Steven Madden - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered adjusted EPS of $0.60 versus Wall Street consensus of $0.4567*, a significant beat, while revenue of $553.5M was slightly below consensus of $556.3M*.
• Gross margin held at 40.9% (+20 bps YoY) despite early tariff headwinds (~20 bps drag), aided by stronger March sell-through and inventory discipline.
• Management withdrew FY2025 guidance due to tariff-driven uncertainty; near-term profit growth to be pressured as the company aggressively re-sources out of China and implements selective price increases.
• Closed acquisition of Kurt Geiger (EV ~£289M); KG adds a high-growth, accessory-led brand with global expansion potential and lower U.S. tariff exposure (65% of sales ex-U.S.).
• Stock reaction catalysts: EPS beat vs expectations, guidance withdrawal, tariff/sourcing updates, and integration roadmap for Kurt Geiger.

Values with asterisk were retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

• “Earnings results significantly exceeded expectations,” driven by strong March demand and on-trend assortments supported by full-funnel marketing (House of Steve).
• Wholesale gross margin expanded to 35.7% (+60 bps YoY), with gains in both footwear and accessories/apparel; licensing income rose to $2.2M from $1.8M.
• Acquisition of Kurt Geiger closed; management targets making KG London a $1B brand, with momentum led by handbags and strong U.S. digital growth (~+60% in 2024).

What Went Wrong

• Tariffs created immediate margin pressure (~20 bps in Q1) with a more significant impact expected in Q2; DTC gross margin fell to 60.1% (61.9% LY) on higher promotions.
• Wholesale revenue was modestly affected by shifting ~$13M mass-channel shipments from Jan’25 to Dec’24 and by cancellations among FOB customers and price-sensitive accounts.
• FY2025 outlook withdrawn; management guided investors to expect no near-term profit growth as re-sourcing, price actions, and later deliveries weigh on results.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Q1 2025 Steve Madden Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Danielle McCoy, VP of Corporate Development and Investor Relations. Please go ahead.

Danielle McCoy (VP of Corporate Development and Investor Relations)

Thanks, Lauren, and good morning, everyone. Thank you for joining our first quarter 2025 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 suspend any obligation to update these forward-looking statements, which may not be updated until 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 on the call today is Ed Rosenfeld, Chairman and Chief Executive Officer, and Zine Mazouzi, Chief Financial Officer and Executive Vice President of Operations. With that, I'll turn the call over to Ed. Ed?

Ed Rosenfeld (Chairman and CEO)

All right. Thank you, Danielle, and good morning, everyone. Thank you for joining us to review Steve Madden's first quarter 2025 results. We were pleased with our performance in the first quarter, with earnings results significantly exceeding expectations. While sales trends across the industry were somewhat sluggish in January and February, we saw a strong improvement in March as weather turned warmer and more consumers began to look for spring fashion. Our product teams did an outstanding job of creating on-trend spring assortments that resonated with consumers, and we supported these assortments with increased investment in our full-funnel marketing strategy, highlighted by our global marketing campaign House of Steve, featuring social media sensation Tefi and the iconic Salt and Pepper song, Shoot. Overall, our team's disciplined execution of our strategy continues to create deeper consumer connections and drive demand for our brands and products.

That said, it's no secret that in the near term, we face meaningful headwinds and heightened uncertainty due to the impact of new tariffs on goods imported into the United States. After the most recent additional tariffs were implemented in early April, our team moved swiftly to adapt to the changing landscape, with a focus on mitigating near-term impacts while positioning the company for long-term growth. We leveraged our strong and long-standing supplier relationships to negotiate meaningful discounts on products coming from China to the US so we could limit the negative impact to earnings in the short term while keeping goods flowing, continuing to deliver the most important fashion items, and protecting market share.

Simultaneously, we sharply accelerated our shift to production out of China, capitalizing on the groundwork we've laid in alternative countries of production over the last several years to move quickly and minimize disruption as we did so. Due to the foundation we have built in these other countries, combined with our model of working close to season, we have been able to significantly reduce the amount of fall 2025 production out of China. On previous earnings calls, we disclosed that in 2024, we sourced 71% of our U.S. imports from China. For fall 2025, we expect a comparable figure, excluding Kurt Geiger, to be in the mid-teens, and by spring 2026, down to the mid-single digits. Additionally, we have begun selectively raising prices to consumers and wholesale customers.

