Steven Madden Ltd (SHOO) 2014 Q1 法說會逐字稿

Good day and welcome to the Steven Madden Limited first quarter 2014 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 first quarter 2014 earnings results.

Before we begin, I would like to remind you that statements made in this conference calls that are statements of historical facts constitute forward-looking statements and in 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 risk 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, our Director of Finance.

In first quarter 2014we were once again confronted with a tough environment including weak mall traffic, difficult weather conditions and few significant fashion footwear trends on which to capitalize.

In spite of these challenges, we delivered our 23rd consecutive quarter of growth in both sales and EPS.

Consistency of our results over the last several years and our solid performance this quarter in a difficult environment, demonstrate the power of our brands, particularly our flagship Steve Madden brand, and the strength of our diversified business model.

Net sales for the quarter were $304.6 million a 9.2% gain compared tothe prior year.

And diluted EPS was $0.36 per diluted share, a 4.2% increase from last year.

Our wholesale business, which accounts for 85% of our consolidated net sales on an annual basis, had an excellent quarter with net sales increasing 13.3% and gross margin expanding by 30 basis points compared to the prior year.

The strong performance was driven by a great quarter in our core business, footwear under the Steve Madden brand and related lands.

Wholesale Footwear net sales for the Steve Madden family of brands increased more than 20% compared to the prior year.

Importantly, performance was strong across the board with double-digit percentage growth in each of Steve Madden Women's, Steve Madden Men's, more moderately priced Madden Girl and Madden, the higher-priced Steven and FREEBIRD by Steven, and the kids divisions Steve Madden Kid's and Stevies.

Overall, we were very pleased with these results from our core business, particularly in light of the challenging environment.

On the other hand, our retail business, which accounts for 15% of our consolidated net sales on an annual basis performed very poorly in the quarter.

Sharp slowdown in our company operated stores that began in December continued throughout Q1.

Comparable store sales declined 17.2% for the quarter and gross margin contracted as we moved aggressively to clear slow moving bids.

Since the end of the quarter, we have seen some improvement in the trend, due in part to the Easter shift but also to an uptick in the underlying trend as the weather has gotten warmer and customers have started buying more Spring products, particularly in the dress and sneaker categories.

Before I turn the call over to Derek to take you through a more detailed review of the financial results for the quarter and update our guidance for 2014 I want to touch briefly on an acquisition we completed in the quarter.

On March 24, we announced that we had acquired majority ownership in the Brian Atwood intellectual property and related assets.

Including the Brian Atwood designer brand and the B Brian Atwood diffusion label.

Brian Atwood, himself, is our minority partner in the intellectual property.

And he has taken a license under which he will design and market the Brian Atwood designer collection.

We at Steve Madden will be producing the B Brian Atwood line, which we intend to relaunch for spring 2015.

This is an exciting transaction for us, as it adds a true luxury brand with a global footprint to our brand portfolio.

We believe there is enormous untapped potential in both Brian Atwood and B Brian Atwood and we are thrilled to partner with Brian who is one of our industry's leading talent.

With that, I would like to turn the call over to Derek who will walk you through the details of the financial results for the quarter and provide our outlook for the year.

Thanks, Ed, and good morning.

As Ed mentioned consolidated net sales for the quarter increased 9.2% to $304.6 million.

Strong gains in Wholesale Footwear and modest gains in wholesale accessories were partially offset by the decrease in our retail segment.

Our wholesale net sales in the quarter were $265 million compared to $233.9 million in the prior year first quarter a 13.3% increase.

Wholesale Footwear net sales were $219.7 million, up 16.2% from $189.2 million in Q1 of 2013.

As previously mentioned, the Steve Madden family of brands drove the business, most notably Steve Madden Women's, Madden Girl, and Men's, all of which had double-digit percentage growth.

Private-label also recorded strong growth driven by continued expansion with Target.

In wholesale accessories we recorded net sales of $45.3 million in Q1 compared to $44.7 million in the prior year period, a 1.3% increase.

