Why Is Steven Madden (SHOO) Down 27% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Steven Madden (SHOO). Shares have lost about 27% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Steven Madden due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Steven Madden Q4 Earnings Meet Estimates, Revenues Lag

Steven Madden came up with its fourth-quarter 2019 results, wherein the bottom line met the Zacks Consensus Estimate, while the top line missed the same. We note that net sales improved year over year but earnings per share came below the prior-year reported figure. Notably, the company witnessed incremental sales at its retail business but registered a decline across its wholesale business.

Looking ahead, management remains concerned about the coronavirus outbreak, China tariffs and the termination of the Kate Spade footwear license. As a result, the company disappointed investors with its 2020 projection.

Q4 Details

Steven Madden delivered adjusted earnings of 39 cents a share that came in line with the Zacks Consensus Estimate, following positive surprises in the preceding eight quarters. We note that the bottom line declined 7.1% from 42 cents reported in the year-ago period, in spite of higher net sales, lower effective tax rate and share repurchase activity. Quite apparently, increase in cost of sales (up 1.3%) and adjusted operating expenses (up 4%) hurt the bottom line.

Total revenues improved 0.7% year over year to $419.6 million. This comprises an increase of 1.1% in net sales of $414.9 million but a decline of 27.3% in commission and licensing fee income of $4.7 million. The Zacks Consensus Estimate for the quarter under review was pegged at $425.2 million.

Revenues for the Wholesale business fell 1.1% to $313.8 million, reflecting decrease in wholesale accessories/apparel revenues.

We note that wholesale footwear revenues declined 0.2% to $233.4 million. Wholesale accessories/apparel revenue tumbled 3.6% to $80.4 million, on account of declines in private label handbags and cold weather accessories, partly offset by the addition of the BB Dakota apparel business.

Retail revenues jumped 8.7% to $101.1 million, while same-store sales increased 6.7% on account of sturdy performance in e-commerce business.

Margins

Adjusted gross profit came in at $158.7 million, almost flat year over year, while adjusted gross margin contracted 30 bps to 37.8%. Adjusted operating income decreased 12.9% to $33 million, while adjusted operating margin shriveled 120 bps to 7.9%.

We note that gross margin in the wholesale business shrunk 90 basis points to 29.2% thanks to the imposition of tariffs on goods imported from China. Meanwhile, adjusted retail gross margin expanded 60 bps to 61.6%, primarily due to lower promotional activity in stevemadden.com.

Store Update

The company ended the reported quarter with 227 company-operated retail outlets, comprising eight Internet stores and 31 company-operated concessions in international markets.

Other Financial Aspects

Steven Madden, which carries a Zacks Rank #4 (Sell), ended the reported quarter with cash and cash equivalents of $264.1 million, marketable securities of $40.5 million, and shareholders’ equity of $828.5 million, excluding non-controlling interest of $12.7 million. During the quarter, the company bought back about 589,809 shares for approximately $25.3 million. Management incurred capital expenditures of approximately $9.1 million during the quarter.

Outlook

Steven Madden envisions revenues for the year 2020 to be flat to up 1% from the prior year. Management expects full-year adjusted earnings in the band of $1.70-$1.80 per share, which is below the current Zacks Consensus Estimate of $2.01. This also suggests year-over-year decline from earnings of $1.95 per share reported in 2019. The projected figure reflects an adverse impact of about 35 cents from the coronavirus, tariffs on goods from China, the termination of the Kate Spade footwear license and a higher anticipated tax rate.

Further, management highlighted that the impact of these headwinds will be largely visible in the first half of 2020. Consequently, Steven Madden expects first half revenue to fall in mid-single digits on a percentage basis and first half earnings per share is expected to decline roughly 25%. Nonetheless, the company anticipates reverting back to growth in both the metrics in the back half.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -22.08% due to these changes.

VGM Scores

At this time, Steven Madden has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Steven Madden has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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