Steven Madden, Ltd. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts are in millions of dollars unless stated otherwise. Comparisons are with the pandemic-affected 2020 periods.
Business context and performance
The company designs, sources, markets and sells footwear, handbags, apparel and accessories through wholesale, retail and licensing channels. Management reported improving retail performance and wholesale-partner sell-through despite continued pandemic effects and supply-chain disruption.
- Q2 revenue: $397.9, up 178.6% from $142.8. Revenue increased across all segments.
- Q2 profitability: Gross profit was $170.1, or 42.7% of revenue, versus $55.9, or 39.1%. Operating income was $47.7 (12.0% margin), compared with an operating loss of $23.7. Net income attributable to Steven Madden was $36.9, or $0.45 diluted EPS, versus a $16.6 loss, or a $0.21 diluted loss per share.
- First-half revenue and profitability: Revenue was $758.9, up 51.2%. Gross profit was $309.2 (40.7% margin), versus $189.4 (37.7%). Operating income was $75.8, compared with an operating loss of $50.0. Net income attributable to Steven Madden was $58.0, or $0.71 diluted EPS, versus a $34.0 loss, or a $0.43 diluted loss per share.
- Segments, Q2: Wholesale Footwear revenue was $198.1, with $44.2 operating income; Wholesale Accessories/Apparel revenue was $64.0, with a $5.4 operating loss; Retail revenue was $132.7, with $25.8 operating income. Retail growth reflected e-commerce strength and higher store sales. The company ended the quarter with 216 stores, versus 225 a year earlier.
- Cash flow and liquidity: First-half operating cash flow was $91.9, versus $57.9. June 30 cash and cash equivalents were $262.1 and short-term investments were $40.5; management reported total cash and investments of $302.7, working capital of $464.6, and no debt. The $150.0 revolving facility was undrawn, with no letters of credit outstanding.
- Balance sheet and capital returns: Inventory was $125.5, up from $101.4 at year-end 2020; factor receivables were $254.5, versus $252.7 at year-end. First-half share repurchases were $42.8 and dividends paid were $24.8. A $0.15-per-share dividend was declared for payment in September 2021.
Material changes and unusual items
Q2 gross margin benefited from business mix, greater retail contribution and lower promotional activity, partly offset by higher inbound freight costs and the non-renewal of the Generalized System of Preferences affecting handbag imports from Cambodia. First-half margins also benefited from the absence of certain COVID-related inventory reserves recorded in 2020.
Operating expenses included an $8.0 gain from selling an internally developed trademark, partly offset by a $7.4 Q2 increase in the valuation of contingent consideration. The first-half contingent-consideration valuation charge was $7.8. First-half 2021 restructuring charges were $1.2; impairment charges were $1.1, compared with $30.0 of fixed-asset and lease impairments and $9.5 of intangible impairments in the first half of 2020. The company also acquired the remaining ownership interests in its European and South African joint ventures for a combined $19.1.
Outlook, risks and contingencies
- Outlook: The filing gives no specific revenue or earnings guidance. Management said available liquidity should be sufficient for financial commitments and operating needs for at least the next 12 months; the revolving facility provides additional liquidity.
- Business risks: COVID-19 and potential store closures, supply-chain and delivery disruption, freight and other cost pressures, fashion-trend execution, competition, inventory management, overseas manufacturing, tariffs and foreign-exchange movements may affect results. Management cautioned that the pandemic may continue to materially affect the business.
- Commitments: Contractual obligations totaled $214.3, including $138.8 of undiscounted operating lease obligations, $42.8 of purchase obligations, $17.8 of minimum royalties and advertising, and $14.8 of transition tax. The company also reported $17.8 of contingent consideration liabilities and $14.8 of future minimum royalty and advertising payments.
- Other matters: The company has ordinary-course lawsuits; management does not expect them to materially affect financial position or results. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Investor facts to verify
- How much of the sharp year-over-year rebound reflects recovery from the unusually weak 2020 comparison, and how sustainable are current demand and margins?
- Whether freight, sourcing and tariff pressures—or changes to the GSP affecting handbag imports—further constrain gross margins.
- Inventory and factor-receivable trends, including conversion to cash and exposure to customer payment delays.
- The assumptions underlying the $8.0 trademark-sale gain and the contingent-consideration revaluation, and the potential for further adjustments.
- Liquidity location and access: approximately 49% of cash, equivalents and short-term investments was held by foreign subsidiaries; verify any practical limits on availability, as well as revolving-facility borrowing-base availability.