SHOO 10-Q
Steven Madden, Ltd. (SHOO)
10-Q
2023-11-09
For: 2023-09-30
View Original
Added on
April 04, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended September 30, 2023
or
For the transition period from ____________________ to _____________________
Commission File Number: 0-23702
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |||||||
| incorporation or organization) | ||||||||
(Address of principal executive offices) (Zip Code)
(718 ) 446-1800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | Emerging growth company | ||||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of November 6, 2023, there were 74,608,209 shares of the registrant’s common stock, $0.0001 par value, outstanding.
STEVEN MADDEN, LTD.
TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2023
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
| September 30, 2023 | December 31, 2022 | September 30, 2022 | ||||||||||||||||||
| (in thousands, except par value) | (unaudited) | (unaudited) | ||||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||||||||||
| Short-term investments | ||||||||||||||||||||
Accounts receivable, net of allowances of $ | ||||||||||||||||||||
| Factor accounts receivable | ||||||||||||||||||||
| Inventories | ||||||||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||||||||
| Income tax receivable and prepaid income taxes | ||||||||||||||||||||
| Total current assets | ||||||||||||||||||||
| Note receivable – related party | ||||||||||||||||||||
| Property and equipment, net | ||||||||||||||||||||
| Operating lease right-of-use asset | ||||||||||||||||||||
| Deposits and other | ||||||||||||||||||||
| Deferred taxes | ||||||||||||||||||||
| Goodwill – net | ||||||||||||||||||||
| Intangibles – net | ||||||||||||||||||||
| Total Assets | $ | $ | $ | |||||||||||||||||
| LIABILITIES | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Accounts payable | $ | $ | $ | |||||||||||||||||
| Accrued expenses | ||||||||||||||||||||
| Operating leases – current portion | ||||||||||||||||||||
| Income taxes payable | ||||||||||||||||||||
| Contingent payment liability | ||||||||||||||||||||
| Accrued incentive compensation | ||||||||||||||||||||
| Total current liabilities | ||||||||||||||||||||
| Operating leases – long-term portion | ||||||||||||||||||||
| Deferred tax liabilities | ||||||||||||||||||||
| Other liabilities | ||||||||||||||||||||
| Total Liabilities | ||||||||||||||||||||
Commitments, contingencies and other (Note M) | ||||||||||||||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Preferred stock – $ | ||||||||||||||||||||
Common stock – $ | ||||||||||||||||||||
| Additional paid-in capital | ||||||||||||||||||||
| Retained earnings | ||||||||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ( | |||||||||||||||||
Treasury stock – | ( | ( | ( | |||||||||||||||||
| Total Steven Madden, Ltd. stockholders’ equity | ||||||||||||||||||||
| Noncontrolling interest | ||||||||||||||||||||
| Total stockholders’ equity | ||||||||||||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | $ | |||||||||||||||||
See accompanying notes to condensed consolidated financial statements - unaudited.
1
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (in thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||||||||||||
| Commission and licensing fee income | ||||||||||||||||||||||||||
| Total revenue | ||||||||||||||||||||||||||
| Cost of sales (exclusive of depreciation and amortization) | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
| Income from operations | ||||||||||||||||||||||||||
| Interest and other income – net | ||||||||||||||||||||||||||
| Income before provision for income taxes | ||||||||||||||||||||||||||
| Provision for income taxes | ||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||
| Less: net income attributable to noncontrolling interest | ||||||||||||||||||||||||||
| Net income attributable to Steven Madden, Ltd. | $ | $ | $ | $ | ||||||||||||||||||||||
| Basic net income per share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted net income per share | $ | $ | $ | $ | ||||||||||||||||||||||
| Basic weighted average common shares outstanding | ||||||||||||||||||||||||||
| Effect of dilutive securities – options/restricted stock | ||||||||||||||||||||||||||
| Diluted weighted average common shares outstanding | ||||||||||||||||||||||||||
| Cash dividends declared per common share | $ | $ | $ | $ | ||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements - unaudited.
2
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
| Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||
| (in thousands) | Pre-tax amounts | Tax expense | After-tax amounts | Pre-tax amounts | Tax expense | After-tax amounts | ||||||||||||||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income/(loss): | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Loss on cash flow hedging derivatives | ( | ( | ||||||||||||||||||||||||||||||||||||
| Total other comprehensive income/(loss) | $ | ( | $ | ( | ( | $ | $ | ( | ||||||||||||||||||||||||||||||
| Comprehensive income | ||||||||||||||||||||||||||||||||||||||
| Less: comprehensive income attributable to noncontrolling interests | ||||||||||||||||||||||||||||||||||||||
| Comprehensive income attributable to Steven Madden, Ltd. | $ | $ | ||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||
| (in thousands) | Pre-tax amounts | Tax benefit | After-tax amounts | Pre-tax amounts | Tax expense | After-tax amounts | ||||||||||||||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income/(loss): | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||
| (Loss)/gain on cash flow hedging derivatives | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Total other comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | ( | |||||||||||||||||||||||||||||
| Comprehensive income | ||||||||||||||||||||||||||||||||||||||
| Less: comprehensive loss attributable to noncontrolling interests | ( | ( | ||||||||||||||||||||||||||||||||||||
| Comprehensive income attributable to Steven Madden, Ltd. | $ | $ | ||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements - unaudited.
3
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
(in thousands)
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) | Treasury Stock | Non-Controlling Interest | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased and net settlements of restricted stock awards | ( | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Cash flow hedge (net of tax expense of $ | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($ | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests, net | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2023 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) | Treasury Stock | Non-Controlling Interest | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - December 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased and net settlements of restricted stock awards | ( | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash flow hedge (net of tax expense of $ | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($ | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests, net | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Investment of noncontrolling interest | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
4
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
(in thousands)
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) | Treasury Stock | Non-Controlling Interest | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased and net settlements of restricted stock awards | ( | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Cash flow hedge (net of tax benefit of $ | — | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($ | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Sale of minority noncontrolling interest of a subsidiary | — | — | ( | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2022 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) | Treasury Stock | Non-Controlling Interest | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased and net settlements of restricted stock awards | ( | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Cash flow hedge (net of tax expense of $ | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($ | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Sale of minority noncontrolling interest of a subsidiary | — | — | ( | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2022 | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements - unaudited.
5
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
| Nine Months Ended September 30, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net income | $ | $ | ||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Stock-based compensation | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Loss on disposal of fixed assets | ||||||||||||||
| Impairment of lease right-of-use asset | ||||||||||||||
| Deferred taxes | ( | |||||||||||||
| Accrued interest on note receivable - related party | ( | ( | ||||||||||||
| Notes receivable - related party | ||||||||||||||
| Change in valuation of contingent payment liabilities | ( | |||||||||||||
| Other operating activities | ||||||||||||||
| Changes, net of acquisitions, in: | ||||||||||||||
| Accounts receivable | ( | ( | ||||||||||||
| Factor accounts receivable | ( | |||||||||||||
| Inventories | ||||||||||||||
| Prepaid expenses, income tax receivables, prepaid taxes, and other assets | ( | |||||||||||||
| Accounts payable and accrued expenses | ( | |||||||||||||
| Accrued incentive compensation | ( | ( | ||||||||||||
| Leases and other liabilities | ( | ( | ||||||||||||
| Payment of contingent consideration | ( | |||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Capital expenditures | ( | ( | ||||||||||||
| Purchase of a trademark | ( | |||||||||||||
| Purchases of short-term investments | ( | ( | ||||||||||||
| Maturity/sale of short-term investments | ||||||||||||||
| Net cash (used in)/provided by investing activities | ( | |||||||||||||
| Cash flows from financing activities: | ||||||||||||||
| Common stock repurchased and net settlements of stock awards | ( | ( | ||||||||||||
| Proceeds from exercise of stock options | ||||||||||||||
| Investment of noncontrolling interest | ||||||||||||||
| Cash dividends paid on common stock | ( | ( | ||||||||||||
| Payment of contingent consideration | ( | |||||||||||||
| Distribution of noncontrolling interest | ( | |||||||||||||
| Net cash used in financing activities | ( | ( | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | |||||||||||||
| Net decrease in cash and cash equivalents | ( | ( | ||||||||||||
| Cash and cash equivalents – beginning of period | ||||||||||||||
| Cash and cash equivalents – end of period | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements - unaudited.
6
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
Note A – Basis of Reporting
Note B – Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant areas involving management estimates include variable consideration included in revenue, allowances for bad debts, inventory valuation, valuation of goodwill and intangible assets and impairment of long-lived assets related to retail stores. The Company estimates variable consideration for future customer chargebacks and markdown allowances, discounts, returns and other miscellaneous compliance-related deductions that relate to current-period sales. The Company evaluates anticipated chargebacks by reviewing several performance indicators of its major customers. These performance indicators, which include retailers’ inventory levels, sell-through rates and gross margin levels, are analyzed by management to estimate the amount of the anticipated customer allowances.
Note C – Sale of Minority Noncontrolling Interest
Note D – Short-Term Investments
Note E – Fair Value Measurement
The accounting guidance under Accounting Standards Codification 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), requires the Company to make disclosures about the fair value of certain of its assets and liabilities. ASC 820-10 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. ASC 820-10 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. A brief description of those three levels is as follows:
•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
•Level 3: Significant unobservable inputs.
7
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
The Company’s financial assets and liabilities subject to fair value measurements as of September 30, 2023 and December 31, 2022 were as follows:
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value | Level 1 | Level 2 | Level 3 | Fair value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Forward contracts | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Forward contracts | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Forward contracts are used to manage the risk associated with the volatility of future cash flows (see Note L – Derivative Instruments). Fair value of these instruments is based on observable market transactions of spot and forward rates.
The Company's Level 3 balance consists of contingent consideration related to acquisitions. There were no changes in the Company’s Level 3 liabilities for the period ended September 30, 2023. The changes in the Company's Level 3 liabilities for the period ended December 31, 2022 were as follows:
| Balance at January 1, 2022 | Adjustments(1) | Transfer out of Level 3(2) | Balance at December 31, 2022 | ||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration | $ | ( | ( | $ | |||||||||||||||||||
(1) In 2022, amount consists of an adjustment of $(5,807 ) that was included as a benefit in operating expenses, related to the change in valuation of the contingent consideration in connection with the acquisition of B.B. Dakota, Inc.
