Steven Madden Ltd (SHOO) 2006 Q2 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Steven Madden Ltd. conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. Any reproduction of this call in whole or in part is not permitted without prior express written authorization of the Company. As a reminder, ladies and gentlemen, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Cara O'Brien of Financial Dynamics. Please go ahead.

Thank you, operator. Good morning everyone and thank you for joining this discussion of Steven Madden Ltd.'s second quarter results. 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 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 the 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 day. With that out of the way, I would now like to turn the call over to Jamie Carson, Chairman Chief Executive Officer of Steven Madden, Ltd. Jamie go ahead please.

Thanks, Cara. Good morning and thanks for joining us as we review our second-quarter results and discuss our outlook for the remainder of the year. With me today is Ed Rosenfeld, our Senior Vice President of Strategic Planning and Finance.

As you can see, during the quarter, we maintained strong momentum and are very pleased with our overall results. Net sales grew 28.3% while net income increased an impressive 140% to a record 12.7 million. Importantly and what we find most encouraging is that our strength was broad-based as we delivered top- and bottom-line gains as well as margin improvements in both our Wholesale and Retail segments.

Our Wholesale business was up 41%. Our core wholesale business without Daniel Friedman and Associates grew by 15% and the Daniel Friedman business added 17.3 million in the quarter. We are also pleased to have driven a 3% comp store increase in our Retail division on top of a strong 13.6% increase last year. We believe our results are particularly impressive given that we are facing certain challenging macroeconomic factors, such as rising gas prices. We believe that this reflects the strength of our brand and product, both of which have never been stronger. As always, the foundation of our success stems from our outstanding creative team, led by Steve, which was consistently delivering product that truly resonates with what has become a very diversified consumer base. Our ability to be on top of the latest trends effectively translate them into footwear and accessories and quickly bring the products to market remains the driving force behind our solid results.

During the second quarter specifically, our strong product lineup encouraged full-price selling which translated into solid top-line growth and healthy margins. This, combined with our ongoing inventory management initiatives and our ability to effectively leverage our infrastructure, resulted in exceptional overall performance.

As we move forward into the second half of 2006, we remain focused on a number of key strategies to grow and diversify the business and deliver enhanced shareholder value over the long-term. First, our top priority is to ensure our design team has the resources to continue delivering superior design. By providing trend-right, fashion-forward styles, we are able to not only drive solid full-price sales in the current period, but also build our brand equity. Steve is focused on this every day and the entire creative team is energized to build on the successes today.

Second, we are relying on our solid brand equity to further diversify our business. As you know, we're focused on creating opportunities to leverage the strong Steve Madden brand outside of our core footwear category and we are pleased with our progress thus far. We completed the acquisition of Daniel M. Friedman earlier this year, and during the second quarter, we announced two new license agreements -- one for watches and one for girl's apparel under the Stevies brand.

We are executing all of these initiatives in order to become further entrenched with our customer base, create additional revenue opportunities and evolve Steve Madden into a global lifestyle brand. While we're taking a conservative approach, this is because we are focused on fiercely protecting the Steve Madden brand and want to ensure we're building and growing it in a measured manner.

Third, we will also maintain a strict focus on continuing to improve our operations and generate efficiencies in our business. As one key example, we continue to execute on our margin initiatives. Strong margins allowed us to grow our bottom line in excess of our sales increase in the second quarter and we see this as an important area of focus going forward. While we have made much progress, our team is working hard to sustain and build upon our accomplishments to date. Fourth, while our primary focus on our core business, we will continue to seek strategic and complementary acquisitions that will enhance our business and be immediately accretive to the bottom line. We're consistently evaluating opportunities, but as with everything we do, we are taking a methodical approach and commit that we will make deliberate decisions in this area.

With that now, I will turn the call over to Ed, who will discuss the financial results for the quarter in more detail and provide our updated outlook for 2006.

Thanks, Jamie. Consolidated net sales increased 28% in the quarter to 129.5 million. This increase was driven by strong gains in Steve Madden Women's, Steve Madden Men's, Steven by Steve Madden and Candies, as well as the contribution of new brands, SM New York and [Rule] and the Daniel M. Friedman assessors business acquired earlier this year.

Gross margin for the quarter increased significantly to 42.1% from 37.3% in the comparable period last year as our trend-right product and inventory management strategies continued to pay dividends. Importantly, the overall growth margin improvement reflects margin improvement in both the Wholesale and Retail divisions.

