Steven Madden Ltd (SHOO) 2012 Q4 法說會逐字稿

Good day, everyone, and welcome to the Steve Madden Limited fourth-quarter fiscal 2012 earnings conference call.

Today's call is being recorded.

And now for opening remarks I'd like to turn the conference over to Jean Fontana of ICR.

Please go ahead.

Thank you.

Good morning, everyone.

Thank you for joining us today for the discussion of Steve Madden's fourth-quarter and full-year 2012 earnings results.

Before we begin I would like to remind you that statements made in this conference call that are not statements of historical 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 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 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.

Good morning, everyone, and thank you for joining us today.

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

For the fourth quarter of fiscal 2012 our net sales grew 12.8% to $315.5 million.

Diluted EPS increased 35.2% to $0.74.

For the year net sales were $1.2 billion, a 26.7% increase over 2011.

Diluted EPS was $2.71, a 20.3% gain over the prior year.

Before going through a more detailed review of the financial results for the quarter and discussing our outlook for 2013, let me first provide a review of our overall business initiatives including our achievements in 2012 and our goals for 2013.

Our first priority is always to sustain and build upon our fashion leadership position in our core Steve Madden women's wholesale footwear business and 2012 was a resounding success on that front.

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, once again resulted in a trend right merchandise assortment that resonated with both retailers and consumers.

For the year our Steve Madden Women's wholesale footwear business increased 15% in net sales, including strong gains with key accounts such as Nordstrom, Dillards and Lord & Taylor.

We also transitioned Steve Madden to the Impulse department at Macy's from its previous position in the junior department.

This change has enabled us to put more elevated product into Macy's that has sold through at a much improved rate, positioning us for sales and profitability growth with that account in 2013.

As we move ahead we will remain laser focused on creating the on trend product that will enable us to continue the momentum in our core business this year and the years to come.

Our second initiative is to grow our direct-to-consumer business.

2012 was our biggest year ever in terms of retail expansions as we opened 20 new bricks and mortar doors including 15 full price stores and five outlet locations.

We also launched two new eCommerce sites during the year, Superga in the Spring and Betsey Johnson in the fall.

We ended the year with 109 Company operated stores including 11 outlet and three eCommerce stores.

And the stores performed very well.

We had a 7.9% comparable store sales gain for the year and improved our retail operating margin to 13.8%.

Looking ahead to 2013, we plan to continue to expand our retail store base with five to seven new outlet locations along with four to six new full price stores.

We also continue to make significant progress growing our business outside of footwear.

In 2012 wholesale accessories' net sales increased 36%, including 29% organic sales growth, to $241 million.

Our handbag business was the fastest growing business in the Company in 2012.

Steve Madden handbags led the way with sales more than doubling versus the prior year.

And our other handbag businesses were also strong -- double-digit sales growth in Betsey Johnson, Big Buddha and Private Label handbags.

We continue to have strong momentum in this business as we head into 2013.

We're also focused on building our licensing business.

While licensing royalty income was down modestly in 2012, due primarily to certain licenses that were discontinued, we recently signed several new licensing agreements which complement our current licensing portfolio and should enable us to return to growth in this area in 2013.

In 2012 we launched Betsey Johnson luggage and a new Betsey Johnson fragrance in addition to Steve Madden loungewear.

In the first half of 2013 we are launching Betsey Johnson dresses and Steve Madden intimate apparel.

And in the back half of the year we will introduce Steve Madden jewelry and watches under license with Haskell Jewels.

Developing new brands is another important initiative for the Company.

In spring 2012 we launched the Superga brand in North America.

The initial response was excellent with outstanding sell-throughs at retail and great buzz in the industry and among consumers.

We also opened a Superga store in SoHo and, as I mentioned earlier, launched the Superga website, both of which have exceeded expectations thus far.

Based on the success that the brand had in 2012, key retailers are expanding Superga significantly in 2013.

For Spring 2013 the brand is being distributed of all doors of Bloomingdale's, all doors of Neiman Marcus and 55 doors of Nordstrom.

Also for Spring 2013 we've launched Mad Love as an exclusive brand at Target.

Mad Love is a [surf] inspired brand of which we have 50% ownership.

