August 11, 2017

Steve Madden Ltd. Shoes Just Keep Walking

by Jharonne Martis

Over three decades, shoe designer Steve Madden and his Steve Madden Ltd. (SHOO.O) company have built a global brand, with footwear, handbags and accessories sold in more than 80 countries.

The brand has remained resilient for years, apparently weathering even the current “retail apocalypse” competition from online shopping.

Madden understands that the consumer and retail landscape are changing and has been able to adapt accordingly. Since the recession, consumers have remained value-conscious, influenced by discounts or promotions.

However, shoppers still want to buy the latest fashions. They perceive that the Steve Madden brand offers the hottest shoe trends without the higher price markups from other designers. Madden is stylish and affordable – a strategy that appeals to consumers right now.

The retailer just reported robust Q2 earnings, attributing strength to “outstanding performance in our core Steve Madden Women’s wholesale footwear division, where our trend-right product assortment continues to resonate with consumers and drive market share gains.” (Source: SHOO press release, 8/1/2017)

Madden’s wholesale footwear division is its largest revenue segment — 63% of total sales.

Additionally, consumers are willing and able to pay full price for Madden’s merchandise. The company incorporated a new strategy where it was less promotional than a year ago. It sells online, at department stores/mass merchants and outlet stores.

It offered fewer promotions online and at the full-price stores, and advertised discount offers less. However, there were more promotions at the outlet stores, which helped drive more consumer spending. This strategy helped Steve Madden’s operating profit margin outperform the overall sector (Exhibit 1).

Exhibit 1: Steve Madden’s Operating Profit Margin

Source: Thomson Reuters Eikon

Fashion trends

Compared to other companies in the same price category, Madden is a brand favorite. They get coverage in fashion magazines and social media mentions from reputable fashion blogs giving them free advertisement. For example, the Steve Madden Slinky is currently being sold at full price on their site and in store. The Slinky was a popular platform shoe in the 90s. The style recently made a comeback and fashion magazines such as Allure and Harper’s Bazaar have all featured the shoe. The shoe is also featured at the entrance of the new Times Square store.

Steve Madden has a presence on Amazon and continues to expand internationally, giving it a competitive edge.

It’s a classic, old-school shoe brand name, but it’s thriving while other brand names from the same era are struggling. How does Madden differentiate?

In this retail environment, it’s all about the pricing/fashion combination. That’s where Steve Madden crushes the competition. What’s more, analysts polled by Thomson Reuters StarMine are bullish on the retailer’s strategy. Thomson Reuters projects four more quarter of earnings growth (Exhibit 2).

Exhibit 2: Steve Madden Earnings Growth Rates

Source: Thomson Reuters Eikon

Robust credit

The company’s credit is strong and earnings quality is healthy, suggesting that earnings are coming from sustainable sources, and cash is solid.

Times Square outlet

Madden just opened its largest store, in Times Square, during a time when other companies are closing stores by the hundreds. Let’s look at the pros and cons of this move:

  • Times Square is a tourist destination and currently tourists visiting New York are only spending on the items they feel give them value for their money.
  • Steve Madden is a well-known reputable American brand that resonates well with international shoppers.
  • Timing is in the company’s favor: The U.S. dollar has fallen compared to other currencies. This gives tourists more purchasing power.
  • The US Dollar Index (DXY) which tracks the strength of the US dollar vs. a basket of currencies continues to fall.
  • August marks the beginning of the back to school season, and shoes are a staple for students.

For an interview with retail analyst Jharonne Martis about Steve Madden’s prospects, click here.

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