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Steve Madden Up 24% in 3 Months: Will the Uptrend Continue?

Zacks Equity Research

Shares of Steve Madden, Ltd. SHOO have risen and outpaced the industry in the past three months. Notably, this Zacks Rank #3 (Hold) stock has gained 24.2% as compared with the industry’s growth of 15.1%. The increase may be attributable to better-than-expected results in third-quarter 2019, which marked the fourth successive quarter of earnings and revenue beat. Further, both top and bottom lines continued to improve year over year.

The company gained from sturdy performance across the Steve Madden and Blondo brands along with robust wholesale and retail businesses. This led management to raise net sales and earnings per share view for the year. Steve Madden now envisions net sales growth of 7-7.5% and adjusted earnings per share of $1.92-$1.95 for 2019. Notably, the company reported earnings of $1.83 in 2018.

That said, let’s delve deeper into the factors that are driving the stock.



Factors Narrating Steven Madden’s Growth Story

Steve Madden’s wholesale business continued to witness sturdy performance in the third quarter. Robust gain in wholesale footwear and accessories businesses acted as key catalysts. Wholesale footwear’s net sales gained from Blondo, Steve Madden Women's and private label brands, while Steve Madden handbags and addition of the BB Dakota apparel business drove sales for Wholesale accessories/apparel.

Further, the company is actively pursuing acquisitions to expand base. In this regard, it acquired a direct-to-consumer company, BB Dakota. With the acquisition, Steve Madden will be able to expand its apparel category. Other notable buyouts include Italian sneakers company, Greats Brand, Inc, and a joint venture (JV) with Channel Link. Speaking of the latter, Steve Madden has a 51% stake in the new joint venture in China, while the remaining is owned by Channel Link. Steve Madden also intends to open its first store in Shanghai in the fourth quarter of 2019, and two to three additional locations in spring 2020.

Moreover, Steve Madden’s directly-owned subsidiaries in Canada and Mexico, SM Europe JV, and the distributor business are performing well. This led to 24% revenue growth in the international market. Going ahead, management anticipates double-digit sales growth in the international market on its existing JVS, SM Europe and SM Mexico, and its new JV in Israel.

Hurdles on the Way

The imposition of 15% tariff on additional consumer goods such as shoes, handbags and others imported from China is likely to weigh on the company’s bottom line. Management estimates an incremental headwind of 7 cents a share on 2019 earnings due to higher tariffs. To offset impacts of tariffs, the company is steadily moving production out of China, primarily to Cambodia, and raising selling prices. Also, it is receiving price concessions from factories that remained in China.

Moreover, the company has been witnessing rise in operating expenses and cost of goods sold for quite some time now. Persistence of the trend may hurt margins in the near future.

Bottom Line

Although additional tariffs and other costs remain headwinds, Steve Madden’s growth drivers seem poised to carry on its momentum ahead. In fact, over the past 60 days, the Zacks Consensus Estimate for the company’s earnings has been revised 7.8% and 4.5% upward for 2019 and 2020, respectively.

3 Stocks to Watch

Boot Barn Holdings, Inc BOOT has a long-term earnings growth rate of 17%. It sports a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Deckers Outdoor Corporation DECK currently has a long-term earnings growth rate of 12.2% and a Zacks Rank #2 (Buy).

NIKE, Inc NKE currently has a long-term earnings growth rate of 13.1% and a Zacks Rank #2.

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