Steven Madden Ltd (SHOO) 2013 Q4 法說會逐字稿

Good day, and welcome to the Steve Madden Limited fourth quarter 2013 earnings conference call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Jean Fontana of ICR.

You may begin.

Thank you, good morning everyone.

Thank you for joining us today for the discussion of the Steve Madden fourth quarter and full year 2013 earnings results.

Before we begin, I would like to remind you that statements made in this conference call that are 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 factors 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.

With me to discuss the business this morning is Derek Browe, Director of Finance.

In fourth quarter 2013, we faced a number of challenges including weak retail traffic across the industry, harsh winter weather, and fewer significant new fashion footwear trends.

Nevertheless, we delivered solid financial results in the quarter, with net sales increasing 8.7% to $342.9 million and diluted EPS increasing 9.4% to $0.54 per diluted share.

These results demonstrate the strength of the business model we have built at Steve Madden.

In particular, they highlight the benefits of our diversification by distribution channel, which enabled us to record solid overall financial performance despite a disappointing quarter in our own Steve Madden retail stores.

These Q4 results capped a strong year for the Company in a tricky environment.

For the full year 2013, net sales rose 7.1% to $1.3 billion, and diluted EPS increased 9.4% to $1.98 per diluted share.

Before I turn the call over to Derek to take you through a more detailed review of the financial results for the quarter and provide our outlook for 2014, let me first highlight the drivers of this year's performance and our team's achievements in 2013.

Our first priority every year is to sustain and build upon our fashion leadership position in our core Steve Madden wholesale footwear business.

In 2013, we once again succeeded on that front thanks to our proven formula which combines the design talent of Steve and his team with a tested react strategy and industry-leading speed to market capability.

Despite the challenging retail climate and relatively few new fashion trends to capitalize on, we grew our core Steve Madden women's wholesale footwear business with all its largest customers, including Nordstrom, Macy's, DSW and Dillards.

Madden Girl also delivered solid performance in 2013.

It's fall product assortment was particularly strong, and the division's net sales increased 9% in the second half of the year, providing the brand with nice momentum heading into 2014.

Our men's business also gathered steam in the back half.

One of our strategic priorities in 2013 was to better differentiate our higher-priced Steve Madden men's line from our more moderately priced Madden line by elevating the Steve Madden collection and targeting the Madden line at a younger, more casual consumer.

The response to this new strategy has been outstanding, and our men's wholesale footwear net sales rose 15% in the second half of the year.

The timing of our strategic changes could not have been better as overall trends in men's footwear are strong, and we are in a great position to capitalize on them going into 2014.

Another highlight in 2013 was the strong double digit percentage growth we saw in our private label footwear business.

On the strength of outstanding gains with customers like Target, JustFab and Walmart, private label footwear annual net sales surpassed $300 million for the first time in 2013.

We also made significant progress on one of our most important long-term initiatives, which is to expand our business outside of the United States.

In 2013, our international net sales increased 20%, reaching $113 million or approximately 9% of consolidated net else.

Our business in Canada, which we acquired from our former distributor in February 2012 and is currently our only owned international operation was up over 30% from the prior year.

Our distributor business also exhibited strong growth based on robust gains with our partners in Europe, the Middle East and Asia.

We will continue to expand outside of the US in 2014, including the addition of approximately 50 new freestanding stores and 50 -- excuse me, 15 to 20 concessions by our international distributors.

Another important growth initiative for the Company is the rollout of our outlet concept.

In 2013, we opened six new outlet stores, bringing our total at the end of the year to 17 locations.

We continue to be pleased with the consumer response to our outlet concept and the financial results we are seeing in that division.

While our consolidated comp store sales were down 2.1% for the year, our outlet stores comped positively, and our four wall profit margin in the outlets finished the year approximately 150 basis points better than that of our full price stores in the US.

As we look ahead, we plan to accelerate the unit growth in outlets with 10 to 12 expected outlet openings in 2014 and a plan to get to 50 to 60 outlet locations by the end of 2016.

2013 also saw continued growth in our handbag business.

We recorded strong double digit percentage gains in both the Steve Madden and Betsey Johnson handbags on top of the explosive growth in each of those divisions in 2012.

We also introduced Madden Girl handbags, a line of trendy junior bags was an emphasis on fashion backpacks.

Madden Girl bags are off to a great start, and further expansion of the Madden Girl bag line is an important initiative for 2014.

Another area where we made good progress in 2013 was expansion of our newer brands.

Our Mad Love brand which we made exclusive to Target in Q4 of 2012 had outstanding sellthroughs at retail, and Target is expanding the brand significantly for 2014.

In Freebird by Steven, we reduced the average retail price points by $50 to $100 to approximately $300 and introduced more volume oriented styling which elicited a great consumer reception and drove strong increases in the back half of the year at retail partners like Free People, Nordstrom and Bloomingdale's.

