Analysts: Betsey Bankruptcy Shouldn’t Impact Madden

Analysts: Betsey Bankruptcy Shouldn’t Impact Madden
Betsey Johnson

Analysts reiterated their buy rating on Steven Madden Ltd Friday after Betsey Johnson LLC filed for Chapter 11 Thursday.

They said the firm’s stock price, which slid 2.5 percent on the news, was under pressure likely because of misinterpretation of Betsey Johnson’s bankruptcy declaration.

Steven Marotta, analyst at CL King & Associates, said, “The financial impact on Madden is minimal. First, royalties generated from Betsey Johnson were nil, as they were not even contractually required until 2013. This was not an unexpected event.”

Madden secured the Betsey Johnson trademark in August 2010 by taking over a $48.8 million loan for just $27.6 million. It also acquired a 10 percent stake in Betsy Johnson LLC and simultaneously licensed the brand back to Betsey Johnson and its private equity sponsors for the retail stores and wholesale apparel.

Castanea Partners holds the remaining 90 percent stake.

“Madden did make a $3 million loan to Betsey back in 2010 that we believe will be partially recouped as Betsey goes through its asset liquidation process. That said, we are less concerned with this potential loss as gaining quick control of the brand was clearly a worthwhile investment,” said Camilo Lyon, analyst at Canaccord Genuity.

Oliver Chen, analyst at Citi Investment Research, estimated that the impact to Madden’s overall business from this event is in the low single digits.

“Chapter 11 procedures were prudently evaluated as a possibility when Madden bought the brand and Madden structured the deal accordingly to mitigate risk given an ascribed probability of this occurrence,” he said.

Marotta said the upside for Madden is that it “now has the opportunity to sign a new licensee for Betsey Johnson branded wholesale apparel, a dramatically underpenetrated category based on the size of other categories such as footwear, accessories, fragrance, etc.”

Lyon agreed, saying, “Betsey apparel was over-priced and under-managed relative to its true potential. Madden will act quickly to put in place a new licensee for the apparel business, which should boost wholesale sales significantly [as well as] license income.”

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