Steven Madden Ltd (SHOO) 2011 Q4 法說會逐字稿

Good day, everyone.

Welcome to the Steve Madden Ltd fourth quarter 2011 earnings release conference call.

Today's call is being recorded.

For opening remarks and introductions I'd like to turn the call over to Ms.

Jean Fontana of ICR.

Please go ahead, ma'am.

Thank you.

Good morning, everyone.

Thank you for joining us today for the discussion of Steve Madden's fourth quarter and full year 2011 earnings 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 risks and uncertainties and other unknown facts that could cause actual results of the Company to differ materially from historical results or any future results expressed or implied by such forward-looking statements.

The statements contained herein are also subject generally to other risks and uncertainties as 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 today's call cannot be relied upon as current after this date.

I would now like to turn the call over to Ed Rosenfeld, Chairman and CEO of Steve Madden.

Thanks, Jean and good morning.

Thank you for joining us today.

We are pleased to report another quarter and year of record sales and earnings results at Steve Madden.

For the fourth quarter of fiscal 2011, our net sales grew 73.7% to $279.8 million and diluted EPS increased 32.4% to $0.55.

For the year, net sales were $968.5 million, a 52.4% increase over 2010 and diluted EPS was $2.25, a 26.2% gain over the prior year.

This morning, I will provide a review of our fourth quarter and fiscal 2011 financial results and then we'll discuss our sales and earnings guidance for fiscal 2012.

First, I'd like to provide an overview of our overall business initiatives including the progress we made in 2011 and our goals for 2012.

As always, our number one focus in 2011 was to maintain the momentum in our core Steve Madden women's wholesale business.

We recorded strong growth in this business in 2011, including double-digit percentage gains with key department store accounts like Nordstrom and Dillard's.

Our top priority in 2012 will be to sustain this momentum by following our proven formula, combining the unique creative talents of Steve and his design team with a test and react strategy and industry-leading speed to market capability to deliver consistently trend-right merchandise for our customers.

2011 also saw us complete two strategic acquisitions.

First, on May 20, we acquired the Topline Corporation, which designs, produces, and markets private label and branded footwear.

Topline's private label business, which [accounts] for about [75%] of its sales, is one of the best in our industry and is highly complementary to our legacy private label footwear business in terms of customer base.

The Report family of brands, which accounts for the balance of Topline sales, is a solid addition to our footwear brand portfolio.

And perhaps most exciting over the long term, the acquisition of Topline provides us with a premier direct sourcing platform in Asia.

While we historically sourced nearly all our footwear through agents, Topline sources 100% of its goods direct with the factories.

We've already begun placing a meaningful number of orders direct with the factories through the Topline operation, primarily in our private label area and in brands like Material Girl, Olsenboye and Madden Girl.

We are very pleased with the initial results and remain confident that over time, this direct sourcing capability will provide great benefits to our business, enabling us to get better pricing, improved quality, and more consistent deliveries for our merchandise.

We completed a second acquisition of Cejon on May 25.

This acquisition expands our in-house accessories capability, adding a market leading designer and marketer of cold weather and other fashion accessories to go along with our existing handbag and belt business.

Cejon's performance in its first nine months under our ownership has been strong, exceeding expectations despite the mild winter.

As we move ahead, we believe there's ample opportunity to grow this business by capitalizing on our brand portfolio and customer relationships to expand in Cejon's product categories.

Another point of emphasis for the Company has been developing our newer brands.

In 2011, we made significant progress in expanding brands like Olsenboye, Big Buddha, Madden, Betsey Johnson and Material Girl.

Together, these brands accounted for over $100 million in net sales in 2011, approximately $50 million more than 2010.

We also continue to add new brands to the portfolio.

In addition to the Report family of brands acquired in the Topline acquisition, we signed a license to become the North American distributor for Superga, a fashion sneaker brand out of Italy and acquired the Wild Pair trademark from Baker's Footwear Group.

We launched Superga in high-end department stores and specialty stores for Spring 2012.

We plan to begin to start shipping Wild Pair shoes in the Fall.

Another important initiative for the Company has been to continue the improvement in our retail division.

After undertaking a series of operational changes beginning in 2008, we have seen a major turnaround in this business.

We have now delivered 9 consecutive quarters of positive comps and 6 consecutive quarters of double-digit comps.

Our retail operating margin for 2011 was 12%, up from less than 7% in 2010.

In addition to the much improved performance of our bricks-and-mortar stores, we are particularly pleased with the growth in our eCommerce business.