As of last month Mad Love footwear and accessories are in all doors of Target and online and the initial selling at retail has been excellent.

Finally, we continue to make progress in expanding our international business.

Our net sales outside of the US grew by more than 50% in 2012 for the third consecutive year.

In addition to strong gains in existing territories like Latin America, the Middle East and Benelux, we also had a very strong launch in the US -- excuse me in the UK, with our new partner Dune.

And as you know, we also took direct control of our business in international markets for the first time with our acquisition of SM Canada in February 2012.

We've already begun to expand the Steve Madden footprint in Canada, opening five new stores during the year, and are very pleased with the acquisition so far.

We expect to see continued growth across our international territories in 2013, including Asia where we had a decline in 2012 but which has seen a solid rebound in the beginning of 2013.

So as you can see, we made significant progress on each of our major growth initiatives in 2012 and we have the building blocks in place for continued growth in 2013 and beyond.

With that let's turn to the details of the financial results for the quarter.

Consolidated net sales in Q4 grew 12.8% over the prior year period to $315.5 million including strong gains in both wholesale and retail.

Wholesale net sales rose 9.4% in the quarter to $247.2 million compared to $225.9 million in the fourth quarter of last year.

Within wholesale footwear net sales were $175.6 million, up 4.1% compared to Q4 2011.

The growth was driven primarily by the strength in the Steve Madden Women's business as well as the benefit from the acquisition of SM Canada.

This was partially offset by a sales decline at Topline due to the loss, as expected, of two Private Label customers that compete with Steve Madden and elected not to go forward with Topline after we acquired it, as well as our focus on reducing unprofitable and low-margin sales at Topline.

It should be noted that gross margin was up dramatically at Topline, so gross profit dollars were actually higher than in the prior year period despite the lower sales.

Wholesale accessories net sales were $71.6 million, a 24.9% increase over Q4 2011.

This was driven by outstanding growth in both Steve Madden and Betsey Johnson handbags.

Turning to retail, we had another strong quarter with net sales up 27% to $68.3 million.

Lace-up booties and wedge sneakers stood out once again.

Comparable store sales grew 5.9% for the quarter on top of a 15.9% increase in the prior year period.

We estimate that Hurricane Sandy negatively impacted the comp by approximately 200 basis points.

We opened six Steve Madden full-price stores, three Steve Madden outlet stores and one Betsey Johnson eCommerce store during the quarter, bringing us to 109 company operated stores including 11 outlets and three Internet stores.

Turning to other income, our commission and licensing income net of expenses was $2.8 million in Q4 versus $4.1 million in last year's fourth quarter.

First cost commission income net of expenses was $0.9 million in the quarter, down from $1.2 million in last year's fourth quarter.

This decrease is due primarily to the loss of Bakers as a customer.

Licensing royalty income net of expenses was $1.9 million in the quarter compared to $2.9 million in the fourth quarter of 2011.

This decrease was due primarily to a timing change in royalties related to a Topline outsole technology, as well as a decline with our outerwear licensees for both Steve Madden and Betsey Johnson.

Consolidated gross margin for the quarter was 39.3% as compared to 35.5% in last year's fourth quarter.

Wholesale gross margin expanded to 32.6% versus 28.9% last year reflecting year-over-year improvement in both the wholesale footwear and wholesale accessories businesses.

Gross margin in the retail division was 63.7%, up from 63.1% in the fourth quarter of 2011 driven by the benefit from the higher margin SM Canada retail business.

Operating expenses were $78.2 million in the fourth quarter, or 24.8% of net sales, compared to $64.7 million, or 23.1% of net sales a year ago.

Operating expenses as a percentage of sales increased versus last year due primarily to an increased mix of retail which has higher operating expenses as a percentage of sales in the wholesale business, and the reclassification of certain expenses from cost of goods sold and other expenses to operating expenses.

In addition, we had an increased bonus provision for the accessories business due to the outstanding profitability growth in that division, as well as increased expenses in the eCommerce business related to marketing and providing customers with free shipping.

Operating income for the fourth quarter of 2012 was $49.8 million or 15.8% of net sales.

