UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended March 31, 2024
or
For the transition period from ____________________ to _____________________
Commission File Number: 0-23702
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |||||||
| incorporation or organization) | ||||||||
(Address of principal executive offices) (Zip Code)
(718 ) 446-1800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | Emerging growth company | ||||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of April 26, 2024, there were 73,378,158 shares of the registrant’s common stock, $0.0001 par value, outstanding.
STEVEN MADDEN, LTD.
TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2024
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
| March 31, 2024 | December 31, 2023 | March 31, 2023 | ||||||||||||||||||
| (in thousands, except par value) | (unaudited) | (unaudited) | ||||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||||||||||
| Short-term investments | ||||||||||||||||||||
Accounts receivable, net of allowances of $ | ||||||||||||||||||||
| Factor accounts receivable | ||||||||||||||||||||
| Inventories | ||||||||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||||||||
| Income tax receivable and prepaid income taxes | ||||||||||||||||||||
| Total current assets | ||||||||||||||||||||
| Note receivable – related party | ||||||||||||||||||||
| Property and equipment, net | ||||||||||||||||||||
| Operating lease right-of-use asset | ||||||||||||||||||||
| Deposits and other | ||||||||||||||||||||
| Deferred tax assets | ||||||||||||||||||||
| Goodwill | ||||||||||||||||||||
| Intangibles, net | ||||||||||||||||||||
| Total Assets | $ | $ | $ | |||||||||||||||||
| LIABILITIES | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Accounts payable | $ | $ | $ | |||||||||||||||||
| Accrued expenses | ||||||||||||||||||||
| Operating leases – current portion | ||||||||||||||||||||
| Income taxes payable | ||||||||||||||||||||
| Contingent payment liability – current portion | ||||||||||||||||||||
| Accrued incentive compensation | ||||||||||||||||||||
| Total current liabilities | ||||||||||||||||||||
| Contingent payment liability – long-term portion | ||||||||||||||||||||
| Operating leases – long-term portion | ||||||||||||||||||||
| Deferred tax liabilities | ||||||||||||||||||||
| Other liabilities | ||||||||||||||||||||
| Total Liabilities | ||||||||||||||||||||
Commitments, contingencies and other (Note M) | ||||||||||||||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Preferred stock – $ | ||||||||||||||||||||
Common stock – $ | ||||||||||||||||||||
| Additional paid-in capital | ||||||||||||||||||||
| Retained earnings | ||||||||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ( | |||||||||||||||||
Treasury stock – | ( | ( | ( | |||||||||||||||||
| Total Steven Madden, Ltd. stockholders’ equity | ||||||||||||||||||||
| Noncontrolling interest | ||||||||||||||||||||
| Total stockholders’ equity | ||||||||||||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | $ | |||||||||||||||||
See accompanying notes to condensed consolidated financial statements - unaudited.
1
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(unaudited)
| Three Months Ended March 31, | ||||||||||||||
| (in thousands, except per share data) | 2024 | 2023 | ||||||||||||
| Net sales | $ | $ | ||||||||||||
| Licensing fee income | ||||||||||||||
| Total revenue | ||||||||||||||
| Cost of sales (exclusive of depreciation and amortization) | ||||||||||||||
| Gross profit | ||||||||||||||
| Operating expenses | ||||||||||||||
| Impairment of intangible | ||||||||||||||
| Income from operations | ||||||||||||||
| Interest and other income – net | ||||||||||||||
| Income before provision for income taxes | ||||||||||||||
| Provision for income taxes | ||||||||||||||
| Net income | ||||||||||||||
| Less: net income attributable to noncontrolling interest | ||||||||||||||
| Net income attributable to Steven Madden, Ltd. | $ | $ | ||||||||||||
| Basic net income per share | $ | $ | ||||||||||||
| Diluted net income per share | $ | $ | ||||||||||||
| Basic weighted average common shares outstanding | ||||||||||||||
| Effect of dilutive securities – options/restricted stock | ||||||||||||||
| Diluted weighted average common shares outstanding | ||||||||||||||
| Cash dividends declared per common share | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements - unaudited.
2
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
| Three Months Ended March 31, 2024 | ||||||||||||||||||||
| (in thousands) | Pre-tax amounts | Tax expense | After-tax amounts | |||||||||||||||||
| Net income | $ | |||||||||||||||||||
| Other comprehensive income/(loss): | ||||||||||||||||||||
| Foreign currency translation adjustment | $ | ( | $ | ( | ||||||||||||||||
| Income on cash flow hedging derivatives | ( | |||||||||||||||||||
| Total other comprehensive loss | $ | ( | $ | ( | ( | |||||||||||||||
| Comprehensive income | ||||||||||||||||||||
| Less: comprehensive loss attributable to noncontrolling interests | ( | |||||||||||||||||||
| Comprehensive income attributable to Steven Madden, Ltd. | $ | |||||||||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||||||
| (in thousands) | Pre-tax amounts | Tax benefit | After-tax amounts | |||||||||||||||||
| Net income | $ | |||||||||||||||||||
| Other comprehensive income/(loss): | ||||||||||||||||||||
| Foreign currency translation adjustment | $ | $ | ||||||||||||||||||
| Loss on cash flow hedging derivatives | ( | ( | ||||||||||||||||||
| Total other comprehensive income | $ | $ | ||||||||||||||||||
| Comprehensive income | ||||||||||||||||||||
| Less: comprehensive loss attributable to noncontrolling interests | ( | |||||||||||||||||||
| Comprehensive income attributable to Steven Madden, Ltd. | $ | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements - unaudited.
3
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Non-Controlling Interest | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands except per share data) | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - December 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased and net settlements of restricted stock awards | ( | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise and net settlement of stock options | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | ( | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Cash flow hedge (net of tax expense of $ | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($ | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Non-Controlling Interest | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands except per share data) | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - December 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased and net settlements of restricted stock awards | ( | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise and net settlement of stock options | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of forfeitures | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash flow hedge (net of tax benefit of $ | — | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends on common stock ($ | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Investments of noncontrolling interests | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements - unaudited.
