Q4 2019 Earnings Call
Good morning, My name is Lisa and I will be your conference operator today.
At this time I would like to welcome everyone to the Q4 and a full year 2019, Steve Madden Ltd earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
I would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If you like to withdraw your question press the pound cake.
Thank you I would now like to turn the conference over to Miss Danielle Mccoy. Please go ahead.
Thanks, Lisa and good morning, everyone.
For joining our fourth quarter and full year 2019 earnings call him with cash.
Well, we begin I'd like to remind you that during her cool.
We may make certain forward looking statements as defined in the federal securities laws regarding our expectations or predictions about future generally these statements relate to projections involving anticipated revenues earnings or other aspects that accompanies operating results.
Because these statements are based on current assumptions and expectations. They involve known and unknown risks uncertainties and faster is not within the company's control and as such our actual performance and results may differ materially from these things.
Our annual report and other reports filed with the FCC from time to time include detailed discussions the rest of the company's basis, and we urge you to prefer to be.
Any forward looking statements represent our judgment as of the time at a school and cannot be relied upon its current after today's date.
We disclaim any intention or obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise except required under applicable law.
The financial results discussed.
On an adjusted basis, unless otherwise noted reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release.
Joining the call today add Rosenfeld, the chairman and CEO, Steve Madden with that I'll turn it over to at <unk>.
Thanks, Danielle <unk>.
Good morning, everyone and thank you for join US to review, Steve Madden sports quarter, and full year 2019 results.
We're pleased to have achieved diluted EPS at the high end of our guidance range for the fourth quarter and full year 2019.
Overall 2019 was a strong year for the company with revenue and diluted EPS, increasing mid single digits on a percentage basis compared to the prior year, despite significant headwinds from the bankruptcy and pay less shoesource and the tariffs implemented and accessories footwear and apparel from China.
We also made progress the number of key initiatives that position us for growth going forward.
Let me briefly touch on the highlights.
First and foremost we had an outstanding year in our flagship Steve Madden brand.
Once again, Steve and his design team created trend right product assortments that resonated with consumers and enabled us to outpace the competition and take market share.
On the wholesale side, our core Steve Madden Women's U.S. footwear business had another strong year growing revenue by 7%. Despite the challenging overall performance many of its largest wholesale customers.
Our Steve Madden U.S. wholesale handbag business grew even faster despite operating in an even more challenging category recording 28% growth in revenue for the year, our third consecutive double digit annual increase in that division.
You know retail segment, we delivered a 6.1% overall comparable store sales increase for the year powered by 60% sales increase on Steve Madden Dot com.
We saw the benefits of a number of the initiatives we implemented in 2018, including the introduction of free two day shipping the migration to the Shopify plus platform and the addition of the after pay payment option and we built on that new initiatives in 2019, including enhanced paid social advertising Influencer collaboration.
Finally, our flagship brand continued to build momentum in international markets, Steve Madden brand International revenue increased high single digits on a percentage basis in 2019.
Hi, like Mr performance in our European joint venture, which continues to expand with both existing and new wholesale accounts.
Like in the U.S. growth was strong in both footwear and handbags.
Overall as we enter 2020, we believe our flagship Steve Madden brand is stronger than ever.
We also completed two acquisitions in 2019 provide the company with meaningful growth opportunities going forward.
In mid August we acquired grades in Brooklyn, based digitally native sneaker brand.
How did in 2014 grates has attracted a devoted following particularly among millennials based on stylish classic designs that fit today's more casual lifestyle, along with unique marketing that connects the brand a culture.
Since the acquisition, we have developed an expanded product assortment and began the process of selectively expanding wholesale distribution.
Whereas will begin to see new styles and new points of distribution by second quarter of this year.
We've also open to pop up stores, one in Miami and one in Brooklyn.
Also in mid August we acquired BB Dakota, California, based contemporary women's apparel company.
We have been following BB Dakota for many years as we have long thought that the baby Dakota brand and product Assortments were aligned with the spirit of the Steve Madden brand and it'd be decode it would make an ideal apparel partner for us. So we were thrilled when the opportunity arose to acquire.
