Steven Madden, Ltd. - Q2 2009 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2009. Steven Madden, Ltd. designs, sources, markets, and retails fashion-forward footwear and accessories. The company operates through Wholesale Footwear, Wholesale Accessories, Retail, First Cost, and Licensing segments. Notable operational changes in 2009 include shifting the international business from a "first cost" to a "wholesale" model and transitioning the Candies business from "wholesale" to "first cost."
Key Financial Metrics
| Metric | Q2 2009 | Q2 2008 | YTD 2009 | YTD 2008 |
|---|---|---|---|---|
| Net Sales | $116.5M | $109.3M | $223.9M | $209.9M |
| Gross Profit | $49.6M | $45.5M | $93.1M | $85.8M |
| Gross Margin | 43% | 42% | 42% | 41% |
| Operating Income | $19.4M | $12.1M | $29.7M | $15.0M |
| Net Income | $12.1M | $7.6M | $18.7M | $9.7M |
| Diluted EPS | $0.66 | $0.43 | $1.03 | $0.51 |
| Cash & Equivalents | $53.3M | $18.8M | $53.3M | $18.8M |
| Total Debt | $0 | $0 | $0 | $0 |
Liquidity: As of June 30, 2009, the company held $111.6M in cash, cash equivalents, and marketable securities. Working capital was $118.0M. The company has no short- or long-term debt.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated net sales increased 7% in Q2 2009 compared to Q2 2008. Wholesale segment sales grew 11%, driven by the Steve Madden Women's and Madden Girl divisions, partially offset by a 5% decline in Retail sales.
- Profitability: Net income surged 59% in Q2 2009. Operating expenses as a percentage of sales decreased to 32% from 34% in the prior year, aided by the absence of a $4.9M executive resignation charge incurred in Q1 2008.
- Segment Performance: The Retail segment returned to profitability in Q2 2009 ($0.5M operating income) compared to a loss in Q2 2008, despite a 5.4% decline in same-store sales. The First Cost segment saw commission income more than double due to the Candies business transition and growth in private label business.
- Balance Sheet: Cash and cash equivalents increased significantly from $18.8M in June 2008 to $53.3M in June 2009. The company fully repaid a $30.2M factoring advance from GMAC in February 2009.
Outlook, Risks, and Unusual Items
- Management Commentary: Management expects to meet financial commitments for the next 12 months based on current liquidity. The company is focusing on operating efficiencies and inventory management.
- Subsequent Events: On July 8, 2009, the company acquired the Zone 88 and Shakedown Street lines from SML Brands, LLC for $1.3M in cash to expand its private label accessories business.
- Legal Proceedings: A class action lawsuit was filed in June 2009 alleging violations of California Labor Laws regarding breaks and overtime. Management believes the impact is currently indeterminable. A customs duty dispute remains with a recorded reserve of approximately $3.0M.
- Risks: The company relies heavily on overseas manufacturing (99% of products), primarily in China. There are no long-term supply contracts, creating potential supply chain risks. Economic conditions and consumer demand remain key uncertainties.
Investor Verification Checklist
- Debt Status: Verify the complete repayment of the GMAC factoring facility and the terms of the new Rosenthal & Rosenthal collection agency agreement ($30M facility).
- Inventory Levels: Confirm the reduction in inventory to $29.0M and the improvement in inventory turnover to 8.6 times, ensuring no hidden obsolescence risks.
- Segment Shifts: Review the impact of reclassifying the Candies business and international sales on year-over-year comparability.
- Legal Reserves: Monitor the status of the California labor class action and the U.S. Customs duty assessment to assess potential liability changes.
- Acquisition Integration: Assess the financial impact of the July 2009 acquisition of SML Brands assets on future quarters.