Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full-year 2018 Steve Madden Earnings 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. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Ms. Danielle McCoy, Director of Corporate Development and Investor Relations. Ma'am, please begin.

Thanks, Lauren and good morning, everyone. I'm Danielle McCoy, Director of Corporate Development and Investor Relations for Steve Madden, and I would like to thank you for joining our fourth quarter and full-year 2018 earnings call and webcast. Before I begin, I would like to remind you that during our call, we may make certain forward-looking statements as defined in the federal securities laws regarding our expectations or predictions about the future. Generally, these statements relate to projections involving anticipated revenues, earnings or other aspects of the Company's operating results. Because these statements are based on current assumptions and expectations, they involve known and unknown risk, uncertainties and factors not within the Company's control and as such, our actual performance and results may differ materially from these statements. Our Annual Report and other reports filed with SEC from time-to-time include detailed discussions of the risk the Company faces and we urge you to refer to these. Any forward-looking statements represent our judgment as of the time of this call and cannot be relied on upon as current after today's date. We disclaim any intent or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required under applicable law. The financial results presented are on an adjusted basis, unless otherwise noted. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release. Joining the call today is Ed Rosenfeld, the Chairman and CEO of Steve Madden. With that, I will turn it over to Ed.

Thanks Danielle. Good morning, everyone and thank you for joining us to review Steve Madden's fourth quarter and full-year 2018 results. We are pleased to have delivered a strong fourth quarter, with net sales growing 13% and diluted EPS increasing 31%, compared to the prior-year period, driven by continued strength in our flagship Steve Madden brand in both footwear and handbags as well as outstanding growth in Blondo and in our private label accessories business. The strong fourth quarter capped a very good year for Steve Madden as we recorded 7% net sales growth and a 23% increase in diluted EPS, compared to 2017. We also made progress on a number of key initiatives that position us for growth in 2019 and beyond. Let me briefly touch on the highlights. First and foremost, we once again delivered on our promise to offer our customers trend right fashion footwear at great values in our flagship Steve Madden brand. Steve and his design team created on-trend product assortments with strength across a range of categories, most notably fashion sneakers. In our core Steve Madden women's U.S. wholesale footwear division, net sales were up mid single digit on a percentage basis, on top of mid-teen percentage of sales growth in the prior year as we consolidated the market share gains we have made in this business over the past few years. Most importantly, our sell-through performance at retail continues to outpace the competition, positioning us for continued strong performance in this division in 2019. Our Steven division also continues to gain momentum. Net sales in Steven increased mid-teens on a percentage basis, on top of high-single-digit growth in the prior year. And Madden NYC, the new brand, exclusive to Kohl's, that we launched in spring 2017 had an outstanding second year. We have…

Thanks, Ed. We are pleased with our strong fourth quarter performance. Our consolidated net sales increased 12.6% to $410.4 million, compared to prior year net sales of $364.4 million. Our wholesale segment increased 14.1% to $317.4 million compared to $278.2 million in the prior year period, driven by strong gains in both our wholesale footwear and accessories businesses. Wholesale footwear net sales increased 7.4% to $233.9 million. We saw strong growth in Steve Madden Women's as well as outstanding growth in Blondo. Wholesale footwear also benefited from the addition of Anne Klein, but this was offset by the transition of the business with Payless out of the Topline. In wholesale accessories, net sales increased 37.9% to $83.4 million, driven by exceptional growth in both Steve Madden handbags and private label handbags. Wholesale accessories also benefited from the addition of Anne Klein. In our retail segment, net sales increased 7.9% to $93 million. Our same-store sales increased 4%, driven by strong performance in e-commerce. We ended the quarter with 229 Company-operated retail stores, including 62 outlets and seven e-commerce stores, as well as 42 Company-operated concessions in international market. Turning to other income. Our licensing royalty income, net of expenses, was $3 million in the quarter compared to $3.1 million in last year's fourth quarter, while First Cost commission income was $0.1 million compared to $0.3 million last year. Consolidated gross margin decreased 100 basis points to 37.1% compared to 38.1% in the prior year. Wholesale gross margin decreased to 30.1% for the quarter, compared to 31% last year. In addition to margin pressure in wholesale accessories related to a shift in sales mix, as expected, the 10% tariff on handbags and certain other accessory categories implemented on September 24, 2018 and increased ocean freight, driven by high demand for containers…

Thank you. [Operator Instructions] And our first question comes from Camilo Lyon with Canaccord Genuity. Your line is open.

