Q2 2024 Steven Madden Ltd Earnings Call
Unknown Attendee: Issued earlier today and filed we make with the SEC.
Earlier today, I, obviously makes with the SEC.
Claim any obligation to update update these forward looking statements, which may not be updated until our next quarterly earnings conference call if at all.
The financial results discussed on today's call are 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.
seamless Who's: Joining me on the call today is Ed Rosenfeld, Chairman and Chief Executive Officer, and seamless Who's the Chief Financial Officer with that I'll turn the call over to Ed.
Danielle Marie McCoy: All right. Well, thanks, Danielle.
Edward R. Rosenfeld: Alright, well thanks Danielle.
Speaker Change: Good morning, everyone and thank you for joining us to review, Steve Madden second quarter 2024.
Edward R. Rosenfeld: And good morning, everyone. And thank you for joining us to review Steve Madden's second quarter of 2024. Delivered strong results in the second quarter, with revenue increasing 18 percent and adjusted diluted EPS rising 23 percent compared to the same period in 2020. This performance was driven by exceptional growth in the accessories and apparel categories and robust gains in international markets and direct-to-consumer channels. The foundation of that strategy is creating deeper connections with our consumers through the combination of outstanding products and effective marketing, thereby enabling our success with our four key business drivers and what we continue to view as our largest long-term growth. Revenue in International grew 13% in the second quarter compared to the same period in the prior year, and we are on track to achieve mid-teens percentage revenue growth for the full year.
Speaker Change: We delivered strong results in the second quarter with revenue, increasing 18% and adjusted diluted EPS rising 23% compared to the same period in 2023.
Speaker Change: This performance was driven by exceptional growth in the accessories and apparel categories and robust gains in international markets and direct to consumer channels, demonstrating our team's ongoing execution of our strategy for long term growth and value creation.
Speaker Change: The foundation of that strategy is creating deeper connections with our consumers through the combination of outstanding products and effective marketing, thereby enabling our success with our four key business drivers.
Speaker Change: Our first key driver and what we continue to view is our largest long term growth opportunity is expanding our business in international markets Revs.
Speaker Change: Revenue in international grew 13% in the second quarter compared to the same period in the prior year and we are on track to achieve mid teens percentage revenue growth for the full year.
Speaker Change: The EMEA region continues to be the biggest driver of growth, we expect EMEA revenue to be up more than 20% in 2024.
Speaker Change: In Europe, we continued to outperform the competition and take share in a challenging retail market.
Edward R. Rosenfeld: We also converted our distributor business in Southeastern Europe, including Serbia and Croatia, to a joint venture with our partner fashion company in the second quarter. In May, we opened a new store in Galleria Belgrade, the largest and most important mall in the region.
Speaker Change: We also converted our distributor business in south Eastern Europe, including Serbia, and Croatia to a joint venture with our partner fashion company in the second quarter.
Speaker Change: In May we opened a new store in Galleria Belgrade largest and most important mall in the region and we now operate for Steve Madden stores through the new JV.
Edward R. Rosenfeld: And we now operate four Steve Madden stores through the new JBR. We are also gaining traction with our new joint venture in the Middle East and expect to end the year with 35 stores in that region, up from 27 at the start of the year. And our JV in South Africa continues to drive exceptional brand heat and outstanding growth on the top and bottom; we've seen a nice rebound in Canada after a tough 2023. In Mexico, where we have built Steve Madden into a clear leader in the market, our strong momentum continues.
Speaker Change: We are also gaining traction with our new joint venture in the Middle East and expect to end the year with 35 stores in that region up from 27 at the start of the year.
Speaker Change: And our JV in South Africa continues to drive exceptional brand heat and outstanding growth on the top and bottom lines.
Speaker Change: In our Americas region, we've seen a nice rebound in Canada. After a tough 2023, driven by strong growth in direct to consumer channels.
Speaker Change: And in Mexico, where we have built Steve Madden into a clear leader in the market. Our strong momentum continues we are on pace for another year of double digit percentage revenue growth there.
Edward R. Rosenfeld: We are on pace for another year of double-digit percentage revenue growth there. We also converted our distributor for certain countries in Latin America to the joint venture model in the second... We continue to see success with structured mini-satchels and cross-bodies, as well as on-trend materials like denim. We're also making strong progress in building our Steve Madden apparel business. We are positioned for a significant door expansion and expanded assortments within existing doors for Steve Madden Apparel as we look to 2025.
Speaker Change: We also converted our distributor for certain countries in Latin America to the joint venture model in the second quarter.
Speaker Change: JV cover Central America, Ecuador, Colombia, the Dominican Republic, Paraguay, and Bolivia, and currently operates 10, Steve Madden stores.
Speaker Change: Our second key business driver is growing our business outside of footwear.
In the second quarter overall accessories, and apparel revenue rose, 74% or 27%, excluding the newly acquired almost famous business.
Speaker Change: Our Steve Madden handbag business remains a standout with revenue increasing more than 30% in the quarter compared to the same period of the prior year.
Speaker Change: We continue to see success with structured many satchels and cross bodies as well as on trend materials like denim and quality.
Speaker Change: We're also making strong progress in building, our Steve Madden apparel business, Steve Madden apparel revenue grew nearly 80% in the quarter and importantly overall sell through performance for spring was strong making us the leading brand in our department for the season in a number of our largest wholesale accounts.
Speaker Change: Just on this performance we are positioned for significant door expansion and expanded assortments within existing doors for Steve Madden apparel as we look to 2025.
Speaker Change: Turning to almost famous our new acquisition contributed $45 million in revenue in the quarter.
Edward R. Rosenfeld: The introduction of Madden Girl apparel through the All Most Famous platform is progressing nicely. Our third key business driver is expanding our direct-to-consumer business, led by digital. This year, we expect that business to make up less than 40% of our overall business as we have shifted our business mix to include a meaningfully higher penetration of revenue in international markets, accessories, and apparel categories, and direct-to-consumer channels. So, overall, our strong performance in the second quarter demonstrates the soundness of our strategy and our team's disciplined execution of that strategy.
Speaker Change: The introduction of Madden girl apparel through the almost famous platform is progressing nicely.