Beginning fall 2020, we're transitioning the majority of the Baby Dakota offerings to become a Cobranded Baby Dakota, Steve Madden line, and we see significant opportunity for the Baby Dakota, Steve Madden collection in BB Dakota existing distribution as well as new distribution demote, both domestically and abroad.
We have just recently begun showing the baby Dakota, Steve Madden collection and brand into retailers and initial feedback has been very positive.
Finally in 2019, we continue to utilize our strong balance sheet and healthy free cash flow to return capital to shareholders. We bought back approximately 3 million shares.
Or approximately 4% of the company for $102 million, including open market repurchases and shares acquired through the net settlement of employee stock Awards.
We also raised the quarterly dividend by 7% and paid a total of $48 million in dividends to our shareholders in 2019.
Putting that altogether. It was a very good year in Steve Madden and as we look ahead, we are optimistic given the strength of our brands and the numerous long term growth opportunities, we see across our business.
In 2020, our focus is as follows.
First and foremost we will seek to further enhance and strengthen the Steve Madden Brad.
It is king in Steve Madden and our top priority. This year as it is every year is to create trend right products and get them to market ahead of the competition.
We also plan to continue to ramp up our marketing support for the brand we increased our marketing investment in the Steve Madden brand significantly in 2019, we're planning another significant increase in 2020.
Second we will look to continue to expand our ecommerce business building on the outstanding performance in 2019, not only on the man dot com, but on or other sites as well.
Our third priority is growing our business in international markets with particular emphasis on Europe.
And fourth we will focus on positioning our newer acquisitions grades and be Dakota for profitable growth.
So as we look ahead, we're excited about the initiatives, we have underway and the opportunity they present for long term top and bottom line growth.
That said, we're cautious on the near term outlook, because we faced a number of significant headwinds in 2020, including the impact from the Corona virus outbreak, China tariffs determination to the Kate Spade footwear license and the higher anticipated tax rate.
On a combined basis, we estimate that these factors will have an adverse impact to EPS in 2020 compared to 2019 of approximately 35 cents.
Based on these headwinds we are forecasting 2020 diluted EPS to be in the range of $1.70 to $1.80 compared to $1.95 in 2019.
No we never like guiding earnings down from the prior year, but it's worth noting that none of these headwinds relate to the underlying health of our core business.
Our Steve Madden brand is the leader at its market our business model is proven and we have a whole host of opportunities that position us for long term sales and earnings growth. Once these near term challenges are behind us.
Yeah, I'll turn it over to Danielle to review our financial results in our 2020 outlook in more detail.
Thanks, Ed.
Before I begin. Please note that we re class Commission and licensing fee income to total revenue and reclass its respective expenses.
Into operating expenses.
Previously labels Commission and license fee income net on our consolidated statement of operations.
Three class does not have an impact on operating income.
In the fourth quarter, our total revenue increased 0.7% to 419.6 million compared to prior year total revenue of 416.8 million.
Our wholesale segment declined 1.1% to 313.8 million compared to 317.4 million in the prior year period, driven by a decrease in wholesale accessories and apparel segment.
Well, so footwear revenue of 233.4 million was approximately flat compared to the prior year period with the gain in private label offset by a decline in the French business.
In wholesale accessories, and apparel revenue decreased 3.6% to 80.4 million driven by declines in private label handbags in cold weather accessories, partially offset by the addition of BV Dakota.
In our retail segment revenue increased 8.7%.
101.4 million.
Our same store sales increased 6.7% on top of the 4% increase in the fourth quarter last year.
Our ecommerce business continues to drive the growth in this segment.
We ended the quarter with 227 company operated retail stores, including 68 outlets and E Commerce doors as well is 31 company operated concessions in international markets.
Turning to our licensing and first of course segment.
Our licensing royalty income, which is now included in total revenue.
Was 3.1 million in the quarter compared to 3.8 million in last years fourth quarter due primarily to the reduction in royalties in connection with the pay what he must shoesource.
Bankruptcy.
