Steven Madden Ltd (SHOO) 2010 Q1 法說會逐字稿

Good day everyone and welcome to the Steve Madden 2010 first quarter earnings conference call.

Today's call is being recorded.

For opening remarks and introduction, I would like to turn the conference over to Miss Jean Fontana of Integrated Corporate Relations.

Please go ahead, Miss Fontana.

Thank you.

Good morning, everyone.

Thanks for joining us for the discussion of Steve Madden's first quarter 2010 earnings results.

Before we begin I would like it 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 and Litigation Reform Act of 1995.

Such forward-looking statements involve known and unknown risks and uncertainties and other unknown facts that could cause actual results to be materially different from historical results or any future results expressed or implied by such forward-looking statements.

Statements contained herein are also subject to generally 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 today's earnings release for more information on risk factors this could cause actual results to differ.

Finally, please note that any forward-looking statements statement in this are used in this call cannot be relied upon as current after this date.

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

Thanks, Jean.

Good morning and thank you for joining us today.

2010 is off to a great start.

Consolidated net sales increased 23% in the first quarter to $131.6 million.

The EPS, adjusted for the 3-for-2 stock split, increased 124% to $0.55 per diluted share.

Importantly, the strength in our business was broad based as we achieved solid top and bottom line gains in both wholesale and retail as well as strong increases in our first cost analyzing segments.

As always, the foundation of our success stems from our outstanding creative team led by Steve, who is consistently delivering product that truly resonates with what has become a very diversified consumer base.

Our ability to be on top of the latest trends, effectively translate them into footwear and accessories, and quickly bring the product to market remains the key to our success.

The primary driver of our sales and earnings growth in the quarter was the strong performance of our existing brands.

However, we also got important contributions from some of the more recent additions to our business.

Elizabeth and James, introduced in May of last year continues to grow based on strong performance at Neiman Marcus, Saks Fifth Avenue, Nordstrom and others.

In our most recent collaboration with Mary-Kate and Ashley Olsen, Olsenboye is off to an excellent start in approximately 600 doors with JCPenney.

Additional sell-throughs have been strong for both footwear and accessories in Olsenboye.

Our new men's line, Madden, has the also been met with a favorable response.

In Madden we are using different materials, primarily synthetics, to offer fashionable product for men at more moderate prices than Steve Madden Mens.

We continue to see this brand as a significant growth vehicle for 2010 and beyond.

Turning to accessories, our Q1 results have benefited from solid sales and earnings contributions from our two recent acquisitions -- Madden Zone, which wearied in July of last year, and Big Buddha which we acquired in February 2010.

The Big Buddha collection continues to perform well at retail, and gained distribution to additional doors within both department stores and boutiques.

Finally, we are also pleased with the favorable response to our Steve Madden apparel collection, which we launched in the spring 2010 selling season.

Based on the strong initial sell-throughs at retail, we have recently added about 100 doors bring is us to 180 doors with Nordstrom's, Dillard's, Macy's, Belk, and Bon-Ton.

Overall our new initiatives all seem to be graining traction and should distribute nicely to our overall earnings growth in 2010 and beyond.

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

Consolidated net sales for the quarter were $131.6 million, a 23% increase over the prior year.

Wholesale net sales increased 27% to $103.1 million, compared to $81.3 million in the first quarter of last year.

This increase was driven by strong gains in the Company's existing wholesale footwear divisions, as well as contributions from our new licensed Elizabeth and James, and our recent acquisition Madden Zone and Big Buddha.

Wholesale footwear net sales increased 27% in the first quarter to $82.8 million, compared to $65.2 million last year.

Every existing wholesale footwear division grew year-over-year, with double-digit gains in men's, Madden Girl, Steven by Steve Madden and Kids.

The quarter also benefited from strong sales from the Elizabeth and James brand, introduced in the second quarter of last year.

In our wholesale accessories business, first quarter net sales totalled $23.3 million versus $16.1 million last year, a 26% increase.

This was mostly driven by new contributions from Madden Zone and Big Buddha, but also from a strong gain in belts.

Shifting over to our retail division, retail net sales increased 9% to $28.5 million versus $26.1 million last year despite a smaller store base.

Comparable store sales increased 13.6%, driven by our strong project assortment and a more favorable retail environment.

We also continued to see an increase in AUR as a result of the strength in the boots and booties category.

Doors open for the 12 end he had March 31, 2010 generated $672 in sales per square foot.

We closed five stores and opened one, ending the first quarter with 85 company-owned retail locations, including our internet store.

Turning to other income, our Adesso-Madden segment had commission income, net of expenses, of $4.9 million, as compared to $2.1 million in last year's first quarter, driven by strong gains in our first-cost business with Target, Kohl's, and JCPenney.