(2) On December 31, 2022, the transfer out of Level 3 amount of $1,153 , which was recorded in the current portion of our contingent payment liabilities on the Consolidated Balance Sheets, represented the current portion of our contingent liabilities and was measured at the amount payable based on actual EBITDA performance for the related performance period. At September 30, 2023, the amount of $1,153 was recorded in the current portion of our contingent payment liabilities on the Consolidated Balance Sheets as the amount will be paid in the fourth quarter of this year.
The fair values of trademarks are measured on a non-recurring basis and are determined using Level 3 inputs, including forecasted cash flows, discount rates, and implied royalty rates (see Note K – Goodwill and Intangible Assets). The fair values of lease right-of-use assets and fixed assets related to Company-owned retail stores are measured on a non-recurring basis and are determined using Level 3 inputs, including estimated discounted future cash flows associated with the assets using sales trends, market rents and market participant assumptions (see Note F – Leases).
The carrying value of certain financial instruments such as cash equivalents, certificates of deposit, accounts receivable, factor accounts receivable and accounts payable approximates their fair values due to the short-term nature of their underlying terms. Fair value of the notes receivable held by the Company approximates their carrying value based upon their imputed or actual interest rate, which approximates applicable current market interest rates. Some assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (non-recurring). These assets can include long-lived assets that have been reduced to fair value when impaired. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs.
8
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
Note F – Leases
The Company leases office space, sample production space, warehouses, showrooms, storage units, and retail stores pursuant to operating leases. The Company’s portfolio of leases is primarily related to real estate. Since most of its leases do not provide a readily determinable implicit rate, the Company estimates its incremental borrowing rate to discount the lease payments based on information available at lease commencement.
Some of the Company’s retail store leases provide for variable lease payments based on sales volumes at the leased location, which are not measurable at the inception of the lease and are therefore not included in the measurement of the right-of-use assets and lease liabilities. Under Topic 842, these variable lease costs are expensed as incurred.
Lease Position
The following table presents the lease-related assets and liabilities recorded on the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022:
| Classification on the Balance Sheet | September 30, 2023 | December 31, 2022 | |||||||||||||||
| Assets | |||||||||||||||||
Noncurrent(1) | Operating lease right-of-use asset | $ | $ | ||||||||||||||
| Liabilities | |||||||||||||||||
| Current | Operating leases – current portion | $ | $ | ||||||||||||||
| Noncurrent | Operating leases – long-term portion | ||||||||||||||||
| Total operating lease liabilities | $ | $ | |||||||||||||||
| Weighted-average remaining lease term | |||||||||||||||||
| Weighted-average discount rate | % | % | |||||||||||||||
(1) During the three and nine months ended September 30, 2023, the Company recorded a pre-tax impairment charge related to its right-of-use assets of $0 and $95 , respectively, recorded in the Wholesale Footwear Segment.
The following table presents the composition of lease costs during the three and nine months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Variable lease cost | |||||||||||||||||||||||
| Less: sublease income | |||||||||||||||||||||||
| Total lease cost | $ | $ | $ | $ | |||||||||||||||||||
9
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
Other Information
The following table presents supplemental cash and non-cash information related to the Company's operating leases during the three and nine months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | |||||||||||||||||||||||
| Operating cash flows used for operating leases | $ | $ | $ | $ | |||||||||||||||||||
| Noncash transactions | |||||||||||||||||||||||
| Right-of-use asset obtained in exchange for new operating lease liabilities | $ | $ | $ | $ | |||||||||||||||||||
Right-of-use asset amortization expense(1) | $ | $ | $ | $ | |||||||||||||||||||
Future Minimum Lease Payments
The following table presents future minimum lease payments for each of the first five years and the total for the remaining years as of September 30, 2023:
| 2023 (remaining three months) | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total minimum lease payments | |||||
| Less: interest | |||||
| Total lease liabilities | $ | ||||
Note G – Share Repurchase Program
10
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
approximately $34,940 and $107,428 , respectively. As of September 30, 2023, approximately $193,676 remained available for future repurchases under the Share Repurchase Program.
The Steven Madden, Ltd. Amended and Restated 2006 Stock Incentive Plan (as further amended, the "2006 Plan"), which expired on April 6, 2019, and the Steven Madden, Ltd. 2019 Incentive Compensation Plan (the "2019 Plan") both provide the Company with the right to deduct or withhold, or require employees to remit to the Company, an amount sufficient to satisfy any applicable tax withholding and/or option cost obligations applicable to stock-based compensation awards. To the extent permitted, employees may elect to satisfy all or part of such withholding obligations by tendering to the Company previously owned shares or by having the Company withhold shares having a fair market value equal to the employee's withholding tax obligation and/or option cost. During the three and nine months ended September 30, 2023, an aggregate of 1,383 and 1,506 shares were withheld in connection with the settlement of vested restricted stock to satisfy tax-withholding requirements and option costs, at an average price per share of $35.14 and $35.19 , for an aggregate purchase price of approximately $48,578 and $53,003 , respectively. During the three and nine months ended September 30, 2022, an aggregate of 4 and 115 shares were withheld in connection with the settlement of vested restricted stock to satisfy tax-withholding requirements and option costs, at an average price per share of $30.64 and $40.83 , for an aggregate purchase price of approximately $138 and $4,676 , respectively.
Note H – Net Income Per Share of Common Stock
Basic net income per share is based on the weighted average number of shares of common stock outstanding during the period, which does not include unvested restricted common stock subject to forfeiture of 2,142 shares for the period ended September 30, 2023, compared to 2,964 shares for the period ended September 30, 2022. Diluted net income per share reflects: (a) the potential dilution assuming shares of common stock were issued upon the exercise of outstanding in-the-money options and the assumed proceeds, which are deemed to be the proceeds from the exercise plus compensation cost not yet recognized attributable to future services using the treasury method, were used to purchase shares of the Company’s common stock at the average market price during the period, and (b) the vesting of granted non-vested restricted stock awards for which the assumed proceeds upon vesting are deemed to be the amount of compensation cost not yet recognized attributable to future services using the treasury stock method, to the extent dilutive.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net income attributable to Steven Madden, Ltd. | $ | $ | $ | $ | |||||||||||||||||||
| Basic net income per share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted net income per share | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Stock awards and options to purchase shares of common stock | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
11
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
Note I – Income Taxes
The Company’s provision for income taxes for the three and nine months ended September 30, 2023 and 2022 is based on the estimated annual effective tax rate, plus or minus discrete items. The following table presents the provision for income taxes and the effective tax rates for the three and nine months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Income before provision for income taxes | $ | $ | $ | $ | |||||||||||||||||||
| Income tax expense | $ | $ | $ | $ | |||||||||||||||||||
| Effective tax rate | |||||||||||||||||||||||
The difference between the Company’s effective tax rates of 23.1 % and 22.9 % and 23.6 % and 23.4 % for the three and nine months ended September 30, 2023 and 2022, respectively, is primarily due to the expected jurisdictional mix of profit and losses from each period.
The Company recognizes interest and penalties, if any, related to uncertain income tax positions in income tax expense. Accrued interest and penalties on unrecognized tax benefits, and interest and penalty expense are immaterial to the consolidated financial statements.
The Company files income tax returns in the U.S. for federal, state, and local purposes, and in certain foreign jurisdictions. The Company's tax years 2019 through 2022 remain open to examination by most taxing authorities.
Note J – Equity-Based Compensation
The following table summarizes the number of shares of common stock authorized for issuance under the 2019 Plan, the number of stock-based awards granted (net of expired or cancelled awards) under the 2019 Plan and the number of shares of common stock available for the grant of stock-based awards under the 2019 Plan:
| Common stock authorized | |||||
| Stock-based awards, including restricted stock and stock options granted, net of expired or cancelled awards | ( | ||||
| Common stock available for grant of stock-based awards as of September 30, 2023 | |||||
In addition, vested and unvested options to purchase 90 shares of common stock and 1,061 shares of unvested restricted stock awarded under the 2006 Plan were outstanding as of September 30, 2023.
12
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
Total equity-based compensation for the three and nine months ended September 30, 2023 and 2022 is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Restricted stock | $ | $ | $ | $ | |||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Equity-based compensation is included in operating expenses on the Company’s Condensed Consolidated Statements of Income.
Stock Options
Cash proceeds and intrinsic values related to total stock options exercised during the three and nine months ended September 30, 2023 and 2022 are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Proceeds from stock options exercised | $ | $ | $ | $ | |||||||||||||||||||
| Intrinsic value of stock options exercised | $ | $ | $ | $ | |||||||||||||||||||
During the three and nine months ended September 30, 2023, options to purchase 57 shares vested with a weighted average exercise price of $30.72 and options to purchase 206 shares vested with a weighted average exercise price of $34.95 vested, respectively. During the three and nine months ended September 30, 2022, options to purchase 58 shares vested with a weighted average exercise price of $35.89 and options to purchase approximately 436 shares vested with a weighted average exercise price of $32.29 . As of September 30, 2023, there were unvested options relating to 250 shares of common stock outstanding with a total of $1,888 of unrecognized compensation cost and an average vesting period of 1.4 years.
The Company uses the Black-Scholes-Merton option-pricing model to estimate the fair value of options granted, which requires several assumptions. The expected term of the options represents the estimated period of time until exercise and is based on the historical experience of similar awards. Expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The dividend yield is based on the Company's annualized dividend per share amount divided by the Company's stock price. The following weighted average assumptions were used for stock options granted during the nine months ended September 30, 2023 and 2022:
| Nine Months Ended September 30, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Volatility | ||||||||||||||
| Risk free interest rate | ||||||||||||||
| Expected life in years | ||||||||||||||
| Dividend yield | ||||||||||||||
| Weighted average fair value | $ | $ | ||||||||||||
13
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
Activity relating to stock options granted under the Company’s plans during the nine months ended September 30, 2023 was as follows:
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||||||||||||
| Outstanding at January 1, 2023 | $ | |||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||
| Exercised | ( | |||||||||||||||||||||||||
| Forfeited | ( | |||||||||||||||||||||||||
| Expired | ( | |||||||||||||||||||||||||
| Outstanding at September 30, 2023 | $ | $ | ||||||||||||||||||||||||
| Exercisable at September 30, 2023 | $ | $ | ||||||||||||||||||||||||
Activity relating to stock options granted under the Company’s plans during the nine months ended September 30, 2022 was as follows:
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||||||||||||
| Outstanding at January 1, 2022 | $ | |||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||
| Exercised | ( | |||||||||||||||||||||||||
| Outstanding at September 30, 2022 | $ | $ | ||||||||||||||||||||||||
| Exercisable at September 30, 2022 | $ | $ | ||||||||||||||||||||||||
Restricted Stock
The following table summarizes restricted stock activity during the nine months ended September 30, 2023 and 2022:
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| Number of Shares | Weighted Average Fair Value at Grant Date | Number of Shares | Weighted Average Fair Value at Grant Date | |||||||||||||||||||||||
| Outstanding at January 1, | $ | $ | ||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||
| Vested | ( | ( | ||||||||||||||||||||||||
| Forfeited | ( | ( | ||||||||||||||||||||||||
| Outstanding at September 30, | $ | $ | ||||||||||||||||||||||||
As of September 30, 2023, the Company had $38,806 of total unrecognized compensation cost related to restricted stock awards granted under the 2019 Plan and the 2006 Plan. This cost is expected to be recognized over a weighted average period of 3.1 years. The Company determines the fair value of its restricted stock awards based on the market price of its common stock on the date of grant.
