Q1 2021 Steven Madden Ltd Earnings Call
Yeah.
Good day, and thank you for standing by and welcome to the Q1 2021 Steve Madden Ltd earnings Conference call.
At this time all participants are in a listen only mode. After the speak of presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like the hand, the kind of stuff to your speaker for today Mr. <unk>.
From Macquarie. Please go ahead.
Okay.
Good morning, everyone.
Thank you for joining our first quarter 2020.
21, the earnings call and webcast.
Before we begin I'd like to remind you that during our call.
We may make certain forward looking statements.
And the federal Securities laws regarding our expectations or predictions about the future.
Generally these statements relate to projections involving anticipated.
The revenues.
<unk> or other aspects of the company's operating results.
Because of these statements are based on current assumptions and expectations. They involve known and unknown risks uncertainties and factors not within the company of control.
Our actual performance and results may differ materially from the statements.
Our annual report and other reports filed with the SEC from time to time include detailed discussion of risks the company faces and we urge you to refer to these specifically the COVID-19 pandemic and part of it is currently having a significant impact on the company's business operations and risk.
Yeah.
Such forward looking statements with respect to the COVID-19 pandemic, including without limitation statements with respect to the company's plans and response of this pandemic.
At this time, there is still significant uncertainty about the duration and extent of the impact of the COVID-19 pandemic.
Sure.
Like nature of the circumstances.
Made on this call regarding the company's response of the pandemic could change at any time any forward looking statements represent our judgment as of at the time of this call and cannot be relied upon as current after today's date.
<unk> disclaims any intent or obligation to publicly update or revise any forward looking statements.
Whether as a result of new information future events or otherwise, except as required under applicable law.
The financial results discussed are on an adjusted basis unless otherwise noted.
A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release.
Joining the call today are Ed Rosenfeld, Chairman and Chief Executive Officer, and Zane. This is the day Chief financial officer with that I'll turn the call over at.
Thanks, Danielle good morning, everyone and thank you for joining us to review the Steve Madden first quarter 2021 results.
In light of the continued challenges posed by COVID-19, we were very pleased with our results in the first quarter were significantly exceeded our expectations for both revenue and earnings.
Our business accelerated meaningfully in March with sharp improvement in revenue trends in our retail segment.
Performance at our wholesale partners.
Undoubtedly we are some of this improvement to the impact of the government stimulus as well as the vaccine rollout and easing government restrictions.
But we believe the improvement we saw particularly in our flagship Steve Madden brand exceeded that of the overall fashion footwear category.
We attribute to an outstanding trend right merchandise assortment much of which we only began delivering later in the quarter due to supply chain delays.
Steve and his design team have created of Steve Madden Womens footwear collection with both of large number of strong selling styles and a couple of home run products that look like they will rank up there with some of the top styles, we've had over the years.
Highlights include joggers with Rhinestones flat sandals with stars and chunky Joe's styles with rate of detailing and more.
We're also very encouraged by what we're seeing in dress shoes, where we have a number of strong performing styles as consumer interest in dress shoes is coming back. We believe we are capturing a disproportionate share in that category.
Overall, our consolidated revenue for the quarter was $361 million up 1% from the first quarter of 2020, and our diluted EPS was <unk> 33, a 108% increase from the prior year period.
Our wholesale revenue declined 4% in the quarter topping our expectations of of high single digit decline due primarily to an impact from supply chain disruption that while still significant with smaller than we anticipated.
The port congestion in California ease somewhat in March as the production and export pause in China in February for Chinese New year resulted in the two to three week period in March of fewer imports in California that enabled the port to work through some of the backlog, which in turn enabled us to ship product to our wholesale customers at the end of March debt, we had anticipated.
Slip into April.
Unfortunately, it looks like that was a temporary reprieve as imports surged again in April and are expected to rise further in may and beyond likely meaning port congestion will continued to pose the challenge at least through the end of the second quarter.
Wholesale footwear revenue declined 8% in the quarter, Steve Madden Women's and kids had relatively better performance as the adult J Vita and our private label business.
Men's and Anne Klein, which has seen a disproportionate negative impact from COVID-19 were softer than the segment overall.
In International markets Europe was the highlight with a strong revenue gain compared to the prior year driven by outstanding performance in digital channels.
Canada on the other hand was challenging due to the extensive COVID-19, lockdowns and restrictions in the country in the quarter.
