Good day, ladies and gentlemen, and welcome to the Q1 2019 Steve Madden Limited 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, Danielle McCoy, Director of Corporate Development and Investor Relations. Ms. McCoy, you may begin.

Thanks, Josh, and good morning, everyone. I'm Danielle McCoy, Director of Corporate Development and Investor Relations for Steve Madden, and I'd like to thank you for joining our First Quarter 2019 Earnings Call and Webcast. Before we begin, I'd like to remind you that during our call, we may make certain forward-looking statements as defined in the federal securities laws regarding our expectations or predictions about the future. Generally, these statements relate to projections involving anticipated revenues, earnings or other aspects of the company's operating results. Because these statements are based on current assumptions and expectations, they involve known and unknown 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 the SEC from time to time include detailed discussions of the risk the company faces, and we urge you to refer to these. Any forward-looking statements represent our judgment as of the time of this call and cannot be relied upon as current after today's date. We disclaim any intent or obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable law. The financial results discussed are 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'll turn it over to Ed.

Thanks, Danielle. Good morning, everyone, and thank you for joining us to review Steve Madden's first quarter 2019 results. We got off to a strong start in 2019 with net sales growth of 6% and diluted EPS growth of 15% compared to the prior year, driven by the outstanding performance of our flagship Steve Madden brand, which had robust increases in both wholesale footwear and accessories as well as on stevemadden.com. Wholesale footwear net sales were up 1% compared to the prior year despite the headwind from not recognizing sales to Payless. Our core Steve Madden U.S. wholesale footwear business grew double digits on a percentage basis in the quarter as our product teams led by Steve continued to deliver on-trend merchandise assortments that are resonating with consumers and enabling us to outpace the competition. In the first quarter, we saw strength across a range of product categories, most notably, fashion sneakers and sandals. Wholesale footwear net sales also benefited from the addition of our new license, Anne Klein, but this was more than offset by not recognizing sales to Payless. Gross margin in wholesale footwear was up 270 basis points, and so despite the modest sales increase, segment profitability increased double digits on a percentage basis. In wholesale accessories, we had another outstanding quarter with net sales growth of 27% compared to the year ago period. Once again, Steve Madden handbags and our private label division were the standout performers. Each recorded strong double-digit percentage growth in the quarter. We also benefited from the addition of the Anne Klein handbag business. In retail, overall sales were up 9% with comparable store sales increasing 6.3% on the strength of a significant increase in our e-commerce business. In terms of category performance, fashion sneakers and boots drove the biggest gains. Handbags…

Thanks, Ed. We are pleased with the strong start to the new fiscal year. Our consolidated net sales increased 5.6% to $410.9 million compared to prior year net sales of $389 million. Wholesale footwear net sales increased 0.6% to $276.6 million led by strong growth of our core Steve Madden brand and the addition of Anne Klein, mostly offset by not recognizing sales to Payless. In wholesale accessories, net sales increased 27.5% to $71.5 million. Steve Madden handbags, private label handbags and belts were the growth drivers in the quarter. Wholesale accessories also benefited from the addition of Anne Klein. In our retail segment, net sales increased 8.6% to $62.8 million. Our same store sales increased 6.3% despite an estimated 170 basis points negative impact from the Easter shift. We ended the quarter with 225 company-operated retail stores, including 63 outlets and 7 e-commerce stores as well 33 company-operated concessions in international markets. Turning to other income. Our licensing royalty income net of expenses was $1.6 million in the quarter compared to $2.8 million in last year's first quarter while First Cost commission income was $1.1 million compared to $0.9 million last year. Consolidated gross margin increased 200 basis points to 38.2% compared to 36.2% in the prior year. Wholesale gross margin increased to 34.5% for the quarter compared to 32.6% in the prior year quarter. The increase in wholesale gross margin compared to last year was the result of a 270 basis point gain in wholesale footwear, primarily driven by not recognizing sales to low-margin customer, Payless, as well as an apples-to-apples increase in the balance of the wholesale footwear business. This was partially offset by margin pressure in wholesale accessories, driven primarily by the inclusion of the Anne Klein handbag business, which carries a lower gross margin than…

Thank you. [Operator Instructions] Our first question comes from Camilo Lyon of Canaccord Genuity. You may proceed with your question.

