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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 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.
Steve Madden
Thanks Abigail and good morning everyone. Thank you for joining our fourth quarter and full year 2023 earnings call and webcast. Before we begin, I'd like to remind you that our remarks that follow, including answers to your questions contain statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to materially differ from those expressed or implied by such forward-looking statements. These risks include among others, matters that we have described in our press release issued earlier today and filings we make with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated 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 gap 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 Zim Mazzuzi, Chief Financial Officer. With that, I'll turn the call over to Ed.
Abigail
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 -to-consumer channels supplemented by the contribution from the newly acquired Almost Famous as well as strong -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. 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 -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 on building, will be building on the momentum we have in Steve Madden handbags, with a particular focus on driving continued growth in DTC channels, as well as the further development of the Steve Madden apparel business. Our third key business driver is driving our direct to consumer business led by digital. After strong growth in this business in 2001 and 2000, in 2021 and 2022, our DTC revenue declined 3% in 2023. We did, however, see sequential improvement in the year over year top line performance each quarter throughout the year, and Q4 DTC revenue increased 2% compared to the comparable period in the prior year. And if we zoom out and look at the evolution of our DTC business over the past few years, we see that this business is up nearly 60% in revenue and nearly 200% in operating profit compared to pre-COVID 2019. In 2024, we plan to add 10 net new stores driven by expansion in international markets, primarily in EMEA. We will also invest in remodels in key locations, including our flagship store in Times Square in New York City. On the digital side, we'll be investing in global site enhancements designed to drive greater speed, usability and conversion, as well as continuing to refine our marketing mix and push more investment up the marketing funnel. Finally, our fourth key business driver is strengthening the US 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 that 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 Zin to review our fourth quarter and full year 2023 financial results in more detail and provide our initial outlook for 2024.
Ed
Thanks,
Tim
Ed, and good morning, everyone. In the fourth quarter, our consolidated revenue was $519.7 million, a .4% increase compared to the fourth quarter of 2022. Excluding the almost famous, consolidated revenue grew .3% compared to the same period in the prior year. Our wholesale revenue was $354.8 million, up .9% compared to the fourth quarter of 2022, or .5% excluding almost famous. Wholesale footwear revenue was $225.2 million, a .4% decrease from the comparable period in 2022 as a modest increase in the brand business was offset by a decline in private label. Wholesale accessories and apparel revenue was 129.6 million, up .5% to the fourth quarter in the prior year, or .3% excluding almost famous,
Ed
driven by
Tim
another quarter of strong growth in Steve Madden handbags. In our direct to consumer segment, revenue was 162.3 million, a .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 .7% in the quarter versus .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,
Steve Madden
driven by
Tim
increases in both the wholesale footwear and wholesale accessories and apparel segments. Direct to consumer gross margin was .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 .3% compared to the same period last year. Operating income for the quarter was 53 million or .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 .3% compared to .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 folio results. Consolidated revenues for 2023 decreased .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 .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 records 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% 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 .5% up from .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 the question and answer session. 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. To withdraw your question, please press star 1-1 again. One moment while we compile the Q&A roster. Our first question comes from Paul DeWaay with Citi. Your line is open.
Paul DeWaay
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?
Abigail
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, et cetera. 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. 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 had to realize 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 in the private label segment.
Paul DeWaay
Yeah, thanks. And just one additional, what do you assume for Almost Famous for 2024? I'm sorry if I missed that.
spk25
Yeah,
Abigail
so I guess maybe the way to give it to you is if we
spk10
exclude Almost Famous,
Abigail
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,
spk18
thank you, good luck. Thanks.
Operator
One moment for our next question. Our next question comes from Aubrey Tinello with BNP Parabas. Your line is open.
Aubrey Tinello
Hey, good morning, thanks for taking the questions. 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?
spk08
Sure.
Abigail
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.
Aubrey Tinello
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 gross margin for 2024?
Tim
Hey, Aubrey, it's Zin. 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 Sways. 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.