Operating income included a $1 million benefit related to a greater than anticipated recovery in the bankruptcy process of a note receivable from our former licensee for Betsey Johnson retail apparel, a portion of which was charged to impairment expense in Q2.

Excluding this benefit operating income was $48.7 million, or 15.4% of net sales, compared to $38.6 million, or 13.8% of net sales in last year's fourth quarter.

The effective tax rate in the quarter was 35% compared to 38.6% in the fourth quarter of last year due to the reinvestment indefinitely of a portion of our earnings from the Company's foreign operations in such foreign operations.

In 2013 the effective tax rate is expected to be approximately 38%.

Net income for Q4 was $33 million, or $0.74 per diluted share.

Net income included the aforementioned benefit related to a greater than anticipated recovery in the bankruptcy process of a note receivable, which on an after-tax basis positively impacted net income by $0.6 million or $0.01 per diluted share.

Net income in the fourth quarter of 2011 was $23.8 million, or $0.55 per diluted share.

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

Net sales for the full year increased 26.7% to $1.2 billion.

Net income was $119.6 million or $2.71 per diluted share for the year.

Net income included charges for a settlement of a class-action lawsuit, impairment of notes receivable and bad debt related to the bankruptcy of Bakers.

In aggregate, on an after-tax basis, these charges negatively impacted net income by $5.7 million or $0.13 per diluted share.

Net income also included a tax benefit related to the reinvestment indefinitely of a portion of earnings from the Company's foreign operations in such foreign operation.

This tax benefit positively impacted net income by $6 million or $0.14 per diluted share.

Excluding all of these items net income for 2012 was $119.4 million, or $2.70 per diluted share.

This compares to net income of $97.3 million or $2.25 per diluted share in fiscal 2011.

Turning to our balance sheet, as of December 31, 2012, we had $266.3 million in cash and marketable securities and no debt.

We ended the year with inventory of $63.7 million, up 6.8% compared to last year.

Our consolidated inventory turn the last 12 months was 10.6 times, up from 10.2 times for the prior year.

FX for the quarter was $4.3 million.

Now turning to guidance -- for fiscal 2013 we expect net sales to increase 6% to 8% compared to fiscal 2012.

Diluted EPS is expected to be in the range of $2.95 to $3.05.

Q1 of 2012 represents our toughest quarterly comparison due to the favorable weather in that period and the strong early selling of sandals a year ago.

We expect EPS in the first quarter of 2013 to show only modest year-over-year improvement.

In conclusion, 2012 was an outstanding year at Steve Madden.

We gained share in our core Steve Madden shoe business, recorded explosive growth in our Steve Madden handbag business and expanded our retail and wholesale footprint both domestically and abroad.

And we are well positioned as we move forward.

With our brands and our business model stronger than ever we believe we are poised to continue to drive sales and earnings growth in 2013 and beyond.

Now I would like to turn it over to the operator for questions.

(Operator Instructions).

Jeff Van Sinderen, B. Riley.

Congratulations on the strong performance in the quarter.

So, I guess the first question I have is any more color you can give us on the comp progression that you saw throughout holiday.

Was it sort of similar to the typical progression we saw with the huge last weekend before Christmas?

Maybe just any color you saw in your own retail stores.

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

And then any impact or anything that you are factoring in based on that and anything in the macro or early trends in 2013 that might be shaping your thinking about spring and the rest of the year?

Sure, in terms of the comp progression during fourth quarter, October was the weakest month; we were just barely better than flat in October and then we were up around 8% for each of November and December.

Now heading into the first part of this year there has been a slowdown.

Over the last five weeks the traffic in the retail stores has seen, without characterizing, a material slowdown and particularly the traffic in the Northeast and specifically in New York.

As you know, we are heavily exposed to those markets.

So our traffic year to date is down about 8% overall, but 12% in New York City.

Now fortunately I think we have got very strong product right now and we managed to show nicely improved conversion and a little bit of a bump in AUR.

So our comp is just a hair better than flat year to date.

So we are still just slightly in the positive, but certainly the traffic has been a challenge in the first part of the year.

Okay and how much of that traffic decline do you attribute to weather or other macro factors like the tax situation and so forth?

Yes, you know, it's really hard to say.

