SPECIAL REPORT
JUNE 30, 2014
STEVEN MADDEN, LTD.
SHOO – $33.83
$39
One of Our Favorite Ideas for 2H14
Price Target (Previous)
$39
With June coming to an end and second quarter earnings season just around the
corner, the question we get asked most these days is: what do you like for 2H14?
One of our favorite ideas for the back half of the year has been SHOO, and
although the stock has already started to move upwards (up 6% MTD vs. a 2%
rise in the S&P), we thought it would be helpful to lay out our favorable thesis.
Market Statistics
Market Capitalization ($MM)
Enterprise Value ($MM)
Shares Outstanding (MM)
Avg. Daily Trading Volume (Shrs, MM)
Short Interest/Float
Insider Ownership (% of Total Shrs Out)
Dividend Yield
Stock Exchange
6/29/14
$2,240.7
$2,057.5
66.2
612.9
3.4%
14.1%
0.0%
NASDAQ
Price Performance
52-Week Range
YTD % Change
YTD % Change Relative to Index
Implied Return to Price Target
Historical One Year Stock Price
2,000
1,500
1,000
500
0
Oct-13
>
Diversified Portfolio of Brands. Steve Madden operates multiple lifestyle
brands across a broad range of distribution channels, from Target and
Walmart on the low-end, to Saks and Bergdorf Goodman at the high-end.
The growth within the new brands means that the core brand, Steve
Madden, now accounts for just ~57% of sales vs. over 80% of sales in
2008. We believe this shows how the company has diversified its portfolio,
mitigating risk and increasing the potential for various growth opportunities.
>
Test and React Model = Sustainable Competitive Advantage. Steve
Madden operates a business model called “test and react” that lowers the
company’s lead times to 6-8 weeks as opposed to 3-4 months (industry
standard). We believe lower lead times are a significant competitive
advantage that enables the company to: 1) be nimble with fashion trends;
and 2) work closer to season, which should enable share gains.
6/29/14
$30.66 - $39.48
(7.5%)
(13.6%)
15.3%
2,500
Aug-13
pl
e
Price Target (Current)
Nov-13
Jan-14
Apr-14
S&P 500
m
Steven Madden, Ltd.
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
Jun-14
Valuation Metrics (FYE Dec)
P/E Ratio
PEG Ratio (using 5-Yr GR)
EV/Sales
EV/EBITDA
FCF Yield
2014E
15.6x
1.3x
1.5x
9.2x
5.7%
2015E
13.8x
1.2x
1.4x
8.3x
6.0%
2013
$10.16
0.0%
0.0x
1.0x
23.3%
2014E
$11.15
0.0%
0.0x
1.2x
23.5%
2015E
$12.24
0.0%
0.0x
1.2x
24.2%
11.9%
>
Plenty of Growth Opportunities to Drive HSD Sales Growth. Steve
Madden has grown its topline at an average CAGR of ~24% over the past
five years, which includes a 5-Year CAGR of ~14% for the core Steve
Madden brand. Going forward, we believe that total sales can grow in the
HSD range, fueled by growth in the core Steve Madden Wholesale
Footwear business, as well as expansion in less mature opportunities, such
as International, Private Label, Handbags, Outlets, and New Brands.
>
Potential for Margins to Reach High-Teens. Over the long-term, the
company believes it has the potential to reach a high-teens operating
margin, driven by direct sourcing and leverage on operating expenses.
Sa
Balance Sheet and Growth Metrics
Book Value/Share
Debt/Capitalization
Debt/EBITDA
Adjusted Debt/EBITDAR
ROIC
5-Year Long Term EPS Growth Rate
2013
17.1x
1.4x
1.6x
9.5x
6.0%
Total Sales Growth
Period
Current Previous
1Q13
4.9%
2Q13
3.1%
3Q13
10.6%
4Q13
8.7%
2013
7.1%
1Q14
9.2%
2Q14E
5.7%
5.7%
3Q14E
7.3%
7.2%
4Q14E
6.6%
6.5%
2014E
7.2%
7.1%
1Q15E
7.6%
7.5%
2Q15E
8.0%
7.7%
3Q15E
7.5%
7.3%
4Q15E
7.8%
7.6%
2015E
7.7%
7.5%
EPS (Operating)
First Call
Current
Previous
$0.35
$0.43
$0.66
$0.53
$1.98
$0.36
$0.45
$0.47
$0.47
$0.74
$0.75
$0.75
$0.60
$0.59
$0.59
$2.14
$2.17
$2.17
$0.43
$0.42
$0.42
$0.53
$0.53
$0.53
$0.82
$0.84
$0.84
$0.66
$0.66
$0.66
$2.45
$2.45
$2.45
Source: FactSet, company reports, and TAG estimates.
