On Friday, Williams Trading adjusted its outlook on Steven Madden (NASDAQ: NASDAQ:SHOO) shares, increasing the price target to $42.00 from the previous $39.00 while maintaining a Hold rating on the stock.
The new price target is based on a price-to-earnings (P/E) ratio of 13 times the firm's fiscal year 2026 earnings per share estimate. This valuation reflects a discount to the company's historical average P/E due to concerns over its core wholesale footwear business and potential tariff impacts.
Steven Madden's stock has historically traded at an average forward P/E ratio of 14.8 times consensus estimates and is currently trading at 15 times. However, the analyst believes a lower multiple is justified given the negative growth in the company's core wholesale footwear segment.
Approximately 70% of Steven Madden's domestic sales are sourced from China, and the company is aiming to reduce this dependency by 40%-45% over the next year in light of potential global tariff increases, with a more significant impact expected from tariffs on Chinese goods.
The company's efforts to diversify its manufacturing base include strengthening relationships with factories in Vietnam, Cambodia, Brazil, Mexico, and other countries. This diversification strategy is seen as a way to mitigate tariff risks, although it may slow down the company's renowned speed-to-market.
The analyst also noted that Steven Madden's reliance on large department stores, which often favor private label products over branded goods, has led to underperformance in its core Steve Madden and Dolce Vita wholesale revenue.
Despite these challenges, Steven Madden reported a sales and earnings beat for the third quarter of 2024, attributed to better-than-expected performance in wholesale handbags, apparel, private label footwear, and off-price footwear revenue.
However, total wholesale footwear revenue fell short of consensus estimates by 6%. Direct-to-consumer (DTC) revenue saw a 7.8% increase, with a 10% rise in digital sales and a 6% uptick in store revenue, primarily from full-price sales.
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