Licensing royalty income in the first quarter increased 48% to $1.3 million, as compared to $800,000 in the first quarter of 2009.

Consolidated gross margins for the quarter increased to 45.5% from 40.5% in the comparable period last year, collecting margin improvements in both the wholesale and retail segments.

Wholesale gross margin increased 440 basis points to 42.5% from 38.1% in the same period last year, driven primarily by higher initial markups and more full-price selling.

Gross margin in the retail division was 56.7% in the first quarter of 2010, as compared to 47.8% in the first quarter of last year, an 890 basis point improvement due to dramatically reduced discounting as well as higher IMUs.

Operating expenses were $41.3 million in the first quarter, or 31.4% of net sales, compared to $36.1 million, or 33.6% of net sales, a year ago.

A 220 basis point year-over-year improvement was due mainly to leverage on increasing sales.

Operating income for the first quarter of 2010 increased 141% to $24.9 million, or 18.9% of net sales, compared to $10..3 million, or 9.6% of net sales, in last year's first quarter.

Net income was $15.4 million or $0.55 per post split diluted share compared to $6.6 million or $0.24 per post split diluted share in the prior year's first quarter.

Turning to our balance sheet, as of March 31st, 2010, we had approximately $157.4 million in cash and marketable securities and no debt.

We ended the first quarter with inventory of $23.9, million down from $21.8 million in the first quarter of last year.

Our inventory turn over the last 12 months was 10.4 times, up from 8.1 times a year ago.

Despite the reduction in inventory, which was in part due to shifts in timing of receipts and shipments we feel comfortable that we have sufficient inventory levels to support our second quarter sales plan.

Accounts receivable and (inaudible) totalled $64.8 million at the end of the first quarter, reflecting average collection in 55 days.

Capex for the quarter was $700,000.

And total stockholders' equity as of March 31, 2010, was $286.1 million.

Turning to our guidance for fiscal 2010, we now expect net sales to increase 17% to 19% compared to 2009.

Diluted EPS is now expected to be in the range of $2.30 to $2.40 with year-over-year growth weighted towards the first half.

This reflects an increase from our previous guidance of $2.07 to $2.20 on a split-adjusted basis.

In summary, our first quarter results reflect both a continued strength of our core business as well as the initial success of our various new business initiatives.

As we move ahead, our first priority as always will be to continue our track record of delivering superior product, our ability to deliver trend-right, fashion-forward merchandise in a timely manner is a foundation of our success, and we are committed to upholding the design excellence that drives our core business.

In addition, we will focus on growing our newer brands like Elizabeth and James, Olsenboye and Big Buddha as well as continuing to evaluate additional brands to add to our increasingly diversified portfolio.

Retail will be another area of emphasis.

With our fifth consecutive quarter of year-over-year operating income improvement, we feel we have turned the corner in our retail division, and look forward to further improvement in the balance of the year.

E-commerce also remains an important part of our growth strategy.

We just surpassed the $20 million mark in trailing four quarter net sales on stevemadden.com, and we will look to continue the strong growth there and in our wholesale business to online retailers.

And finally, we intend to focus on growing our international business, where we are seeing strong traction, and where we believe there is enormous potential for long term growth, both with the existing partners in countries like China and Australia, and with new partners for countries like Russia and Brazil.

Putting this all together, we believe we have the building blocks in place for solid top and bottom line growth over the near and long term and feel confident that we are on the path to achieving our goal established at the beginning of this year of doubling EPS in five years.

And now I would be happy to answer any questions you may have.

Thank you.

(Operator Instructions).

We'll take our first question from Scott Krasik with BB&T Capital Markets.

Good morning, Ed.

Hi Scott, how you doing.

Good.

Congratulations.

Thank you.

There were some moving parts in the Adesso business.

I think Walmart -- there was a piece of Walmart that came out.

Can you just talk about what sort of apples to apples number is.

It was a great number and I'm just trying to figure out what the comp performance was.

Well, you're right.

Walmart has come out of that line this year and moved into the -- the sales and cost of goods, the company, but the big contribution from Walmart really came in second and third quarter last year.

It was a pretty small number in the first of 2009 and also a small number in first of 2010 that moved into the sales line.

We did have some changes in timing, though, versus last year.

There was some unusual seasonality in the first half of last year and shipments got pushed out into second quarter and if you look at our numbers last year you will see that the Adesso business did about three times as much in Q2 last year as Q1.

That's not a typical seasonality and so this year you should see Q2 looking much more similar to Q1 level.

And realistically it could be down from Q2 a year ago given the Walmart shift?

Yes.

It should be.

Okay.

Okay.

Good.

And then great to see you're feeling more confident about retail profitability.

I mean this is a division that historically has never really made much money -- so you know sort of what do you think the real run rate of profitability is on this level of sales?

