Steven Madden Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2024

There are 12 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Steve Madden Fourth Quarter and Full Year 2023 Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Danielle McCoy, VP of Corporate Development and Investor Relations. Please go

Speaker 1

ahead. Thanks, Abigail, and good morning, everyone. Thank you for joining our Q4 full year 20 23 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.

Speaker 1

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 until our next quarterly earnings 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 on the call today is Ed Rosenfeld, Chairman and Chief Executive Officer and Zane Mizuzzi, Chief Financial Officer.

Speaker 1

With that, I'll turn the call over to Ed. Ed?

Speaker 2

Thanks, Danielle, and good morning, everyone, and thank you for joining us to review Steve Madden's 4th quarter full year 2023 results. We are pleased to have finished the year on a high note, delivering 4th 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 4th quarter when revenue grew 10 percent 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 faced challenging market conditions with wholesale customers taking a cautious approach to orders and consumers pulling back on discretionary spending.

Speaker 2

I'm proud of how our team navigated the difficult environment, controlled what we could control and remained 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 20 23 to $381,000,000 or 19% of total.

Speaker 2

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.

Speaker 2

We also broadened our footprint outside of footwear through 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 YC Apparel.

Speaker 2

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 3rd key business driver is driving our direct to consumer business led by digital. After strong growth in this business in 2021 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.

Speaker 2

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 4th key business driver is strengthening the U.

Speaker 2

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 right size 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.

Speaker 2

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 $200,000,000 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.

Speaker 2

And now, I'll turn it over to Zeen to review our Q4 and full year 2023 financial results in more detail and provide our initial outlook for 2024.

Speaker 3

Thanks, Ed, and good morning, everyone. In the Q4, our consolidated revenue was 519,700,000 dollars a 10.4% increase compared to the Q4 of 2022. Excluding Almost Famous, consolidated revenue grew 2.3% compared to the same period in the prior year. Our wholesale revenue was 354,800,000 up 14.9% compared to the Q4 of 2022 or 2.5% excluding OMLOS statements. Wholesale footwear revenue was $225,200,000 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.

Speaker 3

Wholesale accessories and apparel revenue was $129,600,000 up 56.5 percent to the 4th 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 $162,300,000 a 1.9% increase compared to the Q4 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 2 55 company operated brick and mortar retail stores, included 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 $2,700,000 in the quarter compared to $2,500,000 in the Q4 of 2022. Consolidated gross margin was 41.7 percent in the quarter versus 42.2% in the comparable period of 2022.

Speaker 3

Excluding Almost Famous, consolidated gross margin increased 80 basis points year over year. Wholesale gross margin was 31.7 percent, an increase of 120 basis points compared to the Q4 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 $163,900,000 compared to $156,500,000 in the Q4 of 2022, an increase of 4.7%. Excluding Almost Famous, operating expenses rose 1.3% compared to the same period last year.

Speaker 3

Operating income for the quarter was $53,000,000 or 10.2 percent of revenue, up from $42,200,000 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 Q4 of 2022. Finally, net income attributable to Steve Madden Limited for the quarter was $45,000,000 or $0.61 per diluted share compared to 33,700,000 or $0.44 per diluted share in the Q4 of 2022. Now I would like to briefly touch on the full year results. Consolidated revenues for 2023 decreased 6.6 percent to $2,000,000,000 compared to $2,100,000,000 in 2022.

Speaker 3

Net income attributable to Steve Madden Limited was $182,700,000 or $2.45 per diluted share for the year ended December 31, 2023 compared to $218,300,000 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 $219,800,000 of cash, cash equivalents and short term investments and no debt. Inventory was $229,000,000 flat to the prior year. Excluding Almost Famous, inventory was down 5.9% compared to the same period in 2022.

Speaker 3

Our CapEx in the Q4 was $5,600,000 and for the year was $19,500,000 During the Q4 and full year 2023, the company spent $38,100,000 142,300,000 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 $176,000,000 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 combined in share repurchases and the dividend, we returned $205,000,000 to shareholders in 2023 and over $1,400,000,000 over the past decade.

Speaker 3

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 forecasted effective tax rate for 2024 of 23.5 percent up from 21.3% in 2023 primarily due to lower forecasted discrete tax benefits related to stock based compensation. Now, I would like to turn the call over to the operator for questions. Abigail?

Operator

Thank you. At this time, we'll conduct a question and answer session. Our first question comes from Paul Lejuez with Citi. Your line is open.

Speaker 4

Hey, thanks guys. You 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 F24, how are you thinking about that business on the branded side versus private label and what drives growth?

Speaker 4

Thanks.

Speaker 2

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, etcetera. But I don't think we're looking for any significant impact to 2024.

Speaker 2

And even beyond 2024, 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 $2.50 So C band women's for instance is really distributed just in those top 200 C band women's footwear is really distributed just in those top 2 50 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.