Our business on stevemadden.com was up 27% in 2011 with growth accelerating in the back half and continuing to expand that business will be a top priority in 2012.

Finally, we had a successful test of a Steve Madden outlet store concept in 2011.

We opened 5 outlets in the year, bringing our total to 6 and we're very pleased with the consumer response and the top and bottom line results we achieved.

2012, we plan to open 7 to 8 full-price stores and 5 to 6 outlets with approximately 4 closures.

Another area where we made significant progress in 2011 was in expanding our business outside of footwear.

In addition to growth from newly acquired Cejon, we recorded 15% organic growth in our in-house accessories business driven by double-digit gains in Big Buddha, Steve Madden and private label handbags.

And royalty income from licensing was up 66% for the year, driven by the inclusion of royalty income from the Betsey Johnson brand which we acquired in October 2010.

We had two successful launches of new license categories in the back half, Betsey Johnson watches with Haskell Jewels and Betsey Johnson fragrance within our parfum.

We also have two launches planned for 2012 -- luggage for Betsey Johnson and intimate apparel for Steve Madden, both of which will hit stores in Fall.

Finally, international expansion continues to be an important part of our growth strategy.

2011, we recorded our second consecutive year of greater than 50% year-over-year growth outside the United States.

Our partners now operate 137 freestanding retail stores and 109 concessions in international markets.

In addition to experiencing strong growth with existing partners like GRI in Asia, we launched in a number of new territories in 2011, including the United Arab Emirates, Benelux, India and South Africa.

Now, we are taking direct ownership of our business in the international market for the first time with our acquisition of our Canadian licensee SM Canada, a deal we actually plan to close on later today.

SM Canada's sole business is operating as our licensee in Canada for wholesale and retail distribution of footwear and accessories into our various brand names.

SM Canada operates 7 Steve Madden branded retail stores and net sales in the 12 months ended July 31, 2011 were approximately $32 million.

Canada is a strong market for Steve Madden and we see significant opportunity to grow this business by enhancing our presence in major department stores and specialty stores as well as expanding the portfolio of Steve Madden stores.

When you put that all together, 2011 was a busy and productive year at Steve Madden.

In addition to delivering outstanding financial results, we executed on a number of strategic initiatives which position us for future growth in 2012 and beyond.

Now let's turn to the financial results for the quarter.

Consolidated net sales for the quarter increased 73.7% over the prior year to $279.8 million.

If we exclude net sales from Topline and Cejon, both acquired in May as well as the Target and Olsenboye footwear businesses which were not included in the sales line last year, organic net sales growth was 19.1% on a consolidated basis.

Wholesale net sales in Q4 rose 95.2% to $225.9 million compared to $115.8 million in the fourth quarter of last year.

Excluding Topline, Cejon, Target and Olsenboye, organic wholesale net sales increased 19.2%.

Wholesale footwear net sales were $168.6 million, an 82.5% gain versus Q4 2010.

Excluding sales from Topline, Target and Olsenboye, organic growth was 19.4% driven by strong gains in Steve Madden women's and our international business as well as by sales from the new Betsey Johnson footwear business.

Wholesale accessories net sales were $57.3 million, a 145.2% increase.

In addition to the inclusion of sales from Cejon, the net sales gain was driven by double-digit growth in all core handbag brands including Big Buddha, Steve Madden and Betsey Johnson as well as in private label accessories.

Excluding Cejon, organic net sales growth and wholesale accessories was 18.5%.

Turning to retail.

Net sales in that segment were up 18.9% to $53.8 million in the fourth quarter.

Comparable store sales increased 15.9% for the quarter and doors opened for the 12 months ended December 31, 2011, generated $819 in sales per square foot, up from $742 in sales per square foot a year ago.

Traffic, conversion and AUR all increased in Q4.

In addition, our eCommerce business exhibited very strong growth in the quarter.

We opened 2 full price stores and one outlet store and closed one store in the quarter ending Q4 with 84 Company-owned retail locations including the Company's internet store.

Turning to other income, our commission and licensing income net of expenses was $4.1 million in Q4 versus $4.6 million in last year's fourth quarter.

First cost commission income net of expenses was $1.2 million in the quarter, down from $2.3 million in last year's fourth quarter due primarily to the transition of the Target private label and Olsenboye footwear businesses to a wholesale model and into the Topline.

Licensing royalty income net of expenses was $2.9 million in the quarter compared to $2.3 million in the fourth quarter of 2010.

The licensing royalty income includes solid gains in Steve Madden outerwear and bedding as well as Betsey Johnson outerwear and intimate apparel.

