Steven Madden, Ltd. Q4 FY2024 Earnings Call

Good morning, everyone. And thank you for joining us to review Steven Madden, Ltd.'s fourth quarter and full year 2024 results. We are pleased to have delivered earnings results at the high end of our guidance range for the fourth quarter of 2024, capping off a strong year in which we grew revenue 15% and diluted EPS 9% compared to 2023. These results demonstrate the power of our brands and the strength of our business as well as our team's disciplined execution of our strategy. Let me walk you through the highlights. First and foremost, our top priority is always to win with product. In 2024, our teams utilized our proven model which combines talented design teams, a test-and-react strategy, and an industry-leading speed-to-market capability to create trend-right product assortments across our various brands and product categories that resonated with consumers. We then supported this great product with increased investment in our full-funnel marketing strategy, highlighted by our global marketing campaign for the Steven Madden, Ltd. brand in fall that we called "Never Miss a Beat," a love letter to our hometown of New York City, featuring the iconic Deee-Lite song, "Groove Is in the Heart." Together, this combination of outstanding product and effective marketing enabled us to deepen our connection with our consumers and drive results across our four key business drivers. The first of those key business drivers is expanding our business in international markets. In 2024, our international revenue grew 12% versus the prior year. Revenue in the EMEA region increased 18%, including a solid gain in Europe despite a challenging retail environment, strong expansion in the Middle East, and explosive growth in South Africa. In the Americas ex-US, revenue grew 9%, including mid-single-digit percentage gains in Canada and Mexico, as well as the contribution from our new joint venture in Latin America, which is off to a strong start. We also continue to transition from the distributor model to an ownership model in key markets. In addition to the aforementioned joint venture for certain countries in Latin America, which we formed in the second quarter of 2024, we also converted our distributor business in Southeastern Europe, including Serbia and Croatia, to a joint venture with our partner Fashion Company in Q2 2020. Then in the fourth quarter, we formed a joint venture for Singapore with leading regional player Valorant Group. And in January, we converted our partnership with Valorant in Malaysia to a majority-owned joint venture structure. We currently operate 14 stores and e-commerce through the joint ventures with Valorant. Also in January, we formed a new joint venture in Australia, and we currently operate eight stores and e-commerce and have wholesale distribution in retailers including David Jones and Myer. Our second key business driver is expanding in categories outside of footwear like accessories and apparel. In 2024, our overall accessories and apparel revenue increased 53% compared to 2023, or 25% excluding Almost Famous. Our Steven Madden handbag business was outstanding, crossing the $300 million mark in revenue for the first time and increasing 31% compared to the prior year. Since 2019, Steven Madden handbag revenue has increased 23% per year on a compounded annual basis. DeepMind apparel also continued to gain traction, with revenue up 23% versus 2023. And the Almost Famous division exceeded expectations in its first full year under our ownership, contributing $179 million in revenue with an operating margin of nearly 11%. Our third key driver is growing our business in the direct-to-consumer channel. DTC revenue in 2024 was $550 million, a 9% increase versus 2023, or 5% growth on a comparable basis. Steven Madden DTC revenue increased 6%, while Dolce Vita DTC revenue grew 36%. And our last key driver is strengthening our core U.S. wholesale. While many of our key wholesale customers continue to take a cautious approach to orders as they prioritize inventory control, we are pleased to return to revenue growth in this business in 2024, with a 2% increase compared to 2023. So overall, 2024 was a strong year for Steven Madden, Ltd., with robust top- and bottom-line growth driven by tangible progress on our key strategic initiatives. We also demonstrated our ongoing commitment to returning capital to our shareholders, with nearly $160 million in combined dividends and share repurchases. As we look ahead, however, we are cautious on our outlook for 2025 as we face meaningful near-term headwinds. Most notably, our earnings will be negatively impacted by new tariffs on goods imported into the United States and by our efforts to aggressively diversify production out of China. We also expect our handbag business, which has been a leading growth driver for us in recent years, to face pressure this year as handbag inventories in certain parts of the wholesale channel have backed up, resulting in constrained open-to-buys and more cautious ordering from key wholesale customers. That said, we have a proven ability to navigate difficult market conditions with our agile business model. We are also looking forward to adding a powerful new growth engine to the company with the acquisition of Kurt Geiger, which we announced on February 13 and expect to close in the second quarter of 2025. The Kurt Geiger London brand has exhibited exceptional growth over the last several years, as its unique brand image, distinctive design aesthetic, and compelling value proposition have driven success across multiple categories, led by handbags. Its differentiated and elevated positioning and its alignment with our strategic initiatives of expanding in international markets, accessories categories, and direct-to-consumer channels make it a highly attractive and complementary addition to our portfolio. In addition to Kurt Geiger London, Kurt Geiger's brand portfolio includes KG Kurt Geiger and Carvela, and the company also operates footwear concessions within luxury and premium department stores in the United Kingdom, including Harrods and Selfridges. It sells both its own and third-party brands. For the twelve months ended February 1, 2025, Kurt Geiger had revenue of £400 million. The purchase price in the transaction reflects an enterprise value of £289 million, with £275 million in cash due at closing and the balance payable to management over a five-year period upon achievement of certain financial targets. Importantly, all members of the executive management team have agreed to stay on and continue to lead Kurt Geiger under our ownership, including CEO Neil Clifford, who has led Kurt Geiger for over twenty years. So in sum, we are pleased to have delivered strong revenue and earnings as well as meaningful progress on our key strategic initiatives in 2024. And while we clearly face some headwinds in 2025, we are confident that the combination of our strong brands and proven business model, supplemented by a significant new growth driver in Kurt Geiger, will enable us to drive sustainable revenue and earnings growth over the long term. Now I'll turn the call over to Zine Mazouzi to review our fourth quarter and full year 2024 financial results in more detail and provide our initial outlook for 2025.

