Steven Madden, Ltd. reported Q4 earnings decreased 53.2% to $4.7 million, or 23 cents a share, from $10 million, or 45 cents, a year ago. Sales slid to $102.7 million from $114.1 million, reflecting the weak economic environment as well as the absence of any major footwear trends.
Gross margin declined to 37.9% from 40.8%, reflecting margin declines in both the wholesale and retail divisions. Operating expenses as a percent of sales were 34.0% versus 29.6% in the same period of the prior year, due primarily to reduced leverage on lower sales versus the prior year period as well as expenses associated with new store openings.
Operating income for fourth quarter decreased to $7 million, or 6.8% of sales, compared with operating income of $16.7 million, or 14.6% of sales, in the same period of 2006. Revenues from the wholesale business were $63.5 million compared to $76.6 million in the fourth quarter of 2006 due to a challenging selling environment with a lack of strong direction in footwear fashion trends as well as the weak macroeconomic environment. Gross margin in the wholesale business declined to 26.8% from 31.5% in the prior year's fourth quarter, due primarily to higher markdown allowances relative to the year ago period.
Retail revenues increased 4.6% to $39.3 million compared to $37.5 million in the fourth quarter of the prior year, due to sales from new stores. Same store sales decreased 0.1% versus an 11.8% increase in the fourth quarter of 2006, an improvement relative to the first three quarters of 2007 which was driven by a solid response to the company's boot offering as well as increased promotional activity. Retail gross margin decreased to 55.9% from 59.9% in the comparable period of the prior year due to the increased promotions. During the fourth quarter of 2007, the company opened two new Steve Madden retail stores and one Steven store and closed two Steve Madden stores.
For the full year fiscal 2007, net sales were $431.1 million compared to $475.2 million in fiscal 2006. Net income totaled $35.7 million, or $1.68 per diluted share, for the year, which includes a one-time benefit of $2.9 million, or $0.13 per diluted share, resulting from tax savings related to prior periods, partially offset by a one-time charge for prior-year customs duties of $1.2 million pre-tax, or $0.03 per diluted share, both of which were recorded in the third quarter of fiscal 2007. Excluding both one-time items, net income in 2007 totaled $33.6 million, or $1.58 per diluted share, compared to $46.3 million, or $2.09 per diluted share, in fiscal 2006. The company opened seven stores and closed two stores during 2007, ending the year with 101 retail locations, including the Internet store.
“Our performance for the fourth quarter and full year reflects soft consumer spending, which worsened during the holiday season, as well as the continued absence of major fashion footwear trends,” commented Jamieson Karson, chairman and CEO. “While results for the year were not where we wanted them to be, we were able to manage through a difficult environment and were pleased to have generated growth in Madden Girl and our Daniel M. Friedman accessories division. Further, our innovative design team, led by Steve, continues to focus on the development of exciting new styles for our customers. We are particularly pleased with the initial positive response to Steve Madden's Fix, our new line of sneakers. With our proven and diversified business model, we believe that we have a solid foundation in place that positions us for sustained growth as economic and business trends improve.”
Arvind Dharia, CFO, commented, “We ended the year with $109.9 million in cash, cash equivalents, and marketable securities, no debt, and total stockholders' equity of $215.3 million, which demonstrates our ability to maintain our very strong financial position during a difficult macroeconomic environment as we continue to position our business for long- term growth.”
Looking ahead, the company said that based on current visibility, the company expects 2008 net sales will be flat to an increase of 2% compared to fiscal 2007 and earnings per diluted share will range between $1.45 and $1.55, excluding any impact from share repurchases. Due to easier comparisons in the back half, the company expects sales and earnings to be more heavily weighted to the second half of 2008 relative to 2007.
In a separate release, the company today announced the conclusion of its strategic alternative review process and the decision by the Board of Directors and management to complete a modified “Dutch Auction” tender offer to repurchase up to 2,600,000 shares of its common stock, which represents approximately 12.9% of the outstanding shares.
Karson concluded, “Given the persisting weakness of the broader macroeconomic environment, we are maintaining a conservative approach to managing our business in the near-term. In the coming year, we remain focused on enhancing our retail business and leveraging our Steve Madden and Steven retail stores to truly showcase the company's brand and products. Further, with the successful launch of Steve Madden's Fix in the fourth quarter, we are expanding our distribution of this new line throughout the year. In addition to our growth opportunities within footwear, we will also continue our penetration into other merchandise categories through our Daniel M. Friedman division and select license opportunities. We remain confident in the long- term prospects of the company.”
