Steven Madden Ltd

NASDAQ:SHOO

Earnings Call Transcript 2017-Q4

[Operator]

Good day, and welcome to the Steve Madden Fourth Quarter 2017 Earnings Conference Call. Today's conference is being recorded.

And at this time, I would like to turn the conference over to Jean Fontana of ICR. You may begin.

[Jean Fontana, ICR, Inc.]

Thank you. Good morning, everyone. Thank you for joining us today for the discussion of Steve Madden's fourth quarter and full year 2017 earnings results.

Before we begin, I'd like to remind you that statements made on this call that are not statements of historical facts constitute forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties and other unknown factors that could cause actual results to differ materially from historical facts or any future results expressed or implied in the forward-looking statements. These statements contained herein are also subject to the risks and uncertainties as described from time to time in the company's reports and registration statements filed with the SEC. Please refer to the company's earnings release for information on the factors that could cause actual results to differ. Finally, please note that any forward-looking statements used on today's call cannot be relied upon as current after today's date.

Hosting the call today are Ed Rosenfeld, the Chairman and CEO of Steve Madden; and Nick Gargiulo, Director of Financial Reporting.

With that, I will turn the call over to Nick.

[Nick Gargiulo, Steven Madden Ltd.]

Thanks, Jean, and good morning, everyone. Before turning the call over to Ed, I'd like to note that the financial results presented below are on an adjusted basis, unless otherwise noted. Please refer to our press release for a reconciliation of GAAP to non-GAAP financial measures.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Thanks Nick. Good morning, everyone and thank you for joining us to review Steve Madden's fourth quarter and full year 2017 results. We are pleased to have delivered diluted EPS at the high-end of our implied guidance range for the fourth quarter of 2017. Solid performance in our wholesale business was offset by expected softness in our retail segment driven by weakness in the boot category.

Overall, 2017 was a strong year for Steve Madden. We recorded double-digit percentage growth on both the top and bottom lines despite a challenging and rapidly changing retail landscape, demonstrating the power of our brands and the strength of our business model. We also made progress on a number of key initiatives that position us for growth going forward. Let me briefly touch on the highlights.

First and foremost, we had another outstanding year in our core Steve Madden wholesale footwear business. Steve Madden Women's, Steve and his design team continue to create trend-right products across a range of categories that are resonating with consumers enabling the brand to outperform the competition.

Despite open-to-buy budgets at many of our largest wholesale customers that were flat or even down, the Steve Madden Women's wholesale footwear division grew net sales in the mid-teens on a percentage basis, clearly taking significant market share on the selling floors and websites of our wholesale customers.

Sell-through performance to the consumer was also robust and according to NPD, Steve Madden was the third-largest dollar volume gainer in the Women's fashion footwear market in the U.S. in 2017, behind only Adidas and NIKE. Steve Madden Men's was also a standout, growing more than 20% in 2017 as we reap the benefits of the incremental investments we made in Men's over the last year. And Steve Madden Kids continued its momentum as well. It was also up over 20% in 2017 as we saw a success with Kids versions of many of our best-selling Steve Madden, Women's and Men's styles.

The strength of the brand extend into our diffusion brands as well. Both Madden Girl and Steven by Steve Madden grew sales in the high single-digits on a percentage basis and we also had a successful launch of Madden NYC, a new brand distributed exclusively at Kohl's. We launched in 450 Kohl's stores in spring 2017 and based on the strong initial performance at retail, we are taking select styles to 800 doors for spring 2018.

Importantly, the strong sales performance across our Steve Madden wholesale footwear business was also accompanied by significant year-over-year gross margin improvement, which was the primary driver of the 100 basis point gross margin increase for the company on a consolidated basis in 2017 excluding Schwartz & Benjamin and the flagship brand was the highlight of our accessories business as well.

Steve Madden handbag net sales increased mid-teens on a percentage basis, as we better aligned the Steve Madden bags with the shoes in terms of styling, attitude and trend direction. As in footwear, the brand halo extended to two diffusion brand Madden Girl, which also had a double-digit percentage sales increase in the handbag category. Overall, it was an exceptional year for the Steve Madden brand. We think our flagship brand has never been stronger.

We also saw robust growth in some of the other brands in our portfolio. Waterproof brand Blondo and licensed sneaker brands Superga were particularly strong, each grew net sales more than 30% compared to the prior year. We are also pleased to report that we made significant progress in 2017 on one of our most important long-term growth initiatives, which is expanding our international business.

International net sales increased 15% for the year. Our directly operated markets Canada and Mexico each delivered strong growth and our SM Europe JV, which we launched in June 2016 continues to exceed expectations in both sales and earnings.

We also launched two new joint ventures in August, one in Mainland China and one in Taiwan. At year-end, we'd opened three stores and 21 concessions in those markets and had also launched e-commerce businesses on Tmall and Yahoo Shopping in Taiwan. While it's early, we are pleased with what we see so far and believe Asia represents a major growth opportunity for the company.

