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Executives

Ed Rosenfeld – Chairman & Chief Executive Officer

Jean Fontana – ICR (Investor Relations)

Analysts

Erinn Murphy – Piper Jaffray

Camilo Lyon – Canaccord Genuity

Jeff Van Sinderen – B. Riley & Co.

Steve Marotta – CL King & Associates

Scott Krasik – BB&T

Jane Thorn Leeson – KeyBanc Capital Markets

Taposh Bari – Goldman Sachs

Sam Poser – Sterne Agee

Danielle McCoy – Brean Capital

Mike Richardson – Sidoti & Company

Steven Madden, Ltd. (SHOO) Q2 2013 Earnings Call August 1, 2013 8:30 AM ET

Operator

Good day, everyone, and welcome to the Steve Madden Q2 2013 Earnings Conference Call. Today’s call is being recorded. For opening remarks and introductions I would like to turn the call over to Jean Fontana of ICR. Please go ahead.

Jean Fontana

Thank you. Good morning everyone. Thank you for joining us today for the discussion of Steve Madden’s Q2 2013 earnings results.

Before we begin I would like to remind you that statements made in this conference call that are not statements of historical facts constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties and other unknown facts that could cause actual results of the company to differ materially from historical results or any future results expressed or implied by forward-looking statements.

The statements contained herein are also subject to other risks and uncertainties as described from time to time in the company’s reports and registration statements filed with the SEC. Also please refer to the earnings release for information on risk factors that could cause actual results to differ. Finally, please note that any forward-looking statements used in today’s call cannot be relied upon as current after this date.

I would now like to turn the call over to Ed Rosenfeld, Chairman and CEO of Steve Madden.

Ed Rosenfeld

Thanks, Jean. Good morning everyone, and thank you for joining us today. Our Q2 results reflect strong execution in a tough retail environment. Net sales in the quarter rose 3.1%, gross margin expanded 110 basis points with increases in both the wholesale and retail businesses, and we were able to keep SG&A flat as a percentage of sales despite a higher mix of retail.

The result was growth in net income of 7.6% to $29 million or $0.65 per diluted share. Given the late spring and softness in overall traffic trends we are pleased to have delivered Q2 profitability in line with our expectations and to remain on track to meet our sales and earnings goals for 2013.

Before getting into the details of the financial results for the quarter let me first make a few general comments about our Q2 performance. In wholesale footwear the cold and wet weather that we experienced in Q1 and the first half of Q2 negatively impacted sandal sales early in the season, which in turn had an adverse effect on Q2 reorders. However, as the weather warmed up our sandals performed well, and the better sell through and reduced closeouts in that category compared to last year was a key driver of the gross margin increase we recorded in wholesale footwear.

We also had success in the dress shoe category where we believe we are outperforming the competition and with wedges. June boot shipments however were down compared to the prior year. Whereas last year our wholesale customers looked to pull forward boot deliveries from July into late June, this year the late start to spring meant that in many cases our customers elected to wait until July to take in boot product. Nevertheless we were pleased with the solid performance in a choppy environment, particularly the gross margin improvement.

In wholesale accessories we had another good quarter with handbags once again leading the way on the strength of solid gains in the Steve Madden and Betsey Johnson brands. We continue to see a lot of runway ahead of us in the handbag business, with opportunity for additional door expansion as well as to expand the assortment in existing doors.

On the retail side we recorded a 2.5% comp increase and improved gross margins despite continued challenging traffic trends and a negative impact on the Easter shift. As in Q1 we saw a robust increase in conversion which enabled us to overcome the lower traffic.

Finally, we also saw strong results from our newer brands. Sales of Superga doubled in Q2 versus last year, and MadLove continues to exceed expectations at Target. While these brands are small pieces of the overall business today, fostering new brands is an important part of our growth strategy and so we’re pleased to see the progress we are making.

With that let’s turn to the details of the financial results for the quarter. Consolidated net sales in Q2 grew 3.1% over the prior-year period to $297.6 million, including a double-digit percentage gain in retail and more modest growth in our wholesale business. Wholesale net sales rose 1.3% in the quarter to $251.4 million compared to $248.1 million in Q2 last year. Within wholesale, footwear net sales were $199.2 million, up slightly from $198.7 million in Q2 2012.