Continued growth in our handbag business was offset by declines in belts and sunglasses.

In our retail division net sells were $39.6 million, a 12.1% decrease from the $45.1 million in net sales recorded in last year's fourth-quarter, driven by our comparable store sales decline.

During the quarter, we opened 1 full-price store, 3 outlet locations, and closed 2 full-price locations.

These changes bring us to 123 company operated retail stores, including 20 outlets and 4 e-commerce stores.

Also, in the middle of March we relaunched our Steve Madden website.

The new site offers a much improved experience on mobile and tablets and innovative social media integration among other feature and functionality enhancements.

So far we are pleased with the results, as we have seen a nice uptick in both sales trends and brand engagement since the refresh.

Turning to other income, our commission and licensing income net of expenses was $3.2 million in the quarter versus $4.4 million in last year's fourth quarter.

Due primarily to decline in first-cost business with Kohl's and Kmart.

Our consolidated gross margin in the quarter was 35.6% as compared to 36.8% in last year's first quarter.

Our wholesale gross margin was 32.6% versus 32.3%.

This slight increase was driven primarily by improvement in Wholesale Footwear.

Gross margin in the retail division was 55.7% compared to 60.3% in the first quarter of 2013 as we increased promotional activity due to the soft sales in our stores.

Operating expenses were $75.5 million in the first quarter, or 24.8% of net sales compared to $70.5 million or 25.3% of net sales in the same period last year.

A 50 basis point improvement reflects operating leverage on the increase in sales in our wholesale segment.

Operating income in the quarter totaled $36 million or 11.8% of net sales, and last year's first quarter operating income was $36.4 million or 13.1% of net sales.

Our effective tax rate for the quarter was 35.1% which we expect to be our rate for the year.

Favorability in this rate versus Q1 of 2013 primarily reflects reinvestment of foreign earnings in foreign locations, as well as favorability in our overall state tax rate.

Turning to the balance sheet, as of March 31, 2014 we had $275.7 million in cash and marketable securities and no debt.

We ended the quarter with an inventory of $58.3 million, which was down slightly from the prior year reflecting a strong focus on inventory management.

Importantly, despite the below plan sales in our retail segment in Q1, our proactive and aggressive steps to move through inventory during the quarter left us in a clean position -- inventory position in retail entering Q2.

Inventory per store, in retail, at the end of the quarter was down 10% compared the prior year period.

Our consolidated inventory for the last 12 months was 10.5x.

CapEx in Q1 was $4.4 million.

And during the quarter were repurchased approximately 851,000 shares for $29.3 million, bringing our total repurchases since the beginning of 2013 to approximately 3.9 million shares for 131.5 million.

And on Tuesday our Board of Directors approved a continuation of the Company stock repurchase program for up to $150 million of common stock.

Now, turning to guidance, for fiscal 2014 we continue to expect net sales to increase 5% to 7% compared to fiscal 2013.

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

Due to a continued drag on earnings from the retail segment we expect Q2 year-over-year EPS growth to be modest, similar to Q1.

EPS growth is then expected to accelerate in the back-half as the retail business stabilizes and laps much easier comparisons.

Now, I would like to turn the call back over to Ed for some closing remarks.

Thanks, Derek.

Q1 was a challenging quarter but we were pleased to be able to overcome disappointing results in our retail segment with strong performance in our much larger wholesale business.

Once again, demonstrating the benefits of our diversified business model.

While the environment remains difficult, we are optimistic about the emerging fashion trends we are seeing, particularly in the dress and sneaker categories, and feel good about the product assortments that we are flowing into the stores.

We remain confident that we can achieve our sales and earnings targets for the year and that the strength of our brand and our business model will enable us to drive growth for years to come.

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

Thank you.

(Operator Instructions).

Our first question we will hear from Taposh Bari with Goldman Sachs.

Good morning, it is Chad on for Taposh.

I guess my first question, just on the retail business I was wondering if you could provide any additional color on the month-to-date performance here in April?

Sure, we have seen some improvement in the trend as we outlined in the prepared remarks, clearly some of that is due to the Easter shift.

