Steven Madden, Ltd.
Q2 2014 Earnings Call Transcript

Published: 30 Oct 2014

[Operator:]

Good day, and welcome to the Steve Madden Ltd., Third Quarter 2014 Earnings Conference Call. Today’s conference is being recorded. At this time I would like to turn the conference over to Jean Fontana of ICR. You may begin.

[Jean Fontana:]

Thank you. Good morning, everyone. Thank you for joining us today for the discussion of the Steve Madden third quarter 2014 earnings results. Before we begin I would like to remind you that statements made in this conference call that are not statements of historical facts constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties and other unknown factors that could cause actual results of the company to differ materially from historical results or any future results expressed or implied by forward-looking statements. These statements contained herein are also subject generally to others risks and uncertainties as described from time to time in the company’s reports and registration statements filed with the SEC. Also please refer to the earnings release for information on risk factors that could cause actual results to differ. Finally please note that any forward-looking statements used on today’s call cannot be relied upon as current after this date. I would now like to turn the call over to Ed Rosenfeld, Chairman and CEO of Steve Madden.

[Edward Rosenfeld:]

Thanks, Jean. Good morning, everyone and thank you for joining us this morning to review Steven Madden’s third quarter 2014 results. With me to discuss the business is Derek Browe, the company’s Director of Finance and Investor Relations. Q3 was a tough quarter, as we continued to face a difficult landscape for women’s fashion footwear. As we’ve discussed the last couple of quarters in the young trendy footwear space where we do most of our business there are relatively few significant fashion trends at the moment with the exception of sneakers, a category which is performing well for us, which represents a small percentage of our overall business. As in the first half of the year this lack of fashion trends to capitalize on, impacts us most acutely our retail stores. We had a disappointing quarter in retail with comps declining 7.4% and gross margin contracting versus the prior year. The retail segment results were below our plan and were the primary drivers of our overall earnings result for Q3 coming in below forecast. Wholesale segment performance was better than retail but was also impacted by the lack of fashion newness. Overall, wholesale net sales were down a little less than 1% compared to the prior year but if we exclude the Dolce Vita business acquired in the quarter, wholesale sales were down approximately 5%. Given the soft top line performance in the quarter it was extremely important to manage the business carefully and control inventory and operating expenses and we are pleased with our execution on those fronts. Excluding Dolce Vita inventory at the end of the quarter was down 4% versus the prior year with decreases in both wholesale and retail. In the operating expenses excluding Dolce Vita we’re up 3% compared to the prior year period with the modest growth coming as a result of having 11 more company operated stores in the U.S. and Canada than we had a year ago. Wholesale operating expenses excluding Dolce Vita were down 1% versus last year. In addition to managing the business prudently in the quarter we also made important investments for the future. Most significantly, we acquired Dolce Vita Holdings on August 13 for 60.3 million plus an earn-out provision based on future financial performance. Dolce Vita specializes in the design and sale of branded and private label footwear and had net sales in 2014 of approximately $111 million. Dolce Vita brand is one of the premium contemporary brands in the footwear industry and is a strong complement to the remainder of our portfolio targeting a customer and a price point that we don't address with our other brands. We are particularly pleased that its founders; Van Lamprou and Nick Lucio who are widely regarded as some of the most talented members of our industry are staying on with the company to lead Dolce Vita into its next stage of growth. We see significant opportunity to expand the business and improve its profitability by combining Dolce Vita strengths which include an outstanding brand and superior design with our proven business model and infrastructure. Transaction is expected to be $0.02 to $0.03 dilutive in 2014 and then to become accretive to EPS in fiscal 2015. Adding strong brands to our portfolio as we did with Dolce Vita is an important part of our growth strategy. Another of our key growth initiatives is expanding our international business and we also entered into two transactions in the third quarter which should position us for growth in key international markets. Most importantly on September 25th, we signed a definitive agreement to acquire our Mexican licensee SM Mexico from its parent company Grupo Dicanco for approximately $15 million plus repayment of a short-term loan and an earn-out provision based on future financial performance. SM Mexico has marketed the Steven Madden in Mexico since 2005 and had net sales for the 12 months ended July 31, 2014 of approximately $15.4 million. It currently distributes products in leading department stores as well as 21 Steven Madden branded retail stores. Mexico is a strong and growing market for the Steven Madden brand, and we see great opportunity for continued growth through enhancing our presence in leading department stores, expanding into new wholesale accounts, growing our portfolio of Steven Madden retail stores and introducing certain of our other brands like Dolce Vita into the Mexican market. The transaction is expected to close in January 2015 and is expected to be accretive immediately contributing approximately $0.02 to $0.03 in diluted EPS in 2015. Finally, we also expanded our partnership with House of Busby in South Africa in the quarter. Busby has been our distributor in South Africa since 2011 and has done an excellent job establishing the Steven Madden brand in the territory. There are now four Steven Madden retail stores in South Africa and 20 Steven Madden shop-in-shops in the leading South African retailer, Edgars. In September we deepened our commitment to the country, forming a joint venture with Busby in which we now own 50.1% of the South African business. We believe the joint venture model will enable us and Busby to better leverage our respective capabilities to grow the Steven Madden brand in this important market. Together we have established a strong growth plan that includes both wholesale and retail expansion. We currently expect to open three to four new retailer stores in South Africa in 2015. While it is undoubtedly a challenging time in the fashion footwear business and we are cognizant of the need to manage our existing business prudently we are not playing defense when it comes to investing in growth. Whether it’s adding premiere contemporary brand like Dolce Vita to the portfolio or transitioning from a distribution model to an ownership model in Mexico and South Africa we continue to move ahead with acquisition and investments that will drive the business forward in 2015 and beyond. Now I would like to turn it over to Derek to walk you through the details of the financial performance for the quarter.