Throughout 2017, we also supported our brands, particularly Steve Madden, with increased marketing investment. We highlighted entrepreneurs and a campaign called Self Made. We worked with Caroline Vreeland as the face of the brand. We opened a flagship location in the heart of Times Square in New York City. We collaborated with GQ on a capsule collection of men's shoes and bags and at holiday, we did a campaign with pop star Cardi B that set records for our brand in terms of social media reach and engagement and created tremendous buzz overall.

Also, at the end of the year, the documentary about Steve came out called Maddman: The Steve Madden Story, the movie chronicles Steve's life with all its ups and downs and can be found on Netflix, Amazon and iTunes. Response to this unvarnished behind the scenes look at our founder has been outstanding.

Another highlight in 2017 was the acquisition of Schwartz & Benjamin at the beginning of the year. Schwartz & Benjamin is the footwear licensee for Kate Spade and Avec Les Filles. It contributed $80 million in net sales in the 11 months we owned it in 2017 and it provides us a platform to expand in the designer and accessible luxury footwear space as well as to build both brands and private labels that target a more mature sophisticated customer.

We are re-launching Brian Atwood on the Schwartz & Benjamin platform for 2018 with products made in Italy and average unit retails of approximately $400 for shoes, $600 for booties and $900 for boots. And we'll also be adding the Anne Klein brand to the Schwartz & Benjamin portfolio in 2018 as we recently signed an agreement to become the licensee for Anne Klein footwear and handbags starting with fall 2018 shipments. The Anne Klein brand has a rich heritage going back 50 years and with its dedication to timeless American classics, it's a nice complement to the other brands in our portfolio. We are targeting $80 million to $90 million in net sales under the Anne Klein brand in the first 12 months of shipping, which encompasses the back half of 2018 and the first half of 2019.

Finally, in 2017, we continued to utilize our strong balance sheet and healthy free cash flow to return capital to shareholders in the form of share repurchases. We bought back 2.6 million shares, or approximately 4% of the company for $99 million, including open market repurchases and shares acquired through the net settlement of employee stock awards.

This morning, we added another leg to our capital return strategy when we announced that our board of directors has approved the initiation of our first ever quarterly cash dividend. We view this as a significant milestone for the company as well as a reflection of our confidence in the company's long-term prospects and a testament to our commitment to enhance shareholder value. The dividend is intended to supplement continued investments in our business as well as acquisitions and share repurchases.

In summary, 2017 was a very good year for Steve Madden as we delivered strong financial results and also made important investments for the future. We entered the new year with strong momentum in our flagship brand, increasing traction in our international business and significant opportunity with some of our newer brands. Based on that and the business model over the last few years has proven its resilience in the face of a challenging retail environment. We believe we are well-positioned to continue to drive sales and earnings growth as well as generate shareholder returns over the long-term.

With that, I'll turn it over to Nick to review our financial performance in more detail and provide our outlook for 2018.

[Nick Gargiulo, Steven Madden Ltd.]

Thanks, Ed. Our fourth quarter consolidated net sales increased 8.3% to $364.4 million compared to prior year net sales of $336.4 million. When we exclude the impact from the Schwartz & Benjamin acquisition, which contributed $20.3 million in net sales, our consolidated net sales increased 2.3%.

Wholesale footwear net sales increased 15% to $217.7 million. Excluding the impact of Schwartz & Benjamin, wholesale footwear net sales increased 4.3% with increases in both our branded and private label businesses. Wholesale accessories, net sales decreased 2.7% to $60.5 million driven by a decline in Betsey Johnson handbags.

In our retail segment, net sales increased 1.5% to $86.2 million. Our same-store sales decreased 5.1% compared to 1.1% increase last year driven by softness in the boot category. During the fourth quarter, we opened one full price store and one outlet store in the U.S. as well as one full price store in Mexico and one in China.

We ended the quarter with 206 company-operated retail locations, including 60 outlets and four Internet stores. In addition, during the fourth quarter, we opened six concessions in Asia and ended the quarter with 38 company-operated concessions in international markets.

Turning to other income. Our licensing royalty income net of expenses was $3.1 million in the quarter compared to $1.6 million in last year's fourth quarter. Our first cost commission income net of expenses was $0.3 million compared to a loss of $0.1 million last year. Consolidated gross margin decreased 60 basis points to 38.1% compared to 38.7% in the prior year.

Wholesale gross margin decreased 40 basis points to 31% compared to 31.4% last year. Excluding Schwartz & Benjamin, wholesale gross margin increased 50 basis points versus the prior year due to margin improvement in the wholesale footwear segment.

Retail gross margin expanded 30 basis points to 60.8% compared to 60.5% in the prior year.

Operating expenses for the quarter increased to $105.8 million, or 29% of net sales compared to operating expenses of $92.1 million, or 27.4% of net sales in the same period last year. Operating income for the quarter totaled $36.3 million, or 10% of net sales compared to last year's fourth quarter operating income of $39.6 million, or 11.8% of net sales.

