Q3 2021 Steven Madden Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the Steve Madden Ltd third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
And instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your touch tone, but telephone as a reminder, this conference call is being recorded I would now like to turn the conference over to your host Danielle Mccoy.
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Thanks, Fellas and good morning, everyone. Thank you for joining our third quarter 2021 earnings call and webcast.
Before we begin I'd like to remind you that during our call. We may make certain forward looking statements as defined in the federal securities laws regarding our expectations or predictions about the future Gen.
Generally these statements relate to projections involving anticipated revenues earnings or other aspects of the company's operating results such.
Such statements May include.
Discussions involving the ongoing COVID-19 pandemic, including its current and expected impact on our business operations and results as well as the company's plans to respond to such uncertain and dynamic events.
Because these statements are based on current assumptions and expectations. They involve known and unknown risks uncertainties and factors not within the company's control and as such our actual performance and results may differ materially from these statements.
Our annual report and other reports filed with the SEC from time to time include detailed discussions of the rest of the company faces and we urge you to refer to these.
Any forward looking statements represent our judgment as of the time of this call and cannot be relied upon as current after today's date.
We disclaim 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 Ms Susie Chief Financial Officer with that I'll turn the call over to Ed.
Thanks, Danielle good morning, everyone and thank you for joining us to review, Steve Madden third quarter 2021 results.
In the third quarter, we delivered the highest quarterly sales and earnings in our history with revenue, increasing 5% and diluted EPS, increasing 22% compared to pre pandemic third quarter 2019.
Our results demonstrate the company's disciplined execution of its key strategic priorities.
Our number one priority as always is to create trend right product and get it to market ahead of our competition and I could not be happier with our teams performance on that front, we have relied on our proven model, which combines our talented design team led by Steve Our test and react strategy and our industry, leading speed to market case.
<unk> ability to deliver trend right product assortments that are winning with the consumer and enabling us to outperform the competition and take market share, particularly in our flagship Steve Madden brand.
We are also supporting this great product with increased investment in marketing in.
In addition to continuing to scale, our digital marketing efforts to drive our E. Commerce business last month, we also launched our largest brand campaign in years called the Madden versus the campaign features <unk> avatars, if artists and social media favorites, Normality, Sydney, Sweeney Nessa, Barrett Justine Sky and Jordan Alexander.
Bold creative empowered and authentic women that embody the spirit of the Steve Madden brand.
The campaign harkens back to our iconic big head girl adds from the nineties, reflecting the same fund and rebellious attitude, but with modern elements like avatars and immersive content that includes an augmented reality shoe try on feature and Instagram filters that enabled consumers to morph into the avatars of their favorite artist.
This combination of outstanding product and enhanced marketing is driving deeper connections with consumers, which in turn is fueling our progress on our next strategic initiatives accelerating our direct to consumer business led by digital.
Our retail segment revenue grew 62% in the quarter compared to 2019, including outstanding performance in both digital and brick and mortar channels.
Our E Commerce business continued its exceptional momentum with revenue, increasing 84% versus 2020 and 200% versus 2019.
And our brick and mortar business.
Accelerated meaningfully global brick and mortar comp store sales increased 16% compared to 2019 included a 23% comp store gains in our U S stores.
The outstanding revenue performance combined with strong gross margin due to low levels of promotional activity as well as controlled expenses resulted in EBIT contribution from the retail segment of $22 5 million in the quarter compared to $3 5 million in the third quarter of 2019.
Another of our strategic initiatives is to expand our business outside of footwear and here. We are focused on our largest non footwear category of handbags as well as our emerging apparel business.
And handbags are multi year investment in our Steve Madden branded handbag business continues to pay dividends with that business, reaching new heights. This year in both wholesale and direct to consumer channels in both domestic and international markets.
While third quarter, Steve Madden handbag revenue was down to 2019 due to wholesale shipments that moved out to Q4 as a result of supply chain delays the Steve Madden bag business remains on track to increase approximately 20% for the full year compared to 2019.
Including more than 100% growth in direct to consumer channels.
We also continue to gain traction in our BB Dakota, Steve Madden apparel business, where we are seeing strong sell through performance at our key so key wholesale accounts driven by success with dresses shirt jackets and vegan leather across all classifications.
Another key priority is to grow our international business and we also continued to make progress on that initiative.
