Business Context and Reporting Period
Company: Steven Madden, Ltd.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended June 30, 1999
Business Overview: The Company designs, markets, and distributes footwear and apparel through wholesale divisions (including the new l.e.i. Wholesale Division), retail stores, and licensing agreements. The Company operates in the United States and sources products primarily from Brazil and Mexico.
Key Financial Metrics
| Metric | Six Months Ended June 30, 1999 |
Six Months Ended June 30, 1998 |
Three Months Ended June 30, 1999 |
Three Months Ended June 30, 1998 |
|---|---|---|---|---|
| Net Sales | $64,787,000 | $35,244,000 | $38,056,000 | $18,733,000 |
| Gross Profit | $27,110,000 | $14,559,000 | $16,168,000 | $7,533,000 |
| Gross Margin % | 42% | 41% | 42% | 40% |
| Operating Income | $6,231,000 | $2,970,000 | $3,951,000 | $1,631,000 |
| Net Income | $3,775,000 | $1,654,000 | $2,364,000 | $881,000 |
| Diluted EPS | $0.31 | $0.16 | $0.19 | $0.08 |
| Cash from Operations | $3,539,000 | ($2,737,000) | N/A | N/A |
| Working Capital | $36,843,000 | $20,315,000 | N/A | N/A |
| Cash & Equivalents | $16,460,000 | $4,297,000 | N/A | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 84% for the six-month period and 103% for the quarter compared to the prior year. Growth was driven by the launch of the l.e.i. Wholesale Division ($11.8M revenue in six months), increased wholesale accounts, and the opening of 17 new retail/outlet stores since late 1998.
- Profitability: Net income increased 128% for the six-month period and 168% for the quarter. Operating income rose 110% (six months) and 142% (quarter).
- Expense Increases: Selling, General, and Administrative (SG&A) expenses rose significantly (70% for six months) due to a 62% increase in payroll/bonuses and a 130% increase in selling/designing/licensing costs to support expansion.
- Segment Performance:
- Retail: Same-store sales increased 22% (six months) and 30% (quarter). E-commerce sales exceeded expectations, with a new partnership with AOL announced.
- Wholesale: The Diva Acquisition Corp. division turned a loss of $165,000 (six months 1998) into a profit of $426,000 (six months 1999) due to improved gross margins.
- Adesso-Madden: Commission revenue decreased due to a shift by J.C. Penney to order directly from l.e.i. Wholesale, though the division expanded into Walmart with the Jordache brand.
Guidance, Outlook, Risks, and Contingencies
- Outlook: Management expects continued growth driven by the l.e.i. Wholesale Division, which is sold in over 2,000 doors. The Company anticipates the Jordache footwear collection (shipping July 1999) will boost Adesso-Madden revenues.
- Liquidity: The Company maintains strong liquidity with $16.5M in cash and $36.8M in working capital. Future lease obligations total approximately $35M through 2010.
- Legal Proceedings:
- Magnum Fashions: A former licensee filed an arbitration claiming fraudulent inducement and seeking damages (amount unstated). The Company denies the claims and has counter-claimed for unpaid royalties.
- Ooga Associated Corp: A lawsuit regarding alleged breach of contract and trade secret misappropriation was suspended by the court but may be revived within one year. The Company contests the claims.
- Year 2000 Compliance: The Company states it became Year 2000 enabled as of July 1999 but notes risks associated with third-party system failures.
- Supply Chain: The Company relies on foreign manufacturers (Brazil, Mexico) but believes alternative sources exist. Transactions are in U.S. currency, mitigating foreign exchange risk.
Investor Verification Checklist
- Verify the sustainability of the 84% year-over-year sales growth, specifically the contribution from the new l.e.i. Wholesale Division.
- Monitor the resolution of the Magnum Fashions arbitration and potential financial impact of the counter-claim.
- Assess the performance of the new Jordache footwear brand at Walmart starting July 1999.
- Review the impact of the AOL partnership on e-commerce conversion rates and revenue.
- Confirm the Company's ability to manage SG&A expenses as they scale with rapid store and wholesale expansion.