Good day and thank you for standing by. Welcome to the Q1 2021 Steve Madden Limited Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. Operator provided instructions on how to ask questions. I would now like to hand the conference over to your speaker for today, Ms. Danielle McCoy. Please go ahead.

Thanks, Latana. Good morning, everyone. Thank you for joining our first quarter 2021 earnings call and webcast. Before we begin, I'd like to remind you that during our call, we may make certain forward-looking statements as defined in the federal securities laws regarding our expectations or predictions about the future. Generally, these statements relate to projections involving anticipated revenues, earnings or other aspects of the company's operating results. Because these statements are based on current assumptions and expectations, they involve known and unknown risks, uncertainties and factors not within the company's control. And as such, our actual performance and results may differ materially from these statements. Our annual report and other reports filed with the SEC from time to time include detailed discussions of the risks the company faces, and we urge you to refer to these. Specifically, the COVID-19 pandemic has had and is currently having a significant impact on the company's business operations and results. Such forward-looking statements with respect to the COVID-19 pandemic include, without limitation, statements with respect to the company's plans and response to this pandemic. At this time, there is still significant uncertainty about the duration and extent of the impacts of the COVID-19 pandemic. Due to the dynamic nature of these circumstances, statements made on this call regarding the company's response to the pandemic could change at any time. Any forward-looking statements represent our judgment as of the time of this call and cannot be relied upon as current after today's date. We disclaim any intent or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required under applicable law. The financial results discussed are on an adjusted basis, unless otherwise noted. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release. Joining the call today are Ed Rosenfeld, Chairman and Chief Executive Officer; and Zine Mazouzi, Chief Financial Officer. With that, I'll turn the call over to Ed. Ed?