It is also clear that there has been some improvement in the underlying trend.

We are very pleased to be getting into the spring season here and yesterday's weather in New York notwithstanding, to see some improvement in the weather we started to see the spring merchandise really start to do much better.

Particularly, we called out the dress and sneaker categories, those are two important trends, I would say dress being the most important, that we have really seen start to pick up in April.

That being said, we are still not where we need to be, but we are seeing some improvement.

I got it.

Thanks.

And then one follow-up, just on the tax rate, obviously, you are guiding it lower for the remainder of the year, I guess is that sustainable out in the future years?

And, I guess, where is that money being reinvested internationally?

We believe that rate at which we are using our foreign earnings to reinvest in such locations is sustainable , currently those funds are being used to fund existing businesses and growth with what we have already owned and operated in our international business.

Got it.

Thank you, guys.

Just to elaborate on that, obviously, Canada is what we own now, and so some of the funds are being reinvested there.

There's also earn-out provisions associated with that purchase agreement in Canada.

And then what we have also got plans to invest in other foreign countries over the next hand full of years.

That is helpful, thank you.

Thanks, Chad.

Next we'll move to Camilo Lyon with Canaccord Genuity.

Good morning, guys.

How are you?

Good morning, Camilo.

Going back to your comments about the improvement in trends, Ed, maybe if you could just help us understand the cadence in the first quarter of your comps?

I think everyone experienced a really abysmal January, but I'm trying to get a sense for the magnitude of this improvement.

Are you trending positive right now or is it just less negative as you have seen of weather start to become more normalized?

Quantification on that would be very helpful, if you could.

We are not going to provide a number, but it is less negative, we are still trending negative in the retail stores.

And maybe if you could talk about what that looks like and non-New York markets, where -- or maybe just straight to the warmer weather markets where it has been more consistent.?

We have seen for the whole year seen a pretty dramatic difference by region and it is pretty clear that is related to weather.

If you look at Florida, California, Texas, that group of stores versus the Northeast, the mid-Atlantic, and the Midwest, the difference in comp for this year-to-date is about between 1000 and 1500 basis points by region.

So it is pretty significant the amount that we are performing better in the warmer weather locations.

So almost flat-ish versus -- actually are those towards positive?

For the year, no.

But they are flat to negative-low singles it seems like, right?

That is about right in those Florida, California stores.

No, that group of stores is probably 50 -- the warmer weather ones I'm calling out is probably 55% of the sales, the colder stores is, let's say 45%.

So you can do math to get to 17.2.

Got you.

Got it.

Got it.

Got it.

And in those warmer weather markets is what is working there, the newer fashion trends?

You've brought to market the sneakers and the dress shoes and some of the chunkier heeled shoes.

Yes.

Absolutely.

Okay.

Great.

A question we get all of the time is, if your retail business is a leading indicator, then why wouldn't this poor retail traffic trend be an indicator of future weakness in your wholesale business?

If you could just talk about why there is such a dichotomy between your wholesale and your retail business?

The reason why the difference, I think a lot of it has to do with the traffic and how challenging the traffic has been in our own stores.

While traffic trends have clearly been tough in the customers where we sell wholesale, they been a lot better than what we have seen in our retail stores.

One of the things that we have seen over the years is that where you are in the fashion cycle and the strength of fashion trends is such an important driver of traffic in our own stores.

And it is really newness and excitement in the category that drives people into Steve Madden stores.

If you have a moment like we did in Q1 where you are at a bit of a lull in the fashion cycle, that really hurts us in terms of traffic.

And of course you are coupling that with an existing, sort of an overall soft retail traffic environment.

That was very challenging.

As I said, folks like Macy's or Nordstrom or DSW, I don't think they are probably jumping up and down about their traffic in Q1, it was considerably better than what we saw in our retail stores.

In terms of going forward, right now we are seeing the wholesale business is continuing to have nice momentum, particularly in the branded side of the business.

We do expect the private label to slow down a little bit.

