Steven Madden Ltd (SHOO) 2014 Q2 法說會逐字稿

Good day, everyone, and welcome to the Steven Madden Ltd second-quarter 2014 earnings conference call. Today's call is being recorded.

Now I'll turn the call over to Jean Fontana of ICR. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us today for the discussion of the Steven Madden second-quarter 2014 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 and 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.

These 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 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 on 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 Steven Madden.

Thanks, Jean. Good morning, everyone, and thanks for joining us to review Steve Madden Q2 results. I am here this morning with Derek Browe, our Director of Finance and Investor Relations.

The second quarter was challenging as we continue to face a tepid overall retail environment as well the footwear space with relatively few strong fashion trends. Consolidated net sales for the quarter were $296 million down slightly from the prior year's figure of $298 million. Diluted EPS was $0.44 up slightly from $0.43 last year. In wholesale, a strong 10% gain in accessories was offset by a 3% decline in footwear. Within footwear, the decline in the quarter can be attributed to a reduction in sales with a single private label customer.

Our branded wholesale footwear business had a mid single-digit sales increase in the quarter including solid gains in Steve Madden Women's, Men's and Kid's. Men's was a particular stand out, delivering a fourth consecutive quarter of double-digit sales growth. But private label footwear had a $12 million net sales decrease in the quarter, the vast majority of which was isolated to the one customer. The good news is that we are back on track with the customer starting in Q3 and expect to deliver a modest sales increase with that account for the back half compared to the same period last year.

Retail was the other drag on performance in the quarter. We continue to struggle with poor traffic trends in our retail stores and comps were down 8.5% in the quarter. As we have discussed, we are in a tough moment for the trendy young footwear business due to the relative lack of fashion trends, something that impacts most acutely on our retail stores.

While our full price bricks-and-mortar stores remain in struggle, we are pleased with the progress we are making in e-commerce and outlet. We have seen improvement in the conversion rate on stevemadden.com since the launch of our new e-commerce platform a few months ago, which is in turn contributed to a nice uptick in the sales trend. And in outlet, we recorded a modest comp gain as well as a year-over-year gross margin improvement in the quarter. We also opened four new outlet stores in Q2 including a location in Dalton Mall in South Florida which has been our top volume outlet door since its opening in May. We ended the quarter with 24 outlets, up from 12 the year ago.

Before I turn over to Derek to walk you through the details of the financial performance for the quarter, I'd like to briefly touch on our updated forecast for the year. We currently expect net sales to grow 2% to 4%, compared to 2013 and we expect diluted EPS to be in the range of $2 to $2.10. The reduction in the guidance is primarily driven by a lower forecast for our wholesale accessories business in the back half, specifically our handbag business.

Our three primary handbag brands, Steve Madden, Betsey Johnson and Big Buddha are all PVC, that is non-leather brands, with average retail price points around $100. Unfortunately that tier of the market is currently under pressure due to price compression from certain designer brands. Two things are happening with the designer brands.

One, much more of their leather products can be found on promotion and two, they have introduced non-leather products, for example bags in nylon or seasonal materials with much lower price points.

Consequently, consumers cannot access these designer brands at much lower retail prices than has historically been the case, and many are looking to trade up into those brands. In response, many retailers, including key department stores, are shifting open to buy dollars to those brands at the expense of the PVC brands. As a result, we now expect wholesale accessories sales to be down for the back half and flat to modestly down for the full year. In addition to a lower forecast for accessories another, though less impactful factor in the reduced guidance, is an incrementally more conservative forecast for footwear in the back half due to continued softness in the fashion cycle.

Now I will turn it over to Derek to take you through the financials.

Thanks, Ed, and good morning, everyone. As Ed mentioned, the consolidated net sales for the quarter were $295.7 million, compared to the prior-year amount of $297.6 million, with sales in both our wholesale and retail down slightly. Our wholesale net sales in the quarter were $249.8 million compared to $251.4 million in the prior year's second quarter. Gains in our branded wholesale footwear and wholesale accessories businesses were offset by a decrease in our wholesale footwear private label. Wholesale footwear net sales were $192.4 million, down 3.4% from $199.2 million in Q2 of 2013.

