Good morning, ladies and gentlemen, and welcome to the Second Quarter 2019 Steve Madden, Ltd. Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Danielle McCoy, Director of Corporate Development and Investor Relations.

Ma'am, please go ahead..

Thanks, Tom, and good morning, everyone. I'd like to thank you for joining our second quarter 2019 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 risk the company faces, and we urge you to refer to these.

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 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 is Ed Rosenfeld, the Chairman and CEO of Steve Madden. With that, I'll turn it over to Ed..

Thanks, Danielle. Good morning, everyone, and thank you for joining us to review Steve Madden's Second Quarter 2019 Results. We delivered a strong second quarter with net sales growing 12% and diluted EPS increasing 16% compared to the prior year.

Our flagship Steve Madden brand was the highlight, with strong performance in the wholesale footwear and accessories businesses in both domestic and international markets, as well as exceptional growth on stevemadden.com.

The company's largest segment, wholesale footwear, recorded net sales growth of 14% despite the headwind from not recognizing sales to Payless. Our core Steve Madden women's U.S.

wholesale footwear business had a double-digit percentage sales increase compared to the prior year period for the third consecutive quarter as Steve and his design team continue to create on-trend merchandise assortments that are resonating well with consumers and enabling us to significantly outperform the competition.

In the second quarter, we saw strength across a range of product categories, including sandals, which some have called out as a soft category this year, but where we saw significant success. Wholesale footwear net sales also benefited from the addition of our new license Anne Klein, as well as strong growth in our non-Payless private label business.

In wholesale accessories, net sales increased 12% in the quarter, our fourth consecutive quarter of double-digit year-over-year sales growth in that segment. Once again, Steve Madden Handbags and our private label division were the standout performers. We also benefited from the addition of the Anne Klein Handbag business.

In retail, overall sales were up 10% with comparable store sales increasing 6.2%, driven by outstanding performance in our e-commerce business. By category, sandals and fashion sneakers drove the largest gains. Handbags also saw strong growth in retail. Overall, we were very pleased with our second quarter performance.

As we look ahead, while we face a number of headwinds, including the Payless bankruptcy and the tariff on handbags, we remain confident in our positioning, mostly because of the strong momentum in our flagship Steve Madden brand, which has been a clear outperformer in a tough retail environment.

Before I turn it over to Danielle, to walk you through the financials in more detail, I wanted to provide two additional updates. The first is on the current tariff situation that I just alluded to.

When we spoke to you on the first quarter earnings call, the tariff on List 3 products, which include handbags and certain other accessories that we produce, was at 10%. As a reminder, at the 10% level, we believe we had mitigated the vast majority of the negative impact of the tariff through the use of two levers.

One, moving production out of China, primarily to Cambodia; and two, receiving price concessions from our factories on goods that remained in China. In May, the Trump administration increased the tariff on List 3 from 10% to 25%, where it remains today.

We have since gone back to the factories in China for additional price concessions and have also begun pulling a third lever, which is raising selling prices. That said, at a tariff level of 25%, there is no way to mitigate the entire impact.

We currently estimate that the negative impact of 2019 earnings from the tariffs, net of mitigation will be approximately $0.05 per share. The second update is with respect to our joint venture in China.

On recent earnings calls, we have been transparent that our China JV was not performing to our expectations, and we and our partner have now agreed to terminate that relationship. We are in the process of winding down the JV. Within about a week, we will have closed all but one location.

We do, however, continue to believe that China remains a significant opportunity for the company, and we are far along in discussions to form a new JV with a strong partner that shares our vision for the brand. We expect to be in a position to disclose the new partner and update you on our plans by the time we have the third quarter earnings call.

With that, I'll turn it over to Danielle, to review our financial results in more detail..

Thanks, Ed. We are pleased with our second quarter performance. Our consolidated net sales increased 12.4% to $445 million compared to prior year net sales of $395.8 million.

Wholesale footwear net sales increased 13.5% to $286.2 million, led by strong growth of our core Steve Madden brand, the addition of Anne Klein and the growth of our private label business, which increased in the quarter despite not recognizing sales to Payless. In wholesale accessories, net sales increased 11.5% to $77.3 million.

Steve Madden handbags and private label handbags were the growth drivers in the quarter. Wholesale accessories also benefited from the addition of Anne Klein. In our retail segment, net sales increased 9.6% to $81.5 million. Our same store sales increased 6.2%. Stevemadden.com was up over 50% for the second quarter in a row.