Certainly I think there are a lot of things playing into it, certainly the payroll tax and the later payment of tax refund checks have probably been somewhat impactful.

But as I said, we've also seen the impact more dramatically in the Northeast and specifically in New York, so I think that weather is certainly playing a role as well.

Keep in mind (multiple speakers) the weather -- I'm sorry, Jeff.

I just want to say, keep in mind also that the weather was particularly favorable a year ago.

It was a very mild first quarter and we got really strong early selling of sandals.

Got it, okay.

And then are you hearing anything anecdotally from your retail partners about how their business is trending?

Are you hearing -- it sounds similar to how your retail stores are trending?

Well, I think that everybody is struggling with the traffic issue.

Fortunately, particularly in our Steve Madden business, we have a very strong assortment in wholesale right now and I think we are taking a lot of share from other -- from our competitors on the floor within the retail stores -- excuse me, within our wholesale partners.

So we are still seeing nice increases in retail selling at our wholesale partners.

Okay, good.

So basically it sounds like you continue to outperform some of your competitors even in early 2013?

Yes, we believe that to be the case.

All right, great.

I will let somebody else jump in.

Thanks very much and good luck for the rest of the quarter.

Kate McShane, Citi.

I was just wondering with regard to your guidance, and this was partially answered in the last question.

But is there any part of your guidance where you do think you are being a little bit more conservative than not and where we could potentially see upside as we get through the year of 2013?

Yes, let me take a step back because I think that it might be helpful to just explain a little bit about the guidance, because there are a couple things that are providing a little bit -- or causing a little bit of a drag on the growth in 2013, and the biggest one is Topline.

So we have got -- we are forecasting our Topline business to be down about $18 million in net sales in the first half.

And there are a couple things going on there.

On the Private Label sides there were a couple customers of Topline that are businesses that are competitive with Steve Madden and have elected not to go forward with Topline since we acquired the business.

Now that was something that we expected, it was 100% planned, we factored it into the valuation when we bought the company.

And we always assumed those businesses were going away, but we sort of got a free year with those two customers because after we bought the Company certainly there are orders in place, they can't just turn Topline off overnight.

And so, in the first half -- but the businesses have now gone away.

So in the first half of this year there is about $12 million of sales to those two customers at Topline from a year ago that are going away.

That is the first thing.

And then the second thing is in the branded business, which is called Report, we are also forecasting a decline there.

And the reason for that is that for the first year or so after we acquired the business we really left that business alone.

The founder was still there for that first year and we really wanted to learn the business before we jumped in.

Unfortunately the business really struggled over that year.

The sell-throughs were pretty poor and in many cases we felt like Report was going after the same kind of looks as Steve Madden and frankly just not doing it quite as quickly or quite as well.

So in the middle -- about six months ago after the founder left the company we jumped in there, we changed the design team, we changed the direction of the line and gave it a new point of view and a direction and separate and distinct from Steve Madden.

And we actually feel very good about where we are headed.

We had two excellent issue shows at FFANY in New York and at Platform in Vegas over the last month.

And we think that that business is actually going to do very well for us starting in the back half.

But in the first half we are still dealing with the hangover from the poor selling that we had in 2012.

So that is the big drag is Topline in the first half.

And then the second one is that we discontinued one of our smaller shoe lines, Big Buddha shoes, which did about $8 million last year as well also most of it in the first half.

So if you were to take those two businesses out, the Topline growth of 6% to 8% would actually be more like 9.5% to 11.5%.

So it is pretty meaningful the drag that we are getting from those two businesses.

To follow-up on your more specific question -- in terms of upside, I do think that we've taken a somewhat conservative view in this forecast of what Steve Madden could be -- Steve Madden women's wholesale business in the back half.

We are very excited about the momentum that we have there.

I talked a little bit about the opportunity with Macy's in the prepared remarks.

But I think there is a potential for upside, particularly with Macy's, in the back half if we can continue to perform the way we are now on the floor.

Okay, great.

And would that be -- with Macy's would that be in the form then of gaining more floor space?

Yes, there are a couple of things that are happening with Macy's for the back half.