We also controlled costs and leveraged our expense structure against the increasing sales, leading to a 210-basis-point decrease in operating expenses as a percentage of sales. Net income increased 140% to 12.7 million this year from 5.3 million in the second quarter last year. Diluted EPS for the quarter was $0.58 per share on 22 million diluted weighted average shares outstanding, compared to $0.26 per share on 20.2 million diluted weighted average shares outstanding in the prior year.

Now I will talk a little bit about the performance of each of our divisions. Net sales for the Wholesale division increased 41% to 96.2 million from 68.3 million in the comparable period. This division was comprised of 11 segments in the quarter -- Steve Madden Women's, Steve Madden Men's, Steven by Steve Madden, SM New York, Rule, Stevies, Candies, Natural Comfort, Jump, l.e.i. and Danny Friedman.

Net sales for the Steve Madden Women's Wholesale division increased 10% to 34.6 million versus 31.5 million last year. We continue to have success with wedges and peek-a-boo toe uppers in the quarter. Flats, particularly in ballerinas, were also strong and helped us grow our flagship business despite a very tough sandal season. Net sales in Steve Madden Men's increased 17% to 17.9 million versus 15.4 million last year. The sales gain was driven by expanded breadth of assortment with existing doors as we continued to provide a balanced collection 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 5.4 million in the quarter, up 12% from 4.8 million in the comparable period a year ago. Platforms really drove the business in this division. Ballerinas were also strong and [Material Interest], especially [Animal Friends], was very important. SM New York sold its opening price point to the department stores, as well as to mid-tier retailers and specialty stores, contributing 6.5 million in the quarter. By the end of the quarter, SM New York was in over 2400 doors. Product successes in the quarter for SM included platforms with peek-a-boo toe uppers, rope wedges with fabric uppers and ballerinas.

Rule, a new brand marketed exclusively through JC Penney, had total net sales of 3.3 million in the quarter. This included 2.6 million of net sales in Rule women's and 700,000 of net sales in Rule men's. Net sales in Stevies were 800,000 in the quarter compared to 1.9 million in the second quarter last year as we transitioned much of our Stevies business to a commission-based first-cost model where we never take possession of the inventory and don't book any top line revenue. Candies net sales increased 60% to 9.1 million from 5.7 million a year ago, reflecting our first spring season with Candies as an exclusive brand for Kohl's. Embellished footwear continued to perform well in Candies.

We also delivered initial shipments in two new divisions this quarter -- Natural Comfort and Jump. Natural Comfort is an owned brand of fashion-forward comfort footwear. Jump, sold under a distribution agreement, is a fashion sneaker line. These new brands contributed a total of 600,000 in their first quarter of shipment.

l.e.i. net sales were 600,000 in the second quarter versus 8.7 million last year. As a reminder, the l.e.i. license expires September 30th of this year and will not be renewed. The Daniel M. Friedman accessories business, acquired on February 7th of this year, contributed 17.3 million to net sales in its first full quarter under Steve Madden ownership. Betsy Johnson handbags continued to be a standout and belts were strong across all brands.

Taking all of this together, we delivered a 41% increase in overall wholesale sales. The broad-based product strength, combined with the impact of our initiatives to reduce closeouts and control chargebacks resulted in a 680-basis-point increase in our overall wholesale gross margin to 38% compared with 31.2% last year.

Moving on to our Retail division, second quarter sales were 33.3 million, up 2.1% from last year's 32.6 million. Comp store sales increased 3% in the quarter on top of a 13.6% comp increase in the second quarter last year. Gross margin in the Retail division improved 420 basis points from 49.8% last year to 54% this year due to a reduction in promotional selling.

As of June 30, we had 95 stores in operation, including our Internet store. During the quarter, we opened one new store and closed five underperforming locations. For the 12 months ended June 30th, 2006, stores opened 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 increased 57% in the quarter from 1.8 million last year to 2.8 million this year. Our Adesso-Madden first cost division continued its strong performance with commission income net of expenses increasing 75% to 2.1 million in the quarter compared to 1.2 million in the second quarter last year. Licensing income also increased from 596,000 last year to 721,000 this year. And in addition, as Jamie mentioned a moment ago, we signed two new licensing agreements in the quarter; one for watches under the Steve Madden and Steven by Steve Madden brands, and one for girl's apparel at JC Penney under the Stevies brand.

