Steven Madden, Ltd. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unless otherwise stated, financial amounts are in thousands of dollars. Comparisons are with Q1 2020.
Business context and results
The company designs, sources, markets and sells branded and private-label footwear, handbags, apparel and accessories through wholesale, retail, e-commerce, licensing and other channels. Management reported improvement in retail and wholesale-partner sell-through despite the continuing effects of COVID-19 and supply-chain disruption.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $361,025 | $359,168 |
| Gross profit / margin | $139,104 / 38.5% | $133,464 / 37.2% |
| Operating income (loss) | $28,044 | $(26,248) |
| Net income (loss) attributable to Steven Madden, Ltd. | $21,197 | $(17,451) |
| Diluted earnings (loss) per share | $0.26 | $(0.22) |
| Cash provided by (used in) operations | $5,042 | $(39,609) |
Gross margin improvement reflected a higher retail and e-commerce mix and the absence of certain COVID-related inventory reserves recorded in the prior-year quarter. Inbound freight costs and the non-renewal of the U.S. Generalized System of Preferences (GSP), affecting handbag imports, partly offset the improvement. Operating expenses were $110,448, or 30.6% of revenue, versus $121,373, or 33.8%.
Segments and material changes
- Wholesale Footwear: Revenue fell 7.8% to $216,779 amid pandemic effects and supply-chain disruption. Operating income rose to $44,376 from $41,053, with lower operating expenses as a percentage of revenue.
- Wholesale Accessories/Apparel: Revenue increased 10.3% to $74,621, primarily from branded and private-label handbags. The segment returned to operating income of $7,515 from a loss of $6,479.
- Retail: Revenue rose 27.5% to $67,501, driven by e-commerce strength. The operating loss narrowed to $4,707 from $43,002. Retail gross margin increased to 63.5% from 59.8%; the company ended the quarter with 215 stores versus 227 a year earlier.
- Consolidated revenue was nearly flat, while the company returned to profitability. The prior-year comparison included $28,821 of store and lease-asset impairment and $9,518 of intangible impairment; Q1 2021 included $612 of store and lease-asset impairment and no intangible impairment.
Cash, liquidity, debt and capital resources
At March 31, 2021, cash and cash equivalents were $233,202 and short-term investments were $39,788, totaling $272,990. Working capital was $478,038; total stockholders’ equity was $800,768. The company reported no borrowings or letters of credit under its $150,000 asset-based revolving credit facility, which matures in July 2025. Management said current resources and facility availability should cover financial commitments and operating needs for at least the next 12 months. Approximately 56% of cash, cash equivalents and short-term investments was held in foreign subsidiaries.
Operating cash flow improved from a use of $39,609 to generation of $5,042, mainly due to higher net income and favorable changes in accounts payable and accrued expenses, partly offset by other working-capital changes. Cash declined by $14,662 during the quarter. Financing used $17,792, including $12,425 in dividends and $5,558 for treasury-stock purchases. Capital expenditures were $1,598. The company reported no off-balance-sheet arrangements.
Outlook, risks and unusual items
- The filing provides no specific numerical revenue or earnings guidance. Management cautioned that forward-looking statements are subject to risks and that actual results may differ.
- COVID-19 may continue to materially affect operations, revenue, financial position and cash flow. Other cited risks include supply-chain and delivery disruption, inventory management, fashion trends, competition, international and trade-policy exposure, and foreign-exchange movements.
- Inventory turnover was 7.0 times on a trailing-twelve-month basis versus 8.0 times. Receivable days outstanding increased to 79 from 72, which management attributed to slower collections amid COVID-19 effects and customer mix.
- The company recorded $806 of pre-tax restructuring and related charges in Q1 2021; $607 remained unpaid at quarter-end. It also recognized a $470 expense from remeasurement of acquisition-related contingent consideration.
- Contractual obligations totaled $244,450, including operating leases of $143,748, purchase obligations of $67,492, minimum royalties and advertising of $18,363, and transition tax of $14,847. The company also disclosed $2,295 of long-term taxes payable, principally related to uncertain tax positions, outside that schedule.
- The board reinstated the quarterly dividend and share repurchases during Q1. A $0.15-per-share dividend was declared, payable June 25, 2021. Future dividends remain at the board’s discretion.
- On April 14, 2021, after quarter-end, the company completed its acquisition of the remaining 49.9% interest in its European joint venture for $16,483.
- Management said ordinary-course legal matters were not expected to have a material effect. The company’s CEO and CFO concluded disclosure controls were effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether footwear wholesale demand and supply-chain disruptions improve, and how freight costs and GSP changes affect margins.
- Whether retail and e-commerce growth continues and whether the retail segment can return to operating profitability.
- Cash conversion, receivable collections, inventory turnover and the concentration of liquidity held abroad.
- Performance of the acquired European joint venture and any related integration or contingent-payment effects.
- Capacity to meet lease, purchase and other contractual commitments while sustaining dividends and repurchases.
- COVID-19 developments, foreign-exchange exposure, and any changes in management’s outlook or risk assessments.