Speaker Change: After a successful launch at Macy's in Q1, we added costs for back to school and will be expanding to a number of additional retailers for fall.
Speaker Change: I didn't see apparel also continues to see robust sell through performance and a strong increase in orders compared to the prior year.
Speaker Change: Our third key business driver is expanding our direct to consumer business led by digital.
Speaker Change: <unk> revenue grew 6% in the second quarter, including a 4% increase on a comp basis and we remain on track to achieve our plan of high single digit growth in DTC for the year.
Speaker Change: We also drove gross margin expansion in DTC for the second consecutive quarter as our strong product assortments and disciplined inventory management enabled us to reduce promotional activity despite the challenging retail environment.
Speaker Change: Finally, our fourth key business driver is strengthening our core U S wholesale footwear business.
Speaker Change: Revenue in this business rose, 2% in the quarter, our private label business saw another quarter of strong growth, but this was partially offset by a decline in the branded business as many of our largest wholesale customers continue to take a cautious approach to orders.
Speaker Change: While this business remains important for us our strong overall results. Despite a muted performance in the U S wholesale footwear business demonstrate the progress and impact of our efforts to diversify our business over the last several years and reduce our reliance on wholesale footwear in the U S.
Speaker Change: Pre Covid 2019 U S wholesale footwear revenue excuse me represented 55% of our consolidated revenue.
Speaker Change: This year, we expect that business to make up less than 40% of our overall business as we have shifted our business mix to include a meaningfully higher penetration of revenue in international markets accessories, and apparel categories and direct to consumer channels.
Speaker Change: So overall, our strong performance in the second quarter demonstrates the soundness of our strategy and our team's disciplined execution of that strategy.
Edward R. Rosenfeld: Looking ahead to the balance of the year, while the operating environment remains choppy, we are on track to meet our financial goals for 2024. Now, I'll turn it over to Zine to review our second quarter financial results in more detail and provide our outlook for 2019. With that being said, good morning everyone.
Speaker Change: Looking ahead to the balance of the year, while the operating environment remains choppy, we are on track to meet our financial goals for 2024.
Speaker Change: Further we remain confident that the continued execution of our strategy will enable us to drive sustainable profitable growth and significant value for our stakeholders over the long term.
Speaker Change: And now I'll turn it over to Jim to review, our second quarter financial results in more detail and provide our outlook for 2024.
Zine Mazouzi: Our wholesale revenue was $385.3 million, up 22.5% compared to the second quarter of 2023. Accessories and Apparel revenue was $148.3 million.
Jim: Thanks, Ed and good morning, everyone.
Jim: In the second quarter, our consolidated revenue was $523 6 million, a 17, 6% increase compared to the second quarter of 2023 <unk>.
Speaker Change: Excluding almost famous.
Jim: <unk> revenue grew seven 5% compared to the same period in the prior year.
Jim: Our wholesale revenue was $385 3 million up 22, 5% compared to the second quarter of 2023.
Jim: Excluding almost famous wholesale revenue increased eight 2% compared to the same period in the prior year.
Jim: Wholesale footwear revenue was $237 million.
Jim: 9% increase from the comparable period in 2023 with strong growth in the private label business, partially offset by softness in the branded business.
Jim: Wholesale accessories, and apparel revenue was $148 3 million.
Jim: 86% for the second quarter last year or 29, 8% excluding almost famous.
Jim: Both our Steve Madden handbag and apparel businesses had outstanding growth compared to the same period last year.
Jim: And our direct to consumer segment revenue was $136 4 million, a six 4% increase compared to the second quarter of 2023, including a strong gain in brick and mortar and a more modest increase in e-commerce.
Zine Mazouzi: 6.4% increase compared to the second quarter of 2023. Excluding Almost Famous, the Consolidated Gross Margin increased 10 basis points year-over-year. And excluding Almost Famous, wholesale gross margin was also up 10 basis points year over year. Direct-to-consumer growth margin was 64.3%, up 60 basis points from the comparable period in 2023, driven by a reduction in promotional activity.
Jim: We ended the quarter with 273 company operated brick and mortar retail stores, including 68 outlets.
Jim: Commerce websites and 27 company operated concessions in international markets.
Jim: Turning to our licensing segment, our licensing royalty income was $1 8 million in the quarter compared to $2 5 million in the second quarter of 2023.
Jim: Consolidated gross margin was 41, 5% in the quarter versus 42, 6% in the comparable period of 2023 exclude.
Jim: Excluding almost famous consolidated gross margin increased 10 basis points year over year.
Jim: Wholesale gross margin was 33, 1% compared to 33, 6% in the second quarter of 2023 and.
Jim: And excluding almost famous wholesale gross margin was also up 10 basis points year over a year.
Jim: Direct to consumer gross margin was 64, 3%.
Jim: Up 60 basis points from the comparable period in 2023, driven by a reduction in promotional activity.
Zine Mazouzi: Operating expenses as a percentage of revenue were 31.1%, down from 32.6% in the second quarter of 2023. Operating income for the quarter was $54.5 million. 10.4% of revenue from $44.5 million, or 10% of revenue in the comparable period in the prior year. The expected tax rate for the quarter was 23.4% compared to 23.8% in the second quarter of 2023. Finally, net income attributable to Steve Madden Limited for the quarter was $41.2 million, or $0.57 per diluted share, compared to $34.9 million, or $0.47 per diluted share, in the second quarter of 2023.
Jim: Operating expenses as a percentage of revenue were 31, 1% down from 32, 6% in the second quarter of 2023.
Jim: Operating income for the quarter was 50, $54 5 million or 10, 4% of revenue.
Jim: From $44 5 million or 10% of revenue in the comparable period in the prior year.
Jim: The effective tax rate for the quarter was 23, 4% compared to 23, 8% in the second quarter of 2023.
Jim: Finally, net income attributable to Steve Madden Ltd for the quarter was $41 2 million or <unk> 57 per diluted share compared to $34 9 million or <unk> 47, and <unk> 47 per diluted share in the second quarter of 2023.
Zine Mazouzi: Moving to the balance sheet, our financial foundation remains strong. As of June 30th, 2024, we had $192.2 million of cash, cash equivalents, and short-term investments and no debt. Inventory at the end of the quarter was $241.6 million, up 16.3% from the prior year, and our CapEx in the second quarter was $5.3 million. During the second quarter, the company spent $38.2 million on repurchases of its common stock, including shares acquired through the Net Settlement of Employees Stock Award.
