Steven Madden Ltd. (NASDAQ:SHOO) has reported its fourth quarter and full year 2023 financial results, showcasing a 10% increase in Q4 revenue and a 39% rise in diluted earnings per share (EPS) compared to the same period last year.
Despite a 6.6% decrease in consolidated revenue for the year, the company has maintained a strong balance sheet with significant cash reserves and no debt. Looking forward, Steven Madden anticipates an 11-13% revenue growth in 2024, with diluted EPS expected to range between $2.55 and $2.65.
Key Takeaways
- Q4 revenue grew by 10%, and diluted EPS increased by 39% compared to Q4 2022.
- Consolidated revenue for 2023 was down 6.6% to $2 billion, with net income at $182.7 million.
- The company has $219.8 million in cash with no debt as of December 31, 2023.
- Steven Madden plans to open 10 new stores in 2024 and focus on handbag and apparel growth.
- 2024 revenue is projected to increase by 11-13%, with diluted EPS between $2.55 and $2.65.
- No significant impact is foreseen from Macy's (NYSE:M) store closures on Steven Madden's business.
Company Outlook
- Steven Madden expects revenue to increase by 11-13% in 2024.
- Diluted EPS for 2024 is projected to be between $2.55 and $2.65.
- The company plans to add 10 new stores and invest in global site enhancements.
- Marketing investments are set to rise from 2% to about 4.5% in 2023 and will continue to increase in 2024.
Bearish Highlights
- The company experienced a decrease in consolidated revenue by 6.6% in 2023.
- Gross margin pressure is expected in Q1 of 2024.
Bullish Highlights
- Sequential improvement was observed each quarter despite challenging market conditions.
- International growth is outpacing domestic growth, with plans for continued investment.
- Outlet stores are outperforming full-price stores.
- Strong momentum in Europe with confidence in further growth.
Misses
- Full-year 2023 net income was lower at $182.7 million compared to $218.3 million in 2022.
Q&A Highlights
- The company discussed gross margin impacts, expecting a 20 to 25 basis point impact.
- There is an opportunity for gross margin improvement in the direct-to-consumer channel.
- Inventory management capabilities are highlighted, with the ability to turn inventory faster than peers.
- Investment in store remodels and IT infrastructure will result in slightly higher CapEx.
- Steven Madden is focusing on expanding direct-to-consumer business and building their customer database.
Steven Madden's results reflect a company that is adapting to market challenges and seizing opportunities for growth, particularly in the international and direct-to-consumer segments.
With a strong cash position and no debt, the company is well-positioned to invest in expansion and marketing efforts that could enhance its brand presence and market share, especially within department stores.
Despite a dip in annual revenue, the company's robust financial outlook for 2024 suggests confidence in its strategic initiatives and the potential for continued success.
InvestingPro Insights
Steven Madden Ltd. (SHOO) has demonstrated resilience in a challenging market, as evidenced by its strong financial position and the ability to generate profitable growth. The InvestingPro data and tips provide further context to the company's performance and outlook.
With a market capitalization of $3.19 billion, the company's valuation reflects a P/E ratio of 18.32, which adjusts to a slightly more attractive 17.5 based on the last twelve months as of Q4 2023.
It suggests that investors are recognizing the company's earnings potential relative to its share price. Additionally, the company's price-to-book ratio stands at 3.85, indicating how the market values the company's net assets.
An important highlight from the InvestingPro Tips is that Steven Madden holds more cash than debt, which is a strong indicator of financial stability. This is complemented by the fact that the company's liquid assets exceed its short-term obligations, providing it with financial flexibility to navigate market uncertainties and invest in growth opportunities.
Moreover, analysts predict that Steven Madden will be profitable this year, which aligns with the company's own EPS outlook for 2024. The company has also been profitable over the last twelve months, which is a testament to its effective management and strategic direction.
For readers looking to delve deeper into Steven Madden's financial health and future prospects, there are additional InvestingPro Tips available. By using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro, where they can explore a comprehensive list of tips that can guide investment decisions.
