Q2 2019 Earnings Call

At this time all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow up that's fine.

If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone as a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host Danielle Mcauley director of corporate development and Investor Relations Ma'am. Please go ahead.

Thanks, Tom and good morning, everyone.

I'd like to thank you for joining our second quarter 2019 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.

Generally these statements relate to projections involving anticipated revenues earnings or other aspects of the company's operating results.

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 FCC from time to time include detailed discussions of the risk 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 required under applicable law.

The financial results discussed 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 is Ed Rosenfeld, the chairman and CEO Assi, Matt with that I'll turn it over to Ed.

Thanks Danielle.

Good morning, everyone and thank you for joining us to review, Steve Madden second quarter 2019 results.

We delivered a strong second quarter with net sales growing 12% and diluted EPS, increasing 16% compared to the prior year.

Our flagship Steve Madden brand was the highlight with strong performance in the wholesale footwear and accessories businesses in both domestic and international markets as well as exceptional growth on Steve Madden Dotcom.

The company's largest segment wholesale footwear recorded net sales growth of 14% despite the headwind from not recognizing sales to pay less.

Our core Steve Madden women's U.S. wholesale footwear business had a double digit percentage sales increase compared to the prior year period for the third consecutive quarter as Steve and his design team continue to create on trend merchandise assortments that are resonating well with consumers and enabling us to significantly outperform the competition.

In the second quarter, we saw strength across a range of product categories, including sandals, which some have called out as a soft category. This year, where we saw significant success.

Wholesale footwear net sales also benefited from the addition of our new license and fine as well as strong growth in our non pay last private label business.

In wholesale accessories net sales increased 12% in the quarter, our fourth consecutive quarter of double digit year over year sales growth in that segment.

Once again, Steve Madden handbags in our private label Division was the standout performers.

We also benefited from the addition of the incline handbag business.

In retail.

Overall sales were up 10% with comparable store sales, increasing 6.2% driven by outstanding performance in our ecommerce business.

By category Sandals, and fashion sneakers drove the largest gains handbags also saw strong growth in retail.

Overall, we were very pleased with our second quarter performance as we look ahead, while we face a number of headwinds, including the payless bankruptcy and the tariff on handbags, we remain confident in our positioning mostly because of the strong momentum in our flagship Steve Madden brand, which has been a clear outperformer in a tough retail environment.

Before I turn it over to Danielle to walk you through the financials in more detail I wanted to provide two additional updates. The first is on the current tariff situation that I just alluded to.

When we spoke to you on the first quarter earnings call. The tariff on lift three products, which include handbags and certain other accessories that we produce was at 10%.

As a reminder, that the 10% level. We believe we have mitigated the vast majority of the negative impact of the terror through the use of two levers one moving production out of China, primarily to Cambodia.

And to receive in price concessions from our factories on goods that remained in China.

In May the Trump administration increased the tariff on list three from 10% to 25% where it remains today.

We have since gone back to the factories in China for additional price concessions and have also began pulling a third lever which is raising selling prices.

That said at a tariff level of 25% there is no way to mitigate the entire impact. We currently estimate that the negative impact to 2019 earnings from the tariffs net of mitigation will be approximately five cents per share.

The second update is with respect to our joint venture in China.

In recent earnings calls, we have been transparent that our China JV was not performing to our expectations and we and our partner have now agreed to terminate that relationship.

We are in the process of winding down the JV within about a week, we will have closed all but one location.

We do however continue to believe that China remains a significant opportunity for the company and we are far along in discussions to form a new JV with a strong partner that shares our vision for the brand.

We expect to be in a position to disclose the new partner and update you on our plans by the time, we have the third quarter earnings call.

With that I'll turn it over to Danielle to review our financial results in more detail.

Thanks, Dennis we are pleased with our second quarter performance.

Our consolidated net sales increased 12.4% to 445 million compared to prior year net sales of 395.8 million.

Wholesale footwear net sales increased 13.5% to 286.2 million.