First class Commission income, which is also now included in total revenue was 1.6 million in the fourth quarter of 2019 compared to 2.7 million.
Last year due primarily to the pay less shoesource bankruptcy.
Consolidated gross margin was 37.8% compared to 38.1% in the prior year.
Well gross margin declined to 29.2%.
Excuse me wholesale gross margin declined to 29.2 per cent compared to 30.1% in the prior year driven by the terrorists on good imported from China.
Retail gross margin was 61.6% compared to 61% in the prior year period, driven by a reduction in promotional activity and Steve Madden Dotcom.
Operating expenses for the quarter increased 425.7 million were 30% of total revenue compared to operating expenses of 120.9 million or 29% of total revenue in the same period last year driven by the addition of greed and de Vito.
Yeah.
Operating income for the quarter totaled 33 million or 7.9% total revenue compared to last years fourth quarter operating income of 37.9 million or 9.1% of total revenue.
Our effective tax rate for the quarter was 6.3% compared to 9.2% in the same period last year.
Finally, net income attributable to see fat in limited for the quarter was 32.2 million or 39 cents per diluted share compared to 35.7 million or 42 cents per diluted share in the fourth quarter 2018.
Now I'd like to briefly touch on full year results.
Total revenue for 2019 increased 6.5% to 1.8 billion from 1.7 million in the prior year.
Net income attributable to Steve Madden limited with 162.8 million or dollar 95 per diluted share for the year ended December 31st 2019, compared to 157.7 million or $1.80, 3% diluted share for the year.
Ended December 31st 2008.
Moving to the balance sheet, our financial Foundation remains strong as of December 31st 2019, We had 304.6 million of cash MRC marketable securities and no debt.
Inventory totaled 136.9 million slightly down compared to the prior year figure of 137.2 million.
Our consolidated inventory turns for the last 12 months ended December 31st 2019 was 8.1 time and our Capex in the quarter was 9.1 million.
During the quarter, we repurchased approximately 590000 shares.
25 point Threemillion, which include shares acquired through the net settlement of employee Stock Award.
Lastly, the company's board of directors approved a quarterly cash dividend, a 15 cents per share.
The dividends will be payable on March 27, 2020 to stockholders of record as is the close of business on March 17 2020.
2013, we have returned over 865 million to our shareholders in the fourth <unk> share repurchases and dividend.
Now turning to our guidance.
For the full year 2020, we expect revenue growth of zero percent to 1% and diluted EPS in the range of $1.70 to $1.80.
As Ed mentioned earlier the guidance range includes a total negative impact compared to the prior year of approximately 35 cents.
Related to Corona virus Tara.
Termination of the Kate Spade license and a higher forecasted tax rate of approximately 22%.
Please note that the impacts of these headwinds is significantly larger in the first half.
Such first half revenue is expected to decline mid single digits on a percentage basis.
And first pass diluted EPS is expected to decline approximately 25%.
We expect to return to growth in revenue and if yes in the back half.
Now I'd like to turn it over the operator for questions.
Operator.
At this time I would like to remind everyone. If he would like to ask a question. Please press Star then the number one on your telephone keypad.
Well pause for just a moment took on top of culinary roster.
Your first question comes from the line up Erinn Murphy.
What's the Piper Sandler.
Great. Thanks, Good morning, I guess I'll start with the last part a AD for you on the guidance can you go kind of parse out I mean that flow through the negative mid single digit in the first half seems pretty significant could you just help us think about kind of the major input between Corona virus and tariffs in particular, and then and then I have a couple of follow up.
Thank you.
Sure. So it's a question about the first half where the year overall.
The first chapter thing down mid single and then Oh through it I think he said he gets down 25% just trying to help <unk> and Canada puts and takes there. Thank you.
So just from Corona virus and tariffs, we had about a 20 cents EPS headwind in first half.
That's.
Those two items, where we've only got we've got a forecast of a 22 cents headwind for the first for the year overall, so it's almost all in the first half.
Hey.
In terms of revenue.