Reaction to Freebird's latest collection and to recent shoe show is outstanding, and we're very optimistic about its growth prospects for 2014 and beyond.

Finally, I would like to highlight some of the innovative marketing we have done recently in the form of collaborations with fashion bloggers and other influencers with significant social media reach.

In recent years, bloggers have become increasingly important influences in the fashion community, particularly for our customer base.

To capitalize on that importance of the marketplace, we have collaborated with some of the best known bloggers to create capsule collections for our brands.

These bloggers have the fashion credibility that gives the collaborations authenticity, and of course, they also have sizable social media followings where they can promote the collections and our brands.

Our first collaboration was for Superga and was with Leandra Medine, editor of the Man Repeller blog.

The Man Repeller x Superga collection hit stores including Bloomingdale's, Nordstrom and Shopbop in Q3 of 2013 and sold out to the pair.

Based on this success, we decided to do a second collection for spring summer 2014.

Next, we partnered with Italian blogger Chiara Ferragni, better known as the Blonde Salad for collaboration with Steve Madden.

The limited edition cobranded collection shipped last month to accounts including Nordstrom, Shopbop, LS and Nasty Gal, and initial sellthroughs have been outstanding.

We hosted a launch event with Chiara during fashion week, and the event garnered 18 million social media impressions in just two hours.

Our most recent collaboration is not with a blogger, but similar to our blogger collaborations, it harnesses the power of social media because it is with Kendall and Kylie Jenner, celebrities with more than 7 million Instagram followers each.

Kendall and Kylie for Madden Girl shoes and handbags are being distributed exclusively at Nordstrom, PacSun and our own Steve Madden stores.

Importantly, this cobranded collection provided Madden Girl with its initial entree into both Nordstrom and PacSun.

Products hit stores last week, supported by a social media blitz and a personal appearance by Kendall and Kylie at a Southern California Nordstrom, and the reaction has been overwhelming.

Kendall and Kylie's Instagram post announcing the launch garnered over 1.2 million likes and comments in just a few hours.

As you can see, despite the challenging climate, we accomplished a lot at Steve Madden in 2013, executing on a number of important growth initiatives and positioning ourselves for continued growth in 2014 and the years to come.

With that, I will turn it over to Derek to walk you through the details of the financial results for the quarter.

Thanks Ed, and good morning everyone.

Consolidated net sales for the quarter increased 8.7% to $342.9 million, including a strong increase in wholesale footwear and more modest gains in wholesale accessories and retail.

Our wholesale net sales in the quarter were $273.4 million compared to $247.2 million in the prior year's fourth quarter, a 10.6% increase.

Wholesale footwear net sales were $199.4 million, up 13.6% from $175.6 million in Q4 2012, with a 9% increase in branded wholesale footwear and a 23% increase the private label footwear.

In the branded business, growth was driven by solid gains in Steve Madden women's and Madden Girl and strong increases in Freebird and men's.

On the private label footwear side, we once again had big increases with Target and JustFab.

In wholesale accessories, we recorded net sales of $74 million in Q4 compared to $71.6 million in the prior year period, a 3.3% increase.

Double digit percentage growth in our handbag business was partially offset by declines in belts and cold weather accessories.

It should be noticed that while cold weather accessories shipping was slightly lower than the prior year, [net] sales were outstanding, and so gross margin and gross profit dollars for the category were up substantially.

In our retail division, net sales were $69.5 million, a 1.7% increase over the $68.3 million net sales recorded in last year's fourth quarter.

The increase was driven by our expanded store base.

Comparable store sales declined 6.7% in the quarter as traffic was disappointing and we saw sharp slowdown to business in December.

During the quarter, we open two full-price stores, one outlet location and one e-commerce site, FreebirdbySteven.com, bringing us to a total of 121 company operated retail stores including 17 outlets and four e-commerce stores.

Turning to other income, our commissions and licensing income net of expenses with $2.6 million in Q4 versus $2.8 million in last year's fourth quarter, due primarily to a decline in the [Firstcross] business with Sears and Kmart.

Consolidated gross margin in the quarter was 37.8% as compared to 39.3% in last year's fourth quarter.

Wholesale gross margin was 31.8% versus 32.6% in last year's fourth quarter.

To decline was driven primarily by a sales mix shift towards the lower margin private label business.

In fact, if we exclude our private label divisions, our wholesale gross margin was modestly higher than the prior year.

Gross margin in the retail division was 61.4% compared to 63.7% in the fourth quarter of 2012 as we increased promotional activity, particularly in December, due to the soft sales in our stores as well as the highly promotional competitive environment.

Operating expenses were $79.5 million in the fourth quarter or 23.2% of net sales compared to $78.2 million for 24.8% of net sales in the same period last year.

The 160 basis point improvement reflects strong cost control and operating expense leverage on an increase in sales.

