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Supply-Chain Slowdown Could Cost Steve Madden $30M in Q1

Despite ongoing issues in its supply chain, fashion footwear icon Steve Madden Ltd. showed confidence in its long-term prospects Thursday as it announced plans to reinstate its quarterly cash dividend in March and resume share repurchases in future periods.

Speaking on a call with investors, CEO and chairman Edward Rosenfeld said the company’s fourth-quarter results, which included a 15.9 percent decline in revenue, exceeded Steve Madden’s expectations and represented a strong sequential improvement over the prior quarter. For 2020 as a whole, revenue fell by nearly one-third.

“Overall, 2020 was in many ways the most challenging year in our company’s history, but we relied on our strengths, an agile business model, a strong balance sheet and our talented and resourceful employees to successfully navigate the crisis,” Rosenfeld said. “We continued investing in our brands and our digital capabilities, while reducing expenses in other areas, and we utilized our test-and-react strategy and speed-to-market capability to quickly adjust our product mix to align with changing consumer preferences.”

In a Nutshell: Rosenfeld attributed the company’s “strong financial position” in part to the measures it took early on in the pandemic to preserve liquidity, including suspending dividends and share purchases; cutting operating expenses, capital expenditures and inventory receipts; and putting in place a $150 million asset-based revolving credit facility. Though many of these measures were only temporary, he said some will have a continuing benefit, including $25 million in annual savings from Steve Madden’s July restructuring and $14 million in rent-expense savings in 2021 compared to 2019.

Rosenfeld also touted Steve Madden’s ability to quickly adjust its merchandising assortments to shifting consumer preferences, with the company leaning more into casual and comfortable, while deemphasizing dressier products. “I think the strongest category by far was really the casual boots, most notably lug sole boots, combat boots [and] Chelsea [boots],” he said. Though the company is seeing strong sell-through on the dress shoes it is selling, penetration is “probably only about two-thirds of what it normally is,” Rosenfeld added.

Like many other companies, the footwear firm responded to the events of last year by increasing investment in digital, even as it pulled back spending elsewhere. “We added high-level talent to the organization, invested in our data science capabilities, ramped up digital marketing spend, launched our new try-before-you-buy payment option, rolled out buy online, pick up in-store to all U.S. full-price retail stores, introduced new, enhanced delivery and return options and more,” Rosenfeld said.

These investments aligned with strong e-commerce growth. Overall, Rosenfeld said company-operated e-commerce revenue grew nearly 50 percent last year, on top of 58 percent growth the year prior. Included in this was 55 percent growth in the company’s Steve Madden e-commerce business, which followed a 51 percent increase a year earlier. E-commerce profit margins “expanded meaningfully for the third year in a row,” Rosenfeld added.

This spring the company plans to launch Cool Planet by Steve Madden, “a new brand offering fashion footwear using recycled, renewable and other environmentally preferred materials,” Rosenfeld said. The launch will follow a wave of sustainable initiatives. In the past year, the firm introduced 100 percent recyclable shoe boxes, piloted a shoe-takeback program and partnered with Footwear Distributors and Retailers of America on a pre-consumer waste management project.

Though chief financial officer Zine Mazouzi described the company as confident in its long-term position and optimistic about its prospects as conditions normalize, he said it is “cautious on the near-term outlook due to headwinds that include supply-chain disruption, higher freight costs, the non-renewal of [the Generalized System of Preferences program], foreclosures and reduced store traffic and hours of operation.”

Mazouzi noted that Steve Madden anticipates supply-chain disruption, particularly as it relates to congestion and slowdowns at ports, to negatively impact first-quarter revenue by approximately $30 million. Given this impact, he said the company expects wholesale revenue to see a high-single-digit decrease and retail revenue to experience a mid-single-digit increase compared to last year’s first quarter.

