Steven Madden Ltd (SHOO) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Steven Madden first quarter earnings conference call.

[Operator Instructions].

It's now my pleasure to turn the floor over to your host of Cara O'Brien of Financial Dynamics.

Ma'am, the floor is yours.

Thank you, operator.

Good morning, everyone and thank you for joining this discussion of Steven Madden Ltd. first quarter results.

By now you should have received a copy of the press release.

But if you have not, please call our offices at 212-850-5600, and we will send one out to you immediately.

Before we begin, I would like to remind you that the statements in this conference call that are not statements of historical or current fact 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 could cause the actual results of the company to be materially different with the historical results or from any future results expressed or implied by such forward-looking statements.

The statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in the company's reports and registration statements filed which 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 would now like to turn the call over to Jamie Karson, Chairman and Chief Executive Officer of Steven Madden Ltd.

Jamie, go ahead please.

Thanks Cara.

Good morning, thank you for joining us to review Steven Madden Ltd's results for the first quarter that ended March 31, 2005.

With me to discuss the business are Richard Olicker, our President and Chief Operating Officer and Arvind Dharia Chief Financial Officer.

I will begin the call by providing an overview of our first quarter performance.

Then, Richard will review in detail the financial results for the period.

Following our formal remarks we will be available for any questions you may have.

As discussed when we reported our fourth quarter results, we were cautious as we entered fiscal 2005, given our expectation that certain challenges to our business would remain.

However, despite challenging conditions we experienced pockets of strength in our business during the quarter.

To this end, we are pleased with our overall first quarter performance.

We delivered top line growth led by an 11.7% increase in retail sales and a 5.5% increase in same-store sells.

Wholesale contributed a 3.3% sales increase to this top line expansion, which is slightly better than we anticipated, and we see this wholesale sales improvement as modest, but encouraging progress.

In addition, we posted earnings per share of $0.07, which is in line with our plan and keeps us on target to achieve our previously announced expectations for the year.

As expected during the quarter, we faced continued gross margin pressure due to the following factors.

One, a liquidation of obsolete inventory in both wholesale and retail operations.

Secondly, increased promotional activity at retail, and thirdly, a demanding markdown environment in wholesale that had a particularly significant impact on the Candie's and lei divisions.

Additionally, we incurred higher operating expenses versus last year, due to an increase in our reserve for settlement charges, professional fees mainly related to Sarbanes-Oxley compliance, as well as increases on the retail side in salaries and occupancy expenses.

At the same time however, we diligently worked to make progress in key areas of our operations.

Specifically we took a number of measures to benefit our wholesale business and position it for improved long-term profitability.

We continue to drive a turnaround in Steven Madden Men's as evidenced by a 68% increase in sales and we achieved sales growth in both Candie's and Union Bay.

We made a decision to withdraw both lei and Stevie's Footwear from select under-performing wholesale doors to focus on the most profitable locations.

In addition, our core Steven Madden Women's brand continued to perform well and reorders are in the pipeline, providing a good foundation for the remainder of the spring season.

As for our retail business, we continue to demonstrate our industry-leading productivity.

We further strengthened our retail operations by closing under-performing locations and expanding the store base in line with our intent to open 12 to 15 stores during the year.

Turning to our balance sheet, I would like to mention that we remain in excellent financial health.

We ended the quarter with a solid debt-free balance sheet with approximately 78.1 million in cash, cash equivalents and marketable securities and total stockholders' equity of 162.2 million.

Finally, during the quarter, we spent 5.5 million purchasing 309,000 shares of common stock in open market transactions verifying our commitment to maximizing long-term shareholder value.

Overall, we are continuing to improve our business and grow our top line, while working to better manage our inventory and cost structure to mitigate pressures on our bottom line.

In addition, we are expanding our operations add building the foundation from which we intend to drive long-term growth and profitability as well as enhance the shareholder value.

Now I would like to turn the call over to Richard, who will go through the quarter's results in a bit more detail.

Thanks James.

Good morning, everyone.

Let's review what happened independently of each division in the quarter.

Net sales increased 6% to 83.3 million versus 78.8 million in the first quarter of 2004.

As we anticipated, gross margin for the first quarter was 34% versus 39.7%.

This was attributable to several factors.

The liquidation of obsolete inventory at both wholesale and retail.