Our effective tax rate for the quarter was 24.9% as compared to 28.5% in the same period last year. Finally, net income for the quarter was $27.5 million, or $0.48 per diluted share compared to $28.7 million, or $0.49 per diluted share in the fourth quarter of 2016.

Now, I would like to briefly touch on full year results. Consolidated net sales for 2017 increased 10.5% to $1.55 billion from $1.4 billion in the prior year. Excluding the impact from the Schwartz & Benjamin acquisition which contributed $80 million in net sales, our consolidated net sales increased 4.8%. Net income was $129.3 million, or $2.24 per diluted share for the year ended December 31, 2017, compared to net income of $120.9 million, or $2.03 per diluted share for the year ended December 31, 2016.

Moving to the balance sheet. As of December 31, 2017, we had $274.8 million in cash, cash equivalents and marketable securities and no debt. Inventory levels at the end of Q4 were well controlled. Total inventory was $110.3 million. Excluding Schwartz & Benjamin, inventory was $104.7 million, a 12.6% decrease compared to the prior year. Our consolidated inventory turn for the last 12 months ended December 31, 2017 was 8.6 times.

CapEx in the quarter was $3.1 million bringing our full year CapEx to $14.8 million. During the quarter, we repurchased approximately 639,000 shares for approximately $26.2 million, and for the full year we repurchased 2.6 million shares for approximately $99.4 million, both of which include shares acquired through the net settlement of employee stock awards.

As Ed mentioned, the company's board of directors has approved the initiation of a quarterly cash dividend. The initial quarterly dividend of $0.20 per share will be payable on March 29, 2018 to stockholders of record as of the close of business on March 12, 2018.

Turning to guidance. For the full year 2018, we expect that net sales growth will be 5% to 7% and we expect that diluted EPS will be in the range of $2.60 to $2.67. The diluted EPS guidance assumes a tax rate of approximately 20.5%, down from 30.4% last year due primarily to the impact of the tax reform bill passed in December. Note that due to the timing of projected tax benefits related to stock-based compensation, the quarterly tax rate is expected to be higher than the annual rate for the first three quarters and then lower than the annual rate in Q4.

In terms of overall earnings seasonality, the earnings distribution by half is expected to be roughly 40% first-half, 60% second-half, which is in line with historical seasonality but is different from 2017, which was unusually weighted to the front half.

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

[Operator]

Thank you. And we will take our first question from Camilo Lyon with Canaccord Genuity. Please go ahead.

[Camilo Lyon, Canaccord Genuity, Inc.]

Thanks. Good morning, guys.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Good morning, Camilo.

[Nick Gargiulo, Steven Madden Ltd.]

Good morning.

[Camilo Lyon, Canaccord Genuity, Inc.]

So, Ed, I was hoping you could just give a little bit of color, Nick just touched on the seasonality. You've had really good growth in the core Madden Women's business in the past couple of years. May be just touch on a little bit of what you're seeing from the spring 2018 orders perspective and trends and how that should play out given your tough comparisons and where you see the opportunity there for the spring season?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. If we think about the Steve Madden Women's business in particular, I think that we continue to have good momentum with all of our key accounts and the sell-through performance continues to be good. So I think we're still taking market share there.

We also feel very good about what we see in terms of spring trends. Lots of newness and excitement in sneakers. Had some good things happening with wedges, with flat sandals, some closed-up dress shoes coming on. So, we feel pretty good about – certainly very good about the collections and pretty good about the overall trend environment.

That being said, I think everybody is aware that last year there was very dramatic growth in Steve Madden Women's in first half and I think a little bit of that was some restocking, some retailers that had gotten too low in inventory levels in Steve Madden and had to restock to get those in-line. So while the business continues to perform well, we've cautioned people that growth in the first half in Steve Madden Women's should be much more muted. And then I think we have probably a little bit more opportunity in the back half.

[Camilo Lyon, Canaccord Genuity, Inc.]

Okay. And then just thinking about what you've learned from your entry into China, how the sales progressed there? Can you just talk about how you see the trajectory of growth unfold there over the next 12 to 24 months? And what is your appetite to really accelerate that piece of the growth algorithm?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Sure. Yeah. So we launched in both Mainland China and in Taiwan in August and I think that by and large we're encouraged with what we see so far, but I think that we are also cognizant of the fact that there's going to be a process here. It's a marathon, not a sprint and we're still in the kind of what I would call the test and learn phase.

While we remain very bullish on the long-term prospects there and haven't seen anything that would lead us to think otherwise, I don't think that we're ready at this moment to really step on the accelerator aggressively in terms of bricks and mortar location openings. We opened about 24 locations in 2017. I think that was 21 shop-in-shops and 3 stores. And I would say at this moment I expect it to do a similar number in 2018.