Two big revenue headwinds it really grown a virus and then also Kate spade and that's about a 50 million dollar impact in first half.
Okay got it that's helpful. And then I guess also in the first half if you could talk a little bit more about what you're seeing in the north American wholesale climate, we heard from some other peers have years that you know things really haven't picked up in the first half the just curious on what you're saying here. Thank you.
Yeah, I think overall.
I would say it is a a somewhat so it has been a somewhat soft start to the year for a lot of are a big wholesale customers at least as they are reported to us.
You know certainly in the footwear category the boot season or that we were optimistic about it early we had some good early reads did not a end up being as strong as we or where our wholesale customers thought it would answer that impacted us a in fourth quarter, but it's also you sell you still sell a lot of boots in the.
In the first a month or two of the year here.
First quarter and that's part of the business has been soft as well the good news is.
That the early selling on sandals and opened up a dress shoes.
Has been quite positive so that's encouraging as we move forward.
Got it Okay and then just last question for me just on the retail business you guys have done a really nice job over the last several quarters with strong mid single digit compress the profitability hasn't been.
You know that's great and I think a lot of that just tied to kind of you leverage of fixed cost the near stores, but just curious on if you see kind of a level of stabilization in the retail business. Thank you. So much it from an EBIT perspective. Thank you.
Yes. In fact, we did we did see EBIT improvement each of the last two quarters. So you will see when when the segment profitability.
It comes out that we were up a couple of hundred basis points in Q4, still not where we want to be but definitely making progress and keep in mind that is also absorbing a loss that's great.
So on an organic basis, we were up.
Okay. Thank you and all the best.
Thanks Aaron.
Your next question comes from the line of Kelly Craigo with Citi Research.
Hi, Thanks for taking my question.
A little bit.
Impact is this related to production delays in China or <unk>.
<unk> or you know what are you baking in Fourq.
Demand impact specifically.
I'll start there and then I have a couple of follow ups.
Sure.
First of all let me start off by saying that our Hearts go out to all the people in China in around the world that that have been impacted by the Corona virus and as a company our top priority is ensuring that health and wellbeing of our associates, we've like everybody else, we've taken a number of precautionary measures.
To protect our team members.
And feel good about that.
In terms of the business impact Kelly, if you know we haven't bear our business in Asia is very small.
So the primary impact that we are seeing currently is related to supply chain.
As of this week approximately 90% of our Chinese factories are open and in operation that's up from about 70% last week and about 15% the week prior to that.
Issue is however that even the factories that are open are not act operating at their normal productivity.
So we estimate that approximately 35% to 40% I'd be factory workers have returned.
To the factories as of this week and that the factories are operating at roughly 30% to 35%.
Normal productivity.
So this is obviously very fluid situation, but currently.
We're looking at on average.
Production delays of about three weeks.
Obviously, there are some goods that are on time, there's some good that are gonna be.
Delayed more than three weeks, but the average or.
As of now is is three weeks or so what does that.
I mean for for US well number one we will be flying a lot more goods are utilizing a lot more airfreight and obviously there there's a gross margin impact there.
But we certainly can't put everything on an airplane and so there will be a lot of shipments that will be delayed.
They'll be moved.
And.
We we have to assume that there's going to be a loss of sales associated with that because when you have fewer weeks.
On the floor and fewer weeks to sell the goods that's going to impact you are reorders and ER and that's what we've factored into the yourself to that to the guidance that did I just spoke about.
Got it that makes sense just moving on I just wanted to clarify that he's not in women's wholesale business. How did that perform in Fourq you specifically and then how are we thinking about that business in 2020, maybe even you know first half second half half all excluding you know what you can.
Do you sort of onetime item.
Sure, Steve and women's was ER was down.
In Q4 that was expected because of the the shift in our boo deliveries a in from a Q4 into Q3, you'll recall, we've we've been talking about.
The fact that we felt that we shipped in boots, a little bit too late last year.
So boots were up in Steve Madden over 20% in Q3, and then down about 20% in Q4, I said, there was a big big shift there, but but again for the year, Steve Madden up a 7% in shipping and our sell through is actually up more than that to the consumer.