In our branded footwear business, sales rose in the mid-single digit range driven by Steve Madden Women's, Men's and Kid's in addition to Steven and Report brands. These gains were more than offset by a decline in private label footwear business, which as Ed mentioned, was due to a temporary reduction in orders from a single private label customers.

In wholesale accessories, we recorded net sales of $57.4 million in Q2 compared to $52.2 million in the prior-year period, a 10% increase. The growth was led by an increase in our private label accessories business including significant growth with Walmart and Kohl's. In addition, the growth of our Betsey Johnson handbag business continued.

In our retail division, net sales were $45.9 million, a slight decrease from the $46.2 million in net sales recorded in last year's second quarter. Comparable store sales in the quarter decreased 8.5% due to a decline in our full price stores, partially offset by modest growth in our outlet locations.

During the quarter we opened four outlet locations, closed two full price locations as well as closed our Freebird by Steven website. Our Freebird by Steven products are now offered on our Steve Madden website. These changes bring us to 124 company operated retail stores including the 24 outlets and three e-commerce stores.

Turning to other income, our commission and licensing income net of expenses was $3.2 million in the quarter versus $3.7 million in last year's second quarter, due primarily to a decline in our First Cost business with Sears and Kmart. Our consolidated gross margin in the quarter was 36.2% as compared to 37.2% in last year's second quarter. Our wholesale gross margin was 31.3% versus 32.1%. A margin contraction was primarily the result of increased mark down allowances in wholesale footwear. Gross margin in the retail division was 62.8%, compared to 64.7% as a result of promotional activity increases versus prior year.

Our operating expenses were $70 million in the second quarter or 23.6% of net sales, compared to $68.7 million or 23.1% of net sales in the same period last year. The increase in operating expense as a percentage of sales was driven by deleveraging on our lower sales. Operating income in the quarter totaled $40.3 million or 13.6% of net sales, compared to last year's second quarter operating income of $45.6 million or 15.3% of net sales.

Our effective tax rate for the quarter was 32%, which included a $1.3 million tax benefit from expected state tax refunds from prior year filings. Net income for the quarter was $28 million or $0.44 per diluted share, compared to $29 million or $0.43 per diluted share in the second quarter of 2013.

Turning to our balance sheet. As of June 30, 2014 we had $282.7 million in cash and marketable securities and no debt. We ended the quarter with inventory of $87.3 million which was down from $91.3 million in the prior year reflecting our strong focus on inventory controls in light of the tough retail environment. Our consolidated inventory turn for the last 12 months was 10.7 times versus 10.5 times in the prior year. CapEx in the quarter was $3.6 million and during the quarter we repurchased 1.1 million shares for approximately $36.3 million, bringing our total repurchases since the beginning of 2013 to approximately 5 million shares for $167.8 million.

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

Thanks, Derek. 2014 has definitely been a challenging year so far, but while we took this year's guidance down modestly, we remain confident that our long-term growth prospects remain unchanged. Our flagship brand remains strong, our business model remains sound and even in this tough environment we continue to make meaningful progress on a number of growth opportunity within International, Men's, outlets, e-commerce and new brands which position us for top and bottom line growth for years to come.

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

(Operator Instructions) Jeff Van Sinderen, B Riley.

Hi, good morning. Ed, maybe you can just talk a little bit more about the handbag business and how you see that playing out? How you position for the shift that's going on at this point?

Yes. Well, as talked about in the prepared remarks, we're definitely seeing some pressure there, particularly on the branded part of our business and we talked about the price compression that we're seeing from the designer brands and the challenge that that presents us as some of the key retailers fund those brands at the expense of the PVC department in, which we play. In terms of what we are doing, there are a couple of different areas that we are going after.

Number one, we're really focusing on building our Madden Girl handbag business. So that's more junior bags, $50 to $60, lot of fashion backpacks, as well as some cheap and cheerful PVC bags and we're getting a very good response there and that really targets a different customer, not the customer that is the one that's under some pressure in the other brands. So that's one thing we're focused on.