[Derek Browe:]

Thanks, Ed and good morning everyone. Our consolidated net sales for quarter were $392 million compared to the prior year amount of $394.8 million with sales in both our wholesale and retail segments down slightly. Our wholesale net sales in the quarter were $343.3 million compared to $345.9 million in the prior year's third quarter. Wholesale footwear net sales were $273.2 million as compared to $272.7 million in Q3 of 2013. Excluding sales from Dolce Vita sales for the wholesale segment were $259 million, a 5% decline versus the prior year with decreases from both branded and private label businesses. In wholesale accessories we recorded net sales of $70 million in Q3 compared to $73.3 million in the prior year period. During the quarter, we saw solid gains in both our Betsey Johnson and private label handbag businesses, which were more than offset by declines in Steven Madden, Big Buddha and cold weather accessories business. In our retail division net sales were $48.7 million compared to $48.9 million in last year’s third quarter. Comparable stores sales in the quarter decreased 7.4%. Our traffic trends were weak as they have been all year. Comparable stores were tough in both our full price and outlet bricks-and-mortar stores, while our e-commerce business was approximately flat. During the quarter we opened four outlet locations. We acquired the Dolce Vita website and through our newly formed JV acquired four stores in South Africa bringing us to a 133 company operated retail stores including 28 outlets and 40 e-commerce stores. Turning to other income our commission and licensing income net of expenses was $5.1 million in the quarter versus $4.9 million in last year’s third quarter. First Cost commission incomes and licensing royalty income net of expense were each up modestly. Our consolidated gross margin in the quarter was 34.7% as compared to 35.4% in last year’s third quarter. Our wholesale gross margin was 31.3% versus 31.9% due to the impact of Dolce Vita and increased mark down allowances. Excluding the acquisition of Dolce Vita, our wholesale gross margin would have been 31.6%. Gross margin in the retail division was 58.9% compared to 60.2% as a result of promotional activity increases versus the prior year. Our operating expenses were $81.9 million in the third quarter or 20.9% of net sales compared to $76.5 million or 19.4% of net sales in the same period last year. Excluding Dolce Vita operating expenses were $78.8 million. The increase as Ed mentioned resulting from the impact of net 11 new stores for year-to-date 2014. Operating income in the quarter totaled $59.3 million or 15.1% of net sales compared to last year’s third quarter operating income of $68.1 million or 17.2% of net sales. Our effective tax rate for the quarter was 35%, net income for the quarter was $39.2 million or 62% per diluted share compared to $44 million or $0.66 per diluted share in third quarter of 2013. Turning to our balance sheet as of September 30, 2014, we had $189.5 million in cash and marketable securities and no debt. We ended the quarter with inventory of $103.2 million. Excluding inventory associated with Dolce Vita inventory totaled $95.4 million compared to $99.7 million in the prior year. Consolidated inventory turn for the last 12 months was 10.6 times versus 10.3 times in the prior year. CapEx in the quarter was $4.7 million. And during the quarter we repurchased 1.1 million shares for approximately $36.1 million, bringing our total repurchases since the beginning of our 2013 to approximately 6 million shares for $203.9 million. As previously announced, factoring in the recent acquisition of Dolce Vita and current expectations for the remainder of the year for fiscal year 2014 the company expects that net sales will increase 1% to 2% over net sales in 2013. Diluted EPS for fiscal year 2014 is expected to be in the range of $1.81 to $1.86. Now I’d like to turn the call over to the operator for questions.