We have taken a surgical approach, raising prices by differing amounts and sometimes not at all, depending on the brand, product category, and style. The first adjustments to retail prices were made over the last several days, so it's too early to assess the impact, but we will monitor the elasticity of demand carefully and react accordingly. Finally, we are also looking for expense savings and operational efficiencies where we can and recently completed a reduction in force that will result in over $12 million in annual savings. While the tariffs and the related uncertainty are undeniably challenging in the short term, we believe that we are well-positioned relative to many of our closest competitors, most of whom do not have the ability to shift production as quickly as we can and/or are not as well capitalized.

We will continue to invest in marketing and the other strategic initiatives that position us for long-term growth, and we believe that the current disruption will create opportunities for us to take market share over time. The most important investment we've made this year is the acquisition of Kurt Geiger, which we were excited to close yesterday. The Kurt Geiger London brand continues to demonstrate outstanding momentum as its unique brand image, distinctive design aesthetic, and compelling value proposition drive success across multiple categories led by handbags. Its differentiated and elevated positioning and its alignment with our strategic initiatives of expanding in international markets, accessories categories, and direct-to-consumer channels make it a highly attractive and complementary addition to our portfolio.

With the 12-month end in February 1, 2025, Kurt Geiger had revenue of GBP 400 million, and the purchase price in the transaction reflected an enterprise value of GBP 289 million, of which approximately GBP 14 million is deferred and payable to management over a five-year period upon achievement of certain financial targets. In connection with the acquisition, the company entered into a new credit agreement, which provides for a $300 million term loan facility and a $250 million revolving credit facility, and we funded the acquisition with borrowings under the new credit agreement and cash on hand. With the transaction consummated, we are thrilled to get to work in supporting the Kurt Geiger management team led by CEO Neil Clifford in their journey to making Kurt Geiger London a billion-dollar brand. In sum, we delivered solid results in the first quarter in a tough environment.

Looking ahead, we are clear-eyed about the challenges and uncertainty we face due to the impact of tariffs, but our team has moved quickly to adapt, and we believe the agility of our business model, combined with our fortress balance sheet, gives us a competitive advantage in dynamic environments like this one. We are confident that we are well-positioned to navigate the current disruption and to return to profitable and sustainable growth when the dust settles. With the acquisition of Kurt Geiger, we have added a powerful brand to our portfolio that meaningfully enhances the growth profile of our company going forward. Now, I'll turn it over to Zine to review our first quarter 2025 financial results in more detail.

Zine Mazouzi (CFO and EVP of Operations)

Thanks, Ed, and good morning, everyone. In the first quarter, our consolidated revenue was $553.5 million, a 0.2% increase compared to the first quarter of 2024. Our wholesale revenue was $439.3 million, up 0.2% compared to Q1 2024. Wholesale footwear revenue was $296.1 million, a 0.2% increase from the comparable period in 2024. Wholesale accessories and apparel revenue was $143.2 million, up 0.4% compared to the first quarter in the prior year. In both businesses, gains in the branded business were partially offset by declines in private label. As a reminder, we moved approximately $13 million of shipments related to the MATS channel from January 2025 to December 2024, which benefited wholesale revenue in the fourth quarter of 2024 and negatively impacted revenue in the first quarter of 2025.

In our direct-to-consumer segment, revenue declined 0.2% to $112.1 million, as a modest increase in our digital business was offset by a decline in brick-and-mortar. We ended the quarter with 314 company-operated brick-and-mortar retail stores, including 72 outlets, as well as five e-commerce websites and 61 company-operated concessions in international markets. Our licensing royalty income was $2.2 million in the quarter, compared to $1.8 million in the third quarter of 2024. Consolidated gross margin was 40.9% in the quarter, compared to 40.7% in the comparable period of 2024, a 20 basis point increase despite approximately 20 basis points of negative impact from the tariffs implemented in February and March. Wholesale gross margin was 35.7% compared to 35.1% in the first quarter of 2024, with increases in both the wholesale footwear and wholesale accessories and apparel businesses.

Direct-to-consumer gross margin was 60.1% compared to 61.9% in the comparable period in 2024, driven by an increase in promotional activity. Operating expenses were $170.5 million, or 30.8% of revenue in the quarter, compared to $164.1 million, or 29.7% of revenue in the first quarter of 2024. Operating income for the quarter was $56.1 million, or 10.1% of revenue, compared to $61 million, or 11% of revenue in the comparable period in the prior year. The effective tax rate for the quarter was 24% compared to 23.6% in the first quarter of 2024. Finally, net income attributable to Steve Madden Limited for the quarter was $42.4 million, or $0.60 per diluted share, compared to $47 million, or $0.65 per diluted share in the first quarter of 2024. Moving to balance sheet, our financial foundation remains strong.

