Business context and reporting period
Steven Madden, Ltd. designs, sources, markets and sells branded and private-label footwear, handbags and accessories, and licenses trademarks. Its five segments are Wholesale Footwear, Wholesale Accessories, Retail, First Cost and Licensing. This Form 10-K covers the fiscal year ended December 31, 2014; fourth-quarter figures are noted separately below. Amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | FY 2014 | FY 2013 | Change |
|---|---|---|---|
| Net sales | $1,334.951 million | $1,314.223 million | +2% |
| Gross profit / margin | $469.000 million / 35.1% | $482.376 million / 36.7% | Margin down 1.6 percentage points |
| Operating income / margin | $167.642 million / 12.6% | $203.768 million / 15.5% | Income down 18% |
| Net income attributable to Steven Madden, Ltd. | $111.880 million | $132.007 million | Down 15% |
| Diluted EPS | $1.76 | $1.98 | Down 11% |
| Cash from operations | $151.975 million | $155.453 million | Down 2% |
Fourth-quarter sales were $342.620 million versus $342.882 million in 2013; attributable net income was $20.993 million versus $35.659 million. Full-year operating expenses rose to $315.081 million from $295.223 million, or 23.6% of sales versus 22.5%. The effective tax rate fell to 34.3% from 36.2%.
At year-end, cash and cash equivalents were $81.450 million and marketable securities totaled $121.644 million, for $203.094 million combined. The filing reports no short- or long-term debt and no borrowings on its $30 million credit facility. Working capital was $264.635 million, down from $342.142 million. Total assets were $911.235 million and stockholders’ equity was $669.529 million. Cash used in investing was $108.911 million, including $81.885 million for acquisitions; financing used $141.889 million, principally reflecting $142.228 million of share repurchases.
Material changes and segment results
- Sales growth was largely acquisition-driven: excluding Dolce Vita, net sales decreased 1%, which management attributed primarily to a lack of fashion trends on which to capitalize.
- Wholesale Footwear sales rose 2.5% to $882.355 million, but operating income fell to $106.290 million from $117.689 million; margin pressure reflected markdown allowances and the Dolce Vita acquisition.
- Wholesale Accessories sales increased 1% to $246.608 million, while operating income declined to $38.773 million from $44.738 million amid lower margins, returns and markdowns.
- Retail sales declined 2% to $205.988 million. Comparable sales fell 8.1%, gross margin decreased to 60.1% from 61.6%, and operating income fell to $8.856 million from $24.726 million.
- First Cost commission income decreased to $6.438 million from $7.988 million; Licensing income decreased slightly to $7.285 million from $7.644 million.
- The company acquired the Brian Atwood intellectual property, Dolce Vita and its Mexican distributor during 2014, and expanded its South African joint venture. Dolce Vita contributed $28.948 million of 2014 sales. The Mexican acquisition closed December 30 and had no material 2014 operating impact.
Outlook, risks and unusual items
Management expected to open eight to ten retail stores and close three to four in 2015. It said it was pursuing improvements to Dolce Vita’s gross and operating profit. The filing provides no clear numerical 2015 earnings or revenue guidance. Backlog was approximately $312 million as of February 1, 2015, versus $295 million a year earlier; management cautioned that backlog comparisons may not predict eventual shipments.
California port slowdowns and stoppages delayed shipments in the fourth quarter, prompting incremental air-freight costs to protect customer orders. Management expected the disruption to affect the first quarter of 2015 as well; a tentative labor agreement was reported on February 20, 2015, with impacts expected to ease if normal port operations resumed. Other key risks include changing fashion trends and consumer demand, retail weakness, customer concentration (Target represented 10.5% of sales), reliance on overseas manufacturers (89% of 2014 purchases came from China), freight and supply-chain disruption, foreign currency exposure, competition, cybersecurity, and dependence on key personnel.
Contractual obligations totaled $471.561 million, including $257.773 million of operating leases and $167.480 million of purchase obligations. A U.S. Customs dispute remained unresolved: the company accrued $1.248 million against an estimated maximum exposure of approximately $1.7 million and had offered $342,000 in compromise. Management said other ordinary-course litigation was not expected to materially affect financial position or results. The 2014 annual goodwill and intangible-asset impairment tests identified no impairment. The company repurchased 4.261 million shares for approximately $142 million during the year; $49.764 million remained available at year-end, and the board authorized an additional $150 million in February 2015.
Important facts for investors to verify
- Whether comparable-store sales and retail profitability stabilize after the 8.1% 2014 decline.
- Whether acquisitions—particularly Dolce Vita and the Mexican business—meet expectations, including contingent earn-out obligations and integration costs.
- The realized effect of port disruptions, expedited freight and any ongoing supply-chain delays on margins and customer orders.
- Whether gross-margin pressure, markdowns and operating-expense growth continue across wholesale and retail segments.
- Cash availability and capital deployment, including foreign-held indefinitely reinvested earnings, lease commitments and future repurchases.
- Resolution and final cost of the U.S. Customs matter, and the implications of customer concentration and China-heavy sourcing.