Q2 2023 Steven Madden Ltd Earnings Call
Good morning, everyone and welcome to Steve Madden earnings comfort for 2023.
Now turn the call over to Danielle Mccoy.
Thanks, Savannah, and good morning, everyone.
Thank you for joining our second quarter of 2023 earnings call and webcast before we begin I'd like to remind you that our remarks that follow including answers to your questions contain statements that we believe to be forward looking statements within the meaning of the private Securities Litigation Reform Act the.
These forward looking statements are subject to risks that could cause actual results to materially differ from those expressed or implied by such forward looking statements.
Risk include among others matter matters that we have described in our press release issued earlier today and filings we make with the S. C C.
We disclaim any obligation to update these forward looking statements, which may not be updated into our next quarterly earnings conference call if at all.
The financial results discussed on today's call on and adjusted basis, unless otherwise noted a reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release.
Joining me on the call today is Edward <unk>, Chairman, and Chief Executive Officer, and <unk>, Chief Financial Officer with that I'll turn the call over to add at.
<unk> good morning.
Everyone and thank you for joining us to review, Steve Madden second quarter of 2023 results.
That'd be accepted we face challenging operating environment for the second quarter.
The difficult market conditions in particular, the cautious approach to orders by many of our wholesale customers in the United States. We were pleased to deliver earnings results in line with expectations for the quarter.
And while we were never satisfied with financial performance that fall short of what we achieved in the prior year.
Proud of how our team controlled what we can control in the quarter.
One drove strong gross margin performance, despite the promotional retail landscape.
<unk> managed our inventory with discipline delivering a 32 per cent reduction in inventory at the end of Q2 compared to the prior year.
Three controlled expenses and drove cost efficiencies, even as we continue to invest in product innovation consumer engagement and our longterm growth initiatives.
As we move forward, we will remain focused on executing our strategy for longterm growth. The foundation of which is driving closer connections with consumers through the combination of consistently tried <unk> and effective consumer engagement, which in turn enabled success with our four key longterm business drivers.
One driving or direct to consumer business led by digital.
Ooh expanding in categories outside of footwear like handbags and apparel.
Three growing in international markets and for strengthening our core U S wholesale footwear business.
Yeah.
To our performance by channel in Q2.
Wholesale revenue remained under pressure decorating, 21% versus the second quarter of 2022.
As expected our private label business was again, a significant drag on the top line as our mass merchant customers have reduced orders in an effort to right size overall inventory levels and our categories.
Our branded business was also down though not as dramatically as private label as our branded customers also continued to take a conservative approach to orders.
Despite strong sell through in several key styles, our wholesale customers did not chase business in those styles the way they normally would.
Three orders were significantly lower than we would see in a more typical retail environment.
Looking ahead, while our wholesale customers remain cautious we expect to see significant improvement in the balance of the year relative to the first half.
Even if similar to spring, we see limited chase business from wholesale customers and fall. We still believe we can be flat or close to flat to last year's wholesale revenue in the back half.
You know our direct to consumer business revenue in the second quarter declined 5% compared to the same period in the prior year with decreases in both the brick and mortar N e-commerce channels.
While consumer demand trends remain choppy, we have seen them, we have seen improvement in the year over year revenue performance over the last couple of months as comparisons have eased and we expect to return to year over year growth in D. T C in the back half.
Overall, while we are planning for the operating environment to remain shopping in the near term we are poised to see significant improvement in our financial performance beginning in Q3.
We knew coming into the year that the first half would be tough and I'm proud of how our team weather the storm and excited about our prospects for the balance of the year.
Looking out further I'm confident that with our strong brands proven business model and multiple significant growth opportunities, we are well positioned to drive top and bottom line gains for years to come.
Now I will turn it over to <unk> to review, our second quarter financial results in more detail and provide our outlook for 2023.
Thanks, and good morning, everyone.
Arkansas dated revenue in the second quarter with $445.3 million.
Is 16.8% decrease compared to the second quarter of 2022.
Our wholesale revenue was $314.6 million down.
Down 20.8% compared to the same period in the prior year.
Discussed private label is particularly resolved.
Revenue into Brian had business declined 13% versus Q2 2022.
[noise] well revenue in the private label business decreased 40% compared to the same period last year.
We'll see our footwear revenue was $234.9 million and.
In 19.4% decrease from the second quarter of 2022.
Wholesale accessories, and a power revenue with $79.7 million down 24.6% to the same period last year.