But, I think that when you have a tough moment like this the retailers really turn to the brands that are most important for them, that have the most brand power, that have the history of strong sales growth.

And so, we're actually seeing them rely on us, and the Steve Madden brand in particular, more in this environment than they have previously.

Okay.

That is good to hear.

Finally, I want to touch on your Brian Atwood acquisition, clearly at the higher ASP category for you, even in the B Brian line, if you look at your portfolio of brands you only have a couple of brands that have that higher ASP dynamic, FREEBIRD and maybe even Elizabeth and James.

We can take by this acquisition that is the direction that you are starting to head, a little bit more upstream from a pricing perspective as you look at future acquisition candidates?

I think that we are not going to limit ourselves to that, but that is certainly a place in the portfolio where we have some room to do more.

That was one of the reasons that we thought the Brian Atwood deal was complementary to what we have in the existing portfolio, sure.

Great.

Good luck with the rest of the year.

Thanks, Ed.

Next we will move on to Kate McShane with Citi Research.

Thanks, good morning.

Good morning.

Just to get your thoughts a little bit more on the wholesale channel, how much of what you saw during the quarter is from incremental growth from white space and market share?

And how much was a true comp year-over-year?

I think most of it is true comp, there is not a lot of new retailers that we were selling or new doors.

I mean, certainly within certain brands we added some doors here and there, but for the most part this is growth with existing accounts and existing doors.

Okay.

And back to your commentary before, it does sound like you're taking some market share as a result of the environment?

Yes.

We feel that is the case, for sure.

Okay.

And then, just on the inflationary environment, I just wondered if anything has changed with your outlook for inflation for the year and how are you approaching price increases the rest of the year?

When you say inflation are you talking about inflation in our costs or in our pricing?

Sorry, in your costs and then what your plan is to address that, if any, from your pricing?

We are really seeing that our prices from the factories are really fairly stable.

There has been some increase in materials , labor costs in China are, of course, up but on the other hand, from a sort of supply and demand dynamic, the factories seem hungry for business and we have been able to negotiate prices that are essentially in line with where they were a year ago.

The other interesting thing that is happening, of course, is that the dollar has strengthened a little bit against the RMB which is obviously not the direction that that has been moving the last several years.

But that is also helping us to maintain similar prices to the prior year in terms of what we are paying.

Similarly, I think now is not the time to try to push through a lot of price increases to the consumer.

So we're leaving our prices basically in line where they were a year ago.

Okay.

That is helpful.

Thank you.

Thanks Kate.

I we will move on to Erinn Murphy with Piper Jaffray.

Good morning.

I just wanted to reflect a little bit more on the promotional environment.

Ed, if you could just speak a little bit about who is leading the charge there?

And then just given how it has been so intense over the last several quarters, can you just reflect about how your own promotional calendar and just strategies that you guys have employed have evolved?

Sure, without calling anybody out by name, I think as you pointed out accurately, it has been a very promotional environment, it was very promotional in Q4, that continued into Q1 and we continue to see that going forward.

Particularly, as most folks had a relatively challenging Q1 at retail, we are continuing to see a fairly high level of promotional activity.

From our special perspective, while we did have to be pretty aggressive, as we mentioned earlier, to move through goods in retail in first quarter, and really had to go a little -- we were pretty aggressive with our clearance.

In terms of planned promotions, we are actually pulling back on that a little bit.

I think that we feel that we were running promotions a little bit too frequently, in some cases really training the customer to wait for a promotion in our own retail stores and so we are trying to get off that drug, as it were, and pull back a little bit there.

And we are also experimenting with some new promotions.

Some of the promotions that we have been using we have been running for a number of years, and I think the customers had in some cases gotten tired of them, they have gotten a little stale, wasn't creating the same level of excitement.

So we tried a new promotion, for instance, around the Easter holiday and got a very good response from the consumer.

Can you elaborate a little bit more about what you did around the Easter holiday, specifically, that was so well received?

Sure, a lot of these holiday weekends we have been running the scratch promotion that you have seen or the spin-to-win promotion.

