Good day, and thank you for standing by. Welcome to the first quarter Steven Madden, Ltd Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference to Danielle McCoy, Vice President of Corporate Development and Investor Relations. Please go ahead.

Thanks, Norma, and good morning, everyone. Thank you for joining our first quarter 2022 earnings call and webcast. Before we begin, I'd like to remind you that our remarks that follow, including answers to your questions, contain statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to materially differ from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our press release issued earlier today and filings we make with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. The financial results discussed on today's call are on an adjusted basis, unless otherwise noted. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release. Joining 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 Steven Madden's first quarter 2022 results. Before I begin, I would like to acknowledge the devastating war in Ukraine and the heartbreaking humanitarian crisis we are seeing in the region. We at Steven Madden have provided over $500,000 in assistance for the relief effort through cash donations from the Steven Madden Foundation as well as donations of footwear, clothing, blankets and accessories. We will continue to look for ways to help and stand alongside the global community calling for an immediate end to the war. Now moving on to our first quarter results. We got off to an outstanding start to the year, delivering the highest quarterly earnings in our history in the first quarter. Q1 revenue increased 55% and diluted EPS increased 180% compared to the prior year. Overall, these results reflect the strength of our strategy and our team's execution. We are winning with product and supporting that great product with effective marketing, and that combination is driving closer connections with our consumers and increasing brand relevance, particularly for our two largest brands, Steve Madden and Dolce Vita. That, in turn, is enabling success with each of our four key business drivers: First, driving our direct-to-consumer business led by digital. DTC revenue grew over 60% in the quarter; second, expanding in categories outside of footwear like handbags and apparel. Our branded handbag business increased more than 50% and our apparel revenue was up more than 100% in Q1; third, growing in international markets. Our international revenue increased over 60% in the quarter; and fourth, strengthening our core U.S. wholesale footwear business. That business also grew over 60% in Q1. So across the board, we are executing on our key strategic initiatives and seeing the results, and we are confident that our continued focus on these initiatives will enable us to continue to drive top and bottom line growth going forward. So turning to our performance by segment in Q1. Our Wholesale Footwear segment revenue increased 60% compared to the prior year. The Steve Madden brand drove the majority of the growth with strong gains across Steve Madden Women's, Men's and Kids as well as Madden Girl. Dolce Vita was also outstanding, with revenue up over 100% to last year as that brand's momentum continues to accelerate. In international markets, we had triple-digit percentage increases in Canada and Mexico and another strong quarter of growth in Europe. In our Wholesale Accessories and Apparel segment, revenue increased 37% compared to the prior year. Growth in this segment was driven primarily by strong gains in Steve Madden handbags, which is up more than 60% to the prior year, and BB Dakota Steve Madden apparel, which more than doubled compared to the year-ago period. And in our direct-to-consumer segment, revenue increased 61% versus the prior year period. E-commerce continued to account for the majority of our DTC revenue and e-commerce revenue increased 57% compared to last year. Brick-and-mortar revenue increased 64% year-over-year. Overall, we are seeing robust consumer demand for our brands and strong performance across channels, product categories and geographies. Our strategic initiatives are paying dividends, and we are confident that we are well positioned to deliver sustainable growth for years to come. So now I will turn it over to Zine to review our first quarter financial results in more detail and provide an update to our outlook for 2022.

