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Earnings Call Analysis
Q4-2023 Analysis
Steven Madden Ltd
Amidst challenging market conditions and consumer spending caution, the company delivered stellar fourth quarter results. Revenue grew by 10%, while diluted earnings per share (EPS) impressively increased by 39% compared to the same quarter in the previous year. After facing a tough start to the year, the company demonstrated resilience with sequential improvements each quarter, culminating in a robust fourth quarter performance.
The company’s international revenue increased by 11% to $381 million, now accounting for 19% of total revenue. The success story extended to the accessories and apparel sector which grew by 10%, due in large part to a substantial 37% increase in the Steve Madden handbag business. These gains testify to the firm's ability to penetrate both domestic and international markets successfully.
Despite a strong growth history in DTC, revenue declined by 3% in 2023. Nonetheless, the company plans to counterbalance this by opening 10 net new stores, primarily focused on international expansion in the EMEA region. This strategic move is intended to reinvigorate the DTC segment that experienced revenue declines in the latter half of the year.
Wholesale revenue took a significant leap of 14.9% to $354.8 million. Remarkably, wholesale accessories and apparel surged by 56.5% to $129.6 million, though footwear saw a slight decrease. Within DTC, revenue modestly increased by 1.9%, positioning both segments on a promising trend heading into the next financial year.
Operating income showed positive momentum with a 10.2% return on revenue, up from the previous year's 9%. The company also benefitted from a lower effective tax rate dropping to 14.3%. Moreover, robust net income of $45 million for the quarter and $182.7 million for the year reflect a shrewd financial acumen. The organization's financial health is further evidenced by a strong cash position, coupled with $176 million left in its share repurchase program and a commitment to delivering a $0.21 per share dividend in March 2024.
Looking ahead, the company is optimistic, projecting an 11% to 13% revenue increase for 2024. This includes anticipation of growth in their private label segment and further efforts to drive international expansion. The focus remains on growing key product lines and controlling promotions to drive gross margin growth, despite an expected 70 basis points pressure on gross margins from external factors.
The company also plans to heighten investment in marketing, which is currently at 4.5% of revenue. This entails pushing more marketing spend up the funnel, aiming for top of funnel brand awareness while balancing it with mid-funnel consideration and bottom-funnel conversion efforts. This strategic marketing allocation supports the ambition for continued double-digit growth over the coming years.
The wholesale channel is seeing a bounce-back, especially within the mass market segment. Off-price channels remain strong, and department stores show cautious yet improved inventory health. There is a significant outperformance in outlet channels compared to full-price stores, highlighting a value-conscious consumer base. The company remains a key vendor for department stores and expects to capitalize on improving comp store sales.
Good day, and thank you for standing by. Welcome to the Steve Madden Fourth Quarter and Full Year 2023 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to hand the conference over to your speaker today, Danielle McCoy, VP of Corporate Development and Investor Relations. Please go ahead.
Thanks, Abigail, and good morning, everyone. Thank you for joining our fourth quarter and full year 2023 earnings call and webcast.Before we begin, I'd like to remind you that our remarks that follow including answers to your questions contain statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to materially differ from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our press release issued earlier today and filings we make with the SEC.We disclaim any obligation to update these forward-looking statements which may not be updated into 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. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release.Joining me today on the call is Ed Rosenfeld, Chairman and Chief Executive Officer; and Zine Mazouzi, Chief Financial Officer.With that, I'll turn the call over to Ed. Ed?