So it's a very.
Strong year in Steve Madden going into this you're looking at this point, we're not going to.
Give a guidance by by brand or a or by division.
Certainly we expect that growth rate to moderate this year and given the impact of the Corona virus I think yeah. We have to you know we're taking a somewhat conservative look at all of our businesses are but the momentum into brand I think remains good.
Hi, there. Thank you best of luck.
Yes.
Your next question comes from the line up Matthew and a good with Keybanc capital markets.
Hi, Thanks for taking your questions. So [noise].
Thank you guys get it did a good job with inventory this quarter given the wholesale slowdown. So can you speak to your level of conservatism and ordering inventory this year and what would give you guys confidence to step up orders at any point this year to chase some girl.
Look I.
I think that where we're attempting to manage the business as we always do with lean inventory a that's really the model here.
Right now are concerned as having enough of it [laughter] and getting goods out of China. So.
At this point.
That's really the focus is trying to make sure that we have orders or excuse me, we had inventory to fulfill the orders that Oh, we have.
Got it and so given the planned marketing.
Madden brand.
It's probably pretty fair to assume ROI on that spend has been strong. So I'm wondering what your expectations on on ROI or this year, especially given that it's an Olympic an election year and add prices will likely increase.
Sure well, yeah, you've seen ER.
You've seen obviously this strong performance that we've had in our [noise], our overall retail comp, but specifically driven by demand dot com I've a lot of the marketing investment is in digital and.
And we haven't seen a strong ROI there.
[music].
That's something that we can.
To tweak up and down as we go based on the performance so it so.
We'll continue to monitor it but yes. We do continue you know we do we will continue to increase the the investment and a and we'll look to get a good return on it and continue to drive growth digitally.
Thanks.
Your next question comes from the line of Janine Stichter with Jefferies.
Hi, Good morning, Thanks for taking my question I, just want to ask a little more about the boot category. I think you mentioned it didn't kind of come in according to plan. After you had some strong initial read do you think this was more weather related or to the fashion trends is not play out and then you remind us what the percentage of the next is in one q. I relative to Fourq you. Thank you.
Sure.
Yeah, I think there was a confluence of factors I don't think weather helped but but again for US you know we never really.
Yeah, we're at fashion boot player not a cold weather boot player for the most parts. So we.
We never think that whether it's the primary driver I think that that the fashion trend didn't.
Turned out to be quite as strong as we anticipated.
Also we ran into some difficulties we did a in <unk> in light of tariffs or attempt to move a lot of boot product from China to Mexico quite quickly and.
And did run into some difficulties there, including some late deliveries were about three weeks laid on some key boots, and I think that that hurt us a.
But overall I think across the industry a there was disappointment in how the boot season turned out.
And then just on private label Handbags, I think that had been area of strength that anything change during the holiday season.
No well that business was down considerably in Q4, and we've been telegraphing that all year as you recall, though our overall wholesale accessories business was up 38% in Q4 last year and so we've been.
Centrally since that point, telling folks we were going to be down in this Q4, because they weren't going to anniversary some.
Big sell into private label programs, but but overall the private label business grew in 2019, we expected to grow again in 2020.
Hi.
Thank you.
Your next question comes from the line of Laura Champine with loop capital.
Good morning, Thanks for taking my question, it's on the wholesale footwear business I certainly here your.
Comments about a slowdown in boots relative to initial expectations, but the Steve Madden brand itself seem pretty strong in our check so what's going on in the rest of the portfolio that took the wholesale footwear category to a slight decline in Q4.
Well again.
Shipping in Steve Madden was down so.
The checks may reflect sell through to the end consumer which ultimately is probably is the most important.
But but again, we had a shift from Q4 into Q3 in terms of our timing of deliveries.
Got it and in Q1, I'm guessing that that most of the supply chain issues, you're seeing with Corona virus slip into Q2 should we looked at a significant difference in the sales cadence from Q1 to Q2.
No in fact, and I think this is probably a rough or maybe a little bit different for us than some others, but because of our.