Steven Madden's outlook for 2024, coupled with its solid balance sheet and strategic initiatives, suggests a company poised for continued success. The InvestingPro data and tips provide a window into the company's financial metrics and analyst expectations, which can help investors make informed decisions.
Full transcript - Steven Madden (SHOO) Q4 2023:
Operator: Good day and thank you for standing by. Welcome to the Steven Madden Fourth Quarter and Full Year 2023 Results Conference Call. At this time, all participants will be in a listen-only mode. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Danielle McCoy, VP of Corporate Development and Investor Relations. Please go ahead.
Danielle McCoy: Thanks, Abigail, and good morning, everyone. Thank you for joining our fourth quarter and full year 2023 earnings call and webcast. Before we begin, I'd like to remind you that our remarks that follow including answers to your questions contain statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to materially differ from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our press release issued earlier today and filings we make with the SEC. We disclaim any obligation to update these forward-looking statements which may not be updated into our next quarterly earnings conference call, if at all. The financial results discussed on today's call 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 me today on the call is Ed Rosenfeld, Chairman and Chief Executive Officer; and Zine Mazouzi, Chief Financial Officer. With that, I'll turn the call over to Ed. Ed?
Edward Rosenfeld: Thanks Danielle and good morning, everyone. And thank you for joining us to review Steven Madden's fourth quarter and full year 2023 results. We are pleased to have finished the year on a high note, delivering fourth quarter results that exceeded expectations on both the top and bottom lines. After a tough start to 2023, we saw sequential improvement each quarter throughout the year in both revenue and earnings when compared to the prior year, culminating in the fourth quarter when revenue grew 10% and diluted EPS rose 39% versus the comparable period in 2022. The Q4 results included organic revenue growth in both the wholesale and direct-to-consumer channels, supplemented by the contribution from the newly acquired, Almost Famous, as well as strong year-over-year operating margin improvement. Looking back at 2023 overall, we faced challenging market conditions, with wholesale customers taking a cautious approach to orders and consumers pulling back on discretionary spending. I'm proud of how our team navigated the difficult environment, controlled what we could control, and remained focused on executing our strategy for long-term growth. The foundation of which is driving closer connections with consumers through the combination of consistently trend-right product assortments and effective consumer engagement, which in turn will enable success with our four key long-term business drivers. The first of those drivers is growing our business in international markets. International has been the fastest growing part of our business over the last several years, and the momentum continued in 2023 despite the challenging macro environment. International revenue increased 11% in 2023 to $381 million, or 19% of total. Looking ahead to 2024, continuing to grow our business in the EMEA region will be our top priority as we seek to build on our momentum in Europe, develop our new Middle East joint venture, and capitalize on the exceptional brand heat we have in South Africa. Closer to home, driving continued growth in Mexico will also be a focus, as we look to capitalize on our market-leading position and recent share gains in that country. Our second key business driver is expanding in categories outside of footwear, like accessories and apparel. In 2023, our overall accessories and apparel revenue increased 10% compared to 2022, or 1% excluding Almost Famous. Our Steven Madden handbag business was the highlight, increasing 37%, including strong growth in both wholesale and direct-to-consumer channels, in both domestic and international markets. We also broadened our footprint outside of footwear over the acquisition in October of Almost Famous, a designer and marketer of women's apparel. Almost Famous markets products in the wholesale channel under its own brands, primarily Almost Famous, as well as private label brands for various retailers. It has also been an exclusive licensee for Madden NYC apparel since its launch in 2022 and has had outstanding success with that brand so far. Almost Famous its core expertise is in the junior apparel category and in value price distribution channels, making it a strong complement to our existing Steven Madden apparel business which is focused on contemporary styling and is primarily distributed in department stores and e-commerce retailers. Our top priority will be to use the Almost Famous