Kelly Chen, CFA
212.584.4609/ kchen@telseygroup.com
Joseph Feldman
212.584.4605 / jfeldman@telseygroup.com
Dana Telsey
212.584.4606 / dtelsey@telseygroup.com
>
Easy Comparisons in 2H14. Starting in 3Q14, Steve Madden will face
three quarters of negative comparisons, including (3.5%) in 3Q14, (6.7%) in
4Q14, and (17.2%) in 1Q15. This should pave the path for positive comps
assuming more normalized weather.
>
2014 Guidance Looks Achievable. We believe the 2014 guidance of
$2.05-$2.15 is achievable, especially since it only assumes ~$70MM in
buybacks and because it was not increased following 1Q14 despite a lower
tax rate assumption that should add around $0.04-$0.05 to EPS.
TAG VIEW: SHOO is a well-managed company that generates high ROIC while
returning cash to shareholders. Retail trends seem to have improved in 2Q14
(relative to 1Q14), and we believe the momentum can continue into 2H14 when
the company faces easier comparisons from last year. 2014 guidance seems
achievable, and we believe the valuation looks attractive with the stock trading at
<14x 2014 EPS vs. a 3-YR and 5-YR average of ~16x. We reiterate our $39 price
target, which is based on a P/E multiple of 16x our 2015 EPS estimate of $2.45.
Please read the important disclosure and analyst certification information in the Addendum section of this report
JUNE 30, 2014
STEVEN MADDEN, LTD. (SHOO)
SPECIAL REPORT
Diversified Portfolio of Brands
Steve Madden started off as a footwear company in 1990 when the namesake designer
started crafting shoe designs in his factory in Queens, NY. Since then, the company has
grown into a $1.3B business that operates multiple lifestyle brands across a broad range of
distribution channels, from Target and Walmart on the low-end, to Saks and Bergdorf
Goodman at the high-end.
pl
e
The company’s core brand, Steve Madden (which includes all related brands like Madden Girl
and Steve etc.), generated sales of ~$749MM in 2013, accounting for approximately 57% of
sales vs. over 80% of sales in 2008. We believe this showcases how the company has
diversified its portfolio, mitigating risk and increasing the potential for various growth
opportunities.
CORE STEVE MADDEN BRAND SALES
$1,400
$1,200
$565
$1,000
$537
$800
$380
$600
$400
$200
$97
$62
$48
$395
$456
2008
2009
$538
$589
2010
2011
$690
$749
2012
2013
m
$0
Steve Madden Brand Net Sales
Non-Steve Madden Brand Net Sales
Note: Steve Madden Brand includes all related brands (Madden Girl, Steven etc.)
Source: Company reports and TAG estimates.
Below, we show the company’s main brands by distribution channel, as well as its mix.
Sa
BRANDS BY DISTRIBUTION CHANNEL
Source: Company reports, the NPD Group, and TAG estimates.
th
CHANNEL MIX
Other 7%
National
Chains 8%
Shoe Stores 17%
Shoe Chains 8%
Department Stores
15%
International 9%
E-Commerce
10%
Off-Price 15%
Mass
Merchants
11%
Source: Company reports and the NPD Group.
> Telsey Advisory Group 535 Fifth Avenue, 12 Floor, New York, NY 10017 p 212 973 9700 f 212 973 9711 www.telseygroup.com
2
JUNE 30, 2014
STEVEN MADDEN, LTD. (SHOO)
SPECIAL REPORT
Steve Madden Brand Remains Strong With #2 and #3 Market Share
The main Steve Madden brand remains highly relevant, taking the #2 and #3 market share
positions in the Junior’s and Women’s segments respectively, according to NPD data (TTM
ended Jan 2014) for brands in the relevant price grids. We believe the company has done a
good job in developing brand extensions across various channels, which should continue to
drive growth in its key accounts.
