Steve Madden Stays Strong

NEW YORK — Steven Madden Ltd. said last Thursday that Betsey Johnson’s future is bright despite the bankruptcy filing of its retail and apparel licensee last week.

Ed Rosenfeld, CEO of Madden, told analysts on a call that wholesale sales of Betsey Johnson were up more than 50 percent for the quarter.

What the bankruptcy of Betsey Johnson LLC means for Madden, he added, is that “most of the Betsey Johnson retail stores are likely to close and that we will immediately need to find an alternative licensee to do the wholesale apparel, which is something that we’re very far along on and we hope to have wrapped up quickly.”

Rosenfeld said the Chapter 11 filing was unfortunate, but also not totally unexpected.

“Frankly, [it] indicates our original strategy and approach in this deal. When we acquired the Betsey Johnson brand and its related intellectual property back in 2010, we had the [option] to also take over the retail stores for no additional consideration, but we elected not to do that and instead gave the former owner of the brand a license back to operate the retail stores and to do the wholesale apparel line,” he explained. “Our skepticism about this part of the business turned out to be well founded.”

Rosenfeld also acknowledged that he does not expect to entirely recover the $3 million loan Madden made to BJ LLC at the time that it acquired the business and gave them the license. “That is a secured loan. Our security position comes behind that of the bank, and we believe that we will get some of that back, but likely not all,” he said.

Analysts described the impact of BJ LLC on Madden as inconsequential, but said the stock market’s lackluster reaction to Madden’s first-quarter performance was the result of prolonged high expectations for the company.

“They are consistent executors, but it’s now about hitting singles and doubles, not home runs,” said Camilo Lyon, analyst at Canaccord Genuity.

“After a couple years of pretty big changes to the model, which includes acquisitions, they’re at the point where they’re starting to develop and grow those businesses,” he added.

Steven Marotta, analyst at CL King & Associates, agreed: “They’re a little bit a victim of their own success. Expectations are going to be harder to beat now, given their size and their fundamentals.”

But, he added, “This quarter is representative of what’s going forward. I can see a 20 percent earnings-per-share growth every quarter from here to perpetuity.”

Rosenfeld was mostly upbeat on Madden’s international growth opportunities, as the firm saw a more than 50 percent year-over-year sales increase outside the U.S. in the first quarter. It also entered the U.K. via partnerships with The Dune Group, House of Fraser and Topshop, and said “sell-throughs were outstanding.”

Rosenfeld said, “In terms of fastest-growing regions … [it’s] probably Asia, the Middle East and Latin America. Over the long term, Europe is probably the biggest opportunity.”

The recent acquisition of SM Canada also is going smoothly, said the CEO, and Madden expects to soon have 10 stores in Canada. Other countries being tapped shortly include France, Germany, Georgia, Kazakhstan and Belarus.

For the quarter ended March 31, the Long Island City, N.Y.-based firm earned $21.9 million, or 50 cents a share, up 22.5 percent from $17.9 million, or 42 cents, in the same period a year ago. Revenue totaled $266 million, an increase of 60.5 percent from last year. Madden expects 2012 net sales to increase 24 percent to 26 percent over 2011 levels, and EPS to come in between $2.62 and $2.72.

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