Good day, everyone. And welcome to the Steve Madden Ltd. First Quarter Fiscal 2012 Earnings Conference Call. Today’s call is being recorded. For opening remarks and introductions, I’d like to turn the call over to Jean Fontana of ICR. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us today for the discussion of Steve Madden’s First Quarter 2012 Earnings Results. Before we begin, I would 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 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, generally 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 more 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.

Thanks, Jean. Good morning everyone and thank you for joining us today as we review our first quarter results and discuss our outlook for the remainder of the year. We got off to a great start to 2012. Net sales increased 60.5% in the quarter compared to the first quarter of last year. Diluted EPS grew 19.5% versus Q1 2011. Before I get into the details of the financial performance, I want to first touch on a few highlights from the quarter. First, we had another outstanding quarter in our core Steven Madden Women’s wholesale footwear business. As always, the foundation of our success here was outstanding product. Our ability to consistently hit the trends is a direct result of the combination of our outstanding creative team led by Steve with our proven test and react model and speed-to-market capability. First quarter, Steve and his team once again delivered an on trend merchandize assortment with particular strength in casuals and sandals. As a result, our Steven Madden women’s wholesale footwear business increased over 20% in the quarter, bringing our sales growth for the 12 months ended March 31 2012 to 18% compared to the prior year in this business. Strength in the Steven Madden product assortment also resulted in excellent performance in our retail business. We recorded our seventh consecutive quarter of double digit comparable store sales gains, and our trailing fourth quarter operating margin, retail reached 12.9%. In addition, we had 2 important new store openings in the quarter. First, we opened our seventh outlet store in Opry Mills outlet center in Nashville, Tennessee. We continue to be very pleased with consumer response to our new outlet concept. And then most exciting, in March, we opened a new flagship store on Fifth Avenue in New York between 42nd and…

[Operator Instructions] And our first question comes from Oliver Chen with Citi.

Speak to on your feelings on the wholesale gross margin regarding the back half, should we still think about an inflection you encourage there?

I’m sorry. I just -- you just came in the middle there. You’re asking about the wholesale gross margin in the back half?

Right. And also that the beginning I was speaking on the wholesale revenue momentum, in terms of what your EPS guidance predicates for the momentum in Q2, Q3, Q4, if it’s going to continue along the double-digit track, so both wholesale sales.

Okay. Sure. Yes. So the organic wholesale sales, we have assumed in the guidance that that flows from where it’s been in the last couple of quarters, although we are still looking at low double digits for the full year of organic wholesale sales growth. And in terms of the gross margin, yes, we do continue to expect that, starting in Q3 we’ll be able to show some modest year-over-year improvement.

As a follow-up, could we also ask about the gross margin in the retail division that was an impressive performance better than we thought on a tough compare. Where should we think about the normalized GM for this division? Could you provide more detail on the plus 200 basis points in terms of how you were able to achieve that? Is that something that we should [Audio Gap] will the magnitude of that continue?

Yes. I think that was a pretty strong performance. We really did a nice job of reducing or minimizing markdowns and promotions to the extent we could in retail there. I think we’ve had quite a of lot gross margin expansion, as I said it’s 10 quarters in a row now of year-over-year gross margin expansion in retail. So, I think you’re going to have to look. I think that we can continue to show some modest improvement, but I think 200 basis points and I hope you are going to see that level of improvement going forward. So, I think that we’ll show an improved gross margin for the year, but it should be probably less than a 100 basis point improvement for the full year.

Our next question comes from Corinna Freedman with Wedbush Securities.

Finally, a great quarter. I just wanted to ask question about retail. The comps were very strong at 11.9% and can you tell us what’s driving that? Is it handbags in the stores I noticed, there were some fixtures and then a couple of big picture questions. Is there any fallout if any, on the business of the Betsey Johnson potential bankruptcy? And lastly, is there any light you can shed on what’s going on with J.C. Penny and where you see that business going?

Sure. The first question was about the retail comps. And, yes, we were very, very pleased with the retail comp number that we put up in first. It was really a function of just a great product assortment on the shoe side. We did have a small increase in hand bags, but that’s not a major driver for us, as it still makes up a very small percentage of the overall mix. But we had big increases in sandals and in casuals in the store and a really strong assortment in those 2 categories, and that drove a big increase in unit year-over-year. As I indicated earlier, we actually had a modest decline in AUR, but we made up for it with units, as both traffic and conversion were up nicely in our retail stores. The second part of the question was about the Betsey Johnson, the bankruptcy of our licensee, correct?