We ended the quarter with 224 company-operated retail stores, including 66 outlets and 6 e-commerce stores, as well as 31 operated concessions in international markets. Turning to other income.

Our licensing royalty income, net of expenses, was $2.2 million in the quarter compared to $1.6 million in last year's second quarter, while First Cost commission income was $0.8 million compared to $0.6 million last year. Consolidated gross margin decreased 10 basis points to 37.2% compared to 37.3% in the prior year.

Wholesale gross margin increased to 32.1% for the quarter compared to 31.4% in the prior year quarter. The increase in wholesale gross margin compared to last year was driven by an increase in wholesale footwear, due primarily to sales mix, as well as a modest increase on an apples-to-apples basis.

This was partially offset by margin pressure in wholesale accessories, driven primarily by sales mix and the impact of the List 3 tariff.

Retail gross margin was 59.7% compared to 62.9% in the prior year period, due primarily to the inventory liquidation and markdowns in connection with the wind-down of the company's joint venture relationship in China as well as aggressive liquidation of slow-moving inventory in our North American retail operations.

Operating expenses for the quarter increased to $119.3 million or 26.8% of net sales compared to operating expenses of $106.1 million or 26.8% of net sales in the same period last year.

Operating income for the quarter totaled $49.1 million or 11% of net sales compared to last year's second quarter operating income of $44 million or 11.1% of net sales. Our effective tax rate for the quarter was 22.4% compared to 21.7% in the same period last year.

Finally, net income for the quarter was $39.5 million or $0.47 per diluted share compared to $35.2 million or $0.41 per diluted share in the second quarter of 2018. Moving to the balance sheet. Our financial foundation remains strong. As of June 30, 2019, we had $248.8 million of cash and marketable securities and no debt.

Inventory totaled $146.1 million compared to $133.6 million in the prior year, an increase of 9.3%. Our consolidated inventory turn for the last 12 months ended June 30, was 7.9x, and our CapEx in the quarter was $2.8 million.

During the quarter, we repurchased approximately 1.1 million shares for $34 million, which includes share acquired through the net settlement of employee stock awards. Last, the company's Board of Directors declared a quarterly cash dividend of $0.14 per share.

The dividend will be payable on September 27, 2019, to stockholders of record as of the close of business on September 17, 2019. Since 2013, we have returned nearly $800 million to our shareholders in the form of share repurchases and dividends. Now turning to our guidance.

We are maintaining our 2019 net sales and EPS guidance despite an estimated incremental headwind of approximately $0.05 per share related to the increase in the tariff on List 3 products from China, from 10% to 25%, in effect as of May 10.

For the full year 2019, we continue to expect net sales growth of 5% to 7% and diluted EPS in the range of $1.78 to $1.86.

While we don't provide specific quarterly guidance, for modeling purposes, please note, when combining the headwind related to Payless, the tariff and higher tax rate, there is a $0.10 negative impact to third quarter earnings compared to the prior year. Now I'd like to turn it over to the operator for questions..

[Operator Instructions] Our first question comes from the line of Erinn Murphy from Piper Jaffray..

Nice job in a tough market. A couple of questions for you, Ed. First, maybe if you could just reflect on the North American wholesale environment.

I'm just curious kind of how you feel about it heading into the back half? Whether you can comment on inventory levels in the channel, maybe by some of your key accounts, mass merchants, off-price or department stores? And then just -- you've seen a lot of strength, really broad spread across your style portfolio, whether its sandals or sneakers, just maybe speak to what's giving you confidence into the back half from a style perspective?.

Sure. Yes, I think overall, the retail environment in the U.S. in the first half was pretty challenging. We had a lot of our big wholesale customers that I think were a little bit disappointed and perhaps missed their sales plans.

If you asked a question about the different channels I mean, I think, clearly, if you look at the overall numbers, it looks like the value price channels performed a little bit better, the mass merchants, the off-pricers, in terms of the top line.

But generally speaking, it was a challenging environment, and that's why we were particularly pleased with our performance because we really -- particularly in our Steve Madden brand, were a really significant outperformer this spring, and saw very strong increases, really, across the different customers that we sell into, even in cases where their overall businesses were not that strong.

In terms of the -- what we're seeing from a style perspective, look, right now, we're still selling a lot of sandals. It's obviously a buy-now-wear-now world and so sandals continue to be very important for us. Doing great with our flatforms, with our wedges, also some flat sandals.