14
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
Note K – Goodwill and Intangible Assets
The following is a summary of the carrying amount of goodwill by reporting unit as of September 30, 2023:
| Wholesale | Net Carrying Amount | |||||||||||||||||||||||||
| Footwear | Accessories/ Apparel | Direct-to-Consumer | ||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||
| Translation | ||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||
The following table details identifiable intangible assets as of September 30, 2023:
| Estimated Lives | Cost Basis | Accumulated Amortization | Impairment & Other(1) | Net Carrying Amount | ||||||||||||||||||||||||||||
| Trade names | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||
| Customer relationships | ( | ( | ||||||||||||||||||||||||||||||
| ( | ( | |||||||||||||||||||||||||||||||
| Re-acquired right | indefinite | ( | ||||||||||||||||||||||||||||||
| Trademarks | indefinite | |||||||||||||||||||||||||||||||
| $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
(1) Includes the effect of foreign currency translation related primarily to the movements of the Canadian dollar and Mexican peso in relation to the U.S. dollar.
The following table details identifiable intangible assets as of December 31, 2022:
| Estimated Lives | Cost Basis(1) | Accumulated Amortization | Impairment & Other(2) | Net Carrying Amount | ||||||||||||||||||||||||||||
| Trade names | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||
| Customer relationships | ( | ( | ||||||||||||||||||||||||||||||
| ( | ( | |||||||||||||||||||||||||||||||
| Re-acquired right | indefinite | ( | ||||||||||||||||||||||||||||||
| Trademarks | indefinite | |||||||||||||||||||||||||||||||
| $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
(1) During the year ended December 31, 2021, the Company purchased the trademark for Dolce Vita® Handbags for $2,000 and the cash consideration was paid in 2022.
(2) Includes the effect of foreign currency translation related primarily to the movements of the Canadian dollar and Mexican peso in relation to the U.S. dollar.
15
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
The Company evaluates its goodwill and indefinite-lived intangible assets for indicators of impairment at least annually in the third quarter of each year and whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. A quantitative assessment of goodwill and indefinite-lived intangible assets was performed as of July 1, 2023. In conducting the quantitative impairment assessments for goodwill and indefinite-lived intangibles, the Company concluded that the fair values of its reporting units exceeded their carrying values and the fair values of its indefinite-lived intangibles exceeded their respective carrying values. A qualitative assessment of goodwill and indefinite-lived intangible assets was performed as of July 1, 2022. In conducting the qualitative impairment assessments for goodwill and indefinite-lived intangibles, the Company concluded that it is more likely than not that the fair values of its reporting units exceeded their carrying values and the fair values of its indefinite-lived intangibles exceeded their respective carrying values. Therefore, in 2023 and 2022, as a result of the annual tests, no impairment charges were recorded for goodwill and intangibles.
The amortization of intangible assets amounted to $463 and $1,347 for the three and nine months ended September 30, 2023 compared to $2,250 and $6,753 for the three and nine months ended September 30, 2022 and is included in operating expenses in the Company's Condensed Consolidated Statements of Income. The estimated future amortization expense for intangibles as of September 30, 2023 was as follows:
| 2023 (remaining three months) | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total | $ | ||||
Note L – Derivative Instruments
The Company uses derivative instruments, specifically forward foreign exchange contracts, to manage the risk associated with the volatility of future cash flows. The foreign exchange contracts are used to mitigate the impact of exchange rate fluctuations on certain forecasted purchases of inventory and are designated as cash flow hedging instruments. As of September 30, 2023, the Company's entire net forward contracts hedging portfolio consisted of a notional amount of $74,930 , with the fair value included on the Consolidated Balance Sheets in other current assets of $1,418 and other current liabilities of $839 . For the three and nine months ended September 30, 2023 and 2022, the Company's hedging activities were considered effective, and, thus, no ineffectiveness from hedging activities was recognized in the Consolidated Statements of Income during the three quarters of 2023 and 2022. These gains and losses are recognized in Cost of sales (exclusive of depreciation and amortization) on the Consolidated Statements of Income.
Note M – Commitments, Contingencies and Other
Future Minimum Royalty and Advertising Payments:
The Company has minimum commitments related to a license agreement. The Company sources, distributes, advertises and sells certain of its products pursuant to a license agreement with an unaffiliated licensor. Royalty amounts under the license agreement are based on stipulated minimum net sales and the payment of minimum annual royalty amounts. The license agreement has various terms and renewal options, provided that minimum sales levels and certain other conditions are achieved. As of September 30, 2023, the Company had future minimum royalty and advertising payments of $18,000 . Royalty expenses are recognized in Cost of sales (exclusive of depreciation and amortization) on the Consolidated Statements of Income.
16
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
Legal Proceedings:
The Company has been named as a defendant in certain lawsuits in the normal course of business. In the opinion of management, after consulting with legal counsel, the liabilities, if any, resulting from these matters should not have a material effect on the Company's financial position or results of operations. It is the policy of management to disclose the amount or range of reasonably possible losses in excess of recorded amounts or cash flows.
Letters of Credit:
As of September 30, 2023, the Company had $504 in letters of credit outstanding unrelated to the Company's Credit Agreement.
Note N – Operating Segment Information
The Company operates the following operating segments, which are presented as reportable segments: Wholesale Footwear, Wholesale Accessories/Apparel, Direct-to-Consumer, and Licensing. As of January 2023, the Company no longer serves as a buying agent for any of its customers, and as a result no longer reports under the First Cost segment. This change is not considered to have a material or meaningful impact on the Company's operations. Our Wholesale Footwear segment designs, sources, and markets our brands and sells our products to department stores, mass merchants, off-price retailers, shoe chains, online retailers, national chains, specialty retailers, independent stores, and clubs throughout the United States, Canada, Mexico, and Europe, and through our joint ventures and international distributor network. Our Wholesale Accessories/Apparel segment designs, sources, and markets our brands and sells our products to department stores, mass merchants, off-price retailers, online retailers, specialty retailers, independent stores and clubs throughout the United States, Canada, Mexico, and Europe and through our joint ventures and international distributor network. Our Direct-to-Consumer segment consists of Steve Madden® and Dolce Vita® full-price retail stores, Steve Madden® outlet stores, and our directly-operated digital e-commerce websites. We operate retail locations in regional malls and shopping centers, as well as high streets in major cities across the United States, Canada, Mexico, Israel, South Africa, Taiwan, China, and the Middle East. Our Licensing segment is engaged in the licensing of the Steve Madden® and Betsey Johnson® trademarks for use in the sale of select apparel, accessory, and home categories as well as various other non-core products.
Our Corporate activities do not constitute a reportable segment and include costs not directly attributable to the segments. These costs are primarily related to expenses associated with corporate executives, corporate finance, corporate social responsibility, legal, human resources, information technology, cyber security, and other shared services.
The Chief Operating Decision Maker does not review asset information by segment; therefore we do not present assets in this note.
17
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
| For the three months ended, | Wholesale Footwear | Wholesale Accessories/Apparel | Total Wholesale | Direct-to-Consumer | First Cost | Licensing | Corporate (1) | Consolidated | |||||||||||||||||||||||||||||||||||||||
| September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||||||||||||||||||||
| Income/(loss) from operations | $ | $ | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||||||||||||||||||||
| Income/(loss) from operations | $ | $ | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| For the nine months ended, | Wholesale Footwear | Wholesale Accessories/Apparel | Total Wholesale | Direct-to-Consumer | First Cost | Licensing | Corporate (1) | Consolidated | |||||||||||||||||||||||||||||||||||||||
| September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Gross profit | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Income/(loss) from operations | $ | $ | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Gross profit | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Income/(loss) from operations | $ | $ | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
(1) Corporate does not constitute a reportable segment and includes costs not directly attributable to the segments. These costs are primarily related to expenses associated with corporate executives, corporate finance, corporate social responsibility, legal, human resources, information technology, cyber security and other shared services.
Revenues by geographic area are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
Domestic (1) | $ | $ | $ | $ | ||||||||||||||||||||||
| International | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
(1) Includes revenues of $73,205 and $195,272 , respectively, for the three and nine months ended September 30, 2023 and $50,417 and $222,915 , respectively, for the comparable period in 2022 related to sales to U.S. customers where the title is transferred outside the U.S. and the sale is recorded by the Company's international entities.
18
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
Note O – Credit Agreement
On July 22, 2020, the Company entered into a $150,000 secured revolving credit agreement (as amended to date, the “Credit Agreement”) with various lenders and Citizens Bank, N.A., as administrative agent (the “Agent”), which replaced the Company’s existing credit facility provided by Rosenthal & Rosenthal, Inc. (“Rosenthal”). The Credit Agreement provides for a revolving credit facility (the “Credit Facility”) scheduled to mature on July 22, 2025.
The initial $150,000 maximum availability under the Credit Facility is subject to a borrowing base calculation consisting of certain eligible accounts receivable, credit card receivables, inventory, and in-transit inventory. Availability under the Credit Facility is reduced by outstanding letters of credit. The Company may from time-to-time increase the maximum availability under the Credit Agreement by up to $100,000 if certain conditions are satisfied.
