Benzinga  Nov 29  Comment 
Many investors with exposure to apparel, shoewear, and fashion stocks have reason to be concerned moving forward, but at least one analyst is confident in recommending owning Steven Madden, Ltd. (NASDAQ: SHOO). The Analyst Buckingham...


Steven Madden, Ltd. (NASDAQ: SHOO) designs, sources, and sells footwear, handbags, and accessories. Though the company is smaller than most of its competitors with only 84 stores across America, eight lines, and just one line overseas [1], it has been expanding, with a 134% net income increase in the first quarter of 2010.[2]

Steven Madden makes its profits by designing, producing and distributing products through its retail stores, its website, and department stores. It also profits from its licensing agreements. The company's wholesale customers consist of department stores and specialty stores, including independent boutiques. Approximately 69% of wholesale revenue is generated from department and specialty stores, including Macy’s, DSW, Nordstrom, Famous Footwear, Dillard’s and Lord & Taylor as well as mid−tier department stores and catalog retailers, including Victoria’s Secret. At the end of 2009, DSW accounted for 14% of wholesale net sales and 11% of net sales. Macy’s accounted for approximately 10% of wholesale net sales and 8% of total net sales in 2009.

Company Overview

Business and Financial Metrics

First Quarter 2010 Results[2]

During the first quarter, Steve Madden's net sales increased 22.5% to $131.6 million. Retail comparable store sales increased 13.6% and operating margin reached 18.9% of sales, compared with operating margin of 9.6% in the same period of 2009. First quarter net income increased 134% to $15.4 million, or $0.55 per diluted share, compared to $6.6 million, in the prior year's first quarter. Steve Madden's gains during the quarter were driven by its existing wholesale footwear divisions as well as contributions from its new license for the Elizabeth and James brand and its recent acquisitions, Madden Zone and Big Buddha.

Business Segments

Wholesale Footwear Segment (52% of net sales)

Steve Madden Women’s Division (29% of net sales)

The Women's Division designs, sources and markets the Steve Madden brand to major department stores, mid−tier department stores, specialty stores and independently owned boutiques throughout the United States. To serve its customers (primarily women ages 16 to 35), Madden Women’s creates and markets fashion forward footwear designed to appeal to customers seeking exciting, new footwear designs at affordable prices.

Madden Girl Division (12% of net sales)

The Madden Girl Division designs, sources and markets a full collection of directional young women’s shoes. Madden Girl is geared for young women ages 13 to 20 and is an “opening price point” brand that is currently sold at major department stores, mid−tier retailers and specialty stores.

Steve Madden Men’s Division (8% of net sales)

The Men's Division offers men’s shoes and fashion forward athletic shoes to major department stores, mid−tier department stores, specialty stores and independent shoe stores throughout the United States. Price points range from $70 to $100 at retail, targeted at men ages 20 to 40 years old. Madden Men’s maintains open stock inventory positions in select patterns to serve the replenishment programs of its wholesale customers.

Steven Division (5% of net sales)

The Steven Division designs, sources and markets women’s fashion footwear under the Steven trademark through major department and footwear specialty stores throughout the United States. Priced a tier above the Steve Madden brand, Steven products are designed to appeal principally to fashion conscious women, ages 25 to 45, who shop at department stores and footwear boutiques.

International Division (4% of net sales)

Steve Madden's International Division ships products to China, Canada, Mexico, the United Kingdom, Israel, UAE, Turkey, Australia, Korea, Morocco, and several countries in southeast Asia, Europe and Central and South America.

Elizabeth and James Division (1% of net sales)

In 2008, Steve Madden entered into a license agreement with Dualstar Entertainment Group, LLC, under which Steve Madden have the right to use the Elizabeth and James trademark in connection with the sale and marketing of footwear. The Elizabeth and James brand, which was created by Mary−Kate and Ashley Olsen, is distributed through luxury retailers to women ages 25 to 36 years with average retail price points from $200 to $350 for shoes and from $350 to $500 for boots.