BETTER & JUNIORS – STEVE MADDEN MARKET SHARE
Market Share
Rank
1
Skechers
Brand
12.4%
1
Skechers
3.6%
2
Steve Madden
8.3%
2
UGG
3.4%
3
Nine West
4
Vince Camuto
5
AK Anne Klein
6
Madden Girl
7
Franco Sarto
8
Jessica Simpson
9
Rampage
10
Enzo Angiolini
Brand
Market Share
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e
Rank
TOTAL WOMEN’S – STEVE MADDEN MARKET SHARE
5.5%
3
Steve Madden
2.5%
4.7%
4
Clarks England
2.4%
2.3%
3.8%
5
Michael Michael Kors
3.6%
6
Sperry Top-Sider
2.0%
3.3%
7
Nine West
1.7%
2.8%
8
Nike
1.6%
2.7%
9
Vince Camuto
1.4%
2.3%
10
Sam Edelman
1.3%
Source: Company reports, the NPD Group, and TAG estimates.
Source: Company reports, the NPD Group, and TAG estimates.
Test and React Business Model = Sustainable Competitive Advantage
m
Steve Madden operates a unique business model called “test and react.” One of the main
benefits of the model is its ability to lower the company’s lead times to 6-8 weeks as opposed
to 3-4 months (industry standard). Meanwhile, inventory turns ~10.5x a year (~1x a quarter in
retail and ~1x a month in wholesale). In some ways, we believe this makes Steve Madden
the fast-fashion player within the footwear space. Note that within specialty retail, fast fashion
apparel companies have lead times of around 2-4 months vs. around 6-9 months for
traditional specialty retail. Additionally, we point out that Steve Madden started working with
fast-fashion giant Forever 21 over this past year, which supports our view.
Sa
We believe lower lead times are a significant competitive advantage that enables the
company to: 1) be nimble with fashion trends; and 2) work closer to season. These
capabilities will likely make Steve Madden a preferred vendor for retailers that try to buy
closer-to-need and limit markdown risk, especially when there is a high degree of uncertainty
or volatility in the market.
Test and React Process

Step 1: Designer creates an idea for a shoe in the morning and develops a prototype for
the shoe by the end of the day.

Step 2: On day two, the company produces several cases of the shoes in Queens and
overnights the products to Steve Madden stores that have proven to be good leading
indicators for the rest of the chain.

Step 3: The company closely monitors the sell-throughs of the shoe over the next week.

Step 4: If the shoe meets the company’s requirements, the shoe is taken to its Wholesale
accounts and mass produced in China. If the shoe does not meet the company’s
requirements, the process ends, and the company arguably saved itself from a potential
fashion miss.
Plenty of Growth Opportunities to Drive HSD Sales Growth
Steve Madden has grown its topline at an average CAGR of ~24% over the past five years,
which includes a 5-Year CAGR of ~14% for the core Steve Madden brand. Going forward,
we believe that total sales can grow in the HSD range, fueled by growth in the core Steve
th
> Telsey Advisory Group 535 Fifth Avenue, 12 Floor, New York, NY 10017 p 212 973 9700 f 212 973 9711 www.telseygroup.com
3
JUNE 30, 2014
STEVEN MADDEN, LTD. (SHOO)
SPECIAL REPORT
Madden Wholesale Footwear business, as well as expansion in less mature opportunities,
such as International, Private Label, Handbags, Outlets, and New Brands.
1) Grow Core Steve Madden US Wholesale Footwear Through Men’s and Madden Girl.
Steve Madden’s business has always been weighted to wholesale (~84% of sales in
2013 and ~73% of sales in 2008), and while we expect the penetration of Retail sales to
increase modestly over time, Wholesale will always be the company’s bread and butter –
particularly Footwear, which represented ~78% of Wholesale sales in 2013.
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e
Over the past few years, the Steve Madden US Wholesale Footwear business has grown
at around 4% each year. However, the company believes it can accelerate growth in the
business in 2014 by: 1) growing Steve Madden Men’s; and 2) growing Madden Girl, the
brand’s more moderately-priced line.

Steve Madden Men’s. We estimate that Steve Madden Men’s represents less than
10% of the total business. However, in some of its own retail stores, Men’s has
reached around 20%-25% of sales, suggesting that the business is underpenetrated
in the wholesale channel.