Operating income in the quarter totaled $53.6 million or 15.6% of net sales.

In last year's fourth quarter, operating income was $49.8 million or 15.8% of net sales.

Operating income in the fourth quarter of 2013 included a $1 million benefit related to the recovery from prior year's text message litigation settlement.

Operating income in the fourth quarter of 2012 also included a $1 million benefit, this related to a greater than anticipated recovery in the bankruptcy process of a note receivable from our former licensee for Betsey Johnson retail apparel.

Excluding these benefits, operating income for the fourth quarter of 2013 was $52.6 million or 15.4% of net sales compared with operating income in the fourth quarter of 2012 of $48.7 million also 15.4% of net sales.

Now I would like to briefly touch on our full year results.

Consolidated net sales for the full year increased 7.1% to $1.3 billion compared to $1.2 billion in 2012.

Operating income from the year totaled $203.8 million or 15.5% of net sales compared to 2012 operating income of $179 million or 14.6% of net sales.

Operating income for 2013 included the benefits related to recovery from the prior year's text messaging litigation settlement.

Operating income in 2012 included a $2.5 million charge for settlement of the class-action lawsuit related to the text messaging and $0.8 million net charge for impairment of a note receivable for the Company's former licensee for Betsey Johnson retail and apparel, in addition to a $5.1 million impairment charge and a $0.9 million impairment charge for bad debt, both related to the bankruptcy of Bakers Footwear Group.

Excluding these items, operating income for 2013 increased to $202.9 million or 15.4% of net sales compared with operating income of 2012 of the $188.3 million or 15.3% of sales.

Our net income for 2013 was $132 million or $1.98 per diluted share.

This compared to net income of $119.6 million or $1.81 per diluted share in FY12.

Net income for 2013 includes the $1 million benefit recognized in operating income which on an after tax basis impacted 2013 net income by approximately $0.6 million.

Net income in 2012 included the already mentioned impairment charges which on an after tax basis negatively impacted net income in 2012 by $5.7 million or $0.09 per diluted share.

Additionally net income in 2012 included a $6 million or $0.09 per diluted share tax benefit related to the reinvestment indefinitely of a portion of our earnings from the Company's foreign operations and such foreign operations.

Excluding the above mentioned items, net income increased 10% for FY13 to $131.4 million or $1.97 per diluted share compared to net income for FY12 of $119.4 million or $1.98 per diluted share.

Turning to the balance sheet, as of December 31, 2013, we had $292.1 million cash and marketable securities and no debt.

We ended the year with inventory of $73.7 million versus $63.7 million at the end of last year.

Over 35% of this increase in inventory win compared to the prior year relates to in transit inventory which was higher at the end of the year as we brought goods in earlier in December of 2013 due to the earlier Chinese new year.

Our inventory turn for the last 12 months was 10.3 times, CapEx in the quarter was $4.3 million, and during the quarter we repurchased approximately 900,000 shares for $32.7 million, bringing our total repurchases for the year to over 3 million shares or $102.2 million.

Now turning to our guidance.

For FY14, we expect net sales to increase 5% to 7% compared to FY13.

We expect our diluted EPS to be in the range of $2.05 to $2.15.

Now I'd like to turn the call back over to Ed for some closing remarks.

Thanks Derek.

In conclusion, 2013 was another strong year for Steve Madden.

Despite a challenging retail environment and a relative lack of newness in terms of fashion footwear trends, we delivered solid sales and earnings growth and made significant progress in a number of key growth initiatives.

Going forward, while we will manage our business carefully as we continue to navigate a challenging environment, we continue to see many opportunities to expand the business across our various brands, distribution channels, product categories and geographies, and we are confident that we can deliver top and bottom line growth in 2014 and beyond.

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

(Operator Instructions)

Camilo Lyon, Canaccord Genuity.

Coming out of the FFaNY and platform trade shows, can you discuss the trends that the buyers are most excited about for 2014 and also maybe layer onto that what has been working well in your warmer weather climate stores?

As you know, our own retail business has been tough at the beginning of the year, and we alluded to that in the press release.

But we have seen some rays of light over the last couple of weeks, and in particular, in the stores where we're getting some warm weather, we're really pleased with what we're seeing in terms of the new spring merchandise and how it is selling.

Some of the trends that are doing well there, I would point to -- the first one that we should call out is dress.

As you know, Camilo, dress shoes have been tough -- it's been a tough category for the industry for the last 18 to 24 months.

I think we actually were a bit of a relative outperformer in 2013.

We had some good-selling dress shoes, but overall that's been a tough category, and we're really seeing that category pick up now both with platforms and with single sole dress shoes, so that is something we are encouraged by.

We are also, some more specific trends, we're very pleased with what we're seeing with our slip-on sneakers, particularly the pony hair sneakers -- I think I've mentioned that on the previous call, and the selling there is very strong.