Earlier this year, we acquired the remaining 49, 9% sure that we did not already one of our European joint venture and that business remains our leading international growth driver.
Revenue for our directly operated SM Europe business increased 45% in the quarter compared to 2019, despite significant wholesale shipment move outs to Q4 as we continue to have exceptional momentum in the region, particularly in digital channels.
Finally, even as we seek to capitalize on the distribution channel and product category expansion opportunities I've touched on we remain focused on strengthening of the U S. Wholesale footwear business that is the core of our business.
This business saw market improvement in the third quarter as our wholesale customers reacted to our strong sell through performance with increased orders.
Due to shipments that moved out to Q4, our overall U S. Wholesale footwear revenue remained down low single digits to 2019 in Q3.
But our Steve Madden brand U S. Wholesale footwear revenue was up 15% to 2019, including a 25% increase in Steve Madden Womens.
Demonstrating the brand heat and trend right product assortment and our flagship brand.
Looking ahead to the fourth quarter, we are poised to deliver strong growth versus 2019 in the U S wholesale footwear business overall.
As we do all of this we also continue to embrace the opportunity and the responsibility we have to create positive change for our people and our communities.
Highlights in the last three months included the establishment of a new employee resource group for that next employees called daylight. So the launch of our new partnership with the business School at Howard University to re imagine its retail curriculum and the launches of new collections for our Steve Madden Kids adaptive line as well as for cool planet by Steve Madden.
We also laid the groundwork to establish the Steve Madden Foundation by the end of the year to organize and enhance our charitable giving given the strategy as we seek to maximize our positive impacts going forward.
In summary, I'm very pleased with our performance in the third quarter and more broadly with the progress we are making on the key strategic initiatives that will enable us to continue to drive sustainable and profitable growth going forward.
Now I'll turn it over to Jim to review, our third quarter financial results in more detail and provide our updated guidance for fiscal 2021.
Thanks, Ed and good morning, everyone.
Our consolidated revenue in the third quarter was $528 7 million, a 52, 4% increase compared to 2020.
A five 3% increase versus 2019.
Our wholesale revenue was $402 million up 41, 6% compared to the prior year and down four 6% compared to 2019.
Results included a significant impact from shipments that moved out into the fourth quarter due to supply chain delays. We estimate Q3 wholesale revenue would have increased low single digits for 2019, if not for those move outs.
Wholesale footwear revenue was $304 2 million, a 42, 6% increase from 2023.
Three 7% decline from 2019.
In the U S. The Steve Madden women's business was a standout increasing 25% compared to 2019.
Betsy Johnson in Dolce Vita also had strong gains for 2019.
These increases were offset by the absence of the Kate Spade footwear license, we had in 2019 as well as declines to 2019 and blondell unclaimed in private label.
Outside the U S strong performance in Europe was offset by softness in Canada due to a slower recovery from the pandemic and the impact.
Fly chain delays.
Wholesale accessories and apparel revenue was $97 8 million up 38, 7% to last year and down seven 4% versus 2019, when comparing to 2019. The decline in this segment was primarily driven by supply chain delays, partially offset by an increase in apparel.
As a result of only one and BB Dakota for a portion of the quarter in 2019.
We expect to book wholesale footwear, and wholesale accessories and apparel to show strong double digit growth versus 2019, and the fourth quarter.
In our retail segment revenue was $123 1 million.
A 108, 6% increase compared to 2020.
And a 62, 5% increase compared to 2019.
E Commerce was the primary driver of direct to consumer growth versus 2019 E.
E Com revenue grew 83, 7% compared to 2020.
And 200% compared to 2019.
E Commerce accounted for 49% of our total retail segment sales in the quarter compared to 26% in 2019.
Brick and mortar performance was also strong as Ed mentioned global comp store sales increased 16% compared to 2019 and domestic stores increased 23% compared to the same period.
We ended the quarter with 216 company operated retail stores.
<unk> 66 outlets and ecommerce websites as well as 17 company operated concessions in international markets.
Turning to our licensing and first class segments. Our licensing royalty income was $2 7 million in the quarter compared to $2 6 million last year and $2 9 million in 2019.
First cost Commission income was $1 million compared to $1 5 million last year and $1 9 million in 2019.
Consolidated gross margin was 41, 6% in the quarter up from 43% in the prior year and 39% in 2019, an increase of 260 basis points versus 2019.