In wholesale accessories, and apparel revenue increased 10% compared to the prior year period, driven by strong gains in Steve Madden handbags in both domestic and international markets as well as growth in private label.
Looking ahead, while we are encouraged by the dramatically improved sell throughs, our wholesale customers have seen the last two months, we remain cautious on the near term outlook for the wholesale channel given the continued impact of COVID-19 on our wholesale customers conservative open to buys and supply chain disruption.
In our retail segment revenue in the first quarter increased 27% compared to the first quarter of 2020 far outstripping our expectations for a mid single digit increase due to the significant improvement in performance. We saw in March both online and in store.
When comparing to the pre COVID-19, and first quarter of 2019 retail revenue increased 7% demonstrating the strong consumer demand for our brands and our products.
While the revenue trend in our stores improve meaningfully in March at remain down from 2019 and stores were under significant pressure for the quarter overall when compared to 2019 at.
Our digital Commerce business, However was outstanding and accelerated further from the strong trends we saw in 2020.
E Commerce revenue increased 89 per cent for the quarter compared to the first quarter of 2020, including the 112% growth in our Steve Madden ecommerce business.
Looking ahead, while our year over year online growth should moderate somewhat due to the much tougher comparisons beginning in Q2, we believe the momentum at our E Commerce business combined with the strength of our product Assortments will enable us to continue to drive overall retail segment revenue gains compared to 2019 levels.
Yeah.
I'd now like to touch on the transaction that we completed early in the second quarter. The acquisition of the 49, 9% share. The we did not already one of our European joint venture, which distributes Steve Madden branded footwear and accessories to most countries throughout Europe.
We formed the European joint venture of nearly five years ago, and it has experienced strong double digit percentage revenue growth each year, including a 21% revenue gain in 2020, despite the impact of COVID-19.
In 2021, we expect the business will generate approximately $55 million in revenue over three quarters of which will come from digital channels with the mid teen operating profit margin before allocation of corporate overhead.
We are excited about taking full ownership of our brand and operations in this large and strategically important market and we believe this business can be of significant growth driver for us for years to come.
Overall, we are encouraged by the improving trends we are seeing in the business the strong consumer demand for our brands and products our momentum in digital channels and the growth opportunities, we see in international markets like Europe.
In the near term, we know we still face challenges due to COVID-19, and that our results in the wholesale channel will continue to be under pressure.
But as we look at further we are confident that based on the strength of our brands our business model at our people, we are well positioned to drive long term sustainable revenue and earnings growth and create value for our stakeholders.
With that I'll turn it over to Zane to review, our first quarter 2021 financial results in more detail and provide our guidance for the second quarter.
Yeah.
Thanks, Ed and good morning, everyone.
Our consolidated revenue in the first quarter increased <unk>, 5% to $361 million compared to $359 2 million in the first quarter of 2020.
Our wholesale revenue declined three 7% to $291 4 million compared with $302 7 million in the prior year period.
Sales footwear revenue decreased seven 8% to $216 8 million, which was due to the impact of COVID-19 and supply chain disruption.
Wholesale accessories, and apparel revenue increased 10, 3% to $74 6 million driven by double digit percentage of gains in both the Steve Madden and private label handbags.
In our retail segment revenue increased 27, 5% to $67 5 million driven by outstanding performance in our E Commerce business.
Total E Commerce grew 89, 2%, including 112, 4% growth in our Steve Madden E Commerce business.
And represented 54% of out of total retail segment sales.
We ended the quarter with 215 company operated retail stores, including 66 outlets at.
And seven E Commerce site as well at 17 company operated concessions in international markets.
Due to local government orders one third of our stores were closed for some period during the first quarter.
As of today, approximately 45% of our stores in Canada are close but the remainder of our stores are open although hours of operations remain reduced and over 90% of the stores.
Turning to our licensing at first of all the segments.
Our licensing royalty income was $1 5 billion in the quarter compared to $2 2 million at last year's first quarter.
First cost Commission income was zero point $6 million in the first quarter of 2021 compared to $1 2 million in the first quarter of 2020.
Consolidated gross margin in the quarter increased 130 basis points to 38 five per cent compared to 37, 2% in the prior year.
Wholesale gross margin declined 20 basis points to 32, 3% compared to 32, 5% last year, which includes the 10 basis point increase in wholesale footwear and at 10 basis points decrease in wholesale accessories and apparel.