platform to introduce Madden Girl apparel and to grow Madden NYC apparel. This will enable us to implement in apparel the strategy that has been so successful for us in footwear and accessories, which is to utilize the Steven Madden brand portfolio, including Steven Madden, Madden Girl and Madden NYC, to reach customers in all tiers of distribution from premium channels down through mass. Beyond the successful integration of Almost Famous, our focus in 2024 will be building on the momentum we have in Steven Madden handbags with a particular focus on driving continued growth in DTC channels, as well as the further development of the Steven Madden apparel business. Our third key business driver is driving our direct-to-consumer business led by digital. After strong growth in this business in 2021 and 2022, our DTC revenue declined 3% in 2023. We did, however, see sequential improvement in the year-over-year top line performance each quarter throughout the year, and Q4 DTC revenue increased 2% compared to the comparable period in the prior year. And if we zoom out and look at the evolution of our DTC business over the past few years, we see that this business is up nearly 60% in revenue and nearly 200% in operating profit compared to pre-COVID 2019. In 2024, we plan to add 10 net new stores driven by expansion in international markets, primarily in EMEA, we will also invest in remodels in key locations, including our flagship store in Times Square in New York City. On the digital side, we'll be investing in global site enhancements designed to drive greater speed, usability, and conversion, as well as continuing to refine our marketing mix and push more investment up the marketing funnel. Finally, our fourth key business driver is strengthening the U.S. wholesale footwear business. 2023 was a uniquely challenging year in that channel, as many of our wholesale customers entered the year with excess inventory and reduced order significantly in efforts to right-size inventory levels. After a revenue decline of more than 20% in the first half, the trend in this business improved significantly in the back half, but we still saw revenue declines of 6% in Q3 and 2% in Q4. The good news is that inventories in the channel are much healthier than they were a year ago, and so while the sentiment among many of our key customers remains cautious, we are positioned to return to year-over-year revenue growth in this business beginning in Q1. So overall, while 2023 was challenging in a number of ways, we drove sequential improvement throughout the year, ended the year with a strong quarter, and made important progress on our key strategic initiatives. We also demonstrated our ongoing commitment to returning capital to our shareholders, with over $200 million in combined dividends and share repurchases. As we look ahead, while the operating environment remains choppy, we believe the on-trend product assortments created by Steve and his team have us well positioned for 2024. And looking out further, we are confident that the combination of our strong brands and proven business model will enable us to drive sustainable revenue and earnings growth for years to come. And now I'll turn it over to Zine to review our fourth quarter and full year 2023 financial results in more detail and provide our initial outlook for 2024.
Zine Mazouzi: Thanks Ed, and good morning, everyone. In the fourth quarter, our consolidated revenue was $519.7 million, a 10.4% increase compared to the fourth quarter of 2022. Excluded Almost Famous, consolidated revenue grew 2.3% compared to the same period in the prior year. Our wholesale revenue was $354.8 million, up 14.9% compared to the fourth quarter of 2022, or 2.5% excluding Almost Famous. Wholesale footwear revenue was $225.2 million, a 0.4% decrease from the comparable period in 2022, as a modest increase in the brand's business was offset by a decline in private label. Wholesale accessories and apparel revenue was $129.6 million, up 56.5% to the fourth quarter in the prior year, or 10.3% excluding Almost Famous, driven by another quarter of strong growth in Steven Madden handbags. In our direct-to-consumer segment, revenue was $162.3 million, a 1.9% increase compared to the fourth quarter of 2022, with an increase in the brick-and-mortar business partially offset by a modest decline in e-commerce. We ended the year with 255 company-operated brick-and-mortar retail stores, including 71 outlets, as well as five e-commerce websites and 25 company-operated concessions in international markets. Turn into our licensing segment. Our licensing royalty income was $2.7 million in the quarter, compared to $2.5 million in the fourth quarter of 2022. Consolidated gross margin was 41.7% in the quarter, versus 42.2% in the comparable period of 2022. Excluding Almost Famous, consolidated gross margin increased 80 basis points year-over-year. Wholesale gross margin was 31.7%, an increase of 120 basis