Wholesale gross margin was 33, 6% compared to 34, 6% last year and 33, 9% in 2019.
The modest decline compared to 2019 was the result of increased freight rates and the non renewal of GSK, partially offset by higher average selling prices and lower markdowns.
Retail gross margin was 65, 9% compared to 63, 8% last year and 63, 3% in 2019.
The increase to 2019 include margin improvement in both digital and brick and mortar channels driven by a reduction in promotional activity, which more than offset the headwind from increased freight rates.
Operating expenses were $131 6 million in the quarter compared to $93 7 million last year and $123 6 million in 2019.
Increased versus 2019 is primarily driven by our continued investment in performance marketing to fuel the growth of our ecommerce business.
Operating income for the quarter was $88 4 million or 16, 7% of revenue up from $46 2 million or 13, 3% of revenue last year, and $72 3 million or 14, 4% of revenue in 2019.
Our effective tax rate for the quarter was 24, 4% compared to 29, 3% in 2020 and 22, 6% in 2019.
Finally, net income attributable to Steve Madden Ltd for the quarter was $66 6 million or <unk> 82 cents per diluted share.
From $31 8 million.
<unk> 39 per diluted share in 2020.
And 56 million or <unk> 67 per diluted share in 2019.
Moving to the balance sheet.
Our financial Foundation remains very strong as of September 32021, we had $259 9 million of cash cash equivalents and short term investments and no debt.
Inventory totaled $201 2 million up 83, 4% compared to last year.
We're up 35, 9% compared to 2019.
Note that due to the global supply chain disruption in transit inventory was up 229% to 2019 and represented approximately 51% of our inventory at quarter end.
<unk> to approximately 20, 21% at the end of the third quarter of 2019.
On hand inventory was down 16% at the end of Q3 compared to 2019.
Our capex in the quarter was $1 8 million.
During the quarter.
We repurchased approximately 773000 shares for $31 9 million.
Which includes shares acquired through the net settlement of employee stock Awards.
Yesterday, the board of directors approved an increase in the company's share repurchase authorization to $250 million.
The company's board of Directors also approved a quarterly cash dividend of <unk> 15 per share the dividend will be payable on December 27.
'twenty one to stockholders of record as of the close of business on December 17th 2021.
Turning to our outlook.
The global supply chain disruption remains a significant headwind our.
<unk> in the third quarter and the momentum we're seeing in our business gives us confidence to raise our fiscal 2021 guidance.
We now expect revenue to increase 15% to 52% compared to 2020.
And we expect diluted EPS to be in the range of $2 30 to $2 35.
And now I would like to turn the call over to the operator for questions Phyllis.
Ladies and gentlemen, if you have a question at this time. Please press the Star then the number one key on your Touchtone telephone.
If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Your first question comes from the line of Camilo Lyon with BT I G. Please.
Please proceed with your question.
Thank you good morning, everyone great job on the quarter.
I want to start out with the guidance.
The Q4 guide is a very strong guidance I think you raised about.
The fourth quarter EPS by about 15 cents or so implied above current street estimates.
And I think sales are implied to be up 27%.
Versus 19 again, that's compared to up 5% in Q3 can you unpack, what's driving that acceleration maybe.
Parse out later shipments that slipped from Q3 to Q4, how much of is it reorders the splits between wholesale and DTC.
Sure well good morning. Thanks for the question. So in terms of what gives us confidence to raise the guidance like this.
It's really that.
The strength and the momentum and the brand heat that we're seeing in the flagship Steve Madden brand.
So if you look at.
Where we have raised our internal forecast versus where we were three months ago.
The big the two big areas are our direct to consumer business, which continues to have incredible momentum in both digital and brick and mortar channels and then also that Steve Madden Women's U S. Wholesale footwear business that we called out earlier was up 25% to 19 in Q3 and we.
Anticipate we will see even faster growth compared to 19 in Q4.
In terms of the.
The acceleration of the business from Q3 to Q4.
That's really about the acceleration in our wholesale business the DTC.
We think it's going to grow even faster than wholesale, but it's been growing at a very.
Rapid clip you said that was up 62% to 2019 in Q3, but wholesale which was.
Down about 5% in Q3 to 19.
We're forecasting to be up.
Mid mid teens to low twenties.
<unk> 19.