As of March 31, 2025, we have $147.2 million of cash, cash equivalents, and short-term investments, and no debt. Inventory was $238.6 million compared to $202 million in the first quarter of 2024. This is driven primarily by longer lead time caused by the disruption in the Suez Canal and our diversification out of China, as well as shipments we accelerated ahead of the April 2 tariff announcement. Our CapEx in the first quarter was $9.8 million, and during the first quarter, the company did not repurchase any shares of its common stock in the open market. The company spent $7.8 million on repurchases of shares through the net settlement of employee stock awards. The company's board of directors approved a quarterly cash dividend of $0.21 per share.

The dividend will be payable on June 20, 2025, to stockholders of record as of the close of business on June 9, 2025. As mentioned in our press release issued earlier this morning, due to uncertainty related to the impact of new tariffs on goods imported into the U.S., we are withdrawing the 2025 financial guidance we provided on February 26, 2025, and will not be providing guidance at this time. Now, I would like to turn the call over to the operator for questions. Lauren?

Operator (participant)

Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment while we compile the Q&A roster. Our first question comes from the line of Paul Lejuez with Citi. Your line is now open.

Kelly Crago (VP and Equity Research Analyst)

Hi, this is Kelly on for Paul. Thanks for taking our question. First, just on your more aggressive moves outside of China, it's good to see you're only going to see a mid-teens penetration. I guess, could you just talk more broadly about how you're handling the orders from China? Is there a sense that it would not make sense altogether to take orders? On where the production is moving, just any color on the countries where you're moving to and what the margin profile looks like from sourcing from those countries relative to kind of pre-tariff margins, just to sort of understand the impact there. I have a follow-up. Thanks.

Ed Rosenfeld (Chairman and CEO)

In terms of how we're handling production that was in China, on the stuff that was far along in the production process or done, we are taking the majority of that in, but we have worked with our factory partners and suppliers to negotiate price concessions on those goods so we can at least mitigate some of the damage in the near term and, again, keep those goods flowing and make sure we're still delivering fashion to our customers and consumers. Basically, anything that was early enough in the production process to move, we have moved. We have taken components from China, for instance, and moved them to other countries. That is why you've seen that fall production come down so significantly. In fact, in brands like Steve Madden Shoes or Dolce Vita Shoes, that fall production in China is going to be virtually nothing.

Overall, in footwear and accessories, we think we'll be below 5% in fall. It's really some of the apparel and the more value-priced apparel that's bringing the number up because it's taken us a little longer to move those goods. But we've been very proactive, and we've moved very quickly to move those goods for fall. Now, I do want to point out that as we some of these goods, as we move them to the other countries, it does mean that the goods are going to come a month to even 45 days later, and so that will push out some of our deliveries. In terms of the countries that we're moving to, it's really the same countries that we have been talking about. You've got some countries in Asia, like Cambodia and Vietnam, that are important, and then Mexico and Brazil are also very important.

We've particularly been focused on pushing as hard as we can on Mexico and Brazil for a couple of reasons. One is those are countries where we can actually see improved speed from where we were out of when we were sourcing out of China, whereas right now, Vietnam and Cambodia, the lead times are extended from what we're traditionally used to out of China. Also, as you know, Mexico and Brazil did not receive reciprocal tariffs, so there is less risk when July 9 comes along with respect to tariffs in those countries.

Kelly Crago (VP and Equity Research Analyst)

Just to follow up on the question around moving the production, I guess, within that, the sourcing penetrations that you've cited, is some of that as a result of just not choosing to take orders from China in terms of where the penetration's going, or are you, I guess, trying to get at the question of whether or not we're going to see some kind of impact in the top line in the back half of the year? Because obviously, your penetration of China will come down if you're just not taking orders at all. Just want to clarify there in terms of potential impact from lost sales. Just to follow up on sort of just the margins or any other sort of impact on your business model, your fast turning.

As you point out, that longer lead time, how does that impact your normal course of business? Thanks.

Ed Rosenfeld (Chairman and CEO)

Yeah, no, for the most part, we are replacing all the production in these other countries. We are not walking away from whole businesses or whole categories of business or anything like that. Now, that's not to say there won't be any top-line impact from what's going on with tariffs. We have experienced some cancellations. I want to explain that, as you know, we have certain customers who buy from us on what's called an FOB business, a basis, rather, where they are the importer of record, and they are responsible for the tariffs. We have seen some cancellations from those customers. We've also seen some cancellations from customers who are not willing to accept the price increases that we are putting through in fall.

