Q4 2022 Steven Madden Ltd Earnings Call
2022.
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[noise], Thanks, Debbie and good morning, everyone. Thank you for joining our fourth quarter and full year 2022 earnings call and webcast.
Begin I'd like to remind you that Ah remarks that follow including answers to your questions contain statements that we believed to be forward looking statements within the meaning of the private Securities Litigation Reform Act.
Okay statements are subject to risks that could cause actual results to materially differ from those expressed or implied by such forward looking statements.
These risk include among others matters that we have described it described in our press release issued earlier today and file anything made with the S. C C.
We just blame any obligation to update these forward looking statements, which may not be updated until our next quarterly earnings conference call if at all.
Financial resolved discussed in today's call adjusted basis, unless otherwise noted.
[noise] reconciliation to the most directly comparable gas financial measure and other associated disclosures are contained in our earnings release.
Joining me today on the call is Edward with Intel Chairman, and Chief Executive Officer, and <unk>, Chief Financial Officer with that I'll turn the call over to Ed Ed.
Well, thanks, Danielle good morning, everyone and thank you for joining a sturdy Steve Madden is fourth quarter and full year 2022 results.
We are pleased to have delivered fourth quarter earnings results in line with our expectations. Despite an increasingly challenging backdrop for.
For the full year 2022, we achieved record financial performance crossing the 2 billion dollar Mark and revenue for the first time with double digit percentage growth on both the top and bottom lines.
These results demonstrate the power of our brands and the strength of our business model as well as the disciplined execution of our strategy.
Let me briefly walk you through that strategy in the progress we made on our key initiatives and 2022.
First and foremost our top priority as always is winning with product by utilizing our proven model, which combines talented design teams, a test and react strategy and an industry, leading speed to market capability, we consistently create trend right practice departments and get them to market ahead of the competition.
We are then supporting this great product with an always on full photo marketing and consumer engagement strategy.
By combining outstanding product and effective marketing, we are creating deeper connections with our consumers, which in turn is enabling our success with our four key business drivers.
The first of which is driving our direct to consumer business led by digital.
2022 are DTC revenue increased 7% over 2021 and exceeded $500 million for the first time.
Compared to pre Covid 2019, DTC revenue was up 62%, including a 192% increase in digital and we have increased our overall DTC penetration by approximately 700 basis points over this tape time period.
Our second key business driver is expanding our business outside of footwear and.
In 2022 are accessories, and apparel business exceeded $400 million in revenue and increased 13% over 2021.
Steve Madden handbags grew 19% for the year and apparel, we successfully we successfully transitioned from the BB Dakota, Steve Madden co brand to the Steve Madden brand for fall 2022, and overall apparel revenue for the year increased 38%.
Our third key business driver is growing our business and international markets.
International has been the fastest growing part of our business over the last few years and we believe it represents our long our largest longterm growth opportunity going forward.
2022, we grew international revenue, 56% compared to 2021.
For the year International represented 16% of our total revenue up approximately 500 basis points from pre Covid 2019.
We also continue to make investments to drive international growth going forward.
Part of our strategy in this business is to transition from the distributor model to an ownership model and key markets.
In the Middle East, we've had a distributor relationship for over a decade and in recent years. The brand has gained strong traction in the region.
In order to capitalize on the significant growth opportunity, we see in the GCC in December we converted that business doing joint venture model. When we formed a new partnership with leading regional player apparel group.
We are in 51% of the JV and apparel group owns 49.9%.
There are currently 20 one's debounce doors in the territory and we expect to end the year with between 25 and 30 locations.
Finally, our foreign key business driver is continuing to strengthen the U S wholesale footwear business that remains the core of our business.
In 2022 U S. Wholesale footwear revenue reached the 1 billion dollar mark increasing 13% over 2021, including more than 20% year over year growth in each of our four largest brands, Steve Madden, Dolce Vita and Clyde and Betsey Johnson.
So overall 2022 was a strong year for Steve Mad as we delivered record financial performance and demonstrated tangible progress on each of our key strategic initiatives.
That said the operating environment became increasingly challenging as the year progressed.
