Shoemaker's Success Means Getting Out The Latest Fashions Fast

• Norm Alster
• On 6:02 pm EDT, Wednesday October 21, 2009

Keeping up with the fashion whims of teenage girls is no easy feat.

But that's the forte of Steven Madden (NasdaqGS:SHOO - News). The Long Island City, N.Y., shoe company has made a science of selling footwear through multiple channels to fickle trend-hopping buyers.

Steven Madden's shoes span the gamut from styles sold at Wal-Mart (NYSE:WMT - News) to the Elizabeth & James line marketed through high-end department stores like Bergdorf Goodman. "It's the same look at different price levels," said Sam Poser, an analyst at Sterne Agee.

In a grim retail environment, the formula has held up well. Last quarter, Steven Madden topped forecasts for both revenue and earnings. Sales came in at $116.5 million, a healthy 6.5% gain from a year earlier. Earnings were 66 cents, up from 43 cents in the second quarter of 2008. On Tuesday, management raised earnings guidance for the second time.

Raised Guidance

The company now expects third-quarter earnings of 97 cents a share, a 56% jump from a year ago. For all of 2009, it forecasts earnings of $2.55 to $2.65 a share compared with earlier projections of $2.05 to $2.15.

The Madden formula begins with shoe design. Often, a new Madden shoe simply tweaks a recent eye-catching runway design.

"A lot of times, they interpret styles that have been introduced in high fashion," said Jeffrey Van Sinderen, a B. Riley analyst. "They put their twist on it."

Or as Poser puts it: "They're adept at copying people. They see a hot shoe on the runway, and they can make it so quickly."

Madden's shoes are designed for girls and young women with different lines adjusted for age and purchasing power. But all these women seem to share an eye for novelty.

The Madden buyer, said Poser, is "the girl who's wearing the new jeans." And you have to be on your toes to please her. "Every time she walks by the store, she wants to see something new," Poser said.

Founder Steven Madden is no longer CEO, having served more than three years in prison on a 2002 stock fraud conviction. But Madden remains involved as a creative force, observers say. It is often his keen eye and deft hand that launch catchy new designs.

"Steve is a great product guy. He's the mastermind behind the product," Van Sinderen said.

But the Madden formula goes beyond design. The company owns and operates 97 retail stores under Steve Madden, Steven and other variations of the founder's name. It uses those outlets to rapidly test the appeal of new designs. If something sells as soon as it shows up in the window, it is fast-tracked to department stores.

Sales at Madden's retail outlets were actually down more than 5% last quarter. But the value of those stores goes well beyond sales figures. The retail stores give Madden an early window on ever-changing customer tastes.

"That's a great proving ground for a lot of the products," Van Sinderen said of the retail stores.

Shoes that show promise can then be moved on to retail partners. Two of the bigger customers for Madden shoes are Macy's (NYSE:M - News) and Nordstrom (NYSE:JWN - News), analysts say. Kohl's (NYSE:KSS - News), Dillard's (NYSE:DDS - News) and Wal-Mart also sell the Madden shoes under a variety of brand names.

Fast production turnaround also figures in the Madden formula. The company has a small production facility in Long Island City that can turn out small runs of shoes for the retail stores. If a shoe is selling, orders go out to manufacturers in China, Mexico and Brazil.

As with many retailers, most goods are shipped by sea. But the company will also use air freight for high-priority orders.

Speed is a Madden hallmark. "They have the ability to deliver product very quickly," Van Sinderen said. Madden can often outperform rivals in getting hot product into stores.

"That's what retailers want. They don't want to order for spring in September," Van Sinderen said. Ordering with such long lead times carries risks: "They don't know what the retail environment will be. They don't know how fashions will change."

Madden has learned over the years that even hot styles retain their heat for only so long. The company will often refresh a shoe in midlife with a small change, Poser says.

The best-selling Madden line, called Steve Madden Women's, accounted for just over $135 million in sales last year, roughly 30% of the corporate total. Sales soared by 21% in the second quarter. Stevie's, a line for kids, showed strong growth from a small base. Also doing well, up 8%, was the Madden Girl line, targeted at the slightly younger female buyer.

Steve Madden Women's is performing well but still not cranking on all cylinders. Handbags, for example, have been a tough sell. In tight times, many women have cut back on that extra handbag, analysts say.

Retail Stores Sales

Sales at the retail stores were down in the second quarter on decreased customer traffic, C.L. King analyst Scott Krasik wrote in a July 31 report. Krasik expects continued same-store sales weakness for the next three quarters. For all of 2010, he forecasts a small operating loss for the retail stores.

Sales of men's shoes also struggled, down 7% by Sterne Agee's estimate. But men's shoes account for a small share of the business and have little negative impact.

To this point, the company simply hasn't shown the same flair for men's footwear that it has for women's shoes. It's bad enough that the shoes have failed to attract the male shopper; they don't seem to be turning many female heads either.

"No girl wearing a pair of Steve Madden shoes would date a guy wearing Steve Madden shoes," Poser quipped. But he does expect "improvement" in the men's shoe unit.

If Steve Madden ever figures out how to get guys to look for something new in the store window each time they pass, he will really be on to something.

Buzz up!