We're also really focusing on the Betsey Johnson brand, because that one -- while it is a PVC brand and it is in the price point that we talked about in around $100, maybe a little bit more expensive, -- it's got a real different DNA and it's got a real position on. I think the retailers really recognize that it has a unique position on the floor and they're really -- they still want that brand in a major way, because it is still selling through well. I think frankly it's also picked up some of the gap that was left by Juicy in terms of some of that catchier product. And so we're going to continue to focus on Betsey as well. And then in Madden, we're experimenting with some new materials and in some ways that we think we can increase the price value proposition that we're offering in Steve Madden.

Okay, good. Then as you look into the second half, I know you mentioned there's still of an ongoing lack of, what I would call, a macro fashion trend driver in Women's and I'm just wondering is there anything that you are seeing on the horizon as you look out to next year or maybe, I don't know, Q4 that you see emerging that could potentially turn into that sort of missing fashion driver?

Yes. I mean we do see some trends emerging. We talked in the last call about dress shoes and about fashion sneakers and we still see those as emerging important trends. There's also some things within the boot and bootie category that we have got some early reads on that we feel good about that we think could be important going forward. Or because it's so early in the season, for competitive reasons, we're not going to talk about exactly what those trends are, but there are some things within boots and booties that are different from what's been selling the last couple of years that we're optimistic about.

Okay, and then anything that you saw in terms of the sales progression in your own retail stores that shifted throughout the quarter? In other words, how was I guess the outgoing trend versus the incoming trend? Was it erratic? What did you see in your own retail stores in terms of comps?

It was actually fairly consistent throughout the quarter.

Okay, and would you expect that trend to improve somewhat? Do you think that the inventory or the -- I don't know if the inventory is the right word -- but do you think that the promotional levels have stabilized out there? Or how are you thinking about that?

In terms of what we expect for our own trend without providing specific comp guidance, we do think that the second half should be better than the first half. Certainly, the comparisons are easier. And in terms of the promotional environment, it's been very promotional out there and all indications are that it's going to continue to be promotional.

Okay, fair enough and then just anything to share on your international business that you think is a highlight worth mentioning?

Sure. Yes, international continues to be a nice growth driver for us. I think Asia continues to be the biggest part of the growth there. Our distributor there is performing very well. They are opening a number of concessions this year. I think it's going to be about 25 concessions or shop-in-shops that they're going to open this year. They also just opened a new flagship store in IFC mall in Hong Kong that's beautiful so that business continues to chug along.

Also doing very well with our partner in the UAE, which is a group called Landmark there. They have about 23 stores right now and the plan is to get to 40 by 2017.

And then I think the third one that I would call out is Mexico. We're performing very well there, both in our retail stores. I think there are about 17 retail stores there, but we're also growing nicely with the two big department stores there -- Liverpool and Palacio.

Camilo Lyon, Canaccord Genuity.

Thanks, good morning. Ed, how are you?

Morning.

I was hoping you could talk a little bit about maybe some of the channel differences, if there are any, and how your brand is performing in some of the department stores versus the off-pricers? And if there is any real difference between buying patterns of those consumers if there is more of a shift to the value proposition market? Or anything, any light you can shed on that front.

Sure. We're actually not seeing huge differences between the tiers of distribution. I think what we are seeing out there is that there are differences in the performance by what we call grid or departments. So the Junior's category is the weakest of the moment, what would be called, let's say, Impulse at Macy's or is a little bit stronger. But what's even stronger is sort of traditional Women's or product that targets a little bit more mature customer and designers are also holding in there quite well.

Got it. And then if you could comment on maybe what you're hearing from some of the private companies out there that -- if you are facing some challenging industry trends, I would imagine, so some of the smaller private brands that don't have as big a balance sheet or are suffering even that much more. If you could just talk about what you are hearing from that perspective and how that makes you think about being opportunistic with adding some of brands to your portfolio?

Yes, it's a very good question, because clearly a tough environment right now and it's posing challenges to us but we think we're weathering it much better than some of our closest competitors, particularly some of the private companies and it does potentially create some acquisition opportunities for us. So we're out there looking pretty carefully at some opportunities on the acquisition front.

