Megan Crudele - ICR, LLC. Edward Rosenfeld - Chairman & CEO Derek Browe - Director, Finance & IR.

Camilo Lyon - Canaccord Genuity, Inc. Jay Sole - Morgan Stanley & Co. LLC Tom Nikic - Wells Fargo Securities LLC Erinn Murphy - Piper Jaffray & Co. Randal Konik - Jefferies Corinna Van der Ghinst - Citigroup Global Markets, Inc. Scott Krasik - Buckingham Research Group, Inc. Samuel Poser - Susquehanna Financial Group LLLP Jeffrey Van Sinderen - B.

Riley & Co. LLC.

Good day, and welcome to the Steve Madden First Quarter 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Megan Crudele. Please go ahead..

Thank you. Good morning, everyone. Thank you for joining us today for the discussion of Steve Madden's first quarter 2017 earnings results.

Before we begin, I'd like to remind you that statements made on this call that are not statements of historical facts constitute forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties and other unknown factors that could cause actual results to differ materially from historical facts for any future results expressed or implied in the forward-looking statements.

These statements contained herein are also subject to the risks and uncertainties as described from time to time in the company's reports and registration statements filed with the SEC. Please refer to the company's earnings release for information on the 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. Hosting the call today are Ed Rosenfeld, Chairman and CEO of Steve Madden; and Derek Browe, Director of Finance and Investor Relations. I'll now turn the call over to Derek..

Thanks, Megan, and good morning, everyone. Before I turn the call over to Ed, I'd like to note that the financial results presented below are on an adjusted basis unless otherwise noted. Please refer to our press release for a reconciliation of GAAP to non-GAAP financial measures..

Thanks, Derek. Good morning, everyone, and thank you for joining us to review Steve Madden's first quarter 2017 results. We got off to a great start to 2017 with net sales growth of 11% and adjusted diluted EPS growth of 20% compared to the year-ago period.

These results, achieved despite a challenging retail environment, are a testament to the power of our brands, the strength of our product assortments and the durability of our business model.

Our wholesale footwear business recorded outstanding financial performance in the quarter as our trend-right collections enabled our brands to outperform the competition. Our core Steve Madden Women's business was again the highlight.

Steve and his design team continued to hit the ball out of the park with the Steve Madden collection, creating trend-right footwear that is resonating with the consumers, and in turn, enabling us to take market share at our key wholesale customers.

While Steve Madden Women's was the largest growth driver in the quarter, the rest of the Steve Madden brand family also performed well. Steve Madden Men's, Steve Madden Kids, Madden Girl and Steven all achieved double-digit percentage sales growth in Q1.

We believe this performance, achieved despite shrinking overall open-to-buy budgets at many of our largest wholesale customers; demonstrate that our flagship brand is stronger than ever. And the rest of the brand portfolio had nice momentum as well.

Our newer brands, Dolce Vita and Blondo, grew double digits in the quarter and so did brands that have been in our portfolio longer, but have recently seen a reacceleration, including Betsey Johnson, Superga and Report. Our international business also had a double-digit increase. Our new joint venture, SM Europe, was the standout.

Like consumers in the U.S., European consumers are responding very favorably to the Steve Madden footwear collection, and results in the JV are trending well above our initial expectations. Our performance for the online wholesale customers like Blondo is particularly strong.

Looking forward, we are very excited about the growth potential with SM Europe as we further expand our presence and raise brand awareness in the region. We also continue to work on finalizing a new joint venture for China and remain hopeful that we will be able to begin conducting business in China under the new JV in the back half of 2017.

In addition, we are also in discussions with respect to potential joint ventures and/or distributor relationships in other countries in Asia. We'll continue to keep you updated throughout the year on how these discussions develop.

We are also off to a good start with our newest acquisition Schwartz & Benjamin, which made a slightly above planned sales contribution of approximately $14 million in the quarter.

The integration process is moving along well and on-schedule, and while we expect the transaction to be approximately breakeven to EPS this year, we are confident that Schwartz & Benjamin can be a meaningful profit contributor in 2018 and beyond. First quarter also saw us launch a new brand which is exclusive to Kohl's called Madden NYC.