Thanks, Ed, and good morning, everyone. In the fourth quarter, our consolidated revenue was $582.3 million, a 12% increase compared to the fourth quarter of 2023. Our wholesale revenue was $402.9 million, up 13.6% compared to the fourth quarter of 2023. Wholesale footwear revenue was $227.4 million, a 1% increase from the comparable period in 2023. Also, accessories and apparel revenue was $175.4 million, up 35.4% versus the fourth quarter in the prior year, driven by strong growth across the board, with double-digit percentage gains in accessories and apparel categories, domestic and international markets, and branded and private label businesses. Our wholesale business in the quarter also benefited from approximate shipments to the mass channel that were expected to ship in January 2025 and were moved up to the end of Q4 2024. In our direct-to-consumer segment, revenue was $176 million, an 8.4% increase compared to the fourth quarter of 2023, with increases in both the brick-and-mortar and e-commerce businesses. Comparable sales rose 4.5% in the quarter. We ended the year with 291 company-operated brick-and-mortar retail stores, including 68 outlets, as well as five e-commerce websites and 42 company-operated concessions in international markets. Our license and royalty income was $3.5 million in the quarter, compared to $2.7 million in the fourth quarter of 2023. Consolidated gross margin was 40.4% compared to 41.7% in the comparable period of 2023. Wholesale gross margin was 30.5% compared to 31.7% in the fourth quarter of 2023, primarily driven by a greater mix of private label businesses. Direct-to-consumer gross margin was 62% compared to 62.7% in the comparable period of 2023, driven by an increase in promotional activity. While we did not run more or deeper promotions, we saw a higher concentration of consumer spend during the promotional periods compared to the prior year. Operating expenses were $182.9 million or 31.4% of revenue in the quarter, compared to $163.9 million or 31.5% of revenue in the fourth quarter of 2023. Operating income for the quarter was $52.6 million or 9% of revenue compared to $53 million or 10.2% of revenue in the comparable period in the prior year. The effective tax rate for the quarter was 21.4% compared to 14.3% in the fourth quarter of 2023, driven by lower discrete benefits related to stock-based compensation. Finally, net income attributable to Steven Madden, Ltd. for the quarter was $39.3 million or $0.55 per diluted share compared to $45 million or $0.61 per diluted share in the fourth quarter of 2023. Now I would like to touch briefly on full-year results. Total revenue for 2024 increased 15.2% to $2.3 billion compared to $2 billion in 2023. Net income attributable to Steven Madden, Ltd. was $192.4 million or $2.67 per diluted share for the year ended December 31, 2024, compared to $182.7 million or $2.45 per diluted share for the year ended December 31, 2023. Moving to the balance sheet, our financial foundation remains strong. As of December 31, 2024, we had $203.4 million of cash, cash equivalents, and short-term investments and no debt. Inventory was $257.6 million, up 12.5% versus the prior year. Our CapEx in the fourth quarter was $9.3 million and for the year was $25.9 million. During the fourth quarter and full year 2024, the company spent $2.6 million and $98.4 million respectively on repurchases of its common stock, including shares acquired through the net settlement of employee stock awards. The company's board of directors approved a quarterly cash dividend of $0.21 per share. The dividend will be payable on March 21, 2025, to stockholders of record as of the close of business on March 10. Turning to our outlook, we expect revenue for 2025 to increase 17% to 19% compared to 2024, and we expect diluted EPS to be in the range of $2.30 to $2.40. This outlook assumes the Kurt Geiger acquisition closes on May 1 and includes Kurt Geiger from that date. Excluding Kurt Geiger, we expect revenue to increase low single digits on a percentage basis, and we expect diluted EPS to be in the range of $2.20 to $2.30. In the first quarter, we expect diluted EPS to decline approximately 30% to 35% versus the first quarter of 2024, as Q1 represents our toughest comparison to last year. We are also significantly increasing our year-over-year marketing investments in Q1, and our DTC business has been under pressure quarter to date. Now, I would like to turn the call over to the operator for questions. Kevin?

Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one on your telephone. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Paul Lejuez with Citi. Your line is open.

Hey. Can you talk about how you're thinking about gross margin pressure throughout the year given the tariff impact and what your plans are to mitigate it as you move through the year? And then also on the Kurt Geiger investment, curious if you are baking in any needed investment in that business as you acquire it — if there's any drag we should be thinking about this year from needed investment versus what you'll see going forward. Thanks.

Thanks, Paul. So in terms of the first question, we are dealing with margin pressure from tariffs this year. The plan to mitigate is the playbook we've outlined previously. Number one, diversifying production out of China. We are making significant progress on that already. On the last call, we said that about 71% of the goods we imported to the United States were coming from China. Based on what we've already brought in so far this year and what's on order, that number is down to 58% — almost a 20% reduction since the last call — and we expect to continue to make further progress throughout the year. Our goal was to be down to the low forties in terms of goods placed a year from the election, and we think we're marching toward that. The other pieces of the mitigation plan are, of course, going back to the factories and seeking price concessions; those discussions are ongoing. Third, we will selectively raise prices. It will not be an across-the-board increase, but we will be surgical about it and look to get a little more for newness and elevated product, starting in fall. In terms of specific gross margin guidance, given the uncertainty and fluidity, we're not going to provide specific gross margin guidance today. We're signing up for the revenue and the EPS that we've disclosed, but not prepared to make commitments around gross margin or a specific tariff impact today. As we get more clarity throughout the year, we'll provide more color at that time.

One quick follow-up on Kurt Geiger, please.

Yes. On Kurt Geiger, I don't think there's any meaningful investment required upfront. We certainly see many opportunities to grow the business and we'll be investing, but there's no operating margin drag in the first year or two from major investments.

One more on gross margin cadence: any color in terms of first half versus second half pressure and your ability to execute on mitigation efforts? Are you seeing mitigation come through in the first half, or is that something we won't see until the second half?

We don't provide quarterly guidance in the first place, and this situation is even more uncertain, so I'm hesitant to give too much color around quarterly cadence. The farther out we are, the more mitigation efforts will have an impact. In the near term, we are engaging in discussions with our factories to try to get some near-term help as well. We'll monitor progress and provide more detail when appropriate.

