Steven Madden Ltd (SHOO) 2009 Q1 法說會逐字稿

Good day, everyone, and welcome to the Steve Madden Limited first quarter 2009 earnings conference call.

Today's call is being recorded.

There will be a question-and-answer session at the end of the call today.

Instructions will be given at that time.

At this time, for opening remarks, I would like to turn the conference over to Ms.

Fontana.

Please go ahead.

Thank you.

Good morning, everyone, and thank you for joining this discussion of Steve Madden Limited's first quarter 2009 earnings results.

Before we begin, I would like to remind you that statements in this conference call that are not statements of historical or current facts 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 and uncertainties and other unknown factors that could cause actual results of the Company to be materially different from their historical results or from any future results 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 their 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 could not be relied upon as current after today.

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

Thanks, Jean.

Good morning, and thank you for joining us today.

On today's call, I will review the Company's results for the first quarter ended March 31st, 2009, and provide our outlook for the full year 2009.

We are please to have reported solid first quarter results in light of the difficult macroenvironment.

We believe that our performance speaks to the strength of our brands and the design excellence of Steve and his team.

Net sales for the first quarter rose 6.9% while EPS increased to $0.37 from $0.10 in last year's Q1.

Excluding the impact of one-time charges related to the departure of the Company's former CEO, EPS is $0.25 for first quarter 2008.

We believe that our performance reflects that consumers in this environment are looking for two things.

First, differentiation.

Consumers will add to their closet when they find an item that they can get excited about or that enhances their wardrobe.

Second, value.

It isn't about being the lowest price in the market, but it is important to provide fashion ripe product at a reasonable price point.

Now, turning to the financial results for the first quarter.

Solid and net sales increased 6.9% in the quarter to $107.4 million.

Net sales did not reflect sales from our Candie's division, which transitioned to a first cost model from a wholesale model.

Revenue from this business is now solely reported in our other income line.

Last year, the Candie's division contributed $4.9 million to net sales.

However, net sales did reflect $5.2 million from the international segment, which was transitioned to a wholesale model from a first cost model, and last year's first quarter net sales did not include revenue from our international business.

Therefore, the shift in these two businesses resulted in a net benefit of $300,000 to net sales compared to the prior year.

Net sales in our wholesale business rose 7.6% to $81.3 million in the quarter compared to $75.6 million in Q1 last year.

The increase in wholesale sales is primarily driven by strong gains in our Steve Madden Women's and Madden Girl wholesale footwear division, as well as the Daniel M.

Friedman accessories division.

Net sales in the core Steve Madden Women's segment increased 9% in the quarter to $34.6 million from $31.8 million a year ago.

Key trend was embellishment with flowers and studs being the most popular accents.

(Inaudible) sandles represented the strongest selling category.

Madden Girl net sales grew 20% to $12.5 million in the first quarter of 2009 versus $10.4 million in the first quarter of 2008 as retailers continue to increase their receipts of Madden Girl in response to strong sale throughs.

We're particularly pleased with the growth of our Macy's business with Madden Girl and as of Q2, we are now in all Macy's stores with two Madden Girl styles.

In Steven by Steve Madden, net sales totaled $3.8 million, up 2% from $3.7 million in last year's first quarter.

Again, embellished styles, particularly flats, drove the business.

Net sales in Steve Madden Men's were $7.7 million versus $8.4 million in the year ago period.

Driving mocks and dress shoe are performing well, but the casual category continues to be very challenging.

We also recorded modest declines in Stevies and Steve Madden's Fix.

Stevies net sales totaled $1.1 million in the first quarter versus $1.2 million in the year ago first quarter, while Fix had net sales of $500,000 compared to $800,000 last year.

Daniel M.

Friedman accessories business grew 11% in the first quarter to $16.1 million from $14.5 million a year ago.

Increase was driven by strong performance in our branded handbag business led by Steven in Steve Madden, as well as by the Betsey Johnson and Betseyville brands.

Belts continue to show improvement.

From our retail question, net sales in the first quarter were $26.1 million, a 5% increase over the $25 million in net sales for the first quarter of last year.

(Inaudible) store sales increased 7.6% due to a stronger merchandise assortment and better flow of inventory.

Stores open for the latest 12 months generated $639 in sales per square foot.

We opened one store and closed four stores in the quarter, bringing our total at the end of the first quarter to 94 stores, including our internet store.

Continue to view the internet as a major opportunity to drive sales growth.

Other income, the Company's commissioned and licensing fee income net of expenses decreased to $2.9 million in the quarter versus $3.4 million last year.

Our Adesso-Madden first cost business had commission income net of expenses of $2.1 million as compared to $2.3 million in last year's Q1.

Including international from last year's numbers in Candie's from this year's numbers for an apples to apples comparison, Adesso-Madden income increased 7% year-over-year.

Licensing royalty income for the quarter was $800,000 versus $1 million in the first quarter of 2008.

