover from their year end last year that affects you in Q1 and now that's behind you, as well?

Well, it's a calendar shift issue partly but it's also the historic norm for the first quarter.

Okay. Women's wholesale. Can you speak to any backlog there? Is that business planned to be flat for the rest of the year similar to Q1 or is there an up side year over year at some point?

Women's wholesale.

inaudible] high single digits.

Women's wholesale, up high single digits for the rest of the year? Okay. Is men's profitable yet? Can anybody speak to that? This kind of sales volume in the first quarter? It is?

Yes.

Great. You talked about the calendar shift Richard for comps in March benefitted from the need for shift. Can you speak to any April trend, whether that affected you negatively in April or you're not really seeing any effects?

It didn't affect us negatively to anything we weren't planning for. We were planning for pretty much a flat month and we're trending early April, better than that and then over the last several weeks, with the weather turning a little bit wet in the east giving some of that back, but still we're right pretty much where we planned.

Okay. And two questions for Jamie, just the balance sheet you went over. I didn't catch the inventory number and you gave an accounts receivable number I believe of about 39 million versus 29 million. Can you speak to why that's up a bit more than your wholesale business?

Okay.

Our accounts receivable were up 38.9 million and I think Arvind can best speak to that.

inaudible] wholesale we are 6.6 million.

Uh-huh.

inaudible] last year of 5.8 million.

Okay.

inaudible] on 9 million compared to same time last year, 10.5 million. inaudible] went down [inaudible] but 36 percentage [inaudible] this year compared to same period last year first quarter. The main reason, past 60 days of the first quarter, first quarter of 2002, there has increased 27 [inaudible] to 38 million compared to 30 million in the last 60 days of the first quarter '01.

So a timing issue?

Yeah. 8 of the 10 effectively is not due yet. It's still -- it was shipped late in the first quarter.

Got you. Richard, should we be expecting inventory at some point this year to be flat year over year in order to kinds of drive the volumes and the gross margins that you want?

Yes.

Are you under-inventoried in your mind at this point, or are you happy?

It's a peeve of mine. We -- there's almost not -- you can never be too vigilant. I do think if things open up, have to open the spigots a little bit particularly at retail and bank to school, as you know, seasonal for the business, we raise inventory starting with you'll start seeing it at the end of the second quarter.

Right. Okay, final question then about your guidance, dollar 20 to dollar 33. I believe you basically just tacked on the 3 cents for the first quarter upside to your previous guidance and that's all you gave us. I know that's -- I think that's what you've done historically, I just need kind of a refresher here. I think that's what you've done historically, is basically give guidance for the year, for the quarters and then not really adjust the quarterly guidance going forward in the middle of the year. Is that safe to say?

That's correct.

That's correct because middle of November, I always give guidance for next year and [inaudible] any other guidance by quarter to quarter.

You felt a little better about the forward quarters, you're not going to commit to that at this point is I think what you're saying.

inaudible] saying same way we give [inaudible] nothing but middle of November for next year.

Okay. That's cool. Thanks, guys. Good job and good luck.

Thanks, Joe.

Once again, for any questions press the 1 on your touchtone phone at this time. Next question from David [inaudible]. Go ahead please.

Good morning. Gary [inaudible] on behalf of David. Could you talk to -- one of the questions -- not much left, but could you talk to your advertising budget? Sounds like you're doing a lot of new things this year. Advertising is one thing. I believe you said 1.7 percent in the first quarter. Where are we going to see advertising kind of year over year [inaudible] sales in the remaining three-quarters and then for the year?

We are -- our plan is to feed a little bit more into advertising. I think our plan is slightly higher than what we came in at in the first quarter. The overall strategy is a grassroots strategy and the idea is to get maximum leverage for every dollar. The other thing playing to our advantage is the softness in the advertising markets where we're finding we're able to buy our needs for less than it was costing a year ago.

Right, right, I see. I guess last question, because this is on a personal note. Can you talk maybe to the promotional environment of wholesale Men? I bought a pair of the bowling shoes at 99 bucks. About two or three weeks later, they're on sale for 69 in Journeys. Can you maybe explain to me what if any is there changes in the pricing or why would there be such a promotional environment given how strong the sales have been?