Speaker 2

And as we've talked about that those mass merchant customers that make up the bulk of our private label business were the first ones to see the pullback that happened when folks decided they had realized they had too much inventory and pulled back the reins on open device. 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 and the private label segment.

Speaker 4

Got it. Thanks. And then just one additional, what do you assume for Almost Famous for 2024? I'm sorry if I missed that.

Speaker 2

Yes. So I guess 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.

Speaker 4

Got it. Thank you. Good luck.

Speaker 3

Thanks.

Operator

One moment. Our next question comes from Aubrey Tiano with BNP Paribas. Your line is open.

Speaker 5

Hey, good morning. Thanks for taking the questions. 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?

Speaker 2

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.

Speaker 5

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?

Speaker 5

And then what are some of the other components we should think about within gross margin for 2024?

Speaker 3

Hi, Aubrey. It's Zeen. I would think of almost Famous, the annualization of it at about 110 basis points. If you added the whole year and assume that didn't exist before, yes, you get to that 140 that you quoted, but $110,000,000 is the annualization. And the other impact that we have as discussed previously is the Red Sea and Canal Sways.

Speaker 3

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.

Speaker 5

Very clear. Thank you.

Operator

One moment. Our next question Our next question comes from Laura Champine with Loop. Your line is open.

Speaker 6

Thanks for taking my question. And I know you've already spoken to wholesale footwear 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?

Speaker 2

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.

Speaker 6

Got it. Thank you.

Operator

One moment for our next question. Our next question comes from Sam Poser with Williams Trading. Your line is open.

Speaker 7

Good morning. Thank you for taking my questions. 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?

Speaker 2

Yes. That's the right way to think about it, Tim.

Speaker 7

And probably a little I mean from the initial guidance, a little stronger in the first half of the year and just because the compares are a little easier and the visibility is better, is that?

Speaker 2

I think that's right, a little bit stronger, but not a big difference.

Speaker 7

And then, I'm just going to dig in. The growth What gross margin and operating margin are you expecting that is built into the full year guidance?

Speaker 3

Well, I'll tell you I'll start with the 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 we just think of Almost Famous alone, that's roughly about 40 basis points, 50 basis points pressure on the op margin.

Speaker 2

And that's where we and just to elaborate, that's where we think that's what's built in is about 11% operating margin for the year, which is down 50, which is essentially attributable almost all attributable to the Almost Famous pressure.

Speaker 7

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?

Speaker 2

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.

Speaker 2

But that's you shouldn't expect this to be a mid teen operating margin business based on the distribution and the nature of the sales breakdown.

Speaker 7

Okay. And then lastly, within the overall revenue actually, I'll leave it out, within the footwear revenue guidance or the organic revenue guidance,

Speaker 2

how do you break

Speaker 7

out international or EMEA versus U. S. Versus Canada and so on and so forth? How does that balance like sort of you got that mid single digit growth organically? Is that high single digit?

Speaker 2

Yes. So international is a little faster than that and domestic is a little slower.

Speaker 7

Okay. Thank you very much. Good luck.

Speaker 2

Thanks, Tim.

Operator

One moment for our next question. Our next question comes from Jay Sole with UBS. Your line is open. Great.

Speaker 8

Thank you. My question is about the leverage point for SG and A. What is the leverage point for SG and A in fiscal 2024? And as you look beyond, should that change and has the leverage point changed with the acquisition?

Speaker 3

Yes. So we have some modest leverage built into the 2024 budget and 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.

Speaker 3

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.

Speaker 2

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.

Speaker 8

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?

Speaker 2

Guys, we're getting granular here. Look, there's going to be there'll be pressure in Q1 for the reasons that Sien already articulated. I don't think we're going to start prefer not to get started guiding by margin by quarter.

Speaker 3

Got it. Okay. Thanks, Ed.

Operator

One moment for our next question. Our next question comes from Abi Zavaniks with Piper Sandler. Your line is open. Great. Thanks so much for taking my question.

Operator

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? Thank you.

Speaker 2

Yes. We've seen a nice improvement in that business over the last few months. And even in Q4, we saw a significant improvement in November December relative to the trend in October. And we've seen an additional step up in January February compared to where we were in November December. So we are running very nice solidly positive comps and seen that in both brick and mortar and digital year to date.

Speaker 2

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 growth coming from non comp stores as well because of some of the new store openings.

Speaker 3

What was the follow-up question?

Operator

Sorry, just on promotions and direct to consumer.

Speaker 2

Yes. I would say right now the promotional activity is, I would say, normal. It's not super heavy, but I wouldn't characterize it as super light either. I think it's kind of normal activity for this time of year. 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.

Speaker 2

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.

Speaker 9

That's very helpful. Thank you.