On March 25, 2022, an amendment to the Credit Agreement (the “Amendment”) replaced the London Interbank Offering Rate (“LIBOR”) with the Bloomberg Short-Term Bank Yield Index (“BSBY”) as the interest rate benchmark. Borrowings under the Credit Agreement generally bear interest at a variable rate equal to a specified margin, which is based upon the average availability under the Credit Facility from time to time, plus, at the Company’s election (i) BSBY for the applicable interest period or (ii) the base rate (which is the highest of (a) the prime rate announced by the Agent, (b) the sum of the federal funds effective rate plus 0.50 %, and (c) the sum of the one-month BSBY rate plus 1.00 %). Furthermore, the Amendment reduced the specified margin used to determine the interest rate under the Credit Agreement and reduced the commitment fee paid by the Company to the Agent, for the account of each lender. Additionally, the Amendment reduced the frequency of the Company’s borrowing base reporting requirements when no loans are outstanding. The Amendment also extended the maturity date of the Credit Agreement to March 20, 2027.
Under the Credit Agreement, the Company must also pay (i) a commitment fee to the Agent, for the account of each lender, which accrues at a rate equal to 0.25 % per annum on the average daily unused amount of the commitment of such lender, (ii) a letter of credit participation fee to the Agent, for the account of each lender, ranging from 1.25 % to 2.50 % per annum, based upon average availability under the Credit Facility from time to time, multiplied by the average daily amount available to be drawn under the applicable letter of credit, and (iii) a letter of credit fronting fee to each issuer of a letter of credit under the Credit Agreement, which will accrue at a rate per annum separately agreed upon between the Company and such issuer.
The Credit Agreement contains various restrictions and covenants applicable to the Company and its subsidiaries. Among other requirements, availability under the Credit Facility must, at all times, (i) prior to the occurrence of the permanent borrowing base trigger (as defined in the Credit Agreement), equal or exceed the greater of $22,500 and 15 % of the line cap (as defined in the Credit Agreement), and (ii) after the occurrence of the permanent borrowing base trigger, equal or exceed the greater of $15,000 and 10 % of the line cap (as defined in the Credit Agreement). Other than this minimum availability requirement, the Credit Agreement does not include any financial maintenance covenants.
The Credit Agreement requires the Company and various subsidiaries of the Company to guarantee each other’s obligations arising from time to time under the Credit Facility, as well as obligations arising in respect of certain cash management and hedging transactions. Subject to customary exceptions and limitations, all borrowings under the Credit Agreement are secured by a lien on all or substantially all of the assets of the Company and each subsidiary guarantor.
The Credit Agreement also contains customary events of default. If an event of default under the Credit Agreement occurs and is continuing, then the Agent may, and at the request of the required lenders shall, terminate the loan commitments under the Credit Agreement, declare any outstanding obligations under the Credit Agreement to be immediately due and payable or require the Company to adequately cash collateralize outstanding letter of credit obligations. If the Company or, with certain exceptions, a subsidiary becomes the subject of a proceeding under any bankruptcy, insolvency or similar law, then the loan commitments under the Credit Agreement will automatically terminate, and any outstanding obligations under the Credit Agreement and the cash collateral required under the Credit Agreement for any outstanding letter of credit obligations will become immediately due and payable.
As of September 30, 2023, the Company had no cash borrowings and no letters of credit outstanding under the Credit Agreement
19
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
Note P – Factoring Agreements
In conjunction with the Credit Agreement described in Note O – Credit Agreement, on July 22, 2020, the Company and certain of its subsidiaries (collectively, the “Madden Entities”) entered into an Amended and Restated Deferred Purchase Factoring Agreement (the “Factoring Agreement”) with Rosenthal & Rosenthal, Inc. ("Rosenthal"). Pursuant to the Factoring Agreement, Rosenthal serves as the collection agent with respect to certain receivables of the Madden Entities and is entitled to receive a base commission of 0.20 % of the gross invoice amount of each receivable assigned for collection, plus certain additional fees and expenses, subject to certain minimum annual commissions. Rosenthal will generally assume the credit risk resulting from a customer’s financial inability to make payment of credit-approved receivables, which are classified as Factor Receivables. The initial term of the Factoring Agreement is twelve months, subject to automatic renewal for additional twelve-month periods, and the Factoring Agreement may be terminated at any time by Rosenthal or the Madden Entities on 60 days' notice and upon the occurrence of certain other events. The Madden Entities pledged all of their rights under the Factoring Agreement to the Agent under the Credit Agreement to secure obligations arising under the Credit Agreement.
On April 3, 2023, in conjunction with a related amendment to the Credit Agreement, the Madden Entities also entered into a Credit Approved Receivables Purchasing Agreement (the “CARPA”) with CIT Group/Commercial Services, Inc. (“CIT”). Pursuant to the CARPA, in addition to Rosenthal, CIT will serve as a non-exclusive collection agent with respect to certain of the Madden Entities’ receivables and will generally assume the credit risk resulting from a customer’s financial inability to make payment with respect to credit approved receivables. Additionally, CIT shall compensate the Madden Entities for 50% of the losses sustained for limiting or revoking a credit line during production for any made-to-order goods that have work-in-progress coverage. For its services, CIT will be entitled to receive (1) a base fee of 0.15 % of the gross face amount of each receivable assigned for collection having standard payment terms, (2) certain additional fees for receivables with non-standard payment terms or arising from sales to customers outside of the United States, and (3) reimbursement for certain expenses incurred in connection with the CARPA. The Company, on behalf of the Madden Entities, and CIT may each terminate the CARPA as of the last day of the month occurring one year after the date of the CARPA and at any time thereafter by giving the other party at least 60 days’ notice. CIT may also terminate the CARPA immediately upon the occurrence of certain events. The Madden Entities pledged all of their right, title and interest in and to monies due and to become due under the CARPA in favor of the Agent to secure obligations arising under or in connection with the Credit Agreement.
Note Q – Subsequent Event
Acquisition
On October 20, 2023, Daniel M. Friedman & Associates, Inc. (“Buyer”), a New York corporation and a wholly-owned subsidiary of the Company, acquired substantially all of the assets and certain liabilities (the “Business”) of Turn On Products Inc. d/b/a Almost Famous (“Seller” or “Almost Famous”), pursuant to an Asset Purchase Agreement, by and among Buyer, the Company, Seller and the holders of capital stock of Seller. Almost Famous is a designer and marketer of women’s junior apparel and has been the exclusive licensee of Madden NYC apparel since its launch in 2022. Almost Famous distributes its products to wholesale customers, including mass merchants, department stores, off-price retailers and chain stores within the United States. Almost Famous markets products under its own brands, primarily Almost Famous, as well as private label brands for various retailers. The purchase price for the Business was $52 million in cash, subject to a customary working capital adjustment, plus future contingent payments based on the Business achieving certain EBIT targets through September 30, 2027.
Credit Agreement
On October 23, 2023, the Company, and certain subsidiaries of the Company acting as guarantors, entered into the Amendment which amended the Company’s Credit Agreement, as previously amended (the “Existing Agreement”). The Amendment amended the Existing Agreement to accommodate changes made to the Company’s factoring arrangement with CIT pursuant to the Notification Factoring Rider as described below.
As of October 23, 2023, the Credit Agreement continued to provide for a $150 million revolving credit facility scheduled to mature on March 20, 2027, and no loans or letters of credit were outstanding under the Credit Agreement.
20
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 30, 2023
(in thousands except per share data)
Factoring Agreement
On October 23, 2023, the Company and Daniel M. Friedman & Associates, Inc. (“DMFA”), a wholly-owned subsidiary of the Company, entered into a Notification Factoring Rider to the Credit Approved Receivables Purchasing Agreement (“Notification Factoring Rider”) that amended and supplemented the Factoring Agreement, dated April 3, 2023, among the Company, DMFA and certain of the Company’s other subsidiaries party thereto (collectively with the Company, the “Madden Entities”), and CIT. The Notification Factoring Rider enables certain receivables generated from assets acquired by DMFA from Turn On Products Inc. d/b/a Almost Famous (“Post-Acquisition Receivables”), which assets were acquired by DMFA on October 20, 2023, to be subject to the Factoring Agreement.
The Notification Factoring Rider modifies the Factoring Agreement to require, in respect of certain Post-Acquisition Receivables, payment to CIT of a base fee ranging from 0.10 % to 0.20 % of the gross face amount of such Post-Acquisition Receivables assigned to CIT for collection. CIT will generally assume the credit risk resulting from a customer’s financial inability to make payment with respect to certain credit approved Post-Acquisition Receivables. The Company or DMFA may terminate the Notification Factoring Rider, separately from the Factoring Agreement, by giving CIT at least 10 days’ prior written notice of termination. As with monies due and to become due under the Factoring Agreement generally, monies due and to become due to the Company and DMFA under the Notification Factoring Rider are pledged in favor of the Agent to secure obligations under or in connection with the Credit Agreement.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations for the three and nine months ended September 30, 2023 should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.
All references in this Quarterly Report to “we,” “our,” “us” and the “Company” refer to Steven Madden, Ltd. and its subsidiaries unless the context indicates otherwise.
This Quarterly Report contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, among others, statements regarding revenue and earnings guidance, plans, strategies, objectives, expectations and intentions. You can identify forward-looking statements by words such as: “may,” “will,” “expect,” “believe,” “should,” “anticipate,” “project,” “predict,” “plan,” “intend,” or “estimate,” and similar expressions or the negative of these expressions. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they represent our current beliefs, expectations and assumptions regarding anticipated events and trends affecting our business and industry based on information available as of the time such statements are made. We caution investors that such forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which may be outside of our control. Our actual results and financial condition may differ materially from those indicated in these forward-looking statements. As such, investors should not rely upon them. Important risk factors include:
•geopolitical tensions in the regions in which we operate and any related challenging macroeconomic conditions globally may materially and adversely affect our customers, vendors, and partners, and the duration and extent to which these factors may impact our future business and operations, results of operations and financial condition;
•our ability to navigate shifting macro-economic environments including but not limited to inflation and the potential for recessionary conditions;
•our ability to accurately anticipate fashion trends and promptly respond to consumer demand;
•our ability to compete effectively in a highly competitive market;
•our ability to adapt our business model to rapid changes in the retail industry;
•supply chain disruptions to product delivery systems and logistics, and our ability to properly manage inventory;
•our reliance on independent manufacturers to produce and deliver products in a timely manner, especially when faced with adversities such as work stoppages, transportation delays, public health emergencies, social unrest, changes in local economic conditions, and political upheavals as well as their ability to meet our quality standards;
•our dependence on the retention and hiring of key personnel;
•our ability to successfully implement growth strategies;
•changes in trade policies and tariffs imposed by the United States government and the governments of other nations in which we manufacture and sell products;
•our ability to adequately protect our trademarks and other intellectual property rights;
•our ability to maintain adequate liquidity when negatively impacted by unforeseen events such as an epidemic or a pandemic, which may cause disruption to our business operations for an indeterminable period of time;
•legal, regulatory, political and economic risks that may affect our sales in international markets;
•changes in U.S. and foreign tax laws that could have an adverse effect on our financial results;
•additional tax liabilities resulting from audits by various taxing authorities;
•cybersecurity risks and costs of defending against, mitigating, and responding to data security threats and breaches impacting the Company;
•our ability to achieve operating results that are consistent with prior financial guidance; and
•other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.