Aubrey
Very clear, thank you.
Operator
One moment for our next question. Our next question comes from Laura Champagne with Loop. Your line is open.
Laura Champagne
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 and footwear. Does that normalize in Q1 or will it take longer than that? I
Abigail
still
Laura Champagne
expect
Abigail
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.
Operator
One moment for our next question. Our next question comes from Sam Poser with Williams Trading. Your line is open.
Sam Poser
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 gonna grow faster. Are we looking at like low to mid on the footwear side of things on the wholesale business?
Abigail
Yes, that's the
Sam Poser
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 comparison is a little easier and the visibility is better, is that? I think that's right, a little bit stronger, but not a big difference. And then I'm just gonna dig in. What gross margin and operating margin are you expecting that is built into the full year guide?
Tim
Well, I'll tell you, I'll start with the gross margin. We expect, as I said earlier, that we'll have that hundred and 40 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.
Abigail
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.
Sam Poser
And when does almost famous, I mean, it's driving a good amount of revenue. How long does it take to get almost famous margins to where you want them to be?
Abigail
Well, I think we're, you know, certainly we should start seeing improvement even in the back half here. And we've got a, you know, 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. But that's, you know, you shouldn't expect this to be a mid-teen operating margin business based on the distribution and the nature of the sales breakdown.
Sam Poser
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 US 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?
Abigail
Yeah, so international is a little faster than that, and domestic is a little
spk14
slower. And then, okay, thank you very much. Thank you very much, good luck. Thanks, Sam.
Operator
One moment for our next question. Our next question comes from Jay Sol with UBS. Your line is open.
Jay Sol
Great, thank you. My question is about the leverage point for S&A. What is the leverage point for S&A in fiscal 24? And as you look beyond, should that change, and has the leverage point changed with the acquisition?
Tim
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, and international, both from a people perspective, and also from a technology perspective.
Abigail
And just to elaborate on that, keep in mind that the organic top line growth is mid singles, right? So you're looking at a consolidated 11 to 13, but that includes almost famous.
Jay Sol
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?
spk11
You guys are getting granular here. I'm sorry about that. Look, there's gonna be,
Abigail
there'll be pressure in Q1 for the reasons that's being already articulated. I don't think we're gonna start, prefer not to get, you know, starting guiding by margin by quarter. Got it, okay. Thanks,
Operator
Ed. One moment for our next question. Our next question comes from Abby Zvenyuk with Piper Sandler. Your line is open.
Ed
Great, thanks so much for taking my question. Can you just give us, you know, 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.
Abigail
Yeah, 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, you know, is part of what gives us confidence in the DTC revenue guide. We also do have, we'll probably have, you know, 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?
spk16
Sorry, just on promotions in direct to consumer.
Abigail
Oh, yeah. You know, I would say right now, the promotional activity is, I would say, normal. You know, 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. 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. But nice thing was January, we got that cold weather. We really were able to get through, you know, a lot of boots and got very clean there. And so we feel good about our inventory position. And in fact, you know, I believe that this year at DTC, there's opportunity for gross margin improvement in DTC by controlling promotions.
Operator
That's very helpful, thank you. One moment for our next question. Our next question comes from Tom Nickick with Webush. Your line is open.
Tom Nickick
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. Does your optimism around Europe just stem from the fact that your brand is so under-penetrated there that you kind of have growth opportunities, you know, almost kind of regardless of the macro environment?
Abigail
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, you know, 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 -to-consumer channels, and to your point, the fact that we're just not a mature business there. You know, we've still got a lot of runway ahead of us. You know, we still feel we can drive growth in that region.
Tom Nickick
Got it. Ed, can you remind us the size of the business in Europe? I mean, you know, maybe, ultimately, you know, what you think the region can become for you?
Abigail
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.
spk21
All right, good. Thanks, everyone, and best of luck this year.
Operator
One moment for our next question. Our next question comes from Corey Tarlo with Jeffries. Your line is open.