Certain customers are canceling because the goods, as I had mentioned, when they get moved to the other countries, may come in later. Even if the customers are taking those goods in, if the initial sets go in a month or a month and a half later, we do think that will have an impact on reorder business. I guess the last point would be we are starting to hear about certain wholesale customers who are thinking about their fall plans more conservatively given the current environment. I think we all have to be aware that there may be a consumer demand impact from the turmoil here. Certainly, there will be a revenue impact from all of this, but it's not because we just can't ship goods.

In terms of I think you asked about the margin impact of moving to the other countries. It's a very fluid situation, so I'm not going to be too specific about that, but certainly, we are accepting lower margins than we've historically achieved when we're moving to some of these other countries. There is price pressure on some of these other countries as everybody is trying to move so quickly out of China to these alternative countries. If you look at Vietnam, Cambodia, Brazil, these are countries where the FOB prices prior to this disruption were already slightly higher than what you see in China. We have seen additional pressure recently due to the greater demand in those countries of as much as 10%-15% additional price hikes relative to where things were before. We're obviously managing through that.

You asked about the lead times. Yes, again, the lead times are longer right now in Vietnam and Cambodia, but we have Brazil and Mexico where we are actually faster than we are in China. We are utilizing this network where we have multiple countries to manage the business and make sure that when we need to move very quickly, we try to lean on Mexico and Brazil. Where we have a little bit more time, we can work in some of these other countries.

Kelly Crago (VP and Equity Research Analyst)

Got it. Very helpful. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Anna Andreeva with Piper Sandler. Your line is now open.

Anna Andreeva (Managing Director and Senior Research Analyst)

Great. Thanks so much. Good morning, guys. We wanted to follow up on gross margins. It came in better than expectations and up in wholesale. How much of that was FX as a benefit? Others have called out higher costs trickling through the P&L starting kind of now mid-Q2, and you're a faster inventory turning business. Just any color on how we should think about gross margins directionally as we go through the year, just giving all the moving pieces.

Ed Rosenfeld (Chairman and CEO)

Sure. In Q1, we did come in a little better than we had anticipated. I think there was a couple of things there. One was March was just a better month than we anticipated, and we guided at the end of February. As we mentioned, had a somewhat soft start to the year and then saw this big improvement in March. That was part of it. I think the team really did a good job of managing inventory as well, and that enabled us to deliver a better gross margin. You called out FX. That was not a significant issue for us at all. There is also, if you're looking at it versus last year, a benefit from mix because Zine called out in his prepared remarks. On the wholesale side, we were positive in the branded business and had a decline in the private label business.

That's a mixed benefit for us. As you pointed out, you're asking about when tariffs start to impact us. Because we turn our inventory quickly, we start to see the tariff impact sooner than some others. We did, in fact, have even, as Zine called out, about a 20 basis point negative impact in Q1. Obviously, there will be a much more significant impact in Q2.

Anna Andreeva (Managing Director and Senior Research Analyst)

Okay, that's very helpful. Thank you. Just as a follow-up, you mentioned March better. You did call out promo activity in DTC. Just anything to share on quarter to date? Curious if you're seeing different trends of full price versus outlets. Are you starting to see the industry get more promotional or not necessarily yet?

Ed Rosenfeld (Chairman and CEO)

In terms of April, in DTC, it's been a touch softer than March, but still better than we were in the January-February period. It has not been super promotional. We have not seen any major uptick in promotions, and we haven't had to be more promotional than expected in our own DTC today.

Anna Andreeva (Managing Director and Senior Research Analyst)

All right. Thank you so much, Zine.

Operator (participant)

Thank you. Our next question comes from Jay Sole with UBS. Your line is now open.

Jay Sole (Managing Director)

Great. Thank you so much. Just moving production out of China restricts your ability to deliver different fashion styles in any way? In other words, are there certain types of footwear that if you do not produce in China that you cannot make? In other words, if that is the trend that consumers are looking for, you would be sort of constraining your ability to deliver that trend?

Ed Rosenfeld (Chairman and CEO)

No. There are certain things that are, I would say, a little bit more difficult, but there is nothing that we are prevented from making at all. If there is any category of footwear that I would highlight as probably the most difficult, I think kids is challenging, but we think we have a good plan there as well, and we are going to figure that out.

