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Steven Madden, Ltd. (NASDAQ:SHOO)

Q4 2007 Earnings Call

February 19, 2008 10:00 am ET

Executives

Leigh Parrish – Financial Dynamics

Jamieson A. Karson – Chairman of the Board, Chief Executive Officer

Ed Rosenfeld – Executive Vice President Strategic Planning

Analysts

Scott Krasik – C. L. King & Associates, Inc.

Jeff Mintz – Wedbush Morgan Securities, Inc.

Jeff Van Sinderen – B. Riley & Company, Inc.

Heather Boksen – Sidoti & Company

Michael Lippold – Craig-Hallum Capital

Sam Poser – Stern, Agee & Leach

Operator

Good morning ladies and gentlemen and welcome to the Steven Madden Ltd. conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. Any reproduction of this call in whole or in part is not permitted without prior express written authorization of the company. As a reminder ladies and gentlemen this conference is being recorded. I would like to introduce your host for today’s conference Mrs. Leigh Parrish of Financial Dynamics. Please go ahead.

Leigh Parrish

Good morning and thank you for joining this discussion of Steven Madden Limited fourth quarter employer results. Before we begin I’d like to remind you that statements in this conference call that are not statements of historical or current facts constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other unknown factors that could cause the actual results of the company to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. The statements contained here in are also subject generally to other risks and uncertainties that are 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 more information on risks factors that could cause actual results to differ. Finally, please note that any forward-looking statements used in this call should not be relied upon as current and updated. I’d now like to turn the call over to Jamie Karson, Chairman and CEO of Steven Madden Limited.

Jamieson A. Karson

Good morning and thank you for joining us as we review Steven Madden Limited’s results for the fourth quarter and full year ended December 31, 2007. With me to discuss the business is Ed Rosenfeld our Executive Vice President of Strategic Planning and Finance. Before I give an overview of our performance for 2007 I would like to note that as we announced in a separate release this morning the company’s strategic review committee and its board of directors have completed the review of strategic alternatives to enhance shareholder value. The board thoroughly evaluated a variety of alternatives as part of the review process and determined that the best method of maximizing value for our shareholders at this time is to complete a modified Dutch auction tender offer. The board considered a number of other alternatives including the sale of the company and concluded that current market conditions, the company’s financial position and stock evaluation make this an opportune time to launch a self tender. As a result the company will be completing a modified Dutch auction tender offer to repurchase up to 2.6 million of our outstanding shares at a price between $16.50 and $20.00. Officers, directors and other insiders are not tendering shares. As noted in our release the tender offer will commence tomorrow and will expire unless extended at midnight on March 18, 2008.

Now turning to the performance for the year, as previously reported we experienced the effects of weak consumer spending in the second half of the year and particularly during the holiday season. As we’ve discussed on recent calls we have also been faced throughout the year with a continued absence of major fashion footwear trends. Importantly despite the difficult environment in 2007 we continue to execute on the strategic initiatives that we believe will further strengthen our business, reinforce the power of our brand and position us for long term growth. First, we maintained our strong focus on our core footwear business of both wholesale and retail. It was a challenging year in our wholesale division as a result of the lack of a major footwear trend, weak footwear environment and the discontinuation of three brands that were not carried over from the prior year [Rule], LEI, and Jump. However, we made solid progress on expanding the demographics of our customer base.

Madden Girl which is one of our newer more moderately priced diffusion brands continued to perform well and generated sales growth for the year. In addition we launched the line of fashion forward sneakers called Steve Madden’s Fix and this new line has generated a very strong customer response. All of our design teams led by Steve continue to create fresh and unique styles that resonate with and excite customers and enhance our brand equity. Further, we continued to identify opportunities that allow us to successfully tap into new footwear categories.

While we also experienced headwinds in our retail business we were able to continue to successfully open stores in key markets where we have an existing strong customer base. For the year we opened seven stores and closed two underperforming locations. Second, we continue to introduce new products as part of our effort to diversify our business model. In our Daniel M. Friedman accessories division we were very pleased with our customer’s response to our Steven Madden and Steven handbags further validating that our customers accept and love our namesake brands in other merchandise categories than footwear. Additionally, our accessories division has successfully nurtured and built innovative design teams for all of its businesses particularly in Betsy Johnson. We also signed a new hosiery license this year and we continue to explore additional licenses that complement our brand portfolio and can contribute to the successful expansion of our product portfolio.