Great. And just remind me, what holes you would like to fill within the portfolio, whether its upper end on pricing or a different category that you're not as exposed that you would like to be more present in?

I think for the most part, we're going to be opportunistic there. So we are not thinking about it is as a hole that we have to fill. We want something that's complementary to the existing portfolio. That could be something on the upper end, it could be something less expensive than Steve Madden. I mean we're open there.

Got it. Good luck and back to storm for the rest of the year. Thanks.

Thanks, Camilo.

Taposh Bari, Goldman Sachs.

Hi, guys. Good morning.

Good morning.

Past couple of quarters, I believer your sell-through at wholesale had been outperforming your retail trends. Did that continue into the second quarter?

Yes. I would say, our sell-through in wholesale outperformed our retail performance. It was not up to our normal standards though. And it was not as good as it was in the year prior. As we talked about, it's a very challenging time for the trendy young footwear space that we play in and we do believe -- and we understand from our big department store customers -- that our sell-throughs are better than our peers in our department, but again not as strong as they were a year ago. That's one of the reasons or the primary reason that the mark down allowances were higher this year than they were a year ago.

So it is fair to say that the trend in sell-through rates between wholesale and retail are converging? Because it sounds like wholesale sell-through rates are decelerating and the retail comps are obviously negative but less negative. So is that a fair statement that the gap is converging?

Yes, a little bit. I mean I would say, there is still a meaningful difference.

Got it, okay. Last quarter, I think you mentioned that you were pleased with the direction the comp is heading and still below where you were hoping but it was getting I guess better which it has, now that you have reported. Do you carry give us any insights into how the month of July has shaped up for you?

Well, first I will say, I hope I didn't say I was pleased (multiple speakers)

Maybe that was wrong word.

Yes. It did get a little -- it was getting a little better, and you saw it got a little better but we're never going to be pleased with down 8.5%. It continues to get better in Q3 but we are not where we need to be.

Okay, and last one for you is I think 2Q is a pretty aggressive clearance quarter for a lot of footwear guys out there. Do you feel like the inventory position at retail is clean or is it not where it needs to be as we transition into the fall season?

In terms of inventory in the channel, I would say --

Yes.

It's still a little heavy in some places.

Okay. Thanks a lot, guys. Good luck.

Thank you. Thanks, Taposh.

Erinn Murphy, Piper Jaffray.

Great. Thank you, guys and good morning. Just going back on the comment you made earlier add-on accessories recognizing the disruptive competitive pressures that you're seeing and planning for in the second half but can you just speak to the drivers that drove the relative strength in accessories during the second quarter?

Sure. The growth is primarily driven by private label, where we obviously --

OK.

Aren't facing the same pressures as in the branded space and we did have a good performance in Betsey Johnson as well.

Okay. So then in terms of just going back on the branded handbag space and how you're thinking about for the second half, I mean are you seeing that competitive pressure significantly accelerate or planning for that in the second half versus where it has already been in the first half of this year and even later in the latter part of last year?

Yes, we are. The pressure is more significant in the back half of this year.

All right, and then I guess in terms of Men's, I mean you cited that as being a relative bright spot. I know it's a fairly small piece of your business, but can you just speak to what's been driving Madden? What are the specific trends that have been driving that? And just how are you thinking about that business going forward?

Yes. Men's has been a real bright spot. We've talked about the lack of fashion direction or newness in Women's, but that's not the case in Men's. There are some real nice fashion drivers on the Men's side. Chukka boots have been probably the biggest one and that continues to be very important, but our fashion dress shoes are performing. We had some nice success with some wide bottom casuals this spring.

So the Men's business continues to perform. As I said in the remarks earlier, we have had four quarters in a row now of double-digit sales growth. We're starting to anniversary -- now that it's been four in a row, we're going start to anniversary some tougher compares but we still have nice momentum there and we're still looking for high-teens growth for the full year in Men's in the wholesale Men's business.

And is that changing your space allocation conversations that you're having with retailers? Because it's just nice to see something that's working out there? Or how are retailers approaching you guys, given that there is that bright spot within your portfolio?