4
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
| Three Months Ended March 31, | ||||||||||||||
| (in thousands) | 2024 | 2023 | ||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net income | $ | $ | ||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Stock-based compensation | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Loss on disposal of fixed assets | ||||||||||||||
| Impairment of intangible | ||||||||||||||
| Impairment of lease right-of-use asset | ||||||||||||||
| Deferred taxes | ||||||||||||||
| Accrued interest on note receivable - related party | ( | |||||||||||||
| Notes receivable - related party | ||||||||||||||
| Change in valuation of contingent payment liabilities | ||||||||||||||
| Other operating activities | ||||||||||||||
| Changes, net of acquisitions, in: | ||||||||||||||
| Accounts receivable | ( | ( | ||||||||||||
| Factor accounts receivable | ( | ( | ||||||||||||
| Inventories | ||||||||||||||
| Prepaid expenses, income tax receivables, prepaid taxes, and other assets | ||||||||||||||
| Accounts payable and accrued expenses | ( | ( | ||||||||||||
| Accrued incentive compensation | ( | ( | ||||||||||||
| Leases and other liabilities | ( | ( | ||||||||||||
| Net cash used in operating activities | ( | ( | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Capital expenditures | ( | ( | ||||||||||||
| Purchases of short-term investments | ( | ( | ||||||||||||
| Maturity/sale of short-term investments | ||||||||||||||
| Acquisition of business | ( | — | ||||||||||||
| Other investing activities | — | |||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||
| Cash flows from financing activities: | ||||||||||||||
| Common stock repurchased and net settlements of stock awards | ( | ( | ||||||||||||
| Proceeds from exercise of stock options | ||||||||||||||
| Investment of noncontrolling interest | ||||||||||||||
| Cash dividends paid on common stock | ( | ( | ||||||||||||
| Net cash used in financing activities | ( | ( | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | |||||||||||||
| Net decrease in cash and cash equivalents | ( | ( | ||||||||||||
| Cash and cash equivalents – beginning of period | ||||||||||||||
| Cash and cash equivalents – end of period | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements - unaudited.
5
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
Note A – Basis of Reporting
The accompanying unaudited condensed consolidated financial statements of Steven Madden, Ltd. and subsidiaries (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) that are considered necessary for a fair presentation of the financial position of the Company, the results of its operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the operating results for the full year. These financial statements should be read in conjunction with the financial statements and related disclosures for the year ended December 31, 2023 included in the Annual Report of Steven Madden, Ltd. on Form 10-K filed with the SEC on March 4, 2024.
Note B – Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant areas involving management estimates include variable consideration included in revenue, allowances for bad debts, inventory valuation, and valuation of goodwill and intangible assets. The Company estimates variable consideration for future customer chargebacks and markdown allowances, discounts, returns, and other miscellaneous compliance-related deductions that relate to current-period sales. The Company evaluates anticipated chargebacks by reviewing several performance indicators of its major customers. These performance indicators, which include retailers’ inventory levels, sell-through rates, and gross margin levels, are analyzed by management to estimate the amount of the anticipated customer allowances.
Note C – Acquisitions
Almost Famous
On October 20, 2023, Daniel M. Friedman & Associates, Inc. (“Buyer”), a New York corporation and a wholly-owned subsidiary of the Company, acquired substantially all of the assets and certain liabilities (the “Business”) of Turn On Products Inc. d/b/a Almost Famous (“Seller” or “Almost Famous”), pursuant to an Asset Purchase Agreement, by and among Buyer, the Company, Seller, and the holders of capital stock of Seller. Almost Famous is a designer and marketer of women’s junior apparel. Almost Famous distributes its products to wholesale customers, including mass merchants, department stores, off-price retailers, and chain stores within the United States. Almost Famous markets products under its own brands, primarily Almost Famous, as well as private label brands for various retailers. This Business was acquired for cash consideration of $73,228 and a future payment contingent on the Almost Famous business achieving certain earnings before interest and tax ("EBIT") targets. In connection therewith, we recorded an initial short-term liability of $3,325 and a long-term liability of $9,975 as of the date of acquisition to reflect the estimated fair value of the contingent purchase price. The fair value of the contingent payments liability was estimated on the date of acquisition using the risk neutral simulation method, which included significant unobservable Level 3 inputs, such as projected EBIT over the earn-out period and a discount rate of 20.3 %. Changes in these significant unobservable inputs might result in a significantly higher or lower fair value measurement. The maximum consideration which can be paid over the consideration period of four years is $68,000 and there are no minimum payments required. The liability will be remeasured at each reporting period with changes in fair value recorded in earnings. After the effect of closing adjustments, the total purchase price of the acquisition was $86,528 .
6
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
The results of the Business have been included in the consolidated financial statements since the date of acquisition within the Wholesale Accessories/Apparel segment.
The following table summarizes the fair value of the assets acquired and liabilities assumed as of the October 20, 2023 acquisition date:
| (in thousands) | Fair Value | ||||
| Accounts receivable | $ | ||||
| Inventories | |||||
| Factor accounts receivable | |||||
| Operating lease right-of-use asset | |||||
| Prepaid expenses and other current assets | |||||
| Property and equipment, net | |||||
Intangibles, net(1) | |||||
| Accounts payable | ( | ||||
| Accrued expenses | ( | ||||
| Operating leases - current portion | ( | ||||
| Operating leases - long-term portion | ( | ||||
| Total fair value excluding goodwill | $ | ||||
| Goodwill | |||||
| Net assets acquired | $ | ||||
(1) Consists of a Trademark of $9,050 and customer relationships of $23,900 , both of which are amortized over 20
The acquisition was accounted for in accordance with FASB Topic ASC 805 ("Business Combinations"), which requires that the total cost of an acquisition be allocated to tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.
The Company recorded goodwill for the acquisition based on the amount by which the purchase price exceeded the fair value of the net assets acquired, which consists largely of the synergies expected from the acquisitions. For tax purposes, goodwill will be amortized over a 15 year period.
Preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revision, which may result in adjustments to the preliminary values recorded during the measurement period (a period not to exceed 12 months from acquisition date).
The fair value of the trademark was estimated using the relief-from-royalty method, which presumes the owner of the asset avoids hypothetical royalty payments that would need to be made for the use of the asset if the asset was not owned. Key assumptions and estimates used are forecasted revenue, a royalty rate of 3.0 %, and a discount rate of 21.8 %. Such assumptions included significant unobservable inputs and changes in these significant unobservable inputs might result in a significantly higher or lower fair value measurement. The useful life of the trademark was estimated to be 20
The fair value of the customer relationships was estimated using the multi-period excess earnings method. The excess earnings methodology is an income approach methodology that estimates the projected cash flows of the business attributable to the customer relationships, net of charges for the use of other identifiable assets of the business including working capital, fixed assets, and other intangible assets. Key assumptions and estimates used in deriving the projected cash flows are forecasted revenue, earnings before interest, taxes, depreciation, and amortization ("EBITDA") margin of 8.8 %, customer attrition rate of 5.0 %, and discount rates in the range of 21.0 % to 23.5 %. Such assumptions include significant unobservable inputs and such
7
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
changes in these significant unobservable inputs might result in a significantly higher or lower fair value measurement. The useful life of the customer relationships was estimated to be 20 years and amortization for these intangible assets has been recorded in operating expenses in our Consolidated Statements of Income.