Right now we have 230 table doors we call them; those are stores where our collection is presented as a collection on one or two tables of Steve Madden, and we are going to expand that from 230 doors to 260 doors in the back half so that should help.

And then we also take beyond just the table doors and in about 456 stores or two another sort of -- excuse me, I guess that is another 226 stores, we take an additional set of products.

And right now it is about -- or it has been about -- it was about six SKUs in fall, it is gone to roughly eight or nine SKUs today and we are expecting that we can go to 12 SKUs in those stores for fall.

Okay, great.

And then my final question is just a longer-term question.

Now that you have over 100 retail locations, and I was wondering, your new stores were significantly different than some of your older stores.

And can we expect reformatting or remodeling of some of your older stores over the next year or two?

Yes, that is going to be an ongoing process of remodeling and refreshing the stores so that they all look the way we want them to look good.

And last year we remodeled I think it was around 10 to 12 stores and we're looking to do a similar number this year and I think you will see that each of the next few years.

Okay, great.

Thank you so much.

Danielle McCoy, Brean Capital.

Congrats on a great quarter.

I guess I just wanted to dig in a little bit deeper on the improvements that you saw in the wholesale division given the gross margin gains.

Was it a better selection, more selection, less promotional and how should we expect this going further?

Sure.

Maybe I can help you parse the improvement in the wholesale gross margin a little bit; it was about 370 basis points.

The biggest pieces, Topline -- the improvement that we showed at Topline, was about 120 basis points and we are just running that business in a much more disciplined fashion.

We reduced the inventory dramatically there, it was down over 50% year over year in inventory and we are just running that much more clean.

So I think that is something that hopefully can continue.

Steve Madden Women's there was -- contributed -- there was a nice increase there which contributed about 100 basis points to the overall wholesale gross margin.

That's just because we had a very, very strong season, lots of full price selling, very little close-outs, very little markdown allowances.

The direct sourcing effort was about -- gave us about 40 basis points.

SM Canada gave us about 30 basis points because that is a higher-margin business.

And then also the growth and improvement in accessories added about 50 basis points to the wholesale gross margin.

Then there was about 30 basis points of other.

So if those are the real primary pieces of the improvement.

Okay, great.

And then how should we look at overall inventories going forward given the expansion in the store base (multiple speakers)?

I'm sorry; I was just going to say we think that they are very well controlled right now.

We are up 6.8% at the end of the year overall, so we feel very good about the inventory levels.

Okay, and then just lastly.

How many of the store openings are planned for Canada for next year?

At a minimum two.

Okay, great.

Thank you, guys, good luck.

Camilo Lyon, Canaccord Genuity.

Good morning, Ed.

Nice finish to the year.

I was hoping you could talk about what you are seeing in the M&A market, how potential candidates are expressing receptivity to discussions you might be having with them?

Yes, we continue to look at various opportunities.

There are a couple things that we're in the early stages of evaluating right now.

As you know, the challenge over the last year or so has been valuation.

And we are still finding that in some cases it is tough to get together with the sellers on value.

But we are going to keep looking and hopefully we will get something done.

Great.

And then I was hoping maybe you could talk about how we should think about 2013 with respect to pricing versus units, how that composition should unfold if we exclude the discontinuation of those two business lines -- just on the core business.

Yes.

Well, right now in the first half we think that we will be up low-single-digits in AUR/ASP.

Got it.

And then lastly, I was hoping that you could talk about anything outside of the direct sourcing benefits that you are continuing to benefit from?

Are there any other mix shift benefits on the gross margin line that we should contemplate as we think about 2013?

Yes, we think that the gross margin on a consolidated basis, the range will probably be up 50 to up 100 in 2013 and that is sort of -- the improvement should be equally split between the direct sourcing that you mentioned and also just an increased mix of retail.

Does accessories become a bigger contributor to that improvement or is it still relatively small to the overall --?

Yes, I mean in the accessories margin is not that dramatically higher than the wholesale footwear that it really moves the needle.

Okay.

All right, thanks a lot and good luck with 2013.

Thank you.

Corinna Friedman, Wedbush Securities.

Let me add my congratulations also, great quarter.

