Sales may be on the rise at Steve Madden, but it appears its supply chain difficulties show no signs of letting up any time soon.
In a Nutshell: Steve Madden, the parent company to brands like Dolce Vita, Greats and BB Dakota, ended the year with inventory totaling $255.2 million, up from $101.4 million in 2020 and $136.9 million in 2019. In-transit inventory grew 159 percent against 2019 “due to the global supply chain disruption,” Zine Mazouzi, the footwear, apparel and accessories company’s chief financial officer, said.
“That’s because of the extended lead time,” CEO Edward Rosenfeld said on a call with investors Thursday. “We’re working [with a] transit time of about 70 days now, on average, compared to about 30 days back in 2019, or pre-Covid…. So, without any increase in the business, the in-transit inventory should be up 133 percent based on the transit time and then, obviously, we’ve got the business growing as well. So, we feel very comfortable about the inventory position and we’re doing what we need to do in this environment.”
Though some have talked of supply chain difficulties potentially easing up in the second half of the year, Rosenfeld said Steve Madden has yet to see any meaningful improvements. The “good news is that we’ve been dealing with this for a while now, so we’ve built it into our planning calendars and we think that we are prepared to meet the demand and to deliver products in the first half,” he added.
In terms of air freight, the company ended the year air freighting “around 30 percent” of its goods, up from 17 percent in 2019, Rosenfeld said. Overall freight increases, he noted, have resulted in a 240-basis-point impact on gross margin versus 2019. In 2022, the company is counting on freight costs to remain neutral against last year.
“We intend to utilize less air freight, but the air freight rates, given where they are today, particularly given compared to where they were in the early part of ‘21, there’s going to be a negative rate impact,” Rosenfeld said.
On-hand inventory grew 32 percent from 2019 to last year, an increase Rosenfeld attributed to broader sales growth, particularly in DTC, which requires more inventory.
Steve Madden’s direct-to-consumer business “drove the company’s growth” last year, Rosenfeld said, with DTC revenue up 52 percent versus 2019. The segment’s operating margin expanded from 3.9 percent in 2019 to 17.5 percent in 2021.
E-commerce, now more than 50 percent of Steve Madden’s DTC business, grew 89 percent versus last year and 181 percent against 2019 “as ongoing investments in talent, digital marketing and site enhancements continue to pay dividends.” Rosenfeld said “always on” digital marketing and influencer activities were “instrumental” to e-commerce growth.
“We will continue to invest in this full-funnel approach in 2022,” Rosenfeld continued. “As we sharpen our focus on our core consumers and strengthen our connections with them, it’s fueling our progress on our next strategic initiative—driving our direct to consumer business, led by digital.”
Brick-and-mortar stores, meanwhile, saw sales rise 9 percent on a two-year stack. The “strong” performance accelerated each quarter throughout the year, Rosenfeld said.
“As we look to 2022, while we are mindful of the difficult comparisons in this segment, we are confident that the actions we have taken the last two years have resulted in a DTC business that is fundamentally stronger than it was prior to the pandemic,” he added.
Another 2022 priority will be Steve Madden’s apparel business, which last year generated “somewhere between $45 [million] and $50 million,” according to Rosenfeld. Those efforts will include the repositioning of the BB Dakota by Steve Madden co-branded label to “just the Steve Madden label” in the fall. Rosenfeld described wholesalers’ initial response to this change as “very positive.” This year, Steve Madden expects to grow apparel revenue “nearly 50 percent.”
Rosenfeld also affirmed plans to continue sourcing product from Mexico and Brazil. In July, the company announced it was shifting “about half” of its women’s production to the two countries for the fall of 2021. On Thursday, Rosenfeld confirmed that the company is “trending in a very similar place” for spring of this year.
Net Sales: Fourth-quarter sales climbed 63.9 percent year over year from $353 million to $578.5 million. Compared to the fourth quarter of 2019, revenue grew 38 percent.
Gross profit as a percentage of revenue grew from 38.3 percent a year ago to 41.2 percent in the fourth quarter. Expenses as a percentage of revenue also improved, falling from 30.9 percent to 26.2 percent.
Revenue from Steve Madden’s wholesale business grew 56.1 percent to $410.5 million, amid a 61.9 percent bump in footwear and a 41.7 percent improvement in accessories/apparel. Compared to 2019, fourth-quarter wholesale sales grew 30.8 percent. Gross profit as a percentage of wholesale revenue hit 31.8 percent compared to 28.3 percent in the year-ago quarter. Looking to next year, Rosenfeld said the company believes wholesale could grow somewhere in the low double-digits to mid-teens.
Direct-to-consumer revenue, meanwhile, soared 91.3 percent compared to the final quarter of 2020 and 62.9 percent against the same period two years ago, hitting $164.7 million. Gross profit as a percentage of retail revenue fell to 63.5 percent, versus 66.2 percent a year earlier.
Internationally, Europe “was once again the highlight,” Mazouzi added, as revenue more than tripled versus 2019.
Full-year revenue increased 55.3 percent to $1.9 billion from $1.2 billion the year before. The increase easily beats the 50 percent to 52 percent guidance Steve Madden provided in November. Against 2019, revenue grew 4.4 percent.
The company expects revenue to grow 10 percent to 13 percent in 2022. With price increases “anywhere between 5 percent on the low end to 12 percent on the high end,” Rosenfeld said, “a good chunk” of this year’s revenue improvement will come from average unit retail and average selling price growth.
Net Earnings: Steve Madden’s fourth-quarter income from operations totaled $79.4 million, or 13.7 percent of revenue, compared to $21.3 million, or 6 percent of revenue a year earlier. Adjusted income from operations grew from $25.6 million, or 7.3 percent of revenue, to $86.9 million, or 15 percent of revenue.
Net income attributable to Steve Madden nearly tripled year over year in the fourth quarter, rising from $22.6 million, or 28 cents per diluted share, a year ago to $66 million, or 81 cents per diluted share. The company’s adjusted net income grew even more, hitting $70.4 million, or 87 cents per diluted share, in the fourth quarter of last year, compared to $21.8 million, or 27 cents per diluted share in the final quarter of 2020.
Steve Madden recorded a net income of $190.7 million, or $2.34 per diluted share, in full-year 2021. In 2020, it reported a net loss of $18.4 million, or 23 cents per basic share. On an adjusted basis, net income totaled $203.7 million, or $2.50 per diluted share, compared to net income of $51.8 million, or 64 cents per diluted share, the year before.
This year, the company expects to see diluted earnings per share land in the range of $2.66 to $2.76 and adjusted diluted earnings per share to fall between $2.73 and $2.83.
CEO’s Take: Though Steve Madden is targeting substantial growth in its apparel segment next year, Rosenfeld declined to offer any specific insight into the company’s longer-term plans.
“What we’re focused on right now is we just want to have great products that our customers love,” he said. “I want it to be hot, for lack of a better term. It’s not about hitting a revenue target. It’s about having great products that are exciting for our customers. And if we do that, the numbers will take care of themselves.”