Yes. I mean we're definitely getting more space in our key retailers in the wholesale channel and frankly in our own retail stores we're also expanding the amount of space that we devote to Men's because it's been a relative outperformer.

That's helpful. And then just last question for me. I think last quarter you talked about the e-commerce trend really starting to track ahead of where the stores have been once you relaunched your site and the capabilities there. How did the e-commerce business track in the second quarter? And if there's anything else you can share about how that platform is developing for you to continue to push towards a much more omni-channel business model?

Sure. Yes, we've seen some -- we're really seeing steady improvement since the launch of the new platform. If you recall, prior to implementing the new platform, we were really running -- the e-commerce was running -- stevemadden.com was running in line with the full price bricks-and-mortar stores, i.e., it was significantly negative. In second quarter, it improved. It was still modestly negative, although much better than the full price bricks-and-mortar stores. And in Q3, we're now running a positive comp on e-commerce.

Great. That's great to hear. Thank you. Best of luck.

Thanks, Erinn.

Edward Yruma, KeyBanc.

Hi, good morning. Thanks for taking my question. On the last call you cited weather difference or weather is driving some of the differences in performance among your retail portfolio. I guess now that weather cleared up, do you still see some marked differences between performance in the different regions?

No, it was much more consistent across the regions in second quarter than in first.

Got it, and in terms of the handbags, as retailers look to shift I guess where they open to buy is moving toward, is there the possibility for incremental promos on the PVC products that you already have in store? And I guess do you need to provide support to clear out of those inventories as retailers look to destock?

Yes. I mean that's always a conversation with the department stores. And if you don't have the sell-throughs, there's always going to be a mark down money negotiation at the end of the season. That's something that we have provided for in our guidance, though.

Great. Thanks so much.

Thank you.

Scott Krasik - The Buckingham Research Group

Yes. Hey, Ed.

Good morning, Scott.

So just a follow-up on Ed's question I have a bunch of others. So when you said that mark down allowances are provided for in the new guidance, are you saying that you have increased your assumption for mark down allowances in the fourth quarter or in the back half?

Yes.

Okay, and then in terms of what transpired in 2Q, did that take you by surprise? In terms of the mark down from the wholesale gross?

No. I don't think so. I mean look it was more than we budgeted for at the beginning of the year, but certainly as we were into the season, we were aware of how we were tracking and understood what that mark down allowance is going to look like.

Can you then give us some perspective about -- you have talked a little about your sell-through rates for where the category, the Junior's category is overall, for example, in footwear?

I can't provide numbers, but I would say it's significantly down in most key retailers.

Okay, and then just a few more. Share buy backs, you're probably pretty close now year-to-date to what you had said within your guidance at the beginning of year? Do expect to continue to buy back stock at this level?

Derek, do you want to touch on this?

Yes. (multiple speakers). Yes, Scott. Yes, all things equal, we would expect to continue to buy back at the rate we have been, which has been $30 million to $35 million a quarter.

Okay. No, that's good. And then, in terms of -- sorry. No, no. I'll jump back then. Thanks, guys.

Thank you.

Sam Poser with Sterne, Agee.

Morning, Ed. How are you?

Good morning, Sam.

Good morning. A couple of questions. Number one, you mentioned the Men's business up double digits. The Women's wholesale business -- can we assume that was down mid-single digits? Is that about right?

No, no, no. Are you talking about Steve Madden Women's?

I guess. I mean you mentioned that was up mid-singles?

Yes. The overall the overall branded wholesale footwear business was up mid-single digits and if we back out Men's, it's going to be close to that Men's as a small percentage of the total as you know. I mean it is low to mid-single, somewhere in there.

So it was the private label that really knocked you down. That's a separate issue.

That's right. That's right.

Okay, and then how are you looking at the same store sales for the balance of the year?

We're not going to provide comp guidance, other than to say, it should be certainly better than it was in the first half, but we're not expecting anything heroic here because we're still dealing with top inning in terms of fashion.

Would you think -- I mean could you say you're for the balance of the year but it should get less negative. Is that the way to think about it?