Retail gross margin rose 370 basis points to $63 five per cent compared to 59, 8%, primarily driven by lower promotional activity and the higher penetration of E Commerce sales.
Operating expenses for the quarter decreased 13, 2% to $103 5 million compared to 100 of $19 3 million at last year's first quarter, which reflects the company's expense control measures.
As a percentage of revenue off of.
<unk> expenses improved to 28, 7% in the first quarter of 'twenty, one compared to 33, 2% in the prior year period.
Operating income for the quarter total $35 6 million or nine 9% of revenue compared to last year's first quarter operating income of $14 2 million or four per cent of revenue.
Our effective tax rate for the quarter was at 21, one per cent compared to 15, 2% at the same period last year.
Finally, net income attributable to Steven Madden Ltd for the quarter was $26 9 million or <unk> 33 per diluted share compared to net income of $13 million or <unk> 16 per <unk>.
Diluted share in the first quarter of 2020.
Moving from the balance sheet.
The financial Foundation remains very strong.
And as of March 31, 2021.
At $273 million of cash cash equivalents and short term investments and no debt.
Inventory totaled $106 6 million at four 2% compared to the prior year figure of $102 3 million.
Our capex in the quarter.
It was $1 $6 million.
During the quarter.
The repurchase approximately 154000 shares for free.
$5 $6 million, which includes shares acquired through the net settlement of employee stock Awards.
There was approximately $135 million remaining on the share repurchase authorization.
The company's board of directors approved a quarterly cash dividend of <unk> 15 cents per share the dividend will be payable on June 25, 2021 to stockholders of record as of the close of business on June 15 2021.
Looking forward, while we are encouraged by the improving demand trends, we remain cautious on the near term outlook, particularly in the wholesale channel given our wholesale customers conservative approach to orders for screening and the supply chain disruption, which has limited our reorders for the second quarter and our ability.
The to chase into the improved demand.
We also face the gross margin headwinds from higher freight costs and the non renewal of GMP.
We expect revenue for the second quarter to be in the range of 360 million to $365 million and we expect diluted EPS to be in the range of 26 to 28.
Given the continued uncertainty related to the COVID-19 pandemic, we're not providing full year revenue and earnings guidance at this time.
Now I would like to turn the call over to the operator for questions operator.
Yeah.
Yes.
Ladies and gentlemen at this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad at getting into Star one.
We will pause for just a moment.
You have a question from the line of Camilo Lyon with B T I D.
Thank you good morning, everyone.
Nice job at out of the gate here in Q1.
And I was hoping you could just shed a little bit more color on the.
The supply chain commentary that you need and sort of hitting the influences that it had on Q1 and Q2 I expect at having two two and at any sort of shifts that you might be seen in the business to help us better frame you know of separate what's going on from the macro shift of supply chain perspective is it really and then separating them.
From the underlying trends, which seem to be a pretty robust given given the commentary on on the sell throughs that you're seeing an answer of what you're seeing in your E Commerce business.
That's that kept the question.
Sure Yeah, the supply chain.
You know has had a pretty significant impact on the business.
In the first half year it was not as bad as we initially feared in Q1, but it was still a significant impact and I think that we called out.
The.
Approximately alright, and expectation of about $30 million in Q1 on the last call of revenue impact and I would say at actually ended up being only about half of that.
And as we discussed in the formal remarks, there was a little bit of an easing at the port I think it was in the wake of Chinese new year end the slowdown in imports from China. They were able to work through some of the backlog and we were able to two two.
Ship out of lot more orders at the end of March.
Anticipated and so a lot of the stuff that we thought was it was going to go into April.
So I think the impact was again only about half of what we thought at the first quarter, but but youre going to see if there was at $15 million impact in Q1, I think youre going to see.
At least that much in Q2, 15, maybe even up to $20 million of supply chain impact and I think one of the things it's frustrating for US as is just because we do have.
At such a strong product assortment and the end consumer is responding so well to.
So many of our products, we're not really able to capitalize on that.
And the way, we otherwise would if we didn't have the supply chain disruption as you know Q2 is the big reorder quarter for us and we would be chasing a lot of these products.
At.
Into Q2 end in a way that they were not able to do right now we are.
We are doing what we can we're flying a lot of goods, even with the with the increase in air freight rates.
Certainly in the Steve Madden brand, but the but nevertheless, the supply chain is certainly having a negative impact on us in both Q1 and Q2.