Got it. Thank you. Good luck.

One moment for our next question. Our next question comes from Anna Andrifa. Your line is open.

Great. Thank you so much, and good morning. A couple from us. First, you mentioned DTC is under some pressure quarter to date. Can you parse out what you're seeing in January versus February? Any improvement in February? Is this mostly macro and the tariff conversation, or is weather hurting you as well? And we have a follow-up.

We have seen a slow start to the year, particularly in selling spring products, including sandals, and overall weak traffic to stores. This is not unique to Steven Madden; we're hearing consistent commentary from other retailers. While we're loathe to blame the weather, many in the industry attribute part of the slow start to very cold weather across the country. We will monitor the situation closely; consumer confidence figures have shown a drop recently. There hasn't been any major difference in trend between January and February.

That's helpful. Secondly, on Kurt Geiger, congrats on the acquisition. Can you talk about why you think now is the right time to make this acquisition? How do you think about offsetting the tariffs exposure there? I think over 80% of their production is in China. And you mentioned their revenue contribution — how should we think about EPS contribution for this year?

This opportunity became available and we believe Kurt Geiger London can be a very big and profitable brand. It has a unique and differentiated brand image and design aesthetic with a strong price-value proposition that resonates with consumers. It plays in accessible luxury, led by handbags and with a strong shoe business. The brand has generated outstanding growth in recent years — it grew over 25% last year and has grown over 35% per year on a compounded annual basis since 2019. In the U.S., it was under $10 million in 2019 and did over $170 million last year. Despite exceptional recent growth, it's still early in its growth journey with significant runway ahead. It's a good fit with our company; it brings a different image, aesthetic, positioning, and price point, complementing our portfolio. It also advances our strategic initiatives of expanding internationally, growing accessories, and accelerating direct-to-consumer. Regarding tariffs exposure, we are aware of the higher China production percentage, and we will manage the exposure through our broader mitigation strategy. We expect Kurt Geiger to contribute meaningfully to growth in 2025 based on the acquisition assumptions included in our guidance.

Great. And then on wholesale accessories and apparel down mid-single-digits, I assume that would mean handbags down more significantly. How are you thinking about apparel growth this year now that you've started to lap the Almost Famous acquisition?

Yes, we expect the Steven Madden handbag business to face pressure and are looking at it being down double digits at this point. We are bullish on the Steven Madden apparel business and expect continued nice growth there. We have a private label apparel business where we do expect some pressure. Part of that pressure is due to the move of goods that typically would go out in January into December, which is causing some strain.

One moment for our next question. Our next question comes from Marnie Shapiro with Retail Tracker. Your line is open.

Hey, guys. Can I follow up on that last comment? The pressure from the shift into December from January — once you're past that, are there any other shifts or anything we should be aware of, or is it just general pressure on the private label and apparel side? Also, Steven Madden branded apparel at retail looks fantastic — beautiful sets in the stores and growing. It's nice to see. Could you talk a bit about the slowdown you're seeing in bags? Is it at every level from mass up to Dolce Vita customers, or more specific to the mass level?

The shift into December is a big piece of the pressure, but we do expect a little more pressure on private label and apparel overall. Thank you for the comments on our apparel — we're excited about the progress. For handbags, we are seeing the slowdown most acutely in the Steven Madden handbag business and that tier of distribution, which is the bulk of our business and has been a strong growth driver for us. When that slows, it impacts the overall handbag numbers significantly.

Following up on the tariff conversation: how much of your spring product were you able to bring in before tariffs? Those goods that came in pre-tariff — when will their availability wane and when will you really start to feel the tariff impact? Is that Q2 or Q3?

Because we turn our inventory so quickly, we'll feel the tariff impact earlier than others. We turn wholesale inventories close to ten times a year, so if tariffs went into effect in early February, we'll start to feel them even at the end of the first quarter on certain goods.

One moment for our next question. Our next question comes from Laura Champine with Loop Capital. Your line is open.

