Steve Madden CEO Ed Rosenfeld is confident that his company has all the right elements in place to emerge strongly post pandemic.
In a conference call following the company’s first-quarter earnings release, the executive said that Madden plans to capitalize on the strength of its company’s portfolio, accelerate its e-commerce business and further build private-label partnerships with mass retailers.
While it’s clear that the recovery will be uneven — wholesale revenue has trended down about 75% in April and May and retail stores have just started to reopen — market watchers are upbeat about the long-term picture.
“They are better set up for when things improve than I thought they would be,” said Susquehanna Financial analyst Sam Poser. “I think we’re playing a 2021 game. There are so many unknowns and so much inventory in marketplace.” The analyst also cited the strength of the company’s portfolio, particularly the flagship Steve Madden brand and Blondo.
The New York-based company today revealed adjusted first-quarter profits of $13 million, or earnings of 16 cents per share, compared to last year’s income of $35.1 million, or 42 cents per diluted share. Revenues decreased 13.6% to $359.2 million. (Analysts were expecting earnings of 20 cents per share and sales of $356.3 million.)
Rosenfeld reiterated the company’s strong financial position and stepped-up focus on bolstering liquidity. Steve Madden has suspended share repurchases, halted its quarterly cash dividend and drawn down $50 million from its existing credit facility. Like many other companies, it implemented furloughs and pay cuts, as well as reduced nonessential operating expenses, capital expenditures and planned inventory receipts.
Here, in excerpts from the call, Rosenfeld talks about the outlook for fall, the status of store reopenings and why the company is better positioned than its competitors.
The wholesale equation:
“In April and May, wholesale revenue is trending down approximately 75%. The majority of our shipments the last 2 months have been private label products to the mass merchants that have kept their stores open throughout the crisis. Branded wholesale revenue has been modest. We expect it to start to build slightly in June with more meaningful improvement beginning in July.”
“In the U.S., it’s only been a week that we’ve been open, and it’s 15 stores. You’re talking about just a little bit more than 10% of our store base. But so far, the stores are running down about 60% in sales, although the last two days have been considerably better, down about 40%. I caution everybody not to put too much weight on results from 1 week in a little more than 10% of the store base…In terms of geography, the one call out is a store in Orlando. That’s a very big volume door for us. That’s been, by far, our weakest store — probably not surprising given there’s a pretty significant attraction in Orlando (Disney World) that’s not operating and not driving traffic. Our best store has been in Atlanta.”
The inventory issue:
“Anytime you have a season that is essentially stopped in its tracks without warning, you’re going to end up with some excess inventory. The good news is I that we’re likely in a much better position than most vendors, most brands, and that’s a function of our inventory turn. We turn our inventory 8 times a year. In the wholesale channel, it’s actually about 10 times, or even faster than that. So I think that we’re going to have less excess inventory than our peers, and we should be able to work through that and get that in line with sales trends relatively quickly compared to most.”
Predictions for summer and fall:
“I think all the deliveries are going to be pushed back on average about a month. So we — and the retailers — will be looking to extend the spring/summer selling season a little bit before diving into fall. It’s pretty widely understood that retailers are planning fall conservatively and open to buys are down. We have gotten indications from our key retailers that we should do better than our competitors. But again, that means our planned decline is smaller than what they’re seeing. It’s still a decline.
Why staying trend-focused is key:
“Over the last few years, we’ve already been in the trend of increased casualization, and we’ve responded very well to that. And in fact, Steve Madden has grown throughout that period. And the way we did that was by taking fashion sneakers from low single digits as a percentage of sales to about 30% of our sales over the course of a few years. So if that trend continues or if there are other changes in consumer preferences, we’ll evolve the product assortment accordingly.”
How being tied to the mass market is an advantage:
“As we think about the retail landscape going forward, it’s clear that mass merchants and other value-priced retailers are positioned as likely share gainers. Unlike many of our branded peers, we have significant access and exposure to the channel through our private label business. In 2019, we had over $300 million in combined revenue with the two largest mass merchants (Walmart and Target). And we are working closely with each of them to explore opportunities to further expand our relationship as they seek to press their advantage and capture additional market share going forward.
The power of strong brands post-pandemic:
“We think brands will be increasingly important, and we have some of the strongest in our industry, particularly our flagship Steve Madden brand. It had tremendous momentum coming into the crisis, and we’ve continued to see strong demand for the brand and its products during the crisis in the channels that have been open. We are also encouraged by how the brand performed during past economic shocks. During the financial crisis and the years that followed, Steve Madden was a significant outperformer and took meaningful market share…”