Gross margin for the first quarter increased to 40.5% from 40.0% in the comparable period last year driven by margin improvement in our wholesale segment.

Wholesale gross margin increased 70 basis points to 38.1% from 37.4% in the same period last year, benefiting from significantly lower mark down allowances due to the strong sale through at retail.

Margin improvement was achieved despite the inclusion of the international business in our wholesale segment, which negatively impacted gross margin by 90 points, 90 basis points.

Gross margin in the retail division was flat at 47.8%.

We benefited from a stronger merchandise assortment and freight savings, but we continue to be promotional in our stores in order to remain competitive from a pricing standpoint in a highly promotional environment.

Operating expenses as a percent of sales for the first quarter of 2009 were 33.6% versus 40.5% in the same period of the prior year.

Operating expenses for the first quarter of 2008 included the previously mentioned $4.9 million pretax charge related to the resignation of the Company's former CEO.

Excluding this charge, operating expenses as a percent of sales were 35.6% for the period.

200 basis point year-over-year decline on an adjusted basis was primarily due to cost control initiatives and sales leverage.

Operating income for the first quarter of 2009 increased to $10.3 million or 9.6% of net sales compared to $2.8 million or 2.8% of net sales in last year's first quarter.

Excluding the $4.9 million pretax charge from last year's first quarter, operating income rose 33% in the first quarter of 2009.

Net income was $6.6 million, or $0.37 per diluted share, compared to $2.1 million, or $0.10 per diluted share, in the prior year's first quarter.

Net income for the first quarter of 2008 included the aforementioned charge totaling $3 million posttax, or $0.15 per diluted share.

With respect to the balance sheet, we continue to have a strong financial foundation with $92.6 million in cash and marketable securities.

Total inventory at the end of Q1 was $28.1 million versus $26.4 million a year ago.

Our inventory turn of the last 12 months was 8.1 times, and the 6.4% increase in inventory is supported by the sales plan for second quarter.

Accounts receivable and due from factor were $49.4 million at the end of the quarter, reflecting average collection in 57 days.

FX for the quarter was $1.2 million and stockholders equity as of March 31st, 2009 was $214.1 million.

Turning to our guidance, for fiscal 2009, we expect net sales to range from flat to a decline of 2% compared to 2008.

This guidance incorporates the shift in the Candies business to a first cost model from a wholesale model and the shift in the international business to a wholesale model from a first cost model.

Excluding the impact of these changes, sales are expected to decline 2% to 4% for fiscal 2009.

Diluted EPS for fiscal 2009 is expected to be in the range of $1.85 to $1.95.

In conclusion, we were pleased with our first quarter results and feel good about our positioning going forward.

Continue to capitalize on the strength of our brands, our design capabilities, and our operational skills as we manage through a challenging environment.

We remain excited about the Company's long-term growth prospects and look forward to continuing to drive value for shareholders.

Now I'd be happy to answer any questions that you may have.

Thank you.

The question-and-answer session will be conducted electronically.

(Operator Instructions) We will take our first question from Scott Krasik with CL King.

Thanks.

Hey, --

Good morning, Scott.

When you guys raised your guidance a couple of weeks ago, you really took it up quite a bit given only one quarter of results and since you guys work typically so close to season and not a lot of visibility, what gives you the confidence to raise your full-year as much as you did?

Well, quite simply, the goods have been selling through very well at retail, and our order file looks a bit better today than it did when we put out our original guidance at the end of -- in the fourth quarter call.

And there's really three factors driving the increase in the guidance.

Number one is Steve Madden Women's, the wholesale segment.

We have just been doing very well there, gotten very good reception to our spring product, and so both sales and margin are coming in better than anticipated in Steve Madden Women's.

There's a very similar story in Madden Girl, and we have taken those numbers up from what we were previously anticipating.

And then, the last factor is L.e.i.

at Wal-Mart.

We are off to a great start there and our current expectations for L.e.i.

at Wal-Mart are about double what we had in our original budget.

So, when you put those three things together, we think this new guidance makes sense.

Okay.

Good.

And then, the wholesale gross margin was very good, even with the international hit.

It is as high as it has been since I think the first quarter of 2006.

What is going on in that line item?

Is it just lower levels of mark downs or is there something that you are doing better and how should we think of this in terms of sort of peakish or what can we do there?

Well, the big improvement there was in the reduction and mark down allowances, and that is as low as it has been in some, for some time.

But there's also been a positive mix shift.

Madden Girl is a fairly high margin business for us, and that has been growing.

So I wouldn't classify this as peak, but certainly it does represent a good performance, particularly in the mark down area.

Just in terms of mix, is there anything that can improve there to help the margin?

Either Daniel Friedman -- is Daniel Friedman contributing or --

No, I don't see any major changes from the mix going forward.

Okay.

Great.

And then just lastly, you're on plan to generate a substantial amount of cash this year, north of $2, incrementally.

Any thoughts there in terms of timing or use of cash?