Transaction costs of $1,505 for the year ended December 31, 2023 have been recorded within operating expenses in the Consolidated Statements of Income.
Hosiery Business
On March 1, 2024 Daniel M. Friedman & Associates, Inc. acquired the Steve Madden and Betsey Johnson hosiery division ("hosiery business") of Gina Group LLC (“Gina”). Gina has been the exclusive licensee of the hosiery category for Steve Madden and Betsey Johnson brands and such license agreements were terminated in conjunction with the acquisition. The assets of the hosiery business were acquired for a cash consideration of $4,259 and the assets acquired included inventories of $2,168 , reacquired rights of $1,450 , and goodwill of $641 .
The results of the business have been included in the consolidated financial statements since the date of acquisition within the Wholesale Accessories/Apparel segment.
Note D – Short-Term Investments
As of March 31, 2024 and December 31, 2023, short-term investments consisted of certificates of deposit. These securities are classified as current based upon their maturities. As of March 31, 2024 and December 31, 2023, short-term investments amounted to $11,556 and $15,173 , respectively, and have original maturities less than or equal to one year as of the balance sheet date.
Note E – Fair Value Measurement
The accounting guidance under Accounting Standards Codification 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), requires the Company to make disclosures about the fair value of certain of its assets and liabilities. ASC 820-10 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. ASC 820-10 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. A brief description of those three levels is as follows:
•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
•Level 3: Significant unobservable inputs; inputs to the valuation methodology based on unobservable prices or valuation techniques that are significant to the fair value measurement.
8
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
The Company’s financial assets and liabilities subject to fair value measurements as of March 31, 2024 and December 31, 2023 were as follows:
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value | Level 1 | Level 2 | Level 3 | Fair value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Forward contracts | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Contingent consideration(1)(2) | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Forward contracts | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
(1) On March 31, 2024, $3,738 was recorded in Contingent payment liability - current portion and $11,212 was recorded in Contingent payment liability - long-term portion.
(2) On December 31, 2023, $3,325 was recorded in Contingent payment liability - current portion and $9,975 was recorded in Contingent payment liability - long-term portion.
Forward contracts are used to manage the risk associated with the volatility of future cash flows (see Note L – Derivative Instruments). Fair value of these instruments is based on observable market transactions of spot and forward rates.
The Company's recurring Level 3 balance consists of contingent consideration related to acquisitions. The changes in the Company's Level 3 liabilities for the periods ended March 31, 2024 and December 31, 2023 were as follows:
| Balance at January 1, 2024 | Acquisitions | Adjustments(1) | Balance at March 31, 2024(2) | ||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | |||||||||||||||||||
| 2023 | Balance at January 1, 2023 | Acquisitions | Adjustments(1) | Balance at December 31, 2023 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration | $ | $ | $ | — | $ | ||||||||||||||||||
(1) In 2024, amount consists of an adjustment of $1,650 that was included as an expense in operating expenses, related to the change in valuation of the contingent consideration in connection with the acquisition of Almost Famous.
At March 31, 2024 and December 31, 2023, the liability for contingent consideration was $14,950 and $13,300 , respectively, in connection with the October 20, 2023 acquisition of Almost Famous. The fair value of the contingent payments was estimated using a risk neutral simulation method to model the probability of different financial results of Almost Famous during the earn-out period, utilizing a discount rate of 19.3 % and 20.3 % at March 31, 2024 and December 31, 2023, respectively.
The fair values of goodwill and intangibles are measured on a non-recurring basis and are determined using Level 3 inputs, including forecasted cash flows, discount rates, and implied royalty rates (see Note C – Acquisitions and Note K – Goodwill and Intangible Assets).
The fair values of lease right-of-use assets and fixed assets related to company-owned retail stores are measured on a non-recurring basis and are determined using Level 3 inputs, including estimated discounted future cash flows associated with the assets using sales trends, market rents and market participant assumptions (see Note F – Leases).
The carrying value of certain financial instruments such as cash equivalents, certificates of deposit, accounts receivable, factor accounts receivable, and accounts payable approximates their fair values due to the short-term nature of their underlying terms.
9
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
Fair value of the notes receivable held by the Company approximates their carrying value based upon their imputed or actual interest rate, which approximates applicable current market interest rates. Some assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (non-recurring). These assets can include long-lived assets that have been reduced to fair value when impaired. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs.
Note F – Leases
The Company leases office space, sample production space, warehouses, showrooms, storage units, and retail stores pursuant to operating leases. The Company’s portfolio of leases is primarily related to real estate. Since most of its leases do not provide a readily determinable implicit rate, the Company estimates its incremental borrowing rate to discount the lease payments based on information available at lease commencement.
Some of the Company’s retail store leases provide for variable lease payments based on sales volumes at the leased location, which are not measurable at the inception of the lease and are therefore not included in the measurement of the right-of-use assets and lease liabilities. Under Topic 842, these variable lease costs are expensed as incurred.
Lease Position
The following table presents the lease-related assets and liabilities recorded on the Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023:
| Classification on the Balance Sheet | March 31, 2024 | December 31, 2023 | |||||||||||||||
| Assets | |||||||||||||||||
Noncurrent(1) | Operating lease right-of-use asset | $ | $ | ||||||||||||||
| Liabilities | |||||||||||||||||
| Current | Operating leases – current portion | $ | $ | ||||||||||||||
| Noncurrent | Operating leases – long-term portion | ||||||||||||||||
| Total operating lease liabilities | $ | $ | |||||||||||||||
| Weighted-average remaining lease term | |||||||||||||||||
| Weighted-average discount rate | % | % | |||||||||||||||
(1) During the three months ended March 31, 2023, the Company recorded a pre-tax impairment charge related to its right-of-use assets of $95 , recorded in the Wholesale Footwear Segment.