[Operator:]

Thank you. (Operator Instructions). We’ll pause for a moment to allow everyone an opportunity to signal for a question. And we’ll take our first question from Camilo Lyon with Canaccord Genuity.

[Camilo Lyon:]

Thanks. Good morning, guys. Ed, I was hoping you could give us just a little color on what’s happening right now in the wholesale channel. In previous quarters, you guys were gaining share from the smaller, less capitalized brands. Is that still the case or are the department stores constricting some of the open to buy dollars and shifting those open to buy dollars to other categories, until demand picks up?

[Edward Rosenfeld:]

Good morning, Camilo. Yeah. I mean, I think that essentially what’s happened is, clearly the segment of the market that we play in, as we talked about, that young, trendy space is tough this year. There is really a lack of trends there with the exception, of course, of sneakers, which continue to do very well. And while I think certainly, none of our direct competitors are performing better than us. So we’re certainly not losing share to anybody that does the types of footwear that we do. I think that we’re sort of in line with the department this season. In spring, I think, our sell-throughs were a little bit better than the department. I would say right now we’re in line to maybe a little bit better or very modestly better though. So we -- if we’ve lost share to anybody, it’s certainly to the sneaker guys because they’ve allocated more dollars. The retailers are allocated more dollars to the sneaker players. But in the brown shoe segment or the fashion footwear guys like us, non-sneaker guys, I think, we’re sort of maintaining share at this point.

[Camilo Lyon:]

Okay. So then it’s reasonable to think that once the fashion does turn more favorable then you’re in a pretty decent position to capitalize on that market share, holding or gaining that you’ve been able to manage.

[Edward Rosenfeld:]

Yes, we believe so.

[Camilo Lyon:]

Okay. And then can you talk about any divergences or are there divergences by channel whether it’s the department store channel that’s outperforming, the discount channel or vice versa or anything that’s differentiated between the segments that you operate in?

[Edward Rosenfeld:]

At this point it’s really something that we’re seeing across the board. That junior space, that young space is challenged in all tiers of distribution.

[Camilo Lyon:]

Okay. And then just finally, on Dolce Vita, I think it’s a breakeven business today when you bought it. Can you talk about the magnitude of the EBIT margin opportunity and the pace of improvement in that EBIT margin structure that we can expect to see next year?

[Edward Rosenfeld:]

Sure. As you point out Dolce Vita at this point is basically breakeven on an annual basis in terms of profitability. We believe that over time we can get this to a 10% EBIT margin business. We are not going to put a time table on it yet. We are certainly not going to get there in 2015, although we do expect the business to be profitable in 2015. But we see quite a lot of opportunities to improve the profitability of that business. Both their gross margins and comparable divisions to those that have a Steven Madden are running significantly below the Steven Madden divisions, in some cases 800 basis points to 1,000 basis points below. So we think there is a lot we can do to impact that. And we also think that the operating expense structure was a little bloated for the size of the business. So we are working diligently on reducing the operating expenses as well.

[Camilo Lyon:]

So those sound to be more like blocking and tackling sort of initiatives that can fairly quickly turn favorable. Is that the right way to think about it?