These risks and uncertainties, along with the risk factors discussed under Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and, in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022, should be considered in evaluating any forward-looking statements contained in this report. We do not undertake any obligation
22
to publicly update any forward-looking statement, including without limitation, any guidance regarding revenue or earnings, whether as a result of new information, future developments or otherwise.
Overview:
($ in thousands, except for retail sales data per square foot, earnings per share and per share data)
Steven Madden, Ltd. and its subsidiaries design, source, and market fashion-forward branded and private label footwear, accessories and apparel for women, men, and children. We distribute our products in the wholesale channel through department stores, mass merchants, off-price retailers, shoe chains, online retailers, national chains, specialty retailers, independent stores, and clubs throughout the United States, Canada, Mexico, and Europe, and other international markets through our joint ventures in Israel, South Africa, China, Taiwan, Malaysia, and the Middle East along with special distribution arrangements in certain European countries, North Africa, South and Central America, Australia, and various countries in Asia. In addition, our products are distributed through our direct-to-consumer channel within the United States, Canada, Mexico, and Europe, and our joint ventures in Israel, South Africa, China, Taiwan, and the Middle East.
Our product lines include a broad range of contemporary styles designed to establish or capitalize on market trends, complemented by core product offerings. We have established a reputation for design creativity and our ability to offer quality, trend-right products at accessible price points, delivered in an efficient manner and time frame.
We manage our operations through our operating divisions, which are presented as the following reportable segments: Wholesale Footwear, Wholesale Accessories/Apparel, Direct-to-Consumer, and Licensing. As of January 2023, the Company no longer serves as a buying agent for any of its customers, and as a result no longer reports under the First Cost segment. This change is not considered to have a material or meaningful impact on the Company's operations. Our Wholesale Footwear segment designs, sources, and markets our brands and sells our products to department stores, mass merchants, off-price retailers, shoe chains, online retailers, national chains, specialty retailers, independent stores, and clubs throughout the United States, Canada, Mexico, and Europe, and through our joint ventures and international distributor network. Our Wholesale Accessories/Apparel segment designs, sources, and markets our brands and sells our products to department stores, mass merchants, off-price retailers, online retailers, specialty retailers, independent stores and clubs throughout the United States, Canada, Mexico, and Europe and through our joint ventures and international distributor network. Our Direct-to-Consumer segment consists of Steve Madden® and Dolce Vita® full-price retail stores, Steve Madden® outlet stores, and our directly-operated digital e-commerce websites. We operate retail locations in regional malls and shopping centers, as well as high streets in major cities across the United States, Canada, Mexico, Israel, South Africa, Taiwan, China, and the Middle East. Our Licensing segment is engaged in the licensing of the Steve Madden® and Betsey Johnson® trademarks for use in the sale of select apparel, accessory, and home categories as well as various other non-core products. Corporate does not constitute a reportable segment and includes costs not directly attributable to the segments. These costs are primarily related to expenses associated with corporate executives, corporate finance, corporate social responsibility, legal, human resources, information technology, cyber security, and other shared services.
Executive Summary
Key Highlights
Total revenue for the quarter ended September 30, 2023 decreased 0.7% to $552,732 compared to $556,643 in the same period of last year. Net income attributable to Steven Madden, Ltd. was $64,413 in the third quarter of 2023 compared to $61,297 in the same period of last year. Our effective tax rate for the third quarter of 2023 increased to 23.1% compared to 22.9% in the third quarter of last year. Diluted earnings per share was $0.87 per share on 74,071 diluted weighted average shares outstanding compared to diluted earnings of $0.79 per share on 77,396 diluted weighted average shares outstanding in the third quarter of last year.
Our inventory turnover (calculated on a trailing four quarter average) for the quarter ended September 30, 2023 was 5.4 compared to 5.1 times at September 30, 2022. Our total Company accounts receivable average collection days decreased to 61 days in the third quarter of 2023 compared to 68 days in the third quarter of 2022. As of September 30, 2023, we had $206,445 in cash, cash equivalents and short-term investments, no debt and total stockholders’ equity of $853,714. Working capital was $521,823 as of September 30, 2023, compared to $537,168 as of September 30, 2022.
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The following tables set forth information on operations for the periods indicated:
Selected Financial Information
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| (in thousands, except for number of stores) | 2023 | 2022 | ||||||||||||||||||||||||
| CONSOLIDATED: | ||||||||||||||||||||||||||
| Net sales | $ | 549,846 | 99.5 | % | $ | 553,120 | 99.4 | % | ||||||||||||||||||
| Commission and licensing income | 2,886 | 0.5 | % | 3,523 | 0.6 | % | ||||||||||||||||||||
| Total revenue | 552,732 | 100.0 | % | 556,643 | 100.0 | % | ||||||||||||||||||||
Cost of sales (exclusive of depreciation and amortization) | 320,107 | 57.9 | % | 327,167 | 58.8 | % | ||||||||||||||||||||
| Gross profit | 232,625 | 42.1 | % | 229,476 | 41.2 | % | ||||||||||||||||||||
| Operating expenses | 149,887 | 27.1 | % | 150,724 | 27.1 | % | ||||||||||||||||||||
| Income from operations | 82,738 | 15.0 | % | 78,752 | 14.1 | % | ||||||||||||||||||||
| Interest and other income – net | 1,922 | 0.3 | % | 1,340 | 0.2 | % | ||||||||||||||||||||
| Income before provision for income taxes | $ | 84,660 | 15.3 | % | $ | 80,092 | 14.4 | % | ||||||||||||||||||
| Net income attributable to Steven Madden, Ltd. | $ | 64,413 | 11.7 | % | $ | 61,297 | 11.0 | % | ||||||||||||||||||
| BY SEGMENT: | ||||||||||||||||||||||||||
| WHOLESALE FOOTWEAR SEGMENT: | ||||||||||||||||||||||||||
| Total Revenue | $ | 306,058 | 100.0 | % | $ | 330,775 | 100.0 | % | ||||||||||||||||||
Cost of sales (exclusive of depreciation and amortization) | 193,770 | 63.3 | % | 206,420 | 62.4 | % | ||||||||||||||||||||
| Gross profit | 112,288 | 36.7 | % | 124,355 | 37.6 | % | ||||||||||||||||||||
| Operating expenses | 43,997 | 14.4 | % | 45,778 | 13.8 | % | ||||||||||||||||||||
| Income from operations | $ | 68,291 | 22.3 | % | $ | 78,577 | 23.8 | % | ||||||||||||||||||
| WHOLESALE ACCESSORIES/APPAREL SEGMENT: | ||||||||||||||||||||||||||
| Total Revenue | $ | 127,395 | 100.0 | % | $ | 103,851 | 100.0 | % | ||||||||||||||||||
Cost of sales (exclusive of depreciation and amortization) | 84,029 | 66.0 | % | 74,797 | 72.0 | % | ||||||||||||||||||||
| Gross profit | 43,366 | 34.0 | % | 29,054 | 28.0 | % | ||||||||||||||||||||
| Operating expenses | 19,202 | 15.1 | % | 20,080 | 19.3 | % | ||||||||||||||||||||
| Income from operations | $ | 24,164 | 19.0 | % | $ | 8,974 | 8.6 | % | ||||||||||||||||||
| DIRECT-TO-CONSUMER SEGMENT: | ||||||||||||||||||||||||||
| Total Revenue | $ | 116,393 | 100.0 | % | $ | 118,494 | 100.0 | % | ||||||||||||||||||
Cost of sales (exclusive of depreciation and amortization) | 42,308 | 36.3 | % | 45,950 | 38.8 | % | ||||||||||||||||||||
| Gross profit | 74,085 | 63.7 | % | 72,544 | 61.2 | % | ||||||||||||||||||||
| Operating expenses | 64,344 | 55.3 | % | 62,659 | 52.9 | % | ||||||||||||||||||||
| Income from operations | $ | 9,741 | 8.4 | % | $ | 9,885 | 8.3 | % | ||||||||||||||||||
| Number of stores | 256 | 222 | ||||||||||||||||||||||||
| FIRST COST SEGMENT: | ||||||||||||||||||||||||||
| Commission income | $ | — | — | % | $ | 1 | 100.0 | % | ||||||||||||||||||
| Gross profit | — | — | % | 1 | 100.0 | % | ||||||||||||||||||||
| Operating expenses | — | — | % | 61 | 6,100.0 | % | ||||||||||||||||||||
| Loss from operations | $ | — | — | % | $ | (60) | (6,000.0 | %) | ||||||||||||||||||
| LICENSING SEGMENT: | ||||||||||||||||||||||||||
| Licensing income | $ | 2,886 | 100.0 | % | $ | 3,522 | 100.0 | % | ||||||||||||||||||
| Gross profit | 2,886 | 100.0 | % | 3,522 | 100.0 | % | ||||||||||||||||||||
| Operating expenses | 729 | 25.3 | % | 254 | 7.2 | % | ||||||||||||||||||||
| Income from operations | $ | 2,157 | 74.7 | % | $ | 3,268 | 92.8 | % | ||||||||||||||||||
| Corporate: | ||||||||||||||||||||||||||
| Operating expenses | $ | 21,615 | — | % | $ | 21,892 | — | % | ||||||||||||||||||
| Loss from operations | $ | (21,615) | — | % | $ | (21,892) | — | % | ||||||||||||||||||
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RESULTS OF OPERATIONS
($ in thousands, except for number of stores)
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
Consolidated:
Total revenue for the three months ended September 30, 2023 decreased 0.7% to $552,732 compared to $556,643 in the same period of the prior year, due to decreases in both the Wholesale Footwear and Direct-to-Consumer businesses partially offset by an increase in the Wholesale Accessories/Apparel business. Gross profit was $232,625, or 42.1% of total revenue, as compared to $229,476, or 41.2% of total revenue, in the prior-year period. The increase in gross profit as a percentage of total revenue was primarily driven by improvement in gross margin in the Wholesale Accessories/Apparel and Direct-to-Consumer segments, partially offset by lower gross margin in the Wholesale Footwear segment. Operating expenses in the third quarter of 2023 were $149,887, or 27.1% of total revenue, as compared to $150,724, or 27.1% of total revenue, in the third quarter of the prior year. Income from operations for the three months ended September 30, 2023 increased to $82,738, or 15.0% of total revenue, as compared to $78,752, or 14.1% of total revenue, in the prior-year period. The effective tax rate in the third quarter of 2023 was 23.1% compared to 22.9% in the third quarter of last year. Net income attributable to Steven Madden, Ltd. for the third quarter of 2023 was $64,413 compared to $61,297 in the third quarter of 2022.
