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Steven Madden Set to Take Big Virus Hit From Factory Delays, Air Freighting Product

Steve Madden, Ltd. is the latest fashion company bracing for a coronavirus impact.

In a Nutshell: Steve Madden’s fourth-quarter report revealed both weak growth and a weak trajectory for the next year as the company grapples with supply chain issues caused by the coronavirus outbreak, officially known as COVID-19.

Steve Madden expects EPS headwinds of 20 cents in the first half of fiscal year 2020, chairman and CEO Edward Rosenfeld said in the company’s quarterly conference call, with a smaller portion of that impact related to the termination of its Kate Spade licensing agreement.

The footwear and accessories company currently sources about 73 percent of its products from Chinese factories, down from 88 percent in 2019 and 94 percent in 2018. Approximately 90 percent of Steve Madden’s Chinese factories have reopened, Rosenfeld said, rising from 70 percent last week and about 15 percent the week prior.

However, an estimated 35 percent to 40 percent of the factory workers have returned to their jobs as of this week, Rosenfeld said, and manufacturers are working at about one-third of their regular capacity. This could lead to production delays of more than three weeks, he added.

These delays mean the company will ship considerably more product by air, Rosenfeld said during the call. “We will be utilizing a lot more air freight and obviously there is a gross margin impact there. But we certainly can’t put everything on an airplane. And so there will be a lot of shipments that will be delayed.”

Expenses are likely to rise as a result, with between 25 percent to 50 percent of the company’s products shipping via air freight—up from a typical level of approximately 20 percent.

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This comes on the heels of Steve Madden the founder finding himself under attack by Alice + Olivia designer Stacey Bendet, who in a viral Instagram video accused the footwear mogul of copying her designs. After he initially clapped back with similar accusations in a profanity-laced tirade, Madden has since apologized through a statement published in Page Six, claiming he holds the “utmost respect” for Bendet, who asked him to donate $1 million to the Council of Fashion Designers of America, where she’s a member.

Sales: Revenue for the company increased by 0.7 percent in the fourth quarter for a total of $419.6 million, below Wall Street estimates of $424.05 million. Gross margin fell from 38.1 percent in the comparable period to 37.7 percent in Q4 while wholesale revenue decreased by 1.1 percent to $313.8 million.

Fourth-quarter retail revenue rose by 8.7 percent to $101.1 million and same-store sales grew by 6.7 percent, thanks to its improving e-commerce business.

Full-year revenue results totaled $1.8 billion, up 6.5 percent and in line with Wall Street estimates.

In fiscal year 2020, Steve Madden’s outlook is for sales to stay flat or increase by 1 percent, the brand said. With Kate Spade’s business and without coronavirus impacts, Steve Madden estimated growth of 4 percent to 5 percent instead.

Earnings: Net income hit $32.2 million for Steve Madden in the fourth quarter, evening out to 39 cents per adjusted diluted share, meeting Wall Street estimates. The company earned 42 cents per share in the comparable period last year.

Diluted adjusted earnings in fiscal year 2019 reached $1.95 on net income of $162.8 million, the company reported, in line with Wall Street estimates.

However, Steve Madden’s earnings outlook for fiscal year 2020 will fall below what the company achieved in fiscal year 2019. As a direct result of the headwinds, Steve Madden reduced its expected results by 35 cents, now guiding a range of $1.70 and $1.80.

CEOs Take: “Looking ahead, while we are cautious on the near-term outlook due to additional headwinds from the coronavirus outbreak, China tariffs and the termination of the Kate Spade footwear license, we are confident that the strength of our brands and our business model will enable us to drive earnings growth and shareholder value creation over the long term,” Rosenfeld said.