We are looking quite a bit more seriously at acquisitions right now.

We think that there are some very interesting opportunities that have arisen, very good brands, good companies that probably would not have otherwise become available if not for the challenging economic climate.

So, we are looking at, at a couple of things in that regard.

And these would be opportunities that not only be a very strong strategic fit but would also be very financially attractive transactions accretive to EPS providing a high return on investment, et cetera.

But in addition to that, we will obviously continue to look at returning capital to shareholders.

As you know, that's something we've done pretty actively over the last three years and that's something we are evaluating as well.

Would you characterize the deals you're looking at as company changing or more bolt-on strategic fit?

No, I would say these are (inaudible) bolt-on companies that we could plug into into our existing infrastructure.

Okay.

Thanks.

Congratulations.

Thank you.

And we will take our next question from Jeff Van Sinderen from B.

Riley.

And Mr.

Van Sinderen, please go ahead.

Sorry about that.

Good morning.

Let me add my congratulations as well.

I guess my first question, I know your product is selling through really well, but do you think that inventory is cleaning up in the channel in general and what are you hearing about the overwell footwear business of your major accounts?

Well, certainly, the overall business remains fairly challenging; however, I think the inventory in the channel is at a much more reasonable level than it was.

Back in fourth quarter, a lot of people got caught.

They were surprised by the, the deceleration of the business and got caught with inventory.

That's why you saw some of the very heavy discounting in the fourth quarter.

People planned spring much more conservatively, and so the inventory levels are much more in line with sales, and in fact, in some cases, we have found that there has been a little bit, there have been selected retailers with too little inventory, and I think that's one of the reasons we have been able to be successful is by being there with the right goods at a time when some of our competitors don't have enough inventory in the channel.

So, in some cases, they have actually scaled back inventory to the point where they're having to chase some product, it sounds like.

Absolutely.

The strategy from the retailers this year has really been to order less up front and try to chase goods.

Okay.

And then, did you mention, I know you talked about your overall gross margins at retail, did you mention merchandise margins there?

Well, we do -- that is a fewer merchandise margin for us.

We don't have any occupancy costs or anything else in the gross margin.

Okay.

That's right.

And then, can you talk a little bit more about L.e.i.

in terms of maybe some specifics of what's really driving that business and how we expect that to evolve?

Yes.

Yes.

I mean, as you know, we launched it in December, and as of February, we were in about 2400 doors, and the product has just been selling through very, very well.

We initially, I think, when we talked on the last call, our initial budget was for about $1.5 million of other income contribution from L.e.i.

in 2009 and we think that we can do at least twice that based on what we are seeing to date.

So we are very, very pleased with the performance there.

That's great to hear.

And then finally, not sure if anything has changed on this front, but what do you feel at this point is the longer term operating margin potential of the Company and I guess what kind of time frame are you looking at there?

Well, we have articulated previously a mid-teen operating margin goal, and we established that last year and said, I believe, that it was a three to four years time horizon that we were hoping to achieve that.

Based on what we are seeing this year, we think perhaps we could get there next year.

That's great to hear.

Thanks very much and good luck.

Thank you.

(Operator Instructions).

At this time, we will take our next question from Heather Boksen with Sidoti & Company.

Good morning.

Just curious, you said that in the retail division things were a little more promotional in the first quarter, just curious how you see promotional cadence playing out in the remainder of the year?

We are currently expecting that that is going to continue for the remainder of the year.

The consumer remains very, very price sensitive and very value focused, and so we are expecting that we are going to have to continue to be promotional in our retail stores and for that reason, looking for gross margin to be roughly flat to a year ago.

All right.

Thanks.

That's helpful.

And with regards to SG&A, obviously, you got a lot of savings on that line in the first quarter.

Just curious how we should think about that during the remainder of the year.

Yes, well, we have done a pretty good job, I think, taking some expenses out, and we are, I think in the last call we talked about flat operating expenses, flat SG&A for the year.

Now we are including the international business in the top line and that means the expenses will no longer be netted against other income -- commission income on the other income line and will be on the expense line, so that's going to add about $2.7 million of expenses this year.

So, I think you should still continue to expect SG&A to be, or at this point, should now be about $2.7 million higher than a year ago, still flat, excluding this international change.

All right.

And just one housekeeping question, I think I missed it.

Did you give Fabulosity sales for the quarter?

There were none.

We shipped the first shot of Fabulosity all in December.

That was about $1.2 million at cost and the plan was always to see how those sold through in the initial 250 doors, we do have an order file for second order for Fabulosity.

All right.

Thanks.

It appear that there are no further questions at this time.

Mr.

Rosenfeld, I would like to turn the conference back over to you for any additional or closing remarks.

Okay.

Thanks very much for joining us.

I do want to make one correction.

Arvind alerted me that the collection days in the quarter were 54 days not 57 days.

But thanks again for joining us and we look forward to speaking with you soon.

And that does conclude today's conference.

We appreciate your participation.

Thank you.