However, as a result, overall inventories were reduced by 5.7 million over the period ending December 31, 2004.

Increased markdown and allowance activity, particularly at Candie's, lei and Steven.

Increased promotional activity at retail, and the contribution of competitive pricing pressures in newer assortment categories.

As we further anticipated, operating expenses were higher than last year in the comparable period.

This was due to anticipated higher professional, accounting and legal fees associated, among other things, with Sarbanes-Oxley compliance, higher salaries and commissions taken together as the result of payroll additions, relating to the addition of 9 net stores in the quarter over last year, and increased variable expenses relating to increased sales; increase in our reserve for settlement charges; anticipated occupancy expense increases associated with our expanded retail store base and increased advertising expense, and an increase in our royalty payments primarily from a timing perspective in connection with the amended Candie's agreement where in the first quarter we paid both a fourth quarter and first quarter advance in royalties.

This translated into net income of $1 million versus 4.1 million last year, and diluted earnings per share was $0.07 per share versus $0.29 per share in the same period of 2004.

Now let's review what happened in each division during the quarter.

For the company's wholesale division, which is comprised of seven brands, Steve Madden Women's, Steve Madden Men's, lei, Stevie's, Steven shoes by Steven Madden, Candie's and Union Bay, revenues increased 3.3% to 56.9 million versus 55.1 last year.

Net sales of Steven Madden Women's wholesale increased 9.4% to 27.9 million versus 25.5 million in '04.

The increase was driven by sales to specialty footwear retailers, as well as Nordstrom's, Dillard's, May and Federated.

We had strong sell-in and sell-through on styles including gathered leather slides, strippy thongs on stacked heels, round toe low heel pumps with bow details, T-sole pumps with cutout details, wood bottom slides with buckle details, and casual flat slides with sequin flower details.

I mention all of these to point out the broad variety of product types that contributed to the sales increase in our flagship Steve Madden women's brand.

Our product is performing well and reorders are in the pipeline.

Lei net sales were 7.2 million versus 11.1 million in '04.

We anticipated and planned for declines in lei, based on our decision to shrink or exit accounts with little potential for future profitability.

As a result of this refocus, we experienced and drove growth in certain department stores including Peebles, Bon-Ton and Proffitts, as well as with middle tier and specialty footwear chains.

Embellished footwear of any variety was preferred over basics for early spring.

Sales were driven by wedges as well as flats.

Espadrilles, strippy city sandals, metallic uppers and cork all performed well at retail.

While these product initiatives are working, we anticipate continued net sales challenges going forward as lei continues to work toward greater profitability among fewer doors and as the product establishes its viability with customers in new product categories.

Importantly, lei's inventory level is now significantly down over year ago levels, appropriate to support our sales and turn projections for this division.

Moving to Stevie's, our children's brand, sales were $2 million versus 3.3 million in '03.

This decrease was anticipated as a result of our decision to shrink door accounts and focus on 3 things, profitability, improved assortment, and higher quality and comfort features.

High markdown and allowance levels pressured gross profit performance as we faced continued pricing pressure from discount channels.

Despite these challenges, we experienced growth in sax (ph) group and added stage stores to our distribution roster during the quarter.

Stevie's is also carrying reduced inventory levels to the year ago period reflecting our cut to order strategy.

Our Steven shoes by Steve Madden division contributed first quarter net sales of 4.2 million versus 5.2 point million in 2004.

It is noteworthy that our '05 performance came on top of a sales increase of 114% in the first quarter '04.

Closed toe dress shoes, which were last year's best performers and which were delivered early in a variety of toe characters and heel heights, proved to be disappointing.

However, opened up jeweled sandals, wedges and flats were strong performers.

Steven was also successful in increasing its average unit wholesale over last year and the Steven customer showed willingness to trade up in price point for the right product.

Certain shoe classifications within Steven's now retail from $139 to $159.

Sales of Madden men's increased 68% to 11.1 million versus 6.6 million in 2004.

Positive sales momentum, which began at the end of '04 is continuing ,driven by sales of denim-friendly, low profile casual shoes and as well as core dress styles.

We have been striving to achieve this balance and we supported the business with an aggressive open stock division enabling our customers to maximum turn and profitability.

