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Steve Madden (SHOO) Tops Q3 Earnings Estimates, Updates View

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Steven Madden, Ltd. (SHOO - Free Report) delivered better-than-expected third-quarter 2018 bottom-line results. Although both the top and bottom lines grew year over year, revenues fell short of the Zacks Consensus Estimate.

Nevertheless, management highlighted that Steve Madden Women’s wholesale business witnessed solid growth. Moreover, the company witnessed solid gains in international markets and strong performance at its fashion-oriented footwear brand Blondo. The company’s e-commerce business also improved significantly. Notably, the company also provided an encouraging full year sales and earnings projection.

As a result, shares of this NY-based company have increased roughly 10% during the trading session on Oct 30, 2018. However, this Zacks Rank #3 (Hold) stock has slid about 8% in a month  compared with the industry’s decline of 10%.

Let’s Delve Deep

This designer and marketer of fashion footwear and accessories delivered adjusted quarterly earnings of 65 cents a share that surpassed the Zacks Consensus Estimate of 61 cents and increased 27.5% from 51 cents reported in the year-ago period. The bottom line improved in spite of increase in adjusted operating expenses (up 4.7%). This can be attributed to higher net sales.

The top line increased 3.9% year over year to $458.5 million but came below the Zacks Consensus Estimate of $470 million.

Management announced that sales in international markets soared 24% during the quarter under review. Blondo’s net sales soared more than 50% in the quarter. The company’s directly-owned subsidiaries in Canada and Mexico, SM Europe JV, and the distributor business in Italy, India, and the Middle East posted strong results.

Net sales for the wholesale business rose 3.1% to $388.5 million, reflecting robust gain in wholesale accessories. This was partly offset by a decline in wholesale footwear. We note that wholesale footwear net sales fell 1.1% to $297.3 million, while wholesale accessories net sales increased 19.5% to $91.3 million.

We note that net sales in wholesale accessories business climbed on the back of Steve Madden handbags and private label accessories business, including contribution from Anne Klein handbags and new license.

Retail net sales jumped 8.8% to $69.9 million, while comparable-store sales increased 5.5%.

Steven Madden, Ltd. Price, Consensus and EPS Surprise

 

Steven Madden, Ltd. Price, Consensus and EPS Surprise | Steven Madden, Ltd. Quote

Margins

Meanwhile, gross profit climbed 5.6% to $175.2 million, while gross margin expanded 60 basis points to 38.2%. We note that gross margin in the wholesale business increased 40 basis points to 34.3% on account of gross margin improvement in both wholesale footwear and wholesale accessories. Meanwhile, retail gross margin increased 80 basis points to 60.1% attributed to higher gross margin in the e-commerce business and full price selling.

Gross margin on stevemadden.com increased more than 500 basis points from the year-ago quarter. However, higher shipping costs on account of implementation of free two-day shipping impacted margin.

Adjusted operating income increased 7.1% to $70.6 million, while adjusted operating margin increased 50 basis points to 15.4%.

Store Update

Steven Madden ended the quarter with 210 company-operated retail outlets, comprising seven Internet stores, as well as 46 company-operated concessions in international markets.

Other Financial Aspects

The company ended the reported quarter with cash and cash equivalents of $172.5 million, marketable securities of $57.9 million, and shareholders’ equity of $859.8 million, excluding non-controlling interest of $7.4 million. Management incurred capital expenditures of $2.9 million during the quarter.

During the quarter, the company bought back about 416,264 shares for $15.8 million and there was still $132.6 million remaining under its share buyback program. The company also hiked quarterly dividend by 5% to 14 cents a share.

Outlook

Management expects net sales growth of 6-7% for 2018. The company envisions full year adjusted earnings in the range of $1.76-$1.78, indicating an improvement from $1.49 in 2017.  The company’s projection includes a negative impact of 2 cents due to imposition of tariffs on hand bags and other accessories.

 The current Zacks Consensus Estimate for the year is $1.79. The company had earlier projected net sales growth of 5-7% with adjusted earnings in the band of $1.73-$1.78.

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