Lease Costs
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Operating lease cost | $ | $ | |||||||||
| Variable lease cost | |||||||||||
| Less: sublease income | |||||||||||
| Total lease cost | $ | $ | |||||||||
10
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
Other Information
The following table presents supplemental cash and non-cash information related to the Company's operating leases during the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | |||||||||||
| Operating cash flows used for operating leases | $ | $ | |||||||||
| Noncash transactions | |||||||||||
| Right-of-use asset obtained in exchange for new operating lease liabilities | $ | $ | |||||||||
Right-of-use asset amortization expense(1) | $ | $ | |||||||||
Future Minimum Lease Payments
The following table presents future minimum lease payments for each of the first five years and the total for the remaining years as of March 31, 2024:
| 2024 (remaining nine months) | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total minimum lease payments | |||||
| Less: interest | |||||
| Total lease liabilities | $ | ||||
Note G – Share Repurchase Program
The Company's Board of Directors authorized a share repurchase program (the “Share Repurchase Program”), effective as of January 1, 2004. The Share Repurchase Program does not have a fixed expiration or termination date and may be modified or terminated by the Board of Directors at any time. On several occasions, the Board of Directors has increased the amount authorized for repurchase of the Company's common stock. On May 8, 2023, the Board of Directors approved an increase in the Company's share repurchase authorization of approximately $189,900 , bringing the total authorization to $250,000 . The Share Repurchase Program permits the Company to effect repurchases from time to time through a combination of open market repurchases or in privately negotiated transactions at such prices and times as are determined to be in the best interest of the Company. During the three months ended March 31, 2024, an aggregate of 773 shares of the Company's common stock, excluding net settlements of employee stock awards, were repurchased under the Share Repurchase Program, at a weighted average price per share of $42.25 , for an aggregate purchase price of approximately $32,644 . During the three months ended March 31, 2023, an aggregate of 967 shares of the Company's common stock, excluding net settlements of employee stock awards, were repurchased under the Share Repurchase Program, at a weighted average price per share of $35.77 , for an aggregate purchase price of approximately $34,580 . As of March 31, 2024, approximately $142,818 remained available for future repurchases under the Share Repurchase Program.
The Steven Madden, Ltd. Amended and Restated 2006 Stock Incentive Plan (as further amended, the "2006 Plan"), which expired on April 6, 2019, and the Steven Madden, Ltd. 2019 Incentive Compensation Plan (the "2019 Plan") both provide the
11
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
Company with the right to deduct or withhold, or require employees to remit to the Company, an amount sufficient to satisfy any applicable tax withholding and/or option cost obligations applicable to stock-based compensation awards. To the extent permitted, employees may elect to satisfy all or part of such withholding obligations by tendering to the Company previously owned shares or by having the Company withhold shares having a fair market value equal to the employee's withholding tax obligation and/or option cost. During the three months ended March 31, 2024, an aggregate of 109 shares were withheld in connection with the settlement of vested restricted stock to satisfy tax-withholding requirements and option costs, at an average price per share of $42.75 , for an aggregate purchase price of approximately $4,693 . During the three months ended March 31, 2023, an aggregate of 108 shares were withheld in connection with the settlement of employee stock awards to satisfy tax-withholding requirements and option costs, at an average price per share of $35.96 , for an aggregate purchase price of approximately $3,871 .
Note H – Net Income Per Share of Common Stock
Basic net income per share is based on the weighted average number of shares of common stock outstanding during the period, which does not include unvested restricted common stock subject to forfeiture of 1,557 shares for the period ended March 31, 2024, compared to 2,161 shares for the period ended March 31, 2023. Diluted net income per share reflects: (a) the potential dilution assuming shares of common stock were issued upon the exercise of outstanding in-the-money options and the assumed proceeds, which are deemed to be the proceeds from the exercise plus compensation cost not yet recognized attributable to future services using the treasury method, were used to purchase shares of the Company’s common stock at the average market price during the period, and (b) the vesting of granted non-vested restricted stock awards for which the assumed proceeds upon vesting are deemed to be the amount of compensation cost not yet recognized attributable to future services using the treasury stock method, to the extent dilutive.
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net income attributable to Steven Madden, Ltd. | $ | $ | |||||||||
| Basic net income per share | $ | $ | |||||||||
| Diluted net income per share | $ | $ | |||||||||
| Weighted average common shares outstanding: | |||||||||||
| Basic | |||||||||||
| Effect of dilutive securities: | |||||||||||
| Stock awards and options to purchase shares of common stock | |||||||||||
| Diluted | |||||||||||
For the three months ended March 31, 2024, options to purchase approximately 4 shares of common stock have been excluded from the calculation of diluted net income per share as the result would have been anti-dilutive. For the three months ended March 31, 2023, options to purchase approximately 6 shares of common stock have been excluded from the calculation of diluted net income per share as the result would have been anti-dilutive. For the three months ended March 31, 2024, 8 restricted shares were excluded from the calculation of diluted net income per share, as compared to approximately 58 shares that were excluded from the calculation of diluted net income per share for the three months ended March 31, 2023, as the result would have been anti-dilutive. The Company had contingently issuable performance awards outstanding that did not meet the performance conditions as of March 31, 2024 and 2023 and, therefore, were excluded from the calculation of diluted net income per common share for the three months ended March 31, 2024 and 2023. The number of potentially dilutive shares that
12
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
could be issued upon vesting for these performance awards were immaterial as of both March 31, 2024 and 2023. These amounts were also excluded from the computation of weighted average potentially dilutive securities.
Note I – Income Taxes
The Company’s provision for income taxes for the three months ended March 31, 2024 and 2023 is based on the estimated annual effective tax rate, plus or minus discrete items. The following table presents the provision for income taxes and the effective tax rates for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Income before provision for income taxes | $ | $ | |||||||||
| Income tax expense | $ | $ | |||||||||
| Effective tax rate | |||||||||||
The difference between the Company’s effective tax rates of 23.6 % and 24.2 % for the three months ended March 31, 2024 and 2023, respectively, is primarily due to a decrease in pre-tax income in jurisdictions with higher tax rates.
The Company recognizes interest and penalties, if any, related to uncertain income tax positions in income tax expense. Accrued interest and penalties on unrecognized tax benefits, and interest and penalty expense are immaterial to the consolidated financial statements.
The Company files income tax returns in the U.S. for federal, state, and local purposes, and in certain foreign jurisdictions. The Company's tax years 2020 through 2023 remain open to examination by most taxing authorities.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law, which contains certain revisions to the Internal Revenue Code, including a 15% corporate minimum income tax for tax years beginning after December 31, 2022. While the 15% corporate minimum income tax has no effect on the Company’s results of operations in the near term, we will continue to evaluate its impact on future years. The IRA also assesses a 1% excise tax on repurchases of corporate stock which impacts the Company’s stock repurchases effective January 1, 2023. The excise tax is recorded as an incremental cost in treasury stock on the Company's Condensed Consolidated Balance Sheets and was $267 for the three months ended March 31, 2024.
The Organization for Economic Cooperation and Development (“OECD”) has proposed to enact a global minimum tax rate of at least 15% for large multinational companies beginning in 2024 (“Pillar Two”). Under Pillar Two, a top-up tax will be required for any jurisdiction whose effective tax rate falls below the 15% global minimum rate. Additionally, the OECD issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar Two global minimum tax. Under the safe harbor, companies would be excluded from Pillar Two requirements provided certain criteria are met. Based on preliminary analysis, the enactment of Pillar Two legislation is not expected to have a material effect on the Company’s financial position. The Company will continue to monitor and reflect the impact of such legislative changes in future periods, as appropriate.