Thanks, Danielle. Good morning, everyone, and thank you for joining us to review Steve Madden's first quarter 2021 results. In light of the continued challenges posed by COVID-19, we were very pleased with our results in the first quarter, which significantly exceeded our expectations for both revenue and earnings. Our business accelerated meaningfully in March with sharp improvement in revenue trends in our Retail segment and performance at our wholesale partners. Undoubtedly, we have some of this improvement due to the impact of the government stimulus as well as the vaccine rollout and easing government restrictions. But we believe the improvement we saw, particularly in our flagship Steve Madden brand, exceeded that of the overall fashion footwear category, which we attribute to an outstanding trend-right merchandise assortment, much of which we only began delivering later in the quarter due to supply chain delays. Steve and his design team have created a Steve Madden women's footwear collection with both a large number of strong selling styles and a couple of home run products that look like they will rank up there with some of the top styles we've had over the years. Highlights include joggers with rhinestones, flat sandals with studs and chunky jewels, styles with braided detailing and more. We're also very encouraged by what we're seeing in dress shoes, where we have a number of strong performing styles. As consumer interest in dress shoes is coming back, we believe we are capturing a disproportionate share in that category. Overall, our consolidated revenue for the quarter was $361 million, up 1% from the first quarter of 2020. And our diluted EPS was $0.33, a 108% increase from the prior year period. Our wholesale revenue declined 4% in the quarter, topping our expectation of a high single-digit decline due primarily to an impact from supply chain disruption that while still significant was smaller than we anticipated. The port congestion in California eased somewhat in March, as the production and export pause in China in February for Chinese New Year resulted in a two to three week period in March with fewer imports in California that enabled the port to work through some of the backlog, which in turn enabled us to ship product to our wholesale customers at the end of March that we had anticipated would slip into April. Unfortunately, it looks like that was a temporary reprieve, as imports surged again in April and are expected to rise further in May and beyond, likely meaning port congestion will continue to pose a challenge at least through the end of the second quarter. Wholesale footwear revenue declined 8% in the quarter. Steve Madden Women's and Kids had relatively better performance, as did Dolce Vita in our private label business. Men's and Anne Klein, which have seen a disproportionate negative impact from COVID-19, were softer than the segment overall. In international markets, Europe was the highlight, with a strong revenue gain compared to the prior year, driven by outstanding performance in digital channels. Canada on the other hand was challenging, due to the extensive COVID-19 lockdowns and restrictions in the country in the quarter. In wholesale accessories and apparel, revenue increased 10% compared to the prior year period, driven by strong gains in Steve Madden handbags in both domestic and international markets, as well as growth in private label. Looking ahead, while we are encouraged by the dramatically improved sell-throughs our wholesale customers have seen in the last two months, we remain cautious on the near-term outlook for the wholesale channel, given the continued impact of COVID-19 on our wholesale customers, conservative order activity and supply chain disruption. In our Retail segment, revenue in the first quarter increased 27% compared to the first quarter of 2020, far outstripping our expectations for a mid-single-digit increase, due to the significant improvement in performance we saw in March both online and in-store. When comparing to the pre-COVID-19 first quarter of 2019, Retail revenue increased 7%, demonstrating the strong consumer demand for our brands and our products. While the revenue trend in our stores improved meaningfully in March, it remained down from 2019 and stores were under significant pressure for the quarter overall when compared to 2019. Our digital commerce business however was outstanding and accelerated further from the strong trends we saw in 2020. E-commerce revenue increased 89% for the quarter compared to the first quarter of 2020, including 112% growth in our Steve Madden e-commerce business. Looking ahead, while our year-over-year online growth should moderate somewhat due to the much tougher comparisons beginning in Q2, we believe the momentum in our e-commerce business combined with the strength of our product assortments will enable us to continue to drive overall Retail segment revenue gains compared to 2019 levels. I'd now like to touch on a transaction that we completed early in the second quarter: the acquisition of the 49.9% share that we did not already own of our European joint venture, which distributes Steve Madden branded footwear and accessories to most countries throughout Europe. We formed the European joint venture nearly five years ago and it has experienced strong double-digit percentage revenue growth each year including a 21% revenue gain in 2020 despite the impact of COVID-19. In 2021, we expect the business will generate approximately $55 million in revenue over three quarters, of which will come from digital channels with a mid-teen operating profit margin before allocation of corporate overhead. We are excited about taking full ownership of our brand and operations in this large and strategically important market. And we believe this business can be a significant growth driver for us for years to come. Overall, we are encouraged by the improving trends we are seeing in the business, the strong consumer demand for our brands and products, our momentum in digital channels and the growth opportunities we see in international markets like Europe. In the near term, we know we still face challenges due to COVID-19 and that our results in the wholesale channel will continue to be under pressure. But as we look out further, we are confident that based on the strength of our brands, our business model and our people, we are well positioned to drive long-term sustainable revenue and earnings growth and create value for our stakeholders. With that, I'll turn it over to Zine to review our first quarter 2021 financial results in more detail and provide our guidance for the second quarter.