Corey Tarlo
Great, thank you. Ed, I was wondering if you could just touch on the inventory balances and how you feel the inventory's positioned into this upcoming year. One of the things you've done a nice job of, and X almost same as, 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?
Abigail
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, 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.
Corey Tarlo
That's great. And then just a follow-up on, you mentioned remodels. Curious about the potential impact of that on CapEx. And this is traditionally a very capital-light business. So curious about what the expectations are for remodels going forward, if that's something more broad or specific to a finite number of stores.
Tim
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 infrastructure, that we would be probably about five million above this year.
spk24
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.
Dana Telsey
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, the 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.
Abigail
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 we, obviously, those customers are important to us and we've gotten 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, yeah, versus full-price stores. You know, the big call out there is that we continue to see outlet outperforming full-price stores in the US 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.
Operator
Thank
spk00
you.
Operator
One moment for our next question. Our next question comes from Janine Sticher with BTIG. Your line is open.
Janine Sticher
Hi, good morning. I had a couple questions around margins. So for growth margin, what are you assuming for freight? The Red Sea situation aside, we've seen the rates pick up a bit and I think your contracts are for renewal soon. Just how to think about what you're assuming for freight for the rest of the year. And then on the SG&A, I think you pointed to a bit of SG&A deleverage in the guide, sorry, the 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.
Tim
Yeah, I'll take the first part on the gross margin and as 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 bits 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.
Abigail
Yeah, 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. From 2% or sub 2% to about .5% in 2023. As we go into 2024, we're gonna continue to invest and 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. 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've gotten into a situation where we were very heavily penetrated in the lower part of the funnel and that was working for a while there. We're getting great returns on that performance marketing but we do think that there needs to be a better balance now and that's what we're focused on.
Operator
Great, thank
Janine Sticher
you very much.
Corey Tarlo
Thank
Abigail
you.
Operator
As a reminder to ask a question, you will need to press star one one 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 Sam Poser with Williams Trading, your line is open.
Sam Poser
Thank you, two things. One, to follow up on Dana's question, on the wholesale brand, on the Steve Madden and Adulce 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. 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 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.
Abigail
Look, I think, I don't know what else I can say about what's going on with the department stores. We believe that we're confident that we're very important vendors for them, that we're gonna 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 encourage, I believe that will encourage them to get more aggressive, and I think we'll be very well positioned to participate if that happens. In terms of DTC, look, that's clearly been, we've been increasing the penetration significantly over the last several years in DTC, and we expect to continue to do that. So back in 2019, I think we were 18% in DTC. We finished 2023 up 800 basis points in penetration. So pretty significant growth in DTC there. And obviously, this year, when 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
Sam Poser
you.
Operator
That concludes the question and answer session. This time, I would like to turn the call back to Ed Rosenfeld for closing remarks.
Abigail
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.