[Edward Rosenfeld:]

I think that’s right. I mean just keep in mind that something -- the gross margin initiatives in particular are something aren’t going to impact as significantly until fall of 2015.

[Camilo Lyon:]

Got it. I will get back in queue. Thanks Ed.

[Operator:]

And we will take our next question from Jay Sole with Morgan Stanley.

[Jay Sole:]

Hi. Good morning.

[Edward Rosenfeld:]

Good morning.

[Jay Sole:]

Hi, [You don’t] to follow up on Dolce Vita. You talked about some of the ways the margins are going to improve or you can improve the margin there. Can you talk about the integration and the process some of this -- can you walk us through the steps you will take to integrate it? How much time of yours is this going to absorb and how you are going to manage the people and the different aspects of that business as you bring it in-house?

[Edward Rosenfeld:]

Sure. The interesting thing about this transaction is that Dolce Vita is a business that has a lot of parallels to our existing business. It’s one that we know very well. I don’t think there is -- there certainly nothing that we have ever done before that where there is quite so much knowledge base in-house and transferable skills already here to help them. So I think it fits in pretty well and it’s not quite as complicated of an integration as some other transactions might be. The one thing we want to do though is we want to retain what makes Dolce Vita special. And so in terms of the front of the house and by that we mean design and sales. We really want to leave that structure in place. But what we are working on now and which is already in place and will be -- is already in motion, excuse me, is integrating the back office structure and making sure we help them with sort of operational efficiencies. Some of the things that frankly I think were not their forte and that we can impact pretty quickly. So that’s already in process. I think by the middle of next year that will be mostly complete and I would say really by fall of 2015 they will be fully up and running on our platform.

[Jay Sole:]

Now does what you have experienced so far in this integration process change the way you think about future acquisitions, I mean, do you feel like the company has capacity to do this more or is it kind of such a big undertaking that it’s really kind of a one-time situation?

[Edward Rosenfeld:]

No, I think we clearly have the wherewithal and the capability to do additional acquisitions if we find the right opportunities.

[Jay Sole:]

And is that something you are actively working on or is it a strategy to kind of pursue it or seek them out, or is there something that, it’s just ad hoc in if it comes up, you will, but if not, that’s okay too?

[Edward Rosenfeld:]

We are actively looking at acquisitions. Again we don’t feel compelled to do anything unless, we think it makes sense. So we’re going to continue to be opportunistic. But yes we are in constant process of looking at and evaluating additional acquisitions.

[Jay Sole:]

All right. Thanks so much.

[Operator:]

And we’ll go next to with Kate McShane with Citi Research.

[Unidentified Analyst:]

Hi, good morning. It’s [inaudible] on for Kate. I was hoping you guys could talk about the state of your inventory at the wholesale accounts and have you guys seen or are you anticipating any cancellation of orders?

[Edward Rosenfeld:]

I think that the inventory in the channel is relatively in line, maybe a little high in certain places, but for the most part that’s been managed pretty well. In terms of cancellations, I don’t think we’re going to be -- no, we don't expect a lot – to take a lot of cancellations. We have said that it’s going to be much more challenging to get reorders than we’re accustomed to. In some cases we’re working with folks, if they want to get out of a certain product, i.e., cancel it then we’re moving them into something else. But in terms of taking cancellations with no replacement, we’re not terribly concerned by that.

[Unidentified Analyst:]

Okay, great. And then could you talk about any regional differences that you might be seeing in either your retail or your wholesale business either in the quarter or quarter-to-date?

[Edward Rosenfeld:]

We’re not seeing real dramatic regional differences. There are -- I would say in our retail stores in Q3, for instance, California was relatively better performer. The Midwest and the Mid-Atlantic were relatively weaker. But frankly none of the regions were what we would consider satisfactory.

[Unidentified Analyst:]

Okay. Thank you.

[Edward Rosenfeld:]

Thanks [Corey].

[Operator:]

We'll go next to Erinn Murphy with Piper Jaffray.

[Erinn Murphy:]

Thank you, guys, and good morning. Just a follow-up on the Q4 wholesale, kind of reorder partner. Just as we think about the early challenges that you guys have seen so far, I mean as you think out as we get into the first quarter and that’s typically a sell-in quarter, are there any ramifications that you envision, or how are you kind of thinking about that potential sell-in quarter just given the conversations you're having currently with retailers?

