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Steven Madden (SHOO) Marches Ahead of Industry: Here's Why


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Steve Madden Ltd SHOO , which recently announced three for two stock split, has outpaced the industry in the past six months. This Zacks Rank #3 (Hold) stock has gained 29.9% in the said time frame compared with the industry 's growth of 23.8%. Apart from psotive earnings and sales surprise streak, the stock gained on account strong performance in the wholesale and international businesses, and impressive product portfolio.



The strong performance in the second quarter of 2018 was mainly driven by stellar growth for its flagship Steve Madden brand. The brand not only witnessed robust growth in the wholesale channel in domestic and international markets, but also registered comps growth in the retail channel.

Catalysts

Steve Madden remains focused on expanding its business globally. Notably, the company's international business reported 24% improvement in the second quarter, with the flagship brand registering more than 30% growth. The company's directly-owned subsidiaries in Canada and Mexico, SM Europe JV, along with the distributor business posted strong results. Steven Madden expects international business to sustain its momentum in 2018 on strategic investments.

Steven Madden's wholesale business has been a key driver for its earnings in recent quarters. After increasing 5.8% in the first quarter, net sales for the wholesale business rose 5.2%, reflecting gains in both the wholesale footwear and wholesale accessories businesses. Wholesale footwear net sales jumped 5.9%, while wholesale accessories net sales increased 2.6%.

The private label handbags mainly aided sales of the wholesale accessories category. Further, the company is witnessing solid trends at the Steve Madden handbag and special make up businesses. Management expects the wholesale accessories business to maintain the momentum, courtesy of strength in Steve Madden and private label handbag businesses coupled with the addition of Anne Klein handbags.

Bottom Line

However, Steven Madden is witnessing a rise in cost of goods sold and operating expenses that may weigh on its margins. Operating margin has been contracting for quite some time now. Additionally, imposition of tariffs on additional consumer goods such as shoes, handbags and others imported from China, owing to US-China trade war, are likely to undermine business prospects of Steven Madden.

All said, while soft margins and higher expenses remain a concern, Steven Madden's sturdy performance in wholesale business provides visibility into the future. This is further supported by the company's long-term earnings growth rate of 10.7% and a VGM Score of A.

Stocks to Consider

Rocky Brands, Inc. RCKY delivered an average positive earnings surprise of 56.3% in the trailing four quarters. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Deckers Outdoor Corporation DECK has a long-term earnings growth rate of 12% and a Zacks Rank #2 (Buy).

Carter's, Inc. CRI has a long-term earnings growth rate of 9.3% and a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Stocks
Referenced Symbols: CRI , SHOO , DECK , RCKY



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