Jay Sole (Managing Director)

Got it. How do you think about just the 10% tariff on the other countries? Obviously, China sort of is in its own category, but what's sort of the strategy to mitigate the impact of just the 10% tariff on countries like Cambodia or some of the other places that you're doing business?

Ed Rosenfeld (Chairman and CEO)

Yeah. As we mentioned in the earlier remarks, we are raising prices. Even absent what's happening in China, we do need to raise prices because of the additional costs in the other countries, which includes the 10% baseline tariff. I think you're going to see that from us, and I expect you'll see that from most others in the marketplace as well over time.

Jay Sole (Managing Director)

Got it. Maybe one more if I can. Just on the inventory being up 18%, can you just make it, is it possible to break it down in terms of units or ASPs or Kurt Geiger? What are the different components of that inventory growth? If you can give us a little bit more color on that, that'd be super helpful.

Zine Mazouzi (CFO and EVP of Operations)

Yeah. This is Zine. The inventory does not, just to answer your question, it does not include Kurt Geiger. Over 70% of that increase is primarily related to the three things I mentioned in the remarks, which relate to the longer lead times based on the disruption in the supply chain. Also, the fact that we're diversifying outside of China, and those are creating also longer lead times. The third component is the fact that we decided to accelerate certain production that was ready to ship and would have shipped otherwise in April, and we shipped it in March. That's basically the main drivers for the inventory. We remain confident in inventory composition and the health of our inventory, and we feel that we're set up nicely for Q2 from an inventory position.

Jay Sole (Managing Director)

Okay. Thank you so much.

Operator (participant)

Thank you. Our next question comes from the line of Laura Champine with Loop. Your line is now open.

Laura Champine (Director of Research and Senior Consumer Analyst)

Thanks for taking my question. I think you mentioned in your prepared comments some price increases that you're rolling out already. Can you generalize about how significant those increases are and how fully they recapture your cost increases?

Ed Rosenfeld (Chairman and CEO)

Yeah. Look, as I mentioned, we're really looking at this at the style level, and we're not taking an approach where we're just applying a blanket percentage increase across the portfolio. There are goods that we're not raising the prices at all, and there are goods we're raising the prices as much as 20%. If I had to give you a round number, I think we're in and around 10% on average. This is a very fluid situation. Again, we're going to be monitoring the elasticity of demand carefully, and we'll continue to iterate going forward.

Laura Champine (Director of Research and Senior Consumer Analyst)

Is it your sense that that's the stance of the industry as a whole, that your price increases are kind of in keeping with what you're seeing out there in the competitive environment, or do you have a different philosophy?

Ed Rosenfeld (Chairman and CEO)

I think it's a little bit too early to say. I mean, I could speculate based on conversations with some of our wholesale customers, but I think it's better to wait to see what actually happens.

Laura Champine (Director of Research and Senior Consumer Analyst)

Makes sense. Thank you.

Ed Rosenfeld (Chairman and CEO)

Thank you.

Operator (participant)

Our next question comes from the line of Sam Poser with Williams Trading. Your line is now open.

Sam Poser (Equity Analyst)

Good morning. Thanks for taking my questions. I've got a pile of questions. The first thing is you mentioned in your, I think, Ed, you mentioned towards the end of your comments, I don't have the exact quote, but something we expect to return to profitability next year, whatever. You said something like that. Can you rehash what you said there? Repeat what you said there, and then I have a question about that.

Ed Rosenfeld (Chairman and CEO)

I said return to profitable growth. No, we're not return to profitability. We're not, well, we're not providing guidance. I will tell you we are not expecting to be loss-making either.

Sam Poser (Equity Analyst)

No, because you said return to profitable growth, which makes me feel like you're not going to have profitable growth for the rest of the year. I am just trying to figure out that was a weird comment, so I was just trying to make sure I understood it.

Ed Rosenfeld (Chairman and CEO)

I think you should assume that in the near term, we won't be growing profits, and as long term we expect to. That was what we were just articulating.

Sam Poser (Equity Analyst)

Okay. Now I got a bunch of other things. One, what is the additional inventory that you have now with the acquisition of the closed acquisition of Kurt Geiger?

Ed Rosenfeld (Chairman and CEO)

I don't have that number off the top of my head. We closed the deal 24 hours ago.

Sam Poser (Equity Analyst)

Okay. And then what is the sourcing mix for Kurt Geiger as of now?

