Steven Madden Ltd (SHOO) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Steven Madden Limited conference call, sponsored by Financial Dynamics. [Operator Instructions] I would now like to introduce your host for today’s conference, Ms. Cara O’Brien of Financial Dynamics. Please go ahead.

Cara O’Brien: Thank you, operator. Good morning, everyone, and thank you for joining this discussion of Steven Madden Limited’s first quarter 2006 results. By now, you should have received a copy of the press release. 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 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 from 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 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, Chairman and Chief Executive Officer of Steven Madden Limited. Jamie, go ahead, please.

Thanks, Cara. Good morning, and thank you for joining to review Steven Madden Limited’s results for the first quarter ended March 31, 2006. With me to discuss the business is Ed Rosenfeld, Senior Vice President of Strategic Planning and Finance.

We experienced tremendous year-over-year growth during the first quarter, leading to overall results that were stronger than we had initially expected, and we exceeded our own expectations and plan due to a combination of factors which worked in our favor during the period. While Ed will get into the details, I’d like to touch on a few key highlights of the quarter.

Led by Steve, our design team continued their strong momentum, and again delivered the trend-right, fashion-forward product that our customers have come to expect from our company. Our product has never been better, and that is clearly having a tremendous impact on our financial results.

Our wholesale business increased 46%, and this was driven by a very strong performance from our existing brand. However, it also reflects the significant contributions from important new additions to our business, namely better-than-expected sales from SM New York, which launched late last year, as well as the positive impact from the acquisition of Daniel Friedman and Associates included in our results from February 7th.

At the same time, we are not only showing top line strength, but we are achieving meaningful improvements in our operations. Specifically, our initiatives to manage the business more efficiently and drive margin improvements continued to gain traction even more quickly than we’d planned. And this contributed significantly to our strong bottom line performance.

Aside from our results, there are three other key things to mention. First, during the first quarter, we continued to prove our commitment to return capital to shareholders and our confidence in the company’s future by repurchasing 147,000 shares for an aggregate of $4.8 million.

Second, as you saw in today’s press release, we appointed a new independent board member to add further diversity to our ranks and even further strength to our Board of Directors. Richard Randall brings significant operating and financial experience to our team, having worked as Chief Financial Officer and Chief Operating Officer with several marquis branded consumer companies. In particular, Richard served in top management positions of both Coach and Lillian Vernon Corporation. We are delighted to welcome Richard to Steven Madden Limited, and we look forward to the contributions he will make during this exciting time.

Third, as you also saw in our press release this morning, our Board of Directors has approved a three-for-two stock split of our outstanding shares of common stock. As a result of the split, the number of outstanding shares will increase from approximately 13.9 million to approximately 20.8 million. This is the first stock split in our history, and we are pleased with the decision, as we believe it will help make our shares more accessible to more investors, and increase our market liquidity.

All of this said, as we look to the future, our record first quarter results and the many great things happening at Steven Madden Limited underscore the strength of our business model and provide a strong platform from which to further grow. Importantly, as we move forward, we are focused on the following.

First and most importantly, we will continue our track record of delivering superior design. Led by Steve, the inspiration and creative force behind our brand, our design team will strive to maintain the energy and newness of our product. We will bring a laser-like focus to delivering trend-right, fashion-forward merchandise in a timely manner. This is the foundation of our success, and we are committed to upholding our design excellence.

Second, we will continue to execute on our gross margin initiatives. Strong margins drove our success in the first quarter, and we continue to see this as an important area of focus.

Third, we will continue to diversify our business, both through new product offerings in footwear, and through leveraging the strong Steve Madden brand outside of the footwear category.

Lastly, while our primary focus remains on our core business, we will also continue to seek strategic and complementary acquisitions that will enhance our business and be immediately accretive to our bottom line.

With that, I’m now turning the call over to Ed.

Thanks, Jamie. Consolidated net sales increased 30% in the quarter to $108.3 million. This increase was driven by strong gains in Steve Madden Women’s, Steven Madden Men’s, and Candies’, as well as the contribution of new brands SM New York and Rule, and the recently acquired Daniel M. Friedman accessories business.

Gross margin for the quarter increased significantly to 42.7% from 32.8% in the comparable period last year. This reflects gross margin improvements in all of the company’s business segments, as our trend-right products and inventory management strategies continue to pay dividends.

