Steven Madden, Ltd. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Steven Madden designs, sources and markets branded and private-label footwear, accessories and apparel through wholesale, direct-to-consumer and licensing channels. Unless noted otherwise, amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $552.4 million | $463.8 million | +19.1% |
| Gross profit / margin | $224.8 million / 40.7% | $195.1 million / 42.1% | Margin down 1.4 percentage points |
| Operating income / margin | $56.7 million / 10.3% | $46.5 million / 10.0% | Margin up 0.3 percentage points |
| Net income attributable to Steven Madden | $43.9 million | $36.7 million | +19.6% |
| Diluted EPS | $0.60 | $0.48 | +25.0% |
| Cash used in operating activities | $15.7 million | $13.3 million | Use increased $2.4 million |
Net sales were $550.6 million; licensing fee income was $1.8 million. The effective tax rate was 23.6%, versus 24.2%. Operating expenses were $166.4 million, or 30.1% of revenue, compared with 32.0% a year earlier, reflecting expense leverage.
Segments and material changes
- Wholesale Footwear: Revenue rose 4.7% to $295.7 million, driven by private-label growth. Gross margin fell to 36.6% from 38.1%, primarily due to a higher private-label mix; operating income increased to $63.1 million.
- Wholesale Accessories/Apparel: Revenue increased 78.6% to $142.6 million, primarily reflecting the Almost Famous acquisition and strength in Steve Madden handbags. Segment operating income rose to $18.2 million. Gross margin declined to 31.7% from 33.2%, with the acquisition’s impact partly offset by organic margin expansion.
- Direct-to-Consumer: Revenue increased 12.8% to $112.3 million. Gross margin improved to 61.9% from 59.2%, partly due to less promotional activity. The segment posted an operating loss of $2.2 million, narrower than the $4.2 million loss a year earlier, including a $1.7 million intangible impairment charge.
- Licensing: Revenue declined to $1.8 million from $2.1 million; operating income was $1.3 million versus $1.8 million.
The company acquired the Steve Madden and Betsey Johnson hosiery business on March 1, 2024 for $4.3 million. Almost Famous, acquired in October 2023, contributed to the accessories/apparel comparison; management does not quantify its specific share of Q1 revenue growth. A $1.65 million increase in the estimated Almost Famous contingent consideration liability was recorded as expense. The liability totaled $15.0 million at quarter-end, with up to $68.0 million of potential earn-out payments over four years and no minimum payment.
The company recorded a $1.7 million non-cash impairment of the GREATS trademark and changed its estimated useful life from indefinite to 10 years; the remaining $4.45 million balance is to be amortized beginning in Q2 2024. The 2023 comparison included $1.18 million of severance, termination-benefit and corporate-office-relocation expenses.
Cash, liquidity and capital resources
- Cash and cash equivalents were $131.5 million and short-term investments were $11.6 million at March 31, 2024, totaling $143.1 million, down from $219.8 million at December 31, 2023. Approximately 80% of quarter-end cash and short-term investments was held in foreign subsidiaries.
- Working capital was $474.8 million. The company reported no cash borrowings under its $150 million revolving credit facility and stated it had no debt. The facility matures in March 2027 and is subject to borrowing-base availability requirements.
- Operating cash outflow was driven in part by a $60.0 million increase in factor receivables and a $37.2 million decrease in accounts payable and accrued expenses; inventory changes provided $28.4 million of cash. Investing cash outflow was $4.6 million, including the hosiery acquisition and $4.0 million of capital expenditures.
- Financing cash outflow was $52.5 million, including $37.3 million for share repurchases and net settlements of stock awards and $15.4 million of dividends. The company repurchased 773,000 shares under its program at a weighted-average $42.25; $142.8 million remained authorized.
- Total stockholders’ equity was $843.6 million. Operating lease liabilities totaled $142.7 million; these are lease obligations, not revolver borrowings.
Management said it expects available resources and liquidity to meet financial commitments and operating needs for at least the next 12 months. The board approved a $0.21-per-share dividend on April 30, payable June 21, 2024 to holders of record June 10; future dividends remain at the board’s discretion.
Outlook, risks and contingencies
The supplied filing text provides no new numerical revenue or earnings guidance. Management cautioned that forward-looking statements are subject to risks, including geopolitical tensions and macroeconomic conditions, inflation and possible recession, changing consumer demand and fashion trends, competition, supply-chain and logistics disruption, inventory management, tariffs, international-market exposure, cybersecurity, taxes, and integration of acquired businesses. Management noted that inflation and geopolitical events may pressure consumer spending, sales and costs, and that cost increases may not always be offset.
Contractual obligations totaled $446.7 million, including $264.7 million of purchase obligations, $160.6 million of operating lease commitments, $16.5 million of minimum royalty and advertising payments, and $4.9 million of transition tax. The company had $505,000 of letters of credit outstanding unrelated to its credit agreement. Management stated that pending ordinary-course legal matters are not expected to have a material effect. No material changes to previously disclosed risk factors were reported.
Investor verification checklist
- Assess how much accessories/apparel growth came from Almost Famous versus organic demand, and monitor the acquisition’s margins and contingent-payment estimates.
- Track gross-margin trends, particularly the wholesale mix effects, and progress toward profitability in Direct-to-Consumer.
- Review the sustainability of operating cash flow and the movements in factor receivables, payables and inventory.
- Monitor GREATS trademark performance, the revised amortization, and any further impairment indicators.
- Evaluate liquidity availability under the borrowing base, the concentration of cash in foreign subsidiaries, and the company’s substantial purchase and lease commitments.