Steven Madden Ltd (SHOO) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Steven Madden Ltd.

Conference Call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session, and instructions will follow at that time.

Any reproduction of this call, in whole or in part, is not permitted without prior express written authorization of the Company.

As a reminder, ladies and gentlemen, this conference is being recorded.

I would like to introduce your host for today's conference, Ms.

Cara O'Brien of Financial Dynamics.

Please go ahead.

Thank you, Operator.

Good morning, everyone, and thank you for joining this discussion of Steven Madden, Ltd.

Third Quarter Results.

Before we begin, I'd like to remind you that statements in this conference call that are not statements of historical or current fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements involve known and unknown risks, uncertainties, and other unknown factors that could cause the actual results of the Company to be materially different from their historical results or from any future result expressed or implied by such forward-looking statements.

The statements contained herein are also subject, generally, to other risks and uncertainties that are described from time to time in the Company's reports and registration statements filed with the SEC.

Also, please refer to the Earnings Release for more information on risk factors that could cause actual results to differ.

Finally, please note that any forward-looking statements used in this call should not be relied upon as current after today.

I would now like to turn the call over to Ed Rosenfeld, Chairman and CEO of Steven Madden, Ltd.

Ed?

Thanks, Cara.

Good morning, and thank you for joining us today.

On today's call, I will review the Company's results for the third quarter ended September 30, 2008, and provide an update on our outlook for the remainder of the year.

We are encouraged by our performance in the third quarter, as we continue to build on our momentum from the first half of the year, despite a very difficult economic environment.

In particular, we are pleased to have achieved strong gains in our core Steve Madden Women's and Steven by Steve Madden wholesale segments, and our retail division in Q3, in addition to continuing our strong performance in our Madden Girl and Daniel M.

Freidman segments.

Steve and his design team created exceptional products to capitalize on footwear trends during the quarter, particularly in the boot category.

We recognize the challenges facing the industry.

However, we are very pleased with the strength of our current position in the market in comparison to our peers.

Both our wholesale customers and consumers are responding positively to our assortment in women's and girls' footwear and accessories.

We continue to have a strong product selection, with our merchandise remaining trend right and relevant.

We are confident that Steve Madden can continue to successfully produce merchandise to capitalize on industry trends.

We believe that our business is healthy and well-positioned for the long term.

Now, let's turn to our financial results for the quarter.

Consolidated net sales increased 13% in the quarter to $128.1 million, as strong, trend right product drove double digit percentage gains in both wholesale and retail despite the challenging economic environment.

Gross margin for the quarter was 41.4% versus 41.3% last year, based on a 10 basis point increase in wholesale gross margin, and a retail gross margin that was flat to last year.

We were able to leverage our expense structure against the increasing sales, leading to a 180 basis point decrease in operating expenses as a percent of sales.

The comparison to last year excludes a one-time charge of $1.2 million related to a provision for prior year customs duties from last year's third quarter.

Taking all this together, operating income increased 26% to $17.7 million or 13.8% of sales, compared to $14 million or 12.4% of sales last year, again excluding the one-time charge from last year's figures.

Diluted EPS for the quarter was $0.62 per share on 18 million diluted weighted average shares outstanding, compared to adjusted EPS excluding one time items of $0.42 per share on 21.2 million diluted weighted average shares outstanding in the prior year period.

Now on to the performance of each of our divisions.

I'd like to first talk about our wholesale division, which was comprised of eight segments in the quarter.

Steve Madden Women's, Steven by Steve Madden, Steve Madden Men's, Madden Girl, Candie's, Stevies, Steve Madden's Fix, and Daniel M.

Friedman.

We recorded strong cross-line increases in our core Steve Madden Women's and Steven by Steve Madden wholesale segments in the quarter.

Net sales in Steve Madden Women's increased 16%, to $40.7 million from $35 million in last year's third quarter, while net sales in Steven were up 15% to $4.7 million from $4.1 million a year ago.

Boots were the big fashion driver particularly flat boots, Western-influenced looks, and other casual styles.

Up front foot wear and ballet flats also performed well.

Steve Madden Men's remains challenging.