Hi, thank you. Good morning, everyone. Thanks for the color there. That is very helpful. So, going to the Payless impact, I think you have articulated very well the negative headwinds you are seeing from it. I would like to hear your thoughts on what you guys are doing to work to recapture that business and any sort of discussions that you are having with retailers now in terms of where that incremental demand will go and how you are going to position yourselves to go after that, that open available market share?

Yes, good morning, Camilo. It's a good question. I actually saw an interesting statistic yesterday, which is that consumers that shopped at Payless in 2018 nearly half also purchased footwear at Walmart in 2018 and approximately 20% also purchased footwear at Target. And those are the two largest customers in terms of overlap with Payless shoppers. And so the good news is, we obviously have very significant private label relationships with both Walmart and Target and we have already initiated discussions with each of them and other retailers that think they may be beneficiaries from Payless going out of business in the U.S., about how we can grow our business there and how we can assist them in trying to capture some of that market share, that is going to be up for grabs. And we think we are well positioned to do that. Obviously, we have a lot of intelligence about what worked at Payless, because of our relationship there and so we think that we can really help these retailers as they look to go after that business.

So, as you think kind of the unfolding of the year and how the progression goes, could it be that the back half of 2019 see some of that incremental, demand flow through to Walmart and Target, such that it will flow through your P&L or is that too soon to expect any sort of the capture and maybe it's more of a 2020 event?

Well, I would like to see us get some business involved in fall of 2019 for sure. I mean, I think you will see more of it in 2020 hopefully, but certainly we are going to be going after some business into in fall 2019.

Got it. And then I guess just shifting gears, but staying on the private label topic, are there any other opportunities that you guys are exploring outside of the Payless situation that would help offset some of this kind of macro-driven headwinds. Are there any other customers that you are not currently doing business with that you have a potential to do so or are exploring any avenues to increase that potential?

Well, I mean, frankly, I think the one that is growing the fastest is one that we ready do business with and that is Walmart. We are seeing really strong growth in both footwear and handbags with Walmart and private label, and so we will look to make up some volume there. But the other thing that you have heard us talk about is the private label business at Schwartz & Benjamin and we really think that is a good platform for us to go after what we call better private label, including department stores. So, we have got a couple of things that we are pretty excited about there. We have got a very successful private label program, the Aqua Brand, the Bloomingdale's that we are now running out of our Schwartz & Benjamin platform, that is doing very well. We have also got a new program at Dillard's, which will be launching for fall, which is our first private label program there. We continue to have a very success with this in our department store, but we continue to have a very successful private label business with Banana Republic that we run our Schwartz & Benjamin. So, we are excited about continuing to grow that business.

Sounds great. And then, I guess just finally on the Payless topic, given that it's such a kind of disruptive event to your business as proceed. Is there any sort of help or guidance you can provide in terms of how the quarterly should be impacted or maybe first half versus second half on just the modeling component there.

Yes, sure. So, as you look at the seasonality, it's a little different for sales and earnings. I will talk about both of them. In terms of sales, the year-over-year growth rate should be a little weaker in first half and a little stronger in the back half and that is because of the reported net sales that we had with Payless last year of $52 million. That was almost all in the first half. And so that goes away. This first half, it's partially offset by having spring business for Anne Klein, which didn't launch till fall of last year, but Anne Klein is not as big as Payless. So there is about a 200 basis point net drag from losing Payless and gaining Anne Klein in the first half to net sales. With respect to earnings, it's actually the opposite story, that earnings compared to the prior year, it should look a little bit better in the first half, than in the back half. And that is because the Payless impact is essentially similar all year. We had earnings from Payless all year, last year. Those are going away. But Anne Klein, we had earnings in the back half of last year. Because we started shipping in the fall, we did not have it in first half. So there is some incremental earnings in the first half from Anne Klein and then once you get in the back half, you anniversary that.