points compared to the fourth quarter of 2022, driven by increases in both the wholesale footwear and wholesale accessories and apparel segments. Direct-to-consumer gross margin was 62.7% versus 64% in the same period in 2022, driven by an increase in promotional activity. In the quarter, operating expenses were $163.9 million, compared to $156.5 million in the fourth quarter of 2022, an increase of 4.7%, excluding Almost Famous operating expenses rose 1.3% compared to the same period last year. Operating income for the quarter was $53 million or 10.2% of revenue, up from $42.2 million or 9% of revenue in the comparable period last year. The effective tax rate for the quarter was 14.3% compared to 20.9% in the fourth quarter of 2022. Finally, net income attributable to Steven Madden Ltd for the quarter was $45 million, or $0.61 per diluted share, compared to $33.7 million, or $0.44 per diluted share in the fourth quarter of 2022. Now I would like to briefly touch on the full year results. Consolidated revenues for 2023 decreased 6.6% to $2 billion, compared to $2.1 billion in 2022. Net income attributable to Steven Madden Ltd was $182.7 million, or $2.45 per diluted share for the year ended December 31, 2023, compared to $218.3 million, or $2.80 per diluted share for the year ended December 31, 2022. Moving to the balance sheet, our financial foundation remains strong. As of December 31, 2023, we had $219.8 million of cash, cash equivalents, and short-term investments, and no debt. Inventory was $229 million flat to the prior year. Excluding Almost Famous, inventory was down 5.9% compared to the same period in 2022. Our CapEx in the fourth quarter was $5.6 million, and for the year was $19.5 million. During the fourth quarter and full year 2023, the company spent $38.1 million and $142.3 million on repurchases of its common stock respectively, including shares acquired through the net settlement of employees stock awards. At the end of the year, we had approximately $176 million remaining on the share repurchase authorization. The company's board of directors approved a quarterly cash dividend of $0.21 per share. The dividend will be payable on March 22nd, 2024 to stockholders of records as of the close of business on March 8th, 2024. When combined in share repurchases and the dividend, we returned $205 million to shareholders in 2023 and over $1.4 billion over the past decade. Turn into our outlook, we expect revenue for 2024 to increase 11% to 13% compared to 2023 and we expect diluted EPS to be in the range of $2.55 to $2.65. This includes a forecasted effective tax rate for 2024 of 23.5% up from 21.3% in 2023, primarily due to lower forecasted discrete tax benefits related to stock-based compensation. Now I would like to turn the call over to the operator for questions. Abigail?
Operator: [Operator Instructions] Our first question comes from Paul Lejuez with Citi.
Paul Lejuez: Hey, thank you guys. You heard from Macy’s yesterday about a significant number of store closings. Just curious if that's having any impact on how you're guiding and thinking about 2024. And also just curious to hear how you might think about the impact over the next several years. And then second, just curious on the wholesale footwear business in F24, how are you thinking about that business on the branded side versus private label and what drives growth? Thank you.
Edward Rosenfeld: Great. Yes. Good morning, Paul. So in terms of the Macy's announcement, obviously, we need to get more information there and understand exactly what stores are on the closure list, et cetera. But I don't think we're looking for any significant impact to 2024. And even beyond ‘24, my initial take is that there probably will be pretty minimal impact because the bulk of what we do with Macy's is in the top $250. So Steven Madden Women's, for instance, is really distributed just in those top 200 Steven Madden Women's footwear is really distributed just in those top $250, which I assume will not be impacted meaningfully. We do have some things that go to more doors and are distributed to doors that are likely on the closure list. That would include Steven Madden Girl footwear and certain accessory categories. We do a little bit of cold weather and some gifting that goes to more doors there. But that impact should be relatively modest. In terms of the second part of your question about wholesale footwear, we do expect both branded and private label to be up in 2024, although I expect private label to grow faster. And as we've talked about, those mass merchant customers that make up the bulk of our private label business were the first ones to see the pullback that happened when folks decided they realized they had too much inventory and pulled back the reins on open device. And so we're also seeing the recovery there first. And so we expect to see some pretty nice growth even starting in Q1 and wholesale footwear in the private label segment.