13
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
Note J – Equity-Based Compensation
The following table summarizes the number of shares of common stock authorized for issuance under the 2019 Plan, the number of stock-based awards granted (net of expired or cancelled awards) under the 2019 Plan and the number of shares of common stock available for the grant of stock-based awards under the 2019 Plan:
| Common stock authorized | |||||
| Stock-based awards, including restricted stock and stock options granted, net of expired or cancelled awards | ( | ||||
| Common stock available for grant of stock-based awards as of March 31, 2024 | |||||
In addition, vested and unvested options to purchase 204 shares of common stock and 67 shares of unvested restricted stock awarded under the 2006 Plan were outstanding as of March 31, 2024.
Total equity-based compensation for the three months ended March 31, 2024 and 2023 was as follows:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Restricted stock | $ | $ | |||||||||
| Stock options | |||||||||||
| Total | $ | $ | |||||||||
We calculate an estimated forfeiture rate annually based on historical forfeitures and expectations about future forfeitures. Equity-based compensation is included in operating expenses in the Company’s Condensed Consolidated Statements of Income.
Stock Options
Cash proceeds and intrinsic values related to total stock options exercised during the three months ended March 31, 2024 and 2023 were as follows:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Proceeds from stock options exercised | $ | $ | |||||||||
| Intrinsic value of stock options exercised | $ | $ | |||||||||
During the three months ended March 31, 2024, options to purchase 73 shares vested with a weighted average exercise price of $32.58 . During the three months ended March 31, 2023, options to purchase 79 shares vested with a weighted average exercise price of $36.63 . As of March 31, 2024, there were unvested options relating to 118 shares of common stock outstanding with a total of $902 of unrecognized compensation cost and an average vesting period of 2.0 years.
The Company uses the Black-Scholes-Merton option-pricing model to estimate the fair value of options granted, which requires several assumptions. The expected term of the options represents the estimated period of time until exercise and is based on the historical experience of similar awards. Expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The dividend yield is based on the Company's annualized dividend per share amount divided by the Company's stock price. New shares are issued upon option exercise. The following weighted average assumptions were used for stock options granted during the three months ended March 31, 2024 and 2023:
14
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Volatility | ||||||||||||||
| Risk free interest rate | ||||||||||||||
| Expected life in years | ||||||||||||||
| Dividend yield | ||||||||||||||
| Weighted average fair value | $ | $ | ||||||||||||
Activity relating to stock options granted under the Company’s plans during the three months ended March 31, 2024 was as follows:
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||||||||||||
| Outstanding at January 1, 2024 | $ | |||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||
| Exercised | ( | |||||||||||||||||||||||||
| Outstanding at March 31, 2024 | $ | $ | ||||||||||||||||||||||||
| Exercisable at March 31, 2024 | $ | $ | ||||||||||||||||||||||||
Activity relating to stock options granted under the Company’s plans during the three months ended March 31, 2023 was as follows:
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||||||||||||
| Outstanding at January 1, 2023 | $ | |||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||
| Exercised | ( | |||||||||||||||||||||||||
| Forfeited | ( | |||||||||||||||||||||||||
| Outstanding at March 31, 2023 | $ | $ | ||||||||||||||||||||||||
| Exercisable at March 31, 2023 | $ | $ | ||||||||||||||||||||||||
Restricted Stock
The following table summarizes restricted stock activity during the three months ended March 31, 2024 and 2023:
| 2024 | 2023 | |||||||||||||||||||||||||
| Number of Shares | Weighted Average Fair Value at Grant Date | Number of Shares | Weighted Average Fair Value at Grant Date | |||||||||||||||||||||||
| Outstanding at January 1, | $ | $ | ||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||
| Vested | ( | ( | ||||||||||||||||||||||||
| Forfeited | ( | ( | ||||||||||||||||||||||||
| Outstanding at March 31, | $ | $ | ||||||||||||||||||||||||
15
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
As of March 31, 2024, the Company had $50,417 of total unrecognized compensation cost related to restricted stock awards granted under the 2019 Plan and the 2006 Plan. This cost is expected to be recognized over a weighted average period of 3.6 years. The Company determines the fair value of its restricted stock awards based on the market price of its common stock on the date of grant.
Note K – Goodwill and Intangible Assets
The following is a summary of the carrying amount of goodwill by reporting unit as of March 31, 2024:
| Wholesale | Net Carrying Amount | |||||||||||||||||||||||||
| Footwear | Accessories/ Apparel | Direct-to-Consumer | ||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | ||||||||||||||||||||||
| Acquisitions | ||||||||||||||||||||||||||
| Translation | ||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ||||||||||||||||||||||
The following table details identifiable intangible assets as of March 31, 2024:
| Estimated Lives | Cost Basis(2) | Accumulated Amortization | Impairment & Other(1)(3) | Net Carrying Amount | ||||||||||||||||||||||||||||
| Trademarks | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||
| Customer relationships | ( | ( | ||||||||||||||||||||||||||||||
| Re-acquired rights | ( | |||||||||||||||||||||||||||||||
| ( | ( | |||||||||||||||||||||||||||||||
| Re-acquired right | indefinite | ( | ||||||||||||||||||||||||||||||
| Trademarks | indefinite | ( | ||||||||||||||||||||||||||||||
| $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
(1) During the quarter ended March 31, 2024, the Company recorded impairment charges of $1,700 related to the GREATS® trademark.
(2) During the quarter ended March 31, 2024, the Company changed its estimate of useful life of its GREATS® trademark to 10 years and the remaining balance of $4,450 of the GREATS® trademark will be amortized over that time frame starting in the second quarter of 2024.
(3) Includes the effect of foreign currency translation related primarily to the movements of the Canadian dollar and Mexican peso in relation to the U.S. dollar.
16
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
The following table details identifiable intangible assets as of December 31, 2023:
| Estimated Lives | Cost Basis(1) | Accumulated Amortization | Impairment & Other(2)(3) | Net Carrying Amount | ||||||||||||||||||||||||||||
| Trademarks | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||
| Customer relationships | ( | ( | ||||||||||||||||||||||||||||||
| ( | ( | |||||||||||||||||||||||||||||||
| Re-acquired right | indefinite | ( | ||||||||||||||||||||||||||||||
| Trademarks | indefinite | ( | ||||||||||||||||||||||||||||||
| $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
(1) During the year ended December 31, 2023, the Company acquired Almost Famous, which consisted of a trademark of $9,050 and customer relationships of $23,900 , both of which are amortized over 20
(2) During the year ended December 31, 2023, the Company recorded impairment charges of $6,520 related to the GREATS® trademark.