I think that frankly, our JV partner might like us to go a little faster, but I think what we've seen so far is that there are some meaningful differences in terms of the merchandise that works or that is working right now over in China compared to what we see in the U.S. And so we really want to make sure we get that merchandising formula right before we push really hard on growth. As our CEO of that business says, he wants to get the recipe right before we serve the meal to a lot of customers.

And I'm very confident that we're going to be able to do that. We're implementing our test-and-react strategy in China. It's really the first international market where we've done that in a meaningful way and that's in process, really going to start testing products in the next couple of months there. And so I'm confident that we'll be able to get that right, but we want to do that before we push hard on the location openings. We are of course moving aggressively to grow the e-commerce business and our current forecast shows e-commerce making up about 60% of our sales in 2018 in that region.

[Camilo Lyon, Canaccord Genuity, Inc.]

Got it. That makes sense. And then just kind of stepping back and looking at the success you've had in all aspects of the business both wholesale and retail, core, smaller brands. As you think about like the long-term EBIT margin opportunity of the business, what do you think this business can get to?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Well, we've been in and around 12% the last few years. I do think that there's some opportunity for EBIT margin expansion there. I think let's say 14%-ish is a good long-term target, but obviously in the near term, we're also investing. We're investing in Asia for one, we're also investing in our e-commerce capability. We're investing in some newer brands. I mentioned Anne Klein in the formal remarks. So I think that's probably not an 2018 or 2019 goal, but it's a longer-term goal.

[Operator]

And we'll take over next question from Ed Yruma from KeyBanc Capital Markets.

[Noah Zatzkin, KeyBanc Capital Markets, Inc.]

Hi. This is Noah on for Ed. Thanks for taking our questions. First, just on Schwartz & Benjamin, it was bit of a gross margin drag in the quarter. Can you talk about how you see that brand's margin structure over time? Is there any near term opportunity to kind of bring it in line with the broader wholesale business? And then just any gross margin puts and takes we should think about as we move through the year?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. Schwartz & Benjamin, just so everybody understands, it's a structurally lower gross margin business. It will never be in line with the company average because it's got two pieces of branded and a private label wholesale piece and the branded piece in particular, keep in mind it's essentially with the exception of Brian Atwood, it's all licensed. And so you're paying between 7% and 11% off the top to the licensors, which obviously reduces the gross margin.

That being said, I do think that over time, that there's some opportunity for us to improve the Schwartz & Benjamin gross margin. We talked about that a little bit. I believe it was the last call that we've reduced inventory levels there. We think that we can run this business with less inventory than it was run with previously and we think we'll be able to reduce closeouts and control markdown allowances and therefore push the gross margin up there over time. But again, it won't get to the company average. In terms of 2018, which I think was the second part of your question with respect to gross margins, is that right?

[Noah Zatzkin, KeyBanc Capital Markets, Inc.]

Yes.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. I really think that we're looking for roughly flat gross margins in 2018. And even if we look at that by segment, I would say, it's basically flat wholesale footwear, wholesale accessories and retail. Maybe a tick up or down by segment but essentially, we're looking for in line with what we did in 2017.

[Noah Zatzkin, KeyBanc Capital Markets, Inc.]

Okay, great. And then just maybe one more, on the Men's business, can you remind us how large that business is? And then maybe what were some of the drivers of the 20% growth during the quarter? And maybe how are you thinking about this opportunity over time? Thanks.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. Men's is about 10% of our business overall and we're really pleased with what we're seeing in that business, we've talked about how we put more emphasis on Men's of late. We think we upgraded the team. We also invested considerably more in marketing over the last year than we had previously in Men's. And I also think the product assortment is just much stronger and more balanced. So in terms of what's working or what was working in Q4, Chelsea boots, we're doing very well. We continue to do well with Chukka boots, any of our sort of dress casual looks have been good, we got some smoking slippers that have been very good. So seeing some really strength across a range of categories, which makes us feel good as we head forward.

[Noah Zatzkin, KeyBanc Capital Markets, Inc.]

Thank you.

[Operator]

And we will take our next question from Erinn Murphy from Piper Jaffray. Please go ahead.

[Erinn E. Murphy, Piper Jaffray & Co.]

Great. Thanks. Good morning. I guess I wanted to go back to the sales guidance of 5% to 7%. I think that includes a partial year of Anne Klein. So if you were to back that out, it really does seem like the underlining is pretty conservative, it's like 2.5% to 4.5% by our estimate, so curious if you can just spend a little bit more time on the organic building blocks either by brand or by channel, just because it seems like a pretty conservative (26:05)?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yes. So there's actually something that offsets that Anne Klein impact that you're looking at, which is a change in accounting for Payless in the back half. So we've signed a new buying agency agreement with Payless, which is actually we believe going to result in increased business with them but based on the new agreement, Payless will now move out of the top line and into that first cost line in the back half of the year. And that largely offsets the Anne Klein impact. In fact the net of that is sort of less than 100 basis point positive, so if you're looking at 5% to 7% consolidated on a reported basis, if you excluded both Anne Klein and the Payless shift, it would be sort of 4-and-change to 6-and-change.