Speaker Change: Moving to the balance sheet, our financial Foundation remains strong as of June 32024, we had $192 $2 million of cash cash equivalents and short term investments and no debt.
Jim: Inventory at the end of the quarter was $241 6 million up 16, 3% to the prior year and our Capex in the second quarter was $5 $3 million.
Jim: During the second quarter, the company spent $38 $2 million on repurchases of its common stock including shares acquired through the net settlement of employee stock Awards.
Jim: The company's board of directors approved a quarterly cash dividend of 21 per share the dividend will be payable on September 23, 2024 to stockholders of record as of the close of business on September 13th 2024.
Zine Mazouzi: [inaudible] Turning to our outlook, we are maintaining our annual guidance. We continue to expect revenue for 2024 to increase 11% to 13% compared to 2023, and we continue to expect diluted EPS to be in the range of $2.55 to $2.65.
Jim: Turning to our outlook.
Jim: Maintaining our annual guidance, we continue to expect revenue for 2024 to increase 11% to 13% compared to 2023, and we continue to expect diluted EPS to be in the range of $2 55.
Jim: The $2 65.
Jim: Now I would like to turn the call over to the operator for questions Tanya.
Operator: Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile our Q&A list.
Speaker Change: Certainly as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile our Q&A roster and one moment from our first question it will come from <unk>.
Speaker Change: D N P. Paribus your line is open.
Unknown Attendee: Hey, good morning. Thanks for taking the questions. Can you hear me okay?
Speaker Change: Hey, good morning, Thanks for taking my questions can you hear me okay.
Speaker Change: Yes, good morning.
Speaker Change: Great. Thanks, so much wanted to start out with.
Speaker Change: The 11% to 13% revenue growth guidance for the year, just curious whether there are any changes to the composition of that guide from a segment perspective or from what youre expecting from almost famous.
Zine Mazouzi: No, really, in the same place as we were before, so still low to mid-singles in wholesale, high singles in DTC, and if we exclude almost famous overall, it's still mid-singles, so really, in the same place.
Speaker Change: No really in the same place.
Speaker Change: As we were before so still.
Speaker Change: Low to mid singles in wholesale hi.
Jim: High singles in DTC.
Jim: And if we exclude almost famous overall, it's still mid singles so really in the same place.
Unknown Attendee: And then on the accessories and apparel side, I think, next quarter, you start lapping some of the really strong growth in the handbags category. What should we think about the organic growth rate in the accessories and apparel segment going forward into the back half of the year?
Speaker Change: Perfect and then on the accessories and apparel side I think.
Speaker Change: Next quarter, you start lapping some of the really strong growth in the handbag category, how should we think about the organic growth rate in the accessories and apparel segment going forward into the back half of the year.
Zine Mazouzi: Yeah, that's right. We do start to lap much tougher comparisons. So we have built into the guidance a slowdown in that business.
Speaker Change: Yes, that's right we do start to lap much tougher comparison. So we have we have built into the guidance a.
Speaker Change: A slowdown.
Speaker Change: In that business.
Speaker Change: In fact in the back half.
Speaker Change: Excluding almost famous the guidance assumes kind of low singles wholesale accessories and apparel I do think given the momentum that if youre looking for sources of potential upside that that could be one, but that's how we built the forecast.
Speaker Change: Got it very clear thank you.
Avi: Thanks Avi.
Speaker Change: And one moment for our next question.
Speaker Change: Our next question will be coming from Sam Poser of Williams trading your line is open.
Samuel Marc Poser: Thanks, Good morning, Thanks for taking my questions everybody.
Samuel Marc Poser: What is the apples to apples store count.
Speaker Change: You said that you.
Speaker Change: If you are a business of 60.
Speaker Change: You were up four im just a little confused because it looked like your store count significantly up and I'm trying to figure out it sort of it.
Speaker Change: So all of our new DTC.
Speaker Change: And so we had 273 stores at the end of this Q2.
Speaker Change: A year ago, we had 242.
Zine Mazouzi: But keep in mind, we added 14 stores through those new JVs that came on at the tail end of the second quarter and didn't contribute much revenue in the quarter. So again, if you're looking at comp versus total, the comp was 4% or 4.1%, to be exact. And the overall revenue growth in DTC was 6.4%.
Speaker Change: Keep in mind, we open we added 14 stores do those new JV that came on at the tail end of the tail end of the second quarter and didn't contribute much much revenue in the quarter. So so again, if youre looking at comp versus.
Speaker Change: Total comp was 4% or four 1% to be exact and the overall revenue growth in DTC was six 4%.
Unknown Attendee: And then how much of that was driven by and how does that compare when you look at the comp and the breakdown of that between e-commerce, full line stores, and outlets? I mean, how do we think about that?
Speaker Change: And then how much of that was driven by and how does that when you look at the comp.
Speaker Change: The breakdown of that between e-commerce.
Speaker Change: Full line stores and outlets I mean, how do we think about.
Zine Mazouzi: So brick-and-mortar comp was 7% in the quarter. Digital was 1%. And then if you're looking in the U.S. at outlets versus full price, outlet would still perform better than full price. Although that gap has narrowed significantly, you know there was a period there where we were running... outlet was running 1,000 basis points or more higher comp than full price. It was only about a 300 basis point difference.
Unknown Attendee: Okay, and thank you. And then, and then secondly, on the branded footwear business. Um, how do you keep the Steve Madden, you know, all this apparel going, like how do you intend to get the Steve Madden and Dolce Vita and sort of the better brands going, given the cautiousness of your largest, your larger customers these days? Yeah, look, it certainly has been a challenge.
Speaker Change: Instead of your largest larger customers these days.
Edward R. Rosenfeld: Yeah, look, it certainly has been a challenging environment in the U.S. for branded wholesale footwear that resonates with consumers, and we think we're doing that. We feel very good about our product assortments. I think you attended Sam in June, the shoe show. The reaction to our collections from wholesale customers was very, very strong. We feel we've got an equally impressive collection to show next week. And we're just going to keep delivering the right products, and history tells us that when we do that, eventually, we'll see that in the numbers at wholesale.