Yes. I think the fourth quarter comparison is easier. I'd like to think that there is a shot at getting to a modest positive in fourth.

Okay, you talked about -- and when we think about the gross margin, especially since you are putting more markdown on allowances within your guidance, is this a situation where you're just really leaning on the expenses and doing things there, so you might not delever as much as you would otherwise, given the full-year guidance now?

I mean we're still certainly the focused on controlling operating expenses but you will have some deleverage,, probably by 50 basis points this year. Given that we're going to be running negative comp store sales for the year, there's going to be some deleverage in retail.

Okay, thank you very much and good luck.

Thanks.

Steve Marotta, CL King & Associates.

Good morning, everybody. Ed, I just want to touch on the share repurchase again. What's remaining on the share repurchase? And what's expected from a full-year fully diluted share count perspective or the EPS guidance that you offered?

So, Scott, we have at the end of the quarter --

Steve.

Steve, I am sorry, we have about $126 million left under the existing program and so as we indicated at -- if we continue to buy back at the same rate, we we'll do another $60 million, $65 million in the second half and that's what we have done to-date. So I think with the second part of your question was about the weighted average shares, though? Is that right?

Correct. The assumption for the (multiple speakers) --

In and around $64 million for the full year.

Okay, that's helpful. And also I know that it's very, very, very, very early but the early back-to-school market over the last week or two, have you seen any disparate trends there, either from a sell-through basis or a fashion basis that can be extrapolated for the balance of the back-to-school season?

I think you're right. It's pretty early. I think I would say that we are pleased with some of the early reads on boots and booties, both in what we've seen in Nordstrom anniversary sale as well as in our own stores, but again it is early.

I'm going to rephrase the question one other way. Are the comps at your company-owned stores in the early back-to-school markets over the last week or two significantly disparate or materially disparate with the balance of the chain?

No.

Okay. That's good. Thank you.

Thank you.

Mike Richardson, Sidoti.

Yes, good morning. Thanks for taking my questions. I just have a couple of quick ones for you. Directionally, is if safe to assume that you're thinking about gross margin being down in the back half of the year, year-over-year?

And then second, I just wanted to follow-up on your earlier comment about inventory levels at retail maybe being a little bit heavy? Just wondering if you've seen any change in buying patterns? Thanks.

Yes, I'll address the second part of your question first. Now given that soft spring season, we definitely are seeing retailers become incrementally more cautious in the back half. I don't think there's a significant change in how they're ordering in terms of timing or anything like that but definitely there is a more cautious sentiment in how they are approaching their back half buys. And then Derek will address the gross margin.

Yes, on the gross margin, I think we can think of it as flat for the remainder of the year.

Great. Thank you very much.

Corinna Freedman, Wedbush Securities.

Hi, good morning, guys. I just wondered if you could give us an update on the tall shaft boot deliveries? I think you said they had shifted into second quarter? And then also, what are your thoughts on this category for the second half of the year? Might there be a potential lift given the higher AURs of the segment? Thanks.

Yes. It's still early to know a lot about tall shaft boots because it's July, so booties are still going to be the most important part of the boot and bootie category at this stage of the year, but we do have some better reads on tall shaft boots. One of our, in the Nordstrom anniversary sale, we had a very successful tall shaft boot with cloaking on. It been a very strong seller for us. And we do expect boots to make up a larger percentage of the total boot and booties category this year, as compared to last year and that should help the AURs a little bit, as you point out.

Thank you.

Thanks.

Scott Krasik, Buckingham Research.

Yes, hi guys. Thanks. Derek has answered my share repurchase question. It was so good, I just blanked. Just a couple other ones. Any early read, I know we have got PLATFORM coming up, but any early read on the first sales of Brian Atwood business?

We haven't showed the shoes yet but we've got FFaNY next week and then PLATFORM after that. So we'll know more in about a month.

Okay, and then just in terms of the lace-up bootie category, I mean we estimate it was probably more than 20% of your sales, how is that business doing? Are we starting to see the declines actually accelerate in wholesale relative to what we have seen so far?