Sneakers, of course, continue to be very important and we think that will be very increasingly important as we get into back-to-school here and even into fall. And then we also feel optimistic about boots this year. We've had some really good early reads on boots and booties.

So that's something that I think we feel a little bit better about this time of year than we have in a few years..

Got it, that's helpful.

And then maybe just as it relates to some of those early reads, are these reads that you're seeing at the anniversary sale that Nordstrom is hosting currently? Or is there any kind of trends that you're seeing there that -- and kind of give you that confidence?.

Yes, the reads are really from the Nordstrom anniversary sale, as well as from our own -- what we see in our own stores. But specifically Nordstrom anniversary sale, we're really excited about our performance there. I think it was the best anniversary sale that we've ever had as a company.

So really tremendous performance in Steve Madden, also very strong in Blondo, had a big item in Dolce Vita, so we're pretty excited about that and what it tells us about how we're positioned into fall..

Got it. And then just my second question is just really around the retail gross margin. I think you referenced, both on winding the China JV, as well as some of the slower moving inventory in North America.

Can you just kind of unpack both of those drivers? And then with the transition of the JV, particularly in China, I guess, you'll announce a new one in Q3.

How long will that be a drag on the margin profile this year?.

Sure. So if we look at the decline in retail gross margin in Q2, just a touch over half of it was related to the wind-down of the China JV, and that's pretty much behind us, so that should not be a meaningful impact going forward.

The other piece was what we saw in North America, and that was really just a little bit of a different approach this year compared to the prior year. We were very proactive and aggressive about moving through the slow-moving inventory in Q2 and getting really clean heading into Q3.

So we're much cleaner going into Q3 in retail than we were a year ago and I do think that positions us for improved gross margin starting in Q3..

Our next question comes from the line of Edward Yruma from KeyBanc Capital Markets..

This is Matt on for Ed.

So given that you're now a couple of months shorter from fully owning Anne Klein, from design and delivery, can you update us on any progress made there? Maybe any sell-through or margin changes significant?.

Yes. I think we're really right on target there. We're pleased with what we're seeing in Anne Klein. As you know, one of the -- one of our principal goals there was as we got into spring, where we would control all the processes from design to delivery was to see improved gross margin, and we were up significantly.

Certainly, more than 500 basis points, the number is off the top of my head, but it could be seven -- maybe 700 basis points from last fall to this spring in terms of gross margin.

And so we're pleased with what we're seeing there and expect to see some nice year-over-year gross margin improvement in fall, and continue to drive that business forward..

And you're lapping adding that business to wholesale accessories in the third quarter, correct? So should we expect that number to kind of wane a bit in the back half? Wholesale accessories growth?.

Yes, both -- we lapped in both wholesale footwear and wholesale accessories. But yes, I think the answer to your question is, wholesale accessories should begin to slow in the back half. Partially because of Anne Klein -- just to follow-up on that.

Just -- it's partially because of Anne Klein, but also just because of the difficult comparison in the balance of the business..

Our next question comes from the line of Susan Anderson from B. Riley FBR..

This is Luke Hatton on for Susan. I was wondering if you're able to provide any more details about your price rate strategy for mitigating the tariff impacts, how much opportunity do you think you have there to raise prices without customer pushback.

And then how does this sort of vary between the different product lines and channels?.

Sure. Yes, I mean, it's early -- we're in the early stages there. Right now, we're really looking at low single-digit price increases. We think that the consumer will be able to handle that. And then, if the tariff remains in place at the 25% level over time, we would look to push that up further.

You think about the -- you've asked about the different channels, look, I think, in the department stores and in our own stores, there's probably a little bit more room to take price. It's going to be more challenging as you go down into the more value part of the chain. So the off-pricers or the private label that we do in mass merchants..

Got it.

And then just sticking on China, can you provide some back -- a little bit more background on your decision to wind down that current China JV? And then maybe some of the qualities you're looking for as you look for a new partner in the region?.

Sure. Yes. Well, as I mentioned in the prepared remarks, I think we've been pretty open about the fact that the JV wasn't performing to our expectations. And I think that we and our JV partner agree that it probably just wasn't the right fit.

With all due respect to our -- with our current partner, because it's a good company, and we like and respect management very much, I just don't think, in the end, that it was the right marriage. We were not ultimately aligned on the strategy in terms of distribution, as well as pricing.

And in fairness to them, I think, something had changed in the remainder of their business after we signed the deal that required them to focus on other areas.

One place where we were probably not aligned is they were highly focused, they have a big business with concessions in department stores, and were highly focused on that as a distribution strategy.