Speaker Change: Yeah look at it certainly has been a challenging environment in that.
Speaker Change: U S branded wholesale footwear.
Speaker Change: Channel.
Speaker Change: And to your point, our customers have taken a pretty cautious approach.
Speaker Change: I think.
Speaker Change: What we need to do is focus on and what we are doing is just focusing on what we can control and that's delivering.
Speaker Change: The right product that resonates with consumers and we think we're doing that.
Speaker Change: We feel very good about our product assortments the most recent.
Samuel Marc Poser: Market weakness I think you attended Sam in June the shoe show.
Speaker Change: Reaction to our collections from the wholesale customers was very very strong.
Speaker Change: We feel we've got an equally impressive collection to show next week.
Speaker Change: And we're just going to keep delivering the right products in history tells us that when we do that.
Speaker Change: Eventually we will see that in the numbers in the wholesale channel.
Speaker Change: Thank you very much.
Tim: Thanks, Tim.
Operator: And one moment for our next question.
Speaker Change: And one moment for our first next question.
Speaker Change: Our next question will be coming from Tom Nikki <unk> of Wedbush Securities. Your line is open Tom.
Unknown Attendee: Hey, good morning. Thanks for taking my question. I'd like to ask about gross margins. Zine, I think at the start of the year, you were talking about gross margins being down 70 basis points. Obviously, it's been worse than that in the first half, largely due to the almost famous mix. But should we still think about gross margins for the year being down 70?
Tom Nikic: Hey, good morning, guys.
Tom Nikic: For taking my question.
Tom Nikic: I wanted to ask on gross margin.
Speaker Change: I think.
Speaker Change: Started the year you were talking about gross margins being down 70 basis points, obviously, it's been worse than that in the first half.
Speaker Change: Due to the almost famous mix like should we still think about gross margins for the year 2017.
Speaker Change: Yes.
Speaker Change: We're still maintain in that 41, 4% gross margin down 70 and.
Speaker Change: The impact as you know coming from almost famous.
Zine Mazouzi: is driving that margin down.
Speaker Change: Is driving that margin down.
Unknown Attendee: Got it. All right. Um, and then if I can follow up on Sam's question about branded footwear, you know, I think obviously, it's been a tough, tough environment. I guess like it's so slow to recover, and you know, even against pretty big declines from a year ago, you're still seeing pressure.
Speaker Change: Got it alright.
Speaker Change: Then if I could follow up on Sam's question about branded footwear I think obviously.
Speaker Change: It's been a tough.
Speaker Change: Tough environment.
Mike: I guess Mike.
Speaker Change: In your view add like what our inventory levels in the channel like the wholesale partners lean, but still nervous like do you feel like maybe they've got.
Speaker Change: More clearance inventory then they won I guess.
Speaker Change: Just like kind of a general macro fear that.
Speaker Change: Causing causing the caution there just I guess kind of.
Speaker Change: Help us understand like why.
Speaker Change: Yeah, it's so slow to recover even against pretty big declines from a year ago, you are still seeing pressure in there.
Edward R. Rosenfeld: Yeah, it's a good question. I do not think at this point that there is an issue with a lot of excess inventory in the channel. I think that, overall, the inventories in the channel are reasonably well-controlled. Obviously, I'm sure there are categories where certain retailers have more inventory than they like, but if you look at overall inventory levels, they appear to be in line. Power inventory levels are certainly in line.
Speaker Change: Yes, it's a good question.
Speaker Change: Do not think at this point that it's it's.
Speaker Change: An issue with a lot of excess inventory in the channel I think that overall the inventories in the channel are reasonably well controlled obviously I'm sure there are categories, where certain retailers.
Speaker Change: More and more inventory than they like but if you look at overall inventory levels they appear to be in line.
Speaker Change: Our inventory levels are certainly in line again, we think there are too low.
Edward R. Rosenfeld: Again, we think they're too low. We think that if they had more of our goods on the floor, we would do more business. But I don't think that's the issue. I think the bigger issue is that if you look at a lot of the big wholesale customers that are important for us in the U.S. The majority of them are still seeing, you know, soft sales, and many of them are still comparing negatively and still are cautious on their overall, you know, sales forecast in footwear. And I think that's leading them to continue to be cautious.
Speaker Change: And we think that if they had more of our goods on the floor that we would do more business.
Speaker Change: But I don't think Thats the issue I think the bigger issue is that if you look at.
Speaker Change: Lot of that.
Speaker Change: The big wholesale customers that are important for us in the U S.
Speaker Change: The majority of them are still seeing relatively.
Speaker Change: Soft sales and many of them still comping negatively.
Speaker Change: And still.
Speaker Change: Our cautious on their overall.
Unknown Attendee: And if I could speak one more time on DTC, I believe you said, you know, you're still expecting high single-digit growth for the full year, given that you've got the contribution from the distributors that you turn to the JV, which I assume, you know, converts some revenue from wholesale to retail, unless the account I don't understand the accounting treatment. But if that's the case, should we assume that the comp growth that's embedded in guidance is slower than what you saw in the first half?
Zine Mazouzi: No, no, we think that we should expect COPS to remain roughly in line with where they've been.
Unknown Attendee: Thanks guys, best of luck with the rest of the year.
Operator: And one moment for our next question. Our next question will be coming from Janine Stichter of VTIG. Your line is open.
Janine Marie Hoffman Stichter: Hi, good morning. I guess to start a question for Zine, I was wondering if you could comment on freight and what you're seeing. I think you recently went through the process of renegotiating your contracts. So, kind of, some visibility in terms of what you've locked in and what you're seeing more broadly on the freight side.
Zine Mazouzi: Yes. Hi Janine.
Zine Mazouzi: We We talked about the freight just opening in spring and all those upcharges and everything that was happening before this recent development, and we were able to actually mitigate most of that in spring. And we negotiated our contracts, as we normally do in April, and those contracts, as previously mentioned, were somewhere around the 1500 range for imports from China. And the balance, we just negotiate on the spot, and we typically come in below what is quoted out there. Great.
Speaker Change: About the freight just to open.
Speaker Change: Spring and all of those up charges and everything that was happening before this.