We recorded strong growth in our Adesso-Madden private label footwear business but this was offset by a sales decline at Topline resulting from the loss of two private label customers that compete with Steve Madden and elected not to go forward with Topline after we acquired the business as well as the discontinuation of the Big Buddha footwear business.

Wholesale accessories net sales were $52.2 million, a 5.6% increase over Q2 2012. As previously mentioned, this was driven by continued healthy growth in both Steve Madden and Betsey Johnson handbags.

In our Retail Division net sales increased 13.9% to $46.2 million. Comparable store sales grew 2.5% for the quarter on top of a 6.8% increase in the prior-year period. We opened two Steve Madden full price stores and one outlet store in the quarter, bringing us to 113 company-operated stores including twelve outlets and three internet stores. Doors open for the twelve months ended June 30, 2013, generated $909 in sales per square foot.

Turning to other income, our commission and licensing income net of expenses was $3.7 million in Q2 versus $4.3 million in last year’s Q2. First cost commission income net of expenses was $1.9 million in the quarter compared to $2.4 million in last year’s Q2. The decrease was due to a decline with Kohl’s and the loss of Bakers as a customer. Licensing royalty income net of expenses was flat at $1.8 million.

Consolidated gross margin for the quarter was 37.2% as compared to 36.1% in last year’s Q2 with strong inventory management driving improvement in both the wholesale and retail segments. Wholesale gross margin increased to 32.1% versus 31.6% in last year’s Q2 due primarily to improvement in the Steve Madden Women’s Wholesale Footwear Division. Gross margin in the Retail Division was 64.7%, up from 63.7% in Q2 2012 due to fewer markdowns, particularly in the sandal category.

Operating expenses were $68.7 million in Q2 compared to $66.7 million in the same period last year. On a consolidated basis, operating expense was flat as a percentage of sales at 23.1% despite a bigger portion of sales coming from our retail business which carries higher operating expenses as a percentage of sales than the wholesale segment. Within each of wholesale and retail, operating expenses as a percentage of sales were lower in Q2 2013 than in the prior-year period.

Operating income totaled $45.6 million or 15.3% of net sales compared with operating income of $37.5 million or 13% of net sales in the same period of 2012. Operating income in Q2 2012 included a $2.5 million charge for a class action lawsuit related to unauthorized text messaging and a $1.8 million charge for impairment of a note receivable from the company’s former licensee for Betsey Johnson retail and apparel. Excluding these charges, operating income for Q2 2012 was $41.8 million or 14.5% of net sales.

The effective tax rate in the quarter was 37.1% compared to 31.3% in Q2 last year due primarily to a tax benefit in Q2 last year of $2.8 million related to the year-to-date impact of a portion of our earnings from foreign operations that were reinvested indefinitely. Net income for Q2 was $29.0 million or $0.65 per diluted share, compared with $26.9 million or $0.61 per diluted share in Q2 2012.

Turning to our balance sheet, as of June 30, 2013, we had $290.1 million in cash and marketable securities and no debt. Inventory continues to be well controlled. We ended the quarter with inventory of $91.3 million, essentially flat with last year’s figure of $91.0 million. Our consolidated inventory turns for the last twelve months was 10.5 turns.

CAPEX in Q2 was $6.4 million and during the quarter we repurchased approximately 456,000 shares for $21.6 million or an average price of $47.46 per share. On June 18, our Board of Directors approved a continuation of the company’s stock repurchase program for up to an additional $125 million in repurchases.

Now, turning to guidance, for F2013 we continue to expect net sales to increase 6% to 8% compared to F2012. We continued to expect diluted EPS to be in the range of $2.95 to $3.05. Based on our current wholesale order book and a number of orders that historically would have been shipped in September that we currently expect to go out in the first week of October, we expect sales and earnings to be more heavily weighted to Q4 this year compared to Q3.

In conclusion, we believe that our Q2 results reflect the strength of our business model. In a choppy environment our quick-turn model enabled us to be nimble and react quickly to changing trends, and our execution in controlling inventory and expenses drove solid profitability. We remain on track to meet our top and bottom line goals for 2013 and are well positioned to continue growing the business for years to come.

Now I’d like to turn it over to the Operator for questions.

Question-and-Answer Session

Operator

(Operator instructions.) We’ll go first to Erinn Murphy of Piper Jaffray.