Thank you. Good morning, everyone. Great start out of the gate. I guess I wanted to focus on a couple of topics. I guess the first one here is really just the strength of the Steve Madden business. If you could just talk about what you're seeing at the wholesale level. You characterized the environment as being choppy, yet your Madden business, the core Madden business continues to be on fire. So if you could just give us some details on what you're -- what's transpiring, what you're seeing there. And then there was a comment, it was related to that, that it sounds like you're starting to get to see -- you're starting to see reorders from that wholesale channel. I mean if you could just confirm that and just give some details around that, that'd be great.

Yes. Good morning. Yeah, we're really pleased with what we're seeing in the Steve Madden brand and particularly in the Steve Madden wholesale business. As we've pointed out in the prepared remarks, our U.S. wholesale footwear business and Steve Madden brand was up double digits in Q1. That includes a double-digit gain in our -- in the core business, Steve Madden women's, and that's what we're particularly excited about. As you point out, it was a relatively choppy environment in the first quarter. I think we've heard a lot of commentary from some of the big retailers about challenging trends in the first few months of the year, but we really were an outperformer in that environment, and I think it's because we really had the products right. Our sneakers continue to perform very well, dad sneakers obviously being most important or big bottom sneakers, but also we've still got a lot of success with joggers and slip-ons. And our sandals have been very good, what we call our flatforms as well as our wedges are really performing. And we got a lot of trends and materials that we're -- that we've done a nice job with, too. So anything with rhinestones has been very good. Vinyls have been very good. Animal print continues to perform for us. So again, just really pleased with the product and how it's resonating with the consumer and. And I think to the second part of your question, yes, our wholesale customers are reacting to that. So they're seeing the strong sell-through that we're getting, and we're getting reorders as a result. So we're very pleased with the trend there.

Do remind me if I'm thinking about this correctly, but that change -- that's a change, right? Historically, you've had really good sell-throughs, but your partners have been reticent to reorder. That seems like they've flipped on that. Is that -- am I remembering that correctly?

Well, I think that maybe a couple years ago, we were talking about that back -- this is -- that's looking back 2 or 3 years, though, when the retailers were really over-inventory-ed that we were a little frustrated that we felt that the strong sell-through warranted more reorders than we were getting. But to be honest, we've -- that has corrected itself, and we saw plenty of reorder activity last year as well.

Got you. So you're getting reorders on top of already a healthy reorder comparison. Got it. And then -- so just moving to the retail piece of the business, very strong comps. Clearly, e-com has been a big driver for a few quarters now. If you could just update us and remind us on where you are at with these initiatives, like free 2-day shipping, Afterpay. I think you've been very active on social, and I think that's been gaining some traction. So just give us some color on where that is and how we should think about the benefit that you achieved in Q1 and if there's a change in any way that we should continue to think about that modeling of the comp going forward, just that we're not -- we're staying within the lanes.

Sure. Yes, I mean e-com has been the big driver. As we pointed out in the earlier remarks. It's now 4 quarters in a row of sequential acceleration in that business. I think there are -- you touched on a lot of the drivers there. We're -- we believe that the transition of the platform to Shopify has been important because it's really improved the mobile experience and driven up conversion on mobile, which, of course, is where we get the vast majority of our traffic these days. We think Afterpay has been significant. We think free 2-day shipping has been significant. And then the thing that we really ramped up in Q1 and I think drove further acceleration was the initiatives around paid social, and we're seeing really good results there. That said, it's now 4 quarters in a row, so that means we're starting to lap some of the big improvement next year. So the comparisons do get tougher as we go into Q2.

Got it. That's helpful. And then just my final question is on the gross margin. Very strong performance from the things that you just articulated. Clearly, the benefit of Payless being out of the business is contributing to that in the first half. If you could just help us think about how that flows through because you did, it looks like you did increase your guidance by a couple pennies outside the beat. So there was an incremental improvement on the overall outlook. So just how do we think about the gross margin progression through the balance of the year once the Payless removal cycle is in the back half?

Yes, I think for the full year, we're just looking for gross margin to be up very modestly. I don't expect the same level of gross margin improvement that we saw in Q1, even in Q2 because while we do have the benefit of, to gross margin of not recognizing sales to Payless in Q2, we are taking, we have taken up the forecast for the balance of our private label business. And so private label in total, even with the loss of Payless, we expect to get, this is private label footwear I'm talking about, to flat or maybe even a modest increase in Q2 in terms of sales. So that won't be a gross margin tailwind in Q2. But anyway, for the full year, up modestly is the right way to think about.