The CEO estimated the slowdowns are expanding lead times by an average of three to four weeks. “For a company that turns their inventory as quickly as we do and really operates in sort of a just-in-time model, it’s pretty challenging,” he said, adding that it remains unclear how long the current situation might last. “There are folks that believe that it’s going to be around April, May… but I’ve seen others speculate that this could be an issue into the summer.”

Rosenfeld noted that of the $30 million impact the company anticipates, a majority will move into the second quarter. “But there’s a good chunk of it, could be 40 percent, that we think is lost,” he added. For those goods that do land in the second quarter, a shorter window could mean fewer reorders. “I don’t know exactly what that’s going to look like, but that is a potential impact, he said.

As of Dec. 31, Steve Madden had $287.2 million of cash, cash equivalents and short-term investments, and no debt. Inventory totaled $101.4 million, down 26 percent compared to the prior-year figure of $136.9 million. Capital expenditures in the fourth quarter were $1.1 million.

Net Revenue: Steve Madden recorded revenue of $353 million in the fourth quarter, a 15.9 percent decline from the same period in 2019. Gross margin saw a moderate increase, rising from 37.7 percent in Q4 2019 to 38.3 percent last quarter. Adjusted gross margin saw a slightly more modest creep up, rising from 37.8 percent to 38.2 percent.

Revenue for Steve Madden’s wholesale business decreased 16.2 percent year-over-year in the fourth quarter to $263 million. This included a 19.7 percent decline in wholesale footwear and a 5.9 percent drop in wholesale accessories and apparel. Gross margin in the wholesale business decreased to 28.3 percent in the fourth quarter compared to 29.2 percent in the prior-year period “due to the closeout of excess inventory resulting from store shutdowns and order cancellations earlier in the year,” chief financial officer Zine Mazouzi said.

Retail revenue totaled $86.1 million in the fourth quarter, a 14.9 percent decrease compared to the same period in 2019, following a “significant” decline in brick-and-mortar sales, Mazouzi said. Strong momentum online partially offset this with the overall e-commerce segment up 36 percent, including 51 percent growth in the company’s Steve Madden e-commerce business. A decrease in discounting drove retail gross margin up 400 basis points to 65.6 percent last quarter, compared to 61.6 percent in the fourth quarter of 2019.

The company’s total revenue also includes licensing royalty income, which totaled $3 million in the fourth quarter, down from $3.5 million a year earlier, and commission income, down from $1.6 million a year ago to $0.9 million.

For the full year, revenue decreased 32.8 percent from $1.8 billion in 2019 to $1.2 billion last year.

Net Earnings: Income from operations totaled $21.3 million in the fourth quarter, or 6 percent of revenue, an increase compared to $19.5 million, or 4.6 percent a year earlier. Adjusted income from operations, on the other hand, decreased from $33 million in 2019 to $25.6 million.

Net income attributable to Steve Madden, Ltd. totaled $22.6 million, or $0.28 per diluted share, in the fourth quarter, an improvement over the prior year’s $17.8 million, or $0.21 per diluted share. Adjusted net income attributable to the company, however, fell from $32.2 million, or $0.39 per diluted share, to $21.8 million, or $0.27 per diluted share, over the same period.

Looking at the full year, Steven Madden, Ltd. recorded a net loss of $18.4 million, or $0.23 per basic share. This compared to a net income attributable to Steven Madden, Ltd. of $141.3 million, or $1.69 per diluted share, in 2019. On an adjusted basis, net income attributed to the company totaled $51.8 million, or $0.64 per diluted share, a decline from 2019’s $162.8 million, or $1.95 per diluted share.

CEO’s Take: “As we look to 2021, our focus remains on creating trend-right product and getting it to market quickly; deepening connections with our consumers through enhanced marketing; driving our digital commerce agenda; expanding in international markets like Europe, where we have strong momentum and lots of runway; and efficiently managing our inventory and our expenses—all while working to create positive change for our people and our communities,” Rosenfeld said.

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