Speaker Change: <unk> development, and we were able to actually.
Speaker Change: Mitigate most of that in spring and renegotiated our contracts as we normally do in April and those contracts as previously mentioned, we're somewhere around the 500 range for imports from China.
Speaker Change: What we're seeing in the spot rate is I think everybody is talking about it rates are 7000 to $9000 at the spot.
Speaker Change: We're able to.
Speaker Change: Use our relationship and continue to realize at least two thirds of our imports falling under our contractual rates and the balance would just negotiate in the spot and we typically come in below what.
Speaker Change: This quarters out there.
Janine Marie Hoffman Stichter: Great, that's a helpful color. And then maybe for Ed, you know, on the wholesale business or business in general, we'd love to just hear how you're thinking about where we are kind of in the product cycle. I know you've talked about some of the casual court sneakers, potentially being a little bit of a headwind for you with just how successful they've been. So where do you think we are on that? And maybe just speak a bit about what you're seeing from a product trend standpoint.
Speaker Change: Great. That's helpful color and then maybe for Ed.
Edward R. Rosenfeld: Wholesale business on the core business in general wed love to just hear how you're thinking about where we are kind of in the product cycle I know you've talked about some of the casual sneakers potentially being a little bit of a headwind for you with just how successful they've been so where do you think we are in that and maybe just speak a bit to what youre seeing for a product set standpoint.
Edward R. Rosenfeld: Yeah, I'm sorry. So the question is, we're having a conversation. I just wanted Zine to, if we could just pause, can Zine just give you the impact on the frame? Because I think that's important. Yeah, so the impact that we have built in to our guide now is about 40 basis points. And if you recall, previously, we were talking about 20 that was already built in. So now it's around 40 basis points, which is impacting us all in fall. So it's a heavier impact on fall, about 70 bps.
Speaker Change: Yeah, I'm sorry, so the question.
Speaker Change: 370 conversation I just wanted to see if.
Speaker Change: We could find it.
Speaker Change: And Jim just to give you the impact on the spring because I think that's important yeah. So the impacts that we have built in in our guide now is about 40 basis points and if you recall previously we were talking about 20 that was already built in so now its around 40 basis points, which is impacting us.
Speaker Change: All in fall so it's the heavier impacts on fall about 70 bps.
Speaker Change: I'll, let us take the next question if you can repeat it that would be great.
Zine Mazouzi: Where we are in fashion, thank you.
Speaker Change: It's about where we are in fact I should thank you Greg.
Unknown Attendee: Just to clarify, you're maintaining the growth margin guide, but there's a slightly bigger headwind for freight built-in. Okay, yeah, no second question.
Speaker Change: Just to clarify on that Youre, maintaining the gross margin guide, but theres, a slightly bigger headwind for free.
Edward R. Rosenfeld: It was just kind of where we are in terms of the fashion cycle. You know, you've talked about some of the casual court sneakers, maybe eating a little bit into the fashion side of the business and being a headwind for the Madden brand. So just, you know, what you're seeing product-wise and where you think we are in that fashion cycle.
Speaker Change: Correct.
Speaker Change: Correct, Yes, and then second question I was just kind of where we are in terms of the fashion cycle you talked about some of the casual sneakers, maybe even a little bit into the fashion side of the business and being a headwind for that matter in brand. So just what youre seeing product trend wise and where you think we are in that cycle.
Speaker Change: Yeah look I think that we've got some.
Speaker Change: Some interesting new fashion to capitalize on we've also introduced some new sneakers recently that are getting a very good reaction in our direct to consumer channels.
Speaker Change: So we feel very good about that new sneaker package.
Speaker Change: Foods are running.
Speaker Change: Head in our DTC channels.
Speaker Change: In July from where they were a year ago, although it's obviously.
Speaker Change: I don't want to try too many conclusions from that because it's early in the season, but thats encouraging and.
Speaker Change: And we see some interesting things happening in the dress category as well so overall.
Speaker Change: It's not the most robust fashion cycle I've ever seen but I think that.
Speaker Change: We feel pretty good that there are some things to capitalize on here.
Speaker Change: Perfect. Thanks, so much.
Operator: Thank you. One moment for our next question. Our next question will come from Paul Lejuez of Citi. Your line is open.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question will come from Paul <unk> of Citi. Your line is open.
Paul Lawrence Lejuez: Hey, thanks, guys. I'm curious how you characterize the promotional environment out there, both in the DTC channel, but also what you're seeing in terms of the need for discounting on the wholesale side. And just how did that come in relative to what you planned for for 2Q, just promotions in general? I think for DTC, you said reduce promotional activity, but curious relative to plan if it was what you thought.
Paul Lawrence Lejuez: Thanks, guys.
Paul Lawrence Lejuez: How you would characterize the promotional environment out there both in.
Speaker Change: DTC channel, but also what youre seeing in terms of the need for discounting on the on the wholesale side and just how did that come in relative to what you plan for <unk> promos in general I think on DTC.
Speaker Change: You said reduce promotional activity, but curious relative to plan.
Speaker Change: You saw.
Edward R. Rosenfeld: Yeah, I would say that the promo activity out there is normal. You know, it's not super aggressive, but it's I wouldn't characterize it as light either.
Speaker Change: Yes, I would say that.
Speaker Change: Promo activity out there we would characterize it as normal.
Speaker Change: It's not super aggressive, but I wouldn't characterize it as light either.
Zine Mazouzi: And it came in pretty much where we expected it to, you know. We had I'm pretty pleased with the gross margin performance in Q2, all the way around. We were ahead in DTC in gross margin compared to where we were a year ago. And in wholesale, if you back out the impact of Almost Famous, we were ahead there. And even if you drill down further, you know, in footwear, if you exclude the mixed impact from the greater private label, we were up, and again in accessories and apparel, if you exclude the impact of Almost Famous, we were up. So all the way around, a nice organic improvement in gross margin.
Speaker Change: And it's.
Speaker Change: It came in pretty much where we expected it to we had.
Speaker Change: I'm pretty pleased with the gross margin performance in Q2, all the way around.
Speaker Change: As.
Speaker Change: You pointed out we were we were ahead in DTC.
Speaker Change: Gross margin compared to where we were a year ago.
