Steven Madden, Ltd.

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 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 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 meeting 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 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 Dean 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 fourth quarter and full year 2023 results. We are pleased to have finished 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 improvements. 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. 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 four 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 Footwear 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 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 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 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, 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 the 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 payments. 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 five e-commerce websites and 25 company-operated concessions in international markets. To turn into 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 Limited for the quarter was $45 million or 61 cents per diluted share compared to 33.7 million or 44 cents per diluted share in the fourth quarter of 2022. Now I would 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 Limited was $182.7 million or $2.45 per diluted share for the year ended December 31st, 2023, compared to $218.3 million or $2.80 per diluted share for the year ended December 31st, 2022. Moving to the balance sheet, our financial foundation remains strong as of December 31st, 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 21 cents per share The dividend will be payable on March 22nd, 2024 to stockholders of record as of the close of business on March 8th, 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. Turn into our outlook. We expect revenue for 2024 to increase 11 percent to 13 percent 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 percent 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?

Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile the Q&A roster. Our first question comes from Paul DeWaise with Citi. Your line is open.

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 uh and then second just curious on the wholesale footwear uh business in f24 how are you thinking about that business in on the branded side versus private label and what drives growth thanks uh great yes uh good morning paul um so in terms of the uh macy's announcement obviously we need to to

get more information there and understand exactly what stores are on the closure list, etc. But I don't think we're looking for any significant impact to 2024. 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 250 doors. So Seed Man Women's, for instance, is really distributed just in those top 200, Seed Man 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, you know, 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, you know, as we've talked about, you know, those mass merchant customers that make up the bulk of our private label business were the first ones to see the pullback, you know, that happened when folks decided they had realized they had too much inventory and pulled back their 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 segments.

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

Yeah, 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. Got it.

Thank you. Good luck.

Thanks.

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

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?

Sure.

Yeah, 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 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 to follow up on the gross margin for 2024, you know, how we should think about that for 2024, I think almost famous is, you know, 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 with a gross margin for 2024?

Hey, Aubrey. It's Dean. 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 is the annualization. And the other impact that we have, as discussed previously, is the Red Sea and Canal of 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 two together, you're a little over 130 basis points of pressure, and that is partially offset by some improvement in the gross margin in the organic business.

Very clear. Thank you.

One moment for our next question. Our next question comes from Laura Champagne with Loop. Your line is open.

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 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. Got it. Thank you.

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

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. You know, 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, Tim.

And probably a little, I mean, from the initial guidance a little stronger in the first half of the year and just because the compareds are 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. What gross margin and operating margin are you expecting that is built into the full-year guide?

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 out margin, if you just think of almost famous alone, that's roughly about 40 basis points, 50 basis points pressure on the out margin.

And just to elaborate, that's where we think, you know, 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.

And when does almost famous, I mean, it's driving a good amount of revenue. How long does it take to get almost famous, you know, margins to where you want them to be?

Well, I think certainly we should start seeing improvement even in the back half here. And 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, 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. You shouldn't expect this 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, you know, sort of you've got that mid-single-digit growth organically. Is that high single-digit?

Yeah, no, international – International is a little faster than that, and domestic is a little slower.

Okay. Thank you very much. Thank you very much. Good luck. Thanks, Sam.

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

Great. Thank you. 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 point changed with the acquisition?

Yeah. 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 the organic growth 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.

You guys are getting granular here.

Look, there's going to be, there'll be pressure in Q1 for the reasons that's being already articulated. I don't think we're going to start Prefer not to get, you know, start guiding by margin by quarter. Got it. Okay. Thanks, Ed.

One moment for our next question. Our next question comes from Abby Savaniaks with Piper Sandler. Your line is open.

Great. Thanks so much for taking my question. 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.

Yeah, 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're running very nice, solidly positive comps. and seeing 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 two and a half 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?

Sorry, just on promotions and direct-to-consumer. Oh.

Oh, yeah. 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. 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 the 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.

That's very helpful. Thank you. One moment for our next question. Our next question comes from Tom Nickick with Wedbush. Your line is open.

Hey, good morning, everyone. Thanks for taking my question. I want to ask about the international business. You know, a lot of other brands have talked about the European consumer becoming a little more cautious. Is your optimism around Europe just stemmed from the fact that, you know, your brand is so underpenetrated there that you kind of have growth opportunities almost kind of regardless of the macro environment?