Numerous began to pull back on discretionary spending and more impact relate to us our wholesale customers pulled back on orders as they prioritize inventory control.
We also faced increasingly challenging comparisons with the prior year as the year went on <unk>.
Culminating in the fourth quarter, when we were laughing a quarter, where revenue was up 38% and diluted EPS was up 125% to pre Covid 2019.
As we look ahead, we expect these challenges to persist in the near term.
Our wholesale customers have taken a conservative approach to spring orders.
Outlook for overall consumer spending is uncertain and.
We faced tough comparisons in the first half, particularly in the first quarter when the compared to a very similar to what we faced in Q4.
That said, we have a proven ability to navigate difficult market conditions and a track record of taking market share during challenging economic periods due largely to our agile business model, which enables us to run lean on inventory and chase goods in season when needed.
And looking out further we remain confident that we can leverage our core strengths are people are brands and our business model to continue to drive progress on our key strategic initiatives, which in turn will enable us to deliver sustainable growth and create value for our stakeholders over the long term.
Now I will turn it over to Z to review, our fourth quarter and full year 2022 financial results in more detail and provide our initial outlook for 2023.
Thanks, and good morning, everyone.
2022, Mark a record year in terms of revenue and earnings are consolidated revenue in 2022 was $2.1 billion, 13.7% increase compared to 2021.
Our wholesale revenue with $1.6 billion of <unk>.
$16, 4% compared to the prior year, including an increase of 16.9% and fulfill footwear revenue to $1.2 billion in an increase of 14.8% in wholesale accessories and empower revenue to $394.7 million.
Now a direct to consumer segment revenue was 521.7 million.
Six 9% increase compared to 2021, driven by growth in both the brick and mortar and ecommerce businesses.
Consolidated gross margin was 41.2% in 2022 10 basis point increase compared to 2021.
Operating expenses were $591.3 million in 2022 compared to $505 $6 million in 2021.
As a percentage of revenue operating expenses were 2079% in 2022 compared to 2071% in 2020.
For an income for 2022 totaled $282.6 million or 13.3% of revenue compared to $261 $9 million or 14% of revenue last year.
Effective tax rate for the year was 22.5% compared to 21.2% in 2021.
Finally, net income attributable to Steve Madden limited for the year was $218 $3 million or $2.80 per diluted share the highest in the company's history compared to $203 $7 million or $2.50 per diluted share in 2021.
Turned into the fourth quarter results are consolidated revenue in the fourth quarter with $476 million and 18.6% decrease compared to the prior year and as I mentioned, we face an extremely difficult comparison to the fourth quarter of 2021, when revenue was up 37, 9% to freak.
Covid 2019.
Our wholesale revenue was $308 $8 million down $24, 8% compared to the prior year when wholesale revenue was up 38% to 2019.
We will sail footwear revenue was $226 million, 25.5% decrease from 2021, when wholesale footwear revenue was up 29.9% in 2019.
Wholesale accessories, and apparel revenue was $82.8 million down 22.8% to last year, when wholesale accessories and empower revenue was up 33.3% to 2019.
Now a direct to consumer segment revenue was $159.3 million a.
3.2% decrease compared to 2021.
And by a decline in brick and mortar business, partially offset by a modest increase in e-commerce.
Ended the year with 232 company operated brick and mortar retail stores, including 66 outlets.
As well as <unk> E Commerce web sites and too many company operated concessions and international markets.
Turning to our licensing segment.
Our licensed in royalty income was $2.5 million in the quarter compared to two $2.9 million last year.
As we discussed last quarter, we've completed the wind down of our first cost business and transition those remaining label customers from a by an agent model to a wholesale model.
And as such we did not generate revenue in the first month segment in the fourth quarter versus approximately $400000 in revenue in the fourth quarter of last year.
Consolidated gross margin was $42, 2% in the quarter extend in 100 basis points from the prior year.
Wholesale gross margin was 35% compared to 31.8% last year due to increased closeouts compared to the prior year when closeout activity was unusually low.
Direct to consumer gross margin was 64% compared to 63.5% last year.
The 50 basis point increase was driven by a reduction in air freight expense.