Unidentified Analyst: Got it, thanks. And just one additional, what do you assume for Almost Famous per 2024? I'm sorry if I missed that.
Edward Rosenfeld: Yes, so I guess maybe the way to give it to you is if we exclude Almost Famous, so the revenue growth is 11 to 13 including Almost Famous. If we exclude Almost Famous, it's mid-single digit top line growth.
Operator: Our next question comes from Aubrey Tianello with BNP Paribas (OTC:BNPQY).
Aubrey Tianello: Hey, good morning. Thanks for taking the questions. I wanted to follow up on that last question about the 2024 revenue guide. Ed, maybe could you break down a little bit more in terms of what you're expecting between DTC and wholesale on the organic side for 2024 revenues?
Edward Rosenfeld: Sure. Yes, so if we're looking at that kind of mid-single digit overall organic growth rate, it should be a little bit less than that in wholesale or on the lower side of that in wholesale and a little bit higher than that in DTC. So I would say low to mid-singles in wholesale organic and approaching high singles in DTC.
Aubrey Tianello: Perfect. Got it. And then just to follow up on the gross margin for 2024, how we should think about that for 2024, I think Almost Famous is maybe like 140 basis points drag or so. So is that about, right? And then what are some of the other components we should think about within gross margin for ‘24?
Zine Mazouzi: Hey, Aubrey. It's Zine. I would think of Almost Famous, the annualization of it at about 110 basis points. If you added the whole year and assumed it didn't exist before, yes, you get to that 140 that you quoted, but 110 is the annualization. And the other impact that we have as discussed previously is the Red Sea and Canal Suez. And we estimate that currently we have built in based on certain assumption about 20 to 25 basis points. So if you add those two together, you're low over 130 basis points of pressure, and that is partially offset by some improvement in gross margin in the organic business.
Operator: Our next question comes from Laura Champine with Loop.
Laura Champine: Thanks for taking my question. And I know you've already spoken to wholesale footwear, sort of returning to growth. The mix in the wholesale segment was interesting in Q4 with extremely strong growth on easy compares and accessories and kind of flat footwear. Does that normalize in Q1 or will it take longer than that?
Edward Rosenfeld: I still expect the wholesale accessories to be growing faster than wholesale footwear in Q1 even on an organic basis. And then it should normalize after that.
Operator: Our next question comes from Samuel Poser with Williams Trading.
Samuel Poser: Good morning. Thank you for taking my question. I guess I'd like to just dig into wholesale footwear and how you're thinking about that. We can sort of back into handbags. It's going to grow faster. Are we looking at like low to mid on the footwear side of things on the wholesale business?
Edward Rosenfeld: Yes, that's the right way to think about it, Sam.
Samuel Poser: And probably a little, I mean from the initial guidance, a little stronger in the first half of the year and just because the compare to it little easier and the visibility is better. Is that?
Edward Rosenfeld: I think that's right. A little bit stronger, but not a big difference.
Samuel Poser: And then I'm just going to dig in. What gross margin and operating margin are you expecting that is built in to the full year guidance?
Zine Mazouzi: Well, I'll tell you, I'll start with gross margin. We expect, as I said earlier, that we'll have that 140 basis points combined between Almost Famous and free. And we probably think that we'll have about 70 basis points pressure on the gross margin compared to this year. On the up margin, if you just think of Almost Famous alone, that's roughly about 40 basis points, 50 basis points pressure on the up margin.
Edward Rosenfeld: And that's where we think, and just to elaborate, that's where we think that's what's built in. And it's about 11% operating margin for the year, which is down 50, which is essentially attributable, almost all attributable to the Almost Famous pressure.
Samuel Poser: And when there's Almost Famous, I mean, it's driving a good amount of revenue, how long does it take to get Almost Famous margins to where you want them to be?