Thanks, Ed, and good morning, everyone. Our consolidated revenue in the first quarter increased 0.5% to $361 million, compared to $359.2 million in the first quarter of 2020. Our wholesale revenue declined 3.7% to $291.4 million, compared to $302.7 million in the prior year period. Wholesale footwear revenue decreased 7.8% to $216.8 million, which was due to the impact of COVID-19 and supply chain disruption. Wholesale accessories and apparel revenue increased 10.3% to $74.6 million driven by double-digit percentage gains in both Steve Madden and private label handbags. In our Retail segment, revenue increased 27.5% to $67.5 million, driven by outstanding performance in our e-commerce business. Total e-commerce grew 89.2% including 112.4% growth in our Steve Madden e-commerce business and represented 54% of our total Retail segment sales. We ended the quarter with 215 company-operated retail stores including 66 outlets and seven e-commerce sites as well as 17 company-operated concessions in international markets. Due to local government orders one-third of our stores were closed for some period during the first quarter. As of today, approximately 45% of our stores in Canada are closed, but the remainder of our stores are open, although hours of operation remained reduced in over 90% of the stores. Turning to our licensing and first cost segments. Our license and royalty income was $1.5 million in the quarter, compared to $2.2 million in last year's first quarter. First cost commission income was $0.6 million in the first quarter of 2021, compared to $1.2 million in the first quarter of 2020. Consolidated gross margin in the quarter increased 130 basis points to 38.5% compared to 37.2% in the prior year. Wholesale gross margin declined 20 basis points to 32.3% compared to 32.5% last year, which includes a 10 basis point increase in wholesale footwear and a 10 basis point decrease in wholesale accessories and apparel. Retail gross margin rose 370 basis points to 63.5% compared to 59.8% primarily driven by lower promotional activity and a higher penetration of e-commerce sales. Operating expenses for the quarter decreased 13.2% to $103.5 million compared to $119.3 million in last year's first quarter, which reflects the company's expense control measures. As a percentage of revenue, operating expenses improved to 28.7% in the first quarter of 2021 compared to 33.2% in the prior year period. Operating income for the quarter totaled $35.6 million or 9.9% of revenue compared to last year's first quarter operating income of $14.2 million or 4% of revenue. Our effective tax rate for the quarter was 21.1% compared to 15.2% in the same period last year. Finally, net income attributable to Steve Madden Limited for the quarter was $26.9 million or $0.33 per diluted share compared to net income of $13 million or $0.16 per diluted share in the first quarter of 2020. Moving to balance sheet. Our financial foundation remains very strong and as of March 31, 2021 we have $273 million of cash, cash equivalents and short-term investments and no debt. Inventory totaled $106.6 million, up 4.2% compared to the prior year figure of $102.3 million. Our CapEx in the quarter was $1.6 million. During the quarter, we repurchased approximately 154,000 shares for $5.6 million which includes shares acquired through the net settlement of employee stock awards. There is approximately $135 million remaining on the share repurchase authorization. The company's Board of Directors approved a quarterly cash dividend of $0.15 per share. The dividend will be payable on June 25, 2021 to stockholders of record as of the close of business on June 15, 2021. Looking forward, while we are encouraged by the improving demand trends, we remain cautious on the near-term outlook, particularly in the wholesale channel given our wholesale customers' conservative approach to orders for spring and the supply chain disruption which is limiting our reorders for the second quarter and our ability to chase into the improved demand. We also faced gross margin headwinds from higher freight costs and the non-renewal of GSP. We expect revenue for the second quarter to be in the range of $360 million to $365 million and we expect diluted EPS to be in the range of $0.26 to $0.28. Given the continued uncertainty related to the COVID-19 pandemic, we're not providing full year revenue and earnings guidance at this time. Now, I would like to turn the call over to your operator for questions. Operator?

Operator provided instructions on how to ask questions. You have a question from the line of Camilo Lyon with BTIG.

Thank you. Good morning, everyone. Nice job out of the gate here in Q1. Ed, I was hoping you could just shed a little bit more color on the supply chain commentary that you made and sort of the influences that it had on Q1 and Q2. I was expecting having Q2? And any sort of shift that you might be seeing in the business to help us better frame—separate what's going on from the macro supply chain perspective and then separate that from the underlying trends, which seems to be pretty robust given the commentary on the sell-through that you're seeing and also what you're seeing in your e-commerce? That's my first question.

Sure. Yeah, the supply chain has had a pretty significant impact on the business in the first half of the year. It was not as bad as we initially feared in Q1, but it was still a significant impact. And I think that we called out approximately—or an expectation of about $30 million in Q1 on the last call of revenue impact. And I would say, it actually ended up being only about half of that. And as we discussed in the formal remarks, there was a little bit of an easing at the port. I think it was in the wake of Chinese New Year and the slowdown in imports from China; they were able to work through some of the backlog and we were able to ship out a lot more orders at the end of March than we had anticipated and a lot of stuff that we thought was going to go into April. So I think the impact was again only about half of what we thought in the first quarter, but you're going to see, if there was a $15 million impact in Q1, I think you're going to see at least that much in Q2, $15 million maybe even up to $20 million of supply chain impact. And I think one of the things that's frustrating for us is just because we do have such a strong product assortment and the consumer is responding so well to so many of our products, we're not really able to capitalize on that in the way we otherwise would, if we didn't have the supply chain disruption. As you know Q2 is a big reorder quarter for us. And we would be chasing a lot of these products into Q2 and in a way that we're not able to do right now. We are doing what we can. We're flying a lot of goods even with the increased airfreight rates, certainly in the Steve Madden brand. But nevertheless, the supply chain is certainly having a negative impact on us in both Q1 and Q2.