Thanks, Ed, and good morning, everyone. Our consolidated revenue in the first quarter was $559.7 million, a 55% increase compared to 2021 and a 34.6% increase versus 2019. Our wholesale revenue was $449 million, up 54.1% compared to the prior year and up 29% compared to 2019. Wholesale footwear revenue was $346.7 million, a 59.9% increase from 2021 and a 25.4% increase from 2019. These results were primarily driven by strong performance in our flagship brand, Steve Madden as well as in Dolce Vita and Betsey Johnson. Q1 revenue also benefited from a pull forward of orders as some wholesale customers elected to front load deliveries. Wholesale Accessories and Apparel revenue was $102.3 million, up 37.1% to last year and up 43% to 2019. These results were primarily driven by a strong quarter in Steve Madden handbag, which grew 59% compared to 2021 and 70% compared to 2019, in part due to some accelerations of handbag shipments from Q2. The apparel business also saw significant strength, growing triple digits compared to last year. In our direct-to-consumer segment, revenue was $108.3 million, a 60.5% increase compared to 2021 and a 72.4% increase compared to 2019. E-commerce revenue increased 57.5% compared to last year and 244% versus 2019, reflecting strong performance in the Steve Madden, Dolce Vita and Betsey Johnson digital businesses. Brick-and-mortar revenue increased 64.1% to last year or 52% on a comp store basis. Comparing to 2019, brick-and-mortar revenue was up 10.4% or 13% on a comp basis. We ended the quarter with 213 brick-and-mortar retail stores, including 66 outlets as well as 6 e-commerce websites and 19 company-operated concessions in international markets. Turning to our Licensing and First Cost segments. Our license and royalty income was $1.6 million in the quarter compared to $1.5 million last year and $2.5 million in 2019. First Cost commission income was $0.8 million in the quarter compared to $0.6 million last year and $2.4 million in 2019. Consolidated gross margin was 40.7% in the quarter, expanding 220 basis points from the prior year, and wholesale gross margin was 35.2%, a 290 basis point improvement compared to last year, driven by an increase in wholesale footwear. Direct-to-consumer gross margin was 62.3% compared to 63.5% last year, driven primarily by freight pressure. Operating expenses were $133.5 million in the quarter compared to $103.5 million last year. As a percentage of revenue, operating expenses were 23.8% in the quarter compared to 28.7% last year, reflecting expense leverage on the increased revenue and our continued discipline around expense management. Operating income for the quarter totaled $94.4 million or 16.9% of revenue, up from $35.6 million or 9.9% of revenue in the last year, and $45.1 million or 10.8% of revenue in 2019. Our effective tax rate for the quarter was 22.3% compared to 21.1% in 2021. Finally, net income attributable to Steve Madden Limited for the quarter was $73.4 million or $0.92 per diluted share, up from $26.9 million or $0.33 per diluted share in 2021 and $35.1 million or $0.42 per diluted share in 2019. Moving to the balance sheet. Our financial foundation remains very strong. As of March 31, 2022, we had $180.2 million of cash, cash equivalents and short-term investments and no debt. Inventory totaled $233.4 million compared to $106.6 million last year. Inventory continues to be higher than historical levels due to our need to place production orders earlier due to the supply chain disruption and longer transit lead times. But we remain comfortable with the amount and the content of our inventory and our ability to meet our customer-ship windows. Our CapEx in the quarter was $3.6 million. During the quarter, we repurchased $42.4 million of the company's common stock, which includes shares acquired through the net settlement of employee stock awards. The company's Board of Directors approved a quarterly cash dividend of $0.21 per share. The dividend will be payable on June 24, 2022, to stockholders of record as of the close of business on June 13, 2022. Turning to our outlook. Based on the strong start to the year, we are raising our revenue and earnings per share guidance. We now expect revenue to increase 13% to 16% compared to 2021, and we expect diluted EPS to be in the range of $2.90 to $3.

I'd like to turn the call over to the operator for questions. Norma?

This is Brendon Shea I'm on for Paul. I was wondering if you could talk a little bit about recent supply chain developments. Have you seen any changes from recent world events? And what are you expecting near-term on the supply chain front?

Yes. We really have not seen any material change to the supply chain. We're still experiencing extended lead times and transit times, and we're still experiencing quite a bit of pressure on freight. If anything, I think the freight pressure has gotten incrementally a little worse since the last time we were on the call, at least in terms of the impact to our forecast for the year. But overall, no. No material change as of now.

Thank you. Can you discuss whether the wholesale business advanced some deliveries? Did that benefit the first quarter, and do you think it impacted the second quarter?

Yes, there was a shift in the timing of deliveries between Q1 and Q2 compared to our historical pattern. As a result, you will see a slight deceleration in Q2 wholesale revenue growth, although it will still be strong. We experienced a 54% increase in wholesale in Q1 compared to last year. For Q2, you should expect growth in the high 30s.

That's super helpful. And one last one for me. Can you talk about price increases for the second half? And what are you seeing on the cost side and expectations for the second half on product?

Sure. Yes, we continue to see pressure on our costs. There's some pressure on FOB costs based on what's happening with both labor and materials. And then, of course, there's also quite a bit of pressure that we continue to see from freight. So the good news is we've been raising prices. And for the most part, feel very good about our customers' acceptance of those prices. Particularly when we have newness, we're seeing that the customers are not pushing back on the price increases. If the products are what we call LY products, last year's type products, there may be a little bit more resistance, but anything new, we're seeing the customer willing to pay. So for the most part, we're offsetting those pressures with the price increases.

And next question comes from Jay Sole with UBS.