Wholesale Footwear Segment:
Revenue from the Wholesale Footwear segment in the third quarter of 2023 accounted for $306,058, or 55.4% of total revenue, as compared to $330,775, or 59.4% of total revenue, in the third quarter of 2022. Wholesale Footwear revenue decreased 7.5% compared to the same quarter of 2022 due to continued moderation in wholesale customers' order patterns as they continue to focus on inventory control in a challenging retail environment. Gross profit was $112,288, or 36.7% of Wholesale Footwear revenue, in the third quarter of 2023 as compared to $124,355, or 37.6% of Wholesale Footwear revenue, in the third quarter of 2022. The decrease in gross profit as a percentage of revenue was primarily due to a higher penetration of the private label business. Operating expenses in the third quarter of 2023 were $43,997, or 14.4% of Wholesale Footwear revenue, as compared to $45,778, or 13.8% of Wholesale Footwear revenue, in the third quarter of the prior year. The increase in operating expenses as a percentage of Wholesale Footwear revenue was primarily attributable to expense deleverage on a lower revenue base. Income from operations decreased to $68,291, or 22.3% of Wholesale Footwear revenue, in the third quarter of 2023 as compared to $78,577, or 23.8% of Wholesale Footwear revenue in the third quarter of the prior year.
Wholesale Accessories/Apparel Segment:
Revenue from the Wholesale Accessories/Apparel segment in the third quarter of 2023 accounted for $127,395, or 23.0% of total revenue, as compared to $103,851, or 18.7% of total revenue, in the third quarter of 2022. Wholesale Accessories/Apparel revenue increased 22.7% compared to the same quarter of 2022 driven by strength in Steve Madden handbags. Gross profit was $43,366, or 34.0% of Wholesale Accessories/Apparel revenue, in the third quarter of 2023 as compared to $29,054, or 28.0% of Wholesale Accessories/Apparel revenue, in the third quarter of the prior year. The increase in gross profit as a percentage of revenue was due to lower freight expenses, improved production costs, and a lower penetration of our private label business. Operating expenses in the third quarter of 2023 were $19,202, or 15.1% of Wholesale Accessories/Apparel revenue, as compared to $20,080, or 19.3% of Wholesale Accessories/Apparel revenue, in the third quarter of the prior year. The decrease in operating expenses as a percentage of Wholesale Accessories/Apparel revenue was primarily attributable to expense leverage on a higher revenue base and the unfavorable impact of the accelerated amortization of a trademark that occurred in the third quarter of 2022, partially offset by the benefit in connection with the change in valuation of our contingent consideration that occurred in the third quarter of 2022. Income from operations increased to $24,164, or 19.0% of Wholesale Accessories/Apparel revenue, in the third quarter of 2023, as compared to $8,974, or 8.6% of Wholesale Accessories/Apparel revenue in the third quarter of the prior year.
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Direct-to-Consumer Segment:
In the third quarter of 2023, revenue from the Direct-to-Consumer segment accounted for $116,393, or 21.1% of total revenue, as compared to $118,494, or 21.3% of total revenue, in the third quarter of 2022. Revenue decreased 1.8% compared to the prior year period, primarily driven by a decline in our e-commerce business and brick-and-mortar comparable store sales, partially offset by the addition of the Middle East joint-venture. As of September 30, 2023, we operated 251 brick-and-mortar stores and five e-commerce websites compared to 216 brick-and-mortar stores and six e-commerce websites as of September 30, 2022. In addition, we operated 22 concessions in international markets as of September 30, 2023 compared to 20 concessions in international markets as of September 30, 2022. Gross profit in the third quarter of 2023 was $74,085, or 63.7% of Direct-to-Consumer revenue, compared to $72,544, or 61.2% of Direct-to-Consumer revenue, in the third quarter of 2022. The increase in gross profit as a percentage of revenue was primarily due to lower freight expenses and a reduction in promotional activity. Operating expenses in the third quarter of 2023 were $64,344, or 55.3% of Direct-to-Consumer revenue, as compared to $62,659, or 52.9% of Direct-to-Consumer revenue, in the third quarter of 2022. The increase in operating expenses as a percentage of revenue was primarily attributable to expense deleverage on a lower revenue base. In the third quarter of 2023, income from operations for the Direct-to-Consumer segment decreased to $9,741, or 8.4% of Direct-to-Consumer revenue, as compared to $9,885, or 8.3% of Direct-to-Consumer revenue, in the third quarter of the prior year.
First Cost Segment:
As of January 2023, the Company no longer serves as a buying agent for any of its customers, and as a result no longer reports under the First Cost segment. This change is not considered to have a material or meaningful impact on the Company's operations. In the third quarter of 2022, commission income generated by the First Cost segment was $1, operating expenses was $61, and loss from operations was $60.
Licensing Segment:
Royalty income generated by the Licensing segment accounted for $2,886, or 0.5% of total revenue, in the third quarter of 2023 compared to $3,522, or 0.6% of total revenue, in the third quarter of 2022. Operating expenses were $729 in the current period compared to $254 in the same period of the prior year. In the third quarter of 2023, income from operations for the Licensing segment was $2,157 as compared to $3,268 in the same period last year.
Corporate:
Corporate does not constitute a reportable segment and includes costs not directly attributable to the segments. These costs are primarily related to expenses associated with corporate executives, corporate finance, corporate social responsibility, legal, human resources, information technology, cyber security, and other shared services. Corporate operating expenses were $21,615, or 3.9% of total revenue, in the third quarter of 2023 as compared to $21,892, or 3.9% of total revenue, in the third quarter of 2022.
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Selected Financial Information
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
| (in thousands, except for number of stores) | 2023 | 2022 | ||||||||||||||||||||||||
| CONSOLIDATED: | ||||||||||||||||||||||||||
| Net sales | $ | 1,454,420 | 99.5 | % | $ | 1,643,144 | 99.5 | % | ||||||||||||||||||
| Commission and licensing income | 7,448 | 0.5 | % | 8,222 | 0.5 | % | ||||||||||||||||||||
| Total revenue | 1,461,868 | 100.0 | % | 1,651,366 | 100.0 | % | ||||||||||||||||||||
Cost of sales (exclusive of depreciation and amortization) | 844,281 | 57.8 | % | 976,227 | 59.1 | % | ||||||||||||||||||||
| Gross profit | 617,587 | 42.2 | % | 675,139 | 40.9 | % | ||||||||||||||||||||
| Operating expenses | 444,298 | 30.4 | % | 433,252 | 26.2 | % | ||||||||||||||||||||
| Income from operations | 173,289 | 11.9 | % | 241,887 | 14.6 | % | ||||||||||||||||||||
| Interest and other income – net | 5,898 | 0.4 | % | 106 | — | % | ||||||||||||||||||||
| Income before provision for income taxes | $ | 179,187 | 12.3 | % | $ | 241,993 | 14.7 | % | ||||||||||||||||||
| Net income attributable to Steven Madden, Ltd. | $ | 135,673 | 9.3 | % | $ | 184,270 | 11.2 | % | ||||||||||||||||||
| BY SEGMENT: | ||||||||||||||||||||||||||
| WHOLESALE FOOTWEAR SEGMENT: | ||||||||||||||||||||||||||
| Total revenue | $ | 823,288 | 100.0 | % | $ | 968,886 | 100.0 | % | ||||||||||||||||||
Cost of sales (exclusive of depreciation and amortization) | 524,432 | 63.7 | % | 608,590 | 62.8 | % | ||||||||||||||||||||
| Gross profit | 298,856 | 36.3 | % | 360,296 | 37.2 | % | ||||||||||||||||||||
| Operating expenses | 124,784 | 15.2 | % | 127,627 | 13.2 | % | ||||||||||||||||||||
| Income from operations | $ | 174,072 | 21.1 | % | $ | 232,669 | 24.0 | % | ||||||||||||||||||
| WHOLESALE ACCESSORIES/APPAREL SEGMENT: | ||||||||||||||||||||||||||
| Total revenue | $ | 286,935 | 100.0 | % | $ | 311,877 | 100.0 | % | ||||||||||||||||||
Cost of sales (exclusive of depreciation and amortization) | 190,345 | 66.3 | % | 235,261 | 75.4 | % | ||||||||||||||||||||
| Gross profit | 96,590 | 33.7 | % | 76,616 | 24.6 | % | ||||||||||||||||||||
| Operating expenses | 51,607 | 18.0 | % | 51,146 | 16.4 | % | ||||||||||||||||||||
| Income from operations | $ | 44,983 | 15.7 | % | $ | 25,470 | 8.2 | % | ||||||||||||||||||
| DIRECT-TO-CONSUMER SEGMENT: | ||||||||||||||||||||||||||
| Total revenue | $ | 344,197 | 100.0 | % | $ | 362,381 | 100.0 | % | ||||||||||||||||||
Cost of sales (exclusive of depreciation and amortization) | 129,504 | 37.6 | % | 132,376 | 36.5 | % | ||||||||||||||||||||
| Gross profit | 214,693 | 62.4 | % | 230,005 | 63.5 | % | ||||||||||||||||||||
| Operating expenses | 198,870 | 57.8 | % | 187,338 | 51.7 | % | ||||||||||||||||||||
| Income from operations | $ | 15,823 | 4.6 | % | $ | 42,667 | 11.8 | % | ||||||||||||||||||
| Number of stores | 256 | 222 | ||||||||||||||||||||||||
| FIRST COST SEGMENT: | ||||||||||||||||||||||||||
| Commission income | $ | — | — | % | $ | 914 | 100.0 | % | ||||||||||||||||||
| Gross profit | — | — | % | 914 | 100.0 | % | ||||||||||||||||||||
| Operating expenses | — | — | % | 204 | 22.3 | % | ||||||||||||||||||||
| Income from operations | $ | — | — | % | $ | 710 | 77.7 | % | ||||||||||||||||||
| LICENSING SEGMENT: | ||||||||||||||||||||||||||
| Licensing income | $ | 7,448 | 100.0 | % | $ | 7,308 | 100.0 | % | ||||||||||||||||||
| Gross profit | 7,448 | 100.0 | % | 7,308 | 100.0 | % | ||||||||||||||||||||
| Operating expenses | 2,201 | 29.6 | % | 1,433 | 19.6 | % | ||||||||||||||||||||
| Income from operations | $ | 5,247 | 70.4 | % | $ | 5,875 | 80.4 | % | ||||||||||||||||||
| Corporate: | ||||||||||||||||||||||||||
| Operating expenses | 66,836 | — | % | $ | 65,504 | — | % | |||||||||||||||||||
| Loss from operations | $ | (66,836) | — | % | $ | (65,504) | — | % | ||||||||||||||||||
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Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Consolidated:
Total revenue in the nine months ended September 30, 2023 decreased 11.5% to $1,461,868 compared to $1,651,366 in the same period of the prior year with decreases in the Wholesale Footwear, Wholesale Accessories/Apparel and Direct-to-Consumer businesses. Gross profit was $617,587, or 42.2% of total revenue, as compared to $675,139, or 40.9% of total revenue, in the prior-year period. The increase in gross profit as a percentage of total revenue was primarily driven by an improvement in gross margin in the Wholesale Accessories/Apparel segment, partially offset by lower gross margin in the Wholesale Footwear and Direct-to-Consumer segments. Operating expenses for the first nine months of 2023 were $444,298, or 30.4% of total revenue, as compared to $433,252, or 26.2% of total revenue, in the first nine months of the prior year. The increase in operating expenses as a percentage of total revenue was primarily attributable to expense deleverage on a lower revenue base. Income from operations decreased to $173,289, or 11.9% of total revenue, as compared to income from operations of $241,887, or 14.6% of total revenue, in the prior-year period. The effective tax rate in the first nine months of 2023 was 23.6% compared to 23.4% in the first nine months of the prior year. Net income attributable to Steven Madden, Ltd. in the first nine months of 2023 was $135,673 compared to $184,270 in the same period of 2022.