In addition to the growth we achieved in Daniel Friedman and the expansion of our license business we continue to identify opportunities in the international market. As most of you know we have distribution agreements in a number of countries such as Canada, Mexico, Israel, Turkey, Australia and Dubai. During the year we signed a new distribution agreement for Asia and we believe there’s tremendous growth potential for our brand in that market. Finally, we continue to use our capital efficiently to support our growth. During the year we acquired our outsourced ecommerce solutions provider which enabled us to incorporate our important and thriving ecommerce business into our internal operations.

While we’re not satisfied with our results we remain confident in our proven business model which has enabled us to be successfully in a changing and dynamic fashion environment. While 2007 was not as robust as 2006, if we look back three years we’ve grown sales at 8% and diluted EPS at 40% on a compounded annual basis since 2004. We have a very strong foundation in place that positions us for sustained growth as economic and business trends improve.

Before I turn the call over to Ed to review our fourth quarter and full year results in more detail, I’d like to take a moment to discuss some of our areas of improvement in growth objectives for 2008. First, we believe our retail division presents strong opportunity for our business moving forward and it will be a priority for us this year. We just opened a flagship store on Collins Avenue in Miami and will be opening two stores in Manhattan over the summer, a flagship on the corner of 58th and Lexington and a store on Broadway near Union Square. Second we will continue to focus on the growth of our core footwear business through newer brands such as Madden Girl, which allows us to penetrate a broader mix of customers as well as through new merchandise introductions such as Steve Madden’s Fix. In the coming months we will expand our offering of Steve Madden’s Fix beyond Nordstrom into Journeys, Macys, Dillards and other accounts. Finally, we will leverage our strong brand equity and continue to expand our offering in other merchandise categories beyond footwear.

In closing we are taking a conservative view of fiscal 2008 given the current macroeconomic environment however, we will continue to direct efforts toward initiatives across our wholesale and retail business that will generate additional growth for the company in the future. Now I’d like to turn the call over to Ed.

Ed Rosenfeld

Consolidated net sales in the quarter were $102.7 million versus $114.1 million a year ago. Our net sales results reflect a decline in wholesale footwear sales due to a weak retail environment and a lack of fashion trends that was partially offset by increases in the accessories and retail division. Gross margin for the quarter declined from 40.8% last year to 37.9% this year as a result of increased promotional activity in both the wholesale and retail segments. The company also experienced operating expense deleveraging due to the lower sales as well as the decline in commission income from our private label business. The net result was a decline in operating margin from 14.6% last year to 6.8% this year. Diluted EPS for the quarter was $0.23 a share on 20.4 million diluted weighted average shares outstanding compared to $0.45 a share on 22.3 million diluted weighted average shares outstanding in the prior year.

Now I’ll talk about the performance of each of our divisions. Net sales for the wholesale division were $63.5 million versus $76.6 million the comparable period of 2006. This division was comprised of eight segments in the quarter: Steve Madden Women’s, Steven by Steve Madden, Steve Madden Men’s, Madden Girl, Stevies, Candies, Steve Madden’s Fix, and Daniel M. Freidman. Net sales for the Steve Madden Women’s wholesale segment were $25.3 million in the fourth quarter of 2007 compared to $31.8 million in the same period of the prior year. Net sales for Steven by Steve Madden were $2.8 million in Q4 down from $6 million in the comparable period a year ago. While the boot category was stronger in the Q4 2007 than in 2006 it was not enough to offset the overall lack of fashion drivers and tough retail environment. Net sales in Steve Madden Men’s were $12 million in the quarter versus $12.6 million in the prior years fourth quarter. In keeping with the trend over the prior year, driving mocks and dress shoes performed well, while sport fusion styles were disappointing. Madden Girl was the bright spot in the quarter generating $5.9 million in net sales a 7% increases from $5.5 million in the fourth quarter of 2006. Pleased with the momentum we’ve seen in the Madden Girl division and will be looking for continued growth from this segment in 2008. As expected our Candies and Stevies division struggled in the quarter. Net sales for the [Stevies] division were $500 thousand versus $2 million a year ago; while net sales in Candies were $1.5 million versus $4.3 million the comparable period. We made the first shipments of our new Steve Madden’s Fix brand in December. We started off with an exclusive for Nordstrom’s and the initial sell throughs there have been very strong. Fix contributed $400,000 in net sales in the quarter. Our last wholesale division, Daniel M. Friedman accessories business had net sales of $14.9 million in the quarter, a 14% increase from $13 million in the same period of 2006. Strong sales of hand bags drove our accessories business as we experienced solid growth with Betseyville, Steve Madden, and Steven Bags. Taking all this together, overall wholesale sales were $63.5 million in the quarter versus $76.7 million a year ago. Overall wholesales gross margin decreased from 31.5% last year to 26.8% this year due primarily to higher mark down allowance.