Erinn Murphy – Piper Jaffray

Great, thank you. Good morning and thanks for taking my question. Ed, I was just kind of curious, I mean very good execution in a tough environment. Can you share a little bit more about kind of what you’re seeing in the most recent period? You did talk about kind of deferred shipments in July from June and then kind of again from September into October, but just talk a little bit more about the retail environment in general as we sit here in July.

Ed Rosenfeld

Sure. I think what you saw was that because of the very late break to spring, in other words the spring selling period really got started late, that’s pushing everything back a little bit. So we saw some retailers that a year ago really wanted to take those boots in in late June now wanted to take those boots in, they just started selling sandals basically a month or a month and a half ago so they want to take the boots in a little bit later. There’s also a change in the retail calendar, the 4-5-4 calendar matches up with the calendar-calendar this year and that’s pushing some shipments back about a week.

But in terms of the overall environment, July continues to be a little choppy but we feel pretty good going into fall. We’re very pleased with the results we’ve gotten out of the Nordstrom Anniversary Sale. That tends to be our first good look at how the customer responds to our new fall product and we have improved sell through in that sale this year versus last year – and frankly last year was a pretty good result as well. So we feel good about our fall product.

Erinn Murphy – Piper Jaffray

That’s helpful, and then I guess on the Nordstrom Anniversary Sale, because I was curious on that – it seems like you have a much broader representation this year in terms of different lifestyle categories. Can you talk about the handbag versus the footwear performance there? And then secondly, just going through and kind of comparing year-over-year pricing within the Nordstrom Anniversary Sale, it did seem that pricing even including the sale pricing was slightly lower this year on like-for-like product. Are you seeing more units or can you maybe talk about that, kind of the dynamic of price versus volume at that sale?

Ed Rosenfeld

Sure. In terms of the other categories, yeah, we’ve been pleased that we’ve started to get some of the other categories that not only we do in-house here like the handbags but that some of our licensees have also gotten products placed in the Nordstrom Anniversary Sale. So that’s a positive, and that goes for Steve Madden brand as well as Betsey Johnson.

In terms of the pricing, that’s a dynamic that’s been happening over the last couple years and I think that that’s been a strategy on Nordstrom’s part. And so we’re essentially trying to align ourselves with what they’re trying to do in pricing in certain categories.

Erinn Murphy – Piper Jaffray

Okay, and then just the last question from me: on the two private label customers that you referenced, can you just help us parse that out, kind of the impact specifically in Q2 and how we should think about that for the balance of the year as we’re working through the last couple of quarters and into Q1?

Ed Rosenfeld

Sure. Yeah, those two customers, Topline did about $7 million with those two customers in Q2 2012. Fortunately we’ve just about anniversaried that impact. I think there’s a very modest impact, a couple million dollars maybe in Q3 and then that’ll be behind us.

Erinn Murphy – Piper Jaffray

Okay, great. Thank you very much.

Operator

We’ll go next to Camilo Lyon of Canaccord Genuity.

Camilo Lyon – Canaccord Genuity

Thanks and good morning, Ed. I wanted to just focus a little bit on, a little bit more digging into the Nordstrom Anniversary Sale. You talked about it positively. Maybe if you can just highlight some of the categories. What are you seeing on the booties side, that’s a good indicator for fall interest? And then maybe talk also about the dress category, how that could reflect positively on some of the other brands, particularly Betsey.

Ed Rosenfeld

Sure. So yeah, boots and booties is the biggest category for us in that sale and we’ve gotten very good reads on both boots and booties. Within the bootie category, one of the things that we’re pleased to see that whereas last year within booties it was really all about flat booties, this year flat booties are performing and heeled booties – so we have both things working.

We also have a very successful tall shaft boot in the Nordstrom Anniversary Sale with superior sell through and I think there’s some new trends within that category. We’re really seeing any kind of ankle interest is performing very well, so what I mean by that is anything with belts or buckles or straps around the ankle is really performing.

And then as you highlighted another positive trend is what we’re seeing in the dress category. As you know that was a tough category for the industry and for us last year and we’re really seeing that pick up. And again here it’s really anything with ankle interest is performing very well.

Camilo Lyon – Canaccord Genuity

Great. So if you take that altogether how does that formula work out from an ASP perspective year-over-year for the back half? Is it a positive ASP dynamic that we should be looking at?

Ed Rosenfeld

Yeah, I mean there’s a lot of puts and takes there but I’m really expecting ASP AUR to be up low singles in the back half.