That's great color and then my second question is on the gross margin front, you mentioned you know flying more goods.
Of course, there on air at the 100% and probably similarly.
Thanks.
Can you talk about any other puts and takes on the gross margin line and how we should think about that is that.
Unfolds for the balance of the year end and maybe just one final one of them.
What's the pace theory.
Your line.
It's true when the supply chain pressure should ease of are expected to ease.
Okay sure.
The second part of your question you were breaking up there, but I think I got the gist of it which was when do we think that the supply chain will.
The pressure will ease at correct.
Yes, that's it okay.
Yeah.
So in terms of gross margin yeah, Theres a lot of there's a lot of puts and takes.
At this year the only guide to you asked about the year, but maybe I'll talk about Q2, since that's where we provided guidance.
We do have.
A couple of pretty significant headwinds the the biggest one is the freight as you point out.
The ocean rates are up over 100% Air Air freight rates are up.
Close to 200%.
So at.
All in all of that is creating a pretty significant headwind on the freight.
I would say that's going to be over 200 basis points of pressure from freight in Q2, something like I think we estimate about 210 basis points and then we've got the non renewal of G. S. P. A.
Which is also still a headwind we're certainly hopeful that that gets resolved quickly, but but if not that's another about roughly 60 basis points of headwind.
In Q2.
All of that being said I think debt even windows headwinds.
<unk>.
I think that our.
We're targeting to have flat gross margins to last year in Q2 on the consolidated basis.
And then in terms of the when the supply chain gets better look I think.
I mentioned again in the in the earlier remarks debt.
While we did have that temporary reprieve.
Imports are surging again.
Into into the the.
L a ports and so I.
I think that we're going to continue to see some pressure here.
On the on the supply chain I think that I saw the L. A port director said that debt he anticipated that the that the congestion with last I think is worth of a well into the summer of well through the summer.
So it's something we're going to have to contend with I think as these extended lead times.
That's great color. Thank you Ed and good luck with the Q2 excuse me. Thank you. Thanks.
Thanks Camilo.
Yeah of course, you're from.
Line of Paul Lewis, we'd see.
Okay.
Can you talk more about how retailers are planning the second half businesses and how that differs amongst your partners by the channel maybe end up.
Also curious if you can talk a little bit more about private label.
And in <unk> 'twenty, one versus where you were last year the percent of the.
At the wholesale business and where do you think of that business going this year in total and the relative to the last year of 19. However, you guys are thinking about it. Thanks.
Yeah.
Yeah, So I don't I don't have the.
A real update for you on how retailers are planning their businesses for fall you know when we talked on the last call. We talked about the fact that our retailers were planning fall down and it was a pretty wide range somewhere planning at down modestly from down.
Down as much as 15% to 20%. This is all of the comparison 2019.
And what I will tell you is I think all of our retailers are re looking at their fall plans right now.
Given the the improved performance over the last two months end end and I think again, we think that the.
Improvement in our trend is even exceeded the.
Out of our peers in our category, so I think debt.
We're encouraging them to really look at their planes for us as well but.
But we really haven't received any any.
The firm updates from them. So that's something we'll have to to follow up with you on the next call.
In terms of the.
Private label as the percentage of the AR.
The wholesale business.
Looking at was about I think in 2019, I think we were running around 31% and then last year. It went up to about 35% is obviously some of those mass merchant customers that are big private label customers for us really.
<unk> remained open throughout the.
The the Lockdowns end and took share.
This year I think you'll see that tick down back to around a third of our wholesale business.
Got it thanks, just to follow up anything youre seeing on the input cost side outside of freight.
Debt that would drive some of your overall costs. He sees higher end how are you thinking about pricing.
To reflect that.
Yeah.
There is some pressure on material and materials and and then also of course of the dollar has has weakened a little bit again, particularly against the the Chinese are the.
The RMB.
So I think there's a little bit of pressure there at this moment, though it has not been a super problematic for us we.
We haven't seen a significant increase in our overall F O b costing from our factories.
But it'll be something we'll have to continue to.
To watch end to end to end to work hard on.
We are taking price up.
Collectively.
Because of the strength of of the product and the demand that we're seeing from the consumer right. Now. So I think you will see a modest increase in AUR from us.
Great. Thank you good luck.
Thank you.
You have a question from the line of Jay.
So with UBS.
Great. Thanks, so much.
