Business Context and Reporting Period
Company: STEVEN MADDEN, LTD.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 1999
Business Overview: The Company designs, markets, and distributes footwear and accessories through wholesale divisions (Steven Madden, Diva, l.e.i.) and a retail division. The period saw significant expansion in retail locations and the launch of the l.e.i. wholesale line.
Key Financial Metrics
| Metric | Q1 1999 | Q1 1998 |
|---|---|---|
| Net Sales | $26,731,000 | $16,511,000 |
| Gross Profit | $10,942,000 | $7,026,000 |
| Gross Margin | 41% | 43% |
| Income from Operations | $2,280,000 | $1,339,000 |
| Net Income | $1,411,000 | $773,000 |
| Diluted EPS | $0.12 | $0.08 |
| Cash and Equivalents (End) | $13,556,000 | $3,608,000 |
| Working Capital | $34,521,000 | $18,146,000 (Calculated) |
| Net Cash Used in Operating Activities | ($519,000) | ($1,162,000) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 62% to $26.7 million, driven by the new l.e.i. wholesale division ($5.4M revenue), increased wholesale accounts, and the opening of 16 new retail/outlet stores since the prior year.
- Margin Compression: Gross margin declined from 43% to 41%. Management attributes this to the lower-margin l.e.i. product line mix and a drop in high-margin sneaker sales.
- Expense Increase: Operating expenses rose 45% to $9.4 million. Key drivers included a 47% increase in payroll/bonuses and an 80% increase in selling/designing/licensing costs.
- Profitability: Despite margin pressure, Net Income grew 83% to $1.4 million due to significant top-line growth.
- Cash Flow: Operating cash flow was negative ($519k outflow), primarily due to a $4.9M increase in "Due from factor" (factored receivables) and prepaid expenses, partially offset by a $928k decrease in inventory.
Outlook, Risks, and Management Commentary
- Segment Performance: The l.e.i. division is expanding rapidly into over 2,000 doors. The Retail division saw a 10% increase in same-store sales, driven by wedge sandals and Maryjane styles. The internet site (stevenmadden.com) generated sales equal to 73% of the prior year's total in just one quarter.
- New Partnerships: The Company secured a license agreement with the Jordache organization for mass-market distribution (e.g., Walmart), with shipments expected in June 1999.
- Litigation: Pending lawsuit by Ooga Associated Corp. alleging breach of contract and misappropriation of trade secrets. The Court suspended the action in January 1999; the Company intends to contest vigorously.
- Year 2000 Compliance: The Company is expending approximately $200,000 to ensure computer systems are Y2K compliant, noting potential risks from third-party system failures.
- Liquidity: Working capital increased significantly to $34.5 million. The Company has no long-term manufacturing contracts but relies on foreign suppliers (Brazil, Mexico) and believes alternative sources are available.
Investor Verification Checklist
- Factoring Exposure: Verify the sustainability of the $14.2M "Due from factor" balance and the associated cash flow drag.
- Margin Trends: Monitor if the introduction of lower-priced l.e.i. products continues to compress overall gross margins.
- Retail Expansion ROI: Assess the profitability of the 16 new stores opened recently against the 45% rise in SG&A expenses.
- Litigation Status: Track the status of the Ooga Associated Corp. lawsuit, specifically the one-year window for revival.
- Y2K Readiness: Confirm the completion of the $200k Y2K remediation budget and testing of third-party vendor systems.