Led by strong growth of our core Steve Madden brand. The addition of bank line and the growth of our private label business, which increased in the quarter, despite not recognizing sales to dealers.

In wholesale accessories, net sales increased 11.5% to $77.3 million.

The man in handbags, and private label handbags, where the growth drivers in the corner.

Wholesale accessories also benefited from the addition of incline.

In our retail segment net sales increased 9.6%.

To 81.5 million.

Our same store sales increased 6.2%.

Steve Madden Dot com was up over 50% for the second quarter in a row.

We ended the quarter with 224 company operated retail stores, including 66 outlets and six ecommerce stores as well as 31 operated concessions in international markets.

Turning to other income our licensing royalty income net of expenses was $2.2 million in the quarter compared to 1.6 million in last year's second quarter, well first cost Commission income was zero point $8 million compared to 0.6 million last year.

Consolidated gross margin decreased 10 basis points to 37.2%.

Compared to 37.3% in the prior year.

Wholesale gross margin increased to 32.1% for the quarter compared to 31.4% in the prior year quarter.

The increase in wholesale gross margin compared to last year was driven by an increase in wholesale footwear.

Due primarily to sales mix as well as a modest increase on an apples to apples basis.

This was partially offset by margin pressure in wholesale accessories, driven primarily by sales mix and the impact of the list three terrorists.

Retail gross margin was 59.7% compared to 62.9% in the prior year period, due primarily to the inventory liquidation and markdowns in connection with the wind down of the company's joint venture relationship in China.

As well as aggressive liquidation of slow moving inventory in our North American retail operation.

Operating expenses for the quarter.

Increased to 119.3 million or 26.8% of net sales compared to operating expenses of 106.1 million or 26.8% of net sales in the same period last year.

Operating income for the quarter totaled $49.1 million or 11% of net sales.

Compared to last year's second quarter operating income of 44 million or 11.1% of net sales.

Our effective tax rate for the quarter was 22.4% compared to 21.7% in the same period last year.

Finally, net income for the quarter was $39.5 million or 47 cents per diluted share compared to 35.2 million or 41 cents per diluted share in the second quarter of 2018.

Moving to the balance sheet.

Our financial Foundation remains strong.

As of June Thirtyth, 2019, we had 248.8 million of cash and marketable securities and no debt.

Inventory totaled 146.1 million compared to $133.6 million in the prior year, an increase of 9.3%.

Our consolidated inventory turn for the last 12 months ended June Thirtyth.

It was 7.9 times and our Capex in the quarter was $2.8 million.

During the quarter, we repurchased approximately 1.1 million shares for $34 million, which includes shares acquired through the net settlement of employee stock Awards.

Last the company's board of directors declared a quarterly cash dividend of 14 cents per share.

The dividend will be payable on September 27, 2019 to stockholders of record as of the close of business on September 17 2019.

Since 2013, we have returned nearly 800 million to our shareholders in the form of share repurchases and dividends.

Now turning to our guidance.

We are maintaining our 2019 net sales and EPS guidance. Despite an estimated incremental headwind of approximately five cents per share related to the increase in the tariff on list three products from China from 10% to 25% in effect as of May 10.

For the full year 2019, we continue to expect net sales growth of 5% to 7% and diluted EPS in the range of $1.70 to $1.86.

While we don't provide specific quarterly guidance for modeling purposes. Please note when combining the headwind related to pay less the terrorists and a higher tax rate. There is a 10 cents negative impact to third quarter earnings compared to the prior year.

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

[noise].

Operator.

At this time I would like to remind everyone. If you have a question, though police perspective, and then the number one on your Touchtone telephone.

If your question has been answered or wish to remove yourself from the queue lease press the pound key.

[noise].

Our first question comes from the line of Erinn Murphy.

From Piper Jaffrey Your line is open.

Great. Thanks, good morning, and nice job on a on a in a tough market. So a couple of questions for you Ed first maybe if you could just reflect on the North American wholesale environment I'm, just curious kind of how you feel about it heading into the back half whether you can comment on.

