Steven Madden booked a 38.0 percent increase in second-quarter sales to $288.7 million but described the quarter as one of the most challenging for a while due to a drop in sales of sandals.
Sandals, both at wholesale and retail, represented 35-40 percent of the group's sales of women's shoe in the quarter compared with 40-45 percent a year earlier. After having been strong in the first quarter in the U.S., thanks to unseasonably warm weather, demand for sandals dropped in the second quarter as interest shifted to other shoe categories.
The company's chairman and chief executive, Edward Rosenfeld, said it was an industry-wide trend for producers of fashion shoes and that Madden had to apply promotions to sell sandals during the quarter. From the third quarter, sandals will no longer affect wholesale revenues, as shipments no longer involve summer products, but will continue to weigh on retail sales. Sandals represent about 20-22 percent of the sales of women's footwear in the group's stores.
Madden has not suffered from the economic slowdown in Western Europe because the region only represents about 1 percent of its sales. However, stores in New York, Las Vegas and Los Angeles have booked flat sales because of a decline in European tourists. In South Florida, the retail sales were up by a mid-teen rate as an increase in South American tourists offset a drop in European travelers.
The company managed to increase its international sales by 51 percent in the quarter, underpinned by strong gains in Dubai, Latin America and Canada. This year, thanks to a partnership with Dune, Madden entered the U.K. market and is entering the German, French and Scandinavian markets as a result of the extension of its partnership with Macintosh Retail Group. It will also expand in North Africa and some former Soviet republics after having reinforced its partnership with its Saudi distributor, Alhokair. The group is developing the Betsey Johnson banner in China, where it plans to have three stores by the end of the year.
Madden's overall wholesale revenues grew by 41.7 percent to $248.1 million. Organic growth, which excludes the recently acquired businesses Topline and Cejon and the takeover of its Canadian distributor, reached 18.5 percent.
Wholesale footwear sales were up by 33.8 percent to $198.7 million. Organic growth reached 10.8 percent, driven the Adesso-Madden private-label business, the Olsenboye collection and international sales.
Retail sales were up by 19.4 percent to $40.6 million. Comparable store sales increased by 6.8 percent as a fall in traffic was offset by a higher conversion rate. E-commerce sales rose by 26.1 percent.
The gross margin narrowed to 36.1 percent from 40.2 percent as the wholesale margin dwindled to 31.6 percent from 35.4 percent. Profitability was lowered by the acquisition of the Topline Corporation and the strong growth of Adesso-Madden, which generate lower margins. The retail gross margin fell to 63.7 percent from 64.8 percent driven mainly by promotions in sandals.
The company believes it can post a modest improvement in the gross margin in the second half of the year, when it is reasonable to expect comparable retail sales to rise by a mid-single-digit rate.
Net income rose to $26.9 million in the second quarter from $23.8 million a year earlier.
Madden reiterated its forecast of a 24-26 percent increase in full-year sales compared with the $968.5 million booked in 2011. It upgraded its earnings per share guidance to $2.67-2.77 from a previous estimate of $2.62-2.72. Financial analysts forecast full-year sales at more than $1.2 billion and net profits around $120 million.
Rosenfeld said the company continues to assess potential acquisitions but nothing is imminent. He added that after the fall in the company's share price, a share buyback has gone up its “priority list.” At the end of the quarter, Madden had $189.8 million in cash and cash equivalents on its balance sheet.
The group plans to launch an internet store for the Betsey Johnson brand early in the fourth quarter. It intends to have 108 company-run stores, including three internet sites, by the end of the year. The company ended the quarter with 96 company-operated retail locations, including eight outlets and two internet stores.