Gladiators are doing well, particularly the higher gladiators, and then really anything with a rope bottom, particularly rope bottom wedges, but any height with a rope bottom we're seeing some nice trends there.

We are optimistic about what we see for spring trends.

Would you classify this as a bout of newness that is being injected into the marketplace where these are all trends that are for the most part new to her closet that she doesn't really have, or is this just a continuation of what has been working in prior spring seasons?

This is newness.

We feel optimistic about what we are seeing in terms of the newness in the market for spring.

Of course we need to get into the season and really have the customer vote, but at this point right now I think we feel pretty good about the level of newness for spring.

As we talked about in the prepared remarks, that was the challenge in the fall was that there wasn't quite as much newness as in prior years.

We are looking forward to getting to the spring where we have some of these new trends that seem to be hitting.

Just moving on to the comment that you had about the confidence you have in the wholesale business despite some of the retail struggles that continue to plague a lot of people.

Can you elucidate as to why you feel the confidence in the wholesale business?

Is it share gains, is it other brands not performing as well, where does that level of comfort really come from?

I think we have been a strong performer in wholesale.

We have been an outperformer in terms of sellthrough, and we have been taking share with a number of our key retail partners, and we have also got a backlog and an order file that supports our projections essentially for 2014.

One of the things that we also should remind people about our wholesale business as opposed to our retail business is that it is very well diversified by tier of distribution, and one of the benefits there is that the trends don't hit every tier of distribution at the exact same moment.

If we look at Q4 for instance, if you look at our retail business, that combat, those lace-up booties that have been so successful for us over the last couple of years, that particular style slowed up in our retail business in Q4.

That customer is very fashion forward, perhaps she bought that already in the prior year, but if you look at what those types of styles did in places like the shoe chains or the mass merchants, it was bigger than ever in Q4.

That is one of the benefits of having this diversified business in wholesale.

Are there other brands that are maybe not performing as well, that maybe you're taking they're open to buy dollars creating that cushion in your wholesale business?

I think there are a couple of well-known brands that have slowed up a little bit, and that creates an opportunity for us in some of our key accounts.

My final question if I could squeeze one more in, we notice that in your initial view of the product assortment looking towards the back half of 2014, that it included a bigger shift or a higher mix towards tall shafted boots versus booties.

Is that still the case, and how would you look at that impact on your business from an ASP perspective?

Certainly if there is a mix shift towards boots versus booties, that would be a positive in terms of ASP or AUR in our own retail stores.

Similarly, if some of the boot and bootie products moves from flat to these chunkier heels or heavy heels, that also tends to command a little bit of a higher price point.

Would you agree that that mix is still heading in that direction towards that chunkier heel and towards that taller shafted boot?

It would, yes.

Good luck with the year.

Thanks, Ed.

Kate McShane, Citigroup.

This is [Cori Vandergans] on behalf of Kate.

I was just hoping you could talk a little bit more about the inventory that you are in, in light of your topline guidance going into 2014.

I know that Derek mentioned the in-transit inventories, but do you expect inventory levels to normalize by the end of this first quarter and maybe how you're feeling about the quality of inventories at retail right now?

We were up by 15.7% at the end of the year.

That's about $10 million, but just to give you a little detail, about $3.6 million of the increase was the increase in transit inventory, and again with the earlier Chinese new year, we had more stuff on the boat coming in a little bit earlier at the end of the year.

Then, another $1.4 million or so was for [True Boat] which is now on replenishment.

It was not on replenishment a year ago.

Between that's essentially $5 million of the $10 million increase right there; if you back that out, we are only up 7.9% or so.

We do feel pretty comfortable about the inventory level, and we do expect that to normalize or fall more in line with the increase in sales by the end of first quarter.

Great.

Maybe you could talk about your expectations for gross margin cadence throughout the year please?

Overall I think people should be expecting gross margin for the year to be essentially in line with where it was in 2013.

I do expect it to be down in Q1 2014, particularly because we have been heavily promotional in Q1 in our own retail stores, but we think we can have modest gains in the back nine months to get us to flat for the year.

I could sneak in one more quick question, when do you think we could start to see the delta between wholesale and retail start to narrow?

I am hoping by second quarter.

We are hopeful given what we have seen with the early spring selling in our own retail stores when we have gotten some warm weather in places like California that we're going to see retail rebound in second quarter, but I don't expect it to be really before then because we are expecting spring to break at least across the country fairly late this year.

The forecaster that weather is going to continue to be challenging for the next month or so, and of course we have a late Easter this year, so I think we have to expect spring to start full force somewhat late this year.

Thanks so much and good luck.

Thank you.

Taposh Bari, Goldman Sachs.

Ed, you mentioned 50 new freestanding stores internationally and 15 to 20 new concessions, just remind us how many non-owned stores you currently have within the portfolio and where they are located.