(3) Includes the effect of foreign currency translation related primarily to the movements of the Canadian dollar and Mexican peso in relation to the U.S. dollar.
The Company evaluates its goodwill and indefinite-lived intangible assets for indicators of impairment at least annually in the beginning of the third quarter of each year and whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The Company also periodically performs a quantitative test to assess its goodwill and indefinite-lived intangibles for impairment in lieu of using the qualitative approach in order to reassess the fair values. A quantitative assessment of goodwill and indefinite-lived intangible assets was performed as of July 1, 2023. In conducting the quantitative impairment assessments for goodwill and indefinite-lived intangibles, the Company concluded that the fair values of its reporting units exceeded their carrying values and the fair values of its indefinite-lived intangibles exceeded their respective carrying values. In the fourth quarter of 2023, certain circumstances occurred that indicated potential impairment and the Company performed a valuation of the GREATS® trademark. The estimated fair value of this trademark was determined using an excess earnings method, incorporating the use of projected financial information and a discount rate of 14.8 % which was developed using market participant based assumptions. Changes in these significant unobservable inputs might result in a significantly higher or lower fair value measurement. As a result of this assessment, the GREATS® trademark was written down from the carrying value of $12,670 to its fair value of $6,150 , resulting in a pre-tax non-cash impairment charge of $6,520 . Subsequently, in the first quarter of 2024, circumstances occurred that caused a change in the estimated useful life of the GREATS® trademark from an indefinite life to an estimated useful life of 10 years, and as a result, the Company performed an impairment test. The estimated fair value of this trademark was determined using an excess earnings method, incorporating the use of projected financial information and a discount rate of 14.0 % which was developed using market participant based assumptions. Changes in these significant unobservable inputs might result in a significantly higher or lower fair value measurement. As a result of this assessment, the GREATS® trademark was written down from the carrying value of $6,150 to its fair value of $4,450 , resulting in a pre-tax non-cash impairment charge of $1,700 .
These impairment charges were recorded in impairment of intangibles in the Company’s Consolidated Statements of Income and recognized in the Direct-to-Consumer segment.
The Company evaluates its goodwill and indefinite-lived intangible assets for indicators of impairment at least annually in the third quarter of each year and whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. A quantitative assessment of goodwill and indefinite-lived intangible assets was performed as of July 1, 2023. In conducting the quantitative impairment assessments for goodwill and indefinite-lived intangibles, the Company concluded that the fair values of its reporting units exceeded their carrying values and the fair values of its indefinite-lived intangibles exceeded their respective carrying values. In conducting the qualitative impairment assessment for goodwill and indefinite-lived intangibles, the Company concluded that it is more likely than not that the fair values of its reporting units exceeded their carrying values and the fair values of its indefinite-lived intangibles exceeded their respective carrying values. Therefore, in 2023, as a result of the annual test, no impairment charges were recorded for goodwill and intangibles.
17
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
The amortization of intangible assets amounted to $941 for the three months ended March 31, 2024 compared to $423 for the three months ended March 31, 2023 and is included in operating expenses in the Company's Condensed Consolidated Statements of Income. The estimated future amortization expense for intangibles as of March 31, 2024 was as follows:
| 2024 (remaining nine months) | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total | $ | ||||
Note L – Derivative Instruments
Note M – Commitments, Contingencies and Other
Future Minimum Royalty and Advertising Payments:
The Company has minimum commitments related to a license agreement. The Company sources, distributes, advertises, and sells certain of its products pursuant to a license agreement with an unaffiliated licensor. Royalty amounts under the license agreement are based on stipulated minimum net sales and the payment of minimum annual royalty amounts. The license agreement has various terms and renewal options, provided that minimum sales levels, and certain other conditions are achieved. As of March 31, 2024, the Company had future minimum royalty and advertising payments of $16,500 . Royalty expenses are recognized in cost of sales on the Consolidated Statements of Income.
Legal Proceedings:
The Company has been named as a defendant in certain lawsuits in the normal course of business. In the opinion of management, after consulting with legal counsel, the liabilities, if any, resulting from these matters should not have a material effect in the Company's financial position or results of operations.
Letters of Credit:
As of March 31, 2024, the Company had $505 in letters of credit outstanding unrelated to the Company's Credit Agreement.
18
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
Note N – Operating Segment Information
The Company operates the following operating segments, which are presented as reportable segments: Wholesale Footwear, Wholesale Accessories/Apparel, Direct-to-Consumer, and Licensing. Our Wholesale Footwear segment designs, sources, and markets our brands and sells our products to department stores, mass merchants, off-price retailers, shoe chains, online retailers, national chains, specialty retailers, independent stores, and clubs throughout the United States, Canada, Mexico, and Europe, and through our joint ventures and international distributor network. Our Wholesale Accessories/Apparel segment designs, sources, and markets our brands, and sells our products to department stores, mass merchants, off-price retailers, online retailers, specialty retailers, independent stores, and clubs throughout the United States, Canada, Mexico, and Europe and through our joint ventures and international distributor network. Our Direct-to-Consumer segment consists of Steve Madden® and Dolce Vita® full-price retail stores, Steve Madden® outlet stores, Steve Madden® concessions in international markets, and our directly-operated digital e-commerce websites. We operate retail locations in regional malls and shopping centers, as well as high streets in major cities across the United States, Canada, Mexico, Europe, Israel, South Africa, Taiwan, China, and the Middle East. Our Licensing segment is engaged in the licensing of the Steve Madden® and Betsey Johnson® trademarks for use in the sale of select apparel, accessory, and home categories as well as various other non-core products.
Our Corporate activities do not constitute a reportable segment and include costs not directly attributable to the segments. These costs are primarily related to expenses associated with corporate executives, corporate finance, corporate social responsibility, legal, human resources, information technology, cyber security, and other shared services. The Chief Operating Decision Maker does not review asset information by segment; therefore we do not present assets in this note.
| As of and for the three months ended, | Wholesale Footwear | Wholesale Accessories/Apparel | Total Wholesale | Direct-to-Consumer | Licensing | Corporate(1) | Consolidated | ||||||||||||||||||||||||||||||||||
| March 31, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||||||||||||||
| Income/(loss) from operations | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||||||||||||||
| Income/(loss) from operations | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
(1) Corporate does not constitute a reportable segment and includes costs not directly attributable to the segments. These costs are primarily related to expenses associated with corporate executives, corporate finance, corporate social responsibility, legal, human resources, information technology, cyber security, and other shared services.