Got it. That is very helpful. Great. And then just the final question for me. As you survey the overall competitive landscape, you continue to gain share in your core brands, in the Steve Madden brand, in your private label categories. How do you view the domestic wholesale business from an opportunity perspective, from a market share perspective? Where are the opportunities that continue to exist that you are going after end win? It seems to be pretty remarkable that you are in this market, where it's fairly low growth, but you are continuing to outpace that growth of the overall market, year in and year out. So, I'm just curious to get your thoughts on where you see that incremental opportunity continue to present itself?

Yes In terms of the domestic wholesale business, I mean first and foremost, I have to say, we continue to have really strong momentum in the flagship brand. So, I still feel like there is market where we are outpacing the competition in Steve Madden, and that goes really for both footwear and handbags. And I think there is continued opportunity to take share there. We are also pretty excited about some of the newer brands, I mentioned Blondo in the prepared remarks, I mean that brand is just on a tear, had an another outstanding fall season. We mentioned in the men's test, which was very successful. So we are going to be rolling that out in 2019. We also did this diffusion brand called Aqua College at Macy's, which had an extraordinary first season and that will be going to more doors. And so we are really excited by Blondo. And then Anne Klein, I'm also really pleased with what we are seeing there. We really like that business because it doesn't cannibalize anything else we do, very different product and customer demographic than the other brands in our portfolio. And we feel really optimistic about the opportunity there.

Sounds great, Ed. Thanks a lot and good luck.

Thanks, Camilo.

Thank you. Our next question comes from Erinn Murphy with Piper Jaffray. Your line is open.

Great, thanks, good morning. Ed, I wanted to ask one of your kind of top retailers yesterday indicated that spring had started off with higher transition receipts and I'm just curious broadly when you look at the North American landscape kind of year-to-date across your core retailers. Are you seeing any of them come back to the vendor community, trying to adjust receipts or just any kind of talk on slowdown post government shutdown earlier in January. Just curious kind of how you guys are approaching the spring season kind of holistically?

We really have not felt that at all. I don't know if that is an indication of our price performing better than others or what, but we have not gotten that feedback. And in fact, we are quite pleased with what we are seeing so far in terms of early sell-throughs on spring product.

Okay. That is encouraging. And then, sorry, just a clarification on the Payless impact of $0.16. Are you assuming you are doing zero business with them or is there anything still going on internationally with the Payless business?

Yes, that is a good question. We have assumed for purposes of the guidance that we do not go forward with them at all. As you point out, they do intend to - while they are shutting down the U.S. and Canada, they do intend to go forward with our Latin American joint venture and their international franchise business. We will have discussions with them about continuing to do business with them, but we will have to - that is predicated on us coming to an arrangement with them that we are comfortable with, including credit protection, payment terms, et cetera. And so, it's not clear to me that we will be able to do that, but that is something we will certainly explore.

Okay. And then just on the stores on the retail side of the business. I think you guys ended the quarter at 229 stores. It was the highest like sequential uptick we have seen for quite some time. I'm just curious what is driving that? Is there any locations you are trying to secure opportunistically, just wondering on what drove that acceleration in the fourth quarter on the store count?

Yes, that was primarily driven by consummating the Israel JV. So that added 14 stores to the store count.

Got it. And then just last bigger picture on China. I didn't hear you talk about China in your prepared remarks. I mean you talked holistically about the international business, but what are you seeing there right now and how is the brand awareness, I know you guys are kind of working on brand studies there, how has that evolved since you have been on the ground, kind of in this format?

Yes, I mean I would say overall, China has been tough. We have been a little frustrated. I was hoping, we would be a little bit farther along right now than we are. I do think we are making progress, we are certainly learning a lot, but overall it's been, it's been, I would say mixed at best. Clearly, we don't have the brand awareness that we need. I think that there is a marketing investment that is required, but at this moment, I think we really feel like the best thing to do is to really focus on getting the merchandise assortment, right, making sure that we have the right products for that market and get our store model right. And once we do that, then we will really step on the gas in terms of marketing. So we are not going to make a big marketing investment at this moment that may look different in six months.