Consolidated gross margin for the quarter was 35.5% as compared to 43.2% in last year's fourth quarter.

The decline was due to a decrease in the wholesale gross margin to 28.9% from 35.7% in the same period last year.

Similar to previous quarters, the wholesale gross margin was negatively impacted by three shifts in sales mix.

One, the inclusion of sales from newly acquired Topline and Cejon; two, the inclusion of the Target private label and Olsenboye footwear businesses in the sales line; and three, the strong growth of the international business.

Combined, these factors diluted wholesale gross margin by approximately 680 basis points.

Excluding these businesses, wholesale gross margin would have been flat year-over-year.

Gross margin in the retail division expanded in the quarter to 63.1% compared to 62.5% in the fourth quarter of 2010 due to less promotional activity, particularly on stevemadden.com.

Operating expenses were $64.7 million in the fourth quarter, or 23.1% of net sales, compared to $46.9 million, or 29.1% of net sales a year ago, a 600 basis point improvement due to leverage on increased sales as well as the increased mix of wholesale which has lower operating expenses as a percentage of sales than retail.

Operating income for the fourth quarter of 2011 increased 41.3% to $38.6 million, or 13.8% of net sales, compared to $27.3 million, or 17% of net sales, in last year's fourth quarter.

Net income increased 34.9% to $23.8 million, or $0.55 per diluted share, compared to $17.6 million, or $0.41 per diluted share, in the prior year's fourth quarter, adjusted for the three-for-two stock split in May of 2011.

Now I'd like to briefly touch on our full-year results.

Net sales for the full year increased 52.4% to $968.5 million.

Operating margin was 15.9% in fiscal 2011 compared to 19.1% in fiscal 2010 and net income totaled $97.3 million, or $2.25 per diluted share for the year as compared to $75.7 million, or $1.78 per diluted share in fiscal 2010.

Turning to our balance sheet, as of December 31, 2011, we had $180.5 million in cash and marketable securities and no debt.

We ended the year with inventory of $59.6 million versus $39.6 million at the same time last year.

Of the $20 million increase in inventory, approximately $15 million was Topline and Cejon inventory.

Excluding the acquisitions, inventory was up 13.6% compared to the same period last year.

Consolidated inventory turn for 2011 was 10.2 times, up from 9.5 times in 2010.

CapEx for the quarter was $3.2 million.

Now let's turn to guidance.

For fiscal 2012, we expect consolidated net sales to increase 21% to 23% compared to fiscal 2011.

Excluding SM Canada as well as non-comp sales in the first five months from Topline and Cejon, net sales is expected to increase 9% to 11%.

Overall, 2012 gross margin is expected to be modestly lower than 2011 due to the impact of Topline and Cejon in the first five months of the year prior to the anniversary of their acquisition.

The full year impact of which is estimated to be approximately 200 basis points.

Excluding this impact, gross margin in 2012 is expected to be modestly higher than 2011.

Diluted EPS for 2012 is expected to be in the range of $2.60 to $2.70.

Overall, we are anticipating another strong year in 2012 and look forward to reporting back to you over the course of the year on our financial results and our progress on our strategic initiatives.

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

(Operator Instructions) Camilo Lyon from Canaccord Genuity.

Hi, congrats on a nice finish to the year.

Last year, you talked about planning your boot business at a declining rate as a part of the mix.

Could you just tell us where that ended up, and how we should think about or how you're planning for your boot business for 2012?

Sure.

Well, overall, we were up in the boot and bootie category, but it was a modestly lower percentage of the mix in 2011 compared to 2010.

In fact, 2010 was also modestly lower than 2009, so we're a few percentage points off of where we were at our peak in terms of percentage of sales mix.

So, I think that we're looking for 2012 to potentially be, again, slightly smaller as a percentage of the mix, so we'll be planning that business in dollars flat to modestly up, which would be a modest decline as a percentage of the total.

Okay, got it.

Then if you could talk about any of the gross margin improvement you're currently embedding into your guidance that's resulting from going direct as a result of the Topline acquisition?

Sure, yes.

We're pretty pleased with the start there.

I think that right now, new shoes that we're placing at the very moment, probably of the stuff that was previously with agents, about 10% is being placed at this very moment direct through the Topline operation.

We think that we'll get that up to 15% over the next few months, and we are seeing some nice savings there.

We think that on those products, we should be saving around 200 basis points, if not a little bit more.