That's great color. And then my second question is on the gross margin front. You mentioned flying more goods I think cost there on air up 100% and probably similarly on boats. Can you talk about any other puts and takes on the gross margin line and how we should think about that? Is that unfold for the balance of the year? And maybe just one final one: when do you expect the supply chain pressures should ease?

Okay. Sure. The second part of your question you were breaking up there, but I think I got the gist of it which was when do we think that the supply chain pressure will ease, is that correct? In terms of gross margin, yeah, there's a lot of puts and takes this year. We guided to—maybe I'll talk about Q2 since that's how we provided guidance. I think we do have a couple of pretty significant headwinds. The biggest one is the freight. As you point out ocean rates are up over 100%. Airfreight rates are up close to 200%. So all in all that's creating a pretty significant headwind on the freight. I would say that's going to be over 200 basis points pressure from freight in Q2—something like—I think we estimated about 210 basis points. And then we've got the non-renewal of GSP which is also still a headwind. We're certainly hopeful that that gets resolved quickly. But if not that's another roughly 60 basis points of headwind in Q2. All that being said, I think that even with those headwinds, I think that we're targeting to have flat gross margins to last year in Q2 on a consolidated basis. And then in terms of when the supply chain gets better, look I think, as I mentioned again in the earlier remarks that while we did have that temporary reprieve, imports are surging again into the LA ports. And so I think that we're going to continue to see some pressure here on the supply chain. I think that I saw the LA port director said that he anticipated that the congestion would last well into the summer. So it's something we're going to have to contend with—these extended lead times.

That's great color. Thank you, Ed. And good luck with the Q2 season. Thank you.

Thanks, Camilo.

You have a question from the line of Paul Lejuez with Citi.

Excellent. Ed, can you talk more about how retailers are planning the second half businesses and how that differs amongst your partners by channel maybe? And also curious if you can talk a little bit more about private label. Did that stand in 1Q 2021 versus where you were last year as a percent of the wholesale business? And where do you see that thing going this year in total, either relative to last year or FY 2019, however you guys are thinking about it? Thanks.

Yeah. So I don't have a real update for you on how retailers are planning their businesses for fall. When we talked on the last call, we talked about the fact that our retailers were planning fall down and it was a pretty wide range. Some were planning it down modestly, some down as much as 15% to 20%. This is all compared to 2019. And what I'll tell you is I think all of our retailers are relooking at their fall plans right now given the improved performance over the last two months. And I think again, we think that, the improvement in our trend has even exceeded that of our peers in our category. So I think that we're encouraging them to relook at their plans for us as well. But we really haven't received any firm updates from them. So that's something we'll have to follow-up with you on the next call. In terms of private label as a percentage of the wholesale business, look that was about—I think in 2019, I think we were running around 31%. And then last year it went up to about 35% as obviously some of those mass merchant customers that are big private label customers for us really remained open throughout the lockdowns and took share. This year, I think, you'll see that tick down back to around a third of our wholesale business.

Got it. Just a follow-up. Anything you're seeing on the import cost side outside of freight that will drive some of your overall cost that you see is higher? And how are you thinking about pricing to reflect that?

Yes. There is some pressure on materials. And then also, of course, the dollar has weakened a little bit, particularly against the Chinese RMB. So, I think there's a little bit of pressure there. At this moment though, it has not been super problematic for us. We haven't seen a significant increase in our overall FOB costing from our factories. But it will be something we'll have to continue to watch and to work hard on. We are taking price up selectively particularly, because of the strength of the product and the demand that we're seeing from the consumer right now. So I think you will see a modest increase in AUR from us.