[Erinn E. Murphy, Piper Jaffray & Co.]

Got it. Okay. That's helpful. Thank you. And then maybe focusing a little bit more on your loyalty program, we've seen a lot more buzz about that in your stores and online. Could you talk about how that's performing? I think it's still very early days in kind of what you're learning from that?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. We're pretty excited about it. I think we're off to a good start. As you said, it's only been around for a few months here. I think that we got up and running in November, I want to say. And the first six months to a year, frankly, the big goal is just getting people to sign up, you got to get people into the program and our goal for the first year was to get 300,000 sign-ups. I think we're going to get 300,000 at the end of this week. So we're very pleased with how many people we're getting into the program. Frankly, it's a little too early to tell you about their behavior or how it's working beyond that because we just don't have enough history. But we're pretty excited about it and we're pretty excited about the data that this is going to give us on our best customers and how we can use that going forward.

[Erinn E. Murphy, Piper Jaffray & Co.]

Okay. Thank you. If I can just sneak in one more, I mean with the declaration of the dividend this morning, can you just talk about if that's changed? How you're thinking about the buyback? And then is there any buyback assumed in the guidance for 2018? Thanks.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Sure. Yeah, it has not changed how we're thinking about the buyback. As I mentioned in the earlier remarks, we really view the dividend as a supplement to our existing capital allocation strategy where the priorities are of course investing in our business first, finding great acquisitions, second and then of course, returning capital to shareholders in the form of share repurchase. So share repurchase will still be something we'll be looking at just as we did before and we've obviously been very consistent about doing that over the last few years. That said, we didn't build it into the guidance and that's consistent with past practice.

[Erinn E. Murphy, Piper Jaffray & Co.]

Thank you.

[Operator]

And we'll take our next question from Janine Stichter from Jefferies. Please go ahead.

[Janine Stichter, Jefferies LLC]

Hi, good morning. Just wanted to get some more color on how we should think about the retail comps progressing through the year as the boot headwind becomes less meaningful as we get into spring and then along those lines, how we should think about the complexion changing in terms of transactions and AUR as the boot headwind moderates? Thank you.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Well, there's not a whole lot I can say about that because as a rule we do not provide comp guidance. I think that one thing you're alluding to is accurate though that we are certainly looking forward to having boots in the rearview mirror because that was clearly a drag in fourth and in first was not as big a percentage of the business as it is in fourth, it's still a meaningful part. And so it's still creating some headwinds, so definitely looking forward to having that in the rearview mirror. As you point out, boots has been the source of an AUR headwind, felt that pretty meaningfully in fourth quarter. Feeling it again in January and February, and that should really be behind us as we move into second quarter.

[Janine Stichter, Jefferies LLC]

Okay, great. And then just on the SG&A, I know you mentioned some investments in Asia in e-commerce, anything else we should be thinking about as a headwind for this year, specifically thinking about wages and anything else that we should be just kind of aware of?

[Edward R. Rosenfeld, Steven Madden Ltd.]

No. I mean, look I think there are some – there is some wage pressure. We've built a little bit of that into the forecast. We obviously have some expenses that we're taking on related to the Anne Klein business, but I think the biggest one is really Asia. I think, we've got about $9 million or thereabouts of SG&A associated with Asia in the plan for 2018. But, overall, I think that SG&A should be fairly well controlled this year, if we're looking at sales up 5% to 7%, I think SG&A should be up a similar rate.

[Janine Stichter, Jefferies LLC]

Got it. Thank you.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Thank you.

[Operator]

And we will take our next question from Corinna Van Der Ghinst from Citi Research.

[Corinna Van Der Ghinst, Citigroup Global Markets, Inc.]

Hi. Good morning, Ed. I'll try not to ask too many questions. I was just hoping to start with the details on the cadence for fiscal 2018. I know you guys called out in the prepared remarks the EPS weighting, but I was wondering if you could share a little bit more detail, just on what your guidance assumes for wholesale footwear and accessories for the full year, and then breaking that down by the – for the first half versus the back half as you lock the Payless pressures?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Sure. Okay. So, wholesale footwear – let's put it this way, wholesale overall – if we look at wholesale overall, I'd say mid-singles; and then retail, high singles. That's what gets you to the 5% to 7% that we put out on a consolidated basis. Wholesale – within wholesale, I would say wholesale footwear, a little bit below overall wholesale and wholesale accessories a little bit above. And then the second question was seasonality of sales, is that right?

[Corinna Van Der Ghinst, Citigroup Global Markets, Inc.]

Yeah. Just kind of given what you're lapping from last year, I think the Payless pressure started earlier in the year and just any of the moving parts there?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. I mean, there's a lot of moving parts because of the – because, you're right, the Payless from the prior year. Then this year you've got Payless moving out, Anne Klein coming in, et cetera. Maybe I'll just – I think it's probably going to have to be easy to just talk about it on a consolidated basis. Definitely, the back half growth should be better in consolidated sales than the first half, similar to what we said about EPS.