I think in our -- with our next partner, we'll be looking for somebody who is much more focused on the digital space and the partner that we're -- the potential partner that we're in discussions with now really has an expertise in e-com..

Our next question comes from the line of Janine Stichter from Jefferies..

I wanted to ask about the private label footwear business, you're seeing some nice growth there, notwithstanding the loss of Payless, can you just talk a little bit about the progress you're making with some of your other retail partners that may be looking to recapture some of that market share that's now up for grabs with that Payless liquidation..

Yes, we're seeing really strong growth with the mass merchants, that channel has really taken off for us. I think some of that is probably attributable to Payless going away, and those customers looking to recapture some of that market share or to capture some of that market share, rather.

It's hard to really to disaggregate that and to tell you exactly how much of the growth in that channel is related to the closure of Payless, but all I can say is we're seeing very strong growth there, and in fact, as we've pointed out in the earlier remarks, we were actually up in private label footwear year-over-year, even with the headwind from Payless.

So we -- I think we did something like $22 million with Payless last year in Q2 and even with that going away, we were still up year-over-year..

Okay, great. And then just on e-commerce. I'm still seeing a really nice growth there.

Is there anything you can point to is driving that? I know there's a lot of things going on, you've got some site upgrade, you have alternative payment options, I think you added to the shipping, maybe it's a year or so ago now, so what do you think is really behind that? And then any comments you can give on what the margin profile for e-com looks like now? And if you're still seeing the improvements in profitability that you've called out before?.

Yes, I think it's a lot of different things that are driving the top line. I definitely think that the replatforming and going to Shopify Plus has been very significant. We've seen a very nice improvement in mobile conversion and I think a lot of that has to be attributable to the new platform.

I do think free 2-day shipping is really resonating with our consumers. Afterpay has been very significant for us. I think that our efforts with respect to paid social, have really been driving a lot of demand. And we're also -- have really ramped up what we do with influencers and are seeing really nice success there.

So there's a lot of different pieces of digital marketing that are helping to drive the business in addition to obviously having very strong product that's resonated with the consumer. In terms of the profitability profile, we do continue to see improvement there.

We also think that there's still a lot of room for improvement, but e-commerce will surpass bricks-and-mortar in terms of profit margin this year for the first time..

Our next question comes from the line of Sam Poser from Susquehanna..

Danielle, I just got a follow-up on your Q3 direction there for modeling purposes.

Can you give us -- just give us a little more color on that statement, if you could?.

Okay. I'll take that one. I think that the point Danielle was making was simply that if you look at what we -- our performance in the first half and our guidance for the full year, obviously the guidance implies EPS down in the back half.

And I think the color, Danielle was providing was simply to help you understand the context and why EPS should be down in the back half. And specifically, with respect to Q3, if you look at the headwind from Payless, the tariff and the higher tax rate, we're essentially starting, when you compare to the prior year, $0.10 in the hole.

There's a $0.10 headwind compared to the prior year, and that's really the driver of down EPS in Q3..

But do you expect it to be down $0.10 or it's down $0.10 and then fight back a bit. I mean, I will....

Yes, we'll claw some of that back..

And is that -- is most of that -- I mean, it sounds like you're planning gross margin to be up in the third quarter based on what you said a few minutes ago.

So then it's really in the expense line of like fixed costs going up against?.

Well, we're planning gross -- what I addressed a minute ago was gross margin in retail, where we do think we can be up, but keep in mind, in wholesale accessories, you're going to continue to see gross margin declines, and that's primarily related to the tariff.

So -- you've got 250 to 300 basis points of gross margin pressure from the tariff in Q3 and Q4, in wholesale accessories, excuse me, that's not a consolidated number, just wholesale accessories..

And that would be more impactful in the third quarter because your DTC business increase in the fourth quarter would offset more of that, theoretically..

Yes. The tariff, if you're looking at it on a consolidated basis, yes, the impact of the tariff is most -- is largest in Q3..

And then once you lap that and do all the work, if we think about lapping this into next year, you would -- the work you're doing, you would expect to see -- in accessories, improvement in the margins as you move goods, negotiating prices so on and so forth. I mean, assuming that the stuff is selling, the way you want to sell..

But you'll still see pressure in Q1 and Q2 until we anniversary this..

But then when you get to Q3 and Q4, that's when you'd expect to see it swing? I would assume..

That will be the goal..

Okay. And then the -- could you talk a little bit about the Blondo business and how that's being planned? And where we see the opportunity there? You mentioned it did very well during -- at anniversary and so on, and you're seeing early -- good reads on boots.