We also controlled costs and leveraged our expense structure against the increasing sales, leading to a 360 basis point decline in operating expenses as a percentage of sales.

Net income increased from $962,000 in the first quarter last year to $10.9 million this year. Diluted EPS for the quarter was $0.74 a share on 14,612,000 diluted weighted average shares outstanding, compared to $0.07 per share on 13,804,000 diluted weighted average shares outstanding in the prior year.

Now let’s review the performance of each of our divisions.

Net sales for the wholesale division increased 46% to $83 million, from $56.9 million in the comparable period. This division was comprised of ten segments in the quarter: Steve Madden Women’s, Steve Madden Men’s, Steven by Steve Madden, SM New York, Rule Women’s, Rule Men’s, Stevie’s, Candie’s, L.E.I, and Daniel M. Friedman.

Net sales for the Steve Madden Women’s wholesale division increased by 23% to $34.2 million, versus $27.9 million last year. We had great success with stacked wedges with peek-a-boo toe uppers in the quarter. We also did a nice job of capturing end-of-season boot business with a stretch boot that sold very well into February. And finally, we put three basic items on an open-stock model that drove sales via EDI replenishment.

Net sales in Steve Madden Men’s increased 10% to $12.2 million versus $11.1 million last year. The sales gain was driven by a standard breadth of assortment within existing doors as we continued to provide a balanced selection of dress, dress casual, casual, and sport products. Dress shoes and driving mocs were particularly strong in the quarter.

Net sales in Steven by Steve Madden were $4.1 million in the quarter, compared to $4.2 million in the comparable period. Though January got off to a relatively slow start, business picked up significantly in the latter half of the quarter. We began delivering a peek-a-boo platform in February that has been tremendous. We also experienced success with a casual shoe and a low espadrille wedge. We are very pleased with how the Steven by Steve Madden division is currently [doing].

SM New York, the company’s new brand, sold its opening price point through department stores as well as the mid-tier resellers and specialty stores, contributed $5.2 million in the quarter. By the end of the quarter, SM New York was in over 2,000 doors. Product successes in the quarter for SM included dress shoes, wedges, Mary Janes, and ballerinas.

Rule, a new brand marketed exclusively through J.C. Penney, had total net sales of $6.3 million in the first quarter of shipment, including $4 million of net sales in Rule Women’s, and $2.3 million of net sales in Rule Men’s.

Net sales in Stevie’s were $2.6 million, a 31% increase over the $2 million in net sales in the comparable period last year. Product successes in our kids’ division included wedges, sandals, and embellished footwear.

Candie’s net sales increased 116% to $8.7 million, compared to $4 million reported in last year’s first quarter, reflecting our first spring season with Candie’s as an exclusive brand for Kohl’s. Footwear with embellishments performed well in Candie’s, as did sneakers.

L.E.I. net sales were $1.4 million in the first quarter, versus $7.2 million last year. As a reminder, the L.E.I. license expires September 30th of this year.

The Daniel M. Friedman accessories business contributed $8.3 million in net sales from February 7th, the day of acquisition. Betsey Johnson handbags were a standout, and belts were strong across all brands. We also initial shipments of Steve Madden handbags, the wholesale account, towards the end of the quarter.

Taking all of this together, we delivered a 46% increase in overall wholesale sales. The broad-based product strength combined with the impact of our initiatives to better manage inventory and control charge-backs resulted in a dramatic increase in our overall wholesale gross margin to 41.1%, compared to 27.1% last year.

Moving on to our retail division, first quarter sales were $25.3 million, compared to $26.5 million last year. Comp store sales declined 8.4% versus an increase of 5.5% last year. This was due primarily to planned declines in the accessories and men’s categories, as we reposition our offerings in those areas, as well as a reduction in promotional sales.

Gross margin in the retail division improved 290 basis points due to the reduction in promotional sales.

As of March 31st, we had 99 stores in operation, including our internet store. During the quarter, we opened one new store on King’s Highway in Brooklyn. For the 12 months ended March 31st, ’06, stores open for the full 12 months generated $741 in sales per square foot.