The brand is available in about 450 Kohl's location and on kohls.com, and the offerings include shoes, accessories, active wear and outerwear. We're off to a very good start with strong initial sell-throughs, particularly in the footwear category.

While Madden NYC made only a modest sales contribution in the quarter, the strong early performance at retail gives us confidence this can be a meaningful growth vehicle going forward.

Our wholesale accessories business also recorded strong growth in the quarter, driven by double-digit percentage sales increases in our Steve Madden, Betsey Johnson and private label handbags. While the handbag category, overall, remains challenging, we are pleased to see improved traction and renewed momentum in the category with our brands.

Finally, in our retail segment, sales were down slightly for the quarter. Comparable store sales declined approximately 6% against the 10.7% increase in last year's first quarter. The 6% decline includes an approximate 200 basis point combined negative impact from the Easter shift and extra day last year due to the leap year.

At the end of 2016, we made the strategic decision to clear slow-moving retail inventory through the wholesale channel, so we entered 2017 with significantly less marked down inventory in retail than we had the year before. We also made a concerted effort to take a less promotional stance, overall, in our retail stores and on stevemadden.com.

We reduced the level of promotions and also how we communicated our promotions, moving to fewer big sale signs and more lifestyle imagery in the front windows of our stores. With Steve Madden performing so well in the highly profitable wholesale channel, we wanted to heighten our focus on protecting the brand positioning.

While we are confident this was the right decision for the brand and company, overall, it did have an impact on the retail comp, particularly in the highly promotional environment we saw in Q1. Good news is that it also drove a 250 basis point increase in retail segment gross margin.

We are also encouraged that retail comps have improved in April even after adjusting for the Easter shift. Overall, we are very pleased with the momentum in our business, but we remain cautious on the overall retail environment and are planning our business accordingly.

That said, we are confident that we are well positioned to continue to outperform the competition and to meet our sales and earnings targets for 2017. With that, I'll turn it over to Derek to review our financial results in more detail..

Thanks, Ed. We are very pleased with our robust financial results for the first quarter. Our consolidated net sales increased 11.2% to $366.4 million, compared to prior year net sales of $329.4 million. Excluding the impact from the Schwartz & Benjamin acquisition, consolidated net sales increased 7%. Our wholesale segment led the way.

Wholesale footwear net sales increased 14.2% to $261.4 million. Excluding the impact of Schwartz & Benjamin, wholesale footwear net sales increased 8% led by the strong growth in a number of our branded businesses, most notably our core Steve Madden's Women's business.

Our core Steve Madden Women's business continued to be fueled by newness in various product categories and great selling of key replenishment styles. Sneakers, full-sized mules and items with embellishment have the strongest performance during the quarter.

Hampering our wholesale footwear growth in the quarter was an expected decline in our private label business. In wholesale accessories, net sales increased 10.8% to $52 million.

As Ed mentioned, we were pleased to see growth in our handbag business with Steve Madden, Betsey Johnson and our private label handbags all performing well with key customers during the quarter. In our retail segment, net sales decreased 0.9% to $53.1 million, our same-store sales decreased 6% against the tough 10.7% increase last year.

During the first quarter, we opened one full-price store and one outlet store location and closed one full-priced store. We ended the quarter with 190 company-operated retail stores, including 53 outlets and four e-commerce sites.

Turning to other income; our licensing royalty income, net of expense was $2.4 million in the quarter, compared to $1.6 million in last year's first quarter, while first cost commission income was $1.5 million, compared to $0.6 million or $600,000 last year. Our gross margin was also a highlight for the quarter.

Gross margins expanded 130 basis points to 36.6%, compared to 35.3% in the prior year. This expansion was driven by increases in both our wholesale and retail gross margins. Wholesale gross margin increased to 32.8% for the quarter, compared to 31.2% in the prior year quarter.

The 160 basis point improvement was driven by a strong performance in wholesale footwear which benefited from sales mix and our on-trend product assortment. Retail gross margin was 58.7%, compared to 56.2% last year.

And as Ed mentioned, we were less promotional during the quarter and we cleared out slow-moving inventory during Q4 of 2016, both of which led to higher margins. Operating expenses for the quarter increased to $98.4 million or 26.8% of net sales, compared to operating expenses of $88.5 million or 26.9% of net sales in the same period last year.