Camilo Lyon – Canaccord Genuity

Got it. And then can update us on the acquisition environment? It seems like you’ve stepped up on your buyback program – how should we take that for what you’re seeing in the brand acquisition environment?

Ed Rosenfeld

Yeah, we continue to look for things for M&A opportunities. We obviously haven’t gotten anything done in the last almost 18 months now. We continue to evaluate a lot of different opportunities. As we’ve talked about in the past there’s been a limited universe of things that we’ve been interested in and when we were interested in some cases we couldn’t get to the, or in every case I guess we couldn’t get to the price with the seller. So I don’t think there’s any major change there, and as you point out in the absence of M&A we have resumed the share repurchase program. We bought about $11 million in Q1 and we did almost twice that in Q2.

Camilo Lyon – Canaccord Genuity

Okay, great. And then just lastly on the gross margin side of the equation can you update us on what you’re seeing from an input costs perspective, whether it’s raw materials or labor, and what you’re able to do to work through that and mitigate some of those pressures?

Ed Rosenfeld

Yeah, we’re actually not seeing a ton of pressure from those two elements. I would say that what’s more impactful right now has been the appreciation of the RMB. I think it’s up about 5% in the last six months or so and so that is going to put a little bit of pressure on pricing. We’re trying to use every trick in the book to keep the prices down and to utilize our leverage with the factories but we will also try to pass that through in certain cases to the consumer.

Camilo Lyon – Canaccord Genuity

Got it. Nice job on the quarter and good luck for the rest of the year. Thanks, Ed.

Ed Rosenfeld

Thanks, Camilo.

Operator

We’ll go next to Jeff Van Sinderen of B. Riley & Company.

Jeff Van Sinderen – B. Riley & Co.

Good morning. So I guess just a follow-up on what you’re seeing in recent business trends. I know you said July was choppy but is there any sort of normalization with the weather getting warmer, anything along those lines to speak to? Or I guess also what’s sort of your outlook as far as the environment for the current quarter?

Ed Rosenfeld

Yeah, so obviously we and others have talked quite a bit about the impact of weather in the first part of the year and some of the negative traffic trends that people were seeing. And we did see a nice improvement in the trend in May and June – that doesn’t mean it was positive year-over-year but it does mean it was considerably better than what we saw in the first four months. But July traffic has been choppy. Going forward we have not assumed any material improvement in the overall environment, so we believe we can make our guidance if things stay the way they are. If they get a lot better that would be a potential upside.

Jeff Van Sinderen – B. Riley & Co.

Okay, good. And then just in terms of the wholesale order book is there anything that stands out in terms of categories or is it more just sort of a general weather-related season timing push out you think in terms of orders being weighted more I guess in Q4 is what it sounds like?

Ed Rosenfeld

The only thing I would point to is in SAGEN, our cold weather accessories business, we have seen retailers get considerably more cautious this year. And you have to remember that the last two Q4s have been unusually warm and a lot of the retailers have gotten hurt in the cold weather accessory category. So we have seen some people more cautious in that category.

Jeff Van Sinderen – B. Riley & Co.

Okay. Do you think does that mean anything as far as how you’re looking at long shaft boots as we get into the second half and the order rate there? Is there anything to read into?

Ed Rosenfeld

I don’t think so. I mean right now as I said, particularly from the Anniversary Sale the reads on tall shaft boots are good.

Jeff Van Sinderen – B. Riley & Co.

Okay, good to hear. And then on the acquisition front, I know you’ve obviously been looking at things and nothing has sort of come to fruition, but I guess I’m wondering if part of that is just that prices have moved up, that you know, potential sellers are asking more? Is that part of the issue?

Ed Rosenfeld

Yes, absolutely. Valuation has been a challenge.

Jeff Van Sinderen – B. Riley & Co.

Okay. And so suffice to say you’re not going to overpay.

Ed Rosenfeld

We’re not planning on it.

Jeff Van Sinderen – B. Riley & Co.

Okay, good to hear. Thanks very much and good luck this quarter.

Ed Rosenfeld

Thanks, Jeff.

Operator

We’ll go next to Steve Marotta of CL King and Associates.

Steve Marotta – CL King & Associates

Good morning, Ed. Can you please quantify the 110 basis point gross margin gain in Q2 – what was a result of direct sourcing? Obviously that’s on the legacy products post-Topline acquisition?

Ed Rosenfeld

Yeah, I think that was about 30 basis points in the quarter.