Yeah, 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 performance 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. Ed, can you remind us the size of the business in Europe and maybe ultimately what you think the region can become for you?

Yeah, 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.

Sounds good. Thanks, everyone, and lots of luck this year.

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

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 X almost famous is 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?

Yeah, I mean, I think that's, you know, 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, you know, it enables us to work close to season, not make big speculative inventory bets up front and chase goods in season and be very nimble. And 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, you know, 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, you know, 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 significantly 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 to follow up on, you mentioned remodels. I'm curious about the potential impact of that on CapEx. 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.

Yeah, 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, either opening stores, remodels, our investment in IT and infrastructure, that we would be probably about $5 million above this year.

Great. Thank you very much.

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

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 23? And on the retail component, what are you seeing in terms of differences in outlets versus street locations or malls. Thank you.

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. 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 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. 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. I think indicative of a customer that is still price conscious and gravitating towards value.

Thank you.

Thank you.

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

Hi, good morning. I had a couple 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 had 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 in marketing spend and then maybe the split between brand spend and other marketing spend. Thank you.

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's going to actually give you a little more color on that.

Yeah, I mean, 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. you know, from 2% or sub 2% to about 4.5% in 2023. As we go into 2024, we're going to continue to, you know, to increase the investment in marketing. We think that's important to drive growth in the future. You know, 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, you know, 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 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.

Great.

Thank you very much.

Thank you.

As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. One moment for our next question. We have a follow-up from the line of Samposer with Williams Trading. Your line is open.

Thank you. Two things. One, to follow up on Dana's question, on the wholesale brand, you know, on the Steve Madden and Dolce Vita footwear there, sort of the better wholesale businesses, you know, 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, you know, 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, of, of, of how that works out, giving people what they want and then growing private label. And, and, and then I wanted to talk about sort of expanding the scope of your direct to consumer business, um, you know, getting to know more customers, building your database, or what's being done there to increase that?

Thank you. Look, I think, I don't know what else I can say about what's going on with the department stores. You know, we feel, we believe that we are 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, you know, to 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, 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, you know, We've been increasing the penetration significantly over the last several years in DTC, and we expect to continue to do that. 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. 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'll 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.

Thank you.

That concludes the question and answer session. 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. you Thank you. Thank you. 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 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 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 meeting 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 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 Dean 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 fourth quarter and full year 2023 results. We are pleased to have finished 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 improvements. 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. 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 four 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 Footwear 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 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 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 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, 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 five 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 Limited for the quarter was $45 million or 61 cents per diluted share compared to 33.7 million or 44 cents per diluted share in the fourth quarter of 2022. Now I would 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 Limited was $182.7 million or $2.45 per diluted share for the year ended December 31st, 2023, compared to $218.3 million or $2.80 per diluted share for the year ended December 31st, 2022. Moving to the balance sheet, our financial foundation remains strong as of December 31st, 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 21 cents per share The dividend will be payable on March 22nd, 2024 to stockholders of record as of the close of business on March 8th, 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 percent to 13 percent 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 percent 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?

Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile the Q&A roster. Our first question comes from Paul DeWaise with Citi. Your line is open.

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 the growth?

Thanks. 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, etc. But I don't think we're looking for any significant impact to 2024 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 250 doors. So Steve Mann Women's, for instance, is really distributed just in those top 200. Steve Mann 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, you know, 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, 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 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 segments.

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

Yeah, 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. Got it.

Thank you. Good luck.

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

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?

Sure.

Yeah, 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 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 to 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 within the gross margin for 2024?

Hey, Aubrey. It's Dean. I would think of almost famous as 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 is the annualization. And the other impact that we have, as discussed previously, is the Red Sea and Canal of 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 two 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.

Very clear. Thank you.

One moment for our next question. Our next question comes from Laura Champagne with Loop. Your line is open.

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 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. Got it. Thank you.

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

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. You know, 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, Tim.

And probably a little, I mean, from the initial guidance a little stronger in the first half of the year and just because the compareds are 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. What gross margin and operating margin are you expecting that is built into the full-year guide?

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 out margin, if you just think of almost famous alone, that's roughly about 40 basis points, 50 basis points pressure on the out margin.

And that's where we think, just to elaborate, that's where we think, you know, 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.