[Edward Rosenfeld:]

So I think that given the challenge that everybody has seen in this space this year and in the fall season so far, I do think you have to expect the retailers to be pretty cautious heading into next year. And so we are expecting spring orders to be -- not to be gang busters, let’s put it that way. But so far what we've seen has been relatively encouraging. We’re sort of in line with where we were a year ago for spring.

[Erinn Murphy:]

Okay. That’s helpful. And then just back on the retail comp for the quarter, were there any major differences between the month of July, August and September as we look at that negative 7% range?

[Edward Rosenfeld:]

Yeah, actually August and September were weaker than July, particularly as we look at it on a two-year stack basis. On a one year comparison they were only modestly weaker, but the comparisons did get easier throughout the quarter and the performance did not improve on a year-over-year basis. So on a two-year stack basis, we got a little bit weaker as the quarter went.

[Erinn Murphy:]

Okay. That’s helpful. And then I guess is weather – I mean weather has obviously been a little bit of a wild card here I mean is it started to get a little bit more seasonal, are you seeing any inflection in your tall shaft boots or your bootie business thus far?

[Edward Rosenfeld:]

Tall shaft boots overall have been disappointing so far. Booties have performed I would say pretty well. But we are hopefully that tall shaft boots will go into perform a little bit better than they have so far.

[Erinn Murphy:]

That's helpful. And just a last question for me. I think about a quarter ago as you initially had revised down the guidance, was it related to your expectation for the second half of the year being a little bit more promotional from the peer set within accessories. Has that -- in other word, has that played out as planned or how you’re thinking about your accessory businesses given the environment there?

[Edward Rosenfeld:]

Yeah, I think the accessories performance is really right in line with where we expected it to be on the last call.

[Erinn Murphy:]

Okay. So you’re not seeing it incrementally promotional from when you had previously intended it to be.

[Edward Rosenfeld:]

We are not, no.

[Erinn Murphy:]

Okay. That's helpful. Thank you, guys.

[Edward Rosenfeld:]

Thank you.

[Operator:]

And we’ll go next to Ed Yruma with KeyBanc Capital Markets.

[Edward Yruma:]

Hi, good morning and thanks for taking my question. I guess first Ed, now that you’ve started seeing some weakness at the wholesale are you seeing any change in posture on markdown money, are retailers kind of coming back to you for more support given the promotionals that they've been running?

[Edward Rosenfeld:]

Yes, I mean, we definitely are seeing our markdown allowances as a percentage of sales go up and that's something that's baked into our guidance.

[Edward Yruma:]

Got it. And given that your own comp trends have been kind of weak throughout the balance of the year. Obviously malls had a tough year but is there anything you can do to stimulate traffic or to drive interest into your stores or are you really just subject to weak mall traffic trends?

[Edward Rosenfeld:]

Yeah, there are a lot of things that we’re experimenting with in terms of local marketing initiatives and the other things. I think that the thing that we feel pretty strongly about though and that’s something we talked about on a previous call I believe was increasing the amount of product that’s exclusive to the Steven Madden retail stores and Steven Madden e-commerce. So i.e. product that is not in the wholesale channel and we have ramped that up pretty dramatically, recently and we’re going to continue to increase the percentage of our Steven Madden stores that is exclusive, that isn't carrying wholesale and we are hopeful that that’s going to draw some more traffic in to our stores. So far we feel pretty good about the growth we’re seeing there, particularly online.

[Edward Yruma:]

Got it. My final question I think you spoke somewhat constructively about the dress category last call. I guess any observations there or any other areas where you're seeing some relative strength? Thanks.

[Edward Rosenfeld:]

Yeah, dress was a category that’s been a little bit disappointing for us. We saw that category building throughout the year and I think we expected the momentum to continue to build and it’s sort of plateaued a bit. I still feel like if we have the right dress shoes then that’s a category that can be important for us. But it definitely did not perform to expectations in third quarter. In terms of the categories that are relative pockets of strength, number one of course is sneakers. We’re doing very well with our fashion sneakers. And then booties, booties are performing pretty well of course we have a headwind in that category because we are going up against the performance of the Troopa last year, which was -- as we've said before, are sort of a once in a decade kind of item. But excluding Troopa the bootie performance is pretty good.