In Q4, and that's really just a function of our wholesale customers catching up to these incredible sell throughs that we've had we've been talking to you all year about how if you compare to 19, our sell throughs.
We are dramatically outpacing our shipping and our stock levels at the wholesale customers and Youre seeing that now now catch up yes.
You asked about the move outs the impact of the move outs. There is some benefit to Q4 from move outs from Q3, we anticipate we expect excuse me we estimate that.
$30 million of wholesale shipments moved out from Q3 to Q4.
However, we've also built into our forecast an assumption of about $20 million falling out of the end of Q4 into Q1. So the net impact there is relatively modest only about 10 million Bucks.
That's great color. Thank you for that.
And as a follow up to that line of questioning how does this impact the conversation.
For the first half of 2022 with your wholesale partners and then and then my second question really is more of a broader kind of question on on your digital strategy. If you could just give us kind of.
An update on the progress that you've made with your digital strategy, where were you say three years ago versus where you are today from a sales and profitability perspective, that'd be very helpful.
Sure.
Yes, so as we go into <unk> into the first part of 'twenty. Two obviously the success that we're having at retail.
The sell throughs.
We're seeing it.
Obviously positions us well.
With our wholesale customers.
For for a nice open to buy commitments for the first part of 'twenty two.
I think we're not putting out 'twenty two guidance today.
Today, so I'm not going to put numbers around that but but certainly we do feel good about how we're positioned.
We've been an outperformer in terms of sell through.
And we're taking share in that wholesale channel and expect to for that for the first part of 'twenty two.
In terms of digital.
As you know that has been.
Really.
A top priority for our company over the last over the last few years.
And.
We have.
Specifically with respect to our owned and operated E. Commerce business. We have invested in talent, we have invested in digital marketing and we have invested in ongoing site enhancements and then we have connected that to our strong brands and outstanding product and.
<unk>.
The combination.
In Asian of all of that has yielded some really powerful results. So.
You asked about where we were three years ago.
2018, we were doing a little over 50 million I think it's about $56 million in revenue in our owned and operated E Commerce business and it was making a single digit operating margin. So the profit contribution there was less than 5 million Bucks.
In three years later 2021.
We are going to.
Roche $250 million in owned and operated ecommerce revenue.
With a 20%.
Operating margin contribution.
I don't think it's overstating it to say that that over that three year period, that's a fundamental change in the complexion of our business and I think it also really meaningfully.
Improves are the growth opportunities that we have going forward, because we really feel like we're still in the early stages of this digital journey.
That's fantastic color. Thank you good luck with the close of the year.
Thank you.
Your next question comes from the line of Erinn Murphy with Piper Sandler. Please proceed with your question.
Great. Thank you. Good morning, maybe just following up on that conversation I was hoping you could share a little bit more about your new marketing campaign.
Is the customer response been thus far and then how is it converting within the Steve Madden footwear versus the handbag opportunity you spoke to.
Yeah, Thanks for asking about that Erin So we're excited about the new campaign and we feel really great about the response.
We just felt like.
Given the.
The brand heat that we have in Steve Madden and this.
Really really strong product assortment and what we're seeing in the brand overall, but now is the time to kind of throw gas on it and.
And.
Really step up with some exciting marketing and we feel like we've done that here. The response has been great.
Fantastic.
Digital and social engagement, we've had some viral moments on Tictoc, which has been which has been fun.
<unk>.
Big increase in that and the search interest for the brand online and it's driving traffic and sales online.
Online, but also into stores.
So so really just excited about the about the customer response.
And and.
So you asked about footwear versus handbags with respect to the campaign was that right.
Yeah, just how it converting because I'm just curious how youre seeing that customer.
Or convert against that campaign.
That's the category I guess.
Campaign was more was certainly more footwear focused so if youre talking about.
Sales that we think are directly coming from the campaign, then that would certainly lean much more towards shoes.
But in our direct to consumer channels overall, our handbag growth is pretty explosive and in fact, it's outpacing what we're seeing in shoes, and we're really excited about about that momentum and handbags.
Particularly in direct to consumer channels.
Great got it and then my second question is just around your supply chain that you guys have been very nimble with moving production into Mexico, Brazil can you just kind of take a step back and give us kind of an overview of where your biggest concentrations are right now for production and then what are you seeing with lead times and have you had to report to air at all.