[Corinna Van Der Ghinst, Citigroup Global Markets, Inc.]

Okay. Thanks. And then you've called out Blondo a few times over the last couple of months as a meaningful growth opportunity for 2018. Can you remind us how big that business is today? Where you see the real opportunities for growth in terms of what kinds of doors you guys are going into? Or what categories? And the same thing for men's, if you are expanding your distribution for this year, where are the opportunities there? Thanks.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. So with respect to Blondo, we don't break out our sales by brand. It's – has been a relatively smaller brand, but it's been growing very rapidly over the last couple years and we are seeing as you alluded to some expanded distribution opportunity this year with both new department stores and new specialty stores that are going to be – I guess, it should be – this includes both new accounts and new doors within existing accounts.

The other thing is, I think, there's an opportunity for sort of product category expansion. It's obviously, historically been really all about boots and booties, and we've got some other categories that folks are looking at for Blondo and we've got some sneakers. We've also got men's in Blondo. It's historically been all women's, or almost all women's. In terms of men's, it's really expanding with the existing distribution. It's not brand new distribution, but it's the usual suspects, the better department stores, the e-commerce retailers, et cetera.

[Corinna Van Der Ghinst, Citigroup Global Markets, Inc.]

Great. Thanks so much.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Thanks, Cori.

[Operator]

And we will take our next question from Jeff Van Sinderen from B. Riley FBR.

[Jeff Van Sinderen, B. Riley FBR, Inc.]

Good morning. Ed, you talked a little bit about sneakers, but just wondering if you can touch more on, I guess, what the outlook is, and what the plans are for the sneaker and sneaker derivative business for you this year? Just wondering about that classification?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. I mean that continues to be the – really the strongest growth category for us. And we feel very good about it. We don't see that momentum slowing down at all. There is a lot of different things that we're seeing working in sneakers. So we still have our slip-ons that we do very well with, but we're doing very well with lace-ups, joggers, particularly with color blocking are very good for us right now. High tops are doing well. And then the new thing is these dad sneakers, which – that's a new trend, that we've got – we've seen some strong early reads on and we're going to be delivering in a much bigger way over the next month or so.

[Jeff Van Sinderen, B. Riley FBR, Inc.]

Okay, good. And then just if we can get back to your own retail stores for a moment. I know, you mentioned the boot compare, but just wondering how you're thinking about the spring holiday calendar shift this year. Is there's anything around that? And then, I guess, anything you could say about traffic excluding boots, or kind of, I guess sell-throughs and I know it's early, but maybe the warmer weather markets and some of the spring products so far in 2018 in your own stores?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Sure. I mean, in terms of the calendar shift, I don't think there's much magic to it. I guess Easter is earlier this year. So that will help us a little bit in March. In terms of what we're seeing in the other categories outside of boots, as I said, I think sneakers probably the most important. We're also seeing a lot of good things in the sandal category broadly. Wedges is something that really wasn't very important for us last year, but that's doing quite well this year. So that would include wedges with both rope bottoms and wood bottoms.

We've got some flat sandals, like one band flat sandals that are doing well. Footbeds are still good. Anything also in all these categories with sort of we call it glitz or bling, rhinestones are very good. And then I mentioned in the dress category, whereas a year ago, it was all about opened up dress. We've still got some opened up dress working, but we've got some closed dress like pointy toe, closed up dress shoes that are doing well. So, quite a few categories that we feel good about.

[Jeff Van Sinderen, B. Riley FBR, Inc.]

Okay. Great. Thanks for taking my questions. And best of luck for the rest of the quarter.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Thanks, Jeff.

[Operator]

And our next question comes from Tom Nikic from Wells Fargo.

[Tom Nikic, Wells Fargo Securities LLC]

Hey, good morning, Ed. Thanks for taking my question. I was just wondering about the new partnership with Anne Klein, and sort of what you think you can contribute to that business? Or what it was about the brand that you found appealing to add into your business?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. So, one of the – when we acquired Schwartz & Benjamin, part of the rationale there and I mentioned this I think a little bit – or touched on this in the prepared remarks was to have a platform to really go after, what we call the true women's business and by that we mean a more sort of mature customer.

With Steve Madden and some of our other businesses, we have a really dominant leading position with – in the young, trendy part of the footwear business. And we felt there was an opportunity to build more that targets slightly older customer. And Anne Klein is a great brand that really serves that customer and we think fits perfectly in the Schwartz & Benjamin platform. In fact, Schwartz & Benjamin actually was the licensee for Anne Klein for over 30 years. And really had the brand, in its hay day had a very big business until about 2007 when the brand owner took it back in-house. So they really understand the Anne Klein business and we think that they can – we can do a great job with it on that platform. So we're excited about that.

