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Steve Madden (SHOO) Q1 Earnings Beat Estimates, View Raised

Zacks Equity Research

Shares of Steve Madden, Ltd. SHOO increased nearly 3%, following its better-than-expected first-quarter 2019 results on Apr 25. In the reported quarter, both top and bottom lines grew year over year. This NY-based company witnessed robust gains at its flagship Steve Madden brand in both footwear and accessories categories along with sturdy online sales. 

Encouragingly, management lifted outlook for 2019. Steve Madden now anticipates adjusted earnings to be $1.78-$1.86 per share, implying a rise from $1.75-$1.83 reported in the prior year. This compares favourably with the Zacks Consensus Estimate of $1.81 for 2019.

Steven Madden, Ltd. Price, Consensus and EPS Surprise

Steven Madden, Ltd. Price, Consensus and EPS Surprise | Steven Madden, Ltd. Quote

Q1 Details

This designer and marketer of fashion footwear and accessories delivered adjusted quarterly earnings of 42 cents a share that surpassed the Zacks Consensus Estimate of 37 cents and increased 16.7% from 36 cents reported in the year-ago period. Although the company witnessed increase in cost of sales (up 2.3%) and adjusted operating expenses (up 9.5%), the bottom line improved on higher net sales and share repurchases to some extent.

The top line increased 5.6% year over year to $410.9 million and beat the Zacks Consensus Estimate of $404 million. 

Net sales for the wholesale business rose 5.1% to $348.1 million, reflecting robust gain in wholesale accessories. We note that wholesale footwear net sales advanced approximately 1%, driven by sturdy performance in its flagship Steve Madden brand and the addition of Anne Klein. These were offset by the bankruptcy of Payless ShoeSource. Further, all product categories of this business performed well, especially fashion sneakers and sandals. Additionally, wholesale accessories net sales grew 27%, owing to customers’ positive response toward the category’s merchandise assortment and double-digit growth in Steve Madden handbags, private label and belts.

Retail net sales gained 8.6% to $62.8 million, while same-store sales increased 6.3% on account of robust performance at its e-commerce business. The segment benefitted from robust performance of fashion sneakers, boots and handbags.

Margins

Adjusted gross profit climbed 11.6% to $157 million, while gross margin expanded 200 basis points (bps) to 38.2%.

We note that gross margin in the wholesale business increased 190 basis points to 34.5% on account of an improvement of 270 bps in footwear, partly negated by sluggishness in accessories. Meanwhile, retail gross margin increased 180 bps to 56.7%, mainly attributable to higher gross margin in the e-commerce business.

Adjusted operating income increased 13.7% to $45.1 million, whereas adjusted operating margin improved 80 bps to 11%.

Store Update

This Zacks Rank #4 (Sell) company ended the reported quarter with 225 company-operated retail outlets, comprising seven Internet stores and 33 company-operated concessions in international markets.

Other Financial Aspects

Steven Madden ended the reported quarter with cash and cash equivalents of $160.3 million, marketable securities of $61.4 million, and shareholders’ equity of $819.7 million, excluding non-controlling interest of $10.9 million. 

During the quarter, the company bought back about 525,491 shares for $17.2 million. The company’s board recently approved a share authorization of $124 million that brings the total sum to $200 million. Additionally, the company declared a cash dividend of 14 cents to be payable on Jun 28, 2019 to shareholders as of Jun 18.

Outlook

Steven Madden now expects net sales growth of 5-7% for 2019, up from the prior guidance of 4-6% increase.

We note that despite the bankruptcy of Payless ShoeSource, management is optimistic of driving bottom and top-line growth further in 2019 on the back of strong non-Payless private label business, women's boot business, contributions from the addition of Anne Klein and positive momentum in its flagship brand. Moreover, the company projects sturdy growth in wholesale accessories for 2019, driven by an anticipated impressive performance in Steve Madden handbags and private label. Each of these units are anticipated to grow double digits for the third consecutive year. 

Steve Madden also foresees double-digit sales growth in the international market. Further, management is of the view that it is well-positioned to compete in the luxury tier of the footwear market with Schwartz & Benjamin. Also, the company has revealed that it will continue to strengthen its portfolio via acquisitions and license.

Price Performance

Shares of this company have gained 20.1% in the past six months, underperforming the industry’s growth of 20.7%.

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