Thanks, Danielle, and good morning, everyone, and thank you for joining us to review Steve Madden's fourth quarter and full year 2023 results.We are pleased to finish the year on a high note delivering fourth quarter results that exceeded expectations on both the top and bottom lines. After a tough start to 2023, we saw sequential improvement each quarter throughout the year in both revenue and earnings when compared to the prior year, culminating in the fourth quarter when revenue grew 10% and diluted EPS rose 39% versus the comparable period in 2022. The Q4 results included organic revenue growth in both the wholesale and direct-to-consumer channels, supplemented by the contribution from the newly acquired Almost Famous as well as strong year-over-year operating margin improvement.Looking back at 2023 overall, we face challenging market conditions with wholesale customers taking a cautious approach to orders and consumers pulling back on discretionary spending. I'm proud of how our team navigated the difficult environment, controlled what we can control and remain focused on executing our strategy for long-term growth, the foundation of which is driving closer connections with consumers through the combination of consistently trend-right product assortments and effective consumer engagement which in turn will enable success with our 4 key long-term business drivers.The first of those drivers is growing our business in international markets. International has been the fastest growing part of our business over the last several years and the momentum continued in 2023 despite the challenging macro environment. International revenue increased 11% in 2023 to $381 million or 19% of total. Looking ahead to 2024, continuing to grow our business in the EMEA region will be our top priority as we seek to build on our momentum in Europe, develop our new Middle East joint venture and capitalize on the exceptional brand heat we have in South Africa. Closer to home, driving continued growth in Mexico will also be a focus as we look to capitalize on our market leading position and recent share gains in that country.Our second key business driver is expanding in categories outside of footwear, like accessories and apparel. In 2023, our overall accessories and apparel revenue increased 10% compared to 2022 or 1% excluding Almost Famous. Our Steve Madden handbag business was the highlight increasing 37% including strong growth in both wholesale and direct-to-consumer channels in both domestic and international markets. We also broadened our footprint outside of [indiscernible] with the acquisition in October of Almost Famous, a designer and marketer of women's apparel.Almost Famous markets products in the wholesale channel under its own brands primarily Almost Famous as well as private label brands for various retailers. It has also been the exclusive licensee for Madden NYC apparel since its launch in 2022 and has had outstanding success with that brand so far. Almost Famous' core expertise is in the junior apparel category and in value price distribution channels, making it a strong complement to our existing Steve Madden apparel business, which is focused on contemporary styling and is primarily distributed in department stores and e-commerce retailers.Our top priority will be to use the Almost Famous platform to introduce Madden Girl apparel and to grow Madden NYC apparel. This will enable us to implement in apparel the strategy that has been so successful for us in footwear and accessories, which is to utilize the Steve Madden brand portfolio including Steve Madden, Madden Girl and Madden NYC to reach customers in all tiers of distribution from premium channels down through mass.Beyond the successful integration of Almost Famous, our focus in 2024 will be on building -- will be building on the momentum we have in Steve Madden handbags, with a particular focus on driving continued growth in DTC channels as well as the further development of the Steve Madden apparel business.Our third key business driver is driving our direct-to-consumer business led by digital. After strong growth in this business in 2001 and 2000 -- in 2021 and 2022, our DTC revenue declined 3% in 2023. We did however, see sequential improvement in the year-over-year top line performance each quarter throughout the year. And Q4 DTC revenue increased 2% compared to the comparable period in the prior year. And if we zoom out and look at the evolution of our DTC business over the past few years, we see that this business is up nearly 60% in revenue and nearly 200% in operating profit compared to pre-COVID 2019.In 2024, we plan to add 10 net new stores driven by expansion in international markets, primarily in EMEA. We will also invest in remodels in key locations including our flagship store in Times Square in New York City. On the digital side, we'll be investing in global site enhancements designed to drive greater speed, usability and conversion as well as continuing to refine our marketing mix and push more investment up the marketing funnel.Finally, our fourth key business driver is strengthening the U.S. wholesale footwear business. 2023 was a uniquely challenging year in that channel, as many of our wholesale customers entered the year with excess inventory and reduced orders significantly in efforts to rightsize inventory levels. After a revenue decline of more than 20% in the first half, the trend in this business improved significantly in the back half, but we still saw revenue declines of 6% in Q3 and 2% in Q4. The good news is that inventories in the channel are much healthier than they were a year ago and so while the sentiment among many of our key customers remains cautious, we are positioned to return to year-over-year revenue growth in this business beginning in Q1.So overall, while 2023 was challenging in a number of ways, we drove sequential improvement throughout the year, ended the year with a strong quarter and made important progress on our key strategic initiatives. We also demonstrated our ongoing commitment to returning capital to our shareholders with over $200 million in combined dividends and share repurchases.As we look ahead, while the operating environment remains choppy, we believe the on-trend product assortments created by Steve and his team have us well positioned for 2024. And looking out further, we are confident that the combination of our strong brands and proven business model will enable us to drive sustainable revenue and earnings growth for years to come.And now I'll turn it over to Zine to review our fourth quarter and full year 2023 financial results in more detail and provide our initial outlook for 2024.