With respect to the balance sheet, we continued to maintain a debt-free balance sheet and ended the quarter with 90.6 million in cash, cash equivalents and marketable securities. Total inventory at the end of the quarter was 43.1 million and our inventory turn for the 12 months ended June 30 was 7.8 times, up from 7.5 times a year ago. Accounts receivable and (indiscernible) from [factor] were 58.2 million, reflecting average collection in 60 days compared to 68 days a year ago. Capital expenditures were 2.9 million for the quarter. We also repurchased 127,900 shares at an average price of $27.2 for a total expenditure of $3.5 million in the quarter. Stockholders equity as of the end of the quarter was 200.8 million.

Now, onto the outlook for the balance of the year. Based on actual year-to-date results and our current visibility into the back half, we are raising our outlook for the full year. Despite a challenging retail environment, consumers continue to respond very positively to our product offering and we expect to deliver a solid second half of the year.

We now anticipate fiscal 2006 net sales will increase approximately 21% to 24% over fiscal 2005. With respect to the bottom line, we currently expect earnings per diluted share will range between $1.90 and $2.00. In line with our normalized historical seasonality, we expect back-half earnings to be more heavily weighted to the third quarter.

In summary, we are very pleased with our year-to-date results. Our entire team is motivated to build upon our performance in the back half and we believe we have the team and strategies in place to accomplish this. We look forward to reporting back to you following the third quarter. Now I would be happy to answer any questions you may have.

(OPERATOR INSTRUCTIONS). Scott Krasik, CL King & Associates.

Good morning and congratulations. Ed, you alluded to obviously there was some weak scandal sales, particularly early in the quarter. But, obviously, you had a very strong retail performance this quarter. Can you just talk about what changes maybe you've made in your model, your buying model, so if there are mistakes made you don't get stuck with big closeouts that you had in the past and you're able to keep the margins as high as you have?

Sure. Well, as we have been talking about inventory management for some time now, and that's really a very big focus at the Company here, and we've done a number of things in that regard. I think we're doing a better job of being a little tighter with our initial buys and we're doing a better job, frankly, of analyzing the historical sales data and using that information as the basis for that initial buy. We're also shaping the reorder a little bit less so we may sacrifice $1 of sales here or there, but we often found that was where we were getting caught with access inventory and so we're being a bit more conservative there. And, frankly, it's really just discipline and watching it. As you know, we promoted Amelia at the beginning of last year and she spends a lot of her time focused on that, and of course [Howard Ash] has come onboard and he's also very focused on that as well.

Okay. And have you changed -- I think early on, some of your executives are incentivized on sales, as opposed to profitability. Has that changed?

Yes. We've been changing people's compensation structure to be based on profitability.

Okay, great. And then I think third quarter was a big wholesale quarter for boots last year to cycle against. Can you talk about some of the early trends you're seeing for fall and (indiscernible) seeing you have a bunch of different fashion boots out there this year?

Sure. As you know, we don't like to talk too much about trends going forward, but I'd be happy to give your a flavor of what we think. As far as boots, I think as you said, there's not going to be one overriding trend the way Western was last year, but we think there are a number of things that we'll have success with. One of the things that we've gotten some really good early reads on is ankle booties, and that's interesting this year. I think it really goes hand-in-hand with this trend towards skinny jeans and leggings. And so that's something that we are excited about.

And then on the non-boot side, I think there's a number of things that we continue to feel good about. This peek-a-boo toe trend has been tremendous for us and we expect that to continue. Flats have been very strong and we think that's going to continue. Animal prints is very important right now, suedes. So there's a lot of different things that we think will pick up the slack from the Western boots of last year.

Okay, good. And just two more quick ones. I guess Candies will be getting to the point where they can potentially use other -- your exclusivity runs out with them. Do you expect anything to change materially in the next six months or 12 months?

As you correctly pointed out, that exclusivity expires at the end of this year. We still feel very confident that they're going to move forward with us as their sole provider of Candies footwear. They are very focused on making Candies a brand. So we don't think it's likely that they're going to source it out to a number of different suppliers because then they would lose the consistent brand message for the shoes. And based on the solid performance that we've had with them, and the fact that we really are the leader in product design and development in this junior footwear space, we think that they're going to stick with us as their sole provider.