Got it. You're going up, flat to up on private label in Q2 because of the recapture happening sooner?

Yes. That's one of things we mentioned that we're pretty pleased about is we're starting to see some of our, a couple of our other mass merchant customers really go after some of that Payless market share and are working with us to do that. So we are starting to see some recapture of our lost Payless business, and that'll hit us in Q2.

And our next question comes from Sam Poser of Susquehanna.

Just a couple of things. In the private label business that you're going to recapture, what about the better private label business? You had commented that you had like tests going on with some of your better guys. And has any of that private label business had better margins than what Payless was? So, because it's not, I would assume that private label market is not the same everywhere.

Yes, we continue to feel good about what we're seeing in terms of the opportunity with that better private label business. That's going to be, we're going to see nice growth in that area this year again, primarily using the Schwartz & Benjamin platform to go after that business, and we've got programs with a number of department stores, many of them small. We're just starting, but if we can execute, it should represent a big opportunity. And yes, the one comment I'll make without getting into too much detail about margins for individual customers or categories of customers is just that Payless was our lowest-margin customer in the company. So all of our other businesses are better than that.

Okay. And then in the second quarter, you should -- you ran these big comps primarily -- could you give us some idea of what the comp differential was between how much the e-commerce helped the comp or what the brick-and-mortar comp was in the quarter? And sort of how you're thinking -- and how big that shift is or has been, given that you just passed Easter?

Yes, in terms of bricks and mortar versus e-com, we were actually down in bricks and mortar. So the entire comp or more than 100% of the comp was driven by the outstanding performance in e-com. Could you repeat the question about Easter? I didn't follow that.

Well, I guess that brick-and-mortar comp being down given the Easter shift was likely anticipated. So I mean given how well you did and given the Easter shift, I mean should we expect the overall comp to be better in the second quarter than it was in the first quarter? The comparison is not that different really.

Yes, the comparison's a little tougher in Q2. So I'll let you make your assumption for comp. I guess what I -- the one thing I will tell you is that I can give you the Easter shift numbers as we estimate them. I think Danielle articulated that we believe it was about 170 basis point drag in Q1 from Easter shift. In Q2, because the volume's bigger, we think it's about 130 basis point tailwind.

And most of that, though -- I mean you would expect a proportionate strength from your brick and mortar in Q2 just given that traffic -- that the Easter traffic just shifted, and that's mostly brick-and-mortar traffic. Am I thinking about that right?

Yes, the Easter shift impacts bricks and mortar. It really has very limited impact on e-commerce.

Got you. Alright. Well that's it for me now. Thanks for significant success.

Thanks Sam.

Thank you. And our next question comes from Edward Yruma from KeyBanc Capital Markets. You may proceed with your question.

Hey good morning. Thanks for taking my question. I guess given the ramp of the e-com business, I know you've added a lot of customer-friendly propositions, 2-day shipping, Afterpay and such. Could you talk a little bit about the margin profile of the business? And as that ramps, is that your anticipation that it could be a headwind in the margin? Or are you able to manage that profile? And then second, I think you mentioned that you saw some strength in boots. I guess how does that make you think about the boots season for the entire year? Thanks so much

Great. Yes, in terms of the margin profile of e-com, as we've implemented a lot of these initiatives, concurrently, we have also pulled back on discounting online. So we've seen pretty significant gross margin expansion over the last handful of quarters and another big improvement in gross margin in e-commerce in Q1. That being said, some of these initiatives -- or many of these initiatives result in higher operating expenses so that line item's going up as well. But the overall e-commerce contribution margin is also improving. In terms of boots, yes, we did have a good first quarter truly in our -- it's not so relevant in wholesale. At least in shipping, there's sell-through. But in retail, we had a nice gain in boots in the first quarter. We also brought in some newer boots into the higher fashion areas to get tests for fall and got some good reads. So that does give us some confidence or optimism going into the back half, but it's obviously really too early to say what the boots season is going to shape up to be this year.

Got it. And one final question, a follow-up on kind of the reorder cadence from the wholesale channel. Is it -- obviously, you guys are performing there, and that drove your strong performance. But is it your sense that within the wholesale channel, the velocity has improved kind of as weather's warmed? And maybe that's contributing to some of the upside? Or are they taking just a more aggressive stance on inventory? Thank you.