Inventory levels in the channel maybe by some of your key account mass merchants off price or department stores, and then just you've seen a lot of strength I'm really broad spread across your style portfolio, whether its sandals or sneakers, just maybe speak to what's giving you confidence into the back half from a style perspective.

[noise].

Sure, Yes, I think overall.

The retail environment in in the us in the first half was was pretty challenging.

We had a lot of our big wholesale customers that.

I think we're a little bit disappointed and perhaps missed their sales plans.

You asked a question about the different channels I mean, I think clearly if you look at the overall numbers it looks like the value price channels performed a little bit better than mass merchants the off pricers in terms of the topline.

But generally speaking it was a challenging environment and that's why we were.

I'm, particularly pleased with our performance because we really.

Particularly in our Steve Madden brand, we're really significant outperformer this spring.

And so very strong increases really across the different customers that we sell into even even in cases, where their overall business is we're not that strong.

In terms of the what we're seeing from a style perspective.

Look right now we're still selling a lot of selling lot of sandals, It's obviously a buy now.

We are now world and.

And sandals are continued to be very important for us doing great with our flat forms with our wedge is also some flat sandals.

Sneakers.

Of course continued to be very important and we think that will be very increasingly important as we as we get into back to school here.

And even into fall.

And then we also feel optimistic about boots. This year, we've had some really good early reads on boots and booties. So thats something that I think we feel a little bit better about this time of year than we have in a few years.

Got it that's helpful. And then maybe just isn't really early read through these read that you're seeing at the anniversary sale that north from a testing currently or is there any kind of trends that you're seeing Barry. Thank you kind of give you that confidence.

Yes. The reads are really from the Nordstrom anniversary sale as well as from our own.

Well, we see in our own stores.

But specific to the Nordstrom anniversary. So we're really excited about about our performance. There I think it was it was the best anniversary sale that we've ever had as a company.

So really tremendous performance in Steve Madden also very strong and Blondo had a big item and Dolce Vita so.

We're pretty excited about that and.

What it tells us about how we're positioned for fall.

Got it and then just my second question is really around the retail margin I think you referenced.

Unwinding, the China, JV as well as some of the slower moving inventory North America can you just kind of unpack bucket is drivers and then with the transition of the JV, particularly in China, I guess, you'll announce any one in Q3, how long will that be a drag on the margin profile. This year. Thank you.

Sure.

So if we look at the decline in retail gross margin in Q2.

Just a touch over half of it was related to the wind down of the China JV.

And.

Thats pretty much behind us so that should not be a meaningful impact going forward.

The other piece.

Was what we saw in North America and that was really just.

A little bit of a different approach this year compared to the prior year, we were very proactive and aggressive about moving through the the slow moving inventory in Q2, and getting really clean heading into Q3. So we're much cleaner.

Going into Q3 in retail than we were a year ago and I do think that positions us.

For improved gross margin starting in Q3.

Got it thank you guys and all the best.

Thanks Aaron.

Our next question comes from the line of Edward Yruma from Keybanc capital markets. Your line is open.

Hi, This is Matt on for Ed. Thanks for taking our questions. So given that you're now a couple of months removed from fully owning and Cline.

From design delivery can you update us on any progress made there maybe any sell through or margin changes from spring.

Yes, I think we're really right on target there.

We're pleased with what we're seeing in incline.

As you know one of the one of our.

Principal goals there as we was in our.

As we got into spring, where we will control all the processes from designs delivery was to see improved gross margin and we were up significantly.

Certainly more than 500 basis points or the number of stuck in my head, but it could have been seven maybe 700 basis points from last fall to this spring.

In terms of gross margin and so we're pleased with what we're seeing there and expect to see some nice year over year gross margin improvement in fall.

And continue to drive that business forward.

And you are lapping, adding that business to wholesale accessories, and the third quarter crack. So should we expect that number to kind of wane a bit in the back half wholesale accessories growth.

Yes, Bose, we lap it in both wholesale footwear and wholesale accessories.

But yes, I think the answer your question is wholesale accessories should should begin to slow.

In the back half.