Thank you. Good luck.

Thank you.

You have a question from the line of Jay Sole with UBS.

Great. Thanks so much. And I'm just wondering if you could maybe give us a little bit more color on the top line guidance. It sort of implies that on the—if we look at the 1Q result on the top line versus 2019 it was down about 13%, but the 2Q guidance looks like it's going to be down about 19%, 20% somewhere in that range. Is it more like the wholesale business where you see like deceleration? Or is it just having enough inventory to supply the retail channel. Can you just give us a little bit of color on where you see the change from 1Q to 2Q within the segments?

Yes. Yes, it's a good question. So it really is—the deceleration really is coming from the wholesale business and I'll explain that. But the Retail segment, we feel good about the trend there. And we—as I mentioned, we think we can continue to see nice improvement over 2019. In fact I think we can be up double-digits in Q2 on a percentage basis compared to 2019 in the Retail segment. So the wholesale business, I think, there's a couple of things, if you're looking back at Q2 of 2019 that we should point out related to our private label business. The first is that back in 2019 that's when Payless went bankrupt, and announced they were liquidating. And one of our private label customers saw that as a market share opportunity and actually temporarily expanded the space on the floor devoted to footwear. They actually put up pallets around the ring of the shoe floor, and brought in a lot of products in the categories where Payless had historical strength. And so we shipped in about $25 million for that program in Q2 of 2019 that we are not anniversarying this year. So that's the biggest piece. And then on the private label accessories side, one of our big private label customers is bringing in their back-to-school sets in July this year and those came in June of 2019. So that's another $7 million or so. So just think about the $32 million headwind from those two factors in our private label business. And that's about a 700 basis point impact on the consolidated revenue. So I think that really explains the deceleration that you're looking at.

Got it. Thanks so much. And then maybe just one more on the European JV acquisition. Can you just give us a little update on why now why it strategically made sense today? And sort of what you see the potential for that business going forward? I mean, you say you think it can be a significant growth driver.

Yes. Look that's been just a really great story for us since we started the JV. It's been really strong and steady growth. And we really felt the business had just reached a place of scale, where it made sense. And we thought really we've proven that the brand really resonates in the market and that we have a big opportunity there and we need to step on the gas and we thought we could do that best with full ownership of our business in the region. But as we pointed out this is a business unlike the rest of our business, this business was up 21% in 2020 despite COVID. And so I think that really demonstrates the momentum that we have in the market. And also it's a reflection of our digital-first positioning there. As I mentioned the business will be over three quarters in digital channels this year. And it's just got really strong momentum. Again, it was up 21% last year it will be up more than that this year. And so I thought really now was the time to take it in-house fully.

Got it. Thank you so much.

Thank you.

You have a question from the line of Janine Stichter with Jefferies.

Hi, everyone and congrats on great results. I was hoping you could talk a little bit about the fashion trends you're seeing. I think you mentioned seeing some improved trends in the dressy category. On the last call, you had said it was kind of—you were seeing some green shoots but it was still a small percentage of the business and a limited number of styles that were trending well. Maybe elaborate just on what you're seeing now? Is it a bigger percentage of the business? How should we think about that trending going forward? And then how do you manage the mix of fashion versus more casual styles as we try to figure out where the consumer is positioned? Thank you.

Yes. Dress shoes have really come on and we're seeing some real strong performance in that category. We've got these strappy dress sandals that are performing very well. We've got some pumps that are doing well though we don't have enough of them. But that's a category that we feel considerably better about than even when we spoke to you last time and in terms of penetration, it's approaching 2019 levels for us now. No I don't think that's true for the market overall. I do really think we're taking share in that category and capturing a disproportionate share of consumer dollars in this category. We are a destination for these kinds of products. I think we've executed really well in the product that we're delivering. And frankly, I think some of the other brands in the market deemphasized this category and it's given us an opportunity. So that's a category we feel good about, but there's a lot of other things really working for us too. I called out doing very well in fashion sneakers. Our flat sandals with embellishment and ornamentation are phenomenal. So we've got a lot of products working a lot of different trends reflected in these products. So whether it's ornamentation or braided detailing, quilting, there's a whole bunch of things that we're utilizing on the product and that the customer is responding to.