Could you provide some insight on your full-year guidance adjustments, especially after exceeding the consensus by $0.41 in Q1? You're increasing the midpoint of your guidance by approximately $0.17 for the full year. Is there something in the current environment that leads you to believe the second half won't be as strong as you initially anticipated? Or is it simply that your Q1 expectations were conservative, and everything is performing slightly better than you had modeled? How do you see it?

Yes, that's a great question. We definitely had a different perspective on Q1 compared to the Street. Our internal forecast anticipated earnings about $0.20 higher than what the consensus expected for that quarter. You're referring to a $0.41 beat, and approximately half of that discrepancy was due to the variance between the Street's outlook and our own forecast. We also exceeded our internal forecast by around $0.20. As you mentioned, we are increasing the full year guidance by $0.17. It's important to note that part of this increase is due to some earnings pulled forward from Q2. Essentially, we have taken the Q1 beat and applied it to our projections without changing the expectations for the remaining nine months of the year.

All right. Got it. And then maybe if I could ask just another question on the quarter. It seems like there was not just strong trend right product, but a lot of great execution like on social media with marketing. Can you just talk about some of the successes that you had in the quarter, which maybe helped amplify the growth that you had in the business? And maybe talk about what you expect to see as we go forward into Q2 and the rest of the year.

I feel very good about how the team is executing. This applies to Steve Madden, Dolce Vita, and some of our smaller brands like Betsey Johnson. It always starts with product, and the team has done an excellent job of creating trend-right products that resonate with consumers. As you noted, supporting that great product with effective marketing is also a crucial part of our strategy. We've been raising our game in this area over the past few years, especially in digital marketing and the work we do to drive our owned and operated e-commerce businesses. You can see the results not only in Steve Madden but also in the tremendous success of Dolce Vita. Even Betsey Johnson's owned and operated e-commerce is growing rapidly. We are pleased with our execution in this area and will continue to focus on these initiatives.

Our next question comes from Tom Nikic with Wedbush.

I wanted to ask about the gross margin. You had a pretty strong increase in the wholesale gross margin despite freight costs being really, really elevated. How are you able to do that when most other brands out there are seeing a lot of gross margin pressures from freight?

Yes. We saw some nice improvement, particularly in the wholesale really driven by the Wholesale Footwear business, and it was really nice to see it was broad-based. So we were up in the branded business. We were up in the private label business, but we also did benefit from a mix shift because the branded business grew much stronger than the private label business, and that's obviously higher margin. So that definitely contributed to the increase. But look, we've pushed through some pricing increases, and our sell-throughs have been very good. So very limited promotional activity, limited amount of markdown allowances, very limited amount of closeouts. So good full price selling. And that's obviously the biggest driver of gross margin for us.

All right. And just a quick modeling question. I believe when you reported Q4, you said that the 1H versus 2H revenue split this year should be similar to what you had in 2019, I think something like a 48-52 split. Should we still think about that being the 1H-2H split this year?

No, at this point because we overachieved by $0.20 or so in Q1. I think that you're going to see, at least the way we're modeling it now, that it will be more front-half weighted than 2019.

Our next question comes from Laura Champine with Loop Capital.

So a follow-up on that. What would be the reason that you would see a sequential slowdown in the back half, especially if you lap your toughest comp this next quarter? And I think you just mentioned you might be able to grow Wholesale Footwear 30% plus on top of that. So what would drive a big slowdown in the back half?

There are a couple of points I want to make. First, our comparisons for the second half are significantly tougher than in the first half. Second, we have some caution regarding the second half due to various macroeconomic challenges or potential challenges. Our major wholesale customers are adopting a cautious stance for the second half. However, I believe they will be less cautious with us because of our strong performance and the sell-throughs we are generating for them. Still, we recognize the overall caution as we head into the second half. For our wholesale business, we have a solid understanding of what Q2 will look like, and we have a decent sense of Q3, but we lack visibility for Q4, particularly after a very strong Q4 last year. Currently, we are projecting a decrease compared to last year.

Our next question comes from Camilo Lyon with BTIG.

Great job on Q1. Following that thought, I appreciate the comments on the lower visibility as we approach the second half of the year. Can you help us understand your ability to meet more of the in-season demand that you typically prepare for? To rephrase, you have been advancing much of the production due to the supply chain issues everyone has faced, which has been effective in gaining more shelf space and market share. Is this limiting your ability to fulfill in-season orders? If a cautious ordering pattern develops for the second half of the year and demand remains strong, do you have the capability to meet that demand?