Great partially because of an excuse me I'm just a follow up on that just by its partially because of an online but also.

Just because of the difficult comparison, the balance of the business.

Right.

Thanks.

Thank you.

Our next question comes from the line of Susan Anderson from B. Riley FBR. Your line is open.

Good morning. This is we've tightened on for Susan I was wondering if you're able to provide any more details about your pricing strategy for me to gain the tariff impacts.

How much opportunity do you think you have there to raise prices.

Without customer push back and then how does this sort of vary between the different product lines and channel.

Sure.

Yes, I mean, it's early it's early we're in the early stages. There right now we're really looking at low single digit price increases, we think that the consumer will be able to handle that.

And then over if the tariff remains in place at the 25% level over time.

We would look to.

To push that up further.

Do you think about that you've asked about the different channels.

Look I think in the department stores and in our own stores, there's probably a little bit more room to take price is going to be more challenging as you go down into the more value.

Part of the chain, so the off Pricers or the private label that we do at mass merchants.

Got it. Thank you and then just sticking on China.

Can you provide some back a little bit more background on your decision to wind down that current China JV and then maybe some of the qualities Youre looking for as you look for a new partner in the region.

Sure.

Yes.

Well as I mentioned in the prepared remarks, and I think we've been pretty open about the fact that the JV wasn't performing to our expectations.

And I think that.

We and our JV partner agreed that that probably just wasn't the right fit with all due respect to our.

With our current partner because it's it's a good company than we'd like and respect the management very much I just don't think.

In the end that it was the right the right marriage, we were not.

Ultimately aligned on the strategy in terms of distribution.

As well as pricing.

And in fairness to them I think some things changed in the remainder of their business. After we signed the deal that that required them to focus on other areas.

One place, where we were probably not aligned is.

They were highly focused they have big business with concessions in department stores, and we're highly focused on that.

As a distribution strategy.

I think in our with our next partner will be looking.

For somebody who is much more focused on the digital space.

And the partner that were.

The potential partner that we are in discussions with now really has an expertise.

In E com.

Thank you I appreciate the color and good luck next quarter.

Thank you.

Our next question comes from the line of Dineen speeches from Jefferies. Your line is open.

Hi, good morning.

Wanted to ask about the private label footwear business, you're seeing some nice growth there notwithstanding the loss of Payless, just talk little bit about the progress you're making with some of the other retail partners that are maybe looking to recapture some of that market share that you announced for grabs with that Palin liquidation.

Yes, we're seeing really strong growth.

With the mass merchants.

That channel.

It has.

Has really taken off for us.

I think.

Some of that is probably attributable to payless going away and those customers looking to recapture.

Some of that market share or to capture some of that market share rather.

It's hard to really to disaggregate that and to tell you exactly how much of the growth in that channel is related to the to the the closure of Payless, but.

But all I can say is we're seeing very strong growth there and in fact.

As we pointed out in the earlier remarks, we were actually up in private label footwear year over year.

Even with the headwind from Payless. So we I think we did something like $22 million with pay last last year in Q2, and even with that going away we were still up.

Year over year.

Okay, Great and then just on e-commerce still seeing really nice growth. There is there anything you can point to as driving I know, there's a lot of things going on you've done. Some site upgrades you have alternate payment options. I think you added today shipping maybe a year or so ago now. So what do you think is really behind that and then any comments you can give on what the margin profile looks like now and if you're still seeing the improvement and profitability that you've called out before.

Yeah, I think it's I think it's a lot of different things that are that are driving the topline I definitely think that.

That the Replatforming and going to Shopify plus has been very significant.

We've seen a very nice improvement in mobile conversion and I think a lot of that has to be attributable to the new platform.

I do think free two day shipping is really resonating with our consumers.

After pay has been very significant for us.

I think that the our efforts with respect to paid social.

Have really been driving a lot of demand and we're also have really.

Ramped up what we do with Influencers and are seeing really nice success. There. So a lot of different pieces of digital marketing that are helping to drive the business. In addition to obviously, having very strong product.

That's resonated with the consumer.

