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Why Is Steven Madden (SHOO) Down 7.7% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Steven Madden (SHOO). Shares have lost about 7.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Steven Madden due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Steven Madden Q1 Earnings Lag Estimates, Revenues Top

Steven Madden reported mixed first-quarter 2020 results, wherein the bottom line lagged the Zacks Consensus Estimate, while the top line outpaced the same. Moreover, both the top and the bottom line declined year over year.

Notably, the company’s revenues and earnings were impressive through the first two months of 2020. Moreover, the company saw positive consumer response to the spring products across its namesake brand. However, in March, business weakened due to the coronavirus outbreak, which hurt the company’s results. Owing to uncertainty arising from the pandemic, management withdrew its revenue and earnings guidance for the year.

Nevertheless, management has taken precautionary measures to strengthen its financial position amid the pandemic. It suspended share repurchases and quarterly cash dividend apart from lowering payroll, non-essential operating costs, capital spend and planned inventory receipts. Moreover, the company withdrew $50 million from its existing credit facility.

Q1 Details

Steven Madden delivered adjusted earnings of 16 cents a share that lagged the Zacks Consensus Estimate of 19 cents. We note that the bottom line also plummeted 61.9% from 42 cents reported in the year-ago quarter owing to lower revenues and higher operating expenses. While operating expenses rose 2.1% to $119.3 million, cost of sales declined 11.1% in the reported quarter.

Total revenues fell 13.6% year over year to $359.2 million. This takes into account a 13.4% decline in net sales of $355.7 million and a decline of 27.1% in commission and licensing fee income of $3.5 million. The Zacks Consensus Estimate for total revenues was $354 million.

Revenues for the Wholesale business fell 13% to $302.7 million, reflecting a drop in wholesale footwear and accessories/apparel revenues. Also, major order cancellations in the back half of March due to COVID-19 hurt performance. We note that wholesale footwear revenues declined 15% to $235.1 million. Wholesale accessories/apparel revenues fell 5.4% to $67.7 million.

Retail revenues plunged 15.8% to $52.9 million owing to the closure of all of its brick-and-mortar stores in the second half of March. However, e-commerce revenues grew mid-teens in the quarter despite a downturn in the e-commerce business over the last three weeks. Notably, the company witnessed mid-single digits growth in revenues through the first two months of the first quarter, on a percentage basis, with low-single digit improvement in comparable store sales.

Margins

Consolidated gross profit came in at $133.5 million, down 17.5% year over year, while gross margin contracted 170 basis points (bps) to 37.2%. Also, inventory reserves taken due to the pandemic hurt gross margin by 330 bps. Adjusted operating income declined 68.5% to $14.2 million, while adjusted operating margin contracted 680 bps to 4%.

We note that gross margin in the wholesale business shrunk 200 bps to 32.5%, thanks to the inventory reserves with respect to COVID-19. However, retail gross margin expanded 130 bps to 59.8% owing to gains from the modification of the company's loyalty program, somewhat offset by the pandemic inventory reserves.

Store Update

The company ended the first quarter with 224 company-operated retail outlets, comprising eight Internet stores and 30 company-operated concessions in international markets.

Other Financial Aspects

Steven Madden ended the reported quarter with cash and cash equivalents of $211.1 million, marketable securities of $34.3 million, and shareholders’ equity of $761.2 million, excluding non-controlling interest of $12.4 million.

During the quarter, the company bought back about 878,817 shares for roughly $29.1 million, before the suspension of share repurchases. This includes shares bought via the net settlement of employee stock awards. Management incurred capital expenditures of approximately $3.3 million during the quarter.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -306.14% due to these changes.

VGM Scores

Currently, Steven Madden has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Steven Madden has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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