And are a direct to consumer segment revenue was $128.2 million.
Decrease in 5.4% compared to the same period last year.
On a relative basis e-commerce outperformed brick and mortar and international outperformed the United States.
We ended the quarter with 242 brick and mortar retail stores, including 69 outlets as well as five E Commerce web sites and 22 company operated concessions and international markets.
And our licensing segment royalty income was $2.5 million in the quarter compared to 2.2 million and Q2 last year.
Turning to gross margin.
Gross margin was 42.6% in the quarter.
Extending 190 basis points from the same period last year.
Gross margin with 33.6%.
200 basis point improvement compared to the same period last year.
Given by an improvement in gross margin and the whole thing of accessories and apparel business.
While wholesale gross margin benefited from mixed shifts to the brand new business. We also drove like for like gross margin improvement in both the branded and private label businesses.
Direct to consumer gross margin was 63.7%.
Versus 66.4% in the comparable period last year driven.
Driven by increased promotional activity.
Operating expenses in the second quarter or $145 3 million, a 3.6% decrease compared to the second quarter of 2022.
Reflecting our ability to control costs, while continuing to invest in marketing and other long term growth initiatives.
Operating income for the quarter was $44.5 million.
10% of revenue compared to $67 million.
0.5% of revenue in the same period last year.
Are effective tax rate for the quarter was 23.8% compared to 23.5% in Q2 of 2022.
Finally, net income attributable to Steve Madden limited for the quarter was $34 $9 million or 47.
Diluted share versus $49.8 million or 63 cents per diluted chair in the second quarter of 2022.
Move into the balance sheet.
Our financial Foundation remains very strong and as of June 30th 2023, we had $274 4 million of cash cash equivalents and short term investments and no debt.
Inventory totaled $207.8 million compared to $306.5 million at the end of the second quarter in 2022.
A reduction of $98.7 million or 32.2%.
Our capex in the quarter was $4 million.
During the quarter, we spent $25.8 million on repurchases of the company's common stock.
Which includes shares acquired through the net settlement of employee stock Awards ringing.
Bringing the total spent on share repurchases $264 $2 million for the first half of 2023.
Our board of director approved quarterly cash dividend of 21 cents per share the dividend will be payable on September 25th 2023.
Stock holders of record.
Of business on September 15th 2023.
Into our outlook.
We are reiterating our revenue and earnings per share guidance.
We continued to expect revenue for 2023 to decrease six 5% to 8% compared to 2022.
And we continue to expect diluted EPS to be in the range of $2.40 to $2.50.
Now I would like to turn the call over to the operator from questions Savannah.
Is now open for questions to ask you a question.
Please press star one on your telephone keypad.
Let me point, you would like to withdraw some mchugh.
Please press star one.
Our first question comes from Aubrey.
<unk>.
Alright.
Awesome.
Thanks, Good morning, Thanks for taking the question.
Wanted to start off first would be the revenue guidance.
Within the updated guide for revenues to be down six and a half to a that you reiterated just curious what you're embedding there for for wholesale in D. C. C for the year old that's changed versus last quarter.
For wholesale where we have embedded download double digits and four G. C C up low single digits.
Great got it Okay, and then if I could just follow up on the <unk> side.
I figured last call you mentioned that it could be D. C was down.
Eight per cent in March and then it was kind of trending similar through April and into May just curious have that kind of progress month to month through to you and then so far what you are seeing <unk> on D. T C.
Yeah, we did see we did C D T C.
Revenue trends year over year improve as we move throughout the quarter. They didn't improved quite as much as we had anticipated and that's why we've adjusted the revenue guidance modestly compared to what we were forecasting last quarter.
But we have seen improvement in this.
This month, the day or excuse me this quarter today, we're running about flat.
Perfect. Thank you.
Alright.
Question comes from Samuel.
I'm just trying to the company.
Your line is now.
Thank you good morning, and I think that was a record of prepared remarks at 11 minutes. So thank you.
A couple of details on that I have a broader question. So you mentioned can you give us with the international revenue growth was someone to domestic when you're glucose decreases.
Yeah International grew 4% in the quarter.
I don't have the the domestic off the top of my head, but [laughter].
A bit worse than than the overall.
Uhm.
Go ahead.
And then you talked about the you know you talked about sort of the appetite of the retailers. So when we're thinking you know things are gonna get less worse, better <unk>, you're expecting that to happen as we proceed through the year.
Can you give us some context into.
