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Steve Madden (SHOO) Beats on Q3 Earnings, Raises FY19 View

Zacks Equity Research

Steve Madden, Ltd. SHOO reported better-than-expected third-quarter 2019 results, wherein both the top and the bottom lines continued to improve year over year. This NY-based company gained from sturdy performance across its Steve Madden and Blondo brands. The company witnessed incremental sales at its wholesale and retail businesses.

Moreover, Steve Madden stated that the acquisitions of GREATS and BB Dakota are likely to be key catalysts. Notably, impressive performance prompted management to lift full-year net sales and earnings per share forecast. The company raised view in spite of incremental earnings pressure due to the imposition of the 15% tariff on List 4 products imported from China.

We note that shares of company surged 14% during the trading session on Oct 29. Meanwhile, the stock has advanced roughly 35% so far in the year compared with the industry’s growth of about 22%.

Q3 Details

This designer and marketer of fashion footwear and accessories delivered adjusted quarterly earnings of 67 cents a share that surpassed the Zacks Consensus Estimate of 58 cents, marking the eighth straight quarter of beat.

The quarterly earnings increased 3.1% from 65 cents reported in the year-ago period. Although the company witnessed increase in cost of sales (up 8.1%) and adjusted operating expenses (up 10.3%), the bottom line improved on account of higher net sales and share repurchase activity.

The top line increased 8.5% year over year to $497.3 million and beat the Zacks Consensus Estimate of $490 million. This was the fourth successive quarter of revenue beat.

Net sales for the wholesale business rose 8.5% to $421.6 million, reflecting robust gain in wholesale footwear and accessories/apparel businesses.

We note that wholesale footwear net sales advanced 6.3% to $315.9 million driven by sturdy performance in Blondo, Steve Madden Women's and private label. Wholesale accessories/apparel net sales improved 15.8% to $105.7 million on the back of solid gain in Steve Madden handbags and the addition of the BB Dakota apparel business.

Retail net sales jumped 8.3% to $75.7 million, while same-store sales increased 5.1% on account of sturdy performance in e-commerce business.

Steven Madden, Ltd. Price, Consensus and EPS Surprise


 

Steven Madden, Ltd. Price, Consensus and EPS Surprise

Steven Madden, Ltd. price-consensus-eps-surprise-chart | Steven Madden, Ltd. Quote

Margins

Gross profit climbed 9% to $191 million, while gross margin expanded 20 bps to 38.4%.

We note that gross margin in the wholesale business shrunk 40 bps to 33.9% on account of contraction in the wholesale accessories/apparel gross margin thanks to the imposition of the tariff. This was partly mitigated by an increase in the wholesale footwear gross margin. Meanwhile, retail gross margin expanded 320 bps to 63.3%, mainly due to lower promotional activity.

Adjusted operating income increased 2.3% to $72.3 million, however, adjusted operating margin contracted 90 bps to 14.5%.

Store Update

The company ended the reported quarter with 227 company-operated retail outlets, comprising eight Internet stores and 32 company-operated concessions in international markets.

Other Financial Aspects

Steven Madden, which carries a Zacks Rank #4 (Sell), ended the reported quarter with cash and cash equivalents of $167.5 million, marketable securities of $27.5 million, and shareholders’ equity of $838.7 million, excluding non-controlling interest of $11.5 million. During the quarter, the company bought back about 784,757 shares for approximately $25.3 million. The company also raised quarterly dividend by 7% to 15 cents a share.

Outlook

Steven Madden now envisions net sales growth of 7-7.5% for 2019. The company expects adjusted earnings in the band of $1.92-$1.95, the mid-point of which — $1.935 —  is higher than the current Zacks Consensus Estimate of $1.80. The company had reported earnings of $1.83 in 2018. Management had earlier projected net sales increase of 5-7% and adjusted earnings of $1.78-$1.86 per share for the current year.

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