Operating income for the quarter totaled $39.5 million or 10.8% of net sales, compared to last year's first quarter operating income of $29.9 million or 9.1% of net sales. Our effective tax rate for the quarter was 30.7%, compared to 19.6% in the same period last year.

The prior year tax rate included a benefit of $3.7 million resulting from exercising and investing of share-based awards. Finally, our adjusted net income for the quarter was $27.5 million or $0.47 per diluted share, compared to $23.9 million or $0.39 per diluted share in the first quarter of 2016.

Moving to our balance sheet, which has remained strong; as of March 31, 2017, we had $193.2 million of cash and marketable securities and no debt. Inventory totaled $97 million, compared to $80.4 million in the prior year. Excluding inventory related to Schwartz & Benjamin, inventory was $88.9 million or up 10.6%.

The increase in inventory was primarily related to Steve Madden Women's wholesale business which has seen significant sales growth, and our retail business which has more inventory due to the amount of stores in our portfolio this year versus last year.

Our consolidated inventory turn for the last 12 months ended March 31 was 8.1x, and our CapEx in that quarter was $3.3 million. During the quarter, we repurchased approximately 912,000 shares for approximately $33.2 million which includes shares acquired through our net settlement of employee stock awards.

Now turning to guidance; for the full year 2017 we continue to expect our net sales growth will be 8% to 10%. We expect that diluted EPS for the year will be in the range of $1.97 to $2.03 on a GAAP basis.

Excluding one-time expenses related to the acquisition of Schwartz & Benjamin as well as the Payless bankruptcy which are outlined further on our press release, we continue to expect that diluted EPS will be in the range $2.12 to $2.18. Now I'd like to turn it over to the operator for questions..

[Operator Instructions] We'll go first to Camilo Lyon with Canaccord Genuity..

Thank you. Good morning guys, great quarter. Ed, I was hoping you could just speak about what do you think is driving your performance at wholesale; clearly, it's a pretty fantastic number in a tough retail environment.

And then if you could just help us understand what are you thinking about that core Steve Madden Women's business as the year progresses because it seems like your comparison may ease a little bit, you're not really embedding any sort of acceleration in that core business?.

Yes, in terms of what's driving the performance, really, I think its product.

We've really just nailed the trends in Steve Madden and we've had a few seasons in a row now of real strong outperformance versus the competition in terms of sell-through, and the product looks great, it's performing across a range of categories, Derek called some of them out, but sneakers, mules, full slides, anything with sort of novelty like pearls or embroidery; so we've got a lot of different trends working, and it's enabling us to -- despite the fact our wholesale customers, many of them are shrinking their overall budgets, they're -- we're taking share and growing and achieving that.

In terms of the comparisons for Steve Madden Women's throughout the year, they actually do get tougher in the back half. We were up -- we were at mid-to-high singles in Steve Madden Women's wholesale footwear in the first half last year, and then we were up mid-to-high teens in the back half last year.

So we have assumed based on that that the growth of that business moderates over the course of the year..

Okay, got it. And as you think about the back half and the composition of boots, clearly, that's been a declining category for the past few years, [indiscernible].

Is there any sense of how the current trends will -- could overtake the category or offset some of those declines that seems like you're embedding into your business?.

Yes, I mean we've got a lot of product categories working as I mentioned, and many of them can continue or evolve into fall; Sneakers, obviously, being one that comes to mind immediately. But to your point, we don't know yet what the boot season is going to look like.

And that is one that initial indications are retailers are going to be planning conservatively..

Great. And then just -- with this performance out of Q1 being so strong, how does this impact the reorder picture for Q2? You did mention that you assumed the pickup in your retail comps.

Now in April with the Easter shift having basically come and gone; is that something that the wholesalers are also benefiting from? And giving -- given that dynamic, is that also beneficial to the reorder composition of order book this year versus last year?.

Yes, certainly. If we focus on Steve Madden Women's in particular, the sell-through has continued to be very healthy so far in spring. And our reorder activity looks very good and we expect that to continue to look good into Q2..

