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Steven Madden, Ltd.
SHOO : NASDAQ : US$42.83 BUY Target: US$53.00
Steven Madden, Ltd., together with its subsidiaries, designs, sources, markets and sells fashion-forward footwear for women, men and children. The company was founded in 1990 and is headquartered in Long Island City, New York. SHOO has a portfolio of brands that reaches globally among all economic tiers. SHOO offers products through wholesale partners, an e-commerce platform and its own retail stores
We are anticipating a solid earnings report from SHOO when it reports on Thursday, November 1 BMO. We believe our EPS estimate of $0.87 (consensus of $0.90) could prove conservative by ~4c based on stronger wholesale sales and gross margin. We believe above-plan sell-through of booties drove solid footwear sales while handbags propelled accessories growth. Moreover, the studded trend is pushing ASPs higher. Retail comps (7% est.) likely also benefitted from similar trends; however, we believe that like with most retailers, traffic slowed in late September.
While we expect commentary to be relatively reserved on the conference call due to choppy traffic trends and Hurricane Sandy, we remain positive on SHOO’s prospects and thus reiterate our BUY.
Growth may suprise to the upside driven by solid sales of booties, casuals (Superga), and anything with studs. According to our checks, early fall boot reads have been better than plan, particularly short shaft boots (e.g. Troopa). In addition, we expect the strength in handbag sales to continue and drive wholesale accessories growth of 20%+. Gross margin expansion in Q3 as the mix impact of TGT’s private label business lessens and direct sourcing efforts manifest. We are modeling margin expansion of ~80bps.
We arrive at our $53 target by applying a blended average of 15x 2013 P/E, 9x EV/EBITDA, and DCF.