spk00
Thank you. These have been the abstractétait images I'm going to be a little bit of a You You You You You You You You
Operator
You 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 1 1 on your telephone You will then hear an automated message advising your hand is raised to withdraw your question Please press star 1 1 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
Steve Madden
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 risk that could cause actual results to materially different from those expressed or not 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 just claim 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 Confiliation to the most directly comparable gap 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 Zima Zuzi chief financial officer With that I'll turn the call over to Ed
Abigail
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 -to-consumer channels Supplemented by the contribution from the newly acquired almost famous as well as strong -over-year operating margin improvement Looking back at 2023 overall we face challenging market conditions with wholesale customers taking a cautious approach to orders and Consumers pulling back on discretionary spending. I'm proud of how our team navigated the difficult environment Controlled what we could control and remain focused on executing our strategy for long-term growth The foundation of which is driving closer connections with consumers through the combination of consistently trend-right product assortments and effective consumer engagement Which in turn will enable success with our 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 Amir 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 grain 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 -to-consumer channels and both domestic and international markets We also broadened our footprint outside of foot 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 is 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 is primarily distributed in department stores and ecommerce retailers Our top priority will be to use the almost famous platform to introduce Madden Girl apparel and to grow Madden NYC apparel This will enable us to implement in apparel the strategy that has been so successful for us in footwear and accessories Which is to utilize the Steve Madden brand portfolio including Steve Madden Madden Girl and Madden NYC To reach customers in all tiers of distribution from premium channels down through mass Beyond the successful integration of almost famous our focus in 2024 will be on building will be building on the momentum We have in Steve Madden handbags with a particular focus on driving continued growth in DTC channels As well as the further development of the Steve Madden apparel business Our third key business driver is driving our -to-consumer business led by digital After strong growth in this business in 2001 and 2000 in 2021 and 2022 Our DTC revenue declined 3% in 2023 we did however see sequential improvement in the -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 will 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 US 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 order significantly in efforts to right-size inventory levels After 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 -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 dollars 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 Zin to review our fourth quarter and full year 2023 financial results in more detail and provide our initial outlook for 2024
Ed
Thanks Ed
Tim
and good morning everyone In the fourth quarter our consolidated revenue was five hundred and nineteen point seven million a Ten point four percent increase compared to the fourth quarter of 2022 excluding almost famous Consolidated revenue grew two point three percent compared to the same period in the prior year our wholesale revenue was 354 point eight million up fourteen point nine percent compared to the fourth quarter of 2022 or two point five percent excluding almost famous Wholesale footwear revenue was two hundred and twenty five point two million a 0.4 percent decrease from the comparable period in 2022 as A modest increase in the brand business was offset by a decline in private label Wholesale accessories and apparel revenue was one hundred and twenty nine point six million up Fifty six point five percent to the fourth quarter in the prior year or ten point three percent Excluding almost famous
Ed
driven by
Tim
another quarter of strong growth and Steve Madden handbags In our -to-consumer segment revenue was one hundred and sixty two point three million a 1.9 percent 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 Turn into our licensing segment our licensing royalty income was two point seven million in the quarter compared to two point five million in the fourth quarter of 2022 Consolidated gross margin was forty one point seven percent in the quarter Versus forty two point two percent in the comparable period of 2022 Excluding almost famous Consolidated gross margin increased 80 basis points year over year Wholesale gross margin was thirty one point seven percent an increase of a hundred and twenty basis points compared to the fourth quarter of 2022
Steve Madden
Driven by
Tim
increases in both the wholesale footwear and wholesale accessories and apparel segments Direct to consumer gross margin was sixty two point seven percent Versus sixty four percent in the same period in 2022 driven by an increase in promotional activity in the quarter operating expenses were 163 point nine million compared to one hundred and fifty six point five million in the fourth quarter of 2022 an increase of four point seven percent excluding almost famous operating expenses rose 1.3 percent compared to the same period last year Operating income for the quarter was 53 million or ten point two percent of revenue Up from forty two point two million or nine percent of revenue in the comparable period last year The effective tax rate for the quarter was fourteen point three percent compared to twenty point nine percent in the fourth quarter of 2022 Finally net income attributable to Steve Madden limited for the quarter was forty five million dollars or sixty one cents per diluted share Compared to thirty three point seven million or forty four 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 twenty twenty three decreased six point six percent to two billion dollars Compared to two point one billion dollars in 2022 Net income attributable to Steve Madden limited was one hundred and eighty two point seven million Or two dollars and forty five cents per diluted share for the year ended December 31st, 2023 Compared to two hundred and eighteen point three million or two dollars and eighty cents 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 two hundred and nineteen point eight million of cash cash equivalents and short-term investments and no debt Inventory was two hundred and twenty nine million dollars flat to the prior year Excluding almost famous inventory was down five point nine percent compared to the same period in 2022 Our capex in the fourth quarter was five point six million dollars and for the year was nineteen point five million dollars During the fourth quarter and full year 2023 the company spent thirty eight point one million dollars and 142 point three million dollars on repurchases of its common stock respectively Including shares acquired through the net settlement of employees 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 Stockholders of records as of the close of business on March 8 2024 when combining share repurchases and the dividend we returned 205 million dollars to shareholders in 2023 and over 1.4 billion dollars over the past decade Turn into 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 two dollars and fifty five cents to two dollars and sixty five cents 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
Operator
Thank you at this time We'll conduct the -and-answer session 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 to withdraw your question Please press star 1 1 again one moment while we compile the Q&A roster Our first question comes from all the ways with city your line is open
Paul DeWaay
Hey You heard from Macy's yesterday about a significant number 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 me and I 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 in on the branded side versus private label and what drives the growth?