Are you expecting it more out of Berkeley Department stores, and you are out of the math.
Private label versus branded and.
And what kind of a variance was there between the two.
In the.
In the quarter.
Second call.
Sure Yeah. So I think zine provided the brand new versus private label in wholesale so branded was down 13% in the corner and private label was down 40% in the quarter on a wholesale basis. So clearly much much bigger drag from prime.
What label.
As we go into the back half of what be clear, where we're really not assuming any.
Any significant improvement.
In the.
The overall approach you know from the wholesale customers, we still assume that they are cautious we haven't built in a big chase business in queue for for instance, but really.
Really what you're seeing here.
Is that we're expecting improvement compared to the first half just because of the you know the easy comparisons.
And the big place, where we get much easier comparisons is in private label because that was if you'll recall, where we felt the the pullback first and so you know once we get into Q3, we really anniversary some big declines in that business.
Thank you and then I just want to verify.
The other pieces the operating margin the gross margin you talked about.
<unk> around 43.5% of the gross margin an operating margin just over 12, <unk>, 12%, a little higher those numbers.
<unk> place.
Yeah.
Sam for the gross margin, we revised that down just a little bit to 43, so down about 50 bits and just.
Reflect in a lower mix of DTC.
And also some potential pressure and promo pressure and fall that were reflected in our forecast in retail.
And then for art margin.
I'd say.
Close to 12% is is is what we're looking at now.
And is that because with the.
D T C.
Business needs slightly less the requirement for sort of that supported SG&A, there just won't be there to.
To keep it.
That range kind of thing.
Yeah, <unk> assumption that we have is that will be at 3% grow dollar against dollars from last year for Q3 and Q4.
But but to your point said, yes, we have you know.
Given what we've seen on the top line and particularly in D. C. We have tightened tightened are about a little bit and.
We've looked for.
For savings wherever we can find them, while obviously not pulling back on on marketing or other.
Our other longterm growth initiatives.
Thanks, and then lastly, you your inventory levels are are are pretty good are clean.
Forward basis.
You guys.
How quickly if somebody came to you post back to school, because there's gonna be a lot of activity in the next.
Call. It through September 15th we're gonna see a lot of a lot of acceleration that could change a lot of outlooks I mean, if people come to you with orders and like my mid October you can still respond to holiday, even though you're not necessarily expecting that is that a fair.
No I made I made October would be would be late for that but but.
The good news is our transit times basically are back in our lead times overall are basically back to normal we do have the the Mexico capability and we use Mexico more in fall. So yes, we still if we get reads and get customers that are willing to step up we can still chaisson two.
We can still chaisson two goods for fourth quarter I wouldn't say all the way until mid October , but but certainly over the next month or two.
And then Ah we <unk>.
Nobody has brought up the Nordstrom anniversaries now I think we're in it or just passed.
What have you seen from that.
Yeah, I think we were pleased when we saw in the event of cells or sell through percentage was.
Essentially right in line with what it was a year ago, which I think in this environment as a wind and and just as importantly, I think we will.
Got some good reads on early fall product, particularly in the boot and booty category, which is which is encouraging gives us confidence going into fall.
Alright, Thanks, you have a good.
<unk>.
Thanks.
Alright. Our next question comes from Laura I came home.
At all.
Dot com.
Thanks for taking my question. It's really also about the back half revenue trend, where you expect to see improvement I hear you on easier comps, but how much visibility do you have in that meaning is this up and improve pre booking story or is it more about replenishment and and maybe talk about how that.
Next works in private label versus branded since that's driving most of the declined.
Yeah. So in terms of our our wholesale bits business look we've got.
Q3, 97, or 98% book do we have essentially all of almost all of Q3 booked.
In Q4, that's probably say that just a little bit less than half of Q4 is already booked and as I mentioned, we have not built in an aggressive reorder or chase business into Q4, given given the behavior of our wholesale customers. So far this year.
So I think all in all we know quite a lot about about where wholesale will fall. There's obviously still work to do.
But you know we're tracking towards the numbers that we've that we've got it too.
And.
To your question about branded versus private label.
Private label, obviously books much farther out so you know.
We know a lot about what the private label business is gonna look like in the back half branded as where there's more variance from here based on what Reorders and Chase does end up looking like.
Understood. Thank you.
Thanks, Laura.
Our next question comes from Tom Nagel from.
<unk>.