Great. And then just finally for me, just on gross margin; you had a really good performance overall, obviously, it's a good retail contribution as well as wholesale. This give us a little bit of an outlook on how do you think that unfolds throughout the year.

I think that on the prior calls you talked about a little bit of a drag with Schwartz & Benjamin becoming a bigger full quarter composition of that dragging that business down but is there an opportunity for the gross margin expansion given what we saw in the first quarter?.

I don't think you'll see the same level of gross margin expansion going forward that we saw in Q1. For the full year, I think that on a consolidated basis, you should be looking for very modest gross margin expansion, maybe up 10 basis points. Keep in mind that that includes about a 70 basis point negative impact from Schwartz & Benjamin.

So excluding the acquisition, we're looking for gross margin for the year to be up about 80 basis points. The reason it will slow or you won't see the same level of expansion going forward is really a function of mix because as you point out, you will have a full quarter of Schwartz & Benjamin going forward so that drag will be greater.

And as I said, the drag for the full year is about 70 basis points, I think it was only 30 basis points in Q1.

And then the other thing is that within our wholesale footwear business, we just had a really wide gap between branded wholesale footwear growth which was very strong and private label wholesale footwear growth which was significantly negative and while that will continue to be -- while branded will be continued to do better than private label for the balance of the year that gap will not be as wide going forward..

Got it. Sounds great, all the best to you in the coming quarters..

Thanks, Camilo..

We'll go next to Jay Sole with Morgan Stanley..

Great, thank you. And I wanted to just follow-up on -- you mentioned private label.

Can you tell us how big that business is now? And what the main channels that business primarily plays in?.

Yes, I think private label, Derek may correct me, but it's about a quarter of the overall business now. And big customers there are really the value price retailers. Folks like Target, ALS, Wal-Mart, Kohl's, etcetera..

Now is that percentage that you gave, that's just for the wholesale footwear segment or is that for the total Steve Madden enterprise?.

That's consolidated..

That's consolidated.

When -- if -- of that Palis piece, how are you approaching that situation given news around Palis that there has been over the last couple of weeks?.

Well, we are moving forward with them. Obviously, the business is down quite a bit in 2017 compared to where it was before but we're going to continue to do business with them. And they plan to reorganize and they are mainly an important customer for us..

Okay. Can you talk about just orders overall relative to the rate of sell-through? I know the question just came up in the last person to ask the question. But last year was really about retailer strength to operate with less inventory given just such a by now where now environment.

Is that still happening or are you seeing the rates -- the order rates normalize?.

Say that retailers are continuing to try to work closer to season and to place fewer orders upfront and to chase more goods in season. But the one good thing that's happened for us is that last year many of our key wholesale customers were dramatically under inventoried in Steve Madden Women's.

And we're -- and I think now they've really reacted to the strong sell-through performance and that's what you're saying reflected in the greater shipping numbers that we're seeing particularly in Q1..

Okay, got it. And then maybe one last one for me; just thinking bigger picture and taking a step back. As -- you know, you see obviously online growth continue to take the biggest piece of the overall industry growth and mall traffic continue to slide.

Does this change your view about three years from how you want to be -- how your footprint from a distribution standpoint should look or how you want to target customers?.

Sure. I think that we always have to think about how the various distribution channels are growing.

And we want to be where the customer wants to shop and that's why you've heard us talk about quite a bit on these calls recently but the emphasis that we've put on growing with folks like Amazon and Zappos, Zalando in Europe; and of course we're -- we also do big business and some of the off-price that are also continuing to grow.

So we're going to always be monitoring which distribution channels are expanding and make sure that we're aligned with them..

Okay, great. Thanks, Ed..

We'll go next to Tom Nikic with Wells Fargo..

Good morning guys, thanks for taking my question.

I wanted to ask about the performance on retail in Q1 and how you maybe sacrifice a little bit on the top line with the less promotional stance that you took to drive higher gross margins? Is that something that you think will persist as the year goes on and we should think about really strong gross margin performance and retail and perhaps not as much top line growth? Or was it kind of isolated to Q1? Thanks guys..

Yes, I don't think the impact will be quite so dramatic going forward but I will say that we are committed to taking less promotional stands in our retail stores.

