Steven Madden, Ltd. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Steven Madden designs, sources and markets branded and private-label footwear, accessories and apparel through wholesale, retail, e-commerce and licensing channels. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $559.7 | $361.0 |
| Gross profit / margin | $227.9 / 40.7% | $139.1 / 38.5% |
| Operating income / margin | $97.9 / 17.5% | $28.0 / 7.8% |
| Net income attributable to Steven Madden | $74.5 | $21.2 |
| Diluted EPS | $0.94 | $0.26 |
| Operating cash flow | $(19.4) | $5.0 |
- Revenue increased 55.0%; net income attributable to the company rose to $74.5 million. Gross margin improved 2.2 percentage points and operating margin rose 9.7 points.
- Wholesale Footwear revenue grew 59.9% to $346.7 million; operating margin increased to 27.1% from 20.5%, reflecting stronger full-price sell-through and brand mix.
- Wholesale Accessories/Apparel revenue increased 37.1% to $102.3 million, but gross margin fell to 23.4% from 27.3% amid markdowns and freight pressure.
- Direct-to-Consumer revenue grew 60.5% to $108.3 million; comparable store sales rose 54.3%. The segment returned to operating profit of $12.3 million from a $4.7 million loss.
- Cash, cash equivalents and short-term investments totaled $180.2 million at quarter-end. The company reported no borrowings under its $150 million revolving facility and no debt; working capital was $522.8 million.
- Operating cash flow was negative, primarily due to unfavorable changes in accounts payable and accrued expenses, partly offset by higher earnings and lower inventory during the quarter. Investing cash flow was $29.2 million, including proceeds from investment maturities and sales; financing cash outflow was $58.9 million, mainly share repurchases and dividends.
Material changes and unusual items
- Inventory was $233.4 million, versus $106.6 million a year earlier. Trailing-twelve-month inventory turnover declined to 5.9x from 7.0x, which management attributed mainly to longer supply-chain lead times and greater Direct-to-Consumer penetration.
- Operating expenses included a $4.9 million benefit from a reduced valuation of contingent consideration related to B.B. Dakota. The prior-year quarter included $0.6 million of store-asset impairment charges.
- The effective tax rate increased to 23.8% from 20.3%, primarily due to the expected mix of profits and losses across tax jurisdictions.
- The company repurchased approximately $38.5 million of shares under its buyback program and paid $16.8 million in dividends. It declared a $0.21-per-share quarterly dividend payable in June 2022.
Outlook, risks and contingencies
- The filing provides no specific revenue or earnings guidance. Management said it expected to meet financial commitments and operating needs over the next twelve months and long term, based on its financial position and available liquidity.
- Management reported continuing supply-chain disruption, shipment delays, and higher freight, raw-material and wage costs; elevated prices were expected to continue through 2022. The company cautioned that it may not be able to offset future cost increases.
- Key risks include fashion and consumer-demand uncertainty, competition, supply-chain and logistics disruptions, inventory management, reliance on overseas manufacturers, tariffs, international-market risks, and the effects of COVID-19.
- Contractual obligations totaled $372.2 million, including $229.6 million of purchase obligations, $117.4 million of lease obligations and $11.9 million of minimum royalty and advertising payments. Management considered pending ordinary-course lawsuits not expected to have a material effect. The filing reported $504,000 in letters of credit unrelated to the credit facility.
Important facts for investors to verify
- Whether elevated inventory, longer lead times and freight costs affect subsequent sales, markdowns and margins.
- Whether strong wholesale and Direct-to-Consumer growth and the improvement in operating margins continue beyond Q1.
- The causes and sustainability of negative operating cash flow, particularly changes in payables and accrued expenses.
- How much liquidity is available after purchase obligations, buybacks, dividends and other commitments; approximately 56% of cash and short-term investments was held in foreign subsidiaries.
- Future guidance and any material updates to supply-chain, inflation, litigation or other risk disclosures; the filing cautions that quarterly results are not necessarily indicative of full-year results.