Over the last several years we did not do that this time, we did something that is essentially a buy more, save more type promotion.

Got it.

And sorry if I missed this, but could you just clarify in the first quarter comp how did conversion track during the quarter?

Well, traffic was very poor.

If you can believe it, conversion was actually up in the quarter.

Okay.

And then in terms of the e-commerce relaunch I would love to hear just a little bit more about some of the functionality that has been added.

Some of the digital and mobile enhancements that you have been able to effect.

And I know Derek commented on kind of a slight improvement in trends there.

But any quantification or even qualification would be really helpful.

I think the most important thing for me about the new e-commerce platform is that it is a really dramatically improved experience on mobile and tablet.

We are getting approximately 50% of our visits now on those devices.

And it accounts for about a third of our sales, and the experience before the relaunch was pretty rudimentary.

We feel much better about that.

There's a lot of other things that we can do; we have expedited shipping, which we didn't have before, we have much better product imagery, we have some gift certificate functionality.

But the second thing I'm really excited about is the social media integration.

You can log in via Facebook, you can upload Instagram photos, you can shop other people's Instagram photos, there is lots of ways to share what you are doing with your friends and to see what others are doing and how they are engaging with the brand.

So far the reaction to that has been great.

In terms of the sales trends, we're not going to provide a specific number because it is so early, essentially the e-commerce was running in-line with stores prior to the refresh, and since the relaunch it is running significantly better than the stores.

Thanks.

That is super helpful, and best of luck.

Thanks, Erinn.

We will move onto Scott Krasik with Buckingham Research.

Good morning.

Good morning, Scott.

A couple of questions , I will try and keep it short here.

In terms of Wholesale Footwear now, nice to see the branded business really growing, sort of on an annual basis what is the split now between private label and branded?

Private-label overall is about 25% of sales.

And higher in footwear than accessories?

Yes.

Okay.

And then in terms of, specifically within the branded, you called out dress and some sneakers, I am assuming that is open-toe dress, how do you view dress evolving and is this really something that you see building?

Yes, I mean, interestingly there's a lot of different things working in dress.

I think you are right, the best performing, sort of subcategory within dress, is opened up footwear, sort of anything that is really strippy and sexy is doing very well.

Color is doing very well in dress, floral prints are doing well.

But we're also seeing single sole, pointy toe dress shoes perform.

We're still seeing some really aggressive platform pumps doing well.

So there is just a lot of different things happening in that category.

It is a category, you know, that was weak for a couple of years so we are really excited about what we're seeing there and we think that is going to be pretty significant for us in the coming quarters.

Okay.

So that is something that can continue in the fall?

Accelerate in the fall you think?

Yes, I think so.

Okay.

And then just now that you have got some visibility into the Nordstrom anniversary sale and early fall, do you feel better or worse about tall shafted boots breaking out than you did last quarter?

I think we feel neither better nor worse, I think we feel the same.

I think we are optimistic that we're going to see more tall shaft boots this year, relative to the booties, which have really been driving the business.

We also think that we will probably see some dressier boots.

It has been all about the casual boots the last couple of years and we think that the dressier boots will start to perform better this year.

That is great.

And do you think you're going to see any impact from, a lot of these cold weather brands did pretty well, and they seem to be being planned up for fall 2014, do you think that is going to have some impact on your business?

I don't think we compete super directly with those guys for open-to-buy, for the most part, but it is certainly something that we will have to contend with.

Okay, and then just lastly, I think you had counted on about $60 million to $70 million of share buybacks in your original guidance, you have done $29 million so far, how do you view that going forward?

The current guidance we have not updated the projection for share repurchase, so we are still looking at about $70 million in this forecast.

Clearly there's upside to that if we continue at our current pace, and so could there be another penny or 2 of accretion if we continue share repurchase at our current pace?

Yes.

Okay.

Awesome.

Keep it up.

Thanks.

Thanks, Scott.

We will move on to Corinna Freedman with Wedbush Securities.

Good morning, guys.