We've got about 167 freestanding stores, and they're -- 50 countries around the world.

The biggest territory would be in Asia; our partner in China, GRI has about 50 freestanding stores.

That's great.

Just moving now to this disparity between retail and wholesale, you mentioned the tier diversification.

So retail clearly at the cutting edge of the fashion curve if you will, the mid-tier following that and then private label behind.

The question we have is, how far apart are they in terms of duration, meaning if there is, call it another year of lackluster fashion, at what point does the wholesale business start to follow the retail business?

It's a little bit of a tough question to answer because there are some trends that hit every tier almost simultaneously and then some where the lag can be a year or even longer.

I think the general idea behind your question is correct, that if we went another year without identifying any newness that really took hold in our Steve Madden retail stores, eventually you would see that trickle down into the wholesale channel and some of the mid-tier, the mass merchants, et cetera.

We believe that is fairly unlikely, that would be a pretty unusual scenario if we went that long without identifying a new trend, and as we have said, we already believe that we have identified some strong spring trends.

But, sure, that would happen if there is nothing new for another year or so.

That's helpful.

The last question I have is on the capital allocation, share buyback, little bit less in the fourth quarter than the third quarter even though you have been ramping that pace up all year.

How do we think about share buyback within your guidance, and just generally speaking, it seems like you have got $300 million-ish in net cash, you're going to generate close to $150 million next year if you do nothing?

Just trying to get an update on where you stand in terms of share buyback.

All other things being equal, we are still committed to the share repurchase program.

We dialed it back a little bit in Q4 frankly because we're going to leave ourselves some flexibility to be opportunistic and to tap with market conditions.

And when the retail business took the sharp downturn in December, we hit the brakes a little bit on the share repurchase, but we have resumed the share repurchase program in Q1.

And I think the run rate that we were at in the back half was roughly $70 million that we spent in the back half, I think that is still a good run rate for now all other things being equal.

When you say run rate, you mean on a quarterly basis, so $70 million for two quarters, is that what you're referring to?

$35 million a quarter or thereabouts.

One last one actually -- go ahead, I didn't mean to cut you off.

I just said we are going to continue to be patient and methodical about it, but we will also be opportunistic.

As market conditions change, we can either tick that up or down.

I just wanted to squeeze in one last one on the seasonal flow of your guidance.

I know there were a lot of variables this year, a later Easter shift.

The question there is, does that matter to your business because you're on a calendar year end and Easter shift's out of 1Q into 2Q.

And then the second question related to that is, last year you had a couple businesses the you exited in the first half, and I'm trying to get a better handle on how the wholesale business flows -- if there are any outliers in terms of revenue growth throughout the year.

In terms of the overall results, I really don't think the seasonality will be significantly different than it was a year ago.

I will say from a comparison standpoint, I think, frankly fourth quarter will be the easiest just because of some of the challenge that we had in retail this year.

I don't really see any meaningful changes in terms of the flow of earnings from a year ago.

Erinn Murphy, Piper Jaffray.

I apologize if I missed this; I got disconnected earlier.

Can you reflect a little more on the current retail environment?

I know you talked about the cadence of comps starting in December really being down pretty sharply.

Is that the run rate we should expect as we are still in this tepid retail environment in first quarter?

And then can you speak about the effectiveness of some of the promotional activity you've been able to execute to try to stimulate traffic?

That's my first question, thanks.

We are not going to get into the specifics of the quarter-to-date comp, but we have said that it has been tough in our own retail stores.

It's continued to be challenging in both traffic and sales.

We have seen some modest improvement over the last couple of weeks which has been encouraging, particularly in some places where we've got some warmer weather like California, but overall it has continued to be challenging in the retail segment.

In terms of the promotions, we have gotten more aggressive, you saw in December we were quite aggressive toward the tail end of December, and in January and February I think that our promotions have been more in line with what we did last year although we've gone a little bit deeper with the clearance.

We've done a good job of moving through merchandise, so we are in a good position with inventory in our own retail stores, but as I said, there will be a gross margin impact in Q1 as there was in Q4.

That's really helpful, thanks Ed.

If you could reflect a little bit more on the accessory portfolio, just speak to some of the brands that have been trending well and where some of the opportunities from a margin perspective within accessories as we progress throughout 2014.

I think the most important there has been Steve Madden and Betsey Johnson.

Both of those handbag divisions had strong double-digit percentage gains in 2013 after very strong gains in 2012.

We do expect that to moderate somewhat in 2014 because we have just gotten a little bit more mature and they've already had this explosive growth over the last couple of years.

And there is some, I would say some increased competition in the category with some of the designer leather brands bringing their prices down.

That is something that we have to deal with.

But we are excited about what we are doing in Madden Girl bags, we mentioned that in the prepared remarks.

That is a trendy bag line that we have come up with -- $50 or $60, a lot of fashion backpacks which has been a strong trend, and we are getting good reception there.