We are exceeding an aggressive plan at Federated, we are eagerly awaiting opening of our first men's hard concept shop at Macy's West Union Square, where we will have the floor space to grow with a larger assortment of product and our door count is up, notably at Nordstrom and Dillard's.

Moving on to Union Bay, our license for young men footwear, our net sales were 400,000 versus 49,000 in 2004.

This sales jump effectively represents the relaunch of Union Bay this spring in select mid-tier department stores.

We are closely monitoring the retail performance of these new shoes and while we remain cautious in our overall outlook for contribution from Union Bay because of private label competition, we believe that with a revamped product and pricing model, we can arrive at a formula for profitability.

Rounding out our wholesale revenue, Candie's net sales increased 35% to $4 million versus 3.2 million last year.

Under our amended license agreement, we will continue, through the end of 2006, to design, manufacture and distribute Candie's footwear in a variety of the specialty and department stores including Kohl's ,all in conjunction with the launch of Candie's apparel at Kohl's this coming fall.

Given the timing of the announcement of the Kohl's arrangement at the front end of the spring '05 season, and the reluctance of some customers to invest longer term in Candie's, during the quarter we embarked on an aggressive liquidation strategy which dramatically affected our gross profit but has the positive effect of leading with out spring carry forward and providing a clean foundation from which to launch with Kohl this fall.

Moving to our retail division, as of March 31, 2005, there were 92 stores in operation including our Internet store.

Revenues increased 11.7% to 26.5 million versus 23.7 million in 2004.

Retail was 32% of our total business in the first quarter versus 30% of the total in the first quarter last year.

We opened three new Steve Madden stores in the quarter and we closed two under-performing Shoe Biz locations.

At the end of the quarter, there were 79 comp stores, the same number of comp stores that were in our base last year.

Same-store sales rose 5.5%, a performance we are extremely pleased with, considering that this came on top of an 8% comp store gain in the year ago period and in light of being up against particularly challenging January comps.

Our sales increase was achieved through the early release and success of opened up sandals, the continued strength of dress shoes, particularly those with details and ornamentation or cutouts, a substantially greater contribution from men's shoes which are now distributed in 64 of our stores and significantly greater sales of accessories, notably handbags and belts.

We also achieved higher average unit retails in every critical category including women's shoes, men's shoes, handbags and belts.

However, the women's fashion boots and booty classification which ironically helped drive sales early in the first quarter last year was extremely difficult this year and heavy first quarter markdowns were necessary to clear excess boot inventory.

This, along with higher POS activity and continued price pressure from having entered broader footwear classifications resulted in a gross profit decrease of 500 basis points over the same period last year.

Despite the somewhat aberrational performance our store product sales productivity remained extremely high with sales per square foot of $690 on a trailing 12-month basis.

Moving to our other income line, in the first quarter, the company's other income increased 37%.

That's $2 million versus 4 million during the same period last year.

This other income includes the commission income from our private label division Adesso-Madden and trademark royalties earned from our licenses.

Private label income increased 52% to 1.4 million versus 900,000 last year.

The increase was a result of increases in commission revenue from certain private label customers, expansion of our Men's private label business, the addition of several new specialty retailers to the private label agency roster and the cumulative contribution of commissions on international sales that were made on a direct-from-factory basis.

Licensing income increased 12% to $580,000 versus $520,000 for the same period last year.

Licensing continues to be an attractive brand building and revenue-generating opportunity and we are regularly evaluating potential strategic relationships to find suitable transactions or arrangements that were served to leverage our unique identity into broader categories.

Finally, from a marketing perspective, it was a strong quarter for brand reinforcement, recognition and visibility.

There were several highlights that bear mentioning.

During spring break, we had a strong presence at Panama City, Florida.

We did hotel elevator wraps depicting our Madden Men's elevator campaign.

Gave students parasail tows along miles of beach where hundreds of thousands of spring breakers watched as Steve Madden custom branded parasail shoes go by daily and event MCs gave away hundreds of pairs of flip-flops and beach balls all while promoting Steve Madden.

It was a particularly an active quarter for editorial coverage in both print and television.

Paris and Nicky Hilton were pictured in Us Weekly and Star wearing our new Steve Madden sweater band.

Us Weekly also covered Paris Hilton's birthday party which we hosted and where she gave away Steve Madden slippers.

