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Steve Madden Surprises Analysts in Q1, Raises FY19 Guidance

Steve Madden (SHOO) has released its first financial report following the Payless bankrupcty—and the footwear brand appears to have weathered the storm.

In a Nutshell: In February, analysts warned investors that Steve Madden was going to face some significant headwinds after one of its primary retail partners, Payless, shut its doors for good. As a result, Canaccord Genuity lowered its FY19 EPS guidance for the brand from $1.99 to $1.85. However, it appears Steve Madden’s position was relatively unaffected by the loss of business.

Thanks to improvements in profitability and the addition of business from the brand’s acquisition of the Anne Klein label, Steve Madden was able to beat analyst expectations for both sales and earnings. The brand said the added income from those two factors mostly offset by what it estimates to be a $1.4 million “bad debt expense” associated with the Payless bankruptcy.

In early trading on Thursday, SHOO leapt from $34.03 to $36.10, an increase of just over 6 percent. At publication time, Steve Madden stock was relatively stable at $35.74.

Sales: For the first quarter of FY19, Steve Madden recorded $410.9 million in sales, an increase of 5.6 percent over the $389 million it earned in the comparable period last year, and well above the $404.68 million analysts predicted for the quarter. Steve Madden was able to increase its footwear margins, boosting them by 270 basis points in the quarter, which the brand said increased the category’s profitability by double-digits. In its quarterly conference call, Steve Madden confirmed that Q1 revenue growth was driven by a healthy interest in its fashion sneakers, sandals and boots in early 2019.

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Overall, margins were improved by 200 basis points in the quarter to 38.2 percent from 36.2 percent in FY18’s first quarter. The brand’s income from operations also produced a bump in Q1, totaling $45.1 million—11 percent of net sales.

Wholesale business increased 5.1 percent to $348.1 million in Q1 despite an unfriendly retail environment. Steve Madden credits this growth to strong activity in wholesale accessories with modest growth in wholesale footwear being “mostly offset” by being unable to recognize Payless sales for the quarter. Net retail sales for Steve Madden’s stores rose 8.6 percent to $62.8 million in the quarter, compared to $57.9 million in Q1 of last year. Same-store sales were also up 6.3 percent, which Steve Madden credited to strong e-commerce activity. The brand currently operates 225 retail locations.

Steve Madden raised its revenue outlook for FY19 after a strong quarter, expecting sales growth of 5 percent to 7 percent, compared to previous guidance of 4 to 6 percent.

Earnings: SHOO recorded a diluted EPS of 41 cents in the first quarter of FY19, up from the 33 cents it earned in 2018 and above analyst expectations of 36 cents. The brand’s net income for the quarter was $34.5 million, compared to $28.7 million in the comparable time period last year.

Steve Madden will also raise its guidance for earnings in FY19, saying its final tally should be in the range of $1.76 to $1.84 compared to prior expectations of $1.70 to $1.78.

CEO’s Take: Edward Rosenfeld, Steve Madden’s chairman and CEO, was accordingly positive regarding the company’s performance in the quarter, and was pleased to inform investors of the brand’s raised guidance.

“We are off to a strong start in 2019, with first-quarter results exceeding our expectations. Our flagship Steve Madden brand was the highlight in the quarter with robust increases in the wholesale footwear and accessories businesses as well as outstanding performance on,” Rosenfeld explained. “Given the strong performance in the first quarter and the encouraging trends we are seeing in the business, we are raising our net sales and Adjusted EPS guidance for 2019. Looking ahead, we are confident that, based on our strong brand portfolio, consistency in delivering on-trend product and proven business model, we are well-positioned to drive sustainable growth and shareholder value over the long term.”