Great. And then, just a follow-up on pricing. I think you talked about potentially seeing AUR increases as you try to offset some of the import cost headwinds. Is that on like-for-like price? Is there anything going on with mix that would offset those price increases?

No, I don't see anything in mix that would offset it. And yes, there will be some AUR increases on like-for-like products.

Great. Thanks very much.

You have a question from the line of Susan Anderson with B. Riley.

Hi. Good morning. Thanks for taking my question. Nice to see the improvement in the quarter. I was wondering if maybe you could give a little bit of color on just against the revenue in the quarter. I'm assuming you saw maybe a pickup in March. And then, I'm curious if that's carried into April, it looks like you're guiding second quarter to be at similar growth levels as first quarter. Is most of that the port issue holding back inventory? Or is part of it still consumers kind of holding back on their more fashionable footwear purchases?

Yes. We did see revenue trends improve throughout the quarter, as March was better, considerably better than January and February, both in our actual sales in our Retail segment, as well as in our sell-through and wholesale. And we've seen that improvement continue into April. I think that, in terms of the Q2 revenue guide, I think we've discussed some of the headwinds there. We talked about the headwinds in private label and obviously, supply chain. But absent that, yes, we do see the trends continuing.

Great. And then, just on the gross margin in the first quarter, I think retail was up, which I think was e-commerce and lower promotion, wholesale slightly down. I guess is there any difference in promotions in the wholesale channel? Or what other dynamics are going on there that drove that down? And should we expect that difference also for the second quarter?

So again, lots of puts and takes on the gross margin. If you look at wholesale, keep in mind, while you did have a tailwind because one year ago we had inventory reserves that we took at the onset of COVID, that was really offset by some headwinds this year, which were namely freight and GSP, the non-renewal of GSP. And then, on top of that, you had some mix shifts which were negative. So in both wholesale footwear and wholesale accessories and apparel, private label made up a larger percentage of the mix this year, compared to last year, which is a mix negative. And then even between the segments, with wholesale accessories and apparel being up and wholesale footwear being down, that's a mix negative as well. So I think that explains how we got to the overall wholesale down 20 basis points.

Got it. Okay. That's helpful. If I could just add one more on Europe. With the outperformance there, it sounds like, given the channel it mainly operates and that's obviously helping. But are you also seeing any differences in what consumers are buying in Europe? Is it more fashion? Or is it very similar to what you're seeing domestically?

Generally speaking, what's working in Europe is very similar to what's working here. We've been doing very well with fashion sneakers in Europe, but that's also strong for us here in the U.S.

Great. That's helpful. Thanks so much. Good luck for rest of the year.

Thank you.

You have a question from the line of Laura Champine with Loop Capital.

Good morning and thanks for all the granularity about what's going on with the wholesale business in Q2. But I did want to talk about why you've cited COVID-19 as an additional demand risk in Q2, because we're just hearing about a significant bounce back in demand for footwear and apparel and increased mall traffic. So it's just a little counter to what we've been hearing on the ground. So why is COVID-19 still a call out for risk for Q2 demand?

I think that what we were—I don't know that we're talking about consumer demand so much, as the overall environment is still impacted by COVID-19. Our wholesale customers placed orders dramatically down for spring of 2021 because of COVID-19 and the impact that they were seeing in their business. And again, while demand has picked up and the sell-throughs have picked up, we haven't been able to chase into that demand fully because of supply chain disruption, which is also a result of COVID-19 ultimately. And so it's still impacting the overall business in a significant way. Store traffic is still down significantly from pre-pandemic levels. Yes, it's coming back. But I don't think it's accurate to say Q2 of 2021 looks the same way it would if there had been no pandemic.