Management brought on a new Men’s president in 2013 that has already helped
oversee a series of changes that have produced strong results. Some of those
changes include: redefining the brand architecture, elevating the line with higher
price points, and using the Madden line to drive business with the younger, more
casual customer. The Men’s business was up ~15% in 2H13 and the company
believes Men’s can grow DD in 2014.
At macys.com, we estimate that the Steve Madden core brands account for
~4.5% of the women’s footwear SKUs vs. ~2.7% of the men’s footwear SKUs,
suggesting that there is opportunity for the brand to increase its presence/share
in men’s.
m


Madden Girl. Madden Girl has also benefited from a better-defined pricing
architecture and brand repositioning on the Women’s side. At Macy’s, management
repositioned Steve Madden Women’s by putting it into the Impulse section, taking it
out of the Junior’s section. As a result, the Steve Madden brand is now positioned at
the value-end of the women’s shoe department, enabling the company to take up
price points. Meanwhile, this move opens up space for the Madden Girl brand to
increase share gains in juniors. We believe those types of executional changes,
along with some near-term product momentum in the product (due in part to the
Kendall and Kylie Jenner capsule collection), can generate above-average sales
growth in 2014.
Sa

At nordstrom.com, we estimate that the Steve Madden core brands account for
~2.0% of the women’s footwear SKUs vs. ~0.2% of the men’s footwear SKUs,
suggesting that there is opportunity for the brand to increase its presence in
men’s.
2) Grow International Business.
In 2013, International sales increased 20% YoY,
representing around 9% of total sales. In particular, Steve Madden highlighted strength
in Canada (up over 30% YoY), Europe, the Middle East, and Asia.
In 2014, the International business should benefit from the addition of 50 stores and 1520 concessions in 2014. Mr. Rosenfeld has said that the International business
represents the largest opportunity for the firm over the next few years, with the potential
to reach mid-teens penetration.
While a distributor business represents the preferred channel in the near-term, the
company noted the potential for Steve Madden to acquire and bring regions in-house
over the long-term once they reach scale, which would be margin-accretive. Other
considerations for whether or not to bring a region in house are dependent on the
management team and the political stability of the country. Management has indicated
th
> Telsey Advisory Group 535 Fifth Avenue, 12 Floor, New York, NY 10017 p 212 973 9700 f 212 973 9711 www.telseygroup.com
4
JUNE 30, 2014
STEVEN MADDEN, LTD. (SHOO)
SPECIAL REPORT
that there could be the potential for this to happen over the next year. We believe the
regions that are most likely to be brought in-house are Mexico or Latin America. Below, we
show how the company grew and developed the Canadian business when it was converted
to an in-house operation in order to show the potential contribution from other regions.
Canada Case Study


Upon Acquisition in 1Q12: The company recorded $42MM in Sales ($30MM in
wholesale and $12MM in Retail) and $10MM-$11MM in EBIT
Recent Results: Sales have grown to ~$50MM and EBIT growth remains strong
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e

Prior to Acquisition: Generated $8MM in Sales and $1MM in EBIT
3) Expand the Private Label Business. The private label business has grown nicely over
the past few years, generating approximately $350MM in sales in 2013. Although the
business is dilutive to margins (we estimate that the gross margin is in the mid-teens), the
company leverages a lot of its existing infrastructure in terms of design and production,
meaning that there is very little incremental investment involved. As a result, the
business is accretive to ROIC.
Over the next few years, Steve Madden believes there is potential to continue growing
this business, particularly at Target, where the Mad Love label has seen strong results
and will be expanded into new categories besides just footwear.
4) Expand Wholesale Branded Handbags Business. In total, accessories accounted for
~22% of wholesale sales in 2013. We estimate that around 60%-65% of accessory sales
were derived from handbags. Encouragingly, the handbag product is being well received
and seems to be filling in a niche in the ~$100-price point range (below Coach and
Michael Kors, with no dominant player).
m
Going forward, we believe there is still plenty of growth left in handbags as the company
expands distribution (only in select JWN and M doors vs. all JWN and M doors for
footwear) and increases the assortment within existing doors. The company also has the
potential to grow handbags within other brands: for example, the company launched
Madden Girl handbags at a $50-$60 price point in 2013 and will be expanding the line to
new distribution points in 2014. Additionally, we believe the company could leverage the
Atwood brand to break into higher-priced leather handbags.