If you think about holiday and even early spring deliveries.
Sure Yeah look the supply chain, it's no surprise, it's been a big a big headache for us as it has been for everybody else as you pointed out we did move.
Close to half of the Steve Madden women's inline production.
Two outside of China or outside of Asia to Brazil, and Mexico for fall and we think Thats.
We're very pleased that we did that has not that those countries have been without their challenges, but but we certainly think we're better off for having done that if you look at the company overall of course, we are still majority in China.
With it.
Cambodia would be our second largest.
Entry of origin, we make a lot of handbags there.
And then were spread out across a number of other countries.
<unk>.
In terms of having to air Yes, we have had to do to utilize more air freight that's primarily in our direct to consumer segment in our retail business.
A year ago for the year that was it was probably about 17% of our goods were coming.
Via Air this year to date I think were up around 30% zine is that right Thats correct, 30%. This year, 17% last year and it was about 11% the year before that yes. So we haven't had to use utilize more air and of course that's been.
Spencer because air freight rates are up significantly.
Great. Thank you so much.
Your next question comes from the line of Paul <unk> with Citi. Please proceed with your question.
Hi, This is Kelly crago on for Paul Thanks for taking my question I just wanted to follow up on your conversation around the retail channel just hoping you could talk about where the penetration of that business overall to grow to over time, and where you believe retail EBIT margins could shake out longer term just given the strength of the E Com channel and I think in the REIT.
<unk> passed I think.
The retail business is only reached maybe a high single digit margin at best So just curious where you think that could go longer term.
Yeah, that's it really.
Thanks for the question Doug.
The thing that we're really excited about and if you look at the business when it looks like this year versus pre pandemic.
That's a really significant shift.
So back in <unk>.
2019, our retail segment was about 18%.
Of our total sales and this year I think it's going to be up about 800 basis points it'll be over a quarter of the business.
And.
More importantly, the <unk>.
<unk> contribution is up dramatically so, whereas it was only contributing about 5% of our profits back in 2019. This year it'll be about a quarter of our profits.
And so in terms of the EBIT margins there.
Even this year, we're on track to do to do mid teens or potentially even a little bit better than that.
Which we're very excited about.
Got it and then.
As they get into gross margin a little bit could you talk about how much of a drag for it was in <unk>.
But that could be in the fourth quarter and then when we think about the gross margin trajectory.
Beyond 2021, do you expect some normalization there in 2022 that could lead to pressure or just any color on the on that line item.
The puts and takes there.
The next year, so potential point of pressure we are also seeing.
F O b price increases.
Factory price increases.
Based on pressure on labor and as well as materials. So that's a bit of a.
A headwind going into next year.
However on the other side, we are also raising our selling prices to come back that.
And.
We also.
Are hopeful certainly that GSP is gonna get renewed because that's been a significant headwind is zine outline and and.
And then as we go into the back half of 22. We're also hopeful that there is some.
Relief of the freight pressure.
Got it thank you.
Thanks.
Your next question comes from the line of Tom Nastic with Wedbush Securities. Please proceed with your question.
Hey, good morning, everyone. Thanks for taking my question.
And I.
Kind of looking at your.
The wholesale segment your.
First half of this year versus second half and and the first half I think Yo Yo revenues versus 19 were still down something like 20%.
As we look to the first half of 2022 like I mean, do you think we get kind of doctor.
Pre culvert levels is there like some reason why you know.
Your first half revenues would be kind of your structurally lower than they were pre COVID-19 like anything like I'm just trying to.
Trying to think about how to think about the the spring season.
Well.
You're not going to provide specific guidance, but.
But obviously, we do think we have an opportunity for for a nice improvement in spring of 22 in wholesale compared to what we did this year and.
No I don't think there's anything structural.
That would prevent us to get back to 19, perhaps if you recall, we had some like one time program that we didn't anniversary in the private label area back in Q2 of 19, which we talked about earlier this year, but but putting that aside and the ongoing businesses.
No I think that will.
We're certainly going to target to get back to 19.
Got it understood and then I also want to touch on Europe. Thank you.
Pretty bullish on Europe, this year and I think earlier. This year. You. You said you were targeting 55 million of revenue in Europe. This year, which would have put it at about 3% of sales.
Like a yeah.
Europe trending better than that like should we think that Europe is gonna come in somewhere better than that 55 million.
