Steven Madden, Ltd.

Good day and welcome to the Steve Madden Limited Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. 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 third quarter 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 until our next quarterly earnings conference call, if at all. The financial results discussed on today's call are on an adjusted basis, unless otherwise noted. 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 Zine Mazzuzzi, 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 third quarter 2023 results. We were pleased to return to year-over-year earnings growth in the third quarter, demonstrating the strength and durability of our business model in challenging operating environments. After a tough first half where we saw significant year-over-year declines in revenue and earnings, we drove strong improvement in our financial performance in Q3. On a consolidated basis, revenue for the quarter declined 1% versus the prior year period, operating margin expanded 90 basis points to 15.1%, and diluted EPS rebounded sharply to increase 11% over the comparable period in 2022. In a challenging and uncertain environment, our team remains focused on controlling what we can control and executing our strategy for long-term growth. That strategy starts with utilizing our proven model, which combines talented design teams, a test and react strategy, and an industry-leading speed to market capability to create trend-right product assortments and get them to market ahead of the competition. We then support that great product with an always-on full-funnel marketing and consumer engagement strategy. By consistently combining outstanding product and effective marketing, we create deeper connections with our consumers, which in turn enables our success with our four key business drivers. The first of those drivers is growing our business in international markets. In the third quarter, our international revenue increased 5% compared to the prior year period, and accounted for just under 20% of consolidated revenue, a new quarterly high. Our EMEA region was a standout. We continued to see strong momentum in Europe, where third quarter revenue rose 18% compared to the same period in 2022. Our success in the region was recently recognized by the leading UK industry trade publication, Drapers, which named Steve Madden the Women's Footwear Brand of the Year for 2023. And in September, we opened a flagship store on Oxford Street in London with our local partner, allowing us to showcase the brand to customers from around the globe in one of the world's most important shopping destinations. We also continued to develop our business in the Middle East through our new joint venture in the region. The JV opened five new stores in the quarter, drove strong performance in e-commerce, and made significant investments in marketing, both offline and online, to build brand awareness. And while it's a smaller market, I also want to call out our South Africa joint venture, where we experienced explosive growth, with revenue increasing 87% versus the prior year period, driven in large part by outstanding performance in sneakers, where we've seen multiple products go viral in the market. Closer to home, in our Americas region, our directly owned subsidiary in Mexico continued its strong momentum, growing revenue 31% compared to the prior year period, including a 23% gain in wholesale and a 46% increase in DTC. This was offset by a decline in Canada, where trends continued to be softer overall and some large wholesale orders moved out of Q3 and into the beginning of Q4. Our second key business driver is expanding in categories outside of footwear, like accessories and apparel. In the third quarter, our overall accessories and apparel revenue increased 27% versus the prior year period. Our Steve Madden handbag business was the primary growth driver. It had another outstanding quarter, increasing revenue 52% compared to the third quarter of 2022, including a 46% gain in wholesale and a 90% increase in DTC. We also continue to make meaningful progress in apparel. Our Steve Madden apparel business is having a strong fall season. With robust sell-through rates in our key accounts, And based on this performance, we see meaningful opportunity for both door growth and expanded assortments within existing doors in our most important accounts in 2024. And last month, we further enhanced our apparel platform with the acquisition of privately held 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 priorities 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. Almost Famous had revenue in the 12 months ended September 30, 2023 of approximately $163 million, and the acquisition was completed for $52 million in cash, subject to a working capital adjustment, plus an earn-out provision based on future financial performance. We're extremely excited about the addition of Almost Famous, the capabilities it brings, and the opportunities it creates to continue the expansion of our business outside of footwear. Our third key business driver is driving our direct-to-consumer business led by digital. In the third quarter, DTC revenue declined 2% versus the prior year period, a sequential improvement from the 5% decline we experienced in the second quarter. We also delivered a 250 basis point improvement in gross margin in DTC, enabling us to expand operating margins and drive higher EBIT than in the prior year period despite the revenue decline. And despite the pullback we've seen this year, it's important to note that our DTC business continues to be over 50% bigger than it was pre-COVID. On a trailing 12-month basis, DTC accounted for 26% of consolidated revenue, up from 18% in pre-COVID 2019. And our fourth and final key driver is strengthening our core US wholesale footwear business. As we have discussed on prior earnings calls, this business has been under significant pressure this year as our wholesale customers pulled back on orders across the board as they prioritized inventory control. But while we are still not all the way back to where we'd like to be, we saw significant improvement in the third quarter. U.S. wholesale footwear revenue decreased 6% in the quarter, a 1,500 basis point improvement compared to the first half trend, And we expect to see sequential improvement again in the fourth quarter. So putting that all together, we are pleased with the progress we are making on our key strategic initiatives. And as we execute against our plan and focus on the long term, we are also cognizant of the challenging operating environment and disciplined in how we manage the business in the near term. In the third quarter, we, one, expanded gross margin for the fourth consecutive quarter, with gross margin increases in both wholesale and DTC channels, despite an increasingly promotional retail landscape. Two, managed our inventory with discipline, reducing inventory by 16% at the end of Q3 compared to the prior year. And three, controlled expenses and drove cost efficiencies, with operating expense dollars declining year over year for the second consecutive quarter. even as we continue to invest in product innovation, consumer engagement, and our long-term growth initiatives. As we look ahead, this operating discipline will remain important because we continue to face a challenging macro environment. Trends across our industry softened beginning in September, which, combined with the impact of the crisis in the Middle East on our Israel and Middle East joint ventures, leaves us incrementally more cautious on the near-term outlook. Looking out further, we remain confident that our core strengths, our people, brands, and business model will enable us to deliver sustainable revenue and earnings growth over the long term. And finally, as we navigate these challenges and execute our strategic initiatives, we also continue to embrace the opportunity and the responsibility we have to create positive change for our people, planet, and communities. And we seek to embed corporate social responsibility and sustainability in everything we do. In the third quarter, we published our 2022 sustainability report, which outlines the progress we have made on our Let's Get Real sustainability strategy and our goals going forward. You can find the report on the sustainability section of stevemann.com, and I encourage you all to check it out. And now, I will turn it over to Zeen to review our third quarter financial results in more detail and provide our updated outlook for the year.