Moving on to our retail division, fourth quarter sales were $39.3 million up 5% from last years $37.5 million. Comp store sales were essentially flat in the quarter, declining .1% versus Q4 of 2006. Gross margin in the retail division was 55.9% versus 59.9% a year ago. The company aggressively moved to clear slow moving inventory in the quarter, and increase promotional activity to compete in a very promotional holiday selling season. As of year end, we had 101 stores in operation, including our Internet store. During the quarter we opened three new stores and closed two under performing locations. For 2007, stores opened for the full 12 months generated $655 in sales per square foot.

Moving to other income, the company’s commission and licensing fee income netted expenses was $2.9 million this year compared to $3.8 million last year. Income netted expenses from our Adesso-Madden first cost divisions was $2.1 million versus $3.1 million a year ago. This decrease was due primarily to a reallocation of expenses from the wholesale division to Adesso-Madden. Our gross commission income from the Adesso business was down 5% as the challenging consumer and fashion trend environment that has affected our core wholesale and retail segments, began to impact our private label business. Licensing income was up from $665,000 in Q4 of 06 to $805,000 in the fourth quarter of 07, a 21% increase.

Now, I would like to briefly touch on our full year results. Net sales for the full year decreased 9% to $431.1 million. Wholesale sales declined 11% to $310.4 million, and sales for the retail division decreased 5% to $120.6 million. Comp store sales were down 7.6%. Commission and licensing income was up 29% to $18.3 million, driven by a 30% increase in commission income at our Adesso-Madden division, a 26% increase in licensing royalty income. Gross margin for the year declined from 41.8% last year to 40.2% this year. Operating expenses as a percent of sales increased by 360 basis points, excluding a one time charge for prior year customs duties. Annual net income excluding non-recurring items decreased from $46.3 million in 2006 to $33.6 million in 2007. Diluted EPS excluding non-recurring items was $1.58 compared to $2.09 in 2006.

With respect to the balance sheet, we continue to maintain a debt free balance sheet and ended the year with $109.9 million in cash, cash equivalent, and marketable securities. Total inventory at the end of the year was $27.2 million, down from $33.7 million at the end of 2006. Our inventory turn for the year was 8.1 times. Accounts receivable and due from factor were $41.2 million reflecting average collection of 48 days, cap ex was $5.1 million for the quarter and stock holders equity as of December 31st, was $215.3 million.

Before we turn the call over for your questions, I would like to briefly discuss our outlook for 2008. Based on current visibility, the company expects 2008 net sales will be flat to an increase of 2% compared to fiscal 2007 and earnings per diluted share will range between $1.45 to $1.55 excluding any impact from share repurchases. Due to easier comparison in the back half of the year, the company expects sales and earnings to be more heavily weighted to the second half of 2008 relative to 2007. Now I would be happy to answer any questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is coming from Scott Krasik, C. L. King

Scott Krasik – C. L. King & Associates, Inc.

First question, on the boot business, it obviously turned out pretty good. I knew you went into the season thinking about filling orders on a cut to order basis, and then you scrambled a little bit to fill reorders, what’s the approach in 2008, are you looking to maintain a certain margin there again?

Ed Rosenfeld

Yeah, were going to do a little bit of both. We’re really out in front of the boot business this year, because we got these great reads from the tale end of this years boot season, so looking into next year we’ve got a lot of boots that we’re going to production with early, we’ve got a lot more orders at this time of year, than we did a year ago on boots. We are doing some of it on a cut to order basis, but we feel good about the boot category so we’re going to own some boots as well.

Scott Krasik – C. L. King & Associates, Inc.

Ok so that fits in with the next question. At the [Fannie Show], we saw you a couple of weeks ago, it seemed like your sales people were actually writing orders for as far out as July. It’s a little bit farther out than you guys normally work, which I think is a good thing, what does that do for you guys in terms of visibility in your wholesale business for the year versus past years?

Ed Rosenfeld

Well it helps. The complicating factor as we talk to you right now, there was a different show schedule this year, there was the [Fannie show], which was a new show in February but we have not yet had the Vegas Shoe Show so, will have much better visibility after that show is complete. But, we do, as you point out, do have a little bit better view on late second early third quarter orders than we’ve had in the past.

Scott Krasik – C. L. King & Associates, Inc.