And I'm just wondering if you could maybe give us a little bit more color on the top line guidance.
At sort of implies that on the if we look at the <unk> result on the top line versus 19 at was down about 13%, but the <unk> got it looks like it's going to be down about 1920 per cent somewhere in that range is.
Is it more of like the wholesale business, where you see like a deceleration or is it just you don't have enough inventory to supply. The the retail channel can you just give us a little bit of color on where you see the the change in from once you the <unk> within the segments.
Yeah.
Yeah. It's a good question so so.
It really is.
The deceleration really is coming from the wholesale business and I'll explain that but the retail the retail segment, we feel good about the trend there and we as I as I mentioned, we think we can continue to see nice improvement over 2019. In fact, I think we can be up double digits in Q2.
On a percentage basis compared to <unk> 19 in the retail segment. So the wholesale business I think there's a couple of things.
If you're looking back at Q2 of 19 debt that we should point out related to our private label business.
The first is that back end in 2019, that's where the Payless went bankrupt and end announced they were liquidating and one of our private label customers saw that as a market share opportunity and actually temporarily expanded the space on the floor.
<unk> devoted to footwear, they actually put up palettes outside of the around the ring of the shoe floor and end.
What in a lot of products in the categories, where payless had historical strength and so we shipped in about $25 million.
For that program in Q2 of 2019 debt, we are not anniversarying this year.
So that's that's the biggest piece and then on the private label, that's in footwear and the private label accessories side.
One of our big private label customers. There is bringing in there taking delivery of their back to school sets in July this year and those came in June of <unk>.
2019, so that's another 7 million of herself.
You're talking about at about a 32 million dollar headwind from those two factors in our private label business and that's about a 700 basis point impact.
On the consolidated revenue.
So I think that really ex.
Blaine the the deceleration of that Youre looking at.
Got it. Thanks, so much and then maybe just one more on the on the European JV acquisition can you just give us a little update on why now why it is strategically made sense today and sort of what you see the potential for that business going forward I mean, you say.
Do you think it can be of significant growth driver.
Yeah.
That is good at just a really great story for us since we started the JV. It's been it's been really strong and steady growth.
And we really felt the business had just reached a place of.
Our scale.
Where it made sense and we thought you know really we've just proven that the that the brand really resonates in the market and debt, we have a big opportunity there and we need to step on the gas and we thought we could do that best.
With full ownership of.
Of our business in the region, but you know as we pointed out this is the business.
Unlike the rest of our business at the business. It was up 21% in 2020 despite COVID-19.
So I think that really demonstrates the momentum that we have in the market.
And also it's a reflection of of our digital first positioning there you know as I as I mentioned at the business will be over three quarters.
The.
In digital channels this year and end.
And it's just got really strong momentum again, I said up 21% last year it'll be at more than that at.
This year.
And so I thought really now as the we thought now was the time too.
To take it in house fully.
Got it thank you so much.
Thank you.
You have a question from the line of Janine Stichter with Jefferies.
Your line I've got some of the great results.
And I was hoping to talk a little bit about the fashion trends, you're seeing I think you mentioned seeing from improved trends in the dress the category I'm. The last call. You had said it was kind of you're seeing some green shoots of it was still kind of a small percentage of the business at a limited number of styles that we're trending well maybe elaborate just on what you're seeing now is the is it a bigger percentage of the business how should we think about that trending going forward.
And then how do you manage the mix of fashion versus more casual of thousands we still kind of trying to figure out where they can see alright. Thank you.
Yeah, the dress shoes have have really come on.
And we're seeing some some real strong performance in that category of they've got these.
Stripping the dress sandals that are performing very well, we've got some pumps that are doing well, although we don't have enough of them.
But that's the category that we feel are.
I would say considerably better about than even when we spoke to you last time at.
And in terms of penetration it's at.
It's approaching 2019 levels for US now no I don't think that's true for the market overall I do I really think we're taking share in that category of capturing a disproportionate share.
Of consumer dollars in this category, but I think we're at destination for this kind of price and I think we've we've executed really well.
In the price that we're delivering and frankly I think some of some of the other brands in the market.
The emphasized this category end and it's given us an opportunity. So that's that's the category we feel good about.
But there's a lot of other things really working force to you know I called out.
The doing very well in fashion sneakers.
At our flat sandals with embellishment and ornamentation are phenomenal.