So can you talk about that as a driver this year?.

Sure. Yes, Blondo has obviously been -- a really strong growth vehicle for us over the last couple of years, and now we're heading into their key season, which of course, is fall.

And really, I think the Nordstrom anniversary sale is a big sort of kickoff event for fall and for Blondo, in particular, and they had a very strong event, a very nice increase over last year, which was also a very successful event for them. So we feel good about that. I think that business should be up nicely this year.

It's a much bigger business now, so we're not going to see the same rate of growth as we've seen in prior years, but should still be a very nice increase..

Our next question comes from the line of Laura Champine from Loop Capital..

If we do get into a worst-case scenario, and we see tariffs on List 4, the everything tariffs, what kind of contingency planning have you done for that? And how do you think you would be positioned relative to your competition, should that happen?.

Sure. Yes. If we were to see tariffs on footwear, I think that the levers we would pull would be the same as the ones that we've pulled with respect to mitigating List 3.

So we would be moving production out of China, number one; number 2, we would be looking for price concessions from our factories on the goods that remain in China; and number 3, we would be looking to raise selling prices to the consumer and to our wholesale customers.

I think if you think about shoes relative to handbags, lever 1 might be a little bit more difficult to pull, it might not be able to move as much on a percentage basis as quickly, but I think perhaps levers 2 and lever 3, might be a little bit easier to pull because of the leverage and the power that we have in footwear.

In terms of moving production out of China, we have started to do that already. We're making a good chunk of the Steve Madden products -- Steve Madden branded products in Mexico for fall. And we've got smaller runs in a number of other countries.

We have not sort of stepped on the gas and moved things preemptively in a major way, but we've positioned ourselves in a number of other countries such that if that did come to pass, we would be prepared to move a lot of production pretty quickly.

As far as how we'd be -- I'm sorry, as far as how we'd be positioned relative to our competitors, I mean, look, everybody in our space is in the same boat. I think, in some cases, we'd be better positioned.

I think we've got a better situation and set up in Mexico than just about any of our peers, for instance, and fortunately, we're performing very well. We're really performing better than anybody else in our space. And I think that would also give us some leverage and position us attractively relative to some of our peers..

[Operator Instructions] Our next question comes from the line of Laurent Vasilescu from Macquarie..

I wanted to follow-up on Sam's question. Thank you for parsing out the $0.10 headwind from Payless tariffs and the higher tax rate for the third quarter. I think last quarter, it was noted that Payless would be a nickel headwind for the third quarter.

Is that still the right way to think about it? And really following up on Sam's question, should we assume that the third quarter EPS is down high-single digits year-over-year? Or more like down double digits, just for us to model correctly?.

Sure. Yes, $0.05 for Payless in Q3 is still the right way to think about it. Look, I think to get to our guidance, real rough numbers, you've got to be down 10% to 15% in the back half, and I think that you can look at Q3 and Q4 as pretty similar there..

Okay. And then with regards to gross margin, I think last call, it was noted that we should see modest gross margin expansion.

Now obviously, there are incremental tariffs, with those incremental tariffs, should we still think -- should we think about the gross margin more like flat year-over-year?.

Yes, I still think that we could probably get to very modest gross margin expansion, I'm talking 10, 20, 30 bps at the most..

Okay. And the last question. Any color on how the comps performed by months, would be greatly appreciated..

Sure. Yes, April and June were very strong, up roughly high singles, May was the weakest month, that was about flat..

Our next question comes from the line of Dana Telsey from Telsey Advisory..

Congratulations on the nice performance in this environment.

How are you thinking of -- how are you thinking about the performance of sneakers? What did you see with the fashion sneakers and the dad sneakers? And how are you planning boots for the back half of the year?.

Yes, sneakers continues to be very important for us. You're talking about a business that's now 30% or even more of our Steve Madden women's wholesale business, so it continues to perform. The dad sneakers continue to be probably the most important trend within sneakers. And so we're expecting that to continue to be very important for us.

With respect to boots and booties, as I mentioned earlier, it's early, but we're optimistic given the early reads, and what we've seen, we think that business can be up for us this year. And for the last few years -- I would say we're more optimistic now than we've been for the last few years at this time of the year..

And then when you think about your retail performance, I think outlets have done a little better than full line, what do you see this quarter? And what's the trend in tourism?.

