The recently announced Q3 financials of shoe and apparel company Steve Madden have surpassed Wall Street’s revenue expectations with a 13% YoY surge in sales driven by the growth of the accessories and apparel segments. Despite the outstanding quarterly performance, the company lags behind its peers in terms of stock performance.
Steven Madden Ltd. is one of the leading designers and marketers of fashion footwear and accessories for women, men, and children. Established in 1990 and headquartered in New York, the giant is well-positioned in the fashion world for its ability to quickly adapt to emerging trends. The company has a strong brand identity because of its association with New York City, one of the four fashion capitals of the world.
The core offerings of SHOO include a diverse range of footwear, accounting for approximately 56% of its total revenues, followed by handbags and accessories at around 8%. Most of the revenues of the firm are generated through sales to the consumer, directly via company-owned retail stores and the internet, and through wholesale distribution to hundreds of retailers.
Steven Madden serves a massive customer base through both direct-to-consumer customers desiring fashionable footwear and accessories, and retailers selling its products. The end market has different segments in the fashion industry, primarily targeting millennials and Gen Z. The company is quite strong in North America but is also building up its international presence. As unveiled in the recent reports, the growth of the company can also be attributed to strong top-line gains in global markets’ direct-to-consumer channels.
Even though the company displayed a sluggish 4.5% annualized revenue growth over the last five years, analysts expect a 5.5% climb in revenue within 12 months. While this projection points to a better performance of its newest lines, it is still well below the industry average.
The management reported that the Steve Madden branded footwear segment demonstrated only subtle progress from the second quarter, which witnessed a mid-single-digit decline. Owing to a declining performance of department stores and a conservative approach to orders, the stock remained flat at just above $44 following the quarterly results.
Just recently, the company announced that it would move production out of China for more feasible manufacturing locations like Cambodia, Vietnam, Mexico, and Brazil due to possible tariff concerns. With this strategic transition, Steve Madden Ltd. aims to reduce its dependence on Chinese goods by around 40% to 50% in the upcoming year. However, uncertainty surrounds the cost implications and likely disruptions of this shift.
The acquisition of the assets of GREATS Inc., a premium sneaker brand once owned by Steve Madden, by Unified Commerce Group (UCG) is not to be ignored. As part of the deal, UCG will oversee operational duties and Steve Madden Ltd. will become a shareholder of UCG. This will help SHOO lower its operational costs while still benefitting from owning a popular brand.
With so many structural changes happening in the company, the growth prospects seem underwhelming. Until the leadership adopts a more innovative approach to address the declining demand in contrast to competitors, there are other stocks worth the attention.
Steve Madden is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 17 hedge fund portfolios held SHOO at the end of the second quarter which was 20 in the previous quarter. While we acknowledge the potential of SHOO as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as SHOO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.