The trade war between the United States and China has already taken a toll on businesses — with Steve Madden Ltd. becoming the latest retailer to note a potential impact on profits.
The footwear and accessories maker posted second-quarter results today, delivering revenues of $445 million, a 12% increase over the comparable period and well above consensus bets of $420.4 million. Its profits were also better than the expected 43 cents, with a 12.2% jump to $39.5 million, or 47 cents per diluted share on an adjusted basis.
While the company remains on track to hit its sales and EPS outlook, it is also keeping a close eye on “an estimated incremental headwind of approximately 5 cents per share related to the increase in the tariff on list three products from China,” said chairman and CEO Ed Rosenfeld.
In mid-May, President Donald Trump not only ordered a tariff increase from 10% to 25% on $200 billion worth of Chinese imports (the third tranche of tariffs), but also threatened to hike levies on another $300 billion worth of products. Beijing retaliated with duties of 5% to 25% on $60 billion in U.S. goods.
The proposed 25% levy on the fourth tranche of tariffs — which would have impacted footwear, apparel and other accessories — was suspended at the end of June. However, as trade negotiations continue between the U.S. and China, retailers including Steve Madden have already begun rethinking their production strategies — with Vietnam and Mexico among the countries emerging as popular alternatives for sourcing.
“We had a little bit of a head start because we have a viable operation in León, Mexico, that’s producing shoes for us [as well as] production in Brazil and Vietnam,” COO of Steve Madden’s buying agent, Adesso Madden Inc., Cherie Blum said at last week’s Footwear Distributors and Retailers of America’s Sourcing and Sustainability Summit. “It’s a matter of looking at our total business and determining what product types make the most sense to move.”
The firm has already warned of the possibility of raising prices in response to increased costs within its supply chain, with designer Steve Madden adding in his speech at the 2019 ACE Awards last month that “tariffs hurt everybody — they hurt employees, manufacturers, retailers. Most of all, they hurt consumers.”
Despite the anticipated headwinds, Steve Madden is still poised for a sales gain of 5% to 7% for the fiscal year and an adjusted diluted EPS in the range of $1.78 to $1.86 — driven by its flagship brand as well as growth in the wholesale footwear and accessories businesses in both domestic and international markets. (Revenues for the wholesale arm climbed 13.1% to $363.5 million in the second quarter.)
“Based on the strength of our brands and our business model — combined with our consistency in delivering on-trend product that resonates with consumers — we are confident that we can continue to drive sales and earnings growth and create value for shareholders over the long term,” Rosenfeld said.
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