[Edward Yruma:]

Great. Thanks very so much.

[Edward Rosenfeld:]

Thank you.

[Operator:]

And we will go next to Jeff Van Sinderen with B. Riley.

[Jeff Van Sinderen:]

Good morning. Ed, let me ask you -- this is kind of a tough question. But what is your sense of where you think we are in sort of this fashion cycle with the lack of trends to drive your business? Do you think we’re somewhere in the middle of it. I guess, I'm just trying to get a sense of when you think that maybe the wholesale business could start to stabilize overall versus easier comparison to when your retail comps might kind of hit bottom. Any thoughts there?

[Edward Rosenfeld:]

Well, I am certainly hopeful that the beginning of 2015 we are going to see some improvement. I think that we expect the balance of this year to be challenging. We do feel like we have seen some encouraging signs for spring. I’m going to talk specifically about what those trends are for obvious competitive reasons, but there are some -- I think that folks in the industry believe that there is more newness this spring than there was last spring. There are some things happening in Europe which haven’t really taken off in mainstream the U.S. yet but that we feel optimistic about. Of course, we are delivering lot of products right now into places like Miami for tests and that will tell us a lot over the next month or two about the things that we want to go after more significantly for spring. But we do feel like there is some more newness in spring. The one caveat I will provide though is that we also expect sneakers to continue to be very good in spring. And while we are doing well in the sneaker category we've got some very good products in that category and we’re going to be expanding the percentage of our assortment of sneakers for spring. We also have to -- we’re also cognizant of the fact that there -- when that category is good that there are some traditional sneaker companies that pose pretty stiff competition, folks like Converse and Vans. So that’s -- that will probably remain a bit of a headwind in spring.

[Jeff Van Sinderen:]

Okay. Understood. And then relevant to sort of the markdowns and promotional levels that you've been experiencing, I guess, I'm just trying to get a sense of do you think you have to be sequentially more promotional in Q4? Do you think we’re sort of at status quo at this point versus how you were in Q3? Just wondering if you think that we are getting -- I guess, that maybe it just doesn’t get -- we get to a point where it doesn't get a whole lot worse in terms of markdowns and promotions and so forth and then maybe the comparisons get easier. Obviously, they do get easier as you get into 2015. But how you think about that?

[Edward Rosenfeld:]

Yeah. I mean, I don't anticipate it getting significantly more promotional than it’s been. But it’s been very promotional. And we all know that in fourth quarter and holiday the pattern over last few years has been very -- the market to be very promotional and we expect that to continue. But do I think if there is another leg down? No, that’s not what we are anticipating.

[Jeff Van Sinderen:]

Okay. Good to hear. Thank very much and good luck.

[Edward Rosenfeld:]

Thanks Jeff.

[Operator:]

We will go next to Scott Krasik with Buckingham Research.

[Scott Krasik:]

Hi, Ed, how it’s going?

[Edward Rosenfeld:]

Good morning, Scott.

[Scott Krasik:]

So, just one quick one on Dolce Vita when you gave the original announcement you said it would be modestly accretive I think in 2015. I mean are you more positive or more confident in that, less confident just given the industry and what you’ve done from an integration perspective as a whole?

[Edward Rosenfeld:]

I think that's still the right way to look at it, modest accretion for 2015.

[Scott Krasik:]

Okay. And then just in terms of looking back at the first quarter. I think it’s very encouraging that you’re seeing sort of a flat order book, given that your wholesale footwear sales were up 16% in 1Q last year. How much of that 16% increase was Troopa or lace-up booties that are trending significantly down and that you have to cycle against?

[Edward Rosenfeld:]

I would say that look in Q1 was not a huge percent of the business. You’re talking about a couple of percent of the business.

[Scott Krasik:]

Okay, that's very good. In terms of pricing you’ve taken -- you have that quote of sneaker that's a 59 I think. You have some of the other -- the [inaudible] eccentrics at that same price. How do you look at pricing for athletic for the spring?