And as I mentioned in the prepared remarks, the brand is performing so well in wholesale, which is such a profitable channel for us that we really want to continue to focus on protecting and elevating the brand image and the store.

And of course, we have to balance that with driving sales and profitability in the retail stores and we'll focus on doing that. But we are going to continue to try to be less promotional where we can..

Got it. And just a quick follow-up, as long as I'm speaking about retail.

I'm sorry if I missed it; did you say your store opening and closing plans for the year?.

Derek can address that..

Yes, we didn't -- but we mentioned that during the quarter we had opened one full price offset by a full price closure, and then in outlet we opened one quarter. But as we look at the full year, I think you will do about in total seven to eight outlets and full-price will be net six or seven for the year..

All right, sounds good. Thanks guys, best of luck for the rest of the year..

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

Great, thanks, good morning and nice quarter.

A couple of questions for me, I guess just moving back to the North American wholesale piece; the 8% organic growth, I'm curious if there is a way to parse out how much of that growth came from phase gain with an existing account with a higher velocity or productivity of an existing account versus new accounts altogether like your Kohl's relationship?.

Almost all of it came from existing accounts..

Okay. And so just….

The Kohl's thing was really the only thing I can think off that was new and that was very small..

Okay, got it. And then I was curious if could shift gears and talk more about Amazon overall.

I mean can you speak about kind of the private label opportunities there? I know you have a very -- increasingly bigger business there on the branded side, but any thoughts about deepening the relationship to balance private label there?.

Yes, look I think our focus with Amazon is continued -- is going to continue to be branded. One of the nice things about Amazon is that we can sell them pretty much the entire brand portfolio because they have consumers that buy expensive products and expensive products and everything in between.

They are talking about going into making a private label push and footwear and that's something we're discussing with them but it's very early and there is not much I can say about it now because there is not much that has happened. And I want to stress that branded will continue to be the focus there..

Okay. And then maybe just shifting across the pond to SM Europe; can you just remind us what's the size today? I mean that seemed like a pretty positive call out earlier on your remarks.

And then how big should that business be overtime? And then maybe just talk more about your key accounts there; you referenced Blondo but what other key accounts are you really working to grow with scale in Europe?.

Yes, we have not broken that out in terms of what it's doing today, so I don't think we're going to provide that information. In terms of what it could be, but it's so early. I mean we're not even a year in here.

I think that we clearly see the brand resonating -- we clearly think there is a big opportunity there but it's a little too early to try to size that for you..

Are you in -- I'm sorry..

I'm sorry, in terms of where we're doing well, I mentioned the online things; Blondo being the biggest but you've got surround Surrends [ph], you've got Amazon Europe, you've got some other accounts that are important there. And then, of course, we're selling into as well as department stores and specialty stores and a number of these markets; U.K.

is important, Germany, getting going in France, Scandinavia, Eastern Europe. So we're just starting there though, we're really scratching the surface..

And are you guys in ASOS as well when you think about just the pure play e-tailers overall in Europe?.

Yes, I should've mentioned that. Thank you..

Got it.

And then just last question for me; on Schwartz & Benjamin, it was a little bit better in the quarter I think on the top line, and you referenced still breakeven for the year, I guess how quickly can that ramp to profitability beyond 2017?.

We expect a nice profit contribution in 2018. Again, not provide -- we're not ready to provide details on that right now. We'll be able to talk about that in the back half of the year once the integration is complete. But certainly, 2018 it should be a profit contributor..

Okay, thank you guys. Best of luck..

Thanks..

We'll go next to Randy Konik with Jefferies..

Great, thanks a lot. Ed, just wanted to ask about the pendulum of upfront versus in-season buying from the wholesale partners.

How much do you think that pendulum will continue to swing more towards in this season? And how are you guys thinking about morphing the supply chain to -- or inventory management's kind of accounts for the securities on -- how you're thinking about that over the next four to six quarters? Thanks..

Yes, look, I don't think the pendulum can swing too much more from where it is because I think that they're going to be -- the retail should be in danger of running out of goods and not being able to fill up their stores. So I think that -- I don't expect it to -- I think it's moving in a considerable way already.

