Steven Madden, Ltd. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unless stated otherwise, amounts are in U.S. dollars; financial figures below are in millions. The company designs, sources and markets branded and private-label footwear, accessories and apparel through wholesale, direct-to-consumer and licensing channels.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $556.6 | $528.7 | $1,651.4 | $1,287.7 |
| Gross profit / margin | $229.5 / 41.2% | $220.0 / 41.6% | $675.1 / 40.9% | $529.2 / 41.1% |
| Operating income / margin | $78.8 / 14.1% | $88.4 / 16.7% | $241.9 / 14.6% | $164.2 / 12.8% |
| Net income attributable to Steven Madden, Ltd. | $61.3 | $66.6 | $184.3 | $124.7 |
| Diluted EPS | $0.79 | $0.82 | $2.35 | $1.53 |
| Operating cash flow | Not presented separately for the quarter | Not presented separately for the quarter | $66.7 | $96.2 |
Q3 revenue rose 5.3%, but attributable net income fell 8.0%. Gross margin contracted 0.4 percentage points and operating margin fell 2.6 points. For the first nine months, revenue grew 28.2% and attributable net income rose 47.8%, while gross margin was down 0.2 points and operating margin increased 1.8 points.
Segments and material changes
- Q3 Wholesale Footwear: Revenue increased 8.7% to $330.8 million; operating income rose to $78.6 million. Branded sales and a more favorable branded mix supported results.
- Q3 Wholesale Accessories/Apparel: Revenue increased 6.2% to $103.9 million, but operating income declined to $9.0 million from $13.3 million, reflecting higher operating expenses, including warehouse and advertising costs and accelerated trademark amortization.
- Q3 Direct-to-Consumer: Revenue decreased 3.7% to $118.5 million, primarily due to e-commerce weakness. Operating income fell to $9.9 million from $22.5 million; promotional activity reduced gross margin, while payroll and digital marketing costs increased.
- First Cost and licensing: Most First Cost customers transitioned to Wholesale during Q3. Licensing revenue increased to $3.5 million from $2.7 million.
- International revenue increased to $107.8 million in Q3 from $68.5 million; domestic revenue declined to $448.9 million from $460.2 million.
Cash, liquidity and obligations
- At September 30, 2022, cash and cash equivalents were $139.2 million and short-term investments were $9.1 million, totaling $148.2 million, versus $263.5 million at December 31, 2021. Approximately 59% of cash, cash equivalents and investments was held by foreign subsidiaries.
- Working capital was $537.2 million. The company reported no borrowings under its $150 million asset-based revolving facility, which matures in July 2025. The facility has a minimum availability requirement; the filing states it has no other financial maintenance covenants.
- Nine-month operating cash flow was $66.7 million, down from $96.2 million, primarily due to unfavorable changes in accounts payable and accrued expenses. Investing activities provided $22.7 million, including net maturities and sales of short-term investments; capital expenditures were $10.1 million. Financing activities used $166.2 million, chiefly $112.1 million of treasury-share purchases and $49.8 million of dividends.
- Total assets were $1,226.2 million and total stockholders’ equity was $851.9 million at September 30. The company reported no conventional cash debt; operating lease liabilities totaled $110.1 million and are separate from borrowings.
- Contractual obligations totaled $356.9 million, including operating leases, purchase obligations, minimum royalty and advertising payments, and transition tax. The company had $503,000 of letters of credit unrelated to the credit facility.
Outlook, commentary and risks
- The company stated that available cash, investments and its revolving facility should meet operating needs and financial commitments over the next 12 months and on a long-term basis. The filing provides no specific revenue or earnings guidance for a future period.
- Management said inflation in raw materials, logistics and payroll had significantly affected Q3 profitability and expected inflationary pressures to continue through 2022; it cautioned that future cost increases may not be fully offset.
- Management cited continuing pandemic-related supply-chain disruption, shipment delays, higher freight costs and factory challenges. Inventory turnover declined to 5.1 times from 7.3 times, which management attributed primarily to longer supply lead times; receivables days increased to 68 from 62.
- Unusual items included a $6.5 million benefit in operating expenses from revaluing contingent consideration, primarily related to the B.B. Dakota acquisition. No goodwill or intangible impairment was recorded in the 2022 annual assessment; no long-lived asset impairment was recorded in the first nine months. Intangible amortization increased to $6.8 million from $2.2 million for the nine-month comparison.
- Principal risks include inflation and potential recession, fashion and demand forecasting, competition, supply-chain and inventory management, reliance on overseas manufacturers, tariffs and trade policy, international-market exposure, cybersecurity, and the ability to sustain financial guidance. Management said pending legal matters are not expected to materially affect financial condition, results or liquidity.
- The board approved a $0.21-per-share quarterly dividend, payable December 30, 2022. Future dividends remain subject to board discretion and business and financial conditions.
Important facts for investors to verify
- Whether Q3’s wholesale-led revenue growth can continue while gross and operating margins recover, particularly in Direct-to-Consumer.
- Inventory aging, sell-through and markdown exposure given lower inventory turnover and ongoing supply-chain delays.
- Cash conversion and working-capital trends, especially the reduction in operating cash flow and the large decline in cash and investments since year-end.
- The sustainability of cost offsets amid freight, raw-material and payroll inflation, and the effects of foreign exchange and promotional activity.
- Near-term funding needs and the terms and availability of the revolving facility, alongside substantial purchase and lease commitments.