Operator

One moment for our next question. Our next question comes from Tom Nikic with Wedbush. Your line is open.

Speaker 4

Hey, good morning, everyone. Thanks for taking my question. 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 stems from the fact that your brand is so underpenetrated there that you kind of have growth opportunities almost kind of regardless of the macro environment?

Speaker 2

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.

Speaker 2

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.

Speaker 4

Got it. Ed, can you remind us the size of the business in Europe? I mean, maybe ultimately what you think the region can become for you?

Speaker 2

Yes. The EMEA region overall in 2023 was just under $170,000,000 In terms of what it could be, I mean it could be multiples of that.

Speaker 4

Okay. Sounds good. Thanks, everyone, and best of luck this year.

Operator

One moment for our next question comes from Cory Tarlow with Jefferies. Your line is open.

Speaker 10

Great. Thank you. 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 ex almost same as this 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?

Speaker 2

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 it 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.

Speaker 2

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.

Speaker 10

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 more specific to a finite number of stores?

Speaker 3

Yes. We've done some this year. As I mentioned earlier, we ended at $19,500,000 this year. And we expect next year with what we do with our CapEx in the stores, either opening stores, remodels, our investment in IT and infrastructure that we would be probably about $5,000,000 above this year.

Speaker 10

Great. Thank you very much.

Operator

One moment for our next question. Our next question comes from Dana Telsey with Telsey Advisory Group. Your line is open.

Speaker 9

Hi, good morning, everyone. Ed, as 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 2023? And on the retail component, what are you seeing in terms of differences in outlets versus street locations or malls? Thank you.

Speaker 2

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 pulled 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.

Speaker 2

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.

Speaker 2

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 full price stores. The big call out there is that we continue to see outlet outperforming full price stores in the U. S.

Speaker 2

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.

Speaker 9

Thank you.

Speaker 2

Thanks, Steve.

Operator

One moment for our next question. Our next question comes from Jeanine Stitcher with BTIG. Your line is open.

Speaker 11

Hi, good morning. 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 soon. Just how to think about what you're assuming for freight for the rest of the year?

Speaker 11

And then on the SG and A,

Speaker 1

I think you pointed to

Speaker 11

a bit of SG and 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 in marketing spend and then maybe the split between brand spend and other marketing spend? Thank you.

Speaker 3

Yes. I'll take the first part on the gross margin and Ed can elaborate in 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.

Speaker 3

I mean,

Speaker 2

I think that 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-two percent 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. 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.

Speaker 2

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 consideration and of course not forgetting the bottom of the funnel for conversion. I think a few years ago, 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.

Speaker 2

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

Great. Thank you very much.

Speaker 2

Thank you.

Operator

We have a follow-up from the line of Sam Poser with Williams Trading. Your line is open.

Speaker 7

Thank you. 2 things. 1, 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 product of what people coming in and asking for, which would be theoretically you'd be one of those.

Speaker 7

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 or what's being done there to increase that? Thank you.

Speaker 2

Look, I think I don't know what else I can say about what's going on with the department stores. We feel we're we believe that we are 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 incur I believe that will encourage them to get more aggressive.

Speaker 2

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% at DTC. We finished 2023, up 800 basis points in penetration. So pretty significant growth in DTC there.

Speaker 2

And obviously, this year, 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.

Speaker 7

Thank you.

Operator

That concludes the question and answer session. At this time, I would like turn the call back to Ed Rosenfeld for closing remarks.

Speaker 2

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.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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Key Takeaways

  • Q4 2023 results beat expectations with revenue of $519.7 M (+10.4% y-o-y) and diluted EPS of $0.61 (+39%), driven by organic gains in both wholesale and DTC channels, the Almost Famous acquisition, and improved operating margins.
  • For full‐year 2023, consolidated revenue declined 6.6% to $2.0 B and EPS fell to $2.45, though the company delivered sequential quarterly improvements after a challenging start to the year.
  • The international segment grew 11% to $381 M (19% of total sales), with 2024 priorities including EMEA expansion, development of a Middle East joint venture, leveraging brand momentum in South Africa, and further market‐share gains in Mexico.
  • Accessories and apparel revenue rose 10% (1% ex-Almost Famous), highlighted by a 37% increase in Steve Madden handbags, while the October acquisition of Almost Famous provides a platform to launch Madden Girl and expand Madden NYC apparel across multiple distribution tiers.
  • Looking ahead to 2024, the company guides to 11–13% revenue growth and EPS of $2.55–$2.65, supported by a DTC rebound (Q4 DTC +2% with ten new stores and digital investments), a U.S. wholesale footwear recovery as channel inventories normalize, and despite ~130 bps of gross margin pressure from the Almost Famous integration and higher freight costs.
A.I. generated. May contain errors.
Earnings Conference Call
Steven Madden Q4 2023
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