Revenues by geographic area were as follows:
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
Domestic (1) | $ | $ | ||||||||||||
| International | ||||||||||||||
| Total | $ | $ | ||||||||||||
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STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
Note O – Credit Agreement
On July 22, 2020, the Company entered into a $150,000 secured revolving credit agreement (as amended to date, the “Credit Agreement”) with various lenders and Citizens Bank, N.A., as administrative agent (the “Agent”), which replaced the Company’s existing credit facility provided by Rosenthal & Rosenthal, Inc. (“Rosenthal”). The Credit Agreement provides for a revolving credit facility (the “Credit Facility”) scheduled to mature on July 22, 2025.
The initial $150,000 maximum availability under the Credit Facility is subject to a borrowing base calculation consisting of certain eligible accounts receivable, credit card receivables, inventory, and in-transit inventory. Availability under the Credit Facility is reduced by outstanding letters of credit. The Company may from time-to-time increase the maximum availability under the Credit Agreement by up to $100,000 if certain conditions are satisfied.
On March 25, 2022, an amendment to the Credit Agreement (the “Amendment”) replaced the London Interbank Offering Rate (“LIBOR”) with the Bloomberg Short-Term Bank Yield Index (“BSBY”) as the interest rate benchmark. Borrowings under the Credit Agreement generally bear interest at a variable rate equal to a specified margin, which is based upon the average availability under the Credit Facility from time to time, plus, at the Company’s election (i) BSBY for the applicable interest period, or (ii) the base rate (which is the highest of (a) the prime rate announced by the Agent, (b) the sum of the federal funds effective rate plus 0.50 %, and (c) the sum of the one-month BSBY rate plus 1.00 %). Furthermore, the Amendment reduced the specified margin used to determine the interest rate under the Credit Agreement and reduced the commitment fee paid by the Company to the Agent, for the account of each lender. Additionally, the Amendment reduced the frequency of the Company’s borrowing base reporting requirements when no loans are outstanding. The Amendment also extended the maturity date of the Credit Agreement to March 20, 2027. As amended on April 3, 2023, on October 23, 2023, the Credit Agreement was further amended to accommodate changes made to the Company’s factoring arrangement with CIT pursuant to the Notification Factoring Rider as described in Note P – Factoring Agreements.
Under the Credit Agreement, the Company must also pay (i) a commitment fee to the Agent, for the account of each lender, which accrues at a rate equal to 0.25 % per annum on the average daily unused amount of the commitment of such lender, (ii) a letter of credit participation fee to the Agent, for the account of each lender, ranging from 1.25 % to 2.50 % per annum, based upon average availability under the Credit Facility from time to time, multiplied by the average daily amount available to be drawn under the applicable letter of credit, and (iii) a letter of credit fronting fee to each issuer of a letter of credit under the Credit Agreement, which will accrue at a rate per annum separately agreed upon between the Company and such issuer.
The Credit Agreement contains various restrictions and covenants applicable to the Company and its subsidiaries. Among other requirements, availability under the Credit Facility must, at all times, (i) prior to the occurrence of the permanent borrowing base trigger (as defined in the Credit Agreement), equal or exceed the greater of $22,500 and 15 % of the line cap (as defined in the Credit Agreement), and (ii) after the occurrence of the permanent borrowing base trigger, equal or exceed the greater of $15,000 and 10 % of the line cap (as defined in the Credit Agreement). Other than this minimum availability requirement, the Credit Agreement does not include any financial maintenance covenants.
The Credit Agreement requires the Company and various subsidiaries of the Company to guarantee each other’s obligations arising from time to time under the Credit Facility, as well as obligations arising in respect of certain cash management and hedging transactions. Subject to customary exceptions and limitations, all borrowings under the Credit Agreement are secured by a lien on all or substantially all of the assets of the Company and each subsidiary guarantor.
The Credit Agreement also contains customary events of default. If an event of default under the Credit Agreement occurs and is continuing, then the Agent may, and at the request of the required lenders shall, terminate the loan commitments under the Credit Agreement, declare any outstanding obligations under the Credit Agreement to be immediately due and payable, or require the Company to adequately cash collateralize outstanding letter of credit obligations. If the Company or, with certain exceptions, a subsidiary becomes the subject of a proceeding under any bankruptcy, insolvency, or similar law, then the loan commitments under the Credit Agreement will automatically terminate, and any outstanding obligations under the Credit Agreement and the cash collateral required under the Credit Agreement for any outstanding letter of credit obligations will become immediately due and payable.
As of March 31, 2024, the Company had no cash borrowings and no letters of credit outstanding under the Credit Agreement
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STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
Note P – Factoring Agreements
In conjunction with the Credit Agreement described in Note O – Credit Agreement, on July 22, 2020, the Company and certain of its subsidiaries (collectively, the “Madden Entities”) entered into an Amended and Restated Deferred Purchase Factoring Agreement (the “Factoring Agreement”) with Rosenthal & Rosenthal, Inc. ("Rosenthal"). Pursuant to the Factoring Agreement, Rosenthal serves as the collection agent with respect to certain receivables of the Madden Entities and is entitled to receive a base commission of 0.20 % of the gross invoice amount of each receivable assigned for collection, plus certain additional fees and expenses, subject to certain minimum annual commissions. Rosenthal will generally assume the credit risk resulting from a customer’s financial inability to make payment of credit-approved receivables, which are classified as Factor Receivables. The initial term of the Factoring Agreement is twelve months, subject to automatic renewal for additional twelve-month periods, and the Factoring Agreement may be terminated at any time by Rosenthal or the Madden Entities on 60 days' notice and upon the occurrence of certain other events. The Madden Entities pledged all of their rights under the Factoring Agreement to the Agent under the Credit Agreement to secure obligations arising under the Credit Agreement.
On April 3, 2023, in conjunction with a related amendment to the Credit Agreement, the Madden Entities also entered into a Credit Approved Receivables Purchasing Agreement (the “CARPA”) with CIT Group/Commercial Services, Inc. (“CIT”). Pursuant to the CARPA, in addition to Rosenthal, CIT will serve as a non-exclusive collection agent with respect to certain of the Madden Entities’ receivables and will generally assume the credit risk resulting from a customer’s financial inability to make payment with respect to credit approved receivables. Additionally, CIT shall compensate the Madden Entities for 50 % of the losses sustained for limiting or revoking a credit line during production for any made-to-order goods that have work-in-progress coverage. For its services, CIT will be entitled to receive (1) a base fee of 0.15 % of the gross face amount of each receivable assigned for collection having standard payment terms, (2) certain additional fees for receivables with non-standard payment terms or arising from sales to customers outside of the United States, and (3) reimbursement for certain expenses incurred in connection with the CARPA. The Company, on behalf of the Madden Entities, and CIT may each terminate the CARPA as of the last day of the month occurring one year after the date of the CARPA and at any time thereafter by giving the other party at least 60 days’ notice. CIT may also terminate the CARPA immediately upon the occurrence of certain events. The Madden Entities pledged all of their right, title, and interest in and to monies due and to become due under the CARPA in favor of the Agent to secure obligations arising under or in connection with the Credit Agreement.