Lean inventory and quick turn model, we will have before we do expect to have a significant impact from the Corona virus in Q1 and in fact I think that are there could be about a 20 million dollar revenue impact related to Corona impact Corona virus in Q1.
Got it thank you.
Thanks, Laura.
Your next question comes on line of Sam Poser with Susquehanna.
Hi, guys, it's well on for Sam.
I I just want to start with how much or.
And what percentage of your total product is now made in China and how much do you expect.
Two happened for 20 to be manufactured in China.
Sure.
Yeah. So for spring a an overall basis. We're currently at about 73% in China, a that's down from 88% for the full year 2019, 94% for the for full year, 2018th we have moved a lot of products.
And in fact, if you look at the products that are on the.
Tariff lists so list three analysts for anyway, we're actually are running in the low fiftys as a percentage that we've moved a lot of those goods the the challenge.
Is that a lot of the other products that are not in the tariff list. So and that's a lot of lower price footwear, including the private label is almost all in China and that's why we're still at 73% overall.
Look we're going to continue to push that number down a we'll try to get that into the sixties.
Relatively quickly.
But it's a that's a dynamic situation.
Great and just excuse me on this topic so its worst periscope.
So what degree or price increases being taken offsetting the impact of tariffs and as well as concessions from from factories.
Well I.
We continue to offset again that when we're talking about the tariff impact that we provided a rough and that's roughly 10 cents for the year, that's a and just to be clear that's an incremental impact on top of what we had last year. So that's not the total tariff and that's just what's what's incremental to the prior year.
That is after mitigation, so and that.
The gross impact is multiples of that so we're we're mitigating the vast majority of that through price concessions from our factories through moving production out of China and through the price increases that we have put through but but even after that we are we seeing an additional 10 cents incremental impact this year great.
Switching topics can you can you talk about the sneaker tried and what you're seeing there.
Right.
Thank you.
Said before that it's it's kinda, peaking but I'd wonder if you could just talked about what do you expect going forward with that category.
Yeah.
Sneakers remains a very.
Important part of the business it'll be close to 30% of our Ah, Steve Madden women's wholesale business in Q1 here.
So remains very meaningful, but it's not growing a in the back half we were approximately flat in sneakers or so it does appear to have plateaued a bit or some of the did what we're calling the dad sneakers the bigger bottom seekers have really slowed down.
And Oh, we're still seeing success with wedge sneakers, and some lower profile sneakers all over white sneakers are doing very well. So we've got some some some trends that are performing in sneakers, but certainly not seen the growth that we were seeing in that category on the other hand, I dress shoes, which have been a quite weak for a while.
Appear to be at a nice upswing.
Gotcha, that's it from El Paso, not thank you.
Thank you.
Your next question comes on the line of Susan Anderson with B. Riley.
Hi, good morning, Thanks for taking my question.
I guess, maybe just a follow up on the wholesale channel and I guess I'm kind of curious going into spring how the whole sellers are feeling after you know that the issue this winter and excluding the krona virus impact how should we think about I guess Q1 growth versus Q4 should it be similar or.
Maybe a bit better given it sounds like panels are doing better so far and then also I'm curious how your wholesale customers are handling the kind of virus.
If they're waiting on the product or if it's late enough is there risk of losing that Sal. Thanks.
Okay. So the first one was wholesale footwear in Q1 relative to Q4.
Yeah, excluding the Corona virus.
Yes, okay. So yes, excluding the headwinds that we face so excluding corona virus and excluding the loss of Kate Spade, we would have anticipated that wholesale footwear.
Would have been a better would have you know would've grown in Q1 and been better than Q4.
However, based on the headwind it will be in fact, a weaker than Q4.
What was the second part of the question.
And then just on the Cronto virus and how the wholesalers are handling that you know is there risk if it's too late that they will just decide not to take the product.
Yeah look those discussions are ongoing.
At this point, we believe that will get them to take in.
To take to take the good thing, but but again, we've assumed that we lose goods on the back end so that we lose reorders if their flow orders.