You did so great collaborations during the quarter, is there anything that you're working on for back-to-school that you can share?

Yes, the collaborations have been really successful for us, as you know, we did very well with this collaboration with the blogger, The Blonde Salad, with Steve Madden.

And we are following that up with a new blogger collaboration which launches for fall which is with a blogger called Peace Love Shae.

The Blonde Salad is out of Italy, Peace Love Shae is from the U.S. and it has got a real nice following.

That is something we are excited about.

We're also coming back with another collaboration with The Man Repeller for Superga.

And we are continuing Kendall & Kylie for Madden Girl.

That is doing very well at Nordstrom and it is going to be expanded at Nordstrom for fall.

Okay.

Is there any details you can give us on the expansion?

Are you adding more door?

Yes, we do have at least one item that is going to be going all door.

We're in about 50 right now.

Okay.

And then what are your initial thoughts on how big do you think the Brian Atwood lines could ultimately be?

What kind of accretion to the topline do you think that it can add ?

It is really early, we don't even have any shoes yet.

So we're not going to put a number on that at the moment.

But what I will say is that this is a business where the brand footprint and the awareness and the affinity from the customer is much much larger than the sales dollars that it is doing at the moment.

So we think there's a big opportunity there.

Okay.

Great, thank you.

Thank you.

We will move on to Edward Yruma with KeyBanc.

Hi, thanks very much for taking my question.

Back to the whole retail versus wholesale question, werethere any trends that you felt like the wholesalers bought into better than maybe your own retail or other execution issues that might explain some of the performance difference?

Not really, no.

Look, if we had a crystal ball are there things that we would've done differently in retail?

Sure, I think that we would have liked to -- we did have the dress and sneaker categories represented and we had products that did well in our own retail stores, we would have liked to have had a bigger inventory position there than we did.

We have obviously caught up now, but there was no meaningful change in the trends that wholesale went after versus retail.

Got it.

And some of your major off-price customers are now moving online, can you talk about your philosophy on off-price online and whether you expect to participate in those channels?

Thanks.

Sure, it is a good question, it is something that we are evaluating on a case-by-case basis.

There is one very big one that we're not going online with, at least for the time being, and there are some others that we likely will participate with.

But that is something we will have to evaluate as we move forward.

And is that baked into this year's plan or is that?

Yes, everything we know to-date is baked into this year's forecast.

Great.

Thanks so much.

Thanks.

And we'll move on to Jeff Van Sinderen with B. Riley.

Good morning.

Ed, I wonder if you could just follow up a little bit more on how you think your retail partners are approaching managing inventory?

How you are approaching managing inventory?

As you look toward, I know it is still early, but as you look toward the important second half of the year, do you think that you need to have more on hand inventory to ship at once?

I know you have got short lead times, but maybe just give us a little bit more color on how you're thinking about that?

Sure, in terms of how our retail partners or our wholesale customers are approaching it, I think sure they have gotten a little bit more cautious given the slow start to the year.

The only meaningful thing I would call out is we are seeing people, tell us that they would like to take their boots in a little bit later this year.

So some of the boots and booties that in prior years we would ship 6-25, people now are pushing those out to July and August.

It will cause some shifting incidentally between Q2 and Q3 and our wholesale sales.

But in terms of how we are approaching inventory, in these types of environments we really focus on inventory management and I think you saw it in the numbers today that we came out of the first quarter actually a touch down versus the prior year.

And we're going to continue to really focus on that in this kind of uncertain time.

Okay.

Good to hear.

And then, maybe you can just give us a quick update on performance in your outlet stores?

Just wondering if there's a difference there versus your full-price stores?

And then maybe just touch on how your newest outlet stores are performing versus how you are planning them?

Sure, the outlets are performing considerably better than the full-price stores.

We continue to feel good about the performance in the outlets that we have been opening and we continue to be very optimistic about that business.

We hired a new President of Outlet earlier this year, a very experienced guy who has run outlets for Ralph Lauren, Calvin Klein, Kenneth Cole, Tommy Hilfiger and he has made some important changes to the way we do things and we feel very good about how that business is trending.