Got it. Would you characterize the reorders, because I know initial order patterns were weaker at department stores, etc. Have the reorders met your expectations in Q2?

Yes. The demand for reorders has been good. Look, because of supply chain disruption, we haven't been able to capitalize on all that potential reorder business that we otherwise would have.

Totally got it. But can you quantify the supply chain impact in terms of sales for Q2?

Well, as I said earlier, it's very tough, because now you're getting into hypotheticals. Like, if we had delivered the initial orders on time, how much would we have been able to get in reorders and etc. But again, if we think that overall we're estimating $15 million for Q1 I think, it's that much or a little bit more for Q2.

Got it. Thank you.

You have a question from the line of Erinn Murphy with Piper Sandler.

Great. Thanks. Good morning. I wanted to follow-up, Ed, on the fashion conversation. There's been on the apparel side a lot of talk of a change of silhouette in denim. And then clearly when we've seen that in the past, it's reshaped the footwear option. So my question for you is, does dressy—which seems like that's rebounded well—does that continue to work with the silhouette change? Or is there kind of an opportunity for sneakers to continue to accelerate? Just curious on what you're seeing in terms of the next three to six months in terms of the complement of the silhouette?

Yes. Look, I think there's a lot of different categories that we can play in with the new silhouette in denim and bottoms. And so I think overall it's a good thing. We always like a change in silhouette, because it just drives new footwear purchases. But I don't see it resulting in a significant shift in our category-by-category mix linked with that.

Got it. Okay. And then, maybe a little bit on the accessory business. That was definitely a standout this quarter. And I think it grew maybe 4% versus 2019. So do you expect that rate of change versus 2019 to continue in the accessory business here in the second quarter and then throughout the year? And then what are you seeing in price in the category, because a lot of your higher peers in terms of accessible luxury or luxury have been taking price and seeing that stick?

We do feel good about what we're seeing in wholesale accessories and apparel. I think our Steve Madden handbag business is really as strong as it's ever been. And we also had a strong performance in private label there. I will caution folks that I think there was also a little bit of a benefit of some timing shifts in the quarter that helps that segment. Interestingly the supply chain for that particular segment may have actually even helped us in the first quarter, because accessories was in particular where we were able to pull forward a lot of that stuff that we thought was going to go out into April into March. So we didn't really lose much at the back end of the quarter. And in fact at the beginning of the quarter there had been some products that had slipped from December into January because of supply chain disruption. So they may have even been a beneficiary just in that quarter of the supply chain disruption. And then going into Q2, I talked about how some of those private label products that are going to move out the back-to-school sets moved from June to July. So you will see that slowdown considerably. But nevertheless, overall I think the trend there is quite good. In terms of price, taking a little bit of price but not a lot. I think we still want to make sure we're really driving a lot of value in these products.

Perfect. And then just last question if I may. On the GSP, I know it hasn't been renewed and I think you called it out as a 60 basis point headwind just for the second quarter. If it gets renewed, do you take a true-up of the headwind that's been year-to-date? Or how does that work from an accounting perspective assuming it does get approved at some point in the near-term?

Yes. We would be—if it were to be approved in Q2, we would be able to reverse the expense that we booked in Q1.

Great. Thank you and all the best.

Thanks Erinn.

You have a question from the line of Dana Telsey with Telsey Group.

Good morning and nice to see the progress Ed. As you think about the supply chain, we talk about, obviously, the port congestion here in the U.S. on the West Coast. What about from Asia and China, is there any headwinds there to note in terms of getting goods out from over there? And then I have a follow-up.

Yeah. I think we have seen that piece of it get a little bit better. Obviously the shortage of containers was a big challenge and we're starting to see that lessen a little bit or get better I should say.