Of course, that's, as I said, that's only between 10% and 15% of the overall mix right now, but we're also, again, want to stress that it's also about more consistency of quality and delivery.

It's not -- there are other benefits other than just the gross margin savings.

So, that 30 or so basis point improvement, is that currently embedded in the guidance or no?

Yes, we've included that.

Got it, and then, is there an opportunity for that mix to increase from 15% to 20% should things go without a hitch?

I don't think we'll get to 20% this year.

We think that we want to be methodical about this, and certainly next year we'll be looking to get to 20% or more, but I don't think we'll get there this year.

The other point of caution here is that when we talk about a 30-basis point improvement to the overall, a lot of the product that we are sourcing direct with them right now is the first cost business.

As you know, a lot of that's recognized on the Other income line, and so any improvement in our margin there will just show up as an increase in our Other income line as opposed to a change in the gross margin that you guys look at.

Got it.

Okay, and then just lastly, actually two more quick questions.

One, how do you think -- you talked about taking the Canadian business direct.

What do you see as the opportunity to grow the business both on a wholesale and on a retail level there?

Yes, I think we're pretty excited about that.

We're doing very well in Canada.

They seem to really respond to our product up there.

We currently have seven stores, and one of the things that we're -- I think most excited about is really ramping up the store growth there.

Our partner there has identified about 20 additional locations that we think look like good prospects for Steve Madden's doors.

So, we're going to be rolling out stores over the next few years in Canada.

We think there's a lot of growth in retail.

And then we think we can grow the wholesale business as well.

Really, [he's] focused on Steve Madden so far.

We've obviously got a diversified brand portfolio of other brands that we can now start to push through that system up there and try to grow the wholesale business.

Got it.

Okay, my final question, and I'll get back in the queue is -- relates to the renegotiation of Steve's contract.

What, if any, potential expense savings could result of -- as a result of that renewed contract in 2012?

Sure.

Well, maybe let me just back up, just so everyone has the background and they can understand the rationale behind the amendment.

Steve's previous contract was signed back in the middle of 2005, and since that time, of course, the Company has experienced tremendous success.

At the time his previous agreement was put in place, frankly, I don't think anybody anticipated how much or how fast the Company would grow.

In fact, our EPS in 2011 was over 10 times what the trailing 12-month EPS was at the time his last deal was negotiated.

And as a point of reference, our market cap was less than $240 million when that deal went into effect.

We closed Friday close to $1.9 billion.

So, at any rate, Steve's previous deal provided for formulaic bonuses, which included a bonus based on EBITDA and a bonus based on new business sales.

Based on this outstanding growth over the last few years, Steve's cash compensation in this deal was rising dramatically, and we forecast that it would have continued to rise.

In fact, if we kept the old arrangement in place, we estimate that starting in 2012, Steve would have been making more than $20 million per year in cash, and this was a contract that went through 2019.

So what we have done is to amend the contract to eliminate the cash bonuses going forward, and to compensate Steve primarily in salary and restricted stock, which vests between 2017 and 2023.

So we really believe this amendment is a big win for the Company for a couple reasons.

First and foremost, it's just a big reduction in overall compensation compared to the old contract.

In fact, we believe the annual compensation expense recognized by the Company under the new arrangement will be in the neighborhood of half of what it would have been under the previous agreement.

Second, we think it's a much improved incentive structure for Steve because in the new contract, a significant portion of Steve's overall package comes in the form of long-term vesting restricted stock.

This is stock that vests over 12 years, and none of which vests before the end of 2017, so this really squarely aligns Steve with shareholders, and ties a major piece of his compensation to the long-term performance of the stock price.

Now, in regards to your specific question about next year, relative to the expense that we recognized for Steve in 2011, this should be about a $1 million year-over-year savings.

Part of this deal was that Steve agreed to forgo about $5 million of his compensation that he would have been -- his bonus that he would have earned for 2011, so that's why you're not seeing a huge reduction because he already took a haircut in 2011.

And then there's a slight further cut in 2012.

Got it.

Okay, thanks, Ed.

Good luck with 2012.

Thanks.

Scott Krasik with BB&T Capital Markets.

So, a couple questions.

If we back out the $0.07 or so from Canada, and the few pennies from Topline in the first half of the year, you're guiding to what looks like low teens core EPS growth.

Is that how you think about the business right now, or is that typically conservative?

If so, what part of the P&L do you expect to be able to grow faster?

I think that you've done the math correctly.

I think that's essentially what we're looking for.

If you back out Canada, I've got 13% to 17% EPS growth for the year, and as you point out, that does include maybe a $0.01 or $0.02 from Topline and Cejon.