Wholesale Footwear Segment:
Revenue from the Wholesale Footwear segment in the first nine months of 2023 accounted for $823,288, or 56.3% of total revenue, as compared to $968,886, or 58.7% of total revenue, in the first nine months of 2022. The 15.0% decrease in revenue is due to a moderation in wholesale customers' order patterns as they continue to focus on inventory control in a challenging retail environment, impacting both our branded and private label businesses. Gross profit was $298,856, or 36.3% of Wholesale Footwear revenue, in the first nine months of 2023 as compared to $360,296, or 37.2% of Wholesale Footwear revenue, in the first nine months of 2022. The decrease in gross profit as a percentage of revenue was primarily due to higher promotional activity partially offset by lower freight expenses. Operating expenses in the first nine months of 2023 were $124,784, or 15.2% of Wholesale Footwear revenue, as compared to $127,627, or 13.2% of Wholesale Footwear revenue, in the first nine months of the prior year. The increase in operating expenses as a percentage of Wholesale Footwear revenue was primarily due to expense deleverage on a lower revenue base. Income from operations decreased to $174,072, or 21.1% of Wholesale Footwear revenue in the first nine months of 2023 as compared to $232,669, or 24.0% of Wholesale Footwear revenue, in the same period of the prior year.
Wholesale Accessories/Apparel Segment:
Revenue from the Wholesale Accessories/Apparel segment in the first nine months of 2023 accounted for $286,935, or 19.6% of total revenue, as compared to $311,877, or 18.9% of total revenue, in the first nine months of 2022. The 8.0% decrease in revenue is due to a moderation in wholesale customers' order patterns as they continue to focus on inventory control in a challenging retail environment primarily impacting our private label business. Gross profit was $96,590, or 33.7% of Wholesale Accessories/Apparel revenue, in the first nine months of 2023 as compared to $76,616, or 24.6% of Wholesale Accessories/Apparel revenue, in the first nine months of the prior year. The increase in gross profit as a percentage of revenue was primarily due to lower freight costs, improved production costs, lower markdown allowances and a lower penetration of our private label business. Operating expenses in the first nine months of 2023 were $51,607, or 18.0% of Wholesale Accessories/Apparel revenue, as compared to $51,146, or 16.4% of Wholesale Accessories/Apparel revenue, in the same period of the prior year. The increase in operating expenses as a percentage of Wholesale Accessories/Apparel revenue was primarily attributable to expense deleverage on a lower revenue base and the benefit from the change in valuation of our contingent consideration that occurred in the first nine months of 2022 partially offset by the unfavorable impact of the accelerated amortization of a trademark that occurred in the first nine months of 2022. Income from operations for the Wholesale Accessories/Apparel segment in the first nine months of 2023 was $44,983, or 15.7% of Wholesale Accessories/Apparel revenue, as compared to $25,470, or 8.2% of Wholesale Accessories/Apparel revenue, in the same period of the prior year.
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Direct-to-Consumer Segment:
In the first nine months of 2023, revenue from the Direct-to-Consumer segment accounted for $344,197, or 23.5% of total revenue, as compared to $362,381, or 21.9% of total revenue, in the first nine months of 2022. The 5.0% decrease in revenue was driven by decreases in both our brick-and-mortar and e-commerce businesses. Gross profit in the first nine months of 2023 was $214,693, or 62.4% of Direct-to-Consumer revenue, compared to $230,005, or 63.5% of Direct-to-Consumer revenue, in the first nine months of 2022. The decrease in gross profit as a percentage of revenue was primarily due to an increase in promotional activity, partially offset by lower freight costs. Operating expenses in the first nine months of 2023 were $198,870, or 57.8% of Direct-to-Consumer revenue, as compared to $187,338, or 51.7% of Direct-to-Consumer revenue, in the first nine months of 2022. The increase in operating expenses as a percentage of revenue was primarily attributable to expense deleverage on a lower revenue base. In the first nine months of 2023, income from operations for the Direct-to-Consumer segment was $15,823, or 4.6% of Direct-to-Consumer revenue, as compared to $42,667, or 11.8% of Direct-to-Consumer revenue, in the same period last year.
First Cost Segment:
As of January 2023, the Company no longer serves as a buying agent for any of its customers, and as a result no longer reports under the First Cost segment. This change is not considered to have a material or meaningful impact on the Company's operations. In the first nine months of 2022, commission income generated by the First Cost segment accounted for $914, operating expenses were $204, and income from operations was $710.
Licensing Segment:
Royalty income generated by the Licensing segment accounted for $7,448, or 0.5% of total revenue, in the first nine months of 2023 compared to $7,308, or 0.4% of total revenue, in the first nine months of 2022. Operating expenses increased to $2,201 in the current period compared to $1,433 in the same period of the prior year. Income from the Licensing segment was $5,247 in the first nine months of 2023 as compared to $5,875 in the same period last year.
Corporate:
Corporate does not constitute a reportable segment and includes costs not directly attributable to the segments. These costs are primarily related to expenses associated with corporate executives, corporate finance, corporate social responsibility, legal, human resources, information technology, cyber security, and other shared services. Corporate operating expenses amounted to $66,836 or 4.6% of total revenue in the first nine months of 2023 as compared to $65,504 or 4.0% of total revenue in the same period last year.
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Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations, cash, cash equivalents and short-term investments. Cash, cash equivalents and short-term investments totaled $206,445 and $289,798 at September 30, 2023 and December 31, 2022, respectively. Of the total cash, cash equivalents and short-term investments as of September 30, 2023, $112,322, or approximately 54%, was held in our foreign subsidiaries, and of the total cash, cash equivalents and short-term investments on December 31, 2022, $133,729, or approximately 46%, was held in our foreign subsidiaries.
On July 22, 2020, we entered into a $150,000, five-year, asset-based revolving credit facility with various lenders and Citizens Bank, N.A. On March 25, 2022, we entered into an amendment to the revolving credit facility, which replaced the London Interbank Offering Rate (“LIBOR”) with the Bloomberg Short-Term Bank Yield Index (“BSBY”) as the interest rate benchmark, among other changes.
As of September 30, 2023, we had working capital of $521,823, cash and cash equivalents of $191,804, short-term investments of $14,641, no cash borrowing and $504 in letters of credit outstanding unrelated to the Credit Agreement.
We believe that based on our current financial position and available cash, cash equivalents, and short-term investments, we will meet all our financial commitments and operating needs for at least the next twelve months. In addition, our $150,000 asset-based revolving credit facility provides us with additional liquidity and flexibility on a long-term basis.
Cash Flows
A summary of our cash provided by and used in operating, investing, and financing activities was as follows:
Operating Activities
Cash provided by operations was $77,756 for the nine months ended September 30, 2023 compared to $66,747 in the same period of the prior year. The increase in cash provided by operations was primarily driven by less cash used in inventories and accounts payable and accrued expenses partially offset by unfavorable changes in net income and receivables.
Investing Activities
Cash used in investing activities was $13,543 for the nine months ended September 30, 2023, which consisted of purchases of $15,979 in short-term investments offset by cash received of $16,335 from the maturities and sales of short-term investments. We also made capital expenditures of $13,899, principally for leasehold improvements, new stores and systems enhancements.
Financing Activities
During the nine months ended September 30, 2023, net cash used in financing activities was $147,158, which primarily consisted of share repurchases and net settlements of stock awards of $104,215, cash dividends paid of $47,594, partially offset by an investment of a noncontrolling interest of $4,582.
Contractual Obligations
Our contractual obligations as of September 30, 2023 were as follows:
| Payment due by period | ||||||||||||||||||||||||||||||||
| Contractual Obligations | Total | Remainder of 2023 | 2024-2025 | 2026-2027 | 2028 and after | |||||||||||||||||||||||||||
Operating lease obligations(1) | $ | 142,163 | $ | 11,101 | $ | 74,390 | $ | 39,968 | $ | 16,704 | ||||||||||||||||||||||
| Purchase obligations | 217,670 | 152,355 | 65,260 | 55 | — | |||||||||||||||||||||||||||
| Future minimum royalty and advertising payments | 18,000 | — | 12,000 | 6,000 | — | |||||||||||||||||||||||||||
| Transition tax | 11,721 | 2,930 | 8,791 | — | — | |||||||||||||||||||||||||||
| Total | $ | 389,554 | $ | 166,386 | $ | 160,441 | $ | 46,023 | $ | 16,704 | ||||||||||||||||||||||
(1) Refer to Note F – Leases to the Condensed Consolidated Financial Statements included in this Quarterly Report for further information.