Yes. Well, look, given the supply chain disruption, we don't have the same ability to chase goods in season that we normally do. I won't say we don't have any ability to do that. I still think that we have an advantage against our closest competitors in our speed to market and in our ability to work in season. But certainly, it's not the same capability that we had when we had shorter lead times prior to the pandemic. So that does create a challenge. Again, in fall, in particular, we do a lot out of Mexico, which does help with regard to chasing in season. But part of what you're seeing here is that we do need to get more of the orders upfront. And fortunately, we're doing that.

And so then the follow-up to that is, I think last year, you talked about switching 50% of your Madden production to Mexico and Brazil. Is there an intent to increase that percentage to both of those countries?

There's definitely a long-term goal to continue to move more production out of China and into countries like Brazil and Mexico. You're not going to see us get past that level this year.

Okay. Got it. I apologize if you've already addressed this, but have you discussed or are you experiencing any impact to your Chinese manufacturing facilities from the COVID shutdowns?

So far, we have not seen any material impact.

Our next question comes from Marni Shapiro with The Retail Tracker.

This is Marni. Can you guys hear me?

Yes. we can.

Congratulations. So a couple of very quick questions. Could you talk a little bit about REBOOTED? I know it's very early, but have you seen good response to the launch? And how are you marketing it? Is it getting out there? Are people learning about it? And then could you also talk a little bit about your private label business? Your core business has been so strong. Your products are in prime positions in all of the key department stores. So are you seeing increased interest from other retailers of their people to do private label, again, things like that?

Sure. The first topic is REBOOTED, which is our resale marketplace on Steve Madden, and we also have a similar initiative called re:vita for Dolce Vita. We're off to a positive start, and it's encouraging to see our customers responding to our sustainability efforts aimed at reducing landfill waste and extending product lifespans. This initiative represents an essential first step towards circularity, a necessary direction for the fashion industry to minimize its environmental footprint. We're optimistic about it, and it seems to resonate with both our customers and employees. While I don't anticipate it becoming a significant revenue generator in the short term, it is gradually growing as we continue to add more products each week. We're committed to supporting this initiative. Regarding our marketing efforts, we have shared some information and sent emails, but we haven't done extensive marketing yet. Given the initial success, we plan to enhance our marketing efforts moving forward. As for private label, we are exploring a few additional accounts, but expanding this area isn't a central focus of our strategy. The bulk of our private label revenue still comes from a few major mass merchants, and we will continue to prioritize this business while being selective about new private label opportunities that align with our goals.

That makes sense. Can I just do one quick follow-up on REBOOTED? Do you take ownership of the merchandise back from your clients? Like do you do you buy it back? What does that look like? What does that transaction look like?

No.

Okay, you don't.

No. We do not.

And so when somebody sells something, say, I have a Steve Madden shoe that I want to sell a big flip flop, I post it through you. How do you vet them so that you know it's safe and secure for the people who are then buying it? Or does somebody host the platform for you?

Hosting the platform, I had to talk to our team about how they're managing that. I'd have to get back to you on that.

The assortment looks outstanding. Best of luck for the summer season.

Our next question comes from Sam Poser with Williams Trading.

I've got a few. Ed, you mentioned that the consensus numbers didn't quite match yours in the first quarter. So I'm going to ask for a little help, so we make sure we could match yours or at least get close to yours going forward. So first of all, on the prior call, you called out that the DTC growth would be mid- to high-single-digits with double-digit e-commerce growth. Wholesale to be up low-double-digits, flat gross margin and flat SG&A. What does that look like now? And can you give us some idea of some number we should be looking at? What kind of increase we're looking at again in Q2 in total, just to help us out so we can all sort of get aligned to you?

Sure. So in terms of the annual revenue growth by segment. So Wholesale, we've taken up our expectations for both Wholesale and DTC compared to the numbers that you quoted last time. So I would say Wholesale now we're looking more at, let's say, mid- to high-teens versus 2021. And DTC high singles at the midpoint, maybe getting to 10% at the high end of our guidance. Gross margins still looking at flat. And then did you ask about SG&A as well?

Yes.

SG&A as a percentage of revenue, we were at flat before, maybe now we're flat to maybe very modest leverage, 10 basis points or something at the higher end of the guidance. And then in terms of Q2, I already gave you help on Wholesale revenue growth, sort of high 30s. DTC, obviously, very tough comparisons there. Going up against the impact of stimulus from a year ago and the big pop that we saw in that business. So in DTC, we'd be happy to get to flat versus 2021 for Q2.

