Steven Madden, Ltd. (NASDAQ:SHOO) Q4 2023 Earnings Call Transcript
Steven Madden, Ltd. (NASDAQ:SHOO) Q4 2023 Earnings Call Transcript February 28, 2024
Steven Madden, Ltd. beats earnings expectations. Reported EPS is $0.61, expectations were $0.56. Steven Madden, Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the Steven Madden Fourth Quarter and Full Year 2023 Results Conference Call. At this time, all participants will be in a listen-only mode. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Danielle McCoy, VP of Corporate Development and Investor Relations. Please go ahead.
Danielle McCoy: Thanks, Abigail, and good morning, everyone. Thank you for joining our fourth quarter and full year 2023 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 disclaim any obligation to update these forward-looking statements which may not be updated into 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 today on the call is Ed Rosenfeld, Chairman and Chief Executive Officer; and Zine Mazouzi, Chief Financial Officer. With that, I'll turn the call over to Ed. Ed?
Edward Rosenfeld: Thanks Danielle and good morning, everyone. And thank you for joining us to review Steven Madden's fourth quarter and full year 2023 results. We are pleased to have finished the year on a high note, delivering fourth quarter results that exceeded expectations on both the top and bottom lines. After a tough start to 2023, we saw sequential improvement each quarter throughout the year in both revenue and earnings when compared to the prior year, culminating in the fourth quarter when revenue grew 10% and diluted EPS rose 39% versus the comparable period in 2022. The Q4 results included organic revenue growth in both the wholesale and direct-to-consumer channels, supplemented by the contribution from the newly acquired, Almost Famous, as well as strong year-over-year operating margin improvement.
Looking back at 2023 overall, we faced challenging market conditions, with wholesale customers taking a cautious approach to orders and consumers pulling back on discretionary spending. I'm proud of how our team navigated the difficult environment, controlled what we could control, and remained focused on executing our strategy for long-term growth. The foundation of which is driving closer connections with consumers through the combination of consistently trend-right product assortments and effective consumer engagement, which in turn will enable success with our four key long-term business drivers. The first of those drivers is growing our business in international markets. International has been the fastest growing part of our business over the last several years, and the momentum continued in 2023 despite the challenging macro environment.
International revenue increased 11% in 2023 to $381 million, or 19% of total. Looking ahead to 2024, continuing to grow our business in the EMEA region will be our top priority as we seek to build on our momentum in Europe, develop our new Middle East joint venture, and capitalize on the exceptional brand heat we have in South Africa. Closer to home, driving continued growth in Mexico will also be a focus, as we look to capitalize on our market-leading position and recent share gains in that country. Our second key business driver is expanding in categories outside of footwear, like accessories and apparel. In 2023, our overall accessories and apparel revenue increased 10% compared to 2022, or 1% excluding Almost Famous. Our Steven Madden handbag business was the highlight, increasing 37%, including strong growth in both wholesale and direct-to-consumer channels, in both domestic and international markets.
We also broadened our footprint outside of footwear over the acquisition in October of Almost Famous, a designer and marketer of women's apparel. Almost Famous markets products in the wholesale channel under its own brands, primarily Almost Famous, as well as private label brands for various retailers. It has also been an exclusive licensee for Madden NYC apparel since its launch in 2022 and has had outstanding success with that brand so far. Almost Famous its core expertise is in the junior apparel category and in value price distribution channels, making it a strong complement to our existing Steven Madden apparel business which is focused on contemporary styling and is primarily distributed in department stores and e-commerce retailers. Our top priority will be to use the Almost Famous platform to introduce Madden Girl apparel and to grow Madden NYC apparel.
This will enable us to implement in apparel the strategy that has been so successful for us in footwear and accessories, which is to utilize the Steven Madden brand portfolio, including Steven Madden, Madden Girl and Madden NYC, to reach customers in all tiers of distribution from premium channels down through mass. Beyond the successful integration of Almost Famous, our focus in 2024 will be building on the momentum we have in Steven Madden handbags with a particular focus on driving continued growth in DTC channels, as well as the further development of the Steven Madden apparel business. Our third key business driver is driving our direct-to-consumer business led by digital. After strong growth in this business in 2021 and 2022, our DTC revenue declined 3% in 2023.
We did, however, see sequential improvement in the year-over-year top line performance each quarter throughout the year, and Q4 DTC revenue increased 2% compared to the comparable period in the prior year. And if we zoom out and look at the evolution of our DTC business over the past few years, we see that this business is up nearly 60% in revenue and nearly 200% in operating profit compared to pre-COVID 2019. In 2024, we plan to add 10 net new stores driven by expansion in international markets, primarily in EMEA, we will also invest in remodels in key locations, including our flagship store in Times Square in New York City. On the digital side, we'll be investing in global site enhancements designed to drive greater speed, usability, and conversion, as well as continuing to refine our marketing mix and push more investment up the marketing funnel.