[Edward Rosenfeld:]

One of the challenges is that athletic tends to be a lower AUR item. So we feel very good about those products. The velocity of sell-through is excellent on them, but they -- on a relative basis they are somewhat lower AUR compared to the rest of the mix.

[Scott Krasik:]

Okay. And then sort of longer term you’ve given back a couple of hundred basis points in wholesale footwear margin absent this cycle. How do you view -- are you building products, are your IMUs going on in at the same or higher than when -- in 2011, 2012, can you get back to similar wholesale gross margin once we get a hit or two?

[Edward Rosenfeld:]

The IMUs are similar. There is a mix difference from the period that you’re talking about because the private label did grow over that period. And keep in mind that at this point, Dolce Vita is a mix negative, we’re going to hope to over time get those margins up in line with our existing business or our legacy business. But yes, we do believe there’s some gross margin opportunity once we -- once the trend environment improves and we have some more mid-year -- some mid-year trends to capitalize on just by virtue of reducing margin allowances and some close-outs, although we’ve done a pretty good job of keeping the close-outs to a minimum.

[Scott Krasik:]

Okay. Just lastly now you have your foot in the women's department, so to speak, with Dolce Vita, are you seeing different traffic trends with your better department store customers in women's versus junior's and what do you ascribe that to if so?

[Edward Rosenfeld:]

Well, definitely the women's business is better than the junior business overall. Anything that targets a somewhat more mature customer is doing -- is performing better. And even if you look at our own portfolio at the sell-throughs we’re seeing better sell-throughs in brands like Freebird, in Steven, in Superga which is of course is sneakers and has a sort of crossover customer base. Those brands tend to be selling through better and I think that’s sort of in line with what’s happening in the overall market that the Women's brands are selling better than the Junior's brands.

[Scott Krasik:]

Do you think that’s just because the pure athletic doesn’t play as well for them or they’re buying less accessories or…

[Edward Rosenfeld:]

I think for that Junior customer there’s not a lot of trend that she is excited about other than sneakers. So she is buying a lot of sneakers.

[Scott Krasik:]

Okay. Thanks and good luck.

[Operator:]

And we’ll go next to Mike Richardson with Sidoti.

[Michael Richardson:]

Yeah. Good morning, just a couple of quick ones. First you obviously you guys bought in couple of licensees over the year and a half or so. Can you talk about the opportunities of buying additional licensees going forward and will that be where a lot of the international growth comes from?

[Edward Rosenfeld:]

Yes. We did the first one a couple of years ago with Canada. That’s been a very successful transaction for us and now we’ve just signed up Mexico which we expect to close in the beginning of 2015 and we’ve also entered this joint venture in South Africa. Long-term I do think that, that’s part of the strategy. In the very near term I think that we have a lot on our plate with Mexico and South Africa and so the first order of business is to make those transactions successful and that will be our focus over the next year or so and then we will provide -- if those work out we’ll look for the next one.

[Michael Richardson:]

Okay. Just the last question, I was just wondering -- reading a lot about potential delays at the port in LA and Long Beach just wondering if any of your shipments have been impacted by anything going on out there?

[Edward Rosenfeld:]

Yes. That has been a challenge recently. And it’s something that everybody in the industry is dealing with.

[Michael Richardson:]

Okay. Thanks, best of luck for holiday.

[Edward Rosenfeld:]

Thanks, Mike.

[Operator:]

We will go next to Steve Marotta with CL King & Associates.

[Steven Marotta:]

Good morning, Ed. Has there been any change in your company owned comp October to date versus what we saw in the third quarter?

[Edward Rosenfeld:]

No.

[Steven Marotta:]

And as it pertains to department store handbag, last time you updated the Street, the handbag within the department store channel were very heavy to up or high promotions, they were migrating, open to buy dollars away from the category, has there been any delta there over the last three months? Either -- even if it pertains to the channel cleaning up a little bit as it pertains -- as opposed to open to buy dollars migrating back in?

[Edward Rosenfeld:]

I think it’s definitely -- yes it has sort of cleaned up a bit and it’s stabilized a bit. If anything we feel incrementally a little bit better about the category than we did three months ago. It’s still challenging and we continue to feel very good about our Betsey Johnson brand in that category. They really -- while it has been a declining PBC category in the department stores, Betsey Johnson has really been an out performer I would say probably the best brand in that space in the industry and so we are pleased about that.