It's not a lot from Topline and Cejon, because we really got most of that accretion in 2011.

In fact, we had about $0.15 of accretion from those two deals in the seven months of 2011.

Cejon, of course, is very, very back-half weighted as a cold weather business.

Sure.

Just to comment around your expectations for meeting or exceeding the guidance.

Would it be sales driven or gross margins in the back half of the year?

I think that -- is there a possibility for overachievement in sales?

Yes, and there's also a possibility we can do better in gross margin, but this is, based on what we see today, this is our best guidance.

Okay, and then just at the show last week or a couple weeks ago, we started to hear whispers that dress may start to be trending.

Are you seeing that, and if so, when was the last time you've had a dress cycle, and what would that mean for Steve Madden brand?

Yes, we feel very good about what we're seeing out of dress over the last few weeks, and dress shoes actually were performing in the first part of last year.

They really just slowed up pretty dramatically in Q4, but we're seeing them pick up again.

Actually, we had a very strong plain pump run in 2010 and 2011, which really slowed up, again, at the tail end of the year.

But we're seeing some good things happen out of the dress category now, which we're excited about.

And you expect there to be some strengths in Spring '12 as well?

Yes, absolutely.

Okay, and then just lastly, what's your updated thoughts on full price retail stores?

Obviously, you're going to open stores in Canada, but other than the outlet, what are you thinking in the US over the next couple of years?

I think you're going to see us start to be a little bit more aggressive in terms of full price stores.

The last few years we have been opening two, three, four a year, but this year we've guided to seven to eight full-price stores in addition to the five to six outlets.

I think you'll see us do at least that many over the next couple years.

Okay, thanks.

Congratulations.

Thanks, Scott.

Oliver Chen with Citi.

Hi, congrats on a great quarter.

Thank you.

We did have a question regarding -- what's the best way we should think about in terms of the gross margin cadence, and how we model it?

It seems that potentially the first two quarters may continue the same rough run rate based on not yet anniversarying the M&A.

Is that true?

Yes, that's right.

You're still going to have the negative mix shift from Topline and Cejon the first two quarters.

The impact will be most dramatic in first.

Second quarter -- as you'll recall, we acquired them in the middle of the year last year, so it won't be quite as impactful on a year-over-year basis.

Okay.

Do you think that your thoughts on those quarters currently in terms of your guidance will incorporate the same gross margin that we saw in Q3, Q4, which was down between 700 basis points and 800 basis points?

No, I don't think it will be quite that bad because you won't have the impact of -- now we fully anniversaried Target and [Olsenboye moving].

Okay, thanks.

And on the sales line, you had really impressive ex-Topline/Cejon wholesale growth of high teens.

What's happening next year?

Do you think the double-digit run rate can continue?

Strategically, what's happening for you to be able to achieve this given that the US is a relatively mature market within the industry?

Well, our business is pretty good.

I think we're taking a lot of share in the core brands.

We also have some of these newer brands -- Big Buddha, Betsey Johnson, et cetera, which have a much faster growth rate.

Madden on the men's side is another example of that.

So, yes, we still think -- we put out an organic growth guidance of 9% to 11%, and we definitely think that the midpoint there, that 10% is achievable for 2012.

Thanks, Ed.

Could you also brief us on your thoughts on regarding your cash and use of cash in '12?

Strategically what you're thinking if there's prioritization with regards to M&A versus returning to shareholders versus CapEx?

Sure.

Well, I'll take the CapEx first.

I think that we're looking to probably spend $10 million, $11 million, $12 million, somewhere in there.

We've got, as we said, a little bit more in terms of store opening plans this year.

I think it was, overall, if you count outlets and full-price stores, we're looking at 12 to 14 outlets -- excuse me, 12 to 14 new stores.

We also want to be doing some remodels to freshen up some of our existing stores.

But other than that, we're spending less money on systems this year than we did last year.

So that's why I think the overall CapEx will be a little bit lower than it was in 2011.

So, obviously, that's not taking a big chunk of the cash on the balance sheet.

So we will be looking at acquisitions and returning capital to shareholders.

I think that acquisitions continue to be the priority, if we can continue to find great deals.

I think we've done a pretty darn good job over the last few years of doing things that got us outstanding returns, but we want to be disciplined there.

If we don't find things, then we'll go back to returning capital to shareholders.

Thank you.

And lastly, what gives you guys the conviction [or the] plans regarding the retail side of the business, in terms of opening new stores?