Thanks, Ed, and good morning, everyone. In the fourth quarter our consolidated revenue was $519.7 million, a 10.4% increase compared to the fourth quarter of 2022. Excluding Almost Famous, consolidated revenue grew 2.3% compared to the same period in the prior year. Our wholesale revenue was $354.8 million up 14.9% compared to the fourth quarter of 2022 or 2.5% excluding Almost Famous. Wholesale footwear revenue was $225.2 million, a 0.4% decrease from the comparable period in 2022 as a modest increase in the branded business was offset by a decline in private label.Wholesale accessories and apparel revenue was $129.6 million, up 56.5% to the fourth quarter in the prior year, or 10.3% excluding Almost Famous driven by another quarter of strong growth in Steve Madden handbags. In our direct-to-consumer segment, revenue was $162.3 million, a 1.9% increase compared to the fourth quarter of 2022 with an increase in the brick-and-mortar business partially offset by a modest decline in e-commerce. We ended the year with 255 company-operated brick-and-mortar retail stores, including 71 outlets as well as 5 e-commerce websites and 25 company operated concessions in international markets.Turning to our licensing segment. Our licensing royalty income was $2.7 million in the quarter compared to $2.5 million in the fourth quarter of 2022. Consolidated gross margin was 41.7% in the quarter versus 42.2% in the comparable period of 2022. Excluding Almost Famous, consolidated gross margin increased 80 basis points year-over-year.Wholesale gross margin was 31.7%, an increase of 120 basis points compared to the fourth quarter of 2022, driven by increases in both the wholesale footwear and wholesale accessories and apparel segments. Direct-to-consumer gross margin was 62.7% versus 64% in the same period in 2022 driven by an increase in promotional activity.In the quarter operating expenses were $163.9 million, compared to $156.5 million in the fourth quarter of 2022, an increase of 4.7%. Excluding Almost Famous, operating expenses rose 1.3% compared to the same period last year. Operating income for the quarter was $53 million or 10.2% of revenue, up from $42.2 million or 9% of revenue in the comparable period last year. The effective tax rate for the quarter was 14.3% compared to 20.9% in the fourth quarter of 2022.Finally, net income attributable to Steve Madden Ltd. for the quarter was $45 million or $0.61 per diluted share compared to $33.7 million or $0.44 per diluted share in the fourth quarter of 2022.Now I'd like to briefly touch on the full year results. Consolidated revenues for 2023 decreased 6.6% to $2 billion compared to $2.1 billion in 2022. Net income attributable to Steve Madden Ltd. was $182.7 million or $2.45 per diluted share for the year ended December 31, 2023, compared to $218.3 million or $2.80 per diluted share for the year ended December 31, 2022.Moving to the balance sheet. Our financial foundation remains strong. As of December 31, 2023, we had $219.8 million of cash, cash equivalents and short-term investments and no debt. Inventory was $229 million, flat to the prior year. Excluding Almost Famous, inventory was down 5.9% compared to the same period in 2022.Our CapEx in the fourth quarter was $5.6 million and for the year was $19.5 million. During the fourth quarter and full year 2023, the company spent $38.1 million and $142.3 million on repurchases of its common stock respectively, including shares acquired through the net settlement of employee stock awards.At the end of the year, we had approximately $176 million remaining on the share repurchase authorization. The company's Board of Directors approved a quarterly cash dividend of $0.21 per share. The dividend will be payable on March 22, 2024, to stockholders of record as of the close of business on March 8, 2024. When combining share repurchases and the dividend, we returned $205 million to shareholders in 2023 and over $1.4 billion over the past decade.Turning to our outlook. We expect revenue for 2024 to increase 11% to 13% compared to 2023 and we expect diluted EPS to be in the range of $2.55 to $2.65. This includes a forecast of effective tax rate for 2024 of 23.5%, up from 21.3% in 2023 primarily due to lower forecasted discrete tax benefits related to stock-based compensation.Now I'd like to turn the call over to the operator for questions. Abigail?