Finally, our fourth key business driver is strengthening the U.S. wholesale footwear business. 2023 was a uniquely challenging year in that channel, as many of our wholesale customers entered the year with excess inventory and reduced order significantly in efforts to right-size inventory levels. After a revenue decline of more than 20% in the first half, the trend in this business improved significantly in the back half, but we still saw revenue declines of 6% in Q3 and 2% in Q4. The good news is that inventories in the channel are much healthier than they were a year ago, and so while the sentiment among many of our key customers remains cautious, we are positioned to return to year-over-year revenue growth in this business beginning in Q1.
So overall, while 2023 was challenging in a number of ways, we drove sequential improvement throughout the year, ended the year with a strong quarter, and made important progress on our key strategic initiatives. We also demonstrated our ongoing commitment to returning capital to our shareholders, with over $200 million in combined dividends and share repurchases. As we look ahead, while the operating environment remains choppy, we believe the on-trend product assortments created by Steve and his team have us well positioned for 2024. And looking out further, we are confident that the combination of our strong brands and proven business model will enable us to drive sustainable revenue and earnings growth for years to come. And now I'll turn it over to Zine to review our fourth quarter and full year 2023 financial results in more detail and provide our initial outlook for 2024.
Zine Mazouzi: Thanks Ed, and good morning, everyone. In the fourth quarter, our consolidated revenue was $519.7 million, a 10.4% increase compared to the fourth quarter of 2022. Excluded Almost Famous, consolidated revenue grew 2.3% compared to the same period in the prior year. Our wholesale revenue was $354.8 million, up 14.9% compared to the fourth quarter of 2022, or 2.5% excluding Almost Famous. Wholesale footwear revenue was $225.2 million, a 0.4% decrease from the comparable period in 2022, as a modest increase in the brand's business was offset by a decline in private label. Wholesale accessories and apparel revenue was $129.6 million, up 56.5% to the fourth quarter in the prior year, or 10.3% excluding Almost Famous, driven by another quarter of strong growth in Steven Madden handbags.
In our direct-to-consumer segment, revenue was $162.3 million, a 1.9% increase compared to the fourth quarter of 2022, with an increase in the brick-and-mortar business partially offset by a modest decline in e-commerce. We ended the year with 255 company-operated brick-and-mortar retail stores, including 71 outlets, as well as five e-commerce websites and 25 company-operated concessions in international markets. Turn into our licensing segment. Our licensing royalty income was $2.7 million in the quarter, compared to $2.5 million in the fourth quarter of 2022. Consolidated gross margin was 41.7% in the quarter, versus 42.2% in the comparable period of 2022. Excluding Almost Famous, consolidated gross margin increased 80 basis points year-over-year.
Wholesale gross margin was 31.7%, an increase of 120 basis points compared to the fourth quarter of 2022, driven by increases in both the wholesale footwear and wholesale accessories and apparel segments. Direct-to-consumer gross margin was 62.7% versus 64% in the same period in 2022, driven by an increase in promotional activity. In the quarter, operating expenses were $163.9 million, compared to $156.5 million in the fourth quarter of 2022, an increase of 4.7%, excluding Almost Famous operating expenses rose 1.3% compared to the same period last year. Operating income for the quarter was $53 million or 10.2% of revenue, up from $42.2 million or 9% of revenue in the comparable period last year. The effective tax rate for the quarter was 14.3% compared to 20.9% in the fourth quarter of 2022.
Finally, net income attributable to Steven Madden Ltd for the quarter was $45 million, or $0.61 per diluted share, compared to $33.7 million, or $0.44 per diluted share in the fourth quarter of 2022. Now I would like to briefly touch on the full year results. Consolidated revenues for 2023 decreased 6.6% to $2 billion, compared to $2.1 billion in 2022. Net income attributable to Steven Madden Ltd was $182.7 million, or $2.45 per diluted share for the year ended December 31, 2023, compared to $218.3 million, or $2.80 per diluted share for the year ended December 31, 2022. Moving to the balance sheet, our financial foundation remains strong. As of December 31, 2023, we had $219.8 million of cash, cash equivalents, and short-term investments, and no debt.
Inventory was $229 million flat to the prior year. Excluding Almost Famous, inventory was down 5.9% compared to the same period in 2022. Our CapEx in the fourth quarter was $5.6 million, and for the year was $19.5 million. During the fourth quarter and full year 2023, the company spent $38.1 million and $142.3 million on repurchases of its common stock respectively, including shares acquired through the net settlement of employees stock awards. At the end of the year, we had approximately $176 million remaining on the share repurchase authorization. The company's board of directors approved a quarterly cash dividend of $0.21 per share. The dividend will be payable on March 22nd, 2024 to stockholders of records as of the close of business on March 8th, 2024.
When combined in share repurchases and the dividend, we returned $205 million to shareholders in 2023 and over $1.4 billion over the past decade. Turn into our outlook, we expect revenue for 2024 to increase 11% to 13% compared to 2023 and we expect diluted EPS to be in the range of $2.55 to $2.65. This includes a forecasted effective tax rate for 2024 of 23.5% up from 21.3% in 2023, primarily due to lower forecasted discrete tax benefits related to stock-based compensation. Now I would like to turn the call over to the operator for questions. Abigail?
Operator: [Operator Instructions] Our first question comes from Paul Lejuez with Citi.
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