So we've got we've got a lot of a lot of products working a lot of different trends reflected in these products. So.
Whether it's at ornamentation or.
Brady of detailing quilting theres, a whole bunch of things that were utilized on the product and end of the customers responding to.
Great and then just to follow up on pricing I think you talked about potentially seeing AUR increases as you kind of offset some of the input cost headwinds is that on like for like price I think was there anything going on with mix that would offset those price increases.
No I don't I don't see anything in mix that would that would offset it.
And yes, there will be some.
<unk> increases on a like for like products.
Great. Thanks very much.
Yeah. The question from the line of Susan Anderson with B Riley.
Hi, Good morning, Thanks for taking my question nice to see the improvement of the quarter.
Was wondering if maybe you could give a little bit color on just the cadence of revenue in the quarter I'm, assuming it is Tom maybe at pick up in March and then I'm curious if that's carried into April it looks like Youre guiding second quarter to be at similar growth levels at first quarter.
It's the most of that the port issue holding back inventory or as part of that still consumer just kind of holding back on their more fashionable footwear purchases.
Yeah, we did see that we did see revenue trends improve.
Improved throughout the quarter is.
March was.
Better considerably better than January and February both in our actual sales in our retail segment as well as in our sell through in wholesale.
At.
And.
And we've seen and we've seen that improve excuse me continue into into April.
I think the in terms of.
The Q2 revenue guide I think we've we've discussed some of the the headwinds that we talked about the headwinds private label.
And obviously supply chain, but absent that yes, we do we do see the trends continuing.
Great.
And then just from the gross margin in the first quarter retail was at which I think was e-commerce and lower promotions of course, the wholesale slightly down.
I guess is there any difference in promotions in the wholesale channel or the.
At a different dynamics are going on there that drove that down and should we expect that difference also for the second quarter.
Yes so.
Again lots of lots of puts and puts and takes on the on the gross margin if you're looking at wholesale.
The.
Keep in mind, while you did have a tailwind because a year ago, we had inventory reserves that we took when at the onset of COVID-19, but that was really offset by.
Buy items.
Headwinds this year, which were namely freight and GSP.
The non renewal of GSP.
And then on top of that you had some at some mix shifts which were negative so in both footwear and accessories.
The wholesale footwear at wholesale accessories, and apparel private label made up of larger percentage of the mix. This year compared to last year, which is the mix negative and then even between the segments with wholesale accessories and apparel.
Being up in wholesale footwear being down.
That's the mix negative as well so I think that's the sort of how we got to the overall wholesale down 20 bps.
Got it okay. That's helpful.
I just had one more on Europe with the outperformance there it sounds like given the channel I mean, the operating operate then that's obviously, helping but are you also seeing any differences from what consumers are buying in Europe or is it more of a fashion or is at very similar to what you're seeing domestically.
Generally speaking the what.
What's working in Europe is very similar to what's working what's working here at we've been doing very well with fashion sneakers.
In Europe, but but that's the.
We're also doing.
The fashion sneakers are also strong for us here in the U S.
Great. That's helpful. Thanks, So much good luck the rest of the year.
Thank you.
Do you have a question from the line of Laura Champignon with Luke capital.
Good morning, and thanks for all of the granularity about what's going on with the wholesale business in Q2, but I did want to talk about why you've cited COVID-19, as an additional demand risk in Q2, because we're just hearing about a significant bounce back in demand for footwear and apparel.
Oral and increased mall traffic so at just a little counter to what we've been hearing on the ground. So why why is COVID-19.
Still a call out for risk for Q2 demand.
Yeah.
I think at what where we were.
They were talking about consumer demand so much as the overall environment is still impacted by COVID-19, our wholesale customers placed orders dramatically down for spring of of.
2021, because of COVID-19, and the impact that they were seeing in their business.
And again, while the demand has picked up in the south of it picked up we haven't been able to chase into any of that demand fully because of the supply chain disruption, which is also a result of COVID-19 ultimately.
And so you know.
It is still impacting the overall business at a significant way I mean, and as we know store traffic is still down significantly from pre pandemic levels, yes, it's coming back, but I don't I think it's hard to make the argument that the.
Theres no Q2, the 21 it looks at the same way at what if there had been no pandemic.
Got it would you characterize the reorders are because I know initial order patterns were weaker at department stores et cetera have the reorders met your expectations in Q2.
Yeah, the demand for Reorders at its been good.