[Operator Instructions] Our first question comes from Paul Lejuez with Citi.
We heard from Macy's yesterday about a significant number of store closings. Just curious if that's having any impact on how you're guiding and thinking about 2024? And also just curious to hear how you might think about the impact over the next several years? And then second, just curious on the wholesale footwear business in F '24. How are you thinking about that business in -- on the branded side versus private label and what drives the growth?
Great, yes. Good morning, Paul. So in terms of the Macy's announcement, obviously, we need to get more information there and understand exactly what stores are on the closure list, et cetera. But I don't think we're looking for any significant impact to 2024 and even beyond '24. My initial take is that there probably will be pretty minimal impact because the bulk of what we do with Macy's is in the top 250 doors.So Steve Madden women's, for instance, is really distributed just in those top 200 -- Steve Madden women's footwear is really distributed just in those top 250 doors, which I assume will not be impacted meaningfully. We do have some things that go to more doors and are distributed to doors that are likely on the closure list. That would include some Madden Girl footwear and certain accessory categories. We do a little bit of cold weather and some gifting that goes to more doors there, but that impact should be relatively modest.In terms of the second part of your question about wholesale footwear, we do expect both branded and private label to be up in 2024, although I expect private label to grow faster. And as we've talked about that -- those mass merchant customers that make up the bulk of our private label business, we're the first ones to see the pullback that happened when folks decided they -- realized they had too much inventory and pulled back the reins on open-to-buys. And so we're also seeing the recovery there first. And so we expect to see some pretty nice growth even starting in Q1 in wholesale footwear in the private label segment.
Got it. And then just one additional. What do you assume for Almost Famous for 2024? I'm sorry if I missed that.
Yes. So I guess I can -- maybe the way to give it to you is if we exclude Almost Famous, so the revenue growth is 11% to 13% including Almost Famous. If we exclude Almost Famous, it's mid-single-digit top line growth.
Our next question comes from Aubrey Tianello with BNP Paribas.
I wanted to follow-up on that last question about the 2024 revenue guide. Ed, maybe could you break down a little bit more in terms of what you're expecting between DTC and wholesale on the organic side for 2024 revenues?
Sure. Yes, so if we're looking at that kind of mid-single-digit overall organic growth rate, it should be a little bit less than that in wholesale or on the lower side of that in wholesale and on the -- and a little bit higher than that in DTC. So I would say low- to mid-singles in wholesale organic and approaching high-singles in DTC.
Perfect. Got it. And then just a follow-up on the gross margin for 2024. How we should think about that for 2024? I think Almost Famous is maybe like 140 basis points drag or so. Is that about right? And then what are some of the other components we should think about winning gross margin for '24?
It's Zine. I would think of Almost Famous the annualization of it at about 110 basis points if you added the whole year and assumed it didn't exist before, yes, you get to that 140 that you quoted, but 110 basis points is the annualization. And the other impact that we have, as discussed previously, is the Red sea and Canal Suez and we estimate that currently we have built in based on certain assumption about 20 to 25 basis points.So if you add those 2 together, you're a little over 130 basis points of pressure and that is partially offset by some improvement in gross margin in the organic business.
Our next question comes from Laura Champine with Loop.
And I know you've already spoken to wholesale footwears returning to growth. The mix in the wholesale segment was interesting in Q4 with extremely strong growth on easy comparison accessories and kind of flat in footwear. Does that normalize in Q1, or will it take longer than that?
I still expect the wholesale accessories to be growing faster than wholesale footwear in Q1 even on an organic basis and then it should normalize after that.
Our next question comes from Sam Poser with Williams Trading.
I guess I'd like to just dig in to wholesale footwear and how you're thinking about that. We can sort of back into handbags, it's going to grow faster. Are we looking at like low to mid on the footwear side of things on the wholesale business?
Yes, that's the right way to think about it, Sam.
And probably a little -- I mean, from the initial guidance, a little stronger in the first half of the year and just because the compare is a little easier and the visibility is better. Is that...