Great. (indiscernible) do you guys actually own the Rule brand?

Yes.

So if JC Penney wanted to expand that like Kohl's with Candies, would you control the other categories?

Yes.

And is there any discussion of that?

Not as of yet.

Great, congratulations again.

Jeff Van Sinderen, B. Riley & Company.

Good morning and let me add my congratulations as well. Let me ask you, is there room do you think at this point to further improve your gross margins from the current levels? And if so, how do you get there?

I think incrementally, we can continue to increase it. You're certainly not going to see the same types of increases that we have seen this year relative to last year, but there still are areas for improvement. I think we still could reduce our closeouts slightly. I think that we can reduce our chargebacks from our wholesale customers slightly. And then longer-term, I think as we continue to get bigger that there may be some opportunities on the sourcing front.

Okay. And in terms of sourcing front, are you looking at doing more in terms of more basic product? I know you guys don't do a lot of basic product, but some more that you could do in cheaper countries? Or what are you looking at there?

I think it really just has to do with getting bigger and having more leverage with our suppliers. As far as what countries we're in, right now, we're almost 90% in China and we are exploring opportunities with other low-cost countries. We're looking at Mexico, we're looking at India, we're looking at South Africa. But for the time being, we're going to be predominately in China.

Okay, fair enough. And then maybe you can touch on the whole licensing front maybe a little bit more about the opportunity you see for Daniel Friedman, and then also if you can delve a little into the two new licenses you mentioned in your press release in terms of watches and Stevies girl's and what should we should expect there.

Sure. We are excited about licensing right now. We put Danny Friedman in charge of that area a couple of months ago and we are thrilled with that. He's got many, many years of experience in licensing and really knows all of the key players and we're very happy with his first two deals. The first is for watches. Those would be done by a group called Vestal Group out of California. They make the watches for Gwen Stefani's line, Lamb, as well as Roca Wear and Paul Franks, and then under their own label Vestal. And those will be launching for spring under the Steve Madden and Steven brand names. And then we also signed up this girl's apparel deal with [Mami] Brothers at JC Penney, and that's something we're excited about. These brands, these retailers -- excuse me -- become more and more interested in having exclusive brands similar to what Kohl's has done with Candies. And so we thought this was an interesting way to test out doing Stevies apparel just with JC Penney and see how that goes. Who knows? If it works out, potentially we could expand that into other categories.

That's great. And then let me ask you -- I know there was a lot of noise about what Federated was doing in terms of a mandated markdown allowance for the stores that it was converting. Just wondering how that impacted you in the quarter. Is that behind you at this point? And any thoughts there would be helpful.

Yes. That new store allowance that they were applying, that did not apply to us. That was for -- if you were already in the May doors and Federated doors, that didn't apply to you. It was only if you were in one and you were getting the new doors as a result of the merger.

Okay, great. And then as far as your retail goes, just wondering, it's obvious your gross margins are much improved there, but what should we expect in terms of comps there? And then also, what are your plans in terms of unit expansion? How are you approaching that?

Sure. As far as comps, as you know, we don't really provide comp guidance. I would tell you that we do expect to be comp positive modestly over the back half, but that would be more heavily weighted towards the fourth quarter. We have a much tougher comparison in the third than in fourth. And we are, as far as unit expansion, we're looking to add five to six new stores this year, but that won't increase the net number because they're off of six closures this year. And it's something that we talked about last time, but I think it bears repeating. We're really not focused on driving comp and aggressively opening the store base right now. Our focus right now is on having great stores with great products that make money. And once we feel that we are where we need to be in that regard, then we'll look to start opening stores a little bit more aggressively.

Fair enough. Thanks very much and good luck.

Heather Bosken, Sidoti & Co.

Good morning guys. First real quickly, some housekeeping. Do you guys have the gross margins yet by brand for the quarter?

Yes we do. Madden women's, 34.5 versus 30.2 last year; Madden men's, 41.1 versus 40.9; Steven, 41.8 versus 14.3; Stevies, 37.7 versus 26.2; l.e.i., negative 5.4 versus 28.7; Candies, 41.6 versus 32.5; SM had a 45.3, Rule women's had a 46.3, Rule men's 43, Natural Comfort 43.5, Jump 48.2, Daniel M. Friedman 36, retail I believe you have, but it's 54 versus 49.8.