Net sales in the quarter for men's were $10.8 million versus $15.3 million in the year-ago period.

The decline is primarily due to two factors -- one, the tough retail environment which seems to be having a more acute impact on men's footwear than on women's, and two, our continuing struggles in the sport category.

Madden Girl, on the other hand, continues to be our fastest-growing business.

Net sales were $15.1 million, up 90% from $8 million in the third quarter last year.

Great styling and a strong price value proposition have driven exceptional sell-throughs in this division, which in turn have resulted in increased orders from retailers.

Net sales in Candie's were $4.4 million in the quarter versus $6.9 million a year ago.

However, as we noted on last quarter's call, we have transitioned this division to our Adesso-Madden first cost model.

Taking this into account, the comparison to last year is more favorable when you consider that over $1 million of Candie's business at wholesale was done first cost.

We are pleased to report that our business at Candie's has improved materially with the new team in place.

Sell-throughs are up dramatically and we feel much better about the health of this business.

Net sales in Stevies in Q3 were $2.4 million versus $3.5 million in the prior year's third quarter.

While our kids' business has been a challenge this year, we feel that this division has turned the corner and will return to year-over-year sales growth in Q4.

The last wholesale footwear segment is our newest brand, Steve Madden's Fix, which we continue to roll out slowly given the current retail environment.

Fix had net sales of $700,000 in the quarter.

Moving on to accessories, the Daniel M.

Friedman business was another standout segment in our wholesale division with net sales of $18.4 million in the quarter, up 45% from $12.7 million in last year's third quarter.

Betseyville, Steve Madden, and Steven Handbags all recorded dramatic year-over-year percentage sales gains in Q3.

Taking all of this together, overall net sales for the wholesale division were $97.3 million in the quarter, a 13% increase compared to $86 million a year ago.

Overall wholesale gross margin increased modestly from 36.2% last year to 36.3% this year.

Moving on to our retail division, net sales in the quarter were $30.7 million, up 12% from last year's $27.4 million.

Comp store sales increased 7.8% in the quarter, based on strong performance in boots, booties, and sandals.

Stores open for the full 12 months ended September 30, 2008, generated $644.00 in sales per square foot.

As of September 30, we had 99 stores in operation including our Internet store, and during the quarter we opened two new stores in New York and closed one underperformer in Kansas.

Gross margin in the retail division was flat to last year at 57.4%.

Moving to other income, the company's commission and licensing fee income, net of expenses, increased 4% to $4.5 million in the quarter compared to $4.3 million last year.

Our Adesso-Madden first cost division grew 14% to $4.1 million from $3.6 million in last year's third quarter, due primarily to growth in our international segment.

Licensing income for the quarter was $400,000, versus $800,000 a year ago.

This decrease was due primarily to the discontinuation of our line of dresses.

With respect to the balance sheet, we continue to maintain a pristine balance sheet, with no debt and $56.7 million in cash, cash equivalents, and marketable securities as of the end of the quarter.

Total inventory at the end of Q3 was $40.7 million, and our inventory turn for the last 12 months was 8.1 times.

Accounts Receivable and due from factory were $62.2 million, reflecting an average collection of 53 days.

CapEx for the quarter was $2.6 million and stockholders' equity as of September 30 was $199 million.

Before I turn the call over for your questions, I'd like to quickly review some recent business highlights as well as our outlook for the balance of the year.

In addition to improving performance in our existing segments, we've also continued to expand our brand portfolio signing three key agreements in the past three months.

Importantly, the new agreements have positioned Steve Madden to be marketing merchandise across the retail spectrum, spanning value to luxury.

The first was an exclusive agreement with Kimora Lee Simmons and Kellwood to design, manufacture, market, and distribute a line of footwear and accessories with the Fabulosity brand in JC Penney stores.

First deliveries of this collection will ship to 250 JC Penney doors at the end of December.

We also signed an exclusive agreement with Jones Apparel to design, manufacture and distribute a collection of junior and girls footwear under the l.e.i.

brand.

First deliveries of l.e.i.

products to Wal-Mart will also ship at the end of December.

And finally, we entered into an agreement with Mary Kate and Ashley Olsen's Dualstar Entertainment to create footwear for the Elizabeth and James brand, which will be available at luxury retailers starting in March, 2009.