[Steven Marotta:]

That’s helpful. And one last question, is there any reason for investors to believe that you would slowdown the pace of share repurchases in 2015?

[Derek Browe:]

No. Remainder of the year, I think all things consist you would expect us to continue on that same pace which has now been $30 million to $35 million a quarter.

[Steven Marotta:]

In 2015, not just fourth quarter?

[Edward Rosenfeld:]

We are going to update on 2015 later but again to Derek’s point I think that absent anything unforeseen it’s likely we’ll continue.

[Steven Marotta:]

Great. Very helpful. Thanks much.

[Operator:]

And we will go next to Danielle McCoy with Wunderlich Securities.

[Danielle McCoy:]

Hi, good morning, guys. I was wondering if you could just talk about a little what you are seeing in men’s in terms of trends, how the men’s products doing at your own retail doors and if there is what you guys are seeing at wholesale and if there’s any room for expansion there?

[Edward Rosenfeld:]

Sure. Yes. Men's is definitely a bright spot. The trends in the men’s category are a lot better than they are in the women. Our men's business in wholesale was up mid-singles in Q3 over the prior year. Although frankly, that was a little slower than our pace has been due to some timing issue and it should reaccelerate in the fourth quarter but looking at up high teens in the men's business for the whole year. And we are growing in our retail stores as well. Although the growth isn’t quite as dramatic as it is in wholesale. So that’s a category we feel good about. In terms of products, boots have really picked up in that category. The Chukka boots continue to be very good and we’re seeing some improvement in casuals as well. So we’re pleased about that. So men’s we feel very good about. Kid's is also something that we feel very good, really the Women’s that’s challenging right now.

[Danielle McCoy:]

Okay. Great. And is there any update on the B by Brian Atwood brand that you can talk about?

[Edward Rosenfeld:]

Yeah. We’re pushing B Brian Atwood back to fall of 2015. As you’ll recall we were initially planning on launching for spring. I think that we only get one chance to re-launch the brand, and we want it to be just right. And particularly given the sort of challenges in the fashion footwear space right now we felt like we weren’t losing a lot to delay and get the product exactly right and launch for fall of 2015.

[Danielle McCoy:]

Okay. Great. Thanks, guys. Good luck.

[Edward Rosenfeld:]

Thanks.

[Operator:]

And we’ll go next to Sam Poser with Sterne, Agee.

[Ben Shamsian:]

Hi. It’s Ben Shamsian for Sam. Thanks for taking my call. Given the disappointment in tall shafted boots, can you talk about your ASPs both in the third quarter and how you’re seeing that play out in the next couple of quarters?

[Edward Rosenfeld:]

Yeah. ASP in wholesale was up about 1% in Q3. In retail, our AURs were down modestly. I think that in retail we expect them to be down again modestly in Q4 and wholesale to be relatively flat.

[Ben Shamsian:]

Great. And then…

[Edward Rosenfeld:]

Tall shaft boots -- I just wanted to highlight on that. Tall shaft boots are still making up a bigger percentage of the overall mix than they did a year ago, just not as quite as strong as we anticipated.

[Ben Shamsian:]

Got it. Okay. I appreciate that. And then you talked about taking in some of the distributors, but how about your thoughts on sort of acquisitions such as that of Dolce, anything sort of sizable that you have on your radar screen?

[Edward Rosenfeld:]

Well, there is nothing to report on that front right now. We continue to look for acquisitions and we promise you'll be the first to know when we find one.

[Ben Shamsian:]

All right. Thank you very much. Best of luck.

[Edward Rosenfeld:]

Thanks, Ben.

[Operator:]

That concludes today's question-and-answer session. I would now like to turn the conference back over to Mr. Ed Rosenfeld for any closing remarks.

[Edward Rosenfeld:]

Okay. Well, thanks very much for joining us for today's call. We look forward to speaking with you on the fourth quarter call. Have a good day.

[Operator:]

That concludes today's conference. Thank you for your participation.