SHOO

Business Context and Reporting Period

Company: STEVEN MADDEN, LTD.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: The Company designs, sources, markets, and retails fashion-forward footwear and accessories for women, men, and children. Operations are conducted through wholesale channels (department stores, specialty stores), retail stores, e-commerce, and licensing agreements. The Company operates in five segments: Wholesale Footwear, Wholesale Accessories, Retail, First Cost, and Licensing.

Key Financial Metrics

Note: All figures in thousands except per share data.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 36.2% for the quarter and 29.6% for the six-month period compared to the same periods in 2009. Growth was driven by double-digit increases in Wholesale Footwear (Madden Girl, Men's, Kids, International) and Wholesale Accessories (driven by recent acquisitions).
• Profitability: Net income surged 62.8% for the quarter and 87.9% for the six-month period. Gross margins improved across segments due to fewer markdowns and a favorable product mix.
• Acquisitions: The Company acquired Big Buddha, Inc. in February 2010 for $11.1 million cash plus contingent consideration, contributing significantly to the Accessories segment. The Zone 88 acquisition from July 2009 also contributed to growth.
• Stock Split: A 3-for-2 stock split was effected in May 2010. All share and per-share data are retroactively adjusted.
• Segment Performance:
  • Wholesale Footwear: Sales up 40.4% (quarter); Operating income up 89.2%.
  • Wholesale Accessories: Sales up 78.8% (quarter); Operating income up 487%.
  • Retail: Same-store sales increased 7.4% (quarter) and 10.7% (six months). Operating income turned positive ($1.95M) from a loss ($0.45M) in the prior year quarter.

Guidance, Outlook, Risks, and Unusual Items

• Outlook: Management believes current cash, cash equivalents, and marketable securities ($163.9M total) are sufficient to meet financial commitments for at least the next twelve months. No specific forward-looking financial guidance was provided in this text.
• Unusual Items:
  • Acquisition Costs: Approximately $430,000 in acquisition-related costs for Big Buddha were incurred in the period.
  • Stock Repurchases: The Company repurchased 141,000 shares for $4.56 million during the six-month period.
• Risks and Contingencies:
  • Legal Proceedings:
  • Lead content lawsuit (Center for Environmental Health): Substance of consent judgment finalized; terms not material.
  • Labor class action (Shahrzad Tahvilian): Accrued $1.0 million; resolution delayed pending discovery.
  • U.S. Customs audit: Dispute regarding dutiable commissions. Reserve of $3.045 million recorded; final determination pending.
• Supply Chain: 99% of products are manufactured overseas, primarily in China. No long-term manufacturing contracts exist.
• Market Risk: Exposure to interest rate risk on $121.1 million of marketable securities.

Investor Verification Checklist

• Acquisition Integration: Verify the financial performance and integration progress of the Big Buddha and Zone 88 acquisitions, which drove significant Accessories growth.
• Inventory Levels: Review inventory turnover (9.9x annualized) and potential exposure to markdowns given the fashion industry's sensitivity to trends.
• Legal Reserves: Monitor the status of the U.S. Customs audit and labor class action lawsuits to assess if the current reserves ($3.045M and $1.0M respectively) remain adequate.
• Debt Facility: Confirm the status of the $30 million credit facility with Rosenthal & Rosenthal, Inc., which currently has no borrowings but is subject to termination.
• Stock Repurchase Program: Track the remaining authorized amount ($47.1 million) and the Company's commitment to returning capital to shareholders.