Our next question comes from Chris Svezia with Wedbush. Your line is open.

Good morning and thank you for taking my questions and congrats on the quarter. I guess the first question just on the difference between the accessory and footwear growth for the year. Any color about how we think about those two pieces that pertains about 4% to 6% revenue growth, just given the outperformance on the accessory business in 2018? Just any color on that.

Yes, sure. I think that for a wholesale footwear, you should be thinking about low-single-digit growth in 2019. Obviously that includes $52 million of Payless business going away. They did had net sales in wholesale footwear. Wholesale accessories should be faster than that. I mean something like high singles even low doubles.

Okay. And from a category perspective, as I think about the footwear business, the success you have had on the athletic side, I would assume that continues obviously. Maybe a little color about - on the open-toe business, the sandalized business, footbed sandals. Just what you see going on there? Can you talk a little bit more about key product drivers that go through 2019 on the footwear side?

Yes, sure. As I mentioned, we are really pleased with what we are seeing so far in terms of our new spring products. And you mentioned sneakers and I think I have to start there because we continue to deliver newness in that category and see it resonating with consumers. We have got some new sneakers in that big bottom sneaker category or what folks call dad sneakers that are performing very well and we are excited about that. We have also got some platform sneakers at great values that are doing very well. In terms of sandals that is a category that was strong for us last year and so far the early reads on that are quite good this year as well. We had a lot of success last year with what we call flat forms and those are doing very well for us so far this year also. Espadrilles looking good. In terms of materials that is - we are seeing exotics do very well, anything in leopard or a snake is performing very well, and that is really a cross category, whether it's dress shoes, sandals or sneakers, nylons excuse me vinyls. Vinyls are doing very well and so, and then even neons in terms of color. So there is a lot of sort of trend to capitalize on right now. Last thing I should mention, I'm sorry, is closed up flats, which is a category that hadn't been great for a few years, but we have seen that really pick up. So in anyway, lots of good trends to capitalize on.

Okay, got it. And then just so I understand something like the Payless piece, so I guess, first half of the year, it's a revenue and profitability drag, given the conversion last year of our First Cost business, is that coming out of the loyalty first income line or First Cost line or just clarify how we think about per P&L perspective. What is coming out first half versus second half of the differences are?

Yes, so I will tell for the full-year and it's a little complicated, there is a gross margin hit, which as you point out is pretty much all in the first half. There is a commission and licensing income hit and then there is also you are going to see SG&A going up and that is because SG&A, which - we show that commission and licensing income line, net of expenses, and SG&A that was previously showing up in that line, net of expenses, is now being reallocated to other businesses and shows up on our operating expenses line. So I will give you some numbers here. I think for the full-year, it's about $5.5 million of gross margin hit, it would be $3.3 million in commission and licensing income hit and then SG&A goes up by $5.4 million, that gets you to about $14.2 million EBIT impact.

Okay, that is it, thanks and I appreciate that. And just a final thing, just unclear on this, the tariff impact on handbags, accessories. You are just assuming the 10% for the balance of the year. You are not assuming any potential step-up at this point that is sort of off the table at this point in the guidance?

That is right. The guidance assumes that it remains at 10%.

Okay, understood. Okay, thank you very much and all the best.

Thank you.

Our next question comes from Tom Nikic with Wells Fargo. Your line is open.

Hey, good morning, Ed. Good morning, Danielle. Thanks for taking my question. So just want to ask so you clarified the Payless headwind to this year, you clarified the tax rate headwind, net-net, the tariffs, on the handbags, I'm just kind of one - you sort of gave some indications last quarter about what that would look like. I'm just wondering net-net, how we should think about the tariff impact to your EPS in 2019?