Yes.

Yes. So, as most of you likely saw, last week one of our licensees for Betsey Johnson filed for a Chapter 11. This is the company that has the license to operate Betsey Johnson retail stores and also to market Betsey Johnson ready-to-wear. And while this was certainly not a welcome development, we’d love to have seen them do great. This was not totally unexpected, and frankly I think, in fact, it sort of indicates our original strategy and approach in this deal. As you will recall, when we acquired the Betsey Johnson brand and related intellectual property back in 2010, at that time we had the ability, had we wanted to also take over the retail stores for no additional consideration, but we elected not to do that and instead gave the former owner of the brand a license back to operate the retail stores and to do the wholesale apparel line. And unfortunately our skepticism about this part of the business turned out to be well founded and the business did not perform as they’ve hoped, and they had to file Chapter 11 last week and they have plans to liquidate. So, what does this mean for us? Well, it means that the Betsey Johnson, most of the Betsey Johnson retail stores are likely to close and that we will immediately need to find an alternative licensee to do the wholesale apparel, which is something that we’re very far along on and we hope to have that wrapped up quickly. Good news here is that while this particular licensee did not do as well as they’ve had hoped, the Betsey Johnson brand itself is stronger than ever. And in fact, our wholesale sales of Betsey Johnson, if you look at across all categories in first quarter, in all…

J.C. Penney, yes. Is there anything -- any update there?

Yes. Our business with them is very good. Olsenboye continues to perform very well both in shoes and bags. So we are really encouraged about that. I think it will be up over $20 million for them between shoes and bags this year. So it had a real very quick ramp up with that business, but and we continue to talk to them about Olsenboye but also about other things, but we don’t have anything to report as of yet.

Our next question comes from Scott Krasik with BB&T Capital Markets.

Five weeks into the quarter, can you give us an update on how your comps were trending at the end of Q1?

Yes. I mean that the comps - April was a slower month than what we saw in first quarter. And I think that our double-digits comp streak is likely to coming to an end or so we’re up by a mid-single digit so far.

Okay. And then it’s tough to say right now, but how do you feel about just general pull forward of spring demand? Do you think customers want to whether get to warmer again that they are going to be buyers or have they bought most of their spring goods in February and March?

No. I’m not concerned. I think that we still feel pretty good about what’s going to happen in May and June as the weather warms up for spring merchandise.

Okay. And then I know you don’t look at backlog, you don’t give us backlog every quarter, but to the extent that you have some visibility into fall orders at this point, how do you feel about that in general and what it does it looks like?

Yes. We feel good about it. I mean, obviously we wouldn’t been able to guide to an up 24% to 26% if we didn’t feel that we had a strong backlog and then we’re running ahead of what we were a year ago. [indiscernible]

Its supports that double-digit organic growth.

That’s right.

Our next question comes from Jeff Van Sinderen with B. Riley.

I wonder if you can just talk a little bit more about your direct sourcing initiatives and the outlook for how you see that impacting gross margin I guess over the next year or 2.

Sure. Yes, we still continue to move more product from the agent model to the direct sourcing model through top line and another time we remain confident that this is going to enable us to get better pricing and improved quality and more consistent deliveries for our merchandize. Right now, we’re probably up around 10% of our legacy product is going -- footwear product is going direct. As we said, we’re going to try to get that up to 15% or so over the next 6 months and then our 5-year goal or is more like 4-year goal now because we did the deal about a year ago is to get to 50%, perhaps 60% of our business going direct and if we can do that, we think that that’s a sort of 200 basis point opportunity in gross margin over that timeframe of that 5-year timeframe. Now this year, you’re talking more about 20 basis points to 30 basis points.

Okay. Good. And then maybe you can just touch on your growing outlet business and I guess anything you can sort of update us on there. I know you have plans to open more maybe you can just give us a little more flavor on kind of how the early days are going in outlets.