Operating expenses were $156 $5 million in the quarter compared to 151.5 million last year is.
As a percentage of revenue operating expenses were 33.2% in the quarter compared to $26, 2% in 2021 reflects an expense deleverage on a lower revenue base and a higher penetration of DTC.
Operating income for the quarter totaled $42 $2 million or 9% of revenue.
Down from $86.9 million or 15% of revenue last year.
Are effective tax rate for the quarter was 29% compared to 18.3% in 2021.
Finally, net income attributable to Steve Madden limited for the quarter was $33.7 million or 44 cents per diluted share compared to $74 million or 87 per diluted share in 2021.
Move into the balance sheet.
Our financial Foundation remains strong as of December 31, 2022, we had $289.8 million of cash cash equivalents and short term investments and no debt.
Inventory with $228 $8 million.
Down from $255.2 million in the prior year.
Our capex in the quarter was $6 2 million numbers.
During the fourth quarter and full year 2022 hour share repurchases totaled $36 $8 million and $148.9 million, respectively, including shares acquired through the net settlement of employee stock Awards.
The company's board of directors approved a quarterly cash dividend 21 per share the dividend will be payable on March 24th 2023, the stock holders of record as of the close of business on March 10th 2023.
And combining share repurchases ended dividend, we returned $214 $9 million to shareholders in 2022.
Turned into our outlook we.
We expect revenue for 2023 to decrease $6, 5% to 8% compared to 2022.
And we expect diluted EPS to be in the range of $2 and $42.50 is.
As I mentioned, we face extremely tough comparisons in the first quarter of 2023.
Similar to those we've faced in the fourth quarter of 2022 in.
And therefore, we expect to Q1 revenue in Aps to decline year over year at a percentage rate similar to what we just reported for Q4.
Now I would like to turn the call over to the operator for questions Debbie.
We will now begin the question and answer session.
You May trust.
One on your account.
Take care of your hand.
Thank you.
Okay withdraw your question please.
Yeah.
[noise] momentarily.
Roger.
First question is from.
Around with C M T.
Please go ahead.
Hey, good morning, and thanks for taking my question.
Good morning, good morning.
Wanted to see if you could possibly provide any more color on what the embedded in the.
2023 revenue guide for a wholesale mdt's fee revenues for the year.
For the year and if possible also for the first quarter as well.
Sure Yeah. So for the full year, we're looking for wholesale to be down roughly 12% to 13%.
For a DTC to be up high single digits versus 2022.
In terms of Q1, I think you should.
Expect revenue declines year over year in line with what we just reported for Q4.
Okay, great perfect.
And then and then maybe on the wholesale side on the wholesale footwork side in particular, if you could provide any any color on.
What you're seeing your from your different customer groupings in terms of sell through and how that has kind of evolved in the first quarter compared to the fourth quarter or any particular pockets of weakness or strength, we call out or or maybe it's a similar kind of across the board.
Yeah honestly.
Obviously.
Some are better than others, but generally speaking, we're seeing pretty consistent trends across channels. So I don't think there's anything.
To really call out there the.
The challenge for Us is.
Particularly at our core brand, Steve Madden the inventory levels in the channel.
We think there are too low [laughter] can we think our wholesale customers need to take some more goods in.
There are inventory levels are down considerably over where they were a year ago.
And you asked about sell through so.
With much lower inventory levels are sales out to the consumer are also lower.
Good news is if you look at the at.
The most important customers that.
The decline in sales is less than the than the decline in the stock level, which means the goods or.
Selling through at a higher percentage rate.
And hopefully that will encourage our wholesale customers step up and.
Increase does inventory levels.
Okay got it again, if I could just follow on that one more curious where lead times are at now.
Fully normalized and.
Where you're at in terms of your ability to change and then also.
You may be kind of alluded to be like when when you're wholesale partners may be ready for that as well.
Yeah, that's something we're excited about the lean times are essentially back to back to normal back to pre COVID-19 levels.
Which means we're back to being able to.
Run the model.
That.
Is what we think really differentiates us being able to test and react.
Utilize our speed to market capability to react close to and in season.
And so we are prepared to chase and.
And we're looking forward to doing that this year.
