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Steven Madden's Strategies & Wholesale Business Bode Well

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Steven Madden, Ltd. SHOO is likely to benefit from solid gains in international markets and strong wholesale business. Also, the company’s e-commerce business is improving significantly. In addition to this, its focus on enhancing product portfolio is commendable.

All these factors helped the company to deliver robust third-quarter 2018 results, wherein the company continued with its positive earnings streak. Also, both the top and bottom line grew year over year. Moreover, management provided an encouraging full-year sales and earnings projection.

In a month’s time, this Zacks Rank #3 (Hold) stock has gained approximately 12% compared with its industry’s 3.4% growth. Let’s delve deeper.

Factors Driving Steven Madden’s Performance

Steven Madden is focusing on expanding its business globally. In the third quarter, the company saw 24% revenue growth worldwide. Its directly-owned subsidiaries in Canada and Mexico, SM Europe JV and the distributor business also posted solid results. Backed by strategic investments, the company expects international business to sustain its momentum. The company is optimistic about growth in the Middle East, Italy and India as well. In fact, Steven Madden expects Asia to be a major contributor to net sales.

Further, the company’s wholesale business witnessed sturdy performance during the third quarter, wherein net sales rose 3.1%, reflecting gain from wholesale accessories business. Notably, 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. Also, the company’s Steve Madden handbag and special make up businesses continue to gain traction.

Following the third-quarter performance, the company raised its lower end of expected net sales growth from 5-7% to 6-7% for the full year. The company envisions full-year adjusted earnings in the range of $1.76-$1.78, mirroring an improvement from $1.49 in 2017. Notably, the company’s projection includes a negative impact of 2 cents due to imposition of tariffs on hand bags and other accessories.

Although rising operating expenses, stiff competition and concerns related to trade war remain major concerns. Imposition of tariffs on additional consumer goods imported from China is likely to undermine business prospects of the company. This is because a greater percentage of the company’s handbags are made in China. However, to lower its dependency on China, Steven Madden is contemplating to shift more of its handbag production to Cambodia.

Nevertheless, Steven Madden’s sturdy performance in wholesale business provides visibility for impressive growth in the future and might drive the stock higher. .This is further supported by the company’s long-term earnings growth rate of 10.7%.

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