Yes. We’ve really been pleased with the performance of the outlet. I think we’re ahead of schedule there, and yet we believe that our 4-wall [ph] contribution in outlets will exceed that of the full price stores already in 2012. I think initially we thought it might take us a couple of years to get there. But we think we’re going to be a couple of hundred basis points better in terms of total contribution in the outlets this year. As I said, we got our seventh one opened in Q1. We’ve also got leases signed for an additional outlet in Ontario California as well as Sawgrass in Florida, and we’re working on 2 to 3 others that we hope to get up in the back half as well. So it’s moving very well on that front.

Okay. Good to hear. And then, I know you mentioned Canada as an area that you feel pretty confident about, how big do you think that Canada business can be for you?

In terms of retail stores, we have 7 stores now and we’ve identified about 20 additional locations, that we’d like to target over the next let’s say 4 to 5 years. But we think we can make particularly that retail business can get considerably larger.

Our next question comes from Camilo Lyon with Canaccord Genuity.

So I just wanted to get a little clarity, little bit more clarity on the Target business obviously it was up very strong in the quarter and that looked to have pressured gross margins probably more than anticipated. What kind of growth do you expect in that business going forward and should we be thinking about commensurate pressure on gross margins from that line item?

Yes. Just to back up, you’re right, Camilo, the Target business are private label business overall, but particularly the Target business was up dramatically in the quarter. We just had incredible run with Target as of late. And so, the Madden private label wholesale business that was $16 million last year in Q1 was over $31 million in Q1 of this year. And that was impactful to gross margin to the tune of about 130 basis points. That was 130 basis points dilutive. Going forward, I don’t expect that same kind of north of 90% growth rate to continue, but we’ll see that business growing faster than the overall. And so I think that’s going to pressure, continue to pressure gross margins over the balance of the year although not to the same extent that it did in Q1.

Okay. That’s helpful. Thanks. And then just going back to your guidance, do you think that performance top and bottom line, maybe if you could just settle little bit more color on what parts of your business are stronger in giving you that confidence to raise that -- the guidance?

Sure. Well, the biggest 2 areas where we raise on the Topline were in the private label area within the Adesso-Madden private label area as well as the Topline private label area. That’s why you saw a bigger percentage increase on the sales line than in the -- than on the bottom-line. We also be continue to feel very good. I mean, the Steven Madden women’s business in wholesale is very strong. Steven Madden handbags business is performing better than we anticipated. And we continue to feel very good about the direct to consumer channel as well, both bricks and mortar and Internet.

Could the direct to consumer business serve as a gross margin offset to the private label and Topline?

It does -- that was already sort of in the guidance.

Okay. Okay. And then my final question is more of a longer-term question on Betsey. Clearly that’s a very proven brand right now, it’s still early days for you guys. How do you see that brand in ‘14 in both domestically and internationally as it relates to your business over the next 3 to 5 years? What really can be the opportunity there?

No. I think it’s -- I think we’ve got a pretty special opportunity there. We think this is one of those brands that has awareness and affinity from consumers far and away above the actual level of sales right now. So, we think there is a big opportunity in lot of categories. Obviously, a big part of that is going to begin in the apparel fees right now that -- the category in which this brand started and right now it’s a very, very small category for us. So, I think job one is finding this new licensee who is going to be able to grow an apparel business and get that back to where it needs to be. And now also help us to grow the other categories domestically and to grow the business internationally.

Do you think that over time it could be as big as the Steven Madden brand?

That’s real long way from thinking about something like that. Like, if we got to half there we would be plenty happy.

Our next question comes from Steve Marotta with C.L. King & Associates.

I have a question on the Steven Madden wholesale footwear being up around 20%. Is that specific Steven Madden branded items or is that a wholesale umbrella that includes Betsy Johnson and Big Buddha and Olsenboye and some of the others.

That’s just Steve Madden.

Okay. Can you comment -- and the others grew I’m assuming more rapidly coming of a smaller basis of being higher growth.

Yes. I don’t have the number all in aggregate. But some of them are growing more rapidly. But that was actually a pretty special growth rate for the biggest business. So, that was really the driver in the quarter.

Sure. Which leave me to my next question, which is given your penetration already with that brand in your accounts, can you talk about where that growth came from? Was it market share gains or are there new accounts that are sprinkled in there?

