Steven Madden Up 29% in Six Months: Will it Scale Higher?

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Steven Madden, Ltd.SHOO is gaining from its robust surprise history as well as strong performance in the wholesale and international businesses. Additionally, the company's focus on enhancing its product portfolio is impressive.

This led to an upsurge in the stock price, which also hovers close to its 52-week high. In the last six months, this NY-based company advanced roughly 29%, outperforming the industry 's 19.6% growth. Additionally, this Zacks Rank #3 (Hold) has gained 5.7% since Jul 31, when it reported robust second-quarter 2018 results.

Notably, the company's top and bottom line beat estimates in the second quarter and also improved year over year. This marked the company's third straight earnings and sales beat. The strong performance in the quarter was mainly driven by stellar growth for its flagship Steve Madden brand. The brand not only witnessed robust growth in the wholesale channel in both domestic and international markets but also registered comps growth in the retail channel.

Further, the company reiterated its full-year sales and earnings projection for 2018. Management continues to project net sales growth of 5-7% for the year. Adjusted EPS is expected to be in the range of $2.60-$2.67, indicating a rise from $2.24 in 2017.

Factors Supporting Steven Madden's Growth

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. Within the wholesale division, the footwear and accessories categories delivered robust sales. 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.

International expansion is another component of its growth strategy. Notably, the company's international business reported 24% improvement in the second quarter, with the flagship brand registering more than 30% growth. Additionally, the company's directly-owned subsidiaries in Canada and Mexico, SM Europe JV as well as the distributor business are performing well. Steven Madden expects international business to sustain momentum in 2018 on strategic investments.

Possible Deterrents

Though the company is reporting strong top- and bottom-line results, it continues to witness margin pressures due to higher cost of sales and operating expenses. Notably, the company has reported operating margin declines in the last four quarters. Further, higher cost of sales dented gross margin in the second quarter.

Moreover, the US-China trade tensions may take a toll on the stock if tariffs are levied on additional consumer goods such as shoes, handbags and others imported from China. Management highlighted that retail prices may increase by 3.5% to offset additional 10% duty.

Bottom Line

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.

Let Your Portfolio Experience Growth: Three Stocks to Buy

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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.

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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