Moving to other income, the company’s commission and licensing fee income net of expenses tripled in the quarter from $1.2 million last year to $3.8 million this year. Our Adesso-Madden [inaudible] division continued to grow dramatically, with commission income net of expenses increasing over 350% to $3 million in the quarter, compared to $647,000 the first quarter of last year. Licensing income increased from $580,000 last year to $805,000 this year.

With respect to the balance sheet, we continue to have no debt, and ended the quarter with $79 million in cash, cash equivalents, and marketable [securities].

Total inventory at the end of the quarter was $36.6 million, and our inventory turn for the 12 months ended March 31 was 8.1 times, up from 7.3 times a year ago.

Accounts receivable and [inaudible] factor were $59.7 million, reflecting an average collection in 56 days, compared to 63 days a year ago.

Capital expenditures were $1.5 million for the quarter, and we spent $18 million on the purchase of Daniel M. Friedman and Associates. We also repurchased 147,400 shares at an average price of $32.61, for a total expenditure of $4.8 million in the quarter.

Stockholders equity as of March 31 was $189.9 million.

Now we’ll turn to the outlook for the balance of the year. Based upon results to date, sales and margin trends for the second quarter have been encouraging. That said, we are somewhat cautious with regard to the second half of the year, given we have less visibility this far ahead, particularly in terms of consumer demand for key fashion trends. As such, we now anticipate fiscal 2006 net sales will increase approximately 15% to 18% over fiscal 2005, and that earnings per diluted share will range between $2.40 and $2.50 on a [inaudible] basis.

In sum, our entire team is working very hard. Our momentum is strong. And our success to date has fueled our motivation to continue the positive performance. It’s gratifying to see the initiatives we have put into place along with the hard work and dedication of our team paying off in terms of tangible financial improvements. That said, there are still many opportunities ahead of us and further progress to be made. We will continue to focus on the key initiatives we covered in this call, and look forward to reporting back to you on our progress next quarter.

Now I’d be happy to answer any questions you may have.

[Operator Instructions] Your first question comes from Scott Krasik of C. L. King.

Hi. Good morning, guys. Great quarter.

Good morning.

Good morning.

Ed, maybe you can talk a little bit about the visibility on the second half. I know you downplayed backlog in your business, but I would assume as you become more important to your retail partners, pre-bookings have become a more important part of your business. And I’m just wondering should you have some pretty good visibility on your wholesale business in the summer for the fall?

Yes. Certainly as we move into summer, we’re going to have better visibility. As you pointed out, we -- [request to] order is a bigger part of our business, and so we’re working a little farther out in some of our divisions, and that’ll provide us with better visibility. But right now, it’s still a little bit early for us to say how fall is going to shake out.

Okay. And what are you seeing as the trends for fall? Boots had a great year last year. It seems like boots are going to be an emphasis this year as well. Are you guys focused on that?

Absolutely. For obviously competitive reasons, we don’t like to talk too much about what trends we see going forward, but I think that we are optimistic about boots. I know Steve thinks this is going to be a boot [inaudible]. He and his team have got some stretch boots that they think are going to be a good basic high-margin items for us. They think flat boots are going to be important. What else? Granny boots. There’s a lot of things that they’re working on and that they feel good about.

Okay. And then can you talk about your distribution for handbags? I guess you said that the second half of the quarter, you had a roll-out of the Madden handbags. Will you say you’ll be pretty fully distributed in handbags by Christmas of this year, or is it going to take going to 2007 before you have as much penetration as you’d like?

In our retail stores, yes. We should -- we’re looking to go all doors over the next couple of months with the handbags.

And then wholesale?

Yes. Wholesale, we’re in a little under 200 doors right now, and over the course of the year, we would expect that to increase slightly.

With further increases next year, or that -- you don’t want to be over-distributed in that category?

Yes. We want to make sure that the product is right, and that we grow sort of slowly and steadily there. We want to get that business where we want it before we try to blow it out to a whole lot of doors.

Okay. I’ll jump back in. Thanks, guys. Congratulations again.

Thank you.

Our next question comes from Jeff Van Sinderen of B. Riley.

Good morning, and let me add my congratulations as well.

Thank you.

Thank you.

I guess one question I have on the SM New York business. How should we expect that business to develop over the next say year or so? It seems like you’re off to a very strong start. Just curious what your thoughts are there.