Sa
Below, we show how Steve Madden is focused the lower price tiers within the department
store channel.
SHOO’S HANDBAG POSITIONING AT MACY’S
# of SKUs
Under $50
$50-$100
$100-$150
$150-$200
$200-$250
$250-$300
$300+
Total SKUS
All Brands
543
872
470
342
187
157
148
2719
SHOO Total
22
67
3
N/A
N/A
N/A
N/A
92
Steve Madden
2
15
3
N/A
N/A
N/A
N/A
20
Madden Girl
7
N/A
N/A
N/A
N/A
N/A
N/A
7
STEVEN
1
N/A
N/A
N/A
N/A
N/A
1
Big Buddha
5
31
N/A
N/A
N/A
N/A
N/A
36
Betsey Johnson
8
20
N/A
N/A
N/A
N/A
N/A
28
% of Mix
Under $50
$50-$100
$100-$150
$150-$200
$200-$250
$250-$300
$300+
Total SKUS
All Brands
20%
32%
17%
13%
7%
6%
5%
100%
SHOO Total
24%
73%
3%
N/A
N/A
N/A
N/A
100%
Steve Madden
10%
75%
15%
N/A
N/A
N/A
N/A
100%
Madden Girl
100%
N/A
N/A
N/A
N/A
N/A
N/A
100%
STEVEN
0%
100%
N/A
N/A
N/A
N/A
N/A
100%
Big Buddha
14%
86%
N/A
N/A
N/A
N/A
N/A
100%
Betsey Johnson
29%
71%
N/A
N/A
N/A
N/A
N/A
100%
Source: Company reports and TAG estimates.
th
> Telsey Advisory Group 535 Fifth Avenue, 12 Floor, New York, NY 10017 p 212 973 9700 f 212 973 9711 www.telseygroup.com
5
JUNE 30, 2014
STEVEN MADDEN, LTD. (SHOO)
SPECIAL REPORT
SHOO’S HANDBAG POSITIONING AT NORDSTROM
All Brands
129
405
184
298
158
218
717
2109
SHOO Total
4
61
8
1
0
0
0
74
Steve Madden
0
6
1
N/A
N/A
N/A
N/A
7
Madden Girl
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
STEVEN
4
24
2
1
N/A
N/A
N/A
31
Big Buddha
N/A
9
N/A
N/A
N/A
N/A
N/A
9
Betsey Johnson
N/A
22
5
N/A
N/A
N/A
N/A
27
% of Mix
Under $50
$50-$100
$100-$150
$150-$200
$200-$250
$250-$300
$300+
Total SKUS
All Brands
6%
19%
9%
14%
7%
10%
34%
100%
SHOO Total
5%
82%
11%
1%
0%
0%
0%
100%
Steve Madden
0%
86%
14%
N/A
N/A
N/A
N/A
100%
Madden Girl
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
STEVEN
13%
77%
6%
3%
N/A
N/A
N/A
100%
Big Buddha
N/A
100%
N/A
N/A
N/A
N/A
N/A
100%
Betsey Johnson
N/A
81%
19%
N/A
N/A
N/A
N/A
100%
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e
# of SKUs
Under $50
$50-$100
$100-$150
$150-$200
$200-$250
$250-$300
$300+
Total SKUS
Source: Company reports and TAG estimates.
5) Grow Retail through Outlets and E-commerce.
m
Over the past few years, the
company’s Retail division has gone through quite a transformation. Between the years of
2008 and 2011, the company was primarily a net store closer, consolidating its base to
84 stores in 2011, down from 101 in 2007. During those years, management pruned the
store base and focused on A malls while closing stores in the secondary and tertiary
Midwest markets. As a result, the store productivity rose dramatically, with sales per
square foot increasing to $810 in 2011 vs. $628 in 2008 (based on the old methodology).
Once the store base was fairly healthy, the company resumed growth in 2012 and 2013,
expanding the store count to 121 stores (including the acquisition of 7 stores in Canada),
which represented average unit growth of around 20% over the last two years.
