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China’s the Biggest Loser in Steven Madden’s Sourcing Switch

After avoiding the massive transportation delays it was expecting in the first quarter, it appears the myriad disruptions in the global supply chain are catching up with Steve Madden.

In a Nutshell: Speaking with investors Wednesday, chairman and CEO Edward Rosenfeld said supply chain pressures had “a very significant impact” in the second quarter, particularly in the fashion footwear company’s wholesale business. “In a normal year, if we had the types of sell-throughs that we had this spring, we would have chased into a lot more business in [the] second quarter… but we were not able to do that,” he said.

“In terms of the supply chain, look, we could talk about this all day,” Rosenfeld continued. “There are challenges throughout the globe. There’s port congestion—both in the U.S. and in China—there are Covid outbreaks in factories, there are challenges getting containers. We could go on and on. So, we are seeing a pretty significant increase in the lead time still and the supply chain disruption remains a significant challenge.”

To meet these difficulties, Steve Madden has made “a big move out of China,” shifting “about half” of its women’s production to Mexico and Brazil for the fall, Rosenfeld said.  Still, he acknowledged challenges will likely persist in both countries, including in Brazil where he said there have been “some Covid outbreaks.”

The company had announced plans last fall to move sourcing out of China. At the time, Rosenfeld estimated Steve Madden sourced in the “low 60s” percentage range in China. Even this was a steep a departure from when—before the U.S.-China trade war—the business sourced approximately 90 percent of its goods from the country.

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When Steve Madden reported its fourth-quarter earnings in February, it had originally predicted congestion and slowdowns would negatively impact first-quarter revenue by approximately $30 million. A couple months later, Rosenfeld revealed the hit it took ended up being just half that size. At the time—three months ago—he warned that this looked like a “temporary reprieve,” and estimated uncertainties would produce a $15 million to $20 million revenue hit in the second quarter.

Though the supply chain issues Steve Madden saw in the quarter ate into its wholesale business, Rosenfeld said the company saw “strong” sell-through performance across shoes, accessories and apparel. In particular, he highlighted strong demand for a range of categories across women’s footwear, including dress shoes.

“Many of our competitors had really deemphasized that category and we took a lot of share in that category and demand in that category started coming back,” Rosenfeld said. “I think it’s safe to assume that our competitors have seen that, and there’s going to be more competition in that category in the fall.”

While Steve Madden’s wholesale segment remains below pre-pandemic levels, its retail revenue has soared. E-commerce continued to be the primary growth driver, rising 105 percent year-over-year on top of 86 percent growth in the prior-year period. Global brick-and-mortar sales climbed 8 percent compared to 2019.

Net Sales: Steve Madden’s consolidated revenue totaled $398 million in the second quarter, a 179 percent increase versus 2020, but still 11.5 percent below 2019.

Wholesale revenue came in at $262 million, a 162 percent increase compared to the prior year and 28 percent decrease against 2019. Wholesale accessories/apparel leapt 191 percent and wholesale footwear climbed 154 percent over last year.

Revenue from the company’s retail segment, meanwhile, grew by 221 percent year-over-year and 63 percent versus 2019 to $133 million. E-commerce, specifically, was up 105 percent against last year and 282 percent compared to 2019. The channel accounted for 54 percent of Steve Madden’s total retail sales in the quarter, up from 23 percent two years ago. According to Rosenfeld, the second quarter marked the fifth in a row where e-commerce accounted for more than half of the company’s retail segment.

Net Income: Net income attributable to Steve Madden was $36.9 million, or 45 cents per diluted share, this past quarter, well above last year’s net loss of $16.6 million, or 21 cents per diluted share.

Adjusted net income attributable to Steve Madden totaled $39.7 million, or 48 cents per diluted share, in the second quarter. This represented a stark improvement from last year’s net loss of $14.7 million, or 19 cents per diluted share, and a close beat of 2019’s $39.5 million, or 47 cents per diluted share.

For fiscal 2021, Steve Madden is anticipating a revenue increase of 43 percent to 47 percent compared to last year and adjusted diluted earnings per share in the range of $2.00 to $2.10.

CEO’s Take: “Overall, we are very pleased with the progress we are making and the trends we are seeing in the business,” Rosenfeld said. “The outstanding results in our retail segment and robust sell-through performance in wholesale demonstrate the health of our brands, the strength of our product assortments and the momentum we have in digital channels. While we still face challenges due to Covid-19­—including, but not limited to, continued supply chain disruption across the globe—we are confident that based on the strength of our brands, our business model and our people, we are well-positioned to drive sustainable revenue and earnings growth and create value for our stakeholders over the long term.”