Ed Rosenfeld (Chairman and CEO)

Yeah. Kurt Geiger is about 80% out of China. I do want to remind folks that if you look at their business, in the most recent fiscal year, only 35% of it was done in the United States. They are more insulated from tariff impacts than our existing business due to the much heavier penetration outside the U.S. Certainly, 80% sourcing out of China is an issue. I can tell you that that is the number one priority for us now that we are closed. As we start to integrate, that is job one. We have, I think, a pretty comprehensive plan and a team mobilized. In fact, we are already engaged and moving the ball forward on that front. You are going to see that number go down significantly for spring 2026.

Sam Poser (Equity Analyst)

How long do you think it's going to take to get your margins back to normal, sort of given what you know today?

Ed Rosenfeld (Chairman and CEO)

I'm not going to speculate about that. I mean, there's way too much uncertainty for me to put a line in the sand there.

Sam Poser (Equity Analyst)

Lastly, on the product that you're selling, your private label product that you sell to the MAT, is that where, I mean, the container shipments that they take, is that probably the biggest challenge for keeping that business to get those prices low enough for them to still be, how is that being handled, I guess?

Ed Rosenfeld (Chairman and CEO)

Out of that product as well. That is also something we have been working on for the last couple of years with those customers, finding alternative countries of production. I would like to think that we are ahead of most of the folks that we compete with for that business. Actually, I think this could create an opportunity for us over time. We are on a good path there, and I am confident we will figure that out.

Sam Poser (Equity Analyst)

Thanks very much. Good luck.

Ed Rosenfeld (Chairman and CEO)

Thanks, Sam.

Operator (participant)

Thank you. Our next question comes from the line of Aubrey Tianello with BNP Paribas. Your line is now open.

Aubrey Tianello (Equity Research Associate)

Hey, Lauren. Thanks for taking the questions. Ed, I wanted to follow up on a point you made earlier about demand and just curious what you're seeing in terms of consumer behavior right now. Are you seeing consumers trying to make purchases before prices for goods go up? Just any thoughts on how you see consumers reacting to the changing environment?

Ed Rosenfeld (Chairman and CEO)

Yeah. So far, consumer demand is holding in there okay. As we mentioned, our DTC business was a little softer in April than in March, but still okay. They mentioned ahead of where we were in the first couple of months of the year. In terms of how much of that is consumers trying to get ahead of price increases, that's very hard for us to know. As of now, consumer demand still looks okay, but it's obviously something we're going to have to watch carefully. We're certainly well aware that consumer confidence has dipped sharply over the last few months.

Aubrey Tianello (Equity Research Associate)

Got it. Just curious if there's any traction on the lobbying front in Washington. I think there was a letter from the FDRA to the White House last week. I'm wondering if any conversations are happening there in terms of potential exemptions for the industry that you're hearing about.

Ed Rosenfeld (Chairman and CEO)

I think our lobbying group and our industry trade organization, FDRA, is doing a great job of trying to get our voice out there and make our position known. I do not have any new information to share about developments on that front. We are hopeful, but we are not counting on that. We are running our business and operating as though we have to deal with what is in place currently.

Aubrey Tianello (Equity Research Associate)

Understood. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Tom Nikic with Needham. Your line is now open.

Tom Nikic (Managing Director)

Hey, guys. Thanks for taking my question. All the tariff questions seem to have been beaten to death, so I'll ask you something else. Congrats on closing the Geiger acquisition yesterday. I know you talked about diversifying the sourcing mix as being an opportunity there. Can you talk about some of the other strategies to drive growth at Geiger and capitalize on some of the opportunities that you see there?

Ed Rosenfeld (Chairman and CEO)

Yeah. Look, if we start with the U.S., that's been a tremendous growth business for them over the last several years. I think I disclosed on the last call, this is a business that was Kurt Geiger London brand was less than $10 million in 2019 and did over $170 million last year. We still think we're just scratching the surface of what that brand can be in the United States. They've got outstanding momentum in digital. Again, that was a business that was up almost 60% last year, and we think that we're going to continue to push hard there. I think there's a very meaningful store rollout opportunity. They've just opened over the last year their first five stores in the U.S. The most recent one is in Aventura in Miami. They're doing very well. We think there's an opportunity, a big opportunity there.

I think that we can continue to grow the wholesale business. The distribution there is really Nordstrom, Dillard's, and Bloomingdale's primarily. They have very successful businesses with each of those, and I think there's room for growth there. Internationally, look, this is what I would characterize as the early stages of their expansion in Europe, but they're performing very well. They're positioned in all the right sort of image accounts and are seeing strong sell-throughs. We think there's a big opportunity there. They're doing great in Mexico, I think I've mentioned. I'm really bullish. I think the other area of synergy we talked about, obviously helping them with the sourcing, but I think the other big area of synergy is utilizing our Steve Madden international network to help them expand outside the U.S.

