Steven Madden, Ltd. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are to the three months ended March 31, 2022. The company designs, sources and markets footwear, accessories and apparel through wholesale, direct-to-consumer and licensing channels. Amounts below are in millions unless otherwise noted. Interim results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $463.8 | $559.7 |
| Gross profit / margin | $195.1 / 42.1% | $227.9 / 40.7% |
| Operating income / margin | $46.5 / 10.0% | $97.9 / 17.5% |
| Net income attributable to Steven Madden | $36.7 | $74.5 |
| Diluted EPS | $0.48 | $0.94 |
| Cash used in operating activities | $13.3 | $19.4 |
- Revenue declined 17.1%; net income attributable to the company fell about 50.7%. Gross margin increased 1.4 percentage points, but higher operating expenses as a share of revenue weighed on operating margin.
- Operating expenses were $148.6 million, up from $130.0 million. Management cited expense deleveraging on lower revenue, higher payroll, advertising and occupancy costs, and a prior-year benefit from revaluing contingent consideration.
- Interest and other income, net, was $2.0 million versus $0.1 million. The effective tax rate was 24.2%, compared with 23.8%.
Segments and material changes
- Wholesale Footwear: Revenue fell 18.6% to $282.3 million; operating income declined to $62.1 million from $94.1 million. Gross margin decreased to 38.1%, primarily due to higher markdown allowances, partly offset by lower freight costs.
- Wholesale Accessories/Apparel: Revenue fell 22.0% to $79.8 million, while gross margin rose to 33.2% from 23.4%; operating income was $9.4 million versus $11.4 million.
- Direct-to-Consumer: Revenue declined 8.1% to $99.6 million. Higher promotional activity reduced gross margin to 59.2%, and the segment recorded a $4.2 million operating loss versus $12.3 million of operating income. The company reported 240 stores/concessions in its segment table; management separately described 235 brick-and-mortar stores, five e-commerce websites and 21 international concessions.
- Licensing: Revenue increased 35.0% to $2.1 million; operating income was $1.8 million.
- Beginning in January 2023, the company stopped serving as a buying agent and no longer reports a First Cost segment; management said the change was not material or meaningful to operations.
Cash, liquidity and capital allocation
- At March 31, cash and cash equivalents were $210.0 million and short-term investments were $13.7 million, totaling $223.7 million. Working capital was $510.8 million. The company reported no cash borrowings under its $150 million revolving credit facility and $504,000 of letters of credit outstanding outside that facility.
- Total assets were $1.205 billion, total liabilities $367.4 million and total stockholders’ equity $837.7 million. Operating lease liabilities totaled $129.8 million; these are lease obligations, not reported cash borrowings.
- Cash used in investing activities was $2.4 million, including $3.8 million of capital expenditures. Financing activities used $49.7 million, primarily for $38.5 million of share repurchases and $16.0 million of dividends. The quarterly dividend was $0.21 per share.
- On May 8, 2023, after quarter-end, the board increased share repurchase authorization by approximately $189.9 million, to $250 million. The same day it approved a $0.21 quarterly dividend payable June 23, 2023. Future dividends remain at the board’s discretion.
Outlook, risks and other matters
- The filing provides no clear numerical revenue or earnings guidance. Management said existing cash, investments and credit availability should meet financial commitments and operating needs for at least the next 12 months.
- Management highlighted inflation, potential recession and pressure on consumer spending; fashion-trend and competition risks; inventory and supply-chain challenges; reliance on overseas independent manufacturers; foreign-exchange exposure; cybersecurity; and international, trade and tax risks. It cautioned that it may not be able to offset future cost increases.
- Contractual obligations totaled $465.6 million, including $287.9 million of purchase obligations, $144.4 million of operating lease payments, $21.6 million of minimum royalty and advertising payments, and $11.7 million of transition tax. The filing also reports $1.145 million of long-term taxes payable for which payment timing could not be reliably estimated.
- Legal proceedings are described as arising in the ordinary course; management does not expect them to materially affect financial condition, results or liquidity. A $1.153 million B.B. Dakota contingent payment liability is expected to be paid later in 2023.
- Foreign-exchange forward contracts had $77.1 million notional value. A hypothetical 10% currency move was estimated to change the derivatives portfolio’s fair value by approximately $9.9 million. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether wholesale demand, markdowns and direct-to-consumer promotional and operating costs improve after the reported revenue and profit declines.
- How inventory levels, turnover (4.9 times versus 5.9 times a year earlier) and receivable collection days (64 versus 71) develop.
- Whether operating cash flow and liquidity remain adequate while the company funds buybacks, dividends, lease commitments and purchase obligations.
- The impact and terms of the April 3, 2023 credit-agreement amendment and new CIT receivables-purchasing arrangement, and the May 8 repurchase-authorization increase.
- How foreign-currency exposure, inflation, consumer demand and the disclosed tax and legal contingencies affect future results.