Steve Marotta – CL King & Associates

Okay. And can you remind us where you are right now as a percent of penetration and where you expect to be in the direct source initiative in the coming quarters/years?

Ed Rosenfeld

Sure. We’re essentially right on track with what we outlined when we did the deal, which was to do about 10% of the legacy footwear business a year. It’s been a couple years and we’re at about 20% right now.

Steve Marotta – CL King & Associates

Okay. You mentioned about late boot deliveries and you already spoke about it a couple times, and I’m pretty sure the answer to this question is “Yes” but do you expect a similar percent of boots and booties in the mix in the second half of this year than you realized last year?

Ed Rosenfeld

Yes, we’re planning that flat as a percentage of the total right now.

Steve Marotta – CL King & Associates

Okay. As it relates to the international sales, can you go over those very briefly and also is there a tax benefit associated with international gaining as a percent of sales for the balance of the year and next year?

Ed Rosenfeld

Sure. So our international sales overall were up about 12.5% in the quarter. Now, that’s a little bit slower than we’ve been growing and I think that we’ve talked about a 25% target for the year. We still believe that that’s achievable. There was some, just a change in timing of shipments to a couple of our big distributors which caused that number to be a little bit lower than how we’ve been running, but again, I think the 25% is reasonable. And no, there’s really not a material… Because of the distributor model in which we operate there’s not a material impact on our tax rate from the improvement in international, or the growth in international.

Steve Marotta – CL King & Associates

Lastly do you have $125 million left on the repurchase? Is that accurate based on what the Board approved about 30 to 45 days ago?

Ed Rosenfeld

No, there’s been some repurchase since then. I don’t have the number off the top of my head.

Steve Marotta – CL King & Associates

Okay, that’s fine. Thank you very much.

Ed Rosenfeld

Thanks, Steve.

Operator

We’ll go next to Scott Krasik of BB&T.

Scott Krasik – BB&T

Hey Ed, thanks and good morning. What is the retail comp quarter-to-date and what’s the retail comp implied in the full-year guidance?

Ed Rosenfeld

[laughs] I don’t think I’m going to tell you that. We usually don’t disclose either of those things. What I’ll tell you, I’ll say for the full year I think sort of in line with where we’ve been is a reasonable assumption.

Scott Krasik – BB&T

Okay. That’s helpful. And then you kept the sales guidance the same although we’re at least a little late relative to our expectations for this quarter. And sneaker wedges is a category that’s definitely trailed off based on our checks. So which parts of the business do you expect to be stronger I guess relative to maybe when you spoke to us last quarter and gave the sales guidance?

Ed Rosenfeld

Sure, yeah. I think you’re absolutely right, that the sneaker wedge category has been a little disappointing and currently is not performing the way we all hoped – not only for Steve Madden but for the industry as a whole. But dress shoes have really accelerated and are doing far better than we anticipated when we came into the year, and we also now have real good initial reads on boots and booties. So we feel increasingly good about that category as well.

Scott Krasik – BB&T

Okay, that’s great. And then last on bags, you had some really hyper growth rates but we’re actually seeing more Steve Madden bags at Nordstrom. Do you have the potential to elevate the Steve Madden handbag business the way you did with footwear and gain that shelf space or is it just too crowded with too many good brands in bags?

Ed Rosenfeld

Yeah, I think we still have a lot of opportunity with the Steve Madden bag business, a lot of runway as we said earlier ahead of us. So that’s certainly the goal. Now, we want to continue to stay in our lane. We’re not going to try to move up and go after Kors and Coach and those guys. We think that we have a real solid niche and that sort of $100 bag area is where we should be playing.

Scott Krasik – BB&T

And Big Buddha Bags, what was that?

Ed Rosenfeld

Big Buddha’s a little tough right now. Steve Madden and Betsey Johnson are both performing very well and Big Buddha is struggling a little bit. We’ve lost a little bit of business in the specialty boutique channel but we’ve actually in fact just hired somebody new to run that business who’s going to be joining us in about a month. So hopefully we’ll get that turned around.

Scott Krasik – BB&T

Okay. Good luck, thanks.

Ed Rosenfeld

Thanks, Scott.

Operator

We’ll go next to Jane Thorn Leeson of KeyBanc.