And then D. Now I don't know if you can talk longer term or like.
Like how how meaningful do you think like Europe can be it's gonna be 10% of sales yellow anything like that just any.
Thoughts on Europe, a bigger picture would be great. Thanks.
Yeah. So we continue to have really strong momentum in Europe. So is that a.
The 55 million, you're referring to was for the SM Europe business that we.
The joint venture, where we bought out the remaining interest earlier this year and that business has continued to trend up so it will actually do north of $60 million this year.
Which puts it.
85% ahead of where it was in 2019, so so very strong growth. There if you look at the EMEA.
Region overall, we're going to be close to $100 million this year.
And we continue to to feel like we're in the very early innings in that region.
Our of our growth journey and.
So what the opportunity is it's it's multiples of where we are today.
You said, thanks very much so let this holiday season.
Hum.
Your next question comes from the line Janine stature with Jeffrey. Please proceed with your question.
Hi, Good morning, I'm, hoping you could talk a little bit about the chance I product category I know you've had a bit of a head start in the chassis category curious what you saw and fell through is there and if you feel like the competition is starting to catch up at all and then the initial meet them both animal your thing in that category. Thank you.
Yeah. So dress shoes continues to be an outstanding category for us.
We have seen some of our competitors get get some more product out there in the category, but it has not slowed down our performance at all.
And we're seeing success with.
With really a range of products within that category. So opened up dress closed up dress various heel heights.
It's just been a fantastic category for us and particularly in our direct to consumer channels really really.
Really driving.
A significant driver.
And then boots are also performing.
Very well for us doing great with <unk>.
<unk>, so boots, Chelsea boots, so that western boots performance has a bunch of things happening there too and that's a very strong category as well.
Great and then just to follow up on the price increases is that something you've taken already or something we should expect mind spraying it and maybe if you could quantify the magnitude.
Yeah. So so for fall I think we have layered on some price increases we've done it selectively.
If you were to to.
Look at it as an average is probably low single digits, but again, that's our initials. The aur's are much more significantly than that because of the lack of discounting. So if you look at our our retail segment or direct to consumer channels are AUR as her up <unk>.
<unk>, 20% plus versus 19.
But as we go into spring, we're going to take a little bit more price on the initials and I think you could see that looking more like 5% to 10%.
Great color. Thank you.
Thank you.
Your next question comes from the line of Marni Shapiro with retail tracker.
Please perfectly what's your question Hey, guys, congratulations amazing quarter in the stores looked outstanding when they are and stuff.
Alright, I think you just said your spring I just want to make sure I heard this right spring initials could be up 5% to 10%.
Are you expecting to layer and some level of promotion and some normalcy a promotion so that your aor's ended up about the same as the back half of this year or are you expecting the promotion should remain pretty clean to the back half of this year and into spring. So it would it would assume that he won't be up even more.
Our plan is to is to continue to have very controlled promotional activity.
And even through holiday.
Yeah, It doesn't mean none.
Because that would be how can I expect some level of promo activity.
During holidays, but but certainly compared to where we were prepandemic less promotions and can I. Just ask you one sort of bigger picture question. You guys have some really unbelievable sold out products and I see them across the board whether it's online at your wholesale DTC your own DTC.
Check in department stores in your own stores, Oh, I'm listening to customers chase products down, but like the Latin very last shoe and a chain of stores.
When you get in a reorder and I'm gonna pick on the Mac Smuck sits on my screen right now when you get into reorder delivery of that how companywide, how do you prioritize where that delivery goes if the black maxima comes in does it go first to your own stores you own DTC wholesale DTC, how does that all factor in so that you're keeping your wholesale part.
There's happy but feeding the best margin businesses, how does that work.
Well, it's a balancing act for sure.
Look.
The maxima throughout the year has been in and out of stock going back to.
To the early parts of the year and one of the things we've been doing on our own website is taking a lot of preorders. So we're back order. So customers are placing orders. So so those customers as soon as soon as we get the product and then we're giving it out to those.
Congress customers, who have already placed the order.
And we're obviously prioritizing our own direct to consumer channels, but we also take care of our of our best wholesale customers are full price wholesale customers because that remains an important business for us and we need them to be successful as well okay.
Okay, Great. That's the last of the holiday you guys.
Thank you you are next year.
