After the purchase in May of The Topline Corporation, a designer, producer and marketer of private-label and branded footwear, and of Cejon, a designer and marketer of cold weather accessories, Steve Madden is actively evaluating new acquisitions. Its management stressed a few days ago that no deal is imminent but it has a “couple” of targets in its sights.

The latest acquisitions cost a combined $85 million in cash, plus earn-out provisions. At the end of June, Madden had $132.2 million in cash and no debt. Topline had sales in 2010 of about $189.0 million, of which around 75 percent was achieved through the production of private labels. The business is expected to benefit from Madden' know-how and styling. The remainder of the turnover derives from the company's branded business, including the brands Report, Report Signature and R2 by Report, which are experiencing strong growth and are seen as “excellent” additions to Madden's own portfolio.

But the most appealing aspect of Topline's acquisition is that the company directly sources all its products with manufacturers while Madden sources nearly all its footwear through agents. Madden wants to use Topline's direct sourcing capacity to obtain better pricing, improved quality and deliveries for its own goods.

Madden has started using Topline's sourcing platform for some products of the Material Girl, Olsenboye, Madden Girl, children's and private-label lines. In the first year, up to 10-15 percent of its products could be sourced directly and the share could reach 50-60 percent in four to five years.

Cejon booked sales of about $64.0 million in 2010 and since September 2006 has held the Steve Madden license for cold weather and other fashion accessories. The acquisition will enable Steve Madden to extend the partnership to other group brands as well as offer to brand licensors the production of cold weather and fashion accessories on top of footwear and bags.

The acquisitions will bolster Madden's full-year sales by 47-49 percent compared with the previous year. But even without Topline and Cejon, the group's sales are growing faster than expected partly thanks to a strong performance by the Olsenboye brand, a licensed brand sold exclusively through the JCPenney chain, and the women's shoes of the Steven Madden line. Madden now anticipates Olsenboye to generate sales of around $15 million this year, nearly twice the initial forecast

Meanwhile, two other U.S. retailers, Nordstrom and Dillard's, have decided to sell the group's Betsey Johnson line in more stores in the autumn.

Madden warned that its full-year gross margin will be diluted by 6.5 percentage points due to the inclusion of the Target private-label activity in the sales line, the acquisition of Topline and Cejon, and strong growth abroad and in the private-label business. Without these factors, the gross margin would be flat or slightly higher, so the consolidated margin is seen 5.5-6.5 points lower than in 2010.

In the second quarter ended on June 30, the group's turnover rose by 31.8 percent to $209.2 million, lifted by an increase of about 68.0 percent in foreign sales. The flagship brand, Steven Madden, performed particularly well in wedges and pumps and its women's collection booked double-digit growth in wholesale and retail.

Outside the U.S., the group's sales enjoyed growth in Mexico, Canada, Israel and China. It is scheduled to open its first Indian store in Mumbai around mid-August. It plans to have five stores in the subcontinent by the end of the year through its exclusive long-term deal with Reliance Brands.

Wholesale revenues increased by 35.6 percent to $175.2 million, led by 42.6 percent higher footwear sales of $148.5 million.

Retail sales grew by 15.3 percent to $34.0 million. Same-store sales rose by 11.6 percent. In the quarter, the company opened one full-price store and one outlet store, acquired one Report store through the Topline deal, and closed three stores. At the end of June, the group had 83 directly operated stores, including the company's internet store. It could open four stores and close one to two locations by the end of the year.

The group's gross margin slipped to 40.2 percent in the second quarter from 43.4 percent a year earlier. The decrease stems from the inclusion of Madden's private-label footwear business with Target and the addition of the Topline business. Excluding these activities, the gross margin in the wholesale segment would have been moderately higher. The retail gross margin increased to 64.8 percent from 63.9 percent as a result of more full-price selling.

To mitigate higher production costs in southern China, the group is shifting more output to northern China and other countries such as Mexico. Topline's experience in sourcing products in northern China will help the group in its efforts.

The group's operating margin in the second quarter fell to 17.8 percent from 20.2 percent. The net income increased by 20.1 percent to $23.8 million from $19.8 million.