First of all, I don't think it was that big of a percentage. I don't know the number off the top of my head. That business -- if we're talking about the one big blue Troopa, the military lace-up bootie, it has been down all year versus last year we're still selling a lot of them. I don't anticipate that the rate of decline will increase over the back half, although the comparisons in the back half in terms of dollars are obviously much bigger than they are on the first half.

Okay, and then without giving specific quarterly guidance, do you expect to grow EPS in both Q3 and Q4?

Yes.

Okay, all right. Thanks, Ed.

Thank you, Scott.

Camilo Lyon, Canaccord.

Hey, Ed. I've got a question for you as you think about 2015. This past two years, 2013 and what's looking to be 2014 has been mid single-digit EPS growing years. Is there enough visibility that you have today to talk about what kind of EPS growth rate you can get back to in 2015?

Well, we really believe that over the over the medium to long term that this is a double-digit EPS growth company. We're obviously looking at something short of that this year, given some of the headwinds we're facing in the fashion footwear space as well as some of the challenges that we're seeing in handbags. But when you look at the growth vehicles that we have in-house whether it's international or the Men's business that's really accelerating or outlets, which we are very excited about, and what we are doing on e-commerce, we really believe that starting in 2015 we should be able to get back to a double-digit EPS growth.

Great. Thanks.

Taposh Bari, Goldman Sachs.

Hey, guys. Just a quick follow-up on your gross margin outlook for the back half. You are saying flat, which would be pretty meaningful departure from what you have been doing over the past four quarters. You talked about increased mark down allowances and inventory in the channel that sounds a little heavier than I think you would have liked. So help us better understand the puts and takes of getting to that kind of result our the next couple of quarters?

Yes. I mean what's really been dragging us down is the declines that we're seeing in retail. But we expect that to get better as we move forward.

Keep in mind, in Q1 we had a pretty substantial gross margin decline in retail. The business had decelerated pretty rapidly in December and so we had too much inventory heading into Q1. We got that more in line headed into Q2. The gross margin deterioration over the prior year was much better in Q2 and going into the back half, I think we can be flat to even potentially modestly up in retail. That's really the big swing factor.

Thanks guys.

Sam Poser, Sterne, Agee.

Yes. Thank you. Ed, can the potential strength you are seeing in dress athletic and let's say this potential with the new boots, combined, do you think that has a potential to offset boot the drop-off, even the quieting down of the drop-off of the Troopa? Or is there anything that big? Or is it still finding its way despite some little signs of light, so to speak?

I think it's a little early to know. Some of these things are promising. But you need really some big items and we think we may have some, but it's early to know at this point how big it's going to be big with some of these products.

So your guidance doesn't have that in there at all, I assume? And if it shows up that would be very helpful?

That's right.

Thank you. Good luck.

Thanks, Sam.

Jeff Van Sinderen, B. Riley.

Two quick ones, Ed. Just on the sneaker business, any color there, and plans going forward?

Sure. So sneakers -- we've talked about the challenge in the young business and some of the lack of trends but what is trending is definitely fashion sneakers. And we're taking advantage that in a couple ways.

Number one, of course we have Superga, our fashion sneaker brand, the Italian brand that we have under license and that's performing very, very well. The sell-throughs in that brand, they are probably better than any other brand that we have in the company right now. So that's exciting.

And then we have fashion sneakers in Steve Madden and our other brands. And those have been a strong performer for us in the first part of the year and we expect them to be very important for back-to-school also.

Okay, and then anything to think about in terms of how you're planning inventory for boots? I know it's really early but if you're seeing some positive trends in some of the styles early on, are you planning your inventory any differently than you did last year overall for boots?

Well, we do expect boots and booties, as a whole, to make up a slightly smaller percentage of our overall mix in the back half. And so we plan the inventory accordingly.

Got it. Thanks very much and best of luck for the quarter.

Thanks, Jeff.

And this will conclude our question-and-answer session for today. I'll turn the call back over to Ed Rosenfeld for any final words.

Great. Well, thanks very much for joining us for the Q2 call this morning and we look forward to speaking with you on the next earnings call. Have a good day.

Ladies and gentlemen, that does conclude today's call. Thank you for your participation.