Steven Madden, Ltd. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with Q1 2019 unless noted. Amounts below are in U.S. dollars; financial figures are rounded to millions where appropriate.
Business context and results
The company designs, sources, markets and sells footwear, apparel, handbags and accessories through wholesale, retail, first-cost and licensing businesses. COVID-19 disruptions began during the quarter: the company closed all U.S. stores and most stores globally in March. The period also includes the acquired GREATS and BB Dakota businesses.
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $359.2 million | $415.8 million |
| Gross profit / margin | $133.5 million / 37.2% | $161.8 million / 38.9% |
| Operating expenses | $150.2 million | $117.2 million |
| Operating loss | $26.2 million | Operating income $44.7 million |
| Net income (loss) attributable to Steven Madden | $(17.5) million | $34.5 million |
| Diluted EPS | $(0.22) | $0.41 |
| Cash used in operating activities | $39.6 million | $15.8 million |
Financial position and liquidity
- Cash and cash equivalents were $211.1 million at March 31, 2020; marketable securities were $34.3 million. Combined cash, equivalents and securities were $245.4 million, down from $304.6 million at December 31, 2019.
- Working capital was $408.1 million. The company reported $29.1 million of net borrowings under its receivables factoring facility and no long-term debt. The facility was increased from $30 million to $50 million effective May 6, 2020.
- Total assets were $1.146 billion and total stockholders’ equity was $773.6 million at quarter-end. Cash declined by $53.0 million during the quarter.
- Financing cash outflows included $29.1 million of share repurchases and $12.5 million of dividends, partly offset by net factor advances. The company suspended repurchases and future quarterly dividends in late March.
Material changes and segment performance
- Total revenue fell 13.6%; management attributed declines across wholesale footwear, wholesale accessories/apparel and retail largely to COVID-19 and late-quarter order cancellations. Gross margin fell 1.7 percentage points, with inventory-related reserves cited as a factor.
- Wholesale footwear revenue declined 15.0% to $235.1 million; segment operating income fell to $29.1 million from $48.3 million.
- Wholesale accessories/apparel revenue declined 5.4% to $67.7 million; the segment moved to a $10.6 million operating loss, including $9.1 million of trademark impairment.
- Retail revenue declined 15.8% to $52.9 million, and the operating loss widened to $45.8 million. Store closures in the second half of March contributed to lower sales; the company had 224 stores at quarter-end and did not report comparable-store sales for the quarter.
- Operating expenses rose 28.2%, reflecting retail lease and store-asset impairments, trademark impairments, lower-sales deleverage and the inclusion of acquired businesses.
Outlook, risks and unusual items
- The company provided no specific revenue or earnings guidance in the supplied filing text. Management stated that current financial resources and facility availability were expected to cover financial commitments and operating needs for at least the next 12 months; this depends on assumptions amid substantial COVID-19 uncertainty.
- COVID-19 prompted store and office closures, significant employee furloughs effective April 1, salary reductions, expense and capital-spending cuts, and scaled-back planned inventory purchases. Management said the pandemic had materially affected and could continue to affect results, financial position and cash flow.
- Impairment charges included $9.5 million on certain trademarks and $28.8 million on retail lease right-of-use and store fixed assets. No goodwill impairment was recorded. Further impairment could result if sales, cash-flow or market-rent assumptions deteriorate.
- Operating cash use reflected the net loss and cash outflows from accounts payable and accrued expenses; wholesale customer efforts to preserve cash also extended average collection time to 72 days from 66 days.
- Contractual obligations totaled $270.4 million, including $178.5 million of operating lease payments, $63.1 million of purchase obligations and $12.4 million of minimum royalty and advertising payments. Management said ordinary-course legal matters were not expected to have a material effect.
- The company expected favorable cash-flow effects from CARES Act employee-retention credits, payroll-tax deferrals and accelerated depreciation, but did not quantify them.
Key facts for investors to verify
- Subsequent quarterly filings: store reopening pace, sales recovery, wholesale cancellations and the continuing impact of COVID-19 on liquidity and cash flow.
- Whether the expanded $50 million factoring facility is sufficient and how much is drawn; also monitor receivable collection days and customer credit conditions.
- Inventory reserves, purchase obligations and any further trademark or store-asset impairment charges.
- Whether and when dividends or share repurchases resume; both were suspended as a liquidity precaution.
- Delivery and timing of expected CARES Act benefits, and any changes to management’s stated 12-month liquidity assessment.