Yes. We’re very pleased with that business. It’s gotten off to an even better start that we had anticipated, and we think that could be a very significant business for us. We’re offering that to a pretty wide universe of customers. We talked about it goes opening price point to the department stores, so you’ll see it in Federated and Belk’s. It’s also in the mid-tier, the Mervyn’s and the [inaudible], and then it’s going to specialty stores, and it’s in Famous and B.S.W. So we think it has the potential to be a pretty big business for us.

And so far, it’s meeting with strong sale throughs?

Yes.

Okay. Good. And then on your -- your wholesale business seems -- does seem to be very strong. But it seems like maybe there are opportunities for more growth in the retail portion of your business. Can you delve a little bit more into I guess how you’re approaching the improvement in your retail segment, and maybe where you think some of the opportunities for growth are there?

Sure. Well, as we talked about last time, one of the things that we’ve seen with our retail chain is that we do have some underperformers that are pulling the whole chain down. So the first thing we’re going to do is we -- you are going to see some store closings in the next couple of quarters. I would say five, potentially even six, store closings over the next couple of quarters.

We’re also looking to freshen up some of our stores. We’re doing some remodels. We’re shooting for about ten remodels this year. We’ve already done a couple, and we’ve been very pleased with the results there. We’ve been seeing nice comp store sales gains after reopening after remodel.

And we also have a new store concept that we’re really excited about. We opened a store on King’s Highway in Brooklyn in first quarter with the new concepts, and we’re very pleased with that.

That being said, I think what we’re really focused on in our retail stores right now is not driving comps and it’s not opening a ton of stores. We really want to have great stores with great products that make money. And that’s going to be our focus for the time being. And once we get our ducks in a row, then we can think about growing the chain more aggressively.

Okay. So should we look for comps to start to improve going forward, or what should we expect in terms of your comp sales?

They’re going to be better than you saw in first. It’s still going to be an uphill battle over the next quarter or two, because of the accessories and men’s categories, which we talked about. But it’s going to be better than it was in first. The women’s category is performing very well. We’re going to start to get more accessories in the stores. And in Q2, you are -- we also do have the benefit of the Easter shift this year.

Okay. Good. And then I guess overall, looking at the whole picture, should we expect your gross margins potentially to improve? I know you spoke about potentially better inventory management and charge-backs so that there might still be some room there? Is that the case? And I guess where and how do you get that?

Yes. Well, we absolutely are projecting gross margins to be better versus the prior year for the remainder of the year. I think it would be aggressive to assume that they remain where they were in first quarter. A lot of things went right for us there. But we are looking for gross margin for the whole company for the full year to be 41%, or 41% and change, which is a significant increase over the prior year.

Okay. And so there’s still some areas where you feel like there’s room for improvement? In other words, you haven’t completely tapped out everything yet?

Absolutely.

Okay. Good. Fair enough. Thanks very much, and good luck this quarter.

Thank you.

Our next question comes from Sam Poser of Mosaic Research.

Good morning. Congratulations.

Good morning.

Can we talk about just -- again, back to your outlook again. Is this -- are you -- I mean, are just being conservative just because of not seeing what’s out there, but in general as confident as you were? And do you see any negative changes happening for the [inaudible, crosstalk]?

There’s nothing in the trends that makes us feel any worse about the way things are going. We do feel very good about the sales and margin trend for second quarter. But it’s simply that we’re in a fashion business, and we don’t think it would be prudent to assume that we’re 100% right on the product in every division every quarter. So we think we’re going to get it right more than most, because we think we have the best design team in the industry and a business model that helps us mitigate fashion risk. But we do have to be cautious because we’re in the fashion business.

And can you say what kind of gross margin is the Daniel Friedman running at? And do you foresee it running at?

It’s mid to high 30s.

And the Steven Men’s line, when does that launch? And can you just discuss the response?

Sure.

And how many stores you think that’s going to go into initially?

Yes. Well, that’s a new brand. Obviously, a little bit higher price that Steve Madden Men’s. It’s average retail price point’s $160 to $200 for shoes, and then boots up to $300. This is all out of Italy. And it’s something we’re really excited about. The first shipments will be in Q3, and it’ll be in better department stores, and then cool independents and boutiques. And I think it’s a little bit too early for us to say how many doors. But we’re excited about it, and we’ll update you on the next call.