Yes, outlets, again, outperformed our full price stores, and tourism continues to be a drag. So when we look at the credit card data, we continue to see the international credit cards down considerably and performing much weaker than the domestic cards..

And then two last quick things. On the private label strength.

Is the mass merchant customer base, offsetting the Payless -- the Payless business? Is that the key customer base? And when do you think you'll have a new China partner? And what do you want this China partner to be?.

Sure. Yes. The mass merchant customer growth in private label did in Q2, offset what we lost to Payless, so that, we were very pleased with that..

The second one was about China, right?.

Yes. We expect to have the new China partner -- I hope that we have something signed and can talk about it when we come on the next call. And I think the key, again, is going to be somebody who really shares our vision for the brand, and particularly, where we're aligned on distribution strategy.

And I can tell you that, that's -- a big part of that is going to be being aligned on really pushing a digital strategy as opposed to a department store concession model..

Our next question comes from the line of Chris Svezia from Wedbush..

I guess, first question, just separating private label footwear versus the Steve Madden brand, how did that perform in the second quarter?.

Well, branded footwear was up more than private label. Branded footwear was up double digits, private label, single digits. But again, private label had the headwind from Payless..

Okay.

And with regard to the Steve Madden brand, when you call out that it was up, and women's up double digits, third quarter in a row, just -- I know you don't expect that to continue, but based on some of your commentary, the sandal business, athletic and some of your more encouraging comments about boots, just what's your thoughts about sustainability as we go into the back half of the year? And what are you up against? Just remind us for the Steve Madden Women's business..

Yes. Well, we're up against some nice numbers from the prior year as well, particularly in Q4. I know we were up double -- Steve Madden Women's was definitely up double digits. I don't remember Q3 at the moment, but I believe we were up. We have assumed that the business moderates a little bit in the back half.

I think that's prudent, given we've been so far outpacing the overall market, and again, the overall retail environment does continue to be tough. And the customers, I think, are taking a relatively conservative approach with their open-to-buys and their inventory position.

But that said, we've got very strong momentum in that business and we don't see that slowing down right now..

Are you seeing [indiscernible]?.

[indiscernible].

To that point, are you seeing anything, Ed, in the order book? I know -- I think you turned the inventory pretty quickly, but just in terms of seeing anything slowing? Or is it just your anticipation, Q4, the comparison, it moderates for that brand..

Well, we do have an increase in the order file going forward. But keep in mind, the way we -- what happened in spring, was we started off with a nice increase in the order file, but it was really getting those reorders and turning the goods was how we got to that big increase.

So it was more -- we ended much better than we started in terms of order book. So we're starting with an increase in fall, but not to the degree where we ended in the spring..

Got it, okay. Understood.

And then just on the margin, I guess, gross margin on the wholesale footwear segment seems to be very strong, even as you're -- I see you're growing the private label business, I know you've got a tougher comp, it's going to the back half of the owning Anne Klein, but I'm just curious, how do we think about the gross margin profile for wholesale footwear as we go into the back half of the year?.

Well, I expect that to be more flattish now. One of the things we did have as a benefit in the first half was we had Payless going away, which was a low gross margin customer.

In the back half, as you recall, last year, that had been moved into the -- the buying agency model, where it showed up in the other income line, and so did not impact our sales or gross margin. So you don't have that benefit going forward. So I think that approximately flat, it is the right way to think about the back half..

Okay, got it. And then finally, just for me, just on the retail comp, up a little over 6%. How much -- what's the breakout between the digital keys and physical stores..

So physical stores were, again, down. They were down about, low-singles this time. And all the growth is coming from e-com..

Our next question comes from the line of Steve Marotta from CLK Associates..

Ed and Danielle, given the second quarter sales beat and maintaining sales guidance for the year. Is there any reason that you've tempered your expectations for the back half.

Can you talk a little bit about why not increase sales expectations for the entire year, given the second quarter sales be?.

Yes, Steve. I think, frankly, that has -- the beat was not significant relative to our internal forecast. I think that was a case of slightly different modeling from The Street versus our internal numbers..

That's helpful.

And my last question is to do with inventory growth for the balance of the year? Is there any reason to believe that either quarter inventory growth will be higher-than-expected sales growth?.

No, I don't think so. I think that it should be relatively in line..

[Operator Instructions] And there are no further questions at this time. I would like to turn it back to Ed Rosenfeld, for any further comments..

Great. Well, thanks very much for joining us today. Enjoy the rest of your summer, and we look forward to talking to you on the third quarter call. Have a great day..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may now disconnect..