Got it. And then digital has been an area of strength. Any callouts on digital and what's driving the margins higher? Where could margins go on digital? And how is the cost of digital marketing and the benefits that you're seeing?

I appreciate the question because that's something we're really excited about in our owned and operated e-commerce business. It's been on a very strong trend, and then in Q1 as I said earlier really even accelerated further. Our Steve Madden global e-com business owned and operated was up 112% over the prior year. The team is doing a great job. I think that we've really— we continue to get more efficient and effective with our digital marketing strategies and are seeing really strong return on ad spend in our performance marketing channels. The team is doing a great job of driving that, and also doing really exciting work on the influencer front. The team has taken great items and amplified them with effective marketing. Also some enhancements in terms of what we're doing—enhanced product pages, enhanced collection pages that are driving improved conversion on the site. So a lot of good things happening there. And to your question about margins, the good news is that we're driving all these sales at full price. So we've really had essentially a full-price posture throughout. And that's enabling us to drive really strong gross margins, but it also gives you room to invest more in digital marketing, which then further drives sales. So it's a nice flywheel. In terms of the overall contribution margins, we disclosed on the last call that our company-operated e-com was in the high teens for 2020. And I think we're on pace to do even a little better than that this year.

Thank you. And then just on the retail footprint, any updates on your thought on the retail footprint number of stores openings or closings? And is that outperforming the full line?

In terms of the overall number of bricks-and-mortar stores, I don't think you'll see it change too much. We're going to close a few doors, might open a couple in international markets. So you may see the store count go down by a couple of stores this year, but basically no significant change in 2021. In terms of outlets versus full price, yes, outlet has been slightly better than full price in terms of comp trends.

Thank you.

You have a question from the line of Sam Poser with Williams Trading.

I have a couple of things. Have you changed—has anything happened in your wholesale business from a distribution perspective, who you're selling to, how much you're selling to folks outside of their own categories? Have you made any decisions or are you dealing with retailers that may have just shuttered or just decided to pull all the way back?

No, I don't think there's anything to call out there.

And then we've been talking about the accessories business. Can we talk about the apparel business within accessories and sort of what's going on with that? I mean, you had a little hiccup, but I see a lot of it on your web pages now. You're showing it and you're selling your own product into BB Dakota. Can you talk about what's happening there, the margins of that business and sort of the longer-term outlook for that business?

We feel really good about what we're seeing in the BB Dakota Steve Madden business. In terms of products, it's really all about dresses right now. We're doing very well in the dress category; that category has come back and I think we're really outperforming there in the wholesale channel and on stevemadden.com. We've recently essentially ported over the BB Dakota website onto stevemadden.com, so that's why you're seeing a lot more of that product on our website and we're getting good reaction from the consumer. We're learning a lot more about what the Steve Madden customer really responds to and which parts of the BB Dakota line we should emphasize and lean into going forward. So I'm very optimistic about this business.

Thanks. And then lastly, in regard to your direct-to-consumer business, you said that you think that business can grow—just confirming you think that can grow double-digits versus 2019 in Q2? Is that correct? I believe you said that to a previous question. And the trends are showing that thus far in the quarter I gather as well? And then to your digital marketing evolution, where are you with CRM and tracking customers across channels?

Yes, we believe the Retail segment can be up double-digits versus 2019 in Q2, and the trends are showing that thus far. Regarding digital marketing, one of the things we love about it is how measurable it is and how quickly we can see what's working and correct if something is not working or lean into something that is working. With digital making up the majority of our marketing spend, we're managing it on a daily basis. In terms of CRM activities, it's a work in progress. One thing that we're not doing as well as we could is really tracking customers across our various channels. We obviously know a lot about what our e-commerce customers are doing, but we need to have a better unified database so we can see what customers are doing in stores and online and utilize that information to drive repeat purchases.

Thanks, Ed. Appreciate it. Continue success.

Thank you.

There are no additional questions in queue at this time.

Okay. Great. Well, thanks everybody for joining us. Have a great day and we look forward to speaking with you on the next call.

Thank you.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.