Excellent Thanks, a lot.
Thanks.
The next question is from long.
Mmm.
Please go ahead.
Mmm, Thanks for taking my question.
Q1 order patterns with wholesale is weak but.
To have sales down that much for the full year why would sales be down that much it's.
Full year at wholesale if you direct business actually grows have you seen a pattern like that historically.
[laughter].
Well I think what we're seeing right now is a pretty big disconnect from what's happening in terms of consumer demand and what's happening with the wholesale customers ordering and that's because.
For the most part are wholesale.
Much across the board, our wholesale customers got into a position of having more inventory.
Then they wanted in our categories and they were all looking to get those inventories in line and so they pulled back.
Pretty dramatically.
And orders and we felt that obviously in queue for you saw that in the numbers and we're feeling that for a spring of 2023.
As well so far.
Has there been a pullback in consumer demand a little bit.
But but the swing that we've seen in the pullback that we've seen from wholesale customers in terms of their orders as far exceeded any fullback in consumer demand. So.
That's what we're faced with in spring, we're going to start the year being down obviously double digits in the first the first half year and wholesale.
And where we are hopeful that we can start to see an improvement in the back half, but that's how we're starting the year.
Got it in historically have you seen that kind of a spread between wholesale and DTC, where I understand BTC often does better but we're DTC is up for the full year, but wholesale is down double digits.
I'd have to look back I can't remember this is a pretty wide.
Why divergence the good news about this is usually these things converge over time.
And so.
I don't expect it to to sustain like this for a long period.
Understood. Thank you.
Thanks, Laura.
Okay.
Williams training.
Go ahead.
A couple of questions number one within the guidance. Thanks for taking my question.
Within the guidance have you when you think about wholesale.
I would assume you were thinking about wholesale got around to about 20% in the first half of the year and then.
Less.
Upfront accidentally in the back of another good way to think about it.
Round number as you are and you are in the ballpark yet.
And then with.
With the inventory how.
On it.
If everything if all things being equal you were doing the same volume today as you were a year ago, but the penetration of BTC change would you what kind of.
How much more inventory do you need to have because you guys used to run.
Carrying about eight forward weeks of supply of goods now you're running around Ted is that really the.
With the speed back to normal is that just because you need to.
The slower the slightly less fast or is because you just need to carry board inventory support the direct to consumer business. Then you did prior to.
2019.
Yes, that's right wholesale turns about close to three times as fast as DTC. So as we've increased SDC DTC penetration by about 700 basis points get very to freak out, but that is going to slow down the overall turn.
And then lastly, the.
Okay.
This this is are you are you.
Taking into account that the wholesalers will improve their at once.
Business with you or are you sort of taking it are you is the guidance reflected what you are seeing today.
The guidance, mostly reflects what we're what we're seeing today.
If we get into chase mode, and the wholesale customers are identify some trends and really want to go after.
Really want to chase business, then that would be potential upside here.
Alright, well have a have a very good year and speak soon thanks. Thank.
Thank you Sir.
Okay next question.
Okay.
Security. Please go ahead.
Good morning, Thank you for taking my question.
I guess, how should we think about margin for this year is there any way you know we should think about gross margin interest in this G&A.
For the full year end for too long.
Sure.
In terms of gross margin.
We think we can see.
Nice improvement overall, we are targeting around a 43 and a half.
Gross margin for the year.
So thats up about 230 basis points.
Little over half of that is just the mix of DJ.
See increasing.
Penetration and then there is some <unk>.
Number of puts and takes in a number of factors, but most of the the biggest factor in the remainder of the increases as the freight benefit that will get.
From the lower Ocean freight rates.
A SG&A.
<unk>.
With the sales decline that we're having and this.
This.
Mix shift towards DTC, there's going to be there's going to be deleverage there.
So overall, if you are looking at operating margins.
The guidance imply sort of 12 12 and change.
Got it.
And if I, if I can follow up earlier on the.
VTC versus wholesale growth, but you said DTC up high singles for this year.
Does that include a contribution from the conversion of the the middle East distributor.
Right I think you said, you've got Twentyish stores in the region.