Are brands treating you differently because you’re going to more of a normal sort of schedule?

Ed Rosenfeld

No we’re still Steve Madden and we’re still going to fill orders in season and be able to move quickly.

Scott Krasik – C. L. King & Associates, Inc.

Ok, and then just lastly, the retail comp was better than I expected at least, was that related to the boot sales raised your average ticket, or were units up?

Ed Rosenfeld

Yes, the average unit retail was up because of the boots.

Scott Krasik – C. L. King & Associates, Inc.

Okay. How much, do you know?

Ed Rosenfeld

Well, it was up relative to where it had been the rest of the year, when we had been down substantially, we were actually about flat in units and in average unit retail, but for most of the year, as you know we were running down high single digits in the average unit retail.

Operator

Our next question is coming from Jeff Mintz from Wedbush

Jeff Mintz – Wedbush Morgan Securities, Inc.

A couple of questions here, first of all on the fixed business, you’re doing that exclusively for Nordstrom, can you tell me when your going to start shipping to other retailers on that business?

Ed Rosenfeld

We already have. We already started shipping to Journeys, Macys, Dillards and a number of other accounts.

Jeff Mintz – Wedbush Morgan Securities, Inc.

Okay so it was exclusive for what, about eight weeks or something like that?

Ed Rosenfeld

A little over a month

Jeff Mintz – Wedbush Morgan Securities, Inc.

Okay. Great and then just on what your seeing in terms of trends, obviously were not seeing anything too big, at least as far as I can tell, but I’m wondering if your seeing anything that you think could help kind of as we head towards the middle of the year and into the fall.

Ed Rosenfeld

Your right, we still don’t see that must have fashion trend, there are categories that are performing obviously, the boots have been good and continue to be good, flat sandals are looking good for spring, sexy footwear that the girls would wear to clubs is looking good, but were still looking for that must have item and I don’t think that that has emerged yet.

Jeff Mintz – Wedbush Morgan Securities, Inc.

Are you seeing anything in terms of color and kind of the possibility for doing brighter colors this year?

Ed Rosenfeld

Absolutely, absolutely that is something that looks good, we’ve seen a lot of that on the runway shows and we’ve gotten good early response to some items with more color.

Jeff Mintz – Wedbush Morgan Securities, Inc.

Okay. Great. And just on the retail business, do you have a sense of store openings expectations for 2008 is it going to similar to 07 numbers?

Ed Rosenfeld

It’s going to be fewer. We’ve already opened one, as Jay mentioned on Collins Avenue in South beach in Miami, and we’ve got two more store openings scheduled both in Manhattan, one on 58th street and Lex which will open Q2, and one near Union Square that will open Q3.

Jeff Mintz – Wedbush Morgan Securities, Inc.

And is that all that you expect to do for the year?

Ed Rosenfeld

That’s all we expect for the year at this point. We’ve also got three closings this year, we’ve already closed two stores and were expecting to close one more.

Operator

Our next question is coming from Jeff Van Sinderen from B. Riley

Jeff Van Sinderen – B. Riley & Company, Inc.

Can you talk a little bit more about what’s driving the growth in Madden Girl and what the outlook is for that business, how we should expect that to evolve?

Ed Rosenfeld

Yeah, the team did a great job there. Obviously, it is a younger and less mature business then say a Steve Madden, so there was more room to grow there. But overall, I think they did a very nice job with the products, great job with the boots in particular, and we may have seen a little bit of a trade down effect as well, as the economy slowed and the consumer softened a little bit, you may have seen some people trading into the Madden Girl type product, which is you know is opening price point. But we do look for that business to continue to grow. I think that should be up 10% to 15 % this year, and the big growth driver there is really Macys. We were in 80 doors of Macys last year, and we’ve gone to about 170 doors for spring, and we’ll be looking to go to a minimum of 220 doors if not more for fall. We’re on a nice trend there and we’ll be looking for continued growth from Madden Girl

Jeff Van Sinderen – B. Riley & Company, Inc.

Okay, good. Then maybe you can update us on how you’re planning your retail business and I guess what are the issues you’re focusing on for the retail business to continue to improve profitability? I know you had mentioned that as one of your major initiatives this year.