Thanks for taking my question. I concur that the valuation on Kurt Geiger was attractive. Is that widespread? Are you seeing that kind of valuation environment across the board? If so, would you be open to other M&A this year, or is this big enough that you feel like this is one and done for this year?

This is a very important transaction for us and we think it's a super impactful opportunity going forward. Our focus this year will be on integrating Kurt Geiger and setting it up for success. I'll never say never on other M&A, but we'll be oriented toward focusing on Kurt Geiger for the time being.

Understood. On the wholesale footwear business, you mentioned that gross margin was pressured because of higher penetration of private label. Would wholesale footwear have grown in Q4 without growth from the mass channel?

The branded business was down about 3% in Q4.

Is that similar to what you expect for improvement in 2025?

Yes. We expect improvement and think we'll be able to turn positive in Q1, up low singles, and that's how we're thinking about it for 2025.

One moment for our next question. Our next question comes from Sam Poser with Williams Trading. Your line is open.

Thank you. Good morning. I have a few items. First, what are you anticipating interest expense to be for the year? Also, with changes moving JVs to subsidiaries and distributors to JVs, how much incremental revenue lift does that create? And with Kurt Geiger, what synergies do you initially foresee to help international growth, and what percent of Kurt Geiger's business in Europe is UK? How might having Kurt Geiger plus their concessions help grow your other businesses, primarily in the UK?

We're not going to guide every line on the income statement, but I can give some color. We're incurring debt to complete the Kurt Geiger transaction; the new term loan will start roughly at SOFR plus 200 basis points. On the changes to JVs and subsidiaries, the incremental revenue from those changes this year is probably going to approach $25 million. Unfortunately, there's also a negative exchange translation impact this year of more than $25 million, so much of that incremental revenue is offset by a stronger dollar.

If you look at Kurt Geiger's revenue by geography, it's about 35% in the U.S., a little over 50% in the U.K., and the balance in the rest of the world, where Europe is important. Excluding concessions, the branded business is about 50% in the U.S., a little over 30% in the U.K., and the rest in other regions. One significant synergy is using our Steven Madden network to expand Kurt Geiger into new international markets and leveraging our relationships and infrastructure. That will be a top priority after closing. Regarding concessions, we've been partnering with Kurt Geiger for years; they already have Steven Madden in their concessions and operate two stores for us in London. We'll look to expand that relationship and roll out more stores in the U.K. under Kurt Geiger's operation.

Thanks. I may come back.

One moment for our next question. Our next question comes from Aubrey Tianello with BNP Paribas. Your line is open.

Good morning. On Kurt Geiger, could you give more color on how to think about longer-term growth and margin profile? It grew double digits last year — is double-digit growth the right rate to think about long term? How do margins compare to your existing business and what opportunities exist to expand them?

We are forecasting double-digit growth for Kurt Geiger this year and believe there's runway for it to grow double digits for several years. Last year, they had an EBITDA margin a little over 11%. For this year, we've taken a small haircut due to tariff impact. After removing depreciation and our current estimate for amortization of intangibles, we expect an operating margin this year of about 7.5%. Long term, there's clear opportunity for Kurt Geiger to be a double-digit operating margin business. We won't provide a precise timeline today; once the transaction closes and we work with the team there, we'll give more specifics on how we'll get there.

That's great. On the balance sheet, is the plan to get back to a net cash position and what is the timeframe to reach your target?

We've been operating with about $200 million in net cash. We will have a small net debt position at closing — roughly half a turn of net debt to EBITDA — so fairly modest. The plan would be to try to get back to a neutral net debt position, and then we would likely resume share repurchases. We do need to get some price increases pushed through to mitigate tariff impact, focusing on newness and product elevation where we can raise perception of value and price accordingly.

And on marketing, how much is investment increasing in 2025 and is there anything special to be mindful of?

You will see marketing increase in 2025 as a percentage of revenue. Excluding Kurt Geiger, it should be relatively in line. However, Q1 will have a significant increase in marketing investment because we want to follow up the successful fall campaign with a strong spring campaign. We have a new campaign called "House of Steve" launching next week, and in support of that there's a significant increase in Q1 marketing investment. After Q1, we expect to be more in line with prior-year levels for the balance of the year.