On October 23, 2023, the Company and Daniel M. Friedman & Associates, Inc. (“DMFA”), a wholly-owned subsidiary of the Company, entered into a Notification Factoring Rider to the Credit Approved Receivables Purchasing Agreement (“Notification Factoring Rider”) that amended and supplemented the Factoring Agreement, dated April 3, 2023, among the Company, DMFA and certain of the Company’s other subsidiaries party thereto (collectively with the Company, the “Madden Entities”), and added CIT. The Notification Factoring Rider enables certain receivables generated from assets acquired by DMFA from Turn On Products Inc. d/b/a Almost Famous (“Post-Acquisition Receivables”), which assets were acquired by DMFA on October 20, 2023, to be subject to the Factoring Agreement.
The Notification Factoring Rider modifies the Factoring Agreement to require, in respect of certain Post-Acquisition Receivables, payment to CIT of a base fee ranging from 0.10 % to 0.20 % of the gross face amount of such Post-Acquisition Receivables assigned to CIT for collection. CIT will generally assume the credit risk resulting from a customer’s financial inability to make payment with respect to certain credit approved Post-Acquisition Receivables. The Company or DMFA may terminate the Notification Factoring Rider, separately from the Factoring Agreement, by giving CIT at least 10 days’ prior written notice of termination. As with monies due and to become due under the Factoring Agreement generally, monies due and to become due to the Company and DMFA under the Notification Factoring Rider are pledged in favor of the Agent to secure obligations under or in connection with the Credit Agreement.
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STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
March 31, 2024
(in thousands except per share data)
Note Q – Recent Accounting Pronouncements
In August 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-05, "Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement," which is intended to provide guidance for the formation of a joint venture, including the initial measurement of assets and liabilities, the formation date, and basis of accounting. This new standard will be effective for annual reporting periods beginning on or after January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of ASU 2023-05; however, at the current time, the Company does not believe this ASU will have a material impact on its consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280)," which is intended to enhance the disclosures on reportable segments. This new standard will be effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of ASU 2023-07; however, at the current time, the Company does not believe this ASU will have a material impact on its consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740)," which is intended to provide greater transparency in various income tax components that affect the rate reconciliation based on the applicable taxing jurisdictions, as well as the qualitative and quantitative aspects of those components. This new standard will be effective for annual reporting periods beginning on or after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of ASU 2023-09; however, at the current time, the Company does not believe this ASU will have a material impact on its consolidated financial statements.
In March 2024, the SEC issued Release Nos. 33-11275 and 34-99678 "The Enhancement and Standardization of Climate-Related Disclosures for Investors" to improve the consistency, comparability, and reliability of disclosures on the financial effects of climate-related risks on a registrant's operations and how it manages these risks. The compliance date for this release will be fiscal year 2025 for large accelerated filers. On April 4, 2024, the SEC issued an order staying the newly adopted rules. We are currently evaluating the impact of this release on our financial disclosures.
The Company has considered all new accounting pronouncements and has concluded that there are no additional pronouncements that may have a material impact on its results of operations, financial condition, and cash flows.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations for the three months ended March 31, 2024 should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.
All references in this Quarterly Report to “we,” “our,” “us,” and the “Company” refer to Steven Madden, Ltd. and its subsidiaries unless the context indicates otherwise.
This Quarterly Report contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, among others, statements regarding revenue and earnings guidance, plans, strategies, objectives, expectations, and intentions. Forward-looking statements can be identified by words such as: “may,” “will,” “expect,” “believe,” “should,” “anticipate,” “project,” “predict,” “plan,” “intend,” or “estimate,” or "confident," and similar expressions, or the negative of these expressions. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they represent our current beliefs, expectations, and assumptions regarding anticipated events and trends affecting our business and industry based on information available as of the time such statements are made. Investors are cautioned that such forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy, and some of which may be outside of our control. Our actual results and financial condition may differ materially from those indicated in these forward-looking statements. As such, investors should not rely upon them. Important risk factors include:
•geopolitical tensions in the regions in which we operate and any related challenging macroeconomic conditions globally that may materially and adversely affect our customers, vendors, and partners, and the duration and extent to which these factors may impact our future business and operations, results of operations, and financial condition;
•our ability to navigate shifting macro-economic environments including but not limited to inflation and the potential for recessionary conditions;
•our ability to accurately anticipate fashion trends and promptly respond to consumer demand;
•our ability to compete effectively in a highly competitive market;
•our ability to adapt our business model to rapid changes in the retail industry;
•supply chain disruptions to product delivery systems and logistics, and our ability to properly manage inventory;
•our reliance on independent manufacturers to produce and deliver products in a timely manner, especially when faced with adversities such as work stoppages, transportation delays, public health emergencies, social unrest, changes in local economic conditions, and political upheavals as well as their ability to meet our quality standards;
•our dependence on the retention and hiring of key personnel;
•our ability to successfully implement growth strategies and integrate acquired businesses;
•changes in trade policies and tariffs imposed by the United States government and the governments of other nations in which we manufacture and sell products;
•our ability to adequately protect our trademarks and other intellectual property rights;
•our ability to maintain adequate liquidity when negatively impacted by unforeseen events such as an epidemic or a pandemic, which may cause disruption to our business operations for an indeterminable period of time;
•legal, regulatory, political, and economic risks that may affect our sales in international markets;
•changes in U.S. and foreign tax laws that could have an adverse effect on our financial results;
•additional tax liabilities resulting from audits by various taxing authorities;
•cybersecurity risks and costs of defending against, mitigating, and responding to data security threats and breaches impacting the Company;
•our ability to achieve operating results that are consistent with prior financial guidance; and
•other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.
These risks and uncertainties, along with the risk factors discussed under Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and, in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2023, should be considered in evaluating any forward-looking statements contained in this report. We do not undertake, and disclaim,
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any obligation to publicly update any forward-looking statement, including without limitation, any guidance regarding revenue or earnings, whether as a result of new information, future developments, or otherwise.
Overview:
($ in thousands, except for retail store count, earnings per share, and per share data)
Steven Madden, Ltd. and its subsidiaries design, source, and market fashion-forward branded and private label footwear, accessories, and apparel. We distribute our products in the wholesale channel through department stores, mass merchants, off-price retailers, shoe chains, online retailers, national chains, specialty retailers, independ