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Substantially all our products are produced by independent manufacturers at overseas locations, the majority of which are located in China, with a growing percentage located in Cambodia, Mexico, Brazil and some European nations. We have not entered into any long-term manufacturing or supply contracts with any of these foreign manufacturers. We believe that a sufficient number of alternative sources exist outside of the United States for the manufacture of our products. Purchases are made primarily in United States dollars.
We have employment agreements with our Creative and Design Chief, Steven Madden, and certain executive officers, which provide for the payment of compensation aggregating to approximately $2,629 in the remainder of 2023, $9,588 in 2024, and $8,048 in 2025. In addition, some of these employment agreements provide for discretionary bonuses and some provide for incentive compensation based on various performance criteria as well as other benefits, including stock-related compensation.
Transition tax of $11,721 was the result of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). Excluded from the contractual obligations table above are long-term taxes payable of $1,145 as of September 30, 2023 primarily related to uncertain tax positions, for which we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond one year due to uncertainties in the timing of tax audit outcomes.
Dividends
On November 7, 2023, our Board of Directors approved a quarterly cash dividend. The quarterly dividend of $0.21 per share is payable on December 29, 2023 to stockholders of record as of the close of business on December 15, 2023.
Future quarterly cash dividend payments are subject to the discretion of our Board of Directors and contingent upon future earnings, our financial condition, capital requirements, general business conditions, and other factors. Therefore, we can give no assurance that cash dividends will be paid to holders of our common stock in the future.
Inflation
Actual results could be negatively and materially impacted due to risks and uncertainties, including the impacts of inflationary pressures globally and the war in Ukraine, the war in the Middle East and the related broader macroeconomic implications. Consumer spending has been and may continue to be negatively impacted by inflationary pressures, and other macroeconomic and geopolitical factors. All these factors have negatively impacted, and might continue to negatively impact, our direct sales to end consumers and our sales to our wholesale customers. Historically, we have minimized the impact of product, wages and logistic cost increases by raising prices, renegotiating costs, changing suppliers, and improving operating efficiencies. However, no assurance can be given that we will be able to offset such inflationary cost increases in the future.
Off-Balance Sheet Arrangements
In addition to the commitments included in the Contractual Obligations table above, we have outstanding letters of credit of $504 outstanding as of September 30, 2023 related to the purchase of inventory. These letters of credit expire at various dates through 2030.
We do not maintain any other off-balance sheet arrangements, transactions, obligations, or other relationships with unconsolidated entities that would be expected to have a material current or future effect on our consolidated financial statements. Refer to Note M – Commitments, Contingencies and Other to the Condensed Consolidated Financial Statements included in this Quarterly Report for further information.
Critical Accounting Policies and the Use of Estimates
There have been no material changes to our critical accounting policies and the use of estimates from these disclosures reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission on March 1, 2023.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
($ in thousands)
Interest Rate Risk
We do not engage in the trading of market risk sensitive instruments in the normal course of business. Our financing arrangements are subject to variable interest rates, primarily based on the prime rate and the BSBY. The terms of our $150,000 asset-based revolving credit agreement (the “Credit Facility”) and our collection agency agreements with Rosenthal & Rosenthal, Inc. and CIT Group/Commercial Services, Inc. can be found in the Liquidity and Capital Resources section of Item 2 and in Note O – Credit Agreement and Note P – Factoring Agreements, respectively, to the Condensed Consolidated Financial Statements included in this Quarterly Report. Because we had no cash borrowings under the Credit Facility as of September 30, 2023, a 10% change in interest rates, with all other variables held constant, would have an immaterial effect on our reported interest expense.
As of September 30, 2023, we held short-term investments valued at $14,641, which consist of certificates of deposit. We have the ability to hold these investments until maturity.
Foreign Currency Exchange Rate Risk
We face market risk to the extent that our U.S. or foreign operations involve the transaction of business in foreign currencies. In addition, our inventory purchases are primarily done in foreign jurisdictions and inventory purchases may be impacted by fluctuations in the exchange rates between the U.S. dollar and the local currencies of our contract manufacturers, which could have the effect of increasing the cost of goods sold in the future. We manage these risks primarily by denominating these purchases in U.S. dollars. To mitigate the risk of purchases, that are denominated in foreign currencies, we may enter into forward foreign exchange contracts for terms of no more than two years. A description of our accounting policies for derivative financial instruments is included in Note L – Derivative Instruments to the Condensed Consolidated Financial Statements.
As of September 30, 2023, we had entered into forward foreign exchange contracts with notional amounts totaling $74,930 . We performed a sensitivity analysis based on a model that measures the impact of a hypothetical change in foreign currency exchange rates to determine the effects that market risk exposures may have on the fair values of our forward foreign exchange contracts that were outstanding as of September 30, 2023. As of September 30, 2023, a 10% increase or decrease of the U.S. dollar against the exchange rates for foreign currencies under forward foreign exchange contracts, with all other variables held constant, would result in a net increase or decrease in the fair value of our derivatives portfolio of approximately $58, which is immaterial to the Condensed Consolidated Financial Statements.
In addition, we are exposed to translation risk in connection with our foreign operations in Canada, Mexico, Europe, South Africa, China, Taiwan, Israel, Malaysia, and the Middle East because our subsidiaries and joint ventures in these countries utilize the local currency as their functional currency, and those financial results are translated into U.S. dollars. As currency exchange rates fluctuate, foreign currency exchange rate translation adjustments reflected in our financial statements with respect to our foreign operations affects the comparability of financial results between years.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter covered by this Quarterly Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were, as of the end of the fiscal quarter covered by this Quarterly Report, effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal controls over financial reporting to determine whether any changes occurred during the quarter covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, we have various pending cases involving contractual disputes, employee-related matters, distribution matters, product liability claims, intellectual property infringement and other matters. In the opinion of management, after consulting with legal counsel, the liabilities, if any, resulting from these legal proceedings should not have a material impact on our financial condition, results of operations or liquidity.
ITEM 1A. RISK FACTORS
You are encouraged to review the discussion of Forward-Looking Statements and Risk Factors appearing in this report at Part I, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023 (the “2022 Form 10-K”) which could materially affect our business, financial condition, operating results, earnings or stock price, in various ways. The risks described in the 2022 Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
During the nine months ended September 30, 2023, there have been no material changes from the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in the 2022 Form 10-K other than the addition of the following risk factor:
Geopolitical tensions in the regions in which we operate and any related challenging macroeconomic conditions globally may materially and adversely affect our customers, vendors, and partners, and the duration and extent to which these factors may impact our future business and operations, results of operations, and financial condition remains uncertain.
On October 7, 2023, Hamas, a U.S. designated terrorist organization, launched a series of coordinated attacks from the Gaza Strip onto Israel. On October 8, 2023, Israel formally declared war on Hamas, and the armed conflict is ongoing as of the date of this filing. Hostilities between Israel and Hamas could escalate and involve surrounding countries in the Middle East, a region in which we operate. Although the length, impact, and outcome of the military conflict between Israel and Hamas are highly unpredictable, this conflict could lead to significant market and other disruptions, including significant disruptions to the operations of our joint ventures in Israel and the Middle East, instability in financial markets, supply chain disruptions, political and social instability and other material and adverse effects on the macroeconomic conditions. At this time, it is not possible to predict or determine the ultimate consequence of this regional conflict. The conflict between Hamas and Israel and its broader impacts could have a lasting affect on the short- and long-term operations and financial condition of our business and the global economy.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
($ in thousands, except par value and per share data)
The following table presents the total number of shares of our common stock, par value $0.0001 per share, purchased by us in the three months ended September 30, 2023, the average price paid per share, the amount of shares purchased pursuant to our Share Repurchase Program and the approximate dollar value of the shares that still could have been purchased at the end of the fiscal period pursuant to our Share Repurchase Program. See Note G – Share Repurchase Program to the Condensed Consolidated Financial Statements for further details on our Share Repurchase Program. During the three months ended September 30, 2023, there were no sales by us of unregistered shares of common stock.
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||
| 7/1/2023 - 7/31/2023 | 4 | $ | 32.79 | — | $ | 224,769 | |||||||||||||||||
| 8/1/2023 - 8/31/2023 | 1,927 | $ | 35.01 | 549 | $ | 205,716 | |||||||||||||||||
| 9/1/2023 - 9/30/2023 | 366 | $ | 33.00 | 365 | $ | 193,676 | |||||||||||||||||
| Total | 2,297 | $ | 34.69 | 914 | |||||||||||||||||||
(1) The Steven Madden, Ltd. 2019 Incentive Compensation Plan and its predecessor plan, the Steven Madden, Ltd. Amended and Restated 2006 Stock Incentive Plan, each provide us with the right to deduct or withhold, or require employees to remit to us, an amount sufficient to satisfy all or part of the tax-withholding obligations applicable to stock-based compensation awards. To the extent permitted, participants may elect to satisfy all or part of such withholding obligations and the cost of the option by tendering to us previously owned shares or by having us withhold shares having a fair market value equal to the minimum statutory tax-withholding rate that could be imposed on the transaction. Included in this table are shares withheld during the third quarter of 2023 in connection with the settlement of vested restricted stock to satisfy the cost of options and tax-withholding requirements with an aggregate purchase price of approximately $48,578.
ITEM 5. OTHER INFORMATION
During the three months ended September 30, 2023, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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ITEM 6. EXHIBITS
| 101 | The following materials from Steven Madden, Ltd.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Changes in Stockholders' Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text* | ||||
| 104 | Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL) with applicable taxonomy extension information contained in Exhibit 101* | ||||
| † | Filed herewith | ||||
| * | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filing, except to the extent the Company specifically incorporates it by reference. | ||||
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 9, 2023
| STEVEN MADDEN, LTD. | ||
| /s/ EDWARD R. ROSENFELD | ||
| Edward R. Rosenfeld | ||
| Chairman and Chief Executive Officer | ||
| /s/ ZINE MAZOUZI | ||
| Zine Mazouzi | ||
| Chief Financial Officer | ||
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