[Tom Nikic, Wells Fargo Securities LLC]

Got it. And just sort of a quick follow-up to that. So now that you've got Schwartz & Benjamin, you're able to I guess do sort of what you're doing with Anne Klein and you'll bring a brand in without actually acquiring the brand. How should we think about your M&A strategy going forward? Should we think about maybe now you'll just add brands to Schwartz & Benjamin when you can and less sort of outright M&A, or does it kind of depend on the circumstances?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. I think it's really a case-by-case basis. We're still out there looking for the right acquisitions. Nothing has changed on that front. Clearly, we have the capability to be a licensee as well, but in the right circumstance we'd certainly remain interested in buying brands outright.

[Tom Nikic, Wells Fargo Securities LLC]

All right. Thanks very much. Best of luck this year.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Thanks, Tom.

[Operator]

And our next question comes from Chris Svezia from Wedbush. Please go ahead.

[Christopher Svezia, Wedbush Securities, Inc.]

Thank you very much for taking my questions. Ed, I'm just curious, international growth, how do we think about that relative to the 5% to 7% total company growth. Just how you're thinking about that for 2018?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. Obviously, international is growing faster. It's still a relatively small part of the business, so doesn't move the needle as much as the domestic business certainly. But, yes, it should be strong double-digit grower.

[Christopher Svezia, Wedbush Securities, Inc.]

Okay. And with regard to brands, I know you don't give specific numbers necessarily. But Dolce Vita had a difficult 2017 just given what was going on with one particular retailer. That seemed to subside as the year went on. Just any thoughts about that brand as you think about 2018?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. I'm optimistic that we're going to get that turned around. I think spring is a little bit of a challenge because of the tough spring 2017 and you tend to get sort of playing down the following year if you have a tough year in a given season. But the good news is that our sales at retail, the sell-through performance, is much improved, and we're seeing some real nice hits in early 2018 on spring product with Dolce Vita. They've got some stacked heels, some flat sandals as well, some things that are really working well. So I think that based on that improved sell-through performance, we should be positioned to get that moving in the right direction going forward.

[Christopher Svezia, Wedbush Securities, Inc.]

Okay. And just finally, with regard to the retail business, high-single digit revenue growth, what are you looking to do from a store perspective? And I know you don't give comp guidance, but is it fair to assume to get to that level of growth that you would have at least some positive comp for the year?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. So in terms of openings and closings, in the U.S. I think we'll be a net closer. Stores will be down may be 3% to 5% overall net, and then in international I think we'll be a net opener. Maybe we'll be up 9 or 10 stores by the end of the year on a net basis. Again, I'm not going to address the comp assumption in the forecast. I will remind you, though, that the Asia business comes in the retail segment and so that's a significant part of the growth in 2018 on the top line.

[Christopher Svezia, Wedbush Securities, Inc.]

Okay. Thank you very much and all the best. Appreciate it.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Thank you, Chris.

[Operator]

And our next question comes from Scott Krasik from Buckingham Research.

[Scott D. Krasik, The Buckingham Research Group, Inc.]

Hey, thanks for taking my questions. Just some modeling questions there. So if you think about the $1 billion or so in wholesale footwear that you did this year, can you just sort of break it out Steve Madden brand versus the other brands versus private label?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Well, I mean look, I think, again, we're not going to do it in exactly that detail, but we've talked publicly about the fact that if you look at the consolidated, Steve Madden brand represents a little over 55% of our total, and then the balance is other brands and private label.

[Scott D. Krasik, The Buckingham Research Group, Inc.]

And how does private – sorry, evenly split between the other two?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah, exactly.

[Scott D. Krasik, The Buckingham Research Group, Inc.]

And then is there any – like Dolce Vita is more of a spring business. Is Anne Klein split more evenly or does it skew one season?

[Edward R. Rosenfeld, Steven Madden Ltd.]

It's actually split pretty evenly. I mean most businesses are a little bit bigger in the back half, but I think Anne Klein is actually split pretty evenly.

[Scott D. Krasik, The Buckingham Research Group, Inc.]

And then how do you balance the Anne Klein gross margins, which I assume you have a licensing obligation there, versus the Payless coming out? Should that be a net positive to gross margin?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah, but very modest. We've baked in a pretty conservative gross margin assumption for Anne Klein initially. Keep in mind, we sort of stepped into this in the middle here, and I think there's opportunity to improve that over time. But one point I want to make about Anne Klein overall is we've assumed that it's breakeven for the year in terms of profitability. So all the sales that we're bringing in, in the back-half, we've assumed no profit contribution.

[Scott D. Krasik, The Buckingham Research Group, Inc.]

Okay. That's interesting. And then just last on international, you have models out there like a Wolverine Worldwide, it sells a lot of pairs, uses distributors, very profitable. You've got the SKECHERS, who is growing very fast but spending a lot of the money and hopefully leveraging in the future. How would you characterize your strategy, particularly beyond this year as we look at 2019 and 2020?