Gotcha. And secondly, can you talk a little bit about back-to-school? I know there has been some talk that back-to-school gets later and later every year. Are you guys seeing as well? And do some of your orders that would have gone in June -- did they go -- are they shipping in July?

Yes. That's something we've been seeing for awhile now, is that it's really become a real buy-now, wear-now market. But frankly, I wouldn't focus on back-to-school as much for us anymore. Our customer really has moved up in age pretty considerably, and Steve Madden women's is not really the high school girl anymore. But as far as trends for (indiscernible), I that phenomenon has been going on for the last couple of years, so I don't really think we saw that.

Okay, thanks guys.

Sam Poser, Mosaic Research.

Good morning, congratulations. Can you talk a little bit about some of these smaller brands? I missed what you said about the volume on Natural Comfort. Can you talk about what the plan for that is? And I have a couple of other questions as well.

Sure. This was just the first quarter of Natural Comfort, though. It was tiny in this quarter, it was a couple of hundred grand. But it's something that we're very excited about. We are starting in off with Nordstrom's, Bloomingdale's and some real top independents. It's exciting for us because it has been an entree into some of the real cool boutiques that we weren't previously selling with our other lines, so that's exciting. As far as a numbers, it's really too early to say what the plans are as far as dollar volume.

Now (indiscernible) it was mentioned that the idea of this was because the Steve Madden brands were also department-store driven, that you were doing Natural Comfort besides giving you a different look, but also to be more special to these independent retailers.

Absolutely, and that's something that we're -- that's certainly one of the reasons that we got into this business. And as I said, it has gotten us an entree into some of these independents that we weren't in before.

Does that also open you up for other kinds of introductions of this nature? And also, does it open up your eyes as far as acquisitions go? And can you also discuss as a segue what kind of acquisitions, what type of things you would be looking for?

Sure. We're always thinking about new brand introductions and new brand extensions and acquisitions. As far as what kind of acquisitions or what our criteria is, I think that the Danny Friedman deal that we did earlier this year is a great example of the kind of deal we like to do. It was -- first, there was a very clear strategic rationale. In that case, it was expanding our capability from footwear into accessories. Secondly, we added management and design talent in the deal, and that's something that we would look for in virtually any deal. And third, it was very financially attractive, very accretive EPS, and provided us with a superior return on our investment.

So would you look at an apparel -- would you be theoretically looking at an apparel company to expand, rather than doing licensing deals there? Or, are you more focused on licensing with other apparel?

Right now -- we haven't made that final decision, so I reserve the right to have us change our mind. But I think right now, we're leaning towards licensing in the apparel area.

And then I just missed one thing. The Steve Madden, the SM New York, what was the sales on that?

SM did 6.5 million in the quarter.

Is that continuing to uptick?

Yes.

And what's the difference in profitability there with -- from when l.e.i. was in its heyday and those things getting going? How much more is this giving you?

Well we're running that pretty profitably. Obviously, you don't have the licensed royalty fee, so you save yourself roughly 7% or so right there. We're also running this business better than we ran l.e.i. in the last few years.

Well thank you and congratulations again.

Susan Sansbury, Miller Tabak.

Thanks very much. A couple of quick questions. Going back to the gross margin potential left to go, can you -- is there any way you can quantify what your objectives might be?

Well, I think certainly for this full year, our goal really is to sustain what we achieved in the first six months on an overall margin basis and perhaps have a slight uptick. Beyond that, 100 or 200 basis points over the long-term would be a good target.

And because of your focus on the same initiatives -- lowering markdowns, chargebacks, et cetera -- is there something new that you're doing here?

Yes, those are the key initiatives. Let me just remind everybody, the most important thing or the most important driver in our margin is the strength of our product. And that's what has really driven the margin up, is that we have this very broad-based product strength and it's being accepted by customers, because that makes everything easier. You have more full-price selling, fewer closeouts, less markdown money. So that's really the key driver, and then we're supporting that with the inventory management strategies and the efforts to reduce the compliance chargebacks.

When do you start to anniversary the chargeback and markdown initiatives, inventory management initiatives? When did you first implement them?

Well, inventory management started to improve last year really I think second quarter, and then it gained momentum through the year. The compliance chargebacks we didn't see much of an impact until fourth.

