Steven Madden, Ltd. SHOO delivered better-than-expected fourth-quarter 2018 results, wherein both the top and bottom line grew year over year. This NY-based company witnessed robust gains at its flagship Steve Madden brand in both footwear and handbags. The company also registered strong performance at its fashion-oriented footwear brand Blondo as well as private label accessories business. The company also highlighted that the bankruptcy of Payless ShoeSource, its key private label customer, is a near-term headwind.
Let’s Delve Deep
This designer and marketer of fashion footwear and accessories delivered adjusted quarterly earnings of 42 cents a share that surpassed the Zacks Consensus Estimate of 38 cents and surged 31.3% from 32 cents reported in the year-ago period. The bottom line improved in spite of increase in cost of sales (up 14.9%) and adjusted operating expenses (up 11%). This can be attributed to higher net sales, lower effective tax rate and to an extent share repurchases.
The top line of this Zacks Rank #3 (Hold) company increased 12.6% year over year to $410.4 million and also came above the Zacks Consensus Estimate of $400.8 million. Net sales at stevemadden.com business surged 30% during the quarter under review.
Net sales for the wholesale business rose 14.1% to $317.4 million, reflecting robust gain in wholesale footwear and wholesale accessories. We note that wholesale footwear net sales advanced 7.4% to $233.9 million, while wholesale accessories net sales grew 37.9% to $83.4 million.
We note that net sales in wholesale accessories business climbed on the back of Steve Madden handbags and private label handbags. It also gained from the addition of Anne Klein.
Retail net sales jumped 7.9% to $93 million, while comparable-store sales increased 4% on account of robust performance at its e-commerce business.
Margins
Meanwhile, adjusted gross profit climbed 9.8% to $152.3 million, however, gross margin contracted 100 basis points to 37.1%.
We note that gross margin in the wholesale business decreased 90 basis points to 30.1% on account of lower gross margin in wholesale accessories, imposition of 10% tariff on handbags and certain other accessory categories and higher ocean freight costs. Meanwhile, retail gross margin increased 20 basis points to 61% attributable to higher gross margin in the e-commerce business.
Adjusted operating income increased 4.4% to $37.9 million, however, adjusted operating margin shrunk 80 basis points to 9.2%.
Store Update
Steven Madden ended the reported quarter with 229 company-operated retail outlets, comprising seven Internet stores, as well as 42 company-operated concessions in international markets.
Other Financial Aspects
Steven Madden ended the reported quarter with cash and cash equivalents of $200 million, marketable securities of $66.7 million, and shareholders’ equity of $805.8 million, excluding non-controlling interest of $8.9 million. Management incurred capital expenditures of $4.3 million during the quarter.
During the quarter, the company bought back about 1.8 million shares for $55 million and for the full-year, it repurchased roughly 3.4 million shares worth $105.9 million.
Outlook
Steven Madden expects net sales growth of 4-6% for 2019. The company envisions full year adjusted earnings in the range of $1.75-$1.83 compared with $1.83 in 2018. Management also hinted that Payless ShoeSource bankruptcy and higher forecasted tax rate would hurt 2019 adjusted earnings by approximately 16 cents and 5 cents, respectively. The current Zacks Consensus Estimate for the year is $1.89.
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