Edward Rosenfeld: Well, I think we're, certainly, we should start seeing improvement even in the back half here. And we think we see a path to improving those operating margins, but we've always been clear that because of the nature of this business, it's obviously done largely in the mass channel and there's a big private label component, that this business will be a lower operating margin business. As we articulated when we announced it, their operating margins the year before we bought them were about 7%. We think we see a path to getting them into the high singles and over time potentially into the low doubles. But that's you shouldn't expect this to be a mid-teen operating margin business based on the distribution and the nature of the sales breakdown.
Samuel Poser: Okay, and then lastly, within the overall revenue, actually I'll leave it out, within the footwear revenue guidance or the organic revenue guidance, how do you break out international or EMEA versus US versus Canada and so on and so forth? How does that balance? Like sort of we got that mid-single digit growth organically. Is that high single digit?
Edward Rosenfeld: Yes, no, international is a little faster than that and domestic is a little slow.
Operator: Our next question comes from Jay Sol with UBS.
Jay Sole: Great, thank you. And my question about the leverage point for SG&A. What is the leverage point for SG&A in fiscal ‘24? And as you look beyond that change and has the leverage point changed with the acquisition?
Zine Mazouzi: Yes, so we have some modest leverage built into the 2024 budget in the guide. And the reason I'm saying it's modest is because, as we always said, we'll continue to invest in the business. We invest in marketing. And we also invest in infrastructure internationally. As Ed mentioned, we grew 11%. We expect double-digit growth to continue for the next couple of years. So there is some investment that we're doing to fuel the growth in the upcoming years in international, both from a people perspective and also from a technology perspective.
Edward Rosenfeld: And just to elaborate on that, keep in mind that the organic top line growth is mid singles, right? So you're looking at a consolidated 11% to 13%, but that includes Almost Famous.
Jay Sole: Got it. Okay. And then I'm going to just add one more. Just any color on how we should think about gross profit margin for Q1.
Edward Rosenfeld: You guys are getting granular here. Look, there's going to be -- there will be pressure in Q1 for the reasons that Zine already articulated. I don't think we're going to start, prefer not to get start guiding by margin by quarter.
Operator: Our next question comes from Abbie Zvejnieks with Piper Sandler.
Abbie Zvejnieks: Great. Thanks so much for taking my question. Can you just give us some color on what gives you confidence in the high single digit direct-to-consumer growth, any color on e-commerce versus stores, and then I guess what you're seeing and expecting in terms of promotions in that direct-to- consumer channel. Thank you.
Edward Rosenfeld: Yes, we've seen a nice improvement in that business over the last few months. Even in Q4, we saw a significant improvement in November and December relative to the trend in October. And we've seen an additional step up in January and February compared to where we were in November and December. So we're running very nice, solidly positive comps and seeing that in both brick-and- mortar and digital year-to-date. And so that is part of what gives us confidence in the DTC revenue guide. We also do have, we'll probably have 2.5 points of non-comp, growth coming from non-comp stores as well because of some of the new store openings. What was the follow-up question?
Abbie Zvejnieks: So I just on promotions in direct-to-consumer.
Edward Rosenfeld: Oh, yes. I would say right now, the promotion activity is, I would say, normal. It's not super happy, but I wouldn't characterize it as super light either. I think it's kind of normal activity for this time of year. If we go back to fall, it was a somewhat challenging boot season, and so we did a little bit more promotional activity to move through the boots. But nice thing was, January, we got that cold weather. We really were able to get through a lot of boots and got very clean there. And so we feel good about our inventory position. And in fact, I believe that this year at DTC, there's opportunity for gross margin improvement in DTC by controlling promotions.
Operator: Our next question comes from Tom Nikic with Wedbush.
Tom Nikic: Hey, good morning, everyone. Thanks for taking my question. I want to ask about the international business. A lot of other brands have talked about the European consumer becoming a little more cautious. But your optimism around Europe just stems from trying to, your brand is so under-penetrated there that you kind of have growth opportunities, almost regardless of the macro environment.
Edward Rosenfeld: Yes, I think that's right. We have very strong momentum in Europe, and we do feel that we are outperforming our competitors in terms of sell-through and overall performance. That said, the overall macro environment is tough there. The retail environment is challenging there. If it weren't for those factors, I think we'd be doing even better. But because of the momentum we have, the strong performance that we've been seeing, both in wholesale and in our direct-to-consumer channels, and to your point, the fact that we're just not a mature business there. We've still got a lot of runways ahead of us. We still feel we can drive growth in that region.