Steve Madden Kids Division (1% of net sales)

Steve Madden Kids Division designs, sources and markets footwear for young girls to department stores, specialty stores and independent boutiques throughout the United States.

Wholesale Accessories Segment (14% of net sales)

The Wholesale Accessories segment designs, sources and markets name brand private label fashion handbags and accessories to major department stores, mid−tier department stores, value price retailers and independent stores throughout the United States.

Retail Segment (25% of net sales)[3]

At the end of 2009, Steven Madden owned and operated 89 retail stores including 84 stores under the Steve Madden name, four under the Steven name and its e−commerce website. In 2009, Steve Madden opened two new stores, closed seven underperforming stores and licensed out three stores. Steve Madden stores are located in major shopping malls and in urban street locations across the United States, primarily focused in New York, California and Florida. In 2009, retail stores generated annual sales in excess of $640 per square foot. Comparative store sales (sales of those stores, including the e−commerce website, that were open for all of 2009 and 2008) increased 1% in fiscal year 2009 compared to fiscal year 2008. The Retail segment generated net sales of $123.7 million for the year ended December 31, 2009, or approximately 25% of total net sales. Steve Madden plans to open one to three new retail stores and close six to nine underperforming stores during 2010.

First Cost Segment

The First Cost segment represents activities of a subsidiary which earns commissions for serving as a buying agent for footwear products under private labels and licensed brands for many of the country’s large mass−market merchandisers, shoe chains and other mid−tier retailers. As a buying agent, Steve Madden utilizes its relationships with shoe manufacturers to facilitate the production of private label shoes to customers’ specifications.

The First Cost segment generated operating income of $16.8 million for the year ended December 31, 2009.

Licensing Segment

Steve Madden licenses Steve Madden trademarks for use in connection with the manufacturing, marketing and sale of cold weather accessories, sunglasses, eyewear, outerwear, bedding, hosiery, women’s fashion apparel and jewelry. Most license agreements require the licensee to pay Steve Madden a royalty based on actual net sales, a minimum royalty in the event that specified net sales targets are not achieved and a percentage of sales for advertising the brand.

Licensing income for the year ended December 31, 2009 was $3.1 million.


In July 2009, Steve Madden acquired certain assets constituting the Zone 88 and Shakedown Street lines of SML Brands, LLC, a subsidiary of Aimee Lynn, Inc, which designs and markets primarily private label accessories, principally handbags, for mass merchants and mid−tier retailers. The acquisition was completed for $1.3 million in cash.

On February 10, 2010, Steve Madden acquired all of the outstanding shares of stock of Big Buddha, Inc. Founded in 2003, Big Buddha designs and markets fashion−forward handbags to specialty retailers and department stores. The acquisition was completed for $11.0 million in cash plus potential earn out payments based on annual financial performance of Big Buddha through March 31, 2013.

On September 2, 2009, Steve Madden expanded its brand portfolio by entering into an additional license agreement with Dualstar Entertainment Group, LLC, under which the company has the right to use the Olsenboye trademark in connection with the sale and marketing of footwear and accessories exclusively to J.C. Penney. The agreement requires the Steve Madden to make royalty and advertising payments equal to a percentage of net sales and a minimum royalty and advertising payment in the event that specified net sales targets are not achieved. The agreement expires on December 31, 2011, but is renewable.

Trends and Forces

Dependence on a limited customer base hurts company revenues

Steven Madden. Ltd. sells the majority of its footwear and accessories through department stores. The main retailers are Macy's Inc. (M) , J.C. Penney (JCP) , Nordstrom (JWN) , DSW (DSW) , Kohl's (KSS) , Famous Footwear, and Dillard's (DDS) . Steve Madden doesn't sell its lines to stores in long-term contracts; 84% of its sales contracts are seasonal, meaning that 84% of its sales are at risk of decreasing every season. [4] Contract renewal depends on the preference and financial state of department stores. When large department stores cut budgets or decide to go with other brands, Steve Madden's revenues fall. [5] Department stores faced difficulties during the credit crunch in 2008: Macy's sales decreased 2%, Lord and Taylor shut down 38% of its stores, and J.C.Penney's sales decreased 0.1%. [6] Thus, these department stores decreased the amount of merchandise purchased from Steven Madden in the wholesale division.