In terms of the profitability profile, we do continue to see improvement. There. We also think that that there's still a lot of room for improvement.

But ecommerce.

Will surpass bricks and mortar in terms of profit margin this year for the first time.

Great. Thank you very much.

Thank you.

Our next question comes from the line of Sam Poser from Susquehanna. Your line is open.

Hi, Good morning, Thanks for taking my question Danielle I, just got a follow up on your Q3.

Direction, there for modeling purposes.

Can you give us just give us little more color on that.

Okay, I'll take that one I think that that the.

The point Danielle was making was.

Simply that.

If you look at what we.

Our performance in the first half and our guidance for the full year, obviously, the guidance implies EPS down in the back half and I think that.

The color Danielle was providing was simply too to help you understand the contacts and why you should be down in the back half and specifically with respect to Q3.

If you look at the headwind from Payless at the tariff and the higher tax rate were essentially starting when you compare to the prior year 10 cents in the whole, there's a 10 cents headwind.

Compared to the prior year.

And that's really the driver of down EPS in Q3.

What do you expect it to be down 10 cents down and then fight back a bit I mean, how should yes, it will cost some of that back.

And is that.

If most of that.

And it sounds like you're planning gross margin to be up in third quarter based on what you said a few minutes ago.

So then it's really it's really in the expense line up like fixed costs going up again.

But we're planning gross when I address a minute ago as was gross margin in retail, which we're where we do think we can be up but keep in mind.

In wholesale accessories, you are going to continue to see gross margin declines and that's primarily related to the tariff so in.

You've got 250 to 300 basis points of gross margin pressure from the tariff in Q3 and Q4.

In wholesale accessories excuse me, that's not a consolidation of this just wholesale accessories.

And that would be more impactful in the third quarter, because your DTC business increase in the fourth quarter would would offset.

More of that so you're right yeah. The tariff if you're looking at on a consolidated basis, yes, the impact of the tariff is most.

His largest in Q3.

And then once you lap that and do all the work if we think about lapping this into next year.

You would.

The work you're doing you would expect to see in accessories improvement in the margins as you move goods negotiate take price and so on and so forth I mean, assuming that that's not selling.

The way you want so.

Well, you'll still see pressure in Q1 and Q2 until we anniversary this.

But then when you get to Q3 and Q4, that's when you'd expect to see a swing I would assume.

That will be to go.

Okay and then.

The.

The.

Can you talk a little bit about the blondo business and.

How that's being planned HM.

And we see the opportunity there you mentioned that did very well.

Got to anniversary and so on and you're seeing early.

So can you talk about that as a driver this year.

Sure.

Yeah, Blinders, obviously been a really strong growth vehicle for us over the last couple of years.

And now we're we're heading into their key season, which of course is fall.

And.

Really I think the Nordstrom anniversary sale is a big sort of kick off event.

For fall and for Blondo in particular, and they had they have had a very strong event.

Very nice increase over last year, which was also a very successful that for them.

So we feel we feel good about that I think that business.

Should be up nicely this year.

It's a much bigger business now so we're not going to see the same rate of growth as we've seen in prior years.

But should still be a very nice increase.

Great.

Thanks very much.

Thanks Sam.

Our next question comes from the line of doing some fine from loop capital. Your line is open.

And thanks for taking my question this morning.

If we do get into a worst case scenario and we see tariffs on list for the the everything terrorists what kind of contingency planning have you done for that and how do you think you would be position relative to your competition should that happen.

Sure.

Yeah, if we were to see tariffs on on footwear I think that the.

The levers we would pull would be the same as the ones that we've pulled with respect to mitigating list. Three so we wouldn't be moving production out of China number one number two.

We would be looking for price concessions.

From our factories on the goods that remain in China and number three we would be looking to raise selling prices to the.

To the consumer and to our wholesale customers.

I think if you think about shoes relative to handbags are levered, one might be a little bit more difficult to Paul might not be able to move as much on a percentage basis as quickly, but but I think perhaps levers to and leverage.

Lever three.