This door count, and where you see that going over the next 12 to 24 months?

Yes.

Well, we're pleased.

We have -- if you look at the trailing four quarters we now are making a modest profit in retail.

And we think that if we can continue to get comp gains during the balance of the year, that we could approach something like a 5% operating margin excluding any kind of charges for store closings.

But 5% is our target for the ongoing store base and, you know, long term we really previous that this can be a 10% operating margin business.

Okay.

Great.

And then just lastly in terms of the wholesale -- it's still a little early on visibility for boots.

Do you have a sense of how retailers are planning your boot business, how early they're going to take some fashion product, and if you're thinking there is change relative to you know a quarter or two ago?

No.

We still feel pretty confident about the upcoming boot season.

As I talked about in the last call, we really got some very strong leads in our retail stores in Q1 with some late in season boot deliveries of new boot product.

And we feel pretty confident about that -- that's usually been a very good indicator of what's going to work in the Fall season and the upcoming boot season.

We are going to be shipping fashion boots starting 625 and certainly more at 725, and so far the initial orders on boots are quite strong.

Again, our guidance assumes that the boot season overall isn't quite as good this year as it was a year ago but we do feel confident about it.

Did you deliver boots last year, 625?

You know in a small way, yes.

Okay.

So that's definitely going to be up and then 725 -- that 725 boot delivery seems like it's up as well?

Yes.

Right now the orders -- we have more orders for 725 boots than we did a year ago but keep in mind, you know, last year, retailers were very conservative at this time.

Sure.

Okay.

Well, now that's -- that's great work.

Congratulations.

Thank you.

Next we'll go to Jeff Van Sinderen at B.

Riley.

Good morning.

Let me add my congratulations as well.

Thanks, Jeff.

Can you update us on progress in the international business?

I know you mentioned that in your prepared comments a little bit.

Just wondering what's kind of brewing there.

Yes.

Well, we talked on the last call about how we sort of took a pause in our growth in 2009.

We really felt some of the effects of the global recession.

We had to change a couple of our distributors.

A couple of them ran into financial difficulties, and so we had to terminate our relationships with existing partners and move on to new partners.

But we're really through that period and we now feel that we're again positioned for growth.

We had a nice -- a nice growth, about 8%, in our international business in Q1 and for the balance of the year we're looking to be double digit -- a double digit growers in the international piece.

We're doing -- we're really excited about what we're doing with our partner GRI in China as well as our new partner, the Lieu[ph] Group in Australia.

And we're continuing to add partners as well.

We actually just signed up with a group in Russia called Monarch and we're going to start shipping product to Russia in Q3.

Oh, okay.

That's great.

And then just sort of a more recent thing.

Did you guys see any trend change in your company on retail stores in April versus March, that calendar shift and all that?

Well, I think April was -- for most people was a little bit weaker than March although we still had a nice comp gain and feel good about the overall trend, but March was a pretty spectacular month for just about everybody.

Okay.

And then are you seeing anything in terms of acquisitions that look appealing?

Well, there's really not a lot in the pipeline right now.

We continue to be on the look out.

We remain interested in finding the right acquisition, but there's nothing that is imminent.

Okay.

And then your gross margins had great improvement for the quarter and just wondering obviously you've given some guidance for the year but just wondering how big of a part of that is gross margin increase.

Is the 45.5% sustainable?

How should we think about that going forward?

Well, the 45% is a pretty outstanding number.

I wouldn't expect us to continue at that level for the balance of the year.

We do feel that there's opportunity for year-over-year improvement in Q2.

In the back half, we indicated that we think the gross margin should be down modestly year-over-year really driven in part by about 100 to 120 basis point dilution from the Walmart business moving from the other income line into the sales line.

So absent that we think we could be up modestly in the back half, but with that impact we should be down modestly in the back half year-over-year.

Got it.

Okay.

But that's sort of just -- I mean that's a shift that really doesn't have anything to do with the performance of your business?

Right.

That's just geography on the income statement.

Right.

Okay.

Good.

Thanks a lot and continued good luck.

Great.

Thanks.

Moving on to Sam Poser with Sterne Agee.

Morning, Ed.

Can you hear me well?

My phone keeps cutting in and out.

Yes, I can hear you.

Okay.

Just a little more on the gross margin.

Can you give -- I mean on a net basis, can you give us, you no e sort of where you would see it on a full year on an apples to apples basis?

Well, yes.

Let's just say that for the full year, we think we can be up modestly from where we were a year ago even with the impact of the Walmart shift.

Okay.

And then when we think about the SG&A, where should -- how should we think about that as well?

Well, you know we're looking at 17% to 19% sales growth so obviously there's being some associated variable expenses.