I don't know if there's a heck of a lot more room to move further. In terms of the supply chain, look, we're always focused on how to get faster. But as you know, that's really our competitive advantage at Steve Madden.

That's something we been doing for a very long time is that we have this sort of industry-leading speed to market capability and we've been -- what's really happening there is certain movingly in the model that we've been doing a long time because we've been working close to season for many, many years.

And so in some cases, it's really the rest of the market moving towards our model..

Got it. And then can I ask on the -- you gave a gross margin guidance for the balance of the year up a little bit more moderate from the great performance in the first quarter.

If you'd -- in terms of thinking about the gross margin expansion trend in retail versus wholesale, should we be thinking that the -- given that you want to be less promotional in the retail, that we should expect the majority of the overall company gross margin increases in the balance of the quarters of the year come mostly from wholesale versus retail to protect that promotional stance or lack thereof in the retail channel? Just curious..

Honestly, I think it will be pretty similar. I think that both wholesale and retail were moderate in terms of the level of expansion from where they were in Q1. Keep in mind, the other thing that happened in retail that we talked about in the last call was that we had cleared out a lot of the excess inventory in Q4 so we came into Q1 unusually clean.

And so that's a little bit of -- something that's not going keep -- that was sort of a onetime impact to Q1 retail gross margin..

Got it. I guess my last question; did you clarify, I think in the remarks you said that the April business got better from the first quarter rate.

Did you quantify -- did that business just get less negative or turn positive? And on that note, how should we just be thinking about the comp composition basically for the balance of the year? Should we be thinking up, flat, negative? Just trying to catch some sense and how you're thinking about that channel distribution.

Clearly the wholesale business is performing very nice, I'm just curious on how you're thinking about the top line given that you're going to be less -- you want to be nicely lack of -- not promotional in the retail channel. Thanks..

Yes. Unfortunately, it's really [indiscernible] not to provide the quarter-to-date comp or comp guidance. We did sort of try to give you little help in saying that April had gotten better. We wanted to point that out because it is markedly better than the trend in the first quarter. Of course you do have the benefit of the Easter shift there.

But even as we said, excluding that, we've seen a nice improvement but we're not going to quantify that..

All right.

But just to clarify, should we be expecting a little bit more promotional stance in the balance of the quarter to pick it up -- trying to tick up further? Or do you want to kind of keep the promotional -- lack of promotional posture you have in the first quarter in the balance of the year?.

We'll be less -- the plan is to be less promotional than we were a year ago but the differential from the prior year will probably not be as great as it was in Q1..

Got it. Very helpful, thank you..

We'll go next to Corinna Van der Ghinst with Citi Research..

Thank you. Hi, good morning gentlemen. I was wondering if you could -- just if we could start with the retail comp decline as well.

Maybe you could give us a little bit more color just on what you're experiencing in terms of conversion rates and traffic and international tourism since it sounded like it was getting maybe a little bit better when we saw you in March?.

Sure. In terms of the metrics, traffic was down, conversion was up, as we've seen for a number of quarters in a row. But the AUR was down about 6%. Really, units were flattish and AUR was driving the comp decline and that's really a function mix. Boots is still an important category in retail. In the first quarter, we were down in boots.

We were also down in dress shoes. Last year we were selling a lot of expensive dress shoes and this year, we're selling a heck of a lot more sneakers and pool slides. As we go forward, fortunately, I don't think that AUR impact will be as significant. I think AUR is still expected to be down in Q2 but probably cut that 6% in half, maybe a 3% decline.

So that should help. In terms of the tourist market, unfortunately, that continues to be a drag. You're right that we saw some signs of improvement, but frankly then we slid back a little bit. And overall, again in New York City, we were down about 1,000 basis points from the rest of the chains. So that continues to be a bit of a headwind..

Okay, that's helpful.

And did you guys say what's the e-commerce growth was in the quarter? Was that also negative?.

We did not say. But yes, it was modestly negative at much higher margins though..

Okay, so are you seeing a similar trend then just in terms of the lower promotional stance if that what's driving the decline there?.

Yes, yes. But I just want to point out, in the case of e-commerce the gross of profit dollars were up significantly because we were way less promotional online..

All right, okay.