On inventories, I noticed -- and again, I recognize that there is an acquisition component here, but inventories are up 38, 39%. Could you parse the effect of the acquisition of Daniel Friedman? Could you take it out of the inventory?

Absolutely. Danny Friedman had inventory at the end of the quarter of 7.5 million. So if you take that out, the increase is only 4.6 million, or a little under 15%. And we think the sales forecast certainly supports that inventory level.

(indiscernible). And in terms of EPS accretion from Danny Friedman in the quarter?

In the quarter, it was about $0.05.

And I apologize, I'm old, I can't remember. What was it in the first quarter? Do you remember, or do you know what the accretion was for the first half?

I believe it was 3 or -- $0.035 cents in the first.

Okay, that's great. You're doing a great job. We all appreciate it I'm sure.

Jeff Mintz, Wedbush Morgan Securities.

Good morning and congratulations. I have just a couple of follow-up questions. Following up on Scott's question about Candies, has there been any specific discussion to extend the exclusivity there, or is this just something you kind of fee based on the performance of the business?

No discussion to extend the exclusivity, but we're obviously in constant contact with them and have been discussing our plans for next year. And so (indiscernible) basis for this view that we're going to keep going.

Okay, great. And then on Stevies, it sound like you're changing the model there a little bit. Is that going to essentially become like the Adesso-Madden model? Can you just talk about what you're doing there and why you're moving in that direction?

Yes. It's really just a piece of the business, so we're going to do part of the business on a first cost model and part of it we will continue to do [landed], so we will recognize the top line on a portion of the business. Everything has really just been in working with our customers, finding out what they want, as well as how we can be the most profitable.

Okay. And is that going to split up by distribution channel, by customer, or is it just going to depend on what each customer wants?

It's somewhat split up by distribution channel. Certainly, we're still going to do Steve Madden kids for the Nordstrom's and the Dillard's of the world on a landed basis. And then as you move down the chain, it's more likely we'll be first cost. But it's also a customer by customer conversation.

Great. And then on Jump, would you just talk a little bit about distribution channel on Jump, kind of where it is and where you see it going in the future?

Sure. We're really starting that out with Nordstrom and with the cool independents, and we're going to start slow and see how that goes, and then we would look to expand the distribution later on to other better department stores and more specialty stores.

Okay, great. And then just kind of a housekeeping question. Can you give me the Q3 and Q4 comp for your retail stores from last year?

From last year, Q3 was 12.3% to the positive and Q4 was 6.3% to the negative.

Great, thank you very much and congratulations again.

Scott Krasik, CL King & Associates.

Hi guys. A couple of questions. First, Natural Comfort has added some department stores out on the West Coast, and talking to the salespeople, they didn't know that it was owned by Steve Madden. Is that a strategy, or are you pushing that with the independents? How are you framing that and then sort of going forward with anything else you do? Are you trying to distance it from Steve Madden per se?

As of now, the concept is not branded as Steve Madden and we're not selling it is such. It's a separate different concept. And going forward, again, it's a case-by-case basis. To the extent that we think something will benefit from the association with Steve Madden, we will tag it. But in some cases, we're going to have new concepts that aren't Steve Madden branded?

And then you had this stuff in the stores for awhile and it looks like you might have pulled them out of some of the stores. Are you going to sell Natural Comfort and use non-branded brands in your Steve Madden stores?

Yes. Natural Comfort will still be in some select stores in our Steve Madden retail.

Okay. Do you have any idea -- I know you didn't own Daniel Friedman last year at this time, but do you know what the sales were about in second quarter?

They were up very substantially over last year.

Okay. And that's both Betsy Johnson bags, which are hot, as well as the Madden initiatives?

Yes. They've gone into the belt business, they've gone into the private-label business, so it's a number of things.

Okay, good. And do you have -- just housekeeping -- gross profit dollars by wholesale and then retail and then SG&A dollars by wholesale and then retail?

Sure. Gross profit -- wholesale, 21.4 million -- excuse me -- 36.6 million; gross profit retail, 18.0 million; SG&A wholesale, 20.2; SG&A retail, 15.9.

Okay, thanks very much guys.

(OPERATOR INSTRUCTIONS). Randy Scherago, First Albany.