Sure, Yes. I'm pleased to report that the team has really done a great job of managing through this and we think that we have really at this 10% rate that we have really mitigated the vast majority of the impact, and in fact, in the guidance that we have outlined today, the impact is really immaterial from the 10% tariff and we have done that through primarily through two levers. One is moving production out of China and our sourcing team has been working feverishly on that and we are now really approaching 50% of our production in the categories that are impacted by the tariff outside of China, and that is primarily Cambodia. As you recall, that was at 16% in 2018. And then on the remaining 50% that is still in China, we have been able to get some pretty nice price concessions out of our factory partners there in and around 10%. And so between those two initiatives, we have been able to basically mitigate the impact at 10%. Now, obviously if that were to go to 25% that is a different story.

Alright, that is good to hear. And then just one follow up, your CapEx was $12.5 million this past year, which it's kind of come down each of the last couple of years. You are sort of basically at the lowest level of CapEx spending, essentially since the recession and spending less than 1% of sales on CapEx. I'm just sort of like wondering is, is there going to be a point where you are going to need to sort of reaccelerate that spending and maybe invest in - I don't know your e-com platform or some sort of like infrastructure, it kind of seems like the spending has been pretty tight there. And just sort of wondering if there is going to be any sort of ramp as we look at the next couple of years?

Yes, it's a good question and in fact this year, you will see the CapEx rise I think you should think about that as being closer to $17 million this year, which gets us back to some of those historical levels that you were referring to, or maybe even above, in some cases. And the big increase there is, more system spending. So we have got - since spending on data centers, as well as the new warehouse management system this year.

Our next question comes from Steve Marotta with CL King & Associates. Your line is open.

Good morning, Ed and Danielle. Can you talk a little bit about the expected international growth as a whole in fiscal 2019 as well as the largest areas of opportunity?

Sure. Yes that business was up 22% for us in 2018. We have forecasted that it will moderate this year. Should be a nice double-digit grower for us. We continue to think that SM Europe will be our joint venture there will be a strong driver of growth. I think we are excited about this new joint venture in Israel. Mexico continues to perform very well. We have assumed a modest decline in Canada in the wholesale business. That is largely due to some customer bankruptcies up there most notably Town Shoe which was going - I think Town Shoe closed and maybe I shouldn't say bankrupt. That was a significant customer for us. But overall, the brand is performing very well across the international markets and we continue to feel really, really optimistic about our long-term prospects there.

That is helpful. Also can you provide to the extent you can talk about any Amazon update, the pace of sales there, opportunities in the new year, where you see that customer, where it is now and where it should going? Thanks.

Yes. Interestingly, our growth with Amazon proper has slowed, but our growth with Zappos has really reaccelerated. So with the company overall, we are still seeing strong growth and it's obviously an important customer for us, but we have really seen the Zappos business pick up significantly.

Our next question comes from Jeff Van Sinderen with B. Riley FBR. Your line is open.

This is Richard Magnusen in for Jeff Van Sinderen. Thank you for taking our call. First question is, how should we think about the impact of the calendar shift this year as it relates to the cadence of shipments of spring and summer merchandise and the Q1 and Q2 cadence of business?

I don't think there is much to call out other than that Easter is later this year, right. So if Easter is going to - so there is going to be a bit of an Easter shift when you look at our retail comps for instance, is probably 200 basis point swing from Q1 to Q2 given the Easter shift.

Okay and then back to the manufacturing outside of China. If the tariffs were to go away, how would that change your plans?

Well, obviously there would be less pressure to move goods out of China although we are quite pleased with what is coming out of Cambodia for us in particularly in the handbag category. And so, I expect a lot of that might stay in Cambodia, but it would obviously just give us more flexibility and options in terms of where we place production.

Okay. And then can you delve a bit more on how you are playing to evolve the e-com segments this year? What changes are in the works for 2019?