And then just in terms of the cost decline, I think you've explained it pretty clearly, but does this say anything about the fashion cycle -- I mean, where do you guys kind of think that we are in the fashion cycle at this point of the year after several quarters of pretty strong merchandising strength?.

I still feel good about the level of newness. We're still bringing in a lot of with newness and we have a lot of different categories working and the customer is still responding to it. The sell-throughs in wholesale are still very strong and in retail we have a lot of things working too.

The AUR really hurt us in retail, that's much harder to overcome in retail than in wholesale. In wholesale, we had an AUR decline as well but we had our wholesale customers expanding the assortment that they bought from us and buying deeper. Obviously, we can't take market share on our own retail stores, we already have 100% market share.

So that AUR decline is tougher to overcome. But as I said, I think you'll see the retail get better as well..

Okay, great.

And then if I could just squeeze one last question in on China, and I know you've talked about it in the past, but maybe could talk a little bit about what your brand awareness looks like there today? What gives you confidence that is kind of the right time to do the joint venture? And maybe why do you do it earlier in the process?.

Yes, yes. I think we've got a pretty good positioning of the brand in China. I have to say that our former distributor who was our partner for -- actually I want to say eight years or so really did a good job in positioning the brand, creating brand awareness and really brand affinity in the market.

And I think as we've talked about before when we went out to canvass the market for joint venture partners, we've -- we got tremendous interest and reception from basically everybody that we talked to. And that's because the brand does have -- we're not starting from scratch there, we really have a nice positioning already.

So we feel very good about that and we're excited; just an update on what's going on there, we do have the signs that are intended with a JV partner, we're working on the definitive agreement, hope to have that sound real soon. And as I said, the start filling some shoes in the back half of 2017.

In terms of why we didn't do it earlier, we had a distributor relationship that we were pleased with. The partner did do a lot of things very well. And at this point, we really think that now is the time and that's why we've elected to make this change..

Okay, great. Thank you so much..

We'll go next to Scott Krasik with Buckingham Research Group..

Hey guys, nice quarter. Just interesting following up the mules on the slide, obviously, a lot of momentum with the softy; I'm just wondering, you're bringing back the slinky.

Is that a big deal? Like is this something that wholesale is really committing to? Or is this just sort of a fast idea because it was obviously a big shoe for you in the past?.

Yes, we'll see. I mean I think there is a lot of interest in sort of '90s revival type products and we actually had -- when I came in this morning, I said we had a huge day in demand on our website for the slinky yesterday.

So there is definitely some excitement around that particular iconic product and we'll see what happens but it's a little too early to say..

Is wholesale -- are you offering it as a wholesale or placing orders?.

Yes, but it's not significant right now. But we'll see what happens..

Okay.

And then did you say in total what international was as a percentage of sales and how much it grew?.

I don't think we did but it was up about 12%, 12.5% overall and somewhere between 9% and 10% of overall sales..

Okay. And then the Asia JV, you think you'll begin to sell product in the second half of the year. I don't think that was in your original guidance.

Does that change any of the line items?.

Yes, well we have not -- we hope to begin. Obviously, we have to finalize this JV agreement. So -- because that's not final, we have not included anything in the guidance..

If it goes off as planned, would it be material this year? Or....

Certainly not to profitability, no. It might help sales a little bit but it's not going to be a significant profit contributor..

Okay. And then just a small line item but the first cost business was up I think 150%.

Just wondering what that was due to -- and how you see that going forward?.

Yes, I would caution you on that that I think there's just a little bit of time there in terms of when we shift goods. For the full year, I still think that line should basically be flattish..

Okay. All right, cool. Thanks very much. Good luck guys..

Thanks, Scott..

We'll go next to Sam Poser with Susquehanna..

Thanks for taking my call guys. I guess, I want to get back in the same-store sales for a second.

I mean can you give us some idea of the cadence same-store sales in the first quarter?.

Well, it was negative each month but March was obviously the worst because we had the Easter shift there..

And I know you don't -- I mean, if this is such a weird year because of that -- of the tax free holidays, the weather, the Easter shift and so on.

I mean could you give us some idea, maybe of a combination of how April to-date and March are as a combined entity or something so we could get a feel for real trend because March was certainly outside of the less promotional activity, it was probably significantly impacted by these shifts..