As you can see, we continue to look toward the future and are implementing initiatives that we feel will strengthen and grow the Company over the long term.

We are very encouraged by results so far this year and believe that we have good momentum going into the fourth quarter.

That said, we are maintaining our prudent approach to managing the business, given the difficult economic environment.

Turning to our guidance for the full year, as we noted in our release, we raised our sales and earnings projections.

Based on trends to date this year and current visibility, we now expect net sales for the year will increase 5% to 6% compared to Fiscal 2007, and diluted EPS will range between $1.65 and $1.70, excluding the impact of the one-time charge resulting from the resignation of the company's former CEO that was recognized in the first quarter.

Including the impact of the one-time charge, earnings per diluted share are now expected to range between $1.49 and $1.54.

We are cautiously optimistic about the remainder of the year, as we continue to see steady improvement across a number of our business segments.

However, we remain cognizant of the ongoing economic turbulence and are keeping close track of how the current macro economy is affecting our customers and consumers.

While we are certainly not immune to the current weakness in the retail environment, we have a very strong balance sheet as well as demand for our product assortment that we believe will enable us to weather the volatility.

Importantly, we are well positioned versus our peers, and have been gaining market share during this economic downturn.

We continue to build a stronger, healthier company that is able to continue to generate long term growth and value for our shareholders.

And now, I'd be happy to answer any questions you may have.

(Operator Instructions) Your first question comes from Scott Krasik.

Hey Ed, how you doing?

Hey, Scott.

Talk about the trends, maybe beginning in the middle of September and if you can, how they've continued through October with your wholesale partners as well as in your own retail stores?

Well, certainly we felt the impact of what's been going on in the economy, and certainly after the financial crisis worsened, we did see an impact both in our own retail stores and in our wholesale partners.

That being said, because of our exceptional merchandise right now and the great product that Steve and his team have created, we're still outperforming our competitors.

We still are seeing sell-throughs in the wholesale customers for instance, that exceed what we were achieving last year, and our wholesale partners tell us that we are leading the pack in terms of sell-through.

But, nobody's immune to what's happened, and we certainly have seen an impact on the business.

Have your comps stayed positive through October in retail?

We're-- quarter-to-date, we're flat.

Okay.

That's not bad.

And then maybe talk about obviously you got a big boost from having boots early.

Now that there's a lot of boots on the floor and you figure department stores are going to get more aggressive with pricing, what do you have sort of in terms of the deliveries now that continue to distinguish Madden and continue to perform?

Well, to date it's really been the casual boots that have been driving the business.

The flat boots, the Western-inspired looks, have been very strong for us.

But really, what we're seeing just now is deliveries, new deliveries of dress boots, which are starting to really perform.

So, I think that's going to carry us through the end of the season as well as continuing with new casual styles.

Is that more unique, are you on that earlier then, because it seems like most people are now on flats and casual.

Yes.

We believe so.

Okay, great.

And then, can you talk about where your inventory is?

It's up about 12% year-over-year?

Yes.

It's up about 12%, but the sales for fourth quarter certainly support that.

In fact, you'll see that the guidance implies 12% to 16% sales growth in Q4.

Okay.

And then just -- I missed the numbers for Steve Madden Men, what was the sales numbers there?

Men's, $10.8 million this quarter versus $15.3 million a year ago.

And then it seemed like you started to get a little bit of momentum, you sold some shoes into customers that hadn't before, or hadn't taken in a while.

Any progress there?

Yes, I think we're seeing some glimmers of hope there.

It's very tough, now.

There's very few companies doing well in men's right now.

The men's business, overall, in fashion, is very tough.

But we've talked about the new designer that we brought on to revitalize our sport looks, and we do feel that he's making some progress.

And in fact, on the strength of the product that he developed, we've gotten back into some accounts, what we call the middle of the mall accounts, that we have not been in, in some time.

And so as of February, we're going to be in 350 Journeys, 125 Underground Stations, and in a test with Finish Line in 25 doors with men's.

Those are all accounts that we were basically not in, in 2008, specialty retailers, and that's-- we got back in there because they see something they like in our casual styles.