Going forward, we believe Retail can grow in the HSD-LDD range over the next few
years, driven by HSD unit growth (focused on outlet expansion), a return to positive
comps, and growth in e-commerce. Ultimately, the company believes that Retail margins
can surpass Wholesale margins.
Outlets. The company ended 1Q14 with 123 stores, including 20 outlet stores and
four Internet stores. For 2014, Steve Madden has talked about opening 3-4 full line
stores (mostly in Canada) and 10-12 outlet stores. The company also expects to
close around 3 stores, netting out to unit growth of around 10%.
Sa

Going forward, we believe Steve Madden will be more focused on expanding the
outlet store channel, which could reach 50-60 units by the end of 2016. Ultimately,
the outlet channel has the potential to reach 125-130 stores.
Encouragingly, outlets tend to generate higher returns relative to full-price stores,
with a four-wall contribution that is roughly 150 bps better. Over time, the company
believes the differential could reach 300-400 bps. We believe the higher margin
profile stems from a lower expense structure as well as the potential for better gross
margins as the company improves made-for-factory margins through higher
volumes.

th
E-Commerce. E-commerce represented ~18% of the Retail business in 2013, up
from ~4% in 2005. In addition, the company estimates that roughly 10% of its
wholesale business is online. We believe the company can continue to grow its ecommerce business at a solid DD pace going forward. We note that the company
hired the head merchant from Zappos in late 2013 to oversee the business and
relaunched its website in early 2014 – these are just some of the examples of
changes that can help drive e-commerce growth.
> Telsey Advisory Group 535 Fifth Avenue, 12 Floor, New York, NY 10017 p 212 973 9700 f 212 973 9711 www.telseygroup.com
6
JUNE 30, 2014
STEVEN MADDEN, LTD. (SHOO)
SPECIAL REPORT
6) Grow New Brands. Steven Madden has successfully implemented its business model
with its legacy brands and believes it can leverage the model to help grow new brands in
under-developed channels.
Since 2009, the company has added ten new brands to the portfolio, including: Elizabeth
and James, Olsenboye, Material Girl, Big Buddha, Madden, Betsey Johnson, Superga,
Report, Wild Pair, and Brian Atwood. The new brands generated ~$100MM in sales in
2013 and are expected to grow at a solid pace in 2014 and beyond. In particular, the
company seems most excited about the growth/potential for Mad Love and Freebird.
Potential for High-Teens Operating Margin Over the LT
pl
e
Over the long-term, the company believes it has the potential to reach a high-teens operating
margin, driven by direct sourcing and leverage on operating expenses. Assuming MSD-HSD
sales growth, SG&A should grow at a MSD rate, with fixed costs growing ~3% and variable
expenses increasing commensurate with total sales growth.

Direct Sourcing. One of the drivers for increased margins is ramping up direct sourcing.
Recall that in late May 2011, Steve Madden acquired Topline, a designer, producer, and
marketer of private label (~75% of sales) and branded footwear (~25% of sales stemmed
from brands including Report, Report Signature, and R2 by Report). In addition to
developing a relationship with Payless, one of the largest shoe retailers in the US, Steve
Madden noted that one of the main reasons for the acquisition was to gain access to
Topline’s direct sourcing operations in China. At the time, Topline sourced 100% of its
goods direct with the factories, while Steve Madden sourced most of its footwear through
agents.
m
We estimate that by the end of 2013, Steve Madden sourced ~30% of its legacy business
directly, up from 20%-25% in 3Q13, ~20% in 2Q13, 15%+ in 1Q13, ~15% in 4Q12, and
<2% in 2011. Over time, the company believes it can increase direct sourcing in the
legacy business to 50%-60%, including another 10% increase in penetration in 2014. By
cutting out the middle man, Steve Madden stands to benefit from greater profitability, as
well as improved quality and consistency in its merchandise.
Although the benefit from the shift to direct sourcing has been tempered to <200 bps due
to increased costs associated with compliance, we believe it is still a source of margin
accretion and demonstrates the company’s vigilance in optimizing costs/margins.
Sa
2014 Outlook Looks Achievable, Esp. Given Buyback and Lower Tax
In 1Q14, the company reiterated its 2014 guidance for sales growth of 5%-7% and EPS of
$2.05-$2.15.