Look because of supply chain disruption, we haven't been able to capitalize on all of that potential reorder business that we otherwise would have.
Totally got it but can you quantify the supply chain impact in terms of sales for Q2.
Well as I said earlier I mean, it's very tough because now you're getting into a big hypothetical is like if we had delivered the initial of sand how much would we have been able to get and reorders in the et cetera, but.
But again, if we think that overall, we're estimating at $15 million for Q1, I think it's that much or at a little bit more for Q2.
Got it thank you.
You have a question from the line of Erinn Murphy with Piper Sandler.
Great. Thanks, Good morning, I wanted to follow up at on the fashion conversation. There has been on the apparel side a lot of talk of a change at the silhouette in denim and then you know clearly when we see that in the past that's reshaped the footwear option. So I guess my question for you at the Dressy, which seems like that's rebounded well does that continue to work in that.
So with the silhouette change or is there kind of an opportunity for sneakers to kind of continue to accelerate just curious on what you're seeing in terms of the next three to six months in terms of the complement of the silhouette.
Yeah look I think the.
There's a lot of different.
The categories that are debt, we can play in with the with the new silhouette.
In the in denim and bottoms.
And so you know I think it's overall, it's a good thing we always like a change until the wife, because it just drives new footwear purchases, but.
But I don't see it at resulting in a significant shift in our category by category mix, Let me put it that way.
Got it Okay, and then maybe a little bit on the accessory business that was definitely a standout this quarter and I think it grew maybe 4% versus 2019. So do you expect that rate of change versus 19 to continue in the accessory business and here in the second quarter and then throughout the year and then what are you seeing in price in the category because of lot of your kind of.
Higher peers in terms of accessible luxury or luxury of been taking price and seeing that stick.
Yeah. So we do feel good about what we're seeing in that in that the.
The wholesale accessories, and apparel business and I think our Steve Madden handbag business is really as strong as it's ever been.
And we also had a strong performance in private label there I will.
Caution folks that I think there was also a little bit of a benefit of some timing shifts in the quarter.
That helps that segment.
Interestingly the supply chain for that particular segment may at actually even helped us in first quarter.
Because.
In accessories was in particular, where we were able to pull forward a lot of that stuff that we thought was going to go out into April into March.
So we didn't really lose much at the back ended the quarter end in fact at the beginning of the quarter. There had been some some product that slipped from December into January because of the supply chain disruption.
So so they may have even been of net beneficiary of just in that quarter of the supply chain disruption.
And then going into Q2, I talked about how some of those those products that in private label that are going to move out the back to school of stats from from.
From June to July So you will see that slow down considerably, but nevertheless, overall I think the.
If we forget about the quarter to quarter shifts the trend there is quite good in terms of price.
Taking a little bit of price, but.
But but not a lot I think we still want to make sure we're really driving a lot of value in these products.
Perfect and then just last question if I may on the G. S. P. I know it hasn't been renewed and I think you called it out at the 60 basis point headwind just at the second quarter, if it gets renewed.
Do you take a true up of kind of the headwind at its been year to date or how does that work just from an accounting perspective, assuming it does get approved at some point in the in the near term.
Yes, we would be if for instance, if it were to be approved and in Q2, we would be able to reverse the expenses.
In Q1.
Great. Thank you and all of the best experience.
You have a question from the line of Dana Telsey with Telsey group.
Good morning, and nice to see the progress said.
As you think about on the supply chain, we talk about obviously the port congestion here in the U S. On the West Coast, what about from Asia, and China is there any headwinds day ought to note in terms of getting goods out of.
The from over that and then other follow up.
Yeah, I think we have seen that piece of it get a little bit better obviously the at the shortage of containers was of was a big challenge and and we're starting to see that.
That lessen the little bit or get better I should say.
Got it and then digital has been an area of strength any call outs on digital and what's driving the margins higher where could margins go on digital and how is the cost of digital marketing of the benefits that you're seeing.
Yeah.
I appreciate the question because that's something where we're just really excited about what we're seeing in our owned and operated E Commerce business.
It's been at a very strong trend and then in Q1 as I said earlier, it really even accelerated accelerated further in our Steve Madden Global E. Comm business owned and operated was up 112% over the prior year end and the team's just doing a great job.
I think that we've really.
And we continue to get more efficient.
Efficient and effective with our digital marketing strategies.
And seen really strong return on AD spend in our performance marketing channels.