Abigail
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 2024 and even beyond 24 My initial take is that there probably will be pretty minimal impact because the bulk of what we do With Macy's is in the top 250 doors so Steve Mann women's for instance is really distributed Just in those top 200 what Steve Mann women's footwear is really distributed just in those top 250 doors which which I assume will will not be impacted meaningfully you know we do have Some things that go to to more doors and and and 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 About wholesale footwear we do expect both branded and 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 that those mass merchant customers that make up the pride the bulk of our private label business were the first ones to see the the the pullback You know that happened when folks decided they had to realize they had too much inventory and 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 and wholesale footwear in the private label segment
Paul DeWaay
Yeah, thanks, and just one additional What do you assume for almost famous per per 2024? I'm sorry if I missed that
spk25
Yeah, so
Abigail
I guess I maybe the way to Give it to you is if we exclude
spk10
almost famous or
Abigail
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.
spk18
Thank you. Good luck
Abigail
Thanks
Operator
One moment for our next question Our next question comes from Aubrey TNLO with BMP pair boss your line is open
Aubrey Tinello
Hey morning, thanks for taking the questions Wanted to follow up on that last question about the 2024 revenue guide and 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
spk08
Sure
Abigail
Yeah, so So if we're 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 and Approaching high singles in DTC
Aubrey Tinello
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 is that about right? And then what are some of the other components? We should think about within a gross margin for for 24
Tim
Hey, everybody is seen I would think of almost famous the annualization of it 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 Swayze 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
Aubrey
Very clear. Thank you
Operator
One moment our next question Our next question comes from Laura champagne with loop your line is open
Laura Champagne
Thanks for taking my question and I know you've already spoken to wholesale footwear returning to growth the the mix in the wholesale segment was Interesting in q4 with extremely strong growth on on easy compares and accessories and kind of flat and footwear Does that normalize in q1 or will it take longer than that? I? Still expect
Abigail
the 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
Operator
One moment for our next question Our next question comes from Sam poser with Williams trading your line is open
Sam Poser
Good morning. Thank you for taking my questions. Um, 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 gonna grow faster are we looking at like low to mid on the footwear side of things on the wholesale business?
Abigail
yes, that's the right way to
Sam Poser
think about it and probably a little I mean from the initial guidance a little stronger in the first half of the year and Just because the compared to a little easier and the visibility is better. Is that I Think that's right a little bit stronger, but not not a not a big difference And then I'm just gonna dig in the growth what what gross margin and operating margin Are you expecting that is built in to the full year guide?
Tim
Well, I'll tell you I'll start with the gross margin we expect as I said earlier that will have that hundred and forty 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 we just think of almost famous alone That's roughly about 40 basis points 50 basis points pressure on on the out margin
Abigail
And that's where we think just elaborate that's where we think, you know, that's what's built in is is about is about 11% operating margin for the year which is down 50 which is essentially attributable all almost all attributable to the almost famous pressure
Sam Poser
And when does almost famous I mean striving good kind of revenue when does when how long does it take to get almost famous You know Margins to where you want them to be
Abigail
Well, I think we're you know Certainly we should start seeing Improvement even in the back half here and we've got a you know 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, you know 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 when we announced it if they were their operating margins the year before we bought them were about 7% We think we see a path to getting them into the high singles and over time potentially into the low doubles but that's You know, you shouldn't expect this to be a mid teen operating margin business based on the distribution and the nature of the sales breakdown
Sam Poser
Okay, and then lastly within the 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 us 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 yeah, so
Abigail
international international is a little faster than that and and and domestic is Is a little slower
spk14
Okay, thank you very much. Thank you very much. Good luck. Thanks
Operator
One moment for our next question Our next question comes from Jay soul with UBS your line is open
Jay Sol
Great, thank you. Um, you my questions about the leverage point for SG&A What what is the leverage point for SG&A and fiscal 24 and as you look beyond? Should that change and has the leverage point changed with the acquisition?