We believe the guidance looks achievable and point out that it was kept the same despite a
lower than expected tax rate of ~35.1%, down from 37.5% previously, which we estimate
would add around $0.04-$0.05 to EPS.
Additionally, we note that the 2014 outlook only assumes ~$70MM in share buybacks, which
will could prove conservative given that the company has been buying back shares at a pace
of ~$30MM on average for the past four quarters.
Maintain $39 Price Target
SHOO is a well-managed company that generates high ROIC while returning cash to
shareholders. Retail trends seem to have improved in 2Q14 (relative to 1Q14), and we
believe the momentum can continue into 2H14 when the company faces easier comparisons
from last year. 2014 guidance seems achievable, and we believe the valuation looks
attractive with the stock trading at <14x 2014 EPS vs. a 3-YR and 5-YR average of ~16x. We
reiterate our $39 price target, which is based on a PE multiple of 16x our 2015 EPS estimate
of $2.45.
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> Telsey Advisory Group 535 Fifth Avenue, 12 Floor, New York, NY 10017 p 212 973 9700 f 212 973 9711 www.telseygroup.com
7
JUNE 30, 2014
STEVEN MADDEN, LTD. (SHOO)
SPECIAL REPORT
SALES BREAKDOWN BY DIVISION
1Q12
MAR
191.5
37.4
228.9
2Q12
JUN
198.7
49.4
248.1
3Q12
SEP
228.7
82.8
311.5
37.0
40.6
45.3
68.3
266.0
288.7
356.9
YOY GROWTH
Wholesale Footwear
Wholesale Accessories
Total Wholesale
76.6%
45.1%
70.5%
33.8%
85.7%
41.6%
Retail
SSS
17.6%
11.9%
19.4%
6.8%
Total Sales
60.5%
38.0%
MIX
Wholesale Footwear of WS
Wholesale Accessories of WS
83.6%
16.4%
80.1%
19.9%
Wholesale Footwear
Wholesale Accessories
Total Wholesale
72.0%
14.1%
86.1%
68.8%
17.1%
85.9%
Retail
13.9%
14.1%
Retail
Total Sales
1Q13
MAR
189.2
44.7
233.9
2Q13
JUN
199.2
52.2
251.4
3Q13
SEP
272.2
73.7
345.9
4Q13
2013
DEC TOTAL
199.4
860.0
74.0
244.6
273.4 1104.5
1Q14
MAR
219.7
45.3
265.0
2Q14E 3Q14E 4Q14E
JUN
SEP
DEC
212.1 289.9 209.4
54.8
79.6
78.4
266.9 369.5 287.8
2014E
TOTAL
931.1
258.1
1189.2
191.3
45.1
46.2
48.9
69.5
209.7
39.6
47.6
54.2
77.8
219.2
315.5
1227.1
278.9
297.6
394.8
342.9
1314.2
304.6
314.5
423.7
365.6
1408.5
8.3%
23.6%
12.0%
4.1%
25.0%
9.4%
24.8%
36.5%
27.3%
-1.2%
19.3%
2.1%
0.3%
5.6%
1.3%
19.0%
-11.0%
11.0%
13.5%
3.3%
10.6%
8.2%
1.4%
6.6%
16.2%
1.3%
13.3%
6.5%
5.0%
6.2%
6.5%
8.0%
6.8%
5.0%
6.0%
5.3%
8.3%
5.5%
7.7%
27.2%
8.6%
27.0%
5.9%
23.5%
7.9%
21.7%
3.0%
13.9%
2.5%
7.9%
(3.5%)
1.8%
(6.7%)
9.6%
(2.1%)
-12.1%
(17.2%)
2.9%
(4.5%)
10.9%
2.5%
11.9%
5.0%
4.5%
(3.6%)
13.7%
12.8%
26.7%
4.9%
3.1%
10.6%
8.7%
7.1%
9.2%
5.7%
7.3%
6.6%
7.2%
73.4%
26.6%
71.0%
29.0%
76.7%
23.3%
80.9%
19.1%
79.2%
20.8%
78.7%
21.3%
72.9%
27.1%
77.9%
22.1%
82.9%
17.1%
79.5%
20.5%
78.5%
21.5%
72.8%
27.2%
78.3%
21.7%
64.1%
23.2%
87.3%
55.7%
22.7%
78.4%
64.8%
19.7%
84.4%
67.8%
16.0%
83.8%
66.9%
17.5%
84.5%
68.9%
18.7%
87.6%
58.2%
21.6%
79.7%
65.4%
18.6%
84.0%
72.1%
14.9%
87.0%
67.4%
17.4%
84.9%
68.4%
18.8%
87.2%
57.3%
21.5%
78.7%
66.1%
18.3%
84.4%
12.7%
21.6%
15.6%
16.2%
15.5%
12.4%
20.3%
16.0%
13.0%
15.1%
12.8%
21.3%
15.6%
Sa
m
Source: Company reports and TAG estimates.