I think that's right, a little bit stronger, but not a big difference.
And then I'm just going to dig in. The -- what gross margin and operating margin are you expecting that is built in to the full year guidance?
Well, I'll tell you -- I'll start with gross margin. We expect, as I said earlier, that we'll have that 140 basis points combined between Almost Famous and freight. And we probably think that we'll have about 70 basis points pressure on the gross margin compared to this year. On the op margin, if you just think of Almost Famous alone, that's roughly about 40 basis points, 50 basis points pressure on the op margin.
And that's where we -- and just to elaborate, that's what we think -- that's what's built in, is -- it's about 11% operating margin for the year, which is down 50, which is essentially attributable -- almost all attributable to the Almost Famous pressure.
And when does Almost Famous -- I mean, it's driving a good kind of revenue. When does -- when -- how long does it take to get Almost Famous margins to where you want them to be?
Well, I think we're -- certainly, we should start seeing improvement even in the back half here. And we've got a -- we think we see a path to improving those operating margins. But we've always been clear that because of the nature of this business, it's obviously done largely in the mass channel and there's a big private label component that this business will be a lower operating margin business.As we articulated when we announced it, they were -- their operating margins the year before we bought them were about 7%. We think we see a path to getting them into the high-singles and over time, potentially into the low-doubles. But that's -- you shouldn't expect us to be a mid-teen operating margin business based on the distribution and the nature of the sales breakdown.
Okay. And then lastly, within the overall revenue -- actually, I'll leave it out. Within the footwear revenue guidance or the organic revenue guidance, how do you break out international or EMEA versus U.S. versus Canada and so on and so forth? How does that balance, like sort of you've got that mid-single-digit growth organically? Is that high-single-digit, international...
Yes. So international is a little faster than that and domestic is a little slower.
Our next question comes from Jay Sole with UBS.
My question is about the leverage point for SG&A. What is the leverage point for SG&A in fiscal '24? And as you look beyond, should that change? And has the leverage plan changed with the acquisition?
Yes. So we have some modest leverage built into the 2024 budget in the guide. And the reason I'm saying it's modest is because as we always said, we'll continue to invest in the business, we're investing in marketing and we're also investing in infrastructure internationally. As Ed mentioned, we grew 11%. We expect double-digit growth to continue for the next couple of years. So there is some investment that we're doing to fuel the growth in the upcoming years in international, both from a people perspective and also from a technology perspective.
And just to elaborate on that, keep in mind that organic top line growth is mid-singles, right? So you're looking at a consolidated 11% to 13%, but that includes Almost Famous.
Got it, okay. And then if I can just add one more. Just any color on how we should think about gross profit margin for Q1?
It's getting granular here. Look, there'll be pressure in Q1 for the reasons that Zine already articulated. I don't think we're going to start -- prefer not to get -- start guiding by margin by quarter.
Our next question comes from Abby Zvejnieks with Piper Sandler.
Can you just give us some color on what gives you confidence in the high-single-digit direct-to-consumer growth? Any color on e-commerce versus stores? And then, I guess, what you're seeing and expecting in terms of promotions in that direct-to-consumer channel?
Yes, yes, we've seen a nice improvement in that business over the last few months. Even in Q4, we saw a significant improvement in November and December relative to the trend in October. And we've seen an additional step-up in January and February compared to where we were in November and December.So we are running very nice, solidly positive comps and seen that in both brick-and-mortar and digital year-to-date. And so that is part of what gives us confidence in the DTC revenue guide. We also do have -- we'll probably have 2.5 points of non-comp -- of growth coming from non-comp stores as well because of some of the new store openings.What was the follow-up question?
Just on promotions and direct-to-consumer.
Oh, yes. I would say right now the promotional activity is, I would say, normal. It's not super happy, but I wouldn't characterize it as super light either. I think it's kind of normal activity for this time of year. It was -- if we go back to fall, it was a somewhat challenging boot season and so we did a little bit more promotional activity to move through the boots.But nice thing was January, we got that cold weather. We really were able to get through a lot of boots and got very clean there. And so we feel good about our inventory position. And in fact, I believe that this year in DTC, there's opportunity for gross margin improvement in DTC by controlling promotions.