Steven shoes by Steve Madden were featured in Life and Style magazine and Madden Men's was featured in Maxim.

Our shoes were selected by producers for many of TV's most influential fashion segments including Full Frontal Fashion, The View, and The Today Show.

Retail specific promotions included a win a trip for spring break contest and a win a weekend Valentine's getaway in Manhattan for Steven.

We also signed up Microsoft Prime to Steve Madden's affiliate program giving Microsoft employees a discount at our website through a special and they received on the Microsoft Internet.

These along with our print, outdoor media and mall poster campaigns all served to further raise awareness and anticipation for our spring offering and brands as well as our excitement over Steve's return to the company.

With respect to our overall financial condition, we have maintained a pristine balance sheet, which speaks volumes to the health and viability of our company.

As of March 31, 2005, our cash, cash equivalents, and investment securities was $78.1 million.

Inventories were at 28.7 million.

This is up from 26 million last year.

Retail inventory was 15.2 million and wholesale inventory was 13.5 million.

The retail inventory variance over last year is 700,000 or 4.6%.

The wholesale variance is a 1.9 million or 16%.

The reasons for the inventory increase was to support second quarter projected sales increases in Steve Madden Women's and Men's and the opening of nine new stores on a net basis.

Our inventory turn was 8 times for the trailing 12-month period.

Accounts receivable were $43 million.

Working capital was at $101.6 million.

Total shareholders' equity was $162 million.

Our book value was $12.35.

We have no long or short-term debt and our total diluted shares outstanding were down to 13.129 million from 14.324 million last year.

As Jamie mentioned earlier, during the first quarter we spent $5.5 million to purchase 309 shares of common stock in open market transaction.

Now I will turn the call back to Jamie and he will provide some closing remarks.

Thanks, Richard.

We have begun fiscal 2005 on the right track.

Based on current business and economic conditions, the company anticipates 2005 net sales to be flat or slightly higher than sales in 2004.

The company also reiterates its expectation of diluted earnings per share in the range of $0.65 to $0.68.

Though we continue to anticipate certain challenges to our business during the year we are making progress toward delivering on the goals we communicated at the end of fiscal 2004, goals of improving profitability of various divisions, growing the business, further building and leveraging the Steve Madden brand and enhancing shareholder value for the long-term.

We are committed to the following initiatives aimed to making Steve Madden Ltd. a truly global lifestyle branded company.

Expanding our profitable retail business, evaluating various near and long term growth opportunities to further leverage and diversify the Steve Madden brand such as expanding into complementary categories such as apparel and handbags, evaluating strategic alliances, partnerships and acquisitions which would compliment our existing businesses and be immediately accretive to the bottom line and extending our international reach, creating value for shareholders while affording the company with ample funds for future growth.

We still plan to spend a total of 35 million over the next 2 years through share repurchases and our dividends to maximize shareholder value.

Finally as Richard said, we are very excited about Steve's official return to the company.

His creative energy inspires all of the employees of Steven Madden Ltd, and his exceptional vision and talent are highly regarded throughout the fashion industry.

We will be able to once again leverage his creative and design expertise and look forward to working together with him to sustain and further enhance our position as one of the indisputable leaders in the footwear market.

Thank you for your time and interest we will now be happy to answer any questions you may have.

Thank you.

The floor is now open for questions.

[Operator Instructions].

Our first question is coming from Scott Krasik of CL King.

Please go ahead.

Good morning, guys.

Good morning, Scott.

Richard, what were the gross margins for wholesale and retail?

The total growth margin of wholesale was 28.8.

Retail was 45.1.

Okay.

And then do you have a number I assume going into back-to-school backlog should be off because of cold.

Do you have that number or what the increase is year-over-year?

Scott as you well know, we don't discuss back order on the calls.

And the reason is the grid we're in, back orders is nice but it's not terribly reliable.

It's all about the product.

Doesn't that change it all I mean, Kohl needs to order because it's China based and they need to order

That's true but it's value much on a division-by-division basis.

Okay and then, could you explain the Candie's royalty?

I didn't understand you had to pay both first quarter and fourth quarter?

Yes, in conjunction with the amended agreement that was negotiated over the Kohl announcement, we paid in the first quarter our fourth quarter royalty against sales and first quarter minimum 6 minimum royalties just because it was required within our first quarter.