And the team is doing a great job of.
Driving that.
And also really exciting work on the influence of front end.
And I think the team is really.
We've got great product, but they've done a great job of taking great items and making them huge.
The by pouring gasoline on the fire with effective marketing and that's pretty exciting.
Also.
Some of enhancements in terms of what we're doing the enhanced product pages enhanced collection pages that are driving.
Proved conversion on the site. So a lot of a lot of good things happening there.
And to your question about margins the.
The good news is that.
We're driving all of the sales at full price. So we've really had.
Essentially at full price posture throughout.
And that's enabling us.
To drive really strong gross margins, but it also gives you room to invest more in digital marketing.
Which which then further drive sales so it's a it's a nice flywheel there.
In terms of the overall sort of contribution margins I think we disclosed on the last call that our company operating income was in the high teens.
For 2020 end.
I think we are on pace to do even a little better than that this year.
Thank you and then just on the retail footprint any updates on your thought on the retail footprint number of stores openings of closings and as outlets outperforming the full line.
Yes.
Yeah. So in terms of the overall number the number of bricks and mortar stores I don't think youll see at change too much.
We're going to close.
A few doors.
At my opening a couple in international markets.
So you may see at the store count go down by a couple of stores this year, but basically no significant change in 2021.
In terms of outlet versus full price, yes outlet has been.
The slightly better than full price in terms of.
In terms of comp trends.
Thank you.
You have a question from the line of Sam Poser with Williams trading.
Yes.
The answered all of a couple of things have you has anything happened in your wholesale business from a distribution of who you're selling how much you're selling the folks outside of their own caution have you made any decisions.
Or are you dealing with.
The retailers that may of just shuttered or just decided to pull all the way back.
No I don't think theres anything to call out there.
And then.
<unk> been talking about the accessories business can we talk about the apparel business within accessories and sort of what's going on with that I mean at a little hiccup, but I see a lot of at on your on your web pages now your.
Showing at and you're showing your own product at the BB Dakota can you talk about what's happening there the margins of that business sort of the longer term outlook for that business.
Yeah, we feel really good about what we're seeing in our in the BB Dakota, Steve Madden business.
I would say.
In terms of products, it's really all about dresses right now we're doing very well in the dress category that category has come back end and I think we're really.
Outperforming outperforming there.
And doing very well in the wholesale channel and on Steve Madden Dot Com we've recently.
At essentially ported over the BB Dakota website onto Steve Madden Dot com. So that's why you're seeing a lot more of that product on our website and and we're getting good reaction from the consumer end.
And we're just pretty excited about what we're seeing there. We're also learning a lot more about what.
With the Steve Madden customer really responds to.
And which parts of the BB Dakota line, we should emphasize.
Emphasize and lean into going forward. So so I'm very optimistic about this business.
Thanks, and then and then lastly.
Regard to the direct to your own direct to consumer business.
So you're saying that you think that business can grow just confirming you think that can grow double digits versus 19 in Q2 was the correct I believe you sort of pretty good question.
And then.
And the trends are showing that thus far in the quarter I gather as well.
Yes.
And then to the marketing to your digital marketing and all of that if you look at the evolution of that marketing and where it can go.
To what degree versus sort of more traditional marketing do you get sort of the incident.
Gratification the.
Of the incident response and see how it works.
How is that moving along and where are you with the CRM.
Your CRM, however, you want to push that.
Yes sure.
So.
In terms of digital market I think that's the that's one of the things we love about it is is how measurable it is and how quickly we can.
See what's working and we can.
Of course, correct, if something's not working or lean into something that is working.
And so now with digital making up the majority of our marketing spend.
We're really that's something we're managing on the daily or hourly.
Hourly basis.
Ah.
In terms of.
The CRM activities.
I think that sort of of work in progress for us.
One thing that that we're not doing right now, which we are of which which we need to do is really tracking customers across our various channels. So we obviously know a lot about what our customers are doing.
Our e-commerce customers are doing but we make sure we need to.
I really have a better unified database, so that we can see them, what theyre doing in stores and online at.
And utilize that information to drive repeat purchases.
Thanks, guys I appreciate the continued success.
Thank you.
There are no additional questions in queue at this time.
Okay, great well, thanks, everybody for joining us.
Have a great day, we look forward to speaking with you on the next call.
Thank you.
Ladies and gentlemen, this does conclude today's conference call you may now disconnect.