Your next question comes from the line of J Soul with UBS. Please proceed with your question.
Great. Thanks, so much and I'm wondering if you can just elaborate a little bit odd.
Where we are in the whole returned to work or returned to party cycle because it seems like there's a lot of things going on there's a lot of fashion trends rebound from the pandemic.
There's market share gains. So just wondering how you feel about those different things from specifically like if you still see a lot of.
Rebound potential.
The whole where to work and returned to group events type business.
Yeah. That's a good question, it's hard to say exactly how far along we are.
But I.
I will say that in terms of the return to if you could cut it returned to party.
Have been saying that for some time and if you look at the strength that we've had in dress shoes, even started spraying, but continuing through now.
I think that's.
Evidence is.
That evidence that consumers are returning to going out and going to events et cetera ad or dress shoe penetration.
Right now I was running ahead of where it was.
In 2019, and actually by a pretty significant margin.
But again that didn't seem mad and that's really.
I think they would use their is going out it's not it's not necessarily go into work I think that we're to work dress shoe business is still not back to where it was prepandemic.
And we'll have to see how that shakes out going forward.
If it ever if it ever turns exactly to where it was.
Got it okay. Thank you so much.
Your next question comes from the line of Laura Shampine with New capital. Please proceed with your question.
Hi, Thanks for taking my question, it's about inventories, which I know, there's a lot of talk about supply chain issues in the out of stock, but inventories were up 80% I know you run them tight is that just to meet demand for some of the products. You mentioned has been moved out into Q4 or does this represent you're getting them.
More adequate safety stock in places, we as we move into Reorders.
So I guess first of all I would say I don't think the right comparison as to where we were a year ago I think it probably makes sense to look back to 2019.
Relative to 19, we were up about 36% and zine outlined earlier, that's all driven by that that in transit number which is up significantly beyond hand is actually down but in transit obviously because of the much longer lead trains at times is up at a zine is there any other color you wanted to <unk>.
No. It just it lines up nicely when you look at the in transit being up 229% on hand down 16, as we said before and you look at what we are guided for Q4 as well as the shifts that we had for orders that were in our inventory at the end of Q3, but we're shipping in ox.
<unk> because of the $30 million that had mentioned earlier.
Within the lines up pretty nicely against our guidance and we feel good about the health and balance of our inventory.
Got it just as a quick follow up how does this kind of gummed up system impact your strategy for inventory management the spring.
But we do have to place orders.
Little bit farther out than we normally do we've also had to encourage our wholesale customers to place their orders farther out than they normally do which they have which they have done.
So as you know speed to market is really critical to our strategy. So we don't like the fact that our lead times are Lincoln here, but the good news is we we do feel that our relative advantage.
Compared to the competition is maintained so while our lead times are extended everybody else's or two and we still feel like the speed advantage that we have versus everybody else is intact.
Understood. Thank you.
Thanks, a lot.
Your next question comes from the line of Sam Pelzer with Williams trading. Please proceed with your question.
Thanks for taking my question. Most most have been answered, but I just want to ask you talked about the choices about how you are going to allocate some of the product whether you got the hot stuff.
Given the production of the slope production and flowed transit.
That's happening are you, making decisions with the off price channel or with a lower more large lower margin accounts, where you're gonna feed the full price businesses more to get the higher margin product made.
Yes.
As you would expect our first priority is always feeding full price Jones.
Okay.
Okay.
It should also within the the merch Mart I mean, it sounds like the merchandise margins were up like 444, and 50 basis points on the quarter is that right.
On a year over year basis.
Let me just wait in the zinc and can follow up.
There is a mix shift also here if you're looking at the consolidated number there is a various mix.
Shift from retail, becoming a bigger percentage of the mix. So I don't think you can just necessarily take the consolidated number and then back out the freight and GSP.
But certainly merch margins were up across wholesale and retail is there anything else that can you give us some idea of how much how can you give us the details on that.
Especially on wholesale.
Mmm, well wholesale I think zine outlined about 280 basis points of pressure from freight and GSP.
Versus 19.
And.
The overall margins were down 30 bps to 19 in wholesale.
So I mean, so so you're just selling now now now that you have this new normal going on with the merch margins.
Going forward once the dust settles whatever that is.
How do you go about sort of.
Sustaining, especially the wholesale that much higher number than 19 or prepandemic.
