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Steve Madden Still Dealing With Crazy Long Lead Times

Steve Madden came out of the first quarter with net sales soaring 55.2 percent to $557.3 million on net income of $74.6 million, leading the footwear company to raise its top- and bottom-line guidance for 2022.

In a Nutshell: Steve Madden now expects revenue to increase between 13 percent and 16 percent over fiscal 2021 on diluted earnings per share (EPS) ranging from $2.87 to $2.97. The company now expects adjusted diluted EPS at $2.90 to $3.00.

Previously, Steve Madden outlined that it expected full-year revenue to jump 10 percent to 13 percent, while EPS was forecast to range between $2.66 and $2.76. It initially expected adjusted diluted EPS to range from $2.73 to $2.83.

The high expectations come as the the company prioritizes digital direct-to-consumer retail, and expands deeper into categories including handbags and apparel. While branded handbag sales increased 50 percent in the quarter, apparel revenue was up more than 100 percent, according to CEO and chairman Edward Rosenfeld.

The wholesale footwear segment grew approximately 60 percent, he said, with Steve Madden men’s, women’s and kids’ shoes driving the majority of the sales. One of the company’s Dolce Vita footwear brand generated a 100 percent boost in wholesale revenue from the prior year, Rosenfeld said.

Overall, revenue in the quarter benefited from orders pulled forward by wholesale customers electing to frontload deliveries. As such, Rosenfeld indicated to expect wholesale growth to decelerate from 54 percent in the first quarter to the “high 30s” in the second quarter. For DTC channel growth, “we would be happy to get to flat” versus last year’s revenue totals.

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“Given the supply chain disruption, we don’t have the same ability to chase goods in season that we normally do,” Rosenfeld said. “I won’t say we don’t have any ability to do that, and I still think we have an advantage against our closest competitors in our speed to market and our ability to work in season. In fall, we ship a lot out of Mexico, which does help with regard to chasing in season, but part of what you’re seeing here is that we do need to get more of the orders upfront. Fortunately, we’re doing that.”

Rosenfeld noted that while the company is still planning to shift half of its women’s production out of China to countries like Mexico and Brazil, “you’re not going to see us get past that level this year.” He confirmed that Steve Madden’s Chinese manufacturing operation has seen some delays, but not a material impact from the recent Covid-19-related shutdowns in cities like Shanghai and Shenzhen.

Additionally, he indicated that shipment times haven’t improved from the fourth quarter, with product remaining in transit for approximately 70 days on average, up from the usual 30 days.

The earlier production orders and longer transit lead times are pushing the company’s inventory up higher than historical levels, according to chief financial officer Zine Mazouzi.

As of March 31, inventory more than doubled over the past year to $233.4 million, up 119 percent from last year’s $106.6 million. On a quarter-over-quarter basis, inventory totals dipped 8.6 percent from the $255.2 million to close out 2021.

Although the company has stocked up on extra inventory and freight pressure has “gotten a little worse,” according to Rosenfeld, the company hasn’t experienced any material changes to the supply chain since the prior quarter’s call.

Gross margin increased to 40.7 percent compared to 38.5 percent in the same period of 2021. Wholesale margins increased to 35.2 percent from last year’s 32.3 percent, while direct-to-consumer margins dipped to 62.3 percent from the 63.5 percent rate during the first quarter of 2021. The DTC margin dip was driven primarily by freight cost pressures, Mazouzi said.

As of March 31, 2022, cash, cash equivalents and short-term investments totaled $180.2 million and no debt.

Rosenfeld said that Steve Madden has provided more than $500,000 in assistance for the relief effort to citizens impacted by the war in Ukraine through cash donations from the Steve Madden Foundation, as well as donations of footwear, clothing, blankets and accessories.

Net Sales: Net sales increased 55.2 percent to $557.3 million, up from $358.9 million in the 2021 first quarter. Total revenue, when including commission and licensing fee income, was $559.7 million, up 55 percent from the year-ago period’s $361 million.

Revenue for the wholesale business was $449 million, a 54.1 percent increase compared to first quarter of 2021, with a 59.9 percent increase in wholesale footwear and a 37.1 percent increase in wholesale accessories/apparel.

Direct-to-consumer revenue was $108.3 million, a 60.5 percent boost from last year’s quarter. E-commerce accounts for a majority of DTC revenue, with revenue in the channel increasing 57.5 percent compared to last year. Brick-and-mortar revenue increased 64.1 percent on a year-over-year basis, or 52 percent when accounting for comparable store sales.

Rosenfeld said in the call that markets including Canada and Mexico saw triple-digit sales increases, while he highlighted another “strong” quarter of growth in Europe.

Net Earnings: Net income at Steve Madden was $74.6 million, or earnings of 94 cents per diluted share, compared to $22.3 million, or 26 cents per diluted share, in the same period of 2021.

Income from operations totaled $97.9 million, or 17.5 percent of revenue, compared to $28 million, or 7.8 percent of revenue, in year-ago period. Adjusted income from operations totaled $94.4 million, or 16.9 percent of revenue, compared to the 2021 first quarter’s $35.6 million, or 9.9 percent of revenue.

CEO’s Take: Rosenfeld shared more insight on price increases in response to risings costs of freight, free on board (FOB) shipping, labor and materials.

“The good news is, we’ve been raising prices, and for the most part, feel very good about customers’ acceptance of those prices,” Rosenfeld said. “Particularly when we have newness, we’re seeing that the customers are not pushing back on the price increases. For the most part, we’re offsetting those pressures with the price increases.”