So the fourth quarter, again, sales payment, with that on the old agreement?.

Yes.

Okay, and then the first quarter is what you're paying, just like a million dollars a year going forward?

It was slightly higher than that but not dramatically higher.

Okay and then Jamie, can you give us some sense I know Stephen isn't on the call but from a creative standpoint what he thinks the opportunities are for '06?

Is that redefining dress casual, is it trying to go back to more casual?

What are his sort of goals as he gets back to the company.

It's really different because of the move in the dress, it's a different company no when he left.

Well, you know, Scott, the business is largely a creative-based business, and he is getting back involved on the creative side of the business.

You know, he has been out of the business for two and a half years.

But, you know, he is enormous talents and aptitude are surfacing and he brings to the company an incredible energy level and, as we go forward into the year, I think it will his involvement will become more and more significant.

Does he I mean I'm sure he understands that he had to go into to address because that's where everybody was going but does he feel this should be more of a casual brand or?

We're in the business of delivering fashion to the marketplace faster than anybody else.

And if we're in a dress inning or casual inning, rest assured that he will be leading that charge.

Okay, and Rich, I guess just lastly, how big can Madden men get?

Are you looking for increases beyond what you're doing now or is this a general run rate?

I don't know if we can sustain this kind of run rate, certainly not what we projected.

We are pleased with the performance on the first quarter, and the question is, really, as we broaden ourselves out of the strength that we seem to have today in the casual denim friendly classification and gain more traction in dress, so that we have more than one system firing and the categories that's when we can better say I think what our projections for the future can be.

How long has the mens concept shop at Macy's where jeans square been open?

It has not opened yet.

It's a 4 or feet opening.

Are there any other on target for '06?.

We're in some negotiations but it's generally tough negotiations and we're not prepared to really speak to what we anticipate going forward.

But we're talking about it and as the business improves we will be looking at it more favorably.

Okay thanks, guys.

Thanks, Scott.

Thank you.

Our next question is coming from Jeff Van Sinderen of B.Riley & company.

Please go ahead.

Good morning.

I wonder, last quarter you went through some of the operating margins by division.

I wonder if you could shed any more light on that or maybe even retail versus wholesale?

So lets start with the growth margin by division.

I think, that will be helpful in explaining where our sore spots were.

And, I can also take it down for you on an operating basis.

From a gross margin standpoint, Jeff, Madden Womens and all of this will be on the queue, with a 26.3, lei was at 31.6;

Mens was at 35.8, Candies was at 15.9, Steven was at 34.8 Stevies was at 26, and Union Bay was at 39 but on relatively small sale, giving us a total wholesale as I mentioned earlier discharge of 28.8 gross margin contribution.

And retail I think that was at 45.1.

From an operating profit, this is a year online with the quarter.

Our pre-tax by division, wholesale contributed 2.4%.

I am sorry Steven Madden Womens, lei contributed 3.1.

Stephen contributed 4%.

Stevies contributed 2.4, Mens contributed 10.3.

Candie's was a negative 20.9.

Union Bay contributed 19.7 for a total wholesale contribution of 2.6.

Okay.

In the end, I wonder as far as, gross margins going forward, should we look for overall gross margin improvement as the year progresses, now that you have got the booth business behind you in the liquidation of that inventory?

As we discussed at the end of the year, we still are looking for roughly at 29.5% wholesale gross margins.

We have got some work to do there, but we are starting to see some performance improvements in that area.

But we also are being cautious based on lack of visibility for the back half in terms of Kohl and also a continuation of severe pressures from the markdown and dilution standpoint.

Okay.

And then let me ask you, as far as the state of inventory currently in the channel, either for your retail business or in a wholesale channel, do you think that inventory overall is now cleaner than it was or any sense you can give us on that?

Well, as I mentioned on the call, our inventories are down dramatically in lei.

They're also down in Stevies and they're flat in Candies.

So where we have inventory, we feel as though we also have anticipation for sales, Steve Madden, Womens notably, Mens notably and also some inventory carry in the Stephen's division, which has spoken for but which is being carried at the end of the first quarter.

So overall, while I always believe that we can do better and need to do better in carrying our inventories then improving our turn, are not uncomfortable with where we are.

Okay.

Is it fair to say that you think some of the liquidation pressure that you saw in this quarter is probably behind you at this point and shouldn't it be a severe going forward?

