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Steven Madden (SHOO) Down 7.6% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Steven Madden (SHOO - Free Report) . Shares have lost about 7.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Steven Madden due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Steve Madden Q2 Earnings Beat Estimates, Surge Y/Y

Steve Madden, Ltd. reported better-than-expected second-quarter 2019 results. Notably, both the top and bottom lines continue to improve year over year. This NY-based company witnessed robust gains at its flagship Steve Madden brand with sturdy performance in the wholesale footwear and accessories businesses in both domestic and international markets, and solid growth on stevemadden.com.

Encouragingly, management stated that the company remains well on track to attain the set guidance for 2019, in spite of an estimated incremental headwind of roughly 5 cents a share on account of higher tariffs that came into effect from May 10.

Q2 Details

This designer and marketer of fashion footwear and accessories delivered adjusted quarterly earnings of 47 cents a share that surpassed the Zacks Consensus Estimate of 42 cents, marking the seventh straight quarter of beat. The quarterly earnings also increased 14.6% from 41 cents reported in the year-ago period. Although the company witnessed increase in cost of sales (up 12.8%) and adjusted operating expenses (up 12.4%), the bottom line improved on higher net sales and share repurchases to some extent.

The top line increased 12.4% year over year to $445 million and beat the Zacks Consensus Estimate of $420.2 million. This was the third successive quarter of revenue beat.

Net sales for the wholesale business rose 13.1% to $363.5 million, reflecting robust gain in wholesale footwear and accessories businesses.

We note that wholesale footwear net sales advanced 13.5% to $286.2 million driven by sturdy performance in Steve Madden, the addition of Anne Klein and increase in private label business (excluding Payless ShoeSource). Wholesale accessories net sales improved 11.5% to $77.3 million buoyed by solid gain in Steve Madden handbags and robust growth in the private label business.

Retail net sales jumped 9.6% to $81.5 million, while same-store sales increased 6.2% on account of sturdy performance in e-commerce business. Stevemadden.com surged more than 50% for the second quarter in a row. The segment benefitted from robust performance of sandals, fashion sneakers and handbags.

Margins

Gross profit climbed 11.9% to $165.3 million, however, gross margin contracted 10 bps to 37.2%.

We note that gross margin in the wholesale business increased 70 basis points to 32.1% on account of an improvement in wholesale footwear. Meanwhile, retail gross margin shrunk 320 bps to 59.7%, mainly due to inventory liquidation and markdowns in relation with the wind-down of the joint venture relationship in China, and liquidation of slow-moving inventory in the North American retail operations.

Adjusted operating income increased 11.7% to $49.1 million, however, adjusted operating margin shriveled 10 bps to 11%.

Store Update

The company ended the reported quarter with 224 company-operated retail outlets, comprising six Internet stores and 31 company-operated concessions in international markets.

Other Financial Aspects

Steven Madden ended the reported quarter with cash and cash equivalents of $212.7 million, marketable securities of $36.1 million, and shareholders’ equity of $818.4 million, excluding non-controlling interest of $9.2 million. During the quarter, the company bought back about 1.1 million shares for $34 million. Management incurred capital expenditures of about $2.8 million.

Outlook

Steven Madden continues to envision net sales growth of 5-7% for 2019. The company also reiterated adjusted earnings guidance range of $1.78-$1.86 per share for the full year. The company had reported earnings of $1.83 in the prior year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -5.35% due to these changes.

VGM Scores

At this time, Steven Madden has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Steven Madden has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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