Hi, There also brewdog for Tom Nicholas just wanted to get a quick idea about gross margins for the quarter, how much of the improvement in queue to gross margin was driven by channeled extra compared to like other factors such as free product mix and can you expand upon your comment regarding promotional like it'd be on a full year gross margin God in the <unk>.
<unk>.
Yeah, so as far as gross margin is concerned I think it's best to look at it wholesale versus retail and wholesale we had a 200 basis points improvement and margin and a little bit more than half of that was mixed related.
And then in terms of the the provost activity.
Yeah, we have I I think I.
I don't know how much more frequently.
We built in a little bit more provo activity into the plant for the back half in D C.
Alright relatively relative relatively modest changed from where we were before.
Okay.
The next question.
Alright.
Western comes from Jane saw with me.
C B S.
Your line is open.
Great. Thank you so much I'm just curious about the sneakers business. So you just wanted to talk about access speaker inventory in the channel is that something that's impacting your your speaker business and you know how much do you expect you know speakers to be a big percentage of the business this year back to school and holiday.
It's hard to say.
You know how much we're we're feeling some of that excess sneaker inventory from the from the Big Sneaker players. The secret category has been has been down for us overall over the last a few quarters, but we're actually quite optimistic about sneakers going forward. We've got some some news.
Knickers that we're delivering that we feel very good about some very good early reads in that category and we think that we're we're actually gonna be on the upswing in the fashion sneaker category moving forward.
Got it and then if you could just talk more broadly about trends.
Are you seeing.
You know obviously.
Return to sort of events in 20 wanted to return to work in 22. This year. It seems like the trains you know for the first half of your little bit slower you seeing new fashion trends emerging address side of the business.
In the in dress in dress shoes, specifically or.
Business overall sort of makes well I guess in the business overall, yeah the business overall yeah.
Yeah. Yeah. We are you know we've got some as I mentioned, we've got some good early reads on things for fall you know I I called out the feeling good about the new sneakers that we're delivering as well as some some some excitement around the boot and booty category you don't Wanna get this early in the season I want to get too specific about what those specific trends.
But we do see some notice which we're excited about.
Got it and maybe just last one for me just you know the top of the call you talked about some of the growth initiatives that you're excited about you know you can <unk> it sounds like you're continuing to invest behind those can you just maybe rank order not being ready just list some of the top growth opportunities that you see whether it's international or D. D C or whatever just for apparel just to remind people.
What what you're focused on to what you Think's Gonna drive some nice broke beyond 2023.
Yeah, absolutely I think first.
I would put at the top of the list is international that's been the fastest growing part of the business over the last few years and we anticipate that that will be the fastest growing part of the business Ah over the next few years and we're just really excited about the momentum that we have in in in a lot of the markets around the world. Obviously Amiga has been the fastest growing region for us and we think.
That will probably drive the most growth over the next few years, but but excited about what we're seeing in.
In other places in the Americas and in APAC as well.
I would say number two is is.
He is continuing you know, we've obviously seen tremendous growth in direct to consumer led by digital over the last few years, obviously, a little bit of a fullback first couple of quarters here, but we still see that as an important growth driver going forward and it. It's it it was related to the international growth as well because that businesses.
Much more penetrated the DTC, we're already by 40% DTC, an international and we see that heading north over the next few years.
And then after that I would put accessories and apparel you know we've got tremendous momentum in Steve Madden handbag, that's been a real bright spot that business. It was one of the few businesses that grew forests in Q2.
And we're seeing that perform really in all channels, you know horseshit wholesale DTC and particularly in international markets as well and then you know longer term. We're obviously, it's early days with apparel, but feel very good about the double the start that we are off to their and the opportunity and the runway that we have.
And that business. So that that's how I would sort of ranked the top three gross drivers.
Okay got it thank you so much.
J.
<unk> <unk> <unk> <unk> <unk> <unk> <unk>.
Just just a quick one sorry.
Are you do you have any early reads on back to school.
It's pretty it's it's pretty early Sam.
The thing that I think would be.
Worst calling out at this moment.
Thank you again have a great day.
Thanks.
Alright, our next question comes from <unk>.
Hi, good morning, and thanks for taking my question I, just wanted to double click on the the handbag commentary that you made would be curious to.
Get a little bit more color as to what's really driving the growth in that segment specifically.
Yeah, I think we've you know.
We've been on a multi year growth journey here in Steve Mad Handbags, we've invested a lot in upgrading the product they're.
And I think we've we've just made a lot of progress and.
You know feel really good about what the design team is delivering.
