Steven Madden, Ltd. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 1, 2023. The filing is an annual report, not a standalone fourth-quarter report. Unless stated otherwise, financial amounts below are in millions of dollars; the filing reports most amounts in thousands.
Business context
The company designs, sources and markets branded and private-label footwear, accessories and apparel through wholesale, direct-to-consumer, first-cost and licensing businesses. Wholesale footwear generated 56.3% of revenue, wholesale accessories/apparel 18.6%, and direct-to-consumer 24.6%. The company operated 232 brick-and-mortar stores, six e-commerce sites and 20 international concessions at year-end. It formed a majority-owned Middle East distribution joint venture in December 2022.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Total revenue | $2,122.0 | $1,866.1 |
| Gross profit / margin | $873.8 / 41.2% | $767.5 / 41.1% |
| Operating income / margin | $281.6 / 13.3% | $243.6 / 13.1% |
| Net income attributable to Steven Madden, Ltd. | $216.1 | $190.7 |
| Diluted EPS | $2.77 | $2.34 |
| Cash provided by operating activities | $267.9 | $159.5 |
Revenue increased 13.7%; net income rose approximately 13.3%. Gross margin edged up 0.1 percentage point and operating margin 0.2 point. Diluted EPS increased despite lower diluted weighted-average shares (78.1 million versus 81.6 million). The effective tax rate rose to 23.1% from 20.5%.
Wholesale footwear revenue grew 16.9%, with operating income of $265.0 million; accessories/apparel revenue grew 14.8%, but segment gross margin declined to 25.4% from 27.5%. Direct-to-consumer revenue grew 6.9%, while operating income fell to $67.6 million from $74.5 million and segment operating margin declined to 13.0% from 15.3%. First-cost commission income declined to $0.9 million from $2.3 million; licensing income was $9.8 million, near the prior year.
At December 31, 2022, cash, cash equivalents and short-term investments totaled $289.8 million, versus $263.5 million a year earlier; working capital was $522.6 million versus $509.5 million. The company reported no borrowings under its $150 million revolving credit facility and total stockholders’ equity of $843.9 million. The facility matures in 2027 and provides additional liquidity subject to borrowing-base availability.
Investing activities provided $5.5 million, primarily reflecting maturities and sales of short-term investments, offset by purchases, $16.4 million of capital expenditures and other investments. Financing activities used $215.8 million, principally for $148.9 million of treasury-stock purchases and $66.0 million of dividends. The annual dividend was $0.84 per share.
Material changes and notable items
- Operating cash flow increased by $108.4 million, supported by higher earnings and favorable working-capital movements, including receivables and inventory; accounts payable and accrued expenses were an offset.
- Inventory declined to $228.8 million from $255.2 million, while inventory turnover slowed to 4.9 times from 6.4 times. Average collection days increased to 72 from 67.
- No impairment charges were recorded in 2022, compared with $2.6 million of intangible impairment and $1.4 million of lease and fixed-asset impairment in 2021.
- 2022 operating expenses included $7.1 million of accelerated amortization of the BB Dakota trademark and a $5.8 million benefit from revaluing contingent consideration. The trademark was fully amortized by year-end.
- The company added 28 stores and closed 10 during 2022; the filing also notes that 12 openings came through the Middle East joint venture.
Outlook, risks and contingencies
The filing provides no specific 2023 revenue or earnings guidance. Management said elevated inflation and cost pressures, including raw-material, labor and freight costs, were expected to continue in 2023. It cited price increases, supplier negotiations, supplier changes and operating efficiencies as mitigation efforts, without assurance these will fully offset future cost increases. Priorities include trend-right products, digital commerce, non-footwear categories, international growth, inventory and expense management, and corporate responsibility initiatives.
Key risks include fashion-trend and discretionary-spending shifts; intense competition and changing retail channels; inventory obsolescence and promotional markdowns; supply-chain, freight and manufacturing disruption; and customer credit exposure. Approximately 78% of 2022 product purchases were sourced from China, and the company has no long-term manufacturing contracts. No customer exceeded 10% of annual revenue, but three customers represented 20.6%, 16.2% and 11.1% of year-end accounts receivable. Wholesale backlog was approximately $500.9 million on February 1, 2023, down from $839.4 million a year earlier; the company cautions that backlog is affected by timing and may not predict eventual shipments.
Other exposures include foreign-exchange movements, tariffs and trade policy, cyber and data-security risks, tax audits and changing tax laws, and dependence on key personnel, including founder and Creative and Design Chief Steven Madden. Ordinary-course litigation includes contractual, employee, distribution, product-liability and intellectual-property matters; management believes any resulting liabilities should not materially affect the company’s financial position, results or liquidity. The filing identifies markdown-allowance estimation as a critical audit matter. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether FY 2023 sales and margins can sustain growth as freight, labor and material costs remain elevated, particularly in accessories/apparel and direct-to-consumer.
- Whether slower inventory turnover and substantially lower reported backlog lead to markdowns, cancellations or weaker future shipments.
- How concentrated receivables and 78% China sourcing affect credit, tariff and supply-chain exposure.
- The cash and earnings effects of capital returns: $66.0 million in 2022 dividends, $129.2 million in program repurchases excluding share withholding, and the remaining $94.4 million repurchase authorization.
- Whether the Middle East joint venture, store expansion and international growth deliver returns sufficient to offset added costs and execution risks.