Speaker Change: And in wholesale.
Speaker Change: If you back out the impact of almost famous we were ahead, there and even if you drill down further and footwear.
Speaker Change: If you don't if you exclude the mix impact from the greater private label, we were up.
Speaker Change: And again in accessories and apparel, if you exclude almost famous impact we were up so so all the way around nice organic improvement in gross margin.
Speaker Change: In the quarter.
Edward R. Rosenfeld: Got it. And then second, there's lots of talk out there about higher tariff potential on imports from China. Can you just remind us of where you are just in terms of your current source and exposure to China? What percent of total sales is China to US products specifically? And just what the strategy and plan of attack would be if we did see higher tariffs?
Speaker Change: Got it and then secondly, we want to talk out there about higher potential.
Joe: I'm Joe on imports from China can you just remind us.
Joe: Where you are just in terms of your current sourcing exposure to China what percent of total sales in China to U S products, specifically and just what the strategy and plan of attack would be if we do see higher thank you.
Joe: Sure.
Edward R. Rosenfeld: The U.S. is about 81% of our total business, and of the goods that come into the U.S., about 75% of them currently come from China. You may remember several years ago that number was about 95% coming from China, so we have brought that down a bit by diversifying to countries like Cambodia, Vietnam, and Mexico. But you know, as we've talked about previously, our philosophy here has been to migrate or diversify to these other countries methodically so we don't [inaudible] be able to step on the accelerator and move much more quickly if we have to.
Speaker Change: So.
Speaker Change #102: The U S is about 81% of our total business.
Speaker Change: And of the goods that come into the U S about 75% of them currently come from China.
Speaker Change: So.
Edward R. Rosenfeld: So right now, we're obviously moving a little bit more aggressively out of China, and you'll see that number come down a little bit faster than it has come down over the past few years. But also, again, we'll be prepared such that if new tariffs were implemented and we needed to move much faster, we feel we're in a position.
Edward R. Rosenfeld: There are certain percentages that you just can't get below when you think about China as a whole.
Edward R. Rosenfeld: Well, No, I don't think so. I mean, I think that, But, you know, obviously, the faster we go, the more risk is associated with that. And so we'd like to do this methodically. I would like to, you know, if we could, we could go forward and bring it down by 10% per year. That I think is something we could do comfortably. And, you know, without a lot of risk to sales or gross margin. If we have to go much faster than that, then it becomes more challenging.
Speaker Change: Okay.
Speaker Change: I think it's something we could do comfortably and.
Speaker Change: Without a lot of rest of the sales or gross margin. If we have to go much faster than that then it becomes more challenging.
Unknown Attendee: Yeah, thanks. Just one follow up. I think you said something was working well in July. Can you just repeat what you said and any comments on quarter to date in general?
Speaker Change: Got it.
Speaker Change #100: A follow up I think you said something.
Speaker Change: Working well in July can you just repeat what you said and I did comment on quarter to date in general thanks.
Edward R. Rosenfeld: Something was working well in July. Oh, yeah, I think we were talking about product trends. I think, you know, we've introduced a new sneaker package, which is doing very well in our DTC channels. And I also mentioned that boots are running ahead of LY in DTC.
Speaker Change: Something is working well in July.
Speaker Change: Oh yeah.
Speaker Change #101: We were talking about product trends I think.
Speaker Change: We've introduced a new sneaker package, which is doing very well in our DTC channels and I also mentioned that boots are running ahead of of LOI in DTC.
Paul Lawrence Lejuez: Thank you. Good luck!
Speaker Change #132: Thank you good luck.
Operator: And one moment for our next question. Our next question will be coming from Aubrey Tianello of PNB Paribas. Your line is open. And I'm sorry, Aubrey, your line is open. Moving to our next participant. Our next question will be coming from Laura Champine of Loop. Your line is open, Laura.
Speaker Change #129: And one moment for our next question.
Speaker Change: Our next question will.
Aubrey Leland Tianello: We will be coming from Ambry TLO.
Speaker Change: Of <unk> your line is open.
Speaker Change: And I'm sorry, <unk> your line is open.
Speaker Change #113: Moving to our next participant.
Speaker Change #120: Our next question will be coming from Laura Champine of loop. Your line is open Laura.
Laura Allyson Champine: Thanks for taking the question. Given that the results in the first half have been relatively strong, does your back half guidance imply a tougher Q4 just given the calendar and, and the election? Like, are you being relatively conservative on the macro? Or is this just the growth in purses and the lapping growth of almost famous?
Laura Allyson Champine: Thanks for taking the question.
Laura Allyson Champine: Given the results in the first half have been relatively strong.
Laura Allyson Champine: Does your back half guidance imply a tougher.
Laura Allyson Champine: Q4, just given the calendar and in the election like are you being relatively conservative on the macro or is this just.
Speaker Change: The the growth in purses.
Speaker Change: And the lapping growth of almost famous.
Speaker Change: Yeah.
Edward R. Rosenfeld: I think it's some of both. We do face much tougher comparisons in the back half than we do in the first half. So that's reflected in the guidance. We also do have some meaningful headwinds in the back half that we didn't have in the first half. So Zine called out the freight impact. That's about $0.09 of headwind in the back half that we built in from freight. And then there's also a tax impact of about $0.08, almost all in Q4, that we didn't have in the back half. So about $0.17 of headwinds there. And then, in addition to that, I think we have tried to be relatively conservative about how we think about the macro, given all the uncertainty in the balance sheet.
Speaker Change #117: I think it's I think it's some of both.
Speaker Change: We do face much tougher comparisons in the back half than we do in the first half. So that's reflected in the guidance. We also do have some.
Speaker Change: Meaningful headwinds in the back half.
Speaker Change: We didn't have in the first half so <unk> called out the freight impact that's about nine cents.
Speaker Change: The headwind in the back half that we built in from freight and then there is also.
Speaker Change: A tax impact, which is about <unk> almost all in Q4.
Speaker Change: Again, we didn't have in the back half so about 17 cents of headwinds there and then and then in addition to that you know I think we have tried to be relatively conservative about how we think about the macro given given all the uncertainty through the balance of the year.