Hi guys, terrific quarter. Just a couple of follow-ups on some of the smaller brands that you launched. What was the timing of when you launched Jump and Natural Comfort? And how many doors today for Rule are you in at Penney's of the total number of doors that Penney's has? And what is your expectation for doors for Jump, and also Natural Comfort over the coming year?

Sure. Natural Comfort and Jump both just launched. Their initial shipments were in second quarter. And it's really, we're not going to talk about doors yet, it's just way too early to talk about that. I did speak a little bit about what the distribution is, but it's too early to say what the doors will look like there. We can update you more in another quarter or two. And in Rule, we are in close to 600 doors in JC Penney.

But for the other two, did they launch late June, did they launch late May? Can you give us a sense of when exactly --?

Towards the end of the quarter. Natural Comfort was later in the quarter, Jump a little bit earlier.

And then the men's, the high-end product that you were showing at (indiscernible), did that ship in the quarter and did that contribute anything in the second quarter to the strong results of Madden men?

No. Steven Madden, the initial shipments will be Q3.

Okay. And any expectations there?

As far as dollars?

Yes.

It will be very small this year. You know, it's a new concept and we will see how it goes.

Just a follow-up on the other analysts' questions regarding Stevies. Stevies has had sort of anemic growth or negative growth the last year. So any future plans to reinvigorate the brand or to take it to a different focus?

In fact, it really has been reinvigorated, you just can't see it in the top line numbers. The business is much, much healthier than it was a year ago. But because the revenue and profitability is being reflected in Adesso-Madden partially, it looks on the outside as though the business is not performing as well. But in fact, it's doing much, much better.

So a majority of it is Adesso-Madden today?

Yes. I would say, I don't know the answer to that. I would probably say half and half.

Okay, thank you.

David [Kessel], [GNS] Capital.

Good morning, congratulations. Just a couple of quick questions. First of all on the repurchase, can you just update us what you have left in terms of guaranteed return to shareholders this year?

We have about $6 million left to do through in January of '07.

And if you're able to comment at all, just a little color on why -- I don't want to sound spoiled, but why wouldn't [you] have bought even more stock when it was down at the levels you were buying at, given the need to return to shareholders under the agreement, and obviously how strong the business is?

Yes. It's a little bit tricky because once you start to see your numbers come in (indiscernible) Wall Street expects, the attorneys don't like it if you're in there buying stock.

Understood. And is it fair to expect that, well, I will leave it at that. The second question is just the accessories business, whether you can just give us an update in terms of how many doors the revamped Steve Madden accessories are in at wholesale and your own retail stores?

Sure. We're in all of our retail stores now. We did that in the middle of the second quarter. And in wholesale, we are in about 80 doors with Steve Madden bags and about 600 doors with Steve Madden belts.

Can you comment on the performance of each of those pieces?

Sure. The belts have been very good, the bags -- the initial launch of Steve Madden handbags did not meet our expectations. We had a couple winners, and particularly, we had some success with club bags in our Steve Madden retail stores. But overall, we think we can do better with the handbags. And so we're putting some things in place to remedy that. Steve has been spending a lot more of his time working with the handbag design team to make sure that the bags really have the Steve Madden brand spirit. And in addition, we're tweaking the model a little bit there. We've introduced some more expensive backs under the Steven brand. These will be bags with beautiful materials priced $150 to $250. And then under the Steve Madden brand, we are launching an evening collection or a club bag collection for holiday, and those will be more reasonably priced bags under $100.

Okay. And finally just in terms of guidance vis-a-vis the macroenvironment, I'm just curious if you can give us some level of confidence in that guidance. Let's say if the macro were to weaken more materially and your customer was impacted, do you still think this guidance is reasonable given everybody's concern about what's going on out there and the bigger macro picture?

Well, it certainly is a challenging retail environment right now. The economy is cooling a bit, the traffic in the malls is not great. Gas prices are obviously at historically high levels. But given all of that, we still feel pretty good because we feel like if you have what we have seen so far and what we think will continue to be true is that, if you have the right product, you're still going to be okay. And so certainly we have taken the macroenvironment into consideration in coming up with our guidance.

Thank you very, very much.

At this time, there are no further the questions. Please continue with any closing comments.

We thank you for your interest and support and we look forward to speaking with you on the next call.

Ladies and gentlemen, this does conclude our conference call for today. You may all disconnect and thank you for participating.