Steven
Madden, LTD. (SHOO, $33.75): “A Shoo-In Stock, Only Time
Will Tell”
By:
Nathan Zirpolo, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Steven Madden, LTD. (NYSE:SHOO) designs and sells private label and
name brand footwear, handbags and accessories for both men and women. They
operated through e-commerce and retail stores within the United States, Mexico,
Canada and joint ventures in South Africa, China, Europe and Taiwan.
• SHOO saw YoY net sales
growth of 13% and a 31% diluted EPS increase in 2018.
• The stock is currently
trading with a P/S and P/B of 1,76 and 3.39 respectively, significantly better
when compared to their peers.
• Management has
indicated that its main priority is to continue to expand their product into
international markets
• SHOO saw net sales grow
nearly 20% in 2018. This is following a mid-teen percentage increase in the
prior fiscal year.
Key
points:
After surviving the turbulent fourth quarter of FY 2018 paired with the lack of notable news regarding the tariff war with China, Steven Madden remains ‘in play’. The company was originally pitched in late November of 2018, with drivers that included brand development, international expansion and mitigated tariff costs due to reduced production costs in China. In the fourth quarter, the company delivered better than expected results, producing both top and bottom line growth YoY.
After surviving the turbulent fourth quarter of FY 2018 paired with the lack of notable news regarding the tariff war with China, Steven Madden remains ‘in play’. The company was originally pitched in late November of 2018, with drivers that included brand development, international expansion and mitigated tariff costs due to reduced production costs in China. In the fourth quarter, the company delivered better than expected results, producing both top and bottom line growth YoY.
In 2018, the company saw
net sales increase in international markets, an increase of 22% from the prior
year. This was led by strong increases in Canada and Mexico, paired with 40%
revenue growth in the firms SM Europe joint venture. When pitched, a key driver
was the expansion in international markets, both in store and online, that
would lead to top line growth. As stated in their fourth quarter earnings call,
the firm states their top priority is to continue to grow their international
markets.
In 2015, the frim
acquired Blondo, an innovative waterproof brand to further expand their markets
and strengthen their reputation as a firm who offers creative and high-quality
products for affordable prices. In Q4 FY18, net sales for Blondo increased more
than 50% for the year, proving that products that are both waterproof and
fashionable will continue to resonate with consumers.
Finally, Steven Madden
continues to move production out of China. As of Q4 FY18, the firm has
approached 50% of all production impacted by the tariffs moved out of China and
into Cambodia. The other 50% of taxed product are receiving price concessions,
as forecasted in the originally pitch. Between redistributing their products to
other overseas distributors and receiving price concessions from Chinese
manufactures, Steven Madden has mitigated the effect of the tariffs to only
impact 10% of their products.
What
has the stock done lately?
As of April 11, 2019,
Steven Madden has seen a 7.43% gain over the last 52-week trading period.
Year-to-date, the stock has increased 9.58%, while seeing a 2.31% gain over the
past month. The company has seen an average trading volume of 555.86K shares
over the past three months.
Past Year Performance:
Since being purchased at $30.93 in late November, Steve Madden has seen recent volatility, with the stock price falling to $27.93 on December 24th, yet regaining their market cap in the first two months of 2019. Both the December decline and the following recovery can be attributed to the market, however their beta has declined from .98 in late November to their current beta of .58.
1 Year Graph:
Sources: Tableau, Yahoo Finance
My
Takeaway:
As stated in the investment
statement policy, a stock is added to the portfolio with a time horizon of 3-5
years. As a firm who was pitched in late November, it is recommended that the
Marquette AIM program continues to hold the stock until the drivers presented
in the originally write up run their course. As stated above, the firm is
starting to see initial effects of the three drivers, with both international
markets and acquired brands seeing double digit sales increases in 2018. Due to
this, it is pivotal that Steven Madden is not sold due to possible minor
discrepancy that could slightly effect the stock’s price in the short
term.
1 Month Graph:
Sources:
Tableau, Yahoo Finance