Tom Nikic: Got it. Ed, can you remind us the size of the business in Europe, and maybe ultimately what you think the region can become for you?
Edward Rosenfeld: Yes, the EMEA region overall in 2023 was just under $170 million. In terms of what it could be, I mean it could be multiples of that.
Operator: Our next question comes from Corey Tarlowe with Jefferies.
Corey Tarlowe: Great, thank you. Ed, I was wondering if you could just touch on the inventory balances and how you feel the inventory is positioned into this upcoming year. One of the things you've done a nice job of and act almost same as this, inventory is continuing to be down I think for several quarters in a row now. So could you talk about what you think that means for the business and how that all interplays with your ability to chase and be trend focused and drive really productive sales that way?
Edward Rosenfeld: Yes, I mean I think that's, as you know, one of the hallmarks of the company has been our inventory management and our ability to turn our inventory faster than our peers in the industry. And enables us to work close to season, not make big speculative inventory bets upfront and chase goods in season and be very nimble. And that's been a good formula for us, especially in the fast moving trend business in which we operate. So I do feel we're really, obviously that whole model was challenged for a period when there was the tremendous supply chain disruption in the wake of COVID. And transit times were so extended, but we're back to being able to do what we do best. We've been able to, as you point out, reduce overall inventory levels, at least on an organic basis. We were flat, including Almost Famous at the end of the year. And so we're really positioned to run our playbook and do what we do, and we feel good about that. And I think that's another reason that we do believe that on an organic basis, we can see some gross margin improvement this year.
Corey Tarlowe: That's great. And then just to follow up on, you mentioned remodels. Curious about the potential impact of that on CapEx. And this is traditionally a very capital light business. So curious about what the expectations are for remodels going forward, if that's something more broad or more specific to a finite number of stores.
Zine Mazouzi: Yes, we've done some this year, as I mentioned earlier, we end at $19.5 million this year. And we expect next year with what we do with our CapEx in the stores, either opening stores, remodels, our investment in IT and infrastructure that we would be probably about $5 million above this year.
Operator: Our next question comes from Dana Telsey with Telsey Advisory Group.
Dana Telsey: Hi, good morning, everyone. Ed, as you think about the wholesale channel distribution and the buckets of it, whether it's off-price, department stores, discounters with private label, how are each performing and how do you expect them to be different in 2024 versus ‘23? And on the retail component, what are you seeing in terms of differences in outlets versus street locations or malls? Thank you.
Edward Rosenfeld: Sure. In terms of the wholesale channels, look, I think the one I'm the most bullish about in terms of top line growth is probably the mass channel because as we point out, we did take a big hit there as they pulled back the reins really dramatically to get their inventories in line and we're starting to see that business recover and we're already, as I pointed out, expecting to see a nice year-over-year improvement beginning in Q1. So I think that kind of bounce back should be a nice benefit for us in 2024. Kind of moving up to the channels like off price, that's clearly still a channel that's performing. Taking share, there's still a very healthy demand for our product there. We are obviously controlling how much distribution we have in that channel, but certainly there's healthy demand there. And then as you move into the department stores, I would say overall, the sentiment there remains cautious, but as I pointed out earlier, the inventory in the channel is much healthier than it was a year ago. And obviously those customers are important to us and we've got indications from them that they're planning our business in excess of how they're planning their overall department. And so we'll look for a better year with them as well in 2024. I think the second part was outlets versus full price stores. The big call out there is that we continue to see outlet outperforming full price stores in the US by a pretty significant margin. In Q4, it was about 1, 000 basis points again in comp. And even coming into Q1, we continue to see significant outperformance in the outlet channel versus the full price channel in the United States. I think indicative of a customer that is still price conscious and gravitating towards value.
Operator: Our next question comes from Janine Stichter with BTIG.