Yes, so in terms of our own in-house e-commerce businesses, as I talked about in the earlier remarks, that business is really accelerating for us. We are really pleased with the trends that we are seeing there and we are looking for very strong growth out of that business this year in both sales and profitability. And I called out some of the initiatives there but we are very, again, we are very pleased with the transition of the platform over to Shopify Plus. We think that is providing us with a whole lot of benefits. Lower operating costs were more flexible and more nimble. I think it's a better mobile experience, fewer clicks to checkout et cetera. And then we are also really excited about some of the things that we are doing on the marketing side. I mentioned the free two-day shipping. We are really seeing some good results with our paid social program and that is something that we have ramped up recently. Afterpay is doing very well for us. So there is a whole a whole lot of initiatives that we feel good about. We have got some more in the works, which we will tell you about throughout the year, but that is a business that is got really nice momentum.

And then can you touch on your latest trends - I'm sorry you introduced some lower point merchandise. Can you just frame that more for us, and maybe give us a sense of, if you see benefitting your business in 2019?

I'm sorry, I'm not familiar. Could you repeat the question? I'm not exactly sure what you are referring.

You recently introduced some lower price point merchandise. And can you just frame that for us and maybe give us some sense of how you see that benefiting your business in 2019?

I don't know what that is. Honestly, the retail prices are really consistent with where they've been.

Okay. Alright. We will probably ask you that offline then. Thank you.

Okay, thanks.

Our next question comes from Sam Poser with Susquehanna. Your line is open.

Hi, thanks for taking my question. A couple of things. One, just related to the Afterpay, what percent of transactions are currently being done there, where do you see it heading?

Well, that is not something we were going to disclose, but I will tell you it's a significant percentage higher than we originally anticipated. And the nice thing is that on those transactions, we are seeing a nice increase in the average order value.

Thank you. And then within your guidance, where are you thinking of same-store sales just on an annual basis?

As usual, we don't provide comp guidance.

Okay. Then, let me ask when you were talking about how strong your own digital businesses. When you think about digital sort of holistically between your wholesale partners as well as your own, what percent of your overall sales do you think are being done on a - I mean digital when you think about nordstrom.com or Amazon or and so on. I mean can you give us some idea of those sort of how that is evolved over the last few years?

Yes, obviously it's been moving up and I think at this point, we are probably in the high-teens overall.

Thanks. And then I missed it, what was the gross margin per footwear wholesale and accessory wholesale?

Yes, I don't think we provide that but footwear was up modestly and accessories was down. Primarily the biggest factor, there was really three factors. The biggest one was mix because of the dramatic growth that we saw in the private label accessories business. And then the other two factors were the 10% tariff that was implemented at the end of September, and the increase in freight as everybody was rushing to bring goods in prior to January 1 ocean freight became considerably more expensive in Q4. The good news is that, we have seen that return to more normalized levels now.

And then - thank you. And then - and then just your gross margin - in the guidance, your gross margin hit is going to be more weighted on the front half of the year and your SG&A hit is going to be more weighted on the back half of the year. Is that basically the way to think about it?

Yes I think that is - I think that is right.

Alright. Thanks very much for a continued success.

Thanks, Sam.

Our next question comes from Laurent Vasilescu with Macquarie. Your line is open.

Good morning. Thanks for taking my questions. I think it was noted that international grew 22% in 2018, which would imply international grew mid to high-single digits for the fourth quarter. Curious to know how much FX impacted that number or just any other factors to consider. And how should we think about international growth for first quarter?

I think we are actually up about 13% in Q4 in international and I don't have the FX impact, but I don't think it was significant. And then I'm sorry, the last part of the question was -.

Just any high-level thoughts about the first quarter?

Yes, I mean I think it should it continue to grow. As I said, we have said that we think the growth rate will be double digits this year, but certainly less than the 22% that we did in the prior year. I think there will be a little bit in first quarter, as I mentioned a little bit of pressure on the wholesale business in Canada and then also perhaps on our distributor business just based on timing of shipments, but we still grow in Q1 and obviously throughout the year.

Okay, very helpful, thank you for all the color on inventories in your prepared remarks, any way you can parse out how much the inventory dollar terms or percentage terms was brought into December and then with overall inventories up 24%. Curious to know how should we think about overall first quarter revenue growth?