Then we're also encouraged about our cold weather accessories business.

The sellthrough is, for obvious reasons, has been very strong in that business, we had a really nice gross margin improvement in Q4 due to the strong sellthrough, and I think it should set us up for hopefully some nice growth in the back half of 2014 in that category.

That's helpful.

Last question for me, if you could reflect a little bit more on the environment for acquisitions at this point, and then if there is nothing that compelling out there, does that change the timeline in which you may bring some of the international markets that you are currently going with a partner in?

We continue to look for acquisition opportunities.

There is some smaller opportunities that are of interest.

We're not very far along on anything of great size in terms of acquisition.

In terms of the international distributors, that continues to be something that we evaluate as well, and I would hope that we will be able to get something done in that front over the next 12 months or so.

Scott Krasik, BB&T Capital Markets.

Really interesting to hear about the Madden Girl opportunity at Nordstrom just because the price point historically have been so low versus what they want.

Is that really speaking to Kendall and Kylie, is that an opportunity for you, are you going to try to push Madden Girl into other distributions?

And then bigger picture, what do you expect your branded footwear business to grow at in 2014?

I certainly hope that this initial entree into Nordstrom with Madden Girl through Kendall and Kylie -- you asked about Kendall and Kylie.

I think that was certainly a big factor that helped us to get our foot in the door, but if our products can perform, and we are only a week in, so far it is performing well, then we would hope that could set us up for a Madden Girl business with that account down the road, with or without an attachment with Kendall and Kylie.

In terms of the branded wholesale footwear, was that the second part of the question?

Yes, how did that grow versus the private label business this year?

Branded was up 9% in the quarter, and private label was up 23%.

Do you view those becoming more in parity in 2014 or --?

Yes, I think both of them are going to slow a little bit.

Our consolidated guidance is for 5% to 7%; I think that is really a reasonable target to look at for all of the segments.

Footwear, accessories and retail should all be in and around that number.

In terms of how that impacts wholesale gross margin, should we start to see the negative mix issues slow down?

Yes.

In Q1, you are still going to see private label grow faster than branded, but after that, I think those will be more in line, so the impact on gross margin will be smaller.

Just from a dollar perspective, which would be bigger, Madden men and Steve Madden men, or Madden Girl?

Madden Girl is bigger.

Edward Yruma, KeyBanc.

Just want to ask about the impact of promotions in the wholesale channel.

Obviously it was a very promotional holiday.

Did you see any negative margin impact?

Did you have to support your retailers in any way?

Thanks Ed, yes, sure, of course we have to support our retailers.

It was a very promotional environment.

That being said, I think that we had strong sellthrough relative to most of the other vendors out there, and we are an important brand to these guys, so there's a negotiation at the end of the season.

I think we felt pretty good about where we came out.

Our returns and allowances as a percentage of sales were actually a little bit lower in Q4 2013 than they were in 2012 for Q4, so we were pleased with that.

One other follow-up, I think you cited in your script that outlets had a slightly higher margin than stores.

And obviously you had some adverse weather and the environment was very promotional, but is that a structural difference or over time did those margin profiles converge?

We actually do believe that it is structural.

In fact it was about 150 basis points, the amount by which outlet four-wall profit margin exceeded that of full price in 2013, and we think there is a potential for that to even expand.

Over time it could be 300 basis points or even maybe a little bit more.

Jeff Van Sinderen, B. Riley.

I wonder if you can just clarify a little bit more on how you are thinking about newness as that seems to be a real key subject on everyone's mind as you look out the second half of this year.

The second half, we like to talk about trends in the stores now.

We don't really ever talk about prospective trends for the obvious competitive reasons.

We have talked a little bit about what we think -- what Camilo identified in terms of the boots and booties that there is going to be somewhat of a shift towards taller shaft boots and heavier heels.

All I can say is that we have got a lots of test in the stores.

One of the things about the cold weather is that it's given us a chance to test a lot of fall items, and we have got some good reads on that and we feel good about the level in boots.

Good to hear.

Can you give us a little bit more on international in terms of what you see driving growth in that business this year?

I know you mentioned some other distributors that you are working with, but anything else that we should look at there?

First of all, in our owned-operation in Canada, the trends tend to be good there.

We think we're going to have another double-digit percentage gain in Canada, opening probably two to three stores there, potentially four.

We already opened what will be our biggest store earlier this year in Yorkdale Shopping Centre, we are very excited about.

In terms of the distributors, I think most important is our partner in Asia, GRI.

They opened 17 stores last year to get to about 50, they're scheduled to open another 10 this year, and we are seeing real nice trends in China.

Dubai, our partner in Dubai, Landmark is doing well, they're scheduled to open another five stores this year, and they're going to be making a big marketing push in Dubai starting in March.

We're also excited with how we are trending in Mexico.