I just wanted to -- if you could expand a little bit more on the pricing risk, particularly as it relates to the comp and traffic that you indicated year to date, if you could just expand it.

Low-single-digits, does that mean that conversion has been mid-single-digits or a little bit higher?

And then secondarily, some of the new licensing categories, are those going to also roll out to the retail stores?

And if so, will you need display cases or something for the jewelry and the watches?

Sure, yes, conversion has been up mid-single-digits and recently even a little bit more than that in the retail stores.

In terms of the new license categories, yes, we are still looking at what we are going to do in the retail stores.

I don't think we have arrived at an answer on that yet, but the primary focus of the licensing business will be a wholesale play.

Great, thanks.

Steve Marotta, CL King & Associates.

Ed, pertaining to your guidance as it relates to first quarter, does that assume an acceleration income and through the wholesale channel for the balance of the quarter or does it assume more of the same?

It is basically more of the same.

And also, can you talk a little bit about cost?

You mentioned AURs are expected to be up I believe in the low-single-digit range for the first half of 2013.

Is that a complete pass through, is it a little more, a little less?

Can you talk about bit of outsourcing out of Asia?

Yes, I mean I think that in terms of costs out of Asia it's basically neutral, we are not seeing -- we are not having to stomach the same kind of increases that we had let's say two years ago there which is a good thing.

But in terms of the AUR benefit, that is really based on mix.

So the -- in other words, the IMU is essentially flat.

Okay.

Does that make sense?

Yes, it does.

Are there any benefits to sourcing from new geographies that you are looking at?

Or you are just -- again, from a costing standpoint it's just in that neutral range on a net-net basis?

Yes, I mean I don't think there are any real benefits from the new places.

Obviously we are doing more out of Mexico.

I mean in the Steve Madden line, maybe half of the business in the back half was done out of Mexico.

But that is not really -- doesn't give you big costing benefits, it is really more about the speed and their expertise with the types of products, the boots and things that were selling well in the back half.

Great, thank you.

Scott Krasik, BB&T Capital Markets.

I missed it, I'm sorry -- the reallocation of some expenses to cost of goods sold -- or out of cost of goods sold, how much did that benefit gross margin and what is the implications for that in the first three quarters of 2013?

Yes, that was about 30 basis points in the quarter.

And it is not going to be meaningful in 2013.

Okay and then what was the international growth in Q4?

Well, overall I think what we've said is it was north of 50% again.

Okay and is that -- you include all of Canada, both retail and wholesale, in that metric?

Yes.

How was that -- as you anniversary the acquisitions then how should we think about the growth rate for international?

Well, you will see -- I think you will see that slowing.

I mean now you have got -- once you have Canada in the mix I think it is going to go to more of a 25% kind of grower.

Okay and the biggest market opportunities still for international are?

Right now the Middle East is really humming for us and I think that remains a very big opportunity.

I think Asia we also see a big opportunity, though it was down in 2012 we are really rebounding there and our partner GRI is committed to open around 15 stores in 2013.

And then the long term I continue to think that Europe remains a big opportunity.

Okay, and then the thoughts around canceling the Big Buddha footwear program, why did you do that?

We just weren't getting the traction that we had hoped for.

And also the -- what we found was that the bags and the shoes were sort of diverging in terms of the consumers that they were appealing to, there was a little bit of a disconnect in that the bag customer was a little bit older than the shoe customer and we felt it was a little confusing, a little bit of a confusing brand message.

And so the bag business obviously much, much bigger, more profitable and more important.

So we decided to really focus on that, pulled the shoes back, and then we can relaunch shoes at a later date that perhaps better align with the bags.

Okay, and then sorry, just last.

What sort of early reads are you getting on Betsey Johnson dresses?

Have they delivered and how many doors and what you see there?

Yes, actually they just hit the floor last week, and I don't have a door count off the top of my head, but it is in all of the key stores.

So Nordstrom, Macy's, Dillards, Belk's, Von Maur, and we only have a week of selling but they were very pleased the first week.

All right, good luck, Ed.

Thanks.

Taposh Bari, Goldman Sachs.

A question for you.

What did Steve Madden wholesale forward do in the fourth quarter?

Can you give us a number?

That was up 19%.