Steve Madden is expanding - for better or worse

Steven Madden, Ltd. continues to expand by adding stores and new lines, both in the U.S. and internationally. For 2009, the company has started building three additional retail stores in the U.S. It also began the development of new lines. In November 2008, SHOO added a bed and bath line available for spring 2009 by signing an agreement with Revman International Inc.[7] Additionally, in August 2008, Kimora Lee Simmons’ KLSI and Phat Fashions teamed with Steven Madden to design and distribute a collection of young women’s footwear, handbags, and accessories. The collection, Fabulosity, will be distributed exclusively to JC Penney retail stores starting in 2009. [8] The company is also growing internationally. Steve Madden acquired Diva International, Inc. in 1994 in order to distribute and sell products around the world.

Though expansion is meant to increase revenues, in the near future it also has the potential to be harmful, especially due to the 2008 Financial Crisis and falling consumer demand. Consumption patterns in the U.S. continue to fall.

The company claims it is rolling out Steven Madden Fix slowly given the current state of the economy. The same trend will occur for the upcoming lines, especially with department stores backed-up inventory. After the 2008 credit crunch, the industry saw 46% of businesses with backed-up inventory. [9] Two of the company's costumers, J.C. Penney (JCP) and Kohl's (KSS), had 17% and 67% excess inventory, respectively, causing up to 70% markdowns off the retail price.[10] These issues, catalyzed by reductions in consumption, make it less likely that distribution contracts with SHOO will be renewed.


The fashion footwear industry is highly competitive, consisting of about 100 manufactures, 1,500 wholesalers, and 30,000 retail outlets with a total retail revenue of $25 billion. [11] Many of the company’s competitors are better is financed and have a great deal of resources. They also offer a broader range of products that go beyond footwear and accessories.

  • Jones Apparel Group (JNY) : $3.8 billion in total revenues. Jones Apparel is a large company that focuses on both apparel and shoes. The division that directly competes with Steven Madden, ltd. is the Nine West, Inc. division.[12]
  • Skechers U.S.A. (SKX) : $1.4 billion in total revenues. Sketchers though very profitable, focuses mainly on athletic footwear with a division in fashion wear. [13]
  • Nike (NKE) : $16.3 billion in total revenues. Nike competes also only in the athletic footwear market. Though it only competes in one aspect, Nike has an advantage when it comes to finances because it is much wealthier. It also controls 31% of the market share of athletic footwear. [14]
  • Guess? (GES) : $135.95 million in total revenues due to diminishing sales. However, in 2008, due to expanding international business with a 61% increase in 2nd quarter revenues in Europe, the company's 3rd quarter total revenues skyrocketed to $515.17 million. Guess? footwear and accessories are direct competitors with Steven Madden, both targeting the same consumer base. [15]
  • Kenneth Cole Productions (KCP) : $510.72 million in total revenues. The company has a broad range of products from apparel to shoes, thus shoes are only a part of its productions. [16]


  1. SHOO March 2008 10-K, Item 1: Business, page 1
  2. 2.0 2.1 Steve Madden Announces First Quarter 2010 Results
  3. Steve Madden 10-K 2009
  4. SHOO March 2008 10-K, Item 1A: Risk Factors, page 11
  5. US: Steven Madden third quarter net down 13%
  6. Macy's Inc.
  7. Steven Madden to sell bed, bath items
  9. Raw Data Report: Department Stores
  10. Raw Data Report: Department Stores
  11. Industry Overview: Footwear Manufacture, Wholesale, and Retail
  12. Apparel Group, Inc.
  13. Sketchers U.S.A, Inc.
  14. Nike, Inc.
  15. Guess?, Inc.
  16. Kenneth Cole Productions
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