(By Michael Vodicka) Finding a great bargain has always been popular with consumers. But finding a great bargain along with great quality is basically considered the holy grail of consumption, a chance for consumers to pick up big savings without having to crimp too much on fashion and style.
That is the space in which Steve Madden, Inc. (SHOO) exists, a manufacturer of shoes and accessories for men and women with a market cap of just $1.37 billion. The company's primary revenue stream comes from selling its original products to third-party distributors, but Steve Madden also has a retail presence, operating 90 stores in the United States to sell and market its products directly to consumers. The company also has an online channel that is seeing big gains.
Shares of Steve Madden were burning up the charts in the first few months of the year as the market rallied, hitting a new all-time high in late March. But shares have since cooled considerably, falling more than 20% after the market took a tumble in May. But on the fundamental front, the company continues to produce impressive growth numbers, something we saw show up in another strong quarter from May 3.
Another Great Quarter
Revenue for the period was up 61% from last year to $266 million. Once again, the company's wholesale division led the way, with sales jumping an amazing 71% on a double-digit growth in both wholesale footwear and accessories. The acquisitions of Topline, Cejon an SM Canada also helped pump up the results. Earnings of 50 cents were directly in line with expectations, while net income jumped 23% to $22 million.
But looking forward, there are a few catalysts that should keep Steve Madden on the move.
The company has been aggressively adding new brands to its line of offerings, as seen with its acquisitions of Topline and Cejon and the development of internal ideas like Madden Girl and Steve by Steve Madden. Integrating these additional product offerings into the company's well developed distribution network that consists of wholesale, retail and e-commerce will give the top and bottom line a big boost over the next few years.
Steve Madden is also focused on international opportunities, saying it plans to expand its retail presence in Canada while continuing to develop strategic partnerships like its recent deal with Dune Group that will help it gain exposure in the U.K.
E-commerce will continue to play a big role in the company's growth strategy, where it has seen big gains in the last few years in sales that capture higher margins due to lower operating expenses.
Steve Madden will also be aggressive in opening both new retail and outlet stores, seeing the potential for more margin expansion by going direct to consumers that was on display last quarter when retail gross margin increased 200 basis points to 60%. The strength of the company's retail business also showed up in same-store sales, up an impressive 12% during the quarter in spite of a tough 12% comparison from the same quarter last year.
One potential area of weakness in an otherwise bullish story is the company's overall margin profile, with gross margin for its most recent quarter falling to 36% from 41%. That margin compression was driven by a big boom in sales, which drove the impressive gain in net income, but it looks like Steve Madden is paying up a little bit for that additional sales growth.
Estimates and Valuation
We haven't seen a whole lot of movement in estimates lately, with the full-year 2012 estimate holding at $2.68 for the last few months. The next-year estimate is pegged at $3.05. a bullish 14% growth projection.
But in light of the recent pullback in shares from the all-time high, the valuation picture has sweetened. Steve Madden's current forward P/E of 14X is below the 10-yar median of 15X and much closer to the low of 10X that the high of 28X.
On the chart, Steve Madden has seen a pretty sharp pullback over the last few months, particularly in May when the market weakened. Overall, shares are down about 20% from the all-time high above $45 in late March. That has created an opportunity to buy shares at a discount to historical averages while the company aggressively pursuits additional opportunities for growth. Take a look at the chart below.