Does that contribute to that but I think I'm going to go.
Both interested in the T C.
Yes. It does it does there's there's comp growth as well, but but that is included there.
Okay.
Thanks, very much and best of luck Sir.
Thanks, Tom.
Alright.
J.
Yeah.
Go ahead.
Great. Good morning. This is my weakness.
On behalf of J. So thanks for taking my question I wanted to ask you. When you are talking about the first quarter guidance and you're expecting a similar decline as in the <unk> does that imply also D. D. C will be down or what are you seeing there in terms of the <unk> business and then when we're thinking about the gross margin for.
The year does that expansion over 200 basis points. They include any negative impact from a higher promotions are hardly thinking about promotions and how does that make it into the guidance. Thank you so much.
Sure Yeah in terms of DTC in Q1, yes, I think it should be pretty similar to what you saw in.
In the back half of 2022, Egypt, Q Q3, we were down 4% year over year excuse me Q3, we were down 4% Q4 down 3% should be in that range.
Q1.
In terms of the promotions.
We are going to.
We built in.
More promotional activity in the first half remember last year, we still had a an unusually low level of promo activity, but we actually think that we can have.
Less promotional activity in the back half or at least particularly in Q4.
So for the year.
Probably pretty similar overall.
Great. Thank you so much.
Thank you.
The next question is from.
Citigroup. Please go ahead.
Hey, Thanks, It's Tracy Kogan filling in for Paul I first wanted to ask a follow up.
On a wholesale business I was wondering if he'd seen.
Any change or acceleration in.
Point of sale trading partners you already <unk>.
Mmm.
2023, and then my second question is on your international opportunities I was wondering what you were expecting for the international business here in terms of growth and like Ah.
<unk> do you see a longer time, you have a big opportunities and an offer where you might have opportunities to convert.
Like you're getting a belly. Thanks.
Sure.
Yes. It is still early in terms of the.
Pass trends this year.
We've got some some items that we're very excited about for spring.
Some early some early selling on those items.
That is.
Pretty darn good we're very excited about them.
We've got some great flat sandals, I think better flat sandal early selling than we've had the last few years.
Loafers continues to do well, we're doing well with.
Some.
Novelty.
Feathers butterflies flowers et cetera. So we've got some things that were excited about but in the wholesale channel.
We're just now getting those reads what are the challenges this year was that.
Wholesale customers did not want to take in the spring goods as early as they have in prior years. So.
So we talked about getting back to this test and react in our ability to chase, but typically by now we would already be chasing stuff for a second quarter, because we would've had we'd say.
Few weeks ago, a month ago.
And already been reacting to those but because our wholesale customers took the goods in a little bit later, we're just now starting to see those Reeves.
So it is still still early but overall, what we're seeing in are certainly in our direct to consumer channels and then in the very early reader some good.
Some good.
Sell through and.
In the spring items.
In terms of in terms of international.
We've talked about it in the formal remarks, that's been the fastest growing part of the business over the last several years, we're still really pleased with the momentum that we see there.
Despite the headwinds this year.
What we're seeing overall, we still think that business can be a double digit growler for for us in 2023, obviously, we're not going to see the the 50 plus percent growth that we saw.
Last year.
But but do think we can see double digits.
And in terms of regions it's.
Still I think the EMEA region that were the most excited about that's been the driver of growth for us.
Over the last several years and I think even.
In the next few years, that's why we see the biggest opportunity we've just got tremendous momentum in Europe .
Obviously, we are we are aware of the some of the macro headwinds in that region, but our business continues to chug along there and we think we are going to grow there again this year.
And then also included there in that region as the new Middle East Jamie that we talked about that we're very excited about them and even some smaller businesses that we have really nice momentum and we're doing great in Israel in South Africa.
Et cetera.
Terms of other regions that we may convert.
There's a couple that we have our eye on.
Not ready to [laughter] to talk publicly about what those are because we don't know what direction.
Those discussions will go.
But there is I think there's potential for us to do at least one more in a smaller region in 2023.
Alright, thanks very much.
Thank you.
Okay, you have a question please.
The next question is from Jane.
Kelsey group.