Ed Rosenfeld

Yeah, absolutely. Like I said, were being conservative with our store opening plan this year, and if you count the two stores that we closed in the fourth quarter, we have five closings, so were really trying to pair some of the under performing locations, and really focus on the profitability of an existing chain before growing it more rapidly. The most important initiative in retail though is that we just recently hired a new president of retail, he’s been with the company a couple of weeks, a very experienced retail and footwear guy, who’s been head of a couple of chains, most notably Bata Shoe and Athletes world in Canada, which has approximately 300 stores, and most recently he was running something called Olsen in Canada. He’s also had experience with Champs and Footlocker and he’s just started with us, and we think he’s going to make a great contribution, as you know that was the role that has not been - that was an open position for us for some time

Jeff Van Sinderen – B. Riley & Company, Inc.

Alright, that’s good news. Then as far as the licensing business anything new that your targeting there?

Ed Rosenfeld

No, I think its mostly focusing on the existing licenses, Although, we are looking at things, we’ve beefed up our licensing department there, and I think your going to see us get a little bit more active in signing new licenses, I think were now ready to look at sports wear, fragrance, cosmetics, jewelry ,and some of these other categories that we’ve been holding back on. Hopefully, we’ll have some deals to announce this year.

Jeff Van Sinderen – B. Riley & Company, Inc.

Then finally, as you went through your planning process and put together guidance for this year, what is factored into the second half of the year? I know you mentioned that you thought the year would be back end loaded, are you assuming pretty much a status quo type environment? I know the comparisons get easier or are you assuming that, I’m thinking you’re probably are not thinking that a major trend drives the business in the second half. But maybe you could just give us a couple of thoughts on that.

Ed Rosenfeld

Yeah, that’s right, were expecting and the guidance assumes basically a status quo environment. I wanted to be clear about what were saying when we say its back half weighted, were talking about relative to 2007, and that’s because in 2007 the earnings were unusually weighted towards the first half. In 2007 we did about $0.93 in the first half and about $0.65 in the back half, which is not indicative of the normal seasonality of the business, its just that we had a better first half than the second half. All we’re saying this year is that we will return back to a normal earnings distribution, more evenly distributed between first half and second half.

Operator

Our next question is coming from Heather Boksen from Sidoti & Company.

Heather Boksen – Sidoti & Company

You talked about for 08 with the wholesale division looking for growth out of Madden Girl and Fix, are there any other divisions that you would think year-over-year we should see some mild revenue growth out of?

Ed Rosenfeld

In wholesale the biggest one would be Danny Friedman, we really have a nice trend with our handbag business even Steve Madden as well as Betseyville and so we’ll be looking for growth there.

Heather Boksen – Sidoti & Company

Okay. And also you said you’re only going to open three stores this year, I believe. Is that just a factor of the retail environment or is that a store opening pace we should expect from you guys going forward? Has the idea been kicked around yet at any level to maybe increase the store expansion pace?

Ed Rosenfeld

Yeah, as I said, we just hired a new president, we want to get him involved and work on the existing chain this year, and then I would expect we would be looking to accelerate the store opening pace starting in 2009

Jamieson A. Karson

Yeah, the thing to keep in mind there is that we have previously enunciated the notion that we’re going to focus our stores in the urban markets where we know we do well. So, the three stores that were talking about, one is on Collins avenue in South Beach, one is on the corner of 58th and Lexington, and one is in Union Square, so while its only three in number, they’re tremendous locations and we expected great things out of those new stores.

Ed Rosenfeld

And more over, the dollar contribution from them could be as much as say six or seven mall stores. These are big dollar locations.

Heather Boksen – Sidoti & Company

Switching gears a little, you mentioned one of the reasons commission dollars were down was because of a reallocation of expenses. Is this something we should see a similar impact through the first three quarters of 08 to?

Ed Rosenfeld

You’re asking about the reallocation of expenses?

Heather Boksen – Sidoti & Company

Yeah, was this a one time thing or will we see the.

Ed Rosenfeld

Keep in mind these are not new expenses they’ve just been moved from one location to another. So, I think the thing to focus on is that the commission income itself was only down about 5%. There was a $1 million, in the number that we report to you for Adesso-Madden which is income net of expenses, it was a $1 million shortfall, but about $750,000 of that was just a reallocation of expenses. The commission income itself is only down about $250,000.

Heather Boksen – Sidoti & Company

Lastly, one housekeeping question going forward, what kind of tax ratio would we’d be assuming?

Ed Rosenfeld

39%.

Operator

(Operator Instructions) Our next question is coming from Michael Lippold from Craig-Hallum Capital.

Michael Lippold – Craig-Hallum Capital

Two questions first, yearend cash balance was a little bit higher than I estimated. Any unique that lead to a bigger cash balance?

