Steve Madden Ltd.’s first quarter represented a tale of two channels: an expanding retail operation and a stagnating wholesale business. While total revenue for the fashion footwear company increased a slight 0.5 percent to $361 million in the first quarter on net income of $21.1 million, its retail segment saw 27.5 percent revenue growth, while wholesale declined 3.7 percent.
In a Nutshell: In a statement, Edward Rosenfeld, chairman and CEO of Steve Madden, pointed out that the first quarter retail revenue increased 7 percent compared to pre-Covid-19 numbers reported in the first quarter of 2019, highlighting the growth of its digital business. E-commerce revenue across all of Steve Madden’s brands increased 89.2 percent for the quarter, including 112.4 percent growth in the Steve Madden brand’s online business.
The retail business saw growth even as approximately one-third of the company’s stores were closed at some period during the quarter. Steve Madden operates 215 company-owned retail stores, including seven e-commerce stores, as well as 17 company-operated concessions in international markets.
During an earnings call, Rosenfeld said he felt the performance of the company’s brands, including the eponymous Steve Madden, Dolce Vita, Betsey Johnson, Blondo, Greats, BB Dakota and Mad Love, “exceeded that of the overall fashion footwear category,” particularly due to a “trend-right, merchandising assortment.”
He noted that the recent supply chain delays were still significant, but smaller than anticipated, with California port congestion beginning to ease in March. With the Chinese New Year resulting in fewer imports to California, Steve Madden could ship products to wholesale customers at the end of March that they had anticipated would slip into April.
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While the footwear company initially anticipated these supply chain disruptions to have a $30 million impact in the first quarter, Rosenfeld said it ended being approximately “half of that.”
However, this appears to have been a “temporary reprieve, as imports surged again in April and are expected to rise further in May and beyond, likely meaning that port congestion will continue to pose a challenge at least through the end of the second quarter,” Rosenfeld said.
Rosenfeld now predicts that the uncertainties from the supply chain will result in a $15 million to $20 million revenue hit in the upcoming quarter.
Reflecting the opposite directions the wholesale and retail channels are going, gross margin in Steve Madden’s wholesale business declined to 32.3 percent compared to 32.5 percent in the first quarter of 2020 due to a shift in sales mix. Retail gross margin rose to 63.5 percent in the first quarter of 2021, compared to 59.8 percent in the prior-year period, buoyed by strong increases in both the e-commerce and brick-and-mortar businesses.
Total inventories for the footwear designer, manufacturer and seller totaled $106.6 million at the end of the first quarter, a 4.2 percent increase over the $102.3 million it had on hand to close the 2020 first quarter.
The earnings came two weeks after Steve Madden acquired a 49.9 percent share that it did not already own of its European joint venture. The European joint venture was formed in June 2016 and distributes Steve Madden-branded footwear and accessories to most countries throughout Europe.
The joint venture saw strong double-digit percentage revenue growth every year since its formation in 2016, including a 21 percent revenue gain in 2020 despite the impact of Covid-19, Rosenfeld said. In 2021, the joint venture is expected to generate $55 million in revenue, with more than three-quarters coming from digital channels.
As of March 31, 2021, cash, cash equivalents and short-term investments totaled $273 million. The company has no debt. Capital expenditures during the quarter totaled $1.6 million.
For the second quarter of 2021, Steve Madden expects revenue will be in the range of $360 million to $365 million. Diluted earnings per share is projected to range between 26 cents and 28 cents.
Given the continued disruption and uncertainty related to the Covid-19 pandemic, the company still isn’t providing full-year guidance.
Net Sales: For the first quarter, revenue at Steve Madden increased 0.5 percent to $361 million compared to $359.2 million in the same period of 2020, well ahead of analysts’ estimates of $335.3 million.
Wholesale business revenue was $291.4 million, a 3.7 percent decrease compared to the first quarter of 2020. A 7.8 percent decline in wholesale footwear was partially offset by a 10.3 percent increase in wholesale accessories and apparel. The total decline topped expectations of the company’s anticipated “high-single-digit” dip.
Retail revenue was $67.5 million, a 27.5 percent increase year over year driven by strong performance in the e-commerce business.
Net Earnings: Net income attributable to Steve Madden was $21.2 million, or 26 cents per diluted share, beating Wall Street estimates of 19 cents per share. The gain is a turnaround from last year’s first quarter, when net losses came in at $17.5 million, or 22 cents per diluted share.
Adjusted net income attributable to the company was $26.9 million, or 33 cents per diluted share, accounting for the after-tax impact of various expenses related to rent restructuring and store impairments, among other factors. The adjusted net income doubled the $13 million, or 16 cents per diluted share, in the year-ago period.
Income from operations totaled $28 million in the first quarter, or 7.8 percent of revenue, compared to a loss from operations of $26.2 million the prior first quarter.
CEO’s Take: “One of the things that’s frustrating for us is just, because we do have such a strong product assortment and the consumer is responding so well to so many of our products, we’re not really able to capitalize on that in the way we otherwise would if we didn’t have the supply chain disruption,” Rosenfeld said in the call. “The second quarter is a big reorder quarter for us and we’d be chasing a lot of these products in a way that we’re not able to do right now.”