Obviously, the SG&A is going to be growing, but we do feel that we're going to get leverage.

And I think if you think about SG&A dollar growth for the year of roughly 10% as a decent target.

Thank you.

And then just the retail gross margins.

Can you -- you mentioned in the release that it was higher ASPs and higher initial mark ups.

Can you sort of tell us how those initial ASPs came to be and then a little bit about the mark ups how the IMUs are up?

Just give us some more detail there.

Yes, sure.

The AUR in retail was driven a lot by the boots and booties.

In Q1 -- obviously boots and booties are a small part of the Q1 mix in wholesale, but in retail it's still a very meaningful component.

So we -- boots an booties are about 53% of the business, of our women's business in retail in Q1.

That was up from 43% a year ago and that was really a big factor in driving the AUR up.

We had actually a double digit AUR increase in retail in Q1.

In terms of the margin you mentioned the IMU.

We did -- we did get some increase in the IMU based on sharper factory pricing out of China, better sourcing.

The thing I will caution you about is that we think that's going to reverse itself it a large degree in the back half as, you know, many you have probably heard from many people in the history that prices out of China should be up modestly in the back half -- but the biggest factor in terms of the gross margin was actually not the IMU.

It was less discounting.

And you will remember that Q1 of last year was when things were at their most bleak and there was some very heavy discounting, particularly in New York City we were -- we were running some buy one get one, 90 promotions at the time.

We obviously didn't have to anniversary that and so we had a much stronger gross margin performance this year.

Okay.

And thank you.

And then lastly, can you give us some details on sort of the incremental -- the men's business and how much the -- what the current update of the potential contribution of the Madden line is?

Yes.

Well, we're very pleased about what's going on with Madden.

Our Steve Madden business excluding the new Madden business but the existing Steve Madden business was actually our fastest growing existing wholesale footwear division.

It was up about 50% year-over-year.

So we're on a real nice trends there.

And then we layer on this new business, Madden, we think we have a chance to have a very, very strong overall men's performance this year.

Madden continues to do well.

We're really following the Madden Girl play book of offering to a pretty wide universe of retailers.

It's going to go to department stores, it's going to go to family channel retailers like DSW.

It's going to go to specialty retailers like Journeys and, you know, we set a target in the last call of about $10 million.

I think -- we think we're going to do a little bit better.

I think we'll do something anywhere between $10 million and $15 million in the first year under Madden.

Thank you very much.

Continue the good job.

Thanks, Sam.

Heather Boksen, Sidoti & Company.

Morning.

A lot of my questions are already answered.

But I'm just curious about the use of the cash you have given away (inaudible).

I know you said there's not any -- it doesn't seem like there's any accessories in the pipeline now.

What are your thoughts on what you would do with the cash?

Yes.

Well, you know, we have been talking quite a lot about how our priority has been to find acquisitions.

We have been very pleased with the two accessory deals that wave done, Madden Zone in July and Big Buddha in February, and if we could find more like those, we would do them all day.

Unfortunately, as I mentioned earlier, there's really not a lot in the pipeline right now.

And so as we move through the year, if we don't find the more appealing acquisition targets I think that, you know, its -- we're going to have to look very seriously at returning capital to shareholders.

I would expect it would be likely that we would do that by the end of the year if we don't find any additional acquisitions.

All right.

Good it hear.

Thanks.

(Operator Instructions).

We'll take a follow up from Scott Krasik.

Thanks.

Ed, you sort of answered the question on IMU, but what was the ASP in wholesale?

Wholesale -- it's different obviously for the different division but it was mid to high singles.

Okay.

That's helpful.

And then on the retail side you said that AUR was up double digits.

Were your transactions roughly flat or were they up as well?

No.

Transactions were roughly -- units were roughly flat.

Okay.

All right.

Thanks.

Okay.

Thanks.

Moving on, Susan Sansbury with Miller Tabak.

Hi, Ed.

How are you?

Good thanks.

How are you.

Just fine, thanks.

Going back to sourcing costs, do you have any insights into what the pressure is going to be in 2011?

You know, that's -- I think it's a little bit too early to say.

Again, we're sort of baking in about a 5% increase for the back half of 2010.

Beyond that I think it's very tough to -- it would just be speculation.

It's very tough to say and obviously very large unknown factors what's going to happen with the currency.

Okay.

When do you -- when do you expect to have some insight for sourcing pressure in 2010?

After Fall, or?

Yes.

I think it's -- we're still about four or five months away, I have a sense of that.

Okay.

Thanks very much.

At this time there are no further questions.

I will turn the conference back over for any additional or closing remarks.

Great.

Well thanks very much for joining us on the call, and we look forward to speaking to you in three months.

And that does conclude today's teleconference.

Thank you all for joining.