Sure. Yes, so inventory, you are right. It was up 24% overall. If you take out Anne Klein and the Israel JV, it was up about 17%. And again, most of that was driven by our accessories division, we were up [indiscernible] 70% in accessories. And again that was as we were trying to bring goods in ahead of the tariff. The other factor, I should point out is the Chinese New Year was 11 days earlier this year. So that resulted in more inventory on hand and in transit at the end of the year in both accessories and shoes. So I think that really is, I wouldn't view that - take the 24% as reflective of what we think our sales growth is going to be in Q1, but hopefully, we tried to telegraph that inventory would be up at the end of the year because of the - mostly because of the tariff, but also because of Chinese New Year.

Okay, very helpful. And then my last question, I wanted to follow-up on international concessions. I think you ended the fourth quarter with 42, which I think is down 40 - from 46 from the prior quarter. Curious to know what happened there? And was there any conversion or closed concessions and then how should we think about concessions overall for 2019?

Yes, so I mentioned that we have been disappointed in some of the performance in China. We did close four concessions in China. Once we got to those sort of one-year mark there, there was - whether we want to get out of, I think we may get out of more this year. We are still evaluating that, but I wouldn't be surprised if that number didn't go down before it goes back up.

Thank you. The next question comes from Laura Champine with Loop Capital. Your line is open.

Good morning. Thanks for taking my question. Ed, do you think that you will see significant shifts in your vendor base or in your distribution platform this year or should it be essentially status quo on an overall basis?

Yes, in terms of our vendors, I mean I think the most significant changes is that, we have moved so much production to Cambodia. So we are buying more from folks there. In terms of our distribution - the folks that we distribute to other than Payless going away, I don't see any major change.

And is the shift toward Cambodia happening almost entirely in accessories and handbags notably, or are you actually moving footwear there too in a material way?

No, we are not moving footwear in any material way to Cambodia. We are moving some footwear out of China. I think that in Steve Madden in particular, we placing a lot of goods in Mexico right now. But at this moment, the vast majority is still coming from China.

Thank you. Our next question comes from Edward Yruma with KeyBanc Capital Markets. Your line is open.

Hi, thanks for taking our questions. This is Matt on for Ed. I guess just one quick one. I think on the last call, you mentioned price increases for 2019. Can you update us on any expected timing or the breadth of the increase there and how your retail partners reacted to any discussion of price increases?

Yes. So when we were on the last call, the 10% tariff on handbags and other accessories was scheduled to increase to 25% as of January 1. And based on a 25% tariff, we were in discussions with a number of our wholesale customers about raising prices for 2019, given that increase to 25% has been postponed indefinitely. Those price increase discussions have really been put on hold as well. So that is why when I mentioned mitigating the 10% tariff, it's really the first two levers; moving production out of China and getting price concessions on the goods that remain in China that we have pulled not the third lever, which is raising retails.

Okay, makes sense. Thank you.

Thank you. [Operator Instructions] Our next question comes from Dana Telsey with Telsey Advisory Group. Your line is open.

Hi, good morning. This is Ross Licero on for Dana. Just had a question on Anne Klein. What do you guys expect on the second half of the year once you sort of get through the $80 million to $90 million within the first 12 months?

Yes, we do expect to show some year-over-year sales growth in the back half, but I think frankly, where we see a bigger opportunity is to improve the gross margin. Again we signed the license in January, we showed product couple weeks later in February for fall. That was all product that had been developed and sourced by the by Nine West Holdings. And so we didn't really have full control over fall in 2018. But by fall 2019, it will be all in our system, again we will control everything from design to delivery. And we think we can show a nice improvement in gross margin in fall.

Okay, great. And then just one more, what is your expectation for freight pressure heading into 2019?

Well, there is a little bit, but it's not super material here. Again, there was considerable freight pressure in Q4, but we have seen those rates come back to more normalized levels as of now.

I'm not showing any further questions at this time. I would now like to turn the call back over to Ed Rosenfeld for any closing remarks.

Great. Well, thanks everybody for joining us on the call and we look forward to speaking with you after our first quarter. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.