Business context and reporting period
Steven Madden, Ltd. designs, sources, markets and sells branded and private-label footwear, accessories and apparel through wholesale, retail, first-cost and licensing operations. This Form 10-K reports the fiscal year ended December 31, 2020; amounts below are in millions of dollars unless stated otherwise. The year was materially affected by COVID-19, including store closures, wholesale order cancellations and disruptions to manufacturing.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Total revenue | $1,201.8 | $1,787.2 |
| Gross profit / margin | $464.5 / 38.7% | $686.0 / 38.4% |
| Operating income (loss) | $(31.6) / (2.6%) | $176.8 / 9.9% |
| Net income (loss) attributable to Steven Madden, Ltd. | $(18.4) | $141.3 |
| Diluted earnings (loss) per share | $(0.23) | $1.69 |
| Cash provided by operating activities | $44.2 | $233.8 |
Cash, cash equivalents and short-term investments totaled $287.2 at year-end, including cash and cash equivalents of $247.9 and short-term investments of $39.3. Working capital was $462.3, up from $437.6. The company reported no debt and had a $150 million asset-based revolving credit facility, with no cash borrowings and $0.2 of letters of credit outstanding at year-end. Stockholders’ equity was $790.4. Financing activities used $57.1, including $46.6 of share repurchases and $12.5 of dividends paid.
Segment results
| Segment | FY 2020 revenue | FY 2020 operating income (loss) |
|---|---|---|
| Wholesale Footwear | $713.7 | $47.9 |
| Wholesale Accessories/Apparel | $235.9 | $(17.5) |
| Retail | $239.4 | $(69.2) |
| First Cost | $3.9 | $1.5 |
| Licensing | $9.0 | $5.8 |
Material changes versus the prior period
- Revenue fell 32.8% year over year, with declines in every segment. Wholesale Footwear revenue decreased 35.8%; Accessories/Apparel decreased 29.6%; Retail decreased 25.5%.
- Gross margin edged up to 38.7% from 38.4%, principally reflecting a greater share of higher-margin e-commerce sales. Operating expenses rose to 34.5% of revenue from 28.2%, largely because lower sales reduced expense absorption and COVID-related costs were incurred.
- The company recorded $44.3 of intangible-asset impairment charges and $36.9 of retail lease right-of-use asset and store fixed-asset impairment charges, compared with $4.1 and $1.9, respectively, in 2019. The intangible impairments principally involved the Cejon, Report, GREATS and Jocelyn trademarks.
- Operating cash flow declined to $44.2 from $233.8, reflecting lower earnings and unfavorable working-capital movements, partly offset by lower inventory and receivables.
- Retail ended the year with 218 stores, compared with 227 a year earlier. The company did not report comparable-store sales for 2020 because of pandemic-related closures.
Outlook, risks and unusual items
Management expected COVID-19 to continue to have a significant negative effect on revenue and earnings in 2021; the filing provides no numerical revenue or earnings guidance. Management said it would focus on trend-right products, digital commerce, inventory and expense management. The company expected to open three to five international stores and close two to five locations globally in 2021. It reinstated a quarterly dividend of $0.15 per share in February 2021 and also reinstated its share repurchase program.
- COVID-19 drove temporary store closures, employee furloughs and workforce reductions, salary actions, reduced discretionary spending and capital expenditures, and lease modifications. Restructuring and related charges totaled $7.2.
- Fourth-quarter 2020 revenue was $353.0 and net income attributable to the company was $22.6. The quarter included a $4.2 tax benefit related to CARES Act loss carrybacks, as well as early lease charges and benefits from Payless bankruptcy recovery and contingent-consideration revaluation.
- Key exposures include fashion and consumer-demand shifts, retail customer concentration and credit risk, supply-chain and shipping disruptions, tariffs, foreign exchange, and reliance on overseas manufacturers. China accounted for 78% of 2020 product purchases; Walmart represented 13.9% of revenue. Several customers each accounted for more than 10% of year-end receivables.
- Operating lease obligations were $147.9, including $39.7 due in 2021; total contractual obligations were $247.5. Management stated it expected available resources to meet commitments and operating needs for at least 12 months.
- Management reported pending ordinary-course legal matters and did not expect them to materially affect financial condition, results or liquidity. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; the company reported effective controls.
Important facts for investors to verify
- Whether 2021 trading, store operations and wholesale orders recovered as expected, and how that affected revenue, margins and cash generation.
- Whether impairment assumptions for trademarks and retail-store assets remain supportable, and whether further charges are warranted.
- Customer receivables and credit exposure, particularly concentrations among Walmart, Target, Ross, TJX and Nordstrom.
- China sourcing concentration, manufacturing capacity, shipping conditions and tariff or GSP developments affecting product costs.
- Cash availability, revolving-credit borrowing-base capacity, lease commitments, and the sustainability of resumed dividends and repurchases.