Got you. You mentioned the timing of orders and price increases. I believe you previously stated that your usual shipping time is around 40 days, but it has extended to 70. What does the current situation look like? Additionally, are you encountering any issues with production in China? What specific challenges are present regarding the factories and the supply of materials necessary to produce goods? How does the overall process—from product manufacturing to transportation—appear at this time? Is any part of that improving, or is the lockdown exacerbating the situation?

Yes. So I'll take the transit first. You asked about 70-day transit times. Yes, that is still what we're experiencing, and that's actually up from more like 30 days on a normalized basis. So still more than double the amount of time that it's taking to get us the product. In terms of factory delays, have we had some issues here or there? Yes, but there really haven't been any material issues in terms of factory delays so far, but it's something we'll obviously have to watch carefully going forward. And obviously, with the zero-Covid policy in China, there's always a risk that there is some impact there going forward.

Our next question comes from Dana Telsey with Telsey Advisory Group.

Congratulation on the great performance. Just a couple of things, can you talk about category performance? What you saw in the different categories and the outlook going forward. The magnitude of the price increases, does it vary by category and what are you looking at going forward in price increases? And international how did performance play out there? And is there any update on GSP?

The first question was about category performance, specifically within footwear. We're experiencing significant success with the '90s and Y2K trend, which spans across various categories. This includes platforms, block heels, big bottom sneakers, and loafers that align with that trend. The second question addressed the extent of price increases, which indeed varies by category and price distribution. Private label products tend to have lower price increases compared to branded ones. Generally, we're looking at a price increase range of 5% to 12% across our products, with Steve Madden likely falling at the higher end of that range. Regarding international performance, we've seen very strong momentum overall, especially in Europe, which has been outstanding. We expect that business to grow over 30% this year compared to 2021. Zine, you can take the last question.

Sure. The only update on the GSP since we last spoke is that the leadership conference committee, which consists of negotiators working to reconcile the House incentive versions of the competition and innovation bill, was announced on April 7, 2022. This conference includes 26 senators, evenly divided, and 81 representatives, with 50 being Democrats and 31 Republicans. They will be assigned to subcommittees focusing on science, foreign affairs, energy, commerce, and tariffs. We hope that upon returning from their state work, expected this week, this will be their top priority, as indicated by discussions from leaders of both parties regarding the USICA and the America COMPETES Act. Although the outlook seems positive, it appeared positive before as well, and we haven't witnessed significant movement yet, but this time they appear to be committed. To remind you, the annual impact factored into our forecast is about the same as last year. There hasn't been much effect on gross margin compared to 2021, but it's still approximately 50 basis points when compared to 2019.

Our next question comes from Susan Anderson with B. Riley.

Great job on the quarter. I was wondering if you could maybe just talk about the promotions. Obviously, the market has still been pretty lean. Just curious if anything was layered back on versus those lean levels last year? And then how you're thinking about it for the rest of the year?

Yes. So in Q1, you're right. We did have very controlled promotional activity. As we look out, we do see some more promotional activity out in the market than we saw last year. It's certainly not back to the levels that we saw pre-pandemic. But I think we all recognized last year it was very low in the market overall, and we have seen an uptick there. So we've built a little bit of that into our forecast, just given the consumer demand for our brands and our products. We don't anticipate having to resort to a lot of promotional activity, but we do think it will be a little bit higher than it was in 2021.

Great. And then just on the apparel front, it looks like that was pretty strong in the quarter. I guess now that we're kind of past COVID and we're returning to some more fashionable apparel and everything. Maybe if you could just give some color on how you're thinking about that business and maybe where you're thinking about it longer term?

Yes, we are thrilled about the potential we have in apparel. I mentioned previously that we expect this business to grow nearly 50% this year compared to 2021. This fall, we will be transitioning to solely using the Steve Madden label. Previously, we had been using the co-branded label BB Dakota Steve Madden, but now we will focus exclusively on Steve Madden. We have received very positive consumer feedback regarding this brand change and the fall line, and we are quite optimistic about this segment. We continue to see good sell-throughs this spring, particularly in the category with many maxi lengths performing well. Our prints are also doing exceptionally well across various silhouettes, and we have introduced a lot of vibrant colors that are resonating well with customers. We are really excited about the opportunities in this area.

And currently, I'm showing no further questions in the queue at this time. I'd like to hand the call back to Mr. Ed Rosenfeld for closing comments.

Great. Well, thanks so much for joining us, everybody. We look forward to speaking with you on the next call. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect. Everyone, have a wonderful day.