One moment for our next question. Our next question comes from Corey Tarlowe with Jefferies. Your line is open.

Thanks. Can you talk about inventory? It was up double digits relative to sales — what's the health of that inventory, the newness you're flowing in, and what's working? Also, could you touch on the performance of boots as the weather got colder?

On the 12.5% inventory increase at the end of Q4, we feel good about its composition. The increase is primarily due to accounting for inventory for longer periods because of transit times. On average globally, our transit times are around six days longer, both from China and Cambodia as examples. In the U.S., it's probably around five days longer to get goods here; in some international markets like the Middle East it can peak to around thirty days. If you look at inventory on an apple-to-apple basis versus last year, we're up low single digits, which is consistent with our expectations for next year.

We had a very good boot season, particularly with tall shaft boots, brown suede, and stretch boots — we outperformed in the market with the right styles. As we've come into Q1, with cold weather in the early part of the year, we've continued to sell a good amount of boots. Our focus now is getting consumers transitioned into spring styles. Boots will remain important in spring because we have a strong festival package; boots are becoming more of a year-round category for us.

Thanks. Following up on international structure shifts, how much more work remains to transition distributor markets to JVs or subsidiaries, and where do you see the biggest opportunity to optimize the structure of agreements internationally?

It's an ongoing process. We've done a lot but still have some distributor markets that could be transitioned to a joint venture model over time, and some joint ventures could become wholly owned subsidiaries. Regionally, the biggest opportunity is APAC, where we remain relatively small and will focus on making that region more meaningful over the next couple of years. EMEA and Americas ex-US are already larger businesses for us.

One moment for our next question. Our next question comes from Sam Poser with Williams Trading. Your line is open.

Thanks again. With the shift from China to other areas, you mentioned transit times are five to six days longer in some cases. As you move more product to Vietnam and other places, how will that change your speed to market and how will it affect future quarters' inventories?

To clarify, the five to six business days increase isn't just diversification — it's also supply chain pressure driven by factors like Chinese New Year being earlier and front-loading by many companies, which lengthened the supply chain. As we diversify, we expect approximately a week to ten days longer lead time from some of these other countries versus China. Our inventory position is in line, and the main impact currently is transit days, which we expect to continue as we move forward. Inventory levels will also be influenced by the penetration of DTC to total.

Speed to market is critical to the way we operate and we won't accept any meaningful reduction in how fast we can be. We plan to manage around longer lead times: keep some production in China where we need speed, move other items to alternative sourcing, and use Mexico when appropriate because transit times are shorter. Mexico has been a priority to speed delivery for certain Steven Madden products, although the potential tariffs create uncertainty there. We'll monitor that situation.

With Kurt Geiger, what are their lead times and is that something you could help speed up using your resources?

We'll need to get into that with their team, but I imagine their lead times are a little longer. Kurt Geiger is a different kind of business and by nature of their product assortments, price points, and positioning, they don't necessarily need the same test-and-react speed-to-market model we use. Where there are areas for collaboration and where our sourcing capability can help them, we will certainly do that.

One moment for our next question. Our next question comes from Kelly Crago on for Paul Lejuez. Your line is open.

Hi. A follow-up on the tariff assumptions. Are you assuming just China tariffs or also including potential Mexico tariffs? And how much of your sourcing currently comes from Mexico?

We have included an impact from Mexico as well in our assumptions. Mexico represents about mid-single digits as a percentage of our overall sourcing. We have assumed that if tariffs are in effect in Mexico, we would move products back out of Mexico in fall. The primary impact we've built in is over the next few months for goods already on the water or already ordered, and there's also an impact from anti-dumping additional duties on goods from China implemented by Mexico — that is embedded in our guidance as well.

I'm not showing any further questions at this time. I'll turn the call back over to Ed for any closing remarks.

Great. Well, thanks so much for joining us on the call today. Have a great day, and we look forward to speaking with you on the next call.

Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect and have a wonderful day.