Okay. Great. And you’ll keep -- and by the next call, you should have the back half pretty well -- the visibility on the back half?

We’ll have a much better idea. Yes.

Okay. Great. Thanks so much.

Thank you.

Continued success.

Your next question comes from Randy Scherago of First Albany Capital.

Hey, Ed. How you doing?

Good.

A couple of quick questions. Was some of your pessimism regarding the store closures that you’ll be having in the retail business? You mentioned five or six closings. Is that part of the pessimism? I wouldn’t say pessimism, but conservatism, for the second half? And then could you discuss a little bit the success of SM and then also Rule? Rule seems to be a new brand. How many stores are you in with J.C. Penney now? And what’s the anticipation for how big this brand could be in the next six months?

Okay. First of all, on the retail piece, certainly there are going to be some expenses associated with the store closures, and that’s factored into the guidance. But I wouldn’t say that that’s the -- well, I wouldn’t characterize it as pessimism. But yes. That’s a factor.

SM, I think we talked about. Rule, yes, is what we’re doing for J.C. Penney. We’re very pleased with that so far. We are in -- with some key items, we’re all doors in J.C. Penney. And with the full collection, it’s around 500 to 600 stores. And we have both men’s and women’s products there. The women’s product is retail price point $39, $49. Men’s, more like $59 to $69. And we’re pleased with it.

It’s very similar in some regard as far as price points as SM New York?

Yes. A little higher. And then SM doesn’t have men’s products, either.

And Rule is your brand? Or is it J.C. Penney’s brand?

It’s ours.

And the accessories business. Just to go back on what somebody else asked before. Are the accessories rolled out into all your stores right now?

No. Right now, we have handbags in about 50 stores, and we have belts and sunglasses in about 30 stores.

And the number that you quoted on the call, does that include the wholesale and the department stores?

That’s only wholesale.

That’s only wholesale?

Now the sales of accessories were very, very small in the first quarter. But they would be included in the -- excuse me. The sales of accessories in our retail stores are included in the retail numbers.

Okay.

They’re very small.

Thanks.

Yes.

Our next question is coming from Heather Boksen of Sidoti and Company.

Good morning, guys.

Good morning.

First, could you -- real quickly, do you have in front of you the gross margins by brand?

Sure.

Can we get those?

Okay. Madden Women’s, 41.9% this year; 26.3% last year. Madden Men’s, 40.9% versus 35.5%. Steven, 35% compared to 34.8% last year. Stevie’s, 40.8% versus 26.1%. L.E.I, 38.8% versus 25.7%. Candie’s, 42.1% versus 4.4%. SM was 39.1%. Rule, 48.3%. Rule Men’s, 45.9%. Daniel M. Friedman, 37.4%. And retail I think you have. 48% versus 45.1%.

All right. Thanks. And is it possible -- can you give us some color on the commission business side of commission and licensing? What’s going on there specifically that’s driving those percentage increases?

Sure. Well, we have some -- we did have some big increases with some of our biggest customers there, with Target, Wal-Mart, and Bakers, among others. But I think that the biggest thing is that it’s really a halo effect from the strength of our Steve Madden brands, that when the upstairs brand and product is so strong, it makes it a lot easier to leverage that into a bigger and more profitable private label business. And that’s what we’ve been able to do.

And I remember in previous calls talking about that business. It gives you scale to some extent on the core Steve Madden line in terms of cost per unit. Are you seeing any continued increases there with this gain?

Yes. That’s one of the nice things about it, is that these are very high-volume placements with our suppliers, and it does give us better leverage in negotiating pricing when we’re buying for the upstairs brand.

And the gain year-over-year in inventories, is that a result of bringing Dan Friedman on board, or what’s driving that?

Well, we were really only up in a few divisions. We were up in Steve Madden Men’s pretty significantly, and that was based on having a much bigger open stock business this year than we did last year. The open stock replenishment business does require us to invest in inventory, but we think it’s worth it because it really drives high-margin sales.

The other thing is Steve Madden Women’s was up a little bit. That’s -- Steve Madden Women’s -- and if you look at Steve Madden Women’s and retails together, you’ll see that that was up about 7%. Given we had bigger stores, I don’t think that’s a very significant increase. And we’re up in Candie’s because there’s some in-transit inventory associated with that business.