Our next question comes from Tom Nikic with Wedbush.
I want to ask about the international business. A lot of other brands have talked about the European consumer becoming a little more cautious. Does your optimism around Europe just stem from the fact that your brand is so under-penetrated there that you kind of had growth opportunities almost kind of regardless of the macro environment?
Yes, I think that's right. We have very strong momentum in Europe and we do feel that we are outperforming our competitors in terms of sell-through and overall performance. That said, the overall macro environment is tough there. The retail environment is challenging there. And if it weren't for those factors, I think we'd be doing even better.But because of the momentum we have, the strong performance that we've been seeing, both in wholesale and in our direct-to-consumer channels and to your point, the fact that we're just not a mature business there. We've still got a lot of runway ahead of us. We still feel we can drive growth in that region.
Got it. And can you remind us the size of the business in Europe? I mean, yes, maybe ultimately, what you think the region can become to you?
Yes, the EMEA region overall in 2023 was just under $170 million. In terms of what it could be, I mean, it could be multiples of that.
Our next question comes from Corey Tarlowe with Jefferies.
Ed, I was wondering if you could just touch on the inventory balances and how you feel the inventory is positioned into this upcoming year? One of the things you've done a nice job of and acts almost same as inventories continue to be down, I think, for several quarters in a row now. So could you talk about what you think that means for the business and how that all interplays with your ability to chase and be trend-focused and drive really productive sales that way?
Yes, I mean I think that's -- as you know, one of the hallmarks of the company has been our inventory management and our ability to turn our inventory faster than our peers in the industry and enables us to work close to season, not make big speculative inventory bets upfront and chase goods in season and be very nimble. That's been a good formula for us, especially in the fast-moving trend business in which we operate.So I do feel we're really -- obviously, that whole model was challenged for a period when there was the tremendous supply chain disruption in the wake of COVID and transit times were so extended, but we're back to being able to do what we do best. We've been able to, as you point out, reduce overall inventory levels, at least on an organic basis, we were flat, including Almost Famous at the end of the year. And so we're really positioned to run our playbook and do what we do and we feel good about that. And I think that's another reason that we do believe that on an organic basis, we can see some gross margin improvement this year.
That's great. And then just a follow-up on -- you mentioned remodels. Curious about the potential impact of that on CapEx and this is traditionally a very capital-light business. So curious about what the expectations are for remodels going forward, if that's something more broad or specific to a finite number of stores?
Yes. We've done some this year. As I mentioned earlier, we ended at $19.5 million this year. And we expect next year with what we do with our CapEx in the stores -- the opening stores, remodels, our investment in IT and infrastructure that may -- we would be probably about $5 million above this year.
Our next question comes from Dana Telsey with Telsey Advisory Group.
Ed, if you think about the wholesale channel distribution and the buckets of it, whether it's off-price department stores, discounters with private label, how are each performing? And how do you expect them to be different in 2024 versus '23? And on the retail component, what are you seeing in terms of differences in outlets versus street locations or malls?
Sure. So in terms of the wholesale channels, look, I think the one I'm the most bullish about in terms of top line growth is probably the mass channel because as we point out, we did take a big hit there as they pull back the reins really dramatically to get their inventories in line and we're starting to see that business recover and we're already, as I pointed out, expecting to see a nice year-over-year improvement beginning in Q1.So I think that kind of bounce back should be a nice benefit for us in 2024. Kind of moving up the channels off-price, that's clearly still a channel that's performing, taking share. There's still a very healthy demand for our product there. We are obviously controlling how much distribution we have in that channel, but certainly, there's healthy demand there.And then as you move into the department stores, I would say overall, the sentiment there remains cautious. But as I pointed out earlier, the inventory in the channel is much healthier than it was a year ago. And we -- obviously, those customers are important to us and we've got indications from them that they're planning our business in excess of how they're planning their overall department. And so we'll look for a better year with them as well in 2024.I think the second part was outlets versus -- yes, versus full-price stores. The big call out there is that we continue to see outlet outperforming full-price stores in the U.S. by a pretty significant margin. In Q4, it was about 1,000 basis points again in comp and even coming into Q1, we continue to see a significant outperformance in the outlet channel versus the full-price channel in the United States. And I think indicative of a customer that is still price conscious and gravitating towards value.
