Steve Madden Steps Into Summer Eying Sandal Discounts

If you happen to live in the Northeast and Midwest, you're probably still thawing out from a long winter of record cold temperatures and brutal snowstorms.

You're probably also looking forward to the coming summer, when you can shove all of your winter wear in the attic and throw on your sandals and shorts.

If so, here's some good news: You'll probably get those sandals at a steep discount off the regular retail price.

Unusually cold weather in key U.S. markets hurt sales of sandals and other spring items at many retailers, meaning there's a large inventory of these goods that need to be moved off the racks.

One company that makes and sells sandals,Steve Madden ( SHOO ), appears primed to offer promotions on its inventory to make up for poor sales during the first three months of the fiscal year.

Private Label Footwear

Steve Madden specializes in fashion-forward name brand and private label footwear for women, men and children. In addition to shoes, it also designs, makes and sells handbags and other accessories. It operates a wholesale business as well as a retail unit.

A good chunk of the company's business comes from sandals. It sells a wide variety that range in price from around $40 to $140. Normally, sandals sell pretty well in the late winter and early spring as shoppers prepare for warmer weather.

This year, however, the warm weather was a long time coming in many parts of the U.S.

"Due to the prolonged cold weather this year, there is a significant buildup of sandal inventory on the selling floor across the retail space," noted Jane Thorn Leeson, analyst at KeyBanc Capital Markets. "As a result, we expect to see pretty heavy promotional activity in the space during the second quarter."

The prospect of heavy promotional activity led Steve Madden to offer a cautious outlook for the full year.

Following its first-quarter earnings report earlier this month, management reaffirmed its fiscal year 2013 guidance for a net sales increase of 6% to 8% from 2012 and guided earnings in a range of $2.95 to $3.05 a share.

For the most part, analysts remain upbeat about Steve Madden's prospects in coming quarters.

"Though traffic remains challenging and management expects heavier promotional activity in Q2, we continue to see potential upside for the second half of 2013," said Citigroup analyst Kate McShane.

She cited the potential for market share gains for the core Steve Madden brand atMacy's ( M ) department stores.

McShane also cited a "significant expansion" of Superga, a brand of Italian footwear for which Steve Madden serves as the official licensee in North America; as well as "second-half momentum" in shoe brands such as Madden Girl, Report and Betsey.

Steve Madden has seen an uptick in sales of its shoes at Macy's thanks to a merchandising change implemented last year.

The company moved its Steve Madden footwear to the Impulse department at Macy's from its previous position in the Junior department, while continuing to sell its Madden Girl footwear in the Junior department.

"This strategy enabled us to put more elevated Steve Madden product into Macy's and has resulted in significantly higher sell-through rates for both brands," Chief Executive Edward Rosenfeld said on a first-quarter conference call with analysts.

"As a result, we saw double-digit percentage increases in shipping to Macy's for both Steve Madden and Madden Girl footwear in the first quarter," he added.

Those gains aside, Steve Madden still delivered one of its weakest performances in years during its fiscal first quarter.

Sales and earnings both rose in single digits to end a long run of double-digit gains in both categories.

Revenue came in at $278.9 million, up 5% from the prior year but below estimates for $280.9 million. Earnings gained 4% to 52 cents a share, in line with views.

Wholesale Business

Net sales from the wholesale business grew only 2.2% to $233.9 million as strong growth in the wholesale accessories business was partially offset by a modest decline in the wholesale footwear business.

Retail net sales rose 21.7% to $45.1 million during the quarter. Same-store sales increased 3.0%.

Steve Madden's stock price climbed 3% to 49.03 on the day the company reported its Q1 results. Shares fell back some the next two sessions, but later rebounded to touch a record high of 49.76 on May 15.

CEO Rosenfeld sounded particularly optimistic about Steve Madden's growth prospects in international markets, which account for about 8% of total sales.

"We saw rapid growth with our partners in Europe, particularly in the U.K., Netherlands and Germany," he said. "We also had a significant increase in the UAE, where our partner ended the quarter with 23 Steve Madden retail stores, up from 12 at the end of the first quarter last year."

Analyst Leeson notes that management "is currently focused on aggressively expanding in the Middle East and Latin America and remains cautious in Europe. Notably, the inventory buildup in Asia is now gone, and sales have turned back to nice growth."

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

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

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