I think most of it is behind us.

If it's not behind us, it's already spoken for in a future shipment.

Okay, great.

And then, let me ask you, can you give us any more color on developments on the licensing fund maybe, where you specifically see that going first, whether you see apparel developing first or elsewhere?

Jeff, we continue to evaluate all kinds of opportunities, which we think will enhance our brand.

As we previously said, and it's still true today, our goal is to find the right partner, whether we own it or license it.

And in our mind, the right partner is somebody or some entity who shares our vision of product, distribution of pricing and also the uniqueness of our Steve Madden brand.

We are continuing to look for that person.

I think it is not unlikely that, you know, if we jump into a category that it might be handbags or apparel, you know, handbags might be a natural for us and that might be the next thing.

And as I said, we're continuing to look at all of our opportunities.

Okay, good.

And then, I know you mentioned as far as your strategic initiatives focusing a little bit more on the international front, maybe you can tell us what your plans are there and how that might unfold?

Well, if you listen it carefully on the call, you heard a little contribution in other incomes from international, because of the detriment of rate charges, custom duties, warehouse charges, etc., are shipping out of domestic US warehouses outside the country.

We have embarked on filling some of our international order interests direct-from-factories, so we don't have a cost of goods associated with it, clean business, we're charging royalties and commissions on domestic sides related to those sales.

And they're coming in as other income properly so since there's no cost of goods related to them.

So we're starting to see some of that revenue come in.

I think we have ways to go.

Our model is so fast that we're way behind the curve of preventing product for the buying patterns of most of the customers around the world.

It's only in -- I would say it's uniquely in the United States where we effectively trained our wholesale customers to reserve all to do buy for late-breaking, goods-selling product from Steve Madden.

So, it's more difficult without having a proven business to do that thing or to implement the same models around the world where wholesale buyers are more accustomed to buying out front and early, at a time when we're not really prepared with a full assortment of products for them.

So there are challenges that require more product development earlier in effectively being in the business at the time when the buyers want to place their orders in the international business.

But we're working through those issues.

And they feel terrifically high demand for the product and the brand, and at some point, the wholesale around the world, we realized the benefits of ordering and taking delivery of products close into season.

So we think that the trend is moving in our direction and with some additional product development somewhat earlier in the cycle we think we can capture a larger share in the international market.

Having said that, we're always speaking to people around the world and we think that perhaps the UK is the next most right market from an international standpoint.

Okay good.

All right.

I will wish you guys, good luck this quarter and get my other questions off line and let someone else ask.

Thanks.

Thank you.

Our next question is coming from Susan Sandberry (ph) of Miller Tabak please go ahead.

Excuse me.

I just have a couple of trivia questions.

The store openings number that you mentioned 12-15 is that a net or growth number.

Growth.

Do you intend to close any more stores this year?

Do you have a number yet?

We will first, we're going to be aggressive in closing what we think are underperforming stores.

And this year, I believe we have two or three scheduled for closings.

Okay.

The share repurchases program, how much do you have left under the current authorization?

19.5 million.

Dollars?

Dollars, yes.

That's it.

I can ask you the rest off.

Thanks very much.

[Operator Instructions].

Our next question is coming from Heather Boxen (ph) of Sidoti.

Please go ahead.

Good morning, guys.

Quickly, can I get the operating cash flow number for the year for the quarter, I mean?

Operating cash flow, on a first quarter 3.5 million.

Okay and CapEx number?

That is 1.4 million.

Okay, you talked a little bit here and there about what's you're doing to improve the gross margins.

I know the cut-to-order will help in some of the other lines.

What are you doing particularly with the Steven Madden women's division?

I noticed the gross margin's down significantly there this quarter over last year.

Is that all just the boot clearance, or is there more going on, there and what can you do to improve it?

Well, as you know, Heather, it's a lot of moving parts.

I cannot say it is all boot clearance, but it is -- boot clearance is a significant chunk of it.

In addition to that, there's heavy mark down pressure.

There was higher delusion year-over-year.

But as far as what are we doing, as we said at the end of the year, we're moving where appropriate and where we can, we're moving our production to lower priced countries of origin.

We're trying to use better inventory plans, and be a little more conservative on the re-order.