Yes. It’s very little new accounts. As you know, we are already basically in the accounts that we want to be in with Steve Madden than we’re virtually all the doors that we want to be in with those accounts. So yes, it’s just getting, having great products and getting nice organic growth within those doors, and clearly there was some market share gain there.

Yes. Big time. And my last question from an international market perspective, can you talk about geographies that are not currently represented that you would expect to be represented and also comment on the fastest growing geographies at the movement?

Sure. Well, in terms of fastest growing, I think the biggest opportunities this year where we’re going to get the most growth is probably Asia, the Middle East and Latin America. Over the long-term, I think Europe is probably the biggest opportunity. In terms of some of the new things that we’re doing this year, I mentioned in the prepared remarks about our test in the U.K. that’s something we’re really excited about. We are working with a group called Dune over there and had this great test in House of Fraser and the expanded doors there. And also got into Topshop on Oxford Street, which we think is a really important thing for the brand internationally. We’re also adding some additional territories with our existing partners, so for instance, our partner in Benelux, Macintosh and we have agreed to expend their territory to France, Germany and Scandinavia and they’ll start shipping those countries in fall. And then we’ve also added some new regions for our partner in Saudi Arabia, that’s a company called Elecare and we’ve given them North Africa and some of the CIS countries that are former Soviet Republic countries like Georgia, Kazakhstan, Belarus, et cetera. So, that what we’re doing in terms of new territories this year and then our existing partners are also adding about 50 freestanding stores in about 50 concessions in 2012. So, that’s going to generate some nice growth as well.

Our next question comes from Sam Poser with Sterne Agee.

Good morning, Ed. Thanks for taking my question. A few questions. number one, in the guidance what -- for the full year, how are you looking at the gross margin, how are you looking at the SG&A for the full year within the numbers that you’re -- within the range as such -- kind of total?

Yes. It’s really have not changed the meaningfully from what we talked about last time. We assume it is a gross margin is down and although less then -- down less than the 200 basis points of headwinds that we have from the top line acquisitions. So, again 200 basis points is the dilution from top line this year or thereabouts and we think we can be down less than that because will be up modestly excluding Topline. And then we think that we will show some modest SG&A leverage this year. We make some of that gross margin deterioration back. And get our operating margin as I said last time our goal for operating margins internally as to get to provide to 2011 that was put us at the top end of our range or slightly above I think we are guiding slightly below where we ended 2011 based on the impact of Topline. But we are pushing people to try to get to flat [ph].

Our next question comes from Jane Thorn Leeson with KeyBanc Capital Markets.

Sort of a couple of questions mainly organic growth, could you talk more about the specific drivers for organic growth sales for the remainder of this year?

Sure. There’s a number of things happen in there, if you look at the direct-to-consumer channels, what was we are forecast and we continue to grow our comps, continue to in our brick-and-mortars stores, we continue to drive additional sales on e-commerce. We are also opening stores where net store open or this year for the first time in a number of years. So that’s driving the organic direct-to-consumer fees. And then on wholesale we have a very good momentum in the core Steve Madden brand as well as some of these newer brand like Betsey Johnson and Big Buddha and Olsenboye. Which should drive additional growth there, of course the international fees continues to grow and we are getting really nice growth in our wholesale accessories business. And I think the biggest driver there is Steve Madden handbags that business is just taken off as I said earlier, it was up over 100% in Q1. So we are really pleased with the momentum there.

Okay. And that’s helpful. What and -- was also outside of Betsey, if you can elaborate more on Cejon and maybe Big Buddha, just specifics on those brands?

Sure. And so Cejon versus the acquisition that we did in May of last year, it is a cold weather accessories business is this first-half is the back half later business. It’s contribution in the first couple of quarters is not nearly as meaningful, but we had a strong back half in that business, expecting an even stronger one this year. In terms of Big Buddha, we continue to see nice momentum there. The handbag business is growing and our shoe business is really taking off. We think we’re going to start to see some real nice percentage gains in shoes over the next couple of quarters.

This concludes today’s question-and-answer session. At this time, I will turn the conference back to management for any additional or closing remarks.

Great. Well, thanks very much for joining us on the call and we look forward to speaking with you after Q2.

This concludes today’s conference. Thank you for your participation.