Gary, as you know, we cannot dictate retail.

Uh-huh.

There are certain frustrating tactics that occur in the marketplace but we can only do what we can do which is sell the best product that will perform at retail at acceptable retail price point.

Right, right, I see. I do love the shoes. Thank you very much.

We'll take our next question from Nancy [inaudible] with Asset [inaudible].

Hi. Good morning. I don't know if you gave this number but did you give an overall backlog number for the wholesale business?

We did not and we do not.

In terms of your inventories specifically in your own stores, can you speak to those levels on a total or square footage adjusted basis what the plan is for the year?

Repeat the question quickly.

Inventory per square foot at the stores [inaudible] different there versus the wholesale business?

Nancy, can we give that to you off line? We just have to do the calculation and don't want to sit here while we're pushing numbers into calculators.

Sure, that's fine.

I will.

after the call, I'll give that to you. As I say, Marvin is pounding away.

Okay.

I'll call you in a little while.

It looks like back of the envelope is $100 per square foot we'll refine it and I'll give you an accurate number.

Thanks.

Once again for any final questions press the 1 on your touchtone phone at this time.

Take our next question from [inaudible] with Keene Capital Management. Go ahead please.

Guys, how you doing?

How are you?

Doing well, thank you. Good job there. I just had a couple questions. One, the comp numbers, I know they're probably broken out, but could you kind of give us a little bit of a color on how those -- you mentioned that the April comps kind of bounced a little bit and then pulled in a little bit because of the weather. Are we late enough to talk a little bit about, you know, the department store and kind of what you're feeling here. You know, the environment is not super great but how are we there as far as inventory specifically certainly seems like there's a lot of growth in various lines of the business and things are really hitting on all cylinders but kind of paint for me a picture of what's happening at the department stores, what you're hearing from them. You know, if there's no backlog orders given, can you kind of talk about some other conversations, what they're -- a little bit there? That was my first question.

Well, kind of addressing the April issue, as I mentioned earlier, April is right on plan and we were looking at April and we were enjoying March, so we're not surprised, we're right on plan. As far as inventory at our wholesale customers, we're very pleased with our inventory levels as well as our sell groups.

Okay. And is that comp number, is that 14 overall comp, how is that broken out as far as department store related?

It's not. The comp number is our own retail stores only.

Okay.

Okay.

All right. That's okay. And a little bit about -- I know in the past kinds of looking at the brand from 2000C, you talked a little bit about potential entrance into new areas and a new license, growing a brand, possibility of European expansion. How far along you know on a baseball inning 1 to 9 are you in kind of thinking about some of these things as far as kinds of a larger breadth kind of a big-thinking process?

Always looking for new and innovative ways to grow our business but this runs the gamut. It can mean lots of different things. You know, not just getting into different categories but perhaps developing new product lines and -- and we're constantly looking at those things. It's hard to judge it in terms of a baseball inning type of thing, kind of like, you know, a tennis match. It ends when it ends and it begins when it begins, you know what I'm saying?

Uh-huh. Just going to have to tackle it one opportunity at a time and analyze that, I guess.

And finally just I know people on other calls talked about the margins. I just want to understand the reasons that the margins were where they were a little bit versus last year and some of the estimates I guess were simply just for kind of a sourcing issue that sounded like more of a one-time issue.

Is that -- am I correct in that analysis?

Instead of looking at it one time, I think we're in an environment that -- that always pushing us to find the product where it is and get it to market as fast as it possibly can get to market. There's always going to be some pricing pressure and margin pressure when you're operating in that kind of environment, which I believe we will be in the near to midterm, however, our response to that is by bringing more volume commitment to those players that can give us the speed to market and quicker turn time, there by reducing -- improving margins over the period so that we can bring the cost down.

Okay.

Yeah, we're -- yes.

This quarter at least specifically it was a sourcing issue and not a pricing issue.

Definitely.

Okay. Thank you very much. Great quarter. Congratulations, you guys.

Thank you.

Since we have no further questions I'll turn it back to management for any closing comments.

Thank you for participating in the call and we will look forward to speaking with you at the end of next quarter.