Well, yes, I mean I think -- if you're thinking about their businesses overall, I think it was a somewhat tough start to the year. I do think things improved as the weather got warmer. But I think that the reorders we're seeing are really -- really have a lot more to do with our performance and our strong sell-through than what they're seeing overall because I still think the overall picture for many of these customers wasn't great in Q1.

Great. Thanks so much.

Thank you.

Thank you. And our next question comes from Paul Lejuez of Citigroup. You may proceed with your questions.

Thanks guys. Just a couple. Could you maybe quantify the gross margin benefit from Payless going away versus the apples-to-apples increase just in terms of that benefit you saw -- or the increase you saw in that wholesale piece of the business? Second, Anne Klein, just curious if that performed above your expectations. And then last, just higher level, you did use the word choppy to describe first quarter. Curious if anything's changed here in 2Q. Thanks.

Sure. So the first question was about the wholesale footwear improvement and what that looks like if we exclude Payless. I don't have just excluding Payless, but if you take out Payless and Anne Klein because Anne Klein was also not included in the prior year, we were up 100 basis points apples-to-apples in wholesale footwear. So the balance was related to mix, Payless and Anne Klein. Secondly, Anne Klein, we're pleased with what we're seeing. It's really right on target with where we expected that business to be. So happy with the performance there. And then yes, in terms of the overall retail environment, yes, I think it's -- it certainly has gotten better as the weather has improved. And of course, in April, Easter has become a benefit as opposed to the drag that it was in March. So yes, I do think that overall April has been a little better.

Did you see the lift that you expected to see as a result of the Easter shift? Obviously, you knew that was coming. So just curious how that's performed relative to expectations.

Yes. I think it's been really right in line.

Thanks guys. Good luck.

Thank you.

Thank you. And our next question comes from Laura Champine of Loop Capital. You may proceed with your work.

Thanks for taking the question. It's really on inventory. So the balance grew faster than sales. What's the health of that inventory? And do you feel like you're well positioned? Or do you have some product left to clear in Q2?

Yes, we do feel comfortable with the inventory level. As you know, that's always a big area of focus for us, and I think it's something that we do pretty well is manage inventory. If you -- I think Danielle went through it a little bit, but if you exclude Anne Klein and SM Israel, which we obviously didn't have a year ago, I think we're up about 16%, and the drivers were really those 4 divisions she called out: Steve Madden women's wholesale footwear, Blondo, Steve Madden bags, and private label bags. All those divisions are performing very well as she pointed out, growing double digits this spring season. And in particular, there was a big increase, just based on the timing of shipments this year, there was a big increase in shipments in those divisions in total in April. And so that inventory was there to support that increase in April, and we're very comfortable with the level and the content of the inventory.

And our next question comes from Laurent Vasilescu of Macquarie.

This is Werlson on behalf of Laurent. Congrats on the great quarter, and thank you for the color on Kate Spade. If I recall there was a meaningful brand for Schwartz & Benjamin when acquired. Can you possibly quantify what the top line impact is for next year? Is that around $40 million maybe?

Yes, that's a good guess.

Okay. And pretty impressive results on the comps. Can you potentially parse out how the comps progressed by month for the first quarter?

Yes, January was the strongest month, up double digits, February was the weakest, and then March, a little bit better than February but not as strong as January.

Okay. And one last question as a follow-up to Camilo's question on gross margin. Maybe we, can you give us some color on the SG&A? What drove the 100 bps increase in SG&A margin this quarter? And given the Payless is going to be a hit in the second half, how should we think about first half versus second half for SG&A?

Sure. Yes, if think about where we got deleverage in Q1, I'd really call out 3 areas. One is warehousing, where we're seeing some pressure due to wage pressure as well as the mix of business. The businesses that are growing faster have higher warehousing expenses than the businesses that are growing slower. And that's something that's a line item where we will see pressure throughout the year. The second is advertising. We've stepped up our investment in advertising, particularly on the digital side, and again, you'll see that throughout the year. But the other thing that hit us in Q1 was an increase in legal, and that's really just timing. That's not a line item that should be up for the full year. So if you think about the full year, I do think that you'll see a little bit of SG&A deleverage for the full year but certainly, much less than you saw in Q1. And so I guess improvement in 2, 3 and 4 compared to what you saw in Q1.