Okay. And lastly, can you give us maybe an update on the progress here with respect to brand building and what you’re looking at as far as new licenses or acquisitions on that front?

I’m sorry. You said with licenses or acquisitions?

Yes. Just an update on progress or your thoughts on that.

Sure. We’re still very focused on leveraging the brand outside of footwear. We recently appointed Danny Friedman, who runs our accessories business, to be the head of our licensing. And we’re excited about that. Danny’s got many years of experience in the licensing area, and he knows all the major players. And we’re working on a number of things in that regard. And we also are very open to looking at acquisitions. We’re thrilled with the Danny Friedman acquisition. We’d love to find another one just like that.

All right. Thanks, guys.

[Operator Instructions] Our next question comes from Susan Sansbury of Miller Tabak.

Hi. Yes. Good morning. How are you?

Good morning.

Good morning.

A couple of questions. Can you provide me with the acquisition contribution in terms of EPS from Danny Friedman in the quarter?

Yes. It was about $0.06.

Okay. Going back to inventory, can you actually split inventory into Danny Friedman and all other?

Danny’s inventory was $5.6 million at the end of the quarter out of $36.6 million total.

Susan Sansbury. Thank you. In the quarter, were there any timing shifts? In other words, did you ship any merchandise that was -- that would have originally been shipped in the second quarter?

No.

Okay. And then in terms of the guidance for the balance of the year, do you currently anticipate that any back half or either back half quarter will be down?

Down from the prior year?

Yes.

No.

Okay. All right. That’s it. I appreciate it. Good quarter. Keep it up.

Our next question comes from Mark Cooper of Wells Capital.

Thank you. Cash flow from operations in the quarter. What was that?

It was negative $10 million. We had a pretty substantial use of cash for working capital with the standard [in our] business in the first quarter because the wholesale business is so much bigger in the first than in fourth. And so we always have receivables going up dramatically in first. And that was amplified this year because of the strong growth in [business]. But that’ll reverse itself going forward.

And then the share count that you’re going to put on the cover of the 10-Q. What is the share count presently?

It’s 13,873,667.

Mark Cooper. 67. Thank you very much.

Our next question comes from David [Caulfield] of GMM Capital.

Hey, guys. Good morning.

Good morning.

I’m just curious if you can break out of the sales guidance, 15% to 18%, the retail and wholesale components?

Yes. We’re looking for wholesale to be up 20% to 25% for the full year. Retail will be low single digits up.

Okay. And are you able to give any kind of ballpark figure vis-à-vis the Daniel M. Friedman contribution to the total sales for the year?

Yes. Dan [will probably] be in the 40s.

In the 40s.

Yes.

Okay. And any way to get a sense of the portion of the first quarter that you actually had the DMS sales, how that compared on a percentage basis to the same comparable period last year?

How did they perform versus last year?

Yes. On an apples to apples --

They were up pretty dramatically.

Okay. And any update you can provide on personnel? I know you have one significant position you’re looking to fill. Anything there that you can tell us?

I assume you’re referring to the search for a president?

Yes.

The search is still ongoing. As we talked about in the last call, we do have a search firm retained. We’ve met a number of candidates, and as soon as we find the right person, we’ll hire him or her.

Okay. Thank you very much.

Thanks, David.

Our next question is a follow-up from Randy Scherago of First Albany Capital.

And again, a couple of quick questions. Was there any seasonal aspect to the Candie’s sales in this quarter? Or was it more SKUs, or better pricing in the stores?

Well, remember, we weren’t doing the Kohl’s exclusive last year with Candie’s. So this is our first spring with Candie’s as a Kohl’s exclusive, and that’s really what drove the sales gain.

But it was a big uptick from the fourth -- both the third and the fourth quarter of last year. Was there more SKUs or better pricing at all?

No. It was roughly -- there may have been a little bit more SKUs, but it was roughly the same amount of floor space. And it was just strong performance of the product.

And the Rule launch, which was incredibly successful. Is that -- is there anything that’s part of that? Is that initial selling? This is not sort of a number you can sort of annualize for the year?

Yes. That’s accurate. I would not annualize that number for the full year.

What’s a realistic assumption for Rule for the year? Is it more --

We really don’t want to get into that level of granularity, to be honest with you.