Jane Thorn Leeson – KeyBanc Capital Markets

Hi. Congratulations on a good quarter. I just had a quick question on the promotional environment. It seems like the promotional environment wasn’t as bad as you specifically had feared – is that right? And do you feel like the aggressive level overall will lighten up in the fall as compared to what it was like in the first half?

Ed Rosenfeld

Yeah, I think you’re right. You know, in April we were forced to get a little bit more promotional than we otherwise would have liked to remain competitive with some of the other people in the mall. But when the weather turned our sandals really sold through very well and so we were able to be a little bit less promotional than we had feared as you point out, and that’s why we saw that nice gross margin improvement – a lot of which was really driven by the June month where a year ago we were pretty aggressively promoting sandals and this year we were selling through at a better price.

Going into the back half, yeah, we certainly hope so. As you know a lot of the promotional environment in spring was driven by how the weather really wreaked havoc on the season, so as we move into fall we hope that that’s not repeated.

Jane Thorn Leeson – KeyBanc Capital Markets

Okay. And I just had a quick follow-up on that: I started to see 30% off fall styles on email promos from Steve Madden. Is that typical timing for fall right now?

Ed Rosenfeld

Yeah, that’s something we call a sneak peek – that’s a pre-season sale that we do. I guess a sort of analogy would be the Nordstrom Anniversary Sale where we bring in new fall product and run a sale for a limited time to try to create some excitement around the fall, the new season.

Jane Thorn Leeson – KeyBanc Capital Markets

Okay. And then my last question was just on the outlook or particular drivers for Steve Madden Women’s footwear in the second half – would that be, or do you expect acceleration from the first half in terms of how that performed?

Ed Rosenfeld

We expect to do better than the first half. We haven’t put super aggressive forecasts into our model relative to last year because we have very tough comparisons in the back half to Steve Madden Women’s. I think we were up 15% in Q3 and 19% in Q4 or thereabouts, so we’ve been cognizant of that and have taken a relatively conservative look. But we do feel good about the product and the brand strength at the retailers.

Jane Thorn Leeson – KeyBanc Capital Markets

Okay, good. Thank you.

Operator

We’ll go next to Taposh Bari of Goldman Sachs.

Taposh Bari – Goldman Sachs

Hey, good morning, nice job. So do you mind just elaborating on just the reorder environment, how retailers are managing inventories – what the level of inventories look like at retail now? I mean it’s not only the last six months that have been unfavorable for weather but really the last two winters, so I’m just trig to get a better handle of how retailers are managing flow and inventories.

Ed Rosenfeld

Yeah, in terms of what they’re doing for fall, we are seeing everything pushed back a little bit as we talked about because of the late break to spring. But other than that cold weather accessory category that I talked about we’re not seeing any dramatic changes in upfront ordering patterns. You know, here or there are people trying to say “Let’s wait a little bit longer, or let’s order a little bit less upfront and try to fill more in season?” Yeah, but there’s not been any dramatic change compared to a year ago.

Taposh Bari – Goldman Sachs

Okay. And then just on the competitive environment, you’ve got some of the more traditional cold weather companies in light of what you just mentioned trying to get more into this transitional fall period. Coach is beefing up their footwear category in a bigger way. Does that have any real material impact on your business?

Ed Rosenfeld

I don’t think that… I mean look, we’ve had a lot of tough competitors pretty consistently over the last handful of years. I don’t see any meaningful change in the competitive environment, certainly not from the guys that I think you’re speaking about.

Taposh Bari – Goldman Sachs

Okay. And the last one I have for you is just on capital allocation. There were a lot of questions on M&A but what’s your view on a dividend? I know there’ s a history here of special dividends quarterly, or special dividends going out into the future. What’s your view on leverage? So this past quarter it seems like it’s pretty much as bad as it can get and yet you managed SG&A very well and inventories well, so do you feel like this is a business that could take on leverage at some point down the road?

Ed Rosenfeld

I think we do believe that we could take on leverage and it’s something that we have been talking about at the Board level and we’ll continue to evaluate. But you know, certainly there’s a long way from where we are to there right now because we’ve got $290 million of cash on the balance sheet and we’re generating a lot of cash. So you know, an interim step may be to utilize more of the cash whether it be through share repurchase or as you mentioned there’s obviously the opportunity to do a dividend. But yeah, certainly this is a company that could support leverage.

Taposh Bari – Goldman Sachs

Okay, thanks a lot and good luck.

Ed Rosenfeld

Thanks, Taposh.