We've got two to four stores opening there, but we have also got really nice trends with the two most important department store customers there in Liverpool and [Filazzio].

We have also started selling the catalog companies there which, as you know, are also very important.

The last what I would point to is our partner in the UK, Dune.

They opened their first Steve Madden store in the back half of 2013; that is doing well, and they're also expanding their wholesale distribution.

We've talked on previous calls about House of Fraser, John Lewis, Debenhams and Top Shop; they have also added [Next], ASOS, SoleTrader and Littlewoods recently.

We have got some nice momentum there.

If you were to summarize, what inning do you think we're in, in terms of international growth for you?

Second or third inning.

Good to hear.

I know you mentioned Freebird, and it sounds like that is doing extremely well.

Just wondering what you're thinking is in terms of the outlook for some of the other secondary brands like Betsey Johnson, Olsen, et cetera?

Betsey Johnson we feel real good about; we're talking about shoes.

Business was actually double in Q4 what it was the prior year, and we have an order file that supports a really nice increase for the first half of 2014 as well.

[About] the wedding shoes, but this special occasion collection that we have come up with is doing great.

Frankly as the dress shoe category gets better, that should be good for Betsey Johnson as well, so we are excited about where we are there.

Superga continues to be good; that is another business that has seen real strong sellthroughs, and we're going to continue to grow that.

Although grow it responsibly because we do want to keep the distribution pretty clean there.

What are the other new brands?

Mad Love at Target is doing great, that business dramatically above expectations in 2013, and Target is giving us some nice expansion there in 2014.

The last one I think you asked about was Olsenboye.

We had a nice increase in Olsenboye in the quarter, but we are playing that one pretty conservatively.

As you know that is an exclusive brand at JCPenney, and given the uncertainty there, we're playing that pretty conservatively for 2014.

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

Thanks, Jeff.

Sam Poser, Sterne Agee.

I have a couple, back to Camilo's questions at the beginning with the various trends you are seeing currently, do you have any of these that you really feel like you own?

We saw a lot of espadrilles, a lot of slip-on sneakers, a lot of other things around with other people at the show.

You really own the Troopa boot and you've owned some of these other categories over the past few years.

How does that evolve in the outlook that you have?

A couple of them I do think we have a very nice position.

Certainly the slip-on sneakers that we are doing in pony, I think we're pretty much the clear leader there.

In terms of bigger trends going forward with the dress shoes coming back, that is something that we feel very good about.

As you know, we've been outperforming that category, and that is frankly just a category where we have a really nice position with our core customer.

We have the girl who really turns to us when she is looking for her going out shoes, her dress shoes.

If you look at the NPD data for instance, we have far and away the number one share in that category in our price grid.

We feel good about that category coming back.

Within your guidance, you said it was 5% to 7% across the board, but a couple of things.

The comp in your guidance and how it plays out, can you give us some idea?

I would assume it's going to be negative in the first quarter?

Also on the gross margin, are we going to be looking at another 150-basis point dip in Q1, or is it not going to be quite that bad, just to help us out there if you could.

The comp for the year in the guidance is modestly negative, and of course, first quarter is the lowest number we have.

In terms of gross margin, your question was, will it be 150 basis points?

I hope that it's less than150 basis points, maybe 100 to 150 is a good target first quarter.

Flat for the year.

Are you seeing on the shows and with the product that you have, do you see things with the kind of legs that a Troopa boot had coming into the fold, or is the hunt still on for that?

Maybe not to that degree but --

That's a decade kind of boot, so we have got some things that could be big items, that's for sure, but that's the kind of thing -- we didn't know the Troopa was going to be the troop.

Until it was.

That's what we do though, we're out there looking.

Lastly on the share count, basically $35 million a quarter on whatever price we put up, and that would be the share count?

Or is there a share count that you are using for the year that we should think about?

Implied in the guidance is only that we continue the share repurchases in the first half until we exhaust the current authorization.

There's probably a little bit of conservatism there because clearly if that happens, we will go back to the board and get an increased authorization, but that won't be a problem.

But right now there's only, let's say $70 million or so in the guidance in the first half.

Keep in mind any share repurchase that you do in the back half aren't going to have a meaningful impact to the EPS this year anyway.

Right, well, thanks very much, good luck.

Thank you, Sam.

Steve Marotta, CL King and Associates.

Given everything that you have talked about including negative comps in the first quarter, gross margins down in the first quarter, weak environment, you're going up against a difficult first quarter last year with how well the Troopa sold in and the weather patterns next year, and also the sensitivity, of course, that you don't guide from a quarterly standpoint.

Is it possible that the first quarter is a negative EPS comparison on a year-over-year basis?

Anything is possible, but that is not what we have in our current forecast.

Danielle McCoy, Brean Capital.

I was wondering if you could give us an update on the percent of direct sourcing and expectations for 2014?