I mean, is this a $15 million or $20 million business?

Oh, that’s aggressive.

That’s aggressive? Okay. And then your cap X plans regarding the stores, the ten that you’re going to remodel. What’s that going to cost this year?

Well, our total cap X budget is about $7 million. We have the remodels in for about $200,000 a pop.

And what is the timing as far as the five or six store closures?

That’ll be over the next quarter or two.

Okay. So there could be a charge taken in the next one or two quarters for closures?

Yes.

Okay. Thank you.

Our next question is a follow-up from Susan Sansbury of Miller Tabak.

It’s Miller Tabak. Is the five to six store closure charge incorporated in the $2.40 to $2.50 a share guidance?

Yes.

Okay. What is the -- any order of magnitude in terms of how big this charge is going to be?

I think we’re looking at write-offs of a little over -- between $1 million and $1.5 million.

Net?

That’s pre-tax.

Okay. When you pre-announced -- thanks, Ed. When you pre-announced the first quarter, I think you suggested, to me at least, that this year, the seasonal cadence to the quarterly -- that the seasonality of quarters would change this year, in part due to some of these new product introductions, as well as Danny Friedman. Can you elaborate a little bit more?

Yes. I think it will be different. I’m not sure -- I didn’t mean to indicate that those were the reasons. I guess what I was saying was that last year, the seasonality of the business is not indicative of the normalized seasonality. We were much more back-half loaded last year. And in fact, the fourth quarter was the best quarter. That’s not standard for our business in a normalized state.

It was simply that we weren’t performing as well in the first quarter, and we really gained momentum throughout the year. In a normal year, the fourth quarter will actually be our smallest quarter. It’s the best for resale, but it’s the smallest quarter for wholesale. And because wholesale now makes up over 70% of our business and is the driver of earnings growth, the fourth quarter should be the smallest quarter of the four. So I think it’s quite a different complexion in the seasonality on a normalized basis than last year.

Okay. So it had nothing to do with the sell-ins of the new product categories? In other words, you don’t anticipate the sell-in -- the vast majority in the first two quarters, and then the sell-in being substantially less in the second half, or --?

That’s not really the issue.

Okay. And nothing with respect to Danny Friedman?

No. Danny’s another business that his seasonality is very similar to our wholesale business, because it’s a wholesale business. So it follows the path of our wholesale business.

Okay. And I think I got confused when you talked about the number of doors in which handbags were in. Are they not in Steve Madden retail stores yet? Are they only at wholesale? Or could you just go over that again for me, Ed?

Sure. In wholesale, they’re in about 180 doors. In Steve Madden retail, they’re in about 50 of our 100 doors right now.

Okay. And then belts were in 30 -- belts --

Belts are in 30 of our doors, of our retail doors, as well as sunglasses. And belts, on a wholesale basis, are in 565 doors. We’ve had belts for quite some time with Danny Friedman.

Okay. And when do you expect to -- just again, when you expect the refreshed Steve Madden handbag line to be in all doors? All of your company-owned retail doors and wholesale?

Over the next couple of months.

Okay. I appreciate it. Thanks very much.

Thank you.

Our next question is a follow-up from Scott Krasik of C.L. King.

Hey, Ed. Can you give us I guess gross margin for retail, actual, for the quarter?

Sure. It was 48% versus 45.1% last year.

Okay. And then operating expenses for wholesale and retail for the quarter?

Sure. Wholesale was $18.3 million. Retail, $13.3 million.

$13.3 million. Okay. And then how many stores have you actually remodeled so far?

I think we’ve done three to four -- maybe two to four this year.

Is there any meaningful number that you can give us in terms of the comp gain?

You know, I’d have to get back to you on that. I’ve heard anecdotally, “Oh, this store we’re up 25%.” But I don’t have the detail to give you.

Okay. And then can you just give a little more detail on what the new store concept is, and how many of those you’ll be opening?

Sure. Well, you should go take a look at it in Brooklyn. We’ve just changed the store design, and it’s a store that does support both men’s and accessory products. And so we’re excited about it.

Okay. Thanks, Ed.

Yes.

There are no further questions. Please continue with any closing comments.

Thank you for participating in the call, and we look forward to speaking with you on the next call.

Ladies and gentlemen, that does conclude our conference call for today.