Laura Allyson Champine: And then to just maybe keep us more in line with your thinking. So the implication is, earnings are down in the back half of the year. Is that a more extreme impact in Q4 given the tax change? Or how should we think about the quarters? Assuming you're willing to give that kind of granularity? Yes.
Speaker Change: And then to just maybe keep us there.
Speaker Change: More in line with your thinking so the implication is earnings down in the back half of the year is that a more extreme impact in Q4, given the tax change or how should we think about the quarters and assuming you're willing to give that kind of granularity.
Edward R. Rosenfeld: Yes, absolutely. Q4 is the quarter where you should see the decline because of the tax impact.
Speaker Change #116: Yes, absolutely.
Speaker Change: Sure.
Speaker Change #104: Q4 is the quarter, where you should see that decline because of the tax impact.
Speaker Change #110: Got it thank you.
Operator: One moment for our next question. Our next question will be coming from Corey Tarlowe of Jeffries. Your line is open.
Speaker Change: One moment for our next question.
Speaker Change #107: Our next question will be coming from Macquarie Carlo of Jefferies. Your line is open.
Speaker Change #118: Great. Thanks.
Corey Tarlowe: Ed, maybe if you could just give us an update on Almost Famous and how that's tracking versus expectations, that would be great.
Speaker Change: Ed maybe if you could just give us an update on almost famous and how that's tracking versus expectations that'd be great. Thanks.
Edward R. Rosenfeld: Yeah, I'm really pleased with the performance of Almost Famous so far and how that's going. I mentioned the success that we're having with Madden Girl and Madden NYC, the apparel brands that are running through that platform. And then, in terms of the overall financials, revenue is really tracking right where we thought it would be, and so far, we are running a little bit ahead on profitability. So some of the gross margin improvement and operating efficiencies that we were looking for are coming a little bit faster than we originally anticipated.
Speaker Change: Yeah.
Edward R. Rosenfeld: Really pleased with that.
Speaker Change #108: With the performance of almost famous so far and how that's going and I mentioned the.
Speaker Change #109: The success that we're having with Madden girl and Madden NYSE.
Speaker Change: The apparel brands that were running through that platform. So that's.
Speaker Change: It's very exciting to see and then in terms of the overall financials. The revenue is really tracking right, where we thought it would be.
Speaker Change: And so far we are running a little bit ahead on profitability. So some of the gross margin improvement and operating efficiencies that we were looking for are coming a little bit faster than we originally anticipated.
Corey Tarlowe: And then maybe just on the MEA, you've highlighted that multiple times as a really significant growth driver for the business. Are there any regions specifically where you've seen outsized growth? Any specific products that are responding in the geography? I'm just curious to see what you think of the success that you've seen there and what might drive that growth ahead. Thanks.
Speaker Change: Great.
Speaker Change #126: And then maybe just on EMEA.
Speaker Change #123: Delighted that multiple times as a really significant growth driver for the business are there any regions, specifically, where you've seen outsized growth.
Speaker Change #111: Any specific products that are resonating in that job in the geography, just curious to see what.
Speaker Change #124: What you think of the success that you've seen there and what might drive that great. Thank.
Speaker Change #128: Thank you.
Edward R. Rosenfeld: So over the last several years, the biggest driver has been continental Europe, and that continues to outperform. But more recently, we're getting a bigger contribution from the new joint venture in the Middle East, as well as this joint venture in South Africa, which has just been red hot. And then in terms of products, what we do see is that we have a much higher penetration of fashion sneakers in that region, and that's been really critical. A growth driver for us is the performance that we're having with our seekers. And then, secondarily, I would say we're doing quite well with handbags in that region, and that's been an important part of the growth.
Speaker Change #105: So over the last several years is the biggest the biggest driver.
Speaker Change #121: It has been continental Europe.
Speaker Change #121: And that continues to outperform.
Corey Tarlowe: Great. Thank you so much.
Speaker Change #105: More recently, we're getting a bigger contribution from <unk>.
Speaker Change #105: New joint venture in the Middle East.
Speaker Change #105: As well as this joint venture in South Africa, which has just been red Hot.
Speaker Change #105: And then in terms of products, what we do see is that we have much higher penetration of fashion sneakers in that in that region.
Speaker Change #105: And thats been really critical.
Speaker Change #105: Growth driver for US is the performance that we're having with our sneakers.
Speaker Change #105: And then secondarily I would say, we're doing quite well with handbags.
Speaker Change #105: In that region and Thats been important part of that of the growth story.
Speaker Change #144: Great. Thank you so much.
Speaker Change #114: Thank you.
Speaker Change #127: Our next question.
Jay Daniel Sole: Thank you. Our next question will be coming from Jay Sole of UBS. Your line is open, Jay.
Speaker Change #112: Our next question will be coming from Jay sole of UBS. Your line is open.
Edward R. Rosenfeld: Great, thank you so much. Ed, you mentioned Boots in your comments just a few questions ago. Just talk about how you're thinking about the Boots business heading into 4Q and how your retail partners are thinking about the Boots business in Q4, just given what happened last year and just given the choppy consumer environment that you cited before.
Jay Daniel Sole: Great. Thank you so much Ed you mentioned boots and your comments just a few questions ago can you just talk about how youre thinking about the boot business heading into <unk> and how have your retail partners are thinking about the boot business in Q4, just given what happened last year and.
Speaker Change #115: Just given the choppy consumer environment that you said it before.
Edward R. Rosenfeld: Yeah, it's a good question. Look, I definitely, you know. Please see the complete disclaimer at https://sites.google.com. We have obviously built that into our forecast here. In terms of how we're thinking about it, I think we've tried to take a fairly conservative look at that category as well, even in our DTC channels, although I do feel good about the product assortment that we have and some of the early indications we have on those products. Certainly hoping that that can be a source of potential.
Edward R. Rosenfeld: Yes, it's a good question look I definitely.
Speaker Change #139: We will tell you that the industry in the wholesale customers I think are cautious overall on the fashion boot category, our wholesale customers are planning that category.
Speaker Change #125: <unk> we have.
Speaker Change #125: <unk> built that into our forecast here.
Edward R. Rosenfeld: In terms of how we're thinking about it I think we've tried to take a fairly conservative look.
Edward R. Rosenfeld: At that category as well even in our DTC channels.