That is going to be the other big priority in the near term, making those connections and helping them because this is a brand that I think has tremendous global reach and potential. That is what we are really excited about. I think there are some other synergy opportunities as well. We think they can really help to expand Steve Madden in the U.K. They already operate two of our stores, but I think we have a plan to roll out more stores and continue to expand our business there digitally with their help, etc. A lot of exciting stuff that we are going to be working on there.

Tom Nikic (Managing Director)

All right. Sounds good. Thanks very much, and best of luck navigating all the challenges this year.

Ed Rosenfeld (Chairman and CEO)

Thanks, Tom.

Operator (participant)

Thank you. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Your line is now open.

Dana Telsey (CEO and Chief Research Officer)

Hi. Thinking about the near term and the long term, in the near term, any more discussion around private label versus branded and the current performance and also international? Thinking about the long term with the shift in sourcing in the countries that things are coming from, what could that mean for the business long term? Are there opportunities that could emerge from that, that getting through this near-term mess? What does it mean for the long term in terms of the complexion of the business, whether quantitative financially or qualitative opportunities? Thank you.

Ed Rosenfeld (Chairman and CEO)

Yeah. In terms of branded versus private label, we did disclose that in Q1, the branded business performed better. We grew in both wholesale footwear and wholesale accessories and apparel on the branded side, and we were down modestly on the private label side. In terms of international versus domestic, international performed better in Q1. Obviously, given tariffs, the outlook for international is better than for the U.S. in the near term. Obviously, in the context of tariffs, growing that international business becomes even more important. We were already focused on it, but we are even more focused on it today. If I understand your question correctly, you were asking about the opportunities that could be created by some of this turmoil and the ship production, etc.

I do think that, as I mentioned in the prepared remarks, many of our competitors, particularly some of these private companies that are important competitors of ours, their China penetration is even higher than ours. Also, they are not able to move as quickly as we are. I think that actually could create an opportunity for us to take some share because we are able, we have moved, as I mentioned, over 95% of our shoes and accessories for fall 2025 outside of China. I think that if some of these competitors are not able to deliver goods or cannot deliver as much, we will have an opportunity to take some share there. That goes for even potentially taking some business that was historically done on a private label basis for certain retailers.

We compete with a lot of folks that aren't as well capitalized. They may have to pull back on marketing or other growth investments, and we won't. We'll still be able to play offense where appropriate.

Dana Telsey (CEO and Chief Research Officer)

Thank you.

Ed Rosenfeld (Chairman and CEO)

Thanks, Dana.

Operator (participant)

Our next question comes from the line of Corey Tarlowe with Jefferies. Your line is now open.

Corey Tarlowe (SVP and Lead Equity Analyst)

Great. Thanks. Ed, I wanted to get your perspective on the handbag category. I know that at least you had previously mentioned, I think it was on the last call, that the category was backed up. Any updated thoughts there?

Ed Rosenfeld (Chairman and CEO)

Yeah. I think that's still, I do think that's still an issue. We mentioned on the last call, as you point out, that we expected some pressure there because there was some excess inventory in the channel at our price points, the price points that we focus on in Steve Madden. That was going to constrain our shipping this year. We still think that that's a factor. Frankly, it'll be now compounded a little bit by the top line impact, will be compounded a little bit by the disruption we're experiencing from tariffs.

Corey Tarlowe (SVP and Lead Equity Analyst)

Got it. You mentioned that, I guess, in April, you talked about DTC trends. I'm just curious if there's anything you can provide about color around wholesale and maybe around cancellations and what that has looked like versus historical averages or any context around that because we've heard a lot of concern from investors around what inventory might look like going forward. I'm curious what you might be able to tell us about what you have seen in terms of cancellations.

Ed Rosenfeld (Chairman and CEO)

Yeah. First, I'll start with the sell-through in April in wholesale has been good. It was really very similar to what we saw in March, which, again, was an improvement over what we saw in January and February. That piece, we're pleased with. I'm not going to quantify cancellations for you, but we did indicate earlier in the call that, yes, we have seen cancellations for the reasons I articulated, both for in the near term, if you're talking about this quarter, most of those are related to the FOB customers, again, who are the importer of record in the transaction and have to pay the tariffs themselves. We have seen some cancellations there.

