Steven Madden, Ltd. reported that first quarter net sales declined 1.5% to $106.7 million from $108.3 million in the first quarter of 2006. Gross margin was 39.6% compared to 42.7% in the first quarter of the prior year, reflecting a margin decline in the wholesale division partially offset by a margin increase in the retail division. Operating expenses as a percent of sales were 30.0% versus 29.2% in the same period of 2006.
Operating income was $15.7 million, or 14.7% of sales, compared with operating income of $18.5 million, or 17.0% of sales, in the first quarter of 2006. Net income was $9.5 million, or 43 cents per diluted share, compared to $10.9 million, or 50 cents per diluted share, in the prior year's first quarter.
Revenues from the wholesale business were $82.3 million compared to $83.0 million in the first quarter of 2006. The decrease is principally due to the discontinuation of Rule and l.e.i. Gross margin in the wholesale business was 36.2% compared to 41.1% in the prior year's first quarter, primarily reflecting margin pressure from the poor performance of boots in Steve Madden Women's, sport fusion product in Steve Madden Men's and Betsey Johnson handbags in the Daniel M. Friedman division.
Retail revenues were $24.4 million compared to $25.3 million in the first quarter of the prior year. Same store sales decreased 1.7%. Retail gross margin increased 290 basis points to 50.9% from 48.0% in the comparable period of the prior year, due primarily to savings in freight costs.
“We are pleased to have achieved earnings per share for the first quarter at the high end of our anticipated range,” stated Jamieson Karson, Chairman and Chief Executive Officer. “Our year-over-year top line performance largely reflects the discontinuation of two product lines that occurred in the last twelve months. As previously reported, we also experienced weakness in women's boots, men's sport fusion product and Betsey Johnson handbags during the quarter which impacted our gross margin. While we experienced challenges in these select merchandise categories, we were very pleased with the performance of Madden Girl, which has surpassed our expectations to date this year. Additionally, our design team, led by Steve, continues to successfully produce fashion forward, trend-right styles that are resonating well with our customers.”
Arvind Dharia, Chief Financial Officer, commented, “We continue to maintain a very strong financial position and effectively manage our balance sheet. We ended the quarter with $90.0 million in cash, cash equivalents, and marketable securities, no debt, and $201.6 million in stockholders' equity. In addition, we continued our commitment to return capital to our shareholders by repurchasing 710,187 shares for an aggregate of $20.9 million during the quarter.”
Based on trends to date this year, the company expects 2007 net sales will be approximately flat to 2% higher than net sales for 2006. The company continues to anticipate earnings per diluted share for 2007 will range between $2.00 and $2.10. Based on more difficult comparisons in second quarter due to the strong performance of Betsey Johnson handbags and the contribution from Rule in last year's second quarter, as well as easier comparisons in the second half of the year due to the weaker performance of these products in last year's third and fourth quarters, sales and earnings are expected to be more heavily weighted toward the second half of the year relative to 2006.
Mr. Karson concluded, “Based on our first quarter performance and current visibility into sales trends, we are cautiously optimistic about 2007. We continue to be committed to executing the fundamentals that have historically driven our business and been at the core of our success. We will remain focused on leveraging the strong foundation developed in the last year through the successful diversification of our business model and product offerings to generate long-term growth and further evolve Steve Madden toward becoming a global branded lifestyle company.”