Then, an update on the changes that you guys made to Report and some of the responses to that.

In terms of direct sourcing, I think we are up to about 30% or thereabouts at the legacy business, footwear business going direct.

And we expect to continue to increase that maybe another 10% over the next 12 months or so.

The second part of your question was about Report, and that's a division we have made a lot of progress.

We feel really good about the changes that we made there.

There's really two pieces there, Report Signature and Report.

Report Signature is the leather line, a little bit smaller but doing very well.

The sellthroughs have improved dramatically there in places like Macy's.

And then Report, we have really seen some nice improvement there too.

That's sold into places like DSW, Nordstrom Rack, et cetera.

The net effect of what we have done there has been a really dramatic improvement in profitability.

The gross margins for 2013 versus 2012 were up something like 900 basis points in Report, and we think they can be even higher in 2014, so we're really pleased with the progress we have made there.

Lastly, what tax rate should we assume for 2014?

The guidance is based on a tax rate of about 37.5%, but we are still sharpening our pencil there, and we think there could be some upside.

By upside, I mean a lower tax rate, as much as 100 basis points.

We are still analyzing our forecast for how much we are going to reinvest indefinitely overseas which obviously impacts the tax rate.

All right, great, thanks guys, good luck.

Thank you.

Corinna Freedman, Wedbush Securities.

Most of my questions have been asked and answered, just if you can give us a quick run through on your expectations for Kylie and Kendall in the retail stores.

In our own retail stores?

Yes.

We're going to carry the product in select stores and of course online.

As you know, we don't have a huge assortment of Madden Girl product typically in the retail stores; we are much more focused on Steve Madden, but we will have that product.

I think it is not going to be a needle mover in terms of dollars, but we think it is a nice marketing thing for Madden Girl.

And again as we have said we are very pleased with how it got us into Nordstrom and it is getting us all sorts of great social media and earned media.

If you could give us an update on the mid-tier channel, and when you think that business is going to trough in your outlook for next year.

Mid tier, which customers are you referring to?

Kmart, Sears, just your mid tier --

Penney's, Sears, those guys.

Well, a couple of those guys have, I think, company-specific challenges, so we expect a couple of those businesses to be tough.

We have seen a really nice improvement in our business with Kohl's though.

Our sellthroughs are up pretty substantially there, and we're really pleased with the performance that we have in not only Candie's but some of the other private labels that we do there.

That is one we feel good about.

Mike Richardson, Sidoti.

Just two real quick ones for you.

Obviously you have exposure to multiple tiers of distribution; I'm just wondering if you are seeing any differences in sales across the various tiers.

And then wondering how we should be thinking about net store growth for this year?

There are some variations, but I don't think there is anything to really call out in terms of differences between tiers of distribution.

I would say, as I have said, some of the mid tier and the mass, particularly in fourth quarter were a little bit stronger given that those customers may perhaps, some of the trends were still newer to them, had gotten a little bit long in the tooth for customers saying our Steve Madden retail stores.

In terms of the store growth, I think we are looking at net up 10% to 13% for 2014.

The way we get there is about 3 to 4 full-price openings, most of those in Canada; about 10 to 12 outlets and then roughly 3 closings.

That's great, thank you, that's very helpful.

Good luck.

Thanks, Mike.

Taposh Bari, Goldman Sachs.

I have a quick follow up.

I think we have hit most of your guidance lines with the exception of SG&A, so implied in your guidance, I think is flat leverage in 2014 or about 5% to 7% dollar growth.

Yet I'm looking at the last three quarters of SG&A dollar growth, up 3%, up 4%, up 2%, all leveraging and all growing below that pace.

Just trying to get a better idea as to why SG&A would grow at that rate in 2014.

In terms of the leverage question, I think we do expect a little bit of leverage in wholesale, but because of the down comp that we are forecasting in retail, there's been a little bit of deleverage in retail.

And in terms of the dollar growth, the reason it is up a little bit from -- 2013 I think we were up a little over 4% for the year, and we are forecasting little bit higher than that.

We have made some investments in systems -- this could be some increased depreciation associated with the CapEx there, some investments in people, and then we are spending a little bit more on marketing this year as well.

The question I am trying to ask is, if we are having this conversation a year from now and you actually beat SG&A with a 5% to 7% revenue growth rate -- A, is that actually possible given what you just said; and B, what would that be driven by?

Because SG&A leverage has historically been a Steve Madden hallmark, and I am just curious to see if that is still an option into 2014?

It's still an option, but I think that the way I would like to get there is beating on sales.

Okay, got you.

Thanks, good luck.

Thanks, Taposh.

I would now like to turn the conference back over to Mr. Ed Rosenfeld for any additional or closing remarks.

Thanks, everybody for joining us this morning, and we look forward to speaking to you on the next call.

Have a good day.

This does conclude today's conference call, thanks a lot for your participation.