It does look like your performance has trended really positively in terms of running that business in a really ROIC positive way, but could you brief us on what you're thinking, maybe there's some dynamics with real estate availability?

Do you feel like you have the prototype size in the right place?

Well, I just think we're running that business a heck of a lot better right now.

You've seen the dramatic improvement in sales and profitability there.

I think that we've got the model -- I don't want to say we've got it down, but we've got it in a much better place than it was before.

It gives us more confidence to be able to open stores.

I can't say, unfortunately, that it's easy to get great mall locations out there, or great spaces.

It's still a tough real estate market for guys like us, but we think that we can find stores where we can get the right return on investment.

Thanks a lot for your time.

Jane Thorn Leeson with KeyBanc Capital Markets.

Hi, Ed.

Congratulations on a great quarter.

I just had two questions.

One, if you could describe the acquisition landscape as you see it today?

And also, if you have any more opportunity to buy back licensees or third parties over the next year?

Sure.

In terms of acquisitions, we're constantly out there looking at things, and evaluating additional opportunities.

I would say that the pipeline is not quite as full as it's been in some other times, so there's certainly nothing imminent, but we are continuing to look for things.

As I said, we really want to be disciplined though as well, so it's got to be the right deal for us.

In terms of buying back additional international licensees, we're very happy with the Canada deal, but I don't think there are any other markets where they're mature enough yet to look at that.

So you're certainly not going to see us do any other markets in 2012.

Can't say, starting in 2013 and beyond, it's hard to know, but we don't believe that there are any other markets right now where the risk reward justifies bringing it back in-house.

Okay, that's really helpful.

Secondly, can you explain the operating metrics whether on a gross margin or operating margin basis for the outlet channel as they are today?

Yes, we're really pleased with the performance in the outlets right now.

We are expecting that in 2012 we could have four-wall contribution from the outlets in the mid-20%s, so we're in the low 20%s on our full-price stores.

We're thinking we can get a few hundred basis points higher in the outlets in 2012.

Okay, great.

That's really helpful, thank you.

Jeff Van Sinderen with B.

Riley.

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

Maybe you can talk a little bit about the comp-store sale progression you saw in your own retail stores through holiday?

Were there any pronounced peaks and valleys in the comp?

And then anything unusual in terms of the way your retail partners chase business for holiday?

And then how that plays into how you're thinking about Spring?

Maybe you can just also touch on how your business has trended so far this year both in your own stores and in terms of wholesale.

Anything unusual there?

Sure.

Well, I think the first part of the question was about the trend within the quarter in our own retail stores, and we actually got stronger as the quarter went on.

So, November was better than October, and December was modestly better than November.

In terms of what we saw -- the second part was about the promotions in holiday?

Yes, I'm just curious to know if there was anything unusual to (inaudible - technical difficulty) that, and anything that's shaping how you're thinking about Spring?

Yes, well, I think that it was promotional, although it's promotional every year these days.

I do think that there were some people that got caught with some inventory in terms of cold weather product, and so that did drive some markdowns, where some retailers it was backing up their inventory a little bit.

But we have not seen that impact our Open-To-Buy at all.

So we're pleased about that.

I think, lastly, you asked about the business in first, and we continue to feel very good about our trends both in retail and wholesale.

In terms of the retail comp, I don't think you're going to see another 15.9% because we're now -- first quarter is the first quarter where we're comping two consecutive years of double digits, but we do think we're going to put up another nice number.

Okay, good.

And then, I think you mentioned going into luggage and Betsey Johnson.

Just any other color you can give us on how that business is evolving, and what your outlook is for 2012 and Betsey Johnson?

Well, the licensing business -- we're really, really pleased with that.

As I said, we had this great launch of watches with Haskell Jewels, that's our jewelry partner, and they have a very, very successful costume jewelry business in the department stores.

We also had a really strong launch of our fragrance, Betsey Johnson Too Too, with [Inner Parfum] -- that's exclusive to Sephora.

And they've been very pleased with that, in fact, we're going to do a follow-up for Fall called Too Too Pretty.

We'll take Too Too and expand the distribution there, and then we'll bring in Too Too Pretty as exclusive to Sephora.

So we're really, really pleased with our growth in Betsey Johnson licensing.

Of course, we're also doing well with the shoes, and we've got the handbag piece turned around.

So overall, that's been a great deal for us.

Okay.

Then finally, obviously you're evolving and doing more sourcing in-house, but just wondering outside of the shift to sourcing more directly through your business, is there anything outside of that, that's changing on the sourcing front?