Ed Rosenfeld

Yeah. There were some timing issues related to some payables and receivables there and keep in mind that this is a seasonal high point for us in terms of cash. After first quarter even absent any share repurchase you would expect to see that number swing to something more like $90 million.

Michael Lippold – Craig-Hallum Capital

Okay. Second, how much focus from the company is on the international opportunity? And I guess connected to that will we see any material increase in income from maybe the already signed deals or any new potential deals?

Ed Rosenfeld

Well we’re very focused on it and I think our focus on the business has increased recently as we start to really see ourselves gaining traction there and as you know we’re very excited about this GRI deal. Let me give you a quick update there, GRI is scheduled to have three flagship stores open for us by April 15th those being in Beijing, Hong Kong and Tokyo. Beijing in time for the Olympics which is exciting and then by the end of the year they have committed to having 45 concessions or stores within a store for us. So we’re moving along very nicely there and I think you will start to see some meaningful income contribution particularly towards the back half of this year.

Michael Lippold – Craig-Hallum Capital

Perfect. And depreciation for 2007, can you give us that number?

Ed Rosenfeld

Sure. Depreciation $6.6 million, amortization $1.7 million and then loss on disposal of fixed assets $800,000.

Operator

Our next question is coming from Sam Poser from Stern, Agee & Leach.

Sam Poser – Stern, Agee & Leach

Just a quick question on what share count should we be assuming for next with all of this, with the tender offer going on?

Ed Rosenfeld

You tell me. We don’t know when the tender offer is going to be completed so we can’t.

Sam Poser – Stern, Agee & Leach

What was you’re guidance based on?

Ed Rosenfeld

The guidance was based on no share repurchases. Or the guidance excludes the impact of share repurchases and excluding any share repurchases you could have used $20.7 or $20.8 million, somewhere in there.

Sam Poser – Stern, Agee & Leach

What kind of markdown liability do you still have in the first half of the year with the department stores and so on? I mean we assume that you’re still paying back some of that stuff?

Ed Rosenfeld

There’s no real carry over. We went into the year in normal clean fashion with the department stores.

Sam Poser – Stern, Agee & Leach

Okay and then can you also talk about the pricing increases that you’re seeing and any challenges you might be having? Because we’ve heard pretty consistently prices are going out of China with possibly how you’re maintaining a good price value relationship as these prices are going up?

Ed Rosenfeld

Sure as you pointed out based on the social compliance requirements, as well as the reduction in government subsidies, as well as the currency reevaluation, we’ve seen increases out of China of 10 to 15%. We are, you know fortunately, everybody makes shoes in China is feeling the same effects, so much of this is being passed through. We do feel there’s going to be some impact to gross margin because we don’t want to destroy the price value relationship as you alluded to. So there’s probably going to be about 100 basis points of gross margin pressure due to these increases out of China. But one of the other things that we’re doing is we’ve just focused on improving the quality of our shoes regardless and we’re really putting a lot more into the shoes and we will be raising the prices somewhat to reflect that and we’re also doing some of our production in other countries. We’re doing some shoes out of Brazil that we can really get the quality that we want.

Sam Poser – Stern, Agee & Leach

Does that risk carry you into a competitive zone with others and a lot of shoes are getting close to closing in on that $100 price point? How are you balancing sort of the brands historical position of with sort of the consumer’s ability to pay higher prices and so on?

Ed Rosenfeld

Our position relative to our competitors is staying where it’s been because you’re seeing everybody increase prices somewhat to account for this increase out of China.

Operator

Our next question is coming from John Curty of Principal Global Investments.

John Curty – Principal Global Investments

I was wondering if you could tell us what your anticipated capital spending will be for 2008?

Ed Rosenfeld

Yeah, we’re looking at about $11 million for 08 down somewhat from 2007 when we spent approximately $13 million.

John Curty – Principal Global Investments

And could you break that down between the retail stores and whatever else you’re doing in terms of systems or anything else?

Ed Rosenfeld

The retail would be about $6.6 million and that’s both the new stores that we’re doing as well as a number of remodels that we have scheduled for the year. We put $4 million of systems work. There is a new planning and allocation system for resale, upgrade of our ADI system, new [inaudible] for retail and a new financial forecasting system and then about $400,000 or so of other cap ex.

Operator

(Operator Instructions) There are no further questions. Please continue with any closing comments.

Ed Rosenfeld

Thank you for participating on the call and we look forward to speaking with you on the next call.

Operator

Ladies and gentlemen that does conclude our conference call for today. You may now disconnect and thank you for participating.

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