Edward R. Rosenfeld: Although I do feel good about the product assortment that we have and some of the early indications we have.
Edward R. Rosenfeld: On those products so.
Edward R. Rosenfeld: Certainly, hoping that that can be a source of potential upside.
Unknown Attendee: Obviously, you know, the company is always in a position to turn the inventory faster and get to market faster than everybody else. But I mean, in this season, where last year was kind of tough, people taking a conservative approach, are you, is there any way you're gonna find to maybe position a little inventory to chase them upside if it materializes in the winter, if the weather's cold, and you know, if the [inaudible]
Edward R. Rosenfeld: Obviously, the company is always in a position to.
Speaker Change #131: Turn the inventory faster and get to market faster than everybody else, but I mean in the season, where last year was kind of tough people were taking a conservative approach are you is there any way you can find that maybe position with inventory to chase some upside if it materializes if the winter if the weather is cold and it's just that the environment cooperates.
Edward R. Rosenfeld: Yeah, we'll always be prepared to chase if the opportunity arises, and obviously, we have our boots in Mexico and have the ability to move quite quickly when we're working out of Mexico because of the reduced transit times. So we will have some ability to chase in that category.
Speaker Change #140: Yes, well always be prepared to.
Speaker Change #122: To chase.
Speaker Change #122: If the opportunity arises.
Speaker Change #130: Obviously, we have our.
Speaker Change #130: It makes.
Speaker Change #130: Boots in Mexico, and have the ability to move quite quickly when were working out of Mexico because of the reduced transit times.
Speaker Change #130: So we will have some ability to chase in that category.
Speaker Change #130: If that opportunity is there.
Jay Daniel Sole: Got it, okay? Thank you so much.
Speaker Change #150: Got it okay. Thank you so much.
Samuel Marc Poser: And our next question is a follow-up from Sam Poser of Williams Trading. Your line is open.
Speaker Change #130: And our next question is a follow up from Sam Poser.
Samuel Marc Poser: Thank you. There are two things. One, are you anticipating that wholesale branded footwear improves in the back half given the response you mentioned from the retailers that sold the product a couple of months ago, and we'll see the product again next week? wholesale footwear because it works. I mean, because that's really the story here, I would think that you have lower gross margin on the private label but very little SG&A. And then you have more SG&A attached to the higher margin, higher gross margin branded stuff. So if you could just give us some color there, and I have one other question.
Samuel Marc Poser: Of Williams trading your line is open.
Samuel Marc Poser: Thank you two things.
Samuel Marc Poser: One when we think are you anticipating that the branded footwear.
Speaker Change #136: Wholesale branded footwear improves in the back half given the response you mentioned from.
Speaker Change #133: The retailers that sell a product a couple of months ago, and we will see the product again next week and then if you can talk about how the EBIT margin in.
Speaker Change #152: Wholesale footwear because works I mean, because that's really the story here I would think that you have lower gross margin on the.
Speaker Change #133: On the private label, but very little SG&A and then you have the you have more SG&A attached to the higher margin higher gross margin branded stuff. So if you could please.
Speaker Change #135: Give us some color there and I have one other question.
Edward R. Rosenfeld: Sure. Yeah, we, we, we do expect that the branded wholesale footwear business is going to be better in the back half than it was in the first half. It was, it was obviously down in the first half. And we expect it to be up in the low single digits in the back. I would say, flatish in Q3 and then improving in Q4.
Speaker Change #135: Sure.
Speaker Change #133: Yes.
Speaker Change #147: We do expect that the branded wholesale footwear business is going to be better in the back half than it was in the first half. It was it was obviously down in the first half and we expect it to be up.
Speaker Change #143: Low singles in the back half.
Speaker Change #137: I would say more.
Speaker Change #137: More flattish in Q3, and then improving in Q4.
Edward R. Rosenfeld: In terms of the EBIT margins in wholesale footwear, I think you... I want to hit the nail on the head that private label obviously has a much lower gross margin than the branded business, but it also has a lower operating expense structure, and so the gap between the EBIT margins is not as wide as the gap between the gross margins. Nevertheless, obviously, the branded business still has a considerably higher EBIT margin than the private label business. We do see the wholesale footwear EBIT margin coming down this year because of that mix show.
Speaker Change #137: In terms of the EBIT margins in wholesale footwear I think you've.
Speaker Change #133: Yes.
Speaker Change #151: You hit the nail on the head that.
Speaker Change #134: Private label, obviously has a much lower gross margin than the branded business, but it also has a lower operating expense structure.
Speaker Change #134: And so the gap between the EBIT margins is not as wide as the gap between the gross margins. Nevertheless, obviously the branded business still has a considerably higher EBIT margin than the private label business.
Speaker Change #134: And so.
Speaker Change #134: Yes.
Speaker Change #134: We do we do see the wholesale footwear EBIT margin coming down this year because of that mix shift.
Samuel Marc Poser: Gotcha. And then, thank you. And then the boots, you mentioned the boots were selling well. I know it's early in July, but can you give us some idea of what type of boots people are responding to?
Speaker Change #149: Got you and then thank you and then.
Speaker Change #145: You mentioned the boots were selling I know it's early in July but can you give us some idea of what type of boots people are responding to.
Speaker Change #134: Initially.
Edward R. Rosenfeld: You know, honestly, this early in the season, for competitive reasons, I'd rather not.
Speaker Change #134: Yes.
Speaker Change #146: This early in the season for competitive reasons.
Speaker Change #138: I'd rather not.
Samuel Marc Poser: understood. Thank you.
Speaker Change #142: Understood. Thank you.
Tim: Thanks, Tim.
Edward R. Rosenfeld: And I would now like to turn the conference back to Ed Rosenfeld for his closing remarks.
Tim: And I would now like to turn the conference back to Ed Rosenfeld for closing remarks.
Edward R. Rosenfeld: Great, well, thanks everybody for joining us today. Enjoy the rest of the day. We look forward to speaking with you on the next call.
Edward R. Rosenfeld: Great well, thanks, everybody for joining us today.
Speaker Change #141: The rest of the day, we look forward to speaking with you on the next call.
Operator: And this concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change #148: And this concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change #141: Yes.
Tim: [music].
Tim: Okay.