And our next question comes from Susan Anderson of B. Riley FBR. And our next question comes from Steve Marotta of CL King & Associates. You may proceed with your question.

Good morning, Ed and Danielle. Just putting a finer point on the Payless recapture. If I remember correctly, there was no assumption for recapture in your initial guidance. Has that -- and by implication, it seems that you have mentioned now that you're seeing some of that. So I assume that it is in your current guidance. Can you tease out what that differential is roughly?

Yes. Sure. We -- when we raised our sales growth guidance by about 100 basis points, I would say maybe $3 million, $4 million of that increase was related to the beat in Q1, which was -- primarily came from the strength in Steve Madden, both in wholesale footwear and on stevemadden.com. But the balance of it comes from an increase in our assumption for the balance of the year in private label due to some recapture of the lost Payless business.

That's really helpful. And I understand, from an inventory standpoint, you're up 16% when you exclude the new businesses. And I also understand that you, from a replenishment standpoint, are servicing your customers a little bit better. Is this something to expect for in the next 4 to 6 to 8 quarters that inventory would grow at a faster pace of sales just because of the investments in particular, again, excluding the new businesses, but the investments mostly in replenishment?

Yes, but I don't think you'll see it to the same degree as you saw in Q1 because a lot of that was just driven by this -- the timing of shipments and the big increase in April versus the prior year.

Thank you. And our next question comes from Tom Nikic of Wells Fargo. You may proceed with your question.

Hey, good morning Ed. Good morning, Danielle. Thanks for taking my question. So I just wanted to ask about the -- so you're losing the Kate Spade brand at the end of this year. You added Anne Klein a couple of quarters ago. I'm just kind of wondering the composition of the brand portfolio and the -- specifically the license brand. Do you see an opportunity to add another brand maybe to replace the Kate Spade business that you're losing? And if you do see an opportunity to add a brand, would it be something where you're trying to reach a different demographic like when you brought Anne Klein on or something from a category perspective like when you brought Blondo on? And I'm just kind of thinking about the portfolio management going forward. Thanks.

Yes. It's a good question. We are open to adding additional brands to the portfolio. We are actually looking at a few things. While that's relatively early stage, we're looking at a few things right now that would be either license or acquisition opportunities. Hard to say exactly what we might do in terms of price point or category, but I think, to your point, we'd like something that's complementary to the existing brands in the portfolio. So we'd be most interested in things that do targeted -- a price point or a demographic or a category where we have less penetration today. So we'll keep you updated going forward, but there's nothing to report right now.

Got it. Thanks And just one quick follow-up on the wholesale business. It sounded like you did pretty well in a tough environment. I was just kind of wondering within that, is there anything meaningfully different from a channel-by-channel perspective? Like was it the e-commerce type of companies where you did particularly well, department stores, family channels? Anything from that perspective would be helpful. Thanks.

There's really not much to call out. We're really seeing -- if you think about the Steve Madden brand, for instance, we're really seeing strength across all the channels in which we distribute. So that includes department stores, e-commerce, retailers, off-price channel, family channel, et cetera. So we're currently seeing across the board.

Thank you. And our next question comes from Chris Svezia of Wedbush. You may proceed with you question.

Good morning everyone and congrats on a pretty strong start in Q1. I guess first question, just Ed, when we think about Steve Madden, the wholesale business and footwear, just the sustainability of kind of double-digit growth, how do we think about that for the balance of the year? Is that something sustainable? You're thinking about that? Or just kind of how do we think about that piece of the business? Because it seemed like most of the uptick in the guidance is largely related to private label. So I'm just kind of thinking about the core and how we're thinking about that going forward.

Yes. We have assumed that that growth moderates as we go throughout the year. I think that, that's prudent, given the -- Steve Madden is -- it's -- we already sort of have the leading market share in our grid of business, and we're selling into a channel where the growth dynamics are not stellar. But that being said, we've been saying that for a few years now that we expect that growth to moderate, and we've been exceeding our expectations. So we certainly hope that we can continue to execute and outperform.

Thank you. And then on the -- and then just on the private label business, more of the premium end. You have a program at Dillard's that I think starts this fall. Anything else going on? Maybe how those discussions are developing? And you mentioned some other opportunities. Can you maybe add a little bit of color about what's going on there as we think about fall or maybe into spring 2020?