Operator

We’ll go next to Sam Poser of Sterne Agee.

Sam Poser – Sterne Agee

Good morning and thanks for taking my call, Ed. Just on your guidance, you said that it’s going to be more backend weighted and it sounds like a lot of that might be a one-week shift from the calendar, from the issues of the retailers I guess at the end of September going into October versus last year. But how should we think about it as far as… I mean are we looking for like a mid-single digit increase in Q3 and then like low-doubles in Q4 kind of thing? Is that how we should sort of think about it a little bit better?

Ed Rosenfeld

You know, Sam, we’re really not going to provide any more details. I mean our policy has really been to provide annual guidance and not to provide quarterly guidance. We wanted to give you a little directional color that we think that Q4 is going to grow faster than Q3 but I don’t think we’re going to give any more detail beyond that.

Sam Poser – Sterne Agee

Okay, alright. And then the retailers, just to follow up on the question about how the retailers are acting: you guys have the benefit of being much closer to need than many of your competitors. But even there it sounds like things are moving around a bit. Are you having to speed it up at all or what are you doing as the retailers become even more I would say looking to buy more stuff closer to need?

Ed Rosenfeld

Well, as you know, speed has always been a focus for us and I think one of our strong suits, so we’re really just continuing to do what we do. One of the things that we are doing though is that we’re continuing to ramp up the production in Mexico which enables us to be even faster and to work even closer to need. And we continue to think that when the retailers are operating that way that in many ways it plays to our strengths because we feel that we are faster than most of our competitors.

Sam Poser – Sterne Agee

Thanks. And then lastly, your commission income, how should we think about that? I’ll say on an annual basis versus last year, how should we be thinking about that because it was a little lighter than what we thought it was going to be this quarter?

Ed Rosenfeld

Yeah, it’s definitely, I think you should definitely plan that down modestly versus last year – maybe down about $1 million, somewhere in there on an annual basis. And again, that’s something that because of the timing of the orders that we have in-house it’s going to be weaker in Q3 and stronger in Q4.

Sam Poser – Sterne Agee

Thanks very much, good luck.

Ed Rosenfeld

Thank you.

Operator

We’ll go next to Danielle McCoy of Brean Capital.

Danielle McCoy – Brean Capital

Good morning, guys, congrats on a great quarter. I was just wondering if you can give us an update on the repositioning of Steve Madden at Macy’s. Was there any more door expansion, any more color on that?

Ed Rosenfeld

Sure. Well, it continues to go well. The sell throughs continue to be improved at Steve Madden, and as we talked about it’s also helping the Madden Girl business in the junior department which has remained in the junior department to grow there as well. So we’re on track to expand doors for fall again. We’re adding about 30 more table doors for fall, we’ll be up to about 260 table doors. And then as you know we have another 225 doors where we’re shipping Steve Madden product that are non-table doors. So that’s working really as we expected and we’re really pleased about it.

Danielle McCoy – Brean Capital

Alright, great. Thank you, guys.

Ed Rosenfeld

Thanks, Danielle.

Operator

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

Mike Richardson – Sidoti & Company

Yeah, good morning and thanks for taking my call. I think most of my questions have been answered but if you can, Ed, just give us a quick update on the Steve Madden jewelry and watches I would appreciate it. Thanks.

Ed Rosenfeld

Sure. So as you know we’re doing those under license with our partner Haskell Jewels. The jewelry is going to be hitting stores this month, over the next couple weeks it’ll be in-store; and then the watches will be hitting stores in Q4. And we’ve got real good reaction to it. It’s going to be in a similar distribution to where we distribute the shoes, so to better department stores and specialty stores. We’re also going to do, we’re going to put the product in about twenty of our retail doors starting in about a month and we feel good about it.

Mike Richardson – Sidoti & Company

Can you give us the price point for each of those?

Ed Rosenfeld

Yeah, the watches are about $65 and the jewelry, most of it’s between $25 and $30.

Mike Richardson – Sidoti & Company

Great, thanks Ed. Good luck.

Ed Rosenfeld

Thanks, Mike.

Operator

We have no further questions. Mr. Rosenfeld, I would like to turn the call back over to you for any additional or closing comments.

Ed Rosenfeld

Great. Well thanks very much for joining us on the call and we look forward to speaking with you on the Q3 call.

Operator

That does conclude today’s conference. We want to thank you for your participation.

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