Okay and then for 2013, appreciate the gross margin guidance.

What does that imply in terms of -- I guess how do we think about SG&A for 2013?

I would say that we believe that we can maintain SG&A at a -- at the same level as a percentage of sales for the year.

Okay and what is driving that?

I am assuming mix hurts you, right, from retail.

Are there any other puts and takes to consider there?

Yes, it's just mix hurts you a little bit on retail and then we get a little bit of leverage on growing sales to get us back to neutral.

Okay, and then I guess I wanted to ask you a higher level question on just capital allocation.

So A, what is the CapEx budget for 2013?

And then as you think about allocating capital, obviously M&A is a topical point for you guys based on the history.

How do you think about that vis-a-vis share repurchase?

And also just wanted to ask a question on the retail store growth.

Are the returns there, the ROIs accretive to your business?

Because it seems like the retail margins are slightly below wholesale.

Just trying to understand better if that is at a tipping point where you expect the structural profitability profile of retail to accelerate longer-term?

Thanks.

Sure.

In terms of capital allocation, we believe that CapEx for 2013 should be in the range of the $16 million to $18 million, that is down a little bit from the $20 million that we did in 2012.

And as you correctly pointed out, our first priority beyond that is to find additional acquisitions like the ones that we have done over the last few years which have been -- which we have gotten a great return on.

But absent that we will be looking again at returning capital to shareholders.

And what I will say is that I think it is very unlikely that we will not do one of those things this year, either acquisitions or some return of capital to shareholders.

In terms of your last question, the stores that we have been opening over the last couple years we have been getting north of a 40% cash-on-cash return year one in the retail business.

And that is why we are electing to continue to open retail stores.

Okay, just a quick follow-up on the M&A question.

I mean how do we think about -- as you think about potential deals, the size of the deal, are you looking for something similar in size to what you have been doing over the past few years, smaller, bigger?

I would say that we like the size that we've done over the last few years.

We can certainly -- obviously we have the wherewithal to do things considerably bigger.

But I would say $100 million or so is sort of the sweet spot.

We will certainly look at things bigger than that, but we also feel that we have so much growth ahead of us in our existing business that it would have to really be a perfect deal for us to take a lot of a risk on by doing a much bigger deal.

Great, thank you very much.

Good luck.

Jane Thorn Leeson, KeyBanc Capital Markets.

Congratulations on a good quarter.

My question was on international.

When will the international become more impactful?

Is it -- to the overall business in terms of margins and sales?

Is it one year from now or more than that?

We ended the year with $94 million in sales outside the US.

So for me that is impactful now.

We are certainly going to try to make it bigger and we have set a goal to get that well north of $200 million let's say four years out.

But we consider that an important part of the business already.

And then -- but when I guess would you see an impact with -- a material impact to margins?

I am not understanding your question.

What do you mean by that?

Well, I guess flow-through and when would the next set of let's say acquisition -- international acquisitions of let's say your JVs come up?

Oh, when would we look to potentially buy in another licensee?

Yes.

I would say that we are still probably at least two years away from being at a place with any of our international licensees where they are at the size and scale where we think the risk/reward makes sense to buy them in.

Okay.

You are right, at that point when we buy them in that does become margin accretive.

Okay, great.

Thanks.

Sam Poser, Sterne, Agee.

A couple of things.

What -- with acquisitions, following up on the last question, would you be looking at international brands that might already have a distribution network?

And what are the lengths of your distribution agreements, the average length of your distribution agreements you have with your current international distributors?

Yes, the answer to the first private question, yes.

We certainly would look at international opportunities.

There have been some things that we have looked at internationally, we haven't gotten anything done other than the acquisition of our own licensee in SM Canada.

But we have looked at things.

And then in terms of the licensing arrangements, they vary.

I would say that most of them have somewhere between two and five years left on them, although some of them have automatic renewals.

But we have -- we also have options to buy and there are various things that we could do if we elected to buy one of those in.

Thanks.

Does your guidance include any buyback in it?

No.

And what is the average share count we should use for the year?

I would go with 45.1 million somewhere in there, 45.1 million.

Okay, thanks.

And the same store sales expectations that you sort of built into the overall guidance?

