Steven Madden, Ltd. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The company designs, sources and markets branded and private-label footwear, accessories and apparel through wholesale, direct-to-consumer, licensing and other channels. Unless noted, dollar amounts below are in millions.
Financial results
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Total revenue | $535.0 | $397.9 | $1,094.7 | $758.9 |
| Gross profit / margin | $217.8 / 40.7% | $170.1 / 42.7% | $445.7 / 40.7% | $309.2 / 40.7% |
| Operating income / margin | $65.2 / 12.2% | $47.7 / 12.0% | $163.1 / 14.9% | $75.8 / 10.0% |
| Net income attributable to Steven Madden | $48.5 | $36.9 | $123.0 | $58.0 |
| Diluted EPS | $0.62 | $0.45 | $1.55 | $0.71 |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $40.3 | $91.9 |
- Q2 revenue rose 34.5%; first-half revenue rose 44.2%. Growth was led by wholesale footwear and accessories/apparel, with first-half direct-to-consumer revenue also higher.
- Q2 gross margin declined 2.0 percentage points, mainly because revenue mix shifted toward lower-margin wholesale. First-half gross margin was flat year over year.
- Q2 operating margin improved modestly; first-half operating margin rose substantially. Expense leverage and a $5.0 million benefit from revaluing contingent consideration helped, partly offset by accelerated trademark amortization.
- Q2 effective tax rate was 23.5%, versus 20.5%; first-half rate was 23.7%, versus 20.4%. The company attributed the increases mainly to a smaller discrete tax benefit from share-based awards and the mix of profits by jurisdiction.
Liquidity, cash flow and capital allocation
- At June 30, cash and cash equivalents were $150.9 million and short-term investments were $29.6 million, totaling $180.5 million. Working capital was $526.8 million; total stockholders’ equity was $843.3 million.
- The company reported no borrowings under its $150 million asset-based revolving facility, which matures in July 2025. It had $503,000 of letters of credit outstanding outside that facility.
- First-half operating cash flow fell to $40.3 million from $91.9 million, principally due to unfavorable changes in accounts payable and accrued expenses and inventory, partly offset by higher net income. Inventory was $306.5 million, up from $125.5 million a year earlier; management linked lower inventory turnover (5.2 times versus 7.9 times) to longer supply-chain lead times.
- First-half investing cash flow was positive $7.6 million. Financing cash outflow was $114.8 million, including $77.0 million of share repurchases and $33.4 million of dividends paid. The company declared a $0.21-per-share quarterly dividend payable September 26, 2022, subject to shareholder eligibility.
- Management said available liquidity and the credit facility should meet operating and financial needs over the next twelve months and long term. Approximately 52% of cash, equivalents and short-term investments were held by foreign subsidiaries.
Material changes and management commentary
- Wholesale footwear revenue rose 47.1% in Q2; operating income increased to $60.0 million. Management cited higher sales and strong full-price sell-through, including at Dolce Vita.
- Wholesale accessories/apparel revenue increased 65.2% in Q2 and the segment returned to operating profit of $5.1 million from a $5.4 million loss. Margin was pressured by the non-renewal of the Generalized System of Preferences.
- Direct-to-consumer Q2 revenue increased 2.2%, but operating income declined to $20.5 million from $25.8 million. Higher salaries, rent and marketing investment contributed; gross margin improved to 66.4%.
- COVID-related supply-chain disruption, shipment delays, and inflation in product, wage and freight costs continued. Management expected elevated prices to persist through 2022 and cautioned that cost increases may not be fully offset by pricing, supplier negotiations or efficiencies.
Outlook, risks and contingencies
- The filing does not provide a clear numerical revenue or earnings forecast. Management’s liquidity assessment is not earnings guidance.
- Key stated risks include recessionary or other macroeconomic shifts, changing fashion demand, competition, supply-chain and logistics disruption, inventory management, inflation, tariffs and international-market risks, cybersecurity, taxes, and the ability to integrate acquisitions and execute growth plans.
- Contractual obligations totaled $370.1 million, including $230.1 million of purchase obligations, $117.1 million of operating lease payments, $9.6 million of minimum royalty and advertising payments, and $13.3 million of transition tax.
- Management said ordinary-course legal matters were not expected to materially affect financial condition, results or liquidity. The company recorded no long-lived asset impairment in first-half 2022. A $5.0 million reduction in contingent-consideration valuation benefited operating expenses; $2.0 million remained payable for the B.B. Dakota earn-out.
Important facts for investors to verify
- Whether inventory growth and slower turnover reflect temporary supply delays or create markdown and working-capital risk.
- Whether inflation, freight costs and wholesale-heavy sales mix continue to pressure gross margins.
- Whether direct-to-consumer profitability improves as store, wage and brand-marketing costs rise.
- Whether operating cash generation recovers and repurchases and dividends remain appropriate given cash use and contractual commitments.
- Whether the contingent-consideration benefit and accelerated trademark amortization affect comparability of operating results.