Going forward, there are going to be some cancellations due to customers that do not want to accept price increases or do not want to accept the later deliveries that are required when we move the products from China to other countries.

Corey Tarlowe (SVP and Lead Equity Analyst)

Okay. Thank you very much.

Operator (participant)

Thank you. Our next question comes from the line of Janine Stichter with BTIG. Your line is now open.

Janine Stichter (Managing Director, Consumer Retail, and Lifestyle Brands Analyst)

Hey, good morning. I just want to get your thoughts on the longer-term outlook for China sourcing. I totally understand the need to move out as quickly as possible right now. There are definitely trade-offs in terms of speed, skill, cost. If we get tariff rates moving lower, do you pivot back on some level, or are you viewing this as a long-term move?

Ed Rosenfeld (Chairman and CEO)

Yeah. Obviously, we need to move as quickly as possible right now for the goods that we're bringing into the US. We are maintaining a China sourcing capability because we're continuing to make for the rest of the world, for our international businesses in China. If we find ourselves in a situation where tariffs go away and there's a little bit more clarity and certainty that we can work in China again, we will certainly be well-positioned to pivot back, if that makes sense.

Janine Stichter (Managing Director, Consumer Retail, and Lifestyle Brands Analyst)

Perfect. Okay. Maybe just on off-price, I think you had talked about that channel's wholesale buys being a little bit weaker just on their expectation that there would be some dislocation and better opportunistic buys. Are you still seeing that now? If the inventory outlook is a little bit less clear with maybe not having enough on some level for the next few quarters, and then maybe we do get to a point where there is excess in the back half of the year.

Ed Rosenfeld (Chairman and CEO)

Yeah. I do continue to expect that to be a channel where there's somewhat reduced demand for what we do on the upfront, on an upfront basis. We talked about customers not accepting or certain customers being less willing to accept price increases. That would put off price in that bucket. They are taking some price increases, but there's more resistance there. I do think that they are expecting to have some excess inventory available to them as the year moves on.

Janine Stichter (Managing Director, Consumer Retail, and Lifestyle Brands Analyst)

Okay. Thanks so much.

Operator (participant)

Thank you. Our next question comes from the line of Sam Poser with Williams Trading. Your line is now open.

Sam Poser (Equity Analyst)

Thanks. I've got three follow-ups. One, besides pricing, what else, I think you might have said this before, what else are you doing to mitigate the tariffs?

Ed Rosenfeld (Chairman and CEO)

Number one, we talked about how we're moving all the goods out of China. Number two, on the goods that are still coming from China in the near term, we've negotiated factory cost concessions. Number three is raising the prices.

Sam Poser (Equity Analyst)

Thanks. You mentioned when you announced the pending acquisition of Kurt Geiger, you talked about the sales. I mean, are those sales expectations, whatever they were, now less than what they were when you told us before? I mean, have they changed for this year anyway without asking what they are?

Ed Rosenfeld (Chairman and CEO)

Yeah. Look, we're not providing guidance, but I think you should assume that for both the existing business and for Kurt Geiger, that we're looking at a more conservative revenue expectation.

Sam Poser (Equity Analyst)

Thanks. Lastly.

Ed Rosenfeld (Chairman and CEO)

Sorry. I just want to follow up on that. The impact to Kurt Geiger should be less than what we see in the existing business, in part because of the fact that 65% of the business is done outside the U.S.

Sam Poser (Equity Analyst)

Gotcha. Lastly, when you're getting the impact on a lot of the containers that get taken control of at the port, I guess, and these retailers have to pay the duty, with that business shrinking, does that immediately sort of create—I believe that would create significant or more deleverage on your SG&A because there's virtually no SG&A against those kinds of shipments. Is that the right way to think about it?

Ed Rosenfeld (Chairman and CEO)

No, I don't think it. I don't see the.

Sam Poser (Equity Analyst)

I mean, if those container shipments become less a percentage of your business, that would increase SG&A as a percent because you have to deal with more handling and other costs that would go in. Is that all freight that would delever the distribution cost out of the gross margin? I'm not sure which way it works, but.

Ed Rosenfeld (Chairman and CEO)

It's no different from the other business, Sam.

Sam Poser (Equity Analyst)

All right. All right. Thank you.

Ed Rosenfeld (Chairman and CEO)

Thank you.

Operator (participant)

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Ed Rosenfeld for closing remarks.

Ed Rosenfeld (Chairman and CEO)

Great. Thanks so much, everybody, for joining us today. Hope you have a great day. We look forward to speaking with you on the next call.

Operator (participant)

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.