Steven Madden has extended its distribution agreement for the Steve Madden label with the Dutch group Macintosh Retail Group to include France, Germany and Scandinavia. The initial agreement between the two parties, announced in December 2010, was limited to the Benelux countries. The American group added that it will start shipping products to the new European markets in the autumn.
Madden stressed that, over the long term, Europe represents the biggest growth opportunity for the company even if this year most of its international growth will probably come from Asia, the Middle East and Latin America. The group has also reinforced its partnership with its Saudi distributor, Alhokair, attributing it the rights for all of North Africa and the former Soviet republics of Georgia, Kazakhstan and Belarus.
For the first three months of this year, Steve Madden booked a 50 percent increase in international sales. During the quarter, the group expanded its presence in the U.K. thanks to a trial at eight locations of the department store group House of Fraser. Madden said that the sales were “outstanding” and that Steve Madden products are now being sold at 27 of the retailer's locations. In the autumn, the group's Madden Girl brand will be available at 30 doors of House of Fraser and 60 Debenhams stores.
Madden finished the first quarter with an exceptional 60.5 percent increase in total revenues to $266.0 million, lifted by its Steve Madden brand and private labels. The group's revenues were also underpinned by acquisitions. Organic growth reached 17.9 percent.
The performance prompted the company to upgrade its sales growth guidance for the full year to 24-26 percent from 21-23 percent previously. Diluted earnings per share were raised to $2.62-2.72 from $2.60-2.70.
Wholesale revenues rose by 70.5 percent to $228.9 million, but their organic growth was limited to 18.7 percent. Wholesale sales of footwear jumped by 76.6 percent to $191.5 million. Organic growth in this segment reached 19.8 percent, driven by the Adesso-Madden private-label business and Steve Madden. Adesso-Madden increased wholesale sales to $31.0 million from $16.0 million a year earlier, largely thanks to its partnership with the Target retail group in the U.S. Wholesale sales of accessories rose by 45.1 percent to $37.4 million. Their organic growth was 14.1 percent, underpinned by Steve Madden and Betsey Johnson handbags. Madden expects overall wholesale revenues to continue growing at double-digit rates on an organic basis during the rest of the year.
Retail sales were up by 17.6 percent to $37.0 million. Comparable store sales grew by 11.9 percent, driven by casual shoes and sandals. E-commerce was up by 24.0 percent during the quarter.
The gross margin narrowed to 36.1 percent from 41.7 percent due to a decline in the wholesale margin to 32.3 percent from 37.9 percent. Profitability was lowered by the acquisition of The Topline Corporation and the strong growth of Adesso-Madden, which both generate lower margins. The group expects the wholesale margin to show modest improvement from the third quarter onward. In the meantime the retail margin increased to 60.1 percent from 58.1 percent. At the end of March, Madden had 89 company-operated retail locations, including seven outlets and an internet store.
The operating margin fell to 13.3 percent from 16.6 percent, and net income rose by 22.5 percent to $21.9 million.
Steven Madden will only suffer limited losses from Betsey Johnson LLC's decision, made in April, to file for bankruptcy protection under Chapter 11. The company founded by the exuberant American designer by the same name holds the licenses for the label's retail operations in the U.S., Canada and London, as well as for apparel.
Madden acquired the Betsey Johnson brand and related intellectual property in October 2010 from Betsey Johnson LLC. Madden could have acquired the retail license for no additional cost but declined the offer to concentrate on wholesale sales of footwear and accessories.
The consequence of the filing is the likely closure of most Betsey Johnson stores, and Madden needs to rapidly find another licensee for the brand's apparel. The royalties from the apparel license amounted to less than $200,000.
Betsey Johnson stores contributed about $4-5 million to Madden's annual sales in 2011 and about $1 million in operating profits. According to The Wall Street Journal, Betsey Johnson has 63 stores, and Madden could keep four or five flagship locations in New York and other cities.
Betsey Johnson LLC owes Madden $3 million. In the deal that gave Madden ownership of the label and a 10 percent stake in company, Betsey Johnson obtained a $3 million secured loan from Madden, which does not expect to recoup all the monies.