Steven Madden (SHOO) Gains 10% on Q3 Earnings & Revenue Beat
Shares of Steven Madden, Ltd. SHOO have jumped 9.6% during trading hours on Oct 27, following better-than-expected results in third-quarter 2020. Although the coronavirus pandemic continues to hurt the company’s business, the third-quarter results significantly surpassed management’s expectations. Its actions including adjusting merchandise mix, enhancing digital initiatives and managing expense structure have aided it to maneuver the pandemic-induced challenges, and cash in on market opportunities going ahead.
Meanwhile, strength in brands, pristine balance sheet and a robust business model appear encouraging. The company’s Europe business has also been impressive, buoyed by sturdy gains from e-commerce customers Zalando and ASOS. Management did not provide a view for 2020 given the volatility related to the pandemic. However, the company said that the wholesale business will still remain under pressure on adverse impacts of the pandemic. Nonetheless, it anticipates sequential improvement in the fourth quarter on continued recovery in its flagship brand in both footwear and handbags. Fourth-quarter 2020 wholesale revenues are likely to decline in high-teens percentage year over year. For the fourth quarter, operating expenses are projected to fall nearly 10% year over year.
Q3 Earnings and Revenue
Steven Madden delivered adjusted earnings of 39 cents a share, which beat the Zacks Consensus Estimate of 24 cents. However, the bottom line tumbled 41.8% from adjusted earnings of 67 cents reported in the year-ago quarter.
Steven Madden, Ltd. Price, Consensus and EPS Surprise
Total revenues plunged 30.9% year over year to $346.9 million. This takes into account a 31.1% decline in net sales of $342.8 million and decrease of 16.7% in commission and licensing fee income of $4 million. The Zacks Consensus Estimate for total revenues was $328.1 million.
Revenues for the Wholesale business fell 32.7% to $283.8 million, reflecting decrease in wholesale footwear and accessories/apparel revenues. We note that wholesale footwear revenues declined 32.5% to $213.3 million. Wholesale accessories/apparel revenues tumbled 33.3% to $70.5 million.
Retail revenues plunged 22.1% to $59 million, owing to a major decline in the brick-and-mortar business, somewhat offset by a robust e-commerce business. Revenues on stevemadden.com surged 82% versus a 72%-increase in the year-ago quarter. Notably, this marked the company’s second straight quarter of over 80% year-over-year increase in e-commerce. Gains from increased investment in digital marketing and robust consumer reception to capabilities such as try before you buy have been contributing to performance. Further, digital sales grew 63.3% in the quarter.
We note that cost of sales decreased 32.4% to $207 million and operating expenses dropped 14% to $109.9 million in the reported quarter.
Consolidated gross profit tumbled 28.5% year over year to $139.9 million, while gross margin expanded 130 basis points (bps) to 40.3%. We note that gross margin in the wholesale business grew 70 bps to 34.6%, mainly due to growth at wholesale accessories and apparel. Also, retail gross margin expanded 50 bps to 63.8%, mainly buoyed by higher-margin in e-commerce business.
Further, the company reported operating income of $46.2 million, down 36.1% from the same quarter a year ago.
Steven Madden ended the third quarter with 221 company-operated retail outlets, comprising eight internet stores along with 17 company-operated concessions in international markets.
Other Financial Aspects
Steven Madden, which carries a Zacks Rank #3 (Hold), ended the reported quarter with cash, cash equivalents and short-term investments of $257.2 million, and shareholders’ equity of $756.1 million, excluding non-controlling interest of $11.6 million.
Further, the company had no outstanding borrowings. Inventory declined 25.9% to $109.7 million at the end of third quarter. CapEx came in at $5.5 million during the first nine months of 2020.
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