4Q12
2012
DEC TOTAL
175.6
794.5
71.6
241.3
247.2 1035.8
pl
e
Year ending DEC
$MM, Except per Share Data
Wholesale Footwear
Wholesale Accessories
Total Wholesale
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> Telsey Advisory Group 535 Fifth Avenue, 12 Floor, New York, NY 10017 p 212 973 9700 f 212 973 9711 www.telseygroup.com
8
JUNE 30, 2014
STEVEN MADDEN, LTD. (SHOO)
SPECIAL REPORT
ADDENDUM
Important Disclosures:
Valuation Method for Target Price: Price-to-Earnings, enterprise-value-to-EBITDA, P/E to growth, price to free cash flow, and discounted cash flow analysis.
Investment Risks: Telsey Advisory Group’s (TAG’s) equity research department covers consumer-focused sectors including apparel, casinos,
cosmetics, cruise lines, department stores, discounters, entertainment and communications, footwear and sporting goods, freight and logistics, gaming,
hardlines, internet, lodging, luxury, restaurants, and specialty apparel. Risks across or specific to one or more of these sectors include volatility of
commodity costs, consumer spending, currency, rising interest rates, weaker consumer confidence and unemployment rates. Additionally, access to
capital, supply chain disruptions, commodity costs, private label distribution, currency, geopolitical uncertainly, unfavorable government regulations, lack
of appropriate real estate sites, and the use of the World Wide Web to sell merchandise represent unique industry risks.
Analyst Certification
pl
e
The Research Analyst(s) who prepared the research report hereby certify that the views expressed in this report accurately reflect the Analyst(s)
personal views about the subject companies and their securities. The Research Analyst(s) also certify that the Analyst(s) have not been, are not, and
will not be receiving direct or indirect compensation for expressing the specific recommendation(s) or view(s) in this report.
Kelly Chen, CFA, Joseph Feldman, Dana Telsey
Historical Price Targets
To see price charts and TAG’s historical price targets please click the following link: http://www.telseygroup.com/files/historicalprices.pdf
Company-Specific Disclosures
None
Disclosures required by United States laws and regulations
See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or
co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-managed
public offerings in prior periods; directorships; market making and/or specialist role.
The following are additional required disclosures:
m
Ownership and material conflicts of interest: TAG prohibits its analysts, professionals reporting to analysts and members of their households from
owning securities of any company in the analyst's area of coverage.
Analyst compensation: Neither TAG nor its employees/analysts receives any compensation from subject companies for inclusion in our research.
Analysts are paid in part based on the overall profitability of TAG which may include investment banking revenues.
Analyst as officer or director: TAG analysts, persons reporting to analysts or members of their households do not serve as officers, directors, advisory
board members or employees of any of our subject companies in the analyst's area of coverage.
Investment banking activities: TAG provides investment banking, other non-investment banking securities related services, and non-securities services
and may seek such relationships from subject companies.
Distribution of ratings: TAG analysts do not assign ratings to covered companies.
Sa
Price chart: See the price chart, with price targets in prior periods, above, or, if distributed in electronic format or if multiple companies are the subject of
this report, on the TAG website at http://www.telseygroup.com/files/historicalprices.pdf.
TAG is a member of FINRA (http://www.finra.org) and SIPC (http://www.sipc.org).
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TAG is a registered broker dealer offering equity research, trading and investment banking services. The Equity Research Department of TAG produces and
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> Telsey Advisory Group 535 Fifth Avenue, 12 Floor, New York, NY 10017 p 212 973 9700 f 212 973 9711 www.telseygroup.com
9