Are you seeing any relief with some of your other sourcing partners?

Yes, well, in terms of price increases, that really seems to have moderated.

Right now, I think that we're seeing price increases in the low single digits, which is obviously less than what we were dealing with last year.

Raw materials and labor both seem to have moderated, maybe up very modestly.

Freight is actually down, although given what's going on with oil, we anticipate that that's going to rise a little bit, but overall, while we're not seeing prices go down, we're also not seeing dramatic increases.

We also continue to move more of our product up to the north of China, where costs are lower, and we're doing some more product out in other countries.

We did probably 25% of Steve Madden production in Fall in Mexico.

We're also doing a little bit out of India, we're making the Superga shoes in Vietnam, so we are diversifying our sourcing base a little bit.

In those other countries, how is the quality?

Good.

Very good.

I mean, we're not doing stuff that -- in Mexico we're focusing on boots where they have a real expertise.

In Vietnam, we're focusing on the sneakers, again, where there's an expertise, so we're trying to go where these guys know what they're doing in terms of the product that can deliver good quality.

Okay, good to hear.

Thanks very much, and good luck this quarter.

Thanks.

Claire Gallacher with Auriga.

Could you talk about the opportunity for Wild Pair?

I don't believe you've walked through maybe your targeted distribution, and just where you see that brand fitting in.

Well, the reason we haven't talked about it yet is because we're not ready to disclose that.

We're still talking to a number of retailers about that, and we have not yet made a final determination about where we're going to distribute that product, but stay tuned.

We should be able to report something on the next call.

Okay.

You do expect that for Fall '12?

Is that what you said?

Yes.

Okay, and if you could maybe just walk through the performance of some of your key brands, just where maybe you saw some of the upside coming out of the quarter with Steve Madden, with Madden Girl, or just, what was the call-out for you for the quarter?

Well, the biggest was the core Steve Madden brand.

We have really outstanding growth there.

We were up in the high teens in core Steve Madden women's wholesale, which, as you know, is actually our most mature business, so we thought that was pretty impressive growth.

On the other end, we actually had an overachievement in our Target private label footwear business.

We've seen that business really accelerate over the last six months or so, so we feel good.

We're performing in the high end, the Nordstroms of the world, as well as in the mass merchant channel like Target.

Great.

Then you mentioned just now that you thought your costs were increasing maybe in that low single digit range, so in that regard, do you expect to still continue with surgical price increases on specific products, or how are you handling pricing going forward?

Yes, we are, but I think it's going to be less than we did last year.

We took 4% to 5% in terms of price in 2011, and this year I think you're going to see that, that is going to be more low single digits, in line with the cost increases that we see out of China.

Okay, great.

And then just as a point of clarification, did you say that you expected full-year gross margins to be down 200 basis points because of the shift in the first half?

Is that correct?

Well, we said that the impact of the shift in the first half is 200 basis points, so we have 200 basis points of headwinds on gross margin; however, we think that we can be moderately up if you exclude those headwinds.

So in essence, we will be down, but we'll be down less than 200 basis points.

Okay, great.

Thanks, and congratulations.

Thanks.

Sam Poser with Sterne, Agee.

Hi, Ed.

A couple, just a few things.

Can you break down the flow of the gross margin by quarter?

Like, just give us some idea -- is it down 5%, 3%, and then up a little bit in the back half, is that ballpark?

Yes, that's reasonable.

And then, what are your assumptions for interest income and SG&A?

How are you thinking about the expenses, too?

SG&A, we think that we can get a little bit of leverage there.

In fact, our goal is really to attempt to get operating margin in 2012 flat versus 2011.

So we know the gross margin is going to be down a little bit, but our goal will be to leverage SG&A such that operating margin ends up around flat as a percentage of sales.

In terms of interest and other income, it should be very similar to what it was in 2011.

Thank you, and then, can you give us the dollar, the sales for Topline and Cejon?

Can you say what they contributed this year to you, and in the quarter?

Sure.

So, on a combined basis in Q4, the acquisitions contributed about $74 million.

And in 2011 for the year, they contributed about $177 million.

What growth rate are you assuming there?

Well, first of all, you have about $98 million coming in, in the first five months, which is what I would call non-comp, before we anniversary the acquisition.

Then we've assumed modest growth in the back half in each of those businesses.

So then, you're going to continue to see for the first half of the year basically high double-digit sales in all your wholesale businesses.

Then that should moderate to a more normalized manner, so could you give us some idea of what kind of assumptions you have once you lap in the back half of the year that's built into the guidance?