Great.

Great.

Thanks.

Our next question comes from the line of Jeff Van Sinderen.

Good morning, Ed.

Wanted to see if you maybe can talk a little bit more about what's driving the Madden Girl business.

Yes, I think it's -- it's -- we're in a sweet spot there.

We've got great styling at an opening price point, and they've done a fantastic job with the product.

But, it's also the price-value proposition that we're offering, there.

This is really great fashion that the key price point here is really a $40.00 footwear, and I think in this -- in these challenging economic times, if you can get great styling at that price, that's something that's very compelling to the consumer right now.

Absolutely.

And then I wonder if you can talk a little bit more about what you're hearing from some of your department store accounts, in terms of their open to buys, and then maybe how that plays in with -- it seems like retailers are wanting to buy closer to season, not so much ahead of schedule, and I know you guys typically sell close to season anyway.

So, I'm wondering if that helps you, and then also, I guess just generally how you see kind of what they're doing with open to buys impacting your business and the outlook going forward.

Well, certainly, as they-- you're right, they're moving to buying less up front and reserving more open to buy later in season.

And that really, again, plays into our strength, that's how we have always liked to operate our business.

So, we think that is actually beneficial to Steve Madden.

You're right, they are trying to be conservative with inventory, in many cases cutting budgets.

We're not seeing our budgets cut, we're maintaining our budgets because our sell-throughs, quite frankly, we think are the best in our department, in the department stores, in the junior area.

But it is challenging, it's tougher to get re-orders than it otherwise normally is.

And we're very fortunate to have great product right now.

That's good to hear.

Thanks very much, and good luck.

Thank you.

Your next question comes from the line of Heather Boksen.

I had a question, you talked about l.e.i.

and your Fabulosity shipping end of December.

Do you know yet when you're going to start shipping an Elizabeth and James product and are any doors committed to that yet?

No, we have not shown the product to any potential retailers, but the goal would be for the first shipments to be at the end of March.

Okay.

And, anybody expressing interest in it yet?

Everybody's expressing interest in it.

Yeah.

But we don't have a product to show them yet, and they'll -- we'll be showing that at the December Shoe Show.

All right, thanks.

(Operator Instructions) Your next question comes from the line of Jeff Mintz.

Hey Ed, how are you?

Hey, Jeff.

Can you talk a little bit about the metrics at retail?

The plus 7.8% comp is really impressive.

Can you just talk a little bit about what's driving that?

Sure.

Our average unit retail is up dramatically, and that's really contributed to the comp store sales increase.

We were up 15% AUR, in third.

So, units obviously, were down roughly 7% on a comp basis, and the AUR is driven by two things-- one is the shift in mix, more boots this year, and then two we have increased prices this year, and it's about half and half, those two factors contributing to the 15% increase.

Okay, great.

And now as you move into Q4 and it's great to hear your comps are flat quarter-to-date, because you have a much more difficult comparison.

But are the same, the same kind of factors still contributing to pretty decent comps?

Yes.

We're seeing, we're again seeing the average unit retail increase and a decline in units.

Okay.

Great.

And then, I just want to make sure I understand on Candie's, is that-- does that move totally to the Adesso-Madden line, starting in Q4, or is that in 2009?

Virtually all of it will be in other income in Q4.

Okay.

Great, thanks very much, good luck.

Thanks.

Your next question comes from the line of Scott Krasik.

Hey, Ed, just quickly, the first cost business, that tends to lag your wholesale business by a quarter or so, but since we're talking about such seasonal product do you expect a big uptick in your-- you know, excluding Kohl's, which would be new, for Candie's, the first cost business, will that start to peak up fourth quarter, first quarter, because of the better performance?

Fourth quarter you'll see a year-over-year improvement.

And sort of looking out or the spring is a different animal, because sandals, we just don't know how they're going to--?

I expect we can grow in the spring as well, but yes, yes.

Both, both fourth and first.

Okay, great.

Thanks.

Thank you.

There are no further questions.

Are there any closing remarks?

No.

Thanks very much for joining us, and we look forward to talking to you on the next call.

This concludes today's conference call.

You may now disconnect.