In that category I think the customer is responding and as I said you know what's nice about it is that we're seeing it really perform across all the different channels and businesses, which we operate.
Both wholesale DTC, both domestic and international so it's really Steve Madden handbags that is driving them.
Great and then just also double click on apparel.
It sounds like that's an area, where you see opportunity what do you anticipate or how do you expect to continue to execute upon expanding that segment and or and more profitably growing it ahead.
Yeah.
If so you know what.
We're we're just getting started there, but we're off to a very good start I think the spring performance frankly exceeded my expectations in terms of sell through we're very pleased about the performance we had some key customers like Bloomingdale's Dillard's.
He sees et cetera.
And we feel even better about the fall product, we feel like the fall product is really a significant step up even from what we had in spring and is the line that really best represents what what we want Steve Madden apparel to be and so we're just getting that out now, but we're really excited about about what that is going to look like but for.
For us it always sorry, I'll start with the product. So the most important initiative right now is just continuing to to make.
Even better products and product that more accurately reflects the Steve Madden brand DNA.
And if we do that you know, we obviously have the distribution channels to to to get that out to to market and to and to drive a lot of growth.
Great. That's very helpful. Thank you so much and best of luck.
Thank you.
Our next question comes from.
Paul from Sweden.
Yeah.
Your line of <unk>.
Hi, guys. This is this.
This is Kelly anthropology [laughter], thanks for being a question I'm, just wanting to drill down on the back half Kenneth could you talk about three keen birthday is four Q in terms of total sales growth and the needy elaborate on how that you're in luck.
Mm bye wholesale versus T T C and three G versus working that's.
That's my first question things.
Yeah, I think that.
Uhm.
Overall, Q4 should grow a little bit faster.
Two three.
It's alidade basis.
In terms of wholesale.
Well, that's that's that's that's primarily driven by I think wholesale.
Doing a little bit better.
Better growth in queue for then in Q3 and also the higher mix of DTC in queue for which we have growing a little faster than wholesale the back half.
Mmm.
Just to clarify that I mean.
Wholesale business here your comparison, he's significantly in the fourth quarter, but I guess, you're saying that you're not going to see that much of a step up in growth and drinking versus 14, it's it's a little bit more consistent than than what we're looking at.
When your comparison data.
Yes, and that's because the queue for.
Q3 is more of a cell in quarter Q for more of a reorder and chase quarter.
We've got a relatively cautious forecast in their given how our wholesale customers have been approaching.
And on that note actually so.
You're branded wholesale partners really freed up on the reordering back after the consumer.
South of broad consumer slowdown in March and how this conversation's going with with the retail partners. I mean is there a chance that and are they feeling a little bit better about the business I, they're they're saying that there could be some opportunity to change in two parts of the back half of the urine.
How're inventory levels looking for you within within the retail channel. Thanks.
Yeah, I mean, I think the answer is is there an opportunity that they that that could get better and that they could chase, yes, but but in terms of how those conversations are going we're still.
The overall sentiment.
Still very cautious in the overall approach is still very cautious so that's how we're we build dar.
Our forecast.
In terms of our inventory levels in the channel, though they're they're low we think they're too low [laughter] itself or certainly encouraging them to to step up and and get those inventory levels back where they should be.
Got it and then just lastly from me on that.
The private label I guess.
I mean, I guess, the private label business is gonna be up in the back half of the year is that is that there and then and then brand it's still down maybe similar to that first first happier.
Mmm no I think both of them will be relatively.
Relatively similar to what we've said about the overall wholesale which is flat.
<unk> <unk> <unk>.
Close to flat.
Okay. Thank you so much.
Thank you.
Alright, and we are back.
Tom <unk>.
Hi, guys. Thanks for taking my question you know that's awesome.
Just wanted to confirm you guys are seeing E. P. S. In the back half like the slipped between Q3 and Q4 similar to how you're seeing revenue for those periods correct based on the though.
The wholesale dynamics you in the back up.
Make sure I understand the question.
Could you like I guess the thing is you're not seeing any major like SG&A like deleverage and like history compared to like Q4 correct.
The SG&A again, the SG&A growth I think that the zine provided really go over you know is is about 3% that really goes for both Q3 and Q4.
That helps.
Alright sounds good thank you.
Thanks.
Alright, no further questions at what time to call back over to authorize your account.
Great well, thank you very much for joining us for.
Today's call enjoy the rest of your summer we look forward to speaking with you on the next guy.
This concludes the model T mobile connect.