Our next question comes from Janine Stichter with BTIG.
I had a couple of questions around margins. So for gross margin, what are you assuming for freight? The Red Sea situation aside, we've seen the rates tick up a bit and I think your contracts are up for renewal, so just how to think about what you're assuming for freight for the rest of the year?And then on the SG&A, I think you pointed to a bit of SG&A deleverage in the guide -- sorry, a bit of leverage built into the guide. But how are you thinking about marketing spend? I know you've been investing there. How to think about the overall investment and marketing spend and then maybe the split between brand spend and other marketing spend?
Yes, I'll take the first part on the gross margin and Ed can elaborate on marketing. On the gross margin, Janine, we mentioned that we have built in based on certain assumptions around Red Sea and everything else around freight, 20 to 25 bps impact to gross margin.On the marketing side, we're continuing to invest, but Ed can actually give you a little more color on that.
Yes, yes. I mean, I think that it -- look, as you know, that's been an area of continued investment for us over the last several years and we've moved up our marketing percentage of revenue pretty significantly from 2% or sub-2% to about 4.5% in 2023. As we go into 2024, we're going to continue to increase the investment in marketing.We think that's important to drive growth in the future. If we -- I think it's easiest to sort of look at it backing out Almost Famous. If you back out Almost Famous there is -- we're still looking to increase marketing kind of high-single-digits in dollars, which is obviously faster than the mid-single-digit top line growth on an organic basis that we forecasted. So a little bit of deleverage there.And in terms of the mix, as we talked about, the big focus there is really optimizing our marketing spend throughout the funnel and that means, we believe, at this point, pushing more marketing spend up the funnel, so making sure we're doing that top of funnel brand awareness work as well as the mid-funnel sort of consideration and of course, not forgetting the bottom of the funnel for a conversion.I think a few years ago, like many folks in the industry, we had gotten into a situation where we were very heavily penetrated in the lower part of the funnel and that was working for a while there. We're getting great returns on that performance marketing, but we do think that there needs to be a better balance now and that's what we're focused on.
[Operator Instructions] We have a follow-up from the line of Sam Poser with Williams Trading.
Two things. One, to follow-up on Dana's question on the wholesale brand on the Steve Madden and Dolce Vita footwear, they are sort of the better wholesale businesses. Are the retailers opening up enough? When Macy's spoke yesterday, they said that they wanted to buy more products of what people coming in and asking for, which would be theoretically, you'd be one of those.But at the same time, they were talking about growing their private label business. So I'm just trying to get your interpretation of how that works out, giving people what they want and then growing private label. And then I wanted to talk about sort of expanding the scope of your direct-to-consumer business, getting to know more customers building your database, so what's being done there to increase that?
Yes, look, I think -- I don't know what else I can say about the -- about what's going on with the department stores. We feel we're -- we believe that we're confident that we're very important vendors for them, that we're going to get more than our fair share, that we're positioned to take share, frankly, in that channel.Overall, their sentiment does remain cautious though and we'll have to see how that develops over the course of the year. Obviously, if their comp store sales improve, that will -- I believe that will encourage them to get more aggressive and I think we'll be very well positioned to participate if that happens.In terms of DTC, look, that's clearly been -- we've been increasing the penetration significantly over the last several years in DTC and we continue -- we expect to continue to do that. So back in 2019, I think we were 18% in DTC. We finished 2023 up 800 basis points in penetration. So pretty significant growth in DTC there.And obviously, this year we -- if you include Almost Famous, you won't see that percentage go up. But if you exclude Almost Famous, you're seeing continued penetration increase in DTC and that will continue to be a long-term initiative for us to build that business and have more of those direct relationships that you talked about with the consumer.
That concludes the question-and-answer session. At this time, I would like to turn the call back to Ed Rosenfeld for closing remarks.
All right. Well, thanks so much for joining us today. Have a great day. We look forward to speaking with you on the next call.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.