Might be a little bit easier to pull because of the the leverage and the power that we have in footwear.

In terms of moving production out of China. We have started to do that already we're making a good chunk of the Steve Madden product demand branded products in Mexico.

For fall.

And.

We've got smaller.

Runs in a number of other countries, we have not sort of stepped on the gas and move things preemptively.

In a major way, but weve positioned ourselves a number of other countries such that if that didn't come to pass.

We will be prepared to move a lot of production pretty quickly.

As far as how we'd be.

Sorry, as far as how we'd be positioned relative to our competitors I mean look everybody in our space is is in the same boat I think in some cases.

We'd be better positioned I think we've got a better situation and set up in Mexico than just about any of our peers for instance.

And.

Unfortunately.

We're performing very well, we are really performing better than anybody else in our space and I think that would also give us some leverage and position us.

Attractively relative to some of our peers.

Understood. Thank you.

Thanks, Laura.

Again, if you have a question at this time. Please press the Star then the number one key on your Touchtone telephone. Our next question comes from the line of Laurent Vasilescu from Macquarie. Your line is open.

Good morning, and thanks for taking my question I wanted to follow up on Sams question.

Thank you for parsing out the 10 cents headwind from Payless tariffs and the higher tax rate for the third quarter I think last quarter. It was noted that pls would be a nickel headwinds for the third quarter is that still the right way to think about it and really following up on Sam's question like I should we assume that the third quarter EPS is down high single digits year over year or more like down double digits, just for us to model correctly.

Sure.

Yes, five cents.

For Payless in Q3 is still the right way to think about it.

Look I think to get to our guidance real rough numbers, you've got to be down 10% to 15% in the back half.

And I think that you can.

You know look at Q3, and Q4 is pretty similar there.

Okay. Thank you very much for that and then.

With regards to gross margin I think last call. It was noted that we should see modest gross margin expansion now obviously there are the incremental terrorists.

With those incremental tariffs should we still think should we think about the gross margin more like flat year over year.

I still think that we could probably get to very modest gross margin expansion you know I'm talking.

10, 2030 Bips at the most.

Okay. Thank you very much for that and the last question.

Any color on how the comps performed by month.

Would be greatly appreciated.

Sure, Yes April and June .

Were very strong.

Roughly high singles.

May was the weakest month that was about flat.

Okay. Thank you very much and best of luck.

Thank you.

Our next question comes from the line of Dana Telsey from Telsey advisor.

The line is open.

Good morning, and congratulations on the nice performance in this environment.

How are you thinking of how are you thinking about the performance of sneakers, what did you see with the fashion sneakers and the dad sneakers and how you planning boots for the back half of the year.

Yes, sneakers continue to be.

To be very important for us.

You are talking about a business that's now.

30% or even or even more of our Steve Madden women's wholesale business. So continues to perform the dad sneakers continue to be probably the most important trend within sneakers.

And so.

We're expecting that to continue to be very important for us.

With respect to boots and booties.

As I mentioned earlier.

It's early but we're optimistic given the early reads.

And what we've seen we think that business can be up for us this year.

And.

For the last few years I would say, we're more optimistic now than we've been for the last few years at this time of the year.

And then when you think about your retail performance I think outlets have done a little better than full line. What do you see this quarter and what's the trend in tourism.

Yes outlets again outperformed our full price stores.

And tourism continues to be a drag so when we look at the credit card data, we continue to see the international credit cards.

Down considerably and performing much much weaker.

Than the domestic cards.

And then two last quick thing on the private label strength is the mass merchant customer base offsetting the payless the payless businesses. That's the key customer base and when do you think you'll have a new China partner and what do you want this China partner today. Thank you.

Sure.

Yes, the mass merchant customer.

Customer growth in private label did in Q2, offset what we lost it payless. So that we were very pleased with that.

The second one is about the Cheyenne right, yes, we expect to have the new China front I hope that we have something signed and can talk about it when we come in the next on the next call.

And I think the key again is going to be.

Somebody who really shares our vision for the brand and.

