Steve Madden saw revenue jump 5.3 percent on a year-over-year basis to $556.6 million in its third quarter with net income reaching $61.3 million.
In a Nutshell: For fiscal 2022, the footwear company now expects revenue will increase 12.5 percent to 13.5 percent from last year’s total, down from the prior expectation of 13 percent to 16 percent.
Steve Madden now expects diluted earnings per share (EPS) will be in the range of $2.77 to $2.79, and forecasts adjusted diluted EPS to be in the range of $2.77 to $2.82. The company initially expected diluted EPS would be in the range of $2.87 to $2.97, and had projected adjusted diluted EPS in the range of $2.90 to $3.00.
In an earnings call, Steve Madden chairman and CEO Edward Rosenfeld discussed how expanding beyond footwear and fueling international growth are the company’s key business drivers.
Rosenfeld says the current growth focus is on handbags and apparel, with Steve Madden-brand handbags doubling over the past five years and seeing a 19 percent year-over-year revenue gain alone in the third quarter.
Apparel revenue soared 52 percent in the period, with Rosenfeld noting that company folded merch from the BB Dakota-Steve Madden co-branded label into the Steve Madden brand for the fall season.
International revenue grew more than 50 percent from the prior year period for the fourth consecutive quarter.
Inventory was $244.3 million, up 21.4 percent from $201.2 million in the year-ago quarter, but down 20.3 percent on a sequential basis from the $306.5 million in the second quarter. Chief financial officer Zine Mazouzi said Steve Madden plans to end the year with inventory below the prior-year level.
While the company had previously added 40 days to its production calendar due to transit times running to 70 days, “at least 10 days” were later shaved off that schedule by the end of the third quarter. For future orders, instead of building out an extra 40 days into schedule, Steve Madden will only plan for five to 10 days extra compared to pre-Covid levels.
Rosenfeld said that Steve Madden’s own inventory pullback comes as U.S. wholesale customers are trying to sort out their overstock.
“Most of them have pulled back on orders as they seek to make sure their inventories are in line, and we’re seeing that across different channels of distribution,” Rosenfeld said. “If you look at year-over-year sales growth in the back half, the mass channel is the weakest. But overall, we’ve seen an increase in conservatism really across the board.”
While the company has dealt with cancellations for select fall orders, it’s not seeing spring cancellations yet—just conservative initial ordering, Rosenfeld said.
While the company saw wholesale growth of 8.1 percent, a 3.7 percent direct-to-consumer sales decline was largely attributable to markdowns.
“In Q3, we did have to get a little bit more aggressive to move through some of the seasonal goods, the spring/summer goods that we were clearing,” Rosenfeld said. “But as we move into Q4, that part of it is behind us. And in fact, we think that we can, on an overall basis, have DTC margins up versus last year in Q4 or in line or up to last year.”
Gross margin was 41.2 percent, down approximately 40 basis points (0.4 percentage points) compared to 41.6 percent in the same period of 2021.
Wholesale gross margin was 35.3 percent, a 170-basis-point (1.7-percentage-point) increase compared to last year’s 37 percent rate, driven by a mix shift to the higher-margin branded business. Direct-to-consumer gross margin was 61.2 percent versus 65 percent in the prior year, driven by an increase in promotional activity compared to last year’s low level of promotions.
As of Sept. 30, cash, cash equivalents and short-term investments totaled $148.2 million. The company has no debt.
Net Revenue: Revenue at Steve Madden, which also owns Dolce Vita, Betsey Johnson and Greats, increased 5.3 percent to $556.6 million, compared to $528.7 million in the same period of 2021.
Revenue for the wholesale business was $434.6 million, an 8.1 percent increase compared to the third quarter of 2021. Wholesale footwear revenue increased 8.7 percent and wholesale accessories/apparel revenue rose 6.2 percent, each driven by strong growth in the branded business partially offset by a decline in private label.
Direct-to-consumer revenue was $118.5 million, a 3.7 percent decrease from the year-ago period driven by a decline in the e-commerce business. Brick-and-mortar revenue was approximately flat.
Licensing royalty income was $3.5 million in the quarter compared to $2.7 million last year.
Net Earnings: Net income was $61.3 million, or 79 cents per diluted share, compared to $66.6 million, or 82 cents per diluted share, in the same period of 2021. Adjusted net income attributable to the company was $61.5 million when accounting for a $1.8 million pre-tax trademark expense and a $1.6 million pre-tax benefits.
Income from operations totaled $78.8 million, or 14.1 percent of revenue, compared to $88.4 million, or 16.7 percent of revenue, in the same period of 2021.
CEO’s Take: “I think if [an economic downturn] comes to pass, we are pretty well positioned. I think even in the core brand, Steve Madden, we potentially could get some trade down,” Rosenfeld said. “We really offer designer styling at accessible prices. The Steve Madden brand in particular, and our company overall, performed very well during the Great Recession. We actually demonstrated very strong growth even in 2009. We certainly have a history of being able to navigate these kinds of difficult conditions and take share.”