Tim
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 and international both from a People perspective and also from a technology perspective
Abigail
And just to elaborate that keep in mind that the organic top line growth is mid singles, right? So you're looking at a consolidated 11 to 13, but that includes almost famous
Jay Sol
Got it. Okay, and then that began just add one more just any color on how we should think about gross profit margin for q1
spk11
Okay, guys are getting granular here There'll be pressure
Abigail
in q1 for the reasons that seen already articulated I don't think we're gonna start Prefer not to get you know starting guiding by margin by quarter Okay
Operator
One moment for our next question Our next question comes from Abby's of any X with Piper Sandler your line is open
Ed
Great thanks so much for taking my question Can you give us you know some color on what gives you confidence in the high single-digit -to-consumer growth any color on? Ecommerce versus stores and then I guess what you're seeing and expecting in terms of promotions in that -to-consumer channel. Thank you
Abigail
Yeah, 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 were running Very nice solidly positive comps And seeing that in both brick and mortar and digital -to-date And so that you know is part of what gives us confidence In the DTC revenue guide we also do have we'll probably have you know two and a half points of non-comp Of growth coming from from non-comp stores as well because of some of the new store openings What was the follow-up question?
spk16
Sorry just on promotions and -to-consumer.
Abigail
Oh, yeah You know I would say right now the promotional activity is is I would say normal you know it's it's it's It's not super happy, but I you know I wouldn't characterize it as super light either. I think it's kind of Normal activity for for this time of year You know It was 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 but Nice thing was January. We got that cold weather. We really were able to get through you know a lot of boots and and got very clean there and and so we feel good about our inventory position and And in fact I you know I believe that that this year at DTC there's opportunity for gross margin improvement in DTC by controlling promotions
Operator
That's very helpful. Thank you one moment for our next question Our next question comes from Tom Nick egg with webbush your line is open
Tom Nickick
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 There's your optimism around the Europe just stemmed in fact that you know your your brand is so under penetrated there that you know you kind of have Growth opportunities you know almost kind of regardless of the macro environment
Abigail
Yeah, I think that's 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 an overall performance you know that said it the overall Macro environment is tough there the retail environment is challenging there and you know 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 seen Both in wholesale and in our -to-consumer channels And to your point the fact that we're just not a mature business there You know we've still got a lot of a lot of runway ahead of us. You know we still feel we can drive growth in that region
Tom Nickick
And can you remind us the size of the business in Europe and you know maybe ultimately, you know what you think the region can become for you
Abigail
Yeah, the the media region overall in 2023 was just under a hundred and seventy million In terms of what it could be I mean it could be multiples of that
spk21
Good thanks everyone and
Operator
One moment for our next question Our next question comes from Corey Tarlo with Jeffries your line is open
Corey Tarlo
Great thank you And I was wondering if you could just touch on The inventory balances and how you feel the inventories positioned into this upcoming year One of the things you've done a nice job of and X almost same as Inventories continue to be down. I think for several quarters in a row now So Could you talk about what you think that means for the business and how that all? interplays with your ability to chase and Be trend-focused and drive really productive sales that way
Abigail
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 Than our peers in the industry and you know enables us to to work close to season not make big speculative inventory bets up front and and and and chase goods in season and 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 that whole model Was challenged for a period when there was the tremendous supply chain disruption in the wake of kovat And and transit times were so extended, but where 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 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 To run our playbook and do what we do and and we feel good about that and and 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
Corey Tarlo
That's great, and then just a follow-up on you mentioned remodels curious about the potential impact of that on CapEx and this is traditionally a very capital light Business so curious about what the expectations are for remodels going forward if that's something More broad or specific to a finite number of stores
Tim
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 open stores Remodels our investment in IT infrastructure that may we would be probably about 5 million above this year
spk24
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
Dana Telsey