What kind of growth are you foreseeing once we lap all of this stuff starting in Q3?

You can do your own model, Sam, but I've given you the organic growth is 9% to 11%, and I've told you what the acquisitions are going to add, so I think that's probably enough.

It's never enough, but (laughter) -- and then you talked about acquisitions, what's missing from your portfolio right now?

As far as, when you're looking at stuff, where do you think the gaps are, what do you want to fill in conceptually?

What would get you guys excited, the kind of thing that would get you guys excited?

I think there's certain brands that we think could be very complementary to what we do, and we're very excited about what's going on at JCPenney, and the changes that they're making there.

We would love to have an additional brand for them.

But there's a whole host of things.

Right now, I don't think there's any missing big hole or a big gap, but there are things that could be interesting.

We'll just have to wait and see what's out there.

Steven Marotta with CL King.

Good morning, Ed.

I have a quick question regarding the gross margin line.

As it relates to first cost business and layering in additional direct sourcing in 2012, I understand that much of it, again, from a first cost standpoint, is on the Other income line, but Target and Wal-Mart are, of course, now up above.

Why wouldn't there be a larger gross margin impact on the COGS line?

And then I have a small follow-up to that as well.

No, you're right.

The part that's Target and Wal-Mart, you will see it in the top line.

I was just cautioning people that if we're talking about a 20- to 30-basis point opportunity in total, and then some of that is on the Other income line, that it's not super meaningful to the consolidated gross margin that we report for the year.

Okay, so it's split, not wholly on the Other income line?

That's right.

Okay.

What are the other major organic gross margin drivers for the year that you see going out?

Is it improved inventory turns?

Is it less -- not less promotional activity, but towards a [like] better inventory management, that kind of thing?

Well, I think the Topline initiative is number one, and I think there's always an opportunity.

We always think that we're going to, that we should be able to reduce our close-outs and our markdown allowances, although frankly, we've done a pretty darn good job over the last couple years.

So I don't think -- there's not 200 basis points of opportunity there, but there is some places where we could do a little better job.

But primarily the Topline initiative?

Yes, that's a big one.

Perfect.

Thank you very much.

Dana Telsey with Telsey Advisory Group.

Congratulations, Ed.

Can you talk a little bit about what your business has been with JCPenney, and what types of brands you'd want to add in there?

And then lastly on international, how do those characteristics work?

What do you see the potential becoming given that it is small, and how it could impact profits on the margin side, SG&A?

Thank you.

Okay, in terms of JCPenney, our business there is primarily Olsenboye, which is doing very, very well.

We do the shoes and the bags for that brand, which is exclusive to JCPenney, and that's about a $15 million business for us right now.

We've talked in past quarters about how that was really far ahead of expectation, about twice of what we anticipated going into 2012, so that brand is doing really well.

They've taken a couple, basically about 600 doors -- they've taken a couple items all door there.

I think that the thing that we're most interested in right now is hopefully, Olsenboye will be selected as one of the shops in the new plan there as they transition their business to a bunch of shop-in-shops.

But we'll also be interested in having another brand there, and it's too early to say what that will be, but we're looking at lots of things and talking to JCPenney about lots of ideas, and hopefully, we'll have something to report soon.

The second part of the question was about international; correct?

Exactly.

Yes, so international, it continues to really hum along.

As I said in the prepared remarks, it's up over 50% again in 2011.

That's the second consecutive year, and we ended the year with about $53 million of international sales.

We still think we should have another nice year of growth in 2012.

We've got a lot going on there.

We're going into a couple new territories.

We're doing a test in the United Kingdom with Dune.

We're going into selected doors of House of Fraser for Spring there, and we're also going to start wholesale business in France, Germany and Scandinavia with Macintosh.

Macintosh, who is their partner in Benelux, is doing very well there, and so we've given them the additional territory.

And then probably most exciting, our existing partners are adding, or scheduled to add about 50 freestanding stores in 2012, and about 42 concessions, so that would bring us to close to 200 freestanding stores outside the US, and over 150 concessions outside the US.

So we think there's going to be some real nice growth there.

Of course, we're really excited about the Canada business that we're now taking in-house.

Thank you.

We have no further questions at this time.

Mr.

Rosenfeld, I'd like to turn the conference back over to you for any additional or closing remarks.

Great.

Well, thanks everybody for joining us on the call today.

I look forward to speaking to you on the Q1 call.

Once again, ladies and gentlemen, that does conclude today's conference.

We thank you for your participation.

Have a great day.