Steven Madden, Ltd. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited consolidated results; amounts below are in millions except per-share data.
Business context and results
The company designs, sources and markets footwear, accessories and apparel through wholesale, direct-to-consumer and licensing channels. In January 2023, it stopped acting as a buying agent and discontinued reporting the First Cost segment.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $552.7 | $556.6 | $1,461.9 | $1,651.4 |
| Gross profit / margin | $232.6 / 42.1% | $229.5 / 41.2% | $617.6 / 42.2% | $675.1 / 40.9% |
| Operating income / margin | $82.7 / 15.0% | $78.8 / 14.1% | $173.3 / 11.9% | $241.9 / 14.6% |
| Net income attributable to Steven Madden | $64.4 | $61.3 | $135.7 | $184.3 |
| Diluted EPS | $0.87 | $0.79 | $1.81 | $2.35 |
| Operating cash flow | Not separately presented | Not separately presented | $77.8 | $66.7 |
Material changes and segment performance
- Q3 revenue declined 0.7%, while attributable net income rose to $64.4 million and diluted EPS rose to $0.87. Higher consolidated gross margin and fewer weighted-average shares contributed to the improved per-share result.
- For the first nine months, revenue fell 11.5% and attributable net income declined about 26% year over year. Gross margin improved, but operating expenses rose as a share of revenue and operating income fell.
- Q3 Wholesale Footwear revenue fell 7.5% to $306.1 million; segment operating income declined to $68.3 million. Management cited customers’ continued inventory control and a higher private-label mix affecting gross margin.
- Q3 Wholesale Accessories/Apparel revenue increased 22.7% to $127.4 million, with operating income rising to $24.2 million. Management cited strength in Steve Madden handbags, lower freight and production costs, and a lower private-label mix.
- Q3 Direct-to-Consumer revenue decreased 1.8% to $116.4 million. Operating income was $9.7 million; gross margin improved, but expense deleverage weighed on results. The company reported 256 stores, versus 222 a year earlier.
- For the nine months, Wholesale Footwear revenue declined 15.0%, Wholesale Accessories/Apparel declined 8.0%, and Direct-to-Consumer declined 5.0%. DTC operating income fell to $15.8 million from $42.7 million, with higher operating expenses as a share of revenue.
Cash, debt and capital allocation
- At September 30, cash and cash equivalents were $191.8 million and short-term investments were $14.6 million, totaling $206.4 million. Working capital was $521.8 million. About 54% of cash, cash equivalents and short-term investments was held by foreign subsidiaries.
- The company had no cash borrowings under its $150 million asset-based revolving facility, which matures March 20, 2027. It reported $504,000 of letters of credit unrelated to that facility. Management said available liquidity should cover commitments and operating needs for at least the next 12 months.
- Nine-month operating cash flow was $77.8 million. Investing activities used $13.5 million, including $13.9 million of capital expenditures; financing activities used $147.2 million, principally for $104.2 million of repurchases and net stock-award settlements and $47.6 million of dividends.
- The quarterly dividend remained $0.21 per share; the board approved a December 2023 payment. The company repurchased about $90.9 million of shares under its program during the first nine months, with $193.7 million of authorization remaining at quarter-end.
Outlook, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Management highlighted ongoing wholesale order moderation and inventory control, inflation and potentially weaker consumer spending, fashion-trend and competitive risks, supply-chain and logistics disruption, and foreign-currency exposure.
- Management identified the Israel-Hamas conflict and broader regional geopolitical tensions as risks that could disrupt joint-venture operations, markets and supply chains; the ultimate effects were uncertain as of the filing.
- On October 20, 2023, after quarter-end, a subsidiary acquired substantially all assets and certain liabilities of Almost Famous for $52 million in cash, subject to working-capital adjustment, plus contingent payments tied to EBIT targets through September 30, 2027.
- Annual impairment testing in July 2023 found no impairment of goodwill or indefinite-lived intangible assets. Management said pending ordinary-course legal matters were not expected to materially affect financial condition, results or liquidity.
- The company reported operating lease liabilities of $128.4 million and contractual obligations of $389.6 million, including purchase obligations of $217.7 million. It stated that it had no other off-balance-sheet arrangements expected to have a material effect.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether wholesale customer inventory discipline continues to constrain orders, particularly in footwear.
- Whether DTC sales and operating profitability stabilize after the nine-month decline and expense deleverage.
- The cash-flow and earnings impact of the Almost Famous acquisition, including contingent EBIT-based payments and integration performance.
- Whether foreign operations, the Israel-Hamas conflict, inflation or supply-chain changes materially affect sales, costs or liquidity.
- How continued repurchases, dividends and contractual commitments affect cash balances and capital flexibility.