On Friday, Citi maintained a Neutral stance on Steven Madden (NASDAQ:SHOO), but increased the stock's price target to $45 from $43. The adjustment follows Steven Madden's third-quarter earnings per share (EPS) that modestly surpassed the consensus, attributed to stronger performance in apparel and accessories sales. In contrast, wholesale footwear sales did not meet expectations and fell short of the management's plan.
The company reported that the Steven Madden branded footwear segment showed only a slight improvement from the second quarter, which experienced a mid-single-digit decline. This was due to weaker department store trends and a cautious approach to orders. Management anticipates an uptick in the branded footwear business in the fourth quarter, driven by stronger demand for boots. However, the potential for significant growth is tempered by retailer caution regarding reorders.
Steven Madden is strategizing to mitigate the impact of potential China tariffs by moving production out of the country. The aim is to reduce the proportion of units potentially affected by tariffs from 50% to 25% by the end of fiscal year 2025, a more aggressive shift than previously anticipated. The cost implications and possible disruptions of this transition, however, remain uncertain.
Citi's report suggests that while near-term downside risk to EPS is limited, the current valuation of Steven Madden shares—trading at an estimated fiscal year 2025 enterprise value/EBITDA multiple of approximately 11.0x—alongside the risk of additional tariffs, supports a balanced risk/reward outlook for the company.
In other recent news, Steven Madden Ltd. is planning a strategic shift away from Chinese manufacturing due to potential tariff concerns. The company is developing manufacturing bases in alternative countries, including Cambodia, Vietnam, Mexico, and Brazil, aiming to reduce its reliance on Chinese goods by 40% to 45% over the next year. Analysts from Citi have reaffirmed a neutral stance on the company, anticipating a third-quarter earnings per share (EPS) of $0.93, while expecting a potential adjustment of the full-year 2024 EPS guidance upwards.
Piper Sandler also issued a neutral rating on Steven Madden, highlighting the company's nimble business model. However, the firm pointed out potential risks such as exposure to lower-income consumers and the impact of store closures. Steven Madden reported an 18% rise in revenue and a 23% increase in adjusted diluted earnings per share for the second quarter of 2024, attributed to strategic international expansion and diversification beyond footwear.
In a significant development, Unified Commerce Group (UCG) has acquired the assets of GREATS Inc., a premium sneaker brand previously owned by Steven Madden. As part of the acquisition, Steven Madden will become a shareholder in UCG.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Steven Madden's financial position and market performance. The company's market capitalization stands at $3.31 billion, with a P/E ratio of 17.3 based on the last twelve months as of Q3 2024. This valuation is supported by a solid revenue growth of 14.89% over the same period, reaching $2.22 billion.
InvestingPro Tips highlight Steven Madden's financial strength, noting that the company "holds more cash than debt on its balance sheet" and that "liquid assets exceed short term obligations." These factors align with the company's strategy to navigate potential challenges, such as the planned reduction in China-based production to mitigate tariff risks.
The company's profitability is also emphasized, with InvestingPro indicating that Steven Madden has been "profitable over the last twelve months" and that "analysts predict the company will be profitable this year." This positive outlook is further reinforced by the fact that "4 analysts have revised their earnings upwards for the upcoming period."
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips on Steven Madden, providing deeper insights into the company's financial health and market position.
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