We don't give comp guidance, but I think that sort of low- to mid-single-digits could get us there.

Okay, and then lastly, do you have any -- you did the Material Girl shoes with Madonna.

Do you have any -- and you have done other celebrity endorsement deals with other retailers.

Do you have anything like that on the -- in the hopper right now?

We are looking at stuff all the time.

But there is nothing imminent on that front.

Okay, I think everybody covered everything else.

Thanks and best of luck.

Mike Richardson, Sidoti.

I wonder if you can just give us an update on how your business at J.C. Penney has been performing.

And also you may have touched on this before, I may have missed it.

Can you remind us the number of doors that Superga is currently in and how many you expect it to be in at the end of the year?

Sure.

In terms of J.C. Penney, yes, our business there has been tough.

Olsenboye, which was our existing business there, was down about 10% in 2012 versus 2011.

We don't think that is a terrible result given that that's a little bit better than the comp performance of the overall store, but still it has been challenging and we've planned that down in 2013 as well.

And in Betseyville, as you know, we launched in the back half of 2012 and that's been challenging too.

The bags -- the handbags and the cold weather accessories were pretty strong performers, but the rest of it has been fairly mediocre.

And so we really need to continue to work at that.

And we think we know a way to improve the shoes a little bit, we think they were a little over detailed.

But we have got to try to improve the product there and get the sell-throughs to improve as well.

In terms of Superga, I don't know the overall door count off the top of my head because, keep in mind, it's got a very heavy independent base; there are lots of boutiques.

But I think the key point is what I mentioned in the first part of the call which is that there has been significant expansion with the majors.

So a year ago we were in one Bloomingdale's, now we are going to be -- or we all are in all doors in Bloomingdale's.

A year ago regular Superga was not in Neiman Marcus, we had our collaboration with The Row in Neiman Marcus, but now regular Superga has gone to all doors at Neiman Marcus.

A year ago we were just in a handful of Nordstrom's, now we are in 55 doors at Nordstrom's.

And I think that by the end of the year there is the potential to go all doors at Nordstrom's.

Okay, great.

Thanks.

Just one more, can you mind is how big the handbag business is right now and how big of an opportunity do you think that is going forward?

Yes, so, the overall wholesale accessories business is $241 million in 2012 and handbags is about two-thirds of that.

In terms of where we think it can be, I think that we have still got a lot of runway there.

Certainly we think the wholesale accessories business as a whole could be a $400 million business.

Okay, great.

Thanks and appreciate it.

Steve Marotta, CL King & Associates.

Ed, quick follow-up.

Regarding the share repurchase, could you remind us if there is a current authorization now, the amount left?

Was there any activity in the fourth quarter?

There was no activity in the fourth quarter.

And, yes, we do continue to have an authorization, I believe there's about $45 million left on that.

Excellent, thank you very much.

You know what, one other thing.

When was the last time you repurchased and the average price that was?

The last time we bought back stock was in 2010 and I don't remember the price off the top of my head.

I thought it was more recent, but that makes sense.

No worries, thank you.

Sam Poser, Sterne, Agee.

Real quick, Ed, the wholesale expectation given the puts and takes in the first half of the year, I mean are we looking at a low-single-digit increase in footwear wholesale?

Is that the right way to think about it?

Wholesale footwear, I think you need to look at sort of -- yes, [3%] to [4%], in that range.

In the first half, and then your (multiple speakers).

No, for the year.

But I mean -- but the first half would be lower I would assume because that is where that --.

Yes.

And then there is -- and then, as you said, there is potential opportunity in the back half of the year?

That's right.

But this is all about the Big Buddha and the top-line stuff that you are sort of -- if you take that out you are up what, 5%, 6% something like -- yes?

Like 5%, 6%, something like that?

Yes, more than that excluding those.

Okay.

All right, thanks very much.

Yes, 6% to 8%, something like that.

And Mr. Rosenfeld, it appears there are no further questions at this time.

I will turn the conference back over to you for any additional or closing comments.

Great, thanks very much, everyone, for joining us on this morning's call and we look forward to reporting back to you after Q1.

That does conclude today's conference.

Thank you all for your participation.