Certainly considerably better than the full-price stores right now.

Okay.

Good to hear.

And then finally, anymore color you could give us on international and maybe which regions you expect to drive growth in international as we look towards the second half?

Sure, the biggest one is Asia, our partner in China is called GRI and they continue to do very well.

We're up to about 50 stores there and something like 90 concessions or shop-in-shops.

We are opening another 10 full priced -- excuse me, freestanding stores in China this year and the comp performance is also very strong there.

So that is probably the one that we're the most excited about.

We're also excited about the UAE , specifically Dubai and 23 stores there, we are opening another 5 this year and they have recently started a big marketing push in Dubai, a lot of outdoor advertising and other advertising, so that is exciting.

And then the next one I would call out is probably Mexico continues to perform very well.

Okay.

Great to hear.

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

Thanks, Jeff.

And Sam Poser with Sterne Agee will have our next question.

Thanks for taking my question.

Good morning, Ed.

A couple of things, your original guidance called for a tax rate in the mid-37s, correct?

That is right.

Yes.

Okay.

And you are going to get about a nickel from the reduction of this tax rate for the full year is what it just looks like in a quick pass?

Yes, I think it is about $0.04 but it is in or around there.

Okay.

Your inventory is very clean, can you talk about that inventory position at wholesale versus retail?

Sure, it was about flat in both, we were down 1% in wholesale and up 1% in retail.

Again, in retail remember though, we have 123 stores at the end of the first quarter versus 110 a year ago.

So on a first store basis, it is down about 10%.

So arguably your retail part of the guidance or the direction you gave for the second quarter is predicated on continuing need for promotional activity at retail to get the inventories to sort of line in with the same-store sales and so on?

I mean, arguably you would like to see it a little bit cleaner based on the trend , is that a fair way of looking at it?

No.

I think we came into the quarter where we wanted to be.

Okay.

Thank you.

And just to understand the business, the trends at retail , basically, the wholesale partners can buy less items in bigger waves and you have to show a larger spread at retail and arguably there's less of a spread of new compelling product this year than there was a year ago despite the strength of the athletic and the dress?

Is that a --

It is a fair statement, yes.

Lastly, part of the conversation you had about your growth and your margins were expectations in the bag and accessory business, which was basically flat.

How do you see that going for the balance of the year?

Because that has generally been a higher-margin business?

Yes, you should see that at topline growth accelerate in accessories.

We have the handbags continue to do well, we were around 10% growth in handbags but there was a drag in [farce] from some of the other categories.

We mentioned, I believe earlier, belts and sunglasses.

And that drag should go away as we go forward.

And so you should see accessories improve from starting in Q2.

And then lastly, Elizabeth and James, is that an ongoing situation or is that something now that you have Brian Atwood that one is going to sub out the other?

It is the latter.

We have discontinued Elizabeth and James and are focusing on Atwood in the higher-tier market.

Thanks very much and good luck.

Thanks, Sam.

We will move on to Steve Marotta with CL King & Associates.

Good morning, Ed and Derek.

How about another question on the disparity between retail and wholesale in the first quarter?

As it pertains to your inventory terms, maybe this renders the question moot, but is it fair to say that there is more selling activity at wholesale in the first quarter and more reorder activity at wholesale in the second quarter?

Yes, that is fair.

Okay.

So that could also be part of the disparity, could it not?

It could, it could.

We do expect the wholesale rate to slow a little bit in second-quarter for that reason.

Although, again, we still feel pretty good about what we're seeing in trends, especially in our branded Wholesale Footwear business.

We do think the private label will slow a little bit, but the branded continues to chug along.

Okay.

And actually that leads to my follow-up question.

In previous calls, Ed, you've spoken about Steve Madden footwear more or less growing at above trend, at well above trend, taking market share and that, putting words in your mouth on previous calls, trees can't grow to the sky, but with the double-digit growth that is still being experienced in Steve Madden branded footwear, I assume your market shares -- well, certainly would be at peak.