Well I mean, that's that's mostly about inventory.
Inventory management and discipline.
Around inventory at around markdowns and that's something that we feel is a is.
A core strength of our company.
And we're going to continue to lean on that.
And then last thank you and then lastly, the.
Your business was Walmart and target.
Smith, what does that look like now do they take possession at the factory.
Shipping the goods can you give us a little color on that on that private label business.
Yeah.
Most of that business they take possession overseas.
And so they are they are the ones, bringing bringing it over here.
We do have part of that business, where we land the goods, but again most of it they take possession overseas.
And how does that business looking these days.
It's doing well at the private label was down in Q3 because of move outs.
Products that we were hoping to get out of the talent of Q3 that fell into Q4, but we do anticipate so it was down in both our private label is down in both shoes.
Shoes, and accessories compared to 19 in Q3, but we expect to be up in both suit and accessories and Q4.
Thanks, very much contingent could cut.
Makes him.
Your next question comes from your.
Your next question comes from the line of Susan Anderson would be Riley. Please proceed with your question.
Susan Your line is open.
Hello.
Hello.
Can you hear me.
Ken.
Okay.
That's why I was on mute.
And so I just wanted to follow up on the women's business and at the part that you move to Brazil, and Mexico I'm. Just curious is that allowing you to be better in stock versus your peers and are you still seeing some shelf space games because of that.
And then I'm just curious are you able to chase at all and with that business given is closer to North America.
Or is it still task given the supply chain issues.
Yeah. Thanks for the question I do think that.
We benefited from from the shift of production to Brazil and Mexico.
And.
Our ability to chase is better, they're particularly out of Mexico.
Still.
I think overall, our ability to chase was not what it normally.
What it normally is.
That's for sure.
But Mexico did give us.
Give us more opportunity to do that and yes, I do think that.
That helped us overall versus the competition, but the big thing that's helping us against the competition is that we have shoes that the consumer really wants to.
The cell throughs are great and the consumer demand for the product is great. That's really the driver more than the country of origin of the product.
Great.
And then just one another follow up question on the SG&A for fourth quarter, I guess should we think about it being up in similar magnitude as we saw in third quarter to 19 levels.
No.
If you are comparing to 19 definitely the growth will be higher.
In Q4.
Obviously, the sales versus Q4 accelerating meaningfully and it's also a much higher.
There is a higher penetration of.
Retail or DTC in queue for which carries a higher SG&A.
Got it okay, great. Thanks, so much good luck this holiday.
Thank you.
Your next question comes from the line of Steve Maratha with C. L. King and Associates. Please proceed with your question.
Good morning, as seen in Danielle I. Appreciate you taking my question as it pertains energy sort of answered this a little bit on the last question, but I am curious as to the composition of parks.
From the Americas in Central and South America versus the far east in the third quarter and what you would expect in the fourth quarter and maybe how that looks next year does it has to be mostly.
Specific numbers to the 10th of a percent, but I'd like to know from a composition standpoint, generally where it is now and where that will trend towards.
Well.
Look at.
Again, when you look at the business overall, because we have a lot of business. We've talked a lot about the Steve Mad Women's in line business and that shipped to Brazil, and Mexico, but when you look at the business overall, we're still over 70% out of China.
And then when you add in some of the other countries in Asia, that's still makes up the bulk of the business.
Brazil, Mexico, getting bigger, but still single digits as a percentage of the total because again we don't.
As of now we have not been doing anything in those countries and in any of the the private label areas or the more moderately priced businesses that we have.
So.
That's still what it looks like today and and as of as of now I think it is going to look somewhat similar to that next year. I mean, we will continue to diversify out of China.
But.
Right now for instance, we had.
Some of the stuff that was in Vietnam, we pulled back.
Because obviously the shutdowns that works.
The third country South of Vietnam experienced.
Over the last couple of months.
Kindle major sourcing differentials next year versus this year.
No I think you'll still see Mexico and Brazil.
Grow.
But.
Generally speaking it will be similar.
Terrific can be helpful. Thank you.
Yeah.
And that this time there are no further questions I would like to turn the call back over to management for any closing remarks.
Great well, thanks, everybody for joining us this morning.
And have a great day, and we look forward to speaking with you on the fourth critical.
Right.
This concludes today's conference we thank you for participating you may now disconnect.
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