Meaning you have a you know in order for a certain number parents, but you're not supposed to ship. It all at once you're supposed to ship. It over time, we're already canceling off maybe to the back end of that because we've assumed that the retailers want want to take those it.
Got it and then I guess in retail it did the performance in fourth quarter kind of mirror I guess the performance in wholesale with boots on the weaker in the maybe other products outperforming or was there divergence in performance that byproduct.
Yeah, we did have that we did have an increase in boots.
Our own DTC business.
But they were still weaker than other products within within retail or.
No actually.
The increase in built in boots was was in excess of the overall costs.
Got it okay great.
Thanks, So much good luck this year.
Thanks.
Your next question comes from the line of Krish Sabby, yet with Wedbush.
Good morning, everyone. Thanks for taking my questions like a couple I guess first just add on the EPS impact 35 cents. So you threw out 22 cents in the first half a year or do the virus and the tariff.
I guess, Kate Spade is roughly eight cents.
Now that I guess tax makes up the remaining five cents how about right. Yes reconciliation okay.
In terms of revenues I know you mentioned sort of the first half 50 million head.
On virus and Kate Spade can maybe talk to whats organic versus some of that the acquisitions first divestitures virus apply that to the annual revenue outlook flat to up 1%. How do you think about the different books in Texas.
Yes so.
If.
Round numbers, Kate Spade and Corona virus together is about 400 basis point headwind.
So that zero to one would become four to five excluding those two items.
Okay and the acquisitions.
Speedy decline.
So you do have an offset with the acquisitions.
Uh huh.
I.
And you know 30, Millionish, that's nine thats not organic the offset to that and the and the one piece that we do expect to be down organically is the private label footwear business. We had some initial.
Sell ins of new programs last year.
Particularly in the wake up to pay less bankruptcy to some of our other private label customers and Oh, we don't anticipate to a anniversary the amount of the initial sell in and so that that piece will be down.
Okay got it alright, that's helpful and and in terms of just sourcing [noise].
You mentioned 30, 35%.
Normal productivity right now I know this is hard to kind of think about fast, but as you start getting back to Q2 are you assuming it's 100% assuming at 7% just kind of what assumptions are you baking in for an improvement as you inflected <unk> into the second quarter for about from a sourcing perspective.
Yeah we've.
Assumed gradual improvement each week from here on out so if were 30% to 35% now we've assumed that we get to 55% to 65% by the middle of March 70% to 80% by the middle to April.
And then we get it back to relatively normal operation or at the end of second quarter.
That's how we've built to use this forecast.
Okay, and just in terms of product delays any color about what's specifically on that three week delay and then airfreight I guess, that's incorporated into the outlook as well correct.
Yes, airfreight is incorporated.
The three weeks.
It's.
All different products I mean, there's no.
I don't think there's any kind of theme [laughter] like that I could.
Help you think about it.
Okay final thing for me just in Q1 in Q2 is there any any different they said damage and others in the first half of the average one down more than the other in terms of the decline or how should we think about that.
It's a very challenging question to answer right now because there's so every day oh, yeah. The growing virus situation is so fluid and its very challenging to know what is going to go out at the end of March what's going to slip into April.
So at this very moments I think the sales will be a little weaker in second quarter than in first I think the P.S. growth or S.
Reduction rather will be approximately the same in Q1 in Q2 on a percentage basis, but again you.
This is such a dynamic situation that that is it's challenging to give you.
A lot of specificity.
Got it okay. Thanks, very much hang in there all the best Thanks, Chris.
Once again, if you look like you asked a question. Please press Star then the number one on your telephone keypad.
Your next question comes on the line of Dana Telsey with Telsey Advisory group.
Good morning, everyone. As you think about the expense impact from Corona virus and the air freight that you're going to be doing in a typical year. What do you. How much is the afraid of what percentage is airfreight. How do you think about it this year, because even ramping back up to full production. It certainly sounds like you're going to want to get into goods quickly. So that your prepared.
For the second half a year and are there any other expense item that I may not be thinking up the bucket that impacts Corona to get you back up to your regular production schedules.