Hi good morning everyone and if you think about the wholesale channel distribution and the buckets of it whether it's off-price Department stores discounters with private label. How are each performing? And how do you expect them to be different in? 2024 versus 23 and on the retail component. What are you seeing in terms of differences in? outlets versus street street locations or malls, thank you
Abigail
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, you know, we did take a big 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 you know as I as I pointed out expecting to see a Nice -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 to up the channels off price. That's clearly still a channel that's that's performing Taking share there's still a very healthy demand for for our product there. We are obviously Controlling, you know how much distribution we have in that channel, but certainly there's there's healthy demand there And then you know 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 you know, we obviously those customers are important to us and You know, we've gotten indications from them that they're planning They're planning our business in excess of how they're planning their overall department and so we'll You know, we'll look for a better year with them as well in 2024. I Think the second part was outlets versus Versus yeah versus full price stores, you know The big call out there is that we continue to see outlet outperforming full price stores in the US by a pretty significant Margin and q4 it was about a thousand basis points again in calm And even coming into q1 we continue to see A significant outperformance in the outlet channel versus the the full price channel in the in the United States And I think you know indicative of a customer that is still You know price conscious and gravitating towards value
Operator
Thank
spk00
you
Operator
One moment for our next question Our next question comes from Janine stitcher with BTI G your line is open
Janine Sticher
Good morning. I had a couple questions around margins. So for for gross margin What are you assuming for freight the Red Sea situation aside? We've seen the rates pick up a bit and I think your contracts are for renewal soon Just how to think about what you're assuming for freight for the rest of the year And then on the SG&A, I think you pointed to a bit of SG&A deleveraging the guide. Sorry Bit of leverage built into the guide. 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 another marketing spend. Thank you
Tim
I'll take the first part on The gross margin and as 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 bits impact to gross margin On the marketing side We're continuing to invest but ads can actually give you a little more color on yeah
Abigail
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 you know, we've moved up our marketing percentage of revenue pretty significantly You know from 2% or sub 2% to about four and a half percent 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 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 Topline growth on an organic basis that we forecast it So a little bit of D leverage there and in terms of the mix, you know as we talked about The big focus there is really optimizing our Marketing spent 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 and of course not forgetting is the bottom of the funnel for a conversion You know, I think a few years ago like like many folks in the industry. We've gotten into a situation where You know, we were very heavily Penetrated in the in the lower part of the funnel and and that was working For a while there. We're getting you know Great great returns on that performance marketing, but we do think that there needs to be a better balance now That's what we're focused on
Operator
Great. Thank you
Janine Sticher
very much
Corey Tarlo
Yes
Operator
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 Sam poser with Williams trading your line is open
Sam Poser
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 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 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 You know getting to know more customers building your database or what's being done there to increase that. Thank you
Abigail
I Look I think I don't know what else I can say about that But about what's going on with it with the department stores, you know We we feel we're we believe that we 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 you know to To take 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 that will incur 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 that's clearly been You know, we've been increasing the penetration Significantly over the last several years in DTC and we'll and we continue, you know, we expect to continue to do that So, you know back in 2019 I think we were 18 percent in DTC We finished two thousand twenty three up eight hundred basis points in penetration So pretty significant growth in DTC there and You know, obviously this year we when you fold 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 to build that business and have more of those direct relationships that you talked about with the consumer
Operator
Thank you That concludes the -and-answer session this time I would like to turn the call back to Ed Rosenfeld for closing remarks
Abigail
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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