And when does almost famous, I mean, it's driving a good amount of revenue. How long does it take to get almost famous, you know, margins to where you want them to be?

Well, I think certainly we should start seeing improvement even in the back half here. And 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, 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. You shouldn't expect this 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, you know, sort of you got that mid-single-digit growth organically. Is that high single-digit?

Yeah, so international – International is a little faster than that, and domestic is a little slower.

Okay. Thank you very much. Thank you very much. Good luck. Thanks, Sam.

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

Great. Thank you. 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 point changed with the acquisition?

Yeah. 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 the organic growth 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 I'm going to just add one more. Just any color on how we should think about gross profit margin for Q1.

You guys are getting granular here.

Look, there's going to be pressure in Q1 for the reasons that's being already articulated. I don't think we're going to start Prefer not to get, you know, start guiding by margin by quarter. Got it. Okay. Thanks, Ed.

One moment for our next question. Our next question comes from Abby Savaniaks with Piper Sandler. Your line is open.

Great. Thanks so much for taking my question. 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.

Yeah, 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're running very nice, solidly positive comps. and seeing 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 two and a half 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?

Sorry, just on promotions and direct-to-consumer. Oh.

Oh, yeah. You know, I would say right now the promotional activity is, I would say, normal. You know, it's not super happy, but, you know, I wouldn't characterize it as super light either. I think it's kind of normal activity for this time of year. You know, if we go back to fall, you know, it was a somewhat challenging boot season, and so we did a little bit more promotional activity to move through the boots this But the 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.

That's very helpful. Thank you. One moment for our next question. Our next question comes from Tom Nickick with Wedbush. Your line is open.

Hey, uh, good morning everyone. Thanks for taking my question. Um, I want to ask about the, the international business. Um, you know, a lot of other brands have talked about the European consumer, uh, becoming a little more cautious. Uh, there's your optimism around, uh, uh, Europe just stems from the fact that, you know, you're, your brand is so under-penetrated there that, you know, you kind of have growth opportunities, you know, almost, you know, kind of regardless of the macro environment?

Yeah, I think that's right. You know, 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. You know, 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. Ed, can you remind us the size of the business in Europe and maybe ultimately what you think the region can become for you?

Yeah, 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.

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

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

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 X almost famous is inventories continue to be down, I think for, for several quarters in a row now. So can, could you talk about what you think that means for the business and how that all interplays with your ability to chase and be, be trend focused and drive really productive sales that way?

Yeah, I mean, I think that's, you know, 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, you know, it enables us to work close to season, not make big speculative inventory bets up front and chase goods in season and be very nimble. And 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, you know, 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 significantly. 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 to follow up on, you mentioned remodels. I'm 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.

Yeah, 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, either opening stores, remodels, our investment in IT and infrastructure, that we would be probably about $5 million above this year.

Great. Thank you very much.

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

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 23? And on the retail component, what are you seeing in terms of differences in outlets versus street locations or malls. Thank you.

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. 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 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. 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. I think indicative of a customer that is still price conscious and gravitating towards value.

Thank you.

Thank you, Steve.

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

Hi, good morning. I had a couple 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 had 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 in marketing spend and then maybe the split between brand spend and other marketing spend. Thank you.

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.

Yeah, I mean, 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. you know, from 2% or sub-2% to about 4.5% in 2023. As we go into 2024, we're going to continue to, you know, to increase the investment in marketing. We think that's important to drive growth in the future. You know, 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, you know, 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 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. 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.

Great. Thank you very much.

Thank you.

As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. One moment for our next question. We have a follow-up from the line of Samposer with Williams Trading. Your line is open.

Thank you. Two things. One, to follow up on Dana's question, on the wholesale brand, you know, on the Steve Madden and Dolce Vita footwear, they're sort of the better wholesale businesses. You know, 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, you know, 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, of, of, of how that works out, giving people what they want and then growing private label. And, and, and then I wanted to talk about sort of expanding the scope of your direct to consumer business, um, you know, getting to know more customers, building your database, or what's being done there to increase that? Thank you.

Look, I think, I don't know what else I can say about what's going on with the department stores. You know, 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, you know, to 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, 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, you know, We've been increasing the penetration significantly over the last several years in DTC, and we expect to continue to do that. 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. 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'll 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.

Thank you.

That concludes the question and answer session. 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.