And particularly where we're aligned on distribution strategy and I can tell you that that's.

A big part of that is going to be being aligned on really pushing a digital strategy.

As opposed to a department store concession model.

Thank you.

Thanks, Dan.

Our next question comes from the line of good reception from web from Wedbush. Your line is open.

Good morning, Adam Danielle Congrats.

I guess first question, Jeff separating private label footwear versus the Steve Madden brand, how did that perform in the second quarter.

Well.

Branded footwear was up more than private label.

Branded footwear was up double digits.

Private label single digits, but again private label had the headwind from Payless.

Okay, and with regard to the Steve Madden brand.

When you call out the north up and when it's up double digits.

Third quarter in a row.

Just I know you don't expect that to continue but based on some of your commentary the sandal business.

Athletic some of your more encouraging comments about boots.

Jeff What's your thoughts about sustainability as we go into the back half of the year and what are you up against just remind us of the Steve Madden womens.

Business.

Yeah, what we're up against some nice numbers from the prior year as well.

Particularly in.

In Q4.

I know, we were up double to steam and women's was definitely up double digits.

I don't remember Q3 at the moment, but I believe we were up.

We have assumed that the business moderates a little bit in the back half I think thats proven.

Given.

We have been so far outpacing the overall market and again the overall retail environment does continue to be tough and the customers I think are taking a relatively conservative approach.

With their open to buys and their inventory position.

But that said, we've got very strong momentum in that business and.

And we don't see see that slowing down right now.

Are you seeing I got late Theres upside.

To that point are you seeing anything added in the and the order book I know you know I know you turn the inventory pretty quickly just in terms of seeing anything slowing or suggesting that patient Q4 comparison, it moderates that Brad.

Well, we do have a an increase in the order file going forward, but keep in mind the way we.

What happened in spring was we started off with a with a nice increase in the order file, but it was really getting those reorders and turning the goods was how we got to that big increase so it was more.

You know the we we ended much better than we started in terms of order book.

So we're starting with an increase in fall, but not to that degree where we ended in spring.

Got it okay understood and then just on the on the margin I guess gross margin on the on the wholesale footwear segment.

Seems to be very strong.

Even as your pricing or growing the private label mix I know you've got a tougher comp on the back half do you want to add climb, but im just curious how do we think about the gross margin profile for our wholesale footwear as we go into the into the back half of the year.

Well I I expect that to be more flattish now one of the things we did have as a benefit in the first half was we had payless going away, which is which was a low gross margin customer in the back half as you recall last year that had been moved into that the buying agency model, where it showed up in the other income line and so did not impact our sales or gross margin.

So you don't have that.

That benefit going forward, so I think that.

Approximately flat is the right way to think about the back half.

Okay got it and then finally just for me to comment.

The retail comp up little over 6%, how much what's the breakout between digital and physical force.

So physical stores.

Were again down.

They were down about low singles this time and all the growth is coming from E com.

Got it okay.

Terrific, thank very much all of us.

Thank you.

Our next question comes from the line of Steve Marotta from CL King <unk> Associates. Your line is open.

Good morning, and Daniel given the second quarter sales be and maintaining guidance for the year is there any reason that you've tempered your expectations for the back half can you talk a little bit about.

Why not increase.

Sales expectations for.

The entire year, given the second quarter Shelby.

Yes, Steve I think frankly that heads.

The beep was not.

Significant relative to our internal forecasts I think that that was a case a slightly different modeling from the street versus our internal numbers.

That's helpful and my.

Last question is to do with inventory growth for the balance of the year is there any reason to believe that either quarter inventory growth will be higher than expected sales growth.

No I don't think so I think that it should be relatively in line.

Very helpful. Thank you congrats.

Thanks, Jamie if you have.

Again, if you have a question at this time. Please press the Star then the number one key on your Touchtone telephone.

And there are no further questions at this time I would like to turn it back to Ed Rosenfeld for any further comments.

Great well, thanks, very much for joining us today.

Enjoy the rest of your summer and we look forward to talking to you on the third quarter call have a great day.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may now disconnect.