Hi, Good morning, everyone. As you think about the wholesale business and parsing it apply whether it's between discounters like department stores whatever it may be.
You see the progress.
What who would recover first.
Any particular channel or category that typically places orders first and what are you looking forward to see the improvement in wholesale thank you.
So it's really our first tier of customers that we would.
Look too.
To recover first and by that I mean, the department stores. The pure play E. Commerce players et cetera. Those are those are the folks that.
Typically when we get strong selling.
We can chase goods for some of the other businesses are planned out further if you think about our mass merchants for instance, we don't really chase in the same way in that in that tier distribution.
But that first tier is where we will be looking to to chase into high selling items.
And then just put through the fourth quarter, what's your view of the health of the consumer was there any different by region. It seemed like one of the changes was e-commerce head the modest increase in brick and mortar slowed down a little bit anything to note in terms of the health of the consumer from what you saw.
Oh look at that as I alluded to.
Earlier.
Yes, certainly the consumer if you think about the consumer demand, it's not as strong as it was.
A year ago.
We have seen some slowdown in consumer demand.
And.
Discretionary spending on our categories, but.
That's not our primary issue right now that that slowdown has been pretty modest you've seen our DTC has been running down 3% ish.
It's really this pullback from.
The wholesale customers, which has been much more dramatic and that's related to them in their efforts to get their own inventories in line in terms of.
Yes about regions. If you look at for instance are Cobb store sales I mean, the strongest.
Region for Us in comps has been New York City, but that's really just a function of that was the latest to recover.
From Covid and so the comparisons they are easiest.
I don't think there's there's much relate to call out there.
Thank you.
Thanks Dana.
Mmm.
Question.
Please go ahead.
Just to follow up.
On the on the direct to consumer business.
The.
In the quarter compared to pre Covid could you tell us what your store.
Like how your store and your digital revenue was in the quarter.
Versus Q4 19.
Yeah, I can tell you, we kept up 12 and bricks and mortar.
Digital I don't have the number in front of me, but it's up my.
Much more dramatically than that to US you know for the year I think with the number was 192% I think that's what we said.
I don't know the keyboard was that strong but it was very.
It was up significantly from Q4 19.
So so so so.
Situation, where the.
The during during 2021, when there was the stimulus and everything around that generated a lot of.
Direct to consumer business, especially ecommerce for Ya.
Been able to retain a good bunch of that.
But you have more customers than you did prior.
In 2019.
So whether you are talking about the weakening <unk>.
Consumer arguably for you the consumer right now is significantly stronger than they were pre COVID-19, but last year 2021 was.
Slated for many different reasons does that is that a fair.
Is that fair is that because I don't know I can't wrap my arms around the consumers week I wrapped myself around a lot of people over a lot of retailers specifically over estimated the momentum coming out of 2021 and cause a lot of that caused havoc with 2022.
Yeah My comments about about.
Some softening in consumer demand was was in comparison to the prior year.
To your point the prior year it was a pretty special moment, because we had tremendous pent up demand we add.
Consumers with a lot of money in their pockets due to stimulus payments and there were a lot of it was.
A lot of good things happening, we had some supply chain issues, which meant there was lack of goods out there and so very little discounting et cetera. So.
So.
We were comparing against a pretty special time, with a little bit softer than than naphthalene, but to your point overall DTC business that is much bigger and much stronger than it was pre COVID-19.
And so I mean, and then just lastly back towards <unk>.
Previous Muslim before with the question.
And you mentioned that the hold your wholesale sell through rates are strong.
These most of these big retailers are overstocked and or overstock.
Footwear.
Footwear vendors and that are.
Other than yourself as well as in other categories.
Other than yourself, which is precluding.
Fill in orders as they work to liquidate those goods.
I mean does that that seems to be what is going on is that is that is what's going on here.
Yes, I think you've summed it up.
Alright.
Have a great year, thanks very much.
Thanks.
[noise] question and answer session.
I would like to turn the conference back Hamburger.
Alright, any closing remarks.
Great well, thanks, everybody for joining us this morning.
And have a great day, and we look forward to speaking with you on the next call.
[noise]. Thank you for attending today.
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