Steve Madden (SHOO) Q2 Earnings Beat Estimates, Surge Y/Y

Steve Madden, Ltd. (NASDAQ:SHOO) 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% 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% 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.

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.

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 mid-point ($1.82) of which is lower than the current Zacks Consensus Estimate of $1.84. The company had reported earnings of $1.83 in the prior year.

Price Performance

Shares of this Zacks Rank #3 (Hold) company have gained 13.3% so far in the year, compared with the industry’s growth of 17.5%.

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