Yeah, I think I think.
Yes, there's a sales loss, which we've talked about in terms of expense I think the big one is the one that you've outlined which is a airfreight.
We airfreight a lot of goods in our retail business, so that could be on average or in a normal year approximately 20% of of of the goods in wholesale it's much lower you know if you're talking about maybe 2%.
Where that's going to land.
Over the next few months I can't say exactly could it be 25% higher yes could be 50% higher probably not a but it'll be in that range.
And then I guess, the other thing that I should point out is.
As I'm thinking through your question more.
As we are moving a lot of goods or or moving more aggressively out of China. There's there's a cost to that as well and typically we're going to be.
Paying more for the goods and we may have to fly goods from some of these other locations as well you know if you're making more goods in Brazil, you're gonna be flying a lot more although the air freight for Brazil is is considerably more.
Cost effective than or considerably less expensive and from China.
Got it and then if you think your retail performance how is the stores buckets versus the E. Com bucket and was there are differences outlet and regular stores.
Yeah.
It was still all the growth is all driven by E. Com. So we were again down in stores, and then up dramatically and E Commerce ER and within the store portfolio, we were down in both.
Full price, then outlet, but outlet performed better than full price.
Got it and just lastly, do you think about this upcoming spring season, and you talked about your only selling on sandals and open up dress shoes has been quite positive.
Any other categories or any other product trends, we should be watching for as we go into spring summer.
Well those are the those are the big ones look as I said sneakers or continue to be very important. So I don't want to I don't want anyone to get the idea sneakers. Your dad here are you know.
Treats drunk don't grow to disguise eventually the growth rate was going to slow it's still a very meaningful category for us, but but really I think where we're seeing growth and a lot of excitement is in this sandals and open dress.
Just one last thing price increases how are you seeing price increases in wholesale and retail any different than what you previously talked about.
Low single digit and then mid single digit price increases to the customer.
No I think it's really right, that's really where we landed a for spring as you as you move forward now that the tariff has been reduced from 15 to seven and a half you'll you'll see on average a those prices come back in a little bit on the footwear side.
But that's still the right range.
Thank you.
Thanks Dana.
Your next question comes online Tom Nikic with Wells Fargo.
Hey, good morning, guys. Good morning, Danielle Thanks.
Thanks for taking my question I.
I wanted to ask a embedded in the guidance I think the acquisitions before youre talking about being.
Roughly neutral.
But with Yep.
Sure if the supply chain disruptions affect them as well. So I was wondering if you know maybe you expect now those acquisitions to be a dilute if this year.
I still think neutral is is a good way to think about it.
Got it okay.
And then.
You talked a lot about the but of course, the bad in Brent, but I was wondering.
Maybe some of those are the other brands that up launch those Dolce Vita shows like the L. <unk>, how did they perform in the quarter and how are you thinking about them for 2020.
Yeah, Blondo Blondo had a more challenging quarter then it's had a in sometime blondo has been such a superstar performer, but like Steve Madden.
You know they were they did not have a strong of a boot season or at least stronger performance in Q4, as we were anticipating.
Good news is I think that we've we've got some great new products.
For 2020, and hopefully can get that moving or on an upward trajectory once again I don't see Vito.
Continues to see a improvement in their sell through their fall was better than than than the prior year and they're off to a good start in terms of spring sell through as well. So we feel like we're on the upswing there.
Trying to think of the other ones and Cline that's another one.
Overall had it had a good here, but but again boots in fourth quarter was a challenge Oh, we have made a an exciting new higher there a we'd actually brought into new group president over and client and Blondo very experienced a shoe executive this run some very big businesses.
And he is a really working on a and modernizing and updating the the product assortment in client and we think he's going to may be a real difference maker, both there and in Blondo.
Thanks, that's helpful. A good luck for sure.
Thank you.
And there are no further questions at this time.
Okay, great well. Thank you very much for joining us on todays call and we look forward to speaking with you again on the first quarter call, which is scheduled for April 24th have a great day.
This concludes today's conference you may now disconnect.
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