And can you talk a little bit about where it could go from here and when you expect the trend to normalize?

Yes, we have been very pleased at the continued growth that we have seen in Steve Madden Women's and as I said I think part of that is the retailer is really relying on the guys who perform for them and the strongest brands.

We are seeing, at this moment, relatively fewer sort of, new entrants into the departments in our key stores.

Going forward, of course, we always plan for that business to go to a more modest growth rate.

But right now the trends remain strong.

That is helpful, thank you again.

And next we will move to Danielle McCoy with Brean Capital.

Good morning, guys.

Thanks for taking my question.

I guess just a little bit on the men's , up double-digits this quarter, what were some of the changes that you feel really pushed this turn in the men's business?

And what are some of the stronger products that you guys are seeing?

And any growth from here on?

Thank you.

Thanks, I'm glad you brought that up because men's is really a bright spot.

We made some changes to the leadership team last year and I believe we talked about this on prior calls, so forgive me if I'm repeating myself, but we really worked to better define the brand architecture here and really define what Steve Madden stands for and what Madden, our more moderately priced line, stands for.

We elevated Steve Madden in terms of the details, the styling, the quality.

And Madden, which before sometimes just looked like cheaper Steve Madden, we have really focused that on a younger, more casual product.

On a younger consumer and more casual product.

And the response from the retailers and the consumers has been great.

Of course, men's is also really trending better than women's overall right now.

There's more fashion excitement in men's than in women's.

These chukka boots have been a real great driver for us and for some others , that is a very strong category.

And we continue to do very well with our fashion dress shoes, as well.

We are excited about what we're seeing in men's and we expect that trend to continue and I think that is a business that could be up for us, high-teens this year.

Great.

Thanks, guys.

Good luck.

Thank you.

And next we will move on to Chris Svezia with Susquehanna Financial.

Thank you for taking my question.

Two questions for you.

One, any differences among your wholesale channels in terms of how they performed or what they're seeing?

And secondarily, just sandal, I mean, you mentioned dress and some open toe, as it pertains to dress, but any color as it pertains to the sandalized business, the flat business as we have come through here?

And is it part because retailers want to take boots a little bit later, they are anticipating that sandal business to carry a little bit later through the season?

Just any thoughts about that.

Sure, the first part of the question was about differences in who we sell to.

There are always going to be pockets of strength and pockets of weakness among our wholesale customers but I don't think there's anything meaningful to call out in terms of differences by channel.

And then in terms of sandals, for obvious reasons with this weather the sandals started off slow this year.

But we've really seen sandals start to pick up of late, and it is really anything with jewels on it, anything with bling, any kind of ornamentation is really performing quite well.

So, we feel much better about what we're seeing from sandals right now.

In terms of bringing boots in later, yes I think if you recall last year there was a late start to spring and it was also a late start to the boot season because, I think, people had just started buying sandals and other spring products relatively late and they weren't ready to start buying boots in July.

I think folks are looking for a similar pattern this year and that is why they're taking the boots in a little bit later.

Okay, all right.

Fair enough.

Thank you and all the best in the year.

Thanks.

Thank you.

And next we will move to Mike Richardson with Sadoti.

Good morning, guys, and thanks for taking my call.

I just have really just one follow-up from before, obviously traffic in general has been pretty soft at retail, I'm just wondering what your sense is in general on inventory levels at the department stores?

Thanks.

I think in some cases they are a little heavy , I think that most people have tried to be, most folks have tried to be pretty proactive about moving through inventory, so I wouldn't say there's a ton of excess inventory in the channel.

But the fact of the matter is, that it was a tough start to the year; and I think a lot of retailers missed their sales plan, and anytime that happens inventory is going to backup a little bit.

Great.

Thank you and continued good luck.

Thank you.

And there are no further questions.

At this time I would like to turn the call back over to Mr. Ed Rosenfeld for any additional or closing remarks.

Great.

Well, thanks so much for joining us today and we look forward to speaking to you on the second quarter call.

And that does conclude today's call.

We thank you for your participation.