Yes. I prefer not to talk too much about specific accounts, but we have programs with a number of department stores, and those are -- some of them are already ongoing, some of them are going to be starting in fall. And we're pretty optimistic that this can be a nice growth vehicle for us over the next couple years.

Okay. Final question for me. Just on -- when we think about the earnings outlook, at the high end, $1.86 for the year. You did $0.42 in the first quarter. Just kind of dummy math assumes that the balance of the year has earnings declines to get to that high end of the range. I would assume Q2 probably is not an earnings decline. But potentially, I know as you go into back half, comparisons get a little tougher. And then in obviously Q4, you've got that tax benefit last year that you'll have to lap. Just any color as we think about the earnings cadence as we go through the balance of the year. And where maybe that upside lever could be that you can get maybe better growth on what you're implying in your guidance?

Yes. Well, the reason for weaker EPS relative to the prior year in the back half compared to the first half is that, we have the EPS drag from -- or the earnings drag from Payless all year this year, both first half and second half. But in first half, we have the offset of Anne Klein, which we didn't have in the prior year but which we anniversary in the back half. So we do expect EPS to be down in the back half due to the drag from Payless as well as the tax hit that you called out. And particularly, Q3, for instance, we probably got a $0.05 of negative impact just from Payless, maybe a little bit more than that.

And our question next question comes from Erinn Murphy of Piper Jaffray.

This is Christian on for Erinn this morning. We're curious on the retail side of the business. How full-priced stores performed versus outlet stores and some of the trends between those 2 channels?

Yes, full-priced stores were weaker than outlet stores.

Okay. And then can you provide a quick update on the China business and where you expect to end the year from a profitability perspective and how you're thinking about that going forward?

Sure. Look, it's no secret, we think we've been pretty candid about the fact that our JV in China has not met our expectations. We've been disappointed with the progress we've made there, at least in terms of financial performance. We're certainly having a lot of learnings. It's not profitable right now. It's I think we've kept the losses under control, but it is losing a little bit of money. And we're currently evaluating our alternatives for that business. And hopefully, we'll have some updates for you as we go throughout the year.

Okay. That's helpful color. And then just one more quick one, on the sneaker category, it's been a major growth driver for the Steve Madden brand. How long do you think that category can continue to expand? And are you guys seeing any slowdown from the luxury sneaker category at all or in the luxury sneaker category?

Yes. Look, we it's hard to say how long the sneaker strength will last, but we certainly don't see it slowing down right now. We don't see any signs of that. We do still see a lot of energy and excitement in the luxury category within sneakers. And I think it's going to be a very important category for us for the foreseeable future.

[Operator Instructions] Our next question comes from Susan Anderson of B. Riley FBR.

Just wanted to follow up on the e-com business and the strong performance there. I guess how should we think about the sustainability? I guess do you feel that you're in the early innings of benefiting from these digital initiatives? And is there more to come on that front?

Yes. We really do feel like we're in the early innings. So I think that we've got some nice runway for continued growth in e-commerce over the next few years, frankly, and we've got other initiatives that we're working on, which hopefully we'll be able to share with you later in the year. That being said, I'm not, I do want to point out that we starting to now lap the big improvements that we've made beginning Q2 last year. So the comparisons do get tougher, and so the year-over-year growth may slow a little bit as we go forward.

Got it. And then I guess just on the China tariffs and the impact to gross margin, maybe if you could talk about what you saw this quarter and how you expect that to play out the rest of the year. I guess when did it originally hit the P&L so when do you cycle that?

Yes. So we talked a little bit about this on the last call, but we -- I think our sourcing teams have really done a fantastic job of mitigating the impact of the tariffs on handbags and other accessories. And it's really been 2 levers: one, moving production aggressively out of China primarily to Cambodia; and two, negotiating price concessions in China on the goods that remain in China. And so the overall impact to gross margin and to earnings for us this year -- in Q1 and this year is really not material. And so that's -- we're very pleased with that. There was an impact in Q4 when the tariffs were implemented right at the end of September, but we didn't see much in Q1.

Great. That's helpful. Thanks so much. Good luck next quarter.

Thank you.

Thank you. And I am not showing any further questions at this time. I would now like to turn the call back over to Ed Rosenfeld for any further remarks.

Okay. Well, great. Thanks very much for joining us on today's call. Have a great day. And we look forward to speaking with you after Q2.

Thank you. 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.