Yes, we're not going to provide that number. As I said, the business got significantly better in April. But this -- I'm not going to go any further than that..

And then in the guidance with -- how much -- I mean, originally, when you talked about Payless, you expect them as a source of close they are telling you there are not as many closing.

I mean is that something right now that when you look at what's going with their business that is not as negatively impactful as you originally anticipated it would be? But where -- how does that stand at this point?.

Well, there is obviously disruption to our business with Payless due to what's going on this year and eventually the bankruptcy and the bankruptcy [ph].

So in terms of the act -- that for 2017 in our previous forecast when we provided guidance to you last time, we included the pretty substantial last time with Payless and I still think that our current forecast looks pretty similar to what it did when we provided guidance last year. So there is no meaningful change there.

Depending on how many stores they close, could that impact what our business looks like in 2018 and beyond? That's possible but we're really not there yet..

And when you're talking about your private label, are you also including like what the SM New York and stuff -- I'm sorry, the Steve Madden in New York City stuff or just private label?.

No..

So this is purely other people's names on your stuff going into the likes of Payless, Target, Wal-Mart and so on?.

Yes, just one point of the clarification to the number that we provided early was not just private label footwear; it included all the private label accessories that we do as well..

And then I guess lastly; I mean -- your handbag business did inflect in the quarter. I mean what is -- there seems a lot of work cleaning all that up.

I mean what do you think was the -- where did things go right, I guess, with that?.

Yes, look, in fairness we had to point out that we had a pretty easy compare in handbags in Q1. But in addition to that I do think that we've taken a lot of steps to improve the product here.

We hired a new Creative Director in Steve Madden and I think we've really -- I think the line looks much, much better, much -- I think it's more trend driven, it's more in line with the shoes and the shoes customer, younger and we feel very good about that.

And similarly on the Betsey Johnson line, we've had a lot of success with this kitschy-type novelty product for many years and what continues to be important it also introduce more elevated, contemporary-type bags and getting a good response to that.

So we feel much better about the direction that we're heading and our two big handbag brands and we'll be looking for continued growth throughout the year there..

All right, thanks very much and good luck..

Thanks, Sam..

We'll go next to Jeff Van Sinderen with B. Riley..

Good morning and thanks for taking my questions.

I know you guys called out Sneakers and I'm just wondering if there is anything more you could talk about in your performance in your best sneakers and maybe where you're expanding the line and the outlook there?.

Yes. Look, sneakers continues to be the top growth category for us in our Women's wholesale business in Q1. I think we hit 23% of the mix. As you know, Jeff has been following us for a long time, years ago, that was maybe low single digits; so that's pretty significant. We think it will even a little higher than that in Q2. So it just continues to grow.

We've really carved out a great niche for ourselves, I think we are the player in terms of -- fashion players doing sneakers, obviously not talking about with the athletic guys but in the department stores.

And this continues to be great category for us, we've expanded the line to more silhouettes, added new colors, added new materials and just continued to get great reaction to it..

Okay.

And anything -- you feel like you could highlight I guess that you're seeing in your retail stores in terms of traction that could be a leading indicator for wholesale or maybe translate later in the year?.

Well as you know, for competitive reasons we really don't talk about that kind of stuff too much. We sort of hit the highlights of the things that are happening right now. But in terms of perspective trends, we try to keep that pretty close to the rest..

Okay, I understand.

And then finally, at this point, just wondering how you're thinking about your sort fleet in terms of what the right number is, and if we just we might see there as we might come up for renewal?.

In terms of the full price stores in the U.S., I think you'll see that -- you'll likely see that number remain pretty constant over the next few years. You may open a store here or there but we'll be closing a store or two each year as well as leases come up. We do still continue to believe that we have some room to grow outlets in the United States.

And then outside of the U.S., there's still some opportunity to grow full-price stores..

Okay, thanks and good luck for the rest of the quarter..

Thanks, Jeff..

And at this time, there are no further questions. We'll turn the call back to Mr. Ed Rosenfeld..

Great. Well, thanks very much for joining us in today's call, and we look forward to speaking with you after Q2. Have a great day..

This does conclude today's conference. We thank you for your participation..