Our aggressiveness in re-ordering and also the promotion of Amelia who effectively being -- who is our EVP wholesale sales to insert ourselves in making a buy decision, because she is so closely connected to what is going on in terms of the selling of our product at wholesale.

Okay, and lastly, the commission revenue segment, commissions my sense that was up significantly this year over last year.

You mentioned a lot of that was the addition of new retailers and some more mens and international business.

Is that, that's not a one-time thing is that something we can see going forward?

Yes, there were a couple of -- those 3 or 4 pistons firing all at the same time contributing to our private label's income line.

We're going to continue to seek out and grow our businesses with some of these new customers as well as grow our businesses with our existing customer base, which has been loyal and good to us over the years.

Additionally, I would say this is the first quarter where we draw international revenue from international sales, moving the needle slightly on the private label income line.

Okay so that was potentially some of the reason for the growth there?

It's really the international line more than some of the other.

It was actually three new customers.

There were international revenues gained from commissioners earned on sales direct made direct from factory, and also an expansion from our existing customer base.

Okay I will let somebody else ask questions.

Thanks, guys.

Thank you.

Our next question is coming from John Shandley of Cisco (ph) Financial.

Please go ahead.

Thank you and good morning.

I was wondering if you could just give us a quick sense of what the promotional activity levels currently in your major business sectors currently are, specifically in the department stores.

Are you finding it still heavily promotional like you did in the first quarter or is it moderated to some degree as you get into the second quarter?

I would say it's moderated to some degree.

There's still a lot of promotional activity going on.

And I would say most of the PLSing that I mentioned in the scripted portion of the call related to our own PLSing that was more persist in order to first quarter the liquidate inventories that our wholesale customers were probably liquidating somewhat earlier than we do traditionally.

So it was deeper in terms of PLS activity and it was more persistent in terms of being more active over the course of the entire quarter to help liquidate primarily boot and booty inventory.

Do you get a sense from the department stores have freed up some of their open to buy dollars or do you think it's still pretty tight in that sector?

I sense some opening up but also some reluctance.

It has been very choppy in my opinion.

They're responding to at one product, there's a lot of, I'm going to say, unique product success out there but a great amount of variety and colors and lots of different kinds of classifications that are working, and there's no lack of open to buy for things that are working at once.

Okay, super.

The company's inventory position of dated inventory that you mentioned was pretty active in the first quarter.

Has most of that been blown out, Richard, or do you think some of that is still carrying into the second quarter?

As I said, most of it is blown out.

And that which has not been blown out is spoken for in the form of on order.

That's great.

And the last quick housekeeping, how many shares are remaining in your share authorization buy-back?

Approximately 2 million.

2 million shares?

Yes.

Great, thanks a lot.

[Operator Instructions].

Our next question is coming from Robert Longdecker (ph) of Barrington.

Please go ahead.

Could you give us some more details on the $3 million increase in expenses, you know, kind of what is in there and kind of dollar amounts on the account that you can?

Yes.

First, let's talk about professional accounting and legal in dollar terms, the variance, Rob, was a 1.2 million over last year.

And I would say that primarily the variance certainly is the bump in expenses related to Sarbanes-Oxley.

The second largest dollar variance related to salaries and commissions taken together, salaries in fact are down on the wholesale side.

They are up on the retail side in conjunction with our opening of nine net new additional stores.

And that was a planned and anticipated increase in expenses.

And what about commissions in there?

Our commissions are variable expense and as you have increases in sales you are going to have increases in commission.

So what is the dollar amount there?

The variance on the year, year-over-year?

Yes.

It looks like it's about $600,000 just on the commission.

The third largest variance relates to settlement charge line item.

I would say about $350,000 relating to reserve taken on the Lareau case and another$200,000 related to settlement charges connected to you.

Who, me?

No, legal fees connected to you.

Got you.

Okay the last one that I will mention is the occupancy charges and again there was an anticipated occupancy increase related to store openings.

Okay.

About 500,000, less than 500,000.

Okay, thank you.

I'm showing no further questions.

At this time, I would now like to turn the floor back over to management for any closing comments.

Okay, well, thank you for your participation in the call and we look forward to speaking to you at the next call.

Thank you, ladies and gentlemen.

This does conclude today's teleconference.

You may disconnect your lines at this time and have a wonderful day.