[Edward R. Rosenfeld, Steven Madden Ltd.]

I think it's evolving over time. I mean as you know, originally we started off 100% distributor and that's a nice model because it's low financial risk. There's essentially our partners or your distributor partners take a lot of the risk. They own the inventory. They have to build the stores. They're doing all the market investment, et cetera, and basically we're selling them the goods on direct-from-factory basis. It's a great way to start a new market when you're not sure how it's going to work out. Of course, it's also lower margin. So lower risk but lower profits for us as well when it works.

And over time, we're starting to transition some of the key markets to more of an ownership model. We bought Canada and Mexico, and now we've done joint ventures for much of Europe and much of Asia as well as South Africa. So I think we have a balance here. There are some markets we're very happy with what we're doing in the Middle East, for instance, under a distributor model. I think that will probably remain that way, but there are some markets that we think it makes sense to be a joint venture and potentially over time to make them directly-owned subsidiaries.

[Scott D. Krasik, The Buckingham Research Group, Inc.]

And just profitability, do you see that being profitable early on in this strategy?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. It's a market-by-market discussion. The SM Europe JV is very profitable already on an operating margin basis. Asia I think it's going to take some time. We've assumed that's basically breakeven in 2018. So it's going to vary by market.

[Scott D. Krasik, The Buckingham Research Group, Inc.]

Thanks. Good luck.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Thanks, Scott.

[Operator]

And our next question comes from Sam Poser from Susquehanna. Please go ahead.

[Sam Poser, Susquehanna Financial Group LLLP]

Good morning. Most all the questions have been asked and answered. Just real quick, on M&A and on building out that sort of the more traditional women's footwear business with Anne Klein, can you give us a little more color on what you're seeing out there and sort of what other tasks Schwartz & Benjamin [Technical Difficulty] (49:24-49:33)?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Sorry, I didn't hear the last part of that.

[Sam Poser, Susquehanna Financial Group LLLP]

Sort of, what kind of charge are you going to give to Schwartz & Benjamin, expectations for them, other kinds of brands that you may add to their portfolio and so on over time? And then what you're seeing in the M&A space right now? You've sort of answered that, but I'd like to know sort of what kind of brands you're looking at, especially now that you do have Schwartz & Benjamin in your portfolio?

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. Well, I think that it's really what we said before. I mean I think that we see it as a platform where we can go after that more mature women's business. And that will include both brands and private label. I think that there's a nice private label opportunity there that is complementary to what we do with our other private label business. So that's something that we're interested in. Of course, it also gives us the platform to go after more higher-end brands, accessible luxury, et cetera. So we'll continue to look at opportunities there.

In terms of the M&A front, there's not much I can say other than that we're out there looking at opportunities, and we hope we'll find something, but we're going to continue to be disciplined about it and we're not going to reach on price and we're going to make sure that anything we do we think is strategic for the company as well.

[Sam Poser, Susquehanna Financial Group LLLP]

All right. Thanks very much on continued success.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Thanks, Sam.

[Operator]

And our next question comes from Steve Marotta from C.L. King & Associates.

[Steven L. Marotta, C.L. King & Associates, Inc.]

Good morning, Ed. Two quick questions. First of all, you mentioned that that international net store openings are 9 to 10. Do the concessions count as one unit there?

[Edward R. Rosenfeld, Steven Madden Ltd.]

No. I'm sorry, those were freestanding stores.

[Steven L. Marotta, C.L. King & Associates, Inc.]

Okay.

[Edward R. Rosenfeld, Steven Madden Ltd.]

So if we opened 20 concessions or thereabouts that's in addition to that.

[Steven L. Marotta, C.L. King & Associates, Inc.]

Okay. The other question I had is, inventory is shown down on the balance sheet 8% year-over-year. A, is that accurate? Could you review the inventory commentary you had earlier in the call? It didn't seem to reconcile with what's on the balance sheet, but maybe I misunderstood.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Yeah. It's down 8% consolidated if you exclude Schwartz & Benjamin from a year-ago because we didn't own it yet, then it's down 12.6% sort of like-for-like. And so, obviously, the inventory is very clean at the end of the year. I think there's a couple things going on there. I think one is, it just it was – most importantly it was very well controlled, very clean. In addition, though, keep in mind, a year ago, it was also up year-over-year because of the earlier Chinese New Year, we had more goods in transit. And as Chinese New Year moved back that piece of it reversed itself.

[Steven L. Marotta, C.L. King & Associates, Inc.]

Excellent. Thank you very much. Helpful.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Thank you.

[Operator]

And this concludes today's question-and-answer session. I would like to turn the call back to Mr. Ed Rosenfeld for any additional or closing remarks.

[Edward R. Rosenfeld, Steven Madden Ltd.]

Great. Well, thanks everybody for joining us this morning and have a great day. We look forward to speaking with you on the next call.

[Operator]

And this concludes today's conference. Thank you for your participation, and you may now disconnect.