Janine Stichter: Hi, good morning. I had a couple of questions around margins. So for gross margin, what are you assuming for freight? The Red Sea situation aside, we've seen the rates pick up a bit. And I think your contracts are for renewal soon. So just how to think about what you're assuming for freight for the rest of the year. And then on the SG&A, I think you pointed to a bit of SG&A deleveraged in the guide, sorry, a bit of leverage built into the guide. But how are you thinking about marketing spend? I know you've been investing there, had to think about the overall investment in marketing spend and then maybe the split between brand spend and other marketing spend. Thank you.
Zine Mazouzi: Yes, I'll take the first part on the gross margin and Ed can elaborate in marketing. On the gross margin, Janine, we mentioned that we have built in based on certain assumptions around Red Sea and everything else around freight, 20 to 25 bps impact to gross margin. On the marketing side, we're continuing to invest, but Ed can actually give you a little more color on that.
Edward Rosenfeld: Yes, I mean, I think that, look, as you know, that's been an area of continued investment for us over the last several years, and we've moved up our marketing percentage of revenue pretty significantly from 2% or sub 2% to about 4.5% in 2023. As we go into 2024, we're going to continue to increase the investment in marketing. We think that's important to drive growth in the future. If we, I think it's easiest to sort of look at it backing out Almost Famous. If you back out Almost Famous, there is, we're still looking to increase marketing kind of high single digits in dollars, which is obviously faster than the mid-single digit top line growth on an organic basis that we forecasted. So a little bit of deleverage there. In terms of the mix, as we talked about, the big focus there is really optimizing our marketing spend throughout the funnel. And that means, we believe at this point, pushing more marketing spend up the funnel. So making sure we're doing that top of funnel brand awareness work, as well as the mid funnel sort of consideration, and of course not forgetting the bottom of the funnel for conversion. I think a few years ago, like many folks in the industry, we'd gotten into a situation where we were very heavily penetrated in the lower part of the funnel, and that was working for a while there. We're getting great returns on that performance marketing, but we do think that there needs to be a better balance now, and that's what we're focused on.
Operator: We have a follow -up from the line of Samuel Poser with Williams Trading.
Samuel Poser: Thank you. Two things. One, to follow up on Dana's question, on the wholesale brand on the Steven Madden and Dolce Vita footwear there, sort of the better wholesale businesses, are the retailers opening up enough? When Macy’s spoke yesterday, they said that they wanted to buy more product of what people coming in and asking for, which would be theoretically you'd be one of those. But at the same time, they were talking about growing their private label business. So I'm just trying to get your interpretation of how that works out giving people what they want and then growing private label. And then I wanted to talk about sort of expanding the scope of your direct-to-consumer business getting to know more customers, building your database, or what's being done there to increase that. Thank you.
Edward Rosenfeld: Yes, look, I think, I don't know what else I can say about what's going on with the department stores. We feel, we believe that we are confident that we're very important vendors for them, that we're going to get more than our fair share, that we're positioned to take share, frankly, in that channel. Overall, their sentiment does remain cautious, though, and we'll have to see how that develops over the course of the year. Obviously, if their comp store sales improve, that will incur, I believe that will encourage them to get more aggressive, and I think we'll be very well positioned to participate, if that happens. In terms of DTC, look, that's clearly been -- we've been increasing the penetration significantly over the last several years in DTC, and we continue – we expect to continue to that so back in 2019, I think we were 18% in DTC. We finished 2023 up 800 basis points in penetration, so pretty significant growth in DTC there. And obviously, this year, when if you include Almost Famous, you won't see that percentage go up, but if you exclude Almost Famous, you're seeing continued penetration increase in DTC, and that will continue to be a long-term initiative for us to build that business and have more of those direct relationships that you talked about with the consumer.
Operator: That concludes the question and answer session. This time, I would like to turn the call back to Ed Rosenfeld for closing remarks.
Edward Rosenfeld: All right. Well, thanks so much for joining us today. Have a great day. We look forward to speaking with you on the next call.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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